UBS May Face Trial on U.S. Demand.

People walk past the UBS building on Park Avenue in New York February 19, 2009. UBS may face a mini-trial in a U.S. court in July as it fights efforts to force it to disclose the names of 52,000 U.S. clients suspected of offshore tax evasion, the New York Times reported
UBS feels the wrath of investors and the US.........
Shares in embattled Swiss bank UBS fell to an all-time low on Monday ending the day at SFr10 ($8.58) or 9.1 per cent lower than at Friday's close at the bourse.
The decline came as a federal judge decided it would take months to determine if and when the Internal Revenue Service (IRS) would gain access to accounts of 52,000 UBS clients in the US suspected of tax evasion.

District judge Alan S. Gold set a July 13 hearing on the IRS lawsuit, unless an agreement is reached first. He gave UBS until April 30 to prepare their defence.

UBS has argued that handing over the account names would violate Switzerland's banking secrecy legislation and jeopardise the bank's licence to stay in business.

"Such violations would expose these [UBS] employees to substantial prison terms, as well as fines, penalties and other sanctions," UBS lawyers said in a court filing.

The lawsuit seeking details of the 52,000 accounts containing an estimated $14.8 billion in assets was issued last week.

It came a day after Switzerland's largest financial institution came to a settlement with the Justice Department on revealing the names of up to 300 US customers and payment by the bank of $780 million.

Under the terms of the settlement, UBS admitted helping US taxpayers hide accounts from the US Internal Revenue Service, the agency responsible for tax collection and tax law enforcement.

The matter is also particularly contentious because of the number of client identities and records that the I.R.S., backed by the Justice Department, is seeking to acquire. The total of 52,000 is more than twice the 19,000 accounts under investigation in the Justice Department’s criminal investigation and suggests that UBS has had a much larger role in undeclared offshore banking services than the bank has previously suggested.


comments.....

Thomas, Switzerland
Any normal person or government would start a lawsuit in the country where the business accused of some wrong-doing is located. So why does the U.S. think they have the jurisdiction for a Swiss bank and Swiss law? Would be a good time for the U.S. government to accept international law and courts.

you can leave your comments .here.......

Europe's major economies said a global solution was needed to the current financial crisis.

Capitalism must be given new moral foundations
Nicolas Sarkozy
French President
German Chancellor Angela Merkel highlighted that leaders faced an "extraordinary international crisis".
But leaders including UK Prime Minister Gordon Brown warned against reverting to protectionism in such a difficult economic climate.

The Berlin gathering is a precursor to the next meeting of the G20 group of major developed and developing countries in London on 2 April, which aims to rewrite the rules of the global financial system.

French President Nicolas Sarkozy said participants at the London summit would bear a "historical responsibility" to reform the global system.

"We have to succeed and we cannot accept that anything or anyone gets in the way of that summit. If we fail there will be no safety net," he said.

What role can France and other European Union countries play towards encouraging the GCC and the rest of the Arab World to take an active role in finding ways to solve the crisis?
France has experience and knowledge of the constraints that apply in different parts of the region. It is time for responsibility and respect to be shown by all sides. In the past we have seen Europe taking the initiative and then the US or some of the countries from the Arab World taking the initiative. Today, we need a global approach where all these countries act together with one goal, that is taking concrete measures to show people in the region that a solution can be found. If the crisis is not dealt with seriously and collectively the consequences may touch everybody

'Supervision'

However, despite the encouraging words from key leaders, Czech Prime Minister Mirek Topolanek, whose country currently holds the EU's rotating presidency, voiced concern at what he saw as divisions between Europe's major economies.

"If I put it very tenderly, the divergence in opinions was rather big," the AFP news agency reported him saying as he headed back to Prague.
"It was obvious that the four countries representing the EU in the G20 [France, Germany, Britain, Italy] do not have the same opinion on a number of issues."

Mr Brown said there was a need to create an economy that is based on the "soundest principles", saying the world needed a "global new deal".

Leaders said there was a need for international institutions, including the International Monetary Fund, to play a greater role not just to help countries in financial trouble but to prevent countries from getting into such difficulties.

Mr Brown said leaders had agreed that the IMF needed access to at least $500bn (£348bn).

The comments in Berlin come amid ongoing volatility in world financial markets and uncertainty over the future of some of the world's key banks.

Ms Merkel said: "We are making a commitment that all financial markets, products, and participants - including hedge funds and rating agencies - are of course subject to supervision and regulation."

Details on such a plan need to be worked out before the meeting in London, she added.

Hedge funds, which typically attract wealthy private investors, have been criticised for their lack of transparency and oversight.
Bonuses

As well as greater supervision of all financial markets and instruments, leaders underlined the need to reassess the issue of pay at finance firms.

Mr Sarkozy added said people could "no longer tolerate the reward package system for traders and bankers".

There has been much criticism of bankers' bonuses, which have been high despite their bank's poor performance.

Different opinions
French, Italian, Spanish, Dutch, UK and German leaders are hoping to take a common approach at the London summit.

But analysts say reaching agreement among EU powers will not be easy.

Both Mr Topolanek and the European Commission have voiced concern at attempts by France, Italy and Spain to shelter their car industries from the effects of the downturn.

Mr Sarkozy has suggested that in order to secure government aid, French carmakers should move production out of their East European factories and back to France.

J.C. Penney and Lowe’s made headline how much the nation’s retail sector is feeling the blow of the economic downturn

J.C. Penney said its fourth-quarter profit fell 51 percent as consumers curtailed spending. Sales at stores open at least a year, fell 10.8 percent.

The department store chain saw its profit plummet more than 50% in the fourth quarter as consumers held onto their wallets in what was a markedly less cheery holiday season for retailers. The company also issued a first-quarter forecast weaker than what analysts were predicting.

For the three months ended Jan. 31, the Plano, Texas-based retailer reported a net income of $211 million, or 95 cents a share, compared with a net income of $430 million, or $1.93 a share, during the same period a year ago.

Sales for the quarter came in at $5.76 billion -- a 9.8% drop from $6.39 billion a year earlier. J.C. Penney’s same-store sales, or sales in stores opened at least a year, fell 10.8% despite moves to battle light customer traffic.

The results, although grim, beat Thomson Reuters analysts’ per-share estimates of 92 cents and matched in revenue.

"Throughout the year, we took steps to significantly reduce our inventories and operating expenses in order to withstand the impact of the economic conditions. At the same time, we stepped up the style we offer and focused on effectively communicating the newness, excitement and value in our merchandise,” said J.C. Penney Chairman and CEO Myron E. Ullman III in a statement.

The company is projecting a first-quarter loss of 20 cents to 30 cents. Analysts polled by Thomson Reuters were expecting a loss of 19 cents, on average.

The retailer also said it would hold its annual meeting in New York on April 22 as opposed to in Plano, Texas, given the fact that many firms’ travel budgets have been snipped.
The nation’s No. 2 home-improvement chain posted worse-than-expected fourth-quarter earnings results and issued a full-year forecast that also fell short of Wall Street’s estimates.

For the three months ended Jan. 30, the Mooresville, N.C.-based retailer said it earned $162 million, or 11 cents a share -- a 60% decline from the $408 million, or 28 cents a share, it earned during the same period a year earlier.

The company said sales fell 4% to $9.98 billion and same-store sales fell 9.9%. Analysts polled by Thomson Reuters were expecting a profit of 12 cents per share on sales of nearly $10.1 billion.

"The economic pressures on consumers intensified in the fourth quarter, resulting in a further decline in consumer confidence and dramatic reductions in consumer spending," said Lowe’s Chairman and CEO Robert A. Niblock in a statement. "As a result, our comparable store sales for the quarter remained weak and fell at the low end of our expectations.”

The company said the “extreme promotional environment” driven by competition and cutbacks in consumer spending led the company to take more markdowns than expected, reducing its inventory, but cutting into its bottom line. The company also said it has taken steps to adjust its staffing needs in response to the “slowing” retail environment.

Going forward, the company said it expects full-year earnings of $1.04 to $1.20 a share -- a drop from the $1.27 analysts were expecting. The company said its revenue could decline as much as 2% or increase as much as 2%, and predicts same-store sales will slide between 4% and 8% for the year.

more......

