Jobs Central to Recovery, Say IMF Leaders

Tuesday, 25 January 2011, 12:54 pm
Press Release: ITUC

(Washington D.C., 20 January 2011): The IMF Managing Director, Dominique Strauss-Kahn and World Bank President, Robert Zoellick agreed on the importance of employment, social protection, working with trade unions and broadening the distribution of economic growth in meetings with a 90-strong high-level trade union delegation in Washington D.C. this week.

“Income-led growth is the key to securing recovery and ending the kinds of social deprivation and misery we’re seeing in countries like Tunisia”, said ITUC General Secretary Sharan Burrow. “We have to stop the financial elites regaining control and sowing the seeds of an imminent new crisis at a time when workers are still suffering the unemployment caused by the last one.”

In response, IMF Managing Director Strauss-Kahn agreed that tackling the jobs crisis, in particular the tragedy of long-term unemployment with all its social consequences, was essential and said jobs would be a central priority for IMF actions in 2011. He expressed determination to mitigate the social impact in crisis-hit countries such as Romania, Greece, Pakistan, Latvia and Jamaica and reiterated the IMF’s commitment to working with the ILO to establish a universal social protection floor. Strauss-Kahn also condemned the unacceptable resumption of financial speculation by banks and bankers, resulting from the G20’s failure to carry through the financial regulation reforms they had begun in 2009, and called for a financial activities tax to change the culture of banking speculation.

“We differ with the IMF on the form of the tax, as we consider a financial transactions tax would better deliver the resources for development, climate action and quality public services the world desperately needs, but we strongly agree that action to regulate the financial sector and stop the speculators’ attacks on democratically elected governments must be taken at once,” stated Burrow.

World Bank President Robert Zoellick committed the Bank to consult trade unions effectively at national level, in countries such as Pakistan, Nepal and the Dominican Republic as well as sectorally and by improving their protocols of cooperation at global level. He laid great stress on the need to address the food price crisis, through Bank actions to enable nutrition for the most vulnerable and investments in seeds and fertilizers as well as by improving social safety nets. Zoellick further committed the Bank to support all the ILO core labour standards and to incorporate workers’ protections, such as maternity protection, into ongoing World Bank work on the labour market

Burrow responded, “We welcome Mr. Zoellick’s commitments to workers’ rights and tackling growth inequalities, and call on him to ensure full World Bank support for the ILO’s campaign for a universal social protection floor.”

The trade union delegation went on to meet the Executive Directors of the IMF and World Bank, the government representatives whose regular Washington meetings decide the loans of the two institutions, and impressed upon them the urgency of stepping up the institutions’ policies to tackle the global jobs crisis.

The meeting also discussed the structural policy recommendations for labour market reforms being promoted by the IFIs as well as the OECD. “Recommendations that call for weakening employment protection and wage setting machinery are totally flawed”, said John Evans, General Secretary of TUAC-OECD. “Countries that have had better employment performance during the crisis are those that have strong systems of social dialogue and labour market institutions. These need to be strengthened not weakened.”

Other sessions of the three-day series of meetings dealt with social protection, IMF actions on financial regulation, the World Bank’s requirements for protection of labour standards in loan programmes and the Bank’s “Doing Business” publication.

ENDS

View the original article here

MEXIDATA . INFO

One year after the post-coup election in Honduras, the ongoing search for legitimacy comes at a high cost for its people. Human rights advocates are alarmed by continued human rights abuses, in particular by politically motivated attacks on journalists and on the opposition. Insufficient investment in prosecuting the accused and protecting those at risk has led international and national groups to denounce the climate of impunity. The government has attempted to address the issue, albeit unsuccessfully.

Organized crime and narcotrafficking have benefited greatly from the political crisis. Increased drug trade and the resulting rise in crime threaten the relative stability of the country. The state's ability to counter these social menaces is reduced because security forces are being deployed to maintain order in face of citizens' protests. In addition, at a time when Honduras is already overwhelmed by narco-fueled organized crime, the recent crackdown on crime in Mexico could push drug cartels further south. This potentially explosive situation calls for a regional response.   

The region remains divided, blocking Honduras' readmission to the Organization of American States (OAS), which is the foremost multilateral organization in the hemisphere. Some countries, including Brazil, Nicaragua and Venezuela, refuse to recognize the new president, Porfirio Lobo, as legitimate.

The Nov. 29, 2009 election was controversial because head of the de facto government, Roberto Micheletti —in the transition period following the military ousting of former president Manual Zelaya— refused to step down prior to the election. Although Zelaya's removal triggered rapid and unanimous condemnation from countries worldwide, this unity soon dissolved, hindering the conflict resolution process.

This serves as a reminder that democracy is deeper than the act of holding elections. Democracy requires credible institutions capable of representing diverse segments of society and setting the parameters to solve societal disagreement. Prior to the Honduras coup, there were warning signs that institutions were in precarious condition, as they remain in neighboring Nicaragua; what was and continues to be a problem is determining how to respond in a way that does not violate state sovereignty.

Canada spearheaded the creation of the OAS Inter-American Democratic Charter in 2001. It was designed to respond to threats to any "unconstitutional interruption of the democratic order or an unconstitutional alteration of the constitutional regime." In Honduras, there was no doubt that Zelaya's removal from power fit this description. Yet the strong ideological stances that prevailed on the inter-American stage in the aftermath of the coup have complicated the Charter's application. A year after the fact, states should surmount ideological views and recognize the newly elected government, putting the needs of the Honduran population first. Questions of justice are better left to the truth commissions designed to address them. OAS efforts could be better spent building agreement on early warning signs so that underlying issues and conflicts can be addressed before they reach the crisis point. The country is the second poorest in the region, behind Haiti, and its citizens are the ones suffering from their country being caught in regional political limbo.  

Having the most open economy in the Western Hemisphere, Honduras was hit hard first by the global economic meltdown and soon after by international sanctions following the coup. On Nov. 10, the World Bank approved a US$74.7 million loan to balance the country's budget. But the people of Honduras will only see few of the loan's benefits if the economy is not supported by stable political institutions.  

Lobo announced early this month that he would fly to the Dominican Republic to visit former president Zelaya in an attempt to shore up legitimacy and gather domestic support, reaching out to opponents including supporters of Zelaya, such as the National Popular Resistance Front (FNRP). Zelaya is unwilling to return to the country until he is guaranteed full amnesty. Some Hondurans have expressed concern that his return would only exacerbate an extremely divided society.  

The current administration's commitments to improve education, reduce poverty and increase access to health care have the potential to improve the lives of Hondurans. But the benefits of such programs should reach the people, and this involves directly addressing narcotics-fueled organized crime. A regional approach to such issues is essential and yet Honduras was the only Latin American country not invited to the Ibero-American Summit that was held on Dec. 3 and 4.

Further delaying Honduras' full reentry into the international community only complicates recovery.

View the original article here

The biggest bust is well underway

Having just read the World Economic Forum’s Report on sustainable credit, I now realise that I was wrong to worry about the growth in debt. After all, since 1932, the US’s debt to GDP ratio has actually fallen at a rate of 0.2 per cent per year!

How could I ever have thought that the growth of credit could have caused the Great Recession, when in fact the growth rate of debt has been negative?

I am also chastened to realise that credit is only used for good purposes. As the report notes:

"In the long run, the scale and distribution of credit is only economically sustainable if it also meets society’s broader social objectives. Credit is linked to social objectives during all stages of a country’s economic development. In early stages of development, credit is used to support family-owned businesses; next, it supports small and large corporations; and finally it is used to smooth consumption. Muhammad Yunus, founder of Grameen Bank, goes so far as to say that credit is a human right, and adds: 'If we are looking for one single action which will enable the poor to overcome their poverty, I would focus on credit.'"

Foolish me: here was I, thinking that credit might also be used to fund Ponzi Schemes.

Okay, enough with the irony. The WEF’s report is not all bad – there are some very good bits that I’ll get to later – but it commits at least three fundamental errors: it uses a questionable base year for its analysis, it omits a crucial variable, and it maintains a wholly benign view of a factor that experience indicates has both benign and malignant attributes.

A questionable base year

The questionable base year is 2000. The WEF team, working with McKinsey & Company, have put together an impressive database on debt levels in 79 countries, with debt disaggregated into three sectors:

– Retail credit: all household credit stock (loans outstanding), including mortgages and other personal loans such as credit cards, auto loans and other unsecured loans;

– Wholesale credit: all corporate and SME credit stock (loans and bonds outstanding)

– Government credit: all public sector credit stock (including loans and bonds outstanding).

But to start in 2000? That was just before the last big credit bust, when the dotcom fiasco came crashing down. Why not—at least for the countries where debt data is readily available – go back a bit further?

Debt data for the US is readily available to 1952 from its Flow of Funds data, and historical data for earlier years can be derived from the US census. Australia’s Reserve Bank publishes reliable aggregate credit data back to 1976, and earlier data is available to take it back to 1953. As a sole individual, I’ve been able to acquire data as far back as 1920 for the US and 1860 for Australia. Surely the WEF and McKinsey and Co, with the resources they had to throw at this project, could have done better than 2000.

Why omit financial sector debt?

