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Finance Brief: Equifax Finds Hackers Exploited Flaw in Web Server Software


Government Brief

  • Sen. Ted Cruz (R-Texas) said that a repeal of the 2010 Dodd-Frank Act, using the budget reconciliation process, should be included as a key part of GOP tax reform efforts. Cruz also dismissed calls for revenue-neutral tax measures. (Morning Consult)
  • The office of the Treasury Department’s inspector general is looking into a request from Treasury Secretary Steven Mnuchin to use a government jet to travel to his honeymoon in three European countries earlier this summer. A Treasury Department spokesman said the request had been made so that Mnuchin could maintain secure communications as a member of the National Security Council, but in the end Mnuchin’s office decided against using a military aircraft. (ABC News)
  • Mnuchin said the emerging GOP plan to overhaul the tax code will include a mandatory, one-time “deemed tax” on profits that companies are holding overseas, whether they bring those earnings back to the United States or not. Under current estimates, including deemed repatriation in a tax reform bill could raise hundreds of billions of dollars in revenue. (The Washington Examiner)

Business Brief

  • Equifax Inc. said hackers used a vulnerability in web server software called Apache Struts CVE-2017-5638 in the data breach that exposed up to 143 million people’s personal data. The credit reporting firm also said it is working with a cybersecurity company to determine the scope of the breach. (The Wall Street Journal)
  • Richard Smith, Equifax’s chief executive, is scheduled to testify before a House panel on Oct. 3. Separately, almost 40 states are now working together to investigate how the firm has handled the data breach.  (Reuters)
  • The government-backed company Ginnie Mae has begun an investigation into whether some lenders try to pressure veterans and military service members to refinance mortgages that are tied to Ginnie Mae securities. The practice, known as churning, generates fees for the lenders but can lead to higher balances for consumers. (Bloomberg)

Chart Review

Events Calendar (All Times Local)

Thursday
POLITICO Pro Policy Summit 8:30 a.m.
AAP review workshop 9 a.m.
Senate Banking hearing on foreign investment 10 a.m.
Senate Finance Committee hearing on individual tax reform 10 a.m.
Friday
AEI seminar on trade deficits and the Trump administration 10 a.m.
FDIC webinar on deposit insurance coverage 1 p.m.
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General

Cruz Pushes Dodd-Frank Repeal as Key Tax Reform Plank
Anna Gronewold, Morning Consult

As the White House courts Senate Democrats as it tries to pick up additional support for the Republican tax reform effort, Sen. Ted Cruz (R-Texas) is risking alienating his colleagues across the aisle by promoting a repeal of the Dodd-Frank Act through the fast-track reconciliation process. At a Tax Foundation panel Wednesday, Cruz laid out goals for what he said was meaningful GOP tax reform.

Treasury Secretary Mnuchin requested government jet for European honeymoon
Justin Fishel et al., ABC News

Secretary Steven Mnuchin requested use of a government jet to take him and his wife on their honeymoon in Scotland, France and Italy earlier this summer, sparking an “inquiry” by The Treasury Department’s Office of Inspector General, sources tell ABC News. Officials familiar with the matter say the highly unusual ask for a U.S. Air Force jet, which according to an Air Force spokesman could cost roughly $25,000 per hour to operate, was put in writing by the secretary’s office but eventually deemed unnecessary after further consideration of by Treasury Department officials.

Trump Blocks China-Backed Bid for Lattice Over Security Risk
David McLaughlin and Jennifer Jacobs, Bloomberg

President Donald Trump blocked a Chinese-backed investor from buying Lattice Semiconductor Corp., a personal rebuke that bodes poorly for several other Chinese buyers seeking U.S. security clearance for their acquisitions. It was just the fourth time in a quarter century that a U.S. president has ordered a foreign takeover of an American firm stopped because of national-security risks.

With or without Democratic director, U.S. consumer watchdog to be weakened
Lisa Lambert, Reuters

Whether or not Richard Cordray stays as head of the Consumer Financial Protection Bureau (CFPB) until his term ends in July, the agency’s ability to rein in Wall Street will be severely weakened, political insiders, lawyers and consumer advocates said. Doubts are growing that the Democratic director of America’s top consumer watchdog will leave his post to run for Ohio governor, as had been widely speculated, after a lackluster Labor Day speech sparked anxiety over his campaign appeal, according to some party insiders.

Stocks Edge Lower as Miners Drop; Currencies Drift: Markets Wrap
Samuel Potter, Bloomberg

The rally in risk assets took a breather amid further signs China’s economy is cooling. The S&P 500 Index gained 0.1 percent to the highest on record.

