Senate debate over financial reform will finally begin today, at least according to a report from the wire services for Al Jazeera English:
US senators have agreed to debate a bill proposing sweeping changes to financial regulation, after days of blocking manoeuvres by opposition Republicans.
The report offered no explanation of why the Republicans backed off from blocking debate. The best explanation may be that, at least on this issue, their party-of-"no" strategy was just not playing well in the polls:
Polls show the legislation enjoys support of nearly two-thirds of the US public, and continued anger at big banks blamed for the 2008 financial collapse is expected to shape congressional elections set for November.
Nevertheless, if we have learned anything from the attempt to reform health care, it is that we have to be careful about how we set our expectations. For a start we should be clear on just what is being debated:
The bill aims to prevent large firms from taking billions of dollars in government aid when their failure threatens the broader economy and create, for the first time, an agency to protect consumers from shady financial dealings.
It also looks to regulate trade in derivatives, complex financial instruments often used by firms to smooth out volatile commodity prices but blamed for warping the market and encouraging speculation.
Then we should take note of what each side says about the other:
Democrats and the White House have been eager to portray Republicans as siding with Wall Street, while Republicans insist the bill as currently crafted is not ready and must be changed.
Republicans acknowledge a need for reform but say the Democrats' bill is a government overreach, signalling the congressional fight is far from over.
To begin with the Republican position, the language of regulation does not appear very frequently in Article I of the Constitution; and, indeed, that Article says nothing about regulating to protect a consumer against abusive business transactions. However, this does not justify the claim that seeking such protection constitutes "government overreach." At the very least such consumer protection is covered by that "insure domestic Tranquility" phrase in the Preamble; and there is now a rich foundation of precedent regulations concerned with such protection. The Republicans may want to capitalize on the "rage factor;" but, if they plan to do so, they are going to need a better argument.
Most importantly they will need to address the Democrats' claim that the Republicans speak for Planet Wall Street, with the implied corollary that the rest of the nation be damned. However, this does not guarantee that the Democrats have come up with an effective solution. I can think immediately of two cautionary observations to be considered as the debate proceeds:
- The lesson yesterday from the Goldman Sachs Senate testimony is that our Senators still do not really "get" the "constructed reality" of Planet Wall Street. Since part of the problem involves a semantic disconnect, one cannot expect Planet Wall Street to accept regulations without first fitting them into the Planet Wall Street worldview. The Senate needs a better understanding of that worldview. If the Republicans really do speak for Planet Wall Street, it will be interesting to see if they can bring that understanding to the Senate floor.
- Regulation is not a simple matter of securing the barn door to keep the horses from being stolen. It is a process of ongoing vigilance, which is why Udi Manber's metaphor of an arms race is so applicable. Beyond regulation itself there must be a commitment to an active regulating authority; and that commitment should probably also cover what to do if that authority does not perform satisfactorily according to its "job description." This will be tricky, not only because it is easier to think about products rather than processes but also because those processes will have to be engaged within the constructed reality of Planet Wall Street, even if they have been defined in the constructed reality of Planet Washington.
The point is that we cannot expect that the Senate will come up with a "magic bullet;" but we should be able to hope that they lay the groundwork for better regulatory practices than we currently have. This may be asking for too much from such a politicized organization with such strong opposition. However, it is the reality in which we must keep ourselves grounded; and we need to account for that reality when we communicate with those who represented us or with the mediating agents of their pollsters.