Finance Blog number 1

European Central Bank Governing Council member Ewald Nowotny said Standard & Poor

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President Barack Obama called yesterday

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North Korea said solving food and power shortages are urgent goals in 2012, and called on its people to defend Kim Jong Un, who inherited control of a country struggling to feed itself after 60 years of totalitarian rule.

The president of scandal-battered Olympus on Thursday called business partnerships an option for shoring up the gaping hole that the huge investment losses it hid for years have left in its balance sheet.

Olympus Corp. met its deadline to avoid being removed from the Tokyo Stock Exchange by filing correct earnings for the April-September first half and for the past five fiscal years on Wednesday.

The deception at Olympus, dating back to the 1990s, to hide 117.7 billion yen ($1.5 billion) in investment losses came to light when former President and Chief Executive Michael Woodford blew the whistle, questioning expensive acquisitions and exorbitant fees for financial advice.

Woodford, a 51-year-old Briton and a rare foreigner to lead a major Japanese company, was fired in October after confronting Olympus directors. Woodford, in town this week to meet with investors and other stakeholders to attempt a comeback, is demanding that the entire board, including President Shuichi Takayama, resign.

The battle over who will lead the camera and medical equipment maker _ embroiled in one of Japan’s worst corporate scandals _ could come to a head at the next shareholders’ meeting. Takayama said that might be held in March or April.

“Capital adequacy ratio is a big problem, and we are considering how we can overcome it,” he told reporters at a Tokyo hotel. “We are considering various options, including a capital tie-up and operational or sales tie-ups.”

Olympus appointed three outsiders to a new reform committee to beef up governance and present a plan to shareholders. The committee is in addition to an earlier panel announced by Takayama, which is investigating the scandal.

The company’s loss of 32.3 billion yen ($414 million) for the first half of the fiscal year, through September, a reversal from a 3.8 billion yen profit the same period a year earlier, was mainly from the economic downturn and losses from Thai flooding, Takayama said.

Woodford said he was opposed to tie-ups and had better ways to get capital for Olympus to shore up its hobbled balance sheet. He promised not to break it up or seek a partner, which may reduce its independence.

“I am very fearful of the current management working with parties to look for strategic alliances, which would mean in the end the loss of our independence,” he told The Associated Press on Thursday.

“Because of the strong cash flows and profitability of the medical business, we could raise funding from additional sources without losing our sovereignty,” he said at a Tokyo hotel.

Olympus should focus on core businesses _ medicine, microscopes, industrial products and cameras and other consumer products _ and stop acquiring unrelated companies, as it had in recent years, he said.

Woodford said he was talking with investors and many “influential people in the Japanese establishment” to line up support for his return at the top. He declined to give specifics, saying the discussions were “delicate.”

It is still unclear if Woodford will manage a comeback. Some people, such as former board member Koji Miyata, see him as a hero and have begun an online campaign to bring back Woodford.

The scandal has prompted soul-searching in Japan Inc. on living up to global standards in governance.

Some experts say laws need to be updated, corporate boards need more outside members and transparency needs to be strengthened. Ruling and opposition legislators met with Woodford earlier this week to hear his ideas about better corporate practices.

No one has been charged in the scandal. But Olympus management has said several top company men were involved in the scheme and has promised to investigate 70 officials, including former and current executives and auditors, to pursue possible criminal charges.

A third-party panel set up by Olympus, including a former Japanese Supreme Court judge, released the findings of an investigation earlier this month, which said top executives who were “rotten to the core” had orchestrated the accounting cover-up spanning three decades.

The fees for financial advice and overvalued acquisitions were part of an elaborate deception utilizing overseas banks and several funds to keep the massive losses off the company’s books, according to Olympus.

Japanese magazine Facta was first to report the dubious money.

Tsuyoshi Kikukawa, who was behind Woodford’s appointment as chief executive and later his firing, has since resigned as chairman. He is among several executives suspected of knowing about the scheme.

