Morning Report: A look ahead to the regulatory environment for the financial industry

Vital Statistics:


Last Change
S&P futures 2996 7.25
Oil (WTI) 53.47 -0.44
10 year government bond yield 1.78%
30 year fixed rate mortgage 3.97%


Stocks are higher this morning on expectations of an orderly Brexit and optimism on trade. Bonds and MBS are down.


Not a lot of market-moving data this week, although we will get a lot of housing indicators, with existing home sales, new home sales, and house prices. Note the FOMC meets next week, and it is looking like a lock that they will cut rates. The Fed funds futures are now handicapping a 91% chance of a cut.


The Index of Leading Economic Indicators declined in September, as trade concerns and manufacturing offset strength in other areas. “The US LEI declined in September because of weaknesses in the manufacturing sector and the interest rate spread which were only partially offset by rising stock prices and a positive contribution from the Leading Credit Index,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The LEI reflects uncertainty in the outlook and falling business expectations, brought on by the downturn in the industrial sector and trade disputes. Looking ahead, the LEI is consistent with an economy that is still growing, albeit more slowly, through the end of the year and into 2020.”


It looks like the structure of the CFPB is going to be decided by the Supreme Court. The issue with the CFPB goes back to its structure, which makes it nearly impossible to remove a director. The idea was to make the CFPB less influenced by politics, however it also makes it completely immune to oversight and accountability. The case will move forward without the support of the government, as CFPB Director Kathy Kraninger doesn’t support the structure of the agency either. If the CFPB’s structure is declared unconstitutional, it wouldn’t mean the end of the agency, it would mean that the single, unfireable director would be replaced by a bipartisan board, which was actually the initial proposal when the CFPB was created during the drafting of Dodd-Frank.


Elizabeth Warren threatened to ban fracking if she wins the presidency. “On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking—everywhere.” Needless to say, this would be incredibly disruptive to the US economy as natural gas prices would increase to $9.00 to $15 per mBTU, compared to current prices of around $2.00 – $2.50. Since natural gas is the main way we generate electricity, consumers and industry would feel it immediately, and this would cause uncertainty on steroids, and make Trump’s trade concerns look like a minor annoyance. She would be able to implement many changes via executive order, and she intends to use it. Given that Joe Biden is having trouble fundraising, it is looking more like a lock that she gets the nomination. Even some left-leaning pundits are worried.


What would that mean for the mortgage banking business? Regulations will undoubtedly be tightened, but they probably will affect the bigger banks more than the independent operators. She says she wants to re-implement Glass-Steagall, which is really a solution in search of a problem. However, if she succeeds in raising taxes and energy prices as much as she intends, it would almost certainly be the final nail in the longest running expansion ever, and that means the Fed Funds rate is probably heading back to zero. A return to ZIRP almost certainly means the 10 year will breach the 1.47% low set in 2012, which will would create another refi wave similar to the years immediately after the financial crisis. So, perversely a Warren presidency could be great for the mortgage banking business, as the industry feasts on easy refinances.

36 Responses

  1. The ultimate Halloween trolling click bait:

    “Let’s Cancel the Kids’ Star Wars Stormtrooper Costume

    Ryan Britt
    October 15, 2019”


  2. Interesting piece:

    “Save The …. McDonald’s? One Franchise In France Has Become A Social Justice Cause

    October 21, 20195:00 AM ET

    Ironically, the two men, despite their different visions of McDonald’s, actually have much in common. Both are sons of North African immigrants. Both grew up in the high-rises of major French cities, feeling like outsiders.

    “It’s very difficult when your name is Mohamed,” says Abbassi. “When you’re not white with blue eyes, it’s very difficult here in France.”

    Abbassi, like Guemari, found acceptance in the American fast-food chain: “The first day when I came into the McDonald’s, I found a new kind of spirit. The Americans never asked me, ‘Oh, where do you come from?’ ”

    Abbassi says with a hearty laugh that all the Americans wanted to know was how much money he could make.

    He remembers drinking beer with the president of McDonald’s France, an American at the time.