The report omits borrowing by within the financial sector from its record of total debt, when this has been a major component of the growth of debt (certainly in the US) in the last 60 years. I include financial sector debt in my analysis for two reasons:

– The initial borrowing by the shadow banking sector from the banks creates both money and debt;

– The money onlent by the shadow banking sector to other sectors of the economy creates debt to the shadow banking sector, but not money.

I frequently get the argument that debt within the financial sector can be netted out to zero, but I think this ignores those two factors above: the creation of additional debt-backed money by the initial loan, and the creation of further debt to the financial sector – most of which has been used to fund asset bubbles rather than productive investment.

Just for comparison, here’s that same 1932 to 2010 comparison, but with the financial sector’s debt included:

Even with the same nonsense base year, and even with combining private and public debt – factors that I believe should be kept separate – this paints a somewhat different picture.

And a focus on total private sector debt during and after the Great Depression also conveys a somewhat different perspective.

Which raises the third issue…

Why ignore Ponzi Schemes – and Minsky

The report’s listing of the uses to which credit is put is so innocent as to make me wonder whether one of the author’s primary-school children wrote the relevant paragraph:

"In early stages of development, credit is used to support family-owned businesses; next, it supports small and large corporations; and finally it is used to smooth consumption."

But maybe I’m being harsh: it could, after all, have been written by a neoclassical economist.

Please, let’s get real: yes credit can do all of those things, but it can also fund asset bubbles and Ponzi Schemes, and that has been by far the dominant aspect of credit growth since the report’s base year of 2000, and arguably since the 1987 Stock Market Crash. To ignore this aspect of credit after the biggest financial crisis since the Great Depression is simply puerile.
So is ignoring the one academic who analysed the dynamics of credit long before it was fashionable – Hyman Minsky. The report makes much of it academic research:

"Finally, the research was underpinned by an extensive review of the key academic and industry literature."

Prior to 2008, such ignorance was excusable simply because it was so widespread, as the dominant neoclassical school simply ignored dissidents like Minksy. After the crisis, he is receiving long overdue respect for focusing on the importance of credit in a capitalist economy while neoclassical economists effectively ignored it.

This is why Minsky-oriented researchers like myself, Michael Hudson and the late Wynne Godley were able to see the Great Recession coming while neoclassical economists from Ben Bernanke down were denying that anything untoward was untoward. Publishing a major report on credit now, while ignoring the only significant research done into credit dynamics, is a sign of continued ignorance rather than wisdom.

Its overall conclusion – the only part of the report that is likely to get an airing in the general media – should therefore be taken with a truckload of salt:

"The rapid expansion of credit in recent decades has enabled unprecedented levels of economic development, business activity, home ownership and public sector spending. Yet, excess lending in some markets and sectors sparked a global crisis which brought the entire financial system to its knees. Not surprisingly, many commentators believe credit should be scaled back, even at the expense of economic growth.

"The analysis in this report suggests the opposite is true. There are major pockets of the world economy, particularly in developing markets, whose growth has been held back by credit shortages, even over the past 10 years. To unlock development in these areas, and to meet consensus forecasts of world economic growth, credit levels must grow substantially over the next decade. At the same time, public and private decision-makers must avoid a repeat of the credit excesses that have caused so much damage in recent years."

Like a curate’s egg

However, despite its deficiencies, the report is not all bad – but its good bits are too conservative. It proposes a number of “rules of thumb” to indicate whether credit levels and credit growth are sustainable or not:

These are related to the measures that I have been putting forward on this site for years – the debt to GDP ratio, the rate of change of debt, and recently the 'Credit Impulse' as defined by economists Michael Biggs, Thomas Mayer and Andreas Pick – the rate of change of the rate of change of debt, divided by GDP.

I’ll come back to these later as alternate indicators, but it’s worth noting the guidance these rules of thumb gave for where credit crises might occur in the near future. Their chart (Exhibit 15, below) showed a “local sustainability” index for their sample of countries in 2006, with the sample sorted by the aggregate level of debt (hence Japan is at the top). The guide is laid out according to this legend:

And the countries identified using 2006 data as potential trouble spots were those with one or more red cells next to their names:

The same analysis on 2010 data yields the following table of suspects:

The rules of thumb themselves are pretty good. The weaknesses with their analysis are (a) that they allow the thumbs to be much too large, and (b) that they underplay the role of the banking sector in causing these problems in the first place.

As readers may know from previous articles, I site responsibility for this crisis on the lenders themselves, and not the borrowers, on a number of grounds. The financial sector makes money by creating debt, and has funded a series of speculative bubbles since the early 1980s since that is the best way to encourage borrowers to take on more debt.

Minsky himself argued that the major objective of economic management should be to maintain a “robust financial structure”:

"... in order to do better than hitherto, we have to establish and enforce a "good financial society" in which the tendency by business and bankers to engage in speculative finance is constrained.

"The financial instability hypothesis has policy implications that go beyond the simple rules for monetary and fiscal policy that are derived from the neo-classical synthesis. In particular the hypothesis leads to the conclusion that the maintenance of a robust financial structure is a precondition for effective anti-inflation and full employment policies without a need to hazard deep depressions. This implies that policies to control and guide the evolution of finance are necessary…"

He asserted that the US passed from such a structure to a fragile one with the Penn State crisis in 1966.

"The first post-World War II threat of a financial crisis that required Federal Reserve special intervention was the so-called "credit crunch" of 1966. This episode centered around a "run" on bank-negotiable certificates of deposit. The second occurred in 1970, and the immediate focus of the difficulties was a "run" on the commercial paper market following the failure of the Penn-Central Railroad. The third threat of a crisis in the decade occurred in 1974-75 and involved a large number of over-extended financial positions, but perhaps can be best identified as centering around the speculative activities of the giant banks. In this third episode the Franklin National Bank of New York, with assets of $5 billion as of December 1973, failed after a "run" on its overseas branch.

"Since this recent financial instability is a recurrence of phenomena that regularly characterized our economy before World War II, it is reasonable to view financial crises as systemic, rather than accidental, events. From this perspective, the anomaly is the twenty years after World War II during which financial crises were absent, which can be explained by the extremely robust financial structure that resulted from a Great War following hard upon a deep depression. Since the middle sixties the historic crisis-prone behavior of an economy with capitalist financial institutions has reasserted itself..."

On that basis, the correct time period from which to derive rules as to how big the “sore thumbs” of finance should be is the 1960s, and not 2000. That implies alternative figures for the WEF’s indicators that would have most of its indicator table in red – certainly the first column for household sector debt.

My three indicators are the debt to GDP ratio (which tells you how many years it would take to repay debt and is a measure of the degree of pressure debt is exerting on the economy), the rate of change of debt as a percentage of GDP plus the change in debt (which tells you how much of aggregate demand is debt-financed, and therefore whether you are in danger territory for a financial crisis), and the credit impulse—the rate of change of the rate of change of debt as a fraction of GDP, which tells you whether a crisis is imminent and how deep it is when it strikes.

My thumb size rules, based on these indicators and for the US only, are the following:

The US was financially robust when the total private sector debt to GDP ratio was below 100 per cent; it was approaching potential Depression-level fragility when this ratio exceeded 175 per cent of GDP.

When debt-financed demand accounts for more than 10 percent of aggregate demand, trouble is afoot (again for the US – other countries may have different thresholds):

Finally, and somewhat tentatively, I’d see danger coming when the Credit Impulse exceeds 3 per cent in either direction: 3 per cent plus indicates a bubble, and 3 per cent minus indicates that you are in a bust. On that metric, this is the biggest bust of all (the 1945 figure was an aberration as we moved from a war economy to a peacetime one).

On all three indicators, the US has been in a financially fragile state since the early 1970s – a conclusion that accords with Minsky’s decision to date the transition to a fragile financial structure in 1966 – rather than the year 2000.

The WEF’s report, while it does perform a useful service in finally recommending that credit and credit growth be taken seriously in economic management, will ultimately be seen as an indicator of just how seriously economists underestimated the role of credit in causing economic crises, even when they were in one.

Roger Sutton wrote:

"Foolish me: here was I, thinking that credit might also be used to fund Ponzi Schemes" (See The biggest bust is well underway, January 27).

The crucial variable here being the creation of IOUs out of thin air, rather than the credit lent being real savings (ie forgone consumption). Whilst animal spirits may quickly change the demand for a particular product or asset from time to time, it's no particular problem if more real goods are suddenly being requested in exchange for same. The problem is always about the creation of ever more fiat money to fund such animal spirits, thereby invoking the inevitable bust as the unbacked IOUs steadily mount across the economy in aggregate. The secret then is not to be caught with all the inevitable Minsky, Black Swan IOUs as the neoclassical economists knew only too well.

28 Jan 2011 4:04 AM

View the original article here

Richard (RJ) Eskow: The Wall Street Empire Strikes Back

It's on.

The Financial Crisis Inquiry Commission released its report today, and it's already under attack by the Four Horsemen of the Economic Apocalypse: the Ideologue, the Lobbyist, the Think-Tanker, and the Politician. We've already seen the Maestro transformed into Edith Piaf, Phil Angelides cast as the info-terrorist from Australia, and two dissenting reports that do a great job of debunking ... each other.

And this is just the first day.

