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Labor Leaders Seek Government Aid for Detroit

July 25, 2013 by Leave a Comment

The executive council of the A.F.L.-C.I.O, holding meetings at its headquarters in Washington, also called on the state of Michigan to provide a comparable amount of financial support to Detroit, its most populous city.

State and federal authorities have largely set aside suggestions of a bailout in the days since Gov. Rick Snyder and the emergency manager he assigned to solve Detroit’s woes announced that the city required bankruptcy protection. But the appeal on Thursday by labor leaders, who were angered by the prospect of cuts to pensions and health benefits to help resolve the city’s $18 billion debt, suggests that questions about state and federal support for teetering cities like Detroit are far from over.

“There is no question there’s a crisis in Detroit, but impoverishing the city’s public service workers and further decimating public services is not the solution,” said Lee Saunders, the president of the American Federation of State, County and Municipal Employees, and chairman of the A.F.L.-C.I.O. Political Committee. “The whole country is watching how this crisis gets resolved. As the nation emerges from the worst of the Great Recession, it is time for Congress and the White House to make it clear they will not turn their backs on our urban centers.”

Responding to earlier calls for a bailout for Detroit, Mr. Snyder, a Republican in his first term, largely fended off the notion. “It’s not about just putting more money in a situation,” he said Sunday on “Face the Nation” on CBS. “It’s about better services to citizens again. It’s about accountable government.”

And White House officials have indicated that solutions to Detroit’s insolvency rest with local leaders and creditors. “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities,” a White House spokeswoman said last week.

Article source: http://www.nytimes.com/2013/07/26/us/labor-leaders-seek-government-aid-for-detroit.html?partner=rss&emc=rss

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Political Economy: Quitting the Euro Wouldn’t Be a Good Choice for Cyprus

April 7, 2013 by Leave a Comment

But it would be foolish to forget about Cyprus. Despite the $13 billion bailout, the small Mediterranean island is edging toward a euro exit. Quitting the single currency would devastate wealth, fuel inflation, lead to default and leave Cyprus friendless in a troubled neighborhood. Even so, the longer capital controls continue, the louder will grow the voices that call for bringing back the Cypriot pound.

The president, Nicos Anastasiades, is against Cyprus’s leaving the euro. But the main opposition, the Communist Party, wants to pull out. A smaller opposition group wants to stay in the euro but kick out the so-called troika of creditors — the European Commission, the European Central Bank and the International Monetary Fund. The country’s influential archbishop is also critical of the troika.

The president can hold the line for now. After all, he has just been elected and the Constitution gives him huge power. What is more, there are strong arguments for staying inside the single currency — not the least of which is that otherwise, Cyprus would lose the €10 billion (or nearly 60 percent of its gross domestic product) in bailout money.

If Nicosia brought back the Cypriot pound, it would plummet in value. Nobody knows how much, but economists guess it might be as much as 50 percent. Cypriots are complaining about the large losses suffered by big depositors at their two largest banks, Bank of Cyprus and Laiki. Such a devaluation would savage the wealth of all other depositors.

Meanwhile, devaluation would fuel inflation. Cyprus is a small, open economy. All the oil is imported. More than 80 percent of the textiles, chemicals, electronics, machinery and automotive vehicles are imported, too, according to Alexander Apostolides, a lecturer in economics at the European University Cyprus.

Cyprus also relies on low-cost immigrant labor in its agricultural and tourism industries. After a devaluation, their cost in local currency would rise. All this would mean the erosion of any gain in competitiveness.

The island’s economy would suffer a further shock because it is running a current account deficit of about 5 percent of G.D.P. Given that Cyprus has minimal hard currency reserves, this deficit would have to vanish overnight. Imports would slump. But so would domestic production, given its reliance on imports.

In such a scenario, Nicosia would not be able to avoid defaulting on its debts. Following a 50 percent devaluation, these would be double their current value when expressed in local currency. The debts come in two forms: the government’s own €15 billion in borrowings; and the central bank’s €10 billion in emergency liquidity assistance to the banks.

