Financial Reform: Regulations or Wall Street?

Ezra shifts his focus from health care reform to financial regulation reform and points out the difference in the background of the debate, especially the divergence in the views of Washington and Wall Street reform advocates.

Financial regulation reform has been just the opposite. The administration and Hill sources I've spoken to have been much more positive on the regulatory proposals than the experts and analysts I've sounded out. Indeed, it's been hard to believe the two sides are looking at the same legislation.

The difference, as far as I can suss it out, appears to be this: A lot of the people examining the bill from afar believe that it doesn't go far enough in reforming Wall Street itself. The financial sector after regulatory reform will look a whole lot like the financial sector before regulatory reform. A lot of the people helping to write the bill see it differently: The regulatory structure will look a lot different after reform than before reform. There will be a body charged with watching systemic risk, and systemically important non-bank entities will be subject to regulation, and derivative bets will (hopefully) be a lot more visible and the Federal Reserve will have a lot more power and information when it needs to break up failed banks.

That difference in what the bill needs to do -- change Wall Street or change the regulation of Wall Street -- is leading to a much more divided elite discussion than we saw during health-care reform. in part, that's because the two sides don't see their interests as aligned. Many people who supported more radical health-care reform proposals saw the Affordable Care Act as a step in their direction. Many people who want more radical reform of Wall Street do not see the proposals on offer as leading to the same endpoint. Regulating this system more effectively is not the first step to changing the sector dramatically.

But as often happens, that distinction is getting confused in the political discussion. The Democratic National Committee's press e-mails have taken to calling this "Wall Street reform." Wall Street reform is what a lot of people would like to see us do. But it's not, as far as they can tell, what we're doing.