Bank of England Governor Mervyn King said central bank officials are prepared to take unpopular measures to prevent banking excesses from undermining financial stability and economic growth.
Greece’s Parliament late on Tuesday approved new cuts in public sector pensions and government spending required to secure a second package of international rescue loans.
Lawmakers voted 202-80 in favor of cutbacks worth a total euro3.2 billion ($4.31 billion) and aimed at bringing the 2012 budget back in line with targets. Lawmakers from both parties in Prime Minister Lucas Papademos’ coalition, the majority Socialists and the conservatives, backed the legislation.
Earlier, the debt-crippled country’s Cabinet decided to apply recent labor reforms, including deep cuts to the minimum wage, retroactively to Feb. 14.
Greece is obliged to adopt a series of austerity measures and reforms before it can receive any funds from its new euro130 billion ($174 billion) package of rescue loans from other eurozone countries and the International Monetary Fund.
The bailout, and accompanying bond swap deal with private creditors, are meant to save the country from a potentially catastrophic default in late March that could drag down other financially vulnerable countries and threaten the European Union’s joint currency, the euro.
The rescue package is Greece’s second in less than two years. The country has been surviving since May 2010 on funds from a first bailout from the eurozone and IMF, and has received euro73 billion ($98 billion) from the initially approved euro110 billion ($147 billion) package.
But more than two years of harsh austerity implemented to secure the rescue funds have taken a hefty toll on the recession-bound Greek economy, with businesses closing in the tens of thousands and unemployment at a record high 21 percent.
“It is dramatic to cut someone’s pensions. … But why do we have to take these measures? Because our budget is still running at a loss,” Finance Minister Evangelos Venizelos said in Parliament. “We are still adding debt to our debt. And if we do not start to generate a primary surplus next year, that will be catastrophic.”
The newly approved legislation imposes nearly euro400 million ($538 million) in cuts to already depleted pensions.
Health and education spending will be reduced by more than euro170 million ($229 million), subsidies to the state health care system will be cut by euro500 million ($673 million), and health care spending on medicine will fall by euro570 million ($767 million).
Furthermore, some euro400 million ($538 million) will be lopped off defense spending _ three quarters of which will come from purchases.
The law also revises the 2012 budget, changing the government deficit target to 6.7 percent of gross domestic product from an initial forecast of 5.4 percent.
Measures approved by Papademos’ Cabinet earlier Tuesday include a 22 percent cut in the minimum salary, currently at euro751 ($1,010) per month, for private sector workers, and a 32 percent cut for workers under the age of 25, where the rate of unemployment is nearly 50 percent.
Limits also are being imposed on collective wage agreements and the process of labor arbitration, with some measures to remain in effect until overall unemployment falls below 10 percent.
Lawmakers are to vote again on Wednesday on another bill implementing cuts that have previously been announced.
The new wave of austerity measures have sparked widespread anger among a public that has seen its income and living standards drop with no clear end to the crisis in sight.
On Tuesday, about 100 uniformed police, coast guard and fire service unionists protested pay cuts outside Parliament, with a small group burning a wartime military German flag used in the Nazi era in 1935-1945. While Germany is a major contributor to both Greek bailouts, Berlin’s insistence on an austerity-based cure for the country’s financial woes has angered many Greeks.
Papademos, a technocrat heading Greece’s temporary coalition government, is to head to Brussels for a meeting Wednesday with European Commission chief Jose Manuel Barroso.
Greece’s European partners have been pressing the country to implement the measures it has already passed, after repeated delays and missed targets over the last two years eroded trust in the ability of Greece’s politicians to stick to their pledges.
European Parliament President Martin Schulz was in Athens on Tuesday for a series of meetings, and he gave a speech in Parliament stressing that “Greece must remain in the euro.”
“We must do everything we can to prevent the collapse of the euro,” he said, adding that more emphasis must be put on measures to promote growth rather than only on cutbacks.
“A policy based solely on austerity spells economic disaster,” he told Greek deputies.
