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Mexican Standoff: "Meeting in the desert scrub of Mexico's Baja region in an effort to lift the sputtering world economy, the leaders of the so-called Group of 20 eschewed specific commitments, instead limiting themselves to more generalized promises to invest in public works, overhaul labor markets and use innovation, education and infrastructure investment to fuel economic growth." That's how the New York Times described the hugely anticlimactic result of a gathering of heads of state in Mexico. The Wall Street Journal was equally downbeat, reporting that "world leaders papered over their differences after clashing over the euro-zone debt turmoil, deferring concrete decisions to other meetings amid worries about another global crisis." As in the past, left-leaning pols like Barack Obama and most of Europe lined up on one side to agitate for deficit spending; on the other side was eternal party-pooper Angela Merkel, insisting that the rest of Europe follow Germany's lead and live within its means. What passed for bold talk at the gathering was a joint statement that if things get far worse, "those countries with sufficient fiscal space stand ready to coordinate and implement discretionary fiscal actions to support domestic demand." Feel better? The good news, at least by European standards, is that its leaders are expected to take another whack at putting together a detailed recovery plan in Brussels next week. For the moment, the forces of European austerity appear to be on the march. "Elections cannot call into question the commitments Greece made," Merkel told reporters. "We cannot compromise on the reform steps we agreed on." On this side of the pond, that's bad news for President Obama. "With his own re-election chances directly tied to the European economic crisis as it drags down growth in the United States, Mr. Obama desperately wants Ms. Merkel to loosen the reins on spending and the austerity programs that have been imposed on Greece and the other struggling euro zone economies," according to the Times. Back in the old world, the clock is ticking loudly. Spain is already on the edge of losing access to debt markets. On Tuesday it paid 5.074%, or around two percentage points more in interest rates than a month ago, to lure investors to its 12-month Treasury-bills, the Journal reports. In the secondary market, the yield on 10-year Spanish bonds breached 7% — the level regarded as having triggered the bailouts of Greece, Ireland and Portugal over the past two years, notes the FT. Spanish Prime Minister Mariano Rajoy, meanwhile, has relaunched a previously failed campaign to allow the euro zone's rescue fund to directly channel the aid money into the country's lenders, rather than through the government. Another idea knocking around is for the euro zone's rescue fund to buy government debt, rather than orchestrate a traditional bailout, as a way to ease the pressure on sovereign borrowers. Italian Prime Minister Mario Monti—who's close behind Spain's Rajoy in the cause-for-worry department—went into full spin mode to emphasize that "This should be sharply distinguished from the idea of a bailout." Call it what you will. Europe remains on the edge of crisis and world leaders are as divided and clueless as ever about how to solve it. New York Times, Wall Street Journal, Financial Times

Few Kumbaya Moments: When the financial world latches onto a personality, it has a hard time letting go. So it was with Liz Warren when she was cooking up the Consumer Financial Protection Bureau, and so it is now with Jamie Dimon. The JPMorgan Chase (JPM) boss was back on Capitol Hill Tuesday for another grilling. As with the Group of 20's whack at fixing the European mess, the House Financial Services Committee lined up in familiar formations and produced ample platitudes for the TV cameras. Beyond the PR value, we regard it as a stretch to argue that the session did much to illuminate the inner workings of the nation's largest financial institutions or assist Washington in its purported efforts to prevent the next big-bank collapse (don't even think it's unthinkable) from posing a risk to the system. But, hey. It's an election year and every House seat is up for grabs, so more pressing business was at hand. Thus the early quibbling "about whether the chief executive of … the biggest U.S. bank by assets, should take an oath and later about whether his testimony should be believed without a swearing-in," noted the Journal. Mr. Dimon wasn't sworn in, and the rough-and-tumble tone prevailed throughout the session. "We're not ready to break into a kumbaya. Welcome to the serenity of the Financial Services Committee," is how Spencer Bachus, an Alabama Republican, put it. "Overall, Mr. Dimon received far rougher treatment at the hands of the members of the House than he did a week ago in the Senate," the Journal said. Among the most contentious topics: whether gambling is going on within Wall Street's FDIC-backed casinos. Surprise of surprises: Dodd-Frank co-author Barney Frank insisted wagering was at play, while Dimon was equally emphatic that it wasn't. "We don't gamble. We do make mistakes," Dimon said in a quip that his detractors can be forgiven for interpreting as a distinction without a difference. Fortunately for Republicans, there was an opportunity earlier in the day to get their ya-yas out beating up on the regulators who'd embedded dozens of officials inside JPMorgan as its London Whale washed ashore, yet still managed to remain oblivious to the entire affair. This was bad news for proponents of the notion that if regulators are smart enough and thick enough on the ground they'll catch mistakes early on. Blowing more holes in that theory was testimony from Comptroller Thomas Curry, who said his office was "initially relying on the information available to the bank." Added Fed general counsel Scott Alvarez: "We have to rely on information we get from the organization [aka, JPMorgan Chase] itself." Despite House members' large staffs and advanced preparations, it was Dimon who got in many of the best quips. He described JPMorgan's lobbying efforts as "a constitutional right," and the Financial Stability Oversight Council as "set up with no teeth." As if to put an exclamation point on the notion that the session was more political theater than sincere effort to find facts, Dimon was confronted at its end by Adriana Velasquez, a janitor at a JPMorgan Chase facility in Houston. Velasquez had been flown into Washington at the expense of her labor union and wanted to know why Dimon, whom she said makes "billions of dollars every year," denied employees a living wage. The JPMorgan boss told her to call his office to set up a meeting. That session should prove at least as enlightening and cordial as Tuesday's hearing. Wall Street Journal, New York Times, American Banker

Wall Street Journal

MetLife (MET) appears likely to miss its original June 30 goal for completing the sale of most of its online banking business, reports the Journal. It's the latest setback for the New York company's effort to win over investors by ending its dual role as an insurer that's regulated as a bank. On Tuesday, MetLife said the Fed granted it an extension until Sept. 30 to resubmit its capital plan, which had been due this month. The sales bid is part of MetLife's attempt to shed its "bank-holding-company" status in the wake of its failure last year to pass the Federal Reserve's "stress test." MetLife, the sixth-largest U.S. bank-holding company with $819 billion in assets, maintains it was hurt as the only insurer subjected to what it dubs "bank-centric" metrics. MetLife says that banking represents less than 2% of 2011 operating earnings; it is currently at a disadvantage to insurance rivals because of its inability to match them with share buybacks and dividend-increases.

Financial Times

The days when the "light touch" of its financial overseers gave the city of London a regulatory edge may be drawing to a close. In the latest swipe at London from abroad, Gary Gensler, chairman of the Commodity Futures Trading Commission, said on Tuesday at a congressional hearing into JPMorgan's trading losses that the U.S. is vulnerable to risky activity in the U.K. Now for the first time in years, London's financial regulators themselves are offering a sympathetic ear to such claims, the FT reports. "Regulators in the UK … have scrapped the light-touch approach, favouring more intrusive supervision. They are deeply concerned about the pattern of overseas firms getting into trouble in London. JPMorgan's London-based trading unit was part of its UK branch, regulated by US officials," it says. "The FSA sees clear flaws in the current regulatory set up for the London arms of giant US and Swiss banks, which run large parts of their UK businesses as 'branches' rather than locally authorised 'subsidiaries', which would be more tightly supervised by the UK," according to the FT. As Hector Sants, chief executive of the FSA, told the paper this week, "What is deeply unsatisfactory is that we have very little prudential oversight of a branch."

 

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