Republicans Hand Senate Financial Reform Bill Early Defeat

Senate Republicans blocked a key vote today that would have sent the financial reform bill to the full Senate for debate.

The most extensive new Wall Street regulation since the Great Depression is aimed at preventing another financial crisis, but failed an initial procedural vote, 57-41, three short of the 60 needed to bring the bill to the floor.

Democrats accused Republicans of siding with Wall Street banks.

Senate Majority Leader Harry Reid compared the vote with deciding "whether party unity is more important than economic security."

President Obama said he was "deeply disappointed' in the vote.

Republicans were joined in their filibuster by Sen. Ben Nelson, D-Neb, sending negotiations on a Wall Street reform bill back behind closed doors as Democrats and Republicans try to find accord.

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Chairman of the Committee on Banking, Housing, and Urban Affairs Sen. Chris Dodd, D-Conn., and ranking member Sen. Richard Shelby, R-Ala., met earlier today and may meet later tonight as they try to bridge their differences over the 1,000 plus page bill that passed through Banking Committee on party lines in March.

After the vote, Sen. Olympia Snowe, R-Maine, who had been viewed as a potential Republican switcher, issued a statement calling the vote "premature."

"If the Majority were truly interested in crafting the best policy by incorporating bipartisan ideas into the financial reform bill, they would not have proceeded to this premature and politically motivated vote. As progress continues to be made, we should be taking the additional time to work out the differences on the few issues where disagreements remain, so that we revise the current bill to protect Main Street and not Wall Street," she said.

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Sen. Richard Shelby on Finance Reform

Senate Democrats had hoped for a last-minute bipartisan deal before calling a vote to move the measure to the floor for debate. But Republicans say they're not ready to leave the negotiating table.

"All of us want to deliver a reform that will tighten the screws on Wall Street. But we're not going to be rushed on another massive bill," Senate Minority Leader Mitch McConnell, R-Ky., said on the Senate floor.

Both parties largely agree on the necessity of tough new regulations on banks, new protections for consumers and assurances that the government will never again need to bail out massive financial institutions, but they differ on the fine print.

VIDEO: Congressional Democrats and Republicans try to work out a finance reform deal.Play

We are "conceptually very close together," Shelby told ABC News earlier today. But "there's flexibility in what the FDIC and the Fed can do now and we want to tighten that language up."

Many Republicans fear the legislation has too many loopholes that could allow for future bailout of Wall Street firms. Others say some rules are too broad and could infringe on small banks and businesses that have played by the rules.

Still, Democrats insist there should be no more delay in implementing the measures.

"Here we are 17 months after someone broke into our house, in effect, and robbed us, and we still haven't even changed the locks on the doors and we need to get it done," Dodd said Sunday on NBC's "Meet the Press."

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Senate Majority Leader Harry Reid, D-Nev., also blasted Republicans for the delay, saying today they should consider "whether party unity is more important than economic security" and vote to consider the bill.

"This afternoon's vote is a vote merely to begin debate," Reid said from the Senate floor. Democrats, who hold 59 seats in the Senate, would need 60 votes to override a Republican veto.

Meanwhile, Republicans are preparing their own comprehensive reform proposal, which could be unveiled later this week if a deal with Democrats is not reached.

Sixty-five percent of Americans support greater federal restrictions on banks and financial institutions, according to a new ABC News/Washington Post poll.

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Limits on Derivatives a Sticking Point

Among the finer points in the ongoing debate is how to regulate the emergent derivatives market.

Derivatives, or "bets" on the future value of a stock, bond or commodity, have been traded in a murky marketplace largely free of government regulation in recent years. Under Democrats' proposal, nearly all derivative contracts would have to be traded on public exchanges and approved by clearinghouses.

Today, Shelby said on ABC's "Good Morning America" that he and other Republicans may be open to limits on derivatives trading.

"That might be a good idea," Shelby said. "I haven't seen all the details of it, but I can tell you when they use other people's money, especially when they rely on the taxpayer to do this kind of risk-taking, if something goes wrong they take the whole system down. We don't need this."

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The derivatives measure being pushed by Dodd and Sen. Blanche Lincoln, D-Ark., is part of the broader financial regulatory reform package and considered a key element in President Obama's reform plan.

"The fact is that there are now $600 trillion of derivatives that are trading in the dark, that we know virtually nothing about and are unregulated," White House economic adviser Austan Goolsbee said Sunday on ABC's "This Week."

Some lawmakers, however, appear concerned about the potential impact of proposed restrictions on less risky derivatives used by some manufacturers and companies.

"[The limits on derivatives] would suck more money out of the American economy than the stimulus injected into it," one Republican staffer close to the negotiations told ABC News. "It would negatively impact jobs, and would increase the cost of just about everything."

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The proposal would still allow banks to trade derivatives with their own money, but they would be ineligible for backing by the taxpayer-funded Federal Deposit Insurance Corporation or access to special, low-interest rates from the Federal Reserve.

Goldman Sachs E-Mails Add Pressure to Financial Regulatory Debate

The vote comes as Goldman Sachs CEO Lloyd Blankfein prepares to testify Tuesday before a committee investigating the bank's actions as the real estate market came crashing down.

The Senate Committee on Investigations released e-mails from Goldman Sachs executives about the company's plan to profit from so-called short sales, or bets that the market would go down.

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"We lost money, then made more than we lost because of shorts," Blankfein wrote. "Also, it's not over."

Committee Chairman Sen. Karl Levin, D, Nev. said today that the evidence that Goldman was holding a short position was clear from the documents they examined.

In prepared remarks to be delivered Tuesday to Levin's committee, Blankfein says his company "didn't have a massive short against the housing market, and we certainly did not bet against our clients."

But in Blankfein's testimony, released this afternoon by Goldman, he will tell the committee that he agrees with Congressional efforts to bring more transparency to the derivatives market.