Finance Blog number 1

Financial markets are likely to remain buffeted by uncertainty over government policy despite an unprecedented pledge by the world’s top finance officials to cooperate as the global economy emerges from recession.

At a meeting in London at the weekend, finance ministers and central bankers from the Group of 20 nations said fiscal and monetary policy would stay expansionary as long as needed to ensure recovery.

That assurance could support fresh risk-taking in the markets this week, providing a moderate boost to global equities and prompting sales of the U.S. dollar in favor of higher-yielding currencies such as the Australian dollar.

For the first time, the G20 officials said there should be some coordination of policies to avoid destabilizing economies when governments eventually start winding down costly stimulus schemes launched during the crisis.

This was important for long-term investors, who fear volatility in the currency and interest rate markets if some cash-strapped countries cut back fiscal spending and hike interest rates much sooner than others.

But the G20 did not explicitly address big issues blamed for imbalances in the global economy, such as the value of China’s yuan. That raised questions over how much political will the group can really muster to coordinate policies.

And in some ways, the G20 seemed less united than it did when it met at the height of the crisis in April. While the April meeting produced a broad consensus on reform to financial regulation, the latest meeting bickered inconclusively over issues such as curbing excessive pay packages for bankers.

If the G20 has trouble setting common rules to regulate the finance industry, it may find it impossible to agree on sharing the fiscal burden of engineering a sustained economic recovery cash advance payday loan.

“The spirit of coordination is confidence-boosting, but in reality withdrawing fiscal stimulus will be difficult to coordinate,” said Lena Komileva, head of market economics for major developed economies at money broker Tullett Prebon.

“Investors still fear an uncoordinated exit could create stealth competition and contribute to increased volatility in government bond yields. It may be the fiscal equivalent of competitive currency devaluation.”

GROWTH

As the G20 met, there were fresh signs of improvement in the economic outlook. Documents obtained by Reuters showed the International Monetary Fund had revised up its forecast for the world economy this year and next.

It now forecasts a contraction of 1.3 percent in 2009, a bit better than its April forecast of a 1.4 percent shrinkage, and growth of 2.9 percent in 2010, revised up from 2.5 percent previously.

But the strengthening outlook carries its own risks; facing less pressure to cooperate urgently to avoid a global economic collapse, G20 nations may focus more on narrow national interests as they plot “exit strategies” from stimulus steps.

That may explain why G20 policymakers said almost nothing specific at the weekend about the “cooperative and coordinated exit strategies” which they promised. Instead, they merely said they would work with the International Monetary Fund and the Financial Stability Board, an international forum, to develop such strategies. 

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Canada recorded a surprise job gain in August, the first in four months, suggesting the country is emerging from its first recession since 1992.

Employment rose by 27,100, Statistics Canada said. The jobless rate increased to 8.7 percent from July’s 8.6 percent, the highest since January 1998, as the labor force grew faster than employment. Economists surveyed by Bloomberg predicted a job loss of 15,000 and unemployment at 8.8 percent.

“This is very typical of what you see as the economy is emerging from a recession,” said Sheryl King, head of Canadian economics and strategy at Merrill Lynch Canada in Toronto. “We’ll take it.”

The Canadian currency appreciated as much as 1.2 percent to C$1.0887 per U.S. dollar, the biggest intraday advance since Aug. 27, before trading at C$1.0936 at 9:22 a.m. in Toronto, from C$1.1019 yesterday. One Canadian dollar purchases 91.45 U.S. cents.

The unexpected gain may help Conservative Prime Minister Stephen Harper fend off attacks from opposition parties seeking to oust him over his handling of the economy. Parliament resumes Sept. 14, and Liberal Leader Michael Ignatieff said three days ago his party will no longer support the government.

Part-Time Jobs

The employment gain was led by 30,600 part-time jobs, while full-time positions declined by 3,500. Retailers and wholesalers hired 21,200 people and financial and real estate companies added another 17,500.

The job report is also the last major piece of data due before the Bank of Canada’s Sept. 10 interest-rate decision. Governor Mark Carney said in July the economy started growing again this quarter, and committed to keeping his key lending rate at a record low 0.25 percent through next June if the inflation outlook doesn’t change. The jobless rate will likely keep rising even as the economy resumes growth, Carney said.

“Our customers continue to be prudent,” Pat Finelli, chief marketing officer of Pizza Pizza Royalty Income Fund, said on an Aug. 7 earnings call. “Ontario and Alberta’s economies continue to suffer from job losses and low discretionary income.”

U.S. Report

The U.S. jobless rate in August jumped to 9.7 percent, the highest since 1983, and employers cut another 216,000 jobs. Rising unemployment underscores Treasury Secretary Timothy Geithner’s judgment that it’s “too early” to start exiting from the unprecedented stimulus measures helping stabilize the economy.

Canadian average hourly wages rose 3.3 percent in August from a year earlier, the slowest advance in more than two years, Statistics Canada said today business card.

Manufacturing employment fell by another 17,300 in August, bringing the total loss over the prior 12 months to 231,300, or 12 percent, Statistics Canada said.

