A long wrapup today, making up for yesterday’s blackout in support of the SOPA/PIPA protest. You know, about the final corporate push to own even the ideas inside our heads.
We’ll begin with a piece of very revealing news from Washington, then look at a pair of gloomy predictions, discover the latest antics of those hedge fund players, criminal and otherwise, look at some of the latest bad news from Europe, then come home for the latest economic grimness from the U.S.
Obama does it again: Summers time at the World Bank?
If you had to pick one single individual as a symbol of everything that’s wrong with the interface of politics and finance in the United States, you couldn’t go wrong if you named Larry Summers, the man who played the pivotal role in deregulating American banks.
Oh, and he’s a rampant sexist, too.
And now Barack Obama may be picking him to run the World Bank.
But then we remember that Barry O got more Wall Street money for his 2008 campaign than any previous candidate in the nation’s history. No small Change™ for him!
From Hans Nichols of Bloomberg:
President Barack Obama is considering nominating Lawrence Summers, his former National Economic Council director, to lead the World Bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter.
Summers has expressed interest in the job to White House officials and has backers inside the administration, including Treasury Secretary Timothy Geithner and current NEC Director Gene Sperling, said one of the people. Secretary of State Hillary Clinton is also being considered, along with other candidates, said the other person. Both spoke on condition of anonymity to discuss internal White House deliberations.
Lael Brainard, the Treasury undersecretary for international affairs, is compiling a list of potential candidates to replace Zoellick, who was nominated to a five-year term that began in July 2007 by then-President George W. Bush. By tradition, the U.S. president chooses the leader of the World Bank while the head of the International Monetary Fund is selected by European leaders. The nomination is subject to approval by the World Bank’s executive board.
He was Clinton’s Treasury secretary from 1999 to 2001, after which he became Harvard president. Summers quit that post in 2006 after a series of battles with the Faculty of Arts and Sciences, which teaches most of the undergraduate courses, and following a controversy over comments he made at a conference, in which he suggested women lacked an aptitude for science.
During the Clinton era, Summers argued for the deregulation of the financial industry and clashed with Brooksley Born, then head of the U.S. Commodity Futures Trading Commission, over the regulation of the over-the-counter derivatives market. Those positions, along with his speaking engagements at banks and work at a hedge fund, have made him unpopular with some Democrats.
Austerity: The wrong thing for the wrong reason
More on Nobel laureate economist Joseph Stiglitz’s blistering condemnation of the global fad for “austerity” as the final solution for the economic problem.
From Malcolm Moore of the London Telegraph:
Imposing austerity measures as countries slow towards recession is a fundamentally flawed response, said Mr Stiglitz, who won the Nobel prize in 2001 for his work on how markets work inefficiently.
“The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity,” said Mr Stiglitz to the Asian Financial Forum, a gathering of over 2,000 finance professionals, businessmen and government officials in Hong Kong.
“It reminds me of medieval medicine,” he said. “It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours.
“And very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact,” he said.
World Bank slashes 2012 growth prediction
And that’s even before Larry Summers or his ilk takes the helm.
The World Bank Wednesday slashed its 2012 growth forecasts for both emerging and developing economies from its estimates of only six months ago, and warned the world is on the cusp of a new global recession that could be as bad as the crisis four years ago.
It warned that an escalation in Europe’s sovereign debt crisis, a new oil shock, or a “hard landing” in one of the larger developing economies could trigger a global economic downturn. The bank added that the risks of those events makes even the bank’s lowered growth forecasts “very uncertain.”
A meltdown in financial markets triggered by the sovereign debt problems in Europe poses the greatest immediate risk, according to the report.
“An escalation of the crisis would spare no one,” said Andrew Burns, manager of global macroeconomics and lead author of the report. “Developed and developing country growth rates could fall by as much or more than in 2008 and 2009.”
Hedge funds: We have human rights too! So fuck Greece!
We don’t usually use the F-word in print [as opposed to conversation], but we couldn’t find any better term to characterize their astonishing hubris as revealed in a New York Times story by Landon Thomas Jr.:
Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.
The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.
The tactic has emerged in conversations with lawyers and hedge funds as it became clear that Greece was considering passing legislation to force all private bondholders to take losses, while exempting the European Central Bank, which is the largest institutional holder of Greek bonds with 50 billion euros or so.
