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Federal Reserve chairman Ben Bernanke took a half-step out of the shadows Wednesday. But for all his talk of transparency, Bernanke seems more intent on shoring up the Fed’s political flanks than on opening up the central bank’s books.

Bernanke said in testimony before the House Financial Services Committee that he would support a Government Accountability Office review of the Fed’s emergency lending facilities, and would back legislation identifying the firms taking Fed funding in these programs "after an appropriate delay."

This represents a softening of Bernanke’s opposition to an audit of some Fed operations by the GAO, the investigative arm of Congress.

In November, a congressional subcommittee approved an amendment calling for a full-fledged audit, prompting Bernanke to warn that a "takeover" of monetary policy by Congress could undermine market stability.

But Bernanke hasn’t forgotten about the Fed’s cherished independence. His pledge Wednesday to cooperate with an expanded GAO audit stops well short of giving Congress any oversight of monetary policy — the decisions the Fed makes regarding interest rates and banking reserves that affect the amount of money sloshing around in the economy.

"Clearly he’s trying to offer Congress something of a compromise, so he can keep monetary policy out of the discussion," said Mark Calabria, a former Senate Banking Committee staffer who is now director of financial regulation studies at the libertarian Cato Institute in Washington.

Bernanke’s proposal comes as anger over the financial bailouts of 2008 and 2009 has continued to build. Critics say the Fed has failed to fully explain how it arrived at bailout decisions that cost taxpayers billions of dollars.

Bernanke was expected to win reconfirmation to his four-year post as Fed chief in routine fashion. But the outcome appeared in doubt for much of last month before lobbying by the White House in Congress finally pushed the Senate to a 70-30 vote to reconfirm him.

With the economy struggling through the early stages of a jobless recovery and the government widely perceived to be in the pocket of Wall Street, it behooves Bernanke to meet his less vocal critics in Congress halfway, in hopes of forging a deal to preserve the Fed’s independence to set monetary policy.

"My sense is that he has seen the writing on the wall and realized that they cannot hide behind a veil of secrecy given the public outrage," said University of Oregon economics professor Tim Duy, who follows monetary policy at his Fed Watch blog fast cash without a hassle.

Yet it would be a mistake to make too much of this latest shift, given all the loopholes in the sort of audit Bernanke evidently envisions.

For instance, much of the anger over the bailouts has focused on the Federal Reserve Bank of New York’s handling of its multistage, multibillion-dollar rescue of AIG (AIG, Fortune 500). Documents subpoenaed by Congress this year show the New York Fed pressured the insurer not to disclose the terms of the bailout in securities filings even when the company wanted to.

The key issue there was a list of the securities that had been insured by AIG and the banks that had purchased the derivatives conferring insurance. The New York Fed repeatedly opposed the release of this list, which shows that big banks including Goldman Sachs (GS, Fortune 500) and Deutsche Bank (DB) of Germany received full compensation for securities worth much less in the market.

Duy said Bernanke’s proposal wouldn’t make such a list of securities accepted as collateral or purchased by the Fed available to the public, though "this is what I think most critics really want."

That said, it wasn’t clear what one of the loudest and most persistent foes of the Fed, Rep. Ron Paul, R-Texas, was after Wednesday in his questioning of Bernanke.

Apparently making a case for an audit, Paul rambled on about the Fed’s alleged loans to Saddam Hussein in the 1980s and its purported plans to fund a bailout of Greece.

Bernanke responded that the allegations were "absolutely bizarre" before adding that the Fed has no plans to participate in a bailout of any foreign country.

As wacky as the exchange was, it could actually strengthen the case for a full audit. Regular reports from the GAO can only boost the pitifully low level of economic understanding in Congress, Calabria said.

And with rates already near zero and the Fed having spent more than $1 trillion supporting housing, the Fed may already appear to be bowing to political pressure to make sure the economy doesn’t deteriorate further in a key election year.

"I’m open to the case that we need Fed monetary independence, but I just don’t know that the Fed has made it persuasively," Calabria said. "It’s hard to believe Congress could make policy any looser than it is." 

