PROVIDENCE – The R.I. House Finance Committee unveiled and then approved an $8.1 billion fiscal 2013 state budget late Thursday night, which scraps controversial meals, hotel and sales tax expansions proposed by Gov. Lincoln D. Chafee and most of the governor’s municipal pension plan reforms.
The budget, which could be voted on as early as next week by the full House, took advantage of better than expected state revenue to increase spending by $156 million over what Chafee proposed four months ago while avoiding some of his tax increases.
Those abandoned tax proposals include Chafee’s suggested 2 percentage-point hike in the meals tax and an extension of the hotel tax to bed and breakfasts and vacation rentals.
“They played a huge role,” House Finance Committee Chairman Helio Melo, D-East Providence, told reporters in a briefing Thursday about what the increased revenue projections meant to the budget, which would increase total state spending by $397 million over the current year.
The biggest measures in Chafee’s municipal relief package to help struggling cities and towns, the ability for distressed communities to suspend cost-of-living pension increases to retirees, was not included in the budget.
The Finance Committee budget would restore $9.6 million in aid for the developmentally disabled, $4.7 million from state coffers, out of around $24 million cut last year.
While some of Chafee’s most controversial proposals were cut, House Democratic budget writers kept many of his ideas in the spending plan, including an additional $11 million in education aid to cities and towns.
The Finance Committee budget would also pave the way for new tolls on the Sackonnet River Bridge by adopting Chafee’s plan to move the bridge under control of the R.I. Bridge and Turnpike Authority.
Also following Chafee’s plan, the Finance Committee budget would extend the 7 percent state sales tax to pet grooming, limousine rides, car washes, taxi rides and clothing worth $250 or more. Chafee had proposed charging sales tax to clothing worth $175 or more.
In the wake of the collapse of 38 Studios, the budget would reform the state film tax credit program by bringing it inside the Department of Revenue and barring applicants from using state money to qualify for credits.
Most of the state borrowing measures Chafee had proposed putting to voters were included in the Finance Committee budget, but not authority for a new $50 million joint University of Rhode Island-Rhode Island College advanced nursing center in Providence.
Other budget highlights include:
- A 4 cent increase in the cigarette tax, as in the governor’s budget, to $3.50 per pack.
- A $2.6 million stabilization payment to Central Falls to cushion retirees hurt by the bankruptcy.
- Would not cut the state bureau of audits as proposed by Chafee.
- Eliminate cut proposed by Chafee in dental care for adults on Medicaid.
Forex focus: let's not kid ourselves about the pound - Daily Telegraph
With the the Olympics following hot on the heels of the Queen's Diamond Jubilee, he thinks UK consumers will start spending again. "Ticket sales alone for the Olympics are going to add 0.2pc to the GDP in the third quarter of the year. Things are set to get a lot better in the UK."
Simon Smith of FxPro is cautiously optimistic, pointing to the low yield on UK gilts and saying: "There's little doubt that the pound has benefitted from events in the eurozone. I would expect the pound to continue to appreciate vs. the euro as this effect continues, pushing EUR/GBP to new lows for the year."
However, many consider it is just a race for the bottom between the two currencies with the single currency definitely winning.
"We should be clear that this is not due to any inherent strength in the pound – just the euro's abject weakness," believes David Kerns of Moneycorp.
The pound is also being talked down. Christine Lagarde, head of the International Monetary Fund, has suggested the UK base rate should be cut further below its current record low of 0.5pc while the Bank of England is yet again considering pumping more money into the economy.
Jeremy Cook of World First thinks the Bank could bring in more quantitative easing as early as this month but he doesn't believe it will have much of an impact.
"We would prefer to see the Bank take on some form of 'credit easing' – the purchase of corporate debt as opposed to that of the government. The fact is that the liquidity that the banks are receiving is not making it through to businesses and consumers."
The UK certainly can't afford to be complacent and imagine we can get away with sitting on the sidelines.
Charles Purdy of Smart Currency Exchange says: "There is a great possibility that the UK could run into trouble. The UK has been masterful in its management of international investment sentiment as it convinces the international market to finance our debt at a fraction of the cost of that of Spain or Italy. If this changes then we are in the same position as the southern states of the eurozone."
And Smith adds: "The eurozone crisis is ultimately a banking crisis. We remain a nation still very much reliant on banking and financial services. Therefore, it can't be dismissed."
The situation in the eurozone is creating a vortex threatening to suck everyone into it. It is hoped that the drawn out debacle in Athens has bought sufficient time to work out how to limit the damage.
