This vote was on an amendment by John Ensign, R-Nev., that would have restricted government-sponsored enterprises (such as Fannie Mae and Freddie Mac) to the same size as that imposed on financial institutions.  The amendment was offered to a bill that aims to close gaps in financial regulations, strengthen oversight of consumer lending and more closely oversee financial derivatives.  Derivatives are, in essence, very complex financial contracts that businesses use as a hedge against large changes in the price of some commodities such as gasoline, but that have also become popular with speculators looking to gamble on big profits.  Speculation in derivatives, relatively unhampered by regulation, is often blamed for partially contributing to the financial meltdown in 2008.

One of the things the underlying bill seeks to do is to eliminate any situation in which an institution could grow so large that it would be considered “too big to fail.”  To achieve that, the bill would limit banks to lending at 3 percent of the gross domestic product.  Ensign said his amendment would place the same restriction on Fannie Mae and Freddie Mac.

“We saw yesterday afternoon that Freddie Mac said they needed another $10 million in taxpayer bailouts. There is no question it is too big. There is no question that if we actually put their debt on our balance sheets, we look much worse, the deficits on our balance sheet, we look much worse,” Ensign said.  “There are other things I believe that need to be done with Fannie and Freddie, but certainly we can’t allow them to get as large as they are now. So the reasonable limits that have been put on the large banks I think need to be put on these GSEs, the government-sponsored entities, and if we do that, I think we will be in better shape.”

Chris Dodd, D-Conn., said 97 percent of all mortgages in the country are run through government-sponsored entities such as Fannie and Freddie, and therefore these kinds of changes need to be made very carefully.

“Without them, there is no housing market in the country. So before we decide to do this without any alternative in place—and clearly one is needed. I take a backseat to no one on the idea we need to reform how the GSEs are functioning,” Dodd said.  “As I think my friend Judd Gregg mentioned the other day, this is far too complex an issue to include in this bill. We already have 1,500 pages. We never intended to deal with every financial issue in the United States, and particularly one where the housing market today is completely dependent on this. Adopt this amendment and, believe me, by tomorrow we will have an economic reaction in the country we won’t want to believe.”

By a vote of 35-59, the amendment was rejected.  Of Republicans present, 28 voted for the amendment and eight voted against it.  Of Democrats present, seven voted for the amendment and 49 voted against it (including the most progressive members).  The end result is that the measure went forward without language that would have restricted the size of government-sponsored enterprises to the same size as what is imposed on banks.