With the Senate scheduled to begin debate on a financial overhaul bill this week, the fraud suit against the Wall Street titan Goldman Sachs has emboldened Democrats to ratchet up pressure on Republicans who oppose the Obama administration’s proposal.
In a sign of the Democrats’ increasing confidence that they have the better of the argument in an election year defined by voter anger at big banks and bailouts, White House officials said Sunday that President Obama would take his campaign for a regulatory overhaul on the road in coming weeks.
That campaign will resemble his push that helped the health care bill past its final hurdles.
Mr. Obama in effect has made the measure’s fate a highly personal showdown with the Senate Republican leader, Mitch McConnell of Kentucky. Over the last 15 months, Mr. McConnell has sought to defeat each of the Democratic president’s domestic priorities in turn.
In a televised appearance on Sunday, Mr. McConnell asserted that Mr. Obama was “trying to politicize this issue,” and stoutly defended his argument in recent days that the Democratic bill would institutionalize taxpayer bailouts of big banks. On Saturday, Mr. Obama used his weekly radio and Internet address to denounce Mr. McConnell’s claim as “cynical and deceptive” because “he knows that it would do just the opposite.”
Republicans, Democrats and financial industry officials were reluctant to speculate about the fallout from the government’s civil case against Goldman, which was filed on Friday. Privately, there was widespread agreement that the attention to the Wall Street scandal would benefit the Democrats’ efforts to pass the most comprehensive overhaul of financial regulation since the Great Depression.
“I can’t comment on the details of that investigation or on the merits,” the Treasury secretary, Timothy F. Geithner, said on “Meet the Press” on NBC. “But I can tell you that I am very confident that we’re going to have the votes for a strong package of financial reforms that will bring derivative markets out of the dark, help protect the taxpayers from having to fund future bailouts and try to make sure we’re getting Americans some basic protection against fraud and abuse.”
Administration officials were especially unwilling to discuss the Goldman case because it was filed by the Securities and Exchange Commission, an independent federal agency. Also, they fear that being seen as exploiting the issue could hurt, especially amid suggestions from some Republicans and television pundits that the lawsuit’s timing was suspicious, coming so close to the planned Senate debate on the financial overhaul bill.
Just before the Goldman lawsuit became public, Mr. McConnell secured 41 Senate Republicans’ signatures on a letter opposing the Democrats’ Senate bill — enough opponents in theory to keep the bill from coming to the floor for debate. But now, the national media attention to the Goldman case has called that unanimity into question.
While Goldman denies any wrongdoing, the accusations against the Wall Street powerhouse provide real-life evidence for many Americans’ conviction that the financial game, as it is now played, is rigged against them. The accusations of fraud involve derivatives, the sort of complex financial instruments that helped to lead to the banking system’s near-collapse in 2008, and which the pending legislation would regulate for the first time.
Goldman is accused of creating and marketing derivatives tied to high-risk subprime mortgages, without telling investors that the mortgage bonds for the portfolio had been picked by a billionaire investor who then bet against them and profited immensely when the bonds failed.
Even before the Goldman suit, Democrats had become more assured that they would prevail in passing the Senate bill. That would give Mr. Obama another major achievement once it was reconciled with legislation the House approved last year and sent to him for his signature.
To be sure, the efforts by Mr. Obama and the Democrats to step up the pressure on Republicans could backfire and harden their position. But industry lobbyists and administration officials suggested over the weekend that the controversy surrounding Goldman would spur continuing negotiations this week before the Senate debate on a number of outstanding differences, like those on regulating derivatives.
Republicans might remain united on the Democrats’ first try to bring the bill to the Senate floor. But before long, some Republicans could break ranks and vote to permit debate, rather than risk filibustering tighter regulation of big financial firms.
Senator Scott Brown, the Republican from Massachusetts who has made a point of showcasing his independence, said on Sunday that he would be willing to work with Democrats on a compromise version. “We absolutely need to fix certain areas in financial reform,” Mr. Brown said on “Face the Nation” on CBS.
And on Monday, Mr. Geithner will meet with Senator Susan Collins of Maine, who was the last of the Senate Republicans to agree to sign Mr. McConnell’s letter opposing the Democratic bill.
Several Republicans on the Senate Banking Committee have worked with Democrats on the committee for the last year on bipartisan legislation, despite Mr. McConnell’s intervention at times against their talks. Unlike their actions with the less popular health care bill, which Republicans felt free to try to block, Mr. McConnell and other leaders have been careful to profess their desire for better regulation, and not to be seen as defending Wall Street — despite Democrats’ efforts to paint them that way.
“Look, I don’t know anybody in the Senate who thinks we ought not to pass a bill,” Mr. McConnell said Sunday on CNN’s “State of the Union.” “The question is, what’s it going to look like?”
Mr. McConnell was not specific about his objections to Democrats’ legislation until last week, when he argued that the Senate bill would create a “bailout fund” that would effectively guarantee future taxpayer rescues.
Democrats have countered that the $50 billion fund proposed would be financed by banks and other institutions, not taxpayers. The money would be used not to bail out failed companies, they point out, but to keep them alive for customers’ benefit long enough for the government to break the companies up and sell them to investors.
“Regardless of how the money is produced, it is a bailout fund that sort of guarantees in perpetuity that we will be intervening once again to bail out these big firms,” Mr. McConnell said on CNN.
In his appearance on NBC, Mr. Geithner said assertions that the overhaul would amount to a bailout were “absolutely not true.”
Senator Mark Warner, a Democrat from Virginia who has long been at the center of bipartisan negotiations in the banking committee, said on CNN after the Republican leader’s appearance: “One of the things that I think is a bit hypocritical — if there hadn’t been this fund, there potentially could be a gap in financing, right there, where the taxpayers could again be exposed.”
Mr. McConnell also criticized Democrats for rushing to the Senate floor with a bill that had received a party-line vote in the banking committee. That vote came after the committee’s senior Republican, Richard Shelby of Alabama, moved to vote on it as soon as the panel took up the bill, stunning Democrats, who had expected more than a week of debate on amendments.