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          Today, the Financial Services Committee approved legislation that will put an end to “too big to fail” financial firms, help prevent the failure of large institutions from becoming a system-wide crisis, and ensure that taxpayers are never again left on the hook for Wall Street’s reckless actions. The Financial Stability Improvement Act <http://financialservices.house.gov/pdf/Summary_hr3996_final.pdf>  (H.R. 3996), which passed by a vote of 31-27, marks the ninth major bill approved by the committee this year to modernize America’s financial rules. Once signed into law, this comprehensive set of reforms will work in tandem to address the myriad causes – from predatory lending to unregulated derivatives – that led to last year’s crisis.
H.R. 3996 <http://financialservices.house.gov/pdf/Summary_hr3996.pdf>  specifically targets the issue of systemic risk within the financial system and the potential harm that regulatory gaps and large, interconnected companies like AIG can pose to the economy. The legislation will:

·           Identify and subject systemically risky firms to increased scrutiny and regulation: H.R. 3996 will create an inter-agency oversight council that will identify and monitor financial firms and activities that could potentially undermine the nation’s financial stability. Once identified, these firms and activities will be subject to stricter oversight, standards, and regulation.

·           Ensure that the collapse of a large, interconnected financial institution does not lead to another taxpayer bailout or jeopardize the economy: Currently, there is no system in place to responsibly shut down a failing financial company like AIG or Lehman Brothers. This bill establishes an orderly process for the dismantling any large failing financial institution in a way that protects taxpayers and minimizes the impact to the financial system.

·           Hold Wall Street accountable for its actions: If a large institution fails, the bill holds the financial industry and shareholders responsible for the cost of the company’s orderly wind down, not taxpayers. Under H.R. 3996, any costs for dismantling a failed financial company will be repaid first from the assets of the failed firm at the expense of shareholders and creditors. Any shortfall would then be covered by a “dissolution fund” pre-funded by large financial companies with assets of more than $50 billion and hedge funds with assets of more than $10 billion.For further details on today’s legislation, click here <http://financialservices.house.gov/pdf/Summary_hr3996.pdf>. To learn more about the other financial reform bills approved by the committee, click here <http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/ Financial_Regulatory_Reform.html> .

         Specifically, as the largest Wall Street banks return to profitability—in some cases, breaking records— they say everything is rosy. They’re lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston- based trading giant could cogently explain how they were making so much money.

        After two weeks sifting through over one thousand pages of SEC filings for the largest banks, I have the same concerns. While Washington ponders what to do, or not do, about reforming Wall Street, the nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.

        I was trying to answer the simple question that you'd think regulators should want to know: how much of each bank’s revenue is derived from trading (taking risk) vs. other businesses? And how can you compare it across the industry—so you can contain all that systemic risk?

       Goldman Sachs and Morgan Stanley, for example, altered their year-end reporting dates, orphaning the month of December, thus making comparison to past quarterly statements more difficult. In the cases of Bank of America, Citigroup and Wells Fargo, the preferred tactic is re-classification and opaqueness.   These moves make it virtually impossible to get an accurate, or consistent picture of banks ‘real money’ (from commercial or customer services) vs. their ‘play money’ (used for trading purposes, and most risky to the overall financial system, particularly since much of the required trading capital was federally subsidized).

       Investor’s Intelligence Survey: First, the number of bullish advisors is still 46%. That is down from near the 60% reading scored in late 2003 and early 2004. Given the market's vulnerability, that number, however, is still very high. The bearish advisors total is at 23.7%. Note how low that figure is compared to readings over the last several years. Even at the peak of the bubble years in 2000 the number of bears was generally greater than 30%!

       Also observe the bullish to bearish advisor ratio of 1.96. We have seen two recent spikes in this data to about 3.00. The last time the ratio was that high was in 1992 -- 12 years ago! Spikes of this kind are associated with extremes in bullish sentiment and in the past have at times preceded an important market top. While the ratio is now below 2.0, it is still very elevated. It is approximately what it was at the peak of the bubble years in 2000.  http://web.streetauthority.com/terms/i/investorsintelligence.asp

       Rasmussen: Consumer Confidence Falls to Four Month Low

The Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, fell three points on Wednesday to a four month low. At 69.0, the Consumer Index is down five points from a week ago and down seven points from a month ago. Confidence is now at the lowest level since July 24 and is up only nine points from the beginning of the year.

http://www.rasmussenreports.com/public_content/business/ indexes/rasmussen_consumer_index2/rasmussen_consumer_index

       Rasmussen: Just 21% Favor Bernanke’s Reappointment As Fed Chairman  Ben Bernanke begins the formal process tomorrow for confirmation to a second term as chairman of the Federal Reserve Board, but 41% of Americans think President Obama should name someone new to the post.  

