14 10 / 2011
WRAPUP 4-US rejects plan to strengthen IMF in euro zone crisis
* France, Germany thrash out crisis action plan for Oct. 23
EU summit* BRICS favour boosting IMF capitalBy Francesca Landini and Daniel FlynnPARIS, Oct 14 (Reuters) - Proposals to double the size of
the IMF as part of a broader international response to Europe’s
debt crisis immediately ran into resistance from the United
States and others, burying the idea for now and firmly putting
the onus back on Europe.The outlines of the plan, that had the backing of several
developing economies, emerged as G20 finance ministers and
central bankers began meeting in Paris to discuss a world
economy under threat from European nations mired in debt.One G20 source said some policymakers backed injecting some
$350 billion into the International Monetary Fund. Other options
under consideration included loans, special purpose vehicles and
note purchase agreements.U.S. Treasury Secretary Timothy Geithner wasted no time in
shooting the idea down. The IMF’s dominant shareholders,
including the United States, Japan, Germany and China, are
content that the fund’s $380 billion worth of resources is
enough. Canada and Australia also voiced opposition.”They (the IMF) have very substantial resources that are
uncommitted,” Geithner said.The United States is among countries keen to keep pressure
on the Europeans to act more decisively to end the two-year-old
debt crisis that began in Greece but has since spread to Ireland
and Portugal and is lapping at Spain and Italy.”The first priority here is for Europeans to put their own
house in order,” Australian Finance Minister Wayne Swan said.The finance ministers of France and Germany, under pressure
from the rest of the world to act in concert, made a fresh
commitment to have a plan for the euro zone in place before a
summit of G20 leaders in Cannes on Nov 3/4.Speaking after a lunch meeting with President Nicolas
Sarkozy, French Finance Minister Francois Baroin said: “We will
continue our discussions in the coming days but we have already
come to some agreements that will be very important.”If minds needed concentrating further, the downgrade of
Spain’s credit rating a few hours earlier highlighted the risk
of a much larger economy than Greece coming under threat.Standard and Poor’s cut Spain’s long-term credit rating,
citing the country’s high unemployment, tightening credit and
high private sector debt.French and German officials are trying to put flesh on the
bones of a crisis resolution plan in time for a European Union
summit on Oct. 23 and parallel discussions are taking place on
giving the International Monetary Fund more firepower.Fears about the damage a default by Greece — and possibly
others — could inflict on the financial system have driven a
confidence-sapping bout of market volatility since late July,
with global stocks falling 17 percent from their
2011 high in May.Canadian Finance Minister Jim Flaherty also said the G20
should keep up pressure on the euro zone on its “arduous”
journey towards a solution and not focus on IMF resources.DIVISIONUnlike in 2009 when the G20 launched coordinated stimulus to
pull the world out of crisis, the rest of the world is chafing
at Europe’s slow response while Washington and Beijing are
sparring over the yuan currency.A Franco-German crisis plan is likely to ask banks to accept
bigger losses on their Greek debt than the 21 percent spelled
out in a July plan for a second bailout of Athens, which now
looks insufficient.”It will be more, that’s more or less certain,” French
Finance Minister Francois Baroin, who is hosting the Paris
talks, said in an interview on Europe 1 radio.It should also lay out a system for recapitalising banks and
plans to leverage the euro zone’s European Financial Stability
Facility to give it more punch.Japanese Finance Minister Jun Azumi said he would share with
his G20 counterparts Japan’s “bitter experience” of failing to
contain its 1990s banking crisis by doing too little, too
late.Whilst the EFSF has the resources to cope with bailouts for
Greece, Portugal and Ireland, it would be overwhelmed by the
need to rescue a bigger economy such as Italy or Spain which
have come under market attack.”We see heightened risks to Spain’s growth prospects due to
high unemployment, tighter financial conditions, the still high
level of private sector debt, and the likely economic slowdown
in Spain’s main trading partners,” S&P said.The most effective method would be to turn the EFSF into a
bank so it could draw on European Central Bank resources. Both
Germany and the ECB are opposed to that.The G20 may refer to the euro crisis in its communique and
in closing news conferences on Saturday evening, but little else
of substance is likely to be inked in with a EU summit in nine
day’s time the make-or-break moment.ROLE OF IMFG20 sources said most BRICS economies were in favour of
bolstering the IMF’s capital as a crisis-fighting tool.”We have said this before and have conveyed this again, that
if emerging economies and the BRICS are called upon to
contribute, we can do it via the International Monetary Fund,”
one of the sources said. “India is open to it, China and Brazil
are also okay with the idea.”Another G20 source said the IMF would present a plan which
had broad support to its executive board to make short-term
credit lines available to fundamentally healthy countries hit by
liquidity crises. It could aid euro zone countries hit by the
current crisis of confidence in the bloc’s sovereign debt.The Paris meeting may give the green light to regulators for
new rules on banks deemed ‘too big to fail’, including capital
surcharges, due to be officially approved in Cannes.Any real progress on bigger goals such as setting parameters
to measure global imbalances and reining in speculative capital
flows is unlikely to come before a Nov. 3-4 summit in Cannes,
where France passes the G20 baton to Mexico.A French finance ministry source said that for Cannes,
France hoped to have two or three measures agreed for countries
showing imbalances: consolidation measures for those with high
deficits and stimulus measures for those with surpluses.”We are going to try to make some progress and obtain,
perhaps not tomorrow or Saturday but by Cannes, a list of
measures country by country,” he said. “These must be measures
which will have an impact on the real economy.”A separate G20 source said after preparatory talks late on
Thursday that China would commit in Paris to boost its
consumption through a five-year plan, via households and
companies as well as infrastructure.The G20 countries make up 85 percent of global output.An April G20 meeting placed seven large economies under
review — the debt-burdened United States, export driven China
and the economies of France, Britain, Germany, Japan and India.