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Greek central bank Governor George Provopoulos said he’s confident the government will meet its “very ambitious” deficit-reduction goals and ward off any further credit-rating downgrades.

Rating agencies “want evidence that the plan is implemented on target” and “some time will need to elapse before they can form a better judgment,” Provopoulos, also a European Central Bank council member, said in an interview in Athens on Feb. 19. “I have full confidence” in the government meeting its goals, he said. “They have to succeed. And they will, I’m sure of that.”

Greece’s financial distress could be exacerbated at the end of this year when the ECB is due to revert to old collateral rules that were loosened during the global recession. If Moody’s Investors Service cuts its Greek credit rating to the same level as the other major ratings companies, Greek government bonds would no longer be eligible as collateral at the ECB, making it more difficult for the nation to borrow.

“The government has said already on several occasions that it will take any additional measures required in order to achieve its goal,” Provopoulos said. “This gives me comfort. Even if some risks materialize — like growth — the government is prepared to take immediate corrective action.”

Skeptical Investors

Investors are skeptical that Greece can cut its budget deficit from 12.7 percent of gross domestic product to under 3 percent by 2012. The government’s plan assumes the economy will contract 0.3 percent this year before growing 1.5 percent in 2011. It shrank 2 percent last year, compared with the government’s forecast for a 1.2 percent contraction.

The premium investors charge to hold Greek 10-year bonds instead of the German benchmark soared to 396 basis points on Jan. 28, the most since 1998. The cost of insuring Greek bonds against default jumped to a record high, exceeding the rates in emerging Asian economies such as Vietnam, Indonesia and the Philippines.

Markets are overreacting, Provopoulos said.

“They take advantage of the weak link to make profits,” he said. “It’s clear that there is a certain degree of overshooting. Given the high degree of uncertainty in the markets, one should not expect that the situation will normalize overnight.”

If Greek debt were no longer eligible as ECB collateral, the government would find it harder to find buyers for its bonds and yields would probably rise.

‘Exactly As Promised’

The ECB currently accepts bonds rated BBB- by at least one rating agency as collateral for loans. Under the old rules, due to be reinstated on Jan. 1 next year, A- is the minimum rating required. Standard & Poor’s and Fitch Ratings cut Greece’s credit grade to BBB+ in December.

Moody’s has said it may lower its A2 rating two steps to Baa1 if Greece only partially implements its deficit-cutting plans. That would render Greek bonds ineligible at the ECB.

ECB President Jean-Claude Trichet said on Jan. 14 that the Frankfurt-based central bank won’t make allowances “for the sake of any particular country” and Greece won’t win “any special treatment.”

The ECB will continue its enhanced credit support to the banking system, Provopoulos said, suggesting it may continue lending banks as much cash as they want at its benchmark rate, at least in weekly refinancing operations.

“The ECB never said ‘we have reached the end of the road’,” he said. “Of course there are signs of normalization of the situation, of an improvement. This will be taken into account” when policy makers decide in March on the next steps in the exit from emergency lending measures, Provopoulos said.

Under Pressure

European finance ministers turned up the pressure on Greece last week to rein in the region’s largest budget gap. The country might be asked to raise its value-added tax, introduce a levy on luxury goods and cut capital spending if it fails to show sufficient progress by mid-March, when the European Commission is due to review the government’s progress.

While European leaders on Feb. 11 pledged to take “determined and coordinated” action to support Greece if the need arose, they left open how they would respond to a fresh wave of speculative attacks against Greece or other countries such as Spain and Portugal, which are also struggling to cut their budget deficits.

Provopoulos said he takes the commitment of European governments to stand by Greece “at face value.” The lack of a detailed rescue plan isn’t disappointing, he said.

“Everybody knows how critical the situation is. Of course, an expression of willingness and readiness from the European family, the euro zone, to help in case it’s needed is quite reassuring and understandable.”

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New home construction rose more than expected in January, while the number of building permits issued in the month dropped, according to a government report issued Wednesday.

