Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Thurs 07.31.2008
U.S. Initial Jobless Claims Rise to Five-Year High The number of Americans filing first-time claims for unemployment benefits unexpectedly rose last week, reaching the highest level in more than five years. Initial jobless claims increased by 44,000 to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said today in Washington. Economists in a Bloomberg survey had forecast a drop in claims. The total number of people on benefit rolls rose to the most since December 2003.
First Fire, Then Hire Morgan Stanley goes on a hiring spree with the money it saved from firing 10 percent of its workforce. Nowhere but on Wall Street does the phrase "One man's trash is another man's treasure" ring so true. And perhaps no one knows that better than Mack the Knife. Morgan Stanley's John Mack, who saved about $1 billion by firing 4,800 people so far this year, is gingerly spending the savings on new hires, according to a report in the Financial Times. It's already spent $400 million on new recruits, and it hopes to spend the remaining $600 million by the end of this year. The bank sent pink slips to about 10 percent of its workforce in January and April, mostly in areas like investment banking, research, and fixed income. It plans to hire new staff in areas such as derivatives, risk management, and proprietary trading.
Weak US growth adds to gloom The US economy grew at an annual rate of 1.9 per cent in the second quarter, a faster pace than earlier in the year but slower than economists were expecting, the commerce department said on Thursday. Growth was lifted from a downwardly revised annual pace of 0.9 per cent in the first quarter thanks to surging exports and nearly $100bn in stimulus cheques mailed out by the government in May, which boosted consumer spending. However, businesses drew down inventories much more rapidly in the second quarter than they had earlier in the year as they adapted to the tougher economic conditions, keeping gains to GDP below the 2 per cent level forecast by economists.
U.S. Recession May Have Begun in Last Quarter of 2007 The U.S. economy may have tipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened, revised government figures showed. The world's largest economy contracted at a 0.2 percent annual pace in the fourth quarter of last year compared with a previously reported 0.6 percent gain, the Commerce Department said today in Washington. Growth for the period from 2005 through 2007 was also trimmed.
Mr. Paulson's New Bonds$$ These days, it's next to impossible to sell a mortgage-backed security -- unless, like Fannie Mae and Freddie Mac, you have access to the full faith and credit of Uncle Sam. So this week Treasury Secretary Hank Paulson teamed up with four of the country's biggest banks to jump start an alternative to securitization known as "covered bonds." A covered bond is a kind of halfway house between securitizing mortgages and simply holding them on bank balance sheets. With a covered bond, the bank gets the proceeds from selling the bonds now, while the investor gets the income from the mortgages. But unlike a mortgage-backed security, the bank doesn't totally wash its hands of the mortgages if the borrowers default or get delinquent. So it's easy to see their attraction at a time when securitization has become a dirty word.
Fed Leaves Door Open to Future Rate Increases Leaders Ponder How and When to Act The Federal Reserve is all but certain to leave interest rates unchanged when it meets next week, and its leaders are disinclined to raise them in the immediate future. But they almost uniformly think that the next time they adjust rates, it will be to raise them, and the debate behind closed doors next week will probably center on how and when to do that. The economy and financial markets have grown shakier since Fed policymakers last met in late June, and oil prices have fallen some. But Fed officials think that the dramatic rate cuts they undertook in the first half of the year are probably sufficient to keep growth from falling off a cliff and that the bank has been vigilant enough in using other tools to protect the financial system that it could raise interest rates without causing a resurgence of the crisis. Home Prices Hit Four-Year Low Home prices in May plummeted 15.8% from a year earlier, to 2004 price levels, wiping away four years of appreciation, according to the S&P/Case-Shiller 20-city home-price index released July 29. Analysts have become increasingly pessimistic that a bottom to the market will arrive anytime soon. The S&P/Case-Shiller report is only the latest evidence that home prices are swinging backward with at least as much force as they swung the other direction during the boom. Places that had double-digit increases a few years ago are now seeing prices drop by as much as 28% in a year. Peter Schiff, president of Darien (Conn.) brokerage Euro Pacific Capital, said prices could slide to levels last seen before the housing boom began in the early 2000s.
Central banks fire new round at credit crisis The U.S., European, and Swiss central banks on Wednesday extended emergency lending facilities for investment banks and expanded other liquidity programs to ease credit market strains that have weighed on the global economy for nearly a year. The joint measures helped lift share prices in the United States and Europe, and were a factor in pushing up U.S. bond yields and the U.S. dollar. The U.S. Federal Reserve said it was prolonging the emergency credit facility for primary dealers to January 30 which had been due to expire in mid-September. The Fed said it acted "in light of continued fragile circumstances in financial markets," and said it would close down the lending program once it determined credit market conditions were no longer "unusual and exigent.
Deutsche Bank writes down another $3.6 billion Deutsche Bank on Thursday announced a further $3.6 billion of write-downs in the second quarter of the year, taking its bill from the global financial crisis beyond $11 billion. The German financier had originally been seen as one of the winners in the chaos but as the problems on global markets continue, Deutsche Bank is being sucked ever deeper into trouble.
IndyMac 'Unattractive' to a Potential Buyer Federal Deposit Insurance Corp. Chairman Sheila Bair said IndyMac Bancorp Inc.'s high-risk lending and mortgage losses make it "unattractive" and leave the agency needing to strengthen the firm to sell it. IndyMac's reliance on large deposits arranged by brokers on behalf of their customers and lack of a strong "core deposit base" also limit its appeal, Bair, 54, said today in an interview to be broadcast this weekend on Bloomberg Television's "Conversations with Judy Woodruff." "There are a number of things about this institution that, to be honest with you, make it unattractive to a potential purchaser," Bair said.
Chrysler in talks with Tata and Fiat: sources Chrysler is in talks to lease U.S. production capacity and share retail distribution with Fiat SpA (FIA.MI), allowing the Italian automaker to return the U.S. market for the first time in 25 years, people briefed on the talks said on Wednesday. Chrysler, the No. 3 U.S. automaker, has also been in discussions with India's Tata Motors Ltd about selling its Jeep Wrangler SUV in India and possibly other Asian markets, said the sources, who were not authorized to discuss the negotiations.
Oil jumps over $4 on surprise drop in gas supplies Oil prices soared over $4 a barrel Wednesday, halting a dramatic two-week slide after a surprise drop in U.S. gasoline supplies fed speculation that record fuel prices aren't keeping Americans off the roads But energy market analysts offered mixed views on whether prices would swing back toward record levels above $147 a barrel hit earlier this month or if Wednesday's big rally was just a temporary bump. Senate Democrats back $6 billion in loan-guarantees for automakers Senate Democrats agreed Wednesday to approve $6 billion in low-cost loans for Detroit's Big Three automakers, which have struggled to raise funds in a weak credit market. Sen. Debbie Stabenow, D-Lansing, said in an interview that the Senate would consider a second stimulus package in September, which will include a portion of the $25 billion in loan guarantees over five years for auto plant retooling Those provisions were authorized in the December 2007 energy bill that required a 40 percent increase in fuel efficiency standards by 2020. That bill didn't include any funding for the loan guarantees. To guarantee $6 billion in loans, Congress must spend $900 million. It would cost an estimated $3.75 billion to back the entire $25 billion package. Congress eyes direct loans for auto industry to make plants green Automakers could receive up to $6 billion in direct loans to modernize their assembly plants to build gas-electric hybrids and advanced vehicles under an agreement reached Wednesday by Senate budget leaders. An additional $300 million would help research and develop advanced batteries critical to plug-in hybrid vehicles, said Sen. Debbie Stabenow, D-Mich., who has sought the funding. Stabenow said the provisions would be included in an economic stimulus package expected to be considered next September. Michigan lawmakers have sought the federal aid as General Motors Corp., Ford Motor Co., and Chrysler LLC, have announced reductions in salaried workers and plant closures amid a difficult economic period.
