On Monday I wrote:
Our editorial today lays out four main objections to the Dodd bill as written:
1. The resolution authority is poorly designed: “As structured, this authority would allow the government to bail out non-bank creditors, and worse, to play favorites among them.”
2. The bill entrenches and enlarges the government’s power to engage in back-door bailouts via loans and loan guarantees.
3. The new Consumer Financial Protection Bureau “could impose job-killing business regulations and jeopardize financial stability.”
4. The bill’s corporate-governance provisions would give organized labor too much power over management decisions.
As I understand it, having spoken with several participants from the GOP side of the ongoing negotiations, numbers one and two are the only ones the Democrats really have to fix in order to peel off eight to ten Republicans and get a bipartisan vote for this bill. Numbers three and four are bad — really bad — but on this issue I just don’t see moderate Republicans making them their hill to die on.
According to statements from Sens. Mitch McConnell and Richard Shelby, this is exactly what has happened. Sen. Dodd has assured Shelby that he will address a number of concerns Shelby expressed with respect to ending bailouts, but he will not address problems with the Consumer Financial Protection Bureau, the proxy-access provisions or (the somewhat less problematic, in my view) derivatives rules. We will have to watch the bill closely to see what loopholes Dodd actually closes, but I would guess that, at the very least, he will insert language to reduce the FDIC’s discretion along the lines of what the GOP suggested in its alternative proposal: “The FDIC would have to recoup from creditors any amounts that a creditor had received in excess of what it would have received in bankruptcy. This gives the FDIC the flexibility to advance funds to creditors to prevent or mitigate a systemic crisis, but then ensures the FDIC is not bailing out creditors.”
Since this outcome was all but preordained — Democrats couldn’t support “bailouts”; moderate Republicans weren’t going to filibuster over “consumer protection” — why didn’t Dodd just agree to these changes on Monday? The answer is exactly what you think it is: The Democrats wanted to force the GOP to filibuster “Wall Street reform” a few times in order to milk their political advantage.
But will the politics really play out the way Democrats think they will? Depending on what changes Dodd makes to the bill, Republicans will be able to say that they forced Democrats to close bailout loopholes that would have allowed Wall Street to take on more risk and leverage. If the bill ends up getting 70-80 votes after the bailout provisions are stripped out, then which party is going to look like they were holding out on Wall Street’s behalf? In any case, I’m not sure that these three days in late April are going to weigh heavily on voters’ minds in November.
As for the policy, it will be crucially important to track changes to the bill and to track the bill through conference (assuming there is one this time). The political fight is over, but that doesn’t mean it’s time to stop keeping score.