Financial regulatory “reform” has been wending its desultory way through Congress for quite a while, and one can lose track of where things stand and what’s important.
But there’s a vote scheduled for the Senate floor today that matters. It will be on an amendment—offered by Sen. Sessions—that would strike the entire Orderly Liquidation Authority (OLA) from the Dodd bill. It would instead make needed adjustments to a few provisions of the U.S. Bankruptcy Code to make it more flexible to deal with the failure of large financial firms (such as Lehman). The bankruptcy code amendment is clearly a superior alternative to OLA, which scraps the Code, the primary vehicle to reorganize companies for over a century, and replaces it with a wholly untested process to seize firms that are merely in danger of default. It replaces the Code’s strict adherence to the rule of law with a system governed by the FDIC, which is given incredibly broad discretion to treat creditors as it wishes. This is a giant power grab for the FDIC and Treasury, who could use their new powers to tug the strings of our country’s largest financial institutions like a puppeteer.
It’s increasingly clear in the age of Obama that two very different visions of the relation of the private sector to the state are competing to shape the future of this country. With respect to financial reform, this amendment, more perhaps than any other, clarifies and signifies what’s at stake in this debate. Whether or not the amendment passes, if Republicans unite behind it, they will show voters the choice in 2010 and 2012—not the status quo vs. reform, but “reform” that would further increase the arbitrary power and scope of government vs. real reform that would safeguard the financial system in accord with limited government and the rule of law.