Hoping & Wishing

Hoping and wishing

A senior finance official said a downgrade of Greece’s debt by one or two credit rating agencies would not rule out the European Central Bank’s acceptance of the debt as collateral. The central bank would rely on the best rating from Fitch Ratings, Moody’s Investors Service or Standard & Poor’s, the official said. S&P said recently that a plan backed by France and Germany to roll over Greek debt would constitute a default.

Turning its back on its job

Investors and other government agencies say the U.S. Securities Investor Protection Corp. doesn’t provide sufficient protection against losses caused by fraud. Defenders say the agency was intended to insure against brokers’ bankruptcies, not fraud losses.

ISDA is the judge

Standard & Poor’s said a rollover of Greek debt would amount to a default, but the International Swaps and Derivatives Association’s opinion carries the most weight with the market. “As I understand it, the French plan is effectively a voluntary rollover, and generally speaking, a voluntary rollover wouldn’t trigger [a default],” ISDA General Counsel David Geen said.

Two new members

The White House said President Barack Obama will appoint Thomas Curry as comptroller of the currency, the regulator who oversees federally chartered banks, and Mary Miller as Treasury undersecretary for domestic finance. Obama has yet to nominate a director for the Consumer Financial Protection Bureau.

East Germany as a model

Luxembourg Prime Minister Jean-Claude Junker said privatization of Greek assets could be patterned after the approach by Treuhand, an agency that liquidated East German assets. The task in Greece is much smaller, and the gap between productivity in Greece and the rest of Europe is much narrower than what existed between East and West Germany when the Berlin Wall came down, Terence Roth writes.

More delays

The European Parliament decided to wait a few months before enacting rules governing over-the-counter derivatives. Lawmakers want more time to discuss the rules with EU member states.

Underestimation

Chinese government auditors might have underestimated bank loans to local governments by about $540 billion, Moody’s Investors Service said. If property prices drop, nonperforming loans might reach 12% of total credit, raising questions about banks’ ability to absorb the loss, the credit rating agency said.

The lesser of two evils

Chinese government auditors might have underestimated bank loans to local governments by about $540 billion, Moody’s Investors Service said. If property prices drop, nonperforming loans might reach 12% of total credit, raising questions about banks’ ability to absorb the loss, the credit rating agency said.

Aiming for Osaka

Tokyo Stock Exchange, the world’s fourth-biggest securities market by trading volume, proposed buying Osaka Securities Exchange, Japanese newspaper Asahi reported. The Osaka exchange likely would reject the offer, Asahi reported.

Impotent

The release of oil from strategic reserves of the U.S. and other International Energy Agency members didn’t bring down the price of oil for long or hurt speculators much, according to The Economist. With the world consuming 90 million barrels a day, the U.S. release of 30 million barrels didn’t have much effect on the oil market. “But it is certainly enough to keep traders thinking,” an Economist Free Exchange blogger writes. “The added variable for traders to ponder may increase volatility, and therefore speculation.”

Looking at the stock market

Economists say higher corporate profits and the rising stock market are the bright spots in America’s slow recovery, but experts are divided on whether those trends will continue much longer. Upcoming earnings announcements could show whether companies are building on their successes or held down by rising energy and labor costs and falling bank profits.

Under pressure

Italy’s debt load, second only to Greece’s in Europe, is starting to worry economists and analysts who fear that the nation is on the verge of a recession. In the past, Italy’s resilient manufacturing sector supported growth, but the Markit/CIPS manufacturing index shows the sector in decline.

Let’s see if this one will work

A new U.S. government program is helping homeowners avoid foreclosure. The Department of Housing and Urban Development expects the $1 billion Emergency Homeowners’ Loan Program to provide assistance to 30,000 homeowners.

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Tighter

More tightening

While police and protesters battled outside, the Greek parliament voted 155-138 to implement deep spending cuts and a sweeping program of privatization. European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy issued a joint statement afterward: “This was a vote of national responsibility.”

On focus

The China Banking Regulatory Commission started requiring banks to improve management and disclosure of risks related to short-term high-yielding financial products.

Implosion

London Stock Exchange Group and TMX Group failed to gain shareholder approval for their proposed merger. The situation leaves the Canadian exchange operator and the U.K. exchange vulnerable to takeover. The exchange landscape has seen several proposed mergers fall through in recent months, including Singapore Exchange’s offer for Australia’s ASX.

FINRA into social media

The U.S. Financial Industry Regulatory Authority soon will release guidance for broker-dealers and financial advisers on the use of social media. Joseph Price, senior vice president for advertising regulation at FINRA, said the guidance, which will be in a question-and-answer format, will be sent to the Securities and Exchange Commission within two weeks. The SEC must approve the guidance before it can take effect.

The way is clear!

Congressional negotiators and the Obama administration said they reached a compromise that allows final action on long-stalled free-trade agreements with Colombia, Panama and South Korea. However, some Republicans said they oppose pairing the trade pacts with a bill that would fund retraining for Americans whose jobs were outsourced overseas.

Darnnnn

The EU is striving to lower the amount that member nations pay to Brussels while raising the bloc’s budget, according to the European Commission. “In the current times of fiscal austerity all across the EU, the commission has presented an ambitious but realistic proposal,” said budget chief Januz Lewandowski. EU diplomats doubt financial-transaction and value-added taxes will be adopted.

More threats

Moody’s Investors Service said that if Congress fails to raise the debt ceiling, causing the U.S. to default, the credit rating agency likely will lower the country’s rating to the Aa range. Moody’s also warned that some municipal ratings could be vulnerable. Standard & Poor’s said a default would prompt it to slash the U.S. sovereign rating to D.

