SEC, firms, work to unwind research-scandal settlement

Why is this not shocking?

The WSJ reports that the SEC is working with securities firms to unwind key provisions in the 2003 research-scandal settlement.

The WSJ says that Comptroller of the Currency John Dugan acknowledged

tough times for U.S. banks, with 702 banks—nearly 9% of the industry—defined as troubled. He told bankers that regulators "simply cannot turn a blind eye" to problems and have learned the lesson that looking the other way will only compound losses.

Nearly 200 U.S. banks have failed in the past two years, at a cost of nearly $58 billion, "and we may not be even halfway through," said Mr. Dugan.

So, why are financial stocks, including banks doing so well?

The Valukas report on what happened at Lehman

The Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings Inc.:

Why health insurers need MORE market power

The Economist lays out the challenges of expecting private health insurers to boost access and quality. It raises the oft-forgotten issue of the lack of market power by health insurers, vs. hospitals and medical groups in the regions insurers cover. Which of course raises questions about removing insurers' anti-trust exemptions.The mag quotes George Halvorson, the chief executive of Kaiser Permanente, who points ...

to a chart showing how difficult it is for private insurers to tackle costs in the country’s “fee for service” health system, which rewards transactions rather than health outcomes. As insurers have squeezed hospitals, the average duration of hospital stays has indeed fallen—but that has been more than offset by a rise in prices (see chart 2). You might ask why competition among hospitals has not held prices down. The explanation is that there is not much of it. Hospitals have local oligopolies or even monopolies, especially after a recent wave of consolidation, so price competition is rare. The opacity of pricing makes it hard for insurers (and harder still for patients) to shop around. ...

According to Alain Enthoven of Stanford University, an economist whose theory of managed competition inspired Dutch reformers: “If they are to deliver innovation, insurers need more market power...or they must integrate like Kaiser Permanente.”

Krugman: Japan, here we come ...

Paul Krugman says alternative core inflation measures, like "trimmed-mean and median inflation," are getting increasing attention. Core measures like these measure inflation "inertia," and provide a view into inflation expectations over the longer term, he says.

"What these measures show is an ongoing process of disinflation that could, in not too long, turn into outright deflation," Krugman writes.

See the chart ...

Bill would kill tax-free munis

The Bond Buyer reports that legislation unveiled Tuesday would eliminate tax-exempt bonds beginning in 2011, and change the tax exemption for state and local bonds to a tax credit.

The story says economists "have long argued that tax-exempt bonds are an inefficient way to subsidize state and local projects."

New market leadership?

Is recovery from the recent market correction showing that healthcare and consumer discretionary stocks might lead the way from here?

Is the FSA doomed?

Is the U.K.'s Financial Services Authority, the uber principles-based regulator held up (pre crisis) by the industry as the model for other nations follow ... now doomed?

The useless U-5

Peter Chepucavage, a former SEC staffer who speaks up on issues re investors and brokers, tells me the form U-5 termination report has outlived its usefulness.

He links to attorney Bill Singer's analysis of a recent arbitration I reported on, in which a broker won $4 million.

"We encourage the reading of this excellent analysis of the U-5 which in our view is a relic of the past," Peter says, adding:

We have always believed the following;
1. It should never be used for performance related issues.
2. It should never be public until a regulator has made a finding of violation.
3. It should never reduce complicated employment issues to a word or phrase.
4. The employer should provide the facts to the regulator without making any judgments and the employee should respond to those facts. The regulator should make the judgment.