By Mike Konczal, Published: October 12
When it comes to financial regulation, there are no substantial issues on which Tea Party Republicans differ from Wall Street.
This fact may surprise you, because the latest argument among conservatives is that the Tea Party agenda isn't shaped by the financial sector. In fact, they'll say, the Tea Party is where the smartest ideas on financial reform are being generated.
Tim Carney of the Washington Examiner has made this case, writing that a “Republican who doesn’t care about Bank of America checks wasn’t possible before the Tea Party.” And Ross Douthat argues that the same far-right members of the Tea Party who called for the shutdown are “more open to new ideas on ... financial reform.”
One problem with this argument is that many Tea Party Republicans are in favor of the same bills favored by the financial industry. Take the Financial Takeover Repeal Act of 2013, a one-line bill sponsored by Sen. David Vitter (R-La.) that repeals Dodd-Frank and replaces it with nothing. This bill has 22 co-sponsors this year, including notable Tea Party senators such Mike Lee, Rand Paul and Ted Cruz.
Of course, not everyone on Wall Street is in favor of repealing Dodd-Frank and replacing it with nothing. After all, that could produce a backlash from the public. In many cases, the financial industry would just prefer to weaken existing regulations. And here, too, they've often found support from Tea Party types.
For instance: One change favored by Wall Street is to pull back on the more aggressive parts of Dodd-Frank's derivatives regulation. And here we see Citigroup actually writing the text of a bill that House Republicans took up and voted for. That was just one of many in the grab-bag of derivatives reforms that the Republican House, with some Democratic support, pushed for this year.
The financial industry has also pushed to weaken the independence of the Consumer Financial Protection Bureau (CFPB). And changing the funding of the CFPB has been a demand from the GOP from the beginning. Notice that the question of funding independence doesn't usually break down along ideological lines. The bank-friendly Office of the Comptroller of the Currency, for instance, also isn't funded through the annual appropriation process. Yet Senate Republicans didn’t make a fuss over this when they voted to put Thomas Curry in charge of the OCC last year.
Another reform at issue is whether the Federal Deposit Insurance Corp. (FDIC) should be able to force financial firms into a receivership during a crisis — a move that would end Too Big To Fail. For this process to work, those financial firms would have to be subject to scrutiny, special capital requirements, restrictions on capital purchases and bonuses, and possible restructuring. Yet the GOP wanted to lift these requirements as part of their government shutdown wish-list. It’s also a major feature of Paul Ryan's plan.
And there's more than Dodd-Frank at issue here. The Department of Labor, for instance, is releasing new fiduciary requirements to better deal with 401(k)s, IRAs and the rest of the wave of personal, private, tax-exempt savings accounts. House Republicans are trying to block these rules.
One might think conservatives would support these fiduciary requirements as a way of bolstering support for private-savings vehicles like 401(k)s over Social Security. Back in the 1980s, conservative think tanks supported tax carve-outs for private-savings vehicles in order to create the conditions for ending Social Security. And nowadays, one of the strongest arguments for boosting Social Security is the growing suspicion that 401(k)s and other private retirement programs are ripping people off. The lack of clear standards can actually strengthen support for government safety-net programs.
Still, the financial industry doesn’t want the fiduciary requirements, and the Tea Party doesn’t either.
These are not minor nitpicks, or obscure regulatory codes I’m bringing up as cheap shots. These are the major, substantive issues of the regulatory response to the largest financial crisis since the Great Depression. I’m not saying that you should support all these measures (though I do think this list, on the whole, is smart policy). But the pattern is obvious.
Some people will bring up the Brown-Vitter plan to raise capital significantly. That's a plan to strengthen financial regulation and is supported by a Republican. But the bill only has one other Republican co-sponsor, having lost one since its debut. And it's worth noting that Vitter hasn't pushed for higher leverage requirements at other points. (Indeed he didn’t acknowledge the surprise increase in leverage requirements over the summer proposed by U.S. banking regulators.)
