Don't sleep on Jackie Speier. The freshman Democrat from California came into the House Financial Services Committee room Thursday ready to fight for her long-shot amendment to limit the leverage ratio for big banks.
"I expected a roll call vote," said Speier, fresh off a star turn on the Colbert Report.
Lobbyists and committee staffers expected that the amendment -- which would mandate that banks essentially could not lend out or invest more than 12 dollars for every dollar they keep in reserve -- would only get a roll call and that it'd be soundly defeated, bounced by a coalition of Republicans and bank-friendly Democrats, who call themselves "New Democrats."
Instead, there were barely any lawmakers in their seats when her amendment came up during an all-day debate on comprehensive financial regulatory reform.
One of the two or three Republicans in the room asked for a roll call, but then quickly reconsidered and withdrew the request.
It passed by a unanimous voice vote.
The amendment makes sense, but rationality alone is rarely enough to get legislation through committee. The banks long fought to eliminate the cap and finally succeeded in 2004, a victory that is partially to blame for the financial crisis as over-leveraged banks ran short on capital.
But when the vote was called Thursday, the GOP members present didn't want to put their names to that agenda.
"I was thrilled," said Speier, who wouldn't confess to being surprised that she won. She guessed, instead, that the initial objection was simply Pavlovian.
"There's a knee-jerk reaction to just oppose everything on the other side," she told HuffPost. "I think what my Republican friends realized was that after going through this financial nightmare, to somehow argue against putting a leverage cap when we know that what happened was many of these companies -- the Bear Sterns, the Merrills, the Lehmans, were all leveraged 30-1 -- if we really are going to be real about tamping down that kind of behavior in the future, coming up with a reasonable leverage cap makes sense."
It wouldn't be a novel idea. Until 2004, the Securities and Exchange Commission limited leverage ratios to 12 to one. Speier's cap would only re-apply a cap to financial institutions deemed to be a risk to the overall financial system.
Final victory in the committee, however, still awaits. Just before a final vote was called, a bloc of Democrats from the Congressional Black Caucus demanded the vote be put off, sending a message to the White House that more needs to be done to improve the job situation.
The New York Times, in the fall of 2008, reported that on April 28, 2004, five members of the Securities and Exchange Commission met in a basement hearing room to hear "an urgent plea by the big investment banks."
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.
A lone dissenter -- a software consultant and expert on risk management -- weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington.
One commissioner, Harvey J. Goldschmid, questioned the staff about the consequences of the proposed exemption. It would only be available for the largest firms, he was reassuringly told -- those with assets greater than $5 billion.
"We've said these are the big guys," Mr. Goldschmid said, provoking nervous laughter, "but that means if anything goes wrong, it's going to be an awfully big mess."
It was. "There's a pattern here," says Speier. "We put these good laws in place, whether it's Glass-Steagall or, in that case the SEC cap. But then the industry comes to us and says, 'Oh, this is cramping our style. We could make' -- of course they don't say it this way -- 'we could make so much more money if you just lifted this cap.' And they were right. They made a lot of money and they also brought the entire country to its knees."
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