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TARP Head Gets Nod to Chair CFTC

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Former TARP Head Tapped for CFTC Post: President Obama Tuesday will nominate Timothy Massad, the assistant Treasury secretary who oversaw the Troubled Asset Relief Program, to serve as chairman of the Commodity Futures Trading Commission. If confirmed by the Senate, Massad will take over an agency in the midst of a massive post-financial crisis overhaul led by current chairman Gary Gensler, whose term ends at the end of the year. As head of TARP, Massad has overseen the government's bailout of banks and other institutions and leads the effort to wind down the Treasury's investments in these corporations, like the $49.3 million auction of preferred shares in seven financial institutions that closed last week. The CFTC has been at the center of several contentious battles involving the application of Dodd-Frank, notes Politico, and is charged with setting oversight of the Volcker Rule, the Washington Post says. Massad was considered among the frontrunners to head the CFTC when word first spread of Gensler's decision to leave the post. But partisan politics may hinder Massad's confirmation, and consumer advocates remain skeptical of his pedigree as a corporate lawyer specializing in financial securities and derivatives matters, says the New York Times though before his 25-year tenure at Cravath Swaine & Moore LLP, the Harvard-educated attorney began his career as an assistant to Ralph Nader, notes the Wall Street Journal.

$1 Billion Lawsuit: Two Bear Stearns liquidators claim Fitch Ratings, Moody's Investors Service (MCO) and Standard & Poor's artificially inflated ratings on mortgage-backed securities, defrauding investors in a pair of hedge funds that collapsed in 2007, according a 141-page lawsuit filed in a New York State Court in Manhattan Monday. The complaint cites internal text messages and emails that the liquidators allege prove that analysts at the three credit rating agencies were aware that their ratings didn't accurately reflect the risk of the underlying assets, the Wall Street Journal reports. "It could be structured by cows and we would rate it," reads an S&P employee's 2007 text message to a co-worker, reports on the lawsuit said. The action is the latest in the ongoing legal saga continuing to unfold six years after the onset of the housing crisis. Earlier this year, the Justice Department sued the CRAs, alleging similar claims and before that, the agencies were successful in having a lawsuit filed by five public employee pension funds dismissed. During the housing boom, S&P, Fitch and Moody's made millions of dollars by issuing ratings on the complex pools of home loans being packaged and sold by banks, the New York Times reminds readers. Geoffrey Varga and Mark Longbottom, liquidators of the Stearns' High-Grade Structured Credit Strategies (Overseas) and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) funds, are seeking more than $1 billion in damages from the three CRAs. The liquidators in July filed a summons and notice announcing the suit, before the six-year statute of limitations for fraud claims under New York law expired. The three rating agencies said in statements that the allegations are "without merit."

Wall Street Journal

Bank of America is negotiating an agreement with Freddie Mac to resolve disputes over $1.4 billion in mortgage buybacks. The deal would be the second such agreement between Bank of America and Freddie since 2011, according to the Journal, which adds BofA has previously reached a pair of settlements with Fannie Mae, including one worth $11.6 billion earlier this year. The reported negotiations come on the heels of JPMorgan Chase agreeing to a $5.1 billion settlement with Freddie, Fannie and the Federal Housing Finance Agency about two weeks ago to resolve similar claims.

Financial Times

Nonbank lenders have increased their assets by almost 60% since the height of the financial crisis, drawing regulatory concern about the impact of the "shadow banking" system, the Financial Times reports. Regulators are concerned that these lenders which include business development companies and real estate investment trusts whose structure requires them to pay nearly all of their income in dividends could over-borrow or make risky loans in their zeal to take advantage of low interest rates. The amount of assets held by U.S. BDCs, REITS and other specialist finance companies has jumped from $779 billion in 2008 to $1.22 trillion in the second quarter of 2013, according to data compiled by SNL Financial for the Financial Times. Regulators are attempting to strengthen oversight of the lightly-regulated sector while avoiding measures that would stifle its ability to contribute to the recovery, the reports says.

New York Times

If the texts and emails cited in lawsuits against the credit rating agencies weren't enough to make banks consider how the contents of electronic communications can come back to bite them, investigations of potential manipulation of the foreign exchange market are causing some institutions to consider limiting the ability of their traders to chat electronically with other banks. JPMorgan Chase (JPM), Citigroup (C), Barclays (BCS) and Credit Suisse (CS) are weighing measures that would allow traders to speak to clients and individuals at other banks one-on-one, but not in the group sessions of multiple banks that adopted monikers like ''the Cartel'' and ''the Bandits Club'' that have piqued regulatory scrutiny, reports the paper.

Elsewhere ...

Bloomberg: Former President Bill Clinton says bank fines related to the financial crisis should be used to fund infrastructure improvements in the U.S. "Where's that fine money going? It should be put into an infrastructure bank to build a new American economy," Clinton said in remarks Monday at a Securities Industry & Financial Markets Association conference, Bloomberg reports. An economic strategy that favored "trading as opposed to investment," contributed to the 2008 crisis, the report quotes Clinton saying at the SIFMA event in New York. Too much capital "went into housing, which created the bubble with the subprime mortgages, and then the securities that were spun out of them," he said. As the nation's 42nd president, Clinton signed the Gramm-Leach-Bliley Act into law 14 years ago today, legislation that ushered in a sweeping overhaul of banking regulation, including the repeal of the Glass-Steagall Act's restrictions that kept commercial and investment banking separate.

Associated Press: Taxpayer-funded bank bailouts remain a possibility if the latest stress test of Europe's biggest banks reveals significant capital shortfalls, Joaquin Almunia, the vice president of the European Commission said Tuesday, according to an Associated Press report. The measure would be used in the most extreme of cases, Almunia said during a conference in London, and the eurozone governments' preferred method remains to force investors such as shareholders, bondholders and ultimately depositors, to pay first.

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