Senate finally passes small business aid bill

(Reuters)

The Senate passed a long-stalled measure on Thursday that would boost lending to small businesses, giving President Barack Obama’s Democrats one of their last chances before November elections they are working to revive the sluggish economy.

The 61 to 38 vote sends the measure back to the House of Representatives, which has passed a similar bill and is expected to approve the Senate’s version as soon as next week.

With the unemployment rate stuck at 9.6 percent, voters cite jobs and the economy as their top concern and say Obama has not done enough on these issues.

Republicans are poised to rack up big gains in the November 2 elections and could win control of one or both chambers of Congress.

If the measure clears Congress, it would be a rare victory on the job-creation front for Democrats, who have seen many of their other efforts blocked by Republicans this year.

Republicans have characterized the bill as a bailout along the lines of the unpopular Wall Street bank rescue effort, and blocked action since the end of July.

“For something this common-sense, it’s been harder work than we thought it would be,” said Democratic Senator Max Baucus, who helped craft the bill.

Smaller firms have complained of trouble getting access to credit after the 2007-2009 financial crisis, when many banks sharply pulled back their lending activity. Credit continues to be tight.

The bill, backed by industry groups, would create a $30 billion fund that the government would invest in independent community banks to encourage lending to small firms.

It would also exclude from taxes all capital gains on sales of small-business stock, and ease tax rules for expending and depreciating equipment. Tax breaks in the bill total $12 billion.

DEMOCRATS SAY COULD CREATE 500,000 JOBS

Democrats estimate the lending incentives could lead up to $300 billion in new small business credit over the coming years and create 500,000 new jobs. Some 8 million jobs have been lost since the recession began in late 2007.

Obama welcomed passage of the bill.

“It’s going to make a difference in millions of small business owners across the country who are going to benefit from tax breaks and additional lending so companies have the capital to grow and hire,” he said at an education event in Washington.

The bill passed with the help of two Republicans, who broke with their party to give the Democrats the votes they needed to overcome a procedural roadblock.

One of those Republicans, Senator George Voinovich, said the need to help small businesses outweighed his frustration that Republicans were not able to offer changes to the bill.

“My support for the small business legislation is based upon the many calls of support I heard from Ohio’s small and medium manufacturers, most of whom are still struggling to recover from this recession,” said Voinovich, whose Rust Belt state has been hit particularly hard by the worst recession since the Great Depression.

Many Republicans have invoked small businesses as they oppose an Obama proposal that would raise income taxes on the wealthiest 3 percent of U.S. households, arguing it would snare many who file business income as personal income.

Republican Senator Charles Grassley said he supported the bill’s tax provisions, but not its lending facility.

“The small-business fund in the bill just doesn’t have enough safeguards in place to ensure that recipients are credit-worthy or that the taxpayers will be made whole in the end,” Grassley said.

The government’s definition of a “small business” varies by sector, but typically encompasses firms that employ fewer than 500 workers or take in less than $7 million in annual revenue.

(Additional reporting by Richard Cowan, Trisha Zengerle and Kim Dixon, Editing by Vicki Allen and Philip Barbara)

Copyright © 2010 Reuters

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Feds fudged on mortgage bailout failure numbers

The Obama administration on Friday acknowledged it had underestimated the number of homeowners who fell seriously behind on their mortgage payments even after getting government help.

Treasury officials blamed the error on mortgage finance giant Fannie Mae, which acts as the program administrator for President Barack Obama’s $50 billion Home Affordable Modification Program (HAMP).

The program had been criticized for its overly optimistic estimates of the number of struggling borrowers helped by its subsidies of new mortgage terms.

The actual numbers of permanent modifications that have lasted at least nine months through the end of May is tiny: just 4,764 borrowers. And 53,041 borrowers had one for at least six months through May.

Treasury said about 14.9 percent of the 4,764 borrowers who have had a permanent modification for at least nine months by the end of May had re-defaulted on their loan. That’s more than six times the 2.4 percent rate they reported on July 20.

