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The Financial Reform Miracle

What's happening with financial reform right now is unlike anything that's happened since I've been following American politics. Look at the fundamentals of the issue. This is a matter where a massive industry -- one that accounts for close to half of all corporate profits -- is adamantly opposed to new regulation. The merits of the issue are so mind-numbingly complex that even economists and policy wonks sound distinctly fuzzy on the details. Throw in a Republican Party that had pursued, with evident political success, a policy of total obstruction. I'd tell you this was a formula either for defeat or a toothless reform.

And yet a substantial reform now appears close to inevitable. It's not a toothless reform -- a set of derivative regulations more hawkish than anybody could have dreamed possible a couple weeks ago just passed through the Agriculture Committee. It's one of those strange moments when the normal laws of politics have been suspended.

The closest parallel I can think of is the Tax Reform Act of 1986, which occurred when I was a teenager. It was a stunning moment -- a huge triumph of the public interest against massed forces of narrow interests. In the time since it happened, it's become increasingly impossible to imagine how such a reform ever succeeded. Indeed, at the time tax reform was working its way into law, observers couldn't quite believe it was actually happening.

The success of tax reform owed itself largely to the conviction among elites in both parties that the tax code had become a moral disgrace and an economic anchor, and this sustained them against an army of lobbying. Some of that is clearly at work in financial reform. Another factor is the economic crisis, which has made opposition to Wall Street the most powerful sentiment in American politics. Given the complexity of the policy, though, I still don't understand how Wall Street didn't manage to challenge this public anger into something far more toothless than the bill that's barreling down the pike. I suspect that in a couple years, Wall Street will own Congress again, and I'll understand it even less.