All Republican senators and two Democrats voted Monday to block the Senate from considering a bill to add significant new regulations to Wall Street firms, banks and other financial institutions. The vote, 57 to 41, fell short of the 60 votes the Democrats needed to shut off a filibuster and begin debating the measure, which now will go back for additional changes to win at least some Republican support.
Although Republicans had enough votes to block the measure on their own, Sen. Ben Nelson of Nebraska broke ranks with his party on the vote, while Senate Majority Leader Harry Reid voted against the bill for procedural reasons that will let him bring it up again later.
As it became apparent Monday that the GOP would unite against the bill he authored, Sen. Chris Dodd (D-Conn.) implored Republicans to vote to at least begin considering the bill so that Congress can add safeguards to the nation's financial system. "I don't know how you explain to people who realize we are as vulnerable today as we were in the fall of 2008 -- nothing has changed," he said.
At the center of the dispute is Dodd's effort to put significant new restrictions on many of the banks and financial institutions that were at the center of the 2008 economic meltdown; create a $50 billion bailout fund (paid for by banks through a new fee) to unwind dangerously insolvent companies; establish a new Consumer Financial Protection Bureau to serve as a watch-dog agency for now-unregulated financial products; and significantly limit the type of investments that banks and other financial institutions (like insurance companies) can make with consumers' deposits.
On Sunday, Dodd also added strict provisions from Sen. Blanche Lincoln (D-Ark.) to limit which kinds of institutions can trade derivatives then require derivatives to be traded publicly on formal exchanges, a proposal that had Republicans fuming on Monday.
"This is the type of thing you would have seen in Argentina in the 1950s," Sen. Judd Gregg (R-N.H.) said before the Monday vote. "What really is the rationale other than rampant, pandering populism?"
Sen. Bob Corker of Tennessee also complained that Dodd's bill lacked fundamental changes to the mortgage market, where the 2008 meltdown began. Corker had negotiated with Dodd for weeks on the legislation, but pulled out of negotiations the day before Dodd introduced his measure.
Despite Republicans' objections to the details of their proposal, Democrats forced the Monday vote to put Republicans on the record against a measure to reform Wall Street's financial markets, a system that Americans overwhelmingly believe needs to be corrected.
About two-thirds of people responding to an ABC News/ Washington Post poll said they back stricter regulations for financial institutions, and a majority backed the concept of the bank-financed bailout fund that Shelby opposed.
Even with Monday's vote lost, Democrats believe their argument will only get stronger as stories of Wall Street's excesses continue to reveal themselves and populist anger against Wall Street boils.
At a Senate hearing scheduled for Tuesday, seven Goldman Sachs executives will appear before the Permanent Subcommittee on Investigations, the panel behind some of the most infamous Senate investigations in modern history, including crackdowns on organized crime, child pornography, the United Nations' oil-for-food scandal and the McCarthy hearings.
Goldman chief executive Lloyd Blankfein and his colleagues will explain -- under oath -- their firm's role in pumping up the market for mortgage-backed securities that seemed like a sure bet, while they worked behind the scenes with a hedge fund to reap huge profits when those same securities collapsed.
Testifying before Blankfein will be Fabrice Tourre, the young Goldman whiz who engineered many of the exotic financial instruments that brought the firm those huge returns by betting against the deals they had helped create. In one private e-mail, Tourre compared his role to Frankenstein turning on his inventor.
The Securities and Exchange Commission recently charged Tourre with fraud for his part in those deals, a turn of events that Dodd once boasted his bill would have prevented. But the fortuitous timing that made Dodd's argument so relevant also made Republicans suspicious. So the SEC inspector general, H. David Kotz, announced Sunday that he will launch an internal investigation into the timing of the SEC charges, as requested by Rep. Darrell Issa (R-Calif.).
But the louder Republicans have objected to the treatment of Goldman executives or to the objectives of the Dodd bill generally, the more they have seemed to play into Democrats' plans.
The top Republican on the Banking Committee, Sen. Richard Shelby of Alabama, predicted Monday that after the first failed vote, he and Dodd would continue to negotiate until they reach an agreement.
Hours after Shelby predicted the failure of the test vote, White House Press Secretary Robert Gibbs painted him and his Republican colleagues as complicit in Wall Street's worst behavior.
"It appears as if all of the Republicans have decided that the rules in place [on Wall Street] now should be the rules we should have going forward," Gibbs said. "I think we will get a bipartisan vote because the position Republicans are in right now is just simply untenable."