>> because of this reform, the american people will never again be asked to foot the bill for wall street's mistakes. there will be no more taxpayer funded bailouts, period.

this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening. two big developments tonight concerning the u.s. financial system: the senate passed the most comprehensive financial reform bill since the 1930s. and susie, late today, goldman sachs settled its civil fraud case with the s.e.c., agreeing to pay more than half a billion dollars. >> susie: tom, we begin with that historic reform bill. it's designed to prevent financial crises in the future. the senate approved the legislation by a vote of 60 to 39. the president is expected to sign it into law next week.

>> tom: the new rules will mean huge changes for consumers, and for banks across the country, from the big banks like j.p. morgan, citi, and bank of america to smaller regional firms. darren gersh reports. >> reporter: it's a safe bet school kids decades from now will be quizzed on the dodd- frank wall street reform and consumer protection act. they'll be asked about the new financial stability oversight council, and how it was empowered to identify and correct the kinds of risks regulators missed in the great recession; about the new consumer protection bureau, covering most every kind of loan you can think of. and this man's picture-- chris dodd, chair of the senate banking committee-- will be in the history books. >> this is a major undertaking, one that is historic in its proportions, that will set in place a structure that will allow us to minimize the problems in the future. >> reporter: and this senator's picture might also be there. history will show whether republicans like richard shelby were right to warn the bill will cut off credit when the economy needed it most.

>> this bill, i believe, is a job killer and will saddle americans with billions of dollars in hidden taxes and fees. >> reporter: the dodd-frank bill changes the way wall street does business, limiting risky trading, bringing more transparency and oversight to complex financial contracts known as derivatives. it also empowers regulators to step in earlier, to close down failing banks, and to police risk across the entire financial system. consumer activist travis plunkett says the new consumer financial protection bureau will become a household name. >> they're going to be out there stopping scams, stopping abusive practices, educating consumers, handling complaints, talking to the public, talking to the media about the latest problems in the financial services marketplace. >> reporter: some analysts argue this bill also marks a turning point away from an economy driven by finance to one that is more focused on making things. but to do that, regulators will have to write 500 new rules implementing dodd-frank.

and business advocates like david hirschman worry those regulatory decisions will determine the history that children read decades from now. >> i hope they will read that regulators implemented this correctly rather than exacerbate the current economic uncertainty. >> reporter: the president will sign the bill next week, and that picture might be set in the history books next to franklin roosevelt's, the last president to enact financial reforms this broad. darren gersh, "nightly business report," washington. >> susie: the other big story tonight-- goldman sachs will pay $550 million to settle charges it misled investors over mortgage-backed securities. that's the biggest fine the s.e.c. has ever imposed on a financial firm. the money will go to repay investors who lost billions in the goldman deals, and to the u.s. treasury. the settlement also requires the bank to review how it sells complex financial instruments. that's because one of the deals in question was crafted with

help from a client betting on them to fail. the s.e.c. says this sends a powerful message. >> this settlement is a stark if they vie lit the principals and honest treatment and full disclosure and fair dealing and those principals do not change regardless of how complex the product or how sophisticated the investor. >> susie: for its part, goldman admitted its marketing materials did not have all the proper details. but the firm did not admit legal wrongdoing, instead saying the settlement was the right outcome for the firm, its shareholders and clients. >> tom: the goldman sachs settlement came at the end of the trading day. beginning the day was j.p. morgan. the first of the big banks to report earnings is feeling more comfortable with its outstanding loans. j.p. morgan set aside half as much money in the second quarter for bad loans compared to last year.

the bottom line profit at the bank was much stronger than anticipated. it set aside $3.4 billion during the quarter to cover bad loans. all this week, we've been looking at sector earnings. tonight, fred cannon, co- director of research and chief equity strategist at keefe, bruyette and woods, joins us to tackle the financial sector. fred, welcome back to "nightly business report". >> thank you. good evening, tom. >> hudson: how about the tone set ahead of tomorrow? >> i think what they wanted was better capital and credit and those are putting the overhang on the financials for quite a while now. that being said, you didn't see the stock being traded, because you have the head winds that people are concerned about. but bottom line, it was a strong quarter >> hudson: and the individual cloud over goldman sachs cleared up late in the day. is the concern removed now with this s.e.c. settlement for

