May 5 2010
WASHINGTON — Spurred by deep election-year voter anger, the US Senate voted Wednesday to forbid government-funded bailouts of big banks like those blamed for the global economic meltdown of 2008.
In their first substantive vote on the most sweeping finance industry overhaul since the Great Depression of the 1930s, the lawmakers agreed by a 96-1 margin to an amendment banning future taxpayer rescues.
The measure, crafted by Democratic Senator Barbara Boxer, aimed to prohibit vastly unpopular bailouts of so-called “too big to fail” firms that might have won government help because their collapse would cripple the economy.
Senators, who were expected to take at least two weeks to pass the overall legislation, also voted 93-5 to approve a compromise plan for “orderly liquidation” to take apart failing financial giants.
Democratic Senator Chris Dodd, chairman of the senate banking committee, announced earlier that he and the panel’s top Republican, Senator Richard Shelby, had reached a deal on that provision after months of talks.
Dodd said he had agreed to drop plans to create a 50-billion-dollar fund, drawn from Wall Street, to cover possible liquidation expenses — a proposal opposed by President Barack Obama’s administration.
The fund, which some Republicans had wrongly painted as a “bailout” fund, would be replaced by liquidating the troubled company or assessing a fee on other major financial firms.
“Because whether they pay in advance or after the fact, these costs will be paid by Wall Street and not taxpayers, I have no objection to dropping that provision,” Dodd said in a statement.
The plan puts the Federal Deposit Insurance Corporation, an independent agency, in charge of “orderly liquidation” of a big failing firm; dictates that shareholders and unsecured creditors will bear losses; and removes top executives.
Regulators will also have the power to break up a firm if it poses a serious threat to US financial stability.
US Treasury Secretary Timothy Geither praised the Senate vote, saying: “The strong bipartisan support for this provision demonstrates the growing momentum for passing comprehensive financial reform.”
The accord between Dodd and Shelby removed some obstacles to the legislation, Obama’s top domestic priority, but the two parties were expected to feud on other key provisions.
Both sides have said they want to end government bailouts to such banks — like the 700-billion-dollar Troubled Asset Relief Program approved when the financial industry seemed poised to collapse in late 2008.
The two sides were expected to feud over the creation of a new agency to protect consumers from shady finance practices and over how tightly to regulate derivatives, complex financial instruments blamed for stoking speculative fires but widely used by many companies to cope with volatile commodity prices.
Recent polls have found that the US public overwhelmingly favors tough new rules on Wall Street, leading Democrats to paint Republicans as being in the pocket of big banks.
In a sign of the partisan rancor, Democratic Senate Majority Leader Harry Reid charged at a press conference that “Republicans are having difficulty determining how they’re going to continue making love to Wall Street. Source