Doesn’t sound good

Thirty-nine percent of Americans questioned in a CBS News/New York Times poll say the U.S. economy is in permanent decline, up from 28% in October. Fifty-seven percent said the economy will eventually recover, down from 57%.

Fannie to blame

In 2000, a Fannie Mae executive discovered that Taylor, Bean & Whitaker Mortgage had sold the government-sponsored entity a mortgage it didn’t own, but the matter was never reported to law enforcement. Instead, Fannie Mae bought more fake, nonperforming or defective loans from the firm. That was the beginning of a $3 billion swindle, one of the biggest fraud schemes in U.S. history, prosecutors said.

Tip of the iceberg

The Greek government’s austerity program has provoked strikes and violent protests, and many other rich countries could face similar problems, according to The Economist. The magazine’s Daily Chart shows how much several countries, including the U.S. and Japan, would have to reduce their primary budget balance to reduce debt to 60% of gross domestic product by 2026.

Follow suit

Bank of America agreed to a settlement regarding soured mortgage-backed securities that some say could become an outline for other banks to follow. “The good news is it implies the exposures are very manageable relative to capital and tangible book values,” Nomura analysts said. “The bad news is now that BofA has settled, it would stand to reason that investors will look for settlements from others as well.”

Picking a fight

President Barack Obama said the U.S. budget deficit can’t be reduced without extra revenue and that tax breaks for the wealthy should be eliminated. He said the money should not come from middle-class families. Under his plan, “it’s coming out of folks who are doing extraordinarily well,” he said.

IMF is chiming in

The U.S. economy will continue to grow slowly at least through the end of next year, the International Monetary Fund said. Gross domestic product is expected to increase 2.5% this year and 2.75% in 2012, the fund said. The U.S. should consider a national value-added tax to help narrow its budget deficit, the IMF said.

OMG

German banks and other European investors holding Greek debt are considering a 30-year rollover, as proposed by France. Deutsche Bank CEO Josef Ackermann confirmed that the plan is under review and said a key consideration is a need for “some credit enhancement.” France’s plan offers the possibility of bondholders being paid extra interest based on an index of Greek economic growth.

Risk increasing for Portugal

A widening spread between the 10-year government debt of Portugal and Ireland indicates investors consider the restructuring risk for Portugal to be much greater than that for Ireland. Now that the European Central Bank has largely withdrawn from intervening in the sovereign-debt market, such pricing more accurately reflects risk, analysts said.

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Lagarde It Is

Lagarde it is

The International Monetary Fund named French Finance Minister Christine Lagarde as managing director. Lagarde, former chairwoman of Chicago law firm Baker & McKenzie, will be the first woman and the first non-economist to head the IMF. Officials familiar with the selection process said Lagarde’s political skills gave her a crucial edge over Bank of Mexico Governor Agustin Carstens.

Don’t be cheap

nvestors could end up paying the price if Congress decides to cut the cost of regulating registered investment advisers in the U.S. by outsourcing the job to the business-funded Financial Industry Regulatory Authority, several current and former securities regulators said. “It’s a very bad idea to expand the notion of self-regulation,” said former Texas State Securities Board member Denise Voigt Crawford. “They’re supposed to oversee the activity of the industry, but they are industry.”

All hands on deck

The Greek parliament appeared to make progress toward additional spending cuts and tax increases, amid angry protests and a two-day strike. The government steadily gathered votes to pass the measures.

Still tinkering

The Basel Committee on Banking Supervision recently agreed to subject systemically important financial institutions to increased capital requirements based on their risk-weighted assets. However, concerns about how banks calculate risk-weighted assets are prompting regulators to assess the situation. “There is no question that the weightings can be manipulated,” said Charles Goodhart, formerly a policymaker at the Bank of England. “They are light-years away from being scientific. The idea that risk can be captured and then not adjusted to reflect dynamic markets is absolutely flawed.”

Plan B that looks more like Plan C

Mervyn King, governor of the Bank of England, said the central bank is developing a contingency plan for the possibility that a European nation will default on its debt. “There is sufficient concern in the market about the risk of a sovereign default for us to think carefully about contingency plans,” King told U.K. lawmakers.

Starting point

Stefan Ingves, incoming chairman of the Basel Committee on Banking Supervision, said Basel III capital and liquidity rules for banks should be flexible so individual nations can implement tougher regulations. “Everybody agrees that these [Basel III requirements] are minimum levels,” Ingves said. “Individual countries can have reasons to go further.”

About the Greek

Executives from German banks and insurers are poised to meet with government officials about Greece’s debt situation and their role in the rescue of the debt-ridden nation. A French proposal that includes a rollover of maturing Greek bonds will be used as a blueprint for the meeting, sources said.

Not…yet

China has accumulated a lot of debt over the past few years, but the nation’s strong growth and huge reserves make it manageable, according to The Economist. China has five to 10 more years of easy growth to enjoy before a slowing economy calls for a “nimbler, more entrepreneurial” approach to economic policy, including borrowing. That’s when the problems will arise. “It’s not clear that China’s government can accept the smaller role in economic affairs that kind of growth implies,” an Economist blogger writes.

Such an optimist

Chinese Premier Wen Jiabao reiterated his support for Europe and said the country offered to buy government bonds to ease the region’s sovereign-debt crisis. “The difficulties that have appeared in Europe are temporary. As long as financial reforms and adjustments continue, the difficulties can be gradually overcome,” Wen said. “At Europe’s time of difficulty, we reached out a helping hand. We expressed confidence in Europe’s economy and confidence in the euro. We have also said that we will buy a certain amount of sovereign debt from some countries, according to needs.”

