Tuesday, January 27, 2009

Roubini: Nowhere to Hide and Nationalize

Roubini Sees ‘Nowhere to Hide’ From Global Slowdown (Update2) 
Email | Print | A A A

By Betty Liu and Eric Martin

Jan. 27 (Bloomberg) -- Global stock market declines are increasingly correlated and emerging economies will follow developed nations into a “severe recession,” according to New York University Professor Nouriel Roubini.

Roubini said economic growth in China will slow to less than 5 percent and the U.S. will lose 6 million jobs. The American economy will expand 1 percent at most in 2010 as private spending falls and unemployment climbs to at least 9 percent, he added.

“There is nowhere to hide,” Roubini, an economics professor at NYU’s Stern School of Business who predicted the financial crisis, said from Zurich in an interview with Bloomberg Television. “We have for the first time in decades a global synchronized recession. Markets have become perfectly correlated and economies are also becoming perfectly correlated. This is not your kind of traditional minor recession.”

Roubini said the U.S. government should nationalize the biggest banks because losses will exceed assets, threatening to push them into bankruptcy. The banks could be privatized again in two or three years, Roubini said. The professor reiterated his prediction that U.S. financial losses will more than triple to $3.6 trillion and that global equities will fall 20 percent this year from current levels.

‘Zombie Banks’

“Nobody’s in favor of long-term ownership of the U.S. banking system by the government, but if you don’t do it this way, you end up like Japan where you kept alive for a decade zombie banks that were never restructured,” he said. “That’s going to be much worse. It’s better to clean it up, nationalize it and sell it to the private sector.”

Japanese policy makers hesitated in addressing a banking crisis in the 1990s and then struggled to revive growth and fight deflation in what is known as the “Lost Decade.”

Roubini recommended holding cash or short-term government debt and said high-yield bonds are cheap relative to U.S. stocks.

In July 2006, Roubini predicted the financial crisis. In February of last year, he forecast a “catastrophic” meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks with mortgage holdings and a “sharp drop” in equities. Since then, Bear Stearns Cos. was forced into a sale and Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard cash and depriving businesses and households of access to capital.

Deeper Into Recession

The world’s biggest economies are sliding deeper into recession as the fall-out from the global financial crisis hobbles manufacturing output and punctures consumer spending from New York to Beijing. The U.S. economy probably contracted at 5.5 percent pace in the fourth quarter, the fastest in 26 years, a survey of economists showed.

Caterpillar Inc., Sprint Nextel Corp., Home Depot Inc. and ING Groep NV led companies announcing at least 77,000 job cuts yesterday as sales withered while U.S. jobless claims touched a 26-year high of 589,000 in the week ended Jan. 17. President Barack Obama is pushing congress to approve an $825 billion stimulus package to create 3 million to 4 million new jobs.

In China, the urban unemployment rate, which doesn’t include millions of migrant workers, rose for the first time since 2003 in the fourth quarter. The government is targeting a rate of 4.6 percent for the year, which would be the highest since 1980. The slowdown may destabilize the country’s communist government, Albert Edwards, a strategist at Societe Generale in London, said in a Jan. 15 research note.

To contact the reporters on this story: Betty Liu in New York atbliu17@bloomberg.netEric Martin in New York atemartin21@bloomberg.net.

Last Updated: January 27, 2009 14:00 EST

Geithner on Bailout Lobbying: NO

January 28, 2009

Geithner Sets Limits on Lobbying for Bailout Money

WASHINGTON — The Treasury secretary, Timothy F. Geithner, announced on Tuesday that he would crack down on lobbying to influence the $700 billion financial bailout program by the companies that are receiving billions in taxpayer funds.

Mr. Geithner, who was confirmed and sworn in on Monday, said that he would also set new limits intended to prevent political interference with the decisions about which firms receive bailout money.

The announcement followed several reports about efforts by corporate lobbyists and Congressional lawmakers to influence the program, including decisions about which banks should receive taxpayer money.

“American taxpayers deserve to know that their money is spent in the most effective way to stabilize the financial system,” Mr. Geithner said in a statement. “Today’s actions reaffirm our commitment toward that goal.”

The details of the rules — the text has not been completed — were not released. But in a news release, the Treasury Department outlined the Obama administration’s intent to prevent corporate and political lobbying to influence spending of the bailout program.

Among the changes will be rules to “combat lobbyist influence” over the bailout program, including restricting officials from “contacts with lobbyists in connection with applications for, or disbursements of” bailout funds, the department said.

The New York Times reported on Saturday that at least a dozen firms that received billions from the bailout program lobbied the government about the program in the final three months of 2008, according to a review of disclosure forms.

The new rules announced Tuesday will also “ensure that political influence does not interfere” with bailout decisions, “using as a model for these protections the limits on political influence over tax matters,” the Treasury Department said.

A Treasury Department spokeswoman said the tax safeguards that would form the basis of the new bailout policy include a federal statute prohibiting high-ranking executive branch officials from intervening in individual tax disputes, like ordering the Internal Revenue Service to conduct or terminate an audit of a particular taxpayer.

The safeguards include the agency’s refusal “to accept any political interference whatsoever in individual tax matters,” the spokeswoman said.

While such a policy would block high-ranking executive branch officials from steering bailout money to a particular bank, it was not immediately clear whether the rule would also prohibit Treasury officials from talking with lawmakers who are seeking help for banks in their districts.

