By Sheryl Gay Stolberg & David M. Herszenhorn - New York Times
WASHINGTON In the face of stiff opposition from Senate Republicans President Obama urged leaders of both parties in Congress to spend the next few weeks coming to terms on a financial regulation bill that would head off the need for bailouts in the future and bring the trading of complex financial instruments out of the shadows.
During a meeting with leaders of Congress from both parties in the Cabinet Room Wednesday morning the president rejected the contention of Republicans and notably their leader in the Senate Mitch McConnell of Kentucky that the measure offered by Senate Democrats would only make bailouts of gigantic risk-laden institutions more likely.
I am absolutely confident that the bill that emerges is going to be a bill that prevent bailouts thats the goal" Mr. Obama said with Mr. McConnell sitting impassively nearby.
Mr. Obama is fresh off his big health-care victory and the financial reform measure will be a test of how much clout he now has on Capitol Hill. But while the president expressed confidence at the outset of the session that the two parties could work together to produce an effective bipartisan package that assures we never have too-big-to-fail again" the leaders did not sound nearly as confident after the nearly hour-long session.
Facing reporters on the driveway outside the West Wing Mr. McConnell repeated his assertion that the Senate bill which would create a $50 billion fund to rescue financial companies that are so big their failure would endanger the economy would foster a climate of repeated bailouts. He demanded the resumption of bipartisan talks in the Senate which fell apart last week.
My message to the president quite simply was Lets get back to the table " Mr. McConnell said. A few minutes later the Democratic leadership came out and made clear they intend to press forward with or without the support of the Republican leadership.
This is the same stall we got on health care" said the Senate Democratic leader Harry Reid of Nevada.
The session came one day after Mr. McConnell went to the Senate floor on Tuesday to criticize the Democrats plans calling them arrogant and partisan in an echo of the recent fight over health care.
We cannot allow endless taxpayer-funded bailouts" Mr. McConnell said on Tuesday. Thats why we must not pass the financial reform bill thats about to hit the floor. The fact is this bill wouldnt solve the problems that led to the financial crisis. It would make them worse."
Both the White House and Congressional Democrats quickly fired back accusing Republicans of trying to prevent tougher policing of Wall Street.
As Wednesdays meeting began Mr. Obama sat at the middle of the long conference table in the White House Cabinet room directly across from Vice President Joseph R. BidenJr. The top House leaders sat one one side of Mr. Obama left and Senator Harry Reid the majority leader and Mr. McConnell on the other with a few top White House economic and political aides also at the table and others nearby.
Mr. Obama noted that Congress and the administration had just returned to work after coming off a very tough work period" the passage of the health care legislation . He reminded the leaders that lying ahead were not just the financial legislation but also consideration by the Senate of a new arms treaty and a nomination to fill a vacancy on the Supreme Court.
The White House and Democrats have made clear that they intend to frame the financial regulatory debate on the same terms as the health care battle casting Democrats as defenders of the little guy and Republicans as doing the bidding of big business.
Theres a clear choice in this debate: to stand with American families or stand on the side of the big Wall Street banks and their lobbyists" Jen Psaki the deputy White House communications director wrote in a blog post on Tuesday rebutting the criticism from Mr. McConnell. The Senate bill explicitly mandates that a large financial firm that faces failure be allowed to fail."
The Republican strategy as reflected in Mr. McConnells comments is carefully calibrated for a highly competitive midterm election year. In many ways it is a political high-wire act as the Republicans seek to oppose the Democrats bill while not appearing to side with the banks at a time when popular anger at Wall Street is high.At a news conference on Tuesday Mr. McConnell acknowledged his own support for the $700 billion bailout in 2008 when the Bush administration warned of an imminent crisis. That is not to say that we think it ever ought to be done again" he said.
The Democrats bill sponsored by Senator Christopher J. Dodd of Connecticut would give the Federal Reserve oversight of the largest financial institutions those with at least $50 billion in assets. And it would let the Treasury secretary with support from regulators and the approval of a special panel of three bankruptcy judges take over any giant company that posed systemic risk to financial stability and essentially force it out of business.
The debate is expected to be a weeks-long battle framed by Republican hopes of making sizable gains in Congress in the November elections by emphasizing what they view as a dangerous expansion of government during President Obamas first two years.
Echoing their Senate colleagues House Republicans contended on Wednesday morning that the financial regulatory legislation proposed by Democrats and the White House perpetuates a culture of government spending and bailouts while ignoring the plight of average Americans.
Speaking to reporters after a meeting of the House Republican Conference member after member berated the Democrats plan saying it is just a road to another government bailout.
Democrats are beginning a new season of spending on Capitol Hill and a new season of bailouts" Representative Mike Pence of Indiana chairman of the House Republican Conference said. This so-called financial services bill is nothing more than a permanent bailout
Political messaging aside lawmakers in both parties have worked hard on proposals for a new regulatory framework that cleared the Senate Banking Committee last month.
The aspect of the regulation that Mr. McConnell most focused on the creation of a resolution authority" to seize and dismantle a financial institution was the outcome of months of talks between Senator Mark Warner Democrat of Virginia and Senator Bob Corker Republican of Tennessee both members of the banking committee.
Under the bill once the Treasury stepped in to take over a failing firm the Federal Deposit Insurance Corporation would be appointed as a receiver. The Federal Reserve could punish any institution that failed to submit a resolution plan" also known as a living will or a funeral plan that would spell out its orderly demise.
A $50 billion orderly liquidation fund" created from fees charged to the largest banks would help pay for the takeover. The House version of the bill approved in December would create a $150 billion fund. The Obama administration does not support such a fund signaling at least one potential area of compromise.
Mr. Reid the Senate majority leader said that Mr. Dodd the chairman of the banking committee had tried to work with Republicans for months.
Mr. Dodd initially introduced his bill in November then paused committee action to give Republicans a bigger say. He chose four pairs of senators one Democrat and one Republican in each pair to tackle the four toughest issues. But in the end the committee approved the bill with no Republican support.
Edward Wyatt and Sewell Chan contributed reporting.