“Budgetary prudence is certainly essential (but) … there is too much focus on financial penalties and austerity packages,” Schulz said, adding that economic growth could be stifled in many European countries.
“How are countries whose economies are at a standstill, which are facing a recession, supposed to pay off their debts? Greece has already paid a high price. It cannot go on paying,” he said.
On Monday, the Standard & Poor’s ratings agency downgraded Greece’s credit rating to “selective default” over a debt writedown deal with private creditors that is an integral part of the second bailout.
The downgrade had been widely expected, as ratings agencies had said the bond swap with private creditors, which seeks to cut euro107 billion ($144 billion) off Greece’s debt, would constitute a selective default. Once the swap is carried out next month, the agencies are expected to upgrade Greece.
Late Tuesday, the International Swaps and Derivatives Association said it has accepted for consideration a question relating to a potential credit event with respect to Greece. An ISDA statement said a meeting will be held at 1100GMT on Thursday to determine whether a credit event has occurred.
The decision by the New York-based trade association, which represents hundreds of banks and other companies, will ultimately determine whether the bond swap will trigger payment of insurance taken by investors against a Greek default.
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Derek Gatopoulos and AP Television in Athens contributed.
The average U.S. price of a gallon of gasoline has jumped three-and-a-half cents over the past two weeks.
That’s according to the Lundberg Survey of fuel prices, released Sunday, which puts the price of a gallon of regular at $3.39.
Midgrade costs an average of $3.54 a gallon, and premium is at $3.66.
Diesel was up about two cents, at $3.91 a gallon.
Of the cities surveyed, Salt Lake City, Utah, has the nation’s lowest average price for gas at $2.94. Los Angeles has the highest at $3.71.
In California, the lowest average price was $3.59 in Fresno. The average statewide for a gallon of regular was $3.67, up about three cents.
The number of Americans filing for first-time unemployment benefits took an upswing just before Christmas.
About 381,000 people filed initial jobless claims in the week ended Dec. 24, the Labor Department said Thursday. That was more than economists had expected and marked an increase of 15,000 from the prior week, when claims had fallen to their lowest level since April 2008.
The Labor Department adjusts the figures to account for seasonal trends, but still, the holidays can sometimes distort the numbers slightly. Economists look to the four-week average to smooth out volatility. In the latest report, that number decreased to 375,000, its lowest level since mid-2008.
"Around the holidays, initial claims tend to be volatile, so I think we don’t have to read too much into the small rebound today," said Aichi Amemiya, an economist with Nomura cheap pay day loans. "We believe the labor market continues to improve."
Meanwhile, continuing claims — which include Americans filing for their second week of claims or more — increased 34,000 to 3,601,000 in the week ended Dec. 17, the most recent data available.
Investors seemed to shrug off the numbers, optimistic that next week’s monthly jobs report will show employers ramped up their hiring slightly in December.
Economists surveyed by Briefing.com predict the report will show employers added 150,000 jobs in December, up from 120,000 the month before. The unemployment rate, however, is expected to rise from 8.6% to 8.7%, as discouraged workers re-enter the labor force to look for jobs again.
The U.S. Treasury again shied away from labeling China a currency manipulator on Tuesday, but it rapped the country for not moving quickly enough on exchange rate reforms.
The United States also chided Japan for stepping into the currency market to stem the yen’s rise, and urged South Korea to use such interventions sparingly.
Some U.S. politicians have argued that China has gained an unfair competitive edge in global markets by keeping the yuan artificially low to boost exports, and pressure has mounted in Congress for President Barack Obama to punish China.
But the administration prefers to tread softly and use diplomacy. The U.S. Treasury, in a semi-annual report, as usual said that statutes covering a designation of currency manipulator “have not been met with respect to China.”
It repeated its standard line that appreciation in the yuan has been too slow, calling it “insufficient.”
“Treasury will closely monitor the pace of appreciation and press for policy changes that yield greater exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth,” it said in the report to Congress on international economic and exchange rate policies.
