Notes on 'Wall Street's War'

So welcome to my new blog on Rollingstone.com! I want first of all to apologize for a prolonged absence from blogging in general. I've had a lot of things going on of late and in fact will be taking a prolonged vacation starting next week. I should be returning in the third week in June, but I can't promise that my writing will return to form that quickly, since I've observed over time that the best blog work tends to come from people who are miserable and sunshine-deprived. Since I'm going to spend much of the next month snorkeling in the south Pacific, I probably won't go back to being a short-tempered, paranoid misanthrope until at least July, and for that I also apologize, in advance.

I've gotten a few letters from my latest "Wall Street's War" piece and wanted in the first place to clear a few things up. This was a very difficult article to write for the simple reason that the narrative of the piece was changing almost on a minute to minute basis during the last week of Senate negotiations, a terrible situation for a biweekly magazine with a one-week lag time.

We were really trying in this article to do two things. One was to describe the whole FinReg bill in broad strokes so that people who weren't following it could get a quick overview of what took place. The other was to use this bill to show how the Senate works, and to me this was the real story, since (and this is embarrassing to admit) I didn't have a very good understanding of how bills moved through the Senate until I wrote this piece. But if you did follow what happened to the FinReg bill as it headed down the home stretch a few weeks ago, what you observed is that the Senate is really designed to be controlled by a handful of people -- and that those people in this case used their power to make sure that this bill targeting Wall Street was much weaker than it could have been, had its various parts been left to an honest vote.

Even moreso than in the House, where the leadership still wields enormous power through the Rules committee to decide which amendments will get to a vote and which won't, the Senate system of unanimous consent puts the whole ballgame in the hands of the majority and minority leaders. Although any Senator can stop any amendment from reaching a vote at any time by objecting, the reality is that not many Senators will go over the leadership's head to exercise that power. If you're a new junior Senator on the Democratic side and you don't like the sound of one of Harry Reid's craptastic loophole-filled legislative specials, you can object to it, sure -- but if you do, you can be damn sure that Santa will not be leaving much in the way of highway money or defense contracts in your stocking next appropriations season.

The system then is sort of like 100 men sitting in a circle, each armed with guns aimed at everybody else. Since any single member can kill the legislative project of any other single member, the process is designed to force the members to hammer out a consensus behind closed doors, before anything comes to a vote.

The reason very few real reforms ever get passed is simple. If a particularly dangerous amendment with real teeth (like, for instance, the Levin-Merkley amendment partially restoring the Glass-Steagall act) looks like it has a chance to get 60 votes and override objections, the leadership can kill it simply by not allowing it to get to a vote.

On the other hand, if senators like Ohio's Sherrod Brown and Delaware's Ted Kaufman bring the leadership an honest and promising reform like their Brown-Kaufman amendment mandating the breakup of too-big-to-fail companies, the leadership can do an informal head count, determine that the votes aren't there to get the thing passed, and let it go to the floor to get beat (which it did, 61-31, with 27 Dems voting against). Thus you get the appearance of a democratic process -- but reality is that if Brown-Kaufman had the votes to pass, it probably wouldn't have gotten to the floor in the first place. The whole show is a kind of political kabuki theater.

What was most interesting about what happened with the FinReg bill is that even when Merkley and Levin used an arcane back-door maneuver to force their amendment to a vote, attaching their amendment to Sam Brownback's amendment to grant auto dealers an exemption to the CFPB (which had already been approved to be voted upon), the powers that be still managed to get together and kill the thing by prevailing upon Brownback to withdraw his amendment.

The point of all of this is that even though mainstream news organizations covering the Senate typically sell their viewers/readers a storyline of fierce partisan bickering and gridlock, the reality in this case was much more subtle -- there were numerous examples of the top Democrats working with Republicans to make sure that the stuff that made it to the floor for a vote either a) didn't have the votes to pass, or b) wasn't terribly scary to Wall Street.

The one exception was Blanche Lincoln's 716 section on derivatives reform that I wrote about in the piece, and even there there's a very funny story. The section, which would force big banks like JP Morgan and Goldman to either forego their access to the Fed's discount window or spin off their swaps desks (translation: either give up your free Fed money or give up casino gambling), was a genuine threat to the profits of the big banks. Chris Dodd in the final week came up with an ingeniously corrupt amendment to kill 716, a substitute that would have given a 9-member council headed by Tim Geithner and staffed with opponents of the measure the power to unilaterally kill it within a year.

When the Dodd substitute met with fierce opposition early in that last week of the vote, he agreed to withdraw it. But I'm told by several sources that on the Thursday before the vote, the same day that Reid finally got his cloture vote to end debate, there was still concern that Dodd would try to sneak his amendment through while no one was looking. The worry was so great that a group of progressive senators (I can't get into which ones here) teamed up to pull a sort of Mr. Smith Goes to Washington flanking maneuver, arranging to sit in the chamber in a series of shifts to guarantee that at least one of them would be on the floor all day Thursday to object, should Dodd try to introduce his horseshit substitute amendment. They pulled it off, successfully preventing the introduction of a substitute to kill 716, and so that unlikely and very tough measure is still, as of this moment, in the bill.

Not for long, however. Another of my sources tells me now that he's already hearing that the conference process will feature a "Niagara Falls-caliber" watering-down process. 716, I'm told, is almost certainly going to be killed; between now and the conference we will hear about the House and Barney Frank having "concerns" about certain portions of the bill, and by the time those concerns are addressed, the bill will be a shell of what it is now, and it already idn't much.

Anyway, I should hear bits and pieces about what will be in the final package in the next weeks, and will be sure to air them out here as they come in. In the meantime, thanks for coming over to my new site -- and I will be back soon.

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