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.

Fed Funds, Bernake's Response To Taylor's Rebuke, GDP, China's Looming RE Battle & Pay Vs. Performance

• The FOMC released a statement from its March meeting.
• Ben Bernake published an article titled "The Taylor Rule: A benchmark for monetary policy?"
• The Bureau of Economic Analysis (BEA) announced that real GDP increased .2% in the first quarter of 2015. 
• The IMF published a working paper on China's residential real estate sector suggesting there may be a crisis without intervention.
• The IMF published another working paper entitled "Financial Crisis, US Unconventional Monetary Policy and International Spillovers." The title speaks for itself.
  
• SEC Chair Mary Jo White made a statement at an open meeting regarding two proposals to be added to the Dodd-Frank Act, including Pay Vs. Performance.
• A federal court ordered James Harvey Mason to pay a civil penalty and restitution totaling $5.5 million for commodity pool fraud. 

A summary of federal regulatory actions and government announcements for investors on Wednesday, April 29, 2015:

In perhaps the biggest news of the day, which turned into a non-event, the FOMC released a statement from its March meeting. It reads, "economic growth slowed during the winter months, in part reflecting transitory factors." It goes on to say, "To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate." So it appears the Fed is making no changes, but this was the same thing Yellen said at the last statement and then a few days later proceeded to spin a more progressive stance in a speech at the San Francisco Fed. This isn't over. Can't wait to see those minutes.

Ben Bernake published an interesting post today titled The Taylor Rule: A benchmark for monetary policy? In it he disagrees with John Taylor's public assertions that the Fed has not followed the rule. "The rule", as created by Stanford economist John Taylor himself, is intended to "describe the interest rate decisions of the Federal Reserve's Federal Open Market Committee (FOMC)." Taylor criticized the US for its policies at a recent IMF conference in which Bernake participated and this is what Bernake had to say in response.

The Bureau of Economic Analysis (BEA) announced that real GDP increased .2% in the first quarter of 2015. Many are saying this is the reason the FOMC statement was so conservative as GDP increased 2.2 percent in the fourth quarter. The largest decrease was in personal consumption which is ironic considering the decline in energy prices. That said, it isn't surprising that demand dropped off after the fourth quarter. The real question is where GDP goes from here.

The International Monetary Fund (IMF) published a fascinating working paper about China's residential real estate sector. It suggests that the sector has been softening since 2014 which is creating a buildup of inventory in may cities. The paper provides scenarios of demand and supply as well as the adjustment needed to work against an oversupply.  In other words, China may be on the verge of a housing crisis without some sort of central bank intervention. "Smaller cities, as well as those in the Northeast region, face more challenging demand-supply dynamics. The key will be to allow the adjustment to take place, while avoiding a too sharp of an economic slowdown."

The IMF also published a working paper that hits a little closer to home entitled Financial Crisis, US Unconventional Monetary Policy and International Spillovers. "We study", said the authors, "the impact of the US quantitative easing (QE) on both the emerging and advanced economies." The answer is interesting and ultimately, as to be expected, varied. "The heterogeneous effects from US QE measures indicate unevenly distributed benefits and costs."

SEC Chair Mary Jo White made a statement at an open meeting regarding two proposals to be added to the Dodd-Frank Act. The first rule has to do with cross-border swap rules; the second has to do with pay versus performance and the need for companies to disclose the relationship "between compensation actually paid to executives and company financial performance." White is known for being pro regulation and there are no surprises here. She ends the statement with a request that shareholders, companies, and other interested parties weigh in on the proposed rules as well so this will not be a closed ruling. Commissioner Luis A. Aguilar gave a statement as well and, for the most part, is in agreement with White. Not surprisingly, Commissioner Daniel M. Gallagher gave a dissenting opinion, which is consistent with his views against increased regulation.

A federal court ordered James Harvey Mason to pay a civil penalty and restitution totaling $5.5 million for commodity pool fraud. The U.S. Commodity Futures Trading Commission (CFTC) won the order against Mason of Graham, North Carolina, imposing a $1.67 million civil monetary penalty and restitution of $3.88 million in connection with forex commodity pool fraud. Mason purportedly raised over $5 million from over 500 investors. This is just one of many cases the CFTC has tried this year dealing with commodity pool fraud.

Most Recent Recaps

• Monday, April 27, 2015 Recap: Credit Detail, More CFTC Charges, Puzzling Low T-Yields, and the Fed Testifies Before The Senate 
• Tuesday, April 28, 2015 Recap: Ex-Evercore Banker & Girlfriend Charged, IMF on Islamic Banking, Bank Profitability, and a $600K Payday For Whistleblower

Last Week In Review

• Monday, April 20, 2015 Recap: Treasury Auctions, FX Ponzi, BlackRock Fail, Dudley's Fed Speech, and the FFER 
• Tuesday, April 21, 2015 Recap: More Regulation For Large Banks, Youth Savings, Piwowar's Speech, Flash Crash Culprit, the OFAC & FNRG Halted
• Wednesday, April 22, 2015 Recap: #EXIM2015, Obama's PPPs, Goldman Sachs In The "Dark", $1.5M Payday, Massad Speaks, and Yellen Stabilizes
• Thursday, April 23, 2015 Recap: GDP, Deutsche Bank, Community Banks, Repos, and the Treasury Gets New Blood 
• Friday, April 24, 2015 Recap: New Federal Reserve Auditor, Inventories Up, CEI Same, Insider Trading, Fair Fund Delays & Alizadeh's Grand Jury Indictment