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The new financial reform strategy

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The Wall Street Journal has a nice piece on how the Massachusetts election has emboldened Senate Republicans to oppose financial regulation reform. "Democrats still control the Senate," reports Damian Paletta, "but political momentum has shifted toward Republicans. The White House tried to reverse that with a proposal to limit the size and risk of big banks, and President Barack Obama launched a series of broadsides against Wall Street. Democrats hoped that posture would prompt Republicans to come on board for fear of being tagged as allies of unpopular Wall Street banks. The opposite seems to be happening."

I sure hope that's an inaccurate reading of the White House's thinking. If Democrats actually thought a more hostile tone from Obama and a more aggressive regulatory assault on Wall Street was going to attract Republicans to the initiative, it suggests they've totally lost touch with the reality of the situation. For their next trick, maybe they'll call for single payer and wait for Mitch McConnell to round up the votes.

I suspect, however, that the situation is not so dire. Scott Brown's election was the worst thing that's happened to health-care reform but might be the best thing that's happened to financial regulation. Democrats have made the judgment that health-care reform remains important enough to try to pass, but is too compromised to be used for messaging. Financial reform is not. Indeed, the reboot has made it into the reverse: Popular enough to message on, but too uncompromising to pass.

Where Democrats were making deals to move the bill a few weeks ago, now they're picking clear fights: They're for an agency that protects consumers, and Republicans are not. They're for breaking up giant banks, and Republicans are not. They're for a tax to recoup the TARP money, and Republicans are not. This is the stuff of which campaigns are made, and that, above all, explains the decision Democrats have made on financial regulation. They want to beat Republicans with it, not futilely attempt to win them over to it.

By Ezra Klein  |  January 25, 2010; 1:07 PM ET
Categories:  Financial Regulation  
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Comments

"Scott Brown's election was the worst thing that's happened to health-care reform"

That's funny. I could have swore that Obama's handing off his signature first term domestic priority to Max Baucus, then taking a siesta on the effort was the worst thing to happen to health care reform.

Oh, well. Revisionist apologism is so enlightening sometimes.

Posted by: jc263field | January 25, 2010 1:23 PM | Report abuse

GEITHNER: MARKETS MAY DIVE IF BERNANKE IS NOT RECONFIRMED.

all republicans need to do is: point out these two fools are running the show for obama.

Posted by: obrier2 | January 25, 2010 1:33 PM | Report abuse

I don't think this fight will play as cleanly as you suspect, Ezra.

Posted by: scarlota | January 25, 2010 1:48 PM | Report abuse

Democrats aren't for ANYTHING.

All they do is make speeches and pass bills in either the House or Senate that then get voted down in the opposite chamber or die a slow agonizing death.

Over and over again, this last year, they did that.

The only time Democrats are capable of unifying to vote for something is when a Republican President threatens them.

I'm finished with Democrats. From now on I'm voting third-party or no one at all.

Posted by: Lomillialor | January 25, 2010 2:10 PM | Report abuse

It's true, Obama's failure to institute single payer health care through executive order is really the worst thing to happen to health-care reform. I have no idea why he bothered to involve Congress.

Posted by: etdean1 | January 25, 2010 2:13 PM | Report abuse

@etdean

Obama involved Congress?

Which alternate reality did you come from?

Obama hasn't involved anyone except Goldman Sachs.

He's been AWOL since last January.

The reason it took a year for health care to climb to 30,000 feet and then sputter out and dive to the ground is because Obama DID NOT get involved with Congress.

Posted by: Lomillialor | January 25, 2010 2:19 PM | Report abuse

"They're for a tax to recoup the TARP money, and Republicans are not."

I thought the banks paid back their loans, with interest. My understanding was the folks who haven't paid back--and probably won't--are Freddie Mac, Fannie Mae, and GM/GMAC. Is that wrong?

Even if there are some banks that haven't paid back with interest, isn't a general tax on all banks technically less an effort to "recoup the TARP money" iand more an effort to use class envy to beat future protection money out of the banks?