J.C. Penney reported a large drop in fourth-quarter earnings as customers sharply cut spending on clothing and other items. The results beat Wall Street expectations, but the chain projected a wider first-quarter loss than analysts had predicted.

J.C. Penney said profit for the three-month period ending Jan. 31 fell 51 percent from the comparable period a year ago, to $211 million. Sales fell 10 percent, to $5.76 billion. For the whole fiscal year, profit fell 49 percent, to $567 million. Sales for the year fell 7 percent, to $18.5 billion.

Department stores have been among the hardest hit retailers in the recession as shoppers have focused on necessities. But Penney hasn't yet resorted to widescale layoffs -- unlike Macy's, which announced this month that it will cut 7,000 jobs, almost 4 percent of its workforce.

Lowe's Earnings Down 60 Percent
Lowe's said its fourth-quarter profit fell 60 percent, to $162 million from $408 million in the comparable period a year earlier, as the dismal housing market continued to weigh on results at the home-improvement chain. Revenue fell 4 percent, to $9.98 billion.

To cope with the worsening recession, Lowe's said it was further cutting back the number of stores it plans to open in 2009 and offered a profit forecast for the year that was short of Wall Street's expectations.

U.S. financial regulators will soon launch a series of "stress tests"

U.S. financial regulators to determine which of the largest banks may need additional capital cushions if recession deepens.
largest U.S. banks should get bigger capital cushions in the event of a deeper recession, a person familiar with Obama administration plans said Saturday.
Banks are expected to receive additional information about the tests in the coming week from regulators.

The largest U.S. banks are "well capitalized" for current conditions, the source said, but the Obama administration wants to ensure that they can withstand a more severe economic climate and can play an important role in maintaining the flow of credit.
Initial plans for the stress tests were announced Feb. 10 as part of Treasury Secretary Timothy Geithner's bank stabilization plan, but the source Saturday for the first time linked the tests to additional government support for large banks. This person did not specify what form any extra capital cushion may take.

Little is known about the form of the stress tests, but the person described them as "consistent, forward looking and conservative."

The Obama administration on Friday tried to ease market fears that the government was poised to nationalize some large banks that are continuing to struggle with losses and a lack of confidence, notably Citigroup and Bank of America.

White House spokesman Robert Gibbs said Friday that "this administration continues to strongly believe that a privately held banking system is the correct way to go

Florida is slated to receive $12.2 billion of the $787 billion included in the American Recovery and Reinvestment Act over three years.

Crist Presents Optimistic Budget
Gov. Charlie Crist on Friday outlined his proposed $66.5 billion budget, which includes $4.7 billion in federal stimulus dollars.

His recommendations include investments in education, workforce development and career training, transportation and energy conservation.

The governor said his proposed 2009-10 budget will create or retain 314,590 jobs.

proposals:

■$31.2 billion in funding for all phases of education, including almost $1.8 billion of federal stimulus funds.
■$8.9 billion for economic development projects that create or retain 314,590 jobs. These jobs are in addition to the 206,000 Florida jobs expected to be created by the $12.2 billion pumped into Florida’s economy by the American Recovery and Reinvestment Act of 2009 over three state fiscal years.
■$5.1 billion to build and maintain the roads, bridges and public transportation facilities, which Crist said would create or retain an estimated 142,800 jobs throughout the state. An additional $1.4 billion provided by the American Recovery and Reinvestment Act of 2009 will go toward shovel-ready projects that can be initiated within 180 days, creating or retaining an additional 24,200 jobs.
■$157.1 million for the Office of Tourism, Trade and Economic Development, which he said will create or retain 43,291 jobs.
■$4.9 billion to maintain support for Florida’s increasing prison population and continue programs to reduce recidivism, prevent juvenile crime and keep violent criminals off the streets.
■An increase of $45 million for cash assistance program and food stamps, which provides temporary assistance to families and their children, to ensure funds are available for families and children critically impacted during these challenging times.
■$294 million for the Medicaid for the Aged and Disabled Program to restore 12 months of Medicaid health care coverage for 13,000 elderly and disabled individuals.
■$470 million for the Medically Needy Program to restore 12 months of Medicaid health care coverage for 21,000 individuals who have extremely high medical bills in relation to their annual income.
■$52 million for increased enrollment in the KidCare program to support an additional 46,000 children.

The agreement, signed in November 2007, would allow the tribe to install Las Vegas-style slot machines and card games in their casinos in exchange for $375 million over the first three years of the agreement, and at least $100 million a year after that.

However, in July, the Florida Supreme Court ruled that Crist did not have the authority to sign the pact.

U.S. Economy May Suffer for ‘Long Time’

The U.S. economy will suffer from the effects of the global financial crisis for “a long time” as a slowdown in demand spreads to other countries, former Federal Reserve Chairman Paul Volcker said.

“We’re in the middle of a kind of massive economic crisis,” Volcker, who heads President Barack Obama’s Economic Recovery Advisory Board, said today at a Columbia University conference in New York. “We’re going to hear the reverberations about this for a long time.”

Volcker characterized the downturn that started in December 2007 as “not like a typical recession in the U.S. or elsewhere.” He also cautioned that U.S. government and central bank efforts to revive credit markets should only be temporary to alleviate the risk of inflation.

Volcker said he is “shocked” by the international reach of the slowdown.

“The rest of the world has not held up,” making it harder for the U.S. to rely on strong export growth to emerge from its economic slump, he said.

“Industrial production in most countries is going down faster than in the United States,” Volcker said.

The U.S. economy will contract 2 percent this year, making it the deepest annual slump since 1946, according to a Bloomberg News survey of economists taken this month. Gross domestic product shrank at a 3.8 percent annual pace in the last three months of 2008, the Commerce Department said in January.

Volcker also discussed rising prices, saying even “a little inflation is bad.” The cost of living in the U.S. rose last month for the first time in six months as the consumer price index rose 0.3 percent, the Labor Department said today in Washington.

The Crisis Takes Hold
The first shoe to drop was the collapse in June 2007 of two hedge funds owned by Bear Stearns that had invested heavily in the subprime market. As the year went on, more banks found that securities they thought were safe were tainted with what came to be called toxic mortgages. At the same time, the rising number of foreclosures helped speed the fall of housing prices, and the number of prime mortgages in default began to increase.

The Federal Reserve took unprecedented steps to bolster Wall Street. But still the losses mounted, and in March 2008 the Fed staved off a Bear Stearns bankruptcy by assuming $30 billion in liabilities and engineering a sale to JPMorgan Chase for a price that was less than the worth of Bear’s Manhattan skyscraper.

Economic Concerns Send international Shares inferior

10 Global Economic Challenges report focuses on the most critical issues facing America’s 44th president. From restoring financial stability to establishing a U.S. policy on climate change and engaging the emerging economic powers, the report contains timely analysis and recommendations by Brookings leading global economic experts.

A global sell-off set in motion by losses on Wall Street came back home on Friday morning, sending markets in New York sharply lower.

The Dow burrowed even lower, a day after it recorded at its lowest close in six years. Gold prices flirted with $1,000 an ounce. And markets from Hong Kong to London fell sharply on more glum economic data and a round of disappointing corporate news, including the bankruptcy filing of the automaker Saab.

“You can look at everybody’s trading screen and see nothing but red,” said Tim Smalls, head of United States stock trading at Execution LLC in Greenwich, Conn.

At 10:45 a.m., the Dow Jones industrial average was down 65 points to 7,402, while the broader Standard & Poor’s 500-stock index was off o.8 percent. The technology-heavy Nasdaq fell essentially unchanged.

Financial stocks slid the farthest, with shares of Bank of America falling below $3.35 a share and Citigroup sinking to less than $2.10 a share — a tenth of what it cost a year ago.

Analysts said that fear and uncertainty were driving trading once again. They said investors remained skeptical about the Obama administration’s plan to shore up the banking system and were uncertain that the $787 billion economic stimulus package would be able to prop up the floundering economy.

The Dow Jones Euro Stoxx 50 index, a benchmark for the euro region, was down 3.6 percent in late-afternoon trading, to its lowest level at least five years. The DAX in Frankfurt slid 3.6 percent as investors shed financial and industrial stocks, while the CAC 40 in France was down about 3 percent and FTSE 100 in London fell 2.4 percent.

