Morning Scan

Monday, August 9, 2010

Receiving Wide Coverage ...

Senate Rebuffs Diamond: Using what the Times described as "an arcane procedural rule, the Senate sent the Obama administration's nomination of Peter Diamond to the Federal Reserve Board back to the White House, citing his lack of macroeconomic experience; the Senate agreed to keep the nominations of Sarah Bloom Raskin and Janet Yellen alive. The Journal noted that, under Senate rules, nominations pending when the Senate adjourns or recesses for more than 30 days are returned to the president unless the Senate waives the rule by unanimous consent. If a nomination is returned, it dies unless the president resubmits it. Wall Street Journal, New York Times

A Journal story previewing the Fed's monetary policy-setting meeting Tuesday said the central bank is monitoring signs of both inflation and deflation. It said one of the risks of additional easing measures is that "talk of more easing creates, at least in some cases, deflationary pressure of its own." An article in the Post said that while "very few living Americans have experienced deflation firsthand," some say it appears to be "the biggest threat to our country right now." Wall Street Journal, Washington Post

Eye on GSEs: The papers said a former Fannie Mae contractor is alleging in a lawsuit that the company fired and blackballed her after she became critical of its implementation of the Obama administration's loan-modification program. The Post said a key House Republican is now calling for a hearing. Wall Street Journal, Washington Post

An article in the Post said that Fannie and Freddie, once "titans of the mortgage finance industry," have now become "wards of the state, bailed out by Washington to the tune of $160 billion and banned from political activity." The paper said a revamping of the agencies could include support for rental housing for low-income residents or reducing all federal support for housing.

In the Times' "Fair Game" column, Gretchen Morgenson wrote that "attaining genuine remedies for our housing finance system … requires a candid conversation about whether promoting homeownership through tax policy and other federal efforts remains a good idea, given the economic disaster we've just lived through."

Fannie and Freddie aren't the only GSEs hobbled by soured mortgage bonds; the Journal's weekend "Credit Markets" column looked at second-quarter results from several Federal Home Loan Banks, which were hit by writedowns on their holdings of private-label securities. "In a sign of how losses have spread to the broader mortgage market from the subprime sector, the Indianapolis and Pittsburgh home-loan banks said they were expecting steeper losses on bonds backed by prime loans, or those to borrowers with good credit," the paper said.

Slim-Down Time: Three Journal stories examined the impact of the so-called Volcker rule limiting banks' proprietary trading, private equity and hedge fund activities. One said restructuring or getting rid of those operations is likely to have little effect on the banks' bottom line. Another said B of A is considering selling its proprietary trading operations or reassigning its traders to different parts of the company. And the third said Goldman Sachs told the Financial Crisis Inquiry Commission that 25% to 35% of its revenue comes from derivatives-based businesses.

AIG In Talks About Repaying U.S. Debt: Speaking of AIG, the insurer reported second-quarter results that the papers said reflected a stabilizing of its insurance unit; CEO Robert Benmosche also said the company has begun talks with the U.S. government about repaying its bailout funds. The Journal quoted Benmosche as saying he plans to stay at the company for at least two more years to guide it through its restructuring. The Times quoted Benmosche as saying the stakes of the turnaround strategy are high, since only after shedding its reputation as a ward of the state can AIG again flourish as a company. Wall Street Journal, New York Times

Wall Street Journal

A story citing unnamed sources said the FDIC on Tuesday will lay out a number of options to the use of credit ratings in capital evaluations, including a greater use of credit spreads, having supervisors develop their own risk metrics and a reliance on existing internal models.

Low fees are likely to be the best predictor of a mutual fund's future success, according to a study to be released today by Morningstar. (Weekend)

SEC Commissioner Luis Aguilar, a Democrat, has threatened not to vote on cases involving executives cooking a company's books where he thinks the agency is too lax, and this prompted the SEC to review its policies for clawing back pay, which the paper described as an "intermittently used enforcement tool." (Weekend)

The "Weekend Interview" with Ken Feinberg said the pay czar is unrepentant about refusing to demand clawbacks from executives at 17 companies that received questionable payouts in the early days of the bailout: "Why would I name names of individuals? The companies were the ones that authorized the payments and we named the companies. . . . At the time these companies made these outlandish payments, it was legal."

New York Times

An article looked at the pros and cons of a decline in interest rates as investors pile into Treasurys for safety. It's "good news for people borrowing money, but bad for those saving it in bank accounts and money market funds."

An editorial said the Senate's putting off passage of a bill to encourage small-business lending is "a setback" that could put "other plans to create jobs in energy and infrastructure in legislative limbo."

A story in Sunday's paper looked at how consumers are finding happiness with fewer things, even if the recession is what forced them to cut back. "While the current round of stinginess may simply be a response to the economic downturn, some analysts say consumers may also be permanently adjusting their spending based on what they've discovered about what truly makes them happy or fulfilled."

In "Mortgages," Bob Tedeschi questioned whether borrowers should heed the advice of lenders, who are again advertising that now's the time to buy a home before rates go up. (Sunday)

Washington Post

An editorial said, "re-regulating the financial system is only partly done" as international rules about Basel II still have to be written. "The problem is that banks are trying to water down the forthcoming Basel III accords."

Debt collectors are becoming busier as consumers fall further into debt, creating a "financially dangerous game of tag" called "debt tagging." Some of these third-party collectors "can get their hooks into people who have never missed a debt payment." (Sunday)

Based on a report by the St. Louis Fed about improvements in businesses, the paper said, "America's supposedly anti-business president has led an extremely pro-business recovery." (Sunday)


, with contributions from Sara Lepro and Rachel Witkowski.