How Chuck Schumer Accidentally Built The Wall Street Reform Caucus

U.S. Sen. Charles Schumer, D-New York, takes questions, Monday, April 28, 2014, in New York, after proposing a major retoolin
U.S. Sen. Charles Schumer, D-New York, takes questions, Monday, April 28, 2014, in New York, after proposing a major retooling of the Port Authority of New York and New Jersey with seven reforms he says are needed to address the organization's dysfunction and bring it back to its core mission of focusing on critical transportation infrastructure on long-term regional economic development. (AP Photo/Kathy Willens)

DETROIT AND WASHINGTON -- They call him "Wall Street Chuck" on Capitol Hill. He has raised at least $70 million from the financial sector for the Democratic Party and showered the banking establishment with political aid for decades. He protected ultra-low tax rates for hedge fund managers and private equity kingpins, pressed to repeal the Glass-Steagall separation of commercial and investment banking, gutted a bill to regulate credit-rating agencies during the housing bubble, and even attacked the Securities and Exchange Commission's budget.

But over the past eight years, Sen. Chuck Schumer (D-N.Y.) has also served as the accidental architect of the Senate bank reform caucus, the primary bulwark against a flood of bank deregulation bills passed in the House after the 2010 tea party wave.

Schumer's early and persistent support for Sens. Sherrod Brown (D-Ohio), Jeff Merkley (D-Ore.) and, most prominently, Elizabeth Warren (D-Mass.) has created a core of Wall Street critics on the Senate Banking Committee -- a panel that has historically enjoyed a cozy relationship with banks. All three have proven to be effective legislators on financial issues and used their positions to broadcast populist critiques of the banking status quo.

During an interview at the July Netroots Nation conference in Detroit, an event littered with activists hoping to draft Warren into a presidential run, Schumer is happy to detail his own influence on her rise.

"I put the idea in her head of being senator," Schumer says. "You should have seen the dinner. ... I said, 'You should run for Senate!' I remember the restaurant in downtown Washington. It was on 12th Street. She nearly fell off her seat!"

It turns out that Schumer can't actually remember the specific restaurant, but he recalls giving Warren a hard sell, making the case for her candidacy over three different meals before she agreed to test the campaign waters. The Senate has since transformed Warren from an influential academic into the hottest commodity in Democratic Party politics, lauded by progressives and courted by red-state Democrats for appearances at rallies and fundraisers. Her rhetoric is nothing like what the political class has come to expect from Schumer, whose biggest home-state industry is high finance.

"Just look at the big banks," Warren said in her Netroots speech. "They cheated American families, crashed the economy, got bailed out, and now the biggest banks are even bigger than they were in 2008. They still swagger through Washington, blocking reforms and pushing around agencies. A kid gets caught with a few ounces of pot and goes to jail, but a big bank launders drug money and no one gets arrested."

While Warren may be the nation's best-known bank reform advocate, Merkley and Brown have been just as effective as legislators. In his second year in office, Merkley co-authored the Volcker Rule, which bans banks from speculating in securities markets for their own accounts. Brown's bipartisan bill to dramatically curb the amount of risky debt that banks use to fund their operations hasn't passed Congress, but it put pressure on regulators, who eventually required big banks to raise an additional $68 billion in capital.

The trio has been most effective, however, as a voting bloc within the Banking Committee, shaping or killing legislation, approving or rejecting critical Obama appointees and, perhaps most importantly, offering a bank reform seal of approval to the broader Democratic caucus. While members of Congress in general have become more financially literate since the 2008 crash, they still look to expert allies on the banking panel when determining how to vote -- a phenomenon former committee Chairman Chris Dodd detailed at a Bipartisan Policy Center event in July.

"When I served on the Banking Committee for 30 years, when we would come to the floor of the Senate with as close to unanimity as possible ... all the question you'd get from your colleagues would be, 'Is it okay?'" said Dodd, a former Democratic senator from Connecticut. "And if the answer was, it was okay, you got their votes. Because you were going into areas that most members just don't have the vaguest idea what you're talking about."

And so the Senate, which is typically more corporate-friendly than the House, has become a surprising source of big bank skepticism. When President Barack Obama pushed to nominate chronic deregulator Larry Summers to be chairman of the Federal Reserve, Brown organized dozens of signatures from Democratic senators on a letter to the president suggesting Janet Yellen instead. The Summers nomination ultimately collapsed when Sen. Jon Tester (D-Mont.) joined Brown, Merkley and Warren as opponents, making it impossible for the nomination to clear the Banking Committee.

The three senators have been just as effective in stopping legislation. The House has repeatedly passed deregulatory bills chipping away at the 2010 Dodd-Frank Wall Street reform law, only to see them die in the upper chamber.

When asked if the bank reform activism of his acolytes irritates his friends on Wall Street, Schumer shrugs off the question.

