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Finance Brief: Treasury Report Finds Mnuchin’s Seven Military Flights Cost $800,000


Government Brief

  • The Treasury Department’s Office of Inspector General found that Treasury Secretary Steven Mnuchin did not break the law by flying on military aircraft seven times since March at a cost of more than $800,000. In the review of Mnuchin’s flights, prompted by an Instagram post from his wife, the inspector general called into question Mnuchin’s justifications for the trips but found that the Treasury secretary did not use the aircraft for private travel. (The New York Times)
  • The Government Accountability Office said the Internal Revenue Service had other options than awarding a $7.25 million, no-bid contract to Equifax Inc. three weeks after the company disclosed a huge data breach. GAO officials said if the IRS determined U.S. interests were at stake, the unnamed initial winner of the contract could have begun work on the project while a challenge by the incumbent contract holder Equifax was being resolved. (Politico)
  • The Trump administration is set to release a blueprint for streamlining U.S. market regulation as early as today, according to people familiar with the matter. The Treasury report, initiated by a presidential order in February calling for a rethinking of financial regulations, is expected to provide a road map on how to change rules on stock, bond and derivatives trading. (Bloomberg)

Business Brief

  • U.S. exchanges overseeing the new Consolidated Audit Trail have considered delaying the launch of the stock and options trade database, set for mid-November, because the project’s contractor hasn’t met key data security milestones, according to people familiar with the matter. Lawmakers have pressed the Securities and Exchange Commission to postpone the project after the regulator disclosed last month that its corporate filing system was hacked last year. (The Wall Street Journal)
  • The SEC has found a vulnerability in its corporate filing database that could cause the system to collapse, according to a Sept. 22 internal document. The memo said the SEC’s EDGAR filing system, which houses financial reports from U.S. public companies and mutual funds, could be at risk of “denial of service” attacks, which flood a network with requests and force it to shut down. (Reuters)
  •  The Federal Deposit Insurance Corp.’s inspector general reported that the regulator may have suffered more than 50 data breaches in 2015 and 2016. The report, released this week, detailed the FDIC’s responses to 54 “suspected or confirmed” hacks during that period, finding that in five breaches alone, more than 113,000 individuals’ personally identifiable information was compromised. (FedScoop)

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General

Seven Flights for $800,000: Mnuchin’s Travel on Military Jets
Alan Rappeport, The New York Times

Treasury Secretary Steven Mnuchin has flown on military aircraft seven times since March at a cost of more than $800,000, including a $15,000 round-trip flight to New York to meet with President Trump at Trump Tower, according to the Treasury Department’s Office of Inspector General. The inquiry into Mr. Mnuchin’s air travel, prompted by an Instagram posting by his wife, found he broke no laws in his use of military aircraft but lamented the loose justification provided for such costly flights.

Trump Wants to Curtail Flood Insurance in Flood-Prone Areas
Christopher Flavelle, Bloomberg

President Donald Trump proposed ending federal flood insurance for new homes in areas most at risk of flooding, a change that could curtail new construction in vast parts of Florida, Louisiana and along the Eastern Seaboard. Trump’s plan would radically overhaul the program created in 1968 to help protect homeowners who live along coasts or near rivers.

US, South Korea agree to amend trade agreement
Vicki Needham, The Hill

The United States and South Korea have agreed to amend their five-year-old trade agreement although the deal is short on specifics. South Korean Trade Minister Kim Hyun-chong and U.S. Trade Representative Robert Lighthizer said the two trading partners would get more aggressive in working out what they characterized would be a better agreement for both nations after a second set of talks in Washington on Wednesday.

Navient hit with Pa. lawsuit, adding to servicer’s troubles
Kevin Wack, American Banker

The state of Pennsylvania sued the nation’s largest student loan company on Thursday, alleging that Navient Corp. perpetrated a wide range of consumer abuses both before and after the financial crisis. The complaint was filed in U.S. District Court by the state’s Democratic attorney general, Josh Shapiro.

Dollar Gains Before Payrolls; Europe Stocks Drop: Markets Wrap
Cormac Mullen, Bloomberg

The dollar extended gains to an almost three-month high and Treasury yields rose as confidence in the world’s largest economy grows in the buildup to the latest jobs data. European shares edged lower, bond yields rose and the euro weakened as the Catalonia crisis rumbled on. Futures on the S&P 500 Index decreased 0.1 percent to 2,548.25.

Banking

FDIC breached more than 50 times between 2015 and 2016
Billy Mitchell, FedScoop

The Federal Deposit Insurance Corp. may have suffered more than 50 breaches that compromised the personal information of hundreds of thousands of Americans in recent years. And in most cases, the agency did a poor job of responding to the incidents, a new watchdog report shows.

