Daily Archives: April 26, 2010

Simone Baribeau

The FT has just reported that “Republicans want checks on a proposed consumer financial protection bureau and the crisis powers of regulators as the price for supporting a landmark regulation effort.” Republicans criticise the proposed bureau, which would be housed in the Federal Reserve, for having too much independence.

Democrats have championed the consumer protection bureau in the strongest possible terms. Barack Obama told banks last week, “Unless your business model depends on bilking people, there is little to fear.” And Elizabeth Warren, chairman of the Congressional oversight panel told the Huffington Post last month: “My first choice is a strong consumer agency…My second choice is no agency at all and plenty of blood and teeth left on the floor.” 

Simone Baribeau

Who’s afraid of depressing asset prices by raising overnight rates?

Alan Greenspan has repeatedly said that raising overnight rates wouldn’t have been effective in mitigating the housing bubble. But it turns out that at least one member of the FOMC worried in a 2003 meeting that that was exactly what would happen should the Fed raise rates too quickly. 

UK politicians looking to slash public spending or increase taxes should reduce losses from fraud in the public sector instead, estimated at a whopping £38bn. So says a report by accounting firm MacIntyre Hudson LLP, in conjunction with the Centre for Counter Fraud Studies at Portsmouth University.

Fraud* – “where someone intentionally or recklessly obtains resources to which they are not entitled” – is grossly underestimated in the UK, argues the report. Of 132 investigations into fraud in the public sector in the past decade, the average loss rate was found to be 4.57 per cent of total spend. The UK Treasury, by contrast, reports just £4.2m fraud, or 0.026 per cent, though this is qualified with the admission that “the analysis does not necessarily offer a complete picture”. 

Growing evidence suggests a stronger yuan would not help the US economy nearly as much as thought, if at all. Even increased Chinese consumption is shown not to help much. So why do these assumptions continue to underpin politicians’ rhetoric?

First, the evidence:

  1. Yuan revaluation could cut global growth by 1.5 per cent (April 26)
  2. Chinese saving less and spending more would have very little impact on US jobs (April 25)
  3. A 15 per cent appreciation of the RMB would reduce the American trade deficit by 5 per cent by the end of next year, but would be short-lived and would not flow through to GDP (April 16);
  4. “Chinese revaluation is in the interests of China, not the US” (April 16)
  5. “People seem to ascribe a ridiculously outsized role to China’s currency policy in producing China’s trade surplus and America’s trade deficit. The level of rhetoric is simply not consistent with the impact of the peg.” (March 15)

Even large changes in Chinese currency or consumption have little effect on the other side of the Pacific: US-China trade is simply too small to transmit much of the effect, so the arguments run.

So, second, why the continued assumption 

Ralph Atkins

It is time for tin hats and duct tape in the eurozone. Confidence in the ability of political leaders to fix Greece is evaporating rapidly. Germany’s dithering has hit Greek bonds, and worries are spreading about other countries on Europe’s periphery, such as Portugal.

The chance has been missed for a swift, decisive response that would have ended all the alarm – Greece’s problems were pretty clear late last year, and four months on, the negotiations are still continuing. So, a note today from Royal Bank of Scotland on “last resort” options to end the crisis, fits the fatalistic mood. 

Matthew Elderfield, head of financial regulation at the Irish central bank, will today announce a ban on chief executives becoming chairmen, limits to the number of outside directorships bankers can hold, and new standards for non executive independent members of boards. “So much of what has happened flowed from poor corporate governance and risk management that it is important to get rigorous standards in place,” he told the FT in an interview.

Alan Beattie

It’s often the fate of the World Bank to be overshadowed at the spring meetings, since its sibling, the IMF, is generally in the thick of a faster-moving story (Greece, currencies, bank taxes, etc).

But in a weekend when the IMF basically avoided discussing all the big questions, the bank actually made some real concrete progress: it secured the $5.1bn capital increase that its president Robert Zoellick has been seeking for the best part of a year. So, like the IMF with its tripled firepower, the bank is having a shot at keeping up with the growth in the global economy.