Stop Playing Politics With Financial Reform

Finance is a confusing subject. Even its simplest tenets – the concept of “shorting,” for instance – are beyond the comprehension of many Americans (including this individual).

Finance is also a rather important confusing subject. It constitutes the gears which oil a nation’s economy; a failure in financial markets often has disastrous consequences. Fall-out from the 2008 fall financial crisis directly caused today’s economic recession.

To prevent such a happening again, a financial reform bill has been making its way through Congress. Last December the House passed its version of the bill. This week the Senate has been pouring through financial reform. Obviously, a successful such law would be quite valuable for the country’s future.

Unfortunately, the priority of both parties has been to score quick political points with financial reform. Rather than concentrating on making sure financial reform works – and thus preventing another financial crisis – Democrats and Republicans have been playing the blame game. All this is an attempt to improve their performance in this fall’s congressional elections.

The Republican Party was the first to play politics with financial security. For a short time, they made the ridiculous argument that financial reform would lead to more bail-outs – the exact opposite of the bill’s intent. Their initial – and now apparently discarded – plan was to defeat financial reform in order to deny President Barack Obama a legislative victory; to this purpose, not a single Republican house members voted for the House bill.

Democrats are no less guilty. From the very beginning, they planned to spend the months before congressional elections debating financial reform, in order to blast Republicans as the party of big banks. Rather than actually improving the bill, Senate Democrats have attempted to make Republicans look as bad as possible.

This week, for instance, Republican senators wished to add their proposals to financial reform before opening debate. Instead of negotiating, Democrats repeatedly attempted to force debate on a bill without any Republican changes. The only purpose of this was to make Republicans block debate – which they did – so Republicans would look like opponents of reform.

More suspiciously, the SEC opened a lawsuit against Goldman Sachs just as financial reform hit the Senate’s agenda. The lawsuit hit newspaper headlines and was followed by very public Senate hearings castigating the bank (these too hit newspaper headlines). Although there is no evidence of foul play, the timing of all this appears quite convenient for Democrats.

The irony here is that all the political posturing will probably translate into very little political impact. Very few people get passionate about finance; new rules on derivatives or debates over Fannie Mae and Freddie Mac are not the stuff that get Americans excited. Washington is currently obsessed with the 2010 midterm elections – yet by 2011 nobody will remember how many seats the Republicans won. Nor do midterms have any bearing on Mr. Obama’s re-election: judging by the experiences of Reagan and Clinton, one could say that high mid-term losses actually improve Obama’s chances for re-election.

By all rights, financial reform should not be a politicized bill. In contrast to a bill about, say, the death penalty or gun rights, financial reform is uninteresting, unlikely to affect elections, and quite important for the nation’s future. It is one of those boring things which makes a country run. Both Democrats and Republicans ought to treat it more seriously.