Financial Bill Is Set to Pass After Clearing Senate Hurdle
Senators Benjamin L. Cardin, left, and Jack Reed arrived at a news conference on Thursday after the cloture vote on financial reform.
By DAVID M. HERSZENHORN
Published: July 15, 2010
WASHINGTON — A broad overhaul of the nation’s financial regulatory system, intended to address the causes of the 2008 economic crisis and rewrite the rules for a more complex — and mistrustful — era on Wall Street, cleared one last procedural hurdle in the Senate on Thursday as it headed for final Congressional approval later in the day.
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Senator Christopher J. Dodd, right, and Representative Barney Frank, shown in May, are the chief authors of the bill mandating a sweeping overhaul of the nation’s financial regulatory system.
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The vote was 60 to 38, with just three centrist Republicans from the Northeast joining with the Democrats in voting to advance the legislation. One Democrat, Senator Russ Feingoldof Wisconsin, voted against the bill, saying it was still not tough enough. Senator Michael D. Crapo, Republican of Idaho, did not vote, and one seat — which was held by Senator Robert C. Byrd, who died last month — is vacant.
With the Senate poised to send the bill to President Obamafor his signature, the White House was already planning a ceremony — sometime next week — to mark completion of another landmark piece of legislation, following the enactment of the historic health care bill in March and last year’s major economic stimulus program.
The White House press secretary, Robert Gibbs, said that the financial overhaul would be an achievement that Democrats would promote in the fall elections. “We cannot continue to operate using the same rules that got us into this recession. I think this will be a vote Democrats will talk about through November.”
But like those other laws, the passage of a new regulatory regime hardly guarantees it will be effective. And, despite lingering public anger at Wall Street, the political implications for this year’s hotly contested midterm elections are far from certain. House and Senate Republicans voted resoundingly, and confidently, against it.
Even Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee who was a main author of the bill, acknowledged that Americans will probably not know for years — perhaps not until the next financial crisis strikes — if the response by Congress this year was sufficient, or falls short despite the best intentions.
“We won’t know the full results of what we have done until the very institutions we have created, the regulations we have suggested and provided for are actually tested,” Mr. Dodd said in a floor speech. “We can’t legislate wisdom or passion. We can’t legislate competency. All we can do is create the structures and hope that good people will be appointed who will attract other good people — people who will make careers and listen and see to it that never again do we go through what we have gone through.”
Passage of the bill would herald the end of more than a generation in which the prevailing posture of Washington toward the financial industry was largely one of hands-off admiration, evidenced by steady deregulation. While the measure does not fully restore the toughest restrictions imposed after the Great Depression, it is a clear turning point, highlighting a new distrust of Wall Street, fear of the increasing complexity of technology-driven markets, and renewed reliance on government to protect the little guy.
The bill would create a council of high-level federal officials, led by the Treasury secretary, to try to detect, and perhaps prevent, systemic dangers to the financial system, and it would give the government new authority to seize and shut down failing financial institutions, by liquidating assets and forcing shareholders and creditors to take losses.
It would create a powerful consumer financial protection bureau, to be housed in theFederal Reserve, and widely expand the regulatory authority of the central bank. It would widen the purview of the Securities and Exchange Commission to strengthen regulation of hedge funds, other private equity firms, and credit rating agencies.
The bill also seeks to curb the most risky behavior on Wall Street, by restricting the ability of banks to invest and trade for their own accounts — a provision known as the Volcker rule, and by creating an extensive regulatory framework for derivatives, the complex financial instruments that were at the heart of the 2008 crisis.
But Republican critics of the legislation said it would prove to be a failure, and they admonished the Democrats for not addressing some of the root causes of the 2008 crisis by not including provisions related to the mortgage giants, Fannie Mae and Freddie Mac, which are now effectively owned by the federal government.
“Despite broad agreement on the need for reform, the majority decided it would rather move forward with a partisan bill,” said Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee.
“The result is a 2,300-page legislative monster, I believe, before us that expands the scope and the power of ineffective bureaucracies,” Mr. Shelby said. “It creates vast new bureaucracies with little accountability and seriously I believe undermines the competitiveness of the American economy. Unfortunately, the bill does very little to make our system safer.”
In a statement to explain his no vote, Mr. Feingold said Washington had produced a bill that would not protect consumers from another economic crisis. “I will not support a bill that fails to adequately protect the people of Wisconsin from the recklessness of Wall Street,” he said.
For most average Americans the impact of the legislation may not be readily apparent, but its far-reaching effects will not be far below the surface. The legislation will impose new rules and restrictions on mortgage lenders, and it will direct the Federal Reserve to set new pricing for interchange fees charged by debit card issuers.
The bill will restrict what many banks can do with their customers’ deposits. Businesses of all sizes, across every sector of the economy, will feel the impact of the rules for derivatives, which are used to hedge against swings in the cost of raw materials, gas and oil prices, and foreign exchange rates.
The legislation has some notable exemptions, including a special exception for the nation’s automobile dealers from oversight by the new consumer financial protection bureau, which otherwise will regulate most consumer lending.
The legislation has some notable exemptions, including a special exception for the nation’s automobile dealers from oversight by the new consumer financial protection bureau, which otherwise will regulate most consumer lending.
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Senate Republicans succeeded in delaying the bill for weeks, drawing out debate on a measure that most of them never intended to support. Ultimately, they pushed final passage until after the Fourth of July recess, partly to thwart Mr. Obama who had hoped to have the bill on his desk before the break.
With months of wrangling over the appropriate response to the financial crisis drawing to a close, there were rhetorical flourishes on both sides of the aisle.
Mr. Reid turned to his home state for a metaphor. “When you go to any of the great casinos across Nevada and put your chips on the table, you’re gambling with your own money,” Mr. Reid said. “You win, you win. And if you lose, you lose. But Wall Street rigged the game. They put our money on the table. When they won, they won big. The jackpots they took home were in the billions. But when they lost — and boy, did they lose big — they came crying to the taxpayers for help.”
Mr. Reid added: “Every new day we don’t act, we run the risk of it happening all over again. That’s a gamble, Madame President, I’m not willing to take. The bill before us makes sure we don’t have to take that gamble.”
The Senate Republican leader, Mitch McConnell of Kentucky, spoke just as forcefully against the legislation. “The American people don’t seem to like this government-driven solution to the financial crisis any more than they like the Democrats’ government-driven solution to the nation’s health care crisis,” he said.
Citing a study by the United States Chamber of Commerce, a leading business group, Mr. McConnell said the bill would require 70 new federal regulations through the new consumer financial protection bureau, 11 new regulations through the Federal Deposit Insurance Corporation, 30 new regulations through the Federal Reserve and 205 new regulations through the S.E.C.
“All told, this bill would impose 533 new regulations on individuals and small businesses,” Mr. McConnell said. “That will inevitably lead to the kind of confusion and uncertainty that will make it even harder for struggling businesses to dig themselves out of the recession.”
Mr. Dodd, however, said that Congress had done its utmost.
“The American public expects nothing less of us than to fashion proposals that will minimize great risks to them,” he said. “None of us lost a job or a home in the last two years. None of us has watched our retirement account evaporate overnight. None of us will worry about whether our children can get a higher education. That all happened to the people we represent across the country.”
Mr. Dodd continued: “They are asking that we do our best. They don’t ask for perfection. They know we have not solved every problem and that we are not going to bring back their homes and their jobs; but they expect us to respond to the situation that brought us to the brink of financial disaster. This is our best effort to do so.”
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