Financial Reform Watch

The Circus Comes Back to Town

After a summer of raucous town hall meetings, the dip in President Obama's poll numbers, and the death of Senator Ted Kennedy, members of the House and Senate may well be relieved to return to the routine of the Washington legislative process. With all the turmoil already seen and now expected, there is a flavor of the circus being back in town.

We're actually picturing a three-ring circus— the "main ring" in the middle is where the health care debate is playing out. In the smaller rings we have climate change and financial reform. The action will shift back and forth at various times but all three rings will have their moments of action. While the ultimate fate of climate change legislation is very much in doubt, health care reform and financial reform are better bets to see final or near-final action in the next four months.

On the Senate side, one Senator seeks to be ringmaster over two of the rings. Sen. Chris Dodd (D-CT) has been filling in for Sen. Ted Kennedy as the shepherd of health reform legislation at the Senate Committee on Health, Education, Labor and Pensions (HELP). With Kennedy's passing, Dodd is now the senior Democrat on the committee and could claim the Chairmanship. However, we are hearing that his preference will be to gain agreement from committee Democrats that he can continue to be the lead negotiator on health care while next-in-line Sen. Tom Harkin (D-IA) takes the chair. That way, Dodd can retain his Chairmanship of the Senate Banking Committee and also lead his colleagues through the financial reform discussion. The Senate being the collegial body that it is, it seems to us that something can be worked out along these lines.

Sen. Dodd's staff has been working with their counterparts from Sen. Richard Shelby's (R-AL) staff to look for agreement on the outlines of a comprehensive bill for financial reform. They report progress along those lines and hope to have an outline for committee members to review in the next couple of weeks. The hope is that a committee markup could occur in October. The package being discussed is comprehensive and will touch on most of the issues raised in the Obama Administration's paper from earlier this year. However, many of the specifics will be much different than those discussed by the administration. In particular, it is clear from public statements by Sens. Dodd and Shelby and from what we pick up on the Hill that the concept of the Federal Reserve as systemic risk regulator has virtually no support at the Senate Banking Committee.

We will discuss the prospects for action on the House side in a future posting.

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