"Hopefully the time spent will have allowed the authorities to build up an adequate firewall to protect the other 16 members of the euro," says Alistair Cook of Currencies Direct. "If not, then we're in real trouble."
'We're stable': Cash-strapped Spain's finance minister says nation is back on track despite claims it asked IMF for massive €300BILLION bailout - Daily Mail
- World finance bosses deny rumours of staggering bailout plan
- But sources say contingency preparations are well under way
- Loans would be from IMF and EU, leaving British taxpayers footing part
- European markets rocky: FTSE-100 plunges to year-long low
- FTSE-100 is 0.87% down; CAC 40 is 1.47% down; DAX is 2.58% down
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Spain's finance minister today said his nation was fiscally stable and on the right track - despite claims it has asked the International Monetary Fund for a massive €300billion bailout.
Cristobal Montoro said that Spain's 17 semi-autonomous regions were meeting strict deficit reduction targets, meaning his government's plan was adhering to EU rules and working.
But his comments were surprising, seeing as sources said Spain wanted the staggering amount of cash to help prop up its ailing economy.
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Talks: IMF boss Christine Lagarde (left) has denied rumours that Spain wants a €300billion bailout, as the nation's finance minister Cristobal Montoro (right) said the country was 'stable'
Working lunch: German chancellor Angela Merkel sits with European Commission President Jose Manuel Barroso Baltic Sea States leaders earlier this week
The speculation, which has so far been denied by IMF, intensified as Spain's deputy prime minister Soraya Saenz de Santamaria flew into Washington for talks with IMF Managing Director Christine Lagarde and U.S. Treasury Secretary Timothy Geithner.
But all parties insisted the visit was 'routine' and mainly concerned with discussing how Spain can finance an overhaul of its banking sector.
The loans, which would come from both the EU and the IMF, would end up costing British taxpayers who would have to foot part of the bill.
World markets are currently rocky due to the fears, with the FTSE-100 plunging to a year-long low.
The FTSE-100 is 0.87 per cent down at 5,274.51; France's CAC 40 is 1.47 per cent down at 2,972.55; and Germany's DAX is 2.58 per cent down at 6,102.50.
Spain's banking system has been crippled by nearly €120billion of toxic loans to homeowners and developers. One in four Spaniards are now out of work.
Saenz de Santamaria said that it was 'just a coincidence' that she was coming to Washington in the midst of the banking crisis because her meetings were scheduled months ago.
Desperate: European leaders scrambled to stop the financial crisis in Spain spiralling out of control and infecting other countries such as Italy
But if it is a coincidence, then it is also extremely convenient, seeing as the Spanish economy is this week going through a particularly thorny period.
The government nationalised major bank Bankia earlier this month, and now says it needs to inject $23.6billion in public money into the bank - more than twice what the government had estimated.
And doubts over how recession-hit Spain will handle the bailout have sparked concerns that the country will soon follow Greece, Portugal and Ireland in asking for financial assistance.
The amount it pays on its 10-year government bonds has been rising steadily towards the critical 7 per cent level that saw those three nations begging for financial help.
Today it stands at a worrying 6.57 per cent.
Lagarde called her meeting with Saenz de Santamaria productive. She also denied a Wall Street Journal report that the IMF was drawing up plans for a rescue loan for Spain.
Saenz de Santamaria said that she discussed with Geithner some of the ideas being discussed in Europe about how to set up a fund to recapitalise European banks.
She said: 'The problem is not Spain as a country. But our financial system in a given moment has needs just like the other states had at other times.'
The denial comes as senior European officials last night issued a grave warning that the very survival of the euro is at risk as the crisis in Spain threatens to tear the region apart.
Politicians and central bankers said the situation in the eurozone was unsustainable and drastic action was needed to prevent the ‘disintegration’ of the single currency.
Crisis: Spain's government nationalised major bank Bankia earlier this month, and now says it needs to inject $23.6billion in public money into the bank
'EUROZONE JOBLESS HITS RECORD HIGH AND WILL KEEP ON RISING'
Eurozone unemployment has hit a record high and job losses are likely to keep climbing as the debt crisis eats away at businesses' ability to hire workers while indebted governments continue to cut staff.
Around 17.4million people were out of work in the 17-nation eurozone in April (11 per cent of the working population) - the highest level since records began in 1995, the EU's statistics office Eurostat said today.
'This 11 percent level is going to continue edging up in the coming months and probably until the end of the year,' said Francois Cabau, an economist at Barclays Capital who sees the eurozone's economy contracting 0.1 per cent this year.
