General
Workers are getting laid off for a second time, as the virus’s surge puts reopenings on hold
Eli Rosenberg and Abha Bhattarai, The Washington Post
When she was first furloughed in March, Randee Heitzmann knew how to make ends meet. She deferred payments on her new Honda Civic, spent $3,000 in stimulus money and tax refunds on other payments, and drained her savings.
Fed Keeps Options Open on Yield Caps but Looks to Other Tools First
Nick Timiraos, The Wall Street Journal
The Federal Reserve is unlikely to cap short-term Treasury yields as part of its initial package of economic stimulus measures, instead reserving the option to cap yields later. Fed officials were briefed at their June rate-setting meeting on the use of yield caps in Japan and Australia, and on the central bank’s experience with yield caps between 1942 and 1951, according to recent interviews and officials’ public statements.
Pay cuts for millions of U.S. workers worsen the pain of pandemic
Heather Long and Andrew Van Dam, The Washington Post
Denise Iezzi, an accounting assistant, has had every Friday off since the pandemic escalated in March. This isn’t by choice.
Fed’s Williams: Economy Has Likely Seen ‘Low Point’ in Continuing Crisis
Michael S. Derby, The Wall Street Journal
Federal Reserve Bank of New York leader John Williams said Tuesday the economy may have already seen the worst of the impact of the coronavirus pandemic, even as significant uncertainty looms. “Encouraging” data that has arrived as some states begin to reopen “indicate that we’ve likely seen the low point of the downturn and that the overall economy has begun to recover,” Mr. Williams said in remarks before a video meeting held by the Institute of International Finance.
U.S. States Beg, Borrow and Cut to Close Massive Budget Gaps
Emmy Lucas, Bloomberg
It’s crunch time for U.S. states as they face their worst fiscal crisis in decades brought on by the Covid-19 pandemic that’s decimated tax collections. Eleven states have yet to enact a budget for the fiscal year that begins Wednesday. And for those that have, they’ve been forced to slash spending, lay off workers and count on billions of dollars in potential federal aid that remains bogged down in Washington.
Futures Edge Down as New Quarter Starts; Bonds Dip: Markets Wrap
Constantine Courcoulas, Bloomberg
U.S. equity futures drifted lower in a muted start to the third quarter as investors mulled downbeat economic data and fresh warnings about the spread of the coronavirus. European stocks fluctuated.
Banking
US Main Street lending facility draws little interest
Laura Noonan et al., Financial Times
Federal programme designed to help midsized businesses during pandemic is too complex, bankers say.
N.Y. Regulator Urges Banks to Lend to Firms Owned by Women, Minorities
Steven Lubbers, Bloomberg
New York’s financial regulator is pushing the state’s banks to assist minority- and women-owned businesses that are struggling to access credit during the coronavirus pandemic. The New York State Department of Financial Services issued a letter Tuesday reminding lenders of amendments to the state’s Community Reinvestment Act, under which banks are evaluated on how they meet the credit needs of businesses owned by women and minorities.
Goldman Nears 1MDB Resolution With Effort to Avoid Guilty Plea
Greg Farrell, Bloomberg
Goldman Sachs Group Inc. is in the final stages of resolving its biggest legal threat in a decade after tussling with the government on one critical issue: a potential guilty plea for the first time in Goldman’s history. To avert such a penalty over its work for a Malaysian sovereign fund, Goldman has appealed to the Justice Department’s highest ranks.
Financial Products and Investments
Labor Department Proposes Fiduciary Exemption for Retirement Plans
Anne Tergesen, The Wall Street Journal
The Labor Department proposed a new rule Monday for retirement accounts that allow brokers and other types of financial advisers to provide fiduciary advice and still receive commissions in some cases. Consumer advocates say the proposed regulation would weaken standards under the federal law that governs retirement accounts.
Companies Hit by Covid-19 Want Insurance Payouts. Insurers Say No.
Leslie Scism, The Wall Street Journal
One of the biggest legal fights in the history of insurance has begun. A cavalcade of restaurateurs, retailers and others hurt by pandemic shutdowns have sued to force their insurers to cover billions in business losses.
Insurers widen scope of business cover in light of pandemic
Oliver Raph, Financial Times
The shift to home working could open up the commercial insurance market to disrupters.
Hedge Funds, Banks Picked Up the Phone While Pandemic Raged
Jennifer Surane, Bloomberg
Hedge funds’ No. 1 response to the pandemic? Pick up the phone.
Specialty Lenders Face Funding Challenge as Covid-19 Boosts Defaults
Sam Goldfarb and Sebastian Pellejero, The Wall Street Journal
Some specialty finance companies that lend to midsize businesses are confronting the threat of a funding squeeze just as the coronavirus pandemic is causing defaults to rise, a potential one-two punch that could curtail their activities. In the past seven weeks, two prominent companies that lend to middle-market businesses, Bain Capital Specialty Finance Inc. BCSF -0.45% and Golub Capital BDC Inc., GBDC 2.10% have both raised money by completing stock sales at significant discounts to their net asset values.
