Finance Brief: Proposal Would Link Debt Ceiling Hike to Harvey Aid


Government Brief

  • Under a plan that President Donald Trump is considering supporting, Congress would raise the debt limit as part of legislation that would also give $5.95 billion to federal agencies handling the recovery from Hurricane Harvey. The White House could request the pairing as soon as today. (Bloomberg)
  • A federal judge in Texas tossed out a Labor Department rule that would have made over 4 million employees eligible for overtime pay. The rule, which was finalized during the administration of former President Barack Obama, would have required employers to pay overtime to salaried employees making less than $47,476 a year, from the previous threshold of $23,660. (The Hill)
  • The enforcement practices of federal banking and consumer protection regulators are again under the spotlight after Wells Fargo & Co. announced an increase in the number of potentially fraudulent accounts that were opened as a result of its cross-selling practices. (Morning Consult)

Business Brief

  • The additional unauthorized accounts found at Wells Fargo and other suspect practices the bank has discovered in recent months are raising questions about whether former Chief Executive John Stumpf was being accurate when he told members of Congress that bad behavior at the bank was limited to the division involved in the cross-selling scandal. (The New York Times)
  • U.S. derivatives regulators today will enforce new international rules on swap collateral requirements, which had been delayed for six months. The new rules require financial firms trading swaps that don’t go through clearinghouses to agree in writing on how to take care of collateral. (The Wall Street Journal)
  • The second round of talks to renegotiate the North American Free Trade Agreement begins today in Mexico City. Business leaders in Mexico and the United States are beginning to prepare for the possibility that President Donald Trump may withdraw the United States from the trade deal as a negotiating tactic. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Friday
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General

Trump Weighs Tying Debt Limit Increase to Harvey Aid
Margaret Talev, Bloomberg

President Donald Trump is considering attaching an increase in the U.S. debt limit to an initial $5.95 billion disaster aid funding request for Hurricane Harvey, two administration officials said, a move aimed at lowering the risk of an unprecedented default. The White House request, which could come as soon as Friday, would include $5.5 billion to the Federal Emergency Management Agency and the remainder to the Small Business Administration.

Texas judge strikes down Obama overtime rule
John Bowden, The Hill

A federal judge in Texas has struck down a rule from the Department of Labor that would have extended overtime pay to more than 4 million workers, effectively erasing one of former President Obama’s biggest regulatory initiatives. In the ruling, first reported by Bloomberg, the judge wrote that the agency improperly looked at salaries instead of job descriptions when determining whether a worker should be eligible for overtime pay.

Nafta talks resume as executives prepare for worst
Jude Webber et al., Financial Times

Mexican and US business leaders have begun studying legal options in case President Donald Trump follows through on renewed threats to scrap what he terms the “horrible, terrible” North American Free Trade Agreement, as negotiations on updating the pact resume on Friday. “We’re analysing strategies . . . different scenarios,” Gustavo de Hoyos, head of the Coparmex business confederation, told the Financial Times after business leaders accompanying the negotiations ran through some of “the legal consequences of what would happen on D-plus-one”.

Republicans Want to Sideline This Regulator. But It May Be Too Popular.
Steve Eder et al., The New York Times

With the election of President Trump, the nation’s consumer watchdog agency faced a quandary: how to shield the Obama-era institution from a Republican administration determined to loosen the federal government’s grip on business. In the weeks after the election, Richard Cordray, the Democrat who leads the agency, the Consumer Financial Protection Bureau, directed his staff to compile stories from ordinary Americans thanking it for resolving complaints.

Key part of Dodd-Frank remains missing in action
John Heltman, American Banker

In 2012, the Federal Reserve issued a proposal designed to force changes at banks and systemically important nonbanks that showed early signs of financial distress. Since then, the proposal — required by the Dodd-Frank Act and hailed by many as an important backstop to ensure regulators keep a close watch on bank holding companies — appears to have vanished.

