Top Stories

  • President Donald Trump is set to release a $4.8 trillion budget plan today that would cut spending in social safety net programs and foreign aid while spending more on defense and veterans. His proposal would boost military spending 0.3 percent to $740.5 billion for fiscal 2021, while reducing nondefense spending 5 percent to $590 billion. (The Wall Street Journal
  • Puerto Rico Gov. Wanda Vázquez rejected a deal with the island’s bondholders that would have cut the U.S. territory’s outstanding bond debt by $24 billion to $11 billion and move it closer to exiting bankruptcy. Vázquez said the deal, which faces an uncertain future with her rejection, favored the bondholders at retirees’ expense. (The Associated Press
  • Hedge fund manager Kyle Bass suggested on Twitter that the United States should stop offering to help China stop the spread of the coronavirus and instead let the virus spread throughout China’s leadership. Bass deleted the tweet, but when the editor-in-chief of the state-run Global Times in China asked Bass to apologize, he refused, saying that the Global Times chief was a “disgrace to humanity” for censuring the doctors who warned about the spread of the virus. (Bloomberg

Chart Review

Events Calendar (All Times Local)

02/10/2020
American Bankers Association Conference for Community Bankers
SEC Fixed Income Market Structure Advisory Committee 9:30 am
02/11/2020
American Bankers Association Conference for Community Bankers
House Financial Services Committee hearing: “Monetary Policy and the State of the Economy” 10:00 am
House Ways and Means Committee hearing: “The Disappearing Corporate Income Tax” 10:00 am
Yale Dean’s Lecture: Randal K. Quarles ’84, Vice Chair for Supervision, Board of Governors of the Federal Reserve System 12:00 pm
02/12/2020
American Bankers Association Conference for Community Bankers
Senate Finance Committee hearing: “The Semiannual Monetary Policy Report to the Congress” 9:30 am
Senate Banking Committee hearing: “The Semiannual Monetary Policy Report to the Congress” 12:00 am
House Financial Services Committee hearing: “A Review of Diversity and Inclusion at America’s Large Banks” 10:00 am
Committee on Small Business hearing: Challenges and Benefits of Employee-owned Small Businesses 11:30 am
House Financial Services Committee hearing: “Equitable Algorithms: Examining Ways to Reduce AI Bias in Financial Services” 2:00 pm
02/13/2020
Senate Finance Committee hearing: “The President’s Fiscal Year 2021 Budget” 9:30 am
Senate Banking Committee nomination hearing 10:00 am
View full calendar

Special Report: The State of Consumer Trust

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Download the full report.

General

GOP senators face new loyalty test: Whether to approve Trump’s controversial Fed nominee Judy Shelton
Heather Long and Erica Werner, The Washington Post

President Trump’s unconventional pick for a seat on the Federal Reserve Board, Judy Shelton, will face tough questions next week from some key GOP senators. Her performance at her hearing could make or break her confirmation. An outspoken critic of the Federal Reserve, Shelton is best known for her controversial views on monetary policy. 

With Easy Demeanor, Powell Cultivates Allies on Capitol Hill
Nick Timiraos, The Wall Street Journal

Jerome Powell promised to wear out the carpets on Capitol Hill shortly after he became chairman of the Federal Reserve two years ago. The relationships he has built with lawmakers and the economy’s solid performance have so far helped insulate the central bank from President Trump’s attacks.

Two Top IMF Officials Depart After New Chief Takes Charge
Ian Talley and Josh Zumbrun, The Wall Street Journal

The International Monetary Fund announced the departure of two senior officials as its new chief, Kristalina Georgieva, seeks to put her own stamp on the lender of last resort to countries in economic crisis. The IMF on Friday said David Lipton, its long-serving No. 2 official, and Deputy Managing Director Carla Grasso, who was in charge of administration, will leave at the end of February.

In the Eternal Quest to Decode Fedspeak, Here Come the Computers
James Hookway, The Wall Street Journal

After taking the helm of the Federal Reserve in the 1980s, Alan Greenspan liked to say he had mastered the art of the strategic mumble. With financial markets prone to soar or dip based on what came out of his mouth, he learned to speak in an opaque and sometimes baffling fashion.

Justice Department Presses Ahead With ‘Spoofing’ Prosecutions Despite Mixed Record
Dave Michaels, The Wall Street Journal

A yearslong crackdown on cheating in futures markets is yielding new wins for the government, but several trials to come will show whether the Justice Department’s focus on a tactic known as “spoofing” is ultimately successful. Prosecutors have doubled down on their effort to curtail this form of market manipulation, with four former traders scheduled to stand trial this year. 

U.S. Futures Fluctuate, Stocks Slip on Virus Worry: Markets Wrap
Todd White, Bloomberg

U.S. equity futures fluctuated while European stocks edged lower and Asian shares declined on Monday as investors struggled to gauge the economic hit from the spreading coronavirus while preparing for more corporate earnings. Treasuries and European bonds turned higher.

Banking

BofA Leaves CEO’s Pay Flat at $26.5 Million After Decade at Helm
Lananh Nguyen, Bloomberg

Bank of America Corp. awarded Chief Executive Officer Brian Moynihan $26.5 million for 2019, unchanged from a record amount a year earlier. Moynihan, 60, received $25 million in stock grants and a $1.5 million salary, the bank said in a filing Friday. 

