Chris Dodd, Phil Gramm, and the Legacy of a Statesman

Few realized it at the time, but Senator Chris Dodd's political career ended on June 12, 2008. That day, Portfolio magazine published its blistering expose on Countrywide Financial's "Friends of Angelo" program, naming the Democrat from Connecticut as one of the top beneficiaries of the subprime kingpin's political favors program. It's too late for Dodd to save his Senate seat. It's not too late for him to clear his name, but time is running out.

The ferocious response to Dodd's implication in the scandal has always, in truth, been somewhat curious. To this day, the evidence against Dodd remains nowhere near as damning as that against Sen. Kent Conrad, D-N.D., and unlike Conrad, Dodd never openly lied about his communications with Countrywide (at least, never got caught). Conrad has emerged from the scandal virtually unscathed, while Dodd is looking for a new job.

As Wall Street reform legislation has staggered along over the two years since the Portfolio story, the Countrywide scandal has faded to the background, with Dodd's key role in the legislative process returning to center stage. Although Dodd has never emerged as a reformist warrior, he has at times appeared to be a good-faith negotiator seeking significant reforms while making necessary concessions.

But what a list of concessions. During the debate over new credit card regulations, Dodd protected payday lenders by scuttling efforts to cap consumer credit interest rates at 36%. Once the broader financial reform effort was underway, Dodd all but gutted President Barack Obama's plan to create an independent Consumer Financial Protection Agency that could both write and enforce consumer lending regulations. Dodd carved out several deep loopholes in the agency's enforcement jurisdiction, placed it under the anti-consumer Federal Reserve, and dramatically restricted its ability to actually write rules by giving the existing, failed bank regulators veto power over any of the new agency's proposals. To his credit, Dodd never pretended these were substantive or productive concessions, instead openly acknowledging that the moves were intended to garner votes.

When it came time for Dodd to take action on the "Volcker Rule," Dodd again went to war against reformers on behalf of Wall Street. The proposal from Obama and former Fed Chairman Paul Volcker would ban risky proprietary trading by economically essential commercial banks, preventing them from gambling with taxpayer money. But instead of writing hard rules, Dodd kicked the issue to bank regulators, ordering them to conduct a study of the issue and allowing regulators to write their own regulations. Critically, Dodd did not require that anything actually be done to implement Obama's signature Wall Street reform.

The same scene appears to be playing out this week on derivatives--the crazy casino that brought down insurance giant AIG. Dodd cut deals with Sen. Blanche Lincoln, D-Ark., to weaken her strong derivatives bill, in the process, shooting the legislation full of loopholes that could make the remaining rules impossible for regulators to enforce. Beyond derivatives, Dodd cut a deal with Sen. Tom Carper, D-Del., that restricts the ability of state regulators to crack down on predatory lending.

All of these capitulations directly aided Wall Street at the expense of the rest of the economy. But for all of these concessions, Dodd could at least make the case that they were either honest mistakes (the derivatives loopholes), or concessions Dodd believed were necessary to win support for the overall package. Dodd has never been able to call himself a strident reformer, but he could at least defend himself against charges that he was going to bat for Wall Street.

It is impossible to find even a theoretical justification for Dodd's actions over the past 24 hours. Late on Tuesday, Republicans unleashed a swarm of procedural maneuvers to block a vote on an amendment from Sens. Jeff Merkley, D-Ore., and Carl Levin, D-Mich. The amendment would require the implementation of Obama's signature Wall Street reform--the Volcker Rule. Instead of fighting for his Democratic colleagues, Dodd has been all too happy to roll over for the Republicans, and tried today to end debate on the bill without even bringing Merkley-Levin to a vote.

Let me repeat that. Dodd isn't just refusing to support Merkley-Levin, he's refusing to even allow it a vote on the Senate floor. There is no way to gauge the political expediency of Dodd's support or withholding of support without at least getting a vote on the measure. This was a naked attempt to prevent the Wall Street reform package from getting stronger.

The Merkley-Levin fiasco isn't Dodd's only very recent sin. He also attempted to prevent key amendments from Sens. Maria Cantwell, D-Wash., and Byron Dorgan, D-N.D., from coming to a vote. Both the Cantwell and Dorgan bills would significantly strengthen derivatives regulation. Their amendments are believed to have widespread support, and Wall Street is very worried that the provisions could actually be adopted--if allowed to come to a vote on the Senate floor. Dodd is standing in the way. Cantwell also has a bill co-sponsored by Sen. John McCain, R-Ariz., to reinstate Glass-Steagall, the Depression-era law separating boring commercial banking from risky investment banking that protected our economy from bailouts for fifty years. Dodd is also blocking that amendment.

At the same time, Dodd is preparing what is rumored to be an epic "manager's amendment"--a conglomeration of all the back-room deals he has cut with various senators in order to win their support for the overall bill. If the manager's amendment is long enough, it becomes very hard to vote against, because sinking it would in turn sink the overall reform package. Dodd currently plans to use the manger's amendment to further sabotage Sen. Lincoln's plans to overhaul derivatives.

So in the past 24 hours, Dodd appears to have been going to bat for Wall Street, not out of concern for any greater political good, but exclusively for the purpose of padding the profits of big banks. The Senator from Connecticut cannot boost his own electoral prospects with this activity--that era of Dodd's life will soon be over. But some speculate that if Dodd can curry enough favor with Wall Street, he can secure a cushy and lucrative position when he leaves office next year.

If Dodd were to continue down this path, it could make him the Democratic Party analog to Phil Gramm, the infamous Republican Senator from Texas who took a job at Swiss banking giant UBS after pushing through a barrage of deregulatory legislation during his Senate career. Gramm is a very wealthy man--in addition to his UBS money, Gramm's wife Wendy Gramm (herself a former derivatives regulator) took home millions while serving on the board of Enron after her husband pushed through a bill blocking the regulation of derivatives that Enron specialized in. Nothing can take away that money. But history has already passed its judgment on the Gramms--they are Exhibit A in political corruption, the clearest example of everything that is wrong with American politics.

It is not too late for Dodd to avoid leaving a similar legacy. If he decides to fight for amendments that strengthen the Wall Street bill, his reputation can be partially salvaged. If he uses the manager's amendment to include strong legislative improvements, he can go down in history as a fearless reformer with a pragmatic streak. But if Dodd does not stand up to Wall Street and its Republican backers, he will forever be remembered as Angelo Mozilo's man in Washington. No amount of money is worth such public shame.

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