WASHINGTON – Nearly two years after a financial crisis triggered the worst recession since the Great Depression, the Senate approved bold and controversial legislation aimed at preventing a repeat – and set the stage for a showdown over the issue in this fall’s midterm elections.
The 60-39 vote Thursday was a major victory for President Barack Obama and Democratic leaders and marked the second landmark overhaul – the first was health care reform – that the administration has pushed through Congress this year.
Obama is expected to sign the financial reform bill next week in an elaborate ceremony touting it as evidence that Democrats are standing up for Main Street against the powerful financial industry and its Republican allies.
Supporters said it gives the government desperately needed tools to avoid future corporate bailouts and prevent financial companies from gouging consumers on mortgages and other financial products.
“Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes,” Obama said. “There will be no more taxpayer-funded bailouts, period.”
But the sweeping, 2,300-page legislation carries risks for Democrats, who hope to build this fall’s midterm election campaign on their tough crackdown on Wall Street.
Just as with health care reform, Republicans have portrayed the financial overhaul as a dangerous intrusion of big government into the lives of average Americans.
Rather than ending bailouts, Republican opponents charge, the government’s new power to dismantle large financial companies on the brink of collapse would lead to more bailouts at taxpayer expense.
Even before the bill passed Thursday, House Minority Leader John Boehner, R-Ohio, called for its repeal. He has compared the legislation to “killing an ant with a nuclear weapon.”
“I think it’s going to make credit harder for the American people to get, clearly harder for businesses to get,” Boehner said.
He also warned that the bill “institutionalizes” the notion that some financial institutions are too big to fail, “and gives far too much authority to federal bureaucrats to bail out virtually any company in America they decide ought to be bailed out.”
Republicans also criticized the legislation for not addressing the future of mortgage finance giants Fannie Mae and Freddie Mac, which were seized by the government in 2008.
Supporters had hoped to get strong bipartisan support, but Wall Street and much of the financial industry lobbied heavily against the legislation. And as they did in the House last month, nearly all Republicans opposed the bill.
Only three Republicans – Scott Brown of Massachusetts and Susan Collins and Olympia Snowe, both of Maine – voted for it. They provided the pivotal votes needed for Senate Democratic leaders to reach the 60 they needed to cut off debate in a key procedural vote earlier Thursday, overcoming a threatened Republican-led filibuster.
One Democrat, Sen. Russ Feingold of Wisconsin, voted against the legislation, saying it wasn’t tough enough on the financial industry.
The legislation will reverse three decades of deregulation throughout the financial system, a government withdrawal that many experts believe set the stage for the financial crisis in 2008.
To prevent a repeat, the bill enacts the most sweeping clampdown on the industry since the creation of the Securities and Exchange Commission and the Federal Deposit Insurance Corp. in the 1930s.
The bill creates a bureau within the Federal Reserve to protect consumers in the financial marketplace, establishes a council of regulators to monitor the financial system for major risks, imposes tough regulations on complex financial derivatives, grants shareholders a nonbinding vote on executive compensation and gives the government authority to seize and dismantle teetering firms whose failure would pose a danger to the economy.
To help pay for the $19 billion cost of the legislation’s expanded regulation over the next 10 years, the legislation immediately ends any additional expenditures from the controversial $700 billion Troubled Asset Relief Program bailout fund. TARP was to expire in October.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the legislation can’t fix the fallout from the last crisis but aims to give regulators the ability to prevent another one.
“I regret I cannot give you your job back, put retirement money back in your account,” he said. “What I can do is see to it that we never, ever again have to go through what this nation has been through.”