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Financial Overhaul Wins Final Approval in House

Resource type: News

The New York Times | [ View Original Source (opens in new window) ]

By David Herszenhorn.  WASHINGTON — The House on Wednesday adopted legislation to revamp the nation’s financial regulatory system, voting mostly along party lines as partisan acrimony impeded cooperation even on the shared goals of averting future economic crises.

The vote in the House was 237 to 192, with all but three Republicans standing in opposition to a measure that President Obama in his State of the Union speech said embodied one of the highest priorities of his administration: “serious financial reform.”

“If this bill were to fail,” the House speaker, Nancy Pelosi, said, “We would be preserving a status quo that has left our economy in a wretched state.”

To symbolize the importance of the bill, Ms. Pelosi personally gaveled the vote to a close, with 234 Democrats joined by three Republicans in favor; and 173 Republicans and 19 Democrats opposed.

The Senate is also expected to approve the measure, but the majority leader, Harry Reid of Nevada, said that he would not be able to schedule a vote until after Congress returned from a weeklong recess for the Fourth of July.

Democrats in the Senate need the support of a few Republicans to complete the financial regulatory overhaul and one of those who supported the Senate version of the bill, Scott Brown of Massachusetts, said he wanted to spend the recess reviewing the final language.

The bill gives government regulators the authority to liquidate failing financial companies by breaking them apart, selling assets and forcing creditors and shareholders to take losses so that taxpayers do not pay the bill.

The legislation also vastly expands the regulatory powers of the Federal Reserve and establishes a systemic risk council of high-ranking officials, led by the Treasury secretary, to detect potential threats to the overall financial system. It creates a powerful new consumer financial protection bureau and widens the purview of the Securities and Exchange Commission to broaden regulation of hedge funds and credit rating agencies.

The measure restricts the ability of banks to invest and trade for their own accounts — a provision known as the Volcker Rule, for its proponent, the former Fed chairman, Paul A. Volcker — and creates a new regulatory framework for derivatives, the complex financial instruments that were at the heart of the 2008 crisis.

The bill was shepherded through the House by Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, who spent more than a year drafting it even as Congress was mostly focused on health care.

The mostly party-line House vote stood in contrast to the bipartisan approval of the $700 billion financial system rescue in October 2008, when 172 Democrats and 91 Republicans joined in support of the bill requested by President George W. Bush.

Ms. Pelosi recalled that effort on Wednesday in her speech urging passage of the regulatory overhaul.

House Republicans complained that the Democrats’ legislation would extend the reach of government regulators too far, that it would encourage rather than prevent future bailouts, and that it would not address the causes of the financial crisis because it did not deal with the government-controlled mortgage giants, Fannie Mae and Freddie Mac.

“When you look at this legislation it is proof positive again that this majority just doesn’t get it,” said Representative Mike Pence, Republican of Indiana. “Under the guise of financial reform, Democrats today are pushing another bill that will kill jobs, raise taxes and make bailouts permanent.”

But Democrats said that Republicans had tried and failed to prevent the government from responding to the worst financial downturn since the Great Depression and had put their desire to obstruct Mr. Obama’s agenda ahead of the nation’s best interests.

Representative Chris Van Hollen of Maryland, a member of the Democratic leadership, said the bill would establish safeguards against future crises. “Never again will we allow the American economy to be held hostage to bad decisions made by Wall Street and the financial sector,” Mr. Van Hollen said. “Unfortunately our colleagues on the other side of the aisle haven’t gotten this message.”

Representative Paul E. Kanjorski, Democrat of Pennsylvania, expressed disbelief at the Republican opposition. “To now make the argument that we need do nothing,” he said, “is pure ludicrousness.”

In speech after speech, Republicans attacked the bill as a threat to free markets and to economic recovery and job creation.

“This legislation is a clear attack on capital formation in America,” said Representative Eric Cantor of Virginia, the Republican whip. “It purports to prevent the next financial crisis, but it does so by vastly expanding the power of the same regulators who failed to prevent the last one.”

Mr. Cantor added, “It’s the notion that you can solve a problem by reflexively piling vast new layers of new bureaucracy and regulatory costs and taxes on it.”

Mr. Obama had wanted the bill completed and on his desk by Independence Day. The delayed vote in the Senate represented a small victory for Senate Republicans who were working hard to run down the clock and deny Democrats a chance to notch legislative accomplishments between now and the midterm elections in November.

But the Democrats also see political advantage in the Republican opposition, and Mr. Obama, at a town hall meeting in Wisconsin on Wednesday, seized on comments by the House Republican leader, Representative John A. Boehner of Ohio, in which he said of the financial regulation bill, “This is killing an ant with a nuclear weapon.”

Mr. Obama said, “You would think this would be a bipartisan issue.” He added: “He compared the financial crisis to an ant. This is the same financial crisis that led to the loss of nearly eight million jobs, the same crisis that cost people their homes, their life savings.”

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