“We thought the low points of last fall were behind us, but we seem to be in for more disappointments,” said Vincent Juvyns, a strategist at ING Investment in Brussels. “The markets have lost all sense of direction, which makes it hard to take a position.”

Jean-Claude Trichet, president of the European Central Bank, said Friday that markets were experiencing an “ongoing correction,” but would not put a timetable on when the crisis might lessen.

“We have to be very cautious in qualifying the duration,” Mr. Trichet told the European American Press Club.

The Labor Department reported that consumer prices had increased 0.3 percent in January, rising for the first time since July. The increase eased fears that the American economy was heading into a deflationary spiral of lower prices and lower economic growth, but consumer prices remained flat year-over-year, a sign of continuing pressure on prices as the recession deepens.

“It’s not terrible to see a break in the disinflationary spiral we’re in even if such a break is only temporary,” Dan Greenhaus, an analyst with the equity strategy group of Miller Tabak & Company, wrote in a note.

Corporate news across the region seemed to confirm fears.

Anglo American, the mining giant, was down nearly 16 percent by midday after announcing it would cut 19,000 jobs, or a tenth of its work force, and suspend dividend payments for 2008 as its business deteriorated on weak global demand.

In France, Compagnie de Saint-Gobain, which supplies construction materials, tumbled 16 percent after announcing it would seek to sell shares to raise 1.5 billion euros, or $1.9 billion, in capital, while confirming yet more job cuts.

And UBS, the Swiss bank, is facing more problems with prosecutors in Washington. A day after the bank agreed to pay $780 million to settle claims that it defrauded the Internal Revenue Service, the federal government went to court seeking the release the names of 52,000 wealthy clients. UBS shares fell more than 16 percent at midday, after rallying almost 5 percent Thursday on news of an initial settlement.

AXA, on of the largest insurers in Europe, was down nearly 14 percent in Paris after Standard & Poor’s downgraded its credit rating, citing uncertain earnings.

The Swedish automaker Saab filed for bankruptcy to seek protection from its creditors after General Motors said it would cut ties with the company after decades of losses.

“We’re at a stage in the economic cycle where we have to prepare for the worst,” Mr. Juvyns said. “Companies are firing to cut costs, since we face a contraction in G.D.P. for the first half of the year.”

Arnaud Cayla, a fund manager at Barclays Asset Management France in Paris, said that while most companies would survive the crisis, they would have to adjust to lower demand.

“We’re flirting with deflation,” Mr. Cayla said, “but it’s still too early to say.”

Discouraging economic news for the euro zone added to the slide. The purchasing managers’ index, which estimates business activity, showed the downturn accelerating in the first weeks of February in the 16 nations that share the euro. The index is based on a survey of purchasing managers by Markit Economics.

The composite index of activity in services and manufacturing slipped to 36.2 in February, from 38.3 in January, with services hit hardest. Any number below 50 indicates an economic contraction.

In Britain, the Council of Mortgage Lenders reported Friday that 40,000 people had lost their homes in 2008, an increase of 54 percent on a year earlier, and the number is expected to nearly double in 2009 to 75,000.

“The next trap for the financial markets is state debt,” Cayla said. “We’re concerned about the health of governments, and what their signatures mean.”

Asia saw a less dramatic sell-off, led by the Kospi index in South Korea, which fell 3.72 percent dragged down by financial and industrial stocks. In Japan, the Nikkei 225 slipped 1.6 percent, with equities in banks, retail and communications falling furthest. The Hang Seng in Hong Kong dropped 2.49 percent, with financials there also seeing the heaviest losses.

The top 10 global economic issues, as identified and ranked by Brookings Global, include:1
1.Restoring Financial Stability
With U.S. financial troubles at the center of the current global vortex, the U.S. has important obligations to strengthen the global financial system, including by enhancing financial regulation and diminishing reliance on foreign credit.

2.Setting the Right Green Agenda
Adele Morris and Peter WilcoxenFor the U.S., it is time to muster the political will to act on climate change at the national level while also working to forge international agreement so that markets and regulatory policy will provide a consistent set of incentives to wean the economy from carbon foundations.

3.Exercising Smart Power
Investing in the education, health, livelihoods, and the security of the world’s poorest not only makes Americans feel good about themselves but also makes the world feel good about America. It is critical to increase not only resources but also the impact of each dollar spent.

4.Reimagining Global Trade
Americans feel most secure about global engagement when they are well equipped to compete and have insurance against economic risks. This requires vigorously enforcing the trade rules and investing in economic competitiveness.

5.Navigating China’s Rise
On issues such as climate change, enforcement of trade rules and exchange rate adjustment, where the stakes are simply too high to ignore, America should look for cooperative mechanisms to advance its goals where possible but continue to press bilaterally with China and better deploy regional and international mechanisms where necessary.

6.Deciphering “Russia, Inc
Difficult as it may be to accomplish, America nonetheless has significant interests in alternately coaxing and goading a resurgent, resource nationalist Russia toward international norms and cooperation on energy, trade, financial integration and security more broadly.

7.Engaging an Emerging India
America has enormous interests in India’s successful integration into the global economy as the world’s most populous democracy engages in the task of lifting hundreds of millions out of poverty. America must look for areas of cooperation where possible and deepen bilateral engagement broadly in order to make progress on its agenda.

8.Revitalizing Ties to Latin America
by Mauricio Cárdenas and Leonardo Martinez-Diaz
America must become a stronger partner to its neighbors and engage on issues of mutual concern, including on energy, environmental protection, economic competitiveness and social policies.

9.Supporting Africa’s Growth Turnaround
America can become a stronger and steadier partner to Africa as it navigates economic challenges by supporting global standards for natural resource management, opening markets to African products, supporting vibrant private enterprises, supporting African efforts to enhance regional security and build resilience to climate change, and both increasing and improving the quality of development assistance.

10.Pursuing a Positive Agenda for the Middle East
America can build partnerships in the Middle East based on trust and mutual respect if it aligns its agenda on economic and political reform with the aspirations of the majority of the region’s people: the young who are striving for opportunity and global integration.

Switzerland's largest bank, pay $780 million US clients to resolve criminal fraud charges against it.

UBS agrees on tax fraud settlement in US

The deal is to settle the claim that UBS helped wealthy American clients evade taxes. It could expose some UBS customers to US Internal Revenue Service scrutiny and law enforcement action.

Officials at the US Justice Department said UBS had entered what is known as a deferred prosecution agreement on charges of conspiring to defraud the US by impeding the IRS, the US tax collection agency.

They described it as one of the biggest settlements ever.
UBS shares drop 10 pct amid concern over US probe
Shares in UBS AG are down 10 percent amid concern about the impact of an ongoing tax evasion probe in the U.S.

The bank's share price fell to 11.50 Swiss francs in early trading on the Zurich exchange Friday.

Investors reacted to the news overnight that U.S. authorities want UBS to hand over the names of up to 52,000 American customers suspected of failing to declare all of their taxable assets.

On Wednesday, UBS announced it had reached an agreement to give up some 250 to 300 names to U.S. investigators in an unprecedented breach of Swiss banking privacy.
Swiss ready to pass UBS client
UBS is at the center of a high-profile U.S. investigation that alleges the Swiss bank helped rich Americans avoid paying taxes by hiding money away in undeclared Swiss bank accounts.

A combination of higher food and utility bills, falling house prices

Many people have seen bills eat into their income
Households have less spare cash
Household finances have been squeezed by an "abrupt" change in circumstances in the past year, according to a survey for the Bank of England.

A combination of higher food and utility bills, falling house prices and scarcer credit have reduced household budgets and spending.

Nearly 2,500 households were interviewed for the survey in late September and early October.

Typically, they said they now had less spare cash either to spend or save.

"The typical household reported that the income it had available after meeting household bills had fallen over the past year and that it had saved less than it had expected," said the Bank.

Changing circumstances
The Bank's report said that, after a period of steady growth and low inflation, the last year had seen a sharp turnaround in the finances of British households.

More than half of those who took part in the survey had seen a decline in their available income after paying tax, debt repayments and utility bills.

A rise in mortgage costs for some borrowers earlier in the year, when they had come off fixed or discounted mortgage rates, had also played a part.

