Nasdaq OMX Group (NDAQ) terminated some pre market trading in nine companies on Thursday. The names include Citigroup ,Goldman Sachs Group , and Hewlett-Packard Co. (HPQ), according to a trader notice from Nasdaq.
The exchange operator said it's going to cancel all trades in the nine Companies that priced above 10% from Wednesday's ending price during the last minute ahead of the open up on Thursday. Immediately after informing traders to check into their trading activity for trades which could be designated as "definitely erroneous," Nasdaq later said the exchange "will be canceling trades on the participants behalf."
A New York Stock Exchange representative said it was not affected and isn't canceling any trades. The decision comes after an earlier announcement that Nasdaq was investigating potentially erroneous buying and selling activity in between 9:29 a.m. and 9:30 a.m. EST in more than a dozen companies.
A spokesman from BATS Global Markets said the exchange didn't have affected trades. Other companies whose shares were affected include Kroger Co, Western Union Co., Ventas Inc., Wells Fargo, AT&T and Sprint Nextel Corp. It had been the second occasion this week in which concerns have developed with regards to trading prior to the market's 9:30 a.m. EST open. On Wednesday, confusion over dividend payments to holders of shares of fiber-optics firm Tellabs Inc. ended up being suspected to be driving sharp ups and downs in its shares. Some investors appeared to think the cutoff for getting the dividend was this week as opposed to later this month.
Showing posts with label Stock Market. Show all posts
Showing posts with label Stock Market. Show all posts
An Introduction to Proprietary Trading
Proprietary trading is a term used in the context of a bank or other financial institution wherein the bank or financial institution engages in trading stocks, futures, options, commodities, currencies & other derivative instruments with its own money & on its own account.
Traditionally banks & other financial institutions are engaged in accepting deposits from clients & lending the same at a higher rate to earn an income equivalent to interest rate differentials. Also Investment banks have played a major role in fund raising for its clients. Investment Banks also play a big role in helping their clients to find the buyers for stock issues. Banks have been acting as a guarantor many times for buying the shares of their clients in case the stock issue is under subscribed. Many banks also provide portfolio management services & trading facilities to their client. While providing all these services the bank or other financial institution is engaging in trading on behalf of their clients for which usually it charges fees or commission to the clients.
BRIC Countries: An Overview
The term BRIC is a short form of Brazil, Russia, India & China. There is so much being discussed about BRIC countries that I thought we should take an overview of what BRIC countries signify in the world of Investments.
World economies have seen many bumps & turbulence over a recent past. That is the main reason why BRIC countries have gained importance in the eyes of world wide investors. Reducing rates of internal economical growth, reduction in domestic demand, falling markets have created major threats to the survival of Global Investors & they are searching for new avenues for investing their funds to ensure a good return on capital & also the safety for their capital.
Ten Stock Market Myths That Bedevil Investors
In the dinosaur saga “Jurassic Park,” author Michael Crichton wrote about a man who believed
a tyrannosaurus couldn’t see him if he held still. The carnivore ate him.Later in the book,
someone asks what killed the man. Another character answers, “He was misinformed.”Misinformation
can be costly. Here are 10 notions that lead investors astray.
Myth No. 1: The best companies make the best stocks.
Stocks advance when a company exceeds prevailing expectations.The bestcompanies usually generate
lofty hopes among investors, which are hard to exceed.
I began writing about stocks in 1972, when the “Nifty Fifty” stocks were all the rage. Companies such as
International Business Machines Corp., McDonald’s Corp. and Xerox Corp. were so universally beloved that investors happily
paid 60 times earnings to own them.
These were indeed good companies: Their earnings continued to climb strongly for a decade or more. Yet they were bad
stocks, because people overpaid for their anticipated success.Today’s equivalent in my opinion is Apple Inc. The
Cupertino, California, maker of iMacs, iPhones and iPods is highly profitable, debt-free, and held in universal awe. That’s
why shares sell for 32 times earnings, more than six times book value and almost five times revenue.
Apple is a great company. But I predict that over the next two years it will be only an average stock.
Trading Costs
Myth No. 2: In today’s volatile markets, one must be an active trader.
Before you are tempted to believe this, consider commissions and taxes. The commissions are not too bad these days, now that discount brokerage is routine.
Taxes are nasty, though. Long-term capital gains are taxed at 15 percent, short-term gains at up to 33 percent. You have to be pretty arrogant to disregard that cost.
Myth No. 3: Analysts are a good guide to picking stocks.
Analysts are intelligent, know a company’s managers better than you ever will, work long hours, and have a staff of young,hard-charging assistants.
None of that necessarily makes them standouts at picking stocks. In my ongoing study, now at 10 years and counting, analysts’ most-favored stocks underperform the Standard & Poor’s
500 Index. I think analysts tend to fall for Myth No. 1.
Don’t Fear October
Myth No. 4: Beware of October, the killer month for stocks.
The worst month for the markets is September, not October. According to Ned Davis Research, the average monthly price change for the Dow Jones Industrial Average in September since
1900 has been a loss of 1.1 percent.
February and May also show small losses, on average. October, with an average gain of 0.1 percent, is the fourth worst month. Admittedly, October has seen more than its share of
stock market crashes, but there have also been plenty of robust Octobers.The best months, incidentally, are December (average gain 1.5 percent), July (1.3 percent) and April (1.2 percent).
Presidential Preferences
Myth No. 5: You can count on the U.S. presidential cycle to predict the market.
Sorry, Charlie, but the stock market has precious few things one can count on. In general, the first year of a president’s term is the weakest for stocks, and the third year
is strongest. The second and fourth years tend to be average.
The key phrase is “tend to.” According to presidential cycle lore, 2008 should have been a normal year, yet the S&P 500 fell 37 percent (including dividends). This year should be sub-
par, yet the S&P 500 has risen 13.5 percent.
Myth No. 6: Price-to-earnings ratios are the perfect measure of a stock’s value.
I probably love P/E ratios as much as anyone. Yet they are neither a perfect measure nor a magic shortcut to stock picking.For example, Ford Motor Co. earned $1.20 a share in 2005.
At the end of that year the stock was selling for about $8 a share, so the P/E ratio was attractive at about six. A winsome P/E, however, didn’t stop Ford from losing money
in each of the next three years. And it didn’t stop the stock from falling to $2.29 at the end of 2008.
No single measure tells you everything you need to know.
Malkiel’s Advice
Myth No. 7: Stocks should be bought when they have momentum.
Many respected market participants hold this belief. Perhaps foremost is William O’Neil, publisher of Investors Business Daily.I tend to side with Burton Malkiel, a Princeton economics
professor who argues that the benefits of using relative strength are canceled out by the increased trading costs involved in using this strategy. Momentum investing works some
of the time, but in my judgment it doesn’t work consistently. In addition, it is a tax-inefficient strategy because it often generates short-term gains.
Myth No. 8: War is good for the stock market.
Because spending on World War II helped pull the U.S. out of the Great Depression, many people think rising military spending correlates with a rising market. It’s often untrue. The
market made little headway in the 1970s, when the Vietnam War raged. It boomed during the 1980s, a time of relative peace.
