Go for the jugular

Go for the jugular

재판의 결과는 엄정한 법이론에 좌우되는 것이 아니고 법의 내용도 이에 따라 결정되는 것이 아니라는 주장이다.
'지혜의 아홉기둥' 87p

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아이폰으로 블로깅하기

아이폰으로 블로깅할 수 있는 툴을 발견 했다. 이 글이 아이폰을 사용해서 내 블로그에 올리는 첫글이다. 사용법이 간편해서 앞으로 자주 글을 쓸 수 있을 것 같다.



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[FT]How we can restore trust in financial institutions

How we can restore trust in financial institutions
금융기관의 신뢰를 회복할 수 있는 방안은 무엇인가?
By Gordon Brown
고든 브라운(영국 총리)
Published: November 8 2009 19:30 | Last updated: November 8 2009 19:30

There has always been an implicit economic and social contract between our financial institutions and the society they serve.
금융기관과 사회사이에는 암묵적인 경제적, 사회적 계약이 있습니다.

Over centuries the guarantee of responsible stewardship of people’s money has been the foundation of the most precious asset a financial institution can ever have – trust.
지난 세기동안 사람들의 돈에 대한 책임감있는 봉사정신을 보장하는 것은 금융기관이 가질 수 있었던 가장 소중한 자산인 믿음의 기초였습니다.

Two years into the financial crisis, it is clear that the old contract has to be rethought and now made explicit for new times.
금융위기가 두 해째로 접어들면서 오래된 계약을 다시 고려해보고, 새로운 시대에는 명백하게 만들어야 한 다는 것이 명확해 졌습니다.

In recent years, our global financial system has achieved extraordinary successes; creating jobs, funding businesses, driving down costs and lifting people out of poverty.
근래 우리의 세계적인 금융시스템은 괄목할만한 성과를 거두었습니다. 직업을 만들어냈고, 기업들에게 자금을 지원했으며, 비용을 절감하고, 사람들을 가난에서 벗어나게 했습니다.

But the scale of the failings in recent months cannot be disguised.
그러나 최근 몇달동안 벌어진 실패의 크기는 감출수 없습니다.

The new contract must recognise the two new characteristics of modern financial institutions – their global scope and their interconnectedness.

As we now know, a failure in one large bank anywhere can affect all banks, large and small, everywhere.

Since the potential damage to the wider economy was so great, taxpayers have had no choice but to keep the system afloat.

So while our regulatory changes are designed to reduce moral hazard, any new contract between our financial institutions and our society now needs to reflect the wider costs to the economy and society of potential failure.

At its heart, the contract must answer another issue raised by the crisis: that the distribution of risks and rewards between the banks, citizens and taxpayers is balanced fairly.

Our first response has been to reduce risks by agreeing reforms to the national and global supervisory system – in capital requirements, liquidity, leverage, governance and transparency.

When fully implemented, I believe these will represent a transformation of the sector.

But, as the discussions of the Group of 20 nations this weekend reflected, these changes alone may not be sufficient to protect against future risk and to compensate for wider costs to the general public.

The world has moved on since some of the earlier ideas to address the responsibilities of the financial sector to the economy and society. There are now broader areas that have been the subject of the recent debate amongst policy makers, commentators, economists and bankers. These include insurance fees to reflect systemic risk; collective or individual resolution funds; contingent capital arrangements; and global financial levies.

In Pittsburgh and at St Andrews, leaders and finance ministers asked the International Monetary Fund to look afresh at this issue and at the range of options available.

I believe any measures we consider should be assessed against four core principles.

First, in a global economy and with a global financial sector, any such measures could work only if applied globally.

Second, any measures must not create distortions or incentivise avoidance.

Third, any measures must complement regulatory measures already being adopted or discussed.

And fourth, any costs to the financial sector must be fair and measured to enable institutions to do their job for our economy.

A new contract requires a wide public debate, one in which banks themselves should be leading participants. It will not always be a comfortable discussion, but it is in my view an essential one.

Banks cannot assume that trust will return without significant change. So it is in the interests of all banks and financial institutions to participate in this debate and I am happy to play my part in bringing banks and governments together. As this crisis has also shown, some financial institutions have managed their risks and maintained trust. And one of our tasks now is to ensure that all rise to the standards of the best

While I do not doubt there are practical and technical issues that will need to be overcome, the gravity of the recent crisis makes this discussion urgent. The restoration of trust depends on a resolution of these issues. Failure to do so will put at risk the confidence of millions of people in globalisation, setting back economic and social progress. We must all rise to the challenge.

Cash and carry

Cash and carry
By Andrea Felsted and Patrick Jenkins

Published: July 19 2009 20:14 | Last updated: July 19 2009 20:14




In a kiosk in the English Midlands, a revolution in banking is under way.
은행업에서 혁명이 일어나고 있다.

A stone’s throw from the Coventry City soccer ground, in a 450 sq ft unit beside the 44th check-out in a giant Tesco hypermarket, the supermarket chain is pioneering in-store banking.
테스코가 점포내 은행업을 하고 있다.

The new branch in Coventry is one of 30 that Britain’s biggest retailer will open this year in an aggressive assault on the financial services industry. But this is just scratching the surface of the presence Tesco could build in the sector. Within the next two years, it plans to offer a current account and mortgages.
테스코는 코벤트리에서 금융업에 중점을 둔 점포를 개설한다. 이는 시작일 뿐이다. 2년안에 테스코는 계좌개설과 모기지 상품을 제공하겠다는 계획을 발표했다.

The reputations, and ability to lend, of traditional banks have been hit hard by the financial crisis, opening up big opportunities for retailers with strong brands and financial clout.

Some banks are dismissive of the group’s chance of playing anything more than a niche role – but, if it is successful, the retailer will hurt them just as they are getting back on their feet.

Likhit Wagle of IBM Global Business Services warns: “Tesco’s skill at customer analytics is better than anyone in financial services. That ought to keep a number of the retail banks awake at night.”

Bain & Co estimates that, within a decade, retailers could have won 10-20 per cent of the European mass banking market. “It will be quite a battle for the banks. The value at stake is very high,” says Philippe De Backer of Bain’s European financial services practice.

Current accounts and mortgages are at the heart of most customers’ relationships with their banks – but they are not usually found alongside soup and soap powder. With Tesco pushing the boundaries of retailers’ banking businesses, shopkeepers around the world are watching its progress closely.

“If there ever was a time that is favourable for retailers to get into banking it is now,” says Michael Lafferty of Lafferty Group, a retail banking research house. “And we are not just talking about limited financial services such as credit cards, but retailers actually getting into a broader range of financial services including the current account, the main relationship account. That is the big one.”

Retailers have long dabbled in financial services – from the Co-operative Group and Harrods in the UK to Migros in Switzerland. Tesco entered a joint venture 12 years ago with Royal Bank of Scotland to offer insurance, credit and savings.

The idea of applying retailing skills – brand, supply chain efficiency, competitive pricing – to banking found its poster boy in Andy Hornby, a senior manager at Wal-Mart’s UK unit, Asda.

Mr Hornby went on to deploy the pile-them-high-sell-them-cheap philosophy of supermarkets at Halifax Bank of Scotland, the major mortgage lender he headed until its rescue by Lloyds TSB. He has now retreated to retail as chief executive of pharmacy chain Alliance Boots.

Now it seems that it is retailers’ turn to make the symbiosis work. While bank brands are bloodied by blame for the financial crisis and multibillion-pound bail-outs, retailers have emerged largely unscathed.

This represents a once-in-a-lifetime opportunity to move from being sellers of food and fashion to the friendly face of finance.

Robert Jones of brand specialist Wolff Olins says retailers have the mass-market appeal that banks have lost.

“They are down to earth. They are more convenient. They are much more price conscious and, yes, they are more trustworthy,” he says. “All of that means an opportunity to go into financial services in a much more serious way than they have done.”

Sir Terry Leahy, chief executive of Tesco, has pledged to transform the supermarket into the “people’s bank”, to capitalise on public anger.

He is not the only one harbouring such ambitions. Retailers including John Lewis, Marks and Spencer, Asda and Alliance Boots are all looking to exploit Britons’ greater trust in them by expanding their involvement in financial services.

For Tesco, there is another reason for its assault on banking. With its core UK grocery market – in which it has a more than 30 per cent share – maturing, it must look elsewhere for expansion opportunities.

Additional services – from banking and insurance to mobile phones – as well as moves into overseas markets, offer valuable engines of future growth.

Tesco’s expansion has been progressing like a juggernaut for the past decade – it has moved from its roots in food into clothing, telecommunications, property and garden centres.

“If you define yourself as a UK grocer that is all you will ever be,” says Andrew Higginson, chief executive of the group’s retailing services arm, which includes Tesco Personal Finance.

Now, having bought out RBS’s 50 per cent share in its financial services arm for £950m ($1.6bn, €1.1bn) last year, Tesco is preparing to offer a current account. This would give it “a reason to interact with [customers], and that creates a bit of friction, or stickiness”, says Mr Higginson.

Officially, the retailer is still evaluating whether to enter the mortgage market but the product is clearly in its sights.

“It does look like being an area where we feel we can add a bit of value to customers,” says Mr Higginson. But, he acknowledges: “It is not something you can rush into.”

Tesco has pledged to increase its profits from all the services that it provides to customers – including banking and insurance, online shopping and mobile phones – from just under £400m in the year to February 2008, to £1bn within a decade.

Although it has offered a savings account for several years, it has recently enjoyed a spike in applications. Deposits almost doubled from £2.5bn in mid-October, when trust in the banks was shattered, to about £4.5bn today.




But selling banking services is not as simple as putting sausages, or even sweaters, on shelves. Indeed, the record of retailers in financial services up to now has been mixed. Some industry observers question whether they will have the financial clout to compete effectively in banking.

Tesco had overall assets of £46bn at the end of February, of which the financial services arm, which has its own balance sheet, accounts for £6.2bn. But this is still dwarfed by the mainstream banks – even some of the high-profile casualties of the credit crunch. RBS, for example, has assets of £2,400bn.

Mr Higginson insists that Tesco does have the requisite strength. As the business moves into new areas, such as mortgages, the balance sheet will swell.

However, he says, the group will not let the desire to expand drive the sort of behaviour that contributed to the banking crisis. Mr Higginson is hopeful that the retailer will be able to fund a “good chunk” of mor­tgage lending from customer deposits.

