The country needs meaningful financial reform a lot more than it needs more political analysis. Yesterday, however, the two became even more intertwined than usual. By compromising on good policy on Thursday, it looks like Democrats have outsmarted themselves politically. Now the only fix left for them is to push for the best possible policies going forward.
Polls have consistently shown that the economy is the most important issue on people's minds, and the one most likely to determine how they vote. With yesterday's defeat of the Brown/Kaufman SAFE Act -- an amendment which would have broken up the big banks and put a cap on risk-taking -- the Democrats left themselves open to the charge that they've failed to stand up to the big banks or prevent another bailout.
The public understands Too Big to Fail. Unlike many aspects of financial reform, the Brown/Kaufman amendment was simple to understand: In the words of Alan Greenspan, if you're too big to fail you're too big to exist. Democrats not only let a critical piece of reform die yesterday. They also lost the political high ground.
At almost the same time, the President also chose to meet with chief Too Big to Fail-er Jamie Dimon on Monday. The optics and timing of that move are terrible. What were they thinking at the White House? Dimon runs JPMorgan Chase, which controls 44% of the derivatives market in the US and is one of four banks that control 94% of that market ( talk about "Too Big to Fail"). Dimon was there as part of a dinner with the Business Council, whose other attendees included the CEO of Wellpoint/Anthem. Obama could have let it be known that he pressed the case for real reform during the meeting, but chose not to do so.
Then there was yesterday's compromise to Bernie Sanders' "Audit the Fed" amendment, which means it may well pass next week. The compromise was supported by the White House (which released its statement so quickly that it raised the possibility that they actually participated in negotiations.) These two actions mean that the public may learn just how many billions or trillions they spent to bail out the big banks, while the memory of Democrats' inability to stop those big banks is still fresh in their minds.
The same thought may have been mind when the compromise audit language was drafted. The Fed has until December 1 of this year to post its bailout information - which, conveniently, is after the November elections. It's possible that this date will not survive, however, given the likelihood of Republican pressure for a faster response.
The amendment may not survive, either. The compromise gives Republicans all the ammunition they need to oppose it. As of this writing, Ron Paul and the infamous David Vitter are planning to introduce the original Sanders/Paul language. If the Democrats defeat the original amendment or refuse to allow it to come to a vote, that will give Republicans another opportunity to say that Dems are in thrall with the big banks. If the compromise amendment passes anyway, the Republicans can (and will) say that Democrats caved to the big banks.
As for Brown/Kaufman, sure, most Republicans voted to kill it too. But they're already developing their rhetorical decoys for that. And the Democrats have created a trap for themselves, as cleverly as if it were designed by the general of an opposing army. Consider how artfully the Democrats outsmarted themselves:
In an environment where the economy is the number one issue on voters' mind and public hostility toward big banks is extraordinarily high, Democrats took the one bold simple step the public easily understands off the table (Brown/Kaufman). Then they compromised on an proposal to audit how our money (yes, it's our money) is being spent through the Fed. Now they're in a position where embarrassing information will come to light if it passes, information that will further inflame the public against the same big bankers they just protected by defeated Brown/Kaufman.
Or the Fed could wait until its Dec. 1 deadline, in which case suppression of information will be the issue Dems have handed to the GOP. And if the compromise fails, along with Paul's or Vitter's original amendment, the Dems can now be portrayed as defending the big banks against the heroic efforts of the Republicans.
And while all this was taking place, the President chose to break bread with the head of one of the biggest Too-Big-to-Fail banks in the world. General Pyrrhus himself couldn't have mapped out a better strategy for self-defeat.
In an ideal world, Democrats would roll back yesterday's compromise and pass the original Sanders Amendment. But that's not likely to happen. The compromise audit proposal is better than nothing, but it leaves them in a weakened position going forward.
What can the White House and the Senate leadership do now? Their best defense is to fight for the best policies. The public understands the basic principle behind the Volcker rule ... banks shouldn't gamble ... and they feel passionately about the need for strong consumer protection. If the Democrats come out fighting for these two proposals and several other strong amendments next week they can gain some of their lost ground back. They can also work with like-minded Republicans, some of whom support reform on principle and others of whom simply recognize the political benefits to be gained from fighting the big bankers.
The alternative is to keep walking into the brilliant trap they've devised for themselves. The choice is theirs.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "firstname.lastname@example.org."
Website: Eskow and Associates