If you thought government had finished tinkering with the financial system more than two years after the crash, think again.
Federal agencies now are writing rules so they can start enforcing the Dodd-Frank law Congress passed last summer to overhaul the financial system. And the financial institutions that fought the bill then are hiring platoons of lobbyists and deploying them now to this new battlefront.
This campaign, occurring under most people’s radar, pits the most powerful banks in the country against some influential consumer groups with far less money but a lot more cachet.
Both sides can discern how the PR campaign is likely to play out—and tweak their messages accordingly—only by fully understanding what’s come before. And even PR people not directly involved can learn something about publicizing extremely complicated issues. Here’s a quick rundown:
Basically, the argument between Republicans, who opposed the Dodd-Frank bill, and Democrats, is over what caused the 2008 financial crisis (because, of course, if you know the causes, you can make the changes necessary to avert another crash).
So the bill focuses on ostensible fixes such as how much of their own money banks can bet in the markets and how much of the trading in the kind of arcane derivatives that took down the giant insurance company AIG should be fenced in on an exchange.
Many Republicans blame the federal bureaucracy, which, they say, Democrats in Congress prodded to promote affordable housing so they could romance working-class voters. These Democratic enablers— so this explanation goes— encouraged the huge government-sponsored buyers of mortgages, Fannie Mae and Freddie Mac, to gorge on poisoned mortgages that went sour, killing the housing market and throwing Fannie and Freddie into conservatorship. The Democrats blame greedy, reckless bankers and the accommodating regulators who turned a blind eye to the troubles building in the markets over the last 20 years.
In short, the same old argument: Government did too much; government did too little.
To sort all this out, Congress ordered up a 9/11-type commission, the Financial Crisis Inquiry Commission— and then gave it short shrift by passing the financial overhaul law before the commission had even reported back. (Point of disclosure here: I was an investigator for the commission and helped edit the report.) When the commission finally turned in the report to Congress in January, its researchers had concluded that Wall Street mistakes and bureaucratic inertia had caused a crisis that could have been avoided. Some Republicans, to no one’s surprise, said this explanation outraged them.
No one was surprised because Republican members of the commission had already gone on record the month before decrying the direction the report was clearly taking. But they seemed to have bungled their messaging when—so Democrats on the commission told reporters—the Republicans objected to including certain words like “Wall Street” and “deregulation” in the report (the Republicans said, not unreasonably, that this was because some of these words were tossed around in a pejorative way or were not precise enough).
But the damage was done. When the four Republican commissioners issued their short, preliminary, preemptive dissent in December, before the full commission report came out, they were ridiculed by columnists like Joe Nocera at the New York Times, who said the dissent was “not, as they say, reality-based.”
Later, when the full report came out in January, three of the four Republican commissioners wrote an obviously more thoughtful and measured dissent, acknowledging the reasons for the crash were more numerous and complex than merely a government housing policy that waxed huge and finally blew up like that bloated, exploding gastronome in the Monty Python movie.
Since both parties can’t even agree on even the causes of the crash, writing rules to prevent another one, unsurprisingly, is proving contentious. And these aren’t merely academic debates: Changing a phrase or two could affect how billions of dollars slosh around the financial system. It is crucial to the banks, and to consumers.
So winning over public opinion—let alone interesting people in a debate over regulating credit default swaps—isn’t going to be easy for PR people on both sides.
When the debate over complicated topics like these go deep in the weeds, even reporters, and even specialists who cover these beats all the time, tend to rely in part on which experts are supporting which side in order to assess the validity of the arguments.
Consumer groups, without a pecuniary interest, get the benefit of the doubt in this triangulation. Regulators too, although less so—every Washington reporter who’s been around the block a few times knows bureaucrats have their own complicated agendas. And after the crash, the financial regulators charged with preventing financial disaster get less respect these days.
As for the banks, as usual in fights like these, they’ll start with more money but an image problem. That is why it will be important for them to at least seem reasonable: To acknowledge, more or less explicitly, that, yes, Wall Street played a part in causing the crash and that fashioning new regulations to address the problem—done correctly—is a good thing. Reporters, after all, are like most Americans: They like a good, centrist, bipartisan solution, even though such things are the unicorns of Washington nowadays—mythical beings.
The important place to appear reasonable isn’t so much in the tussle over derivatives—or the one developing over the main actors in the government’s support of housing, Fannie and Freddie, which the law doesn’t even really address—but over how much power the new Consumer Financial Protection Bureau will have to protect homebuyers and credit card holders from lenders gouging and defrauding them.
That’s something ordinary people can relate to, and this is where banks and other lenders must tread especially carefully, because what they do here will shape the public perception of the entire debate over these myriad new rules the agencies are grinding out like the proverbial sausage.
The Chamber of Commerce recently took a cautious swipe at the bureau, urging it not be too hasty in promulgating rules lest—and this is an understandably popular argument of people who oppose consumer legislation because it is potent—too many onerous rules could cut off credit to those who need it most, the poor and the working class.
That, in fact, will be the most powerful message the banks will deploy on all these issues, from consumer lending to those complicated derivatives – that the bureaucrats writing the rules go too far beyond what Congress intended to prevent another crash and could wind up hurting the entire financial system.
That argument will only go so far with consumers who are petrified—especially in these tough times—that dealing with lenders these days is about as reassuring as taking a dip in a shark tank. Many Americans have far more personal reasons to dislike the banks than that they contributed to the crash. There are still, after all, many ways the average borrower can run into a buzz saw, from major problems such as robo-signed mortgage foreclosures and working-class people losing their cars to auto-title lenders to the automatic $35 overdraft fee some banks are still charging when you use a debit card to buy a latte or a sandwich.
What’s more, consumer groups say the overdraft fees gouge Americans out of $24 billion a year. As the old saying goes, a billion here, a billion there, and pretty soon you’re talking real money. In fact, one of the consumer groups’ most potent talking points is that predatory lending hurts all of us, and the broader economy and the country, by keeping the people least able to afford losing their car or racking up a bunch of overdraft fees mired in poverty instead of offering a way out through, say, home ownership, which is the main way working-class people accumulate wealth.
The industry, within reason, should learn to live with the changes the new consumer protection bureau may bring. By giving some ground on these issues —even though banks are far more heavily reliant on consumer fees these days—they can gain good will that will stand them in good stead in the murkier parts of the fight over financial overhaul.
This will go a long way toward building public approval for the perhaps more crucial debates over derivatives, banks trading on their own accounts, regulating institutions that grow “too big to fail” and all the other complicated arguments taking place around Washington right now.
Michael Flagg is a former financial reporter and editor at The Wall Street Journal, Los Angeles Times and Washington Post. He has also been a senior vice president in the Washington, D.C., office of the public-relations firm MSLGroup, where he counseled clients in health care, energy, the environment and finance. He was recently a senior investigator at the Financial Crisis Inquiry Commission. Michael can be reached at email@example.com.