Treasury Secretary Timothy Geithner went to US Rep. Barney Frank's banking committee (also the agriculture committee, which regulates commodity trading) and made this proposal for federal regulation of derivative securities, those packages of mortgage loans and other pooled investments whose mispricing has wrecked the credit markets, financial system and economy, leaving millions jobless. His summary:

"First, we propose to require that all standardized derivative contracts be cleared through well-regulated central counterparties and executed either on regulated exchanges or regulated electronic trade execution systems," instead of the current private system imposed under President Clinton and former Federal Reserve Chairman Alan Greenspan  at Wall Street's request.

"Second, through capital requirements and other measures, we propose to encourage substantially greater use of standardized OTC derivatives and thereby to facilitate substantial migration of OTC derivatives onto central clearinghouses and exchanges... 

"Third, we propose to require all OTC derivative dealers, and all other major OTC derivative market participants, to be subject to substantial supervision and regulation, including conservative capital requirements; conservative margin requirements; and strong business conduct standards... 

"Fourth, we propose steps to make the OTC derivative markets fully transparent.  Relevant regulators will have access on a confidential basis to the transactions and open positions of individual market participants.  The public will have access to aggregated data on open positions and trading volumes," via the Securities and Exchange Commission and the Commodities Futures Trading Commission, which will also collect an "audit trail" of each transaction. 

"Fifth, we propose to provide the SEC and CFTC with clear authority for civil enforcement and regulation of fraud, market manipulation, and other abuses in the OTC derivative markets." Though that authority's no good if you can't find plain-vanilla (let alone derivative) scammers like Bernie Madoff, hiding in plain sight and chairing the nation's largest stock market. 

"Sixth, we will work with the SEC and CFTC to tighten the standards that govern who can participate in the OTC derivative markets.  We must zealously guard against the use of inappropriate marketing practices to sell derivatives to unsophisticated individuals, companies, and other parties.

"Finally, we will continue to work with our international counterparts to help ensure that our strict and comprehensive regulatory regime for OTC derivatives is matched by a similarly effective regime in other countries." Or all the crooks will just move to the Caribbean and do it online from there, tax free. 
 

»  More Geithner: SEC, CFTC should register, regulate derivatives trades

Home mortgage lender PHH Corp., Mount Laurel, is making more money thanks to the recent home-refinancing boom and "less competition", which enables survivors like PHH to charge customers more, as rivals have gone out of business or pulled back from the market, writes bank analyst Paul J. Miller and his team at Friedman Billings Ramsey in Richmond, Va., in a note to clients today.

Also, Miller expects new PHH director James Egan and acting chief executive George Kilroy will "focus on creating shareholder value" more than former ceo Terry Edwards and Chairman A.B. Krongard, who left last month. He is boosting his PHH price target to $23 a share, from $13.

But in a separate report, Miller's team warns that recent mortgage and investment profits for banks generally won't likely continue. "If the jobs picture does not improve over the next couple of months, we believe credit costs will continue to rise at an alarming rate," they told clients. "We remain very cautious." 

Friedman Billings' survey of analysts at mutual funds and pensions shows "over 90%" expect employment will top 10%, and half expect it will go above 11%, which would boost loan losses and drive bank stocks down. Miller tells  clients to "avoid" high-priced bank stocks like Wells Fargo & Co. and PNC Financial Services Group.

Separately, Pennsylvania and South Jersey lender Susquehanna Bancshares is warning investors its loan losses rose sharply in the second quarter. Non-performing loans jumped to around $230 million, up from $156 million in the second quarter and triple last year's rate, the bank said in a preliminary report. Net charge-offs of uncollected loans zoomed to $25 milion, from $17 million.

"Accelerating asset quality deterioration" and "thin" capital will leave Susquehanna around $5 a share, says analyst Avi Barak at Sandler O'Neill + Partners in New York.

"Comcast Corp., the largest U.S. cable-television provider, and Cablevision Systems Corp. said they aren’t interested in carrying the new Epix premium movie channel," an effort by studios that produce movies to replace the middleman channels that currently distribute films through cable and video providers, reports Bloomberg LP here.

“It’s a bad idea,” Comcast coo Stephen Burke told Bloomberg at the yearly Allen & Co. media conference, Sun Valley, Idaho, adding that consumers already have what Bloomberg called "an adequate number of choices". Cablevision ceo James Dolan said he’s “in perfect agreement” with Burke. 

"Epix, owned by Viacom Inc.’s Paramount Pictures, Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Studios Inc., was created after the three studios failed to reach new agreements to show their movies on CBS Corp.’s Showtime pay channel last year. Epix, which pits Sumner Redstone’s CBS and Viacom against each other, has yet to announce pickup by cable systems ahead of its planned October debut...

"Epix plans to provide films and original series on pay TV systems and the Internet. Burke said he hasn’t looked at a preview of Epix... The network will have rights to the studios’ films such as Transformers: Revenge of the Fallen, Iron Man, The Curious Case of Benjamin Button and Indiana Jones and the Kingdom of the Crystal Skull. It will go head-to-head with pay channels including Showtime, Time Warner Inc.'s HBO and Liberty Media Corp.'s  Starz," the cable favorites.

View gallery

I sent the former Phillie a note asking if this purported letter to his clients and friends is for real.
Dykstra says: "Yes! You may go ahead."

By Lenny Dykstra

July 9, 2009

By now, many of you have read the news and begun to ask me about it. Since I feel you are like family to me, I will therefore hold nothing back. . . .

