By Alex Plough October 3, 2014
(© David Hodgson)
Secret’s Out: Recordings Reveal Cozy Ties between Goldman and Central Bank
An explosive story, jointly published last week by ProPublica and NPR’s This American Life, lifted the curtain on one of the country’s most important and secretive financial institutions.
Carmen Segarra, a former bank examiner at the New York Federal Reserve, secretly recorded over 46 hours of meetings and conversations with her colleagues over a seventh-month period in 2012. ProPublica and NPR revealed that Segarra felt pressured by her superiors to take a softer line with Goldman Sachs than she felt was necessary, allegedly out of fear of upsetting the powerful investment bank. That’s when she got busy taping meetings.
Critics of the Federal Reserve, which implements monetary policy for the country, jumped on the revelations as proof of “regulatory capture” in the US, a phrase commonly used to describe a situation in which banks co-opt their regulators.
Read more at ProPublica here and This American Life here.
ECB Kicks Off Bond-Buying Program to Restart Economic Growth
ECB President Mario Draghi announced new measures this week to reverse slowing inflation and moribund economic growth in the region. The central bank will start buying covered bonds this month and asset-backed securities by the end of the year.
This spending spree will last at least two years and Draghi promised to expand the ECB’s balance sheet back to levels seen at the start of 2012, an increase of as much as 1 trillion euros ($1.3 trillion) in assets.
But to the dismay of analysts and investors, Draghi gave no hints that the ECB was getting closer to large-scale sovereign debt buying, known as quantitative easing.
Effective growth-boosting measures are sorely needed in the Euro region. Inflation slowed to 0.3 percent last month while economic growth in the currency bloc came to a halt in the second quarter of 2014, leading to fears that the currency bloc could fall into recession for the third time since 2008.
Read more at Bloomberg here and the Wall Street Journal here.
Ebay Spins-off Paypal as Apple Launches E-commerce Rival
The online auction site Ebay announced that by year end it would spin off its PayPal subsidiary, one of the first e-commerce sites to allow money transfers through the Internet. Analysts estimate its potential market capitalization at $31.5 billion.
Ebay management initially rejected the move when legendary corporate raider Carl Icahn first called for it in January, but since then Apple announced it’s own aggressive entry into the e-commerce market. Apple Pay, due to be released in the coming weeks, is widely predicted to disrupt the online payment sector and a newly independent PayPal may have to fight to maintain its market share.
Read more at the Wall Street Journal (paywall) here and New York Times here.
Layoffs Down, Part-Time Work Up, Says Jobs Data
The most recent barrage of employment statistics painted a largely positive picture of the US labor market. In the last week of September, the number of people applying for new unemployment benefits fell by 8,000 to 287,000 – near to the lowest level of lay-offs in several years.
However, a closer look at employment numbers by economists at the Federal Reserve Banks of Atlanta and Chicago found that a labor-market recovery is being hindered by number of US workers languishing in part-time jobs.
According to the banks, it has become harder since the crisis for part-time workers to find full-time positions. In 2012, only 49% of “involuntary part-time” workers could find full-time work within a year, compared to 61 percent in 2006.
Read more at Marketwatch here and Washington Post here.
New Subprime Market Worries Regulators
As investors look for high-yielding assets at a time of near-zero interest rates, these securities are funding much of the 72 percent increase in annual auto sales since 2008. But analysts and regulators are raising questions about the underlying value of assets in the $168.3 billion market for bonds backed by car loans.
Federal and state authorities investigating used car dealerships – the most powerful, and potentially least regulated, rung of the subprime auto loan chain – have already found hundreds of fraudulent loans that together total millions of dollars according to the New York Times.
Read more, at Bloomberg here and The New York Times here.
