Last week, Alabama Republican Richard Shelby, the ranking member of the Senate Banking Committee, floated a compromise on the consumer financial protection agency that’s currently stalled in the Senate. Under the bill Chairman Chris Dodd moved through the committee in March, the consumer agency would effectively have its own budget and an independent, White House-appointed director. It would also have significant (but not unchecked) authority to write and enforce rules protecting consumers from abusive bank practices, like deceptive mortgages. Until now, the banks and the GOP have largely tried to eviscerate these provisions. But, according to one person familiar with the discussions, Shelby’s proposal took a big step in the direction of the Dodd approach. (Spokesmen for both senators declined to comment beyond saying that “we continue to discuss a number of options,” as Shelby’s communications aide, Jonathan Graffeo, told me.)
Shelby’s recent outreach seems to reflect the new reality in the battle to tame the banks: Both sides recognize that the reformers have the momentum, given the way last month’s health care victory has unified Senate Democrats, and given the political peril for Republicans in appearing to do Wall Street’s bidding. But both sides also recognize that, p.r.-wise, the consumer agency tends to overwhelm other elements of the reform effort.
In light of this, Republicans seem to be settling on a strategy: Give the Democrats much of what they want on the consumer agency and bet that Democrats won’t be too picky about the rest. If the bet pans out, the industry and its GOP allies would, in effect, be trading a robust consumer agency for a chance to scale back a number of highly consequential but below-the-radar reforms. But will it?
Of course, this being a high-stakes negotiation, no one is prepared to concede much of anything yet—at least not explicitly. When I asked one bank lobbyist last week about a grand bargain involving the consumer agency, I could practically feel him bristle over the phone. “You keep pressing your case until the end,” he insisted.
And yet, the longer you talk to such K Street denizens about the politics of financial reform, the more they concede that this is what the landscape may give them. This same person told me he sensed that Dodd was open to compromising on everything but the consumer agency. He added: "For the average American, it's the only piece of the bill they can really sink their teeth into.”
The logic becomes even more compelling once you home in on particular issues. For example, one of the most important but least understood parts of the financial reform bill relates to derivatives, which are essentially bets on the prices of other assets, like stocks and bonds. The credit default swaps that brought AIG to the government’s doorstep are probably the most famous example of the trouble-making potential of this financial instrument. AIG’s derivatives portfolio was largely a bet on bonds backed by mortgages. When the mortgages took on water, the bet left AIG on the hook for billions in losses, pushing the company to the brink of bankruptcy.
First Name
Last Name
Address 1
City
State
Zip