goldman? >> well, a big cloud is removed from goldman. a lot of concerns when it meant for their rep -- about what it meant for their reputation. and this is a big lift off of a cloud off of goldman. stocks should be very strong. >> hudson: we'll look at that coming up in market focus. let's look at meantime at what investors should expect from this sector. earnings up 28% with top-line revenues up 9%. now, how could the numbers look as we look at guidance for the third and fourth quarter now that financial reform will be the law of the land? >> well, financial reform's tough because as was mentioned at the top -- earlier in the program, you still have a lot of rules to get written, a long implementation phase. we think that fundamentally this bill was manageable by the companies, they will figure ways out to make it work. they won't be as profitable as they were in say a couple of years ago. but the profit will still be

strong in the companies and the values in a lot of the big-cap names are still very good and appealing in our view for investors. >> hudson: sounds like slower growth. does that mean lower valuation for the stocks then? >> lower than they were, but not as low as they are today. >> hudson: okay, fair enough. sounds pretty bullish. and clearly there's winners and losers and we have got the strongest among consumer financials and regional banks. the weakest are expected to come from diversified financials like those from the -- from the big banks that we have seen already. what do you think sits these apart? >> well, if you look back on the financial crisis, you can't just look at the annual number. really coming out of the bottom in march of 2009 you saw the capital markets group, the big brokers really the ones that broke out, they outperformed diversified last week, while regional bank, a lot of concerns about the credit lagged. this year, just the opposite happened. as we saw that big recovery in the capital market, wait a second, this might be overdone given that we have a tough

economic outlook. at the same time, we saw good credit recovery on the regional banks and credit started to stabilize and the regional banks have took off this year so far. >> hudson: i know that the financial space is a lot bigger than the bank, a lot more in there including insurance. life insurance stocks like prudential and affleck have done better. we'll look at these, but i want to ask you what is the outlook for insurance as we approach the second quarterings earnings season? >> insurance offers a lot of value, especially in an environment where interest rates don't look like they're going up for a long time. you have to start worrying when you think the fed is tightening. right now, that looks like a long way off. >> hudson: do you have any favorites within the whole financial space, areas that you -- sectors that you do like? >> we like the winners coming out of the financial reform. that is the exchanges. the cme's is still trading on

volatility, but you want a growth area in the financials and that's the place to look. >> hudson: any disclosure with cme, fred? >> not with me. >> hudson: great to catch up. fred cannon, he's co-director of research, chief equity strat gist -- strat gist. >> susie: here are the stories in tonight's n.b.r. newswheel: a late surge in b.p. shares helped the blue chips wipe out a triple-digit loss. at the close, the dow lost only seven points, the nasdaq dropped a fraction, and the s&p 500 rose a point. with just over a billion shares traded, volume on the big board was slightly higher than yesterday. it dropped a bit on the nasdaq, to just below two billion shares. b.p. shares gushed higher, rising almost 8% on word that oil has finally stopped gushing from its broken gulf well. the containment cap over the well is working. it's part of a critical test to determine the condition of the well; it is not a permanent solution to the disaster.

mortgage rates continue to hit historic lows. the national average on a 30- year fixed rate loan is unchanged at 4.57% this week. another delay in the boeing 787 jetliner. the aerospace giant said today the first deliveries won't come out until next year. that plane has already been hit by five separate technical delays, and its first customer-- japan's all nippon airways-- has been waiting 2.5 years for its first delivery. >> tom: still ahead, paying less-- it sounds like a good thing, but a bout of deflation may be anything but good for the u.s. economy. >> susie: more now on that s.e.c. settlement with goldman sachs. our guest tonight has an unique perspective; he ran that agency in the late 1980s. joining us from chicago is david ruder, law professor at northwestern university and former s.e.c. chairman. professor ruder, welcome to "nightly business report."

