Tag Archives: Senate

Visa and Mastercard Retail Debit Transaction Fees Restricted under New Reform Amendment

By Marc Seltzer; originally published on May 13, 2010, at care2.com

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A Senate amendment to the comprehensive financial reform legislation directs the Federal Reserve to cap retail debit card transaction fees at a level that is “reasonable and proportional” to the cost of processing the transactions.  Sixty-four Senators sided with retailers over banking industry objections.  33 opposed.

The restrictions are not contained in the House version of financial reform that passed in December.  Thus, if the current bill passes the full Senate vote, the provision will still have to make it into the final legislation during reconciliation of the House and Senate bills.  The banking lobbyists will push hard to stop the final legislation from containing the restrictions, which could cost banks billions of dollars.

Anger at banks has shifted the power in the Senate towards small businesses and away from large banks, for the time being.  The amendment was written by Senator Dick Durbin, Democratic whip, and brought for a vote by Senator Chris Dodd of Connecticut, who is managing the financial reform legislation as Chairman of the Senate Banking Committee.

Some of the savings would likely be passed from retailers to customers, especially in highly competitive markets like groceries and chain stores.

The law would only apply to large banks and would not apply to credit card transaction fees.  Still, it would give retailers a path to lower transaction costs.

The Columbia Journalism Review covered the change and noted that the press has been fairly mute on amendments to the financial reform bill and poor in explaining what’s at stake.  Spotty Coverage of the Financial Reform Amendments More information is available:  Reuters reportingProgressiveOhio

Marc Seltzer is also a contributor to SupremePodcast.com and Redefining America: Constitution and Leadership 2010.

What We Wont Learn from the Sotomayor Confirmation Hearings

By Marc Seltzer; originally published on July 9, 2009, at politicsunlocked.com.

(Linda Greenhouse’s New York Times piece about the confirmation hearings for Elena Kagan raised the issue of whether a justice can be forthcoming in their testimony to congress.  Interestingly, Kagan has articulated her belief that the executive brach has largely unfettered authority in the areas of national security, the point that I wrote about in reference to the Sotomayor hearings.  Still, I do not see any reason for Kagan to speak openly in the upcoming confirmation hearings in light of the intense politicization of the process.  My early post is reposted below.)

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If there is one legal question that is profound and topical, the discussion of which would be deeply thought provoking and educational in the Supreme Court nomination hearings of Judge Sonia Sotomayor, it is the constitutional division of power between the different branches of government.

The power struggle between the branches is most notably implicated in the national debate over the Bush administration’s conduct of foreign policy and war.  President Bush and Vice-President Cheney asserted generally exclusive executive branch authority in the conduct of intelligence, detention of prisoners and avoidance of oversight in national security operations after 9/11.

Now that Bush and Cheney are out of power and more information is coming out about their conduct, opponents of such policies are on the attack, calling for investigation.  Only the most recent issue is whether Vice-President Cheney directed that the CIA withhold information from Congress that Congress has by law, demanded that the executive branch provide.  Other red-hot manifestations are whether the use of torture by the administration can be subject to explicit laws banning such activity, and whether the President was in fact required to brief congress regularly on its conduct of foreign policy and military action, as Congress has demanded.

Underlying this and other such conflicts is the question of constitutional authority in the different branches of government.  The President is the Commander-in-Chief.  Does this grant the President sole authority for decisions relating to national security, or is it an authority shared by the peoples’ representatives in Congress?

In the same vein, what are the limits of such Presidential authority?  Can the President authorize torture if he believes it is necessary for national defense?  If Congress requests that the President provide information on on-going military operations, can the President ignore the request if he believes that to follow it will harm the operations?

The ultimate answers to these questions cannot be known until the U.S. Supreme Court decides each issue in the context of specific facts presented in a lawsuit.  But a Supreme Court nominee could give us her reflections and a certain education.  This would be far more meaningful then the competing assertions of power by the administration and congress.  Of no more use are the pundits and professors who weigh in.  Almost universally, commentators take political positions based on desired outcomes, but give no real insight into what the Supreme Court would be likely to do.  The Supreme Court is deeply aware of its profound power and cautious about its legitimacy in asserting its authority over other branches of government – being the unelected branch.   Pundits have none of this real world caution.

Consequently, the Supreme Court tends to go to great lengths to avoid constitutional questions, instead deciding cases on smaller technical matters whenever possible.   There is nothing wrong with this judicial approach, except that it leaves many of us wondering where the bounds of legislative or executive power really are.

