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Finance Brief: White House to Release Tax Overhaul Blueprint in September


Government Brief

  • Sen. Elizabeth Warren (D-Mass.) sent letters calling on 16 of the nation’s biggest banks, including Wells Fargo and Bank of America, to take a position on the Consumer Financial Protection Bureau’s newly enacted ban on forced arbitration. The banks have been largely silent on the rule. (The Hill)
  • The White House is planning to release a blueprint for changes to the tax code in September. The paper won’t be accompanied by legislation, but could reflect agreements between President Donald Trump, the Senate, the House of Representatives and any Democrats the Republicans have courted during the August recess. (Reuters)
  • New York Federal Reserve President William Dudley said that a tight labor market and weak dollar should soon push up inflation but that the inflation rate would be unlikely to reach the Federal Reserve’s 2 percent annual target this year. (MarketWatch)

Business Brief

  • U.S. investigators have uncovered a global financial network that has funneled money to an alleged Islamic State operative in the United States through fake eBay transactions. An FBI affidavit alleges that Mohamed Elshinawy pretended to sell computer printers on eBay as a way to receive payments from the terror group. (The Wall Street Journal)
  • Microsoft introduced CoCo Framework, its effort to re-create bitcoin’s premise of an immutable, distributed ledger for banks that could be used to share a single dataset among several parties with no need for a middleman. (American Banker)
  • Coinbase emerged as cryptocurrency’s first unicorn by announcing that it raised $100 million in Series D funding. The digital currency startup has benefited from bitcoin, ether and new tokens due to initial coin offerings this year and is now valued at $1.6 billion. (Fortune)

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General

FBI Says ISIS Used eBay to Send Terror Cash to the U.S.
Mark Maremont and Christopher S. Stewart, The Wall Street Journal

U.S. investigators uncovered a global financial network run by a senior Islamic State official that funneled money to an alleged ISIS operative in the U.S. through fake eBay transactions, according to a recently unsealed FBI affidavit. The alleged recipient of the funds was an American citizen in his early 30s who had been arrested more than a year ago in Maryland after a lengthy Federal Bureau of Investigation surveillance operation that found the first clues to the suspected network.

Stock Selloff Deepens on Korea Tension; Oil Slides: Markets Wrap
Eddie Van Der Walt, Bloomberg

European stocks tumbled to a five-month low as volatility soared amid rising tensions over North Korea’s nuclear program. Futures on the S&P 500 Index fell 0.1 percent.

Justices Rescind Grant To Hear Ch. 11 Debt Rebranding Case
Alex Wolf, Law360

The U.S. Supreme Court said Thursday that it erred in June when it took up a North Carolina bankruptcy dispute over whether debt used to finance the acquisition of a golf and residential real estate development was correctly recharacterized as equity after the original loan was sold to settle a foreclosure.
In a two-sentence order, the high court said it “improvidently granted” a writ of certiorari to a lender that purchased a $6.5 million defaulted loan for $1.2 million only to see the value of its claim against the debtor Province Grande Olde Liberty LLC dropped to $300,000 when the U.S. Bankruptcy Court for the Eastern District of North Carolina found that it was actually an equity investment in the debtor.

Banking

Warren asks where bank CEOs stand on customers’ ability to join class action suits
Lydia Wheeler, The Hill

Sen. Elizabeth Warren (D-Mass.) wants to know where the nation’s biggest banks stand on the Consumer Financial Protection Bureau’s new rule banning companies from stripping consumers of their right to join class action lawsuits.  Warren sent a letter Thursday to the CEOs of the 16 largest financial firms, including Bank of America and Wells Fargo & Co., asking whether they oppose the rule limiting use of language, know as arbitration clauses, in consumer contracts that force consumers to settle disputes privately with an independent third party.

The Fed Has 6,200 Tons of Gold in a Manhattan Basement—Or Does It?
Katy Burne, The Wall Street Journal

Eighty feet below the streets of lower Manhattan, a Federal Reserve vault protected by armed guards contains about 6,200 tons of gold. Or doesn’t.

Credit Suisse Bans Trading in Venezuela’s Controversial Bonds
Jan Henrik-Foerster and Katie Porzecanski

Credit Suisse Group AG has banned its traders from buying or selling certain Venezuelan securities that critics of the South American nation’s government say help fund an authoritarian regime. The Zurich-based bank is halting trading in two bonds issued by the state and its oil company, as well as any notes from a Venezuelan entity after June 1, according to an Aug. 7 company memo, a copy of which was seen by Bloomberg.

Husky hires Goldman Sachs for $4 billion sale – sources
Greg Roumeliotis, Reuters

Husky Injection Molding Systems Ltd, a Canadian supplier of injection molding equipment to the global plastics industry, has hired investment bank Goldman Sachs Group Inc to explore a sale that it hopes could value it at close to $4 billion, including debt, according to people familiar with the matter. The move comes two years after a private equity peer of Husky, Milacron Holdings Corp, went public in a $286 million initial public offering, following a string of acquisition in an industry that is increasingly consolidating.

Financial Products and Investments

Court orders RIA to pay nearly $2 million for defrauding athletes
Investment News, Staff

The Securities and Exchange Commission has obtained a final judgement against Pittsburgh, Pa.-based financial adviser Louis Martin Blazer III, who was accused of taking money without permission from the accounts of several professional athletes. Mr. Blazer, who heads Blazer Capital Management, used the funds to invest in movie projects and make Ponzi-like payments, and then lied to SEC examiners who uncovered the unauthorized withdrawals, the agency said in a release.

