Wall Street is getting worried about the debt-ceiling debate in Washington, The Wall Street Journal reported yesterday. Bond traders, concerned about protracted sparring over the federal government’s borrowing limit, are pushing up the yields on short-term Treasurys. The three-month yield now pays more than a note whose term is twice as long. It’s a rare “inversion” that hasn’t happened in this corner of the market since the throes of the financial crisis. A brief default on government debt would hit short-term T-bills first, so they’ve typically turned volatile ahead of deadlines in Washington for lifting the government’s cap on borrowing. But the magnitude and timing of the moves — well before October, the Congressional Budget Office’s estimated deadline for a deal — suggest that investors are on edge about what’s to come. To be sure, analysts say that yields in the $1.7 trillion T-bill market can become jumbled up for reasons besides a debt debacle, such as when the Federal Reserve is in a cycle of lifting rates, as is currently taking place. When rates are rising, pushing up short-term yields relative to their longer-term counterparts, they are already more disposed to become inverted. But this is the first time these yields have inverted on a closing basis since the central bank began lifting rates in late 2015.
In August 2012, the federal government abruptly changed the terms of the bailout provided to Fannie Mae and Freddie Mac, The New York Times reported on Sunday. Instead of continuing to receive payments on the taxpayer assistance, Treasury officials decided to begin seizing all the profits both companies generated every quarter. It was an unusual move, but it was necessary to protect taxpayers from likely future losses in their operations. Newly unsealed documents show that as early as December 2011, high-level Treasury officials knew that Fannie and Freddie would soon become profitable again. The materials also show that government officials involved in the decision to divert the profits knew the change would most likely generate more money for Treasury than the original rescue terms, which required the companies to pay taxpayers 10 percent annually on the bailout assistance they had received. The 17-page memo shows that the idea to extract all of Fannie’s and Freddie’s profits coincided with their anticipated turnaround. Another unsealed document, a draft memorandum circulated before the profit sweep, shows that federal officials recognized it would generate more money than the original bailout terms. Net income generated by Fannie and Freddie and paid to the government “will likely exceed the amount that would have been paid if the 10 percent was still in effect,” it stated.
Americans, reputed to be the most litigious people in the world, are filing far fewer lawsuits, The Wall Street Journal reported yesterday. Fewer than two in 1,000 people — the alleged victims of inattentive motorists, medical malpractice, faulty products and other civil wrongs — filed tort lawsuits in 2015, an analysis of the latest available data collected by the National Center for State Courts shows. This is down sharply from 1993, when about 10 in 1,000 Americans filed such suits. A host of factors are fueling the decline, including state restrictions on litigation, the increasing cost of bringing suits, improved auto safety and a long campaign by businesses to turn public opinion against plaintiffs and their lawyers. The nationwide ebb in lawsuits, which confounds the public perception of courts choked with tort claims, has broad ramifications for businesses, doctors, patients, lawyers and the courts themselves. Companies and insurers on the receiving end of such lawsuits welcome the decline of what they regard as a lawsuit culture in which lawyer-driven litigation increases costs to both business and consumers. Trade groups that represent these firms have long pushed for laws to raise the bar for filing lawsuits and rein in damages, portraying a large chunk of tort litigation as a drag on the economy that burns scarce judicial resources. At the same time, the falling number of tort filings, coupled with the broader decline in civil jury trials, has some judges concerned that Americans with garden-variety cases no longer see courts as an affordable way to seek redress for their injuries.
A new federal regulation that would make it easier for Americans to bring class-action lawsuits against banks and other financial institutions might be scrapped before it ever takes effect. Republican lawmakers had vowed to kill the rule, released by the Consumer Financial Protection Bureau just two weeks ago, and took the first step toward doing so Tuesday with a vote in the House of Representatives. The bureau, created by the Dodd-Frank Wall Street Reform Act in the wake of the financial crisis, is deeply unpopular with many Republicans, who deride it as an overreaching and unaccountable agency. Democrats largely support the bureau and its embattled director, Richard Cordray, calling it an effective enforcer of rules aimed at protecting consumers. The new rule would ban a common feature of contracts that consumers sign when they open bank accounts or use other financial products and services. Those contracts often include an arbitration clause — an agreement that customers will settle issues with the institution in private arbitration rather than in court.
