Thursday, May 18, 2017

How a Financial Panic Helped Launch the New York Stock Exchange - TIME

Posted: 17 May 2017 06:00 AM PDT

Long before One World Trade Center towered over Lower Manhattan, an American sycamore or buttonwood tree on Wall Street was the tallest thing in the area, and the center of commerce. It was 225 years ago, May 17, 1792, under that very tree, that 24 stockbrokers and merchants signed the so-called Buttonwood Agreement, establishing the parameters for trading in the first incarnation of the New York Stock Exchange. 
They agreed that they’d only trade with each other and represent the interests of the public, which meant that the confidence that they had in each other was the confidence that they had in the market. In other words, they wouldn’t have to be worrying about selling bad stock or competition over commission rates, so the prices charged would reflect the value of the stock, not some other factor.
The exact text reads:
We the Subscribers, Brokers for the Purchase and Sale of Public Stock, do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day for any person whatsoever, any kind of Public Stock, at a less rate than one quarter per cent Commission on the Specie value and that we will give a preference to each other in our Negotiations. In Testimony whereof we have set our hands this 17th day of May at New York. 1792.
The trades they made at the time were what would be considered commodities trading, according to Peter Asch, the New York Stock Exchange’s historian. In the late 1700s, available stock was limited to insurance companies, the Bank of New York, the First Bank of the United States and “Hamilton Bonds” that Alexander Hamilton had decided to issue to deal with America’s Revolutionary War debt. (The system was considered risky and criticized for making the wealthy wealthier.)
The agreement was an attempt to establish some rules after the 1792 financial panic, at which point there had been no rules or safeguards, and a lot of deals were reneged on. The panic had been instigated by the actions of the speculator William Duer, who borrowed to make trades until he found that he couldn’t borrow anymore.
“He was betting that the market was going to go down while everyone else was betting that it was going to go up,” as economic historian Robert E. Wright puts it, until he ran out of money. “He stops making payments, so everyone is out their money and starts wondering who lent to Duer and if those people would make their payments.” The situation was similar, Wright adds, to what happened more recently when Lehman Brothers went bankrupt and people started wondering who the firm owed money to. So people panicked, and started selling. The more they sold, the more prices dropped, making people panic even more — until Alexander Hamilton worked with the First Bank of the United States to stop the panic.
Brokers signed the Buttonwood Agreement as a way to reestablish confidence and encourage people to start investing again.
“It’s profitable to be in this club, so you’re going to follow the rules because you want to remain in the club,” as Wright describes the rationale. “They might lose on one deal, but being in the club is so lucrative that they know they’ll make it back on another day. When you all know each other, why screw each other?”

Political Turmoil in Washington Leads to Largest Stock Market Drop in 8 Months - TIME Business


Posted: 17 May 2017 02:27 PM PDT

The growing political drama in Washington rattled Wall Street Wednesday, knocking the Dow Jones industrial average down more than 370 points and giving the stock market its biggest single-day slump in eight months.
Investors worried that the headline-fueled political turmoil that has enveloped the White House may hinder President Donald Trump’s plans to cut taxes, roll back government regulations and other aspects of his pro-business agenda.
The steep drop ended an unusually long period of calm for the markets, which had been hovering near all-time highs.
Financial stocks, which had soared in the months since the election, declined the most as bond yields fell sharply. Bonds, utilities and gold rose as traders shunned riskier assets. The dollar fell.

