Tuesday, July 13, 2010

Financial Reform Bill Observations

I went out for a walk at work today for lunch and I must have noticed 5 different set ups all over Cambridge for clean up crews. It rained here fierce on Saturday, but it did not seem all that bad. Another 2-3 inches of rain to come overnight and if it is like last Saturday, there could be more of a mess.

Market Outlook
The indices have repaired almost all the technical damage done on the last down draft. Earnings are "blowing past" expectation as they like to write. Intel had big numbers after the close and here was a nifty little snippet:
Intel's net income was $2.89 billion, or 51 cents per share, in the quarter ended June 26. That compares with a loss of $398 million, or 7 cents per share, a year ago, when Intel was forced to pay a $1.45 billion fine in Europe over antitrust violations.
Analysts expected net income of 43 cents per share in the latest period.
The last time Intel's quarterly net income topped $2.5 billion was in 2000 during the dot-com heyday, when Internet fever fueled spectacular computer sales.

I am looking forward to the bank numbers after recent reports have shown 100% perfecto trading days. Next stop could be S&P 1150 in short order. The ultra low volume walks up really help too.

Financial Reform Bill Observations
The financial reform bill is about a done deal, only a matter of timing. I have a few thoughts to share on this and it relates to my US Senator for Massachusetts, Scott Brown.

The finreg, as it's called, bill will not do much of anything to address the systemic issues facing the financial sector, nor end the policy of "Too Big To Fail". Absent also is any mention of the black holes Fannie Mae and Freddie Mac. I think there can be some debate about various parts of the bill and perhaps they will be useful (there are a lot of parts, this is a huge bill) but over all no one serious in the financial media thinks this is anything more than a show.

Which makes the interview Scott Brown gave on WTKK-FM Talk radio (96.9) all the more disturbing.

Mr. Brown took time out of a very busy schedule to give a full on interview on the afternoon show. I was looking forward to his explaining how he at first carved out bank tax exemptions for Massachusetts area banks if there was to be a overall bank tax to fund a purse to be used when the banks get into trouble again. Now that the bank tax was scrapped totally, I just wanted to hear how he felt about the bill he supports.

I want to say that Mr. Brown has done some study and some real homework. He understood fully many of the major issues that needed reform and he also knew exactly what the people here (and everywhere I would hope) were most pissed off about:
-Mortgage Bailouts
-Banking Bailouts

So I was most disappointed during the interview because I think Mr. Brown is 100% sincere when he said he thinks this bill will really work. He was up front about the skip over of the FNM/FRE angle, but he did say that reform of the GSE's was the next priority and already in process. What grabbed me was he said on no less than 3 occasions that FNM/FRE were not backed by the US government which I think China would like to know about. In any case, maybe there will be some progress on this in a bit. We will have to see.

Mr. Brown thinks finreg will:
-End "Too Big To Fail"
-Protect Consumers (not auto consumers, that got pulled as well!)
-Save or create jobs
-Add clarity to derivatives markets
-A FED audit is in the bill, though he was not clear how far that goes nor if the FED will even play along
-Protect against the next financial crisis
I think he does believe all those things and thus I am feeling a bit defeated. After all the work so many have done over the past two years a smart, well researched, newly elected guy thinks all those things. Unreal.

Mr. Brown said those working on the bill talked to all the "right" people including:
-banking officials
-the Treasury
-the FED
-the FDIC
-Washington think tanks
To arrive at the final bill. While obviously those folks are needed, they are hardly the best place to go for reform ideas. Why not read Mish? Barry Ritholtz? Yves Smith? Why not indeed?

In the end I loved his summary. Things will be better protected because.....drumroll.....the FED and the Treasury will have EXPANDED powers as regulators and in oversight! Now that one had me laughing at the radio big time.

The same FED that played a monster part in building the biggest credit bubble of all time is now on the case. The Treasury, which threatened "tanks in the street" to get a hasty TARP bill passed now has the power to take over the big 6 banks if they are going bust? Can anyone take that as serious?

Now I could be wrong and Mr. Brown is just a savvy interview and knows full well this bill is all show and no go. That would be unfortunate. I believe he is sincere that he thinks this is going to be a good set of laws, and that maybe is even more unfortunate. For all of us.

Have a good night.

1 comment:

watchtower said...

Gawains where are you?

I'm starting to think that you've fallen under the hand of the Mexican bandidos.