The value of the yuan, which Beijing manages closely, has risen 4 percent against the dollar this year and 7.7 percent since China dropped a firm peg against the greenback in June 2010. The Peterson Institute for International Economics recently estimated the yuan was undervalued by 24 percent against the dollar, down from 28 percent earlier in the year. It attributed the change to both Beijing’s policy of gradual currency appreciation and higher Chinese inflation.
At the heart of the friction between the two countries is a U.S. trade deficit with China that swelled in 2010 to a record $273.1 billion from about $226.9 billion in 2009. The cumulative Jan-Oct deficit with China is on track to top that this year, running at around $245.5 billion.
The U.S. Senate this year for the first time passed a bill that would require the administration to slap penalties on Chinese imports if it fails to adopt market-based exchange rates. While the measure has made no progress in the lower chamber and is unlikely to become law, it shows the mounting U.S. frustration with its vital trade partner.
President Obama at the November APEC meetings, in his toughest words yet, told President Hu Jintao that China must play by global trade rules and act like “a grown-up.”
Beijing has warned the United States not to “politicize” the currency issue, and some economists have pointed out that nations such as Japan and Switzerland have intervened in currency markets without drawing Washington’s ire.
TARGETING TOKYO
The report did point the finger at Japan this time, criticizing Tokyo for its solo yen-selling interventions in August and October that followed a joint Group of 7 action in the aftermath of the March 11 earthquake.
“The unilateral Japanese interventions were undertaken when exchange market conditions appeared to be operating in an orderly manner and volatility in the yen-dollar exchange rate was lower than, for example, the euro-dollar market,” the report said.
“In contrast to the post-earthquake joint G7 intervention in March, the United States did not support these interventions,” the Treasury said, adding that Tokyo should pursue reforms to revive its domestic economy rather than try to influence the exchange rate.
A senior Japanese government official said the report did not change Tokyo’s position that its currency policy was in line with G7 agreements.
“This report does not make it more difficult for Japan to intervene,” said the official, who spoke on condition of anonymity due to the sensitivity of the topic. “We are committed to doing whatever is necessary.”
Japanese exporters have complained that the ultra-strong yen puts them at a competitive disadvantage. The yen was trading at just under 78 to the U.S. dollar on Wednesday morning, about 3 percent weaker than it was on October 31, when Tokyo aggressively intervened to cap the rise.
The report also noted that South Korean authorities “should limit their FX interventions to exceptional circumstances of disorderly market conditions and adopt a greater degree of exchange rate flexibility.”
MORE OF THE SAME
Treasury Secretary Timothy Geithner has said the law on the FX report, which requires the administration to determine whether U.S. trade partners are deliberately undervaluing their currencies, is a poor tool to push Beijing on the yuan.
Instead, the United States prefers to argue for change at regular closed-door meetings with Chinese officials. It also uses international economic forums, such as the Group of 20 leading nations and the International Monetary Fund, to ramp up public pressure on Beijing to move more quickly to a more-flexible currency.
China is the biggest foreign holder of U.S. Treasuries, with about $1.1 trillion, a position that gives it leverage in international economic negotiations. Foreign exchange traders had not expected a change of U.S. tactics.
“It’s not very surprising. It’s sort of sliding it in under the radar. They’re (Treasury) really not in a position to make any major moves at this point,” said Sean Incremona, an economist at 4Cast in New York.
The Treasury Department has not labeled a country a currency manipulator since July 1994, when it cited China. A designation would require the United States to step up negotiations with Beijing on the yuan’s value.
The yuan slipped on Tuesday as strong dollar demand from corporations offset a record high mid-point fixed by the People’s Bank of China. The central bank set an all-time high dollar/yuan mid-point in an apparent move to let the yuan rise a little more at the end of 2011 so as to make the yuan’s full-year nominal appreciation look bigger, traders said.
Some U.S. manufacturers, which have been hit hardest by competition from China and other emerging economies, would still prefer the U.S. government to take a harder line.
