Senators Mark Warner and Elizabeth Warren talk before the start of a Senate Banking, Housing and Urban Affairs Committee hearing in February.
Despite Republican leaders’ best attempts to convince Senate Democrats from red states like Indiana, West Virginia, and North Dakota to vote for repealing the Affordable Care Act, cutting entitlements, and enacting sweeping tax cuts for the rich, congressional Democrats have remained united. That unanimity—along with a heaping dose of presidential ineptitude—has left the GOP’s legislative agenda largely unaccomplished 11 months into the Donald Trump administration.
Alas, the congressional Democrats’ spine couldn’t stay stiff forever. So what’s the straw that broke the party’s back?
Wall Street, of course.
On Monday, news broke that Senate Banking Committee Chair Mike Crapo had struck a deal with a cadre of Wall Street friendly Senate Democrats to roll back regulations, including key parts of Dodd-Frank, on a large segment of the banking industry under the guise of providing new consumer protections and relief for struggling community banks.
The bloc of Democrats went around their own Democratic ranking committee member, Ohio Senator Sherrod Brown, who walked away from talks with Crapo weeks ago after he said it became clear that any sort of bipartisan deal would be dramatically skewed toward banks, not consumers.
Eight Senate Democrats and independent Maine Senator Angus King, who caucuses with the Democrats, have signed on to the deal with Crapo. They include four members of the banking committee—John Tester from Montana, Joe Donnelly from Indiana, Heidi Heitkamp from North Dakota, and Mark Warner from Virginia—as well as former Democratic vice presidential candidate Tim Kaine of Virginia, Claire McCaskill of Missouri, Joe Manchin of West Virginia, and Gary Peters of Michigan.
The bill would make it easier for “smaller” banks to sell high-risk mortgages, remove reporting requirements and certain capital standards, and free them of the Volcker rule that creates a wall between a bank’s investment activities and regular depositor banking. The biggest change, though, is that it would substantially lift the threshold for what is considered under Dodd-Frank to be a “systemically important financial institution,” from $50 billion to $250 billion. This would release dozens of financial behemoths, including American Express, SunTrust, and BB&T, from additional Federal Reserve monitoring and more substantial capital requirements. As critics of the legislation warn, the bill would thereby allow a larger swath of the banking industry to engage in the type of risky behavior that led to the economic disaster of the late 2000s.
As David Dayen reports for The Intercept, the bill also includes giveaways for hedge funds and big banks investing in the bond markets, while only instituting modest consumer protections, such as a provision requiring credit bureaus to provide a free credit freeze and unfreeze each year, which is a weak-tea version of a bill introduced by Senator Elizabeth Warren.
The support of these nine Democrats give Republicans enough votes to avoid a filibuster and pass the bill through the Senate, setting up a potential conference committee to iron out the differences with a far more drastic financial deregulatory bill passed by the House over the summer—the Financial CHOICE Act. In short, Democrats could deliver a major win to Trump and his Wall Street buddies, with a bipartisan veneer, no less.
Up until now, the two ends of the party spectrum have stayed united in opposition to Trump’s agenda of health care repeal and tax cuts. But if Democrats are in disarray about anything, it’s Wall Street. The defection is sure to heighten tensions between the party’s progressive wing, embodied by Senators Bernie Sanders and Elizabeth Warren, and its centrists.
“It’s incredibly discouraging to see a bunch of Democrats join hands with Wall Street Republicans and announce their support of a wish list for bank lobbyists,” says Kurt Walters, campaign director of Rootstrikers, a progressive advocacy organization. “It makes it difficult for the progressive base to believe Democratic leaders in Congress when they say they’re fighting for them and against corporate giveaways. The base wants to believe that, but this kind of move makes it difficult to take them at their word.”
“We cannot afford to roll back protections that keep Wall Street from gambling the investments of working people,” Nina Turner, president of Our Revolution, the political group formed out of Bernie Sanders’s presidential campaign, said in a statement to the Prospect. “Democrats and Republicans alike must protect our economy and oppose any attempt to weaken Wall Street regulations.”
Lisa Gilbert, Public Citizen’s vice president for legislative affairs, says the move shows a profound lack of understanding by these Democrats of how seemingly small changes can have a much larger ripple effect on the financial industry. “It’s a slippery slope,” she says.
But with progressive organizations largely focusing their energies—rightfully so—on defeating the Trump tax cuts (and never-ending assaults on the ACA), critics of the bill are worried that obscure financial deregulations might slip through as an innocuous bipartisan compromise without much in the way mobilized opposition.
“It remains to be seen whether it rises to a similar level [to efforts on health care and taxes]. Not everything breaks through to that degree,” Gilbert says.
The bill likely won’t be taken up until the GOP is finished with its tax and budget legislation, which could still take several weeks. But if groups like MoveOn, Indivisible, and other prominent outside activist groups that have helped lead the charge against the ACA repeal and tax cuts, mobilize their forces to pressure these freelancing Democrats, they might convince some of them to back out of the deal. It would only take a few reversals to deprive the bill of a filibuster-proof super-majority.
"This is the worst kind of beltway bipartisanship, where Republicans and Democrats come together for the benefit of big banks but do nothing to protect ordinary Americans,” said Bishop Dwayne Royster, national vice chair for the Working Families Party and political director for the PICO National Network. “This is not just bad policy, it's terrible politics. Democrats, especially, must realize how damaging it is for them to be seen as the party of big money."
Many of these Democrats are heading into tough reelection battles in red states and want to point to this deal as a way to claim they’re helping their more rural communities that rely on small banks. Of course, Sherrod Brown, who is facing perhaps one of the most daunting odds for reelection, firmly rejected the logic that 2018 voters are yearning to support politicians who double down on obscure banking deregulations.