WASHINGTON (Reuters) – The broadest overhaul of U.S. financial rules since the Great Depression was on its way to becoming law on Thursday after it cleared a crucial hurdle in Congress.

By a vote of 60 to 38, backers squeezed out the minimum votes needed to clear a Republican roadblock in the Senate.

Senate leaders set a series of final votes for 2 p.m. (1800 GMT), with passage looking assured. President Barack Obama, who proposed reforms more than a year ago, has said he wants to sign the measure into law next week.

Republicans who largely oppose the measure could delay a vote until Friday evening, though they are unlikely to do so.

The House of Representatives has already approved the bill, which tightens regulation across the financial industry in an effort to avoid a repeat of the 2007-2009 financial crisis.

The legislation would establish new consumer protections, give regulators greater power to dismantle troubled firms, and limit a range of risky trading activities in a way that would curb bank profits. ((For details see: [ID:nN27130507]))

With Republicans poised for big gains in the November congressional elections, Democrats are eager to show voters that they are cracking down on an industry that touched off the worst recession in 70 years.

“I regret I can’t give you your job back, restore that foreclosed home, put retirement monies back in your account,” said Democratic Senator Christopher Dodd, one of the bill’s chief authors. “What I can do is to see to it that we never, ever again go through what this nation has been through.”

It is not clear whether voters will give Democrats credit.

The public’s awareness and understanding of financial regulation is very low, according to a new poll from Ipsos released on Thursday.

Of those polled, 38 percent had never heard of the reform, while 33 percent had heard of it but know nothing about the legislation. Other polls show that voters’ views of the reform fall mostly along party lines.

The bill has also won Democrats few friends on Wall Street as wealthy donors have started to steer more campaign contributions to Republicans.

FEW CORNERS OF INDUSTRY UNTOUCHED

The Dodd-Frank bill, named for Dodd and Representative Barney Frank, its chief author in the House, leaves few corners of the financial industry untouched.

Mortgage brokers, student lenders and other financial firms would have to answer to a new consumer-protection authority, though auto dealers will escape scrutiny.

Regulators, who scrambled to contain the damage from failing firms like Lehman Brothers in the 2007-09 crisis, would have new authority to dismantle troubled firms if they threaten the broader economy.

A council of regulators would monitor big-picture risks that regulators missed ahead of the past crisis.

Large banks would face new limits on risky trading activities, and many would have to set aside more capital to help them ride out times of crisis.

Large private-equity and hedge funds will face more scrutiny from federal regulators, and credit-rating agencies could potentially see their entire business model upended.

Much of the $615 trillion over-the-counter derivatives market will be routed through more accountable and transparent channels, and banks would have to spin off the riskiest of their swaps clearing desk operations.

Wall Street deployed an army of lobbyists to derail or weaken the bill, but they were undermined by the industry’s tone-deaf decision to award fat bonuses to executives only months after the government put up $700 billion in bailout funds.

SOWING REGULATORY UNCERTAINTY

Most Republicans have firmly opposed the bill, arguing it is an intrusive overreach that fails to address problems in the housing market that spurred the crisis.

But as the measure moves closer to becoming law, a new criticism has emerged: the 2,300-page bill is not specific enough.

Even after Obama signs the measure into law, financial firms will face years of uncertainty as regulators put it into effect, business groups and Republicans point out.

“It’s just this type of uncertainty that will deter lending and freeze up credit,” Senate Republican Leader Mitch McConnell said. “The administration and its Democrat allies in Congress have taken a crisis and used it, rather than solving it.”

The bill mandates 533 new regulations, 60 studies and 94 reports, and financial firms are likely to curtail their lending until they see how they will be affected, the U.S. Chamber of Commerce says.

The U.S. Treasury, which would head the council of regulators and temporarily direct the new consumer protection agency, has already begun a “rigorous” planning process in an effort to swiftly implement reforms, the Treasury’s No. 2 official told an industry group in New York.

“That work cannot be done overnight. It will take time,” Deputy Treasury Secretary Neil Wolin said. “But we are prepared to move on to the next stage with speed.”

