It’s Good to Have This Much Power

It’s good to be a rating agency

Concerned about a U.S. debt default, Moody’s Investors Service placed the government’s Aaa credit rating under review for a downgrade. The credit rating agency cited a “rising possibility that the statutory debt limit will not be raised on a timely basis.” Treasury Secretary Timothy Geithner said the U.S. will default on its sovereign debt if the debt limit isn’t raised by Aug. 2.

More complication

The Committee on Payment and Settlement Systems and the technical committee of the International Organization of Securities Commissions proposed that central counterparties clearing foreign exchange options be able to guarantee the final settlement. The proposal surprised market participants, who said CCPs are not set up for such a requirement.

Internal division

Prominent Republicans in Congress are at odds with one another over raising the U.S. debt limit. Senate Minority Leader Mitch McConnell, R-Ky., warned that if Republicans are seen as driving the U.S. into default, they will guarantee President Barack Obama’s re-election.

More scrutiny

The Securities and Exchange Commission is examining banks’ estimates of possible liabilities related to mortgage issues, sources said. Bank of America said last month that it would take $20.6 billion in mortgage-related charges for the second quarter.

Like a disease

EU leaders have been trying for months to come up with a way to provide Greece with additional aid to resolve the country’s sovereign-debt crisis and keep it from spreading to other European nations, such as Spain and Italy. Sources said an emergency summit is in the works to tackle Greece’s debt problems. Meanwhile, the International Monetary Fund warned that Greece has little room for error as it implements austerity measures attached to a previous rescue.

More and more like it

Mary Miller, assistant U.S. Treasury secretary for financial markets, said the Dodd-Frank Act should survive its difficult first year and protect the economy in the future. “Scaling back or repealing major parts of the Dodd-Frank Act or not providing regulators with the funds they need to implement the act will leave our economy exposed to a cycle of collapses and crises,” Miller said.

QE @#%$@ 3

The Federal Reserve is ready to act if the U.S. economy weakens or the risk of deflation arises, Chairman Ben Bernanke told Congress. He said the central bank remains “prepared to respond should economic developments indicate that an adjustment of monetary policy would be appropriate.” Bernanke said the Fed will “keep all options on the table.”

Closer look at the computer trading

An official at the Australian Securities & Investments Commission said breaches of market-integrity rules by traders who use computer-driven strategies won’t be tolerated. Greg Yanco of ASIC said concerns have been raised about “problematic algorithms.” The regulator told market participants that they should take steps to prevent problems with high-frequency trading.

Scramble

The European Banking Authority is poised to reveal results of stress tests on 91 banks Friday. However, as regulators adjust the terms of the assessments, bankers and lawmakers are scrutinizing the process. Involved parties are concerned about the credibility of the tests and how they will be perceived by markets.

Should be more

The role of the International Monetary Fund should go beyond lending money to countries in financial trouble, according to The Economist. “Post-crisis it seems the Fund can play a role in spotting systemic risks that could bring down the global economy,” an Economist Free Exchange blogger writes. “Of course, even if their economists have that foresight, countries don’t have to heed the Fund’s warnings until it is too late.”

Gotta cut down on my rice intake

The price of rice surged to its highest level since 2008 because of concern that Thailand’s government price support will increase the cost of exports, as global demand grows. Indonesia, the world’s third-biggest rice consumer, announced a plan to import to bolster its stockpile.

Lowest

Fitch Ratings downgraded Greece’s credit rating from B+ to CCC, giving it the lowest rating of any country. Fitch said there is a real possibility that Greece will default on its government debt.

Bye bye Bskyb

Rupert Murdoch’s News Corp. dropped its takeover bid for British satellite broadcaster BSkyB. The company faces a government inquiry into voice mail hacking and bribery of police by News of the World and other News Corp. publications. The media giant said it expects to “deploy our capital elsewhere.”

Argentina is under the microscope

The executive board of the International Monetary Fund said it might publish a report on the quality of Argentina’s economic data, including its inflation figures. Argentina’s government has been accused of manipulating inflation data for years. The nation’s Congress has decided to use private inflation estimates, rather than the government’s reports.

