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Solidarity won’t solve problems

For economic and political reasons, the EU or its member states will come up with money to save Greece from collapse if that becomes necessary, according to The Economist. Skeptical “commentators in places such as America and Britain have long underestimated the political will” in the eurozone “to defend the single currency, which was always as much a political as an economic project,” The Economist notes.

DiPascali got bailed

U.S. District Judge Richard Sullivan is allowing Frank DiPascali Jr., swindler Bernard Madoff’s aide, to be released from jail on $10 million bail. Prosecutors asked the judge to grant bail because DiPascali is helping them with their investigation into how Madoff got away with running the biggest Ponzi scheme in U.S. history for so long. DiPascali must remain under house arrest and is prohibited from leaving without an FBI escort.

One step forward…two steps back

Christopher Dodd, chairman of the U.S. Senate banking committee, is teaming up with first-time Sen. Bob Corker in a move that might speed up approval of the overhaul of financial regulation. Like most Republicans, Corker opposes creation of the standalone Consumer Financial Protection Agency. “Everybody knows that a free-standing agency is a nonstarter,” said Corker, a Tennessee Republican.

Up and down

Initial jobless claims in the U.S. decreased 43,000 last week, the Labor Department said. The seasonally adjusted total of 440,000 first-time claims fell substantially short of the 465,000 predicted by analysts polled by Reuters. The four-week rolling average was down 1,000.

Semantic play

Unemployment in the U.S. will remain at more than 6% until 2015, with likely little or no improvement this year, the White House Council of Economic Advisers said in its annual report to the president. Every month this year, the country will add about 95,000 jobs, but that will barely be enough to maintain the unemployment rate as workers enter the job market because of normal population growth, according to the report. The economic advisers projected a 10% jobless rate for 2010, falling to 9.2% in 2011.

Five threats

Greece is not alone in placing the future of the euro in doubt, economists said. Increasing debt and budget deficits also are serious problems in Ireland, Italy, Portugal and Spain. Economist Nouriel Roubini said the euro could be torn apart if the eurozone does not come to terms with debt it piled up during the financial crisis.

Dirty Reid

Senate Majority Leader Harry Reid, D-Nev., said he will press for prompt action from the U.S. Senate on a job-creation bill that would be less expensive than the one backed by President Barack Obama. Reid said the downsized bill would “create jobs immediately,” relying primarily on incentives for private-sector hiring and tax cuts for employers. The centerpiece of Reid’s plan would be to give employers an exemption from federal payroll taxes for every jobless worker hired this year. The proposal has some Republican support.

Risk appetite

Financial firms must enhance the way they assess their risk appetite and strengthen risk management and control, according to a Deloitte & Touche report. “It is happening, firms are recognizing they’re having to invest more in these areas. The environment is changing,” said Martyn Jones, chairman of the corporate-governance services group at Deloitte. “Some institutions are more advanced than others, and it is a process that will continue this year and beyond. People will be investing efforts to ensure they have quality systems.”

Shooting own foot

Investors have more to worry about than Greece’s mountain of debt, according to The Economist. Fearful that their fragile recovery might collapse, none of the developed countries have offered a “credible, medium-term fiscal plan” for withdrawing stimulus, The Economist notes. “Some of today’s nervousness comes from ‘policy risk’. Nobody — neither firms, banks nor individuals — is quite sure where government policy is going. The more that governments can do to reduce such uncertainty, the stronger the recovery is likely to be.”

Got stopped

Expansion of Germany’s economy stopped in the fourth quarter, leaving GDP flat, according to the national statistics office. Europe’s biggest economy shrank 5% last year.

Got bull horned

Spain’s economy, burdened with the highest unemployment rate in the eurozone, contracted in the fourth quarter, the National Statistics Institute said. GDP dropped 0.1%, declining for the seventh straight quarter.

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International Monetary Fiasco (IMF)

The International Monetary Fund was too optimistic in its forecasts and worsened the financial crisis in many countries, according to a report by the Center for Economic and Policy Research. The report analyzes agreements between the IMF and developing countries, finding that the IMF encouraged overoptimistic policies in 31 cases that caused a severer downturn when the economy deteriorated. “In many cases, the fund’s pro-cyclical policies were based on overoptimistic assumptions about economic growth,” the report states.

Victims started to fall

Roberto Cittadini, a former manager at Boeing, pleaded guilty to evading taxes on about $2 million, which he had in UBS accounts in Switzerland. “The Internal Revenue Service is continuing to do what it has said it would do, and it would be foolhardy for people to think that they will go undiscovered or will not be pursued for prosecution once the IRS is onto them,” said Barbara Kaplan, a lawyer at Greenberg Traurig.

It only makes sense

Kenneth Feinberg, the White House official tasked with regulating executive pay at banks that received state aid, plans to shift part of bankers’ pay into stock that cannot be traded for several years, sources said. Feinberg will make the final determination this month for 175 highly paid executives at bailout banks. The White House wants to see compensation closely linked to performance, but pay in this form would also minimize risk-taking for short-term gain.

Sarkozy doing good by small biz

French President Nicolas Sarkozy said the government will provide €2 billion in aid to small businesses. The fund will be managed by Oseo, the state bank for small business, and the country’s strategic investment fund. “French companies need to invest, and for that they need equity,” Sarkozy said.

Bond rally might be running out of steam before it begins

The rally in the corporate-bond market in Europe, the U.K. and the U.S. indicates investors’ risk appetite has increased this year, but disappointing economic figures from the U.S. hit the market hard. While it might have been only a temporary blip, there are other signs that investors are beginning to pull back.

Apple quit US Chamber of Commerce

Apple withdrew from the U.S. Chamber of Commerce to distance itself from the group’s strong criticism of proposals to cut greenhouse-gas emissions. “Apple supports regulating greenhouse-gas emissions, and it is frustrating to find the Chamber at odds with us in this effort,” Apple Vice President Catherine Novelli wrote in a letter to the Chamber’s president. Pete Altman, an activist for the Natural Resources Defense Council, said Apple is the fourth major company in recent weeks to pull out of the Chamber because of this issue.

Loosing talent overseas

Canadian banks have been hiring talent from U.S. investment banks, according to Bloomberg data. More than 700 investment bankers, analysts and traders from major U.S. institutions have joined Canadian banks. Canadian banks largely escaped the crisis and were named by the World Economic Forum this year as among the strongest in the world.

