The Progress Report
by Faiz Shakir, Benjamin Armbruster, George Zornick, Zaid Jilani, Alex Seitz-Wald, Pat Garofalo and Tanya Somanader
The Assault On Wall Street Reform
Last weekend, a spokesman for the American Bankers Association — the banking industry’s largest trade group — explained that the financial services industry is eagerly anticipating conservative control of the House of Representatives. “We had been disappointed with a number of legislative outcomes with the past Congress, and so we look forward to better outcomes with this Congress,” he said, adding that “banks expect a corrections bill to peel back some of the financial regulations passed into law this year.” Indeed, Wall Street has made no secret of its desire to water down and roll back provisions in the Dodd-Frank financial regulatory reform law, which President Obama signed in July. Dodd-Frank is the most thorough upgrade of the nation’s regulatory structure since the Great Depression, and while complete repeal is unlikely due to the President’s veto power, the banks are counting on their House Republican allies to weaken the bill in other ways, such as withholding funds or scheduling hearings designed to slow the regulators’ rule-making process. Already, the two leading candidates to chair the House Financial Services Committee next year — Reps. Spencer Bachus (R-AL) and Ed Royce (R-CA) — have made known their desire to weaken certain provisions, while incoming presumptive House Majority Leader Eric Cantor (R-VA) told CNBC that Republicans intend to deny regulators the funds to implement Dodd-Frank. “The House has the power of the appropriations process and the leverage that comes with that essentially puts us in a position to deny the administration funding for promulgating the regulations,” Cantor said.
DEFUNDING THE CONSUMER BUREAU: House Republicans have reserved their most intense ire for the newly-created Consumer Financial Protection Bureau, which is being headed by consumer advocate and Harvard Law Professor Elizabeth Warren and is the only regulatory agency explicitly tasked with consumer protection. Rep. Jeb Hensarling (TX), one of the top Republicans on the Financial Services Committee, promised to defund the Bureau, which he believes “assaults the liberties of the consumer.” But defunding is only an effective strategy for holding back the agency until July 2011, when the Bureau will begin to receive an independent funding stream from the Federal Reserve, so Bachus has proposed changing Dodd-Frank to make the Bureau subject to the annual congressional appropriations process. Giving the Bureau an independent stream of funding is important, as it isolates the Bureau from the whims of Congress and prevents appropriators from pushing a political agenda by threatening funding cuts; the Federal Reserve and the Securities and Exchange Commission have independent budgets for the same reason. Royce, meanwhile, has said that he would revive an amendment of his that was defeated during the regulatory reform debate that would allow banking regulators to veto the agency’s rulemaking. “The safety and soundness regulator needs to have a say, needs to have final say in this,” Royce said.
DEFANGING THE REGULATORS: Dodd-Frank delegates much of its authority to regulators, who have the responsibility to craft rules meant to rein in the financial industry’s excess, while taking into consideration the necessary role of the industry. Consequently, House Republicans have been targeting these regulators in an attempt to politicize and delay their rule-making activities. Bachus, for instance, sent a letter to the newly created Financial Stability Oversight Council scaremongering about the effects of the Volcker rule, which is meant to prevent banks from engaging in risky proprietary trading with federally insured dollars. Bachus claimed that the rule will “impose substantial costs on the American economy and market participants” with “doubtful” benefits.” But as Nobel Prize-winning economist Joseph Stiglitz noted, “Through the rise of proprietary trading at our nation’s banks and the largest non-bank financial firms, firms doubled down on the accumulation of risk, much of it with little benefit to the real economy.” Bachus has also said that he wants to weaken the derivatives reform portion of the bill, calling it “overly expansive.” The derivatives title of Dodd-Frank sets up exchanges so that derivatives must be traded publicly (like stocks) and employs clearinghouses to ensure that both parties in a derivatives trade have adequate collateral backing it up. What House Republicans will likely aim to do is entice regulators to grant wide exemptions to the exchange and clearing requirements, letting all sorts of activity that is purely speculative continue to be unregulated. Senate Democrats, however, are standing tall against changes in the law. “I don’t think that major changes will take place on Dodd-Frank,” said Sen. Tim Johnson (D-SD), who will likely chair the Senate Banking Committee next year. “There is not only resistance from the Senate, but the veto is possible, too. So we should focus on realistic solutions to our problems.”
