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Update: Congrats, Sen. Sanders. The Fed audit amendment just passed, 96-0. On to the Vitter amendment....

and Vitter fails, 37-62.

If the Senate has any prayer of getting through financial reform by the stated goal of the end of this week, they'll have to work at warp speed. Given that warp speed for the Senate is at most a half dozen amendments a day, that goal seems unattainable, particularly since as of the deadline for the calendar, they only had two amendments slated for consideration.

The important amendment up today is Bernie Sanders' fed audit, which Republicans successfully postponed from last week by the critical need to have Bob Bennett in town to vote on it, since it was going to be key to his reelection. We all know how that worked out. The amendment, as modified with the assent of Dodd, has the support of the White House. It also has the grudging support of Ron Paul, a cosponsor of the Grayson fed audit in the House. Also being considered today is Republican Sen. Vitter's substitution for the Sanders' amendment, which will have the same language as the Grayson/Paul amendment. It's unlikely to pass, as support has coalesced behind the Sanders amendment, but with the fed audit existing in the Senate bill that goes to conference, there's more of a chance of a tougher final provision.

Unfortunately, the Kaufman/Brown SAFE Banking Act that would have limited the size of financial institutions failed last week, but a few other pending amendments could still strengthen the final bill. Maria Cantwell is a lead author of an amendment which would restore Glass-Steagall, and has said "I don't think I could vote for cloture without a vote on Glass-Steagall."

Jack Reed announced yesterday that he'll have an amendment to close a loophole in the base bill "that would allow private equity and hedge funds to avoid registering with the Securities and Exchange Commission."

"At the heart of it is the need for increased transparency, particularly when it comes to the large pools of money," said Reed on a conference call with reporters. "We also believe that this type of registration is not cumbersome to the industry but will afford the regulators a better sort of sense of the overall market. It will help in a way to diminish potential systemic risk. It will also be something that will allow investors to have more confidence in the market."

Senators Merkley and Levin will introduce the PROP Trading Act that would apply Paul Volcker’s financial reform principles, which:

  • Bars banks, bank holding companies, and their affiliates and subsidiaries from engaging in high risk speculation involving any stock, bond, option, commodity, derivative, or other security or financial instrument.  Also bars those entities from investing in or sponsoring a hedge fund or private equity fund.
  • Requires large, important nonbank financial institutions to set aside additional capital to discourage them from engaging in high-risk speculation and investing or sponsoring hedge funds or private equity funds.  The bill also puts strict limits on the amount of such speculation.
  • Prohibits securities brokers from betting against the packages of loans (asset-backed securities) they are promoting to their clients.

Finally, new from Sheldon Whitehouse, is the Interstate Lending Amendment which is intended to correct a 1978 Supreme Court ruling that "interpreted the word 'located' in the National Bank Act of 1863 as meaning the location of the business and not the location of the customer."

This creates a big problem – if South Dakota moved to regulate credit card rates in anyway the industries will just move to the next state. All states would have to move together, presumably through Congress, but that would be inefficient – Idaho doesn’t have the same credit markets as Vermont which doesn’t have the same credit markets as Texas.

So why not just update the National Bank Act to go to the original meaning? A credit card company can be situated in South Dakota, but if it is lending to California it has to follow California’s rules. If it is lending to Texas, it has to follow Texas’ rules. This combines local knowledge, federalism while still taking advantage of national credit markets in a powerful way.

Which is what the Whitehouse amendment (co-sponsored by Merkley, Durbin, Sanders, Levin, Burris, Franken, Sherrod Brown, and Menendez) would do--update the National Bank Act.

Hopefully the Senate will actually be able to vote on some of these important amendments this week.

Originally posted to Daily Kos on Tue May 11, 2010 at 08:16 AM PDT.

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