Today, debate on Sen. Chris Dodd’s (D-CT) financial regulatory reform bill resumed in the Senate, with votes on amendments scheduled to begin tomorrow. The first amendment on the docket comes from Sen. Barbara Boxer (D-CA) and strictly stipulates that taxpayer funds can not be used to prop up a failed financial firm (which really just reinforces the resolution authority already in the bill).

Republicans used their time on the floor today to disparage the bill, in a preview of the rhetoric we can expect when debate over more contentious amendments comes around. Sen. Jim “tough sh*t” Bunning (R-KY) was no exception, as he employed the oft-repeated, but false, conservative meme that the bill preserves and institutionalizes bailouts. But Bunning then said that the bill should place “hard limits on the size of financial companies” and that banks in excess of the cap “must be forced to shrink”:

Decades of combinations have allowed a handful of banks to dominate the financial landscape. The four largest financial companies have assets totaling over 50 percent of our annual gross domestic product…I would rather take away the taxpayer protection for creditors of large firms and let the market determine their size. But if that is not going to happen, we should place hard limits on the size of financial companies and limit the activity of banks with insured deposits. Any financial company that are over those size limits must be forced to shrink. This will lead to a more competitive banking sector, reduce the influence of the largest firms, and prevent a handful of them from holding our economy and our government hostage ever again.

Watch it:

With his rhetoric, Bunning sounds a lot like Kansas City Federal Reserve President Tom Hoenig, who has said “I think [the biggest banks] should be broken up…And in doing so, I think you’ll make the financial system itself more stable. I think you will make it more competitive, and I think you will have long-run benefits over our current system.”

Bunning is correct that, as currently written, the bill does not place hard caps on the size of financial institutions (and, in fact, does not lay out capital requirements for the biggest banks either). But Bunning has the opportunity to rectify that, by supporting an amendment proposed by Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE) that would impose a cap of 10 percent on a bank’s share of national deposits, limit non-deposit liabilities to 2 or 3 percent of GDP, and set a six percent leverage limit for bank holding companies and systemically risky non-banks.

To his credit, last month Bunning voted in the Senate Banking Committee for an amendment proposed by Sen. Bernie Sanders (I-VT) that would have broken up large financial firms. His stance contrasted with that of some of his Republican colleagues, who had paid lip service to breaking up banks, then voted against the Sanders amendment. So will Bunning continue to support breaking up big banks by voting for Brown-Kaufman? And since he also expressed a desire to “limit the activity” of banks with federally insured deposits, will he be supporting the Volcker rule? We’ll know once the debate gets rolling this week.

Tomorrow, the Senate Finance Committee is scheduled to hold a hearing on the Obama administration’s proposed bank tax, with testimony from Treasury Secretary Tim Geithner and a variety of industry lobbyists, including Steve Bartlett, president of the Financial Services Roundtable, who has said that the bank tax is “one of the more bizarre, punitive taxes I’ve ever seen.”

Of course, it makes sense that the financial industry is fighting efforts at new taxation. But today, a group of New York state lawmakers joined the big banks’ effort, and penned a letter to Rep. Peter King (R-NY) to ask that he oppose a bank tax because it “would make New Yorkers pay for the sins of Detroit”:

The lawmakers are telling Congress the president’s plan, “would make New Yorkers pay for the sins of Detroit”…10 members of the New York State Assembly are urging Congress against the proposal, saying the tax, “is loaded against New York because we are where the vast majority of affected financial institutions have their largest employment and profit centers.” The letter is signed by Darryl Towns, Jose Peralta, Michael Gianaris, Jonathan Bing, Vanessa Gibson, Adriano Espaillat, Adam Clayton Powell, Carl Heastie, Sam Hoyt and Marcos Crespo.

This shows, once again, the folly of the administration portraying the bank tax solely as a means of recouping losses from the Troubled Asset Relief Program (TARP) — which are largely the result of AIG and the auto companies, not the banks — instead of as a way to make the banking sector pay for the variety of guarantees it received during the financial crisis and beginning to even the playing field between big and small banks. The New York lawmakers chose the obvious rejoinder to a tax framed that way.

They also chose a proper advocate for their viewpoint by sending their letter to King, as he is staunchly opposed to the bank tax. Not only has he made significant noise about financial regulatory reform placing an “unnecessary burden” on Wall Street banks, but he personally organized a Chamber of Commerce backed effort to kill the bank tax outright earlier this year.

Fortunately, not all New York lawmakers feel the same way about the bank tax. Sen. Charles Schumer (D-NY) has said that “I think the administration’s proposal is a common-sense way to make sure that money should be repaid, and I believe it should be included in financial reform legislation to be considered on the Senate floor.” And Schumer has a growing consensus on his side.

Over the weekend, the oil spill at a British Petroleum rig in the Gulf Coast continued, and Secretary of the Interior Ken Salazar said that it may take up to three months before the leak is plugged. “It potentially is very catastrophic. And I think we have to prepare for the worst,” Salazar said.

States along the coast are bracing not only for the cleanup efforts needed when the oil begins to wash ashore but also for the economic impact of the spill. Over the weekend, David Kotok, of the market-analysis firm Cumberland Advisers, penned an exceedingly gloomy missive on the situation. “Three scenarios lie ahead. They rank as bad, worse, and ugliest (the latter being catastrophic and unprecedented). There is no ‘good’ here” he wrote:

This will be a financial calamity for many firms, not just BP and its partners and service providers. Their liabilities are immense and must not be underestimated. The first estimate of $12.5 billion is only a starter. Thousands of small and independent businesses as well as larger public companies in tourism are hurt here. This is not just about the source of half the nation’s shrimp. That is already a casualty. It’s also about the bank loans for the $200,000 shrimp boat and the house the boat owner and/or his employees live in and the fact that this shock piles on a fragile financial system that is trying to recover from a three-year financial crisis. [...]

Federal deficit spending will certainly rise by tens, and maybe hundreds, of billions as emergency appropriations are directed at larger and larger efforts to clean up this mess. At the same time, federal and state revenues tied to Gulf-region businesses will fall.

For comparison’s sake, the Exxon Valdez oil spill exceeded $7 billion.

Louisiana, where oil has already started coming ashore, is the largest seafood producer in the continental United States, with annual sales of almost $2 billion. The federal government has banned commercial fishing for at least 10 days off the coasts of four states, and already, affected fisherman are seeking damages in the millions from BP. Forty percent of the fish harvested in the lower 48 states comes from the Gulf of Mexico. Louisiana also has a recreational fishing industry that pulls in revenues of about $1 billion per year, according to state figures.

According to the Environmental Protection Agency, the Gulf of Mexico supports a $20 billion tourist industry, which will also be impacted by the spill. “I have reports…that travelers are canceling plans for May and June reservations for fear oil will be on the beach,” said John Hairston, chairman of the Gulf Coast Business Council’s tourism committee.

President Barack Obama yesterday emphasized that BP will ultimately be held responsible for the cost of the cleanup, including for the cost of federal resources that are deployed. “Let me be clear: BP is responsible for this leak. BP will be paying the bill,” Obama said. BP made $163 billion in profits from 2001-2009. It made $5.6 billion in the first quarter of this year alone.

Read more about the economic costs of the oil disaster in today’s Progress Report.