Republicans block Wall Street reform…again


Undaunted by the political risks, Senate Republicans hung together and again thwarted Democratic efforts to start formal debate on sweeping legislation to rein in Wall Street excesses.

For the second time in two days, lawmakers voted 57-41 to take up the popular bill, falling short of the 60 needed to move ahead with the toughest regulatory overhaul of its kind since the Great Depression of the 1930s.

President Barack Obama led Democrats in slamming Republicans for blocking legislation backed by nearly two in three Americans, amid smoldering anger at fat-cat financiers blamed for the 2008 global economic meltdown.

“It’s one thing to oppose reform, but opposing even talking about reform in front of the American people and having a legitimate debate, that’s not right. The American people deserve a honest debate on this bill,” he said during a campaign-style visit to Iowa.

“Republicans have made it clear whose side they?re on: Big banks on Wall Street, not middle-class families,” said Democratic Senate Majority Leader Harry Reid, who set the stage for a similar vote on Wednesday.

The vote came as top Goldman Sachs executives faced a barrage of questions and criticism from a key Senate committee over the investment giant’s actions in the run up to the collapse, now the subject of a fraud lawsuit.

Republicans, mindful of a potential political price to pay in November mid-term elections for blocking the bill, said they wanted to give back-room negotiations begun last year more time to forge a compromise bill.

Their lead negotiator, Republican Senator Richard Shelby said his talks with Senate Banking Committee Chairman Chris Dodd, a Democrat, had made “considerable progress” in recent days but still faced high hurdles.

Shelby said “the biggest obstacle” was the creation of an “intrusive” consumer financial protection agency reaching beyond Wall Street to “anybody that’s dealing with finance,” like automobile dealers who offer loans.

“If they will meet us halfway on that, I think we could get a bill,” said Shelby, the top Republican on Dodd’s panel.

It was unclear how long moderate Republicans would hold out as Democrats happily piled on the pressure.

“At this hour, to consider that too radical an idea is stunning to me,” said Dodd, who warned that if Republicans blocked even the start of debate, “they do so, in my view, at their political peril.”

He also said he was prepared to accept an amendment from Democratic Senator Barbara Boxer that he described as saying “no money can be used, no taxpayer money… for any bailouts at all” of big Wall Street banks.

Dodd’s’s bill would erect a mechanism for dissolving rather than bailing out financial institutions whose collapse could risk crippling the US economy, so-called “too big to fail” firms.

The legislation — which would need to be merged with the bill the House of Representatives passed in 2009 — would also establish a new agency to protect consumers from abusive lending practices.

The legislation also aims to tighten regulations on the giant market in derivatives — complex, privately traded instruments tied to the underlying value of a commodity and seen as vehicles for dangerous speculation.

Despite the delay in starting debate, no senators were predicting that the popular measure will die.

Democrats and the White House have been eager to portray Republicans as in the pocket of Wall Street, while Republicans say they want tough new rules but that the bill as currently crafted is not ready and must be changed.

“The Democrat majority forced a vote on a bill that wasn’t ready for prime-time,” said Republican Senate Minority Leader Mitch McConnell, who accused Democrats of being “less interested in fixing this bill than in some political win they think they’re scoring by not fixing the bill.”

Democratic Senator Ben Nelson joined Republicans in both votes.

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Dems ramp up pressure on Wall Street

Democrats planned to keep up the pressure on Republicans after an expected setback put the brakes on Senate consideration of financial regulations.

But their task got slightly more complicated by the defection — at least for now — of one Democrat, Sen. Ben Nelson of Nebraska.

Nelson voted with Republicans on Monday to deny Democrats the 60 votes they needed to advance the legislation to a floor debate. Democrats were expected to try again Tuesday, and yet again the day after if necessary.

In a statement, Nelson, a conservative Nebraska Democrat, said his vote reflected concerns about the bill raised by Nebraska businessmen. Before the vote, Nelson huddled with Senate Banking Committee Chairman Christopher Dodd to discuss a regulatory item of interest to one Nebraska businessman in particular — billionaire investor Warren Buffett.

The legislation would require derivatives — previously unregulated exotic securities — to be traded in open exchanges and cleared through a third party that would guarantee the contracts. An agreement Monday between Dodd and Agriculture Committee Chairwoman Blanche Lincoln, D-Ark., would exempt existing derivatives from the clearing requirements.

Lincoln’s proposal also would have exempted existing derivatives contracts from margin requirements, or collateral. Dodd succeeded in eliminating the collateral exception. That would potentially add significant costs to companies with derivatives portfolios, such as Buffett’s Berkshire Hathaway Inc.

“I was prepared to grandfather existing derivatives that have not been cleared, but I can’t say you can’t have margin requirements,” said Dodd, D-Conn., explaining his discussion with Nelson.

In his statement, Nelson asserted that “no one should view my vote today as an indication that I won’t support the bill currently being negotiated by the Banking Committee.”

At the end, Senate Majority Leader Harry Reid switched his vote to “no,” too — a maneuver that will enable him to call for a new tally as early as Tuesday. If that failed, Reid, D-Nev., envisioned another vote Wednesday.

A Tuesday vote would come on the same day a Senate investigative subcommittee planned to draw attention to a Securities and Exchange Commission lawsuit alleging fraud by the giant investment house Goldman Sachs. Scheduled witnesses include Goldman chairman and chief executive Lloyd Blankfein and Fabrice Tourre, the Goldman Sachs trader at the center of the SEC charges.

Democrats believe public pressure and the scent of a Wall Street scandal have given them the upper hand. Republicans themselves have taken up the Democrats’ Wall Street-bashing rhetoric and have voiced hope that a bill will ultimately pass.

