Banking/Financial Institutions

Verbal sparring over a Wall Street reform bill continued in the Senate Tuesday morning as the fate of a $50 billion fund that would help failing financial firms remained a point of contention. 

Senate Democrats and Republicans wasted no time calling on one another to join the effort to move forward on a bipartisan bill and stop the bickering. 

But the rhetoric was going strong again this morning. 

In response to an April 14 letter from Republicans, Senate Majority Leader Harry Reid (D-Nev.) and Senate Banking Chairman Chris Dodd (D-Conn.) asked Republican leadership "to reconsider your approach and truly work with us on this much needed reform." 

"As you know, Democrats have been working in a bipartisan manner for months," said the letter sent Tuesday. "Any claim to the contrary at this late stage of the process seems nothing more than a transparently partisan effort to kill Wall Street reform."

Goldman Sachs, the bank recently charged by the SEC for defrauding investors, earned $3.5 billion in the first quarter of 2010. That figure is up from $1.66 billion from the same period last year. 

The bank was charged with withholding from investors material information on mortgage-backed securities the SEC claims the bank knew were designed to fail. That charge has already capture congressional attention and will likely continue to do so as lawmakers try to pass financial reform legislation. 

Britain's financial regulator said Tuesday it is opening a formal investigation into Goldman Sachs, following charges filed Friday by the Securities and Exchange Commission (SEC).

The SEC charged Goldman with defrauding investors in securities based on subprime mortgages. The Financial Services Authority (FSA), Britain's regulator, said in a short statement that it is starting its own enforcement probe.

"Following preliminary investigations the FSA has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations," the regulator said.

The FSA said it would be working closely with U.S. authorities.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) said this week that financial overhaul legislation pending in Congress would have prevented the types of actions that Goldman is alleged to have taken.

The Obama administration is struggling to get a hold on the housing crisis and should consider forcing reductions in homeowner payments, a government watchdog said Tuesday.

Neil Barofsky, the special inspector general over the $700 billion financial rescue package, said the foreclosure crisis has worsened since the administration announced new efforts a year ago to shore up the housing market. Barofsky said the 230,000 permanent loan modifications under the program represent only roughly 8 percent of all foreclosures in 2009.

The administration program, "risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results," the report said.

Barofsky said the White House should consider making principal reductions mandatory rather than voluntary.

Maine Republican Sen. Olympia Snowe thinks the Senate can reach a bipartisan agreement on a financial regulatory reform bill. 

"I think that there isn't much of a gap in disagreement on the questions," Snowe told reporters after her Monday meeting with Treasury Secretary Tim Geithner. 

Snow said she had a "very constructive and frank meeting" and it was "very encouraging." 

Sen. Susan Collins (R-Maine) had similar sentiments after her meeting today with Geithner, noting the issues of 'too big to fail' and her opposition to the $50 billion fund to help financial firms unwind if they fail. Treasury and the White House have voiced opposition to the account, calling it a 'moral hazard' that could send a signal to firms that they could get government help even if they engage in risky behavior. 

Sen. Susan Collins (R-Maine) emerged from a meeting with Treasury Secretary Tim Geithner on Monday to announce she would join a GOP filibuster of Wall Street reform.

A vote to move to consideration of a financial regulatory reform bill probably won't happen this week, according to a senior Democratic aide. 

Senate Democrats had hoped to file cloture and vote on the motion to proceed but by Wednesday but that's unlikely at this point, an aide said. 

Most likely, Senate Majority Leader Harry Reid (D-Nev.) will file cloture on the bill before the end of the week. 

Senate Democrats and Republicans are in negotiations to get a bill to the floor. Treasury Secretary Tim Geithner was on Capitol Hill on Monday talking to Republicans about how to move forward on the legislation. 

The White House didn't influence the timing of a lawsuit against Wall Street mega-firm Goldman Sachs to help bolster efforts to pass financial reform legislation, a spokesman said Monday. 

Press Secretary Robert Gibbs said the Obama administration was "absolutely not" notified before the Securities and Exchange Commission announced the suit on Friday alleging the firm defrauded "investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter."

Republicans and banking lobbyists are questioning whether the White House coordinated the suit with the financial reform bill hitting snags in the Senate. 

"In all honesty, again, I want to stress again that we play no role in what the SEC does, it's an independent agency," Gibbs said. "I think there is plenty of evidence of the necessity for financial reform long before the announcement on Friday. The actions that Wall Street undertook over the course of many years to get us to that point where we saw the collapse that we did is proof enough that something has to change, and something has to change this year."

 The Republican senator’s announcement hurts Democratic chances of bringing financial reform legislation to the Senate floor this week.

Reps. Elijah Cummings (D-Ma.) and Peter DeFazio (D-Ore.) on Monday praised SEC Chairwoman Mary Schapiro for taking action against Goldman Sachs, which allegedly misled investors on mortgage-backed securities that turned toxic, and urged the Commission to continue to investigate similar transactions by the bank. 

"The compliant is based on a single [investment] knows as ABACUS 2007-ACI," the lawmakers wrote to Schapiro. "However the ABACUS 2007-ACI offering was part of a series of 25 such [investments], all arranged by Goldman Sachs. It is not beyond the realm of comprehension that the 24 remaining ABACUS transactions included similar materially misleading statement to investors in order to protect Goldman's internal proprietary bets." Read more...