Debate over financial overhaul intensifies in Senate

"Big bank bailouts! Big bank bailouts!"

So goes the refrain for Republican leaders this week, whose escalating attacks on a proposed overhaul of the financial regulatory system center on charges that the legislation perpetuates taxpayer-funded rescues of big Wall Street firms.

Democrats have remained equally persistent in dismissing such claims as "false talking points" and a "parade of bamboozlement," according to Sen. Christopher J. Dodd (D-Conn.), the bill's author. They argue that their legislation does just the opposite, ensuring that failing financial firms would be shut down and that their management teams, shareholders and creditors would suffer painful losses -- all without a dollar of taxpayer money at stake.

As shouting senators from both sides try to sway public opinion, Democrats on Thursday signaled a willingness to bet that they have the stronger hand.

Senate Majority Leader Harry M. Reid (D-Nev.) said he plans to bring the financial overhaul bill to the Senate floor as soon as next week -- earlier than expected. The strategy, according to Obama administration officials and congressional aides, is to pressure Republicans by daring them to make an election-year vote against legislation that Democrats have portrayed as essential to reforming Wall Street.

For their part, Senate Republicans have scrambled to remain united in their opposition to the current legislation, going as far as to try to get all 41 members to sign a letter pledging to block the bill unless Democrats revive bipartisan negotiations.

"There's no reason for this not to be a bipartisan compromise, but we're out of the room right now," Sen. Judd Gregg (R-N.H.) said in an interview this week. "I think the only thing that gets us back to the table is that we show that they can't pass the Dodd bill on the floor without Republicans being engaged in the process."

In the meantime, GOP leaders have continued to insist that the bill, put forward by Dodd, the banking committee chairman, and supported by the White House, is little more than a way to solidify the United States as a bailout nation.

Behind all the fiery rhetoric lie serious policy disagreements over Dodd's legislation.

Senior Republican Senate aides on Thursday held a call with reporters to detail their arguments that the bill leaves open the possibility of future bailouts. They said the current language would allow the Federal Deposit Insurance Corp. to pay certain creditors above what they would have gotten in a bankruptcy proceeding. That provision, Republican aides said, could lead to "highly political" decisions to favor certain creditors.

Proponents say some creditors might indeed receive more than others during a liquidation, but not because of favoritism.

"All of this is drawn from the process we have now," FDIC Chairman Sheila C. Bair said in an interview Thursday. "It's primarily used to pay general creditors. You do that to keep the place going and maintain franchise value" while the government sells off a firm's assets.