May 19, 2022

Political Economy: A Tool Kit for Future Euro Crises

A big problem with the euro zone’s one-size-fits-all monetary policy is that it risks fitting nobody. That, indeed, was a central cause of the crisis.

Early in the century, countries like Spain and Ireland were booming, while Germany was in the doldrums. Setting interest rates at a level that worked well for the euro zone on average had the effect of inflating the Spanish and Irish property bubbles while pushing wages up, so their economies became uncompetitive. When the bubbles burst, the damage was devastating.

It would be hard to argue that any part of the euro zone is currently booming. Even Germany will eke out growth of only 0.3 percent this year, according to the International Monetary Fund. But it may not be long before the problems of a one-size-fits-all monetary policy are back to haunt the zone. Even though the German economy is not growing strongly, it is still outperforming the average. What is more, labor is in short supply and house prices are rising at a moderate clip — a big contrast to the average among euro zone states, let alone recession-troubled countries such as Italy.

The European Central Bank’s policy of keeping interest rates at the current level of 0.5 percent or lower for an “extended period” is right for the euro zone on average. The weaker countries would benefit from even looser monetary policy. Germany, though, may already need something tighter. If the “extended period” of low interest rates goes on for years, it could experience a boom.

Many observers view one-size-fits-all interest rates as one of the zone’s design defects, about which nothing can be done. Others advocate policies — like full fiscal union — that are not going to be adopted and would not really hit the spot, even if they were. But the outlook is not quite so pessimistic. There are two policies that could considerably mitigate the damage of the common monetary policy — and they do not even require any treaty changes.

The first is for euro zone members to pursue vigorous “macroprudential” policies. Since Lehman Brothers went bust five years ago, it has become fashionable to call for bank regulators to have the tools to prevent future bubbles. The main idea is that they should be able to stop credit and asset prices from growing too fast by directly intervening in the way banks lend. One way of doing that would be to increase the minimum capital buffers banks have to hold if the economy is overheating; another would be to cut the size of mortgages they are allowed to make.

Such macroprudential policies are a good idea everywhere. But they are particularly important for the euro zone because individual countries cannot use interest rates or exchange rates to stop overheating. Using macroprudential policy would not just restrain future booms; it would mean that a country’s banking system would be better placed to weather the subsequent bust.

The European Union is gradually putting the necessary building blocks in place. One element of that effort is giving the regulatory authorities the job of conducting macroprudential policy. Ten of the 28 E.U. members, including Germany, had done so by July, while the rest were working on legislation.

Meanwhile, an E.U. law that sets out broadly the way macroprudential tools should be used comes into effect next year.

Within the euro zone rather than the wider European Union, both the European Central Bank and the authorities in each country will have a say over the use of the antibubble tool kit. That is because, beginning next year, the E.C.B. will add bank supervision to its duty of running monetary policy. The basic principle is that the authorities in each country will be expected to take action, but if the E.C.B. believes they are not doing enough, it can use the tools, too.

It has to be said, though, that both macroprudential policy and the way it would be organized within the euro zone are in their infancy. When it was used by Spain during its housing bubble, it was not very effective. Some observers say the whole policy is overrated; others say it just was not pursued vigorously enough. The best guess is that macroprudential policy would help if it were actively implemented but that it would be wrong to expect it to do the whole job of stopping an economy from overheating. That is why euro zone countries should adopt another approach as well: “countercyclical” fiscal policies.

During the crisis, many countries have been forced to adopt austerity. That has been “procyclical” — exacerbating recessions in those countries. In some cases, like Greece, that was unavoidable because their finances were in such a mess to start with.

But in the future, countries should take exactly the opposite approach: running up fiscal surpluses in the good times and then allowing their budgets to go into deficit in the bad times. That is classic Keynesianism, except that most Keynesians forget the essential part about building up surpluses in booms. Such an approach would not just restrain the booms; it would mean that countries would have the financial wherewithal to run expansionary fiscal policies during busts, rather than being forced into austerity.

Countercyclical fiscal policy is a good idea for all countries. But, as with macroprudential policy, it is particularly appropriate for the euro zone. It needs such tools to mitigate the defects of its one-size-fits-all monetary policy. Before too long, some countries will need the courage to use them.

Hugo Dixon is editor at large of Reuters News.

