Jobs report shows momentum for new year

The government is expected to report Friday that businesses stepped up hiring in December, a trend likely to gain momentum in 2011.

Economists are predicting that employers added a net total of 145,000 jobs last month and that the unemployment rate dipped to 9.7 percent.

Some are even more optimistic after a private payroll firm estimated this week that companies added nearly 300,000 jobs in December. Also encouraging was a report that fewer people applied for unemployment benefits over the past month than in any four-week period in more than two years.

A decline in layoffs has consumers feeling better about the economy and spending more freely. This past holiday shopping season was the best in four years.

And a payroll tax cut that goes into effect this month will give Americans even more money in the new year. Economists expect that will boost economic growth and give businesses more confidence to hire.

“Consumers are no longer as concerned about their job security, and that’s giving them a little more confidence to go out and spend,” said Ryan Sweet, an economist at Moody’s Analytics.

The economy needs to generate about 125,000 jobs a month just to keep up with population growth and prevent the unemployment rate from rising. More than double that amount is needed to reduce the rate.

Last year, the nation added an average of 86,500 jobs a month through November. The unemployment rate, meanwhile, actually rose — from 9.7 percent in January to 9.8 percent in November.

But many economists expect hiring to ramp up in 2011. Goldman Sachs projects that employers will add 2.2 million jobs this year, or about 180,000 a month, double last year’s amount. Moody’s Analytics puts the figure at about 250,000 per month.

Still, the recession left a deep hole in the job market. More than 7.3 million jobs were eliminated during the downturn. Most economists expect the unemployment rate will still be near 9 percent by the end of 2011.

Federal Reserve Chairman Ben Bernanke, who is scheduled to testify about the economic outlook Friday on Capitol Hill, has said it will take years for the unemployment rate to return to a healthy level of about 5.5 percent.

One positive development is that small businesses are starting to add more workers after lagging behind their larger counterparts. The National Federation of Independent Business said Thursday that its measure of the small business hiring outlook rose to its highest level in more than two years in December.

Meanwhile, applications for unemployment benefits rose last week to a seasonally adjusted 409,000, the Labor Department said Thursday. Still, that’s not much higher than the 391,000 level reached in the previous week — the lowest in more than two years — and week to week figures tend to fluctuate more during the holidays.

A more reliable measure is the four-week average for applications. That fell last week to 410,750, the lowest level in nearly two and a half years and the eighth decline in nine weeks.

Fewer than 425,000 people applying for benefits signals modest job growth. And applications are far below their peak during the recession of 651,000, reached in March 2009. Still, economists say applications need to fall consistently to 375,000 or below to substantially bring down the unemployment rate.

The weekly unemployment benefits numbers provide a real-time snapshot of the job market. Applications reflect the level of layoffs, but can also indicate whether companies are willing to hire.

Separately, the International Council of Shopping Centers said that consumers increased their spending in November and December by 3.8 percent, the largest increase in holiday spending since 2006.

Copyright © 2011 The Associated Press

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End of TARP leaves small banks scrambling to repay

The U.S. government’s $700 billion bailout of the financial system has become a form of long-standing aid for many of the nation’s small and regional banks, even as the program officially expires on Sunday.

The banks are eager to repay the taxpayer money, but the meek economic recovery has gotten in the way.

Analysts and attorneys that work with banks on capital issues said the institutions are feeling pressure to replace the government aid, facing the prospect of skyrocketing dividend payments on funds from the Troubled Asset Relief Program, or TARP.

This pressure is likely to compel small and regional banks to raise capital or sell themselves to rivals in the coming years, according to analysts.

“Pay days for a lot of banks got pushed out,” said Jeff Davis, bank analyst with Guggenheim Securities. “We all expected much of this to be repaid by 2011, but the economy’s not growing like we all thought.”

Bigger banks have recovered more quickly from the 2007-2009 financial crisis and have been able to get out from under TARP while many small banks continue to struggle with their exposure to the residential and commercial real estate markets.

