Sunday, April 18, 2010
Wednesday, May 20, 2009
Bank of Japan May Raise Economic View Even After Record Plunge
(Bloomberg) -- The Bank of Japan may raise its assessment of the economy for the first time since July 2006, even after a report yesterday showed a record contraction in the first quarter.
Gross domestic product shrank at an annual 15.2 percent pace, the government said yesterday, the steepest drop since records began in 1955. That may represent the worst of the recession and Governor Masaaki Shirakawa’s board will maintain its policy at a meeting ending tomorrow, economists say.
Shirakawa said last week that a “moderate” recovery is likely as exports and production improve, indicating the central bank may be reluctant to expand its purchases of corporate and government debt. The risk is that the policy board underestimates the threat posed by price declines that could smother an economic revival.
The bank “could go much further, expanding its balance sheet more aggressively in order to boost activity and lift the economy out of deflation,” said Ben Eldred, an economist at Daiwa Securities SMBC Co. in London. “But there is no sign that it’s prepared to do so. The result is likely to be a more muted recovery and a protracted period of falling prices.”
Policy makers will hold the overnight lending rate at 0.1 percent tomorrow, according to all 24 economists surveyed by Bloomberg News. The bank may consider adding foreign currency- denominated assets to the collateral it accepts from lenders to guard against further financial-market turmoil, the Nikkei newspaper reported this week, without citing sources.
May Resume Growing
Reports in the past month suggest growth may resume this quarter. Confidence among consumers rose to a 10-month high in April. Exports increased in March from a month earlier, and factory production rose for the first time since September.
Shirakawa said last week that the bank expects the recession to “moderate gradually and the economy to start to level out towards the end of this year.” Economists anticipate the government’s 25 trillion yen ($264 billion) in stimulus measures will provide at least temporary relief.
Still, yesterday’s GDP report showed that even as exports and output begin to stabilize, the recession is spreading to households as companies fire staff and cut wages to stem losses.
While the bank is likely to raise its economic assessment, “policy makers will stay on alert against the risk that growth will fail and prices will keep falling,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.
Two consecutive quarters of record contractions in GDP have shrunk the economy to its 2003 size and pushed it closer to the deflation that it overcame less than four years ago.
‘Worst Is Out’
“The economy has slid so far that whatever you do now, it looks good,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “We’ve had two quarters of shrinking by 15 percent. Of course the worst is out.”
During Japan’s last tussle with deflation, consumers delayed purchases, eroding profits and forcing firms to cut wages. Shirakawa has said consumers this time around still anticipate inflation and a spiral of falling prices is unlikely.
Bank of Japan policy makers say they consider inflation to be stable at zero to 2 percent. That sets the bar too low, inviting price declines, said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.
“There’s going to be deflation as far as the eye can see,” Jerram said. The central bank should aim for inflation of 2 percent and make a commitment to keep buying bonds to meet the target, effectively printing money in a “permanent debt monetization,” he said.
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Gross domestic product shrank at an annual 15.2 percent pace, the government said yesterday, the steepest drop since records began in 1955. That may represent the worst of the recession and Governor Masaaki Shirakawa’s board will maintain its policy at a meeting ending tomorrow, economists say.
Shirakawa said last week that a “moderate” recovery is likely as exports and production improve, indicating the central bank may be reluctant to expand its purchases of corporate and government debt. The risk is that the policy board underestimates the threat posed by price declines that could smother an economic revival.
The bank “could go much further, expanding its balance sheet more aggressively in order to boost activity and lift the economy out of deflation,” said Ben Eldred, an economist at Daiwa Securities SMBC Co. in London. “But there is no sign that it’s prepared to do so. The result is likely to be a more muted recovery and a protracted period of falling prices.”
Policy makers will hold the overnight lending rate at 0.1 percent tomorrow, according to all 24 economists surveyed by Bloomberg News. The bank may consider adding foreign currency- denominated assets to the collateral it accepts from lenders to guard against further financial-market turmoil, the Nikkei newspaper reported this week, without citing sources.
May Resume Growing
Reports in the past month suggest growth may resume this quarter. Confidence among consumers rose to a 10-month high in April. Exports increased in March from a month earlier, and factory production rose for the first time since September.
Shirakawa said last week that the bank expects the recession to “moderate gradually and the economy to start to level out towards the end of this year.” Economists anticipate the government’s 25 trillion yen ($264 billion) in stimulus measures will provide at least temporary relief.
