) -- Once upon a time, Congress presented a financial reform bill whose champions promised it would reshape the way Wall Street does business yet provide enough concessions to avoid another major disruption in the financial markets.
Lawmakers also promised it would pass by presenting it as a secure, finalized version on Friday morning.
Hours later, a key Republican -- Scott Brown (R., Mass.) one of only three Republicans who voted "yea" -- appeared to rescind his support, citing opposition to new taxes. With his defection, the other two Republicans who agreed to the reform bill -- Sens. Susan Collins and Olympia Snowe, both from Maine -- said their votes were uncertain, too.
On Monday, a more reliable vote was lost with the unfortunate death of Democratic Sen. Robert Byrd (D., W. Va.). To top it off, Sen. Russ Feingold (D., Wis.) reiterated his opposition to the bill in what seemed like a tactic to gain support.
Such is the domino effect of politics in Washington today.
There are critics on both sides who say the reform measure is either inadequate or too harsh -- mainly the former -- as well as those who say it is irrelevant because crises will continue to occur anyway. The funny part is that all of those things are true, depending on what type of financial firm one is analyzing and how much exposure it has to various business lines.
Still, the finreg bill certainly isn't as harsh as it might've been. Banks will be able to keep most of their trading operations and the important parts of their derivatives businesses. They will also have ample time to adjust to new capital regulations. As for consumer protection, some might argue it was about time; banks began adjusting their business models accordingly when the
implemented consumer-friendly rules over a year ago.
In recent weeks, bank stocks sold off dramatically due in part to the finreg overhang. One might argue that the 14% decline in bank stocks, as measured by the KBW Bank Index-- and the 17% to 26% decline for banks with the biggest exposure to finreg reform:
Bank of America
-- already has priced in whatever change was coming down the pike.
But this is the bill that just won't quit.
Uncertainty is what's driving bank stocks until there's some clear sign that economic impact will prevail. Lawmakers are fueling that uncertainty, and if it's causing a bit of déjà vu, that's no surprise: The same thing happened with the
At this point, the passage of the Restoring American Financial Stability Act of 2010 -- or the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Get This Bill Passed Already Because We're Sick Of Hearing About It Act, whatever you'd like to call it -- is probably helping political campaigns less than it's wearing on people's patience.
For instance, I don't need a poll to tell me that most voters understand derivatives even less than lawmakers do. Yet Sen. Blanche Lincoln (D., Ark.) took up this issue to plead the case that she's tough on banks.
Her proposal was watered down so much that its bark was a lot stronger than its bite. And her opponents in the upcoming political race will probably say they're tough on banks, too. Who wouldn't?
The only difference is that Lincoln can explain how her rule assigned proper weight to the nuances among different kinds of credit-default swaps, energy futures and interest-rate swaps. Even if she had cracked down hard on all of them equally -- as the industry and corporate counterparties feared she might -- I'd like to see any politician ride the tiny wave of derivatives antipathy into public office.
Then there's Sen. Collins, who added a provision to the reform bill that also seriously freaked out the industry, particularly the smaller, community banks that seem more friendly to the public eye.
The Collins amendment seeks to exclude trust-preferred securities from inclusion in Tier 1 capital levels. Her measure initially threatened to force dozens if not hundreds of banks to raise new capital, simply because of its vagueness.
She modified the bill to exclude smaller banks, which rely heavily on TruPS. It was a move that doesn't make much sense in theory, since if relying on TruPS is a bad thing why would a lawmaker want to exclude the banks most exposed to those securities? Collins also modified the language to give bigger banks several years to adapt to the rule change.
Again, "I Prevented Banks From Including an Arcane Security From a Capital Level Measure You've Never Heard Of" doesn't exactly fit on a bumper sticker. How does this appeal to voters?
Well, truth be told, it doesn't. Nor do any of the complexities of the financial-reform bill. It would take a lot more time and effort to explain to the American people. So, instead, lawmakers are all going to use the same "get tough on banks" or "get tough on the deficit" or "get tough on bailouts" slogans, which have become hard to distinguish from one another.
skeptical of anything that comes out of Congress
these days, which is why this fall's election battles will be so hard-won. And they also care less about financial reform than they do about
, which lawmakers have largely failed to do.
Since politicians have already wasted an undue amount of public time, money and patience by bickering to come up with a reform measure that can't be easily characterized as too hard or too soft, perhaps they ought to pass it already and get onto the next thing.
-- Written by Lauren Tara LaCapra in New York