House Democrats representing New York are making a last-minute push to defend the interests of the state's most profitable industry.
On Monday night, Gary Ackerman, a Democrat who represents Queens, told his fellow caucus members that if reform is too tough on Wall Street -- particularly, if it includes a tough derivatives proposal from Blanche Lincoln or a hardened Volcker Rule -- the 26 members of the New York delegation may abandon the party on a final vote. He claims that reduced profits for Wall Street translates into lower tax revenue for the state and city, which hurts all New Yorkers.
That would leave Speaker Nancy Pelosi (D-Calif.) with only a few votes to spare, with plenty of other opposition from within her caucus still left to overcome.
The conventional understanding of the congressional equation is that the Senate, with its requirement of 60 votes to overcome a filibuster, is the limiting factor. But the House is proving a more difficult obstacle.
Beyond the insurgent New York Democrats, the New Democrat Coalition objected to the Lincoln proposal in a letter to colleagues Tuesday. Rep. Debbie Wasserman Schultz (D-Fla.), meanwhile, has garnered more than a hundred signatures for a letter objecting to the Senate's effort to reduce the exorbitant swipe fees that banks charge merchants to use credit and debit cards. And on Tuesday, House conferees successfully fought off Al Franken's measure, approved by the Senate, that would end the conflict of interest created when banks choose which credit rating agency will evaluate which deal.
The New York delegation may be the most immediate problem. "Those of us in New York represent not only Main Street, but Wall Street, as well, and understand very much that Main Street is affected by Wall Street," Ackerman told HuffPost. "I've spoken to the mayor, and I've taken it on myself to try to rally the troops."
House Financial Services Chairman Barney Frank (D-Mass.) told HuffPost he has encouraged the New York effort regarding Lincoln's language. "It's a legitimate concern of theirs and I told them they should keep arguing," said Frank.
Ackerman's comments were first reported in HuffPost Hill, an evening newsletter, on Tuesday, and already an online petition has been launched by the Progressive Change Campaign Committee targeting him.
"Watering down this bill is unacceptable," said Aaron Swartz, PCCC co-founder. "If Gary Ackerman, Chuck Schumer, or anyone else is even thinking about putting their Wall Street campaign contributors ahead of Main Street, we're putting them on notice right now: We will let their constituents know they are sell-outs and we're perfectly fine making a national example out of them."
The New York delegation doesn't often vote as a bloc like the Blue Dogs or New Democrat Coalition, but when it comes to Wall Street, Ackerman said, it's willing to use its sizable influence. "We're missing the tickling guy, so we're down to 26 [members] instead of 27," said Ackerman, referring to Rep. Eric Massa (D-N.Y.), who resigned amid a pile a giggling staffers. "We don't always vote in a bloc on an issue, but this is a highly charged, very important economic matter for New York. Wall Street is one of our umbilical cords, it's the oxygen. You can replace alfalfa by growing snow pea pods, I guess; cattle by raising sheep, but what do you put in all those buildings in and around the city that are dominated by the banking industry? It's not grazing pasture land."
Ackerman is garnering signatures for a letter from the New York delegation to Frank pushing back against the Volcker Rule and the derivatives proposal. He said he expects to have nearly every member of the delegation sign the letter.
The New York uprising is one example of the way that the structure of the House works against meaningful national reform. More than three dozen Democrats sit on the House Financial Services Committee and nearly all of them demand special treatment for regional interests. "What's happening now is the pro-regulation forces are being out-grassroots-ed by the antis," Frank told HuffPost in the fall as his committee considered the bill. One member, he said, represented tons of title insurance companies. Another came from the headquarters of credit unions. A third's district was home to LexisNexis; another to Equifax.
"I have not had a problem because of campaign contributions. The problem is democracy: it's people responding to people in their districts: community bankers, realtors, auto dealers, as I said, end users, insurance agents," said Frank. Add New Yorkers to that list.
The Senate, by contrast, is much less burdened by the principles of democracy. Because each state gets only two senators, Wall Street's home state has the same number of votes as Wyoming. Both New York senators, to the dismay of Wall Street, have been advocates of reform -- or, at least, haven't been active opponents.
"There's a different political dynamic in the Senate. Where the happy number for the devil is 666, the happy number for the Senate is 60. They're very focused on getting 60 votes for anything. But there's a reality that sets in in the end of the process that deals with not just passing it in one house, like the Senate, but it's something that has to pass -- be acceptable to the House and the majority of the conferees," said Ackerman, explaining Chuck Schumer and Kirsten Gillibrand's support for the final bill in the Senate.
The delegation has a variety of problems with the evolving legislation. The Volcker Rule is intended to stop banks from trading for their own profit with taxpayer-backed money.
Ackerman said that declining profits for Wall Street would mean smaller local tax revenues and less money circulating through the New York economy in general. Ackerman said he and his delegation colleagues are fighting to make the bill that emerges from conference "much more reasonable. And to make it New York-friendly."
The delegation is making progress toning down the Volcker Rule, said Ackerman, but is waiting to see final language before deciding if it's something they can support. "We could live with Volcker, depending on how it gets defined, and that language is described right now. We're trying to work out something that accommodates those of us who have New York specific concerns," he said.
Lincoln's piece has less room for improvement, he said. Dropping it would be better. "If we could get rid of it," he said, "that would be the ideal, but we're looking to tame it in a way that makes sense."
The New Yorkers will have help from the New Democrat Coalition, a group of Wall Street-friendly lawmakers who worked to soften reform in the House when it first went through.
The coalition is currently gathering signatures for a letter objecting to the Lincoln proposal, pushing for exemptions to the derivatives language and arguing for a loose interpretation of the Volcker Rule.
The New Dems ally themselves with the administration in their opposition to Lincoln. "[W]e agree with leading regulators and Administration officials, including former Chairman Volcker and current Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Timothy F. Geithner, SEC Chairwoman Mary L. Schapiro and FDIC Chairwoman Sheila C. Bair, who have all expressed opposition to Senate Section 716 - also known as the 'swaps desk spinoff' - that would increase systemic risk by forcing derivatives transactions into less regulated and less capitalized institutions and impede effective regulatory oversight of the derivatives markets. Legitimate conflict of interest concerns are addressed by the ban on proprietary trading in the Volcker Rule, and, accordingly, we believe Section 716 should be removed from the legislation," reads the letter, a copy of which was reported in Tuesday's HuffPost Hill.
Advocates of reform are warning Democrats that sticking up for Wall Street now could cost them in the fall. "During the Senate debate, we saw the bill grow stronger than the House bill as senators started listening to their constituents and big bank lobbyists got shut out of the process," said Ilyse Hogue, director of political advocacy and communications at MoveOn.org. "So if House members think they're going to be able to undo that progress at the behest of Wall Street lobbyists, they're in a for a nasty surprise in November, especially given how open the lobbyists have been about who their targets are to do their bidding in conference."
UPDATE: Americans for Financial Reform is pushing back against the New Dems, sending this letter to Congress rebutting the New Dems' claims.
UPDATE II: The New York Daily News has has the letter from Ackerman.