Smaller institutions also have fewer ways to drag in profits than their larger competitors.

“They don’t participate in the kinds of activities where the big banks have made big profits,” said Simon Johnson, a professor at the MIT Sloan School of Management. “A lot of it is around trading, including in derivatives and the big banks have huge market share in that now.”


In October 2008, the Treasury Department created as part of TARP the Capital Purchase Program to dole out funding to banks large and small to shore up their balance sheets and prod them into lending.

It has disbursed $205 billion to 707 institutions in chunks as large as $25 billion and as small as $301,000. As of August 2010, $140 billion had been repaid with 80 institutions giving back all they received, according to the Treasury.

The largest banks, like Bank of America Corp and Goldman Sachs, have repaid the billions they received. It has been harder, however, for smaller institutions like Regions Financial Corp and SunTrust Banks Inc.

The two U.S. Southeastern banks combined have $8.5 billion in TARP investments that have yet to be repaid. Executives for both banks have said they wish to repay the money as soon as possible, and are working with regulators.

A delay for any bank will have consequences.

The dividend payments for TARP banks rise from 5 percent to 9 percent on the 5-year anniversary of their receipt of the initial preferred stock investment. Many banks, and regulators, are hoping to avoid that.

“For some of them, the laggards, that’s what is going to get them out of this — the regulators,” said Mark Calabria, a Republican aide on the Senate Banking Committee when TARP was created who is now with the libertarian Cato Institute.

That pressure, analysts said, could force a new round of industry mergers and acquisitions, or large amounts of banks trying to access the capital markets for funds to replace Uncle Sam’s investment.

But for smaller banks, raising capital with a public offering may not be an option. Investors are still skittish about investing in such institutions even in the best of times, much less coming off the worst crisis in decades.

Banks will also be dealing with new, stronger capital requirement, which may force them to deal because of fewer options for what now counts as core capital.

Under the Dodd-Frank Act and pending Basel III rules, some of the securities and instruments that banks’ relied on as core capital are now excluded, like trust-preferred securities.

“I don’t know if anyone’s fully thought through the affect this will have on raising capital to repay TARP,” said Chip MacDonald, an Atlanta-based banking attorney with Jones Day. “I see the new regulations impeding some TARP refinancings.”

“Everybody’s worried,” MacDonald said, about repayment.

Copyright © 2010 Reuters Ltd.

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BP execs face grilling on Capitol Hill


BP Plc’s U.S. chief faces accusations in Congress on Tuesday that the energy giant caused the worst oil spill in U.S. history with a calculated strategy to cut costs, hours before President Barack Obama uses a televised address to defend his handling of the disaster.

A day after BP shares fell 9 percent in London and New York and the company hired investment bankers for undisclosed reasons, U.S. lawmakers will ask Lamar McKay why BP made repeated choices that appeared to favor cost savings over safety before its rig blew up in the Gulf of Mexico.

BP shares steadied in early London trading on Tuesday, dropping by more than 2 percent early on before recovering to stand just 0.4 percent lower at 356.75 pence at 0825 GMT — indicating a modest recovery in U.S. trade later.

McKay, the head of BP America, will be surrounded at the congressional hearings by executives from Exxon Mobil, Chevron, ConocoPhillips and Royal Dutch Shell seeking to stave off repercussions for the industry.

McKay’s rivals are likely to hang him out to dry in a rush to prove their companies would never take such risks or face such failures as the spill that has poured millions of gallons of oil into the Gulf of Mexico.

“This incident represents a dramatic departure from the industry norm in deepwater drilling,” Exxon Mobil Chairman and Chief Executive Rex Tillerson said in prepared testimony obtained by Reuters.

The April 20 explosion on an offshore rig killed 11 workers and ruptured BP’s well. The spill has fouled 120 miles of U.S. coastline, imperiled multibillion-dollar fishing and tourism industries and killed birds, sea turtles and dolphins.

