Large banks have so far survived the Senate financial overhaul debate without any explosive amendments, but that might change real fast.
Sens. Jeff Merkley (D., Ore.) and Carl Levin (D., Mich.) said on Monday they will push an amendment that tries to leverage the Securities and Exchange Commission case against Goldman Sachs Group Inc. and make it illegal for companies to package asset-backed securities if they have a “material conflict of interest” in how those securities are sold.
Sounds complicated, but it’s likely to spark a furious fight on Wall Street where banks don’t want the government telling them which side of deals they can or can’t be on.
Merkley and Levin don’t necessarily speak for the entire Democratic caucus, but they have some heavyweight support for their amendment. The Treasury Department, Senate Banking Committee Chairman Christopher Dodd (D., Conn.), and former Federal Reserve Chairman Paul Volcker all back the measure, significantly improving its chances of passing. With the broader debate on financial rules wrapping up, a vote could come as soon as this week on the provision.
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Of the three measures relevant to the Volcker Rule, the one by Sens. Carl Levin, D-Mich., and Jeff Merkley, D-Ore., is looking most likely to pass. It won an endorsement this week from Volcker himself, who said it should be made part of the bill.
"We have had several communications with the Merkley-Levin folks, and Mr. Volcker appreciates the hard work they are doing to preserve the intent of the Volcker Rule," a spokesman for Volcker said. "With the strong support of the Treasury, White House and Senator Dodd as well, Chairman Volcker feels very confident that these provisions will make it through the process intact and become law."
It has also been helped by Levin's recent hearings on fraud allegations at Goldman Sachs Group Inc.
"The amendment I'm working on with Sen. Merkley would try to end the conflict of interest that was highlighted in the Goldman Sachs hearing, where firms create financial instruments, sell them to their clients and then bet on their failure," Levin said.
While Levin is still in the process of drafting his amendment in consultation with the White House, it would go beyond the Dodd bill by putting the Volcker Rule into statute by adding a prohibition on proprietary trading to the Bank Holding Company Act and superseding existing authority governing such activities.
linkPeople were up in arms about the defeat of Brown-Kaufman (which Krugman insisted wouldn't address the problem that led to the crisis), well this is the bill that directly addresses the problem.
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