The Status of Financial Reform

As I mentioned yesterday, Senate Banking Committee Chairman Christopher Dodd (D-CT) will release his revised financial reform proposal on Monday. Yesterday, he announced that he had abandoned bipartisan talks and will go forward without Republican support. While the move came out of nowhere, there's been some reporting today on what's going on here.

Several reports indicate that Dodd simply became impatient with Republicans. Although progress was being made, it was just taking too long for Dodd's liking. How much longer would a bipartisan measure have taken? The Wall Street Journal's Real Time Economics reports that Senator Bob Corker (R-TN) says that the stickiest issue was derivatives reform. That section, being written up by Jack Reed (D-RI) and Judd Gregg (R-NH), was still several weeks off. He sees derivatives regulation being handled with an upcoming amendment, as a result.

I'm trying to figure out: why is Dodd in such a hurry all of a sudden? The Senate Banking Committee has had over a year to get their financial reform bill passed. Yet, Dodd waited until November to release his version -- more than a year after the climax of the financial crisis. Suddenly, he wants to forego taking the time to ensure he can get a bill that will actually pass by trying to push his version though committee?

For starters, the measly one week Dodd intends to allow for markup is a very short time. I don't remember exactly how long the House's markup took, but I'm pretty sure it was at least a month (for some odd reason the bill's markup page disappeared from the Financial Services Committee web site). How much can you change a 1,200-page bill in one week? Very little. And that's what Dodd must expect. He doesn't need it to change much to get it through the committee -- it consists of 13 Democrats and 10 Republicans. Majority votes are easy for his party.

The Senate floor will be an entirely different story. There, he needs 60 votes. It doesn't appear that he will have them. His decision to move forward prematurely has already spurred his sole Republican ally Corker. Without Corker, I think it will be very, very difficult to get even a single Republican on board. And there's no telling if all 59 Democrats will even go along. Like with health care reform, some may want Republican cover -- especially in an election year.

Of course, it will partially depend on what this bill actually looks like. I certainly haven't seen it, but if any of Dodd's staff would like to leak me a copy this weekend, my e-mail can be found above! If the bill does incorporate enough Republican ideas, then it's not impossible that he gets a GOP vote.

I really don't understand the hurry on a broader level. It's only March. Sure, there's an April recess, but then he's got all summer and most of fall. Some Senators' focus may shift to midterm elections at that time, but several months still seems like plenty of time to get a bill though. One theory is that Dodd worries that it may get harder for Senate Democrats to vote for something controversial as the election year wears on. I can kind of see that, but I also don't see how telling your constituents, "I voted to crackdown on the Wall Street banksters!" hurts your chances of election much in November.

From the Republican side, however, I can't see much political capital gained by casting a single vote in favor of the reform bill at this time. Their Democrat opponents can claim that they're just cozying up to Wall Street, but Republicans can just retort that they tried to work on a bipartisan bill, but just like with health care reform, ultimately Democrats decided to move forward without them. They could continue: "Dodd left us behind, after a tremendous effort on our part. And we had our own proposal too -- we just worried that Democrat's version would damage the already fragile U.S. economy."

Whether that's true or not is somewhat irrelevant in terms of political strategy: financial regulation is some of the most complicated stuff out there. The subtleties of this proposal versus that one will be mostly lost on the average American. So most voters already feeling alienated from Democrats may find this plausible. It just matters what Republicans think voters will believe.

All-in-all, I remain unconvinced that this was a smart move by Dodd. It could result in the 111th Congress not passing a financial reform bill at all -- which I never thought was a real possibility until this week. Unless he takes special care to include significant Republican amendments to the bill when it's being considered on the Senate floor, it may have an even more hopeless fate than health care reform. At least some version of that passed in the Senate. Financial reform may not even get that far.