Similarly, there are now three remaining important capital rules still on the table, dealing with liquidity, extra capital for the biggest banks and the question of how banks hold debt. There’s no support, or acknowledgement, of any of these rules from either the Tea Party or Vitter (other than a push to repeal Dodd-Frank entirely).
What are the takeaways here? The first is that the actual disagreements between the Tea Party and Wall Street appear to be over tactics — whether shutting down the government will help or hurt the cause. Tactical disagreements are important, but they shouldn’t be confused with substantive disagreements on policy.
Another point is that the alliance between Tea Party Republicans and Wall Street often gives substantial power to centrist Democrats on these issues, who become the swing vote on what gets passed. Given that financial influence is large with this group, it’s of grave concern that there's not actually a left-right alliance concerned with Wall Street.
The one time a left-right alliance on financial matters did emerge, in the form of support for a Fed audit amendment during Dodd-Frank, the alliance collapsed quickly. Those on the right wanted to dismantle the dual mandate, while those on the the left half wanted to remove bankers and regional Fed chairs from decision-making. Meanwhile, most of the “smart” conservative takes on financial reform start with the premise that Dodd-Frank is the law on the books, while Tea Party intellectuals do not.
Finally, the way the conservative press approaches this topic doesn't help. Take a recent piece by Tim Carney on the House Republican plan, known as the PATH Act, to privatize the GSEs without maintaining a credit guarantee. There are financial groups who oppose this bill (“The most powerful opposition to the House ... comes from the Mortgage Bankers Association”), which leads Carney to suggest that conservatives are standing up to "special interests." But he doesn’t mention that other parts of the financial industry do support the bill. Indeed, the American Securitization Forum has testified that they “strongly support the introduction of the PATH Act.”
Which is to say that there’s no neutral position here. The key question is how to best create rules for the financial system so that it works better for the economy as a whole, a process that will necessarily create winners and losers. Perhaps it is just a coincidence that Tea Party anger over the idea of a federal, regulatory state just happens to overlap with the interests of Wall Street. Perhaps. But I see no reason people should take comfort in that.
When it comes to financial regulation, there are no substantial issues on which Tea Party Republicans differ from Wall Street.
This fact may surprise you, because the latest argument among conservatives is that the Tea Party agenda isn't shaped by the financial sector. In fact, they'll say, the Tea Party is where the smartest ideas on financial reform are being generated.
Tim Carney of the Washington Examiner has made this case, writing that a “Republican who doesn’t care about Bank of America checks wasn’t possible before the Tea Party.” And Ross Douthat argues that the same far-right members of the Tea Party who called for the shutdown are “more open to new ideas on ... financial reform.”
One problem with this argument is that many Tea Party Republicans are in favor of the same bills favored by the financial industry. Take the Financial Takeover Repeal Act of 2013, a one-line bill sponsored by Sen. David Vitter (R-La.) that repeals Dodd-Frank and replaces it with nothing. This bill has 22 co-sponsors this year, including notable Tea Party senators such Mike Lee, Rand Paul and Ted Cruz.
Of course, not everyone on Wall Street is in favor of repealing Dodd-Frank and replacing it with nothing. After all, that could produce a backlash from the public. In many cases, the financial industry would just prefer to weaken existing regulations. And here, too, they've often found support from Tea Party types.
For instance: One change favored by Wall Street is to pull back on the more aggressive parts of Dodd-Frank's derivatives regulation. And here we see Citigroup actually writing the text of a bill that House Republicans took up and voted for. That was just one of many in the grab-bag of derivatives reforms that the Republican House, with some Democratic support, pushed for this year.
The financial industry has also pushed to weaken the independence of the Consumer Financial Protection Bureau (CFPB). And changing the funding of the CFPB has been a demand from the GOP from the beginning. Notice that the question of funding independence doesn't usually break down along ideological lines. The bank-friendly Office of the Comptroller of the Currency, for instance, also isn't funded through the annual appropriation process. Yet Senate Republicans didn’t make a fuss over this when they voted to put Thomas Curry in charge of the OCC last year.
