On Wednesday, congressional Republicans tried to pull a fast one.
Just hours after being sworn in for the 114th Congress, House Republicans introduced a bill with an Orwellian title – “The Promoting Job Creation and Reducing Small Business Burdens Act,” – complete with its own social media campaign under the (as it turns out, ironic) hashtag “#FreeMainSt”.
The legislation was a melange of 11 bills – all meant to weaken regulation of banks and the financial industry – that were written in the last session of Congress and never went anywhere. The new Frankenbill of loose ends was wrapped into a neat package and presented to a new Congress without debate.
House leaders put this hastily arranged bill, HR 37, onto the floor on one day’s notice, without going through the Financial Services Committee or giving members the opportunity for amendment. They wanted a quick, quiet passage on the second day of the session, teeing it up for the new Republican majority in the Senate to tackle.
Spoiler: the bill failed. But it was a close call, and it’s worth examining the quiet plot to pass a piece of legislation that have done incalculable damage to our ability to police fraud among companies and in the banking system.
The most noteworthy of these bills would further delay key sections of the Volcker rule for two years. Right now, the Volcker Rule is the closest thing to the old, lamented Glass-Steagall law that forbade banks to take bets with customer savings deposits. The Volcker rule is a ban on Wall Street banks’ risky trading when they do it for for their own profits instead of for clients. The Frankenbill would look to keep Volcker hibernating for another two years. Under the legislation, banks would not have to sell off billions in collateralized loan obligations – typically packages of corporate debt – until 2019.
But the bill also benefited a variety of other financial players and corporations by exempting them from publicly reporting key pieces of financial data. One part removes the rule requiring companies to post collateral for their derivatives trades. Another exempts merger and acquisition brokers from registering with the Securities and Exchange Commission. Other pieces grant similar exemptions to savings and loans, so-called “emerging growth companies”, and investment advisers for small businesses.
Yet another measure stops private corporations from having to disclose information about company stock plans to its own employees. And a final one dispenses with the subtlety and simply forces the SEC to eliminate a number of regulations, to “reduce the burden” on smaller corporations.
You get the idea. The clear intent is to limit the reporting companies must make to regulators.
To cut back on this reporting would be a mistake. Wall Street can engage in more questionable activities if it is allowed to do so in the dark.
This data is the lifeblood of regulation, used to ascertain patterns and crack down on corporate misbehavior and find fraud. Without it, the ways in which financial firms make profits and rip off their counterparts becomes opaque.
The Frankenbill didn’t come out of nowhere. Wall Street-friendly Democrats had lent support to many of these measures in the past.
But the debate over the so-called “CRomnibus” has really changed attitudes within the Democratic caucus, and the credit goes to a group of Democrats led by Elizabeth Warren.
In the CRomnibus, passed at the tail end of last year, was a provision written by Citigroup lobbyists that repealed a section of the Dodd-Frank Act. It freed big banks to gamble on risky derivative trades using FDIC-insured customer deposits. That would put the savings of ordinary Americans on the line whenever banks made a losing gamble in the markets.
Reform-minded legislators – from congresswoman Maxine Waters of California in the House to Warren in the Senate– railed against the attempted repeal. Their movement, as it picked up speed, drew in Nancy Pelosi and other prominent Democrats. It was an unusual revolution.
Waters and Warren lost that fight, but they made a big enough stink to nearly torpedo a must-pass budget bill. And they put Democrats on notice that handouts for Wall Street will be thrown into the harsh light of day.
This mini-revolt changed the calculus for Democratic members who might otherwise support deregulation. The ire of their base voters and the party leadership outweighs the positive benefits from Wall Street campaign contributors.
Democrats rushed in to squash the Republican Frankenbill. HR 37 came up for a vote Wednesday under a suspension of the rules, meaning that it needed a two-thirds vote. So Democrats would have to supply several dozen votes for the bill to pass.
Waters and her pro-regulation colleagues got right to work, publicizing the bill and sharply criticizing the priorities of House Republicans.
“It has not yet been 24 hours since members of Congress have been sworn in,” said Democrat Dan Kildee, of Michigan, on the House floor, “When Main Street had its needs we couldn’t get a hearing. When Wall Street asks, we suspend the rules without taking a breath.”
House Democratic leader Nancy Pelosi termed it a “brazen attempt” to “sneak through a New Year’s present to big banks.”
Ultimately, enough Democrats shied away from the bill for it to fail by a vote of 276 to 146. Only 35 Democrats voted with all but 1 Republican in favor. The lack of two-thirds support means that the bill would not survive a presidential veto either.
“I am very pleased that House Democrats joined together to successfully fight against this Republican effort, a strong rebuke to their strategy of moving controversial legislation in the dead of night,” Waters said.
That doesn’t end the fight. The entire plot might have been only a trial balloon. Republicans may have merely wanted to gauge support among Democrats for deregulation through this test vote. They did still get a handful of Democratic votes, and they could likely pass the bill under regular order, requiring only a majority vote.
Furthermore, the strategy for Republicans appears to be the one they used for the CRomnibus: attach pro-Wall Street bills like this to other must-pass legislation, like barnacles onto a ship, so it will sail into law.
Indeed, the GOP can still claim “bipartisan support” for these actions when they choose to push them into some other vehicle.
However, that strategy works better when done in virtual secrecy. Pro-reform Democrats have their own strategy, to persistently highlight every one of these bills, so the public recognizes their significance. Then, like cockroaches scurrying away from a bright light, the legislation’s champions will disappear.
This won’t always work, especially if the White House acquiesces to the GOP hostage-taking gambit. But it gives a fighting chance to the too-small coalition of politicians in Washington who don’t want to see the financial industry re-start their fraud machines and evade strict oversight. They’ll need to keep alert, because Republicans have shown they won’t wait a single day to reward their pals on Wall Street.
Wall Street types often talk about their “return on investment,” meaning the size of the profits they can extract from a particular investing venture. The financial industry believes they can get an astronomical ROI by funding elections for key members of Congress. The costs of donating to candidates pale in comparison to the billions that can be made when those elected officials vote to deregulate the industry.
But this isn’t the late 1990s any more, and politicians cannot funnel giveaways to Wall Street without scrutiny. A more ideologically coherent Democratic caucus, led by an aggressive financial reform rump, has made anything that offers bankers a helping hand toxic. And even bills that gathered lots of Democratic support in the past have less of a chance now. Democrats are outnumbered and may not be able to stop the flood of deregulation forever. But reformers are winning the internal battle for how to handle Big Finance.
This article was written by David Dayen, for theguardian.com on Thursday 8th January 2015 15.00 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010