But he acknowledges that, “realistically, if you are going to build a sizeable [mortgage] book, you have got to start thinking about wholesale funding”.

It is possible the company’s financial services arm could seek its own rating from the credit ratings agencies, which would enable the subsidiary to use so-called wholesale funding. Today, however, such funding – borrowing directly from the market – is very hard to come by.

“We will take the lessons learnt by some others, most notably Northern Rock, in the way we think of wholesale funding, but I do see it as part of the funding mix required,” says Mr Higginson. The British lender collapsed and was taken into government ownership after its strategy of borrowing heavily in short-term funding markets fell apart.

Tesco Personal Finance has been hiring industry veterans, including Benny Higgins, the former RBS and HBOS executive, to beef up its team. Still, some analysts and observers question whether there is enough banking expertise at board level.

Although the group has tinkered with financial services for more than a decade, taking on the high-street banks will expose it to significant new risks, such as the management of capital and liquidity – not the natural skills of a boardroom comprised predominantly of consumer product specialists.

Mr Higginson plays this down, stressing that Tesco Personal Finance is regulated by the UK’s Financial Services Authority and its board is stocked with experts from the sector. As well as expanding the executive and senior management team, the financial services business has hired four heavy-weight non-executive directors.

It is also possible that Tesco’s main board could beef up its financial services competence.

Tesco has had a banking licence since 1997, and the FSA has given it the go-ahead to expand its finance operations. However the regulator will keep a close eye on developments – stress-testing the business model and checking it can operate profitably while treating customers fairly.

It will also want the business to comply with strict new rules governing minimum levels of capital and liquid assets, even though those rules have yet to be implemented for incumbents.

Mr Higginson says that there are three people responsible for his business at the regulator, “which keeps us on our toes”.

The financial services arm will soon be having its first so-called Arrow visit – a full assessment of its riskiness by the regulator.

If the group wants to make acquisitions – some observers suggest Northern Rock is the most obvious candidate – Tesco will need the regulator on its side.

Mr Higginson is tight lipped on whether the group is interested in the bank. Big acquisitions, he says, are “not the Tesco way”.


Perhaps the biggest question, however, is whether retailers will be able to retain the trust of consumers.

There is probably a limited window of opportunity to capitalise on anger at bankers’ bonuses and bail-outs – and to fill a gap in the market for products that traditional banks have pulled away from, such as mortgages.

This creates an inherent tension for retailers. Although they have ready-made distribution, building the right information systems is time-consuming and costly.

“For the very biggest [retailers], they may be trusted, but I’m not sure – I’m thinking of Tesco in particular – they are liked,” notes Mr Jones of Wolff Olins. “They are seen as big and ubiquitous and probably slightly alarming in their scale.”

There is also a danger that if retailers start behaving like banks – repossessing houses at the most extreme – they will be equally reviled.

“There is a very subtle and very important difference,” says Olann Kerrison, head of research at Lafferty Group. “The retailer gives you what you want, and the bank is the one that makes you pay for it. If the retailer makes you pay for it, will you like the retailer as much?” The old adage that the customer is always right does not work in banking, where businesses sometimes have to take a tough line.

Mr Higginson says that, while Tesco will treat its banking customers fairly, it will be no pushover. “If people turn up at a check-out and don’t have any money, we don’t just give them the food on the basis we want to be their friend. You have to pay. That is the contract. That will be the way for financial services,” he says.

If retailers can surmount these difficulties, the opportunities offered by moving into the banking sector could be immense – and the consequences for the finance industry far reaching.

Back in Coventry, Tesco’s banking customers do not seem unduly concerned by the potential pitfalls of the supermarket’s move into banking.

One, Helen Ashby, has recently opened a savings account with the company.

For the mother of three, convenience – she can pay in her money at the check-out – and the security of the brand are the main attractions.

With the supermarket giant, she says, banking is simply “better than anywhere else”.


Pioneers who sell banking services alongside the groceries :


Tesco might be dominating the debate over retailers’ expansion into banking but it is far from the first to make such a move, write Patrick Jenkins and Andrea Felsted.

Latin America has been the crucible of such activity in recent decades, as an aspiring population has found itself able to afford credit, but unable to secure it from the traditional banks.

Groups such as Elektra – the Mexican retailer of everything from computers to cars – saw a gap in the market. Elektra’s banking subsidiary, Banco Azteca, set
up less than 10 years ago, now boasts close to 10m borrowers, though recent credit defaults
have weakened its position.

US supermarket giant Wal-Mart has also expanded into Mexico, with 38 in-store banking outlets and plans for up to 150 more this year alone. Wal-Mart has long harboured ambitions to offer banking services in the US but has yet to secure a licence in its home market, restricting its US operation to services such as money transfer, cheque cashing, bill payments and the pre-paid cards used to purchase goods.

Earlier moves by retailers into banking were pioneered in Europe. Harrods, the upmarket department store owned by Mohamed Fayed, has had a bank, serving business and private customers, for the past 100 years. Britain’s Co-operative Group has been selling banking services as well as groceries since 1915, while in Switzerland, Migros Bank, part of a broad co-operative group that includes a retailer, has been in business since 1958.

All three of those groups have benefited from customer nervousness about mainstream banks in recent months. Migros, for example, says it attracted net new money last year of SFr2.6bn ($2.4bn, €1.7bn, £1.5bn), up 147 per cent on the year before.

The Swiss group has one
message for retailers with banking ambitions – the notion of cost synergies from creating in-store branches is misplaced.
“Consultation rooms . . . cannot be created within a supermarket,” it says. “Therefore Migros Bank has its own chain of 55 branches [across] Switzerland.”

Compared with them, Tesco is a newcomer – it struck a partnership deal in the UK with Royal Bank of Scotland to offer credit, savings and insurance 12 years ago but only now is it going it alone with opportunistic plans to expand and steal market share from the troubled traditional banks.
Copyright The Financial Times Limited 2009

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US bond yields spark concern

By Michael Mackenzie and Kiran Stacey in New York and David Oakley in London

Published: June 10 2009 20:23 | Last updated: June 11 2009 14:57

US long-term interest rates continued to test important levels on Thursday as investors worried about the level of national debt and whether the Federal Reserve might have to raise interest rates to combat inflation.
투자자들은 국가채무와 인플레이션 때문에 미국장기채권의 이자율을 걱정하고 있다.

The yield on the 10-year Treasury note, the benchmark rate for US mortgages, briefly traded above 4 per cent, only to attract buyers once more after weekly jobless claims and retail sales data were published in line with expectations.
10년물은 4% 이상으로 거래된다. 실업률과 소매판매율이 기대에 맞게 나왔다.

The 10-year note was recently trading at 3.97 per cent, up 3 basis points, having hit 4 per cent during Wednesday after an auction of $19bn in 10-year government debt came at higher than expected yields.
10년 국채는 3.97에 거래 되었다.

The next test of the US Treasury’s issuance programme looms later on Thursday with the sale of $11bn in 30-year bonds. An auction of 30-year bonds last month went badly as investors signalled their concerns about the budget deficit.

“That did not go well last time, so there is also some additional concern,” said Dominic Konstam, head of interest rate strategy at Credit Suisse.

The yield on the 30-year bond was up 6 basis points at 4.81 per cent early Thursday. Last week, the yield was trading below 4.50 per cent.

“Once the 30-year is out of the way, the market should have a window to rally,” said analysts at MF Global. “The bull story rests in higher mortgage rates slowing the recovery.”

On Thursday, the 30-year mortgage coupon rose to a peak of 5.12 per cent, having surged from 3.90 per cent over the past month. This week, the latest survey from the Mortgage Bankers Association showed that its mortgage refinancing application index fell 12 per cent to its lowest weekly level since mid-November. That was prior to the Federal Reserve’s announcement of its plan to buy mortgages.

Concerns about the growth of government borrowing on Wednesday forced the US Treasury to give investors in an auction of $19bn in 10-year notes a yield of 3.99 per cent – 4 basis points higher than the yield available before the auction. That constituted the biggest yield markup since a 10-year auction in May 2003, said Morgan Stanley.

Traders said the good news of the day was that buyers entered the market when yields reached 4 per cent. “There should be natural support for the 10-year note around 4 per cent,” said Mr Konstam.

“We are seeing traders draw a line in the sand at 4 per cent” on 10-year notes, said Tom di Galoma, head of US rates trading at Guggenheim Capital Markets.

In recent months, auctions have often been awarded at higher-than-expected yields, with dealers and investors being asked to buy higher amounts of debt as the US Treasury seeks to fund a growing budget deficit.

Copyright The Financial Times Limited 2009

Rising government bond rates prove policy works
By Martin Wolf

Published: June 2 2009 20:24 | Last updated: June 2 2009 20:24





EDITOR’S CHOICE
Martin Wolf: This crisis is a moment, but may not be a defining one - May-19Martin Wolf: Why Obama’s conservatism may not prove good enough - May-12Economists’ forum - Oct-01Martin Wolf: Tackling Britain’s fiscal debacle - May-07Is the US (and a number of other high-income countries) on the road to fiscal Armageddon? Are recent jumps in government bond rates proof that investors are worried about fiscal prospects? My answers to these questions are: No and No. This does not mean there is no reason for worry. It is rather that there are powerful arguments against fiscal retrenchment right now and strong reasons for welcoming recent moves in the bond markets.

Last week, the Financial Times carried two columns arguing that the US fiscal path was unsustainable, one by Stanford University’s John Taylor and the other by the Harvard historian Niall Ferguson. The latter, in turn, was a comment on a debate with, among others, the New York Times columnist and Nobel laureate Paul Krugman at the end of April.

On one point all serious analysts agree: public debt cannot rise, relative to gross domestic product, without limit. To embark on fiscal stimulus in the short run, one must be credible in the long run.

So what is the disagreement? Prof Ferguson made three propositions: first, the recent rise in US government bond rates shows that the bond market is “quailing” before the government’s huge issuance; second, huge fiscal deficits are both unnecessary and counterproductive; and, finally, there is reason to fear an inflationary outcome. These are widely held views. Are they right?

The first point is, on the evidence, wrong. The jump in bond rates is a desirable normalisation after a panic. Investors rushed into the dollar and government bonds. Now they are rushing out again. Welcome to the giddy world of financial markets.