Tough on coal

After decades of delay, the Environmental Protection Agency is close to imposing new restrictions on emissions from coal-fired power plants. One rule would require power companies in the eastern U.S. to reduce pollutants that travel to other states. Another would impose national limits on toxic contaminants such as arsenic, lead and mercury.

For now

Bank of America is close settling with major investors regarding losses tied to mortgage-backed securities issued by Countrywide Financial. The bank tentatively agreed to pay $8.5 billion, but details of the deal are still being discussed, sources said. “This transaction essentially takes all Countrywide’s private-label mortgage-backed securities off the table,” one executive said. “It’s considered to be a significant step forward in Bank of America putting the Countrywide issues behind us.”

Repsol is on target

A consortium led by Spain’s Repsol and financed by China’s Sinopec Group announced a “significant” discovery of oil in deep water off the coast of Brazil. The Gavea exploration well produced “good quality” oil, Repsol said.

Zynga is cleared

Gaming company Zynga is poised to file for an initial public offering valuing the company between $15 billion and $20 billion. The Securities and Exchange Commission waived some reporting requirements for the IPO, clearing the way for the sale of as much as $2 billion in restricted stock.

Fishing for the bottom still

Based on mixed messages drawn from the latest Standard & Poor’s/Case-Shiller home-price index, it isn’t clear yet whether house prices in the U.S. have any further to fall, analysts said. Prices in 20 cities rose 0.7% in April, the first increase since July, but when adjusted for seasonal factors, prices fell 0.1%.

Eating lots of pork

The price of pork in China, up 40.4% from a year ago, helped drive inflation to a 34-month high in May, according to the Ministry of Commerce. Rising grain prices and a shortage of live pigs have elevated pork prices since early May.

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Dumb Bickering

Dumb Bickering

Debt-reduction negotiations led by U.S. Vice President Joe Biden collapsed after congressional Republicans pulled out of the talks. Republican negotiators said they want to meet directly with President Barack Obama to break a deadlock over Democrats’ proposed tax increases on wealthy families and corporations.

Walsh is being pushed out

Debt-reduction negotiations led by U.S. Vice President Joe Biden collapsed after congressional Republicans pulled out of the talks. Republican negotiators said they want to meet directly with President Barack Obama to break a deadlock over Democrats’ proposed tax increases on wealthy families and corporations.

Don’t say….do!

EU officials said during a summit in Brussels that they will help Greece get through its debt crisis if the nation implements fiscal reform. Further support depends on Greece’s parliament enacting $39 billion in spending cuts and tax increases, they said.

More registration

The Securities and Exchange Commission voted 3-2 to require about 750 private fund advisers to register with the agency and report data on assets managed, employees, clients and potential conflicts of interest. Advisers with less than $150 million in assets under management and venture capital advisers are exempt from registration. A separate rule exempts family offices.

Publicly owned

U.K. Deputy Prime Minister Nick Clegg proposed to Chancellor George Osborne the creation of 46 million shareholders for Royal Bank of Scotland Group and Lloyds Banking Group. “Psychologically, it is immensely important that the British public feel they have not been overlooked or ignored,” Clegg said previously. “Their money has been used to the tune of billions and billions and billions to keep the British banking system on life support, and they have absolutely no say at all in what happens when normality is restored.”

Google under the hot seat again

The U.S. Federal Trade Commission is about to issue subpoenas seeking information about Google’s advertising and search businesses, sources said. Commissioners have privately discussed whether to instruct the FTC’s Bureau of Competition to issue the subpoenas, and a decision is likely within a few days.

Focus on insurance unit

Carlyle Group paid about $1.61 billion for RAC, a division of U.K. insurer Aviva, which plans to focus more on core activities. Aviva said the sale values RAC, a car-breakdown service and financial-services business, at 17 times its net earnings in 2010. The transaction is “consistent with Aviva’s strategic focus on insurance and savings businesses in its priority markets,” the insurer said.

Ouch….blimmey

Based on the rising price of gold in British pounds, Britain’s currency has been devalued by 66%, according to The Economist. “As far as I can tell, that is a record; there was a 25% decline when Britain left the gold standard and a 30.5% devaluation in 1949,” the author of Buttonwood’s Notebook writes. “It is not too hard to imagine that a central bank governor would have felt obliged to resign after presiding over such an event in the old days; instead, Mervyn King has just been knighted.”

Down, boy!

Crude-oil prices plunged nearly 5% after the White House and the International Energy Agency announced their intention to sell oil from U.S. and European strategic reserves. Prices for delivery in one month dropped $4.39 a barrel Thursday, settling on the New York Mercantile Exchange at $91.02. The U.S. and IEA decision aims to prevent a supply shortage during the summer peak driving season, officials said.

Still paying

Argentina’s default in 2001 might offer insight into what might follow if Greece defaults on its sovereign debt, experts said. Argentina is still locked out of the global credit market despite a strong domestic economy.

Extinct

Governments must improve how they manage debt and take steps to mitigate risk, the International Monetary Fund said. Officials have no alternative to changing policy because “absolutely safe sovereign debts no longer exist,” the IMF said. In the sovereign-debt market, credit analysis is as important as interest-rate analysis, the IMF said.

Draghi is approved

The European Parliament approved Mario Draghi’s appointment to succeed Jean-Claude Trichet as president of the European Central Bank. Leaders of European governments also were expected to clear the Italian central banker for the position. However, several hurdles remain before Draghi can take the post.

Growing problem

Russia is approaching unsustainable debt, World Bank economist Sergei Ulatov said. Russia will run short of money to meet its pension obligations in 2015, even if oil prices remain at Russia’s break-even price, $115 a barrel. Russia’s benchmark blend Urals crude fell to $105.83 on Friday.

