Finance Brief: PwC Sued for Record $5.5 Billion by Defunct Mortgage Underwriter

Today’s Washington Brief

  • Donald Trump’s running mate, Indiana Gov. Mike Pence, has suggested he will release his tax returns, even as the GOP nominee stands firm against releasing his. Pence said his own returns will be a “quick read.” (Bloomberg News)
  • Carlos Gutierrez, who was secretary of commerce under former President George W. Bush, expressed support for Democratic nominee Hillary Clinton, saying Trump’s economic plans would be a “disaster” for the United States. Gutierrez praised the GOP candidate’s proposed tax cuts but warned against his protectionist trade policies. (CNN)
  • Trump is more unpopular than ever, but he has narrowed Clinton’s lead over him to 7 percentage points. Forty-four percent of voters polled support Clinton, compared to 37 percent who support Trump. (Morning Consult)

Today’s Business Brief

  • Defunct mortgage underwriter Taylor, Bean & Whitaker sued PwC for $5.5 billion, accusing the accounting firm of failing to detect a conspiracy between TBW’s founder and executives at Colonial Bank, which supplied TBW with loans. The lawsuit marks the largest case against an auditing firm and could signal a new wave of legal scrutiny of such firms regarding their roles leading up to the 2008 financial crisis. (Financial Times)
  • Nasdaq Inc. plans to debut a new feature for traders who say they can’t keep up with a rapid-fire trading pace. The option emerges as trading startup IEX moves onto the trading floor Aug. 19 as an official stock exchange, priming traditional exchanges for competition. (The Wall Street Journal)
  • Officials from Bangladesh will meet with representatives from the Federal Reserve Bank of New York, the Justice Department and the Federal Bureau of Investigation this week to discuss the cyberheist of $81 million from the country’s central bank account at the New York Fed. One aim of the meetings is to identify the hackers, who still remain at large more than six months after the theft. (Reuters)

Today’s Chart Review

Mark Your Calendars (All Times Eastern)

Monday
No events scheduled
Tuesday
CFED web seminar on fintech 2 p.m.
Public forum with National Taxpayer Advocate Nina Olson, Rep. Renacci 6:30 p.m.
Wednesday
Dallas Fed event on preparing the workforce of tomorrow 10:30 a.m.
Fintech and Latin America conference 12 p.m.
SEC open meeting 2 p.m.
Urban Institute mortgage servicing event 6 p.m.
Thursday
Fintech and Latin America conference 12 p.m.
St. Louis Fed web seminar on financial inclusion 3 p.m.
National Taxpayer Advocate forum 8:30 p.m.
Friday
No events scheduled

General

Former Bush official supporting Clinton: Trump could be economic ‘disaster’
Tal Kopan, CNN

Former Bush administration official Carlos Gutierrez says he will be voting for Hillary Clinton, calling Donald Trump’s economic policies a “disaster.” The former commerce secretary under President George W. Bush said he looked at the “totality” of the choice between the two candidates and decided on Clinton.

Poll: Trump Arrests Slide, But Favorability Reaches New Depths
Cameron Easley, Morning Consult

Donald Trump is more unpopular than ever, according to a new Morning Consult poll, but he gained ground on Hillary Clinton for the first time since the Republican Party’s convention in Cleveland last month, trimming her lead to 7 points. In the new national survey taken Aug. 11 through Aug. 14, the GOP presidential nominee picked up 2 percentage points against Clinton but still trails her — 44 percent to 37 percent — in a head-to-head matchup.

Liberals rally to sink Obama trade deal
Mike Lillis, The Hill

Liberals are amping up their opposition to the Trans-Pacific Partnership (TPP) on and off of Capitol Hill, amid escalating concerns that the package will get an 11th hour vote after the November elections. Republican leaders in both chambers have said it’s unlikely the mammoth Pacific Rim trade deal will reach the floor this year.

Richard Cordray, the quiz show star policing US banks
Barney Jopson, Financial Times

Richard Cordray, a regulator who Republicans love to hate, knows about being grilled in public: the cameras, the confident questioners, the audience anticipating a mistake. His first time in the limelight was on the game show Jeopardy! But that was nothing compared with the maulings he has received at the hands of his conservative overseers in Congress, who have called him a “dictator”.

U.S. Index Futures Are Little Changed With Equities Near Record
Aleksandra Gjorgievska, Bloomberg News

U.S. stock-index futures were little changed as investors assessed the rally that sent equities to records in recent sessions. S&P 500 contracts expiring in September added 0.1 percent to 2,183.25 at 11:03 a.m. in London, while Dow Jones Industrial Average futures added 31 points to 18,554.

Banking

Long-Term Liquidity Plan is Costly and Redundant, Banks Argue
John Heltman, American Banker

Banks and industry representatives are asking whether the proposed long-term liquidity rule properly takes into account the risk profiles of certain assets, the interaction with other liquidity rules, and even whether the regulation is needed at all.

Financial Products and Investments

Nasdaq Tries to Appeal to Investors Lured by New Rival IEX
Dave Michaels, The Wall Street Journal

In the latest sign that American stock exchanges are inching away from a decadelong arms race toward ever greater speed, Nasdaq Inc.plans a new option for investors who complain they can’t keep up with rapid-fire trading. The move shows how exchange operators are angling to respond to IEX Group Inc., the startup that won regulatory approval in June to launch a market that slows the pace of trading.

Launch of ‘Flash Boys’ exchange IEX will test its philosophy
Nicole Bullock, Financial Times

After all the regulatory hand-wringing, traded barbs, TV fights and the book, IEX will launch as a stock exchange beginning next Friday. It is a landmark moment for a trading start-up that has railed against the status quo of the world’s largest stock market.

