BOJ Goes Big; Fed Mulls Change; Corzine Gets Slapped

Receiving Wide Coverage ...

BOJ Goes for Broke: ...Or, perhaps, will go broke trying. Haruhiko Kuroda, the newly installed Bank of Japan governor, unveiled a package of easy-money policies Thursday that might make even Ben Bernanke blush. "This is an entirely new dimension of monetary easing, both in terms of quantity and quality," Kuroda said. "Our stance is to take all the policy measures imaginable at this point to achieve the 2% [inflation] target in two years." The program is "so aggressive in scale and tactics that it surprised investors," according to the Wall Street Journal's analysis of the markets' initial reaction to the announced doubling of central bank holdings of government bonds and the amount of yen in circulation. All told, the bond-buying program is 60% larger than the Fed's as a percentage of GDP. The BOJ has been facing intense pressure from the nation's new political leader, Prime Minister Shinzo Abe, to go big. Its contribution to Abenomics echoes moves by the Fed: aggressive buying of long-term securities, accompanied by clearly stated targets and bold talk of commitment from the central bank chief, the Journal said. Curiously, the BOJ is both joining other major central banks in testing the limits of the ability to stimulate an economy by firing up the printing presses and also going where no major central bank has gone before. The new territory involves the fact that, at more than two times GDP, Japan's debt is already exorbitant. That's true even by ultra-hocked-up modern measures. What's more its easy-money policy and near-zero interest rates are already long in the tooth. Risks abound for the BOJ and central banks worldwide. Asset bubbles, inflation and falling currency values are among them. The yen was down sharply on word of Kuroda's move. "Doubling the monetary base will weaken the yen and promote risk-taking such as stock buying," the Financial Times declared. Certainly the financial world's big thinkers have their doubts that the BOJ will be able to keep the bus on the highway. Currency speculator extraordinaire George Soros took to CNBC to warn that "If the yen starts to fall, which it has done, and people in Japan realize that it's liable to continue and want to put their money abroad, then the fall may become like an avalanche." Pimco's Bill Gross, appearing on Bloomberg TV, questioned whether other industrialized nations will permit Japan to pursue an export-driven, beggar-thy-neighbor cheap yen policy to the extent necessary to stoke 2% domestic price gains. "I'm not sure that other G-7 countries are willing to permit that," he said. We won't even venture a guess as to what David Stockman would say. Wall Street Journal

Fed May Zig as Japan Zags: As the BOJ goes big, signs are mounting that the U.S. Federal Reserve my soon start to tap the brakes on its own easy-money policies. Some Fed officials have suggested in recent weeks that if economic growth continues on its present trajectory, the central bank should begin to roll back its economic stimulus campaign by the middle of the year, ahead of expectations, the New York Times reports. Perhaps typifying the mixed mood within the central bank—not to mention the challenge of translating Fed-speak—the Times characterized comments on Thursday by Vice Chair Janet Yellen as "cautious" toward easing up on easy money. Bernanke, Yellen and their easy-money allies are "wary that another surprising spring will be followed by another disappointing summer," according to the Times. The FT painted Yellen's comments as more of a greasing of the runway in order to bring its stimulus program in for a soft landing. Here's the gist of what Yellen said: "I am encouraged by recent signs that the economy is improving and healing from the trauma of the crisis, and I expect that, at some point, the F.O.M.C. will return to a more normal approach to monetary policy." We report. You translate. New York Times, Financial Times

Blame Corzine: Who ya gonna blame for the 2011 collapse of MF Global? Jon S. Corzine, the former New Jersey senator and governor who revved up risky trading as chief executive. That's according to a report released Thursday that was assembled on behalf of the federal bankruptcy court by former Federal Bureau of Investigation chief Louis Freeh. It could help decide how much Corzine and others have to pay to settle private cases from MF Global customers and creditors in coming months, according to the Wall Street Journal. Corzine, who originally rose to fame and fortune at Goldman Sachs (GS), lorded at MF Global over a management guilty of "negligent conduct." That was one of the more charitable statements made about Corzine in the 174-page document that by the Journal's count mentions him 284 times. It also fingers him for pursuing a "risky business strategy that involved betting on European government debt" and ignoring "glaring deficiencies" in controls. Among his more costly mistakes, Corzine "started trading on his own" in company accounts that bore his initials, JSC, and became a topic of discussion among employees, the report said. It added that Corzine's trades "were only minimally supervised." Corzine & Co. also failed to improve faulty controls in MF Global's risk and treasury departments, even after being warned of their inadequacy, which in turn prevented the company from realizing customer funds were being used to cover MF Global's own soured bets, the report said. "This makes it 3-for-3 for official reports that blame [Corzine] for the collapse," James Koutoulas, a commodities investor and lawyer representing some of the firm's former customers, told the Journal. "A clear case of Monday-morning quarterbacking," is how a spokesman for Corzine characterized Freeh's report in a statement released Thursday afternoon. Wall Street Journal, Financial Times