Sputtering

Although it seems unlikely today, China risks slipping into a lengthy period of economic stagnation of the sort that has gripped Japan for many years, according to The Economist. “The slowdown will be less pronounced if the government succeeds in boosting consumption as a new growth engine,” the magazine noted.

Dependency

For the first time in five months, Greece’s retail banks increased borrowing from the European Central Bank in May, Greece’s central bank said. ECB financing rose from $123.4 billion in April to $138.6 billion in May, the Bank of Greece said.

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Here to Stay

Here to stay

The Federal Reserve lowered its 2011 and 2012 forecast for gross domestic product growth, acknowledging that the U.S. economic slowdown is not temporary. The central bank said it will allow its Treasury-purchase program to end as scheduled June 30 and offered no indication that it is considering further action to stimulate the economy. Fed Chairman Ben Bernanke said he does not know the reason growth remains so weak after two years of tepid recovery.

China is game

The China Securities Regulatory Commission adopted a rule that allows foreign banks to sell mutual funds in the country. The rule establishes minimum capital and staffing requirements.

I’ll have what he’s smokin’

Federal Reserve Chairman Ben Bernanke said a Greek debt default would have little impact on the U.S. banking system. He said banks conducted stress tests to gauge the impact of a default on their capital. “And the answer is the effects are very small,” Bernanke said.

Hedge fund disclosure rules are approved

The Securities and Exchange Commission adopted a rule that requires many hedge funds to make limited disclosures to the agency. SEC Chairman Mary Schapiro said the requirement “will fill a key gap in the regulatory landscape.”

Same old song

Jean-Claude Trichet, president of the European Central Bank, said the eurozone’s sovereign-debt crisis could hit the banking system and financial stability. “The most serious threat to financial stability in the EU stems from the interplay between the vulnerabilities of public finances in certain EU member states and the banking system,” Trichet said. There are “potential contagion effects across the union and beyond.”

More reviews

U.K. Business Secretary Vince Cable aims to end the “quick buck” mentality in investment and business by reviewing equity markets and executive compensation. Cable said a recalibration of equity investment is needed to support companies’ long-term interest. “There are a lot of issues raised, and we can’t ignore them because Britain needs long-term investment,” he said.

Implicit guarantee

The Basel Committee on Banking Supervision is considering subjecting the largest financial institutions to additional capital requirements. Increased buffers might give major banks a financing advantage over smaller rivals because they will be seen as having an implicit government guarantee for being “too big to fail,” analysts and lawyers said.

Still the richest

The world got a lot of new millionaires in 2010, but the U.S. still had the most, as illustrated by The Economist’s Daily Chart. A report by Capgemini and Merrill Lynch found the highest concentration in Switzerland, where 31.4 per 1,000 people are millionaires, compared with 10.1 per 1,000 in the U.S.

Delayed

An EU Council meeting this week is expected to include the designation of Italy’s Mario Draghi as successor to Jean-Claude Trichet as president of the European Central Bank. However, a disagreement between France and Italy regarding an ECB Governing Council seat might delay Draghi’s appointment, French officials said.

More smackdown from Greece

Despite talk of requiring private investors to share any losses on Greece’s sovereign debt, most of the pain inflicted by a default would be felt by European taxpayers, according to The Economist. Central banks, the European Central Bank, the International Monetary Fund and European governments own more than 50% of Greece’s public debt. “If we accept that Greece is insolvent and will never pay off its accumulated debt in full, the burden of the inevitable debt relief will fall overwhelmingly on taxpayers,” the magazine noted.

The battle for TMX heats up

Maple Group Acquisition increased its bid for TMX Group after London Stock Exchange Group offered to pay a special dividend should it succeed in taking over the owner of the Toronto Stock Exchange. The suitors sweetened their offers a week before TMX shareholders are scheduled to vote on LSE’s proposal. “This is a very tricky situation because both parties face significant regulatory hurdles,” said Ed Ditmire, an exchange analyst at Macquarie Group. “Ahead of that, the best thing the management of both sides can do is put their best hand on the table and give themselves the best chance.”

Ouch…going postal

The U.S. Postal Service said it would suspend payment of its contribution to the Federal Employees Retirement System, to avoid running out of cash. The USPS said it may not be able to pay its debts by September.

Drying up

China’s money market rate increased to its highest in three years because of concern that the government won’t address a cash shortage before month’s end. The seven-day repurchase rate, a benchmark for the availability of interbank funding, rose for the seventh consecutive day, indicating tightening liquidity. The People’s Bank of China suspended a bill sale but didn’t give a reason.

High as high can be

The U.S. government’s debt will climb to about 70% of the nation’s gross domestic product this year, the most since right after World War II. If major policy changes aren’t made, debt will exceed 100% of GDP by 2021 and approach 190% by 2035, the nonpartisan Congressional Budget Office said.

No more rate increases for now

The Bank of England’s June meeting was expected to be dovish, given Andrew Sentance’s exit from the Monetary Policy Committee. However, discussions were even more so than expected. Officials have become less interested in a rate increase and are even considering more quantitative easing.

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Still Paying

Still paying

The Securities and Exchange Commission said JPMorgan Chase agreed to pay $153.6 million to settle charges that the bank deceived institutional investors in a mortgage-backed securities deal. The SEC said JPMorgan Chase didn’t tell buyers about a hedge fund that would profit if the securities lost value.

Still have a buy in

The Greek parliament mandated that Prime Minister George Papandreou and his reorganized Cabinet proceed with austerity measures to narrow the budget deficit and get more aid from the EU and the International Monetary Fund. The ruling Socialists needed 151 votes expressing confidence but received 155. The vote set the stage for another vote next week on a long list of spending cuts and government reform.

