Ted Kaufman - United States Senator for Delaware

Ted Kaufman: The Outsider’s Insider

Source: Slate - The Big Money

By Chadwick Matlin

June 28, 2010

Senator Ted KAUFMAN knows that he’s not coming back to Congress next year. KAUFMAN was appointed to the Senate after Joe Biden ascended to the vice-presidency in 2009. From the moment he took the job, he said it was only a two-year stint. He’d have his go then take his leave. So as his colleagues in Congress plotz over the midterm elections this November, KAUFMAN is off the hook. He is already—and has always been—a lame duck.

And yet the guy won’t stop quacking. Seemingly out of nowhere, KAUFMAN has become the Senate’s leading and most independent voice on Wall Street reform. The guy spearheaded Congress’ most radical—and perhaps most necessary—effort at ending Wall Street’s status quo of “too big to fail.” (His efforts were ultimately rejected by his fellow senators.) He foresaw the kind of 1,000-point crash that the market suffered through in May. He is perhaps the SEC’s most constructive critic, repeatedly challenging its chairwoman to do more and better. The financial conversation in D.C. is different because he’s a part of it. And yet KAUFMAN isn’t even on the Senate Banking Committee, didn’t work on major financial legislation during his 20 years as Biden’s chief of staff, nor did he have much experience with Wall Street outside of his own personal portfolio. His message is uncorrupted by the normal trappings of power, and yet he’s a political veteran. He’s the outsider’s insider.

KAUFMAN himself is a relatively unremarkable 71-year-old. He’s wealthy—in 2008 he reported total assets of $6,181,081—but not absurdly so. He has engineering and business degrees and often speaks of solving problems “like an engineer” or approaching things a certain way because he has an MBA. His intelligence is professorial—he speaks about nuanced financial data with an expectation that you’ll know what he’s saying. And you’ll feel guilty for not doing your homework if you don’t.

That he doesn’t have to raise any money makes his life infinitely easier. Advocates of term limits and campaign finance reform should use KAUFMAN as their poster boy. He will leave Congress the same way he entered—without ever having campaigned. Because of that, he has been isolated from the influence of donors, pollsters, and those pesky voters. He works without the threat of a referendum, which ironically allows him to represent his people more directly.

And that has allowed him to pursue his vision of a Wall Street whose markets are efficient because they’re regulated. The KAUFMAN Doctrine, if there is one, adheres to the philosophy that there’s a difference between legal regulation and human regulation. The courts are far more trustworthy than feeble humans. Explicitly making something illegal—like, say, a financial institution being both an investment bank and a consumer bank—is more effective than hoping an agency will catch cheaters in the act. Added bonus: It’s harder to overturn a law than it is to fill a regulation committee with laissez-faire layabouts. “If Lawrence Kudlow gets elected president we’re in deep trouble,” KAUFMAN told me in his office earlier this month.

Nowhere was this more evident than in KAUFMAN’s futile Too Big To Fail amendment. Along with Democrat Sherrod Brown, KAUFMAN proposed that no bank should be allowed to have more than 10 percent of the country’s deposits. It was a legal solution to a problem (banks being too big to fail) that only exists because regulators didn’t do their jobs in the first place.

And yet, Congress (and its lobbyist sidekicks) would have nothing of it. The Too Big To Fail amendment got only 33 vote. (30 Democrats, three Republicans.) KAUFMAN couldn’t convince Chris Dodd, the chairman of the Senate Bank Committee, or the White House to sign on. And as Dodd and the administration go, so go a swath of other senators. As KAUFMAN puts it, “we got slaughtered.”

KAUFMAN’s dead-ends are the major hole in his resume. For all his campaigning, muckraking, and agitating, his accomplishments don’t make the marquee. Too Big To Fail fizzled. He warned for months about the dangers of high-frequency trading, yet the market still crashed on May 6. His rumblings on naked short-selling got the SEC to change its policy, but not as much as KAUFMAN would have liked. (The SEC declined The Big Money’s request for comment.) Worse, he was left out of major discussions on the just-agreed-upon financial reform legislation. (He thought the legislation was weak, but that he still supported in the hopes it could be strengthened in later years.)

While I was in his office, I asked KAUFMAN whether he was frustrated with not getting his way. Suddenly, I was speaking to my grandfather. “Let me tell you the difference between you and me … about 40 years. Up until maybe 10 or 15 years ago, it was always about winning … and then somewhere in there it got about trying.” When his Too Big To Fail amendment failed, he says he “didn’t go in a funk,” because he felt like he had tried as hard as he could.

And yet his influence is palpable. He has become a media darling. Arianna Huffington slobbers over him with good press, with headlines like “Celebrating Sen. Ted KAUFMAN, Accidental Leader.” CNBC’s Jim Cramer regards him as “a beacon,” and seeing Cramer interview KAUFMAN is like watching a freshman volunteer to do an older kid’s homework. The adulation is suffocating. KAUFMAN likes to joke that anytime a media appearance doesn’t end with the pundit telling him to run again, he knows it was a tough interview.

The reason KAUFMAN gets all this press is that he’s a rare congressman who cares about the arcane. He’s an authority on this stuff largely because nobody else wants to be. You’d think that in an economy this bad, speaking out and voting against Wall Street and its shadowy markets would be the politically expedient thing. But KAUFMAN is one of the few who talks about uptick rules, flash crashes, and dark pools with actual fluency. That he’s a pragmatic populist doesn’t hurt. He’s pro-market and pro-transparency—as bipartisan of a combination as possible.

Thus KAUFMAN’s biggest asset is the way he stretches the political conversation. Think of the debate on financial reform as a scatter plot. You have 100 different dots all falling somewhere along two lines: more or less regulation, and how susceptible they are to the banking lobby. Then toss a regression line in there that shows the general temperament of the debate. That temperament is what the media reports, the public hears, and the activists react to.

But now toss KAUFMAN in the mix. He’s all alone on the lobbyist line and very pro-regulation. The media, sensing a new voice and perspective, start to increase his influence, and now the regression line has shifted. Just by showing up and knowing what he’s talking about, KAUFMAN has changed the debate. He’s an outlier who has somehow found his way onto the plot.

Despite his success, KAUFMAN won’t entertain any talk of his years after the Senate. All he says is that it won’t be in the Senate, and it won’t be in a full-time job. He’s looking forward to being the outsider’s outsider.

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