However, the financial situation of many households has changed since the survey was carried out in late September and early October.

About 40% of households have a mortgage and most of these will see their borrowing costs cut sharply because of the Bank of England's successive rate cuts in October, November and December.

These cuts have taken the official bank rate down from 5% to just 2%, with many economists expecting further reductions as the impending economic recession in the UK deepens.

£1.6 trillion debt
The Bank's survey reveals that total household debt in the UK has now reached £1.6 trillion, when mortgage debt is added to unsecured debt such as credit cards, overdrafts, hire purchase agreements and other personal loans.

And the survey has also found that more than 50% of all households now have some sort of unsecured debt.
The most exposed landlords were the 6% of landlords with high loan-to-value ratios on their main residence


However, the reluctance of banks and other lenders to extend much further credit, except at high rates of interest and to the most credit-worthy customers, is clearly contributing to the downturn in consumer spending.

In the survey, 16% of households said they were worried they might not be able to get any more credit, up from 12% who said this in 2007, and that this was causing them to defer their spending plans.



"Some households had been put off spending by tighter credit conditions, and more households were finding their debts to be a burden than in similar surveys carried out since the mid-1990s," the Bank said.

Banks can legally take from current accounts to cover credit card debts

Banks are departure people not capable to pay mortgages by taking money from their current accounts to cover credit card and loan debts, a charity has claimed.
Citizens Advice is calling on banks to scrap the practice, which allows them to transfer funds without permission.

It says it has seen a 25% rise in the number of such cases in each of the past two years.

The British Bankers' Association says the onus is on customers to talk to their banks if they are in difficulty.

In most cases, companies can only force someone to pay a debt by taking them to court.

However, as BBC Radio 4's Money Box discovered, the Right of Set Off allows banks to legally transfer cash to pay credit card or loan arrears without account holders' permission.

Citizens Advice says there have been cases of people having benefit payments removed from accounts, leaving them unable to meet "priority debts" like mortgages and council tax.

The British Bankers' Association says cases where money has been removed "inappropriately" are regrettable but that banks take their responsibilities under the banking code seriously

Times Money Matters

Money matters, and it has never mattered more than in the current economic climate as we all take a long hard look at our household balance sheets and batten down the hatches for what's likely to be a pretty turbulent year ahead.

If you are planning a spot of financial spring cleaning to recession proof your hard earned cash, then the Money Matters Roadshow is here to help.

A team of money experts - plus a smattering of BBC financial journalists - will be at Manchester's Trafford centre on Wednesday.

If you cannot get along in person then sit back and absorb the coverage across BBC TV, radio and online throughout the day.
"Like many pensioners I buy all my clothes from charity shops & buy yellow stickered reduced food"
Horace, Scotland

Japan's economy contracted by 3.3% in the last quarter of last year

Japan downturn: Toyota next?
Toyota just reported big losses - $1.1 billion for the second half, their largest since using the dollar.
They're cutting operations over the globe, cutting salaries and bonuses.
Having the "Cosworth option" might be the saving grace for F1 next year, IMO.

Japan's economy in quarterly dive
People(JAPAN) had been saying for some time that GDP would be bad, so while the market didn't welcome the numbers there was no excessive reaction .
Japan's economy contracted by 3.3% in the last quarter of last year - its worst showing since the oil crisis of the 1970s, official figures show.

The contraction means the economy shrank at an annual pace of 12.7% during the October to December period.

Economic Minister Kaoru Yosano said Japan faced its worst economic crisis since the end of World War II.

The slowdown in the world's second-biggest economy is steeper than that being experienced in the US or Europe.

Japan has been hit particularly hard by falling global demand for its products.
Exports, particularly of electronics and cars, have slumped and production has been slashed.
Consumers have cut back too, alarmed by rising unemployment.

"This is the worst economic crisis in the post-war era. There is no doubt about it," Mr Yosano said at a news conference.

"The Japanese economy, whose growth is heavily dependent on exports of automobiles, machinery, and IT equipment, was literally battered" by the global downturn, he said.

Mild reaction

However, Japan's stock market largely brushed off the latest economic news.

The Nikkei share index lost 0.4%, while the broader Topix rose 0.7%.

"People had been saying for some time that GDP would be bad, so while the market didn't welcome the numbers there was no excessive reaction," said Hiroaki Osakabe at Chibagin Asset Management.

"The next quarter is likely to also be tough because consumption may well fall off."

Mr Yosano said the government would consider new stimulus measures to aid the economy.

"Japan alone won't be able to recover. The economy has no border. It is our responsibility to rebuild the domestic economy for other countries," he added.

Prime Minister Taro Aso is hampered in his response by a divided parliament and a fractious ruling party.

There were reports over the weekend that he is considering another stimulus package of government spending worth 20 trillion yen ($218bn; £152bn).

But the latest opinion poll has showed that fewer than 10% of people support the prime minister, who must call a general election by September.

European economies contracted in the fourth quarter of last year

Europe hit by economic slowdown

The French economy minister has warned of tough times ahead
Germany is being punished for its heavy dependence on exports
European economies contracted in the fourth quarter of last year, with some countries registering the worst figures in decades, official data shows.

The eurozone economy shrank by 1.5% in the previous quarter and 1.2% on the year, Eurostat said.

Germany's economy shrank by 2.1% compared with the previous quarter, its worst quarterly performance since 1990.

France shrank by 1.2%, initial data shows, while Italy registered a drop of 1.8%, the steepest drop since 1980.
The data puts pressure on the European Central Bank to cut interest rates.

In the whole of 2008, the economy in the 15 countries using the euro grew by 0.7% against the previous year, Eurostat said. Slovakia joined the eurozone on 1 January 2009, making it a 16-country club.
The Dutch economy shrank 0.9% during the quarter while the Austrian economy eased by 0.2%, the first drop in nearly eight years. In the same quarter, Portugal's economy contracted by 2% on the previous quarter and 2.1% on the previous year.

"These are huge contractions in Europe, the largest in living memory in most cases," said Ken Wattret, economist at BNP Paribas.

Companies have cut investment and exports have dropped as the global recession has taken hold.

European companies hit by the slowdown include Air-France KLM, which reported a third-quarter operating loss on Friday, and Michelin, whose final-year profits fell as the crisis in the global car industry took its toll on the tyre maker.

The decline in demand for cars was further highlighted by data released on Friday.

The number of new cars sold in Europe in January was down 27% compared with January 2008, the European carmakers' association, Acea, said.

German gloom

The slowdown was the most dramatic in Germany, which registered the biggest fall since German reunification in 1990.
The 2.1% contraction was the third consecutive quarterly drop in Europe's biggest economy, according to the initial data from the Federal Statistics Office, worse than the 1.8% anticipated by analysts.

Year-on-year, the German economy shrank by 1.6%, after growing by 1.4% in the third quarter.

Many are now gloomy about the prospects for 2009.

"This shows things went downhill sharply at the end of the year," said Juergen Michels, an economist at Citigroup. "We'll likely head down again the first and second quarter."

"This number makes it plain that we're in a very serious recession - the most serious since World War Two. It's no surprise that exports and investment have tumbled," said Dirk Schumacher at Goldman Sachs, adding that the rise in inventories did not bode well for the first quarter.

The situation "can hardly get worse," said Carsten Brzeski at ING Financial Markets.

"The German industrial production has run out of steam with companies working only off their backlogs. Foreign demand has plummeted over the last months," he added.

Last month, the German government forecast that the economy would shrink by 2.25% this year.

France slowdown
The slowdown in the French economy was slightly worse than analyst expectations of a 1.1% drop.
The French economy expanded slightly in the third quarter, by 0.1%, which means that France has not officially entered a recession - which is defined as two consecutive quarters of contraction.

With consumer spending up by 0.5%, some analysts found cause for hope.

"Consumer spending has held up quite well so you can say there is still money out there to be spent and French households are spending it," Alexander Law, chief economist at Xerfi said.

Companies also reduced their inventories in the fourth quarter, shaving 0.9% off gross domestic product, a fact that could bode well for industrial production in the first quarter. With warehouses emptier, companies may increase production.

