Senate Republicans this evening successfully prevented an open debate on a bill that would overhaul how Wall Street and financial markets do business. With a 57-41 vote, the GOP delayed the vote for at least another day; the vote broke down along party lines except for Sen. Ben Nelson (D-Neb.), a centrist Democrat who surprised some by voting against the measure to begin the debate. Here on Capitol Hill, Democrats are expected to schedule another cloture vote soon, even as early as tomorrow, to try to start full debate on financial reform.
In the meantime, talks behind closed doors will continue between Democrats and Republicans in an effort to shape the finance bill in a way that wins over a few Republicans. How far Democrats and Republicans have to go to reach an agreement is unclear. On the one hand, Sen. Richard Shelby (R-Ala.) told reporters earlier today that he felt the bipartisan talks had reached a "tipping point," suggesting that an agreement was near. After the vote, however, Shelby said he still wants to "reach agreement on three big sections," a substantial hurdle for both parties this late in the game given that the Senate has been working on financial reform for almost a year.
Sen. Ben Nelson (D-Neb.), a centrist Democrat who'd been wavering on financial reform, just cast a "No" on the Senate's cloture vote to start debating a bill that would rewrite the rules of our financial markets. Nelson's vote is likely to kill Senate Democrats' attempts to immediately begin haggling over the bill, largely crafted by Sen. Chris Dodd (D-Conn.) in the banking committee. The Democrats, who lack a supermajority, needed at least one of 41 Senate Republicans to vote "Yes" in order to begin discussions on the Senate floor. Dodd alluded to some disagreement among Senate Democrats last week, as did Sen. Richard Shelby (R-Ala.) today in remarks with reporters. Mother Jones previously reported that Nelson could be among the Democratic hold-outs, given his centrist stance and the fact that he was on a shortlist of lawmakers visited by Treasury Secretary Tim Geithner last week, who has recently met personally with lawmakers on the fence on financial reform.
Nelson's opposition is sure to give Democrats headaches. This winter, the Nebraska senator made headlines for holding up health care reform talks and for trying to secure a provision in the bill benefiting his home state. On financial reform, Nelson had lately backed a provision in the finance bill that exempted companies who've previously traded derivatives from retroactively posting collateral on their existing derivatives trades, the Wall Street Journalreported. The exemption was supported by Warren Buffett, the billionaire Nebraska business guru who feared that without it, his company, Berkshire Hathaway, would lose a substantial amount of money. However, the exemption was killed earlier today, the Journalreported, signaling a major setback for Nelson and Buffett. The removal of that small provision could have prompted Nelson to vote against cloture this evening.
The votes are still being tallied on the Senate floor for the cloture vote, but without agreement on the Democratic side, the effort is likely to fail.
Sen. Bob Corker (R-Tenn.), a top GOP negotiator on the Senate's financial reform bill, says the odds for a bipartisan bill are "still very, very good." In remarks to reporters today, Corker, who spent weeks this winter as the top GOP negotiator alongside Sen. Chris Dodd (D-Conn.), added that while no agreement between the two parties had been reached—and that differences remained within the parties as well—he was still optimistic about passing a financial reform bill with bipartisan support.
Asked about reports of an alternative GOP financial reform bill, Corker seemed to scoff at the idea, saying he was "not sure about that" and hadn't seen the bill yet. The day's financial-related happenings will come to a head around 5 pm, when the full Senate has a cloture vote (a vote to begin debate on the bill). Democrats and Republicans have spent much of the day in closed-door negotiations trying to resolve differences on the bill. Those disagreements concern parts of the bill on unwinding too-big-to-fail banks and regulating derivatives, the complex financial products that amplified the housing meltdown and spread losses throughout the global economy. But there haven't been any breakthroughs reported yet, setting the stage for a party line vote this evening in which 59 Democrats are anticipated to vote for beginning debate and 41 Republicans will block that debate.
