One thing Main Street can relish is that unlike most major legislation in Congress, the financial reform legislation keeps getting tougher against big banks with the various amendments being added to it. Usually, these bills manage to be diluted with compromises.
Among the gaps to be filled between the two bills are the "too big to fail" measures. If you believe Congress, never again will the government bail out failing banking institutions. The skeptics, myself included, must wait until push comes to shove in the real world.
Another gap is a consumer protection agency. The House version is an independent hybrid. The Senate puts it in the hands of the Federal Reserve. At the moment, both versions exempt car loans from automobile financing arms.
New regulations on the derivative swap markets and hedge funds are a bone of contention between the two bills. This is critical. Most critics agree that collapse of the housing and financial institution markets in their unregulated form created the crash.
Let me digress briefly with tough amendments that failed brought by Democratic Sens. Blanche Lincoln of Arkansas and Maria Cantwell of Washington state reported by Michael Hirsch of Newsweek:
As the (Senate) bill currently stands, nothing says that a swap that doesn't comply with the (new) statute is illegal; on the contrary, the bill actually says the swap cannot be voided. There is no consequence for counterparties who enter into uncleared swaps even after a finding by the Commodity Futures Trading Commission or SEC that the swaps must be cleared.
There also is an "early warning" system both bills put in place to identify potential risks that could lead to a market collapse. The Senate version most likely will survive in tact with the creation of a "financial stability oversight council" composed of the Treasury secretary, chairman of the Federal Reserve, the heads of the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, the comptroller of the currency, the director of the new consumer protection bureau and the director of the Federal Housing Finance Agency.
That's sweet except for one minor detail. Both bills exempt the government-owned mortgage giants Fannie Mae and Freddie Mac. The two companies lowered their standards for borrowers during the housing boom and now those high-risk loans are defaulting at a record pace, prompting a $145 billion government rescue. Democratic leaders in both houses promise to address those two losers in separate legislation.
The twice-filibustered Senate bill was cleared for a floor vote Thursday and the up and down floor vote won the day 59-39 with Republican Sens. Susan Collins and Olympia Snowe, both of Maine, and Scott Brown of Massachusetts and Charles Grassley of Iowa voting for it. Two Democrats voted against it, Cantwell of Washington and Russ Feingold of Wisconsin, both saying it did not go far enough.
In comments to reporters in the Rose Garden Thursday, Obama said he would take a strong hand in driving both sides towards agreement in the conference committee which at this time is expected to be televised by C-Span.
Most political observers agree that the financial reform law would be a major accomplishment by the Obama administration.
In fact, coverage of the story as reported by the New York Times and Washington Post focused more on the politics than the substance of the legislation.
“The recession we’re emerging from was primarily caused by a lack of responsibility and accountability from Wall Street to Washington,” Obama said correctly. “That’s why I made passage of Wall Street reform one of my top priorities as president, so that a crisis like this does not happen again,” which is self-serving since no president can control market forces.
Said Republican Sen. Richard Shelby of Alabama who voted against the legislation: "Judgment will not be rendered by self-congratulatory press releases, but, rather, by the marketplace. And the marketplace does not give credit for good intentions."
The Washington Post said the Obama administration plans to hit the road trumpeting the financial reform law as a device to win support for Democratic candidates in the November midterm elections.
White House press secretary Robert Gibbs said the president and his allies in Congress intend to connect the dots between the financial reform legislation and the broader questions about jobs and the economy that consume voters.
"I think it will play a very big role in what the president talks about over the next several weeks," Gibbs said. "And I have no doubt that voters will have very clear decisions that they'll get to make in November about whether you . . . supported ensuring that the taxpayers never got the bill again for the risky decisions of Wall Street or whether you supported the risky decisions of Wall Street."
Senate Minority Leader Mitch McConnell (R-Kentucky) counters with one section of the bills that he dislikes.
"How do you explain to the average American that a bill that was meant to rein in Wall Street can be supported by Goldman Sachs
and Citigroup but opposed by car dealers, dentists, florists, furniture salesman, plumbers, credit unions and community banks?"
Yada yada yada.