The New York Times - 19.09.2019

THE NEW YORK TIMES BUSINESSTHURSDAY, SEPTEMBER 19, 2019 0 N B3

POLICY | ENVIRONMENT | INVESTING

kets managed to make headlines,

it was in exceptional episodes of

market stress — for instance, in

the early days of the financial cri-

sis.

This time, there is little reason

to worry that an economic catas-

trophe is in the offing. But the

movement highlighted the impor-

tance of a market that usually op-

erates in the background.

The repo market is critical

to a functioning Wall Street.

Repos are short-term loans

mainly used by banks and hedge

funds in their daily bond trading

and brokerage businesses.

These firms typically pay for

their investments with borrowed

money, and the repo market pro-

vides those large sums of money

on a daily basis. The money comes

from other financial institutions

like money market mutual funds

that lend it out for very short peri-

ods. A borrower in the repo mar-

ket could take that cash for a sin-

gle night, for example, to cover

purchases made the day before.

But something went awry this

week: The cost of taking out a loan

in the repo market shot sharply

higher starting on Monday, which

caught people off guard.

Interest rates on overnight

loans, which have averaged

roughly 2.2 percent since early

August, jumped to 2.88 percent on

Monday. Then on Tuesday, they

rose to as high as 6 percent.

Repo rates are meant to reflect

the federal funds rate, and that’s

falling as the central bank lowers

its interest rate target to bolster

the economy.

The surge in rates may have

been coming for a while.

When there is a lot of money avail-

able for the big banks to borrow

each night, rates stay low.

But in recent days, a number of

factors drained funds out of the

market. Monday was a tax pay-

ment deadline for big companies

and a holiday in Japan, which

meant a large source of funds was

shut off. And after a recent auction

of government bonds, people had

to divert cash to pay for those.

Those were the likely trigger

events for this week’s surge. But

the amount of money pooled in

this market has been declining for

a while. And that’s because of the

Fed.

Since 2018, the Fed has been

shrinking its holdings of bonds

and reversing its crisis-era policy

of pushing money into the finan-

cial system.

The change has effectively re-

duced the supply of money avail-

able in the short-term lending

markets. The surge in short-term

rates suggests that the Fed might

have removed a bit too much,

making reserves too scarce.

“The problem is, we don’t know

what that minimum level is and

we just smacked right into it,” said

Gennadiy Goldberg, senior

United States rates strategist at

TD Securities USA.

The repurchase market is just

one of the short-term money mar-

kets where short-term cash and

bank reserves are channeled to

borrowers, and rate increases in

one can influence others.

In the market for commercial

paper — unsecured loans to banks

and other large corporations —

rates for overnight borrowing also

surged.

In 2007, strange moves in the

repo market signaled trouble.

The good news is, a brief increase

in short-term interest rates will

probably not mean much to the

broader economy.

It could briefly raise the cost of

trading at financial firms, hurting

their profits. And if it persists, it

could undermine the belief of

those in the financial markets that

the Federal Reserve can effec-

tively apply monetary policy as it

intends.

The main reason that the surge

in the repo market has received

attention is because it reminds

people of the last time the market

went haywire.

In August 2007, the repo mar-

kets suddenly tightened, in what

turned out to be one of the earliest

indications that there were deep

problems in the financial system.

Then, the problems in the mar-

ket were centered on the market

for mortgage-backed securities,

which were often labeled AAA,

and were used by borrowers as

collateral in the repurchase mar-

kets.

As investors began to become

aware of the deep troubles of the

American mortgage market, they

began to avoid lending against

mortgage collateral. Repo rates

surged, reflecting the realization

of increased credit risk in these

kinds of bonds that were often

built out of poorly made home

loans.

This time is different.

No, really.

The surge in repo rates does not

mean that investors now think

Treasury bonds are risky. If that

were the case, interest rates in the

bond market would be higher. In

fact, they’re quite low. The yield

on the 10-year note was roughly

1.80 percent on Wednesday.

