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House passes financial overhaul ‘YES, IT’S A
VERY BIG BILL’
Senate leaders postpone vote
by Brady Dennis and Jia Lynn Yang
The House approved new fi- nancial regulations Wednesday, but Senate leaders postponed a vote on the bill, preventing the landmark legislation from reach- ing President Obama’s desk until at least mid-July. House members voted 237 to 192 to approve the final version of the bill, which emerged from the House-Senate conference com- mittee earlier in the week. The sweeping legislation would, among other things, set up an in- dependent consumer bureau within the Federal Reserve to pro- tect borrowers from lending abus- es, establish oversight of the vast derivatives market and enable the government to wind down large, failing firms. After two final hours of debate, 234 Democrats and three Repub- licans voted for the overhaul. The margin of victory was greater than when the House initially vot- ed on its version of the bill in De- cember, when no Republicans
Barney Frank
voted yes. “No longer will reckless- ness on Wall Street cause joblessness on Main Street,” said House Speaker Nan- cy Pelosi (D- Calif.). “No
longer will the risky behavior of a few threaten the economy of the whole.”
Rep. Barney Frank (D-Mass.), who guided the bill through the House, called the final 2,300-page product “a very good bill.” “Yes, it’s a very big bill because it was a very big set of problems,” Frank said after the vote. “This bill got better at every stage of the process. . . . I believe we have a piece of legislation that’s going to show its merit.”
Republicans continued to insist
that the new rules would perpetu- ate the potential for federal bail- outs and hinder access to credit. “The bad and the ugly far out-
weigh” the good elements of the bill, said Rep. Spencer Bachus (R- Ala.). “In total, this bill is a mas- sive intrusion of the federal gov- ernment into the lives of every American.” The relatively smooth vote in
the House contrasted with the legislative wrangling that has be- deviled the bill in the Senate. The uncertainty over key Re- publican votes, coupled with the
loss this week of Sen. Robert Byrd (D-W.Va.), prompted Senate Ma- jority Leader Harry Reid (D-Nev.) to delay the Senate vote until after the July 4 recess. Reid will likely push for a final vote the week of July 12. The bill hit an unexpected speed bump Tuesday when a handful of centrist Senate Repub- licans, whose votes Democrats need to overcome procedural roadblocks, balked at a $19 billion bank fee added late in the confer- ence committee negotiations to offset the bill’s cost. Sen. Scott Brown (Mass.), one of four Repub- licans who voted for the Senate’s earlier version of the overhaul last month, withdrew his support be- cause of the provision. Democratic leaders reopened
the House-Senate conference for two hours late Tuesday to revise how the bill’s cost would be fi- nanced. Lawmakers had originally wanted to impose a fee on banks with more than $50 billion in as- sets and hedge funds with more than $10 billion in assets. Instead, the final bill offsets costs by end- ing the government’s bank bailout program, known as the Troubled Assets Relief Program, ahead of schedule and using leftover mon- ey to pay for the financial reg- ulatory bill. The conference com- mittee also approved a measure raising premiums paid by banks to the Federal Deposit Insurance Corp.
10-YEAR TREASURY UP $1.40 PER $1,000, 2.93% YIELD
CURRENCIES $1 = 88.47 YEN; EURO = $1.224
DIGEST REGULATORS The changes seemed to satisfy
at least one Republican, Sen. Su- san Collins of Maine, who said Wednesday she was inclined to support the final bill. Democrats are also counting on support from GOP senators Olympia Snowe (Maine) and Charles Grassley (Iowa), both of whom previously backed the legislation. Democrat- ic leaders are also wooing Sen. Maria Cantwell (D-Wash.), who previously opposed the bill but has not ruled out voting to let a fi- nal vote go forward. Before the bill can come to a final vote, at least 60 senators must agree to let it proceed.
Brown, who won other conces- sions in the legislation, remained a wild card Wednesday, saying he hadn’t decided whether to sup- port the final bill. “I appreciate the conference
committee revisiting the Wall Street reform bill and removing the $19 billion bank tax,” he said in a statement. “Over the July re- cess, I will continue to review this important bill.” Senate Banking Committee
Chairman Christopher J. Dodd (D-Conn.) pleaded with col- leagues to allow a final vote on the bill.
