Reforming Wall Street Starts at Main Street

Originally posted at Huffington Post

In Washington these days, not much is assured. Senate Republicans have ended their filibuster of financial reform, but this just allows debate on the bill to go to the Senate floor. There remains plenty of opportunity for opponents to make more mischief. Still, all signs point to a deal.

The conventional political theory behind getting a financial reform bill through Congress runs something like this. Backed by the Administration, Democrats have proposed changing the rules governing the financial sector which are opposed by the big banks and their allies but their influence is being offset given their contributing role in the Great Recession. Republicans in Congress, who have not wanted to see the President succeed in anything, are reticent about blocking legislation that can be billed as taking on Wall Street, especially as a fall election looms where they are anticipating significant gains. That’s a recipe for finding common ground on the political playing field.

But what’s in the bill? After all, the details surely must matter and will determine whether it is a deal worth taking. {I previously outlined five benchmarks for President Obama to consider before he signs on the dotted line}. What we do know is that the current regulatory regime did not include sufficient safeguards to prevent a near total collapse of the national economy nor protect households from being pushed into products they did not need nor understand. Risks of financial instability were exacerbated rather than contained. Priority number one for reform should not focus on finding a political compromise but making sure we don’t repeat the economic experience of the last few years. That is hardly a partisan position. And if we look closer at some of the major provisions of the bill under consideration, they also potentially create common ground on the policy landscape and point toward getting a bill done now that is not just politically wise, but moves the ball down the policy playing field as well.To be sure, financial reform is complicated and necessarily has many moving pieces. The Administration and their Congressional allies support creating a new risk regulator that would focus on the entire system rather than on stability of particular firms as well as a new watchdog agency that would look out for the interests of consumers who have been exposed to a rash of unfair and deceptive practices. Republicans are concerned with the expanded role of government, which they think would hamper the functioning of the marketplace and put taxpayers on the hook for bailing out bad actors. They claim to want a bill focused on Wall Street and not Main Street.