Bite more they can chew

Two Chrysler executives who were personally selected by CEO Sergio Marchionne to help him turn around the automaker submitted resignations, surprising the auto industry. Peter Fong, CEO and sales head for the Chrysler brand, resigned for “personal reasons,” while Michael Accavitti, marketing and brand chief for Dodge, is departing to “pursue other interests.” However, sources said the two were forced out because of clashes with Italian managers brought in after Fiat bought a 20% equity stake in Chrysler.

New liquidity standards

The Financial Services Authority released strict liquidity standards for banks and investment firms in the U.K. The rules will require financial institutions to significantly reduce their reliance on short-term funding and boost their holding of assets that can be easily sold by £110 billion in the first year. “The FSA is the first major regulator to introduce tighter liquidity requirements for firms,” said Paul Sharma, director of prudential policy at the FSA. “We must learn the lessons of the financial crisis, and we believe that implementing tougher liquidity rules is essential to ensure we are in a better position to face future crises.”

Aussies raise key rates

The Australian central bank raised its key interest rate to 3.25% from 3%. It is the first time a Group of 20 central bank has raised its rate since the financial crisis began. “The move raises the chances that other banks will follow suit,” said Frederic Neumann, a regional economist at HSBC in Hong Kong.

Blue holiday season

A second consecutive year of declining holiday sales awaits U.S. retailers, the National Retail Federation said. The industry group expects sales to fall 1% in November and December, dropping to $437.6 billion. If the forecast is correct, retailers will see the first back-to-back decline in holiday sales since the group started collecting the data in 1992.

About time

U.S. President Barack Obama told government agencies to “lead by example” and ordered them to set goals for energy conservation, reduction of greenhouse-gas emissions, water conservation and recycling. The order requires the government to follow codes for energy-efficient buildings when constructing facilities, reduce vehicle-fuel consumption by 30% by 2020 and double recycling by 2015. Agencies were given 90 days to establish their own goals for reducing greenhouse-gas emissions.

Emerging markets to lead the emergence

Emerging markets will lead the economic recovery, according to a purchasing managers’ index by HSBC. The index increased to 55.3 in the third quarter, up from 50.7 in the second quarter. A reading of more than 50 indicates expansion, and this is the biggest jump for manufacturing and service output since the second quarter of 2008.

Yen getting stronger shows promises for Japanese’s fundamentals

The strong yen is an accurate reflection of the Japanese economy’s strength, said Takatoshi Kato, deputy managing director of the International Monetary Fund. IMF calculations show the yen is trading in proper correlation with the country’s medium-term growth prospects, Kato said. He said the country should experience moderate growth and see greater production in the medium term.

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1. Fess up

After UBS agreed to pay $780 million in a settlement with the U.S. government regarding tax evaders, a flood of disclosures came from other Americans with accounts in Switzerland. UBS had agreed to disclose names of U.S. account holders, and the additional information from other banks’ clients might permit the Internal Revenue Service to find other targets in Switzerland. “It is very possible that the IRS will be able to get strangleholds over the other banks because they’ll have specific information which will permit them to bring specific allegations of wrongdoing before the U.S. courts,” said Robert Fink, a lawyer at Kostelanetz & Fink.

2. Placement agent under fire

Four companies will pay settlements totaling $4.5 million as part of New York Attorney General Andrew Cuomo’s investigation into using placement agents to influence investment decisions by the state’s $122 billion pension fund. The settlement will be paid into the pension fund. The firms agreed to stop using placement agents.

3. Whittling down the stimulus

Japan’s government, led by the Democratic Party of Japan, plans to cut parts of its $164 billion economic stimulus. Finance Minister Hirohisa Fujii asked other ministers to identify areas that could be cut by Oct. 2. Fujii intends to use the funds to reduce Japan’s debt, finance parts of the stimulus that are more productive or increase government spending.

4. Clawing back…

When leaders meet next week in the U.S. for the Group of 20 summit, EU officials will push for a global agreement on bankers’ bonuses that includes claw-back provisions. “The bonus bubble bursts tonight,” Swedish Prime Minister Fredrik Reinfeldt said at a meeting Thursday. “We particularly want to focus on the link between performance and compensation.”

5. Flash trading = a thing of the past

Responding to lawmakers’ concerns, the U.S. Securities and Exchange Commission proposed a rule banning flash trading and invited public comment on the proposal. If adopted, the rule will prohibit stock exchanges and other trading platforms from providing clients stock-order data before they are released to the entire market. “The SEC has done what we asked for,” said Sen. Charles Schumer, D-N.Y.

6. Kind of reversed ain’t it?

American Airlines might lead the Oneworld group of carriers for an investment in troubled Japan Airlines, which has been bailed out three times by the Japanese government since 2001. American Airlines hired an investment banker to frame the deal, while other members of the alliance have been meeting with Japan Airlines’ management, sources said. Japan Airlines reportedly is also considering investments from Delta Air Lines and Air France-KLM.

7. Baucus helping Obama?

The health care bill of U.S. Senate Finance Committee Chairman Max Baucus, D-Mont., drew a storm of criticism within minutes of its release. However, some supporters said they are encouraged by the way the bill’s taxes and fees are balanced by money for health providers. The move neutralizes interest groups that defeated former President Bill Clinton’s health care initiatives, they said.

8. Listen to the Oracle

Billionaire investor Warren Buffett, as one of the major shareholders of Kraft Foods, can influence how the company conducts its bid for Cadbury. Kraft’s offer was rebuffed by the British chocolate maker, but a hostile bid is under consideration. Hershey hired Byron Trott, a banker closely associated with Buffett, to determine whether it should bid, but analysts said Hershey is probably more interested in acquiring units of Cadbury that can be spun off after a Kraft acquisition.

9. Different picture than the US’

China’s aggressive lending to businesses, direct spending on stimulus projects and attractive tax breaks for exporters have given the nation an economic rebound so powerful that even the real estate market is heating up. The well-capitalized banking system got through the credit crunch with only minimal losses, then ramped up lending dramatically in response government stimulus policy. Many laid-off workers are being called back to their jobs.

10. BRIC is gaining momentum

Turning away from developed countries, investors are increasingly directing their investments into Brazil, Russia, India and China, according to a U.N. agency. “The BRIC countries are the most favored destination for [foreign direct investment],” said Supachai Panitchpakdi, secretary general of the U.N. Conference on Trade and Development.

