Spain scrambles to contain financial crisis - Spain scrambles to contain financial crisis -

Wednesday, May 30, 2012

Spain scrambles to contain financial crisis -

Spain scrambles to contain financial crisis -

Spain battled to contain fears of financial collapse Wednesday, scrambling to fund a major banking rescue as its debt risk premium rocketed to a euro-era record.

The interest rate on Spain's 10-year bonds shot to 6.703 percent -- unsustainable over the longer term -- as the nation fought to avoid being the next victim of the eurozone crisis.

When compared to safe German debt, investors in Spanish bonds were demanding an additional 5.39 percentage points, a premium that easily crashed through euro-era records set each day of this week.

Stock prices skidded across the world on fears Spain would need a rescue and the European single currency plunged to $1.2389 -- a low point last seen in July 2010.

Bank of Spain governor Miguel Fernandez Ordonez shook investors by announcing he would depart June 10 -- a month before his term was due to end.

The central bank chief, who said he was leaving early to give his successor time to take the reins, had sought in vain a hearing in the lower house of parliament to explain stricken lender Bankia's woes.

"Nothing is more important now than regaining confidence because without that we cannot resolve any of our problems," Ordonez told the Senate on Wednesday.

But he also said there were risks to Spain's plan to slash the public deficit from 8.9 percent of economic output last year to 5.3 percent this year and 3.0 percent in 2013.

In a recession with 24.4 percent unemployment, the state faces "downward risks" to its revenue forecasts and the threat of higher-than-expected expenses, for example for unemployment benefits, he warned.

"It is not an exaggeration to say that Spain is staking a great part of its future on achieving these fiscal targets," he said.

In Brussels, Economic Affairs Commissioner Olli Rehn said that if Spain reined in regional government deficits and presented a "solid" two-year budget, then the deficit deadline could be extended to 2014.

Spanish banks, hugely exposed to a property market that crashed in 2008, are at the heart of market concerns.

Prime Minister Mariano Rajoy's conservative government this month instructed banks to set aside 30 billion euros in 2012 in case property-related loans go bad, on top of 53.8 billion euros demanded under February reforms.

Hardest hit lender Bankia has asked the government for 19 billion euros in capital in addition to 4.465 billion euros invested by the state earlier this month to salvage its books.

But no-one seems clear about where the money will come from, especially when debt markets are charging exorbitant sums to lend to Spain.

"Some sort of attempt to rescue Spain is likely and it is likely to come in July," said Barcelona-based economist Edward Hugh.

Spain would attempt to cling on until Greek elections were over and the European Stability Mechanism, a permanent rescue fund, was operational, he predicted.

The cost of recapitalising the banks would be 150-200 billion euros, he estimated, assuming that lenders were obliged to make additional provisions for home mortgages.

"My short term feeling is that they will somehow get through the summer at least and keep on going but at any moment the whole thing could buckle," Hugh said.

Economy Minister Luis De Guindos said the state-backed Fund for Orderly Bank Restructuring (FROB) would issue bonds to raise capital, which it could then inject into Bankia.

He denied a Financial Times report which said the European Central Bank had rejected a Spanish proposal to put newly issued government bonds into Bankia, which could then use them as collateral to borrow from the ECB.

The ECB also issued a statement denying it had taken a position or been consulted on the plan.

But the government failed to quash the concerns over Spain's financial sector.

Centre-right daily El Mundo this week said three other banks, CatalunyaCaixa, NovacaixaGalicia and Banco de Valencia, could need another 30 billion euros in public funds to meet new regulations.

Yet another lender, Banco Popular, whose bonds have been downgraded to junk bond-status, said this week it was in talks to sell its Internet banking business in a scramble for cash.


The financial side of the education question - Ct Post

I tip my hat to Roger Conway and Dick De Witt. When they talked about school reform in their May 1 letters to the Connecticut Post, they focused on the classroom.

Mr. Conway speaks of "bottom up" reform led by teachers and Mr. De Witt speaks of the American legacy of one-room schoolhouses and Regents exams.

