Author: Annie Lowrey

Morning Money has posted a Goldman Sachs research report, and it seems the investment bank is spooked by just one thing in the financial regulatory reform bill: Sen. Blanche Lincoln’s (D-Ark.) derivatives spin-off language.

To the extent that strains in European sovereign debt and short-term money markets cause broader risk deleveraging, U.S. financials are not immune from falling asset prices. At the same time, while regulatory risk is (hopefully) reaching a peak, it does create the specter of an overhang for some time. In particular, our Washington analyst does not expect the Lincoln proposal to make it into the final bill, but should this occur, it would be very negative for investment banks and potentially exchanges, as volumes would suffer.

“Volumes would suffer” means nothing more or less than that derivatives speculation would become more expensive and thus less lucrative and thus less of a priority for investment banks — something that advocates of tighter regulation argue should be a feature, not a bug, of Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank’s (D-Mass.) merged and final bill.

But, Brian Beutler reports at Talking Points Memo, Sen. Judd Gregg (R-N.H.), expected to be on the conference committee, says there is no way the Lincoln derivatives language is making it through.

“I mean there’s no partisan fight here, it’s just: let’s get the language right. And the language which is in the Senate bill is wrong. It’s just plain wrong. It’s going to cause significant contraction in the credit markets, and it’s going to make the derivative markets less stable less sound and push a lot of business and competition — business which we want in America — overseas.”

What does Goldman think the likely profits scenario for financial firms is? Not as good as the bubble years, but better than the average over the past 70 years — basically, rosy.

Our normalized EPS estimates adjusted for potential regulatory impact implies that large banks can still generate a return on tangible common equity of 21% which is equivalent to a ROE of 13%. This compares to an average ROE for the banking industry of 15% during the 15 years preceding the crisis (1992-2006) and 11% during the 70 years preceding the crisis (1937-2006). While our implied ROE is higher than the average of the past 70 years it is lower than the past 15 years which we think is attainable. We believe that the benefits of increased scale and efficiency stemming from industry consolidation will partly offset the costs of added regulation, implying that the industry can generate a return higher than the average of the past 70 years but not as high as the past 15 years.

The report also argues that fundamentals are improving: The real estate market has bottomed out, consumer delinquency has peaked and unemployment is starting to look better as well.

Today, President Barack Obama is formally unveiling a spate of initiatives to improve hiring at and bolster lending to small businesses, pushing again for a priority first announced last winter.

The centerpiece is the new $30 billion Small Business Lending Fund, which will offer funding to small community banks. (It will be separate from a similar one housed in the Treasury’s Troubled Asset Relief Program.) Other initiatives include nixing capital-gains taxes for small-business investment and increasing the cap on certain Small Business Administration-backed loans.

Details after the jump:

Obama will discuss the plan and urge congressional action today at an 11:30am event honoring small-business owners at the White House. Thus far, the administration’s efforts to ease the gloomy economic picture for small businesses have sputtered, with an oversight panel dryly noting, “it is not clear that [TARP has] had any significant impact on small business lending” at all. Small businesses — which tend to be much more risky to lend to, but have created around two-thirds of new jobs in the past decade, remain hobbled by frozen credit markets.

The initiatives, held in the Small Business Lending Fund Act, passed out of the House Financial Services Committee last week. (View the committee’s markup here.) And with the bill low-cost and supporting the country’s small businesses one of the most unassailable congressional priorities, it should pass the House soon.

“This shouldn’t be a partisan issue. This shouldn’t be an issue of big government versus small government,” Obama plans to say. “This is an issue of putting our government on the side of the small business owners who create most of the jobs in this country.”

Still, the best thing for small businesses would be an improved economic picture overall. Until demand ticks back up, businesses hire more people and Americans start spending, there is only so much the White House can do.

The Senate just voted to recommend that its conferees working to reconcile the House and Senate financial regulatory reform bills include Sen. Sam Brownback’s (R-Kans.) language exempting auto dealers that make loans from Consumer Financial Protection Agency oversight. The nonbinding motion was agreed to by a surprisingly high margin, 60 to 30. Still, due to strong White House and Defense Department opposition — not to mention the sheer size of the auto lending market and the incidence of abusive lending practices at some dealerships — it is not expected to make it into the final bill.

