Dear reader, are you having trouble understanding the debate in Congress over financial regulatory reform? Here’s why: even the people writing the legislation can’t explain it clearly.
Witness this exchange with Senate Agricultural Committee Chairman Blanche Lincoln, Arkansas Democrat, when she was asked about negotiations with Republicans on the derivatives portion of the bill.
THE DAILY CALLER: “What are the toughest [disagreements] that you’ve got to get through at this point? Think of the layman when you’re expressing—“
LINCOLN: Huh?
THE DC: Think of the layman, the man on the street, when you’re expressing the couple issues here, because I think a lot of people are trying to figure out what’s at issue here.
LINCOLN: Right. You bet. Well you know, looking at some of the bigger ones, we’re looking at the Forex exchange and how that happens. We’re looking at, in terms of the mandatory clearing and trading, that’s okay but we look at the end-user exemptions, some of those kind of things.
Forex is short for foreign exchange market. End-users are businesses that buy derivatives to hedge against future losses, such as a commercial farmer who buys wheat futures to lock in a guaranteed yield for at least a portion of his crop in case the weather ruins it.
If you’re already confused, don’t worry. You’re not alone. One senior House staffer, asked to estimate the number of people on Capitol Hill who fully understand the legislation, paused, and then replied, “About twelve.”
“If you’re talking about the full scope of the thing, maybe less,” he said. “The vast majority of it is anticipating events you can’t predict.”
There are three major categories within the bill. Derivatives is probably the most complicated one-third. The other two large buckets – getting rid of the “too big to fail” problem and a consumer protection plan – are also sprawling in their impact and endlessly complicated.
Complicated legislation is not necessarily unusual, though some say this bill is about as complex as they come. What is remarkable is the speed with which a vote on regulatory reform is approaching, especially when compared to the health care debate.
Regulatory reform has been the main focus of conversation and public debate in Washington and across the country for only two weeks now, since Congress returned April 12 from a two-week recess that began after the passage of health care legislation.
Health care policy, which caused many heads to spin by its own right, was debated in Washington and across the land for over a year, allowing the country to absorb many of the issues’ key components.
Now, for a bill that is arguably even more complicated and just as significant in terms of its impact on the economy, Washingtonians and Americans will get likely a few weeks.
“This is one of the most complex bills I’ve ever seen. It’s more complex than health care certainly, by a mile,” said Taylor Griffin, a former Bush administration Treasury department official who now runs his own financial and communications consulting firm.
“It’s a lot of bills in one. It’s a derivatives bill. It’s a consumer protection agency bill. It’s doing a lot of things,” he said.
The House did pass a financial regulatory reform bill in December. But as House Financial Services Committee Chairman Barney Frank said, “nobody was paying any attention to what we were doing.”
Now people are paying attention. That doesn’t appear to mean, however, that many of them comprehend what they are looking at.
One Wall Street insider with years of experience dealing in derivatives trading said he doesn’t think any Hill staff – not to mention the lawmakers – truly understand how the high-risk, high-stakes world of swaps trading works. He said that those in Barney Frank’s office and some in the office of Sen. Chuck Schumer, New York Democrat, were most knowledgeable.
“But people who understand it trade it. They’re not going to make $75,000 a year as a junior staffer,” the trader said.
President Obama himself paid homage to the indecipherability of derivatives in his speech Thursday, delivered in Manhattan.
“Many practices were so opaque and complex that few within these companies – let alone those charged with oversight – were fully aware of the massive wagers being made,” Obama said.
The press and spokespersons for lawmakers – excluding those who have focused on financial reform for the last several months — are no better off than the staffers and members of Congress.
“For most reporters who haven’t covered this in depth before, ‘unwind’ is something you do when you grab a couple of drinks with some buddies at a bar, while a ‘naked bottom straddle’ is…oh, I probably shouldn’t even say,” said one congressional wire reporter.
Another business and finance reporter said, “What’s been happening lately is that reporters who’ve never covered this stuff before ask me to explain/define things for them.”
“Usually, I help,” the reporter said. “But every now and then when someone asks for a definition of, say, derivative, I want to respond, ‘your writing.’”
So most stories over the past week went no deeper than to relay that negotiations between Republicans and Democrats, having been on for some time, were off, and then on again.
Democrats said they had forced Republicans back to the table because the GOP criticisms of the bill didn’t work.
“It didn’t sell,” Senate Majority Leader Harry Reid, Nevada Democrats, said Thursday.
Republicans said that the White House had told Lincoln and Senate Banking Committee Chairman Chris Dodd, Connecticut Democrat, to stop negotiating with Republicans, to bait the the GOP into criticizing the bill. That way, the administration could more easily paint Republicans as anti-reform and in cahoots with Wall Street.
“I mentioned this to the president last week in a meeting with just a few of us … and he didn’t deny it,” said Senate Minority Leader Mitch McConnell, Kentucky Republican. “I pointed to [White House chief of staff] Rahm Emanuel and said, ‘You pulled them back and ended the conversations, because I guess you decided it was better to have a political issue.’”
One top White House official, asked if this was true, refused to answer. Another did not respond. A Dodd spokeswoman said that the banking committee chairman and Sen. Richard Shelby, the ranking Republican member from Alabama, never stopped their discussions on the issue.
“The White House has only encouraged bipartisanship,” said Dodd spokeswoman Kirstin Brost.
But the GOP version of the events was that their solidarity – all 41 of them signed a letter last week saying they would hold together to oppose the bill in its current form – forced the Democrats to come back and negotiate with them again.
“What happened as a result of the 41 letter is that serious talks have resumed,” McConnell said.
Few, if any, in the press seemed to know what was spin and what was fact.
Some outlets wrote stories with the Republican version of events, and some wrote the Democratic version. The Associated Press wrote that it was “difficult if not impossible to tell which side is retreating.”
But the coverage rarely went beyond the rhetoric and political maneuvering to shine some light on the substance of what was being discussed and negotiated and what the merits were of different approaches to the issue.
As a result, Obama and Democratic leaders have run wild with the charge that the GOP is working hand in glove with big banks to defeat any reform, despite the fact that Democrats have received more in political donations from Wall Street this election cycle than Republicans.
And Republicans have kept up a steady chorus of complaints that the Democratic bill “institutionalizes bailouts,” despite the fact that one of the most involved Republican senators, Bob Corker of Tennessee, has said repeatedly this is overstating the case.
On the whole, Republicans know they are in a politically unfavorable position.
Reid and his top lieutenants appeared before the press Thursday to excoriate the GOP for being “against reform.” Reid called on Republicans to stop stalling the bill, even though moments later he acknowledged that Dodd and Shelby were in ongoing negotiations on how to produce legislation that can supported by both sides.
But Republicans are offering only minimal resistance at this point, a senior GOP aide said, because they don’t want to lose a seat at the negotiating table, which would deprive them of further input into the final bill.
So for now, for the most part, they’re sitting there and taking it.