Senate Democrats forced financial-reform legislation to the floor this week, past a Republican caucus intent on filibustering the bill. The GOP, joined by Democrat Ben Nelson, blocked the overhaul three times before conceding the legislation should proceed through an open amendment process. Thursday night, TAP spoke with two Democratic senators who have been deeply involved with the effort, Ted Kaufman and Mark Warner.
Kaufman, who was Vice President Joe Biden's Senate chief of staff before being tapped to finish the last two years of his boss' term, has offered a progressive critique of the bill that proposes to shrink the financial sector.
You and Sen. Sherrod Brown have proposed an amendment that would cap the size of the largest banks and, in effect, break them up. How do you sell this to people who are leery of what seems like a radical move?
First off, we've broken up things before. We broke up Standard Oil, we broke up AT&T, we broke up the accountants, too. A lot of the changes we're talking about, the mergers, are just new. When you look at the reasons these banks are so big -- and you know how big they are -- remember the reason JP Morgan Chase is so big is because they bought Washington Mutual when it was in trouble, and Wells Fargo bought Wachovia, and Bank of America bought Merrill Lynch [during the crisis]. It is pretty straightforward, now that these are back on their feet, that it makes sense to break them up.
The real thing that we have to do here is make sure we don't have institutions that are too big to fail.
These things are massive, some of them are over $2 trillion in assets, [and] trying to resolve them [if they fail] will be very, very difficult.
If your amendment doesn't pass and this bill doesn't break up the banks, is the legislation still worth passing, or should progressives say, scrap this and try again next year?
Look, this is going to be a process. We have to pass something. I think it would be good to do what [Sens.] Maria Cantwell and John McCain want to do: Reinstitute Glass-Steagall for these banks [to separate commercial banking from riskier investment banks]. I've been doing this for a long time. At the end of the road, you go to the floor of the Senate, you either vote yes or no. … We are a long way from having a bill or even knowing what the ultimate bill will look like.
What else is missing in the bill that you hope to see added?
My No. 1 priority would be to reinstitute Glass-Steagall and pass the Brown-Kaufman amendment. [There is an] amendment by Sens. Merkley and Levin that I support that would really make sure, at the very minimum, that the bill includes a real Volcker rule, which would say that banks couldn't be involved in proprietary trading.
One of your staff was telling me the other day that when you first started to revisit this issue, you were surprised by what had changed since you were at business school in the '60s. What surprised you most?
First off, the idea that you would have commercial banks, investment banks, and insurance companies all in the same roof. Glass-Steagall was an article of faith when I was in business school: Commercial banks were created to be low-risk organizations; that's why we have them FDIC-insured. To allow them to get into investment banking, which is a high-risk, high-return business, just has never made any sense to me. … We went through a period where the idea was prominent that "we don't need regulators, this is free enterprise." As Alan Greenspan said afterward, he was dismayed because self-regulation didn't work, which I never thought would work.
What's your take on Republican opposition to this bill over the last few months?
I've got a rule that I got from the guy I worked for, Vice President Biden, that I don't spend a lot of time trying to figure out what other people's motivations are. That's one of the things that's really destructive to the process.
I think they should be helpful, just coming out of their own political interest. There's never been a strong political affection for Wall Street in the parts of the map that are red. Where were the populists from? Sen. Johnny Isakson of Georgia, who I really like a lot, he and John Cornyn of Texas, and Sen. Shelby of Alabama came out a few weeks ago and said we really should look at breaking up the banks. The kind of alliances that went on with the recovery act and health-care reform aren't really operational for this issue.
Just looking at the Republican states, see what the folks in those states feel about Wall Street banks. Clearly there's a Republican Party position, but I think they're in for a big surprise when a whole bunch of folks who are on the more progressive side of the spectrum come together with people on the very conservative part of the spectrum and all agree we've got to stop "too big to fail" from happening again. What it's going to take is going after the Wall Street banks.