December 29, 2011
JLN Interest Rates - http://www.jlninterestrates.com
Conversation Starter
*CN: Since we are, technically speaking, still in the 12 days of Christmas...
FEDERAL RESERVE'S LACKER: BANKING AND COMMUNITIES - A CLASSIC
‘Tis the season. We Americans do it every year.
This month, millions of us will gather around our television sets, settle into armchairs or sofas, curl up under blankets … and learn a little bit about banking. We seem to take an interest in it each December.
Of course, it might have something to do with the fact that this primer on banking is a movie classic called “It’s a Wonderful Life.” Basic banking is the foundation of our economy, but it’s based on a potentially fragile business model. Banks use the money their customers deposit into savings and checking accounts to make loans to other customers. While depositors can rightfully demand their money from the banks at any time, banks generally can’t do the same to their borrowers or can do so only at considerable cost. And because banks lend out their depositors’ money, they don’t have a lot of cash lying around, which means that, in a crisis, when all of their depositors show up at once demanding all the money in their accounts, banks are stuck.
“It’s a Wonderful Life” depicts this when George Bailey has to explain to the panicked depositors of the Bailey Building and Loan Association that their money isn’t available for immediate withdrawal. When they got shares in the Building and Loan, their money was instead invested in their neighbors’ homes.
“You’re thinking of this place all wrong,” George explains to the gathered crowd. “As if I had the money back in a safe. The money's not here. Your money's in Joe's house ... that's right next to yours. And in the Kennedy House, and Mrs. Macklin's house, and, and a hundred others.”
When this happens to one depository institution, like a bank or the Building and Loan, it's a run. When it happens to many at once, it's a panic. The Building and Loan survives this particular panic because George remains committed to his depositors. He understands the community they share, and he knows that their survival depends on stable growth over the long run. George’s connections to the community allow him to convince his depositors that, although the Building and Loan is short of cash at the moment, it’s still fundamentally sound.
This kind of connection to community bolsters banks. As the president of a Federal Reserve Bank, I think about this a lot because connection to community is what makes Reserve Banks unique.
Discussions about what a Reserve Bank is often get muddled because of widespread misconceptions of the Federal Reserve. When most people think of the Fed, they probably think of a government agency run from the nation’s capital. In the Fed’s case, they’d be half right; the Board of Governors is indeed an independent federal agency in Washington.
See Lacker's entire holiday speech here.
Lead Stories
Federal Government Near Borrowing Limit - To Request Another $1.2 Trillion In Borrowing Authority
USA Today
The Obama administration says the federal government has nearly reached its borrowing limit — again. Treasury officials said Tuesday that the White House plans to request another $1.2 trillion in borrowing authority Friday. The increase is necessary, they say, because the government will be within $100 billion of its current limit by then. In the past, such a request would be routine. But this one follows a summer of intense partisan debate over the nation's record debt, which has yet to end despite a last-minute deal reached in August that averted a potential default.
http://jlne.ws/t6NYeO
** CN: The increase would boost the debt limit to $16.4 trillion.
Fed calls it quits on 'twist' for year
Chicago Tribune
The Federal Reserve isn't scheduled to buy Treasury securities Thursday for its latest stimulus plan that extends the average maturity of the U.S. government debt sitting on its balance sheet.
http://jlne.ws/rF0EPX
Fed Seeks to Curb Repo Market Risk
CNBC
An industry task force sponsored by the US Federal Reserve is working on a plan to scale back systemic risk in the funding market at the center of the financial crisis and to reduce trader dependence on JPMorgan Chase and Bank of New York Mellon.
http://jlne.ws/t19PlR
Federal Reserve Balance Sheet Shrinks $31 Billion In November
Nasdaq
http://jlne.ws/tALslw
Obama nominates 2 to Federal Reserve Board
CBS News
Obama nominated a Harvard professor and a former Treasury official under Pres. George H.W. Bush to the Federal Reserve Board
http://jlne.ws/u2vNFY
Fed Nominee Jeremy Stein 'Could Shutter The US Financial Services Industry' If He Gets His Way
Business Insider
Jefferies strategist David Zervos takes aim at Harvard professor and Federal Reserve Board nominee Jeremy Stein in his latest note today, and it's not pretty.
http://jlne.ws/u5CekW
ECB's Visco hints at lower rates if economy worsens
Reuters via Yahoo! News
MILAN (Reuters) - European Central Bank Governing Council Member Ignazio Visco said in a newspaper interview on Saturday that the bank will be attentive to the economic cycle when setting monetary policy, suggesting rates could fall more if the euro zone economy worsens.