As if we needed more evidence that not all is well in the housing market: Bloomberg reports that the Federal Housing Administration “may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac.”

“This is a market purely on life support, sustained by the federal government,” [David Stevens, the head of the FHA] said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”

The FHA, which backs loans with down payments as low as 3.5 percent, insured $52.5 billion of home-purchase mortgages in the first quarter, compared with $46 billion of purchases of the debt by Fannie Mae and Freddie Mac, according to data compiled by Washington-based Potomac Partners.

At this point, the government is the housing market, in that mortgage rates would climb precipitously and housing prices and turnover would fall dramatically without that support. The life support metaphor is apt. The problem is not the government support, problematic though it is. The problem is that the credit and housing markets have not yet stabilized. Thankfully, there are some signs that the foreclosure crisis has peaked and the market might start to improve from its very low trough.

Just hours before the Senate is due to vote on a non-binding directive to its committee conferees on exempting loan-issuing car dealers from financial regulatory reform, Jen Psaki, the White House deputy communications director, has written a blog post slamming the measure:

The President has been clear on this issue, repeatedly urging members of the Senate to fight efforts of the special interests and their lobbyists to weaken consumer protections. The fact is, auto dealer-lending is an $850 billion industry, which is larger than the entire credit card industry and they make nearly 80 percent of the automobile loans in our country.

Is there any question that these lenders should be subject to the same standards as any local or community bank that provides loans?

Auto dealer-lenders sell auto loans to working families every single day, and while most dealers are no doubt above board, some cannot resist the bigger profits that come from inflating rates, hiding fees, and tacking on over-priced add-ons.

These profits can lead some dealers to treat their customers unfairly. There are countless stories of hard-working people who are never even contacted when their car loans are promised by dealers and then fail to go through forcing them to borrow at a higher interest rate or to swallow the cost already paid toward the purchase of their car while giving up the vehicle.

At this point, the Senate is not expected to advise its conferees to fight for the exemption, proposed as an amendment to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill by Sen. Sam Brownback (R-Kans.) but not voted on. The House bill does not give the Consumer Financial Protection Agency oversight over car dealers that make loans.

Sunlight is the best disinfectant. For that reason, Rep. Barney Frank (D-Mass.) has endorsed airing on C-SPAN the conference committee’s negotiations, as the panel of legislators merges the House and Senate versions of financial regulatory reform. But wait! Now it seems the conference committee might not air negotiations — just the discussions right before the committee votes to ratify individual parts of the final bill.

Politico reports:

When lawmakers are ready to ratify their decisions, Frank said they will go into an open session to debate and vote on changes to the bill. He called this kind of conference “old-fashioned” — and it would be a notable change from recent past practice in Congress — but it might be only a daylong session at the end of weeks of closed-door talks. And if you’re anticipating a quaint throwback to a less partisan Capitol, think again.

And Frank explains:

“The negotiations will go on in private,” Frank said, “but the results of any discussion are going to have to be voted on. The House will vote to offer this in the Senate, all of the decisions will be made, accommodations may be reached privately — that’s where human beings work — but nothing will be ratified without a public debate.”

If that is indeed how the conference committee proceeds, it might as well be done entirely behind closed doors. There is no effective difference. The lobbying effort will be epic. And the public will have far less information about which legislators are fighting for which carve-outs, and what is traded for what.

Rep. Barney Frank (D-Mass.) will head the conference committee charged with reconciling the House and Senate versions of financial regulatory reform. The committee is comprised of legislators who worked on the initial bills, from the Senate Banking Committee, House Financial Services Committee and Senate Agriculture committee. The Senate might name its members as soon as today, and the House is expected to name its members next week.