Streamlining the Union

The U.S. National Labor Relations Board proposed rules that would allow unions to conduct representation elections more quickly than current procedure allows. Labor leaders and Democrats said the changes are long overdue. Business organizations and Republicans denounced the proposals as favoritism for organized labor that would restrict business.

Spain is in IMF’s crosshairs

The International Monetary Fund is concerned that Europe’s sovereign-debt crisis will hinder growth, particularly among vulnerable countries, such as Spain. “Financial conditions could deteriorate further, reflecting rising concerns about sovereign risks in the euro area,” according to the IMF. “This could put additional pressure on sovereign and bank funding costs for Spain, which in turn could feed back to the real economy.”

Bryson might be in

Business Roundtable, a U.S. lobbying group, endorsed John Bryson, President Barack Obama’s nominee to head the Commerce Department. Roundtable President John Engler said Bryson’s business experience “has well equipped him to take on the many issues the department must address to support the U.S. economy and job creation, issues such as technology, innovation, intellectual property and trade.”

Cutting military back

The slow U.S. economic recovery, skyrocketing debt and widening budget deficit are increasingly drawing attention to the $1.3 trillion the country has spent on foreign wars during the past 10 years. The U.S. Conference of Mayors adopted a resolution saying that money spent in Afghanistan and Iraq should used at home to create jobs and rebuild infrastructure.

Delayed

NYSE Euronext, Nasdaq OMX Group and other major stock exchanges asked the Securities and Exchange Commission to postpone the “naked access” ban, which would end traders’ direct access to markets.

Hedging the food

The World Bank created a risk-management tool that allows farmers and consumers in the developing world to hedge against the risk of food-price swings. Initially, the product will offer as much as $4 billion in protection against price volatility for cattle, cocoa, corn, milk, rice, soybeans, sugar and wheat.

Calming UK down

EU Commissioners Olli Rehn and Michel Barnier wrote to U.K. Chancellor George Osborne to allay concerns about reining in reform of banks’ capital. Osborne and other officials are concerned that the EU will pass laws that prevent the U.K. and other countries from implementing capital requirements that are tougher than international standards.

It wasn’t in. Now, it is.

Regulators told European banks to explain potential losses from sovereign-debt exposure to troubled nations to ensure stress tests accurately reflect issues facing the financial institutions, sources said. “Banking books are being stressed much more harshly than last year and than in the original draft of this year’s stress test. That will help increase the credibility of the tests,” said a source involved in the assessments.

Tougher cookie

The Basel Committee on Banking Supervision meets this week to discuss implementation of liquidity rules, which some say could be more difficult for banks to comply with than increased capital requirements. “The way the liquidity ratios are designed at the moment is going to cause a lot of banks a lot of problems,” said Monika Mars, a PricewaterhouseCoopers director. “Liquidity is a much bigger challenge” than capital rules.

Still low

In May, usually the start of the peak home-selling season in the U.S., sales fell to their lowest level in six months, the National Association of Realtors said. Sales of existing homes fell to an annual rate of 4.8 million, from 5 million in April.

Written plan is required

Financial advisers who want to keep clients who are approaching retirement would be wise to provide written retirement-income plans, according to a survey by Fidelity Investments. Advisers often resist writing such plans because it can be a daunting task. Eighty-one percent of such clients surveyed said it was important to have written plans, but only 18% had them.

Obama: Ouch!

The U.S. economy created 23 million jobs while Bill Clinton was in the White House, and America should start listening to his proposals to reduce unemployment, according to The Economist. Among the most promising of 14 ideas that Clinton offered in a Newsweek article is turning tax credits into cash that startups could use to get off the ground. “This one is about having a national industrial policy,” the author of The Economist’s Democracy in America blog wrote. “A lot of readers here are going to reject that idea out of hand. I don’t.”

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Playing with Fire

Playing with fire

The EU’s failure to handle its debt crisis risks triggering a broader crisis that could overwhelm all of Europe, the International Monetary Fund said. The IMF called European policymakers’ debate about short-term responses “unproductive.”

Reforming the oil market

Sen. Bernard Sanders, I-Vt., recently introduced legislation that would curb speculation in oil markets. Sen. Bill Nelson, D-Fla., plans to introduce a bill that would call for trading limits. Meanwhile, Sen. Susan Collins, R-Maine, said she is considering an inquiry into the pace of reform by the U.S. Commodity Futures Trading Commission.

Jumping in to warn US and Greece

Fitch Ratings said it would treat a voluntary rollover of Greek debt as a default and downgrade the nation’s credit rating. Andrew Colquhoun, head of Asian-Pacific sovereign ratings at Fitch, said U.S. debt will be placed on “negative” watch if Congress fails to raise the debt limit by Aug. 2. If the Treasury Department misses its Aug. 15 coupon payment, U.S. debt will be rated as restricted default, Colquhoun said.

Bair backs surcharge for SIFIs

Sheila Bair, chairman of the U.S. Federal Deposit Insurance Corp., said systemically important financial institutions should be subject to capital surcharges of at least 3%. “If you factor in the additional risk taken on by large, highly leveraged institutions, and the systemic risk posed by the failure of a SIFI, we believe the market will demand a higher level of capital for these players,” Bair said.

Barcap sees dark spots in China and Eurozone

Barclays Capital released results of a survey showing that investors have become increasingly concerned about the eurozone’s financial woes as well as slow economic growth in China and the U.S. “It is easy to understand the lack of confidence in growth or very widespread views, given the many risks facing the global economy at present,” according to BarCap’s report. “This uncertainty is reflected in the amount of risk being taken this quarter: 40 percent of clients are running a light or very light amount of risk relative to capacity, up from 31 percent last quarter.”