The uncertainty factor even gives some Democrats pause. Senator Ben Nelson, one of the chamber’s most conservative Democrats, earlier in the week threatened to withdraw his support for the bill for that reason before relenting.

Dodd said his Senate Banking Committee may hold hearings later this year on regulators’ plans for implementing the bill.

“It will be incumbent now on the present administration and those that follow it to nominate good people to head up these operations,” he said on the Senate floor. “I can’t legislate that. I can merely create the opportunity for that kind of protection to occur.” (Editing by Leslie Adler)

WASHINGTON (AP) — The federal deficit has topped $1 trillion with three months still to go in the budget year, showing the lasting impact of the recession on the government’s finances.

In its monthly budget report, the Treasury Department said Tuesday that through the first nine months of this budget year, the deficit totals $1 trillion. That’s down 7.6 percent from the $1.09 trillion deficit run up during the same period a year ago.

Worries about the size of the deficit have created political problems for the Obama administration. Congressional Republicans and moderate Democrats have blocked more spending on job creation and other efforts. Republicans also have held up legislation to extend unemployment benefits for the long-term jobless because of its effect on the deficit.

Another failed effort would have provided cash-starved states with money to help avoid layoff of public employees and finance the Medicaid program for the poor and disabled.

President Barack Obama also encountered resistance to further stimulus spending at a meeting of the Group of 20 major industrial nations last month in Toronto.

Obama expressed concerns about the risks to a fragile global recovery from withdrawing spending too soon. But the G-20 adopted targets to cut deficits in half as a percentage of their economies over three years.

The deficit in the federal budget in June totaled $68.4 billion, the second highest June deficit on record, but down from the all-time high of $94.3 billion in June 2009, a month when the government was spending heavily to stabilize the financial system and jump-start economic growth.

June is normally a surplus month as the government collects tax payments from corporations and individuals who make quarterly payments. Only seven years in the past 56 have seen deficits in June.

Many private economists are forecasting that the deficit for the entire budget year, which ends on Sept. 30, will come in around $1.3 trillion. That would be the second highest deficit on record, but it would be down slightly from last year’s all-time high of $1.4 trillion.

The Obama administration is forecasting that the deficit for the 2011 budget year, which begins Oct. 1, will remain above $1 trillion for a third straight year, projecting an imbalance of $1.27 trillion. And the administration predicts the imbalances over the next decade will total $8.5 trillion.

The deficits have been driven higher by the lingering effects of the worst recession since the 1930s. About one-third of the higher deficits in this period are a result of a drop in government tax revenues.

The other two-thirds of the deficit increases reflect higher government spending to stabilize the financial system with the $700 billion bailout program and the $787 billion stimulus program that Congress passed in February 2009. The increased spending also reflected added demands for such programs as unemployment benefits and food stamps.

The tide of red ink has sparked a political backlash with surveys showing rising unhappiness among voters with the ballooning deficits.

Through the first nine months of the current budget year, government revenues have totaled $1.6 trillion, up 0.5 percent from the same period a year ago.

Government spending totals $2.6 trillion, down 2.8 percent from the same nine months a year ago. That decline primarily reflects lower spending on the financial bailout effort as banks are now repaying the billions of dollars they received to bolster their capital reserves at the peak of the financial crisis.

Obama has appointed a national debt commission to report after the November midterm elections on ways that the federal deficits can be brought under control.

The heads of the panel told the National Governors Association on Sunday that everything needs to be considered including curtailing popular tax breaks, such as the home mortgage deduction.

“The debt is like a cancer,” Democrat Erskine Bowles told the governors. “It is going to destroy the country from within.”

Associated Press Writer Andrew Taylor contributed to this report.

By ISABEL ORDONEZ – The heads of Anadarko Petroleum Corp. and Mitsui & Co.’s oil-exploration unit will testify before a U.S. Senate subcommittee July 22 on their liability in the Gulf of Mexico oil spill.