I, for one, have no doubt that they are not where the President and Congress say they are.

Judge Sotomayor — Target of Newfound McCarthyism?

By Marc Seltzer; originally published on June 9, 2009, at care2.com

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Is it all right that Newt Gingrich called a sitting federal judge with a stellar record a “racist”?

How about Rush Limbaugh rallying the conservative base by demonizing Judge Sonia Sotomayor’s opinions as racially biased?

Isn’t this more like 50s’ McCarthyism, bullying your political enemies with politically loaded names — even when they don’t fit?

There should be no concern about Judge Sotomayor’s prospects for confirmation by the Senate. Senate Republican Jeff Sessions, top republican on the Judiciary Committee, which will conduct hearings, is a former federal prosecutor and can tell the difference between political mudslinging and a real issue about a biased judge.  Her opinions, which I will go into in my next post, are highly regarded by lawyers and judges.  Conservatives should be applauding Judge Sotomayor because she is tough, judicially restrained, and respectful of legal authority.  You will see many Republican Senators honor her extensive resume of public service, her judicial philosophy and her meticulous opinions during the hearings and confirmation process to come.

But in the lead up, before she has the opportunity to testify before the Senate, is it fair game to call her names, whether justified or not?  “Racist” is one of the ugliest terms to label an American citizen.  The spirit of the country is that “all men are created equal,” and while it is obviously an evolving picture, the ideas of equality are core beliefs in what it means to be American.

McCarthy called people “un-American.”  And some of his targets indeed held loyalties to our enemy’s political beliefs or systems.  Others did not, but were tarred just the same until, in the most famous of McCarthy’s eventual dressing downs, counselor Welch for the U.S. Army interrupted McCarthy during televised hearings: “I think I never gauged your cruelty or recklessness….Have you no sense of decency, sir, at long last? Have you left no sense of decency?.”

Gingrich’s and Limbaugh’s conservative political philosophy includes fundamental truths as did McCarthy’s, buy they suffer from the same problem as McCarthy as well:  Power corrupts.  They have such power over their followers that they can at times cross the line into injustice, indignity, and mistruth without paying for it.  This is no slight against Libertarian or Conservative political beliefs.  There are many nuggets of truth in a philosophy seeking control over government, strict constitutional interpretation, and fiscal responsibility.

But Limbaugh and Gingrich are attacking now while there is no accounting.  When the hearings come and real analysis is laid on the table, their early words will look foolish, although they will have been disavowed or revised by then.  They would not want to risk a real head to head match up of ideas on this one.

At the end of six weeks of hearings in June of 1954, Senator Stuart Symington said to McCarthy, “The American people have had a look at you for six weeks. You are not fooling anyone.”  America won the Cold War against Communism, but we didn’t do it by attacking each other for political advantage.  It was won by better ideas facilitated by honest government and real democracy.

Taking this lesson forward:  America would benefit from an education about judicial philosophy, but personal attacks, on esteemed public servants without credible justification and outside of a hearing process, lower both the level of public discourse and respect for our democratic institutions.

Are Republicans Lying About Financial Reform?

By Marc Seltzer; originally posted on April 20, 2010, at care2.com

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As the Senate moves towards consideration of financial industry reform, politics again threatens to overwhelm substance in the debate.  Conservatives have attacked Democratic legislation with the moniker “bailouts forever.”  Political writer Mark Halperin charged Republicans with “intentionally misreading the law,” echoing claims of angry Senate Dems.  Unlike with health care reform, where budget complexity defied evaluation without experts and CBO forecasts, the core principles of financial reform are fairly straight forward.

The following is what you need to know to make your own decision:

A.  Protections against risky behavior by financial institutions

1. Capital Requirements

Companies will be forced to keep more money available — “capitalization” or “capital reserves” — to protect themselves against losses so that typical companies will not be at risk of collapse in a downturn.  Sufficient capital could have eliminated the need for bailouts of financial institutions in 2008-2009.

2.  Leverage Restrictions
Financial companies will be limited in how much money they borrow and put at risk. Many institutions make money by investing and taking risk with borrowed funds.  This extends their gains in boom times, but threatens overwhelming losses in a bust.  Private companies are still allowed to place their bets, even risky bets, but they cannot do so using such high percentages of borrowed funds, creating a risk of nonpayment when their investments go bad.

