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Financial reform passes House but Senate delays action

By ANDY SULLIVAN and KEVIN DRAWBAUGH
July 1, 2010

House Financial Services Committee Chairman Barney Frank (AP)

The U.S. House of Representatives on Wednesday approved a landmark overhaul of financial regulations but the Senate put off action until mid-July, delaying a final victory for President Barack Obama.

Still, the 237 to 192 vote in the House marked a win for Obama and his fellow Democrats, who have made the most sweeping rewrite of Wall Street rules since the 1930s a top priority in the wake of the 2007-2009 financial crisis.

“It has been a long fight against the defenders of the status quo on Wall Street, but today’s vote is a victory for every American who has been affected by the recklessness and irresponsibility that led to the loss of millions of jobs and trillions in wealth,” Obama said in a statement.

Analysts say Obama is all but certain to get the measure on his desk eventually, but Democrats’ hopes of sending him a bill to sign into law by the July 4 Independence Day holiday were dashed.

The death of Democratic Senator Robert Byrd and cold feet among Republican allies has complicated efforts to round up the votes needed in the Senate. A week-long break following the July 4 holiday means the Senate won’t act until the week of July 12, at the earliest.

The bill would impose tighter regulations on financial firms and reduce their profits. It would boost consumer protections, force banks to reduce risky trading and investing activities and set up a new government process for liquidating troubled financial firms.

With congressional elections approaching in November, Democrats have ridden a wave of public disgust at an industry that has awarded itself fat paydays while the rest of the country struggles with high unemployment.

Wall Street and Republicans have tried to delay the bill or lessen its reach, but the measure has actually gotten tougher during its year-long journey through Congress.

Republicans say the bill would hurt the economy by burdening businesses with a thicket of new regulations. They also point out that it ducks the question of how to handle troubled mortgage finance giants Fannie Mae and Freddie Mac, which Democrats plan to tackle next year.

Fannie Mae and Freddie Mac, which own or guarantee half of all U.S. mortgages, have received a total of about $145 billion in taxpayer bailouts since being seized by the government in September 2008. Their regulator has said he does not know how much more taxpayer support they will need.

“All this bill before us does is perpetuate the same dumb regulation that got us into this financial pickle in the first place,” said Republican Representative Jeb Hensarling.

Democrats have seized the opportunity to link their political foes with an unpopular industry.

Obama earlier on Wednesday accused Republicans of being out of touch with the American people for opposing reforms. Others echoed his line of attack on the House floor.

“Republicans have sided with big Wall Street banks at every opportunity,” said Democratic Representative Luis Guitierrez. “If it helps Wall Street banks, they favor it, but if it helps Main Street and regular Americans, they won’t vote for it.”

SCRAMBLING IN THE SENATE

As Democrats marched to victory in the House, their colleagues in the Senate scrambled for votes.

Byrd’s death left Democrats one vote shy of the 60 needed to overcome procedural hurdles in the 100-seat chamber, and Democrats have yet to nail down support from Republican moderates whose votes will be needed to advance the bill.

Those Republicans — Susan Collins, Olympia Snowe and Scott Brown — had voted for an earlier version, but they objected to a $17.9 billion tax on large financial institutions that was added last week to cover the bill’s costs.

Democrats stripped out the tax in a last-minute negotiating session on Tuesday to address their concern. All three moderates said they were still studying the final bill before deciding how to vote.

Collins said she was inclined to support it, while Snowe said it was a “possibility” that she could vote for it.

“We’re just trying to work it out and I am sure we will be able to, but it’s important to get it right,” Snowe said.

Brown, who won significant concessions earlier in the process, also declined to say how he would vote.

“It’s morphed into something different than it began with and I think it’s appropriate to read it,” he said of the 2,000-plus page bill.

Democrats could also pick up needed support from their own side of the aisle. Maria Cantwell, one of two Democrats who voted against the bill earlier, said she might reconsider.

Democrat Christopher Dodd, the bill’s chief advocate in the Senate, said lawmakers should not vote against it just because they don’t like one or two elements.

“No one’s going to get everything they want in this bill, I certainly didn’t,” he said. “I’ve done everything I know how to do to accommodate my colleagues to make this as fair, as balanced, as thoughtful as I possibly could.”

Representative Barney Frank, the Democrat who has overseen the bill in the House, said he would try to revive the tax on banks in separate legislation. Congress also could pass a bill to fix technical mistakes in the legislative language, an aide to Frank said.

Even after Obama signs the wide-ranging reform bill into law, its final impact will remain unclear for several years while regulators work to put it into effect.

Copyright © 2010 Reuters Ltd.

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