Earlier today Senator Chris Dodd (D-CT) held a press conference where he discussed the main points of his financial (non) reform bill. As expected the bill appears to be nothing more than more committees, more regulators to monitor other departments, and more rhetoric about Too Big To Fail.

Mr. Dodd is really trying to appease the average hard working Americans in a big way. One of his opening statements is tailored towards the main stream population.

Why Change Is Needed: The economic crisis was driven by an across-the-board failure to protect consumers. When no one office has consumer protections as its top priority, consumer protections don’t get the attention they need. The result has been unfair and deceptive practices being allowed to spread unchallenged, nearly bringing down the entire financial system.

Mr. Dodd claims that the financial crisis was driven by a failure to protect consumers. While consumers are always being screwed by large corporations, it is hardly the cause of the crisis. The financial crisis was conceived when Glass-Steagall was essentially abolished in 1999. This opened the door for Wall Street to dabble in all kinds of exotic and dangerous securities, mainly mortgage backed securities. After Glass-Steagall was brought down then came the removal of leverage limits.

Because Glass-Steagall was no longer in effect, it allowed everybody to play with the securities which we now know turned out to be improperly rated, misrepresented, and sold by Wall Street as if they were as solid as a gold bar. The only part that involved the consumer was when Wall Street needed more and more mortgages to bundle up and sell. That led to the ‘no income, no problem’ loans that banks were handing out left and right.

The consumer was nothing but a source of money to continue fueling the demand for more mortgage backed securities. The seeds of the financial crisis had already been planted way before the consumers were being swindled into believing they could get a mortgage for next to nothing. That was just icing on the cake.

The financial crisis is the child of deregulation and greed. Wall Street knew they could get away with just about anything, and they did. They alone created the crisis, not because the consumer was not being protected. How many of your neighbors bought mortgage backed securities? Probably not a single one I would bet. The destructive securities were traded in huge tranches that were moved throughout the world to large hedge funds, pension funds, sovereign wealth funds, and of course traded with other large firms. In the end it became a game of ‘hot potato’, the last one holding it lost the game.

Mr. Dodd’s opening statement just goes to show who he is trying to appease with his financial (non) reform bill. It is to make the public feel better. As far as having any significant impact on Wall Street’s normal way of business, the bill offers little substance. In some aspects the bill may actually create additional loopholes that can be exploited, and give Wall Street a loophole, no matter how tiny it is, they will try to stuff a truck through it.

The full text of the financial (non) reform bill summary:

Senator Chris Dodd – Statement on Financial Regulation

Economic data and earnings scheduled for the week of March 15 to March 19 2010

(all times are US ET and are subject to change)

MONDAY

08:30 March Empire Manufacturing, Chile Feb Copper Exports

09:00 Jan Net Long-Term TIC Flows, Jan Total Net TIC Flows

09:15 Feb Industrial Production, Feb Capacity Utilization

13:00 March NAHB Housing Index

Earnings

Before the Open: AAON, AOB, GSOL, GTXI, HWCC, RDNT, SGK, STRL

After the Close: ATHN, ESC, GOK, HQS, SSW, SQNM, CLUB

TUESDAY

08:30 Feb Import Price Index, Feb Housing Starts, Feb Building Permits, Canada Jan Wholesale Sales

14:15 FOMC rate decision

16:30 API Crude Oil/Gasoline/Distillate Inventories

17:00 ABC Consumer Confidence

Earnings

Before the Open: ARIA, CFSG, CYPB, DSW, EVEP, FDS, FTK, GSI, MDZ, NGPC, SCR, TBSI

After the Close: AIR, ABK, JRJC, NKBP, DFS, EM, KONG, RUE

WEDNESDAY

08:30 Feb PPI, Feb Feb PPI Ex Food & Energy

10:30 DoE Crude Oil/Gasoline/Distillate Inventories

13:00 Treasury’s $21B 10-yr note auction

16:00 Fed’s Fisher to speak about learning from the crisis

Earnings

Before the Open: ATU, WNI, SMTS, TNP

After the Close: CLC, GES, MLHR, IHS, NKE, STRI

THURSDAY

07:30 Fed’s Duke speaks to bankers in Washington

08:30 Feb CPI, Feb CPI Ex Food & Energy, Feb CPI Core Index SA, Q4 Current Account Balance, Initial Jobless Claims, Continuing Claims

10:00 February Leading Indicators, March Philadelphia Fed

10:30 Natural Gas Inventories

11:00 Treasury note announcement

Earnings

Before the Open: CRAI, FDX, GME, MCS, NWY, ROST, SCVL, SMRT, VIP, WGO

After the Close: ADUS, CTAS, ICXT, PALM

FRIDAY

11:50 Former Fed Chairman Greenspan discusses the financial crisis

Earnings

Before the Open: PERY

Moody’s is going to fire a shot across the bow of the USS Obama administration on Monday. The warning shot will state that even the current budget plan that the Obama administration has laid out may still not be enough to save the the AAA rating of the United States.

