Thing One: Tim's Choice: It's Choose Your Own Adventure day here at 7.5 Things.
Let's say you're one of the most important banking regulators in America, and you get word that some of the world's biggest banks are manipulating an interest rate that affects borrowing costs throughout the economy. Do you: a) leap into action and not rest until the problem is solved, or b) write a strongly worded memo and then hope for the best?
According to reports in The New York Times and the Wall Street Journal, then-New York Fed President Timothy Geithner chose b), writing a six-point memo to the Bank of England on how to fix the process of setting Libor, the hopelessly manipulated interest rate. And then he turned his attention to other things, such as being Treasury Secretary, for the next four years.
The result of this choice -- one that was apparently made by every other regulator on both sides of the pond, to be fair -- has been a banking scandal of epic proportions. It will involve Geithner and his then-boss, Fed Chairman Ben Bernanke, testifying before a Senate subcommittee later this month. It could well cost the 16 banks involved $22 billion, according to a new estimate by analysts at Morgan Stanley (which is not involved in this particular scandal). And the manipulation of Libor may have already cost consumers, businesses, cities, states and school districts untold millions and/or billions of dollars, which an army of plaintiffs' lawyers are gearing up to extract from the banks. Maybe Geithner did not choose too wisely?
Thing Two: Free Whale-y: So the London Whale has finally left JPMorgan Chase. Bruno Iksil, known as the London Whale for his enormous trades in credit derivatives, has left the firm, along with two other members of the bank's chief investment office, the Wall Street Journal reports. The group helped lose the bank $4.4 billion dollars in bad trades, JPMorgan said this morning in reporting its second-quarter earnings. That's twice the initial estimate of $2 billion, but well below the $9 billion worst-case scenarios out there. So, hooray? Oh, and also the bank essentially says that the Whalers lied to it about what was going on, which sounds like fraud, not just a dumb trade gone awry. The plot thickens.
The bank is holding a two-hour conference call this morning to discuss the results and the London Whale loss. Jed Horowitz of Reuters points out that JPMorgan's headaches won't end with the call, however, as the bank seems to have a bit of a management problem, not being able to keep tabs on its ginormous chief investment office. And there is still the small question of what's happening with Peregrine Financial Group customer money JPMorgan is holding. It's unlikely that will be addressed this morning.
Thing Three: China's Sort-Of Recession: China's GDP screeched to a 7.6 percent growth rate in the second quarter, which in China is essentially a recession for an economy used to growing at 10 percent. The worst growth rate in more than three years will likely bring a strong policy response from the Chinese government, Reuters writes, and economists think this was the worst of it. Here's hoping.
Thing Four: A New Hope: Speaking of hopeful economists, The New York Times writes that economists are seeing signs of a pickup in recent economic data: "Economists at many of the most-watched forecasting organizations, both public and private, expect growth to pick up through the summer and into the fall, although only to a pace broadly considered sluggish, if not dismal." An improvement to dismal. Awesome.
Thing Five: PFG's Red Flags: Many investors were shocked by the collapse of Peregrine Financial Group, the Iowa brokerage firm that is raising comparisons to MF Global. But there were plenty of red flags along the way, The New York Times writes.
Thing Six: FDIC: Don't Drag Us Into This: The FDIC would like U.S. banks to pretty please stop blaming the regulator for all of the fees the banks wrench out of their customers, Robin Sidel of the Wall Street Journal reports: "In a letter sent to banks this week, the FDIC said it has received a number of complaints from depositors who mistakenly believe the agency is imposing the fees."
Thing Seven: Mortgage Miasma: Nick Timiraos of the Wall Street Journal reports that a group of bond investors are fighting back against plans in some cities to help people work out their mortgages by seizing them under eminent domain laws and then restructuring them to be less-burdensome. The bond investors have the power to decide what mortgages go into some popular mortgage-backed securities and are considering leaving these mortgages out in the cold, making them a harder sell for banks.
Thing Seven And A Half: Maybe It's The Heat: Today is the anniversary of two of New York City's worst incidents of civil unrest: On this day in 1863, the city rioted over the Civil War military draft, resulting in hundreds, maybe thousands, of deaths, including many black New Yorkers. More than 100 years later, in 1977, the city rioted again amid a 25-hour blackout.
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Calendar Du Jour:
8:30 a.m. ET: PPI for June
9:55 a.m. ET: Mich Sentiment for July
Before Market Open:
Heard On The Tweets:
@BCAppelbaum: Instead of truth, we have transactions.
@umairh: The "economy": pay sociopaths huge amounts not to work, instead of rewarding functioning humans for real accomplishment.
@mattyglesias: Staten Island—not Manhattan—is the highest-income borough.
@moorehn: I want to start a blog called "Financial Things No One Actually Knows." Aggregate news stories asserting things about finance with no proof.
-- Calendar and tweets rounded up by Khadeeja Safdar.