What follows is a more detailed synopsis of the content of our discussions during our January 21^st meetings with members of the Senate Banking Committee:

Meeting with Harry Stein, Staff for Wisconsin Senator Herb Kohl (D)

Massachusetts Senate Election: The meeting began with Harry describing the financial reform legislation as being in a "weird holding pattern due to Massachusetts"- meaning Tuesday's special election of Scott Brown. However, he added that Senator Dodd had already been committed to a non-partisan bill.
 
The “Volcker Rule”: We next discussed what we knew of the "Volcker Rule". Harry had not read the full news story yet, though knew generally about it. He was interested in details. AFR briefed him on the key points: reducing size and complexity, ending proprietary trading (and hedge fund ownership) at commercial banks, leverage limits, limiting growth through new cap on liabilities.  He remarked that this was not a Glass-Steagall separation. We also noted that it seemed that non-depository institutions would not have access to the discount window.

Derivatives: Harry suggested there was consensus on exchange-trading and central clearing of standard derivatives. But, he was also very interested in opposing points of view. He had heard that end-users preferred over-the-counter (OTC) because they would not need to post collateral/margin. AFR mentioned that some end users were actually in favor of the exchange/clearing plan.  I raised the possibility of an outright ban on naked credit default swaps (where the buyer does not own the underlying debt instrument – or reference credit – that is insured). I  also mentioned the Henry Hu/Bernard Black article about the problems in bankruptcy when a creditor owns both CDS (betting/hoping the entity will default) and is also on the creditors' committee and has an incentive to run the firm into the ground instead of rehabilitation.

Don’t Re-Invent the Wheel – Use the House Bill Model for Too Big to Fail Banks: AFR (Dana) mentioned the Kanjorski amendment and the wisdom in benefiting from the other chamber. This amendment, introduced by Paul Kanjorski (D, 11^th District of Pennsylvania), which passed the Committee on November 18^th   was part of the final bill approved by the house in December (HR 4173).  This would empower regulators to take precautionary measures concerning “too big to fail” financial institutions before they fail. This would include the power to preemptively break up big banks. This power to examine and break up such banks would rest with the Financial Services Oversight Council (instead of the Fed). Unlike the original house bill, this would consider not just size and scale to be critical factors, but also interconnectedness and concentration.

Resolution Authority (Bankruptcy vs. Receivership): We turned to the topic of resolution authority and the questions: who does resolution and how is it done. This led to a discussion of the Warner-Corker plan. We challenged the idea that bankruptcy was really (1) new; (2) a resolution and (3) a free-market solution as opposed to a back door bailout. (More on this below).

Credit Rating Agencies: Next, we discussed credit rating agencies and mentioned the "public option" plan endorsed by shareowners.org.

Leverage Restrictions: We talked about leverage restrictions only being meaningful if the accounting is honest, including getting short-term borrowing (commercial paper, repurchase agreements etc.) on balance sheets.