The Center in the Media

Author Of Original Impeachment Articles Reflects On 40th Anniversary Of Nixon’s Resignation

From  CapeNews.Net
August 8, 2014


Forty years ago today, President Richard M. Nixon announced his resignation in a televised address to the nation. Donald F. Terry, 68, who lives off Shore Street in Falmouth, wrote the original articles of impeachment introduced against President Nixon following the Watergate scandal of the early 1970s.

On Tuesday afternoon, August 5, Mr. Terry sat down to talk about the scandal and the role he played in history. “It’s 40 years ago,” he said, seated in a red upholstered armchair in a sunroom off his kitchen. “But for me, it’s like yesterday.”

In the early 1970s, fresh out of law school, Mr. Terry got a job as the chief aide to Congressman Jerome R. Waldie, a Democrat from California. In October 1973, it had been more than a year since five men with connections to the White House were caught breaking into the headquarters of the Democratic National Committee in the Watergate office complex. Pressure was mounting on the president to turn over tape recordings of his conversations in the Oval Office. Refusing, Mr. Nixon fired the special prosecutor investigating the Watergate scandal and demanded the resignation of the attorney general and deputy attorney general. This became known as the “Saturday night massacre.”

That night, October 20, 1973, Mr. Terry was at home in Washington watching “The Mary Tyler Moore Show.” “And into the show comes breaking news. And the newscasters are stuttering, they’re speechless!” he said. “The attorney general has been fired, the deputy attorney general, and Archibald Cox, the special prosecutor. It was almost like a coup taking place.”

“And this,” Mr. Terry said, “is when I started to get involved.”

Mr. Terry immediately called and spoke with Congressman Waldie in California. After several hours, Rep. Waldie called him back, “And he says, ‘Well, you need to get working over the weekend, because I just announced that on Tuesday I’m going to introduce the first articles of impeachment.’ ” Mr. Terry had two days to write the resolution and collect as many co-sponsors as possible.

Leaning forward in his chair, Mr. Terry picked up a framed document covered in signatures. It was a copy of the impeachment articles, autographed by the co-sponsors. This resolution, House Resolution 648, was introduced on Tuesday, October 23, 1973. The resolution was not voted on, but it sparked an investigation by the House Judiciary Committee into the allegations that the president was intimately involved in the execution and cover-up of the Watergate break-in. “It was gathering information, depositions, further information,” Mr. Terry said, windmilling his hands in front of him.

Finally, after months of private testimony and much internal bickering about how to proceed, Mr. Terry recalled House Judiciary Committee member John J. Conyers getting up and saying, “ ‘If we don’t get our act together, they [the American people] are going to impeach us [Congress].’ ”

“I’ll never forget him saying that,” Mr. Terry said. “And that was it, we went public at the end of July.”

At several days of public testimony and speeches, the committee voted to recommend the articles of impeachment, with over a third of the committee’s Republicans voting for impeachment. The White House then released a “smoking gun” tape of Mr. Nixon discussing the cover-up days after the break-in.

“I felt proud in the end. That the political system worked. It wasn’t a partisan thing.” Mr. Terry said, “It was heartbreaking to think that was what was going on, but the system worked.”

Mr. Terry said he worked non-stop from the Saturday Night Massacre in October 1973 until President Nixon’s resignation on August 8, 1974, a time period that included the birth of his second daughter, Meghan. When he watched Nixon’s resignation on television, Mr. Terry said,

“The emotion I had was, ‘Thank goodness, we can go to Falmouth.’ ” He called his wife, Denise A. Terry, and said he would be able to join her and the children for vacation and Meghan’s baptism in Falmouth, where Mr. Terry’s mother and aunt lived.

Ms. Terry, who had come back from a pool aerobics class and listened to her husband excitedly recounting the intricacies of the Watergate scandal, said she never resented how busy her husband was during that time. “I was excited,” she said. “I thought he was doing the most important work.”

Mr. Terry went on to serve in other positions in the government, including the deputy assistant secretary of the treasury for international affairs in the Carter administration. However, by the time President William J. Clinton was elected in 1992, Mr. Terry was disillusioned with politics, which he said had deteriorated to the point of dysfunction. He decided instead to contribute his public policy skills to international development and poverty alleviation. Mr. Terry still consults part time for the United Nations and World Bank….


