Financial Headlines

Defaults to increase while GDP rebounds, S&P says
Standard & Poor's forecast an increase in the corporate default rate from 5.5% to more than 14% in the next year, even as it predicted that the economy will start to rebound in the third quarter. Like unemployment numbers, defaults lag behind GDP, meaning a high level of bond defaults will continue into 2010 and beyond, said Dianne Vazza, head of fixed-income research at S&P. Forbes (06 Apr.)

More economists see U.S. starting recovery this summer
With stocks rallying and some economic indicators turning positive, increasingly more economists are predicting that a U.S. recovery is not far away. Some even suggested that growth will be robust when it returns rather than a feeble upturn. Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said recovery could be as little as four months away. CNNMoney.com (07 Apr.)

U.S. plan to tighten regulations could present hazards
The Obama administration's plan to increase oversight of the financial system will likely have severe unintended consequences that do the opposite of the plan's intent, experts said. Some firms might grow dangerously large and take on greater risk because of a perception that the government will step in to prevent certain losses, they said. Others said increased regulation of some securities could fuel questionable investments in lightly regulated areas around the world. The Washington Post (07 Apr.)

Analysis: FDIC bends its own rules to insure debt
Columnist Andrew Ross Sorkin explains how mission creep prompted the Federal Deposit Insurance Corp. to go from insuring bank deposits to becoming "an enabler of enormous leverage" at the center of the financial crisis. U.S. Treasury Secretary Timothy Geithner's plan to help private investors buy banks' troubled assets includes details of how the FDIC is working to stabilize the financial system by adding risk rather than reducing it and how the agency is reinterpreting its own rules to do so. The New York Times (06 Apr.)

Investors appear wary of participating in Fed's TALF
The Federal Reserve's Term Asset-Backed Securities Loan Facility has attracted only two issuers as the deadline nears, suggesting that investors are still concerned about participating in the program. The lack of participation could undermine efforts to shore up banks' balance sheets. Although the Fed's financing terms are attractive, the program presents challenges and issues, including concerns about legislative interference, limits on hiring foreign workers and tedious paperwork. The Wall Street Journal (06 Apr.)

Change opens U.S. troubled-asset plan to smaller funds
Responding to arguments that the U.S. government's plan to finance the purchase of banks' illiquid assets unfairly favors the big funds that helped write it, the Treasury changed its rules to allow small funds and hedge funds to participate. Financial Times (06 Apr.)

IMF predicts troubled assets could spiral to $4 trillion
The International Monetary Fund is forecasting that financial institutions have racked up $4 trillion in troubled debt. In its upcoming assessment of the global economy, the IMF is expected to raise its estimate of the deterioration of assets originated in the U.S. from $2.2 trillion to $3.1 trillion by the end of 2010. Meanwhile, troubled assets originated in Asia and Europe are expected to total $900 billion. The Times (London) (07 Apr.)