At 5:30 p.m. today, the Senate is voting on whether to recommend its representatives on the conference committee push for provisions in two amendments that did not receive votes. (The “will of the Senate” measures are not binding.) They are Sen. Sam Brownback’s (R-Kans.) amendment exempting auto lenders from Consumer Financial Protection Agency rules (identified by consumer advocates as a highly problematic measure) and Sen. Kay Bailey Hutchison’s (R-Texas) amendment weakening restrictions on proprietary trading.

Tucked in this New York Times piece on Wall Street’s reaction to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill, now moving into conference committee for reconciliation with the House version, an anonymous Wall Street worker guesses at the bill’s impact on banks’ bottom lines.

Many executives spent the weekend trying to assess the impact of the legislation, which has yet to take final form. With some crucial differences between the House and Senate versions of the bill remaining, lawmakers will confer over the next few weeks and try to reach a final version before Congress’s Fourth of July recess. But Wall Street’s initial verdict seems to be that it could have been much more draconian.

“If you talk to anyone privately, there’s a sigh of relief,” said one veteran investment banker who insisted on anonymity because of the delicacy of the issue. “It’ll crimp the profit pool initially by 15 or 20 percent and increase oversight and compliance costs, but there’s no breakup of any institution or onerous new taxes.”

And just how big is that profit pool? In 2009, Goldman Sachs made $13.4 billion, JPMorgan Chase made $11.73 billion and Wells Fargo made $7.99 billion. Bank of America and Morgan Stanley both had bottom-line profits but attributed losses to investors — $2.2 billion and $907 million respectively. And Citigroup lost $1.6 billion. All in all, in a rather rough year for banking, those six firms made $28.4 billion. Losing 15 percent would have brought that number down to $24.1 billion — about the size of California’s budget deficit, for a sense of scale.

All in all, he or she guesses that Dodd will cost the banks a few billion dollars — a rounding error over the course of a decade. And the most worrying word in the quote is “initially.” In Wall Street’s mind, the Dodd bill will ultimately have little impact on profits — and thus little impact on the profit motive — going forward.

Mike Allen at Politico reports that President Barack Obama will unveil the Reduce Unnecessary Spending Act of 2010, a presidential check on Congressional bills.

Under this new expedited procedure, the president would submit a package of rescissions shortly after a spending bill is passed. Congress would be required to consider these recommendations as a package, without amendment, and with a guaranteed up-or-down vote within a specified timeframe. The White House bills this as part of a larger effort the president has undertaken to rein in wasteful spending…. This expedited rescission authority would replace Part C of the Impoundment Control Act of 1974 — the line-item veto provisions struck down by the Supreme Court in 1998.

But the new proposal comes at the same time that members of Congress — Republicans and Democrats both — are pressing for spending cuts and pay-go provisions. Lori Montgomery and Shailagh Murray report in the Washington Post:

“It’s time to start paying for things,” said Rep. Kathy Dahlkemper (D-Pa.), a freshman who voted for last year’s economic stimulus bill but said she is likely to oppose the next spending package, scheduled to hit the House floor Tuesday. “We’ve done some good things, but one of the best things we could do right now is get control of our fiscal house.”

With the national debt at its highest level in nearly 60 years, the question of whether to cut spending — and if so, how — is pitting liberals against conservatives, and Congress against the president. The White House has proposed a three-year freeze in programs unrelated to national security and warned House leaders Friday that it might go further, targeting the Defense Department for cuts. Meanwhile, House leaders unable to agree on a long-term budget blueprint are considering other ways to signal fiscal toughness, including a one-year budget plan that would cut 2011 spending even more deeply than Obama’s freeze.

“We’re going to adopt that and may go farther,” said Rep. Chris Van Hollen (D-Md.), a member of the House leadership.

Of course, having both the White House and Congress devising ways to slash government spending and cut benefits has economists worried. Consumer demand remains soft, and unemployment sky high. Until the economic cycle is virtuous and the turnaround clearly self-sustaining, the government reducing its budget could be disastrous. Someone needs to be spending for businesses to start hiring again, and if it is not the consumer, it needs to be Uncle Sam.