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Rejection of banks’ living wills unlikely to carry near-term enforcement action

From  SNL
By Zach Fox
August 7, 2014


Following the rejection of the second submission of living wills for 11 large, complex banks, regulatory consultants are looking to July 2015, when the banks have to re-submit their plans. The fundamental question: What would regulators do if banks failed to address the living wills yet again?

Media reports varied widely. A MarketWatch report quoted a senior Federal Reserve official as saying the regulators have the power to “take whatever supervisory action we thought appropriate,” including divestiture. However, a piece in The Wall Street Journal paraphrased a Federal Reserve official as saying the agency would only force divestitures if a bank’s submissions failed to pass muster for multiple years.

Contacted by SNL, a Federal Reserve spokesman said he could not comment on the Journal’s phrasing and that the Fed was not providing any guidance on potential actions should the 11 banks’ 2015 submissions fail.

However, an FDIC spokesman was willing to offer additional detail, which suggested that no enforcement action was possible in the near-term, that any regulatory action related to living wills would be at least a year away and that any chance of a forced divestiture was at least three years away.

The spokesman said the agencies need to issue a notice of deficiency prior to taking any sort of enforcement action. Such a notice requires a determination that the living wills were “not credible” from both the FDIC and the Federal Reserve, whereas only the FDIC made such a determination in the Aug. 5 rejection.

Per FDIC guidance, after a notice of deficiency is issued, the company receiving the notice has 90 days to submit a revised resolution plan, but the company can request an extension if it provides sufficient justification. Then, if the re-submitted plan does not adequately address the initial deficiencies, the FDIC and Fed can subject any company or subsidiary “to more stringent capital, leverage, or liquidity requirements, or restrictions on growth, activities, or operations.”

But even then the regulators cannot force divestiture. Only if the company fails to address its resolution plan within a two-year window after the enforcement action can the FDIC and the Fed direct the company to divest assets. Therefore, for now, the banks have an opportunity to address the regulators’ concerns and re-submit a plan.

“I don’t know how many times that game of ping pong goes on, but I think that’s kind of the nature of the exercise,” said Oliver Ireland, a partner with Morrison Foerster who specializes in bank regulatory issues.

At the same time, the sheer size of the banking organizations played a role in the FDIC’s “not credible” determination. FDIC Vice Chairman Thomas Hoenig issued a forceful statement ripping the resolution plans. In doing so, he made note that the banks have only become larger and more interconnected after the 2008 panic. He highlighted that the assets of the eight largest U.S. banking companies total 65% of gross domestic product and that the average notional value of derivatives for the three largest U.S. banks increased 30% since the start of the crisis to $60 trillion at 2013 year-end.

Indeed, SNL data shows asset growth has been significant for the seven U.S. banks among the 11 organizations included in the so-called “first wave” of resolution plans.

Combined, the seven U.S. companies reported total assets of $8.970 trillion in the 2014 second quarter, up 12.54% from $7.971 trillion as of the 2007 fourth quarter. However, that rate of asset growth has been slower than improvements in the national gross domestic product, so as a portion of GDP, the asset size of the seven U.S. banks constituted 53.40% of GDP in the second quarter, down from 55.05% at the end of 2007. Hoenig’s figure of 65% represented the eight largest banking organizations, which would include Wells Fargo & Co., a massive company that was not part of the first wave of resolution plans and therefore not included in SNL’s figures.

Yet, even some advocates of banking reform are not pushing for divestiture. They point to other regulatory efforts, such as the Volcker Rule, capital adequacy requirements and the liquidity coverage ratio, as already forcing banks to simplify and shrink.

Mayra Rodriguez Valladares, managing principal of MRV Associates, a financial regulatory consulting and training company, said the living wills force banks to look in the mirror and face issues of excessive complexity, particularly in cross-border claims.

“Most of the time, you’re so enormous supposedly because you’re getting a tax relief, you’re getting some type of capital relief out of it, it really is helping you increase your profits. But if it isn’t achieving any of that, then why do you have all this? Why are you so big and unwieldy?” Rodriguez Valladares told SNL.

She said one of the primary takeaways from the Aug. 5 rejection was that banks might need to rethink the amount they have paid outside legal consultants who pitched the banks on their expertise in resolving cross-border jurisdictional issues.

“I think this is a real black eye for all these global legal firms that have been racking up millions of dollars in fees. … If I were the CEO of a bank, I’d be pretty pissed off right now,” she said.

