NY Fed Details How Twist Will Work
By Michael S. Derby,
WSJ.com
The Federal Reserve‘s effort to lengthen the average maturity of its balance sheet will see the central bank sell around $44 billion of short-term securities to buy a like amount of longer-dated Treasurys over October.
http://jlne.ws/ruH16f
Fed's Twist May Prompt Bigger Turn
http://jlne.ws/oTn2no
Italy to Use Assets to Reduce Debt
BY CHRISTOPHER EMSDEN, WSJ.com
Italy's economy minister announced plans Thursday to make better use of state assets to ease the country's €1.9 trillion ($2.573 trillion) public-debt load and spur economic growth.
http://jlne.ws/oYdsLi
Tentative Outright Treasury Operation Schedule - Federal Reserve Bank of New York
http://jlne.ws/hp922J
Euribor Futures To Join Eurodollar Futures On CME Globex — Oct. 3, 2011 (Video)
http://cmegroup.mediaroom.com/index.php?s=132&video=26
Consumer Spending in U.S. Slows as Incomes Fall
By Alex Kowalski and Bob Willis, Bloomberg
Consumer spending slowed in August as incomes dropped for the first time in almost two years, showing scarce jobs are preventing the U.S. economy from gaining ground.
http://jlne.ws/riJIat
BofA's New $5 Debit Card Fee? Blame Dodd-Frank
Forbes
The inevitable happened today. Bank of America said it will start charging customers a $5 monthly fee on debit card purchases.
http://jlne.ws/ooczWf
Buffett: BofA Needs ‘Much Longer’ to Clean Up
By Andrew Frye and Hugh Son, Bloomberg
Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) invested $5 billion in Bank of America Corp. (BAC), said that problems at the biggest U.S. lender by assets will take “much longer” to clean up.
http://jlne.ws/oi59HY
SEC: Credit Rater May Have Leaked Rate Move
By Joshua Gallu, Bloomberg
U.S. Securities and Exchange Commission inspectors said a large credit rating firm “appeared to allow” for a pending rating decision to be disclosed to certain people before the action was publicly announced.
http://jlne.ws/qDF0YM
Forecast says double-dip recession now inevitable
By Chris Isidore, CNN Money
The U.S. economy is staring down another recession, according to a forecast from the Economic Cycle Research Institute.
http://jlne.ws/qoTTZi
Buffett: Europe’s Banks Shouldn’t Look to Berkshire
Berkshire Hathaway Inc. (BRK/A)’s Warren Buffett, who has sold most of the company’s holdings in European sovereign debt, said his firm isn’t interested in helping to bail out lenders on the continent. http://jlne.ws/nDsooY
Greek Aid Talks Roll On Amid Protests
BY COSTAS PARIS AND ALKMAN GRANITSAS, WSJ.com
Talks between international inspectors and the Greek government on a deal for fresh financial aid Friday became increasingly overshadowed by protests and resistance from state-owned companies.
http://jlne.ws/qPE7dz
Fed's Bullard worried by price expectations drop: report
Reuters
St. Louis Federal Reserve Bank President James Bullard said he is troubled by a drop in inflation expectations but does not see deflation as likely and still sees a high bar to further quantitative easing, the Wall Street Journal reported on Thursday.
http://jlne.ws/oIiKpC
Euro-Zone Inflation Surges
BY PAUL HANNON, WSJ.com
Consumer prices in the 17-member euro zone rose at the fastest pace in almost three years even as the economy slowed sharply, leaving the European Central Bank's rate setters to make a very tough call when they meet next week.
http://jlne.ws/oEZ6Sz
India April-June Current Account Deficit Widens to $14.1 Billion
BY NUPUR ACHARYA, WSJ.com
India's April-June current account deficit widened to $14.1 billion from $12.0 billion a year earlier due to a moderation in receipts.
http://jlne.ws/qEfFVF
FRB: H.4.1 Release--Factors Affecting Reserve Balances--September 29, 2011
http://jlne.ws/nUcCi1
Morgan Stanley paves path to Paulson, again
Reuters
Even as John Paulson's largest hedge fund portfolios are clocking double-digit losses, brokerage giant Morgan Stanley (MS.N) is helping some of its wealthy clients put money with one of the industry's biggest stars.
http://jlne.ws/qgaGTF
Jumat, 30 September 2011
September 30, 2011: Soros: We're On The Verge Of Another Great Depression
September 29, 2011
JLN Interest Rates - http://www.jlninterestrates.com
Conversation Starter
SIGTARP Report On TARP Shows Law Firms Were Paid Millions For Professional Services Related To TARP
The Acting Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has issued an audit report: Legal Fees Paid Under the Troubled Asset Relief Program: An Expanded Report. The report shows that from the inception of TARP to March 31, 2011, Treasury's Office of Financial Stability (OFS), which administers TARP, paid five law firms more than $27 million in fees and expenses. SIGTARP began an audit of OFS policies and practices governing OFS contracts with law firms in May 2010 as part of SIGTARP's continuing oversight of TARP and in response to a request from Senator Tom Coburn M.D. See the entire SIGTARP report here (PDF).
-------------------------------------------------------
Euribor Futures To Join Eurodollar Futures On CME Globex — Oct. 3, 2011
Exchange Release
CME Group will launch Euribor Futures on Globex Oct. 3. Euribor futures provide the marketplace with another flexible, efficient, and cost effective tool for managing global interest rate exposure. Based on the Euro Interbank Offered Rate, Euribor futures will trade around the clock, around the world on CME Globex, alongside Eurodollar and Treasury futures. Euribor futures are a natural extension of CME Group’s highly successful Eurodollar futures contract. In addition, Euribor futures leverage the global distribution of CME Globex, offering fast and efficient access to the world’s most liquid interest rate markets.
See a video of CME's Managing Director, Interest Rate and Foreign Exchange Products, Derek Sammann, talking about the CME's new Euribor contract here.
----------------------------------------------------------------------
MarketsWiki Questions: Exploring Financial Technology
Question 6 Interactive Video Now Available - http://marketswiki.tv/questions/q6/
Ahead of our MarketsWiki Questions: Exploring Financial Technology event in October we're asking experts in the financial services industry seven questions and providing the best answers in an interactive video format.
Question 7: What, in terms of technology, is missing in the financial markets? - http://marketswiki.tv/questions/q7/
(Question 7 is sponsored by: Patsystems - http://lin.sh/mwq_sungardlogo)
Register here or email ryanlothian@johnlothian.com for an invoice.
DATE: Wednesday, October 5, 2011
TIME: 4:30 pm - 6 p.m., Networking event afterward.
PLACE: Illinois Institute of Technology - 565 W. Adams St, Chicago, IL 60661
COST: $20 per person
Our MarketsWiki Questions: Exploring Financial Technology interactive video series examined the intersection of technology and the financial markets by posing seven critical questions to dozens of market and technology experts. Join us on October 5th in Chicago as our series culminates with an exciting lineup of speakers presenting the market technology ideas and solutions that will shape our industry's future.
See the list of speakers here.
-- Christine Nielsen
Lead Stories
The Road from Depression
George Soros
Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control, and they need to do so now.
http://jlne.ws/nyvCEU
Bernanke Says ‘Reforms' in U.S. Housing Policy Will Take Time
Bloomberg
Federal Reserve Chairman Ben S. Bernanke said an overhaul of U.S. housing policy won't likely occur any time soon since the economy is still healing.
http://jlne.ws/mPyj8t
Plosser Says Latest Easing Moves May Undermine Fed Credibility
By Joshua Zumbrun Bloomberg Businessweek
Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank may be undermining its own credibility by pushing forward with monetary easing that will do little to boost growth.
http://jlne.ws/nPHHQD
Fed’s Williams Says It’s Unclear If ‘Operation Twist’ or QE Works Better
By Steve Matthews and Klaus Wille, Bloomberg
Federal Reserve Bank of San Francisco President John C. Williams said it’s unclear whether outright purchases of Treasury securities or lengthening their duration such as in the plan announced this week is more effective in boosting the economy.
http://jlne.ws/qdaucL
Economic Signals Heighten Worries of a Double-Dip
BY SUDEEP REDDY AND BEN CASSELMAN
Is the world heading for another recession?
Fresh data Thursday pointed to a decline in manufacturing activity in both China—a critical engine of the global recovery—and Europe, a sign businesses are bracing for slower growth. Compounding the concern is the political paralysis in Europe and the U.S., where rival parties are divided on how to respond to the crisis.
http://jlne.ws/qotpgu
Fed's Kocherlakota: Central Bank Independence and Sovereign Default
Sargent and Wallace published their classic “Some Unpleasant Monetarist Arithmetic” in the Minneapolis Fed’s Quarterly Review in 1981. Since that date, there has been a growing appreciation of the role of fiscal policy in the determination of the price level. The idea is a simple one. Consider a government that borrows only using non-indexed debt denominated in its own currency. There is an intertemporal government budget constraint that implies that the current real value of government liabilities—including the monetary base—must equal the present value of future real surpluses. Because the liabilities are nominal and non-indexed, the government budget constraint provides a linkage between the public’s assessment of future real tax collections and government spending and the current price level.
http://jlne.ws/raYW
Fed's Kocherlakota: Tough central banks can control prices
Reuters
Central bankers can control inflation regardless of fiscal policy, but only if they are willing to allow the government to default, Minneapolis Federal Reserve President Narayana Kocherlakota said on Monday.
http://jlne.ws/oENewu
Fed's Kocherlakota: Central Bank Price Control Linked To Debt-Default Risk
WSJ.com
The head of the Minneapolis Federal Reserve underscored his reputation as an inflation hawk Monday by stating that central bank control over price levels may hinge on a willingness to allow its government overseer to default.
http://jlne.ws/q8KMQu
Minneapolis Fed: The Generation Gap
Recessions hurt the old most and young least, with impact determined by asset
sales of middle-aged.
http://jlne.ws/pM6Mgi
Moody's: Rising Risks Make U.S. Recession an Even Bet
The probability that the U.S. will be in recession in six months is rising quickly, requiring action by both U.S. and European policymakers.
http://jlne.ws/q60qlF
Mounting concerns over Fed's Operation Twist
By Chris Sloley, CityWire
The US Federal Reserve’s major policy announcement – dubbed Operation Twist – lacks enough positive market impact and there is a fear the programme will fail.
http://jlne.ws/oVO0wQ
Fed's Lockhart: Operation Twist Should Have 'Modest Impact
MarketWatch
The Fed's latest policy move to extend the maturity of its balance sheet, dubbed Operation Twist, will only have a "modest positive impact" on the economy, said Dennis Lockhart, the president of the Atlanta Federal Reserve Bank, on Tuesday.
http://jlne.ws/pmVjmE
Fitch: Fitch Downgrades New Zealand to AA, Outlook Stable
New Zealand's high level of net external debt is an outlier among rated peers - a key vulnerability that is likely to persist as the current account deficit is projected to widen again, reflecting a structural savings/investment imbalance. Nonetheless, New Zealand remains well placed among the world's highly-rated sovereign credits, with its creditworthiness supported by moderate public indebtedness, fiscal prudence, and strong public institutions.
http://jlne.ws/pdkQ0j
Geithner Predicts Europe Will Step Up on Crisis After Chiding
BusinessWeek
U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region's debt crisis after a chiding from counterparts around the world.
http://jlne.ws/oid76P
Bernanke's Twist May Be Hampered by Geithner's Bond Selling
Bloomberg
Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner may be working at cross purposes as one buys Treasury bonds and the other sells them.
http://jlne.ws/psIcvQ
G20 promises collaboration to boost world economy
USA Today
The Group of 20 leading advanced and emerging economies are vowing to work together to boost the struggling global economy and financial system. The G-20 voiced the resolve in a statement, saying its finance ministers and central bank governors are "committed to a strong and coordinated international response to address the renewed challenges facing the global economy."
http://jlne.ws/p2NayW
G-20: Globalization's Two-Edged Sword
International Business Times
Even as G-20 leaders grapple with the global financial crisis, a larger, over-arching concern is limiting GDP growth in the U.S., and, to a lesser degree, in other developed economies and, by extension, decreasing the capacity of the these nations to counteract the crisis: inadequate wage growth.
http://jlne.ws/nYOKrY
ECB Ready to Act Next Month If Outlook Worsens
Bloomberg
The European Central Bank may step up efforts to boost growth and ease financial-market tensions as early as next month, Governing Council members said.
http://jlne.ws/oVCnva
ECB to Consider New Crisis Tactics
By Gabi Thesing and Esteban Duarte, Bloomberg
European Central Bank policy makers are likely to next week debate restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said.
http://jlne.ws/oSvjYv
Fitch CDx Survey: Sovereign and Regulatory Issues Top of Mind for Banks
Business Wire
NEW YORK--(BUSINESS WIRE)--Sovereign credit default swaps (CDS) use, market volatility and regulatory issues topped the list of the most surprising events in the Credit Derivatives (CDx) market, according to Fitch Ratings' Annual Credit Derivatives Survey. Survey respondents cited unexpectedly high volumes and spread volatility among various sovereign names, particularly those of Western Europe ...
http://jlne.ws/r3M3OZ
Fitch: U.S. money fund exposure to European banks declines further
U.S. prime money market funds (MMFs) further reduced their total exposure to European banks as of month-end August 2011, according to Fitch Ratings. European bank exposure currently represents 42.1% of total MMF holdings within Fitch's sample, down from 47.2% as of month-end July. On a dollar basis, MMF exposure to European banks declined by 8% since month-end July and by 27% since month-end May.
http://jlne.ws/pwjOeW
Why Europe's Economy Matters For The U.S., In 1 Graph
by Jacob Goldstein, NPR
Why does Europe's endless debt crisis matter for the U.S.? Here's one reason. In the '90s, the economies of Europe and the U.S. were largely independent of one another. But in the past decade, as the graph below shows, they've risen and fallen together.
http://t.co/vzbQAt8j
Ermotti Named Interim Chief at UBS as Gruebel Resigns After Trading Loss
Bloomberg
Sergio Ermotti , UBS AG (UBSN) 's European head and a former derivatives banker, was named interim chief executive officer as Switzerland's biggest bank seeks to rebuild client and investor trust after a $2.3 billion trading loss.
http://jlne.ws/nT0nYQ
SIFMA Statement on Revised Proposals for Market-Wide Circuit Breaker Rules
Washington, DC, September 28, 2011—SIFMA today released the following statement from Randy Snook, executive vice president, after FINRA and the exchanges released new proposed rules outlining the operation of market-wide circuit breakers, which have been in development over the past year in response to the May 6, 2010 Flash Crash.
http://jlne.ws/phd2jH
NCUA proposing amendments to its proposed rule governing corporate credit unions
The NCUA is proposing amendments to its proposed rule governing corporate credit unions, previously published on March 1, 2011 (see 76 FR 11164). The original proposal removes references to credit ratings in regulations and proposes alternatives to the use of credit ratings. Among other changes, these amendments would delete the definition of "daily average net risk-weighted assets" and revise the definition of "net assets."
http://jlne.ws/oCCGNa
Foreclosed Families to March on Bank of America Friday with 1,000 supporters
Press Release
Over 1,000 people are expected to take to the streets Friday for a march on Bank of America (NYSE:BAC) to rally against Wall Street greed, predatory lending, and skyrocketing foreclosures in urban communities.
http://jlne.ws/qHzEzD
KKR's Kravis Says Credit Markets Making Buyouts More Expensive
BusinessWeek
Henry Kravis, co-founder of KKR & Co., said private-equity deals are becoming more expensive as the reluctance of banks and investors to lend drives up borrowing costs.
http://jlne.ws/qpqciQ
Trade Associations Oppose Global Financial Transaction Tax
Press Release
A broad group of trade associations sent a letter to U.S. Treasury Secretary Timothy Geithner reiterating their opposition to a financial transaction tax and urged him to continue to encourage other G20 members to resist pressure to adopt proposals for this tax on a global basis.
http://jlne.ws/qNF5tZ
Events
SEFCON II
Oct. 3, 2011
WMBAA To Examine Role And Operation Of Swap Execution Facilities Under Dodd-Frank
http://jlne.ws/pY4N7S
** CN: MarketsReformWiki's Doug Ashburn will be attending this event.
MarketsWiki Questions: Exploring Financial Technology
October 5, 2011, IIT Stuart School of Business
http://jlne.ws/oHRGmC
CMA/SCI New York CDS Seminar
October 6, 2011
CMA/SCI Discussions Will Focus On Dodd-Frank Regulations
http://jlne.ws/n7ukqG
The European Exchanges SummitOctober 17, 2011
Marketforce and the IEA discuss key issues with Europe's industry leaders
http://jlne.ws/roaBqg
7th Annual FIA Asia Derivatives Conference
November 29 - December 1, 2011
FIA looks at the futures and options industry in Asia
http://www.futuresindustry.org/asia-2011.asp
Economic News
Second-Quarter GDP Grew at 1.3% Rate
Reuters/The New York Times
The United States economy grew slightly more than previously reported in the second quarter, helped by consumer spending and export growth that was stronger than earlier estimated, according to a government report on Thursday that pointed to slow growth rather than a recession.
http://jlne.ws/pmfXif
Pending U.S. Home Sales Decline 1.2% as Lower Prices Fail to Stoke Demand
By Timothy R. Homan, Bloomberg
The number of contracts to purchase previously owned U.S. homes fell in August, a sign that lower prices and borrowing costs are doing little to stoke demand.
http://jlne.ws/o6GJ99
Kansas City Fed's Sept Manufacturing Composite Index Rises To 6
Dow Jones
Manufacturing activity in the Federal Reserve Bank of Kansas City's district picked up slightly in September, according to a report released by the bank Thursday. The expansion bucks the contractionary trends seen in other regional Fed surveys.
http://jlne.ws/nwkvT6
U.S. on ‘knife edge’ of contraction: Dallas Fed Economist
By Jim Forsyth, Reuters/Financial Post
The U.S. economy is on a ‘knife edge’ between growth and contraction and monetary policy tweaks do not seem to be helping, the Dallas Federal Reserve’s top economist said Tuesday.
http://t.co/3UEcdXi7
Consumer confidence was flat in September amid worries about jobs, income
Associated Press
Consumers’ confidence remained weak in September after dropping to a post-recession low during the month before. That’s left economists to wonder just what it’ll take to get Americans feeling good about the economy again.
http://jlne.ws/nurnrO
A Look at Case-Shiller by Metro Area
By Phil Izzo, WSJ.com
S&P/Case-Shiller home-price data showed sideways movement in July, as prices were boosted from a month earlier thanks to seasonal factors but remained below year-ago levels.
http://jlne.ws/pPjAPp
New U.S. home sales fall 2.3% in August to 295,000
MarketWatch
The sale of new U.S. homes fell 2.3% in August to an annual rate of 295,000, marking the fourth decline in a row, the Commerce Department reported Monday. Sales last month dropped to the lowest level since February. Economists surveyed by MarketWatch had forecast sales to drop to 292,000 last month.
http://jlne.ws/oxg9Js
U.S. September Dallas Fed Business Outlook Report (Text)
Bloomberg
The following is the text of the Texas manufacturing activity from the Federal Reserve Bank of Dallas.