Still, yesterday’s GDP report showed that even as exports and output begin to stabilize, the recession is spreading to households as companies fire staff and cut wages to stem losses.
While the bank is likely to raise its economic assessment, “policy makers will stay on alert against the risk that growth will fail and prices will keep falling,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.
Two consecutive quarters of record contractions in GDP have shrunk the economy to its 2003 size and pushed it closer to the deflation that it overcame less than four years ago.
‘Worst Is Out’
“The economy has slid so far that whatever you do now, it looks good,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “We’ve had two quarters of shrinking by 15 percent. Of course the worst is out.”
During Japan’s last tussle with deflation, consumers delayed purchases, eroding profits and forcing firms to cut wages. Shirakawa has said consumers this time around still anticipate inflation and a spiral of falling prices is unlikely.
Bank of Japan policy makers say they consider inflation to be stable at zero to 2 percent. That sets the bar too low, inviting price declines, said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.
“There’s going to be deflation as far as the eye can see,” Jerram said. The central bank should aim for inflation of 2 percent and make a commitment to keep buying bonds to meet the target, effectively printing money in a “permanent debt monetization,” he said.
Read more here
Tuesday, May 19, 2009
Japan logs record GDP drop
(Reuters) - Japan's economy shrank a record 4.0 percent in the first quarter as domestic demand and investment buckled, threatening to crush any export-led rebound later this year.
The data did add to growing evidence that global trade may have bottomed out in the first quarter. Net exports proved to be less of a drag on the world's second-largest economy than in the previous three months, and companies ran down inventory.
While that lent support to the growing chorus of forecasts that the global economy was pulling out of the dive triggered by the financial crisis, there were grim signals on the outlook for Japan, where GDP is shrinking twice as fast as in the United States.
The GDP contraction was slightly less the 4.2 percent median forecast in a Reuters poll, but private consumption and capital spending fared worse than analysts had expected.
Private consumption dropped 1.1 percent, compared with 0.8 percent in the previous quarter. The forecast was for a decline 0.9 percent. Capital spending shrank 10.4 percent versus 6.7 percent in the previous three months and an 8.1 percent forecast.
"Weaker-than-expected figures for capex and private consumption suggest the negative impact from the export plunge is spreading to domestic demand," said economist Hiroshi Shiraishi at BNP Paribas.
"As such, the Japanese economy may return to growth temporarily but it could suffer a contraction again afterwards."
Read more here
The data did add to growing evidence that global trade may have bottomed out in the first quarter. Net exports proved to be less of a drag on the world's second-largest economy than in the previous three months, and companies ran down inventory.
While that lent support to the growing chorus of forecasts that the global economy was pulling out of the dive triggered by the financial crisis, there were grim signals on the outlook for Japan, where GDP is shrinking twice as fast as in the United States.
The GDP contraction was slightly less the 4.2 percent median forecast in a Reuters poll, but private consumption and capital spending fared worse than analysts had expected.
Private consumption dropped 1.1 percent, compared with 0.8 percent in the previous quarter. The forecast was for a decline 0.9 percent. Capital spending shrank 10.4 percent versus 6.7 percent in the previous three months and an 8.1 percent forecast.
"Weaker-than-expected figures for capex and private consumption suggest the negative impact from the export plunge is spreading to domestic demand," said economist Hiroshi Shiraishi at BNP Paribas.
"As such, the Japanese economy may return to growth temporarily but it could suffer a contraction again afterwards."
Read more here
Sunday, May 17, 2009
Pension Gap Widening to $334 Billion Forces U.K. Dividend Cuts
(Bloomberg) -- The 220 billion pound ($334 billion) hole in U.K. corporate pensions may push companies to cut dividends, damping the recovery in Europe’s largest stock market.
The 1.17 percentage point drop in corporate bond yields since October is forcing companies from BT Group Plc to BAE Systems Plc to set aside more cash for future obligations. London-based BT slashed its dividend by 89 percent last week to support a plan for more than 340,000 current and retired employees.
More will follow, adding to the biggest dividend reductions in Europe since at least 1997, according to data compiled by Paris-based Societe Generale SA and UBS AG in Zurich. U.K. companies are the most susceptible because English corporations typically run pension funds, unlike the rest of Europe, where the state is responsible for retirees.
“Pension managers are caught in the perfect storm,” said Chetan Ghosh at Investment Solutions Ltd. in London, which oversees more than $13.8 billion. “Bond yields are falling and stocks have not recovered from last year’s sell-off. This will increasingly be a problem through 2011.”
