Washington Wonderland - A Narrow Margin for Error

December 15, 2016

There’s a hot new number dominating Washington talk. It’s “3” and it could soon be the fixation of the incoming Trump administration. It’s the number of GOP Senate “no” votes which, when combined with the “no” votes of 48 Senate Democrats (46 Democrats and the two Independents who caucus with them), could derail new cabinet secretaries seeking Senate confirmation.

The sudden uproar over Secretary of State nominee (and Exxon Mobil CEO) Rex Tillerson’s relationship with Russia’s Vladimir Putin has the press corps laser focused on Republican Senators who have begun to grumble. They just happen to number three: Florida’s Marco Rubio, Arizona’s John McCain and South Carolina’s Lindsey Graham. While there’s also some rumbles in the GOP camp about a few of the other nominees, particularly Treasury secretary nominee Steve Mnuchin, it’s Tillerson who’s drawing the most attention in light of the Russian hacking story. 

However, there are a number of factors in Tillerson’s favor. The first is time. Barring some other huge developments between now and when the Senate Foreign Relations Committee actually starts its review in January, that’s a lot of time for the nominee to make the rounds and ingratiate himself with Senate players. Second, it will take a lot for a sitting Republican senator to cast a “no” vote on the new Republican President’s most high-profile appointment. Apart from fear of the new president’s Twitter feed, conservative talk radio hosts and bloggers have already started the drumbeat about consequences for those who cross the new White House.
Despite the unending games of “what if,” smart observers right now assume Tillerson will eke out a victory.  

Rogue One(s)

Outside of the Senate filibuster, the biggest potential obstacle for the plans of the new Trump administration resides among a handful of Senate Republicans. Don’t think of them as solely votes “against” Trump policy proposals. That’s not the point. Rather, the culture of the modern Senate is such that each of the one hundred members operates most of the time as his or her own free agent, beholden neither to party nor to presidents but instead marking out their own agendas. If they so choose, they can be loud, critical voices both in committee hearings and as legislative deals are crafted. And unfortunately for the White House, they attract lots of press attention.

As chairman of the Senate Armed Services Committee, Sen. John McCain (R., Arizona) is going to have something to say about every foreign policy step and Pentagon issue. At his side on the committee is fellow Russia critic Sen. Lindsey Graham (R., South Carolina), who will also be a huge voice on the Judiciary Committee both in terms of judicial appointments and on immigration moves. Graham is also frequently joined by Sen. Jeff Flake (R., Arizona) on immigration. Both he and Graham want to save the “dreamers” from any deportation moves and they’ll be a united front pushing comprehensive immigration reforms measures. 

Sitting alongside the McCain/Graham axis on Foreign Relations are two other prominent Russia critics, Florida’s Sen. Marco Rubio and Kentucky’s Rand Paul. From his seat on the Senate Select Committee on Intelligence, Rubio is in a choice position if investigations into Russian hacking proceed but he’s also likely to be hip-deep in any immigration issue. As for Paul, his current obsession appears to be preventing any foreign policy “neocons” from taking root in the Trump administration. 

Finally, there’s Nebraska Sen. Ben Sasse. A constant critic of candidate Trump all this year, he’s shown no sign of letting up, particularly with his pointed criticism of Trump’s recent moves to save jobs at Carrier and Ford Motor. The most prominent “Never Trump” GOP voice during the fall campaign, Sasse may be the most difficult vote for the new administration to court on just about any issue.

Mitch Says

Senate Majority Leader Mitch McConnell (R., Kentucky) quietly reminded Washington this week that House Speaker Paul Ryan (R., Wisconsin) will not be the only GOP legislative leader of import when the new administration rolls out its agenda next month. Unfortunately for those expecting smooth sailing, McConnell has some very interesting opinions of how things should play out. They just don’t completely jive with the president-elect’s vision.

First, while he’s all for serious tax reform, he’s also concerned about deficits. Thus, when it comes to tax cuts, he wants to ensure that they do not leave a bigger budget hole in their wake. “Deficit neutral” is his motto. 
Second, he is dead set against Trump’s enormous $1trillion infrastructure plan, dismissing it as just another kind of federal stimulus spending done over the last eight years by the Obama administration. 

And third, he said that, unlike their House counterparts, the Senate would immediately begin work on their version of an Obamacare replacement program, noting that it was too dangerous to wait until the grace period expired to get a replacement system up and running.

In short, he deftly reminded anyone listening that in this town the distance between vision and reality can be a long, rocky road.

The Last Days of Dodd/Frank?

The more-than-likely incoming chairman of the Senate Banking Committee, Sen. Mike Crapo (R., Idaho), is looking forward to making changes to the Dodd/Frank financial reform law but he doesn’t sound like someone who wants to gut it. Put him down for reducing the burden on small community banks, reigning in the Consumer Financial Protection Bureau (CFPB) and curtailing systemic designations, but he’s a big fan of bigger capital requirements for big banks and he seems less than enthused about Donald Trump’s rhetoric concerning the reinstatement of Glass-Steagall. And Democrats on the committee, like ranking member Sherrod Brown of Ohio and Sen. John Tester (D., Montana) think they can find some common ground with the new chairman, particularly when it comes to giving relief to smaller banks.

However, in the other chamber, House Financial Services Committee Chairman Jeb Hensarling (R., Texas) is confident that his comprehensive plan to replace the law, drawn up earlier this year, remains the sole blueprint for the incoming Trump administration as it tackles the problem. Highlights include scuttling the Volcker Rule, restructuring the CFPB, eliminating the Office of Financial Research, and stripping federal regulators of the ability to take over and wind down a failing bank.

We already know that the legislative path to Dodd/Frank reform will not go by way of the budget reconciliation maneuver. That is being reserved for tax reform and the repeal of the Affordable Care Act. Which means financial reformers will have to take the long road and eventually battle it out with the dreaded Senate filibuster.

But still left unsaid through all this is just where the financial industry will position itself when push comes to shove. Yes, they want relief and lots of it. But the idea that they would possibly have to comply with a whole new set of rules is not going to fly. 

Washington Wisdom

“You gave me so much, including the best political name ever.”
Outgoing Sen. Barbara Boxer (D., California), thanking her husband, Stewart Boxer, at her retirement party.

“It’s just going to be a long, hard slog.”
Rep. Frank Lucas (R., Oklahoma), suggesting that ambivalence among some GOP Senate members is going to complicate any attempt at a total repeal of Dodd/Frank.

“It’s called a rigged economy and this is how it works.”
Sen. Bernie Sanders (I., Vermont), reacting on Twitter to the news that Goldman Sachs President Gary Cohn was picked to head the National Economic Council.

“This is a new type of risk, call it presidential tweet risk…..everyone now has to keep their Twitter feed right next to their Bloomberg terminal.”
Jack Albin, chief investment officer, BMO Investment Bank, in light of Donald Trump’s twitter rant against Lockheed Martin, which resulted in a $4 billion loss in the company’s market value within four hours.

“….this Goldman thing is getting kind of weird.”
Jared Bernstein, Center on Budget and Policy Priorities, on the fact that Donald Trump has now put three current or former Goldman Sachs people in top positions within his administration.

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