Receiving Wide Coverage ...
Housing Gloom: Arizona regulators seized PMI Group's flagship U.S. mortgage insurance unit, and are limiting cash payments to policyholders (i.e., banks and the GSEs) to 50% of claims, with the rest to be deferred. The Journal calls this a sign "that the housing bust is not finished taking casualties-and that lenders and investors are likely to suffer more losses." Zooming out to the bigger picture, the Post has a lengthy feature story that takes stock of the Obama administration's failures to help distressed homeowners or the housing market. The overarching error was an incrementalist approach, according to the article. "The president and his senior advisers … decided against more dramatic actions to help homeowners, worried that they would pose risks for taxpayers and the economy. … They consistently unveiled programs that underperformed, did little to reduce mortgage debts owed by ordinary Americans and rejected a get-tough approach with banks." If you accept that "dramatic actions" were required, then it probably did not help when Edward DeMarco took over as (indefinite) acting head of the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac. As the Post notes, DeMarco "spent much of his career at the Government Accountability Office and the Treasury Department, trying to rein in Fannie and Freddie. Now he had the chance to do it." A veteran of the administration, Lawrence Summers, writes in an op-ed in the Financial Times that the FHFA has followed a "disastrous[ly] procyclical policy" by focusing narrowly on saving pennies at Fannie and Freddie rather than on supporting the housing market. "The narrow financial interest of the GSEs depends on a national housing recovery," Summers writes. Some examples of the FHFA's penny-wise pound-foolishness he gives: Credit standards are overly tight "given that the odds of a further 35 per cent decline in house prices are much lower than they were at past bubble valuations," and "the GSEs have made refinancing very difficult by insisting on significant fees and requiring that any new refinancier take on all the liability for errors in underwriting the original mortgage." The Journal's "Heard on the Street" column makes a case against the Fed trying to juice the housing market with another program of mortgage-backed security purchases. Among other reasons, "high unemployment and overstretched consumer balance sheets have kept housing in the doldrums even with record low rates. And for many existing homeowners, fees and lending criteria, not interest rates, are the main refinancing issue" - see Summers, above. Riding to the rescue (maybe), "federal regulators on Monday plan to unveil a major overhaul of an under-used mortgage-refinance program," according to the lead story on the front page of the Journal. A retuning of the HARP program has been expected for months now.
Bankers' Pay: After this month's fair-to-middling-to-worse quarterly results from the major investment banks and diversified megabanks, the FT considers these institutions' compensation expenses, which, as a proportion of revenues, have stubbornly loitered in the range of 45% to 65%. "In spite of pressure from politicians and some groups of investors, [investment] banks have yet to make any radical changes to how they pay their employees, including pushing through much deeper across-the-board wage cuts," the paper says. "That's despite overcapacity and weak markets forcing them into job cuts." Meanwhile, the Times' "DealBook" writes of a "salary calculator" for finance professionals in the U.K. to determine their worth on the job market.
Volcker's Vision: A Journal editorial scoffs at regulators' proposal to implement the Volcker rule, with its hundreds of pages and more than 1,000 queries for public comment on how to define seemingly straightforward concepts like what a "loan" is. (Yes, we checked; that's question 61.) "Bank lobbyists are certainly eager to provide some hand-holding," the editorial says. "Many of these comments will no doubt offer compelling reasons why a particular type of transaction should be exempt from the principle that nobody should be gambling with a taxpayer backstop." Ultimately the Journal's editorialists (who say they supported Paul Volcker's seemingly simple idea of banning proprietary trading at banks) fault Congress for "punt[ing] this one to the executive branch…. The result is all but certain to be a final rule that different people will interpret different ways, leading to loopholes for traders and arbitrary enforcement." Speaking of Volcker, Gretchen Morgenson interviews the former Fed chairman for her Times column this week - we suspect that was enough to make most readers click through already, but for those still with us, he talks about the systemic risks posed by money market mutual funds (they act like "pseudobank[s]," Volcker says) and the need to end the dominance of the mortgage market by GSEs ("institutions that shouldn't exist.")
Occupy This: Goldman Sachs pulled out of a fundraising dinner for the Lower East Side People's Credit Union in New York after learning that the Occupy Wall Street protestors would be honored, according to a story in the Journal. The credit union "might as well have asked Marie Antoinette to dig into her purse to support Madame Defarge's knitting business," the article says. Speaking of Marie Antoinette, another Journal story reports the incomes of "the 1%" have wildly fluctuated in recent years, and illustrates this with an anecdote about a wealthy couple who could not afford to complete construction on what would have been the largest private home in the country, a now-skeletal Florida mansion which the couple called "Versailles" with no apparent irony on their part. Sure enough, the reader comments on that story include the inevitable comparison to you-know-who. Elsewhere, Ray Dalio, founder of the hedge fund Bridgewater Associates, says he's no Louis XVI. In a television interview summarized in the Times' "DealBook," Dalio told Charlie Rose that "he did not believe he had done anything to deserve the ire of the 99 percent. 'I think I did everything right,' he said. 'I did well when others didn't. I happen to earn one-fifth of the profits. I pay about a third in taxes, I give away about a third, and I follow the law. And if I'm doing something they think is incorrect, I'd like to know that.'"
Put That CDO Down: "Margin Call," a forthcoming film that appears to be loosely based on the collapse of Lehman Brothers (the fictional firm's CEO is named "John Tuld"), stars Kevin Spacey, whom the Times' A.O. Scott calls an appropriate pick since the actor has made a career of portraying "alienated, destabilizing insiders." "I can't think of a better phrase to describe the people responsible for the recent financial crisis, who seem to be at once zealous true believers and soulless cynics," Scott writes. His Times colleague, op-ed columnist Frank Bruni, casts a skeptical eye on the celebrities who have been making appearances at the Occupy Wall Street protests (given their wealth, "they are not even the 99.5 percent," Bruni writes). Endorsing the demonstrations has been particularly awkward for Alec Baldwin, since he does commercials for Capital One. Baldwin counters that he gives away his fee. We might add that Baldwin arguably helped OWS' cause, albeit in an intangible way, long before the campout in Zuccotti Park. In his finest performance, he co-starred with Spacey in a film that shows the dark side of capitalism better than any other.
Wall Street Journal
Banks have returned to center stage in the financing of buyouts as junk bond issuance has dropped and institutional investors shy away from syndicated leveraged loans.
An article looks at a California credit union's struggles to generate loan growth in the face of limp demand.
"Banco Santander SA said Friday that it has reached a deal to sell 35% of its U.S. consumer finance unit for $1.15 billion, in an unexpected move to boost solvency." A group of private equity firms would get a 25% stake in the unit, and the remaining 10% would be controlled by its CEO, Thomas Dundon (speaking of people with expensive homes).
New York Times
The "Sunday Review" section has a neat interactive graphic explaining the European debt crisis. Though for our money, when it comes to visually deconstructing the complexities of that situation, nothing beats this.