Health care isn’t the only legislative battle President Obama and Democratic leaders in Congress have on their hands.
Sweeping regulatory reform of the financial sector—thought to be a 2009 legislative given just four months ago—may now come down to a piece-meal approach, with the White House and its allies happy to see a couple prized components signed into law this year.
“I think it’s unraveling,’ says former FDIC Chairman William Isaac. “It is hard for me to see how this legislation gets done this year.”
Though no one is saying that publicly on Capitol Hill, advocates are facing a lack of momentum going into the current session.
The diminished prospects are more than just a crowded legislative agenda with equally complicated—yet higher-profile—reform initiatives on health care and energy. The growing lack of urgency also seems to reflect both human nature and political reality.
The financial crisis of a year ago is now more like a distant memory than a call to action. And the financial reforms themselves may be more controversial and less open to compromise or consensus than originally thought by both the White House and Congressional leaders.
“I think there’s a lot of recalibration taking place,” says Sen. Bob Corker (R-Tenn.), a member of the Finance Committee. The [public] hearings we had have helped. There are concerns on both sides of the aisle. I think they realize that on many fronts. That has to affect in some way how they go forward.”
Even the most seemingly straight-forward proposals prompted a groundswell of criticism and opposition.
That’s the case with proposals to give more regulatory powers to the Federal Reserve. One would make the central bank the systemic regulator on top of its oversight role for bank holding companies. Another would give the Fed a hand in resolving or winding down too-big-too fail firms like AIG ,which had led to embarrassing and costly federal bailouts in the crisis of 2008.
“I am opposed to that permanent bailout authority being given to the Treasury,” says Rep. Brad Sherman (D-Calf.), a senior member of the financial services committee. "It’s an abdication of Congressional authority. You’d think that would be a little difficult to pass.”
Sherman, who twice voted against the TARP bill, is more than adamant about his position, which happens to be a keystone of the GOP’s regulatory reform plan.
Other proposals would eliminate or create new regulatory agencies, or merge oversight functions and create greater regulation of such products as over-the-counter derivatives.
The most controversial perhaps—the creation of a new consumer protection agency covering financial products with sweeping and powerful regulatory authority—invoked loud cries of big government among Republicans and even some Democrats.
“I know they know they way over-reached,” says Corker, who along with Sen. Mark Warner (D-Va.) has introduced stand-alone legislation on resolution authority.
“The administration put up such a bad proposal, a difficult job has been made nearly impossible,” says Isaac. “They didn't address the problems they needed to address and addressed a bunch of problems they didn’t need to address that had nothing to do with the crisis. You make enemies out of people needlessly.”
Some observers say that was the case almost from the start.
Though Washington veterans raised potential turf battle issues as a likely stumbling block even before the White House sent its proposal to Congress in June, leaders on Capitol Hill downplayed the potential.
The White House seemingly played ball with a steady stream of leaks about its proposals and how they would affect the existing agency structure and, by implication, their Congressional committee oversight. So much for the best-laid plans.
“They thought they would come up with a rational plan,” says former ten-term Republican Congressman Bill Frenzel, now with the Brookings Institution. “There's a lot of different ways you can do it and a lot of jurisdictions in the Congress and everybody has his own pal. Jurisdiction is the deep-tapped root of politics in this town and no one wants to surrender it.”
It became apparent, for instance, that two powerful Democratic committee chairmen —House Financial Services Chairman Barney Frank of Massachusetts and Senate Banking Committee chairman Chris Dodd of Connecticut, the latter of whom is locked in a tough re-election battle —did not see eye to eye on either the proposals or the timetable.
The proposals also challenged the status quo of the financial services industry, which publicly supported the reforms in general but lobbied against many of the particulars behind closed doors.
“There's a lot of problems with this regulatory reform, so it could easily slip to next year,” says one knowledgeable industry representative.
More debate and controversy is certain.
Later this month, Rep. Frank’s committee will hold public hearings on the consumer agency.
“The president has asked us to do that first so that is what we doing,” says a senior Congressional staffer familiar with the legislative agenda. “I don’t want to say that consumer protection comes before the other things. Those things will happen when we're ready to move and we have the staff resources to deal with them.”
There’s already some speculation that the White House and some Congressional Democrats might be willing to settle for legislation covering the consumer protection agency and executive compensation, which, in something of a surprise move, the House passed in stand-alone form by a safe margin before the August recess.
“There’s a chance they might do a slimmed-down version,” adds Robert Glauber, who recently stepped down as non-executive acting chairman of Freddie Mac and served as the Bush administration’s point man on the savings and loan crisis, working with Congress as it spent almost half a year fashioning post-crisis, regulatory reform legislation.
At the moment, Democrats are sticking to the original timetable of passage by the end of the year.
“We will be able to move through this pretty methodically,” says the Congressional staffer. “We will have a pretty comprehensive plan in place by end of October or November. Whatever happens after that is up to the gods.”
More precisely, House Speaker Nancy Pelosi—and to a lesser extent Senate Minority Leader Harry Reid—will decide if the reforms proceed as individual pieces or as a package.
“I think we’ll pass major legislation, but it won’t be just what the White House wants,” says Rep. Sherman, adding it is likely the House will pass the reforms in pieces and then send a package over to the Senate for a vote. Sherman says that could take until to early next year.
The conventional thinking is that House leaders can probably push through the components of a package, thanks to the Democrats’ overwhelming majority there, but Senate passage will be tricky.
“[Dodd] can only move one piece through committee,” says the industry source. “There aren't 60 votes for any one piece, but, if you put them altogether you might."
Handicapping the Senate odds was recently complicated by the death of Sen. Ted Kennedy, who chaired the Health, Education, Labor & Pensions Committee, a post Dodd—now its senior ranking member—might be tempted to assume. Next in line on the finance committee is Sen. Tim Johnson of South Dakota, who voted against the TARP bill.
(Dodd ended some of the uncertainty Wednesday when he announced he would stay put, saying "we have important work to do on the Banking Committee, and I intend to see it through as chairman.")
Some of those in the Senate who generally support reform are in no hurry to pass legislation.
Corker, like many, says one or two key elements might be worthy of being pushed through—he and others cite resolution authority as an example because it fills an existing hole—but sweeping reform can and should wait.
They cite the rush to write and pass the Sarbanes-Oxley Act earlier in the decade following the corporate accounting scandal and its negative, unintended consequences.
“All of us realize it is very, very complex and if we get it wrong we can do a lot of damage to our system,” says Corker. “We have the benefit of looking more clearly in the rear view mirror—more and more information being available It would be wonderful for our whole process if it were put off next year.”