Texas factory activity increased in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 1.1 to 5.9, suggesting growth picked up this month after stalling in August.
http://jlne.ws/mUiukq
Firms & Banks
B ofA Finds New Way of Making Money: $5 Debit Card Charge
By Shira Ovide, WSJ.com
Well, at least banks have found fresh ways of making money, since that whole mortgages and loans thing isn’t working out so well.
http://jlne.ws/n0r5bt
A $50 Billion Claim of Havoc Looms for Bank of America
By STEVEN M. DAVIDOFF, NY Times
Bank of America’s potential liability for bad mortgages — in the tens of billions of dollars — is well known. But Bank of America is haunted by other demons from the financial crisis, the most significant one being a lawsuit arising from its troubled Merrill Lynch acquisition.
http://jlne.ws/nXHMZx
Bank of America Mortgages Heading to Hedge Fund: Report
TheStreet.com
Bank of America is in talks to sell its correspondent mortgages business to a unit of Fortress Investment Group, the Wall Street Journal reported, citing people familiar with the situation.
http://jlne.ws/n5NKs8
Warburg’s Cortview Cuts Commercial Mortgage Team Led by Green
http://jlne.ws/pQpEzd
Deutsche Bank, Morgan Stanley To Sell $609 Million CMBS Next Week
Al Yoon, Dow Jones Newswires
Deutsche Bank AG expects to price $609 million in floating-rate commercial mortgage-backed securities next week, according to a term sheet sent to investors on Wednesday.
http://jlne.ws/pbRlm0
Deutsche Bank CEO Says Euro-Fund Approval 'Crucially Important'
Bloomberg
Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said it was "crucially important" for euro area governments to implement a July 21 agreement to beef up the rescue fund for their common currency.
http://jlne.ws/nfFUPA
SocGen's Newedge futures unit for sale - source
Reuters
Societe Generale (SOGN.PA) has put up for sale its stake in Newedge, a futures and clearing brokerage it co-owns with Credit Agricole (CAGR.PA), a source familiar with the situation said on Tuesday, as the No. 2 French bank looks to shrink its balance sheet and sell risky assets.
http://jlne.ws/oeNHQR
Goldman Sachs Wins Dismissal of Lawsuit Over CDO Loss
BusinessWeek
Goldman Sachs Group Inc. won dismissal of a lawsuit brought by Landesbank Baden-Wuerttemberg over losses on $37 million in collateralized debt obligations.
http://jlne.ws/ruDgPV
Pimco's Bridwell to Head Alternatives in Hedge Fund Push
BusinessWeek
Pacific Investment Management Co. named Jennifer Bridwell head of alternatives product development as the firm expands hedge funds and distressed-debt strategies.
http://jlne.ws/nPskwK
UBS chairman comes under attack
By Haig Simonian, FT.com
http://jlne.ws/mScXdI
UBS Shareholders Push for Deeper Changes
BY GORAN MIJUK,WSJ.com
Several influential Swiss shareholders called for more changes atop UBS AG and said reducing the size or even getting rid of the investment bank could lift Switzerland's largest financial firm out of its most-recent crisis.
http://jlne.ws/nL5iYz
UBS’s Grübel Steps Down, More May Follow
WSJ.com
Even as Oswald Grubel’s decision to resign over a trading scandal that cost UBS $2.3 billion is shaking the banking industry Monday, talk that more high-level departures may be needed is growing louder.
http://jlne.ws/nBVtLe
Barclays loses head of European retail banking
By Sharlene Goff, FT.com
http://jlne.ws/oUK7v4
Darnell Tells Merrill's Brokers He'll Stay Out of Their Way
BusinessWeek
Bank of America Corp.'s David Darnell, the commercial banker put in charge of the lender's Merrill Lynch brokerage, promised employees he'll do anything including "get out of the way" to help them improve results.
http://jlne.ws/owMpCe
Morgan Stanley Division Reaches Settlement With Nevada Attorney General
Las Vegas Review-Journal
A division of investment banker Morgan Stanley on Tuesday agreed to a settlement with the state attorney general that would end an investigation into the firm's alleged deceptive mortgage lending and securitization practices in Nevada. Morgan Stanley Mortgage
http://jlne.ws/qncd83
Morgan Stanley hires advisers from Wells Fargo
Market Watch
Morgan Stanley Smith Barney has hired two financial advisers from Wells Fargo Advisors who managed a combined $280 million in client assets. Lawrence Durso and Kris Frazier joined Morgan Stanley Smith Barney's Red Bank, N.J., office from Wells Fargo, a unit of Wells Fargo & Co. WFC. The team, which will report to complex manager Chris Shaw, generated $2.2 million in fees and commissions.
http://jlne.ws/q6yh4w
Freddie under fire over bad loan procedures
By Shahien Nasiripour in New York, Financial Times
Freddie Mac, the US government-controlled mortgage financier, used flawed procedures for determining how lenders repurchased soured loans, probably saddling taxpayers with billions of dollars in losses, according to a federal audit to be released Tuesday.
http://jlne.ws/oVucGa
Goldman Sachs eyes major cuts: report
AFP via Yahoo! News
Goldman Sachs is mulling drastic spending cuts as it braces for what could be one of its worst quarterly reports since it went public more than a decade ago, the New York Times reported Tuesday.
http://jlne.ws/o0Y49Q
Capital One to add 500 jobs in Delaware
AP via Yahoo! News
Capital One Financial Corp. will expand its Delaware workforce by 500 jobs with help from the state.
http://jlne.ws/prQBmz
Ranieri Real Estate Partners and WL Ross to Acquire Deutsche Bank Berkshire Mortgage
Business Wire
NEW YORK--(BUSINESS WIRE)--Ranieri Real Estate Partners LP and funds affiliated with WL Ross & Co. LLC have entered into a definitive agreement to acquire Deutsche Bank Berkshire Mortgage, a subsidiary of Deutsche Bank.
http://jlne.ws/pxWaNJ
Allfunds Bank Expands In The Middle East
Press Release
Allfunds Bank, the market-leading European B2B platform for the distribution of third-party investment funds, has established an office in the Dubai International Financial Centre.
http://jlne.ws/rknFoC
Berkshire to Buy Back Stock; Cash Tops $40B
By Andrew Frye, Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which has shunned buybacks for four decades, will repurchase shares for as much as 110 percent of their book value, saying the stock is undervalued after falling 17 percent this year. Berkshire jumped in New York trading.
http://jlne.ws/qpCvAW
Membership Changes Made to New York Fed’s Community Depository Institutions Advisory Council
Press Release
The Federal Reserve Bank of New York today announced several changes to the membership of its Community Depository Institutions Advisory Council (CDIAC).
http://jlne.ws/oqpeFR
Citi Launches CitiConnect, which provides connectivity for Treasury & Trade Solutions, Securities & Funds Services
Press Release
Citi's Global Transaction Services today announced the launch of its integrated enterprise connectivity solution, CitiConnect. This new connectivity offering provides a wide range of connectivity options to meet clients' unique business needs and provides greater choice and flexibility for integration with their back end systems.
http://jlne.ws/piZBWs
Eurekahedge launch new asset weighted ‘Mizuho-Eurekahedge Index’
Press Release
SINGAPORE (September 28, 2011) - Eurekahedge, a market leading alternative fund data provider, announced today that they are to launch a suite of new asset weighted indices, under the name ’Mizuho-Eurekahedge Index’.
http://jlne.ws/qOZrOe
Regulators
SEC probes banks over mortgage loans
By Kara Scannell in New York, Financial Times
The Securities and Exchange Commission is investigating Royal Bank of Scotland, Credit Suisse and other financial institutions for their handling of problem mortgage loans, according to public disclosures and people familiar with the matter.
http://jlne.ws/rlrPBO
NFA Signs Agreement With GFI Group To Provide Regulatory Services To GFI's Swap Execution Facility
Press Release
September 28, 2011, Chicago and New York - National Futures Association (NFA) and GFI Group Inc. (GFI) today announced that they have entered into an agreement that paves the way for NFA to perform regulatory services for GFI's swap execution facility (SEF).
http://jlne.ws/oJaNX5
SEC's Walter Wants SEC to Take Close Look at Munis
The Bond Buyer
Securities and Exchange Commissioner Elisse Walter called Tuesday for the commission to take a long-term, deep-dive look at the fixed-income market structure.
http://t.co/PfbrpoiW
New Capital Rules Likely for Banks
BY VICTORIA MCGRANE, WSJ.com
International regulators are set to rebuff heavy lobbying by banks and stick with a plan to require some of the world's largest financial institutions to hold extra capital, according to people familiar with the matter.
http://jlne.ws/r4Nl4F
Lagarde's Clout Limited, Despite Her Star Power
WSJ
Despite her new fame as the first woman to head of the International Monetary Fund, Christine Lagarde is learning that star power doesn't necessarily translate into political power on the world stage.
http://jlne.ws/rmxRWu
Only the IMF can solve the eurozone crisis
Financial Times
The world markets expected concrete steps from Washington over the weekend on how governments would resolve the European crisis. They did not get it. Instead, the International Monetary Fund’s policy setting body asserted that the “Euro-area countries will do whatever is necessary to resolve the euro-area sovereign debt crisis”. Unfortunately, this statement seems to be based more on hope and prayer than on evidence.
http://jlne.ws/mPHtwz
OTC
Credit-Swap Dealers May Hold Onto Risk for Weeks, Fed Study Says
By Matthew Leising
Credit-default swap dealers often hold onto risk from big trades for longer than many investors previously thought, which may complicate the task for regulators trying to impose new reporting rules in the vast, opaque derivatives market, a report shows.
http://jlne.ws/rjy7u8
NY Fed Study Finds Low CDS Trade Frequency
By Katy Burne Of DOW JONES NEWSWIRES
Trading in the credit derivatives market is less active than most liquid financial markets, suggesting dealers play a pivotal role in juicing flows, but the off-exchange contracts are mostly standardized, often resembling listed trades, according to a report released Tuesday by the Federal Reserve Bank of New York.
http://jlne.ws/nTNBnb
ISDA Comments on CPSS/IOSCO Consultative Report
The International Swaps and Derivatives Association, Inc. (ISDA) filed a comment letter on September 23 with the Committee on Payment and Settlements Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) in response to their consultative report on over-the-counter (OTC) derivatives data reporting and aggregation requirements.
http://jlne.ws/niRcEw
ISDA Pushes For Single Counterparty Exposure Repository
By Katy Burne Of DOW JONES NEWSWIRES
The International Swaps and Derivatives Association reiterated its call Monday for a single swaps data repository showing counterparty exposures, saying it could provide "an aggregated risk view for regulators." The idea was first put forward by the trade association earlier this month at its North American annual conference in New York.
http://jlne.ws/noTvUc
Dealers' CDS Coverage Doesn't Seem To Match Greek Exposure
By Katy Burne, Dow Jones Newswires
Dealer banks do not seem to have purchased enough insurance for the catastrophe that could be a Greek debt default in the coming quarters. A back-of-the envelope calculation using the maximum amount that derivatives dealers could collect on sovereign default insurance tied to Greece highlights how inadequate payouts could be when contrasted with the exposures of even a few banking institutions.
http://jlne.ws/nLVdVK
Swaps Clearing Revenue Could Match Energy Rise, Analyst Says
By Matthew Leising, Bloomberg
Revenue growth for swaps clearinghouse owners will take more time to materialize than previously thought, though longer-term it could match the increased sales of up to 27 times seen in energy clearing, according to Keefe Bruyette & Woods.
http://jlne.ws/mWfYNi
Global News
Spain, Italy Extend Bans on Shorting Bank Shares
By Ben Moshinsky, Bloomberg
Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility.
http://jlne.ws/r5KcTm
Project Islamic Bonds give hope to Saudi market
By Jonathan Terry, Bikyamasr
Saudi Arabia is hopeful that Project Islamic bonds will increase with the launch of the first project this month. Issuers are looking to the launch of the sukuk as a means to diversify funding sources as global financial difficulties continue to cause problems for leading international banks.
http://jlne.ws/o0130m
Merkel hedges bets on Greece as euro pressure builds
By Stephen Brown and Madeline Chambers, Reuters
Angela Merkel worked to defuse revolt within her government on Wednesday, soothing fears Germany may be throwing good money after bad in Greece but acknowledging the concerns of those ready to humiliate her in a parliamentary vote.
http://jlne.ws/pceuJF
First Portuguese bank becomes a member of Eurex Repo
Press Release
Eurex: Eurex Repo, the leading marketplace for international, electronic repo trading and secured funding, today announced its further expansion in Europe. Banco de Investimento Global is its first Portuguese member. The bank has entered its first transactions via the Euro Repo and the GC Pooling markets. With this new customer, the total number of Euro Repo participants has risen to 87, thereof 74 use the GC Pooling market. Eurex Repo members are based in eleven countries, among them Germany, France, Great Britain, Netherlands, Spain, and – since this week – in Portugal.
http://jlne.ws/p5N1Gm
Russia's Federal Financial Markets Service Holds A Meeting With Financial Market Players And CBR Representatives
Press Release
On September 26, 2011 Mr Dmitry Pankin, Head of the Federal Financial Markets Service, held a meeting with participants of the financial market and representatives of the Central Bank of Russia to discuss operation of the Russian financial market in a highly volatile environment.
http://jlne.ws/n9q4tR
Greek parliament passes new property tax bill to boost revenue
Associated Press
Greek lawmakers approved a controversial new property tax Tuesday that aims to boost revenue as the country struggles to obtain a critical installment of international bailout loans that will prevent it from default
http://jlne.ws/pi3Fi9
IMF chief warns of not enough cash to bail out more nations
WalesOnline
Monetary Fund head Christine Lagarde has suggested the IMF may not have enough funds to bail out more countries if they are dragged into the eurozone debt crisis.
http://jlne.ws/oeMyOd
Medvedev Fires Russian Finance Minister for Insubordination
The New York Times
President Dmitri A. Medvedev fired Russia’s longtime finance minister for insubordination on Monday after the two had an icy confrontation on television that revealed the fault lines in a government where disagreements are usually kept strictly under wraps.
http://jlne.ws/nuMjLg
European Crisis Primer: Where Things Stand
By Terence Roth,WSJ.com
Here’s a quick look at where things stand with the euro-zone crisis for those who need help navigating this confusing and complex situation.
http://jlne.ws/qwN1yv
Germany downplays hopes of fast new crisis course
Boston.com
German officials on Monday downplayed prospects of any quick and dramatic change of course in the eurozone debt crisis, days before a parliamentary vote on beefing up the continent's rescue fund.
http://jlne.ws/nPsWSJ
World Bank: Eurozone Crisis Clouds Recovery In Emerging Europe And Central Asia
Press Release
Economic recovery is underway in the Emerging Europe and Central Asia (ECA) region, but at a slow pace and is at risk from the troubled Eurozone, according to the World Bank at a press briefing during the World Bank/IMF Annual Meetings 2011.
http://jlne.ws/ogfMY2
IMF’s Blanchard Says World Economy Has ‘Enormous Risks’ Now
By Bob Willis and Tom Keene, Bloomberg
European officials need to convince investors that European Union countries aren’t at risk of becoming another Greece as they forge ahead with their own deficit-cutting measures, said Olivier Blanchard, chief economist at the International Monetary Fund.
http://jlne.ws/mXWFYX
TREMONTI: Solution To European Crisis Is a Firm Germany
AGI
Italy's economics minister, Giulio Tremonti said in an interview with RAI that Europe is "the epicenter of the crisis. The solution will be found only if Germany takes a more firm position, if it has the courage, the force and vision to invest in Europe, for the good of Europe and for the good of Germany."
http://jlne.ws/n8Mgww
Moody's Downgrades 8 Greek Banks
ABC/AP
Moody's downgraded eight Greek banks Friday, citing their exposure to their government's bonds and the deteriorating economic situation in the country as it struggles to convince creditors it's doing enough to get more bailout cash.
http://jlne.ws/pRUENr
Cost To Insure French Bank Debt Falls 8% On Aid Talk
Mena Fn/Dow Jones
http://jlne.ws/nBHMKr
Disclaimer: The John Lothian, Environmental Markets, JLN Metals, JLN Managed Futures, JLN Interest Rates, JLN Options and JLN FX newsletters and blogs and MarketsWiki are products of John J. Lothian & Company, Inc. The opinions expressed in these publications are strictly those of their respective editors. They are intended solely for informative purposes and are not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Security futures are not suitable for all customers.
