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Europe Is Urged to Take Bolder Action on Debt

September 10, 2011 by Leave a Comment

The stock sell-off, which began in Europe and continued in the United States, was prompted by news that an important German member of the European Central Bank was resigning, creating new uncertainty for the euro monetary union’s ability to take unified action.

But adding to the gloom was a word of caution from one G-7 attendee, the United States Treasury secretary, Timothy F. Geithner, that headwinds from Europe’s deepening debt crisis risked hitting the United States at a time when its own economy was still weak.

He urged European leaders to take more forceful action to show they were committed to resolving their problems. But he did not say the United States was prepared to backstop them to prevent the crisis from spreading.

There were also admonishments from the chief of the International Monetary Fund, Christine Lagarde, who said it was time for Europe’s policy makers to take bold and unified action to see the global economy through what she described as a “dangerous phase.”

By the end of the day, the Europeans had acknowledged the seriousness of the situation and were eager to reassure markets.

The G-7 finance officials issued a statement declaring its members were “committed to a strong and coordinated international response” to the crisis and the slowdown in global growth. But the group stopped short of taking explicit action to address tensions that have worsened in financial markets over the last month. Coordinated action might be left to the Group of 20 industrial and emerging economies, which includes China and has started to eclipse the G-7 in influence.

In the meantime, a senior American official said, until European parliaments vote later this month on whether to expand a bailout fund for the crisis, the European Central Bank has enough firepower to keep Spain and Italy from catching the contagion.

Some economists are not so sure of that.

“I do think the United States needs to try to prepare for what might happen if the European crisis is not resolved soon,” said Martin N. Baily, a senior fellow at the Brookings Institution and a former chief of the Council of Economic Advisors during the Clinton Administration.

In the financial crisis of 2008, he noted, the United States Federal Reserve lent a lot of money to the Europeans who needed it at that time. “I think they should work with the E.C.B. and the main governments of Europe now to make sure that we do not fall again into a liquidity crisis, a solvency crisis with the banks,” Mr. Baily said.

One nation that is not part of the G-7 but has the world’s second-biggest economy and its largest stash of foreign reserves — China — has been seen as a potential rescuer, if it were to help shore up the weaker European economies by buying up more of their government bonds.

But don’t count on it.

China already has apparently poured tens of billions of dollars worth of foreign reserves into euro-denominated investments this year. But Chinese officials are still cautious about taking big risks with the country’s $3.2 trillion nest egg. When considered in the context of China’s 1.3 billion people, that nest egg is not necessarily an infinite treasure.

“China is a poor country with only $4,000 per capita income,” Yu Yongding, a Chinese top economist and former member of the central bank’s monetary policy committee said in an interview in China. “To talk and think about China to rescue countries with $40,000 per capita incomes is ridiculous.”

China is ready to help, Mr. Yu said, “but European countries first should show that they have a clear road map and convincing policies to preserve the euro and solve their problems as well as the political will to make necessary sacrifices.”

And so, with mounting worries of a new recession in the United States and Europe, the G-7 finance ministers have little choice but to focus on restoring growth — even at the risk of running up further deficits and debt.

Keith Bradsher contributed reporting from Hong Kong and Landon Thomas contributed reporting from London.

Article source: http://www.nytimes.com/2011/09/10/business/global/g-7-faces-calls-for-urgent-action-to-spur-growth.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Former Ohio Attorney General to Head New Consumer Agency

July 18, 2011 by Leave a Comment

Mr. Cordray came to national attention for his aggressive investigations of mortgage foreclosure practices while he was attorney general. He is already an employee of the watchdog agency, which starts formal operations on Thursday, as the leader of its enforcement division.

“Richard Cordray has spent his career advocating for middle-class families, from his tenure as Ohio’s attorney general to his most recent role as heading up the enforcement division at the C.F.P.B. and looking out for ordinary people in our financial system,” Mr. Obama said in a written statement. He is expected to formally announce the nomination on Monday.

Congress created the bureau a year ago this week with the enactment of the Dodd-Frank law, which overhauled financial regulations after the credit crisis. The bureau, a centerpiece of the sweeping new law, has since emerged as one of the thorniest topics in Washington and on Wall Street.

Putting a director in place is critical because the agency will not gain the full measure of its powers until the Senate confirms a nominee. The agency can supervise the compliance of banks with existing laws, but the Dodd-Frank financial legislation dictates that it cannot write new rules or supervise other financial companies without a director.

The decision to pass over Ms. Warren — who conceived the bureau, championed its creation and orchestrated its establishment for the last year as a White House adviser — reflects political realities.

