Frank: A Life in Politics from the Great Society to Same-Sex Marriage (47 page)

Our new stricter provisions made it through committee, but they were cut back on the House floor, although not in a way that did serious damage. To protect their risky business, the financial institutions successfully enlisted large manufacturers and other customers who bought their derivatives products. With public opinion unengaged, and nonfinancial institutions lobbying heavily, our rules were not as tough as I wanted them to be.

The outcome was disappointing, although not a major drawback. But the reason for it should not be misunderstood. It is widely believed that the biggest financial institutions contribute so much money to so many members of Congress that they can virtually dictate policy outcomes. It is also widely thought that our final bill favored them at the expense of the smaller institutions. (For example, Gretchen Morgenson made this argument explicitly in
The New York Times.
)

This is simply wrong. Campaign contributions can be influential in the legislative process if the point of view they support is unchallenged by any countervailing force. Their influence diminishes greatly when those opposing the contributors’ viewpoint represent large numbers of voters. There was a clear example of this in 2013 when an impressive coalition of deep-pocketed businesses in the entertainment industry sought to pass a bill that would have severely restricted what consumers can see and hear without paying full—or any—price. The initial expectation was that their political and financial clout would carry the day. In fact, they were routed decisively—by a flood of angry communications to members of Congress from those very consumers, urged on by the Internet providers who had their own financial interest in defeating the bill. But the latter did not have to make contributions. This result was an affirmation of an enduring principle: Money is very helpful in a political vacuum, but when members are forced to choose between their voters and their contributors, votes kick money’s ass.

In matters pertaining to finance, the real power to influence Congress rests not with the big banks but with a group of organized interests with genuine grassroots memberships throughout the country. These are the real estate agents, the independent insurance agents, the credit unions, and the community banks. They are present in every member’s district. Their corporate culture is more outgoing than that of the megabanks and investment firms. It is their members who coach Little League, belong to civic clubs, and actively solicit business in their communities.

The one loss I suffered in our committee demonstrates this point. A large minority of Democrats joined all the Republicans to pass an amendment removing loans made by auto dealers from the consumer bureau’s jurisdiction. Auto dealers are not only present in every member’s district. With their ingratiating, slightly self-deprecating TV ads, they also epitomize the outgoing, socially active businessperson.

With the bureau and derivatives debate resolved, there was one last, unanticipated barrier to House passage. The committee members from the Congressional Black Caucus were under strong pressure from their districts—indeed, from the national black community—to help African Americans recover from the crash. African American homeowners were disproportionately victims of predatory mortgages, and inner-city neighborhoods were plagued by foreclosures and the neighborhood deterioration that followed. I arranged a private meeting with the caucus and top administration officials on the subject, but nothing concrete came of it, and the CBC’s frustration level rose.

Seeking leverage, they told me not to count on their votes in committee. But there was some ambiguity. I did not know if they planned to vote no or to abstain. If the former, the bill died. But I could secure the bill’s passage with their abstention if every other Democrat voted with me. Jim Segel helped persuade the more conservative Democrats to vote with me, allowing the CBC to abstain without killing the bill. With the support of the House leadership, Dodd, and the administration, I then worked with Maxine Waters and other CBC members to direct unspent TARP funds and other government resources toward foreclosure relief.

*

In December 2009, the House passed our bill by a vote of 223 to 202. Attention turned now to the Senate, where Dodd’s committee was hard at work.

For the most part, the bill became tougher in the Senate. Admittedly, this came as a surprise. Along with many others, including lobbyists for the large institutions, I expected the Senate to soften our provisions to some degree. But then, as Harold Macmillan would not have been surprised to learn, events reshaped our political landscape. The most important was the final enactment of President Obama’s health care bill by the House in March. Financial reform was now the focus of media interest. And the media had become especially interested in the story of how Goldman Sachs had sold a large mortgage-backed security while simultaneously betting that those who bought it would suffer a loss. With his customary skill, Senator Carl Levin used the Permanent Subcommittee on Investigations he chaired to shed light on practices that showed the financial industry at its worst.

