In the Arena

Re: “Volcker Rule”

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What’s in the water in Connecticut these days? As Michael Scherer points out below, it looks like Chris Dodd is going to sacrifice sanity–that is, the notion that banks should stop being derivative gambling casinos and return to being, well, banks–at the altar of witless bipartisanship. (There is smart bipartisanship, but this isn’t it.) According to an aide:

“Chris is retiring so he wants to end his career with an important regulatory reform bill and he wants to make the bill bipartisan,” the staffer said. “He is not going to risk bipartisan support to make the White House happy.”

Nonsense. There are some bipartisan gestures worth making–if you could get Republican votes for health care by offering tort reform, do it! But the Dodd cave not only sacrifices good law, but also good politics. The good law part of it is the most important: banks shouldn’t be allowed to play private Ponzi-games (like credit-default swaps on mortgage packages) with their depositors’ money–that’s the so-called Volcker rule. (In fact, real regulatory reform would tax financial derivatives transactions.) This is just common sense after what we’ve been through.

The politics is also straight-forward: Anything that lashes the Republicans to their natural allies on Wall Street is good for the Democratic Party. If Democrats are smart, they will stage vote after vote this summer on issues like the bank tax, the Volcker rule, where Republicans have to stand up and be counted yea or nay. (The President said as much in our interview a few weeks ago.) Does anyone doubt that this is what Republicans would do if the situation were reversed?

But Chris Dodd wants his legacy. Or, perhaps, he just wants a nice, cushy bank job after he retires.