Effort to Reform Finance Instead Turning into a Coup by Banksters

I am not sure whether Potemkin reform is worse than no reform at all, except the latter makes it abundantly clear that America is in the hands of a corrupt plutocratic elite.

The latest, from the Huffington Post, is that the normal flurry of last minute amendments to gut legislation has gone one step further, in the case of H.R. 4173: Wall Street Reform and Consumer Protection Act of 2009. As Huffington Post reports:

A group of Democrats friendly to Wall Street interests forced a delay in consideration of the landmark financial regulatory reform bill scheduled to hit the House floor on Wednesday, Financial Services Committee Chairman Barney Frank (D-Mass.) told reporters in the Speaker’s lobby.

Frank accused the New Democrat Coalition of blocking the bill because its members are being prodded by big banks to abolish the Consumer Financial Protection Agency and to allow major financial institutions to avoid state laws tougher than federal regulations.

A Democratic leadership aide confirmed that centrist and conservative Democrats are threatening to vote no on the bill, leaving the caucus short of the needed votes

“The big banks in particular are trying to get more preemption,” said Frank. “It’s a state-consumer battle with the big banks. We want compromise. They want to offer an amendment that makes it easier to preempt state consumer laws.”

Gutting state authority over banking rules would deliver banks a victory, the polar reverse of the objective of this exercise, which is to rein the banksters in. Per CQ (subscription required):

House leaders are trying to settle a dispute between liberal and moderate Democrats that threatens to sideline, at least temporarily, a bill to overhaul regulation of the financial system.

The battle centers on two proposed amendments to the bill’s consumer protection provisions that moderate Democrats are demanding a vote on. Should those amendments not be made in order, members of the New Democrat and Blue Dog caucuses probably would vote against a rule to commence debate on the bill (HR 4173), a House aide said. That would in all likelihood quash the rule, given that Republicans are likely to oppose it unanimously.

But liberal Democrats are staunchly opposed to the amendments, and have threatened to abandon the bill if at least one of them is adopted. But the liberals also fear they do not have the votes to kill either amendment.

One amendment would allow federal regulators to preempt state financial laws and the other essentially would scrap the creation of a Consumer Financial Protection Agency.

“We still have some details to hammer out,” said Michael E. McMahon, D-N.Y., a New Democrat who has played a prominent role in the caucus negotiations over the final regulatory overhaul bill.

The amendment that would give the federal government the ability preempt state laws on financial protection issues is being offered byMelissa Bean of Illinois, a New Democrat. Supporters argue that, without it, financial companies would face a patchwork of state and federal regulations.

The other amendment, to replace the proposed consumer agency with a council of regulators that would oversee consumer protections for financial products, was offered by Idaho Democrat Walt Minnick, a Blue Dog.

The financial industry staunchly opposes creation of the agency, saying it will squelch innovation. The Chamber of Commerce is “whipping the vote hard” on the Minnick amendment, a House aide said.

The New Democrats were given a commitment that the amendments would get floor time, according to a House aide.

With House Republicans almost assured to vote with the New Democrats and Blue Dogs on both amendments, the House would likely adopt both measures if they came to a vote.

Liberal Democrats have fought hard against both proposals. They are critical of federal regulators for failing to curb the sort of predatory credit practices that came to light during the financial market meltdown, and want to keep state powers intact. But they also see a new federal consumer protection agency as a cornerstone of the overhaul.

House Financial Services Chairman Barney Frank said late Wednesday afternoon that the decision on what amendments to allow is now entirely up to House leadership. The New Democrats are currently in negotiations with leaders and Treasury Department officials, according to Frank and House aides.

“I told the liberal coalition that they may have gone further” in achieving their agenda during the committee markup than they could hold onto when the bill got to the floor, said Frank, D-Mass.

But that hasn’t kept liberal members of the caucus from issuing a threat similar to the New Democrats’ — a “no” vote on final passage if Bean’s amendment is attached.

“I would vote against this bill if it preempted state law,” said Brad Miller, D-N.C.

This is making me ill.