Archive for December, 2009

Major makeover of Wall Street regs passes House (AP)

Friday, December 11th, 2009 | Finance News

WASHINGTON – The House passed the most ambitious restructuring of federal financial regulations since the New Deal on Friday, aiming to head off any replay of last year's Wall Street failures that plunged the nation deep into recession.

The sprawling legislation would give the government new powers to break up companies that threaten the economy, create a new agency to oversee consumer banking transactions and shine a light into shadow financial markets that have escaped the oversight of regulators.

The vote was a party-line 223-202. No Republicans voted for the bill; 27 Democrats voted against it.

While a victory for the administration, the legislation dilutes some of President Barack Obama's recommendations, carving out exceptions to some of its toughest provisions. The burden now shifts to the Senate, which is not expected to act on its version of a regulatory overhaul until early next year.

The president praised the House action Friday, and called on Congress to act swiftly to get the bill to the White House for his signature.

"The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington," Obama said. "We have a responsibility to learn from it and to put in place reforms that will promote sound investment, encourage real competition and innovation and prevent such a crisis from ever happening again. "

The legislation would govern the simplest payday loan and the most complicated high-finance trades. In its breadth, the measure seeks to impose restrictions on every house of finance, from two-teller neighborhood thrifts to huge interconnected conglomerates.

Democratic leaders had to fend off a last-minute attempt to kill a proposed consumer agency, a central element of the legislation and one the features pushed by the White House. The agency would take over consumer protection powers from current banking regulators, and big banks and the U.S. Chamber of Commerce vigorously opposed the idea.

Democrats said the broad legislation would help address problems that led to last year's calamitous financial crisis. Republicans argued that it overreached and would institutionalize bailouts for the financial industry.

"Let's put it to the American people: Do you prefer the Republican position of doing literally nothing to rein in these abuses or should we try to rein them in?" Rep. Barney Frank, who led the Democratic effort on the bill, asked moments before the final vote.

Republicans cast the regulatory bill as a burden to business and argued that it would continue to protect companies considered too big to fail. They offered an alternative that called for special bankruptcy proceedings to dismantle failing financial institutions. That alternative failed.

"This house has been on a spending spree, a bailout spree and a regulatory spree that I could never have imagined in any of my prior 18 years here in Congress," Republican Leader John Boehner of Ohio said.

Democrats accused Republicans of doing the bidding of big banks, pointing to a meeting in the Capitol Visitors' Center this week between GOP leaders and about 100 lobbyists. Even the White House took a swipe at House Republicans.

"I didn't expect them to help after a meeting with 100 lobbyists for the financial industry," White House Chief of Staff Rahm Emanuel said in an interview. "I'm not surprised they are opposed to it. The lobbyists are trying to gut this."

Consumer advocates cheered the survival of the consumer protection agency but said the overall legislation fell short, especially in the regulation of complex investment instruments known as derivatives.

The legislation aims to prevent manipulation and bring transparency to the $600 trillion global derivatives market. But an amendment by New York Democrat Scott Murphy, adopted 304-124 Thursday night, created an exception for nonfinancial companies that use derivatives as a hedge against market fluctuations rather than as a speculative investment. The amendment exempted businesses considered too small to be a risk to the financial system.

A Democratic effort to make more companies subject to derivatives regulations and to end abusive-trading rules failed.

When the Obama administration first proposed a package, it called for regulations of derivatives without any exceptions. But a potent lobbying coalition that included Boeing Co., Caterpillar Inc., General Electric Co., Coca-Cola and other big companies persuaded lawmakers to dilute the restrictions.

"It's a weakness in the bill and a win for Wall Street," said Barbara Roper, director of investor protection for the Consumer Federation of America. "Hedge funds and others that are not bona fide hedgers of commercial risk will slip through this language."

The bill would create a Financial Services Oversight Council made up of the Treasury secretary, Federal Reserve chairman and heads of regulatory agencies to monitor the financial markets for potential threats to nation's system.

It would identify firms and activities that should be subject to heightened standards, including requirements that they place more money in reserve. The government could dismantle even healthy firms if they were considered a grave risk to the economy. Large firms with assets of more than $50 billion, and hedge funds with at least $10 billion in assets, would pay into a $150 billion resolution fund that would cover the costs of dismantling such a company.

It was that fund that Republicans argued amounted to yet another bailout pool.

