KeNo's Housing and Economic Portal: Thursday December 31 Housing and Economic stories

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Board to Propose More Flexible Accounting Rules for Banks (www.nytimes.com) Facing political pressure to abandon “fair value” accounting for banks, the chairman of the board that sets American accounting standards will call Tuesday for the “decoupling” of bank capital rules from normal accounting standards. His proposal would encourage bank regulators to make adjustments as they determine whether banks have adequate capital while still allowing investors to see the current fair value — often the market value — of bank loans and other assets. In the prepared text of a speech planned for a conference in Washington, Robert H. Herz, the chairman of the Financial Accounting Standards Board, called on bank regulators to use their own judgment in allowing banks to move away from Generally Accepted Accounting Principles, or GAAP, which his board sets. “Handcuffing regulators to GAAP or distorting GAAP to always fit the needs of regulators is inconsistent with the different purposes of financial reporting and prudential regulation,” Mr. Herz said in the prepared text. “Regulators should have the authority and appropriate flexibility they need to effectively regulate the banking system,” he added. “And, conversely, in instances in which the needs of regulators deviate from the informational requirements of investors, the reporting to investors should not be subordinated to the needs of regulators. To do so could degrade the financial information available to investors and reduce public trust and confidence in the capital markets.” Mr. Herz said that Congress, after the savings and loan crisis, had required bank regulators in 1991 to use GAAP as the basis for capital rules, but said the regulators could depart from such rules. Banks have argued that accounting rules should be changed, saying that current rules are “pro-cyclical” — making banks seem richer when times are good, and poorer when times are bad and bank loans may be most needed in the economy.

A lonely voice against the Fed now leads a chorus - (www.washingtonpost.com) Rep. Ron Paul's attempt to rein in central bank is finally close to passing -- just don't expect him to vote for it. Ron Paul is used to going it alone. During 20 years in Washington, the libertarian Republican congressman from Texas has proposed doing away with personal income taxes, federal antitrust laws and the minimum wage. He's advocated pulling the United States out of the United Nations, NATO and the International Monetary Fund. Those efforts have mostly been legislative non-starters. Many of his bills fail to attract a single co-sponsor. But one of his perennial causes is headed to the House floor Wednesday with widespread support: to audit the Federal Reserve. That measure, which he first introduced in 1983, has the backing of more than 300 legislators and last month won bipartisan approval in the House Financial Services Committee. The proposal would subject the Fed to unprecedented scrutiny by allowing the Government Accountability Office to audit all central bank operations, including its decisions on interest rates, lending to individual banks and transactions with foreign central banks. Fed officials and many private economists have argued strenuously against the measure, saying it would threaten economic stability by undermining the central bank's independence from political pressure. "I'd like to know who they bail out and why," said Paul, who brought together a small cult following across the political spectrum in the last presidential election. "I'd like to know how much they pay for securities that they buy. Did they overpay? Why did Goldman Sachs come out well and Lehman Brothers go bankrupt?" Author of 'End the Fed': That Paul's proposal has garnered so much support despite opposition from the Obama administration is not so much a testament to his political prowess. Rather, it reflects populist discontent over an institution increasingly blamed for its failure to head off the financial crisis and for its role in rescuing large financial firms that helped cause it. "He's been dogged about it and stayed with it," said Steve H. Hanke, an economics professor at Johns Hopkins University. "The lesson in salesmanship is illustrated by Paul's actions. However, the consuming public is obviously ready to buy now. . . . There's just a great deal of skepticism out there. And in that environment, a bill that would require more transparency and less secrecy gets some traction." But Paul's critique of the Fed goes well beyond the lessons of the financial bailout. He believes market forces alone, not the Fed, should set interest rates. His best-selling book is called "End the Fed." He has a separate bill to abolish the Fed altogether. (He is the lone sponsor.) Paul said in an interview that his measure is strictly about transparency at the "all-powerful" Federal Reserve. "What they're talking about when they say they want no political influence, what they're talking about is they just want secrecy," Paul said. "Why would they be so nervous about us finding this out? It tells you there's something big going on."

Job-hopping reined in for young Americans - (www.ft.com) The recession has made younger Americans more conservative in their attitudes towards debt and employment, aligning their views more closely with those of their parents’ generation, according to a study. The number of Americans aged between 23 and 33 who now plan to stay with the same employer for life has almost doubled since last year. In the survey by Fidelity Investments, the financial services group, one in four say they plan to stay with a single employer, compared with 14 per cent last year. “The change in young workers’ mindsets has been remarkable,” said Brad Kimler, executive vice-president of Fidelity’s Consulting Services. “Historically, this generation has been much more mobile and always looking for the next opportunity.” However, heavy debts combined with the threat of unemployment had made younger people more reluctant to job hop, he said. This generation holds on average more than three credit cards, with a fifth owing more than $10,000 (€6,650, £6,060), according to the study of 1,017 employed young people. The survey also showed that saving for retirement had become more important, with about 18 per cent of the group saying it was their top spending priority compared with 13 per cent last year. “Attitudes and views towards their employers and finances are now more conservative and reflective of their parents’ generation,” Mr Kimler said. “Yet this generation will be faced with different challenges, including higher debt, greater responsibility for costs associated with benefits and less access to traditional pensions.” Shifts in young people’s behaviour is also becoming evident in the way they spend their money. “Young adults are incredibly nervous as a result of the recession,” said Ellen Davis, vice-president of the National Retail Federation. “This is especially true among 18-24-year-olds ... They are graduating from college and unable to find jobs, finding it hard to get credit and realising their parents can’t support them as much as planned.” While retailers geared towards teenagers and young adults generally outperformed the rest of the sector at the outset of the recession, their fortunes may be changing. Data last week showed that shops selling clothes for children and young people missed November sales estimates by the widest margin in the sector.