At the end of December 2008, US 10-year Treasury yields fell to the frighteningly low level of 2.1 per cent from close to 4 per cent in October (see chart). Partly as a result of this fall and partly because of a surprising rise in the yield on inflation-protected bonds (Tips), implied expected inflation reached a low of close to zero. The deflation scare had become all too real.

What has happened is a sudden return to normality: after some turmoil, the yield on conventional US government bonds closed at 3.5 per cent last week, while the yield on Tips fell to 1.9 per cent. So expected inflation went to a level in keeping with Federal Reserve objectives, at close to 1.6 per cent. Much the same has happened in the UK, with a rise in expected inflation from a low of 1.3 per cent in March to 2.3 per cent. Fear of deflationary meltdown has gone. Hurrah!

It is true that spreads between conventional US bonds and bonds issued by Germany and the UK have narrowed (see chart). But US yields were extraordinarily depressed during the panic. Normality returns.

If inflation expectations are not worth worrying about, so far, what about the other concern caused by huge bond issuance: crowding out of private borrowers? This would show itself in rising real interest rates. Again, the evidence is overwhelmingly to the contrary.

The most recent yield on Tips is below 2 per cent, while that on UK index-linked securities is close to 1 per cent. Meanwhile, as confidence has grown, spreads between corporate bonds and Treasuries have fallen (see chart). One can also use estimates of expected inflation derived from government bonds to estimate real rates of interest on corporate bonds. These have also fallen sharply (see chart). While riskier bonds are yielding more than they were two years ago, they are yielding far less than in late 2008. This, too, is very good news indeed.

Now turn to the fiscal policy. The argument advanced by opponents is either that fiscal policy is always unnecessary and ineffective or, as Prof Ferguson suggests, redundant, because this is not a “Great Depression”. Monetarists argue fiscal policy is always unnecessary, since monetary expansion does the trick. Economists who believe in “Ricardian equivalence” – after the early-19th-century economist David Ricardo – argue fiscal policy is ineffective, because households will offset any government dis-saving with their own higher savings.

Economists disagree fiercely on these points. My approach is “Keynesian”: in extreme moments, the excess of desired savings over investment soars. Again, monetary policy, while important, becomes less effective when interest rates are zero. It is then wise to wear both monetary belt and fiscal braces.

A deep recession proves there is a huge rise in excess desired savings at full employment, as Prof Krugman argues. At present, therefore, fiscal deficits are not crowding the private sector out. They are crowding it in, instead, by supporting demand, which sustains jobs and profits.

Prof Ferguson argues that fiscal expansion was unnecessary because this is only a mild recession. The question, however, is why it is only a mild recession, since precursors of a depression were surely present.

The answer, in part, is the aggressive monetary policies of central banks and the rescue of the financial system. But is that all? What would have happened if governments had decided to cut spending and raise taxes? One might disagree on how much deliberate fiscal loosening was needed. But one of the most important reasons this is not the Great Depression is that we have learnt a lesson from experience then, and in Japan in the 1990s: do not tighten fiscal policy too soon. Moreover, historically well-run economies are certainly able to support higher levels of public indebtedness very comfortably.

This, then, brings us to the last concern: the fear of inflation. This is essentially the question of how to exit from current extreme policies. People need to believe that the extraordinarily aggressive monetary and fiscal policies of today will be reversed. If they do not believe this, there could well be a big upsurge in inflationary expectations long before the world economy has recovered. If that were to happen, policymakers would be caught in a painful squeeze and the world might indeed end up in 1970s-style stagflation.

The exceptional policies used to deal with extreme circumstances are working. Now, as a result, policymakers are walking a tightrope: on one side are premature withdrawal and a return to deep recession; on the other side are soaring inflationary expectations and stagflation. It is irresponsible to insist either on immediate tightening or on persistently loose policies. Both the US and the UK now risk the latter. But their critics risk making an equal and opposite mistake. The answer is both clear and tricky: choose sharp tightening, but not yet.

martin.wolf@ft.com

Robust output data boost markets
활발한 생산성 지표가 시장을 부양하고 있다.
By Daniel Pimlott in London and Krishna Guha in Washington

Published: June 1 2009 20:21 | Last updated: June 1 2009 22:48

Stock markets round the world surged on Monday as robust manufacturing data raised hopes that the global economy could soon be past the worst of the recession.
세계의 주식시장이 월요일에 되살아났다. 활발한 생산성지표가 세계경제를 최악의 경기침체에서 벗어나게 할 거란 믿음때문이다.

The FTSE Eurofirst 300 index of leading European shares rose 2.8 per cent to a five-month high. In New York, the S&P 500 index was up 2.9 per cent by late afternoon, also at a five-month high, following a surge in Asian stock prices. The price of crude oil jumped to more than $68 a barrel to a seven-month high.
유럽주식지수는 5개월 최고치인 2.8%로 올랐다. 뉴욕에서도 S&P 500지수가 2.9% 올르면서 5개월 최고치를 경신했다. 아시아 주식가격도 상승을 뒤따랐다. 원유가격은 7개월 최고치인 배럴당 68$까지 올랐다.

The improvement in risk appetite undermined the dollar’s appeal as a haven and the currency touched its lowest level of the year against the euro.
위험을 감수하려하면서 안전자산인 달러의 매력은 줄었고 유로대비 환율은 연중 최저치까지 떨어졌다.

Government bonds also resumed their downward path as investors flocked to equities. The yield on the 10-year US Treasury bond soared to within a whisker of last week’s six-month high of 3.75 per cent.
투자자들이 주식시장에 몰리면서 국채는 하락세를 이어갔다. 10년물의 수익률은 지난주 6개월 최고치인 3.75에서 약간 올랐다.

China’s manufacturing sector expanded for the third straight month in May, according to the country’s official purchasing managers’ index.
중국의 생산부분은 3개월 연속으로 증가했다.

The US ISM survey of manufacturing activity came in higher than expected, showing strong new orders – though consumer spending for April came in down 0.1 per cent.
미국 산업생산지수는 4월 소비지출이 0.1% 감소했지만 신규주문량의 증가로 기대보다 높게 나타났다.

In the UK, the purchasing managers’ index hit its highest level in a year .
영국에서는 구매지수가 연중 최고치를 기록했다.

In the eurozone, the manufacturing recession also appeared to be easing, with indices rising at a record rate.
유로존에서는 생산지수가 상승세로 전환하면서 생산침체가 완화되었다.

A survey of manufacturing activity in India showed an increase for a second month, while in Australia the performance in manufacturing index rose to a eight-month high.
인도의 생산성지수는 이번해 들어 두번째로 상승했고, 호주의 생산성지수도 8개월 최고치를 기록했다.

Analysts said the improvement round the world suggested that the recessionary forces buffeting the global economy were starting to abate.
애널리스트들은 세계경제가 침체압력에서 벗어나기 시작했다고 말했다.

One composite measure of factory activity in the US, Japan, Germany, France, UK, China and Russia showed that manufacturing declined at its slowest pace for nine months in May. The global index, produced by JPMorgan with research and supply management organisations, rose to 45.3 in May from 41.8 in April, where any level below 50 points to contraction.
세계주요국의 공장활동성지표는 5월 들어 하락세가 점차 감소하기 시작했다. JPMorgan생산자지수는 45.3을 기록하며 41.8을 기록했던 지난달 보다 올랐다.

The slowing decline in global manufacturing in recent months comes after businesses sought to save their cash in the wake of the collapse of Lehman Brothers last September by slashing inventories rather than making new orders for goods.
리만브로더스 파산 이후 기업들이 새로운 주문을 하지 않고 재고를 팔아치워 현금을 확보하면서 생산량이 감축했었다.

As they held off from new orders production lines round the world ground to a halt, prompting a precipitous decline in manufacturing output.
그들이 새로운 생산라인을 구축하고도 생산하지 않으면서 생산성은 급속하게 줄어들었다.

But now companies are beginning to run low on stocks, forcing them to make fresh orders once again.
그러나 지금은 기업들이 저장상품을 줄이고 새로운 주문을 하고 있다.

Monday’s US reports confirmed that consumption was on a weak trajectory, with spending 1.2 per cent lower in April than on average in the first three months of the year. The personal savings rate rose to 5.7 per cent on stimulus tax cuts.
월요일 미국은 소비가 1.2%하락했다. 개인저축률은 5.7%까지 올랐다.

But while the rebound in manufacturing has been growing for several months in many economies, economists remain concerned that it merely reflects restocking and will peter out as struggling consumers and businesses around the world struggle to resume spending.
그러나 생산성이 재상승하더라도 전문가들은 재고가 다시 증가하고 지출이 점차 줄어드는 것을 걱정하고 있다.

“The critical next phase of the crisis is whether we will see an improvement in end demand,” said Mr Jeffrey. “I doubt the progress we’ve seen [in manufacturing] will be sustained.”
"이번 위기의 다음은 년말에 수요가 살아나느냐에 달려있다. 나는 생산성의 증가가 계속될 걸로 생각한다."

Additional reporting by Kathrin Hille and Amy Kazmin
Copyright The Financial Times Limited 2009

-생산성증가->실업율감소->소비증가->생산증가 의 선순환은 일어나지 않음
-소비성지표는 여전히 하락.
-생산력 증가가 소비증가로 파급되기까지는 시간이 걸림
-설사 실업율이 하락하더라도 소비증가는 급격히 늘어나지 않을 듯
-저축률 증가로 이전과 같이 빚내서 소비하는 행태는 사라졌기 때문.
-다른 기사에서 보면 모기지 부실은 점차 커지고 있기 때문에 금융불안이 실물위기를 가져올 위험은 여전히 존재함.

Overhauling financial regulation
경제제제를 분해한다.

The regulatory rumble begins
제제가 몰려오기 시작했다.
May 28th 2009 | BERLIN AND NEW YORK
From The Economist print edition

In America and Europe, new rules are running into stiff resistance—from regulators themselves
미국과 유럽에서 새로운 규칙이 규제주의자들 스스로에게서 반대자들에게도 적용되기 시작했다.

“YOU want to move at the point where people still have the memory of the trauma,” Tim Geithner explained recently when asked about financial regulation. Aware that the crisis is moving into a new phase, with the emphasis shifting from firefighting to working out how supervision should be restructured, America’s treasury secretary wants to seize the moment. He plans to unveil a comprehensive regulatory overhaul by mid-June. Barack Obama has said he wants to sign the changes into law by the year’s end.