Manufacturers have been among the hardest hit by the recession and the effects of a stronger currency. U.S. orders of lumber and automobiles have been slashed, and Bank of Canada Deputy Governor Timothy Lane said Aug. 25 that persistent strength in the country’s currency is an “important risk” to the economy. A stronger currency makes factory goods less competitive.

“I don’t think it does anything material to alter the Bank of Canada’s path” on interest rates, said Derek Holt, economist at Scotia Capital in Toronto.

Construction Rebound

Other companies made up for the factory job losses in August. Employment at private companies rose by 49,200, while government jobs fell 11,500 and self-employment declined by 10,600.

Construction employment rose by 12,100 and professional and scientific services jobs rose 10,400.

Harper’s government expects a record C$50.2 billion budget deficit this year, on higher infrastructure expenditures, jobless benefits and aid for the auto industry. Ignatieff and New Democratic Party Leader Jack Layton have said Harper must also further loosen requirements for unemployment benefits to allow more to qualify.

Unemployment will peak at 9.3 percent in the first quarter of 2010, according to a Bloomberg News survey. That suggests joblessness may reach a lower peak than the 12.1 percent rate set in November 1992 during the country’s last recession.

Most job losses tied to the current slowdown came in the first few months after employment peaked late last year, Statistics Canada said today. Of the 387,000 firings since October, about 357,000 happened in the next five months.

The labor market has “reversed itself,” said Paul-Andre Pinsonnault, an economist with National Bank Financial in Montreal, one of four economists out of 21 surveyed who correctly predicted job creation. “The labor market recovery will be sustained.”

Statistics Canada said Aug. 31 that the economy shrank at a 3.4 percent annualized pace in the second quarter. The economy will grow at nearly a 1 percent pace this quarter, accelerating to 2.9 percent by the second quarter of next year, according to economists surveyed by Bloomberg News.

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Economic policy makers from the Group of 20 nations gathering this week in London are finding that their drive to prevent the next financial crisis may be jeopardized by their success in countering the current one.

Stock markets are rebounding, with the MSCI World Index of 23 developed nations gaining 59 percent since March 9, when it reached its lowest level since 1995. Signs of economic revival are also appearing in countries such as the U.S. and the U.K. after the worst slumps since World War II.

The rally is sapping the political push to impose tougher regulations on financial-services companies. While that might help earnings for New York-based Citigroup Inc., the third- largest U.S. bank, and Barclays Plc, the U.K.’s second-biggest lender, it may also leave the global economy susceptible to a fresh cycle of boom then bust.

“We’re getting a recovery, so dealing with the true problems is going to be more difficult,” said Raghuram Rajan, a former chief economist at the International Monetary Fund who is now a professor at the University of Chicago. “The risk is that we’re just going to tool around until the next crisis.”

U.S. Treasury Secretary Timothy Geithner, Bank of England Governor Mervyn King and other G-20 finance ministers and central bankers meet Sept. 4 and Sept. 5 to prepare for the Pittsburgh summit of leaders three weeks later. They are convening five months since their governments blamed “major failures” in supervision as one of the “fundamental causes” of the worldwide credit crunch and vowed to “strengthen financial regulation to rebuild trust.”

Global Growth

That drive is now in jeopardy as the crisis ebbs. The IMF plans to raise its global growth forecast to “just below” 3 percent for 2010 from its 2.5 percent estimate of July, Jorg Decressin, a division chief in the lender’s research department, said yesterday. Banks are regaining lobbying strength, and other political goals such as health-care reform in the U.S. have captured the attention of legislatures. International differences, including over how to restrain bonuses, are also undermining the G-20’s united front.

Central bankers are already pressing governments not to slow the pace. “It would be a catastrophe not to draw all the lessons from the present crisis in terms of regulation,” European Central Bank President Jean-Claude Trichet told a symposium in Jackson Hole, Wyoming, on Aug. 21.

‘Radical Restructuring’

“Much remains to be done,” Bank of Israel Governor Stanley Fischer told attendees the same day. The former Citigroup vice chairman suggested the global banking system may need to undergo “radical restructuring,” perhaps by imposing limits on the size of individual financial companies.

Fischer also recommended that banks be forced to set aside more capital and central banks be given the power to monitor financial systems.

“What I’m very worried about is the recovery is going to come and the political will is going to disappear to actually repair the system,” said Stephen Cecchetti, head of the monetary and economic unit at the Bank for International Settlements in Basel, Switzerland, which serves as a bank for central banks.

Financial institutions may be the winners of a regulatory impasse because their profits would be spared, said Simon Johnson, a former chief IMF economist who is now a senior fellow at the Peterson Institute for International Economics, a Washington-based research organization.

Sweeping Overhaul

President Barack Obama in June proposed the most sweeping overhaul of the U.S. financial-regulatory system in 75 years, calling for the creation of an agency to monitor mortgages and other consumer products and tighter oversight of the country’s biggest banks and institutions.

Congressional passage of his revamp would have a “material” effect on bank earnings, said Andrew Laperriere, a Washington-based managing director at International Strategy & Investment Group, an institutional brokerage. The MSCI World Financials Index has jumped 132 percent since its low of 35.01 on March 9.

Unless steps are taken to reduce complexity and leverage in financial markets, “we’re going to have a replay of what has just happened over the last few years,” said Richard Bookstaber, a former trader at New York-based Morgan Stanley, the sixth-biggest U.S. bank by assets.

