Senate passes sweeping financial overhaul legislation
Nearly two years after a financial crisis triggered the worst recession since the Great Depression, the Senate approved bold and controversial legislation aimed at preventing a repeat — and set the stage for a showdown over the issue in this fall’s midterm elections.
The 60-39 vote Thursday was a major victory for President Obama and Democratic leaders and marked the second landmark overhaul — the first was healthcare reform — that the administration has pushed through Congress this year.
Obama is expected to sign the financial reform bill next week in an elaborate ceremony touting it as evidence that Democrats are standing up for Main Street against the powerful financial industry and its Republican allies.
Supporters said it gives the government desperately needed tools to avoid future corporate bailouts and prevent financial firms from gouging consumers on mortgages and other financial products.
“Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes,” Obama said. “There will be no more taxpayer-funded bailouts, period.”
But the sweeping, 2,300-page legislation carries risks for Democrats, who hope to build this fall’s midterm election campaign on their tough crackdown on Wall Street.
Just as with healthcare reform, Republicans have portrayed the financial overhaul as a dangerous intrusion of big government into the lives of average Americans.
Rather than ending bailouts, Republican opponents say the government’s new power to dismantle large financial firms on the brink of collapse will lead to more bailouts at taxpayers’ expense.
Even before the bill passed Thursday, House Minority Leader John A. Boehner (R- Ohio) called for its repeal. He has compared the legislation to “killing an ant with a nuclear weapon.”
“I think it’s going to make credit harder for the American people to get, clearly harder for businesses to get,” Boehner said.
He also warned that the bill “institutionalizes” the notion that some financial institutions are too big to fail “and gives far too much authority to federal bureaucrats to bail out virtually any company in America they decide ought to be bailed out.”
Republicans also criticized the legislation for not addressing the future of mortgage finance giants Fannie Mae and Freddie Mac, which were seized by the government in 2008.
Supporters had hoped to get strong bipartisan support, but Wall Street and much of the financial industry lobbied heavily against the legislation. And as they did in the House last month, nearly all Republicans opposed the bill.
Only three Republicans — Sens. Scott Brown of Massachusetts and Susan Collins and Olympia J. Snowe, both of Maine — voted for it. They provided the pivotal votes needed for Senate Democratic leaders to reach the 60 they needed to cut off debate in a key procedural vote earlier Thursday, overcoming a threatened Republican-led filibuster.
One Democrat, Sen. Russell D. Feingold of Wisconsin, voted against the legislation, saying it wasn’t tough enough on the financial industry.
The legislation will reverse three decades of deregulation throughout the financial system, a government withdrawal that many experts believe set the stage for the financial crisis in 2008.
To prevent a repeat, the bill enacts the most sweeping clampdown on the industry since the creation of the Securities and Exchange Commission and the Federal Deposit Insurance Corp. in the 1930s.
The bill creates a bureau within the Federal Reserve to protect consumers in the financial marketplace, establishes a council of regulators to monitor the financial system for major risks, imposes tough regulations on complex financial securities known as derivatives, grants shareholders a nonbinding vote on executive compensation and gives the government authority to seize and dismantle teetering firms whose failure would pose a danger to the economy.
The legislation also shuts down the federal Office of Thrift Supervision, which oversees savings and loans. That agency failed to prevent the risky mortgage lending that led to some of the biggest collapses of the crisis, including IndyMac Bank of Pasadena and Washington Mutual Bank, the largest thrift failure in U.S. history. Its duties merge into the Office of the Comptroller of the Currency, which oversees national banks.
Among the other changes are a ban on box-office futures markets sought by major Hollywood studios. The legislation also provides help for about 8,700 former account holders at IndyMac Bank by permanently increasing to $250,000 the FDIC coverage for individual bank accounts and making it retroactive to before the bank’s failure.
To help cover the $19-billion cost of the legislation’s expanded regulation over the next 10 years, the measure immediately ends any additional expenditures from the controversial $700-billion Troubled Asset Relief Program bailout fund. TARP was to expire in October.
Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said the legislation can’t fix the fallout from the last crisis but aims to give regulators the ability to prevent another one.
“I regret I cannot give you your job back, put retirement money back in your account,” he said. “What I can do is see to it that we never, ever again have to go through what this nation has been through.”
The legislation is called the Dodd-Frank bill after him and House Financial Services Committee Chairman Barney Frank (D-Mass.), who were the lead sponsors. Once it is signed into law, regulatory agencies will begin the monumental task of writing thousands of specific new regulations and conducting dozens of studies.
Republicans have portrayed themselves as the protectors of Main Street, particularly small businesses that they said would be harmed by new consumer protection regulations and would lose access to credit from banks squeezed by the legislation.
“It’s just this kind of uncertainty that will deter lending and freeze up credit,” said Senate Minority Leader Mitch McConnell (R-Ky.), who complained the legislation will create a “vast new unaccountable bureaucracy” that will impose onerous new regulations on struggling businesses.
But Senate Majority Leader Harry Reid (D-Nev.) said the legislation would crack down on risky Wall Street practices that helped trigger the deep recession. And voters, particularly in hard-hit states such as his own, will reward Democrats for pushing the reforms through, he said.
“This is going to be a tremendous plus in the elections,” Reid said.