Surprising Stress Test Success for Wells Fargo, and Difficulty for Goldman Sachs and Morgan Stanley

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Here, DealBook takes a closer look at how the tests played out.

Who were the clear winners?

The Public. The ultimate reason the Fed is testing the banks is to make sure they can keep lending through a financial crisis and not require bailouts. The stress tests have not always existed. They were introduced after the financial crisis of 2008, and most experts agree that they’ve made the big banks safer. The most common way of measuring a bank’s strength is to look at its capital levels. As the Fed noted on Thursday, the 35 banks in the stress test had more than $1.2 trillion of capital at the end of 2017, an increase of approximately $800 billion since 2009.

A caveat, though: The tests may get tweaked in the future in ways that make them easier for the big banks. In proposed changes to the stress tests and capital requirements, the Fed has suggested removing a measure of capital, known as the supplementary leverage ratio, that some banks find hard to meet. “This will make the stress tests less stressful,” said Gregg Gelzinis, of the left-leaning Center for American Progress.

Wells Fargo is a surprising winner. The bank has been embroiled in several scandals that harmed customers. That did not appear to hold it back in the stress tests. Nor did the stringent regulatory action the Fed imposed on the bank earlier this year, which included a cap on its growth. Wells Fargo, having passed the stress tests, on Thursday announced that the Fed had signed off its plan to initiate roughly $33 billion in stock buybacks and dividends, more than double the amount approved after last year’s test. That payout would be 40 percent more than earnings analysts expect Wells Fargo to make in the second half of this year and the first half of next, which is the period covered by the banks’ capital plans. One possible reason Wells Fargo can distribute so much capital is that it needs less to finance new loans since the Fed restrained its growth. The big payouts make the balance sheet cap imposed by the Fed less painful for the bank’s shareholders.

How bad was it for Morgan Stanley and Goldman Sachs?

The limit on pay outs carries a stigma, but it could have been worse. Morgan Stanley’s planned $6.8 billion distribution to shareholders after this year’s stress test is close to what it planned after last year’s. Goldman’s planned payout for this year, $6.3 billion, is lower than last year’s request of around $9.9 billion. But it’s important to note that Goldman has only paid out roughly $5.7 billion of last year’s sum.

One reason the Fed did not object to the two firms’ capital plans is that, although their payouts would have taken their capital below minimum requirements in the stress tests, there were mitigating circumstances. The two banks’ results were negatively affected by the recent tax bill enacted by Congress. Adapting to the new law, which meant doing things like repatriating money from abroad, caused losses at Morgan Stanley and Goldman Sachs that depleted their capital going into the stress tests. Because of the one-time nature of the losses, and the fact that the tax cuts will bolster earnings over time, the Fed did not object to the two banks’ plans.

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Profile: Australians Can’t Get Enough of the Barefoot Investor

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Mr. Pape’s folksy manner delivers down-home truths: Don’t get swept up in trendy investments; pay off your debts; analyze how banks are managing your money. As a result, it’s uncontroversial with experts. Chris Richardson, an economist at Deloitte in Canberra, said that Mr. Pape’s major tenets, like his argument that Australians have generally overvalued property and undervalued stock trading “are more real then people realize.”

Another cornerstone of the Barefoot Investor’s plan that resonates with economists is the importance of renegotiating bank fees, which, according to the Reserve Bank of Australia, run to 480 Australian dollars, around $355, a household per year. “Over ten years,” Mr. Pape writes, that’s “enough to take you to New York City and stay at a five-star hotel.”

Bank fees are lower in the United States; in Australia, just four banks represent about 80 percent of the total share of the market. “We certainly have high market concentration by international standards,” said Danielle Wood, an economist at the Grattan Institute, a public policy think tank in Melbourne. Ms. Wood sees high bank fees as a result of status quo bias, or the tendency to accept things the way they are, perhaps understandable for a country doing so well economically. “I think the message of the Barefoot Investor gets traction because he encourages people to think about things, and think about why they’re paying too much,” she said.

