Matt Stoller is a fellow at the Roosevelt Institute. You can follow him at http://www.twitter.com/matthewstoller
Barney frank threw a little noticed temper tantrum in early August, intervening in a California Democratic primary between two incumbents, Brad Sherman and Howard Berman. Every ten years, lines for Congressional districts are redrawn, which sometimes throws sitting Congressmen into the same district. This is the case with Berman and Sherman, who hilariously sound alike and both have a similar hawkish posture on Israel. Berman chairs the Foreign Relations Committee, and is a part of Democratic leadership. Sherman is a very senior member of the Financial Services Committee, and is generally seen as an iconoclast. The support of someone like Barney Frank can make a difference in such a primary, so his bitter attacks on Sherman suggest something more than your standard pique is at work here.
Frank, never one to mince words, said while he’d already endorsed Berman in the race, he’d planned on staying mostly uninvolved until Sherman claimed that he’d “had more to do with” the Dodd-Frank bill to regulate Wall Street “than anyone except Dodd and Frank,” and that he’d forced a major change in the Troubled Asset Relief Program.
The former Financial Services Committee chairman and author of the Dodd-Frank scoffed at both claims.
“They are both appallingly off the mark, they are fantasies. I am a great admirer of Howard Berman. I am not an admirer of Brad Sherman’s approach, I think it’s superficial and headline-hunting,” he said Tuesday afternoon. “This is unfortunately what he does — makes things up to enhance his role, and there’s no basis for it.”
Frank pointed out that Sherman had voted against TARP both times when it came on the House floor, and said he’d had little to do with the Wall Street reform regulation.
Sherman replied with a statement, arguing that this is really about Frank’s support for the bailouts in 2008, and Sherman’s opposition to them. What, exactly, happened? The backstory is that Barney and Sherman have been tussling over bailouts since 2008. Sherman is a bit of an accounting nerd, and a loner, while Barney is a pack animal who values loyalty to the Democratic leadership and its backers in the financial services industry. In 2008, while the financial system was lurching from crash to crash, Sherman led what was known as the bipartisan “skeptic’s caucus”. This was a group that successfully voted down the legislation, in a move that sent the stock market plummeting. The bill was then sent to the Senate, which passed it, and then back to the House, which, because of Obama’s intervention, then passed the bailout. Barney whipped hard for TARP, while Sherman sought to stop it and impose a set of different policies. Here’s a letter sent by Sherman convening Democratic opposition to TARP.
Democratic MEMBERS Meeting on Bailout Plan, TODAY, Room 2220, 2:30-3:30pm
From: The Honorable Brad Sherman
Skeptical About the
Administration’s $700 Billion Bailout Plan?
Democratic Members Meeting
Dear Democratic Colleague:
Are you skeptical about the $700 billion bailout bill? Let’s meet in Room 2220 on Monday, September 22, 2008 at 2:30 PM. Come to the first and perhaps only meeting of the Skeptics Caucus to discuss President Bush’s $700 billion bailout bill. Democratic Members and Senior Staff only.
Bring specific legislative proposals. I will be bringing legislative proposals to carry out the principles set forth in the letter below. If you have questions about this meeting, please contact me or my Legislative Director and Counsel, Gary Goldberg, at xyz.
Member of Congress
September 22, 2008
Dear Democratic Colleague:
Bush/Paulson tell us immediate action is necessary, but demand action only on their terms. If speed is necessary, Bush should agree to include Democratic priorities in any new financial rescue plan legislation.
Foreign Investment: Under the Bush proposal, the U.S. banks that get hundreds of billions are free to invest these dollars overseas. We should require that any taxpayer bailout monies are invested in America.
Foreign investors: At first glance, the Bush proposal calls for bailout payments only to banks headquartered in the United States. I agree that foreign investors should be bailed out by their own central banks and governments. However, the statutory language is loophole ridden. Under the Bush proposal, foreign banks can simply sell their mortgage assets to US banks, knowing that the US banks will then unload them on the US government. The bill should be limited to mortgage related assets owned by American investors on! September 20th, and “American investor” does not include the US subsidiary of a foreign headquartered bank.