11. Tea power losing its luster

Foreign direct investment in the U.K. declined by half in 2008, according to the U.N. Conference on Trade and Development. The country fell to third from second in the world for foreign direct investment projects.

12. Jitters

Shizuka Kamei, Japan’s minister for financial and postal services, spooked lenders and shareholders after his appointment. Kamei said he wants to allow small businesses to extend loan payments to help them survive the credit crunch, raising bankers’ concerns about how he will approach the industry.

13. Basel II getting some praise

Ahead of the Group of 20 summit next week in the U.S., Moody’s Investors Service issued a comment paper on changes to the EU’s Capital Requirements Directive as well as Basel II, calling the moves “positive for banks’ creditworthiness.” “One important amendment calls for stricter operational requirements for credit analysis for banks holding securitization exposures,” according to the paper. “We believe that the increased requirement for credit analysis for banks holding securitized exposures is going to be an important element of improved risk management.”

14. Bye bye bro

Citigroup is considering spinning off Phibro, its proprietary oil-trading unit, CEO Vikram Pandit said. The unit trades only with Citi capital, but Pandit wants to turn it into an asset manager that can work with the capital of other institutions.

15. Addressing commercial RE risk..for now

The U.S. Treasury eased tax penalties on struggling commercial-property borrowers who are trying to modify their mortgages. The move caused the cost of protecting commercial mortgage-baked securities from default to fall. “While the impact of these rule changes are positive at the margin, the changes will not affect” all bondholders equally, said Alan Todd, a JPMorgan Chase analyst.

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1. Another reset, another heartache

Another round of residential foreclosures is on the verge of sweeping through the U.S. housing market, Fitch Ratings said. Many homeowners might be unable to cope with higher monthly payments after hundreds of thousands of option adjustable-rate mortgages reset, the credit rating agency said. Between now and 2011, roughly 70% of option ARMs, with a total value of about $189 billion, will reset. “It’s a ticking time bomb for some people,” said Brian Bethune, an economist at IHS Global Insight.

2. Moody’s staying with UK and Spain on ratings

Moody’s Investors Service said although Spain and the U.K. have been “severely hit” by the financial crisis, they will likely retain their Aaa credit rating. Meanwhile, Germany and France, which also have Aaa ratings, remain “resistant,” said Moody’s executive Pierre Cailleteau. “Almost all Aaa-rated sovereigns have been hit more severely by the global downturn than we expected earlier this year,” Moody’s said. “Nevertheless, all Aaa countries now have stable outlooks, indicating that we do not expect rating downgrades over the near term.”

3. Steinbruck might get some promotion

German Finance Minister Peer Steinbruck could get a high-level international position, such as director of the International Monetary Fund, if his Social Democratic Party is not included in the next government after an election Sept. 27. Steinbruck would get support from German Chancellor Angela Merkel, who is a Christian Democrat, a source said. Merkel would be rewarding Steinbruck for his support of the government’s handling of the financial crisis.

4. More work for clearinghouses

JPMorgan Chase, Barclays, UBS, Citigroup and several other major financial institutions agreed to accelerate their use of central clearinghouses for over-the-counter derivatives. The banks said they will start sending more credit default swaps and interest-rate derivatives through clearinghouses in October and December, respectively. The move comes as regulators in Europe and the U.S. aim to clamp down on the $450 trillion market.

5. Sore spot: tire

The stakes are rising regarding a proposal to block imports of Chinese-made tires into the U.S. Chinese officials said if the plan to impose high tariffs goes ahead, 100,000 workers in China will lose their jobs, triggering retaliatory action. Trade experts in China suggested that the government respond by placing restrictions on imports of U.S. autos into China.

6. CIC to look into US RE

China Investment Corp. discussed the possibility of making major investments in U.S. commercial real estate with several private-equity fund managers, sources said, according to The Wall Street Journal. The sovereign-wealth fund is considering investing in distressed mortgage securities linked to a wide range of commercial properties. The fund managers involved include BlackRock, Lone Star Funds and Invesco, the sources said.

7. China to relax ruling on listing

China will gradually relax limits on inbound overseas investment and allow foreign companies to list their shares on domestic stock exchanges, said Commerce Minister Chen Deming. The policy shift is part of a long-term effort to encourage mutual investment between China and its foreign partners, Chen said. Eventually, enterprises owned by foreign investors will receive the same treatment as their Chinese counterparts. Chen did not offer a timeline for implementing the policies.

8. Bye bye money

There is little chance U.S. taxpayers will recover all of the billions spent on rescuing Chrysler and General Motors, according to a report by the Congressional Oversight Panel. “Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” according to the report. It is “highly unlikely” all of Chrysler’s money will be recouped, the report states, and GM’s stock price would have to hit record highs to recover all of that company’s money.

9. Heading into regulatory overkill?

As the financial industry is about to mark the first anniversary of Lehman Brothers’ collapse, financial institutions appear to be nearly back to business as usual, while U.S. lawmakers quibble about regulation. “There’s no fundamental change in the way the banks are run or regulated,” said Peter J. Solomon, who runs an eponymous New York investment bank. “There’s just fewer of them.” While some authorities said the regulatory revamp is necessary, analysts and other industry insiders said Congress will be hard-pressed to implement changes by the end of the year, a deadline imposed by the White House months ago.

10. Greenback is not so green anymore

The world could reduce the risk of economic crises and prevent attacks on currencies by speculators if it reduces the role of the U.S. dollar as a reserve currency, a U.N. agency said in a report. The report calls for introducing a supranational currency, special drawing rights administered by the International Monetary Fund. “If we established an exchange rate system that would guarantee more stable exchange rates, the need for foreign exchange reserves would be much reduced,” said Detlef Kott, a U.N. economist. “Therefore, in our report, we focus very much on the reform of the international system to determine the exchange rates.”

11. As he remembers it

U.S. Treasury Secretary Timothy Geithner was in the thick of the financial crisis as head of the Federal Reserve Bank of New York last year when Lehman Brothers collapsed. Geithner said the crisis had been building for more than a year before Lehman filed for bankruptcy. “Anyone who had built close to the fault line of this earthquake was very exposed,” he said. Geithner described his directive and how New York Fed officials handled the situation.