“While these issues are impor-

tant for market functioning and

market participants, they have no

implications for the economy or

the stance of monetary policy,” the

Fed chair, Jerome H. Powell, said

a news conference on Wednesday.

Basically, the story of the repo

market this week is essentially a

hiccup for the technocrats at the

central bank, leaving the markets

without enough cash to go around.

That’s not great to see, but there

is no reason to think this is the

leading indicator of another finan-

cial crisis.

Stress in a Key Market Has Wall St. Buzzing

FROM FIRST BUSINESS PAGE

Jeanna Smialek contributed report-

ing.

revocation by citing specific de-

tails of the plan. As the political

battle over the climate emissions

has intensified, Mr. Trump’s inter-

est in the policy details of the issue

has deepened, according to a per-

son familiar with the matter.

“If you look at the whole tweet

thread, this is remarkably spe-

cific,” said Barry Rabe, a profes-

sor of public policy at the Univer-

sity of Michigan. “It almost moves

into policy-wonk territory. If he’s

doing this himself, he’s on his pol-

icy game.”

Still, Mr. Rabe and other ex-

perts said that Mr. Trump’s as-

sertions, while using the language

of emissions policy, veered from

the facts on several points.

Several analysts, for instance,

disputed Mr. Trump’s assertion

that weakening emissions stand-

ards would improve highway

safety.

“The president’s claim that high

fuel economy negatively affects

safety is baseless,” said Shannon

Baker-Branstetter, the co-author

of an August Consumer Reports

analysis concluding that the

Trump administration’s rollback

WASHINGTON — President Trump

on Wednesday posted on Twitter

an aggressive defense of his un-

precedented move to abolish Cali-

fornia’s legal authority to set its

own standards on climate-warm-

ing automobile emissions.

Mr. Trump was in Los Angeles

for a fund-raiser when he boasted

about the move, which California

officials and environmental advo-

cates have assailed as an illegal

attack on states’ rights and on a

major policy designed to fight cli-

mate change.

“The Trump administration is

revoking California’s Federal

Waiver on emissions in order to

produce far less expensive cars

for the consumer, while at the

same time making the cars sub-

stantially SAFER,” Mr. Trump

wrote in the first of three posts. He

said the change would lead to in-

creased auto production and new

“JOBS, JOBS JOBS,” and claimed

that the newer cars would be “ex-

tremely environmentally

friendly,”

California officials said they

would sue to block the move as

soon as the plan was officially

published.

“Our message to those who

claim to support states’ rights is,

‘Don’t trample on ours,’ ” said Xa-

vier Becerra, the attorney general

of California, at a Sacramento

news conference about an hour af-

ter Mr. Trump’s tweets. “We can-

not afford to backslide in our bat-

tle against climate change.”

Mr. Trump’s supporters wel-

comed the move.

“The California emissions regu-

lations would impact Americans

in other states who have no ability

to vote those state legislators out

of office,” said Adam Brandon, the

president of FreedomWorks, a lib-

ertarian offshoot of a group co-

founded by the late David H. Koch

and his brother Charles Koch, who

made their fortune in fossil fuels.

“It is regulation without represen-

tation at its worst.”

The Trump administration is

expected Thursday morning to

formally revoke California’s au-

thority to set auto emissions rules

that are stricter than federal

standards, taking a major step for-

ward in the administration’s wide-

ranging attack on efforts to fight

climate change. Andrew Wheeler,

the head of the Environmental

Protection Agency, and Elaine

Chao, the transportation secre-

tary, are scheduled to announce

the formal abolition of the waiver,

a keystone of California envi-

ronmental policy, at the Washing-

ton headquarters of the E.P.A.

A revocation of the waiver

would have national significance.

Tailpipe pollution is the United

States’ largest source of planet-

warming greenhouse gas pollu-

tion, and California, with roughly

35 million vehicles, is the nation’s

largest auto market. California

has historically set stronger pollu-

tion standards than the federal

government, and many of those

standards have ultimately influ-

enced national and even interna-

tional policy.