In a pivotal week in the crisis, Obama wraps up a two-day trip to the Gulf on Tuesday before returning to Washington to give a televised speech aimed at seizing political momentum that has slipped away as the oil flows unabated.

Some Gulf residents are angry at the commander-in-chief.

“This is ridiculous. This is America. They’re letting BP control this country? Or any other oil company? What’s going on in this world?” said oyster dock manager Terry Alexis in Empire, Louisiana.

Obama said he would press BP executives to deal “justly, fairly and promptly” with damage claims when he meets them at the White House on Wednesday.

The spill has overshadowed Obama’s political agenda of job creation and Wall Street reform — both key issues in November congressional elections in which his fellow Democrats are expected to face tough fights to hold on to their majorities.


BP has lost more than 40 percent of its market value since the crisis began and faced a barrage of criticism over its handling of the cleanup. Last week, it was confronted with a White House threat to widen its liabilities for the disaster.

Two Democratic lawmakers said British-based BP chose faster and cheaper drilling options in the Gulf of Mexico that “increased the danger of a catastrophic well failure.”

“It appears that BP repeatedly chose risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk,” Henry Waxman and Bart Stupak, the top Democrats on the House of Representatives Energy and Commerce Committee, said in a letter ahead of Tuesday’s hearing.

They quoted e-mails sent before the explosion by BP drilling engineers who called the project a “nightmare well” and said a team leader who opted not to use extra equipment to reduce the potential for gas flows into the well was “right on the risk/reward equation.”

BP Chief Executive Tony Hayward is expected to face harsh questioning at a congressional hearing on Thursday. A BP spokesman declined to comment on testimony before the hearings, which many investors see as political theater.

“The BP hearings will be a prime opportunity for members of Congress to show off their populist credentials,” said Michael Block, chief equities strategist at broker Phoenix Partners Group, declining to make a call on BP stock.

U.S. politicians have been calling on BP to scrap its quarterly dividend to ensure it has enough money on hand to pay the compensation claims and clean up the spill.

BP has hired investment banks Blackstone Group, Goldman Sachs Group and Credit Suisse Group as advisers, a source familiar with the matter said, without identifying the purpose of the advice.

“The biggest thing he (Obama) can do is make sure that this doesn’t happen down the line,” National Wildlife Federation naturalist David Mizejewski said in a boat off Louisiana’s tiny Queen Bess island. “We need to get serious about passing clean energy and climate legislation now.”

The smell of crude oil and dispersants filled the air and oily brown pelicans teemed on the island.

But stopping drilling is a double-edged sword for many on the Gulf of Mexico, who count on oil rigs to keep their states economically afloat.

BP’s McKay will argue that cutting back drilling operations will hurt American workers and increase risks of a spill, POLITICO reported, citing testimony provided to the Energy and Commerce Committee in advance of Tuesday’s hearing.

“America’s economy, security and standard of living today significantly depend upon domestic oil and gas production. Reducing our energy production, absent a concurrent reduction in consumption, would shift additional jobs and dollars off-shore and place millions of additional barrels per day into tanker ships that must traverse the world’s oceans,” McKay is scheduled to say.

Moody’s Investors Service warned in a report on Monday that it could be up to two years before oil production reaches pre-spill levels and that a six-month moratorium on deepwater drilling by the Obama administration posed many uncertainties.

Copyright © 2010 Reuters LTD

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Democrats block GOP effort to kill consumer protections

Financial reform demonstration on Capitol Hill (AP)

The Senate on Thursday rejected a Republican attempt to defang consumer protections in a sweeping Wall Street reform bill, while voting to give small banks a break on deposit insurance.

Despite procedural delays, lawmakers covered some ground on a top priority of the Obama administration that would be the biggest overhaul of the financial rulebook since the 1930s.

A proposal to challenge the Federal Reserve‘s secrecy about its role in the 2008 financial meltdown gained support in the Senate, but a vote on it was put off until next week.