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Central Bank Acts to Strengthen Brazilian Real

Similar moves have been made by central banks in Indonesia and Turkey. The action highlights growing fears on the part of policy makers in these countries that the recent slide in their currencies poses a serious economic threat given the high levels of dollar-denominated debt that their national banks and companies have taken on.

As local currencies weaken, dollar debts increase in value and become increasingly difficult to service.

The real has lost more than 15 percent of its value against the dollar this year as foreign investors as well as locals have sold their reals for dollars.

The Indian rupee, the South African rand, the Turkish lira and the Indonesian rupiah have also lost more than 10 percent against the dollar as the money that once poured into these economies returns to more developed economies in anticipation of higher interest rates in the United States.

“We are in the midst of a significant rebalancing, and the growth outlook for emerging market countries has deteriorated,” said Jens Nordvig, a currency strategist at Nomura in New York.

Earlier this week, the Turkish central bank increased interest rates in a bid to stop the fall of the lira, which is approaching the psychologically crucial hurdle of a dollar-lira rate of 2.00. Indonesia, which like Turkey and Brazil relied on foreign dollars to finance large current-account deficits, also announced on Friday a series of steps to increase the availability of dollars in the markets and the broader economy.

While the measures may have a short-term impact — the real was up more than 1 percent against the dollar on Friday — their long-term effect is uncertain. After years of heady growth, spurred in part by a commodity boom coupled with very low interest rates and stagnation in the United States and Europe, economic momentum is shifting slowly from emerging to developed economies.

Another concern is that as economies in Turkey, Brazil and Indonesia slow, it could become difficult politically for central banks to push rates ever higher.

Recep Tayyip Erdogan, the Turkish prime minister, whose ruling Justice and Development Party faces crucial local elections early next year, has been especially vocal in this regard.

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Economix Blog: Support for College Students and Banks: Not So Different

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

Today’s Economist

Perspectives from expert contributors.

A bipartisan deal reached in the Senate clears the way for legislation on federal student loans to undo the July 1 increase in interest rates on new loans to 6.8 percent from 3.4 percent. The House of Representatives previously approved a bill that embraced the key feature of President Obama’s proposal, which was to link interest rates on student loans to borrowing costs for the government. The Senate approach includes this link, pegged to yields on 10-year Treasury notes.  The rate on new loans would adjust each year up to a cap, but an individual borrower’s interest rate would be fixed over the life of the loan. This is expected to lead to relatively low interest rates on student loans in the near term and higher rates in the future as yields on Treasury bonds rebound with the economy over the next several years.

Mr. Obama in particular deserves recognition for putting forward a reasonable proposal that was in the ballpark of what Republicans would accept, and for rejecting partisan pleas to stick with his previous advocacy, electorally motivated, of setting low loan rates a year or two at a time. We can only hope to see similar leadership rather than partisan rhetoric from the president on other economic issues in his series of economic speeches beginning this week.

Left aside in the bonhomie was a proposal from Senator Elizabeth Warren, a Democrat from Massachusetts, that would have used the Federal Reserve’s discount window lending as the benchmark for student loans while Congress worked on a “fair, long term solution.” Under what was titled the Bank on Students Loan Fairness Act, college students would get their loans from the federal government for one year at the same 0.75 percent interest rate the Fed charges banks. The proposal garnered nine co-sponsors, all Democrats, along with a long list of endorsements from the likes of university professors and administrators and organizations representing students.

Others were not as welcoming. President Obama reportedly tried to steer Senator Warren toward the bipartisan compromise, while education experts from the Democratic-leaning Brookings Institution wrote that Senator Warren’s proposal “should be quickly dismissed as a cheap political gimmick.” The Washington Post’s fact checker challenged Senator Warren’s assertion that the government was racking up large profits from higher interest rates on student loans, assigning a “two Pinocchio” rating of “significant omissions and/or exaggerations” to the budgetary arithmetic behind the proposal. The idea that the federal government was balancing the budget on the backs of college students was among the motivating factors for setting a lower interest rate.

I am glad to see the prospect of a bipartisan agreement on student loans (and not just because I am a professor — the process by which the House and President Obama reached substantive agreement and then brought along the Senate suggests the possibility of similar progress on other economic issues). But I believe that Senator Warren has a valid point in making an analogy between federal support for banks and support for college students. This is worth developing more fully, in part because it sheds light on the government’s role in the financial sector.