Last week, the Senate passed a sweeping overhaul of the regulation of banks and financial institutions. The bill, authored by Sen. Chris Dodd (D-Conn.), does not just focus on Wall Street firms, changing leverage limits and capital requirements. It focuses on Main Street banks and lenders as well. The bill empowers a new oversight council to create and enforce rules specifically on behalf of regular consumers: the Consumer Financial Protection Agency, housed in the Federal Reserve in the Senate bill and an independent federal agency in the House bill, which now need to be merged.

By and large, consumer watchdogs — some of the bill’s fiercest critics and biggest supporters — were happy with the final Dodd legislation. “We are pleased the Senate has passed this momentous bill that will rein in big banks’ reckless behavior and bring transparency to our financial system and protect consumers,” Heather Booth, the consumer advocate and director of the Americans for Financial Reform, said in a statement. “[This bill] ensures the financial system operates to support needs of working families, promotes business growth and economic mobility rather than the interests of the speculators who view the economy as a huge casino.”

But as the Dodd bill heads to conference committee — where members of Congress will reconcile the Senate financial regulatory reform proposal with the House’s bill, passed last year — consumer advocates have identified loopholes and weak points where a merged bill could be watered down, leaving American workers and families overpaying for financial services or otherwise vulnerable. Consumer advocates primarily cite the purview of the CFPA — the companies it will be able to regulate, and the extent to which it will be able to enforce rules — as the primary yardstick of real reform.

Travis Plunkett, the legislative director of the Consumer Federation of America, points to investor protections as the “big hole” remaining in the bill. “The House legislation is stronger on making sure that financial professionals are responsible for the advice they give,” he says. But the CFA is also focusing on ensuring a strong, independent CFPA comes from the conference committee process. He named a loophole in the Senate bill regarding the CFPA’s ability to monitor small non-bank lenders, like payday lenders, as problematic. “We’d like to see the House language triumph there,” he said, noting that the difference would amount to millions for low-income Americans.

The Center for Responsible Lending, a nonpartisan research group, cites whether auto lenders are under the CFPA’s oversight as an issue to watch. The Center estimates that consumers spend $20 billion more a year on their car loans because they borrow through dealerships — whose contracts can be usurious and difficult to understand — rather than banks or credit unions. Kathleen Day, a spokesperson for the organization, notes that the House bill exempts auto lenders from CFPA regulation and that car companies are lobbying hard to keep it that way in the final legislation.

Sen. Sam Brownback (R-Kans.) attempted to push the same exemption into the Senate bill, but the Senate ultimately did not vote on his amendment. Today, the Senate plans to take a nonbinding “sense of Congress” vote on the measure. “It isn’t binding, but these things are taken into account in conference committee,” Day says. “Currently, the Senate bill is better than the House bill on that, so we don’t want to see a shift there.” Plus, it is a point of hard lobbying. Last year, Ford Motor Company alone made more than $1 billion through its financing arm.

Day also says the CRL hopes Congress removes a Senate provision allowing small non-bank companies to preview and comment on CFPA rules “before they see the light of day.” “That’s behind the scenes, and would lead to the kind of cozy relationships between regulated companies and regulators that led to this crisis in the first place.”

Consumer watchdogs also cite preemption — the ability of the federal government to quash strong local rules — as a major issue to watch as the bills are merged. “It [is] really in the weeds,” Day says, “and a hard one to tamper with, but important.”

Mike Konczal, a fellow at the Roosevelt Institute and specialist in banking regulation, explains that reformers want states to retain the ability to create and enforce strong consumer-protection standards within their borders — and had to fight for the provision in both the House and Senate. “The New Democrats [in the House] could have probably killed the CFPA or at least turned it into a toothless panel,” he says. “But they let it go and then pushed hard [against] pre-emption, which would allow the Office of the Comptroller of Currency” — a primary government banking regulator — “to break state consumer protection laws.”
Therefore, preserving the ability to police consumer protection at the local level remains a priority for advocacy groups in Washington.

