BBC NEWS | 2009/12/22 | 22:00:40 GMT
The US economy grew by less than originally estimated between July and September, official figures show. The latest estimate said the economy grew at an annual pace of 2.2%, down from the previous estimate of 2.8%. The first reading had shown growth of 3.5%. It is the first quarter in which the US economy returned to growth, after four quarters of decline. Separately, a report showed new home sales rose 7.4% in November, spurred on by government incentives. The National Association of Realtors said sales rose to an annual rate of 6.5 million – the highest level in more than two years.
“This clearly is a rush of first-time buyers not wanting to miss out on the tax credit, but there are many more potential buyers who can enter the market in the months ahead,” said the National Association of Realtors’ chief economist Lawrence Yun. The original deadline for the US government’s tax credits was 30 November. It was later extended. Mr. Yun said: “We expect a temporary sales drop while buying activity Continue reading
C.P. Chandrasekhar | MRzine.org | 06.12.2009
Fears of a new speculative boom on which the global recovery rides are being expressed in different circles. There are as many aspects to these fears as there are to the so-called recovery, which include the huge profits being recorded by some major banking firms, the surge in capital flows to emerging markets, the speculative rise in stock markets’ values worldwide and the property boom in much of Asia. Potential victims of the reversal of this boom, however, now complain that the source of it all is a return in the US to a policy of easy money — involving huge liquidity infusions and extremely low interest rates — to save the financial system and real economy from collapse, while resorting to a fiscal stimulus to trigger a recovery. A similar policy was and is being adopted by many other countries, even if not with the same intensity in all cases, but the US, which was home to the most toxic assets and damaged banks, led by a long margin.
This policy did generate the signals that suggested that economies were on the mend. But these are also signs; argue some, of a bubble similar to the one which generated the high profits and the credit-financed housing and consumer-spending boom that preceded the 2008 downturn. That dangers associated with that bubble were ignored because of the short-run growth benefits it delivered. This one could be ignored because of the impression of a recovery it generates. Even as satisfaction is being expressed in some quarters about the recovery, however halting, fears of a second downturn or double dip recession are being expressed in other circles. Thus, just before the US President Barack Obama arrived in Beijing on his much-publicised visit to China, that country’s banking regulator, Liu Mingkang, criticised the US Federal Continue reading
BBC NEWS | 2009/12/04 22:38:38 GMT
The US unemployment rate fell in November to 10% from 10.2% in October, Labor Department figures show. Employers in November cut the lowest number of jobs since the recession began in December 2007. In all, 11,000 jobs went over the month. That was far fewer than the 130,000 expected by most analysts. President Barack Obama said the figures were “good news”, but warned that there were “more bumps in the road to economic recovery”. “There is a lot more to do before we can celebrate… good trends don’t pay the rent,” he said. For an economy the size of the US, the change was so small that the Labor Department described employment as “essentially unchanged”. In further good news for the US economy, factory orders rose by 0.6% in October, Commerce Department figures showed. Analysts had expected orders to remain unchanged. The good data pushed the dollar higher against major currencies.
Payrolls have fallen every month for almost two years, but this year, the pace of decline has slowed sharply. Revised figures for October also showed an improving trend. Originally, official estimates said 190,000 jobs were lost, that was revised down to 111,000. The White House spokesman, Robert Gibbs, said the sharp slowdown in job losses showed “much-needed progress”, but added that the Obama administration was still looking at providing help to the labour market. More than 15 million Americans are out of work, twice the number at the start of the Continue reading
Bloomberg | December 2, 2009 | 19:01 EST
European banks are emerging from the credit crisis bigger than before, posing more risk to their national economies. BNP Paribas SA, Barclays Plc and Banco Santander SA are among at least 353 European lenders that have increased in size since the beginning of 2007, according to data compiled by Bloomberg. Fifteen European banks now have assets larger than their home economies, compared with 10 lenders three years ago. While the European Union has grabbed headlines for breaking up bailed-out banks, regulators haven’t reined in firms that shunned state aid and are too big to fail. European bank assets have grown 25 percent since the start of 2007, compared with a 20 percent increase at U.S. lenders, Bloomberg data show.