Capital and Leverage rules are the key to protecting the economy from a 2008-style crisis. No longer would the great extent of irresponsible risk be tolerated.  With each individual company taking less risk, a severe downturn in the economy could drive some financial entities out of business, but would not threaten the entire financial industry and thus require government assistance.

Watch out for “too big to fail” arguments from the Left (“break up the banks”) or Right (“endless bailouts”). Canada has five of the largest banks in the world and none faltered.  Canada’s financial institutions are regulated with the same type of serious oversight included in current US proposals.  Capital requirements for Canadian banks were held at 7 percent going into this crisis, while the global average was closer to 4 percent. Canada’s chief financial regulator, OSFI Superintendent Julie Dickson, remarked in November 2008, “We have seen how strong capital cushions in Canada have paid off to the benefit of our institutions and overall financial system.” (My comparison of the U.S. administration’s proposals with the Canadian regulatory system)

The point is, capital, leverage and risk management are more important than size.  In fact, no one financial institution in the US was too big to fail as far as the effect on jobs, small business loans or the stock market.  The problem was that many separate but co-dependent entities were unable to handle a downturn and would have failed within a period of months, if not for government intervention.  Early in the Great Depression 5000 banks failed.  Making each bank smaller is irrelevant, if they all fail.

B.  Specifically dealing with failing companies.

1.  Closing companies down — “FDIC Resolution Authority”
The administration’s proposal is to use the FDIC (Federal Depository Insurance Corporation), which currently closes banks that are failing, to close all financial institutions, when they fall below financial operating requirements.  The FDIC is highly regarded for efficient and effective “weekend” bank closures.  FDIC agents take over Friday at 5:00 p.m., and Monday the bank is open for customers, but under FDIC supervision.  The FDIC locates a new buyer quickly and gets out of the way once new management takes over.  Previously, there was no law permitting FDIC action on failing financial institutions that were not technically chartered banks.  Thus, Bear Sterns, Lehman Brothers, Citi, etc., could not have been closed by the FDIC.

The alternative approach, proposed by critics of the FDIC model, is to allow failing financial institutions that are not banks to file for bankruptcy.  Advocates say that bankruptcy courts have more expertise than the FDIC at large complicated business structures.  However, bankruptcy does allow the management to continue through the failure and to propose corrective plans, using the bankruptcy court to deal with creditors.

In the 2008-2009 crisis, insurer AIG would have had to file bankruptcy, if the federal government did not bail it out.  In bankruptcy, AIG and its management would still have aimed to protect their own interests, despite the anticipated international catastrophe of its own making. (Many financial institutions had used AIG to insure themselves against losses; AIG’s collapse would have led to additional major collapses worldwide)

According to the proposed “FDIC resolution authority” model, the financial institution will be taken over and immediately managed by experts with the public’s interest in mind.  Presumably, the bankruptcy model would also protect the larger financial system, since higher capital and leverage standards, discussed above, would serve to lower the amount of damage that any one institution could cause in failure. However, the FDIC, as a banking regulator, has expertise in the financial system, while bankruptcy courts handle competing public and private interests in all types of businesses, and may not always have a view to protecting financial stability.  Remember, the purpose of the new law is to stop poor decision-making of a few entities from impacting the entire industry and the wider economy.

2.  Industry-Financed Disaster Fund
The Senate legislation plans for the financial institutions to contribute to a fund to be used if needed in closing companies.  The 50 billion dollar fund would shield taxpayers from having to pay for any costs incurred by failing financial institutions.  While the new law intends to avoid bailouts altogether, by making financial institutions less risky, more self-sufficient, and by closing them before they create systemic damage, it provides that any bailouts that do occur will be paid from a fund created with private financial company fees.

Should industry-financed bailouts be allowed? Imagine, for example, that a financial institution failure would cause a functioning private hospital to be shut down for a week while it sought new financing from another bank.  In that case, not because of a threat to the wider economy, but because of other public purposes, short-term bailout financing, using the institution-financed fund, might be deemed appropriate, at no cost to the tax payer.

The reason that Congress is rejecting the idea of outlawing any possibility of bailouts, is that it is possible that public purposes will be served by having a bailout option.  What is different here is that the government will not be forced into bailout because the new capital and leverage requirements will protect the wider economy.  Thus, Republican claims that bailouts using public funds will continue, do not take into account the fact that new capital and leverage requirements are the primary defense against systemic risk.  It is not by pledging, even through legislation, to avoid bailouts that we will be protected.  It is by stopping companies from taking so much risk that the entire system is put in danger of collapse.