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Copyright 2011 John J. Lothian & Company, Inc. All Rights Reserved.
JLN Interest Rates - http://www.jlninterestrates.com
Conversation Starter
SIGTARP Report On TARP Shows Law Firms Were Paid Millions For Professional Services Related To TARP
The Acting Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has issued an audit report: Legal Fees Paid Under the Troubled Asset Relief Program: An Expanded Report. The report shows that from the inception of TARP to March 31, 2011, Treasury's Office of Financial Stability (OFS), which administers TARP, paid five law firms more than $27 million in fees and expenses. SIGTARP began an audit of OFS policies and practices governing OFS contracts with law firms in May 2010 as part of SIGTARP's continuing oversight of TARP and in response to a request from Senator Tom Coburn M.D. See the entire SIGTARP report here (PDF).
-------------------------------------------------------
Euribor Futures To Join Eurodollar Futures On CME Globex — Oct. 3, 2011
Exchange Release
CME Group will launch Euribor Futures on Globex Oct. 3. Euribor futures provide the marketplace with another flexible, efficient, and cost effective tool for managing global interest rate exposure. Based on the Euro Interbank Offered Rate, Euribor futures will trade around the clock, around the world on CME Globex, alongside Eurodollar and Treasury futures. Euribor futures are a natural extension of CME Group’s highly successful Eurodollar futures contract. In addition, Euribor futures leverage the global distribution of CME Globex, offering fast and efficient access to the world’s most liquid interest rate markets.
See a video of CME's Managing Director, Interest Rate and Foreign Exchange Products, Derek Sammann, talking about the CME's new Euribor contract here.
----------------------------------------------------------------------
MarketsWiki Questions: Exploring Financial Technology
Question 6 Interactive Video Now Available - http://marketswiki.tv/questions/q6/
Ahead of our MarketsWiki Questions: Exploring Financial Technology event in October we're asking experts in the financial services industry seven questions and providing the best answers in an interactive video format.
Question 7: What, in terms of technology, is missing in the financial markets? - http://marketswiki.tv/questions/q7/
(Question 7 is sponsored by: Patsystems - http://lin.sh/mwq_sungardlogo)
Register here or email ryanlothian@johnlothian.com for an invoice.
DATE: Wednesday, October 5, 2011
TIME: 4:30 pm - 6 p.m., Networking event afterward.
PLACE: Illinois Institute of Technology - 565 W. Adams St, Chicago, IL 60661
COST: $20 per person
Our MarketsWiki Questions: Exploring Financial Technology interactive video series examined the intersection of technology and the financial markets by posing seven critical questions to dozens of market and technology experts. Join us on October 5th in Chicago as our series culminates with an exciting lineup of speakers presenting the market technology ideas and solutions that will shape our industry's future.
See the list of speakers here.
-- Christine Nielsen
Lead Stories
The Road from Depression
George Soros
Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control, and they need to do so now.
http://jlne.ws/nyvCEU
Bernanke Says ‘Reforms' in U.S. Housing Policy Will Take Time
Bloomberg
Federal Reserve Chairman Ben S. Bernanke said an overhaul of U.S. housing policy won't likely occur any time soon since the economy is still healing.
http://jlne.ws/mPyj8t
Plosser Says Latest Easing Moves May Undermine Fed Credibility
By Joshua Zumbrun Bloomberg Businessweek
Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank may be undermining its own credibility by pushing forward with monetary easing that will do little to boost growth.
http://jlne.ws/nPHHQD
Fed’s Williams Says It’s Unclear If ‘Operation Twist’ or QE Works Better
By Steve Matthews and Klaus Wille, Bloomberg
Federal Reserve Bank of San Francisco President John C. Williams said it’s unclear whether outright purchases of Treasury securities or lengthening their duration such as in the plan announced this week is more effective in boosting the economy.
http://jlne.ws/qdaucL
Economic Signals Heighten Worries of a Double-Dip
BY SUDEEP REDDY AND BEN CASSELMAN
Is the world heading for another recession?
Fresh data Thursday pointed to a decline in manufacturing activity in both China—a critical engine of the global recovery—and Europe, a sign businesses are bracing for slower growth. Compounding the concern is the political paralysis in Europe and the U.S., where rival parties are divided on how to respond to the crisis.
http://jlne.ws/qotpgu
Fed's Kocherlakota: Central Bank Independence and Sovereign Default
Sargent and Wallace published their classic “Some Unpleasant Monetarist Arithmetic” in the Minneapolis Fed’s Quarterly Review in 1981. Since that date, there has been a growing appreciation of the role of fiscal policy in the determination of the price level. The idea is a simple one. Consider a government that borrows only using non-indexed debt denominated in its own currency. There is an intertemporal government budget constraint that implies that the current real value of government liabilities—including the monetary base—must equal the present value of future real surpluses. Because the liabilities are nominal and non-indexed, the government budget constraint provides a linkage between the public’s assessment of future real tax collections and government spending and the current price level.
http://jlne.ws/raYW
Fed's Kocherlakota: Tough central banks can control prices
Reuters
Central bankers can control inflation regardless of fiscal policy, but only if they are willing to allow the government to default, Minneapolis Federal Reserve President Narayana Kocherlakota said on Monday.
http://jlne.ws/oENewu
Fed's Kocherlakota: Central Bank Price Control Linked To Debt-Default Risk
WSJ.com
The head of the Minneapolis Federal Reserve underscored his reputation as an inflation hawk Monday by stating that central bank control over price levels may hinge on a willingness to allow its government overseer to default.
http://jlne.ws/q8KMQu
Minneapolis Fed: The Generation Gap
Recessions hurt the old most and young least, with impact determined by asset
sales of middle-aged.
http://jlne.ws/pM6Mgi
Moody's: Rising Risks Make U.S. Recession an Even Bet
The probability that the U.S. will be in recession in six months is rising quickly, requiring action by both U.S. and European policymakers.
http://jlne.ws/q60qlF
Mounting concerns over Fed's Operation Twist
By Chris Sloley, CityWire
The US Federal Reserve’s major policy announcement – dubbed Operation Twist – lacks enough positive market impact and there is a fear the programme will fail.
http://jlne.ws/oVO0wQ
Fed's Lockhart: Operation Twist Should Have 'Modest Impact
MarketWatch
The Fed's latest policy move to extend the maturity of its balance sheet, dubbed Operation Twist, will only have a "modest positive impact" on the economy, said Dennis Lockhart, the president of the Atlanta Federal Reserve Bank, on Tuesday.
http://jlne.ws/pmVjmE
Fitch: Fitch Downgrades New Zealand to AA, Outlook Stable
New Zealand's high level of net external debt is an outlier among rated peers - a key vulnerability that is likely to persist as the current account deficit is projected to widen again, reflecting a structural savings/investment imbalance. Nonetheless, New Zealand remains well placed among the world's highly-rated sovereign credits, with its creditworthiness supported by moderate public indebtedness, fiscal prudence, and strong public institutions.
http://jlne.ws/pdkQ0j
Geithner Predicts Europe Will Step Up on Crisis After Chiding
BusinessWeek
U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region's debt crisis after a chiding from counterparts around the world.
http://jlne.ws/oid76P
Bernanke's Twist May Be Hampered by Geithner's Bond Selling
Bloomberg
Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner may be working at cross purposes as one buys Treasury bonds and the other sells them.
http://jlne.ws/psIcvQ
G20 promises collaboration to boost world economy
USA Today
The Group of 20 leading advanced and emerging economies are vowing to work together to boost the struggling global economy and financial system. The G-20 voiced the resolve in a statement, saying its finance ministers and central bank governors are "committed to a strong and coordinated international response to address the renewed challenges facing the global economy."
http://jlne.ws/p2NayW
G-20: Globalization's Two-Edged Sword
International Business Times
Even as G-20 leaders grapple with the global financial crisis, a larger, over-arching concern is limiting GDP growth in the U.S., and, to a lesser degree, in other developed economies and, by extension, decreasing the capacity of the these nations to counteract the crisis: inadequate wage growth.
http://jlne.ws/nYOKrY
ECB Ready to Act Next Month If Outlook Worsens
Bloomberg
The European Central Bank may step up efforts to boost growth and ease financial-market tensions as early as next month, Governing Council members said.
http://jlne.ws/oVCnva
ECB to Consider New Crisis Tactics
By Gabi Thesing and Esteban Duarte, Bloomberg
European Central Bank policy makers are likely to next week debate restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said.
http://jlne.ws/oSvjYv
Fitch CDx Survey: Sovereign and Regulatory Issues Top of Mind for Banks
Business Wire
NEW YORK--(BUSINESS WIRE)--Sovereign credit default swaps (CDS) use, market volatility and regulatory issues topped the list of the most surprising events in the Credit Derivatives (CDx) market, according to Fitch Ratings' Annual Credit Derivatives Survey. Survey respondents cited unexpectedly high volumes and spread volatility among various sovereign names, particularly those of Western Europe ...
http://jlne.ws/r3M3OZ
Fitch: U.S. money fund exposure to European banks declines further
U.S. prime money market funds (MMFs) further reduced their total exposure to European banks as of month-end August 2011, according to Fitch Ratings. European bank exposure currently represents 42.1% of total MMF holdings within Fitch's sample, down from 47.2% as of month-end July. On a dollar basis, MMF exposure to European banks declined by 8% since month-end July and by 27% since month-end May.
http://jlne.ws/pwjOeW
Why Europe's Economy Matters For The U.S., In 1 Graph
by Jacob Goldstein, NPR
Why does Europe's endless debt crisis matter for the U.S.? Here's one reason. In the '90s, the economies of Europe and the U.S. were largely independent of one another. But in the past decade, as the graph below shows, they've risen and fallen together.
http://t.co/vzbQAt8j
Ermotti Named Interim Chief at UBS as Gruebel Resigns After Trading Loss
Bloomberg
Sergio Ermotti , UBS AG (UBSN) 's European head and a former derivatives banker, was named interim chief executive officer as Switzerland's biggest bank seeks to rebuild client and investor trust after a $2.3 billion trading loss.
http://jlne.ws/nT0nYQ
SIFMA Statement on Revised Proposals for Market-Wide Circuit Breaker Rules
Washington, DC, September 28, 2011—SIFMA today released the following statement from Randy Snook, executive vice president, after FINRA and the exchanges released new proposed rules outlining the operation of market-wide circuit breakers, which have been in development over the past year in response to the May 6, 2010 Flash Crash.
http://jlne.ws/phd2jH
NCUA proposing amendments to its proposed rule governing corporate credit unions
The NCUA is proposing amendments to its proposed rule governing corporate credit unions, previously published on March 1, 2011 (see 76 FR 11164). The original proposal removes references to credit ratings in regulations and proposes alternatives to the use of credit ratings. Among other changes, these amendments would delete the definition of "daily average net risk-weighted assets" and revise the definition of "net assets."
http://jlne.ws/oCCGNa
Foreclosed Families to March on Bank of America Friday with 1,000 supporters
Press Release
Over 1,000 people are expected to take to the streets Friday for a march on Bank of America (NYSE:BAC) to rally against Wall Street greed, predatory lending, and skyrocketing foreclosures in urban communities.
http://jlne.ws/qHzEzD
KKR's Kravis Says Credit Markets Making Buyouts More Expensive
BusinessWeek
Henry Kravis, co-founder of KKR & Co., said private-equity deals are becoming more expensive as the reluctance of banks and investors to lend drives up borrowing costs.
http://jlne.ws/qpqciQ
Trade Associations Oppose Global Financial Transaction Tax
Press Release
A broad group of trade associations sent a letter to U.S. Treasury Secretary Timothy Geithner reiterating their opposition to a financial transaction tax and urged him to continue to encourage other G20 members to resist pressure to adopt proposals for this tax on a global basis.
http://jlne.ws/qNF5tZ
Events
SEFCON II
Oct. 3, 2011
WMBAA To Examine Role And Operation Of Swap Execution Facilities Under Dodd-Frank
http://jlne.ws/pY4N7S
** CN: MarketsReformWiki's Doug Ashburn will be attending this event.
MarketsWiki Questions: Exploring Financial Technology
October 5, 2011, IIT Stuart School of Business
http://jlne.ws/oHRGmC
CMA/SCI New York CDS Seminar
October 6, 2011
CMA/SCI Discussions Will Focus On Dodd-Frank Regulations
http://jlne.ws/n7ukqG
The European Exchanges SummitOctober 17, 2011
Marketforce and the IEA discuss key issues with Europe's industry leaders
http://jlne.ws/roaBqg
7th Annual FIA Asia Derivatives Conference
November 29 - December 1, 2011
FIA looks at the futures and options industry in Asia
http://www.futuresindustry.org/asia-2011.asp
Economic News
Second-Quarter GDP Grew at 1.3% Rate
Reuters/The New York Times
The United States economy grew slightly more than previously reported in the second quarter, helped by consumer spending and export growth that was stronger than earlier estimated, according to a government report on Thursday that pointed to slow growth rather than a recession.
http://jlne.ws/pmfXif
Pending U.S. Home Sales Decline 1.2% as Lower Prices Fail to Stoke Demand
By Timothy R. Homan, Bloomberg
The number of contracts to purchase previously owned U.S. homes fell in August, a sign that lower prices and borrowing costs are doing little to stoke demand.
http://jlne.ws/o6GJ99
Kansas City Fed's Sept Manufacturing Composite Index Rises To 6
Dow Jones
Manufacturing activity in the Federal Reserve Bank of Kansas City's district picked up slightly in September, according to a report released by the bank Thursday. The expansion bucks the contractionary trends seen in other regional Fed surveys.
http://jlne.ws/nwkvT6
U.S. on ‘knife edge’ of contraction: Dallas Fed Economist
By Jim Forsyth, Reuters/Financial Post
The U.S. economy is on a ‘knife edge’ between growth and contraction and monetary policy tweaks do not seem to be helping, the Dallas Federal Reserve’s top economist said Tuesday.
http://t.co/3UEcdXi7
Consumer confidence was flat in September amid worries about jobs, income
Associated Press
Consumers’ confidence remained weak in September after dropping to a post-recession low during the month before. That’s left economists to wonder just what it’ll take to get Americans feeling good about the economy again.
http://jlne.ws/nurnrO
A Look at Case-Shiller by Metro Area
By Phil Izzo, WSJ.com
S&P/Case-Shiller home-price data showed sideways movement in July, as prices were boosted from a month earlier thanks to seasonal factors but remained below year-ago levels.
http://jlne.ws/pPjAPp
New U.S. home sales fall 2.3% in August to 295,000
MarketWatch
The sale of new U.S. homes fell 2.3% in August to an annual rate of 295,000, marking the fourth decline in a row, the Commerce Department reported Monday. Sales last month dropped to the lowest level since February. Economists surveyed by MarketWatch had forecast sales to drop to 292,000 last month.
http://jlne.ws/oxg9Js
U.S. September Dallas Fed Business Outlook Report (Text)
Bloomberg
The following is the text of the Texas manufacturing activity from the Federal Reserve Bank of Dallas.
