WASHINGTON - The battle over financial reform reaches its final stages this week, with Wall Street's lobbyists working, with considerable success, to gut key measures designed to rein in risky trading by banks and investment firms.

Americans for Financial Reform, a broad-based coalition of labor and progressive groups, delivered petitions to the local offices of House and Senate conferees while national labor groups weighed in to block the renewed business efforts to carve out loopholes in derivatives trading, consumer protection and speculative investments.

Heather Booth, the executive director of AFR, told In These Times about the final stages of reform: "It's hand-to-hand combat. Every Wall Street firm is showing their greed, their wanton disregard for the public interests, and the politicians are still willing to do Wall Street's bidding."

The organization will release new polling today (thursday) that shows that the public favors-if asked fair and accurate questions-cracking down on Wall Street, challenging other polling about doubts about financial reform. Yet even the reported lack of confidence that new rules will prevent another meltdown doesn't mean, as some right-wingers spin it, that the public opposes strong financial reform.

One of the few brighter signs: The consumer protection agency, while still housed within the pro-bank Fed, is generally considered one of the stronger elements of the bill now being finalized, although a Mack truck-sized loophole exempting auto dealers' loans from scrutiny is gaining traction.

Progressive and labor groups are also seeking to preserve a strong "Volcker rule," which would would ban U.S. banks from trading with their own capital and running hedge funds. But it's been weakened by a pending deal with Massachusetts Republican Scott Brown that would allow banks to invest up to 5 percent of their own capital in hedge funds, a maneuver done on behalf of State Street and other major financial firms in Brown's state.

As the Washington Post reported Wednesday (via Progressive Breakfast):

State Street isn't one of the iconic firms of Wall Street. It doesn't even make the top 10 largest bank holding companies in the country. But on Capitol Hill this week, as lawmakers finalize new rules regulating Wall Street, Boston-based State Street wields enormous influence.

The bank has a powerful advocate: Sen. Scott Brown (R-Mass.), whose vote the Democrats need to pass the financial overhaul bill. Brown is worried that a key provision in the regulations known as the "Volcker rule" would hurt State Street, BNY Mellon and other banks with major operations in his state. Even though Democrats have fought to include a strong version of the rule, which could restrict the kinds of trading banks engage in, Obama administration officials and Democratic aides on Capitol Hill say Brown is likely to get his way because his vote is critical for approval of the House-Senate draft.

If he does, many other banks across the country could benefit.

Mary Kay Henry, SEIU's new president, offered Wednesday a tough-minded overview of why these sorts of sell-outs to coporations should be opposed:

There is nothing radical in this bill. What's radical is the idea that working families are each and every day still paying the price for Wall Street's recklessness and greed.

American families can accept no excuse for voting against these common sense reforms. These new rules will protect our families from dangerous and deceptive financial products and prevent taxpayers from paying for Wall Street's future mistakes.

Congress must stand up to Wall Street CEOs and their high-priced lobbyists who are stepping up efforts to water down and defeat much-needed reforms. Toxic derivative deals and the shadow markets under which private equity firms operate were at the heart of our economic collapse. We need to pass strong new rules to police these products and bring them out of the shadows.

Each day Congress waits to finalize new rules for our financial system is another day Wall Street CEOs are allowed to engage in the same risky bets that crashed our economy.

At the same time, so-called moderate "New Democrats" are working with Wall Street firms to try to undermine a proposal by the labor-challenged Sen. Blanche Lincoln to force federally-backed banks to split off their derivatives trading desks, the risky bets that wrecked the economy.

Their latest talking point: if this passes, the derivatives business will just go overseas and deprive American businesses and workers of revenue. As Zach Carter of the Campaign for America's Future points out:

Astonishingly, as Wall Street reform enters its final hours a tired, generic corporate refrain against regulation is gaining traction. As bigwig bankers and their lobbyist brethren fight to defeat tough new rules on derivatives--the crazy casino that brought down AIG--all their sloganeers can come up with is the trite wail that serious rules will send this risky business overseas. It'd be funny if members of Congress weren't taking it seriously.

"Oh no--the business will go overseas!" is the last-ditch, we're-about-to-lose-this-one cry of despair for corporate executives in every industry. Crack down on a profitable abuse in the United States, and the entire business will move to London or Mumbai, sending jobs and tax revenue abroad-- or so the argument goes. You only hear this line when CEOs know they have no case, and have to divert attention away from the real substance of the policy debate. In the case of Wall Street abuses, this nonsense is especially ridiculous. The bank lobby really just doesn't have any good arguments to launch in its favor, so it's falling back on generic corporate jargon.

In reality, the U.S. has extremely broad authority to crack down on derivatives activity abroad, we just don't have a whole lot of good rules on derivatives for regulators to enforce.

That's one reason that some House moderates joined in a press conference and letter demanding tougher oversight of derivatives. As David Dayen of Firedoglake notes:

You may be wondering whether anybody inside Congress is working for stronger reforms. The answer is yes. Rosa DeLauro, Jackie Speier and Bart Stupak (!) put together a Dear Colleague letter calling for the strongest possible derivatives language from the conference committee. At the end of the day, if the derivatives title remains fairly intact from the Senate bill, that alone will give reformers a victory and could actually shrink that runaway sector.

Unfortunately, the House version that's being promoted by some conferees exempts as many as 50% of derivatives trading -- the dangerous bets on mortgages or other investment vehicles with underlying assets -- from oversight.

As Michael Masters, an equity fund manger who favors strong reform, summed up what's at stake in this arcane but critical issue:

Currently, derivatives trade in an opaque, completely unregulated $600 trillion "dark market." The risk that this presents to the U.S. economy is incalculable, and the new legislation rightly seeks to create transparency by forcing most derivatives transactions to clear through a central counterparty, or clearing house.

The clearing house would stand in the middle of the transaction and guarantee both sides of the trade. If one counterparty to the transaction fails, then the central counterparty absorbs those losses, protecting the system as a whole from collapse. A similar system has worked very well for over 100 years in the exchange- traded futures markets.

Wall Street firms hate this idea because their prodigious profits will dwindle when derivatives are traded in the light of day, letting their counterparties see the true costs.

So Wall Street is pushing hard to exempt as many transactions as possible....

The House language, however, would exempt anyone hedging "balance sheet risk." Since every financial player has a balance sheet, it is estimated that more than 50% of the outstanding derivatives would go uncleared under the House plan, compared to just 10% under the Senate version.

Right now, the interest groups that best understand this shady world of investments are the big banks and investment firms, and unless citizen activists weighs in during these final days, Wall Street will get its way.

That's why AFR has  crafted this final appeal in its petition drive to Congress, emphasizing support for the Merkley-Levin amendment which would bar firms from making Goldman Sachs-style bets against their own customers or using taxpayer-backed funds to make investments from the firms' own accounts. That's an expansion of the Volcker rule.

This may sound like common sense, but AFR is facing an uphill battle in its last-minute citizen appeals:

You or your colleagues on the Conference Committee merging the two financial reform bills must work so that the STRONGEST provisions make it into the final bill.

We need:

A Consumer Agency with jurisdiction over all lenders - including auto dealers!

Transparency in the derivatives market: no more trading in the dark! And, banks should have enough money to cover their bets.

Separate the riskiest trading from regular banking so taxpayers aren't on the hook for Wall Street's gambles. (You must support SENATE language on derivatives, including Senate Section 716, and the Volker rule with the Merkley-Levin language.)

This week will determine whether the legislators will listen the voices from Main Street over the donations from Wall Street and the millions spent on lobbyists.