Dems Fall Out on Financial Reform

The biggest financial overhaul since the Great Depression—which has been flirting with incoherence for weeks—lurched backward yet again Wednesday, with a failed vote of 57 to 42 to close off debate in the U.S. Senate. The Democrats' inability to get the needed 60 votes for cloture was yet more evidence of a worsening state of disunity and confusion in the party. It was also only the latest evidence of what happens when the White House, which purports to champion tough reform of Wall Street, leaves all the hard dealing to legislators.

The vote included two Republicans who were for cloture—Susan Collins and Olympia Snowe of Maine—and a couple of progressive Democrats who were against, Maria Cantwell of Washington state and Russ Feingold of Wisconsin. This indicated that the biggest problem with reform right now is that some Democrats believe the bill is getting too watered down. At issue in the vote were several troublesome amendments that Republicans don't like, but which progressive Democratic senators feel are necessary to firm up the weakened bill being shepherded by banking committee chairman Chris Dodd. Foremost among them was an amendment pushed by Sens. Carl Levin and Jeff Merkley implementing the "Volcker rule," which bars federally insured banks from proprietary trading in risky derivatives.

In Cantwell's case, she voted against because she was distressed that she couldn't get a commitment for a vote on two amendments: one strengthening enforcement of dealers in swaps who do not use a "clearinghouse," and another reintroducing the Glass-Steagall division of commercial and investment banking, according to a Cantwell aide. Feingold agreed: "After 30 years of giving in to the wishes of Wall Street lobbyists, Congress needs to finally enact tough reforms to prevent Wall Street from driving our economy into the ditch again. We need to eliminate the risk posed to our economy by 'too big to fail' financial firms and to reinstate the protective firewalls between Main Street banks and Wall Street firms. Unfortunately, these key reforms are not included in the bill."

Another amendment that went down to defeat was one sponsored by Sen. Byron Dorgan that would have banned "naked" credit default swaps, or swaps in which the investor doesn't own the underlying security on which a bet is being placed.

Dodd has another big fight on his hands in getting financial reform bill by Memorial Day (President Obama's informal deadline)—and now it's with his own party.