Banking

Barclays wins end to U.S. litigation over pre-crisis disclosures
Jonathan Stempel, Reuters

Barclays Plc won the dismissal on Wednesday of U.S. class-action litigation by investors who bought its stock just months before the 2008 global financial crisis, and accused it of concealing its exposure to risky debt and an inability to manage credit risks. U.S. District Judge Paul Crotty in Manhattan said investors failed to show that Barclays and underwriters led by Citigroup Inc deceived them when the British bank sold $2.5 billion of American depositary shares in April 2008.

Banking agencies propose changes to CRA definitions
Lalita Clozel, American Banker

The three federal prudential bank regulators on Wednesday proposed revising certain definitions in Community Reinvestment Act regulations to stay aligned with a recent rule from the Consumer Financial Protection Bureau. Under the proposal, the Federal Deposit Insurance Corp, Office of the Comptroller of the Currency and Federal Reserve Board would update definitions of terms such as “home mortgage loan” and “consumer loan” to be consistent with new requirements implemented by the CFPB under the Home Mortgage Disclosure Act.

Rules Reign on Trump’s Fed List as Post-Crisis Economy Breaks Them
Craig Torres, Bloomberg

The list President Donald Trump’s aides are compiling to lead the Federal Reserve draws mostly from Republican economics central casting. They prefer a more disciplined approach to monetary policy, view excessive regulation as an obstacle to growth and criticize Fed decisions aimed at problems outside its scope.

Lawmakers stay clear of ILC charter debate … for now
John Heltman, American Banker

Most lawmakers on Capitol Hill appear reluctant to announce positions on a pair of fintech firms’ recent applications for industrial loan company charters. But that neutrality may give way if more firms — especially bigger companies — enter the ILC field. “I’m not sure that there is anything imminent or on the horizon that will force legislators to make a choice,” said John Beaty, a partner at Venable LLP and a former Federal Deposit Insurance Corp. attorney.

Financial Products and Investments

Provision of House spending bill would kill DOL fiduciary rule
Mark Schoeff Jr., InvestmentNews

The House is moving toward approval of a spending bill that contains a provision to kill the Labor Department’s fiduciary rule, the latest attempt by congressional Republicans to use legislative means to stop the regulation. The House was set to vote on more than two dozen amendments to the appropriations measure Wednesday afternoon.

Hurricanes Highlight Failure to Enforce Flood Insurance Rules
Christopher Flavelle, Bloomberg

As the floodwaters of Hurricanes Harvey and Irma recede, they may reveal more than moldy drywall and fetid trash. They could lay bare the federal government’s failure to police a basic tenet of its own disaster policy: that properties with government-backed mortgages in risky areas carry flood insurance.

Ex-UBS Trader Accused by U.S. of Manipulating Metals Prices
Tom Schoenberg and David Voreacos, Bloomberg

A former trader at UBS Group AG was charged with conspiracy and fraud over his suspected role in manipulating the price of precious metals. Andre Flotron, who worked at the bank in Switzerland and Stamford, Connecticut, is the second person publicly charged in the U.S. investigation into the fixing of gold, silver, platinum and palladium prices.

Housing and GSEs

U.S. Probing High-Pressure Mortgage Sales That Target Veterans
Joe Light, Bloomberg

The U.S. is investigating lenders for allegedly pressuring veterans and members of the military into unneeded mortgage refinances — unsavory conduct that not only leads to higher consumer costs but has consequences for one of the world’s largest bond markets. The probe is being conducted by Ginnie Mae, a government-owned corporation whose purpose is to make mortgages more affordable.

Fannie Mae, Freddie Mac cut mortgage modification interest rate to lowest level of 2017
Ben Lane, HousingWire

For the third time this year, Fannie Mae and Freddie Mac are lowering the benchmark interest rate for standard mortgage modifications. And unlike last time, both of the government-sponsored enterprises are changing their respective benchmark rates at the same time.

 

Taxes

Multinationals would face mandatory tax on offshore profits, Steven Mnuchin says
Joseph Lawler, The Washington Examiner

Multinational corporations with profits held overseas would face a mandatory one-time tax as part of the planned Republican tax legislation, Treasury Secretary Steven Mnuchin said Wednesday. “There will be a ‘deemed tax’ as a one-time charge,” Mnuchin said in an interview with Fox News at the Treasury.

Congress Wants This $2 Trillion Tax Break. U.S. Companies Don’t
Lynnley Browning, Bloomberg

Congressional tax writers want to offer U.S. companies an “unprecedented” way to slash their tax bills by investing in new equipment. But firms that stand to benefit most are saying no thanks, just give every company a bigger rate cut.