Default might seem to be an attractive option because Nicosia would suddenly shrug off a vast debt load. But it would not be that simple. The government would face many lawsuits. And if the central bank defaulted on its provision of the emergency assistance, the E.C.B. would take the hit. The euro zone would not be happy and would, at a minimum, insist on some sort of staged repayment plan.

Cyprus could, of course, refuse to pay point blank. But it is not Argentina. Its small size makes it vulnerable to being pushed around. If it tried to play hardball with its euro zone partners, it would probably find them playing hardball with it. They might even find a way to kick Cyprus out of the European Union.

Exit from the Union would be another blow for Cyprus. Its best trading opportunities are within the Union. Most of the rest of the neighborhood — like Syria and Egypt — is not in great shape. And Turkey is out of bounds until and unless some way can be found to resolve the dispute between Nicosia and Ankara over the latter’s occupation of the northern part of the island.

Cyprus would also struggle to exploit its offshore natural gas reserves if it quit the European Union. Turkey, which is already trying to stop that development, would find it easier, if Nicosia were friendless.

Apart from all this, the country would have to decide how to run monetary policy.

A responsible government would want to contain inflation by either linking the Cypriot pound to another currency, like the British pound, or running a tight but independent monetary policy. In either case, Nicosia would have to keep interest rates high and curb its budget deficit. Given its small foreign exchange reserves, it might also need to maintain capital controls.

Such an austerity program would be worse than that demanded by the troika. It would then be hard to avoid the temptation to print money. But that way lies hyperinflation.

So quitting the euro would not be a good choice. But staying is not a great one either. G.D.P. could plunge about 20 percent over the next two years, according to the latest guesses. And the longer capital controls are in place, the more the Cypriot people will feel they are not in the single currency zone anyway — as a euro in Cyprus is not equal to one in the rest of the world.

The troika should help lift the controls as soon as possible. Otherwise, Cyprus may well quit the euro and, small though it is, that could destabilize the zone.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/04/08/business/global/quitting-the-euro-wouldnt-be-a-good-choice-for-cyprus.html?partner=rss&emc=rss

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Bucks Blog: A Caveat in Creating an Online Social Security Account

January 9, 2013 by Leave a Comment

I wrote this week about expanded online services offered by the Social Security Administration through its My Social Security Web site.

In response, a Bucks reader wrote to express his disappointment that, because he had a security freeze on his credit reports, he had been unable to create an online account that would allow him to check his annual Social Security statement for accuracy. He has opted instead to request his annual statement by regular mail.

Could that be right, I wondered? Many — although, probably not enough — people voluntarily put security freezes on their credit reports as protection against identity theft. If a freeze is in place, no company (except ones you’re already doing business with) can see your credit report. This helps prevent thieves from opening unauthorized accounts in your name.

It turns out, though, that the reader is correct, but there is a workaround available.

Mark Hinkle, a spokesman for the agency, said My Social Security works through Experian, one of the three major credit bureaus, to verify the identities of people setting up online accounts. When you go online to register, the agency’s system performs a so-called “soft” inquiry of your Experian credit file. If a freeze is in place, your information can’t be accessed and you can’t create an account, at least not without jumping through some extra hoops.

I set up an account through My Social Security last spring, and I was curious. So I checked my free Experian credit report at annualcreditreport.com, and sure enough, there it was — an inquiry from the Social Security Administration. A “soft” inquiry means it isn’t shared with other creditors and doesn’t affect your credit score.

If you want to continue setting up an account online, Mr. Hinkle said, you must thaw the security freeze temporarily — just as you would if you wanted to apply for credit — then reinstate it after setting up the account through My Social Security. (Because it’s just the Experian report that’s at issue, you needn’t lift any freezes you have in place at the other big credit bureaus, TransUnion and Equifax.)

Lifting the freeze shouldn’t be difficult, as long as you have the special identification number you received when you initiated the freeze, and there’s usually a fee involved. (Fees vary by state; where I live, Arkansas, it’s $5 to establish a freeze and another $5 to lift it.) According to my colleague Ron Lieber, who has written about the benefits of security freezes, obtaining a temporary thaw can usually be accomplished quickly.