“When you are at these valuations, the market has to reassess whether or not the agenda is actually going to be implemented,” said Quincy Krosby, market strategist at Prudential Financial. “What you’re seeing is a classic run toward safety.”
The Standard & Poor’s 500 index had its biggest drop since September, sliding 43.64 points, or 1.8 percent, to 2,357.03. The Dow lost 372.82 points, or 1.8 percent, to 20,606.93. The Nasdaq composite index, coming off setting two consecutive record highs, gave up 158.63 points, or 2.6 percent, to 6,011.24.
Small-company stocks fell more than the rest of the market. The Russell 2000 index sank 38.79 points, or 2.8 percent, to 1,355.89. Those companies would stand to benefit even more than large ones from corporate tax cuts Trump is proposing. They also had risen sharply in the months following the election.
The sell-off snapped an unusually long period of calm after hitting a series of record highs. On Tuesday the S&P 500, the benchmark favored by professional investors, marked its 15th straight day of moving up or down by less than 0.5 percent. It closed at its latest record high on Monday.
Bond prices rose sharply. The 10-year Treasury yield fell to 2.21 percent from 2.33 percent late Tuesday, a large move.
The seeds of Wednesday’s steep market sell-off were present late Tuesday, when a published report revealed that Trump allegedly made a personal appeal to now-fired FBI Director James Comey to drop the bureau’s investigation into former National Security Adviser Michael Flynn. The White House denied the report.
Trump had already been facing pointed questions about his discussions with Russian diplomats during which he was reported to have disclosed classified information.
“The controversy is not new, but this one really seems to be sticking,” said Erik Davidson, chief investment officer for Wells Fargo Private Bank. “The Trump economic program is either going to be delayed by this turn of events or possibly be derailed, that’s why investors are acting the way they are.”
The latest headlines ratcheted up the market’s unease. The VIX index, a measure of how much volatility investors expect in stocks, rose to its highest level since April 13. Investors shifted into U.S. government bonds, pushing yields lower, and into gold. The precious metal jumped 1.8 percent, climbing $22.30 to settle at $1,258.70 per ounce.
Among the hardest-hit stocks Wednesday are in sectors that benefited most from the post-election rally as investors banked on Trump to cut taxes, boost infrastructure spending and relax regulations that affect energy, finance and other businesses.
Banks fell sharply as bond yields declined, which will mean lower interest rates on loans. Bank of America slid $1.42, or 5.9 percent, to $22.57.
Unease over the potential implications of the latest political fallout in Washington weighed on the dollar Wednesday. The euro strengthened to $1.1150 from $1.1095. The dollar dropped to 111.11 yen from 113.03 yen.
Benchmark U.S. crude rose 41 cents, or 0.8 percent, to close at $49.07 per barrel in New York. Brent crude, used to price international oils, gained 56 cents, or 1.1 percent, to close at $52.21 per barrel in London. In other futures trading, natural gas fell 4 cents to $3.19 per 1,000 cubic feet. Wholesale gasoline was little changed at $1.60 per gallon. Heating oil rose 2 cents to $1.53 per gallon.
Among other commodities, silver added 16 cents to $16.85 per ounce. Copper was little changed at $2.54 per pound.
Markets overseas were also mostly lower.
In Europe, Germany’s DAX fell 1.4 percent. The CAC 40 in France slid 1.6 percent. The FTSE 100 index of leading British shares dipped 0.2 percent. Asian markets mostly fell. Japan’s Nikkei 225 dropped 0.5 percent, while South Korea’s Kospi dipped 0.1 percent. Hong Kong’s Hang Seng index slipped 0.2 percent.

