Wednesday, February 1

Receiving Wide Coverage ...

Volcker Haters: Woe is Paul Volcker, the former Fed boss who came up with the eminently sensible and elegant idea of banning taxpayer-backed banks from acting like Las Vegas card sharks. Enter Washington pols and the Dodd-Frank Act's Volcker Rule has been turned into a multi-hundred page monstrosity that its recently silent namesake almost assuredly hates. So too do most of the world's leading financial policymakers. Their gripe is that as the Volcker Rule's rules take shape, it's beginning to look like it will have a chilling effect on liquidity and market activity. So chilling, in fact, that the U.S. government has been left with only one logical option—exempt its own debt from the Volcker restrictions. That ploy has left foreign government officials hopping mad, as the New York Times reported out of Davos late Monday. This morning the Wall Street Journal reports that the U.K. Chancellor of the Exchequer, George Osborne, has added his voice to the chorus rising up against Volcker. The regulation, "would appear to make it more difficult and costlier" for banks to buy and sell non-U.S. sovereign bonds on behalf of clients, Osborne, said in a recent letter to Federal Reserve Chairman Ben Bernanke. Osborne's critique follows similar objections from the European Commission, Japan and Canada. Under Dodd-Frank, five regulators, including the Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission, are charged with crafting the rules. With its initial implementation set for July, and with banks having several years to comply, this kerfuffle is likely to be around for a long, long time. New York Times, Wall Street Journal

Is There Hope for Housing?: Not much, if you take a read of the New York Times' story highlighting metropolitan Atlanta. The capital of the South's home prices fell 12% in November from a year earlier, far outstripping the average 3.7% decline among 20 big metros tracked by the Standard & Poor's/Case-Shiller Home Price Index. That left home prices in Atlanta and three other cities below their year 2000 levels. (Conservatives might interpret as an even clearer indication the country is going to the dogs the fact that the strongest housing market since 2000 has been Washington D.C.-up 85%.) In a familiar-sounding anecdote, the Times introduces readers to an unnamed Atlanta couple that recently sold its home for $119,000 after buying it a decade earlier for $41,000 more.

All is not lost to readers of the Journal's Heard on the Street column, however. Its case is that Case-Shiller's numbers are artificially depressed by two quirks: they are based on repeat sales that are being goosed by a large number of REO transactions; and they're three-month averages, meaning some of the deals captured in the November stats were agreed to way back in the summer, when the economy looked far grimmer. New York Times, Wall Street Journal

Law & Order: Financial Victims Unit: As employment continues to decline within big banks, they're continuing to make plenty of work for federal prosecutors and defense attorneys. Among the numerous criminal cases already underway, comes news that federal prosecutors have filed a new and improved indictment against Rajat K. Gupta, the former Goldman Sachs director and McKinsey boss. Gupta had already been charged with calling convicted inside trader Raj Rajaratnam from Goldman's offices with the valuable tip that Warren Buffet was buying in. Now come allegations that Gupta dialed into a 2007 Goldman board meeting from Rajaratnam's own Galleon Group offices and then leaked the results. "Totally baseless" is how Gupta's lawyer describes the charges old and new.

About to face brand-new charges is a group of former Credit Suisse traders. In a leak that smacks with the M.O. of garden variety Wall Street misdeeds, the Wall Street Journal reports the Manhattan U.S. Attorney's office will criminally charge the former traders with misleading their bank's investors by booking inflated prices for mortgage bonds, despite knowing the values of those securities had dropped. We offer readers one guess as to what might have motivated such alleged prevarication. Yup, it's the usual suspect—those corrupting bonuses yet again. In Act II Scene I, expect a perp walk after which the defendants' attorneys vow to vigorously defend their clients against the "totally baseless" allegations. In the final act, the perps will cop pleas to crimes and be sentenced to spending time as role models for underprivileged children or, if they're lucky, get the chance to turn state's witness and avoid punishment altogether by setting up their former buddies to take the hit. It's nothing personal. Just business. Wall Street Journal, BusinessWeek, New York Times

Wall Street Journal

In a telling story headlined "When the Home Bank Closes," the Journal notes that nearly one in three small-business owners has borrowed against the equity in his or her home, or used the home as collateral for a loan to fund the business. So what happens when entrepreneurs have not home equity against which to borrow? Here's what: "Thousands of potential entrepreneurs will sit out the recovery. Most don't have enough cash flow to get a traditional business loan from a bank." So much for the next Sam Walton.

New York Times

Make room for another unintended Dodd-Frank victim: the collateralized loan obligation market. The Times reports that under Dodd-Frank, originators of CLOs will be required to retain "skin in the game" along with originators of other securities. What the law failed to accommodate for is the fact that most CLO managers do not actually originate the loans underlying these financial instruments but buy them from originating banks, which, the Times notes, provides a secondary-market check that may be lacking with other structured products. "It's unclear what benefit a "skin in the game" rule would provide, given that CLOs are more akin to commercial loans, for which Dodd-Frank deems risk-retention rules unnecessary. Notes the Times: "The new rule is likely to consolidate the market even further and eliminate competition. And regulators may not appreciate this."

After Florida, it's on to Square. Barak Obama may go down as the social media president for the way he used emerging communications technologies to win the presidency in 2008. Now the president's campaign is turning to mobile payments provider Square to collect campaign donations for Obama's re-election. Not to be outdone, Republican Mitt Romney's digital director, Zac Moffatt, says his team has planned a Square donation "beta test." If the test flops, of course, Romney can always experiment with digging deeper into his own pocket.