Kickback Blowback: The nation's four largest mortgage-insurance providers were hit with a total of $15.4 million in fines over allegations that they paid illegal kickbacks to lenders in order to win business. The Consumer Financial Protection Bureau on Thursday accused the companies of funneling millions of dollars to mortgage lenders over more than a decade, a practice the agency said ultimately inflated borrowers' costs since homeowners were placed into policies based on business relationships rather than competitive pricing, the Journal reports. "Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers," said CFPB Director Richard Cordray in a press release. "We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law." CFPB officials suggested lenders could face scrutiny for their role in facilitating the payments. "In every kickback situation there's somebody paying and there's somebody receiving," CFPB director of enforcement Kent Markus said. "We have more work to do on this matter." The four companies agreed not to engage in such practices in the future. They include Genworth Financial, American International Group's (yes, that AIG) United Guaranty unit, Radian and MGIC Investment Corp. All four got off without having to admit wrongdoing in a pattern commonly used by the Securities and Exchange Commission and which has recently faced fierce criticism for letting off wrongdoers too lightly (See the SAC Capital item below). Mortgage insurance is often required when consumers buy houses with downpayments of less than 20%. The insurance protects the lender if the borrower defaults. Lenders, rather than the borrowers, generally choose the insurance provider. The CFPB accused the four companies of funneling money to so-called "reinsurance" units that many mortgage lenders set up to assume a portion of the risk in exchange for a slice of the insurance premiums. Officials said those arrangements amounted to illegal kickbacks that drove up the cost of homeowners' coverage. Wall Street Journal, American Banker

Wall Street Journal

There's nothing like a good takeover fight to fill the pockets of Wall Street's I-bankers. Many are thanking their lucky stars these days for beleaguered computer maker Michael Dell. Beyond the bragging rights that accompany a position atop deal league tables is $400 million in fees in play for advising on and financing the buyout, the Journal reports. The sum would be the biggest takeover payday in at least three years. "People who have been starving on an island for years are licking their chops," says Mike Madden, a veteran deal maker and co-founder of private-equity firm BlackEagle Partners. "You are looking at a field day for fees."

European officials' bid to mend the region's financial markets has suffered a blow from the radical surgery prescribed for Cyprus's banks, the Journal reports. The agreement will see large depositors in Cyprus's two big, internationally active banks absorb steep losses. Money transfers to and from the island are now sharply restricted. All told, the deal delivered a wake-up call to regulators, investors and depositors about the risk of banks based in European countries with financially stressed governments. This message could hurt Europe's depressed southern rim as northerners refrain from sending money to southern regions, where businesses and consumers are suffocating from high interest rates. "We're in a world where bail-in is going to be the new normal in the euro area," said Mujtaba Rahman, European director at the Eurasia Group. "Rushing to institute a bail-in regime clearly has implications for allocation of capital to the euro-zone periphery."

Wells Fargo (WFC) has come under criticism from New York's attorney general for the allegedly slow pace of its foreclosure-related legal remedies. The relief is supposed to be offered by big banks under a landmark $25 billion national mortgage settlement. "We are concerned that Wells Fargo is underperforming compared to other banks," New York Attorney General Eric Schneiderman said. In response, a bank spokesman said the "geographic distribution of Wells Fargo's consumer relief and refinance activities is consistent with the distribution of our portfolio." In New York, 48,640 loans made by Wells Fargo were more than 30 days' delinquent, the Journal says. The bank gave relief worth an average of $76,865 to 1,051 New Yorkers, according to data provided by the banks to an independent monitor of the settlement.

Elsewhere ...

Bloomberg: In cutting its deal with SAC Capital owner Steven A. Cohen, the Securities and Exchange Commission is guilty of being gutless, weak and just plain stupid. That's according to Bloomberg's Jonathan Weil. Writes Weil: "SAC Capital's chances of winning in court should have been slim, although we never ought to underestimate the government's ability to mess up an airtight case. Instead of requiring Cohen's firm to acknowledge any violations, the SEC let it write a check and move on. The U.S. district judge in the case, Harold Baer, approved the deal without a hearing." Those who believe Cohen should face worse can take heart in the fact that, while the paint is dry on the hedge fund king's newest trophy painting, it most definitely is not on related criminal investigations.

Bloomberg: Banks are lobbying against international plans to tighten rules on securitization, claiming they will tie up capital and starve the economy of credit. In a securitization, banks re-package assets, usually loans, and sell them in slices to outside investors. Regulators are overhauling the rules after the widespread use of the technique in the U.S. mortgage market contributed to the financial crisis by spreading risk from lenders to the so-called shadow banking sector. The banks say the plans, which will force banks to hold more capital against any tranche they keep, would make transactions prohibitively expensive.