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America's Economic Power Deserves a Debate
Yesterday, for the second time this week, the Senate Republicans prevented a floor debate on the financial regulation bill. With the U.S. just beginning to recover from the financial sector meltdown that had the world teetering on the edge of an economic disaster, such actions prevent serious reform from taking place. This has direct implications for American national security, as economic crises at home weaken America's ability to project power and influence abroad. In addition, political instability abroad caused by economic instability only increases the potential threats to U.S. national security. The financial regulation bill that has passed the House of Representatives and is being blocked in the Senate seeks to put in place a 21st century regulatory structure to prevent future financial meltdowns, in order to increase economic stability which will strengthen our security. Unfortunately, the failure to have even a debate on the issue in the Senate harms our country's ability to reform its financial infrastructure, damaging the global confidence in American institutions, and weakening our country's ability to handle national security challenges abroad. America's economic power and national security deserve a debate.
Financial crises create global instability that directly affects American national security and perceptions of American power. Last year, in the wake of the financial crisis, National Intelligence Director Dennis Blair explained the gravity of the potential national security threats caused by the economic crisis. He told the Senate Select Committee on Intelligence that instability in countries around the world caused by the economic crisis had replaced terrorism as the "the primary near-term security concern" for America. He went on to say, "Roughly a quarter of the countries in the world have already experienced low-level instability such as government changes because of the current slowdown." He pointed to exacerbated instability in trouble spots such as Mexico, Pakistan and Congo. This was the first annual threat assessment in six years in which terrorism was not presented as the primary danger to this country. Colonel Joseph Collins, a professor at the National War College further explained: "A number of failing states could be pushed over the edge. Other states, like China, whose social compact revolves around stability and political order being a reward for rapid economic growth may suffer grave instability. Unelected or otherwise illegitimate leaders everywhere are in jeopardy." Similarly, Chairman of the Joint Chiefs Admiral Michael Mullen explained that the financial crisis could have created unanimated problems where the potential for instability isn't as easily predictable, saying "I'm extremely concerned about this." Former Chairman of the National Intelligence Council and Harvard Professor Joseph Nye also explained that the crisis effects the perception of America in the world, writing: "we may pay a price for the recent debacle in our soft power. The seeming effectiveness of our capital market institutions provided an important source of attraction to the United States." Brian Katulis of the Center for American Progress made a similar point, adding that the way America cleans up the mess also has implications: "the recent financial crisis and economic downturn has hurt America's image. During our visit to Dubai, which has become the major financial and banking hub in the Middle East, we heard a lot about the negative impact of the financial crisis on America's power. America has taken a double hit to its credibility, and how it cleans up the banking and economic mess impacts our image in the region, particularly in a place like Dubai, which has sunk billions of dollars into the United States." [Dennis Blair via the New York Times, 2/12/09. Dennis Blair, via Washington Post, 2/13/09. Michael Mullen, 2/19/09. Joseph J. Collins, 3/2/09. Joe Nye, Huffington Post, 10/4/10. Brian Katulis, 3/18/09.]
Financial regulations now being considered in Congress will strengthen the U.S. economy and enhance our country's ability to project power. The financial regulation legislation that has already passed the House of Representatives and the pending Senate bill will improve the resiliency of the American economy through a series of reforms. President Obama explained those changes when he laid out his plan on April 22: "These are reforms that would put an end to taxpayer bailouts; that would bring complex financial dealings out of the shadows; that would protect consumers; and that would give shareholders more power in the financial system."
Both the bill passed by the House and the pending Senate bill contain similar provisions that will strengthen and improve the financial system. Senator Chris Dodd (D-CT), Chairman of the Senate Banking Committee, explains the bill's benefits this way: "This legislation will not stop the next crisis from coming. No legislation can, of course. But by creating a 21st-century regulatory structure for our 21st-century economy, we can equip coming generations with the tools to deal with that crisis and to avoid the kind of suffering we have seen in this country." Taken together, these reforms will strengthen the foundations of our economy, thereby enabling us to continue to advance our interests globally.
The reforms include, among other items:
An authority to wind down failing firms. Both the House and Senate bills include a provision for "orderly liquidation" of failing firms, paid for by banks.
