The sweeping financial reform bill ran into a roadblock Wednesday as liberal Democrats said it did not go far enough to rein in Wall Street and Republicans largely abandoned efforts to reshape the bill while increasingly condemning it as the latest “government takeover” of industry.
By a 57-42 vote, the Senate failed to cut off a four-week debate on the mammoth 1,400-page measure as senators from both the left and right continued to press hundreds of amendments that would alter the critical channels that provide credit to American consumers and businesses.
Republicans sought a major redirection of the bill aimed at acknowledging the role that government, as well as Wall Street, played in causing the 2008 financial crisis, while liberals sought an even harsher regulatory crackdown on big banks and Wall Street firms.
Two liberal Democrats, Sen. Maria Cantwell of Washington and Sen. Russ Feingold of Wisconsin, voted with all but two Republicans to continue debate on the bill, defeating plans by the Senate leadership to quickly finish work on the bill this week.
Two moderate Republicans from Maine, Sen. Olympia J. Snowe and Sen. Susan Collins, voted to proceed to a vote. Their amendments modifying the bill were accepted last week as Democratic leaders earnestly courted their support.
A third Democrat, Sen. Arlen Specter of Pennsylvania, who was defeated in his Democratic primary Tuesday, was not present for the vote. Senate Majority Leader Harry Reid, Nevada Democrat, switched his vote at the last minute so he could call up the bill for another vote Thursday.
While Democratic leaders succeeded in attracting a modicum of Republican support after weeks of prodding and debate, their difficulties reining in an ambitious regulatory drive by liberal senators broke into the open on the Senate floor when angry Democrats complained about not being allowed to offer their amendments.
After Wednesday’s unsuccessful vote, Ms. Cantwell took to the Senate floor to condemn the bill for not going far enough to regulate the vast and highly complex market for derivatives securities, most of which would be subject to regulation and exchange trading for the first time under the bill.
“This issue is a fundamental one,” she said, noting that the bill would still allow some derivatives to be traded off-exchange in “dark pools” - a loophole she contended that the industry would quickly use to funnel contracts.
“We won’t have reform if we don’t have exchange clearing. And if we don’t do that then I don’t know what we’re doing out here,” she said.
She acknowledged that the Treasury Department and others say her amendment goes too far.
Besides demanding a vote on the issue, Ms. Cantwell said she also would like to be able to vote on other amendments liberals are seeking, including one to reinstate the Depression-era wall between the banking and securities businesses that was repealed in the 1990s.
Like other protesting Democrats, Ms. Cantwell contended that legislation in the 1990s extensively deregulating the financial industry - including providing an explicit exemption from regulation for the derivatives market - created the conditions that led to the 2008 crisis.
Since those laws were passed, the derivatives market exploded from about $100 billion in 1999 to more than $600 trillion today. One kind of derivative, a kind of credit insurance known as credit default swaps, played a particularly important role in bringing down Lehman Brothers, American International Group and other giant firms during the crisis.
“The test for this legislation is a simple one - whether it will prevent another financial crisis,” said Mr. Feingold, explaining his dissenting vote. “As the bill stands, it fails that test.”
While some liberals balked at the drive to quickly complete action on what they consider an insufficiently strong regulatory measure, Democratic leaders sought to blame Republicans, charging that the GOP was trying to block any reform of Wall Street.
Sen. Richard J. Durbin, Illinois Democrat and assistant Democratic leader, said the leadership was working behind the scenes to mollify Ms. Cantwell and Mr. Feingold, but he put the burden on Republicans to provide enough votes to pass the bill.
“We need one more Republican senator,” he said, warning that Republicans were tarring themselves by voting against “Wall Street reform.” He vowed to keep bringing up the bill for a vote each day until one more Republican senator relents.
“A number of Republicans may have second thoughts. They won’t want to be on he wrong side of history again,” he said. “We’re not going to quit on this. We need to get this done. It’s time to bring this to a close.”
Republicans were increasingly critical of the bill as major amendments they proposed targeting reform of Fannie Mae and Freddie Mac and a more tailored approach to consumer regulation, among others, were rejected during Senate deliberations.
Sen. Judd Gregg, a New Hampshire Republican who sought to negotiate rules on derivatives with Democratic leaders earlier this year in hopes of coming up with bipartisan legislation, was the latest to come out gunning for the bill.
“This bill has gone in the wrong direction. The longer it stays on the floor, the worse it gets,” he told MSNBC. “I don’t plan to vote for the bill. I would like to have seen it improved. … I’ve offered a lot of amendments to try to do that. Unfortunately, they’ve been defeated.”
Sen. Bob Corker, a Tennessee Republican who also spent months trying to help write a compromise bill, said he’s also given up and will vote against the bill unless something “miraculous” happens in the next few days.
Senate Banking, Housing and Urban Affairs Committee Chairman Christopher J. Dodd, Connecticut Democrat, responded to a principal Republican objection that Democrats did not include reforms of Fannie Mae and Freddie Mac in the bill.
“It’s too complex for this bill,” he said, noting that Congress can’t simply dismantle Fannie and Freddie without establishing first an alternative mortgage financing system, because the mortgage giants provide financing for most prime mortgages in the United States.
“I don’t know how we fix it at this point,” he said. “It would be an impossible task for us to take that up.”
Mr. Dodd, who retires at the end of the year, held up what he acknowledged was the “fairly anemic” hope that President Obama and Congress next year will put high priority on reforming the housing finance system.
The bill would require the administration to come up with options to reform Fannie Mae and Freddie Mac, but does not require any action on the proposals.