HSBC Traders Used Code Word to Trigger Front-Running, U.S. Says
Patricia Hurtado, Bloomberg

A group of HSBC Holdings Plc currency traders in London and New York feverishly jumped ahead of a $3.5 billion client order after they were tipped off using the code words “my watch is off,” a U.S. prosecutor told a federal judge.The buying frenzy was launched after Mark Johnson, HSBC’s former global head of foreign exchange who the bank chose to lead the transaction, alerted the traders via phone call that was recorded, the prosecutor said Thursday in Brooklyn, New York.

The firm behind Wall Street’s “Fearless Girl” will pay a $5 million settlement for salary discrimination against women
Annalisa Merelli, Quartz

In March 2017, in honor of Women’s History Month, one of the world’s largest investment management firms, State Street Global Advisors, made news when it placed a bronze statue of a young girl directly across from Wall Street’s iconic “Charging Bull.” The “Fearless Girl,” as Kristen Visbal’s sculpture was titled, looked straight at the animal statue, seeming to challenge everything the bull stood for.

‘Gov. Cordray’? Ohio bankers hedge their bets
Allison Prang, American Banker

Ohio bankers are keeping an open mind about a possible gubernatorial run by Richard Cordray. While Cordray hasn’t announced any plans, his tenure as director of the Consumer Financial Protection Bureau is enough to make bankers nervous in a 2018 race to succeed Gov. John Kasich that already has several declared candidates.

Wells Fargo Directors Can’t Duck Claims Over Fake Accounts
Kartikay Mehrotra and Jef Feeley, Bloomberg

Wells Fargo & Co. executives and directors accused of steering the bank into the worst scandal of its modern history were ordered to defend a lawsuit accusing them of profiting from the creation of millions of fake customer accounts. A San Francisco federal judge ruled Wednesday that shareholders can proceed with a suit alleging the company’s top brass “repeatedly and brazenly” failed to serve Wells Fargo’s best interests.

Dodd-Frank thresholds have ‘perverse effect,’ says acting comptroller
Joe Adler, American Banker

Acting Comptroller of the Currency Keith Noreika on Thursday called for steps to ease the asset thresholds that determine whether banks are subject to certain provisions of the Dodd-Frank Act.In prepared remarks to a meeting of bankers in Dallas, Noreika said “arbitrary thresholds often have the perverse effect of acting as competitive barriers.”

Financial Products and Investments

Trading Database Could Be Delayed Due to Data-Security Hitches
Dave Michaels, The Wall Street Journal

U.S. exchanges overseeing the creation of a vast database of stock and options trades have discussed whether to delay its mid-November launch because the project’s contractor hasn’t met key data-security milestones, according to people familiar with the matter. The Securities and Exchange Commission would have to approve any delay of the database, called the Consolidated Audit Trail.

Treasury Road Map for Market Rules Is Said Ready for Release
Robert Schmidt and Benjamin Bain, Bloomberg

The Trump administration is set to release its blueprint for overhauling regulation of U.S. markets, an expansive list of priorities that touches on the stock, bond and derivatives trading that fuels Walls Street profits. The report, being prepared by the Treasury Department, could come as early as Friday, according to people familiar with the matter.

SEC’s corporate filing system vulnerable to denial of service attacks – memo
Sarah N. Lynch and Jim Finkle, Reuters

The U.S. Securities and Exchange Commission (SEC), Wall Street’s top regulator, has discovered a vulnerability in its corporate filing database that could cause the system to collapse, according to an internal document seen by Reuters. The SEC’s September 22 memo reveals that its EDGAR database, containing financial reports from U.S. public companies and mutual funds, could be at risk of “denial of service” attacks, a type of cyber intrusion that floods a network, overwhelming it and forcing it to close.

Finance Industry Divided in Response to CFPB Rule on Small-Dollar Lenders
Ryan Rainey, Morning Consult

The Consumer Financial Protection Bureau on Thursday finalized a long-awaited regulation that would place new rules on small-dollar lenders in an effort to prevent consumers getting overwhelmed by increasing debt obligations. The move prompted a divided response from different factions within the finance industry since the rule would impact small-dollar lenders like payday loan providers but largely avoid credit unions and community banks.

Housing and GSEs

Outdated and Unreliable: FEMA’s Faulty Flood Maps Put Homeowners at Risk
Michael Keller et al., Bloomberg

When Hurricane Harvey ripped through Hitchcock, Texas, in August, it wasn’t just pummeled by nature. The town of 7,300, just across the bay from Galveston, was also the victim of a bad map: The local flood maps managed by the Federal Emergency Management Agency hadn’t been updated since 1983.