    “He spoke with me normally!” says Abbassi. “How are you? Are you fine? You know, in France, when someone is the big boss, they never speak with you normally like this. They try to create a big distance.””

    That was what was best about capitalism. It’s the force that’s most capable of overcoming tribalism.


  3. “On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking—everywhere.”

    I just don’t understand the logic here. Everyone who would vote for Warren no doubt already believes that Warren would be infinitely superior to Trump on fracking, so it does nothing to expand her base, really. Might make her a little more exciting to primary voters, but she’s either going to have to walk that back if she becomes president, or deliver and generate a huge red wave that would see Republicans taking back the house (and/or senate if it flipped in 2020) with potentially unbreakable majorities.

    You don’t make things hugely and quickly more expensive for the voters and not pay a steep price in the midterms.


    • Between things like this and Beto, the Democrats are doing there best to shore up Trump’s support.


      • It feels like it. Certainly, they have to be motivating the Trump base. And I get the sense they are making it harder for even dedicated NeverTrumpers to vote for a Democrat–or do anything but vote against the Democrats.

        There has never been a better opportunity for a Bill Clinton-style, center-left politician to come in and win for the Democrats in a landslide. Yet the Democrats and the left seem to collectively be lurching in the opposite direction.


  4. When I heard CNN pushing the Tulsi is a Russian asset, I knew Taibbi would write about it..


    • This was good too.

      “COOPER: My question is, if it’s not okay for a president’s family to be involved in foreign businesses, why was it okay for your son when you were vice president?

      Biden responded with what might as well be the official slogan of all news organizations on the left and the right dating back to 2015: “What we have to do now is focus on Donald Trump.””


      • To disagree is to be a Russian asset.


      • Taibbi is also getting accused of being a Russian asset. His criticism and clear antipathy for Trump is insufficient–he must also embrace the dear leaders of the Democratic party without reservation and agree with enthusiasm if they say 2+2=27 . . . otherwise, clearly a Russian agent amongst us.

        The new McArthyism is fascinating. The media and the Dems are out of control with this Russian stuff.


      • In fact Biden remains the clear leader according to national polling averages. I’m convinced pundits think Biden has already slipped because he’s not on Twitter, which to modern reporters is equivalent to non-existence.

        I think this explains a lot of what’s happening in the media, along with their not holding a monopoly on information dissemination any longer.

        While social media and Twitter in particular can reinforce the bubbles of anybody, its clearly having an outsized impact on the media. They get a very unrealistic sense of where the majority of the country is on issues (and how they regard the press) based on their Twitter following and responses. The media in general–already no great shakes, and a poor source of objective facts–has gone way down hill in the age of social media, in part because–ironically–social media is insulating them against market feedback. That and the shifting attitude about what is important–circulation or viewership, or Twitter followers and Facebook likes.

        And of course–all criticism and declining ratings and circulation can be blamed on Russian bots.

        I’m wondering if Taibbi will be able to stick it out and Rolling Stone, though. He’s way off the mainstream media reservation at this point.


        • The Press and the Party are going to throw Biden under the bus so they can advance the Ukraine corruption story and pretend to be non-biased…


        • The Press and the Party are going to throw Biden under the bus

          Probably, but I think that’s because they live in a bubble that says: that’s a great idea. Not–as is much more likely–Biden is the only candidate that has a prayer of beating Trump.

          Like the polling before the 2016 election, there’s an inaccurate feedback loop in the media that gives them bad information. And so momentum for bad ideas–like sacrificing Biden to impeach Trump with the idea that having an impeached president Trump right before the election will win them big votes–can build in a vacuum but will collapse when exposed to the voting decisions of the actual electorate.

          And Trump is a very vulnerable president. But the Democrats seem determined to shoot themselves in the foot.

          Even Jonah Goldberg–who is definitely a NeverTrumper–says he can’t possible see how Trump can win, until he looks at the Democrats and then he says: Oh, that’s how.


  5. OT: I’m beginning to think I could be talked into a UBI or some kinds of mean-tested quasi-universal basic income if it mean the government got out of the 3rd party payer business.

    Which would never happen. But if it would, I could be talked into it.

