THE BLOG
03/18/2010 05:12 am ET Updated May 25, 2011

Floors Not Ceilings: Progressive Federalism, Not "States Rights"

"States rights" has been the divisive clarion call of the extreme right on social and civil rights issues for decades. But devolving power to the states doesn't have to be a bad thing. It can be what's known in policy circles as Progressive Federalism -- an ideology whereby "governors and activist state attorneys general [are allowed to] lead the way on environmental initiatives, consumer protection and other issues," as the New York Times reported in a piece about the Obama administration's support for the idea.

But in order for Progressive Federalism to happen, the federal government has to be supportive of floors, not ceilings -- that is, oriented toward setting minimum progressive regulatory standards that states must at least comply with, not maximum regulatory ceilings that states are not allowed to go above and beyond. And the problem is that the Democratic Party is split on that idea -- because Big Money hates it.

Case in point is the intensifying debate about Wall Street reform. During the era of deregulation, Washington policymakers passed statutes preempting (read: invalidating) many state laws that went further in regulating the banking industry than federal law. Now, a faction of Wall Street-funded "New Democrats" are trying to gut a White House proposal to change that paradigm and establish minimum floors of bank regulation that states can go beyond. According to the Wall Street Journal this Democratic congressional faction is trying to flip the proposal on its head by making the final product establish a federal ceiling whereby states cannot regulate banks any further:

Democrats are split over whether the proposal should allow states to trump federal regulations and enforce their own, often tougher consumer rules against national banks...This would permit states to bar certain fees and late charges otherwise allowed by federal regulators.

The White House proposal would create a new Consumer Financial Protection Agency with the power to write and enforce rules against a range of products. States would be allowed to write stricter rules than the CFPA, overturning existing policies under which national banks typically are immune from state regulation...

Rep. Melissa Bean (D., Ill.) is preparing an amendment that would prevent states from enforcing tougher standards against national banks than the federal entity's.

It's self-evident that what Bean and the Wall Street-funded Democrats are trying to do has nothing to do with the "public good" and everything to do with political harlotry -- The New Democrats , after all, have proven to be the Best Little Whorehouse in Washington and this just proves that truth.

Indeed, the meltdown did not happen because there were too many regulators -- it happened because there weren't enough. So obviously, any "reform" bill that effectively takes more state cops off the beat isn't going to be real reform. Likewise, the Wall Street meltdown did not happen because regulatory agencies were going too far in policing the market -- it happened because those agencies weren't going far enough.

Thus, it's obvious why real "reform" should set minimum standards of progressive regulation, not maximum limits of such regulation, and even more obvious why that same reform should encourage (or at least permit) state regulatory institutions to go further than federal standards if their constituents (via their legislatures, etc.) want. But it is also obvious why Wall Street lobbyists and the lawmakers they have bought and paid for want to do the opposite: The more real reform becomes, the less speculative profiteering that will be allowed and hence the less six- and seven-figure lobbying contracts, and the less campaign contributions.

The good news is that, according to the Huffington Post, President Obama is sticking to his guns on this one:

President Barack Obama reaffirmed his commitment Friday to allowing states to adopt stronger consumer protection measures than the federal government when it comes to financial products like credit cards and mortgages.

In a meeting at the White House, Obama told a group of state attorneys general and consumers that he was still committed to the idea. He didn't mention it, though, during his public remarks.

Over the last several years many states have adopted tough pro-consumer laws governing predatory lending, bank fees, interest rates and late charges, only to be told by federal regulators that their laws can't be applied to national banks such as Bank of America, Citibank, J.P. Morgan Chase and Wells Fargo.

If anyone understands the value of Progressive Federalism, it should be President Obama, considering most of his political experience comes from the Illinois state legislature. So this stand is definitely grounded in his own history.

Certainly, I hope he goes public with his stance -- and based on the White House's willingness to issue its first veto threat over the reform package, I'm optimistic that he will if the Wall Street Democrats are successful in trying to destroy reform (the vote on Bean's amendment is probably going to happen in the House Financial Services Committee this week). This is a fundamental, baseline issue rooted in common sense: "If a state wants to provide for its citizens' stronger consumer protections, it ought to be able to do so," as Obama's Deputy Treasury Secretary Neal Wolin told reporters.

Make no mistake about it: This fight over state and federal policy isn't limited to Wall Street. States, as the old cliche goes, are the laboratories of democracy. You can see that truth in financial reform and even in in the debate over health care: The Progressive States Network has organized a letter to Congress signed by more than 1,000 state legislators demanding real reform, and a leading proposal before Congress would allow states to administer their own public plan options.

The point here is not to inherently value state regulation over federal regulation or vice versa, but to make sure the two reinforce each other. To get that kind of Progressive Federalism on every issue will, again, require floors not ceilings.