12. They might need more money

Nana Otsuki, an analyst at UBS, said stricter capital requirements might force the three largest banks in Japan to issue shares or undertake other capital-raising schemes. “Japan’s megabanks may need to raise capital, including issuing shares,” Otsuki said. “They have less leeway than major European and U.S. banks.” Since the end of last year, Mizuho, Mitsubishi UFJ and Sumitomo Mitsui financial groups have raised a combined $19 billion through share sales.

13. Japan to follow US step…in unemployment record breaking trend

Despite signs of economic improvement in Japan, unemployment climbed to a record high of 5.7% in July, the Cabinet Office said. The office’s overall view of the economy remains unchanged. “The rising jobless rate may exert downward pressure on wages in the future and is a risk factor for the economy,” an official of the Cabinet Office said.

14. New product…insuring mortgage

The insurance arm of billionaire investor Warren Buffett’s Berkshire Hathaway will offer policies for homeowners facing foreclosure, homes already foreclosed and other distressed residential properties. A number of major insurers are moving into this growing but risky market.

15. US drops in ranking for most competitive economy

Switzerland has become the world’s most competitive economy, with the U.S. slipping to second place for the first time, according to a report by the World Economic Forum. Economies that earn a large percentage of GDP from financial services, such as the U.K. and the U.S., were hurt in the crisis, according to the report. The BRIC countries — Brazil, Russia, India and China — all moved higher in the ranking, while trust for banks in both Switzerland and the U.S. fell to record lows.

16. No one is borrowing

The Federal Reserve said U.S. consumer credit fell for the sixth straight month in July, plunging a record $21.6 billion, compared with a $15.5 billion drop in June. The annualized rate of decline in July was 10.4%, and nonrevolving credit dropped at an annualized rate of 11.7%.

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1. Beating a dead horse

PricewaterhouseCoopers is preparing the filing of claims against Lehman Brothers by more than 100 of its European businesses. The claims could total as much as $100 billion. Tony Lomas, a PwC partner, described the claims as “exceptionally complex.” “We’re dealing with a large number of entities, and therefore the claims could be as much as $100 billion … we anticipate a large amount of further work in dealing with these claims,” Lomas said.

2. Shanghai is the new Detroit

One aspect of General Motors’ management reorganization that went widely unnoticed was a shift in power from Detroit to China. With the exception of Germany’s Opel, which is up for sale, all GM operations outside North America answer to executives in Shanghai. “It should signal to everybody that certainly North America is going to be important to righting the ship, but basically the bread is going to be buttered out of Asia,” said Michael Robinet, vice president of global vehicle forecasts as CSM Worldwide.

3. Tough fiduciary standard is coming?

Wall Street acknowledged that a tougher fiduciary standard is appropriate for brokers’ dealings with clients, but how strict that standard will be is up in the air. “What we’re calling for is a high standard of care that is clear and uniform across the board — where it doesn’t matter what certificate is hanging on your office wall,” said Ira Hammerman, general counsel of the Securities Industry and Financial Markets Association. Those favoring the existing standard, including state regulators and investment advisers, are taking issue with that stance.

4. A whole new world

The mood of quiet relief that surrounded a gathering of central bankers in Jackson Hole, Wyo., suggested that they have not truly grasped how much their place in the world was changed by the financial crisis. The job of a central bank used to be simple and straightforward: Maintain a low and stable rate of inflation. Whether they know it, central bankers today are expected to safeguard the entire financial system.

5. Light truck, courtesy of China

Chinese vehicle manufacturer FAW Group and General Motors said they will form a joint venture to build light trucks and vans for the Chinese market. Kevin Wale, GM China’s president and managing director, said the products will complete the range of vehicles GM offers in China. More than half of the world’s commercial vehicle sales are in China, he said.

6. Finally, they make money

The Federal Reserve has earned roughly $19 billion from fees and interest it charged to banks and investors using its lending facilities during the past two years. Had the Fed invested that money in U.S. Treasury bills, it would have earned about $5 billion, meaning the central bank has made about $14 billion in profit from the facilities, according to an internal estimate.

7. London, ground zero for G20

When finance ministers and central bankers meet this week in London to lay the groundwork for a subsequent Group of 20 meeting in the U.S., fiscal stimulus certainly will be on the agenda, economists said. “The finance ministers will be more focused on the fiscal-stimulus side of things and when to reverse it,” said Trevor Williams, chief economist at Lloyds TSB. “They will want to act in as roughly a coordinated way when tightening policy as they did when they were loosening it, without triggering a relapse into recession.”

8. Changing of the guard

The Democratic Party of Japan, the country’s major opposition party, won more than 300 seats in the 480-person lower house of the legislature. The decisive victory removes power from the Liberal Democratic Party, which ruled almost without interruption for more than 50 years.

9. Reduction in mortgage rate

With interest rates of British government bonds falling, banks and other lenders likely will face criticism if they do not start cutting the interest they charge on fixed-rate mortgages. Eager to boost profits, however, banks are unlikely to be quick about doing so, mortgage brokers warned. Because there is much more demand for mortgages than money available, some banks are worried that rate cuts will bring in more applications than they can handle.

10. One leg is getting better while the other is on the chopping block

So far this year, 84 banks have failed in the U.S., compared with 25 in 2008 and three in 2007. Even as scattered signs of economic recovery appear, some analysts predicted that deteriorating commercial real estate loans will bring down an additional 100 to 300 banks. The Federal Deposit Insurance Corp. has 416 banks on its “problem list.” No matter what the government does, it will take some time for the banking sector to work through its commercial loan problems, experts said.

11. No progress

The U.S. government needs to do more about handling financial institutions that are systemically important and supposedly “too big to fail,” said Bank of Israel Governor Stanley Fischer. He was Federal Reserve Chairman Ben Bernanke’s thesis adviser at the Massachusetts Institute of Technology. “We seem to be taking it for granted that we should go back to the structure of the financial system as it was on the eve of the crisis,” Fischer said.

12. India’s GDP was growing by 6.1%

Outpacing experts’ forecasts, India’s GDP expanded 6.1% in the second quarter compared with the same period last year. Economists warned that poor monsoon rains likely will cut growth later this year while simultaneously fueling inflation.