Experian’s Web site says you can lift the freeze for a preset length of time, like seven days, 30 days, etc., or for any period you specify.

If you really don’t want to suspend your security freeze, you can visit a Social Security office, where the staff will verify your identity in other ways — say, by looking at your driver’s license — so you can set up an online account without going through Experian. That will save you the fee for lifting the freeze, but will cost you some time.

Have you created a my Social Security account after temporarily lifting a security freeze? Let us know about your experience.

Article source: http://bucks.blogs.nytimes.com/2013/01/09/a-caveat-in-creating-an-online-social-security-account/?partner=rss&emc=rss

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High & Low Finance: Sorting Out a Chinese Puzzle in Auditing

December 9, 2012 by Leave a Comment

To the Canadian affiliate of Ernst Young, the answer to both questions appears to be no.

How, asked one Ernst staff member involved in the audit in an e-mail to a colleague, “do we know that the trees” the auditors were being shown “are actually trees owned by the company? E.g. could they show us trees anywhere and we would not know the difference?” The answer was yes: “I believe they could show us trees anywhere and we would not know the difference,” replied the colleague.

That did not lead Ernst to change its procedures. Nor did it bother to look at documents that it knew were crucial to answering the questions about the Sino-Forest Corporation, which was based in Canada but had its operations in China.

Until the summer of 2011, Sino-Forest appeared to be a real success story, backed by underwriters like Credit Suisse and Toronto Dominion and with shares worth billions of dollars. Its bonds were rated as just under investment grade by Standard Poor’s and Moody’s. Then a short-selling operation known as Muddy Waters said it thought the assets were greatly exaggerated. Sino-Forest appointed a group of its independent directors to investigate, and in due course they concluded they could not even be sure just what trees the company claimed to own, let alone whether it owned them.

This week brought the Sino-Forest case close to a conclusion. Ernst agreed to settle a shareholders’ suit for 117 million Canadian dollars, or about $116 million, while denying it was liable. The company agreed to come out of bankruptcy with its assets, whatever they might be, owned by the creditors. The company had tried to find buyers, and a number looked at the documents, but nobody bid. There still seems to be no certainty about how much, if any, timber the company owns.

While Ernst settled the shareholder suit, it said it would fight new charges by the Ontario Securities Commission that the audit firm failed to follow proper audit procedures. It was the commission suit, filed this week, that disclosed the e-mails exchanged by the auditors.

“We are confident that Ernst Young Canada’s work was conducted in accordance with Generally Accepted Auditing Standards (GAAS) and met all professional standards,” the firm said in a statement. “The evidence we will present to the O.S.C. will show that Ernst Young Canada did extensive audit work to verify ownership and existence of Sino-Forest’s timber assets.”

However extensive the work, the audit failed to uncover the essential truth: the assets were fake.

Frauds, and audit failures, can happen in many countries. But China is a special case because the authorities there seem to be completely uninterested in getting to the bottom of scandals whose victims are American or Canadian investors. Even regulators in Hong Kong have voiced frustration with their mainland colleagues.

Last week China sent another delegation to the United States to talk about these issues with American regulators, and a Chinese official was quoted by The Financial Times as telling a Hong Kong audience that audit working papers should be shared with other regulators — something the Chinese supposedly agreed to a decade ago but had never actually done. “I think we’ll shortly be able to work out a way to deliver those papers,” he said.

The American regulators have heard those stories before. In July, the chairman of the China Securities Regulatory Commission, Guo Shuqing, told Mary L. Schapiro, then the chairwoman of the United States Securities and Exchange Commission, that he thought an agreement could be reached. It turned out that the Chinese insisted they would provide documents only if the S.E.C. promised not to use them in an enforcement proceeding without Chinese permission.