The testimony will be the first time executives of BP PLC’s partners in the Macondo well will give lawmakers their view on their responsibility for the recovery from the spill that resulted from the late April burning and sinking of Transocean Ltd.’s Deepwater Horizon rig.

The companies confirmed that Anadarko Chief Executive Jim Hackett and Yoshiyuki Kagawa, CEO of Mitsui Oil Exploration Co., Ltd., will testify in a hearing before the subcommittee on Federal Financial Management, Government Information, Federal Services and International Security, chaired by Sen. Tom Carper (D., Del.)

Kenneth Feinberg, the new administrator for the independent $20 billion escrow fund established by BP last month, will also testify, a Senate aide said.

“We need to make sure that the taxpayer is not left on the hook for the damages associated with this disaster and an important part of that effort is ensuring that the party or parties responsible pay for all of the damages,” Mr. Carper said in an emailed statement.

Anadarko, which owns a 25% interest in the BP-operated Macondo well, received in early June a bill from BP for just over $272 million for part of the spill expenses, according to an invoice provided by the subcommittee.

Mitsui, which holds 10% of the Macondo development, was billed around $111 million. Also that month, Anadarko’s Mr. Hackett called the oil spill in the Gulf of Mexico “preventable and the direct result of BP’s reckless decision and actions,” allegations that BP rejected.

Anadarko has said its operating agreement with BP for development of the Macondo well contains a clause that could limit Anadarko’s liability if misconduct or gross negligence of the operator, BP, is proved.

Write to Isabel Ordonez at Isabel.ordonez@dowjones.com

NEW ORLEANS (Reuters) – The Obama administration heads to court on Thursday aiming to reinstate a six-month moratorium on deepwater oil drilling imposed after the devastating BP Plc (BP.L)(BP.N) Gulf of Mexico oil spill, but blocked by a federal judge.

The showdown starts at 3 p.m. local time (2000 GMT) at the U.S. Court of Appeals for the Fifth Circuit in New Orleans, where government lawyers will square off for one hour against drilling companies before a three-judge panel.

The Obama administration will “immediately” issue a revised drilling ban if the appeals court backs a lower court decision to block the six-month moratorium on drilling in deep waters, an Interior Department official told Reuters on Thursday.

However, if the appeals court supports the administration’s moratorium, the department will not impose a revised drilling ban, the official said.

Regardless of the ruling, the industry is not expected to resume drilling in deep waters any time soon because of the legal uncertainties.

If the judges rule against the moratorium, companies will will await the government’s next move: the issuance of a revised drilling ban and an another likely appeal.

The Obama administration said it suspended drilling in waters deeper than 500 feet (152.5 metres) to avoid another oil well blowout and give a special presidential commission time to investigate the disaster.

BP’s leaking undersea well in the Gulf of Mexico has soiled the shores of all five U.S. Gulf Coast states.

But drillers like Hornbeck Offshore Services Inc (HOS.N) won a reprieve when U.S. District Court Judge Martin Feldman said the moratorium was too broad and arbitrary.

Feldman ruled last month that the Interior Department failed to adequately take into account the economic impact the drilling suspension would have on the industry as well as local communities.

The Justice Department, which appealed, will argue that Feldman wrongly substituted his judgment in place of Interior Department expertise and that the moratorium was narrow by only affecting drilling at 33 sites.

It will ask that his ruling be put on hold.

BACK TO WORK

The appeals court is expected to rule quickly after the rare oral argument on the stay request. Drilling companies want to get back to work, while the government wants to protect against another spill.

Additionally, the state of Louisiana has intervened in the case, telling the court that the drilling industry is worth $3 billion to its economy, which was just getting back on its feet after Hurricane Katrina in 2005.

While the drilling companies and the Obama administration squabble over the blanket moratorium, another complication emerging is a plan by Interior Secretary Ken Salazar to issue, if necessary, a revised drilling suspension that would be more flexible in a bid to mollify critics.

Economic damage from the uncertainty is already being felt. Baker Hughes Inc (BHI.N) said it is moving workers out of the Gulf of Mexico to other countries.

