With the help of three Republicans, Democrats on Capitol Hill have passed the most sweeping crackdown on banking institutions since the Great Depression.
Thursday morning's cloture vote cutting off debate on the bill set the stage for the final vote at 3 p.m. ET.
Sen. Saxby Chambliss, R-Ga., called the bill a "legislative monster."
"We're going to be driving jobs and business overseas with this massive piece of legislat
ion," he predicted.
The bill passed 60 to 39.
The Republicans voting in favor it were: Sen. Scott Brown of Massachusetts, Sen. Susan Collins and fellow Maine Sen. Olympia Snowe. Initially, Brown balked at voting for the bill when it came to light Democrats intended to pay for it with a $19 billion tax on banks and hedge funds. Instead, Democrats will indirectly obtain the money to pay for the program from the TARP program.
The bill is called the Dodd-Frank Wall Street Reform and Consumer Protection Act after retiring Connecticut Democrat Sen. Chris Dodd, the head of the Senate Banking Committee, and Rep. Barney Frank, D-Mass.
Ironically those two, who share key financial oversight roles in Congress, were both widely blamed by Republicans for not heading off the circumstances that contributed to the September 2008 economic meltdown.
Whether the bill will stave off a future economic collapse is an open question. Republicans and some corporate CEOs say that not only does the bill fail to avert another meltdown, but predict it will actually reduce the willingness of small- and medium-sized banks to grant loans at a time the economy already appears to be stalling.
"It will inevitably contract credit," says Sen. Judd Gregg, R-N.H.
"It is not a perfect bill," concedes Sen. Chris Dodd, D-Conn. "But we believe we've done the best we could under the circumstances to see to it that we never have another bailout of a major financial institution at taxpayer expense."
Republicans also object that the bill does nothing to improve oversight of Fannie Mae and Freddie Mac, the mortgage-lending entities that the federal government was forced to take over to avert a financial catastrophe.
Some Democrats blasted the bill for making too many concessions to Wall Street. One Democrat, Wisconsin Sen. Russ Feingold, released a statement Thursday saying he voted against the measure because it falls short of preventing another economic meltdown.
"The reckless practices of Wall Street sent our economy reeling, triggered the worst recession since the Great Depression, and left millions of Americans to foot the bill," Feingold stated. "Despite these cataclysmic events, Washington once again caved to Wall Street on key issues and produced a bill that fails to protect the American people from the pain of another economic disaster. I will not support a bill that fails to adequately protect the people of Wisconsin from the recklessness of Wall Street.”
The House has passed the bill, and the two versions were blended in conference committee. It now moves to President Obama's desk for his signature. The signing ceremony is expected to occur next week.
Most Democrats hailed the reforms as further evidence of the Obama administration's ability to enact the reforms it promised during the campaign. They are hoping the legislation will help give them momentum heading into November's midterms.
Democrats are expected to portray the legislation, which includes consumer protections, as evidence of their commitment to defend Main Street while Republicans worry about Wall Street.
Sen. Sherrod Brown, D-Ohio, rolled out those sharply partisan arguments just minutes after Democrats obtained the 60 votes they need to shut off debate and bring the measure to the Senate floor for a vote.
"I'm not into retribution," Brown said on MSNBC, "but so many people on Wall Street, the government bails them out and then they continue their risky behavior … it's hard for me to have much empathy for them."
Brown said Republicans "did the bidding of their friends on Wall Street" during the debate over financial reform, adding, "We saw a Republican Party almost unanimously, as they have done on so many other things, fight reform."
The Wall Street Journal says the bill gives federal bureaucrats broad authority to draft a host of new regulations to enforce the bill's provisions.
The U.S. Chamber of Commerce estimates the legislation orders regulators to write 533 news rules, compared to only 16 rule-makings in the 2002 Sarbanes-Oxley overhaul of corporate accounting. One concern is the pending rules will add to the uncertain business climate that has been blamed for slow job creation.
Economists have given the legislation mixed reviews in terms of how it will impact an economy wracked by high unemployment and flagging retail demand. Former Federal Reserve Chairman Alan Greenspan, for example, has cautioned that it could have unintended consequences.
"In my view financial regulation will increase, rather than decrease, the frequency of financial crises," Harvard economic professor Jeffrey Miron, the author of Libertarianism, From A to Z, tells Newsmax. "It puts the government even more squarely in the position of 'preventing' crises, and this will make everyone assume the government will therefore bail every out when things go wrong. Finreg is also incredibly complicated and manipulatable by the big firms, so it fosters crony capitalism. Big firms will innovate around the regulations so they will not reduce risk-taking."
The bill is designed to establish a new infrastructure to monitor and respond to systemic risks, while protecting consumers. Among its key provisions:
- It establishes a "system risk" council of regulators who will monitor the financial industry to avoid asset bubbles, and to keep firms from becoming "too big to fail."
- The legislation creates a new agency within the Federal Reserve to protect consumers. It will restrict excesses in mortgage lending and credit cards, supporters say.
- The Federal Reserve also wins new authority to oversee the activities of the nation's largest financial institutions. The goal is to head off major risks to the nation's financial system.
- The measure requires that derivatives, such as credit default swaps, be traded via third parties rather than by banks directly. This is seen as a way to make the complex financial instruments less risky.
- In cases where an institution's insolvency threatens the stability of the economy, regulators will have new powers to seize its assets and liquidate them. The objective is to avoid future bailouts that have to be paid for by taxpayers.
Whether the legislation proves to be an asset or liability for Democrats on the campaign trail may depend on the economy's ability to generate jobs.
A new poll by Time magazine Thursday shows Obama’s approval rating now at 49 percent, compared to 45 percent who disapprove of his job performance.
On Wednesday, a report by the president's council of economic advisers concluded that not only had the February 2009 stimulus succeeded in "saving or creating" up to 3.6 million jobs, but that it had do so "two quarters earlier than anticipated."
"Yup," the Wall Street Journal observed in its lead editorial Thursday, "the official White House line is that the plan is working better than even they had hoped." The Journal blasted the report for using discredited economic models to count "imaginary jobs." The New York Post decried the White House projection as a "snow-job."
To continue the White House offensive against that view, given that unemployment is lagging far above the worst-case scenarios White House economists envisioned if the stimulus bill were passed, president is traveling to Michigan to highlight programs funded by the bill.
In an op-ed published in the Detroit News, Minority Leader Rep. John Boehner, R-Ohio, stated, "This isn't the picture of recovery; it's the epitome of failure.
"To boost the economy and put people back to work, we need to stop the taxing-spending-and-borrowing-binge and cut Washington waste, stop job-killing tax increases, and provide small businesses with the certainty they need to get back on their feet," he stated.
In a separate statement Thursday, Boehner called for the financial reform bill moving through the Senate to be repealed.
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