"당신은 사람들이 트라우마를 가지고 있는 시점에서 벗어나고 싶죠."
팀가이트너는 금융규제에 관해 질문 받았을 때 이렇게 대답했다. 충격이 새로운 단계로 이동하고 있음을 일깨우는 것이었다. 진화작업에서 감독체계를 어떻게 재설계해야 하는 지로 중심은 변하고 있었다. 그는 6월 중순까지 포괄적인 규제분해의 베일을 벗기겠다고 설명했다. 오바마는 년말까지 법을 개정하겠다고 선언했다.

In Europe, too, the pressure is on. “There’s no room for more delays,” José Manuel Barroso, president of the European Commission, said on May 27th when he unveiled a blueprint for reform of financial supervision. He announced plans to form two new grandly named institutions: a European Systemic Risk Council, which is supposed to provide early warning of possible risks, and a European System of Financial Supervisors, which would be a super-committee of regulators from across the European Union.

유럽에서도 마찬가지로 압박이 시작됐다. "더이상 지체할 수 없다." 유럽위훤회 위원장인 바로쏘는 5월 27일 금융관리감독에 대한 개혁을 공개하며 말했다. 그는 두개의 새로운 거대기관을 설립하겠다고 밝혔다. 조기에 위험을 알리는 기능을 할 유럽시스템위험위원회와 유럽연합의 감독당국을 관장할 유럽금융시스템관리국이 그것이다.

The goals of the two new institutions are admirable. Both are intended to correct a fundamental flaw in European bank regulation and supervision; namely, that although banks are free to operate across borders, they are supervised only by their home countries. Slack oversight by one country can, as the crisis has revealed, spread chaos across many. Yet it is not at all clear that the proposals have been thought through properly. “The European Commission is confusing speed with haste,” says Nicolas Véron of Bruegel, a think-tank in Brussels. “The governance, mandate and funding of these new authorities is not really addressed.” Britain, which has the biggest banking centre, is particularly concerned about the proposed rules, which may cede aspects of the City of London’s banking supervision to Brussels.

새로운 두 기관의 목표는 칭찬할만 하다. 두기관 모두 금이 간 유럽은행규제와 감독을 바로잡고자 만들어졌다. 이름에서도 알 수 있듯이 은행들은 두 기관의 감독을 받지는 않고 해당국가의 관리만 받으면 된다. 한국가라도 감시가 느슨해지면 이번 위기처럼 수많은 나라들이 혼란에 빠질 수 있다. 그러나 제안을 모두 좋게 받아들이지는 않는다. 유럽위원회는 지나치게 빠르다. 브뤼셀의 씽크탱그에 브뤼겔은 말했다. "새로운 기구의 구조와 인력, 근원은 명확하지 않다." 유럽의 금융중심지인 영국은 자국은행의 감독권이 런던에서 브뤼쉘로 가게될까봐 규제제안에 대해 걱정하고 있다.

In America, meanwhile, the plans taking shape face resistance, partly from the bankers they will shackle but even more from regulators and lawmakers. Bankers accept they will be forced to build up bigger capital buffers, which will crimp profitability, and that the liquidity of their balance-sheets will be policed more intensively. The regulatory net will be cast over the “shadow” banking network of hedge funds, money-market funds and the like, to which much financial activity gravitated during the boom.

반면 미국에서는

Big banks, however, still have enough lobbying power to ensure that not every decision goes against them. True, they are still licking their wounds after the recent passage of draconian credit-card reforms. But they are happier with the government’s proposals on derivatives, under which dealers will be able to continue peddling customised swap contracts away from exchanges, albeit with a higher capital charge.

As the crisis has deepened, American bankers have tempered their opposition to the idea of new rules that reduce the chances of another blow-up. “Would I accept regulation that slows innovation a bit and knocks three percentage points off my returns if it promised greater stability? Absolutely,” says the head of one large bank.

For some, more stringent regulation even has a silver lining. With tougher mortgage rules, banks will no longer have to lower their standards to compete with the industry’s unregulated parts. The survivors could also benefit from higher barriers to entry.

On the whole, Wall Street sees a welcome disconnect between the Obama administration’s rhetoric and its actions. The Treasury is “gradually learning” how to square the circle of showing that it understands the public’s anger on the one hand, and maintaining a dynamic financial sector on the other, says one bank lobbyist. Another test of its capacity to resist pitchfork-wielding urges will come in the next few weeks, when it is expected to issue guidelines on executive pay.

The stiffest resistance to change is coming not from Wall Street but from Washington, DC, where government officials, regulators and congressional leaders are locked in turf wars and ideological battles. “Opinion has splintered. Everyone is fighting everyone,” says Bert Ely, a consultant on regulatory issues.

Even the main banking agencies are at odds with each other. Sheila Bair of the Federal Deposit Insurance Corporation (FDIC) and John Dugan, the Comptroller of the Currency, have fallen out over Ms Bair’s deposit-insurance reforms. Mr Dugan also opposes the FDIC’s push for sole authority to liquidate failing non-banks, as it already does with banks.

Worse, there is no consensus on the proposed systemic-risk regulator, which would identify and act on emerging “macro-prudential” dangers. The administration wants the Fed to assume the role, but many in Congress oppose this. Dick Shelby, an influential senator, has accused Mr Geithner of using the crisis to hand the Fed unacceptable levels of power. Meanwhile, Ms Bair has suggested that systemic regulation be done (or at least overseen) by a multi-agency council, an idea that is gaining traction even if others (including, again, Mr Dugan) worry that such supervision-by-committee is a recipe for inaction.

An even bigger battle is brewing over the shake-up of existing regulators. No one doubts that the archaic, overlapping patchwork of agencies needs modernising, with regulation refocused on a firm’s activities rather than its legal form. Reportedly, the White House is considering rolling the four banking-supervision agencies into one, though the idea is still in flux.

But an embryonic plan to create a super-regulator for consumer products, such as mortgages, credit cards and mutual funds, is already encountering stiff opposition. The Securities and Exchange Commission (SEC), which would lose out in such a shuffle, has powerful friends on Capitol Hill, especially on the Senate banking committee that oversees the agency—and any overhaul would require congressional approval. Public pension funds have also joined together to lobby against a reduction in the SEC’s power.

Moreover, the economically rational may not be politically feasible. Though it would make sense to merge the SEC with the Commodity Futures Trading Commission, which regulates derivatives, Congress’s powerful agriculture committee would probably block the move.

Debate about other thorny issues, such as what restrictions to place on, or whether to dismantle, banks that are too big to fail has barely begun. Congressional leaders cannot even agree on whether to pass new rules in pieces or roll them up into one mega-bill.

All of which explains why pundits now expect to see few, if any, further financial reforms passed in 2009. Delay could play into the financial industry’s hands, to the extent that it reduces the likelihood of heat-of-the-moment laws like Sarbanes-Oxley, rushed through after the Enron scandal. But if measures that would increase stability fall victim to politics, everyone will be worse off.

Asian economies
Crouching tigers, stirring dragons

May 14th 2009 | HONG KONG
From The Economist print edition
The Asian economies are likely to be the first to pull out of the global recession

Illustration by S. Kambayashi

ASIA’S tiger economies have suffered some of the sharpest declines in output during the global recession, and some fear that, because of their dependence on exports, they will not see a sustained recovery until demand rebounds in America and Europe. However, their doughty resilience should not be underestimated. They came roaring back unexpectedly fast after the Asian crisis of the late 1990s. They could surprise again.

Across the region as a whole, the slump has been as bad as it was in 1998. China and India have continued to grow, but in the rest of emerging Asia GDP plunged by an annualised 15% in the fourth quarter of 2008. Only three economies have published first-quarter figures. China’s GDP growth accelerated to an annualised rate of over 6%, up from around 1% in the previous quarter. South Korea’s GDP expanded by 0.2%, after plunging 19% in the previous three months. But Singapore’s GDP fell by 20%, even more than in the fourth quarter.

More timely export figures suggest that the worst may be over. Although the headline numbers show that South Korea’s exports fell by 19% in the year to April, they rose by a seasonally adjusted annualised rate of 53% in the three months to April compared with the previous three months, Goldman Sachs estimates; Taiwan’s grew by an annualised 29% over the same period. China’s exports over the past few months have managed only to stabilise, but its industrial production jumped by an annualised 25% in the past three months.

Economists are revising up their forecasts for China’s GDP growth this year: 8% may now be possible even if American consumers remain frugal. There is a myth that China’s growth depends on American consumers. In fact, if measured on a value-added basis (to exclude the cost of imported components), China’s exports to America account for less than 5% of its GDP.

There is more argument, however, over the smaller, more export-driven economies, such as Hong Kong, South Korea, Singapore and Taiwan. Robert Subbaraman, an economist at Nomura, offers several reasons why they are likely to remain sluggish for the time being. The recent rise in exports and production, he argues, largely reflects the fact that firms are no longer running down stocks. This will provide only a temporary boost unless global demand picks up. Firms’ spare capacity also means that investment will continue to fall, while rising unemployment threatens to dent consumer spending. Nor is China’s stronger growth likely to save the region. Over 60% of China’s imports come from the rest of Asia, but about half of these are components that are assembled in China and then sold to the rich world.

In its latest economic outlook on Asia, the IMF forecast that the region excluding China and India would grow by only 1.6% in 2010, largely because it expects the American economy to be flat. However, Peter Redward of Barclays Capital argues that Asia can recover earlier and more strongly than elsewhere. In 2010, he reckons, the smaller Asian economies could grow by almost 4%, or close to 7% once China and India are added in.

One reason for his optimism is his explanation for why the Asian economies were hit so hard in the first place. Asians are often blamed for saving too much and spending too little, but Mr Redward argues that the main reason for their plight was that manufacturing accounts for a much larger share of GDP than elsewhere. Industries such as cars, electronic goods and capital machinery are highly cyclical. In rich and emerging economies, GDP fell furthest last year in countries with the largest share of manufacturing. This, in turn, could imply a sharp recovery.

