Democrats’ struggle to pass a comprehensive financial reform package despite wide Republican opposition finally paid off Thursday with approval of a sweeping bill. The hard-won legislation will restore badly needed regulation of banks, curtail Wall Street’s casino-style gambling with exotic derivatives, and protect uninformed consumers from many of the egregious credit abuses that have shaken their financial stability.
All but three Republicans voted to block the bill from being brought for a floor vote. But with the help of Maine’s Olympia Snowe and Susan Collins and Massachusett’s new senator, Scott Brown, Democrats just managed to corral the 60 votes needed to overcome another Republican filibuster.
After weeks of arguing over amendments to a bill that they never intended to support, every other Republican senator voted against letting the bill come to the floor for a final vote. As usual, they attempted to justify their obstructionism by saying that though America needed financial reform, this bill was inadequate. They claimed it would hurt consumers and businesses in need of credit, while failing to rein in the Wall Street abuses that came within a whisker of putting America, and the global economy, in a second Great Depression.
Their claims are simply not credible. Indeed, they are a deceitful and shameless excuse for more obstructionism on one the major problems now confronting the country. Many of their proposed amendments, for example, would have weakened vital provisions of the bill to rein in abuses.
More expert and less partisan analysts credit the bill with doing most of what is needed to curb the Wall Street and banking abuses that created the globe-shaking financial implosion of 2008, and the Great Recession that continues to grip the industrial world in joblessness, despair and broken dreams. Among key provisions toward reversing a long era of costly banking deregulation, it would:
* Vastly improve oversight and systemic monitoring of the entire financial system under a council of top federal financial officials led by the Treasury department. The council would oversee banks and non-bank financial institutions, including major foreign financial institutions operating in the United States and foreign subsidiaries of American financial institutions.
* Create a resolution authority under which regulators could seize and dismantle failing financial institutions by liquidating assets and requiring shareholders and creditors to take the losses rather than laden taxpayers with bailouts.
Such authority would have allowed federal officials to address the problems that ultimately brought down Bear Stearns, Lehman Brothers and American International Group, which insured Wall Street’s exotic derivatives in the United States and abroad without adequate capital — all of which precipitated the 2008 implosion.
* Stipulate tighter rules for capital, equity, accountability and liability in financial institutions. The bill also allows regulators to impose stricter standards for reserves, reporting and leverage as institutions become larger and assume greater risk.
* Create a powerful, independent consumer financial protection agency that, with the glaring exception of auto industry financing, would monitor and regulate a range of providers of consumer credit. The new agency, to be housed under the Federal Reserve, would possess both regulatory and enforcement powers — a huge boon for consumers, and a huge defeat for Republicans who tried to shelter credit providers from consumer protection laws.
* Establish the Volcker rule, which would restrict banks from investing and trading for their own accounts, a practice which led some to secretly bet against investments they backed for their clients. The bill would also restrict what banks could do with their customers’ deposits.
The legislation does not address every issue — i.e., it leaves out executive compensation rules and the federal Freddie Mac and Fannie Mae agencies. But it is achieves most of the goals of financial reform. Only those who would profit more from the status quo at the public’s risk would oppose this reform.