Dividend reductions would add pressure to share prices already battered by the global recession and the region’s first annual net gain in equity sales since 2005.
‘Under-Funded’
BT, the U.K.’s largest phone company, and BAE Systems, Europe’s biggest arms maker, rank with British Airways Plc and Dusseldorf, Germany-based ThyssenKrupp AG, Germany’s largest steelmaker, as having a “high risk” of using cash to shore up pensions, Societe Generale said in a report last month.
BAE Systems plans to contribute an additional 200 million pounds to help cover its U.K. pension deficit and $250 million for its U.S. plan. London-based British Airways, Europe’s third- largest airline, may have to set aside more money for its growing pension deficit, analysts at Paris-based brokerage Oddo Securities wrote in a March 6 report.
“Markets underestimate the extra funding needs for companies’ pension obligations,” said Claudia Panseri, a strategist at Societe Generale in Paris. “Unless the equity markets rebound significantly during 2009, pension funds will remain significantly underfunded, which will result in high contribution requirements in 2010 and 2011.”
Discount Rate
International accounting rules require pension plans to calculate the amount of money they need today to meet future payments. The total is increased or reduced by an amount proportional to yields on corporate bonds, reflecting what a company will earn in interest before benefits are due. The lower the yield, the more money must be pledged now.
The deficits are in part an unintended consequence of the Bank of England’s efforts to pull the country out of the steepest economic contraction in at least three decades. The central bank cut its benchmark interest rate to a record 0.5 percent and said it would spend as much as 125 billion pounds to buy debt securities in an attempt to push down borrowing costs. The U.K. economy shrank at a 1.9 percent rate in the first quarter, the biggest contraction since Margaret Thatcher came to power in 1979.
Yields on 15-year corporate bonds in pounds rated AA have dropped to 6.55 percent from 7.72 percent in October, according to Markit Group Ltd. The decline may continue, according to Mark Bon, a London-based fund manager who helps oversee about $750 million at Canada Life Ltd.
Worst Case
“Yields are still falling and it will become increasingly difficult to fund pensions,” Bon said. “The worst-case scenario is depressed equity markets and deflation which keeps interest rates very, very low for a long time.”
A Bank of England spokesman said the central bank hasn’t commented on the effect of lower yields on benefit plans.
Deficits for companies in the FTSE 350 Index almost doubled to 61 billion pounds in the first three months of 2009, according to Mercer Ltd., a consulting firm. The “technical” funding needs as reported by pension trustees, a more accurate indication of shortfalls, climbed to 220 billion pounds at the end of March, said Matt Collinson, a Birmingham, England-based consultant at Mercer.
European equity benchmarks have recouped their 2009 losses since early March on speculation the worst financial crisis in seven decades is easing. Britain’s FTSE 100 Index is down 1.9 percent for the year after rallying 24 percent since March 3. The measure has retreated 35 percent from a seven-year high in June 2007.
Read more here
The 1.17 percentage point drop in corporate bond yields since October is forcing companies from BT Group Plc to BAE Systems Plc to set aside more cash for future obligations. London-based BT slashed its dividend by 89 percent last week to support a plan for more than 340,000 current and retired employees.
More will follow, adding to the biggest dividend reductions in Europe since at least 1997, according to data compiled by Paris-based Societe Generale SA and UBS AG in Zurich. U.K. companies are the most susceptible because English corporations typically run pension funds, unlike the rest of Europe, where the state is responsible for retirees.
“Pension managers are caught in the perfect storm,” said Chetan Ghosh at Investment Solutions Ltd. in London, which oversees more than $13.8 billion. “Bond yields are falling and stocks have not recovered from last year’s sell-off. This will increasingly be a problem through 2011.”
Dividend reductions would add pressure to share prices already battered by the global recession and the region’s first annual net gain in equity sales since 2005.
‘Under-Funded’
BT, the U.K.’s largest phone company, and BAE Systems, Europe’s biggest arms maker, rank with British Airways Plc and Dusseldorf, Germany-based ThyssenKrupp AG, Germany’s largest steelmaker, as having a “high risk” of using cash to shore up pensions, Societe Generale said in a report last month.
BAE Systems plans to contribute an additional 200 million pounds to help cover its U.K. pension deficit and $250 million for its U.S. plan. London-based British Airways, Europe’s third- largest airline, may have to set aside more money for its growing pension deficit, analysts at Paris-based brokerage Oddo Securities wrote in a March 6 report.