Thirteen other states follow

California’s tighter tailpipe green-

house gas standards, together

representing roughly a third of the

national auto market.

The president’s series of three

Twitter posts sought to defend the

of fuel economy standards would

have no statistically significant ef-

fect on highway safety.

Legal experts said that if Mr.

Trump’s move was ultimately up-

held by the Supreme Court, it

could permanently block states

from regulating greenhouse gas

pollution from vehicles — a major

setback for efforts to control cli-

mate change. If it was struck

down by the court, it would allow

states to set separate tailpipe pol-

lution standards from those set by

the federal government.

That outcome could split the

United States auto market, with

some states adhering to stricter

pollution standards than others.

For automakers, that would be a

nightmare.

The move has been widely ex-

pected since the summer of 2018,

when the administration made

public its draft plan to roll back the

strict federal fuel economy stand-

ards put in place by the Obama ad-

ministration. That draft Trump

rule also included a plan to revoke

the state’s legal waiver, which was

granted to California under the

1970 Clean Air Act.

The administration’s plans

have been further complicated be-

cause major automakers have

told the White House that they do

not want such an aggressive roll-

back. In July, four automakers for-

malized their opposition to Mr.

Trump’s plans by signing a deal

with California to comply with

tighter emissions standards if the

broader rollback goes through.

Mr. Trump, who was blindsided

and angered by that announce-

ment, according to two people fa-

miliar with the matter, wanted to

press forward with a policy that

would punish California.

Meanwhile, the Justice Depart-

ment has opened an investigation

into whether the automakers’ deal

with California violates antitrust

laws.

Automakers responded cau-

tiously. Dave Schwietert, the in-

terim chief executive and presi-

dent of the Alliance of Automobile

Manufacturers, which represents

12 major auto companies, said in a

statement that his members

would review the details of the

plan when it is released “to get the

full picture of how this impacts au-

tomakers.”

Mr. Trump’s efforts would quite

likely lead to increased oil con-

sumption, and some critics ex-

pressed concern against the back-

drop of this week’s surge in oil

prices following attacks on Saudi

oil facilities. The Consumer Re-

ports study concluded that Mr.

Trump’s rollback of fuel standards

would increase the nation’s con-

sumption of oil by about 320 bil-

lion gallons.

“Saudi Arabia is showing us

how dependent we are on foreign

oil,” Gavin Newsom, the governor

of California, said at a news con-

ference.

The Obama-era tailpipe pollu-

tion rules that the administration

hopes to weaken would require

automakers to build vehicles that

achieve an average fuel economy

of 54.5 miles per gallon by 2025,

cutting about six billion tons of

carbon dioxide pollution over the

lifetimes of those vehicles. The

proposed Trump rule would lower

the requirement to about 37 miles

per gallon, allowing for most of

that pollution to be emitted.

White House officials have been

eager to move quickly to revoke

California’s authority to set its

own standards because they want

the opportunity to defend the ef-

fort in the Supreme Court before

the end of Mr. Trump’s first term.

The thinking goes that if a Demo-

crat is elected president in 2020,

the federal government would be

unlikely to defend revocation of

the waiver in the high court.

The 1970 Clean Air Act, the

landmark federal legislation de-

signed to fight air pollution na-

tionwide, granted California the

right to set its own, stricter rules

because the state already had

clean air legislation in place when

the act passed.

Over the decades, California re-

quested and received numerous

federal waivers to set tighter

state-level standards on the

tailpipe pollutants that cause

smog and respiratory problems,

though the federal government

did not always grant them.

The waiver in effect now was

written after the 2008 financial

crisis, when automakers were fi-

nancially teetering. It was part of

a deal struck by President Barack

Obama to toughen emissions

standards nationwide while align-

ing California’s rules with federal

regulations. It was designed to re-

main in effect until 2025.

Los Angeles shrouded in coastal fog and smog one morning last October. The president intends to block California’s plan to set its own emissions standards.