Texas factory activity increased in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 1.1 to 5.9, suggesting growth picked up this month after stalling in August.
http://jlne.ws/mUiukq
Firms & Banks
B ofA Finds New Way of Making Money: $5 Debit Card Charge
By Shira Ovide, WSJ.com
Well, at least banks have found fresh ways of making money, since that whole mortgages and loans thing isn’t working out so well.
http://jlne.ws/n0r5bt
A $50 Billion Claim of Havoc Looms for Bank of America
By STEVEN M. DAVIDOFF, NY Times
Bank of America’s potential liability for bad mortgages — in the tens of billions of dollars — is well known. But Bank of America is haunted by other demons from the financial crisis, the most significant one being a lawsuit arising from its troubled Merrill Lynch acquisition.
http://jlne.ws/nXHMZx
Bank of America Mortgages Heading to Hedge Fund: Report
TheStreet.com
Bank of America is in talks to sell its correspondent mortgages business to a unit of Fortress Investment Group, the Wall Street Journal reported, citing people familiar with the situation.
http://jlne.ws/n5NKs8
Warburg’s Cortview Cuts Commercial Mortgage Team Led by Green
http://jlne.ws/pQpEzd
Deutsche Bank, Morgan Stanley To Sell $609 Million CMBS Next Week
Al Yoon, Dow Jones Newswires
Deutsche Bank AG expects to price $609 million in floating-rate commercial mortgage-backed securities next week, according to a term sheet sent to investors on Wednesday.
http://jlne.ws/pbRlm0
Deutsche Bank CEO Says Euro-Fund Approval 'Crucially Important'
Bloomberg
Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said it was "crucially important" for euro area governments to implement a July 21 agreement to beef up the rescue fund for their common currency.
http://jlne.ws/nfFUPA
SocGen's Newedge futures unit for sale - source
Reuters
Societe Generale (SOGN.PA) has put up for sale its stake in Newedge, a futures and clearing brokerage it co-owns with Credit Agricole (CAGR.PA), a source familiar with the situation said on Tuesday, as the No. 2 French bank looks to shrink its balance sheet and sell risky assets.
http://jlne.ws/oeNHQR
Goldman Sachs Wins Dismissal of Lawsuit Over CDO Loss
BusinessWeek
Goldman Sachs Group Inc. won dismissal of a lawsuit brought by Landesbank Baden-Wuerttemberg over losses on $37 million in collateralized debt obligations.
http://jlne.ws/ruDgPV
Pimco's Bridwell to Head Alternatives in Hedge Fund Push
BusinessWeek
Pacific Investment Management Co. named Jennifer Bridwell head of alternatives product development as the firm expands hedge funds and distressed-debt strategies.
http://jlne.ws/nPskwK
UBS chairman comes under attack
By Haig Simonian, FT.com
http://jlne.ws/mScXdI
UBS Shareholders Push for Deeper Changes
BY GORAN MIJUK,WSJ.com
Several influential Swiss shareholders called for more changes atop UBS AG and said reducing the size or even getting rid of the investment bank could lift Switzerland's largest financial firm out of its most-recent crisis.
http://jlne.ws/nL5iYz
UBS’s Grübel Steps Down, More May Follow
WSJ.com
Even as Oswald Grubel’s decision to resign over a trading scandal that cost UBS $2.3 billion is shaking the banking industry Monday, talk that more high-level departures may be needed is growing louder.
http://jlne.ws/nBVtLe
Barclays loses head of European retail banking
By Sharlene Goff, FT.com
http://jlne.ws/oUK7v4
Darnell Tells Merrill's Brokers He'll Stay Out of Their Way
BusinessWeek
Bank of America Corp.'s David Darnell, the commercial banker put in charge of the lender's Merrill Lynch brokerage, promised employees he'll do anything including "get out of the way" to help them improve results.
http://jlne.ws/owMpCe
Morgan Stanley Division Reaches Settlement With Nevada Attorney General
Las Vegas Review-Journal
A division of investment banker Morgan Stanley on Tuesday agreed to a settlement with the state attorney general that would end an investigation into the firm's alleged deceptive mortgage lending and securitization practices in Nevada. Morgan Stanley Mortgage
http://jlne.ws/qncd83
Morgan Stanley hires advisers from Wells Fargo
Market Watch
Morgan Stanley Smith Barney has hired two financial advisers from Wells Fargo Advisors who managed a combined $280 million in client assets. Lawrence Durso and Kris Frazier joined Morgan Stanley Smith Barney's Red Bank, N.J., office from Wells Fargo, a unit of Wells Fargo & Co. WFC. The team, which will report to complex manager Chris Shaw, generated $2.2 million in fees and commissions.
http://jlne.ws/q6yh4w
Freddie under fire over bad loan procedures
By Shahien Nasiripour in New York, Financial Times
Freddie Mac, the US government-controlled mortgage financier, used flawed procedures for determining how lenders repurchased soured loans, probably saddling taxpayers with billions of dollars in losses, according to a federal audit to be released Tuesday.
http://jlne.ws/oVucGa
Goldman Sachs eyes major cuts: report
AFP via Yahoo! News
Goldman Sachs is mulling drastic spending cuts as it braces for what could be one of its worst quarterly reports since it went public more than a decade ago, the New York Times reported Tuesday.
http://jlne.ws/o0Y49Q
Capital One to add 500 jobs in Delaware
AP via Yahoo! News
Capital One Financial Corp. will expand its Delaware workforce by 500 jobs with help from the state.
http://jlne.ws/prQBmz
Ranieri Real Estate Partners and WL Ross to Acquire Deutsche Bank Berkshire Mortgage
Business Wire
NEW YORK--(BUSINESS WIRE)--Ranieri Real Estate Partners LP and funds affiliated with WL Ross & Co. LLC have entered into a definitive agreement to acquire Deutsche Bank Berkshire Mortgage, a subsidiary of Deutsche Bank.
http://jlne.ws/pxWaNJ
Allfunds Bank Expands In The Middle East
Press Release
Allfunds Bank, the market-leading European B2B platform for the distribution of third-party investment funds, has established an office in the Dubai International Financial Centre.
http://jlne.ws/rknFoC
Berkshire to Buy Back Stock; Cash Tops $40B
By Andrew Frye, Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which has shunned buybacks for four decades, will repurchase shares for as much as 110 percent of their book value, saying the stock is undervalued after falling 17 percent this year. Berkshire jumped in New York trading.
http://jlne.ws/qpCvAW
Membership Changes Made to New York Fed’s Community Depository Institutions Advisory Council
Press Release
The Federal Reserve Bank of New York today announced several changes to the membership of its Community Depository Institutions Advisory Council (CDIAC).
http://jlne.ws/oqpeFR
Citi Launches CitiConnect, which provides connectivity for Treasury & Trade Solutions, Securities & Funds Services
Press Release
Citi's Global Transaction Services today announced the launch of its integrated enterprise connectivity solution, CitiConnect. This new connectivity offering provides a wide range of connectivity options to meet clients' unique business needs and provides greater choice and flexibility for integration with their back end systems.
http://jlne.ws/piZBWs
Eurekahedge launch new asset weighted ‘Mizuho-Eurekahedge Index’
Press Release
SINGAPORE (September 28, 2011) - Eurekahedge, a market leading alternative fund data provider, announced today that they are to launch a suite of new asset weighted indices, under the name ’Mizuho-Eurekahedge Index’.
http://jlne.ws/qOZrOe
Regulators
SEC probes banks over mortgage loans
By Kara Scannell in New York, Financial Times
The Securities and Exchange Commission is investigating Royal Bank of Scotland, Credit Suisse and other financial institutions for their handling of problem mortgage loans, according to public disclosures and people familiar with the matter.
http://jlne.ws/rlrPBO
NFA Signs Agreement With GFI Group To Provide Regulatory Services To GFI's Swap Execution Facility
Press Release
September 28, 2011, Chicago and New York - National Futures Association (NFA) and GFI Group Inc. (GFI) today announced that they have entered into an agreement that paves the way for NFA to perform regulatory services for GFI's swap execution facility (SEF).
http://jlne.ws/oJaNX5
SEC's Walter Wants SEC to Take Close Look at Munis
The Bond Buyer
Securities and Exchange Commissioner Elisse Walter called Tuesday for the commission to take a long-term, deep-dive look at the fixed-income market structure.
http://t.co/PfbrpoiW
New Capital Rules Likely for Banks
BY VICTORIA MCGRANE, WSJ.com
International regulators are set to rebuff heavy lobbying by banks and stick with a plan to require some of the world's largest financial institutions to hold extra capital, according to people familiar with the matter.
http://jlne.ws/r4Nl4F
Lagarde's Clout Limited, Despite Her Star Power
WSJ
Despite her new fame as the first woman to head of the International Monetary Fund, Christine Lagarde is learning that star power doesn't necessarily translate into political power on the world stage.
http://jlne.ws/rmxRWu
Only the IMF can solve the eurozone crisis
Financial Times
The world markets expected concrete steps from Washington over the weekend on how governments would resolve the European crisis. They did not get it. Instead, the International Monetary Fund’s policy setting body asserted that the “Euro-area countries will do whatever is necessary to resolve the euro-area sovereign debt crisis”. Unfortunately, this statement seems to be based more on hope and prayer than on evidence.
http://jlne.ws/mPHtwz
OTC
Credit-Swap Dealers May Hold Onto Risk for Weeks, Fed Study Says
By Matthew Leising
Credit-default swap dealers often hold onto risk from big trades for longer than many investors previously thought, which may complicate the task for regulators trying to impose new reporting rules in the vast, opaque derivatives market, a report shows.
http://jlne.ws/rjy7u8
NY Fed Study Finds Low CDS Trade Frequency
By Katy Burne Of DOW JONES NEWSWIRES
Trading in the credit derivatives market is less active than most liquid financial markets, suggesting dealers play a pivotal role in juicing flows, but the off-exchange contracts are mostly standardized, often resembling listed trades, according to a report released Tuesday by the Federal Reserve Bank of New York.
http://jlne.ws/nTNBnb
ISDA Comments on CPSS/IOSCO Consultative Report
The International Swaps and Derivatives Association, Inc. (ISDA) filed a comment letter on September 23 with the Committee on Payment and Settlements Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) in response to their consultative report on over-the-counter (OTC) derivatives data reporting and aggregation requirements.
http://jlne.ws/niRcEw
ISDA Pushes For Single Counterparty Exposure Repository
By Katy Burne Of DOW JONES NEWSWIRES
The International Swaps and Derivatives Association reiterated its call Monday for a single swaps data repository showing counterparty exposures, saying it could provide "an aggregated risk view for regulators." The idea was first put forward by the trade association earlier this month at its North American annual conference in New York.
http://jlne.ws/noTvUc
Dealers' CDS Coverage Doesn't Seem To Match Greek Exposure
By Katy Burne, Dow Jones Newswires
Dealer banks do not seem to have purchased enough insurance for the catastrophe that could be a Greek debt default in the coming quarters. A back-of-the envelope calculation using the maximum amount that derivatives dealers could collect on sovereign default insurance tied to Greece highlights how inadequate payouts could be when contrasted with the exposures of even a few banking institutions.
http://jlne.ws/nLVdVK
Swaps Clearing Revenue Could Match Energy Rise, Analyst Says
By Matthew Leising, Bloomberg
Revenue growth for swaps clearinghouse owners will take more time to materialize than previously thought, though longer-term it could match the increased sales of up to 27 times seen in energy clearing, according to Keefe Bruyette & Woods.
http://jlne.ws/mWfYNi
Global News
Spain, Italy Extend Bans on Shorting Bank Shares
By Ben Moshinsky, Bloomberg
Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility.
http://jlne.ws/r5KcTm
Project Islamic Bonds give hope to Saudi market
By Jonathan Terry, Bikyamasr
Saudi Arabia is hopeful that Project Islamic bonds will increase with the launch of the first project this month. Issuers are looking to the launch of the sukuk as a means to diversify funding sources as global financial difficulties continue to cause problems for leading international banks.
http://jlne.ws/o0130m
Merkel hedges bets on Greece as euro pressure builds
By Stephen Brown and Madeline Chambers, Reuters
Angela Merkel worked to defuse revolt within her government on Wednesday, soothing fears Germany may be throwing good money after bad in Greece but acknowledging the concerns of those ready to humiliate her in a parliamentary vote.
http://jlne.ws/pceuJF
First Portuguese bank becomes a member of Eurex Repo
Press Release
Eurex: Eurex Repo, the leading marketplace for international, electronic repo trading and secured funding, today announced its further expansion in Europe. Banco de Investimento Global is its first Portuguese member. The bank has entered its first transactions via the Euro Repo and the GC Pooling markets. With this new customer, the total number of Euro Repo participants has risen to 87, thereof 74 use the GC Pooling market. Eurex Repo members are based in eleven countries, among them Germany, France, Great Britain, Netherlands, Spain, and – since this week – in Portugal.
http://jlne.ws/p5N1Gm
Russia's Federal Financial Markets Service Holds A Meeting With Financial Market Players And CBR Representatives
Press Release
On September 26, 2011 Mr Dmitry Pankin, Head of the Federal Financial Markets Service, held a meeting with participants of the financial market and representatives of the Central Bank of Russia to discuss operation of the Russian financial market in a highly volatile environment.
http://jlne.ws/n9q4tR
Greek parliament passes new property tax bill to boost revenue
Associated Press
Greek lawmakers approved a controversial new property tax Tuesday that aims to boost revenue as the country struggles to obtain a critical installment of international bailout loans that will prevent it from default
http://jlne.ws/pi3Fi9
IMF chief warns of not enough cash to bail out more nations
WalesOnline
Monetary Fund head Christine Lagarde has suggested the IMF may not have enough funds to bail out more countries if they are dragged into the eurozone debt crisis.
http://jlne.ws/oeMyOd
Medvedev Fires Russian Finance Minister for Insubordination
The New York Times
President Dmitri A. Medvedev fired Russia’s longtime finance minister for insubordination on Monday after the two had an icy confrontation on television that revealed the fault lines in a government where disagreements are usually kept strictly under wraps.
http://jlne.ws/nuMjLg
European Crisis Primer: Where Things Stand
By Terence Roth,WSJ.com
Here’s a quick look at where things stand with the euro-zone crisis for those who need help navigating this confusing and complex situation.
http://jlne.ws/qwN1yv
Germany downplays hopes of fast new crisis course
Boston.com
German officials on Monday downplayed prospects of any quick and dramatic change of course in the eurozone debt crisis, days before a parliamentary vote on beefing up the continent's rescue fund.
http://jlne.ws/nPsWSJ
World Bank: Eurozone Crisis Clouds Recovery In Emerging Europe And Central Asia
Press Release
Economic recovery is underway in the Emerging Europe and Central Asia (ECA) region, but at a slow pace and is at risk from the troubled Eurozone, according to the World Bank at a press briefing during the World Bank/IMF Annual Meetings 2011.
http://jlne.ws/ogfMY2
IMF’s Blanchard Says World Economy Has ‘Enormous Risks’ Now
By Bob Willis and Tom Keene, Bloomberg
European officials need to convince investors that European Union countries aren’t at risk of becoming another Greece as they forge ahead with their own deficit-cutting measures, said Olivier Blanchard, chief economist at the International Monetary Fund.
http://jlne.ws/mXWFYX
TREMONTI: Solution To European Crisis Is a Firm Germany
AGI
Italy's economics minister, Giulio Tremonti said in an interview with RAI that Europe is "the epicenter of the crisis. The solution will be found only if Germany takes a more firm position, if it has the courage, the force and vision to invest in Europe, for the good of Europe and for the good of Germany."
http://jlne.ws/n8Mgww
Moody's Downgrades 8 Greek Banks
ABC/AP
Moody's downgraded eight Greek banks Friday, citing their exposure to their government's bonds and the deteriorating economic situation in the country as it struggles to convince creditors it's doing enough to get more bailout cash.
http://jlne.ws/pRUENr
Cost To Insure French Bank Debt Falls 8% On Aid Talk
Mena Fn/Dow Jones
http://jlne.ws/nBHMKr
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Rabu, 28 September 2011
Top Interest Rate Headlines 09-28-11: Spain, Italy Extend Bans on Shorting Bank Shares
Spain, Italy Extend Bans on Shorting Bank Shares
By Ben Moshinsky, Bloomberg
Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility.
http://jlne.ws/r5KcTm
SIFMA Statement on Revised Proposals for Market-Wide Circuit Breaker Rules
Washington, DC, September 28, 2011—SIFMA today released the following statement from Randy Snook, executive vice president, after FINRA and the exchanges released new proposed rules outlining the operation of market-wide circuit breakers, which have been in development over the past year in response to the May 6, 2010 Flash Crash.
http://jlne.ws/phd2jH
UBS chairman comes under attack
By Haig Simonian, FT.com
http://jlne.ws/mScXdI
Minneapolis Fed: The Generation Gap
Recessions hurt the old most and young least, with impact determined by asset
sales of middle-aged.
http://jlne.ws/pM6Mgi
NFA Signs Agreement With GFI Group To Provide Regulatory Services To GFI's Swap Execution Facility
Press Release
September 28, 2011, Chicago and New York - National Futures Association (NFA) and GFI Group Inc. (GFI) today announced that they have entered into an agreement that paves the way for NFA to perform regulatory services for GFI's swap execution facility (SEF).
http://jlne.ws/oJaNX5
Barclays loses head of European retail banking
By Sharlene Goff, FT.com
http://jlne.ws/oUK7v4
Project Islamic Bonds give hope to Saudi market
By Jonathan Terry, Bikyamasr
Saudi Arabia is hopeful that Project Islamic bonds will increase with the launch of the first project this month. Issuers are looking to the launch of the sukuk as a means to diversify funding sources as global financial difficulties continue to cause problems for leading international banks.
http://jlne.ws/o0130m
Merkel hedges bets on Greece as euro pressure builds
By Stephen Brown and Madeline Chambers, Reuters
Angela Merkel worked to defuse revolt within her government on Wednesday, soothing fears Germany may be throwing good money after bad in Greece but acknowledging the concerns of those ready to humiliate her in a parliamentary vote.
http://jlne.ws/pceuJF
Credit-Swap Dealers May Hold Onto Risk for Weeks, Fed Study Says
By Matthew Leising
Credit-default swap dealers often hold onto risk from big trades for longer than many investors previously thought, which may complicate the task for regulators trying to impose new reporting rules in the vast, opaque derivatives market, a report shows.
http://jlne.ws/rjy7u8
NY Fed Study Finds Low CDS Trade Frequency
By Katy Burne Of DOW JONES NEWSWIRES
Trading in the credit derivatives market is less active than most liquid financial markets, suggesting dealers play a pivotal role in juicing flows, but the off-exchange contracts are mostly standardized, often resembling listed trades, according to a report released Tuesday by the Federal Reserve Bank of New York.
http://jlne.ws/nTNBnb
ISDA Pushes For Single Counterparty Exposure Repository
By Katy Burne Of DOW JONES NEWSWIRES
The International Swaps and Derivatives Association reiterated its call Monday for a single swaps data repository showing counterparty exposures, saying it could provide "an aggregated risk view for regulators." The idea was first put forward by the trade association earlier this month at its North American annual conference in New York.
http://jlne.ws/noTvUc
First Portuguese bank becomes a member of Eurex Repo
Press Release
Eurex: Eurex Repo, the leading marketplace for international, electronic repo trading and secured funding, today announced its further expansion in Europe. Banco de Investimento Global is its first Portuguese member. The bank has entered its first transactions via the Euro Repo and the GC Pooling markets. With this new customer, the total number of Euro Repo participants has risen to 87, thereof 74 use the GC Pooling market. Eurex Repo members are based in eleven countries, among them Germany, France, Great Britain, Netherlands, Spain, and – since this week – in Portugal.