Ex-Nomura Trader Says Hustling MBS Isn’t Fraud
Jack Newsham, Law360

A Nomura trader who the U.S. Securities and Exchange Commission alleges fraudulently bought and sold commercial mortgage-backed securities has asked a New York federal judge to dismiss the case, comparing himself to a car salesman who used small lies as a negotiating tactic. James Im, one of at least five MBS traders at Nomura Securities International Inc. who has faced civil or criminal charges, said Monday that the government’s allegations do not measure up to the legal definition of fraud.

Housing and GSEs

Major Rental-Home Companies Set to Merge as U.S. House Prices Recover
Matthew Goldstein, New York Times

Two of the bigger institutional owners of single-family rentals in the United States are planning to merge in the latest sign that affordable housing is becoming harder to find as home prices recover in much of the United States. Invitation Homes and Starwood Waypoint Homes on Thursday announced a $4.3 billion stock deal, which the companies called a merger of equals.

Taxes

White House plans to release tax reform framework in September
David Morgan, Reuters

The White House plans to release a brief document in early- to mid-September outlining a framework for overhauling the U.S. tax code, according to three sources familiar with the matter. In a sign of the Trump administration’s struggles to advance its domestic policy agenda, the three-to-five-page document would not be accompanied by tax legislation, as some had expected, said the sources, who were not authorized to speak publicly.

Trump White House turning to Democrats for tax reform
Brian Schwartz, Fox Business

President Donald Trump’s administration has continued to indicate they prefer to work out a bipartisan deal on tax reform and one of the groups they’ve turned to is the moderates within the Democratic Party, the Blue Dog Coalition. The 18-member Blue Dog Coalition, known for being the moderate Democrats within the House of Representatives, have been preparing behind the scenes for the possibility that they may be called upon to work with the administration and possibly be critical yes votes in case the Republican majority can’t get the job done on their own, FOX Business has learned.

Blocking abuse of lower small business rate slows U.S. tax overhaul
David Morgan

A plan by President Donald Trump and congressional Republicans to slash taxes on so-called pass-through businesses is testing lawmakers’ ability to design rules to prevent wealthy people from dodging taxes by paying a lower rate meant to help small businesses grow. Businesses ranging in size from the corner Mom-and-Pop shop to accounting firms and industrial conglomerates are called pass-throughs because their profits flow to owners and are taxed as individual income, often at the top 39.6 percent rate.

GOP debates retroactive tax cuts
Naomi Jagoda, The Hill

Republicans are debating whether parts of their tax-reform package should be retroactive in order to boost the economy by quickly putting more money in people’s wallets. Already under pressure to secure a significant legislative victory prior to the midterm elections, some Republicans argue that having tax changes take effect as early as January 2017 could help their case.

Financial Technology

Coinbase becomes first bitcoin ‘unicorn’
Robert Hackett, Fortune

A Bitcoin company has finally attained the “unicorn” title, an honorific bestowed upon startups valued at more than $1 billion. Coinbase, a brokerage that established itself as one of the biggest brands in a now-booming cryptocurrency market, has raised $100 million at a private valuation of $1.6 billion that includes the capital raised, the company tells Fortune.

NSFW? Microsoft tries to make blockchains work-appropriate
Penny Crosman, American Banker

With bitcoin near all-time highs, it’s easy to forget how much time and money the financial industry has spent in recent years trying to appropriate the digital currency’s underlying technology. Executives at banks and other companies have sought to borrow the basic idea of an immutable, distributed ledger where one version of a set of data is shared among several parties, with no need for middlemen.

Opinions, Editorials and Perspectives

Why Some Banks Recover and Others Don’t
Leonid Bershidsky, Bloomberg

Most experts debating bail-in and bail-out strategies agree that banks should build capital and shrink balance sheets as the best way to avoid a collapse and rebuild after one. But researchers are suggesting a more personalized version of that recipe that makes the difference between life and death for struggling firms.

The next crash risk is hiding in plain sight
Gillian Tett, Financial Times

A decade ago, I spent a sleepless night worrying about a Spanish trash bin. The reason? On Thursday August 9 2007, financial markets suddenly seized up.

Tax Saving Mergers Go From Hot To Not
Brooke Sutherland, Bloomberg

One target of President Donald Trump’s tax reform plan (scant on details as it is) is the corporate inversion, a tactic companies use to lower their obligations to the U.S. government by shifting their headquarters overseas. That’s sort of like coming up with a plan to make dinosaurs extinct. One of this week’s biggest deals explains why.

Americans need tax cuts, plain and simple
Jonathan Williams, The Hill

It has been more than 30 years since Washington fundamentally redesigned the federal tax code. The great Ronald Reagan was president, and according to the seminal book on the 1986 tax rewrite, “Showdown at Gucci Gulch,” that successful tax reform effort was years in the making.

Trump’s IRS Swamp
Kimberley A. Strassel, The Wall Street Journal

Donald Trump promised to drain the swamp, and here’s a seven-month progress report: The Washington bog is still as wide and fetid as ever. Consider that Mr. Trump’s Justice Department has inexplicably continued to defend the IRS’s misdeeds under President Obama.

Research Reports

Which States Benefit Most from the Home Mortgage Interest Deduction?
Amir El-Sibaie, Tax Foundation

There is a large degree of geographic disparity in who claims the mortgage interest deduction. Two primary factors influence how much home mortgage interest is deducted in a state: state housing prices and state income levels.