The week the S.E.C. filed court papers, in connection with its pending case against a Chinese affiliate of Deloitte, laying out case after case in which American regulators asked for assistance through obtaining audit work papers or even something as simple as verifying that a Chinese company existed. Repeatedly, the Chinese said something could be worked out, but somehow nothing ever was.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2012/12/07/business/sorting-out-a-chinese-puzzle-in-auditing.html?partner=rss&emc=rss

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Cyprus Bailout Seen as Near, but Not Yet Done Deal

November 23, 2012 by Leave a Comment

Seeking to stave off imminent financial collapse, Cyprus said Friday that it had negotiated a multibillion-euro bailout with international lenders, only to have the claim contradicted later by a formal statement from those creditors.

The declaration by the European Commission, European Central Bank and International Monetary Fund, collectively known as the troika, said there had been “good progress towards agreement on key policies to strengthen public finances, restore the health of the financial system, and strengthen competitiveness.”

It added that “preliminary results of a bank due-diligence exercise, expected in the next few weeks, will inform discussions between official lenders and Cyprus” on the details of a bailout.

Those comments suggest that Cyprus has agreed to the austerity measures that will accompany the loans. But a lack of clarity over how much capital the country’s stricken banks may need is holding up a definitive agreement.

Cyprus is expected to receive about €16 billion to €17 billion, or $20.6 billion to $22 billion, in funds, a small amount by comparison with other European rescues but a sum roughly equal to the country’s annual gross domestic product.

Talks are continuing on how to unlock a €31.5 billion installment of loans for Greece from its international bailout program, money it needs to stave off bankruptcy. Euro zone finance ministers, who failed to reach a deal earlier this past week, will resume discussions Monday.

The deterioration of Greece’s finances in the midst of a recession has made the deal elusive; the economic slowdown is preventing the country from hitting its financial targets.

Greece’s finance minister, Yannis Stournaras, said Friday that a compromise was near in which the I.M.F. would agree that Greece’s debt could fall to 124 percent of G.D.P. by 2020 as opposed to a previous target of 120 percent.

The Eurogroup of euro zone finance ministers has already agreed on measures that would reduce Greece’s debt to 130 percent of G.D.P. by 2020, Mr. Stournaras said. He said that a further €10 billion of savings would need to be found to bring debt down to the level desired by the I.M.F. by 2020.

The austerity measures Greece has undertaken in exchange for its bailouts have pushed Cyprus to seek alternative forms of financial assistance from outside the European Union, including from Russia.

Before the lenders issued their statement Friday contradicting Cyprus, Cypriot officials said that a deadline laid down by the European Central Bank to recapitalize the country’s banks had forced them to agree to a bailout.

“The bailout deal includes unpleasant measures,” the government spokesman, Stefanos Stefanou, said without elaborating.

The conditions of the bailout have caused friction between government officials and international lenders in recent weeks, though financial markets have been relatively relaxed about the negotiations.

“In other circumstances this issue might have garnered more attention from markets but it has been swamped by events elsewhere, including in Spain and Greece in particular,” said Kenneth Wattret, co-head of European economics in London for BNP Paribas.

Mr. Wattret said that one reason for the lack of market reaction was that Cyprus seemed to be heading toward an agreement. A failure by politicians to reach a deal would have worried investors more than a bailout, he said, as it would have called into question the effectiveness of Europe’s crisis response.

“Still, once a deal has been struck, one potential source of event risk is removed” he added.

Meanwhile Fitch Ratings said Friday that it was cutting its credit ratings on three of the island’s banks — Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank — which together have assets of €77.2 billion, equal to about 430 percent of G.D.P. The ratings agency said it believed that the failure of Bank of Cyprus and Cyprus Popular Bank was “imminent,” and that the two would require “sizeable” injections of capital.

The agency pointed out that the precedents set in other euro zone bailouts meant that the investments of senior bank creditors were likely to be protected.

On Wednesday Fitch downgraded Cyprus’s rating for its long-term sovereign debt to BB- from BB+, adding that the outlook was negative.

If Cyprus does reach a bailout agreement, it would follow in the footsteps of Greece, Ireland and Portugal, all of which had to be rescued by Europe and the International Monetary Fund. In addition, Spain has been offered up to €100 billion in aid for its crippled banking sector and may seek more help.

