Is weak financial reform better than no financial reform?
Building off of my post yesterday about how I believe it is electorally advantageous for Democrats to pass strong financial reform, I found myself thinking about the whole, “something is better than nothing” argument that seems to hang around pretty much any legislative effort of significance these days. Is this sort of soft pedaling of weak reform really a good argument? Or is it just a specious excuse for lack of political will that, in fact, does more harm than it does good?
Reading Matt Taibbi’s first hand account of last night’s debate and the death of the Brown-Kaufman amendment really tweaked something for me in regards to that question. In particular, this bit stood out,
In a wittily insulting footnote to this massacre, Alabaman Obfuscation King Richard Shelby, the guy who has been leading the transparently lobbyist-driven and shockingly (even by DC standards) cynical Republican filibusters of this bill, actually voted for the Brown/Kaufman amendment. I have no idea if this was Shelby’s idea of a joke or what, but somehow seeing this bloated old hack cast a quixotic Yea for this urgently necessary measure while 27 Democrats slithered back into the lobbyist camp to cast Nay votes was the most obnoxious part of this whole sordid affair.
As usual, my language doesn’t tend to be as… er, flamboyant as Matt’s, but I certainly get what he’s driving at. There was a period it seemed where the folks on Wall Street were genuinely worried about how all of this was going to play out. The Brown-Kaufman amendment was probably their biggest concern, shortly followed by Blanche Lincoln’s derivatives bill.
With this amendment dead in the water and talk about weakening Lincoln’s bill coming from both the White House and now specific GOP senators, I think that much of that fear has melted away from Wall Street. As Simon Johnson puts it,
The lack of debate over Brown-Kaufman – and its likely demise – is all about money. There is a tsunami of contributions from the financial sector washing over Congress right now. When the dust settles, the pattern will be clear: Wall Street (legally) bought off key senators.
In some senses, this is a worse message to send to Wall Street than having nothing going forward other than talk and populist outrage.
At least with talk but lack of action, there can still believably be the threat of action in the future held over Wall Street to cow bankers in some marginal fashion. In the current scenario, at least as it looks set to play out, it has become clear that everyone from the President on down will talk a good game, but ultimately fail to follow through in any meaningful fashion.
In addition to the hard reality about its revenue resilience, Wall Street will have learned two lessons: 1.) if they get into trouble, government will bail them out, 2.) afterward there may be a lot of hard talk and recrimination to go around, but no matter how deep the hole no one will have the stones to start filling it with dirt.
That just strikes me as a truly dangerous combination. Failing to really and conclusively end too big to fail and passing a dog-and-pony show of regulatory reforms will leave us with an even cockier and more abusive Wall Street than before, if such a thing can be imagined. There will most assuredly be repeat abuses and the sense that anything is really on the line when the tune gets called will be even more strained and unbelievable — likely leading to even greater stakes being laid on the line.
None of which is an argument for doing nothing. I believe firmly and have stated repeatedly that strong reform is a must. But a kid who learns he can get away with doing something wrong rarely simply sticks within the confines of those boundaries. The impetus is to push harder and further, to find new boundaries and engage in even greater sins. So all of this is to say that financial reform needs to get done and it needs to get done right, unless there is interest in seeing what “bad-to-worse” looks like in this context.
My fear is that current efforts, should they take on a weaker formulation, will ultimately do more harm than they do good.