Senator's concern may complicate Wall Street bill vote

WASHINGTON Sun Jun 27, 2010 8:03am EDT

House Financial Services Committee Chairman Barney Frank (D-MA) (C) talks with a group including Ranking Member Spencer Bachus (R-AL) (L) during a recess from a committee conference on Wall Street reform to hammer out sweeping changes in financial regulation legislation on Capitol Hill in Washington June 24, 2010. REUTERS/Jonathan Ernst

House Financial Services Committee Chairman Barney Frank (D-MA) (C) talks with a group including Ranking Member Spencer Bachus (R-AL) (L) during a recess from a committee conference on Wall Street reform to hammer out sweeping changes in financial regulation legislation on Capitol Hill in Washington June 24, 2010.

Credit: Reuters/Jonathan Ernst

WASHINGTON (Reuters) - President Barack Obama's efforts to win final approval of a historic financial regulatory reform bill looked more complicated on Saturday after a Republican senator threatened to oppose it.

"I was surprised and extremely disappointed to hear that $18 billion in new assessments and fees were added in the wee hours of the morning by the conference committee," Massachusetts Senator Scott Brown said.

He issued the statement after negotiators from the Senate and House of Representatives emerged from a marathon session early Friday morning with a final compromise on a bill that would bring about the most sweeping financial rules revamp since the 1930s.

The legislation would set up a new financial consumer watchdog, create a protocol for dismantling troubled financial firms and mandate higher bank capital standards -- all in an effort to avoid a repeat of the 2007-2009 credit crisis that hammered the economy and triggered taxpayer bailouts of floundering firms.

In May Brown was only one of four Republicans who voted for the Senate's financial regulatory reform package, which was approved, 59-39, with two members not voting.

Before that vote, Democrats had to overcome a Republican filibuster aimed at killing the bill and did that by the narrowest margin possible, 60-40.

Brown's possible defection from the bill increases the chance of a successful Republican filibuster this time unless Democratic leaders can find another vote.

Democrats control 57 seats in the Senate and Republicans 41. Two independents usually vote with the Democrats. It takes 60 votes to end a filibuster.

"While I'm still reviewing the bill's details, these provisions were not in the Senate version of the bill which I previously supported ... I've said repeatedly that I cannot support any bill that raises tax," Brown said.

A spokesman for Senate Majority Leader Henry Reid had no comment on Saturday when asked if Brown's concerns posed a serious obstacle to final passage of the bill.

The three other Republicans that voted for the financial regulatory reform package in May were Senator Susan Collins and Senator Olympia Snowe, both of Maine, and Senator Charles Grassley of Iowa.

A spokeswoman for Grassley said he was still evaluating the conference report.

Two Democrats, Russ Feingold of Wisconsin and Maria Cantwell of Washington, voted against the Senate financial regulatory reform package in May.

Two other Democrats, Senator Robert Byrd of West Virginia and Senator Arlen Specter of Pennsylvania, did not cast a vote on the bill.

(Reporting by Doug Palmer; Editing by Bill Trott)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (11)
Tom95269 wrote:
Curtb
Where did those numbers come from? I would like to see the full details of this report. I’m sure as with anything you can make out the numbers to represent your side of the story. Why is it that you are so against my rights as an American??? I would much rather face a jury of 12 for defending myself family and country then not being able too!!!!

Jun 27, 2010 12:38pm EDT  --  Report as abuse
telyawot2 wrote:
screw the ‘pope’, down with the fraudulent Church of Destruction.

Jun 27, 2010 1:43pm EDT  --  Report as abuse
Vote No to the Financial Reform Bill.

There’s been a momentum shift and it’s time for Republicans to seize the moment. There’s a glimmer of hope for us as a country in not making a huge mistake with passing this Fin Reg bill. In its current form, it’s an abomination of more-failed-big-government-central-planning dictum, and attacks on industry with disturbing winner-pays-for-loser elements.

Fin Reg was agreed-up in conference, in the middle of a harried-night and early-morning. It comes up for vote in the full Senate and House this coming week. I hope the Senate duplicates its valiant efforts last week to vote down the “tax extenders” – morphed into a tax-hike – bill and votes no to Fin Reg too.

The balance of power, logic and the pendulum has changed, just enough to vote this bill down. Instead of “gettable” Republicans joining Democrats, it’s the reverse now, with some moderate Democrats joining unanimous-Republicans. With all 59 Republican Senators voting No, plus adding a few Democrats to spare, this bill won’t be filibuster-proof, or fixable in the Senate (with 60-votes required for passage).