[…] unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialize, there would at some point be downward pressure on the triple A rating of the federal government.” […]

[…] Pierre Cailleteau, head of sovereign ratings at Moody’s, said: “The size of debt makes the US vulnerable to an interest rate shock . . . but the level of fiscal ambition is not one that secures for sure the [triple A] rating.”

Moody’s worries that the government will struggle to get political agreement either to raise tax revenues significantly from their current low of 14.8 per cent of national income, or to cut federal spending far from its high of 25.4 per cent of national income.

The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.[…] (The full article can be found at the FT)

Now all three of the ratings agencies have put the United States on notice. Either cut spending by significant amounts, or raise taxes significantly. Which way do you think the administration will go?

Editorial by RebelTraders:

The demise of Lehman Brothers (LEH), which filed for bankruptcy on September 15, 2008, was suicide. And that suicide was for all intents and purposes assisted by the government and the Federal Reserve Bank of New York, then headed by one Tim Geithner.

This week the examiner’s report on Lehman Brothers bankruptcy proceedings was released to the public and it reads like a murder mystery, not all that dissimilar to the board game ‘Clue’.

From my own interpretations of the report thus far, Lehman’s troubles began long before their collapse on September 15 2008. The troubles, heightened by the collapse of the mortgage market and then amplified by a never ending shell game at the hands of upper management, financial officers, and even the independent auditors. Many now claim they had no knowledge of the tricks being played with the books, but, it was their job to know where the money was, and why it was there or not.

Ernst & Young were the independent auditors for Lehman Brothers, they were supposed to be the final check and balance that everything on the books was honest and fairly represented. In that they signed off on the financial statements implicates them by default in my opinion. This reminds me of Arthur Anderson, then auditors for Enron all over again.

What Lehman was doing was hiding bad assets, what otherwise would have impacted their quarterly balance sheets in a negative way by moving them around in a complex shell game called “Repo 105” and Repo 108”. These were essentially conduits to move bad assets off the books, and in turn receive cash for those bad assets. This made the bad stuff disappear for a while so to speak, and the quarterly reports reflected the cash on hand and not the bad assets. Even worse is that Lehman never reported that these were repo operations, instead they recorded these transactions as sales. This alone is fraud, and it should have been known by upper management, including the independent auditors.

Now comes the assisted suicide part. Lehman Brothers was truly sick. As far back as March 2008 the Federal Reserve Bank New York (FRBNY), at the time when Tim Geithner was at the helm, began monitoring Lehman Brothers. The FRBNY devised stress tests for Lehman to gauge the health of the company under adverse conditions.

From page 1488 of the report:

After March 2008 when the SEC and FRBNY began onsite daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress?testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank.5753 The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.”5754 Lehman failed both tests.5755 The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed.5756 However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed.5757 It does not appear that any agency required any action of Lehman in response to the results of the stress testing.

In other words, The Federal Reserve Bank of New York devised three separate stress tests and Lehman failed every one of them. Then, Lehman devised its own stress test and they passed. Lehman then submitted the findings of their own stress test to the FRBNY and the issue was put to rest. No one knew at the time that Lehman had failed the FRBNY stress tests except for Lehman and The Reserve bank of New York.

Is this another case where Tim Geithner will say that he had no direct knowledge of the stress testing being done, like he has claimed with certain AIG emails and transactions concerning material information be withheld from the Securities and Exchange Commission?

Why is it that the biggest decisions always happen to take place under the noses of those in charge. To me it seems to be selective memory.

It is my opinion that the problems at Lehman Brothers was known for many months and the FRBNY knew this but kept it secret. In my view the actions of the regulators, the SEC, and that of the New York Reserve Bank was a coordinated effort to hide the problems taking place from the public, this too is fraud. The act of keeping quiet and not disclosing what was known from the stress tests was, in my opinion, the same thing as the FRBNY acting as Dr. Kevorkian. However in this case the death was not painless and the pain was felt by individual investors.

Lehman, under the daily supervision of the FRBNY, played with the books by constantly moving the bad money out of view, falsely creating a better picture of the liquidity situation within the company. It is my opinion that all of this was conducted in a way to protect the knowledge of how Wall Street operates. The 2,200 page report reads like a murder victims coroner report. In it, is enough information that should have upper management at other large firms scurrying like cockroaches in the night when the lights are turned on. The games that were being played at Lehman were, and are, probably being played at other firms to this day in varying degrees, this I have no doubt.

