Awkward! Will The Dems Scrap Tough Derivatives Reform With The Cameras Rolling?

Representative Barney Frank (D-MA)
Start your day with TPM.
Sign up for the Morning Memo newsletter

As the House and Senate begin the task of ironing out differences between their financial reform bills, Democrats are faced with a problem. Can they scale back a tough provision of their own — a measure in the Senate bill to force financial companies to break off their derivative swaps desks into separate entities — while the cameras are rolling?

Theoretically, there’s enough support among Democrats — including Sens. Chris Dodd (D-CT) and Mark Warner (D-VA), who’s expected to be named to the panel — and Republicans to remove or replace tough derivatives reform. The question is whether they have the courage to do so in front of television cameras.

Democrats are putting themselves and Republicans in front of TV cameras as they iron out the differences between House and Senate legislation. But by making the deliberations public–a move that’s at least in part designed to put Republicans in the uncomfortable position of siding with big banks–Dems may risk exposing their own unwillingness to truly bring the hammer down on Wall Street.

Formal conference committees are notoriously contentious affairs, and for that reason, most of the deal making that goes on between parties and chambers of Congress occurs in private. In fact, it’s become more common in recent years for the majority party to eschew a formal process altogether. This time around, though, Democrats, led by House Financial Services Chairman Barney Frank, are pledging to put the whole thing on C-SPAN. Or at least they’re toying with the idea. That way, any deal reached behind closed doors would have to be sanctified with a vote, creating a permanent, public record of who sided with whom on all aspects of reform.

But therein lies a problem for Democrats.

All efforts to scuttle the derivatives provision have thus far failed, largely because the politics haven’t allowed legislators to side so obviously with Wall Street. And there’s no doubt that Wall Street wants it axed: lobbyists and other industry reps aren’t shy about attacking the spin-off provision, and have begun threatening, anonymously, to make Democrats feel fundraising pain if they let it survive.

But for Democrats, it goes beyond banks.

Not only would Democrats (and Republicans) have to vote with Wall Street to kill spin-off. They’d also be doing electoral harm to Sen. Blanche Lincoln (D-AR)–the author of the provision, who will square off with Arkansas Lieutenant Governor (and fellow Democrat) Bill Halter in a run-off election on June 8. Lincoln has been selling herself to voters on the strength of her Wall Street reform proposal. And that, to a great extent, has tied her colleagues’ hands–it’s hard to run on a platform of reining in Wall Street, when your own party nixes your proposal. Presumably any decisions regarding derivatives would be delayed until after her primary is over. But even then, if Lincoln survives, she’ll still be saddled with a narrative that she only got tough on big banks when her political career was in jeopardy…then quickly reverted to doing their bidding.

Of course, both the House and Senate bills are long and far-reaching, and the conferees will have to take up a whole host of other issues. It’s likely, too, that the final package the President signs will be far stronger than most veteran Congress watchers ever expected. But many critics (particularly on the left) hold that, though the new rules will do some good, they lack the sort of fundamental reforms–typified by the spin-off provision–that are required to eliminate the threat Wall Street poses to the economy. In that way, the fate of the spin-off provision will tell us whether Democrats are truly as fearless of Wall Street as their harsh rhetoric implies.

Editor’s Note: This post has been revised since it was first published.

Latest DC
Comments
Masthead Masthead
Founder & Editor-in-Chief:
Executive Editor:
Managing Editor:
Associate Editor:
Editor at Large:
General Counsel:
Publisher:
Head of Product:
Director of Technology:
Associate Publisher:
Front End Developer:
Senior Designer: