Holding Wall Street Accountable

ECONOMY

"We cannot let the narrow interests of a few come before the interests of all of us," President Obama said last year in a call for "an overhaul of U.S. financial regulations." Buoyed by success in the long battle to pass comprehensive health care reform behind them, Congress has set its sights on reining in Wall Street's recklessness and providing new protections for consumers, reducing risk, and increasing transparency. The bill introduced by Senate Banking Committee chair Chris Dodd (D-CT) "would create a new consumer protection bureau within the Federal Reserve to guard against lending abuses," "create oversight of the enormous derivatives market,"and "give the government authority to wind down large, troubled financial institutions in an orderly way." If institutions that are "too big to fail" repeat the kind of disastrous behavior that sent the global economy into a tailspin in 2008, "the Senate bill gives the government the authority to wind down the firm with no exposure to the taxpayer," Treasury Secretary Timothy Geithner described. "No more bailouts. Instead, we will have a bankruptcy-like regime where equityholders will be wiped out and the assets will be sold." The legislation's wind-down provisions are similar to the insurance fund and resolution authority that the FDIC has to safely shut down smaller banks, and the fund is paid for by big banks, not taxpayers. Since September, Dodd has tried to work with committee Republicans Richard Shelby (AL) and Bob Corker (TN) to find bipartisan consensus. However, as a vote grows near, Republicans have been on the attack. Last week, Senate Minority Leader Mitch McConnell (R-KY) declared his opposition to the financial reform bill, claiming that it "institutionalizes...taxpayer-funded bailouts of Wall Street banks" and would give the Federal Reserve "enhanced emergency lending authority that is far too open to abuse."

MCCONNELL'S 'BAILOUT' LIE: McConnell has touted his opposition to financial regulation by pretending to speak on behalf of American citizens, opposing "bailouts" and "abuse." As Time's Adam Sorensen noted, McConnell's attack made "the exact argument pollster Frank Luntz urged Republicans to make earlier this year in a widely publicized memo." Luntz told the GOP to attack reform as "bailouts" and blame "Fannie Mae, Freddie Mac, the Federal Reserve" for creating the "bubble." A number of other Republicans -- including House Minority Leader John Boehner (R-OH) -- have repeated this false right-wing talking point. However, the disingenuous attempt at populist posturing to kill reform has fallen flat. CNBC's Ron Insana laughed when trying to explain McConnell's views, and MSNBC's John Harwood said that "Senator McConnell's argument is a little silly when you look at the text of the bill." Time's Mark Halperin told MSNBC's Joe Scarborough, "They are willfully misreading the bill or they are engaged in a cynical attempt to keep the president from achieving something." On Monday, Corker called his leader's attacks "silly," saying that the fund he designed with his colleague Sen. Mark Warner (D-VA) "is anything but a bailout." Yesterday, fellow banking committee member Sen. Judd Gregg (R-NH) praised the resolution authority as a "good approach." Following an in-depth analysis, the nonpartisan PolitiFact rated McConnell's claim that the financial regulation bill "actually guarantees future bailouts of Wall Street banks" completely false.

IN BED WITH WALL STREET: McConnell did not mention in his attack on Wall Street regulation that the week before he traveled alongside National Republican Senatorial Committee chairman Sen. John Cornyn (R-TX) to New York City for a private meeting with elite hedge fund managers and other Wall Street executives. The purpose of the meeting between the top Republicans and the financial executives was to enlist "Wall Street's help" in funding Republican campaigns in the fall and killing any tough financial reform. McConnell takes more money from the finance industry than any other sector. He has taken $1,147,924 for his current re-election campaign, including PAC contributions from megabanks like Citigroup and Bank of America. When pressed by reporters for details about his meetings on Wall Street, McConnell repeatedly refused to discuss the matter. But as the Wall Street Journal reported in February, Republicans have been "stepping up their campaign to win donations from Wall Street," "striving to make the case that they are banks' best hope of preventing President Barack Obama and congressional Democrats from cracking down on Wall Street." In a January meeting, Boehner told JP Morgan CEO Jamie Dimon that "congressional Republicans had stood up to Mr. Obama's efforts to curb pay and impose new regulations." Since 2009, contributions from JP Morgan, Citigroup, and Bank of America have all "trended toward Republicans." Hedge funds similarly shifted, going "from giving 2 to 1 to Democrats at the start of 2009 to providing almost half of its donations to Republicans by the end of the year."

MCCONNELL FOLDS, FOR NOW: Yesterday, a battered McConnell abandoned his "bailout" lie, saying, "I'm convinced now there is a new element of seriousness attached to this, rather than just trying to score political points. ... I think that's a good sign." The change in tone came, the Washington Post writes, "as the Security and Exchange Commission's lawsuit against Goldman Sachs for allegedly defrauding investors continued to dominate headlines, underscoring public anger at Wall Street and reminding lawmakers of the potential consequences of inaction." Senate Majority Leader Harry Reid (D-NV) said yesterday that he plans to "wait until early next week to introduce the financial overhaul package on the Senate floor," to give Dodd and Shelby "more time to try to reach a compromise." However, hurdles to cleaning up the financial industry remain. "I think there's a continuing tension in the caucus between those who hold out hope for meaningful and sincere bipartisan negotiations," Sen. Sheldon Whitehouse (D-RI) said, "And those who see Lucy yanking the football away from Charlie Brown for the umpteenth time." Economist Paul Krugman is similarly concerned that the White House isn't taking seriously the "possibility that Republicans will filibuster financial reform." Sen. Bernie Sanders (I-VT)warns that the fine print of the final legislation will determine "whether the Congress has the ability to regulate Wall Street or Wall Street continues to regulate the Congress." Lobbyists are fighting the effort by Sen. Blanche Lincoln (D-AR) and Sen. Maria Cantwell (D-WA) to bring transparency and price discovery to the shadowy derivatives market. Tomorrow, the President will go to New York City to begin the final push, reminding "Americans what is at stake if we do not move forward with changing the rules of the road as a part of a strong Wall Street reform package." It has been three years since the over-inflated housing market began to crash. It has been a year and half since the Wall Street meltdown and over a year since Treasury rolled out its principles for reform. It's time to get this done.

Let The Sun Shine In......