Singapore to the rescue of a troubled Merrill Lynch The Singapore government has become an unlikely white knight to Wall Street, with a new billion-dollar commitment to Merrill Lynch, even as Merrill, a huge U.S. investment bank, disclosed more problems. Merrill Lynch took a multibillion-dollar write-down and said Monday that it would sell new stock Temasek Holdings, the Singaporean sovereign investment fund, is one of the biggest buyers, pouring an additional $900 million into Merrill Lynch, on top of a nearly $5 billion commitment it made in December. Temasek will also reinvest some $2.5 billion of that earlier commitment back into Merrill Lynch. The new purchase of $3.4 billion in shares brings Temasek's stake in Merrill Lynch to nearly 10 percent.
Kremlin's heavy hand triggers foreign exodus Foreign investors have become extremely wary of the Russian stock market after the Kremlin moved yet again to tighten its noose around the country's energy and mining sector, launching anti-trust probes against London-listed Evraz Holding and Raspadsky Coal The move follows last week's assault on steel and coal giant Mechel for alleged overpricing of raw materials and using off-shore trading to cut its tax bill. Moscow's RTS stock market index has fallen by 25pc since May on fears that premier Vladimir Putin is once again using probes or other heavy-handed methods to reorder the strategic landscape.
Mexicans Sending Less Money Home The amount of money sent home by Mexican migrants declined 2.2 percent during the first six months of 2008, showing what analysts said are the effects of the U.S. economic downturn and the nationwide crackdown on illegal immigrants. The funds transmitted, known as familial remittances, totaled $11.6 billion during the first six months of the year, compared with $11.9 billion during the same period last year, according to numbers released yesterday by Mexico's central bank Remittances are the second-largest source of foreign income for the country, following oil exports. Experts think that the decline could help push more Mexicans deeper into poverty as families there face rising prices on basic necessities. Australia faces worse crisis than America The world's financial storm has swept through Australia and New Zealand this week amid mounting signs of contagion across the Pacific region. Financial shares were pummelled in Sydney on Tuesday after investor flight forced National Australia Bank (NAB) to slash a £400m bond sale by two thirds. The retreat comes days after the Melbourne lender shocked the markets by announcing a 90pc write-down on its £550m holdings of US mortgage debt, an admission that it AAA-rated securities are virtually worthless
Australia Facing 'Once-in-100-Year' Housing Slump Australia may be headed for a housing recession similar to those roiling the U.S. and U.K The cause is a combination of rising default rates, the biggest drop in home prices in five years, the highest borrowing costs in a decade and slowing economic growth. Prices in the property market -- described by the International Monetary Fund in April as one of the world's most "overvalued" -- will fall 30 percent by 2010, according to Gerard Minack, senior economist at Morgan Stanley in Sydney. Prices dropped in all of Australia's major cities last month for the first time since just before the Great Depression.
U.K. Consumer Confidence Fell to Record Low in July U.K. consumer confidence dropped to a record low in July, slipping below the level reached on the eve of the 1990 recession, as house prices slumped and inflation accelerated, GfK NOP said. An index of confidence, based on a survey of 2,001 people, fell 5 points to minus 39, the lowest since the data began in 1974, GfK said today in London. The gauge fell to 4 points below the result for March 1990. Britain's economic outlook has deteriorated in the past month after ``bad news'' on retail sales, Bank of England policy maker David Blanchflower said yesterday. The threat of another recession has helped erode support for Prime Minister Gordon Brown, whose ruling Labour Party had the lowest support since the early 1980s in a Populus Ltd. poll published this week.
European Inflation Quickened to 16-Year High in July Inflation in Europe accelerated to the fastest pace in more than 16 years in July, restricting the European Central Bank's room to bolster the economy even as unemployment starts to increase. The inflation rate for the 15-nation euro region rose to 4.1 percent from 4 percent in June, the European Union statistics office in Luxembourg said today. The rate, the highest since April 1992, matched the median estimate of 36 economists in a Bloomberg News survey. A separate report showed unemployment was 7.3 percent in June, exceeding the 7.2 percent median forecast.
Dubai's borrowings will swell to $32.5b this year The Government of Dubai is raising a further $16.5 billion of loans for its commercial subsidiaries in the syndicated loan market and is turning to European and Asian lenders to counter a lack of liquidity among local banks, banking sources said. The Government-owned entities — known in the loan market as Dubai Inc — will bring state-backed borrowing to $32.5 billion this year, as the emirate has already completed $16 billion of loans in 2008, according to Reuters Loan Pricing Corp data.
Without fanfare, Bush signs mortgage relief bill Avoiding public ceremony, Bush quietly signs measure offering mortgage relief for thousands President Bush signed a housing bill Wednesday intended to rescue about 15 percent of the cash-strapped homeowners in fear of foreclosure in the next year or so. Early in the morning and out of public view, the president signed it without fanfare in the Oval Office, adding his signature to a measure he once threatened to veto. The White House said he was accompanied by Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and other administration officials.
GM to Cut 5,000 White-Collar Jobs by Nov. 1$$ Before Loss Report Friday, It Also Says It Will Trim Leases General Motors Corp., which is expected to post a big second-quarter loss on Friday, said it will remove about 5,000 people from its salaried head count by Nov. 1 as part of a cost-cutting initiative it outlined earlier this month. Those cuts would amount to 15% of GM's North American white-collar work force. The auto maker also confirmed plans to scale back its vehicle-leasing operations, which could further crimp U.S. sales. While GM plans to continue to offer subsidized leases in the U.S., it is adjusting some of the lease terms and will exclude certain vehicles.
Chrysler Slashes Costs, Seeks Partners $$ Chrysler LLC is scrambling to slash costs and line up partnerships with foreign auto makers to shore up its finances amid a painful downturn in sales and a deteriorating outlook for the company, people familiar with the matter said. In recent weeks, the auto maker has had discussions with Tata Motors about having the company sell and possibly assemble Jeeps in India, these people said. Separately, Chrysler has had talks about leasing one of its U.S. plants to produce cars for Italy's Fiat SpA, they said. Chrysler has been exploring alliances since it was acquired a year ago by Cerberus Capital Management LP, and has mapped out a deal to make trucks for Nissan Motor Co. Both sets of talks are preliminary and may not lead to deals, these people said.
