Democrats seized on the government's new as one more reason to pass their package now.
"This comes right down to this basic question, whose side are you on? On this one, whose side are you on?" said Sen. Chris Dodd, D-Conn., who introduced the Democratic reform bill.
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But to move the bill forward they'll need at least one Republican vote.
Treasury Secretary Tim Geithner paid a personal visit to two moderate Republicans Thursday: Maine's Olympia Snowe and Susan Collins.
"It's so much more effective to go to the floor with a bipartisan bill," Collins said.
All 41 GOP senators sent a letter to Democrats Friday expressing "opposition to the partisan legislation," arguing the financial reform bill "allows for endless taxpayer bailouts of Wall Street."
The bill creates a consumer protection agency to police mortgage lending and credit card transactions. It regulates the complex derivates market for the first time. And it requires big banks to keep more cash on hand.
But what's generating the most controversy is the creation of a $50 billion fund - paid for by the banks themselves and not taxpayers - for unwinding troubled banks.
"It seemed to me and many others that the very existence of this fund would perpetuate the same kind of risky behavior that led to the last crisis," said Senate Minority Leader Mitch McConnell.
That position drew a sharp response from the president.
"He made the cynical and deceptive assertion that reform would somehow enable future bailouts," President Obama said, "when he knows that it would do just the opposite. "
So, who's right?
"The bill would make bailouts significantly less likely," said the Brookings Institution's Douglas Elliott. "But there's no way to end completely the possibility we may have a truly major financial crisis in 30 years that requires more bailouts."
Republicans say they have plenty of other issues with the bill, which may complicate the Democrats plan to hold the first vote later this week.
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