Greek Bonds Slide for Second Day on Mounting Downgrade Concern - (www.bloomberg.com) Greek bonds tumbled, with the yield on the two-year note rising the most since November 2008, on mounting concern the nation’s deteriorating finances may prompt a debt downgrade. The decline sent the yield on the two-year security to the highest level since May. Standard & Poor’s put Greece’s A- rating, the lowest among the 16 nations in the euro region, on watch for a possible downgrade yesterday, signaling it may be lowered within two months. The premium investors demand to hold Greek 10-year government bonds over German bunds, Europe’s benchmark securities, reached the widest level since April 21. “The negative outlook for the rating was the trigger for the move,” said Marc Ostwald, a strategist in London at Monument Securities Ltd., a broker for banks and investors. “Everyone is getting very, very negative” on Greece, he said. The yield on the two-year Greek note jumped 45 basis points to 2.52 percent, the highest level since May 4, as of 1:08 p.m. in Athens. The yield on the 10-year security climbed 24 basis points to 5.38 percent, the most since March 12. Greece’s socialist government, elected in October, plans to cut its budget deficit to 9.1 percent of gross domestic product next year from 12.7 percent this year. The plans, including one- off measures and a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics,” given the prospects of high deficits, debt and sluggish economic growth, S&P said yesterday. European Union officials are increasing pressure on the Greek government to take lasting measures to reduce the deficit, the highest level this year in the 27-nation European Union. Greece is facing a “very difficult” situation and needs to take “courageous” decisions to counter the budget deficit, European Central Bank President Jean-Claude Trichet told the European Parliament in Brussels yesterday.

Dubai Stocks Slump Most in World on Debt Restructuring Concern - (www.bloomberg.com) Dubai shares tumbled, erasing almost all of this year’s gains, on investor concern that Dubai World is struggling to restructure debt. Emaar Properties PJSC, the United Arab Emirates’ biggest real-estate developer, slumped 9.8 percent and Emirates NBD PJSC retreated to the lowest since Sept. 3. The DFM General Index plunged 6.1 percent to 1,638.05. The measure, which closed at the lowest since July 13, has tumbled 22 percent since Dubai said on Nov. 25 that it was seeking a “standstill” agreement on Dubai World’s debt. Dubai World last week began talks with banks to restructure $26 billion of debt, including a $3.52 billion Islamic bond of property unit Nakheel PJSC maturing on Dec. 14. Dubai World held talks with its six main creditors yesterday, a banker familiar with the negotiations said. Debt restructuring by Dubai state- run companies may almost double to $46.7 billion as more of the emirate’s businesses could need help making payments, Morgan Stanley said. “Until there is some clarity on debt restructure, there won’t be any serious buyers,” said Julian Bruce, director of institutional equity sales at EFG-Hermes Holding SAE in Dubai. “The closer we get to the Nakheel deadline with no news, the worse it will be.” More Time: Dubai World may need more than six months to complete its restructuring, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, told Al Arabiya TV channel today. “The six months period will be short for a complete restructuring,” he said. “The focus at this stage will be on the borrowers and contractors.”

Bankers warn of exodus on windfall tax - (www.ft.com) The banking industry rounded angrily on Monday on reports that the government plans to introduce a windfall tax on bonuses, describing the proposals as a punitive measure that would trigger an exodus of financial services companies from the City. Alistair Darling is expected to include some form of “supertax” on bankers’ bonuses in his pre-Budget report on Wednesday, as Labour attempts to mark clear dividing lines with the Tories ahead of a general election next year. While details of any such scheme remained unclear late on Monday, the chancellor is said to be keen to send a shot across the bows of banks that are intending to distribute hefty awards to staff in the aftermath of the global financial crisis, when they were propped up by billions in taxpayers’ funds. Sources familiar with the Treasury’s plan said that Mr Darling intends to propose a one-off levy that is likely to raise hundreds of millions of pounds, rather than the £6bn figure mooted over the weekend. Government officials were still deliberating over whether to target investment banks’ bonus pools or individual bankers, although the levy will capture all banks operating in the UK, sources said. Angela Knight, chief executive of the British Bankers’ Association, accused the government of playing politics with the City’s future, saying it would send a message that London was no longer a competitive place for financial services.