The crucial effort to pass a financial reform bill that would tighten banking and consumer protection regulations and help thwart a repeat of the disastrous 2008 fiscal crisis -- a crisis that threw the American economy into deep recession and almost sank the global economy in a devastating repeat of the Great Depression of the 1930s -- crossed the crucial Senate threshold on Thursday.
By a 59-39 vote, including the votes of four Republicans, the bill's advocates managed by just a single vote to evade another stalemating Republican filibuster, which would have been triggered by 40 votes opposing the measure. With passage of the bill, work may now begin to reconcile the reform bill with the version the House passed in December. The final bill could be passed into law by Memorial Day.
Regrettably, Tennessee senators Bob Corker and Lamar Alexander voted against the bill.
Sen. Alexander's vote was predictable. Following the Republican election year strategy of opposing nearly every bill that Democrats and the Obama administration have sought, Mr. Alexander has mainly taken a bipartisan vote just on environmental matters. Sen. Corker's opposition is more surprising. After working extremely closely with Sen. Chris Dodd, the Senate's finance committee chairman, to produce a bill that he said was "down to the five-yard line," he chose in the end to vote against the bill.
The legislation isn't perfect -- no bill is -- but Republican criticism that it is too broad and too invasive is laughable political hyperbole. Though a landmark reform, it is, if anything, too weak in some critical areas.
It allows exceptions, for example, that credible critics fear could undermine regulations restricting banks' trading in derivatives and credit default swaps, the practice that induced the economic crisis. It also leaves big banks wiggle room on new strictures on proprietary trading, though the reform would generally bar banks from using their customers' money to play the market.
That flex violates the standard known as the Volcker rule. Former Federal Reserve Chairman Paul Volcker has strongly advocated stricter barriers on banks using customers' money for market trading, mainly to avoid the need for taxpayer bailouts of banks deemed "too big to fail" because of the economic damage their failure could generate.
Still, the bill amounts to the strongest and most comprehensive overhaul of banking and financial markets since the Great Depression. It also rightly reverses some of the excessive deregulation that occurred with Congress' repeal in 1999 of the Glass-Steagall Act. That act, passed in 1933 in the wake of the Great Depression, had barred banking, insurance and securities companies from consolidating or acting as a company that combined any of these three functions. A fine argument still can be made for re-constituting the Glass-Steagall Act in its entirety.
The commercial banking industry, however, has grown far too fat and greedy on risky market trading since 1999, and its resistance and intensive lobbying against reform is what has made the current financial reform effort so hard to achieve. Indeed, virtually all the Republican claims that the new Senate bill is too invasive in the private market owe to the banks' lobbying against the reform bill.
The GOP propaganda against a "government takeover" of the banking industry aside, the bill offers many useful and desperately needed rules to insulate the general economy and innocent consumers from the risks of the banking industry's casino market trading. It would force big banks to spin off some of their lucrative trading businesses into separate subsidiaries, and it would require registry and full market transparency in most trading in derivatives and swaps.
It also would establish a powerful Bureau of Consumer Protection, housed in the Federal Reserve but independently financed and with its own regulators, to curb financial abuse of consumers. Though the new bureau would focus intensely on abusive mortgage practices, it would have regulatory responsibility in virtually every area of consumer lending, from credit card companies to pay-day lenders.
Details remain to be worked out for the final House-Senate version of the bill. One potent issue will center on the House bill's requirement, not in the Senate bill, for a $150 billion bailout contingency fund to be financed by new banking fees. But overall, the reform bill is largely on target. It should be passed, the sooner the better.