The Financial Landscape: An Enormous Countrywide Settlement, and a Push by FINRA
Settling a Major Mortgage-Backed Mess: Bank of America (BAC) will soon finalize an agreement to settle investor claims that it sold them lousy mortgage-backed securities before the housing bust. The nation's largest bank holding company will pay $8.5 billion, erasing all of its earnings in the first half of this year, according to The New York Times, which also notes that the settlement could "provide a template for deals with other big banks that face tens of billions in similar claims."
The securities in question originated with Countrywide Financial, the notoriously reckless mortgage lender that Bank of America purchased in 2008. Bank of America CEO Brian T. Moynihan -- who in October insisted that "the right answer is to fight" the legal effort by aggrieved investors to recoup their losses -- pledged the company will continue to "act aggressively, and in the best interests of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide." Investors set to receive money from the settlement include PIMCO, Metropolitan Life (MET), BlackRock (BLK), and the Federal Reserve Bank of New York.
Does Cheaper Regulation = Laxer Regulation? Bloomberg reports that "Congress may hand oversight of almost 12,000 investment advisers to Wall Street's self-funded regulator as a cost-saving measure," raising concerns that retail investors might suffer the consequences of lax regulation. The Financial Industry Regulatory Authority, or FINRA, wants "to replace the U.S. Securities and Exchange Commission as a regulator of registered investment advisers who manage about $40 trillion." Congress is said to be considering the change because of cost concerns, "since FINRA's $877 million budget is paid by the brokers it regulates."
The worries of lax oversight are not unfounded, as other relevant figures show: FINRA "fined members almost $43 million last year, while the SEC, working with a similar budget, issued more than $1 billion in penalties;" "Investors who won FINRA arbitration awards last year got back less than half of what they sought;" and FINRA's top 10 executives were paid a total of more than $11 million last year -- by the industry they're in charge of overseeing. The most relevant question is posed in Bloomberg's piece by Michael Smallberg, who works at the Project on Government Oversight: "Would FINRA ever take serious action against who it's relying on for its funding?"