During a summer of crisis, Trump chafes against criticism and new controls
Philip Rucker and Ashley Parker, The Washington Post

People close to the president said he is simmering with displeasure over what he considers personal disloyalty from National Economic Council Director Gary Cohn, who criticized Trump’s responses to a deadly white supremacist rally in Charlottesville on Aug. 12.  Trump was especially upset that Cohn went public with his complaints about the president’s handling of Charlottesville, even after Trump listened to Cohn vent during a private meeting on Aug. 18 in Bedminster, N.J.

Mnuchin: Treasury could scrap plans to replace Jackson on $20 bill
Sylvan Lane, The Hill

Treasury Secretary Steven Mnuchin said Thursday that the Treasury Department could scrap plans finalized under President Barack Obama to replace President Andrew Jackson on the front of the $20 bill with Harriet Tubman. Mnuchin told CNBC that he’s not focused on the planned currency changes, and wouldn’t commit to following through on them.

European Shares Climb With Metals Before Jobs Data: Markets Wrap
Eddie Van Der Walt, Bloomberg

European shares advanced, with mining companies extending gains as industrial metals continued a rally fueled by positive economic data surprises this week. Futures on the S&P 500 Index increased 0.1 percent.

Banking

Regulators Were Lax on Wells Fargo Oversight, Critics Contend
Anna Gronewold, Morning Consult

Wells Fargo & Co.’s latest announcement that its phony accounts scandal impacted up to 1.4 million more accounts than originally thought came from a third-party review initiated by the bank — fuel for growing dissatisfaction among members of Congress toward federal regulators charged with reining in the nation’s largest financial institutions. Wells Fargo said Thursday that a third-party audit uncovered a new total of 3.5 million fraudulent accounts, up nearly 70 percent from the initial estimate of 2.1 million accounts the San Francisco-based bank tallied last September.

Wells Fargo’s Testimony Left Some Feeling Shortchanged
Gretchen Morgenson, The New York Times

Did Wells Fargo mislead the United States Congress during hearings last fall when it characterized its widespread opening of unauthorized bank accounts as a one-off problem in an otherwise clean operation? That question took on greater urgency Thursday after Wells issued disturbing new disclosures about its customer dealings.

Wells Fargo Accounts Accord Called Into Question as Victims Grow
Kartikay Mehrotra, Bloomberg

Wells Fargo & Co.’s disclosure Thursday that its sales people opened significantly more potentially unauthorized accounts than previously stated may jeopardize the $142 million class action settlement with customers that won preliminary approval from a judge in July. The scandal came to light almost a year ago, after regulators slapped Wells Fargo with fines of $185 million over its sales practices, prompting congressional hearings and resulting in the bank naming new leaders, clawing back executives’ pay and beginning an overhaul of its retail division.

Vanguard Voted Against Wells Fargo Directors
Sarah Krouse, The Wall Street Journal

Vanguard Group, one of the world’s largest asset managers, voted against Wells Fargo & Co. nonexecutive chairman Stephen W. Sanger and two other directors this year, according to new regulatory filings. Following Wells Fargo’s sales-practices scandal, the firm’s shareholders voted in April to keep all 15 directors, but did so in some cases by slim margins. Vanguard’s regulatory filings show that it voted against the election of Enrique Hernandez, Jr., head of the bank’s risk committee, and Frederico F. Peña as well as Mr. Sanger.

Inside Mary Mack’s plan to turn around Wells’ branches
Kate Berry, American Banker

Mary Mack, the head of community banking at Wells Fargo, is launching a turnaround plan in September aimed at moving the bank beyond the phony-accounts scandal. Called the “Change for the Better” plan, it revamps a range of processes, including how fees are refunded and how bankers and tellers have conversations with customers.

Cash flowing again from Fed’s flood-threatened Houston branch
Jonathan Spicer and Ann Saphir, Reuters

Cash has begun flowing again from the Federal Reserve’s steel and cement vault in Houston, heading for banks in the hurricane-ravaged region after several days of flooding halted armored-truck deliveries and stranded employees overnight.  In the wake of Hurricane Harvey this week, water rose to the property of the U.S. central bank’s office in downtown Houston but did not reach the building or its above-ground vault, senior Fed officials said in an interview on Thursday.