Legal experts suggest that the investors may have a case because if Greece changes the terms of its bonds so that investors receive less than they are owed, that could be viewed as a property rights violation — and in Europe, property rights are human rights.
The bond restructuring is a critical element for Greece to receive its latest bailout from the international community. As part of that 130 billion euro ($165.5 billion) rescue, Greece is looking to cut its debt by 100 billion euros through 2014 by forcing its bankers to accept a 50 percent loss on new bonds that they receive in a debt exchange.
So Citizens United v. Federal Election Commission was a mere bagatelle compared to this, the claim that hedge funds have human rights, not just civil rights.
Hedge funders busted for insider trading
And we’re shocked. Shocked!
From the Associated Press:
A hedge fund co-founder, a hedge fund portfolio manager, four financial analysts and a Dell Inc. employee teamed up in a record-setting insider trading scheme that netted more than $61.8 million in illegal profits based on trades of a single stock, authorities said Wednesday as they described a cozy network of friends in finance who made the most of their connections with corrupt employees of technology companies.
The scheme was outlined in a criminal complaint in U.S. District Court in Manhattan that charged four of the men with conspiracy to commit securities fraud and securities fraud, among other charges. Three analysts have already pleaded guilty and are cooperating with the government, according to the court papers.
The insider trading plot as authorities portrayed it was noteworthy for its size. Last month, hedge fund founder Raj Rajaratnam began serving an 11-year prison term — the longest ever given in an insider trading case — for a scheme that prosecutors said produced as much as $75 million in profits on dozens of trades over a multi-year period. That prosecution resulted in more than two dozen convictions and led to a spinoff probe that produced even more arrests.
In the new case, prosecutors again are highlighting its size, saying the co-conspirators netted more than $61.8 million in illegal profits based on trades of a single stock from 2008 through 2009.
Anthony Chiasson, a co-founder at former hedge fund group Level Global Investors LP, was among three men arrested early Wednesday. He surrendered to the FBI.
In court papers, he was credited with a starring role in the securities fraud.
Maybe they can claim they were just exercising their human rights. . .
Europe may create its own ratings outfit
Given the curiously mixed ratings given different European government bonds by the U.S.-based ratings agencies and their sometimes disastrous effects on bond ratings, it’s no surprise to hear that the European Central Bank seems to be helping to launch a new ratings agency based much closer to home.
“European rating agency moves forward this year,” reports Diário de Notícias. The Lisbon daily reveals that Roland Berger Strategy Consultants – the largest European company in strategic consulting – is holding talks with several EU, as well as Swiss, financial institutions to try to raise approximately 300 million euros to create a European rating agency.
The aim is to create “private, non-profit organization”, which could be launched in the first quarter of this year, the Lisbon daily writes. A European rating agency “promises greater transparency” to be able to compete with the three major U.S. agencies, Standard & Poor’s, Moody’s and Fitch.
According to Roland Berger, the purpose of creating a European rating agency – something that several European leaders, like German chancellor Angela Merkel or EU commission president José Manuel Barroso have argued for – will -
… overcome the major problems of rating agencies, especially their monopolistic structure, and conflicts of interest that exist in the system’s current structure. (…) It will operate with an efficient cost model developed and approved by the banking sector. The model is based on Basel II – analysis of infrastructure and credit. At the same time, the whole rating process will be changed to ensure greater transparency. An online platform will be created in which all agencies can publish their evaluations. Investors must commit themselves to publish their own rankings or ratings or to opt for the rating agency of their choice.
London hopes to make a pound or two off Asian currencies
With the euro and pound both weaker, Asia’s currencies are looking much more attractive to investors and money players, and The City [as London’s financial center is known] hopes to profit on the Asian money bulls.
It’s a lot easier now that China has finally allowed the renminbi outside the Great Wall.
From Julia Werdigier blogging at the New York Times DealB%k:
Britain plans to turn London into a major foreign exchange trading center for the Chinese renminbi to benefit from faster growth in Asia while strengthening the city’s position as a financial center in the wake of the banking crisis.
George Osborne, the chancellor of the Exchequer, said during a visit to Hong Kong on Monday that he was working with Chinese and British banks to establish London as a new hub for the renminbi market.