“I don’t know what else I could
have done to make this more in- clusive . . . to respond to the con- cerns my colleagues have raised,” Dodd said.
dennisb@washpost.com yangjl@washpost.com
Former AIG executive defends his actions Crisis panel hears from
man behind unit that spurred bailout
by Zachary A. Goldfarb
Joseph Cassano, who oversaw the American International Group unit that doomed the company and prompted a $182 billion federal bailout, defended his investment decisions Wednesday, adding that he could have saved taxpayers money if he had stayed with the firm. “I would have negotiated a much better deal for the taxpay- er,” Cassano told the Financial Crisis Inquiry
Commission
(FCIC), a congressionally ap- pointed panel. Cassano, a mysterious figure who largely escaped public view even as his handiwork at AIG Fi- nancial Products required one of the largest government bailouts, was among several current and former Wall Street executives who testified about the role of complex investments known as derivatives in the financial crisis. “When clarity mattered most,
Wall Street and Washington were flying blind,” said the commis- sion’s chairman, Phil Angelides. “In the case of derivatives, my fel- low commissioners and I are see- ing something we’ve seen many times in our investigation: enor- mous risk, reckless leverage, and early warning signs being ig- nored.” The AIG unit traded in a type of derivative known as a credit- default swap — essentially an in- surance policy for investments made by banks in mortgages. When the mortgages went bad, the investments lost value. Fi- nancial Products was on the hook to cover losses. It couldn’t meet its liabilities, leading to the near-collapse of the company. In rescuing the firm, the gov- ernment, by way of the Federal Reserve Bank of New York, paid out the insurance claims fully, providing billions of dollars to firms such as Goldman Sachs. This episode has been the subject
SEC limits political gifts after abuse scandals The SEC and New York Attor-
The Securities and Exchange Commission voted Wednesday to restrict investment advisers from contributing to political cam- paigns to win pension business in response to abuses in an industry that oversees $2.6 trillion of pub- lic retirement funds. On a 5-to-0 vote, the commis- sion move to ban executives at private-equity firms and hedge funds from managing pension- fund assets for two years if they give money to elected officials with influence in awarding in- vestment contracts. “Pay-to-play distorts municipal
investment priorities, as well as the process by which managers are selected,” SEC Chairman Mary L. Schapiro said.
MANUFACTURING Government aid to Airbus illegal, WTO rules
The World Trade Organization ruled Wednesday that European governments gave planemaker Airbus illegal subsidies in its bat- tle with U.S. rival Boeing, in a first key ruling on a long-running dispute between the European Union and Washington. Made public three months af- ter it was delivered to U.S. and E.U. trade officials, the WTO’s de- cision runs 1,061 pages over the question of whether the E.U. un- fairly abetted Airbus’s rise to No. 1 aircraft manufacturer in the world. The verdict confirms wrong-
doing, but it was unclear how hard it came down against Eu- rope as the WTO awaits the result
AUTOMOTIVE
of a countersuit alleging illegal U.S. support for Boeing. “This important victory will
benefit American aerospace workers, who have had to endure watching Airbus receive these massive subsidies for more than 40 years,” U.S. Trade Representa- tive Ron Kirk said. The WTO said in a statement,
however, that E.U. support “did not damage Boeing’s pricing or profitability, and did not lead to a loss of jobs at the company.” Washington and Brussels have
60 days to appeal. An Airbus spokeswoman said she expected both sides to challenge elements of the ruling.
— Associated Press
ney General Andrew M. Cuomo have investigated state pension- fund corruption for more than a year. Quadrangle Group LLC, the private-equity firm co-founded by former Obama administration auto czar Steven Rattner, agreed in April to pay $12million to re- solve allegations it provided kick- backs to win an investment from a New York state retirement fund. The SEC rules would bar
hedge-fund and private-equity executives from directing contri- butions by spouses, lawyers, affil- iated companies or political ac- tion committees.
— Bloomberg News
THURSDAY, JULY 1, 2010
DAVID ZALUBOWSKI/ASSOCIATED PRESS
Ford to cut more debt Ford Motor Co., the only Detroit automaker to avoid bankruptcy pro- tection, said Wednesday that it will reduce its huge debt by an addi- tional $4 billion as it continues to show signs of financial strength. Its shares rose 51 cents, or 5.1 percent, to $10.39 in afternoon trading.