Today, the Center for Public Integrity has a good survey of how the financial regulatory reform bill got lobbied. More than 850 banks, financial firms, hedge funds and others deployed more than 3,000 lobbyists to the Hill to argue against strong consumer financial protections and other provisions blunting risk-taking and profit-making at financial firms. The total amount spent on lobbying against Sen. Chris Dodd’s (D-Conn.) bill is not clear, but it might reach into the hundreds of millions, the Center said.

In the financial services industry, some 175 companies and groups — ranging from Goldman Sachs Group Inc. to CME Group Inc. to the Private Equity Council — hired lobbyists to try to weaken or eliminate reform proposals aimed at banks and the capital markets. A distant second was the energy and utilities sector, with 91 companies and organizations, followed by manufacturing with 66 firms.

The companies and groups that lobbied on financial reform spent a total of $1.3 billion in 2009 and the first quarter of 2010 on their overall lobbying efforts, the data showed. The exact dollar amount they devoted to financial regulation reform remains unclear because lobbyists are not required to itemize how much money in a given contract is spent on a specific issue. But if only 10 percent of that spending was targeted at financial regulation bills, lobbyists would have received $133 million.

The American Bankers Association lobbyist quoted in the story notes that banks succeeded in influencing a few provisions — keeping the Federal Reserve as the regulator of state banks and killing a $50 billion resolution authority fund in the Senate bill, for instance. But those are relatively minor measures, underscoring just how strong the bill could be.

Sen. Chris Dodd’s (D-Conn.) bill overhauling the regulation of banks and financial firms has passed, 59 to 39. In short, the bill makes the financial system stronger by giving the Federal Reserve and new regulatory agencies — including the Consumer Financial Protection Agency and a systemic oversight council — the ability to impose leverage and capital requirements as well as new rules against banks and non-banks alike.

Sens. Robert Byrd (D-W.V.) and Arlen Specter (D-Pa.) did not vote. Republican Sens. Susan Collins (Maine), Olympia Snowe (Maine), Charles Grassley (Iowa) and Scott Brown (Mass.) voted for the proposal. Democratic Sens. Maria Cantwell (Wash.) and Russ Feingold (Wis.) did not, saying that the bill is too weak to reign in Wall Street firms. All other senators voted along party lines.

The Senate did not vote on any amendments this evening — meaning that Sens. Jeff Merkley (D-Ore.) and Carl Levin’s (D-Mich.) strong version of the Volcker rule, barring proprietary trading at banks, will not be in the bill. The hard work of reconciling the House and Senate bills in conference committee starts soon.

The Senate just agreed to end debate on the financial regulatory reform bill, 60 to 40. Sens. Olympia Snowe (R-Maine), Scott Brown (R-Mass.) and Susan Collins (R-Maine) joined the Democrats in voting for the measure; Sens. Maria Cantwell (D-Wash.) and Russ Feingold (D-Mich.) chose to vote against the measure. (Sen. Arlen Specter (D-Pa.) returned from his home state to vote with the yeas.)

Sen. Harry Reid (D-Nev.) has promised votes on “germane” amendments this afternoon — including Sen. Sam Brownback’s (R-Ky.) amendment exempting auto dealers from Consumer Financial Protection Agency rulings, and Sens. Jeff Merkley (D-Ore.) and Carl Levin’s (D-Mich.) secondary amendment to it, imposing the Volcker Rule banning proprietary trading at federally insured banks.

Reid said on the floor that “in the best of all worlds” the final vote on Sen. Chris Dodd’s (D-Conn.) bill would come today. A number of major amendments remain in flux, and it is not clear what changes will be made in conference committee, where the House and Senate regulatory reform bills will be merged.

This morning, the Federal Deposit Insurance Co. announced that the banks it insures earned $18 billion in the first quarter of 2010, up $12.5 billion from the first quarter of 2009, as money set aside for loan losses decreased 17 percent. The percentage of banks losing money fell to 19 percent, down from 22 percent a year ago.

“There are encouraging signs in the first-quarter numbers,” Sheila Bair, the head of the FDIC, said in a statement. “Industry earnings are up. More banks reported higher earnings, and fewer lost money. … [The $18 billion] is more than three times as much as banks earned a year ago, and it is the best quarterly earnings for the industry in two years.”

