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Regulators, Mount Up

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G oing into this week, the Obama Treasury department had an extensively choreographed plan for closing the deal on financial reform. On Monday, Secretary Tim Geithner would deliver a sharply-worded speech at the American Enterprise Institute, making the case for why conservatives should support real reform. (Geithner had been itching to give the speech for weeks but had been waiting for an opening.) The same day, Treasury would dispatch a team of financial wonks to help Chris Dodd shepherd a bill through his Senate Banking Committee. Then, on Wednesday, Deputy Secretary Neal Wolin would deliver another fiery speech, this one at the U.S. Chamber of Commerce. On and on it would go, Treasury reckoned, until this painstaking mix of inside game and outside pressure gradually nudged the bill over the finish line.

That was the plan, in any case. But on the way back from Geithner’s AEI speech, a member of the secretary’s entourage got an email from Treasury’s Hill contingent. “It’s done,” the email said. “They just voted on it. We’re going to the W for drinks.” To the shock of everyone in the car, the Republicans had withdrawn hundreds of proposed amendments and allowed Dodd to move the bill on an anti-climactic, party-line vote. “The whole team was at the bar by 6:30,” says one administration official.

Geithner and his troops were hardly the only ones pleasantly surprised at the way the ground had shifted. Pretty much no one who follows the regulatory reform issue can quite believe the sudden change. In the span of a few days, reform has evolved from one of those debates newspaper editorialists have among themselves to Washington’s NEXT BIG PUSH. Clearly much of this derives from the parties’ changing fortunes, as Democrats bask in the glory of their health care victory and Republicans suddenly lack self-esteem. Indeed, try to recall the last time a GOP senator lacerated his party for blowing a chance at bipartisanship, as Tennessee Senator Bob Corker did on reg reform this week, and you begin to understand how far we’ve come.

The key shift is arguably the one that’s taken place at the White House. Prior to late last week, it wasn’t entirely clear whether the White House actually wanted a bill this year, or whether it simply wanted to bloody Republicans over their opposition to reform. But, as health care began to look like a fait accompli, the White House seemed to subtly change its posture. One administration official says it wasn’t so much that the White House was ambivalent, as that it was massively preoccupied with health care--and that it wasn’t sure until recently that a solid bill was achievable. “We didn’t want to do the thing … where you cut a deal here and there with every special interest available,” says the official. Whatever the case, the shift was as palpable as it was significant: Another official was impressed that the president delivered a radio address about reforming Wall Street last Saturday, the day before the most historic health care vote in 45 years.

The Dodd bill would, among other things, set up a process for dismantling failed megabanks so they don’t end up on the government dole; give the Fed new powers to regulate institutions that could bring down the entire financial system; set up a new consumer financial protection agency within the Fed; make the trading of derivatives (the financial instrument that blew up AIG) safer and more transparent; and change the way the New York Fed president, the system’s chief Wall Street overseer, is appointed. (The bank’s board, which features several Wall Street executives, currently enjoys the power to hire and fire its president; Dodd wants the New York Fed president to be a White House appointee.) 

The bill differs in certain respects from the version the House passed in December—one difference is the New York Fed provision, which the House bill lacks. But, on Wednesday, Obama told Dodd and his House counterpart, Barney Frank, that he could more or less live with either version, according to an official knowledgeable about the meeting. (Though he stressed that he’d like to combine the toughest elements of both, as with an exemption from derivatives regulation for non-financial companies, which is stricter in Dodd’s bill.) Mostly, he just encouraged them to press ahead, emphasizing the win-win dynamic at work. If Republicans dig in, the president argued, that’s a fight he’d welcome. (Administration officials have seen polling suggesting the public will assume Republicans are carrying Wall Street’s water, regardless of their arguments.) And if Republicans want to join in the effort to rein in Wall Street—well, no one at the White House would turn down a big, bipartisan victory. 


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