Good news: two terrible bills were approved by the House of Representatives last week.
Three-and-a-half years after the Dodd-Frank financial reform law was signed, the "Swaps Regulatory Improvement Act" (HR 992) and "Retail Investor Protection Act" (HR 2374) remind us that the financial industry is still far from reconciled to reforms that threaten its cherished revenue channels. Nor has the industry lost its power to generate political support for measures that benefit Wall Street at the rest of the country's expense.
The two bills prevailed by margins of 292-122 and 254-166, respectively. But while neither vote was close, they represent progress. In both cases, financial reformers (including members of Congress) spoke up forcefully, got the press to pay closer than normal attention and eventually mobilized enough resistance to make it unlikely that these proposals will advance further.
The first bill, HR 992, takes aim at a section of Dodd-Frank intended to keep banks from using publicly insured deposits to finance their dealings in exotic derivatives. Under the so-called "swaps pushout" provision, derivatives activity will be largely quarantined in company units that, lacking access to the public safety net, will have to come up with their own risk capital.
HR 992 would exempt almost all derivatives from the push-out rule. By doing so, it would once again allow the largest Wall Street banks to make huge sums of money betting with government-backed funds and low-interest Federal Reserve credit, potentially leaving taxpayers to pay for the bets that go wrong.
In the Financial Services Committee, 22 Democrats joined 31 Republicans in voting for the bill, while only six members voted against. One of those six, however, was the ranking member, Maxine Waters of California. And when the bill came before the Agriculture Committee, Collin Peterson of Minnesota, the senior Democrat, declared his opposition in unusual terms, recalling two of "the worst votes I ever made in this place," which were for deregulation bills that, he now believes, helped bring about the 2008 financial crisis. "I didn't know any better," Peterson said, warning his colleagues that a vote for HR 992 would "could come back and haunt you."
The origins as well as substance of HR 992 came in for scrutiny in the media. The New York Times unearthed evidence that most of the bill – 70 of its 85 lines – had been written by a lobbyist for Citibank. In addition, the Times and others reported on the findings of a nonprofit group, Maplight, that House backers of a package of Wall Street-friendly measures including HR 992 "received twice as much in contributions from financial institutions compared with those who opposed them."
By the time it reached the House floor, the bill had lost much of its bipartisan luster. Eighty percent of the Democrats on the Financial Services Committee had supported it; in the full House, only 20 percent of Democrats voted that way.
The other bill, HR 2374, aims to prevent the Department of Labor from taking action to require retirement fund advisors and trustees to look out for their customers' best interests (as opposed to their own interests). Wall Street lobbyists had worked hard to build momentum for this proposal. In August, 10 Democratic Senators signed their names to a letter that, echoing the industry line, warned that the DOL's proposed rule would "limit investor access to education and increase costs for investors, most notably Main Street investors."
Once again, public-interest advocates responded energetically. In petitions, organizational letters, and briefing sessions for both the House and Senate, opponents emphasized the steep costs of a system that leaves professional dispensers of financial advice free to recommend investments that produce more revenue for them, and less for those they advise. Out of a current total of $10 trillion in retirement assets, according to one recent study, roughly a third is invested in underperforming funds linked to plan trustees. Over a lifetime, American workers can easily lose hundreds of thousands of dollars as a result of such conflicts of interest.
Here, too, what started out as a quiet deal between lobbyists and lawmakers developed into a real debate, thanks to the dogged efforts of the AARP, the Consumer Federation of America, AFSCME, Public Citizen, the AFL-CIO and Americans for Financial Reform, among other reform groups. Significantly, the White House weighed in with a strong letter criticizing the bill and invoking the "v" word (for veto).
In another parallel with HR 992, some of HR 2374's House supporters turned out to have lifted language as well as arguments from industry lobbyists. By following the trail of hidden email metadata, a reporter for Mother Jones showed that a Dear Colleague letter signed by 28 members of the Congressional Black Caucus had originally been drafted by a paid representative of the financial advisers who stood to benefit from the bill.
One thing led to another. At the outset, at least 60 House Democrats had been expected to vote for HR 2374; with that kind of support, the bill might have made a powerful claim on the Senate's attention. But in the end, while all the House Republicans voted in favor, only 30 Democrats did. It was a "shockingly bad vote for Wall Street," one House staffer commented.
Shockingly bad for Wall Street. Yet somewhat reassuring for the political process and the country.
Thanks to the House defections (and the work of the various groups that rallied against these bills), there is little prospect of action in the Senate. Now it's up to regulators to forge ahead, using the political space they have been given to complete the process of turning two crucial reforms into enforceable rules.
Jim Lardner is the communications director at Americans for Financial Reform, a coalition of more than 250 civil rights, consumer, labor, business, investor and other groups working for a strong, stable and ethical financial system.