Morning Scan
Friday, November 13, 2009
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Receiving Wide Coverage ...
FHA's Low Blow: An independent audit confirmed that the FHA's cash reserves have fallen to a level below what is required by law. The Journal said the projected capital losses in 2009 "were worse than the most pessimistic assumptions from last year's review, and some housing analysts and economists say it is increasingly likely the agency will need to ask Congress for money in the years ahead." The Times said the FHA "is tightening loan standards in hopes it will not become another drain on the United States Treasury, but is reluctant to clamp down so much that it snuffs out the tentative recovery in housing. How successfully the agency walks this tightrope could well determine whether the recovery gathers force, or whether home prices slide again — perhaps creating a fresh economic downturn." The Post quoted Thomas Lawler, an economist and housing consultant, as saying that, for a portfolio as large as the FHA's, the current cushion "basically rounds to zero … They were supposed to have their reserve at the 2 percent level in order to be actuarially sound. If your base scenario wipes you out, you are not actuarially sound." Wall Street Journal, New York Times, Washington Post
An entry in the Journal's "Developments" blog said the report could spark a bigger political debate over just what role the U.S. should continue to provide to the mortgage market. In an editorial, the paper, a longtime GSE critic, essentially said, "I told you so." It noted that the report acknowledges that, if housing values don't recover, the FHA could ask taxpayers for $1.6 billion in 2012, and said, "Judging from history, that's probably a low-ball estimate."
Overdraft Protection: The Federal Reserve imposed rules Thursday making it harder for banks to hit customers with fees for overdrawing their accounts. The Journal called it "the latest government crackdown that could curtail a major revenue stream for financial firms." It noted that the move "comes after a prolonged fight between the banking industry and consumer groups over such fees" and that the central bank "stopped short of restrictions pushed by some Democrats and consumer groups." The Times said "the rules, which take effect next summer, are the latest issued by the Fed after criticism that it did not move quickly and aggressively enough to root out deceptive and abusive consumer lending practices." Wall Street Journal, New York Times, Washington Post
Fed Think: Post business columnist Steven Pearlstein took issue with the Fed's unwillingness to raise its benchmark rate, saying the central bank still has not learned its lesson about creating bubbles. "Despite the junk-bond and real estate bubbles of the late 1980s, the tech bubble and Asian financial crises of the 1990s and the credit bubble of recent years, the Fed stubbornly clings to an outmoded way of thinking and talking about the economy and monetary policy." But the Journal's "Heard on the Street" column said Chairman Ben Bernanke may be boxed in. "After going to extraordinary lengths to shore up the economy, the Federal Reserve appears to have a lot less room to maneuver than investors believe. The Fed's loose monetary policy has reignited confidence in the economy. The soaring gold price and sinking dollar are conspicuous indicators of skepticism. Overall, though, markets back the Fed." Wall Street Journal, Washington Post
Wall Street Journal
Former bank executives are returning to the battered industry to bid on failed financial institutions, putting them in competition with healthy banks and private-equity firms for the rising number of doomed banks. Wall Street firms such as Goldman Sachs and Deutsche Bank are racing to form investment pools that plan to fund acquisitions by the bankers, who hope to leap into the auction process for failing banks led by the FDIC.
As they draw up blueprints for the house of the post-recession future, builders are struggling to distinguish among what home buyers need, what they want and what they can live without — Jacuzzi by Jacuzzi, butler's pantry by butler's pantry. "More often than not, builders say, post-crash buyers of new homes want smaller and simpler."
Alistair Darling, the U.K.'s Chancellor of the Exchequer, lambasted the former shareholders of Britain's failed and government-rescued banks for what he called their failure to exercise their responsibilities as owners.
A Milan prosecutor here wants the London unit of UBS, JP Morgan Chase, Deutche Bank and Germany's Depfa, as well as 13 people, to face trial for alleged fraud over the sale of derivatives from a bond issue by the city of Milan valued at €1.7 billion ($2.55 billion), people with knowledge of the situation said Thursday.
In an op-ed, Edward Pinto, a mortgage-finance consultant and the chief credit officer at Fannie Mae from 1987 to 1989, said Acorn helped Congress write the affordable housing rules that got us into trouble.
An editorial pointed to Sen. Chris Dodd's "about face" on securities litigation. Dodd was an important backer of the 1995 Private Securities Litigation Reform Act, yet "buried on page 795 of Mr. Dodd's new financial regulation bill, a gift for every member of the securities trial bar that opposed his earlier reforms."
Another editorial offered kudos to Treasury Secretary Timothy Geithner for offering British Prime Miniser Gordon Brown a "reality check" a global tax on financial transactions. The paper said, "The notion that such a tax could be earmarked to bail out banks deemed too-big-to-fail vanishes in the presence of thought. Even if every country that matters in global finance would agree, the tax money would be spent as fast as it came in, on whatever those governments chose to spend it on."
New York Times
In an editorial, John Carney of BusinessInsider.com, considered Sen. Chris Dodd's proposals to speed up implementation of the credit card law and to extend and expand the tax credit for first-time home buyers, and said those plans to help consumers are "likely to backfire."
In "High & Low Finance," Floyd Norris considered the state of MBIA, the financial insurance company whose "once pristine AAA-rating has now turned into junk and no one wants to buy insurance from the company," and said that its underwriting process "does not sound very rigorous."
Washington Post
A small story covered the FDIC's decision to have banks prepay their premiums for the next three years.
In an op-ed, Jamie Dimon, Chairman and CEO of JPMorgan Chase, opposed applying "artificial limits" to cap the size of financial-services firms, saying the elimination of "too-big-to-fail" should instead result from a resolution system that can handle a firm failure.
Data from RealtyTrac showed a smaller number of D.C.-area borrowers lost their homes in October compared with the previous month, indicating that "banks have slowed down foreclosure activity to give borrowers more time to apply for loan modifications …" Still, the area's bank repossessions in 2009 are set to eclipse last year's total.
, with contributions from Joe Adler and Maria Aspan.