Party Favors
Myth No. 9: The market prefers Republicans.
According to Ned Davis Research, the annual gain in the Dow average was 7.2 percent under Democratic presidents from March 4, 1901, through July 8, 2008.
It was only 3.6 percent under Republicans during the same period.
The best stock-market performance on record so far was logged under Bill Clinton, a Democrat.
Myth No. 10: Market timing can greatly enhance your returns.
It could, if one could do it accurately. However, successful market timers are rarer than scrawny sumo wrestlers. Most people who try to time the market end up being on the
sidelines during the unexpected sudden upturns that account for a significant part of the market’s long-term gains -- this spring’s rally, for example.
a tyrannosaurus couldn’t see him if he held still. The carnivore ate him.Later in the book,
someone asks what killed the man. Another character answers, “He was misinformed.”Misinformation
can be costly. Here are 10 notions that lead investors astray.
Myth No. 1: The best companies make the best stocks.
Stocks advance when a company exceeds prevailing expectations.The bestcompanies usually generate
lofty hopes among investors, which are hard to exceed.
I began writing about stocks in 1972, when the “Nifty Fifty” stocks were all the rage. Companies such as
International Business Machines Corp., McDonald’s Corp. and Xerox Corp. were so universally beloved that investors happily
paid 60 times earnings to own them.
These were indeed good companies: Their earnings continued to climb strongly for a decade or more. Yet they were bad
stocks, because people overpaid for their anticipated success.Today’s equivalent in my opinion is Apple Inc. The
Cupertino, California, maker of iMacs, iPhones and iPods is highly profitable, debt-free, and held in universal awe. That’s
why shares sell for 32 times earnings, more than six times book value and almost five times revenue.
Apple is a great company. But I predict that over the next two years it will be only an average stock.
Trading Costs
Myth No. 2: In today’s volatile markets, one must be an active trader.
Before you are tempted to believe this, consider commissions and taxes. The commissions are not too bad these days, now that discount brokerage is routine.
Taxes are nasty, though. Long-term capital gains are taxed at 15 percent, short-term gains at up to 33 percent. You have to be pretty arrogant to disregard that cost.
Myth No. 3: Analysts are a good guide to picking stocks.
Analysts are intelligent, know a company’s managers better than you ever will, work long hours, and have a staff of young,hard-charging assistants.
None of that necessarily makes them standouts at picking stocks. In my ongoing study, now at 10 years and counting, analysts’ most-favored stocks underperform the Standard & Poor’s
500 Index. I think analysts tend to fall for Myth No. 1.
Don’t Fear October
Myth No. 4: Beware of October, the killer month for stocks.
The worst month for the markets is September, not October. According to Ned Davis Research, the average monthly price change for the Dow Jones Industrial Average in September since
1900 has been a loss of 1.1 percent.
February and May also show small losses, on average. October, with an average gain of 0.1 percent, is the fourth worst month. Admittedly, October has seen more than its share of
stock market crashes, but there have also been plenty of robust Octobers.The best months, incidentally, are December (average gain 1.5 percent), July (1.3 percent) and April (1.2 percent).
Presidential Preferences
Myth No. 5: You can count on the U.S. presidential cycle to predict the market.
Sorry, Charlie, but the stock market has precious few things one can count on. In general, the first year of a president’s term is the weakest for stocks, and the third year
is strongest. The second and fourth years tend to be average.
The key phrase is “tend to.” According to presidential cycle lore, 2008 should have been a normal year, yet the S&P 500 fell 37 percent (including dividends). This year should be sub-
par, yet the S&P 500 has risen 13.5 percent.
Myth No. 6: Price-to-earnings ratios are the perfect measure of a stock’s value.
I probably love P/E ratios as much as anyone. Yet they are neither a perfect measure nor a magic shortcut to stock picking.For example, Ford Motor Co. earned $1.20 a share in 2005.
At the end of that year the stock was selling for about $8 a share, so the P/E ratio was attractive at about six. A winsome P/E, however, didn’t stop Ford from losing money
in each of the next three years. And it didn’t stop the stock from falling to $2.29 at the end of 2008.
No single measure tells you everything you need to know.
Malkiel’s Advice
Myth No. 7: Stocks should be bought when they have momentum.
Many respected market participants hold this belief. Perhaps foremost is William O’Neil, publisher of Investors Business Daily.I tend to side with Burton Malkiel, a Princeton economics
professor who argues that the benefits of using relative strength are canceled out by the increased trading costs involved in using this strategy. Momentum investing works some
of the time, but in my judgment it doesn’t work consistently. In addition, it is a tax-inefficient strategy because it often generates short-term gains.
Myth No. 8: War is good for the stock market.
Because spending on World War II helped pull the U.S. out of the Great Depression, many people think rising military spending correlates with a rising market. It’s often untrue. The
market made little headway in the 1970s, when the Vietnam War raged. It boomed during the 1980s, a time of relative peace.
Party Favors
Myth No. 9: The market prefers Republicans.
According to Ned Davis Research, the annual gain in the Dow average was 7.2 percent under Democratic presidents from March 4, 1901, through July 8, 2008.
It was only 3.6 percent under Republicans during the same period.
The best stock-market performance on record so far was logged under Bill Clinton, a Democrat.
Myth No. 10: Market timing can greatly enhance your returns.
It could, if one could do it accurately. However, successful market timers are rarer than scrawny sumo wrestlers. Most people who try to time the market end up being on the
sidelines during the unexpected sudden upturns that account for a significant part of the market’s long-term gains -- this spring’s rally, for example.
US Stock Market: Top Movers
July 17 -(Bloomberg)- Shares of the following companies are having unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 10 a.m. in New York.
Akamai Technologies Inc. (AKAM:US) fell 3.7 percent to $19.44 and slipped 4 percent earlier, the most intraday since July 6. The provider of software that makes Web sites load faster was cut to “sell” from “neutral” at Goldman Sachs Group Inc., which cited “aggressive competition.”
AngioDynamics Inc. (ANGO:US) lost 13 percent to $11.33 and slumped 14 percent earlier, the most intraday since Jan. 7. The maker of devices to treat cancer and heart disease said that, excluding some items, it earned 14 cents a share in the fiscal fourth quarter. That trailed the average analyst estimate by 6.7 percent, according to Bloomberg data.
Badger Meter Inc. (BMI:US) declined 9.6 percent to $36.52 and fell earlier to $34.80, the lowest intraday price since May 26. The Milwaukee-based maker of water meters and fluid-control devices posted second-quarter profit excluding some items of 48 cents a share, missing the average analyst estimate by 12 percent.
BioCryst Pharmaceuticals Inc. (BCRX:US) jumped 39 percent to $5.85 for the biggest advance in Russell 2000 Index. The company said its experimental influenza treatment peramivir showed positive results in two Phase 3 studies.
Callaway Golf Co. (ELY:US) fell 9.4 percent to $5.12 and slipped 9.7 percent earlier, the most intraday since June 9. The maker of Big-Bertha and Steelhead golf clubs reduced its forecast, saying it no longer expects second-half earnings to be higher than last year.
