Last week, the Senate passed Sen. Chris Dodd’s (D-CT) financial regulatory reform bill, which means that it now needs to be merged with the bill that the House of Representatives passed last year. A conference committee — which will be chaired by House Financial Services Committee Chairman Barney Frank (D-MA) — will iron out the differences between the bills and send one piece of legislation back to each chamber for a final vote, before the bill goes to the President.

Before all that, however, the Senate has one last piece of business with which to dispense. This evening, it will vote on two “motions to instruct” the conferees, which aren’t binding, but send a message as to what the majority of the body would like the conferees to fight for. And fighting for either of the motions would be problematic.

The first is comes from Sen. Sam Brownback (R-KS) and would push the conferees to exempt auto dealers from oversight by the proposed Bureau of Consumer Financial Protection. And as Tim Fernholz pointed out, the second, sponsored by Sen. Kay Bauley Hutchison (R-TX), would “weaken language that bars banks from speculating with their own capital — basically, an attack on the Volcker rule.”

Already, the ban on proprietary trading in Dodd’s bill is weak tea, giving regulators vast discretion over whether its implemented (after a study is conducted) and what activities are exempted. Hutchison’s motion (based on an amendment that she proposed) would restrict which activities could be regulated even more, by exempting many (vaguely defined) kinds of activities and an entire industry. Here’s what the amendment said:

(B) subject to such restrictions as the Federal banking agencies may determine, does not include purchasing or selling, or otherwise acquiring or disposing of, stocks, bonds, options, commodities, derivatives, or other financial instruments on behalf of a customer, as part of market making activities, or otherwise in connection with or in facilitation of customer relationships, including risk-mitigating hedging activities related to such a purchase, sale, acquisition, or disposal; and

(C) does not include the investments of a regulated insurance company, or a regulated insurance affiliate or regulated insurance subsidiary thereof

So, if the conferees actually take Hutchison’s language to heart, any activity “in facilitation of customer relationships” would be exempted. I imagine a Wall Steet firm could justify almost any activity as facilitating a customer relationship.

The C section, meanwhile, would exempt insurance companies like AIG from the rule. Considering that AIG ran a hedge fund on the side that blew up in spectacular fashion, necessitating repeated federal bailouts, this strikes me as a mistake. As Treasury Secretary Tim Geithner said, “AIG is a huge complex global insurance company attached to a very complicated investment bank hedge fund that was allowed to build up without any adult supervision.” While we should be preemptively preventing insurance companies from threatening the financial system, there’s no reason to give them a blanket exemption from the Volcker rule, discounting the possibility that one could amass systemic risk and engage in risky trading again.

Stronger Volcker rule language, proposed by Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) never came up for a vote on the floor, making it unlikely that stronger language will make its way into the final product. And Hutchison’s language would only make the watery language in the Senate bill even worse.

With the financial regulatory reform legislation headed to a conference committee, both the Senate and the House of Representatives will be turning their attention to a variety of bills, including one that extends several tax breaks and social safety net provisions. However, members of both parties are already approaching the bill with consternation, as they are wary of anything that seems remotely associated with government spending.

Among its important provisions, the bill would extend the enhanced unemployment insurance system that passed as part of last year’s economic recovery act. It provides up to 53 weeks of benefits, with an additional 13 to 20 weeks in states hardest hit by the Great Recession. However, Sen. Judd Gregg (R-NH), appeared on CNBC this morning to say that Congress should stop extending benefits “right now” because “at some point you’ve got to acknowledge that we’re not Europe”:

Q: Senator Gregg, is there a point, you think, when the government has to sort of end these ever-continuing claims?

Gregg: Yeah, right now. This week, however, we’re going to extend it again. And this has become counterproductive. We’re basically undermining the cyclical event. Because you’re out of the recession, you’re starting to see growth and you’re clearly going to dampen the capacity of that growth if you basically keep an economy that encourages people to, rather than go out and look for work, to stay on unemployment. Yes, it’s important to do that up to a certain level, but at some point you’ve got to acknowledge that we’re not Europe.

Watch it:

For one thing, Gregg really has no idea what the package does (which doesn’t stop him from going on cable news to complain about it). It doesn’t extend benefits for anyone past 99 weeks (for which some people in the hardest hit states are eligible). No one is proposing 150 or 120 weeks, as Gregg implied.

What the bill does do is ensure that people who are currently unemployed and would be eligible for extended benefits don’t suddenly have those benefits pulled out from under them. It will also ensure that people who recently lost their jobs or who lose their jobs in the coming months can qualify for the full extent of the unemployment insurance program.

Mark Zandi, chief economist of Moody’s Economy.com, was fortunately on with Gregg, and rebuked the senator. “The senator is right except that, in this environment, the job market is so bad, I think it’s still premature to give up on those emergency benefits,” Zandi said. “I mean, just a statistic, for every one job opening there’s five people that are looking for work. That is incredibly unusual, so therefore its premature to give up on those emergency benefits.”

Not only that, but in March 2010, 6.5 million people had been looking for a job . According to the Center for American Progress’ Christian Weller, “The average length of unemployment that month was 31.2 weeks, and 44.1 percent of the unemployed were out of a job for 27 weeks or more. This is a new record for long-term unemployment.” But Gregg — like so many Republicans in recent months — is willing to kneecap them just as the labor market is starting to turn the corner.

(HT: Mike O’Brien)