“Markets underestimate the extra funding needs for companies’ pension obligations,” said Claudia Panseri, a strategist at Societe Generale in Paris. “Unless the equity markets rebound significantly during 2009, pension funds will remain significantly underfunded, which will result in high contribution requirements in 2010 and 2011.”
Discount Rate
International accounting rules require pension plans to calculate the amount of money they need today to meet future payments. The total is increased or reduced by an amount proportional to yields on corporate bonds, reflecting what a company will earn in interest before benefits are due. The lower the yield, the more money must be pledged now.
The deficits are in part an unintended consequence of the Bank of England’s efforts to pull the country out of the steepest economic contraction in at least three decades. The central bank cut its benchmark interest rate to a record 0.5 percent and said it would spend as much as 125 billion pounds to buy debt securities in an attempt to push down borrowing costs. The U.K. economy shrank at a 1.9 percent rate in the first quarter, the biggest contraction since Margaret Thatcher came to power in 1979.
Yields on 15-year corporate bonds in pounds rated AA have dropped to 6.55 percent from 7.72 percent in October, according to Markit Group Ltd. The decline may continue, according to Mark Bon, a London-based fund manager who helps oversee about $750 million at Canada Life Ltd.
Worst Case
“Yields are still falling and it will become increasingly difficult to fund pensions,” Bon said. “The worst-case scenario is depressed equity markets and deflation which keeps interest rates very, very low for a long time.”
A Bank of England spokesman said the central bank hasn’t commented on the effect of lower yields on benefit plans.
Deficits for companies in the FTSE 350 Index almost doubled to 61 billion pounds in the first three months of 2009, according to Mercer Ltd., a consulting firm. The “technical” funding needs as reported by pension trustees, a more accurate indication of shortfalls, climbed to 220 billion pounds at the end of March, said Matt Collinson, a Birmingham, England-based consultant at Mercer.
European equity benchmarks have recouped their 2009 losses since early March on speculation the worst financial crisis in seven decades is easing. Britain’s FTSE 100 Index is down 1.9 percent for the year after rallying 24 percent since March 3. The measure has retreated 35 percent from a seven-year high in June 2007.
Read more here
Thursday, May 14, 2009
Treasury says insurers to get TARP funds access
(Reuters) - The U.S. Treasury Department said on Thursday that four insurers had been approved for access to the government's bank bailout plan.
A Treasury spokesman said Hartford Financial, Prudential Financial Group, Lincoln National Corp and Prudential Financial Inc met requirements for access to the government's Capital Purchase Program.
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A Treasury spokesman said Hartford Financial, Prudential Financial Group, Lincoln National Corp and Prudential Financial Inc met requirements for access to the government's Capital Purchase Program.
Read more here
Wednesday, May 13, 2009
Ford walks tightrope amid industry downturn
(Reuters) - Ford Motor Co executives face stockholders on Thursday to detail the automaker's plans to complete a turnaround without resorting to U.S. government help and steer clear of the industry collapse now swallowing rivals General Motors Corp and Chrysler.
After a wild ride over the past year, Ford investors have seen the automaker's stock increase three-fold since mid-February as the company pressed ahead of its cross-town rivals with agreements to restructure its debt and cut its obligations to the United Auto Workers union.
Ford, the only U.S. carmaker not operating on emergency U.S. government loans, mortgaged itself to the hilt in late 2006 to amass cash for a turnaround that remains on track as Chrysler was forced into bankruptcy on April 30. GM could join Chrysler in Chapter 11 within weeks.
When Ford's top executives open the automaker's annual meeting in Wilmington, Delaware, they will be able to tell shareholders they have completed a debt restructuring and new union agreements.
"They got in early and they had the money and they didn't have to get the government involved and that gave them more time," Standard & Poor's equity analyst Efraim Levy said.
"Their retail share has stabilized, but they are not out of the woods yet," he said. "There is still risk for Ford."
Ford posted a company record net loss of $14.7 billion in 2008 and losses totaled $30 billion over the last three full years. It posted a first-quarter net loss of $1.43 billion.
Still, analysts see the Ford debt restructuring, the union agreements and the automaker's ability to issue more stock as signs that it could make it through the industry downturn and out the other side without seeking government emergency loans.
The automaker's stock closed at $4.96 Wednesday on the New York Stock Exchange, down about 40 percent from a year earlier.
Chief Executive Alan Mulally told reporters last week Ford's restructuring was on track and it had sufficient liquidity to complete its restructuring plan.
The automaker has said that it expects to be breakeven or profitable in 2011 under its restructuring forecast.
