The Senate tonight passed a sweeping overhaul of the rules that govern Wall Street with the aim of better protecting Main Street if the markets were ever to meltdown again. The legislation would greatly empower the Federal Reserve Bank to monitor and oversee financial flows in order to predict and prevent a massive pooling of risk – such as hundreds of billions of dollars in credit default swaps based on subprime loans – from ever happening again.
The vote was 59-39 with four Republicans crossing the aisle – Scott Brown, Susan Collins, Chuck Grassley and Olympia Snowe – to vote Yea. Two Democrats voted against the bill, Russ Feingold and Maria Cantwell, on the grounds that it did not go far enough in protecting the consumer. “The bill does not eliminates the risk to our economy posed by ‘too big to fail’ financial firms, nor does it restore the proven safeguards established after the Great Depression, which separated Main Street banks from Wall Street firms and are essential to preventing another meltdown,” Feingold said in a statement after the vote.
House and Senate negotiators must now reconcile differences between the two versions of the bill before final passage. Democratic leaders aim to get final legislation to President Obama to be signed into law by July 4th. The two bills are strikingly similar and until the last two days, leaders had been hoping to avoid a conference and have the House pass the Senate version of the bill. “I am confident that we can have a bill ready for President Obama’s signature very soon,” Frank said in a statement tonight.
But there are three key provisions the White House wants taken out of the bills in conference. One is a provision authored by Blanche Lincoln, Chair of the Agriculture Committee, which would require banks to divest much of their lucrative derivates trading businesses. Regulators across the board have panned this populist step as unfeasible and impractical. But the measure has become the public option of financial reform with progressives rallying to keep it in the final version.
The other two provisions the White House opposes were included in the House version. One sets up a $150 billion fund paid for by new fees on banks that would help pay for the liquidation of financial institutions. A similar $50 billion fund was removed in the Senate bill to smooth over GOP objections that such a fund would only encourage future bailouts. The second provision would exempt auto-dealers from oversight by the newly created consumer protection agency. Republican Senator Sam Brownback offered a similar amendment in the Senate but withdrew it today which also killed an attached amendment by Democratic Senators Jeff Merkley and Carl Levin on the “Volcker Rule.”
Final passage after a brief conference looks all but assured, handing Obama a second big legislative victory this session after health care reform. Democrats believe this issue will be a winner for them at the polls in November. “This debate made each party’s priorities crystal clear: Republicans tried to protect their friends on Wall Street and did everything they could to kill this bill, while Democrats stoop up for the middle class and refused to back down,” Senate Majority Leader Harry Reid said in a statement.