Receiving Wide Coverage ...

Fed's Stein Gets Fond and Fearful Farewell: Economist Jeremy Stein is resigning from the Federal Reserve's board of governors to return to his position as a Harvard professor at the end of May, and people who worry that the central bank's historically low short-term interest rates could incite another credit bubble are missing him already. Stein "has made an intellectual mark in a critical area where leading members of the [Federal Open Market Committee] have been largely silent — how to set monetary policy when the need to maintain financial stability is conflicting with the near term outlook for inflation and employment," writes Gavyn Davis in the Financial Times. Stein's key arguments — including the idea that the Fed can be justified in tightening capital standards and liquidity requirements in order to prevent the risk of a financial market shock — should not be forgotten in his absence, according to Davis, who served as the head of Goldman Sachs' global economics division from 1987 through 2001. Meanwhile, Washington Post columnist Steven Pearlstein hopes that the Fed keeps a different Stein argument in mind: "the Fed should be willing to tolerate slightly higher levels of unemployment if the only way to lower it is for the Fed to create a credit bubble that eventually will burst." Pearlstein argues that the feared-for credit bubble is already upon us, as evidenced by a recent spate of corporate deals funded with "cheap and easy" credit. This reading of market conditions contradicts that of Pearlstein's fellow Post columnist Barry Ritzholtz, who recently suggested that the bull market is due for another few years.

Wall Street Journal

A number of big banks are altering the terms of swap agreements in order to avoid the stricter U.S. trading rules implemented by the Commodity Futures Trading Commission earlier this year. Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley have all moved to make their offshore units liable for swaps gone sour. Since most of the affected swaps are sold in London, this means that the contracts fall under European jurisdiction. Regulators say this is all above board, though some public-interest groups worry that the U.S. parent banks — and by extension, taxpayers — could still wind up eating losses on trades gone bad. A few Journal commenters are equally wary: "Someone better be watching carefully the swaps made by too-big-to-fails," writes Xavier L. Simon. "I don't want to be stuck with the bailout bill yet again."

Banks are also attempting to give their quarterly results a makeover by encouraging investors to focus on returns on tangible equity rather than total common equity. "Because tangible equity tends to be smaller than total common equity—it excludes goodwill generated by acquisitions and other intangible assets—this usually results in a higher return," writes David Reilly in the Journal's "Heard on the Street" section. Citigroup, Bank of America and JPMorgan Chase have each emphasized returns on tangible equity over the past year. Investors may want to steel themselves against the allure of these attractive numbers: the measure can make banks appear healthier than they actually are, according to Reilly.

Spanish lender Bankia more than doubled first-quarter profits compared to a year ago, thanks to rising interest income, but its earnings of €187 million ($258 million) still fell short of analyst estimates.

Financial Times

A new book by hedge fund manager Bob Swarup argues that financial crises are the inevitable result of short-sighted and often-impractical human nature. Swarup's Money Mania traces mankind's long history of boom-and-bust scenarios, from ancient Rome through 2008, according to the FT review. Simpler regulation, smaller banks and judicious bonuses to reward responsible behavior can all help soften the blow of market downturns, according to Swarup, but crises themselves are the price we have to pay for progress. The question of just who winds up footing the bill for said progress appears to be a subject for a different book.

New York Times

People just don't see the point of mobile wallets, according to the Times. With consumers perfectly happy to make purchases using cash or cards, mobile payment providers like Square and Loop are having a tough time building momentum in the U.S. market. Square Wallet's former lead engineer David Byttow notes the peculiar quandary faced by the mobile wallet industry: "More people would most likely use a service if it were widely available … but merchants are not interested in installing new payment software and hardware unless a large swath of shoppers are using the service."

The former head of Goldman Sachs' mortgage and credit business is looking to snap up troubled mortgages. Donald Mullen's investment firm, Pretium Partners, wants to raise $1 billion "to buy distressed mortgages at a discount and rework them to permit the borrowers to remain in their homes," Matthew Goldstein writes in Dealbook. The fund isn't exactly a mortgage relief program: Pretium could also kick out borrowers and rent out the foreclosed properties. The firm's plan suggests that institutional investors may be ready to pull back on their purchases of foreclosed homes and look for new ways to leverage the housing crisis for revenue, according to Dealbook.

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