One of the agreements between Ford and the United Auto Workers reworked the funding of a trust for union retiree healthcare, a Voluntary Employee Beneficiary Association. Ford may now provide half of its obligation in stock instead of cash to preserve liquidity.
The VEBA funding plan requires shareholder approval at the annual meeting. Ford's deal with the UAW also provided contract changes to cut labor costs.
The annual meeting agenda has several shareholder rights initiatives, including an advisory vote on eliminating a preferred voting structure that has given the Ford family control of the company since it went public in 1956.
Under that structure, Ford family members hold a 40 percent voting interest through 70.9 million Class B shares, while the automaker had more than 2.3 billion common shares outstanding as of March 18, according to its proxy statement.
Read more here
After a wild ride over the past year, Ford investors have seen the automaker's stock increase three-fold since mid-February as the company pressed ahead of its cross-town rivals with agreements to restructure its debt and cut its obligations to the United Auto Workers union.
Ford, the only U.S. carmaker not operating on emergency U.S. government loans, mortgaged itself to the hilt in late 2006 to amass cash for a turnaround that remains on track as Chrysler was forced into bankruptcy on April 30. GM could join Chrysler in Chapter 11 within weeks.
When Ford's top executives open the automaker's annual meeting in Wilmington, Delaware, they will be able to tell shareholders they have completed a debt restructuring and new union agreements.
"They got in early and they had the money and they didn't have to get the government involved and that gave them more time," Standard & Poor's equity analyst Efraim Levy said.
"Their retail share has stabilized, but they are not out of the woods yet," he said. "There is still risk for Ford."
Ford posted a company record net loss of $14.7 billion in 2008 and losses totaled $30 billion over the last three full years. It posted a first-quarter net loss of $1.43 billion.
Still, analysts see the Ford debt restructuring, the union agreements and the automaker's ability to issue more stock as signs that it could make it through the industry downturn and out the other side without seeking government emergency loans.
The automaker's stock closed at $4.96 Wednesday on the New York Stock Exchange, down about 40 percent from a year earlier.
Chief Executive Alan Mulally told reporters last week Ford's restructuring was on track and it had sufficient liquidity to complete its restructuring plan.
The automaker has said that it expects to be breakeven or profitable in 2011 under its restructuring forecast.
One of the agreements between Ford and the United Auto Workers reworked the funding of a trust for union retiree healthcare, a Voluntary Employee Beneficiary Association. Ford may now provide half of its obligation in stock instead of cash to preserve liquidity.
The VEBA funding plan requires shareholder approval at the annual meeting. Ford's deal with the UAW also provided contract changes to cut labor costs.
The annual meeting agenda has several shareholder rights initiatives, including an advisory vote on eliminating a preferred voting structure that has given the Ford family control of the company since it went public in 1956.
Under that structure, Ford family members hold a 40 percent voting interest through 70.9 million Class B shares, while the automaker had more than 2.3 billion common shares outstanding as of March 18, according to its proxy statement.
Read more here
Tuesday, May 12, 2009
AIG Trustees Should Answer to Taxpayers, Not Fed, Towns Says
(Bloomberg) -- A House panel plans to ask trustees assigned to safeguard the U.S. government’s $182.5 billion investment in American International Group Inc. whether their supervision by the Federal Reserve Bank of New York serves taxpayers’ interests.
The trustees -- Jill Considine, Chester Feldberg and Douglas Foshee -- were appointed in January by the New York Fed, a private institution owned by member banks, which has the power to overturn some of their decisions and to remove them. Edolphus Towns, a New York Democrat who chairs the House Committee on Oversight and Reform that will hold hearings tomorrow, said he’s concerned that the interests of AIG’s customers and trading partners may outweigh those of taxpayers.
“As a $182.5 billion recipient of taxpayer dollars, AIG should no longer be able to operate in the dark,” said Towns in an e-mail. “The American people, who now own a major portion of this company, deserve clarification on core issues of the AIG bailout -- who exactly is in charge at AIG and who is protecting the taxpayer’s multibillion-dollar investment?”
AIG is the biggest recipient of government rescue funds. Whether it can repay the money may depend on actions by the trustees, some of which must be approved by the New York Fed. The New York-based insurer has received four bailouts valued at $182.5 billion since agreeing in September to turn over about an 80 percent stake in the company to the government.
AIG Counterparties
Peter Bakstansky, a spokesman for the trustees and a former spokesman for the New York Fed, said the three are “prepared to talk about” what they have been doing since their appointment when they testify. He said the trustees speak weekly with AIG management by telephone and meet monthly in person. He declined to give further details.
