Republican Rejection of Finance Bill May Open Party to Attacks
Senate Republicans blocked debate over new financial rules on the eve of a congressional hearing involving Goldman Sachs Group Inc., a move that may open the party to attacks that it’s soft on Wall Street.
Democrats failed on a 57-41 vote yesterday, with 60 votes needed, to overcome unanimous Republican opposition and begin consideration of the bill calling for the biggest restructuring of financial market oversight since the 1930s.
The defeat comes as Lloyd Blankfein, Goldman Sachs’s chairman and chief executive officer, is scheduled to testify today before a Senate panel investigating Wall Street’s role in the financial crisis. The Securities and Exchange Commission on April 16 sued Goldman Sachs, alleging the bank defrauded investors. Goldman Sachs denies wrongdoing.
“The confluence of the Goldman charges and the bill, which seeks to regulate abuses, puts added pressure on Republicans,” said Stuart Rothenberg, publisher of the nonpartisan Rothenberg Political Report.
Democrats say Republicans are protecting Wall Street at the expense of millions of Americans who lost jobs after the crisis. Senate Democratic leader Harry Reid said the vote shows Republicans want to “protect the big banks.”
Republicans say the legislation would guarantee future bailouts of Wall Street banks and create new bureaucracies.
“All of us want to deliver a reform bill that will tighten the screws on Wall Street,” Senate Republican leader Mitch McConnell of Kentucky said on the Senate floor. “But we’re not going to be rushed on another massive bill based on the assurances of our friends on the other side.”
More Votes Ahead
Reid said he expects to have more votes to try to move the bill to a floor debate. His spokesman, Jim Manley, said the Nevada Democrat might call for a motion today to reconsider the vote or schedule one tomorrow.
Senate Banking Committee Chairman Christopher Dodd, the Connecticut Democrat who wrote the bill, said he will continue negotiating with Senator Richard Shelby, of Alabama, the top Republican on the banking panel.
Democrats are seeking to advance legislation, sought by President Barack Obama, to rewrite the rules governing the financial-services industry in response to the worst economic crisis since the Great Depression.
Derivatives Deal Reached
The measure is aimed at averting a repeat of the $700 billion in taxpayer-funded aid to firms including Citigroup Inc. and American International Group Inc.
It would set up a new regulator to guard consumers against abuse and deception in such instruments as mortgages, credit cards or loans. It would create a mechanism to dismantle systemically important financial firms when they fail, and strengthen oversight of derivatives and hedge funds.
Senate Democrats yesterday reached agreement on a key part of the bill, covering derivatives language, including a provision that would force commercial banks to wall off their swaps trading desks. It would also require mandatory clearing and exchange trading for standardized derivative products and impose a fiduciary duty on banks that trade derivatives with municipalities.
The accord may complicate the road ahead, since a Federal Reserve analysis said the provision regarding swaps trading desks at banks “would be highly disruptive and costly” for the companies and their customers.
Public Backs Overhaul
The debate is taking place against a backdrop of public support for tougher regulations on Wall Street. About two-thirds of Americans back tighter rules for banks and other financial institutions, according to an April 22-25 Washington Post/ABC News poll.
The Obama administration yesterday threw its support behind the Senate Democratic legislation and warned it will oppose efforts to weaken it.
Jennifer Duffy, senior editor at the nonpartisan Cook Political Report in Washington, said “being labeled as friends of Wall Street” is “the biggest risk” for Republicans. At the same time, Republicans are pointing out that Democrats have taken money in political donations from Wall Street, she said.
Both parties are trying to tap into voter anger at Wall Street and bailouts for banks as Americans suffered record home foreclosures and rising unemployment.
Tapping Into Distrust
Republicans want to use their unified opposition as leverage to win concessions from Democrats in negotiations on a compromise.
John Fortier, a scholar at the American Enterprise Institute in Washington, said while Republicans may be “skittish” about being portrayed as on the side of Wall Street, they also are tapping into public distrust of Washington.
“The distrust-of-government issue is strong enough that they are not quaking in their boots about being tagged as pro- Wall Street,” he said.
If a bipartisan agreement is eventually reached, “Republicans are going to say they made the bill better,” Rothenberg said.
The House approved its financial-regulation plan in December, and the two chambers’ bills would have to be melded before the measure could go to Obama to be signed into law.