What We Read Today 24 July 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary “reading list” which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for “reading list” items are gratefully reviewed, although sometimes space limits the number included.

• EU to weigh far-reaching sanctions on Russia (Peter Spiegel, Financial Times) After the Foreign Ministers’ meeting Tuesday which seemed to have the EU in disarray, there will be discussions of sweeping financial sanctions today. The Financial Times has seen a copy of the 10-page sanctions options memo.

• Ukraine crisis: Fears rise of Russia-fueled arms race (Sam Jones, Financial Times) A heavy anti-aircraft campaign continues in eastern Ukraine where two more government fighter planes have been shot down, bringing the total to 14, not including Malaysia Air H17 shot down last week. Russia denies any involvement with weapons supplies and military personnel. When Putin was asked where the insurgents got their weapons recently, he is reported to have replied “shops”.

• CFTC’s O’Malia Resigns to Head Derivatives Industry Lobby (Silla Brush, Bloomberg) Hat tip to Roger Erickson. The regulatory revolving door has never swung faster in Washington than for Scott O’Malia, Commissioner of the Commodities Futures Trading Commission (CFTC). After almost five years in his present position, he announced Monday (21 July) that he was resigning from the CFTC effective August 8. Yesterday (Wednesday) he was announced as the next CEO of ISDA (The International Swaps and Derivatives Association), a leading industry lobby group which opposes eforts by the CFTC to set limits on speculation in commodity markets.

From Bloomberg:

The ISDA post is one of the top paid industry advocacy jobs. Robert Pickel, who is stepping down as the group’s chief, made about $1.8 million in 2012, according to public records.

According to Reuters, O’Malia received $155,500 a year at the CFTC.

Dennis Kelleher, president and CEO of Better Markets, a group advocating stricter government regulation in financial markets, was quoted by Bloomberg:

“O’Malia’s spin through the revolving door is a record setter for influence peddling. This is why Americans are so disgusted with so many high government officials and believe that Washington is in cahoots with Wall Street.”

Federal ethics rules will bar O’Malia for two years from trying to influence, communicate or appear before the CFTC seeking official action. But, as CEO, O’Malia will have a great deal of direct influence and control over much of what ISDA does in interacting with the CFTC.

While on the CFTC O’Malia criticized his agency’s efforts to regulate the global swaps trading that totals $700 trillion annually. This included public speeches. He also tried to slow implementation of Dodd-Frank regulations, arguing that all changes should be subjected to cost-benefit analysis.

• S&P faces securities fraud charges over mortgage ratings (Kara Scannell, Financial Times) The SEC (Securities and Exchange Commission) has delivered a “Wells notice“to Standard & Poor’s related to six securities that S&P withdrew ratings for in 2011 after discovering “inconsistencies” in how they applied their rating methodology. A Wells notice is formal notification that an enforcement by the SEC is underway and it has been determined that the SEC may bring civil action. This follows another civil action filed by the U.S. Department of Justice last year which seeks $5 billion in damages.

• SEC’s long path to money market fund reform ends in compromise (Sarah N. Lynch, Reuters) The final new regulations will (1) require money market funds to float the value of principal (no longer fixed at exactly $1 and (2) allow funds the discretion to charge redemption fees on withdrawals in times of low liquidity. In short-form: Money Markets are no longer cash equivalents. Read a comprehensive report at GEI News.

There are 10 articles discussed today ‘behind the wall’.

The final discussion is a short article on (1) the effects of portfolio rebalancing and (2) the benefits of small amounts invested early in life if the investments are held until late in life.

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