http://jlne.ws/p5N1Gm
Russia's Federal Financial Markets Service Holds A Meeting With Financial Market Players And CBR Representatives
Press Release
On September 26, 2011 Mr Dmitry Pankin, Head of the Federal Financial Markets Service, held a meeting with participants of the financial market and representatives of the Central Bank of Russia to discuss operation of the Russian financial market in a highly volatile environment.
http://jlne.ws/n9q4tR
A $50 Billion Claim of Havoc Looms for Bank of America
By STEVEN M. DAVIDOFF, NY Times
Bank of America’s potential liability for bad mortgages — in the tens of billions of dollars — is well known. But Bank of America is haunted by other demons from the financial crisis, the most significant one being a lawsuit arising from its troubled Merrill Lynch acquisition.
http://jlne.ws/nXHMZx
Darnell Tells Merrill's Brokers He'll Stay Out of Their Way
BusinessWeek
Bank of America Corp.'s David Darnell, the commercial banker put in charge of the lender's Merrill Lynch brokerage, promised employees he'll do anything including "get out of the way" to help them improve results.
http://jlne.ws/owMpCe
Morgan Stanley Division Reaches Settlement With Nevada Attorney General
Las Vegas Review-Journal
A division of investment banker Morgan Stanley on Tuesday agreed to a settlement with the state attorney general that would end an investigation into the firm's alleged deceptive mortgage lending and securitization practices in Nevada. Morgan Stanley Mortgage
http://jlne.ws/qncd83
KKR's Kravis Says Credit Markets Making Buyouts More Expensive
BusinessWeek
Henry Kravis, co-founder of KKR & Co., said private-equity deals are becoming more expensive as the reluctance of banks and investors to lend drives up borrowing costs.
http://jlne.ws/qpqciQ
By Ben Moshinsky, Bloomberg
Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility.
http://jlne.ws/r5KcTm
SIFMA Statement on Revised Proposals for Market-Wide Circuit Breaker Rules
Washington, DC, September 28, 2011—SIFMA today released the following statement from Randy Snook, executive vice president, after FINRA and the exchanges released new proposed rules outlining the operation of market-wide circuit breakers, which have been in development over the past year in response to the May 6, 2010 Flash Crash.
http://jlne.ws/phd2jH
UBS chairman comes under attack
By Haig Simonian, FT.com
http://jlne.ws/mScXdI
Minneapolis Fed: The Generation Gap
Recessions hurt the old most and young least, with impact determined by asset
sales of middle-aged.
http://jlne.ws/pM6Mgi
NFA Signs Agreement With GFI Group To Provide Regulatory Services To GFI's Swap Execution Facility
Press Release
September 28, 2011, Chicago and New York - National Futures Association (NFA) and GFI Group Inc. (GFI) today announced that they have entered into an agreement that paves the way for NFA to perform regulatory services for GFI's swap execution facility (SEF).
http://jlne.ws/oJaNX5
Barclays loses head of European retail banking
By Sharlene Goff, FT.com
http://jlne.ws/oUK7v4
Project Islamic Bonds give hope to Saudi market
By Jonathan Terry, Bikyamasr
Saudi Arabia is hopeful that Project Islamic bonds will increase with the launch of the first project this month. Issuers are looking to the launch of the sukuk as a means to diversify funding sources as global financial difficulties continue to cause problems for leading international banks.
http://jlne.ws/o0130m
Merkel hedges bets on Greece as euro pressure builds
By Stephen Brown and Madeline Chambers, Reuters
Angela Merkel worked to defuse revolt within her government on Wednesday, soothing fears Germany may be throwing good money after bad in Greece but acknowledging the concerns of those ready to humiliate her in a parliamentary vote.
http://jlne.ws/pceuJF
Credit-Swap Dealers May Hold Onto Risk for Weeks, Fed Study Says
By Matthew Leising
Credit-default swap dealers often hold onto risk from big trades for longer than many investors previously thought, which may complicate the task for regulators trying to impose new reporting rules in the vast, opaque derivatives market, a report shows.
http://jlne.ws/rjy7u8
NY Fed Study Finds Low CDS Trade Frequency
By Katy Burne Of DOW JONES NEWSWIRES
Trading in the credit derivatives market is less active than most liquid financial markets, suggesting dealers play a pivotal role in juicing flows, but the off-exchange contracts are mostly standardized, often resembling listed trades, according to a report released Tuesday by the Federal Reserve Bank of New York.
http://jlne.ws/nTNBnb
ISDA Pushes For Single Counterparty Exposure Repository
By Katy Burne Of DOW JONES NEWSWIRES
The International Swaps and Derivatives Association reiterated its call Monday for a single swaps data repository showing counterparty exposures, saying it could provide "an aggregated risk view for regulators." The idea was first put forward by the trade association earlier this month at its North American annual conference in New York.
http://jlne.ws/noTvUc
First Portuguese bank becomes a member of Eurex Repo
Press Release
Eurex: Eurex Repo, the leading marketplace for international, electronic repo trading and secured funding, today announced its further expansion in Europe. Banco de Investimento Global is its first Portuguese member. The bank has entered its first transactions via the Euro Repo and the GC Pooling markets. With this new customer, the total number of Euro Repo participants has risen to 87, thereof 74 use the GC Pooling market. Eurex Repo members are based in eleven countries, among them Germany, France, Great Britain, Netherlands, Spain, and – since this week – in Portugal.
http://jlne.ws/p5N1Gm
Russia's Federal Financial Markets Service Holds A Meeting With Financial Market Players And CBR Representatives
Press Release
On September 26, 2011 Mr Dmitry Pankin, Head of the Federal Financial Markets Service, held a meeting with participants of the financial market and representatives of the Central Bank of Russia to discuss operation of the Russian financial market in a highly volatile environment.
http://jlne.ws/n9q4tR
A $50 Billion Claim of Havoc Looms for Bank of America
By STEVEN M. DAVIDOFF, NY Times
Bank of America’s potential liability for bad mortgages — in the tens of billions of dollars — is well known. But Bank of America is haunted by other demons from the financial crisis, the most significant one being a lawsuit arising from its troubled Merrill Lynch acquisition.
http://jlne.ws/nXHMZx
Darnell Tells Merrill's Brokers He'll Stay Out of Their Way
BusinessWeek
Bank of America Corp.'s David Darnell, the commercial banker put in charge of the lender's Merrill Lynch brokerage, promised employees he'll do anything including "get out of the way" to help them improve results.
http://jlne.ws/owMpCe
Morgan Stanley Division Reaches Settlement With Nevada Attorney General
Las Vegas Review-Journal
A division of investment banker Morgan Stanley on Tuesday agreed to a settlement with the state attorney general that would end an investigation into the firm's alleged deceptive mortgage lending and securitization practices in Nevada. Morgan Stanley Mortgage
http://jlne.ws/qncd83
KKR's Kravis Says Credit Markets Making Buyouts More Expensive
BusinessWeek
Henry Kravis, co-founder of KKR & Co., said private-equity deals are becoming more expensive as the reluctance of banks and investors to lend drives up borrowing costs.
http://jlne.ws/qpqciQ
Selasa, 27 September 2011
Top Interest Rate Headlines 09-27-2011: SEC's Walter Wants SEC to Take Close Look at Munis
SEC's Walter Wants SEC to Take Close Look at Munis
The Bond Buyer
Securities and Exchange Commissioner Elisse Walter called Tuesday for the commission to take a long-term, deep-dive look at the fixed-income market structure.
http://t.co/PfbrpoiW
New Capital Rules Likely for Banks
BY VICTORIA MCGRANE, WSJ.com
International regulators are set to rebuff heavy lobbying by banks and stick with a plan to require some of the world's largest financial institutions to hold extra capital, according to people familiar with the matter.
http://jlne.ws/r4Nl4F
Greek parliament passes new property tax bill to boost revenue
Associated Press
Greek lawmakers approved a controversial new property tax Tuesday that aims to boost revenue as the country struggles to obtain a critical installment of international bailout loans that will prevent it from default
http://jlne.ws/pi3Fi9
Fed's Lockhart: Operation Twist Should Have 'Modet Impact
MarketWatch
The Fed's latest policy move to extend the maturity of its balance sheet, dubbed Operation Twist, will only have a "modest positive impact" on the economy, said Dennis Lockhart, the president of the Atlanta Federal Reserve Bank, on Tuesday.
http://jlne.ws/pmVjmE
U.S. on ‘knife edge’ of contraction: Dallas Fed Economist
By Jim Forsyth, Reuters/Financial Post
The U.S. economy is on a ‘knife edge’ between growth and contraction and monetary policy tweaks do not seem to be helping, the Dallas Federal Reserve’s top economist said Tuesday.
http://t.co/3UEcdXi7
Why Europe's Economy Matters For The U.S., In 1 Graph
by Jacob Goldstein, NPR
Why does Europe's endless debt crisis matter for the U.S.? Here's one reason. In the '90s, the economies of Europe and the U.S. were largely independent of one another. But in the past decade, as the graph below shows, they've risen and fallen together.
http://t.co/vzbQAt8j
A Look at Case-Shiller by Metro Area
By Phil Izzo, WSJ.com
S&P/Case-Shiller home-price data showed sideways movement in July, as prices were boosted from a month earlier thanks to seasonal factors but remained below year-ago levels.
http://jlne.ws/pPjAPp
Consumer confidence was flat in September amid worries about jobs, income
Associated Press
Consumers’ confidence remained weak in September after dropping to a post-recession low during the month before. That’s left economists to wonder just what it’ll take to get Americans feeling good about the economy again.
http://jlne.ws/nurnrO
Freddie under fire over bad loan procedures
By Shahien Nasiripour in New York, Financial Times
Freddie Mac, the US government-controlled mortgage financier, used flawed procedures for determining how lenders repurchased soured loans, probably saddling taxpayers with billions of dollars in losses, according to a federal audit to be released Tuesday.
http://jlne.ws/oVucGa
Geithner Predicts Europe Will Step Up on Crisis After Chiding
BusinessWeek
U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region's debt crisis after a chiding from counterparts around the world.
http://jlne.ws/oid76P
Bernanke's Twist May Be Hampered by Geithner's Bond Selling
Bloomberg
Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner may be working at cross purposes as one buys Treasury bonds and the other sells them.
http://jlne.ws/psIcvQ
Goldman Sachs eyes major cuts: report
AFP via Yahoo! News
Goldman Sachs is mulling drastic spending cuts as it braces for what could be one of its worst quarterly reports since it went public more than a decade ago, the New York Times reported Tuesday.
http://jlne.ws/o0Y49Q
Capital One to add 500 jobs in Delaware
AP via Yahoo! News
Capital One Financial Corp. will expand its Delaware workforce by 500 jobs with help from the state.
http://jlne.ws/prQBmz
Morgan Stanley hires advisers from Wells Fargo
Market Watch
Morgan Stanley Smith Barney has hired two financial advisers from Wells Fargo Advisors who managed a combined $280 million in client assets. Lawrence Durso and Kris Frazier joined Morgan Stanley Smith Barney's Red Bank, N.J., office from Wells Fargo, a unit of Wells Fargo & Co. WFC. The team, which will report to complex manager Chris Shaw, generated $2.2 million in fees and commissions.
http://jlne.ws/q6yh4w
Ranieri Real Estate Partners and WL Ross to Acquire Deutsche Bank Berkshire Mortgage
Business Wire
NEW YORK--(BUSINESS WIRE)--Ranieri Real Estate Partners LP and funds affiliated with WL Ross & Co. LLC have entered into a definitive agreement to acquire Deutsche Bank Berkshire Mortgage, a subsidiary of Deutsche Bank.
http://jlne.ws/pxWaNJ
Allfunds Bank Expands In The Middle East
Press Release
Allfunds Bank, the market-leading European B2B platform for the distribution of third-party investment funds, has established an office in the Dubai International Financial Centre.
http://jlne.ws/rknFoC
The Bond Buyer
Securities and Exchange Commissioner Elisse Walter called Tuesday for the commission to take a long-term, deep-dive look at the fixed-income market structure.
http://t.co/PfbrpoiW
New Capital Rules Likely for Banks
BY VICTORIA MCGRANE, WSJ.com
International regulators are set to rebuff heavy lobbying by banks and stick with a plan to require some of the world's largest financial institutions to hold extra capital, according to people familiar with the matter.
http://jlne.ws/r4Nl4F
Greek parliament passes new property tax bill to boost revenue
Associated Press
Greek lawmakers approved a controversial new property tax Tuesday that aims to boost revenue as the country struggles to obtain a critical installment of international bailout loans that will prevent it from default
http://jlne.ws/pi3Fi9
Fed's Lockhart: Operation Twist Should Have 'Modet Impact
MarketWatch
The Fed's latest policy move to extend the maturity of its balance sheet, dubbed Operation Twist, will only have a "modest positive impact" on the economy, said Dennis Lockhart, the president of the Atlanta Federal Reserve Bank, on Tuesday.
http://jlne.ws/pmVjmE
U.S. on ‘knife edge’ of contraction: Dallas Fed Economist
By Jim Forsyth, Reuters/Financial Post
The U.S. economy is on a ‘knife edge’ between growth and contraction and monetary policy tweaks do not seem to be helping, the Dallas Federal Reserve’s top economist said Tuesday.
http://t.co/3UEcdXi7
Why Europe's Economy Matters For The U.S., In 1 Graph
by Jacob Goldstein, NPR
Why does Europe's endless debt crisis matter for the U.S.? Here's one reason. In the '90s, the economies of Europe and the U.S. were largely independent of one another. But in the past decade, as the graph below shows, they've risen and fallen together.
http://t.co/vzbQAt8j
A Look at Case-Shiller by Metro Area
By Phil Izzo, WSJ.com
S&P/Case-Shiller home-price data showed sideways movement in July, as prices were boosted from a month earlier thanks to seasonal factors but remained below year-ago levels.
http://jlne.ws/pPjAPp
Consumer confidence was flat in September amid worries about jobs, income
Associated Press
Consumers’ confidence remained weak in September after dropping to a post-recession low during the month before. That’s left economists to wonder just what it’ll take to get Americans feeling good about the economy again.
http://jlne.ws/nurnrO
Freddie under fire over bad loan procedures
By Shahien Nasiripour in New York, Financial Times
Freddie Mac, the US government-controlled mortgage financier, used flawed procedures for determining how lenders repurchased soured loans, probably saddling taxpayers with billions of dollars in losses, according to a federal audit to be released Tuesday.
http://jlne.ws/oVucGa
Geithner Predicts Europe Will Step Up on Crisis After Chiding
BusinessWeek
U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region's debt crisis after a chiding from counterparts around the world.
http://jlne.ws/oid76P
Bernanke's Twist May Be Hampered by Geithner's Bond Selling
Bloomberg
Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner may be working at cross purposes as one buys Treasury bonds and the other sells them.
http://jlne.ws/psIcvQ
Goldman Sachs eyes major cuts: report
AFP via Yahoo! News
Goldman Sachs is mulling drastic spending cuts as it braces for what could be one of its worst quarterly reports since it went public more than a decade ago, the New York Times reported Tuesday.
http://jlne.ws/o0Y49Q
Capital One to add 500 jobs in Delaware
AP via Yahoo! News
Capital One Financial Corp. will expand its Delaware workforce by 500 jobs with help from the state.
http://jlne.ws/prQBmz
Morgan Stanley hires advisers from Wells Fargo
Market Watch
Morgan Stanley Smith Barney has hired two financial advisers from Wells Fargo Advisors who managed a combined $280 million in client assets. Lawrence Durso and Kris Frazier joined Morgan Stanley Smith Barney's Red Bank, N.J., office from Wells Fargo, a unit of Wells Fargo & Co. WFC. The team, which will report to complex manager Chris Shaw, generated $2.2 million in fees and commissions.
http://jlne.ws/q6yh4w
Ranieri Real Estate Partners and WL Ross to Acquire Deutsche Bank Berkshire Mortgage
Business Wire
NEW YORK--(BUSINESS WIRE)--Ranieri Real Estate Partners LP and funds affiliated with WL Ross & Co. LLC have entered into a definitive agreement to acquire Deutsche Bank Berkshire Mortgage, a subsidiary of Deutsche Bank.
http://jlne.ws/pxWaNJ
Allfunds Bank Expands In The Middle East
Press Release
Allfunds Bank, the market-leading European B2B platform for the distribution of third-party investment funds, has established an office in the Dubai International Financial Centre.
http://jlne.ws/rknFoC
New CME Globex Opening Hours for CBOT Interest Rates Oct. 2
Effective Sunday, Oct. 2, 2011 (trade date Monday, Oct. 3), all legacy CBOT interest rate futures and options will open on CME Globex each day at p.m. Central Time. This includes all U.S. Treasury futures and options, 30-Day Fed Funds futures and options, and Interest Rate Swap futures and options.
This change will now harmonize trading hours for all CME Group Interest Rate futures and options going forward. If you have any questions, please contact the Interest Rate Products team at interestrates@cmegroup.com or 866 501 3646.
This change will now harmonize trading hours for all CME Group Interest Rate futures and options going forward. If you have any questions, please contact the Interest Rate Products team at interestrates@cmegroup.com or 866 501 3646.