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Britain’s prime minister is threatening that he may not allow a group of 23 European Union states that plan to set up their own treaty to use EU institutions.

David Cameron says “The institutions of the European Union belong to the European Union, belong to the 27″ member states.

The 17 euro states and six other EU states early Friday agreed to create a new treaty that will allow them to introduce stricter fiscal rules in the hope of containing a worsening debt crisis payday loans.

They plan to rely on the European Commission and the European Court of Justice to enforce those rules.

Cameron said it was not in the U.K.’s interest to join the new treaty because he could not get special safeguards for the country’s financial center.

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A tentative thumbs-up.

That was the assessment Thursday night from economists who offered mainly positive reviews of President Barack Obama’s $450 billion plan to stimulate job creation.

Some predicted it would put hundreds of thousands of people back to work next year, mainly because a Social Security tax cut for workers would be deepened and extended to small businesses.

“Payroll tax cuts are very powerful,” said Allen Sinai, chief economist of Decision Economics. “They provide a boost to direct income and, in turn, spending, which is important to growth.”

Mark Zandi, chief economist at Moody’s Analytics, estimated that the president’s plan would boost economic growth by 2 percentage points, add 2 million jobs and reduce unemployment by a full percentage point next year compared with existing law.

The heart of Obama’s plan is an expansion of the Social Security tax cut, which took effect this year and is scheduled to expire by year’s end. The tax cut now applies only to workers; it reduces their Social Security tax from 6.2 percent to 4.2 percent. Employers still pay the 6.2 percent rate.

Obama would renew the tax cut for a year and deepen it: He would drop workers’ Social Security tax to 3.1 percent.

Under his bigger tax cut, an extra $1,550 would go to taxpayers earning $50,000 a year. The Social Security tax is imposed on the first $106,800 of taxable income. That means the maximum savings would be about $3,300 for an individual and $6,600 for a couple.

Obama would also halve Social Security taxes for businesses whose payrolls are $5 million or less. The White House says that would include 98 percent of U.S. businesses.

Zandi calls this a “creative” way to help small companies, which have struggled more than larger ones to recover from the Great Recession of 2007-2009. During recoveries, small businesses normally drive job creation.

“Something like this is much needed” for an economy grappling with 9.1 percent unemployment, Zandi said. “The economy is on the edge of recession.”

Susan Wachter, a finance professor at the University of Pennsylvania’s Wharton School, figures that the Social Security tax cuts alone would add 1 percentage point to economic growth and create 1 million jobs next year.

The president’s plan also takes a shot at long-term unemployment: Companies would get a $4,000 tax break for hiring people who have been unemployed for more than six months. As of August, the government says, 43 percent of unemployed Americans have been out of work for six months or more.

The plan would also extend emergency unemployment benefits; ramp up spending on public works projects; and provide aid to keep state and local governments from laying off teachers. Obama would pay for his program with future budget cuts.

Consumer spending accounts for about 70 percent of the economy.

Some economists cautioned, though, that some factors might blunt the impact of Obama’s enlarged Social Security tax cut. For one thing, the tax cut would deliver only a temporary boost. It would expire at the end of 2012. Most economists foresee unemployment remaining high well after next year.

And Michael Mandel, chief economic strategist for the Progressive Policy Institute, suggested that the link between consumer spending and job creation is weaker in an economy like America’s that’s highly open to foreign goods.

“If the payroll tax cut encourages consumers to buy more (imported) clothing, that’s likely to create more jobs overseas than in the U.S.,” Mandel said.

In addition, Paul Ashworth, chief U.S. economist at Capital Economics, said many taxpayers might save the extra money from the tax cut rather than spend it.

“In an environment where economic confidence has been almost completely destroyed, there is a risk that both households and small businesses will save a greater proportion of any windfall, particularly if they know the reduction is only temporary,” Ashworth said.

The White House plan would also extend emergency unemployment benefits for another year. Economists note that unemployment checks put money in the hands of people who are most likely to spend it immediately.

