Breaking News This Morning ...
The Long and Winding Road: Four years after the government bailout of Fannie and Freddie, the Treasury is restructuring the terms of its investment in the beleaguered behemoths of housing. Instead of a mandatory 10% quarterly dividend, an arrangement which at times has forced the GSEs to borrow more from the government to pay the government, the Treasury will now capture any and all profits they generate. When Fannie and Freddie aren't making money, they won't have to pay. The new terms also accelerate the shrinkage of the GSEs' portfolios to 15% annually beginning next year, from the current required pace of 10%. The government is reworking the terms because the open-ended financial commitment to the GSEs that the administration announced on Christmas Eve 2009 (remember that fast one?) is set to expire this year. The capital available for Fannie and Freddie to draw down will once again be capped, and the government wants "to avoid the prospect that Fannie and Freddie could one day exhaust their Treasury support simply because they might not generate enough profits to pay back those dividends," according to the Journal. The catch is that forking over all their earnings will make it harder for Fannie and Freddie to build capital. Wall Street Journal, FHFA Press Release
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Wall Street Journal
In an effort to thwart phishing attacks, financial companies are buying up Internet domain extensions like dot-citi, dot-bofa and dot-barclays. "The banks hope these extensions will help their online customers know they are actually dealing with the bank and not a scam website trying to pilfer personal information." The new suffixes may go live as soon as next year.
An article looks at the strategy used by some bank holding companies of filing for Chapter 11 protection to forestall seizure of ailing subsidiaries.
The headline is self-explanatory: "Visa Set to Enter Myanmar."
The paper covers M&T's exit from Tarp.
Financial Times
We missed this one yesterday: On the heels of Standard Chartered's settlement with New York regulators, families of the victims of a 1983 Iran-sponsored bombing of a Marine barracks in Lebanon are suing the U.K. bank. The plaintiffs claim StanChart's alleged concealment of payments for Iran prevented them from collecting on a $2.6 billion judgment they won in court against the Islamic Republic. StanChart has previously said that none of its Iranian transactions were linked to terrorism.
"We must clean up our act on money laundering": An op-ed by a former U.S. intelligence officer and Treasury special agent.
And Lastly ...
The American Mercury: Here's a case where recreational reading only led us back to banking, and to work. We've been on an H.L. Mencken kick lately, so we were curious about the Mercury, a magazine the old curmudgeon edited in the 1920s and early 1930s. A quick Google search turned up the September 1936 issue. Alas, no Mencken byline (he'd resigned a few years earlier), but there is an article entitled "The Bank Insurance Myth," by one U.V. Wilcox, on page 17. What a trip. Writing two years after the FDIC opened its doors, at a time when the country had 14,200 federally insured banks (compared to about 6,680 today) Wilcox declared: "The theory of federal bank deposit guarantees has proved itself to be economically unsound and impossible of large-scale application." He went on to say that federal deposit insurance "has resulted in a financial dictatorship which uses political tools and the mandatory voice of a Fuhrer to harass bankers and embarrass depositors." (Equating bank supervision with Hitler must have sounded less offensive in 1936, before the full scale of the atrocities being committed in Europe was widely known here in the U.S.) Wilcox also predicted the rise of the financial supermarket, in a manner of speaking: "It is not illogical to envisage the insured bank of the future as similar to the individual unit of a chain grocery, distinguished from others only through the affability of its personnel or the adroitness of its clerks in swatting flies." So who was this writer, anyway? We found his bio on page 128 (wow, magazines were thick back then), and lo and behold: "U.V. Wilcox is Washington correspondent for the American Banker." What? Freelancing on the job? You're fired, Wilcox.
