Where Did All the Populism Go?

I recently wrote that we shouldn’t expect much of anything to get through Congress this year because passing legislation would require the kind of bipartisanship that Trump and Republicans have been unwilling to embrace. But there is a bill working its way through the Senate that has a good chance of passing and being signed by the president. Interestingly enough, it’s aimed at rolling back some of the Wall Street reforms in Dodd-Frank that were enacted to prevent the kinds of abuses that led to the Great Recession.

I’ve been trying to follow this one as it works its way through the Senate Banking Committee, but frankly, the reporting on it has been awful. What I’ve seen so far are brief descriptions of the bill followed by endless coverage of the posturing of various politicians. But now that the legislation is about to start its process through the Senate’s procedural votes, we’re getting more detail.

A key element of Dodd-Frank is that it requires banks with more than $50 billion in assets to undergo scrutiny by the Federal Reserve. That includes mandatory stress tests to analyze how they would react to another financial crisis and plans for how they would break apart, sell off assets, and liquidate in bankruptcy if they started to fail. The current bill would raise the asset bar to $250 billion, releasing approximately 25 of the 40 banks that are currently affected.

The reason this legislation is likely to pass the Senate (and await reconciliation with a much more sweeping House version) is that there are reportedly as many as a dozen Democrats who could vote for it. Named among that group are Senators Tester (D-Mont), Donnelly (D-Ind) and Heitkamp (D-ND), all of whom are up for re-election this year in red states.

Many of the moderates face political pressure to establish a centrist voting record, particularly after voting against the GOP tax cuts in December. Tester, Heitkamp and Donnelly are all up for reelection in November in states President Trump won by large margins. All three helped negotiate the banking legislation with its GOP sponsor, Banking Committee Chairman Mike Crapo (R-Idaho).

Here’s what I don’t understand: how does establishing a “centrist voting record” help ensure re-election in red states during the Trump era? First of all, that doesn’t sound very “anti-establishment,” which was supposed to be the core of Trump’s appeal. And wasn’t the groundswell of support for the president predicated on a populist revolt spurred at least in part by the fact that regular folks got decimated during the Great Recession while Wall Street was let off the hook? Now we’re hearing that to get re-elected in a red state, senators have to ease up on the banks.

On the other side of this, Senator Warren is putting on her boxing gloves and getting into the ring to fight. But it’s interesting to note that she gave these same smaller banks a pass on being examined by the Consumer Financial Protection Bureau in exchange for their neutrality on its inclusion in Dodd-Frank.

Also worth noting isn that one of Dodd-Frank’s original authors, former Rep. Barney Frank, has said this:

Frank, whose signature law stands to be partially dismantled by the Crapo bill, opposes the new legislation. But he has been in touch with senators on both sides and agrees that it leaves the major protections of Dodd-Frank in place…

In an interview, Frank disputed the suggestion that the Crapo bill might lead to another financial crisis, arguing that the rules on mortgages and derivatives remain essentially unchanged. And Frank said he’d rather see Heitkamp, Tester and Donnelly vote for the legislation and get reelected in November than vote against it and lose.

“If they were defeated, in the next Congress you’d get a much worse bill,” Frank said.

Personally, I wouldn’t support any changes to Dodd-Frank from this Congress. We’re already watching the Trump administration destroy the Consumer Financial Protection Bureau, which is a much more serious threat than this bill. But I find that Democrats are posturing on it in ways that don’t make a lot of sense.

Ultimately the big takeaway would be that, if voting to water down the regulation of banks is how you win re-election in states like Montana, Indiana, and North Dakota, then the populism that we heard so much about in 2016 is truly dead.

Nancy LeTourneau

Nancy LeTourneau is a contributing writer for the Washington Monthly.