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Feingold’s Explanation for Opposing FinReg

Russ Feingold has explained his reasoning for opposing the financial reform bill.

At the start of this process I made clear that I had a simple test for financial reform — will it stop another financial meltdown? This bill fails that test, and I won’t support legislation that fails to protect the people of Wisconsin from the pain of another economic disaster. And I don’t need to be lectured about this issue by people who supported the repeal of Glass-Steagall, which paved the way for this terrible recession […]

It would be a huge mistake to pass a bill that purports to re-regulate the financial industry but is simply too weak to protect people from the recklessness of Wall Street. That would be like building an impressive-looking dam without telling everyone that it has a few leaks in it. False security is no security at all.

Feingold doesn’t mention this directly, but his reputation four months from his re-election matters here. He voted against Riegle-Neal, which consolidated the banking sector. He voted against repealing Glass-Steagall. He voted against TARP repeatedly. He has been a lonely voice for sanity in the financial markets, and he obviously feels that going against that to support a half-measure doesn’t make sense for him, especially not with an election coming in November.

Feingold also charges that Senate Democrats and the White House have “bargained” with him by telling him to accept the bill as it is, not by moving it in his preferred direction. That’s not a bargain at all, that’s an ultimatum.

Since the Senate bill passed, I have had a number of conversations with key members of the administration, Senate leadership and the conference committee that drafted the final bill. Unfortunately, not once has anyone suggested in those conversations the possibility of strengthening the bill to address my concerns and win my support. People want my vote, but they want it for a bill that, while including some positive provisions, has Wall Street’s fingerprints all over it.

In fact, reports indicate that the administration and conference leaders have gone to significant lengths to avoid making the bill stronger. Rather than discussing with me ways to strengthen the bill, for example, they chose to eliminate a levy that was to be imposed on the largest banks and hedge funds in order to obtain the vote of members who prefer a weaker bill. Nothing could be more revealing of the true position of those who are crafting this legislation. They had a choice between pursuing a weaker bill or a stronger one. Their decision is clear.

I don’t think you can argue with this. The weakening of the Volcker rule has upset its namesake. The cancellation of the bank tax to essentially put the cost of the bill on the backs of the taxpayers is downright offensive. And in the big picture, many experts agree that the reforms will not end “too big to fail”, which should have been the central goal. From economist Mak Thoma:

This bill is not going to end the problem of too big to fail. If the banking system is threatened, then one way or the other it will be bailed out. The consequences to the economy would be too large to do otherwise. Thus, banks that are big enough to pose a systemic risk enjoy an advantage over other banks. Banks that pose a systemic risk will be assumed to be safer than other banks due to the implicit government guarantee. This gives large banks an advantage over smaller banks that do not, on their own, threaten the financial system if they fail.

In addition, the implicit guarantee gives large banks the incentive to take on too much risk, and this is a reason to regulate the amount of risk they can take (and I don’t think the proposed legislation does enough in this regard).

If Democrats wanted Feingold’s vote, they had to meet his test for the legislation. According to him, they didn’t even bother to try. That should get a bigger hearing when liberals who want the legislation to pass try to demonize Feingold for his position.

UPDATE: I think it’s worth posting Chris Bowers’ long recitation of what successes and victories appear in the bill. In general his rundown is sound. To his credit he fully explains both the victories and defeats, including some things that got by me. But regardless of the good and bad in the bill, Feingold made two arguments: 1) the bill didn’t meet his test for support, and 2) nobody legitimately asked him what he would need added to get his support. Even if Feingold were willing to compromise, none were offered. And that’s why he walked away.

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David Dayen

David Dayen