Senin, 26 September 2011
Top Interest Rate Headlines 09-26-11: IMF Chief Warns Of Not Enough Cash To Bail Out More Nations
IMF chief warns of not enough cash to bail out more nations
WalesOnline
Monetary Fund head Christine Lagarde has suggested the IMF may not have enough funds to bail out more countries if they are dragged into the eurozone debt crisis.
http://jlne.ws/oeMyOd
Fed's Kocherlakota: Central Bank Independence and Sovereign Default
Sargent and Wallace published their classic “Some Unpleasant Monetarist Arithmetic” in the Minneapolis Fed’s Quarterly Review in 1981. Since that date, there has been a growing appreciation of the role of fiscal policy in the determination of the price level. The idea is a simple one. Consider a government that borrows only using non-indexed debt denominated in its own currency. There is an intertemporal government budget constraint that implies that the current real value of government liabilities—including the monetary base—must equal the present value of future real surpluses. Because the liabilities are nominal and non-indexed, the government budget constraint provides a linkage between the public’s assessment of future real tax collections and government spending and the current price level.
http://jlne.ws/raYW
UBS Shareholders Push for Deeper Changes
BY GORAN MIJUK,WSJ.com
Several influential Swiss shareholders called for more changes atop UBS AG and said reducing the size or even getting rid of the investment bank could lift Switzerland's largest financial firm out of its most-recent crisis.
http://jlne.ws/nL5iYz
Fed's Kocherlakota: Tough central banks can control prices
Reuters
Central bankers can control inflation regardless of fiscal policy, but only if they are willing to allow the government to default, Minneapolis Federal Reserve President Narayana Kocherlakota said on Monday.
http://jlne.ws/oENewu
Fed's Kocherlakota: Central Bank Price Control Linked To Debt-Default Risk
WSJ.com
The head of the Minneapolis Federal Reserve underscored his reputation as an inflation hawk Monday by stating that central bank control over price levels may hinge on a willingness to allow its government overseer to default.
http://jlne.ws/q8KMQu
Medvedev Fires Russian Finance Minister for Insubordination
The New York Times
President Dmitri A. Medvedev fired Russia’s longtime finance minister for insubordination on Monday after the two had an icy confrontation on television that revealed the fault lines in a government where disagreements are usually kept strictly under wraps.
http://jlne.ws/nuMjLg
ECB to Consider New Crisis Tactics
By Gabi Thesing and Esteban Duarte, Bloomberg
European Central Bank policy makers are likely to next week debate restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said.
http://jlne.ws/oSvjYv
European Crisis Primer: Where Things Stand
By Terence Roth,WSJ.com
Here’s a quick look at where things stand with the euro-zone crisis for those who need help navigating this confusing and complex situation.
http://jlne.ws/qwN1yv
Berkshire to Buy Back Stock; Cash Tops $40B
By Andrew Frye, Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which has shunned buybacks for four decades, will repurchase shares for as much as 110 percent of their book value, saying the stock is undervalued after falling 17 percent this year. Berkshire jumped in New York trading. http://jlne.ws/qpCvAW
Germany downplays hopes of fast new crisis course
Boston.com
German officials on Monday downplayed prospects of any quick and dramatic change of course in the eurozone debt crisis, days before a parliamentary vote on beefing up the continent's rescue fund.http://jlne.ws/nPsWSJ
An Examination of U.S. Dollar Declines
Federal Reserve Bank Of New York
Although the dollar strengthened somewhat recently, its level relative to the currencies of the United States’ main trading partners is nonetheless 11 percent lower than it was at the start of 2009. This represents one of the more pronounced periods of dollar weakness over the past two decades and consequently has garnered considerable attention from market participants and policymakers alike.
http://jlne.ws/pb0bjF
New U.S. home sales fall 2.3% in August to 295,000
MarketWatch
The sale of new U.S. homes fell 2.3% in August to an annual rate of 295,000, marking the fourth decline in a row, the Commerce Department reported Monday. Sales last month dropped to the lowest level since February. Economists surveyed by MarketWatch had forecast sales to drop to 292,000 last month.
http://jlne.ws/oxg9Js
Mounting concerns over Fed's Operation Twist
By Chris Sloley, CityWire
The US Federal Reserve’s major policy announcement – dubbed Operation Twist – lacks enough positive market impact and there is a fear the programme will fail.http://jlne.ws/oVO0wQ
U.S. September Dallas Fed Business Outlook Report (Text)
Bloomberg
The following is the text of the Texas manufacturing activity from the Federal Reserve Bank of Dallas.
Texas factory activity increased in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 1.1 to 5.9, suggesting growth picked up this month after stalling in August.
http://jlne.ws/mUiukq
Membership Changes Made to New York Fed’s Community Depository Institutions Advisory Council
Press Release
The Federal Reserve Bank of New York today announced several changes to the membership of its Community Depository Institutions Advisory Council (CDIAC).
http://jlne.ws/oqpeFR
UBS’s Grübel Steps Down, More May Follow
WSJ.com
Even as Oswald Grubel’s decision to resign over a trading scandal that cost UBS $2.3 billion is shaking the banking industry Monday, talk that more high-level departures may be needed is growing louder.
http://jlne.ws/nBVtLe
ISDA Comments on CPSS/IOSCO Consultative Report
The International Swaps and Derivatives Association, Inc. (ISDA) filed a comment letter on September 23 with the Committee on Payment and Settlements Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) in response to their consultative report on over-the-counter (OTC) derivatives data reporting and aggregation requirements.http://jlne.ws/niRcEw
Trade Associations Oppose Global Financial Transaction Tax
Press Release
A broad group of trade associations sent a letter to U.S. Treasury Secretary Timothy Geithner reiterating their opposition to a financial transaction tax and urged him to continue to encourage other G20 members to resist pressure to adopt proposals for this tax on a global basis.
http://jlne.ws/qNF5tZ
Dealers' CDS Coverage Doesn't Seem To Match Greek Exposure
By Katy Burne, Dow Jones Newswires
Dealer banks do not seem to have purchased enough insurance for the catastrophe that could be a Greek debt default in the coming quarters. A back-of-the envelope calculation using the maximum amount that derivatives dealers could collect on sovereign default insurance tied to Greece highlights how inadequate payouts could be when contrasted with the exposures of even a few banking institutions.
http://jlne.ws/nLVdVK
World Bank: Eurozone Crisis Clouds Recovery In Emerging Europe And Central Asia
Press Release
Economic recovery is underway in the Emerging Europe and Central Asia (ECA) region, but at a slow pace and is at risk from the troubled Eurozone, according to the World Bank at a press briefing during the World Bank/IMF Annual Meetings 2011.
http://jlne.ws/ogfMY2
Lagarde's Clout Limited, Despite Her Star Power
WSJ
Despite her new fame as the first woman to head of the International Monetary Fund, Christine Lagarde is learning that star power doesn't necessarily translate into political power on the world stage.
http://jlne.ws/rmxRWu
Only the IMF can solve the eurozone crisis
Financial Times
The world markets expected concrete steps from Washington over the weekend on how governments would resolve the European crisis. They did not get it. Instead, the International Monetary Fund’s policy setting body asserted that the “Euro-area countries will do whatever is necessary to resolve the euro-area sovereign debt crisis”. Unfortunately, this statement seems to be based more on hope and prayer than on evidence.
http://jlne.ws/mPHtwz
G-20: Globalization's Two-Edged Sword
International Business Times
Even as G-20 leaders grapple with the global financial crisis, a larger, over-arching concern is limiting GDP growth in the U.S., and, to a lesser degree, in other developed economies and, by extension, decreasing the capacity of the these nations to counteract the crisis: inadequate wage growth.
http://jlne.ws/nYOKrY
Deutsche Bank CEO Says Euro-Fund Approval 'Crucially Important'
Bloomberg
Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said it was "crucially important" for euro area governments to implement a July 21 agreement to beef up the rescue fund for their common currency.
http://jlne.ws/nfFUPA
Ermotti Named Interim Chief at UBS as Gruebel Resigns After Trading Loss
Bloomberg
Sergio Ermotti , UBS AG (UBSN) 's European head and a former derivatives banker, was named interim chief executive officer as Switzerland's biggest bank seeks to rebuild client and investor trust after a $2.3 billion trading loss.
http://jlne.ws/nT0nYQ
Bank of America Mortgages Heading to Hedge Fund: Report
TheStreet.com
Bank of America is in talks to sell its correspondent mortgages business to a unit of Fortress Investment Group, the Wall Street Journal reported, citing people familiar with the situation. The Fortress unit - Nationstar Mortgage Holdings - has been conducting due diligence in recent weeks, according to the report. A Bank of America spokesperson declined comment on a ...
http://jlne.ws/n5NKs8
WalesOnline
Monetary Fund head Christine Lagarde has suggested the IMF may not have enough funds to bail out more countries if they are dragged into the eurozone debt crisis.
http://jlne.ws/oeMyOd
Fed's Kocherlakota: Central Bank Independence and Sovereign Default
Sargent and Wallace published their classic “Some Unpleasant Monetarist Arithmetic” in the Minneapolis Fed’s Quarterly Review in 1981. Since that date, there has been a growing appreciation of the role of fiscal policy in the determination of the price level. The idea is a simple one. Consider a government that borrows only using non-indexed debt denominated in its own currency. There is an intertemporal government budget constraint that implies that the current real value of government liabilities—including the monetary base—must equal the present value of future real surpluses. Because the liabilities are nominal and non-indexed, the government budget constraint provides a linkage between the public’s assessment of future real tax collections and government spending and the current price level.
http://jlne.ws/raYW
UBS Shareholders Push for Deeper Changes
BY GORAN MIJUK,WSJ.com
Several influential Swiss shareholders called for more changes atop UBS AG and said reducing the size or even getting rid of the investment bank could lift Switzerland's largest financial firm out of its most-recent crisis.
http://jlne.ws/nL5iYz
Fed's Kocherlakota: Tough central banks can control prices
Reuters
Central bankers can control inflation regardless of fiscal policy, but only if they are willing to allow the government to default, Minneapolis Federal Reserve President Narayana Kocherlakota said on Monday.
http://jlne.ws/oENewu
Fed's Kocherlakota: Central Bank Price Control Linked To Debt-Default Risk
WSJ.com
The head of the Minneapolis Federal Reserve underscored his reputation as an inflation hawk Monday by stating that central bank control over price levels may hinge on a willingness to allow its government overseer to default.
http://jlne.ws/q8KMQu
Medvedev Fires Russian Finance Minister for Insubordination
The New York Times
President Dmitri A. Medvedev fired Russia’s longtime finance minister for insubordination on Monday after the two had an icy confrontation on television that revealed the fault lines in a government where disagreements are usually kept strictly under wraps.
http://jlne.ws/nuMjLg
ECB to Consider New Crisis Tactics
By Gabi Thesing and Esteban Duarte, Bloomberg
European Central Bank policy makers are likely to next week debate restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said.
http://jlne.ws/oSvjYv
European Crisis Primer: Where Things Stand
By Terence Roth,WSJ.com
Here’s a quick look at where things stand with the euro-zone crisis for those who need help navigating this confusing and complex situation.
http://jlne.ws/qwN1yv
Berkshire to Buy Back Stock; Cash Tops $40B
By Andrew Frye, Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which has shunned buybacks for four decades, will repurchase shares for as much as 110 percent of their book value, saying the stock is undervalued after falling 17 percent this year. Berkshire jumped in New York trading. http://jlne.ws/qpCvAW
Germany downplays hopes of fast new crisis course
Boston.com
German officials on Monday downplayed prospects of any quick and dramatic change of course in the eurozone debt crisis, days before a parliamentary vote on beefing up the continent's rescue fund.http://jlne.ws/nPsWSJ
An Examination of U.S. Dollar Declines
Federal Reserve Bank Of New York
Although the dollar strengthened somewhat recently, its level relative to the currencies of the United States’ main trading partners is nonetheless 11 percent lower than it was at the start of 2009. This represents one of the more pronounced periods of dollar weakness over the past two decades and consequently has garnered considerable attention from market participants and policymakers alike.
http://jlne.ws/pb0bjF
New U.S. home sales fall 2.3% in August to 295,000
MarketWatch
The sale of new U.S. homes fell 2.3% in August to an annual rate of 295,000, marking the fourth decline in a row, the Commerce Department reported Monday. Sales last month dropped to the lowest level since February. Economists surveyed by MarketWatch had forecast sales to drop to 292,000 last month.
http://jlne.ws/oxg9Js
Mounting concerns over Fed's Operation Twist
By Chris Sloley, CityWire
The US Federal Reserve’s major policy announcement – dubbed Operation Twist – lacks enough positive market impact and there is a fear the programme will fail.http://jlne.ws/oVO0wQ
U.S. September Dallas Fed Business Outlook Report (Text)
Bloomberg
The following is the text of the Texas manufacturing activity from the Federal Reserve Bank of Dallas.
Texas factory activity increased in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 1.1 to 5.9, suggesting growth picked up this month after stalling in August.
http://jlne.ws/mUiukq
Membership Changes Made to New York Fed’s Community Depository Institutions Advisory Council
Press Release
The Federal Reserve Bank of New York today announced several changes to the membership of its Community Depository Institutions Advisory Council (CDIAC).
http://jlne.ws/oqpeFR
UBS’s Grübel Steps Down, More May Follow
WSJ.com
Even as Oswald Grubel’s decision to resign over a trading scandal that cost UBS $2.3 billion is shaking the banking industry Monday, talk that more high-level departures may be needed is growing louder.
http://jlne.ws/nBVtLe
ISDA Comments on CPSS/IOSCO Consultative Report
The International Swaps and Derivatives Association, Inc. (ISDA) filed a comment letter on September 23 with the Committee on Payment and Settlements Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) in response to their consultative report on over-the-counter (OTC) derivatives data reporting and aggregation requirements.http://jlne.ws/niRcEw
Trade Associations Oppose Global Financial Transaction Tax
Press Release
A broad group of trade associations sent a letter to U.S. Treasury Secretary Timothy Geithner reiterating their opposition to a financial transaction tax and urged him to continue to encourage other G20 members to resist pressure to adopt proposals for this tax on a global basis.
http://jlne.ws/qNF5tZ
Dealers' CDS Coverage Doesn't Seem To Match Greek Exposure
By Katy Burne, Dow Jones Newswires
Dealer banks do not seem to have purchased enough insurance for the catastrophe that could be a Greek debt default in the coming quarters. A back-of-the envelope calculation using the maximum amount that derivatives dealers could collect on sovereign default insurance tied to Greece highlights how inadequate payouts could be when contrasted with the exposures of even a few banking institutions.
http://jlne.ws/nLVdVK
World Bank: Eurozone Crisis Clouds Recovery In Emerging Europe And Central Asia
Press Release
Economic recovery is underway in the Emerging Europe and Central Asia (ECA) region, but at a slow pace and is at risk from the troubled Eurozone, according to the World Bank at a press briefing during the World Bank/IMF Annual Meetings 2011.
http://jlne.ws/ogfMY2
Lagarde's Clout Limited, Despite Her Star Power
WSJ
Despite her new fame as the first woman to head of the International Monetary Fund, Christine Lagarde is learning that star power doesn't necessarily translate into political power on the world stage.
http://jlne.ws/rmxRWu
Only the IMF can solve the eurozone crisis
Financial Times
The world markets expected concrete steps from Washington over the weekend on how governments would resolve the European crisis. They did not get it. Instead, the International Monetary Fund’s policy setting body asserted that the “Euro-area countries will do whatever is necessary to resolve the euro-area sovereign debt crisis”. Unfortunately, this statement seems to be based more on hope and prayer than on evidence.
http://jlne.ws/mPHtwz
G-20: Globalization's Two-Edged Sword
International Business Times
Even as G-20 leaders grapple with the global financial crisis, a larger, over-arching concern is limiting GDP growth in the U.S., and, to a lesser degree, in other developed economies and, by extension, decreasing the capacity of the these nations to counteract the crisis: inadequate wage growth.
http://jlne.ws/nYOKrY
Deutsche Bank CEO Says Euro-Fund Approval 'Crucially Important'
Bloomberg
Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said it was "crucially important" for euro area governments to implement a July 21 agreement to beef up the rescue fund for their common currency.
http://jlne.ws/nfFUPA
Ermotti Named Interim Chief at UBS as Gruebel Resigns After Trading Loss
Bloomberg
Sergio Ermotti , UBS AG (UBSN) 's European head and a former derivatives banker, was named interim chief executive officer as Switzerland's biggest bank seeks to rebuild client and investor trust after a $2.3 billion trading loss.
http://jlne.ws/nT0nYQ
Bank of America Mortgages Heading to Hedge Fund: Report
TheStreet.com
Bank of America is in talks to sell its correspondent mortgages business to a unit of Fortress Investment Group, the Wall Street Journal reported, citing people familiar with the situation. The Fortress unit - Nationstar Mortgage Holdings - has been conducting due diligence in recent weeks, according to the report. A Bank of America spokesperson declined comment on a ...
http://jlne.ws/n5NKs8
Fed Governor Sarah Bloom Raskin: Monetary Policy and Job Creation
Speech
Governor Sarah Bloom Raskin
At the University of Maryland Smith School of Business Distinguished Speaker Series, Washington, D.C.
September 26, 2011
Monetary Policy and Job Creation
Good morning. It's a great pleasure to be with you, and I want to thank the Center for Financial Policy at the Robert H. Smith School of Business for inviting me to participate in this forum. Indeed, I am delighted to see that the Center for Financial Policy is already thriving. Back in 2008, when I was the Commissioner of Financial Regulation for the State of Maryland, two of the founders of the center talked with me about its inception and asked for my ideas about what it might accomplish. And I am so glad to see that--despite the formidable challenges facing all such new projects--the center is now fully engaged in addressing financial policy issues that are critically important to our nation.