A Hidden Toll on Employment: Cut to Part Time The number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million — the largest figure since the government began tracking such data more than half a century ago. The loss of pay has become a primary source of pain for millions of American families, reinforcing the downturn gripping the economy. Paychecks are shrinking just as home prices plunge and gas prices soar, furthering the austerity across the nation. "I either stop eating, or stop using anything I can," said Marvin L. Zinn, a clerk at a Walgreensdrugstore in St. Joseph, Mich., who has seen his take-home pay drop to about $550 every two weeks from about $650, as his weekly hours have dropped to 37.5 from 44 in recent month.
Nissan offering buyouts to Tennessee employees Nissan North America Inc. said Wednesday it will offer buyouts to about 6,000 employees at the company's two Tennessee plants and eliminate a night shift at one plant because rising fuel prices and the economic downturn have slowed sales of trucks and sport utility vehicles. The technicians and salaried employees at the assembly plant in Smyrna and powertrain plant in Decherd will be offered a lump sum of $100,000 or $125,000 depending on tenure, as well as medical and car purchase benefits, the company said. Nissan spokesman Fred Standish said that even though the company is ending night shift truck production effective Aug. 11, it does not plan any layoffs. "We've never laid off anybody in Smyrna and we don't intend to do it now," he said. Standish said employees on the shift that is being eliminated are expected to either take buyouts or move into jobs made vacant from other workers taking the buyouts. "There's going to be a lot of movement and realignment," he said. The two plants have about 1,200 more employees right now than they need, he said.
Merrill Lynch's woes far from over It announces huge write-down, sells debt at bargain basement price AS ONE analyst says, Merrill Lynch seems to be experiencing death by a thousand cuts. The third-largest US investment bank said on Monday that it will be taking another huge write-down - US$5.7 billion (S$7.8 billion) for the third quarter - as it unloads huge amounts of risky debt, and will also raise US$8.5 billion by selling new stock. This comes less than two weeks after Merrill posted a US$4.9 billion second-quarter loss after being hit by US$9 billion of write-downs in that same period. In a sign of how toxic Merrill's debt holdings have become, it has agreed to sell US$30.6 billion of collateralised debt obligations (CDOs), a kind of repackaged debt, to an affiliate of private equity fund Lone Star Funds for just US$6.7billion, or about 22 US cents on the dollar.
A Deal at Merrill Puts Spotlight on Others Somehow, $4.4 billion just evaporated at Merrill Lynch. Less than two weeks ago, Merrill Lynch valued the toxic mortgage investments on its books at $11.1 billion. Now, it is selling those investments for $6.7 billion — and financing most of the purchase to boot. The fire sale raises a troubling question for the nation’s battered financial industry: Have other banks with similar investments overestimated their values? That question reverberated across Wall Street on Tuesday as analysts began assessing the implications of Merrill’s move to cleanse its tainted balance sheet. Executives at Citigroup, JPMorgan Chase and Bank of America began reviewing the bundles of mortgages, known as collateralized debt obligations, or C.D.O.’s, that their companies hold on their books. Those companies may have to lower their valuations, and take additional charges, if their assets are similar to those sold by Merrill.
Fed extends emergency loan program U.S. central bank says Wall Street banks can borrow emergency funds through Jan. 30. The Federal Reserve said Wednesday it is extending its emergency borrowing program to Wall Street firms and is taking other steps to ease a severe credit crunch that has hobbled the national economy. The Fed said the program, where investment houses can tap the central bank for a quick source of cash, will now be available through Jan 30. Originally the program, started on March 17, was supposed to last until mid-September.
Banks pressed to follow Merrill debt sale Leading global banks including Citigroup and UBS on Tuesday faced renewed pressure to write down or sell billions of dollars in toxic assets following Merrill Lynch’s disposal of $30bn in mortgage-related securities at a cut price. Merrill’s move to sell collateralised debt obligations (CDOs) for $6.7bn, or 22 cents on the dollar – announced on Monday night – raised hopes that other banks would be able to strike similar deals and purge their balance sheets of bad assets. However, the low price paid by Lone Star Funds, a distressed debt investor, to buy Merrill’s CDOs sparked fears that the financial system could enter another spiral of huge writedowns followed by highly dilutive capital raisings.
What Hath Merrill Wrought? Tally of Likely Fallout from CDO Writedown Rises Merrill's surprising, mere ten days after its last investor combo writedown/fundraising announcement still has financial analysts toting up the collateral damage. Remarkably, the US stock market staged a peppy rally, clearly choosing to ignore the implications. The cause for pause was the sale of $30.6 billion in face amount of super senior CDOs at a ostensible price of 22 cents on the dollar. But the sale was 75% financed, non-recourse, and could almost be characterized as a call rather than a sale. Worse, the CDOs were mainly 2005 vintage, and thus should have better quality underlying assets than 2006 and 2007 deals.
Fed Extends Emergency Loan Programs Through January The Federal Reserve extended its emergency lending programs to Wall Street firms through January after policy makers judged that markets are still too weak to go without a backstop from the central bank. The Fed also plans to give securities dealers options for tapping one of the loan programs to ensure financing through key dates, such as the ends of quarters, when funding needs can jump. Commercial lenders will be able to borrow from the central bank for a longer period, and the Fed boosted its swap line with the European Central Bank. Today's announcement reflects continued turmoil in financial markets, after three U.S. banks failed in as many weeks. Chairman Ben S. Bernanke and New York Fed President Timothy Geithner spearheaded the introduction of three lending programs since December as the credit crisis engulfed Wall Street and caused the collapse of Bear Stearns Cos.
Government announces plans to borrow $27 billion Bush plans $27 billion in borrowing next week as part of effort to handle soaring deficits The Bush administration gave details Wednesday on how it plans to borrow the billions of dollars it will need to cope with the soaring budget deficits. Those plans include raising $27 billion by selling a new 10-year note and a new 30-year bond at the regularly scheduled quarterly auctions to be held next week. The government needs to borrow $171 billion during the current July-September quarter, the second highest quarterly borrowing total on record. The increased borrowing needs reflect the exploding federal budget deficit which is projected to more than double in size this year and to hit an all-time high of $482 billion in the 2009 budget year.
Putting a lasso on inflation Is there any good way to deal with the rapid inflation in commodity prices, or just lesser evils? Governments around the world have been trying a raft of different strategies to deal with the high costs of food and fuel. None of them offer a perfect solution to the problem, but some can be less damaging to an economy than others. One of the smartest solutions maybe the simplest: Income support for poor families. In countries as diverse as Malaysia, Pakistan and Haiti, consumers have received heavy subsidies from the government to aid their purchases of basic foods and fuels. These subsidies were intended to insulate consumers from the immediate effects of high prices, but they can have some fairly undesirable consequences.
Job Security [Hey, lighten up!. . . it's a spoof] Barack Obama's marching orders (as we imagine them) to the nation's top banker.
Good afternoon, Ben.
Thanks for taking the time to meet with me. I know Hank's been keeping you busy with his latest crazy bailout idea - rumor has it he wants to take over those horrid Washington Nationals. Maybe he can get the Yankees to underwrite the deal.
But I like that in meeting with me today you've made long-term career goals your top priority.
It's still early, but the polls and prediction markets say that I have a really good shot at being president. Have you read those stories?