But one Republican, Federal Deposit Insurance Corp. chairman Sheila Bair, rebutted the House GOP critics, commending the legislation for creating a system to dismantle failing firms. "Ending too-big-to-fail by creating an effective resolution regime that will apply to large financial institutions is the key to ensuring that we end the need for future bailouts," she said.

The Federal Reserve, criticized for not spotting last year's crisis, would lose power in the legislation. The measure would limit the Fed's unilateral ability to inject large amounts of money into financial institutions. It also would take away the Federal Reserve's consumer regulation authority and would subject it to a broad audit by Congress' investigative arm.

The legislation also takes on Wall Street compensation. Company shareholders would get a nonbinding vote on the pay of top executives. Federal banking regulators would have to approve compensation practices, though not actual pay, at banks and bank holding companies.

The House vote marked a personal triumph for Frank, the Massachusetts Democrat and chairman of the House Financial Services Committee, who began drafting the legislation last summer. Frank had to steer the various pieces of the bill amid Republican opposition and misgivings from pro-business Democrats.

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On the Net:

Read the bill, H.R.4173, at http://thomas.loc.gov/

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House approves sweeping financial reforms (Reuters)

Friday, December 11th, 2009 | Finance News

WASHINGTON (Reuters) –
The House of Representatives approved the biggest changes in financial regulation since the Great Depression on Friday, marking a win for the Obama administration and top Democrats in Congress.

The sweeping bill, which will have to be reconciled with any measure the slower-moving Senate might eventually approve, aims to safeguard the financial system and ward off future crises of the type that punished the nation in the past year with its deepest recession since the 1930s.

The House voted 223-202 to pass the 1,279-page bill, which was hammered out in the months since last year's crisis convinced Democrats of an urgent need for reform. All of the chamber's Republicans and 27 Democrats voted against bill.

"This legislation brings us another important step closer to necessary, comprehensive financial reform that will create clear rules of the road, consistent and systematic enforcement of those rules, and a stronger, more stable financial system," President Barack Obama said in a statement.

The bill would create an inter-agency council to police systemic risk in the economy, crack down on hedge funds and credit rating agencies, set up a financial consumer watchdog agency, and expose Federal Reserve monetary policy to unprecedented congressional scrutiny, among other reforms.

Faced with a recession and multi-billion-dollar taxpayer bailouts of firms such as AIG and Citigroup Inc , started by the Bush administration, Obama and fellow Democrats have vigorously pushed for fundamental regulatory change.

LOBBYISTS FIGHTING REFORMS

Republicans and an army of lobbyists for banks and Wall Street firms, whose profits may be threatened, have fought back for months to weaken and delay reforms, criticizing what they call an unneeded and costly intrusion on business.

The battle will continue in the Senate, which is pursuing its own legislation -- more modest in some ways, more radical in others. Once a bill clears the Senate, the two chambers will have to agree on a compromise to send to Obama to become law.

The House bill faced a flood of amendments during floor debate this week, with mixed results for both sides.

In a win for the banking industry, the House voted to reject a measure that would have allowed bankruptcy judges to change the terms of mortgages for distressed homeowners.

Known as "mortgage cramdown," the measure was defeated in a 188-241 decision as a proposed amendment to the broader bill. The vote marked a reversal from the House's passage in March of a "cramdown" measure that later died in the Senate.

On another vote, Democrats beat back an attempt to weaken a key provision of the reforms bill -- the proposed creation of a Consumer Financial Protection Agency.

An amendment proposed creating instead a council of regulators, which the White House said would let banks and mortgage and credit card firms "continue to get away with the practices that helped cause the financial crisis."

In a setback for corporate good-governance activists, the House rejected an amendment that would have required small corporations with market capitalization of less than $75 million to get external reviews of their internal financial controls under regulations passed after the Enron fiasco.

The amendment concerned applying certain audits under the 2002 Sarbanes-Oxley laws to small firms. By rejecting the proposal, which was supported by senior Democrats, lawmakers left an earlier amendment in the bill that would permanently exempt small firms from complying with the rules for audits.

OTC DERIVATIVES TARGETED

The House approved a section of the reforms bill on Thursday that would impose regulation for the first time on the $450 trillion over-the-counter derivatives market, including credit default swaps like those at the root of AIG's problems.