Why President Trump is so antsy for tax reform
Amber Phillips, The Washington Post

As evidenced by his Twitter feed on this hectic Wednesday, President Trump really, really wants Congress to put a tax reform bill on his desk ASAP. And he’s smart to demand that: Tax reform could be intricately tied to Republicans’ political future, especially in the 23 congressional districts they hold that Hillary Clinton also won.

Conservative groups step up tax reform push
Naomi Jagoda, The Hill

Conservative groups and activists are stepping up their push for tax reform, arguing to key GOP lawmakers and administration officials that passage of legislation is key for the midterm elections. “There is broad consensus on the need for tax reform,” more than 80 conservatives wrote in a letter dated Thursday.

Financial Technology

Equifax Blames Exploited Web-Server Software for Data Breach
AnnaMaria Andriotis, The Wall Street Journal

Equifax Inc. said criminals exploited web-server software in the data breach that affected potentially 143 million Americans but didn’t offer further detail on who may have been behind the hack. The company confirmed late Wednesday in what it called a progress report that hackers exploited a vulnerability with a U.S. website application called Apache Struts CVE-2017-5638.

Equifax CEO to testify before House panel on hack
Diane Bartz and David Shepardson, Reuters

A U.S. House panel said Wednesday the chief executive of Equifax will testify about a massive data breach that impacted up to 143 million Americans at an Oct. 3 hearing, as the company’s shares fell another 14.6 percent amid pressure on the company to explain its handling of the hack. The company’s shares have fallen more than 30 percent this week amid letters from members of Congress about the hack and requests for answers.

Theft of Equifax data could lead to years of grief for home buyers and mortgage applicants
Kenneth R. Harney, The Washington Post

The catastrophic theft of 143 million consumers’ personal data from national credit bureau Equifax could cause financial grief for years for home buyers and mortgage applicants. The odds are that some of your sensitive information was stolen — possibly your address, Social Security number, driver’s license and credit card numbers — and could now be up for grabs to the highest bidders on a Dark Web site.

Bitcoin ‘mining’: A new way for North Korea to generate funds for the regime
Qin Chen, CNBC

North Korea appears to be funding itself with bitcoin, according to a recent report. Recorded Future, an intelligence research firm backed by Google Venture and In-Q-Tel (a venture capital firm funded by the CIA), reported that North Korea began “mining” bitcoin on May 17 and could be using the digital currency to generate income for the regime.

To coin a craze: Silicon Valley’s cryptocurrency boom
Richard Waters, Financial Times

The ambition that gave birth to the InterPlanetary File System is as immodest as the name. The brainchild of a Silicon Valley start-up called Protocol Labs, IPFS aims to give anyone the chance to buy and sell unused computer storage space.

Dem senator calls on FTC to probe Equifax
Ali Breland, The Hill

Sen. Mark Warner (D-Va.) is calling on the Federal Trade Commission (FTC) to investigate the Equifax breach that compromised the personal information of 143 million Americans. Warner, who serves as the top Democrat on the Senate Intelligence Committee, wants the FTC to examine Equifax’s cybersecurity practices leading up to and following the breach.

 

Opinions, Editorials and Perspectives

2017 Is Our Year To Make History On Tax Reform
Kevin Brady, Forbes

Tax reform is the legislative challenge of a generation for America. It hasn’t been accomplished since 1986, when President Reagan and Congress delivered the most sweeping overhaul of our nation’s tax code in American history.

What Trump Can Do to Prevent the Next Crash
Ruchir Sharma, The New York Times

The Federal Reserve arguably has more influence on the daily lives of Americans than any other government agency. In the coming year President Trump has a chance to appoint or replace five of the central bank’s seven governors, including the vice chairman, Stanley Fischer, and possibly the chairwoman, Janet Yellen.

Escaping the Tax-Reform Budget Trap
Editorial Board, The Wall Street Journal

Republicans know that their hold on Congress depends on passing tax reform, but what we hear about the debate behind the scenes is worrisome. The danger is that, as with health care, the GOP will hold themselves hostage to a budget process that is hostile to pro-growth tax policy.

Equifax Isn’t A Data Problem. It’s A Political Problem.
Matt Stoller, The Huffington Post

If The Great Gatsby were written today, it would be a one-page story about a rich guy who lied a lot and threw great parties until someone ran a credit check. That’s what the ability to instantly access and exchange personal data has done: It has reordered the very notion of identity.

Research Reports

The Tax Reform Tradeoff: Eliminating Tax Expenditures, Reducing Rates
Tax Policy Center

In this exercise, TPC estimates the revenue and distributional effects of proposals that would eliminate income tax expenditures to finance lower individual and corporate tax rates and reduce the federal budget deficit.