Ménage à Trois — ou à Quatre

Now, we must “reconcile.” Codified since 1974, such reconciliation is a legislative process in the United States, initially tailored to budgetary matters, that spread to every text of major law, separately adopted and affecting a distinct process of amendments in each of the two chambers.

Regarding the reform of the financial sector, the House had voted on a bill five months ago. Another was just voted on by the Senate. Both chambers aspire to find ways for the country to avoid a new devastating crisis. But, on almost every topic — from taxpayer or shareholder protection to the bonuses of large financiers, through the derivative products or the prerogatives of the state’s controlling organs — the two bills include substantial differences.

For Barack Obama and the Democrats, except for the risk of a subsequent skid, the essentials seem to be assured: there will be a new law. But, what kind? By which validating procedures should the speculative “financial tools” pass before being put to use? Is it necessary to completely, partially, or not at all ban the practice of “selling short” (the speculators’ most prized method) or the operations that serve the banks’ own account balances? What will be the obligations of a broker to his client with regards to transparency?

On this last subject, the House of Representatives imposes norms while the Senate doesn’t. The senators, however, are more flexible on the terms and the enforcement of delays in the “Volcker rule” (clear separation between investment banks and commercial banks), and are more specific about the means to control the risks undertaken by bankers. Also, their bill is more restrictive concerning the activities of hedge funds.

To reconcile thus consists, for the leadership of the House and Senate, of deciding on an overall voice that will win the votes of a majority of their members. In the setting of checks and balances — that balance of powers between the executive and legislative branches, where everyone has the means to counterbalance the other — the “consolidated text” must strive overall to respect presidential wishes.

Shortly before the conclusion of proceedings in the Senate, Obama had issued a statement that he will veto any legislation that does not control the derivatives market. The senators, upon hearing this speech, adopted a more restrictive bill than the House. But neither the White House nor the Federal Reserve imagine prohibiting commercial banks’ access to these financial tools.

In this threesome — House-Senate-President — the first usually has a predominant weight in the development of the law. This was the case in the previous substantial reform on health insurance. The Senate had obtained the withdrawal of any reference in the law to establish a public health insurance company, to the great satisfaction of private insurance companies.

But this threesome always has a fourth member. If the U.S. President is the head of the palace, then the Senate is his legitimate wife and the House of Representatives is his first concubine. The wife and the concubine, despite their rivalry, are interested in hearing about one another until one gains majority domination; the lobbyists are lovers [to both the wife and concubine]. These generous but shady lovers are swift to repudiate a betraying mistress (while refusing to finance her future electoral campaign, for example).

A husband naturally abhors a lover. On Sunday, May 23 [posted May 22 in the U.S.], on his Internet site “Organizing for America”, Barack Obama urged his supporters to block their path, because the lobbyists “will not give up.” Until the final vote, he wrote, “ … they are going to do everything they can. This is their last shot to stall, weaken, or kill reform, and they are not accustomed to losing.” In reality, in regards to the open hostility of opinions towards Wall Street, these financial lobbyists know that their chance to avoid an imposing regulation is infinitesimal. But they still must maintain certain priorities.

For example, for the taxpayer (the U.S. Treasury) to offset the costs of bank failure and “bail out” due their speculative practices, as in 2008, the House provides for the creation of a compensation fund to the tune of $150 billion, funded by large banks. The Senate did not impose just one market intervention “a posteriori”.* From the beginning, the [financial] lobbyists did not want any rules like this. From now on, they are seeking to obtain the fewest possible constraints.

Despite the presidential warning, they will attempt to loosen the control on derivatives. Scott Talbots, executive director of the Financial Services Roundtable, intends to run a traditional campaign — such as going door-to-door to convince each one of the 100 senators and the 435 representatives — that most of the derivatives, far from being harmful, are useful and make the markets more liquid.

Elected officials would be wrong to throw out the baby with the bathwater. But regarding the approaching legislative elections in November, Talbott knows that many among them will ask themselves whether or not their voters will be capable of following this very tortuous reasoning. What good is the lobbyists’ money if, in pleading their cause, the elected officials assure their own defeat in November? The outcome of this rat race will be known in six weeks.

* Editor’s Note: The French author uses this Latin phrase.