As lawmakers debated, a stock market stampede wiped out nearly $1 trillion in equity value before prices recovered. The Dow Jones Industrial Average suffered its worst intraday point drop ever.

The plunge could not have come at a worse time for Wall Street, which is already suffering from a wave of public anger following the meltdown and subsequent bailouts of 2008-2009.

Final approval of the 1,600-page reform bill was expected in two to four weeks, but thorny disputes loomed. With more than 140 amendments circulating, Democrat leaders were struggling to stave off gridlock on the Senate floor.

If approved, the Wall Street reform bill would give Democrats a major legislative victory ahead of November’s elections. Republicans have worked for months to weaken and delay the measures, along with financial industry lobbyists.

Congress is undertaking a major rewrite of the rules to try to make banks and capital markets less prone to periodic crises that have become more common since a wave of deregulation in the 1980s. The future profitability, risk capacity and growth potential of financial firms hang in the balance.

The stakes are high for President Barack Obama, a forceful advocate of reform. He laid the groundwork for legislation in mid-2009 with a package of proposals. The House of Representatives has approved a bill embracing many of them.

Whatever comes out of the Senate must be merged with the House bill. Analysts say that could happen by the end of June.

The Senate voted on Wednesday to create a new protocol for dismantling distressed financial firms and to bar use of taxpayer funds to bail out financial institutions.

No votes on amendments will be held on Friday or Monday, said Democratic Senator Christopher Dodd, the bill’s author.

On Thursday, lawmakers debated a measure that would open the Fed to a broad congressional audit of its emergency lending during the meltdown and force it to disclose information publicly about who it assisted. But a vote on the measure, drafted by independent Senator Bernie Sanders, was delayed.

After taking unprecedented actions to stabilize the economy during the crisis, the Fed has worked fiercely to protect its tradition of secrecy, warning of the potential for political interference in its core monetary policy mission.

Sanders’ amendment, which does not target monetary policy issues, initially got support from an unusual coalition of both liberal and conservative senators.

After he modified it to ensure that the Fed would only have to submit to a one-time audit, Obama administration officials dropped their objections and Dodd said he would back it.

The Senate rejected a proposal that would have split up the six largest banks in an effort to ensure that large financial firms do not threaten the economy if they fail.

The measure would have limited banks’ share of insured deposits and the size of their non-deposit liabilities.

Earlier in the day, lawmakers approved an amendment that would force major banks — such as Bank of America, Citigroup and Goldman Sachs — to pay more for government deposit insurance and let smaller banks pay less.

The measure, approved by a vote of 98-0, reflected the increased clout of small banks on Capitol Hill since the financial crisis, which has deeply damaged the political standing of big banks and Wall Street.

In a win for Obama, Democrats turned back a Republican proposal that would have weakened consumer protections proposed in the wider reform legislation by a vote of 38 to 61.

The bill calls for setting up a consumer protection watchdog bureau in the Federal Reserve that would regulate mortgages, credit cards, payday loans and other products.

The spread of subprime mortgages in the real estate bubble ahead of the crisis showed that consumers need better protection from aggressive lenders, Democrats say.

But Republicans say the Fed unit would be too powerful and impose excessive compliance costs and red tape on small businesses including orthodontists and florists.

Major financial firms’ credit card and mortgage profits would also be threatened by a consumer protection watchdog.

The Republicans’ defeated amendment would have put the watchdog in the FDIC, not the Fed, with less independence.

The Senate adopted a measure to give commodities regulators more clout in prosecuting price manipulation.

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Some agreement on Wall Street reform


Key senators reached a partial agreement on Wall Street reform on Tuesday, but disputes over some issues continued, and the Senate adjourned without casting votes on amendments as planned.

The chief Democratic and Republican negotiators agreed on a new government protocol for dismantling financial giants in distress. Their pact briefly stirred hopes among lawmakers that final approval of the sweeping reform bill was drawing near.

