For the first time since the Great Depression, Congress has Wall Street on the defensive. One setback after another has beset the financial titans accustomed to having their way when it comes to writing rules and regulations that govern their industry, and Senate Majority Leader Harry Reid (D-Nev.) promised to push forward on reform Thursday.
"We're going to work into the night," Reid said on the Senate floor Thursday.
Wall Street's traditional defenders in both parties are generally members of leadership, working to hold the center against populist attacks from both the left and right. But with Reid trailing in his bid for reelection, he has little to gain by defending the financial industry against the tide of public opinion. His number two, Sen. Dick Durbin (D-Ill.), came out Tuesday in favor of a far-reaching amendment that would break up big banks and cap their size. And his number three, Sen. Chuck Schumer (D-N.Y.), has infuriated Wall Street by largely remaining silent as his traditional backers are slain day after day.
Schumer's allies told New York magazine that his silence is strategic, and that any full-throated defense of Wall Street only emboldens those on the attack. Wall Street's lobbyists have largely absorbed the same lesson and have, to an unusual degree, stepped back from the field.
That leaves an alliance of progressives and traditionally conservative Republicans with varying motivations unusually close to something resembling victory. The New York Times has taken notice, reporting Thursday that "the confluence of a high-stakes election year and a pervasive anti-Wall Street sentiment after the recession has given liberals unusual muscle in the debate. It has also raised the prospect that they could succeed in reshaping the bill."
To be sure, the odds are still stacked against real reform and concessions have been made throughout the process. But the fact that populist proposals are being seriously considered and are well within striking distance represents a dramatic expansion of what was previously thought politically possible.
The White House has found itself playing defense, battling an amendment from Sen. Bernie Sanders (I-Vt.) that would open the Fed to an audit and pushing back against a measure from Sen. Blanche Lincoln (D-Ark.) that would require banks to spin off divisions that trade in high-risk swaps and derivatives.
Sen. Al Franken (D-Minn.), meanwhile, is pushing an amendment that has been called for by folks like Michael Lewis and Paul Krugman, as well as editorial boards across the country. It would create and impartial, independent board that assigns a credit rating agency to a bank for a particular project, so that the bank can't pick its rater, as happens currently, creating a staggering conflict of interest. If an agency is deemed by the board to produce consistently inaccurate results, it would be less likely to receive assignments. The board would also assign jobs to smaller agencies, breaking the stranglehold the big raters currently employ. The agencies and Wall Street strongly oppose the amendment and Sen. Chris Dodd (D-Conn.), leading the bill through the chamber, spoke out against it on the floor Wednesday. But Dodd, who is retiring, has diminished power in the chamber.
Sanders' amendment is scheduled for a vote later on Thursday, and appears within striking distance of passage. The likely tactic to oppose it will be the introduction of an alternative, much weaker amendment, that will give cover to those who want to vote against the Fed, but so far no such amendment has appeared.
The administration has itself partly to blame: Following the special election in Massachusetts that elected Republican Scott Brown, the White House went populist, demonizing Wall Street and pushing a proposal dubbed the Volcker Rule that would block major commercial banks from trading in the market with taxpayer-backed funds. Unleashed, the populist tide is threatening to wash over Wall Street.
The GOP is offering little resistance, seeing little political upside in fighting to the death for Wall Street. The party caved last week after a politically disastrous attempt to block the bill from hitting the floor and is now merely offering an alternative to the Democratic consumer protection agency that even Sen. Bob Corker (R-Tenn.) conceded Wednesday had no chance of passing. That leaves the Consumer Financial Protection Bureau, an agency with the potential to dramatically change the way Wall Street operates, largely unchallenged.
Perhaps the biggest threat to Wall Street, however, is the Brown-Kaufman amendment -- sponsored by Sens. Sherrod Brown (D-Ohio) and Ted Kaufman -- that would cap the size of banks. On Wednesday, Reid called it "intriguing," with Durbin going further.
"I would say that [of] all the many amendments which will be offered, this is clearly a game changer," said Durbin. "I am supportive of this amendment, even though I know that some of my friends in the banking -- some of my friends in the banking industry won't be happy with that. What they're talking about is dealing with the concentration of wealth and the concentration of economic power to a level which can literally bring the economy down. That's what we went through leading into this recession. That's what led to the massive taxpayer bailout. And that's what the Brown-Kaufman amendment addresses foursquare."
UPDATE: Reid tells HuffPost he will "make sure" Brown-Kaufman gets a vote and will back the Sanders amendment on the floor. Sen. Michael Bennet (D-Colo.), who had previously voted against a previous iteration of an audit of the Fed, will support the Sanders amendment, his spokesman Adam Bozzi tells HuffPost. Meanwhile, Greg Sargent reports that Sen. Al Franken (D-Minn.) will vote for Kaufman-Brown.