Morning Scan

Wednesday, November 11, 2009

Receiving Wide Coverage ...

Fed Under Fire: Sen. Banking Committee Chairman Christopher Dodd proposed a financial overhaul that would create a single banking regulator and a consumer financial protection agency. The papers focused on the fact that it would bypass the Federal Reserve as a systemic risk authority and strip the central bank's power to regulate banks. The Journal said the plan posed "the biggest legislative challenge to the central bank in decades" and illustrates "how divided Capitol Hill remains about the future of financial regulation … Critics of changing the Fed's role said taking away the central bank's regulatory function could hurt its ability to set interest rates." Two out of three economist the paper polled said the U.S. shouldn't adopt a system where financial regulation is separate from the central bank. In "The Tilting Yard," Thomas Frank said, among other reasons the Fed, or any single big regulator, shouldn't be tasked with regulating systemic risk is the danger that "some future administration were to install as the chairman … a man who really doesn't believe in the regulatory mission." An op-ed by Henry Kaufmann, president of Henry Kaufman & Co. and author of "The Road to Financial Reformation: Warnings, Consequences, Reforms," said the real threat to Fed independence is the existence of so many banks deemed too big to fail. "Unless we shrink large financial conglomerates, we will end up with a socialized banking system." The Times said the plan is the latest example "of how the Fed has been forced to scramble as its power comes under more fire than at any time in decades." A separate article said the broader bill to overhaul financial regulation "differs in major respects from both the White House and House plans" but is "significant as a starting point for lawmakers who are increasingly talking about trying to complete legislation in the first three months of 2010." The Post said the legislation "reflects the wide disdain for the Fed held by many on Capitol Hill and in the public. Often faulted by critics as too powerful and largely unaccountable to lawmakers, the central bank's standing deteriorated in recent years as it failed to foresee, much less prevent, the financial crisis." A second story discussed how the proposed legislation is more daring than other approaches. The paper included an outline of the bill's highlights listed as bullet points. An editorial said while Dodd has a point in wanting to preserve Fed independence by limiting its mission, some parts of the bill appear aimed at attacking the central bank for political gain.

Speaking of the Fed's ability to set interest rates, the Journal reported that presidents of the San Francisco, Atlanta and Boston regional Fed banks reaffirmed Tuesday that the central bank isn't likely to raise interest rates anytime soon because the economy faces headwinds that argue against tighter policy. "The remarks … were notable because they were among the first to come from Fed officials in the wake of last week's policy-setting meeting, in which the Fed said it would keep rates low for an 'extended period'."

Hedge Fund Managers off the Hook: The U.S. government lost the first major criminal trial spawned by the financial crisis as two former Bear Stearns hedge-fund managers were acquitted of securities fraud. The Post said the acquittal "dealt a blow to the government's efforts to hold financial executives criminally responsible for the crisis." Wall Street Journal, New York Times, Washington Post

Loan Mods: The Obama administration said that its mortgage-modification program has enrolled one in five eligible homeowners. The Journal said this was "a sign the effort is gathering momentum after a slow start," but said, "so far few of those trial modifications are turning into permanent fixes." The Post said "it is unclear how many of these borrowers might still lose their homes." Wall Street Journal, Washington Post

Wall Street Journal

Robert Benmosche has told the board of AIG that he is considering stepping down as chief executive of the government-controlled insurer, just three months after taking the job, according to people familiar with the matter.

Banks are moving quickly to restructure commercial mortgages under new U.S. guidelines that are more forgiving of battered property values and can help banks avoid bigger losses. Citigroup, regional bank Whitney Holding and other lenders around the country are planning to review loans now considered nonperforming to determine if they can be reclassified under the guidelines announced Oct. 30 by bank, thrift and credit-union regulators, according to bank executives and people familiar with the matter. The paper said the moves could help the banks absorb fewer losses on troubled real-estate loans and preserve capital.

The U.K.'s healthiest big banks, HSBC and Barclays, both reported lower third-quarter results weighed down by souring loans even as the pace of deterioration began to slow.

Goldman Sachs Chairman and Chief Executive Lloyd Blankfein, defending the investment bank from public criticism over pay and profitability, said most of the bank's risk has been taken at clients' request to facilitate their activities.

The U.S. Justice Department indicted eight Russian and Eastern European computer hackers, alleging they were part of a crime ring that allegedly broke into ATMs in hundreds of cities world-wide and stole $9 million in a matter of hours.

New York Times

Columnist Maureen Dowd channeled some rage over the banking industry, especially its compensation: "The saying used to be, whatever happens, the lawyers win. Now, it's whatever happens, the bankers win … President Obama has not been strong on the issue, and Timothy Geithner coddles the wanton bankers whenever they freak out that they might not be able to put in their new pools next summer. The bankers try to dismiss calls for regulation as populist ravings, but the insane inequity of it cannot be dismissed."

, with contributions from Joe Adler and Maria Aspan.