On Saturday, Reuters reported “concern” in Senate ranks and indicated that some prior key yes votes may turn to no votes next week. That includes three “gettable” Republicans like Senators Brown (D-Mass.), Snowe (R-Maine) and Collins (R-Maine). “I was surprised and extremely disappointed to hear that $18 billion in new assessments and fees (taxes on banks and hedge funds) were added in the wee hours of the morning by the conference committee,” Massachusetts Senator Scott Brown said.

Senator Grassley (R-Iowa) was the fourth Republican yes last time and I hope this respected-veteran and Ranking Member closes ranks with Republicans to vote no on the final bill. Central-planning on finance is not good in his farm-belt and it’s not good on Wall Street either. Without finance, hedging, derivates and trading, farm prices can become whipsawed. New rules for derivatives trading in Fin Reg may tie-up farmer’s cash flow for new margin requirements, rather than allowing farmers to spend that money on planting crops. Some farm Senators have liked big-government to set minimum prices, but that is dangerous. Converting our food supply to energy – with government central planning – wasn’t a good idea either.

Hopefully, some Democrats will also see the harm in Fin Reg as they did on the tax-extenders/hike bill and vote no, including Senators Nelson (D-Neb.) and Lieberman (I-CT). Sen. Nelson is winning back stripes after his outrageous Cornhusker-kickback health care special deal. Sen. Nelson did not like big-government central planning in health care and it took that special deal to win his yes vote. I applaud the Senator for learning from that experience and not selling out for any special deal on these new bills (tax extenders and hopefully Fin Reg too). Senator Lieberman represents the hedge fund capital of the world in CT and he should not sell them down the river either. Senator Dodd, the other CT senator is retiring and trying to make amends for his years of enabling Fannie Mae, Countrywide (friends of Angelo) and more. But this is not the right way to do it. Leaving out GSE reform is just plain wrong.

Here’s what’s most onerous to me in this Fin Reg bill, and why the Senate should vote it down.

Winners pay for losers, sort of like taxpayers always having to pay for government corruption and mistakes. Like taxpayers having to bailout government pension losses too.

In the “wind down” procedure in Fin Reg (reported in the WSJ on Friday), winner big-banks – over 50 billion, and large hedge funds too – will have to pay for banks that fail, as dictated by a government czar or council. Treasury will originally fund the wind down procedure, but afterwards, Treasury will pass the entire loss onto the remaining big-banks and hedge funds. In essence, winners must pay for losers. Plus, government will cause more losers with their restrictive policies on bank profits with no prop trading and fewer alternative investments and derivatives.

It’s a similar concept in President Obama’s current proposal for a 90-billion big-bank “responsibility fee” – in really a tax on bank liabilities – to pay for perceived-losses from TARP-bailouts. Big-banks repaid TARP bailouts – some of which were forced from government on them – with nice gains to Treasury (the taxpayer). The White House also later insisted on bailing out the auto companies using TARP funds which were not voted on by Congress as being an allowable use. It’s the slippery slope of government rules problem. Auto companies and smaller banks have not fully repaid TARP, so it seems to me that charging big-banks for remaining TARP loses is like using Wall Street banks as a government slush fund. The unions – who were bailed out in the auto bailouts – keep pressing the President to “Make Wall Street Pay for Main Street” – the titled of the failed financial-transaction tax / jobs bill. Are unions going to help rule Wall Street with Fin Reg too?

Will Wall Street escape this insanity by moving to Toronto? Canada has said no at the G-8 and G-20 meetings to any taxes or attacks on their banks. In Canada, if you take a mortgage you have to repay it, you can’t just hand the keys back the bank at any whim. Their government officials used that commence-sense underpinning to their housing markets.

What’s most disturbing about this wind down procedure to pin it on the winning banks is the government trying to force the banks to pay for their errors with Fannie and Freddie too. During the harried-last moments of the conference reconciliation for Fin Reg last week, when no one was looking, conferees tried to “pencil in” another even more disturbing last minute pile-on bombshell. They wanted big-banks to also pay for the government’s mistakes, the biggest losers of them all in this crisis Fannie-Mae and Freddie-Mac (government GSEs). Thankfully, lobbyists saw this injustice and cried foul, and it was removed – for the time being. Again, with the slippery-slope tactics of politicians, bet a new law on the books and then just add to it.

