Michael Scherer beats me to a story I've been working on with this profile of Sen. Ted Kaufman. A former top aide to Vice President Joe Biden, Kaufman is holding his old boss' seat until this fall's election provides a permanent replacement. Kaufman has been making waves on financial reform issues -- particularly with this series of speeches -- and I think this paragraph gets at exactly why that's interesting:
As a policy matter, Kaufman's prediction is heavily debated among economists. But as politics, his critique threatens to undermine the White House's finely tuned election-year story line. To hear President Obama or his aides tell it, the coming Senate debate on financial regulatory reform will offer a clear choice to voters this fall between most Democrats who are defending the interests of Main Street and most Republicans who are in the pocket of Wall Street. Kaufman, by contrast, argues that neither party has yet shown much seriousness about undoing decades of deregulation, and nonregulation, that created the conditions for the financial collapse in the first place.
While I don't agree with all of Kaufman's policy critiques, that he can highlight the many substantive reforms being left on the table raises serious questions about the Democrats' reform efforts. I have worried that Democrats may be overselling their financial reforms for political purposes for some time now. In particular, I think his criticisms of resolution authority are very weak. The FDIC has done its homework on this issue over the last year, and while FDIC sources were telling me in early 2009 that they weren't sure if they could handle putting an investment bank in receivership, now they say that they're up for the task after further study and with new authorities. Even FDIC Chair Sheila Bair, who has done some of the best work during the crisis, says so in this op-ed.
That said, there are still so many open questions, particularly on derivatives and regulatory discretion, that make the triumphalism coming from the White House misguided at best. The failure of policy-makers from the administration and Congress to justify their ideas on policy grounds or identify political obstacles to enacting stronger reforms suggests they lack either vision or gumption.
Update: I have adjusted the language in the post slightly to make clear that the political anaylsis here is my own (and Scherer's); Kaufman has confined himself to a policy critique.
-- Tim Fernholz