Those of us who weren't intrepid enough to get an advanced copy of the report are still reviewing it in detail, but many of its findings were foreshadowed by its interim reports and the testimony of witnesses. The Commission has concluded that the economic crisis was not "unavoidable," as many have claimed. The report describes the housing bubble as the "spark" that ignited the crisis, but suggests it only became a firestorm because of a misguided philosophy of deregulation, years of regulatory irresponsibility, failed ratings agencies, and reckless and unethical banking behavior.

The Commission concludes that there was "a systemic breakdown in accountability and ethics" among bankers. But despite the Commission's rhetorical caution, for some readers the information in the report will also evoke the breakdown of a deeper and broader "system" - one that includes regulators, elected officials, academia, and think tanks. Wealthy bank executives, government officials, economists, and ambitious politicians formed a web of mutual interest that served each of them well but failed everybody else. And the report raises the inevitable question: What's really changed?

Counterattacks were inevitable. The redoubtable Alan Greenspan hasn't responded to the report directly yet, but shortly before its release he preemptively withdrew the partial mea culpas he offered after the crisis. The Republican members of the Commission staged a walkout and have written dissenting opinions. The Chamber of Commerce issued a histrionic press release, and Republicans in Congress are using the "rollback to 2008 levels" as a gimmick to defund the partial reforms enacted last year.

The Ideologue

The Alan Greenspan who spoke at the height of the crisis was not the man who appeared on television earlier this month. The 2008 Greenspan said, "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief." For a free-market purist like Greenspan, that was nearly tantamount to a repudiation of his lifelong philosophy.

When he testified before the FCIC last year, however, Greenspan had become more evasive and more ideological. He even trotted out the discredited theory that Fannie Mae and Freddie Mac caused the crisis. Greenspan also said: "I was right 70% of the time and wrong 30% of the time." He seemed unaware that when you only answer 70% of the questions right on a test, you fail.

And by the time he appeared on television a couple of weeks ago, Greenspan had turned positively Piaf-like. He challenged critics to "prove I was wrong" in any of his decisions as Federal Reserve chairman. Non, je ne regrette rien ...

Greenspan's self-evaluation had climbed from 70% to 100% in a few short months - but it should be noted that the lower grade was given under oath.

A little compassion is in order. Greenspan reached the greatest heights of his profession, only to see his credo discredited in the cruelest way possible: by reality. A person can do one of two things in that situation: resolve to face reality and help repair the harm that's been caused, or double down on his fallacies. After flirting with the first option, Mr. Greenspan seems to have opted for the second.

Maybe it was a little unfair of the Calculated Risk blog to point out that Mr. Greenspan ended a lengthy discussion of the dangers of a housing bubble back in 2005 by asking only one question: "Shall we break for coffee?" But maybe not. That meeting, of the Federal Open Market Committee, included lengthy debate about the kinds of events that Mr. Greenspan would later say could not have been predicted.

Can't predict, can't enforce, can't regulate: Greenspan also told the Commission there's no point even trying to regulate banks anymore. "The complexity (of finance) is awesome," he said, and regulators "are reaching far beyond [their] capacities." Greenspan insisted that regulators would need to review each and every loan document in order to monitor banks properly. But anybody who understand audits knows that's not necessary. He's saying regulation isn't worth the trouble because it would require enormous budgets and lots of all nighters - which would mean even more of those infamous coffee breaks.

And he never has a second cup at home!

The Lobbyist

Tom Donohue runs the US Chamber of Commerce, which he's expanded into a $350-million operation thanks to generous donations from Goldman Sachs, Texaco, and a number of anonymous donors. Under Donohue's leadership the Chamber has become an openly partisan right-wing organization whose allegiance is not to business per se, but to the extremely large businesses that are its special constituency. The organization's response to the FCIC report is short on substance - the report's a "missed opportunity" that isn't "objective" - but it's long on vituperation.

The Chamber's real target is the Commission's plan to make some of its source data available to the public, which will allow journalists, academics, and others to review and analyze it in detail. Ideally that will trigger something like a national "mindshare" project, producing citizen-created reports that could shed light on the events of the past and stimulate a broader debate about the future - without costing the government a penny. That should please the ideological right.

Instead the Chamber finds the whole idea infuriating, describing it as "an astounding abuse of process that would effectively create a government-sanctioned WikiLeaks."

WikiLeaks? That would make Commission Chair Phil Angelides the Julian Assange of Wall Street. And since Assange is being described in Washington these days as a "terrorist," what's the Chamber really saying?

It doesn't have to make sense, and it doesn't. The real purpose of the Chamber's huffing and puffing is to create a simplistic narrative its lobbyists can use when they descend on Washington in pursuit of its real goal: ensuring that legislators don't take any more meaningful steps to prevent the kind of widespread catastrophe we saw in 2008, and which millions continue to endure today.

Party of No... Problem

Four Republicans refused to sign the Commission's final report. Now they've produced two dissenting reports - reports that also dissent with one another. Three of the Commissioners, including former Representative Bill Thomas and economist/McCain campaign advisor Douglas Holtz-Eakin, wrote one, and Peter J. Wallison wrote the other.

Holtz-Eakin was a senior visiting fellow at the Peterson Institute for International Economics, which is funded by billionaire anti-Social Security crusader Pete Peterson. The Peterson Institute is best-known for arguing that globalization and outsourcing have made the United States $1 trillion richer. Wallison's an attorney who's best known for leading Ronald Reagan's deregulation initiative. (How'd that work out for you?) He's currently Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.

It's the war of the right-wing think tanks, with the American Enterprise Institute in one corner and the Peterson Institute in the other. Which anti-government ideology will prevail?

Wallison uses the already-discredited ploy of blaming the crisis on the Community Reinvestment Act, Fannie and Freddie, and other government programs. The response by Holtz-Eakin et al. is meatier and more thoughtful - wrong, but meatier and more thoughtful - and it deserves more attention. One of its key arguments is that the housing bubble was a worldwide phenomenon, and therefore U.S. financial policy could not have caused the crisis. There are a number of effective rebuttals to this argument (e.g., the world's financial system is interconnected), but the most striking thing about these two arguments is the way they contradict one another. If US policy couldn't have caused an international crisis, then in certainly can't be blamend on the CRA or Fannie and Freddie.

It would appear that the Commission's Republican dissenters are pinned down by ideological crossfire.

And other parties to be named at a later date ...

There are other critiques of the Commission's report, including the suggestion that it isn't specific enough in assigning blame and the argument that it overlooks widespread fraud. We'll look at those arguments in the coming days and weeks.

Democrats come in for their share of criticism in the report, too, and rightfully so. The deregulation fervor of the Rubin/Summers/Geithner clique played a critical role leading up to the crisis, and too many of the same players are still in positions of authority. The FCIC has referred several potential criminal cases to the authorities, and we'll see if they're investigated by the Holder Justice Department with the appropriate level of zeal and dedication. So far the record's been less than impressive.

As for the Republicans in Congress, what's there to say? They'll keep trying a number of gambits to kneecap last year's Dodd/Frank bill. With hundreds of regulations yet to be written, their "defund and delay" strategy could do serious damage to our financial security. So could their efforts to eliminate funds for investigation, enforcement, and consumer protection as provided in that bill. And through it all they'll keep insisting that banks aren't still too big to fail, bankers aren't still breaking the law, and there are no future financial meltdowns brewing on Wall Street.

Meanwhile unemployment's expected to remain abnormally high for the foreseeable future, more than three million homes are in foreclosure, and the number of Americans living in poverty rose to 43 million in the aftermath of the crash, including one out of every six children.

***

(We discussed the report's findings on Russian Television's Alyona show this afternoon, and the clip is here. It's in English ... Russian Television is widely distributed on cable here in the US.)

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.

He can be reached at "rjeskow@ourfuture.org."

Website: Eskow and Associates

Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow

View the original article here

When To Walk Away From A Bad Mortgage

Since the housing bubble burst, many Americans have found their finances underwater. They're paying on homes that are worth much less than the mortgages against them. More than a few have chosen to walk away from these debts.

Called a "walkaway" or a "strategic default", deliberately defaulting on your mortgage is becoming more common as the real-estate market continues to struggle. Some experts believe that as many as 20% of homes currently in foreclosure are the result of walkaways: people who had the means to pay their mortgage but chose not to when their life circumstances changed and they found their homes unsellable.

Businesses walk away from bad investments and debts like this all the time, but for an individual to do it takes guts. There's a huge stigma associated with walking out on your mortgage. Americans feel that there's something morally wrong with not paying your debts, even when those debts are astronomical or unfair.

As Matt Taibbi puts it in his new book Griftopia:

When you meet people who are losing their homes in this foreclosure crisis, they almost all have the same look of deep shame and anguish. Nowhere else on the planet is it such a crime to be down on your luck, even if you were put there by some of the world's richest banks, which continue to rake in record profits purely because they got a big fat handout from the government.

That's why one banker CEO after another keeps going on TV to explain that despite their own deceptive loans and fraudulent paperwork, the real problem is these deadbeat homeowners who won't pay their...bills. And that's why most people in this country are so ready to buy that explanation. Because in America, it's far more shameful to owe money than it is to steal it.

Whether or not you agree with Taibbi's take on the mortgage crisis, you've surely seen that look of shame on the face of anyone you know who's lost a home to foreclosure. Despite of the social pressure to keep making payments, though, thousands of borrowers are defaulting. The rate of walkaways went from virtually nothing in 2007 to nearly a fifth of foreclosures today. That's a huge increase.