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More Shoes to Drop

More shoes to drop

The Bank for International Settlements said more countries — advanced and emerging markets — could face a sovereign-debt crisis similar to that plaguing Greece.

Who needs them?

Ewald Nowotny, a member of the European Central Bank Governing Council, said financial markets don’t need credit rating agencies, which he said have worsened the European sovereign-debt crisis. “It is all apparent from public statistics and whether these statistics are accurate or not, the rating agencies … do not give any more intrinsic knowledge, they simply give opinion,” Nowotny said. “And these opinions, they continue to give them in such a way that it worsens the crisis.”

Last ditch effort

U.S. Sen. Mitch McConnell, R-Ky., proposed a “last-choice option” to head off a debt default, as talks to raise the debt ceiling remained deadlocked. McConnell said Congress should consider giving President Barack Obama authority to raise the debt limit. The White House and Democrats expressed interest in the approach, but some conservative Republicans denounced it as a panic-driven sellout.

Some intended effects

Some say little has changed in the financial industry since the global crisis, but insiders stress that banks are subject to new regulations, many of which were mandated by the Dodd-Frank Act. “Many people think that not much has happened because so much of it is delayed and behind schedule,” said Roy C. Smith, a finance professor at the Stern School of Business at New York University. “That is not the case. In fact, the statute has pretty powerful provisions in it with respect to regulating systemic risks.”

Back to square one

Standard & Poor’s said U.S. regulators, lawmakers and other officials still might rescue a troubled systemically important financial institution rather than let it collapse.

Lipton to IMF

International Monetary Fund Managing Director Christine Lagarde selected David Lipton, an adviser to U.S. President Barack Obama, as her highest-ranking deputy. Lagarde also appointed China’s Zhu Min, a special adviser to the managing director, as a newly created fourth deputy manager.

Playing the rich uncle

Europe is poised to disclose this week results of the latest stress tests of banks, but EU governments already committed to backstopping financial institutions that don’t make the grade. Officials said troubled banks must either restructure or recapitalize themselves or be recapitalized by their governments. Officials also voiced concerns about analysts using data from the stress tests to conduct their own assessments.

New class

Financial advisers with clients older than age 55 should get ready for a class of retirees who see retirement as a new chapter in life, rather than an end to their working lives, according to a study by SunAmerica and Age Wave. Many Americans approaching retirement age plan to delay their departure from full-time employment, and many want to continue doing some work afterward, the survey found.

Some sort of solution is emerging

Europe’s next move to help Greece through its debt crisis is becoming clear, although many details remain to be spelled out, according to The Economist. “In exchange for a willingness by private bond-holders to support some form of debt rollover for Greece, euro-area members will have to support Greece in buying back its bonds from the secondary market,” according to the magazine’s Charlemagne’s Notebook. The compromise largely follows a proposal from the Institute of International Finance to make Greece’s debt burden sustainable.

This is scary

Italy is better able to manage its debt than many other major economies, according to The Economist. As illustrated by The Economist’s Daily Chart, Italy’s cyclically adjusted primary budget balance is 2.3% of projected 2011 gross national product, compared with negative balances for the U.S., Japan, Britain and Canada.

It’s over for the Aussie billionaire

British Prime Minister David Cameron plans to ask Parliament to back a Labor motion that calls on Rupert Murdoch’s News Corp. to abandon its attempt to take over satellite broadcaster BSkyB. The move comes as a scandal related to voice mail hacking by shuttered News of the World spreads to other News Corp. publications.

WTF?

The Federal Reserve is standing by its decision to end its bond-buying program on schedule, but officials are still considering more stimulus, according minutes from the central bank’s most recent meeting. Some officials said that if unemployment does not fall “meaningfully,” they should consider new stimulus measures.

Slowing down

Responding to the government’s efforts to cut inflation, China’s economic growth slowed last quarter. Gross domestic product increased 9.5% in the second quarter from the second quarter of 2010, compared with a 9.7% annual rate in the first quarter.

