Can Washington forgive AIG?

CAN WASHINGTON FORGIVE AIG? — POLITICO's Zachary Warmbrodt: "American International Group, the storied insurer that the government spent billions to rescue from near collapse during the 2008 financial crisis, wants the Trump administration to cut it a break. Officials are re-evaluating whether to ease regulations imposed on AIG in 2013, when a council of regulators led by the Treasury Department designated the company as a 'systemically important financial institution,' meaning its failure could rock the system.

"The financial stability council, now populated with a growing number of Trump appointees, is expected to discuss whether to reverse the decision when it meets Friday in a closed session.

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A move to relax oversight of AIG could spark political outrage that has been simmering since its bailout. For President Donald Trump's administration and Republicans in control of Washington, it will be a major test of broader efforts to deregulate the financial industry.

" … With its taxpayer bailout looming large, AIG for years avoided complaining publicly about the tighter government leash on its operations. But the company, under new leadership this year, has started to push back, arguing that it no longer deserves the tougher scrutiny after slimming down to about half the size it was during the Wall Street meltdown nearly a decade ago." Read more.

GET READY FOR BIPARTISAN OUTRAGE — Meanwhile, if you want to watch a couple of financial executives get yelled at, mark your calendars for the week of Oct. 2. On Tuesday, Oct. 3, Wells Fargo CEO Tim Sloan will testify before the Senate Banking Committee, and Equifax Chairman and CEO Richard Smith will testify before the House Financial Services Committee. The next day, it'll be Smith's turn before the Banking Committee.

It goes without saying that the environment won't be friendly for either, with Sloan's company having opened potentially millions of unauthorized accounts and Smith's firm being the subject of a hack that put 143 million people's private data at risk. Wells Fargo is likely facing a new round of enforcement actions from a number of regulators, and the Federal Trade Commission has confirmed it's looking into the Equifax breach. Meanwhile, either or both companies could eventually face criminal sanctions.

Cowen's Jaret Seiberg on Equifax: "We believe it is critical for the company to appreciate that this is not just another data breach. It is a breach that occurs at a time when the public is uneasy about big data and privacy. Lawmakers have no real idea for how to address the worries of their constituents. That is why we see risk for Equifax and the credit bureaus from this breach. There is the possibility that it forces Congress to act without full consideration of the ramifications of a legislative solution."

SEC HACK FALLOUT — SEC Chairman Jay Clayton will face the Banking Committee this coming Tuesday, where he will undoubtedly face questions about the agency's own security breach, an incident which we know little about at this point.

From POLITICO's Patrick Temple-West: "The Securities and Exchange Commission's antiquated disclosure system for the public is already becoming a headache for the agency's new leader."

" … 'The SEC's disclosure, which comes not even two weeks after Equifax revealed that it had been hacked, shows that government and businesses need to step up their efforts to protect our most sensitive personal and commercial information,' Sen. Mark Warner said in a statement. 'The SEC should not retreat from its important market oversight role in order to limit its exposure to sensitive information.'" Read more

One former SEC aide in an emailed statement to MM pointed to the difficulty of tracking down the perpetrators: "For years, the SEC and other agencies have been quick to judge companies who have been victims of hacking. This proves that no entity is safe," said Bradley Bondi a former member of the SEC executive staff and a partner at Cahill Gordon who has represented financial services firms that have been hacked. "No doubt, the SEC is already working to track down the perpetrators. The next question will be: where are they located? In some cases, prosecutions have been thwarted by nations that do not have extradition agreements with the US."

U.S. TURNS UP HEAT ON N. KOREA FINANCING — POLITICO's Nolan McCaskill, Louis Nelson and Nahal Toosi: "President Donald Trump announced Thursday that he had signed a new executive order expanding the U.S. government's authority to target individuals, companies and financial institutions with ties to North Korea, escalating the U.S. campaign of economic pressure against the repressive regime."

The order "does not impose any new sanctions but rather expands the Treasury Department's authority to target people who trade in goods, services or technology with North Korea. The president added that the U.S. will also seek to identify new industries that could be targeted, including textiles, fishing, information technology and manufacturing." Read more.

Treasury Secretary Steven Mnuchin told reporters later in the day that the sanctions won't apply retroactively and designations will be made "on a rolling basis."

The take from Center for American Progress' Melanie Hart: "Trump is following orders handed down from Congress. In late July, Congress passed an act that gave the Trump administration authority to take unilateral action against individuals or companies that help North Korea move goods and cash across borders in violation of existing UN sanctions. Earlier this week, the U.S. Senate passed a bipartisan defense bill that included an amendment requiring the Trump administration to develop a coherent strategy for dealing with North Korea. Trump's statements at the UN General Assembly suggest that the administration is finally following through on the authority granted from Congress over one month ago."

FREDDIE CEO DOESN'T LIKE THE OPTICS — POLITICO's Lorraine Woellert: "Fannie Mae and Freddie Mac are still living in the taxpayer basement and — like some millennials we know — aren't moving out anytime soon. After the end of this year, if they need cash, they'll have to turn to Treasury. Freddie CEO Don Layton isn't counting on legislative reform anytime soon, but in the meantime, he'd really like to have some capital on hand. That's partially for political reasons: If Freddie does need to tap its Treasury lifeline, the political fallout won't be good.

"'They will run to the cameras screaming bailout," Layton told POLITICO. And the "political chicken-running-around-without-a-head" might needlessly spook bond holders. Read Lorraine's full interview with Layton here.