With a different take, Cornelius Hurley, director of the Boston University Center for Finance, Law and Policy, said he thought banks might have wanted to fail the living wills test in order to ensure the market would continue to offer a too-big-to-fail subsidy. That sentiment was shared in an Aug. 6 blog post by Better Markets, a nonprofit focused on financial reform.

“I think the root of the problem is that it’s not in the interest of these 11 institutions to submit a good plan. If they had, on the shelf, the best plan that would prove to the Fed and the public that they can be resolved in an orderly way, they would not submit it because they benefit from the opacity,” Hurley told SNL.

As long as their resolvability remains shrouded in mystery, Hurley said, markets will continue to consider them safer due to an implied government backstop. Whether huge banks enjoy such a market discount was the subject of a controversial Government Accountability Office report, which some industry participants used to claim that the too-big-to-fail problem had greatly diminished. However, there appeared to be consensus among senators at a hearing on the report that too big to fail continues to exist.

In his statement on the rejection of living wills, the FDIC’s Hoenig said the resolution plans were not an ultimate solution that could ensure large, complex banks can be resolved in bankruptcy and without government support. He pointed to effective examination and supervisory oversight, along with strong management and prudent capital management.

“You’re never going to have too-big-to-fail in a box,” Morrison Foerster’s Ireland told SNL. “In my view, if you’re in a full-blown financial panic, are you going to be comfortable liquidating a bank under one of these living will processes and think you’re not going to aggravate the panic?”…


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Debt and housing costs make young worse off than past generations

Index comparing affluence over time finds under-30s have to work much harder to earn less today than their parents

From  The Guardian
By Phillip Inman
August 5, 2014


Young people face a steeper climb to achieve the lifestyle of today’s baby boomer generation, according to an index measuring intergenerational fairness which recorded a rise from last year.

The declining affordability of housing for the under-30s accounted for the increase alongside a rise in government debt, which future generations must pay.

The intergenerational fairness index, which was created by a charity, the Intergenerational Foundation (IF), to compare the burden faced by younger people with that of older workers and retirees, rose to 133 points in 2014 from 130 last year.

The IF also found that under-25s suffered from stagnant employment levels and low levels of house-building.

It said there has been a rise in the cost to the workforce of the state pension, while a fall in GCSE pass rates would put an immediate brake on the earning capacity of many young people. The index also measured a decrease in democratic participation by young people and increases in greenhouse gas emissions.

Angus Hanton, the co-founder of the IF and joint author of the index, said: “Like overloaded packhorses, our young people are becoming increasingly burdened by other generations’ debts while loaded down with debts other generations have never had to pay, such as £9,000-a-year student tuition fees and record housing costs. When will government realise there’s nothing left to take from the young?”

He added: “In spite of repeated government assurances that the burden of government debt is decreasing, the 2014 IF index reveals a record total of £1,254 billion of public debt, equivalent to £42,000 for each person in the workforce.”

The index shows median incomes for people aged 22-29 have risen by 1% while median house prices have increased by 2.8%.

According to figures from the Office of National Statistics, retirees have seen their incomes increase by 5.1% between 2007/08 and 2011/12, while working households saw typical incomes fall by 6.4%.

Hanton said: “When government debt and public-sector pension liabilities are combined, the resulting debt per member of the workforce is now over £70,000, equivalent to more than three times median household incomes.”

Laurence Kotlikoff, a professor of economics at Boston University, and the father of intergenerational accounting for the World Bank in the 1990s, said the index showed “intergenerational inequity continues to be the moral issue of our day”…


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FDIC Says ‘Too Big to Fail’ Bank Bailouts Could Happen Again

From  The Fiscal Times
By By Rob Garver
August 6, 2014


The Treasury Department, just last week, assured lawmakers and taxpayers that new safeguards put in place by the Dodd-Frank Act after the financial crisis mean that U.S. taxpayer would never again be on the hook for the bailout of a large financial institution.

On Tuesday, the Federal Deposit insurance Corporation and the Federal Reserve Board announced that, so far at least, a key element of one of those safeguards was not reliable.

Under the law, banks with consolidated assets of $50 billion or more, and certain other financial firms, are required to give regulators a resolution plan, commonly called a “living will.” The resolution plan is supposed to provide the FDIC with a comprehensive plan to sell off a bankrupt firm’s assets and settle its debts using the “Orderly Liquidation Authority” granted to the agency under Dodd-Frank.