Citigroup Inc. (C:US) gained 2.6 percent to $3.11. The New York-based bank posted second-quarter profit of $4.3 billion, or 49 cents a share, compared with a loss of $2.5 billion, or 55 cents a share, a year earlier. The results include a $6.7 billion after-tax gain from selling control of the Smith Barney brokerage to Morgan Stanley.
CIT Group Inc. (CIT:US) rose the most in the Standard & Poor’s 500 Index, surging 27 percent to 52 cents. The 101-year- old commercial finance company facing bankruptcy said it’s in talks with potential lenders after failing to receive federal guarantees for its bonds.
First Horizon National Corp. (FHN:US) fell 5.2 percent to $12.02 and dropped 5.5 percent earlier, the most intraday since May 20. Tennessee’s biggest bank had a second-quarter loss of 58 cents a share, double the average loss estimated by analysts in a Bloomberg survey.
General Electric Co. (GE:US) had the steepest loss in the Dow Jones Industrial Average, slumping 6.1 percent to $11.65. The industrial and finance company reported second-quarter revenue of $39.1 billion, missing average estimate of $41.9 billion in a Bloomberg survey of analysts.
Gilead Sciences Inc. (GILD:US) gained 2.9 percent to $48.24 and advanced earlier to $48.35, the highest intraday price since April 6. The world’s biggest maker of AIDS drugs said it will collaborate with Tibotec Pharmaceuticals to develop a once daily HIV treatment drug containing medicines from each company to help simplify therapy. If approved, the new product would be the second single-tablet treatment regimen for HIV of its kind, the company said.
Google Inc. (GOOG:US) retreated 2 percent to $433.60. The owner of the world’s most popular search engine reported slower second-quarter sales growth as advertisers held back spending amid the global recession.
International Business Machines Corp. (IBM:US) rose the most in the Dow Jones Industrial Average, adding 2.7 percent to $113.62. The world’s biggest computer-services provider increased its full-year earnings forecast as it boosted profitability during the recession.
Mattel Inc. (MAT:US) climbed 3.4 percent to $16.74 and increased earlier to $17.06, the highest intraday price since Oct. 8. The world’s biggest toymaker posted second-quarter profit, excluding some items, of 6 cents a share, surpassing the 1-cent average analyst estimate in a Bloomberg survey.
Popular Inc. (BPOP:US) dropped 9.2 percent to $1.19 and slumped earlier to $1.12, the lowest intraday price since December 1989. The Puerto Rican bank with branches in the U.S. posted a second-quarter loss excluding some items of 65 cents a share, 49 percent wider than the average analyst estimate, according to Bloomberg data.
Schnitzer Steel Industries Inc. (SCHN:US) fell 5.1 percent to $51.32. The century-old recycler of scrap metal was cut to “underweight” from “equal weight” at Morgan Stanley, which said slow growth in developed economies will cut scrap supply.
Tempur-Pedic International Inc. (TPX:US) jumped 5.8 percent to $13.79 and climbed earlier to $14, the highest intraday price since May 7. The maker of luxury mattresses reported earnings excluding some items of 22 cents a share in the second quarter, beating the average analyst estimate by 25 percent.
Yahoo! Inc. (YHOO:US) climbed 3.5 percent to $16.75 after rising earlier to $16.86, the highest intraday price since June 5. The world’s second-most-used Internet search engine had its share-price estimate raised to $19 from $13.25 at Oppenheimer & Co., which cited rival Google Inc.’s comment in a second quarter earnings call that larger advertisers are returning. Yahoo! also is close to signing a partnership to collaborate with Microsoft Corp. on Internet-search technology and advertising, two people familiar with the matter said.
Akamai Technologies Inc. (AKAM:US) fell 3.7 percent to $19.44 and slipped 4 percent earlier, the most intraday since July 6. The provider of software that makes Web sites load faster was cut to “sell” from “neutral” at Goldman Sachs Group Inc., which cited “aggressive competition.”
AngioDynamics Inc. (ANGO:US) lost 13 percent to $11.33 and slumped 14 percent earlier, the most intraday since Jan. 7. The maker of devices to treat cancer and heart disease said that, excluding some items, it earned 14 cents a share in the fiscal fourth quarter. That trailed the average analyst estimate by 6.7 percent, according to Bloomberg data.
Badger Meter Inc. (BMI:US) declined 9.6 percent to $36.52 and fell earlier to $34.80, the lowest intraday price since May 26. The Milwaukee-based maker of water meters and fluid-control devices posted second-quarter profit excluding some items of 48 cents a share, missing the average analyst estimate by 12 percent.
BioCryst Pharmaceuticals Inc. (BCRX:US) jumped 39 percent to $5.85 for the biggest advance in Russell 2000 Index. The company said its experimental influenza treatment peramivir showed positive results in two Phase 3 studies.
Callaway Golf Co. (ELY:US) fell 9.4 percent to $5.12 and slipped 9.7 percent earlier, the most intraday since June 9. The maker of Big-Bertha and Steelhead golf clubs reduced its forecast, saying it no longer expects second-half earnings to be higher than last year.
Citigroup Inc. (C:US) gained 2.6 percent to $3.11. The New York-based bank posted second-quarter profit of $4.3 billion, or 49 cents a share, compared with a loss of $2.5 billion, or 55 cents a share, a year earlier. The results include a $6.7 billion after-tax gain from selling control of the Smith Barney brokerage to Morgan Stanley.
CIT Group Inc. (CIT:US) rose the most in the Standard & Poor’s 500 Index, surging 27 percent to 52 cents. The 101-year- old commercial finance company facing bankruptcy said it’s in talks with potential lenders after failing to receive federal guarantees for its bonds.
First Horizon National Corp. (FHN:US) fell 5.2 percent to $12.02 and dropped 5.5 percent earlier, the most intraday since May 20. Tennessee’s biggest bank had a second-quarter loss of 58 cents a share, double the average loss estimated by analysts in a Bloomberg survey.
General Electric Co. (GE:US) had the steepest loss in the Dow Jones Industrial Average, slumping 6.1 percent to $11.65. The industrial and finance company reported second-quarter revenue of $39.1 billion, missing average estimate of $41.9 billion in a Bloomberg survey of analysts.
Gilead Sciences Inc. (GILD:US) gained 2.9 percent to $48.24 and advanced earlier to $48.35, the highest intraday price since April 6. The world’s biggest maker of AIDS drugs said it will collaborate with Tibotec Pharmaceuticals to develop a once daily HIV treatment drug containing medicines from each company to help simplify therapy. If approved, the new product would be the second single-tablet treatment regimen for HIV of its kind, the company said.
Google Inc. (GOOG:US) retreated 2 percent to $433.60. The owner of the world’s most popular search engine reported slower second-quarter sales growth as advertisers held back spending amid the global recession.
International Business Machines Corp. (IBM:US) rose the most in the Dow Jones Industrial Average, adding 2.7 percent to $113.62. The world’s biggest computer-services provider increased its full-year earnings forecast as it boosted profitability during the recession.
