debacle

I.M.F. and Europe Set Strict Terms for Cyprus

The other 9 billion euros, or $11.6 billion, of the bailout is to come from the other 16 euro zone countries whose approval is still required.

“This is a challenging program that will require great efforts from the Cypriot population,” Christine Lagarde, the managing director of the I.M.F., said in a statement issued by the fund, which is based in Washington.

The commitment comes after the completion of a memorandum of understanding the fund has drafted with Cyprus and the other two international organizations involved in the bailout, the European Central Bank and the European Commission.

Though it has not yet been made public, officials say the agreement includes budget cuts, the privatization of state-owned assets and other conditions Cyprus must meet.

It was another dose of strong medicine for Cyprus, which agreed last month to restructure an outsize banking sector by forcing huge losses on bondholders and big depositors in the country’s two biggest lenders.

Officials from the Cypriot government, which still needs its Parliament’s approval of the terms of the deal, sought to put a positive spin on the deal.

“This is an important development which brings a long period of uncertainty to an end,” Christos Stylianides, a government spokesman, said in a statement made available on Wednesday.

The bailout agreement “should have taken place a lot sooner, under more favorable political and financial circumstances,” said Mr. Stylianides, who was apparently referring to infighting in Cyprus about responsibility for the debacle.

Before the deal, the Cypriot economy was expected to shrink 3.5 percent this year, with unemployment hitting nearly 14 percent. Now, under the strict bailout measures, some experts predicted the economy could contract 5 percent or more, sending unemployment even higher.

The memorandum will not be made public before euro zone governments review it, Olivier Bailly, a spokesman for the European Commission, said at a news conference on Wednesday. Euro finance ministers will hold an informal meeting next week in Dublin, where they might give their backing, Mr. Bailly said.

Full legal approval, though, is expected only after the Parliaments in some euro area countries like Finland and Germany vote on the deal. If those approvals are completed by the end of month, Mr. Bailly said, Cyprus could receive its first aid payment in May.

The Cypriot authorities on Tuesday described elements of the agreement that they said were favorable.

Mr. Stylianides, the Cypriot spokesman, said the deal safeguarded important parts of the economy by keeping potentially valuable offshore deposits of natural gas under Cypriot jurisdiction, and by winning two more years, until 2018, to hit deficit targets and carry out privatizations.

Mr. Stylianides also said the government saved the jobs of contract teachers and of 500 civil servants, and had overcome demands by the international lenders to tax dividends.

But the memorandum could be hotly contested by the Cypriot Parliament, where many lawmakers have criticized the measures that already have been taken, like capital controls — tight restrictions on transfers and withdrawals of money — that threaten to make a bleak economic outlook even worse.

In a change partly aimed at easing those tensions, the government on Tuesday appointed a new finance minister, Harris Georgiades, to succeed Michalis Sarris, who resigned. Mr. Sarris has been criticized at home and abroad for his handling of the crisis.

Mr. Georgiades, who had been the deputy finance minister, said on Wednesday that capital controls would be lifted “gradually” and that the country would meet all of its bailout targets.

Over the course of the negotiations, the spotlight fell on whether the monetary fund was being too forceful in pressing for the country to quickly reduce its debt and impose losses on bank shareholders and big depositors. The approach strained relations with the European Commission, which had concerns about the confidence-sapping effects that such aggressive measures might have on other countries.

In an apparent show of unity on Wednesday, Ms. Lagarde jointly issued a statement with Olli Rehn, the European commissioner for economic and monetary affairs, pledging to “stand by Cyprus and the Cypriot people in helping to restore financial stability, fiscal sustainability and growth to the country and its people.”

The monetary fund’s share of the package for Cyprus was smaller than in some previous arrangements for countries like Greece. But Mr. Bailly, the commission spokesman, said it did not signal a change in policy.

The sums given by the fund depend on the “specific situation” in each country, he said, adding that the billion-euro, three-year loan for Cyprus was unanimously agreed upon by the I.M.F., the European Commission and the European Central Bank.

Ms. Lagarde said Cyprus needed to make substantial spending cuts “to put debt on a firmly downward path,” including in areas like social welfare programs. But she said the plan sought to be evenhanded.