Today I want to discuss how monetary policy can promote the objective of maximum employment in a context of price stability.1 I will set the stage by reviewing current labor market conditions, and then I will talk about the tools that the Federal Reserve has been deploying to foster job creation and promote a stronger economic recovery. I will do my best to make these points in plain English rather than economic jargon, but feel free to correct me if I lapse back into it--my children certainly do. Of course, it goes without saying that these remarks are intended to express my views only and not necessarily the opinions of my colleagues on the Federal Reserve Board or the Federal Open Market Committee (FOMC).
Current Labor Market Conditions
The global economy began slowing in late 2007 and early 2008 and turned downward sharply in the autumn of 2008 when the financial crisis intensified, resulting in the worst recession in many decades. By the end of 2009, the unemployment rate reached a horrifying 10 percent, corresponding to more than 15 million Americans being out of work, with all of the attendant social consequences, including lost income and wealth, mortgage foreclosures, family strains, health problems, and so on.
Officially, the recovery from the recession began in the third quarter of 2009, but the pace of recovery has been modest. We have learned from recent comprehensive revisions of government economic data that the recession was deeper and the recovery weaker than had previously been thought. Indeed, the most recent reading on real gross domestic product (GDP) in the United States--the one for the second quarter of this year--still has not returned to the level that it had attained before the crisis, and the increases in economic activity over the past two years have been at a rate insufficient to achieve any sustained reduction in the unemployment rate.
The latest employment report issued by the Bureau of Labor Statistics was bleak. Private-sector employers added only 17,000 nonfarm jobs in August, far fewer than the already weak average monthly gain of about 110,000 recorded over the previous three months. The headline unemployment rate was 9.1 percent, representing about 14 million Americans who were out of work in August.
Nonetheless, as many families know, the headline unemployment numbers don't fully capture the weakness in labor market conditions. Beyond the headline number, an additional 8.8 million workers were classified as "part time for economic reasons" in August because their hours had been cut back or they were unable to find a full-time job. In addition, about 2-1/2 million Americans were classified as "marginally attached" to the labor force because even though they wanted to get a job, they had not searched for one in the past four weeks. And almost half of that group--nearly 1 million individuals--have given up searching for employment altogether, because they do not believe any jobs are available for them.
So it is not just those who are currently classified as unemployed who are excluded from work. The underemployed, the marginally attached, and the discouraged--all of whom are concerned about the security of their livelihood, their housing, and the rising cost of living--can speak powerfully to the weaknesses of the recovery.
The economic data in this regard correspond to what I have seen firsthand over the past several years. I have traveled to once-robust manufacturing cities in the Midwest and have observed vacant lots, burnt-out factories, metal scrap heaps, and foreclosed homes. I have visited unemployment insurance offices and job training centers, and I have met lots of people who have been out of work for more than a year or two--out of work for so long that some of them are embarrassed to show their resumes to potential employers.
These circumstances have called for forceful policy measures. I will now talk about the conventional and unconventional actions that the Federal Reserve, for its part, has taken to foster economic recovery and job creation.
Conventional Monetary Policy Actions
The conventional tool of monetary policy is to modify the near-term path of interest rates. To be more specific, a reduction in current short-term rates and a corresponding downward shift in private-sector expectations about the future path of such rates will tend to reduce borrowing rates for households and businesses, including auto loan rates, mortgage rates, and other longer-term interest rates. This policy accommodation also tends to raise household wealth by boosting the stock market and prices of other financial assets.
With greater household wealth and cheaper borrowing rates, consumers tend to increase their purchases of houses, cars, and various other goods and services. In response, businesses ramp up their production to meet the increased level of sales. Moreover, with lower costs of financing new equipment and structures, businesses may be inclined to increase their own spending on investment projects that they might previously have seen as only marginally profitable. In the near term, firms can meet increased demand by resorting to temporary and part-time workers, but over time they have strong incentives to increase the number of regular full-time employees. Consequently, the monetary accommodation leads to greater job creation, though sometimes with substantial time lags.
The Federal Reserve has used this policy tool aggressively since the onset of the financial crisis. In particular, the federal funds rate target, which stood at 5-1/4 percent in mid-2007, was subsequently reduced to a range of 0 to 1/4 percentage point by the end of 2008, and that target range has been maintained since then. Indeed, because currency has an implicit interest rate of exactly zero, economists generally agree that a zero interest rate is the effective lower bound for the federal funds rate because investors could simply choose to hold cash if a central bank tried to drive short-term interest rates significantly below zero. In effect, therefore, the FOMC has been deploying its conventional policy tool to the maximum extent possible since late 2008.
Rather than reviewing the vast academic literature regarding the effect of conventional monetary policy, I will simply pose the counterfactual question: What would have happened to U.S. employment if monetary policy had failed to respond forcefully to the financial crisis and economic downturn? Economic models--the Fed's and others--suggest that if the federal funds rate target had been held at a fixed level of 5 percent from the fourth quarter of 2007 until now, rather than being reduced to its actual target range of 0 to 1/4 percent,2 then the unemployment rate would be several percentage points higher than it is today. In other words, by following our actual policy of keeping the target funds rate at its effective lower bound since late 2008, the Federal Reserve saved millions of jobs that would otherwise have been lost. Of course, substantial uncertainty surrounds various specific estimates, but there should be no doubt that the FOMC's forceful actions helped mitigate the consequences of the crisis and thereby spared American families and businesses from even greater pain.
Unconventional Monetary Policy Actions
Given the magnitude of the global financial crisis and its aftermath, the Federal Reserve clearly needed to provide additional monetary accommodation beyond simply keeping short-term interest rates close to zero. Consequently, like a number of other major central banks around the world, the FOMC has been deploying unconventional policy tools to promote the economic recovery.
In particular, we have provided conditional forward guidance about the likely future path of the federal funds rate, and we have engaged in balance sheet operations that involve changes in the size and composition of our securities holdings. Broadly speaking, these policy tools affect the economy through channels that are similar--though not identical--to those of conventional monetary policy. I'll now spend a few minutes describing how each form of unconventional policy can be helpful in promoting a stronger economic recovery.
Monetary Policy Communication
An essential element of good monetary policy is effective communication. In a democratic society, central banks have the responsibility to clearly and fully explain their policy decisions. Good communication is also essential for strengthening the effectiveness of monetary policy. Expectations about the future play a key role in the decisionmaking of households and firms: how much to spend, save, work, invest, or hire. Moreover, when financial market participants understand how the central bank is likely to react to incoming information, asset prices can adjust in ways that reinforce the central bank's expected policy actions and thereby support the central bank's objectives. Finally, clear communication can help anchor the public's long-term inflation expectations and hence improve the extent to which the central bank can take forceful actions to promote job creation in a context of price stability.
With the federal funds rate constrained by its effective lower bound, effective communications with the public have become more important than ever. Since 2009, the Federal Reserve has published the Committee participants' longer-run projections of the inflation rate, the unemployment rate, and economic growth four times a year in conjunction with the minutes of FOMC meetings. Based on their longer-run projections for inflation, Committee participants judge that an inflation rate of 2 percent or a bit less, as measured by the price index for personal consumption expenditures, is most consistent with our statutory mandate of maximum employment and price stability.3 The Committee currently strives for as low an unemployment rate as possible, consistent with price stability. In our most recent projections, Committee participants estimated that the longer-run sustainable rate of unemployment is around 5 to 6 percent--well below the current unemployment rate of 9.1 percent.
Since December 2008, the FOMC has been providing conditional forward guidance about the likely path of the target federal funds rate. From March 2009 through June 2011, the Committee's forward guidance indicated that exceptionally low levels of the federal funds rate were likely to be warranted "for an extended period." In August, we decided to be more specific about the timing, and our two most recent meeting statements have indicated that "economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."4
Forward guidance can provide monetary accommodation by leading investors to expect a longer period of low interest rates. As I noted earlier, a downward shift in the expected path of the federal funds rate is associated with reduced longer-term interest rates and generates a significant boost to consumer and business spending. Simulations of the FRB/US model and other evidence suggest that forward guidance can be a potent tool of monetary policy.5
Balance Sheet Operations
Since late 2008, the FOMC has engaged in two rounds of large-scale asset purchases (LSAPs). The first round of LSAPs involved purchases of about $1.4 trillion in agency mortgage-backed securities (MBS) and agency debt securities and about $300 billion in longer-term Treasury securities; those purchases were executed during 2009 and the first quarter of 2010. The second round of LSAPs--often referred to as QE2--involved an additional $600 billion in purchases of longer-term Treasury securities and was completed at the end of June of this year.
By purchasing longer-term securities in the open market, the Federal Reserve can exert downward pressure on longer-term yields, thereby reducing private borrowing rates and raising household wealth. Consequently, just as with conventional monetary policy, LSAPs help boost consumer spending, business investment, and net exports. And the resulting increase in aggregate demand helps generate a stronger pace of job creation.6
At last week's FOMC meeting, the Committee announced that we intend to extend the average maturity of our securities holdings over the coming months by selling $400 billion of short-term Treasury securities and purchasing an equivalent amount of long-term Treasury securities. This maturity extension program--referred to by some as Operation Twist--should exert downward pressure on longer-term interest rates and help make broader financial conditions more accommodative, thereby supporting a stronger economic recovery. Indeed, recent work by an economist at the Federal Reserve Bank of San Francisco suggests that a similar policy put in place in 1961 had effects on longer-term interest rates that were roughly comparable to those of QE2.7
Another significant policy action taken at last week's FOMC meeting is that the principal payments from our holdings of agency securities will now be reinvested in agency MBS rather than in Treasury securities. Our announcement appears to have been successful in narrowing the spread between rates on agency MBS and Treasury securities of comparable maturity. That spread had widened substantially since earlier this year, and the continuation of such a trend could have pushed up mortgage rates and adversely affected the housing sector.
Potential Attenuating Factors
In my judgment, the Federal Reserve's deployment of our policy tools has been completely appropriate in promoting maximum employment and price stability. Ideally, such policy decisions would be informed by precise quantitative information about the effects of each tool. In reality, however, the estimated effects of the FOMC's policy actions are subject to considerable uncertainty. Such uncertainty is intrinsic to real-world monetary policymaking at any time but is particularly relevant under circumstances where the scope for conventional monetary policy is constrained by the zero lower bound on the federal funds rate, leaving unconventional tools as the only means of providing further monetary accommodation.
Although these monetary policy tools have been successful in pushing down interest rates across the maturity spectrum, the magnitude of the transmission to economic growth and employment has been somewhat more muted than I might have expected. Indeed, it seems plausible that the effectiveness of our policy tools is being attenuated by a number of unusual persisting factors, including an excess supply of housing and impaired access to credit for many households and small businesses.
Under normal circumstances, residential construction is an interest-sensitive sector of the economy that has played an important role in contributing to previous economic recoveries--especially the brisk recovery that followed the steep downturn in 1981 and 1982. In the wake of the bursting of the housing bubble, however, the housing sector has remained exceedingly weak. In effect, there is an excess supply of housing that seems likely to decline only gradually despite the record-low level of mortgage rates. Thus, in this crucial sector, one can argue that lower interest rates have not shown through to higher activity in the same way that would be expected under more usual recoveries.
Consumer spending is also being restrained by the excess supply of housing, which has put downward pressure on home equity values and household wealth. A substantial portion of homeowners now have negative home equity and are effectively unable to refinance at historically low mortgage rates. Many more have seen a drastic decline in the value of their homes, which would typically serve as collateral for home equity lines of credit or second mortgages.
The slow progress in repairing and restructuring households' balance sheets may also be lowering the normal responsiveness of consumer spending to a decline in market interest rates. In particular, lenders continue to maintain relatively tight terms and standards on credit cards and, to a lesser extent, other consumer loans. Consequently, many households may be unable to take advantage of the lower borrowing rates that are available to those who have a high net worth and pristine credit records.
Many small businesses also appear to be facing unusual obstacles in obtaining credit. If times were more typical, we would expect a smooth transmission in which lower interest rates would fuel credit expansion that would be used to finance expanding payrolls, capital investment, inventories, and other short-term operating expenses. Nonetheless, the latest Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices, which was taken in July, indicated that although domestic banks continued to ease standards on their commercial and industrial loans, the net fraction reporting easing on such loans to smaller firms (those with annual sales of less than $50 billion) remained low and was well below that of loans to large and middle-sized firms.8 In its August survey, the National Federation of Independent Businesses reported a noticeable increase in the proportion of small businesses reporting that credit has become more difficult to obtain.9 These businesses not only expect credit to become tighter in coming months but--like other businesses--have turned sharply more pessimistic about the broader economic outlook.
Finally, and perhaps most comprehensively, it is worth observing that the financial crisis has undermined the wealth of many Americans. Low- and moderate-income families entered the recession with little financial buffer against the adverse effects of wage cuts, job loss, and drops in home values. According to the 2007 Survey of Consumer Finances (SCF), home equity accounted for about half of the total net worth for low- and moderate-income families, which made them extremely vulnerable to the eventual housing market collapse.10 Families at the lower end of the income distribution saw a substantial drop in their net worth between 2007 and 2009, and families in the middle of the income distribution fared even worse.11 Combined with widespread unemployment, housing and stock price declines, and increasing rates of mortgage defaults, foreclosures, and bankruptcies, the assets of many American families have been significantly eroded. The effect of these developments may be to attenuate the revival of normal consumption patterns that would otherwise be dictating increases in consumer demand and growth.
Diversity of Views
Even if the usual effectiveness of monetary policy is being attenuated by the factors that I have mentioned, that conclusion should not be taken as implying that additional monetary accommodation would be unhelpful. Indeed, the opposite conclusion might well be the case--namely, that additional policy accommodation is warranted under present circumstances.
My FOMC colleagues and I have recently been faced with complex decisions about the use of unconventional policy tools under extraordinary economic and financial conditions. And while we may not all agree with every decision, I believe that the public can have a very high degree of confidence in the fundamental integrity and soundness of our decisionmaking process.
Indeed, some commentators assign a label of "hawk" or "dove" to the various FOMC participants in an attempt to characterize how we prioritize the goals of maximum employment and price stability. In my view, such labels are ill conceived and misleading because everyone on the Committee is fully committed to promoting both of these goals. Incidentally, since my kids now love describing everyone as a hawk or a dove or some other kind of bird, I have taken to reminding them of this conviction I have: When my colleagues and I are doing our job correctly, we are neither hawks nor doves but owls--that is, we are trying to be as wise as possible in deploying all the tools we have to fulfill our legal mandate.
Conclusion
In summary, the economic recovery has fallen well short of restoring labor market conditions to historically typical levels. Given the elevated rate of unemployment and the large number of individuals who are experiencing long spells of unemployment, both fiscal and monetary policymakers should be considering a wide array of approaches for promoting job creation. In my view, the deployment of our monetary policy tools needs to be carefully gauged, appropriately timed, and clearly communicated to the public. Moreover, to the extent that some factors may attenuate the usual effectiveness of monetary policy, there is a compelling case to identify and implement policy measures to mitigate those factors and thereby strengthen the effect of the monetary accommodation that we have already put in place. Finally, in light of the economic hardships that are facing our nation, I want to underscore that the Federal Reserve is fully committed to doing everything we can to promote maximum employment in the context of price stability.
Thank you again for the opportunity to speak with you today, and I look forward to hearing your comments and questions.
1. I appreciate the assistance of Hess Chung, William English, Jean-Philippe Laforte, Andrew Levin, Susan Stawick, William Wascher, David Wilcox, and Joyce Zickler in the preparation of these remarks. Return to text
2. The simulation described here assumes, as is common in the literature, that the policy follows its historically typical behavior once the assumed counterfactual path for the federal funds rate ends. Return to text
3. As indicated in figure 2c of the June 2011 Summary of Economic Projections, 11 out of 17 Committee participants projected a longer-run inflation rate for personal consumption expenditures of 2 percent while the remaining participants' projections were a bit below 2 percent. Return to text
4. The August and September FOMC meeting statements, as well as related FOMC information, are available on the Federal Reserve Board's website. Return to text
5. See Janet L. Yellen (2011), "Unconventional Monetary Policy and Central Bank Communications," speech delivered at the U.S. Monetary Policy Forum, New York, February 25. Return to text
6. See Hess Chung, Jean-Philippe Laforte, David Reifschneider, and John C. Williams (forthcoming), "Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?" Journal of Money, Credit and Banking. Return to text
7. See Eric T. Swanson (2011), "Let's Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2 (PDF)," Leaving the Board Federal Reserve Bank of San Francisco Working Paper 2011-08 (San Francisco: Federal Reserve Bank of San Francisco, February). Return to text
8. The Senior Loan Officer Opinion Survey on Bank Lending Practices is available on the Federal Reserve Board's website. Return to text
9. See National Federation of Independent Businesses (2011), NFIB Small Business Economic Trends (PDF) (Nashville: NFIB, August). Return to text
10. See Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach, and Kevin B. Moore (2009), "Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances (PDF)," Federal Reserve Bulletin, vol. 95 (February), pp. A1-A55. Return to text
11. See Jesse Bricker, Brian K. Bucks, Arthur B. Kennickell, Traci L Mach, and Kevin B. Moore (2011), "Surveying the Aftermath of the Storm: Changes in Family Finances from 2007 to 2009 (PDF)," Finance and Economics Discussion Series 2011-17 (Washington: Board of Governors of the Federal Reserve System, March).
Governor Sarah Bloom Raskin
At the University of Maryland Smith School of Business Distinguished Speaker Series, Washington, D.C.
September 26, 2011
Monetary Policy and Job Creation
Good morning. It's a great pleasure to be with you, and I want to thank the Center for Financial Policy at the Robert H. Smith School of Business for inviting me to participate in this forum. Indeed, I am delighted to see that the Center for Financial Policy is already thriving. Back in 2008, when I was the Commissioner of Financial Regulation for the State of Maryland, two of the founders of the center talked with me about its inception and asked for my ideas about what it might accomplish. And I am so glad to see that--despite the formidable challenges facing all such new projects--the center is now fully engaged in addressing financial policy issues that are critically important to our nation.
