Over the weekend, Sens. Chris Dodd and Bob Corker took a trip to Honduras and Costa Rica, visiting with political leaders and assessing the political situation after a coup disturbed Honduras' government last year. But the more pressing issue is closer to home: Republican Corker and Democrat Dodd are enmeshed in negotiating a bipartisan bill on financial regulatory reform.
Their conversation began after Dodd, the chair of the Senate Banking Committee, gave up on discussions with the ranking Republican, Richard Shelby, concluding that their disagreements were irreconcilable. At that point, Corker jumped into the fray, offering to try to meet Dodd halfway. Dodd, who is retiring this year, is hoping to cement his legacy with bipartisan regulatory reform It's a laudable move by Corker, a conservative Southerner, whose willingness to talk policy gives him a reputation as one of the more serious members of his party.
Without questioning Corker's apparent sincerity -- his discussions about dissolving insolvent banks during a crisis with another committee Democrat, Virginia's Mark Warner, have been productive -- the truth is that whatever may come out of this negotiation will not be as effective as the bill Dodd could produce with Democrats alone. If bringing Corker along with no sign other Republicans will follow costs the Democrats key provisions in the bill -- most notably, an independent Consumer Financial Protection Agency and restrictions, like the Volcker Rule, on the scope and size of financial institutions -- then these reforms won't be worth the time it will take the Senate to pass them.
Financial reform simply operates in a different political space than most other legislative efforts we've seen this year. Unlike health-care reform efforts, which have been divisive, shoring up our financial system to avoid new disasters remains popular with the public but only if it represents real reform. This should make it difficult for Republicans to continue their political strategy of obstructing the Democrats' agenda -- even as they promise to kill the legislation in exchange for the support of the financial industry. Top strategists like Frank Luntz are urging GOPers to oppose the legislation by linking it with bank bailouts.
But less attention has been given to a response to Luntz's strategy from Democratic pollster Celinda Lake, who observes that the conservative attack is predicated on the bill being a compromised mush of lobbyist handouts. In this case, she says, good politics is pushing the best policies.
"If we let the policy suffer by giving in to lobbyists or bargaining away our principles, we will suffer politically," Lake wrote. "This is the time and place to stand up and be counted and make a stand on behalf of working Americans everywhere."
That means closing loopholes and making clear that this bill has what it takes to protect average citizens as well as restricting banks' bad behavior. The best way to do that is to emphasize what a Consumer Financial Protection Agency will do for consumers: protect them from onerous credit-card and overdraft fees, make their mortgages and other contracts understandable, and lessen the chances that financial products will blow up in their face. The CFPA makes this bill understandable to average voters who desperately need help navigating the consumer-credit market.
Perhaps not surprisingly, the CFPA is also the main Republican objection to the bill. Conservatives complain about creating a new bureaucracy even though the proposal actually streamlines and consolidates seven different bureaucracies and 17 different statutes. Their compromises range from laughably ineffective -- increasing the resources of the seven existing offices with responsibility for consumer protection -- to a devil-in-the-details legislative challenge -- somehow carving out an independent office within the Treasury Department.
Similarly, Republicans on the committee oppose some of the broader restrictions on the banks, particularly the Obama-endorsed Volcker Rule, which would mandate that commercial banks cannot speculate with their own money or house hedge and private-equity funds. Other provisions opposed by the conservatives include restrictions on leverage, higher capital limits, and efforts to include non-bank financial institutions in a systemic risk regime. These, though, are the exact measures needed to make the banking system safer and prevent future crash-bailout cycles.
If the Democrats can pass out of committee the bill that includes a CFPA and new restrictions on risky behavior, why shouldn't they, even if it costs them Corker's vote? The central reason is that several Democrats on the committee, notably Tim Johnson and Jon Tester, are tight with the financial-services industry and are loathe to cross it without bipartisan cover. But if Dodd, who can afford to lose two Democratic votes in committee, can maintain some discipline with the help of Senate leadership and the Obama administration, there's every reason to believe a partisan bill in committee will become bipartisan on the floor -- especially because many on both sides of the aisle see agreement on several of the technocratic and institutional fixes in the bill.
A plurality of voters believes that that there is too little regulation (49 percent) and too little oversight (44 percent) of the financial sector. It's hard to imagine Republicans voting en bloc against financial reform legislation, especially if it has strong, clear provisions to protect borrowers as well as the economy and lacks loopholes for its opponents to demagogue. While the banking committee is stacked with conservative stalwarts, it's hard to imagine that the Maine moderates, Sen. Scott Brown of Massachusetts, or Sen. George Voinovich of Ohio (all of whom crossed the aisle recently to vote for a new jobs bill) would get caught voting against financial reform, much less filibustering it.
This strategy depends on the Democrats' willingness to forthrightly defend their principles and call out, by name, those who are siding with the banks, whatever their party affiliation. That doesn't mean more populism from the president, who simply doesn't wear it well. It means supporting a bill that fixes the problems on Wall Street and identifying those who oppose it as allies of the banks. While administration officials have been promising this strategy for a long time -- indeed, they remain blithely confident in their ability to pass reform legislation -- we still haven't seen the president or anyone else say that those who oppose this bill are siding with the banks. Let's hear it.