In a significant turn of events, the Senate has passed a bill pushing for major financial reform in an effort to stop the chain of events that caused the market meltdown from happening again. The bill, designated as the Dodd-Frank bill, after Sen. Chris Dodd of Connecticut and Rep. Barney Frank of Massachusetts who were largely responsible for pushing the legislation through Congress.
After over a year of back and forth debate, this hefty bill passed with a 60-39 vote, hours after the Democrats cleared what could have been a GOP filibuster on the landmark legislation, which relies heavily on federal regulators in the housing market. By avoiding this procedural hurdle, Senate Democrats were able to get the vote through before the end of their session.
Three Republicans - Scott Brown of Massachusetts and Olympia Snowe and Susan Collins, both of Maine - voted with the Democrats to pass the legislation, while one Democrat - Russ Feingold of Wisconsin - sided with the Republicans. Though a controversial and largely partisan issue, the majority on the Senate floor has officially moved this financial overhaul forward.
The house version of the bill passed through Congress late last month after much debate on the Floor and a brief time in conference committee to combine the versions of the bill. The finished product is a total of 2,300 pages of step-by-step instructions as well as sweeping institutional implementations that look to reshape the American financial system for the better.
On top of the sweeping real estate market reforms this legislation brings, it also places an additional responsibility on banks, requiring them to keep more money in reserve so as to be better prepared for rough economic times in the future.
The legislation creates an independent consumer bureau within the Federal Reserve to protect consumers from predatory lending practices, oversee the immense derivatives market and give the government authority and resources to seize and ultimately wind down banks that are hurting the market as a whole.
A central goal of the legislation is to require that financial institutions ensure borrowers will be able to repay their mortgages. To provide for this, lenders would have to tell borrowers the most they might have to pay on an adjustable rate mortgage (ARM), explaining that payments vary in accordance with changes in interest rate.
The legislation also prohibits repayment penalties for adjustable rate mortgages or subprime loans and limits them to three years for traditional loans. The goal behind this is to avoid locking homeowners into expensive loans, a common practice which many believe contributed to the housing crisis.
Of course debate still exists over whether the government should be overseeing the economic recovery in the first place. While some argue that government programs and stimulus packages work against the natural market cycle, others stress necessary intervention in times of economic crisis. Institutional reform is of the utmost performance to the financial sector at the moment because it has the power to make or break the market.
The bill is now headed to the White House, where aides expect President Obama to sign into law the legislation he urged Congress to create. The passage of this bill marks President Obama's second major legislative victory of the year, behind the much-discussed healthcare reform bill, passed in March. Once signed into law, a long and trying process is expected to implement and fund the regulation set forth in the bill.