The governor and the Legislature seem mostly focused on the monetary aspects of education, and I can understand why this is so: with more than 568,000 students in K-12 consuming an average statewide expenditure of more than $14,000 per student, there is nearly $8 billion on the table in Connecticut yearly.

Meanwhile, Bridgeport only ponies up a paltry $10,000 per student per year. I will attempt to show that Bridgeport's $10,000 is plenty.

Assume that an average class size of 25 is chosen: one more than the federal recommendation to make the arithmetic easy. This would provide $250,000 in funding per year per classroom. Pay the teachers well at $100,000 per year (average): much more than the current average of $69,000 since they will become entrepreneurs running their own "businesses." This leaves us $150,000 per year for teaching tools (books and other items), rent, utilities and pensions.

Let's look at teaching tools (books) first. The range is from $40 for high school English to $120 for high school chemistry. Let's go for a conservative $100 per text with five texts needed per student per academic year. This costs us $12,500 for 25 students with new books for all every year. I chose high school texts as a benchmark because they cost more than elementary texts.

Now let's look at rent. For a good sized classroom of 30-by-30 feet at $12 per square foot (utilities included), this would cost only $10,800 per year, and since it is leased, the landlord is responsible for maintenance and upkeep. Leased space avoids the costs of city-owned schools. Since renters are often responsible for basic maintenance, it makes sense to call it $12,500 per year.

Bridgeport can conservatively have teacher, classroom, utilities and books for $125,000 per year out of $250,000 available.

This brings us to pensions. With a Bridgeport enrollment of about 20,000, this should require about 800 teachers. There's a similar number drawing retirement benefits that average $35,000 per year for each.

With $125,000 left in the budget, it can afford, say, $75,000 per year per teacher into the fund until it's paid off (about 16 years for $1 billion in liabilities). Meanwhile, current teachers must be moved immediately onto the rolls of Social Security like most ordinary Americans. Meet all existing commitments but no more state/city-funded pensions. Teachers already pay 7.5 percent of their pay for their pensions: make it the usual 6.5 percent and the city can match it with an ordinary payroll tax of the same amount paid at the same time into a trustee account that the city cannot touch for any other purpose. Same goes for Medicare taxes. Let them form their own risk pool and pay their own insurance.

Still $50,000 left. After the $6,500 payroll tax, there's still $43,500 left to buy computers ($10,000 for 25 from Dell) and everything else including a ride to and from classes (using city bus passes, if necessary). We can also allow for some supervision like Mr. De Witt's superintendent that visits a couple times per year. We could similarly provide for shared nurses, counselors, computer technicians and a few truant officers to take care of the students who misbehave.

Superintendents would be super-teachers, not bureaucrats. They would be paid at the high end of the scale because they will have earned the respect of their peers by having done what they do at an exceptional level of skill.

As for the teachers: their word in the classroom is law. No smart-alecks. No disrespect. No nonsense. All backed up by the parents.

The results can be easily measured by a Regents exam.

Of course a Regents exam is a standardized test and there are those who rail against testing, but what other objective means is there to measure academic proficiency?

This approach also resolves the theoretical tenure issue since if a teacher does not produce results, the parents who care (and let's assume that this is a majority) will enroll their children with a different teacher.

This approach should also be agreeable to free-market thinkers since this is how a free market should work.

Martin Hoffmann


In "Public schools are worth the price," Hugh Bailey laments the public's unwillingness to spend additional monies to improve Connecticut's underperforming schools. I believe most taxpayers would spend more money for schools if they thought the money was spent wisely. Unfortunately our politicians have not been good stewards of our money. They have run up a $10 billion unfunded teacher pension liability, created the highest per-capita debt of any state in the country and have raised the income, property, sales and gas taxes to some of the highest in the nation. A fiscal mess and we still have many urban schools that boast four year graduation rates of under 60 percent.

So the taxpayer and parents requested metrics around spending and performance and were met with a chorus of objections of why it is unworkable and will only harm teachers and parents. We asked for charter schools, for which there are huge waiting lists in New York and Washington, and we were told these too are bad for students and teachers, and merely play into the hands of the evil profiteers.

