Finance time

In the debate over how to prevent the next financial crisis, the first fight has already erupted — and it’s over a proposal to create a new agency to protect consumers.

On Tuesday, the Treasury Department sent to Congress a 150-page draft of a bill with new details about its plan for a regulator for mortgages, credit cards and other financial products. The Consumer Financial Protection Agency would be run by a presidentially-appointed, five-member board and wield subpoena power and wide-ranging investigative clout.

The proposal has the support of consumer groups and populist fervor at its back.

When it was proposed by President Obama earlier this month, Senate Banking Committee Chairman Chris Dodd, D-Conn., very publicly asked industry groups, such as the U.S. Chamber of Commerce, that were blasting the idea: "What planet are you living on?"

However, as a House panel last week started to look at the best ways to create such an agency, the questioning from lawmakers of both parties suggested that establishing the agency won’t be an easy slam dunk for White House.

Top Republicans are criticizing the proposal as more bureaucracy, saying that regulators failed to enforce current rules. And a few Democrats voiced concerns about the kinds of powers the regulator should get.

"I think there’s a high probability that this ends up going into law, but the fights will be over how it’s being done, who’s being covered and how wide the net should be cast," said Douglas Elliott, an economist and former investment banker at the Brookings Institution in Washington.

New details released

Obama had already announced that the new agency would be tasked with making it easier for consumers to understand mortgages, credit cards and other financial products.

One of its jobs would be to enforce a set of recently enacted credit card protections aimed at preventing banks and card-issuers from hiking fees and interest rates, according to the legislation released Tuesday.

The bill also proposes an even broader swath of industry players that could fall under the regulator’s realm. These include title insurers, payday lenders and some smaller investment advisers not already registered with other regulators.

Also, the bill suggests that the agency would be paid for through fees levied on the companies it regulates as well as congressional appropriations. But that means industries would have to dig into their pockets same day payday loans.

One powerful lobbying group, the Financial Services Roundtable, which represents big banks, came out swinging.

The proposed regulator "would actually harm consumers by increasing the cost of financial products, and reducing the availability of credit and consumer choices," Steve Bartlett, the group’s chief executive, said in a statement Tuesday.

For their part, Treasury officials sounded confident that opposition by banks will be a tough sell.

"That’s a very hard argument for a bank to make: that the status quo was protective enough," Michael Barr, an assistant Treasury secretary, told reporters Tuesday. "I don’t envy them that position to have to argue."

Points of contention

Yet lawmakers are likely to scrutinize the Obama proposal.

The House Financial Services Committee last week heard from a panel of experts, including Elizabeth Warren, a Harvard University Law professor considered the author of the idea for the new agency.

Republicans openly blasted the idea.

"What’s troubling is that … a panel of consumer experts couldn’t even agree amongst themselves what financial products rose to the level of being anti-consumer," Rep. Jeb Hensarling, R-Texas, said in a statement Tuesday. "How then, do they propose to come to a consensus on what to regulate in the open market?"

However, there will be some differences of opinions among Democrats, as well.

House Financial Services Chairman Barney Frank, D-Mass., suggested that he agreed with consumer advocates who don’t like the proposal’s plan to give the the new regulator power to enforce the Community Reinvestment Act, which pushes banks to make loans to low-income households.

And Rep. Brad Sherman, D-Calif., warned last week that he was concerned that Congress would cede some of its consumer law-making power to the executive branch if it established the agency.

"Is the goal here to create a law enforcement executive branch agency, or to create a law making agency that would decide all the issues that I spent 13 years on this committee arguing about?" Sherman asked on Thursday. 

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The ever-present derivatives threat for big banks eased a bit in the first quarter.

U.S. banks’ exposure to possible derivatives losses dropped by 10% during the quarter as interest rates stabilized and offsetting contracts were canceled out, according to a report Friday from the Office of the Comptroller of the Currency.

Despite this progress, some think derivatives continue to pose a considerable threat to banks’ health.

Derivatives are contracts tied to the value of other securities, such as stocks, bonds or currencies. Ill-timed bets in certain derivatives have been blamed for accelerating the financial crisis that shook the markets last fall.

The OCC said the banks’ total credit exposure — reflecting banks’ possible losses were their trading partners to default — was $1.42 trillion at the end of the first quarter. That’s up 9% from a year ago.

The banks with the greatest derivatives exposure at the end of the first quarter were JPMorgan Chase (JPM, Fortune 500), with $462 billion, Citigroup (C, Fortune 500), with $264 billion, Bank of America (BAC, Fortune 500), with $213 billion, and Goldman Sachs (GS, Fortune 500), with $206 billion, the OCC said.

