In which Jeff Merkley fights Wall Street and wins

Kari Chisholm

This week, the Federal Reserve issued new guidelines to Wall Street banks. Despite two years of lobbying, the banks lost the fight to Senators Jeff Merkley and Carl Levin (D-MI).

The new rules - known as the "Volcker Rule" (and somewhat more formally as Merkley-Levin) - basically tell Wall Street banks that they can't do high-risk hedge fund trading with depositors' money. They can risk their own money ("proprietary trading") on high-risk bets, but they can't do it with your money. In short, a modern 21st-century Glass-Steagall law.

Correction: I had this a little bit wrong. Under the Volcker Rule, they can't even risk their own money on high-risk bets, because even that would put the institution (and it's depositors' money) at risk of big losses. In other words, it's even better than I thought!

It's exactly this sort of risky betting, particularly on commercial default swaps on crappy mortgages, that led to the 2008 financial meltdown.

Writing for the New Republic, David Dayen notes that Merkley's victory was unexpected:

The tougher rule is a pleasant surprise, given how reliably Wall Street lobbyists have gutted such efforts in the past. For once, the hard work of members of Congress, advocates, and the public actually produced something that could work.

To be sure, these sorts of regulations are never a "walk away and pat yourself on the back" sort of done deal. As Merkley told the Huffington Post's Zach Carter, he'll stay on the case and make sure that enforcement stands up to the rules.

"Whatever the ink on the page now says, the key is vigilant regulatory enforcement," Merkley said, "and if we don't have that, then all of this will come to naught."

When asked whether the rule would be enough to prevent a future crisis, Merkley was cautiously optimistic.

"I feel it's so much better than the earlier drafts. Whether the firewall will hold up for five years or 10 years, I don't know that. It'll depend upon how the regulators apply the rules. But the rules give them a good standard to use, and do create hope that we've channeled this huge systemic risk out of the big banks."

It's been a heady couple of months for Senator Merkley - with historic wins on the filibuster, ENDA, and now the Volcker Rule. And his opponents say he hasn't accomplished much. Ha. Is there a Senator that's accomplished more this year?

By Kari Chisholm Dec. 10, 2013