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For the Soul of the Party: the Budget Showdown and Financial Reform

posted by Adam Levitin

Will we have an appropriations bill before a government shutdown? The fight over the 2015 Appropriations Bill is now focused on one of the non-appropriations measures stuck onto the bill by the House GOP. That provision would repeal section 716 of the Dodd-Frank Act, which prohibits bailouts of swap entities and pushes certain types of particularly risky swaps out of insured depositories. Section 716 might be thought of as the "Banks Aren't Casinos" provision of Dodd-Frank.

On the surface, the fight about section 716 looks like a partisan squabble. But the real issue is the internal Democratic Party struggle going on because if the Democratic leadership doesn't force party discipline in opposing the appropriations bill with this provision, the appropriations bill will likely pass. The outcome of the internal Democratic debate is frankly more important than whether section 716 gets rolled back. (I write that because I don't think the no-bailouts prohibition in section 716 is credible or that any prohibition on bailouts can be credible. When things get hairy, we'll bail, law be damned.) No, what matters here is how Democrats line up. The fight over section 716 is a struggle for the soul of the Democratic Party.

Like the Antonio Weiss nomination, this is a test of the Democratic congressional delegation. Will they insist on no repeal? That's really a question of whether the Congressional Democrats are with Wall Street or Main Street. The last election should have been a strong signal that Democrats need to return to Main Street if they want to get reelected. If the Democrats continue to try to be the party of Silicon Valley, Wall Street, and the poor, they will continue lose elections; the party needs middle class buy-in to win elections, and that means championing not just important civil rights and welfare issues, but also the issues that affect the economic security of the middle class, such as consumer protection, financial stability, pension security, tax fairness, and trade agreements.

The budget fight is also laying important groundwork for 2016. Will Hillary face a challenger on her left? And how far left will Hilary go to try to prevent that, given that Hillary's just waiting for the general election to shift rightward? And can Hillary credibly present herself as a champion of the middle class? If the Main Street Dems prevail in the internal party power struggle, does that make it more or less likely that Hillary will face a challenge? One could imagine Main Street Dems losing the fight within the party leadership, but then taking it to the street in a primary challenge. But one can also imagine them taking winning as a mandate for challenging Hillary or at least for trying to harness her to their policies.

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