Public Intelligence

Increasing public spending had contributed to a substantial deterioration of public finances in Cyprus over recent years. To address fiscal imbalances, the government introduced an initial set of fiscal reform’s in late 2012. However, additional measures are needed to ensure the sustainability of public finances. The size of the necessary adjustment will depend, among other things, on the magnitude of spillovers from financial sector restructuring.

An English translation of the Vatican Pontifical Council for Justice and Peace paper “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority” released October 24, 2011.

Three confidential draft copies of the European Financial Stability Facility’s guidelines on primary market purchases, secondary market interventions and precautionary programs dated October 19, 2011.

Since the fourth review, the situation in Greece has taken a turn for the worse, with the economy increasingly adjusting through recession and related wage-price channels, rather than through structural reform driven increases in productivity. The authorities have also struggled to meet their policy commitments against these headwinds. For the purpose of the debt sustainability assessment, a revised baseline has been specified, which takes into account the implications of these developments for future growth and for likely policy outcomes. It has been extended through 2030 to fully capture long term growth dynamics, and possible financing implications.

The OCC, Board, FDIC, and SEC (individually, an “Agency,” and collectively, “the Agencies”) are requesting comment on a proposed rule that would implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) which contains certain prohibitions and restrictions on the ability of a banking entity and nonbank financial company supervised by the Board to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund.

The Cookie Monster might want to share more than a few crumbs when a new character joins the “Sesame Street” gang: a girl called Lily from a family hard-pressed to put food on the table. The fuchsia-faced puppet will star in an hour-long primetime special on Sunday from the producers of the long-running children’s television show to draw attention to hunger among American families. “When you don’t even know whether you’re going to have a next meal or not, that can be pretty hard,” Lily, rubbing her empty belly, was seen telling a compassionate Elmo in a preview video on Wednesday. “Many people don’t realize this is a problem that hits close to home,” says country-rock star Brad Paisley on the show. “One in four children do not regularly know where their next meal is coming from, in our country.”

Dan Nguyen – http://www.flickr.com/photos/zokuga/
Collin David Anderson – http://www.flickr.com/photos/collina/
Paul Weiskel – http://www.flickr.com/photos/31167233@N08/
Andrew Shiue – http://www.flickr.com/photos/djwerdna/
Occupy Wall Street – http://www.flickr.com/photos/occypywallstreet/6173632320/
David Shankbone- http://www.flickr.com/photos/shankbone/

David Shankbone – http://blog.shankbone.org/
Paul Weiskel – http://www.flickr.com/photos/31167233@N08/
Pamela Drew – http://www.flickr.com/photos/pameladrew/

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study. “As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” said Sanders. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”

On numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets. Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008. The Federal Reserve Board directed the Federal Reserve Bank of New York (FRBNY) to implement most of these emergency actions. In a few cases, the Federal Reserve Board authorized a Reserve Bank to lend to a limited liability corporation (LLC) to finance the purchase of assets from a single institution. In 2009 and 2010, FRBNY also executed large-scale purchases of agency mortgage-backed securities to support the housing market. The table below provides an overview of all emergency actions covered by this report. The Reserve Banks’ and LLCs’ financial statements, which include the emergency programs’ accounts and activities, and their related financial reporting internal controls, are audited annually by an independent auditing firm. These independent financial statement audits, as well as other audits and reviews conducted by the Federal Reserve Board, its Inspector General, and the Reserve Banks’ internal audit function, did not report any significant accounting or financial reporting internal control issues concerning the emergency programs.

linmtheu – http://www.flickr.com/photos/26040773@N07/
SekaRuis – http://www.flickr.com/photos/sekarius/
endiaferon – http://www.flickr.com/photos/endiaferon/
cortlinux – http://www.flickr.com/photos/cortlinux/

The bad news just keeps on coming for Goldman Sachs. The Wall Street investment bank has received a subpoena from the office of the Manhattan district attorney, which is investigating Goldman’s role in the financial crisis, said one person familiar with the subpoena. It comes amid increased enforcement scrutiny of the company, which has faced blistering criticism that it shorted — or bet against — the mortgage market before it collapsed and that it knowingly sold bundles of bad mortgages to its clients. Goldman denies these accusations.

This Report is the product of a two-year bipartisan investigation by the U.S. Senate Permanent Subcommittee on Investigations into the origins of the 2008 financial crisis. The goals of this investigation were to construct a public record of the facts in order to deepen the understanding of what happened; identify some of the root causes of the crisis; and provide a factual foundation for the ongoing effort to fortify the country against the recurrence of a similar crisis in the future.

