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Up Next on Capitol Hill: Financial Reform

With the end of the health care battle finally in sight (Democrats are talking about getting a bill to the President’s desk by some time in February), there is plenty of talk here in Washington among reporters, lawmakers and lobbyists about which bills and which tough battles Congress expects to take up in the year ahead — particularly with a mid-term election on the way.

One to watch for early in the year is financial reform. There were new signs this week that the Senate will try to tackle it soon and the House already passed its version of a bill earlier this month. And just as senators were getting ready to go home for the holiday break, two of the leaders in the Senate — Sen. Christopher Dodd, D-Conn., the chair of the Banking Committee, and Sen. Richard Shelby, R-Ala., the ranking member on that committee — issued a joint statement on “principles” where they are in agreement.

Now generally, principles are a long way from the hard work of actual legislative language. For example, there will be plenty of debate over whether the government should create a new consumer protection agency to help consumers understand the difference between various kinds of mortgages and bank fees. Or whether that power should remain among a variety of agencies that have already received heavy criticism. Or whether the [Fed](http://www.federalreserve.gov/) should have more supervisory power or less. Still, in a Senate that has been increasingly polarized about agreeing on basic goals (see: health care) and given that the House [passed its financial industry reform bill ](http://www.pbs.org/newshour/bb/business/july-dec09/financerules_12-11.html) largely along party lines, some of the principles they agreed on would seem to be a starting point for reaching a deal. And it included some of these goals ([as outlined in a statement](http://www.house.gov/apps/list/press/financialsvcs_dem/presscfpa_121109.shtml)):
— We seek to end “Too Big to Fail.”
— We need to protect American taxpayers from future bailouts by enhancing our resolution regime.
— We agree that consumer protections need to be strengthened.
— We believe that our regulatory structure needs to be modernized and streamlined while preserving the dual-banking system. There were also plenty of reminders this week that the fallout from and reaction to the financial crisis continues to linger. Top of the list: An announcement by the Treasury Department on Christmas Eve that the government plans to guarantee up to $400 billion worth of mortgages backed by [Fannie Mae and Freddie Mac ](http://www.nytimes.com/2009/12/25/business/25fannie.html?_r=1&ref=business)if necessary. The mortgage giants, you may remember, were quasi-government, quasi-private [companies given infusions](http://www.pbs.org/newshour/bb/business/july-dec08/bailout2_09-08.html) of more than $100 billion as the housing boom went bust and cascaded into a financial crisis. The Obama administration was facing an end-of-the-year deadline to decide whether to increase aid. Treasury officials were quick to note that the decision does not mean the government will have to provide anywhere that kind of money, but the move was seen as an important to signal to the mortgage market that the government is willing to stand behind [Fannie and Freddie](http://online.wsj.com/article/SB126168307200704747.html?mod=WSJ_hpp_LEFTWhatsNewsCollection). Meanwhile, Fannie and Freddie also brought the executive compensation issue back to the headlines. Reports showed that the government approved compensation packages for the companies’ top executives topping $40 million. The C-E-Os will receive up to $6 million apiece over the next two years. You can read more about it [here](http://www.businessweek.com/news/2009-12-24/fannie-freddie-ceos-may-receive-6-million-for-2009-update2-.html). There was another significant development on the pay front that may raise some eyebrows — and tempers. The Wall Street Journal had a great [blow-by-blow story](http://online.wsj.com/article/SB126161843959703691.html?mod=wsjcrmain) on the battles between insurance giant AIG and federal pay car Ken Feinberg over the government’s efforts to slash pay there. (You may remember AIG as the company that received billions in government support and whose potential collapse in 2008 helped coin the term “too big to fail.”) There’s one other intriguing financial story worth noting as we look ahead to next year. The New York Times [reported](http://www.nytimes.com/2009/12/24/business/24trading.html?scp=2&sq=Goldman%20Sachs&st=cse) on how Goldman Sachs, Morgan Stanley and other firms involved in creating mortgage-backed security packages also appeared to be bet against those bundled securities turning sour. The firms emphasize there’s nothing illegal about those moves, that companies need to protect themselves against potential losses. Nevertheless, federal regulators are now investigating. In the meantime, there’s one easy bet here in Washington: You’ll be hearing plenty more about reforming Wall Street and the financial industry in the year ahead.

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