Anyway, let's get to the matter at hand. As we both know, your term is up in January 2010 and it's not going to look great for me to keep around someone appointed by one of our country's worst presidents. At the same time, I know you probably don't want to have the shortest term at the Fed since Bill Miller. So maybe there's a compromise. . . . After 7 Years, Talks Collapse on World Trade World trade talks collapsed here on Tuesday after seven years of on-again, off-again negotiations, in the latest sign of India’s and China’s growing might on the world stage and the decreasing ability of the United States to impose its will globally. Pascal Lamy, director general of the World Trade Organization, could not bridge differences between a group of newly confident developing nations and established Western economic powers. In the end, too few of the real power brokers proved committed enough to make compromises necessary to deliver a deal. The failure appeared to end, for the near term at least, any hopes of a global deal to further open markets, cut farm subsidies and strengthen the international trading system.
America's house price time bomb With the American housing market in its worst crisis since the Great Depression of the 1930s, President Bush is expected to sign into law a massive new government intervention designed to slow the slide. The intervention would come as a little known quirk of US law threatens to drive down house prices even faster. Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages. In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank. By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less. So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase. "I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense." Restaurant Chains Close as Diners Reduce Spending Several national restaurant chains were shuttered on Tuesday, possibly offering an early taste of what’s in store this year for businesses that depend on free-spending consumers whose budgets are now being squeezed. The parent company of Bennigan’s, an Irish-themed bar and grill with about 200 sites across the country, filed for bankruptcy, a move that will put hundreds of employees out of work and leave many landlords with empty retail space during a painful time in the real estate market. A sister brand, Steak & Ale, will also close. Franchise units of Bennigan’s will remain open for now, a spokeswoman, Leah Templeton, wrote in an e-mail message. The restaurants are the latest casualties in the so-called casual dining sector, considered a cut above fast food. Soaring food costs and a surfeit of locations have hurt the companies’ bottom lines just as Americans are choosing to take more meals at home.
Chrysler's credit rating downgraded Fitch cuts the automaker's credit rating two notches to deeper junk, saying tighter financing likely to curtail sales. Fitch Ratings cut Chrysler LLC's credit rating further into junk territory on Tuesday, saying restricted access to financing for its vehicles will result in lower retail volumes. The credit ratings agency lowered Chrysler's issuer default rating two notches to "CCC" from "B-". It said the company's restricted access to economic retail financing for its vehicles is likely to lead to a further slowdown in its retail sales and more costly sales incentives.
Oil deepens slide to $122, looks to U.S. fuel stocks Oil prices extended their steepest slide in a year and a half on Tuesday, as traders looked ahead to U.S. oil stock data expected to show a rise in fuel inventories amid eroding demand in the world's biggest consumer. Prices, which are now at their lowest in nearly three months, were also under pressure from signs of strength in the U.S. dollar, which held firm after rallying on a combination of weaker oil prices and an unexpected rise in U.S. consumer confidence. U.S. light crude for September fell 9 cents to $122.10 a barrel by 11:16 p.m. EDT after slumping by $2.54 on Tuesday, hitting an intra-day low of $120.42, the lowest since May 6 and marking the deepest sell-off in prices since early 2007.
NY Gov Paterson Warns of Economic Crisis In a rare, brief televised address, Gov. David A. Paterson announced on Tuesday afternoon that he would call the Legislature into an emergency session on Aug. 19 to address what he called an economic and budget crisis confronting New York State as a result of plummeting revenues and rising costs. The new governor avoided any mention of new taxes, instead arguing forcefully for austerity. He said he was calling on the Legislature to reduce the size of the state workforce; cut agency spending; reduce property taxes for homeowners; aid New Yorkers with the soaring costs of home energy; and even consider public-private partnerships that would take over state assets.
U.S. is on brink of survival crisis, according to Moscow Moscow thinks that the United States could face a serious domestic crisis in the near future. "The U.S. is on the brink of a mass crisis of surviving," a source with the Russian Foreign Ministry told journalists on Tuesday. "The U.S. is on the track of drastic and painful changes," he said. "At first, they have to learn to live within their means," the diplomat added. Speaking about relations between Moscow and Washington, the source said that less interdependency in Russian-U.S. relations would be useful. "We can in the future reach the moment when we will be able to stop discussing only the issues the U.S. side is interested in," he said. "We are not enemies with the U.S., and unfortunately we are still not friends, but we are depending on each other less and less," the diplomat said.
Oil? Ah, let Russia have it State Department gives away 125,000 square miles of Alaskan ocean floor Even if Congress follows President Bush's lead in opening off-shore oil exploration, there exist over 125,000 square miles of sea bottom that won't be explored, because the State Department – amid controversy and against the will of Alaskans – has surrendered the land to Russia. Eight islands and their surrounding sea floors were ceded to the former Soviet Union as part of the U.S.-U.S.S.R. Maritime Boundary Treaty in 1991, a treaty signed by the U.S. Senate and President George Bush but never ratified by the Soviets. Nonetheless, an executive agreement enforcing the terms of the treaty until ratification has been in place through three presidencies, meaning the State Department officially recognizes the islands as Russian territory. Alaskan legislators, who were given no input or authority on the island giveaway, have long protested the treaty, declaring it null and void without Russian ratification. US general warns Russia on nuclear bombers in Cuba Russia would cross "a red line for the United States of America" if it were to base nuclear capable bombers in Cuba, a top US air force officer warned on Tuesday. "If they did I think we should stand strong and indicate that is something that crosses a threshold, crosses a red line for the United States of America," said General Norton Schwartz, nominated to be the air force's chief of staff. He was referring to a Russian news report that said the military is thinking of flying long-range bombers to Cuba on a regular basis. It was unclear from the report whether that would involve permanent basing of nuclear bombers in Cuba, or just use of the island as a refueling stop. In his confirmation hearing to become the air force's chief of staff, Schwartz was asked what he would recommend if Russia were to base nuclear capable bombers in Cuba.
Russia Warns of Military Response to US Missile Shield A dispute between Russia and the United States over the planned deployment of a U.S. anti-missile defense shield in eastern Europe deepened Tuesday, with Moscow warning of a “military-technological” response to the move. Reacting to the signing of an agreement between Washington and Prague on setting up a radar base as a key part of the system, Moscow’s foreign ministry reiterated its view – long denied by the U.S. – that the shield poses a threat to Russia. Russia has no doubts that the plan aims to weaken Russia’s strategic deterrent, it said. “If the real deployment of the U.S. strategic missile defense system begins near our borders, then we will have to respond using not diplomatic but military-technological methods.” Secretary of State Condoleezza Rice and her Czech counterpart Karel Schwarzenberg on Tuesday signed the main treaty on the stationing of a U.S. radar base on Czech soil.
Chavez Goes Weapons Shopping in Russia Amid Arms Race Venezuelan President Hugo Chavez heads to Moscow to shop for air defense systems, submarines and other weaponry as Latin America's arms race quickens amid signs that his regional influence is waning. Past Venezuelan arms purchases from Russia have strengthened ties with Moscow as its rivalry with the U.S. intensifies over President George W. Bush's plans for an Eastern Europe missile defense system and other issues. Chavez, 53, also plans to visit Belarus, a Russian ally that the U.S. considers a dictatorship.
