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Attali Slams Washington as a Do-Nothing ‘Annex of Wall Street’
Interview by Farah Nayeri
Feb. 12 (Bloomberg) -- Jacques Attali has a tip for people who detect “green shoots” of recovery: Forget it.
The financial crisis is far from over, the French economist says. Banks remain at risk, and U.S. lawmakers are doing nothing to prevent another global meltdown, he says, because Washington has become an “annex of Wall Street.”
That brutal assessment sums up “Survivre aux Crises” (“Surviving Crises”), the latest book from Attali, 66, the policy maker who advised French President Francois Mitterrand in the 1980s and later became the first head of the European Bank for Reconstruction and Development.
“Survivre aux Crises” is framed as an economic survival guide. The crisis isn’t going away, Attali says, and individuals, companies and nations must be humble, nimble and creative if they want to endure. In a telephone interview, we discussed the state of the economy and whether Barack Obama is doing enough to fix it.
Nayeri: In your book, you say the crisis is far from over. What makes you say that?
Attali: I don’t understand why people are even thinking of saying that the crisis is over. I don’t see the slightest reason why it is over. GDP is growing, but growing from a basis which is low because of the depression.
We have avoided catastrophe by transferring debts from the banking sector to the public sector. And even by doing that at a huge amount -- don’t forget that the amount is 50 times the amount of the Marshall Plan -- the banks are not safe, far from it.
Obama’s Old Guard
Nayeri: The Obama administration’s economic team retains the old guard, including Ben Bernanke, Timothy Geithner and Lawrence Summers. How do you feel about that?
Attali: I am among the people who believe that Washington is just an annex of Wall Street. Any important decision is taken in the interests of Wall Street. With a slight change: Chicago markets are also having a role.
Nayeri: What about President Obama’s proposal to ban proprietary trading at U.S. banks?
Attali: Mr. Obama is not Washington, D.C., as a whole. Washington, D.C., is made up of lobbies. I don’t know if Mr. Obama will be in a position to enforce what he’s saying.
Nayeri: What would you like the U.S. Treasury to do?
Attali: There are a lot of things to be done: international governance, new regulations on banking, new regulations on insurance.
Democratic ‘Tyranny’
Nayeri: Are you disappointed with Obama?
Attali: He has not achieved what he was supposed to achieve and what he wished to achieve.
He’s very lucid and knows exactly where he wants to go. My main analysis is that he’s not really in charge. Congress is much more powerful than him.
At the moment -- with a market economy moving very fast and China taking decisions in minutes -- the democracies in Europe and the U.S. are agonizing. Decision-making is very slow.
Washington as a whole, not Obama, is a disappointment. When we speak about democracy, we often think of the tyranny of the people. The tyranny of the people is not always good for the people. There is a need for speed.
Nayeri: Don’t you think the U.S. stimulus package was a colossal effort at rescuing America and the global economy?
Attali: It’s an irresponsible effort. It’s 50 times the Marshall Plan, without any way of financing it. It’s easy to spend without financing. You just say, “I have problems; my grandchildren will solve them.”
Nayeri: In your book, you talk about global chaos and a financial “avalanche.” Why are you so grim?
Attali: I am not grim. If you don’t see the risks, you cannot avoid them. If you don’t see the rocks, the boat is shipwrecked.
“Survivre aux crises” is from Fayard (292 pages, 14.90 euros).
To contact the reporter on the story: Farah Nayeri in London at farahn@bloomberg.net.
Last Updated: February 11, 2010 19:00 EST
BL: Euro Falls a 3rd Day on Concerns About Regional Growth, Greece
By Ron Harui
Feb. 12 (Bloomberg) -- The euro fell for a third day against the yen and the dollar before a report that economists said will show growth in the 16-nation euro-zone slowed last quarter, damping demand for the region’s assets.
The euro weakened versus 14 of its 16 major counterparts on concern the European Union’s plan to assist Greece will fall short of helping the nation tackle its fiscal deficit. The yen rose for a second day against the dollar on speculation Japanese investors are repatriating overseas earnings before an estimated $48.3 billion of U.S. Treasuries mature next week.
“The euro-zone’s fourth-quarter gross domestic product data is expected to show only moderate growth,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This is likely to add to the downward pressure on the euro.”
The euro declined to 122.46 yen as of 1:35 p.m. in Tokyo from 122.90 in New York. Europe’s currency fell to $1.3668 from $1.3693 yesterday, when it dropped to $1.3596, the lowest level since Feb. 5. The yen climbed to 89.60 per dollar from 89.77.