http://jlne.ws/rZUAqA
ECB Nowotny Says Price Stability Top Priority
Nasdaq
http://jlne.ws/vtIhHN
ECB Overnight Deposits Fall Back From Record High
Nasdaq
http://jlne.ws/ruZSH7
Solid Italian bond auction
Associated Press via Yahoo! Finance
A pair of successful bond auctions that raised $14 billion for Italy forced down the interest rate the country pays on its debt and boosted European markets on Wednesday.
http://jlne.ws/rw9J27
Italy seeks bigger euro fund
Reuters via Yahoo! News
MILAN/ROME (Reuters) - Italy's PM called for significantly more firepower for the euro zone's bailout fund after a bond auction did little to ease concerns over how the country would finance public spending in the next few months.
http://jlne.ws/ur1Otb
Italy's Monti warns of ongoing market turbulence
Associated Press via Yahoo! Finance
Italy's borrowing costs fell for a second day Thursday but the country's new premier said his government has more to do before it convinces financial markets it can manage the heavy debts that have made ...
http://jlne.ws/ufdpi9
Bernanke may offer more news briefings
Pittsburgh Post-Gazette
Federal Reserve Chairman Ben S. Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates will stay near zero longer, economists said. Adding briefings "is a viable option because Bernanke has been an effective communicator" of policy aims, said Sam Bullard, senior economist at Wells Fargo Securities.
http://jlne.ws/toU8JD
Bernanke may double press briefings
Crain's New York Business
(Bloomberg) - Federal Reserve Chairman Ben Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates will stay near zero longer, economists said. Adding briefings "is a viable option because Mr. Bernanke has been an effective communicator" of policy aims, said Sam Bullard, senior economist at Wells Fargo Securities.
http://jlne.ws/uvz3fC
Bernanke Money Policy Seen Successful as Savers Become Consumers
BusinessWeek
Federal Reserve Chairman Ben S. Bernanke finally may be catching a break: His easy-money policies are showing signs of speeding up the economic rebound three years after he cut interest rates to zero.
http://jlne.ws/tocPhI
Bernanke Drive for Openness May Include More Briefings: Economy
BusinessWeek
Federal Reserve Chairman Ben S. Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates will stay near zero longer, economists said.
http://jlne.ws/rYNky0
Ex-Fed Official Accuses Bernanke of "Covert Bailout" of European Banks
International Business Times
The Federal Reserve, led by Chairman Ben Bernanke, has engaged in a "covert bailout" of European banks, according to ex-Fed vice president Gerald P.
http://jlne.ws/t1nyd6
Did Bernanke protect the U.S. from the euromess?
Washington Post
So far, American banks have largely managed to avoid catching the contagion of the Eurozone debt crisis. That's partly because there's little direct exposure to the banks in the most distressed countries. But there are other big reasons behind the U.S. banks' relative health, as the Economist points out.
http://jlne.ws/rXa1jz
Feds: MF Global improperly moved customer money
Post-Bulletin
WASHINGTON - Federal authorities investigating the demise of MF Global think that the firm began improperly moving customer money to a middleman on Oct. 27, according to people briefed on the matter. The
http://jlne.ws/uFRlkR
Clearing in spotlight after MF Global debacle
Reuters via Yahoo! News
LONDON (Reuters) - The collapse of U.S. futures brokerage MF Global has brought to light inconsistencies in the way clearing houses operate, prompting questions over regulatory plans to use more of these platforms to make markets safer.
http://jlne.ws/w1iZ0m
Regulators Extend Comment Period on Volcker-Rule Proposal
BusinessWeek
U.S. regulators will extend the comment period for the so-called Volcker rule, giving lawmakers and banks more time to seek changes in the proposed proprietary trading ban required by the Dodd-Frank Act.
http://jlne.ws/tGwRxv
U.S. Savings Bonds Going Electronic After Dec. 31; Will Save Taxpayers $120 Million Over Five Years
Cordele Dispatch
The U.S. Department of the Treasury reiterates that paper U.S. Savings Bonds are going electronic after Dec. 31 - a move that will save taxpayers $120 million over five years.
http://jlne.ws/vlYJVD
The U.S. Treasury Says China's Not Manipulating Its Currency
The Atlantic Wire via Yahoo! News
The U.S. Treasury Department issued a report Tuesday saying they would not refer to China as a "currency manipulator," despite widespread claims that the Chinese government keeps the value of the yuan artificially low.
