TLJ News from July 1-5, 2008

People and Appointments

7/3. Stewart Mayhew was named Deputy Chief Economist in the Securities and Exchange Commission's (SEC) Office of Economic Analysis. See, SEC release.

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7/3. The U.S. Court of Appeals (11thCir) issued its opinion [35 pages in PDF] in US v. Lamons, affirming a criminal conviction obtained following the introduction into evidence of call records of wireless carrier Sprint. The US charged Turhan Lamons, an AirTran steward, with various crimes in connection with his using a cell phone to make phone calls to AirTran that falsely asserted that there was a bomb on board a plane, and with his starting a fire in the lavatory of that plane. The indictment charged, among other crimes, violation of 18 U.S.C. § 35(b) (conveying false information regarding threats to commercial flights) and 18 U.S.C. § 844(e) (using a telephone to make bomb threats or convey false information regarding bomb threats). The prosecution introduced into evidence a CD provided by Sprint of data collected from telephone calls made to AirTran and a call report created from that compact disc. The District Court rejected Lamons' argument that this amounted to testimonial hearsay in violation of the confrontation clause of the Sixth Amendment. The jury reached a verdict of guilty on the §35(b) count, but not the §844(e) count. The Court of Appeals affirmed, concluding that this evidence did not constitute statements. This case is USA v. Turhan Jamar Lamons, U.S. Court of Appeals for the 11th Circuit, App. Ct. No. 06-14427, an appeal from the U.S. District Court for the Northern District of Georgia, D.C. No. 03-00046-CR-01-RLV-4.

Federal Reserve Board's Mishkin Addresses IT and Financial Markets

7/2. Federal Reserve Board member Frederic Mishkin gave a speech in Eliat, Israel titled "Global Financial Turmoil and the World Economy". He discussed, among other things, the role of information and information technologies in financial markets.

Frederic MishkinMishkin (at right) said that "financial markets can do their job well only when they solve information problems that would otherwise impede the efficient allocation of credit to worthy borrowers. The history of financial development can be characterized as a process in which innovation tends to lead to improvements in the quality of information, and this, in turn, enables new financial products and markets to develop. Indeed, in the past decade or so, technological innovations and financial market liberalization improved the flow of information and capital to broader groups of people."

"Advances in information technology and financial innovations in recent decades encouraged new lending products and faster securitization of debt. This lowered transaction costs and contributed to a ``democratization of credit´´", said Mishkin.

That is, "a potential customer with an Internet connection could quickly fill out an online form, and a mortgage broker could rapidly price a loan with the help of credit-scoring technology."

Then, the "resulting mortgages were bundled together to produce mortgage-backed securities, which could then be sold off to investors. Advances in financial engineering took the securitization process even further by carving mortgage-backed securities into more-complicated structured products, such as collateralized debt obligations (CDOs), or even CDOs of CDOs, with an eye to tailoring the credit risks of various types of assets to risk profiles desired by different kinds of investors."

He then reviewed nature and causes of recent turmoil in financial markets. "All seemed well as long as the economy -- particularly, the housing market -- was booming, and credit became more and more available. But when the housing market turned down, substantial problems were exposed."

He explained that "it became painfully clear how poor the underwriting and credit-risk analysis were for a wide range of products. Some appraisers, brokers, and investment banks were motivated by transaction fees and had little stake in the ultimate performance of the loans they helped to arrange. Many securitized products were complex, and the ownership structure of the underlying assets was opaque. Investors relied heavily on credit ratings instead of conducting due diligence themselves, and credit rating agencies failed to fulfill their raison d'etre. The result has been rising defaults, particularly in the subprime mortgage markets, with losses to both investors and financial institutions."

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7/2. The Copyright Office (CO) published a notice in the Federal Register that announces, recites, and describes numerous changes to the CO's rules. The notice characterizes these as "housekeeping amendments". See, Federal Register, July 2, 2008, Vol. 73, No. 128, at Pages 37838-37840.

People and Appointments

7/1. Corey Booth, who was Director of the Securities and Exchange Commission's (SEC) Office of Information Technology until June 30, joined the Boston Consulting Group in New York. See, SEC release.

7/1. Daniel Gallagher was named a Deputy Director of the Securities and Exchange Commission's (SEC) Division of Trading and Markets. Gallagher has been Counsel to SEC Chairman Chris Cox since 2007. Before that, he was Counsel to outgoing SEC Commissioner Paul Atkins. See, SEC release.

7/1. Colleen Litkenhaus joined the Office of the U.S. Trade Representative (OUSTR) as the Assistant USTR for Intergovernmental Affairs and Public Liaison. See, OUSTR release.

7/1. The Office of the U.S. Trade Representative (OUSTR) announced that Michael Delaney will join the OUSTR as Assistant USTR for South Asian Affairs in September. He is a long time career Foreign Service officer at the Department of State. See, OUSTR release.

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7/1. The Department of Justice's (DOJ) Antitrust Division announced in a release that it "will close its investigation" of Visa, Inc., regarding its debit card industry practices. The DOJ wrote that Visa "has rescinded a rule that required merchants to treat Visa-branded debit cards differently when used as a PIN-debit card (and processed via non-Visa networks) from the same cards when used as signature debit cards and processed on the Visa network". (Parentheses in original.) The DOJ added that this "should eliminate any potential for competitive harm".

7/1. The Federal Trade Commission (FTC) published a notice in the Federal Register that announces that it "intends to conduct consumer survey research to advance its understanding of the experiences of consumers who interact with consumer reporting agencies following an incident of identity theft". The FTC seeks public comments on this research. See, Federal Register: July 1, 2008, Vol. 73, No. 127, at Pages 37457-37458. See also, FTC release. Comments are due by September 2, 2008.

Go to News from June 26-30, 2008.