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Tues 07.29.2008
Americans remain gloomy about the economy Americans, squeezed by higher gas and food prices and a housing market that keeps slumping, remain the most pessimistic about the economy since the tail end of the last prolonged recession 16 years ago, a private research group said Tuesday. The New York-based Conference Board said that its Consumer Confidence Index for July stands at 51.9, up only slightly from the revised 51.0 in June and slightly better than the reading of 50 predicted by economists surveyed by Thomson/IFR. Still, the index remains about half of what it was a year ago.
Congress Mortgages the Economy's Future to Save Fannie Mae and Freddie Mac With President Bush no longer threatening a veto, the subprime mortgage and Fannie Mae and Freddie Mac "bailout" bill sailed through Congress. In anticipation of its enactment, Congress had the foresight to raise the national debt limit to $10.6 trillion. Who says that politicians don’t plan ahead? Once signed into law, which should happen sometime this week according to a White House spokesman, the budget busting legislation will hand the Administration a blank check to prop up the ailing home lenders. The ultimate cost is anybody’s guess. I believe that the price tag will be higher than just about anyone imagines. Treasury Secretary Henry Paulson's "Bazooka" will be locked and loaded with enough firepower to blow what’s left of our economy into the dustbin of history.
'It's Going to Get Worse Before It Gets Better,' says Global Crisis Fund Manager "Never bet on the end of the world because it’s only going to happen once and how are you going to collect?" Those words, from a longtime source, have stuck with me every time the market seems like it’s going to hell and a hand basket, i.e., times like these. Maybe it's foolhardy to bet on Armageddon but taking steps to protect your portfolio against a financial crisis certainly makes a lot of sense in the current environment. That’s the mindset at Penso Capital Markets, a firm that provides strategic risk management for institutions high and net worth individuals, which launched a Global Crisis Strategy fund in February. "Things are going to get worse before they get better," says Ari Bergmann, managing principal of Penso in the accompanying video. "We are in a long, protracted, difficult situation."
U.S. July Consumer Confidence Rose From 16-Year Low Consumer confidence in July stayed near a 16-year low as Americans worried about job prospects, a private report showed. The Conference Board's confidence index rose to 51.9, higher than forecast, from a revised 51 in June. A separate report showed home prices in 20 metropolitan areas dropped 15.8 percent in May from the same time last year. Job losses, smaller wage gains, falling property values and rising food and fuel bills may prompt consumers to scale back on purchases and vacation plans in the second half of the year. The report increases the risk that the economic expansion will come to a halt once the lift from the tax rebates subsides.
Fannie, Freddie On a Tightrope Mortgage Giants Navigate Market Volatility, Unique Role The collapse in the stock prices of Fannie Mae and Freddie Mac earlier this month, followed by an equally dramatic rebound, underscored the vulnerability of today's agitated markets to panic and the mercurial behavior of global traders. Financial experts said the drop, nearly 50 percent in a week, was precipitated by a series of alarming reports from analysts and in the media and was then turbocharged by a surge in short selling, bets made by investors that the shares would fall.
White House Predicts $482 Billion Deficit The White House predicted Monday that President Bush would leave a record $482 billion deficit to his successor, a sobering turnabout in the nation’s fiscal condition from 2001, when Mr. Bush took office after three consecutive years of budget surpluses. The worst may be yet to come. The deficit announced by Jim Nussle, the White House budget director, does not reflect the full cost of military operations in Iraq and Afghanistan, the potential $50 billion cost of another economic stimulus package, or the possibility of steeper losses in tax revenues if individual income or corporate profits decline. The new deficit numbers also do not account for any drains on the national treasury that might result from further declines in the housing market.
America must not act rashly over inflation The startling jump in US consumer price inflation over the past several months has sparked concern over whether the economy is entering an inflationary spiral similar to that of the 1970s. Lost in most of the commentary about inflation has been a careful inspection of its underlying mechanics. Almost all the recent increase in headline consumer price index inflation is due to rocketing energy and food prices. Inflation excluding energy and food is significantly lower. The increase in the core CPI over the past year was just 2.4 per cent, slightly above the Federal Reserve’s comfort zone of 1 to 2 per cent. The feeding through of food and energy costs to core prices did produce an uptick this past month. Over the coming year, however, below-capacity output growth and softening oil and commodity prices are likely to push core inflation back towards the comfort zone. Why care about headline inflation versus core inflation? Simply put, a sustained move of headline inflation to the levels of the 1970s is unlikely without an accompanying increase in the core component. The reason is simple: although they can be highly persistent, rapid increases in the relative prices of energy and food cannot go on indefinitely. Once this process dies down, as long as core inflation remains anchored, headline inflation must converge to it.
Oil Declines as Stronger U.S. Dollar Dims Commodities' Appeal Crude oil declined as the U.S. dollar strengthened against the euro, limiting the appeal of commodities as an inflation hedge. Oil has fallen 16 percent since its July 11 record as the dollar has strengthened against the euro. Futures rose earlier as Royal Dutch Shell Plc said it may suspend exports of Bonny Light crude from Nigeria after a militant attack in the Nembe Creek trunk line yesterday. "A stronger dollar translates into weaker crude," said Tom Bentz, a broker at BNP Paribas in New York. "The market is still kind of in this downward trend here in the short term and is having troubling turning back up."
Home Price Index Down 15.8% in May Home prices continued to fall in May across the country, a private group said on Tuesday, a sign that the housing slump may get worse. The decline in the last year is the steepest annual drop since the Case-Shiller index began two decades ago, according to Standard & Poor’s, which releases the index. Case-Shiller is a widely watched measure of the housing market that measures prices in 20 major metropolitan areas. From May 2007, prices have dipped 15.8 percent, falling 0.9 percent in May this year. The 10-city price index, which dates to 1988, dropped 16.9 percent. All 20 cities measured by the index had annual declines in home values, and 10 cities have suffered double-digit percentage declines in the last year. Miami and Las Vegas have fared the worst, with prices in each city dropping more than 28 percent since May 2007.
IMF says housing slump critical The International Monetary Fund (IMF) said Monday there's no end in sight to the U.S. housing recession and warned that deteriorating credit conditions for consumers and banks may prolong a period of slow economic growth. "At the moment, a bottom for the housing market is not visible," the IMF said in its Global Financial Stability Report, released Monday. "Stemming the decline in the U.S. housing market is necessary for market stabilization as this would help both households and financial institutions to recover." The IMF, which a year ago failed to foresee the depth of the subprime mortgage collapse, stood by its April forecast for about $1 trillion in losses stemming from the U.S. mortgage crisis. While U.S. policy makers have helped contain the financial losses, "credit risks remain elevated" and banks need to raise more capital.
