Gosh, the Democrats are really pushing hard to save a key portion of the Dodd-Frank Wall Street reform bill, aren’t they? Like tigers, or Siamese fighting fish they battle! Thrilling to watch!
Oh, wait, that’s what they aren’t doing. Actually what we’re watching in the “Cromnibus” budget fight, is a stage-managed surrender that was inevitable pretty much from the moment the ink began to dry on the so-called sweeping reform of Wall Street the Democrats passed years ago.
The dominant media narrative this past week has been that Massachusetts Senator Elizabeth Warren, firmly saddled in her high horse, is trying to hold up the passage of the budget over a trifle. In reality, the so-called “Citigroup” provision to kill a rule designed to prevent future bailouts (so named because it was allegedly written by Citigroup lobbyists) is potentially quite an evil and destructive little thing. But the nitpicking counter-spin is already coming hot and heavy.
“It’s a marginal regulation,” said Patrick Brennan of the National Review, about the Dodd-Frank rule Warren wants to keep. Brennan bro-ishly dismissed “Liz” as an “indefatigable academic” who is “picking a fight that really can’t be said to help or hurt the economy,” a political fight that is “hardly a hill to die on.”
Republicans like South Carolina Senator Linsey Graham derided Warren’s gambit as an immature squabble and blasted Democrats in the House who followed her line of thinking. “Don’t follow her lead,” he said. “She’s the problem.”
Making the budget fight a news story not about bailouts, but about the ambitions of Elizabeth Warren, is part of the game. And the Beltway hacks have succeeded there. Media on all sides have described last week’s episode as Warren’s political coming-out party. Former Obama aides sent a letter urging her to run for president, and Fox news said the rebellion showed Warren has the “clout” to “disrupt the best plans of the establishment.”
The Atlantic saw the budget fight as an episode that secretly thrilled the Republicans, who came away with a powerful new talking point: Warren’s “star is rising,” and she’s pushing the Dems leftward, to a platform that wouldn’t carry a general election.
“Every leading Democrat,” said RNC spokescreep Sean Spicer, “feels like Elizabeth Warren is looking over their shoulder to go further to the left.”
All of this is infuriating on multiple levels, but mainly because Warren’s opposition to the Citi provision wasn’t a left-leaning move at all. It was very much a conservative position. Ayn Rand herself, dragged from the grave and lashed to a chair on the floor of the Senate, would have argued the same thing.
All the Dodd-Frank rule says is that if you’re a federally-insured depository institution – if you’re an FDIC-guaranteed bank, where real people have real bank accounts that are guaranteed by the federal government – you can’t also be gambling with swaps and other dangerous derivative instruments.
Think of it in terms of a workman’s compensation law. If you’re going to be insured against injury by the state, the state should get to demand that you don’t engage in fire-eating or base-jumping during work hours.
There’s no logical argument against the provision. The banks only want it because they want to use your bank accounts as a human shield to protect their dangerous gambling activities.
Thus it was no surprise when JPMorgan Chase chief Jamie Dimon started personally calling lawmakers this week to make sure the Citigroup provision passed. Dimon’s bank is the poster child for this rule, since the infamous London Whale episode of a few years ago is exhibit A of what this rule is designed to prevent: a trillion-dollar federally-insured depository bank engaging in tons of unsafe financial sex with risky derivatives, leading to spiraling losses in the billions that imperiled the savings of millions of ordinary people.
Both parties are moving against their ideological reputations in this fight. On one side, we have “conservatives” in the House and Senate who want to put taxpayers on the hook for massive future welfare payments. We had to have Senate hearings last year after the London Whale episode, which by itself ought to have infuriated conservatives everywhere. After all, why should the government have to get involved if Jamie Dimon feels like losing $6 billion at the blackjack table? Why is that our business?
Well, we had to have those hearings because the offending gambler, JPM, was and is a company whose bank deposits were federally insured. All Chase has to do is untether its consumer bank from its lunatic hedge fund, as both Warren and genuine conservatives like David Vitter want, and the state wouldn’t have to so much as blink when these rich dweebs rack up big gambling losses.
Meanwhile, on the other side, we have “liberals” in the White House and in the lame-duck Senate leadership who are nakedly whoring for big business in this affair, unashamedly doing favors for banks like Citigroup and JPMorgan Chase that in recent years have racked up tens of billions of dollars in penalties for a smorgasbord of corrupt practices. Establishment Democrats like Harry Reid almost certain to cave and wave through the Citigroup provision, foregoing a filibuster-type standoff.
Why? As Warren has cannily pointed out, veterans of Citigroup have dominated the Democratic Party establishment for quite a long time now, through figures like current Treasury Secretary Jack Lew and former Clinton Treasury Secretary Bob Rubin.
Conservatives for welfare, and liberals for big business. It doesn’t make sense unless we’re not really dealing with any divided collection of conservatives or liberals, and are instead talking about one nebulous mass of influence, money and interests. I think of it as a single furiously-money-collecting/favor-churning oligarchical Beltway party, a thing that former Senate staffer and author Jeff Connaughton calls “The Blob.”
What’s happening here is that The Blob, which includes supposed enemies like Reid and Graham, wants to give donation-factory banks like Citi and Chase a handout. But a coalition of heretics, including the liberal Warren, the genuinely conservative Vitter and (surprisingly to me) the usually party-orthodox Nancy Pelosi is saying no to the naked giveaway.
Is killing the Citigroup provision really worth the trouble? Is it a “Hill to die on”? Maybe not in itself. But the key here is that a victory on the swaps issue will provide the Beltway hacks with a playbook for killing the rest of the few meaningful things in Dodd-Frank, probably beginning with the similar Volcker Rule, designed to prevent other types of gambling by federally-insured banks. Once they cave on the swaps issue, it won’t be long before the whole bill vanishes, and we can go all the way back to our pre-2008 regulatory Nirvana.
If the Democrats actually stood for anything other than sounding as progressive as possible without offending their financial backers, then they would do what Republicans always do in these situations: force a shutdown to save their legislation. How many times did Republicans hold the budget hostage to rescue the Bush tax cuts?
But the Democrats won’t do that here, because they’re not a real party. They’re a marketing phenomenon, a big chunk of oligarchical Blob cleverly sold to voters as the more reasonable and less nakedly corrupt wing of a two-headed political establishment.
So they’ll punt on this issue in the name of “maturity” or “bipartisanship,” Wall Street will get a nice win, and Hillary Clinton or whoever else is being set up as the Blob candidate on the Democratic side will receive an avalanche of Financial Services donations to stave off Warren (who will begin appearing in the press as an unhinged combination of Lev Trotsky and Spartacus). A neat little piece of business all around. I don’t know whether to applaud or throw up.