Receiving Wide Coverage ...
It's the Principle of the Matter: The Federal Housing Finance Agency caused a stir when it went against the Treasury Department's wishes and ruled principal reductions would not be awarded to struggling borrowers whose loans are owned by Fannie Mae or Freddie Mac. FHFA acting director Edward DeMarco ultimately cited moral hazard, maintaining a small number of strategic defaults on mortgages would wind up hurting taxpayers. In a written rebuttal, U.S. Treasury secretary Timothy Geithner — who the Journal notes was against principal reductions in 2009 — asked the FHFA to reconsider and said he was "concerned" over the regulator's "continued opposition" to the purported aid. The Treasury Department also sent out a tweet shortly after the decision was announced, asserting "FHFA's own analysis shows principal reduction at Fannie & Freddie could help up to half a million homeowners and save GSEs $3.6 billion."
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Reaction to the FHFA's decision proves the issue is polarizing. The Times columnist (and devout liberal) Paul Krugman went so far as to say DeMarco should be fired from his post. But others championed DeMarco's willingness to go against the Obama administration.
"Correct decision," one American Banker commenter commented. "Somebody has to put a stop to the moral hazard here." Another added: "As the economy continues to decline during the balance of this decade, it would be 'insane' and grossly unfair to give principle [sic] reductions. Mortgages must be honored fully, and market discipline must govern - not the government."
Cleared: Former Citigroup manager Brian Stoker is off the hook after a federal jury cleared him of charges filed by the SEC concerning the sale of risky mortgage-related investments during the housing boom. Stoker was accused of misleading investors after failing to disclose the bank was actually betting against about half of the value of residential mortgages involved in a $1 billion dollar bond deal. In what represents a big win for Wall Street, the jury decided Stoker was not liable for his involvement under security laws. According to the Times, the jury also made a statement when issuing its verdict, saying the SEC should not be deterred from "from investigating the financial industry," reviewing current regulations or modifying existing ones as "necessary." So, you know, at least there's that.
Swipe Fees, Hated Everywhere Visa is Accepted: The European Union has served Visa a "statement of objection" following the network's refusal to halve its credit card interchange fees. These objections are almost identical to the ones cited by U.S. merchants in their settled (but also unsettled) complaint against Visa and MasterCard: The fees restrict competition and invariably increase prices paid by the consumer. However, unlike in the U.S., there is a chance the EU's action could result in more than just an ultimately inconsequential $7.5 billion fine and the limited ability to surcharge. Just this May, a European court upheld an agreement the EU had struck with MasterCard in 2007 that forced the network to lower its swipe fees to 0.3% per transaction in order to avoid deeper penalties. Visa, perhaps unsurprisingly, says it is "disappointed" by the EU's decision to take action.
Wall Street Journal
"A judge's looming decision in a case that has snarled a fugitive Lebanese woman and eight financial firms could challenge how bank-privacy laws are interpreted in the U.S." The banks are all foreign institutions with U.S. operations; at issue is whether their presence here means a New York judge can compel them to search for records of money transfers and accounts at overseas affiliates.
AIG has agreed to purchase Woodbury Financial Services, a brokerage unit subsidiary of rival Hartford Financial Services Group, for $90 million. The deal is part of Hartford's larger plan to divest in an effort to appease shareholders and improve its stock price.
Financial Times
As it wouldn't be a Morning Scan without a Libor update, we feel we should mention the FT's report on the raid of Barclays' Milan offices. Investigators seized documents they hope will demonstrate that the bank's manipulation of Libor rates hurt Italian consumers. Barclays declined to comment.
