Global economy at turning point

The New Age

The global economy, hit by the worst slump in decades, is now at a turning point, with recovery apparent in some cases and the downturn slowing in others, top central bankers said on Monday.
‘We are, as far as growth is concerned, around the inflection point in the (economic) cycle,’ European Central Bank head Jean-Claude Trichet said, speaking as the spokesman of the Group of 10 central banks.
‘In all cases, we see a slowing down of the decrease of GDP that has been observed in the last quarter of last year and the first quarter of this year,’ he said after a regular G10 meeting.
‘In certain cases you see already a picking up, in other cases you see it continuing to fall but at a lower pace.’
In particular, Trichet said ‘a number of emerging economies seem to be beyond the inflection point.’
Separately, ECB governing council member Miguel Angel Fernandez Ordonez said that the worst may be over for the 16-nation eurozone.
‘There are signs that the worst (of the economic slump) was in the first quarter,’ he told reporters on the sidelines of the central bankers meeting.
At their March meeting, the G10 central bankers felt the global economy was ‘approaching’ a pick-up point.
The G10 groups 11 countries — but still retains its original name — Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States, who consult and cooperate on economic, monetary and financial matters.
Trichet also warned on Monday that the world had to remain vigilant as the process was ‘ongoing.’
‘We have to remain alert, we are in uncharted waters, even if we are at the inflection point and even beyond in certain economies,’ he said.

Bail-out 'risk' for US taxpayers

BBC NEWS

A watchdog for the US's $700bn (£481bn) bail-out plan for banks, said some aspects could be "unfair" to taxpayers. Neil Barofksy, the special inspector general for the Troubled Asset Relief Program (Tarp), has delivered a 250-page report to Congress on the plan. Part of Tarp is a "Public-Private Investment Programme" to buy troubled mortgages and securities that have been at the root of the credit crunch.

But Mr Barofsky said taxpayer risk was many times that of the private parties. He also warned that the initiative, which includes giving private parties government subsidies to buy the troubled assets, could lead to more scope for fraud. The public-private partnerships - comprising Treasury, Federal Reserve and private investor money - could total $2 trillion.

'Right balance'

Separately on Tuesday, the Treasury Department said it had sufficient funds left in the $700bn fund, with $109.6bn still remaining. Officials predict the fund will increase by a further $25bn as some recipients of the aid pay back what they have been lent. This would boost what remains of the fund to $134.6bn. Treasury Secretary Timothy Geithner told the Congressional Oversight Panel that he could not comment on the plight of individual banks. But he said that the Tarp struck "the right balance" of letting taxpayers share the risk with the private sector, while private industry use competition to set market prices for the assets.

"If the government alone purchased these legacy assets from banks, it would assume the entire share of the losses and risk overpaying," Mr Geithner said. "If we simply hoped that banks would work off these assets over time, we would be prolonging the economic crisis, which in turn would cost more to the taxpayer over time." Difficulty in putting a value on banks' toxic assets was continuing to hinder their ability to lend and borrow, he added. Those bad debts were "congesting" the US financial system, stopping credit from flowing normally again.

'Taxpayer risk'

To encourage private investors to take part in the scheme, low-interest loans and guarantees will be offered to private investors via the Federal Reserve and the Federal Deposit Insurance Corp - a government agency that backs bank deposits. This means that the private investors, which the US hopes will include private equity, individual investors, pension plans and insurance companies, will shoulder relatively little risk, with 93% borne by the government. But Mr Barofsky has issued a warning about the disproportionate risk carried by the government and US taxpayers in comparison to the private partners.

"The sheer size of the programme... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives," his report stated. The Treasury has committed $75bn to $100bn of Tarp money to the public-private programme and said the private sector would also contribute.

'Extraordinary effort'

Treasury officials insist the programme is the best response to the troubled loans and securities clogging the system. Mr Barofsky recommends that the Treasury should establish conflict of interest rules on public-private fund managers to prevent investment decisions that benefit them at the expense of the taxpayer. He says the Treasury should also disclose the owners of all private equity stakes in a public-private fund. His report also notes that the Treasury Department has refused to adopt the inspector general's recommendation that all recipients of Tarp money account for the use of government money received. "In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilise the financial system, it is not unreasonable that the public be told how those funds have been used by Tarp recipients," the report stated.