“The fiscal and financial policies of the program seek to distribute the burden of the adjustment fairly among the various segments of the population and to protect the most vulnerable groups,” she said.

More than 95 percent of account holders at Laiki Bank, which will be closed under the plan, and at Bank of Cyprus, which is being restructured, were fully protected, she said.

The main fiscal measures, she said, included raising the country’s corporate income tax rate to 12.5 percent from 10 percent.

Article source: http://www.nytimes.com/2013/04/04/business/global/imf-to-contribute-1-billion-euros-to-cyprus-bailout.html?partner=rss&emc=rss

In Financial Crisis, No Prosecutions of Top Figures

Answering such a question — the equivalent of determining why a dog did not bark — is anything but simple. But a private meeting in mid-October 2008 between Timothy F. Geithner, then-president of the Federal Reserve Bank of New York, and Andrew M. Cuomo, New York’s attorney general at the time, illustrates the complexities of pursuing legal cases in a time of panic.

At the Fed, which oversees the nation’s largest banks, Mr. Geithner worked with the Treasury Department on a large bailout fund for the banks and led efforts to shore up the American International Group, the giant insurer. His focus: stabilizing world financial markets.

Mr. Cuomo, as a Wall Street enforcer, had been questioning banks and rating agencies aggressively for more than a year about their roles in the growing debacle, and also looking into bonuses at A.I.G.

Friendly since their days in the Clinton administration, the two met in Mr. Cuomo’s office in Lower Manhattan, steps from Wall Street and the New York Fed. According to three people briefed at the time about the meeting, Mr. Geithner expressed concern about the fragility of the financial system.

His worry, according to these people, sprang from a desire to calm markets, a goal that could be complicated by a hard-charging attorney general.

Asked whether the unusual meeting had altered his approach, a spokesman for Mr. Cuomo, now New York’s governor, said Wednesday evening that “Mr. Geithner never suggested that there be any lack of diligence or any slowdown.” Mr. Geithner, now the Treasury secretary, said through a spokesman that he had been focused on A.I.G. “to protect taxpayers.”

Whether prosecutors and regulators have been aggressive enough in pursuing wrongdoing is likely to long be a subject of debate. All say they have done the best they could under difficult circumstances.

But several years after the financial crisis, which was caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the failure of many savings and loan institutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail. Among the best-known: Charles H. Keating Jr., of Lincoln Savings and Loan in Arizona, and David Paul, of Centrust Bank in Florida.

Former prosecutors, lawyers, bankers and mortgage employees say that investigators and regulators ignored past lessons about how to crack financial fraud.

As the crisis was starting to deepen in the spring of 2008, the Federal Bureau of Investigation scaled back a plan to assign more field agents to investigate mortgage fraud. That summer, the Justice Department also rejected calls to create a task force devoted to mortgage-related investigations, leaving these complex cases understaffed and poorly funded, and only much later established a more general financial crimes task force.

Leading up to the financial crisis, many officials said in interviews, regulators failed in their crucial duty to compile the information that traditionally has helped build criminal cases. In effect, the same dynamic that helped enable the crisis — weak regulation — also made it harder to pursue fraud in its aftermath.

A more aggressive mind-set could have spurred far more prosecutions this time, officials involved in the S.L. cleanup said.

“This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity,” said William K. Black, a professor of law at University of Missouri, Kansas City, and the federal government’s director of litigation during the savings and loan crisis. “But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here.”

Even civil actions by the government have been limited. The Securities and Exchange Commission adopted a broad guideline in 2009 — distributed within the agency but never made public — to be cautious about pushing for hefty penalties from banks that had received bailout money. The agency was concerned about taxpayer money in effect being used to pay for settlements, according to four people briefed on the policy but who were not authorized to speak publicly about it.

To be sure, Wall Street’s role in the crisis is complex, and cases related to mortgage securities are immensely technical. Criminal intent in particular is difficult to prove, and banks defend their actions with documents they say show they operated properly.

But legal experts point to numerous questionable activities where criminal probes might have borne fruit and possibly still could.

Article source: http://feeds.nytimes.com/click.phdo?i=a1a7b250ec35e83d1df32c84d0ea5343

I.M.F. and Europe Set Strict Terms for Cyprus

In Financial Crisis, No Prosecutions of Top Figures

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