Around the same time, the administration embraced former Fed chair Paul Volcker’s proposal to prohibit FDIC-insured banks from engaging in risky deals when they were trading for their own profit. (He had originally faced opposition from Obama’s key advisers on the subject and we had not included the idea in the House bill.)

Nothing in the bill as it became law was more obnoxious to the large banks than the “Volcker rule,” and the ease with which it was adopted illustrates once again their lack of influence. Indeed, the more strenuously the banks opposed the rule, the more popular it became.

The Senate did weaken one key provision, to my continuing great regret. Senator Mary Landrieu insisted on loosening the requirement that packagers of mortgage loans retain some skin in the game. We believed that if the packagers retained some responsibility if their loans defaulted, they would be far more careful. Landrieu’s action struck at what I believed to be the single best part of the bill, but I was up against the magic number. There were only fifty-nine Democrats in the Senate. And one of them, Russell Feingold, infuriatingly announced that he was too pure to vote for a less than ideal bill, even though he acknowledged that it was in every way an improvement over existing law. Not even Elizabeth Warren’s pleas changed his mind. We had the support of three Republican senators at most, and we knew there were political pressures on all of them to become opponents. As Dodd noted ruefully, in this situation every senator gets a chance to be number sixty, and it was Landrieu’s turn.

*

After the Senate passed the bill in May 2010, we proceeded toward reconciling the two versions in a House-Senate conference committee. From the start of our work, I had wanted the bill’s passage to be a model of democracy in action. Even after the legislation passed our committee, I pressed the House Rules Committee to allow amendments. And without informing the Obama administration or the Senate, I unilaterally insisted that the House-Senate conference take place in full public view before the television cameras. I wanted to increase transparency and keep the influence of industry at bay.

The conference would become the site of three important battles. Blanche Lincoln, chair of the Senate Agriculture Committee, faced tough opposition from the left in her reelection primary and so she pushed through a sweeping requirement that banks stop their derivatives activity. It went much too far, even for Bair and Volcker, and had to be civilized in conference. It was, with the assistance of timing—Lincoln’s primary was over (she won it but lost the final election). Gensler helped broker a deal that aided the banks somewhat but was still a major setback for them.

The big institutions did win on two other points, though again not because of their formidable power. When it came to the details of the Volcker rule, the Massachusetts Republican senator Scott Brown got to be the sixtieth senator. Several Massachusetts institutions wanted to relax it. Actually, they wanted to kill it, but they knew this was too much to ask Brown to do, given that he was up for reelection in 2012. Instead, he told the Senate leadership that he needed a change if he were to vote for the bill.

I learned of this when I received messages in the House gym from Chris Dodd, Harry Reid, and John Kerry asking me to talk with Brown. He told me he needed to relax the Volcker rule in a small way, allowing banks to exempt a small percentage of their assets from its provisions. We would have to devise an amendment that would satisfy Brown while being acceptable to Volcker. With crucial help from Dave Smith and Jim Segel, we did.

The big institutions did win one last victory, but I knew they considered it a meager consolation prize. The Congressional Budget Office ruled that the bill would cost a total of $22 billion, including the foreclosure relief measures we’d devised at the request of the Congressional Black Caucus. Dodd and I proposed raising the money by assessing the largest financial institutions, just as we’d proposed raising any funds that became necessary to liquidate large institutions. We adopted this approach in conference, over loud Republican objections, and thought we were finished with our work.

But three Republicans now got to play the role of Senator Sixty. Brown and Maine Republicans Olympia Snowe and Susan Collins had agreed to vote for the bill. We did not need all three of their votes, but we needed one or two, and they were intent on sticking together. We would get either three votes or none. They insisted that they could not support a bill that included a tax on financial institutions. My first reaction was that they had picked an odd place to take a stand, since billing the big banks had obvious popular appeal. But I’d misunderstood their predicament. Since they were already defying strong party pressures to vote against the bill, violating their party’s no-higher-taxes mantra was more defiance than they were prepared to show.