In a national referendum Saturday, Icelanders, for the second time, voted against a government proposal to pay the big losses of some of their bankers and their foreign customers, with 60% voting “No” and 40% in favor. For those of us who welcome capitalists, but want them to operate at their own risk, this hopefully sets an example for the rest of Europe. How Icelandic taxpayers got stuck with this bailout bill is a strange saga. When the international financial crisis hit bottom in the fall of 2008, it became clear that the Icelandic Insurance Fund for Depositors could not cover all the liabilities of the foreign branches of the private Icelandic bank Landsbanki. In order to avoid a general run on their own banks, the British and the Dutch governments decided to reimburse depositors, for not only the principal, but also the interest due, in Landsbanki branches in their countries, up to a certain level.

A zip file made available by Bloomberg contains the complete contents of their recently granted FOIA request for Federal Reserve Discount Window data on loans made, often to foreign banks, during the height of the financial crisis in 2008.

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential. Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk. In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The Federal Reserve has lifted its veil of secrecy regarding special lending programs during the financial crisis, responding to a mandate from Congress by revealing the specifics of transactions with firms like Goldman Sachs and Citigroup. Critics of the Federal Reserve are poring over the data, seeking red flags regarding potential improprieties. And Congress has asked its Government Accountability Office to sift through the numbers and offer its own analysis. At the same time, it’s possible that the release of details will end up largely vindicating the Fed for the massive financial support that it gave the economy at a time of severe stress. The emergency loans, in the view of many finance experts, helped to avert a much deeper economic slump. And those loans have now been largely paid back without losses to the central bank. The numbers are staggering, encompassing more than a dozen emergency programs set up starting in 2007 or 2008. In one program alone the Fed doled out nearly $9 trillion in funds to borrowers such as Morgan Stanley and Merrill Lynch, largely at interest rates below 1 percent. (This program involved overnight loans, so the amount of Fed credit outstanding at any single point in time was much smaller.) Other programs, with longer-term loans also measured in the trillions of dollars.

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

In the context of rapidly increasing inter-dependence across national economies and shifting economic weight of different regions, the crisis has been a wake-up call for putting in place a global financial and monetary system that reduces the frequency and severity of crisis, underpinned by greater multilateralism in policymaking. Global cooperation and coordination on a wide set of issues, ranging from crisis prevention to regulatory and prudential reform and to provision of financial support, is critical for responding to the challenges presented by financial fragilities, external imbalances, weak fiscal positions and rising debt levels, and volatile capital flows.

AIG Global Restructuring Plan Overview, September 28, 2008.

Goldman Sachs AIG/Maiden Lane III Documentation, 2008.

This report responds to the request of the G-20 leaders for the IMF to: “…prepare a report for our next meeting [June 2010] with regard to the range of options countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution toward paying for any burden associated with government interventions to repair the banking system.”

BlackRock was originally the Financial Management portion of Peter G. Peterson and Stephen A. Schwarzman’s Blackstone Group. The Blackstone Group and BlackRock Financial Management both derive their name from their co-founders’ surnames; schwarz means “black” in German and Peter is derived from the Greek word πετρος meaning “stone”. Laurence Fink, who ran the Financial Management division of the Blackstone Group, was heavily involved with the initial creation of mortgage-backed securities, the same type of financial products that would later lead to the Global Financial Crisis of 2008-2009.

Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said. “I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” The program, scheduled for broadcast today, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.

Jean-Claude Trichet, president of the European Central Bank, emphasized the need for global coordination of financial regulation in an April 26 address at the Council on Foreign Relations. Trichet argued for unified international accounting and capital standards for banks, as well as more say for industrializing countries in structuring global financial markets. Emerging-market economies have become “a source of strength for the world economy,” he said, and the economic crisis has “led to a clear recognition of their increased economic importance and to their full integration into the institutions of global governance.” Trichet declined to comment about ongoing negotiations over the IMF-EU joint bailout for Greece and said he was “confident that they will be concluded soon and rightly.” In comparing European and U.S. views on financial reform, he said the biggest disparities included the greater influence of investment banks in U.S. policymaking and vastly different accounting practices between European and U.S. companies. “We need accounting rules that will be the same on both sides of the Atlantic,” he said.