The economic crisis in Greece has spilled over to Cyprus. Cyprus’s economy, and particularly its banking sector, are heavily exposed to Greece and Greek institutions.

David Jolly contributed reporting from Paris.

Article source: http://www.nytimes.com/2012/11/24/business/global/cyprus-bailout-seen-as-near-but-not-yet-done-deal.html?partner=rss&emc=rss

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Political Uncertainty Lingers in Greece

November 6, 2011 by Leave a Comment

Prime Minister George Papandreou took the first steps Saturday to try to form a unity government with the opposition, which he said was necessary to steer the country out of danger. But by Saturday evening, the two sides seemed locked in position, with the prime minister making no immediate move to leave power — a key demand of the opposition — and the opposition leader reiterating his call for early elections and branding Mr. Papandreou “dangerous for the country.”

While such stands may be nothing more than clever negotiating strategies to win concessions, any sign that Greece may be headed for a poisonous stalemate is sure to rattle other European leaders — and creditors — craving stability.

The continued political upheaval comes at a time when Europe can least afford it.

The European Union wants the Greek Parliament to approve a new debt deal as quickly as possible to guarantee continued foreign support and avoid the risk of default on its debts. To the extent that the financial crisis is partly a matter of perception, any delay would be problematic. But with Italy already at risk, analysts say, further delay could be disastrous, allowing the contagion to spread there.

“It’s not just about Greece, it’s about the whole situation of overhung debt in Europe, of Italy and others which are more capable of bringing down the system,” said Ian Lesser, the executive director of the German Marshall Fund’s Brussels office.

Some of the damage has already been done.

Fears over Greece have already helped to compromise Italy’s position, pushing its borrowing costs to 6.5 percent, a record high since the country adopted the euro and a burden the country might not be able to bear for long. High borrowing costs helped tip Greece, Portugal and Ireland into deep enough trouble that they needed bailouts.

Those costs could ease on Monday. But analysts say coming up with a workable plan in Greece — or even just papering over its problems — will be necessary to buy time for Italy, which is mired in its own deep political troubles and which would be much more difficult to bail out because its economy is larger.

Charles Grant, the director of the Center for European Reform, a research institute in London, said that if Greece defaulted or prepared to leave the euro zone before the bloc could build a big enough bailout mechanism “and before there’s a credible Italian government,” it could “bring down the whole euro system.”

“That is why Merkel and Sarkozy will do anything they can to persuade whoever is running Greece to take things slowly, to follow the medicine, to carry on pretending they can pay the debt when everyone knows they can’t,” Mr. Grant said, referring to Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France.

The proposal for talks to form a unity government followed a roller-coaster week of intense brinkmanship. Mr. Papandreou proposed a referendum on Greece’s new debt deal with the European Union — roiling world markets and spooking Europe — before coercing the opposition to back the deal and just as quickly calling off the referendum plan.

But as the dust settled Saturday, it was still unclear whether Mr. Papandreou’s referendum gamble was a brilliant strategy to hasten passage of the debt deal, which is Europe’s best hope to create a firewall around Greece, or whether it achieved a short-term political gain while dooming the government’s ability to work with opponents to approve the agreement.

It dictates the approval of a series of austerity measures the government has already agreed to and imposes a permanent foreign monitoring presence. Amid growing social unrest, the Socialist government might not have the ability to pass the necessary legislation on its own, hence Mr. Papandreou’s appeal for broader consensus.

Article source: http://www.nytimes.com/2011/11/06/world/europe/political-uncertainty-lingers-in-greece.html?partner=rss&emc=rss

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Dexia’s Collapse in Europe Points to Global Risks

October 22, 2011 by Leave a Comment

While American financial institutions have sought to limit any damage by reducing their loans and thus lowering their direct exposure to Europe’s problems, the recent rescue of the Belgian-French bank Dexia shows that there are indirect exposures that are less known and understood — and potentially worrisome.

Dexia’s problems are not entirely caused by Europe’s debt crisis, but some issues in its case are a matter of broader debate. Among them are how much of a bailout banks should get, and the size of the losses they should take on loans that governments cannot repay.

