Obama To Veto Any Wall Street Reform Bill Minus Derivatives Control

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Obama Threatens Regulatory Reform Veto


President Barack Obama on Friday threatened to Veto a Wall Street reform bill that fails to place tight controls on derivatives, the complex financial instruments that played a key role in the 2008 global meltdown.

But, setting up a showdown on the legislation, Senate Republicans lined up Friday in opposition to the Democratic financial overhaul plan — even as Senate Democratic leaders want to bring the bill to the floor next week.

Obama’s veto threat — a rare move from the president — came as Senate Agriculture Chairwoman Blanche Lincoln (D-Ark.) released a bill Friday that would force derivatives to be traded on exchanges and block major banks from trading directly in derivatives, stripping them of a key source of billions in income.

"I want to see what emerges, but I will veto legislation that does not bring the derivatives market under control," Obama told reporters before beginning a meeting with his Economic Recovery Advisory Board. He added that the legislation should ensure "that we don’t have the same sort of crisis.”

The Senate is preparing to open debate on a financial regulatory reform bill as early as next week, but one of the major outstanding issues is how to regulate the $450 trillion derivatives market. Lincoln would go further than the House and Senate Banking Committee approaches.

At the same time, Senate Minority Leader Mitch McConnell (R-Ky.) released a letter signed by all 41 members of his conference saying they are “united in our opposition to the partisan legislation reported by the Senate Banking Committee.”

“We encourage you to take a bipartisan and inclusive approach, rather than the partisan path you chose on health care,” the letter stated. “We urge you to support the bipartisan negotiations by the Banking and Agriculture Committees. We are confident that the Senate can overcome political tensions and provide a bipartisan path to financial reform this year.”

The letter, which lacked unanimous support until Friday while Sen. Susan Collins (R-Maine) hesitated in signing it, signals that Senate Majority Leader Harry Reid (D-Nev.) may lack the crucial 60th vote needed to bring the bill to the floor. It's not clear from the letter that all 41 Republicans would decide to filibuster the measure.

When asked if Collins would oppose the first crucial test vote called a motion to proceed, her spokesman said: "The letter reflects her opposition to the Banking Committee bill. Sen. Collins is hopeful that the Senate Majority Leader will decide not to bring a partisan bill to the Senate floor."

Obama would not specify which package of derivative reforms he favored but added that more "transparency and oversight" need to be brought to the market so that "everyone knows exactly what's going on."

Lincoln’s 336-page bill, which could be folded into the broader regulatory reform legislation, would increase transparency in the market, prohibit swaps dealers from receiving any federal assistance, and require derivatives trades to go through clearinghouses. Lincoln’s approach has been hailed by Wall Street critics who want to see tight controls, but it’s unclear how much support it will receive among her Senate colleagues.

White House economic adviser Larry Summers suggested Lincoln's approach was in line with what the White House wanted to see.

“We haven’t seen the language yet,” Summers said Friday on Bloomberg Television's "Political Capital With Al Hunt." “What we do support is the principles that derivatives need to be traded in the sunshine, that there needs to be centralized clearing, and Sen. Lincoln appears to be moving very much in those directions.”

Obama also renewed his call on Congress to deliver an overall bill that would prevent another economic crisis.

"We can't allow history to repeat itself," he said, adding that taxpayers should not have to step in to prop up financial institutions again. "We can't leave in place a tattered set of rules that will allow another crisis to develop without the rules to deal with it."

The bill, Obama said, would force banks to "pay for bad decisions" they make. "That means no more bailouts," he said.

Focusing on derivatives, Obama said more "transparency and oversight" need to be brought to the market so that "everyone knows exactly what's going on."

Charging that "some in the industry are not happy with the prospect of these reforms," Obama said lobbyists have "found some willing allies on the other side of the aisle in Congress." Still, the president voiced his hopes for a "bipartisan bill" that stops firms from taking reckless risks.

"Every member of Congress is going to have make a decision," he said. "Are they going to side with the special interests and the status quo, or are they going to side with the American people?"

"It’s time that we demanded accountability on Wall Street," he said.


Sources: CNBC, MSNBC, Politico, Whitehouse.gov, Youtube