Jackie Frankel, a 47-year-old factory worker from Australia’s Mornington Peninsula, is a zealous Barefooter, as Mr. Pape’s fans are known. She concedes that her two grown daughters don’t completely understand his appeal. “They say to me, it’s common sense stuff to figure out what you owe, but I say people need it in black and white,” Ms. Frankel said. After reading the book, she and her husband, who also works in a factory, started going out for “date breakfasts.” (Nights were out because of their shifts.) After talking it through over eggs, they moved their money from one of the “big four” banks to an online-only account recommended by name in Mr. Pape’s book. (He says that he does not accept any endorsements, and will pull a recommendation if he sees a company using his name in advertising.) “We saved $500 a month just doing that, and now we’re going to New Zealand on a cruise,” Ms. Frankel said.

Australians love to travel internationally: about 60 percent hold passports, compared with around 40 percent of Americans. Mr. Pape doesn’t come across as abstemious about these sorts of big-ticket expenses. Instead, he advocates for letting the good times roll by divvying money into “buckets.” This approach ensures daily expenses are separated from “splurges,” like lattes, and “smile” purchases, which, like vacations, make you smile when you think of them. Call it the set and forget principle of money management.

“He doesn’t subscribe to the idea that you’ve got to get down to the bare bones and have no fun,” said Ali Cusack, a 31-year-old lawyer in Melbourne. “He just says, build it into your budget.” Ms. Cusack has been to Europe each summer for the past two years and recently started her own maritime law practice. “I got so ridiculously good at saving money that I didn’t even need to take out a loan to start my own business,” she said.

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DealBook Briefing: How California Could Win the U.S. Tighter Data Privacy

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More from yesterday’s scoop by Michael de la Merced and Andrew:

“This will both broaden the ownership across the firm and help us remain employee controlled for generations to come,” Bridgewater’s co-chief executives, David McCormick and Eileen Murray, wrote in a letter to clients that was reviewed by DealBook.

But: Giving top executives more control might change Bridgewater’s controversial culture of “radical transparency,” in which employees are encouraged to confront each other openly. The philosophy has helped make Bridgewater famous — and to give it high staff turnover.

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Credit Pascal Rossignol/Reuters

Amazon is entering the drug business. It won’t be easy.

It was a day the health care industry had long feared. The e-commerce giant bought its way into the prescription industry yesterday, acquiring the mail-order drug company PillPack for around $1 billion. Walmart had offered around $700 million.

Amazon’s vision: To do to drugs what it has to books (and most other things), by making it easy for people to get medicines in the mail. PillPack already operates across the U.S., and Amazon is likely to cut its prices. The health care industry is accustomed to drug prices rising steeply.

But the FT points out that Amazon will be swimming against the tide. People are abandoning most kinds of store for online shopping, but the number of prescriptions being filled at physical pharmacies is actually rising.

Still, the markets clearly think Amazon can win. Shares in drugstore chains like CVS, Rite Aid and Walgreens plummeted yesterday.

What happens to the losers of the bank stress tests

Most American banks passed the second round of the Fed’s stress tests with flying colors, according to the results published yesterday. Now that they’ve proved they have enough cash to withstand economic turmoil, the Fed will let them pay out more than $125 billion to shareholders. But three lenders fell short:

• Deutsche Bank’s U.S. arm, unsurprisingly, failed the tests because of “widespread and critical deficiencies” in its financial controls. It will be restricted in how much money it can transfer back to its German headquarters.

• Goldman Sachs and Morgan Stanley didn’t meet minimum capital levels, because of one-time accounting losses caused by the Republican tax cuts. They were ordered to keep their shareholder payouts at last year’s level and build up their capital buffers — but don’t expect them to be hamstrung next year.

The takeaway: Banks will argue that their improved health means they don’t need as many regulations. But Stephen Gandel of Bloomberg Opinion argues that bank shareholders still have reason to worry about earnings.

