After losing critical votes on financial reform legislation, Democrats scrambled late Tuesday to win over a handful of Republican votes by taking the unusual step of re-opening a conference committee meeting and changing how the costs of the bill will be paid.
When House and Senate leaders approved a compromise bill late last week, Democrats confidently predicted they would be able to find 60 votes in the Senate to move the debate forward and pass the legislation by the July 4th recess. But pivotal support was lost in the past 48 hours with the death of Sen. Robert Byrd, D-W.Va., and after Sen. Scott Brown, R-Mass., withdrew his potential backing of the bill.
Democrats originally thought they had Brown’s support, along with that of other Republicans from New England. But a $19 billion tax on banks and hedge funds to pay for the bill sparked last-minute opposition.
“There was a reaction to the pay-for proposal” which would have levied assessments on banks with more than $50 billion in assets and hedge funds with more than $10 billion in assets, Sen. Chris Dodd, D-Conn., told the committee when it reconvened around 5 p.m. ET this afternoon. “We’ve tried to come up with an alternative idea to meet those concerns.”
Under the latest adjustment, legislators eliminated the tax on banks and offset the bill’s costs instead by ending the TARP (Troubled Assets Relief Program) immediately.
That effectively will shift more than $10 billion from TARP via accounting mechanisms to pay for financial reform. Other funds to pay for the costs of the overhaul would come from increasing premiums that commercial banks pay to the FDIC to insure bank deposits.
Following the committee’s vote to adjust the bill, reporters asked Dodd, a leading architect of the bill and the chair of the banking committee, if he now had the support of 60 senators. “We hope so,” he said.
The Senate may not vote on the measure before an upcoming break, Dodd told reporters, but “the leaders told me this would be the first priority after the July 4th break.”
Some of the financial reform bill’s principal objectives would allow the government to liquidate financial firms endangering the system without requiring taxpayer funds; creating a new consumer protection agency under the auspices of the Fed; forming a council of regulators to oversee risks to the system; and trying to limit the kinds of risks banks and other firms can take with trades and swaps.
While the TARP program — often thought of as the bill that provided a lifeline to the banking industry during the 2008 financial meltdown – would end earlier, it would mean that the government would continue to fund “basically what has already been authorized under the TARP,” Dodd said.
Under the law, the TARP rescue fund was set to expire this fall when it comes to any new spending or commitments. Since it was enacted near the end of 2008, the Treasury Department has used nearly $400 billion from the $700 billion originally authorized by Congress in 2008. About half of that money has been paid back.
Republicans reacted angrily to the idea of using TARP money, calling it “accounting chicanery.”
“This ranks right up there at the top of the list for pure deception,” said Sen. Judd Gregg, R-N.H. “The law is pretty clear. The law said that the TARP funds will go to reduce the debt and deficit as they are paid back. …You’re spending it. You’re not using it to reduce the deficit. What an affront that is to the American people.”
“You are all wrapped around the axle right now trying to solve this problem,” Sen. Bob Corker, R-Tenn., said, referring to the scramble for votes.
Dodd, Rep. Barney Frank, D-Mass., the chair of the House Financial Services Committee, and the Obama administration have had trouble rounding up some essential votes among their own members as well.
Sen. Russ Feingold, D-Wisc., said today he does not plan to vote for the bill, contending that it is not tough enough to end the idea of too-big-to-fail firms or prevent another crisis. His colleague, Sen. Maria Cantwell, D-Wash., has not committed to supporting it yet either.
For their part, Republicans attacked the bill again, arguing it would not fundamentally alter the behavior of Wall Street or big banks.
“The fact is Wall Street’s going to be fine,” Corker said. “They know they’re going to be fine.”
“No matter what we come up with to pay for this thing, it’s just unacceptable,” Dodd said in response to the criticisms. “There are people who just fundamentally disagree with this legislation.”