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HARP's New Tune: Reactions to the administration's reboot of the Home Affordable Refinancing Program were mostly dismissive. "Heard on the Street" in the Journal says that like the Fed's monetary policy in recent years, government encouragement of refis "marks yet another transfer from savers to borrowers." In this case, rather than elderly depositors, the savers are the investors in mortgage-backed securities, who would get back their principal sooner than expected and thus need to reinvest it in an environment of lower interest rates. Indeed, the FT reports that prices of MBS fell to six-month lows on prepayment concerns. On his Reuters blog, Felix Salmon critiques HARP II for quite different reasons, calling it "pathetic" given the still-limited pool of borrowers who would benefit and the lack of any principal reduction for them. The FT's "Alphaville" blog similarly finds the new HARP lacking in ambition. But economist Joseph E. Gagnon seems impressed. In combination with another round of substantial bond-buying from the Fed (an idea New York Fed president William Dudley seconded Monday), a properly executed HARP II could end up creating as many as 4 million jobs, Gagnon argues on the Peter Institute for International Economics blog. A story in the Journal puts the Obama administration's latest stab at helping homeowners and the housing market in the context of presidential politics. To some, the president's approach may seem cautious to a fault. But according to the Journal, the HARP relaunch "underscored his administration's belief that government has a role to play in restoring the health of the nation's broken housing market. In contrast, Republican presidential hopefuls have been reluctant to address the housing issue, in part because they blame government for causing the financial crisis and housing mess." The story's actually more complicated and interesting than that passage makes it sound - it goes on to note that "in economic circles, calls for a more aggressive approach to the housing crisis are bipartisan." In fact, the HARP revamp is based in part on a proposal by Glenn Hubbard, a senior economic advisor to Mitt Romney. If you missed the Journal story that broke the news of the program yesterday, stories in the Times, the Post and the FT have the basics. Speaking of refi reruns, this op-ed in the Post by Larry Summers, outlining a five-point plan to reinvigorate the housing market, reads uncannily like the one we saw in the FT yesterday.
Morgan Sells Unit: "Morgan Stanley has sold its mortgage servicing company, [in] a deal that will net the Wall Street firm $59.3 million in cash," the Times reported. The Journal notes Morgan Stanley will receive $1.4 billion for "for servicing advance receivables outstanding."
Wall Street Journal
Buried under the touchy-feely rhetoric about the need for everyone in the industry to work together, you'll find some very interesting comments in this interview with S.A. Ibrahim, chief executive of mortgage insurer Radian. Following Arizona regulators' seizure of his competitor PMI last week, Ibrahim makes the case for allowing the remaining mortgage insurers to continue writing policies. "There's a huge advantage to all of us to being allowed to continue to write new business," he tells the Journal. "As long as the remaining players continue to write business, the industry model will be scarred but whole. Should any more players be forced to stop writing business, it starts to cost the taxpayers even more money" - no new premiums coming in means less cash to cover claims submitted by Fannie and Freddie. Ibrahim even second-guesses the regulators, suggesting that if PMI had not been forbidden in August to continue writing policies, "it may have been better for the policyholders than getting paid 50%" - the limit that's been placed on PMI's claims payouts for now.
Francesco Guerrera's "Current Account" column surveys the existential woes facing the banking sector. Things are so uncertain that even Jamie Dimon won't forecast profitability for next year, and there's a lurking sense the industry's gone through a structural rather than cyclical change that will depress profits over the longer term.
An article rounds up banks' use of social media as a marketing tool, leading with JPMorgan Chase's recent sweepstakes in which "liking" the company on Facebook gave users a chance to win up to $1 million. Just asking: If winners hit the "unlike" button later, do they have to disgorge the prize money?
Visa and MasterCard "are considering ways to use what they know about people's card purchases for targeting them with ads online."
Maybe it's too soon to write off the universal banking model. According to this Journal story, "regional [commercial] banks like KeyCorp … Fifth Third Bancorp … SunTrust Banks … and U.S. Bancorp … have been adding [investment] bankers as Wall Street prepared to scale back."
An analytical piece looks at the challenges for Democrats who want to harness the energy of the Occupy Wall Street protests. As has been noted many times before, the demonstrators are a diverse, diffuse group with varying demands. Some of them have "no clear-cut goals at all other than to denounce greed. … There also is a tolerance-and, sometimes, sympathy-for causes well outside of the mainstream." For a rebuttal to the what-exactly-do-they-want critique of OWS and its companion movements, you could do worse than this piece by the British political writer Dan Hind, with the wonderfully Monty Pythonesque title "I Demand to Know What You're Demanding!"
The paper's U.S. banking editor, Tom Braithwhite, warns of the potential for banks to resort to "magical Alice in Wonderland tricks of financial innovation" to meet the new regulatory capital requirements. The temptation is strong, since the other paths to compliance (cutting dividends, retaining earnings, raising capital, putting a lid on compensation, shrinking balance sheets) would be painful for key constituencies (shareholders, employees, customers). And the alchemy is made possible by the regulators' use of risk-weighted assets, rather than total assets, to measure capital - hence Dimon's promise last week that JPMorgan will "manage the hell out of RWA." Regulators, Braithwhite writes, "are fully expecting various nefarious schemes to circumvent the rules, including structured transactions that do not reduce their risk but do reduce their RWA."
New York Times
More than two months after Bank of New York Mellon introduced a fee for simply holding deposits of more than $50 million, the Times gets around to reporting that banks are "Flooded With Cash They Can't Profitably Use."
And, Lastly …
The Rinse: We never thought we'd include a comic book in the Morning Scan, but readers in the AML community may appreciate this new hardboiled series about a professional "laundryman." "I employ various underground conduits and keep meticulous track of whose money is going where and how it's being laundered," the protagonist says in the first issue. "Shell companies, exchange houses, willing bankers … and savvy computer geeks are also part of the equation." Despite his chosen vocation, the narrator has a code of ethics; he turns down business from a shady cocaine dealer, who scoffs that "all money is dirty at some point." An IRS agent says of the hero: "He's a principled man in an unprincipled profession. Who knows what he's capable of?" Just to be clear, this is a work of fiction, and it's not for kids.