Morning Scan

Monday, June 21, 2010

Receiving Wide Coverage ...

Reconciliation Continues: A Journal article traced the evolution of debate over derivatives regulation, which has "exploded into one of the biggest battles as a House-Senate conference crafts the final version of a financial-regulation overhaul." Another article said the mortgage industry is pushing for greater flexibility on rules that aim to improve underwriting standards by forcing the original mortgage lender to keep a stake in the loan. In the Times' "Economic View" column, Robert Shiller, a professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC, said the neither the House nor Senate versions of the legislation will do much to prevent another financial crisis. A Times editorial said Democratic lawmakers seem to be catering to big company interests and not backing protections for individual investors.

Debt Collectors: A front-page story in the Saturday edition of the Times looked at the rapid growth of the debt settlement industry over the past few years and the concurrent rise in allegations of unfair practices. The Journal's "Heard on the Street" cast doubts about whether one such company, Portfolio Recovery Associates, can sustain its recent performance.

SEC Widens Probe of CDO Market: The Journal said the SEC is looking into the role that a hedge fund called Magnetar played in many mortgage CDOs that went bust. Unnamed sources said the hedge fund stepped in to buy the riskiest portions of these deals, allowing the deals' sponsors to keep selling the highest-rated tranches, even as the housing market stumbled. Magnetar offset its risk using credit default swaps, "ended up making big profits when these CDOs collapsed, while the investors in the supposedly safer parts of the security suffered big losses." In the Times' "Fair Game" column, Gretchen Morgenson discussed one of the more successful strategies investors who lost money in mortgage securities are using in court against the investment banks that sold the securities: "combing through loan pools looking for discrepancies between actual loan characteristics and how they were pitched to investors." Wall Street Journal, New York Times

Stimulus Stalls: An analysis in the Post said President Obama's push for more stimulus spending has stalled on Capitol Hill, "mired in election-year anxiety about the deficit." Developing the same theme, columnist Ezra Klein wrote that there's a strong argument that the stimulus package was overwhelmed by states' budget shortfalls, "the equivalent of a massive anti-stimulus." Small wonder, since some American cities with mounting municipal debt are in danger of default on their loans as most states are too strapped to bail them out.

China Pledges to Devalue: China pledged to make its exchange rate more flexible, but didn't say how much it would allow the yuan to appreciate or provide any details about the timing. The papers noted that the move followed heavy pressure by the U.S. and other countries. The Journal said it could ease strains caused by China's long reliance on cheap exports, which would be "an important milestone on the path to a rebalancing the global economy." The Post said the timing of the announcement ahead of the upcoming G-20 Summit was "clearly aimed at taking pressure off Beijing." Wall Street Journal, Washington Post

A second Journal story said the move puts China "in a strong position" going into Saturday's G-20 Summit, "but does little to ease pressure from the U.S. Congress." A third said that if Beijing adopts the same method it has previously used to let the yuan appreciate, it may again face the kind of speculative capital inflows that plagued the experiment last time. A fourth said the move could help companies that target China's consumers while complicating life for those that rely on low-cost Chinese exports. A fifth called the move "a victory of pragmatism over divisive politics." A Journal editorial said the best that can be said for the decision is that it "may avert a trade war."

Wall Street Journal

A story on the front-page of the Money & Investing section looked at loose mortgage-lending practices in Spain, where banks are scrambling to unload property they repossessed two years ago before they are forced to take more writedowns.

The "Credit Markets" column said financial firms are leading a pickup in corporate-bond issuance, and many analysts are expecting new offerings to increase over the normally slow northern summer.

A story citing an unnamed source said Citigroup is looking to raise approximately $3.5 billion for its private-equity and hedge funds, despite the threat that big banks will be forced to divest these businesses. The source didn't say how Citi will invest the funds, although a separate article suggested a possibility: veteran private equity banker Chris Laskowski is being moved back to Asia in what the paper called "a signal the U.S. bank believes a pickup in the region's buyout activity will likely continue."

New York Times

An editorial said Congress has promised to get tough on financial companies, but not so tough that it won't accept their campaign contributions.

A front-page story in Sunday's paper looked at the surging cost for taxpayers of taking Fannie and Freddie into conservatorship.

An article profiled Park National Bank in Chicago, which, after running into trouble during the financial crisis, was taken over by U.S. Bancorp last year, much to the ire of local residents. (Sunday)

In "Mortgages," Bob Tedeschi wrote that borrowers should avoid charging up their credit cards or changing jobs right before their home loan closes. (Sunday)

In "Your Money," Ron Lieber wrote that many credit unions are loosening their eligibility standards. "This infuriates bankers, who must compete with them while also paying income taxes that the nonprofit credit unions do not owe." (Saturday)

Washington Post

A story looked at the growth of the FDIC, which has just opened its third field office — this last one in Chicago — since the beginning of the financial crisis. "Rather than continuing to dispatch teams from the FDIC's main field office in Dallas to seize failing banks, agency officials envisioned the satellite offices essentially as rapid-response centers in areas where bank failures were rising and almost certain to continue."

An article looked at the Fed's new rules limiting overdraft fees that take effect next month. About 25% of consumers surveyed this spring by Mintel indicated they would opt in for overdraft services, while 15% would opt out, and the rest were either unsure or were not aware of the changes.

Federal agencies that lost billions in the alleged Taylor, Bean & Whitaker mortgage scam are seeking to recoup their losses. But lawyers say it's unlikely the agencies will recover all their losses. (Saturday)


, with contributions from Kate Davidson and Sara Lepro.