Financial Products and Investments

Swaps Rules Aimed at Curbing Risk to Go Into Effect in U.S.
Gabriel T. Rubin, The Wall Street Journal

New global swap-collateral rules will go into effect in the U.S. on Friday, following a six-month pause prompted by international coordination and compliance difficulties. The rules are the second phase that applies to smaller firms as part of a global regulatory effort to create a level playing field for swaps trades that aren’t routed through clearinghouses.

Trump to nominate Robert Jackson for seat on SEC: source
Svea Herbst-Bayliss, Reuters

U.S. President Donald Trump is expected to nominate Columbia University law professor Robert Jackson to be a member of the Securities and Exchange Commission, a person with knowledge of the matter said on Thursday. Jackson is expected to be formally nominated on Friday, the source said.

Harvey Relief Bill Could Help Congress Raise Debt Ceiling
Kate Davidson and Kristina Peterson, The Wall Street Journal

Widespread support on Capitol Hill for Hurricane Harvey relief aid could help ease passage of high-stakes fiscal legislation that Congress must approve in September, lawmakers and analysts say. As Texas and Louisiana began to regroup after the storm’s record rainfalls, both Democrats and Republicans said they hoped to pass emergency relief funding quickly when lawmakers return to Washington next week to help storm victims rebuild.

Scammers using robo-calls about insurance to fleece Hurricane Harvey survivors
Joel Achenbach, The Washington Post

Amid the many feel-good stories about strangers helping strangers in the wake of Hurricane Harvey, a feel-bad story has almost inevitably surfaced: Scammers are using robo-calls to try to fleece storm survivors. The robo-calls tell people that their premiums are past due and that they must send money immediately or else have their flood insurance canceled.

SEC sues investment adviser Navellier, charging fraud
Nate Raymond, Reuters

The U.S. Securities and Exchange Commission sued Navellier & Associates and its founder on Thursday, accusing them of misleading clients about the track record of investment strategies the adviser offered. The SEC filed the lawsuit in Boston federal court against the Nevada-based investment adviser and its principal, Louis Navellier, contending they defrauded existing and prospective clients from 2010 to 2013.

Calif. Credit Repair Shop Pays $150K To End CFPB Probe
Jack Newsham, Law360

A marketing company will pay $150,000 and be banned from offering credit repair services after a California federal judge approved a deal on Thursday to end the Consumer Financial Protection Bureau’s suit against the company for allegedly misleading customers and charging illegal fees. Prime Marketing Holdings LLC, which was sued last year by the CFPB, agreed to exit the credit repair services business, not to profit from any consumer information it holds and to cooperate with the regulator in exchange for the suit being dropped.

Housing and GSEs

‘Nonprime has a nice ring to it’: the return of the high-risk mortgage
Ben McLannahan, Financial Times

It was about a decade ago that Dan Perl chucked it all in to go surfing in Mexico. As a veteran underwriter of subprime mortgages, he’d seen enough by April 2007 to know that there was serious trouble ahead.

Taxes

The reality beneath Trump’s tax reform talk
Brian Faler, Politico

President Donald Trump’s tax plans hardly match his populist rhetoric. Though in a speech Wednesday he sold his plan to rewrite the tax code as a boon to the average American worker, he mostly focused on the taxes paid by America’s largest corporations.

Mueller Enlists the IRS for His Trump-Russia Investigation
Betsy Woodruff, The Daily Beast

Special counsel Bob Mueller has teamed up with the IRS. According to sources familiar with his investigation into alleged Russian election interference, his probe has enlisted the help of agents from the IRS’ Criminal Investigations unit. This unit—known as CI—is one of the federal government’s most tight-knit, specialized, and secretive investigative entities.