Mattel Inc. (MAT:US) climbed 3.4 percent to $16.74 and increased earlier to $17.06, the highest intraday price since Oct. 8. The world’s biggest toymaker posted second-quarter profit, excluding some items, of 6 cents a share, surpassing the 1-cent average analyst estimate in a Bloomberg survey.
Popular Inc. (BPOP:US) dropped 9.2 percent to $1.19 and slumped earlier to $1.12, the lowest intraday price since December 1989. The Puerto Rican bank with branches in the U.S. posted a second-quarter loss excluding some items of 65 cents a share, 49 percent wider than the average analyst estimate, according to Bloomberg data.
Schnitzer Steel Industries Inc. (SCHN:US) fell 5.1 percent to $51.32. The century-old recycler of scrap metal was cut to “underweight” from “equal weight” at Morgan Stanley, which said slow growth in developed economies will cut scrap supply.
Tempur-Pedic International Inc. (TPX:US) jumped 5.8 percent to $13.79 and climbed earlier to $14, the highest intraday price since May 7. The maker of luxury mattresses reported earnings excluding some items of 22 cents a share in the second quarter, beating the average analyst estimate by 25 percent.
Yahoo! Inc. (YHOO:US) climbed 3.5 percent to $16.75 after rising earlier to $16.86, the highest intraday price since June 5. The world’s second-most-used Internet search engine had its share-price estimate raised to $19 from $13.25 at Oppenheimer & Co., which cited rival Google Inc.’s comment in a second quarter earnings call that larger advertisers are returning. Yahoo! also is close to signing a partnership to collaborate with Microsoft Corp. on Internet-search technology and advertising, two people familiar with the matter said.
US Stock Market: Earnings to decide fate of Stocks
NEW YORK (Reuters) With Wall Street stuck in a range since May, the start of second-quarter earnings season next week could prove to be a decisive factor for determining how much faith investors should have in an economic recovery.
After a rally of as much as 40 percent for the S&P 500 on expectations the economy will begin to turn around by year end, analysts will hone in on companies' projections to see if their hopes are corroborated.
The light menu of economic data will help keep the spotlight on earnings releases, with bellwethers Alcoa (AA.N) and Chevron (CVX.N) posting their quarterly scorecards. Of even more importance will be any outlook companies give for what they expect to see for the rest of the year.
A large U.S. Treasury auction could buoy the market if it shows there is good demand for government debt. Concern that the appetite for debt is waning as the government tries to fund its stimulus efforts was soothed by solid demand in last week's record $104 billion auction of Treasury securities.
"I think we are range bound and we're going to stay there for a while," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.
"What will probably break it is going to be the earnings season because the expectation is for at least some rebound in earnings, especially from the banking sector."
WHEN 'LESS UGLY' LOOKS GOOD
Investors will be looking for companies to release results that are "less bad" in the same way that recent economic data has spurred optimism that the worst is over.
Analysts say that companies should be able to beat the relatively low bar that has been set by expectations, which could help the market add some gains.
Earnings for S&P 500 companies are expected to decline by 35.5 percent in the second quarter, according to Thomson Reuters data. While all 10 sectors are anticipated to fall, healthcare should fare the best, slipping just 2 percent.
On the opposite side, the materials and energy sectors are forecast to do the worst, falling 78.9 percent and 64.7 percent, respectively.
"On the earnings front, it's going to be ugly reading, but it's just going to be less bad, just like the economic data," said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.
WANTED: HEALTHY OUTLOOKS
But the real spotlight will be on what companies foresee for the rest of the year.
Forecasts of profitability and improving consumer demand would increase optimism that the U.S. economy is finding its footing. Analysts said companies will have to signal the economy is actually improving and investors will not be impressed if they're just cutting costs and slashing jobs, as has been the case in recent quarters.
Nolte said the S&P 500 has been stuck between 880 and 950.
After surging from a 12-year closing low on March 9, the S&P 500's rally has stalled over the last couple of months. For June, the benchmark index was little changed.
Nonetheless, the S&P 500 has support at the bottom of that range and any dip toward that level will be a key test, analysts said. Holding above that range will be a positive sign for the market.
Since March, pullbacks have been relatively shallow and short-lived as investors who missed the rally the first time see the dips as buying opportunities.
"There's been plenty of reasons to have the legs kicked out from under us, but it hasn't happened," Marcouiller said.
"It tells you the money is quick to be there."
On the data front, reports are expected on the service sector in June from the Institute for Supply Management on Monday, as well as the international trade deficit for May and the preliminary July reading on consumer sentiment from Reuters/University of Michigan surveys -- both on Friday.
Weekly initial jobless claims data will get more attention than usual after Thursday's non-farm payrolls fell much more than expected.
"If initial claims continue to rise, it will probably begin to cast some doubt about the strength of the recovery," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
After a rally of as much as 40 percent for the S&P 500 on expectations the economy will begin to turn around by year end, analysts will hone in on companies' projections to see if their hopes are corroborated.
The light menu of economic data will help keep the spotlight on earnings releases, with bellwethers Alcoa (AA.N) and Chevron (CVX.N) posting their quarterly scorecards. Of even more importance will be any outlook companies give for what they expect to see for the rest of the year.
A large U.S. Treasury auction could buoy the market if it shows there is good demand for government debt. Concern that the appetite for debt is waning as the government tries to fund its stimulus efforts was soothed by solid demand in last week's record $104 billion auction of Treasury securities.
"I think we are range bound and we're going to stay there for a while," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.
"What will probably break it is going to be the earnings season because the expectation is for at least some rebound in earnings, especially from the banking sector."
WHEN 'LESS UGLY' LOOKS GOOD
Investors will be looking for companies to release results that are "less bad" in the same way that recent economic data has spurred optimism that the worst is over.
Analysts say that companies should be able to beat the relatively low bar that has been set by expectations, which could help the market add some gains.
Earnings for S&P 500 companies are expected to decline by 35.5 percent in the second quarter, according to Thomson Reuters data. While all 10 sectors are anticipated to fall, healthcare should fare the best, slipping just 2 percent.
On the opposite side, the materials and energy sectors are forecast to do the worst, falling 78.9 percent and 64.7 percent, respectively.
"On the earnings front, it's going to be ugly reading, but it's just going to be less bad, just like the economic data," said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.
WANTED: HEALTHY OUTLOOKS
But the real spotlight will be on what companies foresee for the rest of the year.
Forecasts of profitability and improving consumer demand would increase optimism that the U.S. economy is finding its footing. Analysts said companies will have to signal the economy is actually improving and investors will not be impressed if they're just cutting costs and slashing jobs, as has been the case in recent quarters.
Nolte said the S&P 500 has been stuck between 880 and 950.
After surging from a 12-year closing low on March 9, the S&P 500's rally has stalled over the last couple of months. For June, the benchmark index was little changed.
Nonetheless, the S&P 500 has support at the bottom of that range and any dip toward that level will be a key test, analysts said. Holding above that range will be a positive sign for the market.
Since March, pullbacks have been relatively shallow and short-lived as investors who missed the rally the first time see the dips as buying opportunities.