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The scary ending Netflix needs to avoid

Netflix’s stock price has nearly doubled since the start of the year. And, unlike other technology companies, its runaway success hasn’t stirred up public or political backlash — so far. But the Economist argues that the streaming service’s continued success could be its undoing:

Some suspect that Netflix harbors ambitions to monopolize TV. Such a move would concentrate enormous amounts of cultural power in the hands of a few content commissioners and algorithms. It would hollow out support for public-service broadcasters, by reducing their audience, and risk leaving poorer users with fewer affordable entertainment options. And it would inevitably find it much harder to avoid the attention of regulators.

The bottom line: Competition will keep consumers, regulators and lawmakers happy.

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Credit Yana Paskova for The New York Times

A new Lehman drama is questioning capitalism

Almost a decade after Lehman Brothers fell, the investment bank is being resurrected — on a London stage, in the form of “The Lehman Trilogy.” The play, by the Italian playwright Stefano Massini, traces the history of the firm from its origins as an Alabama textiles trading shop to its collapse as a titan of Wall Street.

The actor Ben Miles, one of the three stars, explained the drama’s intent to the FT:

“It asks very good questions about when did capitalism become, in the eyes of many, a bad idea? When did it turn from a very valid pursuit into something slightly tainted? When did this small family business that grew and grew begin to transform itself into something that none of the original founders had envisaged? And why did it do that?”

Revolving door

Deloitte’s C.E.O., Cathy Engelbert, won’t be nominated for a second term, upsetting succession plans at the accounting and consulting firm. (WSJ)

Two top Paulson & Company executives, Michael Barr and Jonathan Shumaker, are spinning out its real estate funds into a new firm. (Reuters)

Google has hired Karan Bhatia, who was president of G.E.’s government affairs unit, as head of policy. (Axios)

The speed read

Deals

• Shareholders of 21st Century Fox are scheduled to vote on Walt Disney’s $71.3 billion takeover bid on July 27. At least one is asking Fox to seriously consider any counteroffer from Comcast.

• President Trump said SoftBank planned to invest $72 billion in the U.S., up from $50 billion. It wasn’t clear where the number came from. (Reuters)

• The Chinese phone maker Xiaomi raised $4.7 billion in its I.P.O. in Hong Kong, at the low end of the expected range, for a valuation of $54 billion. (Bloomberg)

• Shares of BJ’s Wholesale Club rose over 29 percent in their market debut yesterday, valuing the retailer at $2.8 billion. (WSJ)

Politics and policy

• Inside the White House’s quiet campaign to convince Justice Anthony Kennedy to retire. (NYT)

• Jerome Powell, the Fed’s chairman, assured lawmakers that the central bank was being cautious as it raises interest rates. (Bloomberg)

• Robert Mueller has subpoenaed a longtime aide to Roger Stone, one of President Trump’s outside advisers. Paul Manafort owes the Russian oligarch Oleg Deripaska $10 million.

Tech

• Safety precautions are expected to be front and center as Uber moves to restart its testing of autonomous vehicles. (Information)

• The trade war has China questioning its tech chops. (WSJ)

• Morgan Stanley says Google should give every U.S. household a smart speaker. It would only cost $3.3 billion. (CNBC)

• Tech giants are trying to sell Hollywood on cloud computing. (TechCrunch)

• Kroger will test autonomous grocery-delivery vehicles. (Verge)

Best of the rest

• America’s cheese stockpile is at a 100-year high (1.385 billion pounds, if you’re hungry). (WXYZ)

• A former Pixar employee says open sexism is rife there. (Variety)

• Here’s how a start-up aims to turn would-be homeowners into cash buyers. (Bloomberg)

• Authorities charged a former Equifax executive with insider trading around its data breach. (Hill)

• The S.E.C. plans to loosen regulations on exchange-traded funds. (FT)

• The quest to keep a French fry crispy for an hour. (NYT)

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Corner Office: Richard and Holly Branson: A Father-Daughter Conversation

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David: Holly, you trained to be a doctor. Why did you join the business?

Holly: I qualified as a doctor. I worked in the U.K. for a bit. And then in the U.K., you get randomly allocated your jobs when you’re a junior doctor. The first year, I got a great job that I was really passionate about. And then the second year, I got allocated predominately surgery. And I knew I didn’t want to be a surgeon. I’m just not that into cutting people open.

