Correction: An earlier version of this story misidentified the agency that would receive $35 million under the spending bill. It has been corrected.
Congressional liberals rebelled Wednesday against a must-pass spending bill that would keep the government open past midnight Thursday, complaining that it would roll back critical limits on Wall Street and sharply increase the influence of wealthy campaign donors.
Sen. Elizabeth Warren (D-Mass.), a popular figure on the left, led the insurrection with a speech on the Senate floor, calling the $1.01 trillion spending bill “the worst of government for the rich and powerful.”
Warren urged House Democrats to withhold their support from the measure in a vote scheduled for Thursday. But the fear of shutting down federal agencies for the second time in just over a year appeared to weigh more heavily on Democratic leaders than liberal outrage.
House Minority Leader Nancy Pelosi (D-Calif.) and Whip Steny H. Hoyer (D-Md.) both expressed concerns about the measure but were not mobilizing members to vote against it.
Meanwhile, White House press secretary Josh Earnest said that “it is certainly possible that the president could sign this piece of legislation,” even though it would undo a pillar of the Dodd-Frank financial regulatory overhaul by freeing banks to more readily trade the exotic investments known as derivatives. The legislation ranks among the administration’s biggest domestic achievements.
“I don’t think the vast majority of Democrats or even Republicans are going to look too kindly on a Congress that’s ready to go back and start doing the bidding of Wall Street interests again,” Earnest said. But he later added: “We certainly don’t want to see a government shutdown.”
Republican leaders predicted that the House would easily approve the sprawling spending bill and send it to the Senate, which would face a midnight Thursday deadline. The measure provides funding through September for the Pentagon and dozens of other federal agencies and contains hundreds of individual policy instructions — from the ongoing ban on federal funding for abortions to a new prohibition on the legalization of marijuana in the District.
The bill includes some good news for the White House, including fresh funding to battle the deadly outbreak of Ebola in West Africa and the rise of the Islamic State in Iraq and Syria. And it would do nothing to upend Obama’s contentious executive action on immigration or his health-care law.
Overall, however, the measure reflects the GOP’s strengthened hand in Washington as the party prepares to claim full control of Congress in January. The Department of Homeland Security, which enforces the nation’s immigration laws, would be funded only through Feb. 27, when Republicans plan to revisit the agency’s budget in hopes of curtailing Obama’s immigration action.
Another controversial provision would permit a wealthy couple to give as much as $3.1 million to political parties, three times the current limit.
And the Wall Street provision marks a big win for Republicans who have long complained the Dodd-Frank regulations are burdensome. In a conference call with reporters, former congressman Barney Frank, the Massachusetts Democrat who co-authored the act in the wake of the 2008 banking crisis, called it “an absolute outrage” and “a road map for the stealth unwinding of financial reform.”
Under the 2010 Dodd-Frank overhaul, banks are prohibited from using taxpayer-insured depositor funds for particularly risky derivative transactions.
Derivative trades are basically a bet on the future value of things such as commodities. For example, major airlines use derivatives to hedge against future price changes for jet fuel, as a way to keep ticket prices stable. These are broadly considered vanilla transactions — with relatively little risk.
But before the 2008 financial crisis, Wall Street firms used more complicated derivative formulas to place risky bets on the mortgage market. American International Group (AIG) nearly fell into bankruptcy in 2008 because of its use of derivatives known as credit-
Since the passage of Dodd-Frank, banks have pushed for exceptions to the regulations so they can use their deposits to underwrite some derivative trades. The new language would bow to this demand by effectively repealing portions of the “push-out” provision of Dodd-Frank, which requires banks to push some derivatives trading into separate units that do not have access to deposit insurance.
On the Senate floor, Warren said the changes in the spending bill “would let derivatives traders on Wall Street gamble with taxpayer money and get bailed out by the government when their risky bets threaten to blow up our financial system.” She added: “These are the same banks that nearly broke the economy in 2008 and destroyed millions of jobs.”
Keeping Wall Street banks in check and protecting everyday American consumers is a core message of the Democratic Party heading into the 2016 presidential election. Warren’s leading role in crafting the Consumer Financial Protection Bureau (CFPB), authorized under Dodd-Frank, made her a star on the left and a leading voice in the party.
Banking lobbyists defended the provision as a relatively minor change that, according to Francis Creighton, chief lobbyist for the Financial Services Roundtable, “will make it easier for financial institutions to use derivatives as a hedge against risk, which is an important part of making the economy work.”
Creighton expressed surprise at the fuss over the measure. “We have been talking about it for years, and very publicly,” he said, adding that the same provision had been approved by the House in 2013 in a stand-alone measure that won the votes of 70 Democrats. Among those voting yes were Hoyer and Rep. Nita M. Lowey (N.Y.), the senior Democrat on the House Appropriations Committee, which wrote the spending bill.
Far from being slipped into the measure in the dark of night, as Warren and some other liberals claimed, the provision was approved through the regular House committee process and then negotiated directly with Senate Appropriations Committee Chairman Barbara A. Mikulski (D-Md.), according to aides in both parties.
Aides to Mikulski and other Democratic leaders said the spending measure could have been worse. They said Mikulski successfully turned back other GOP requests to amend Dodd-Frank and extracted more money from Republicans for federal watchdog agencies, including $150 million for the Securities and Exchange Commission and $35 million for the Commodities Futures Trading Commission (CFTC).
Rep. James P. Moran (Va.), who was among the House Democrats who voted for the 2013 bill, argued that the relaxed rules would not trigger the terrible consequences some of his colleagues claimed.
“I think the relaxation that is involved here is not as likely to generate abuse as is being suggested,” Moran said. “Derivatives contributed a great deal to the financial collapse, but if we’re going to fix it, which we tried to do in Dodd-Frank, it has to be done in a reasonable, sustainable way.”
Rep. Chris Van Hollen (D-Md.), who opposed the 2013 bill, said he would vote against the new spending measure in its current form. The change to Dodd-Frank coupled with the campaign finance provision makes for a toxic blend, he said.
“Each of these alone is bad for the public, but the combination is especially smelly,” Van Hollen said. “You’ve got the quid and the quo in one bill.”
Still, Van Hollen was one of the few Democrats willing to risk a government shutdown by blocking the bill. Pressed by reporters, even Warren would not make that commitment.
“Right now, the fight is in the House,” she said. “It is up to the House to strip this out.”
Tom Hamburger and Paul Kane contributed to this report.
Correction: An earlier version of this article said that under the spending bill, the new limit for a couple’s donations to political parties would be 10 times the current limit. The new limit would be three times the limit now. This version has been corrected.