    3rd party payers are a pernicious evil. From private insurance to Medicare to any other form of subsidized consumption. Everything that puts anybody other than the individual consumer in control is susceptible to rationing, elimination and Ivory Tower decision making without reference to actual consumer demand or market forces or even overall societal benefit.

    I also very much like the direction of entertainment content becoming a streaming thing. At first, I objected to the balkanization of streaming services but the more it happens the less I object. I should be paying for the content I want–and deciding if I like it or not–rather than advertisers. Advertisers can get stuff pulled off the air or give an ABC an excuse to fire Rosanne Barr or get an otherwise popular star or television host shitcanned, and are highly susceptible to boycott campaigns.

    Streaming media companies are far less so. The problem is how sensitive and virtue-signaling the owners and investors in such companies are. Which makes the ongoing balkanization a good thing. Eventually, there will be a serious streaming service that is the Chick-Fil-A or Arby’s of streaming services, embracing things based on their revenue potential rather than how little they offend the campus left.

    And I think such a thing might show up. If I were a billionaire media mogul, I’d be making it happen. It could be a place for more television series like Netflix’s The Ranch, a place that could be an immediate home to Last Man Standing or Roseanne when the PC police come after them, and a place to put a Bill O’Rielly or a Sean Hannity or a Tucker Carlson when they get boycotted out of existence on advertiser-subsidized networks.

    Not to mention a place for shows by folks like Jordan Peterson, Joe Rogan, and, heck, Matt Taibbi. Also not a bad place for movies now considered offensive (like maybe the original Red Dawn, or Gone With The Wind).

    Alas, I’m not a billionaire media mogul. But there’s a market there for a politically incorrect, free-speech focused streaming service that caters to the underserved right-of-center and traditionalist markets.

    Which may be one of the reasons certain folks are lamenting the long lost days of Blockbuster and all the jobs lost when Netflix ate their lunch. Just speculation.


    • I have been out of the pop culture loop since the mid 90s. The last show I actually liked was law and order circa 1995 and the sopranos. After that i haven’t watched a single show, or seen a non-kid related movie. If it weren’t for my wife I wouldn’t even have a TV. BTW, my son doesn’t watch it at all either.

      Liked by 1 person

    • “3rd party payers are a pernicious evil. From private insurance to Medicare to any other form of subsidized consumption. Everything that puts anybody other than the individual consumer in control is susceptible to rationing, elimination and Ivory Tower decision making without reference to actual consumer demand or market forces or even overall societal benefit.”

      I would modify that as fourth party payers. I don’t have as much of an issue with auto or homeowners insurance that I purchase myself as I do with employer sponsored health insurance, which I would say is technically a fourth party.

      The problem with streaming is it is directly tied to Hollywood’s long standing desire to eliminate any physical media option that the consumer would actually own and eventually go to a pure pay per view model.

      They tried this once with DivX vs DVD and lost, but haven’t abandoned the idea.


      • I accept that. Insurance–in the classic sense–is 3rd party payers, but it’s really providing a kind of financial service–hedging against catastrophe. If I have an car crash, I’ve been making an investment to cover that situation. Health insurance pays far too much folks should pay for themselves–like office visits and prescriptions that would be reasonably priced in a non-distorted marketplace. There’s a reason car insurance doesn’t cover oil changes, or willful destruction to ones own car. I call and explain I took to hacking at my car with an axe and now it won’t run, car insurance ain’t going to cover it.

        But I expect the 4th party payer thing–although a lot of the problem with 3rd or 4th party payers is just how much control they have over what you’re buying, your behavior, or the structure of the marketplace.

        DivX was always doomed. It was a bad idea done to late to get market penetration, cost was too high for DVDs that expired, required a dedicated internet connection or an open phone line every time you wanted to watch something . . . it was really poorly conceived. And the consumer experience was bad.

        I tend to think of streaming more like TV, just on demand and preferably without commercials. I didn’t have any permanent ownership of TV shows when I was a kid (unless I taped ’em on my BetaMax!) so I don’t mind that content on streaming services comes and goes. A little more concerned about the purchasing of digital movies–that I do not trust. I’ve got like 4 purchased from Amazon. Mostly because that was the only way to watch those movies (Poltergeist, Avatar, It’s a Wonderful Life, and Eat, Pray, Love which there probably was a free way to watch it but my wife didn’t bother).