So I went to Mom and Dad. He said, “Why don’t you take a year off and go work at Virgin?” I never ever thought I’d be working in the family business, but it was a great opportunity. So I thought, “OK, I’ll do that for the year, and then I’ll go back to medicine.” Now I’ve been at Virgin for 10 years.

Richard: You don’t automatically assume that your child is going to come into the company. If one of them ended up wanting to come and work with this, obviously that’s lovely. But the key thing was that they found what they wanted to do in life. It’s great that Holly, from the company’s point of view, and from the 80,000 people who work for it, is becoming a figurehead. I’m not going to be able to be the figurehead forever.

David: Is that a formal announcement of succession planning?

Richard: No. I don’t think I’ll ever retire.

David: Richard, you’ve had hits and misses. What differentiates Virgin Music and Virgin Atlantic from Virgin Cola and Virgin Clothing?

Richard: The businesses that we’ve been successful at are the ones where we have made a radical difference in people’s lives. The businesses that have not been as successful have been the ones where it was fun doing it, but we weren’t really changing anything.

When Coke came down like a ton of bricks on Virgin Cola, we had a fun brand, but they could squash us. When British Airways came down with a ton of bricks on Virgin Atlantic, we were so much better than they were. The public stuck with us and were loyal to us, despite the fact that we only had one plane against their 300 planes. Thirty-five years later, Virgin Atlantic is still going strong.

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A French Fry Gets Soggy in 5 Minutes. This Company Wants to Keep It Crispy for 60.

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The perfect French fry is crispy on the outside and fluffy on the inside.

A French fry that has been delivered to your home is often the opposite: cold, soggy and limp.

Lamb Weston, the country’s biggest manufacturer of those potato delicacies, wants better fast food.

Its customers, like McDonald’s and Yum Brands, the owner of KFC, are increasingly teaming up with on-demand delivery services. But travel is brutal for French fries, especially when they’re squeezed next to a cold drink and a warm burger in a paper bag.

“If you put a French fry next to a shake, neither of them benefit,” said Deb Dihel, Lamb Weston’s vice president of innovation.

The company’s basic French fries will stay crunchy for about five minutes. It has recently introduced a new variety with a special batter that can keep crispy for close to an hour — even after being microwaved at home.

Spun out from the food giant ConAgra in 2016, Lamb Weston’s business is all about potatoes. Last year, it sold more than $3.1 billion in tater tots, hash browns and fries of all types. There are straight-cut, waffle-cut and crinkle-cut; battered, seasoned or breaded; and with a bit of potato skin or without. Some end up at global fast-food chains or local diners. The company also makes the Arby’s and Nathan’s frozen products that are sold in grocery stores.

One of Lamb Weston’s 13 French fry factories, in Richland, Wash., produces a million pounds of potato products a day. A burst of steam peels the potatoes, and then they’re shot at 75 miles per hour through metal blades that cut them into steak, wedge or straight shapes. Cameras identify imperfections like bruises and black spots, and little puffs of air knock damaged fries off the conveyor belt.

In less than six hours, a potato can be plucked from the ground, turned into fries and packaged in a box.

A new type of fry starts in the ground.

At its farm in Paterson, Wash., Lamb Weston grows half a dozen potato varieties on 20,000 irrigated acres, tracking even the most minute differences in hydration, temperature and other environmental factors. Potatoes with less water make for crispier fries. Too much water can make them limp.

“Water is really the enemy,” Ms. Dihel said. “That’s what we’re trying to protect the French fry from.”

Workers monitor the fields from the Pentagon of potatoes, a room filled with computers that monitor soil conditions, crop maturity and irrigation. The plants are tested every week to measure their nutrients, a sort of blood test for plants. Using those results, workers can adjust how much water they give the crops.

“It’s like you’re going every week to the doctor,” said Troy Emmerson, Lamb Weston’s director of agricultural services. “We treat them better than ourselves.”

Lamb Weston started testing a longer-lasting fry two years ago. Employees on a visit to China noticed dozens of delivery scooters outside a McDonald’s. They figured the trend would go global, and wanted to be ready.