What Happens When You Walk Away From a Mortgage?
Given how many homes are underwater these days, it's probably not surprising that I have a friend who is considering walking out on his mortgage. I get asked for financial help or advice a lot since I started this gig at GRS, but I was clueless on this one. Some quick math revealed that continuing to pay his mortgage makes no financial sense for my friend: The house is worth much less than he owes. He can't sell it. He no longer lives there; it's just an albatross around his financial neck.

Still, I thought my friend must have other options, so I called up mortgage expert Keith Gumbinger at HSH.com. Gumbinger had some great suggestions for what to do when you're facing overwhelming mortgage debt.

Gumbinger agreed that bailing out of a mortgage sometimes makes good financial sense — but the consequences for doing so are steep. "You can certainly walk away and let it go to involuntary foreclosure," Gumbinger said. "That's your ultimate hammer. But there are consequences in the rest of your life." Walking away from a mortgage should be the absolute last resort.

Walkaways face some serious issues:

Before walking out on a mortgage, Gumbinger says you should call your mortgage company. Lenders don't want you to default on your loan — and stick them with an unwanted house — any more than you want to destroy your credit. They'll talk to you.

"You should be able to get a reasonable response," Gumbinger said. This far into the mortgage crisis, most lenders have experienced staff people who do nothing but negotiate loan modifications, short sales, and planned foreclosures with their borrowers. They have clear processes to handle this type of situation. It won't be fun, but if you stay engaged, you stand to get out of your mortgage with your credit in better shape than a foreclosure would leave it.

Gumbinger warns to carefully document the entire process. Keep notes of who you talked to, and get agreements in writing.

Loan Modifications and Short Sales
Before you call your lender, decide what outcome you're after. If you're looking to keep the property but can't keep up with the payments, call and talk to your bank about a loan modification. There are federal and private programs to help troubled borrowers get their mortgages adjusted. You may qualify to have your mortgage interest rate reduced as low as 2%, or to have some measure of your debt forgiven so that your monthly payments don't exceed 31% of your income.

If you're ready to walk away from the mortgage entirely and don't want to keep the house, talk to your lender about a short sale. In a short sale, you agree to retain possession of the property, keep it in good shape, and sell it on the bank's behalf. With the bank, you agree on a sale price that reflects the current fair market value of the property, even if that's much less than what you owe on it.

Note: You probably want an attorney to help you with these negotiations.

Usually, a short sale agreement will have a two- to three-month time limit. After that, you and the bank can negotiate a "planned foreclosure" or "deed in lieu". Instead of simply walking away and forcing the bank to take costly legal steps to repossess your home, you can give it to them. In exchange for saving them the hassle of taking it, they'll go easy on you with the legal and financial consequences. Again, use an attorney to negotiate this on your behalf.

Any of these options should bring you a happier ending than simply mailing the bank your keys without a word.

"Because you've tried to do the right thing, it does preserve to a greater degree your opportunity to participate in the housing market in the near future," Gumbinger said. Your credit will still take a hit, but if you do a short sale or planned foreclosure, you may be able to buy another house in two to four years. If you even want to. After being burned by the housing market, many people are happy to become permanent renters.

When To Walk Away From A Bad Mortgage was written by Sierra Black, a writer for GetRichSlowly.org, a website with tips from finding the best high interest savings accounts to getting out of debt.

Related Links

View the original article here

Business Highlights

{"s" : "aapl,amzn,cl,goog,msft,msi,nflx,pg,t,vmw,xom","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} On Thursday January 27, 2011, 6:57 pm EST

Panel finds financial crisis was avoidable

WASHINGTON (AP) -- The government-appointed panel investigating the roots of the financial crisis says the meltdown occurred because government officials and Wall Street executives ignored warning signs and failed to manage risks.

The crisis could have been avoided, the Financial Crisis Inquiry Commission determined in a final report released Thursday that was only supported by Democrats on the panel. Instead the country fell into the deepest recession since the 1930s and millions of people lost their jobs, the congressionally appointed panel concluded.

The Bush and Clinton administrations, the current and previous Federal Reserve chairmen, and Treasury Secretary Timothy Geithner all bear some responsibility for allowing the crisis to happen, the panel said.

It also criticized bankers who got rich by creating trillions of dollars in risky investments. The deals grew so complex that bank executives and regulators did not understand them, the report found, and banks discouraged aggressive oversight of their activities, saying the government's interference would stifle financial innovation.

P&G, Colgate profit squeeze means prices to rise

CINCINNATI (AP) -- Shoppers can expect some higher prices as the makers of toothpaste, soap and other everyday household products see their profit margins pinched by rising ingredient costs.

Both Procter & Gamble Co. and rival Colgate-Palmolive Co. reported lower profits Thursday and posted revenue below Wall Street expectations for the last quarter, and their stocks slid. They both said commodity costs are rising more than expected. P&G said they are adding $1 billion in costs for the year, double what it anticipated.

P&G, which counts Pampers diapers, Gillette shavers and Crest toothpaste among its major brands, said fast-rising costs for product-making materials and fuel likely will mean some price increases, with hikes already planned for its Duracell batteries in March.

Colgate-Palmolive President and CEO Ian Cook said during a conference call that the price increases would run 1 to 2 percent.

Consumers can expect to see not only household product makers, but beverage, food and other companies to try to pass along price increases, said Jack Russo, an Edward Jones analyst. That will test whether they are feeling confident enough about the economy to pay higher prices again for their favorite brands.

S&P cuts Japan's credit rating on debt concerns

TOKYO (AP) -- Standard & Poor's cut Japan's credit rating for the first time in almost nine years Thursday, issuing a harsh critique of the government's ability to control its ballooning debt.

The agency lowered Japan's long-term sovereign debt rating one notch to AA-, which is the fourth highest level and the same rating given to China, Saudi Arabia and Kuwait. The news sent the dollar as high as 83.18 yen from 82.20 yen.

The downgrade is a stern reminder to Japan that it faces consequences for letting its debt swell to twice the size of gross domestic product. Prime Minister Naoto Kan is pushing to reform the country's tax and social security systems, but the downgrade could complicate the fiscal picture by making it more expensive to finance the country's debt. Creditors typically demand higher interest rates when credit ratings fall.

Japan's debt ratio, already among the highest in the developed world, is on track to rise more than expected and won't peak until the mid-2020s, S&P said in a statement. The country's problems, it added, are exacerbated by persistent deflation and a rapidly aging population.

Japan is the world's fastest-aging country, with its population projected to shrink from 127 million people now to 90 million by 2055 -- 40 percent of whom will be over 65.

Rate on 30-year fixed mortgage rises to 4.80 pct.

LOS ANGELES (AP) -- The average rate on a 30-year fixed mortgage rose for the second week in a row, buoyed by higher bond yields.

Freddie Mac said Thursday that the average rate rose to 4.80 percent this week from 4.74 percent the previous week. The average rate on the 15-year loan, a popular refinance option, inched up to 4.09 percent from 4.05 percent.

Mortgage rates have changed little in the new year after spiking more than half a percentage point in the last two months. Investors sold off Treasurys bonds during that stretch, driving yields lower. Mortgage rates tend to track the yield on the 10-year Treasury note.

The 30-year loan rate reached a 40-year low of 4.17 percent in November, and the 15-year mortgage rate fell to 3.57 percent, the lowest level on records dating back to 1991.

Record high foreclosures, a weak job market and expectations that prices will fall further have convinced potential buyers to hold off on purchasing homes. And historically low rates have done little to boost demand.

Fewer people bought previously owned homes last year than in any year since 1997, according to the National Association of Realtors. Sales fell 4.8 percent last year to 4.91 million units, the worst level in 13 years.

And sales of newly built homes fared even worse, sinking last year to the lowest level on records going back 47 years.

Still, sales of previously occupied homes showed some improvement in December, rising to the strongest pace since May, while sales of new homes jumped to the highest level since April.

AT&T CEO: We'll push Android phones

NEW YORK (AP) -- The CEO of AT&T Inc. on Thursday said the company will start "very aggressively" marketing smart phones based on Google Inc.'s Android software now that it will no longer be the exclusive carrier for Apple Inc.'s iPhone in the U.S.

So far, Verizon Wireless, AT&T's chief competitor, has been the biggest supporter of Android. But it will start selling the iPhone on Feb. 10, and is likely to shift resources away from Android.

Motorola on Wednesday said it's already seeing a drop-off in sales of its Android phones in Verizon stores, as customers are holding off, waiting for the iPhone.

In effect, AT&T and Verizon Wireless are set to swap strategies in the high-stakes smart phone market, with AT&T turning to Android and Verizon to the iPhone.

AT&T, the nation's largest telecommunications company, also provided an earnings forecast for the year that disappointed analysts, and said it signed up a net of just 400,000 new customers on contract-based wireless plans in the last three months of last year. It was the lowest quarterly number in at least five years.

The low number of new contracts demonstrated that even though AT&T activated a lot of iPhones -- 4.1 million -- the iconic phone has lost much of its power to attract customers from other carriers.

Requests for unemployment benefits up due to snow

WASHINGTON (AP) -- The number of people applying for unemployment benefits rose sharply last week, but the figures were largely distorted by rare snowstorms that swept through the Southeast.

Applications surged last week by a seasonally adjusted 51,000 to 454,000, the highest level since late October, the Labor Department said Thursday.

