Shaping the Future of Finance, at 3:18am

It was sausage making at its grizzliest.

As most of America slept Thursday night, a few dozen members of Congress, their army of aides, and a handful of reporters sat in a large wood-paneled room where the future of the financial industry would be decided. The final day of the rushed conference committee to meld together a few thousand pages of new regulation began at 9:45am earlier that morning. The lawmakers finally completed work at 5:39am on Friday.

Why did these politicians force their staffs and the journalists who chase them to work so late? They had promised President Obama that the bill would be finalized prior to this weekend's G-20 meeting in Toronto. The President wanted to be able to tell world leaders about the new regulations the U.S. is on the verge of putting in place. The process this sense of urgency created was simply incredible to watch.

And the best part was that you didn't need to be in the room to witness the historic event: it was all televised by C-Span. So I watched the proceedings, along with probably two or three other concerned Americans, until the very end. I was so fascinated it was hard to look away. With a surreal dreamlike event like this, who needs sleep?

The two most controversial measures were saved until the very end. The Volcker Rule and derivatives didn't get brought up until after 11pm Thursday night. By this time, some in attendance had already begun to leave. With many open seats, proxy votes were necessary for key changes. Of course, those who remained were likely beginning to check out mentally at this late hour. The yawning had begun. In the hours that followed, gallons of diet coke were consumed and snacks were everywhere. At one point, Chairman Dodd (D-CT) was even waving around a half eaten candy bar as he spoke.

It got to the point where debate stopped mattering. Sometimes several politicians might be displeased with how a proposal was written, but so what? They began to realize that the more they complained, the longer they would be there. And God, it was late.

Covered bonds served as a prime example of an important provision that got lost in the night. It passed as a bipartisan measure by the House conferees a few days prior, and they understood the Senate might choose to revise the legislation slightly before sending it back. Instead, the Senate Democrats quietly killed it, because the Treasury and FDIC had concerns. Once House members realized this in the wee hours of the morning, however, they were hardly in a position to fight for this constructive addition to the bill. The Senate promised it would hold a hearing instead.

One of the problems with revising an amendment was procedure. Every time language was changed, the physical bill required revision. That meant aides needed to create a new version, and make copies for all conferees to read and consider before the changes could be voted on. Consequently, after each title was revised, there were lengthy delays while the copy machine slowly killed trees.

A compromise on the Volcker Rule eventually was agreed to very early Friday morning. Then, there were derivatives to deal with. When better to tackle arguably the most complicated aspect of financial regulation than after some 15 hours of committee, in the morning's single-digit hours? As was expected, Republicans protested that the aggressive rules would harm the U.S. economy. Naturally, Democrats responded that a crack-down on Wall Street was necessary. With a minority of votes, Republicans could do little more than shake their heads.

But House and Senate Democrats didn't always see eye-to-eye. Some changes were necessary on the fine details of the legislation. At one point, the copying seemed to be taking longer than usual, as the delay wore beyond the usual 20 minutes. Then, Chairman Frank (D-MA) announced that they had run out of paper, and were searching to find more. From that point forward, paper was a scarce resource, so only a few copies of each revised section were made, as the lawmakers learned to share. Perhaps one day Congress will discover projectors and computers, which would allow them to revise language real-time on a big screen and then instantaneously download the changed documents to view on their laptops or tablets. But maybe that's just crazy futureland talk.

Towards the end of the incredibly long session, Frank announced that the Congressional Budget Office determined that this new regulation would cost $22 billion. A few billion of that would be paid for by the existing budget. But the rest would have to be covered by new taxes or cuts, since the House is under a constraint where any new spending must be paid for. So as the financial industry slept early Friday morning, the Congress levied a $19 billion tax on their companies. Banks with assets of $50 billion or more and hedge funds with assets of $10 billion or more would pay for their regulation, over the course of five years.

The process wore on. At one point the politicians were having trouble interpreting the language in the bill. Possibly too tired to think clearly, they turned to their aides, who began explaining the legislation to the group. Holding up a microphone for one staffer to inform the nation's leaders how a new definition affected the legislation was perhaps the most constructive thing Sen. Corker (R-TN) had done in hours.

Around 5:00am, Rep. Kanjorski (D-PA) must have become restless during one of the prolonged paper copying breaks. It suddenly occurred to him that maybe the bill should be a tribute to its chief sponsors, Dodd and Frank. So he suggested the bill's name be formally changed to be called the Dodd-Frank bill. The proposal was accepted with applause.

Finally, the last few details were compromised between the House and the Senate. The last votes were hastily held, and the reconciled bill was completed. The Democrats felt triumphant. They believed they had crafted a strong regulation package that would make the financial industry in the U.S. more stable for years to come. Republicans were doubtful.

As Wall Street awoke Friday morning, their fate was sealed. They can only hope that the whims of tired politicians working long into the night past the hour when their minds are sharpest didn't screw up their industry too badly. As staffers work this weekend to produce the clean copy of the final bill, we will all begin to find out.