Fastest Pace

He warned in 2007 that risks in the markets were becoming unmanageable. Since then banks, brokers and insurers have racked up more than $1.6 trillion of writedowns and credit losses, data compiled by Bloomberg show, and the world economy fell into recession.

Financial firms are showing signs of reverting to their old ways, Johnson said. Zurich-based Credit Suisse Group AG, Switzerland’s second-largest bank, and Scotia Capital, the investment-banking unit of Bank of Nova Scotia, Canada’s third- largest bank, are among those increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the crisis began.

Still, stocks fell around the world this week on concern that their rally has outpaced the prospects for earnings and economic growth. U.S. stocks dropped for a third day yesterday, the longest losing streak for the Standard & Poor’s 500 Index since June, amid worry banks will post more losses.

In the U.S., Obama’s plans face resistance from lawmakers, overseers and the banking industry.

Risk Regulator

Federal Reserve Chairman Ben S. Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair and other regulators have opposed giving up their consumer-protection powers under an administration plan to set up a new agency to police financial products. Banks have also opposed the new regulator, arguing it would add a layer of expense to their operations and raise borrowing costs for customers and companies.

“The industry has gotten really organized since the crisis began to ease,” said Johnson, who is also a professor at the Massachusetts Institute of Technology in Cambridge.

A number of lawmakers, including Christopher Dodd, a Connecticut Democrat and chairman of the U.S. Senate Banking Committee, have voiced unease about another administration proposal to give the Fed powers overseeing systemic risks. Dodd has said he is leaning toward giving that power to a council of regulators.

“There’s no chance reform gets done this year,” said Laperriere, noting the breadth of changes proposed by the administration. “It’s not very likely it gets done in the current Congress,” which concludes at the end of 2010, he said.

National Money

It also may take more than a year for the European Union to unify market oversight in its 27 nations. While leaders agreed in June to sharpen scrutiny of banks, the EU’s executive arm must now draft legislation that then goes to the European Parliament and individual governments.

The risk watchdog the EU has proposed will lack powers to enforce its warnings and won’t automatically be run by the ECB as originally planned. The U.K. has won a compromise to prevent the panel from making decisions involving national money.

Executive pay is an area of disagreement that may become a point of contention at this week’s meeting of financial officials from China, India, Canada and other G-20 countries. German Chancellor Angela Merkel and French President Nicolas Sarkozy are urging the G-20 to impose tougher limits on bank bonuses.

Bonus Pools

France will suggest curbing bonus pools as a percentage of a bank’s revenue, imposing a ceiling on payments or taxing them, a finance ministry official told reporters yesterday. U.K. Prime Minister Gordon Brown sees a cap as difficult to enforce, the Financial Times reported yesterday, citing an interview.

“Bonus payments are the thing that quite rightly drives a lot of people up the wall,” Merkel said in Berlin on Aug. 31 with Sarkozy beside her. The two leaders said they want the G-20 to limit the size of banks and tighten capital rules.

France drew criticism from U.S. analysts and investors last week by announcing it won’t hire financial firms unless they follow their French counterparts and apply rules that include a three-year deferral on two-thirds of bonus payments.

“We’re in a tug of war between national political pressures and the desire to coordinate,” said Charles Dallara, managing director of the Washington-based Institute of International Finance, which represents the world’s biggest financial firms. “Right now the nationalist forces have the upper hand.”

Regulatory ‘Fragmentation’

He said that may lead to regulatory “fragmentation,” with supervisors trying to “protect their own backyard” and making the global system less stable in the process.

The longer the delay in adopting reforms, the more likely the drive will be dominated by politicians as opposed to “technocrats,” said Mohamed El-Erian, chief executive officer of Newport Beach, California-based Pacific Investment Management Co., manager of the world’s largest bond fund. In that case, reforms may end up being too “blunt,” he said.

“The run-up to the Pittsburgh G-20 meeting has attracted little attention,” said El-Erian, a former IMF official. “There is a risk that, after a successful London meeting in April, the G-20 process may lose momentum.”

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NEW YORK (CNNMoney.com) — The $3 billion Cash for Clunkers program will shut down on Monday, the government said Thursday.

Dealers must submit any pending Clunker deals, including any necessary paperwork, by 8 p.m. ET Monday.

"It’s been a thrill to be part of the best economic news story in America," said Transportation Secretary Ray LaHood. "Now we are working toward an orderly wind down of this very popular program."

Officials decided to wind down the program, which Congress passed to spur flagging auto sales, after determining that it would soon run out of money.

As of Thursday, the program has recorded more than 457,000 dealer transactions worth $1.9 billion in rebates.

The Department of Transportation is confident, based on its own analysis of Clunker deals that have been submitted and those that are still pending, that the program has enough money left to continue through Monday night, a senior White House official said.

"We are providing several days for consumers and dealers to finalize deals," the official said.

Under the Clunkers program, which launched July 27, vehicles purchased after July 1 are eligible for refund vouchers worth $3,500 to $4,500 on traded-in cars with a fuel economy rating of 18 miles per gallon or less.