The Federal Reserve lends money to banks at the discount window; the interest rate has been 0.75 percent since Feb. 19, 2010, but reached as low as 0.50 percent starting on Dec. 16, 2008.  These loans are made in the Fed’s capacity as the lender of last resort, under which it provides temporary liquidity (typically overnight) to solvent banks on a fully secured basis at a penalty rate. (Four lectures by the Federal Reserve chairman, Ben S. Bernanke, in March 2012 provide an accessible introduction to monetary policy.) Incredible as it might sound, the 0.75 percent interest rate charged by the Fed is indeed a penalty. Banks eligible to borrow at the discount window would normally borrow from other institutions in the federal funds market, where the interest rate has recently hovered around 0.1 percent, roughly in the middle of the Fed’s target range of zero to 0.25 percent.

For students looking to finance their educations, seeing the federal government as a lender of last resort might be appropriate, since many college students would turn first to their parents if family resources permit. Even Senator Warren’s proposed 0.75 percent interest rate on federal student loans might well be more than what Mom and Dad charge.

Banks provide collateral for their loans in the form of securities such as Treasury bonds, and the owners of banks must finance their activities in part with their own capital at risk.  It is natural to view college students as solvent-but-illiquid to the extent that their education unleashes the higher future earnings with which to repay their loans. Students thus put up as collateral their own human capital: it is quite difficult to walk away from federal student loans, meaning that a college-age borrower’s future earnings effectively serve as the surety for repayment. Indeed, a further motivation for the low interest rate proposed by Senator Warren is the concern that the burden of college debt is having a negative impact on graduates’ spending and thus on the overall economy.  On the other hand, others have raised concerns that easier financing spurs higher college tuitions and thus does not improve college affordability.

The analogy between banks and students is not perfect.  A challenge for making the connection between the interest rates charged to banks and to students is that the Fed generally provides overnight lending at the discount window, whereas students have 10 to 25 years to repay their loans.  President Obama’s proposal, adopted by Congress, to tie student loan interest rates to the 10-year Treasury note thus makes eminent sense.  At the same time, students signing loan contracts for the 2013-14 academic year will benefit from the Fed’s activities even without Senator Warren’s bill, just not directly.  Through its third quantitative easing program, QE3, the Fed is intervening in the Treasury bond market and likely holding down borrowing costs for the federal government, including the interest rate on 10-year Treasury notes.

The other potential difficulty for students in connecting their loans to federal support for banks is that to get access to the discount window, banks are subject to a wide-ranging regulatory and supervisory regime. For college students, the analogy would be to have a federal examiner watch to make sure they do their homework and get through the required readings ahead of a lecture. As a professor, I can see the attraction of fleshing out this aspect of Senator Warren’s proposal to give college students the same federal support as banks. I am not sure that my students would agree.

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DealBook: BNP Paribas First Quarter Profit Falls 45%

A branch of BNP Paribas in Paris.Jacky Naegelen/ReutersA branch of BNP Paribas in Paris.

PARIS – BNP Paribas, France’s largest bank, said on Friday that first-quarter profit fell from a year earlier, but it still managed to beat market expectations.

Net income for the January-March period came in at 1.6 billion euros, or $2.1 billion, down 45 percent from the same three months a year earlier, BNP Paribas said in a statement. That was slightly better than the 1.5 billion euros that analysts surveyed by Reuters had expected.

Jean-Laurent Bonnafé, the bank’s chief executive, said in a video statement that results were weaker because the European financial crisis weighed on demand for credit, even as loans were made at low interest rates. Deposits continued to grow “significantly” in all the bank’s markets, particularly in Italy, he said.

BNP Paribas noted that the year-earlier results included a one-time gain of 1.8 billion euros on the sale of a stake in its Klépierre unit, which made the most recent quarter look weaker in comparison. It said that a better reflection of its performance could be seen in the fact that pretax profit at its operating divisions fell just 8.1 percent.

The bank, based in Paris, also reported first quarter revenue of 10.1 billion euros, up 1.7 percent from a year earlier. Revenue was affected by two one-off items of note, a 215 million euro write-down on the bank’s own debt and a gain of 364 million euros as a result of its adoption of new accounting rules.

Mr. Bonnafé noted the bank had attained “a very strong solvency and liquidity positions,” with a Basel 2.5 common equity Tier 1 ratio of 11.7 percent, and a “fully loaded” Basel 3 common equity Tier 1 ratio of 10 percent. Such measures of regulatory capital provide an indication of an institution’s ability to bear financial shocks.

