Scott Brown's problems with FinReg
As you've heard by now, the financial regulation bill is in trouble. Robert Byrd's death changed the vote calculus in the Senate (the second time this has happened to Harry Reid and Barack Obama during the end game of a major reform effort) and Scott Brown, who voted for the Senate version of the bill, has decided to oppose the conference report. But it's worth explaining why.
The conference committee was conducted with an eye toward securing Brown's vote. In particular, Brown wanted to see a rule inserted that allowed banks to continue using up to 3 percent of their core capital to invest in hedge funds and private equity firms. He got it. A lot of people opposed this provision, as they thought banks should be out of the hedge fund business. But Brown's vote was considered crucial.
Quite late in the committee's negotiations, the Congressional Budget Office examined the near-final version of their bill and said that the bill contained about $19 billion in likely costs to taxpayers over time, and so under pay-go laws, that cost would have to be offset. Barney Frank inserted a tax on large banks and hedge funds to cover the cost. And this is what Brown opposes: A tax on banks to pay for the cost of a bill that regulates banks. "If the final version of this bill contains these higher taxes," Brown wrote, "I will not support it." Brown believes, not without merit, that banks and hedge funds will pass that tax onto their customers.
Instead, Brown is insisting that the committee find $19 billion in spending cuts to support the legislation. So the banks are getting a new regulatory structure meant to prevent another round of chaotic failures, but Brown doesn't think they should have to pay for it. Instead, other programs and services should be cut. So taken together, Brown's final demand have been that the bill allows banks to continue owning hedge funds and that banks don't have to pay for the costs of the re-regulation effort. Maybe the tea partyers are more pro-bank than I'd thought?
Photo credit: AP Photo/Drew Angerer.
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