“Short-term, we’re relocating some of our people on the offshore rigs,” Baker Hughes CEO Chad Deaton said on Wednesday after a town hall meeting on the moratorium in Houston. “Fortunately, activity around the world is fairly strong.”

The legal uncertainties are also taking a bite out of future U.S. production. In its latest forecast, the Energy Department predicted U.S. oil output would be be slashed by 82,000 barrels per day –about a week’s worth of production — next year due to delayed or canceled drilling caused by the moratorium.

The deepwater suspension came just over a month after an April 20 explosion that rocked the Transocean Ltd RIGN.S oil rig that was drilling the BP well, killing 11 workers and unleashing the oil spill.

Since the BP well exploded, drilling stocks have been hammered, with Transocean shares down 44 percent and Hornbeck shares down 24 percent, based on the close of regular trading on Wednesday.

The moratorium challenge in court “could give some of these (drillers’) stocks a lift in the near term,” said Channing Smith, co-portfolio manager of Tulsa, Oklahoma-based Capital Advisors Growth Fund CIAOX.O.

More broadly, oil service stocks have taken a heavy beating since the spill and the Philadelphia oil services sector index .OSX has dropped 27 percent from its 2010 high hit in late April. The index bounced back in June but started July near the year’s lows and is now down 25 percent from the April highs. (Additional reporting by Rodrigo Campos in New York, Anna Driver in Houston and Tom Doggett in Washington; Editing by Russell Blinch and Vicki Allen)

NEW ORLEANS (AP) — Federal authorities have asked an appeals court to reinstate a moratorium on deepwater drilling declared after BP’s oil well blew out in the Gulf of Mexico.

In a filing late Tuesday in the U.S. 5th Circuit Court of Appeals, the government challenged a federal judge’s finding the Interior Department did not offer clear reasons for the six-month moratorium.

A lawsuit against the moratorium was filed by Hornbeck Offshore, an oil field service company that claims it would have severe economic consequences.

Government lawyers said in their filing that the company, and others that later joined the suit, had not shown they would suffer permanent damage. They argued the moratorium should be reinstated while the government appeals the lower court’s ruling.

WASHINGTON (AP) – The Supreme Court on Monday struck down part of the anti-fraud law enacted in response to the Enron and other corporate scandals from the early 2000s, but said its decision has limited consequences.

The justices voted 5-4 that the Sarbanes-Oxley law enacted in 2002 violates the Constitution’s separation of powers mandate. The court says the president, or other officials appointed by him, must be able to remove members of a board that was created to tighten oversight of internal corporate controls and outside auditors.

Congress created the board to replace the accounting industry’s own regulators amid scandals at Enron Corp., WorldCom Inc., Tyco International Ltd. and other corporations. The board has power to compel documents and testimony from accounting firms, and the authority to discipline accountants.

Chief Justice John Roberts, writing for the court, said that the Sarbanes-Oxley law will remain in effect with one change. The Public Company Accounting Oversight Board will continue as before, but the Securities and Exchange Commission now will be able to remove board members at will.

That change, Roberts said, cures the constitutional problem.

Andrew Clark |guardian.co.uk – The disgraced former Telegraph owner Conrad Black and the Enron fraudster Jeffrey Skilling have won fresh hope of early release from jail following a US supreme court ruling that their convictions partly relied on a controversial corruption law that was too broad in its scope.

In a major legal victory for the two jailed tycoons, America’s top court issued separate, but related, rulings declaring that the men were treated unfairly when appeal court judges threw out their attempts to overturn their convictions.

However, the rulings shed doubt only on certain aspects of the men’s multiple convictions and stop well short of acquittal.

Black, currently an inmate at Florida’s Coleman prison, was sentenced in 2007 to six and a half years for defrauding shareholders in his Hollinger media empire out of $6.1m (£3.7m) by attaching a “non-compete” clauses to the sale of newspaper businesses that siphoned off funds from investors. The Canadian-born peer was stripped of the Conservative whip following his conviction. He has vigorously protested his innocence from the beginning.

Skilling, 56, is in a prison near Denver and is serving a 24-year sentence. He was chief executive of Enron until shortly before the energy trading company imploded in one of the most dramatic corporate corruption scandals in US history.