A government analyst said that a major reason for the spike was the harsh weather in Alabama, Georgia, North Carolina and South Carolina. That forced many companies to shut down temporarily and also prevented many people from applying for benefits in the previous week.

When state offices, which had closed, reopened and people were able to file applications that pushed the number of requests up sharply, the analyst said.

The four southern states reported a large increases in the number of requests for unemployment benefits. Trucking companies, delivery firms, construction companies and others were affected.

Applications had been declining steadily for several weeks. Requests for unemployment benefits fell sharply in the previous week to 403,000.

Many economists consider data in January less reliable because of seasonal fluctuations.

Exxon: Global gasoline demand to fall over 20 yrs

NEW YORK (AP) -- There will be 400 million more cars on the world's roads 20 years from now, yet gasoline consumption will decline, according to a projection from Exxon Mobil Corp. in its long-term energy outlook released Thursday.

The world's biggest investor-owned oil and gas company expects energy use overall will grow 35 percent by 2030, But that growth would be three times higher if people used as much energy per capita as they do now.

Nowhere is that more apparent than in projections of gasoline demand. People in developing countries, especially China, will drive millions of more cars and gas demand will grow, but the cars will be more efficient than those of the past.

Meanwhile, improvements in fuel efficiency in the U.S. and Europe will create a drop in demand that more than matches Asia's growth. Demand for fuel for passenger vehicles will decline by 20 percent in the U.S. and by one third in Europe by 2030.

In developed countries like the U.S., Japan, and the nations of Europe, demand for energy will stay flat even as economic activity increases by 60 percent. In developing countries like China, India and Brazil, demand for energy will rise more than 70 percent as more and more people gain access to electricity and transportation.

Amazon.com posts surprise 4Q revenue miss

SAN FRANCISCO (AP) -- Amazon.com uncharacteristically missed Wall Street's revenue target in the fourth quarter, sending the stock tumbling 9 percent and showing that not all Internet companies benefited equally from the holiday shopping season.

The results from the world's biggest online retailer highlight the unevenness of retail's recovery, as people have picked up their spending after the official end of the Great Recession but are being picky about what they buy.

Expectations were high, especially since other consumer-oriented technology companies, such as Google Inc. and Netflix Inc., wowed Wall Street with their results.

Amazon CEO Jeff Bezos noted that the company hit two important milestones in the quarter: cracking $10 billion in quarterly revenue for the first time, and selling more electronic books for Amazon's hot-selling Kindle device than paperbacks.

Still, the revenue miss jolted investors, signaling that expectations were running too hot for a company whose stock price had jumped nearly 75 percent since its 52-week low of $105.80 in July.

After the results were reported Thursday, Amazon shares fell $16.18, or 8.8 percent, to $168.27 in extended trading.

Microsoft 2Q earnings edge down on slow PC sales

SEATTLE (AP) -- Microsoft Corp. said Thursday that its net income for the latest quarter fell slightly from a year ago, and it beat Wall Street's expectations despite the weak personal computer market.

Sales of Office 2010 to consumers and businesses buoyed the results, as did the popularity of Kinect, Microsoft's new motion-sensing controller for the Xbox 360 video game system.

Microsoft's net income for the October-December quarter was $6.63 billion, compared with $6.66 billion in the same period last year. Thanks to stock buybacks, net income rose to 77 cents per share, from 74 cents. Analysts surveyed by FactSet were expecting net income of 69 cents per share for the fiscal second quarter.

Much of Microsoft's business depends on selling copies of the Windows operating system and Office desktop software, products that usually rise and fall with fluctuations in the personal computer market.

Microsoft launched Windows 7 in the same quarter of 2009, making for a tough comparison. Revenue plunged 30 percent in the Windows division to $5.1 billion, in a quarter when worldwide personal computer shipments only grew about 3 percent, as Apple Inc.'s iPad and the promise of more tablet devices to come made consumers think twice about what kind of device to buy.

LinkedIn looks to link up with investors with IPO

SAN FRANCISCO (AP) -- LinkedIn Corp., the company behind the largest website for professional networking, plans to raise at least $175 million in an initial public offering of stock that could open the IPO floodgates for other widely used online services that connect people with common interests.

The IPO papers filed Thursday by LinkedIn puts the 8-year-old company on a path to make its stock market debut in the next three to four months, barring any major stumbling blocks.

It might be the most highly anticipated IPO in the technology industry since software maker VMware Inc. went public in 2007, said Scott Sweet, senior managing partner of IPOBoutique. After VMware raised about $900 million in its IPO, the Silicon Valley company's stock soared by more than 70 percent in its first day of trading.

LinkedIn's filing could encourage other rapidly growing Internet services to finally test the public markets after amassing zealous followings among millions of users. Other likely candidates include: online coupon service Groupon, which rejected a $6 billion takeover bid from Google Inc. last year.; online game maker Zynga; online messaging service Twitter; and potentially the biggest investment opportunity of all, social networking phenomenon Facebook, which already has indicated it's likely to file its IPO plans by the end of April 2012.

By The Associated Press

The Dow Jones industrial average inched up 4.39 points, or 0.1 percent, to close at 11,989.83. The index broke through 12,000 Wednesday for the first time since June 2008 but slipped in the late afternoon.

The S&P 500 rose 2.91 points, or 0.2 percent, to close at 1,299.54. The last time the index closed above 1,300 was Aug. 28, 2008.

The Nasdaq composite index gained 15.78, or 0.6 percent, to 2,755.28.

Benchmark oil for March delivery lost $1.69 to settle at $85.64 a barrel on the Nymex.

In other Nymex contracts for February contracts, heating oil lost 1.62 cents to settle at $2.6551 a gallon and gasoline gave up 4.34 cents to settle at $2.4132 a gallon.

In London, Brent crude lost 52 cents to settle at $97.39 a barrel on the ICE Futures exchange.

View the original article here

Warning shot for America and Europe as S&P downgrades Japan

Ambrose Evans-Pritchard, 20:44, Thursday 27 January 2011

Standard & Poor's has downgraded Japan (NYSE: MCO - news) for the first time in nine years, citing lack of a "coherent strategy" to control its monster deficits or grasp the nettle to reform.

The move is a chilly reminder that sovereign debt woes continue to fester across much of the industrial world, and still pose a threat to the fragile global recovery.

The US rating agency cut Japan's $10.6 trillion (£6.6 trillion) debt one notch to AA-, warning that the mix of government paralysis, a shrinking workforce and a fast-rising interest burden have left the country's debt dynamics on an unsustainable footing.

Julian Jessop, from Capital Economics, said the unfolding drama in Tokyo has global implications since Japan is the world's top external creditor with $3 trillion of net assets abroad. "This is potentially a much bigger story than any default in Greece," he said.

The concern is that Japanese banks, pension funds and life insurers may forced to repatriate large sums to cover losses at home if the fiscal crisis triggers a jump in bond yields. This could set off a worldwide fall in asset prices.

Takahora Ogawa, S&P's Asian analyst, said Japan's economy is the same size today in nominal terms as it was in 1992 yet public debt has tripled. The combined central and regional government debt will reach 233pc of GDP this year, or 259pc including bonds under the Fiscal Investment and Loan Programme.

In contrast to Europe (news) , Japan has barely started to tighten its belt, drifting on with a budget deficit that will be 8pc of GDP as far out as 2013. "This is not affordable. Japan is running out of the domestic financial assets to absorb the debt," said Mr Ogawa.

Japan's population has been contracting since 2005, pioneering a fate that awaits much of Europe and Asia. Its (Paris: FR0010370163 - news) median age is a world record at 44.4 years, and rising fast. The population will fall from 127.5m to 89.9m by 2055, according to Japan's Social Security Resarch Institute. "Despite this bleak demographic outlook, Japan has no specific measures or plans to deal with its diminishing and aging population," said S&P.

Japan was downgraded repeatedly between 1998 and 2002 without suffering much harm but that was in a different world, before the global credit crisis shattered illusions about the sanctity of sovereign debt.

The Bank for International Settlements has warned that simmering fiscal problems in the rich countries are nearing "boiling point", with a risk of an "abrupt rise" in bond yields as investors choke on excess debt.

Kaoru Yosano, Japan's economy minister, called S&P's decision "regrettable" given that the government is working on a plan to overhaul the tax and social security system. "I hope the world will understand our sincere efforts to carry out fiscal consolidation. I believe confidence in Japan will not be shaken."

Mr Yosano himself said last week that Japan has reached a "critical point" where investor patience might suddenly snap. "We face a dreadful dream that one day the long-term interest rate might rise."

Mr Jessop said the S&P downgrade is no shock since the country was already on negative watch. However, the Democratic Party of Japan hampered since June by a hung parliament has not yet shown that it is "up to the job" of restoring discipline.

"If the government gets this wrong, Japan could be the first Asian casualty of the global financial crisis. Markets have tolerated Japan's awful fiscal position because it was the fastest growing economy in the G7 last year, thanks to a rebound in exports and fiscal stimulus. But it all started to go horribly wrong in the fourth quarter when the economy almost certainly contracted again," he said.

Adarsh Sinha from Bank of America (NYSE: IKJ - news) said Tokyo is on borrowed time but does not expect a bond crisis this year. "Inexorable structural forces mean that each year brings us closer to when the domestic pool of saving will be insufficient to finance Japan's public debt. However, 2011 is unlikely to be the tipping point for this disorderly adjustment."

