How Big a Deal is Financial Reform?

Tim Fernholz, a blogger at my old stomping grounds, the American Prospect, has a post up attacking my recent column, which objected to the media's tendency to overhype financial reform and, especially, the senators who wrote the bill. Wading through Fernholz's sarcasm and glib condescension, his primary complaints seem to be that I didn't sufficiently explicate my own views (tough to do in a 700-word column), and that finreg, far from being a limited reform package driven by voter anger, is "an argument that our political system is working."

My own views of the bill's substance aren't germane to the point made in the column--that the media, by and large, is overhyping and thereby misrepresenting finreg--and I certainly don't attack it, as he claims. It's a significant bill that does many good things, as far as it goes. But for the record, I think it would be stronger if it included a truly independent Consumer Protection Agency (one that isn't housed in the Fed), limited the size of the banks along the lines of the Kaufman-Brown amendment, empowered shareholders to do more to rein in executive salaries than issue non-binding votes, and in general privileged safety and consumer protection over doing as little as possible to disrupt Wall Street profits. I have enough faith in Wall Street's power to innovate to believe that banks would thrive even under a stricter set of reforms.

Of the authors and the process of passing the bill, Fernholz sneers:

Green's primary complaint, though, is that politicians acted because voters were angry, not because members of Congress are the soul of integrity. This strikes me as an argument that our political system is working -- the whole point is that voters are supposed to force legislators to take action. Does he think that New Deal reforms came about because members of Congress suddenly decided that the common good demanded reform, or because record unemployment threatened to undo the social fabric of the country? While we hope our legislators are people of principle, the idea of some golden age when politics didn't matter is ahistorical at best.

I think that's wrong--and remarkably cynical. Politicians with integrity, who act before they're forced to do so, are rarer than they should be. But admirable examples abound. They just happen not to include Senators Dodd and Lincoln, at least not on financial reform. You don't have to look back at any golden age of politics to find such lawmakers or important examples of their work. Just look at the new health care law, which includes all sorts of far-sighted reforms passed despite public anger.

Lionizing figures like Dodd and Lincoln does a disservice to everybody--to readers led to believe that they're the epitome of probity and judgment, and to the lawmakers who actually do represent it. To me, that's a distinction worth making.