Receiving Wide Coverage ...
European Contagion: The papers report today that the continent's debt crisis is spreading from peripheral countries (Greece, Ireland and Portugal) to Italy and Spain. (Though we'd thought that the investment community had lumped all five together a while ago, given traders' use of the unflattering acronym PIIGS). According to a story in the Times, big banks in those two larger economies — namely Italy's UniCredit and Intesa, and the Spanish banks Santander and BBVA — own so many bonds from their home countries that the banks themselves are being weakened as the securities fall in value. These worries are making it more difficult for the banks to finance their own daily operations. Reflecting the dire situation, the European Central Bank announced this morning that it will hold interest rates steady after two recent rate hikes. The Journal's "Heard on the Street" column observes that central banks around the world are running out of levers they can pull to prevent deflation. Which is especially problematic given the move toward austere fiscal policies in the face of high debt levels. Wall Street Journal, New York Times, Washington Post
Also in Europe, but apparently on a different plane of existence, the central bank of Switzerland cut interest rates on Wednesday as it declared the Swiss franc "massively overvalued" against the dollar and the euro. "The franc is like the new gold," a Swiss banker identified only by a first name, "Dmitri," told the Times.
Wall Street Journal
A story on the front page of the main section looks at institutional investors who are getting into the landlord business. We're not talking about Sam Zell's apartment complexes here, but rather foreclosed single-family homes converted to rental properties. This business "has long been dominated by mom-and-pop investors," the story notes, and understandably so: "Being a landlord can be a costly hassle for large investors. Unlike apartment complexes, which concentrate hundreds of rental units in one place, investors must buy hundreds of single-family houses that are miles apart, each with separate maintenance problems. Tenants can be troublesome." Or as one investor in this field puts it: "A hedge fund manager doesn't want to have to be their own plumber or electrician." Still, the likes of Och-Ziff, Pershing Square and Carrington have been enticed by "double-digit returns at a time when most bonds and other income investments yield very little."
An article on the front of the "Money & Investing" section gives a behind-the-scenes account of how Obama administration officials nudged bankers (mostly over the phone, it seems) to pressure lawmakers to reach a compromise on the debt ceiling. The cast of characters includes Valerie Jarrett and Bill Daley at the White House, Tim Geithner at Treasury, Jamie Dimon at JPMorgan Chase, Bob Kelly at BNY-Mellon and of course the ubiquitous "people familiar with situation." The article suggests there may be something unseemly about Daley having called his former employer JPM, though it quotes an ethics expert who says otherwise. The bigger, unresolved question is whether relations between the administration and the industry, chilly of late, could improve after this episode. "Both sides have much to gain from a thaw: President Obama is courting contributors as he prepares for a re-election run next year, while the banks are seeking leverage with regulators implementing last year's Dodd-Frank financial-overhaul law."
New York Times
"Dealbook" contrasted Nobel-prize winning economist Joseph E. Stiglitz's views on Dodd-Frank with those of former Comptroller of the Currency (and BankThink columnist) Eugene A. Ludwig's from their testimony Wednesday before the Senate Banking Committe. "While the Dodd-Frank bill improved matters, it went nowhere far enough: the problems continue, and as long as they continue, our economy is at risk," said Stiglitz. Ludwig saw some good in the legislation, but was concerned it would go too far. "Like any strong medicine," he said, "if applied incorrectly or excessively, the Dodd-Frank Act can produce more harm than good."