Officials have said privately the aim was to get Beijing to
discuss the yuan, and China’s cooperation is essential to the
success of the process.China and the United States sparred this week over a U.S.
Senate bill to press Beijing to raise the yuan’s value, and the
issue is likely to create a sideshow at the G20 talks, even if
the euro zone crisis pushes it off centre stage.
Permalink 34 notes
14 10 / 2011
WRAPUP 4-US rejects plan to strengthen IMF in euro zone crisis
* France, Germany thrash out crisis action plan for Oct. 23
EU summit* BRICS favour boosting IMF capitalBy Francesca Landini and Daniel FlynnPARIS, Oct 14 (Reuters) - Proposals to double the size of
the IMF as part of a broader international response to Europe’s
debt crisis immediately ran into resistance from the United
States and others, burying the idea for now and firmly putting
the onus back on Europe.The outlines of the plan, that had the backing of several
developing economies, emerged as G20 finance ministers and
central bankers began meeting in Paris to discuss a world
economy under threat from European nations mired in debt.One G20 source said some policymakers backed injecting some
$350 billion into the International Monetary Fund. Other options
under consideration included loans, special purpose vehicles and
note purchase agreements.U.S. Treasury Secretary Timothy Geithner wasted no time in
shooting the idea down. The IMF’s dominant shareholders,
including the United States, Japan, Germany and China, are
content that the fund’s $380 billion worth of resources is
enough. Canada and Australia also voiced opposition.”They (the IMF) have very substantial resources that are
uncommitted,” Geithner said.The United States is among countries keen to keep pressure
on the Europeans to act more decisively to end the two-year-old
debt crisis that began in Greece but has since spread to Ireland
and Portugal and is lapping at Spain and Italy.”The first priority here is for Europeans to put their own
house in order,” Australian Finance Minister Wayne Swan said.The finance ministers of France and Germany, under pressure
from the rest of the world to act in concert, made a fresh
commitment to have a plan for the euro zone in place before a
summit of G20 leaders in Cannes on Nov 3/4.Speaking after a lunch meeting with President Nicolas
Sarkozy, French Finance Minister Francois Baroin said: “We will
continue our discussions in the coming days but we have already
come to some agreements that will be very important.”If minds needed concentrating further, the downgrade of
Spain’s credit rating a few hours earlier highlighted the risk
of a much larger economy than Greece coming under threat.Standard and Poor’s cut Spain’s long-term credit rating,
citing the country’s high unemployment, tightening credit and
high private sector debt.French and German officials are trying to put flesh on the
bones of a crisis resolution plan in time for a European Union
summit on Oct. 23 and parallel discussions are taking place on
giving the International Monetary Fund more firepower.Fears about the damage a default by Greece — and possibly
others — could inflict on the financial system have driven a
confidence-sapping bout of market volatility since late July,
with global stocks falling 17 percent from their
2011 high in May.Canadian Finance Minister Jim Flaherty also said the G20
should keep up pressure on the euro zone on its “arduous”
journey towards a solution and not focus on IMF resources.DIVISIONUnlike in 2009 when the G20 launched coordinated stimulus to
pull the world out of crisis, the rest of the world is chafing
at Europe’s slow response while Washington and Beijing are
sparring over the yuan currency.A Franco-German crisis plan is likely to ask banks to accept
bigger losses on their Greek debt than the 21 percent spelled
out in a July plan for a second bailout of Athens, which now
looks insufficient.”It will be more, that’s more or less certain,” French
Finance Minister Francois Baroin, who is hosting the Paris
talks, said in an interview on Europe 1 radio.It should also lay out a system for recapitalising banks and
plans to leverage the euro zone’s European Financial Stability
Facility to give it more punch.Japanese Finance Minister Jun Azumi said he would share with
his G20 counterparts Japan’s “bitter experience” of failing to
contain its 1990s banking crisis by doing too little, too
late.Whilst the EFSF has the resources to cope with bailouts for
Greece, Portugal and Ireland, it would be overwhelmed by the
need to rescue a bigger economy such as Italy or Spain which
have come under market attack.”We see heightened risks to Spain’s growth prospects due to
high unemployment, tighter financial conditions, the still high
level of private sector debt, and the likely economic slowdown
in Spain’s main trading partners,” S&P said.The most effective method would be to turn the EFSF into a
bank so it could draw on European Central Bank resources. Both
Germany and the ECB are opposed to that.The G20 may refer to the euro crisis in its communique and
in closing news conferences on Saturday evening, but little else
of substance is likely to be inked in with a EU summit in nine