Her candidacy was passionately supported by liberal members of Congress and consumer advocacy groups. But she never won the full support of the president or his senior advisers, particularly the Treasury secretary, Timothy F. Geithner, in part because of her independent streak and her outspokenness, which at times put her at odds with the administration.

Also, since last year Mr. Obama has been trying to rebuild relations with the business community after the fights early in his term over health care and financial regulations. Republicans, for their part, had vowed to block her nomination because they said her criticisms of the banking industry showed a lack of fairness.

The financial industry and its lobbyists have worked to delay or dilute several crucial provisions in the Dodd-Frank law, with the consumer bureau chief among them. The industry, along with Congressional Republicans, has hammered away at the bureau’s authority and structure.

While Ms. Warren received the brunt of the scrutiny, Wall Street executives also bristled at the selection of Mr. Cordray to lead the bureau’s enforcement team. Seen as a zealous prosecutor of financial crime, Mr. Cordray is a similarly contentious figure among bankers and lobbyists.

Republicans made it clear on Sunday that they were no more likely to confirm Mr. Cordray than Ms. Warren. Forty-four Republican senators have signed a letter saying they would refuse to vote on any nominee to lead the bureau, demanding instead that the agency replace a single leader with a board of directors.

“Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it,” Senator Richard Shelby of Alabama, the ranking Republican on the banking committee, said in a written statement on Sunday.

The administration has had little success in persuading the Senate to confirm nominees for several other financial regulatory posts, although some recent appointments are pending. Mr. Cordray joins a queue that includes the proposed leaders for two banking regulators, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, and two board members for the Securities and Exchange Commission. About a dozen positions remain vacant.

Mr. Cordray did receive a quick endorsement from Ms. Warren.

“Rich has always had my strong support because he is tough and he is smart — and that’s exactly the combination this new agency needs,” she said in a statement on Sunday. “His work and commitment have made it clear that he will make a stellar director.”

Some of Ms. Warren’s supporters also gave him a reluctant thumbs-up.

“Elizabeth Warren was the best qualified to lead this bureau that she conceived — and we imagine Richard Cordray would agree,” said Stephanie Taylor, a consumer advocate who collected 350,000 signatures on a petition calling for the president to nominate Ms. Warren. “That said, Rich Cordray has been a strong ally of Elizabeth Warren’s, and we hope he will continue her legacy of holding Wall Street accountable.”

Jackie Calmes and Carl Hulse contributed reporting from Washington. Ben Protess contributed from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=ff7b1fed84c4b1befdb7bc64c826eb36

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France’s Lagarde Named New Head of I.M.F.

June 28, 2011 by Leave a Comment

Treasury Secretary Timothy F. Geithner had announced earlier Tuesday that the United States would back Ms. Lagarde, France’s influential finance minister, over the Mexican central bank governor, Agustín Carstens, her only competitor for the job, a move that all but sealed her victory.

“Minister Lagarde’s exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy,” Mr. Geithner said in his statement. “We are encouraged by the broad support she has secured among the Fund’s membership, including from the emerging economies.

The I.M.F. executive board met Tuesday in Washington to decide between Ms. Lagarde and Mr. Carstens. But having secured the backing of China, most countries in Europe and then the United States — which holds the largest number of votes at the fund — Ms. Lagarde’s appointment for a five-year term was effectively a foregone conclusion.

Ms. Lagarde will be taking over at a delicate time, following the resignation last month of Dominique Strauss-Kahn after his indictment on charges of the attempted rape of a hotel maid in New York.

As the finance minister of one of Europe’s most powerful economies, she has been at the forefront of efforts to contain the European debt crisis, which has led Greece, then Ireland and Portugal, to seek bailouts to help them pay their huge sovereign debts.

But a year after Greece secured a €110 billion, or $140 billion, rescue package from the I.M.F., the European Union and the European Central Bank, the country’s debt problems have now re-emerged with a vengeance.

Financial markets have see-sawed in recent weeks as the Greek government was buffeted by widespread social unrest stemming in part from the I.M.F.’s demands for greater austerity measures as a condition of releasing more aid. The Greek Parliament is to vote on the measures Wednesday.

Although emerging markets fought to claim the I.M.F. leadership from Europe, which has produced every managing director since the fund’s inception more than 40 years ago, Ms. Lagarde received substantial backing from Europe, the United States and China. Her key argument was that only another European could continue the I.M.F.’s leadership in managing Europe’s deepening debt crisis.

Yet Ms. Lagarde also came under fire from critics who say she and other top European policy makers mishandled the crisis from the beginning and are now having to scramble to clean up problems of their own making.

