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Republicans and Democrats continue to agree on FinReg

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You expect a hard-fought compromise between two polarized parties on a high-profile issue to involve difficult concessions and serious changes. But the deal that Richard Shelby and Chris Dodd struck on the too-big-to-fail section of the financial-regulation bill doesn't have either one. The big item is that Democrats let go of the $50 billion orderly liquidation fund, which they didn't care about. As Dodd says in his letter, "because whether [banks] pay in advance or after the fact, these costs will be paid by Wall Street and not taxpayers, I have no objection to dropping that provision." (And after a 93 to 5 vote today, it's now gone.)

In fact, this Republican demand tracked what the Obama administration -- and many of the banks -- wanted originally. In a background conversation with a financial executive today, he dismissed the whole question of prepayment versus post-payment as "completely irrelevant."

There are other elements to the compromise, including a provision stating that creditors must pay back anything they receive beyond what they'd get under normal bankruptcy proceedings. But all in all, these are minor tweaks, not significant differences in approach. And it's another peculiar reminder that the two parties are pretty close together on this issue, in policy if not in rhetoric. They both appear to agree that the proper response to the financial crisis is a bill that focuses on the ability of regulators to detect risk and dismantle failing firms. Reshaping Wall Street -- either by putting more government into it in the form of size caps and leverage limits and taxes, or taking the government out of it -- doesn't really seem to be on either party's agenda.


By Ezra Klein  |  May 5, 2010; 6:40 PM ET
Categories:  Financial Regulation  
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Comments

"because whether [banks] pay in advance or after the fact, these costs will be paid by Wall Street and not taxpayers, I have no objection to dropping that provision."
b$$llsh**t! American taxpayers are supposed to believe that we won't be bailing out Wall Street again, but instead of a $50 billion fund for the banks to pay into, the US treasury will front the money and collect what's owed to the taxpayers at the end. Right! Not!

Posted by: goadri | May 5, 2010 6:52 PM | Report abuse

Face it, both sides of the aisle are bankrupt on the issue of financial reform. It's clear both parties are too busy filling their piggy banks with funds from bank lobyists and no amount of outrage from the citizenry can stop them.

Posted by: goadri | May 5, 2010 6:56 PM | Report abuse

Face it, both sides of the aisle are bankrupt on the issue of financial reform. It's clear both parties are too busy filling their piggy banks with funds from bank lobbyists and no amount of outrage from the citizenry can stop them.

Posted by: goadri | May 5, 2010 6:57 PM | Report abuse

If republicans thugs and criminals agree to something then it is inherently wrong. Don't believe me then look at the economy they engineered. The robber barons got richer and the rest of us are paying for it.

Posted by: BigTrees | May 5, 2010 7:32 PM | Report abuse

Well, I take this as a positive sign cooperation is in the air. Tension is easing. At least they can get something done together. How strict is this bill? Don't know. Now, the two sides need to sit down and hammer out a viable, meaningful long-term deficit reduction strategy. What are the odds of that?

Posted by: citizen4truth1 | May 5, 2010 7:50 PM | Report abuse

Some kind of bankruptcy procedure that works is a reasonable priority. The point of leverage limits is to limit risk. The idea that the regulators are going to do any kind of reasonable job of detecting risk is laughable. The danger without any means of limiting risk is that a large part of the system will break so badly that the bankruptcy procedure will not be workable. Particularly with derivatives, the reform probably will turn out to be a failure unless trading is regulated to a level where the level of risk is transparent and that presumably depends on an understanding of what positions different parties have committed to and their ability to pay in the case of an extreme event.

Posted by: dnjake | May 5, 2010 7:56 PM | Report abuse

Who do they think they're fooling? They just let the banks off the hook for $50 billion of the next bank failure. Now they won't pay ANYTHING.

Posted by: solsticebelle | May 5, 2010 7:57 PM | Report abuse

The test may turn out to be whether they agree on the bank tax to recover the costs of the AIG and related bailouts.

I heard that one interesting feature of the bill is that banks have to create and keep updated "funeral plans" showing regulators how to unwind their commitments. Apparently, AIG had all those credit default swaps and when the housing market fell they went to the government and told them they couldn't pay them off, had no idea how to unwind them, and if they went into bankruptcy all the life insurance policies, paid-up annuities, and other regular insurance obligations they had would be defaulted. That was why they had to be bailed out. There was no way for the government to save everyone else and stick it to the CDS counterparties (who probably didn't own the bonds they were "protecting," anyway).

I also heard an expert on Cspan who said that if the problem had only been housing and the mortgage market, it could have been handled and wouldn't have caused so serious a financial mess. The problem was all the gambling on mortgage bonds (betting what they would do without owning them) that reached many times the size of the mortgage and housing markets. The people doing the gambling were the same institutions (such as AIG) that has peoples' deposits, insurance policies, and retirement accounts, and they were using that money to gamble for their own profits and bonuses.

Posted by: StanKlein | May 5, 2010 8:00 PM | Report abuse

...because the Dems keep caving in to the Repugs. That's the only kind of bipartisan compromise the Repugs will accept.

Posted by: ejs2 | May 5, 2010 8:17 PM | Report abuse

Klein's analysis is naive. The $50 billion was going to be a fund for Congress to use and abuse for other purposes. When the fund was needed, Congress would just appropriate $50 billion more dollars out of thin air like they always do.

Posted by: hz9604 | May 5, 2010 8:41 PM | Report abuse

The Republicans clearly controlled the action on this bill from committee to enactment. That is a sign of the coming elections in November. Democrats are worried (and Friend of Angelo Dodd is history).

Posted by: hz9604 | May 5, 2010 8:45 PM | Report abuse

Actually, if you did want the banks to pay, you would get the money from them up front--just as with FDIC insurance. If a crisis does occur, the banks and their political patrons will contend that it is the wrong time to ask them for money. The problem with the 50 billion dollar fund is that it's only 50 billion, a paltry sum in a bank crisis.

Posted by: publius1 | May 5, 2010 9:09 PM | Report abuse

Agree with publius1. Moreover, as Sheila Bair demonstrated in refusing to borrow from Treasury for the deposit fund, regulators will be reluctant to go Treasury, "the taxpayers," for wind-down money. This will reduce their willingness to intervene to "resolve" a failing firm and will increase their use of forbearance strategies that, as s&l crisis demonstrated, have a tendency to explode. Too much anger, not enough sense. jng

Posted by: jng1 | May 5, 2010 10:06 PM | Report abuse

I agree with the other commenters. It must be a weak bill if the Republicans, at their corporate overlords' bidding, are not fighting it. As to the fund, everyone knows it will not be possible to do in a crisis. The Repubs will just kick and scream and hold their breath and filibister like they always do.

Posted by: Falmouth1 | May 6, 2010 5:55 AM | Report abuse

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