Morning Consult Finance: Fannie and Freddie Mortgages Outpace Lending Before Housing Crisis

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  • Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee 33 percent more debt than before the housing crisis and more than any other point in U.S. history, according to company and government data. The increase, which also includes a lot of risky mortgages, comes after officials in the Trump and Obama administrations bowed to pressure from the lending industry, consumer groups and political appointees who paved the way for companies to issue loans to borrowers who might not be able to repay, according to interviews with 24 senior administration officials, former regulators, bankers and analysts. (The Washington Post)
  • The Trump administration plans to impose tariffs on $7.5 billion in goods from the European Union beginning Oct. 18, including a 10 percent levy on aircraft from France, Germany, Spain and the United Kingdom and 25 percent duties on single-malt Irish and Scotch whiskies. The Office of the U.S. Trade Representative released the list of planned targeted products after the Trump administration notched a victory at the World Trade Organization, which ruled in favor of the administration’s ability to impose the tariffs. (CNBC)
  • Sigal Mandelker, the Trump administration’s tariffs chief responsible for using financial firepower as a foreign-policy tool, is leaving the Treasury Department for the private sector, Secretary Steven Mnuchin said. Treasury declined to comment on possible successors, although Deputy Secretary Justin Muzinich will oversee the office during the search. (The Wall Street Journal)

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Events Calendar (All Times Local)

SEC Roundtable on Combating Elder Investor Fraud 9:30 am
Brookings event: “What’s (not) up with inflation?” 9:45 am
CFTC’s Technology Advisory Committee meeting 10:00 am
WSJ event: Future of Global Markets with Vice chair of the Fed Board of Governors Richard Clarida 6:35 pm
Fed Listens: Perspectives on Maximum Employment and Price Stability featuring opening remarks from Fed Chair Jerome Powell 2:00 pm
PIIE event: “Global Economic Prospects: Fall 2019” 12:15 pm
Brookings event: “Student loans: A look at the evidence” 10:00 am
View full calendar

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The Bailout Was 11 Years Ago. We’re Still Tracking Every Penny.
Paul Kiel, ProPublica

Over a decade ago, we started a database to track TARP, the 2008 bailout of the financial system. It turns out bailouts are forever, and we’re still updating the damn thing.

Chaos Scientist Finds Hidden Financial Risks That Regulators Miss
Vincent Bielski, Bloomberg

Oxford University professor Doyne Farmer traces his research exposing risks in the financial system to the roulette wheels of Las Vegas. In the 1970s, Farmer and two fellow physics students at the University of California at Santa Cruz built a computer small enough to hide in a shoe that helped them predict roughly where roulette balls would land. 

IMF’s New Chief Vows to ‘Fix the Roof’ Before the Storm Hits
Bojan Pancevski, The Wall Street Journal

Kristalina Georgieva took the helm of the International Monetary Fund this week as its first leader to have lived through one of its stringent economic adjustment programs. Her homeland of Bulgaria was going through a painful transition from socialism to a market economy in the 1990s, with surging debt and unemployment, a collapsing financial system and high inflation.

‘Prepare now or pay later’: Financial regulators must account for climate change risk to corporate bottom lines, Citigroup says
Emma Newburger, CNBC

Climate change poses a significant threat to global corporations, and financial regulators must transform how they account for the economic risks of a warming planet, Citigroup said in a new report Wednesday. “Greenhouse gas emissions, global warming and climate change are not only existential issues for those concerned with the future of humanity, they are also immediate concerns for financial regulators,” the report said.

The most worrying new survey for Trump has nothing to do with his polling
Aaron Rupar, Vox

New polling indicates a plurality of Americans not only support President Donald Trump’s impeachment but his removal from office. Meanwhile, amid a rapidly widening abuse of power scandal, Trump’s approval rating is hitting all-time lows.

New York Fed’s Williams Defends Rate Cuts, Says Economy in Good Place Amid Risks
Michael S. Derby, The Wall Street Journal

New York Fed leader John Williams said Wednesday the economy remains in a good place and recent central bank rate cuts are aimed to keep it there, in comments that also said ongoing Fed market interventions have helped tame volatile short-term lending rates. Mr. Williams, who was speaking at an event in La Jolla, Calif., didn’t offer any hints about whether the Fed would be following its quarter-percentage point rate cuts from July and September with more at future meetings, as many in markets expect.