Today I want to discuss how monetary policy can promote the objective of maximum employment in a context of price stability.1 I will set the stage by reviewing current labor market conditions, and then I will talk about the tools that the Federal Reserve has been deploying to foster job creation and promote a stronger economic recovery. I will do my best to make these points in plain English rather than economic jargon, but feel free to correct me if I lapse back into it--my children certainly do. Of course, it goes without saying that these remarks are intended to express my views only and not necessarily the opinions of my colleagues on the Federal Reserve Board or the Federal Open Market Committee (FOMC).
Current Labor Market Conditions
The global economy began slowing in late 2007 and early 2008 and turned downward sharply in the autumn of 2008 when the financial crisis intensified, resulting in the worst recession in many decades. By the end of 2009, the unemployment rate reached a horrifying 10 percent, corresponding to more than 15 million Americans being out of work, with all of the attendant social consequences, including lost income and wealth, mortgage foreclosures, family strains, health problems, and so on.
Officially, the recovery from the recession began in the third quarter of 2009, but the pace of recovery has been modest. We have learned from recent comprehensive revisions of government economic data that the recession was deeper and the recovery weaker than had previously been thought. Indeed, the most recent reading on real gross domestic product (GDP) in the United States--the one for the second quarter of this year--still has not returned to the level that it had attained before the crisis, and the increases in economic activity over the past two years have been at a rate insufficient to achieve any sustained reduction in the unemployment rate.
The latest employment report issued by the Bureau of Labor Statistics was bleak. Private-sector employers added only 17,000 nonfarm jobs in August, far fewer than the already weak average monthly gain of about 110,000 recorded over the previous three months. The headline unemployment rate was 9.1 percent, representing about 14 million Americans who were out of work in August.
Nonetheless, as many families know, the headline unemployment numbers don't fully capture the weakness in labor market conditions. Beyond the headline number, an additional 8.8 million workers were classified as "part time for economic reasons" in August because their hours had been cut back or they were unable to find a full-time job. In addition, about 2-1/2 million Americans were classified as "marginally attached" to the labor force because even though they wanted to get a job, they had not searched for one in the past four weeks. And almost half of that group--nearly 1 million individuals--have given up searching for employment altogether, because they do not believe any jobs are available for them.
So it is not just those who are currently classified as unemployed who are excluded from work. The underemployed, the marginally attached, and the discouraged--all of whom are concerned about the security of their livelihood, their housing, and the rising cost of living--can speak powerfully to the weaknesses of the recovery.
The economic data in this regard correspond to what I have seen firsthand over the past several years. I have traveled to once-robust manufacturing cities in the Midwest and have observed vacant lots, burnt-out factories, metal scrap heaps, and foreclosed homes. I have visited unemployment insurance offices and job training centers, and I have met lots of people who have been out of work for more than a year or two--out of work for so long that some of them are embarrassed to show their resumes to potential employers.
These circumstances have called for forceful policy measures. I will now talk about the conventional and unconventional actions that the Federal Reserve, for its part, has taken to foster economic recovery and job creation.
Conventional Monetary Policy Actions
The conventional tool of monetary policy is to modify the near-term path of interest rates. To be more specific, a reduction in current short-term rates and a corresponding downward shift in private-sector expectations about the future path of such rates will tend to reduce borrowing rates for households and businesses, including auto loan rates, mortgage rates, and other longer-term interest rates. This policy accommodation also tends to raise household wealth by boosting the stock market and prices of other financial assets.
With greater household wealth and cheaper borrowing rates, consumers tend to increase their purchases of houses, cars, and various other goods and services. In response, businesses ramp up their production to meet the increased level of sales. Moreover, with lower costs of financing new equipment and structures, businesses may be inclined to increase their own spending on investment projects that they might previously have seen as only marginally profitable. In the near term, firms can meet increased demand by resorting to temporary and part-time workers, but over time they have strong incentives to increase the number of regular full-time employees. Consequently, the monetary accommodation leads to greater job creation, though sometimes with substantial time lags.
The Federal Reserve has used this policy tool aggressively since the onset of the financial crisis. In particular, the federal funds rate target, which stood at 5-1/4 percent in mid-2007, was subsequently reduced to a range of 0 to 1/4 percentage point by the end of 2008, and that target range has been maintained since then. Indeed, because currency has an implicit interest rate of exactly zero, economists generally agree that a zero interest rate is the effective lower bound for the federal funds rate because investors could simply choose to hold cash if a central bank tried to drive short-term interest rates significantly below zero. In effect, therefore, the FOMC has been deploying its conventional policy tool to the maximum extent possible since late 2008.
Rather than reviewing the vast academic literature regarding the effect of conventional monetary policy, I will simply pose the counterfactual question: What would have happened to U.S. employment if monetary policy had failed to respond forcefully to the financial crisis and economic downturn? Economic models--the Fed's and others--suggest that if the federal funds rate target had been held at a fixed level of 5 percent from the fourth quarter of 2007 until now, rather than being reduced to its actual target range of 0 to 1/4 percent,2 then the unemployment rate would be several percentage points higher than it is today. In other words, by following our actual policy of keeping the target funds rate at its effective lower bound since late 2008, the Federal Reserve saved millions of jobs that would otherwise have been lost. Of course, substantial uncertainty surrounds various specific estimates, but there should be no doubt that the FOMC's forceful actions helped mitigate the consequences of the crisis and thereby spared American families and businesses from even greater pain.
Unconventional Monetary Policy Actions
Given the magnitude of the global financial crisis and its aftermath, the Federal Reserve clearly needed to provide additional monetary accommodation beyond simply keeping short-term interest rates close to zero. Consequently, like a number of other major central banks around the world, the FOMC has been deploying unconventional policy tools to promote the economic recovery.
In particular, we have provided conditional forward guidance about the likely future path of the federal funds rate, and we have engaged in balance sheet operations that involve changes in the size and composition of our securities holdings. Broadly speaking, these policy tools affect the economy through channels that are similar--though not identical--to those of conventional monetary policy. I'll now spend a few minutes describing how each form of unconventional policy can be helpful in promoting a stronger economic recovery.
Monetary Policy Communication
An essential element of good monetary policy is effective communication. In a democratic society, central banks have the responsibility to clearly and fully explain their policy decisions. Good communication is also essential for strengthening the effectiveness of monetary policy. Expectations about the future play a key role in the decisionmaking of households and firms: how much to spend, save, work, invest, or hire. Moreover, when financial market participants understand how the central bank is likely to react to incoming information, asset prices can adjust in ways that reinforce the central bank's expected policy actions and thereby support the central bank's objectives. Finally, clear communication can help anchor the public's long-term inflation expectations and hence improve the extent to which the central bank can take forceful actions to promote job creation in a context of price stability.
With the federal funds rate constrained by its effective lower bound, effective communications with the public have become more important than ever. Since 2009, the Federal Reserve has published the Committee participants' longer-run projections of the inflation rate, the unemployment rate, and economic growth four times a year in conjunction with the minutes of FOMC meetings. Based on their longer-run projections for inflation, Committee participants judge that an inflation rate of 2 percent or a bit less, as measured by the price index for personal consumption expenditures, is most consistent with our statutory mandate of maximum employment and price stability.3 The Committee currently strives for as low an unemployment rate as possible, consistent with price stability. In our most recent projections, Committee participants estimated that the longer-run sustainable rate of unemployment is around 5 to 6 percent--well below the current unemployment rate of 9.1 percent.
Since December 2008, the FOMC has been providing conditional forward guidance about the likely path of the target federal funds rate. From March 2009 through June 2011, the Committee's forward guidance indicated that exceptionally low levels of the federal funds rate were likely to be warranted "for an extended period." In August, we decided to be more specific about the timing, and our two most recent meeting statements have indicated that "economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."4
Forward guidance can provide monetary accommodation by leading investors to expect a longer period of low interest rates. As I noted earlier, a downward shift in the expected path of the federal funds rate is associated with reduced longer-term interest rates and generates a significant boost to consumer and business spending. Simulations of the FRB/US model and other evidence suggest that forward guidance can be a potent tool of monetary policy.5
Balance Sheet Operations
Since late 2008, the FOMC has engaged in two rounds of large-scale asset purchases (LSAPs). The first round of LSAPs involved purchases of about $1.4 trillion in agency mortgage-backed securities (MBS) and agency debt securities and about $300 billion in longer-term Treasury securities; those purchases were executed during 2009 and the first quarter of 2010. The second round of LSAPs--often referred to as QE2--involved an additional $600 billion in purchases of longer-term Treasury securities and was completed at the end of June of this year.
By purchasing longer-term securities in the open market, the Federal Reserve can exert downward pressure on longer-term yields, thereby reducing private borrowing rates and raising household wealth. Consequently, just as with conventional monetary policy, LSAPs help boost consumer spending, business investment, and net exports. And the resulting increase in aggregate demand helps generate a stronger pace of job creation.6
At last week's FOMC meeting, the Committee announced that we intend to extend the average maturity of our securities holdings over the coming months by selling $400 billion of short-term Treasury securities and purchasing an equivalent amount of long-term Treasury securities. This maturity extension program--referred to by some as Operation Twist--should exert downward pressure on longer-term interest rates and help make broader financial conditions more accommodative, thereby supporting a stronger economic recovery. Indeed, recent work by an economist at the Federal Reserve Bank of San Francisco suggests that a similar policy put in place in 1961 had effects on longer-term interest rates that were roughly comparable to those of QE2.7
Another significant policy action taken at last week's FOMC meeting is that the principal payments from our holdings of agency securities will now be reinvested in agency MBS rather than in Treasury securities. Our announcement appears to have been successful in narrowing the spread between rates on agency MBS and Treasury securities of comparable maturity. That spread had widened substantially since earlier this year, and the continuation of such a trend could have pushed up mortgage rates and adversely affected the housing sector.
Potential Attenuating Factors
In my judgment, the Federal Reserve's deployment of our policy tools has been completely appropriate in promoting maximum employment and price stability. Ideally, such policy decisions would be informed by precise quantitative information about the effects of each tool. In reality, however, the estimated effects of the FOMC's policy actions are subject to considerable uncertainty. Such uncertainty is intrinsic to real-world monetary policymaking at any time but is particularly relevant under circumstances where the scope for conventional monetary policy is constrained by the zero lower bound on the federal funds rate, leaving unconventional tools as the only means of providing further monetary accommodation.
Although these monetary policy tools have been successful in pushing down interest rates across the maturity spectrum, the magnitude of the transmission to economic growth and employment has been somewhat more muted than I might have expected. Indeed, it seems plausible that the effectiveness of our policy tools is being attenuated by a number of unusual persisting factors, including an excess supply of housing and impaired access to credit for many households and small businesses.
Under normal circumstances, residential construction is an interest-sensitive sector of the economy that has played an important role in contributing to previous economic recoveries--especially the brisk recovery that followed the steep downturn in 1981 and 1982. In the wake of the bursting of the housing bubble, however, the housing sector has remained exceedingly weak. In effect, there is an excess supply of housing that seems likely to decline only gradually despite the record-low level of mortgage rates. Thus, in this crucial sector, one can argue that lower interest rates have not shown through to higher activity in the same way that would be expected under more usual recoveries.
Consumer spending is also being restrained by the excess supply of housing, which has put downward pressure on home equity values and household wealth. A substantial portion of homeowners now have negative home equity and are effectively unable to refinance at historically low mortgage rates. Many more have seen a drastic decline in the value of their homes, which would typically serve as collateral for home equity lines of credit or second mortgages.
The slow progress in repairing and restructuring households' balance sheets may also be lowering the normal responsiveness of consumer spending to a decline in market interest rates. In particular, lenders continue to maintain relatively tight terms and standards on credit cards and, to a lesser extent, other consumer loans. Consequently, many households may be unable to take advantage of the lower borrowing rates that are available to those who have a high net worth and pristine credit records.
Many small businesses also appear to be facing unusual obstacles in obtaining credit. If times were more typical, we would expect a smooth transmission in which lower interest rates would fuel credit expansion that would be used to finance expanding payrolls, capital investment, inventories, and other short-term operating expenses. Nonetheless, the latest Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices, which was taken in July, indicated that although domestic banks continued to ease standards on their commercial and industrial loans, the net fraction reporting easing on such loans to smaller firms (those with annual sales of less than $50 billion) remained low and was well below that of loans to large and middle-sized firms.8 In its August survey, the National Federation of Independent Businesses reported a noticeable increase in the proportion of small businesses reporting that credit has become more difficult to obtain.9 These businesses not only expect credit to become tighter in coming months but--like other businesses--have turned sharply more pessimistic about the broader economic outlook.
Finally, and perhaps most comprehensively, it is worth observing that the financial crisis has undermined the wealth of many Americans. Low- and moderate-income families entered the recession with little financial buffer against the adverse effects of wage cuts, job loss, and drops in home values. According to the 2007 Survey of Consumer Finances (SCF), home equity accounted for about half of the total net worth for low- and moderate-income families, which made them extremely vulnerable to the eventual housing market collapse.10 Families at the lower end of the income distribution saw a substantial drop in their net worth between 2007 and 2009, and families in the middle of the income distribution fared even worse.11 Combined with widespread unemployment, housing and stock price declines, and increasing rates of mortgage defaults, foreclosures, and bankruptcies, the assets of many American families have been significantly eroded. The effect of these developments may be to attenuate the revival of normal consumption patterns that would otherwise be dictating increases in consumer demand and growth.
Diversity of Views
Even if the usual effectiveness of monetary policy is being attenuated by the factors that I have mentioned, that conclusion should not be taken as implying that additional monetary accommodation would be unhelpful. Indeed, the opposite conclusion might well be the case--namely, that additional policy accommodation is warranted under present circumstances.
My FOMC colleagues and I have recently been faced with complex decisions about the use of unconventional policy tools under extraordinary economic and financial conditions. And while we may not all agree with every decision, I believe that the public can have a very high degree of confidence in the fundamental integrity and soundness of our decisionmaking process.
Indeed, some commentators assign a label of "hawk" or "dove" to the various FOMC participants in an attempt to characterize how we prioritize the goals of maximum employment and price stability. In my view, such labels are ill conceived and misleading because everyone on the Committee is fully committed to promoting both of these goals. Incidentally, since my kids now love describing everyone as a hawk or a dove or some other kind of bird, I have taken to reminding them of this conviction I have: When my colleagues and I are doing our job correctly, we are neither hawks nor doves but owls--that is, we are trying to be as wise as possible in deploying all the tools we have to fulfill our legal mandate.
Conclusion
In summary, the economic recovery has fallen well short of restoring labor market conditions to historically typical levels. Given the elevated rate of unemployment and the large number of individuals who are experiencing long spells of unemployment, both fiscal and monetary policymakers should be considering a wide array of approaches for promoting job creation. In my view, the deployment of our monetary policy tools needs to be carefully gauged, appropriately timed, and clearly communicated to the public. Moreover, to the extent that some factors may attenuate the usual effectiveness of monetary policy, there is a compelling case to identify and implement policy measures to mitigate those factors and thereby strengthen the effect of the monetary accommodation that we have already put in place. Finally, in light of the economic hardships that are facing our nation, I want to underscore that the Federal Reserve is fully committed to doing everything we can to promote maximum employment in the context of price stability.
Thank you again for the opportunity to speak with you today, and I look forward to hearing your comments and questions.
1. I appreciate the assistance of Hess Chung, William English, Jean-Philippe Laforte, Andrew Levin, Susan Stawick, William Wascher, David Wilcox, and Joyce Zickler in the preparation of these remarks. Return to text
2. The simulation described here assumes, as is common in the literature, that the policy follows its historically typical behavior once the assumed counterfactual path for the federal funds rate ends. Return to text
3. As indicated in figure 2c of the June 2011 Summary of Economic Projections, 11 out of 17 Committee participants projected a longer-run inflation rate for personal consumption expenditures of 2 percent while the remaining participants' projections were a bit below 2 percent. Return to text
4. The August and September FOMC meeting statements, as well as related FOMC information, are available on the Federal Reserve Board's website. Return to text
5. See Janet L. Yellen (2011), "Unconventional Monetary Policy and Central Bank Communications," speech delivered at the U.S. Monetary Policy Forum, New York, February 25. Return to text
6. See Hess Chung, Jean-Philippe Laforte, David Reifschneider, and John C. Williams (forthcoming), "Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?" Journal of Money, Credit and Banking. Return to text
7. See Eric T. Swanson (2011), "Let's Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2 (PDF)," Leaving the Board Federal Reserve Bank of San Francisco Working Paper 2011-08 (San Francisco: Federal Reserve Bank of San Francisco, February). Return to text
8. The Senior Loan Officer Opinion Survey on Bank Lending Practices is available on the Federal Reserve Board's website. Return to text
9. See National Federation of Independent Businesses (2011), NFIB Small Business Economic Trends (PDF) (Nashville: NFIB, August). Return to text
10. See Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach, and Kevin B. Moore (2009), "Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances (PDF)," Federal Reserve Bulletin, vol. 95 (February), pp. A1-A55. Return to text
11. See Jesse Bricker, Brian K. Bucks, Arthur B. Kennickell, Traci L Mach, and Kevin B. Moore (2011), "Surveying the Aftermath of the Storm: Changes in Family Finances from 2007 to 2009 (PDF)," Finance and Economics Discussion Series 2011-17 (Washington: Board of Governors of the Federal Reserve System, March).
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