BNP Paribas described the period as a “transitional quarter” for its corporate and investment banking business, in which revenue slid 21.1 percent from a year earlier to 2.5 billion euros, and pretax income tumbled more than 30 percent to 806 million euros.

The investment banking unit’s advisory and capital markets revenue fell 25 percent to 1.7 billion. Revenue in the fixed income sector fell 27 percent to 1.3 billion. The equities and advisory business posted a 20 percent decline in revenue, to 395 million euros.

BNP Paribas, which recorded 155 million euros in restructuring costs in the quarter, said “many projects” to improve and streamline its operations were getting under way, including early retirement programs at its BNPP Fortis unit in Belgium and BNL unit in Italy.

This post has been revised to reflect the following correction:

Correction: May 3, 2013

An earlier version of this article misstated when BNP Paribas reported its first-quarter earnings. It was on Friday, not Thursday.

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Stephen Poloz Named Bank of Canada Governor

Incoming Bank of Canada Governor Stephen Poloz, 57, worked at the central bank for 14 years earlier in his career. But he has spent the last 14 years at Export Development Canada.

Poloz takes over as central bank chief on June 3 when Mark Carney leaves, a surprise for markets, which had tipped Carney’s senior deputy Tiff Macklem as the most likely choice. Carney becomes governor of the Bank of England on July 1.

In his debut with reporters, Poloz was careful not to contradict the views that Carney and the central bank expressed in their quarterly economic report last month.

“We are in a recovery that is not as vigorous as would normally be expected and … I think it will be necessary to nourish it, I don’t know for how long,” Poloz said in an introductory news briefing in Ottawa.

Canada’s economy recovered well from the 2008-09 recession thanks to aggressive government spending, tax cuts and record-low interest rates. But growth stalled last year, with the economy recording its slowest two quarters of growth since the crisis.

The Bank of Canada has kept its key rate on hold at what it describes as a stimulative 1 percent since 2010. But it has signalled for the past year that the next move will be a rate hike, not a cut. ID: nL2N0D40HM

Poloz said exports now needed to fuel the Canadian economy, and he believed this was already starting to happen. Canada unexpectedly recorded a trade surplus in March, the first monthly surplus after a year of deficits.

“In my judgment, it’s looking promising. I hope you agree with that,” he said, turning to Carney, who smiled broadly: “Yes, absolutely,” Carney replied.

Analysts do not expect Poloz to rethink central bank policies, especially because of his experience working there earlier in his career. The bank, which guards its independence jealously, targets inflation of 2 percent, but has said it will be flexible with the timeline for reaching that target in difficult economic times.

“The move was a surprise, but I don’t look for any change in monetary policy,” said Craig Wright, chief economist at Royal Bank of Canada.

Unlike the U.S. Federal Reserve or the Bank of England, there are no discernible “hawks” or “doves” among the Bank of Canada’s six governing council members because the council reaches decisions by consensus and takes pains to speak from a common script at public appearances.

Poloz will serve a seven-year term.

In a Reuters poll on April 10, Poloz was seen as the second most likely candidate to get the job after Macklem.

Poloz appeared upbeat about signs of gradual cooling of the once-hot Canadian housing market and a slowing in record-high household debt levels in Canada – both top concerns of Finance Minister Jim Flaherty.

“Of course it’s a concern in the sense of where we are,” Poloz said. “However, the evolution appears to be constructive, and I think that’s great, for us to continue to watch that and to, if you like, nurture that process of a return to more normal conditions.”

Economists have said Poloz has the credentials to succeed as governor and that he was viewed as a governor-in-waiting in his previous period at the central bank.


He is a good communicator, described by one person as “folksy” in his speeches but also whip-smart. He worked at a private-sector financial research firm in Montreal for five years after leaving the central bank.

Poloz joined EDC, a quasi-independent organization that provides loans to importers of Canadian goods, in 1999 as its chief economist and became president of the agency in 2010.

One possible strike against him was the perception among some market players that he may be more sympathetic than his predecessors to exporters’ complaints about the strong Canadian dollar and lean towards a weaker currency.

RBC assistant chief economist Paul Ferley dismissed that notion.

“This would do a disservice to Poloz’s early career at the central bank where the priority is to set monetary policy to achieve an appropriate rate of inflation,” he said.