Europe’s currency headed for a fifth weekly loss versus the dollar before the EU’s statistics office releases its gross domestic product report today. GDP growth in the euro-zone slowed to 0.3 percent last quarter from 0.4 percent in the prior three months, according to a Bloomberg News survey.
Production Falls
Industrial production in France and Italy unexpectedly declined in December, government reports showed this week. French industrial output fell 0.1 percent from November, and Italian output declined 0.7 percent.
EU leaders stopped short of offering concrete steps to help Greece following their summit in Brussels yesterday.
Their statements left open how the EU would respond to a fresh wave of speculative attacks against the bonds of Greece or countries such as Spain and Portugal, which are also struggling to cut their deficits. The EU plan, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy.
“The lack of detail and substance in the assistance plans for Greece are a disappointment,” said Danica Hampton, senior strategist for markets at Bank of New Zealand Ltd. in Wellington. “This sentiment may continue to weigh on the euro.”
Annual Loss
The common currency has fallen 4.5 percent against the dollar this year on concern nations with the biggest debt burdens will struggle to meet their obligations. Investor attention now turns to a meeting of finance ministers in Brussels on Feb. 15-16.
Greece, representing 2.7 percent of the trading bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the EU’s 3 percent limit.
The yen rose against all 16 major currencies as the U.S. prepared to pay $48.3 billion in redemption and $21.6 billion in coupon payments for Treasuries on Feb. 16, according to estimates by Stone & McCarthy Research Associates.
Japan’s investors sold 32.4 billion yen ($361.6 million) more in overseas bonds and notes than they bought during the week ended Feb. 5, the Ministry of Finance said today.
“Japanese investors are probably repatriating money on worries over Greece,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s also talk they are bringing back some coupon payments in U.S. Treasuries.”
Pound May Fall
The pound may weaken against the yen, extending its decline toward the lowest level in 10 months, Ueda Harlow Ltd. said, citing trading patterns.
Britain’s currency failed to break so-called resistance near the conversion line of an ichimoku chart against the yen, signaling its will resume a downtrend, said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow in Tokyo. Resistance is a level where sell orders may be clustered.
“The key is whether it can protect the low reached on February 5,” Yamauchi said. “If this level is breached, the pound may extend its decline to about 135.70 yen.”
The pound dropped to 138.26 yen on Feb. 5, the weakest since March 30. It traded at 140.49 yen from 140.96 yen.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net
Last Updated: February 11, 2010 23:41 EST
BL: China Milk Defaults on Shortage of Foreign Currency
China Milk Defaults on Bond Redemption, Seeks Talks (Update1)
By Lars Klemming and Katrina Nicholas
Feb. 12 (Bloomberg) -- China Milk Products Group Ltd., a supplier of raw milk and dairy cow embryos, said it’s defaulting on some repayment obligations because it hasn’t enough money outside China to pay for early redemption of its bonds.
“The company is currently exploring different options with a view to meeting its funding requirements,” according to a filing with Singapore’s stock exchange today. The notes are China Milk’s $150 million of zero coupon convertible bonds due 2012 and issued in January 2007.
China Milk said Jan. 5 it had received “valid put exercise notices” from holders of about $146 million of the notes and was “awaiting clearance” from China for the remittance of $170.56 million so it could make the required payments. The delay was “administrative and procedural in nature.”
China Milk said in today’s filing that it will try to work out an agreement with bondholders.
“Any remittance of funds out of China entails a series of procedural steps and regulatory clearances in respect of which the company is currently unable to gauge the length of such a process,” the statement said.
Daqing-based China Milk also said it hadn’t appointed any legal advisers at this stage. China Milk said Feb. 1 its Chief Financial Officer, Choi Ho Yan, 33, resigned to “pursue other career interests.”
Trade in the company’s shares was halted on Feb. 9. The stock has fallen 30 percent this month.
To contact the reporters on this story: Katrina Nicholas in Singapore on Knicholas2@bloomberg.net; Lars Klemming in Singapore at lklemming@bloomberg.net
Last Updated: February 11, 2010 22:16 EST
BL: Obama must consider middle class tax increases
Obama ‘Agnostic’ on Deficit Cuts, Won’t Prejudge Tax Increases
By Rich Miller
Feb. 11 (Bloomberg) -- President Barack Obama said he is “agnostic” about raising taxes on households making less than $250,000 as part of a broad effort to rein in the budget deficit.