http://jlne.ws/vLMkV6
Pimco Forecasts U.S. May Stagnate Amid Data Showing Growth
BusinessWeek
Pacific Investment Management Co., whose largest fund is suffering its worst year on record after Bill Gross's failed bet against Treasuries, said the U.S. may stagnate next year, a view at odds with recent data signaling continued growth.
http://jlne.ws/u4nVlJ
Payroll tax cut may hurt housing market
Los Angeles Times
To pay for the two-month payroll tax cut, a small fee will be levied for a decade on all mortgages sold to Fannie Mae and Freddie Mac. That also makes it harder to overhaul the housing finance system.
http://jlne.ws/u7zpj6
Housing And Banking Are Key To 2012 Markets
Forbes
I follow the U.S. Capital focusing on U.S. Treasuries, Comex gold, Nymex Crude Oil, the euro versus the U.S. sollar, and the major U.S. equity averages. I view myself as an expert on monetary policy, the housing market, and the banking system with my unique dissection of the FDIC Quarterly Banking Profile.
http://jlne.ws/so3Tdg
Eurozone faces tough hurdles early in 2012
Associated Press via Yahoo! News
After a turbulent 2011, the 17 countries that use the euro will be quickly confronted in the new year with major hurdles to solving their government debt crisis, just as the eurozone economy is expected to sink back into recession.
http://jlne.ws/rvX54n
Banks still waiting on most Dodd-Frank rules
Washington Post
A year and a half has gone by since the Dodd-Frank financial reform act was signed into law, but barely a quarter of the rules in the legislation have been finalized, though federal regulators are rolling out key components of the bill.
http://jlne.ws/u6TCx6
These 5 Countries Should See GDP Growth Heat Up In 2012
Business Insider
Morgan Stanley's Global Economics Research team led by Joachim Fels recently cut its 2012 GDP growth outlook from to 3.5%, as the world continues to decelerate from an estimated 3.9% growth in 2011 and 5.2% growth in 2010.
http://jlne.ws/w4TZwr
Events
Fixed Income Markets 2012
January 24, 2012
Tabb Forum Looks At Changes Ahead And Staying Ahead In Fixed Incomes
http://jlne.ws/snQ3VO
Treasury Futures: Using International Fixed-Income and Money Market Spreads
January 31, 2012
The IFM Instructs On Using Fixed Income And Money Market Spreads
http://jlne.ws/u7MgUK
National Association of Home Builders' Show
February 10, 2012
Special Session With Fed's Bernanke Open To All Registered Attendees
http://jlne.ws/tEcqjW
Economic News
Weekly Jobless Claims Drift Higher; Still Below Key Level
CNBC
New claims for unemployment benefits rose more than expected last week, but the underlying trend continued to point to improving labor market conditions.
http://jlne.ws/s0LJXB
Home Prices in 20 U.S. Cities Decrease More Than Forecast
BusinessWeek
Residential real estate prices dropped more than forecast in the year ended October, showing a broad-based decline that indicates the U.S. housing market continues to be weighed down by foreclosures.
http://jlne.ws/uD0Tfc
Germany’s annual inflation rate seen dropping to 2.1 percent in December
An official estimate shows that the year-on-year inflation rate in Germany, Europe’s biggest economy, declined to 2.1 percent in December. The figure reported Thursday by the Federal Statistical Office compares with a 2.4 percent year-on-year increase in consumer prices in November. The office says inflation this year has been driven largely by energy and fuel prices, but gave no reason for the dip in December.
http://jlne.ws/u6UGw1
**CN: Data from Germany are important as the ECB decides if it should cut interest rates for the eurozone.
Swiss KOF at Two-Year Low Signals Deeper Slowdown: Economy
BusinessWeek
Switzerland's forward-looking economic indicator fell to the lowest in more than two years in December, adding to signs of a deepening slowdown.
http://jlne.ws/tErNZT
Exchanges, Clearing Houses & MTFs
U.S. Clears NYSE-Deutsche Boerse Deal With Direct Edge Sale
BusinessWeek
NYSE Euronext's acquisition by Deutsche Boerse AG was cleared by the U.S. Department of Justice, putting the transaction in the hands of European antitrust authorities who have resisted approval.