Skeptics of the derivatives market have noted that this level of exposure is still higher than the banks’ capital reserves against future losses. What’s more, it’s difficult to properly assess derivatives risks since little public data is available.

"Credit exposure is an important number to watch," structured finance consultant Janet Tavakoli wrote in a note this week, but "more disclosure is needed by all members of the banking system."

By its own admission, the OCC report is incomplete, as "there are a number of other providers of derivatives products whose activity is not reflected" in the numbers.

The news comes amid wrangling in Washington over the shape of derivatives regulation guaranteed online personal loans. Derivatives, particularly credit default swaps (CDS), have come under scrutiny for their role in the collapse of AIG (AIG, Fortune 500).

The insurer had massive exposure to credit default swaps, which allow traders to speculate on whether a bond issuer will default. AIG sold protection on hundreds of billions of dollars of debt without reserving to pay for potential claims or defend itself against collateral calls by trading partners.

AIG has since received some $180 billion in taxpayer assistance, some of which was promptly funneled to banks — notably Goldman Sachs — that had purchased swaps from AIG.

The spectacle only added to bailout rage in Congress, where some legislators have called for the use of certain derivatives to be sharply restricted. Even some financial experts think a crackdown on derivatives is warranted.

Billionaire investor George Soros this month called credit default swaps "toxic" and suggested they should be abolished, according to Reuters.

An Obama administration proposal released this month stops short of that but would subject all over-the-counter derivatives, such as interest rate swaps and credit default swaps, to federal regulation. As part of the plan, there would be capital, margin and disclosure requirements for dealers.

But as worrisome as potential derivatives losses are, the first quarter data show current losses are muted.

Banks wrote off $218 million in derivatives receivables as uncollectible in the first quarter, the OCC said — well above the levels during the credit bubble but down substantially from the fourth quarter’s record of $847 million.  

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The window might be quickly closing on consumers’ opportunity to refinance at great rates — not their home mortgages, but their term life insurance, experts say.

For the first time in a long time, premiums are on the rise.

Over the last several years, prices on simple term life insurance have been plummeting. Premiums in recent years could be less than half of what they were in the early 1990s. For example, the same policy that had an annual premium of $1,400 back then might have cost $350 last year.

The price drop represented easy savings for consumers, who could simply buy a new, lower-priced policy — even with the same insurer — and then cancel their old one.

That’s changing. Here’s what you need to know about term life insurance:

— The pressure is on compare car insurance prices. Since the start of the year, insurance companies have started raising premiums for new policies — most often by 5 percent to 15 percent.

— Lock in now. Rising rates do not affect most term policies already in place because premiums are level, meaning they stay the same for the duration of the policy.

— Opt for longer terms. Consider buying a policy with a longer term, such as 20 or 30 years, to lock in today’s relatively low prices.

— Shop around. Premiums can vary widely for the exact same coverage.

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The commercial was a LONG way from Budweiser Clydesdales and Dalmatians.

The plot: A guy stops by a convenience store to pick up a six-pack of Bud Light — as well as lip gloss, batteries and a pornographic magazine. Things quickly go downhill. A cute girl walks up — "Jim? Jim Scott? I haven’t seen you since prom!" — and is instantly scandalized. Jim tries to beat a hasty retreat but is taken hostage by a pistol-wielding robber. TV crews show up, identifying him by name as the "local porno buyer."

You won’t see the ad on TV. Not in this lifetime. Anheuser-Busch, maker of Bud Light, couldn’t get this ad past the network censors, even if it wanted to do so. (It doesn’t.)

Instead, the ad was made to live only on the Web. Quietly unveiled in February after the Super Bowl, "Magazine Buyer" was a "secret" spot, available at first only to viewers who had text-messaged Anheuser-Busch and then logged on to BudBowl.com.

The commercial is a prime example of how companies are using the Web to venture into edgier territory as they try to grab the attention of elusive and increasingly distracted consumers.

The loose, largely unregulated ethos of the Web allows mainstream brands like Bud Light — America’s bestselling beer, backed up by $500 million in measured advertising over three years — to try racier content.

"There are many more vehicles available to advertisers which accept advertisements that push to the edge, if not go off the edge of a cliff," said Dan Howard, professor of marketing at Southern Methodist University.

Numerous big advertisers have used the Internet to explore the boundaries of good taste. In 2006, electric razor maker Philips rolled out a website called shaveeverywhere.com. The site encourages "male bodygrooming," i.e., shaving … but not the face.

Anheuser-Busch has been evaluating its ability to push the envelope online as a way to build buzz among a target audience. For Bud Light, that’s guys ages roughly 21-27.