“For the I.M.F. to be devoting so much financial and human capital to try to combat a problem in Europe which is largely political in origin and can only be solved by political agreement is controversial,” said Simon Tilford, the chief economist of the Center for European Reform in London. “It threatens the I.M.F.’s credibility.”

What is more, French banks have the largest exposure of any in Europe to Greece, having loaded up on sovereign debt over the years, while Ms. Lagarde has been a major player in negotiating the bailout for Greece. She has adamantly opposed a full-blown debt restructuring or any solution other than a voluntary restructuring by banks.

That has led some analysts to raise questions about whether her impartiality on the issue would be clouded as she leads the fund.

“There is a risk that her perceived objectivity will be brought into question because of this,” Mr. Tilford said. On the other hand, “it’s possible she will come to believe debt restructuring could be in France’s interest, and that kicking the can down the road could ultimately cost the French more than an earlier move to lance the boil.”

Article source: http://feeds.nytimes.com/click.phdo?i=843e8a75a6b25ae8de3ffd097da325a1

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European Leaders Propose a Sweeter Deal for Greece

June 22, 2011 by Leave a Comment

At a meeting of European leaders on Thursday and Friday, Mr. Barroso is expected to propose to make it easier for the debt-laden country to use the money, the equivalent of $1.4 billion, to encourage economic growth.

“Greece has the potential to access a significant amount of E.U. money,” Mr. Barroso said in Brussels, adding that the money should be concentrated where it can create jobs. The idea, he said, was to “front-load and accelerate them, so that Greece gets the benefit now.”

Fitch Ratings said Tuesday that it would consider even a voluntary rollover of Greece’s sovereign debt as a default, which would lead it to cut the country’s credit rating. And Timothy F. Geithner, the United States Treasury secretary, criticized Europe for failing to speak with one voice on the Greek crisis.

Speaking in Washington, Mr. Geithner called on Europe to “speak with a clearer, more unified voice on the strategy” for Greece, according to Bloomberg News. “I think it’s very hard for people to invest in Europe, within Europe and outside Europe, to understand what the strategy is when you have so many people talking.”

Mr. Geithner said he told leaders of the Group of 7 industrialized countries last weekend that the European Union had “a very substantial financial arsenal” at its disposal and that it needed to ensure that they were “available to be deployed to do the kind of things they need to do to make this process work.”

“That means make it available so banks can be recapitalized where they need capital, to make sure there is a funding available to the banking system,” he said. He added that there was “no reason why Europe cannot manage these problems.”

European leaders have been desperately trying to prevent a Greek default, which would hurt global markets and could fatally undermine the euro monetary union. Some analysts have said it could have an effect on credit and debt markets comparable to the one that followed the collapse of Lehman Brothers in 2008.

The warning by Fitch kept pressure on Prime Minister George A. Papandreou of Greece and his newly shuffled government, which survived a vote of confidence early Wednesday. It also kept the heat on European policy makers as they worked on a second bailout for the country.

Parliament will be asked to endorse further spending cuts, which are a condition of receiving a fresh disbursement of 12 billion euros, or $17.1 billion, from last year’s 110-billion-euro bailout from the European Union and the International Monetary Fund.

“The assumption must be that if these two critical votes are passed, the short-term pressure on Greece will ease,” said Adam Cole, head of foreign exchange strategy at RBC Capital Markets in London.

The Barroso plan is intended to help tackle one of the main obstacles facing the Greek economy, which risks a downward economic spiral of low growth that depresses government tax revenue.

A large pot of money has been allocated to Greece for job creation projects, but of a total of 20 billion euros for 2007-13, only about a quarter has been disbursed. One of the obstacles is that most of the grants require matching money from the country receiving aid, something that Greece is now unable to afford. Changing that rule, however, would be time-consuming, so officials think that accelerating payments would be a quicker way of helping the Greek economy.

Mr. Barroso also reinforced calls for Greek politicians to endorse the austerity measures. “My message today is that if Athens acts, Europe will deliver,” he said. “If anyone thinks that without the program agreed with the E.U. and the I.M.F. we can still get by somehow, there’s an alternative program, that’s not true. There is no alternative. The E.U. and the I.M.F. won’t support any other program.”

Euro zone finance ministers have said that a second Greek bailout would include a contribution by private holders of government bonds. Ministers have asked that the contribution be voluntary but “substantial,” but its nature remains uncertain.

That uncertainty has raised concerns at ratings agencies. Andrew Colquhoun, a senior director for Asia-Pacific sovereign ratings at Fitch, said at a conference Tuesday in Singapore that Fitch would regard a debt exchange or voluntary debt rollover “as a default event and would lead to the assignment of a default rating to Greece.”

