Morning Scan
Friday, September 3, 2010
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Receiving Wide Coverage ...
Fed on the Hot Seat: Fed Chairman Ben Bernanke testified defended the central bank's decision not to bail out Lehman Brothers, telling the Financial Crisis Inquiry Commission that he had no options, even though he knew its downfall would be "catastrophic" to the financial system and economy. But he admitted he failed to recognize cracks in the financial system prior to the crisis. The Post quoted him as saying "government regulators did not do enough to protect consumers in the marketplace and to force large financial institutions to curtail risky practices." The Times said Bernanke also "signaled that the central bank was eager to embrace its expanded powers under the Dodd-Frank financial regulatory law." Wall Street Journal, New York Times, Washington Post
Central Banks: The European Central Bank extended its lifeline to troubled banks in the euro zone Thursday by saying it would provide unlimited funds at the benchmark rate of 1% "for as long as necessary." However, the bank also offered a slightly more upbeat view of the economy there. The Journal's "Heard the Street" column said "central bankers in the world's biggest economies are understandably sitting on their hands as the sustainability of the recovery remains in doubt. That is giving their colleagues in stronger economies a dilemma as they seek to raise rates." Germany's central bank has been struggling with another dilemma: the Bundesbank said Thursday that its board will ask Germany's president to dismiss controversial board member Thilo Sarrazin. The paper said the attempt "is unprecedented and potentially open to legal challenge by Mr. Sarrazin, but analysts say growing consternation in Germany and abroad leaves [central bank president Axel] Weber with no choice."
Kabul Bank Seeks U.S. Bailout: Some of Kabul Bank's largest shareholders urged the U.S. to bail out the Afghan bank as depositors continued to withdraw funds. The Journal quoted Mahmood Karzai, brother of Afghanistan's president and the third-largest shareholder in the bank, as saying the lender could keep up with the pace of withdrawals for only a few more days. "If the withdrawals continue apace, Mr. Karzai said, the bank would be effectively insolvent by early next week." The Times said another shareholder, Khalilullah Frozi, "predicted that if Afghan depositors continued to withdraw their money at the current rate, Kabul Bank would almost certainly collapse, undermining confidence in the nascent financial system the Afghans have been trying to build with American help." Wall Street Journal, New York Times
Reading List: The Journal reviewed Tony Blair's memoir, out this week, saying it "has so far received attention mostly for the former Prime Minister's judgments about George W. Bush (remarkably admiring) and Gordon Brown (decidedly mixed). But Mr. Blair's clear-sighted views on the financial crisis are arguably more instructive." The paper's "Deal Journal" blog offered some reading recommendations Fed Chairman Ben Bernanke provided the FCIC: academic papers by Yale economist Gary Gorton and Princeton economist Markus Brunnermeier, and a non-fiction book, "Lords of Finance,'' by Liaquat Ahamed, which chronicles the travails of the world's leading central bankers leading up to the Great Depression. The Post reviewed Steve Rattner's book, "Overhaul," about his experience as the "chief architect" of the federal bailout for GM and Chrylser. The paper said Rattner's narrative "offers a generally charitable view of the protagonists, though in the hurly-burly of White House jostling there are unflattering episodes, and these undoubtedly will draw the most attention."
Wall Street Journal
The lead story on the Money & Investing section looked at the "slim lead" that led to the U.S. probe of the evasion of U.S. laws prohibiting financial dealings with sanctioned countries. Three of the nine banks subject to the probe have settled, and the paper said three more are in discussions to settle.
Another C1 story said the SEC's civil-fraud case against Countrywide Financial, now part of B of A, has an "unusual twist that could have broader implications for public companies." The defendants say some of the risk information allegedly hidden about Countryswide's mortgage portfolio was actually disclosed in public filings; "but the SEC says those documents were too obscure and difficult to understand to qualify as adequate disclosure."
The FHFA issued final rules that will bar Fannie Mae and Freddie Mac from purchasing mortgage-backed securities to meet affordable-housing goals. The paper said the agency rejected Freddie Mac's appeal to preserve the option as long as the company conducted "substantial due diligence" on the underlying mortgage collateral.
New York Times
The Royal Bank of Scotland said it plans to cut 3,500 jobs, or 2% of its workforce, and shut 10 offices in Britain as it works to reduce costs following a government bailout.
Columnist Paul Krugman wrote that he hopes President Obama announces "bold and substantive" economic stimulus measures next week. "The timing of recent economic growth strongly supports the notion that stimulus does, indeed, boost the economy: growth accelerated last year, as the stimulus reached its predicted peak impact, but has fallen off — just as some of us feared as the stimulus has faded."
An editorial said the rise in pending home sales in July offered a "glimmer of hope" for the housing market. But it's unlikely the increase is sustainable. "Willing buyers today are responding to low mortgage rates… The problem is that reluctant buyers obviously outnumber willing ones, and, in the meantime, swelling inventories from foreclosures presage further price declines."
Washington Post
An article said the bump in retail sales in August and home sales in July showed that "Americans have not lost their will to spend." It said the news "suggested stability in the economy" amidst fears of a double-dip recession.
Like the U.S. National debt clock ticking away on a billboard in Manhattan, a student financial aid website has created a Student Loan Debt Clock. The online clock, which reached more than $848 billion when the article was written, was posted by Mark Kantrowitz, publisher of FinAid. "The total debt outstanding will be more explosive at the beginning of each semester, when most student loans are disbursed," a column in the Post said.
A column by ING Direct USA's president and chief executive Arkadi Kuhlmann said the "American dream is undermining our economy." The 30-year fixed rate mortgage "is less than optimal for consumers" and banks, and has become "dangerously outdated" as fewer Americans live in one home during their working lives. Kuhlmann suggests that Congress should gradually reduce the tax deduction for mortgage interest payments and replace it with a national tax credit on the principal.
, with contributions from Sara Lepro and Rachel Witkowski.
