By Alexander Bolton - 05/05/10 12:25 AM EDT
Divisions among Democrats emerged Tuesday on the details of Wall Street reform legislation.
Sen. Bernie Sanders (I-Vt.) said White House opposition to his amendment allowing for an audit of the Federal Reserve was inconsistent with President
The policy differences have generally divided populist Democrats from those with ties to the financial markets and those more closely allied with the Obama administration.
The intra-party disagreements are a departure from last week, when the entire Democratic conference — minus conservative Sen. Ben Nelson (D-Neb.) — joined forces to compel Republicans to allow debate on the measure.
The results of the looming debates on various amendments to the underlying bill could affect the profits of the multi-trillion-dollar financial services industry as well as the enthusiasm of Democratic base voters.
The biggest quandary Democrats face is how to regulate the $600-trillion-plus derivatives market.
Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.) has put forth a proposal that would require the dealing of derivatives to be reported publicly and, more controversially, would require big banks to spin off their derivatives-trading business.
“There’s some division in the caucus over that,” said a liberal senator who attended the lunch and supports Lincoln’s proposal. “But some of the New York people and others want banks to be able to continue selling derivatives.”
The trading of derivatives is big business in New York and other financial centers. Section 106 of Lincoln’s proposal has caused reservations among Sen. Charles Schumer (D-N.Y.) and other influential Democrats.
“As for 106, I’m looking at it,” said Schumer, a member of Senate leadership and the Banking Committee, adding that he supported the transparency requirements put forth by Lincoln.
“The other parts, I fully support, which are the heart of her amendment,” he said.
Sen. Mark Warner (Va.), another Banking panel Democrat, said he has “concerns” over the provision affecting derivatives.
He said he wants to crack down on the reckless trading of derivatives which critics have compared to gambling but he also wants to be careful not to force the domestic derivatives market offshore.
The internal dispute has held up an amendment that would attach Lincoln’s reform to the broader Wall Street bill. The substitute amendment offered by Lincoln and Senate Banking Committee Chairman Chris Dodd (D-Conn.) was supposed to be the first one considered but as of press time, it was still in limbo.
The Sanders amendment
An unlikely coalition of liberal Democrats and Republicans have voiced support for Sanders’s proposal, which calls for the Government Accountability Office to audit the Federal Reserve and would force the Fed to disclose online all the recipients of trillions of dollars in taxpayer loans through the agency’s secret “discount window” program.
Sanders’ bill has 33 backers, including Sens. Barbara Boxer (D-Calif.), Ben Cardin (D-Md.), John McCain (R-Ariz.), John Thune (R-S.D.) and Tom Coburn (R-Okla.).
Asked if he supports the Sanders measure, Reid indicated he would allow a vote on it, but said he needed to review the amendment’s details.
The administration has pushed back hard against the proposal, which could become a public relations nightmare for the White House — depending on how many billions of dollars were made available to Wall Street banks during the financial crisis.
Federal Reserve Chairman Ben Bernanke traveled to the Senate side of the Capitol on Tuesday to lobby against the Sanders amendment.
Sanders told Democratic colleagues at Tuesday’s weekly lunch that a broad group of Republicans would support his proposal, giving him and his liberal allies a chance to pass it over the administration’s objections.
Sanders acknowledged that the administration “does not like” his proposal, but he has refused to back down.
Asked if he thinks the White House’s opposition to his amendment runs contrary to the president’s promises on transparency, Sanders replied, “Yes.”
Rep. Ron Paul (R-Texas), the author of the House companion to Sanders’s bill, successfully attached his measure to the regulatory reform bill that passed the House late last year.
Some Democrats worry the revelations about the Fed’s lending practices could give Republicans political ammunition, and they teased Sanders about working with the GOP.
“Some people were joshing him. They said, ‘You’ve been in the Senate too long and are going soft by working with the Republicans,’” said a senator who requested anonymity.
Sen. Claire McCaskill (D-Mo.) warned that Republicans could exploit an audit of the Fed.
“I’m really worried the amendment is going to politicize the Fed,” said McCaskill, who noted that setting monetary policy “has not been a political activity.”
Schumer said the differences within his conference are small compared to its differences with the GOP.
Schumer said Republicans would oppose Lincoln’s proposal to increase transparency rules and establish exchanges for trading derivatives.
Democratic leaders have taken a light-handed approach to the internal debates, according to one lawmaker who attended the Tuesday meeting.
“The message from leadership was ‘Let’s all stay on the theme that we’re trying to make a good bill better,’” said the legislator. “Other than that, it’s a free-for-all in terms of the amendment process.”
Democrats say the divisions are not only in their caucus and predicted that Republicans would also be split by some of the amendments.
Democratic senators said they expect other amendments to divide their conference as the debate grinds on.
Sens. Jeff Merkley (D-Ore.) and Carl Levin (D-Mich.) plan to offer an amendment that would bar commercial banks from engaging in proprietary trading.
The pending legislation would allow federal regulators to make allowances for banks to bet their own capital on trades.
The Merkley-Levin proposal would garner the support of many liberals but would also run afoul of New York lawmakers and others with constituents in the financial services industry.
Reid said Tuesday that he wants votes on a lot of amendments but said a vote on final passage will happen next week.
Bob Cusack contributed to this article.