Tax revenues covered just 52pc of spending in 2010. Almost half the budget was borrowed. Even in the boom year of fiscal 2007 revenues covered only 70pc of outlays, so the problem is clearly chronic and not caused by the recent recession.

The IMF's latest Article IV report on Japan warns that without a shift in policy the "public debt-to-revenue ratio" will rise from 263pc three years ago to 482pc by 2015. No country in peacetime has ever pushed the fiscal boundaries so far and emerged unscathed.

Peter Tasker from Arcus Research, a venerated Tokyo expert, said horror stories about Japan's debt have been the stuff of folklore for years, yet borrowing costs have fallen ever lower anyway because the country is "entirely self-financing". If need be, the Japanese can squeeze a lot more tax from their under-taxed economy.

"Rather than a 'dreadful dream', Japan's leaders face an enticing reality. They have the opportunity to issue more and more bonds at the lowest interest rates seen since the Babylonians invented accounting. Japan needs to forget about the views of credit agencies, which have not had a terribly good track record recently," he wrote recently.

Japan has certainly been shielded from global vigilantes so far because 95pc of its debt is held by local investors, allowing Tokyo to issue 10-year bonds at just 1.21pc. It is far from clear that this can continue. The Government Pension Investment Fund (GPIF) the biggest holder of Japanese debt has switched from net buyer to net seller as it meets payout costs for retiring baby-boomers.

Dylan Grice, a noted Japan bear at Societe Generale (Paris: FR0000130809 - news) , said the country's ageing crisis would bite in earnest in two to three years, causing pensioners to run down their assets. The savings rate has already dropped from 15pc of GDP in 1990 to under 3pc. It may soon turn negative, depleting reserves needed to soak up state debt.

"They will have to turn to foreign investors, who will demand higher yields of 4pc to 5pc. The government will not be able pay this because interest payments are already 28pc of tax revenues," he said.

"If they try to correct it by a fiscal contraction [raising taxes] they will cause a depression that dwarfs anything in Greece. The Japanese are facing a problem that no country has ever faced before. I think Japan is already is beyond the pale," he said.

Mr Grice predicts the get-out-of-jail-free card will prove to be some sort of stealth default through inflation, perhaps spiralling into hyperinflation very fast once the genie is out of the bottle.

James Bullard, the head of the St Louis Federal Reserve, said recently that the US is "closer to a Japanese-style outcome today than at any time in recent history". That bears thinking about.

View the original article here

Business Highlights

{"s" : "amzn,c,cat,ebay,ge,goog,yhoo","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} On Friday January 21, 2011, 6:37 pm EST

GE boosts 4Q income 52 pct

NEW YORK (AP) -- General Electric Co. said Friday that fourth-quarter net income increased 52 percent as the company made more money in both its lending and industrial businesses.

The lending arm, GE Capital, drove the company's results in the final three months of 2010 as it dealt with fewer loan defaults. Risky loans hammered the company during the financial crisis, forcing GE to book huge writedowns.

Industrial sales also rose during the fourth quarter and orders for equipment, an indication of future business, jumped 20 percent.

The results show that rising energy and raw material costs so far haven't cooled off global demand for consumer products.

Facebook raises $1B more from non-US investors

NEW YORK (AP) -- Facebook said Friday it has raised $1 billion from non-U.S. investors, which combined with an infusion from Goldman Sachs and Russia's Digital Sky Technologies in December, brings the haul from its latest round of funding to $1.5 billion.

The investments value the social networking site at $50 billion, more than the current market values of Yahoo Inc. or eBay Inc., but below those of Amazon.com Inc. and Google Inc.

Facebook did not say Friday how it plans to spend the $1.5 billion.

As anticipated, Facebook also said it will start filing public financial reports by April 30, 2012. While that doesn't technically mean an initial public stock offering, that is the most likely outcome because Facebook will have to make many of the same disclosures of a publicly traded company anyway.

German business confidence hits two-decade high

BERLIN (AP) -- German business confidence has risen to a new two-decade high, exceeding expectations as an increasingly broad-based recovery in Europe's biggest economy shows no signs of slacking, a closely watched survey showed Friday.

The Ifo institute's monthly confidence index rose to 110.3 points in January from 109.8 in December. It was the eighth consecutive increase, the highest figure since Ifo started measuring business confidence in reunited Germany in 1991, and exceeded economists' forecast of a slight rise to 109.9.

The German economy rebounded strongly in 2010, growing by 3.6 percent as a recovering global economy fueled a surge in exports -- a traditional German strength -- and domestic demand showed signs of improvement.

Citigroup gives CEO Vikram Pandit a big raise

NEW YORK (AP) -- Citigroup Inc. is giving its CEO a big raise.

The New York-based bank is lifting Vikram Pandit's base salary to $1.75 million from just $1 a year effective immediately, according to a filing with the Securities and Exchange Commission on Friday. The announcement comes after Citi reported its first full year of profits since Pandit took over the top job in 2007 and the bank exited government ownership.

Citi was one of the hardest-hit U.S. banks during the credit crisis, and received a $45 billion government bailout. Pandit in 2009 pledged to take a $1 salary until the troubled bank returned to profitability. The government sold off the last of its stake in the bank in December for a profit of $12 billion.

Greek austerity program gets thumbs-up from Fitch

LONDON (AP) -- Bailed-out Greece is doing better than anticipated in getting a handle on its debt problems but could still face another potentially damaging downgrade if the economy doesn't start growing again this year, a leading credit ratings agency said Friday.

Greece is on course to having reduced its budget deficit by a massive 6 percentage points of GDP last year to 9 percent at a time when the economy has contracted a further 4 percent.

The country was bailed out to the tune of euro110 billion ($148 billion) last May by its partners in the European Union and the International Monetary Fund as its borrowing costs in the markets surged to unsustainably high levels, effectively preventing it from raising money in the bond markets.

In return for the bailout funds, the Greek government, led by Prime Minister George Papandreou, has had to enact a series of budget cuts, tax increases and reforms to large chunks of the economy.

The reforms have not been easy to push through. The country has been crippled by strikes as workers protest against the austerity measures, but so far the government has managed to deliver on its program.

French court convicts Warner head, ex-Vivendi boss

PARIS (AP) -- A French court, in a surprise ruling, on Friday convicted and fined Warner Music Group chairman and CEO Edgar Bronfman Jr. for insider trading and former high-flying Vivendi CEO Jean-Marie Messier for misusing company funds and misleading investors.

Bronfman, a former executive vice president of Vivendi Universal, was fined euro5 million ($6.7 million) and given a 15-month suspended sentence for insider trading around the Vivendi media conglomerate when he was a top executive there. Messier was handed a three-year suspended prison sentence and a euro150,000 fine.

The unexpected convictions came despite prosecutor Chantal de Leiris' recommendations that the two men and other ex-Vivendi executives be cleared of all charges for lack of evidence that they duped investors.

Bronfman and Messier said they would appeal the verdict, which deals a blow to the two men once considered masterminds of massive mergers in the media and telecommunications sectors.

Caterpillar urges stronger US-China trade ties

NEW YORK (AP) -- Heavy equipment maker Caterpillar is urging a stronger trade relationship between the U.S. and China on the heels of the Chinese president's visit to the U.S.

The Peoria, Ill., company, the world's largest maker of construction and mining equipment, said Friday it inked a memorandum of understanding as part of the U.S.-China Trade and Economic Forum that it hopes will support greater U.S. exports from Caterpillar in the future.

China is already one of the largest export markets for Caterpillar products, with more than $2 billion in products delivered there in the last five years. Caterpillar has more than 7,700 employees across China.

UK retail sales volume flat in December

LONDON (AP) -- Retail sales in Britain rose 2 percent by value in December compared to a year ago, less than the rate of inflation, while volume was flat, an official report said Friday, adding to indications that the nation's economic recovery is slowing.

Banks, meanwhile, reported that gross mortgage lending hit another 10-year low in December.

Snow during the coldest winter in a century helped knock sales volume down 0.8 percent from November, the Office for National Statistics said Friday.

Sales volume by predominantly food stores fell 3.4 percent compared to a year earlier, a record fall, while nonfood store volume was up 3.1 percent, the Office for National Statistics said.

The non-store retail sector, including internet sales, was up 14.5 percent both by volume and value.

The report reinforced a view that next week's preliminary estimate of fourth-quarter GDP will show the recovery slowing down -- the consensus is that growth will be 0.4 percent, down from 0.7 percent in the third quarter and 1.1 percent in the second quarter.

By The Associated Press

The Dow Jones Industrial average rose 49.04 points, or 0.4 percent, to close at 11,871.84.

The Standard & Poor's 500 index gained 3.09 points, or 0.2 percent, to 1,283.35.

The technology-focused Nasdaq composite index slid 14.75 points, or 0.5 percent, to 2,698.54. It lost 2.4 percent for the week.

Benchmark oil for March delivery fell 48 cents to settle at $89.11 a barrel on the New York Mercantile Exchange.

In other Nymex trading, heating oil rose 2.76 cents to settle at $2.6508 a gallon, and gasoline added 3.64 cents to settle at $2.4589 a gallon. Natural gas for March delivery gained 5.1 cents to settle at $4.743 per 1,000 cubic feet.