“We are sowing the seeds for the next crisis,” said David Lascelles, senior fellow at the London-based Centre for the Study of Financial Innovation, a research group. “What we have been doing in the last two years is making banks much bigger. It really goes against the currents of the time.” Banks expanded their balance sheets during the credit bubble, borrowing cheap money in the wholesale market to fund loans and investments. Royal Bank of Scotland Group Plc’s assets ballooned 2,914 percent in the 10 years through 2008 as it made acquisitions, boosted trading and increased lending. Edinburgh- based RBS spent $140 billion on takeovers during the period, culminating in the purchase of ABN Amro Holding NV in 2007 that triggered the world’s biggest bank bailout. Continue reading
TWSJ | GARY FIELDS | Tickerforum.org | 01/12/2009
Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation’s weak employment picture. Tim Word, vice president of Dean Word Co., a heavy-construction company in New Braunfels, Texas, said his income is now coming mostly from projects that are winding up. He said that in normal times he has about $100 million of signed contracts in hand. But that number has fallen to $30 million, and the pipeline is empty. In the past two years, his work force has shrunk nearly 40% to 260 from 420.
“Having something to bid on is the lifeblood of the industry, and it’s running out,” said Mr. Word. He isn’t sure what will happen next year without new projects. “There’s no pavement fairy that’s going to help.” Since the recession began in 2007, employment in the construction industry has fallen by 1.6 million, the Labor Department says. Though the housing sector accounts for many of those job losses, road builders have also suffered, and executives in the industry expect layoffs to rise next year. The construction industry’s unemployment rate, including related extraction businesses, such as gravel processing, climbed to 19.1% in October, up from 10.7% a year earlier. The transportation and material-moving sectors saw unemployment rise to 11.6% from 7.9% over the same period. Continue reading
TIME | Friday, Nov. 27, 2009
Two weeks ago, Senate Banking Committee chairman Chris Dodd unveiled an ambitious, far-reaching plan to reform regulation of America’s financial system and quickly found himself facing a brick wall of opposition erected by Republicans, regulators and financial-industry bigwigs. Now he’s trying to work with Republicans to get the thing moving again.
In recent days, Dodd has reached across the aisle to the GOP to create bipartisan working groups to tackle the four hardest questions in financial regulatory reform. Each of the working groups includes one Democratic and one Republican Senator from the committee, each of whom has one staffer along at the meetings. Between them, these 16 people are trying to rewrite the way the American financial industry does business — and, as a result, avoid another global financial meltdown. In theory, the process could succeed. “We have points of agreement,” says one top GOP staffer. But he adds: “The working groups may not work because the issues are much too complex.” Continue reading
BBC NEWS | 2009/10/29 | 00:03:07 GMT
America slowly appears to be emerging from recession, rebounding from its worst slump in decades. For many Americans the pain is still dragging on. More than 200 years ago, Slater Mill in Rhode Island helped kick off America’s industrial revolution. For centuries, manufacturing, mainly in textile mills, provided jobs in this small north-eastern state, but not anymore. Rhode Island now has the third highest unemployment rate in the country, after Michigan and Nevada. According to the US Labor Department, the rate of unemployment climbed to 13% in September. This does not come as a surprise to Jon Polis. Each day, he searches for work on his computer and in the local newspaper. He says his eight years working for a medical supplies company was over in eight minutes. He was laid off a year-and-a-half ago. Now his benefits have run out and he is living on his savings. “I can last maybe next March or April,” says Jon. “After that I’ll just have to go to my family and ask for money.” At age 53, this is not the first recession he has lived through, but it is the worst. “I’ve been out of work a few months here or there but never like this,” he says. Continue reading
Lawmakers on both sides question power, handling of Wall Street bailouts
The Associated Press | Washington | Nov. 22, 2009 | 2:01 p.m. ET
Suddenly the Federal Reserve is everybody’s punching bag. Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say. The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits. Former Fed Chairman William McChesney Martin Jr. famously said that the central bank’s job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signaled the Fed will keep interest rates low for now, a round of higher rates inevitably will come.