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All Together Now

All together now

U.S. House Speaker John Boehner, R-Ohio, emerged as an enthusiastic supporter of President Barack Obama’s proposal for a bipartisan compromise to cut the deficit. The deal would either be reached quickly or collapse because of partisan bickering, Boehner said. Obama called for reducing the deficit through cuts to Medicare, Medicaid and Social Security as well as measures to increase revenue.

Defeated

When JPMorgan Chase CEO Jamie Dimon challenged Federal Reserve Chairman Ben Bernanke publicly over banks’ capital requirements, it wasn’t clear whether banks were on the verge of victory or defeat in their battle with regulators. A month later, it looks like defeat, as banking regulators work on measures to increase capital requirements worldwide.

Bolstering the Portuguese

The European Central Bank moved to support Portugal’s banking sector after Moody’s Investors Service downgraded the nation’s credit rating. The ECB suspended its rule that government bonds accepted as loan collateral must have at least one investment-grade rating.

More bickering

Conflicts over details and timing are delaying progress toward global regulation of derivatives. Non-U.S. banks are unhappy about the possibility of having to follow U.S. rules to maintain access to U.S. markets.

Kill one to save the other

To save a deal to take full control of British broadcaster BSkyB, Rupert Murdoch will close the U.K.’s biggest-selling newspaper, the News of the World, after Sunday’s edition is published. The widening controversy over the newspaper’s voice-mail hacking raised the possibility that the British government would block Murdoch’s effort to buy the 61% of BSkyB that his company doesn’t already own.

Disclosure

The European Banking Authority will soon publish results of stress tests on 91 banks in 23 countries. The report is expected to include unprecedented amounts of detail about banks’ assets.

Need redesign

Capital markets might have to undergo a “redesign” to cope with systemic risk introduced by high-frequency trading, said Andy Haldane, executive director for financial stability at the Bank of England. The “race to zero” for the fastest execution is increasing market volatility, he said.

In effect

The U.S. Commodity Futures Trading Commission approved by a unanimous vote the first of a long list of rules mandated by the Dodd-Frank Act. The agency said the rules give it more power to deal with insider trading and market manipulation. The rules include one that requires large-volume traders to report their derivatives transactions to the commission.

Weird demand

Analysts were skeptical of Spain’s plan to go to the bond market so quickly after Moody’s Investors Service downgraded Portugal’s credit rating, but there was strong demand and the sale was at the high end of the government’s target. The auction confirmed that Spain still has access to the sovereign-debt market.

Stop borrowing

Reducing government debt is necessary and painful, but doing it the wrong way could cripple developed economies for many years, according to The Economist. Write-downs must be made in an orderly manner, maintaining at least some growth is essential and boosting exports is the least painful solution to national deleveraging. “Even if handled well, the difficult business of debt reduction will hold back the rich world’s economies for several more years,” the magazine noted. “Get used to it.”

Hiring who?

Private-sector U.S. employers hired 156,000 people in June, compared with 36,000 in May, payroll-processing firm ADP said. The increase was more than twice what economists had forecast.

Hiking…the rates

The European Central Bank raised its key interest rate 25 basis points, to 1.5%, the second increase this year. ECB President Jean-Claude Trichet suggested that the central bank will continue tightening monetary policy through year-end. Analysts said they expect a 25-basis-point increase every quarter.

Someone is shopping

June sales at major U.S. retail chains increased far more than what Wall Street analysts had expected. The Thomson Reuters Same-Store Sales Index rose 6.5%, compared with analysts’ estimate of 4.9%.

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Scaling the !@$%%^ back

Scaling wayyy the @$$%^& back

China is preparing to significantly reduce bank lending this year, as it dries up liquidity to lower the rate of inflation, the official China Securities Journal reported. Lending could drop to $1.04 trillion, from last year’s $1.23 trillion.

Bank consolidation option is back on the table

EU Competition Commissioner Joaquín Almunia said the region has a fragmented financial system, and he wouldn’t mind “observing a process of reducing the number of players at the European Union level.”

Portugal is trashed by Moody’s

Moody’s Investors Service downgraded Portugal’s credit rating from Baa1, an investment-grade rating, to Ba2, which classifies debt as junk. The credit rating agency said it expects Portugal to need a second financial rescue and assigned the country a “negative” outlook.

