Once critical of financial regulation bill, Republicans change their tone
Wednesday, April 21, 2010
Key Senate Republicans on Tuesday began to back away from their sharp criticism of proposed new financial regulations and expressed optimism that a bipartisan deal on a bill that would drastically change the way Wall Street operates could emerge in the coming days.
After a week of attacking the proposals as paving the way for new taxpayer "bailouts," Minority Leader Mitch McConnell (R-Ky.) said on the Senate floor that he was "heartened to hear that bipartisan talks have resumed in earnest." Later, after a meeting with fellow Republicans, he told reporters that while he believes that there are still serious flaws in the legislation, "I'm convinced now there is a new element of seriousness attached to this, rather than just trying to score political points. . . . I think that's a good sign."
The change in tone came as the Security and Exchange Commission's lawsuit against Goldman Sachs for allegedly defrauding investors continued to dominate headlines, underscoring public anger at Wall Street and reminding lawmakers of the potential consequences of inaction. In the corridors of the Capitol, members of both parties, as well as a sea of lobbyists from across the financial spectrum, jockeyed to shape key provisions of the wide-ranging legislation before it hits the Senate floor.
The massive bill put forth by Sen. Christopher J. Dodd (D-Conn.) would create a new consumer protection bureau within the Federal Reserve to guard against lending abuses. It also would create oversight of the enormous derivatives market, reduce the regulatory powers of the Fed and give the government authority to wind down large, troubled financial institutions in an orderly way.
Half a dozen Republican senators met behind closed doors this week with Treasury Secretary Timothy F. Geithner and raised their concerns about the bill, including its impact on community banks and small businesses, as well as whether its creation of a $50 billion "resolution fund" would open the door to future taxpayer-funded bailouts.
Democrats have been unwilling to alter the legislation without a guarantee that it would bring Republican votes.
One potential GOP convert, Sen. Olympia J. Snowe (Maine), said Tuesday that she will wait for bipartisan talks to play out before deciding whether to back Democratic efforts to begin debate on the bill. "There's no question we need legislation to address these issues," Snowe said. But she added: "I think it's very important to have a starting point that is on a bipartisan basis, as opposed as to the contrary."
Dealing with derivatives
The wrangling between the two parties over the details of the bill continued as members of the Senate Agriculture Committee planned Wednesday to hash out a hotly contested element of the legislation: a measure to establish oversight of the vast financial derivatives market.
Derivatives are contracts that allow financial traders to bet on the direction of the prices of stocks, commodities and other assets. They can also be used by companies to lock in prices for goods, such as oil, cotton and aluminum, that often fluctuate in value. Derivatives account for hundreds of trillions of dollars in deals and were a significant contributor to the financial panic that swept the world in 2008, in part because of a lack of transparency in the market.
The bill advocated by Sen. Blanche Lincoln (D-Ark.), chairman of the agriculture panel, calls for banning big Wall Street firms from acting as brokers for commercial companies and financial speculators who want to trade derivatives. Nearly all derivative contracts would be traded in public on exchanges and approved by a separate clearinghouse. Those dealing in derivatives would have to raise money to cover unexpected losses, in case one party to the contract defaults. Lincoln provides some exceptions for agricultural and other commercial companies but still requires them to raise money for trades.
"I believe this is the strongest Wall Street reform bill that we have seen to date," Lincoln said Tuesday. "Our bill is real reform. It will bring 100 percent transparency to our financial markets. It'll prevent future bailouts, and it will protect the folks on all of our Main Streets."
Lincoln said she plans to pass the bill out of her committee -- which has 12 Democrats and nine Republicans -- on Wednesday. She said Democratic leaders assured her that her bill would be made part of the broader Dodd legislation. Because the fine print in her bill could affect billions of dollars across multiple industries, the measure has become a magnet for lobbyists and a key focus of lawmakers from both parties and the Obama administration.