Not so fast, Sen. Dodd. You're telling us this is about Republicans blocking reform, but I agree with Russ Feingold - don't vote until we have a real reform bill. Keep talking!

WASHINGTON With one Democrat absent and two others voting no, the Senate failed to get the 60 votes needed to avoid a filibuster and bring the huge overhaul of financial regulations to a vote.

Democrats and Republicans have been trying to reach agreement on a few key issues, but some disputes apparently are lingering over several amendments.

Another vote is expected on Thursday, and Democratic leaders were optimistic that they could overcome the procedural hurdle.

The Democrats fell two votes short, though the vote was 57-42. Majority Leader Harry Reid of Nevada changed his vote to 'no' to make it easier to hold another vote. He blasted Republicans after the vote for voting to "protect the big banks on Wall Street."

[...]Cantwell wants votes on two amendments -- one to tighten new proposed regulations on complex financial derivatives and another to restore a prohibition against federally insured commercial banks also doing investment banking. Feingold also wants a vote on the banking prohibition.

"The test for this legislation is a simple one -- whether it will prevent another financial crisis," Feingold said after the vote. "As the bill stands, it fails that test. Ending debate on the bill is finishing before the job is done."

Maybe if I go back to bed, this will all turn out to be a bad dream? No such luck. Our corrupted, money-centered political system looked at the recent events, saw how lack of regulation and enforcement turned the economy on its head, and concluded... what? That it would be better to reward the perpetrators by protecting them from consequences!

What they're really doing is constructing a system where people will return to keeping their money in a shoebox under the bed:

...The primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law.

I think it's pretty obvious that we need to change the procedural rules in the Senate, and hopefully get around obstructionist tactics while still allowing honest debate and compromise. We can't have a system where senators from sparsely-populated states maintain such disproportionate power (and that's not even getting into the reality of a Congress corrupted by K Street):

WASHINGTON - Senate Banking Committee chairman Christopher Dodd, who one month ago proposed an overhaul of financial regulations that was hailed by many consumer activists, has all but jettisoned that proposal following Republican objections and has initiated talks for a new approach designed to satisfy some of his fiercest GOP critics.

Dodd’s strategy has raised concerns among consumer activists who were counting on him to come up with a tougher bill than the one recently passed by the House, and now worry that the entire measure will be weakened.

But the Connecticut Democrat, in an interview in which he laid out his strategy, said it would be too risky to launch another legislative effort that might repeat the Senate’s experience with in the health care debate, in which single senators have forced major rewrites or threaten to defeat the measure.

Dodd’s new approach began last week when he paired four Republicans and four Democrats on the Banking Committee to work together to come up with suggestions on reshaping the legislation. The process has not produced any details and is expected to continue through January, but participants have said they are hopeful of brokering a compromise bill that could get a Senate vote next year.

Asked what has become of his initial proposal, Dodd replied: “I laid down a bill that is as much a reflection of where I am on this as to plant a flag. I did what I wanted to do. I provoked people.’’

The strategy contrasts with the method employed by his legislative counterpart, House Financial Services chairman Barney Frank, who oversaw passage of a bill that would transform the regulatory landscape for banks and many businesses - while failing to gain a single Republican vote. Unlike in the House, where bills can pass by a single vote, Dodd needs 60 of 100 senators to avoid a filibuster.

Of course they did. After all, you can't make all those big donors unhappy, right? The amount of corruption in our political system has far outstripped our ability to change it. The NDC thinks our nation is ill-served by state laws that are more difficult to game on behalf of the financial services industry.

Is there anything they won't do to screw us?

The compromise reached late Wednesday between pro-reform House Democrats and the banker-friendly wing of the party could significantly weaken consumer protection in states where lawmakers support tougher rules against tactics such as predatory lending and excessive ATM fees than historically submissive federal regulators.

Members of the New Democrat Coalition -- whose deference to big banks is reflected in the massive amounts of money they have taken from the financial services industry since 2008 -- temporarily blocked the landmark financial regulatory reform bill from hitting the House floor on Wednesday.

At issue was whether federal regulations should be a floor or a ceiling for consumer protection in the states, particularly as they affect big national banks like JPMorgan Chase, Citibank, Bank of America and Wells Fargo.

The Obama administration, Financial Services Committee Chairman Barney Frank, state attorneys general and a coalition of consumer advocates and law professors want states to be able to enforce tougher consumer financial protections.

The big banks, obviously, want federal regulations -- which they have found relatively easy to influence -- to preempt any more onerous state rules for banks operating in more than one state.

Working on behalf of the big banks, the New Dems were able to extract a compromise that will allow federal regulations to preempt state laws on a case-by-case basis.

State regulators have extracted billions of dollars from predatory lenders over the past decade through fines and court settlements, and state legislatures adopted strong anti-predatory lending measures years before Congress. Federal regulators were largely absent from the fight to protect consumers or acted too late, consumer advocates argue.