House majority leader said in 2016 Trump on Russia payroll - Washington Post

House majority leader to colleagues in 2016: ‘I think Putin pays’ Trump
May 17 at 8:16 PM
KIEV, Ukraine — A month before Donald Trump clinched the Republican nomination, one of his closest allies in Congress — House Majority Leader Kevin McCarthy — made a politically explosive assertion in a private conversation on Capitol Hill with his fellow GOP leaders: that Trump could be the beneficiary of payments from Russian President Vladimir Putin.
“There’s two people I think Putin pays: Rohrabacher and Trump,” McCarthy (R-Calif.) said, according to a recording of the June 15, 2016, exchange, which was listened to and verified by The Washington Post. Rep. Dana Rohrabacher is a Californian Republican known in Congress as a fervent defender of Putin and Russia.
House Speaker Paul D. Ryan (R-Wis.) immediately interjected, stopping the conversation from further exploring McCarthy’s assertion, and swore the Republicans present to secrecy.
Before the conversation, McCarthy and Ryan had emerged from separate talks at the Capitol with Ukrainian Prime Minister Vladi­mir Groysman, who had described a Kremlin tactic of financing populist politicians to undercut Eastern European democratic institutions.
News had just broken the day before in The Washington Post that Russian government hackers had penetrated the computer network of the Democratic National Committee, prompting McCarthy to shift the conversation from Russian meddling in Europe to events closer to home.
Some of the lawmakers laughed at McCarthy’s comment. Then McCarthy quickly added: “Swear to God.”
Ryan instructed his Republican lieutenants to keep the conversation private, saying: “No leaks. . . . This is how we know we’re a real family here.”
The remarks remained secret for nearly a year.
The conversation provides a glimpse at the internal views of GOP leaders who now find themselves under mounting pressure over the conduct of President Trump. The exchange shows that the Republican leadership in the House privately discussed Russia’s involvement in the 2016 election and Trump’s relationship to Putin, but wanted to keep their concerns secret. It is difficult to tell from the recording the extent to which the remarks were meant to be taken literally.
The House leadership has so far stood by the White House as it has lurched from one crisis to another, much of the turmoil fueled by contacts between Trump or his associates with Russia.
House Republican leaders have so far resisted calls for the appointment of an independent commission or a special prosecutor to investigate Russian interference, though pressure has been mounting on them to do so after Trump’s firing of FBI Director James B. Comey and the disclosure that the president shared intelligence with Russian diplomats.
Late Wednesday, Deputy Attorney General Rod J. Rosenstein announced he had appointed Robert S. Mueller III, a former prosecutor who served as the FBI director from 2001 to 2013, as special counsel to oversee the Russia probe.
Evan McMullin, who in his role as policy director to the House Republican Conference participated in the June 15 conversation, said: “It’s true that Majority Leader McCarthy said that he thought candidate Trump was on the Kremlin’s payroll. Speaker Ryan was concerned about that leaking.”
McMullin ran for president last year as an independent and has been a vocal critic of Trump.
When initially asked to comment on the exchange, Brendan Buck, a spokesman for Ryan, said: “That never happened,” and Matt Sparks, a spokesman for McCarthy, said: “The idea that McCarthy would assert this is absurd and false.”
After being told that The Post would cite a recording of the exchange, Buck, speaking for the GOP House leadership, said: “This entire year-old exchange was clearly an attempt at humor. No one believed the majority leader was seriously asserting that Donald Trump or any of our members were being paid by the Russians. What’s more, the speaker and leadership team have repeatedly spoken out against Russia’s interference in our election, and the House continues to investigate that activity.”
“This was a failed attempt at humor,” Sparks said.
Ken Grubbs, a spokesman for Rohrabacher, said the congressman has been a consistent advocate of “working closer with the Russians to combat radical Islamism. The congressman doesn’t need to be paid to come to such a necessary conclusion.”
When McCarthy voiced his assessment of whom Putin supports, suspicions were only beginning to swirl around Trump’s alleged Russia ties.
At the time, U.S. intelligence agencies knew that the Russians had hacked the DNC and other institutions, but Moscow had yet to start publicly releasing damaging emails through WikiLeaks to undermine Trump’s Democratic challenger, Hillary Clinton. An FBI counterintelligence investigation into Russian efforts to influence the presidential election would open the following month, in late July, Comey has said in testimony to Congress.
Trump has sought to play down contacts between his campaign and the Russians, dismissing as a “witch hunt” the FBI and congressional investigations into Russian efforts to aid Trump and any possible coordination between the Kremlin and his associates. Trump denies any coordination with Moscow took place.
Presidential candidate Trump’s embrace of Putin and calls for closer cooperation with Moscow put him at odds with the House Republican caucus, whose members have long advocated a harder line on Russia, with the exception of Rohrabacher and a few others.