So the defenders of the status quo pass the largest tax increase in Connecticut history and continue to ask for more money. And in "Connecticut's Reforms Mirrors Failings of New York's," Wendy Lecker introduces the new litigation weapon. Her group will sue the Legislature (and the taxpayers) to get the additional money that will surely solve the education issues. But before getting more funding, it is reasonable for taxpayers and parents to demand fiscal accountability, student progress metrics and choices for students to get out of failing schools.

Bill Stapleton


Money Man Pulls Even With Black Guy In Latest Poll - The Onion (satire)

WASHINGTON—With the election less than six months away, a nationwide Gallup poll released Wednesday found that Money Man has now pulled even with Black Guy in the 2012 presidential race.

Citing Money Man's significant appeal among veterans—as well as his narrow lead in Florida, a crucial swing state that went to Black Guy in 2008—experts said Money Man is closing the gap on a race that, until quite recently, seemed to be firmly under Black Guy's control.

"I have to say, Money Man has really impressed me lately," said poll respondent Mike Hargett, who is among the 45 percent of independent voters planning to cast a ballot for Money Man in November. "I voted for Black Guy in the last election, but I’ve been fairly disappointed with the job he’s done. As much as I admire Black Guy and his historic achievement, it just seems like the time is right for someone new with fresh ideas to come in and shake things up a bit."

"Someone like Money Man," Hargett added.

Still, Money Man’s current one-point lead over Black Guy is within the Gallup poll’s margin of error, and Washington insiders have pointed to several encouraging signs for Black Guy, who maintains strong ratings on foreign policy and a double-digit lead in favorability among middle-class voters—two areas in which Money Man typically hasn’t polled very well.

Further highlighting the closeness of the race, the poll revealed there are a significant number of undecided voters still weighing the merits of a Money Man presidency vs. a Black Guy presidency.

"It's a tough choice, because both Money Man and Black Guy have strong qualities," said 47-year-old voter Albert Dorin, adding that he may not make up his mind until he sees Money Man and Black Guy next to each other on a stage, debating. "I like Money Man’s views on the economy and on money. However, you have to hand it to Black Guy for finally tracking down and killing bin Laden. And I like his wife, Black Lady, too."

"I like her more than Money Man’s wife, Blonde Lady," Dorin added.

Despite Money Man's rise in the polls, surveys have found that a majority of Republican voters would have preferred to see Food Man from New Jersey on the ballot, had he chosen to run, and that there also would have been strong support for The Woman, especially among the conservative base.

"Food Man from New Jersey or The Woman would have been more in line with my sensibilities, but there's still a good chance Money Man will pick one of the two as his running mate," Ohio voter Margaret Yaster told reporters. "Besides, for me, pretty much any Republican would be better than Black Guy. Even Pizza Black Guy."

"Not Ron Paul, though," Yaster continued. "That guy's out of his goddamn mind."

Business leaders seek greater preschool access - Houston Chronicle

MACKINAC ISLAND, Mich. (AP) — Inadequate preschooling is causing Michigan students to fall behind early, making it harder to develop the talented workforce needed for the state to be competitive, business leaders said Wednesday.

A coalition of companies and organizations urged government policymakers to erase a shortage of preschooling for underprivileged children, saying about one-third of the state's pupils leave kindergarten ill-prepared to begin first grade.

Roughly 70 percent of Michigan's fourth-grade students are not proficient readers, meaning those deprived of early education are not catching up, the Children's Leadership Council of Michigan said.

Michigan has room for only about half of 4-year-olds eligible for publicly funded preschool. About 38,000 are left out each year, said Debbie Dingell, a leader of the council.

"It's unacceptable in this state. We can't allow that to happen," Dingell said during a news conference at the Detroit Regional Chamber's annual policy conference on Mackinac Island. "This is an investment that Michigan has to make."

More than 100 business leaders from around the state have endorsed the council's plan to improve early childhood education, she said.

It calls for pumping $130 million into preschool for at-risk 4-year-olds on top of the $100 already being spent, an increase that would accommodate all eligible children.

Instead of recommending a specific way to raise the money during financially strapped times, the council offered several alternatives. Among them: earmarking future tax revenue growth for preschool and early childhood education; making other programs more efficient and spending the money saved on preschool; and committing 1 percent of K-12 statewide funding to expanding preschool and early childhood instruction.