Financial Technology

Bitcoin rises again, setting another record
Ryan Vlastelica, MarketWatch

The price of the digital currency bitcoin rose on Thursday, hitting the latest in a series of records. A single bitcoin gained 2.4% to $4,742.91 on Thursday, near the all-time high of $4,747.15 hit earlier in the session.

Bitcoin’s nearly five-fold climb in 2017 looks very similar to tech bubble surge
Evelyn Cheng, CNBC

When charted, bitcoin’s rapid gains resemble how stocks surged into the tech bubble before collapsing. David Ader, chief macro strategist at Informa Financial Intelligence, matched a graph of the Nasdaq Telecommunications Index at its peak in 2000 to bitcoin’s five-year run to all-time highs.

 

Opinions, Editorials and Perspectives

How Federal Flood Insurance Puts Homes at Risk
Editorial Board, The New York Times

It was clear long before Hurricane Harvey slammed into Texas that the National Flood Insurance Program, the government’s most important means of recovering from such disasters, needed to be overhauled. It fails to account for the full extent of flood risk, encourages development in areas known to be flood-prone and is not realistically funded.

Matter of Tim
Jeffrey Goldfarb, Breakingviews

Wells Fargo’s supersized scandal magnifies the spotlight on its chief executive. An outside review that examined a longer timeframe uncovered another 1.4 million potentially fake accounts at the U.S. mega-bank with a $2 trillion balance sheet.

Tax Reform and Budget Deficits in America
Martin Feldstein, Project Syndicate

The Republican Party’s leaders in the United States House of Representatives have been hard at work for more than a year designing a major reform of personal and corporate taxes. With an election looming in 2018, the House Republicans are determined to deliver a reform package and send it to the Senate for enactment. This reform will be very different from the last major tax overhaul enacted back in 1986.

The Goldman guys in the White House hinted their tax plan has some gifts for Wall Street
Linette Lopez, Business Insider

Representing the White House in the so-called Big Six writing President Donald Trump’s tax plan are Goldman Sachs vets Gary Cohn and Steve Mnuchin. Based on their hints, it sounds like their Goldman friends — and Wall Street in general — will be rather pleased with how it all shakes out.

For Tax Reform Lessons, Congress Needn’t Look Far
James B. Stewart, The New York Times

President Trump made his pitch for tax reform this week, but the odds are not favorable for legislation that would reduce individual and corporate rates and promote economic growth without driving up the national deficit. For inspiration, maybe Mr. Trump and lawmakers in Congress should look in their own backyard.

Research Reports

The Macroeconomic Gains from Stabilizing and Reducing Federal Debt
Joel Prakken and Chris Vavares, Macroeconomic Advisers 

Federal debt is on an unsustainable path. According to simulations presented in this paper, federal debt under current law is projected to climb from 76% of GDP in 2016 to 164% of GDP in 2045.

Briefings

Finance Brief: SEC Says Corporate Filing System Was Hacked in 2016

The Securities and Exchange Commission said its system for storing documents filed by publicly traded companies was hacked sometime last year. In an eight-page statement on cybersecurity, SEC Chairman Jay Clayton said no personal information was stolen in the cyberattack, which was detected last year, but the SEC learned last month that the data “may have provided the basis for illicit gain through trading.”

Finance Brief: Week in Review & What’s Ahead

The fallout from the massive data breach at Equifax Inc. has the potential to derail congressional GOP efforts to pass legislation that would limit civil penalties for credit reporting companies sued by consumers. Lawmakers such as Sen. Elizabeth Warren (D-Mass.) are now investigating the Equifax breach, as is the Federal Trade Commission.

Finance Brief: Warren Begins Equifax Investigation

Sen. Elizabeth Warren (D-Mass.) said her office is now investigating the massive data breach at Equifax Inc. and is pushing for legislation that would allow consumers to freeze access to their credit files without paying a fee. Warren also asked TransUnion Inc. and Experian Inc., two of Equifax’s top competitors, to weigh in alongside federal regulators on whether Congress should pass legislation to strengthen consumer protections.

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