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Pisani: Financial Reform Is in Trouble

Financial reform is in trouble.

The Democrats going their own way on financial reform makes the whole effort more problematic. The death of financial reform would be a short-term positive for bank stocks (market views lack of change as good: no matter what is passed it will hurt earnings) but in the long run a negative, as these businesses need a more comprehensive regulatory structure.

Why? Because if another disaster strikes and there is no kind of structural reform, we will almost certainly regret it.

Senator Dodd, for example, has said that unwinding too big to fail would be a major part of the legislation; failure to do something along those lines is inviting longer-term problems.

Markets: don't be fooled by low volume and narrow trading ranges. Stocks are in an uptrend. I have noted all week that investors have been frantically buying former laggards like regional banks and airlines. Why? Because these are most leveraged to a potential recovery.

Complain about low volume, but the lack of sellers has made it very difficult for buyers to get size — and that is driving prices up. I'm not doubting that some of the move up has come on short covering, particularly in financials, but you are kidding yourself if you think that is all this is. There are real buyers out there.

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