'The economic activity situation tells you the story of the labour market. There's been basically no economic growth since the fourth quarter of last year and indicators are pointing to very weak growth momentum for the second quarter,' he said.
ING economist Martin van Vliet said he sees the unemployment rate reaching slightly above 11.5 per cent if the economy starts to recover later this year. But if the downturn worsens, 'the risk is for an even higher peak in unemployment,' he said.
As the debt crisis intensifies, companies in the euro zone are trying to keep their labour costs low as they struggle with falling demand and profits, while a German-led drive to cut deficits and debt is pressuring governments to shrink spending.
But some economists say austerity policies in an economic downturn are self-defeating because governments receive less tax receipts as unemployment grows and must pay out more money in jobless benefits.
They spoke out as European leaders scrambled to stop the financial crisis in Spain spiralling out of control and infecting other countries such as Italy.
The euro crashed to a 23-month low against the US dollar at $1.2335 but was up slightly against sterling having recovered from its lowest level since late 2008. Last night, 1 was worth €1.2460.
Mario Draghi, president of the European Central Bank, said the eurozone was unsustainable in its current form.
In his sharpest criticism yet of eurozone leaders’ handling of the crisis, he said the European Central Bank could not ‘fill the vacuum’ left by governments in terms of economic growth or structural reforms.
And he called for overwhelming force to be used to shore up Europe’s battered banks to restore confidence in the financial system.
Ignazio Visco, governor of the Bank of Italy and a senior ECB member, said political inertia and bad economic decisions have put ‘the entire European edifice’ at risk.
‘There are growing doubts among international investors about governments’ ability to ensure the survival of the single currency,’ he said.
Olli Rehn, EU economic and monetary affairs commissioner, said bold action was required ‘if we want to avoid a disintegration of the eurozone’.
The apocalyptic tone from usually measured EU officials betrayed the spreading sense of panic.
Irish voters are likely to approve a European treaty on budget discipline in yesterday’s referendum – securing continued aid.
The result will be announced later today.
But the outcome of a second Greek election on June 17 – seen as crucial for the country’s future in the eurozone – is too close to call.
Forex: USD/JPY lingers above 78.00 - FXStreet.com
Edwards Case Shows How Complex Campaign Finance Law Can Be - US News and World Report
Former Sen. John Edwards campaigning in Des Moines, Iowa during his 2008 presidential run.
After a drawn-out trial and nine days of jury deliberations, John Edwards was acquitted on one charge and his case was ruled as a mistrial, but the campaign finance landscape is no clearer than it was before.
The jury found Edwards not guilty on count 3—that he broke campaign finance law in accepting $700,000 from a billionaire supporter in 2008.
[Read: Jurors in John Edwards' Case Reach Verdict]
Neither side denied Edwards took the money and used it to cover up an affair. But U.S. Attorney George Holding indicted Edwards last summer under the belief that doing so was a crime under one interpretation of campaign finance law.
The case turned on deceptively complex question: Were the secret payments made, with Edwards' knowledge, for the purpose of influencing his 2008 presidential campaign? If so, they were illegal campaign contributions. If not, they were personal gifts.
The prosecution argued that Edwards solicited the money to hide his mistress and illegitimate child in order to maintain his public image during the 2008 presidential campaign. The defense depicted Edwards' actions as morally, not legally, wrong. The money was personal, Edwards' lawyers argued, used to hide the affair from his cancer-stricken wife, not keep afloat a 2008 campaign which was effectively over.
Had Edwards been found guilty, the legal definition of a campaign contribution, now defined vaguely as money given with the intent to "influence an election," would have been made more clear. The campaign finance implications of that would have been vast, but it would have taken a stronger case, legal experts say.
"In terms of campaign finance, you have to have that smoking gun," says Meredith McGehee, policy director at the Campaign Legal Center. "The prosecution was unable clearly to provide clear evidence, beyond the testimony of Mr. Young, that there was willful and knowing illegal activity by Mr. Edwards."
Given the current law and legal precedents, the prosecution's case was novel and the verdict a dodged bullet, says Allison Hayward, vice president of policy at the Center for Competitive Politics.
"Had there been a guilty verdict, especially on count 3, you would've had a lot of confusion among the bar and other prosecutors," Hayward says. "That the court would instruct the jury that the donor's purpose was somehow what made this a camp contribution, not the person being charged, that was a bit scary."
[Read: Justice Dept. Unlikely to Retry Edwards]
Edwards' case was interpreted differently by legal experts on both sides: the judge, the prosecutors, and Edwards' team. But however campaign finance law is interpreted, prosecutors should build a strong case before bringing an indictment, says Rick Hasen, a campaign finance expert and professor at UC-Irvine.
