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Financial Services Update – April 1, 2011

Government Shutdown Looms

With the current temporary funding resolution set to expire April 8, House and Senate Appropriations committees worked toward crafting a six-month compromise bill, setting annual spending at $1.055 trillion, $28 billion more than the House-passed level but still a $33 billion cut from the original spending measure. However, House Republicans remain splintered over whether a shutdown would be good politically, or whether they should compromise with Democrats in order to move on to larger future battles such as next year’s budget and the debt ceiling increase. Meanwhile, Democrats also remain divided over whether to allow a shutdown to happen or acquiesce to Republican cuts. Whether a compromise can be reached to avoid a shutdown will be known next week.

Unemployment Rate Drops to 8.8%

On Friday, the Department of Labor announced that the unemployment rate dipped to 8.8% in March from 8.9% in February. Nonfarm payrolls gained 216,000, with private-sector employment rising by 230,000. Payroll employment stood at 130.7 million in March. There were gains of 199,000 jobs in services and 17,000 jobs in manufacturing in March. Government employment fell by 14,000 and 9,000 jobs were lost in education. Nearly half of the unemployed have been out of work for 27 weeks or more. Private-sector wages fell 2 cents an hour to $19.30.

Ally Financial Files for IPO

On Thursday, Ally Financial, the former finance arm of General Motors, filed for an initial public offering that would allow the federal government to begin selling off its 73.8 percent stake.  Ally said in its registration statement with the Securities and Exchange Commission (SEC) that it was seeking to raise $100 million.  Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley are the lead underwriters.  The company did not give an estimated date or share price for the offering.  The Treasury Department, which invested more than $17 billion in Ally, did not say how much of its stake it intended to sell.  In addition to common shares, the Treasury Department owns $5.9 billion in convertible preferred stock.  Earlier this month, the Treasury Department began unwinding its holdings in Ally, selling $2.7 billion in trust preferred securities.

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Financial Services Update

Financial Services Update

November 2, 2010

Authored by: Matt Jessee

Election Day Implications

With Republicans expected to make large gains in today’s elections, speculation has started to focus on what the election’s impact will be on recently passed major legislation including the healthcare and financial services reform bills.  While the most likely outcome will be two years of legislative gridlock, if Republicans are able to take back the majority in the House of Representatives, the House will be expected to pass bills that defund key parts of the healthcare and financial services reform bills.  However, the question will be whether such bills will be able to pass the Senate.  The possible new Republican House majority will likely increase oversight of the key agencies implementing the bills, thereby frustrating the agencies’ abilities to implement and to enforce the new regulations.

Third Quarter GDP Figures Released

On Friday, the U.S. Department of Commerce released its report for third quarter GDP showing that the domestic economy grew by 2% in the third quarter, which is up from the last quarter but still below expectations.  The GDP breakdown showed that spending by Americans, accounting for about 70% of demand in the U.S. economy, rose at a rate of 2.6%.  The price index for personal consumption expenditures excluding volatile food and energy items, rose by an annualized 0.8% in the third quarter, slowing down from the second quarter’s 1.0% increase.  Friday’s report also showed that federal government spending and investment rose by 8.8%, following a 9.1% increase in the second quarter.

TARP Inspector General Releases Third Quarter Report

Last Tuesday, nearly two years after the TARP bill’s passage, TARP Inspector General Neil Barofsky released his quarterly report to Congress which suggested that the Treasury Department engaged in a politically motivated attempt to hide losses at bankrupt insurance giant AIG with “manipulated” data.  The report cited Treasury’s failure to disclose that it had changed its valuation methodology and should have published a side-by-side comparison of its new numbers with what the projected losses would be under the auditor-approved methodology.  The report also criticized the Treasury for its claims that the Home Affordable Modification Program (HAMP) has helped 1.3 million homeowners by reducing their monthly payments.  Barofsky’s report claims that only 467,000 HAMP modifications have been permanent, and the remaining modifications have been only temporary changes that may ultimately fail to keep families in their homes and may do additional harm by depleting troubled homeowners’ savings, increasing outstanding principle on loans, and further damaging borrowers’ credit scores.

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Financial Services Update

Financial Services Update

October 2, 2010

Authored by: Matt Jessee

Kaufman To Replace Warren At TARP

On Thursday, Senator Harry Reid (D-NV) announced that Senator Ted Kaufman (D-DE) was appointed to replace Elizabeth Warren as chair of the Congressional Oversight Panel for the Troubled Assets Relief Program (TARP). Kaufman was appointed to fill then-Senator Joe Biden’s remaining two years of his Senate term after being elected Vice President. Kaufman will serve until a new Senator from Delaware is sworn in on November 15 

Dodd-Frank Implementation Delayed

On Wednesday, Congress passed a spending bill to fund government operations through early December and then recessed until after the November election. However, requested budget increases for financial regulators were not included in the spending bill, which will likely result in the delay in implementation of the Dodd-Frank Wall Street Reform Act until 2011. The funding shortage would be particularly impactful on the Commodity Futures Trading Commission and Securities and Exchange Commission, which will be responsible for oversight of the over-the-counter derivatives market. Republicans, who overwhelmingly voted against the Dodd-Frank law, are poised for significant gains in the elections. If Republicans win a majority in either chamber, they have promised to block the requested funding increases for the SEC and CFTC in order to hamper the law’s implementation. 

On Thursday, Federal Reserve Chairman Ben Bernanke, Deputy Treasury Secretary Neal Wolin, Securities and Exchange Commission Chairman Mary Shapiro, Commodity Futures Trading Commission Chairman Gary Gensler, and FDIC Chairman Sheila Behr indicated to the Senate Banking Committee that their agencies will work together to ensure the Dodd-Frank Wall Street Reform Act is implemented effectively. However, Republicans questioned whether the regulators had too much power to design and implement the new regulatory structure. Behr testified that the FDIC delayed a vote on its first major rulemaking for the law this week, and Gensler testified that a list of rules his agency must pass for derivatives markets will not be ready for statute-imposed deadlines. Overall, the bill requires the regulators to write more than 500 rules, conduct 81 studies, and submit 93 reports in coming years.

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