Even before the administration officially released its plan for regulatory reform today, the legislation wasn’t given much of a chance of passing this year. The thinking is that, with health care and climate change bills currently in markup, there just isn’t time to devote to financial regulation. The Senate will reportedly not even touch the topic until after August recess (though the House may move on it in July).
I get that there is a lot going on in Congress. Still, I worry that the delay not only kills any momentum for changing the system, but also gives the banking and financial services industries ample time to throw their money and influence around. Consider this reaction to the plan from the institutional brokerage firm Concept Capital (via Economix):
In our view, this plan is as negative for financial firms as the industry feared. Still, this is not the end of the game for financial firms. This proposal will change radically as it slowly moves through Congress. We expect a flood of negative headlines in the coming weeks and months, especially as we expect the House Financial Services Committee to begin voting on legislation in July. Yet the congressional agenda is packed and key Senate leaders are distracted. So we see little Senate movement in 2009. That gives the industry lots of time to try to modify the final bill.
As Ezra Klein put it, a delay provides a window “in which the broader public can lose interest in financial regulation and the financial industry can ramp up its lobbying effort in the Congress. It also puts us a lot closer to an election, which will make that lobbying effort all the more effective.” And here’s Concept Capital, admitting what a great opportunity the delay is!
Look at the example provided by the failure to pass cram-down legislation. There was pretty widespread agreement that something needed to be done to address the housing market, and a bill that would have allowed bankruptcy judges to cram-down mortgage payments for troubled homeowners eventually made its way through the House. Then it sat in the Senate, the banking and mortgage industries picked it apart, and it ultimately failed.
Peter Solomon, an investment banker and counselor to the U.S. Treasury in the Carter administration, said that the administration’s plan may already have been scaled back “because lawmakers and the public perceive the financial crisis has abated.” An administration official, meanwhile, told reporters that “the president wants to see a bill he can sign this year.” “We can’t afford to wait. We can’t afford to let our financial system continue to operate under a regulatory system that is inadequate,” the official said. I hope the administration can hand at least some of that sense of urgency over to Congress.