%1

Federal banking regulators are trumpeting an $8.5 billion settlement this week with 10 banks as quick justice for aggrieved homeowners, but the deal is actually a way to quietly paper over a deeply flawed review of foreclosed loans across America, according to current and former regulators and consultants, the New York Times reported today. To avoid criticism as the review stalled and consultants collected more than $1 billion in fees, the regulators, led by the Office of the Comptroller of the Currency, abandoned the effort after examining a sliver of nearly four million loans in foreclosure, the regulators and consultants said. Because they have no idea how many borrowers were harmed, the regulators are spreading the cash payments over all 3.8 million borrowers — whether there was evidence of harm or not. As a result, many victims of foreclosure abuses like bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions will most likely get less money.

President Barack Obama plans to nominate Jacob Lew to be the 76th U.S. Treasury secretary, putting the White House's chief budget expert in a top economic post as it enters a grueling year of fiscal battles with Congress, the Wall Street Journal reported yesterday. Lew would break the mold of recent Treasury chiefs, if confirmed by the Senate to succeed Tim Geithner, since he is better known for being a loyal Democratic lieutenant and budget wonk than a financial-market expert with broad contacts in the business world globally. His selection signals that Mr. Obama is prepared to aggressively pursue his economic-policy goals in his second term. Lew is a veteran of numerous Washington, D.C., budget battles, stretching back to his work as a senior congressional aide in the 1980s, experience that likely would be drawn on during looming fights over the debt ceiling, government spending levels and a possible overhaul of the tax code.

Chrysler Group LLC could be forced to stage an initial public offering as a means of resolving a dispute over its value with a United Auto Workers' retiree trust that holds a 41.5 percent stake in the automaker, the Wall Street Journal reported today. The trust yesterday presented Chrysler with a "registration demand" asking it register a portion of its holdings. Chrysler's sales and profit has bounced back strongly since emerging from bankruptcy protection under the management of Italy's Fiat SpA, its majority owner. The move comes amid a court dispute between Fiat and union retirees over the value of the trust's Chrysler shares. The trust recently maintained some of its shares are worth twice what Fiat offered to pay last year.

The board of the American International Group has declined to join a lawsuit against the federal government over its $182 billion taxpayer-financed bailout, the New York Times DealBook blog reported yesterday. The decision follows a public uproar over the possibility that AIG would sue the same authorities that rescued it during the financial crisis. The board had been weighing whether to join a $25 billion lawsuit filed by its former chief executive, Maurice R. Greenberg, on behalf of shareholders, arguing that they lost tens of billions of dollars when the government attached onerous terms to the bailout.

California cities and counties sued UBS AG, Barclays Plc and 20 other banks alleging that they lost millions of dollars because the financial institutions manipulated the benchmark Libor rate, Bloomberg News reported yesterday. California public entities have received reduced interest payments on swaps, corporate bonds and other investments tied to Libor, the law firm Cotchett, Pitre & McCarthy LLP said. The Burlingame, Calif.-based firm said complaints were filed in federal court in Los Angeles, San Francisco and San Diego on behalf of at least eight entities against 20 current and former banks that set Libor rates. The counties of San Diego and San Mateo, and the city of Riverside, California, are among the plaintiffs, according to the law firm.

New mortgage rules set to be unveiled today by the Consumer Financial Protection Bureau will spell out how lenders must ensure that borrowers can repay their home loans, the Wall Street Journal reported today. The rules, which go into effect next January, were designed to enhance consumer safety without tightening credit standards beyond current levels. The 2010 Dodd-Frank financial-regulation overhaul changed lending rules to make banks legally responsible for determining that a borrower is able to repay a mortgage. The CFPB's rules are intended to implement that change. The upshot is that banks are likely to narrow their loan offerings and rely more on the 30-year, fixed-rate mortgage, a product unique to the U.S. and one that has required a government guarantee. Many lenders had expressed concerns that the ability-to-repay mandate would create open-ended legal liability that would lead to more-stringent lending standards. But regulators, sharing those concerns, said that they opted for rules that would not significantly restrict credit.

Lehman Brothers Holdings Inc., which is selling assets to pay creditors another $32 billion by 2016, asked a judge to sign an order barring governments from taking taxes on any deals it strikes with buyers, Bloomberg News reported yesterday. Such an order would "restate" an immunity from taxes that exists under a court-approved liquidation plan, Lehman said. Potential buyers want assurances that Lehman’s property transactions are free from government intervention, according to the court filing.

Bankruptcy Judge Martin Glenn rejected a bid by former MF Global customers to depose the collapsed brokerage's former chief, Jon Corzine, Reuters reported yesterday. Judge Glenn said that the Commodity Customer Coalition, which had sought permission to question Corzine and other former MF Global insiders, lacked standing because it is not a direct creditor in the case. The coalition, a grassroots group led by Chicago-based commodities trader James Koutoulas, bills itself as representing the interests of thousands of traders whose accounts at MF Global were frozen when the company went under. But the coalition itself is merely a "'watchdog' entity with its own independent goals," hoping to depose Corzine "in furtherance of its own interests" rather than those of the MF Global estate, Judge Glenn said in his decision.

Richard G. Ketchum, the head of the Financial Industry Regulatory Authority (FINRA), said that he would ramp up scrutiny of high-speed trading and a batch of complex products, the New York Times DealBook blog reported yesterday. FINRA, Ketchum said, would take aim at so-called leveraged loans and collateralized loan obligations, along with the potential conflicts that brokerage firms face in pitching their own investments over rivals' products. FINRA added that it would "pursue potential cross-market abuses and refine its surveillance patterns based on new threat scenarios and regulatory intelligence." The expanded focus comes as FINRA announced yesterday that it filed more than 1,500 enforcement actions against financial firms and brokers in 2012, an all-time record for the regulator.

As the board of the American International Group weighs whether to join a shareholder lawsuit against the United States government, several lawmakers have a simple message for the bailed-out insurer: Don't do it, the New York Times DealBook blog reported yesterday. With AIG having fully repaid its $182 billion bailout only weeks ago, the prospect of the company trying to clawback some of the $22 billion in profit that its rescue generated for shareholders does not sit right with several members of Congress. In a letter to AIG's chairman, Robert S. Miller, three Democratic lawmakers sternly urged the company to avoid "rubbing salt in the wounds" of taxpayers still furious about needing to bail out a public company. "AIG became the poster company for Wall Street greed, fiscal mismanagement, and executive bonuses - the taxpayer and economy be damned," Reps. Peter Welch (Vt.), Michael Capuano (Mass.) and Luis V. Gutierrez (Ill.) wrote in the letter.