C.  Consumer Protection

Fundamental consumer protections already exist to keep financial institutions from stealing or mismanaging their customers assets.  However, as the Madoff scandal illustrates, the government is not always effective in policing.  In addition, in the real estate market, many homebuyers obtained mortgages without fully comprehending the terms and consequences.  The new law aims to provide additional protection for consumers.  Krugman: Looters in Loafers

The financial industry is strongly against the consumer protection provisions, partly because they do not know how aggressive the new body will be in regulating business practices.  (Auto-finance example)  The current proposal puts a new consumer-protection agency under the authority of the Federal Reserve.  As the Federal Reserve traditionally regulates banks and manages monetary policy, including the interest rates that banks are charged to borrow funds for their business operations, the issue for the new consumer protection regulator will be how independent it remains from Fed regulators with different goals, and determining what level of protection balances business objectives with consumer rights.

These are the core ideas behind the administration’s plan, as spearheaded by Treasury Secretary Timothy Geithner and now incorporated into Democratic legislation.  As Congressional leaders posture about whether to support or oppose the plan and why, decide for yourself what’s politics and what’s substance.

More by Marc Seltzer:  Hate that Obama’s Near the Middle, Think Again!
Questioning Conventional Wisdom

Will Republicans return to power in November?  Listen to Marc Seltzer and Jessica Pieklo discuss political prospects at Redefining America:  Constitution and Leadership 2010

April 22, 2010 UPDATE: NY Times updates Dems efforts to push forward in the Senate and Republican opposition.

Sacrificing the Public Option, Expanding Medicare and Universal Coverage

By Marc Seltzer; originally published on December 13, 2009, at care2.com
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How does the latest health-care proposal in the U.S. Senate measure up on Progressive principles?

The Progressive movement has rallied behind single payer and public option reform proposals in the belief that not only is universal coverage a fundamental right, but not-for-profit medicine is a better way to get quality health care at a reasonable price.

Unlike most developed nations, the United States has a sizeable part of its population that goes without health insurance.  President Obama took up the cause of greatly expanding coverage in his presidential campaign. He also spoken firmly of reform in terms of bending the cost-curve, making insurance and medical care more affordable to individuals and to the nation, in light of fast-rising health-industry costs.  However, Mr. Obama stopped short of embracing single payer, leaving in question what type of structural changes would be used to achieve reform goals.

The political reality is that both the House of Representatives and Senate are split among those who want to change the system towards government-run health insurance and those intent on maintaining a mostly private system.  In the House of Representatives, the Democratic majority was able to pass legislation substantially expanding coverage and including a limited public option, a small government-run insurance program for those not insured through their employer.  The vote was fairly close and may have reflected inclusion of a controversial abortion-funding restriction, such that the exact count of Representatives who would support a public option if the anti-abortion funding provision were not part of the final bill is uncertain.

In the Senate, Democrats need sixty votes to close debate and move forward.  They have close to, but not quite, that many, who will accept some form of a public option.  Thus, negotiations have continued to explore what types of limited government insurance programs would be acceptable to at least a few conservative Democrats, independents or moderate Republicans.

This week a Senate group reached a compromise that attempts to replace the public option with a public/private non-profit insurance program like that which is currently offered to Congressional legislators and federal employees.  The compromise proposal did not stop there, however.   It also included a provision to significantly expand Medicare, by lowering the age of participation from 65 to 55.

How should Progressives look on this proposal?

All the proposals under consideration push towards universal coverage.  It is really the structure that makes them different.  The use of a public/private program is not equivalent to the public option, or government-run program.  However, the federal authority sets rates, controls profits, and guides provision of health care.  It is a strong control on profit-driven insurance.

Moreover, expanding Medicare is a major step in the direction of single payer.  The Medicare program is single payer for its participants.  Private insurance does not participate except in supplemental programs.  There are approximately 35 million additional Americans who would be eligible to participate, if the age requirement was lowered — more than 10% of the population.  Those under fifty-five would remain in their current employer-provided plans and a small number would participate in the new public/private plan.

Given that there is not political power to create a nationwide single-payer program, the expansion of Medicare to include 35 million additional participants and the coverage of uninsured by a public/private program is much more than could have been achieved by the limited public option as it was contemplated.  The small public option is replaced by a public/private plan, which covers those currently uninsured.  The vast expansion of Medicare offers many more Americans a single payer model of insurance.  Whether this shifts the political equation in the Senate or House is the big question, and this should become known in coming days.