The collapse of Enron was supposed to serve as a wake up call, and actions taken then were to prevent this kind of stuff from ever happening again. But with any regulation comes new ways to hide things.

What is even worse, what is so scary, and what should have everyone unable to sleep comfortably is that the current financial reform bill being proposed by the Senate has absolutely nothing in it of any substance that will change the normal way of Wall Street business. The tax payers will always be on the hook in the event of another big failure or bailout. The financial reform being proposed is nothing more than an illusion that the Government is on top of things and will prevent it from happening again.

In reality, the government is simply coddling Wall Street as they always have, this time under the illusion that the Government is interested in ‘our’ best interests by presenting a financial reform bill that has no teeth, but sounds good on the surface because it uses the publicly identifiable buzz words like “too big to fail”. Really it is nothing but worthless paper in this authors view.

As usual Dylan Ratigan always has a way of explaning things.

Visit msnbc.com for breaking news, world news, and news about the economy

The economy is doing so good now that some states can’t afford to pay tax refund checks. Yes, that was intended sarcasm.

Residents eager to get their state tax refunds may have a long wait this year: The recession has tied up cash and caused officials in half a dozen states to consider freezing refunds, in one case for as long as five months.

[…] "It’s an indicator of how bad it is," says Scott Pattison, executive director of the National Association of State Budget Officers. "You know things are bad when you have to do that."

New York, hit with a $9 billion deficit, may delay $500 million in refunds to keep the state from running out of cash, says Gov. David Paterson. […]

Hawaii’s Department of Taxation says some residents may not see state income tax refunds until the end of August, The Honolulu Advertiser reported. It was part of a plan by Gov. Linda Lingle to deal with a revenue drop-off by pushing costs into the next fiscal period, which begins in July. […]

[…]The delays come as some states continue to face deep budget holes, even as economists say the nation as a whole has begun recovery. In a recent report, the budget officers group and the National Governors Association said state fiscal conditions "have continued to worsen," and that state revenues can be expected to lag one to three years behind a national recovery from recession.

This fiscal year, the report said, 36 states have cut nearly $56 billion in spending, and 30 states have cut funding to public and higher education. (USAToday)

State and local budgets are suffering greatly.

While not the most popular technical indicators in the chartists toolbox, A Fibonacci Time Series analysis does occasionally provide food for thought. Especially on the two S&P 500 charts shown below.

(click on image for full size)

Once again investor sentiment comes to the forefront as more and more of the small retail investors pile into stocks. Investor sentiment has usually served as a contrarian indicator to the market.

From the Pragmatic Capitalist

The warning flags continue to pop up all over the place and investors continue to run head first into stocks.  None of the recent warning flags are as alarming as today’s huge spike in individual investor sentiment.  Small investor bullishness surged to 45.3% versus last week as the market continues to melt higher.  This has served as a fairly reliable contrarian indicator in the past as small investors tend to pile into stocks near the end of rallies.

Individual investor sentiment has reached levels that have historically been followed by very poor equity returns.  A few of the notable periods when investor sentiment was this high include:

• A 50% reading prior to a 3 month 10% sell-off in Q2 2008
• A 45% reading prior to the 2008 market crash
• A 47% reading prior to the 20% sell-off to the March 2009 lows
• A 49% reading prior to the January 2010 sell-off

[…] With institutional investors stacking up on the bullish side of the trade and now individual investors stacking up on the same side you just have to wonder – who is left to buy stocks?   Better yet, who are they going to sell to?

There is a nice graph on the Pragmatic Capitalist page showing the investor sentiment.

Fitch ratings has released an update on Residential Mortgage Backed Securities.

Fitch: California prime jumbo RMBS delinquencies rise to 11.6%; Florida to 17%

California prime jumbo loan performance continued to weaken in February, with 60+ days delinquencies rising to 11.6% from 11.3% in January (and 4.7% in February 2009). During the first two months of 2010 Florida had the biggest jump (nearly 1%) of the five states with the highest volume of jumbo loans outstanding. New Jersey was second of the five states with an 80 basis points (bps) increase over the same period.

The five states with the highest volume of prime jumbo loans outstanding (California, New York, Florida, Virginia, and New Jersey) represent approximately two-thirds of total  delinquencies. Prime jumbo RMBS 60+ days delinquencies for these states at February 2010 compared to the prior month, and their approximate share of the estimated $376 billion market, are as follows:

–California: 11.6%, up from 11.3% (44% share of the market);
–New York: 6.3%, up from 6.1% (7% share);
–Florida: 17%, up from 16.6% (6% share);
–Virginia: 5.7%, up from 5.6% (5% share);
–New Jersey: 7.9%, up from 7.4% (4% share).