Since then, delivery services in the United States have taken off, accounting for an increasing share of restaurants’ sales. McDonald’s has expanded its offerings for delivery, as have Wendy’s, Popeye’s and other fast food chains. Jeremy Scott, a research analyst with Mizuho Securities, estimated that sales for third-party delivery services like UberEats and GrubHub reached nearly $8 billion in the United States in 2017, and has been growing at least 40 percent annually for the past three years.

“I’ve tried every McDonald’s product that comes from UberEats,” Mr. Scott said. “It’s consistently the fries that have been the biggest problem.”

Lamb Weston had already developed a French fry batter that could keep fries crispy for 12 minutes. So food scientists at the company’s laboratory in Richland began tinkering with the recipe to extend a fry’s life even longer.

When the fries drop into the hot oil, the batter, made mostly of uncooked starch, cooks instantaneously to form the crispy outer layer.

Consistency mattered. If the batter was too thick, it would clog the factory’s machines. If it was too thin, it wouldn’t sufficiently coat the fry.

“There’s a very fine balance of cling and thickness to get that film to form on the fry,” Ms. Dihel said.

To protect the fries during delivery, the team created new packaging to keep out moisture while allowing for the right amount of ventilation. The system also includes guidance for customers on how best to prepare and package them. Plastic bags or tightly sealed containers turn into little saunas, making French fries soggy quickly. A paper bag, lightly folded over, is a better option.

For better insights, an eight-person team spent several days in New York, riding along with delivery drivers. One researcher became an UberEats driver on evenings and weekends.

They noticed that drivers sometimes placed hot items next to cold items, to the detriment of both. Drivers often work for more than one delivery service, which could add stops and slow an order’s travel. Lots of other unexpected mishaps, like street closings, car accidents or bad GPS guidance, can cost crucial minutes.

Back at the laboratory, food scientists duplicate different hazards, packing French fries in white paper bags next to cold milkshakes or moist hamburgers. Bags are left alone for 15 minutes, others for 30 or 45. Their heat is measured using infrared cameras.

Testers check how they fare. They take bites of chocolate, crackers and other foods, using them as benchmarks to rate the fries’ crunch, sweetness and other attributes.

There’s lots of chewing, but not a lot of eating. The testers try so many fries that they each have spit cups, much like wine tasters.

“Sometimes when I’m on vacation and I take a couple days off, I miss them,” Ms. Dihel said of the fries. “I eat French fries every single day.”

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California Passes Sweeping Law to Protect Online Privacy

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“This is a huge step forward to people all across the country dealing with this very challenging issue,” State Senator Bob Hertzberg, a Democrat and a co-author of the bill, said at a news conference after it was signed.

The ballot initiative, which would have made it easier for private individuals to sue companies for not adhering to its privacy requirements, had drawn vocal opposition from industry groups that worried about the potential liability risk.

The measure included a provision that would have required a 70 percent majority in both houses of the Legislature to approve any changes after it became law.

Google, Facebook, Verizon, Comcast and AT&T each contributed $200,000 to a committee opposing the proposed ballot measure, and lobbyists had estimated that businesses would spend $100 million to campaign against it before the November election.

Robert Callahan, a vice president of state government affairs for the Internet Association, an industry group that includes Google, Facebook and Amazon, said in a statement that the new law contained many “problematic provisions.” But the group did not try to obstruct it, he added, because “it prevents the even worse ballot initiative from becoming law in California.”

Mr. Callahan said the group would “work to correct the inevitable, negative policy and compliance ramifications this last-minute deal will create.”

Legislators said they expected to pass “cleanup bills” to make any fixes to the law in the 18 months before it takes effect. Some privacy advocates are worried that lobbyists for business and technology groups will use that time to water it down.

Mr. Mactaggart said those concerns are “overblown.”

“Having gotten this right, it’ll be very hard to take it away,” he said, noting that the ballot measure had been polling at around 80 percent approval. “They can’t rewrite the law.”

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Anne Wallach, Whose Advertising Novel Caused a Stir, Dies at 89

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Anne Tolstoi Wallach, who rose to the executive ranks in the male-dominated New York advertising world, then wrote a saucy, much-discussed best seller about a fictional woman who does the same, died on Wednesday at her home in Manhattan. She was 89.