"Well, that's too bad! We should have a broad, diverse Democratic Party," Schumer says. "You go to Wall Street; they think I don't defend them enough. You go to the left, and they think I defend them too much."

Indeed, Schumer has long had a troubled relationship with progressives. His prolific fundraising is the foundation of his political power, which frequently puts him at odds with the party's anti-corporate wing. When it comes to Senate recruiting for the Democratic Party, Schumer cares far more about a candidate's electability than about his or her exact policy views. In primary races, he has often supported conservative Democrats over more progressive alternatives. For example, Schumer protégé Kay Hagan, who eventually became a senator from North Carolina, has been a consistent bank-backer.

Progressives were not happy about Schumer's effort to enlist Warren for the Senate either. Back in 2011, Warren had been agitating to be named the first director of the Consumer Financial Protection Bureau, an agency she conceived of and helped shepherd into existence during the negotiations over Dodd-Frank. But Treasury Secretary Timothy Geithner and Obama adviser Summers were jockeying to torpedo her candidacy, and Schumer's recruitment was seen in many circles as an effort to appease the banks by taking her out of the CFPB running and thereby gutting the nascent agency before it got off the ground.

Today, the CFPB is alive and well, having returned $4.6 billion to consumers over its first four years. Schumer says that Republicans had already doomed Warren's candidacy (they also attempted to block the eventual nominee, Richard Cordray) and that he had long admired Warren's academic work.

"She was the first person -- and this was brilliant -- to uncover that middle class incomes, median income was declining," Schumer says. "To this moment, I consider the greatest crisis in America the decline of middle class incomes."

Liberal activists were just as frustrated with Schumer's earlier work in recruiting Brown and Merkley when Schumer chaired the Democratic Senatorial Campaign Committee in 2006 and 2008. In Brown's 2006 Senate race, Iraq war veteran Paul Hackett was the preferred candidate of the liberal blogosphere. Schumer infuriated many Ohio liberals by pressuring Hackett to back out of the race.

Two years later, the affable Steve Novick was the choice of Oregon liberals, who liked his unusual biography and his work as lead litigator in the Love Canal environmental lawsuit. Schumer spent $300,000 on ads backing Merkley, a very large sum in a primary contest, which turned a double-digit Novick lead into a narrow Merkley win.

Novick, now a Portland city commissioner, tells The Huffington Post that he harbors no ill will toward Schumer or Merkley, noting a graceful call he received from Schumer the day after the primary. "But I definitely believe he cost me a Senate seat," Novick says. "As a business model, it was really effective. They picked their guy early, and it sent a clear signal to all the donors. By the end of the primary, he was getting a ton of money from out of state. ... We just didn't have the money."

Schumer is aware of his reputation in the liberal blogosphere and has occasionally thrown his own barbs back. Last year, he told The New Republic that "left-wing blogs" were the "mirror image" of tea party sites, "only with less credibility and less clout."

But the New York senator is trying to do more progressive outreach these days. He attended Netroots Nation this year for the first time, giving a speech about immigration reform. And he's quick to highlight his bank reform votes in the interview with HuffPost. Although he once supported the carried interest loophole that allows hedge fund and private equity managers to be taxed at low rates, he has since voted to close it. Since the meltdown, he has pushed to expand the SEC's budget and protect it from Congressional defunding.

"I call the shots as I see them," Schumer says. "I supported the Volcker Rule and helped get it put in. In 2000, when Bill Clinton and Larry Summers wanted to loosen up derivatives, I opposed it."

He did, in fact, work to defang some of the worst elements of the Commodity Futures Modernization Act of 2000. But the resulting legislation, which is widely blamed for the 2008 crash, still passed the Senate unanimously.

Schumer can hold his own discussing high finance, yet his heart clearly isn't in it: His tone is flat, his eyes focused but dispassionate. His true love isn't Wall Street; it's the Democratic Party. And when the subject shifts to winning seats in Congress, he's a different man, exuberant with an almost childlike sense of glee at his party's 2016 prospects.

"Their only two candidates who are not on the hard right are both wounded in one way or another," Schumer says, referring to Republicans. "[New Jersey Gov. Chris] Christie, wounded by the bridge. [Former Florida Gov.] Jeb Bush, well, not wounded but who I don't think will run. Well, if they run any of their other candidates, my early prediction is that we'll carry the Senate, carry the House by significant amounts. President will carry almost all the states -- Hillary [Clinton] ... If [Texas Sen.] Ted Cruz becomes their nominee, we will carry 50 states, including Texas."

No word on how many states a Warren presidential ticket would carry.

CORRECTION: A previous version of this article claimed that Sen. Schumer had raised "hundreds of millions of dollars" from the financial sector. Only $70 million has been documented by the Center for Responsive Politics, although much of his fundraising from the DSCC remains uncoded. This article has also been updated to include more detail on Sen. Schumer's current positions.