For loans that had been permanently modified for at least six months, about 6.1 percent had re-defaulted, up from just 1.7 originally estimated. Re-defaults are defined as 90 days or more late.

For loans 60 days late and not yet in re-default, the number of borrowers in trouble is even higher.

For loans that had been permanently modified for at least nine months, 19.6 percent of the loans were at least two months behind on their payments, more than two and a half times the 7.7 percent rate first reported.

On loans permanently modified for at least half a year, 10.1 percent were 60 days or more behind on payments, compared to the 5.9 percent originally reported.

“We are confident that this data table correctly reflects the performance of the permanent modifications over time. Early program results indicate that the vast majority who receive permanent modifications through HAMP benefit from them and remain in the program,” said Treasury spokesman Mark Paustenbach.

The issue arose after several Wall Street analysts said the numbers Treasury first issued seemed suspiciously low.

Treasury then asked Fannie Mae to review the numbers.

Fannie Mae spokesman Brian Faith said his company found “an issue in its implementation of the delinquency statistic methodology.”

“Fannie Mae has now corrected the implementation and validated the revised table through review and verification by an independent third-party consultant contracted by Fannie Mae’s Internal Audit Group,” Faith said.

Treasury on July 20 said that the number of borrowers dropping out the program grew in June at almost twice the pace of those getting a permanent modification. Those figures were not revised.

The dropout rate could signal a rise in foreclosures in the second half of the year at a time when the housing market is still fragile and analysts fear another housing slump could threaten the nascent economic recovery.

About 91,000 borrowers dropped out of the program in June, putting the total number of dropouts at 530,000. At the same time, about 49,000 borrowers received a permanent modification in June, bringing that total to 389,000.

That means more than 40 percent of the roughly 1.3 million borrowers who have started in the program since its March 2009 inception have since dropped out, while just over 30 percent have received permanent new terms for their loan.

Copyright © 2010 Reuters

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Obama signs Wall Street reform bill

(AFP)

President Barack Obama signed into law on Wednesday the most comprehensive financial regulatory overhaul since the Great Depression, vowing to stop risky behavior on Wall Street that imperiled the U.S. economy.

Influential business groups lined up to criticize the new law, underscoring Obama’s uneasy relationship with America’s business community. Some on Wall Street, however, welcomed the clarity offered by the law after months of wrangling in Congress over what should be in the legislation.

The law, which got final approval from the Senate last week, targets the kind of Wall Street risk-taking that helped trigger a global financial meltdown in 2007-2009 and also aims to strengthen consumer protections.

Obama, facing voter unrest over Wall Street bailouts that have failed to spark a strong Main Street job recovery, pledged taxpayers would never again have to pump billions of dollars into failing firms to protect the economy.

“Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes,” Obama said at a signing ceremony attended by some Wall Street bankers, business leaders and lawmakers.

“There will be no more taxpayer-funded bailouts. Period.”

With Republicans poised to make gains in the November congressional elections, Obama’s Democrats are eager to show voters that they have taken steps to tame an industry that dragged the economy into its deepest recession in 70 years.

Obama and Democrats have yet to gain political traction from the legislative victory, with Americans still anxious about a 9.5 percent jobless rate and ballooning deficits.

The financial regulatory reforms were a major achievement for Obama and his ambitious domestic agenda. Earlier this year he signed into law sweeping reforms of the United States’ $2.5 trillion healthcare system.

The financial reforms won Democrats few friends on Wall Street. Wealthy donors have started to steer more campaign contributions to Republicans, who voted overwhelmingly against the reforms.

“UNSCRUPULOUS LENDERS”

Obama had harsh words for “unscrupulous” lenders and others he said had taken risks that endangered the economy. He said the new law was aimed at curbing abuses and excesses on Wall Street and stopping taxpayer bailouts of failing companies.

The law would provide certainty “to everybody from bankers to farmers to business owners. And unless your business model depends on cutting corners or bilking your customers, you have nothing to fear from this reform,” Obama said.