The OLA is one of the elements of Dodd-Frank meant to eliminate the perception that some banks are “Too Big to Fail” – meaning that their combination of size and interconnectedness could cause a cascading crisis of failures if one should go bankrupt.

The Dodd-Frank law specifically outlaws bailouts of large banks, and the aim of the OLA is to create an alternative way to let a huge institution fail without taking the rest of the economy with it.

As part of the implementation of the law, last year, 11 large banks submitted resolution plans to regulators. It was the second go-round, as they had first offered living wills in 2012 that the regulators found unsatisfactory. The news yesterday wasn’t much better, as the FDIC and Federal Reserve announced they had sent all 11 plans back to be rewritten.

In a press release, the agencies said that while all the plans had individual problems, there were a number of issues common to all of them, including “assumptions that the agencies regard as unrealistic or inadequately supported, such as assumptions about the likely behavior of customers, counterparties, investors, central clearing facilities, and regulators.” Regulators also noted “the failure to make, or even to identify, the kinds of changes in firm structure and practices that would be necessary to enhance the prospects for orderly resolution.”

The regulators continued, “Based on the review of the 2013 plans, the FDIC Board of Directors determined…that the plans…are not credible and do not facilitate an orderly resolution under the U.S. Bankruptcy Code. The Federal Reserve Board determined that the 11 banking organizations must take immediate action to improve their resolvability.”

Critics of the Dodd-Frank Act pounced, saying that the agencies’ finding proves that, even now, large banks would still have to be bailed out in the event of a bankruptcy filing.

This is one of the three legs of the stool from Dodd-Frank, and they just had it kicked out from under them,” said Prof. Cornelius Hurley, who directs the Boston University Center for Finance, Law & Policy. “It validates what almost everybody that has taken a look at the plan thinks. I say hooray for their candor.”…


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Complacency with Big Banks Risks a Severe Hangover

From  American Banker
August 1, 2014


The Government Accountability Office’s report on market perceptions of government support for big banks had barely been released before a number of journalists — not to mention financial lobbyists — jumped on the finding that the subsidy currently enjoyed by systemically important banks is negligible compared to its size between 2007 and 2012.

The results of the study should not be interpreted as a sign that large U.S. banks have recovered from the global financial crisis and could stand on their own without government support. As Cornelius Hurley, director of the Boston University Center for Finance, Law & Policy, explains, it is unsurprising that in an era of “incredibly low interest rates, exceptionally high bank deposit balances and economic growth, the market would interpret banks as less risky than they were during the crisis.” Also, given that most Dodd-Frank and Basel rules have yet to be fully implemented, it is too early to say whether new regulations contributed to the reportedly negligible subsidy.

But when interest rates start to rise, banks’ assets may decrease in value, and their deposits may fall as customers look elsewhere for vehicles that will pay them higher rates. This movement would negatively impact banks’ liquidity. Moreover, any unexpected geopolitical shock or multiple corporate defaults could immediately increase banks’ risk very quickly.

We cannot foresee how politicians will react the next time there is a banking crisis. As Douglas Holtz-Eakin, president of the policy think tank American Action Forum, said in his testimony before the Senate Thursday, “The federal government has a dubious history of intervening in times of economic distress to save certain firms or otherwise mitigate their losses … this history is inconsistent, not hewing to any rule or regularity.”

It is precisely because we do not know whether the government would opt for a bailout that bank regulators must continue to confront the significant challenges posed by U.S. banks. Most importantly, banks remain incredibly large and interconnected to each other and the economy at large. According to the National Information Center, there are over 100 banks in the U.S. with assets over $10 billion, and 40% are over $50 billlion.

Unfortunately, the banks are also very opaque. U.S. bank regulators, taking guidance from the Basel Committee on Banking Supervision, continue to allow the large banks to use their own credit risk inputs for to calculate regulatory capital. For market and operational risks, these same banks are even allowed to use their own proprietary models. Neither the credit risk inputs nor the models are disclosed to the public.

There are also signs that banks have failed to learn from the detrimental effects of the global credit crisis and pleas from bank regulators. This year, large banks are loosening their credit underwriting standards and are extending leveraged loans to companies. They can do this largely because they are increasing the number of collateralized loan obligations they can sponsor. These bonds, backed by hundreds of typically leveraged loans, are difficult to value because of the lack of uniform, dynamic data.