That spending tends to boost demand for goods and services and give companies more reason to hire. The forecasting firm Macroeconomic Advisers has estimated that an additional year of emergency unemployment benefits would support 200,000 jobs in 2012.

Obama also wants $30 billion to modernize schools, $50 billion for road and bridge projects and a bank that would finance more public works projects.

The president’s plan will likely face resistance in Congress. Republicans have opposed further spending and have pushed to reduce the budget and shrink the government.

Still, the Wharton School’s Wachter called Obama’s plan a serious proposal that should be politically acceptable “across the board.”

Menzie Chinn, an economist at the University of Wisconsin, would favor an even bigger jobs package for an economy that grew at an annual rate of just 0.7 percent in the first six months of the year and created zero net jobs in August.

He said he fears that Obama’s plan merely makes up for the expiration of the president’s earlier $862 billion economic stimulus plan.

Even so, Chinn said, the measures Obama proposed Thursday night “might prevent the economy from dropping below stall speed” _ at which point it would be vulnerable to another recession.

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World stock markets took a beating on Monday after a report showed U.S. companies stopped hiring in August, reviving fears that the world’s largest economy is heading back into recession.

The lack of hiring in the U.S. last month surprised economists, who were expecting about 93,000 jobs to be added. Previously reported hiring figures for June and July were revised lower. The unemployment rate held steady at 9.1 percent _ it has been above 9 percent in all but two months since May 2009.

The jobs crisis has led President Barack Obama to schedule a major speech Thursday night to propose steps to stimulate hiring.

Traders waited for signs that the U.S. Federal Reserve might take action at its September meeting to support the economy _ perhaps a third round of bond purchases, dubbed quantitative easing III or QE3, analysts said.

“Right now the possibility has increased,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “I think they have to do something. The markets are expecting QE3.”

Amid the uncertainty, traders pulled out of any risky investments _ such as stocks, particularly financial ones, the euro and emerging market currencies _ to pile into safe havens: U.S. Treasuries, the dollar, the Japanese yen and gold.

European shares slumped in early trading. Britain’s FTSE 100 dropped 2.2 percent to 5,176.06. Germany’s DAX fell 3.2 percent to 5,361.60, and France’s CAC-40 tumbled 3.6 percent to 3,036.17.

Markets in the U.S. were closed for the Labor Day holiday.

Renewed jitters over the eurozone debt crisis increased tensions in Europe.

An international debt inspectors’ review of Greece’s finances was interrupted on Friday amid disagreements over the country’s deficit figures. The review will be resumed in about 10 days and must be completed in order for the country to receive its bailout loans at the end of the month.

Signs that the Italian government’s commitment to its austerity program is wavering have also shaken investors. Prime Minister Silvio Berlusconi’s government has backtracked on some deficit-cutting measures, prompting EU economic officials to urge it to stick to its promised plan.

The economic indicators, meanwhile, were mostly downbeat. Although retail sales in the eurozone rose unexpectedly in July, a survey of the services sector showed a slowdown across the continent for the fifth consecutive month.

The purchasing managers’ index for the eurozone showed the services sector was still growing _ unlike the manufacturing sector _ but only barely. That will add pressure on the European Central Bank to keep interest rates on hold when it meets this week.

“Indeed, the latest data and surveys suggest that the ECB’s eventual next move could actually be to trim interest rates, although it is likely to need sustained eurozone economic weakness and possibly even GDP contraction to get the ECB to perform a U-turn on interest rates,” said Howard Archer, economist at IHS Global Insight.

In Asia, indexes closed sharply lower. Japan’s Nikkei 225 stock average sank 1.9 percent to close at 8,784.46, with sentiment also undermined by the persistent strength of the yen, which hurts exporters.

Australia’s S&P/ASX 200 fell 2.4 percent to 4,141.9, and South Korea’s Kospi slid 4.4 percent to 1,785.83. Hong Kong’s Hang Seng slid 3 percent to 19,616.4. Benchmarks in Singapore, Taiwan, New Zealand and the Philippines also were down.

