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Morning Scan

Thursday, January 26, 2012

Receiving Wide Coverage ...

Great Rates to Continue: "Great" if you're living on debt, like the U.S. government, that is. If you're a saver or retiree on a fixed income, or a bank trying to earn an interest rate spread, things don't look quite so peachy.

That's the bottom line on the Federal Reserve's announcement yesterday of plans to keep short-term interest rates in the non-existent range "at least through late 2014." For the mathematically challenged, that stretches out the low-rate era for nearly another three years-a period so lengthy as to be regarded as an unforeseeable economic eternity among the mere mortals who reside outside the central bank.

Or, as Heard on the Street put it: "If forecasting what will happen in three months' time is challenging, forecasting what will happen three years from now seems foolhardy. And yet the Federal Reserve's rate-setting committee has done just that."

What's behind the Fed's great easing? "Right now, it can't lose," opines Heard. "If the Fed is correct, and the economy remains sluggish, ultralow interest rates will help. If the economy instead accelerates to the point where the Fed is compelled to switch course and start raising rates sooner, it will be sitting in the catbird seat."

At the risk of sounding indiscreet, let us make a passing reference to the fact that it is an election year, and Ben Bernanke's Fed would be far from the first accused of taking political considerations into account in setting policy. In this case, the pronouncement that low rates are here to stay gave stocks an immediate boost and could in coming months provide the equity-owning class new reasons to favor Washington's current rulers over those who would throw them out.

Of course, can't-lose monetary policy has proven a disaster before. Remember Alan Greenspan? He of the massive easing that bestowed him with economic sainthood until the high levels of liquidity that helped inflate the housing bubble resulted in a crash. As American Banker's own Barbara Rehm noted yesterday, the risks of protracted easy money have hardly gone the way of the no-doc supbrime negative amortization mortgage. Wall Street Journal, New York Times, Washington Post

Ta Ta, Timmy: It looks like the lone remaining original member of President Obama's economic team, Treasury Secretary Timothy Geithner, is not long for the administration. Geithner told Bloomberg TV that President Obama is "not going to ask me to stay on, I'm pretty confident." As president of the New York Federal Reserve under President George Bush, Geithner was one of the chief architects of the government's initial response to the financial crisis, along with then-Treasury Secretary Henry Paulson. Geithner say he plans to leave his ornate Hamilton Place office to do "something else."

Preceding Geithner out the door were National Economic Council Director Lawrence Summers, Office of Management and Budget Director Peter Orszag and Austan Goolsbee, who was a member of the Council of Economic Advisers and later replaced Christina Romer as chairman.

If President Obama loses the general election, Geithner's departure will largely be moot. If the president is reelected, however, it could signal that in the absence of the need to worry about another national campaign the president will start to take seriously the need for the nation to live within its means.

Among the top prospects to take over Treasury are Erskine Bowles and retiring Democratic Senator Kent Conrad of North Dakota, Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, told Bloomberg. Conrad is regarded as one of the senate's staunchest left-leaning budget hawks. Bowles served as chief of staff under President Bill Clinton and was co-leader of the commission President Obama appointed to draft a plan to reduce the federal government's debt. That plan has since joined the mountain of sage commission reports gathering dust in the nation's capital. Bloomberg BusinessWeek, Washington Post

Schneiderman as Spitzer? You hardly get more A-list than in rating a seat near the first lady during the State of the Union Address. That's where New York Attorney General Eric Schneiderman found himself Tuesday night as President Obama unveiled the umpteenth plan to get tough on mortgage fraud. This morning, a fawning New York Times had Schneiderman cutting a tough-guy pose atop a story explaining how law enforcement is poised to "zero in on Wall Street."

Eat your heart out, Eliot Spitzer.

What's new is that the president has picked ascending Democrat Schneiderman to co-chair a new mortgage crime unit that will bring together state law enforcers and top officials from the Justice Department and Securities and Exchange Commission.

Among the items on its to-do list, the mortgage unit will seek to bring to fruition an oft-heralded, but still elusive, financial settlement between the nation's financial cops and banks over the so-called robo-signing scandal. On the political front, the unit will also help show Americans their president feels their pain in the wake of a financial crisis during which many believe the masses lost too much and not enough bankers went to jail.

Politically appealing as this amalgam is, as it seeks to right housing wrongs it's likely to run into an inconvenient obstacle: the Constitution of the United States.

"Most of the investigations into alleged wrongdoing behind the 2008 financial crisis have gone nowhere—in part, Mr. Obama has said, because conduct may have been reckless but not illegal," notes the Journal.

Damn those technicalities. In the end they could prevent the new anti-crime unit from getting any further off the ground than did America's Mars mission, which President Bush boldly launched during another long-ago and near-forgotten SOTU address. Wall Street Journal, New York Times

Wall Street Journal

Pity B of A's investment bankers. The nation's second largest financial institution, whose operations include Merrill Lynch, is planning to pay its dealmakers 75% of their "cash" bonuses this season with the beleaguered bank's own stock.

The move is unlikely to engender waves of cheering among the pin-striped class but it could ultimately have a silver lining. Back in 2008, Credit Suisse dished out to its bankers shares in some of its most troubled securities in lieu of more liquid tender. The focus of much grumbling at the time, the investments have reportedly been stellar performers since. Who knows. To disgruntled B of A bankers, we offer two words of encouragement: General Motors. Is it really beyond the pale that the much-bashed Bank of America of today could turn out to be the comeback kid of tomorrow?

New York Times

As if the ignominy of getting paid more like the hoi polloi weren't enough, Bank of America employees are now under pressure from Public Citizen. The consumer advocacy group is calling for B of A's breakup in a petition to Treasury Secretary Timothy F. Geithner and Fed chairman Ben Bernanke, chairman and vice chairman of the Financial Stability Oversight Council, respectively. The group argues that the bank is too big to be either governed or regulated, and represents a real risk to the financial system. No argument here.

 

, with contributions from Katherine Kane.

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