This time the blame is more evenly spread. The Republicans are not alone. Senate Democrats are joining the effort to make a worthwhile financial reform bill unlikely.
Paul Krugman is in a funk.
The House has already passed a fairly strong reform bill, more or less along the lines proposed by the Obama administration, and the Senate could probably do the same if it operated on the principle of majority rule. But it doesn’t — and when you combine near-universal Republican opposition to serious reform with the wavering of some Democrats, prospects look bleak.
Republicans propose a weak bill, one that depends on the market righting itself. Again. Still. The idea is to leave the system alone and just say, "Next time we won't bail you out." Which would never happen.
For one thing, governments always, when push comes to shove, end up rescuing key financial institutions in a crisis. And more broadly, relying on the magic of the market to keep banks safe has always been a path to disaster. Even Adam Smith knew that: he may have been the father of free-market economics, but he argued that bank regulation was as necessary as fire codes on urban buildings...
This time, Krugman believes, it's not that the Republicans are playing dumb. They're playing politics. There's a strong likelihood that this bill falls into the category of "don't let the Democrats win anything." In view of that, maybe the best solution is a watered-down bill.
There are times when even a highly imperfect reform is much better than nothing; this is very much the case for health care. But financial reform is different. An imperfect health care bill can be revised in the light of experience, and if Democrats pass the current plan there will be steady pressure to make it better. A weak financial reform, by contrast, wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.
In other words, just pass a strong banking reform bill that actually does the job. Is that possible? Are you kidding? Look at what's lined up against it.
Destabilize the markets? Isn't that exactly what's been happening for the past month? It's possible we're already in that grey area preceding a "second dip."“The financial services lobby and particularly the big banks are driving the agenda right now,” Travis B. Plunkett, legislative director of the Consumer Federation of America, said. “They are the ones gaining ground. Their strategy is clear: death by a thousand cuts.”
As part of a regulatory overhaul adopted in December, the House voted to create a freestanding Consumer Financial Protection Agency. Since then, the financial services industry has been largely unified in trying to reduce the proposed agency’s independence, as well as the scope of its powers.
The lobbying effort has been so fierce that the Treasury secretary, Timothy F. Geithner, called a meeting on Thursday with representatives of the United States Chamber of Commerce, the American Bankers Association and six other groups, at which he warned that failure to pass a regulatory overhaul could destabilize the markets. ...NYT