That said, the FDIC’s “problem list” of banks rose to 775, up from 702 last quarter, and the assets of these “problem” institutions grew 8 percent. During the first three months of the year, 41 banks failed. These are the worst numbers since 1993.

All in all, the report paints a picture of a banking sector bolstered by low interest rates and government backing, but one in which the haves — mostly bigger banks — are pulling away from the have-nots — smaller and community banks. Those smaller banking institutions with thin capital cushions will continue to face serious hardships due to delinquent loan, foreclosure and other losses.

Additionally, the number of FDIC-backed banks fell below 8,000 for the first time in the agency’s history, as banks failed or merged with one another.

There are three amendments to watch today before Sen. Harry Reid (D-Nev.) calls another vote to end debate of Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill.

The first is Sens. Jeff Merkley (D-Ore.) and Carl Levin’s (D-Mich.) bill strengthening the Volcker Rule, which would force banks to separate their commercial and investment banking functions by banning depository banks from trading with their own funds. The second is Sen. Maria Cantwell’s (D-Wash.) amendment closing a major loophole in Sen. Blanche Lincoln’s (D-Ark.) derivatives proposal. The final is Sen. Susan Collins’ (R-Maine) amendment requiring higher capital requirements for some financial firms.

I’ll turn to Mike Konczal, a Roosevelt Institute fellow, for an explanation of what Collins’ amendment does:

First off, this amendment makes it clear that bank holding companies follow capital rules that are at least as tough as those imposed on banks. This is the essence of the shadow banking problem: if you want to act like a bank you have to be regulated like a bank.

This amendment also makes clear that if you are engaged in riskier activities than a bank, you must hold more capital. Examples it gives of risky activities it mentions are “significant volumes of activity in derivatives, securitized products purchased and sold, financial guarantees purchased and sold, securities borrowing and lending, and repurchase agreements and reverse repurchase agreements.” You know, the things that caused the last crisis and could cause it all over again.

This amendment also implies, in conjunction with the last paragraph, that banks will need to hold more capital when it comes to scope of businesses. The more high-risk business lines that a bank has, including ones that we can’t even think of yet, the more capital it has to hold. It tells the regulators that, when they aren’t certain, to require more capital….

This is probably the real fight. “Yes we’ll hold more capital as long as massive amount of risky debt turned into ’safe’ equity through the shenanigans of our financial engineers can count as that capital.” Do we need to do that all over again?

That last paragraph gets at how important these amendments are. The Merkley-Levin proposal — initially one the Obama administration supported — clearly reduces risk in the banking system. So does Collins’ amendment. And Cantwell’s provision needs to be in the final bill, to ensure that the derivatives language is not toothless. These aren’t fringe priorities. These aren’t window-dressing. These aren’t amendments to score political points. They are provisions to make sure the bill works — provisions that in the first place should not have been tabled to the last minute.

The core inflation rate is holding steady at 0.9 percent, the lowest rate in 44 years. The United States actually experienced a month of deflation in April. Still, yesterday, The New York Times felt it fitting to warn that the Federal Reserve — all too aware of the above statistics — might be overlooking other data points that suggest creeping inflation and a need to raise interest rates sooner rather than later. The piece warns, “If the Fed is behind the game, there’s a good chance everyone will suffer.”

The first “leading economic indicator” mentioned?

Whole Foods, purveyor of richly priced organic onions and other groceries, last week raised its best estimate for same-store sales growth this year to as much as 7 percent from as little as half that. Its shares have gained 45 percent this year, while those of price-conscious Wal-Mart are down a bit.

The second?

The chief executive of one of America’s biggest banks contends that the strength of the American economy will surprise everyone. The hedge fund manager John A. Paulson has been busy telling investors he is seeing the upward side of a V-shaped recovery. His investments in banks and other economy-driven stocks back up the view.

