In a major speech Thursday directed at Wall Street, President Obama called on the titans of industry to “join us” in supporting sweeping reform of the financial regulatory system, and he urged industry lobbyists to put a stop to their “furious” attempts to shape the legislation to their special interests.

The goal of the Democratic reform legislation, which is headed for a test vote in the Senate next Monday, “is to make sure [that] taxpayers are never on the hook” for bailing out major banks and firms, and that a large company can be wound down without bringing down the entire U.S. financial system, Obama said in his address at Cooper Union College in New York City.

On Capitol Hill, Senate Majority Leader Harry Reid (D-NV) attempted to bring the Senate Banking Committee’s financial reform bill (S. 3217) to the floor Thursday, but Senate Republican Leader Mitch McConnell of Kentucky objected, citing ongoing negotiations to reach a bipartisan measure. Reid filed for a cloture vote Monday to move forward with limited debate, which would require 60 votes and would head off a threatened Republican filibuster.

Reid signaled that the time for negotiations between Democrats and Republicans on financial reform was over. “I would like this [financial reform] bill off the floor next week.” he told The Hill.

Sen. Kay Bailey Hutchison (R-TX) warned that all 41 Senate Republicans are going to oppose the financial reform bill going to the Senate floor “until it is a good bill and it’s a bipartisan bill.”

On a more narrow issue, Obama said the Democrats’ proposed reforms are designed to respect that there is a “legitimate role” for derivatives, while prohibiting “reckless risk-taking” in the market.

“There is a legitimate role for these financial instruments in our economy. They can help allay risk and spur investment. There are a lot of companies that use these instruments to that legitimate end. They are managing exposure to fluctuating prices or currencies in fluctuating markets,” Obama said.

But “the problem is these markets operated in the shadows of our economy — invisible to regulators, invisible to the public — so reckless policies were rampant.” Reforms proposed by the Obama administration and Senate Democrats “will rein in excess and help ensure that these kind of transactions take place in the light of day,” the president said.

“Many practices were so opaque, so confusing, so complex that the people inside the firms didn’t understand them, much less those who [were] charged with overseeing them. They weren’t fully aware of the massive bets that were being placed. That’s what led Warren Buffett to describe derivatives that were bought and sold with little oversight as ‘financial weapons of mass destruction,'” Obama said.

Without congressional passage of financial regulatory reform legislation, “we’ll continue to see what amounts to highly leveraged, loosely monitored gambling in our financial system.”

The president said he was encouraged to see that a Republican — Sen. Chuck Grassley of Iowa — joined with Democrats in voting an over-the-counter (OTC) derivatives bill out of the Senate Agriculture Committee Wednesday (see Daily GPI, April 22). “That’s a good sign,” he said. The measure would bring regulation to the $600 trillion opaque derivatives market for the first time. It will be folded into broader legislation overhauling the financial regulatory system that the Senate banking panel approved last month (see Daily GPI, March 24).

At a press briefing on Capitol Hill Wednesday both Sens. Richard Shelby of Alabama, the ranking Republican on the Senate banking panel, and Saxby Chambliss of Georgia, the ranking Republican on the Senate agriculture panel, said they were still negotiating with Democrats on the broader financial reform package and the derivatives reform measure. Both expressed optimism that a bipartisan agreement would be reached.

“We still have some major issues to be resolved,” said Chambliss, who added that Senate Agriculture Chair Blanche Lincoln (D-AR) had made a commitment to resolve the disputed issues. “We’ve narrowed it down to a limited number of areas where we disagree and we’re going to work very hard to try to see if we can bridge the gap between the two of us.”

Shelby said he and Senate Banking Chairman Christopher Dodd (D-CT) were meeting every day to try and forge a “substantive bill” that would win broad support.

Hutchison said the OTC derivatives portion of the legislation was critical. “It is very important that we get that right because there are legitimate uses for end-users on derivatives. We want to protect those who are using them right, while we regulate those who are using them wrong.”

The Senate Agriculture Committee’s legislation seeks to curb commodities market speculation by forcing OTC derivatives trades onto regulated exchanges and clearinghouses. It makes an exemption to the trading/clearing requirement for large commercial traders who use derivatives to hedge the risk associated with trading of physical products (see Daily GPI, April 19).

The bill could significantly restrict trading by large Wall Street banks — such as JPMorgan Chase & Co. and Goldman Sachs Group — by barring swaps dealers from receiving any type of federal assistance (including federal deposit insurance and access to the Federal Reserve discount window) in connection with their trading of derivatives.

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.