The U.S. Chamber of Commerce, an influential business group that often criticizes Obama’s economic policies, said it would have the opposite effect.

“Such a broad, sweeping bill epitomizes a law with unintended consequences that creates more uncertainty for American businesses,” said Thomas J. Donohue, president and CEO of the Chamber.

The American Bankers Association expressed disappointment with the legislation, saying it “contains a tsunami of new rules and restrictions for traditional banks that had nothing to do with causing the financial crisis in the first place.”

Much of its impact will depend on how it is put into practice. Bart Chilton, a commissioner with the U.S. Commodity Futures Trading Commission, said the law boosts transparency and gives regulators better tools to regulate markets, but many questions remained to be answered.

“This is a wide-ranging bill with many facets, hundreds where regulators still need to put some more meat on the bones. How we do that, and when we do that, are questions that will really tell if this legislation meets the expectations of its supporters,” he said.

“FAKE CONTROVERSY”

Ruth Porat, chief financial officer of financial giant Morgan Stanley, which on Wednesday reported higher-than-expected second quarter profits, said the company was pleased to see the bill signed as it put “some clarity around the issues.”

The legislation targets potentially lucrative trading in risky over-the-counter derivatives and aims to force banks to end trading for their own profits.

It creates a Bureau of Consumer Financial Protection to regulate products ranging from credit cards to mortgages. The administration considered this one of the most critical parts of the bill but banks fought it bitterly.

Obama received repeated ovations during his speech and one round of applause was reserved for his praise of three Republican lawmakers who broke ranks with their party to vote for the legislation.

The White House said Citigroup Inc’s CEO Vikram Pandit; Bob Diamond, president of Barclays Plc; and Gerald Hassell, president of Bank of New York Mellon, attended the bill-signing.

JPMorgan Chase & Co Chief Executive Jamie Dimon was one of the few major bank heads not invited, a spokeswoman for the second-largest U.S. bank said.

Dimon once enjoyed a close relationship with Obama, but he later emerged as a vocal critic of the efforts to reform the U.S. banking industry.

The White House dismissed as a “fake controversy” media reports on the failure to invite business leaders like Dimon.

“The CEOs who opposed reform never expected to be invited to the bill signing and not a single one has complained to the Administration,” White House spokesman Jen Psaki said.

Copyright © 2010 Reuters

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Financial reform passes House but Senate delays action

House Financial Services Committee Chairman Barney Frank (AP)

The U.S. House of Representatives on Wednesday approved a landmark overhaul of financial regulations but the Senate put off action until mid-July, delaying a final victory for President Barack Obama.

Still, the 237 to 192 vote in the House marked a win for Obama and his fellow Democrats, who have made the most sweeping rewrite of Wall Street rules since the 1930s a top priority in the wake of the 2007-2009 financial crisis.

“It has been a long fight against the defenders of the status quo on Wall Street, but today’s vote is a victory for every American who has been affected by the recklessness and irresponsibility that led to the loss of millions of jobs and trillions in wealth,” Obama said in a statement.

Analysts say Obama is all but certain to get the measure on his desk eventually, but Democrats’ hopes of sending him a bill to sign into law by the July 4 Independence Day holiday were dashed.

The death of Democratic Senator Robert Byrd and cold feet among Republican allies has complicated efforts to round up the votes needed in the Senate. A week-long break following the July 4 holiday means the Senate won’t act until the week of July 12, at the earliest.

The bill would impose tighter regulations on financial firms and reduce their profits. It would boost consumer protections, force banks to reduce risky trading and investing activities and set up a new government process for liquidating troubled financial firms.

With congressional elections approaching in November, Democrats have ridden a wave of public disgust at an industry that has awarded itself fat paydays while the rest of the country struggles with high unemployment.

Wall Street and Republicans have tried to delay the bill or lessen its reach, but the measure has actually gotten tougher during its year-long journey through Congress.

