Finance Brief: Navarro Says Trade Deficit Endangers National Security

Washington Brief

  • Peter Navarro, director of the White House’s National Trade Council, warned that trade deficits could jeopardize U.S. national security by allowing unfriendly nations to encroach on American supply chains. He said narrowing the U.S. trade gap will be the administration’s top policy priority. (The Wall Street Journal)
  • Finance chiefs of the Group of 20 economies dropped a pledge to resist protectionism in a March 1 draft document, a change from language after a July meeting that could reflect shifting global tides spurred by President Donald Trump’s positions on trade. (Bloomberg News)
  • The U.S. is expected to shift its support to mortgage company PHH in a federal case involving the Consumer Financial Protection Bureau that will likely reshape the CFPB’s structure. A full appeals court is slated to rehear the case in May. (HousingWire)

Business Brief

  • The Securities and Exchange Commission will likely refrain from outsourcing examinations of investment advisers to third-party entities, meaning the agency won’t move forward with a regulation drafted by former Chair Mary Jo White before her departure. (InvestmentNews)
  • The U.S. Supreme Court rejected former UBS AG trader Roger Darin’s attempt to dismiss an indictment over Libor benchmark rate manipulation allegations. (Reuters)
  • The Federal Reserve is weighing legal action against former JPMorgan Chase & Co. trader Bruno Iksil, who was at the center of the 2012 “London whale” incident that led to the loss of $6.2 billion for the bank. (The Wall Street Journal)

Chart Review

Events Calendar (All Times Local)

Tuesday
No events scheduled
Wednesday
Brookings Institution event on China’s economic diplomacy 9 a.m.
Cato Institute event on infrastructure priorities 12 p.m.
Thursday
Georgetown Law trade event 8 a.m.
SEC Investor Advisory Committee meeting 9 a.m.
House Financial Services Committee flood insurance hearing 10 a.m.
Friday
Georgetown Law trade event 8 a.m.
SEC Evidence Summit 9:30 a.m.

 

General

Trump Adviser Peter Navarro: Trade Deficits Endanger U.S. National Security
Nick Timiraos, The Wall Street Journal

The director of President Donald Trump’s newly formed National Trade Council said Monday the administration would make the reduction of U.S. trade deficits its top policy focus. Speaking to a conference of business economists, trade adviser Peter Navarro said the U.S. faced a growing economic and potential national security risk from the commercial behavior of its major trading partners, including China and Germany.

Trump adviser Navarro: U.S., Germany should discuss trade outside EU
David Lawder, Reuters

Trump administration trade adviser Peter Navarro said on Monday the $65 billion U.S. trade deficit with Germany was “one of the most difficult” trade issues, and bilateral discussions were needed to reduce it outside of European Union restrictions. Navarro, the director of the new White House National Trade Council, said that Germany has used the argument that the EU dictates its trade policy and that it does not control the value of the euro.

G-20 Drops Wording on Resisting Protectionism in Draft Document
Jana Randow and Carolynn Look, Bloomberg News

Finance chiefs of the Group of 20 economies plan to drop an explicit pledge to resist protectionism, while still promising open trade, a draft of their statement showed. “We will maintain an open and fair international trading system,” according to the preliminary communique seen by Bloomberg News and dated March 1.

United States flips sides, supports PHH in case against CFPB
Brena Swanson, HousingWire

The United States revealed last Friday that it now supports PHH in its landmark case against the Consumer Financial Protection Bureau, switching sides from its original stance back in December, according to a new piece in Ballard Spahr’s CFPB Monitor blog by Barbara Mishkin. Back in February, the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of the CFPB and granted a rehearing of the case en banc, meaning that it would allow the entire court to hear the case, rather than the three judges who ruled on the case in October.