I have always prided myself on transparency - both in my personal life and in business. Although there will always be people who choose to spin information negatively, I do hope and believe that most of you will not be swayed solely by muckraking and sensationalized accounts. For those who are interested in the actual facts, I am happy to share.

Incidentally, I expect to be taping an interview for CNBC later this morning and welcome you to tune in for more.

The facts:

»  More Dykstra on his bankruptcy: "It's about YOU!"

Steven Welch, a 1999 Penn State engineering grad who sold biotech developer Mitos Group to Parker Hannifin in 2007 and has been busy fathering a family and mentoring DreamIt Ventures would-be entrepreneurs since then, has thrown his hat in the campaign ring as a Republican challenger for the Delaware County seat held by U.S. Rep. Joe Sestak, D-Pa., who's mulling a challenge to U.S. Sen. Arlen Specter, now D-Pa. Welch's slick campaign site here.

Mount Airy-based developer Ken Weinstein, partner in www.PhillyOfficeRetail.com, says oldest son Ari, a 15-year-old Germantown Friends student currently attending computer camp on the West Coast,  "is getting job offers from Israel and all over the place," and will go on Fox TV Monday morning, thanks to his lead role in this Wall Street Journal cover story Monday.

Ari Weinstein writes code for www.ijailbreak.com, which helps iPhone users download unsanctioned software. He's been electronically precocious since he was a toddler fascinated with light switches, dad reports. Young Ari's maybe a little bored at his computer camp, but he's not going pro anytime soon, Ken adds. Ari's brothers are also little techies.

Weinstein Sr. moved to Philadelphia from Central Jersey to work for one of Joe Hoeffel's congressional campaigns in the 1980s, and has been busy in the neighborhood's retail resurgence.

He owns the Trolley Car Diner, helped organize Valley Green Bank, has with partner Bob Kaufman rehabbed a string of stores on Mount Airy's stretch of Germantown Ave. and similar strips for retail, office and nonprofit use, refurbished and leased Septa's Allens Lane Station, wants to do the same for the Carpenters Lane station, and is negotiating for, among other properties, four empty stores on Chew Ave. "I get to retire," he told me, "when all the vacant properties in Philadelphia are occupied."

Metro Bank, the combination of Harrisburg's Commerce Bank of Pennsylvania with Philadelphia's Republic First Bank under the financial sponsorship and guidance of former Commerce Bancorp chief Vernon Hill, has hired Hill's old lieutenant Peter Musumeci as Executive VP and Chief Lending Officer.

Musumeci replaces Commerce PA veteran Rory Retrievi, who's left the company, spokesman Jason Kirsch tells me. Musumeci worked for Hill from Commerce Bancorp's 1974 founding til Hill left three years ago, under pressure other directors and federal regulators. Musumeci stayed on with Commerce's new owner, TD Bank, until last year. Hill's putting his band back together.

The Securities and Exchange Commission gave no real reason for compliance chief Lori A. Richards' resignation yesterday that ended her 20-year career (she was earlier the head of SEC's LA office, and an adviser to Clinton SEC chief Arthur Levitt). But Joe Morris, writing in Financial Times' www.ignites.com, says SEC's failure under Richards' watch to stop the $65 billion Bernard Madoff fraud, despite warnings, inspections and signs, "tainted" Richards' reputation, beyond repair.

Writes Morris, "Richards was among several SEC officials criticized by lawmakers earlier this year over the agency's failure to spot Madoff's $65 billion Ponzi scheme despite carrying out reviews in 2004 and 2005. Former enforcement chief Linda Thomsen stepped down soon after a Capitol Hill grilling.

"A Washington Post report last week revealed that (an SEC compliance) investigator had raised suspicions about Madoff's firm as far back as 2004 but was reassigned to inspect the mutual fund industry.

"The departure gives the agency a clean slate on the Madoff scandal, allowing Schapiro to say that all of those involved are now gone.. ..Richards's exit may also pave the way for a reorganization or even dismantling" of the Office of Compliance, Inspections and Examinations, which Richards headed. "Several former SEC chiefs have considered doing away with the office but backed down amid opposition from Richards," Morris added, citing the Post. 

Can SEC fix itself?

The Pennsylvania Turnpike Commission has borrowed $275 million to widen the Northeast Extension and its bridges near Lansdale, and pay for other projects as part of a 10-year maintenance program, in a taxable bond sale subsidized by Obama's Build America Bonds (BAB) program.

The Turnpike paid investors 6.1 percent on the bonds, said chief financial officer Nikolaus Greishaber.

But federal taxpayers, under BAB, ate 35 percent of the interest. So the bonds cost Turnpike (and, ultimately, toll-paying drivers) just 3.968 percent.

Without the federal subsidy, the Turnpike would have had to issue tax-exempt bonds paying about 4.5 percent, Greishaber said.

The subsidy was worth around $1.4 million a year, or $55 million amortized over the 30-year life of the bonds, the Turnpike figures.

The subsidy to bond investors was about triple what the Turnpike received from the federal government. But a lot of that will be paid back in the form of taxes by corporate and other private owners of the taxable bonds.

Greishaber said the Turnpike has not rushed to use BAB bonds - unlike California or New Jersey, which have increased their road programs to suck up available financing. In part that's because the PA Turnpike faces an uncertain financial future: Gov Rendell would still like to lease it to private operators, while the Turnpike hopes Obama's transportation officials will approve its plans to charge tolls for I-80, to raise money for road and bridge repairs, said spokesman Carl DeFebo.