In both cases, prosecutors used a law that allows for conviction if business leaders are found to have robbed investors of “honest services”. But twin decisions written by the supreme court judge Ruth Bader Ginsburg rule that this law should only be applied to incidents of bribery and kickback schemes.

Referring to Black, the ruling concludes: “We vacate the judgment of the court of appeals and remand the case for further proceedings.”

The decision affects three counts of fraud for which Black was convicted by a Chicago jury. But the 65-year-old former press baron still faces a hurdle in that he was also found guilty of obstructing justice by removing boxes of evidence from his Toronto office in defiance of a court order. Once friendly with society figures ranging from Margaret Thatcher to Henry Kissinger, Black described the case against him as hanging “like a toilet seat” around the necks of prosecutors.

His legal team have never been pleased to have their case lumped in with Skilling, even through they appealed almost simultaneously to the supreme court on the same legal grounds. Skilling was convicted in 2006 on 19 counts of fraud, conspiracy, insider trading and lying to auditors. His co-accused, the former Enron chairman Ken Lay, died of a heart attack while awaiting sentencing.

Ginsburg’s ruling, which is written on behalf of a majority of the supreme court’s 11 judges, says her decision does not necessarily mean the Enron boss’s convictions should be overturned. And she threw out a claim by Skilling that his trial was unfair because it was held in Houston, a city scarred by the energy trading company’s demise.

WASHINGTON (AP) — Federal regulators on Wednesday proposed new disclosure rules for target-date retirement funds that would require sponsors to spell out how they are investing the money and to warn about risks.

The Securities and Exchange Commission voted 5-0 to propose that marketing materials for target-date funds include how investments are being allocated among stocks, bonds, cash and such.

The proposed rules could be formally adopted sometime after a 60-day public comment period, possibly with changes.

Target-date funds, which are pegged to a person’s expected retirement year, are an increasingly popular way to invest in 401(k) accounts. They are appealing because of their “set-it-and-forget-it” approach. Usually named for the year the investor expects to retire, the funds now command a total of about $270 billion in assets.

The funds allocate investments among various types of assets, shifting to a more conservative mix as the target date for retirement approaches. The shift is called the fund’s “glide path.”

The funds drew criticism in the market meltdown of 2008 for wide variations in their returns, and excessive risks and high fees for some funds.

Under the proposal, target-date funds’ marketing materials, whether electronic or in print, would have to include a prominent table, chart or graph showing the allocations among the various assets over the life of the fund. A statement would have to explain that the asset allocation changes over time.

The marketing materials also would have to include a statement telling prospective investors that they should consider their financial situation and tolerance for risk before going into a fund, and that it is possible to lose money investing in the fund, including at and after the target date.

“It’s clear that investors need more information than just the date in a fund’s name,” SEC Chairman Mary Schapiro said before the vote.

The government has designated the funds as a qualified “default” investment option. That means employers are protected from liability when they invest a worker’s contributions in a target-date fund if the worker hasn’t chosen otherwise.

Target-date funds came under criticism during the market meltdown of 2008 and in its aftermath. Among 31 funds with a 2010 target date, the average loss in 2008 was nearly 25 percent. Returns for those funds varied widely: from minus 3.6 percent to minus 41 percent. Some had half or more of the assets allocated to stocks, only two years from the retirement target.

The funds have mostly recovered their losses since then. However, returns have continued to range widely, according to the SEC, from 7 percent to 31 percent last year for 2010 target funds — with an average return of around 22 percent.

A Senate investigation raised the question of whether some funds charged unreasonable fees and carried excessive risk. Several major fund companies have made changes in response to the criticism, cutting fees for their target date funds and making asset mixes more conservative sooner.