Among GOP leaders in the House, McCarthy stood out as a Putin critic who in 2015 called for the imposition of “more severe” sanctions for its actions in eastern Ukraine and the annexation of Crimea.
In May 2016, McCarthy signed up to serve as a Trump delegate at the Republican National Convention, breaking ranks with Ryan, who said he still was not ready to endorse the candidate. McCarthy’s relationship with Trump became so close that the president would sometimes refer to him as “my Kevin.”
Trump was by then the lone Republican remaining in the contest for the nomination. Though Ryan continued to hold out, Trump picked up endorsements from the remaining GOP leaders in the House, including Rep. Steve Scalise, the majority whip from Louisiana, and Republican Conference Chairman Cathy McMorris Rodgers (Wash.) — both of whom took part in the June 15 conversation.
Ryan announced on June 2 that he would vote for Trump to help “unite the party so we can win in the fall” but continued to clash with the candidate, including over Putin. While Trump sought to cast Putin as a better leader than then-President Obama, Ryan dubbed him an “aggressor” who didn’t share U.S. interests.
On the same day as Ryan’s endorsement, Clinton stepped up her attacks on Trump over his public statements praising Putin. “If Donald gets his way, they’ll be celebrating in the Kremlin,” she said.
Ukrainian officials were unnerved by Trump’s statements in support of Putin. Republicans, they had believed, were supposed to be tougher on Russia.
When Trump named Paul Manafort as his campaign manager in April 2016, alarm bells in Kiev started ringing even louder. Manafort was already well known in Ukraine because of his influential role as a political consultant to Viktor Yanukovych, the country’s former Kremlin-friendly ruler until a popular uprising forced him to flee to Russia. Manafort had also consulted for a powerful Russian businessman with close ties to the Kremlin.
“Ukraine was, in a sense, a testing ground for Manafort,” said Ukrainian political scientist Taras Berezovets, who became a grudging admirer of Manafort’s skills in the “dark arts” of political stagecraft while Berezovets was working for one of Yanukovych’s political rivals.
At the urging of Manafort, Yanukovych campaigned with populist slogans labeling NATO a “menace” and casting “elites” in the Ukrainian capital as out of touch, Berezovets said. Trump struck similar themes during the 2016 campaign.
The FBI is now investigating whether Manafort, who stepped down as Trump’s campaign manager in August, received off-the-books payments from Yanukovych’s party, U.S. officials said. As part of that investigation, FBI agents recently took possession of a newly discovered document that allegedly details payments totaling $750,000. Ukrainian lawmaker Sergii Leshchenko, who first disclosed the new document, declined to comment on his contacts with the FBI.
A spokesman for Manafort has said that Trump’s former campaign manager has not been contacted by the FBI. Manafort has also disputed the authenticity of the newly discovered document.
Groysman, on an official visit to Washington, met separately with Ryan and McCarthy on June 15 at the Capitol.
He told them how the Russians meddled in European politics and called for “unity” in addressing the threat, according to U.S. and Ukrainian officials. Ryan issued a statement after the meeting saying, “the United States stands with Ukraine as it works to rebuild its economy and confront Russian aggression.”
Later, Ryan spoke privately with McCarthy, Rodgers, Scalise and Rep. Patrick T. McHenry (R-N.C.), the deputy whip, among others.
Ryan mentioned his meeting with Groysman, prompting Rodgers to ask: “How are things going in Ukraine?” according to the recording.
The situation was difficult, Ryan said. Groysman, he said, had told him that Russian-backed forces were firing 30 to 40 artillery shells into Ukrainian territory every day. And the prime minister described Russian tactics that include “financing our populists, financing people in our governments to undo our governments.”
Ryan said Russia’s goal was to “turn Ukraine against itself.” Groysman underlined Russia’s intentions, saying, “They’re just going to roll right through us and go to the Baltics and everyone else,” according to Ryan’s summary of the prime minister’s remarks in the recording.
“Yes,” Rodgers said in agreement, noting that the Russians were funding nongovernmental organizations across Europe as part of a wider “propaganda war.”
“Maniacal,” Ryan said. “And guess, guess who’s the only one taking a strong stand up against it? We are.”
Rodgers disagreed. “We’re not . . . we’re not . . . but, we’re not,” she said.
That’s when McCarthy brought the conversation about Russian meddling around to the DNC hack, Trump and Rohrabacher.
“I’ll guarantee you that’s what it is. . . . The Russians hacked the DNC and got the opp [opposition] research that they had on Trump,” McCarthy said with a laugh.
Ryan asked who the Russians “delivered” the opposition research to.
“There’s . . . there’s two people I think Putin pays: Rohrabacher and Trump,” McCarthy said, drawing some laughter. “Swear to God,” McCarthy added.
“This is an off the record,” Ryan said.
Some lawmakers laughed at that.
“No leaks, all right?,” Ryan said, adding: “This is how we know we’re a real family here.”
“That’s how you know that we’re tight,” Scalise said.
“What’s said in the family stays in the family,” Ryan added.