We had no choice but to reconvene the conference and put the burden on the taxpayers. It did not get much attention at the time, but Brown’s role in shifting the $22 billion cost from the big banks to the Treasury did hurt him in the races he lost to Elizabeth Warren in 2012 and Jeanne Shaheen in 2014. With this last accommodation to pick up the three Republicans, Dodd had the votes he needed. The conference signed off on the bill and it was adopted by both chambers of Congress.

On July 21, 2010, we signed the bill in a White House ceremony. I basked in the president’s high praise of my legislative leadership. We had passed the most important financial reforms since the Great Depression.

11

TRIUMPHS, SETBACKS, AND LOVE

I cannot remember a greater mood swing. One moment, Chris Dodd and I were celebrating the passage of our financial reform bill at the White House. The next, I was an embattled candidate for reelection to Congress, fending off the accusation that I bore major responsibility for the entire financial crisis.

I fended badly despite the fact that I should have been warned. For years, I’d been saying that no one should serve in a prominent legislative leadership position who can’t afford to lose 15 percent of the vote in the next election. Leadership in legislative bodies typically involves enhancing your influence over policy outcomes at the expense of your electoral appeal. A large part of your job as Speaker, Senate president, or majority leader is to take the political heat for passing worthy measures over the temporary—you hope—resistance of the voters. That is why so few top legislators become governors or presidents.

This phenomenon also extends to committee chairs. By 2010, most voters, including many in my district, thought of me as the powerful chairman of the Financial Services Committee—a committee that oversaw the most dysfunctional part of our economy. I was prepared for the political fallout from the despised TARP bill. What I did not comprehend was that voters’ anger went far beyond that. They had an understandably vague sense of time and did not necessarily differentiate between the years when Democrats controlled the committee and the years when they did not—and the economy went off the rails.

As I stood on the platform in D.C., accepting congratulations for my work on the reform bill, I imagined myself campaigning as the cofather of the independent Consumer Financial Protection Bureau, the banisher of predatory subprime loans, and the tamer of Wild West derivatives trading. But reality could not have been more different. The general public was mad at anyone whom they even vaguely connected to the financial crisis and the subsequent bailouts. Those who followed events more closely often belonged to the financial industry, which was aggrieved by our bill and the justifications we’d given for it. Many Boston-area financial leaders were supportive. But my Republican opponent, Sean Bielat, received significant support from the financial industry elsewhere in the country. Bielat was a former marine and ex-Democrat from upstate New York who had worked for a business called iRobot, and then, according to his r
é
sum
é
, as a consultant, although it was never entirely clear to us how much consulting he did. Carl Icahn and David Einhorn, two of the most active participants in the unregulated financial world, gave Bielat the maximum campaign contributions allowed. The
Boston Herald
reported that when Bielat visited the New York Stock Exchange, he was mobbed by people eager to cheer him on—and contribute.

They were not the only nonresidents of the Fourth Congressional District with an active interest in the campaign. The most conservative elements in American politics smelled blood in the antigovernment atmosphere of 2010, and Bielat also benefited from large “independent expenditures.” Immodestly enough, I was pretty sure his donors were more motivated by their feelings against me than for him.

I too went about doing fund-raising—this time of the sort I’d fortunately been able to avoid in the past. This meant holding a lot of events in Washington and my district, traveling to some other places where people were willing to give me money, and, gratifyingly, receiving help from colleagues who had surpluses in their own campaign accounts and no serious opposition. I was especially pleased when Virginia senator Mark Warner read that I was in a tight race and volunteered a contribution. I raised several million dollars—but the race was fairly even financially, because Bielat received support from both the financial community and the organized right wing.