"We expect there will be a flurry of activity over the weekend as the program comes to a close," Jeremy Anwyl, chief executive of the automotive Web site Edmunds.com, said in a statement.

"With a date certain, NADA is strongly recommending that all dealers now focus their attention and efforts on submitting reimbursement claims prior to the looming deadline," said John McEleney, chairman of the National Automobile Dealers Association in a statement on Thursday.

Car dealer Brian Benstock, president of Paragon Honda in Woodside, N.Y., said he’s already written 200 Clunker deals and will have a big advertising push this weekend to get a few more.

"We’re leaving nothing behind," Benstock said. "When it’s over its over and we’re leaving no dollars on the sidelines."

Car buyers trading in a vehicle must prove that the vehicle has been titled to them for at least a year and, in most states, that the car has been insured for a year.

Dealers are required to disable and destroy any clunked vehicle so that it cannot be resold.

Dealers have complained that the Transportation Department has been slow to process rebates — slowing their rebate checks and putting them in a financial squeeze. In response, the department recently hired additional personnel.

The program proved wildly popular, running through its initial $1 billion in its first week and leading lawmakers to approve an additional $2 billion in funding on Aug. 7.

Cash for Clunkers has been credited with boosting auto sales, sparking several automakers to re-open closed plants in an effort to refill ravaged inventories. Industry analysts at J.D. Power and Associates forecast that August retail auto sales, a figure that excludes fleet sales to businesses, will pass the 1 million unit mark, thanks largely to the program. That would make it the first million-plus retail sales month in a year.

"Improved consumer confidence and credit availability during the past six months have combined with the CARS program to lift industry sales out of their slumping year-to-date levels, which have been down approximately 35% year-over-year," said Gary Dilts, senior vice president of global automotive operations at J.D. Power and Associates, in a statement.

Overall auto sales are still expected to be down slightly, mostly due to low inventories hampering fleet sales, J.D. Power said. The company has boosted its overall projected sales for the year due to the success of the program.

What remains to be seen now is where things go from here.

"The effectiveness of the ‘cash-for-clunkers’ program will be judged in a number of ways, but a key measure will be how does the automotive market respond to the absence of the ‘clunkers’ incentive to buy now?" said Jack Nerad, editorial director at auto pricing trackers Kelley Blue Book, in a statement. 

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Manufacturing in the New York region grew in August for the first time in more than a year, reinforcing signs the worst recession since the 1930s is nearing an end.

The Federal Reserve Bank of New York’s general economic index climbed to 12.1, higher than forecast and the first expansion since April 2008, the bank said today. Readings above zero for the Empire State index signal manufacturing is growing.

Today’s report, the first regional factory measure for the month, indicates the government’s stimulus plan and record inventory cutbacks are starting to help companies such as ITT Corp. rebound. Economists project growth will resume this quarter, helped by stabilization in manufacturing and housing.

“Inventories were drawn down to such amazingly low levels that companies need to start bringing them back,” said Tom Porcelli, a senior economist at RBC Capital Markets in New York. “We are coming out of the recession. It’s probably over at this point.”

Stocks fell around the world as investors speculated the recent rally in riskier assets had outpaced prospects for economic growth. The Standard & Poor’s 500 index was down 2.2 percent at 1:10 p.m. in New York to 981.82. The yield on the benchmark 10-year note was 3.49 percent, down from 3.57 percent at the end of last week.

Exceeds Forecast

Other reports today showed foreign investors renewed purchases of U.S. financial assets in June and builder sentiment climbed this month to the highest level in more than a year.

Investors from Japan and the U.K. increased demand for Treasuries while China pared its holdings, a report from the Treasury Department showed. Total net purchases of long-term equities, notes and bonds were $90.7 billion in June, compared with net sales of $19.4 billion a month earlier.

The National Association of Home Builders/Wells Fargo confidence index climbed to 18, matching the median forecast by economists and reaching the highest level since June 2008, the Washington-based group said. A reading below 50 means most respondents view conditions as poor.

Economists projected the Empire State index would rise to 3, according to the median of 41 estimates in a Bloomberg News survey. Forecasts ranged from 8 to minus 5.

Cohen, Recession

“We think the recession is ending right now,” Abby Joseph Cohen, senior investment strategist at Goldman Sachs Group Inc., said in an interview today on Bloomberg Radio. The economy may grow by 3 percent in the next couple quarters and by 1.5 percent to 2 percent next year, Cohen said.

The August reading on the New York Fed index was the highest since November 2007, the month before the recession began. The index was at minus 0.6 in July.

Manufacturers account for 6 percent of New York’s $1.1 trillion economy paydayloan.

The New York Fed’s report showed orders and shipments increased, while inventories and employment contracted at a slower pace.

The index of prices paid climbed to 13.8, while the gauge of prices received dropped to minus 12.8, signaling that factories are not able to pass along increasing raw-material costs to their customers.

Factory executives in the New York Fed’s district, which encompasses New York state, northern New Jersey and one county in Connecticut, turned more optimistic about the future. The gauge measuring the manufacturing outlook rose to 48.2, the highest level since July 2007, from 34.

