BW on How the Dems Watered Down Reform

Bloomberg’s acquisition of BusinessWeek may be paying off for its journalism.

The cover story
in BW is by two Bloomberg reporters, but it doesn’t read like a Bloomberg story. That’s a good thing. We had hoped in the run-up to the deal that the magazine would put some polish on the newswire’s writing and editing.

The piece is about the Democrats selling out to Wall Street on financial reform and focuses on a key caucus, the New Democrat Coalition, which blocked much of whatever actual tough provisions the party leaders had in mind.

It’s good that Bloomberg BusinessWeek not only is looking at how the sausage got made—the lobbying, the campaign contributions, the bloc of moderates with outsized clout—but that it also clearly says what’s actually happened—“Not So Radical Reform”—and slaps that on the cover of the magazine.

Here it calls out Barney Frank for the failure of his broad reform agenda (although it probably gives Frank too much credit for how much change he really wanted):

So what happened to Frank’s initial fervor? The stock market recovery-the Standard & Poor’s 500-stock index is up 67% since the March 2009 low-drained some anger from the debate, and after months of haggling over health care, legislators heard from their constituents that regulation was no longer a word with magic healing powers.

More important, Frank, House Speaker Nancy Pelosi, and other left-leaning Democrats have had to deal with the New Democrat Coalition, a moderate group inside the party that shares many of the values associated with Bill Clinton and the Democratic Leadership Council, which was founded 25 years ago in the belief that Democrats couldn’t win elections without a strong moderate platform.

“Moderate” could just as easily be swapped out for “corporate.” See for instance, the New Dems actions on derivatives:

Most derivatives are traded in murky over-the-counter deals. The Administration wanted to push some of them onto regulated trading platforms. But that would have crimped one of Wall Street’s most lucrative businesses: The top five U.S. commercial banks, including JPMorgan Chase, Goldman Sachs, and Bank of America, were on track through the second quarter to earn more than $35 billion in 2009 trading unregulated derivative contracts…

Two weeks later, a half-dozen New Democrats pressed Treasury Secretary Timothy Geithner to exempt end-users from the rules. “We were in the weeds on the derivatives bill,” said Himes of the meeting, which was also attended by Bean, Crowley, and McMahon. Meanwhile, business trade organizations were rallying around the derivatives issue.

First, I think BusinessWeek is loose with its language here, saying the three will “earn” $35 billion this year trading derivatives. I think it meant revenue, not income, since $35 billion is right about what those three giants are on track to earn for all their activities in total.

But the important thing is the New Dems “in the weeds on the derivatives bill.” In other words, they were gutting it. Talking Points Memo reports today that the group took a few hush-hush meetings with their Wall Street benefactors two weeks after the Geithner meeting.

Bloomberg and BW are good to zoom in on this critical group of congresspeople who are watering down financial reform.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.