Choosing One's Battles

Isn’t it funny how the Obama administration outlined very rough principles for congress to designing the energy bill and health care reform while for financial regulation congress received an explicit outline of the entire structure down to the letter? Now Treasury Secretary Timothy Geithner is rounding up the heads of the regulatory agencies and strong arming them to sign on [1], peppering his warnings with expletives in frustration that they have opinions on the matter that differ from the administration’s.

There’s an argument to be made that these two different strategies to push these sets of policy changes should have been reversed; the administration should have provided more guidance on energy and health care, taking a stake in cap-and-trade and a public option, while sound and precise principles for financial regulation could have been outlined very generally. The result of the hands-off approach with the energy bill was that cap and trade ended up significantly weakened in terms of emissions targets and in creating a market-based system for permits that would not crowd out private participation incentivitized by governmental subsidies. Using that same strategy, health care reform via the public option appears to be in complete jeopardy and if anyone needed to be shaken vigorously by the Democratic leadership it’s the faction of the Democratic party itself that has undermined the President’s mandated platform. Still, placation and autonomy were espoused as the administration’s chosen modus operandi. But frankly, of all three pieces of legislation, financial reform has the least white papers in circulation outlining specific ways to move forward. Most that are written are penned by the financial community, so focusing on health care and stepping back from financial reform would have given think-tanks and academia some time to respond. Further, legislators could use some time to educate themselves and their constituents on the options before simply signing onto what’s been handed to them.

Knowing how important grassroots advocacy is, Treasury has already mapped out a field strategy plan for the recess and handed out talking points to congressional members [2] to generate support for the administration’s financial reform plan. But a publicity campaign to seek the public’s support of a platform before any thoughtful dialog takes place between constituents, Congress members and regulators would seem to circumvent the democratic process and common sense. Afterall, it’s not as if Obama’s presidential platform was grounded on allowing standardized derivatives and giving the Fed discretion over systemically significant institutions in the same way his platform involved moving away from energy dependence and creating a 21st century health care system for all. More to the point, what’s wrong with healthy democratic engagement? If some of our most respected regulators and congressional committee chairs have reservations about pieces of the Obama financial reform plan like the Federal Reserve becoming emboldened without any checks and balances, why not work on designing ways to address the Fed’s past failures and consider placing financial regulation within an entity within congressional jurisdiction if the Fed is to remain independent? The administration has compromised repeatedly over key points in spirit and letter on the recovery act, cap and trade and health care so why are dissidents with good points and expertise being scolded now over financial reform? It’s a bad strategy and bad PR. Did I mention it being undemocratic? It would also seem to reveal what the administration’s priorities really are and forces us question why that's the case.

It’s not too late to step back on financial reform, at the very least to wait for some findings to be released by the investigative panel on the financial crisis to motivate the changes the administration is advancing. But the soft power course on cap and trade and health care, cannot be reversed. Still, the administration could put all its muscle instead into grassroots campaigning for a public option during the recess if it was sincere about its platform promises.