       A new Rasmussen Reports national telephone survey finds that only 21% of adults believe the president should reappoint Bernanke to another four-year term. But a sizable 39% aren’t sure what the president should do. 

http://www.rasmussenreports.com/public_content/business/general_business/november_2009/ just_21_favor_bernanke_s_reappointment_as_fed_chairman

Reuters: U.S. Senator Bernie Sanders said on Wednesday that he was placing a hold on Ben Bernanke's nomination for a second term as Federal Reserve chairman, a move that could slow the confirmation process.   http://www.reuters.com/article/politicsNews/idUSTRE5B168H20091203?feedType=RSS&feedName=politicsNews&rpc=22&sp=true

          The U.S. service sector's recovery sputtered out in November as activity tipped back into negative territory after two months of expanding activity.

          The Institute for Supply Management reported Thursday that its overall index of non-manufacturing activity came in at 48.7 last month, from 50.6 in October, while the business activity/production index came in at 49.6, from 55.1. The overall index had been expected to come in at 51.5, according to economists.

          The ISM's non-manufacturing index is comprised mostly of the service sector activities that make up a strong majority of total U.S. economic activity. The report comes on the heels of the ISM's manufacturing report from earlier in the week. That release showed continued growth in the factory sector, and while the expansion cooled from October, economists nevertheless said the composition of growth suggested continued activity gains over coming months.

          "Respondents' comments remain cautious about business conditions and reflect concern over the length of time for economic recovery," said Anthony Nieves, who directs the survey for the ISM.

          The ISM's non-manufacturing report's details were mixed. New orders came in at 55.1, from 55.6 in October. Hiring remained troubled, with the employment index at a contractionary 41.6, after 41.1 the prior month.

          Inflation faced by service sector firms increased, with the prices reading at 57.8, from 53.0 in October and 48.8 in September.

          In a surprise to economists, the number of U.S. workers filing new claims for jobless benefits fell again last week in a sign that labor market conditions may be starting to improve.

          Total claims lasting more than one week, however, increased.

          Initial claims for jobless benefits fell by 5,000 to 457,000 in the week ended Nov. 28, the Labor Department said in its weekly report Thursday. The previous week's level was revised to 462,000 from 466,000. This represents the lowest figure for claims since September 6, 2008, and it is the second consecutive week so far in November that claims have remained below the 500,000 mark. It also marks the fifth week in a row now that initial claims have fallen, according to Labor Department data.

          Economists surveyed by Dow Jones Newswires had predicted an increase of 19,000 initial claims.

          The four-week moving average of new claims, which aims to smooth volatility in the data, declined by 14,250 to 481,250 from the previous week's revised average of 495,500. That is the lowest figure since November 1, 2008.

          Economists at Wrightson ICAP and JP Morgan Chase & Co. had both predicted recently that claims would rise due to the Thanksgiving holiday. Still, J.P. Morgan noted that claims are on a "steady downward trend" and Wrightson ICAP said it expected a "very large decline" in initial claims for the week ending Dec. 5.

          In the Labor Department's Thursday report, the number of continuing claims -- those drawn by workers for more than one week in the week ended Nov. 21 -- rose by 28,000 to 5,465,000 from the preceding week's revised level of 5,437,000.

          The unemployment rate for workers with unemployment insurance for the week ended Nov. 21 was 4.1%, unchanged from the prior week's unrevised rate of 4.1%.

          Unit Labor Costs down 2.5% in 3Q.

          US Oct Factory Orders up 0.6%.

          US non-farm payrolls have declined by 11,000 in November, instead of the 111.000 decline expected by the analysts; Unemployment rate has declined to 10.0% from 10.2% in October; Dollar appreciates while Yen crosses drop.

          Toll Brothers Inc., the largest U.S. luxury-home builder, reported a bigger-than-expected loss in the fourth quarter after revenue fell faster than costs. The shares dropped the most since February.

          The net loss for the three months ended Oct. 31 widened to $111 million, or 68 cents a share, from $79 million, or 49 cents, a year earlier, the Horsham, Pennsylvania-based company said today in a statement. Analysts surveyed by Bloomberg predicted a loss of 44 cents a share, according to the average of 11 estimates.

          Mortgage rates for fixed 30-year loans in the U.S. dropped to a record low amid signs that the housing market is beginning to emerge from the worst slump since the 1930s.

          The rate fell to 4.71 percent for the week ended today, the lowest since mortgage buyer Freddie Mac began compiling the data in 1971. The average 15-year rate was 4.27 percent, the McLean, Virginia-based company said today in a statement.

...

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-- Posted Sunday, 6 December 2009 | Digg This Article