But when votes on bill amendments did not occur as scheduled late on Tuesday evening, Senate Democratic Leader Harry Reid complained anew of obstructionism by Republicans.

“Republicans are stopping us from moving to anything,” he said, clearly exasperated, in remarks on the Senate floor. “We can’t even get to votes on amendments we’ve agreed to.”

President Barack Obama has pushed hard for Wall Street reform to prevent a recurrence of the 2008-2009 financial crisis that paralyzed capital markets and tipped the U.S. economy into a deep recession. Parallel reform efforts are under way in the European Union, which also was hit hard.

Obama said on Tuesday that proposed regulatory reforms were “in no way designed to hamstring businesses.”

If Democrats can win passage of their bill, they would score an important legislative victory going into November’s congressional elections. Republicans have worked for months to weaken and delay the legislation, along with Wall Street and banking interests whose profits are threatened by reform.

Aides said Senate voting would be delayed at least until Wednesday, while details were ironed out on the new agreement on dealing with ‘too big to fail’ firms in trouble.

As part of that deal, Democrats were expected to drop a provision from the bill calling for establishment of a $50-billion fund, paid into by large firms, that regulators could tap to cover the cost of liquidating failing firms.

Further details were not immediately clear on the deal between Senate Banking Committee Chairman Christopher Dodd, a Democrat and the bill’s primary author, and Senator Richard Shelby, the committee’s top Republican.

The fund has been a point of contention between the two, who have been negotiating off and on for months.

Other unsettled disputes included a proposal to set up a new consumer protection watchdog. Republicans object to that provision, as well as to one that would force banks out of the swap-trading business. The swap-trading proposal was losing headway.

Swaps are derivative contracts that allow financiers to wager on the direction of interest rates, foreign currencies or — in the case of a type known as credit default swaps — the likelihood of a borrower defaulting on its debts.

Credit default swaps were at the core of the financial crisis and Senate Agriculture Committee Chairman Blanche Lincoln has proposed that banks be required to spin off their swap-trading desks to get them out of that risky business.

But banks that rake in huge profits from the unregulated, $450 trillion over-the-counter derivatives market, including swaps, oppose the Lincoln provision.

The OTC derivatives market is dominated by a handful of large Wall Street companies, including Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America and Morgan Stanley.

An influential Republican lawmaker said on Tuesday that he expects the Lincoln provision will be dropped. “One way or another it will go away,” Senator Bob Corker told reporters.

“I know Treasury doesn’t support it. I know the FDIC doesn’t support it. I don’t think the Obama administration wants to support it,” Corker said.

Democratic Senator Robert Menendez, a banking committee member like Corker, said he was uncertain whether the Lincoln provision would be adopted. “There are many moderate voices who have legitimate concerns about what that means,” he said.

Obama administration officials have declined to publicly endorse the provision. Federal Deposit Insurance Corp Chairman Sheila Bair over the weekend criticized it, saying it would drive swaps trading into less regulated venues.

While the economy was still deep in recession in December, the House of Representatives approved a bill that embraced many of Obama’s ideas, unveiled in mid-2009, for tougher oversight and stricter limits on banks and capital markets.

Whatever the Senate produces will have to be merged with the House bill. Analysts said a final piece of legislation could be on Obama’s desk to be signed into law by mid-year.

Dodd said on Tuesday the Senate could vote soon on a number of other amendments that enjoy bipartisan support.

One amendment, for instance, would allow smaller, less risky banks to pay lower premiums to the Federal Deposit Insurance Corp than larger, riskier banks.

On another issue, Democratic Senator Ben Nelson told Reuters the bill will probably be modified to exempt existing derivatives contracts from greater collateral requirements. “I think it is being resolved right now,” he said.

The move could benefit Berkshire Hathaway Inc, billionaire Warren Buffett’s investment powerhouse.

Berkshire, based in Nelson’s home state of Nebraska, has objected to the current version of the bill because the company would be required to post greater collateral on billions of dollars’ worth of derivatives contracts.