professor ruder, welcome to "nightly business report". hello, professor ruder? >> yes, can you hear me? hello? can't hear me? >> gharib: yes, i can hear you now. as you heard, the s.e.c. said today that this goldman sachs settlement sends a powerful message that other firms that violate fair business practices will pay a heavy price. do you think goldman sachs is paying a heavy price? >> i think goldman sachs is paying a heavy price since it was only one transaction that was covered by this settlement. goldman sachs is still in the position of having to worry about s.e.c. enforcement regarding its prior practices and of course s.e.c. possible enforcement if it fails to conform with the settlement. >> gharib: and the reaction from some other people on wall street was that goldman sachs got off easy by paying $550 million. >> well, goldman sachs paid only

two investors in this -- in a very narrowly drawn complaint, and then they then paid a heavy fine and they entered into a large number of agreements regarding future conduct. those are very serious and i think set down patterns for the rest of wall street to look at. >> gharib: let's talk about some of the remedial actions. goldman sachs has agreed to change some of the practices, how it draws up the marketing material. is to significant changes or do you think they'll operate business as usual? >> oh, if goldman doesn't comply with those representations it's in real trouble. there are two levels of committees in goldman to look at their representizations. general counsel has to look at them and possibly an outside counsel, and then there's an audit of what they're doing. so the s.e.c. will be waiting to watch to see what they do. and i believe that we are

watching the rest of wall street as well. i actually spoke with rod kazami before coming on the program and he said the rest of wall street had better look at this settlement to see what kind of conduct they will be engaged in. >> gharib: what is your sense? you ran the s.e.c. for so many years, do you think that this is going to have an impact on changes on wall street that they're going to just naturally make these changes so they can avoid any kind of prosecution? >> unfortunately, there will be a period of time in which wall street looks carefully at the settlement and behaves differently, but we can expect that over the future times wall street will lapse in some ways that will create additional problems. but for the time being i think they're going to be very, very careful. >> gharib: did kazami tell you anything else today? >> he indicated that they are continuing to look at the current ones, the ones dealing with the mortgage backed securities. and that they will of course be looking at the conduct of firms

in the future. one interesting statement, he said there are two reasons why firms ought to look at these settlement procedures. even though they're not applicable to them. he said one is it's right to do so. and the second he said if they don't, they may find that the price for violations will go up. >> gharib: well, you know, doing the right thing sometimes is not always the first or foremost by wall street as we have seen through this financial crisis. the american public has lost some confidence in even the government policing our financial system. this settlement came on the same day as passage of this financial regulatory reform. do you see any reason why americans should feel more confident in the rules -- these new rules? >> oh, absolutely. i think there are rules that are going to affect the big

investment communities and this means that there will be less risk in the area and lots of rules that will protect the consumers. and additionally, i think you'll find that the regulators are going to be very strict in enforcing the rules that are currently in place and rules that will be adopted. >> gharib: all right. we'll leave it on that note. professor ruder, thank you so much for coming on our program this evening. david ruder, former chairman of the securities and exchange commission.

>> tom: with all the news around banking stocks, the earnings, the goldman sachs settlement and the senate approval of financial regulation, that sector was under some pressure today, but technology pushed to the forefront after the closing bell. google was out with its latest results. ad revenue continued to rebound, and youtube saw very rapid growth, according to google's chief financial officer. profits saw a double-digit jump from a year ago, but the earnings per share figure came in seven cents less than anticipated. the stock was little changed during the regular session, but after the close, shares were down by more than 4.5%. two days after its big competitor intel turned in record results, advanced micro

devices reported record second quarter revenues of its own. bottom-line earnings turned around from a year ago loss and easily beat expectations. a-m-d also expects third quarter revenues to grow. while shares were fractionally in the red ahead of the earnings, after hours, the stock jumped 3% if it can hold onto those gains tomorrow, the stock would be at three week highs. speaking of tomorrow, apple will be one to watch. the company has a news conference, but hasn't said what the topic will be. it is expected apple will address nagging reception problems with its iphone-4 and how it will respond. this is the last 30 days for apple stock. since the iphone went on sale june 24, the stock is down 7%. there has been a growing chorus of complaints. on monday, "consumer reports" said it could not recommend the phone. strong rally through april has the one year on apple shows the strong rally through april has stalled. its first quarterly earnings to include the ipad will be released on tuesday next week. as we mentioned, the banking business has seen plenty of market moving news. that will continue tomorrow with more bank earnings.