Can’t agree

Europe is likely months away from concrete rules governing the derivatives market, as officials from the EU and the European Central Bank voice concerns about proposals.

Blocked n tackled

The U.S. Supreme Court voted 5-4 to reject a class-action lawsuit from 1.5 million women who accused Wal-Mart Stores of discrimination. Writing for the majority, Justice Antonin Scalia said the case lacked a common question linking the employees. Legal experts said the ruling was a major victory for Wal-Mart and corporate America.

Big margins raising eyebrows

The U.S. Federal Trade Commission said in a letter to Sen. Maria Cantwell, D-Wash., that it is investigating how oil-refining margins shot up this year. FTC Chairman Jon Leibowitz said refiners’ margins are up 90%, even though they were using only 81.7% of their capacity

Highest ever

China’s central bank set the value of the yuan against the U.S. dollar at its highest level on record. The People’s Bank of China set the parity at 6.4690 yuan to the dollar. The trading band adopted by the bank allows the daily exchange rate to fluctuate up to 0.5% above and below the parity rate.

Turning the other way on default

Olli Rehn, the EU’s economic and monetary affairs commissioner, said banks’ stress tests will include tougher capital standards but not assumptions about a sovereign-debt default. “In the agreed methodology of the stress tests, the capital requirements were in fact tightened, and many other improvements were made,” Rehn said. “In this context, it was a deliberate choice that we will not assume a default of any euro-area or any EU member state and, of course, that’s linked to our policy, because we do not believe restructuring is good for Greece or other countries.”

No spending yet

Consumer spending is taking on unusual importance in the U.S. recovery and is likely to have a major effect on the economy in the second half of the year. Adjusted for inflation, household spending slowed from September to April, but it still increased three times the pace of household wealth. To maintain spending in the face of rising gasoline prices, consumers drew $149 billion from savings.

Fiduciary what?

The debate in Washington over a universal fiduciary standard hasn’t attracted much attention among the clients of financial advisers. Eighty-five percent of the investors surveyed by J.D. Power and Associates didn’t understand the difference between the fiduciary and suitability standards, or hadn’t even heard of them.

Unique to the US

High U.S. unemployment, which persists despite the national and global recoveries, may be unique, according to research by the International Monetary Fund. The rise in U.S. unemployment from 2007 to 2009 was more than twice the rate in other economies studied, including those of the U.K. and Portugal, the researchers found.

Bad advice

While countries that default on their debt are locked out of the bond markets for a time, their economies often bounce back strongly, as illustrated by The Economist’s Daily Chart. After Argentina defaulted in December 2001, its economy contracted by 10.9% in the first year but subsequently rebounded and grew for years.

A good thing

The U.S. has 2 million fewer households than population growth would normally produce, according to The Economist. Families that have doubled or tripled up to get through hard times will look for homes of their own as the economy improves. “That should spark a period of catch-up household growth, which should in turn spark a large rise in rents and new construction,” the magazine noted.

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Postponement

Postponement

Eurozone finance ministers delayed a decision on a $17 billion loan tranche to Greece, to pressure the government to cut spending and sell assets. Meanwhile, the ministers said they will implement a voluntary rollover of Greek debt held by private investors. German Finance Minister Wolfgang Schaeuble said private bondholders must be offered an incentive to participate. The goal is to avoid triggering a credit event.

More insiders

The Federal Reserve Bank of New York and the U.S. Office of the Comptroller of the Currency, in their efforts to prevent another financial crisis, have put more “embedded” examiners at major financial institutions, including Goldman Sachs Group, Morgan Stanley and Bank of America.

Group 7

Japanese Finance Minister Yoshihiko Noda said Group of Seven finance officials discussed the deepening Greek debt crisis during a teleconference. Rintaro Tamaki, Japan’s vice finance minister for international affairs, participated, Noda said.

Bigger surcharge from FSB

The Financial Stability Board will meet in July to finalize a plan for implementing a capital surcharge on the world’s largest banks, to protect taxpayers. The surcharge could be as high as 3.5% if banks grow and pose increased systemic risk, sources said. Bank executives warned that the requirement would include a prolonged battle.

More warnings from IMF

The International Monetary Fund said risks to the global economy are building, predicting a worldwide slowdown through year-end. High public debt and diminishing growth in the U.S. and Europe risk damaging the global economy, the IMF said in its World Economic Outlook. “If these risks materialize, they will reverberate across the rest of the world — possibly seriously impairing funding conditions for banks and corporations in advanced economies and undercutting capital flows to emerging economies,” the IMF said.

Shut out for Geithner

Werner Langen of the European Parliament criticized U.S. Treasury Secretary Timothy Geithner’s effort to influence the European Market Infrastructure Regulation. The European Parliament also rejected U.S. suggestions that derivatives rules apply to trades listed on exchanges. In a letter to Geithner, Langen said the U.S. should ease its derivatives regulations to comply with a mandate from the Group of 20 nations.

Make peace, please!

Nobuo Tanaka, executive director of the International Energy Agency, said he approached Russia with a plan to work with the Organization of Petroleum Exporting Countries to scale back turmoil over spiking crude-oil prices. Gazprom, Russia’s state-owned natural gas producer, is resisting the move.

PE style

Financial advisers overwhelmingly say they like the idea of fund managers taking stakes in their own funds, a practice commonly known as having “skin in the game.” An InvestmentNews online survey found that 89.5% of the advisers participating said it is important for portfolio managers to put some of their own money into the funds they sell.

Cooling off

Barclays Capital released a survey that shows most institutional investors do not expect commodities to be the top-performing asset class over the next three months.

