Financial Services “Reform” passed the Senate yesterday on a 59-39 vote.  Now the question is what will happen next?  What is the end game for this legislation?  What will it look like when it is presented to the President to be signed into law?  A conference between the House and Senate is expected in the next month to negotiate the differences between the house passed measure authored by Congressman Barney Frank (D-MA) and Senator Chris Dodd (D-CT).  Conservatives should focus on what is supposed to be a transparent process to see if leaders in Congress and the Obama Administration merely use the conference to rewrite a bill in secret like they did during the “Stimulus” conference. 

Next on for the House and Senate is the so called “Tax Extenders” bill.  This is a massive package of tax extensions and changes to tax law and the debate on this package will commence next week.  There are no votes in the House or Senate today.  There are two hearings scheduled in the House today.The issues for Conservatives to watch today in Washington are the following:

• Senate Passes Financial Services Deform – Although both the House and Senate have completed work on versions of the bill, the final language on this legislation is far from being settled.  According to Congressional Quarterly (password required) “The Senate and House will now attempt to reconcile their bills (S 3217, HR 4173) — a task potentially complicated by some major issues the Senate left unresolved in its scramble to finish.  The legislation, which passed the Senate on a largely party-line vote of 59-39, would create a new regulator tasked with safeguarding consumers from risky loans and investments, create a formal process for dismantling large financial companies on the verge of collapse and regulate the derivatives market more closely.”  This was mostly a party line vote (two Democrats voted no and 4 Republicans votes yea) and it will be interesting to see if Republicans play any substantive role in conference negotiations.  More from CQ, Senator Richard Shelby (R-Alabama) stated his concerns about the final product of the Senate.  “This bill is flawed.  This bill promises more government, more costs, slower economic growth, and fewer jobs. It threatens privacy rights and fails to address crucial elements of the recent crisis.”  Many argue that this bill ignores the problems created by Fannie and Freddie.  Also, there are concerns about the establishment of permanent bailout authority for the federal government.  Conservatives need to watch the conference between the House and Senate very closely. 
• The Conference –  There are a few outstanding issues to be resolved between the House and Senate.  From the Associated Press, the Senate version allows the Federal Reserve to retain “supervision over bank-holding companies and state-charted banks. It also would police large, interconnected nonbank institutions that the oversight council determines could pose a threat to the economy. With council approval, the Fed could break up large, complex companies that pose a grave threat to the financial system.”  In the House version “the Federal Reserve would lose consumer protection regulation authority and ability to unilaterally inject money into financial institutions. The GAO would be given broader power to conduct audits of the Fed.”  Derivatives, the Senate version “trades of derivatives, the complicated financial instruments blamed for accelerating the Wall Street crisis, would have to take place in regulated exchanges. Banks would have to spin off all their derivatives business into subsidiaries.”  The House version “regulates derivatives, but contains more exceptions for corporations that use derivatives as a hedge against price fluctuations, not as a speculative investment. The House does not require banks to spin off their derivatives business.”  These are going to be important issues, but the big question remains as to whether this is going to be a good faith effort to have an open and transparent conference or a conference where the Administration merely writes a new bill to gut the Fed Transparency language (both versions have language for some Fed transparency) and expand bailout authority.  Remember the “conference” on the Stimulus plan?  Connie Hair of Human Events reported at the time, “Republicans have caught the Democrats in a midnight ‘stimulus”’power play that seeks to cut Republican conferees out of the House-Senate negotiations to resolve a final version of the Obama “’stimulus’ package. Staff members from the offices of House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) met last night to put together the ‘stimulus’ conference report.”   We can only hope that this conference is transparent and fair. 
• Senator George LeMieux – Great discussion by Sen. LeMieux (R-FL) posted today on our $13 Trillion National Debt – “The American people get this.  They understand that Washington spending is out of control.  They understand that we never question the spending on a routine basis and now the problem is so bad that of the receipts we take in, 2.2 or so trillion dollars a year now is just enough to pay for entitlements.  That’s just enough to pay for Social Security, Medicare and Medicaid.  Every other function of government, from the roads we drive on to the FAA who guides our planes to the military that keeps us safe and free, commerce, labor, everything — it’s all borrowed.  And it just can’t last.  And we have got to make some decisions around here about spending less, set priorities just like American families do, just like businesses do, even what State governments do, or we are not going to be able to have a prosperous future for this country.”  Senator LeMieux is correct and he has been a very important voice in the Senate for fiscal conservatives on our fiscal future. 

Next week is the last week before the Memorial Day recess.  Expect a flurry of votes.