This crisis was brought on by run-away home buying and exotic mortgages that people – especially the ones losing jobs – simply could not pay when the real estate market returned to more normalcy (and went down). The craze/crash was empowered by government policies (central planning with GSEs), lax-regulators (not acting) and the Federal Reserve (with easy money). Banks cooperated too, figuring home-buyers would be bailed out by either selling their home at a higher price, or with government GSEs being a lender of last resort (a moral hazard back-stop). Banks tried to reduce risk with securitization pools and swap insurance. It held, until it didn’t. Government wanted to spur home buying for the middle-class and sub-prime buyers, to fight-off “red lining.” But in today’s job market, how many of us have secure jobs for 30-years? Maybe the American dream should be sustainable growth and jobs rather than everyone owning a home?

Just like the home buying-binge crashed in 2008, the government spending binge now will probably crash in the coming years too. Pundits called it back then and now again too. So what is our government proposing to do to fix this problem? Reining in government spending and central planning and taking responsibility for its lion’s share of the past crisis in housing? No, they are casting entire blame on Wall Street and making banks pay for their share of the errors too.

Is it the same with the BP oil spill? Government’s Minerals Management Service (MMS) owned the oil and it acted like a slumlord with the BP leases. MMS sold-out public trust by lowering its regulatory-shield (already in place) to grant permits and permit updates without sufficient scrutiny. But is Washington taking its share of the blame? No, our ambulance-chasing attorney politicians just rush to attack industry, and not even help soon enough cleaning up the spill. Will they make the entire oil industry pay for the BP mess, which they helped enable? Is every public company just one catastrophic-accident away from extinction with this administration in Washington?

Americans are fed up. Populist forces are easily stoked by politicians and the villain is easy to cast as industry. But look behind the curtain and you see government’s role in the blame too. There’s been plenty of regulation and it was lax. Will more regulation be lax again, with parties and favors? There are some elements of Fin Reg that are helpful, but most are not and it will lead to bigger problems soon.

President Obama is at the G-8 and G-20 this weekend preaching American-style big-government spending and central planning to fix our global problems. The EU and others in the G-20 are not buying this American-talk anymore. American-policies including easy money, fiscal, GSE and regulatory policy helped cause this global crisis and doubling-down on American-style solutions is way too risky in the eyes of the Germans, who are now showing leadership in the eurozone and EU. The Germans know far too well about reckless government financial policies leading to worthless currency in the 1930s.

What else is in this bill disturbs me?

More regulators, more government jobs, more councils, more czars, more rules, and less bank profits. Again, when in doubt, just grow government jobs and power. The last crew failed to see Madoff even when told, failed to rein in banks with existing rules on the books – which were plenty enough – failed to raise interest rates, and failed to reform Fannie Mae and Freddie Mac. The GSEs are not reformed in this bill. Again, we are rewarding the losers with retribution and redistribution policies – the hallmark of this Democratic-controlled Congress and White House. Those policies don’t lead to solutions that work and it doesn’t lead to growth and jobs.

Fin Reg carves prop trading and some derivatives and hedge fund business out of “too big-to-fail” commercial banks (a mirage of an idea). Congress and the administration is trying to force banks to focus on lending, since banks are scared again to lend in this teetering economy, made even more so with government intrusions and attacks. Forcing loans is not a recipe for success, isn’t that the lesson from the housing crisis?

When prop trading leaves banks, isn’t it going to an even-less regulated market with a known history of regulatory inaction, even after calls for action from players in the market? See my blog on regulatory uncertainty in the prop trading marketplace and I am writing another story about this soon. Will Fin Reg lead to further scrutiny and regulatory action in the prop trading firm marketplace?

Bottom line. Fin Reg is an overreaching, over-emotional, populist-diversionary action to deflect government’s partial-blame, closing the barn door after the animals ran out from the firestorm. Yes, make some changes, but rather than focus entirely on that industry-barn door, why not also close the government-spending, central-planning and GSE barn door before that firestorm hits soon too. America is competing with China, a communist government with state-capitalism. We are feeling the heat of competition and rather than try to copy China on state-capitalism and central planning, we should focus on Chinese workers and currency becoming free. Let’s not dumb-double down, and free up our markets without government force-feeding bad banking.

Jun 27, 2010 1:45pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.