President Barack Obama will take his push for tighter financial regulation to New York on Thursday, with Wall Street reeling from the Goldman Sachs case and the Senate only days from a pivotal vote.
In a new election-year fault line after the fractious healthcare fight, the White House said Obama will speak in Manhattan on the day Senate Democrats plan to bring a reform bill to the floor. The debate will likely go into next week.
The broad legislative push by Obama and the Democrats comes as fraud charges against Goldman Sachs have thrown Wall Street and Republicans onto the defensive after months of working to weaken or block Democratic reform proposals.
"Wall Street and our Republican friends apparently want to leave in place the status quo, but the status quo would leave us vulnerable," said Democratic Senate Banking Committee Chairman Christopher Dodd, the reform bill's main author.
Dodd told reporters at a news conference his bill would have stopped the kind of activity alleged in the stunning fraud charges brought last week against Goldman Sachs by the U.S. Securities and Exchange Commission.
Goldman's stock price fell again on Monday amid allegations that it duped clients with a subprime mortgage product in the credit bubble that broke in 2007, triggering a global financial crisis and tipping the U.S. economy into a deep recession.
The Goldman case has given Democrats more confidence they will be able to win Senate passage for their bill, under development for months now. The Democrats say the bill is needed to prevent a repeat of the 2007-2009 crisis.
But there were no signs on Monday of cracks in the solid opposition of Republicans, who say the Democratic bill will bring more bailouts and over-reaching by federal regulators.
"The concern we have is the perpetuation of this too big to fail notion. The legislation unfortunately doesn't stop it, it continues it," Republican Senator John Kyl told reporters.
U.S. Representative Barney Frank said the Goldman case increases the chance for passage of the financial package.
Frank, chairman of the House Financial Services Committee, also said he does not believe all 41 Republicans in the Senate will vote against the financial reform bill.
"It reinforces the need for much of what we were doing" on financial reform, Frank told CNBC Television.
The 1,336-page bill would set up a new way to unwind troubled financial firms to prevent future bailouts like the Bush administration's 2008 rescue of AIG. It would also set up new consumer protections and derivatives market rules.
"The SEC's charges against Goldman Sachs increase the chance that regulation is going to pass, though I thought it was already fairly likely," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.
White House spokesman Robert Gibbs said Obama will on Thursday call for action by the Senate and "remind Americans what is at stake" if strong reforms do not go ahead.
Similar appeals were expected on Tuesday from U.S. Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and SEC Chairman Mary Schapiro. All will testify at a congressional hearing on the collapse of Lehman Brothers.
Also on the agenda to appear before Frank's House committee is Richard Fuld, former CEO of Lehman, whose bankruptcy in 2008 rocked markets, unleashing a wave of reform proposals.
Later in the week, finance ministers from the G-20 nations will convene in Washington, with regulatory reform at the top of their priorities list. A long-awaited report by the International Monetary Fund on taxing banks is expected.
The KBW Bank Index of large bank stocks was down 0.8 percent at midday on Monday despite strong earnings from Citigroup. Investors were unsettled by prospects for a wider probe into the U.S. banking sector, potentially unearthing more fraud.
All 41 Republicans in the 100-seat Senate last week signed a letter opposing the Democrats' bill, which passed the Senate Banking Committee without their support.
Democrats are only one vote shy of the 60 they will need to overcome procedural hurdles likely to be thrown up in front of the bill by Republicans. Dodd is trying to round up just enough Republican support for reform to lock in that vote.
Senator Judd Gregg, a Republican member of the Senate Banking Committee, said in an interview on CNBC that Congress risked overreacting on the financial regulatory overhaul.
Senate Republican leader Mitch McConnell said he had concerns about the legislation but believed they could be addressed because of the "clear bipartisan support for improving this bill."
"It's my hope that we can work together to close the remaining bailout loopholes that would put American taxpayers on the hook for financial institutions that become 'too big to fail,'" McConnell said.
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