Feds Looking into Treasury Auction Rigging, Commodities

Wall Street Journal

Prosecutors and regulators want to know if traders rigged auctions on government debt.

The Justice Department and the Commodity Futures Trading Commission have sent requests to banks that serve as primary dealers, seeking information about orders, trading and pricing in Treasury Department auctions.

"Authorities are looking into whether bank traders worked together to bolster their own profits by depressing prices at U.S. government debt auctions," the Journal said, citing unnamed sources.

Banks that do business as primary dealers who received the requests include Goldman Sachs Group and 22 other banks that were not named in the Journal piece. Officials are looking specifically at so-called "when-issued trading," which refers to the bets that dealers and traders place on the interest rate that will Treasury will offer at an upcoming auction.

Earlier this year, the New York State Department of Financial Services sent requests to a number of banks, looking for information about the same potential rigging of Treasury auctions. The Journal named some those banks, including Bank of Nova Scotia, Bank of Montreal, Barclays, BNP Paribas, Credit Suisse, Société Générale, Deutsche Bank and Mizuho Financial.

It's no wonder that some pundits are predicting doom when it comes to the burgeoning student loan crisis. The latest problem is that financial aid has been shrinking.

Despite a slowing rate of tuition increases at U.S. colleges, two economic factors—minuscule-to-nonexistent pay raises and near-zero inflation—have combined to increase tuition rates. Making matters worse, colleges are now reducing their output of financial aid.

The result: students who took out loans and graduated with a bachelor's degree in 2014 carried $28,950 in debt on average, according to a study by the Institute for College Access and Success. That's a 56% increase from 10 years ago.

Springleaf Holdings, the subprime consumer installment lender that wants to buy Citigroup's OneMain Financial unit, has been a bonanza for the private-equity firm that holds a majority stake in it, Fortress Investment Group.

Now another of Fortress' investments is set to reap a bounty. CWCapital Asset Management has been managing the Manhattan apartment complex Stuyvesant Town and Peter Cooper Village since 2010. Once Blackstone Group completes its $5.3 billion purchase of Stuy Town, it will generate a huge profit for CWCapital, which will then accrue to Fortress.

The profit windfall is considered unusually large for a special servicer like CWCapital, a bond manager said.

Financial Times

The Fed is looking to apply capital charges on banks that hold physical commodities, in an attempt to discourage risky activity by the banks and to hedge against environmental catastrophes, like the BP oil spill.

The goal is to prevent bank bailouts and the restrictions would apply to banks like Goldman Sachs, Bank of America, Citigroup and Morgan Stanley.

Banks argue the capital charges aren't needed because storing and shipping physical commodities complements their business of trading derivatives tied to oil, gas and copper.

The Bailout Prevention Act, filed earlier this year by Sens. David Vitter, R-La., and Elizabeth Warren, D-Mass., would close the loophole that lets banks hold physical commodities.

Fed. Gov. Daniel Tarullo in November 2014 said the Fed was considering proposals to limit banks' participation in the physical commodities market.

New York Times

General Electric's GE Capital is in talks to sell its lending and leasing business in Australia to Deutsche Bank and Sankaty Advisors.

Elsewhere

Krebs on Security: Brian Krebs has a primer on "triangulation fraud," in which crooks use stolen credit cards to buy merchandise won at an online auction by other members.

It works this way: scammers sell underpriced products in an eBay auction that they don't yet own, then use stolen credit card data to buy the merchandise from an e-commerce site and have it shipped to the winner. The auction winner actually gets what they bid on, and they unwittingly pay the scammer.

Quartz: A Duke University psychology professor is an investor in Qapital, an app that's intended to help millennials save more. The tactic is to show the app's users what they're giving up when they make purchasing decisions. It's an opportunity-cost play.

Forbes: Where has Forbes been the past few years? The magazine has an entirely unnewsworthy post saying that Americans are visiting bank branches less often than they once did.