Between a rock and a hard place
Wall Street reform: Democrats want it, Republicans want it, the American people want it, and hey, the Tea Party activists even want it. Therefore, it shouldn’t be such a problem getting a strong bill through Congress, should it? Well, as they say, the devil is in the details. More specifically, there are two pieces of the proposal at the center of this debate: a new regulatory agency devoted to consumer protection and the so-called “resolution authority,” and a $50 billion fund financed by fees on big banks that would, according to CNN [“Congress divided over financial reform bill,” April 18], provide a mechanism to pay for the orderly closing of a future Lehman Brothers-style failure. Of course, the Republicans, most notably Senate Minority Leader Mitch McConnell (R-Ky.), are opposing these provisions as vehemently as they opposed the Democrats’ approach to health care reform. However, while the health care opposition could be considered legitimate, the Republicans need to step carefully in their opposition to financial reform, as the provisions drawing the most fire right now are the ones that this country desperately needs.
The Consumer Finance Protection Agency (CFPA), as it is being called, would ideally be able to prevent banks from luring people into those sub-prime loans that caused so much trouble for the economy when they started to go south, causing the recession. Further, this agency, or an existing regulator, must be given the power to regulate the complex securities such as credit default swaps that few people can truly claim to understand. Institutions that are Too Big To Fail, or TBTF, also need to be dealt with in a way that reduces the ability of these few companies to have a drastic effect on the economy should they get in trouble and face the risk of collapse. I can understand the desire to prevent another round of bailouts, but the Republicans’ constant repetition of this talking point even after it has been proven false just makes me wonder.
Republicans are alleging that the proposed fund is nothing more than ensuring that there will be another round of bailouts whenever companies need them. The Democrats leading the reform effort, from President Obama and Sen. Chris Dodd (D-Conn.) on down, are all saying that this is not true at all. I tend to believe them, only because you have to admit that Senator McConnell’s outright opposition to the reform bill being announced after he met with several Wall Street bankers seems pretty suspicious. Sure, the GOP has traditionally been the party that favors a free-market economy, but isn’t being seen as in favor of the status quo on Wall Street the last thing a member of Congress wants with so much anger directed at these bankers?
Thus, McConnell and the rest of the GOP are in a bind; if they hold out on their position as steadfastly as they did on health care, it will be so easy to label them as being too friendly toward the very people who are being popularly blamed for the financial crisis. On the other hand, if they capitulate too quickly, then they will be seen as being soft and foresaking conservative principles. This label would be particularly effective with respect to the CFPA; Republicans under President George W. Bush created the Department of Homeland Security, one of the greatest big-government accomplishments of the past 50 years, and such fears will certainly be brought up about the CFPA if they haven’t already.
However, the Republicans may have a way out with this: According to another CNN article [“White House scrutinizes Senate bill’s bank liquidation fund,”April 17], the White House is apparently seriously considering having Senator Dodd remove the $50 billion fund from the bill. If that’s what it takes to make it a bipartisan bill, so be it. However, having a way to deal with TBTF effectively while minimizing risk to the taxpayers and the broader economy is absolutely critical to ensuring we do not have this debate again in 10 years.