Another test: bailout test

Credit Suisse analysts complained that stress tests conducted on EU banks are “missing the point.” “Everyone can do arithmetic on balance sheets,” they wrote to clients. “The information that the markets need is whether there is a well-organized and well-capitalized structure in place to recapitalize the failures.”

Default or no default?

A proposed voluntary rollover of Greek debt would not be a default and trigger credit default swaps, said David Geen, general counsel for the International Swaps and Derivatives Association. The deal under discussion seems to be a “voluntary exchange,” he said. “A CDS is really trying to catch an actual default or something that’s very close to a default, and we never thought a voluntary exchange came that close to a default for CDS purposes,” Geen said.

WTO upheld US complaints

The World Trade Organization upheld complaints by the U.S., the EU and Mexico that China’s restrictions on the export of rare-earth materials give Chinese producers an unfair advantage over foreign competitors. An appeal is likely.

Either you like it or not…crap is coming

A standoff over the U.S. debt ceiling likely will damage the economy, even if the country doesn’t default on its debt, according to The Economist. “The Republican strategy will either lead Democrats to accept short-term cuts large enough to endanger recovery or will result in a short period of ‘prioritisation’, in which spending is suddenly and dramatically cut back to prevent a default,” according to the magazine’s Free Exchange blog. “America may make it through this episode with its credit rating intact and still sustain significant economic damage.”

Emerging problems

Among the most destructive consequences of the global financial crisis is the increase in youth unemployment, according to The Economist. Rigid labor laws that protect privileged classes of workers are often blamed for the problem, but unemployment among young people in countries with liberalized labor markets is also up, as illustrated by The Economist’s Daily Chart.

Record revenue

Profit recovered and revenue soared to an all-time high for independent registered investment advisers last year, according to Charles Schwab. After the 2008 market downturn, many investors left big investment firms and sought advice from independent advisers, said Bernie Clark, executive vice president and head of Charles Schwab Advisor Services.

Never ended

For many small businesses in the U.S., the recession continues. A U.S. Bancorp survey of companies with annual sales of $10 million or less found that 70% of them do not plan to add employees over the next year.

Dimon is sputtering

JPMorgan Chase, led by CEO Jamie Dimon, wants to extend its reach beyond the U.S., but it seems to be making little progress. Getting a bigger share of the world’s corporate-loan business would make the bank less dependent on the stagnant domestic economy. Instead, JPMorgan’s international revenue fell 10% last year.

Foreign buyers

Foreign buyers lured by low prices made even lower by the falling U.S. dollar are driving up U.S. home sales, according to the National Association of Realtors. The effect is greatest in warm-weather vacation destinations such as Florida and Arizona, the trade group said.

Fading

Investors are starting to realize that not everything linked to China’s rapidly rising yuan is a winner, with demand for yuan bonds diminishing. Sales of high-yield yuan-denominated debt nearly ground to a halt in recent few weeks, analysts and bankers said.

Wishful thinking

U.S. gasoline prices might go down slightly in the coming weeks, but no further significant declines are likely this summer, analysts said. The national average price of gas increased 0.5 cents per gallon to $3.579 last week, the Energy Information Administration reported.

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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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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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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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Cyber Punked

Cyber Punked

An expert speculated that a cyberattack on the International Monetary Fund aimed for sensitive information that could affect financial markets. “This was a very major breach,” an IMF official said. The World Bank considered the cyberattack dangerous and cut a data link that allows the IMF and the bank to exchange sensitive data and conduct confidential meetings.

Going easy

Officials familiar with discussions of a meeting of global regulators in Germany said the world’s largest banks might be required to set aside 2% to 2.5% more capital as a buffer against losses. Earlier reports from the meeting said officials were looking at a 3% capital buffer.

Indonesia backs Lagarde

French Finance Minister Christine Lagarde strengthened her position as front-runner for managing director of the International Monetary Fund, gaining Indonesia’s endorsement. The country is the first developing economy to openly back her candidacy. Bahrain, Egypt and the United Arab Emirates also announced support for Lagarde.

