Week InReview
Friday | Jul 26, 2019
Can you afford not to have lunch with Warren Buffett?

"The digital token known as Tron tumbled as much as 16% after cryptocurrency entrepreneur Justin Sun postponed his charity lunch meeting with billionaire Warren Buffett citing a bout of kidney stones.

"Buffett and 29-year-old Sun agreed to reschedule, according to a tweet Monday from his Tron Foundation. The lunch had been set for Thursday in San Francisco. …

"The postponement came only hours after Sun tweeted invitations to other crypto boosters to join him, spurring speculation there may be other reasons for the decision. Sun denied media reports that he was involved in illegal fundraising and money laundering, according to China’s state-run Global Times."

in case you missed it...
The Financial Stability Oversight Council is moving away from designating individual non-bank institutions as a systemic risk and will take an activities-based approach unless individual firms become a threat. Some experts warn the proposed approach of waiting until there is a risk of failure poses a threat to financial stability. (Risk | Jul 24) 

The Basel Committee on Tuesday agreed to a one-year delay to the final phase of requirements that banks, hedge funds, and other money managers hold more collateral for derivatives trades. Banks like Citigroup Inc. have been warning clients for months to prepare for higher trading costs from the move, which is now postponed to September 2021. (Bloomberg Law | Jul 23)

Confidence among market participants that central banks are on the verge of unleashing a wave of stimulus isn't just boosting stock and bond prices. Investors are scrambling to get into a variety of assets, including gold, safe-haven currencies and asset-backed securities. (The Wall Street Journal | Jul 23)

Investors love debt. But is shadow banking hiding risks that should be plainly visible? CLOs, the biggest buyers of risky corporate loans, are one part of the expanding market of nonbank lenders drawing a growing chorus of concern. (Institutional Investor | Jul 22)

A Federal Reserve study finds that ownership of leveraged loans is concentrated among banks, savings and loans, mutual funds and insurance companies. An understanding of ownership is "essential for quantifying the full exposures of investors to the leveraged loan market" during periods of economic stress, the study said. (Federal Reserve | Jul 19)
Fannie, Freddie to lose carve out from post-crisis mortgage rule
(Jul 25) — Fannie Mae and Freddie Mac will lose a carve-out in January 2021 that exempts the companies from a key post-financial crisis rule, a US regulator announced Thursday, an early step in the administration’s effort to overhaul the mortgage giants.

At issue is what’s known as the qualified mortgage rule, which the Consumer Financial Protection bureau implemented to curb abuses that triggered the 2008 meltdown. In announcing that it will let Fannie and Freddie’s exemption from the regulation expire, the CFPB also said Thursday it will start seeking public comment on how to revise the rule.

At its core, the qualified mortgage rule incentivizes lenders to make safer loans. Lenders aren’t required to issue mortgages that adhere to the regulation, but they have a strong motivation to do so because such loans insulate them from lawsuits if borrowers default. Under the rule, qualified mortgages can’t include terms like balloon payments and result in borrowers’ monthly debts exceeding 43% of their monthly incomes.

But to prevent the regulation from disrupting the mortgage market, when the CFPB first issued it, the agency included an exemption for Fannie and Freddie that lets them buy mortgages from lenders with higher debt-to-income ratios. This is known as the patch, and it has given Fannie and Freddie an effective monopoly over a large swath of riskier mortgages.

More than a quarter of all loans that were securitized and backed by Fannie and Freddie last year wouldn’t have been qualified mortgages without the patch, according to data from the Urban Institute. The carve out has enabled millions of consumers to get home loans.

Regulators have signaled that they want to revise the patch. Federal Housing Finance Agency Director Mark Calabria told Politico in May that it isn’t “very workable” and that he wanted to set a standard that everyone, not just Fannie and Freddie, could follow. The FHFA regulates the companies.

Fannie and Freddie don’t make loans; they keep the nation’s mortgage market humming by buying mortgages from lenders and packaging them into bonds that are sold to investors and guaranteeing their interest and principal.

The companies, which backstop about $5 trillion of mortgage securities, were put under government control during the financial crisis and got $191 billion in taxpayer money to weather the financial crisis. They have since returned to profitability and paid more in dividends to Treasury than they received in bailout funds.

The administration has pledged to end the government’s decade-long control over the companies, and the Treasury Department is expected to release a  plan  for accomplishing that goal in August or September.

Source: Bloomberg Government
the cyber cafe
Ransomware, data breaches expose gaps in cyber insurance market
As US companies grapple with cyber crime costs, indiscriminate ransomware attacks, and hundreds of millions of dollars in data breach fines, many seek protection in a normally predictable bet — insurance. But some companies have discovered the hard way that policies can be filled with gaps and exclusions.
 —  Bloomberg Law

NSA cybersecurity directorate to be launched Oct. 1
A cybersecurity directorate created by the National Security Agency will begin operating Oct. 1 with the mission of aligning the agency's offensive and defensive operations for the "persistent engagement" of cyberspace strategy.

Civilian power grids new geopolitical targets
Civilian power grids are increasingly vulnerable to cyberattacks as the US and Russia escalate responses to each other's suspected intrusions. A Russian research institution reportedly is using malware to conduct surveillance on US power grids — the same malware that was used to shut down a Saudi Arabian oil refinery two years ago.
—  TechCrunch
binge reading disorder
Why not drink wine for breakfast?
There are so many myths surrounding wine: White must be consumed before red. The more expensive the bottle, the better. Wine should never be consumed before 5 p.m. Why 5 o'clock?

The new ways your boss is spying on you
It isn’t just email. Employers are mining the data their workers generate to figure out what they are up to, and with whom. There is almost nothing you can do about it.

Sun, sand, and the $1.5 trillion offshore economy
The British Virgin Islands is home to more than 400,000 companies that hold $1.5 trillion in assets. You wouldn’t know it if you walked through Road Town, the capital of this Caribbean archipelago. Hens and roosters compete brazenly with cars on the single narrow lane of Main Street. Law firms that set up and serve thousands of offshore companies occupy modest buildings next to brightly painted wooden houses that host cheap beauty salons and clothing shops with names like Goodfellas.