Nearly six months after the Obama administration unveiled its blueprint for the biggest overhaul of the financial system since the 1930s, lawmakers are still, well, talking. Regulators, meanwhile, don't appear to be doing enough talking -- with each other.

The Miller-Moore amendment to the House bill is a case in point. Taking their cue from the Federal Deposit Insurance Corp's Sheila Bair, the congressmen from North Carolina and Kansas have horrified some in New York who fear legislation holding secured lenders accountable could up-end the repo market, an arcane yet important source of financing in the bond market.

Perhaps the Federal Reserve should have been called in on this one. It is, after all, well versed in the world of repo and as a banking regulator should be part of the discussions anyway.

For its part, the Fed has been pushing the idea of contingent capital, the next big thing that will allow banks to increase their regulatory capital when they become distressed. But by doing so, they would introduce a new, untested security that will only theoretically better protect the financial system. Many said the same thing about credit default swaps.

A cap on leverage is one positive to come out of the House's draft legislation.

There's plenty of blame to go around when it comes to what caused the financial mess, but without excessive leverage there wouldn't have been excessive risk taking.

Big banks are going to take risks. They are single-minded about making money. But when the taxpayer is the ultimate lender of last resort, they shouldn't be allowed to do it with huge piles of borrowed money.

These are important issues, and regulators need to be talking more in public about them and coming to some sort of consensus quickly. Right now, it's not clear whether turf battles or thoughtful discussions are influencing the shape of a financial overhaul.

There is plenty to be thankful for this Thanksgiving -- the global financial system, for one thing, is no longer in freefall. But when it comes to meaningful financial reform, it's not only hard to be thankful, it's hard to be hopeful.

Weaker consumer spending - up 2.9 percent versus the originally estimated 3.4 percent - isn't exactly encouraging since the recovery needs the nation's shoppers to quicken the pace a little if the economy has any hope of picking up steam. And remember, the "cash for clunkers" program was a big contributor to the gain. It's also no surprise that government expenditures helped at least partially offset the decline. Such spending increased 3.1% from the original estimate of 2.3%.

Alan Ruskin at RBS notes that at least corporate profits are strong at +10.6 percent. But, increased productivity is the cost. Companies are doing more with less, a phrase that those still holding their jobs detest and those without jobs dread.

Consumer confidence, meanwhile, ticked up slightly but still reflects a sour mood on Main Street.

Lynn Franco at the Conference Board, the group that compiled the survey released Tuesday, says it all.

Consumer Confidence posted a slight gain in November. The Present Situation Index, however, was virtually unchanged and remains at levels not seen in 26 years (Index 17.5, Feb. 1983). The moderate improvement in the short-term outlook was the result of a decrease in the percent of consumers expecting business and labor market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve. Income expectations remain very pessimistic and consumers are entering the holiday season in a very frugal mood.

The Wall Street Journal's front page splash that 1 in 4 homeowners owe more than their homes are worth underscores the point that the U.S. households are still in bad shape and the rapid fire gains in the stock market aren't likely to offset fear of losing your job and house.

It's no wonder policy makers are starting to get nervous about pulling the plug on stimulus.

Representatives Brad Miller of North Carolina and Dennis Moore of Kansas have proposed putting secured lenders on the hook, should a failed big bank need more capital than it has on hand. On paper, it's perfectly reasonable -- after all, shareholders and creditors should be first in line to pay for some of the losses, not taxpayers.

Under the proposal, any assets pledged to back a secured loan "may be treated as an unsecured claim in the amount of up to 20 percent as necessary" to cover any losses of a bank in receivership that the government or resolution fund would incur.

That means a secured lender can only be sure to hold onto 80 percent of the collateral, with the remainder dependent on the going recovery value for unsecured debt. Lehman Brothers' unsecured debt was worth less than a dime for every dollar, while Washington Mutual's fetched only 57 cents, based on the settlement of credit default swaps following their respective failures.

Yet applying this broadly to all banks would also ensnare the repo market -- $2.7 trillion worth of financing that greases the wheels of such mainstay markets as U.S. Treasury debt and mortgage bonds backed by housing finance giants Fannie Mae and Freddie Mac.

The repurchase agreement, or repo, market is a critical source of financing for dealers, hedge funds and others who use leverage to finance short-term trading positions. It's a source of extra income for those holding virtually risk-free securities since they can squeeze out extra return by lending them out.

Such financing makes for a deeper and more liquid market that gives investors confidence that if they buy a Treasury note, for example, they can quickly sell it if they want to. When financial markets sour, investors pour into Treasuries not just because they believe the government will repay its debts, but because they can.

Under the Miller-Moore amendment, repo lending could also be vulnerable to a sizeable haircut should a financial institution fail. Blogger and colleague Felix Salmon has done some math here and says why he thinks it's not such a bad idea here.

But introducing the risk of any such loss undermines the market, since the collateral backing the loans is supposed to be risk free. To be sure, this isn't a completely safe market. At the height of the financial crisis, investors borrowing the securities didn't return them when the loan expired, resulting in an unprecedented number of so-called fails.

