Financial reform marches on: House Financial Services Committee Chairman Rep. Barney Frank, Massachusetts Democrat, will lead the conference to resolve the differences between the Senate and House financial reform bills, which Democrats want to finish and send to President Obama before the July 4 recess. The conference is expected to include a dozen senators, including seven Democrats and five Republicans. Senator Chris Dodd, Connecticut Democrat, who drafted and owned the Senate bill, will be on the conference, as well as Senator Lincoln, Arkansas Democrat. Republican Sens. Richard Shelby of Alabama and Saxby Chambliss of Georgia, who opposed the Senate bill, will reportedly be on the panel, and the Senate is expected to name its full conference committee members on Monday evening. House Speaker Pelosi, California Democrat, will name the members of the panel from the House, but may wait until the second week in June to do so, aides said. Frank has said the conference may take about a month, and has indicated that he would like the proceedings televised on C-SPAN.

Wall Street is in retreat:  Financial industry lobbyists don’t expect good things from the conference, particularly if it’s televised. “The Senate process was more about producing political sound bites than having a genuine debate,” complained David Hirschmann of the U.S. Chamber of Commerce. The Senate bill’s provisions could cut the profits of the largest U.S. banks by 13 percent, Goldman Sachs Group said in a May 17 report. The biggest impact would come from stricter rules on derivatives and the powers of a new consumer agency to write regulations affecting mortgage fees and other financial products. Each of those provisions would hurt bank incomes by 4 percent, Goldman analysts estimated. “Over the last year, the financial industry has repeatedly tried to end this reform with hordes of lobbyists and millions of dollars in ads, and when they couldn’t kill it they tried to water it down … Today, I think it’s fair to say these efforts have failed,” Obama said.

One clear vote against: Republican Sen. Judd Gregg of New Hampshire, once Obama’s secretary of commerce nominee, blasted the financial reform package as a disaster that fails to address the fundamental underlying causes of the economic issue: real estate and underwriting. Gregg told CNBC’s Squawk Box on Monday: “The bill scores more political points than addresses reform … most of the initiatives in this bill wasn’t directed at resolving the problem, which actually created the issue, it was directed at scoring political points … there was a tacit of, ‘Well, let’s go forward anyway and we’ll fix it somewhere in the future.'” Gregg has previously called the bill, “The-Expansion-Of-Government-For-Making-Us-More-Like-Europe Act,” a “convoluted exercise in chaos” and a “byzantine exercise in regulatory absurdity.”

Too big to ignore? Supporting Gregg’s allegations that the proposed financial reform does not address underlying problems, the Wall Street Journal reported Monday that Fannie Mae and Freddie Mac may be the single-biggest expense to hit taxpayers in the fallout of the financial crisis, costing the public more than the banks, auto makers or even AIG. Now government-owned, Freddie and Fannie are still publicly traded and have a bigger role in the housing market today than they did before the crisis. Already given $145 billion, the CBO estimates that losses from these two will total about $370 billion by 2020. So how is this huge issue addressed in the financial reform package? An amendment from Dodd was approved, which requires the Treasury to conduct a study on Freddie and Fannie, and then suggest a plan of action by the end of 2011. But even worse, the Senate bill’s “Prohibition on Proprietary Trading”  bans banks from investing in “stocks, bonds, options, commodities, derivatives” and other financial instruments, but reportedly exempts the securities issued by Fannie Mae and Freddie Mac. So it’s OK for banks to engage in proprietary trading in stocks that dropped from more than $60 in 2007 to under a buck today, as long as the U.S. government has a majority interest. Given the planned IPOs later this year for government-owned GM and Chrysler, it’s a shocker that the shares in these beauties weren’t allowed for proprietary trading as well.

Speaking of dark pools: UBS, Citigroup, Deutsche Bank, Morgan Stanley, JPMorgan and Credit Suisse have agreed to give European regulators a daily count of how many European shares are exchanged on their internal stock-trading systems known as dark pools. Dark pools don’t display bids or offer quotes publicly to allow the large investors to trade without giving speculators the ability to track and benefit from their trades. The Committee of European Securities Regulators had called for tougher rules for disclosing post-trade data. Action in the U.S. may be forthcoming as well. In its Preliminary Findings Regarding the Market Events of May 6, the SEC and the CFTC report that 32 dark pools have about 8 percent of the overall trading volume in the U.S. national market system and the SEC has proposed greater transparency for these pools.