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The populist politics of financial regulation


The more I think about Dodd's financial regulation bill, the more I think the politics are going to be surprising. Its biggest surprise, for instance, is how much power it takes from the Federal Reserve, and how much it does to make the central bank more accountable to Congress. But Fed skepticism has been much more prevalent among Ron Paul supporters and Tea Partiers than members. Indeed, the financial regulation plan developed by Barney Frank was fairly friendly toward the Fed. The financial regulation plan developed by House Republicans was not.

Similarly, the Tea Parties have been, in large part, about how much everybody hates the banks. And what do the banks hate? Well, Dodd's plan. "They're just blowing up everything for the sake of change," moaned Ed Yingling, president of the American Bankers Association. When the Tea Partiers turn their attention to this issue, do they turn against the plan or do they turn against the banks? Will they have a "public option"-level priority in financial regulation reform? If they do, my sense is the ABA won't much like it.

The politics of this, in fact, look to be the reverse of the politics of health-care reform. There, Democrats were fairly united with industry actors, but aggressively opposed by the conservative base, and Republicans ended up siding with their base and their electoral prospects rather than with the pharmaceutical industry. The Republican attack has been populist in nature. On this, you could see the liberal and conservative bases largely agreeing, while industry actors join in opposition. The battle lines might cut the establishment (the Federal Reserve, the banks, etc.) from the grass roots more than they separate the two parties. As my colleague Binya Appelbaum reminds me, "populism" referred to a skepticism of elites setting monetary policy long before it became shorthand for a difference between the left and the right.

Photo credit: By Chip Somodevilla/Getty Images

By Ezra Klein  |  November 11, 2009; 2:43 PM ET
Categories:  Financial Regulation  
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I'm not sure, Ezra, why you're convinced that the conservative base will want to empower what it will consider a massive consolidation and expansion of the regulatory state. "Super-regulator" isn't exactly music to the base's ears, even if you stick "consumer" somewhere in the name.

But I'm prepared to be wrong.

Meantime I'll wonder why there's so little interest among liberal activists in pushing for limits on the size of banks - limits of the kind that are actually going to be tried in England. Returning depository institutions to boring, utility-like safety, while making sure high-flying investment banks are kept small enough that they can be allowed to fail, seems a lot closer to a populist message that might resonate.

Posted by: Sophomore | November 11, 2009 3:02 PM | Report abuse

The American political right wing, both electeds and teabaggers, are far less rational than Ezra would have us believe. My sense is these people will wait to see what Barack Obama is for, then oppose it.

Posted by: zeppelin003 | November 11, 2009 3:14 PM | Report abuse

I'm with zeppelin. On any policy issue of importance, conservatives primarily start from the assumption that Obama must be wrong somehow, and will assume the worst possible interpretations of anything that's proposed. Beyond that, regulation is treated like a dirty word among conservatives, most of whom have a knee-jerk preference for whatever choice involves a less active government.

In short, it's hard for me to imagine how conservatives will get behind regulation.

Whether Dodd's reforms are appropriate or not is something I haven't figured out yet. But I'll bet conservatives already know they won't be lending their support.

Posted by: jeffwacker | November 11, 2009 3:24 PM | Report abuse

Tea Parties have been, in large part, about how much everybody hates the banks.
Huh? From what I saw, the tea parties were in large part opposed to the dem's and Obama giving away all our money in a "socialistic" take over. I don't agree with the socialist take over part, but I hated these bailouts as much as they do.

Posted by: obrier2 | November 11, 2009 3:27 PM | Report abuse

--"[T]he Tea Parties have been, in large part, about how much everybody hates the banks."--

That's a stretch, even for a valley girl like you, Klein.

Posted by: msoja | November 11, 2009 3:36 PM | Report abuse

I agree with the tenor of the comments here, Ezra -- not sure you really grasp the sheer visceral vitriol of red-state, tea-bagger sentiments. (How could you? You've never lived in a red state, right?) Just look at what's happening with Lindsey Graham's censure in South Carolina, or Olympia Snowe's approval numbers among Republicans in Maine. Any GOP politician that's willing to step outside of total and mindless obstruction of Obama and the Democrats will pay the Scozzafava price.

But then again, just last week you posted how you couldn't take Joe L.'s filibuster threat seriously, how you were confident he'd do the right thing in the end and vote for cloture. And in your July debate with Trevi Whatsisface on PBS you stated confidently to Judy Woodruff that there'd be a public option in the final healthcare bill. As with these earlier examples, I'm not sure you're not reading the politics here very clearly.

Posted by: scarlota | November 11, 2009 3:36 PM | Report abuse

Yeah I dunno about this one Ez. You could have said the same thing about health care--after all, it's populist to be against insurance companies! And certainly the protesters aren't pro-insurance industry, at least not as they see it. So what'll happen is that the banks will play the invisible inside game and the protesters will play the outside game, both of them fighting for the same thing but the latter completely oblivious of the former's involvement.

Posted by: ethanpollack | November 11, 2009 5:24 PM | Report abuse

Populism has always been anti-elite in its focus. In fact, "economic populism" has historically represented a very potent Leftist strain in American Politics. Populism generally had prior to the 1960s been largely a Leftist phenomenon, raging against the Ruling Class----the wealthy economic, big-business, big-banking elites.

Some argue that the white Southern segregationist, anti-integration forces like George Wallace in the 1960s and then as appropriated by Richard Nixon and the Republican Party, represented a form of populism. In fact, the anti-integration, pro-"law-and-order" forces who opposed the perceived Counter-Culture of the time which was distinctively anti-establishment were in fact pro-establishment. That strain of conservatism embodied in the "Silent Majority" of the late 1960s and 1970s was essentially a pro-Establishment, pro-state, pro-forces of order element which supported blindly following government escalation of the Vietnam conflict. What happened eventually during the 1970s was that elites became divided between liberals and conservatives---elites were no longer largely conservative, which resulted in populist, anti-establishment strains developing on both Left and Right.

Conservatism has traditionally been pro-establishment, pro-tradition, pro-retaining societal customs and mores, NOT anti-establishment.

The Reagan years saw the empowerment of a Reactionary Right Wing which basically attempted to revise public policy by enacting a set of policies which basically combined 1920s-style economic policy with 1950s-style social/cultural policy.

The remnants of this Reactionary Far Right have, since the election of Clinton, basically continued to exist as an anti-government, anti-political establishment, but not anti-business establishment right-wing element. I am not certain "populist" is exactly the right word for it. I would characterize it more as "reactionary" than truly "populist" in origins.

Posted by: OHIOCITIZEN | November 12, 2009 8:22 PM | Report abuse

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