Freshman Democrats Fail First Exams on Wall Street Reform

Republicans on the House financial services committee have long been a cheap date for Wall Street. So it was no surprise that they voted unanimously on May 7 in favor of nine bills to eviscerate important safeguards in the 2010 Wall Street Reform Act pertaining to derivatives supervision. But American taxpayers would be discouraged to learn that most of the junior Democrats on this committee also jumped into the back seat with their Wall Street suitors.

Derivatives regard the gambling aspect of financial firms’ operations, the part in which they make high-stakes bets under the guise of “hedging.” For instance, the unregulated “credit default swaps” that nearly caused a full meltdown of the financial sector in 2008 were derivatives.

The bills in question include one (HR 1256) that cedes regulatory authority over foreign affiliates of American companies to foreign countries. Another (HR 992), allows taxpayer-backed banks to engage in risky derivatives bets that the Dodd-Frank reform law banned. The bills involve obscure terms, which, alas, are where the “muggers hide,” as Sen. Elizabeth Warren (D-Mass.) once said. Here is Public Citizen’s memo explaining the bills that was distributed to the committee.  And here are materials from Americans for Financial Reform.

Democrats carried the day in the passage of the Dodd-Frank Act in 2010, which included the desperately needed derivatives reforms. But on May 7, a passel of Democratic freshmen — including Reps. John Delaney (D-Md.), Dennis Heck (D-Wash.), Dan Kildee (D-Mich.) Patrick Murphy (D-Fla.), and Kristin Sinema (D-Ariz.), along with junior members including Reps. John Carney (D-Del.), Jim Himes (D-Conn..), Ed Perlmuter (D-Colo.) Gary Peters (D-Mich.), and Terri Sewell (De-Ala.) -— voted for some or all of the measures to shoot holes through Wall Street reform.

More senior Democrats generally voted against the anti-reform bills. They were in Congress in 2008 and saw the consequences of the crash first-hand as voter-accountable representatives.

Why did these newcomers make common cause with the Republicans, who, notably, voted unanimously for each of the Wall Street sponsored bills??

Did these junior members not realize that Wall Street’s 2008 crash that erased $12 million in wealth was enabled by bad laws and lax regulatory oversight?

Were they unaware that Wall Street lobbyists outnumber progressive voices 150-1, and misperceive this imbalance as reflecting general public opinion?

Public Citizen publishes regular, careful examinations of how money and lobbyists play on the issues of excessive executive compensation, the Volcker rule which would ban bank gambling, and at the general assault on implementation of the Dodd-Frank reform law.
Political spending data relevant to the May 7 vote won’t be available for several months. Mother Jones’ has already begun to probe the connection. The magazine published contributions to such members as Himes and Rep. Gwen Moore (D-Wis.) Freshman members of Congress are in the midst of learning that the campaign for reelection in 2014 began in November 2012, and that Wall Street is a lucrative area code to call for the necessary funds to win the next election.

During the hearing on these deforming bills, Rep. Stephen Lynch (D-Mass.), who knows something about fundraising having just bid for the Senate seat in an expensive media market previously represented by John Kerry, commented that these bills do just “what Wall Street wants.”

Democrat Rep. Maxine Waters (D-Calif.) enjoined her fellow members to learn the lessons of JP Morgan, once considered the best managed and safest bank on the planet. JP Morgan’s London whale loss may not have forced another taxpayer bailout, but shareholders lost 25 percent of their stock value when the supposedly best managed bank on the planet admitted to losing $6 billion on a bet. Rep. Keith Ellison (D-Minn.) demanded to know why American taxpayers should backstop these swap bets. Struggling with the flu, Ellison’s brave speech seemed to signal a shift in momentum that House Democrats would stand firmly for reform, for Main Street, for the American taxpayer.

But the subsequent votes themselves revealed that something—contributions, or inexperience, or lobbying—sometimes carry more weight than they should.
Ideally, when these bills reach the House floor, others won’t be as easily seduced. Wall Street spends more than $2 million a day lobbying through 3,000 agents. Anyone caring to call their member of Congress to help counter this onslaught: the main number is 202.224.3121.