"This was a weak case to begin with," says Hasen. "(The verdict) doesn't have broad implications for campaign finance other than it might make prosecutors worry."
In many campaign finance law prosecutions, those being indicted are motivated by alleged political motivations, Hasen says. In this case, Edwards' indictment was brought by a Bush-appointed attorney general, George Holding, who this month won a GOP primary for a Congressional seat in a district that includes the courthouse where Edwards was tried.
"Whether or not there's any truth to that in this case or others I don't know," Hasen says. "But given the nature of the campaigns, I think prosecutors have a motive to chase the big fish. The incentives for prosecuting a political are very high."
Edwards case made one thing clear for both sides: campaign finance law is complex and prosecuting it is not easy.
FOREX-Euro near 2-year low on Spain woes, Japan warns on yen - Reuters UK
* Euro near 2-year low vs dollar on Spanish bank concerns
* Yen off highs, market becoming wary of intervention
* Japan threatens action vs yen rise (Recasts, adds quote, changes dateline PVS SINGAPORE)
By Anirban Nag
LONDON, June 1 (Reuters) - The euro was near a two-year low against the dollar on Friday and stayed close to its lowest in more than a decade versus the yen on growing uncertainty about how Spain will recapitalise its ailing banking sector and fix its public finances.
Japan said the yen's strength was being driven by speculators and stepped up warnings that it could intervene to curb the currency's rise, saying it would act decisively if excessive market moves continued.
The euro fell to as low as $1.2324 on trading platform EBS at one point, its weakest since July 2010. It last fetched $1.2345, down 0.1 percent on the day, with a drop towards $1.20 likely as bears remain firmly in control.
The drop in the common currency came as Spaniards sent money abroad in droves, worried about the health of the banking system. Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad in March, the most since records began in 1990.
"It is looking very bearish for the euro with the latest capital flows data showing a significant amount leaving Spanish banks, all of which indicate they will probably need official help," said Peter Kinsella, currency strategist at Commerzbank.
Any help from the European rescue fund for Spain would mean an additional tax burden on Germany, Europe's paymaster, and could hurt the safe-haven status of German bunds, he added.
"It is not a situation where there is much help for the euro and chances are it is headed towards $1.20."
With German two-year yields near zero, traders said a lot of safe-haven flows have, so far, stayed within the single currency area. But if that were to change, the euro's decline against the dollar and the yen could accelerate considerably.
The euro's selloff has gained steam this week as Spain's borrowing costs surged on worries it may need to issue more debt to recapitalise its banks, adding stress to markets already frayed by anxiety that Greece may exit the euro zone.
The rising borrowing costs risk pushing Spain towards an international bailout. The yield spread between Spanish 10-year government bonds and German Bunds have risen to euro-era highs this week, and the euro has fallen almost in lock step with that move.
"We're looking for $1.18 by the end of Q3, and at this rate, it could happen before that," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.
"During this risk-off environment, the U.S. dollar is the only place to be," he added.
YEN INTERVENTION JITTERS
Apart from the dollar, the safe-haven yen has also been in demand. The euro was steady against the yen at 96.90 yen , not far from an 11-1/2-year low of 96.48 yen struck the previous day.
On Thursday, the euro got a brief lift after The Wall Street Journal said the International Monetary Fund was discussing a contingency plan for a rescue loan to bail out Spain's third largest bank. The report, however, was specifically refuted by IMF Managing Director Christine Lagarde.
The euro may not get much respite even if Spain gets an international bailout, said Standard Chartered's Henderson.
"If Spain had to be bailed out, the market would instantly focus its attention on Italy. Current European Union and IMF resources cannot fund bailouts of both Spain and Italy," he said.
So the risk of contagion will support the safe-haven yen. The Japanese currency's broad surge this week, including its rise to a 3-1/2-month high versus the dollar, are making market players wary about the potential for Japanese yen-selling intervention, traders say.
Japanese Finance Minister Jun Azumi said Japan would act if excessive yen strength continued while the country's top currency diplomat signalled Japan was willing to act alone as it was becoming clear that yen rises were being driven by speculators.
The dollar edged up 0.1 percent to 78.46 yen but remained close to Thursday's low of 78.21 yen, the dollar's lowest level against the yen since mid-February.
A fall in the 10-year U.S. Treasury yield to a record low this week has cut the yield advantage of Treasuries over Japanese government bonds, and has helped drag the dollar lower against the yen.
