I've been predicting it for weeks, and here it comes: Chris Dodd has announced that bipartisan talks on financial regulatory reform have reached an impasse, and the legislative process will move forward without agreement with the Republicans. Much of the discord comes from Dodd's hope of maintaining an independent consumer financial protection agency, though the GOP has long had a policy of not supporting any regulatory overhaul in the financial sector.
All for the best, in my view. The move also doesn't eliminate the possibility of a bipartisan bill; if anything, it makes the chances of a bipartisan bill even stronger. Republicans would be happy to pull a Gang of Six and spend months weakening a regulatory reform bill, publicly dragging it through the mud and then, ultimately, not voting for it. By moving forward on an aggressive bill, Dodd and the Democrats can harness anti-bank sentiment by staking out a clear position and daring Republicans to oppose it. Despite the Frank Luntz memo's newspeak, I just don't think this is a winning issue for Republican opposition if Democrats demonstrate that they are pushing for serious restrictions on the banks.
The worry, though, is whether the rest of the Democrats on the committee can hold together. While Jack Reed and Chuck Schumer (despite his Wall Street fundraising prowess) are both solid on these issues, others -- like Mark Warner, Evan Bayh, and especially Tim Johnson -- are not known as reformers. The question now is whether they calculate that the political incentives of restricting banks outweigh the financial incentives of cosmetic reform. In that effort, some clear lines in the sand from the president would be helpful.
-- Tim Fernholz