"There's been plenty of reasons to have the legs kicked out from under us, but it hasn't happened," Marcouiller said.
"It tells you the money is quick to be there."
On the data front, reports are expected on the service sector in June from the Institute for Supply Management on Monday, as well as the international trade deficit for May and the preliminary July reading on consumer sentiment from Reuters/University of Michigan surveys -- both on Friday.
Weekly initial jobless claims data will get more attention than usual after Thursday's non-farm payrolls fell much more than expected.
"If initial claims continue to rise, it will probably begin to cast some doubt about the strength of the recovery," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
Buffett Warnings on Investment 'Time Bomb'
Derivatives are financial weapons of mass destruction
Warren Buffett
The rapidly growing trade in derivatives poses a "mega-catastrophic risk" for the economy and most shares are still "too expensive", legendary investor Warren Buffett has warned.
The world's second-richest man made the comments in his famous and plain-spoken "annual letter to shareholders", excerpts of which have been published by Fortune magazine.
The derivatives market has exploded in recent years, with investment banks selling billions of dollars worth of these investments to clients as a way to off-load or manage market risk.
But Mr Buffett argues that such highly complex financial instruments are time bombs and "financial weapons of mass destruction" that could harm not only their buyers and sellers, but the whole economic system.
Contracts devised by 'madmen'
Derivatives are financial instruments that allow investors to speculate on the future price of, for example, commodities or shares - without buying the underlying investment.
Derivatives generate reported earnings that are often wildly overstated and based on estimates whose inaccuracy may not be exposed for many years
Warren Buffett
Derivates like futures, options and swaps were developed to allow investors hedge risks in financial markets - in effect buy insurance against market movements -, but have quickly become a means of investment in their own right.
Outstanding derivatives contracts - excluding those traded on exchanges such as the International Petroleum Exchange - are worth close to $85 trillion, according to the International Swaps and Derivatives Association.
Some derivatives contracts, Mr Buffett says, appear to have been devised by "madmen".
He warns that derivatives can push companies onto a "spiral that can lead to a corporate meltdown", like the demise of the notorious hedge fund Long-Term Capital Management in 1998.
Derivatives are like 'hell'
Large amounts of risk have become concentrated in the hands of relatively few derivatives dealers ... which can trigger serious systemic problems
Warren Buffett
Derivatives also pose a dangerous incentive for false accounting, Mr Buffett says.
The profits and losses from derivates deals are booked straight away, even though no actual money changes hand. In many cases the real costs hit companies only many years later.
This can result in nasty accounting errors. Some of them spring from "honest" optimism. But others are the result of "huge-scale fraud", and Mr Buffett points to the US energy market, which relied for most of its deals on derivatives trading and resulted in the collapse of Enron.
Berkshire Hathaway, the investment group led by Mr Buffett, is pulling out of the market, closing down the derivatives trading subsidiary it bought as part of a huge reinsurance company a few years ago.
In his letter Mr Buffett compares the derivatives business to "hell... easy to enter and almost impossible to exit", and predicts that it will take years to unwind the complex deals struck by its subsidiary General Re Securities.
Warren Buffett, dubbed "the sage of Omaha", from where he controls Berkshire Hathaway, is well-known for both his blunt assessments of the markets and the high returns he delivers to shareholders.
This year, he remains cool towards further share investments, despite the sharp correction in stock market values. Mr Buffett says this "dismal fact is testimony to the insanity of valuations reached during The Great Bubble".
Berkshire backyard barbecues
A good friend of Bill Gates, he famously refused to invest in technology shares during the boom years that came to a sudden end in March 2000. As a result, Berkshire was sitting pretty after the technology bubble burst.
In marked contrast to the hubris of former managers at fallen firms like Enron and WorldCom, Mr Buffett is known for his down-to-earth style, summoning shareholders not to glitzy hotels but "Berkshire backyard barbecues" and baseball games in out-of-the-way Omaha, Nebraska.
But his strategy of identifying undervalued companies with good management in unfashionable retail sectors or the insurance industry and investing in them for the long-term has produced spectacular returns.
During the past 37 years, the company has delivered an average annual return of 22.6%. Since 1965 the company's book value has gone up by 194,936%.
However in 2001, the last year for which detailed numbers are available, heavy losses in the insurance industry worldwide resulted in a $3.77bn loss at Berkshire Hathaway - the first loss in the firm's history under Warren Buffett.
Barack Obama's Speech on 21st Century Financial Regulatory Reform
Speaker: Barack Obama
President Obama gave these remarks on financial regulatory reform on June 17, 2009.
THE PRESIDENT: Thank you very much.
Since taking office, my administration has mounted what I think has to be acknowledged as an extraordinary response to a historic economic crisis. But even as we take decisive action to repair the damage to our economy, we're working hard to build a new foundation for sustained economic growth. This will not be easy. We know that this recession is not the result of one failure, but of many. And many of the toughest challenges we face are the product of a cascade of mistakes and missed opportunities which took place over the course of decades.
That's why, as part of this new foundation, we're seeking to build an energy economy that creates new jobs and new businesses to free us from our dependence on foreign oil. We want to foster an education system that instills in each generation the capacity to turn ideas into innovations, and innovations into industries and jobs. And as I discussed on Monday at the American Medical Association, we want to reform our health care system so that we can remain healthy and competitive.
This new foundation also requires strong, vibrant financial markets, operating under transparent, fairly-administered rules of the road that protect America's consumers and our economy from the devastating breakdown that we've witnessed in recent years.
It is an indisputable fact that one of the most significant contributors to our economic downturn was a unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess. A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis -- the Great Depression -- was overwhelmed by the speed, scope, and sophistication of a 21st century global economy.
In recent years, financial innovators, seeking an edge in the marketplace, produced a huge variety of new and complex financial instruments. And these products, such as asset-based securities, were designed to spread risk, but unfortunately ended up concentrating risk. Loans were sold to banks, banks packaged these loans into securities, investors bought these securities often with little insight into the risks to which they were exposed. And it was easy money -- while it lasted. But these schemes were built on a pile of sand. And as the appetite for these products grew, lenders lowered standards to attract new borrowers. Many Americans bought homes and borrowed money without being adequately informed of the terms, and often without accepting the responsibilities.
Meanwhile, executive compensation -- unmoored from long-term performance or even reality -- rewarded recklessness rather than responsibility. And this wasn't just the failure of individuals; this was a failure of the entire system. The actions of many firms escaped scrutiny. In some cases, the dealings of these institutions were so complex and opaque that few inside or outside these companies understood what was happening. Where there were gaps in the rules, regulators lacked the authority to take action. Where there were overlaps, regulators lacked accountability for their inaction.
An absence of oversight engendered systematic, and systemic, abuse. Instead of reducing risk, the markets actually magnified risks that were being taken by ordinary families and large firms alike. There was far too much debt and not nearly enough capital in the system. And a growing economy bred complacency.
