This article was published by The McAlvany Intelligence Advisor on Friday, May 25, 2018:
It is said that politics is the art of compromise. An uglier but perhaps more accurate assessment is that politics is the art of sausage making: no one wants to know how sausages are made, nor laws.
To their credit, two researchers for the Wall Street Journal, Ryan Tracy and Andrew Ackerman, have exposed the sausage-making behind passage of the Dodd-Frank deregulation bill by the Senate earlier this month. Through the efforts of Senator Mike Crapo (R-Idaho), the bill passed the Senate 67-31 and headed for the House. It was passed by the House on Tuesday, 258-159, but that gets ahead of the story.
Here is what they learned, expressed in their own words, and repeated here through liberal extractions from their Journal article for our purposes:
The story of how the legislation came together, based on interviews with current and former officials, demonstrates how policy makers scaled back their priorities to maintain support for a compromise.
Comment here: notice please that it’s political considerations, not the Constitution and its limitations, that set the table for the compromise.
A senior White House official said the administration wanted to help smaller lenders and “recognized that this was about as much as we could get.” The bill is one part of the administration’s agenda to roll back Dodd-Frank rules, the official said.
The bill reflects the outline agreed to by Messrs. Crapo and Cohn. It would raise to $250 billion from $50 billion the threshold at which big banks automatically face strict stress tests and other rules. It would also make community banks eligible for relief from mortgage-underwriting standards.
Comment here: notice that the big banks enjoy a sizeable “carve-out” from the onerous Dodd-Frank rules, but that is given up in exchange for the lessening of rules on local “community” banks, i.e., small banks and local credit unions in their mortgage lending practices. Also note that Mike Crapo is a relatively conservative senator (his Freedom Index rating is 69 out of 100) who is head of the Senate Banking Committee, while Gary Cohn who served briefly as Trump’s chief economic advisor was formerly the president and CEO of Goldman Sachs.
Back to the Journal:
Mr. Crapo, who declined to comment, became Senate Banking Committee chairman in 2017. A conservative known for his “no drama” demeanor, he told Mr. Cohn that he believed he could enact significant Dodd-Frank changes.
The senator discussed with the former Goldman Sachs Group Inc. executive the outlines of legislation rolling back rules on smaller to medium-sized banks. Both agreed such legislation would be worth doing, even though the strategy would leave behind other GOP priorities.
They didn’t, for instance, try to reorganize the Consumer Financial Protection Bureau, a move backed by Republicans but opposed by Democrats.
Just a word on the CFPB: it’s the brainchild of far-left liberal Senator Elizabeth Warren, who designed the agency to be completely independent of Congress, with its own funding provided by its landlord, the Federal Reserve Bank of New York. See Sources below for two articles on that agency inside the Fed’s offices.
Back to the Journal:
Mr. Crapo, in the previous Congress, had reached broad agreement on such a package with four moderate Democrats: Sens. Joe Donnelly (D., Ind.), Heidi Heitkamp (D., N.D.), Jon Tester (D., Mont.), and Mark Warner (D., Va.). He wagered he could win their support again, and that they would bring additional members of the Democratic caucus to secure the requisite 60 of 100 Senate votes.
Democratic supporters in the Senate—17 in all—say the legislation is needed to help smaller, community banks unduly affected by post-crisis regulations. “Too big to fail had become too small to succeed,” Ms. Heitkamp said.
Comment here: Heidi Heitkamp is too clever by half. She is running for reelection as a Democrat in a state that went heavily for Trump in 2016. She is running scared and needs to placate her constituency, which is probably very tired of her according to the latest polls.
Said the writers: “Ten of them are also up for re-election in 2018, with seven representing states that Mr. Trump won in 2016.”
Crapo is a seasoned politician, and knows these Democrats are fearing for their political lives. Once again: the Constitution is of no concern here, just political survival.
Back to the Journal:
During the negotiations, Mr. Crapo rejected potentially controversial proposals such as consumer bureau changes. He narrowed others to win Democratic support: Mortgage-underwriting-standards relief would go only to banks with fewer than $10 billion in assets, for example.
Democrats, anxious to limit the bill’s scope, resisted some provisions related to capital markets. Lawmakers also ultimately didn’t include language giving new class-action rights to trial lawyers.
Meanwhile, Mr. Cohn spoke with wary Democrats, sometimes daily, reassuring them that the White House wouldn’t scuttle a limited deal.
By the end of October, Senator Sherrod Brown (D-Ohio), a member of Crapo’s committee, told Crapo he wouldn’t support the bill and so Crapo took him off his list.
There was a Halloween party, according to the journalists:
That evening, at Ms. Heitkamp’s Capitol Hill home, the North Dakota senator and Mr. Tester shared beers and vowed to press on. The two began the process of finding co-sponsors by dividing up names in the Democratic caucus on a napkin.
On Nov. 13 – two weeks later – Mr. Crapo said he had a bipartisan deal. It split moderate Democratic supporters and more-liberal opponents led by Mr. Brown and Sen. Elizabeth Warren (D-Mass.), who thought the bill went too far to help an industry posting record profits.
Warren was so opposed to anything that might damage in the slightest her illegal, unconstitutional, and totally unaccountable creation inside the Fed that she named those favoring the small modifications to the Dodd-Frank bill in a move that was politically stupid:
Ms. Warren criticized other Democratic supporters by name in a fundraising email, a move some colleagues felt crossed a line.
The journalists left their readers in limbo, concluding only that, when all the sausage-making had been completed and the votes were tallied, the bill passed the Senate 67-31 and headed over to the House.
There, there was more sausage-making. As the House was considering the Economic Growth Regulatory Relief and Consumer Protection Act – the official title of the weak Dodd-Frank deregulation bill – House Financial Services Committee Chairman Jeb Hensarling (R-Texas) pressed for more drastic changes. Long opposed to the original Dodd-Frank law enacted in response to the financial collapse that triggered the Great Recession of 2007-08, Hensarling was rounding up support for additional changes to the law.
Until he got a call from the president, who said, “Jeb, I want the bill now.” In exchange for backing off, Hensarling received assurances from Senate Majority Leader Mitch McConnell (R-Ky.) that he would bring a bill containing more Dodd-Frank deregulations to the Senate floor before the November elections.
And so, on Tuesday, by a vote of 258-159, the Dodd-Frank deregulation bill passed the House in the same form as it passed the Senate earlier, and is headed for the President’s desk. White House officials said that Trump will sign it before the Memorial Day weekend, perhaps sooner.
And that, friends, is how things are done in Washington. Sausage-making is what happens when the Constitution is ignored and political considerations rule in its place.
Trump has another “bullet point” as the November elections draw closer, large banks have more leeway, smaller banks have slightly more freedom, and the odious Consumer Financial Protection Bureau is firmly cemented into place.
NJTVONLINE.org: House rolls back Dodd-Frank regulations
The Wall Street Journal: How Congress Rolled Back Banking Rules in a Rare Bipartisan Deal
The New American: Taming the Tyranny of the Agency