In London, Brent crude rose $1.02 to settle at $97.60 a barrel on the ICE futures exchange.

View the original article here

Irish prime minister steps down as party leader

Irish prime minister steps downNEW: Four senior Fianna Fail members are vying to head the partyBrian Cowen, hit hard by Ireland's economic crisis, relinquishes leadership An opposing party leader wants an immediate electionIrish voters are set to go to the polls March 11

(CNN) -- Embattled Irish Prime Minister Brian Cowen said Saturday that he will step down as leader of the Fianna Fail political party but stay on as prime minister until the March 11 elections.

A new leader will be elected at a special party meeting on Wednesday afternoon. At least four senior Fianna Fail members have signalled that they intend to stand for the leadership post.

They include Finance Minister Brian Lenihan and Micheal Martin, who earlier this week resigned as foreign affairs minister.

Two others doing double duty after being named to additional posts this week. Social Protection Minister Eamon O Cuiv, who was recently appointed Defence Minister, and Mary Hanafin, Minister for Tourism, Culture and Sport as well as the recently named head of the government's Department of Enterprise, Trade and Innovation, have also joined the race to lead Fianna Fail.

The focus should be on what policies the political parties are offering rather than the narrow focus of personality politics.
--Prime Minister Brian Cowen

Cowen, who recently called for the elections following the resignation of six government ministers in less than 24 hours, said he will concentrate on governing the country while the party comes up with a new leadership candidate.

"The focus should be on what policies the political parties are offering rather than the narrow focus of personality politics," he said at a news conference in Dublin.

Cowen cited internal criticism of his leadership as a factor in stepping down as ruling party leader.

"My attention now is to concentrate fully on government business and continue to implement the recovery plan," he said. "We must cast off the shroud of negativity."

Enda Kenny, leader of the main opposition party Fine Gael, said Fianna Fail was now a "leaderless party with a powerless" prime minister and called for an immediate election.

Kenny said he will move a motion of no confidence in Cowen as prime minister in next Tuesday's parliament session unless there was a dissolution of the parliament.

Another opposition party, Labour, had already put forward a motion of no confidence, not specifically in Cowen, but in the government. That motion is due to be voted on on Wednesday.

"It is simply not tenable for Mr. Cowen to remain on as (prime minister) as his colleagues in Fianna Fail squabble over the remnants of their party," said Labour leader Eamon Gilmore.

Sinn Fein President Gerry Adams, who is leaving Northern Ireland politics to stand in the Irish election, said Cowen's decision would lead to further instability.

"The government and Fianna Fail are in chaos. Their focus is not on the problems facing the country," Adams said.

Cowen survived a vote of confidence from his own party members this week, but top rebel Martin, the foreign minister, opposed him and resigned Tuesday.

Four more ministers resigned Wednesday night, and another quit Thursday, shortly before Cowen addressed the Irish legislature.

His government has been under pressure since applying for an international financial bailout last year, after insisting it did not need one.

As he called for new elections, Cowen said he "deeply" regrets "that people are suffering and experiencing immense hardship because of this recession."

But, he said: "Our budgetary strategy has helped to stabilize our economy, and return it to economic growth."

Wednesday's resignations included Minister for Health Mary Harney, Minister for Justice Dermot Ahern, Minister for Transport Noel Dempsey and Minister for Defence Tony Killeen.

Minister for Enterprise, Trade and Innovation Batt O'Keeffe quit on Thursday.

Cowen announced replacements for all of them on Thursday: Mary Coughlan at Health, Pat Carey at Transport, Brendan Smith for Justice, as well as Hanafin for Enterprise and O Cuiv for Defence.

Cowen took over the foreign minister's portfolio himself.

He has become a lightning rod of controversy, largely for his leadership in the economic crisis the country is facing.

Ireland accepted an 85 billion euro (U.S. $113 billion) bailout package last month from the European Union, International Monetary Fund and individual European nations.

Cowen requested the loan in November after days of claiming Ireland did not need help.

The government went deep into debt to bail out the country's banks during the financial crisis.

The goal of the aid, his Fianna Fail party said, was to return the nation's economy to sustainable growth and restore the health of its banking system.

A related four-year government austerity plan achieves savings through welfare cuts worth 10 billion euros ($13.2 billion) and higher taxes, expected to bring in 5 billion ($6.6 billion).

Ireland also unveiled a tough new budget, changing the income tax system, raising taxes on gasoline and diesel fuel, and reducing benefits for parents.

Dublin is cutting 6 billion euros (nearly $8 billion) from its budget as it tries to claw its way out of massive debt.

Journalist Peter Taggart contributed to this report.

View the original article here

Irish premier won't quit over Ireland debt crisis

var archivedState=0;

DUBLIN—Irish Prime Minister Brian Cowen announced Sunday he won't resign despite intense criticism of his management of the country's European-record deficit and its international bailout.

Cowen's declaration follows several days of talks with lawmakers in his Fianna Fail party. Many wanted him to quit immediately so that a new leader can lead the party into a spring election that, under Cowen's leadership, it is widely expected to lose.

But in a trademark defiant performance, Cowen said he instead would mount a motion of confidence in his own leadership Tuesday at a meeting of party lawmakers. He said he wasn't willing to wait indefinitely for one or more of his Cabinet colleagues to mount a direct challenge to oust him.

Cowen said he was confident of winning the secret-ballot vote and lead Fianna Fail to a seventh straight election victory. Fianna Fail, which means "soldiers of destiny" in Gaelic, has governed Ireland almost continuously since 1987, but has plummeted to historic lows in recent opinion polls.

Cowen's determination to stay leaves unsettled the question of whether his government will survive long enough to pass the emergency deficit-slashing legislation required by the ?67.5 billion ($90 billion) bailout from the European Union and International Monetary Fund.

Fianna Fail rivals could quickly pursue a no-confidence motion to try to oust him. Among those who have publicly voiced a desire to replace Cowen are Finance Minister Brian Lenihan, Foreign Affairs Minister Micheal Martin and Arts and Tourism Minister Mary Hanafin.

Opposition leaders planned to press ahead with their own no-confidence motion in parliament against Cowen -- and pleaded for Fianna Fail to declare an election date.

"The longer (the Irish government) stays in power, the greater the damage that is being done to the economy and to our international reputation. This government should go," said Gerry Adams, leader of the Irish nationalist Sinn Fein party.

Cowen rose to power in June 2008 as Ireland's 13-year Celtic Tiger economic boom was giving way to a property-market implosion and banking crisis. He has faced rising accusations in recent weeks of making decisions that benefited corrupt bankers far more than taxpayers, who have been burdened with a bank-rescue bill expected to top ?50 billion ($65 billion).

The pressure for Cowen's removal flared last week when a new book revealed that Cowen held several dinners and social events, including a daylong golf outing, with top bankers in the weeks before his government decided in September 2008 to insure all of the borrowings of Dublin banks -- an internationally unprecedented move at the time.

The blanket guarantee of the banks failed to prevent most of those banks from facing collapse as their loan books -- heavily exposed to runaway property markets in Ireland, Britain and the United States -- began to suffer massive defaults.

Ireland has nationalized four of the six Irish-owned banks and repaid tens of billions to bondholders, international investors who normally would be expected to suffer losses when a bank fails.

Ireland spent two years trying to fund the bank bailouts itself, but the cost drove Ireland's 2010 deficit to 32 percent of gross domestic product, a postwar European record. Even excluding the exceptional bank-bailout costs, Ireland spent more than ?50 billion last year but collected just ?31 billion as unemployment soared and taxes from property sales slowed to a trickle.

In November, as the state-owned banks found themselves unable to borrow on open markets, the European Central Bank and International Monetary Fund stepped in to insist that Ireland negotiate a multiyear loan deal. Under terms of the deal, Ireland must slash ?15 billion ($20 billion) from its deficit spending over the coming four years and is imposing the harshest cuts this year.

The parliament has already approved bills that will slash welfare benefits and the minimum wage, raise school fees and cut the salaries of Cabinet ministers. But the toughest measures -- to increase income taxes across the 2 million-strong work force, raising effective tax levels to 41 percent or more -- have yet to be approved in the 2011 Finance Bill.

© Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.Waiting on Twitter...

View the original article here

IMF loan policies hampering aid efforts`

January 18, 2011 A study has tested whether aid to tackle disease and improve healthcare actually translates into a better health system for the countries that receive it.

The Oxford-led study found that aid that went to some of the poorest countries was not used to supplement existing spending on public health projects, but instead aid often displaced state spending. Countries that relied on loans from the International Monetary Fund (IMF) were found to channel the least aid towards its intended purpose.

The study published in the International Journal of Health Services examines 119 countries and finds, in line with previous studies, that a proportion of aid was displaced. This latest research, led by Dr. David Stuckler from Oxford University with Dr Sanjay Basu at University of California San Francisco and Prof Martin McKee at London School of Hygiene and Tropical Medicine, also compares 34 low and lower-middle income countries which were borrowing from the IMF with 101 similar income countries that did not rely on loans from the IMF. The researchers discovered that borrowers’ spending on the health system grew at half the speed of non-IMF borrowers.

The study suggests that one likely explanation is that IMF loan conditions, which aim to keep government spending low, are so limiting for finance ministers in countries that borrow that aid substitutes for state spending on some public health projects.

