KANSAS CITY, MO — My participation at the inaugural Financial Policy Conference held at the Federal Reserve Bank of Kansas City Friday (June 19) came both as a speaker and an attendee. The fact that organizers wanted the covered bonds angle to be represented is another sign that the topic remains on the public agenda in the U.S.

The event—titled “Financing Real Estate”—was sponsored jointly by the Kansas City Fed and the University of Kansas School of Business. About 150 participants from lending institutions, real estate finance and regulatory organizations engaged on many fronts from financing in residential and commercial real estate markets to related government policy-making.

A flyer aptly described the thinking behind the conference:

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http://www.coveredbondinvestor.com/news/kansas-city-fed-conference-included-covered-bonds

1.  TARP Oversight Panel Says Bank Stress Tests Should Be Repeated – By Robert Schmidt – Regulators should continue to conduct stress tests on banks as long as they keep large amounts of illiquid mortgage securities on their books, a group overseeing the U.S. financial bailout said. – Bloomberg

2.  Banks Fleeing TARP Face $5 Billion Warrant Repayment - By David Mildenberg – Ten lenders that persuaded the U.S. yesterday to sell back preferred shares for $68 billion may need to spend another $5.1 billion on warrants held by the Treasury to free themselves from government curbs. – Bloomberg 

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Fed seeks ways to stop banks from taking too much risk – By David Lynch - 
WASHINGTON — The Federal Reserve is beefing up its supervision of the nation’s largest banks and developing proposals to ensure that lavish executive compensation … Daniel Tarullo, an expert on financial industry regulation, said Federal Reserve officials plan to scrutinize giant banks with an eye toward practices that might pose a risk to the entire financial system. … – USA TODAY 

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Richmond Fed Rebound Suggests Econ. Recovery – has comments too – Mark Perry – Carpe Diem Blog
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Commentary – The $787 Billion Mistake – Lee E. Ohanian – (That’s the American Recovery and Reinvestment Act.) – Forbes

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Obama v. Geithner on TARP Repayments: Save or Spend? – only one is correct -
Obama: 10 banks would be repaying $68 billion in TARP bailout funds, President Obama proudly asserted that the step would reduce the national debt:
vs Geithner: 

Timothy Geithner said that the returned funds would “free up resources” for new loans “ -  The Heritage Foundation

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Taxpayers gain $2.7B on bailout ‘investment’ – By David Goldman – Federal Reserve makes billions on interest and Treasury assets, even as its Bear Stearns and AIG bet loses $5.3 billion. – CNNMoney.com

1.  Banks could lose $168 billion through PPIP – Jamie McGee and Margaret Chadbourn – If lenders sell their problem loans through the Public-Private Investment Program at market prices, they stand to lose $168 billion. The Federal Reserve told financial institutions to raise $75 billion, but that capital could be erased through their participation in PPIP. The situation partially accounts for why the Federal Deposit Insurance Corp.’s Legacy Loans Program is stalling. – Bloomberg

2.  FDIC Said to Delay PPIP Test Sale of Distressed Loans – By Margaret Chadbourn – The U.S. plan to rid toxic loans from banks’ balance sheets has been put on hold as lenders raise capital, a person familiar with the matter said today, suggesting less demand from banks to use the program. – Bloomberg

3.  Fed Said to Raise Requirements for Banks to Repay TARP Funds – By Christine Harper and Craig Torres – Federal Reserve officials surprised bankers in the past week by demanding they raise specific amounts of new capital before repaying taxpayer funds, applying a more stringent assessment than the stress tests in May. – Bloomberg   ( more glue has been added to the floor of the Roach Motel. BC)

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FDIC Fund Running Dry – By: Dirk van Dijk, CFA – … The first graph (from http://www.calculatedriskblog.com/) shows the steep drop in the coverage ratio. Just a year ago, the fund was equal to 1.01% of covered deposits. The current level is its lowest since the first quarter of 1993, when we were digging out from the S&L fiasco. … – Zachs.com

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FDIC’s Deposit Insurance Fund Reserve Ratio Plunges To 0.27% Of Deposits – Posted by Tyler Durden – … It is worth nothing that since March 31, 15 new banks have failed which includes the biggest one so far this year, BankUnited …It is thus safe to say that the $13 billion has been spent in the past 2 months, especially since banks no longer issue debt under the TLGP (of which, nonetheless, there was $336 billion outstanding at March 31 … – Zero Hedge

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China Warns U.S. About Debt Monetization – … The most important story of the long weekend and short week is the WSJ account and interview with Dallas Fed President Richard Fisher (call him Mr. $99 trillion in unfunded liabilities, if you will).  He’s the inflation hawk on the Fed board and claims to see none percolating yet. … – The Daily Bail 

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FDIC: Do You Believe This Lady? – TheMarketTicker