Additionally, large banks continue to exhibit incredibly weak operational risk management. Operational risk is the threat of a breach in the day-to-day running of a business because of people, processes, systems, and external events. Since big banks have yet to make ethics a top priority, not a day goes by that one does not see examples of operational risk. Market rate manipulations and incorrect foreclosure procedures continue to plague banks and their reputation.

Banks’ lack of reliable, quality data to monitor their counterparties also continues to be a problem even after six years after the crisis. This is the fault not only of individuals but also of the weak systems created to warehouse the data in a centralized place so that they are readily available to a bank’s risk managers and equally importantly, to bank regulators.

It is imperative to the health of the global economy that regulators do not lose sight of banks’ risk-taking and ensure that banks are more adequately capitalized to sustain unexpected losses. Anat Admati, a professor of finance and economics at Stanford University’s Graduate School of Business, argued passionately before the Senate that “requiring that banks fund themselves so that those who benefit from the upside of risk bear more of its downside brings about more safety and corrects distortions.”…


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America’s Hidden Credit Card Bill

Laurence Kotlikoff: The Government Should Report Its ‘Fiscal Gap,’ Not Just Official Debts

From  The New York Times

July 31, 2014


BOSTON — HOUSEHOLDS can’t spend, on a continuing basis, more than they earn. Countries can’t either, at least not over the long run. But countries can certainly leave the bill for their current spending to the young and to future generations. Official borrowing is the old-fashioned way to do this: Sell Treasury bonds, and other securities, and spend the proceeds. But borrowing in broad daylight has a drawback: The more you do it, the more lenders worry about repayment, and the more interest they charge for their loans.

So there’s a different way to borrow — one that’s more subtle, harder to see and, therefore, cheaper to do. You still take in money, pledge to return it, and leave future generations on the hook. But you call the money you take in “taxes,” not “borrowing.” And you promise repayment in the form of pension, health care and other benefits, but you don’t record the present value of those promises as official debt.

Social Security is a prime example. It takes in money, via payroll taxes, while promising hefty retirement benefits in return. Dig deep into the appendix of the most recent Social Security Trustees Report, released on Monday, and you’ll find that the program’s unfunded obligation is $24.9 trillion “through the infinite horizon” (or a mere $10.6 trillion, as calculated through 2088). That’s nearly twice the $12.6 trillion in public debt held by the United States government.

Social Security is backed by something perhaps even more powerful than the full faith and credit of the government: the political power of some 100 million Americans 50 and older.

My 94-year-old mom is in this demographic. She’s collecting Social Security retirement benefits based on her 35 years of payroll tax payments, first as a university administrator and then as a printing broker. She’s also receiving widow’s benefits based on my dad’s 30-year work history at Kotlikoff’s, the department store in Camden, N.J., that he owned with his brothers.

Every month, my mom receives a yellow and green benefit check for $1,600 from the Treasury. I expect she’ll keep collecting those Social Security checks for a long time. She’s crushing 50-year-olds at bridge and doing yoga. Apart from their amount, the checks look identical to the $400 checks she receives every six months on her small remaining holdings of Treasury bonds. Yet Uncle Sam’s obligation to send her the $400 checks is recorded on its books, whereas his obligation to send her the $1,600 checks is not. (I’m 63, but not collecting benefits yet.)

True, Social Security benefits could be cut by Congress and the president. But so can official debt, as Argentina’s likely default reminds us. The prospect of formal default by the United States is remote. Informal default via the inflationary, easy-money policies of the Federal Reserve since 2007, is more likely. (Social Security is pegged to inflation, so while inflation would help with our official debts to creditors, like China, it is far from a panacea.)

Social Security’s hidden debt is just a small part of the story. Two weeks ago, the Congressional Budget Office released its annual long-term budget outlook. The good news: This year’s deficit — about 3 percent of gross domestic product — is the smallest since 2007 and way down from the peak of almost 10 percent in 2009. The bad: Without action, the deficit will grow “notably larger” starting in about four years, a result of our aging population, rising health costs and the new subsidies for health insurance.