http://jlne.ws/v3tmxk
Firms & Banks
Goldman Rethinks Business Model
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK (Trefis) -- Goldman Sachs has been forced to rethink its business model, as it has come under fire from regulators of late.
http://jlne.ws/s3eeqz
Pinnacle Financial Redeems 25 Percent of Its Preferred Shares Held by U.S. Treasury
Business Wire via Yahoo! Finance
Pinnacle Financial Partners, Inc. announced that earlier today it redeemed 25 percent of the preferred shares the Company originally issued to the U.S. Treasury under the TARP Capital Purchase Program.
http://jlne.ws/sEHqZj
Unleashed, MetLife tells Ben: Take a walk
New York Post
Snoopy doesn't like walking on Ben Bernanke's tight leash. MetLife - which uses the spunky comic-strip beagle as its corporate mascot - said it is so fed up with the heavy hand of Bernanke's Federal Reserve regulators that it is getting out of the banking business.
http://jlne.ws/uckcti
Goldman Negotiates with Heungkuk
Zacks via Yahoo! Finance
On Wednesday, South Korean insurer-Heungkuk Life Insurance Co. withdrawn the case filed against New York-based The Goldman Sachs Group Inc. earlier this year.
http://jlne.ws/ue81C3
Peoples Bancorp To Repurchase $18 Mln Of $39 Mln Received Under The TARP Capital
Nasdaq
http://jlne.ws/rQJtIN
Global News
IMF boosts Canada outlook for 2011
AFP via Yahoo! News
The International Monetary Fund on Thursday slightly raised its 2011 outlook for the Canadian economy.
http://jlne.ws/tugvPe
Vietnam Growth Holds Near 6% as Higher Rates Counter Exports
BusinessWeek
Vietnam's growth held near 6 percent this quarter, reducing the pressure for further monetary tightening after higher interest rates limited the boost to the economy from exports and domestic consumption.
http://jlne.ws/sVTT5h
Food Inflation Rate in India Falls to Lowest Level in at Least Five Years
Bloomberg
India's food inflation rate fell to the lowest level in at least five-and-a-half years, increasing the scope for the central bank to cut interest rates after it halted a record pace of monetary tightening.
http://jlne.ws/sOPa7o
Serbia Has Room to Cut Rates, Central Bank Chief Soskic Says
BusinessWeek
Serbian central bank Governor Dejan Soskic said policy makers may be in a position to cut borrowing costs in the first half to help foster economic growth because inflation will continue to slow.
http://jlne.ws/vhKgYO
RBS' future as murky as a Scottish loch
Connecticut Post
Uncertainty will hang over the Royal Bank of Scotland's Connecticut operations for possibly years while the U.K. government figures out how to recoup a $69 billion bailout of the institution.
http://jlne.ws/slZvtz
Greek PM pledges 150,000 new jobs in early 2012
Associated Press via Yahoo! News
Greece's interim coalition government pledged Wednesday to create 150,000 new jobs in the first quarter of 2012 and boost welfare programs, seeking to alleviate the effects of an acute financial crisis that has sent unemployment soaring amid a deep recession.
http://jlne.ws/sajDmb
Thai Ministry Of Finance: 4Q GDP Likely To Shrink 5% On Year
Nasdaq
http://jlne.ws/w49Oo6
Zambia CPI slows, 2011 GDP growth seen lower
Reuters via Yahoo! News
LUSAKA (Reuters) - Zambia's consumer inflation slowed sharply in December on lower food prices while economic growth was seen down in 2011 compared with last year due to decreased output from mining in Africa's largest copper producer, the Central Statistics Office said on Thursday.
http://jlne.ws/tarlJl
Unemployment surge hits Sarkozy re-election hopes
AFP via Yahoo! News
French President Nicolas Sarkozy's re-election hopes have been hit by new figures showing unemployment at a 12-year high amid an austerity drive that leaves him little room to manoeuvre.
http://jlne.ws/tFBIJs
Egypt cbank to offer 22 bln Eg pounds in repos
Reuters via Yahoo! News
CAIRO (Reuters) - Egypt's central bank said it would offer 22 billion Egyptian pounds in seven-day repurchase agreements in the money market on Tuesday at a fixed rate of 9.75 percent.
http://jlne.ws/uOpmFv
Chilean Interbank Rates Jump Even After Central Bank Acts to Add Liquidity
Bloomberg
Chilean short-term bank borrowing costs continued to rise today even after the central bank announced an extra liquidity package aimed at bringing rates down.
http://jlne.ws/tROq7P
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