Poloz will have only about a month to transition to his new role, much shorter than the four months Carney had between his appointment in October 2007 and his first day of work in February 2008.

This is the third time in a row that the top job at the Bank of Canada has gone to an outside candidate rather than to the most senior internal policymaker, in this case Macklem.

Macklem said in a statement that he would stay with the bank and looked forward to working with Poloz.

(Reporting by David Ljunggren and Louise Egan; Editing by Janet Guttsman, Peter Galloway and Paul Simao)

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DealBook: To Satisfy Its Investors, Cash-Rich Apple Borrows Money

Timothy Cook, the chief of Apple.Eric Risberg/Associated PressTimothy Cook, the chief of Apple.

9:00 p.m. | Updated

With a $145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard and Yahoo. Put another way, it could buy every office building and retail space in New York, according to city estimates.

But despite its extraordinarily flush balance sheet, the technology behemoth borrowed money on Tuesday for the first time in nearly two decades. In a record-size bond deal, the company raised $17 billion, paying interest rates that hovered near the low-cost debt of the United States Treasury.

Apple’s return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt?

The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates. They are also feeding strong investor demand for high-quality corporate bonds as an alternative to money market funds and Treasury bills, which are paying virtually nothing.

Apple’s maneuver, however, also reflects the unusual challenges of a fabulously successful company with a sinking stock price. Apple is plagued by concerns that its growth may be slowing, and its shares have plummeted from a high last fall of more than $700 to under $400 last month.

In an effort to assuage a growing chorus of frustrated investors, the company is issuing bonds to help finance a $100 billion payout to shareholders. Apple said last week that it planned to distribute that amount by the end of 2015 in the form of paying increased dividends and buying back its stock. Since that announcement, Apple shares have risen 10 percent, closing at $442.78 on Tuesday

Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. It can reduce the overall cost of the capital that a company invests in its business. In addition, after a stock buyback, there are fewer shares, which can increase their value.

Yet even as shareholders and analysts welcome the financial tactics, they emphasize that the maker of iPhones, iPads and Macs must continue to innovate and fend off increasing competition. After all, today’s Apple could be tomorrow’s Palm.

“This is a substantial return of cash and it’s the right thing to do on many levels,” said Toni Sacconaghi, an analyst with Bernstein Research. “But, ultimately, the company has to execute. This is no substitute for that.”

By raising cheap debt for the shareholder payout, Apple also avoids a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.

“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”

The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drug maker Roche Holding in 2009, according to Dealogic.

Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 percent. In November, Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 percent, while the five-year note yielded 0.68 percent.

“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst with Standard Poor’s Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”

On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 percent to a 30-year bond that yields 3.85 percent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 percent. While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset.

Despite all the cash held by Apple, the credit-rating agencies have not awarded it their coveted AAA ratings, citing increased competition and a concern that its future product offerings could disappoint. Moody’s Investors Service gave Apple its second-highest rating, AA1, as did Standard Poor’s, rating the company AA+. (Microsoft, Exxon Mobil, Johnson Johnson, and Automatic Data Processing have the highest credit ratings from Moody’s and S.. P.)

“There are inherent long-run risks for any company with high exposure to shifting consumer preferences in the rapidly evolving technology and wireless communications sectors,” wrote Gerald Granovsky, a Moody’s analyst.

Apple’s less-than-perfect rating did not drive away investors on Tuesday. The offering generated investor demand of about $52 billion, according to Goldman Sachs and Deutsche Bank, which led the sale of the issuance.

Desperate for returns in a yield-starved world, investors like insurance companies, pension funds and foreign governments have been snapping up corporate debt. Individual investors are also driving the demand: this year, through last Wednesday, a record $55 billion has flowed into mutual funds and exchange-traded funds that invest in corporate debt with high-quality ratings, according to the fund data provider Lipper.

Steve Jobs, Apple’s co-founder and former chief executive, had long resisted calls to dispense big sums to investors. In 2010, when Apple’s cash stood at $50 billion, he rejected pressure to make large distributions to shareholders. The company’s cash balance continued to grow after Mr. Jobs’s death in 2011, as it generated billions of dollars in earnings each quarter. Over the last 12 months, Apple operations have been generating about $150 million of cash a day.

A year ago, the new chief executive, Tim Cook, announced a decision to start returning $45 billion to shareholders. But that did not satisfy everyone. David Einhorn, chief executive of the hedge fund Greenlight Capital and an Apple shareholder, pressed the company to do even more.