The cause was complications of Parkinson’s disease, said her daughter, Alison Foster.

Ms. Wallach shook up the publishing industry in 1981 with “Women’s Work,” her debut novel, which had brought an $850,000 advance from the New American Library publishing house, a staggering figure (the equivalent of about $2.4 million today) for a first-time novelist.

“I wrote this to amuse myself,” Ms. Wallace, surprised by her success, told The Boston Globe when the book was released. “That’s so much money for so little effort.”

The novel brought Ms. Wallach a flurry of publicity. Did the book, which was set in the early 1970s and was full of both chauvinism and sexy scenes, reflect reality? Was its main character, Domina Drexler, in fact Ms. Wallach herself?

“Her experiences are my experiences,” she told The Globe.

She used her newfound prominence to draw attention to issues of concern to women in the workplace, like maternity leave. That was something she had not had the benefit of when she had her children, she told People magazine; at the advertising agency where she worked in the 1950s, women had to use their vacation time for childbirth.

“Two weeks off for the first son,” she said. “Three weeks for the second, because I had worked longer by then.”

In a 1987 essay for The New York Times Magazine, Ms. Wallach acknowledged that things had improved somewhat since then and expressed hope that that would continue.

“After what working women have accomplished in one generation, I know they’ll make things even better in the next,” she wrote. “They’ll insist on equal pay for equal work, break the last barriers to high achievement, demand legislation that protects them.”

Anne Tolstoi was born on Feb. 19, 1929, in Manhattan. Her father, Edward, was a physician, and her mother, Cecile (Voice) Tolstoi, was a homemaker.

Ms. Wallach graduated from the Dalton School in New York in 1945. In 1949 she earned a bachelor’s degree in English at Radcliffe College, where she was editor of the literary magazine.

“I was going to be Edna St. Vincent Millay, at the least,” she told People. “I spent my whole college life sending poems to The New Yorker. I had a closet papered with rejection slips.”

After graduating she took a job at the New York agency J. Walter Thompson.

“I got my job at Thompson because I had secretarial experience,” she wrote in the 1987 essay. “It was the only way into advertising for a woman.”

She became a copy writer, working in a women’s group that the company had created in the belief that it took women to sell to women.

“About 60 of us, writers, art directors, juniors and supervisors, handled fashions, cosmetics and foods under a female vice president whose recommendations were often changed by men we never saw,” she said.

Ms. Wallach eventually became a Thompson vice president and its creative director. After 14 years there, she moved to another New York agency, Grey Advertising, where she also became a vice president and creative supervisor.

During her advertising career she worked on campaigns for the National Organization for Women (“Womanpower: It’s much too good to waste”), as well as for various products and companies. When her agent was auctioning her manuscript for “Women’s Work,” the price climbing into the stratosphere, she was preoccupied with the campaigns for Playtex and Aquafresh in her day job.

“My agent would call and say, ‘The price is going up!’ and I’d say absent-mindedly, ‘Yes, yes!’ and start worrying about the price of toothpaste and bras,” she told The Globe.

The $850,000 advance was said to be a record at the time for an unpublished novelist. Some critics were hard on the book.

“An intelligent and disciplined heroine who does her job well is probably too much (and too simplistic) to ask in a novel so obviously aimed at the trash market,” Charlotte Curtis wrote in her review in The Times. “Domina Drexler, the heroine, is as dim and unbelievable a person as one is likely to encounter between hard covers. Or any other covers, for that matter.”

“Women’s Work” didn’t do as well initially as its publisher had no doubt hoped. “The book made the hardcover best-seller list for all of two weeks — a relative disaster,” Newsweek wrote.

But the paperback version did considerably better. And the proceeds from the novel enabled Ms. Wallach to complete a labor-of-love nonfiction book: “Paper Dolls — How to Find, Recognize, Buy, Collect and Sell the Cutouts of Two Centuries,” published in 1982.

She had begun collecting the dolls in the 1970s, and by the time the book came out she had about 3,000.

