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Updates on the battle for financial reform

By Mike Konczal

How goes the battle for financial reform? Noam Scheiber has an update on the situation that is a must-read for the current situation. A few things:

  • It looks like Republicans are weakening on opposing a strong consumer protection agency. This comes after the OCC is changing directions as well.

  • Derivatives reform is looking to become a stronger piece of what people are demanding.

The progressive groups are “readying themselves to make a big battle,” says Michael Greenberger, a University of Maryland law professor and former federal regulator with strong ties to the reformers. “Derivatives will be a key part of it. … A lot of these groups are concerned that the consumer agency not suck all the oxygen out of the air.”

Then there are some idiosyncratic developments that could further bolster the hawks. Greenberger notes that Greece used derivatives to hide government debt, a factor that has exacerbated its current fiscal crisis. “The Greek situation brought home to people in the administration … that you can’t have these things being used to create financial havoc,” he says.

Or take Congressman Barney Frank, who chairs the House Financial Services Committee, making him Dodd’s counterpart in the lower chamber. Up until recently, the feeling on Wall Street was that Frank didn’t have particularly strong views on derivatives. But Frank has been outspoken on the issue of late, saying he regretted that the derivatives portion of the House bill wasn’t tougher. Last week he acknowledged that an aide had left to work for a derivatives clearinghouse only weeks after the House passed its financial reform bill in December, a possible wake-up call on the issue.

Here is Michael Greenberger's chapter on necessary derivatives reform from the Roosevelt Institute's Make Markets Be Markets conference, along with a video of his presentation. From the derivatives point of view, there are two methods of lobbyist attacks: One is to expand the "end-user exemption" so that huge amounts of the market is exempt from the rules that govern clearinghouses and exchanges. The second is to attack the notion of what an exchange is, a success for the lobbyists in the House bill that I outlined here.

So those are the two things to watch for in the upcoming weeks -- one more thing for those who didn't watch the House battle. Progressives made the most ground fighting over resolution authority. They tried to hold the line on derivatives and consumer financial protection. The Miller Moore amendment and the 15-to-1 leverage requirement were added to the original language, marking advances.

Mike Konczal is a fellow with the Roosevelt Institute and the author of the Rortybomb blog.

By Washington Post editor  |  April 5, 2010; 10:00 AM ET
Categories:  Financial Regulation  
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Didn't the guy on the Economics of Contempt blog smack down your argument about redefining the definition of an "exchange"?

Posted by: Mark_H1 | April 5, 2010 2:18 PM | Report abuse

I'm afraid it doesn't help that Geithner and Summers are pushing a very mild reform, essentially worthless bill.

There is one question regarding derivatives I have. I've heard many companies outside of the financial sector are pushing to keep derivatives out of an exchange, saying they'd be hurt by it (transparency?). I don't understand why. Surely, they're knowing the real(market) value would help them in negotiating pricing. What am I missing here?

As for Americans not completely understanding derivatives, that's probably true. But how many Wall St. financial wizards understand either? Nevertheless, most people I know and speak with want derivatives regulated because they do know that the excessive and unregulated derivatives market is what caused the Great Recession. However, it is a huge mistake for Democrats and reformers to focus so much attention on the CFPA while ignoring - or not focusing public attention on - the derivatives market, given the short attention span and memory of the American public.

Posted by: valkayec | April 5, 2010 3:04 PM | Report abuse

What about the battle plan on the political front?

If none of this can be done through reconciliation, we will need one Republican (plus we will need to hold the redder Democrats). Who might that one Republican be?

Can parts of finance reform be done via reconciliation so that only majority rule (a radical concept) will be needed?

If reconciliation can't be used, is it better to go for a strong bill, and fail to get even the necessary one Republican vote? Then, as a result of that, the Republicans will perhaps be greatly shamed and exposed, strongly increasing the odds of a really good bill passing in the not too far future. And, there will be a lot more pressure to end the filibuster, which would be a monumental good – do you really want to take the colossal risk of waiting decades or more to get truly strong anti global warming legislation passed over Republicans armed with a newly de facto supermajority requirement?

So, would it be better to go for a strong bill and fail to get that one Republican vote, or to go for a weaker bill that can pass? If the weaker bill is better, then up to how weak?

Posted by: RichardHSerlin | April 5, 2010 4:24 PM | Report abuse

I just did a comparative analysis of the consumer protection agency/bureau in the House and the Senate bills:

It also has an embedded document which I prepared, which is more of a side-by-side comprehensive comparison.

Ideologically I'm predisposed to an independent agency, but I have to say that the House and Senate structures are more similar than different, and I can't assign an objective clear superiority to either structure.

Posted by: thepeoplesview | April 5, 2010 5:57 PM | Report abuse

Even with Blanche and Saxby and Max heading up the derivatives discussion now that it's moved to Ag? Color me skeptical, but I'm from Montana....

Or do you think that Republicans have been significantly whomped on with health reform to know that meaningful participation can be productive?

Posted by: jhwygirl | April 6, 2010 12:24 AM | Report abuse

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