The amendment also raises the possibility that it will create exactly what it's hoping to stop: a run on a big bank. Joe Abate of Barclays Capital notes that secured lenders will hardly wait around for a bank to enter receivership; they'll start cutting their repo transactions with a bank at the first whiff of trouble.

If lawmakers want to make the financial system stable when trouble strikes again, they should start with the basics -- require bigger capital cushions at banks that need to be much smaller. Then let markets sort out the minutiae. If they still want to tinker, take up a hobby instead.

Last year, investors paying the government for its short-term debt crystallized the panic in the financial markets. Few trusted anything not backed by the full faith and credit of the U.S. government. This week, yields on short-term Treasury bills briefly turned negative, meaning that investors would have to pay to own short-term securities if they chose to push the button on the trade.

Yet it's not panic driving money into Treasury bills this time around. Instead, banks and other investors like money-market funds are making a cool and calculated decision to grab super-safe securities to gussy up balance sheets and put idle cash to work before the end of the year. With the Fed holding overnight rates close to zero, don't be surprised to see these yields flirt with negative territory again.

Such window dressing is nothing new. Loading up on investments like U.S. Treasuries to make balance sheets look better is typical ahead of the end of the quarter and year.

What's unusual is that it's showing up earlier as the competition for such squeaky clean securities is likely to be much greater than it has been in the past.

A change in the fiscal calendar is escalating the competition.

Major banks will be marking the end of the year at the same time in December. Before the 2008 mayhem, quarterly reporting periods were staggered with broker-dealers ending the year in November and deposit-taking banks in December. That made for less noticeable grabs for Treasury bills and other assets. Not only will they be competing with each other, but also with money-market funds and other investors with a mandate to find a home for excess cash.

Then there's the sheer amount of cash sloshing around in the banking system -- more than $1 trillion, according to the Federal Reserve's latest count, some of which will need to be invested before closing time. Before the crisis, the amount was closer to around $300 billion.

It's no surprise that demand has centered on bills maturing early next year. In fact, demand is so great that these otherwise liquid securities are becoming harder to find in the repo market, where dealers finance their trading positions.

The Fed's zero-rate policy means that it won't take much to push bill yields into the red again.

Negative yields may be painful, but at least they're not signaling doom ahead.

Though I'm still skeptical about what this means for the billions of loans that still need to be refinanced, this is a good sign for the CMBS market and one that issuers are sure to notice. Demand is out there whether there's nonrecourse loans or not.

Big Picture has posted the report in its entirety.

It's one thing to be a bad regulator during the boom years when, let's face it, there were bad regulators everywhere. But to shrink from tough negotiations with banks during the height of the crisis when those banks were already benefiting from billion of dollars in state aid will be harder to explain away, though the New York Fed has tried.

From the report:

FRBNY's decision to treat all counterparties equally (which FRBNY officials described as a "core value" of their organization), for example gave each of the major counterparties (including the French banks) effective veto power over the possibility of a concession from any other party...

It also arguably did not account for significant differences among counterparties, including that some of them had received very substantial benefits from FRBNY and other Government agencies through various other bailout programs (including billions of dollars of taxpayer funds through TARP), a benefit not available to some of the other counterparties (including French banks)...

...the refusal of FRBNY and the Federal Reserve to use their considerable leverage as the primary regulators for several of the counterparties, including the emphasis that their participation in the negotiations was purely "voluntary," made the possibility of obtaining concessions from those counterparties extremely remote.

Sure, it's a fine line of when to use such leverage, but the report goes on to note that the Fed didn't shy away from using it when, for example, it and Treasury compelled banks to take TARP funds. Similarly, the government played hard core with General Motors and Chrysler creditors when the automakers barreled toward bankruptcy.

The conspiracy theorists are sure to jump on the below.

There is no question that the effect of the FRBNY's decisions - indeed, the very design of the federal assistance to AIG - was that tens of billions of Government money was funneled inexorably and directly to AIG's counterparties.

I don't think the Fed and Geithner set out intentionally to save AIG so banks would get paid,  but their unwillingness to play hardball is damning and undermines the argument that the Fed is tough enough to regulate the now even bigger, and more powerful Wall Street banks.

The Fed did an incredible job navigating the credit crisis. It may have come late to the game, but it moved quickly to soften the blow of the financial markets' implosion. But if it wants to continue being regulator-in-chief of the bank holding companies, it better show that it has the chops and fast.

From Reuters:

Met with strong investor interest, Developers Diversified was able to price the deal below existing levels for the CMBS issues. Its $323 million AAA-rated five-year notes came at a narrower 1.4 percentage point premium to the five-year interest rate swap benchmark, or a yield of 3.807 percent, market sources said.

Underwriter Goldman Sachs lowered yield premiums from earlier guidance levels of 1.6 to 1.75 percentage points, due to the strong buyer interest.

The yield may seem tiny, but this deal should qualify for the Federal Reserve's TALF program, which means a healthy dose of leverage will super charge returns. (UPDATE: Taking into account the Fed's financing, the real return would be 5.9%, according to Barclays CMBS research team.) For the run-down on TALF, check out the Fed's website here. Oh yeah, and in case anyone forgot, these are non-recourse loans, which means the borrower has  limited downside risk.