Production Rebounds

Chrysler Group LLC, the U.S. automaker run by Fiat SpA, will make more light trucks than it had planned in the second half to meet growing demand, a person with knowledge of the situation said last week. Chrysler plans to run two plants on overtime and is operating a third shift at another factory to restock dwindled inventory on dealer lots, said the person.

Businesses in the region that are raising forecasts include White Plains, New York-based ITT. The company said on July 31 that 2009 profit will be higher than its prior forecast after second-quarter expenses fell.

“There’s signs of life” in some markets, Chief Executive Officer Steve Loranger said on a conference call on July 31.

Loranger said ITT’s municipal water business has begun to stabilize as federal economic-stimulus money starts trickling in. Benefits from the stimulus plan aren’t likely to aid the company’s results until next year, he said.

Stimulus Impact

“We’re still not forecasting any significant stimulus benefit this year because the actual distribution of those funds has been very slow,” Loranger said. “We certainly will get our fair share.”

Industrial production rose for the first time in nine months in July as the federal “cash-for-clunkers” program spurred demand for cars and automakers completed mid-year overhauls of their factories, a Fed report showed last week.

The auto plan, which provides cash incentives for fuel- efficient cars, already is boosting vehicle sales and is likely to help lift production this quarter.

A report from the Philadelphia Fed, due on Aug. 20, may show manufacturing in that region shrank this month at the slowest pace in almost a year, according to a Bloomberg survey.

A Bloomberg monthly survey of economists showed the economy will expand 2 percent or more in four straight quarters through June 2010, the first such streak in more than four years, as the effects of the government’s fiscal stimulus broaden.

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Federal Reserve Chairman Ben S. Bernanke’s assets tumbled by as much as 29 percent last year as declining stocks eroded the value of his annuities and other investments, according to his annual financial disclosure forms.

The filings, released by the Fed yesterday, show Bernanke and his family owned $852,000 to $1.9 million in financial assets in 2008, down from $1.2 million to $2.5 million in 2007. The forms, published by the Office of Government Ethics, require officials to report only a range in the value of holdings.

The Fed chairman’s two largest assets in both years were TIAA Traditional, recorded as an annuity, and CREF Stock Large Cap Blend, a variable annuity. While both were valued at $500,001 to $1 million in 2007, the CREF stock fund fell to a range of $250,001 to $500,000 last year, according to the documents.

A retirement account invested in high-yield bonds at BlackRock Inc. held its value in a range of $15,001 to $50,000, and a BlackRock large-cap fund remained in the $1,001 to $15,000 range.

The funds were run by Merrill Lynch & Co. when Bernanke invested in them. Merrill merged them with BlackRock, and the funds were renamed, in 2007. As widely held mutual funds, they are exempt from regulations barring the Fed chairman, and other members of the Fed board, from owning stock in institutions involved in banking or finance cheap payday loan.

The central bank hired BlackRock last year to manage billions of dollars in assets it acquired in the rescue of Bear Stearns Cos. and the bailout of American International Group Inc.

Canadian Bonds

The disclosure forms show Bernanke sold most or all of his holdings in Canadian Treasury bonds. They were valued in 2008 at between zero and $1,001. In 2007 he reported their worth at between $50,001 and $100,000.

Bernanke, 55, who succeeded Alan Greenspan as chairman in 2006, received a salary of $191,300 in 2008, an amount set by Congress.

A former economics professor at Princeton University in New Jersey, Bernanke received between $50,001 and $100,000 in royalties for a textbook he wrote, published by Pearson, Inc. The range was unchanged from his 2007 filing.

A second textbook, published by McGraw-Hill Cos., earned Bernanke between $100,001 and $1,000,000 in royalties, up from $50,001 to $100,000 in 2007. The royalties were his biggest sources of income after his salary.

Bernanke reported no liabilities, individual stocks, gifts or travel expenses in 2008.

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The U.S. spurning of CIT Group Inc.’s aid request suggests officials are betting they’ve fixed the financial system enough to withstand the bankruptcy of a mid-sized lender.

“I hate to say this, but it was probably expendable,” said Dennis Santiago, chief executive officer of Institutional Risk Analytics, a Torrance, California, research firm that studies systemic risk. “It may have just missed the boat” on federal rescues, Santiago said.

Yesterday’s decision to forego a lifeline for CIT came 10 months after Lehman Brothers Holdings Inc. filed for bankruptcy. Lehman’s collapse ushered in the depths of the credit crisis to date, and resulted in the establishment of a $700 billion bailout fund; officials yesterday indicated programs created with that money would help fill any lending gap left by CIT.

Treasury Secretary Timothy Geithner, en route to Paris as CIT acknowledged policy makers had turned it down, is also wagering the administration will weather any political fallout. Unlike Bear Stearns Cos. or American International Group Inc., which got extraordinary aid last year, New York-based CIT specializes in loans to smaller firms, counting 1 million enterprises, including 300,000 retailers, among its customers.

A Treasury official said the department anticipates losing the $2.3 billion of taxpayer funds that it had already injected into the company from the Troubled Asset Relief Program should it file for bankruptcy.

‘Disruption’ and ‘Anger’

There will be “a lot of disruption and anger among voters, particularly among people who rely on firms such as CIT for funding,” said Sean Egan, head of Egan-Jones Ratings Co. in Haverford, Pennsylvania, which rates CIT below investment grade.

