With public attention focused on everything from the oil disaster, the diplomatic isolation of Israel, to Al and Tipper's separation, the final legislative push for financial reform begins this week as House and Senate conferees commence their work. This is the moment when lobbyists for the banking industry hope to kill provisions that they were unable to block in the House or Senate. This is no time for reformers to relent.
Much of the conference will be in public session -- a break with recent practice -- but backroom deals are likely to determine the final outcome. Efforts by progressives and friendly media are desperately needed to keep the pressure on to strengthen, rather than weaken, reform. According to the Center for Responsive Politics, more than 1,400 former legislators and Hill staff now work for the banking lobby. The industry has about 1,800 paid lobbyists in all, compared to about 60 mostly volunteer lobbyists from several dozen consumer and labor organizations working (on their own time) under the banner of Americans for Financial Reform (AFR).
Here is a brief user's guide to the proceedings.
The House and Senate conferees will formally be appointed on Tuesday, and the conference's real work will begin Thursday. Financial Services Chairman Barney Frank has promised that debates will be open and televised, and that key votes will be recorded. That's a good start, but invariably a lot of the deals will be struck in private after consultation with administration officials and industry lobbyists. Americans for Financial Reform has requested that key proposed amendments be posted for public review, and Frank agrees in principle.
However, excessive delay works to the benefit of industry lobbyists. There is concern that despite the transparency of the process, the industry will work with Republicans and conservative Democrats to stretch out the conference beyond the deadline target of July 4, and use the delay to weaken the bill.
Despite the David-Goliath nature of this fight, a lot of good provisions are in either the House or Senate bills, and the challenge will be to make sure that the final law includes the stronger rather than the weaker version. Among the key fights:
Derivatives: Senator Blanche Lincoln's language requiring that all derivatives trades be cleared on public exchanges, that no banking company with deposit insurance may also trade derivatives, and that sundry other loopholes be closed, survived fierce industry opposition and only lukewarm support from the administration. Whether or not Lincoln wins her own primary Tuesday, this measure has increasing support of House and Senate progressives. A companion measure by Sen. Maria Cantwell, which did not make it into the senate bill, would close more loopholes and require adequate capital for all such trades. This approach now appears to have the support of both Senate Banking Chair Chris Dodd and House Chair Barney Frank, as well as Gary Gensler on behalf of the administration. Banks want to continue their gambling games, and this is the number one target of the big banks to kill.
Consumer Protection: The House bill includes a free standing consumer financial protection agency, but it would be hobbled by the requirement that it report to a committee as well as limits on its jurisdiction. The Senate version nests the proposed agency as an independent body inside the Federal Reserve, but without many of the restrictions. This is one of the few provisions that enjoys the hands-on personal support of President Obama. The challenge of the conference is to retain the best features of both bills.
Credit Rating Agencies: It was the corruption of credit rating agencies that made possible the sub-prime meltdown. Reform of these private agencies, such as Moody's and Standard and Poors, was not even part of the original legislation. But a surprise amendment by Sen. Al Franken requiring random assignment of agency ratings rather than payment of the agencies by clients narrowly passed the Senate and was included in the bill. There is no House counterpart, and industry is gunning for this one. But the House does provide that credit rating agencies are legally liable for deceptive practices.
Cover Auto Dealers: New and used car dealers are among the most notorious purveyors of deceptive bait-and-switch financing. But the auto industry, which operates in every congressional district, worked with Senate Republicans on a parliamentary maneuver to win an exemption for car dealers; a similar provision is in the House bill. There is an outside chance that this could be reversed. Both Dodd and Frank are sympathetic to reversing this outrageous carve-out.
Bring Back Glass-Steagall: Among the crucially important provisions that did not make it into either final bill is the Merkley-Levin amendment which would draw a bright line separating taxpayer-insured commercial banks from financial firms that gamble and trade derivatives and other risky other securities for their own accounts (the "Volcker Rule.") There is still a decent chance that this could make it into the final bill.
Break up the Biggest Banks: Another key provision that developed significant support but that was defeated in a floor right was the Brown-Kaufman amendment to limit the percent of deposits held by any one bank, and thereby break up the biggest banks. But this measure will be back another day.
Duty to Clients: Among the most instructive revelations of the hearings, investigations and debates was the disclosure that big Wall Street houses routinely bet against their own customers. An amendment providing that investment banks have a fiduciary duty to their clients was not included in the final senate bill, but has increasing support.
Fix the Mortgage Mess: The House and Senate bills both have modest reforms to tighten mortgage standards but no major breakthrough to end the logjam on refinancing distressed mortgages so that besieged homeowners can keep their homes. This is also a fight for another day.
Despite its limitations, the financial bill is a start that progressives need to defend. Given where we began, this process has come a long way. At the outset, the administration was backing a far weaker bill. House Financial Services Chairman Barney Frank was hobbled by the presence of fifteen pro-industry "New Democrats" on his committee who weakened the bill at every opportunity. As recently as March, Senate Banking Chairman Chris Dodd was on the verge of making a bipartisan deal with Committee Republicans for a measure that would have been reform in name only.
But as the public has begun paying more attention, as AFR has grown into the most effective financial reform coalition ever; and as heroic progressive legislators have moved their colleagues, the bill has gotten better over time. Other progressive leaders such as Elizabeth Warren and AFL-CIO President Rich Trumka have pushed public opinion, key legislators, and the Obama Administration. All of this is no small achievement, given how esoteric most of these issues are to most voters.
The big fight to secure these gains begins this week. As I've observed before, even Roosevelt took seven years and several pieces of legislation before the New Deal structure of financial reform was completed. One thing is certain: Wall Street will continue pulling out all the stops to preserve its corrupted and discredited business model. Reformers need to redouble their own efforts.
Robert Kuttner is author of "A Presidency in Peril," co-editor of The American Prospect, and a senior fellow at Demos.