HAPPY FIRST DAY OF AUTUMN — It was fun hanging with you all, as always. Ben White is retaking the newsletter on Monday. Reach him at bwhite@politico.com and @morningmoneyben, and Aubree Eliza at aweaver@politico.com and @AubreeEWeaver. And, of course, feel free to send financial regulatory pitches and Fed chair predictions to me: vguida@politico.com and @vtg2.

Aging in America — The 85 and older population is growing exponentially, yet health care policy and practice haven't necessarily caught up to the challenges that older patients face. Join POLITICO for a conversation on how to make the health care system more responsive to older patients with complex needs. Speakers include: Richard Baron, ABIM Foundation; Gary Cook, Direction Home Akron Canton Area Agency on Aging and Disabilities; Joanne Lynn, Altarum Institute; Diane E. Meier, Center to Advance Palliative Care and more. Wednesday, Sept. 27 — 8:00 a.m. — Washington Court Hotel. RSVP: HERE.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Lorraine Woellert on housing and mortgage groups' sparring over Fannie Mae and Freddie Mac capital. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or info@politicopro.com.

** A message from JPMorgan Chase & Co.: Imagine 4,500 Chase bank branches across the country and all the lightbulbs inside. Now imagine swapping each one for energy-efficient bulbs in the world's largest single-order LED installation. That's like taking 27,000 cars off the road or preserving 100,000 acres of trees, and it's only the beginning. Learn more: http://politi.co/2yd3hSX **

S&P DOWNGRADES CHINA'S DEBT — NYT's Keith Bradsher: "China and the world received a fresh warning on Thursday that the country's dramatic debt binge of recent years threatens the stability of one of the global economy's most important growth engines.

"Standard & Poor's downgraded its rating on China, saying the country's strong economic growth has been fueled by heavy borrowing — and that it expects that borrowing to continue. That could hurt the ability of the world's second-largest economy to handle potential financial shocks, like a crisis among its banks, and could lead to longer-term growth problems.

"The downgrade — which follows a similar move by Moody's Investors Service, a rival debt-rating firm, four months ago — offers a reminder of the challenges the Chinese economy faces as it matures and growth slows." Read more.

PUERTO RICO'S ECONOMIC CRISIS GROWS — Bloomberg's Michelle Kaske: "All of Puerto Rico has lost electricity. Entire towns are swamped in the deluge. Streets have become rivers and trees have crushed homes.

"Hurricane Maria is Puerto Rico's worst in nearly a century, a double blow as it follows the destructive Hurricane Irma by just two weeks. The costs, both human and financial, have only begun to come into view. This much is certain: the U.S. territory, bankrupted by runaway debt, now confronts an even deeper economic crisis. Four months after the island's government sought protection from creditors in the nation's largest municipal insolvency, the odds of a speedy resolution now appear to be dimming. President Donald Trump said Thursday he plans to visit the island and declared Puerto Rico a disaster zone, which helps clear the way for federal assistance." Read more.

YELLEN'S STOCK RISES — Reuters' Jonathan Spicer and Ann Saphir: "From her early days as Federal Reserve chair, Janet Yellen has been the target of criticism from Republicans worried that the central bank's massive bond-buying programs and near-zero interest rates engineered by her predecessor would be the ruin of the country. With little more than four months left in her term and questions swirling over whether the White House will ask her to stay on for another four years, Yellen has turned that story around. … Now Yellen's stock appears to be rising, both among her critics and on a real-money exchange where traders can place bets on who they think will be the next Fed chair." Read more.

NEW FED TEAM WILL INHERIT INFLATION MISS — Bloomberg's Craig Torres: "Federal Reserve Chair Janet Yellen's inflation strategy may have a shelf life of about four months. After that, a gang of newcomers might have to decide what to do next.

"Given such unknowns, central bank transitions are risky for investors. That's one reason U.S. presidents have a long history of reappointing Fed chiefs. By early 2018, as many as three new governors and a vice chairman will have the power to decide whether they maintain Yellen's strategy of gradually hiking into an inflation 'mystery,' as she calls it. Yellen's four-year term as chair ends in February, and an extension isn't guaranteed." Read more.

HAS QUANTITATIVE EASING WORKED? — WSJ's James Mackintosh: "After spending $2 trillion on government bonds in an effort to stimulate the economy, the U.S. Federal Reserve can hardly admit that it doesn't know how, or even if, it worked.

"Fed Chairwoman Janet Yellen on Wednesday came as close as she's ever likely to get to accepting that quantitative easing is still poorly understood even by the experts. Explaining why the central bank prefers to set short-term rates rather than buy or sell stuff, she said it was because 'we believe we understand pretty well what the effects [of rate changes] are on the economy,' and so do investors. Left unsaid: No one's really sure how, or if, QE works." Read more.

SURGING STOCK MARKET POWERS U.S. WEALTH TO $96.2T — AP's Christopher Rugaber: "A healthy gain in the stock market and steadily increasing home prices boosted Americans' household wealth this spring, a trend that likely adds to the nation's inequality. The Federal Reserve said Thursday Americans' net worth rose 1.8 percent to $96.2 trillion in the April-June quarter. Stock portfolios and mutual funds jumped $1.1 trillion. Home values climbed $600 billion.

"The solid gain in wealth could make many Americans more confident and spend more, which typically fuels economic growth. Consumer spending accounts for about 70 percent of U.S. economic activity. But the increases in wealth aren't widely shared, which many economists worry limits its economic benefit. Wealthier Americans are less likely to spend additional income and wealth gains." Read more.

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