“A major provider of capital in the middle market is likely to be out of business in the near future,” and investors will be concerned, at least in the “short run” about CIT, Egan said.

CIT, whose stock trading was halted by the New York Stock Exchange before the close, said late yesterday it was told “there is no appreciable likelihood of additional government support being provided over the near term.” CIT added that it was “evaluating alternatives” with its advisers.

The Treasury then highlighted in a statement that the government has enacted “powerful” mechanisms to revive credit markets. “Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies,” the department said.

Administration Rationale

An Obama administration official separately said CIT didn’t receive more government assistance because it hadn’t gone to private capital sources to rebuild its balance sheet, something that several of the biggest Wall Street and regional lenders did earlier this year.

The official, who requested anonymity to discuss the deliberations, said the government also determined that CIT didn’t pose systemic risk to the economy if it failed to receive more aid.

Yesterday’s collapse in talks between regulators and CIT followed reluctance by the Federal Deposit Insurance Corp., the bank’s main regulator, to give it permission to participate in the agency’s debt-guarantee program.

The Federal Reserve had separately considered whether to let CIT put some of its parent assets into a banking unit, a move that could have increased its potential borrowing from the central bank. No such aid was forthcoming. The Fed has doubled its balance sheet to more than $2 trillion as it engaged in Wall Street rescues and emergency loans to banks across the nation.

‘Very Big Losses’

“If the government would have rescued them they would have been in there for a very long time, and they would have taken very big losses,” said Eric Hovde, who manages $1 billion at Hovde Capital Advisors LLC in Washington, which concentrates on financial and real-estate related companies affordable health insurance.

Part of the Fed and Treasury efforts to shore up the financial markets have been directed at restarting lending to small businesses. The two agencies in March jointly started the Term Asset-Backed Securities Loan Facility, or TALF. Under the program, the Fed lets investors borrow to purchase securities backed by auto, credit-card and other loans, with the idea that should spur lenders to extend more credit.

TALF loans from the Fed totaled $24.9 billion as of last week, compared with the program’s planned capacity of $1 trillion, backed by $100 billion of funds from the $700 billion Troubled Asset Relief Program.

TALF Aid

Fed officials credit the existence of the TALF with spurring the market for new asset-backed securities and reducing the difference, or spread, between yields and benchmark rates.

“So far, the evidence indicates that the program is working as designed,” New York Fed President William Dudley said in a speech last month. Yield premiums on consumer asset- backed securities have dropped “sharply,” he said.

The three-month London Interbank offered rate for the dollar, a benchmark for liquidity stresses among banks, has fallen every week since mid-March. The rate dropped to 0.51 percent yesterday from 1.43 percentage point at the start of the year.

Other evidence of a stabilization in the financial industry emerged this week, with Goldman Sachs Group Inc. reporting record profits. The Standard & Poor’s 500 Financials Index has rallied 11 percent this week.

Fed policy makers still regarded financial markets as “fragile” and the economy as “vulnerable to further adverse shocks,” minutes of their June 23-24 meeting, released yesterday in Washington, showed.

Regulatory Overhaul

The spurning of CIT comes amid a growing debate among officials, regulators, lawmakers and the financial industry over how to address the issue of firms deemed too big to let fail.

President Barack Obama is seeking the biggest overhaul of banking rules in decades, and wants to give the Fed new powers to oversee capital and liquidity standards. FDIC Chairman Sheila Bair, along with some lawmakers and central bankers, has urged stronger efforts to address the too-big-to-fail issue.

Gary Stern, president of the Minneapolis Fed, said the Obama plan “fails to come to grips” with the challenge, partly because it doesn’t threaten creditors with the risk of loss. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, plans a hearing on the matter July 21.

CIT was created in 1908, after founder Henry Ittleson noticed wholesalers repeatedly short of cash while he was a purchaser for a St. Louis department store. He wanted to create a new company that would serve customers overlooked by larger financial institutions, according to the firm’s Web site.

“I’ve heard from a lot of people, including a lot of people involved in small business, that it would cause a serious problem” for CIT to fail, Frank said in an interview yesterday before the firm’s announcement.

Among financial firms, “especially those on the edge, there’s going to be a scramble to figure out whether you’re in or out” of bailouts, said Joseph Mason, Louisiana State University finance professor. “This classification of systemic risk really is something like pornography — Fed and Treasury know it when they see it. You really can’t pre-commit.”

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Australian employment fell in June, pushing the jobless rate to the highest in almost six years, as the global recession reduced demand for iron ore and coal exports and prompted mining companies to fire workers.

The number of people employed dropped 21,400 from May, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 20,000. The jobless rate rose to 5.8 percent from 5.7 percent.

Central bank Governor Glenn Stevens left borrowing costs at a half-century low of 3 percent this week for a third month to help stem firings at companies including BHP Billiton Ltd. Advertisements for job vacancies tumbled in June for a 14th month, a sign unemployment may rise in coming months.

“Full-time employment continues to fall so there is weakness there,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. Still, the “rate of deterioration hasn’t increased as most people thought.”

The number of full-time jobs dropped 21,900 in June and part-time employment increased 400, today’s report showed.

