Financial Reform Passes the Senate

For the most part, I am disappointed in the Senate Bill, because it does not go far enough.  I am also disappointed in President Obama for calling a baby step forward a major victory.

The Senate on Thursday approved a far-reaching financial regulatory bill, putting Congress on the brink of approving a broad expansion of government oversight of the increasingly complex banking system and financial markets.

The legislation is intended to prevent a repeat of the 2008 crisis, but also reshapes the role of numerous federal agencies and vastly empowers the Federal Reserve in an attempt to predict and contain future debacles.

The vote was 59 to 39, with four Republicans joining the Democratic majority in favor of the bill. Two Democrats opposed the measure, saying it was still not tough enough.

Democratic Congressional leaders and the Obama administration must now work to combine the Senate measure with a version approved by the House in December, a process that is expected to take several weeks.

While there are important differences — notably a Senate provision that would force big banks to spin off some of their most lucrative derivatives business into separate subsidiaries — the bills are broadly similar, and it is virtually certain that Congress will adopt the most sweeping regulatory overhaul since the aftermath of the Great Depression.

“It’s a choice between learning from the mistakes of the past or letting it happen again,” the majority leader, Harry Reid of Nevada, said after the vote. “For those who wanted to protect Wall Street, it didn’t work.”

The bill seeks to curb abusive lending, particularly in the mortgage industry, and to ensure that troubled companies, no matter how big or complex, can be liquidated at no cost to taxpayers. And it would create a “financial stability oversight council” to coordinate efforts to identify risks to the financial system. It would also establish new rules on the trading of derivatives and require hedge funds and most other private equity companies to register for regulation with the Securities and Exchange Commission.

Passage of the bill would be a signature achievement for the White House, nearly on par with the recently enacted health care law. President Obama, speaking in the Rose Garden on Thursday afternoon, declared victory over the financial industry and “hordes of lobbyists” that he said had tried to kill the legislation.

“The recession we’re emerging from was primarily caused by a lack of responsibility and accountability from Wall Street to Washington,” Mr. Obama said, adding, “That’s why I made passage of Wall Street reform one of my top priorities as president, so that a crisis like this does not happen again.”

The president also signaled that he would take a strong hand in developing the final bill, which could mean changes to the restrictive derivatives provisions the Senate measure includes and Wall Street opposes. It is also likely that the administration will try to remove an exemption in the House bill that would shield auto dealers from oversight by a new consumer protection agency. Earlier, Mr. Obama had criticized the provision as a “special loophole” that would hurt car buyers.

As the Senate neared a final vote, Senator Sam Brownback, Republican of Kansas, withdrew an amendment to put a similar exemption for auto dealers into the Senate bill.

Mr. Brownback’s move had the effect of killing an amendment by Senators Jeff Merkley, Democrat of Oregon, and Carl Levin, Democrat of Michigan, to tighten language barring banks from proprietary trading, or playing the markets with their own money — a restriction generally known as the Volcker rule for the former Fed chairman Paul A. Volcker, who proposed the idea. Congressional Republican leaders, adopting an election-year strategy of opposing initiatives supported by the Obama administration, voiced loud criticism of the legislation while trying to insist that they still wanted tougher policing of Wall Street.

But while Republicans criticized the bill in mostly political terms, arguing that it was an example of Democrats’ trying to expand the scope of government, some experts have warned that the bill, by focusing too much on the causes of a past crisis, still leaves the financial system vulnerable to a major collapse… [emphasis added]

Inserted from <NY Times>

Without the Volker Rule without a ban on naked credit default swaps, and without breaking up the TBTF banks, the financial system will be little safer that it has been… not at all.

Byron Dorgan and Bernie Sanders responded stoically.

…It’s not as strong a bill on the whole as it certainly should have been. But two warriors against Wall Street are philosophical in their view of the bill. Here’s Byron Dorgan and Bernie Sanders, talking to TPM’s Brian Beutler.

"I forced a vote on naked credit default swaps–banning naked credit default swaps," Dorgan told me after casting in with his party. Dorgan’s amendment was tabled, but he regards the vote on a motion to table as a referendum on the legislation itself. Those 57 senators who voted to table his legislation were, in effect, voting against it.

But ultimately, he simply wasn’t interested in killing it. "This bill is short of what Congress should do, but it moves in the right direction, although it moves less aggressively than I would like to see it move," Dorgan added. "Unlike some years ago when the issue was a piece of legislation, Gramm-Leach-Bliley, was I think just fundamentally wrong. I was very interested in stopping it. In this case I’m very interested in starting a piece of legislation that is constructively financial reform."

….

"I think this is a step forward, there’s no question about that," Sen. Bernie Sanders (I-VT) told reporters after today’s vote. "I think it brings much greater regulation, I think it brings much greater transparency. But I think, frankly, it is nowhere near as strong as it could be. I think at the end of the day we are going to have to address the need to break up these very very huge financial institutions, which I believe, that if they start teetering in the future they will have to be bailed out, and that’s why you ought to break them up now."

Dorgan agrees. "As long as our country has financial institutions too big to fail, I think you’re going to have failure," Dorgan told me. "And I think ultimately the taxpayers will be called upon to bail them out."

Major Wall Street reform hasn’t been achieved by a long shot. Some things will be better for Main Street, for all us schlubs out there who want to understand our credit card agreements or mortgage contracts. That’s very good news for consumers (that and that sleazy car dealers can’t prey on unsuspecting consumers as easily). But, since the House bill isn’t significantly stronger in many of these areas, the final package will fall short of being true Wall Street reform… [emphasis added]

Inserted from <Daily Kos>

From here we move to reconciliation.  The New York Times has an excellent chart comparing the House and Senate versions of the bill.  I strongly recommend that you go over it to be better informed about the issues to be reconciled. Click here.

Perhaps the biggest issue to be resolved is Blanche Lincoln’s derivatives amendment.  I think the only reason Chris Dodd did not remove it in the manager’s amendment is to give her liberal credibility in her June 8 runoff election, against a more authentic Democrat, Bill Halter.  I think Congress is too bought to leave it in, so expect no movement before that date.

As unhappy as I am, I can see no reason to oppose it.  Just understand that we can’t let this end here.