A consumer protection agency. Both bills create some form of an agency that would regulate financial products and look out for consumers.
A so-called "Volcker Rule," to end risky trading with retail deposits guaranteed by taxpayers. The Senate bill includes new authority for regulators, although it could fall prey to lax implementation.
A regulated exchange for derivatives. Both bills create a derivatives exchange, which would make the market more transparent so players can better understand risk and gauge price.
Establish a board to watch for systemic risk.
Increase oversight of the murky hedge funds market.
Give shareholders more say on executive compensation.
Extreme conservative leadership continues to obstruct debate to the consternation of those who are willing to be constructive. For the second time this week, Senate conservatives unanimously voted against bringing the financial regulation bill to debate, leaving some moderate conservatives frustrated with their party leadership. Talking Points Memo reported yesterday, "Sen. George Voinovich (R-OH), long thought to be a financial reform swing vote, told reporters tonight that he'll give negotiations between Sens. Chris Dodd (D-CT) and Richard Shelby (R-AL) a bit more time. He says he's likely to vote to sustain the filibuster again tomorrow-but if there's no breakthrough soon, he will eventually vote with the Democrats to debate the legislation on the floor." Similarly, Senator Bob Corker (R-TN), a member of the Banking Committee who helped draft legislation to tighten regulation of the financial industry, has also voiced concern with his party's leadership. According to the NY Times, Corker's "remarks suggested growing internal discord among Republicans over how to approach the debate over the financial regulation bill. ‘There's been a lot of discussion about this - this funding mechanism - this $50 billion bailout fund, if you will - that's somebody else's words by the way, not mine,' Mr. Corker said. He added, ‘This fund that's been set up is anything but a bailout.' Mr. Corker's remarks seemed to directly contradict Mr. McConnell who has insisted that the fund be removed from the legislation because, he says, it would effectively assure financial firms of a bailout."
Senate Minority Leader Mitch McConnell (R-KY) said he did not believe Republicans would pay a political price for their resistance to the legislation, even with the Goldman case playing out in the background. "What happens on Monday or Tuesday versus what happens later is something largely lost on the general public," he said. [NY Times, 4/27/10. TPM, 4/27/10. NY Times, 4/19/10. ABC News, 4/27/10]
What We're Reading
The Iraqiya list of ex-premier Iyad Allawi, which came out ahead in Iraq's election but whose slim lead is threatened by efforts to disqualify candidates, called for the creation of an internationally monitored caretaker government.
As Britain confronts the possibility of a hung parliament, Prime Minister Gordon Brown was caught on tape describing a voter as "a bigoted woman" after she confronted him on immigration and the economy in an election campaign walkabout in northern England.
With Greece inching closer to the brink of financial collapse, fears that the debt crisis will spread rattled global markets for a second day as investors awaited a signal from financial leaders gathering in Berlin.
Days before travelers worldwide are to begin arriving for Shanghai's world exposition, China has lifted a two-decade ban on travel to the country by people who carry the virus that causes AIDS or who have other sexually transmitted diseases.
Tensions flared again in Bangkok as a Thai soldier was killed in an apparent friendly fire incident and 18 other people were injured as thousands of troops and protesters faced off in a northern suburb.
The prime ministers of India and Pakistan will talk on the sidelines of a regional meeting, indicating a possible thaw in relations between the South Asian nuclear rivals.
The leader of Southern Sudan's second largest party said there was "massive rigging" in Sudan's recent landmark elections and vowed, along with leaders of eight other parties, to challenge the results.
The Mexican Senate passed a measure to make soldiers accountable to civilian courts for abuses involving civilians.
The leaders of Russia and Norway resolved a 40-year-old dispute over dividing the Barents Sea and part of the Arctic Ocean into clear economic zones extending to the edge of Europe's northern continental shelf.
U.S. officials have approved a "controlled burn" to protect ecologically fragile coastlines from a spreading oil slick in the Gulf of Mexico.
Commentary of the Day
Spencer Ackerman takes us on a photographic tour of the Guantanamo Bay prison facility.
Noah Shachtman says if the gas-guzzlers at the Pentagon fulfill their stated intention to "go-green," the impact could be huge.
The Economist writes that Greece's aid from the IMF and the Euro Zone will only provide temporary relief.