the financial e.t.f. came back from losses earlier in the day to essentially unchanged thanks to the goldman sachs settlement. goldman stock added more than 4% on twice its usual volume, rallying in the last half hour to close at a two month high. there was plenty of volatility with these three biotechs and their three-way race to market for new prescription weight loss treatments. arena's medicine had a positive write-up in a medical journal, but that was overshadowed late today with a f.d.a. advisory panel rejecting vivus' medicine. the panel's recommendation came in the last few minutes of trading. with the panel meeting, shares didn't trade. they're likely to come under pressure when trading resumes. arena pharmaceuticals comes before the advisory panel in september. this is today's chart. shares were stronger after the "new england journal of medicine" reported good results with its drug. but those gains disappeared quickly after the panel recommendation on competitor vivus. this is the one year chart. as arena's date with regulators approaches, volatility has picked up. and orexigen-- it dropped with

the group, on heavy volume. it's treatment is scheduled to be considered by the advisory group in december. and that is tonight's "market focus." >> susie: blame it on tomatoes. >> susie: blame it on tomatoes. that's right tomatoes. wholesale prices fell half a percent in june, led by a huge drop in fruit and vegetable prices, especially tomatoes. the latest decline in the producer price index is fueling new worries about the possibility of deflation. suzanne pratt looks at what a prolonged period of falling prices would mean for the u.s.

>> reporter: at this wholesale market in brooklyn, prices of fruits and veggies have been falling. in some cases, the declines are weather-related. but manager michael scotto says, lately, extra supply is pushing prices lower for many items. >> now that an influx of produce comes in, like anything else, no one wants to get stuck with it. so what they do is drop the price so everything moves a lot faster. >> reporter: falling prices are great for americans struggling to buy groceries or fill up their gas tanks, but the drop in costs reported today raises concerns about the u.s. soon facing a prolonged period of falling prices throughout the economy known as deflation. the half a percentage point drop in june wholesale prices follows declines of three-tenths in may and one-tenth in april. the federal reserve is also growing more concerned the u.s. is at risk for the kind of deflationary spiral that japan faced in the 1990s. policymakers revealed their worries yesterday with the

release of minutes from a recent fed meeting. economist cary leahy says the threat of deflation is real. >> yes, deflation is... i'd say is the biggest single economic risk. inflation is not a risk at the moment. >> reporter: leahy says the problem with deflation is that it usually brings two friends along for the party, namely high unemployment and a very weak economy. that's because if prices keep falling, consumers wait to buy things. the drop in demand then eats into corporate profits, and firms are forced to cut jobs. while economist stuart hoffman say the chance of deflation is low, he says it's so dangerous because it's tough to stop once it starts. >> that's why you don't want to get into a deflationary cycle. but that's exactly what happens- - people hold off, businesses worsen, they lay more people off, which only makes people more hesitant to buy, and the whole thing can feed on itself into a vicious cycle.

>> reporter: so how does the fed fight deflation? experts say it can lower interest rates, buy mortgages and long-term debt. those could be good antidotes to deflationary fever. suzanne pratt, "nightly business report," new york. >> tom: here's what we're watching for tomorrow: quarterly results are due out from bank of america, citigroup, gannett, and general electric, along with june's consumer price index. also tomorrow, advice on navigating the markets in these choppy times. our friday "market monitor" guest is jack ablin, chief investment officer at harris private bank. >> susie: fewer americans fell behind on credit card payments last month. that helped major card lenders mark the lowest delinquency rates this year. capital one, citigroup, discover financial services, and american express all saw a drop in late payments. but even as more people pay their bills on time, there's concern the trend might not

continue if consumers' credit quality doesn't recover. >> tom: buying after a losing season doesn't mean a low price. the golden state warriors had one of the worst records in the nba last season, but today, the team still managed to attract a record sale price-- $450 million. the buyers are joseph lacob, currently a part-owner of the boston celtics, and peter gruber of mandalay entertainment. before the sale was announced, it was widely expected the winning bidder would be oracle c.e.o. larry ellison.

>> susie: and finally tonight, the indian rupee now has something else in common with currencies like the u.s. dollar, the british pound and the euro. it has its very own symbol. the hindi character looks kind of like the letter "r". the winning design beat out more than 3,000 others. the teacher who designed it took home a $5,300 prize. the symbol will help distinguish india's currency from others with similar names like the pakastani rupee. >> hudson: may may have to pay -- they may have to pay for all the price tags. >> susie: that's "nightly business report" for thursday, july 15. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie.

i'm tom hudson. good night, everybody. we hope to see all of you again, right here tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org