Even worse, the budget office raised what’s called the alternative fiscal scenario, the most realistic projection of fiscal outcomes absent major policy changes. Based on these estimates, I calculate that the “fiscal gap” — a yardstick of total government indebtedness that I’ve worked on with the economists Alan J. Auerbach and Jagadeesh Gokhale — was $210 trillion last year, up from $205 trillion the previous year. Thus $5 trillion was the true deficit…


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Chinese whisper in American neighborhood

From  RT
July 23, 2014


After the major headline hogging BRICS summit, the next news event that has been watched closely is the Chinese President Xi Jinping’s visit to Latin America.

The visit was marked by an ambitious outlook as China intends to boost trade to $500 billion dollars in the next ten years and announced a $20 billion Chinese fund to finance infrastructure projects in Latin America and the Caribbean (LAC).

Other significant announcements included an additional credit line of $10 billion for the Community of Latin American and Caribbean States (CELAC) from Bank of China and Sino-Brazilian collaboration to start working on a railway project across South America linking the Brazilian Atlantic coast with the Peruvian Pacific coast.

Certainly the implications of this visit are more profound than just another bilateral excursion. The trade partnership shot up from a mere $12 billion in 2000 to $261 billion in 2013. This further corroborated the UN forecastof China – with 14 percent trade share – fast outpacing the European Union (with 13% share) as Latin America’s second largest trading partner after the US, prompting many to ask would the gap between the two in Latin America get narrower.

There is a clear tendency in that direction, although it may take a while feels Fabiano Mielniczuk, former Research Coordinator at the BRICS Policy Center and current Director of Audiplo.

Both the US and EU have been stalled in financial crisis, snarled political situations at home and expensive foreign policies as a result of involvement in the war ridden Middle East, Iraq and Afghanistan.

As Kevin P Gallagher, Associate Professor of International Relations at Boston University & co-author of The Dragon in the Room: China and the Future of Latin American Industrialization points out, “China has been much more strategic. The West has been mired in financial crisis and political gridlock on the home front, and the Middle East in foreign policy.

China’s economy has been strong, and they have built a number of supporting institutions to help their firms move abroad. China has done in 15 years what it took decades for the West to do in the region.”

The diversity of trade between the US and Latin America currently is way too big for China to still match feels Gallagher. “Right now close to 75 percent of all Latin American exports to China are just in petroleum, iron ore, soybeans. Latin American exports all sorts of things to the US.”…


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GAO Study Expected to Say Big Banks’ Subsidy Has Shrunk (For Now)

From  American Banker
July 22, 2014


WASHINGTON — A government report detailing the funding advantage the biggest banks receive is likely to be unveiled on July 31, according to sources familiar with the matter.

The highly anticipated Government Accountability Office report, requested by Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., is the second part of a study begun last year to ascertain the advantages the largest banks receive due to their perceived “too big to fail” status.

Brown is expected to call a Senate Banking subcommittee hearing on July 31, when the report is released to the public for the first time, sources said. The hearing would be the last day Congress is in session before it goes on August recess.

Alternatively, Brown or Vitter, as the initial requesters of the report, could put a 30-day hold on the release of the GAO report, but sources consider that unlikely at the moment.

While the final details of the report remain unclear, several sources said the GAO was expected to say the funding advantage held by the largest banks has been reduced. That may not be enough for big banks to declare victory, however, as the size of the subsidy could change over time, potentially increasing in the event of another crisis. Sources added that the GAO was unlikely to offer its own concrete estimate of the exact amount of the advantage, instead presenting multiple methodologies that could be used to calculate a subsidy.

Industry observers suggested Treasury Secretary Jack Lew has already given hints of the outcome of the study, noting recent comments he made at two oversight hearings last month where he said the funding advantage has been “definitely dramatically reduced.”

“The assumption that there is a price advantage is going way down,” said Lew, who was pressed by Brown at a Senate Banking Committee hearing. “I’m not saying, ‘It’s eliminated.’ It might be. There are some who argue [that]. But I think that in terms of the market advantage, it is certainly shrinking, if not gone.”

A Treasury spokesperson said the secretary has consistently reiterated the agency’s long-standing position that the Dodd-Frank Act ended “too big to fail” as a matter of law.

Still, Jill Hershey, executive managing director and head of government affairs at The Clearing House, and others have emphasized the importance of the secretary’s comments.

“Lew made a critical point — current research demonstrates that any unfair funding difference for large banks has either been dramatically reduced or eliminated,” Hershey said.

But some said Lew’s comments may not be an indication of the outcome of the GAO’s study.

