Morning Scan
Tuesday, September 7, 2010
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Receiving Wide Coverage ...
Housing Fixes: The Journal previewed the Obama administration's launch today of what the paper described as its most ambitious effort at reducing mortgage balances for underwater homeowners. The paper said that, while "the program puts taxpayers at risk," the government has set aside $14 billion in Tarp funds previously earmarked for housing aid to cover losses. A front page story in Monday's Times discussed another housing fix being promoted by economists and market experts: just letting the housing market crash, in an effort to help future homeowners. Another Times article said Fannie Mae "is creeping back" into the market for mortgages with no down payment. "But the surprise is the support these loans have received, even from critics of exotic mortgages, who say low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting." Another story looked at how the state of Florida is trying to deal with mounting foreclosures, by setting up foreclosure-only courts staffed by retired judges to deal with the caseload. The Post profiled two people who embody the opposing forces in the home sales battle: a seller who put off placing his Capital Hill rowhouse on the market until this past spring, and a potential buyer who "is in no rush to commit" after being inundated with availability and clinging to the thought that interest rates and prices might sink lower.
Kabul Bank Fix? Afghanistan Central Bank officials said Kabul Bank is stabilizing and will not need a bailout, despite heavy withdrawals. The Post noted that deposits cited by the central bank "were made largely by companies that route payments through the bank and have little choice." The Times said economic and political analysts describe the government as buying time while it decides how to handle the politically treacherous predicament that erupted with the discovery last week of huge losses. The Journal said the U.S. is still pressing Afghan authorities to investigate allegations of financial improprieties at Kabul Bank, "fearing that anything short of a thorough inquiry will further undermine President Hamid Karzai's credibility." Wall Street Journal, New York Times, Washington Post
Fixing the Gatekeepers: In the Journal's "Weekend Interview," Jules Kroll, founder of the eponymous corporate detective agency, explained his motivation for taking on the big three credit rating agencies: "I want to go where there's a mess." Kroll said Moody's, S&P and Fitch still enjoy such fat profit margins that he believes he can price competitively and also perform the due diligence that the ratings giants admit they've never done. An article in Monday's paper said Lace Financial, the ratings firm Kroll acquired, has been fined by the SEC for allegedly making misstatements to downplay a potential conflict of interest and failing to disclose steps that led to rating upgrades favorable to its largest client. In the Times' "Fair Game" column, Gretchen Morgenson wrote that, despite the SEC's mere "wrist slap" of Moody's over improper actions taken prior to the credit crisis, all of the ratings agencies are still in the SEC's sights. "Indeed, the commission's proposed changes to the rule governing the issuance of asset-backed securities show a concerted effort to reduce investor reliance on ratings involving these securities. This is a noble goal."
Euro Debt Crisis: The Journal said its analysis shows recent stress tests conducted by major European banks understated some lenders' holdings of potentially risky government debt. Some banks excluded certain bonds, and many reduced the sums to account for "short" positions they held — facts that neither regulators nor most banks disclosed when the test results were published in late July. The paper said its findings "undermine a primary goal of the stress tests — namely, to reassure investors and bankers world-wide the soundness of Europe's financial system." The Times said the creation of three new agencies to monitor European banks, insurance companies and trading activities "will not eliminate bickering among countries over how to run their economies, and it could take time for some of the more far-reaching powers — like the imposition of temporary bans on harmful financial products — to gain acceptance." The paper also carried a Bloomberg article saying the 10 largest German banks, including Deutsche Bank, may need about $135 billion in additional capital due to new regulation.
Barclays to Name Diamond CEO: Barclays plans to elevate Robert E. Diamond Jr. to chief executive, replacing current CEO John Varley, who will step down at the end of March. The papers said the announcement was unexpected because Varley hadn't previously indicated he had plans to retire. Wall Street Journal, New York Times
Wall Street Journal
Hedge funds and other big investors have transformed the bankruptcy process into a money-making venue where, after buying up distressed companies' debt at a deep discount, they can ply their sophisticated trading techniques in quest of profits. The paper said this "is perfectly legal, but is raising questions of transparency and fairness."
Three-month Libor fell on Friday to 0.2928%, its lowest level since early April, before the height of the European debt crisis. The paper said the decline "suggests that another credit meltdown is a distant threat. It is also a sign of cash hoarding that could stoke deflation. At the same time, changes in the market since the 2008 credit crisis mean Libor may no longer be the premier credit-stress indicator it once was." (Weekend)
New York State Attorney General Andrew Cuomo announced a statewide investigation of credit-card companies marketing to college students through schools. The paper said the investigation "comes at a time when many are questioning the role of institutions of higher education as students rack up debt to pay rising tuition rates and then enter a weak job market." (Weekend)
Goldman Sachs has decided to close its principal-strategies unit, which does proprietary trading, in the wake of financial-overhaul regulation passed by Congress, according to a person familiar with the matter. (Weekend)
An editorial about Fed Chairman Ben Bernanke's testimony before the FCIC last week said, "After two more days of hearings this week about the 2008 credit meltdown, the lid on Federal Reserve Chairman Ben Bernanke's black box remains shut and locked… [he] made clearer than ever that financial 'systemic risk' is whatever he and his fellow regulators decide it is." (Weekend)
New York Times
"Breakingviews" said if the markets' "robust showing in August proves inauspicious, banks may find they have too small a fee pie from which too many slices will need to be cut. It might not take much of a slowdown before they soon start slashing jobs."
A news brief from Bloomberg said H&R Block tried to allay investors' fears over potential losses tied to its defunct mortgage business. (Saturday)
Washington Post
The new Financial Stability Oversight Council will meet for the first time in the next few weeks to discuss its "lofty goals" in preventing risks across the financial system. "The council will have the authority to direct regulators to issue new rules regarding capital, liquidity and leverage levels and to impose more onerous rules on firms that it deems to be systemically important," the paper said.
The director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute, John Berlau, wrote a letter stating that a recent editorial "overlooked" the "role personal credit cards play into business startups." He said the CARD Act could restrict entrepreneurs from using personal credit cards to get started. "How many future innovative new businesses are we sacrificing with this law and other misguided credit card restrictions?" (Monday)
, with contributions from Sara Lepro and Rachel Witkowski.