The excitement surrounding Apple’s bond deal on Tuesday stood in stark contrast to the gloom that hung over the company when it last issued debt. In 1996, Apple faced a crisis, with shrinking sales of its niche computers and a weakening balance sheet that earned a junk credit rating. In the middle of the year, its shares reached a 10-year low.

“Will Apple Computer run out of cash soon?” asked an article in The New York Times on April 7, 1996. That summer, it tapped the bond markets, raising about $600 million and averting a crisis.

Later in the year, Mr. Jobs, who had left Apple more than a decade before, returned to the company.

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Special Report: Net Worth: Spreading the Risk With Real Estate

But lately the trend has accelerated, in particular among Asian investors, who are taking advantage of the strength of their currencies and the environment of low interest rates to increase their investment in these physical assets.

They are not the only ones. According to the Sovereign Investment Lab at Bocconi University in Milan, sovereign wealth funds made 38 commercial property investment deals across the world last year for a total value of almost $10 billion, as they continued to seek alternatives to volatile equity markets and low-yielding bonds.

Hedge funds have also been reported as increasing their stakes in commercial, mortgage-backed securities.

A lot of wealthy individuals “are already well invested with residential properties in different countries, and they have shown some interest in diversifying further in commercial properties,” said Joseph Poon, head of ultra high net worth, South Asia, at UBS Wealth Management in Singapore. He said that he was seeing interest from Asian clients in commercial properties in London and Australia, as well as in distressed commercial properties in Europe and the United States.

Su Shan Tan, the group head of wealth management at DBS, agreed. “Traditionally, ultrahigh-net-worth individuals” — defined as those with $50 million in investable assets — “have always invested in commercial properties to some extent, be it office, retail or hospitality, often depending on which business sector they have an operating business” in, she said. “But the recent trend has been primarily driven by loose monetary policies globally, as you have very cheap money available everywhere, and by central bankers, all trying to talk down their own currencies.”

Ms. Tan noted that there had been particular interest from Asian buyers in the British commercial property market, based on the significant depreciation of the pound against many Asian currencies in recent years: The pound has fallen about 6 percent against the Singapore dollar in the past two years and 20 percent against the renminbi.

Other factors, she said, are that British common law is familiar, especially to clients in Singapore and Hong Kong, both former colonies, and many Asian clients already own residential properties in Britain and thus understand the property market there.

She said there had also been some investment flows into the property market in the United States, but mainly through mortgage-backed securities, rather than through the purchase of the physical assets, though the bank has had clients who have invested directly in New York, San Francisco and Boston.

Other wealth managers confirmed that they too were seeing an upward trend in investment in commercial property.

According to Megan Walters, the head of research for Asian Pacific markets at Jones Lang LaSalle, global direct commercial investment rose 24 percent year-on-year in 2012 to total about $440 billion, and the company is forecasting that it could reach $450 billion to $500 billion this year.

“The relatively robust end to the year demonstrates that real estate markets are well through the recovery phase of the cycle,” Ms. Walters said. “We anticipate that 2013 will record a similar performance.”

Wealthy individuals “like buying in cities they know well, which means either home locations, or cities with family links, often where family members have been to school or university,” she said. “They particularly like London, as a global city with ease of entry for foreign capital.”

London topped the list of commercial real estate by transaction volumes last year, with $56.1 billion, Ms. Walters said, citing figures compiled by her company. “About 63 percent of the buyers were from overseas,” she said.

She said major markets would continue to do well as investors remained attracted to real estate for its yields, currently higher than can be achieved in many other asset classes.

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Car Sales Keep Up Their Streak

DETROIT – Automakers reported that March sales of new cars and trucks were the highest monthly total in five years, providing more evidence of a sustained turnaround in the industry.

An estimated 1.5 million vehicles were sold during the month, about a 4 percent improvement over last year, as a strengthening housing market and low interest rates spurred consumers and businesses to replace aging models.

It was the best monthly performance since 2007, executive and analysts said, and reinforced their sales forecasts for the full year at more than 15 million vehicles.

“Even though consumer confidence has been up and down this year, there are ‘wealth effects’ that are making Americans feel comfortable finally buying new cars they’ve been waiting for,” said Lacey Plache, an economist for the auto-research site

General Motors, the largest American automaker, said it sold 245,000 new vehicles during March, a 6.4-percent increase over the same period last year.

