What do a Democrat from Arkansas, a Republican from Massachusetts, and a judge from Louisiana have in common? In a nod to home-state economics, all three have recently made moves to upset often-fragile compromises at the national level.
In the aftermath of a healthcare bill that was plagued by allegations of political pandering, the need to attract swing votes for financial reform has once again opened up opportunities for members of Congress to push for concessions aimed specifically at their home states. Enter Scott Brown, the freshman GOP senator from Massachusetts, and Blanche Lincoln, the embattled Arkansas Democrat whose tough Senate reelection campaign has captured plenty of headlines. They are joined on the national stage by Martin Feldman, a U.S. district judge from Louisiana who dealt a blow to the Obama administration by overturning its moratorium on deepwater drilling. The moratorium was expected to strain Louisiana's already struggling economy.
In the Senate, both Lincoln and Brown hold key votes, and architects of financial reform see their support as fundamental to the legislation's success. Lincoln is looking to use that leverage to tweak a proposal surrounding how banks raise capital. As part of the reform legislation, large banks would be prevented from counting trust-preferred securities, which are flexible hybrid instruments with both debt and equity characteristics, as Tier 1 capital. Tier 1 capital is used by the government to evaluate banks' financial strength. Democrats have proposed exempting banks with under $10 billion in assets from this ban. Lincoln has called for that number to be changed to $15 billion.
According to the Wall Street Journal, while the change would affect a number of banks across the country, its impact in Arkansas would be limited to one institution: Arvest Bank Group. Arvest is controlled by the Walton family—the same family that founded Wal-Mart. Over the past several years, Wal-Mart has been a major contributor to Lincoln's campaigns. "It's fairly common to just call Arvest the Wal-Mart bank. Sometimes people say Wal-Mart, sometimes they say Arvest," says Janine Parry, an associate political science professor at the University of Arkansas. "They're obviously a major player here economically and politically."
Meanwhile, Brown has said he will make his vote on financial reform contingent upon how Congress handles the so-called Volcker rule. If the rule were adopted outright, affected banks would have to spin off their hedge and private-equity funds. The rule also looks to bar these banks from engaging in proprietary trading. Brown is looking to dilute the language in ways that would help Massachusetts firms like Fidelity and MassMutual.
As has been the case with most major bills in recent memory, this jockeying has touched off concerns about the line between effectively serving local interests and holding the political process hostage to narrow concerns. "Senators and members of Congress need to represent the interests of their [constituencies]," says Angela Canterbury, the director of public policy at the Project On Government Oversight. "Certainly they should represent their districts, their states, but also work toward a policy that is going to work well for all Americans."
Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, worries that as financial reform enters the homestretch, politicians are starting to come down on the wrong side of the line. "I think this is a time for statesmanship, not for parochial interests," he says. "Not to be too critical of Sen. Brown, or of Sen. Lincoln for that matter … but these are big issues. And we're supposed to be in the process of creating a financial system that will last for many decades, and that transcends … individual companies."
Elsewhere, Martin Feldman, a federal judge in New Orleans, lifted the Obama administration's moratorium on deepwater drilling. In his decision, Feldman said that the moratorium was an overreaction on the part of the administration. Feldman's ruling has gotten a warm reception in Gulf states, where officials had argued that the temporary ban would cripple local economies.
Nationally, though, Feldman has come under fire, particularly with recent disclosures that he has investments in the oil industry. Many experts also see it as a state-centric challenge to executive power. "I don't know that anyone up to this point had any substantial doubts that a temporary moratorium wasn't within presidential authority," Richard Nagareda, a professor at Vanderbilt University Law School, told the Wall Street Journal.