Posted by: Kevin_Willis | January 25, 2010 2:21 PM | Report abuse

Right, I had a weird dream where Congress spent months debating health care reform because legislation is the job of Congress, not the president.

Seriously though, while I think it's an easy case to make that Obama should have been more involved, especially in terms of defining the media narrative, you can't overlook the institutional factors. At the end of the day, the president doesn't have nearly the influence on the passage of HCR that any senator does. I'm just not sure what any message from Obama would've done to influence Nelson, Landrieu, Lieberman, Lincoln, Snowe, or Collins. if we lived in a world where the Senate operated on majority rule, then there'd be some flexibility to advocate. In the current filibuster-filled Senate, you only can pass what you can get 60 votes on.

Posted by: etdean1 | January 25, 2010 2:30 PM | Report abuse

@Kevin_Willis

You're mostly right about banks paying back TARP money. I'd quibble that the money lost on AIG was all money that went to counterparties, so that's another $20 billion or so that Goldman owes the Treasury. I think the perspective at work here though is that since the "financial industry" was a major part of the crash, then the "financial industry" should pay back TARP, regardless of the balance of payments for any one bank.

Posted by: etdean1 | January 25, 2010 2:34 PM | Report abuse

We all realize, don't we, that it was in the original TARP legislation that all the $$ had to be repaid. It didn't specify how, so this "big bank tax/fee" is Obama's solution to that. Yes most of them paid it back and Fannie/Freddie/AIG is where most of the actual $$ was lost, but how exactly are we going to get $$ back from Fannie?

Posted by: Quant | January 25, 2010 2:34 PM | Report abuse

There is also the possibility the Republican leadership will actually decide NOT to fight on this one, release their members to vote thier districts and send the financial services community copies of the OpenSecrets.org report on all the $$$$ that flowed into Democrat campaigns from the Upper West Side and Hamptons during the 04/06/08 elections. McConnel and Bohner may not round up votes in favor of proposals they dislike on ideological grounds but they may be getting tired of falling on their ideolgical swords for people who helped put them in the minority.

Posted by: WoodbridgeVa1 | January 25, 2010 3:06 PM | Report abuse

Ezra - Do Dems really want substantive financial sector reform? I'm skeptical. Sure it sounds nice now, but wait until it's time to vote on it (if it ever comes to a vote). Dems are just as beholden to Wall St (especially powerful Dems like HRC and Schumer) as Republicans.

Posted by: MBP2 | January 25, 2010 3:26 PM | Report abuse

MBP2, I think the point is that it will never come to a vote. Democrats gave up things left and right to keep HCR moving through Congress to hopefully get it passed before (well, let's say) the mid-terms. Along the way people learned way too much about how big pieces of legislation get passed these days and HCR became a less popular issue than it was in the campaign.

Financial reform, however, still has the emotional power to get people left, right, and center riled up at the injustice of it all. This allows Democrats to take strong, popular positions that will make people happy, and hopefully inclined to vote for the, without ever having to make the tough choices and compromises that you have to make when you're passing a bill.

HCR was substantive policy/governing. Financial reform is an election strategy.

jc262field, were you napping at the start of the process when literally everyone agreed that Clinton's mistake was not letting Congress handle the bill? It's turned out that the bill was assailed by conservative as "Obamacare" even though he had little to do in shaping it outside of general principles, but it's still gotten right up to the finish line this way.

Posted by: MosBen | January 25, 2010 4:35 PM | Report abuse

"They're for a tax to recoup the TARP money, and Republicans are not."

This statement is completely moronic. By law the banks that were loaned money from TARP have to pay it back with interest and several of them have already done this. The tax the Democrats are talking about is that a tax and has nothing to do with TARP. They're just using the banks as they're new bogeyman to try to distract the American public from their own incompetence. TARP should be repayed and the money used to reduce the budget deficit which is what the law intended.

Posted by: RobT1 | January 26, 2010 8:05 AM | Report abuse

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