(Additional reporting by Tabassum Zakaria, Karey Wutkowski and David Morgan)

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Republicans block Wall Street reform…again


Undaunted by the political risks, Senate Republicans hung together and again thwarted Democratic efforts to start formal debate on sweeping legislation to rein in Wall Street excesses.

For the second time in two days, lawmakers voted 57-41 to take up the popular bill, falling short of the 60 needed to move ahead with the toughest regulatory overhaul of its kind since the Great Depression of the 1930s.

President Barack Obama led Democrats in slamming Republicans for blocking legislation backed by nearly two in three Americans, amid smoldering anger at fat-cat financiers blamed for the 2008 global economic meltdown.

“It’s one thing to oppose reform, but opposing even talking about reform in front of the American people and having a legitimate debate, that’s not right. The American people deserve a honest debate on this bill,” he said during a campaign-style visit to Iowa.

“Republicans have made it clear whose side they?re on: Big banks on Wall Street, not middle-class families,” said Democratic Senate Majority Leader Harry Reid, who set the stage for a similar vote on Wednesday.

The vote came as top Goldman Sachs executives faced a barrage of questions and criticism from a key Senate committee over the investment giant’s actions in the run up to the collapse, now the subject of a fraud lawsuit.

Republicans, mindful of a potential political price to pay in November mid-term elections for blocking the bill, said they wanted to give back-room negotiations begun last year more time to forge a compromise bill.

Their lead negotiator, Republican Senator Richard Shelby said his talks with Senate Banking Committee Chairman Chris Dodd, a Democrat, had made “considerable progress” in recent days but still faced high hurdles.

Shelby said “the biggest obstacle” was the creation of an “intrusive” consumer financial protection agency reaching beyond Wall Street to “anybody that’s dealing with finance,” like automobile dealers who offer loans.

“If they will meet us halfway on that, I think we could get a bill,” said Shelby, the top Republican on Dodd’s panel.

It was unclear how long moderate Republicans would hold out as Democrats happily piled on the pressure.

“At this hour, to consider that too radical an idea is stunning to me,” said Dodd, who warned that if Republicans blocked even the start of debate, “they do so, in my view, at their political peril.”

He also said he was prepared to accept an amendment from Democratic Senator Barbara Boxer that he described as saying “no money can be used, no taxpayer money… for any bailouts at all” of big Wall Street banks.

Dodd’s’s bill would erect a mechanism for dissolving rather than bailing out financial institutions whose collapse could risk crippling the US economy, so-called “too big to fail” firms.

The legislation — which would need to be merged with the bill the House of Representatives passed in 2009 — would also establish a new agency to protect consumers from abusive lending practices.

The legislation also aims to tighten regulations on the giant market in derivatives — complex, privately traded instruments tied to the underlying value of a commodity and seen as vehicles for dangerous speculation.

Despite the delay in starting debate, no senators were predicting that the popular measure will die.

Democrats and the White House have been eager to portray Republicans as in the pocket of Wall Street, while Republicans say they want tough new rules but that the bill as currently crafted is not ready and must be changed.

“The Democrat majority forced a vote on a bill that wasn’t ready for prime-time,” said Republican Senate Minority Leader Mitch McConnell, who accused Democrats of being “less interested in fixing this bill than in some political win they think they’re scoring by not fixing the bill.”

Democratic Senator Ben Nelson joined Republicans in both votes.

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Dems ramp up pressure on Wall Street

Democrats planned to keep up the pressure on Republicans after an expected setback put the brakes on Senate consideration of financial regulations.

But their task got slightly more complicated by the defection — at least for now — of one Democrat, Sen. Ben Nelson of Nebraska.

Nelson voted with Republicans on Monday to deny Democrats the 60 votes they needed to advance the legislation to a floor debate. Democrats were expected to try again Tuesday, and yet again the day after if necessary.