The bill "will increase transparency in the marketplace and reduce the systemic risk that over-the-counter derivatives can pose to the economy if left unchecked," said Democratic House Agriculture Committee Chairman Collin Peterson in a statement.

Regulators would be empowered to set position limits on financial and commodity-based derivatives, under the bill.

The House also backed an amendment from Democratic Representative Stephen Lynch to limit financial firms to 20 percent ownership stakes in OTC derivatives clearinghouses.

If ultimately approved, the Lynch measure could affect Wall Street giants that dominate OTC derivatives markets -- Goldman Sachs Group Inc, JPMorgan Chase & Co, Citigroup, Bank of America Corp and Morgan Stanley -- and exchange operators such as Nasdaq OMX.

In a rebuke to the Federal Reserve, the bill would open up monetary policy decisions to audits by congressional watchdogs. The central bank fought the provision, arguing it could imply politics can sway Fed decisions and spook the markets.

House Financial Services Committee Chairman Barney Frank said the Fed audit provision could go too far.

"The Fed could be audited," Frank told CNBC television. But he added, "The amendment that was adopted went too far ... It could give the perception that monetary policy is not going to be independent and that would have an inflationary effect."

In addition to systemic risk regulation and the CFPA, the broader House bill would give the government new powers over large banks and set up new protocols for dealing with large firms, known as "too big to fail," that get into trouble.

It would also impose new curbs on executive pay, strengthen protections for investors and, for the first time, set up a federal office to monitor the insurance industry.

Banks stocks ended the day higher, with the KBW Banks index slightly outperforming the benchmark Dow Jones industrial average on broadly bullish trading.

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Dow, S&P end up after solid data; Nasdaq slips (Reuters)

Friday, December 11th, 2009 | Finance News

NEW YORK (Reuters) –
The Dow and S&P 500 closed up for a third straight session on Friday after several solid consumer-related reports reinforced investors' confidence in a steady recovery by the economy.

Government reports showing stronger-than-expected November retail sales and an unexpected rise in business inventories in October pointed to a recovery in consumer spending. A private survey also showed consumer sentiment improved in early December, lifting the S&P Retail index (.RLX) by 1.3 percent.

"Today is a repeat of prior days, with economic data showing recession is bottoming out and recovery is here," said Rick Lake, portfolio manager of the Aston/Lake Partners LASSO Alternatives Fund in Greenwich, Connecticut.

The Dow Jones industrial average (.DJI) was up 65.67 points, or 0.63 percent, at 10,471.50. The Standard & Poor's 500 Index (.SPX) was up 4.06 points, or 0.37 percent, at 1,106.41. The Nasdaq Composite Index (.IXIC) was down 0.55 point, or 0.03 percent, at 2,190.31.

The day's gains came even as the dollar strengthened, suggesting an inverse correlation between equities and the greenback may be fading. The inverse correlation had partly reflected carry trades whereby investors borrow a currency cheaply in order to invest in higher-yielding assets.

For the week, the Dow was up 0.8 percent, the S&P was near flat and the Nasdaq shed 0.2 percent.

The U.S. House of Representatives approved a bill aimed at safeguarding the financial system and warding off future crises. Bank of America (BAC.N) closed up 2.8 percent at $15.63 as one of the top gainers on the Dow.

Mining stocks also advanced after JPMorgan lifted its price target on five companies in the sector, including Alcoa Inc (AA.N) and Freeport McMoRan (FCX.N).

Alcoa shares surged 8.2 percent to $14.61.

But National Semiconductor (NSM.N) fell 3.6 percent to $14.73, pressuring the tech sector, a day after the company posted results that prompted concerns about its ability to regain market share.

The Philadelphia semiconductor index (.SOXX) fell 1.0 percent.

An index of airline stocks (.XAL) advanced 6.3 percent, its largest move up since May 4, after executives at several carriers pointed to improved outlooks in 2010.

Delta Air Lines (DAL.N) was up 13.9 percent at $11.25 and US Airways (LCC.N) rose 10.5 percent to close at $4.83.

United Technologies Corp (UTX.N) gained 2.2 percent at $69.40 and provided the Dow's biggest lift after the company said it expects profits to rise about 10 percent in 2010 on cost cuts.

Volume was light on the New York Stock Exchange, with 1.02 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 1.77 billion shares traded, also below last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 2 to 1, while on the Nasdaq, about 15 stocks rose for every 10 that fell.

(Editing by Kenneth Barry)

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