A second reason for expecting a stronger bounce is that fiscal stimulus in Asia is bigger than in other regions (see chart). China, Japan, Singapore, South Korea, Taiwan and Malaysia have all announced fiscal packages of more than 4% of GDP for 2009, twice as large as America’s stimulus this year. The pump-priming should also work better in Asia than in America or Europe, because modest corporate and household debts mean that tax cuts or cash handouts are more likely to be spent than saved. Banks, moreover, are in much better shape and so have more freedom to support an increase in domestic spending.

As the world’s largest importers of oil and other commodities, the tiger economies have also benefited hugely from the fall in prices over the past year. This has acted like a tax cut, boosting real incomes and profits. Asia has enjoyed a gain from cheaper oil of almost 3% of GDP this year. Add in lower prices for food and raw materials and the total gain could match the governments’ stimulus (though the danger remains of a renewed spike in oil prices).

Pessimists maintain that Asia has always been pulled out from previous recessions, such as the 1998 financial crisis, by strong exports to the West. However, a recent analysis by Frederic Neumann and Robert Prior-Wandesforde, both of HSBC, finds that, contrary to received wisdom, Asia’s recovery from its 1998 slump was led not by exports, but by consumer spending. Exports to the West did not surge until 2000. The region’s current-account surplus actually shrank between 1998 and 2001.

Thanks to a large fiscal stimulus and the healthier state of private-sector balance-sheets in most economies, domestic spending (consumption and investment) should revive earlier in emerging Asia than elsewhere, rising by perhaps 7% next year, up from 4-5% this year. America’s domestic demand is expected to remain weak in 2010 after falling sharply this year. Indeed, add in Japan and total Asian domestic spending (at market exchange rates) looks set to overtake America’s next year.

But what of emerging Asia’s longer-term prospects? Much of the increase in Asian domestic demand this year and next will come from government investment. Unlike rich countries, emerging Asia has room to keep investing in infrastructure for several years but governments need to encourage more consumption to fill the gap after the infrastructure projects are completed. Asian households’ low rate of consumption and borrowing means that they have huge scope to spend more. Better social safety-nets might encourage Asians to save less. Governments also need to lift households’ share of national income by reducing their bias towards capital-intensive manufacturing and encouraging more labour-intensive growth.

Ultimately, relatively robust expansion in domestic spending should help most Asian economies to keep growing faster than the rest of the world. But the tigers are unlikely to return to their heady growth rates of recent years. Nor would that be desirable given the impact on inflation and the environment.

Suppose that net exports contribute nothing to growth, and that domestic demand grows at roughly the same pace as it has in the past five years. Then emerging Asia could see annual growth of almost 7% over the next five years (around 8% in China, a more modest 5% in the smaller economies). That might sound disappointing for economies that enjoyed average growth of 9% in the three years to 2007. But it would still be around three times as fast as in the rich economies.

기사에 달린 댓글 중 날카로운 지적이 있어서 남긴다.

중국의 GDP에서 수출이 차지하는 비중이 5%밖에 안된다는 점을 들어 중국의 경기회복은 미국, 유럽의 경기와 관련없을 거라는 주장은 거짓이다. 수출비중이 낮게 된 것은 최근들어 미국과 유럽의 경기가 나빠졌기 때문이다. 중국이 9% 성장할 때는 당연히 수출비중도 높았을 거다.

-------------------------------------------------------
아시아가 지속적으로 성장할 거라는 주장

근거

1. 저축률이 높다. 정부가 사회보장제도를 확충하면 저축률이 낮아져서 더 많이 소비할거다.

2. 정부가 인프라스트럭처에 투자하고 있다. 정부지출이 수요를 이끌거다.

Fed study puts ideal US interest rate at -5%
By Krishna Guha in Washington

Published: April 27 2009 03:06 | Last updated: April 27 2009 03:06

The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.

Fed staff separately estimated what size and type of unconventional operations, including asset purchases, might provide this level of stimulus. They suggested that the Fed should expand its asset purchases by even more than the $1,150bn (€885bn, £788bn) increase policymakers authorised at the last meeting, which included $300bn of Treasury purchases.

The assessment that the US central bank needs to provide stimulus equivalent to a substantially negative interest rate is unlikely to have changed ahead of this week’s policy meeting.

The Fed is not likely to embark on any substantial new programmes at this meeting, in large part because it will not have downgraded its economic forecasts since the last meeting. Indeed, Fed officials may see the risks to the economy as a little more balanced than they were in March, though policymakers probably still see these risks as overall weighted to the downside.

This could set the stage for a more detailed discussion of the framework that will ultimately govern the Fed’s exit strategy.

There is, though, a small but intriguing possibility that the Fed could follow the Bank of Canada in setting out an explicit timeframe over which it expects to keep short-term rates at virtually zero.

While this novel strategy is likely to at least provoke debate within the US central bank, which has shown itself willing to adopt measures first deployed elsewhere, many policymakers would probably be wary of adopting the Canadian approach, following their own unsatisfactory experience in providing guidance on interest rates after the dotcom bubble burst.

Others may feel the Canadian approach would be ineffective as it may not be seen as credibly binding the central bank’s future decisions.

Still, many Fed officials expect they may well keep rates near zero for another 18 months to two years and some might see value in making this more explicit.

Ben Bernanke, chairman, sees the massive expansion of bank reserves caused by the Fed’s unconventional operations as already providing a way to assure the market that the Fed will not be in a position to raise rates for quite some time to come.

The last meeting saw the Fed buy long-term treasuries for the first time in decades. The large initial impact of the move on markets is no longer visible, but officials think the policy was reasonably successful.

Previous staff analysis suggested the $300bn purchase would reduce the yield on 10-year treasuries by 25-35 basis points, and officials think the rate today is about this much lower than it would have been if they had not started buying.

Further purchases are possible, particularly if the Fed again downgrades its economic forecasts. The staff analysis comparing unconventional operations to interest rate cuts suggests more might be needed anyway.

However, policymakers are likely to watch how financial conditions respond to the already-authorised interventions before deciding whether to step up much further.
Copyright The Financial Times Limited 2009

Borrowing costs hit fresh low
By Aline van Duyn in New York

Published: April 27 2009 20:02 | Last updated: April 27 2009 20:02

The cost of borrowing for the riskiest companies has fallen to its lowest level in more than six months and prompted a surge in new debt issues, increasing hopes that the worst stage of the financial crisis may be over.

The ability of a growing number of companies – including those seen as having a higher risk of default and whose debt is classified as “junk” or “high yield” – to raise money signals an increased willingness by investors to lend money.

EDITOR’S CHOICE
‘Fallen angels’ total highest since 1997 - Apr-16High-yield bonds feel thaw - Apr-27US plan raises the pressure on junk bonds - Apr-02For many months, private investors have shied away from lending money to risky companies and banks amid concerns that financial markets might again revert to crisis mode and that the value of investments would fall sharply.

But in recent weeks the stabilisation of parts of the banking sector, following huge injections of government funds, has allowed parts of the capital markets to thaw.

Companies with high credit ratings and low risks of default have been able to borrow in the debt markets for most of this year, but riskier companies have only returned in recent weeks.

The rally in the equity markets has been further fuelled by this development, as access to funding is an important factor in potential future growth.

The amount of new debt borrowed in the US junk bond market has risen to more than $7bn so far in April, its highest level since July last year, according to Dealogic data. However, analysts said the improvements did not yet signal a complete turnround in the credit markets, which will still be affected by the economic environment and the probable further deterioration in economic fundamentals.

Default rates are also expected to keep rising for much of 2009.

“Economic growth is still deeply negative, which translates into very negative cash flows,” said analysts at Goldman Sachs.

“And despite improvements in the high-yield, new-issue market on the back of this rally, funding prospects remain very challenging,” the Goldman Sachs analysts continued.

Specifically, it remains very difficult for the riskiest companies – those whose credit ratings signal a very high chance of default – to borrow money from investors.

Until there is a shift in the ability of these companies to raise money needed to avoid defaulting on their debts, or to complete debt exchanges which can be vital for their survival, it is too early for the credit markets to be given the “all clear”.

“The ability for more levered credits in high yield to access the markets will be a clear signal that credit rationing has waned,” said Greg Peters, global head of fixed income research. “While we have seen a meaningful rally in the lower quality credits, there are clear signs of credit differentiation that we expect to persist.”
Copyright The Financial Times Limited 2009

IMF and World Bank meetings

Springing into action
Apr 25th 2009
From Economist.com

Finance ministers gather for unusually significant spring meetings of the World Bank and IMF


LESS than a month after leaders of the biggest economies met in London, the action shifts this weekend to Washington, DC, where many finance ministers and central bank governors attend joint meetings of the World Bank and the IMF. These gatherings occur twice a year (in the spring and autumn) but this one probably matters more than most.
경제장관들이 자주 만나고 있다.

The global economic crisis has helped to give more relevance to the institutions—in particular the IMF—after many years of decline. The G20 meeting boosted the IMF, promising it an extra $500 billion in cash and the permission to print $250 billion-worth of its quasi-currency, the SDR. Another $100 billion of lending to developing and emerging countries (battered by the speedy exit of foreign capital after years of capital inflows) is supposed to come from the multilateral banks, led by the World Bank.
경제장관들이 만난 후로 IMF에서는 현금을 확보할 수 있었다. IMF를 지원하기 위해 3개국 이상이 힘을 합쳤다.
SDR:특별인출권

But it is still not entirely clear where all this money will come from, nor how it will be deployed quickly. Finance ministers may try to provide some answers this weekend.
그러나 돈을 어디서 확충할 지, 어떻게 쓸지는 정해지지 않았다.

Where, for example, will the full $500 billion in extra money for the IMF be found? Before the G20 meeting Japan and the European Union had each promised $100 billion and the summit ended with a promise from China of another $40 billion. In the weeks since Canada and Switzerland have each pledged $10 billion and Norway has pitched in with about $4.5 billion. The Indian press reports that the country might contribute $11 billion to the fund, and Brazil has offered $4.5 billion. All together that still leaves the IMF about $220 billion short of the G20’s target.
세계 각국이 돈을 내놓겠다고 했으나 여전이 2,200억 달러가 부족하다.

America may have to provide a big chunk of the remainder. Barack Obama has proposed a loan of $100 billion to the fund in a letter to Congress, which must approve an American contribution. France is likely to press EU countries to raise their contribution by $60 billion. The fund will also pass the hat to other possible contributors (perhaps including Saudi Arabia) with formal announcements of contributions possible over the weekend, along with confirmations of tentative offers (such as those from India or Brazil).
세계 각국이 돈을 내놓으라는 압박에 시달리고 있다.