JIM YOUNG/REUTERS “I would have negotiated a much better deal
for the taxpayer.” — Joseph Cassano, former head of AIG Financial Products, in testimony to the Financial Crisis Inquiry Commission.
of intense debate, with critics ar- guing that the Fed engaged in a backdoor bailout of top domestic and foreign banks instead of de- manding that they settle for par- tial payments. In his written testimony, Cas- sano defended his initial deci- sion to write the ill-fated insur- ance. “Often repeated are my words during an earnings call in August 2007 that I did not expect any re- alized, economic losses (as op- posed to unrealized accounting losses) on this portfolio,” Cassa- no said. “I meant exactly what I said.” Federal prosecutors and Secu- rities and Exchange Commission investigators conducted a lengthy probe of Cassano and other AIG executives to deter- mine whether they misled in- vestors about the state of the Fi- nancial Products unit’s finances. Prosecutors and the SEC recently decided not to file charges.
Cassano said Financial Prod-
ucts maintained the highest standards and stopped writing new insurance on mortgage se- curities when it concluded the housing market would go south. Cassano left AIG in February 2008 over disagreements with the company’s auditors about how to value portions of his unit’s investments. He earned nearly $300 million from the firm.
Others at AIG were more blunt about the company’s judgments. “We were wrong about how bad things could get,” said Rob- ert Lewis, the company’s chief risk officer. “What ended up hap- pening was so extreme that it was beyond anything we had planned for.” Goldman Sachs’s president,
Gary D. Cohn, denied that his firm got a backdoor bailout through AIG. Although the Fed payments benefited Goldman Sachs, Cohn said, his company
did not need them to survive be- cause it had taken precautions in case AIG could not make good on what it owed the bank. “We spent a considerable sum of our shareholders’ money to in- sure against the risk that AIG would not pay us in the event of a default,” he said.
Cohn began his testimony with a conciliatory statement, in contrast to the combative ap- proach Goldman Sachs took this spring in response to a series of federal challenges, including an SEC lawsuit. Those tensions in- cluded a subpoena recently is- sued by the congressional panel, which had accusing the bank of refusing to comply with requests for documents. “You have stated that we have not been sufficiently responsive to the FCIC’s requests for infor- mation,” he told the panel. “We apologize for any failure on our part.”
goldfarbz@washpost.com
ALSO IN BUSINESS Rejection of loan guarantee re- considered: The U.S. Export-Im- port Bank will reconsider its re- jection of a loan guarantee for Bucyrus International so it can sell coal-mining equipment for a power plant being developed by Reliance Power of India. The bank acted after Demo-
cratic lawmakers in Wisconsin, where Bucyrus is based, ap- pealed the rejection last week of $560 million in financing be- cause of the project’s potential carbon emissions.
Reliance has told the bank it
may buy U.S. equipment for a re- newable energy project, bank Chairman Fred Hochberg said in a letter. Rules limit payout of bankers’ bonuses: Bankers will only be able to get part of their yearly bo- nuses in cash upfront under new European Union rules for next year. A deal announced Wednes- day between E.U. governments and E.U. lawmakers will require banks to limit cash bonus pay- outs, with most executives get- ting 30 percent immediately and the rest later if the company per-
forms well. The draft rules go to the Euro- pean Parliament next week, where they are expected to win approval. The discussion was launched
after an outcry over payments to executives of banks that had re- ceived large bailouts to avoid col- lapse during the financial crisis. The new rules set minimum caps for all 27 members of the E.U. Microsoft halts Kin phones: Mi- crosoft said Wednesday that it will halt the planned rollout of Kin One and Kin Two phones be- yond the United States, less than two months after Verizon Wire- less started selling them. Micro- soft unveiled the two Kin phones in April, although they were widely anticipated after photos and details appeared on blogs last year. Neither Microsoft nor Verizon Wireless would say how many Kin phones have been sold. On Monday, Verizon cut the price of Kin One and Kin Two to $30 and $50, from $50 and $100, re- spectively.
— From news services
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