Senate Minority Leader Mitch McConnell last week threw a rhetorical stick of dynamite into what had been a collegial debate about overhauling the nation’s financial regulations, triggering criticism and confusion about what the usually careful Kentucky Republican was doing.
McConnell says that he was reacting strongly to concerns from Kentucky bankers, as well as to a Democratic effort to shut Republicans out of the process.
However, critics say it was no coincidence that his blasts came after he met with Wall Street executives, and that his comments mirrored advice from Republican strategist Frank Luntz on how best to defeat the Democrats’ legislation.
Leaders of both parties had vowed for months that consideration of financial regulatory changes wouldn’t mirror the angry, partisan debates over health care and stimulating the economy. Everyone agreed that voters want tough new restrictions on Wall Street, and the legislation that the Senate is to take up this month is full of bipartisan ideas.
Then came McConnell’s barrage. On Tuesday, the day before a bipartisan White House meeting on the bill, he charged: “All the signs from the White House are that they’re not interested in talking.” On Wednesday, he insisted that the Democratic bill would encourage bailouts for big institutions, which it doesn’t.
McConnell was out of sync with other key Republican players. While voicing support for McConnell’s views, they insisted that they wanted to work with Democrats.
“Let’s quit yelling at each other,” Sen. Bob Corker, R-Tenn., urged colleagues. Sen. Richard Shelby, R-Ala., the top Banking Committee Republican, said all week that bipartisan talks were continuing.
So what’s behind McConnell’s sudden burst of partisanship?
He blamed the Democrats, saying that the White House told them to stop cooperating with Republicans over how to police the market for derivatives, the complex financial instruments that helped trigger the global debacle. Several powerful interests that deal in derivatives, including energy, financial and agricultural groups, are wary of the Democrats’ plan.
“I’d like to see a bill,” McConnell said. “But what we have now is a flawed bill that needs to be fixed, and I got calls from my members saying that talks were over.”
“The White House is running everything with this bill, and they’ve decided to take a political tack,” said Tripp Baird, once an aide to former Senate Majority Leader Trent Lott, R-Miss. “What you’re seeing from McConnell is we’re not going to be a part of this. Republicans have finally seen the light after health care.”
White House officials deny that they tried to cut off bipartisan talks, but they also say they won’t compromise with efforts to weaken the bill.
President Barack Obama took a hard line Friday on derivatives, saying he’d veto any bill “that does not bring the derivatives market under control in some sort of regulatory framework and assures that we do not have the same sort of mess that we’ve seen in the past.”
Critics alleged that there was a connection between a trip that McConnell and Sen. John Cornyn, R-Texas, the chairman of the Republican Senate campaign committee, took to New York City this month for meetings and fundraisers with Wall Street executives.
In one instance, the two met with hedge fund investors for about an hour, urged listeners to understand the GOP position on financial overhaul — and asked them to consider donating money. The senators also raised money at KKR, a major private equity firm.
“He’s raising money from investment bankers and hedge fund managers in return for policy,” said Larry Forgy, a Lexington, Ky., political observer and attorney. “I have always felt these decisions of a major policy nature should not be combined with fundraising campaigns as he appears to be conducting in New York. I don’t think the average person in Kentucky has a damn bit of sympathy for hedge fund managers.”
In an interview with McClatchy Newspapers, McConnell denied any connection between the trip and his legislative strategy.
“I’ve had concerns about this legislation for quite awhile,” he said. “Democrats have had no conversation with these people?” To say he was influenced by these meetings, McConnell said, “is quite a stretch.”
According to the Center for Responsive Politics, which compiles campaign finance data, 56 percent of the $116.6 million raised from the finance, real estate and insurance sector during the current election cycle has gone to Democrats.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., saw other motives behind McConnell’s aggressiveness. Dodd cited similarities behind McConnell’s remarks and “the false talking point that Luntz has been proposing.”
In a January memo, Luntz, a veteran Republican strategist, suggested a list of “words to use” when opposing financial overhaul legislation, including, on page 17, “big bank bailout bill.”
Luntz couldn’t be reached for comment.
McConnell said in a Wednesday floor speech: “As a factual matter, the bill creates bailout funds, authorizes bailouts, allows for backdoor bailouts in the FDIC (Federal Deposit Insurance Corp.), Treasury and the Fed and even expands the scope of future bailouts.”
Democratic lawmakers and Obama administration officials say that’s not true. They say the bill would empower federal regulators to take over and shut down financial institutions, much as the FDIC already does for commercial banks, not bail them out.
The Senate bill would create a $50 billion fund — the House of Representatives version would be $150 billion — to help dissolve troubled financial institutions. However, the money would come from assessments on large financial firms, not from taxpayers. McConnell said he’s referring not just to that fund, but also to other provisions in the bill.
“Frank Luntz had no influence on my views. But Kentucky community bankers have a lot of influence my views,” McConnell said, and they’ve expressed concern about the bill.
“It’s clear to us that Senator Dodd has no interest in coming up with any kind of compromise legislation at this stage, and the bill is atrocious as far as Kentucky bankers are concerned,” said Ballard Cassady, the president and chief executive officer of the Kentucky Bankers Association, which represents about 200 banks with average assets of $125 million.
McConnell and his defenders say he’s simply doing what he thinks is proper.
“At the end of the day, I think he would look back and say, ’I did what I thought was right every single time,’ “ said Scott Jennings, a strategist at a Louisville public relations firm and a former Bush administration official.
Perhaps, but McConnell’s stance carries some political risk.
“No one wants to be painted as too pro-Wall Street and pro-banking,” said Gary Jacobson, a professor of political science at the University of California, San Diego. “You want to be the champion of the little guy.”
This week, Republicans will try to put back the pieces of their bipartisan initiative. McConnell said that’s fine with him, but warned: “We start with a different premise. This is something where there’s a widespread view that we do not ever again want to see taxpayer money used to bail out these firms.”