“I’m afraid the collection has sort of taken over a room in the apartment,” she said in an interview with The Times. “But paper-doll collecting is ideal for apartment dwellers — everything folds flat and fits.”

Ms. Wallach left advertising soon after “Women’s Work” came out and pursued writing. She wrote two other novels, “Private Scores” (1988) and “Trials” (1996).

Ms. Wallach’s first marriage, to Ronald M. Foster Jr., ended in divorce in 1972. Her marriage to Richard W. Wallach, a New York state appeals court justice, ended with his death in 2003. Her third husband, Gerald Maslon, whom she married in 2009, died in 2013.

In addition to her daughter, Ms. Wallach is survived by two sons, Thomas Foster and Alexander Foster; eight grandchildren; and two great-grandchildren.

When she married Mr. Maslon, she was 80 and he was 84. But they had first met in 1947, when he was at Harvard and she was at Radcliffe. He was dating the woman who became his first wife, and she was dating her future first husband; the four became friends.

Ms. Wallach and Mr. Maslon remained friends over the years, and then late in life found themselves both widowed. In an article about the 2009 marriage that appeared in the Weddings section of The Times, Ms. Wallach explained that when she looked at Mr. Maslon, she always saw the law student she had first known.

“Jack and I were young together,” she said. “He’s always that boy in a tweed jacket swooping toward me on his bike.”

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California Will Be Fourth State to Sue Navient Over Student Loans

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The legal problems facing Navient, the nation’s largest student loan debt collector, mounted on Thursday as California’s attorney general said he would file a lawsuit accusing the company of widespread deceptions and mistakes that cost borrowers millions of dollars.

The accusations echo those in a major enforcement case against Navient that was started by the Consumer Financial Protection Bureau last year, in the final days of President Obama’s administration. The bureau is still pursuing the case, but consumer advocates fear it will be dropped or settled by Mick Mulvaney, the bureau’s acting director, who has sharply reduced the agency’s powers and scrapped many of its lawsuits and investigations.

The actions of Mr. Mulvaney, who is also President Trump’s budget director, have prompted states to more aggressively flex their own consumer protection authority. California would be the fourth and largest state to sue Navient, joining Illinois, Pennsylvania and Washington.

States have sued over Navient’s handling of both private and federal student loans. The case in California focuses on the federal loans, which are made or backed by the government. Navient is the largest of eight servicers hired by the government to collect $1.4 trillion owed by nearly 43 million people. The company services loans for 12 million borrowers, including 1.5 million in California.

California’s attorney general, Xavier Becerra, said he would file the lawsuit this week in state Superior Court. The complaint will focus on how Navient guided borrowers through their repayment options. The company failed to steer borrowers toward the best options available to them, raising the repayment costs for some, according to Mr. Becerra’s office, which said it believed that Navient broke state laws prohibiting unfair competition and false advertising.

“Navient’s loan servicing abuses have compounded the misery of parents and students who sacrificed to pay for college,” Mr. Becerra said.

Navient called the allegations “unfounded” and said it would fight the lawsuit.

California’s suit “is another attempt to blame a single servicer for the failures of the higher education system and the federal student loan program to deliver desired outcomes,” John F. Remondi, Navient’s chief executive, said in a statement.

Navient has not fared well so far in its legal skirmishes.

Last year, a federal judge in Pennsylvania rejected Navient’s request to dismiss the federal consumer bureau’s lawsuit.

A judge in Seattle also denied Navient’s attempt to have the case brought against it by Washington’s attorney general tossed out. Court rulings are still pending in the two other state cases, which Navient is also seeking to have dismissed.

Borrowers have also brought their own cases against Navient.

In Florida, a federal judge this week dealt the company a major setback, allowing a proposed class action lawsuit to proceed. Judge Susan Bucklew of the Federal District Court in Tampa rejected Navient’s argument that a federal law prevents borrowers from suing the company for violating state consumer protection rules.

“There is a strong presumption against pre-emption for matters that have typically been left to the states, and consumer protection is one of those traditionally state-regulated matters,” Judge Bucklew wrote.

