A Financial Regulatory bill will pass the Senate with 80+ votes based on the prism of history. Sarbanes-Oxley in 2002 was enacted only because of the WorldCom scandal and the Consumer Protection Agency bill of 1979 failed when a President didn't counter that era's conservative Big Lie.
Regulating Wall Street is not easy street. Its much chronicled political and economic power can often withstand the tides of public opinion. Even after the Enron, Tyco and Adelphia scandals of 2002, for example, a push for strict accounting reform was failing in the U. S. Senate. A June 10, 2005 New York Times story concluded that the congressional effort was "all but dead." Yet the next month it passed the Senate 99 to zero.
What happened was that another shoe dropped -- WorldCom and Bernie Ebbers. The legislatively impossible became inevitable once WorldCom auditors found that the firm had overstated its assets by $11 billion, and the SEC launched a much publicized probe on June 26. Congressional opposition crumbled and President George W. Bush signed the Sarbanes-Oxley accounting reforms into law in a Rose Garden ceremony on July 30, 2002.
As President Obama today returns to Cooper Union to reprise his arguments for financial regulatory reform, we know this: whatever the ultimate legal merits of the SEC's case against Goldman Sachs for fraud, the political impact now will be comparable to WorldCom. Republican Senators may truly care about conservative free market ideology and Wall Street contributions, but at the end of the day they care far more about voters than dollars. Goldman, in today's idiom, is a game-changer.
The key question this week then will be what President Obama and Banking Chairman Dodd decide should be in the final bill since they now have all the cards. A medium strong bill including a public trading exchange for derivatives, a Consumer Financial Protection Agency (CFTA), adequate reserves hedging against excessive risk ratios and a resolution fund financed by a tax on banks will pass the upper chamber with 80+ votes on the floor. Republicans were disciplined against the health care bill will be disciplined this time in favor of something. For the G.O.P doesn't want to stand for the Goldman Old Party.
But there is a less pretty historical example also -- the failure of the proposed Consumer Protection Agency in 1979.
As the then head of Public Citizen's Congress Watch and organizer of a broad consumer-labor coalition for the bill, I remember how repeated attacks on "big government" and "more regulation" had political resonance. It didn't matter that the new advocacy agency had no regulatory authority and would cost all of $15 million. Supporters exposed the big government argument by organizing the "Nickel Campaign," getting 40,000 people to inundate Congress with the nickel per citizen the agency would cost. That won attention but offended many Representatives. In that moment when Reaganism was on the rise, slogans were beating substance.
As the pivotal vote approached in the House (the bill had previously passed the Senate), consumer leaders repeatedly looked to President Carter to call wavering Members. But it didn't happen. A frustrated White House consumer advisor Esther Peterson couldn't get the attention or time of her principal. Despite a Democratic majority of 277 Members, the CPA fell 221-189.
Today, other than the Republican whopper that a bill against bailouts supposedly favors bailouts, one talking point is straight out of the anti-CPA playbook. The 41st Senator, Scott Brown of Massachusetts, has argued that "it's more big government," as if an office within the Fed will considerably add to the size of a government with some six agencies already overseeing aspects of the financial sector.
Obviously then and now there's considerable political appeal in just attacking any proposal with an anti-government narrative. But the fight for a CFPA is occurring in a very different context than he fight for a CPA, for two glaring reasons.
First, in 1979 it was hard to show exactly how such an advocacy office could materially benefit consumers -- while today every reasonable person understands how Wall Street excesses helped cause and fuel the recent economic meltdown. A loss of eight million jobs in two years cannot be explained away with rhetoric and lies.
Second, today there's a president who has made it clear that he's all in on regulatory reform -- even issuing his first veto threat if the final bill doesn't require derivatives to be publicly traded.
To the extent that history repeats itself, 2010 will be far closer to 2002 than to 1979. It'll be fun to watch the Party of No being forced to say yes because this time the public understands that only "big government" can counter big business. It'll be fun to watch Frank Luntz and Senator McConnell claim co-credit for "this bi-partisan victory for Main Street over Wall Street."