A New Way to Generate Mortgages The financial establishment came together Monday in search of a new way for banks to come up with cash for home mortgages. Regulators, bankers and traders, led by Treasury Secretary Henry M. Paulson Jr., all pledged to do their best to get a “covered bond market” going in the United States. Covered seems to be a synonym for collateralized, but it also has other meanings that may be appropriate in this effort to salvage the housing market. Think of covered wagons, which can be circled in times of crisis. With banks reluctant to lend their own money for mortgages, and the private securitization market quiescent if not dead, the cost of mortgage loans has been rising even as housing prices fall, making a bad situation worse. At best, a covered bond market would provide a cheaper source of financing for banks while reassuring investors that their money is safe. Essentially investors would buy into a pool of mortgages that would be kept on the balance sheet of the bank that made the loans. These would be high-quality loans, and at the first sign of trouble in the underlying mortgages, those mortgages would be replaced in the mortgage pool. WE'RE LIKELY TO GET AN UGLY JOBS REPORT ON FRIDAY FINALLY, we should get some honest figures on the health of the nation's job market. On Friday the Labor Department will report the July payroll survey and the month's unemployment rate. Wall Street thinks that the nation lost another 75,000 jobs this month, with the headline unemployment rate rising to 5.6 percent. Unemployment was at 5.5 percent in June, showing a tremendous jump from 5.0 percent in May. And 62,000 jobs disappeared in June. In fact, the number of jobs in the US has declined every month this year. But as I've been explaining in this column for years, the number of jobs that are lost or gained each month has a lot to do with tricky statistics. Friday's number, while not perfect, will be the first monthly job report this year that isn't defiled by ridiculous assumptions.
Banks Act to Aid Mortgage Lending$$ 'Covered Bond' Plan Of Four Firms Seeks To Boost Financing Four of the nation's largest banks will begin issuing a type of debt the Bush administration has been pushing as a way to help reinvigorate the housing market. On Monday, Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co., said they would begin issuing so-called covered bonds, a popular method of financing in Europe that could make more mortgage financing available in the U.S. The move came as federal regulators announced a set of voluntary industry guidelines intended to provide clarity to issuers and investors about the types of assets banks must hold if they issue such bonds and how investors would fare in the event of a bank failure.
Worried Banks Sharply Reduce Business Loans Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring. Two vital forms of credit used by companies - commercial and industrial loans from banks, and short-term "commercial paper" not backed by collateral - collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001. The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.
Gold futures fall, pressured by dollar's gains Gold futures declined early Tuesday, as falling oil prices and a higher U.S. dollar left traders inclined to sell the precious metal. Gold for August delivery fell $5.20, changing hands at $922.50 an ounce on the New York Mercantile Exchange. On Monday, gold finished little changed, ending up 90 an ounce. "The metal may struggle to gain significantly until either oil or the dollar can provide support," wrote James Moore, analyst at TheBullionDesk.com. "However, with fresh sizable writedowns being posted by the large investment banks, we expect investors to remain cautious and risk averse as a result, which should draw more safe-haven investment demand from longer-term players," Moore said in a note.
Merrill Aims to Raise Billions More Firm Dumps Mortgage Assets as Crisis Drags On; Another Big Write-Down Merrill Lynch & Co. agreed to sell more than $30 billion in toxic mortgage-related assets at a steep loss, hoping to purge its balance sheet of problems that continue to plague the giant brokerage firm. The move was described by a person close to Merrill as an effort to "lance the boil" that has resulted in more than $46 billion in write-downs since June 2007. Dumping the assets for just 22 cents on the dollar will result in a write-down of $5.7 billion. That is an ominous sign for other Wall Street firms and commercial banks trying to get rid of loans and securities in a market flooded with distressed assets.
Merrill to sell troubled assets, raise capital Merrill Lynch to cut mortgage-backed securities, raise new capital by issuing shares Merrill Lynch & Co., in a broad move to clean up its troubled balance sheet, said Monday it will sell a big slice of its toxic asset-backed securities and issue new stock to raise $8.5 billion of fresh capital. The world's largest brokerage, struggling to right itself as the credit crisis continues, said it will issue more than 200 million new common shares as part of the deal. Merrill said it will write-down $5.7 billion because of additional losses on the sale of mortgage securities and hedging contracts. Chief Executive John Thain, who joined Merrill Lynch last year, had vowed in the past he wanted to avoid using a public offering to raise money. The latest move comes just over a week after Merrill reported a $4.6 billion second-quarter loss, where he raised $8 billion of much needed capital from asset sales instead of diluting the stock by issuing more shares.
MGM, Dubai Fall Behind on $3.5 Billion Loan for Las Vegas Plan MGM Mirage and Dubai World are late in raising as much as $3.5 billion for their $11.2 billion CityCenter project in Las Vegas because banks saddled with debt to casinos and hotels are wary of making new loans. Deutsche Bank AG and Credit Suisse Group, the Zurich-based bank that advised Dubai World last year when it invested $5.1 billion in MGM, are among the holdouts, bankers with knowledge of the matter said. Funding was supposed to be completed by the end of June, MGM Chief Financial Officer Daniel D'Arrigo told analysts in May. President James Murren said Frankfurt-based Deutsche Bank has been part of every MGM loan since 1998.
Turning the American Dream Into a Nightmare for Taxpayers President Bush is about to sign a major bill to bail out 400,000 reckless homeowners who find themselves in the cross hairs of greedy lenders seeking to foreclose on delinquent mortgages… This bail out will also throw tens of billions of taxpayer money at Fannie Mae and Freddie Mac, two private corporations specifically created by Congress to bring stability to mortgage lending. Heaven knows, no one wants to see any American kicked out of his or her home. But this action is yet another punch in the stomach to millions of Americans who have chosen to live their lives responsibly and within their financial means. Given the government’s penchant for serving as Uncle Nanny when it comes to home ownership, why in Hades should any responsible citizen scrimp and save and work hard when those who are reckless and irresponsible can count on being bailed out with taxpayer money?
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Mon 07.28.2008
Can Hank Paulson Defuse This Crisis? IF Henry M. Paulson Jr. hadn’t left Wall Street for Washington to become Treasury secretary in 2006, he would still be making tens of millions of dollars a year as the chairman of Goldman Sachs. He would be comfortably zipping around the globe on a corporate jet. He would be presiding over the only big Wall Street firm that hasn’t lost billions on bad debt. He wouldn’t be answering rounds of questions at meandering Congressional hearings. He wouldn’t be at the center of the Bush administration’s struggle to contain a potential financial meltdown the likes of which the world hasn’t seen since the Great Depression.
Fannie and Freddie: Grow up Not immediately, but at some time in the foreseeable future, Fannie Mae and Freddie Mac must be either officially nationalized or fully privatized. We vote for fully privatized. Let's cut the apron strings that tie them to the taxpayers' wallets and get government out of the business of guaranteeing securitized mortgages altogether. It is inappropriate for the U.S. taxpayer to be standing behind these two for-profit enterprises, helping to protect the shareholders from the poor and risky business practices of its management. Other countries have healthy real estate markets without anything like Fannie Mae of Washington or Freddie Mac of McLean, Va., providing government guarantees of mortgage-backed debt. That implied government guarantee not only contributed to the mortgage meltdown but now has taxpayers on the hook for as much as $5 trillion of mortgage debt.
