WASHINGTON — Senate Republicans on Monday blocked the start of formal debate on legislation to overhaul the nation's financial regulatory system in a test vote likely to intensify the political battle over who's too cozy with Wall Street, but that's unlikely to derail the legislation.
The 57 to 41 vote fell 3 votes short of the 60 needed to begin consideration of a bill to overhaul the way financial institutions are regulated in the U.S. in the wake of the worst financial crisis since the Great Depression.
After the vote, President Barack Obama said in a statement that he was "deeply disappointed that Senate Republicans voted in a block against allowing a public debate on Wall Street reform to begin. … the American people can't afford that." Obama urged the senators "to get back to work and put the interests of the country ahead of party."
The measure is hardly doomed, though, since its fate rests largely on the outcome of compromise talks among top Senate Democrats and Republicans.
The current legislation, written largely by Democrats, is tougher than what passed the House of Representatives in December. It would force big banks to spin off their divisions that trade in exotic financial instruments called derivatives and would prohibit them from proprietary trading for their own account if they trade on behalf of clients.
Consumers would gain a tough cop on the beat to police mortgages, credit cards and other forms of consumer credit through a new Consumer Financial Protection Agency. There also would be a new process allowing the government quickly to dissolve troubled financial institutions that pose a risk to the broader economy.
Republicans, though, are balking. They want more assurances that taxpayers wouldn't be liable for the failures of large institutions.
Though the bill has no provisions for bailouts, GOP leaders insist there are enough loopholes to allow the government to do just that, even though there are several steps in the overhaul bill intended to right a troubled firm before it reaches a toxic state.
Monday's vote promises to turn up the political volume even louder.
Leaders of both parties have said for days that they're very close to a deal, and Banking Committee Chairman Sen. Christopher Dodd, D-Conn., and ranking Republican Richard Shelby of Alabama, have remained cordial through hours of private talks.
At the same time, public rhetoric has become more polarized, and both parties saw the Monday vote as a headline-grabber, a way to give themselves fresh political ammunition.
Democrats eagerly painted Republicans as too close to the financial interests that triggered the 2008 economic collapse, while the GOP insisted it's protecting taxpayers from another costly industry bailout.
"Voting to start debate on the Wall Street reform is as simple as right and wrong," said Senate Majority Leader Harry Reid, D-Nev. "Democrats stand for protecting hard working Americans' life savings from Wall Street's gambling."
Senate Republican leader Mitch McConnell, R-Ky., countered that Democrats are in too much of a hurry.
"My constituents have a fairly short list of demands. They don't want to be on the hook for recklessness on Wall Street. And they don't think any financial institution should be considered too big to fail," he said. "But if the Senate votes to get onto the Dodd bill tonight, there's good reason to believe we will never truly solve these core problems."
The next step is likely to be a bipartisan deal. If Dodd and Shelby agree _which could happen at any time — the Senate probably would take another vote on whether to open the formal debate, a vote that then would be expected to win strong GOP support.
Dodd and Shelby then would face a new set of obstacles. Senate rules allow for unlimited debate and amendment. While the senators would try to get an agreement to limit consideration of amendments that could change the bill, they're likely to meet resistance, as almost every aspect of the complex measure is likely to be challenged, The process is expected to take most of May.
Sen. Russ Feingold, D-Wis., who backed cutting off debate Monday, also had a warning: "I will not support any predetermined amending process, or as one senator described it, a 'template' for floor consideration that effectively puts the fix in for some negotiated final product."
Wall Street also is expected to push hard. Celebrated investor Warren Buffett has been lobbying to weaken the derivatives language to ensure that it doesn't apply to contracts already in force, but rather only new contracts.
Dodd, Shelby and Agriculture Committee Chairman Blanche Lincoln, D-Ark., came to agreement Sunday night on how to fit her panel's derivatives bill into the broader legislation to overhaul financial regulation.
The three agreed to language that would force banks to spin off their lucrative but risky derivatives trading, potentially reshaping the financial world if those terms survive.
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