Construction of new homes climbed to an annual rate of 591,000 during the month, up 2.8% from December’s revised rate of 575,000, the Commerce Department said. This is an increase of 21.1% from the 488,000 rate in January 2009.

Economists surveyed by Briefing.com expected January housing starts to rise to an annual rate of 580,000.

"We’re continuing to see signs of stabilization," said real estate analyst Mike Larson of Weiss Research. "We had this Olympic ski slope-looking plunge starting in 2005 and 2006, and it looks like we’re almost getting to the bottom of that."

Larson said that housing starts picked up in January as the new home supply dwindled.

"All the excess inventory that had built up has been exhausted, and when the supply gets so lean, builders start constructing homes again," he said.

The number of building permits issued during January fell to a seasonally adjusted annual rate of 621,000. That was 4.9% below the revised December rate of 653,000, but up 16.9% from the January 2009 rate of 531,000.

Economists had expected building permits would fall to 620,000.

The decline in permits and gain in housing starts were each led by activity in the multi-family sector: Multi-family building permits plummetted 26% while starts jumped 17.6%.

Meanwhile, single-family housing starts and building permits were both up last month. Single-family starts climbed 1.5% from December and permits edged up 0.4%.

Larson said that the increase in single-family activity was an encouraging sign of stabilization, but with such a large supply of existing homes, "nothing suggests a vigorous upturn."

"I think we’re going to be treading water in this range for some time," he said. "We’re going to be making small gains or losses throughout 2010, we’re not going to be making new lows or rebounding." 

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Companies will begin slowly adding to their payrolls in 2010, according to an annual White House review of the economy.

The White House Council of Economic Advisers, which on Thursday released a 462-page analysis of the president’s economic initiatives, said that the unemployment rate will be at 10% during 2010. It is now at 9.7%.

"With millions of Americans still unemployed, much work remains to restore the American economy to health," the report said. "It will take a prolonged and robust GDP expansion to eliminate the large jobs deficit that has opened up over the course of the recession."

On a call Wednesday with reporters, Council Chairwoman Christina Romer said she expects an average of 95,000 jobs a month to be created this year, and that the nation’s GDP will expand at a 2.5% rate.

The report, which is delivered to Congress, looks at the actions President Obama took to deal with the recession over the past year. It also discusses the economic challenges that lie ahead for the nation, but offers little insight that’s new.

Overall, the analysis enthusiastically supports the administration’s handling of the economic crisis and its proposals to strengthen the country’s fiscal standing in the future.

Romer called the report "a page-turner" and noted that it’s available for download to Kindle and other e-readers.

Placing blame

The report places blame on the Bush administration for running up debts and cutting taxes.

Romer blogged about the study on WhiteHouse.gov. "Largely because of two tax cuts, two wars, and a major new Medicare drug benefit that were not paid for, the budget surpluses of the 1990s had been replaced by substantial actual and projected future deficits long before the recession began at the end of 2007," she wrote.

She also took another whack at Obama’s favorite new target: Wall Street.

"Much of the economic growth that the United States experienced in the past decade was fueled by consumers and the government running up large debts, aided by a financial system better at making short-term profits than managing long-term risks," she wrote business cards.

Republicans were quick to react the report, calling it fluff and noting that the report says that unemployment won’t fall back to its 2008 level for another seven years.

"The Obama Administration’s report is full of blame for the policies of years past, praise for its own failed policies of the past year, and promises about their ideological agenda to grow government, said Rep. Eric Cantor, R-Va., the House GOP whip. "Instead of praising themselves and blaming others, a greater focus on small businesses and smart solutions to reduce uncertainty and create jobs would be welcomed and is long overdue."

Praising policies

The report has kind words for the $862 billion American Recovery and Reinvestment Act, the centerpiece of Obama’s economic policy in his first year. Calling the program the "great unsung hero of the past year," Romer reiterated that the program has funded up to 2 million jobs and helped turn the economy around.

Going forward, the report highlights several areas of financial concerns. These include health care, the deficit, living standards, business investment and trade, climate change and financial regulation. As consumers spend less, the government must foster an atmosphere which allows companies to ramp up their investments and exports.

