Senate Democrats' Financial Reform Bill Keeps Wall Street Happy

The Senate financial reform bill is good, but not good enough.

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By Bonnie Erbe, Thomas Jefferson Street blog

The Senate financial reform bill is good, but not good enough. It does create several layers of consumer protections. But it does not reinstate the protections of the Glass-Steagall law. That post-Depression law prohibited commercial banks from investing in risky stocks and later derivatives. Not too long in historical terms, after that prohibition was lifted in the 1990s, the Great Depression was replaced by the Great Recession. Washington Democratic Sen. Maria Cantwell fought long and hard to reinstate Glass-Steagall but did not succeed, not at least in the version of financial reform approved by the Senate early this morning. [See which industries donated the most to Cantwell.] According to the Financial Times:

Sen. Cantell opposed cloture on the grounds that senators had not had a chance to vote on amendments that would ensure derivatives were forced to be traded through central clearing houses and reinstate Glass-Steagall, the Depression-era law that separated commercial banks from investment banks.

The return of GlassSteagall would be a sweeping change in US finance, surpassing anything in the Senate regulation bill in terms of restrictions.

And sweeping change is what is needed to prevent another financial meltdown. Sen. Cantwell told me two weeks ago she might need to resort to a two-step process to reinstate Glass-Steagall, but some predict the two-step approach won't work:

The removal of banks from prop trading activities will have to be voted on as a standalone amendment, but it will not happen.  They tied it to some ridiculous Sam Brownback amendment to protect car dealers from the consumer protections of the bill.  This two-headed monster of an amendment will, of course, not see the light of day.  The Dems get to save face and show the public they tried while not really angering their biggest donor, Wall Street and the banks.

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