Now, we all know the result: the bursting of a debt-based bubble; the failure of several of the world's largest financial institutions; the sudden decline in available credit; the deterioration of the economy; the unprecedented intervention of the federal government to stabilize the financial markets and prevent a wider collapse; and most importantly, the terrible pain in the lives of ordinary Americans. And there are retirees who've lost much of their life savings, families devastated by job losses, small businesses forced to shut their doors.
Millions of Americans who've worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and by the failure of their government to provide adequate oversight. Our entire economy has been undermined by that failure.
So the question is, what do we do now? We did not choose how this crisis began, but we do have a choice in the legacy this crisis leaves behind. So today, my administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.
These proposals reflect intensive consultation with leaders in Congress, including those who are here today: Chairman Dodd and Chairman Frank, who, along with Senator Shelby and Representative Bachus, will be meeting with me throughout this process. They met with me earlier this year to jumpstart the discussion of reform. These reforms are also drawing on conversations with regulators, including those I met with this morning, as well as consumer advocates and business leaders, academic experts, and the broader public.
In these efforts, we seek a careful balance. I've always been a strong believer in the power of the free market. It has been and will remain the engine of America's progress -- the source of prosperity that's unrivaled in history. I believe that jobs are best created not by government, but by businesses and entrepreneurs who are willing to take a risk on a good idea. I believe that our role is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still make this nation the envy of the world.
That's our goal -- to restore markets in which we reward hard work and responsibility and innovation, not recklessness and greed; in which honest, vigorous competition is the system -- in the system is prized, and those who game the system are thwarted.
With the reforms we're proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse. We seek to create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles suddenly bring the risk of financial collapse; we want a system that works for businesses and consumers.
There are those who will say that we do not go far enough, that we should have scrapped the system altogether and started all over again. I think that would be a mistake. Instead, we've crafted reforms to pinpoint the structural weaknesses that allowed for this crisis and to make sure that these problems are dealt with so that we're preventing crises in the future.
There are also those who say that we are going too far. But the events of the past few years offer ample testimony for the need to make significant changes. The absence of a working regulatory regime over many parts of the financial system -- and over the system as a whole -- led us to near catastrophe. We shouldn't forget that. We don't want to stifle innovation. But I'm convinced that by setting out clear rules of the road and ensuring transparency and fair dealing, we will actually promote a more vibrant market. This principle is at the heart of the changes we're proposing, so let me list them for you.
First, we're proposing a set of reforms to require regulators to look not only at the safety and soundness of individual institutions, but also -- for the first time -- at the stability of the financial system as a whole.
One of the reasons this crisis could take place is that while many agencies and regulators were responsible for overseeing individual financial firms and their subsidiaries, no one was responsible for protecting the whole system from the kinds of risks that tied these firms to one another. Regulators were charged with seeing the trees, but not the forest. And even then, some firms that posed a so-called "systemic risk" were not regulated as strongly as others; they behaved like banks but chose to be regulated as insurance companies, or investment firms, or other entities that were under less scrutiny.
As a result, the failure of one firm threatened the viability of many others. The effect multiplied. There was no system in place that was prepared for this kind of outcome. And more importantly, no one has been charged with preventing it. We were facing one of the largest financial crises in history -- and those responsible for oversight were mostly caught off guard and without the authority needed to address the problem.
It's time for that to change. I am proposing that the Federal Reserve be granted new authority -- and accountability -- for regulating bank holding companies and other large firms that pose a risk to the entire economy in the event of failure. We'll also raise the standard to which these kinds of firms are held. If you can pose a great risk, that means you have a great responsibility. We will require these firms to meet stronger capital and liquidity requirements so that they're more resilient and less likely to fail.
And even as we place the authority to regulate these large firms in the hands of the Federal Reserve -- so that lines of responsibility and accountability are clear -- we will also create an oversight council to bring together regulators from across markets to coordinate and share information, to identify gaps in regulation, and to tackle issues that don't fit neatly into an organizational chart. We're going to bring everyone together to take a broader view -- and a longer view -- to solve problems in oversight before they can become crises.
As part of this effort we're proposing the creation of what's called "resolution authority" for large and interconnected financial firms so that we're not only putting in place safeguards to prevent the failure of these firms, but also a set of orderly procedures that will allow us to protect the economy if such a firm does in fact go underwater.
Think about this: If a bank fails, we have a process through the FDIC that protects depositors and maintains confidence in the banking system. This process was created during the Great Depression when the failure of one bank led to runs on other banks, which in turn threatened wider turmoil. And it works. Yet we don't have any effective system in place to contain the failure of an AIG, or the largest and most interconnected financial firms in our country.
And that's why, when this crisis began, crucial decisions about what would happen to some of the world's biggest companies -- companies employing tens of thousands of people and holding trillions of dollars in assets -- took place in emergency meetings in the middle of the night. And that's why we've had to rely on taxpayer dollars. We should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution, or to support the company with taxpayer money. That's an unacceptable choice. There's too much at stake, and we're going to change it.
Second, we're proposing a new and powerful agency charged with just one job: looking out for ordinary consumers. And this is essential, for this crisis was not just the result of decisions made by the mightiest of financial firms; it was also the result of decisions made by ordinary Americans to open credit cards and take out home loans and take on other financial obligations. We know that there were many who took out loans they knew they couldn't afford, but there were also millions of Americans who signed contracts they didn't always understand offered by lenders who didn't always tell the truth. Even today, folks sign up for mortgages or student loans or credit cards and face a bewildering array of incomprehensible options. Companies compete not by offering better products, but more complicated ones, with more fine print and more hidden terms.
So this new agency will change that, building on credit card reforms I signed into law a few weeks ago with the help of many of the members of Congress who are here today. This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want -- and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you. The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out -- those things will be a thing of the past. And enforcement will be the rule, not the exception.
For example, this agency will be empowered to set new rules for home mortgage lending, so that the bad practices that led to the home mortgage crisis will be stamped out. Mortgage brokers will be held to higher standards. Exotic mortgages that hide exploding costs will no longer be the norm. Home mortgage disclosures will be reasonable, clearly written, and concise. And we're going to level the playing field so that non-banks that offer home loans are held to the same standards as banks that offer similar services, so that lenders aren't competing to lower standards, but rather are competing to meet a higher bar on behalf of consumers.
The mission of this new agency must also be reflected in the work we do throughout the government. There are other agencies, like the Federal Trade Commission, charged with protecting consumers, and we must ensure that those agencies have the resources and the state-of-the-art tools to stop unfair and deceptive practices as well.
Third, we're proposing a series of changes designed to promote free and fair markets by closing gaps and overlaps in our regulatory system -- including gaps that exist not just within but between nations.
We've seen that structural deficiencies allow some companies to shop for the regulator of their choice -- and others, like hedge funds, to operate outside of the regulatory system altogether. We've seen the development of financial instruments, like many derivatives, that are so complex as to defy efforts to assess their actual value. And we've seen a system that allowed lenders to profit by providing loans to borrowers who would never repay, because the lender offloaded the loan and the consequences to somebody else.
