Merkley's Strategy: Pressuring the White House, Demanding Bankruptcy Reforms

Note: I'm slated to be on CNBC tonight at 8pm EST talking about the congressional negotiations over the TARP. Tune in.

I just got off the phone with Oregon Sen. Jeff Merkley (D), whose vote for the Bush-Obama Bailout puts him at odds with his campaign ads against such a bailout. Merkley is a Better Democrat, and a guy I genuinely like and admire (see this newspaper column I wrote about him in the Fall). So I was interested to hear why he could cast such a vote only weeks after taking such a strong stand against the bill he voted for.

Merkley explained that because the bailout was legislatively engineered to let the president effectively veto his way to whatever he wants,* he decided to back the bill and simultaneously exact a commitment out of the administration. Merkley said he's been in constant contact with top administration officials and that they have committed to him - both verbally and in writing - that they will devote a substantial portion of the new bailout money to helping homeowners.

I don't agree with Merkley's rationale - I believe he told voters he was against the bailout, and then proceeded to vote for that very same bailout, and I think in doing that, he does what I said in my original post: he starts his Senate career looking like he "epitomizes the worst kinds of images people have of politicians - those who sound like they're for "the folks" at election time, and then who sell out "the folks" once in Washington." He also officially goes on record supporting very bad economic policy.

However, I do think the strategy he described to me isn't some pre-fab, poll-tested apologism designed post-facto just to rationalize a vote for Big Money. I think he genuinely believes that using his vote to exact commitments out of the administration was his best option for helping homeowners under extremely rigid circumstances in which the new bailout-backing president was legislatively guaranteed to get his way anyway.

The problem, of course, is that without legislation mandating exactly how the bailout money should be used, there's a whole lot of ways for that money to be used to pay off the financial industry. As just one example, consider this series of posts (here, here and here) from the Center for Economic and Policy Research economist Dean Baker, which note that the major proposal floated to devote more bailout money to helping homeowners is a secret way to enrich banks:

"The Washington Post tells us that Representative Barney Frank, the head of the House Financial Services Committee, wants at least $40 billion of an any additional TARP funds to "help distressed homeowners." This is how Mr. Frank describes his agenda, but the proposes that he has supported would send checks to banks, not homeowners. Mr. Frank has endorsed the idea of paying banks considerably more than the market value for bad mortgages in order to allow homeowners to stay in homes in which they will have zero equity. If a bank gets $20k, 30k, or even more, and the homeowner ends up with nothing except a new mortgage that is equal to value of her home, it is difficult to see how this outcome is aiding the homeowner."

Merkley said he is going to push hard for legislation and vigorous congressional oversight that forces the administration to spend the money more transparently and in a way that does directly help homeowners, not banks. As Baker notes, the latter goal isn't rocket science: "For example," he writes, "the government could temporarily change the rules on foreclosure to require that homeowners facing foreclosure be given the opportunity to rent their home at the market rent for a substantial period of time."

Additionally, Merkley - who has a history of taking on banks - said he strongly supports legislation that would empower bankruptcy judges to force banks to renegotiate mortgages on terms that would prevent foreclosures. Right now, lawmakers are considering inserting this legislation into the economic stimulus package - a logical move considering the Federal Reserve Bank of New York has noted that current bankruptcy law is creating 32,000 economy-crushing foreclosures per quarter.

Most of the financial industry (sans Citigroup) opposes this measure, as it would mean that bankruptcy judges could compel them to make slightly lower profit margins on many of the predatory loans they made. With swing-state freshman senators like Merkley backing this idea - and with pressure from the progressive movement - it may have a shot at passing.

As I said to start, I really like Merkley, but I strongly disagree with him in his vote. There's a whole pressure system in Washington to take the regular-guy populists like Jeff Merkleys of the world and turn them into the moneyed-up Chuck Schumers who dominate the Senate - and that pressure system is deviously subtle, using non-binding letters and verbal "commitments" to make legislators think they aren't selling out to Big Money. I'm not saying the Obama team will back out of its commitments to Merkley, but I am saying that those commitments aren't in law - and so it's certainly possible.

All of that said, I think it's good that Merkley didn't try to pretend his vote yesterday looks completely consistent with his campaign statements - that suggests he has intellectually honest. And I think it's even better that Merkley's overall strategy on these issues involves holding the White House's feet to the fire, supporting legislation to direct some of the bailout money to the middle-class, and backing transformative bankruptcy reforms that are absolutely essential to addressing this crisis.

If he follows through on that strategy and leads the fight for accountability and bankruptcy reform (and you can bet I'll do my best to keep readers posted about whether he does), I think he will really show he is a movement progressive, and really could represent a kind of Wellstone-ism that the Senate hates, but the country needs. As I told him when I talked to him today - and he agreed with me - we help him and our movement when we do our job by pressuring him, calling him out when we disagree with him, and backing him when he's championing our cause.

* The original bailout bill allows the president to request the second $350 billion, and only permits Congress to pass a bill rejecting the request. Of course, the president can then veto that bill, meaning the president can effectively veto his way to the $350 billion.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future