Obama, in a Feb. 9 Oval Office interview, said that a presidential commission on the budget needs to consider all options for reducing the deficit, including tax increases and cuts in spending on entitlement programs such as Social Security and Medicare.
“The whole point of it is to make sure that all ideas are on the table,” the president said in the interview with Bloomberg BusinessWeek, which will appear on newsstands Friday. “So what I want to do is to be completely agnostic, in terms of solutions.”
Obama repeatedly vowed during the 2008 presidential election campaign that he would not raise taxes on individuals making less than $200,000 and households earning less than $250,000 a year. When senior White House economic adviser Lawrence H. Summers and Treasury Secretary Timothy F. Geithner suggested in August that the administration might be open to going back on that pledge, White House press secretary Robert Gibbs quickly reiterated the president’s promise.
In the interview, Obama said that putting preconditions on the agenda of a bipartisan advisory commission, which he said he would soon establish, would just undermine its purpose.
“What I can’t do is to set the thing up where a whole bunch of things are off the table,” Obama said. “Some would say we can’t look at entitlements. There are going to be some that say we can’t look at taxes, and pretty soon, you just can’t solve the problem.”
Politically Risky
It would be politically risky for Obama to abandon his promise not to increase taxes on the middle class. Only 26 percent of Americans surveyed in a December poll by Bloomberg News said they favored such a step as a way to reduce the budget shortfall.
Many economists, including conservatives such as former Federal Reserve Chairman Alan Greenspan, argue that tax increases will be necessary as part of a broad package to control the deficit, which the White House projects will hit a record $1.6 trillion in the fiscal year ending on Sept. 30.
Obama said the U.S. was faced with a “structural deficit” that was in place before the recession began and that was only made worse by the deepest drop in the economy since the 1930s.
Revenue ‘Mismatch’
“Our real problem is not the spike in spending last year, or the lost, even the lost revenues last year, as significant as those are,” he said. “The real problem has to do with the fact that there is a just a mismatch between the amount of money coming in and the amount of money going out. And that is going to require some big, tough choices that, so far, the political system has been unable to deal with.”
The administration hopes the bipartisan commission will make it easier to produce a comprehensive plan to reduce the budget gap to a sustainable level, often described as 3 percent of the overall economy, by 2015.
The White House decided to set up the group on its own after the Senate blocked a measure to establish a congressional panel whose recommendations would have been guaranteed a vote by lawmakers. Opponents, including a majority of Senate Republicans, complained that the plan would result in tax increases and that Congress wouldn’t have a chance to amend the panel’s recommendations. Under a presidentially appointed commission, Congress could ignore any panel recommendations.
Republican Skepticism
House Republican leader John Boehner has expressed skepticism about the Obama commission and has sought assurances from the White House that its makeup would be bipartisan and not predisposed to tax increases. The Ohio Republican said he is still considering whether to appoint members from his party to the panel after a Feb. 9 meeting with the president.
Americans’ favorite way of cutting the budget deficit is by raising taxes on the wealthy, according to the Bloomberg News poll conducted by Des Moines, Iowa-based Selzer & Co. Two-thirds of the 1,000 adults surveyed Dec. 3-7 backed that approach.
The Obama administration’s budget already takes that route with its proposed $970 billion tax increase over the next decade on Americans earning more than $200,000 a year, largely by not extending former President George W. Bush’s tax cuts for the wealthy beyond 2010.
Even with those revenues -- and a proposed three-year freeze on some discretionary spending by the government -- the administration still projects a deficit of $752 billion in 2015, equivalent to 3.9 percent of gross domestic product.
That’s above the 3 percent mark that White House budget director Peter Orszag has said is necessary to stop the rise in government debt as a proportion of the economy.
Budget Gap
Analysts say that middle-class taxes will need to be increased because the government can’t raise enough money from the wealthy alone to close the budget gap. “It’s just not possible to get the revenue you need only from this group,” said Joel Slemrod, director of the Office of Tax Policy Research at the University of Michigan.
Going back on his campaign pledge would be fraught with risks for Obama. Former President George H.W. Bush paid a steep political price when he abandoned his 1988 campaign promise not to raise taxes, losing out in his bid for a second term to Bill Clinton.
To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net
Last Updated: February 11, 2010 00:01 EST
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