And that's why, as part of these reforms, we will dismantle the Office of Thrift Supervision and close loopholes that have allowed important institutions to cherry-pick among banking rules. We will offer only one federal banking charter, regulated by a strengthened federal supervisor. We'll raise capital requirements for all depository institutions. Hedge fund advisors will be required to register with the SEC.
We're also proposing comprehensive regulation of credit default swaps and other derivatives that have threatened the entire financial system. And we will require the originator of a loan to retain an economic interest in that loan, so that the lender -- and not just the holder of a security, for example -- has an interest in ensuring that a loan is actually paid back. By setting common-sense rules, these kinds of financial instruments can play a constructive, rather than destructive role.
Over the past two decades, we've seen time and again, cycles of precipitous booms and busts. In each case, millions of people have had their lives profoundly disrupted by developments in the financial system, most severely in our recent crisis. These aren't just numbers on a ledger. This is a child's chance to get an education. This is a family's ability to pay their bills or stay in their homes. This is the right of our seniors to retire with dignity and security and respect. These are American dreams, and we should not accept a system that consistently puts them in danger.
Financial institutions have an obligation to themselves and to the public to manage risks carefully. And as President, I have a responsibility to ensure that our financial system works for the economy as a whole.
There's always been a tension between those who place their faith in the invisible hand of the marketplace and those who place more trust in the guiding hand of the government -- and that tension isn't a bad thing. It gives rise to healthy debates and creates a dynamism that makes it possible for us to adapt and grow. For we know that markets are not an unalloyed force for either good or for ill. In many ways, our financial system reflects us. In the aggregate of countless independent decisions, we see the potential for creativity -- and the potential for abuse. We see the capacity for innovations that make our economy stronger -- and for innovations that exploit our economy's weaknesses.
We are called upon to put in place those reforms that allow our best qualities to flourish -- while keeping those worst traits in check. We're called upon to recognize that the free market is the most powerful generative force for our prosperity -- but it is not a free license to ignore the consequences of our actions.
This is a difficult time for our nation. But from this period of challenge, we can once again tap those values and ideals that have allowed us to lead the global economy, and will allow us to lead once again. That's how we'll help more Americans live their own dreams. That's why these reforms are so important. And I look forward to working with leaders in Congress and all of you to see these proposals put to work so that we can overcome this crisis and build a lasting foundation for prosperity.
Thank you very much, everybody. Thank you. (Applause.)
President Obama gave these remarks on financial regulatory reform on June 17, 2009.
THE PRESIDENT: Thank you very much.
Since taking office, my administration has mounted what I think has to be acknowledged as an extraordinary response to a historic economic crisis. But even as we take decisive action to repair the damage to our economy, we're working hard to build a new foundation for sustained economic growth. This will not be easy. We know that this recession is not the result of one failure, but of many. And many of the toughest challenges we face are the product of a cascade of mistakes and missed opportunities which took place over the course of decades.
That's why, as part of this new foundation, we're seeking to build an energy economy that creates new jobs and new businesses to free us from our dependence on foreign oil. We want to foster an education system that instills in each generation the capacity to turn ideas into innovations, and innovations into industries and jobs. And as I discussed on Monday at the American Medical Association, we want to reform our health care system so that we can remain healthy and competitive.
This new foundation also requires strong, vibrant financial markets, operating under transparent, fairly-administered rules of the road that protect America's consumers and our economy from the devastating breakdown that we've witnessed in recent years.
It is an indisputable fact that one of the most significant contributors to our economic downturn was a unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess. A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis -- the Great Depression -- was overwhelmed by the speed, scope, and sophistication of a 21st century global economy.
In recent years, financial innovators, seeking an edge in the marketplace, produced a huge variety of new and complex financial instruments. And these products, such as asset-based securities, were designed to spread risk, but unfortunately ended up concentrating risk. Loans were sold to banks, banks packaged these loans into securities, investors bought these securities often with little insight into the risks to which they were exposed. And it was easy money -- while it lasted. But these schemes were built on a pile of sand. And as the appetite for these products grew, lenders lowered standards to attract new borrowers. Many Americans bought homes and borrowed money without being adequately informed of the terms, and often without accepting the responsibilities.
Meanwhile, executive compensation -- unmoored from long-term performance or even reality -- rewarded recklessness rather than responsibility. And this wasn't just the failure of individuals; this was a failure of the entire system. The actions of many firms escaped scrutiny. In some cases, the dealings of these institutions were so complex and opaque that few inside or outside these companies understood what was happening. Where there were gaps in the rules, regulators lacked the authority to take action. Where there were overlaps, regulators lacked accountability for their inaction.
An absence of oversight engendered systematic, and systemic, abuse. Instead of reducing risk, the markets actually magnified risks that were being taken by ordinary families and large firms alike. There was far too much debt and not nearly enough capital in the system. And a growing economy bred complacency.
Now, we all know the result: the bursting of a debt-based bubble; the failure of several of the world's largest financial institutions; the sudden decline in available credit; the deterioration of the economy; the unprecedented intervention of the federal government to stabilize the financial markets and prevent a wider collapse; and most importantly, the terrible pain in the lives of ordinary Americans. And there are retirees who've lost much of their life savings, families devastated by job losses, small businesses forced to shut their doors.
Millions of Americans who've worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and by the failure of their government to provide adequate oversight. Our entire economy has been undermined by that failure.
So the question is, what do we do now? We did not choose how this crisis began, but we do have a choice in the legacy this crisis leaves behind. So today, my administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.
These proposals reflect intensive consultation with leaders in Congress, including those who are here today: Chairman Dodd and Chairman Frank, who, along with Senator Shelby and Representative Bachus, will be meeting with me throughout this process. They met with me earlier this year to jumpstart the discussion of reform. These reforms are also drawing on conversations with regulators, including those I met with this morning, as well as consumer advocates and business leaders, academic experts, and the broader public.
In these efforts, we seek a careful balance. I've always been a strong believer in the power of the free market. It has been and will remain the engine of America's progress -- the source of prosperity that's unrivaled in history. I believe that jobs are best created not by government, but by businesses and entrepreneurs who are willing to take a risk on a good idea. I believe that our role is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still make this nation the envy of the world.
That's our goal -- to restore markets in which we reward hard work and responsibility and innovation, not recklessness and greed; in which honest, vigorous competition is the system -- in the system is prized, and those who game the system are thwarted.
With the reforms we're proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse. We seek to create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles suddenly bring the risk of financial collapse; we want a system that works for businesses and consumers.
There are those who will say that we do not go far enough, that we should have scrapped the system altogether and started all over again. I think that would be a mistake. Instead, we've crafted reforms to pinpoint the structural weaknesses that allowed for this crisis and to make sure that these problems are dealt with so that we're preventing crises in the future.
There are also those who say that we are going too far. But the events of the past few years offer ample testimony for the need to make significant changes. The absence of a working regulatory regime over many parts of the financial system -- and over the system as a whole -- led us to near catastrophe. We shouldn't forget that. We don't want to stifle innovation. But I'm convinced that by setting out clear rules of the road and ensuring transparency and fair dealing, we will actually promote a more vibrant market. This principle is at the heart of the changes we're proposing, so let me list them for you.