One Internet-only ad from 2007 portrays "Scott" seeking forgiveness for making a naughty video with a lady friend, and then selling it to a chain of video stores to pay for lap dances. Scott resolves the situation by getting a robot named "Apology-Bot 3000" to deliver a Bud Light to the lady.

But a Bud Light commercial called "Swear Jar" may be the granddaddy of all Internet-only ads. The plot: Office workers have to pay a quarter for every curse word, with the proceeds going to pay for Bud Light. The result: rampant and ferocious — albeit bleeped-out — cursing.

The commercial swiftly went "viral" after its 2007 launch. It has been viewed more than 12 million times on the Web, a level of exposure that a lot of TV advertisers would love to have.

Rather than passively watching, Web surfers seek out or make a decision to click on an online video. Advertisers covet that engagement.

"You’ve got to go on the Internet and look for that ad, find it and then watch it," said Howard paydayloans. "Who’s going to do that? People who want to, who have heard it’s a great commercial."

Keith Levy, Anheuser-Busch’s vice president of marketing, said in a statement that the "Magazine Buyer" spot carried on the company’s tradition of sending outrageous humor onto the Internet.

A-B tested the "Magazine Buyer" concept extensively to make sure adult consumers appreciated the humor, Levy said.

Apparently, they did. Even though the video began its life as a "secret" spot on BudBowl.com — an A-B website that requires visitors to enter a birth date showing they are 21 or older — it quickly migrated to YouTube. It has been viewed more than 700,000 times.

Of course, testing the bounds of appropriateness doesn’t just happen on the Internet.

Hardee’s, which became infamous for ads featuring Paris Hilton washing a Bentley and another woman riding a mechanical bull, continues to use sexual innuendo. But Hardee’s, the St. Louis-based subsidiary of CKE Restaurants, is not alone. Quiznos’ TV commercials now make risqu

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Sales of newly constructed homes fell unexpectedly in May and were down almost a third from last-year’s levels, a government report said Wednesday.

New home sales ticked down 0.6% last month to a seasonally-adjusted annual rate of 342,000, the Commerce Department reported. That was from a revised reading of 344,000 in April.

Analysts expected the rate of new home sales to rise to 360,000, according to a consensus estimate of economists compiled by Briefing.com.

New home sales were 32.8% below the same month a year ago, when the estimate stood at a 509,000 annual rate.

This is a big difference from existing homes sales. On Tuesday, the National Association of Realtors reported that sales of those properties rose 2.4% in May, as prices fell nearly 17% from a year ago.

"Newly constructed homes simply cannot compete with the values found in the existing home market," said Bob Walters, chief economist at Quicken Loans.

In recent months, plunging mortgage rates had attracted buyers into the market. But in the past few weeks they have rebounded slightly to near 5.76% for a 30-year fixed mortgage. They have been pulled up by higher bond yields payday loans.

But even with the recent increase, mortgage rates still remain much lower than last year, when the average 30-year fixed mortgage rate was 6.62%.

Median and average prices: In a sign that single-family home sales may have already hit bottom, the median sales price continued to increase.

The median sales price of new homes rose to $221,600 in May, up more than 4% from a revised $212,600 in April — and up more than 3% from the median price of $229,300 in May 2008.

The average sales price in May was $274,300,up more than 5% from a revised $260,800 in April.

Supply: The seasonally-adjusted estimate of new houses for sale at the end of May was 292,000, a 10.2-month supply at the current sales rate.

"As we get deeper into the summer and ever-closer to the start of the next school year, we will see some positive moves in the new home market," said Walters. 

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A major union this week called on Morgan Stanley to reverse recent salary hikes for senior executives and other top earners, the Wall Street Journal said citing a letter from the union.

The raises “weakened the link between top executive pay and performance,” wrote Gerald McEntee, international president of the American Federation of State, County, and Municipal Employees (AFSCME) in a letter to Morgan Stanley, provided to the paper.

“We urge you to return base salaries to their previous levels and reward executives for long-term value creation, not just showing up for work.”

AFSCME members’ pension funds have more than $1 trillion in assets and hold roughly 3 percent of Morgan Stanley’s outstanding shares, according to the paper affordable health insurance in california.

Last month, Morgan Stanley raised the base salaries of certain senior officers to $800,000, but said it does not plan to raise total compensation.

Morgan Stanley, which became a bank-holding company last year, raised the base salaries for five of its senior officers, including its chief financial officer but said Chief Executive John Mack’s base salary will not change.

Morgan Stanley and representatives at the union could not be immediately reached for comment by Reuters.

