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Financial rules overhaul OK’d

3 N.E. Republicans help assure Senate passage; vote gives president a second big legislative win

By Matt Viser
Globe Staff / July 16, 2010

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WASHINGTON — The US Senate yesterday passed a sweeping overhaul of financial regulations, getting crucial support from three New England Republicans in a vote that hands President Obama a major legislative victory as his party heads into midterm elections.

The bill was approved with support from Republicans Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine, who joined 57 Democrats to provide the 60 votes needed to overcome a filibuster. One Democrat, Russ Feingold of Wisconsin, said the measure did not go far enough and opposed it. The legislation, ultimately adopted by a 60-39 vote, has already been approved by the House.

“I’m about to sign Wall Street reform into law, to protect consumers and lay the foundation for a stronger and safer financial system, one that is innovative, creative, competitive and far less prone to panic and collapse,’’ Obama, who is planning to sign the bill in a ceremony next week, said yesterday. “Unless your business model depends on cutting corners or bilking your customers, you have nothing to fear.’’

The bill marks the second major legislative victory for Obama, rivaled only by the hard-fought passage for an overhaul to the nation’s health care system earlier this year. Republican leaders said the legislation is misguided and will drive business overseas.

The 2,300-page bill, designed to address the problems that led to the 2008 economic collapse, will be felt in nearly every corner of the financial world, from convenience store owners to Wall Street executives.

It will add regulators to watch for future financial problems; create a consumer protection bureau designed to protect consumers from predatory lenders; and implement regulations that will curb some of the risky practices that helped contribute to the economic downturn.

“This is a major undertaking, one that is historic in its proportions,’’ Senator Christopher J. Dodd, a Connecticut Democrat and a primary author of the legislation, said yesterday on the Senate floor.

For Dodd, who is retiring this year, yesterday marked a legislative triumph and capped a 30-year Senate career.

It was also a major victory for Representative Barney Frank, the Newton Democrat and chairman of the House Financial Services Committee. The bill has been named after Frank and Dodd.

The bill wound through Congress over the past year in fits and starts, at times seeming as if it would have broad bipartisan support and at others seeming as if it was all but dead.

Brown, Snowe, and Collins provided crucial support for the legislation after gaining concessions from Democrats. Brown won protections that will minimize the impact of the regulations on Massachusetts institutions such as State Street Corp.

That would enable State Street and similar institutions to continue investing a portion of their money in the investment funds they manage.

“It’s not perfect,’’ Brown said in an interview just after he voted. “But it does a lot of positive things.’’

“It is a very important step forward in terms of redressing the balance of interest and power within the financial sector,’’ Senator John F. Kerry, the Massachusetts Democrat, said in an interview. “And I think it sets up some very important standards and requirements.’’

For Democrats, the bill’s passage came at a politically sensitive moment. The party has been in turmoil in recent days about the direction of midterm congressional elections, after White House press secretary Robert Gibbs said on Sunday that there’s “no doubt’’ enough seats are up for grabs that Republicans could seize control of the House. That declaration outraged top Democrats.

Yesterday, Democrats immediately began using the bill as a key argument for why voters should reelect their members — with Gibbs now seeking to put a more positive spin on his political assessment.

“This will be a vote that Democrats will talk about through November as a way of highlighting the choice that people will get to make in 2010,’’ Gibbs said.

Republican leaders plan to make the bill an issue, too. They said it reaches too far into private business practices and doesn’t do enough to address some of the key economic problems, such as regulating mortgage giants Fannie Mae and Freddie Mac.

The two mortgage lenders, which are backed by the federal government, made risky loans that contributed to the economic collapse.

“It creates vast new bureaucracies with little accountability and seriously I believe undermines the competitiveness of the American economy,’’ said Senator Richard Shelby, an Alabama Republican and the ranking member on the Senate Banking Committee, calling the bill a “legislative monster.’’ “Unfortunately, the bill does very little to make our system safer.’’

While emotions did not run as high as they did during the health care debate, House minority leader John Boehner yesterday told reporters the bill is “ill-conceived’’ and “it ought to be repealed.’’

Attention now turns to the herculean task of implementing the law.

Regulators will be hired and granted new tools to watch over the vast financial industry.

Obama will also have to decide whom to appoint to a key role, overseeing the new Consumer Finance Protection Bureau.

One possible pick would be Elizabeth Warren, the Harvard Law School professor who first proposed creating the bureau. Warren has declined to comment on whether she would seek the appointment, but she has several influential advocates.

“I’ve told the administration she would absolutely be a fantastic choice,’’ Frank said in a recent interview.

Still, even Democrats conceded yesterday that it is not clear whether the new regulations will prevent future problems. Much of that will depend on how the regulations are implemented in the coming weeks.

“It is not a perfect bill, I will be the first to admit that,’’ Dodd said. “It will take the next economic crisis, as certainly it will come, to determine whether or not the provisions of this bill will actually provide this generation or the next generation of regulators with the tools necessary to minimize the effects of that crisis.’’

Brown’s vote was seen as crucial. He said yesterday afternoon that he initially dismissed the broad financial overhaul, but got involved about several months ago when Obama began criticizing Republicans for their ties to Wall Street.

“I wasn’t going to participate at all, but then the president started with the whole ‘Main Street, Democrats — Wall Street, Republicans,’ ’’ Brown said in the interview. “And I’m like, what does that mean? We have an opportunity to make a good bill here, and the fact that he was trying to link us to being in bed with Wall Street was offensive. So I was kind of dragged into it. I’m not looking out for Wall Street. I’m looking out for Massachusetts.’’

Matt Viser can be reached at maviser@globe.com.

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