There are three kinds of Republicans in the Senate today. First, there are those willing to follow the lead of Senator Mitch McConnell – whose approach to financial sector reform apparently amounts to little more than, "Don't worry, be happy". If Senator McConnell has a reform plan he would like to lay out for review, now would be a good time to put some credible details on the table.
Based on what we have seen so far, Senator McConnell proposes to do nothing regarding the systemic risks posed by today's megabanks and just "let 'em fail" when necessary. This is a dangerous and irresponsible position, and it should be opposed tooth-and-nail by anyone who actually cares whether or not we run ourselves into a Second Great Depression.
The second group has remained silent so far, waiting to see which way popular opinion and their leadership will go. Most likely, almost all will cast their lot in with Senator McConnell.
And if Senator McConnell brings 40 Senators with him, they will defeat the Dodd bill - and then smash themselves into the rocks of November 2010 as the "too big to fail" party. Perhaps we should welcome that.
But there is also a third group, not yet numerous, that is more inclined to be sensible or - as Senator Corker aptly put it - to "act like adults."
These Senators (so far I have a list with precisely three names; tell me if you have more) begin to understand that allowing our megabanks to continue in their current form makes no sense. The power of this idea is starting to get through (also at BusinessWeek).
Saying we should do nothing about these megabanks makes no sense. And trying to turn the argument on its head to claim that, “a greater number of smaller banks would pose an even bigger risk of taxpayer bailouts” is truly not a powerful idea.
So what are the prospects for Senator Dodd's financial reform bill, which is expected on the floor soon?
Could it even be strengthened, for example in the direction that key Democratic Senators are already pushing?
The prospects for this are not as bleak as you might think. There are three elements that make this a potentially productive moment:
- The American people are legitimately and completely outraged by how big banks continue to behave. In such circumstances, you may think you have a backroom deal, but when it surfaces and people begin to do the math, the backlash can move things in an unpredictable direction.
- Senate Democrats are only now beginning to understand what the bill-as-drafted would and would not do.
- Almost all Senate Republicans are likely against the bill, but that “almost” may matter.
In short, anything can happen.
So it's a good time to call your elected representative. Or just email them this link: http://13Bankers.com (this is why we wrote the book).
This entry is also posted on BaselineScenario.com.