No Free Bubble The short take on the economic crisis of the 1970s was that regulation failed. Price controls failed; high taxes failed; regulation was outmoded. The mortgage and banking crisis of 2008 feels diametrically different. What failed this time were markets. The lenders who were supposed to regulate mortgage borrowing — and the credit-rating firms who monitored them — failed utterly. The investors whose job it was to monitor the capital of financial institutions were asleep at the switch.
FDIC takes over 2 banks in the West Two banks operating in Nevada, Arizona and California — 1st National Bank of Nevada and First Heritage Bank N.A. — were closed Friday by federal regulators. The 28 branches of the banks, owned by Scottsdale, Ariz.-based First National Bank Holding Co., were scheduled to reopen on Monday as Mutual of Omaha Bank branches, the Federal Deposit Insurance Corp. said. The FDIC said the takeover of the failed banks was the least costly resolution and all depositors, including those with funds in excess of FDIC insurance limits, will switch to Mutual of Omaha with "the full amount of their deposits."
Gulf Arab investors target Asia as U.S. ties wane Gulf Arab investors are increasingly looking to Asia to invest windfall oil revenue, eager to ride the rise of China and India and diversify away from their traditional ties with the United States. "If you look at some of the big investment houses in the region, their appetite for Chinese is high," Nasser al-Shaali, chief executive of the Dubai International Financial Center (DIFC) Authority, told the Reuters Middle East Investment Summit this week. Public and private companies in the world's largest oil-exporting region want to take luxury hotel and resort brands to Beijing and Shanghai, invest in Indian power stations and funnel billions of dollars into Pakistani real estate. "What you are going to see is a capital moving eastward from the Middle East," said Shaali, whose dollar-based investment zone in the Arab world's commercial hub hopes to eventually rival financial centers in London, New York and Hong Kong.
Inflation's next front is retailers as costs rise Coming to a store near you: Even higher prices. Most inflation this year has come from food and fuel, as retailers resisted passing along to strapped consumers the higher prices manufacturers charged them, but coming increases from companies such as Johnson & Johnson and Hasbro Inc. may leave them with no choice. "While these increases have not for the most part been passed on at the retail level, it is inevitable that they will be at some point," said Dean Baker, co-director of the Center for Economic and Policy Research. "Car dealers and other retailers cannot continue to absorb rising costs at the wholesale level and not pass some of these increases on to consumers."
Hedge Funds May Post Worst Month in 5 Years as Bank Bets Sour Hedge funds may post their worst month in at least five years after bets on financial stocks falling and on crude oil rising backfired. Hedge Fund Research Inc.'s Global Hedge Fund Index of more than 55 funds slid 3.2 percent through July 24, heading for the biggest monthly drop since the measure started in 2003. Wagers on a decline in financial stocks and homebuilders, one of the most popular, soured after Fannie Mae and Freddie Mac shares more than doubled in the six trading days to July 23. Bullish bets on crude oil turned to a loss as oil slid 15 percent from a record $145.29 a barrel on July 3 after doubling in a year.
Maximize FDIC coverage LEARNING RULES KEY TO GETTING MOST OUT OF GOVERNMENT'S INSURANCE SERVICE The rules that govern federal deposit insurance are of more than passing interest to Bill Hogle, a 61-year-old Santa Monica retiree. More than half his wealth is tied up in certificates of deposit, and he lives on the income they produce. He knows his money is in different kinds of accounts that make him eligible for more than $100,000 of insurance, and he's been banking on that knowledge. But, in the aftermath of the failure of Pasadena-based IndyMac Bank, we're all increasingly nervous. Payrolls Probably Fell for Seventh Month: U.S. Economy Preview The U.S. lost jobs in July for the seventh straight month, a sign the economy may weaken after tax rebates boosted growth in the second quarter, economists said before reports this week. Payrolls probably shrank by 75,000, according to the median estimate in a Bloomberg News survey ahead of a Labor Department report on Aug. 1. The economy expanded at a 2.3 percent annual rate from April to June, more than twice the pace of the prior quarter, other figures may show. Sustained job losses will take a toll on Americans already burdened by record gasoline costs, plunging home values, and shrinking access to credit. The weakening labor market reinforces concern consumer spending will falter once the cash from the tax rebates is used up. Foreclosure filings more than double The number of households facing the foreclosure process more than doubled in the second quarter compared to a year ago, according to data released Friday. Nationwide, 739,714 homes received at least one foreclosure-related notice during the quarter, or one in every 171 U.S.households, Irvine, Calif.-based RealtyTrac Inc. said. Soft housing sales, declining home values, tighter lending standards and a sluggish U.S. economy have left strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan. Foreclosure filings increased year-over-year in all but two states, North Dakota and Alaska. Nevada, California, Arizona, and Florida continued to clock in the highest foreclosure rates. One in every 43 Nevada households received a filing during the quart.
U.S. Senate approves a wide, deep property 'safety net' Hoping to stretch a safety net under the tumbling U.S. housing market, the Senate overwhelmingly approved a huge package of legislation that includes a program to save hundreds of thousands of American families from losing their homes to foreclosure. The legislation, passed earlier by the House of Representatives, is the latest in a series of extraordinary interventions this year by the administration of President George W. Bush, Congress and the Federal Reserve as they sought to limit shock waves in the housing sector from rippling across the U.S. economy and the world financial system. In the process, the central bank and taxpayers have taken on what critics warn are incalculable liabilities and risk
Mortgage Debt Least of Bad Bets as Investing Sinks The fastest inflation in 17 years and a fourth straight quarter of U.S. profit declines are turning debt sold by Fannie Mae and Freddie Mac into the favorites of the world's biggest bond investors. Pacific Investment Management Co., T. Rowe Price Group Inc., RiverSource Institutional Advisors and U.S. Bancorp's FAF Advisors, which oversee more than $1 trillion, say the government's decision to stand behind the beleaguered U.S. housing finance companies and their yields compared with Treasuries make the bonds a buy. The Senate approved legislation on July 26 allowing the U.S. to inject capital into Fannie and Freddie. President George W. Bush plans to sign it into law.
US credit crunch set to last for months The credit squeeze in the US economy is likely to persist for many months and might even get worse, Gary Stern, president of the Federal Reserve Bank of Minneapolis, has told the Financial Times. He said that with interest rates at 2 per cent the Fed was well-placed to cope with any negative surprises on growth. By contrast, he said, it was not as well positioned to deal with any negative surprises on inflation. Even without any such surprises, the Minneapolis Fed chief also said real interest rates were at levels that, if sustained for too long, would not be compatible with medium-term price stability. Either inflation expectations would have to decline, or the Fed would have to raise interest rates, or both, in order to achieve the required tightening in real rates. However, Mr Stern emphasised the need for the Fed to balance unease about the low level of real interest rates with risks to growth.