While sales of its biggest brand, Chevrolet, were flat, G.M. said its Cadillac brand increased by almost 50 percent and Buick sales rose 37 percent.

G.M. benefited from the steadily growing demand from the construction industry for new pickup trucks. Sales of the Chevrolet Silverado increased 8 percent, and the company expects even better results when it begins delivering a newer model truck to showrooms over the next few months.

“Trucks have improved in lockstep with the housing market,” said Kurt McNeil, head of the company’s United States sales operations.

The Ford Motor Company said it sold 236,000 new vehicles during the month, which was a 5.7-percent improvement over a year go and the company’s best monthly performance since May 2007.

The results were driven by the heart of the Ford lineup. Sales of the midsize Fusion sedan topped 30,000 for the first time, and demand for the Escape SUV was up 27 percent.

Ford also posted a 16-percent gain in sales of its F-series pickup, the best-selling vehicle in America. “Full-size pickup demand continues to gaining momentum, outperforming the industry for the third consecutive month,” said Ken Czubay, Ford’s United States marketing and sales chief.

Chrysler sold 171,000 vehicles in March. Its 5-percent improvement over a year ago was smaller than in some recent months, and underscored the company’s need to keep refreshing its showrooms with new models.

The company said sales of its Ram pickup truck increased 25 percent over the previous year, and the new Dodge Dart compact car had its best month since being introduced last summer.

Chrysler is in the midst of revamping its cornerstone Jeep brand with a new version of the Cherokee SUV and other models. Analysts said broadening the Jeep lineup is crucial to Chrysler’s chances of returning to the double-digit monthly growth it had in 2012.

“Chrysler’s March sales story is one of old and new,” said Michelle Krebs, an analyst with “Jeep desperately needs the Cherokee to get back into positive territory.”

Japanese auto companies are expected to report increases in March as well. Both Toyota and Honda are back at full strength from lingering inventory problems caused by the Japanese earthquake and tsunami, and are aggressively updating their showrooms with new products.

All the automakers are advertising heavily to bolster spring sales. One of the busiest has been Volkswagen, the German automaker that is rapidly expanding its American operations.

Volkswagen said it sold 37,000 vehicles during the month, a 3.1-percent increase from a year ago. The company said it was its best March since 1973, when it was one of the only import brands available in the United States.

This article has been revised to reflect the following correction:

Correction: April 2, 2013

A previous version of this article misspelled the surname of G.M.’s United States sales chief. He is Alan Batey, not Batley.

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Qualified Private Activity Bonds Come Under New Scrutiny

But this valuable perk — the ability to finance a variety of business projects cheaply with bonds that are exempt from federal taxes — has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise.

A winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky, as well as the Barclays Center in Brooklyn and the offices of both the Goldman Sachs Group and Bank of America Tower in New York — all of these projects, and many more, have been built using the tax-exempt bonds that are more conventionally used by cities and states to pay for roads, bridges and schools.

In all, more than $65 billion of these bonds have been issued by state and local governments on behalf of corporations since 2003, according to an analysis of Bloomberg bond data by The New York Times. During that period, the single biggest beneficiary of such securities was the Chevron Corporation, which last year reported a profit of $26 billion.

At a time when Washington is rent by the politics of taxes and deficits, select companies are enjoying a tax break normally reserved for public works. This style of financing, called “qualified private activity bonds,” saves businesses money, because they can borrow at relatively low interest rates. But those savings come at the expense of American taxpayers, because the interest paid to bondholders is exempt from taxes. What is more, the projects are often structured so companies can avoid paying state sales taxes on new equipment and, at times, avoid local property taxes.

Budget analysts say these bonds amount to a government subsidy, in the form of forgone tax revenue. While it is difficult to calculate the precise dollar amount of the subsidy, given the number and variety of these bonds, experts say the annual cost to federal taxpayers could run into the billions.

“The federal government doesn’t cut a check for this, but it costs the government in terms of lower tax revenue,” said Lisa Washburn, a managing director at Municipal Market Advisors, an independent municipal research firm in Concord, Mass., that assisted The Times with its analysis. “If these companies were to issue taxable bonds instead, then the federal government would receive tax revenues on them.”

Ms. Washburn added that the gain to companies, and bond buyers, can be big and long-lasting.

