It was a fight to the finish between two heavyweight contenders. In this corner, representing the big Wall Street interests and wearing green trunks the color of money, Rep. Barney Frank of Massachusetts. And in this corner, representing common sense and the American people, wearing red, white, and blue trunks, Sen. Al Franken of Minnesota. The gentleman from Massachusetts had the refs on his side, thanks to the bout's corporate sponsors, so the outcome was a foregone conclusion. It was impressive that the fight got as far as it did, and in the end it was a split decision, but it's as they say in the boxing world: In a split decision, the reigning contender always wins.
And when it comes to Capitol Hill, banks are always the reigning contender.
Here's what happened: Sen. Franken introduced an amendment in the Senate that would eliminate the "pay for play" system of credit ratings agencies, where the big, publicly-traded raters peddle their services to the big banks in return for revenue to their bottom line. Naturally, the banks want to use the agencies that will give the best possible rating to every risky piece of crap business they toss together so they can earn a quick buck at everyone else's expense. Credit agencies have enormous power, and the fact that banks choose -- and then pay -- these agencies played an enormous part in the last disaster.
As we reported in "The Rating Game," more than 500 pages of emails, powerpoints, and phone transcripts obtained by a Senate subcommittee show just how broken this process had become. The raters entrusted with our financial security talked openly about being stockholders in their own companies, afraid of losing revenue if they're not flexible enough to please the bankers they're rating. The Franken Amendment was urgently needed, critically important, and just good common sense.
Miraculously, it passed. What's more, it had the kind of bipartisan support that we're told is a virtue unto itself in Washington.
Enter Barney Frank. Frank made it clearly at the beginning of the week that the Franken Amendment was a non-starter as far as he was concerned. Frank's counter-proposal regarding the conflicted and implicitly corrupt system that helped bring the American system to its knees, and which continues to leave it unstable and imperiled, was ... a study. A two-year study, as a matter of fact, after which regulators might decide to change the system.
Franken fought back vigorously, from the looks of things, and Frank expressed annoyance when the conflict became public. "We don't believe a study is necessary," Franken Press Secretary Jess McIntosh told the Huffington Post. A spokesperson for Frank's Committee huffed back, "The time for debate will be tomorrow at 11:00 am, not through the press by spokespeople protecting the people who sign their paycheck."
Right -- it's all about the "paycheck." We all know that being a congressional staffer is where the big money is (as opposed to, say, the more than $2 million Rep. Frank has received in Wall Street contributions since 1989.) And what about Rep. Frank's much-vaunted claim that we would have a "transparent" process for reconciling the House and Senate bills? When it comes to letting the public know where the differences lie, apparently his enthusiasm has waned.
And why wouldn't it? Rep. Frank, whose accomplishments in financial reform should not be slighted, is on the wrong side of this issue. The Levin Subcommittee conducted all the investigation we need. A two-year delay only gives the big banks and their highly-paid lobbyists time to construct arguments that are vacuous when you study them, but provide enough of a flimsy facade to justify blocking real reform. That's the real reason for the huffiness: Franken and his staff obviously don't know how Washington works yet -- you're supposed watch silently and courteously as special interests gut the urgently-needed provisions you've won for the American people.
Franken and his Senate allies fought hard, and the fruits of their labors can be seen in the final agreement. His proposal is, as Hill staffers describe, "at the top of the list" for action after the study is done. That means lobbyists will have to put in some extra work to justify killing it. Sen. Franken himself says he can live with the compromise, saying "the language agreed on by the conference committee means more time and more study than I think is necessary, but it also means definite action will be taken."
It's true that lobbyists will have a higher bar than usual to jump, when it comes time to justify further inaction two years from now. But we're not a party to the negotiation process, so we're free to say that a two-year delay is a disaster. And I've seen how these deals were worked out in my insurance days: All they need to do is come up with a rationale for not implementing Franken -- it would be too disruptive, or as Sen. Dodd said today, too "complicated" -- and insist on a "strict" system of self-reporting and self-regulation by the credit agencies. (Actually, it's not complicated at all.)
Barney Frank won a decisive victory for Wall Street yesterday. He won them at least two more years of a broken system, two more years of selling aggressive, highly-risky products while the agencies entrusted with evaluating the risk have an incentive to look the other way. And, thanks to Rep. Frank, the banks now have two years to come up with a rationale for preserving this broken system forever. Rep. Frank will reportedly address the credit rating issue today but, as they say, actions speak louder than words.
Why not let Rep. Frank let him know how you feel about his actions? (You can use this congressional website -- choose "Massachusetts" for state and "02458-1275" for zip code, or call (202) 225-5931 - but if you're not a constituent, please make that clear.) It's worth the effort: This round is over, but the fight goes on.
UPDATE: On the upside, David Dayen reports that reformers won a round today. Sen. Dodd agreed to strike a provision that exempted ratings agencies from the same liability for negligence that other financial institutions face. As David rightly notes, that's a win for the good guys. (And another note: I don't feel as negative about yesterday as I did when I talked to him yesterday, so view my quotes accordingly.)
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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates