Danger, Danger Republicans!
How to avert a financial reform disaster.
11:41 AM, Apr 15, 2010 • By MATTHEW CONTINETTI
The White House and Congress are moving ahead with their plans to reform the financial system. At issue is the Dodd bill's resolution authority to break down large and complex financial institutions on the verge of insolvency. Mitch McConnell says the authority, which would include a $50 billion fund to pay for the resolution process, would incentivize Too Big to Fail and lead to more bailouts. President Obama says that's baloney. So does Senator Mark Warner:
Warner isn't exactly a pitchfork populist. He made a fortune in telecoms and is a business friendly Democrat. He's someone to take seriously.
Memo to Republicans: you are about to step into a political trap! The GOP has focused so much on the downsides of the Dodd proposal, it hasn't made it clear that it supports sensible reforms to correct the imbalances that led to the 2008 financial crisis. Nor have the Senate Repubilcans forcefully outlined detailed proposals of their own. (The House Republican alternative is here. John McCain's proposal to reinstate something like Glass-Steagall is here.)
Now, maybe the Senate Republicans don't support reform at all. Maybe they just want to deny Obama a victory and wait until they have more power in the next Congress. That would be a shame, because tacitly backing Wall Street on this issue erodes the GOP brand as the People's Party. Also, it completely misjudges where the Republicans get their support. Michael Barone:
I'd feel more confident about the GOP's position if I saw McConnell or Kyl cite e21's Chris Papagianis on the Senate floor and on cable talk shows. Papagianis backs a modified version of the Hart-Zingales reform proposal, wherein credit-default swaps on secondary debt act as a market-based trigger for limiting risk. (If you understand that last sentence, you probably make a lot more money than I do.) Something like Hart-Zingales, when combined with an updated bankruptcy code, a Consumer Financial Protection Agency, and a well-regulated and transparent derivatives exchange, would count as "real change." Which is something the big investment banks desperately need.