“China’s currency is still enormously undervalued,” said Scott Paul, executive director of the Alliance for American Manufacturing, an industry lobby for hard-hit textile, steel and labor groups.
“I’m disappointed that President Obama has now formally refused six times to cite China for its currency manipulation, a practice which has contributed to the loss of hundreds of thousands of American manufacturing jobs.”
NAI DESCO, a commercial real estate firm, today said it will buy Coldwell Banker Commercial’s St. Louis brokerage operation.
The move will increase DESCO’s local property inventory and agents by 50 percent. The price was not revealed.
The move doesn’t affect Coldwell Banker Gundaker, which is a separate residential real estate company.
Carl Conceller, a founding member of Coldwell Banker Commercial, will join NAI DESCO as a principal.
DESCO, based in Clayton, lists about 200 commercial properties and Coldwell about 100. DESCO’s listings include the Chrysler plant in Fenton, Northwest Plaza in St. Ann and the Merrill Lynch and Regions Bank buildings in Clayton.
DESCO was originally an acronym standing for Don and Ed Schnuck company. It’s sister firm, the DESCO Group develops real estate, including projects for the Schnuck supermarket chain.
Today’s news was the second ownership switch in the local real estate business in the past week. Last Tuesday, Brookfield Residential Property Services of Canada bought Prudential Real Estate and Relocation Services, franchisor for the Prudential Alliance real estate operation in St. Louis.
Andrea Lawrence, president of Prudential Alliance Realtors, said she expects little change in the St. Louis operation. The realtors will continue to use the Prudential brand under the terms of the sale.
More U.S. homes entered the foreclosure process in October than in the previous month, with Florida, Pennsylvania and Indiana registering among the largest monthly increases, new data show.
Some 77,733 properties received an initial default notice last month, up 10 percent from September, foreclosure listing firm RealtyTrac Inc. said Thursday.
The number of homes scheduled to be auctioned or repossessed by lenders also posted monthly increases.
All told, notices of default, scheduled auctions and bank repossessions _ warnings that can eventually lead to a home being lost to foreclosure _ hit a seven-month high in October.
The numbers are further evidence foreclosure activity is picking up.
The activity slowed a year ago after problems surfaced with the way many lenders were handling foreclosure documentation, namely shoddy mortgage paperwork comprising several shortcuts known collectively as robo-signing. Many of the nation’s largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.
But banks appear to be moving past those problems now and starting to tackle a swelling backlog of homes with mortgages that have gone unpaid _ something that lenders are seeing more of as the economy struggles and unemployment remains high.
The rate that homeowners were 60 or more days late on their mortgage payment rose in the June-to-September period for the first time since the last three months of 2009, according to TransUnion.
The credit reporting agency said 5.88 percent of homeowners missed two or more payments, an early sign of possible foreclosure. That was up from 5.82 percent in the second quarter of 2011.
The number of U.S. homeowners underwater on their mortgage, or owe more than their homes are worth, represent another potential source of trouble for lenders.
As of June 30, some 22.5 percent of all U.S. homes had a mortgage that was under water, according to CoreLogic. That’s 10.9 million properties. Another 2.4 million borrowers had less than 5 percent equity in their home, the firm said.
Industry experts say a housing market turnaround isn’t likely to occur as long as there remains a glut of potential foreclosures hovering over the market, so October’s increase in foreclosure activity means a potentially faster revival for housing.
“We all know that there is an underlying amount of properties that need to go into foreclosure and the sooner we clear that the sooner we can get housing to a normal level,” said RealtyTrac CEO James Saccacio.
In some states, the number of homeowners put on notice by banks for missing payments far exceeded the national average for October.
Florida posted a 28 percent jump in October from September in homes receiving an initial default notice. Pennsylvania saw a 50 percent increase and Indiana registered a 61 percent gain, according to RealtyTrac.
In some cases, though, government intervention is slowing lenders down.
Take Nevada, where a law went into effect Oct. 1 requiring that foreclosure documents must be filed in the county where a property is located and a lender must provide a notarized affidavit detailing their legal right to proceed.