The Rich Are Driving Up the Rent
Patrick Clark, Bloomberg

Following the Great Recession, the cost of rental housing took a growing bite out of U.S. household budgets, as increasing demand for rental units pushed up prices. Now the share of households considered burdened by high rents is falling, according to a report from New York University’s Furman Center for Real Estate & Urban Policy.

Taxes

Discord among Republicans already weighs on Trump’s tax plan
Amanda Becker and David Morgan, Reuters

Disagreement among U.S. congressional Republicans is already swirling around a tax cut plan unveiled days ago by President Donald Trump, with disputes over proposals to repeal a deduction for state and local tax payments and repeal the tax on inheritances. The discord showed the difficulty of overhauling the complex U.S. tax code, a task that has defied Washington since 1986, the last time a comprehensive rewrite was completed despite lobbyists who defend each tax break.

Financial Technology

GAO: IRS did not have to award $7.25M contract to Equifax
Steven Overly and Nancy Scola, Politico

The Government Accountability Office on Thursday disputed the idea that the IRS had no choice but to award a $7.25 million, no-bid contract to Equifax, undercutting the agency’s primary defense of its decision. GAO officials said the IRS could have instead allowed the still-unnamed company that initially won the contract to begin the work while a challenge by the incumbent Equifax was being resolved — if the agency determined that U.S. interests were at stake.

Forget Bitcoin. Have You Heard of IMFcoin?
James Mackintosh, The Wall Street Journal

Forget Bitcoin, think IMFcoin. The head of the International Monetary Fund has been musing about the future of money, and thinks there is a decent chance it will come from the guardian of the world’s monetary system.

Cobinhood chief apologises over special rates for ICO fundraising
Chloe Cornish, Financial Times

The chief executive of Cobinhood, a Taipei start-up that has raised nearly $10m through a so-called initial coin offering has apologised for offering secret investment discounts to a Twitter personality. Critics say that Cobinhood, which is advised by a former US chief information officer and endorsed by Oscar-winning actor Jamie Foxx, is emblematic of the opaque and barely controlled ICO market, which is drawing scrutiny from regulators concerned about retail investors.

Opinions, Editorials and Perspectives

Limiting Interest Payment Deduction Will Only Hurt Consumers
Gerard Scimeca, Morning Consult

If you thought Congress’s performance over the failed attempt to repeal Obamacare made Hamlet look decisive by comparison, you’re not alone. Unfortunately, as they now move on to the issue of tax reform, lawmakers in Washington are channeling yet another Shakespearian character, this time the oafish Polonius, whose financial advice to his son boiled down to, “neither a borrower nor lender be.” Clearly, Polonius never had to build a business or meet a payroll.

Tax Reform That Doesn’t Bust the Budget? I’ve Got a Few Ideas
James B. Stewart, The New York Times

Can this tax plan be saved? Given the chorus of derision that greeted the release last week of the “Unified Framework for Fixing Our Broken Tax Code,” as the White House is calling it, the most ambitious attempt at tax reform in over 40 years would appear to be on a respirator, if not yet dead.

Will Trump Trumpify the Fed?
Paul Krugman, The New York Times

By all accounts, Rex Tillerson has demoralized and degraded the State Department to the point of uselessness. Tom Price did much the same to Health and Human Services before jetting off.

President Cordray Strikes Again
The Editorial Board, The Wall Street Journal

President Trump hasn’t fired Consumer Financial Protection Bureau (CFPB) director Richard Cordray despite ample cause. Yet the economic costs continue to compound—now with the bureau’s payday-loan rule that seeks to put the industry out of business.

Tax Reform Down Payment
The Editorial Board, The Wall Street Journal

Tax reform is the do-or-die moment for the Republican Congress, and on Thursday the House made crucial progress by passing a budget resolution. This is a prerequisite for unlocking the Senate procedure that allows a bill to pass with 51 votes, which will be needed if Democrats won’t cooperate.

Puerto Rico’s recovery depends on debt forgiveness
Gillian Tett, Financial Times

There are not many times when Lawrence Summers, former US Treasury secretary (and a Democrat stalwart) champions Donald Trump, the US president (and now a self-avowed Republican). This week, however, Puerto Rico offered one.

Puerto Rico’s Economic Disaster Was Made in Washington
Justin Fox, Bloomberg

Before it was devastated by Hurricane Maria, Puerto Rico was already in lots of economic trouble. In recent discussions of the territory’s woes, mismanagement by its political leaders and intransigence from its creditors have gotten most of the blame.

Research Reports

Economic and Budgetary Impact of Temporary Expensing
Kyle Pomerleau, Tax Foundation

Since June 2016, a centerpiece of Republican business tax reform proposals has been the idea to allow companies to fully deduct the cost of new investments, usually called “full expensing.” If enacted on a permanent basis, this proposal would encourage additional investment, boost productivity, and lead to higher output and incomes.