Congress’ neatly packaged “CRomnibus” almost came apart at the seams just hours before a potential government shutdown — and it was mostly due to a single obscure provision House Republicans attached to the final version of the must-pass spending bill.
The bill ultimately passed after heavy arm-twisting late Thursday night by a 219-206 vote. President Barack Obama and House Speaker John Boehner found themselves in an unlikely alliance, as House Minority Leader Nancy Pelosi came out in vehement opposition of the bill.
The controversial provision that caused the Democratic revolt was a rollback of the landmark Dodd-Frank financial-reform law. Democrats, led by Pelosi and liberal firebrand Sen. Elizabeth Warren (D-Mass.) say getting rid of the provision would severely weaken the law and potentially put taxpayers on the hook for another bailout of big banks.
So what is it, anyway?
The provision was authored by former Sen. Blanche Lincoln, a Democrat from Arkansas. It has not yet gone into effect, but proponents say it will be an important part of ensuring banks don’t make the same kinds of risky bets they did in the lead-up to the financial crisis.
Derivatives have been blamed as a key accelerant of the 2008 financial crisis. They were unregulated and, in effect, guaranteed on the back of taxpayer dollars. AIG had to be rescued by taxpayer dollars in 2008 because of its heavy use of derivative transactions that were called credit-default swaps.
Dodd-Frank aimed to fix that. Here’s what Lincoln’s rule does, in short: It puts more risk into Wall Street firms’ own hands by requiring them to “push out” a portion of those derivatives into entities that are not backed by federal deposit insurance, and thus taxpayer dollars.
“We put this rule in place after the collapse of the financial system because we wanted to reduce the risk that reckless gambling on Wall Street could ever again threaten jobs and livelihoods on Main Street,” Warren said in a fiery speech on the Senate floor Wednesday. “We put this rule in place because people of all political persuasions were disgusted at the prospects of future bailouts.”
Who wants to keep it — and who wants to get rid of it?
The current debate has spawned bizarre political bedfellows in Washington. White House press secretary Josh Earnest said Thursday that Obama opposed House Republicans attaching the provision to the must-pass spending bill, but added it was part of a compromise in which neither side got “everything it wanted.”
That put the White House on the same page, ostensibly, as Republicans, who are trying to get the “CRomnibus” package passed by a midnight deadline on Thursday to avoid a shutdown. Obama spent the early part of the evening making calls to Democratic lawmakers urging them to support the bill, and White House chief of staff Denis McDonough attended the House Democratic caucus’ meeting Thursday evening. But Pelosi, who has emphasized she is not whipping against the bill, has come out in force against it.
Former U.S. Rep. Barney Frank (D-Mass.), whose last name makes up one half of the Dodd-Frank legislation, was flabbergasted at the inclusion of the provision into the spending bill.
“The provision inserted into the Appropriations bill is a substantive mistake, a terrible violation of the procedure that should be followed on this complex and important subject, and a frightening precedent that provides a road map for further attacks on our protection against financial instability,” Frank said in a statement on Wednesday.
“How to regulate derivatives is a question about which responsible people can differ, and the subject of what insured banks should be doing in this area is a legitimate subject for debate — but not for a non-germane amendment inserted with no hearings, no chance for further modification, and no chance for debate into a mammoth bill in the last days of a lame-duck Congress.”
Banks and Wall Street firms, though, have hated the rule since its inception. Citigroup even had one of its lobbyists draft legislation to gut it.
Sounds reasonable. So why is this only coming up now, hours before the shutdown?
Here’s the catch, as Republicans have pointed out in the past few days: The gutting of this provision actually has been debated before. And a bunch of Democrats in the House supported the provision’s repeal.
Last year, 70 Democrats voted with Republicans to pass a similar provision last year. Before that, it had passed the House Financial Services Committee by a 53-6 vote — and 21 Democrats voted for it in that stage.
But after it passed the House, Obama and members of his administration, including Treasury Secretary Jack Lew, signaled their opposition to repealing the provision. It never saw the light of day in the Democratic-controlled Senate.
House Speaker John Boehner, however, has said it was included in the year-long appropriations bill that negotiators in both parties desperately wanted to pass to avoid the seemingly endless, last-minute budget fights like they’re having now.
"All these provisions in this bill have been worked out in a bipartisan, bicameral fashion, or they wouldn't be in the bill,” Boehner told reporters Thursday.
But with just hours to go before the deadline, two Republican aides had told Fusion they had “no idea” what was going to happen.
This post was updated with results of the vote Thursday night.
Brett LoGiurato is the senior national political correspondent at Fusion, where he covers all things 2016. He'll give you everything you need to know about politics, with a healthy side of puns.