        Anyway, I’m still all for a bunch of streaming services. We will see how it turns out!


      • I don’t agree with this 3rd pary / 4th party payer is pernicious argument in the health care market, such as it it is. There seems to be an assumption that insurance raises medical pricing. We all know that it does hot, because the insurer has more bargaining equivalence with the provider than does the individual.

        Let me suggest that private insurance is feature of capitalism, not a glitch, but that monopoly supply restrictions are anethema. Drug patent extensions are based on the flimsiest of “advances” and perpetuate monopoly pricing. The nationwide shortage of medical practitioners naturally levers up pricing.
        Warren is slipping, thankfully. Other Ds asking her about the costs of her flights of imagination are getting the attention of IA voters, at least, or so we read. Someone now must ask her about the cost of NG when the fields shut down.

        I still hold out hope for Bullock. But Romney is looking really fine to me.


        • I would argue that 3rd/4th party payers are pernicious and price-distorting, but the point is moot because it isn’t going to change.

          That being said I agree with the patent extension thing. I’ve argued for a long time we ought to have a system that allows drug companies to exchange patents on life-saving drugs to extend patents on lifestyle drugs. Want to keep your Viagra patent forever? Make a cancer-curing drug and swap the patent. Keeps the drug companies rolling in dough and gets generic lifesaving drugs to market more quickly, and incentivized the development of such drugs for the purpose of extending patents on lifestyle drugs indefinitely.


        • Kevin:

          Keeps the drug companies rolling in dough

          Do drug companies make outsized returns relative to other industries? Genuine question, not rhetorical.


        • Mark:

          But Romney is looking really fine to me.

          He looks the same to me as he did in 2012.


        • Mark:

          I don’t agree with this 3rd pary / 4th party payer is pernicious argument in the health care market, such as it it is.

          I think the distinction between 3rd and 4th party payers, made by jnc, is relevant to this point. You can’t treat them as the same. It is true that insurance companies as 3rd party payers have more bargaining power, which should drive costs down. But when someone else besides the insured (ie employers) is paying for the insurance, making the insurance company a 4th party payer, the insured become insensitive to price, and that drives costs up.


        • As you’ve noticed over the last couple of years however is the significant increase in the deductible that most people pay for their insurance. I think that has undistorted the market somewhat by making people much more thoughtful on when they should seek medical attention. I’m not sure about it’s effect on long term health however as I suspect a certain number of treatable cancers, for example, whose diagnostic tests fall outside of the routine (and generally covered w/out meeting a deductible), get missed and therefore either become fatal or very costly.

          I don’t like deductibles, mind you, but they are having an effect.

          That said, my insurance costs have not gone down though my deductible has gone up significantly so it makes one wonder if the insurance company is pocketing they savings or splitting it with my employer. If this has the long term effect of people dropping employer provided coverage and pursuing cover wage options on their own, so much the better I guess.


        • Do drug companies make outsized returns relative to other industries? Genuine question, not rhetorical.

          I imagine it depends on the company, but I don’t have a comparison relative to other industries. Clearly, they make enough money to single-handedly bankroll most of the cable news channels, if the advertising on those stations is any indication.

          But I do think it’s good for them to be making lots of money, but think a change in patent law might incentivize them to make certain life saving drugs cheaper in order to keep profits on lifestyle drugs strong.


  6. I can’t remember the last time I agreed with Katrina vanden Heuvel

    “Democrats shouldn’t let Trump’s problems turn them into the party of war
    By Katrina vanden Heuvel

    Oct. 22, 2019 at 8:09 a.m. EDT”

    Liked by 1 person

    • But so, too, is the establishment assumption that the United States can police the world with a “light footprint” without finding ourselves mired in endless wars for which we lack the will either to win or to end.

      I think she’s exactly right on this. Either commit to “winning”–or leave.


  7. Tweet of the day:


  8. “Shut up”, he argued.


Be kind, show respect, and all will be right with the world.

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