Republicans say the bill would hurt the economy by burdening businesses with a thicket of new regulations. They also point out that it ducks the question of how to handle troubled mortgage finance giants Fannie Mae and Freddie Mac, which Democrats plan to tackle next year.

Fannie Mae and Freddie Mac, which own or guarantee half of all U.S. mortgages, have received a total of about $145 billion in taxpayer bailouts since being seized by the government in September 2008. Their regulator has said he does not know how much more taxpayer support they will need.

“All this bill before us does is perpetuate the same dumb regulation that got us into this financial pickle in the first place,” said Republican Representative Jeb Hensarling.

Democrats have seized the opportunity to link their political foes with an unpopular industry.

Obama earlier on Wednesday accused Republicans of being out of touch with the American people for opposing reforms. Others echoed his line of attack on the House floor.

“Republicans have sided with big Wall Street banks at every opportunity,” said Democratic Representative Luis Guitierrez. “If it helps Wall Street banks, they favor it, but if it helps Main Street and regular Americans, they won’t vote for it.”

SCRAMBLING IN THE SENATE

As Democrats marched to victory in the House, their colleagues in the Senate scrambled for votes.

Byrd’s death left Democrats one vote shy of the 60 needed to overcome procedural hurdles in the 100-seat chamber, and Democrats have yet to nail down support from Republican moderates whose votes will be needed to advance the bill.

Those Republicans — Susan Collins, Olympia Snowe and Scott Brown — had voted for an earlier version, but they objected to a $17.9 billion tax on large financial institutions that was added last week to cover the bill’s costs.

Democrats stripped out the tax in a last-minute negotiating session on Tuesday to address their concern. All three moderates said they were still studying the final bill before deciding how to vote.

Collins said she was inclined to support it, while Snowe said it was a “possibility” that she could vote for it.

“We’re just trying to work it out and I am sure we will be able to, but it’s important to get it right,” Snowe said.

Brown, who won significant concessions earlier in the process, also declined to say how he would vote.

“It’s morphed into something different than it began with and I think it’s appropriate to read it,” he said of the 2,000-plus page bill.

Democrats could also pick up needed support from their own side of the aisle. Maria Cantwell, one of two Democrats who voted against the bill earlier, said she might reconsider.

Democrat Christopher Dodd, the bill’s chief advocate in the Senate, said lawmakers should not vote against it just because they don’t like one or two elements.

“No one’s going to get everything they want in this bill, I certainly didn’t,” he said. “I’ve done everything I know how to do to accommodate my colleagues to make this as fair, as balanced, as thoughtful as I possibly could.”

Representative Barney Frank, the Democrat who has overseen the bill in the House, said he would try to revive the tax on banks in separate legislation. Congress also could pass a bill to fix technical mistakes in the legislative language, an aide to Frank said.

Even after Obama signs the wide-ranging reform bill into law, its final impact will remain unclear for several years while regulators work to put it into effect.

Copyright © 2010 Reuters Ltd.

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Obama’s legislative wins: Too little, too late for Democrats?

President Barack Obama: Little help for Dems (AP)

Anxious and angry, Americans are not in a congratulatory mood. That’s bad news for President Barack Obama and his Democratic allies.

After winning a landmark health care overhaul earlier this year, Obama now stands on the brink of seeing Congress approve the most far-reaching overhaul of Wall Street regulations since the 1930s. Democrats aim to put it on his desk by July 4.

Yet with the economy still wobbly and the stock market retreating, Americans remain nervous about the possibility of a double-dip recession. They have seen few concrete benefits yet from the slow-to-unfold health care law. Likewise, it may be some time before Obama can point to results from the advancing legislation to rewrite the rules that govern Wall Street.

Senate passage last week of the financial overhaul bill was “another big win for him. But the problem is that, in terms of his standing in the eyes of the public, both these enormously far-reaching pieces of legislation are going to take quite a while to play out and to begin to affect the lives of Americans,” said Ross Baker, a political scientist at Rutgers University in New Jersey.

In the meantime, there’s plenty for people to worry about.