Next is the question of what donors might expect in return. Brazil has already said that it wants reforms to how the IMF is run. All the big emerging economies want to see more detailed proposals on changes to voting power within the IMF, and they want the reform process speeded up. (The G20 encouraged the fund to implement the last round of changes, which were agreed in October last year, but did not set a date, which emerging economies will be keen to see announced). A recent suggestion from an IMF reform committee was for a larger role for finance ministers in the daily running of the fund, to give it greater political legitimacy. The idea may be discussed this weekend.

The IMF will also be keen to announce more emerging-economy interest in its Flexible Credit Line, which has now found three takers: Mexico, Poland and Colombia. Another country or two signing up will boost the fund’s claim that it is emerging as a credible source of insurance against crises, which is the purpose of its new “no-strings-attached” facility.

For the World Bank, too, much is at stake. It has not been showered with extra funds, but officials say that it has raised lending in response to the crisis, yet is in no danger of running out of money. But some in the institution argue that it should have pushed more aggressively for extra money to fund projects. Some poor countries’ finance ministers are expected to raise this issue at the meetings, and call for more capital for the bank. They may point to the IMF's announcement on Thursday April 23rd that it is doubling the upper limits on amounts that very poor countries can borrow on concessional terms, something that it is only possible because of all the extra money it has received.

Pressure may also increase on the bank to push for an early replenishment of the pot of money for the International Development Association, which is then used to fund zero-interest loans and grants to the world’s poorest countries. The current pot of $41 billion is supposed to last until 2011, but some argue that an early replenishment will enable more lending to the poorest countries, which the bank has argued are being hit badly by the decline in trade and slowing remittances.

Consumer psychology

From buy, buy to bye-bye
Apr 2nd 2009 | NEW YORK AND SAN FRANCISCO
From The Economist print edition

The recession will have a lasting impact on the way people shop


“WANT IT!” screamed the words plastered on the walls, counters and shopping bags in the flagship emporium of Saks, a big American retailer, on Fifth Avenue in New York. The same exhortation was emblazoned in huge letters on a giant red and white ball that revolved slowly in the middle of the main sales floor. Saks’s spring marketing campaign, which came to an end on April 1st, made its brazen appeal to greed in a bid to drum up sales in a dire market. But the exclamation mark in its “Want It!” tagline should perhaps have been a question mark instead.

Asked whether they want more stuff, consumers in rich countries have responded with an emphatic “No”. The breathtaking speed with which retail sales have plummeted in both America and Europe (see chart) has caught retailers and manufacturers by surprise. In response, companies have tried desperately to prop up revenues using a variety of promotions, advertising and other marketing ploys, often to no avail.

But as they battle with these immediate problems, marketers are also pondering what longer-term changes in consumer behaviour have been triggered by the recession. It is tempting to conclude that, once economies rebound, customers will start spending again as they did before. Yet there are good reasons to think that what promises to be the worst downturn since the Depression will spark profound shifts in shoppers’ psychology.

The biggest changes will take place in America and parts of Europe, where housing and stockmarket bubbles have imploded and unemployment has soared. As well as seeing their incomes fall as employers cut wages and jobs, households have also seen the value of their homes and retirement savings shrink dramatically. Although the threat to wages will fade as growth picks up, the damage done to housing and other assets will linger.

This has already led to a swift tightening of purse strings by shoppers and a wave of discounting by companies. Inmar, an American firm that processes discount coupons, says that redemptions in America were 17% higher in the first quarter of 2009 than in the same period last year, as consumers hunted for bargains. Many companies have launched lower-priced products in order to avoid losing customers as they trade down. Danone, a French food group, has created a line of low-cost yogurts in Europe, called “€co Packs”, that come in smaller tubs and fewer flavours than its standard products.

The trend towards thrift will not disappear when the economy picks up. For one thing, those banks left standing after the bust will be far more parsimonious with consumer credit. For another, many people will still be intent on rebuilding their nest-eggs, which is reflected in sharply rising rates of saving. Sociologists also detect a distinct change in people’s behaviour. Until the downturn, folk had come to assume that “affluence” was the norm, even if they had to go deeply into debt to pay for gadgets and baubles. Now many people no longer seem consumed by the desire to consume; instead, they are planning to live within their means, and there has been a backlash against bling.

So for years to come, many more households will be firmly focused on saving, splashing out only occasionally on a big-ticket item. Some firms are already trying to capitalise on this new mood. Sears, another American retailer, recently revived a savings plan it used many years ago, known as the “Layaway programme”, under which a consumer can make a down payment on an item that is then held for him for a fixed period while he saves the rest of the cash needed to buy it.

A second shift in consumer psychology has been prompted by fallout from the global banking crisis and the furore over huge bonuses paid by firms rescued with public money; by a wave of financial scandals, such as the Madoff affair in America; and by multibillion-dollar bail-outs of carmakers in many countries. All this seems to be denting trust in business more generally. The Boston Consulting Group recently completed a global survey of consumer sentiment involving 15,000 consumers. The results, to be published this month, show that over half of respondents from America and Europe say the crisis has intensified their distrust of big business.

Past downturns have also stoked anti-business feeling, which dissipated as growth returned. But the sheer scale of the failings that have come to light recently mean that suspicion and wariness will not vanish so easily this time around. In response, firms will need to be even more transparent in their dealings with customers, who will punish them severely if they fail to keep their promises. Bain, another consulting firm, says it has seen several firms appoint executives recently with a specific brief to ensure that price adjustments and service cuts do not damage loyal customers’ experience of brands.

Companies will also need to show they empathise with consumers’ new concerns. “There will need to be a move from passion to compassion in marketing,” reckons John Gerzema of Young & Rubicam, a marketing-services firm. Hyundai, a South Korean carmaker, has taken the hint. In January it said that for a 12-month period it would allow car buyers to return vehicles without incurring a penalty if they lose their jobs. On March 31st Ford and General Motors followed Hyundai’s example, saying they would make payments on car loans and leases for a limited period on behalf of buyers who are laid off.

Both the shift towards greater thrift and greater scepticism about brands will influence other consumer trends, too. Interest in things such as green products and healthy foods will continue to grow in a post-crisis world, but customers will be less willing to pay a premium for them, and will demand more value for money when they do.

The downturn will also accelerate the use of social media, such as blogs and social-networking sites, by consumers looking for intelligence on firms and their products. As trust in brands is eroded, people will place more value on recommendations from friends. Social media make it harder for brands to pull the wool over consumers’ eyes, but they also offer canny companies a powerful new channel through which to promote their wares and test new products and pricing strategies.

Marketers ignore the messages that emanate from these groups at their peril. For one thing is clear: this recession has triggered a wholesale reappraisal by shoppers of the value that their habitual brands deliver. The winners will be those that adapt intelligently to the new reality. The losers will be those who think they can win simply by telling consumers to “Want It!”

China's economy

Bamboo shoots of recovery
회복의 죽순

Apr 16th 2009 | HONG KONG
From The Economist print edition

Signs that a giant fiscal stimulus is starting to work


THE Chinese consider eight to be a lucky number because it sounds like the word meaning “prosperity”. And luck, combined with a massive fiscal stimulus, may yet help the government to achieve its growth target of 8% in 2009. Earlier this year, most economists thought such growth was impossible at a time of deep global recession, but some are now nudging up their forecasts.
prosperity: 재무적으로 건전함.
중국은 연초만 해도 8%성장하기 어려울 것으로 보였으나 현재는 가능할 것 같다.

At first sight, the GDP figures published on April 16th were disappointing. China’s growth rate fell to 6.1% in the year to the first quarter, less than half its pace in mid-2007. On closer inspection, however, the economy is starting to perk up. Comparing the first quarter with the previous three months, GDP rose at an estimated annualised rate of around 6%, after nearly stalling in the fourth quarter (see chart). By March the economy was gaining more speed, with the year-on-year increase in industrial production rising to 8.3% from an average of 3.8% in the previous two months. Retail sales were 16% higher in real terms than a year ago, and fixed investment has soared by 30%, signalling that the government’s infrastructure-led stimulus is starting to work.

Exports, on the other hand, tumbled by 17% in the year to March and global demand is widely expected to remain weak this year. This is the main reason why some economists expect GDP growth of “only” 5% for 2009 as a whole. But the gloomier forecasts tend both to overstate the importance of exports and to understate the size of the government’s stimulus.

Contrary to conventional wisdom, China’s sharp economic slowdown was not triggered by a collapse in exports to America. Its growth began to slow in 2007, well before exports stumbled, driven by a collapse in the property market and construction. This was the result of tight credit policies aimed at preventing the economy from overheating. The global slump dealt a second blow late last year, but China is less dependent on exports than is commonly believed. Exports account for nearly 40% of GDP but they use a lot of imported components, and only make up about 18% of domestic value-added. Less than 10% of jobs are in the export sector.

If a collapse in domestic demand led China’s economy down, it can also help lead it up again. Not only is China’s fiscal stimulus one of the biggest in the world this year, but the government’s ability to “ask” state-owned firms to spend and state banks to lend means that the government’s measures are being implemented more rapidly than elsewhere. To take one example, railway investment has tripled over the past year.

Only about 30% of the government’s 4 trillion yuan ($585 billion) infrastructure package is being funded by the government. Most of the rest will be financed by bank lending, which had already soared by 30% in the 12 months to March, twice its pace last summer. JPMorgan thinks that this credit and investment boom could lift GDP growth to an annualised pace of over 10% in each of the next three quarters.

Jonathan Anderson, an economist at UBS, argues that the property market could be as important as the fiscal stimulus in determining China’s fate. After falling sharply last year, housing sales rose by 36% in value in the year to March. Housing starts are still down, but if sales continue to strengthen, construction could pick up in the second half of 2009. That would also help to support consumption: about half of China’s job losses among migrant workers have been in the building industry.

If construction does recover and infrastructure spending continues to rise, then even if exports remain weak, China could see growth of close to 8% this year—impressive stuff when rich economies are expected to contract by 4-5%. There are growing concerns about the quality of that growth, however. The World Bank estimates that government-influenced spending will account for three-quarters of China’s GDP growth this year. The clear risk is that politically directed lending creates more overcapacity, poor rates of return and future bad loans for banks.