First, we're proposing a set of reforms to require regulators to look not only at the safety and soundness of individual institutions, but also -- for the first time -- at the stability of the financial system as a whole.
One of the reasons this crisis could take place is that while many agencies and regulators were responsible for overseeing individual financial firms and their subsidiaries, no one was responsible for protecting the whole system from the kinds of risks that tied these firms to one another. Regulators were charged with seeing the trees, but not the forest. And even then, some firms that posed a so-called "systemic risk" were not regulated as strongly as others; they behaved like banks but chose to be regulated as insurance companies, or investment firms, or other entities that were under less scrutiny.
As a result, the failure of one firm threatened the viability of many others. The effect multiplied. There was no system in place that was prepared for this kind of outcome. And more importantly, no one has been charged with preventing it. We were facing one of the largest financial crises in history -- and those responsible for oversight were mostly caught off guard and without the authority needed to address the problem.
It's time for that to change. I am proposing that the Federal Reserve be granted new authority -- and accountability -- for regulating bank holding companies and other large firms that pose a risk to the entire economy in the event of failure. We'll also raise the standard to which these kinds of firms are held. If you can pose a great risk, that means you have a great responsibility. We will require these firms to meet stronger capital and liquidity requirements so that they're more resilient and less likely to fail.
And even as we place the authority to regulate these large firms in the hands of the Federal Reserve -- so that lines of responsibility and accountability are clear -- we will also create an oversight council to bring together regulators from across markets to coordinate and share information, to identify gaps in regulation, and to tackle issues that don't fit neatly into an organizational chart. We're going to bring everyone together to take a broader view -- and a longer view -- to solve problems in oversight before they can become crises.
As part of this effort we're proposing the creation of what's called "resolution authority" for large and interconnected financial firms so that we're not only putting in place safeguards to prevent the failure of these firms, but also a set of orderly procedures that will allow us to protect the economy if such a firm does in fact go underwater.
Think about this: If a bank fails, we have a process through the FDIC that protects depositors and maintains confidence in the banking system. This process was created during the Great Depression when the failure of one bank led to runs on other banks, which in turn threatened wider turmoil. And it works. Yet we don't have any effective system in place to contain the failure of an AIG, or the largest and most interconnected financial firms in our country.
And that's why, when this crisis began, crucial decisions about what would happen to some of the world's biggest companies -- companies employing tens of thousands of people and holding trillions of dollars in assets -- took place in emergency meetings in the middle of the night. And that's why we've had to rely on taxpayer dollars. We should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution, or to support the company with taxpayer money. That's an unacceptable choice. There's too much at stake, and we're going to change it.
Second, we're proposing a new and powerful agency charged with just one job: looking out for ordinary consumers. And this is essential, for this crisis was not just the result of decisions made by the mightiest of financial firms; it was also the result of decisions made by ordinary Americans to open credit cards and take out home loans and take on other financial obligations. We know that there were many who took out loans they knew they couldn't afford, but there were also millions of Americans who signed contracts they didn't always understand offered by lenders who didn't always tell the truth. Even today, folks sign up for mortgages or student loans or credit cards and face a bewildering array of incomprehensible options. Companies compete not by offering better products, but more complicated ones, with more fine print and more hidden terms.
So this new agency will change that, building on credit card reforms I signed into law a few weeks ago with the help of many of the members of Congress who are here today. This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want -- and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you. The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out -- those things will be a thing of the past. And enforcement will be the rule, not the exception.
For example, this agency will be empowered to set new rules for home mortgage lending, so that the bad practices that led to the home mortgage crisis will be stamped out. Mortgage brokers will be held to higher standards. Exotic mortgages that hide exploding costs will no longer be the norm. Home mortgage disclosures will be reasonable, clearly written, and concise. And we're going to level the playing field so that non-banks that offer home loans are held to the same standards as banks that offer similar services, so that lenders aren't competing to lower standards, but rather are competing to meet a higher bar on behalf of consumers.
The mission of this new agency must also be reflected in the work we do throughout the government. There are other agencies, like the Federal Trade Commission, charged with protecting consumers, and we must ensure that those agencies have the resources and the state-of-the-art tools to stop unfair and deceptive practices as well.
Third, we're proposing a series of changes designed to promote free and fair markets by closing gaps and overlaps in our regulatory system -- including gaps that exist not just within but between nations.
We've seen that structural deficiencies allow some companies to shop for the regulator of their choice -- and others, like hedge funds, to operate outside of the regulatory system altogether. We've seen the development of financial instruments, like many derivatives, that are so complex as to defy efforts to assess their actual value. And we've seen a system that allowed lenders to profit by providing loans to borrowers who would never repay, because the lender offloaded the loan and the consequences to somebody else.
And that's why, as part of these reforms, we will dismantle the Office of Thrift Supervision and close loopholes that have allowed important institutions to cherry-pick among banking rules. We will offer only one federal banking charter, regulated by a strengthened federal supervisor. We'll raise capital requirements for all depository institutions. Hedge fund advisors will be required to register with the SEC.
We're also proposing comprehensive regulation of credit default swaps and other derivatives that have threatened the entire financial system. And we will require the originator of a loan to retain an economic interest in that loan, so that the lender -- and not just the holder of a security, for example -- has an interest in ensuring that a loan is actually paid back. By setting common-sense rules, these kinds of financial instruments can play a constructive, rather than destructive role.
Over the past two decades, we've seen time and again, cycles of precipitous booms and busts. In each case, millions of people have had their lives profoundly disrupted by developments in the financial system, most severely in our recent crisis. These aren't just numbers on a ledger. This is a child's chance to get an education. This is a family's ability to pay their bills or stay in their homes. This is the right of our seniors to retire with dignity and security and respect. These are American dreams, and we should not accept a system that consistently puts them in danger.
Financial institutions have an obligation to themselves and to the public to manage risks carefully. And as President, I have a responsibility to ensure that our financial system works for the economy as a whole.
There's always been a tension between those who place their faith in the invisible hand of the marketplace and those who place more trust in the guiding hand of the government -- and that tension isn't a bad thing. It gives rise to healthy debates and creates a dynamism that makes it possible for us to adapt and grow. For we know that markets are not an unalloyed force for either good or for ill. In many ways, our financial system reflects us. In the aggregate of countless independent decisions, we see the potential for creativity -- and the potential for abuse. We see the capacity for innovations that make our economy stronger -- and for innovations that exploit our economy's weaknesses.
We are called upon to put in place those reforms that allow our best qualities to flourish -- while keeping those worst traits in check. We're called upon to recognize that the free market is the most powerful generative force for our prosperity -- but it is not a free license to ignore the consequences of our actions.
This is a difficult time for our nation. But from this period of challenge, we can once again tap those values and ideals that have allowed us to lead the global economy, and will allow us to lead once again. That's how we'll help more Americans live their own dreams. That's why these reforms are so important. And I look forward to working with leaders in Congress and all of you to see these proposals put to work so that we can overcome this crisis and build a lasting foundation for prosperity.
Thank you very much, everybody. Thank you. (Applause.)
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