That is right. The Fed is overlooking the obvious. How could one stroll into one’s local bourgeois purveyor of Kombucha and prosciutto and not think, “Millions of unemployed? Bah! All is well in this kingdom!” And when a Wall Street baron who made billions off of the economy’s collapse promises the recovery is right around the corner — it is, right?

Wrong. There are no signs of imminent inflation. There are many more signs of potentially problematic deflation: The current rate of core consumer prices is below the Federal Reserve’s target, and the central bank is withdrawing its emergency quantitative easing programs and has interest rates as close to zero as possible.

This question of inflation is no academic matter. If the Fed begins fighting inflation, it will begin tightening the money supply and slowing the rate of growth in the economy. That, in turn, will choke off the recovery that the millions and millions of unemployed are counting on. Crying “inflation” too early would be catastrophic for the economy, and yet many economic commentators seem strangely eager to do it.

If The New York Times wants to see signs of inflation, of course it can go out and find them. But improving sales at Whole Foods and the promises of a hedge fund billionaire? I think those are signals the Fed can safely ignore, in lieu of focusing on the horrific economic headline numbers.

This morning, the Department of Labor announced that initial jobless claims rose 25,000 week-on-week to 471,000. Economists had expected claims to fall from 444,000 to 440,000, continuing their slow decline. The 25,000 person increase is the largest in three months. The four-week average — which smooths week to week variation — climbed by 3,000 to 453,500.

The one-week statistic throws cold water on the idea of a fast-moving recovery. Employers are, on aggregate, adding new jobs. Last month, the unemployment rate ticked up from 9.7 to 9.9 percent, but only because more people re-entered or entered the workforce than employers could hire. And yesterday, the Federal Reserve released its April minutes, forecasting a brighter economic outlook. But unemployment and aggregate demand remain extraordinarily weak.

During health care reform, senators strengthened and hammered out the bill in committee before it hit the floor. This go-around, Sen. Chris Dodd (D-Conn.) decided to pass the bill through the Banking Committee on a party-line vote (the vote took all of 20 minutes) and to allow a substantive amendment process. Senators were nearing the end of that process today, but major provisions promised a vote remained without one — including Sens. Jeff Merkley (D-Ore.) and Carl Levin’s (D-Mich.) amendment banning proprietary trading at commercial banks and Sens. Maria Cantwell (D-Wash.) and John McCain’s (R-Ariz.) amendment reinstituting the Depression-era Glass-Steagall Act.

Midday, Sen. Harry Reid (D-Nev.) called off a planned cloture vote. At 3:15, Democrats went into an emergency caucus meeting. When they emerged, Reid called the vote again, despite the number of major amendments still pending. The Senate rejected the measure, 57 to 42, with Cantwell and Sen. Russ Feingold (D-Wisc.) joining most Republicans to keep debate open.

Of course, losing this vote is not losing the bill. Reid has already said he plans to have the Senate vote again tomorrow. Still, the politics felt fevered today.

Reid has pointed his finger at the Republicans, despite the progressive crossovers. He released a statement, saying: “At every stage of this debate, Republicans and their friends on Wall Street have worked overtime to weaken this bill because they view it as a threat to business as usual.  They know these reforms — reforms the American people overwhelmingly support and demand — will finally hold Wall Street accountable. I am calling on my Republican colleagues to start putting the interests of families, small businesses and seniors over those of big banks on Wall Street.” He later said one senator broke his or her promise on the vote, then suggested it was Sen. Scott Brown (R-Mass.).

Feingold released a statement saying: “After thirty years of giving in to the wishes of Wall Street lobbyists, Congress needs to finally enact tough reforms to prevent Wall Street from driving our economy into the ditch again. We need to eliminate the risk posed to our economy by ‘too big to fail’ financial firms and to reinstate the protective firewalls between Main Street banks and Wall Street firms. Unfortunately, these key reforms are not included in the bill. The test for this legislation is a simple one: Whether it will prevent another financial crisis. As the bill stands, it fails that test. Ending debate on the bill is finishing before the job is done.”