Many say that tough times lie ahead. "The first quarter will be difficult," Christine Lagarde, France's economy minister, said. "We will have a difficult year. "

The data increases pressure on the European Central Bank to cut rates. The bank cut the benchmark rate to 2% in January, the lowest in the bank's 10-year history and kept the rate unchanged in February. Its next decision is due on 5 March

Wall Street banks have taken billions of taxpayer dollars

A number of Banks Want to go back Government Money..

Wall Street banks have taken billions of taxpayer dollars. Now some of them are starting to wonder if they should give the money back.

Even before the government announced its latest efforts to fix the troubled banking industry on Tuesday, executives at Goldman Sachs and Morgan Stanley said they wanted to repay the money quickly. Both banks received $10 billion under the first rescue plan last fall.
Paying back all those funds would be difficult in this tough economic environment. But banking executives worry that the government may intrude further into their businesses as long as they are beholden to Washington.
“We just think that operating our business without the government capital would be an easier thing to do,” said David A. Viniar, the chief financial officer of Goldman. “We’d be under less scrutiny, and under less pressure. Not that we’d be out of the public eye; we’re still going to be in the public eye.”

The issue is likely to draw close scrutiny on Wednesday, when executives from eight banks are scheduled to testify on Capitol Hill. The efforts to break free of government support reflects a growing trepidation among Wall Street’s largest players about their independence and the new rules that may be imposed on them because they accepted federal capital.
In recent weeks, the Obama administration has announced that banks will have to disclose more information about their spending and cap executive pay at $500,000. Several lawmakers have gone further with proposed measures about compensation for all bank employees as well as halting certain types of immigration visas for companies that received government money.
Industry groups say the new rules are unfair.
“The contract says that Congress can change the law, and we were obviously concerned,” said Scott Talbott, senior vice president for government affairs for the Financial Services Roundtable. “But we didn’t think they would tip the scales this far. The more of these retroactive rules they place on institutions, the more institutions will look for an exit strategy.”
But the banks are likely to find that escape is a distant hope, analysts said. The government required banks to replace taxpayer money with new equity — in the form of common stock or preferred shares — before any repayment. And the markets for raising capital are all but dead, especially for financial companies.
Banks are not allowed to repay the government money out of their earnings for three years, though some bank executives are privately saying they think the government may reverse that rule for banks if they start earning money again. After all, bank executives said, it may be beneficial for the government to show taxpayers that some banks are regaining their financial strength.
Still, it is unclear that it would make sense for banks to repay the government money, given the uncertain outlook for their businesses, analysts said. One chief executive of a major bank said last week that he feared returning the money first would leave his bank as “the only one in the water without shark repellent.”
And, in a market of quickly shifting fortunes, any bank that returned capital could find itself in need again months later. Bank of America, for instance, was among the companies that appeared to be in a stronger position last fall when regulators met with chiefs of the eight banks. But at the end of the year, as the outlook for its merger with Merrill Lynch soured, the bank returned to the government for a second round of assistance. Citigroup has also received a second bailout.
And government funds are cheap with interest payments of only 5 percent and a few percentage points more for related warrants. Banks are unlikely to find other parties that would offer them such low rates, analysts said.
“I don’t think anyone should be in a hurry to pay it back,” said Jeffery Harte, a banking analyst at Sandler O’Neill. “But if you could prove able to pay it back, especially when other institutions are coming back for a second or third helping, it would send a pretty strong message to the market.”
Many banks have also issued new debt in recent months backed by the government. The program, run by the Federal Deposit Insurance Corporation, has received far less attention than the capital injections, but it represents another subsidy to banks, which otherwise would have found issuing debt more expensive, or impossible. Banks that repay taxpayer money may still be beholden to the government if they issued these government-backed bonds.

residential property valuation firm said: U.S. home prices sank nearly 14 percent last year and show few signs of stabilizing

U.S. home prices sank nearly 14 percent last year and show few signs of stabilizing, even though much of the gains posted during the housing boom have been erased.

The recession and foreclosures battered house prices in 2008, dragging down values by 13.8 percent nationally and down 19.1 percent from their 2006 peak, according to the IAS360 House Price Index from Integrated Asset Services.
"We're seeing house prices returning to pre-bubble levels and there are no signs of leveling off just yet," Dave McCarthy, president and chief executive of Integrated Asset Services, said in a statement.
Home prices sagged by 5.9 percent in 2007, after rising 1.4 percent in 2006, according to IAS.
Location "is still everything," he added, with the markets that soared the most during the record five-year housing spree now faring the worst.
All of the 10 hardest-hit counties from peak to trough are in California or Florida, based on IAS data.
The three hardest hit counties are all in California, with prices down 51 percent from their high in San Joaquin County, down 49 percent in Monterey County, and down 45 percent in Kern County.
At the U.S. Census region level, home prices fell most in the West and the South. In the West prices dropped 18.4 percent last year and are down more than 24 percent from the 2006 peak. In the South, prices skidded by 12 percent in 2008 and are off about 18 percent from their high.
The hardest hit metropolitan areas last year were San Francisco, San Diego and Miami. Prices fell 23.9 percent in San Francisco, 22.7 percent in San Diego and 20.8 percent in Miami. Within the San Francisco metro area, Contra Costa County tumbled 35.5 percent last year, bringing prices 42.2 percent below the peak.
Denver-based Integrated Asset Services tracks the monthly change in the median sales price of single-family homes in the United States.

U.S. to lay out diagram to sop up bad mortgage property

U.S. Treasury Secretary Timothy Geithner will lay out a rescue plan on Tuesday that will rely on public and private funds to take $500 billion of bad assets off banks' books, sources said.
The plan would also extend a Federal Reserve program aimed at shoring up consumer lending to the troubled mortgage sector, allowing the U.S. central bank to extend up to $1 trillion in loans to holders of a wide variety of asset-backed securities, according to sources.
Details on Geithner's proposal for stabilizing a U.S. financial sector undermined by soaring losses on mortgage-related debts emerged following briefings Treasury officials provided for Capitol Hill lawmakers.
President Barack Obama told a news conference on Monday that cleaning up banks' balance sheets was a priority and didn't rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job.
"We don't know yet whether we're going to need additional money or how much additional money we'll need until we see how successful we are at restoring a level of confidence in the marketplace," Obama said.
Clearly aware that shaky global financial markets are intently watching what steps Washington will take to right the world's largest economy, Obama called on Congress to speedily approve an economic stimulus package to complement the revamped bank-rescue proposals that Geithner was to unveil.
"If you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of," Obama said. "This is not your ordinary, run-of-the-mill recession, we are going through the worst economic crisis since the Great Depression."
Geithner will outline the Obama administration's plan to revamp a U.S. financial bailout program that his predecessor, Hank Paulson, persuaded Congress to approve last year. About half of that money has been committed to pump capital into banks and ailing U.S. automakers.
Before taking over Treasury, Geithner was president of the New York Federal Reserve Bank and worked closely with Paulson on the prior administration's rescue effort but acknowledged it was inadequate and unpopular.
"The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust," Geithner said in remarks prepared for delivery when the new measures are released.
He pledged banks will go through "a carefully designed comprehensive stress test" in future to make sure their balance sheets are clean and they meet requirements for capital.
Banks will continue to receive capital injections but they will have to meet tough new rules that require them to disclose how the money they receive is leading to more lending.
Geithner will also expand a joint Treasury-Fed program currently aimed at stimulating consumer and small business loans by allowing use of mortgage-backed securities and private label mortgage securities as collateral, sources said.
The program currently allows the Fed to lend up to $200 billion dollars to holders of top-rated securities backed by credit car, education, auto and small business loans. That program would be expanded to $1 trillion, sources familiar with the plan said.
Treasury also is expected to announce $50 billion aimed at stemming home foreclosures, several sources said. On Monday the director of the White House National Economic Council, Lawrence Summers, said on CNN more measures to help the battered housing sector will be coming within about two weeks.
In recent days, as Treasury worked to finalize details of its rescue package, attention has shifted to how to draw in private-sector investment to help clean up balance sheets littered with growing numbers of non-performing assets.
Summers said the administration wants private investors to be more active in buying compromised mortgage assets that are clogging bank balance sheets.
RESTORING CREDIT
Soaring defaults on U.S. mortgages have led to deep losses at banks worldwide, leading them to cut off lending and undercutting the global economy. The United States has been stuck in a recession for more than a year, and appears on a steepening slope downward.
In effect, having a combination of public and private investment to take bad assets from banks would have the same impact as setting up a government-run "bad bank," an option that had been under consideration, and would be more cost-effective than a stand-alone bank.
"Government capital is a last resort, and wherever possible, we want to catalyze the private sector to take responsibility for a situation that in many ways was created in the private sector," Summers said on CNN.
An announcement on the bank plan had been set for Monday, but was pushed back so the administration could focus its efforts on pushing a huge economic stimulus bill through Congress. The Senate is set to vote on the stimulus proposals later on Tuesday.
Sources have said the administration is also working on a mortgage rescue program under which government-controlled mortgage enterprises Fannie Mae and Freddie Mac would ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same.