Traders say the dollar could come under renewed pressure against the yen if U.S. jobs data due on Friday comes in weak. The data is expected to show U.S. employers created 150,000 jobs in May. (Additional reporting by Masayuki Kitano in Singapore; Editing by Susan Fenton)
Book review: Finance and the Good Society, by Robert J Shiller - Management Today
By Robert Skidelsky Friday, 01 June 2012
More innovation in the investment markets and in managing risk is socially as well as economically desirable, argues the author. But Robert Skidelsky is not convinced.
Book: Finance and the Good Society
Author: Robert J Shiller
I met economist Robert Shiller, famous for the Case-Shiller home price index, at a breakfast in London in 2009 to mark the publication of his book Animal Spirits, co-authored with George Akerlof. He explained how financial innovation might be used to limit the volatility of 'animal spirits', a bold claim after an economic collapse often attributed to an excess of financial innovation. I suggested what we needed was financial de-innovation; simpler, not more complex financial systems. Shiller looked puzzled.
In Finance and the Good Society, he looks forward to a rapid increase in the scope of financial services to create a more prosperous, stable and equal society. At its analytical heart lies the conviction that financial innovation is the road to 'complete' markets - markets for all possible desired contracts. Thus it can move the actual market system closer to the ideal market system envisaged by economists such as Arrow and Debreu, despite the absence of the perfect rationality and perfect information that those theorists considered necessary for Pareto efficiency.
Indeed, it is the absence of these conditions that justifies ever more extensive financial engineering, because, if they existed, trades would always be priced correctly, on average, and one would need no financial system at all!
It is the object of financial innovation to make 'previously untradable risks tradable'. Shiller shows how financial inventions (eg, limited liability, stock markets, securitisation, insurance, pensions, mutual funds) have contributed to human wellbeing, and offers his own ideas about how they may continue to do this. For example, the housing market could be made less risky by having continuous work-out mortgages. Instead of issuing debt, governments could issue shares - 'trills' - in the nation's GDP. Tax rates could be set to provide 'inequality insurance'.
Shiller is particularly keen to incentivise good causes. 'Benefit corporations' could specify objectives other than maximising profits; there might be different levels of tax deductibility for various kinds of philanthropic giving; there could be 'participation non-profit organisations', purchase of shares in which would count as charitable contributions, and so on.
As these examples show, Shiller does not rely on markets alone to discover and serve human needs. Government has a vital role in both facilitation and regulation.
Four years after the Great Collapse, a book in praise of finance and its practitioners has an air of both defiance and innocence. But Shiller argues his case skilfully and persistently, and with a wealth of quirky and interesting examples.
The first part, based on lectures to his finance class at Yale, can be highly recommended as a handbook for investors and money managers, as well as for explaining the mysteries of the financial system.
Apart from this descriptive section, Finance and the Good Society is an invitation to argument. First, Shiller ignores the possibility that financial innovation may be subject to diminishing social returns. At the macro level there is no clear correlation between financial intensity and the overall rate of economic expansion. Many countries achieved rapid growth in the period of 'financial repression' from 1945 to the 1970s. Nor have trend growth rates risen after the financial liberalisation of the 1980s. Such considerations have led Adair Turner, a former regulator, to argue that the benefits of financial innovation may vary by stage of development.
Second, Shiller's expectations for finance are closely bound up with his view of why markets fail. His explanation is behavioural. Over large swathes of their lives people act irrationally; their decision-making is subject to wide mood swings ('animal spirits') and herd behaviour. On this view, more 'complete' insurance markets, made possible by information technology, can limit the bad consequences of the erratic flight of the human butterfly. But it may be that our problem is epistemological: there are bound to be too few insurance markets, because much of the future is uninsurable - we don't and cannot know enough about it. If this is so, the programme of salvation through better 'risk management' may be misconceived.
Finally, one is left wondering what Shiller means by the 'good society' of his title. He implies that it is one in which all people have the maximum chance to achieve their goals; indeed, 'finance is the science of goal architecture'. On the content of these goals he has little to say. But, without being more specific about the goals, it is impossible to say how much or what kind of finance, or financial innovation, a society needs.
- Lord Skidelsky's latest book, How Much is Enough? (Allen Lane), co-authored with his son Edward, is out this month.
Finance and the Good Society
Robert J Shiller
Princeton £16.95
Has someone wrapped Spain'a debts up in a folder and sold it to China as an 'investment', as an example of a Sarkosy derivative?
- Gummy Puppen, Cambridge, England, 01/6/2012 19:43
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