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Fed takes considered view of Treasury purchase extensions – By Krishna Guhavv – The Federal Reserve is in wait-and-see mode following the surge in bond yields and mortgage rates that partly reversed on Friday, with -officials unwilling to be bounced into any knee-jerk policy reaction.  They plan to wait at least until their policy meeting late this month before deciding whether to extend their purchases of Treasuries and other assets. – FT.com

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1.  details of each – SCENARIOS – Re-shaping Fannie Mae and Freddie Mac – FULL NATIONALIZATION; PRIVATIZATION WITH PAYMENT FOR INSURANCE; COOPERATIVES WITH LOOSE GOVERNMENT TIES; UTILITIES MODEL; PRIVATE MORTGAGE-FINANCE COMPANIES; COVERED BONDS – Reuters

2.  Demand for Fed consumer program rises to $11.5 billion - By Kristina Cooke – The flagship U.S. program to revive consumer and small business lending picked up pace in June, showing investors have grown more comfortable with taking part in the government initiative and appetite for risk has increased across all markets. – Reuters

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Statement of James B. Lockhart III, Director, Federal Housing Finance Agency -  “The Present Condition and Future Status of Fannie Mae and Freddie Mac” - FHFA.gov   
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All is well – Moody’s Says US Rating Outlook Stable Despite Debt – Even with a significant deterioration in the US government’s debt position, its rating has a stable outlook and demonstrates the attributes of a Aaa sovereign,  Moody’s says  in its annual report on the United States. – Research Recap

Bank of America, Citigroup Insiders Reap Millions Buying Stock – By David Mildenberg -  Bank of America Corp. and Citigroup Inc. executives and directors have profits of more than $25 million after purchasing shares earlier this year amid speculation that the lenders would be nationalized.  Bank of America directors and managers including Chief Executive Officer Kenneth Lewis gained about $6.57 million from buying stock in January and February. Citigroup’s Roberto Hernandez Ramirez, a former director who is nonexecutive chairman of subsidiary Banco Nacional de Mexico, bought 6 million shares at $1.25 on March 2 and the stock has gained more than $15 million in value. – Bloomberg

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Banking’s Dirty Little Compensation Secret – Banking’s dirty little compensation secret is that most of the fury over bank executive pay limits is fake. Since the formation of the FDIC during the Great Depression Federal regulators have had the legal authority to limit bank pay and have regularly used that authority. – Mark Sunshine Blog

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Subordinated debt – A market solution to secure banks’ future – By William Poole – … Here is a proposal, not at all original but deserving of serious public discussion. As a condition of enjoying the benefits of a bank charter, every bank must issue 10-year subordinated notes equal to 10 per cent of its total liabilities. … The subordinated debt would be unsecured; holders would stand last in line among all creditors in the event that a bank had to be shut down. The sub debt requirement would be in addition to existing requirements for equity capital. … – FT.com

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Banks’ Capital Push in Home Stretch – By DAN FITZPATRICK -  All 10 stress-tested banks ordered to raise capital by the federal government are well on their way to plugging their combined $75 billion capital hole, as investors such as hedge-fund manager John Paulson snap up a fast-growing supply of new shares … ($57 billion raised so far) … – Wall Street Journal

Obama’s Power Players: Geithner Faces His Hardest Challenge Yet – Amanda Ruggeri – But it is also his biggest opportunity: to put himself not only in Obama’s inner circle but in the history books.  Read 10 Things You Didn’t Know About Timothy Geithner. – U.S. News & World Report 

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Officials Weigh Having One Mortgage Regulator – By DAMIAN PALETTA – Senior Obama administration officials are discussing giving a federal agency authority to police mortgages and other consumer-oriented financial products as part of the government’s broader overhaul of financial regulation, people familiar with the matter said.  The entity would aim to address what many critics perceive is a blind spot in the existing regulatory structure, which spreads consumer protection across multiple agencies. – Wall Street Journal

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Is The Federal Reserve Overreaching? – Thomas F. Cooley – Systemic risk, and the best way to regulate it. - Forbes

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Government Actually Can Shrink?! – The idea of smaller government is usually just textbook material. But Canada has actually done it — look at the chart below from Cato … – supply and demand (in that order)  – Casey Mulligan

U.S. Fed balance sheet swells with MBS holdings  – The Fed’s balance sheet — a broad gauge of its lending to the financial system — rose to $2.179 trillion in the week ended Wednesday from $2.062 trillion in the week ended May 6.The Fed’s holdings of mortgage bonds guaranteed by agencies, including Fannie Mae (FNM.N) (FNM.P) and Freddie Mac (FRE.N) (FRE.P), totaled $431.55 billion in the latest week, up from $365.82 billion in the prior week.  – Reuters
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Treasury Offers Incentives for Mortgage Modifications - by Dawn Kopecki – The U.S. Treasury, seeking to strengthen government anti-foreclosure programs, will provide new incentives for lenders to modify mortgages where home-price declines are most severe or to pursue so-called short sales.  - Bloomberg

