Why a Partisan Process Would Be Better for Financial-Regulation Reform

Everyone seems happy that the partisan logjam on financial-regulation reform has been broken; I'm not. I prefer rank partisanship on this issue as much as I did on health care. Partisanship makes for a stronger bill.

If there had been a deal with Republicans on health care, there's no way 31 million Americans would have been insured. The Republican alternative was 3 million. A deal would have insured maybe 15 million at most, leaving another 15 million or so out in the cold.

In the case of reforming Wall Street, most of the compromising has already taken place across party lines in the Senate Finance Committee. So the Republicans aren't likely to make the bill hugely worse. But I don't trust their "tweaking." Both parties have generally been in the pockets of banks, but banks have traditionally had deeper pockets for the GOP. (Democrats have been making up for lost time in recent years.) Most of the amendments to gut reform over the last several months have been offered by Republicans.

So I'm not happy to have them in the process. They are especially unenthusiastic about the proposed Consumer Financial Protection Agency, which has already been weakened by being placed under the Fed. Progressives need to be vigilant that at the 11th-hour lawmakers don't water down the language creating the agency.

Like health care, this bill is better than nothing. It gives reformers something to build on. But let's not kid ourselves. Because it merely tightens regulations rather than restructuring the whole banking system (by breaking up banks), it won't do much about institutions that are "too big to fail."

Obama has been in transition on this issue. After first rejecting Paul Volcker's plan to require the separation of banking from proprietary trading (banks trading in their own accounts rather than just serving their clients, which is how Goldman both became a huge profit machine and more recently ran into trouble), Obama underwent a conversion. At the beginning of the year he endorsed the so-called Volcker Rule, which is in the bill. It will at least require some recent bank marriages to be annulled, even if it doesn't fully break them up.

But the president's bank tax—a critical component of making the banks, not taxpayers, pay for bailouts—is much iffier. Republicans claim their priority is preventing taxpayer bailouts, but their real priority, as always in recent decades, is preventing tax increases of any kind. So the bank tax isn't likely to make it—thanks to the new bipartisan spirit at hand.