For a Change, It’s the World That Is Pulling Down the U.S. Economy
Greg Ip, The Wall Street Journal

The global economy used to have a simple rule: The U.S. led, everyone else followed. Whether it was high interest rates in 1981, a technology bust in 2001 or a mortgage crisis in 2008, it was a weak U.S. that dragged other countries into recession, not vice versa.

U.S.-China Factory Breakup Is Hard to Do
Nathaniel Taplin, The Wall Street Journal

Chinese factories are suddenly looking a bit healthier. U.S. manufacturers aren’t. While some Beijing-based trade warriors may be gloating and Washington-based ones sulking, investors shouldn’t jump to conclusions.

How the Federal Reserve could fix the repo market
Colby Smith et al., Financial Times

Central bank urged to restart asset purchases to soothe short-term funding glitches.

Trump’s Justice Department Asks Judge to Block Subpoena for His Tax Returns
Benjamin Weiser, The New York Times

The Justice Department on Wednesday asked a federal judge to temporarily block a subpoena from the Manhattan district attorney that would require President Trump to turn over eight years of his personal and corporate tax returns. Mr. Trump has been fighting off an attempt by the office of the Manhattan district attorney, Cyrus R. Vance Jr., to obtain his tax returns as it investigates hush-money payments made to the pornographic film actress Stormy Daniels.

Stocks Mixed, Bonds Advance Before Key U.S. Data: Markets Wrap
Todd White, Bloomberg

U.S. equity futures climbed and European stocks drifted as investors looked ahead to key data on the health of the world’s biggest economy. Shares fell across most of Asia, while government bonds advanced.


Credit Suisse Chief Faces Spy Scandal Aftermath Without Trusted Adviser
Jenny Strasburg and Margot Patrick, The Wall Street Journal

Tidjane Thiam arrived at Credit Suisse Group AG in 2015 and quickly established a tight inner circle of trusted lieutenants as he set about trying to revive the ailing Swiss lender. Now, in quick succession, two from the cadre are gone—the wealth-management chief whose July departure triggered Credit Suisse to spy on him, and the chief operating officer who resigned this week because of the ensuing scandal.

Currencies trader sues Citi over ‘malicious’ prosecution
Katie Martin, Financial Times

Former euro trader seeks $112m in damages over ‘fabricated’ case against him.

Warren lobbying tax could hit banking industry hard
Neil Haggerty, American Banker

Financial services trade groups and large banks are among the organizations targeted in Sen. Elizabeth Warren’s proposal to impose steep taxes on lobbying. In a blog post Wednesday, the Massachusetts Democrat and presidential candidate announced what she described as a crackdown on “excessive lobbying.”

Regulators finalize rule to help community banks hold on to talent
Brendan Pedersen, American Banker

Board directors and senior managers at community banks will have greater flexibility to work for multiple institutions under a final regulation issued Wednesday. The three federal banking agencies completed a rule, first proposed in 2018, that raises asset thresholds for institutions subject to restrictions on so-called management interlocks.

Financial Products and Investments

Private Equity Flexes Muscle in Washington as Warren Picks Fight
Heather Perlberg and Benjamin Bain, Bloomberg

It was “Barbarians at the Gate,” Washington-style. As Republicans set out to overhaul the federal tax code in 2017, the private equity world leveraged its influence. 

E-Trade drops commissions on trades, joining Schwab, TD Ameritrade in brokerage fee war
Maggie Fitzgerald, CNBC

Retail brokerage firm E-Trade announced Wednesday it will drop commission fees on online U.S. stock, ETF and options trades. The move comes within a week of Interactive Brokers, Charles Schwab and TD Ameritrade all dropping their commission fees.

