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Monday: Financial Reform Faces Key Vote; Gulf Oil Leak Could Last Months

Still lacking a bipartisan agreement on financial reform, the Senate is bracing for a crucial test vote Monday over whether to begin debate on Democratic legislation to toughen the rules on Wall Street.

Despite lingering GOP resistance, Democrats reached agreement Sunday on a plan to heighten oversight of derivatives, the exotic financial instruments that helped spur the financial crisis. Under the plan, banks would be required to spin off their derivatives businesses into separate subsidiaries with their own sources of capital.

The measure’s language was crafted by Sen. Blanche Lincoln, D-Ark., and has the support of two key Republicans: Iowa’s Charles Grassley and Maine’s Olympia Snowe.

Democrats are hoping to pick up at least one Republican vote in order to move ahead on the broader bill, but with both parties split over key elements of the proposal, it remains unclear whether Democrats can clear Monday’s procedural hurdle.

“I don’t believe we’ll have a deal today,” Sen. Richard Shelby, the top Republican on the Senate Banking Committee, told Good Morning America earlier Monday:

It’s tough to know what to expect for the reform bill, writes Robert Samuelson. “History counsels caution,” he says. “Every financial reform, even if mostly successful, ultimately gives way to another because there are unintended consequences or unforeseen problems.”

“It’s a bailout bill,” says Phillip Swagel in The American. “Markets participants will understand that the Senate financial regulation bill allows for bailouts, and this will give rise to riskier behavior that in turn makes future bailouts more likely,” he writes.

If President Barack Obama wants to avoid bailouts, then there must be size limits, Sen. Ted Kaufman, D-Del., argues in the Wilmington News. “We can either limit the size and leverage of ‘too big to fail’ financial institutions now, or we will suffer the economic consequences of their potential failure later. Breaking apart too-big-to-fail banks is the necessary first step in preventing another cycle of boom-bust-and-bailout.”

Like it or not, reform should be a painful process for bankers, writes Paul Krugman. “A growing body of analysis suggests that an oversized financial industry is hurting the broader economy,” he says. “Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.”

“The dirty little secret about the Obama administration’s ‘Wall Street reform’ bill is that it’s full of favors for Wall Street,” say the editors of the National Review.

Oil Spilling into Gulf of Mexico

About 42,000 gallons of oil per day continue to pour into the Gulf of Mexico following the sinking last week of a BP rig off the Louisiana coast. Officials are saying it could be months before they are able to control the leak. At the rate oil is escaping into the Gulf, “the leak would have to continue for 262 days to match the 11-million-gallon spill from the Exxon Valdez in 1989, the worst oil spill in United States history,” reports the New York Times.

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