Another reform at issue is whether the Federal Deposit Insurance Corp. (FDIC) should be able to force financial firms into a receivership during a crisis — a move that would end Too Big To Fail. For this process to work, those financial firms would have to be subject to scrutiny, special capital requirements, restrictions on capital purchases and bonuses, and possible restructuring. Yet the GOP wanted to lift these requirements as part of their government shutdown wish-list. It’s also a major feature of Paul Ryan's plan.
And there's more than Dodd-Frank at issue here. The Department of Labor, for instance, is releasing new fiduciary requirements to better deal with 401(k)s, IRAs and the rest of the wave of personal, private, tax-exempt savings accounts. House Republicans are trying to block these rules.
One might think conservatives would support these fiduciary requirements as a way of bolstering support for private-savings vehicles like 401(k)s over Social Security. Back in the 1980s, conservative think tanks supported tax carve-outs for private-savings vehicles in order to create the conditions for ending Social Security. And nowadays, one of the strongest arguments for boosting Social Security is the growing suspicion that 401(k)s and other private retirement programs are ripping people off. The lack of clear standards can actually strengthen support for government safety-net programs.
Still, the financial industry doesn’t want the fiduciary requirements, and the Tea Party doesn’t either.
These are not minor nitpicks, or obscure regulatory codes I’m bringing up as cheap shots. These are the major, substantive issues of the regulatory response to the largest financial crisis since the Great Depression. I’m not saying that you should support all these measures (though I do think this list, on the whole, is smart policy). But the pattern is obvious.
Some people will bring up the Brown-Vitter plan to raise capital significantly. That's a plan to strengthen financial regulation and is supported by a Republican. But the bill only has one other Republican co-sponsor, having lost one since its debut. And it's worth noting that Vitter hasn't pushed for higher leverage requirements at other points. (Indeed he didn’t acknowledge the surprise increase in leverage requirements over the summer proposed by U.S. banking regulators.)
Similarly, there are now three remaining important capital rules still on the table, dealing with liquidity, extra capital for the biggest banks and the question of how banks hold debt. There’s no support, or acknowledgement, of any of these rules from either the Tea Party or Vitter (other than a push to repeal Dodd-Frank entirely).
What are the takeaways here? The first is that the actual disagreements between the Tea Party and Wall Street appear to be over tactics — whether shutting down the government will help or hurt the cause. Tactical disagreements are important, but they shouldn’t be confused with substantive disagreements on policy.
Another point is that the alliance between Tea Party Republicans and Wall Street often gives substantial power to centrist Democrats on these issues, who become the swing vote on what gets passed. Given that financial influence is large with this group, it’s of grave concern that there's not actually a left-right alliance concerned with Wall Street.
The one time a left-right alliance on financial matters did emerge, in the form of support for a Fed audit amendment during Dodd-Frank, the alliance collapsed quickly. Those on the right wanted to dismantle the dual mandate, while those on the the left half wanted to remove bankers and regional Fed chairs from decision-making. Meanwhile, most of the “smart” conservative takes on financial reform start with the premise that Dodd-Frank is the law on the books, while Tea Party intellectuals do not.
Finally, the way the conservative press approaches this topic doesn't help. Take a recent piece by Tim Carney on the House Republican plan, known as the PATH Act, to privatize the GSEs without maintaining a credit guarantee. There are financial groups who oppose this bill (“The most powerful opposition to the House ... comes from the Mortgage Bankers Association”), which leads Carney to suggest that conservatives are standing up to "special interests." But he doesn’t mention that other parts of the financial industry do support the bill. Indeed, the American Securitization Forum has testified that they “strongly support the introduction of the PATH Act.”
Which is to say that there’s no neutral position here. The key question is how to best create rules for the financial system so that it works better for the economy as a whole, a process that will necessarily create winners and losers. Perhaps it is just a coincidence that Tea Party anger over the idea of a federal, regulatory state just happens to overlap with the interests of Wall Street. Perhaps. But I see no reason people should take comfort in that.
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