Wall Street Cops Reined In as SEC Braces for Trump Budget Cuts
Matt Robinson and Benjamin Bain, Bloomberg News

When Wall Street bond dealmakers congregated in Las Vegas last week for their annual get-together, one group of folks was conspicuously absent: SEC enforcement officials. For years now, they’ve been crashing the marquee event, trying to, somewhat awkwardly, mingle and make industry contacts while sniffing around for their next big case.

Europe Stocks Stall as Trading Drops; Metals Slide: Markets Wrap
Samuel Potter, Bloomberg News

Futures on the S&P 500 declined 0.2 percent, after the benchmark index lost 0.3 percent on Monday. The index has gained 6.1 percent in 2017.

Banking

Wells Fargo names Allen Parker general counsel
Diptendu Lahiri, Reuters

Wells Fargo & Co (WFC.N) named Allen Parker general counsel on Monday, at a time when the third-largest U.S. lender looks to restore its battered reputation following a scandal over phony accounts. Parker succeeds company veteran James Strother, who will retire after 30 years with the company, the lender said.

Fed’s Kashkari: Bank CEOs are talking ‘complete nonsense’ to try to win less regulation
Greg Robb, MarketWatch 

Recent arguments from large bank CEOs that they have too much capital that is holding back lending is “complete nonsense” and moving the debate over the safety of the U.S. financial system in the wrong direction, Minneapolis Fed President Neel Kashkari said Monday. “The fact is the matter is borrowing costs for homeowners, for consumers, for businesses are near record lows,” Kashkari said in a speech to the National Association for Business Economics.

New Commerce Secretary Was No Friend to Russians at Cyprus Bank
Andrew Higgins, The New York Times 

When Wilbur L. Ross, a billionaire American investor, bought shares in the Bank of Cyprus three years ago, he found himself part owner of a big but failing bank with a vice chairman who used to work with Vladimir V. Putin in the Leningrad K.G.B. and five other Russians on its board. That was enough to raise concerns when President Trump nominated Mr. Ross to be his commerce secretary.

Financial Products and Investments

Prospects for independent adviser exams fade with increased SEC efficiency, Piwowar resistance
Mark Schoeff Jr., InvestmentNews

Increasing coverage of investment advisers by a reorganized Securities and Exchange Commission examination staff and resistance from its current Republican member may keep on the shelf a proposal to allow private firms and non-governmental organizations to conduct adviser exams. Before she departed in January, former SEC Chairwoman Mary Jo White said that she had drafted a regulation that would outsource some exams to third parties.

U.S. top court rejects ex-UBS trader’s challenge to Libor indictment
Lawrence Hurley, Reuters

The U.S. Supreme Court on Monday rejected a bid by a former trader with Swiss global financial services company UBS AG to dismiss a criminal indictment filed by U.S. prosecutors over his alleged role in Libor benchmark interest rate manipulation. The court’s decision not to hear the appeal brought by Swiss citizen Roger Darin means the 2012 charges will not be thrown out, leaving in place a March 2016 ruling by the New York-based 2nd U.S. Circuit Court of Appeals.

Fed May Take Legal Action Against ‘London Whale’
Lucy McNulty, The Wall Street Journal

The Federal Reserve is considering legal action against Bruno Iksil, the trader at the center of the “London whale” trading debacle, according to a person familiar with the matter. Mr. Iksil had thought he would face no further threat of charges, the person said.

Publicity looms as PwC, MF Global go to trial in New York
Jonathan Stempel, Reuters

Publicity about both the recent Academy Awards and Wall Street hung over a Manhattan courtroom on Monday as lawyers struggled to find jurors to decide whether PricewaterhouseCoopers helped cause the collapse of MF Global Holdings Ltd, a commodity brokerage once headed by former New Jersey Governor Jon Corzine.

Housing and GSEs

Carson refers to slaves as ‘immigrants’ in talk to HUD employees
Mallory Shelbourne, The Hill

Secretary of Housing and Urban Development Ben Carson referred to slaves as “immigrants” dreaming of a better life in a talk with department employees, according to Monday reports. “That’s what America is about. A land of dreams and opportunity,” Carson said.