Despite signs of a fledgling corporate recovery, unemployment seems stuck at just under 10 percent. Home foreclosures continue to rise. Despite a rebound Friday, U.S. stocks have fallen some 10 percent in just the last month, signaling a correction to the bull market that began in March 2009.

Riots in Athens and strikes in Spain are rattling world markets. And millions of gallons of crude oil have gushed into the Gulf of Mexico over the past month from a blown out well, threatening the environment and jobs in the region.

The result: Americans are in a sour mood, and the polls reflect that.

Just 35 percent surveyed this month say the country is heading in the right direction, the lowest measured by the AP-GfK survey since a week before Obama took office in January 2009. His approval rating remains at 49 percent, as low as it has been since he became president.

Both the health care overhaul and the financial regulation measures are complicated pieces of legislation. Republicans have gone out of their way to portray both as examples of Democratic efforts to expand the scope of government.

Two months after Obama’s health care overhaul narrowly passed Congress, polls suggest many Americans still either don’t like the looming health care changes or are skeptical of them — and Republicans are seizing on that discontent at every opportunity.

Democrats believe the financial overhaul bill will be a bigger winner for them in November elections, given widespread public anger at Wall Street bailouts and bonuses. Obama won’t be on the ballot until 2012 and by then, the White House hopes, the economy will be stronger, the jobless rate will be lower and Americans will be enjoying benefits of the health care changes.

The health care bill and now the financial regulation legislation follow Obama’s signature legislative accomplishment of 2009, a $787 billion stimulus package passed in February 2009 that contained dozens of federal initiatives aimed at preventing the worst recession in 70 years from becoming another Great Depression.

The Congressional Budget Office recently estimated that the 2009 stimulus package has an actual long-term cost of $862 billion.

“By any objective terms, the Obama presidency has had an incredibly productive start. He reached high. The major things he’s taken on during very difficult times will pay dividends in legislative terms. But will he get credit in the short term? Probably not,” said Thomas Mann, a political scientist at the Brookings Institution.

“The public has come to believe the stimulus bill and financial bailout were of no use in helping the economy, contrary to evidence suggesting otherwise. Health reform remains a very controversial measure. The bottom line is that the public is scared, they’re angry, they’re in a foul mood and not inclined to see great victories or achievements,” Mann said.

Copyright © 2010 The Associated Press

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Senate passes financial industry overhaul

In a major victory for President Barack Obama, the US Senate has passed the most sweeping overhaul of financial industry rules since the Great Depression of the 1930s.

By a 59-39 margin, lawmakers approved Thursday an ambitious effort to curb Wall Street excesses blamed for fueling the 2008 global economic meltdown, amid smoldering voter anger months before November mid-term elections.

“To Wall Street, it says: No longer can you recklessly gamble away other people’s money,” Democratic Senate Majority Leader Harry Reid. “It says to those who game the system: The game is over.”

Senate Banking Committee chair Chris Dodd, a key author of the legislation, said it was “a major step toward creating a sound economic foundation for the American people we represent. This is their victory.”

The legislation, Obama’s top domestic goal, must still be merged with the House of Representatives’ rival version into a compromise measure before the final package can go to the president to sign into law.

House Financial Services Committee chair Barney Frank, a Democrat, told CNBC television that he foresaw smooth sailing and that “the president, I am certain now, will have signed this bill well before the Fourth of July.”

The measure aims to rein in big firms’ use of high-risk practices blamed for the collapse of 2008, end taxpayer-funded bailout of financial titans previously deemed “too big to fail,” and create an unprecedented consumer protection agency to shield Americans from industry abuses.

It also seeks to curb big banks’ lucrative, largely unregulated business in complex securities called derivatives, essentially bets on the future cost of an asset, which many businesses use to control risk from volatile prices.

It includes several measures aimed at increasing the transparency at the US Federal Reserve and the central bank’s accountability, as well as a measure aimed at blocking International Monetary Fund aid packages like the one for Greece without a guarantee that the money will be repaid.