BIG BUSINESS JOINS IN: House Republicans and Wall Street banks are not alone in their fight to weaken Dodd-Frank. The U.S. Chamber of Commerce — which helped coordinate Wall Street’s campaign against financial reform — announced yesterday that “it is setting up a new unit to scrutinize regulatory efforts of the Obama administration, taking special aim at the health care reform law and financial overhaul legislation.” “Regulation is the vehicle by which some seek to control our economy, our businesses and our lives — and left unchecked, it will fundamentally weaken our nation’s capacity to create jobs and opportunity,” said Chamber President Tom Donohue. The Chamber has already sued the SEC “over its proposed rule to give shareholders greater rights to nominate candidates to a public company’s board through proxy access balloting”; the rule was initiated as a result of Dodd-Frank. Of course, Wall Street is also very capable of lobbying for its cause itself. As the Los Angeles Times reported, “Lobbyists for banks, hedge funds and other firms have logged hundreds of meetings with federal regulators since the reform bill was signed into law.” “In all, regulators have had at least 510 meetings with lobbyists representing 325 organizations since July,” the Times found, and “more than 90% of the groups that appear in the meeting logs are banks, hedge funds and other big companies that rely on the financial industry.”
Senate Majority Leader Harry Reid (D-NV) vowed yesterday to hold votes on two key Democratic priorities: the DREAM Act and a repeal of the military’s Don’t Ask, Don’t tell policy. Senate Republicans blocked both measures this fall when Reid tried to attach them to a defense authorization act.
A bipartisan group of budget experts led by former GOP Sen. Pete Domenici (NM) and former Clinton administration budget director Alice Rivlin yesterday called for steep cuts in future military spending, intensifying pressure to reduce defense spending to help reduce the deficit. Their plan includes a five-year freeze on Pentagon spending and would reduce projected deficits by $5.9 trillion through 2020.
White House press secretary Robert Gibbs “expressed confidence” yesterday that the START treaty has the 67 votes necessary to pass the Senate in the lame duck Congress. Gibbs said that Senate GOP Whip Jon Kyl’s (AZ) opposition “won’t be enough to derail the treaty” and President Obama “will push forward” to see it ratified “before the end of the year.”
Ahmed Ghailani, the first former Guantamo Bay detainee to be tried in a civilian court, was acquitted of all but one charge against him related to the 1998 bombings of U.S. embassies in Kenya and Tanzania. He was “convicted of one count of conspiracy to destroy government buildings and property,” and faces at least 20 years in prison.
“As one of its first acts,” the new Republican-controlled House of Representatives will consider ending birthright citizenship, which has been guaranteed by the 14th Amendment for over one hundred years. Rep. Steve King (R-IA), the incoming chairman of the subcommittee that oversees immigration, “is expected to push a bill” early in the next session that would deny citizenship to children of undocumented immigrants.
The U.S. government’s stake in General Motors was halved yesterday as billions of dollars of bailout money was returned following a $23 billion stock offering by the company. The New York Times notes the offering was “bigger and more ambitious than had once seemed possible.”
Sen. Lisa Murkowski (R) claimed a historic victory last night in her write-in bid for the U.S. Senate in Alaska against Tea Party-backed, Sarah Palin-endorsed candidate Joe Miller (R). The state Republican Party called the race for Murkowski and asked Miller to “end his campaign in a dignified manner,” but Miller said he is not conceding until he can ensure “the counting process is a fair one.”
A Tennessee judge refused to stop an expansion of the Murfreesboro Islamic Center that has been protested for months and been the target of arson. The judge said “he could not find that the ‘county acted illegally, arbitrarily or capriciously’ in approving the plan.”
And finally: “A caravan” of trucks is heading to Washington, D.C. today for a bi-partisan “Purple for the People” Slurpee summit. The idea came after President Obama criticized Republicans for sitting back and enjoying a Slurpee while he worked to save the economy. 7-Eleven, which sells the frozen drinks, is planning to send “very special Slurpee handblown glass cups” to Obama and presumptive House Speaker John Boehner (R-OH).