Senator Christopher Dodd (D-CT) is enjoying a big victory in his last days in the Senate following passage of broad financial reform legislation designed to rein in the excesses that caused the financial meltdown. First, the Senate and House versions of the bill must undergo reconciliation. Under the new law, for example, homebuyers will have to provide proof of income when applying for a mortgage. Additionally, a new consumer protection apparatus will monitor lenders who offer subprime loans and then raise interest rates to sky-high levels.
The legislation – which will bring openness to complex financial instruments such as derivatives – passed 59 – 31 and provides a way to liquidate financial institutions once viewed as too big to fail. It also establishes a council of regulators who will monitor threats to the economy and specific restraints on the derivatives trading, which set off the toxic debts that froze the credit markets and prompted the Federal Reserve to make trillions of dollars of loans to banks on the brink of collapse.
The vote hands President Obama his second landmark legislative victory this year, following the March passage of his historic health-care bill. “Our goal is not to punish the banks,” he said hours before the final vote, “but to protect the larger economy and the American people from the kind of upheavals that we’ve seen in the past few years.”
Senate Majority Leader Harry Reid (D-NV) summed up the legislation: “When this bill becomes law, the joyride on Wall Street will come to a screeching halt.” The reconciled bill is expected to hit President Obama’s desk for his promised signature this summer.