Wednesday, May 13, 2015

Tuesday, May 12 GAFI Recap: Dudley Talks Fed Funds, SEC Charges ITT, The Quarterly Debt Report, SIFI Progress & The Next FSOC Meeting Is Announced

William C. Dudley, President and CEO of the Fed talks rates
The SEC announced charges against ITT Educational Services Inc.
The NY Fed: Quarterly Report on Household Debt and Credit
The Chairman of the FDIC on SIFI progress
The next FSOC meeting - May 19
  • William C. Dudley, President and Chief Executive Officer of the Fed, gave a speech entitled The Global Implications of Diverging Monetary Policy Settings in Advanced Economies at the Sixth High Level Conference on the International Monetary System: Monetary Policy Challenges in a Changing World in Zurich, Switzerland. Dudley used the speech to discuss the global implications of U.S. monetary policy normalization, especially for emerging market economies (EMEs).  Dudley adds this remark about rates to the introduction: 
To be as direct as possible: I don’t know when this will occur.  The timing of lift-off will depend on how the economic outlook evolves.  Since the economic outlook is uncertain, this means the timing of liftoff must also be uncertain. At the same time, though, I can be clear about what conditions are needed for normalization to begin. If the improvement in the U.S. labor market continues and the FOMC is “reasonably confident” that inflation will move back to our 2 percent objective over the medium-term, then it would be appropriate to begin to normalize interest rates. 
Dudley ends the speech by taking credit for not moving fast enough on rates in 2008, and says, "The largest problems that countries create for others often emanate from getting policy wrong domestically. Recession or instability at home is often quickly exported abroad." Here here.
  • The SEC announced charges against ITT Educational Services Inc., its chief executive officer Kevin Modany, and its chief financial officer Daniel Fitzpatrick. The SEC alleges that the company and two executives fraudulently concealed the true nature of the company's poor performance from investors.  ITT formed two student loan programs to help provide loans for ITT’s students following the collapse of the private student loan market. The company provided a guarantee to investors to purchase the student loan pools. 
Our complaint alleges that ITT’s senior-most executives made numerous material misstatements and omissions in its disclosures to cover up the subpar performance of student loans programs that ITT created and guaranteed. Modany and Fitzpatrick should have been responsible stewards for investors but instead, according to our complaint, they engineered a campaign of deception and half-truths that left ITT’s auditors and investors in the dark concerning the company’s mushrooming obligations. - Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. 
ITT also allegedly made payments on borrower accounts to "temporarily" keep loans from defaulting which would have triggered the beginning of the company's guarantee payments. I've long said the writing is on the wall for the "for-profit" school sector.
  • The New York Fed released the  Quarterly Report on Household Debt and Credit for the first quarter of 2015. "As of the end of March, total household indebtedness was $11.85 trillion, a $24 billion, or 0.2 percent, increase during the first quarter of this year." One thing is also certain, the issue is student loans. "Non-housing debt balances increased by 0.7 percent from the end of last year, largely due to increases in student loans ($32 billion) and auto loans ($13 billion)."
  • Martin J. Gruenberg, Chairman of the Federal Deposit Insurance Corporation gave a speech to the Peterson Institute for International Economics entitled "A Progress Report on the Resolution of Systemically Important Financial Institutions". To see the full speech click below:
Video of Chairman Gruenberg’s Speech to the Peterson Institute (YouTube.com)
  • Finally, on Tuesday, May 19, Secretary Lew will preside over the infamous Financial Stability Oversight Council (FSOC) at the Treasury Department.  The agenda includes:
    • An " update from member agencies regarding resolution planning for bank holding companies and a discussion of international market developments." 
    • A discussion of the FSOC 2015 annual report.  
    • A discussion of charters for committees.This meeting can be viewed via webcast here