Among Dexia’s biggest trading partners are several large United States institutions, including Morgan Stanley and Goldman Sachs, according to two people with direct knowledge of the matter. To limit damage from Dexia’s collapse, the bailout fashioned by the French and Belgian governments may make these banks and other creditors whole — that is, paid in full for potentially tens of billions of euros they are owed. This would enable Dexia’s creditors and trading partners to avoid losses they might otherwise suffer without the taxpayer rescue.

Whether this sets a precedent if Europe needs to bail out other banks will be closely watched. The debate centers on how much of a burden taxpayers should bear to support banks that made ill-advised loans or trades.

Many on Wall Street and in government argue that rescues are essential, to avoid the risk of destabilizing the financial system — with one bank’s failure to pay its obligations leading to problems at other banks. But others counter that the rescue of Dexia is reminiscent of the United States’ decision to fully protect big banks that were the trading partners of the American International Group when it collapsed, a decision that was sharply questioned and examined by Congress.

Critics warn of a replay of the financial crisis in autumn 2008, when governments used taxpayer money to shore up troubled companies, then allowed them to transfer those funds to their trading partners to protect those institutions from losses. In using public money to rescue private institutions, these critics say, policy makers effectively rewarded banks that traded with companies that were in trouble, rather than penalizing them, and that encouraged risky behavior.

“The question is did the A.I.G. experience and the bailouts generally contribute to the current situation?” asked Jonathan Koppell, director of the School of Public Affairs at Arizona State University. Would the banks, he continued, “have had a different view in dealing with Greece — or with Dexia for that matter — if those who had dealt with A.I.G. hadn’t been made whole?”

Given the global and interconnected nature of the financial system, institutions around the world have other types of indirect risk to European debt problems. But the scope of these ties is not fully known, because the exposure is hidden by complex transactions that do not have to be reported in detail.

Dexia, which was bailed out by France and Belgium once before, in 2008, is just a small piece of the broader European debt and banking turmoil. But its collapse comes at a critical point, as European officials are meeting this weekend to work out how taxpayer money should be used to resolve the Continent’s debt crisis.

The most acrimonious debate has been over the amount of losses banks should suffer for lending hundreds of billions of euros to countries that may not be able to fully repay. In the case of Greece, big lenders in Europe have tentatively agreed to swallow modest losses on what they are owed, but are resisting proposals that would force them to take a much bigger hit. Even if they accept losses, they may then seek tens or hundreds of billions in capital infusions from their governments.

As the Dexia bailout deal closed last week and was approved by the French Parliament, officials overseeing the restructuring say that the bank will meet all of its obligations in full. Alexandre Joly, the head of strategy, portfolios and market activities at Dexia, said in an interview that the idea of forcing Dexia’s trading partners to accept a discount on what they are owed “is a monstrous idea.” He added, “It is not compatible with rules governing the euro zone, and it has never, ever been considered to our knowledge by any government in charge of the supervision of the banks.”

Article source: http://www.nytimes.com/2011/10/23/business/dexias-collapse-in-europe-points-to-global-risks.html?partner=rss&emc=rss

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Harrisburg, Pa., Files for Bankruptcy

October 12, 2011 by Leave a Comment

The filing came a day after the City Council voted 4 to 3 to approve it, said Brad Koplinski, one of the members who voted in favor of the measure. A lawyer representing the council filed formally for bankruptcy on Wednesday morning, Mr. Koplinski said in a telephone interview.

The filing pitched the city into political confusion. A spokesman for Mayor Linda Thompson said in an e-mail message that only the mayor, with the city solicitor, had the right to file such a claim. The petition listed debts that totaled more than $400 million. The council has been locked in battle with Ms. Thompson for months, voting to reject her state-backed financial bailout plans, largely on the grounds that they demanded too little from creditors. Ms. Thompson, for her part, said the council had no better plan and seemed only to be obstructing plans to ease the city’s financial distress. Gov. Tom Corbett, a Republican, had also strongly opposed bankruptcy.