These are valid concerns. But Andy Rothman, an economist at CLSA, a brokerage, reckons that state-owned firms mainly plan to increase their spending on upgrading existing production facilities, rather than expanding capacity. Also, about half of the increase in investment is on public infrastructure. This will inevitably include some white elephants but, in a poor country, the return on infrastructure investment is generally high. There is no need to build “bridges to nowhere” when two-fifths of villages lack a paved road to the nearest market town.

Reuters

Bridge urgently neededWhat about the risks to banks? The last time they were forced to support the government’s stimulus policy, during Asia’s financial crisis in 1998, Chinese banks were left with large non-performing loans. Bad loans will rise again this time, but Tao Wang, also at UBS, argues that banks are in a stronger position than in 1998. China is one of the few countries in the world where bank credit has fallen relative to GDP over the past five years. Banks have an average loan-to-deposit ratio of only 67%, low by international standards, and less than 5% of banks’ loans are non-performing, down from 40% in 1998.

The biggest task for China is to find a new engine for future growth. It cannot rely on exports, nor can the investment stimulus be sustained for long. Without stronger consumer spending, China’s growth will be much slower than in recent years. Reforms to improve health care and the social safety net will take many years to encourage people to save less.

Andy Xie, an independent economist based in Shanghai, suggests that the quickest way to boost consumption would be for the government to distribute the shares that it holds in state-owned enterprises to households, and to force those firms to pay larger dividends. But the authorities in Beijing are unlikely to take his advice. How else could they lean on big firms to support the economy in times like these?

A chancellor flying on a wing and a prayer
By Martin Wolf

Published: April 22 2009 14:37 | Last updated: April 22 2009 14:37

Only Alistair Darling, most emollient of politicians, could manage to make this Budget boring. He is telling his country that its prosperity was as fraudulent as a collateralised debt obligation, that Gordon Brown’s boasts of “no more Tory boom and bust” are a joke, that the forecasts he gave only last November were nonsense, that the public finances are deteriorating at a rate never seen in peacetime and that, to cover these failures, he is indulging in populist attacks on the highly paid. To make this feel boring is an achievement.


Yet is the government at last being realistic about the scale of this disaster? Can Labour hope to get away with it, economically or politically? Does it deserve to do so? These are the questions for markets and analysts now, and for voters at some point in the next 12 months. My answers are, briefly: No, No and No.

In terms of the overall picture, the salient figures were already well known: instead of an economic contraction of 1 per cent this year forecast in the pre-Budget report, the Treasury now forecasts a decline of 3.5 per cent; instead of public sector net borrowing of 8 per cent of gross domestic product this financial year and 6.8 per cent next year, falling to 2.9 per cent in 2013-14, we now have 12.4 per cent this year, followed by 11.9 per cent next year and 5.5 per cent in 2013-14; and instead of net debt at 57 per cent of GDP in 2013-14, we now have net debt at 79 per cent.

This is a horror story. But it could, of course, be worse: the economy may not recover as hoped; losses on support for the banks could, as the International Monetary Fund suggests, be far bigger than the 3.5 per cent of GDP now expected; and, above all, the creditworthiness of the British government could come into question, with devastating consequences. The government is flying on a wing and a prayer. Can it – or its successor – land the aircraft? As a British citizen, I do hope so. But nobody can now be sure of this. Can a government that made large claims for the quality of its stewardship survive such a debacle?

Perhaps the most striking single figure in the Budget is that the Treasury now believes cyclically adjusted net borrowing will be 9.8 per cent of gross domestic product this financial year (see chart). In other words, virtually all of the overall net borrowing requirement of 12.4 per cent of GDP is structural.


The Treasury’s implicit view is that this is a sudden and unexpected event, consequent on the collapse of corporate profitability, particularly in the financial sector, and of the housing market: it shows the structural net borrowing requirement at only 2.7 per cent in 2007-08 and 5.7 per cent in 2008-09. But this view is highly implausible. More realistic is that, as happened in the boom of the late 1980s, but on a bigger scale, the Treasury confused a super-boom with a sustainable economic position. Now, after the collapse, the Treasury admits that the structural fiscal position is far worse than it thought. If it – and, we must admit, many others – had realised how fragile the economic and fiscal position was, they would have recognised that deficits and net public debt were far too high.

So the big question is how – and how quickly – the Treasury expects this appalling structural position to improve. The answer is: very slowly. By 2013-14, structural net borrowing is still expected to be 4.5 per cent of GDP and the structural current budget (supposed to be in balance “over the cycle” under now discarded fiscal rules) will still run a deficit of 3.2 per cent of GDP. In this Budget, the cyclically adjusted current budget returns to balance only in 2017-18, instead of 2015-16, the date chosen in the November pre-Budget report.

Yet any notion of the structural as opposed to the cyclical position is heroic guesswork. It may be sensible, therefore, to ignore the distinction and focus on the plausibility of actual numbers. In essence, the Budget forecasts that, as a result of the collapse in GDP and the recession, particularly the huge rise in spending on benefits, total spending will peak at 48.1 per cent of GDP next year, but then fall to 39 per cent by 2017-18. Meanwhile, receipts make a modest recovery, from a crisis-hit 35.1 per cent of GDP this financial year and 36.2 per cent next year, to 38 per cent in 2013-14 and, presumably, thereafter.

Behind this forecast is a promise and a hope: the promise is that real public spending will remain roughly constant between 2010-11 and 2013-14 and then rise at only about 0.5 per cent a year over the rest of that parliament and, implicitly, well into the next; the hope is that the economy will recover vigorously, with GDP already growing at 3.5 per cent in 2011, after 1.25 per cent next year. These are not impossible forecasts. But they imply a resolution that can hardly be expected of any UK elected government, a vigour that can no longer be assumed of the storm-tossed British economy and an amount of luck, on the world economy and losses in the raddled banking system, that cannot be taken for granted. The horrible truth is that the government’s forecasts are still very far from the worst imaginable.

I have no idea whether the government can both get away with this optimism and postpone the moment of truth at least until after the general election. Markets have been forgiving. The difficulty with assuming that this will continue is that this is how markets tend to behave – until they cease to do so. Should investors decide that a return to fiscal stability has become a remote prospect, they may turn against the UK suddenly and brutally. The populism of the Budget, with its fiscally futile attack on relatively high earners, makes this even more likely.

Finally, does the government deserve to get away with it? It is true that this is a global crisis in which many economies have been as hard hit as the UK. But, according to the Organisation for Economic Co-operation and Development, no other big member has suffered as large a deterioration in its structural fiscal position as the UK. In retrospect, the government was far too optimistic about the structural solidity of the UK economy and its finances. While many others were equally blind, it is hard for a government to escape responsibility for so huge a mistake.

I have sympathy for the decision not to tighten fiscal policy during the worst of a recession. But I would also want to see determination to take the measures needed to return the fiscal position to health by the end of the next parliament. This will require action on both revenue and spending. Understandably, perhaps, the chancellor failed to spell out the scale of the challenges that lie ahead even if the economy were to recover robustly. Yet what is in prospect is year after miserable year of austerity.

The challenge for both government and the opposition is to show how they will bring the budget back under control. Neither side is being honest about what this means. If this failure leads to a collapse of confidence, that will prove the worst mistake of all.


Copyright The Financial Times Limited 2009

Tesco annual profits top £3bn
By Adam Jones

Published: April 21 2009 07:50 | Last updated: April 21 2009 15:05

Tesco on Tuesday reported a 10 per cent rise in underlying annual pre-tax profits to £3.13bn, as strong growth from Asia supported its more mature British operations.

However, Britain’s biggest retailer also said that its net debt had increased to £9.6bn – about £1.6bn more than it had predicted last September.


In addition, Tesco said it would conditionally allocate £500m of property to its pension fund to bolster the security of the scheme, whose post-tax accounting deficit almost doubled to £1.1bn in the year to February 2009.

Investors welcomed the results, sending Tesco shares 4.85 per cent higher to 348.2p in afternoon London trading, though still below the 373.2p they reached in February.

The record underlying profit — which strips out volatile non-cash charges — was better than the £3.02bn mean expectation of analysts polled by Reuters. The statutory pre-tax profit rose 6 per cent to £2.95bn, less than the £3.06bn consensus forecast.

A final dividend of 8.39p has been proposed, making a total of 11.96p for the year, an increase of 10 per cent.

In the UK, Tesco’s biggest market by far, like-for-like sales rose 2.7 per cent in the fourth quarter of its financial year, up from 2 per cent in the third quarter and making 3 per cent for the year.

Laurie McIlwee, finance director, said it was very hard to tell whether the UK market would improve.

“On a week by week basis, it is very volatile... I couldn’t say that it has definitely bottomed out. We are planning for a tough year.”

He acknowledged the renewed prowess of some of Tesco’s domestic competitors, but added: “We are still growing faster than the market. We are not losing [market] share.”

Overall, Tesco said it had made a good start to the new financial year. In the UK, like-for-like sales growth, excluding petrol, improved to 3.4 per cent in the first six weeks of March and April.

Sales for the 53 weeks to February 28 were £59.4bn including VAT, an increase of 15 per cent on the prior 52-week period, or 11 per cent when favourable currency movements were stripped out.

During the year, international sales rose 14 per cent at constant exchange rates, reflecting an acceleration of sales growth in Asia that was aided by recently-acquired stores in South Korea.

However, losses from its Fresh & Easy grocery chain in the US were £142m, rather than the predicted £100m, mainly because of adverse currency movements. Tesco said it would hold off from a planned acceleration in Fresh & Easy store openings.

The increase in net debt to £9.6bn — which had been anticipated by analysts — partly resulted from higher capital expenditure, including Chinese shopping centre investments.

It was also affected by adverse currency movements and property market weakness, which made sale-and-leasebacks and other capital-raising measures more difficult.

Mr McIlwee said: “We are looking to bring [net debt] down to about £8.5bn but that will be dependent on property prices and a more stable currency outlook.” Tesco also pledged to rein in capital spending substantially this year.

The pension scheme’s accounting deficit was marginally higher than the figure reported at the retailer’s interim results. The transfer of property assets would only take place if Tesco ceased to be a going concern.