A key vote on the fate of financial reform legislation looms today, when the Senate holds its cloture vote (a vote, that is, to begin debate on the bill) at around 5 this evening. Right now, it seems that all 41 Republicans are united against the bill, while most, if not all, Democrats are onboard. Top senators like Chris Dodd (D-Conn.) and Richard Shelby (R-Ala.) continued closed-door negotiations on the bill over the weekend, but it's pretty apparent that they gained little ground, and that the two parties still have a ways to go before reaching a compromise. While Shelby suggested an agreement wasn't far off during a Sunday appearance on Meet the Press, he added, "inches are sometimes miles."
Over the weekend, Dodd, the architect of the current version of financial reform, agreed to beef up his bill's crackdown on derivatives, the opaque products whose value is derived from an underlying source (anything from the cost of wheat to a mortgage's price). The derivatives agreement—which would force them to be traded on a transparent exchange, cleared through a central clearinghouse, and would spin off derivatives trading desks from their larger firms—was partly a move to win over two GOP senators, Chuck Grassley (R-Ia.) and Olympia Snowe (R-Me.), who are both staunch proponents of reining in derivatives. The derivatives changes in Dodd's bill mostly incorporate ideas from a separate derivatives overhaul passed last week by the Senate agriculture committee, a bill Grassley supported. (He was the only Republican on the committee to vote for it.) Whether Dodd won over Grassley, Snowe, or any other Republicans with the derivatives tweaks remains to be seen.
The real crunch time will come this evening, when the full Senate votes on whether to move ahead with the debate or not. Until then, senators will be making brief statements on the floor for and against the bill (C-SPAN 2, if you're interested). If they pass it, you'll see a feverish battle on the floor by Democrats to win over a Republican or two and pass the bill. If not, the behind-closed-doors debate will stretch on.
Goldman Sachs, the besieged Wall Street baron, fired back at a Senate subcommittee this weekend by releasing a report of its own on the bank's role in the subprime mortgage markets leading up to the crash of 2008. The report (pdf) is a clear attempt by Goldman to counter claims that it intentionally "shorted," or bet against, the housing market, even as it peddled the kinds of mortgage-related products its traders were wagering would fail. Its loss of $1.7 billion in residential mortgage-related products in the 2008 fiscal year, and its small market share in the mortgage industry, are evidence that the firm was hardly the subprime bogeyman it's been made out to be, Goldman claims. "Goldman Sachs did not take a large directional 'bet' against the US housing market, and the firm was not consistently or significantly net 'short the market' in residential mortgage-related products in 2007 and 2008," the company says.
Of course, the story is far murkier than that. As McClatchy reported last year (and as Goldman neglects to mention), in 2006 and 2007 Goldman marketed some $39 billion in securities backed by toxic home loans to clients but neglected to mention that Goldman was betting against that same market. McClatchy also reported that Goldman, which had decided to start buying insurance against (i.e., betting against) the housing market in late 2006, used "offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements."
But there's one looming question that neither Goldman nor the press has answered: How much exactly did Goldman make from its big-time bets against the housing market? Goldman spokesman Lucas van Praag said in a statement on Saturday that the report released by the firm "demonstrates conclusively that we did not make a significant amount of money in the mortgage market"; however, in the set of emails released by the Senate investigations subcommittee, Goldman CEO Lloyd Blankfein writes in an email that "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts." In a different email released by the subcommittee, Goldman CFO David Viniar reacts to news of losses in the mortgage markets, and of Goldman's subsequent gains, by writing, "Tells you what might be happening to people who don't have the big short."
How much Goldman made—whether it's negligible as company purports it to be, or more significant than that—remains to be seen. Did the firm merely try to counterbalance its long bets on the housing market with the shorts? Or did it reap a massive payday? This week's hearings in the investigation subcommittee, which bring to Washington top Goldman executives like Blankfein, could finally shed some light on this mystery.