Weil on Finance: Bankers, Bubbles and Whales
Greetings, View fans. And now for your annotated morning links.
Handicapping the Fed’s taper decision
The Federal Open Market Committee will finish its two-day meeting today. Here’s the conventional wisdom on what to expect it to decide about its monthly bond buying: Treasury purchases will decline by $5 billion to $40 billion, while monthly purchases of mortgage-backed securities will stay at $40 billion, according to a Bloomberg News survey of economists. This article by Bloomberg’s Jeff Kearns notes that Fed policy makers are confronting a drop in demand for home loans when considering whether and how much to cut the central bank’s monthly bond purchases.
JPMorgan’s anticipated settlement with regulators over the London Whale trading scandal won’t be the end of the matter, because the feds’ criminal probe is still ongoing. But how far will they go? These two lines, in particular, caught my attention. From the Wall Street Journal: “The Federal Bureau of Investigation and Manhattan prosecutors, meanwhile, continue to gather evidence for what could result in criminal charges against JP Morgan over the London Whale trades, people familiar with the situation said.” From Reuters: “It is too early to say whether any additional charges will be brought or whether the bank itself will face any criminal liability.” To which I thought: Are you kidding me? Criminal charges against JPMorgan? No way, can’t imagine the government going there.
Central bankers realize they can create bubbles? Who knew?
From an interview with Benoit Coeure, member of the European Central Bank’s executive board, posted on the ECB’s website: “We know that there is a risk of asset price bubbles if there is a lot of liquidity. We have to remain very vigilant.” He was responding to a question about the effect of historically low yields. He was stating the obvious, but it’s the sort of thing you don’t see central bankers openly talking about enough, especially in the U.S.
“Millennials: No Jobs, In Debt, Still Living at Home”
That’s the headline from a Fiscal Times article by Josh Boak about a Census Bureau report released yesterday. Here’s the key nugget he pulled out: “More than 2 million millennials are stuck crashing with their parents, earning poverty wages and unable to emerge from the long shadow cast by the Great Recession. An additional 9.8 million Americans since 2007 have been living with roommates or have been forced to move back in with their parents.”
Lower your standards, get more customers, make more money
Makes sense if you’re in the business of charging fees to dish out credit ratings for mortgage bonds, doesn’t it? That’s what Nathaniel Popper of the New York Times says happened last year at Standard & Poor’s: “On nearly every deal since it changed its standards, S.& P. has been willing to make more optimistic predictions about the bonds it was rating than the other agencies rating the deals, according to analysis of data from company reports. Bankers want more optimistic predictions because they make the bonds easier to sell to investors.”
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)