The Australian dollar traded at 78.11 U.S. cents at 12:28 p.m. in Sydney from 78.04 cents before the report was released. The currency has jumped 8.5 percent in the past three months, making it the second-best performer against the U.S. dollar among the currencies of the major industrialized nations.

Consumer Confidence

Australia’s economy has so far skirted the worst global recession since the Great Depression. Gross domestic product rose 0.4 percent in the first quarter, making it one of the few major economies including China and India to expand.

Consumer confidence jumped to the highest level since December 2007 and home-loan approvals rose for an eighth month, reports showed yesterday.

“Leading indicators suggest we should be losing around 30,000 to 40,000 jobs per month, so the Reserve Bank would be happy with the recent performance of the labor market where trend losses are just 5,000 per month,” said Spiros Papadopoulos, an economist at National Australia Bank Ltd. in Melbourne.

To help boost employment and cushion the economy against slower global demand for natural resources, central bank policy makers slashed the overnight cash rate target by a record 4.25 percentage points to 3 percent between September and April.

Cash Handouts

Prime Minister Kevin Rudd’s government has also distributed A$12 billion ($9.4 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.

BHP Billiton, the world’s biggest mining company, is shedding 3,400 workers in Australia after shuttering a nickel mine in January and reducing coking coal output. Qantas Airways, the nation’s largest carrier, said in April that it will cut 1,750 jobs as demand for business and first-class travel wanes instant payday loans.

ANZ Bank said today it will scrap 248 jobs as it closes mortgage administration offices in cities including Sydney, Brisbane and Perth. The bank is Australia’s fourth largest.

“Weaker demand for labor is leading to lower growth in labor costs,” Reserve Bank Governor Glenn Stevens said on July 7. That gives policy makers “some scope for further easing of monetary policy, if needed,” he added.

Reports this month showed the construction industry shrank in June at a faster pace, exports slumped 5 percent in May from April and home-building approvals tumbled 12.5 percent, the biggest drop since November 2002.

Job Advertisements

Jobs advertisements dropped 6.7 percent last month from May and 51.4 percent from a year earlier, the largest annual decline since ANZ Bank began recording the figures in 1998.

Still, other reports suggest Australia’s economy will continue expanding this year. An index of consumer sentiment published yesterday by Westpac Banking Corp. climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.

The International Monetary Fund said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates.

The Washington-based lender said in a revised forecast released yesterday that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth.

Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.

Rate Outlook

David Jones Ltd., Australia’s second-biggest department store chain, said last week that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25. “The stimulus package has been good for confidence,” Chief Executive Officer Mark McInnes told reporters on June 30.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading. Traders forecast the key interest rate will be 44 basis points higher in a year, the index showed at 12:22 p.m. in Sydney from 46 basis points just before the report was released and 48 basis points late yesterday.

The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.3 percent in June from a revised 65.4 percent, today’s report showed.

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The current recession has created at least one growth industry: use of the phrase “green shoots.”

Since Federal Reserve Chairman Ben S. Bernanke first uttered the words almost four months ago to describe signs of a thaw in frozen credit markets, instances of the botanical metaphor in the press have climbed sevenfold. A Google search for “green shoots” returns 4.86 million hits.

“These may be the two most overused and annoying words of my investment career,” said John Mauldin, president of Millennium Wave Advisors LLC in Arlington, Texas. “Every possible sign of a recovery is anointed with the phrase.”

Declining interest rates on mortgages and business loans led Bernanke to say on the March 15 CBS News program “60 Minutes” that he detected “green shoots” in some financial markets where the Fed had acted to restart lending. The locution appeared 3,123 times in news articles last month, up from 436 in February, according to research by Japanese brokerage Nomura Holdings Inc.

Both bears and bulls have pressed the phrase into service.

Jim O’Neill, the chief economist at Goldman Sachs Group Inc., said April 27 that the green shoots of global economic recovery are “turning into daffodils,” when he upgraded his forecast for 2010 world growth to 3.2 percent from 2.8 percent.

‘It’s Moss’

“Housing is still a drag on the economy,” David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors, said May 26. “It may be green shoots, but they are growing slowly. It’s moss.”

Billionaire investor Warren Buffett joked June 24 that he had yet to see any green shoots, adding that his eyesight may be to blame.

“We’re not seeing them,” Buffett said on CNBC. “I had a cataract operation in my left eye about a month ago and I thought, maybe now I’ll be able to see some green shoots.”

Bernanke’s tendrils of economic hope have been compared with trees and mold. They have been said to be on the verge of blossoming, as well as in danger of withering, browning and succumbing to frost.

Nouriel Roubini, the New York University economist referred to as Dr. Doom for predicting the current crisis, enlisted the phrase to temper budding optimism about the economy.

“People talk a lot about these green shoots,” Roubini said June 22 in Paris cash loans. Yet looking at the economic data, he said, “I see more yellow weeds than green shoots.” Instead, he predicted the recession in the advanced economies would last another six to nine months.

Beyond Economy

The phrase has also spilled over into non-economic realms.

In a June 28 column on the Israeli-Palestinian conflict, Washington Post writer Jim Hoagland said, “Green shoots of peace are glimpsed in some quarters.” A June 21 entry on the Daily Kos blog about Iranian demonstrations carried the title “The Green Shoots of New Peace.”

