- The closely-watched quarterly Tankan survey (Japan business outlook), released in March, showed sentiment among Japan’s largest manufacturers fell to a record-low
- The BoJ index gauging sentiment among big manufacturers slid to minus-58, more than double the minus-24 in the previous quarterly survey
- This signaled companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession
- Development in Tankan survey is consistent with a sharp contraction in the Japanese economy driven mainly by weak exports and corporate capital expenditures
- Big manufacturers expect to slash their capital spending by 13.2% in the year to next March, a much bigger drop than the previous year’s 2.4%
- Tankan suggests GDP will contract sharply in Q1.
The investment community was already suspicious last week when Secretary Timothy Geithner unveiled his plan, announcing that Treasury would select four or five companies as "fund managers" to purchase toxic securities. Given that the whole idea is to create a liquid market for these assets, we'd have thought Treasury would encourage as many players as possible.
But the bigger shock was when Treasury released its application to become a fund manager, a main rule of which is that only firms that already have a minimum of $10 billion in toxic securities under management can apply. Few hedge funds, private equity players or sovereign wealth funds come near this number. The hurdle would bar many who specialize in the very distressed assets that the Obama Administration is trying to offload from banks. . .
"This is ugly," says Joshua Rosner, the managing director of Graham, Fisher & Co., an independent research firm. "As long as they are experienced, there is no rational reason for creating limitations on who becomes a bidder and manager of assets. It doesn't serve the public good, though it may serve those few large firms that appear to have a privileged relationship with Treasury."
We have no idea if Treasury is playing favorites, but it certainly doesn't look good. All the more so given that some of these big players may have consulted informally with the Obama Administration as it was writing the plan. Not to mention that the big asset management companies that are most likely to land plum fund-management jobs are also the ones that have been most vocally praising the Treasury plan. (Treasury declined to comment.)
None of this bodes well for the bank rescue.
Geithner’s remarks reflect the view of some analysts that the worst of the economic downturn may be past, even as some banks are likely to fail and unemployment is set to worsen. The Treasury chief said the main danger is that banks and investors take too little risk and refrain from betting on a recovery.
White challenged the former Federal Reserve chairman’s mantra that central bankers can’t effectively slow the causes of asset bubbles when he was chief economist at the Bank for International Settlements.
As heads of state gather for tomorrow’s Group of 20 summit, several former central bankers and regulators are advising them to advance the same arguments White has made for more than a decade: raise interest rates when credit expands too fast and force banks to build up cash cushions in fat times to use in lean years.
“We started worrying about this at the same time that Alan Greenspan started worrying about irrational exuberance” in 1996, said White, a Canadian who has remained in Basel, Switzerland, since retiring from the BIS in June. “The difference was he stopped worrying about it, or at least he stopped worrying about it publicly, and we didn’t.” . . .
Federal Plan to Aid Small Businesses Is Flawed, Lenders Say
Officials Call It a Work in Progress
Two weeks after President Obama announced a $15 billion initiative to spark lending for small businesses, every major provider of these kinds of loans says the plan will not work as designed.
The conditions attached to the program, which require these financial firms to surrender ownership stakes to the government and limit executive pay, are so off-putting that these companies say they will not participate.
Industry officials and congressional sources said these issues were raised with the administration before the small-business initiative was unveiled. Nonetheless, administration officials accelerated the announcement, moving quickly to show they were using financial rescue funds to aid not only big Wall Street firms but Main Street businesses as well, sources familiar with the matter said.
Administration officials acknowledge the initiative is not yet ready and say they are reworking the proposal.
On the day of the unveiling, Obama said: "We will immediately unfreeze the secondary market for SBA [Small Business Administration] loans and increase the liquidity of community banks."