Copyright The Financial Times Limited 2009

Patience will help to grease M&A wheels
M&A할려면 인내력이 필요하다
By Lina Saigol

Published: April 19 2009 19:32 | Last updated: April 19 2009 19:32

Eight months ago, investment bankers were geared for a flood of asset disposals from distressed companies struggling to meet their short-term capital needs.
8달 전만해도 기업들이 단기자금 조달하기 위해 힘들었다.

Banks beefed up their sell-side operations, bringing together M&A and restructuring specialists, to double the chances of winning mandates to sell businesses. The thinking was that rather than tap investors for cash, chief executives would try to raise capital by divesting anything non-core.

But so far, companies have favoured rights issues and selling corporate bonds over the sale of even underperforming divisions.

This is mainly due to the vast gulf that still exists between buyers and sellers over how much an asset is worth. Both Royal Bank of Scotland and AIG pulled the sale of their insurance assets after balking at the prices bidders were offering.

But if the last downturn provides any clues, the disconnect between bidders and targets should start to narrow soon.

It was two years after the collapse of the dotcom boom in late 2000 before companies started selling assets to reduce debt accumulated from expensive acquisitions. Asset disposals accounted for half of all M&A activity in the European technology, media and telecoms sector in 2003.

That level of activity was due largely to private equity groups’ willingness to buy big assets such as Yell, BT’s yellow pages business that Apax and Hicks, Muse, Tate & Furst acquired in 2001.

This time around, private equity has stayed on the sidelines as it writes down many investments acquired at the height of debt boom in 2006/07 and struggles to find the leverage to make acquisitions work.

But at some stage private equity groups will spend the cash they are sitting on and take the plunge – as CVC Capital Partners recently demonstrated when it bought Barclays’ iShares exchange-traded fund unit for $4.4bn (£3bn).

The UK bank’s shares rose 7 per cent on the sale and that should encourage other companies to look at the structure of their businesses and dispose of anything they will not miss when the upturn comes.

lina.saigol@ft.com

US prices drop for first time since 1955

US prices drop for first time since 1955
By Alan Rappeport in New York

Published: April 15 2009 14:19 | Last updated: April 15 2009 14:47

Prices in the US declined in the year to March for the first time since 1955, the labour department said on Wednesday, easing fears that aggressive government stimulus measures could kick-start inflation.

The 0.1 per cent monthly decline in March was largely due to falling energy prices and was the first fall after two months of increases. Consumer prices were down by 0.4 per cent year-on-year.

The monthly figure trailed the 0.1 per cent rise that economists had forecast and compared with a 0.4 per cent increase in February.

The drop in prices could renew fears of a deflationary trap that were stoked after prices were flat or declined during the final five months of 2008. As the economic recession deepened in the second half of last year companies slashed prices to clear stocks.

However, core prices, which exclude food and energy and is the measure by which economists judge the risk of general deflation, rose by 0.2 per cent and were 1.8 per cent higher than in March 2008. Core prices also rose by 0.2 per cent in February.

“The economy is suffering from disinflation but not outright deflation pressures in the goods and services sectors,” said Alan Ruskin, strategist at RBS Greenwich Capital.

Energy prices fell by 3 per cent last month after climbing by 3.3 per cent in February. Prices of energy were pulled back by falling petrol prices which were off by 4 per cent in March after rising by 8.3 during the previous month.

Prices fell across most sectors last month, while the cost of medical care, education and communication rose in March.

The slide in consumer prices follows a report on Tuesday that US wholesale prices fell in March after two months of gains due to falling energy prices. The producer price index for finished goods fell by 1.1 per cent last month, trailing economists forecasts that prices would be flat.

Compared with March 2008, wholesale prices were down by 3.5 per cent.

The decline was due to a 13.1 per cent drop in petrol prices. Excluding food and energy, core producer prices were flat last month. Weak capital spending also blunted any inflation as business investment has stalled amid diminished demand.

Separately on Wednesday the Federal Reserve said that US industrial production fell for the fifth month running in March, dropping by 1.5 per cent on weak factory and manufacturing output as global demand has continued to erode.

The monthly decline was worse than economists expected and was driven by falling production of business equipment and construction supplies. Industrial output was off by 12.8 per cent compared with the same month in the prior year.

Economists expected industrial production would fall by 0.9 per cent last month after a 1.4 per cent decline in February. Output has declined in 11 out of the last 13 months.

Utility output rose by 1.8 per cent in February after a 7.7 per cent drop the prior month, as cold temperatures replaced unseasonably mild weather. Mining output was off by 3.2 per cent.

Meanwhile, the capacity utilisation rate, a measure of the proportion of plants in use, across all industries, fell to 69.3 from a revised 70.3 per cent. The figure was lowest since 1967, when the Federal Reserve began keeping such records.
Copyright The Financial Times Limited 2009

[FT]Cutting back financial capitalism is America’s big test

Cutting back financial capitalism is America’s big test
By Martin Wolf

Published: April 14 2009 21:47 | Last updated: April 14 2009 21:47

Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point.
미국이 러시아인가? 조롱하는 질문은 아니다. 이렇게 질문한 사람은 MIT 슬론의 존슨교수다. 그는 금융과두제를 신흥국가의 엘리트경영과 비교했다. 슬론이 그 둘을 비교하는 게 상식적인가? 답은 그렇다이다. 그러나 포인트만 집어냈을 뿐이다.

“In its depth and suddenness,” argues Prof Johnson, “the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets.” The similarity is evident: large inflows of foreign capital; torrid credit growth; excessive leverage; bubbles in asset prices, particularly property; and, finally, asset-price collapses and financial catastrophe.
미국의 행보는 신흥국가와 매우 유사하다. 막대한 외국자본의 유입, 신용상승, 레버리지증가, 자산가격거품, 특정한 재산, 마지막으로 자산가격몰락과 금융대참사.

“But,” adds Prof Johnson, “there’s a deeper and more disturbing similarity: elite business interests – financiers, in the case of the US – played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.” Moreover, “the great wealth that the financial sector created and concentrated gave bankers enormous political weight.”
그러나 그보다 더 유사한점이 있다. 엘리트들이 금융업에 종사하면서 위기를 유발했다는 것이다. 막대한 자금으로 도박을 하고, 정부는 이를 뒷받침한다. 결국 모두가 파멸한다. 금융부분이 창출한 막대한 부는 은행가들에게 거대한 정치적 힘을 주었다.

Now, argues Prof Johnson, the weight of the financial sector is preventing resolution of the crisis. Banks “do not want to recognise the full extent of their losses, because that would likely expose them as insolvent ... This behaviour is corrosive: unhealthy banks either do not lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and, as it does, bank assets themselves continue to deteriorate – creating a highly destructive cycle.”

Does such an analysis make sense? This is a question I thought about during my recent three-month stay in New York and visits to Washington, DC, now capital of global finance. They are why Prof Johnson’s analysis is so important.

Unquestionably, we have witnessed a massive rise in the significance of the financial sector. In 2002, the sector generated an astonishing 41 per cent of US domestic corporate profits (see chart). In 2008, US private indebtedness reached 295 per cent of gross domestic product, a record, up from 112 per cent in 1976, while financial sector debt reached 121 per cent of GDP in 2008. Average pay in the sector rose from close to the average for all industries between 1948 and 1982 to 181 per cent of it in 2007.

In recent research, Thomas Philippon of New York University’s Stern School of Business and Ariell Reshef of the University of Virginia conclude that the financial sector was a high-skill, high-wage industry between 1909 and 1933. It then went into relative decline until 1980, whereupon it again started to be a high-skill, high-wage sector.* They conclude that the prime cause was deregulation, which “unleashes creativity and innovation and increases demand for skilled workers”.

Deregulation also generates growth of credit, the raw stuff the financial sector creates and on which it feeds. Transmutation of credit into income is why the profitability of the financial system can be illusory. Equally, the expansion of the financial sector will reverse, at least within the US: credit growth and leverage masked low or even non-existent profitability of much activity, which will disappear, and part of the debt must also be liquidated. The golden age of Wall Street is over: the return of regulation is cause and consequence of this shift.

Yet Prof Johnson makes a stronger point than this. He argues that the refusal of powerful institutions to admit losses – aided and abetted by a government in thrall to the “money-changers” – may make it impossible to escape from the crisis. Moreover, since the US enjoys the privilege of being able to borrow in its own currency it is far easier for it than for mere emerging economies to paper over cracks, turning crisis into long-term economic malaise. So we have witnessed a series of improvisations or “deals” whose underlying aim is to rescue as much of the financial system as possible in as generous a way as policymakers think they can get away with.

I agree with the critique of the policies adopted so far. In the debate on the Financial Times’s economists’ forum on Treasury secretary Tim Geithner’s “public/private investment partnership”, the critics are right: if it works, it is because it is a non-transparent way of transferring taxpayer wealth to banks. But it is unlikely to fill the capital hole that the markets are, at present, ignoring, as Michael Pomerleano argues. Nor am I persuaded that the “stress tests” of bank capital under way will lead to action that fills the capital hole.

Yet do these weaknesses make the US into Russia? No. In many emerging economies corruption is egregious and overt. In the US, influence comes as much from a system of beliefs as from lobbying (although the latter was not absent). What was good for Wall Street was deemed good for the world. The result was a bipartisan programme of ill-designed deregulation for the US and, given its influence, the world.

Moreover, the belief that Wall Street needs to be preserved largely as it is now is mainly a consequence of fear. The view that large and complex financial institutions are too big to fail may be wrong. But it is easy to understand why intelligent policymakers shrink from testing it. At the same time, politicians fear a public backlash against large infusions of public capital. So, like Japan, the US is caught between the elite’s fear of bankruptcy and the public’s loathing of bail-outs. This is a more complex phenomenon than the “quiet coup” Prof Johnson describes.

Yet decisive restructuring is indeed necessary. This is not because returning the economy to the debt-fuelled growth of recent years is either feasible or desirable. But two things must be achieved: first, the core financial institutions must become credibly solvent; and, second, no profit-seeking private institution can remain too big to fail. That is not capitalism, but socialism. That is one of the points on which the right and the left agree. They are right. Bankruptcy – and so losses for unsecured creditors – must be a part of any durable solution. Without that change, the resolution of this crisis can only be the harbinger of the next.


*Wages and Human Capital in the US Financial Industry 1909-2006, January 2009, www.nber.org