“London is perfectly placed to act as a gateway for Asian banking and investment in Europe, and a bridge to the United States,” Mr. Osborne said in a speech to the Asian Financial Forum in Hong Kong. “This is not just an accident of time zone, or our language, although both are important. It reflects London’s strength in product development, its regulatory structure, and the depth, breadth and international reach of its financial markets.”
The pledge comes as Britain is increasingly feeling the effects of an economic slowdown across Europe, and some British banks have threatened to move their headquarters abroad in light of stricter financial regulation.
Goldman Sachs to pay out $12.2 billion+ to its banksters
Put this one in the “Holy Crap, Batman!” file.
From Jill Treanor of The Guardian:
Goldman Sachs set aside $12.2bn (£8bn) to pay its staff in 2011 – an average of $367,000 each – sparking criticism that the Wall Street firm was living in a “parallel universe”.
The size of the payouts sparked a backlash from unions, who regard them as evidence that David Cameron’s government should take steps to ensure top pay is better linked to performance. Campaigners for a “Robin Hood tax” on transactions said it backed their case for new levies on banks.
“When even in a bad year each Goldman employee pockets an average of $367,000 – nearly ten times the average UK salary – it’s proof that banks live in a parallel universe to the rest of us,” a spokesman for the Robin Hood Tax campaign, said.
Goldman used a greater proportion of its revenue (42%) to pay its 33,000 staff in 2011 compared with 39% a year ago. The firm axed 7% – 2,400 – of its staff during the year and those who remain will begin to learn the size of their annual bonuses in the coming days.
David Viniar, Goldman’s finance director, insisted that “discretionary” bonuses were down “considerably more than revenues” during the year and said the firm had embarked on a strategy to cut $1.4bn of costs.
BofA records a fourth quarter profit
The bank that began in San Francisco as the Bank of Italy of California started out under founder A.P. Giannini [a name that’s in WordPerfect’s spellchecker] making small loans to Italian immigrants, then grew into a global behemoth and equal opportunity predator.
After losing heavily in the global financial crash, it’s back in the black, along with Morgan Stanley, as the BBC reports:
Bank of America has reported a $2bn (£1.2bn) profit for the three months to the end of 2011, compared with a $1.2bn loss in the same period in 2010.
It signals continued recovery for the US’ second biggest lender.
For the full year, the company reported net profits of $1.4bn compared with a net loss of $2.2bn in 2010.
Meanwhile Morgan Stanley, the world’s largest broker, reported a fourth-quarter loss of $250m compared with a profit of $836m a year earlier.
Despite the loss, the results at Morgan Stanley beat analysts’ expectations since it was able to increase its share of the equity trading market in the period.
For the full year, Morgan Stanley said its net revenues were $32.4bn compared with $31.4bn in 2010.
World Bank warns Turkey of European crash fallout
After announcing that Europe’s already is a second post-crash recession [it’s really a depression — esnl], the World Bank is warning the continent’s trading partners that what’s bad news for the European Union is also bad news for them.
From Istanbul’s Hürriyet Daily News:
The World Bank warned developing countries, including Turkey, to prepare for the “real” risk that an escalation in the euro area debt crisis could tip the world into more turmoil.
In the report released yesterday, the Washington-based World Bank sharply cut its world economic growth forecasts, Reuters reported, adding that Europe was probably already in recession. Global economic growth is now forecast to be at 2.5 percent this year and 3.1 percent in 2013, well below the 3.6 percent growth for each year projected in June.
The report included particularly worrying information for Turkey, whose large current account deficit and relatively high external debt poses a threat as the Turkish Lira remains under pressure. The World Bank cut its gross domestic product (GDP) growth forecast for Turkey to 2.9 percent this year, from a June 2011 estimate of 5.1 percent. The forecast for 2013 GDP growth was revised down to 4.2 percent, from 5.3 percent.
“Risks are particularly acute for countries like Turkey that combine large current account deficits, high short-term debt ratios and low reserves,” the World Bank said. “Indeed, Turkey‘s current account gap in 2011 is estimated to be six times larger than its net foreign direct investment [FDI] flows in 2011, and its short-term debt represents 80 percent of its reserves.” The report noted that these foreign exchange reserves have been falling in recent months.