But Cristina Torrella, a senior director in Fitch’s financial institutions group, said in a statement that a restructuring or rollover of Greek government debt “would not automatically trigger a default by the major Greek banks.”

“The precise rating actions on the banks will depend on the full terms of the sovereign event and the extent to which this considers maintaining solvency and, vitally, liquidity in the Greek banking system,” Ms. Torrella said.

Article source: http://www.nytimes.com/2011/06/22/business/global/22euro.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Looking Ahead to Economic Reports This Week

June 13, 2011 by Leave a Comment

CORPORATE EARNINGS Companies reporting results will include Best Buy (Tuesday); Kroger, Pier 1 Imports, and Smithfield Foods (Thursday).

IN THE UNITED STATES A House Judiciary subcommittee will hold a hearing on the merger of NYSE Euronext and Deutsche Börse (Monday); a House Financial Services subcommittee will discuss the effect of the Dodd-Frank Act on the concept of “too big to fail” (Tuesday); Treasury Secretary Timothy F. Geithner is scheduled to testify before the House Financial Services Committee on the state of the international financial system (Wednesday).

IN ASIA The Bank of Japan will conclude a policy-setting meeting, and China is scheduled to release data on inflation, retail sales and factory production (Tuesday).

Article source: http://feeds.nytimes.com/click.phdo?i=b1270187447e0ccdecdab3fbf058357d

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A Bank Regulatory Logjam May Be Easing

June 10, 2011 by Leave a Comment

Mr. Curry, a lawyer who served as state banking commissioner in Massachusetts, now sits on the board of the Federal Deposit Insurance Corporation.

The White House would like to send Mr. Curry’s name to the Senate at the same time that it moves on its widely reported plan to nominate Martin J. Gruenberg as the new chairman of the F.D.I.C., those people said. Mr. Gruenberg, a longtime Democratic Senate staff member, has served since 2005 as the vice chairman of the F.D.I.C.

Officials have not settled on a candidate to lead another regulator, the new Consumer Financial Protection Bureau, but they are focusing on Raj Date, a former banker who is helping to establish the bureau, those people said. They spoke on condition of anonymity because they were not authorized to discuss the selection process.

Even a single nomination would be the first time since last fall that the Obama administration has moved to reduce the growing number of vacancies at the top of the agencies charged with overhauling the nation’s financial regulations. The White House has promised for several months to send names to Congress as soon as possible, and earlier this week a spokeswoman said action would come “in short order.” The spokeswoman, Amy Brundage, declined to comment Thursday, citing a policy of not commenting on personnel decisions before they are announced by the president.

Mr. Curry and Mr. Gruenberg declined to comment. Mr. Date could not be reached.

The comptroller’s office has lacked permanent leadership since John C. Dugan completed a five-year term in August. John Walsh, one of Mr. Dugan’s deputies, has served as acting comptroller in his stead.

At a celebration for Mr. Dugan shortly before his departure, Treasury Secretary Timothy F. Geithner told staff members that it could take time to find a suitable successor. It was taken as praise but came to seem like prophecy as the administration was turned down by some candidates, and set aside others.

Mr. Curry served as commissioner of banks in Massachusetts from 1995 until 2003, when he was nominated to the F.D.I.C. board by President George W. Bush. His term on the board expired last year, but he has remained in the absence of a replacement. The comptroller holds a permanent seat on the five-member F.D.I.C. board, so Mr. Curry could remain on the board even longer if confirmed as comptroller.

That would be politically expedient for the Obama administration. Mr. Curry is a registered independent and federal law stipulates that no more than three members of the board may belong to the same party.

Mr. Gruenberg, a Democrat, would replace Sheila C. Bair, who plans to step down as chairwoman when her term ends in July. The F.D.I.C. under Ms. Bair’s leadership has gained prominence and power, advocating for the interests of consumers and community banks and, at times, infuriating administration officials and other regulators.

Mr. Gruenberg, who has provided reliable support for Ms. Bair, is seen as likely to advocate the same priorities in a more conciliatory style. He was a longtime aide to former Senator Paul S. Sarbanes of Maryland and retains relationships on Capitol Hill with members of both parties, which could ease his path to confirmation.

If both men are confirmed, the administration would need to fill two new vacancies on the F.D.I.C. board. There are also two vacancies on the Federal Reserve’s Board of Governors, and a vacancy atop the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. Several positions created by the Dodd-Frank Act also remain to be filled, including a Fed vice chairman for supervision, a head for the new Office of Financial Research and an insurance oversight position.

The most significant vacancy, however, is at the consumer protection bureau, which opens in July but does not gain full powers until it has a permanent head.