Mainland Chinese investors worried about the economic outlook dumped shares, dragging Shanghai’s benchmark Composite Index down 2 percent to 2,478.74, its lowest close in 13 months. The Shenzhen Composite Index lost 2.4 percent to 1,097.07.

Investors seeking a relatively stable store of value during times of economic turbulence in financial markets have been scooping up gold, sending its price up 50 percent over the past year.

In currencies, the euro weakened to $1.4142 from $1.4187 in New York late Friday. The dollar was roughly flat at 76.82 yen. Last month, the dollar fell under 76 yen, which was a new post-World War II high for the Japanese currency.

Benchmark oil for October delivery was down $1.37 to $85.08 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell $2.48 to settle at $86.45 on Friday.

In London, Brent crude for October delivery was down $1.20 at $111.13 on the ICE Futures exchange.

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The GOP-controlled House and the Democratic Senate remain at loggerheads over debt legislation that’s required to avoid a first-ever default on U.S. financial obligations as lawmakers and the White House head into the weekend in search of compromise.

Weekend talks follow a week of extraordinary partisanship that was capped by a power play by Senate Democrats killing a GOP-drafted debt limit increase and budget-cutting bill less than two hours after it squeaked through the House bad credit payday advance. Senate Majority Leader Harry Reid set up a test vote for the wee hours of Sunday morning to break a GOP filibuster.

Before then, however, the House was set to even the score by voting Saturday to reject an alternative measure by Reid even the Senate has taken it up.

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The number of people seeking first-time unemployment benefits dropped last week to the lowest level since early April, a sign the job market may be healing after a recent slump.

The Labor Department said Thursday that weekly applications fell 24,000 to a seasonally adjusted 398,000. That’s the first time applications have fallen below 400,000 in 16 weeks. The four-week average, a less volatile measure, dropped to 413,750, the lowest since the week of April 23.

Applications had fallen in February to 375,000, a level that signals healthy job growth. But they then surged to an eight-month high of 478,000 in April and have declined only slowly since then.

Some of the drop likely reflects seasonal volatility. Applications were elevated earlier this month partly because of temporary layoffs in the auto and other manufacturing industries, which are ending. Many auto companies close their factories in early July to prepare for new models.

The drop “is clearly good news,” said Joshua Shapiro, an economist at MFR Inc. Still, “we would prefer to see further data before concluding that the earlier downtrend in claims is being re-established.”

The total number of people receiving benefits, meanwhile, dipped to 3.7 million. That doesn’t include millions of people receiving extended benefits under emergency programs. All told, 7.65 million people received benefits in the week ended July 9.

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Jen McGowan found out she lost her job at IQT Solutions through Facebook.

She was about to share the good news about her newborn niece when she saw that a co-worker had posted an angry message about being terminated.

“We should have at least had some notice so we could’ve pre-planned,” said McGowan, who has worked as a senior support representative with the call centre for five years.

The 34-year-old single mother of two is one of 400 IQT Solutions employees in Oshawa scrambling to make ends meet after being unexpectedly terminated last Friday without pay.

On Monday morning, McGowan along with more than 100 of her former co-workers marched through Oshawa carrying signs saying “Give Us Our Money” and “IQT=No Job, No Food, No Shelter.”

“I’m hoping that IQT will pay us what we’re owed,” said McGowan, noting that some employees are waiting for up to six weeks worth of pay.

IQT Solutions, the U.S.-based call centre, declared bankruptcy last week in Canada and terminated 400 jobs in Oshawa, 100 jobs in Trois-Rivières, Que., and 375 jobs in Laval, Que.

The rally began around 8 a.m. at the Midtown Mall and ended shortly after 10:30 a.m. at city hall in Oshawa.

McGowan said the City of Oshawa and the Ontario Federation of Labour have offered their support as workers continue to fight for their pay.

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