Violence erupts in Romanian anti-austerity protest
First, some raw footage from RT:
And the story, from Presseurop:
Sixty injured and many shops ransacked are the result of a demonstration held in Bucharest on January 15 to demand the resignation of Romanian President Traian Ba(sescu, seen as responsible for the decline in the country’s standard of living. The demonstration deteriorated when demonstrators were joined by extremist supporters of the capital’s football clubs – mainly Steaua and Dinamo. For Romanian daily Adeva(rul, these events are the work of what, on the front page, it calls “Opportunists!” described as “the politicians [of the left opposition] and the delinquents” guilty of having “speculated on the original goal of the revolt.”
Romanians’ discontent has focused around the plan to privatise several social services including the SMURD, the emergency ambulance service. The proposal was withdrawn the following day, but the well-publicised resignation of SMURD head, Raed Arafat, revived the controversy.
NPR, the voice of the one percent?
Far-fetched, you say?
Well, consider this offering from Dean Baker, co-director of the Center for Economic and Policy Research, writing at Beat the Press:
Morning Edition did a segment [Wednesday] morning (sorry no link yet) on the 35 hour work week in France. To show how bad the 35 hour work week is, the segment told listeners that hospital workers had accumulated 2 million days worth of overtime, which they will have to take as days off by the end of 2012. It warned that this would force hospitals to shut down for months at a time.
Most listeners would have little ability to assess the risk from taking this many days of leave since they probably don’t have much idea of how big France’s hospital sector is. In the United States the hospital sector employs 4.8 million workers. If the sector in France is proportional to the size of its employed workforce, then France has approximately 1.2 million workers in the hospital sector. This means that if everyone uses their days off (workers in the U.S. often lose days of paid leave), they will have to take an average of 1.7 extra days off in 2012. Is that scary or what?
The piece also included the completely unsourced assertion that few people believe that the 35 hour work week has led to increased employment by dividing up jobs.
Now for some truly troubling news from home
The old rule that used to be dinned into people’s heads as simple: Only use the interest, never touch your capital.
But Americans are digging deep into their capital, looting retirement funds and savings just to eke by, a real danger signal in the event the economic crisis deepens, something we consider a certainty.
From Jilian Mincer and Jonathan Spicer of Reuters:
More than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery.
In an ominous sign for America’s economic growth prospects, workers are paring back contributions to college funds and growing numbers are borrowing from their retirement accounts.
Some policymakers worry that a recent spike in credit card usage could mean that people, many of whom are struggling on incomes that have lagged inflation, are taking out new debt just to meet the costs of day-to-day living.
American households “have been spending recently in a way that did not seem in line with income growth. So somehow they’ve been doing that through perhaps additional credit card usage,” Chicago Federal Reserve President Charles Evans said on Friday.
“If they saw future income and employment increasing strongly then that would be reasonable. But I don’t see that. So I’ve been puzzled by this,” he said.
After a few years of relative frugality, the amount of money that Americans are saving has fallen back to its lowest level since December 2007 when the recession began. The personal saving rate dipped in November to 3.5 percent, down from 5.1 percent a year earlier, according to the U.S. Commerce Department.
Kodak finally files for bankruptcy
Not the terminator sort, but the kind that will force creditors to take a haircut as the business transforms to an all-digital model.
From Michael J. de la Merced of the New York Times:
Eastman Kodak said early Thursday that it filed for bankruptcy protection, as the 131-year-old film pioneer struggled to adapt to an increasingly digital world.
As part of its filing, made in the federal bankruptcy court in the Southern District of New York, Kodak will seek to continue selling a portfolio of 1,100 digital imaging patents to raise cash for its loss-making operations. The company plans to continue operating normally as it reorganizes under Chapter 11 protection.
“Kodak is taking a significant step toward enabling our enterprise to complete its transformation,” said Antonio M. Perez, the company’s chief executive, said in a news release. “At the same time as we have created our digital business, we have also already effectively exited certain traditional operations, closing 13 manufacturing plants and 130 processing labs, and reducing our workforce by 47,000 since 2003. Now we must complete the transformation by further addressing our cost structure and effectively monetizing non-core I.P. assets.”
The company said it obtained $950 million debtor-in-possession from Citigroup to provide it liquidity to operate during bankruptcy. Kodak said that its non-American subsidiaries are not part of the filing.