The Wall Street Journal reported last Thursday that several lawmakers had tried to ensure that bailout funds would go to banks in their districts, although it said there was no way to prove that such efforts were linked to a later decision to give money to a particular bank.

Also on Tuesday, Mr. Geithner said that the Treasury Department’s Office of Financial Stability, in making reports to Congress about how it was disbursing the funds, would certify that each decision was based only on objective “investment criteria and the facts of the case.”

In addition, the department said that it would publish soon a detailed description of its investment review process and that only banks recommended by their primary bank regulator would be eligible for bailout funds.

The announcement on Tuesday represented the latest step by the Obama administration to make the bailout program more open and accountable as it moves to disburse the second $350 billion, following bipartisan criticism over the Bush administration’s handling of the first $350 billion of the bailout program.

The Obama administration has said it will step up monitoring of lending patterns by financial institutions that receive bailout money to make sure the money is being used to ease the credit squeeze. It also said it would seek to limit executive compensation at banks that receive future taxpayer help.

During his Senate confirmation hearings last week, Mr. Geithner said that the bailout program needed “serious reform” and pledged that the Obama administration would impose “tough conditions to protect the taxpayer and the necessary transparency to allow the American people to see how and where their money is being spent and the results those investments are delivering.”

He added: “And we are going to do that. This is an important program and we need to make it work.”

Geithner sworn in as Treasury Secretary

Timothy Geithner takes on the mantle of Treasury Secretary for the Obama Administration

Obama: New Tone with the Islamic World

The New York Times
January 28, 2009

Obama Signals New Tone in Relations With Islamic World

PARIS — In one of his first interviews since taking office, President Barack Obama struck a conciliatory tone toward the Islamic world, saying he wanted to persuade Muslims that “the Americans are not your enemy” and adding that “the moment is ripe for both sides” to negotiate in the Middle East.

His remarks, recorded in Washington on Monday night, signaled a shift — in style and manner at least — from the Bush administration, offering a dialogue with Iran and what he depicted as a new readiness to listen rather than dictate.

Mr. Obama spoke as his special Middle East envoy, George J. Mitchell, arrived in Egypt to begin an eight-day tour that will include Israel, Jordan, Saudi Arabia, France and Britain. Mr. Mitchell planned to meet President Hosni Mubarak.

In a transcript published on Al Arabiya’s English language Web site, Mr. Obama said he believed “the most important thing is for the United States to get engaged right away” and that he had told his envoy to “start by listening, because all too often the United States starts by dictating.”

“Ultimately, we cannot tell either the Israelis or the Palestinians what’s best for them. They’re going to have to make some decisions,” Mr. Obama said. “But I do believe that the moment is ripe for both sides to realize that the path that they are on is not going to result in prosperity and security for their people. And that, instead, it’s time to return to the negotiating table.”

Shortly after the interview was broadcast, an explosion on the Israel-Gaza border on Tuesday killed an Israeli soldier. A Palestinian farmer was shot dead, according to Palestinian witnesses, in retaliatory gunfire. The incidents were the first known fatal incidents since the Gaza fighting ended 10 days ago.

Mr. Obama said Israel “will not stop being a strong ally of the United States and I will continue to believe that Israel’s security is paramount. But I also believe that there are Israelis who recognize that it is important to achieve peace. They will be willing to make sacrifices if the time is appropriate and if there is serious partnership on the other side.”

He also said he believed it was “possible for us to see a Palestinian state — I’m not going to put a time frame on it — that is contiguous, that allows freedom of movement for its people, that allows for trade with other countries, that allows the creation of businesses and commerce so that people have a better life.”

But he also said the Israel-Palestine conflict should not be seen in isolation. “I do think it is impossible for us to think only in terms of the Palestinian-Israeli conflict and not think in terms of what’s happening with Syria or Iran or Lebanon or Afghanistan and Pakistan,” Mr. Obama said.

He spoke at length about America’s future relationship with the Muslim world, saying his “job is to communicate to the American people that the Muslim world is filled with extraordinary people who simply want to live their lives and see their children live better lives.”

“My job to the Muslim world is to communicate that the Americans are not your enemy. We sometimes make mistakes. We have not been perfect. But if you look at the track record, as you say, America was not born as a colonial power, and that the same respect and partnership that America had with the Muslim world as recently as 20 or 30 years ago, there’s no reason why we can’t restore that. And that I think is going to be an important task,” he said.

He drew a distinction between “extremist organizations” committed to violence and “people who may disagree with my administration and certain actions, or may have a particular viewpoint in terms of how their countries should develop.”

“We can have legitimate disagreements but still be respectful. I cannot respect terrorist organizations that would kill innocent civilians and we will hunt them down,” he said. “But to the broader Muslim world what we are going to be offering is a hand of friendship.”

He also said it was “important for us to be willing to talk to Iran, to express very clearly where our differences are, but where there are potential avenues for progress.”

He echoed his inaugural address last week when he said, “If countries like Iran are willing to unclench their fist, they will find an extended hand from us.”

He was not asked whether he would continue the policy of former President George Bush in refusing to exclude military action in the dispute over Iran’s nuclear ambitions.

This is nuanced and smart.   The war with terrorists was not going to be won without a strong PR campaign and with actions to backup the PR.   The terrorists have to be isolated and their support cut off.