Receiving Wide Coverage ...
R.I.P. Theodore Forstmann: The pioneer of leveraged buyouts died Sunday at 71. Forstmann was credited with coining the term "barbarians at the gate" to describe takeover artists like himself, inspiring the title of the 1990 bestseller about the buyout of RJR Nabisco (a deal that he lost to KKR). In addition to its obituary for the founder of Forstmann, Little, the Times' "Dealbook" also has a compilation of remembrances about him from prominent figures including Colin Powell and Henry Kissinger.
Warrin' with Warren (and OWS): A front-page story in the Times Saturday reports that financial services companies are rallying to help Sen. Scott Brown win re-election in Massachusetts against his Democratic challenger, and prominent bank critic, Elizabeth Warren. Among senators, only New York's Kirsten Gillibrand has received more money from financial firms in the current election cycle, according to an accompanying infographic. Brown, a Republican, voted for the Dodd-Frank legislative package, but helped to water down the Volcker rule and to nix the proposed bank tax during the debate over the sweeping reform bill. But the main reason for the financial sector's enthusiasm for Brown is clearly enmity for Warren, who conceived the Consumer Financial Protection Bureau and pilloried banks when she sat on the Congressional Oversight Panel for TARP. Aside from her popularity among liberals (of which we hear Massachusetts has a few), Warren has also assembled a formidable war chest in a short time: "$3.15 million, about 70 percent of which came from out of state and 96 percent from donors giving $100 or less," according to a lengthy profile in the Sunday Times magazine. Interestingly, the profile also reports that Warren used to be a Republican. Go figure. Already the Massachusetts race is getting nasty. A Republican attack ad conflated Warren with the rowdier elements within Occupy Wall Street ("Elizabeth Warren sides with extreme left protests" where "protesters attack police, do drugs, and trash public parks"), forcing her to distance herself from a movement she'd previously taken credit for inspiring. … And speaking of OWS, MSNBC has unearthed a leaked memo from a Washington lobbying firm proposing to the American Bankers Association that it develop a "response" campaign costing $850,000. A response is necessary, the memo says, because of the potential for Democrats to harness the Occupiers' populist rage against the financial industry. "If vilifying the leading companies of this sector is allowed to become an unchallenged centerpiece of a coordinated Democratic campaign," the lobbyists warn, there could be "long-lasting political, policy and financial impacts on the companies in the center of the bullseye." Despite the grubby appearance of many protestors, the memo says Occupy "bears the hallmarks of a well-funded effort and media reports have speculated about associations with George Soros." (Really? We did a quick Google search and yeah, we missed it at the time but that claim was floating around a month or so ago. Reuters' blogger Felix Salmon critiqued the theory - and his own news organization's reporting on it - in this post.) The memo goes on: "If we can show they have the same cynical motivation as a political opponent it will undermine their credibility in a significant way." Among other "deliverables," the lobbyists suggest "opposition research" that would try to dig up criminal record, litigation, tax liens and other public records on the movement's leaders (assuming it has "leaders" - we thought the movement was famous for being diffuse). Readers will recall that we've taken our share of potshots at Occupy Wall Street in the Morning Scan. Early on, this post earned us a nasty-gram from one of the movement's supporters, who called us a mainstream media shill (if we recall correctly, she spelled it "shil"). But we gotta say, this Nixonian memo, which also contemplates monitoring the protestors' social media communications (for "extreme language and ideas that put its most ardent supporters at odds with mainstream Americans"), is pretty chilling. Or it would be, if the K Street folks didn't seem so clueless - as CNBC's John Carney has noted, OWS has been raising a significant amount of money, but, like Warren, it's collected a lot in small amounts, and the movement has tapped unconventional sources (its house organ was funded through Kickstarter, a neat website that matches creative projects with individual donors). You don't need to pay six figures for this kind of "research," ABA; just surf the web (or subscribe to the Morning Scan; it's free!). Actually the ABA seems to have figured this out; the trade group told Reuters it did not act on the proposals, and that the memo was unsolicited. All this to one side, the lobbyists' use of the word "deliverable" as a noun is enough to make us want to hand out guns to the Occupy crowd.
