President Obama’s promise to televise health-care negotiations between the House and Senate “on C-SPAN” went famously unfulfilled, but House Financial Services Committee chairman Barney Frank has adopted it for the upcoming conference-committee hearings on financial reform — at least that’s what he wants you to think.
Frank first called for televised negotiations back in March, when it looked like the politics of financial reform were working in the Democrats’ favor. “Maybe Senate Republicans want to sit there on C-SPAN in a full public conference and [block the bill],” Frank said at the time. “I don’t think so.”
But then a funny thing happened: The Democrats opened the Senate version of financial reform up to amendments, creating a forum for congressional showboating. This resulted in the addition of a number of amendments that top Democrats such as Frank and Senate Banking Committee chairman Chris Dodd aren’t exactly comfortable with. Chief among these is Sen. Blanche Lincoln’s (D., Ark.) derivatives title, which would force banks to spin off their profitable derivatives-trading operations.
According to reporting from the Wall Street Journal, Lincoln at first adopted a moderate approach to derivatives, which are financial instruments whose value derives from some underlying commodity or security. “Earlier in the year, Ms. Lincoln hinted . . . that she didn’t want to craft a bill that would be too tough on derivative users,” the Journal reported. “But as it became clear that her primary against the more liberal Lt. Gov. Bill Halter would be a fight, she took a surprise turn to the left and unveiled a much tougher bill that has Wall Street worried.”
Wary that Lincoln’s politically motivated bill would cause chaos in the very industry Washington has spent hundreds of billions to save, top Democrats — from Treasury Secretary Timothy Geithner to Dodd and Frank — have tried to come up with a way to neutralize it while protecting Lincoln from the political fallout (and protecting themselves from being portrayed as Wall Street lackeys). Last month, Dodd was forced to call off an eleventh-hour attempt to kill the proposal when Lincoln failed to win her primary outright, leading to a runoff election. Now that Lincoln has won the runoff, it is unclear what the Democratic leadership plans to do, but the most likely scenario probably involves an Indiana Jones–style sandbag switcheroo in which they replace the derivative-desk spin-off with another provision that seems as tough, but isn’t.
The sandbag provision would be a version of the “Volcker rule,” which would forbid banks to buy and sell securities using their own capital, for their own gain — that is, it would outlaw proprietary trading. Frank has thrown his weight behind this approach, arguing, “I don’t see the need for a separate rule regarding derivatives, because the restriction on banks engaging in proprietary activities would apply to derivatives as well as everything else.” Sounds plausible — but this wouldn’t stand up to the scrutiny of a public hearing, where Lincoln, who is serving on the conference committee, could point out that to skirt the rule, banks could make the case that their proprietary trading was done on behalf of clients. According to banking experts, this argument could justify most proprietary trading.
Watering down a “tough on Wall Street” derivatives title is not the kind of thing Frank wants to get caught doing on C-SPAN, so he is backing down from his original promise. “The negotiations will go on in private,” Frank said recently, amending his previous position, “but the results of any discussion are going to have to be voted on,” and at that point the final bill will be made public. Translation: We’ll let you see the sausage, just not how it’s made.
In a letter to Brian Lamb, Frank urged the C-SPAN executive to “ensure that the American people are able to watch the public portions and the voting of the conference committee.” But there’s no reason the entire conference committee couldn’t be public. Nothing about it requires secrecy. Which “portions” are “public” is entirely up to the Democrats — and we already know which portions they’d rather keep private, and why.
For instance, the Democrats are not bringing the House and Senate versions of the bill to the committee in order to decide, in conjunction with Republicans, which provisions should constitute the “base text” from which they should start. They have already met privately and come up with their own base text, composed of the Senate bill with some House additions, which Republican conferees haven’t even seen yet. “The base text the Democrats proposed to the conferees was all done behind closed doors,” reports one House GOP aide. “The Democrats decided what stayed in and what went out.”
This is how the most important changes to the bill — such as changes to Lincoln’s derivatives title — will happen: in private and away from C-SPAN’s cameras. Even though there is a “public” conference, the Democrats are making the sausage behind closed doors.
– Stephen Spruiell is an NRO staff reporter.