Housing and GSEs
Millions of Homeowners Who Need Flood Insurance Don’t Know It — Thanks to FEMA
Lisa Song and Tony Briscoe, ProPublica
When Michael Wilson was in the process of buying a brick bungalow on Chicago’s South Side in October 2018, he thought he had been diligent in researching the flood risk. Touring the house’s finished basement, the 43-year-old Wilson saw no outward signs of water damage, and he said the real estate agent had no knowledge of a flood history at the home or while it had been on the market.
Mortgage applications continue to slow despite low-rate environment
Alex Roha, HousingWire
Mortgage applications fell 1.8% last week despite mortgage rates staying low, according to a report by the Mortgage Bankers Association. A seasonally adjusted index measuring purchase applications also fell 1% – marking its second week of decline after a two-month growth, the report said.
Taxes
Has the IRS Hit Bottom?
Paul Kiel, ProPublica
It’s been almost 10 years since Republicans, riding the Tea Party wave, took control of the House of Representatives and started hacking at the IRS’ enforcement budget. Down it went, some years the cuts were steep, some not, as Republican lawmakers laughed off dire warnings about the consequences of letting tax cheats run free.
Unemployment Payments by Treasury Hit Pandemic High in June
Olivia Rockeman, Bloomberg
The U.S. Treasury Department has paid out more than $100 billion in unemployment benefits in June, the most for a single month since the pandemic started and underscoring the importance of federal relief efforts to shore up a battered job market. With just one day left to be reported, the U.S. Treasury paid out $108.5 billion in unemployment benefits in June — the most on record dating back to 2005 — according to the department’s latest daily statement Tuesday.
IRS chief pledges to work with Congress on examining tax code’s role in racial wealth disparities
Naomi Jagoda, The Hill
IRS Commissioner Charles Rettig said Tuesday that his agency would work with Congress to examine any ways that the tax code contributes to racial wealth disparities. “I’m [a] huge proponent of inclusiveness, diversity,” Rettig said during a Senate Finance Committee hearing, in response to a question from Sen. Sherrod Brown (D-Ohio).
Financial Technology
Wirecard Raided by Prosecutors Over Missing $2.1 Billion
Katin Matussek, Bloomberg
Wirecard AG’s offices in Germany and two locations in Austria were raided by Munich prosecutors looking into the 1.9 billion euros ($2.1 billion) that went missing from the fintech company’s accounts. Twelve prosecutors and 33 police officers are conducting the searches, a spokeswoman for the Munich authority said Wednesday.
Unclear regulations stymie digital asset innovation, lawyers say
Keith Lewis, Roll Call
Would-be financial technology innovators are shying away from digital assets because of the cost to comply with, or risk of drawing the ire of, U.S. regulators, according to securities law practitioners tracking financial technology. The Securities and Exchange Commission is still vigorously enforcing rules for digital offerings, even years after their launch, in ways that leave the industry in the dark on how to comply, they say.
Opinions, Editorials and Perspectives
America’s Economic Recovery Must Be a Collective Achievement
Craig Boundy, Morning Consult
Since mid-March, more than 45 million Americans have filed for unemployment. This level of unemployment is believed to be the highest since the Great Depression. While dedicated stimulus packages have acted as makeshift safeguards for many, it is time for the financial services industry to look toward long-term solutions.
Populists Don’t Know Much About Private Equity
M. Todd Henderson and Steven N. Kaplan, The Wall Street Journal
Wall Street has never been particularly popular in the American imagination, but the recent growth of conservative populism threatens to erode its position even further. A case in point is a new think tank, American Compass, run by Oren Cass, a former policy director for Mitt Romney.
We Socialize Bailouts. We Should Socialize Successes, Too.
Mariana Mazzucato, The New York Times
When the economy is in crisis, who do we turn to for help? Not corporations — it’s governments. But when the economy is flourishing, we ignore governments and let corporations soak up the rewards.
Sunny Third-Quarter Economic Outlook Turns Cloudier
Mohamed A. El-Erian, Bloomberg
A few weeks ago, the expectation was that the onset of the third quarter would mark the close of a highly damaging and uncertain second quarter for the U.S. economy and, importantly, herald a sharp and durable reversal. Instead, with health concerns forcing a growing number of states to either stop or reverse their reopenings, and with some businesses and households withdrawing from active economic re-engagements, a cloud is now forming over the third quarter, threatening the depth and breadth of the economic recovery.
Research Reports
Analysis: Don’t Expect Drop in Unemployment to Continue Past June
John Leer, Morning Consult
The decrease in joblessness in June was primarily driven by an increase in part-time workers who found new jobs and paid furloughed workers who went back to their old jobs, but the composition of the workers who are still unemployed means the United States is unlikely to see further improvements to the jobless rate.
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