In the year and a half he’s been in the U.S. Senate, ever since banking committee chairman Chris Dodd recruited him for the committee, Jeff Merkley has been working on the financial overhaul bill. He became a prominent figure in the fight, with heavy attention to the Merkley-Levin amendment to keep banks from trading on their own accounts while covered by federal insurance and Federal Reserve support.
This week, after passing both houses, the financial regulation bill came out of the conference committee, went back into the conference committee, passed the House in its final form, and seems likely to pass the Senate some time after Congress returns from next week’s July 4 recess.
So, after all that effort producing major legislation, would Merkley say he was satisfied?
The Oregon senator thinks a moment.
“‘Satisfied,’” he decides, “is too strong a word.”
Freshman senators grow up so fast.
Still, “the principle is in the bill, and regulators are told to shut down any bank that violates the terms.”
The principle is called the Volcker rule, named after Paul Volcker — the last chairman of the Federal Reserve who didn’t see the economy disintegrate on his watch — and Merkley took it up early, though without any great expectations.
“I didn’t see the political gumption to take it on,” he says. “I’m surprised that it succeeded, in part because Chairman Volcker made a personal commitment to seeing this through.”
Merkley-Levin has three elements. First, banks are required to have more capital to cover their deals, unlike some now-departed banks that were on the hook for 33 times their net worth. Second, banks can’t sell securities and then secretly bet on their collapse.
“It’s like hiring an electrician to wire your basement,” says Merkley, “and then you find he’s taken out fire insurance on your house.”
The last part is the actual limitation on where banks can put their money. In the final bill, the limitation is limited, allowing banks to put 3 percent of their money in creative places.
Explains Merkley, State Street Bank in Massachusetts invests money that way — and House banking chairman Barney Frank and key Senate Republican Scott Brown are from Massachusetts.
Now, like most legislation, it comes down to the level of enforcement. “If those regulators are not vigilant,” says Merkley, “we will have a giant loophole.”
Even getting to that point wasn’t easy.
“What I knew was that Wall Street would have an army of lobbyists to kill this,” recalls Merkley. “I called other senators, my chief of staff called other chiefs of staff, my legislative director called other legislative directors. (Michigan Sen. Carl) Levin’s team was working it hard, Volcker was working it hard.”
And, of course, majority rule is never enough. In the Senate today, 60 votes are needed for everything, requiring a certain distortion of the process, and causing the Senate — even in things it wants to do, and expects to do — to move slower than a turtle on muscle relaxants. Right now, 350 bills passed by the House are piled up waiting action by the Senate.
“On the challenge side,” says Merkley of the experience, “it’s made me completely conscious of the Senate’s internal obstructions, that it’s a supermajority chamber. It wasn’t intended to be a supermajority chamber, it wasn’t for most of its history, but it is now. It’s extremely damaging not only to the Senate, but to the judicial and executive branches.”
Also, the House is really annoyed.
This situation also means than in the Senate nothing is actually done until it’s done, that nothing is certain until the president is handing out signing pens in the Rose Garden. Just in the past week, Massachusetts Sen. Scott Brown announced he was now against it (despite the consideration for State Street Bank), the bill went back to conference and was adjusted but he may still be against it, the Democrats lost a vote with the death of Sen. Robert Byrd of West Virginia, and the final passage that was supposed to create a July 4 signing ceremony has been kicked out until something after the Senate’s return from its July 5-9 recess, and until several senators from both parties have been massaged back into place.
“At the moment,” says Merkley, “I’m reasonably optimistic.”
The experience’s biggest lesson may be that in the Senate, that’s as much as you can hope for.
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