- The Washington Times - Saturday, December 12, 2009

The House on Friday passed the most sweeping regulatory overhaul of the nation’s financial sector since the New Deal, a measure that calls for greater consumer protections and tighter government control of the industry.

The measure still faces hurdles in the Senate, which is expected to take it up in early 2010. But House Democratic leaders were able to fend off fierce opposition from Republicans and big banks, as well as a threatened mutiny within their ranks, to advance one of the Obama administration’s top domestic priorities.

“This legislation finally will protect Main Street from the worst of Wall Street,” said House Speaker Nancy Pelosi, California Democrat.

The bill passed by a vote of 223-202, with no Republican support. Only 27 Democrats voted against the measure.

“This legislation brings us another important step closer to necessary, comprehensive financial reform,” President Obama said. “I urge both houses of Congress to pass this necessary reform as quickly as possible.”

Republicans decried the bill as an egregious government expansion that would stifle markets and make it harder for individual Americans and small businesses to get loans.

“All of us recognized there are shortcomings in our financial regulatory system, but I do believe the overreach by my Democrat colleagues on this bill is really beyond imagination,” said House Minority Leader John A. Boehner, Ohio Republican. “It’s exactly what the American people don’t want.”

The legislation, which had been in the works for months, calls for an independent Consumer Financial Protection Agency designed to protect the public against abuses such as unscrupulous mortgage deals and excessive credit card rates. The administration has pushed hard for the consumer agency, which would strip consumer regulatory powers from the Federal Reserve.

Business groups, including the U.S. Chamber of Commerce and the Financial Services Roundtable, lobbied strongly against the agency.

Democratic leaders fended off a bipartisan amendment that would have nixed the proposed consumer agency and replaced it with a council of existing regulators. The vote was 223-208.

The bill also would create a Financial Services Oversight Council to monitor the financial system. The agency would identify and regulate financial firms that are so large and interconnected that their collapse would put the entire financial system at risk — a scenario that prompted Congress last fall to approve the publicly unpopular $700 billion Troubled Asset Relief Program, or TARP.

Also, the bill would give the government the authority to step in and dismantle failing nonbank financial firms that threaten the economy. Financial-sector regulators have similar authority over traditional banks but were powerless last year when Lehman Brothers investment bank and the insurance giant American International Group Inc. faced collapse.

The bill includes a bipartisan provision that gives the Government Accountability Office — Congress’ investigative arm — the power to audit the Federal Reserve, which has been criticized for not doing enough to prevent last year’s near meltdown of Wall Street.

House Majority Leader Steny H. Hoyer said the bill would “put the referees back on the field” of financial regulation.

“If a bill like this had been in place a little more than half a decade ago, how many more families would still be in their homes?” the Maryland Democrat said.

Republicans say the provision to “wind down” failing firms amounts to permanent bailout authority for the government.

“The American people have had it with borrowing and spending and bailouts,” said Rep. Mike Pence of Indiana, the chairman of the House Republican Conference. “I didn’t come to Washington, D.C., to expand the size and scope of government.”

But House Financial Services Chairman Rep. Barney Frank called the Republicans’ argument fantasy, saying that the cost for euthanizing failing companies would be paid for through an assessment on large financial companies, not the taxpayers.

“In [Republican] heads is the only place where that permanent bailout fund exists — well, maybe in their hearts — because it pains them to recognize that we have curtailed it,” said the Massachusetts Democrat, the bill’s main architect.

Democrats also brushed aside Republican claims that Americans view the measure as unwanted government meddling in the private sector.

“I disagree vehemently that the American people think that the status quo with the financial industry was a good one,” Mr. Frank said.

In a separate vote, Democratic leaders on Friday failed to revive a measure that would let bankruptcy judges rewrite mortgages to lower homeowners’ monthly payments. The measure was rejected by a 241-188 vote.

Treasury Secretary Timothy F. Geithner, who has come under fire from Republicans and even some Democrats on Capitol Hill for his handling of TARP, applauded the House for passing the overhaul measure, although he hinted he’s not pleased with all aspects of the legislation.

“The administration looks forward to continuing its close work with Congress to strengthen key provisions as the legislation moves toward final passage,” he said.

Big banks were less kind, saying the authority given to the proposed consumer financial regulator is unprecedented and could lead to potential instability in the financial sector.

“The House-passed bill contains provisions that have nothing to do with needed reform and which could make it very difficult for banks to effectively serve their consumer and business customers,” said Edward L. Yingling, president and chief executive of the American Bankers Association.

But consumer groups, while pushing for even stronger regulation, said the new consumer agency would do much to protect the public from abusive lending and banking practices.

The status quo “has meant untold billions (of revenue dollars) for a very few institutions and individuals, and they are fighting to preserve it,” said Heather Booth, director of Americans for Financial Reform. “We cannot let them get away with it.”

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