The Fed finds itself both the punchbowl keeper and the punching bag. Imagine the outcry when it does begin to crank up rates — perhaps just ahead of next year’s midterm elections. Fireworks seem likely at Senate confirmation hearings early next month on President Barack Obama’s nomination of Bernanke to a second four-year term as chairman. Many economists and Fed watchers say congressional efforts to rein in the Fed’s powers could interfere with the central bank’s ability to help guide the fragile economy to recovery. The Fed’s very independence and its Continue reading
NYT | ERIC DASH | November 19, 2009
The coroner’s report left no doubt as to the cause of death: toxic loans.
That was the conclusion of a financial autopsy that federal officials performed on Haven Trust Bank, a small bank in Duluth, Ga., that collapsed last December. In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses. At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action. Similar stories played out at small and midsize lenders from Maryland to California.
What went wrong? In many instances, the financial overseers failed to act quickly and forcefully to rein in runaway banks, according to reports compiled by the inspectors general of the four major federal banking regulators. Together, they have completed 41 inquests and have Continue reading
Reuters | Yahoo News | Thursday November 19 | 02:00 PM
The number of U.S.-dollar millionaires in China is expected to nearly double in five years, luring private bankers eager to help them invest an expected combined wealth over $7.6 trillion by 2013, Boston Consulting Group (BCG) said on Thursday. Global wealth declined last year for the first time since 2001, the consultancy said, but the number of Chinese individuals with household financial wealth of more than $1 million may grow to 788,000 by 2013 from 417,000 in 2008.
“We believe that China’s wealth market offers an attractive window of opportunity for banks,” Frankie Leung, a BCG partner in Hong Kong, told reporters in Beijing. “How banks should act to capture the opportunities and establish competitive positions would be a key strategic issue to explore.” Foreign banks, including HSBC Holdings Plc, Citigroup Inc and Bank of East Asia, have all started private banking businesses in China, competing for affluent clients with local rivals such as Bank of China. According to the consultancy’s definition, financial wealth includes cash, equities and bonds but excludes real estate and privately owned enterprises.
Globally, total assets of rich individuals declined by 11.7 percent to $92.4 trillion in 2008 due to the global financial crisis, the first decline since 2001, but BCG expects growth to resume over the next few years. “It will take roughly five years for the wealth pools to recover from the crisis and to reach a level that is comparable to wealth growth in 2007,” said Holger Michaelis, a partner and managing director of the firm. He added that the financial crisis has made rich people abandon complex products in favor of simple, less risky investments to protect, rather than grow their wealth.
ABC NEWS Business Unit | Nov. 18, 2009
The Wall Street firm that has arguably taken the most heat for its multibillion-dollar employee compensation will donate $500 million for a new program to help small businesses. Goldman Sachs, widely viewed as the biggest bank to suffer the least damage from the world’s financial crisis, said Tuesday it will join forces with billionaire investor and Goldman stakeholder Warren Buffett on “10,000 Small Businesses.” The program will provide capital to small businesses in underserved areas and education aid to small business owners. “Small businesses play a vital role in creating jobs and growth in America’s economy,” Goldman CEO Lloyd C. Blankfein said in a statement released Tuesday. “We are pleased to work with our partners in this initiative to support small business owners, particularly those in underserved communities.”
Goldman Sachs, which received and later paid back $10 billion in federal Troubled Asset Relief Program funds during the financial crisis, has set aside $16.7 billion for employee compensation so far this year and is on track to pay out an average $700,000 per employee. The $500 million program amounts to less than 3 percent of Goldman’s employee compensation pool. There’s been rampant speculation that the bank Continue reading
BBC NEWS | 2009/11/17 | 10:26:48 GMT
Regulators involved in the rescue of AIG may have overpaid other banks when cutting a deal, a report says. The New York Fed paid AIG’s business partners face value for securities so they would cancel insurance-like contracts AIG had written. But officials used a weak negotiating strategy, Special Inspector General Neil Barofsky’s report said. AIG was initially bailed out for $85bn (£50bn), but its total rescue package eventually amounted to over $180bn. The report criticised both the Federal Reserve Bank of New York and the US Federal Reserve for failing to use their “considerable leverage” to force AIG’s counterparties to accept less than the full amount for the assets. As a result, 16 banks, including Goldman Sachs, Deutsche Bank, Societe Generale and Royal Bank of Scotland, were paid more than $62bn. The initial bail-out “was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG,” the report said. It also criticised the New York Fed, chaired at the time by current Treasury Secretary Timothy Geithner, for insisting that all banks be treated equally in negotiations and for not treating US banks differently from foreign institutions. Continue reading
CalculatedRisk | 11/09/2009 | 11:11:00 AM
The following graph shows the maximum number of net jobs lost after the end of several official recessions (both in numbers and as a percent of peak employment prior to the start of the recession). Even if the economy started adding jobs in November (very unlikely), the 2009 recovery would already be one of weakest for job creation.