Saccacio said the law helped cause a 75 percent drop in initial default notices in Nevada last month versus September, bringing defaults to the lowest level since June 2006 at the peak of the housing boom.
“It’s like a rain delay,” Saccacio said. “We’ll eventually see foreclosure processing go up.”
Despite registering a 34 percent drop in foreclosure activity overall, Nevada still registered the highest foreclosure rate in the nation for October, with one in every 180 households receiving a foreclosure-related notice, RealtyTrac said.
In all, 230,678 U.S. homes received a foreclosure-related warning last month, up 7 percent from September, but down nearly 31 percent from October 2010.
Foreclosure auctions rose 8 percent from September, but climbed by more than 35 percent in several states, including Florida, Minnesota and Illinois.
Lenders took back 67,624 properties in October, up 4 percent from the previous month, but down 27 percent from a year earlier.
Bank repossessions increased by a far larger margin in several states. In Oregon they climbed 45 percent, while in New Jersey they posted a 48 percent jump. Indiana registered a 73 percent increase.
A former Goldman Sachs board member on Wednesday surrendered to federal authorities to face criminal charges stemming from a massive hedge fund insider trading case.
Rajat Gupta appeared in Manhattan federal court. The charges were not immediately disclosed.
The Securities and Exchange Commissioner originally brought civil fraud charges against Gupta in March. The SEC alleged that, at the height of the financial crisis, he passed along privileged financial information that helped enrich Raj Rajaratnam, a former billionaire hedge fund manager who was the prime target of the criminal probe.
Gupta’s lawyer responded by accusing the SEC of launching a “flawed case premised in large part on unreliable evidence being used in an attempt to bring down a man of sterling reputation and remarkable achievements without the procedural safeguards historically accorded to all persons similarly charged.”
The Indian-born, Harvard-educated Gupta also has served on the boards of Procter & Gamble and the parent company for American Airlines. He was a guest at President Barack Obama’s first state dinner.
Gupta’s name played prominently at the criminal trial earlier this year of Rajaratnam, who was convicted after prosecutors used a trove of wiretaps on which he could be heard coaxing a crew of corporate tipsters into giving him an illegal edge on blockbuster trades.
Jurors heard testimony that at an Oct. 23, 2008, Goldman board meeting, members were told that the investment bank was facing a quarterly loss for the first time since it had gone public in 1999.
Prosecutors produced phone records showing Gupta called Rajaratnam 23 seconds after the meeting ended, causing Rajaratnam to sell his entire position in Goldman the next morning and save millions of dollars payday loans with no fax.
Rajaratnam also earned close to $1 million when Gupta told him that Goldman had received an offer from Warren Buffett’s Berkshire Hathaway to invest $5 billion in the banking giant, prosecutors said.
In one tape played at trial, Rajaratnam could be heard grilling Gupta about whether the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.
“Have you heard anything along that line?” Rajaratnam asked Gupta.
“Yeah,” Gupta responded. “This was a big discussion at the board meeting.”
Prosecutors sought to maximize the impact of the Gupta tape by calling Goldman Sachs chairman Lloyd Blankfein to testify that the phone call violated the investment bank’s confidentiality policies.
Gupta’s lawyer Gary P. Naftalis said Tuesday night that his client and Rajaratnam communicated for “legitimate reasons.” He said his client didn’t trade in any securities, didn’t tip Rajaratnam so he could trade and didn’t share in any profits.
“The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity,” Naftalis said in an emailed statement.
Rajaratnam, who’s in his mid-50s, was sentenced earlier this year to 11 years in prison. His lawyers had argued for 6 1/2 to nine years. Defense attorney Terence Lynam asked the judge to show compassion because of Rajaratnam’s illnesses, saying: “He does not deserve to die in prison.”
JEFFERSON CITY
Candy shaped like marijuana that’s showing up on store shelves around the country won’t get kids high, but aghast city leaders and anti-drug activists say the product and grocers carrying it represent a new low.
