The Blog

Wall Street Re-Deregulation? Already?

Has public opinion about Wall Street really changed so dramatically so quickly? Public opinion has not shifted, but with the public's attention now diverted, the political calculation has.
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Has public opinion about Wall Street really changed so dramatically so quickly?

American voters made abundantly clear last year that they did not want their country run by Wall Street for Wall Street.

"As infuriating as it was for all of us," President Obama said, "we rescued our major banks from collapse, not only because a full-blown financial meltdown would have sent us into a second Depression, but because we needed a strong, healthy financial sector in this country. But part of the deal was that we wouldn't go back to business as usual."

On May 7, the House Financial Services Committee passed overwhelmingly a package of bills written by Wall Street's lobbyists. The bills create gaping loopholes in the Dodd-Frank Act's regulation of derivatives, including credit default swaps that figured so prominently in the financial crisis. There is little doubt that the size of the derivatives market contributes creates great risk of future financial panics and deflationary collapses, but derivatives are fabulously profitable for Wall Street.

Predictably, every Republican voted for the package. But so did the great majority of junior Democrats, including all seven freshmen.

Less than a year ago those Democrats were nervously reading campaign polls that showed the public's impatience with Washington's subservience to Wall Street. And the Democratic base supports financial reform even more strongly than Americans generally.

What happened? Public opinion has not shifted, but with the public's attention now diverted, the political calculation has.

Washington Republicans live in fear of the Republican base. Washington Democrats, on the other hand, use the Democratic base as a foil. Washington Democrats -- not grassroots Democrats -- pick Democratic congressional candidates in swing districts. Washington Democrats recruit candidates who "don't have particularly strong views" on important issues so they will not strike swing voters as unduly partisan.

Democrats from swing districts get priority in committee assignments, and the Financial Services Committee is a plum assignment. The committee is known in Congress as a "money committee." Members of the committee have a much easier time raising money from the financial interests affected by the committee's decisions.

Democratic members still have to call and ask for money. And call. And call. And call.

A PowerPoint presentation to newly elected Democrats explained what the House Democratic leadership expects of them. The presentation described a "model daily schedule" in Washington. The nine- or 10-hour day included four hours of "call time" and another hour of "strategic outreach" -- generally face-to-face meetings to lay the groundwork for money calls.

To get the ear of freshmen Democrats on the Financial Services Committee, Wall Street's lobbyists just wait for the phone to ring. They don't wait long.

The lobbyists probably explained the bills as harmless technical fixes -- and an early chance for the freshmen Democrats to show they are uninhibited by strong views.

Rather than try to parse votes on derivatives regulation, a mind-numbing exercise, their local press will probably just call the freshmen Democrats "moderates," or better yet, "centrists."

Political elites celebrate "centrists" as thoughtful pragmatists who look for innovative policies that draw flexibly from the better ideas of the left and the right. It is a pretty idea that has little basis in reality.

Fundraising deprives even conscientious members of the time to study the issues. "It is considered poor form in Congress -- borderline self-indulgent -- for a freshman to sit at length in congressional hearings when the time could instead be spent raising money," The Huffington Post reported last year. Developing innovative policy proposals is a lot of work, especially without the motivation of strong views, and there is just no time in the day.

The reality is that most centrists just vote with Democrats sometimes and with Republicans sometimes. They pay close attention to public opinion when the public is paying close attention, but pay close attention to special interests when the public is not.

The vote for derivatives re-deregulation was a calculation that the public was not paying close attention.

Brad Miller served for a decade in Congress and on the House Financial Services Committee. He is now a Senior Fellow at the Center for American Progress.