Regulatory, Corporate Governance, and Executive Compensation Reform: The Bush proposal will provide zero Regulatory Reform, zero Corporate Governance Reform, and no limits on executive compensation at firms receiving the bailout. Secretary Paulson suggests we defer these issues until next year – knowing full well that next year Wall Street lobbying and Republican Senate filibusters will prevent the passage of meaningful reform. Our only opportunity to pass meaningful reform is now. An alternative is to provide for fast track throughout the 111th Congress for all bills dealing with regulatory reform, corporate governance reform, and executive compensation limitation.
Help for Homeowners: In July, the Bush administration finally agreed to provide roughly $3 billion in help for homeowners, and then only as part of a bill the Administration desperately wanted. Now they want more than $700 billion for Wall Street, and nothing additional for homeowners.
High Fees Payable to Wall Street: The Bush proposal allows the Administration to pay unlimited fees to some Wall Street firms to manage the bad loans purchased from the other Wall Street firms.
Tax Reform: The Bush proposal transfers hundreds of billions to the wealthiest. Shouldn’t we consider rolling back some of the Bush tax cuts for the top 1%?
GAO Supervision: Secretary of the Treasury shall enter into no contracts or purchase agreements unless determined by the Comptroller General (head of the GAO), that such contract, agreement, or purchase is in the interest of the United States. Asset purchase agreements of less than $1 billion, and service contracts providing for fees of less than $10 million, are exempt from this requirement.
We should quickly put a bill on the President’s desk that protects working families.
Member of Congress
Sherman ended up losing this fight, but that’s not the same thing as saying he wasn’t influential. He was. Very. And Sherman remained a thorn in the pro-bailout forces led by Barney, throughout the drafting of Dodd-Frank. Another example of this was the initial formation of what would become Dodd-Frank.
In 2009, Treasury presented a draft bill to the Financial Services Committee, that would involve derivatives regulation and create the legal authority to resolve large systemically significant financial services companies. The bill had clearly been drafted by bank-friendly advocates at Treasury and the Fed, and most House Democrats thought at the time that the bailout policies were misguided. Relations with the White House were bad. The bill had absurd provisions in it, like that there would be a list of systemically significant financial institutions, but the list would be secret, known only to regulators and the big banks themselves. Or there were vaguely defined terms for bridge financing, and many other obvious loopholes for more bailout money.
Most of these were eliminated. Because while Sherman did not have a lot of language in the bill itself, he did have substantial influence on how Dodd-Frank was shaped. In one of the very first internal caucuses, just after Geithner had blundered in his initial roll-out of his plans to stabilize the banking system, Treasury presented its initial draft of what would become Dodd-Frank to the Democrats and their staffers on the Financial Services Committee. The White House made sure then Chief of Staff Rahm Emanuel – who had just left the House Democratic leadership and so was known to the assembled members as a former colleague – was babysitting Geithner, and so Rahm, Geithner, and Frank presented this plan to a very skeptical group of Financial Services Democrats.
At one point, Rahm said to the assembled group, “If you pass this bill, you’ll never have to vote on another bailout again.” It was Brad Sherman who responded by saying that fiscal matters were Constitutionally part of Congress’s mandate, and so if there were bailouts, Congress should be voting for or against them. Barney hated what Sherman had to say. Barney had been angry he had to whip for TARP, he thought anyone who didn’t support TARP was stupid, and he generally was appalled at a process in which open and public debate could disrupt the capital markets.
The original intent of Dodd-Frank was to grant power to Treasury to offer unlimited bailouts without having to vote. There were provisions in the original draft for bridge funding, and other games to allow the Federal regulators and/or Treasury itself to take fiscal measures without Congressional approval. Sherman systematically went through them and raised objections, sometimes successful and sometimes not. Much of the debate over Dodd-Frank on the House side took place in relatively obscurity, since the health care fight was in the headlines at the time. It was only later, when the Senate took up the bill, that the public took notice. But there was continuity of support for TARP, for HERA (the bazooka bill to bailout Fannie/Freddie), and Dodd-Frank on the House side, and it mattered. So did Sherman’s opposition. Barney doesn’t forget.
So it’s payback time.