Just over a year after President Obama unveiled his proposal for financial reform and well over two years since the collapse of Bear Stearns, Congress is poised to pass a sweeping overhaul of the way Wall Street is regulated.
After 20 hours of nearly continuous negotiations, House and Senate conferees, led by Sen. Chris Dodd and Rep. Barney Frank, came to an agreement on the financial reform overhaul. Passed on a party-line vote at 5:39 a.m. Friday morning, the proceedings were shown live on C-SPAN. (For those unable to devote all night to watching the proceedings, CNBC collected the best one-liners in under a minute.)
President Obama heralded the agreement before departing for the G8 and G20 meetings in Canada. “The reforms making their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we’re still recovering from,” he said in a statement.
Rep. Frank was similarly excited about completing the bill, telling Bloomberg TV: “We have a tougher bill than I was hoping to get … We’ve done a great deal.” A “teary-eyed“ Sen. Dodd echoed those sentiments to The Washington Post: “It’s a great moment. I’m proud to have been here … we believe we’ve done something that has been needed for a long time.”
But what has the response been among those not actively involved in passing a bill that’s named after them? Well, it’s been mixed.
Not surprisingly, many Republicans and opponents of the bill where not too pleased about the compromise. Sen. Judd Gregg, a Republican member of the conference committee, told McClatchy: “This is more of the global agenda of the left to take control of the marketplace and promote their social justice agenda.”
Prior to passage, Gregg told CNBC:
This bill as it’s presently written is going to create a massive contraction in credit, I believe, in the financial markets and on Main Street over the next year to year and a half as people try to adjust to the new standards that are put in this bill.
Similarly, Sen. Bob Corker, another Republican member of the Conference Committee, had harsh words about the bill on CNBC:
It’s an overreach in a lot of areas, in ways that are not essential or not related. While some of the core areas that are very important have gone completely untouched, we did not deal with Fannie and Freddie, the underwriting provisions, should have been much stronger.
Wall Street was upbeat following the conclusion of the conference this morning. The AP reported that bank stocks were up sharply after the announcement:
Financial companies have outdistanced the rest of the stock market Friday after lawmakers agreed on a banking overhaul bill that is less strict than investors feared. Bank of America Corp. rose more than 2 percent, while Goldman Sachs Group Inc. and JPMorgan Chase & Co. each rose more than 3 percent.
But even on the left side of the aisle, not everyone is pleased with the direction that this bill has taken. Simon Johnson, MIT professor and former chief economist of the World Bank, is unambiguous in his assessment that financial reform did not go far enough.
Yet, at the end of the day, essentially nothing in the entire legislation will reduce the potential for massive system risk as we head into the next credit cycle.
This administration and this Congress had ample opportunity to confront this problem and at least wrestle hard with it. Some senators and representatives worked long and hard on precisely this issue. But the White House punted, repeatedly, and elected instead for a veneer of superficial tweaking.
But while it’s too late for drastic changes to the legislation, the contours of financial reform are pretty well set any many commentators are pleased with the results. Tim Fernholz at The American Prospect is cautiously optimistic:
The bill appears to largely resemble the Senate version, with some additional loopholes and some improvements — particularly on Volcker — thanks to the conference process. While complaints that Dodd-Frank doesn’t “reshape” Wall Street and leaves too many good reforms on the table aren’t inaccurate — and they provide an agenda for the future — the bill itself deserves to be held to a different standard: Will it fix serious holes in financial regulation and empower regulators? Will it limit risk and reduce bank profit? Does it include landmark provisions like a new consumer regulator and derivatives reform? Does it seriously diminish the potential for future bailouts? The answer to all of those questions is “yes,” and that makes this legislation quite an accomplishment.
Of course the 2,000 page Dodd-Frank Act is not on the books yet. The compromised language still has to be repassed by the House and Senate and signed by President Obama. But if all goes as planned the bill will become law before the July 4 holiday, delivering a substantial legislative victory for the Obama administration.
At Swampland, Adam Sorenson writes:
House and Senate negotiators … produced a product that (likely) has the support to make it to the president’s desk by July 4 and (certainly) has the potency to change the face of the U.S. financial sector.
Assuming final passage, the 111th Congress may well go down among the most prolific sessions in history.