No equities on LCR

The Basel Committee on Banking Supervision is maintaining its stance that equities will not be included in the liquidity-coverage ratio because they lack necessary characteristics, said Secretary General Stefan Walter. “While we recognize that certain equities are liquid, high-quality liquid assets in the LCR must be able to endure a period of stress without incurring large fire-sale discounts,” Walter said. “The liquidity standards clearly outline the characteristics for high-quality liquid assets. Equities fail to meet these characteristics.”

A little too late

Jaime Caruana, general manager of the Bank for International Settlements, said global economies need to be more careful in the way they manage their debt burden. “The big economies should manage their situations more carefully and make efforts to consolidate fiscal positions faster, not least because they have a big impact on global financial conditions,” he said. Caruana also said the BIS is monitoring the situation and noted that Europe’s sovereign-debt crisis isn’t only a European issue.

The politic of….Boeing

An administrative complaint against aircraft manufacturer Boeing by the National Labor Relations Board triggered criticism from U.S. Senate Republicans, who said unions’ campaign contributions improperly influenced the regulator. Lafe Solomon, the agency’s acting general counsel, said in the complaint that Boeing is building a factory in South Carolina to retaliate against unionized workers’ past strikes at a facility in Everett, Wash.

About time

French banks are leading European financial institutions in refusing to support business transactions in the region’s most indebted economies. Data from the Bank for International Settlements highlight an exodus by French, U.K. and German banks from support of Portugal, Ireland, Greece and Spain. Analysts said the move is an effort by banks to beef up their balance sheets and comply with upcoming regulations.

Who is running our debt ceiling discussion?

Financial advisers and their clients must build as much flexibility as possible into financial plans because U.S. tax policy is likely to remain uncertain until after the 2012 election, according to InvestmentNews. No one should be confident with long-term financial plans, the publication notes.

STRIPs

As the economic recovery loses steam and worries about inflation ease, U.S. government-debt buyers are scrambling for zero-coupon bonds, the Treasury security most vulnerable to losses because of inflation. This quarter, Treasury Strips have delivered a 9.5% return, according to Bank of America Merrill Lynch.

No schiet Sherlock

Huge corporations have the money and expertise to drive innovation, but usually their bureaucracies stop them from pursuing ideas and markets, according to The Economist. Smaller companies do the heavy lifting. “Start-ups might not have the cash to run big research operations, but they do have the ability and the incentive to seize underappreciated technologies and use them to disrupt fat, static industries,” the magazine noted. “Entrepreneurs are an important check on the big corporate interests that often stand in the way of innovation.”

Down, copper!

Copper prices slid 1.3% on Friday after China said May imports fell short of analysts’ expectations. Imports of raw copper declined 36% compared with May 2010. “They’re definitely slowing down over there,” said Edward Meir, an analyst at MF Global. “It’s just a question of when their slowdown will end and how deep it will be.”

Reshuffle big

Brazilian President Dilma Rousseff shook up her Cabinet after a financial scandal forced her chief of staff, Antonio Palocci, to resign. He was replaced by Gleisi Hoffmann, a senator who is the wife of Communications Minister Paulo Bernardo. Rousseff also appointed ministers to manage fisheries and relations with Congress.

Corn to begin affecting wheat

Spot bids for wheat are spiking in the U.S. as farmers substitute wheat for corn to bring feed costs under control. Corn is the customary feed because it provides the best weight gain, but livestock producers switch to wheat when it offers a significant cost advantage.

China’s tightening

Bank lending in China fell to $85 billion last month, well below May 2010 level, the People’s Bank of China said, indicating that the government’s effort to dry up liquidity is cooling the economy. The broadest measure of China’s money supply rose 15.1%, the smallest monthly expansion since 2008, the central bank said.

Wrong place to look for Potus

U.S. President Barack Obama, his staff and a few supporters in the financial sector are soliciting campaign contributions from Wall Street. “The first goal was to get recognition that the administration has led the economy from an unimaginably difficult place to where we are today,” said investment banker Blair W. Effron, who is raising money for Obama’s re-election. “Now the second goal is to turn that into support.”