B of A and Small Business: Bank of America has been working overtime to get the message out that it's lending to small businesses. A story in the Los Angeles Times last week contrasted a "heartwarming" B of A ad, in which a hot dog stand owner reminisces about how a loan from B of A helped his parents start the business, with the reality of many local merchants who have had a hard time securing loans lately. In response, B of A contacted the Times with a litany of data and at least one example of a specific local business it's financed, and the paper ran a follow-up piece. The bank pointed to the same data in an article on TheStreet.com, whose writer, Dan Freed, remained skeptical, in part because the numbers are not the ones that show up in the regulatory filings. Also part of the small-business messaging push was B of A's announcement last week, after the fact, that it had arranged a speaking tour by writer Malcolm Gladwell before local entrepreneurs in several cities. Gladwell's been roundly criticized for taking B of A's money at roughly the same time as he was voicing support for Occupy Wall Street. The writer told The Atlantic he had no idea B of A would put out a press release, and that "the speech in question was about the history of the rock band Fleetwood Mac."
Wall Street Journal
Hedge funds and private equity firms are buying up the debts and shares of the bankrupt MF Global from banks, bondholders and other investors. "Traders say the wagers could pay off big time if MF Global's balance sheet portrays an accurate view of the firm and if the [missing] $600 million is recovered."
Clearwire, a wireless broadband company, is considering skipping a debt payment that comes due in a couple weeks. "It's a very expensive payment that we have," says its CEO. "It would be a significant drain of our cash, so we have to evaluate everything." What's this got to do with banking, you ask? Read the comment thread! "When the WSJ publishes [stories of people abandoning] their mortgages there is a string of posts about moral obligations, how disgusting these folks are, etc... Where is that hatred here [sic]," asks one reader. In other words, the Clearwire story is a reminder that corporate debts are renegotiated all the time, and it's "just business"; OWS supporters like David Graeber are sure to seize on this example and ask why it should be any different when the debts of individuals are in question.
Residential sales in Phoenix have been brisk and the city has been steadily working off its inventory of homes. Yet prices are still falling. What gives? "A flood of bargain-hunting investors who still dominate the market, as well as conservative bank appraisals" are the reasons for this market's apparent defiance of the laws of economics.
Today's "a-hed" (the quirky story always found at the bottom of the Journal's front page) looks at the friendship between two officemates, both old lions of American finance and public policy: Paul Volcker and Richard Ravitch. The dialogue in this piece reminds us of a Neil Simon play.
New York Times
Remember Stephen J. Baum, whom we dubbed "the Lynndie England of foreclosures" after the Times' Joe Nocera unearthed photos of a tasteless Halloween party at Baum's law office where his employees mocked evicted borrowers? Since that scandal broke, Fannie and Freddie have both told mortgage servicers to stop using Baum's firm to handle foreclosures, and Baum now tells Nocera that the columnist's reporting has destroyed the firm and his life's work. (The lawyer's indignant tone is in sharp contrast to the mea culpa over the Halloween costumes his spokesman delivered to American Banker's reporter a few weeks ago.) As Nocera himself acknowledges, all of this overshadows a much more interesting story about Baum. He's argued that a New York judge's statewide order requiring foreclosure attorneys to sign off on the accuracy of the documents they present as evidence is unconstitutional, according to the Buffalo News. Nocera reports that since the order, Baum and other foreclosure lawyers in the state have been filing initiating foreclosures but refusing to sign the required affirmations. This has left borrowers in a state of limbo where they can stay in their homes but continue to accrue fees and interest.
Behavioral economist Richard Thaler uses the outrage over B of A's short-lived $5 debit fee as a jumping-off point to consider why economically rational business decisions can infuriate customers. Large corporations, Thaler cautions, must recognize that "people's fairness judgments are gut reactions, not economic analyses." He even allows that in this case "the public anger may be misplaced. Bank of America's debit card fee was public and transparent - generally desirable features of a pricing policy" and that "more unsavory actions that are less visible may be less likely to provoke customer fervor."
Adam Posen, an America-born member of the Bank of England's monetary policy committee who's known for arguing in favor of much greater intervention than central banks have taken, lays out his case for Times op-ed page readers.
In an op-ed, Barry Ritholtz challenges the meme that the government - specifically CRA and the affordable housing goals set for the GSEs - was the primary culprit for the housing bubble. Among other points, he notes the large role played in the boom by unregulated nonbank lenders and private-label securitizations.
Another op-ed, this one from Jeff Madrick (who's also made appearances at OWS rallies), questions the assumption that Wall Street is a primary engine for American prosperity and innovation, and argues that while society needs a financial sector, it should be smaller and more heavily regulated.