Tuesday, February 21

Receiving Wide Coverage ...

Greek Bailout, Act II: This may finally be it. A bailout pact to end the Greek financial drama that has threatened to end in a global economic tragedy.

Euro-zone finance ministers announced early Tuesday agreement on a second, and hopefully final, rescue. Under the terms, the nation that brought us democracy, the Olympics and souvlaki on a stick will receive a $172 billion (€130 billion) rescue package in exchange for implementing severe austerity measures.

Also taking it on the chin will be Greece's private creditors, who grudgingly agreed to accept even larger losses on sovereign bonds than had been previously expected.

All told, banks that hold Greek debt agreed to 53.5% in losses on the face value of their bonds. That's up from the 50% they'd agreed to in October and represents the equivalent of a total loss of around 75%, according to the New York Times.

European diplomats said the German and Dutch finance ministers pushed for further "haircuts" in Greek bonds after a confidential debt analysis showed the previously negotiated deal would cost international lenders €136 billion and would only lower Greek debt to 129% of economic output by 2020, the Financial Times reported.

The harsher private sector pain is aimed at helping Greece cut its debt as a proportion of gross domestic product to 120.5% by 2020 from over 164% currently. The cuts appear to be just enough to satisfy the International Monetary Fund, whose board is expected to decide next month on the size of its contribution to the new and improved Greek bailout.

The winners in this deal, assuming there are any, appear to be Mario Draghi's European Central Bank, as well as national central banks, which were spared losses on their Greek holdings.

If all goes well, the new deal may help prevent similar disasters in the future. That's because it sets a benchmark for the Euro-zone to intrude on member states' traditionally, profligate ways, er, fiscal rights, reports the Wall Street Journal.

Specifically, the Euro-zone finance ministers agreed that a task force will be established by the European Commission and have an "enhanced and permanent" presence in Greece to ensure that—unlike in the wake of Greece's first bailout—the country really, truly implements its promised painful reforms. If only the EC's mandate extended to Washington. Wall Street Journal, New York Times, Financial Times, Washington Post

Mortgage Debt Doubt: Excuse us for saying we told ya so, but we did. When the Obama administration and state attorneys general heralded their deal with mortgage bankers a week and change ago—worth $25 billon or $26 billion, depending on who's counting—the news was widely described as a "landmark."

Our reaction was instead to pull a page out of Wendy's cookbook and ask "Where's the beef?"—as in where's the document outlining the actual details of the deal. "The settlement drove the timing, in effect putting the press release cart in front of the settlement horse," we reported.

Ten days later, our early skepticism is creeping into the mainstream media.

"There is an old trick for burying bad corporate news: Play up good stuff in the earnings release and stick unpleasant details in the quarterly securities filing, which many investors overlook," reports the Wall Street Journal's Heard on the Street column. "More than a week after the government trumpeted a $25 billion settlement with banks over mortgage foreclosure abuses, investors and taxpayers are left to wonder if the government isn't playing the same kind of game."

For those who'd been under the impression that last week's political theater was a housing panacea comes a New York Times story to dispel such claptrap, titled "Some Doubt a Settlement Will End Mortgage Ills."

"It doesn't seem like much has changed," says a Times quote from Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, or Nedap. "We're still seeing the same systematic problems."

You don't say.

Maybe it's just us, but somehow it doesn't seem like there's much news in the news that a deca-billion dollar deal, negotiated with a gun to banks' heads and scanty details, has failed to create overnight the incentives and infrastructure to fix mortgage problems that have been years in the making.

All is not lost, however. After all, it's an election year. Perhaps we're jaundiced, but let the record reflect the possibility that for some who took to the mortgage-settlement soapbox earlier this year, it was more important all along to cut the appearance of helping homeowners than to actually do them some good.

Wall Street Journal

To Federal Reserve critics, the central bank deserves as much credit for its handling of the financial crisis as an arsonist does for putting out his own fire. Not to let failure be a stumbling block, Congress has, under the Dodd-Frank Act, granted the Fed greater authority over our financial system than ever.

As it wields its expanded rule-making muscle, the Fed has been touting a new era of openness—for public consumption, that is. In truth, "The Fed is making…sweeping changes—the most dramatic since the Great Depression—almost completely without public meetings," the Journal reports. It is "reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions."

With dozens of policymaking meetings held behind closed doors, the Fed is not only failing to subscribe to its own claims of greater openness but is even backtracking from its practices in the 1980s and 1990s, when it held many financial rule-making meetings in public.

"Bipartisan critics—including lawmakers and former regulators—say the Fed's cloistered approach deprives the public of insight into how rules are being written and makes it harder for Congress and others to hold them accountable for their decisions," says the Journal.

Yes, regulators have agreed to let Capital One Financial Corp. buy ING Direct. No, it is not a green light for ever bigger and bolder bank deals. Instead, the Journal cites "analysts and experts" as viewing the fitful approval process as indicating tough times are ahead for those who would deign to do transformative deals.

Financial Times

"Europe's micro-regulated, heavily-capitalised, ringfenced, clipped-wing, increasingly Balkanised banking sector is headed for its own lost decade," reports the FT's Lex column. As news of the latest Greek bailout begins to bite, Euro-zone banks are so lacking in investor confidence as to be trading at a mere 0.4 times book value. That's within the range U.S. banks fetched during the depths of the financial crisis and less than half their current multiples. Adding further insult and injury, European investment bankers lost ground to their U.S. rivals last year, and in trade financing they're getting beaten by the Yanks and Japanese. "Banks from the US and Japan are eating European banks' lunch—and some are cherry-picking for dessert," says Lex.