Wall Street Giveaway Could Cause Government Shutdown

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Photo: Andrew Harrer/Bloomberg via Getty Images

Republicans and Democrats in Washington have managed to temporarily put aside their differences and work together to do the people’s business, in the form of a budget agreement. And, as is often the case when Republicans and Democrats put aside their differences and work together to do the people’s business, the machinery has been greased with a thin film of sleaze.

The budget (which is being called the “Cromnibus,” for reasons you don’t need to know) contains usual business-friendly provisions that find their way into every bipartisan measure. Beloved moderate Republican Susan Collins of Maine personally managed to appease the potato lobby, by exempting its starchy fare from the school nutritional standards developed by experts, and the trucking lobby, by suspending regulations designed to keep sleep-deprived truckers off the road. Senator Collins has successfully cooperated with both sides of the aisle to make our country a fatter, more dangerous place.

But those banal pro-business measures would have attracted little attention. The thing that has real potential to kill the bill is a small measure to weaken financial regulation. The budget bill would eliminate Section 716 of the Dodd-Frank financial reform, which bars federally insured banks from investing in part of the derivatives market. As Erika Eichelberger reports, this measure was drafted almost word-for-word by Citigroup:

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Eliminating this provision is not a world-ending measure. It’s also not a good idea. As Mike Konczal explains, eliminating this provision will increase financial risk, by encouraging big banks to engage in more risky trading. Elizabeth Warren has pledged a fight to stop the bill. The Obama administration, which previously opposed this rollback as a stand-alone measure, hasn’t said whether or not the president will veto the budget over it. John Boehner is warning that a big fight in Congress could ruin Christmas. (For Congress, not the rest of us.)

The sudden discovery of the derivatives provision could actually threaten to sink the budget and shut down the government. Boehner already faces defections from conservatives, who are angry that the bill doesn’t stop Obama’s immigration reforms. (That is because Congress lacks any power to stop these executive actions, but conservatives don’t care.)

If you add the liberal defectors to the conservative defectors, you have a possible majority coalition to vote it down. Alternatively, Obama could veto the measure. It might sound crazy to veto a bill keeping the government open over a relatively small-scale financial regulation. But this is the sort of issue where the public is primed to side with Democrats. People justifiably hate big banks and distrust their ability to manipulate the financial system. Weakening financial regulation obviously has nothing to do with the budget or keeping the government open. If Obama decides to veto the bill over the proposal (which, to be sure, commands bipartisan support), he will place Wall Street’s allies in the uncomfortable spot of having to publicly defend a position they had hoped to debate quietly among friends and fund-raisers. If he signs the bill, he’ll have handed Warren a powerful cudgel to use against him. What seemed like a low-stakes, keep-the-lights-on measure has suddenly turned into a trap for both Obama and Congress.

Update: The White house supports the budget, putting Obama in direct opposition to Warren.