WASHINGTON -- Democrats on Wednesday raged against a government funding bill that would provide taxpayer subsidies to risky Wall Street derivatives trading.
"The House of Representatives is about to show us the worst of government for the rich and powerful," said Sen. Elizabeth Warren (D-Mass.) on the Senate floor. She urged her colleagues not to support a "deal negotiated behind closed doors that slips in a provision that would let derivatives traders on Wall Street gamble with taxpayer money and get bailed out by the government when their risky bets threaten to blow up our financial system."
News of the deal, first reported by HuffPost on Monday, has prompted a bitter bicameral feud. The dispute highlights a major divide among Democrats leading up to the 2016 elections over Wall Street's role in the party platform.
"[It's] an awful invitation for another financial disaster," Sen. Dick Durbin of Illinois, the No. 2 Democrat in the Senate, told reporters Wednesday. "A number of us are very concerned."
With Senate Democrats having already largely agreed to the House package, the only viable route Democrats have to strip the provision is in the House, where dozens of Republicans plan to oppose the package, meaning GOP leadership needs Democratic votes to approve it. House Minority Leader Nancy Pelosi (D-Calif.) has been pushing her caucus hard to stand strong against it and another provision that would increase the role of big money in campaigns. "The public awareness among our base is very high on this swap and on this money," Pelosi told her whip team at a private meeting Thursday morning, sources told HuffPost. "And all of the idealism that people have who support us – both as small donors and as major supporters – has always been about reducing the role of money in politics."
The swap provision she references would allow Wall Street banks to trade risky financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses. Big banks traded derivatives from these FDIC-backed units in the years leading up to the 2008 crash, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers. Banks receive higher credit ratings for derivatives they sell from taxpayer-backed units, which in turn makes the derivatives more profitable.
“If Congress repeals this regulation of dangerous over-the-counter derivatives and swaps, the U.S. economy will be vulnerable to the same kind of financial risks that triggered the Great Recession," warned Joseph E. Stiglitz, chief economist at the Roosevelt Institute and a Nobel Laureate, in a press release.
The provision was inserted in a $1 trillion omnibus spending package as a result of an agreement negotiated with House Republicans by Senate Appropriations Committee Chair Barbara Mikulski (D-Md.). Mikulski originally cut the deal to include the derivatives language in exchange for a 16 percent increase in funding for the Commodity Futures Trading Commission, the agency responsible for overseeing the derivatives market.
Congress needs to agree to a funding package by 11:59 pm Thursday, or the government will shut down. Prior to Monday, the most vocal opposition to a long-term spending agreement had come from conservative Republicans, who are angry with GOP leadership for failing to at least attempt to defund President Barack Obama's executive order shielding millions of undocumented immigrants from deportation. Influential conservative groups, including the Club For Growth and Heritage Action, have officially voiced opposition to the so-called cromnibus bill.
But now, many infuriated Democrats are calling to kill the deal negotiated by House and Senate leadership. The office of Sen. Sherrod Brown (D-Ohio), who has led the behind-the-scenes opposition to the Wall Street provision along with Rep. Maxine Waters (D-Calif.), called the funding deal if a "Wall Street giveaway." Rep. Keith Ellison (D-Minn.) co-chair of the Congressional Progressive Caucus, tweeted his opposition Tuesday afternoon.
The #CROmnibus is a bad deal for working families, allows bad Wall Street deals, empowers wealthy donors, puts DHS in crisis. I'm opposed.
— Rep. Keith Ellison (@keithellison) December 10, 2014
Rep. Louise Slaughter (D-N.Y.), the top Democrat on the House Rules Committee, ripped the cromnibus for "rolling back regulations on risky behavior by big banks – the same sort of behavior that triggered the Great Recession."
"This so-called ‘negotiation’ is not enough. It does not serve the American people or this institution,” Slaughter said.
Senate Majority Leader Harry Reid (D-Nev.) isn't taking sides in the fight, which on the Senate side is largely between factions led by Warren and Mikulski.
On the Senate floor, Warren urged House Democrats to oppose the pact unless the Wall Street provision was stripped out. A few hours later, she upped the ante, holding a press conference with Waters, the top Democrat on the House Financial Services Committee, where both decried the provision as a "Wall Street giveaway."
"I understand compromise. I believe in compromise," Warren said. "This isn't about compromise. This is about reckless behavior. It is about a giveaway to the largest financial institutions in the country."
Warren repeatedly declined, however, to say whether she would use her power under Senate rules to hold up the bill if the House passed it in its current form.
"Right now the fight is in the House -- that's the fight we are going to pursue," Warren said. "It is up to the House to strip this out. That's what keeps the government operating, that's what keeps a compromise omnibus bill moving forward without endangering the American taxpayer."
Speaking to reporters, Waters questioned how Mikulski had allowed the provision to be tucked into the omnibus package. Although she said she did not know the details of the negotiations, Waters said it was "unconscionable" to slip in the pro-Wall Street rider.
"This deal just does not make good sense," Waters said. "So we're here to say, we're not going to support the omnibus bill ... and we're going to spend every waking hour trying to pull this out of the omnibus bill."
"Oh let's keep the Wall Street casino alive and well!" jeered Sen. Jeff Merkley (D-Ore.) on a conference call Tuesday afternoon. Like Warren, Merkley stopped short of saying he would oppose the cromnibus if it included the Wall Street subsidy language, but said, "I'm certainly entertaining that possibility."
On the same call, former House Financial Services Committee Chairman Barney Frank (D-Mass.) called the deal "absolutely outrageous," and said the budget deal sets a precedent that will allow Republicans to unravel the 2010 financial reform bill with every government funding agreement. Frank also argued that the provision could easily be taken out in the Senate if the House fails to remove it.
"If you vote this down, it would literally take about an hour to take it out," Frank said.
In other words, the entirety of congressional Democrats' financial policy brain trust is in revolt. And Warren's aggressive position signals a dramatic shift in the party's public messaging. Senate Democrats granted her a new leadership post as a policy adviser less than a month ago, and banking reform is Warren's signature issue.
As a shutdown looms in less than 36 hours, Democrats, oddly, have the most leverage over talks in the GOP-controlled House, where opposition from conservative hard-liners is expected to force House Speaker John Boehner (R-Ohio) to cultivate votes from across the aisle. Some critics, including Rep. Walter Jones (R-N.C.), have explicitly cited the Wall Street language in voicing their opposition.
"The Wall Street subsidy is one of many reasons I am voting against this bill," Jones told HuffPost in a written statement. "Once again, the House will be voting on a 1,603 page bill without having adequate time to read it -- we can’t even come close to knowing everything in this $1.1 trillion bill in this timeframe."
Pelosi has publicly criticized the pro-Wall Street language, but banking reform advocates say she has effectively been waving the provision through by allowing rank-and-file Democrats to support it.
If the cromnibus clears the House on Thursday, the Senate will have just hours to approve the deal. If Reid allows the package to be amended, Republicans could filibuster provisions and spark a shutdown.