Markets Pan Schumer, Durbin Deal
Senate Majority Leader Harry Reids (D-Nev.) top two lieutenants have found themselves caught in an uncomfortable position during the chambers debate on an oil market speculation bill as they sought to walk a line between following the will of the Democratic Conference and bowing to the wishes of powerful home-state constituencies.
Majority Whip Dick Durbin (D-Ill.) and Democratic Conference Vice Chairman Charles Schumer (N.Y.) represent Chicagos commodities dealers and Wall Street traders in New York, respectively. Plus, the securities and investment industry has been a top campaign contributor to both over the years, giving Schumer about $1.4 million in the past five years, and Durbin $577,400 over the same time period, according to an analysis by the Center for Responsive Politics.
But in crafting a leadership-driven bill to tamp down speculation in oil markets, the No. 2 and No. 3 Senate Democrats ended up on what some financial services industry lobbyists said was the wrong side of the issue.
Theres a general sense that Members who have indicated that they agree that this would fundamentally screw up the markets are not really willing to forcefully articulate it, said one banking lobbyist when asked about Schumer and Durbin.
Democrats have been trying to unify around an energy policy that addresses high gas prices. Divided by proposals to expand domestic drilling, Reid has struggled to come up with a package that enjoys consensus in the caucus. Senate Democrats have settled on an initial approach that targets speculators on the oil futures market.
At the heart of the speculation dispute is language sponsored by another Senate leader, Democratic Policy Committee Chairman Byron Dorgan (N.D.), that would limit the amount of money one could invest in the oil futures market a scenario that financial services lobbyists said would cripple the U.S. commodities market and send traders overseas.
According to several accounts, Schumer and Durbin fought to exclude the Dorgan language and eventually won concessions that softened the impact. But Dorgan fought just as strongly to have the limits included, arguing that without the language the legislation would have little effect on reducing speculation, which Democrats argue has driven up the price of oil.
I appreciate the fact that it probably wasnt as easy for them to support this legislation, but they did because I think they realize that people all across the country have a serious problem with these gas prices, Dorgan said. The question is, do you want to appear to do something or do you really want to do something that has an impact? And our position was that we want to do something that has an impact to put downward pressure on pricing. The result is we had to put some provisions in here that were difficult for some.
The softened language wasnt enough for many in the industry. Financial services lobbyists said some of their biggest defenders in the Senate, including Schumer and Durbin, didnt do enough to curb Dorgans influence with Reid during the writing.
I think [Reid is] trying to make everyone in the Democrat caucus happy on this issue, said one financial services lobbyist. I also think they are starting to realize they cant make everybody in their own caucus happy.
Schumer and Durbin said they accepted Dorgans modified language in the spirit of compromise with other Democrats, while taking into consideration industrys concerns.
We have been open and fully cooperative with [the industry] in crafting the provisions to make sure theyre reasonable and sensible, and theyve gone along, Durbin said last week. They would like to see a little change here, a little change there, but it doesnt go to the heart of it. They back the heart of this proposal.
He added that another powerful constituency in Illinois was also pushing him to do something about high gas prices. Ive got a lot of people who drive cars in Illinois, too, Durbin said.
Schumer said the bill is the right thing to do. He added, I didnt think the Dorgan proposal on its own made sense. Would I write it somewhat differently? Yes, I would. … But its a compromise process.
Still, some industry lobbyists say they were surprised to see Schumer as a co-sponsor of the legislation given the large financial services community, including the New York Stock Exchange, in his home state.
I think people had hoped that he would be more active in stopping these very bad ideas, said another financial services lobbyist.
Even though Schumers name is on the bill, he has been absent from most Democratic press events, including a high-profile Senate floor colloquy last week that featured every Democratic leader but Schumer.
Industry lobbyists said Durbin has been a moderating voice among Democrats.
At least Durbin has a sort of well-rounded view on the subject, said a third financial service lobbyist. I dont think Durbin was working against [speculators]. He was trying to be a voice of reason.
The measure was crafted in an unusual manner, given that every member of the Democratic leadership participated in what one senior Senate Democratic aide described as high-stakes sausage making.
It went through extensive Member- level discussions on nearly every detail of the bill, the aide said. And you had three leaders who were personally invested in the issue with very strong feelings on it.
The Dorgan language would give the Commodity Futures Trading Commission the power to limit the number of positions, or hedged bets on the price of oil, that a commodities trader could make. It also would narrow the definition of a commodities trader. Originally, Dorgan sought to bypass the CFTC and set the limits by law. Durbin and Schumer argued for giving the CFTC that power, according to aides.
Democratic Conference Secretary Patty Murray (Wash.) said the bill the party pursued represents how the Senate should work, and she praised Schumer and Durbin.
They both had a very clear approach, and they were willing to compromise to get a bill up that they thought would be able to get a good bipartisan vote to address the issue, Murray said.
Durbin and Schumer could be off the hook; the measure is being filibustered by Republicans in a dispute over broader energy policy, though it remains the Democrats centerpiece for reducing gas prices immediately.
If the Senate bill gathers momentum, industry lobbyists said there will be another push to stop it.
It will generate tremendous opposition in the investment community, said one lobbyist watching the bill. We will work extremely hard to try to ensure that provision doesnt become law.
A few industry insiders said they do understand the needle Durbin and Schumer are threading and appreciate the duos attention to the details.
I think theres a heck of a lot of pressure to do something, said Jonathan Short, general counsel of the Intercontinental Exchange in New York. Theres a group in Congress that knows that if they dont get this right, there could be significant unintended consequences.
Others agreed, but said they think the futures market has been unfairly singled out.
We accept the fact that Members of Congress are under a lot of pressure, said John Damgard, president of the Futures Industry Association. In many ways, the futures markets feel like we are the messenger getting shot.