Deborah Kilroe, a spokeswoman for the New York Fed, declined to comment.
The insurer’s counterparties include firms connected to the New York Fed, such as Goldman Sachs Group Inc., which has received more than $8 billion of AIG’s bailout funds to settle credit-default swaps it had with the firm. Towns’s committee plans to ask the trustees and AIG Chief Executive Officer Edward Liddy, who is also scheduled to testify, why the company didn’t try to negotiate for payments of less than the full amount.
New York Fed President William Dudley worked until 2007 as Goldman Sachs’s chief economist. Stephen Friedman, who resigned as New York Fed chairman May 7, was once CEO of Goldman Sachs and supervised the search for Dudley.
Friedman resigned from his New York Fed post after the Wall Street Journal reported that he bought 37,300 shares of Goldman Sachs last year while seeking a waiver of Fed policy that would have precluded him from sitting on the Goldman Sachs board and being New York Fed chairman at the same time. The shares have since gained $3 million in value.
‘Widening Morass’
“These programs are drawing the Federal Reserve into a widening political morass and compromising Fed independence,” said William Poole, former president of the St. Louis Fed. The Fed lending programs “ought to have legislative authorization and ought to be run out of the Treasury or some other agency of the federal government.”
Goldman Sachs CEO Lloyd Blankfein rejected calls to remove Friedman. “He is a credit to our board,” Blankfein said last week at the firm’s annual meeting in New York. Friedman said he bought the shares “because I thought Goldman Sachs stock, under tangible net worth, was at a very attractive price.”
The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion of emergency lending programs. While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
Read more here
The trustees -- Jill Considine, Chester Feldberg and Douglas Foshee -- were appointed in January by the New York Fed, a private institution owned by member banks, which has the power to overturn some of their decisions and to remove them. Edolphus Towns, a New York Democrat who chairs the House Committee on Oversight and Reform that will hold hearings tomorrow, said he’s concerned that the interests of AIG’s customers and trading partners may outweigh those of taxpayers.
“As a $182.5 billion recipient of taxpayer dollars, AIG should no longer be able to operate in the dark,” said Towns in an e-mail. “The American people, who now own a major portion of this company, deserve clarification on core issues of the AIG bailout -- who exactly is in charge at AIG and who is protecting the taxpayer’s multibillion-dollar investment?”
AIG is the biggest recipient of government rescue funds. Whether it can repay the money may depend on actions by the trustees, some of which must be approved by the New York Fed. The New York-based insurer has received four bailouts valued at $182.5 billion since agreeing in September to turn over about an 80 percent stake in the company to the government.
AIG Counterparties
Peter Bakstansky, a spokesman for the trustees and a former spokesman for the New York Fed, said the three are “prepared to talk about” what they have been doing since their appointment when they testify. He said the trustees speak weekly with AIG management by telephone and meet monthly in person. He declined to give further details.
Deborah Kilroe, a spokeswoman for the New York Fed, declined to comment.
The insurer’s counterparties include firms connected to the New York Fed, such as Goldman Sachs Group Inc., which has received more than $8 billion of AIG’s bailout funds to settle credit-default swaps it had with the firm. Towns’s committee plans to ask the trustees and AIG Chief Executive Officer Edward Liddy, who is also scheduled to testify, why the company didn’t try to negotiate for payments of less than the full amount.
New York Fed President William Dudley worked until 2007 as Goldman Sachs’s chief economist. Stephen Friedman, who resigned as New York Fed chairman May 7, was once CEO of Goldman Sachs and supervised the search for Dudley.
Friedman resigned from his New York Fed post after the Wall Street Journal reported that he bought 37,300 shares of Goldman Sachs last year while seeking a waiver of Fed policy that would have precluded him from sitting on the Goldman Sachs board and being New York Fed chairman at the same time. The shares have since gained $3 million in value.
‘Widening Morass’
“These programs are drawing the Federal Reserve into a widening political morass and compromising Fed independence,” said William Poole, former president of the St. Louis Fed. The Fed lending programs “ought to have legislative authorization and ought to be run out of the Treasury or some other agency of the federal government.”
Goldman Sachs CEO Lloyd Blankfein rejected calls to remove Friedman. “He is a credit to our board,” Blankfein said last week at the firm’s annual meeting in New York. Friedman said he bought the shares “because I thought Goldman Sachs stock, under tangible net worth, was at a very attractive price.”
The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion of emergency lending programs. While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
Read more here
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