US senators be in agreement economy bill

There have been a series of meetings to try to find a compromise position

The American people want us to work together - they don't want to see us dividing along partisan lines on the most serious crisis confronting our country

Senators in Washington say they have reached agreement on a huge economic stimulus package designed to revitalise the US economy.
Senior Democrats say they will back a plan worth $780bn (£534bn), instead of the $900bn sought by the president, in order to gain vital Republican support.
President Barack Obama denounced delays to the legislation, which mixes big spending plans and tax cuts.
The Senate is now due to hold a vote in the coming days.
President Obama has spoken of "an urgent and growing crisis" and said further Senate delays would be "inexcusable and irresponsible" and lead to "a catastrophe".
His comments came as the latest unemployment figures showed that the US had had its single worst month for job losses for 35 years.
Almost 600,000 people lost their jobs in January alone - figures Mr Obama described as devastating.

Rough water
President Obama is desperate to pass the package, the BBC's Adam Brookes in Washington says.

This is the president's first big legislative initiative since he took office, and it has hit some very rough water, our correspondent says.
The new $780bn plan is composed of 42% tax cuts and 58% new government spending, Democratic Senator John Kerry said, according to Reuters news agency.
Other details of the slimmed-down package are sketchy, but one Democrat told Reuters that the homebuyer tax credit and car tax credit were still in the bill.
The Democrats need to persuade two Republicans to vote in favour of the bill for it to gain the necessary 60 Senate votes.
Although Democrats hold a 58-41 majority, 60 votes are required to ensure the Republicans cannot block the bill with a filibuster.
Senate Finance Committee Chairman Max Baucus said that at least three or four Republicans would vote for the bill.
"The American people want us to work together," said Senator Susan Collins, a Republican who will vote in favour.
"They don't want to see us dividing along partisan lines on the most serious crisis confronting our country."
However, the Senate minority leader, Republican Senator Mitch McConnell, said that "most of us are deeply sceptical that this will work".
And his Republican colleague, John McCain, defeated by Mr Obama in last year's presidential election said: "You can call it a lot of things but bipartisan isn't one of them."
'Echo chamber'
Mr Obama described as "devastating" the news that nearly 600,000 Americans lost their jobs in January.
"The situation could not be more serious. These numbers demand action," he said.

'Echo chamber'
Mr Obama described as "devastating" the news that nearly 600,000 Americans lost their jobs in January.
"The situation could not be more serious. These numbers demand action," he said.

Mr Obama's remarks came as he unveiled a new board of economic advisers, chaired by Paul Volcker, former chairman of the Federal Reserve.
"I created this board to enlist voices that come from beyond the echo chamber of Washington DC," said Mr Obama, "and to ensure that no stone is unturned as we work to put people back to work and to get our economy moving."
Republicans and some centrist Democrats are keen to reduce the number of spending commitments in the bill, and without their support the bill may not have enough votes to pass in the Senate.
The House of Representatives approved its version of the package last week, worth $825bn, without any Republican support.
If the Senate gives its approval to the bill, the two different versions will then have to be reconciled in a joint House-Senate committee before facing a final vote.
President Obama has said he wants the passage of the bill to be completed by 16 February.

Are you in the US? Are you in favour of the stimulus bill? Is President Obama right to urge swift action on the measures? You can send us your comments

The Obama administration is about to face its first significant financial test.

Treasury Secretary Tim Geithner is preparing to announce his comprehensive financial stability plan.

The long-awaited Obama administration plan to shore up the banking system is due Monday. Here's what the government should be doing.

Treasury Secretary Tim Geithner is expected to lay out the government's strategy for reviving the banking system in a speech Monday.
Since taking office last month, top Obama administration officials have promised to present a comprehensive plan to address the problems in the financial system, which has been struggling with losses on bad loans and souring mortgage-related securities.
Fixing the problems at the banks won't be simple or cheap. Economists say it will likely take more than the $350 billion remaining under the Troubled Asset Relief Program to fund the next round of federal programs.
One senior administration official told CNN the package being put together by Geithner and other top economic advisers to the President would "be an overhaul of the whole program."
Whatever shape the plan takes, it's crucial that officials reassure investors worried about the health of financial institutions and their capacity to extend credit to consumers and businesses.
Bank stocks have fallen sharply again this year, deepening a plunge that started in late 2007. Some fear that a plan the market deems insubstantial or ill-advised could lead to another leg down.
"We have to repair the banking system," said George Kaufman, an economics professor at Loyola University Chicago. "You have to do that first before you can address any other problems."
A number of options have been under discussion in Washington, notably a government-funded bad bank that would remove toxic assets from bank balance sheets as well as a taxpayer-funded insurance plan to cover losses on troubled bank investments.
Skepticism growing about bad bank idea
The bad bank idea has gotten the lion's share of the attention, with officials including Federal Deposit Insurance Corp. chief Sheila Bair speaking out in favor of a variation of the plan. Proponents say the nation's banks won't be able to lend aggressively and support economic growth until troubled assets like illiquid trading securities are removed from their balance sheets.
Recently, though, there has been some talk of a shift toward a program that focuses more on the asset guarantee approach.
Sen. Charles Schumer, D-N.Y., said earlier this week that the upfront cost of a bad bank approach -- projected by some observers to run into the trillions of dollars -- was among the factors leading legislators and administration officials to turn increasing attention to the guarantee concept. The government has already guaranteed some troubled assets held by Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500).
Whatever their merits, the bad bank and guarantee approaches share a common Achilles heel: They would commit hundreds of billions of additional taxpayer dollars at a time when Americans are wondering if aiding well-paid bank employees is the best use for their money.
Many taxpayers are up in arms about the gobs of money being made by employees of failing financial firms, despite President Obama's proposed new rules to cap compensation at banks requiring federal assistance.
Meanwhile, U.S. workers are losing their jobs at a sobering clip, and states and municipalities are cutting back on services as tax receipts plunge.
"The bad bank idea is just ridiculous," said Len Blum, a managing director at New York investment bank Westwood Capital. "The problem with these sorts of approaches is that for the government to help the institutions, it has to overpay -- which is bad for taxpayers and adds to this lack of transparency."
Having the government provide financing for private-sector purchases of troubled assets is another idea that may come into play.
This approach, in which private investors could commit funds and then borrow from the Fed or other government bodies to expand their buying power, could accomplish two important objectives. It could draw new capital into the markets, and help establish market prices for securities that have traded only infrequently and at deeply distressed prices in recent months.
One question mark hanging over this concept is how willing the banks will be to sell toxic assets at the market prices.
If the newly established market prices are below the prices at which the banks have marked the assets on their balance sheets, the banks could face more writedowns -- which could force the government to pour in even more capital.
Shouldn't some banks be allowed to fail?
Whatever the government does, there is a rising call to get taxpayers more than they got in return for the first round of TARP funding under former Treasury Secretary Henry Paulson.
"There has been a reticence on the part of the government to give out capital with appropriate restrictions," said Blum. "The problem with that approach is that it is bad for taxpayers and adds to the lack of transparency."
Estimates by the Congressional Budget Office and the Congressional Oversight Panel put the federal overpayments in the first half of TARP -- which focused on buying preferred stock from both troubled and healthy institutions -- in the range of $64 billion to $78 billion.
With questions about how taxpayer funds are being used growing, some observers say the best answer is to stop trying to prop up troubled institutions and instead resolve failing banks through the existing FDIC process - essentially letting banks fail and finding new buyers for them after the FDIC has taken them over.
The advantage to this approach, said Garett Jones, an economics professor at George Mason University in Fairfax, Va., is that it would help to spread the losses in the financial system to shareholders and bank creditors, instead of leaving the whole tab with taxpayers.
He said the government should force debt-for-equity swaps at institutions needing assistance. Existing shareholders would be wiped out and current creditors would give up some of their debt claims in exchange for ownership of the restructured firm.
In addition to being fairer, Jones said, swapping debt for equity would reduce the amount of debt weighing on the economy. That's a crucial concern at a time when the amount of domestic nonfinancial debt outstanding more than doubles gross domestic product, according to Ned Davis Research data - a ratio that's well above its long-run average.
"Why should taxpayers be bailing out firms when debtholders have plenty of skin in the game?" Jones said. "In the current bailout, what you're really doing is converting the debt of these problem banks to government debt -- and that's not what you need to do."