A four-month high in U.S. consumer confidence reflects Americans’ sunnier views on both their current situation and outlook, a positive sign for the economy, data from the New York-based Conference Board showed and Bloomberg reported yesterday. With unemployment near a 16-year low and U.S. stocks reaching record highs, consumers remain upbeat, which should continue to support the household spending that accounts for about 70 percent of U.S. gross domestic product. Even so, the post-election surge in sentiment has yet to translate into a similar economic boost. Faster wage gains and improved prospects for fiscal stimulus could propel confidence further in coming months. The Conference Board’s data contrast with surveys from the University of Michigan and Bloomberg Consumer Comfort Index showing sentiment ebbing in recent weeks.
Financial regulators have written more than 26,000 pages of rules for the landmark Dodd-Frank bank reform law passed seven years ago, MarketWatch reported on Friday. But there’s still 20 percent of the Dodd-Frank requirements left to go, according to data from Davis Polk, which has been the go-to source for tracking the unwieldy law. In addition, 280 of 390 rulemaking requirements have finalized rules, and there are proposals for another 30 more. Regulators aren’t exactly feeling the pressure to move forward, as Republicans in Congress and in the White House want to dismantle the law. For example, several agencies including the Securities and Exchange Commission have dropped efforts to limit CEO pay. The House has passed a law that would scale back Dodd-Frank, though the Senate isn’t likely to take it up because of the difficulty in making it filibuster-proof. Sen. Mike Crapo, the Idaho Republican who chairs the Senate Banking Committee, is working with Democrats to create a more targeted bill.
House Republicans want to privatize Fannie Mae and Freddie Mac as part of their 2018 budget proposal, TheStreet.com reported yesterday. GOP members of the House of Representatives on Tuesday unveiled their 2018 budget. Dubbed "Building a Better America" and authored by Budget Chairman Diane Black (R-Tenn.), the plan calls for more than $200 billion in cuts to mandatory spending programs and sets the path for tax reform. It also calls for the privatization of mortgage giants Fannie Mae and Freddie Mac and assumes provisions of the House bill that would repeal Dodd-Frank. "The Treasury has already provided $187 billion in bailouts to Fannie and Freddie, and taxpayers remain exposed to $5 trillion in Fannie Mae and Freddie Mac's outstanding commitments, as long as the entities remain in conservatorship," the plan reads. "Our budget recommends putting an end to corporate subsidies and taxpayer bailouts in housing finance."
Interested parties have until the end of this week to bid on about 5,500 artifacts from the sunken ship Titanic, some intellectual property relating to video footage and imagery of the wreck, and the rights to explore and salvage the wreckage site for more objects, the Wall Street Journal reported today. The auction is the first of its kind for the ship’s treasures and goods, and comes more than a year after Premier Exhibitions Inc., the company behind the traveling “Titanic” and “Bodies” exhibitions, filed for bankruptcy. Potential buyers are bidding on such trinkets as a bronze cherub from the grand staircase used by first-class passengers, a blue sapphire ring surrounded by 14 small diamonds, a steward’s jacket and a silver-plated chocolate pot used in the ship’s first-class restaurant. Private-equity firms and other companies have reportedly already expressed interest in the sale. Offers are due Friday, and if more than one is received, an auction is scheduled for November.
With consumers feeling better about the economy, the amount of money borrowed has reached its highest level since the Great Recession. Total consumer borrowing rose by $18.4 billion in May, the strongest gain since November's $25.1 billion increase, according to a recent report by the U.S. Federal Reserve. While household income has grown over the past decade, it has failed to keep up with the increased cost of living over the same period. To bridge the gap, more Americans rely on credit cards, one of the most expensive ways to borrow. Consumers' revolving credit, or credit cards, rose by $7.4 billion in May to $1.02 trillion, the highest level since July 2008, according to a separate report by the Federal Reserve Bank of St. Louis. Altogether, total household debt, including mortgages, student loan balances, credit cards and car loans, reached $12.73 trillion in the first quarter of this year – a record high, topping the previous peak also hit in 2008.
CFPB Director Richard Cordray fired back at Comptroller of the Currency Keith Noreika Friday, saying that the OCC cannot challenge the agency’s arbitration rules through a little-used process, the Credit Union Times reported on Friday. Cordray said that the OCC did not meet the statutory requirements needed to challenge the CFPB’s rules through the Financial Stability Oversight Council. In a letter to Noreika, Cordray said to meet the FSOC requirements, the OCC had to object to the rules earlier in the rulemaking process, which has taken two years. “At no time during this process did anyone from the OCC express any suggestion that the rule that was under development could threaten the safety and soundness of the banking system,” Cordray wrote. “Nor did you express any such concerns to me when we have met or spoken.” For instance, he said, as late as June 26, OCC staff said it had not objections to the arbitration rule.