Obama Fails To Go The Distance In Banking Reform
At least a writer from NYT thinks so
Comments »Posted on Jun 18, 2009
White House / Pete SouzaPresident Obama compares his “sweeping overhaul of the financial regulatory system” to FDR’s crackdown on Wall Street, but the New York Times’ Joe Nocera isn’t buying it. “Everywhere you look in the plan, you see the same thing,” he writes. “Additional regulation on the margin, but nothing that amounts to a true overhaul.”
The problem, according to Nocera, is that Obama is unwilling to anger the bankers, and that just doesn’t make for very effective regulation.
Joe Nocera in the New York Times:
The plan places enormous trust in the judgment of the Federal Reserve — trust that critics say has not really been borne out by its actions during the Internet and housing bubbles. Firms will have to put up a little more capital, and deal with a little more oversight, but once the financial crisis is over, it will, in all likelihood, be back to business as usual.
The regulatory structure erected by Roosevelt during the Great Depression — including the creation of the Securities and Exchange Commission, the establishment of serious banking oversight, the guaranteeing of bank deposits and the passage of the Glass-Steagall Act, which separated banking from investment banking — lasted six decades before they started to crumble in the 1990s. In retrospect, it would be hard to envision even the best-constructed regulation lasting more than that. If Mr. Obama hopes to create a regulatory environment that stands for another six decades, he is going to have to do what Roosevelt did once upon a time. He is going to have make some bankers mad.
Perhaps Buffet Was Early Again
U.K. Retail Sales Take An Unexpected Drop
Comments »By Justin Carrigan and Daniel Hauck
June 18 (Bloomberg) — European and emerging-market stocks fell for the fifth day, the longest losing streak since January, as an unexpected drop in U.K. retail sales and downgrades of U.S. banks by Standard & Poor’s fanned concern the global economic recovery will falter.
The Dow Jones Stoxx 600 Index of European shares slid 0.6 percent at 12:25 p.m. in London after a three-month, 36 percent rally that drove price-earnings valuations to the highest levels in five years. The MSCI Emerging Markets Index of 22 developing nations dropped 1 percent. The pound lost as much as 1.3 percent against the dollar after a report showed British retail sales fell in May.
“We could see a pullback in risk appetite in the near term and a more material correction lower in stocks,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London.
Retail sales in the U.K. fell for the first time in three months and Bank of England Governor Mervyn King said the economic recovery may be sluggish as banks ration credit to consumers. Gains in U.S. stocks evaporated yesterday and Asian equities fell today after S&P cut credit ratings on 18 U.S. lenders and said operating conditions for banks will become “less favorable.”
The British retail-sales report helped push Hemel Hempstead, England-based DSG International Plc, the U.K.’s largest electronics goods retailer, down 7.3 percent. Clermont- Ferrand, France-based Michelin & Cie., the world’s second- largest tiremaker, lost 2.9 percent as Chief Executive Officer Michel Rollier said in an interview with RTL radio that the tire industry will not recover until mid-to-late 2010.
U.S. Futures
U.S. futures fluctuated between gains and losses after three days of declines for the Standard & Poor’s 500 Index. The 40 percent rally in the S&P 500 since March 9 through last week had left the index valued at 14.9 times its companies’ earnings, near the highest since October.
Russia’s Micex index slid 4.5 percent to the lowest level since May 15 and Indonesia’s Jakarta Composite Index lost 3.7 percent to the lowest this month, leading the decline in emerging markets.
The pound weakened to as low as $1.6189, from $1.6401 yesterday, and to 86.05 pence per euro, from 85.03 pence. U.K. retail sales fell 0.6 percent from April, the Office for National Statistics said today. Economists predicted a 0.3 percent increase, the median of 28 forecasts in a Bloomberg survey showed.
‘Protracted Recovery’
Reports in past weeks have indicated Britain’s recovery from the worst recession since 1979 will be uneven. While surveys of manufacturing and services have improved, the central bank said today the flow of loans to companies stayed near a nine-year low in June. Bank of England Governor Mervyn King said yesterday banks may need to raise more capital to weather the slump and the recovery may be “protracted.”
S&P downgraded U.S. banks yesterday, citing tighter regulation and increased market volatility. Russia’s biggest lenders face a surge in troubled assets, S&P said.
President Barack Obama yesterday proposed the most sweeping overhaul of the U.S. financial regulatory system in 75 years, seeking to correct a “cascade of mistakes” that toppled major securities firms, froze credit markets and destroyed $26.4 trillion in stock market value around the world. The proposal would create an agency for monitoring consumer financial products, make the Federal Reserve the overseer of companies deemed too big to fail, and bring hedge and private equity funds under federal scrutiny.
Credit Markets
Stocks and credit markets have recovered since the Treasury said it would finance as much as $1 trillion in purchases of banks’ distressed assets, the Fed pledged to buy more than $1 trillion of bonds and the Federal Deposit Insurance Corp. agreed to guarantee some corporate debt.
The Libor-OIS spread, which measures banks’ reluctance to lend, has narrowed to 38 basis points, from a record 364 basis points in October, following the collapse of Lehman Brothers Holdings Inc. Analysts covering S&P 500 companies began to boost 2009 profit estimates for the first time this year in May as economists predicted the U.S. economy will start to expand next quarter, weekly data compiled by Bloomberg show.
The VIX index, which measures the cost of buying protection against drops in the S&P 500, sank below 30 for the first time in eight months in May amid the biggest stock-market rally since the 1930s. The gauge, known as the Chicago Board Options Exchange Volatility Index, closed at 31.54 yesterday after reaching an intraday record of 89.53 on Oct. 24.
Chinese Growth
The yen and the dollar fell earlier as investor demand for the currencies as a haven waned after the World Bank said the Chinese economy will expand 7.2 percent this year, up from a previous forecast of 6.5 percent.
“China seems to be the motor for the world economy but you should remember it may not be enough to counterbalance the U.S. and Europe, which remain in a very difficult economic situation,” said Philippe Gijsels, a senior structured equity strategist at Fortis Global Markets in Brussels. “The market is slowly realizing that things have improved a bit, but we’re by no means out of the woods.”
Wind Telecomunicazioni SpA, Italy’s third-largest mobile- phone company, said today it’s seeking bondholders’ permission to sell as much as 2.7 billion euros ($3.8 billion) of senior notes, in what would be Europe’s largest junk bond issue since October 2006.