Federal Reserve Vice Chairman Donald Kohn said he will remain at the central bank until a new governor is appointed instead of departing June 23 as he announced in March.
Kohn will stay on as a governor, at the request of Fed Chairman Ben S. Bernanke, until no later than Sept. 1, the central bank said in a statement in Washington. Kohn’s term as vice chairman ends June 23. The Senate has failed to act yet on President Barack Obama’s April nominations of three Fed governors, including San Francisco Fed President Janet Yellen for vice chairman.
–Editors: James Tyson, Brendan Murray
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

NEW YORK (CNNMoney.com) — Two former Moody’s executives admitted Wednesday that the credit rating agency should bear some blame for the financial crisis, alleging that competition to win mortgage deals forced workers to put profits over its reputation.

“The focus on market share inevitably lead to an inability to say “no” to transactions,” said Eric Kolchinsky, a former managing director within Moody’s derivatives division, in prepared remarks before a hearing of the Financial Crisis Inquiries Commission in New York.

“While there was never any explicit directive to lower credit standards, every missed deal had to be explained and defended,” he added.

Testimony provided by Kolchinsky and Mark Froeba, a former senior vice president within the same division, revealed a variety of seemingly questionable business practices that went on within the firm.

Buffett to testify on derivatives
In some instances, certain analysts were blocked from participating on new deals at a banker’s request out of fear that they might not assign the new security the coveted ‘AAA’ rating.

Higher-ups in the company also allegedly employed a variety of techniques to grease the wheels in the mortgage rating process, including understaffing the residential mortgage rating group so analysts could not look at any single deal too closely.

Between 2000 and 2007, Moody’s rated $4.7 trillion in securities backed by consumer home loans and approximately $736 billion in complex mortgage investments known as collateralized debt obligations, or CDOs.

More than three-quarters of those bonds, based on dollar amount, received a ‘AAA’ rating, according to a preliminary staff report published by the commission.

Froeba condemned the culture that had developed at the firm during the mortgage boom.

“When I left Moody’s, an analyst’s worst fear was that he would do something that would allow him to be singled out for jeopardizing Moody’s market share, for impairing Moody’s revenue or for damaging Moody’s relationships with its clients and lose his job as a result,” said Froeba, who is scheduled to appear before the commission later in the day.

Kolchinsky and Froeba are among seven current and former Moody’s (MCO) executives, including company chairman and CEO Raymond McDaniel, that will appear before the FCIC.

In a copy of his prepared remarks, McDaniel attempted to deflect some of the criticism that has circled his firm, including its inability to foresee troubles in the housing market during the boom and its “issuer-pay” business model that some believe led to cozy relationships between banks and the rating agencies.

“I am proud of our history and the work of our people,” said McDaniel, who is due to appear before the committee later in the morning.

All eyes however will be focused on Warren Buffett, the chairman of Berkshire Hathaway (BRKA, Fortune 500), and one of Moody’s largest investors.

Buffett had originally declined the commission’s offer to participate in the hearing, before he was later subpoenaed. Buffett did not provide prepared remarks for the hearing.

Wednesday’s hearing is the latest in a series examining the root causes of the financial crisis.

The 10-member commission, chaired by former California treasurer Phil Angelides, has convened four hearings so far this year. It has examined the role of Wall Street firms, subprime lenders, as well as government agencies including the Federal Reserve and the Securities and Exchange Commission.

The committee is expected to deliver a report with its findings on Dec. 15 of this year.

Critics have suggested that rating agencies including Moody’s, as well as its main rivals, Fitch and Standard & Poor’s, a division of McGraw-Hill (MHP, Fortune 500), played a key role in the economic meltdown.

Not only did the ratings agencies assign top marks to securities issued by banks that would eventually turn toxic, they have also been accused of moving too slowly to warn of the risks of bonds and other securities tied to subprime mortgages.

The FCIC’s examination of Moody’s practices turns up the heat on the firm and the entire rating agency industry. Lawmakers are currently considering a number of proposals which threaten to shake up the industry.

One amendment currently on the table, proposed by Sen. Al Franken, D-Minn., would create a board to divvy up the work of rating so-called structured securities.

The company also recently revealed it is potentially facing enforcement action from the SEC after Moody’s allegedly made “false and misleading” statements about its procedures when it applied to become a preferred rating agency in June 2007.