Investors Who Tried to Save Credit Suisse’s CEO Hastened His Demise
Jenny Strasburg et al., The Wall Street Journal

A drumbeat of investors’ public support for Credit Suisse Group AG CS -0.23% Chief Executive Tidjane Thiam over the past week was intended to force the bank’s board to back him or sacrifice one of their own amid a high-stakes spying scandal. The plan backfired.

Financial Products and Investments

SEC Seeks to Curb Shareholder Resolutions
Paul Kiernan, The Wall Street Journal

It is a yearly ritual for American corporations: executives of Fortune 500 companies appearing at shareholder meetings to answer investors’ concerns about everything from board membership to climate-change policies. Now the Securities and Exchange Commission wants to make it harder for small shareholders to get resolutions onto company ballots, known as proxies.

A Sexist Joke Cost Ken Fisher $4 Billion in Assets. He Still Runs $121 Billion
Sabrina Wilmer, Bloomberg Businessweek

Ken Fisher ranks among the most successful money managers in America. But you can reach one of his main offices only by driving up a steep and curving country road in Northern California. 

Housing and GSEs

L.A.’s First Step in Housing the Homeless Is Counting Them
Sarah McGregor, Bloomberg Businessweek

In the dark, it takes a sharp eye to spot the silhouette of a homeless encampment behind a row of houses in South Central Los Angeles. But Kenon Joseph knows from experience what to look for.

Real Estate Groups to Challenge Ban on Broker Fees for Renters
Matthew Haag, The New York Times

Real estate agents in New York have raced this week to make sense of a new, far-reaching rule declaring that tenants no longer have to pay a broker’s fee. On Friday, two of the state’s most influential industry groups said they would challenge the rule in court.

Taxes

Summers Worries U.S. Tax Cuts May Lead to Financial Trouble
Ana Monteiro, Bloomberg

Reductions in the U.S. corporate-tax rate in 2018 didn’t result in much more investment, said former U.S. Treasury Secretary Larry Summers, who is concerned about the economy running into “financial trouble.” “There is no evidence of any kind that we have seen any substantial increase in investment because of cutting the corporate tax rate to 21%,” Summers, who was Treasury secretary under President Bill Clinton and White House economic adviser to President Barack Obama, said in an interview on Bloomberg Television’s Wall Street Week to air Friday at 6 p.m. in New York. 

Facebook and IRS Prepare for $9 Billion U.S. Tax Court Fight
Richard Rubin, The Wall Street Journal

Facebook Inc. FB 0.70% and the Internal Revenue Service will square off in a U.S. Tax Court case that could cost the social-media giant more than $9 billion and shape the government’s ability to crack down on companies’ efforts to shift profits to low-tax countries. The trial slated to start in the week ahead caps a nine-year dispute over how Facebook structured its international operations. 

Financial Technology

Banks, fintech startups clash over ‘the new oil’ — your data
Victoria Guida, Politico 

The nation’s banks are locked in a bitter fight with upstart technology companies over the control of their customers’ financial data — and the consumers whose personal information is at stake are mostly spectators. JPMorgan Chase, PNC and other major lenders are threatening to limit the access of middlemen that are hired by financial apps like Venmo and Betterment to grab customers’ account information from the banks’ websites.

NYSE Owner’s Exploration of eBay Deal Opens New Era for Exchanges
Alexander Osipovich, The Wall Street Journal

The revelation that the owner of the New York Stock Exchange approached eBay Inc. EBAY -4.74% about a possible takeover—only to dump the idea after an investor backlash—stunned observers on Wall Street and beyond. But it shouldn’t be surprising given the transformation of the exchange business over the past decade. 

CryptoMom wants to give the crypto kids a break
Jemima Kelly, Financial Times

When you think of the crypto industry, what kind of images does your mind conjure up?

Santander fintech guru trades punk rock for asset management
Siobhan Riding, Financial Times

Mariano Belinky brings his disruptive tactics to the bank’s fund arm.

Opinions, Editorials and Perspectives

New FDIC, OCC Proposal Puts Small Businesses in the Path of Loan Sharks
Amanda Ballantyne, Morning Consult

Small businesses may become besieged by a new wave of predatory “rent-a-bank” lending as a result of a new rule proposed by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. The OCC and FDIC’s direct support for a predatory lender that targets the owners of small businesses and jeopardizes their homes shows that these are not just “Chicken Little” claims. 

Trump administration sides with predatory lenders. Again
The Editorial Board, The Los Angeles Times

One hallmark of President Trump’s tenure is the zeal with which federal agencies have sought to shred federal regulations, either by repealing or simply not enforcing them. That’s been true even in cases where the deregulation is likely to raise costs for the public more than it will lower them for industry, as is the case with the administration’s effort to ease limits on methane emissions.

The Federal Reserve’s new inflation regime
Gavyn Davies, Financial Times

Forthcoming decisions on average targeting will determine future monetary policy.

The Hidden Depression Trump Isn’t Helping
Nicholas Kristof, The New York Times

President Trump declared in his State of the Union address that “our economy is the best it has ever been.” Put aside the Trumpian hyperbole, and it’s true that the economy is strong — and that this is critical to Trump’s chances for re-election.

Research Reports

Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits
Sabrina T. Howell and Filippo Mezzanotti, The National Bureau of Economic Research

A central issue in public finance is the tradeoff between maintaining tax revenues and using the tax code to incentivize particular economic activities. One important dimension of this tradeoff is whether incentive policies are used in practice as policymakers intend. 

Morning Consult