An administrator at the bankruptcy court, Brian Rushow, said the city’s application would need to be heard by a judge and that that might not happen this week, as all three of the court’s judges were at a conference in Tampa, Fla.

Supporters of the bankruptcy say it gives the city more leverage in dealing with its many creditors.

“It was an extraordinary step, but it needed to be done,” Mr. Koplinski said.

If the mayor’s rescue plan had been enacted — placing the city into financially distressed status under state law — it would have allowed bondholders and other creditors to be paid off with proceeds of the sale or long-term rental of city assets, he said.

“Everyone on Wall Street would have been paid, and the taxpayers would be left holding the bag,” Mr. Koplinski said.

Article source: http://feeds.nytimes.com/click.phdo?i=aae34628917a6b208e1e28b5b27c968d

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Trustee Is Sought for Records of Solyndra

October 1, 2011 by Leave a Comment

The department said the government could not assure the fair treatment of the company’s creditors, including the Department of Energy, which granted Solyndra $528 million in loans, unless it had unimpeded access to the company’s financial records, which the executives are so far refusing to share.

The government’s filing said the executives — Brian Harrison, the chief executive; W. G. Stover, the chief financial officer; and Benjamin Schwartz, in-house counsel — were within their rights in refusing to talk about the company’s financial condition because of a pending federal investigation and potential lawsuits. The government is not accusing them of any specific wrongdoing at this time, but is seeking the appointment of a trustee to help untangle the company’s complex financial condition, the court filing said.

A company spokesman did not respond to requests for comment.

Separately, in Washington, an Energy Department official confirmed that Secretary Steven Chu personally approved a loan restructuring for Solyndra late last fall as the company’s financial problems were mounting.

Mr. Chu, who had announced the original Solyndra loan 18 months earlier with great fanfare, signed off on the loan restructuring, officials said, in hopes of staving off the company’s collapse. Solyndra declared bankruptcy in September, costing 1,100 workers their jobs and putting in jeopardy the public money that was a central pillar of its financing.

At the time of the restructuring, Solyndra had already drawn down some $460 million of its loan commitment, and Mr. Chu decided that the chance of recouping its investment would be improved by a relatively small infusion of new cash, officials said.

Republicans in Congress who are investigating Solyndra’s demise and the $38 billion Energy Department loan guarantee program are demanding to know why Mr. Chu, a Nobel Prize laureate in physics, continued to support Solyndra despite signals that it was floundering.

Representative Cliff Stearns, a Florida Republican who is leading one of two House investigations, said in a statement, “Secretary Chu and the leadership at D.O.E. ignored every warning sign pointing to Solyndra’s failure and stubbornly continued to commit taxpayer money to a doomed venture that left the American people holding the bag at a cost of $535 million.”

Mr. Stearns continued, “Chu admits that he approved the loan restructuring agreement, bringing up the question — why did he allow private investors to be placed ahead of taxpayers in recovering any funds if Solyndra failed, which is a clear violation of the Energy Policy Act and the provision on subordination?”

Damien LaVera, an Energy Department spokesman, said it was not unusual that Dr. Chu would sign off on a major loan restructuring decision.

“When the career loan program staff recommends a transaction for conditional commitment, closing or restructuring, the secretary must give final approval,” Mr. LaVera said in an e-mail, “but only after extensive and rigorous analysis by teams of career federal employees and outside experts of the risks and benefits.”

Mr. LaVera said the choice was between letting the company fail or giving it a chance to survive in a competitive global market.

Jay Carney, the White House press secretary, said on Friday afternoon that Dr. Chu had the president’s “full confidence.”

Even as controversy engulfed the Solyndra loan, the Energy Department on Friday approved more than $4.7 billion in loan guarantees for other solar energy projects as the authority for the program expired. Among the projects were a $1.46 billion loan guarantee for a 550-megawatt photovoltaic array in Riverside County, Calif.; a $646 million loan for a 230-megawatt solar plant in Los Angeles County; and a $1.4 billion guarantee to install solar panels on 750 rooftops in 28 states and the District of Columbia.