Everything Is Private Equity Now

Private equity managers won the financial crisis. A decade since the world economy almost came apart, big banks are more heavily regulated and scrutinized. Limited Time

Foreign-Exchange Brokers BGC, GFI Settle Probes Over Phony Trades
Dave Michaels, The Wall Street Journal

Two brokerage firms that connect banks in the foreign-exchange market agreed to pay $25 million to settle fraud claims that they fabricated activity on their platforms to lure more trading interest. BGC Partners Inc. BGCP -0.19% and GFI Securities LLC, which merged in 2016 and are partly owned by investment bank Cantor Fitzgerald, sometimes posted fake prices on their platforms for emerging market foreign-exchange options, according to the Commodity Futures Trading Commission.

Treasury to create tool to help people redeem billions in unclaimed savings bonds
Naomi Jagoda, The Hill

Sen. John Kennedy (R-La.) on Wednesday said that the Treasury Department will create an online tool to help people redeem billions of dollars in savings bonds. About $26 billion in matured savings bonds are in the U.S. Treasury and have yet to be redeemed.

Housing and GSEs

Home-Builder Stocks Are Sitting Pretty
Jessica Menton, The Wall Street Journal

Shares of home builders were a relative bright spot Wednesday in a sea of red in the stock market. Lennar Corp. LEN.B 3.97% was among the best performers in the S&P 500 after the company delivered stronger-than-expected third-quarter earnings and reported an increase in orders and deliveries.


IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor
Paul Kiel, ProPublica

The IRS audits the working poor at about the same rate as the wealthiest 1%. Now, in response to questions from a U.S. senator, the IRS has acknowledged that’s true but professes it can’t change anything unless it is given more money.

Schumer, Wyden request IRS audit of the NRA’s tax exemption
Aaron Lorenzo, Politico 

The IRS needs to examine whether the National Rifle Association should lose its tax-exempt status, Senate Minority Leader Chuck Schumer (D-N.Y.) and Finance Committee ranking member Ron Wyden (D-Ore.) said today. A recent report by Wyden’s committee investigators raised questions about some NRA activities and social welfare requirements for its tax exemption, the senators wrote in a letter to IRS Commissioner Chuck Rettig.

Financial Technology

Crypto companies are settling with the SEC, but that’s not stopping them
Matthew De Silva, Quartz

Block.One, a blockchain development company, agreed to a $24 million settlement with the US Securities and Exchange Commission after raising $4 billion in ether during an unregistered initial coin offering (ICO). While the SEC found Block.One in violation of federal securities laws for the online crowdfunding event it hosted from June 2017 until June 2018, the company agreed to the settlement without admitting or denying the agency’s findings.

BlackRock in Talks With Tencent on China Tie-Up
Jing Yang and Dawn Lim, The Wall Street Journal

BlackRock Inc. BLK -3.07% has held talks over the past year with Chinese internet giant Tencent Holdings Ltd. TCEHY -0.93% , as the world’s largest money manager explores ways to strengthen its foothold in China, according to people familiar with the matter. The preliminary discussions with Tencent have been about how to make BlackRock’s tools and models for building investment portfolios broadly available to the Chinese market, the people said.

Samsung Pay is rolling out a money transfer service for US users
Ryan Browne, CNBC

Samsung has teamed up with financial technology firm Finablr on a money transfer service for its payments app. U.S. users of Samsung Pay will now be able to send money to people in 47 countries including India, Mexico and China, with the option to deposit directly into a recipient’s bank account or transfer to a local cash pickup point.

Opinions, Editorials and Perspectives

Dear banker: It ain’t easy being a regulator
Maryann Kennedy, American Banker

While banks are much better prepared to withstand adversity today than they were in 2007, the message regulators are sending now is: “Don’t get complacent.” The worst loans are made in the best of times.

A Wealth Tax Is Pro-Growth
David Leonhardt, The New York Times

Does this sound like a healthy economy to you? In nine of the last 10 years, the economy has grown more slowly than professional forecasters had predicted.

Research Reports

Exchange Rate Reconnect
Andrew Lilley et al., The National Bureau of Economic Research

The failure to find fundamentals that co-move with exchange rates or forecasting models with even mild predictive power – facts broadly referred to as “exchange rate disconnect” – stands among the most disappointing, but robust, facts in all of international macroeconomics. In this paper, we demonstrate that U.S. purchases of foreign bonds, which did not co-move with exchange rates prior to 2007, have provided significant in-sample, and even some out-of-sample, explanatory power for currencies since then. 

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