Washington is experiencing a rare and disorienting moment. Big ideas for financial reform that have languished for years are suddenly gaining momentum. Instead of taxing folks to clean up after reckless Wall Street bankers, why not tax Wall Street? Instead of tolerating behemoths regarded as "too big to fail," why not break them up before they do more damage to the country? Instead of genuflecting before the mysterious Federal Reserve, why not strip the temple of its secrets and cleanse it of the self-interested bankers who shape Fed policy?
The fact that these and other unsanctioned propositions are in play and even proposed by respectable figures indicates how deeply the established order has been rattled by the financial crisis. It also demonstrates that members of Congress who bailed out the bankers with public money are quite terrified of voter retribution in the next election.
The center is not holding. That's good news for the Republic, because the center has long been subservient to the demands of financial power. Cynics will say this is a passing tempest that will come to nothing. They might be right. But reformers should make the most of it, at least to agitate the fears of elected politicians--including the president.
Welcome to Mardi Gras, Washington-style. It feels like carnival time, when up is down and down is up, when humble folks parade as kings and queens and the reigning royals are dressed as clowns. As someone who has written about these heretical ideas for decades, I feel a bit giddy at the opportunities for real change, though mindful that the anarchy may not last long.
The most startling evidence of reversal is Chris Dodd, chair of the Senate Banking Committee, who has been a loyal friend of Wall Street and especially Connecticut-based insurance companies. Dodd proposes to strip the Fed of its regulatory functions because of its "abysmal failure" to protect the public, and to replace it with an overarching regulatory administration. Dodd is no doubt motivated by his weak prospects for re-election next year. Still, he earns courage points for violating the longstanding taboo against criticizing the central bank. Likewise, Senator Richard Shelby, the ranking Republican on banking, wants to eliminate bankers' insider influence over regulation at the Fed.
Taxing Wall Street is a more provocative departure, but some representatives are warming to the idea, drawn to Oregon Representative Peter DeFazio's appealing Let Wall Street Pay for Wall Street's Bailout Act. A very small excise tax on all financial transactions--trading stocks, bonds and derivatives--could yield hundreds of billions in revenue. House majority whip Jim Clyburn suggests the securities tax is "a painless way" to pay for highways. Clyburn asks, "If you're Goldman Sachs, if you're making all this money, if you got all this federal money [in a] bailout, and you are paying all these big bonuses to your folks, where is your contribution to this recovery?" Good question.
Senator Bernie Sanders asks another one. If some banks are "too big to fail," why not just make them smaller? His bill would require Treasury to identify and break up too-big financial institutions within one year. Goldman Sachs and JPMorgan Chase are reacting with alarm. They do not normally worry over the senator's progressive thinking, but what's dizzying is that former Fed chair Alan Greenspan has embraced the same concept. When the socialist from Vermont achieves bipartisan consensus with the right-wing Maestro, can Barack Obama be far behind?
The president wants to govern from the center, but the center keeps moving leftward on him. If he doesn't catch up soon, he'll be in trouble.