Fidelity files with SEC for new type of actively managed ETF 
John Waggoner, Investment News

Fidelity Investments has filed with the Securities and Exchange Commission for a new type of actively managed exchange-traded fund. The funds, which the Boston-based fund giant calls exchange-traded active funds (ETAFs), would be something of a cross between a traditional closed-end fund and an exchange-traded product.

Visium Trader-Turned-Whistle-Blower Tied to Hedge Fund’s Demise
Christian Berthelsen et al., Bloomberg News

A former trader at Visium Asset Management LP told an ex-colleague that one of his first stops after leaving the firm was the SEC. What he didn’t say was that he had turned on his former co-workers and was secretly recording their conversations for the FBI.

Tiny Satellites: The Latest Innovation Hedge Funds Are Using to Get a Leg Up
Bradley Hope, The Wall Street Journal

The latest technological innovation for data-hungry hedge funds is a fleet of five dozen shoebox-sized satellites. A company called Planet Labs Inc. has launched a small constellation of what it calls “cubesats” that can deliver much more frequent imagery of economically sensitive spots than traditional satellites.

Housing & GSEs

PwC sued for $5.5bn over mortgage underwriter TBW’s collapse
Ben McLannahan, Financial Times

PwC is being sued for a record $5.5bn for failing to detect fraud that led to a bank collapse during the global financial crisis, in a case that could bring more auditing firms into the line of fire. Since the financial crisis, banks have paid out hundreds of billions of dollars in settlements while other services companies, such as credit rating agencies, have had to dig deep for payouts.

Taxes

VP Nominee Pence Suggests He Will Release His Tax Returns
Ben Brody, Bloomberg News

“When my forms are filed and my tax returns are released, it’s going to be a quick read,” Republican vice presidential nominee Mike Pence said in a Saturday interview with New York City radio station WABC.

Conservatives want to force House vote to impeach IRS chief
Erin Kelly, USA Today

When Congress returns next month from its seven-week recess, conservative rebels in the House vow to force a vote on whether to impeach IRS Commissioner John Koskinen, effectively making an end-run around reluctant House leaders to achieve their goal. Republicans allege that Koskinen obstructed an investigation into whether the IRS improperly scrutinized conservative Tea Party groups seeking tax-exempt status, although they do not agree on whether the IRS chief should be impeached.

Banking Systems & Currencies

Bangladesh officials to meet Fed, U.S. investigators over heist: sources
Krishna N. Das, Reuters

A team from Bangladesh will meet officials of the Federal Reserve Bank of New York, the Federal Bureau of Investigation and the U.S. Department of Justice this week in New York in connection with the cyber theft of $81 million from the South Asian country’s central bank in February, sources said. Two people close to the Bangladesh central bank said the goal of the meetings starting on Tuesday would be to discuss what led to the heist, carried out by unidentified hackers, and how such events can be prevented in future.

In Bangladesh Cyberheist, Strange Requests, Odd Misspellings and Little Scrutiny by Fed
Katy Burne, The Wall Street Journal

One order seeking money from Bangladesh’s account at the Federal Reserve Bank of New York wanted $20 million for vaguely defined consulting fees. A second sought $30 million for “ineligible expenses.”

How New U.S. Money-Market Rules Could Push Down China’s Yuan
Saumya Vaishampayan, The Wall Street Journal

China’s currency, the yuan, has declined in value this year, and now imminent changes to the way the U.S. regulates money-market funds are adding to the downward pressure. The link between these funds and the yuan-dollar rate comes from the effect these new money-market regulations are having on the London interbank offered rate, or Libor, which measures the cost of short-term interbank borrowing.

Opinions, Editorials & Perspectives

I Support You, Donald Trump. Now Release Your Tax Returns.
Mark Sanford, The New York Times

Among Donald J. Trump’s traits is his penchant for internalizing and personalizing things — insults, rejections and even policy disagreements. Trading slights seems essential to his personality, or at least something he feels is necessary for his presidential campaign.

In economic speech, Trump mostly wrong on regulations
Stuart Shapiro, The Hill

Republican nominee Donald Trump gave a speech on Monday outlining his economic plans. While the speech was quickly overshadowed by Trump’s inflammatory remarks on Tuesday, it is worth dwelling on because it was one of the more substantive moments in the Trump campaign.

Introducing the new sheriff of Wall Street
John Dizard, Financial Times

Wall Street people, or their lobbyists and lawyers, are spending a lot of time parsing the Democratic party’s policies and presidential candidate Hillary Clinton’s speeches or musings about economic policy. Moneyed financial-sector Democrats are writing cheques and showing up at supposedly elite campaign events.

Financial Transaction Tax Would Hit Main Street, Not Just Wall Street
Daniel Crowley, The American Spectator

When progressives were defending the Department of Labor’s fiduciary rule governing retirement accounts, they consistently praised the regulation for encouraging investment in low-cost index funds. Yet at the same time, many of them are backing a tax that would impose heavy costs on middle-class savers who invest in these funds.

Online alternative lenders offer a variety of advantages from their use of automation, big data and crowdfunding to reach small businesses. They offer quick loan decisions with a stripped-down application process.

Decentralization & Governance: Can Bitcoin Have the Best of Both?
Ariel Deschapell, CoinDesk

Since the earliest days of bitcoin, decentralization has been key to its value proposition. But it’s also been its greatest obstacle.

Research Reports, Issue Briefs & Case Studies

Puerto Rico’s Evolving Household Debts
Meta Brown et al., Liberty Street Economics

Debt and its performance play a critical role in economic development. The enormous increase in mortgage debt that took place during the run-up to the 2007 financial crisis and the contribution of that debt to the crisis underscore the importance of household debt to financial stability and economic growth.

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