Regulators Talk Tough on Volcker Rule [Financial Times] "US regulators want to use techniques pioneered in the fight against money-laundering to crack down on 'proprietary trading' by banks as part of new financial reforms, according to bankers and officials. The question of how to define trading done with banks' own funds is one of the thorniest for the US authorities in the post-crisis regulatory overhaul as it is difficult to differentiate such activities from market-making on behalf of clients. The 'Volcker rule', proposed by the former Federal Reserve chairman Paul Volcker and included in last year's Dodd-Frank law, aims to reduce banks' risk-taking by forbidding them from placing short-term trading bets."
AIG to Issue New Warrants as Gov't Unwinds Its Stake [CNBC via AP] "Insurance giant American International Group is issuing 75 million warrants as part of its plan to free itself from U.S. government ownership. The warrants are expected to be distributed on Jan. 19 to shareholders of record Jan. 13. The Treasury Department will not receive any of the warrants. Each warrant will represent the right to buy one share of AIG at an initial exercise price of $45 per share, according to a filing Friday with the Securities and Exchange Commission."
PIGS Riskier Than Iraq According to CDS Pricing [CNBC] CNBC's Antonia Oprita on PIGS Risk: "Greece has become the world's riskiest borrower in the fourth quarter of 2010, surpassing Venezuela, while Spain, Portugal and Ireland were riskier than Iraq, according to data compiled by CMA, a provider of data on pricing of Credit Default Swaps (CDS). The four euro zone countries, dubbed PIGS by economists, have been engulfed in a debt crisis sparked by fears early last year that Greece's bulging public debt means the country will have to restructure or default on its debt at some point."
Goldman: Investors Must Learn to Take Losses [CNBC] CNBC's Patrick Allen Patrick Allen discusses Goldman's sovereign bonds: "Austerity measures put in place by peripheral euro zone countries will eventually bear fruit, but going forward bond investors will have to start getting used to taking losses on their principal, Erik Nielsen, the Chief European Economist at Goldman Sachs, told CNBC Friday. Data from CMA, a provider of Credit Default Swaps pricing information, showed that debt from Portugal, Ireland, Greece and Spain, known in the market under the acronym PIGS, was considered riskier to insure against default than Iraqi debt in the fourth quarter of last year. 'At the most fundamental level, we have to return to a state in which both shareholders and creditors can lose their money if their investments go wrong, and senior debt will therefore have to be included in future debt work-outs wherever possible,' Nielsen said."
Catastrophe is Big Business [DealBook — New York Times] "Investors, still reeling from one disaster, are betting on the likelihood of another. Amid the volatility in the markets, wealthy individuals and big institutions are flocking to hedge funds that buy so-called catastrophe bonds and other investments tied to the probability of Gulf Coast hurricanes, Japanese earthquakes, large snowfalls in Canada and other natural disasters."
Payroll Numbers Show Surprising Weakness [CNBC] "The U.S. economy created far fewer jobs that expected in December, suggesting the Federal Reserve will complete its asset buying program, but the unemployment rate dropped to its lowest in more than 1-1/2 years. Non-farm payrolls increased 103,000, the Labor Department said on Friday, below economists' expectations for 175,000. Private hiring rose 113,000, while government employment fell 10,000."