The president last year appointed Elizabeth Warren, a Harvard Law professor who was the most forceful advocate for the agency’s creation, to bring it to life. Ms. Warren’s many supporters believe she should be nominated to lead the agency, but her unsparing criticism of financial abuses has made her a polarizing figure.

Mr. Date is seen as a compromise candidate. He worked in the financial industry as an executive at Capital One and Deutsche Bank, then headed a research group that advocated for regulatory reforms before coming to work for Ms. Warren.

Senate Republicans have said that they will not allow a vote on any nominee to lead the new agency until Democrats agree to rewrite the law to reduce its powers. That could force the White House to make an appointment this summer while the Senate is away.

Article source: http://feeds.nytimes.com/click.phdo?i=9b719324916afea4a027ad3cd8f9d05c

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Debt Ceiling Increase Is Expected, Geithner Says

April 18, 2011 by Leave a Comment

In a pair of appearances on Sunday talk shows, Mr. Geithner said the Republican leaders made it clear to President Obama in a White House meeting last Wednesday that they would go along with the administration’s efforts to raise the debt ceiling to avoid a financial crisis.

“Congress is going to have to raise the debt limit,” Mr. Geithner said on the NBC program “Meet the Press.” “They understand that. That’s absolutely essential to preserve the creditworthiness of the United States of America.”

He went on: “You know, we’re a country that meets its obligations, and we have to meet our obligations, and they recognize that. In fact, I heard the leadership tell the president that again on Wednesday.”

Republican leaders responded rather indirectly to Mr. Geithner later on Sunday, focusing on their demands for greater spending cuts in next year’s budget in exchange for a vote to raise the debt ceiling, rather than on whether they actually planned to vote for the increase.

In a statement, Michael Steel, a spokesman for Speaker John A. Boehner of Ohio, said Mr. Boehner had made it plain to the president at the White House meeting that more spending cuts would be the price for a debt ceiling deal.

“Boehner has been very clear: the American people demand that any increase in the debt ceiling be accompanied by spending cuts, and real reforms so we can keep cutting,” Mr. Steel said.

Representative Paul D. Ryan of Wisconsin, chairman of the House Budget Committee, gave a similar response to Mr. Geithner’s assertions on the CBS program “Face the Nation.”

“We want cuts in spending accompanying a raising of the debt ceiling, and that is what I believe they told the president,” Mr. Ryan said, referring to Republican leaders. He added that “nobody wants to play around with the country’s credit rating.”

“Nobody wants to see defaults happening,” he said, “but we also think it’s important to get a handle on future borrowing as we deal with raising the debt limit.”

The administration says the legal debt limit, now just over $14 trillion, will be reached next month. Many economists have warned that if the ceiling is not raised, the United States will soon begin to default on its debt, and that could set off an international financial crisis.

The vote over raising the debt ceiling is the second major showdown over budgetary and financial matters between the White House and the Republican-controlled House in recent weeks. A government shutdown was narrowly averted when negotiators worked out a deal that included billions of dollars in spending cuts for the remainder of the 2011 fiscal year. Mr. Obama signed that legislation on Friday, just in time for the next battle.

Republicans, prompted by Tea Party supporters who helped fuel their electoral victory in the 2010 midterm elections, have been pushing for greater leverage to cut spending further, and the debt ceiling vote has been looming for months as one of their most potent weapons.

Yet it is not clear how much of an appetite there is among Republicans for a showdown on the debt ceiling. Senator Rand Paul, a Kentucky Republican elected last year as a Tea Party favorite, said Sunday that he was not necessarily opposed to raising the debt ceiling. When asked on the CNN program “State of the Union” whether he would vote on a bill to raise the limit, even without other provisions attached to the legislation, Mr. Paul answered indirectly.

“I don’t think it should be an either-or situation, you know,” he said. “There is another alternative, and that is that we send the message to the president through legislation that says: ‘You know what, Mr. President? Don’t default, but pay the interest out of the revenue.’ ”

Mr. Obama acknowledged Friday in an interview with The Associated Press that he would have to agree to Republican demands for more spending cuts to win their backing for a higher debt limit.

On Sunday, Mr. Geithner gave a slightly more detailed answer, saying it would be difficult to try to push both the spending cuts and the debt ceiling through Congress simultaneously.

“I think you can do these things in parallel,” he said on “Meet the Press.” “But if by the time we need to raise the debt limit, we haven’t worked all that out, Congress still has to raise the debt limit. And again, leadership realized that.”

Article source: http://feeds.nytimes.com/click.phdo?i=2ed1b03cf97ea34cae423b09f0238d02

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