In a statement, Nelson, a conservative Nebraska Democrat, said his vote reflected concerns about the bill raised by Nebraska businessmen. Before the vote, Nelson huddled with Senate Banking Committee Chairman Christopher Dodd to discuss a regulatory item of interest to one Nebraska businessman in particular — billionaire investor Warren Buffett.

The legislation would require derivatives — previously unregulated exotic securities — to be traded in open exchanges and cleared through a third party that would guarantee the contracts. An agreement Monday between Dodd and Agriculture Committee Chairwoman Blanche Lincoln, D-Ark., would exempt existing derivatives from the clearing requirements.

Lincoln’s proposal also would have exempted existing derivatives contracts from margin requirements, or collateral. Dodd succeeded in eliminating the collateral exception. That would potentially add significant costs to companies with derivatives portfolios, such as Buffett’s Berkshire Hathaway Inc.

“I was prepared to grandfather existing derivatives that have not been cleared, but I can’t say you can’t have margin requirements,” said Dodd, D-Conn., explaining his discussion with Nelson.

In his statement, Nelson asserted that “no one should view my vote today as an indication that I won’t support the bill currently being negotiated by the Banking Committee.”

At the end, Senate Majority Leader Harry Reid switched his vote to “no,” too — a maneuver that will enable him to call for a new tally as early as Tuesday. If that failed, Reid, D-Nev., envisioned another vote Wednesday.

A Tuesday vote would come on the same day a Senate investigative subcommittee planned to draw attention to a Securities and Exchange Commission lawsuit alleging fraud by the giant investment house Goldman Sachs. Scheduled witnesses include Goldman chairman and chief executive Lloyd Blankfein and Fabrice Tourre, the Goldman Sachs trader at the center of the SEC charges.

Democrats believe public pressure and the scent of a Wall Street scandal have given them the upper hand. Republicans themselves have taken up the Democrats’ Wall Street-bashing rhetoric and have voiced hope that a bill will ultimately pass.

“All of us want to deliver a reform that will tighten the screws on Wall Street,” said Senate Republican leader Mitch McConnell of Kentucky. “But we’re not going to be rushed on another massive bill based on the assurances of our friends on the other side.”

Richard Shelby, the top Republican on the Banking Committee, again expressed optimism that he and Dodd could strike a deal over remaining differences. “Most Republicans want a bill, but they want a substantive bill,” said Shelby, R-Ala.

But while Dodd continued to meet with Shelby, Reid’s plan to continue testing Republican resolve illustrated the Democrats’ lack of patience for more negotiations.

“We will not tolerate efforts to slow-walk this process or water down this reform,” Reid said.

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Dems to GOP: ‘Go ahead, make our day’

Democratic Senators Christopher Dodd and Mark Warner (AFP)

With a showdown vote looming, Democrats are resisting Republican appeals for a broad compromise on financial overhaul legislation and are eager to test whether GOP unity will crack in an anti-Wall Street political climate.

The top negotiators on the regulatory bill — Democratic Sen. Christopher Dodd and Republican Sen. Richard Shelby — professed to be close to a deal during a joint appearance on NBC’s “Meet the Press.”

But Shelby conceded that “inches sometimes are miles,” and the two did not hold a negotiating session Sunday.

The legislation is the most sweeping effort to rein in financial institutions since the Great Depression. Aimed at avoiding a recurrence of the near collapse of the financial system in 2008, it would create a mechanism for liquidating large firms that get into trouble, set up a council to detect systemwide financial threats and establish a consumer protection agency to police lending. The legislation also would require derivatives, blamed for helping precipitate the meltdown, to be traded in open exchanges.

The House already passed its version of the legislation.

Senate Republican Leader Mitch McConnell on Friday blocked Democrats’ efforts to bring the bill up for debate, setting up a vote Monday that will require 60 votes to move ahead. McConnell and Shelby said Sunday that without a deal with Dodd, all 41 Republican senators would vote to stall the start of debate. Shelby said a deal in time for the vote was unlikely.