13. Pop, the magic dragon

There is no truth to the claim that 20% of new loans by Chinese banks this year went into the stock market, said UBS economist Tao Wang. If all of the new money put into China’s stock market is added to the value of metal imports, the total comes to less than 10% of 2009’s new lending. Most of the money went into the real economy, principally infrastructure, Wang said. New bubble forming?…might pop soon.

14. Canada is still in deep doo doo

While optimism builds that Canada is on course for an economic recovery, government data for the second quarter are expected to show that the country is still in a recession, economists said. “This global recession has been a head spinner for Canadian exports, which shrank for a seventh consecutive quarter in the second quarter of 2009, with double-digit declines for the last three quarters, said Diana Petramala, an economist at TD Securities.

15. Crystal ball for US

Motorists pulling up to the gas pump will be among the first in the U.K. to feel the impact of five planned tax increases, as the British government starts shutting down tax breaks aimed at helping businesses and families make it through the recession. The tax on motor fuel will go up by 2 pence Tuesday.

16. No need for more stimulus or the scary consequences of spending freely?

A majority of economists polled by the National Association for Business Economics said the U.S. does not need a second stimulus. What the government should do is cut spending for the next two years to reduce the budget deficit, the experts said.

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1. Microhoo

Microsoft and Yahoo! reportedly came to an agreement that hands Yahoo!’s search business over to Microsoft and puts Yahoo! in charge of selling advertisements for both companies’ Web sites. The partnership would put Microsoft in second place, behind Google, in the search-engine market.

2. Scratch back

Until last week, the U.S. Securities and Exchange Commission used the “clawback” provision of the 2002 Sarbanes-Oxley law only against individuals accused of fraudulent activity. “They are taking this tool and interpreting it aggressively. If they are successful, I expect to see them using it often, and I bet it would change the way CEOs and [chief financial officers] behave when it comes to restatements, though it may also make people even more reluctant to take those jobs,” said Nader Salehi, a partner at the law firm Bingham.

3. Rhetorical commitment

The U.S. and China, at the conclusion of the nations’ first Strategic and Economic Dialogue, committed themselves to continuing support for their economic-stimulus programs and fixing weaknesses in the financial system that triggered the economic crisis. “It is vitally important for China and the United States to see through their commitments to repair the financial system and lay the foundation for recovery,” said U.S. Treasury Secretary Timothy Geithner. Zhou Xiaochuan, governor of the Chinese central bank, said China will wait for the U.S. to cut back its stimulus program and then decide whether China should follow suit.

4. Business unfriendly skies

Nobuo Kuroyanagi, president and CEO of Japan’s Mitsubishi UFJ Financial Group, warned that banks might be forced to restrict lending if regulators boost capital requirements. Kuroyanagi said small and midsize business would “find it difficult to borrow funds because banks will shift towards safer assets.” Regulators worldwide have called for substantial increases to capital requirements.

5. NSS = No S… Sherlock!

The U.S. needs a financial regulator with the kind of independence from political influence enjoyed by the judiciary if it is to avoid another financial crisis, said Columbia University President Lee Bollinger, one of three directors named to the Federal Reserve Bank of New York to represent the public’s interests. He said it is futile to count on Congress or “the people who are engaged in the economic act to say, ‘Stop, we’re taking too much risk.’”

6. Rules for HF in EU is coming fast

Sharon Bowles, chairwoman of the European Parliament’s Committee on Economic and Monetary Affairs, said controversial draft rules for hedge funds will be altered. Bowels, from Britain, said pension funds and institutional investors in Europe would be excluded from international capital markets should the draft rules be implemented. The proposals, which have drawn criticism from hedge funds and financial centers worldwide, would force alternative fund managers to register for the first time.

7. Hanky panky Bernanke…it rhymes for a reason

Federal Reserve Chairman Ben Bernanke is striving to maintain the central bank’s independence, but legislation that has garnered much support in the U.S. House would require the Government Accountability Office to audit the Fed’s activity. Bernanke said such audits would not be “consistent with independence.” “I don’t think the American people want Congress running monetary policy,” Bernanke said at a recent town hall meeting in Kansas City, Mo.

8. More mods please

The U.S. government’s efforts to curb foreclosures has gotten off to a rocky start, prompting a meeting between senior officials from the Obama administration and executives from the largest banks in the nation. The Treasury is encouraging bankers to ramp up its efforts to modify mortgages and help struggling homeowners. Making Home Affordable, the government program launched in March, has helped about 200,000 homeowners modify their loans. The Treasury wants 500,000 mortgage modifications by Nov. 1.

9. Credit is stabilizing

Although businesses continue to complain that credit is difficult to obtain from banks, the quarterly survey of bank lending from the European Central Bank shows that credit conditions are becoming more stable. Economists said the issue is a decline in demand, but the economic recovery is expected to clarify the situation as companies once again seek bank loans.

10. Bye bye jobless recovery

Consumer confidence in the U.S. declined for the second month in a row in July, The Conference Board said. The research group’s Consumer Confidence Index slid from 49.3 in June to 46.6 this month. “Consumer confidence, which had rebounded strongly in late spring, has faded,” said Lynn Franco, director of The Conference Board Consumer Research Center.

11. German’s rising

Businesses in Germany are expressing positive sentiments about the economy, suggesting the nation’s recovery is getting some traction, economists said. A business-climate index sponsored by the Institute for Economic Research rose for the fourth consecutive month in July. “Germany has all of a sudden become the leader of the pack, showing stronger signs of stabilization than most other eurozone countries,” said ING economist Carsten Brzeski.

12. Sputtering international trade

After a lengthy decline, world trade has finally hit bottom. But there was no bounce, and there is not much of a recovery on the horizon. With spending down and unemployment up in the U.S. and other consuming nations, it is hard to find an origin of fresh demand, which would be needed to fuel a trade recovery.

13. Fed will fight inflation…with deflation

When the time comes for the Federal Reserve to tighten monetary policy to head off inflation, the central bank will act “decisively,” said Janet Yellen, president of the Federal Reserve Bank of San Francisco. No data have pointed to a risk of rising inflation, she said. The U.S. recovery will be painfully slow, Yellen said, and a return to full employment is years away.

14. Please keep going up!

Home prices rose in the U.S. in May, the first improvement in three years, according to the Standard & Poor’s/Case-Shiller Home Price Index. After a 0.6% drop in April compared with March, the index, which follows home prices in 20 metropolitan areas, rose 0.5% in May compared with April. “This could be an indication that home-price declines are finally stabilizing,” said David M. Blitzer, chairman of S&P’s index committee.

