Receiving Wide Coverage ...
Unlucky Seven: Investors dumped Italian government bonds, pushing their yields up past 7% -- a "psychologically important" level - after LCH Clearnet, a clearing house for European repo trades, raised margin requirements for the debt. As the FT explains, 7% yields had previously "led to both Ireland and Portugal requesting emergency bail-out loans," and while Rome could handle borrowing costs at this level for a year or so, the concern is that these costs could get stuck in a self-reinforcing spiral. (Is that a redundant phrase? We can't decide.) Moreover, Italy's a lot bigger than those other two countries, so a full-blown financing crisis there could be a "game-changer," the FT says. Italy is "too big to bail," and an attempt to rescue it "would stretch the European financial stability facility, the eurozone rescue fund, to breaking point." The fear in the fixed-income market spread to the global stock markets, which tanked. But here comes the cavalry: this morning the FT reports Italian yields have dropped back below 7% following reports that the European Central Bank had intervened. European stock markets are calmer after Italy pulled off a successful debt sale this morning. Financial Times, Wall Street Journal, New York Times, Washington Post
Mamma Mia! We originally wanted to use that headline for the section on Italy, but it fits this one as well. A headline from Bloomberg almost says it all: "Mario Batali Apologizes for Comments Comparing Bankers to Hitler." The celebrity chef and restaurateur had also compared bankers to Stalin during a Time magazine "Person of the Year" event. Why leave out Mussolini? As the Journal points out, Batali was biting the hand that he feeds: "Morgan Stanley, Goldman Sachs, Credit Suisse and other finance giants hold events at his restaurants in downtown Manhattan. Bankers often fill the coveted tables at Babbo and Del Posto, where the seven-course 'tradizionale' menu goes for $145 and features dishes like Apician Spiced Ostrich." Chef Boyardee he ain't. Since his remarks, investment bankers apparently have been cancelling reservations, which often must be booked a month in advance. The whole brouhaha's a shame, because if you leave out the over-the-top references to brutal dictators, Batali's nomination of global bankers for "person of the year" is reasonable: "I would have to say that who has had the largest effect on the whole planet without us really paying attention across the board and everywhere is the entire banking industry and their disregard for the people that they're supposed to be working for…. They're not heroes, but they are people that had a really huge effect on the way the world is operating." We could quibble and say he's failing to differentiate between the too-big-to-fail multinationals and small-town community banks. But Batali may be unaware the latter group exists. Those bankers, we imagine, are more likely to eat at their local diner. Wall Street Journal, Bloomberg, Forbes
Judgment Day: Judge Jed S. Rakoff was expected to give the SEC a hard time during a hearing on its proposed CDO settlement with Citi, and he did not disappoint. “The net effect of this is you’re only returning a very small fraction” of what investors lost, Rakoff, whom banking lawyers have nicknamed “Judge Dread,” chided the parties. Wall Street Journal, Financial Times, New York Times, Washington Post
Wall Street Journal
Goldman Sachs and Morgan Stanley are considering a shift away from mark-to-market accounting, in favor of the historical-cost method. This would make them even more like commercial banks following their conversion to bank holding company status during the throes of the financial crisis, the Journal notes. Wells Fargo and JPMorgan, for instance, use historical-cost accounting for more than half their assets, while Goldman currently uses mark-to-market for nearly 97% of its holdings. Though Goldman CEO Lloyd Blankfein has been a vocal defender of the mark-to-market method – “it facilitates a clear view of risk,” he told the Financial Crisis Inquiry Commission – the Journal says the old unlevel-playing-field complaint is coming into play here: “Goldman and Morgan Stanley executives have grown increasingly frustrated that their dependence on mark-to-market accounting puts them at a competitive disadvantage.” The comment thread on this story is quite rich, with Journal readers debating the most appropriate method for valuing loans that a bank expects to hold to maturity. Well, at least it starts out rich, until someone veers off topic with an anti-bailout rant that mentions “the strippers in NY City.” Focus, people, focus.
Following the demise of MF Global, “the relationship between Jon Corzine and J. Christopher Flowers, which dates back to their Goldman Sachs days, is now said to be strained.”
In an op-ed, Noreena Hertz, a finance professor, writes that women have a harder time starting businesses in Europe because “banks treat women entrepreneurs less favourably than they do men.” In the article and in a report she prepared for a think tank, Hertz calls for European governments, particularly the U.K., to launch an investigation similar to the one HUD launched in this country last year following reports of financial institutions discriminating against pregnant women. Nick Clegg, the U.K.’s deputy prime minister, has ordered an inquiry.
And, Lastly …
We’re not cool enough to get invited to the Technology, Entertainment and Design conferences, so we have to content ourselves with experiencing these events vicariously through the videos posted on the group’s website. A clip posted this month is particularly salient for consumer banking. The speaker is Sandra Fisher Martins, who runs a campaign in Portugal that encourages businesses to use plain language in documents like utility bills, rental contracts or medical leaflets. “These are not documents written by experts for experts,” she says. “These are public documents, documents I need to understand to get by daily, to live my life.” Fisher Martins appropriately holds up the U.S. subprime mortgage debacle as Exhibit A for what happens when people sign documents they don’t understand. And she will brook no lawyerly justifications for impenetrable, convoluted writing (“‘What if it goes to court?’ … I’ve heard them all, they’re all excuses”). People have a “right to understand,” she says, and the professionals who draft these materials must learn to “write for grandma.” Even though it’s in Portuguese with subtitles, we found the talk as riveting as nearly anything else on the TED site. This video would make a great pep talk for the staff of the Consumer Financial Protection Bureau – and fine sermon for any retail bank’s legal department.