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How About More Jobs, Mr. President?

How about more jobs domestically first, eh?

President Barack Obama said the U.S. stands ready to provide financial support through the International Monetary Fund to head off a Greek default. “America’s economic growth depends on a sensible resolution of this issue,” he said. “It would be disastrous for us to see an uncontrolled spiral and default in Europe because that could trigger a whole range of other events.”

How ‘bout that

Central banks might benefit from external oversight, or at least from having a few people who aren’t central bankers on committees that set interest rates, according to The Economist. There is concern that if everybody setting monetary policy is from the central bank, decisions are made in narrow monetarist terms. “External members bring a sense of balance; they are in touch with the world of business and work, and they question what is being said in the bank,” said David Blanchflower, a former external member of the Bank of England’s Monetary Policy Committee.

The only option on the table

German Finance Minister Wolfgang Schaeuble said in a leaked letter that there might be no practical alternative to restructuring Greece’s debt. “We are standing before the real risk of the first full-blown bankruptcy inside the eurozone,” he wrote to European Central Bank President Jean-Claude Trichet. Schaeuble said private-sector bondholders could have to wait an extra seven years for repayment.

Swiss tackling the giants

Next week, the upper house of Switzerland’s parliament will discuss a plan to prevent UBS and Credit Suisse Group from becoming “too big to fail.” The banks will dominate debate among lawmakers.

More US vs. EU

Derivatives-market officials are urging policymakers in Europe and the U.S. to collaborate on rules rather than snip at one another. “The high policy debate is going in the wrong direction right now,” said Anthony Belchambers, CEO of the Futures and Options Association. “We need to get close together, and we need to stop sound bites floating across the water in the way they do from both sides.”

Sometimes, I wonder if Geithner is…

The City of London is taking umbrage with comments by U.S. Treasury Secretary Timothy Geithner, who singled out Britain’s “light touch” regulatory system as contributing to the global financial crisis. Financial executives and officials in Asia also are largely critical of Geithner’s comments, although he did not single out specific jurisdictions there.

Special dividend

Deutsche Boerse and NYSE Euronext are striving to gain shareholder support by offering a special, one-time dividend after the close of their proposed merger. Nasdaq OMX Group and IntercontinentalExchange have dropped their counterbid for NYSE Euronext, so the biggest hurdle is obtaining antitrust approval.

More support for Lagarde

French Finance Minister Christine Lagarde’s campaign to become managing director of the International Monetary Funds is increasingly supported by rapidly growing emerging countries. Officials in Brazil and China are starting to make public statements in her favor. India’s leaders remained uncommitted.

Going after TMX

Maple Group Acquisition, a consortium of Canadian banks and pension funds, is negotiating for other financial-services companies to join the group, a source said. Maple Group launched a counteroffer for TMX Group, which is considering a bid from London Stock Exchange Group. Adding other firms could give Maple’s bid more weight in the eyes of TMX shareholders.

Last economist standing

U.S. Treasury Secretary Timothy Geithner has emerged as President Barack Obama’s closest adviser on economic policy. Geithner will be the last remaining member of the president’s original economic team when Austan Goolsbee, chairman of the Council of Economic Advisers, returns to the University of Chicago this summer.

More interests

Rapidly expanding U.S. startups are increasingly forced to raise capital overseas. Businesses are finding themselves locked out of Wall Street’s initial public offering market. But they are finding eager investors in Australia, Britain, Canada, South Korea and Taiwan.

Do something!!

Republican lawmakers are increasingly voicing doubt about the White House’s prediction that not raising the debt limit would result in economic “catastrophe.” Some mainstream Republicans are even considering allowing the U.S. to briefly default on its debt to force the Obama administration to cut spending.

Really?

Federal Reserve Chairman Ben Bernanke said that despite a “loss of momentum” in the labor market, the U.S. economy is positioned for a strong rebound in the second half of this year. He noted that private payrolls rose an average 180,000 a month in the first five months of 2011. “I expect hiring to pick up from last month’s pace as growth strengthens in the second half of the year,” he said.

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