15. The very American British

The number of U.K. retailers reporting falling sales dropped between June and July, the Confederation of British Industry said. With Britain’s unemployment at its highest in 13 years, even a modest upturn in retail sales came as a surprise to analysts. Andy Clarke, chairman of the CBI distributive-trades panel, said many retailers have had a bad summers and were not expecting an uptick any time soon. “But the overall sales falls are not as heavy as we saw at the start of the year, and some retail sectors are reporting growth,” he said.

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1. Backstop from bondholders

CIT Group’s bondholders reportedly agreed to provide $3 billion in emergency financing to keep the lender from collapsing. An announcement on the development is expected Monday. The agreement includes a high interest rate for CIT and does not resolve the lender’s long-term needs, sources said. However, it gives CIT time to restructure and minimizes losses for bondholders.

2. Is Switzerland hinting at something?

International tax and bank secrecy matters should be overseen by a global watchdog that is not under the control of the Group of 20, said Alexis Lautenberg, Switzerland’s ambassador to the U.K. No G-20 nation is on the “gray list” of countries that do not fully cooperate with cross-border tax investigations, Lautenberg said, reducing the “legitimacy” of the G-20’s campaign against tax havens.

3. This is getting old…the rubber match

China lashed out at the U.S. over a series of complaints submitted to the World Trade Organization that accuse China of illegally restricting trade. “China is shocked at the frequency of the cases and the strength of the targeting,” the Commerce Ministry said. The WTO cases are examples of protectionism by the U.S., the ministry said.

4. Hmmm….

According to a report by Neil Barofsky, the special inspector-general for the Troubled Asset Relief Program, 83% of the 360 aid recipients said they used the funds to boost lending. More than 30% said they used the money to make investments, while 43% said they padded their capital cushions. Barofsky’s team said the information is a move toward transparency, but the U.S. Treasury rejected suggestions that it require banks to report how they use TARP funds.

5. Geithner: our new bond salesman

U.S. Treasury Secretary Timothy Geithner is faced with the increasingly difficult task of marketing government debt because the federal deficit has soared beyond $1 trillion. Last week, Geithner traveled to Europe and the Middle East to persuade investors to continue purchasing Treasuries. “He’s a smart guy, but it’s a very, very big task,” said Dean Baker, co-director of the Center for Economic and Policy Research, a think tank in Washington, D.C.

6. FSA is an endangered species

If Conservatives win the next U.K. general election, they plan to abolish the Financial Services Authority and beef up the Bank of England as part of a major overhaul of banking regulation. “We must never repeat the mistakes of the last decade, in which we built an illusion of growth on the biggest mountain of debt ever seen in an advanced economy,” according to a report from George Osborne, finance spokesman for the Conservative Party.

7. Veteran’s guidance

As expected, Norman Chan will succeed Joseph Yam as CEO of the Hong Kong Monetary Authority Oct. 1. Chan said his top priorities will be maintaining the city’s credit market as well as the stability of its banking and monetary systems. He said he plans to “strike a very delicate balance” between protecting investors and allowing for financial innovation.

8. It won’t be perfect

The heated debate about whether to fully apply mark-to-market accounting principles to banks, insurance companies and other financial firms has been under way for about two years, and it seems to have produced some benefits. The latest proposal from the International Accounting Standards Board is a compromise but not a particularly bad one. But the IASB needs to stick around and keep an eye on the matter.

9. Lingering problems

As the session of the European Parliament opened, members enjoyed more power than ever before, and they are likely to get more if the Lisbon Treaty is ratified. Ironically, this comes as several events resurrected longstanding questions about the body’s legitimacy.

10. KKR in Amsterdam

Private-equity manager Kohlberg Kravis Roberts is moving swiftly toward going public in the Netherlands by merging with one of its funds that is already publicly listed. Terms of the deal, which gives KKR’s owners and staff 70% of the combined entity, were approved by the independent directors of the Dutch-listed fund.

11. Despite their status, they are getting tough

The U.K. Financial Services Authority adopted a tougher stance to regulation by scrutinizing the business plans of brokers, requesting more data and attending banks’ board meetings. Watchdog officials said the changes stem from the collapse of Northern Rock and other issues within the banking system. “There’s a lot more detailed investigation and requests for numbers, a lot more fundamental analysis of the building blocks. We are a lot less reliant on what the firms are telling us,” said Lyndon Nelson, head of risk at the FSA.

12. No spending

Companies that make and sell consumer discretionary items such as toys and motorcycles are taking a particularly harsh beating as unemployment continues to rise. Analysts said sales cannot go up as long as consumers’ income is going down.

13. Misaimed fund

Rules of the Obama administration’s economic stimulus require states to give priority to “economically distressed” counties, but a look at where the money is being spent shows that is not happening. Counties that do not qualify as distressed have received 53% of the stimulus money. “If economically distressed areas get the money, it’s just by coincidence,” said one Texas state legislator.

14. Increased in sophistication for securitization..good or bad?

Securitization has undergone significant changes recently, including enhanced disclosure requirements in Europe, and the market is not about to return to its previous normality, according to this analysis. “Changes to capital rules at European level increase disclosure rules on securitizations,” said Mark Nicolaides, a securitization partner with Latham & Watkins. “Banks just can’t do all this and not tell anyone anymore.” Instead, securitized assets are increasingly sophisticated and tailored to each party’s needs.

15. Good job!

Despite deadly bombings at two Jakarta hotels last week, Indonesia raised $371 million in samurai, or yen-denominated, bonds. The offering was less than the $500 million to $750 million deal that the Indonesian government had indicated. Sri Mulyani Indrawati, the country’s finance minister, said the terrorist attacks did not have any bearing on the bond sale.

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1. Halderman, the CEO

Charles E. Haldeman Jr. stepped down from his role at Putnam Investments, and a source said he is to be named CEO of the government-controlled Freddie Mac. The board of the mortgage giant is reportedly impressed by Haldeman’s work to restore Putnam’s culture as well as compliance after regulatory issues arose in 1998, the source said. The Federal Housing Finance Agency would need to approve Haldeman’s appointment.