Another possibility would be allowing local property tax increases for the purpose, the group said.

The council said a second urgent priority should be stepping up services to ensure healthy growth during children's first three years, a period critical to brain development.

In addition to providing a more talented pool of workers, spending more on early education could save taxpayer money in the long run by reducing the need for remedial instruction and other social spending, said Rob Fowler, president of the Small Business Association of Michigan.

"Early strategic investment in childhood education bears fruit all the way down the line," Fowler said.

MONEY MARKETS-Speculation of ECB interest rate cuts returns - Reuters UK

Wed May 30, 2012 3:26pm BST

* Markets pricing small probability of ECB rate cut in June

* Such bets likely to accumulate in coming days

* As in May, markets could set themselves up for letdown

By Marius Zaharia

LONDON, May 30 (Reuters) - Bets that the ECB will cut interest rates next week are again appearing in money markets, as Spanish and Italian debt yields are approaching levels that made the central bank introduce unprecedented easing measures last year.

The threat that Greece could eventually leave the euro and worries over Spain's banking sector have prompted investors to sell Spanish and Italian debt, bringing the two countries' borrowing costs closer to levels deemed as unsustainable.

The sheer size of their debt markets and their deep-rooted connections with other financial systems in the euro zone are reasons for investors to speculate that a policy response is in the works.

The European Central Bank is, as usual, seen as the most likely institution to take measures to cool market nerves because it can act faster than politicians. It has done it before in the past by injecting around 1 trillion euros of cheap loans into financial system in December and February.

Euro zone economic data this month has also been poor, supporting bets that the ECB may soon resume monetary easing, possibly by cutting its key refinancing rate by 25 basis points from a record low of 1 percent.

"Data ... have been softer, and then you have the Greece issue continuing to be unresolved and the Spanish issue continuing to be unresolved," said Elaine Lin, a rate strategist at Morgan Stanley, whose economists predict a rate cut.

She said the euro overnight Eonia rate forward market was only pricing an over 10 percent probability of a rate cut in June and the chances were higher by another 10-20 percentage points for the July meeting. However, she expected markets to factor in a higher probability in the next few days.

A key rate cut, if also accompanied by a cut in the 25 basis points deposit facility rate, could trigger a 5-10 bps fall in the near-term forward Eonia rates towards the 20 bps level seen now in September-October Eonia forward rates, Lin said.

The lowest point on the 2012 Eonia curve is December, at 16 basis points, which implies an 80 percent probability that the deposit rate would be slashed in half, according to BNP Paribas rate strategist Matteo Regesta.

A Reuters poll of economists showed the ECB was likely to resist pressure to cut interest rates in June, but also pointed to a growing probability that it will reduce them later this year.

Speculation about ECB monetary easing has also been fuelling a rally in Euribor futures , implying bets for lower fixings of benchmark euro zone interbank three-month Euribor rates later this year.

The December Euribor future has gained back most of its losses made since Greece's inconclusive election on May 6, which sparked fears the country may be on its way out of the bloc. The fall earlier this month also coincided with unwinding bets that the ECB would have cut rates in May.

The contract was last 3.5 ticks higher on the day at 99.46. That was one tick lower than the pre-election close on May 4, but some 15 ticks higher from the lows hit in mid-May.

The move higher in Euribor futures, which has been faster than the move lower seen in the very low Eonia forward rates, has led to tighter Euribor/Eonia spreads, which are widely used as a gauge of money market stress.

That is counter to what is happening in banking credit default swap markets - where investors can insure against banking defaults. The Markit iTraxx index of European senior financials CDS remains close to its highest level this year at around 300 bps.

BNP Paribas' Regesta warned that Euribor futures could fall again as they have done after the ECB's May meeting and this would trigger a widening of the Euribor/Eonia spreads consistent with the levels of stress felt in money markets.

"You have a decoupling between those spreads and the banks CDS now, but those spreads remain exposed to significant paying interest in coming weeks ... unless there is another policy response from the ECB at its meeting next week," Regesta said.

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