Backward

Anne Lauvergeon, CEO of French nuclear-power firm Areva, angered French President Nicolas Sarkozy with her efforts to make the company, which is 87% state-owned, more independent of the government, and that’s probably a big reason she lost her job, according to The Economist. Long before Japan’s Fukushima Daiichi disaster. she demanded stringent safety standards regardless of the cost, a policy that put Areva in a commanding position to compete for future nuclear projects. “The future of France’s nuclear-energy industry just became even more uncertain,” the magazine noted.

Tax holiday

Some of the biggest U.S. companies want the Obama administration and Congress to cut the tax on $1 trillion or more in foreign profits brought into the U.S. from 35% to 5.25% for one year to narrow the budget deficit and create jobs. A study by the National Bureau of Economic Research found that when the Bush administration granted a tax break on repatriation of foreign profits in 2005, 92% of the money went straight to corporate shareholders in the form of stock buybacks and dividends.

Outta here

Russian Finance Minister Alexei Kudrin said foreign investors are taking their money out of the country because of anxiety over the 2012 presidential election. “In a moment like this and when the political system is still imperfect, [investors] are trying to safeguard their reserves and investment,” he said. Capital outflow from Russia totaled $30 billion in the first four months of the year.

Wider gap

Skyrocketing executive compensation is one of the major factors in the rapidly expanding income disparity between the richest Americans and the rest of the people. In 2008, the richest 1% of Americans had more than 20% of all personal income. The top 0.1% got 10%.

Debt negotiation to increase in intensity

As the day nears that the U.S. government could default on the national debt, the Obama administration and congressional leaders plan to pick up the pace of negotiations for a compromise. The two sides will meet as many of four times this week to discuss budget cuts. “The really tough stuff that’s left are the big-ticket items and philosophical big-ticket items. Anything having to do with health care,” said Vice President Joe Biden.

The jury is still out for the stimulus

The effects of two rounds of quantitative easing by the Federal Reserve, first by buying mortgage-backed securities in 2008 and then purchasing $600 billion worth of Treasury bonds, are unclear. Some experts say the Fed’s efforts helped stimulate the economy, but others question how much it helped.

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Trickling In

Trickling in

The International Monetary Fund and the EU agreed to release to Greece €12 billion of its rescue package to prevent the country from defaulting on its debt. However, the Greek government must push through additional austerity measures to receive the loan.

It’s game now

China’s National Association of Financial Market Institutional Investors gave initial approval to local units of Citigroup and HSBC Holdings to underwrite corporate debt, sources said. The move clears the way for the banks to earn licenses in China. The banks still need to register with China’s central bank before corporate-debt underwriting can begin.

Stupid test

The EU’s assessment of banks will ignore the possibility that Greece will default on its debt, prompting some to warn that the stress tests will not be credible. “Everybody is so concerned about Greece defaulting and the effect that’s going to have on banks, yet that’s not something even being considered as part of the stress tests,” said Jane Coffey of Royal London Asset Management. “Greece defaulting isn’t exactly a black swan event. There’s a very good chance it will happen.”

No attention

The Financial Stability Board “plays such a critical role in ensuring that [the] world financial system’s infrastructure is robust and well coordinated,” said Lawrence Goodman, president of the Center for Financial Stability. While headlines focus on succession at the International Monetary Fund, the FSB also is poised to get a new leader. Mario Draghi is widely expected to succeed Jean-Claude Trichet as president of the European Central Bank, making it likely that he will leave his post at the FSB early.

Repeal

The U.S. Senate voted 73-27 to repeal a $6 billion annual tax break for ethanol producers, indicating that Congress is ready to take on such fiscal incentives. The measure is largely symbolic because it is attached to a bill that isn’t expected to pass. President Barack Obama supports phasing out the tax break but said he would veto any bill that abruptly cuts it off.

Asked to quit

Italian Prime Minister Silvio Berlusconi said Lorenzo Bini Smaghi was asked to step down from the European Central Bank to clear the way for Bank of Italy Governor Mario Draghi to become president of the ECB. “There is an official request from the government for him to resign,” Berlusconi said. If Bini Smaghi refuses to resign, Draghi’s accession could be blocked.

Owww, nice

The Securities and Exchange Commission reportedly is considering civil fraud action against major credit rating agencies in connection with their role in mortgage-securitization deals that triggered the financial crisis. The SEC is focusing on Standard & Poor’s and Moody’s Investors Service, sources said.

Surcharge for SIFIs

The Basel Committee on Banking Supervision is considering a capital surcharge for systemically important financial institutions, sources said. Large banks would face an extra capital requirement, possibly as much as 3.5 percentage points, if they grow even bigger. The committee has not disclosed which banks would be affected.

An earful

William Daley, U.S. President Barack Obama’s chief of staff, asked manufacturing executives for their candid views about federal policy, and they took him at his word. Daley’s appearance before the National Association of Manufacturers turned into a sometimes-heated dressing down of Obama’s policies. Executives expressed exasperation at environmental regulations and the government’s failure to get several free-trade agreements approved.

Get electronized

Financial advisers who want to keep their millionaire clients and attract more would be wise to use electronic media in their businesses, according to a Fidelity Investments survey. When asked about e-mail, text messaging and social-networking sites, two-thirds of the millionaires surveyed said they want to use electronic media to communicate with their financial advisers and brokers.

Almost stopped

The U.S. investment-grade bond market this week is on course for its smallest volume of issuance this year. Only $4 billion worth of high-grade corporate bonds have come to market this week, the third consecutive week of single-digit volume.

Oh, what’s new

A lot of data suggest that the softening of the world’s economic recovery is only a lull, but the brinksmanship of U.S. politicians could well make it into something a lot worse, according to The Economist. “There is a real risk that the politicians’ pig-headedness could lead to disaster,” the magazine notes. “Though economic logic suggests that the world economy is just going through a sticky patch, squabbling politicians could all too easily turn it into a meltdown.”