2. More power please

U.K. Treasury Minister Paul Myners said the government plans to soon publish its outline on the future of financial regulation. “There is no simple solution, no obvious answer. That is why we need to have an open and honest debate about the shortcomings of the past and the new challenges we face,” Myners said. “Given the significance of the changes in global financial markets, we will need to look at giving both the [Financial Services Authority] and the Bank of England additional responsibilities and powers.”

3. Disconnection

Adair Turner, chairman of the U.K. Financial Services Authority, said there is a “disconnect” between the promises made by lawmakers worldwide and the reality of what regulators can do to prevent future financial crises. Turner, who is working with the Financial Stability Board on rescues of cross-border banks, said the abilities of the Colleges of Supervisors might have been overstated. “We must be realistic about what intelligent cooperation can achieve,” Turner said. “I do sometimes worry that there is a bit of a disconnect between grand political statements at [Group of 20] or other meetings and what we are going to achieve as Colleges of Supervisors.”

4. Field day for BP

A consortium headed by BP was the only successful foreign bidder in a competition for contracts to develop some of Iraq’s most important oil fields. BP-Chinese National Petroleum had to make a last-minute concession, cutting its fee to $2 per barrel to lock up the deal. “The contract gives a foothold to potentially extremely lucrative operations,” said Amrita Sen, an oil analyst at Barclays Capital.

5. Joining forces

Morgan Stanley and Mitsubishi UFJ Financial Group announced details about their loan-marketing joint venture in the U.S. The agreement is for the Japanese bank to provide lending expertise, while the U.S. bank offers services and advice regarding capital markets. The banks previously agreed to form a Japanese securities joint venture.

6. Any takers?

General Motors is talking with European and Chinese automakers about buying Opel, while simultaneously working toward completing a preliminary deal to sell the German unit to Canadian auto-parts manufacturer Magna International. GM wants to be able to buy back Opel sometime in the future, but Magna will not go along with the plan. Among potential rivals to Magna, Belgian industrial holding company RHJ International is in the strongest position, said experts in the auto industry.

7. Uncertain recovery

Robert Zoellick, president of the World Bank, said developing nations are only now starting to feel the full effects of the financial crisis, and problems could quickly return to where the crisis began. “There are risks that could threaten the turnaround, and I have emphasized the world needs to recognize that dangers will come in waves,” he said. “A number of developing countries remain under significant stress.”

8. Yikes, more power

The U.S. Treasury unveiled draft legislation that would create the Consumer Financial Protection Agency, which would have broad powers to write and enforce rules related to a range of financial products, including mortgages and credit cards. “This agency will have only one mission: to protect consumers,” said Treasury Secretary Timothy Geithner. The financial-services industry is expected to oppose the measure as stifling to innovation.

9. Independence: endangered property

Even the appearance that the Federal Reserve’s independence is being undermined can seriously damage the U.S. economy, said James Bullard, president of the Federal Reserve Bank of St. Louis. “We’ve got the appearance … that the Fed is monetizing the deficit, pushing up yields,” he said. “Anything that is going to erode the independence of the Fed is going to feed that expectation and drive yields higher.”

10. AIG: expensive lesson

Gerry Pasciucco said he had one, overarching concern when asked by American International Group CEO Edward Liddy to take on the job of unwinding the portfolio of AIG Financial Products: “How afraid of the unknown should I be?” The events that followed suggest there was a lot to fear.

11. Not waiting for US

Thanks to the energetic recovery of several Asian economies, the theory of decoupling — the idea that emerging economies will become less dependent on industrialized nations as they get bigger and more sophisticated — is back in favor. “Decoupling is happening for real,” said Michael Buchanan, chief Asia-Pacific economist at Goldman Sachs in Hong Kong.

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1. Clean up needed

The Bank for International Settlements said banks must repair their balance sheets before the efforts of central banks to spur the broader economy can be effective. “The ultimate success of central bank interventions depends on the appropriate design and forceful implementation of policies that address directly the fundamental weaknesses in bank balance sheets,” the BIS said.

2. Undermining the Fed

Efforts by Federal Reserve Chairman Ben Bernanke to keep consumer-borrowing rates low and revive economic growth are being undermined by volatility in the price of U.S. Treasuries. “Volatility has increased dramatically, and it seems to get more each day,” said Thomas Roth, New York-based head of government-bond trading at Dresdner Kleinwort. “A lot of that has to do with uncertainty about whether the Fed will increase purchases of Treasuries. The market is looking for some change in the Fed’s plan.”

3. Gulf’s monetary council

Saudi Arabia, Bahrain, Kuwait and Qatar signed an agreement to create a Persian Gulf monetary union, committing themselves to working toward a common currency despite the withdrawal of the United Arab Emirates and Oman. Central bank governors, finance ministers and foreign ministers from the member states of the Gulf Cooperation Council participated in a signing ceremony in Riyadh, Saudi Arabia.

4. Expensive lesson

General Motors was in the process of collapsing for so long that when it finally fell into bankruptcy, there was nothing left to be shocked about. But the biggest industrial bankruptcy in the U.S. calls for some examination. There are lessons to be learned that might benefit in the long term for both the auto industry and the government.

5. Ginsburg can make it happen

A streamlined Chrysler, paired with Italian automaker Fiat and backed by the U.S. Treasury, could be up and running as soon as Monday. The next step rests with Supreme Court Justice Ruth Bader Ginsburg, who must decide whether the full court will hear an appeal challenging the legality of the Chrysler restructuring.

6. Turbulence ahead

There is a good chance passenger air travel will continue to decline, even as the global economy bottoms out, airline executives said at the annual meeting of the International Air Transport Association. Demand for cargo services has stopped falling, but growth is not likely to return until demand starts recovering in the U.S., said Cho Yang Ho, CEO of Korean Air, the world’s No. 1 air cargo carrier.

7. Market hostility

Banks are turning to tougher language in their “market disruption” clauses to protect themselves in times of turbulent market conditions, HSBC said. These clauses, included in loan documents, allow lenders to change interest rates imposed on borrowers in response to changes in the banks’ cost of funds. Simply an act of market hostility on the banks’ part.

8. Big blow to entrepreneurship

The disappearance of credit means this downturn is a tougher one for newer businesses than earlier recessions, a survey by CareerBuilder.com found. Among the jobless who cannot find work, about one in four thinks about launching a business, according to the survey. Last year, more businesses shut down than opened, often because they are unable to raise capital

9. China can buy more IMF bond

At the Group of 20 summit in April, U.K. Prime Minister Gordon Brown said China could purchase $40 billion in bonds issued by the International Monetary Fund to help increase the agency’s resources. At the time, Chinese officials did not offer specifics but said they might be willing to exceed that figure. Now, an official of China’s State Administration of Foreign Exchange said the country might “consider investing no more than $50 billion” in IMF bonds.

