Economy: Dire new warning on U.S. debt
The Congressional Budget Office warned this week that the U.S. “risks a fiscal crisis” unless Washington makes large-scale spending and tax reforms, said Brian Faler in Bloomberg.com. The country’s publicly held debt will climb to more than 70 percent of gross domestic product by Sept. 30—the highest rate since World War II, up from 40 percent in 2008. If Bush-era tax cuts and current spending levels are left in place, the CBO said, the debt load could soar to 200 percent of GDP by 2037, resulting in “higher interest rates, slower economic growth, and far more painful choices for lawmakers than they face today.”
That grim analysis underscores the difficult choices lawmakers have to make in negotiating the “fiscal cliff” that looms at the end of the year, said Lisa Mascaro in the Los Angeles Times. If they allow the Bush tax cuts to expire and $1.2 trillion worth of spending cuts to take effect as scheduled, “the debt curve would begin to bend down” and reach 53 percent of GDP by 2037, “a level that economists consider to be much safer.” But those measures could “slam the brakes on economic growth, pitching the nation into a recession in the first half of 2013.”
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Meltdown: BofA execs hid Merrill losses
Shortly before Bank of America shareholders approved the $50 billion purchase of Merrill Lynch in late 2008, the bank’s executives were told, according to new court documents, that looming losses at Merrill would hammer the bank’s bottom line, said Gretchen Morgenson in The New York Times. But that information was withheld from shareholders, who were directed to rosier projections about Merrill’s financial health. Ultimately, the Merrill purchase “saddled the bank with billions in losses and required an additional $20 billion from taxpayers.” Shareholders are suing Bank of America and its executives for misleading them.
Euro crisis: EU weighs tougher banking rules
European Union officials this week took a step closer to creating a more unified and regulated banking system, said Don Melvin in the Associated Press. They proposed centralized rules that would empower member states to intervene early when banks get in trouble, and that would shift the cost of bailouts for most ailing banks from taxpayers to shareholders. Even if passed, the new regulations would not take full effect until 2018—far too late for Spain, where officials warned this week that the country’s struggling banks might need an EU bailout.
Markets: Facebook’s debut spooks IPO market
The IPO market has gone “into a deep freeze” since Facebook’s disastrous May 17 Nasdaq debut, said Maureen Farrell in CNNMoney.com. Globally, at least 13 companies have withdrawn or postponed their plans to go public, including travel company Kayak.com, auto-racing business Formula One, and jeweler Graff Diamonds. “Facebook alone froze the pipeline,” said Scott Sweet of advisory firm IPO Boutique. The social network’s offering “was done so poorly by the underwriters, and there had been so much hype,” he said, that many investors won’t even consider buying into an IPO now.
Tech: Napster founders launch video-chat service
Social media is making people lonelier, said Emily Steel in the Financial Times. That’s the idea behind Airtime, a new video-chat site launched this week by Napster founders Sean Parker and Shawn Fanning. Parker argues that social interactions online have been reduced to “clicks and status updates,” and that Airtime will increase face-to-face conversations by letting users chat with their Facebook friends or meet someone on the social network who shares their interests.
