Bombing Ants in the Sausage Factory

The only aspect of the financial reform legislation that’s truly strong is the level of rhetorical nonsense that both parties have unleashed around it: Democrats and the media exaggerate when they praise it as “the toughest financial overhaul since the Great Depression.”

Not to be outdone, the Republican House minority leader, John Boehner, has weighed in, describing the proposal as a nuclear weapon being used to kill an ant.

Which would make the financial crisis the ant, I guess.

On Tuesday, the nuclear bomb had to go back to the, uh, sausage factory, for some more grinding after Sen. Robert Byrd’s death and the defection of a former Republican reform supporter left the Dems with less than the 60 votes they need to overcome the wall of Republican opposition.

One of the few chinks in that wall had been Sen. Scott Brown. But Brown balked after a $20 billion tax on hedge funds and banks was inserted into the legislation to pay for the costs of modest additional regulation. The Republican senator from Massachusetts said he opposed placing a greater burden on financial institutions and he feared the costs of the tax would be passed on to consumers. So the reform proposal is headed back to the conference committee.

Let’s be clear: overheated and mangled rhetoric aside, the financial reform proposal does nothing to reduce the risk posed by our “too-big to fail” banks or to prevent another crisis. The proposal leaves much of the details to regulators subject to lobbying by the very institutions they’re supposed to oversee.

Now legislators think they’ve found a better bet to fund their reform: you!

According to the New York Times, they’re considering ending the Troubled Asset Relief Program early and diverting about $11 billion in taxpayer funds.

The Times observed this leaves legislators with a couple of awkward choices. “So,” the Times concludes, “the choice becomes a tax that might be passed along to consumers, or a charge directly to American taxpayers.”

Is this the best they can do? I’m increasingly sympathetic to Sen. Russ Feingold, the Wisconsin Democrat who is bucking his president and party, opposing reform because it doesn’t get the job done.

I would suggest that Boehner got it wrong, that the ant[s] are not the financial crisis; they’re the legislators scrambling around serving the banks’ interests when they’re supposed to be serving ours.

But that would give ants a bad name.

Financial Reform Legislation / Martin Column / TARP - 06/29/2010

Around the Web: Can WAMU be the Blue Cross of Financial Reform?

During the debate over health care reform, the public was galvanized by the disclosure of  outrageous insurance rate increases by Blue Cross.

It was that public outrage that finally got the healthcare legislation passed over Republican opposition.

Now Senate backers of  a strong overhaul of the financial system hope that televised hearings on the details of the reckless lending, incompetent management and multiple regulatory failures that sank the nation’s largest savings and loan will fuel support for financial reform in the face of relentless opposition from Wall Street.

The hearings got underway Tuesday in the Senate’s Permanent Subcommittee on Investigations, headed by Sen. Carl Levin,D-Michigan.

In strong contrast to hearings  held recently by the congressionally appointed committee to investigate the financial crisis, Levin’s opening hearing was tough, pointed and thorough. Levin said he intended for the hearings to serve as a case study for what happened at financial institutions during the meltdown. He compared WAMU’s selling and packaging of  high-risk option ARM and no-doc loans to dumping “pollutants into a river.”

Calling Washington Mutual’s former CEO Kerry Killinger “a forgotten villain of the financial crisis", Fortune’s Colin Barr sets the stage here. Business Week recounts the testimony here. CSPAN carried the hearings live they can be viewed here.

The star witnesses from WAMU were Killinger and former Chief Operating Officer Stephen Rotella. Killinger testified that WAMU was unfairly targeted by regulators because it not “too clubby to fail” as were larger financial institutions. Killinger insisted WAMU could have worked its way out of the crisis if regulators hadn’t eventually shut it down.

On Friday, we’ll hear from the regulators, who were well aware of WAMU’s questionable lending and securitization but continued to find that the savings and loan was financially sound.

Around the Web / Martin Column / Outrage - 04/13/2010

Urgent Challenges, Modest Responses

The good thing about President Obama’s state of the union speech is that he acknowledged the public’s anger over the financial crisis.

The bad thing is that he appears to reject it. “Look,” he said. “I’m not interested in punishing banks.”

As expected, the president put the rhetorical focus on jobs and the economy in his state of the union. But the actual proposals, a combination of tax cuts and subsidies were relatively modest. But the combination of his proposed freeze on most discretionary spending and continuing Republican opposition make the possibility of dramatic improvement in jobs and the economy unlikely. The speech didn’t contain the kind of dramatic response that 18 percent real unemployment and a continuing foreclosure crisis demand.

President Obama insisted he would veto any financial reform that wasn’t real. But he didn’t spell out what that might mean. Does that mean he’ll veto financial reform that doesn’t contain a Consumer Financial Protection Agency or meaningful derivatives regulation? The president didn’t say. He also didn’t pledge to fight for any specific reforms in Congress. The only specific he mentioned was his proposed bank fee to recoup costs of the bailouts.

President Obama blames his legislative frustrations on his own inability to fully explain his policies. But the president who has repeatedly promised no more business as usual remains afraid to tap into, and act on, the public’s honest passion for real change.

Martin Column / President Barack Obama - 01/28/2010