Playing with aluminum

The London Metal Exchange is looking into claims that Wall Street banks, including Goldman Sachs and JPMorgan Chase, are manipulating aluminum supplies to drive up prices. The LME board discussed whether to require warehouse operators to release the metal faster in response to demand.

Up

U.S. housing starts increased 3.5% in May, exceeding economists’ forecasts. New building permits rose 8.7%, the Commerce Department said. Building permits issued for multifamily construction were up 23.2%, the department said.

Watch the price

The International Energy Agency raised its forecast of global demand for oil and warned that high prices endanger the economic recovery. Oil prices around $100 a barrel “are weighing down an already-fragile macroeconomic and financial situation” among wealthy nations that are members of the Organization for Economic Cooperation and Development, the agency said. Demand for oil will increase 1.3% a year for the next five years, driven largely by China’s accelerating economy, the IEA said.

Downsize is coming

Faced with regulatory uncertainty and profit that still falls short of the pre-crisis level, Wall Street is preparing for layoffs and other cost-cutting measures this summer. Goldman Sachs, Bank of America, Credit Suisse and Morgan Stanley are among companies looking into downsizing.

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Double Dipping

Double dipping

If the price of holds at $120 a barrel or higher, the world economy could slide into a double-dip recession, said Fatih Birol, chief economist of the International Energy Agency. “We all know what happened in 2008,” he said. “Are we going to see the same movie?”

Taiwanese style

South Korean lawmakers are planning to block the Financial Services Commission’s efforts to ease ownership requirements for the country’s financial holding firms.

Reorg

Confronted by huge protests against his government’s austerity measures, Greek Prime Minister George Papandreou said he will reorganize his Cabinet and go to parliament for a vote of confidence. “I will continue on the same course,” he said. “This is the road of duty.”

401(k) crackdowns

The Obama administration is increasing enforcement of federal rules that govern retirement planning. Seventy-seven percent of 401(k) plans have been found by the Labor Department to be noncompliant “in some form,” said John Carl, president of the Retirement Learning Center.

Don’t get fence happy

Banking industry experts and insiders said the British government’s plan to separate retail operations from investment banking will drive up mortgage costs and lower savings rates. “The ring-fencing requirements will significantly alter the shape of the banking industry,” SAID Jake Green, a lawyer at Ashurst. “It is likely to increase the cost of banking for the banks, and it must be presumed such costs could be passed onto customers.”

Harmony

Michael Gibson, senior associate director of the Federal Reserve, said regulators worldwide should harmonize rules for the derivatives market. “The goal of all of these efforts is to develop a consistent international approach to the regulation and supervision of derivatives products and market infrastructures,” Gibson told the Senate Agriculture Committee. “Our aim is to promote both financial stability and fair competitive conditions to the fullest extent possible.”

Trade deals is close to concluded

The White House and congressional leaders are near a deal under which the Senate would ratify free-trade agreements with Colombia, Panama and South Korea. “They are within striking distance of a deal,” U.S. Chamber of Commerce President Thomas J. Donohue said, a view confirmed by Obama administration and congressional officials.

No answer for Japan-like scenario

Nuclear-plant safety rules in the U.S. have never addressed the possibility of natural disasters such as those that triggered the crisis at Japan’s Fukushima Daiichi power station, a task force told the Nuclear Regulatory Commission. Emergency procedures for U.S. reactors similar to Fukushima’s don’t guarantee that safety valves will operate correctly during prolonged power failures, the task force said.

Brazil is better than US…according to CDS market

The cost of insuring Brazil’s one-year sovereign debt fell below the price of credit default insurance on comparable U.S. Treasurys. The one-year credit default swap spread on Brazil’s government debt was 41 basis points, compared with 43 basis points on U.S. government short-term debt, according to data provider Markit.

He is ready…oh Lord

Michel Barnier, the EU’s internal market commissioner, is considering tough new rules for the commodities market. Barnier is considering position limits on traders in commodities contracts. “We must strengthen oversight by those who regulate positions in derivatives on commodities. In our proposals we will include the ability to impose position limits if needed,” he said.

Debt crisis

The European Central Bank renewed its opposition to restructuring Greece’s debt and said the eurozone’s sovereign-debt crisis remains the chief threat to economic stability. “Despite improving global and euro area economic and financial conditions, the overall outlook for financial stability has remained very challenging in the euro area,” the ECB said. It cited “several pockets of risk.”

Worse than it seems

Britain’s 7.7% unemployment look so bad by global standards, but that figure hides a deeper problem, according to The Economist. The decline in unemployment was heavily concentrated in the 18-to-24 age bracket. Most of the young workers who “left” unemployment didn’t get jobs. They just disappeared from the workforce. “The economy, it seems, is rather wobblier than the headline jobs figures suggest,” the magazine noted.

Cut it

Lamar Alexander, R-Tenn., the third-ranked Republican in the Senate, said he is working on a bill to eliminate a wide range of energy-tax subsidies. “Permanent subsidies for mature technologies, to me, are inappropriate, so we’re looking over those carefully, and I expect that before long I’ll have legislation that will look at all energy tax breaks,” he said.

Slowing down, aren’t we

China’s economy will continue to expand, but more slowly as demand for its exports weakens, the Conference Board said. The research organization said its index of leading indicators for China rose 0.2% in April, compared with a 0.9% increase in March

Less free money

Faced with seriously underfunded pension plans, more than half of the states are trying to require public-sector workers to contribute more to their pension funds. Eight states have already forced their employees to pay more.

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