And, for her part, Cantwell said that the hold-up on the vote was due to another senator’s family matter — not due to Reid wrangling with her, though Reid was on camera speaking to Cantwell during the vote — and that she wants the Senate to close a loophole that might allow some firms not complying with derivatives clearinghouse requirements to avoid any penalties before another cloture vote.

There’s a ton of last-minute changes currently happening to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill.  Below are my updates on the most important ones.

First: No cloture vote at 2 p.m. The Senate will vote on amendments instead, and the bill will still be up for debate. Notably, this means that Senators can propose and get votes on new amendments, not just secondary or already-offered ones.

Second: Dodd says that he will withdraw his amendment pushing off consideration of Sen. Blanche Lincoln’s (D-Ark.) derivatives language for two years. If adopted, Lincoln’s proposal would go into effect as written.

Third: Read Mike Konczal for an explanation of Sens. Jeff Merkley (D-Ore.) and Carl Levin’s (D-Mich.) amendment on the Volcker Rule. The Dodd bill as-is punts on the question of forcing banks to break up commercial and investment banking functions, though a broad swath of economists, public policy scholars and market experts believe it is one of the better ways to keep banking safe. The Merkley-Levin amendment would more quickly institute a stronger version. Initially, it seemed the amendment would not come up for a vote due to some parliamentary procedural politicking yesterday. (See David Dayen for a run-down.)

Now, Merkley and Levin have tacked their amendment onto Sen. Sam Brownback’s (R-Kans.) amendment exempting automakers from Consumer Financial Protection Agency rulings — basically forcing a vote on their amendment. (Since the cloture vote will not happen today, though, I wonder if Merkley and Levin will not attempt to reapply it as a primary stand-alone amendment.)

Finally: Watch the floor debate here.

Two reports from the Mortgage Bankers Association today — one mixed, one troubling.

First, mortgage loan applications — measured by the MBA’s purchase index, which includes all mortgage applications for single-family homes — dropped 27 percent week-on-week, to 24 percent lower than a year ago. The news is not quite as terrible as it initially sounds. The precipitous drop is due to the sunset of the Obama administration’s homebuyer tax credits at the end of last month. If you were thinking of buying a house this spring, you would have probably rushed to do so before the tax credit expired; in terms of aggregate sales, it means that March and April have stolen from May and June.

“The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009,” Michael Fratantoni, an MBA economist, said in a statement. “However, refinance borrowers did react to these lower rates, with refi applications up almost 15 percent, hitting their highest level in nine weeks.” The big question is aggregate housing demand — and all signs are that it is improving, even if it remains weak.

The second report shows that one in ten mortgage holders is now delinquent, meaning late on at least one payment. The first-quarter rate of 10.06 percent is up around 1 percent from a year ago. That is an all-time high. The percentage of loans in foreclosure was 4.63 percent in the first three months of the year, another record high. All in all, around 15 percent of homeowners are either in foreclosure or late on their payments. Before the financial crisis, most financial firms’ asset-backed security models did not factor in levels of delinquency higher than 5 percent. Now, with the foreclosure crisis peaking, we’re talking about numbers three times that predicted upper limit.

One other sour note in the MBA report: States that had relatively stable housing markets are seeing an upturn in delinquencies and foreclosures, implying that the “sand states” of California, Florida, Nevada and Arizona aren’t the only ones banks should worry about.

“The economy has begun to generate jobs and layoffs have declined, although new claims for unemployment insurance remained higher in the first quarter than we expected.  The percent of loans behind one payment had been declining as first-time claims for unemployment began falling in March 2009.  Those new claims stopped falling during the first quarter of this year, which likely halted the decline in the underlying 30-day delinquency rate.  If mortgage delinquencies are not yet clearly improving, it also appears they are not getting worse. However, a bad situation that is not getting worse is still bad.

“For several years, the four states of Florida, Arizona, Nevada, and California have dominated the national delinquency and foreclosure numbers.  Florida is still getting worse, but California is showing signs of improvement.  However, Washington, Maryland, Oregon, and Georgia showed the greatest overall increases in foreclosures started compared to last quarter,” Brinkmann said.