Posts com Tag ‘G20’

Vídeos do VodPod não estão mais disponíveis.

more about ““, posted with vodpod
James Saft – Reuters Blog

jimsaftcolumn6– James Saft is a Reuters columnist. The opinions expressed are his own –

There is one law, it appears, for failing U.S. automakers but sadly quite another for similarly failing banks.

The Obama administration has decided to play hardball with auto firms; rejecting recovery plans from General Motors and Chrysler LLC (GM.N) and warning they could be thrown into bankruptcy. Chrysler, which is controlled by Cerberus Capital Management CBS.UL, has 30 days to complete an alliance with Italy’s Fiat SpA (FIA.MI) or face losing its government funding. GM chief executive Rick Wagoner is out at government request, as will be most of his board of directors in coming months.

This is painful and risky but probably for the best; the auto industry has far too much capacity and both firms have blundered repeatedly, avoiding making hard decisions to improve their competitiveness and products. In short, this is what is supposed to happen in capitalism when you fail.

It is also a huge contrast to what is being done for U.S. banks, where management has generally remained entrenched and where Treasury Secretary Geithner and his predecessor have thrown cheap money and other subsidies at doubtful banks in ever more complicated forms. Most recently, going as far as cutting hedge funds and other investors into the deal under the public private partnership in order to create the illusion of a return to market forces.

If the U.S. administration thinks the auto tough love will make them look like they are taking a hard line with highly compensated executives, they could not be more wrong. If anything it will increase the perception of the divide between how Main Street and Wall Street are treated when they come begging at the public trough.

To be fair, the case against the automakers is pretty airtight. Even given a recovery, which is by no means a sure thing, they may not be viable. The best counterargument, that bankruptcy causes rolling failures among suppliers and that consumers will shun automakers which are in bankruptcy. Those possibilities are hard to measure, and even if true, probably not enough to justify keeping the two on life support for what could be an indefinite period.


So what accounts for the difference in treatment, given that many banks, large and small, are both insolvent and dependent upon government support for their continued existence?

There are some legitimate reasons but they quickly bleed into special pleading and moral hazard. The entire economy is dependent in substantial part on the health of the financial system which intermediates capital, theoretically allocating it (insert ironical remark here) where it will make the best return.

That makes it harder for policy makers to simply allow banks to fail and for the industry to find its right size, the damage in the meantime would be too great. That gives large overleveraged banks a strong negotiating position with government, even in their weakness. That’s unacceptable and needs to be dealt with now, by treating them on their merits, rather than later through regulation to control the size and leverage of institutions.

There is a real risk that we get the worst of all worlds; the banks are kept alive and make it through with management in place and are able to use their obvious influence and might to deflect legislation. We then have a system with moral hazard at its heart and another larger crisis heading our way after the next bubble.

It is striking that the guy leading the enquiry into the viability of the automakers is former media investment banker, financier and private equity investor Steven Rattner rather than an auto person. Quite right too, someone who has lived and breathed this stuff is conflicted and won’t have the proper perspective.

But what a contrast with the number of once and future investment bankers (former Goldman Sachsite’s Neel Kashkari being exhibit A) involved in the government side of the banking bailout. After all, who else could understand this stuff? Don’t Trouble Your Pretty Little Head about that, as they used to say down south.

There is an alternative, after all. Rather than constructing a bank bailout which is essentially the Resolution Trust Corporation but missing out all that messy stuff about banks failing and executives getting canned, why not simply impose tough capital limits, fail the banks and executives that fail and come up with a reasonable timetable for selling on what you are left holding?

It has two great advantages; it has worked, both in the U.S. and around the world, and it is fair and easy to understand as fair.

Rescuing the economy and the banking system, as opposed to the banks, is going to require more government money. The favorable treatment of banking executives and shareholders may make that money very difficult politically for the administration to get.

– At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund –


WASHINGTON (AFP) — US President Barack Obama has defended the dollar as “extraordinarily strong” and rejected China’s call for a new global currency as an alternative to the dollar.

He said investors considered the United States “the strongest economy in the world with the most stable political system in the world” even as it was reeling from a prolonged recession stemming from financial turmoil.

People’s Bank of China Governor Zhou Xiaochuan had called for a replacement of the dollar, installed as the reserve currency after World War II, with a different standard run by the International Monetary Fund.

“As far as confidence in the US economy or the dollar, I would just point out that the dollar is extraordinarily strong right now,” Obama told a White House press conference on Tuesday.

He said that although the United States was “going through a rough patch” at present, it enjoyed a “great deal of confidence” from investors.

“So you don’t have to take my word for it,” he said.

“I don’t believe there is a need for a global currency,” Obama said, in what appeared to be a break from tradition among US presidents not to comment directly on the dollar’s value.

Zhou suggested the IMF’s Special Drawing Rights, a currency basket comprising dollars, euros, sterling and yen, could serve as a super-sovereign reserve currency, saying it would not be easily influenced by the policies of individual countries.

China is the largest creditor to the United States, being the top holder of US Treasury bonds worth 739.6 billion dollars as of January, according to US figures. It is also the world’s largest holder of US dollars as a reserve currency, at more than one trillion dollars.

Zhou’s comments came just two weeks after Chinese Premier Wen Jiabao, in a rare expression of concern, called on US economic planners to safeguard Chinese assets.

“We have lent huge amounts of money to the United States. Of course we are concerned about the safety of our assets,” Wen said as the United States grappled with the worst financial turmoil since the Great Depression.

The latest Chinese concern came as the dollar took a beating following the Federal Reserve’s decision last week to buy up to 300 billion dollars in long-term US Treasury bonds and boost its purchases of mortgage securities by 750 billion dollars in an effort to revive the ailing economy.

The decision, according to foreign exchange dealers, made US assets less attractive to investors worried that the Fed move would end up debasing the world’s reserve currency.

Despite the financial meltdown at home, the dollar has been mostly regarded as “safe haven” by investors averting risks amid a global economic slump.

Before Obama spoke, the dollar ended higher Tuesday against key currencies.

The euro fell to 1,3469 dollars in late New York trading from 1,3617 a day earlier while the greenback rose to 97.88 yen from 97.13.

US Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner on Tuesday also defended the dollar at a congressional hearing.

At the hearing, a lawmaker asked the two financial chiefs: “Would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested by China?”

Geithner immediately responded, “I would.”

“And the chair?” the lawmaker asked, turning to Fed chairman Bernanke.

“I would also,” Bernanke said.

The idea of a global currency determined by multilateral organizations is not new, said John Lipsky, the IMF’s first deputy managing director.

“But it’s a serious proposal,” he said in Washington.

And he hastened to add, “I don’t think even the proponents think it as a short-term issue but as a longer-term issue that merits serious study and consideration.”

EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the dollar would remain unchallenged as the top reserve currency even as emerging economies such as China play a more critical role in the global economy.

He said, “I don’t expect major structural changes in the role that the dollar plays today as a reserve currency.”

The debate over the dollar’s role came ahead of the G20 summit of developing and industrialized nations on April 2 in London, where world leaders and international organizations, including the IMF, are to discuss reforming the financial system.

Russia has also proposed the summit discuss creating a supranational reserve currency. The IMF created the SDR as an international reserve asset in 1969, but it is only used by governments and international institutions.

Vídeos do VodPod não estão mais disponíveis.

more about “Coletiva – Lula e Obama“, posted with vodpod