“All of us want to deliver a reform that will tighten the screws on Wall Street,” said Senate Republican leader Mitch McConnell of Kentucky. “But we’re not going to be rushed on another massive bill based on the assurances of our friends on the other side.”

Richard Shelby, the top Republican on the Banking Committee, again expressed optimism that he and Dodd could strike a deal over remaining differences. “Most Republicans want a bill, but they want a substantive bill,” said Shelby, R-Ala.

But while Dodd continued to meet with Shelby, Reid’s plan to continue testing Republican resolve illustrated the Democrats’ lack of patience for more negotiations.

“We will not tolerate efforts to slow-walk this process or water down this reform,” Reid said.

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The hyprocrisy of Congressional pork

It’s early on a Monday in north Alabama’s “space city,” and Sen. Richard Shelby is bashing Washington at a packed town hall meeting in the cavernous U.S. Space and Rocket Center.

“We’re spending a lot of money that we don’t have,” the veteran Republican tells hundreds of business leaders, many nodding in agreement over bacon and eggs.

Lost in the moment is this irony: Shelby’s anti-spending message is being delivered in a government-built museum to which he frequently steers public money. The admiring crowd is made up of people whose livelihood depends on federal aerospace programs that drive the local economy. And the main point of Shelby’s speech is to assure them he’s fighting to stop NASA budget cuts and keep the spigot in Washington flowing.

The scene helps explain why Washington can’t control its spending. Lawmakers and their voters usually love the federal money that flows into their communities, even though they’re wary of spending in the abstract and balk at tax increases.

“I guess it’s human nature,” said Bubba Roby, a Huntsville banker who specializes in getting loans to local businesses, most of them doing work with the government. “Everybody wants to see their tax dollars come back home but they don’t want to see it going other places.”

Few politicians have played to this attitude better than Shelby and his neighboring-state colleague, Thad Cochran of Mississippi. As the top two Republicans on the Senate Appropriations Committee, the two Southerners have built their careers sending federal money back home. They stand out as big-spending dinosaurs compared with a new breed of conservatives who disdain Washington money on principle.

Plenty of Democrats bring home the bacon with similar vigor, but none has been simultaneously so critical of government spending.

Cochran, while calling Democratic budgets “dangerous,” has grabbed more than $2.5 billion in earmarks over the past three years, according to the nonpartisan Taxpayers for Common Sense. That’s more than any other member of Congress, Republican or Democrat, and it’s almost as much as the $2.8 billion that Mississippi is receiving from President Barack Obama‘s much-criticized economic stimulus package. Shelby, who is coasting to re-election in November, isn’t far behind with about $1 billion over the past three years.

It’s not just their earmarks. The lawmakers routinely wield influence to secure federal aid for struggling local farmers or to stop local program cuts such as those proposed at NASA. Shelby temporarily blocked all of Obama’s nominations recently over disputes about new federal facilities in his state and a Pentagon contract that could create 1,000 jobs in Mobile.

Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said parochial spending is a major obstacle to controlling the deficit. To make significant cuts, she said, nearly everyone will have to sacrifice something. But few will be willing to do so when some states are getting extra goodies because of insider politics.

“Before you can convince someone that their taxes are going to go up or their Medicare payments are going to go down, you have to convince them that the government is budgeting wisely,” she said.

In Huntsville last month, the mood couldn’t have been more different from last summer’s hostile town hall meetings, where voters berated lawmakers over spending. Instead, hundreds of engineers and contractors were on hand to hear what Shelby is doing to keep NASA’s lunar space initiative off the chopping block after the Obama administration proposed privatizing it to save money.

Concern about the issue, and Shelby’s influence atop the spending committee overseeing NASA, was so high that his appearance created a nearly mile-long traffic jam outside the museum. Shelby — introduced as the city’s “champion” by the mayor — got a standing ovation before he said a word.

“I’m bullish on Huntsville,” he told the crowd, blasting the Obama administration over its NASA cuts. Then, without skipping a beat, he described a “ticking time bomb” of federal debt.

The conflicting messages barely registered. Like most interest groups seeking something from Washington, the Huntsville crowd argued that while Congress spends too much overall, the local projects are vital.

“There’s things like the bridges to nowhere, but we here in north Alabama definitely think defense and space exploration is important,” said Al Reisz, a propulsion engineer who has worked on federal aerospace programs for decades.

Shelby’s spending habit extends far beyond missiles and rockets; about a hundred miles south, the senator is almost single-handedly transforming his hometown of Tuscaloosa. Huge swaths of downtown are roped off behind orange construction barriers as the government builds a new federal building and remakes the city’s streetscape.

Just down the road, the University of Alabama is building a state-of-the-art, 900,000-square-foot engineering and science complex. Its domed brick centerpiece is one of many public facilities in the state named after Shelby and his wife, Annette.

Among Cochran’s pet projects this year were $6 million to expand the Thad Cochran Research, Technology and Economic Development Park, a leafy, 272-acre campus where workers are busy erecting a new office building. He won $1.4 million to expand the runway at the tiny Golden Triangle Regional Airport in rural east Mississippi, which handles just a few commercial flights a day. Another $35 million went to the Delta Health Alliance.

When pressed, Shelby and Cochran declined to identify home-state programs they would cut. They argue that they’re simply fighting for their states’ fair share and exercising Congress’ duty to decide where money goes, not driving up overall spending levels.

Critics such as Sen. Jim DeMint, a South Carolina Republican who has sworn off earmarks, say the country can no longer afford such parochial pressures. “You can’t ask for hundreds of millions of dollars every year and then expect people to take you seriously about fixing the system,” he said. “We have to focus on getting the federal government out of things, not into things.”

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