In that case, Navient is being sued by borrowers who said that the company made costly mistakes in handling their eligibility for public service loan forgiveness, a trouble-plagued government program that is supposed to wipe away some student debt for those who spend at least 10 years working for a government agency or qualifying nonprofit organization.

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A Senate Committee Votes for Peace in the Music Industry

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The legislation establishes a licensing collective, to be overseen by songwriters and publishers, and paid for by the digital services, with rights information maintained by the copyright owners. Digital services, which now must track down rights holders or file notices in bulk with the Copyright Office, will be able to receive blanket licenses from the collective. In exchange, the services will gain protections against lawsuits.

In a lawsuit filed late last year, for example — just before a cutoff date set by the bill — a music publisher representing songs by Tom Petty, Stevie Nicks and others sued Spotify for $1.6 billion over licensing lapses. Under the Music Modernization Act, the licensing collective would serve as a one-stop shop to obtain those rights.

Some Republicans on the Judiciary Committee, including the Texas senators John Cornyn and Ted Cruz, expressed reservations on Thursday about a collective established by the government rather than the free market, but still voted in favor of the bill.

Christopher Harrison, the chief executive of the Digital Media Association, a group that includes Google, Apple and Amazon, said that the new process would remove the bad faith that has existed between music publishers and streaming services.

“I describe those conversations as like the end of a Tarantino movie, where everybody is pointing guns at each other and claiming it’s the other person’s fault,” Mr. Harrison said. “We had a number of really frank conversations with publishers, saying, ‘Let’s get past who is to blame and figure out how to solve the problem.’”

A critical element of the bill would allow musicians to be paid for digital plays of recordings made before 1972, which are not covered by federal copyright. At a Senate hearing last month, Smokey Robinson called that rule unfair. “An arbitrary date on the calendar,” he said, “should not be the arbiter of value.”

The bill also includes two provisions favored by Ascap and BMI, the industry’s two biggest royalty clearinghouses, over the complex procedures used to set royalty rates in federal courts.

This article is from NYT – go to source

‘Stress Tests’ Results Clear Way for Big Banks to Reward Investors

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The criticism is notable because State Street, among others, lobbied successfully this spring for lawmakers to reduce the capital requirements that custody banks face on deposits they stash at the Fed.

Fed Vice Chairman Randal K. Quarles said in a statement on Thursday that the test results “demonstrate that the largest banks have strong capital levels, and after making their approved capital distributions, would retain their ability to lend even in a severe recession.”

Banks will likely use the results to amplify their argument that, 10 years after the financial crisis, they do not need to be as tightly regulated. The 35 banks that went through the stress tests have added $800 billion in high-quality capital since 2009, the Fed said. While those banks would lose $578 billion during a severe recession, the Fed concluded that they would be able to keep lending in such an environment.

Last week, the Fed said all 35 banks had passed the first of two hurdles in their yearly evaluations, which tested how they would hold up if the economy sank into a recession, with the unemployment rate spiking and house prices cratering. Thursday’s round of tests included a “qualitative” assessment that evaluated whether banks have adequate internal controls and risk management systems to ensure they can detect potential problems before they escalate.

Both tests form the basis of the regulator’s decision about whether to let the banks distribute some of their cash to shareholders through buybacks and dividends.

For foreign banks, the tests determine how much capital they can send back their parent companies overseas.

These days, there’s plenty of cash to hand out.

In the first three months of 2018, bank profits increased 27.5 percent from last year, the Federal Deposit Insurance Corporation reported in May. The Fed’s interest-rate increases and Mr. Trump’s tax cuts fueled the bumper profits. JP Morgan Chase, Wells Fargo and Bank of America already have reported saving a total of about $8 billion thanks to the tax cuts, according to the research group Just Capital.

The Fed’s announcement on Thursday that most banks can plow ahead with big dividend payouts and share buybacks is likely to provide ammunition to Democrats who already have been attacking the tax cuts as a giveaway to big banks and wealthy shareholders. After last year’s tests, banks announced their largest dividend payouts in nearly a decade.

This article is from NYT – go to source