The report lays out the administration’s proposals to address these issues.

Obama has made job creation his central focus in his second year in office. He has recently traveled the country promoting tax credits for small businesses, the source of many new hires. And on Tuesday, he brought together congressional leaders to push for a bipartisan agreement on legislation to boost hiring. 

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The German government may offer an aid package to Greece and other debt-ridden European nations in an effort to stave off the default concerns that have stunted global markets, according to reports.

The Wall Street Journal, citing unnamed sources, said a loan guarantee plan would be led by Germany but completed along with European Union partners.

The threat of a default in Greece has given investors pause, as the effect would likely ripple to other members of 16-nation euro zone. Other debt-choked nations in the bloc include Portugal, Spain, Ireland and Italy.

European Union officials are set to meet Thursday to discuss the economy, and Greece is expected to be a major topic on the docket.

In December, Greece’s credit rating was downgraded. S&P’s move came after health care companies complained that the country was behind on payments related to its public health system.

Investors across the globe have been trying to digest what impact such a crisis would have on the nascent signs of recovery, and ripple-effect fears have sent worldwide markets lower payday loans.

The WSJ article said Germany’s finance minister, Wolfgang Schaeuble, has discussed the aid idea in with European Central Bank President Jean-Claude Trichet.

But earlier Tuesday, Reuters reported that German government spokesman Ulrich Wilhelm called reports that a decision was already in effect "unfounded."

A bailout of Greece would mark the first time any EU country rescued a euro zone member.

The U.S. stock market was cheered by the reports of possible Greek aid, as the blue-chip Dow index (INDU) added almost 2% with less than 2 hours left in the session. The euro also rose in late trading. 

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Virginia may be for lovers, but Florida is for romantics, with four cities – Miami, Gainesville, Orlando and Tallahassee – ranked among the 20 most romantic cities by Amazon. com.

Miami ranked second, followed by Gainesville at No. 6, Orlando at No. 10 and Tallahassee at No. 18.

Miami was also named the nation’s sexiest city, with the most per capita sales in the sexual wellness category, according to Amazon.

Miami Gardens was on the list of least romantic cities, with the fewest number of overall purchases in that category.

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France’s trade deficit narrowed 22 percent last year on lower energy costs and as companies such as Airbus SAS boosted exports after the worst recession since World War II.

The trade gap fell to 43 billion euros ($58.9 billion) from 55.1 billion euros in 2008, the customs department in Paris said today in an e-mailed report. December’s deficit was 4.27 billion euros compared with 5.3 billion euros the previous month.

France’s performance “is due to our specialization in sectors that were less affected by the crisis: pharmaceuticals, airplanes and agriculture,” Trade Minister Anne-Marie Idrac told a Paris press conference today. The decline in the trade gap was also due to a “smaller energy deficit,” she said.

France and neighboring Germany have benefited since the second quarter of last year as global demand for their goods helped fuel the recovery. The French economy expanded 0.3 percent in the last two quarters of 2009 and will grow 1.4 percent this year, the government forecast last month.

The euro-region “recovery will be to a large extent export-led,” said Stephane Deo, an economist at UBS Securities in London. “Trade will indeed support growth this year.”

Exports of Airbus aircraft last year rose 2 percent from 2008 to reach “their highest level” for a total of 16 billion euros, today’s report showed.

Overall, French exports were little changed in December after growing 5 percent in November, according to the report.

“In 2010, French exports should benefit from a rebound in economic activity as well as from structural reforms this government has carried out,” such as cutting some business taxes and providing tax credits for research, Idrac said.

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Fairfax-based SRA International has completed its acquisition of Perrin Quarrels Associates Inc. for an undisclosed sum.

Charlottesville, Va.-based PQA specializes is environmental programs like air quality and climate change. The Environmental Protection Agency is among its biggest customers.

The acquisition adds $6 million to the balance of SRA’s current fiscal year. The company will report fiscal second quarter results this month.

SRA International’s (NYSE: SRX) first quarter revenue was $417.5 million, up from $392.4 million in the same quarter a year earlier.

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