This is still just a drop in the bucket for the commercial real estate market. There's still the looming finance wave to deal with, and many underwater loans out there simply won't qualify for refinancing. So far the answer has been for banks to amend and extend the terms of the loan, or put another way, delay and pray.

About $570 billion in commercial mortgages are due to be refinanced between 2010 and 2011, according to property researcher Foresight Analytics LLC in Oakland, California. The firm estimates that defaults could cause some $250 billion in commercial real estate losses to the banking sector.

The "new" GM, fresh from a debt-scrubbing bankruptcy, released preliminary third-quarter results on Monday that showed the one-time Detroit giant still humbled. In the third quarter starting on July 10 -- when it began operations -- it still posted what it called a "managerial" loss of $1.2 billion, around half of which came from restructuring costs and a write-down related to auto supplier Delphi that recently emerged from its own bankruptcy.

But what GM does have is a gigantic cushion of cash and marketable securities. At the end of the third quarter, it stood at $42.6 billion with a good portion, $17.4 billion, from the U.S. and Canadian governments held in escrow. GM will use the escrow funds to start repaying outstanding loans in December, with quarterly payments following thereafter.

There's little downside to accelerating the repayment of the loans. The much feared implosion of the auto industry following the bankruptcies of GM and Chrysler failed to materialize, leaving GM in a better position than it had estimated. Supplier support, for example, accounted for just $300 million of the total $17 billion of GM's outstanding debt.

And repaying the loans earlier certainly helps GM. The interest rate on government debt is an expensive 7 percent a year, executives noted on a conference call.

Yet, like all good employees, GM is also managing its manager. The U.S. government, in addition to forking over a $6.7 billion loan, also owns a majority stake. That's unlikely to change until GM instils enough confidence in investors it once burned to give it another chance when it goes public. That's still a long way off.

The Obama Administration is already under fire for its bailout of Wall Street firms, who are readying to dole out big bonuses a year after their risky bets helped sink the economy. With the unemployment rate in double-digits, recipients of government funds are sure to figure large in next year's campaigns.

GM -- holding on to a stash of cash while owing taxpayers billions -- could easily become a flashpoint. Making the debt smaller will at least provide some cover.

Even a weaker dollar can do only so much to counter America's love of oil and cheap imports from China.

The U.S. trade deficit swelled by an unexpectedly large 18.2 percent in September, to $36.5 billion, with the gap with China reaching its widest in a year, at $22.1 billion, though this isn't seasonally adjusted. Petroleum imports, meanwhile, swamped exports, causing a $20.5 billion shortfall.

Some have hoped the dollar's bludgeoning since March would help cut the deficit, since a weak currency makes goods and services more competitive in overseas markets. And exports have been on the rise since then, but a pegged Chinese currency and
the U.S. appetite for (more expensive) oil means such a competitive edge can be only so sharp.

Treasury Secretary Timothy Geithner was sure to spout the usual rhetoric this week about favoring flexible exchange rates, while China's central bank's fiddling with its monetary policy report suggested an appreciation in its currency, the yuan, could be on the cards.

But as my colleague Wei Gu noted in a column this week, a rise in the yuan, if the authorities allow it, would probably be insignificant [nLC46979]. And Geithner has been just as quick to say the United States favors a stronger dollar, not a weaker one.

This week, President Barack Obama heads off to China, where he will discuss, among other things, the yuan, but he's negotiating from a weak position. The United States still needs China to stock up on Treasuries, or it will have something else to worry about: skyrocketing interest rates.

Talking about imbalances is better than ignoring them, but it's only making the hard choices that will fix them. It's easy to tell other nations to fix their contributions to the global imbalances. But it would carry more weight if the United States held to its side of the bargain, by borrowing less and saving more.

The deterioration has been fast and furious. Last year the ratio stood at 3% and the year before than 6.4%, according to The Wall Street Journal.

New York Times also has a nice data point:

The F.H.A., which insures loans made by private lenders, guaranteed more than $360 billion in mortgages in the last year, four times the amount in 2007.

The FHA has largely stepped in to fill the vacuum left behind by the banks that had been lending to subprime borrowers. Together with Fannie and Freddie, these housing agencies have kept the housing market from completely seizing up, but there's a big downside: taxpayers are likely to foot the bill.

The FHA is putting on a brave face, saying reserves should remain above zero, but the still sick state of housing and high unemployment makes such promises sound hollow.

Fannie and Freddie are also feeling the heat. The delinquency rate on Freddie's single-family mortgages have climbed to 3.33 percent, up from 1.22 percent a year ago. Fannie's latest tally stood at 4.45 percent, up from 1.57 percent. Though they don't have the explicit backing of the government - unbelievable but true - they still have a good chunk of the $400 billion equity line they can turn to if the losses accelerate.

UPDATE: To put the delinquencies in dollars and cents. From Freddie's footnotes:

The unpaid principal balance of our single-family Structured Transactions at September 30, 2009 was $24.9 billion.