RICHARD VOGEL/ASSOCIATED PRESS

Trump Defends Move Against California’s Emissions Plan

By CORAL DAVENPORT

With about 35 million vehicles, California is the nation’s largest auto market.

MARIO TAMA/GETTY IMAGES

Analysts say weaker

standards will not

improve road safety.

The Consumer Financial Protec-
tion Bureau will continue to pub-
lish its database of consumer com-
plaints about financial companies,
ending — for now — a battle over
public access to one of the agen-
cy’s most powerful tools.
“The database is here to stay,”
Kathleen Kraninger, the bureau’s
director, said Wednesday at a con-
sumer conference in Rosemont,
Ill., outside Chicago.
Since 2011, the bureau has
maintained an open and search-
able record of more than one mil-
lion consumer accusations of inac-
curate bills, illegal fees, improper
overdraft charges, mistakes on
loans and a long list of other is-
sues. Companies have com-
plained that the database unfairly
harms their reputations by
spreading unverified negative in-
formation, but consumer advo-
cates say it’s a vital tool for spot-
ting problems and patterns of bad
conduct.
Consumer groups had worried
that the database — which con-
tains information the bureau is le-
gally required to collect — could
be made private as the bureau
shifted in a business-friendly di-
rection under President Trump,
who has pushed to reduce govern-
ment regulation.
Mick Mulvaney, Mr. Trump’s
acting chief of staff, who ran the
bureau temporarily, suggested
shielding the complaints data
from public view. He told a bank-
ing conference last year, “I don’t
see anything in here that says I
have to run a Yelp for financial
services sponsored by the federal
government.”
When Mr. Mulvaney initiated a
public call for feedback on the bu-
reau’s complaint process, more
than 26,000 people, companies
and advocacy groups responded.
Ms. Kraninger called that out-
pouring of comments “stagger-
ing” and persuasive.
Ms. Kraninger said that the
database would remain public and
that the bureau would add new
features to help consumers con-
tact companies and research an-

swers to common questions. The
bureau will also release data visu-
alization and analysis tools to help
people interpret the data in con-
text.
“These are the kind of tools that
our researchers already use inter-
nally, and I think making them
available to the public will greatly
improve the functionality of the
database,” she said.
In a rare moment of alignment,
industry trade groups and con-
sumer advocacy organizations
were cautiously optimistic about
Ms. Kraninger’s announcement.
“I’m gratified that the com-
plaint narratives will remain pub-
lic and hope that the C.F.P.B. will
continue to encourage consumers
to submit complaints when they
face problems,” said Lauren Saun-
ders, associate director of the Na-
tional Consumer Law Center.
The U.S. Chamber of Commerce
called Ms. Kraninger’s plans “a
step in the right direction.” Rich-
ard Hunt, the chief executive of
the Consumer Bankers Associa-
tion, said the changes Ms.
Kraninger outlined would help
make the bureau’s complaints
system fairer.
While consumer advocates
were heartened by the preserva-
tion of the public database on
Wednesday, they were lining up to
criticize another decision Ms.
Kraninger made this week. On
Tuesday, she flipped the bureau’s
position in a court fight about its
independence, joining critics who
say its leadership structure is un-
constitutional.
The legislation that created the
consumer bureau contained a pro-
vision saying that the bureau’s di-
rector could be removed only for
cause, defined as “inefficiency, ne-
glect of duty or malfeasance.”
That provision has been repeat-
edly challenged in court by adver-
saries who have said it gives the
bureau’s director too much un-
checked power — a position the
Justice Department took early in
Mr. Trump’s presidency.
In her speech on Wednesday,
Ms. Kraninger urged the Supreme
Court to take up a case involving
Seila Law, a California firm that
has asked the court to hear its
challenge to the agency’s struc-
ture, including the terms of the di-
rector position.
“My decision to no longer de-
fend the removal provision does
not mean that the bureau will stop
its work,” she said. “We will con-
tinue to defend the actions that the
bureau takes now and has taken in
the past.”

Consumer Unit

Will Preserve

Its Database

Of Complaints

By STACY COWLEY

A rare alignment of

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