Article source: http://feeds.nytimes.com/click.phdo?i=90a58584a75a42fdd61b08116f056473

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European Debt Concerns Rear Up Again

September 3, 2011 by Leave a Comment

LONDON — Concerns about the euro zone’s ability to cohesively respond to its debt crisis resurfaced Friday after talks between Greece and its foreign creditors were interrupted and the head of the European Central Bank warned Italy to stick to its austerity program.

Yields on 10-year Italian bonds rose almost a tenth of a percentage point, to 5.21 percent — well above the 5 percent level that policy makers consider the top desirable rate. The yield on Spain’s 10-year securities climbed slightly to 5.06 percent, despite passage in the lower house of the Spanish Parliament on Friday of an amendment that will enshrine stricter budgetary discipline in the Constitution.

Europe’s central bank began the extraordinary step of buying Italian and Spanish debt on Aug. 8 to help calm markets after 10-year rates spiked to around the 6 percent level.

David Schnautz, interest rate strategist at Commerzbank in London, said many investors had chosen to use the central bank’s recent bond-buying program to offload those bonds, and that was causing yields to drift up now.

“There’s still no genuine investor demand for Spanish and Italian government bonds,” he said.

In the debt talks in Athens, European and International Monetary Fund officials withdrew early as they apparently disagreed over the country’s deficit figures and how to make up for a growing budget shortfall.

The mission had been sent to determine whether Greece would meet the conditions for the next tranche of emergency loans, expected this month.

Representatives of the European Commission, the European Central Bank and the I.M.F. said in a statement that “good progress” had been made, but that they wanted to allow time for the Greek government to complete technical work on the 2012 budget and reforms.

The delegates, who had been scheduled to leave next week, said they would return to Athens by mid-September, “when we expect the Greek authorities to have completed the technical work, to continue discussions on policies needed to complete the review.”

An initial loan package, agreed to last year, has since been supplemented by a second bailout deal that was reached in Brussels in July, but now hangs in the balance amid demands by some euro zone countries for guarantees from Greece in the form of collateral. Without that fresh aid, Greece could default on its obligations.

The Greek finance minister, Evangelos Venizelos, denied that there was a rift with the auditors over the country’s ability to meet deficit reduction targets set by the foreign creditors.

The minister told reporters at a news conference that talks were continuing with auditors in “a very friendly and constructive climate,” and that he expected the team back on Sept. 14 for a second phase once the Greek government had finished a draft of the national budget for 2012.

Greek officials had not previously suggested that there would be a break in negotiations with the inspectors, whose earlier audits had lasted two weeks.

One issue that dominated talks, which concluded early Friday, was a deeper-than-expected recession in Greece that would necessitate “some additional elaboration to ensure there is no divergence” from deficit reduction targets, Mr. Venizelos said.

A European official, speaking on condition of anonymity because the talks were confidential, said that without additional information, there was a risk that some euro zone countries might not agree to releasing the round of aid.

Mr. Venizelos also said that Greece’s economy was expected to contract by “up to 5 percent” but would not give a figure for the Greek budget deficit, broadly expected to overshoot a deficit target of 7.6 percent for 2011 by up to one percentage point.

Analysts said the government’s procrastination in adopting tough measures — like a crackdown on tax evasion and an ambitious privatization scheme — could cost the country dearly.

Moses Sidiropoulos, economics professor at Aristotle University in Thessaloniki, told the private television channel Skai that Greece’s future in the euro zone was at stake.

“If immediate action isn’t taken, even one thing, an example to the foreign creditors that we are serious, I fear Greece will soon be featured in textbooks as a paradox of economic management,” he said.

Greek two-year note yields climbed Friday as much as 358 basis points to reach a euro-era record 46.51 percent, according to Bloomberg News.

Matthew Saltmarsh reported from London and Niki Kitsantonis from Athens. Raphael Minder contributed reporting from Madrid.

Article source: http://www.nytimes.com/2011/09/03/business/global/european-debt-concerns-rear-up-again.html?partner=rss&emc=rss

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