Senate scrambles to unite on finance reform bill
As President Obama strikes a firm but conciliatory tone with Wall Street, the Senate steps up negotiations in hopes of a bipartisan deal on regulatory reform ahead of a key vote planned for Monday.
Senate Democratic leaders set Monday for a key vote on financial regulatory reform legislation, setting off frantic negotiations to complete a bipartisan deal, while President Obama, speaking in New York, urged Wall Street “to join us, instead of fighting us.”
The effort to reach a compromise on the landmark bill is expected to stretch through the weekend. Negotiations are focused on easing some of the bill’s tough proposals on consumer protection, a fund to handle future financial crises and controls on the complex financial derivatives markets.
Progress on the bill is more than a test of Obama’s ability to achieve his major goals. It also tests Congress’ ability to arrest the current epidemic of partisanship and respond to a wave of public anger over Wall Street’s role in the worst financial crisis since the Great Depression.
“We cannot turn into a petulant organization that screams at each other,” said Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.).
“We are now confronted with another great challenge — whether or not we can address the kinds of issues that will avoid the next financial crisis,” Dodd said.
“We’re continuing to negotiate in good faith, trying to reach a common goal,” said Sen. Richard C. Shelby (R-Ala.), who has been working with Dodd to craft a compromise. “I hope it’s a bipartisan bill that we can gather a lot of people on both sides of the aisle.… But what is the main goal? To do it right.”
Obama struck a conciliatory tone Wednesday in a speech given in the shadows of Wall Street. He praised the importance of financial firms and free markets to the U.S. economy as he tried to close the sale on a nearly yearlong push for the most sweeping overhaul of financial rules since the 1930s.
But he also insisted that tighter regulations were needed to rein in risky practices that led to the financial crisis and the recession.
“It is essential that we learn from the lessons of this crisis, so we don’t doom ourselves to repeat it,” Obama said. “And make no mistake: That is exactly what will happen if we allow this moment to pass. And that’s an outcome that is unacceptable to me, and it’s unacceptable to you, the American people.”
In the audience for the speech at the Cooper Union college in Manhattan were some top Wall Street executives, including Goldman Sachs Chief Executive Lloyd Blankfein. Goldman is facing a government civil suit on allegations that it defrauded investors.
The groundwork for the Senate’s first vote on the issue was laid Thursday when Senate Majority Leader Harry Reid (D-Nev.) asked to bring the legislation up for debate. As expected, Minority Leader Mitch McConnell (R-Ky.) objected, delaying action and giving negotiators more time to reach a compromise. Even if no deal is reached, Reid could win over at least one Republican to circumvent McConnell’s objection with a 60-vote majority in Monday’s vote to begin formal debate.
Sen. Charles E. Schumer (D-N.Y.) said he found it hard to believe that Republicans would “all vote no, blocking financial reform.”
“My guess is they won’t,” he said. But so far, no Republican has publicly announced support for the bill.
Industry officials said they were encouraged by the negotiations and the lack of fiery rhetoric in Obama’s speech.
But even as bipartisan talks progressed behind the scenes, Senate Democrats pressed what they saw as their political advantage on the issue of cracking down on Wall Street.
Schumer and Senate Democratic leaders reiterated complaints that some Republicans were lying about the legislation, particularly with the GOP assertion that the measure would perpetuate government bailouts rather than ending them.
“They’ve decided that the best way to stop us from cleaning up Wall Street is by polluting the debate,” said Reid, citing recent statements by McConnell and others.
Obama also addressed the issue in his speech, saying the bailout charge “makes for a good sound bite, but it’s not factually accurate.”
“In fact, the system as it stands … is what led to a series of massive, costly taxpayer bailouts,” Obama told the audience, which also included consumer advocates, labor union leaders, students and elected officials.
“And it’s only with reform that we can avoid a similar outcome in the future. In other words, a vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth. End of story. And nobody should be fooled in this debate.”
The landmark legislation would tighten financial regulations dramatically. It would create an agency to protect consumers in the financial marketplace; impose tough regulations on complex financial derivatives; grant shareholders a nonbinding vote on executive compensation; and give the government authority to seize and dismantle large firms whose failure would pose a danger to the economy to try to avoid future bailouts.
The financial industry, business groups and many Senate Republicans oppose several provisions, including a requirement that large banks such as Goldman and Bank of America spin off their derivatives-trading operations into subsidiaries. Industry executives argued that this could drive lucrative derivatives business overseas.
The provision was not in the Obama administration’s original legislative proposal or in the overhaul bill the House passed in December. The Senate agriculture committee included the provision when it passed the derivatives portion of the Senate’s overhaul bill.
Democrats and Republicans also were haggling over how much power states would have to enforce national rules that the new consumer agency would write on financial products.
Another focus of dispute, however, appeared close to being solved. Many Republicans strongly oppose a proposed $50-billion fund to cover the costs if the government has to seize and dismantle a large financial firm on the brink of bankruptcy.
Large firms have lobbied hard to have the requirement that they pay into the fund in advance removed.
McConnell said having such a fund in place would allow it to be used for future bailouts. Dodd and Obama administration officials have said they are not wedded to the prepaid fund.
After the completion of the healthcare overhaul, financial regulation has emerged as Obama’s top domestic goal. He chose Cooper Union for his speech because he went there as a presidential candidate in March 2008 to condemn risky financial practices and a government mentality that he said was “scornful … toward oversight and enforcement.”