G20 proposes curb on bank bonuses

Bankers' bonuses should be deferred in order to reward long-term success rather than short-term risk-taking, G20 finance ministers have suggested.

In a draft proposal agreed in London, ministers backed the idea from the UK as an alternative to a formal cap on bonuses sought by some countries.

Ministers also said they would continue financial support for the global economy despite some signs of recovery.

And they agreed to give emerging economies more say on the world stage.

The BBC's chief economics correspondent Hugh Pym said it appeared a consensus was emerging on bank bonuses.

He said ministers had agreed in principle that bankers' pay should be long term, with no cash bonuses up front, and that there should be greater transparency about what staff are actually being paid.

But our correspondent said the details of any plans would still need to be thrashed out before the summit of G20 leaders in Pittsburgh, Pennsylvania later this month.

'Serious mistake'

Some countries, including France and Germany, had wanted the G20 to start discussing "exit strategies" - ways of scaling back their spending on fiscal stimulus.

They are already beginning to emerge from recession and had argued that such spending was leading to dangerously high levels of state debt.

Opening the meeting, Prime Minister Gordon Brown warned that any such scaling back would be a "serious mistake" and could risk causing another "downward lurch" in the global economy.

The draft communiqué suggests his concerns were taken on board as ministers have agreed in principle to continue spending until a global recovery is firmly secured.

Britain had also opposed suggestions by France and Germany to place a mandatory cap on bankers' bonuses.

Instead, Mr Brown and Chancellor Alastair Darling backed a system of deferred bonuses which G20 ministers now appear to have accepted.

Their draft proposals contain plans to withhold bonuses for up to five years until the longer-term impact of bankers' actions is clear.

They also suggest including claw-back clauses in bonus agreements which would allow money to be recouped if decisions which seemed successful later go bad.

Bonuses would also be paid in stock options, not cash, so that individuals only benefit if their company does.

Mr Brown said earlier there could not be "a return to the past ways of governance" within the banking sector, which resulted in pay awards that were "offensive" to the public.

"Specifically, pay and bonuses cannot reward failure or encourage unacceptable risk taking," he told ministers.

More say

The third aspect of the draft communiqué concerns the representation and voting rights of emerging economies within the IMF and World Bank.

At present, for example, China has the same power as the Netherlands, despite the vast difference in the size of their economies.

The draft shows ministers have agreed to raise "significantly" the say of emerging nations' on the world stage.

The BBC's business correspondent Joe Lynam said the draft would now be turned into formal guidelines by the Financial Stability Board, which is made up of representatives of central banks and regulators from around the world.

Those guidelines will be discussed and voted on in Pittsburgh, but it will be up to individual state governments to decide whether or not to turn them into law.

The BBC

When Medicare Was Defeated (Again and Again)

Anyone interested in the history of health reform may enjoy this essay by Larry DeWitt, public historian at the Social Security Administration. It’s one of the sources for my column in Wednesday’s paper.

In the column, I focused on the origins of Medicare as a incremental measure, after Harry Truman’s plans for universal coverage failed. But among other good details, the essay also includes a 1960s cameo by Ronald Reagan:

The [American Medical Association's] campaign against Medicare also marked the beginning of the political career of another rising force in American politics — Ronald Reagan. Most conventional histories of Reagan’s political career date his emergence as a political figure from his nominating speech on behalf of Barry Goldwater at the 1964 Republican Convention. But in 1963 Reagan was the AMA’s spokesman for their campaign against Medicare. The AMA, in what was called Operation Coffee Cup, organized thousands of small meetings in homes all across the land, hosted by the wives of AMA physicians. At these informal “coffees” the women would organize local efforts against the pending Medicare legislation. This would include letter-writing campaigns to members of Congress, petition drives, networking with other civic groups, and the like. The central event of each meeting was the playing of a recording made of Reagan presenting a short, dramatic, speech against the evils of Medicare. Reagan played the socialized medicine theme to the hilt, suggesting that the idea of government sponsored medical insurance was little short of the entering wedge of socialist domination of America. His concluding appeal is typical of his sales pitch:

“… behind it will come other Federal programs that will invade every area of freedom as we have known it in this country. Until one day, as Norman Thomas said, we will awake to find that we have socialism. And if you don’t do this and if I don’t do it, one of these days you and I are going to spend our sunset years telling our children and our children’s children what it once was like in America when men were free.”
economix.blogs.nytimes.com

Australian growth beats forecasts

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The Australian economy grew by more than expected in the second quarter of 2009, boosted by increases in household consumption and business investment.

The economy expanded by 0.6% in the three months to June from the previous quarter, the government said.

Analysts had forecast growth of 0.2% after a sharp drop in export prices was announced earlier in the week.

The government has announced stimulus measures of 42bn Australian dollars ($35bn; £21bn) in the past year.

Australia is one of the few developed countries to have avoided falling into a recession.

Adam Carr, chief economist at ICAP, called the results "fantastic".

"It's looking like we will be firing on all cylinders in H2 [the second half of the year] and 2010," he said.

He added that he thought the Reserve Bank would raise interest rates before the end of the the year.

On Tuesday, figures showed Australian export prices in the second quarter had fallen by 15.8% - the largest drop in the 50 years since records began.

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Yen overshadows election optimism

Japanese shares fell on Monday after rises to the yen and big stock falls in China overshadowed earlier optimism at the general election result.

The victory of Yukio Hatoyama's Democratic Party of Japan had earlier seen the country's main share index, the Nikkei, hit an 11-month high.

However, the yen's rise and Chinese share declines saw the Nikkei end the day's trading down 0.4% to 10,493.

Shanghai stocks ended down 6.2% on fresh fears that shares are overvalued.

The fall dragged down Hong Kong's Hang Seng index, which lost 1.9%.

'Bad impact'

Against the greenback, the yen was up 1% to a seven-week high of 92.54 yen per dollar.

Analysts said the yen was being bought as a haven purchase following the share declines in Shanghai.


This in turn dragged down the stocks of Japan's main exporters, such as Honda, as a higher yen eats into their overseas earnings.

"The election probably had an impact for about the first 30 minutes of trade, when stocks jumped, but then the stronger yen and Shanghai pushed the market lower," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"Exporters, such as carmakers and tech firms, are very sensitive to the higher yen and even though the market's pretty surely bottomed out, this could still have a bad impact."

The victory of the Democratic Party of Japan ends 54 years of almost unbroken rule by the Liberal Democratic Party.
bbc.co.uk

Price falls slowing in eurozone

The eurozone's annual rate of inflation was negative in August for the third consecutive month.

Prices in the 16-nation bloc fell 0.2% in the past year, Eurostat said, following the record 0.7% fall in July.

Inflation in the eurozone has been dragged down by lower energy and food prices and by falling demand from both companies and households.

The downward trend began in June with a 0.1% fall in prices, but a Japan-style deflationary spiral is not predicted.

Oil effect

Deflation is considered damaging to an economy because consumers tend to delay making major purchases until prices fall further. Without consumer spending to stimulate growth, economic output falls.

The European Central Bank's target rate for inflation is just below 2%.

The reduced rate of price falls in August is "clearly primarily due to oil prices falling at a significantly reduced rate year-on-year," said Howard Archer, chief European economist at IHS Global Insight.

"It seems highly probable that July marked the deepest deflation in the eurozone and consumer prices will turn positive year-on-year within the next couple of months," he added.

Inflation in the eurozone peaked at 4.1% in July last year, when oil reached a record high of $147 a barrel.

The price of oil has since fallen back to about $70 a barrel.
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