But unlike the health care debate, public sentiment was not working in favor of Republicans. Public opinion is leaning toward more regulation of large financial institutions, and a Securities and Exchange Commission lawsuit alleging fraud by Goldman Sachs has added the cloud of scandal to Wall Street.

On Sunday, Dodd agreed to toughen his overarching bill with stronger rules on derivatives, including one that had drawn objections from the Obama administration, according to a Democratic official familiar with the negotiations. Dodd entered into a tentative deal with Agriculture Committee Chairwoman Blanche Lincoln, D-Ark., to incorporate her committee’s derivatives provisions into the broader regulatory legislation. At least two Republicans — Sens. Charles Grassley of Iowa and Olympia Snowe of Maine — are on record supporting Lincoln’s derivatives package.

Derivatives are the complex securities blamed for helping precipitate the 2008 Wall Street crisis.

One of the most sweeping of Lincoln’s restrictions would require banks to spin off their derivatives business into subsidiaries with a separate source of capital. Large banks fiercely opposed the provision. The Obama administration has called for banks to end trading in speculative securities but not to jettison operations that create derivatives markets for clients.

In yet another attempt to attract Republicans, Democrats appeared willing to jettison from the bill a $50 billion fund — financed by large banks — that would have been used to liquidate failing firms once considered “too big to fail.” The fund has been one of the main targets of GOP criticism.

Democrats said the time had come to move on with the bill.

“Are we going to start the debate or are we going to shut it down and continue negotiating, negotiating, negotiating?” Sen. Sherrod Brown, D-Ohio, asked on ABC’s “This Week” Sunday.

For now, Republicans are using the only leverage they have — the threat of 41 unified votes — to seek a bigger GOP imprint on the bill.

The impasse reflects differences over how to contain large, interconnected financial firms and how to liquidate them when they fail. But Democrats and Republicans also differed on how to protect consumers and how to set limits on previously unregulated exotic instruments such as derivatives.

Dodd has already incorporated a number of Republican ideas into his version of the bill following negotiations with Shelby and Republican Sen. Bob Corker of Tennessee. Democrats, particularly liberals, have become increasingly worried that a compromise with Shelby will limit their ability to amend the bill during floor debate.

Dodd tried to reassure them.

“We can’t take care of everything in the bill,” he said, referring to his talks with Shelby. “Obviously our colleagues will want to be heard.”

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Did Goldman-Sachs buy the Obama White House?

While lawyers for Goldman Sachs worked overtime to avoid civil fraud charges from the Securities and Exchange Commission, the firm’s CEO visited the White House four times.

In addition, the company’s political action committee, employees and relatives of employees dumped close to a million dollars into Obama‘s 2008 Presidential campaign and CEO Lloyd Blankfein was a regular guest at high-dollar donor gatherings with Obama and became part of economic advisor Larry Summer’s inner circle.

Now Goldman, facing SEC charges in a massive civil fraud case, is using Obama’s former White House Counsel, Gregory Craig, as a key part of its legal team.

Goldman has more ties to Obama’s team. White House Chief of Staff Rahm Emanuel worked with Goldman on a $8.2 billion deal in Chicago during the 1990s.

“Almost everything the White House has doen has been haunted by the personnel and the money of Goldman,” Lawrence Jacobs, a Univesity of Minnesota political scientist, tells McClatchy Newspapers writer Greg Gordon.

Jacobs adds that Obama is also tainted by “the suspicion early on that the White House, particularly early on, was pulling its punches out of deference and its war chest.”

Obama, in his campaign, claimed his White House would not be a haven for lobbyists or the high dollar influcent peddlers that have controlled Washington for decades but the $994,765 in contributions from Goldman’s PAC and its employees is the largest from any single business entity.

Obama dismisses the Goldman contributions as “meaningless,” saying his campaign got “lots of money from lots of people.”

Which could mean he is owned by more special interests than just Goldman Sachs.

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