Taxes

Bordering on a tax
Roger Russell, Accounting Today

For many, the question isn’t whether we’ll have corporate tax reform this year, but when — and whether that reform will include a border tax. The answer to the latter is “Yes,” according to Tom Wheelwright, founder of accounting firm ProVision.

Financial Technology

SEC to Decide This Week Whether Bitcoin Could Become the Next ETF Star
Paul
Vigna, The Wall Street Journal

Bitcoin may soon be coming to an exchange-traded fund nearer to you. For Wall Street, the eight-year-old cryptocurrency is still a small asset class, but one that could boom in the future.

A Message from the National Black Chamber of Commerce:

Did you know the Durbin Amendment has made big box retailers $42 billion in profit? These corporations promised they would pass on profits made from lower debit transaction fees to consumers. But they have not kept their word and in many cases are charging consumers more.

Opinions, Editorials and Perspectives

Congress Must Restore Protections for State-run Retirement Plans
Paul Schott Stevens, Morning Consult

Unless Congress acts, millions of private-sector workers could lose vital consumer protections if they are automatically enrolled in questionable government-run retirement plans under consideration by states and cities across the country. Last year the Department of Labor created special carve-outs for these government-sponsored plans, which are targeted toward those who lack access to workplace retirement plans.

Congress Should Focus on Proven Pro-Growth Tax Reform, Not the Border Adjustment Tax
Brett Conrad, Forbes

Heading into 2017, U.S. consumer confidence has climbed to a 15-year high. Under normal circumstances, such a rosy outlook would bode well for brick-and-mortar retailers which have struggled over the last decade to keep pace with their online rivals. Yet, in an ironic twist, the specter of tax reform—led by Republicans in the U.S. House of Representatives—could derail the retail sector and consumer confidence writ large.

Forget the Border Levy. Here’s the Really Big GOP Tax Idea.
Noah Smith, Bloomberg View

But as important as the border adjustment is, it might not be the most significant change in the tax reform plan. The House plan would also fundamentally change the way that U.S. corporations finance themselves, wreaking huge changes in U.S. financial markets in the process.

Courts Will Define Boundaries of Friendship in Insider Trading
Peter J. Henning, The New York Times 

Insider trading law is heating up again, with a trial involving the high-profile gambler Billy Walters scheduled to start next week.

Financial CHOICE Act Must Keep Durbin Repeal
Iain Murray, National Review

After the repeal and replacement of Obamacare, the next big task facing Congress will be reform of the equally awful Dodd-Frank Act. House Financial Services Committee chairman Jeb Hensarling announced the vehicle for that task last year – the Financial CHOICE Act.

Postmortem plans for banks under threat of extinction
Patrick Jenkins, Financial Times

If there was one big realisation to come out of the financial crisis — alongside the fact that banks were riskier than believed — it was this: policymakers did not know how to wind up a bank without causing chaos. The demise of Lehman Brothers was the $639bn proof.

Excessive CEO Pay for Dumb Luck
Barry Ritholtz, Bloomberg View

CEO pay is rigged. If that sounds more like a late-night presidential tweet than a fact, let’s consider the evidence.

A Message from the National Black Chamber of Commerce:

Enactment of the Durbin Amendment has led to $42 billion in extra profit for giant retailers. These corporations said they would pass on the profits to consumers in the form of lower prices, but they’ve broken that promise, pocketed the money and in many cases are charging consumers even more.

Research Reports

Instrumental Variables and Causal Mechanisms: Unpacking the Effect of Trade on Workers and Voters
Christian Dippel et al., The National Bureau of Economic Research

It is often the case that an endogenous treatment variable causally affects an intermediate variable that in turn causally affects a final outcome. Using an Instrumental Variable (IV) identifies the causal effect of the endogenous treatment on both the intermediate and the final outcome variable, but not the extent to which the intermediate variable affects the final outcome.