These are stories Report on Business is following Monday, Sept. 26. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Not the time to pull back Bank of Montreal's Sherry Cooper makes an excellent point today: Global policy makers are at risk of making the same mistakes that fed the Great Depression.
Others have made the same argument, that now's not the time for austerity, but the bank's chief economist does it very well in a research note on the euro crisis and the threat of a new recession, warning the clock is ticking and political brinskmanship raises the threat of another crisis.
"The misplaced belief that the road to economic prosperity is paved by near-term fiscal tightening, as espoused by our own Prime Minister Stephen Harper and British Prime Minister David Cameron last week, shows we have learned nothing from Herbert Hoover’s response to the Great Depression," Ms. Cooper said.
"Just as during the current Great Contraction, in 1930, the U.S. federal budget surplus had turned to a deficit that grew rapidly as the economy contracted. Hoover recommended large tax increases, which were approved by Congress in 1932, further exacerbating the rout. By the time Roosevelt entered the White House, countercyclical fiscal policy was widely accepted as a legitimate function of government. Countercyclical fiscal policy has now become unpopular and misunderstood. Yet, we are in danger of repeating the deflationary policies that caused the 1929 stock market crash and the Great Depression."
Ms. Cooper's report, while right on the mark, is grim, noting that we've lost faith in our policy makers, and that many people believe central banks either can't or, in the case of the European Central Bank, won't ease further.
In the case of the euro zone, she said, European leaders are late to realize the depth of the trouble. They must, she advised, allow Greece to default while bailing out the region's banks and supporting Spain's and Italy's bond markets to "ring fence" the Greek troubles.
Markets wary on euro zone There's more rumour and speculation than any hard facts today but one thing is clear: The euro zone is a powder keg with a fast-burning fuse.
World leaders came away from their series of meetings in Washington promising to act in concert, which is giving investors some hope, but there was nothing concrete in terms of action. That has left markets vulnerable to the twists and turns of the crisis in Europe, as they have been for months now.
"There was no hard fact out of the weekend meetings, but there seems to be a more unified voice about what Europe needs," said Scotia Capital's chief currency strategist, Camilla Sutton.
There is speculation today that the European Central Bank will soon act more forcefully, possibly by cutting interest rates. But the focus is on what the leaders of the euro zone may be planning to protect the 17-member monetary union from developments in Greece.
"Policy makers seem to be facing up to the reality that the sovereign debt crisis cannot be managed piecemeal," said Elsa Lignos, senior currency strategist at RBC in London.
Ms. Lignos cited reports today of a three-step plan that would include a recapitalization of European banks, more power for the euro zone bailout fund and a "managed default" by Greece that could a haircut of 50 per cent.
Again, there's nothing firm on this - and Greece's finance minister rejected the idea of an orderly default today - but that's the plan making the rounds in markets today.
"The problem with this is that it will take time and will face the same problems that the 21 July treaty faces, namely being ratified in the 17 member parliaments of all euro area countries, unless leaders can find a way to pass it through undemocratically, which would be hugely controversial," said CMC Markets analyst Michael Hewson.
"A variation on this plan would be a leveraging of the [bailout fund] which is also under discussion, but this is again likely to face the same obstacles to the options above, as well as mean the risk of ratings downgrades for stronger members of the euro zone."
This is a key week for the euro zone, as several governments debate expanding the powers of the rescue fund. Key is a vote in Germany's Bundestag, the lower house, scheduled for Thursday.
- Europe pledges to beef up rescue fund as economic crisis continues
- Greece will do 'whatever it takes' to stave off default, stay in euro zone
- Greeks strike as default looms
Dimon v. Carney If you want to get a sense of the escalating rift between the world's banks and their regulators, read today's reports of the dust-up between the chief executive officer of JPMorgan Chase and Bank of Canada Governor Mark Carney.
Actually, according to The Globe and Mail's Kevin Carmichael, it appears to have been more a full-on assault by Jamie Dimon against Mr. Carney at weekend meetings in Washington.
Mr. Dimon's tirade came in a room filled with bankers and finance officials. Bank of Canada spokesman Jeremy Harrison confirmed today that the meeting took place, but would not disclose what happened.
"We have been involved in constructive dialogue with a range of stakeholders, both domestic and international, as we move the financial sector reform process forward," Mr. Harrison said.
Mr. Dimon lit into Mr. Carney over regulatory reforms he believes discriminate against American banks. He has said this before, and his comments preceded a speech by the Bank of Canada chief in which he criticized the world's banks.
“If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, too soon," Mr. Carney said, The Globe and Mail's Kevin Carmichael reports.
According to The Financial Times, the meeting went so poorly that Lloyd Bankfein, the chief of Goldman Sachs, who also heads up a bank lobby group, e-mailed Mr. Carney to try to patch things up.
Mr. Carney is in line to head up the Financial Stability Forum. If he does become chief of the group, he'll be stepping into the lion's den, and I'd put my money on the Bank of Canada governor. Not only is he a forceful central banker, the world is demanding reform after the financial crisis.
- Carney latest target of Dimon
- Carney, Waugh spar over new banking rules
- Carney questions bank lobby's stand against financial regulations
OSFI warns Canada’s financial regulator is sending an “early warning” to Canada’s banks about lending, concerned that some may be tempted to lower their standards amid shrinking margins in order to boost their loan books, The Globe and Mail's Grant Robertson reports.
In the face of shrinking lending margins, which have sapped profits from the banking sector in recent quarters, the head of the Office of the Superintendent of Financial Institutions said today she is telling Canada’s banks to ensure they maintain prudent lending practices.
“The concern is that the conditions are such that there will be tremendous pressure on banks to loosen those standards,” Julie Dickson, head of the regulator, told reporters after delivering a speech to the financial community in Toronto.
Berkshire Hathaway authorizes buyback Warren Buffett's Berkshire Hathaway Inc. is poised for a share buyback.
The company said today its board authorized a repurchase of Class A shares and Class B stock at prices no higher than 10 per cent beyond the book value at the time.
"In the opinion of our board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise," the company said.
"If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest," it said in a statement.
"Berkshire plans to use cash on hand to fund repurchases, and repurchases will not be made if they would reduce Berkshire’s consolidated cash equivalent holdings below $20-billion. Financial strength and redundant liquidity will always be of paramount importance at Berkshire."
It would be the first such buyback by Mr. Buffett.
Valeant in bidding fight Valeant Pharmaceuticals International Inc. has been drawn into a bidding war for Cold-FX maker Afexa Life Sciences Inc. , The Globe and Mail's Richard Blackwell writes.
Mississauga, Ont.-based Valeant said today that it will boost its offer for Afexa to 85 cents a shares from 71 cents, after rival Paladin Labs Inc. raised its bid to 81 cents over the weekend.
In Economy Lab Canada was luckier than many other countries in the recession, and the best the Harper government can claim is that it didn't make it worse, Stephen Gordon writes.
In International Business The head of the joint venture between Libya’s National Oil Corp. and Suncor-owned PetroCanada says Petrocan will start pumping oil from the Amal field in a “few weeks.” The Globe and Mail's Eric Reguly reports.
In Globe Careers Lucy Kellaway looks at a study showing that people who have a little power, but not the status, can behave in nasty ways.
From today's Report on Business
- Barrie McKenna: IRS tars law-abiding expats with same brush as tax cheats
- Brian Milner: Bernanke's Twist turns screws on battered U.S. pension funds
- Battle lines drawn in Nebraska over Keystone pipeline