(Reporting by Chakradhar Adusumilli in Bangalore; Editing by Dhara Ranasinghe)

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Eleven states on Friday called for a deeper probe into the $165 million of bonuses that American International Group Inc. awarded employees in a unit whose losses led to a federal bailout of the insurer.

In a letter to Neil Barofsky, the special inspector general of the Troubled Asset Relief Program, the attorneys general expressed concern about how much taxpayer money is going toward compensation.

They pointed to AIG having said in May that it paid $454 million of bonuses companywide, nearly four times the amount Congress had been told two months earlier.

"AIG claims the discrepancy is explained by Congress’s failure to pose the March compensation question with sufficient precision," New Jersey Attorney General Anne Milgram wrote in the letter. "Such half-truths, which investors may have relied upon, obviously raise serious questions about the completeness of AIG’s characterization of its financial condition cash advance no faxing."

Milgram asked for a meeting with Barofsky to discuss how regulators can better work to protect investors’ interests. Arizona, Delaware, Illinois, Kentucky, Maine, Michigan, Mississippi, New Mexico, Ohio and Texas joined the request.

The bonuses were awarded in AIG’s (AIG, Fortune 500) financial products unit, where losses tied to credit default swaps led to a $99.3 billion loss for AIG in 2008. A series of bailouts totaling $180 billion left the government owning an 80% stake in what was once the world’s largest insurer by market value.

Barofsky was not immediately available for comment. 

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Jack Welch, the former chief executive of General Electric Co, is buying a stake in an online university and will take an active role in planning curriculum, The Wall Street Journal reported on Sunday.

Welch is investing more than $2 million for a 12 percent stake in Chancellor University System LLC, the newspaper said in its electronic edition. The business is converting formerly bankrupt Myers University in Cleveland into Chancellor University.

Chancellor plans to offer most courses online. Chancellor will name its Master of Business Administration program The Jack Welch Institute, the newspaper reported.

Welch and his wife, Suzy, will be involved in recruiting faculty and planning curriculum cheap business cards. Welch has no plans to teach any courses, but will record a weekly video for students.

Chancellor’s leading investor is entrepreneur Michael Clifford, who has launched two publicly traded education companies in the past year, the newspaper said.

Investor groups led by Clifford bought those three institutions out of troubled situations and converted them to primarily online universities.

Welch could not be immediately reached for comment.

(Reporting by Jessica Hall; Editing by Leslie Adler)

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NYSE Euronext, the world’s top exchange operator by the size of its listings, is planning to establish a clearinghouse for fixed-income investments, the Wall Street Journal said.

The clearinghouse could position the trading venue to gain business from a regulatory push to clear more derivatives, according to the paper.

The New York Stock Exchange parent company has agreed with the Depository Trust & Clearing Corp (DTCC) to establish a clearinghouse for U.S. interest-rate derivatives and the move will likely be announced this week, the paper said.

The 50-50 venture will be called New York Portfolio Clearing and is meant to leverage the exchange operator’s domestic futures platform NYSE Liffe US and the DTCC’s Fixed Income Clearing Corp, and will follow the expected introduction of fixed-income derivatives on NYSE Liffe US, the paper added same day payday loans.

The planned clearinghouse is expected to be launched in the second quarter of 2010, pending regulatory approval, and will be led by Dennis Dutterer, a former chief executive of the Chicago Board of Trade as well as Clearing Corp, the paper said.

NYSE Euronext could not be immediately reached by Reuters for a comment.

(Reporting by Chakradhar Adusumilli in Bangalore; Editing by Dhara Ranasinghe)

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NYSE Euronext, the world’s top exchange operator by the size of its listings, is planning to establish a clearinghouse for fixed-income investments, the Wall Street Journal said.

The clearinghouse could position the trading venue to gain business from a regulatory push to clear more derivatives, according to the paper.

The New York Stock Exchange parent company has agreed with the Depository Trust & Clearing Corp (DTCC) to establish a clearinghouse for U.S. interest-rate derivatives and the move will likely be announced this week, the paper said.

The 50-50 venture will be called New York Portfolio Clearing and is meant to leverage the exchange operator’s domestic futures platform NYSE Liffe US and the DTCC’s Fixed Income Clearing Corp, and will follow the expected introduction of fixed-income derivatives on NYSE Liffe US, the paper added no fax cash advances.

The planned clearinghouse is expected to be launched in the second quarter of 2010, pending regulatory approval, and will be led by Dennis Dutterer, a former chief executive of the Chicago Board of Trade as well as Clearing Corp, the paper said.

NYSE Euronext could not be immediately reached by Reuters for a comment.

(Reporting by Chakradhar Adusumilli in Bangalore; Editing by Dhara Ranasinghe)

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