Receiving Wide Coverage ...
Money Market Funds, Again: The Journal reports that money market funds are getting eleventh-hour support from two Republican congressmen in their fight against new regulations. Spencer Bauchus and Jeb Hensarling, both senior members of the House Financial Services committee, recently fired off a pointed letter to SEC Chairman Mary Schapiro, urging that she do more analysis before pressing ahead with new rules. This came after money fund executives held a whirlwind series of meetings with lawmakers on both sides of the aisle last month. A formal SEC proposal was supposed to come out a few weeks ago, but it’s apparently been delayed for at least a month. Among the agency’s five commissioners, two are against the Schapiro plan, two support it, and Luis Aquilar remains officially undecided but publicly skeptical. Separately, in an op-ed in the Journal, Eric S. Rosengren, president of the Boston Fed (which ran an emergency loan program for MMFs during the crisis, Beantown being home to many mutual fund managers) argues that the funds still need reform. The subset of MMFs known as prime funds take on credit risk to a degree that’s “inconsistent with investors' perceptions of a low-risk, highly liquid investment,” he writes. For example, more than 60 of these funds had exposure to Dexia, the French bank that got bailed out last year. (Former banking regulator and current money fund advocate Jerry Hawke has cited MMFs’ ability to meet a high number of redemptions without incident during last year’s Euro panic as evidence that the SEC’s 2010 reforms were sufficient.) Rosengren also says a forthcoming white paper from the Boston Fed will show that money fund sponsors had to shore up their funds at least 50 times from 2007 to 2010. You can’t rely on sponsors to always have the will and the wherewithal to step in like this, he argues (and if the sponsor’s a bank, you can’t assume regulators would allow it to do so). Rosengren calls the SEC’s plan, which would require floating net asset values and capital buffers and restrict immediate redemptions, “thoughtful [and] stability-minded.”
Wall Street Journal
Bidding wars are back in housing markets across the country, according to a front-page story in the Journal. It’s not that demand has come roaring back so much as that the supply of homes listed for sale has shrunk. Sellers disappointed by the bids they got have been taking homes off the market, while investors willing to pay all cash are outbidding consumers hamstrung by conservative mortgage guidelines. Of course, there’s still that big shadow inventory of distressed and foreclosed homes that are not officially on the market. The CEO of Realogy, which licenses the Coldwell Banker and Century 21 brands to real estate agents, is quoted saying that if this inventory is released, “it will sell.” (He would say that, wouldn’t he?) But at what price? High enough to cover the defaulted or delinquent mortgages the banks are holding?
The Journal’s editorial board is delighted that an activist investor is urging fellow Goldman Sachs shareholders to oppose the reappointment of former Fannie Mae CEO Jim Johnson to the Wall Street firm’s board. Although Johnson left Fannie years before it failed, “his special talent was building the network of political protection in Congress and support on Wall Street that blocked bipartisan attempts at reform. … It also says something about Goldman's priorities and its focus on Beltway maneuvering that it still wants such a tainted political fixer on its board. Mr. Johnson's continued presence shows that, far from separating finance and politics, the 2010 Dodd-Frank law has made the big banks ever more creatures of Washington.”
The Financial Stability Board, an international body made up of central bankers and regulators, is worried about systemic threats from the securities lending and repurchase markets, where assets like government bonds are pledged to secure short-term funding. The FT story summarizing the board’s report doesn’t go into a lot of detail, and having taken a gander at the report, we think we understand why. These transactions can be dizzyingly complex (check out exhibits 1 and 5) and hard to boil down to a few column inches. So we’re not going to even try to do better. For now, suffice to say the report mentions a lot of the usual regulatory concerns — transparency, shadow banking, pro-cyclicality, collateral valuation.
PBS Frontline: The program is running a four-part series on the financial crisis. We haven’t had a chance to watch the two episodes that aired this week (forgot to set the DVR!) but they’re viewable online here. Yves Smith at the Naked Capitalism blog writes that “much of the story line is remarkably bank-friendly,” definitely not a good thing in her view.
Bloomberg News: Next Tuesday is May Day, and the Occupy Wall Street movement is planning demonstrations and rallies in Manhattan, including protests at bank offices. Similar Occupy demonstrations are expected in various other cities next month. Bloomberg’s Max Abelson reports that big banks “are working with one another and police to gather intelligence,” which struck us as a little creepy. It gets even creepier: Abelson quotes a security consultant as saying that in Chicago, where the NATO summit will be held in late May, banks are preparing for Occupy protests “by sharing information from video surveillance, robots and officers in buildings, giving ‘a real-time, 360-degree’ view.” Robots? Really? Wasn’t the use of “robotic” affidavit-signers a big reason the public is so angry at the big banks in the first place? Then again, the protestors’ stated intent to attempt to blockade bridges and tunnels in New York and San Francisco seems unfair to working stiffs who need to get to their jobs on time while they have them. Remember folks, here in New York “bridge and tunnel” is a snob’s term for the 99%. And with that, have a good weekend.