10. More power to the emerging market

The concept of decoupling is being revisited because emerging-market equities have significantly outperformed their counterparts in the developed world this year. Goldman Sachs Chief Economist Jim O’Neill said he expects a structural shift in the global economy to help spur growth in India and China this year. “Contrary to widespread expectations, the chances of China showing growth of more than 8% despite the world crisis are quite high, and the markets are signaling that India’s election results raise the possibility of more reforms there,” he said.

11. German might contract more than the US

The latest forecast by Germany’s central bank calls for a 6.2% economic shrinkage this year, the sharpest decline since World War II, followed by a return to growth in 2010. The Bundesbank expects the lowest point to come sometime this summer.

12. Labor statistics need some revisions

For years, the U.S. Bureau of Labor Statistics looked only at the supply of labor, through the unemployment rate, in analyzing the job market, leaving questions about demand, or job openings. The Job Openings and Labor Turnover Survey is an attempt to get a clearer picture of how the market works. One obvious conclusion is that with 57 million people beginning jobs last year, the turnover rate is enormous.

13. Center right maintains control

In an election that produced record-low turnout, the center-right held control of the European Parliament. Mainstream parties lost seats as voters, unhappy with the management of their countries, stayed home. Fringe parties that were able to get their supporters out to polling places posted gains.

14. US’ replacement?

China and Japan, large trade partners of each other, agreed to increase cooperation on environmental protection and work toward eliminating a wide range of trade barriers during their second high-level economic discussions, held in Tokyo. Japanese Foreign Minister Hirofumi Nakasone and Chinese Vice Premier Wang Qishan co-chaired the dialogue.

15. Thanks for reading!!

Please pray for the safe return of both US’ reporter from N. Korea blatant violation of human rights and logical thinking.

SURE — TREAT NORTH KOREA AS PLUTO BUT YOU GET THE SAME DREARY PLANET

May 26, 2009

BY TOM PLATE

Los Angeles – On the question of the Democratic People’s Republic of Korea (DPRK), better known as (a) North Korea, (b) notorious charter member of Bush’s ‘Axis of Evil’ and (c) pain-in-the-neck threat to world peace and stability, here are a few humble observations (basically,  no one really knows what to do about North Korea, including China):

First, you do NOT need to scramble to the telephone to get the local contractor to sink that bomb shelter into your backyard – not just yet, anyway. In its current state evolution (only partially post-dinosaur), North Korea is still far from being a serious world-threatening nuclear power.

It is true, the trend lines are ominous: in recent days this much unloved regime test-fired a few missiles and looks to have detonated yet another underground nuclear explosion of unclear size and uncertain sophistication. Even so, this all amounts to a mean flurry of activity from a regime claiming the adherence of some 23 million residents – almost every last one being ethnic Korean, and too many being mainly hungry.

Two, you would think that China, the originator of the Six Party (Nuclear Disarmament) Talks for Korea that started up in 2003, would be embarrassed by the latest morose turn of events. But China, its long-time ally, is not totally hapless. All along, it has said that DPRK is such an enfant terrible that even the great People’s Republic of China, in all its looming majesty, cannot really control it.  And its greatest fear is not of its missiles but its potentially massive migrant population: China prefers the company of secure, sealed, unthreatening buffer states. Given its common border with DPRK, it is much opposed to NK instability, whatever the regime’s nature.

Three, from the United Nations and elsewhere, you will hear calls for further isolation of the North in retaliation for its geopolitical juvenile delinquency. When you hear such, take a deep meditative breath and down a cup of strong green tea (or, perhaps, high-quality soju).  North Korea comprises the top half of a peninsula that has long behaved an island unto itself: Calls from the West to isolate it further is like asking to further isolate Pluto from Uranus.  What would be the point? Besides, isolation as policy doesn’t work, if what you want is regime amelioration, not to mention change.

Four, if it is outright regime-change that you prefer, consider trying something different. Consider aggressive, near-reckless engagement. What do you have to lose? That the North Koreans will be emboldened to…what?… launch missile and nuclear tests? Heck, they’ve already been doing that. Better to execute an Obama (the bold campaign Barack, not the waffling Presidential one) and run circles around the North Koreans with an embarrassment of recognition and riches. Drop the embargo, establish a U.S. embassy in Pyongyang (we have no official representation there now – can you believe it?), fatten the regime up with aid, accumulate leverage, change the behavior, establish regional peace – try to be subtle, indirect and smart for once.

Five, we don’t do that and here’s what we get: probably a destabilizing regional arms race – amid a trigger-happy Tokyo. For it is hard to believe that the Japanese will sit tight with Pyongyang on a missile-test spree. For Japan, North Korea, in the midst of a leadership succession, is far more the enemy than China and, in case we haven’t noticed, the politics in Tokyo these days is volatile. The government is unstable and the opposition under reorganization. So Pyongyang is to Tokyo what Tehran is to Tel Aviv: a constant temptation to launch a pre-emptive strike.

Six – and finally – consider the peninsula’s economic gem: South Korea. But politically it’s a mess too. Just the other day its former President – a popular populist – jumped off a mountain to his death, and the current, conservative one keeps tripping down in the polls. In June President Obama is to meet with him at the White House. This is where the administration, which has tried to back-burner the Korean problem, needs to get a grip and realize that trying to do more blustery Bush stuff – more isolation and threat – didn’t work over the last eight years, won’t work now and with this particular regime won’t work ever.

Diplomatic recognition does not mean a nation’s seal of approval. Washington conducts daily civilized diplomatic relations even with regimes that are anti-democratic, anti-woman and coddling of extremists (e.g., Saudi Arabia). So we hold our nose as we go about our diplomatic duties. But in North Korea, Swiss and Swiss diplomats now conduct America’s business. This is a Kafka-esque absurdity. You propose to change North Korea by treating it like Pluto? Go ahead and try it if you like. But Pluto’s not going to alter its orbit without a very large mass closing in on it steadily and carefully. The U.S. needs to get closer to Pluto fast. It is that simple.