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The Biz Roundup January 31

It’s not that the love affair is over, it’s that we can’t afford the relationship any more.

We are reliably informed that whatever part of the economic crisis can’t be pinned on Wall Street — or on mortgage-related financial insanity — can be pinned on consumers who overspent. But personal consumption amounts to some 70 percent of the American economy. So if we don’t spend, we don’t recover. Fiscal health isn’t possible until money is again sloshing into cash registers, including those at this mall and every other retailer.

(“Our Love Affair With Malls Is on the Rocks,” New York Times, January 31) In our local mall, one anchor store has closed (Mervyns), two more anchors on on the way out (Gottschalks), four small stores gone and two on their way out. It will be half empty by June — this a mall in Los Angeles where the kids no know other lifestyle than shopping.

If you have a problem with regulation and you have an even bigger problem with the United Nations, you’re going to love what they’re talking about at Davos this week.

In a speech here Friday, German Chancellor Angela Merkel heaped criticism on what she called an “unfettered” capitalist system. She called for an overhaul of the financial system, suggesting that a new, United Nations-level economic council might be needed to avoid another crisis. “We need clear-cut rules world-wide,” she said. . . .

“In the end, what we want is a financial industry and banking-sector industry where you have more capital, less debt, more rules and much stronger supervision,” said Italian central-bank governor Mario Draghi. He said markets largely remain frozen and that the only thing that would attract investors — many of which actually serve as lenders because they invest in debt — is an assurance of safety and transparency.

“The only thing we can do to help restart the market is to tell the world that there are certain kinds of real products that are simple to understand, easy to price and satisfy certain legal conditions,” Mr. Draghi added.

Among the new rules of the game for banks are likely to be simpler models that rely less on off-balance-sheet vehicles and borrowed funds to drive profits. There also likely to be fewer opportunities for banks to offload risk to third parties — such as American International Group Inc. — that then end up unable to insure themselves against losses or exposures to loans.

Making heavy use of debt will no longer be possible to power growth, said several Davos attendees, including Martin Senn, chief investment officer at Zurich Financial Services. “I think the industry will be required to hold more capital, which will lead to less leverage, which will eventually lead to more stable institutions,” he said.

(“Signs of the Future of Banking and Finance Emerge,” Wall Street Journal, January 31) Slap me, I must be dreaming.

So can we pay our state taxes with IOU’s?

Starting on Sunday, state controller John Chiang plans to delay sending state tax refund checks, payments to contractors and disbursements to counties and agencies that provide social services. He estimates that the state will be at least $346 million short in February.

(“California’s cash crunch: IOUs coming,” CNN Money, January 31) In case all you non-Californians feel like gloating, remember that California is always a trend-setter. Meanwhile, the most dysfunctional state legislature in the history of the United States continues to argue about how much nothing it’s going to do.

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