“We’re already dealing with a high amount of drug abuse and drug activity and trying to raise children so they don’t think using illegal substances is acceptable,” said City Councilmember Darius Pridgen. “So to have a licensed store sell candy to kids that depicts an illegal substance is just ignorant and irresponsible.”
The “Pothead Ring Pots,” “Pothead Lollipops” and bagged candy are distributed to retail stores by the novelty supply company Kalan LP of the Philadelphia suburb of Lansdowne. It also wholesales online for $1 for a lollipop and $1.50 for a package of three rings.
Company president Andrew Kalan said the candy, on the market six to nine months and in 1,000 stores around the country, promotes the legalization of marijuana.
“It does pretty well,” he said.
“This is the first complaint I’ve heard,” Kalan said, “and people are usually not shy. I’m actually surprised this is the first.”
An irate parent brought the candy to Pridgen’s attention, hoping the city could apply pressure and get it out of stores.
Pridgen and Councilmember Demone Smith displayed the candy, along with fake marijuana known as “K2″ that’s also sold in some stores at Tuesday’s Common Council meeting, where Pridgen said he’d refuse to grant licenses to stores in his district that planned to sell the merchandise and would seek to embarrass stores that carry it. The synthetic marijuana is sold as incense but is smoked.
Synthetic marijuana typically involves dried plant material sprayed with one of several chemical compounds. The products contain organic leaves coated with chemicals that provide a marijuana-like high when smoked. The Drug Enforcement Administration recently used its emergency powers to outlaw five chemicals found in synthetic marijuana.
It appeared Pridgen’s message had gotten out by Thursday. A check of about a half-dozen stores in Buffalo, often in impoverished neighborhoods where real drugs are a festering problem, turned up none of the controversial candy.
The bags of “Pothead Sour Gummy Candy,” and lollipops shaped like marijuana leaves appear to be a recent addition to the inventory of some corner stores. The sour apple-flavored candy contains nothing illegal, but with its marijuana leaf, the word “Legalize” and a joint-smoking, peace sign-waving user on the packaging, critics say it’s not only in poor taste but an invitation to try the real thing free 3-in-1 credit report.
“It’s the whole idea that it promotes drugs and the idea that, here, you’ll look cool if you use this _ which is what gets these kids in trouble in the very first place,” said Jodie Altman, program supervisor at Renaissance House, a treatment center for drug- and alcohol-addicted youth.
Charmaine Rosendary, 36, of Buffalo shook her head when she saw a picture of the package.
“That’s not right. It’s just promoting marijuana,” she said while buying produce Friday at a Buffalo market. She said she wouldn’t allow her five teenagers, ages 15-19, to have it.
“I would not buy it or give them money to buy it,” she said. “It looks like weed.”
It’s not the first legal product to come under fire.
In 2008, the Hershey Co. stopped making Ice Breakers Pacs in response to criticism that the mints looked too much like illegal street drugs. Police in Philadelphia complained that the packets, nickel-sized dissolvable pouches with a powdered sweetener inside, closely resembled tiny heat-sealed bags used to sell powdered street drugs.
Candy cigarettes and fruity or energy drink-infused alcoholic beverages have been criticized for targeting young people. And in 1997, the Federal Trade Commission said the iconic Joe Camel cigarette ads and packaging violated federal law because they appealed to kids under 18. The tobacco company, R.J. Reynolds, eventually shelved the caricature.
A spokesman for the Office of National Drug Control Policy said advocates for legalization who claim marijuana is benign are not supported by science.
“Trivializing drug use is a threat to public health because it erodes perceptions of harm among young people,” said Rafael Lemaitre.
Kalan said his company carries several products with the marijuana leaf and “legalize” message to accommodate growing demand in the movement to legalize marijuana.
“We don’t advocate for a political position. We just look at what the marketplace wants and respond to it,” the wholesaler said. “It’s just candy… It’s sour apple flavor, it doesn’t claim to be pot in disguise or anything like that.”
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