Governments in countries that borrowed from the IMF were found to provide just one cent more towards funding the health system for every US dollar received in health aid. By contrast, countries that did not borrow from the IMF channelled an additional 45 cents into the health system for every dollar of aid received.

The authors note that countries that borrow from the IMF do so at a time when their economies are struggling and need health aid the most. They conclude that changes need to be made to loan policies so finance ministers have more ‘fiscal space’ to enable them to use health aid for the purpose for which it was intended – to tackle disease and support public health projects.

Dr. Stuckler and his colleagues also found that aid channelled through governments was associated with lower public spending than when it was routed through private nongovernmental organizations.

The study comes at a time when there is serious concern about whether developing countries will meet the Millennium Development Goals (MDGs) on global health by 2015. According to the authors, this study offers ‘a new rationale that reconciles the failure to achieve the MDGs despite increasing amounts of aid’.

Dr. David Stuckler, from the University of Oxford, said: "Countries seeking IMF support are likely to differ from countries that are not and a request for an IMF loan is often associated with severe economic problems. Nonetheless, even in such circumstances, it is reasonable to expect aid from donors to have at least some positive impact on health funding, especially given that health needs are often greatest at such times. This study suggests that countries relying on IMF loans are not spending the aid in the way it was intended. A change in loan policies is needed to lift the existing restrictions on finance ministers so they are no longer prevented from spending health aid on the people that urgently need medical help."

The authors have cautioned against drawing far-reaching conclusions as the data used in the study is limited to measuring pledges of aid rather than data that provides a full picture of what was actually paid. However, the researchers note that they tracked similar patterns of aid displacement from the limited data available on disbursements.

Provided by Oxford University (news : web)

Rate this story - not rated yet

Move the slider to adjust rank threshold, so that you can hide some of the comments.

View the original article here

Central Bank Governor queries banks on high margins

Central Bank Governor queries banks on high margins | The Trinidad Guardian

 

Bankers Association president, Dennis Evans, left, poses with the organisations executive director Kelly Bute-Seaton and its vice president Richard Young at yesterday’s launch of Bankers Week at the Cascadia Hotel in St Ann’s. Photo: Dilip Singh

While the country’s banking sector has weathered the global economic crisis relatively unscathed, the banks were criticised for the high cost of doing business. That criticism was levelled by Central Bank Governor Ewart Williams at the inaugural launch of Banking Week at the Cascadia yesterday.  While Williams lauded the banks’ stability and profitability, he noted the relatively high cost of banking in T&T was due to the limited exploitation of new technologies and “the oligopolistic structure of the country’s banking market which limits competition allowing banks to maintain their profitability without increasing efficiency.”

“Clearly the large margins are excellent for banks’ bottom line and for bank shareholders. My banking colleagues always remind me that it is better to make profits than to have losses and I fully agree. But there is a difference between private and social rates of return and particularly, going forward, where banks would be critical to the diversification effort, we need to seek a better balance between the one and the other,” he said. Williams said that while the margin between loan and deposit rates was over nine per cent in T&T, the margin in developed countries was between two and three per cent.

But Bankers Association president Dennis Evans said “profits” is not a bad word and lamented the constant “bank-bashing.” He observed that commercial banks have strengthened their liquidity positions, increasing reserves at the Central Bank in excess of statutory demands to as high at $3.3 billion in October 2010 from an average of $1.6 billion in 2008. “Due to prudent management practices, banks have contained their risk exposure which declined to 6.9 per cent in September 2010 from 8.6 per cent in December 2009 and loan delinquency is largely contained,” said Evans. This position, in addition to increased liquidity in the Banks, said Evans, can be used to revitalise the economy as organisations can access the needed capital injection to finance projects at the individual, community and national level.

“Companies and citizens can take the opportunity to restructure their debt and capitalise on the many creative products that banks are now promoting to encourage consumer and investor confidence and stimulate the economy,” he said. Evans said against the backdrop of excessive liquidity and limited demand for loans, he expects intensified competition between banks as they compete for market share.
“Also consumers are becoming more discerning and demanding and are shopping around much more. I expect participants in the sector 2011 to respond with new, creative and cutting edge products and provide more options to the public,” he said.

Business Login or register to post commentsPrintEmail

Skip to top Contact UsE-Advertise with usTerms of ServicePrivacyArchivesRSSSite mapMy Guardian GUARDIAN MEDIA is not responsible for the content of external sites. Copyright © 2010 GUARDIAN MEDIA LIMITED

View the original article here

ANALYSIS-Yemen seen struggling to keep currency afloat

19 Jan 2011

Source: reuters // Reuters

* Rial seen coming under pressure as finances shaky

* New weakness may spark social tensions

* Tunisia highlights links between economy and stability

By Martin Dokoupil and Mohamed Sudam DUBAI/SANAA, Jan 19 (Reuters) - Impoverished Arab state Yemen is struggling to keep its currency afloat as it ploughs through cash reserves to fight rebellions, al Qaeda militancy and crushing poverty in order to maintain social order.

Yemen's central bank spent $1.6 billion last year -- equivalent to a quarter of its current reserves -- to lift the rial from historic lows and help fund imports of basic goods.

The bank's sub-governor told Reuters in Sanaa recently that it would not allow further moves in the currency which it felt were not, in its view, economically justified.

Yet as Yemen edges closer to becoming a failed state, analysts believe that it will be harder this year to keep its currency stable in the face of declining confidence.

And as authoritarian Arab leaders look anxiously at Tunisia, where unrest fuelled by poverty has unseated a veteran autocrat, gloomy economic news may be troubling to the administration of President Ali Abdullah Saleh, who has ruled since the 1970s.

"There are possibilities of all kinds of emergencies that may lead to additional pressure on the exchange rate," said Abdul-Ghani al-Iryani, a political analyst in the capital.

"Given the fact that production of oil continues to slide, sooner or later there will be another exchange rate crisis they will have to deal with."

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

FACTBOX ON political risks in Yemen [ID:nLDE70A0FU]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

After tumbling 17 percent to a record low of 250 rials to the dollar last year, policymakers determined to halt its slide hiked the key interest rate to 20 percent from 12 percent in a single move, sold dollars and capped currency outflows.

That, plus higher oil prices, has helped the rial rate to recover to around 214, easing imported inflation pressures.

GRIP OF POVERTY

Still, inflation in the Arab world's poorest country is hovering at around 12 percent and unemployment at 35 percent. And more than 40 percent of the 23 million Yemenis live on less than $2 a day, making hunger a commonplace reality for many.

Retailers in Sanaa price more expensive goods such as TV sets in dollars to shield against sudden currency swings, although payments in rials are accepted.

The global rise in food prices is also a growing concern.

"In case the prices of food supplies continue to rise ... this will lead to big risks to social peace and stability in the country," said Abdul Karim Sallam, editor in chief of local al-Ektisad al-Youm weekly.

Widespread protests over soaring food prices and high unemployment were instrumental in toppling Tunisia's ruler in the past week and Algeria is witnessing similar protests.

Libya is cutting taxes on food, and Kuwait introduced measures this week to subsidise food costs for its citizens.

"We had to increase prices repeatedly and customers turn away as a result," said Ali Muhammad Nasser, a bakery shop owner in Sanaa. "Sometimes we don't achieve profits because we sell with lower prices to encourage costumers to come."

SHALLOW RESERVES

Yemen's government is being forced to spend more to prop up the currency and the economy at a time when it needs to improve its finances, depriving it of the firepower it would need to avert another currency crisis.

"Even if oil prices go to $100 (a barrel), there is a possibility that they will exhaust their foreign assets," said John Sfakianakis, chief economist at Banque Saudi Fransi.

"Without any intervention, the currency may well go into a downward spiral."

Ibrahim al-Nahari, the Yemeni central bank's sub-governor, told Reuters that the central bank would not allow exchange rate moves that were not economically justified and was coordinating with the finance ministry to tackle the budget gap.

Yemen's foreign currency reserves stood officially at $5.9 billion last month, down from $7.1 billion at end-2009, he said, but some analysts disputed the figure, saying it may be much lower.

Lacking access to international debt markets, the state has few options to plug a $1.5 billion budget hole other than to borrow from the central bank or to raise funds from donors.

The government, which relies on oil proceeds for 60 percent of its income, plans to sell $500 million worth of Islamic bonds this year but few believe that the issue can succeed.

Only a fraction of $4.7 billion promised at a donor conference in 2006 has been disbursed so far.

Moreover, the IMF, which expects a budget shortfall of 5.0 percent of GDP this year, has said it is not considering new loans for Yemen after a $370 million loan approved in August.

As part of economic reforms, Yemen has begun reducing fuel subsidies, a major burden on state finances, but is having to do this gradually to avoid stoking public anger. Previous moves to raise fuel prices provoked riots.

But the government's commitment to improving finances remains in question after it announced this week that would cut income taxes for its employees to 15 percent from 20 percent.

Caught between spending to keep citizens happy and the need to conserve cash, Yemen has its hands tied.

"The Yemeni currency is in a very fragile situation," said Mohamed al-Maytami, economics professor at Sanaa University.

"Looking at the central bank reserves and the budget deficit I do not know how long they will be able to withstand new currency weakness." (Editing by Reed Stevenson and Alastair Macdonald)

View the original article here