Chevron used most of its federally tax-free borrowings to expand a refinery in Pascagoula, Miss. Archer Daniels Midland, the agribusiness giant, used about $180 million in tax-exempt bonds to improve its grain-processing facilities in Indiana and Iowa. Alcoa raised $250 million to renovate an aluminum plant in Iowa.

Such financing arrangements are now worrying some state and local officials. Many are concerned that the budget battles in Washington will mean less federal money for them, and that the federal government might try to limit the scope of their own tax-free financing.

Some of the subsidized business projects are almost indistinguishable from public works. American Airlines, for instance, another big user of tax-exempt bonds over the last decade, used $1.3 billion of these securities to finance a new terminal at Kennedy International Airport. That terminal is owned by the City of New York; American is the builder, the borrower and a tenant.

As political controversy over the federal deficit has mounted, some fiscal experts have taken aim at this sort of tax-exempt borrowing. The team at the Bipartisan Policy Center led by Alice M. Rivlin, a former member of the Federal Reserve, and Pete V. Domenici, the former Republican senator, has called for ending it. A spokeswoman for the center said that such a change could bring in $50 billion for the federal government over 10 years.

The Obama administration would take a different approach, capping the value of the tax break that wealthy bond buyers enjoy, whether they buy private activity bonds or conventional municipal bonds. Some of the bonds in The Times’s analysis are subject to the alternative minimum tax, but taxpayers who incur the A.M.T. typically don’t buy those bonds.

It was Ms. Rivlin who, as founding director of the Congressional Budget Office, issued one of the first major reports on private activity bonds, which the report said were invented by local officials in Mississippi eager to attract business during the Great Depression. In a 1981 report, Ms. Rivlin found that the bonds were in much wider use than previously understood. Companies were using the federal subsidy to build Kmarts, McDonald’s restaurants, private golf courses and tennis clubs — even a topless bar and an adult bookstore in Philadelphia.

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Hong Kong Takes Steps to Avert Real Estate Bubble

HONG KONG — Hong Kong is raising stamp duties and trying to restrict home loans, officials said Friday, to cool down a real estate market that has some of the most expensive apartments in the world.

Financial Secretary John Tsang said “exuberance has regained momentum” in the Hong Kong market, and for this reason stamp duties for apartments would be increased across the board for most buyers.

Mr. Tsang said the measures were needed to keep the potential economic risk from spreading. “The risk of an asset bubble is increasing,” he said. “If we allow the bubble to grow, in the end it will affect the macroeconomy and also the stability of the financial system. It will be very damaging to society.”

For apartments costing less than 2 million Hong Kong dollars, or $258,000, the stamp duty of 100 dollars will now be 1.5 percent of the transaction price, while the stamp duty for other properties will be doubled to as much as 8.5 percent of the residential transaction price.

The increased stamp duties will not apply to Hong Kong residents buying residential property for the first time, and other limited exemptions are possible.

The government also said it would standardize the stamp duty program for nonresidential real estate like shops, factories, offices and parking spaces to avoid a flood of speculative money into these other categories.

The city’s low interest rates, tight housing supply and abundant liquidity contributed to a 2 percent increase in real estate prices in January, Mr. Tsang said. Residential property prices have risen 120 percent since 2008.

Meanwhile, the Hong Kong Monetary Authority, the city’s de facto central bank, issued mandatory guidelines to banks to tighten home loan approval criteria for all commercial and industrial real estate, including maximum loan-to-value ratios of mortgage loans. These ratios would be lowered 10 percentage points from existing applicable levels.

Some analysts expected the latest measures to help slow the rise in real estate prices, for now.

“There will be a big impact in the short term, the transactions will decrease, as well as speculation,” said Thomas Lam, director of research at Knight Frank. But the government “will do more if the property price continues to increase after three months.”

The government has been taking steps to cool the market since October 2009, including a 15 percent property tax for foreign buyers, mortgage restrictions and taxes on quick resales.

Also Friday, the Chinese National Bureau of Statistics released data indicating that new-home prices on the mainland rose an average of 0.8 percent in January from a year earlier, raising the possibly that Beijing might stiffen a three-year campaign to calm the market.

Compared with December, home prices in 70 major Chinese cities rose an average of 0.7 percent in January, after a 0.4 percent rise in December from the previous month, according to Reuters calculations.

On Wednesday, the Chinese cabinet repeated its intention to extend a pilot property-tax program to more cities and urged the local authorities again to put price-control targets on new homes, in a bid to calm real estate markets.

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