The recovery following the 2001 recession was the worst for job creation, with the bottom for employment happening in August 2003, twenty one months after the official end of the recession.
This graph shows the job losses from the start of the employment recession, in percentage terms.
Look at the brown line for the 2001 recession. According to NBER, the 2001 recession lasted 8 months, but the job losses continued for another 21 months (the brown line bottoms in month 29) – and employment didn’t reach the pre-recession level for 46 months. In terms of jobs lost, the 2009 “recovery” might be even worse than the 2001 recovery.
Maybe we should call this a “job loss” recovery?
Please click the pictures above to view them in original size in a new window
Reuters | St. Andrews, Scotland | Sat Nov 7, 2009 | 7:26pm IST
British finance Minister Alistair Darling urged his G20 counterparts on Saturday to work toward a $100 billion deal to tackle climate change but developing nations insisted they did not want to talk about it. Britain is hosting the third meeting of Group of 20 finance ministers and central bankers this year in St Andrews, Scotland. It is determined to push forward on an ambitious target to meet the costs of climate change by 2020, ahead of a major environmental summit in Copenhagen next month. “It really is imperative that when we reach the end of the day that we have shown that we have made some real progress,” Darling said at the start of talks on Saturday. “If there isn’t an agreement on finance … then the Copenhagen agreement is going to be much, much more difficult.” But there appeared to be little chance of a breakthrough with many emerging countries questioning whether it should even be a topic of discussion at the forum of leading economies, just as they did at a London meeting in September. “The issue is whether we talk about it or not. Britain is quite motivated on this subject but there are some quite strong objections,” a French official said. “The emerging market countries say it should not be discussed for procedural reasons, that the G20 is not the right forum.” German officials predicted no meaningful breakthrough. “At the moment the talks on financing climate protection seem to be at a dead-end,” one German delegation source said, picking out China as obstructing progress. China is often denounced by Western critics as a stumbling block to agreement, because it argues developing countries should not submit to binding international caps on emissions while they grow out of poverty. In turn, China and other emerging powers have said the rich countries have done far too little in vowing to cut their own greenhouse gas output, and in offering technology and money to the Third World to help cope with global warming. Continue reading
Sumeet Desai, Huw Jones | Reuters | St.Andrews, Scotland | Sat Nov 7, 2009 | 8:28pm IST
Britain threw its weight on Saturday behind proposals to impose a global levy on banks to fund future bailouts and called on the G20 to work toward a $100 billion deal to meet the cost of climate change. A draft end-of-meeting statement from the group of rich and developing nations obtained by Reuters said the economy had improved but cautioned recovery was still dependent on the official support given to it since the financial crisis erupted last year. Policymakers also committed to a detailed timetable to launch a mutual-assessment process of their economies that could see countries set out national and regional policy frameworks by the end of January 2010. “To restore the global economy and financial system to health, we agreed to maintain support for the recovery until it is assured,” according to the draft, read to Reuters by a delegation source. It also warned that high unemployment remained a major concern.
British Prime Minister Gordon Brown urged the third meeting of the group’s finance ministers and central bankers this year — being held in St Andrews, Scotland — to consider the bank bailout fund urgently. France and Germany for some time have been in favour of looking at a levy but London with its huge financial centre has always resisted. Brown’s Labour government, however, is trailing in opinion polls before an election expected in May and footing a multi-billion dollar bill for bailing out the banks at a time of huge public anger against bankers for their role in the crisis. “We should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society,” Brown said. Continue reading