According to The New York Times, Democrats are already making deals with Massachusetts Sen. Scott Brown to weaken the Volcker rule, which is designed to separate federally insured commercial banks from risky speculative activities like proprietary trading and managing private funds. This is not good policy: The Volcker rule is already relatively narrow, limited to several specific business lines; it is not a broad return to Glass-Steagall, which formed a rigid barrier between commercial and investment banking. Weakening the rule would turn it into a farce, and besides, what exactly is the justification for allowing the federal government to backstop investment vehicles limited to the super wealthy -- especially when the people managing those vehicles don't even pay their fair share of taxes?
Irksome as it is, the real question is why all the focus on Scott Brown? Assuming that the Senate voting coalition on the financial-reform conference report will be similar to that of the original Senate bill, two Democratic senators -- Russ Feingold and Maria Cantwell -- could be courted to support the bill in return for strengthening it. Perhaps there is some concern that the two Maine senators who voted for cloture, Oympia Snowe and Susan Collins, will bolt without a third Republican, but that's all the more reason to keep Collins' amendment to increase capital requirements for banks.
-- Tim Fernholz