Andrew Roth in Moscow, Michael Birnbaum in Brussels and Robert Costa in Washington contributed to this report.
Washington Post



What is a Special Counsel ? - Wall Street Journal


What Is a Special Counsel? 
Former Federal Bureau of Investigation Director Robert Mueller will have broad powers, but will be overseen by deputy attorney general
By Jacob Gershman and Joe Palazzolo
May 17, 2017 8:53 p.m. ET
The No. 2 official in the Justice Department appointed a special counsel to oversee an FBI investigation of the Russian government’s efforts to influence the 2016 presidential election.
Deputy Attorney General Rod Rosenstein tapped former Federal Bureau of Investigation Director Robert Mueller III for the job, saying the appointment was “in the public interest.” Mr. Mueller, a former federal prosecutor, will have broad powers to conduct his inquiry, but he still reports to the Justice Department.
Here is a brief look at the role of the special counsel, its level of independence and the restraints on its authority.
What is a special counsel?
Under federal regulations from 1999, the attorney general may appoint a temporary special counsel from outside the Justice Department to conduct a criminal probe into a particularly sensitive matter and to potentially prosecute related wrongdoing. The appointment should be reserved for extraordinary situations when normal protocol is compromised by political conflicts.
Within the first 60 days of the special counsel’s appointment, the appointee must develop a proposed budget for the investigation for the attorney general’s approval. While the special counsel isn’t subject to day-to-day supervision, Mr. Mueller can be asked to report to the attorney general—or in this case, the deputy attorney general, because the attorney general has recused himself—about “any investigative or prosecutorial step.”
Mr. Mueller will have ample time to conduct his investigation. “There appear to be...no time limits on the special counsel’s authority, aside from annual reporting requirements for budgetary purposes,” according to a recent Congressional Research Service report.
How is a special counsel different from a federal prosecutor?
The two roles are very similar. Special counsels are granted the “full power and independent authority to exercise all investigative and prosecutorial functions of any United States Attorney.”
Perhaps the biggest difference is that the special counsel must be selected from outside the U.S. government and be a lawyer “with a reputation for integrity and impartial decision-making.” A special counsel can also recruit an investigative team from either within or outside the Justice Department.
The Justice Department has relied on the regulations just once, when Attorney General Janet Reno in 1999 appointed former Sen. John Danforth to investigate the “Branch Davidian” siege near Waco, Texas.
What is the difference between a special counsel and an independent counsel?
It is the degree of independence. The attorney general, or his acting deputy, retains far more control over the scope of a special investigation, its prosecutorial jurisdiction and its budget. The special counsel may only be removed by the attorney general—in cases of “misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause”—although the president can dismiss the attorney general or the deputy attorney general at any time.
An independent counsel, which no longer exists under law, had far more latitude. The position was created after President Richard Nixon’s attempts to derail a criminal investigation of the Watergate scandal. The attorney general could request an independent counsel when allegations of wrongdoing by a high-ranking official arose. The request would be submitted to a judicial panel, which would pick the counsel, define the scope of the inquiry and its duration. The independent counsel could convene grand juries, grant immunity and prosecute any crimes stemming from the probe. The attorney general couldn’t remove the independent counsel except for incapacity or extraordinary impropriety.
The independence was a double-edged sword. During the Clinton administration, the sprawling investigation of the White House by Independent Counsel Kenneth Starr led to a backlash from scholars and others who believed the probe veered away from its original mandate of looking into Whitewater allegations and raised separation-of-powers concerns. The law expired in 1999.
Can the special counsel file criminal charges?
Yes, but the special counsel can be required to keep the attorney general aware of any “investigative or prosecutorial step.” Justice Department rules state that the attorney general may conclude that charges are inappropriate or unwarranted. If the attorney general decides against pursuing charges, he must inform Congress.
Can a special counsel investigation coexist with congressional hearings and investigations into the same matter, and how would that work?
Congress on its own can conduct investigations and hold hearings on the conduct of executive branch officials, and the Senate and House intelligence committees are already conducting probes into Russia’s interference in the 2016 election.
But criminal prosecutions into possible violations of federal law are regarded as the job of the executive branch under Article II of the U.S. Constitution. There is nothing stopping the two branches from pursuing parallel inquiries.
—Del Quentin Wilber and Aruna Viswanatha contributed to this article.

Wall Street Journal