Very important Signs: Economic increase Looks Even Weaker

The dramatic downturn gripping the global economy has breathed new life into old questions about how best to run our economic systems.
Politicians, business leaders and policymakers searched for solutions at this year's World Economic Forum in Davos.
Meanwhile, different debates were taking place at the "alternative" World Social Forum in Belem, Brazil.
There, an eclectic mix of some 100,000 campaigners, thinkers, and working people came to starkly different conclusions about the causes of the downturn, and how best to address it.
We asked four participants from around the globe to give us their opinions. Click on the links below to read their arguments.

New World Order

In recent weeks, the world has been politely standing by and watching how things play out with the fiscal stimulus and latest bank-bailout plans in Washington. Yes, there's been some grumbling overseas about "buy American" provisions in the stimulus bill, but for the most part, officials elsewhere don't want to step on the toes of a new President to whom they are favorably disposed. They also don't want to endanger legislation that they hope will help jump-start the global economy.

Just wait a couple of months, though. Politicians from Beijing to Berlin to Brasília see the current crisis as the product of a messed-up global financial infrastructure dominated by the U.S., and they will soon be pushing for big changes--whether Americans like them or not.
All this will begin to gel on April 2, when the newish international organization known as the G-20--the leaders of 19 of the world's biggest national economies, plus the European Union--meets in London. An unofficial meeting has already taken place, at the World Economic Forum in Davos, Switzerland, where G-20 officials (with the conspicuous exception of those from the U.S.) made speeches, conversed in the halls and gave a sense of the direction in which the world outside the U.S. wants to head. (Read TIME's special report on Davos 2009.)
The global discussion of the financial crisis is strikingly different from the one in the U.S. Here there's still something of a debate over whether the mess is the result of too much government interference in the housing market or too little government regulation of financial markets. In the rest of the world, that's no debate: inadequate and inconsistent financial regulation is uniformly blamed. What's more, a consensus seems to have emerged among the world's finance ministers and central-bank bosses that the chief underlying cause of the crisis was an unbalanced and out-of-control system of global capital flows in which some big-spender countries (namely the U.S.) ran up huge debts while big savers (China and India, for example) hoarded surpluses.
On the regulatory front, the path to a new global approach is pretty clear. Last spring the leaders of the G-7, a club of wealthy nations, agreed to create a "college of supervisors" to more closely coordinate regulation of multinational banks. The Group of Thirty, an influential organization of current and former central bankers and financial regulators, recommended in January that "systematically significant" financial institutions (those that are too big to fail) be identified in advance and subjected to higher capital requirements and tougher regulation. (See who's to blame for the financial crisis.)
Yet regulators around the world were already jointly setting bank-capital standards before the current crisis hit. A lot of good that did us. So there is also much talk about the need for a new architecture--"a new Bretton Woods" was a phrase that echoed around Davos--to rein in global financial flows.

Bretton Woods is the mountain resort in New Hampshire where in 1944 the Allied nations met--with the U.S. calling almost all the shots--to plan a postwar financial system. The Bretton Woods creations included the International Monetary Fund (IMF), the World Bank and a quarter-century of fixed exchange rates built around a U.S. dollar that was linked to gold. The fixed exchange rates and gold standard unraveled in the 1970s, and ever since we've had a system in which the IMF occasionally steps in to help countries in currency crises (usually imposing harsh terms in the process) but exercises no real control over the global financial system.

After the emerging-market currency collapses of the late 1990s, in which IMF aid wasn't much help, the lesson that emerging economies such as China and India took was that they needed to build up gigantic reserves of U.S. dollars to protect their currencies. To build those reserves, they ran big trade surpluses, which were in turn enabled mainly by record trade deficits in the U.S., which were in turn enabled by massive borrowing from around the world. It was an extremely unbalanced financial ballet, and it has now come crashing to the ground.

latest........On deck: foreign trade, federal budget, retail sales, business inventories, consumer sentiment, and some timely talk from key Fed officials

Last week’s smaller-than-expected 3.8% drop in real gross domestic product in the fourth quarter was hardly good news for economic growth in the first half of 2009. The reason is the split between very weak demand and an unexpected rise in business inventories. The upswing in inventories contributed 1.3 percentage points to economic growth, while economists had anticipated a subtraction.

The problem is that overall spending last quarter dropped at a 5.1% annual rate, led by declines of 3.5% in consumer spending and 19.1% in capital spending by businesses. That’s 80% of U.S. demand right there. That sudden dropoff in demand, in addition to a huge 19.8% plunge in exports, caught businesses by surprise. Companies had been trimming their inventories for four consecutive quarters, but last quarter they couldn't cut fast enough to prevent an unwanted buildup, and ratio of inventories to sales has spiked sharply higher across all business sectors. That portends a steep liquidation in the first quarter, which will likely extend into the second quarter.
The resulting cutbacks in output and employment will weigh heavily on GDP growth, especially in the first quarter. Economists are now shifting their views of the pattern of GDP declines this year, and most now expect the first quarter contraction to be even sharper than last quarter.
This week’s data will help to determine just how weak current-quarter growth will be. The Bureau of Economic Analysis, which assembles the GDP numbers, did not have December data on business inventories and foreign trade when it issued its initial estimate of fourth-quarter GDP. The week offers reports on both, which could result in a significant revision to last quarter’s top-line number. Plus, the impact of those two reports on the mix of fourth-quarter GDP could have implications for growth this quarter. In addition, the government will issue data on January retail sales, which will offer guidance on how much drag consumers are exerting on overall demand this quarter.
Also of key market interest this week, two top Federal Reserve officials will be speaking on Tuesday. Bill Dudley, in his first public appearance since taking over as President of the New York Fed from current Treasury Secretary Tim Geithner, will speak on Treasury Inflation Protected Securities (TIPS) at a conference in New York. His remarks will most likely include the subject of inflation. In addition, Fed Chairman Ben Bernanke will be testifying before Congress on the Federal Reserve’s program to stem the financial crisis.

World Leaders Wary of U.S. Economic actions

This was supposed to be the year the United States came in from the cold at the annual gathering of world leaders here. But instead of receiving a warm embrace, American policies were rebuked again and again in rhetoric that recalled the anger of the Bush years — mainly aimed at what the world views as the new threat of protectionism by the United States.

Certainly, there is a deep reservoir of good will for President Obama and the change in direction he represents. But despite the pledges to encourage international trade and economic cooperation that accompanied the closing sessions of the gathering, the World Economic Forum, on Sunday, there were clear signs that deep divisions between the United States and the rest of the world remained.
“There is such a level of concern, despair and anxiety that as welcome as the new president is, no one is inclined to cut the U.S. much slack,” said Richard Haass, president of the Council on Foreign Relations.
Or as Niall Ferguson, the Harvard historian, put it, “If G.M. got a new C.E.O., does that mean people would suddenly want to buy their cars?”