New buys boost Bank of America

BBC News

Bank of America saw net income soar to $4.2bn (£2.9bn) in the first three months of 2009 from $1.2bn a year earlier, beating analysts expectations. But its results were inflated by its purchases of Merrill Lynch, which added $3.7bn in net income, and Countrywide, which boosted its mortgage arm. And the biggest US bank also had to set aside $13.38bn to cover credit losses, up from the fourth quarter's $8.54bn. Its shares fell 12.5% to $9.28 in the first hour of Wall Street trading.

Analysts said the fall followed investors looking beyond the bank's profit to the continuing concerns about the impact of the financial crisis on the banking system. 'Healthy number' Bank of America has received $45bn in government funds as part of the Treasury Department's $700bn financial rescue package. "We understand that we continue to face extremely difficult challenges," said Bank of America's chief executive Ken Lewis.

Mr Lewis has been under intense pressure over the purchase of Merrill - which was approved before shareholders learned of huge losses at the investment bank, and before billions of dollars worth of bonuses were paid to Merrill employees. Bank of America also said that Countrywide and Merrill had contributed "outstanding performances". Analyst Michael Holland of Holland and Company in New York said the headline figure was "a really really healthy number given where expectations were just a few months ago".

Improving reports

The results beat analysts' forecasts and add to signs that the banking sector might be improving. Last week rival Citigroup reported its first quarterly net profit in nearly two years. Citi's results came soon after positive earnings reports from Wells Fargo, Goldman Sachs and JP Morgan.

In January Bank of America was granted $20bn in fresh US government aid and $118bn worth of guarantees against bad assets. It has also benefitted from selling shares it held in China Construction Bank.

Obama says he'll cut wasteful programs

CNN News : Obama says he'll cut wasteful programs
In weekly radio address, president promises to eliminate dozens of programs and trim fat from government spending.

WASHINGTON (Reuters) -- President Barack Obama said Saturday he would soon announce the elimination of dozens of wasteful or ineffective government programs as part of a broad effort to restore fiscal accountability to the federal budget.

Obama, speaking in his weekly radio address, said he would use his first full Cabinet meeting Monday to ask department and agency heads for specific proposals for trimming their budgets.

He named two new officials as part of a team of management, technology and budget experts that will drive the process of trimming the fat and waste from government spending.

"As surely as our future depends on building a new energy economy, controlling healthcare costs and ensuring that our kids are once again the best educated in the world, it also depends on restoring a sense of responsibility and accountability to our federal budget," Obama said.

"Without significant change to steer away from ever-expanding deficits and debt, we are on an unsustainable course," he added.

The United States posted a record $956.8 billion budget deficit for the first half of fiscal 2009, more than three times the shortfall of a year ago, the Treasury Department reported earlier this month.

Much of the deficit was caused by spending on financial and economic rescue programs aimed at propping up companies whose collapse could worsen the global recession.

Obama said Cabinet officials already had begun cutting back unnecessary expenditures, including a consulting contract to create new seals and logos that cost the Department of Homeland Security $3 million since 2003.

The president also commended Defense Secretary Robert Gates' project to reform defense contracting procedures to eliminate what he said were hundreds of billions of dollars in wasteful spending and cost overruns.

"If we're to going to rebuild our economy on a solid foundation, we need to change the way we do business in Washington," Obama said. "We need to restore the American people's confidence in their government - that it is on their side, spending their money wisely, to meet their families' needs."

He named Jeffrey Zients, a management consultant and entrepreneur, to act as chief performance office with the official title of deputy director for management of the Office of Management and Budget.

Zients is a director of Sirius XM Radio (SIRI) and served as chief executive of The Advisory Board Company.

His job will be to streamline processes, cut costs and find best practices throughout the government, Obama said.

He named Aneesh Chopra, the secretary of technology for the state of Virginia, to be the U.S. chief technology officer charged with promoting technological innovation.