Old is new again: 'Glass-Steagall' for the 21st century'
Recapping the day's news and newsmakers through the lens of CNBC.
Party Like It's 1999
An effort is under way to roll back the clock to 1999 (or even earlier) and again separate ordinary banking from higher-risk investment banking in what would be a Glass-Steagall Act for the 21st century. Sens. Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) have introduced a bill to break up megabanks, those deemed "too big to fail" because they present too great a risk to the economy and the government, which has been in the habit of bailing them out when things go awry.
Not everyone was on board, of course. Harvey Pitt, a former SEC chairman, said that the effort is "entirely misguided" and targets things that didn't cause the 2008 financial crisis. He added that Dodd-Frank and Basel III will do a better job of keeping banks honest.
"Regulators started changing it in the 1980s. And they started creating loopholes in the old Glass-Steagall Act, so that finally in 1999 Congress got rid of the whole thing but it was a shell by then. And so what happened? We had the big crash in 2008. What does everyone say about it? They say that too much concentration in financial services creates 'too big to fail.' Puts us at too big a risk. What's happened since 2008? The four biggest financial institutions are now 30 percent bigger than they were in 2008."—Sen. Elizabeth Warren
"At the end of the day there is no single magic bullet that's going to stop 'too big to fail.' The central premise behind a 21st century Glass-Steagall is to say, 'if you want to go out there to take risks, go and do it. But what you can't do [is] get access to FDIC insured deposits when you do.' That by itself, a little bit, helps brings down the size of some of the financial institutions and it says at least one portion of our banking sector stays safer."—Sen. Warren
Dimon Is the Economy's Best Friend
JPMorgan Chase CEO Jamie Dimon is all optimism, saying the U.S. economy will only get stronger, as his company reported its earnings Friday morning.
He thinks that small businesses will recover with the economy and that rising rates are a good thing for banks and savers. He said JPMorgan Chase can make money in a rising-rate environment as long as the economy is growing. Indeed, the bank saw its trading revenue grow by 18 percent in the second quarter. Overall, its revenue was up 13.39 percent to $26 billion, from $22.9 billion a year ago. Its net income rose by 30.96 percent to $6.5 billion.
Shareholders were enthused about Dimon's words and the bank's performance but wanted to see it go after more mortgage business.
"All things being equal, rates going up is a good thing, as long as the economy is growing. We all want normalized rates. I believe in the process of normalization you're going to have some volatility. Look past the volatility."—Jaimie Dimon
"Eventually, we'll be back to business as usual. That may take another year or two."—Dimon
Optimism … With Caveats
Americans are more optimistic about the economy now than they've been in the past six years, but not so much as to overcome the pessimism cultured by years of high unemployment and wage stagnation. That's the finding based on July's Thomson Reuters/University of Michigan preliminary reading of consumer sentiment, which stepped back to 83.9 from 84.1 in June. That lags a forecast of 85.
The gauge of current economic conditions was up to 99.7 from 93.8, its highest level since 2007, but consumer expectations sagged to 73.8 from 77.8, meaning there's a shortage of economic optimism about the future.
Meanwhile, June's producer price index, a gauge of what manufacturers get for their goods, was up 0.8 percent, its biggest hike since September. But once you strip out energy and food, price pressure is relatively muted.
"Don't worry. There's no pricing pressure. Yes, up 8 tenths. Take out the all important—underscore, all important—food and energy, you are up 2 tenths. Both of those numbers are a little hot. Just to give you context, our last look at PPI was up 0.5, that's unrevised. Those are month over month. Let's open it up, year over year; up 2.5, that's hotter. We're coming off a 1.7. We were expecting closer to 2 percent. If we strip out once again, look at core year over year, many were looking for 1.5, most up 1.6. It exactly matches our last year overlook at 1.7."—CNBC's Rick Santelli
Close, but No Cigar
"Sustainable Socialism" is apparently the future of a post-Castro Cuba, as it fetes its new culture of small, private businesses to Western business media outlets. The businesses were allowed a few years ago and have seen some growth. But don't look too close; one featured business, a garment factory, is using 1950s-era sewing machines and employs just three workers. Time will tell if Cuba's shift to a market economy—and the marketing slogans it's employing—will pan out.
"One of the shining lights, one of the shining examples they wanted to show us, was a business using 1950s-era Singer sewing machines."—CNBC's Michelle Caruso-Cabrera
Could Not Deliver
UPS told Wall Street Friday that it expects second-quarter results far short of expectations due to a wide range of economic issues, such as an overcapacity in global air freight, slowing U.S. industrial output and consumer preference for cheaper (meaning slower) shipping. Economists will note that based on the company's projections, the global economic recovery still has a way to go, as UPS is a bellwether for global economic activity.
On the upside, UPS has a strong U.S. ground shipping presence and it expects growth in the small-package market to exceed U.S. economic growth. Optimists note that 2013 will be a record year for earnings for UPS despite an expected slowdown in the second half.
"This year, 2013, is still going to be a record year for earnings for the company. So while they are seeing a slowdown relative to where they expected to be in [the] back half of the year relative to the first half, things are still looking pretty good."—Art Hatfield, transportation analyst with Raymond James
Boeing on Fire
An Ethiopian Airlines Boeing 787 Dreamliner caught fire on the apron at London's Heathrow Airport. The cause of the fire is unknown.
All 787s were grounded Jan. 16 after a problem was found with the lithium-ion batteries the plane uses. An All Nippon Airways (ANA) 787 made an emergency landing that day after experiencing a battery fire. The 787 returned to service on April 27 following the FAA's approval of a revised battery design.
In addition to Ethiopian and ANA, the 787 is flown by Japan Airlines, United Airlines and Air India. Shares of Boeing ended trading down close to 5 percent.
"Any problem for the Dreamliner is going to be big news. Given the history of the Dreamliner, it's certainly a downdraft for Boeing to say the least."— Ben Mutzabaugh, USA Today airline editor
—By Doug Cubberley, Special to CNBC.com.