WASHINGTON – WASHINGTON (AP) — In a concession, Senate Democrats agreed Tuesday to jettison a $50 billion fund that Republicans attacked repeatedly as a perpetual Wall Street bailout-in-waiting, according to officials in both parties, clearing one of the key obstacles to approval of tougher federal controls over the financial industry.
While a formal announcement was held up pending a review by key lawmakers and the Obama administration, the emerging agreement was designed to assure that any future taxpayer costs arising from the liquidation of big firms in the future would be temporary and on a case-by-case basis.
The agreement marked a retreat by Democrats, who had protested bitterly in recent days that Republicans were inaccurate with claims that the multi-billion-dollar fund would serve as a source for future bailouts.
Democrats said they hoped for votes on proposed changes to the bill during the day, but there were none, and Majority Leader Harry Reid, D-Nev. accused Republicans of blocking them as part of a strategy of "stalling on everything we do."
President Barack Obama has made an election-year priority of congressional passage of legislation to prevent future economic calamaties like the one that plunged the country into a deep recession 18 months ago. Opinion polls suggest strong support for additional federal regulations, even though numerous surveys also report high levels of public distrust of government's abilities to solve problems.
Obama, speaking to a business organization, said there would be "legitimate differences on the details of what is a complicated piece of legislation" in the coming days.
At the same time, he said, "We cannot allow these reforms to be watered down. And for those of you in the financial industry whose companies may be employing lobbyists seeking to weaken this bill, I want to urge you, as I said on Wall Street a couple of weeks ago, to join us rather than to fight us."
While the fund would be gone, taxpayers could wind up fronting billions of dollars to help cover the costs of taking down a failed firm, money that would take the forms of loans from the Treasury to the Federal Deposit Insurance Corp.
Additionally, the Treasury would be required to recover those costs over time from the sale of a firm's assets and from its creditors. As a last resort if not enough money could be raised, the government would assess a fee on other large financial institutions.
The emerging agreement left at least two unresolved major issues on the legislation, which is designed largely as a response to the near economic collapse of 2008.
As drafted, the Democratic-backed bill calls for an independent consumer protection agency with authority to police lending, credit cards and other, similar transactions. Republicans say the provision is so broad that it could adversely affect car dealers and even dentists whose patients pay their bills over time — criticisms that Democrats dispute.
Additionally, Democrats hope to use the legislation to create federal controls on complex investments known as derivatives, which many experts blame for the near-collapse of the economy in 2008. The issue has exposed splits among Democrats, and between Senate liberals and the White House, as much as partisan disagreement with the Republicans.
Banks, car dealers and other interests have deployed legions of lobbyists to try and shape the bill to their liking, and White House communications director Dan Pfeiffer issued a list of "The 10 Most Wanted Lobbyist Loopholes" that he said special interests were seeking.
But for political maneuvering, nothing could match the political competition as Democrats and Republicans vied for the prize of staunchest opponents of future taxpayer-financed bailouts.
Sen Barbara Boxer, D-Calif., sought a vote on an amendment that specified there would be no taxpayer losses as the result of any large bank failure of the future, a proposal that even some Democrats said privately was partially designed to shore up her support in an unexpectedly difficult re-election campaign.
Sen. Bob Corker, R-Tenn., was more blunt, calling it pure political cover.
"The Boxer vote is totally, absolutely window dressing," he said. "It has nothing to do with substance at all. Nothing, zero."
There is no timetable for completing the bill, and the Democratic and Republican leaders pointedly disagreed during the day on prospects for a final vote.
"I must tell you, I don't think this is a couple of weeks bill," said the Republican leader, Sen. Mitch McConnell of Kentucky. "It's not that we don't want to pass it, but we do want to cover the subject."
Moments later, Reid said he intended to finish the legislation "next week or sooner."
With 41 seats, Republicans have the votes to prevent a final vote as long as they remain united.
The House has cleared its version of the measure.
Separately, Treasury Secretary Timothy Geithner told Congress he is open to including Obama's proposed tax on large banks in the measure, but added he would defer to congressional leaders.