day’s time the make-or-break moment.ROLE OF IMFG20 sources said most BRICS economies were in favour of
bolstering the IMF’s capital as a crisis-fighting tool.”We have said this before and have conveyed this again, that
if emerging economies and the BRICS are called upon to
contribute, we can do it via the International Monetary Fund,”
one of the sources said. “India is open to it, China and Brazil
are also okay with the idea.”Another G20 source said the IMF would present a plan which
had broad support to its executive board to make short-term
credit lines available to fundamentally healthy countries hit by
liquidity crises. It could aid euro zone countries hit by the
current crisis of confidence in the bloc’s sovereign debt.The Paris meeting may give the green light to regulators for
new rules on banks deemed ‘too big to fail’, including capital
surcharges, due to be officially approved in Cannes.Any real progress on bigger goals such as setting parameters
to measure global imbalances and reining in speculative capital
flows is unlikely to come before a Nov. 3-4 summit in Cannes,
where France passes the G20 baton to Mexico.A French finance ministry source said that for Cannes,
France hoped to have two or three measures agreed for countries
showing imbalances: consolidation measures for those with high
deficits and stimulus measures for those with surpluses.”We are going to try to make some progress and obtain,
perhaps not tomorrow or Saturday but by Cannes, a list of
measures country by country,” he said. “These must be measures
which will have an impact on the real economy.”A separate G20 source said after preparatory talks late on
Thursday that China would commit in Paris to boost its
consumption through a five-year plan, via households and
companies as well as infrastructure.The G20 countries make up 85 percent of global output.An April G20 meeting placed seven large economies under
review — the debt-burdened United States, export driven China
and the economies of France, Britain, Germany, Japan and India.
Officials have said privately the aim was to get Beijing to
discuss the yuan, and China’s cooperation is essential to the
success of the process.China and the United States sparred this week over a U.S.
Senate bill to press Beijing to raise the yuan’s value, and the
issue is likely to create a sideshow at the G20 talks, even if
the euro zone crisis pushes it off centre stage.
Permalink 32 notes
12 10 / 2011
Lehman says JPMorgan botched securities sale
By Nick BrownOct 11 (Reuters) - Lehman Brothers Holdings Inc
accused JPMorgan Chase , its former banker, of mishandling
the sale of more than $27 billion worth of securities as Lehman
was collapsing in 2008.Lehman, in court papers made public on Tuesday, lobbed
myriad allegations at the bank as part of the companies’
ongoing dispute in Lehman’s bankruptcy proceeding.Lehman painted an unflattering picture of JPMorgan’s methods
for selling certain securities held as collateral for facilitating
repurchase deals for Lehman’s U.S. brokerage, Lehman Brothers Inc
(LBI).A spokesman for JPMorgan declined to comment. A lawyer for the
bank did not return a call seeking comment.In court documents filed in U.S. Bankruptcy Court in
Manhattan, Lehman said JPMorgan traders made improper profits
on the sales by “flipping” securities — selling them to
themselves at low prices and reselling to third parties at
higher prices, Lehman said.Lehman is hoping to avoid or reduce a $6.3 billion claim from
JPMorgan related to the securities.JPMorgan demanded roughly that sum from Lehman to help cover
$25 billion in losses it incurred through its role in the LBI
repurchase deals, saying the securities alone did not generate
enough cash to make it whole.But Lehman said the securities had a market value of more than
$27 billion, and would have covered JPMorgan’s losses if not for
JPMorgan’s improper sale process.”Perhaps because JPMorgan believed it could look to the
extra LBHI collateral it held as a ‘cushion,’ JPMorgan rushed
to liquidate the LBI collateral without any procedures to
ensure it was sold at a fair market price,” Lehman said in the
filing.Lehman, in the court papers, said JPMorgan dubbed the
liquidation process “Project Tassimo” in honor of one JPMorgan
employee’s coffee maker. The project was assigned to JPMorgan’s
“Special Situations Group,” whose members had little to no actual
experience liquidating collateral, Lehman said.The bank incentivized employees to make quick deals on the
securities rather than good ones by refusing to compensate its
traders, Lehman said. At the same time, it failed to
effectively regulate traders who sought their own profits by
flipping securities, Lehman said.JPMorgan also did not set a formal floor for prices, saying
only that bidders who offered a “fraction of a cent” should not
be considered, according to Lehman’s argument.Details of the filing had been redacted when it was first
filed in August. The parties disagreed about whether the
information should be made public, with Lehman filing a motion to
unseal.JPMorgan never responded to the motion. Lehman filed its
unredacted motion on Tuesday.The Lehman bankruptcy is In re Lehman Brothers Holdings
Inc, in the same court, No. 08-13555.
Permalink 63 notes