“I don’t think he would have said that without the data, but I don’t know the data is from the GAO. There are other places it could have come from,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics.

Big banks and the industry groups that represent them have pointed to their own studies as proof that any difference in funding is not necessarily attributable to a perceived government guarantee. They have also noted an independent study by the International Monetary Fund released in March, which showed that the funding advantage for U.S. banks has dwindled to 15 basis points, significantly less than for their United Kingdom and European counterparts.

But observers remain unconvinced. They say any reduction in the subsidy may not be due to regulatory reform but by factors attributable to the economic cycle. If the market fears another bailout or crisis, the size of the subsidy could once again shift.

“This notion that the subsidy is lower now than it was during the crisis — that’s hardly news,” said Cornelius Hurley, the director of Boston University’s Center for Finance, Law and Policy. “Of course it’s lower. In the crisis, they were giving out money … but we’re still in an environment of near-zero interest rates, so a lot of banks can raise money very cheaply. Naturally the differential would be smaller today.”

Hurley added that the real issue will be the GAO’s consideration of how market perception, and thus the size of the subsidy, will continue to change under more adverse economic conditions.

“I’m hoping that at least the GAO comes up with a methodology for measuring it, so even if it is down, we can chart its growth over time,” he said.

Observers said that even if the GAO concludes the subsidy is lower, it is unlikely to offer its own specific estimate.

“I would be very surprised if this GAO report comes out and says that ‘too big to fail’ banks don’t have any market advantage [and] there is no implicit backstop,” said Marcus Stanley, policy director of the Americans for Financial Reform. “On the other hand, they may not feel confident putting an exact number on the value of the backstop. The GAO tends not to want to pin themselves down analytically.”…


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In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates

From  The New York Times
July 19, 2014



Xi Flies to Argentina With $7.5 Billion in Tow

From  Bloomberg
By  Pablo Gonzalez and Charlie Devereux
July 18, 2014


Chinese President Xi Jinping arrived in Argentina today to sign trade and investment agreements for at least $7.5 billion to develop energy and transport infrastructure projects.

Xi met with President Cristina Fernandez de Kirchner at the presidential palace in Buenos Aires to sign 19 agreements. Argentina’s Cabinet Chief Jorge Capitanich told reporters earlier today the contracts to be signed include financing from Chinese banks for $4.7 billion for two hydroelectric projects to be built in Santa Cruz province by a consortium led by China Gezhouba Group Ltd. (600068)

Securing loans with its third-biggest trading partner gives Argentina some respite at a time its reserves are near an eight-year low and it faces the prospect of second default in 13 years. Argentina has until July 30 to settle with creditors including billionaire Paul Singer’s Elliott Management Corp. or risk a default on its performing bonds.

“Argentina is in a beggar’s position,” said Kevin Gallagher, a professor of international relations at Boston University. “They need the foreign reserves and they need the FDI and China is the only country outside of the orbit of the U.S. court decision that is willing to put money on the table.”

The two dams to be built over five and half years in the south of the country will have electricity generation capacity of 1,740 megawatts and be financed by loans from the China Development Bank Corp, Industrial and Commercial Bank of China Ltd and Bank of China Ltd.


Reserves Swap

Argentina and China, the world’s second-largest economy, will also sign an agreement to swap as much as $11 billion in their two currencies during a three-year renewable period. The countries will also sign a loan for improvements in the Belgrano rail line worth $2.1 billion and a nuclear energy cooperation accord.

Xi will attend a dinner with Fernandez tonight and meet with the heads of both chambers of Congress tomorrow before receiving the keys to Buenos Aires from mayor Mauricio Macri, according to presidential palace officials.

Xi’s arrival follows a visit to Brazil, where China pledged more than $8.6 billion in investments and loans while backing the creation of a $50 billion development bank.

Argentine central bank foreign reserves have fallen 21 percent in the past year to $29.7 billion as Fernandez uses the funds to pay foreign debt obligations. A decade of lawsuits over defaulted debt has pushed up Argentina’s borrowing costs, effectively locking the country out of capital markets.

Soybean Exports

Argentina is seeking to increase electricity production as energy imports deplete reserves. The country posted a record energy deficit of $6.1 billion in 2013 or about half of the total fall in reserves.

China is adding food to its strategy of importing oil and metals to feed one of the fastest-growing economies in the world, Gallagher said….


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