Care2.com/causes blogger Jessica Pieklo and I discussed the new proposal as soon as we got word.  You can hear our conversation by following this link and clicking the December 11, 2009, podcast, and more information should become available as soon as the Congressional Budget Office provides “scoring” or budget estimates.

December 14, 2009, UPDATE: First responses — Senator Lieberman

Senate Membership Roller Coaster

The Magic Number for Cloture Ending Senate Filibusters

The Magic Number for Cloture Ending Senate Filibusters

By Marc Seltzer; originally published on February 3, 2009, at care2.com

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On the way to sixty — the twists and turns on the way to the Senate.

Leading up to the Presidential election in November 2008, Senate watchers were wondering how close the Democrats would get to the magic number of 60. It takes sixty Senators, under cloture rules, to cut off debate, and proceed to a vote, even where a simple majority of Senators favor passage. There have been arguments over the validity of the filibuster rule itself (essentially a minority party bargaining chip), but it has withstood challenge in the Senate for more than a century. With no filibuster rule in the House and significant Democratic majority expected, the Senate numbers represented the only Republican check on free reigning democratic legislative authority until the 2010 congressional elections.

And so, as the Democrats went into the election with assurances of picking up seats under the sway of Obama’s popularity, Bush’s dismal ratings, looming economic meltdown, and 23 Republican incumbents facing re-election, all eyes were on the numbers.

Essentially, the Democrats needed 9 to reach sixty (two Senate independents side generally with the 49 Democrats). And they got six. Six, that is, on November 4. But that left Alaska, where the longest serving Republican, Ted Stevens, ahead in the count, had been indicted on corruption charges and was being asked by his own party to resign. And Republican Norm Coleman of Minnesota, who only ended up ahead by 230 votes, triggering an automatic recount and analysis that the types of voting machines and propensity for errors, which are corrected by the recount, gave the Democrat Al Franken real hope.

The other Senate changes, first and foremost, Barack Obama’s Illinois Senate seat, and Joe Biden’s Delaware seat, would not change the Senate make-up because Democratic governors of Illinois and Delaware would appoint Democratic replacements. (Though no one could have predicted that Illinois Governor Rod Blagojevich would be caught on tape seemingly trying to exchange the appointment for the greatest personal gain, would be indicted, impeached, and removed from office, soon after the seat was filled).

Further change in the post-election Senate make-up came from the appointment of Hillary Rodham Clinton, replaced finally by Democratic State Senator Kirsten Gillibrand.

Meanwhile, on November 18, the final count in the close Alaska election reversed Ted Steven’s early lead and put Anchorage Mayor, Mark Begich, in the Senate as Democrat 58.

After further wrangling about erroneously uncounted absentee ballots in Minnesota, ballot challenges and final recount tallies were in, the Minnesota Canvassing board declared comedian Al Franken the victor over Norm (not laughing) Coleman. Republican Coleman has challenged the final tally of 225 votes in Franken’s favor, but Democrat Franken is on his way to being Senate Democrat number 59.

And so it would have remained, except that President Barack Obama’s Commerce Secretary nominee, Gov. Bill Richardson of New Mexico, withdrew from consideration in the face of an investigation, and Republican Senator Judd Gregg of New Hampshire will be nominated instead.

The political dynamic is momentous. On the one hand, Sen. Gregg serves in a state with a Democratic Governor, John Lynch, who would ordinarily choose a Democratic replacement. This would represent the magic 60 in the Senate. Republicans have said that Gregg should not take the position in this situation.

On the other hand, the Commerce position is an important one and one which a Republican advocating free market principles will find especially significant during the economic downturn. There is already talk of protectionism creeping into stimulus legislation and the Commerce Secretary would likely take the lead in advocating against protectionism at home and abroad.

And so, like the best of roller coasters, with unanticipated twists and turns, we have to wait for one more appointment to finally determine the make-up of the 2009 Senate. New Hampshire Governor Lynch is indicating that his appointment will not change the Senate’s party politics.”I will name a replacement who will put the people of New Hampshire first and represent New Hampshire effectively in the U.S. Senate.”

To some extent the numbers will be of symbolic significance since the most moderate of the Republican Senators, such as Maine Republicans Olympia Snowe and Susan Collins are not likely to join a filibuster against the President except in exceptional circumstances. But with talk of bank nationalizations, deficit-fed stimulus and promises of dramatic change in Washington, these are exceptional circumstances.