The criticism came from the usual sources, like Prime Minister Vladimir V. Putin of Russia and Premier Wen Jiabao of China, who both criticized a long pattern of excessive consumption, risky borrowing and inadequate regulation in the United States.
But more significant, the brickbats also came from economic and political leaders of European allies like Germany and France.
Whether the issue was the recent bailout for the American auto industry or proposals favoring American steel producers in the stimulus package now being debated on Capitol Hill, foreign officials warned that any move toward protectionism would have serious consequences for Washington and the rest of the world.
“We must not allow market forces to be completely distorted,” Angela Merkel, the German chancellor, warned in a speech on Wednesday. “For instance, I am very wary of seeing subsidies injected into the U.S. auto industry. That could lead to distortion and protectionism.”
By the weekend, as word of the “Buy American” provision in the stimulus package to help the United States steel industry spread through Davos, the tone had become sharper.
“It’s extremely preoccupying that one of the first acts of the new Obama administration could be a measure that is clearly protectionist and a distortion of competition,” said Anne-Marie Idrac, the French trade minister, who tried to draw Pascal Lamy, director general of the World Trade Organization, into the battle.
Mr. Lamy, however, said the organization would only act if there has been a “breach of the rules.” “I am not that big cop,” he added.
For all the global affection for Mr. Obama, Washington sent a relatively low-profile contingent to Davos, with Valerie Jarrett, a White House adviser, serving as the administration’s headliner here.
Ms. Jarrett did not address the issue of protectionism directly in her brief speech on Thursday, preferring to stick with the big picture as well as Mr. Obama’s connection to Chicago, her hometown.
Instead, the task of defending American economic policy fell to attendees like Representative Brian Baird, a Democrat from Washington State, who has served in Congress for the last decade.
“The steel issue is vastly overplayed here,” he said. “Even Adam Smith himself said certain key industries deserved to have protection.”
Noting that his district is home to two steel plants — down from three a few years ago — he added, “Steel is one of those industries.”
He suggested that this was not the time to push free-trade dogma on American taxpayers already worried about surging levels of unemployment.
“If you want to kill the W.T.O., that would be the way to do it,” he said.
Davos has always stood for globalization, and the benefits of free trade are an article of faith here. But even Davos die-hards concede that national economic interests have come to the fore amid the global downturn, and voter support for easing trade barriers is at low ebb.
To be sure, for all the foreign criticism over the help for the Detroit automakers, European countries including France, Britain and Sweden have offered up billions in aid for local auto manufacturers. What’s more, France has long protected the French companies it calls “national champions” from the threat of foreign takeover while providing huge subsidies for its farmers.
But beyond the public sparring, many foreign officials are also concerned about how the United States government will pay for Mr. Obama’s proposed stimulus package, which could ultimately cost $1 trillion.
A binge of new borrowing by Washington could effectively crowd out other borrowers by pushing interest rates higher over the long term, and would be especially painful for developing countries that rely on foreign capital. Or, it could stoke inflation when the global economy eventually begins to recover.
Ernesto Zedillo, the former president of Mexico who helped steer his country through a financial crisis in 1994, said developing countries were already having a hard time finding the capital they needed without competing with increased borrowing by the United States. And his country does not have the option of printing money, he said, because the Mexican peso is not a reserve currency like the dollar.
Even the praise for Mr. Obama from other leaders was balanced by criticism of Mr. Bush and past United States policies. “He seems to be very keen to interact with other nations as equals, rather than talking down,” said Kgalema Motlanthe, the president of South Africa. “It is a breath of fresh air.”
But for all the complaining from abroad, no other economic power — not Europe, not Japan and not China — seems ready to step up and fill the role traditionally played by the United States.
“The irony of the situation,” said Mr. Haass, of the Council on Foreign Relations, “is that everyone is still looking to the U.S. for leadership to fix things or at least make things better.”

How is this a great investment plan?

Diversifying won't totally protect you from losses, but it can boost your returns by limited your risk.

Spread your money around

Answer: There have always been a lot of misconceptions and erroneous expectations when it comes to the benefits of diversification.Back in the go-go '90s I remember having lunch with a financial planner who sarcastically referred to diversification as "di-worse-ification." His contention was that it made no sense to diversify into different asset classes. Stocks clearly offered the highest returns over long periods, so it was foolhardy for anyone investing for the long-term to put their money in anything but stocks. You were just lowering your potential return. Funny thing is, back then, this "hooray, hooray, stocks all the way" approach wasn't that uncommon.Today, many people are having second thoughts about diversification because they feel that diversifying didn't offer their portfolio the protection they thought it should. For example, all but a handful of Morningstar's 69 fund categories were down in 2008. So even if you spread your money around quite liberally, you still might have eked out only a paltry return or suffered significant losses last year.Looked at from these two vantage points, it's easy to see why you and others would question the value of diversifying. If it holds you back in bull markets and doesn't offer much shelter during bears, what's the point?In fact, there is a real benefit to diversifying. But in order to make reasonable investing choices and set a coherent investment strategy, it's important to understand what its advantages are, as opposed to what we might think they are or wish they were. Otherwise, you may be investing on the basis of false hopes, which is a good recipe for disappointment.What diversification can do for youThe first thing you should know is that it can't guarantee you the highest possible return. In fact, it guarantees you won't earn the highest possible return. By spreading your money around you assure that you will have at least some of your money in lagging investments, which will reduce your portfolio's potential return.By the same token, diversification can't totally immunize you from losses. To do that, you would have to do the opposite of diversifying -- i.e., plow all your money into the most secure investments, such as Treasury bills or short-term bank CDs.What diversification can do for you, though, is give you a shot at higher returns than you will get in the most secure investments while limiting your risk somewhat.Notice I said "somewhat." Fact is, if you want the value of your money to grow more than it will in T-bills and the like, you've got to invest in asset classes that have the potential for higher long-term returns, such as stocks and bonds. But those higher returns come with more risk. In the investment world, that risk can take several forms, but generally the riskier an investment, the more volatile it is, the more its value will jump around from year to year.You can't eliminate that risk. But by investing your money in a mix of secure and more volatile assets, you can reduce the potential downside in a given year. For example, if you'd had all your money in a diversified portfolio of U.S. stocks last year, you'd have lost just under 40%. If, on the other hand, you'd had 60% of your money in stocks, 30% in a broad bond index fund and 10% in cash last year, you would have lost roughly half that amount, or around 20%.(See'>http://www.blogger.com/post-create.g?blogID=7564789355139535583#Note">See editor's note.)That kind of cushion is important for a couple of reasons. For one thing, it makes you less likely to panic in a bad year and sell off riskier investments with higher long-term return potential at what may be the worst possible time. A less volatile portfolio is also less likely to take a devastating hit that may be difficult to recover from. That's an especially important consideration when you're dealing with 401(k)s or other retirement accounts and you're nearing retirement age or are already retired and withdrawing money from such accounts.So the key to getting the benefit of diversification is settling on a mix that's right for you.Ideally, your mix should consist of assets that don't all move in sync with each other or, to put it in investing terms, that aren't too highly correlated with each other.It's okay for gains in some investments to offset losses in others in some years. But on balance your gains should outweigh losses most years. And, while down years are inevitable with growth-oriented investments, whatever assets you're investing in should have a positive long-term return. Diversification isn't a magic formula that can turn recurring sizeable losses in your investments or your portfolio overall into long-term wealth.What diversification can't do for youBut as big an advocate as I am of diversifying among a variety of asset classes, I also feel that the concept has been stretched out of shape over the years, in some cases even beyond recognition.Specifically, I think the benefits of diversifying have been oversold by some advisers who seem intent on making themselves come off like investment wizards capable of creating all-upside-no-downside portfolios. But I'm wary of these supposedly more sophisticated portfolios.So I suggest keeping things simple. Start with a realistic sense of how much risk you can handle and then build a diversified portfolio of stocks, bonds and cash. If you want to get more fancy, you can throw in some foreign stock funds and maybe some REITs or real estate-related mutual funds. But don't go overboard. The more complicated your portfolio is and the more wide-flung your holdings, the more attention and care it will need.Finally, remember that to get the full benefit of diversifying you ought to rebalance periodically to restore your portfolio to its proper proportions.For guidance on how to divvy up your money given your goals and risk tolerance, you can use our asset allocator tool. And if you want to see how different combos of assets might perform, check out the asset allocator tool on T. Rowe Price's site.Of course, you can always take the other route you suggest and just buy CDs. But unless you have so much money that you can accumulate a large enough nest egg despite their low yields, I'm not sure that you can do this and also not worry.Editor's note: An earlier version of this story incorrectly stated that a theoretical portfolio of 60% stocks, 10% broad bond index fund and 10% cash would have lost around 20% last year. The correct example is 60% stocks, 30% broad bond index fund and 10% cash.