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About Geithner and China – The China Puzzle – DAVID LEONHARDT – NY Times

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The Chart That Launched the TARP – Rick Newman – Last fall, as the financial crisis was mushrooming, officials from the Treasury Dept. and the Federal Reserve had a hard time explaining to members of Congress why they needed a $700 billion emergency rescue plan. – US News
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Geithner gains currency - Investors on InTrade, the Internet exchange that deals in  predictions of events, have been selling off futures in Geithner’s anticipated resignation, which had been one of the market’s hottest commodities earlier this year. After reaching a peak of $20 in mid-March, two weeks after Geithner’s poorly received speech sketching out the Wall Street rescue plan, bets that Geithner would resign or be fired by Dec. 31 hit bottom this week, closing at $2.50. … – Boston Globe 

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TIM TO TAKE A TIMEOUT – PPIP: TOO MANY TAKERS – By KAJA WHITEHOUSE – …But the Treasury was so inundated with applications from wannabe managers of PPIP assets — it received 104 — that it added another, unexpected layer of red tape to the process, which could push back the launch of the program for several more weeks. The agency had expected no more than 40 applicants. … – NY Post

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Treasury Dept. is giving ‘cash-for-keys’ – Adding to its mortgage rescue program, the government will now offer additional incentives to get troubled borrowers out of homes. – By Les Christie -  CNNMoney.com

(Big unnoticed story:)   FHLB Chairman Disgusted With FASB Accounting Alchemy, Quits - Tyler Durden – When the man in charge of the second largest borrower in the U.S. is willing to lose his job due to his discomfort with the FASB’s shift in accounting rules, you can bet that the tragic fallout of all the “market buoying” recent events is only a matter of time.  Somehow this noteworthy event, which happened over a week ago, passed substantially unnoticed until Zero Hedge friend Jonathan Weil at Bloomberg dug it up. Charles Bowsher, who was most recently Chairman of the Federal Home Loan Bank System’s Office of Finance and previously served as U.S. comptroller general may be the only truly honorable man in the socialist nexus of politics and finance. – Zero Hedge Blog

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Let Geithner Decide Your Pay - House backs new pay curbs at bailed-out banks – … The measure is largely expected to sideline a bill previously passed by the House of Representatives that aimed to impose a 90 percent tax on bonuses  … The bill will now move to the Senate, … – Reuters

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The Radicalization of Ben Bernanke – By Simon Johnson and James Kwak – He is throwing trillions of dollars at the financial crisis. What happens if his gambles don’t pay off? – …  Without a doubt, this crisis is now Ben Bernanke’s war. Bernanke has become the country’s economist in chief, the banker for the United States and perhaps the world, and has employed every weapon in the Federal Reserve’s arsenal.  … – Washington Post

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Fannie, Freddie Quietly Lift Moratorium on Foreclosures – Stopgap Plan Outlined With Fanfare Ends Without Announcement – The Washington Independent

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More confusion ahead – Treasury Seeks to Free Up Funds by Shuffling Spending in TARP – MICHAEL R. CRITTENDEN – … The biggest changes are to the government’s program to boost consumer lending, the Term Asset-Backed Securities Loan Facility, or TALF. Initially, the Treasury said it planned to invest $100 billion from its bailout funds. Now, it will contribute $55 billion.To make the change appear less dramatic, the Treasury has bundled that spending with other related investments into what it’s calling the Consumer and Business Lending Initiative. That includes $15 billion already directed toward small-business lending and $25 billion the department accounts for under a separate program to deal with toxic assets on bank balance sheets.  … – Wall Street Journal

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Creative new taxes coming your way – has a list – The Beast Screams to Be Fed
-  Washington DC … street lights … extra $51 monthly tax
-  KY  – … Lawmakers are going to be taxing their very own Kentucky bourbon
-  Nevada has also raised its so-called bed tax …
-  Texas led the way in 2007 by levying a $5 tax on patrons of gentlemen’s clubs … more -
Financial Armageddom

Bernanke Treasury Plan Drives Pimco to Mortgage Bonds – By Daniel Kruger – … Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds declined to 3.85 percent on March 19, the lowest in two months. The difference between the rates and those on 10-year Treasuries shrank to 1.18 percentage points last week, the narrowest since July 2007 and down from 2.32 percentage points in November. … – Bloomberg 
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The New Flippers?: No Time For T-Bonds – Carl Gutierrez – Dealers buy U.S. government paper and quickly sell it back. – … “What appears to be happening is the 16 primary dealers that were responsible for helping underwrite the auctions are now long with the hope of quickly selling the bonds at a higher price to the Fed before the next supply infusion comes in a few weeks,” said Josh Stiles, senior bond strategist at IDEAglobal. … -  Forbes
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Me Too! Look Ma, I can Earn a Positive Interest Spread with Fed Funds Near Zero and Bernanke Stomping on the Yield Curve! It’s gonna be OK, Really! -  Daniel Alpert – RGE Monitor