Items of interest from the wires and the financial circles:

  The government ran up the largest monthly deficit in history in February – AP NEWS Wire 

    Greece – Economy will decline more than expected – Oops! – Reuters

    Sales tax rates reach new record high – Forbes

    UK ask banks to check their books to see if they can withstand another two years of recession – London Times

    Airlines throw temper tantrum, threaten to cancel flights over new rules that prohibit them from keeping passengers locked in the plane for hours on end while still on the ground – WSJ

    GMAC – No exit plan = Billions of losses – WSJ

    JAPAN Q4 FINAL GDP Q/Q: 0.9% V 1.0%E; ANNUALIZED: 3.8% V 4.0%E; NOMINAL Q/Q: 0.1% V 0.2%E; GDP DEFLATOR Y/Y: -2.8% V -3.0%E (wires)

    FHA may warn Congress on Thursday that a double-dip in housing prices may be caused by a modest increase in the minimum down payments on FHA-backed loans – (wires)

    In February, Shanghai property sales volumes declined by 54% (wires)

    CHINA FEB INDUSTRIAL PRODUCTION Y/Y: 12.8% V 19.0%E (5-month low) (wires)

In 2007 Money Magazine named Moorestown, NJ as the best place to live ranking it as the number one spot in the yearly analysis of cities and towns all across America.

How quickly things change. Moorestown, NJ is now in financial hardship and may have to layoff employees. This story is of particular interest to me as Moorestown is in the area where I reside.

In early 2008 NJ Monthly magazine oozed with puffery:

Sprawling estates are set back from the road or clustered in new developments, while smaller homes kiss the sidewalk in older neighborhoods. Throughout town you’ll see For Sale signs, but all the recent attention hasn’t pushed Moorestown’s housing prices to the stratosphere—at least not yet. The average home price in Moorestown in 2005 was just under $483,000, according to the state Division of Taxation, a 61 percent increase since 2000. That average can be misleading, pumped up by new and old mansions that dot the town. Housing values vary widely, with most homes priced from $250,000 to $2 million.

Then there’s the 45,000-square-foot hilltop home of Vernon C. Hill, chairman and CEO of Commerce Bank; known as Villa Collina—a bit of wordplay; collina is Italian for hill—it may be the largest private residence in New Jersey.

"Moorestown has more of what every buyer wants,” says Maria Giarratano of Prudential Fox & Roach Realtors in Moorestown. If you’re looking for new developments, Moorestown has them: A cluster on the east side of town ranges from modest single-family homes to multimillion-dollar showpieces. If you want to break out of the cookie-cutter model, Moorestown is full of Victorian homes that evoke a traditional small-town feel. But expect to pay more the closer you live to Main Street, with its toy store, ice-cream parlor, lots of crosswalks and benches, and, of course, Starbucks. Main Street is Moorestown’s heart, the center for activities such as the annual Halloween parade and winter carnival.

Moorestown is also home to Computer Science Corporation, PNC Bank, and Lockheed Martin, Burlington County’s largest employer, with 5,000 workers. Routes 73 and 295 connect Moorestown to office parks in nearby Marlton, Mount Laurel, and Cherry Hill.

Owens and Hill are hardly the town’s only big names. Moorestown has a history of attracting the rich and famous. The suffragist Alice Paul was born there in 1885. Town resident Samuel Leeds Allen invented the Flexible Flyer on Stokes Hill in 1889—and, yes, kids still sled there. Eldridge Johnson, owner of the company that became RCA Victor, called Moorestown home. And a string of professional athletes have settled in Moorestown over the years, among them Eagles quarterback Donovan McNabb.

How fast things can change:

"What we face is what all towns are facing — significant budget challenges," Gallo said. "Council’s job is to act responsibly for a long-term, sustainable way to take care of employees and provide services to the town."

Mayor Daniel Roccato said the township is asking unions to agree to forgo a raise this year and to have employees contribute 1.5 percent of their salaries to the cost of health benefits.

"We want to realign some employee costs and to have informed, reasonable discussion about how we can work together to create a more sustainable budget and to avoid layoffs," he said.[…]

As of Monday night’s deadline to respond, township officials said none of the unions had agreed to reopen negotiations.[…] (Courierpost)

Also this:

[…] Moorestown’s school board, which initially planned to cut more than 40 jobs and raise taxes by $80 on an average house, has had to re-examine those measures after the (State) spending freeze claimed $1.4 million, said Superintendent John Bach. "We face several stark choices," he observed in a budget overview.

How quickly times can change. In 2007 Moorestown enjoyed a $5 million budget surplus. Today the town is in financial chaos as it tries to open up and renegotiate existing contracts to cut costs. The school board is facing spending cuts and layoffs, and town services are also likely to be curtailed in the future.

Once the number one town in the nation, now just another town facing financial strife. Moorestown is still a very beautiful town, but internally it is facing significant hurdles.