While Bernanke may be identified with the phrase, he isn’t the first to use it. During the early 1990s recession, Britain’s former Chancellor of the Exchequer Norman Lamont declared that “the green shoots of economic spring are appearing once again.” That comment came back to haunt Lamont when growth failed to appear for months.

Accurate or not, Bernanke’s resurrection of the expression may have done some good this time around. Consumer and business confidence measures improved as it proliferated in the media, according to data compiled by Bloomberg.

‘Grip on the Public’

As “catch-phrases go, I can’t recall another business- related one that has had such a grip on the public,” said Bernie McSherry, a senior vice president at Cuttone & Co., one of the largest floor brokerages at the New York Stock Exchange. “Since green shoots don’t remain mere shoots forever, it’s time to retire the phrase and replace it with something indicative of where the economy is today.”

The term is “overused, not to mention overrated,” said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates in Toronto. “It is more a comment on the human condition and the innate need for optimism” than an accurate description of the economy and markets, he said.

A substitute phrase may also be needed if the U.S. economy slows down again later this year, said Rosenberg, the former chief North American economist at Merrill Lynch & Co.

“We will not very likely see ‘brown manure’ as the catchy horticultural replacement to green shoots,” he said.

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New Zealand central bank Governor Alan Bollard may keep the benchmark interest rate unchanged for the first time since July amid early signs of a recovery in the housing market and business confidence.

The Reserve Bank of New Zealand will leave the official cash rate at a record-low 2.5 percent, according to six of 11 economists surveyed by Bloomberg. Three predict a quarter-point cut and two a half-point reduction. The decision will be announced at 9 a.m. in Wellington tomorrow.

Bollard, who reviews borrowing costs every six weeks, began cutting rates in July last year as New Zealand slumped into its worst recession in more than three decades. House sales are rising and businesses are more optimistic about sales and profits, adding to signs the economy may return to growth before the end of the year.

“Economic data have continued to evolve in a manner consistent with a return to positive economic growth toward the end of the year,” said Darren Gibbs, chief economist at Deutsche Bank AG in Auckland. “Further easing could prove counterproductive.”

Bollard cut borrowing costs by a half point to 2.5 percent on April 30 and said he was unlikely to raise rates until late 2010 because of the outlook for global growth. He said he couldn’t rule out further reductions.

He is likely to reiterate this message tomorrow because the central bank doesn’t want to fan expectations that the benchmark rate may rise, said Gibbs.

U.S. Payrolls

Since April 30, economic reports in many countries with which New Zealand trades have shown a rebound. U.S. payrolls fell in May by the smallest amount in eight months, reinforcing signs the recession is starting to abate.

Australia’s economy unexpectedly grew in the first quarter, allowing the nation to avoid a recession. The Reserve Bank of Australia kept its benchmark interest rate unchanged at 3 percent for a second month.

In New Zealand, house sales rose from a year earlier for a second straight month in April. Home-building approvals increased for the second time in three months and immigration growth was the strongest in five years.

New Zealand businesses become optimistic for the first time in eight months in May, according to a survey by ANZ National Bank Ltd. published May 27. Consumer confidence in late May was the strongest since September, according to a Roy Morgan research poll published this week.

Credit Crisis

“Developments on the domestic front continue to challenge the assumptions underpinning the bank’s economic projections,” said Gibbs, citing the housing outlook and confidence measures affordable health insurance.

New Zealand’s economy began contracting in the first quarter of last year amid a drought and a housing slump as Bollard pushed borrowing costs to a record high. The recession was prolonged by the global credit crisis and a slump in commodity prices that stalled exports and business investment.

The economy will probably shrink for seven quarters before expanding in the fourth quarter of 2009, the Treasury Department said in a report last week, also citing the outlook for increasing business confidence.

Company optimism may be curbed by the New Zealand dollar’s 25 percent gain against the U.S. dollar in the past three months, say exporters and farmers, who want Bollard to keep cutting interest rates.

“The appreciation in the New Zealand dollar will have a major impact on margins, and more importantly sentiment amongst exporters,” John Walley, chief executive of the New Zealand Manufacturers and Exporters Association, said in a statement.

Currency Surge

The currency surged even after Bollard’s April 30 rate cut as the U.S. dollar fell and investors were prepared to take on more risk. The governor may comment on the currency’s gains, but is unlikely to use the cash rate to try to drive it lower, said Cameron Bagrie, chief economist at ANZ National Bank in Wellington.

“It’s hard to see how lowering the cash rate will make a real difference with sentiment being dominated by risk appetite,” he said. “Beyond the reaction on the day, there may not be any follow through.”

Still, the high exchange rate threatens to stall the fragile economic recovery and should be in Bollard’s sights, others say. Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said last month it will pay its New Zealand farmers 12 percent less for milk in the season ending May 31, 2010, because of weak prices and the strong currency. That would cut farm incomes by NZ$830 million ($513 million).

“The Reserve Bank must be uncomfortable with the relentless squeezing of financial conditions,” said Annette Beacher, senior strategist at TD Securities in Singapore. “We risk celebrating the revival of the housing sector at the expense of the slow death of the export sector.”

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