A few hours before the vote, Obama pledged that the law would not smother the market.

“The reform I sign will not stifle the power of the free market — it will simply bring predictable, responsible, sensible rules into the marketplace,” he said in the Rose Garden of the White House.

“Our goal is not to punish the banks, but to protect the larger economy and the American people from the kind of upheavals that we’ve seen in the past few years,” said the president.

Obama also took aim at the financial industry, accusing it of deploying “hordes of lobbyists and millions of dollars in ads” to kill the bill and trying to “water it down.”

“Today, I think it’s fair to say that these efforts have failed,” he said.

Four Republicans joined all but two Democrats to approve the measure, drawing praise from Reid at the end of a month-long, sometimes bitter debate expected to stretch into the House-Senate “conference” to build a compromise.

US Treasury Secretary Tim Geithner said in a statement that he looked forward to working with lawmakers “to produce a sensible, prudent reform bill that strengthens the American financial system and preserves our ability to innovate and compete in a global economy.”

The two chambers were to pick negotiating delegates on Monday.

Some of the remaining disputes include curbs on derivative trading and restrictions on investment activities by deposit-holding banks.

Senate Agriculture Committee chair Blanche Lincoln, a Democrat, authored a measure in the bill aimed at ending the largely unregulated derivatives business, a step forcefully opposed by big banks and their lobbyists trying to shape the legislation.

Dodd introduced and then pulled back from but did not withdraw a measure gutting Lincoln’s proposal.

Democratic Senators Jeff Merkley and Carl Levin, authors of a measure to enact the so-called “Volcker rule” curbing deposit-holding banks’ investment activities, expressed faint hopes the final bill would include it.

The measure, named for former US Federal Reserve chairman Paul Volcker, would stop banks from holding customers’ deposits at the same time as making investments for their own gain — so-called proprietary trading.

Curbs on “prop trading” went into effect after the Great Depression. In 1933, the Glass-Steagall Act prohibited commercial banks from underwriting corporate securities, or acting as brokerages, but it was undone in 1999.

Copyright © 2010 Agence France Presse

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Rhodent upstages Obama

Obama and uninvited guest (AP)

In the midst of his battle with the titans of Wall Street, President Barack Obama was nearly upstaged by a rodent.

Obama had just begun a Rose Garden statement lauding the end of a Senate filibuster on his financial overhaul when some kind of rodent dashed out of the bushes to his right, just outside the Oval Office.

As photographers snapped away in the sun-drenched garden, the critter scurried straight past the gray podium with the presidential seal and made a bee-line for another set of bushes to Obama’s left.

It’s not clear if the president could even see the streaker, but he didn’t show any reaction. And he concluded his statement minutes later, returning to his office without answering a few shouted questions on other topics.

Once he was safely inside the Oval Office, a fierce debate erupted among the photographers and reporters who’d witnessed the dash. Was it a rat or a mouse? Or maybe a mole, or some other kind of related creature.

Before long, experts had joined the fray.

“I would partially rule out rat,” said Russell Link, a wildlife biologist who works for the Washington State Department of Fish and Wildlife. “That’s due to the lack of a tail that is typically equal to body length.”

After viewing a photograph of the surprising scurry, Link said, “My suspicion is it’s a vole, commonly called a ‘meadow mouse’ out our way.”

In fact, this wasn’t the first time a rodent’s been spied in the White House, or even the Rose Garden.

Just last week, as camera crews set up for an Obama statement on the Gulf oil spill, what’s believed to have been the same rodent made a dash across the famous garden.

The press work areas behind the White House briefing room have had at least one rat sighting, though that was before a multimillion-dollar rehab project finished by the Bush administration.

Moreover, rodents of all kinds are pretty common in Washington. From time to time, city officials issue alarms about surges in the rat population when residents put out extra-big summer piles of garbage.

Washington is, after all built, along a river, on what used to be a malarial swamp.

Copyright © 2010 The Associated Press

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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

(Reuters)

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

(AFP)

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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