More Whipsawing Is in the Forecast for Treasurys$$ Treasury investors face more volatile trading in a data-heavy week as few expect a clear picture to emerge on the state of the economy. Continued stress in the financial sector and the daily seesaw in stocks and crude oil are likely to make things only worse. "It has been a very treacherous environment," said Larry Dyer, rate strategist with HSBC Securities USA Inc. Last week, Treasurys were pummeled by supply, only to rally on soft economic data Thursday, then give up a big part of those gains Friday amid favorable data on durable goods, consumer confidence and new-home sales
Wall St awaits clearer economic picture With Wall Street investors hesitant, fresh data in the coming week could help provide a clearer picture of whether the US economy is in recovery mode or an extended downward spiral. The market saw choppy trade in recent sessions, lifted by lower crude oil prices and hints of an economic rebound, but falling back on indications that a recovery is faltering, as occurred after a disappointing report on existing home sales. Chrysler Lending Arm In Weakened Position As It Refinances$$ Unit's Leasing To Be Eliminated; $30 Million Owed A critical deadline is approaching for Chrysler LLC, which must refinance $30 billion of its lending arm's working capital by Friday amid a shake-up in the unit's leasing strategy. The auto lending business, Chrysler Financial, has come under intense pressure in recent weeks, as resale values on leased cars fall and borrowing conditions tighten. Chrysler LLC on Friday decided to stop offering auto leases through Chrysler Financial beginning in August -- a move that could squeeze car dealers hoping to move Chrysler cars but could pacify the unit's restive lenders, who are worried about the value of Chrysler leases used to back their loans.
This Time, It's Different Global Pressures Have Converged to Forge a New Oil Reality The two events, half a world apart, went largely unheralded. Early this month, Valero Energy in Texas got the unwelcome news that Mexico would be cutting supplies to one of the company's Gulf Coast refineries by up to 15 percent. Mexico's state-owned oil enterprise is one of Valero's main sources of crude, but oil output from Mexican fields, including the giant Cantarell field, is drying up. Mexican sales of crude oil to the United States have plunged to their lowest level in more than a dozen years. The same week, India's Tata Motors announced it was expanding its plans to begin producing a new $2,500 "people's car" called the Nano in the fall. The company hopes that by making automobiles affordable for people in India and elsewhere, it could eventually sell 1 million of them a year. Although neither development made headlines, together they were emblematic of the larger forces of supply and demand that have sent world oil prices bursting through one record level after another. And while the cost of crude has surged before, this oil shock is different. There is little prospect that drivers will ever again see gas prices retreat to the levels they enjoyed for much of the last generation.
Housing Bill Won't 'Perform Miracles' Senate Approves Measure, but Critics Say Law Unlikely to Prevent Most Foreclosures Even as a huge bipartisan majority in the Senate voted yesterday to send a sprawling housing bill to the White House, economists, consumer advocates and other analysts said the package of programs for struggling homeowners and shaken mortgage lenders is unlikely to relieve the foreclosure crisis that is driving the nation toward recession. "This is not the end of the housing crunch," said Jared Bernstein, a senior economist at the Economic Policy Institute. "Housing prices have already fallen 15 percent and they need to fall 10 percent more. This bill isn't going to change that equation."
BANKS ARE STILL ON THE SHORT LIST Some short-sellers on Wall Street are predicting more pain for financial-sectors stocks - despite the rally some shares posted this week in the wake of second-quarter results. One investor, Bill Fleckenstein, president of Fleckenstein Capital, said he's far from calling the bottom on any financial sector stock tied to mortgages and still wouldn't buy a single one of them. "All financials will make new lows, not because of this week's inflated rally, but because we have not factored in the interplay of lower home prices, a slower economy, and we don't have proper marks on assets in our investment banks," said Fleckenstein, who has recently authored a book called "Greenspan's Bubbles."
Economists Weigh Possibility of a Recession Amid Economic Growth$$ House prices are tumbling in the U.S., the job market is faltering, gasoline is about $4 a gallon and financial markets are struggling through their worst shock in decades. This must be a recession, right? Maybe, maybe not. The U.S. economy is expanding. It is likely to show a growth rate of more than 2% at an annual rate when the government gives its first estimate of the second-quarter performance Thursday. The continued growth raises a key question: Could this be the first U.S. recession without a decline in economic output?
City and State Brace for Drop in Wall Street Pay Government officials in New York are preparing for what could be the biggest single-year decline in pay on Wall Street in history and with it a vexing shortfall in city and state revenues.A review of the latest statements from the largest financial companies based in the city shows that they intend to hand out about $18 billion less in pay and benefits in 2008 than in 2007. The cutting of payrolls is well under way, but the full effect will not be felt until the year’s end, when bonuses for employees based in New York could shrink by $10 billion or more, according to city officials and compensation experts. In Volatile Times, Investors Tune in All and Any Predictions The news hit Wall Street trading floors on the morning of July 2: Some analyst at Merrill Lynchwas saying the General Motors Corporation might go bankrupt. Within minutes, the share price of G.M., the landmark corporation that once symbolized America’s industrial might, was plunging to its lowest point since 1954. What the Merrill analyst actually wrote, in a downbeat report on the troubled automotive giant, was that bankruptcy for G.M. was “not impossible” — an equivocal forecast that could be applied to almost any event, from winning the lottery to the odds of rain a week from Wednesday. But amid a financial crisis where the unthinkable has seemingly become routine, Wall Street forecasters — and even the markets themselves — are struggling to get a handle on what will happen next. The result has been a flood of brash pronouncements, as the Cassandras of the financial set try to outdo themselves with increasingly outlandish predictions. “These are volatile times. There’s a lot of moving parts here, and nobody can quite figure out how they all mesh,” said the investment strategist Edward Yardeni. “You’re hearing a lot of catastrophic predictions.
WHERE IS THE ECONOMY GOING IN THE NEXT SIX MONTHS? As investors, the question we have to focus most of our attention on just now is what impact the credit crisis, the bursting housing bubble and the actions of the U.S. government will have on the economy and investment markets in the next six months. We have seen the Fed and the federal government move to panic mode as they try to keep the system afloat. As expected, they have cut rates, as well as having given away checks and rearranged the Federal Reserve’s entire balance sheet The underlying problems have not been fixed with this massive bailout. There are still many credit pot holes out there and new lending remains highly constrained. Even the government tax rebate checks, rather than boosting the domestic economy, were largely absorbed by higher oil prices. The resulting cut-back in consumer spending, coupled with ongoing constrictions in lending, will cause a severe slowing of the economy.
TROUBLED GM IS PUTTING THE ARM ON ITS RETIREES GM doesn't only stand for General Motors anymore. It also stands for "grab money." With profits down by a shocking amount in the depressed auto industry, the Grab Money Corp. is getting its liquidity from the people who can least afford it - its retirees The nation's biggest automaker - but no longer the world's - is soon expected to report a big second-quarter loss. And with the economy not showing much acceleration, the hard times are expected to continue. There have even been whispers - nah, make them shouts - that GM might have to file for bankruptcy protection, perhaps along with other American automakers. So, it turns out, that GM is very lucky that its retirees are so generous - even if they probably aren't aware of their own magnanimity.
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Fri 07.25.2008
With Fannie/Freddie Bailout Plan, Treasury Secretary Paulson is Armed and Dangerous With the nation’s financial infrastructure crumbling before our very eyes, the country’s top two economic policymakers made their way to Congress last week for an extraordinary episode of political theater. Fannie Mae and Freddie Mac, the quasi-government entities that form the backbone of America’s gargantuan mortgage market, appeared to be cracking. To the somewhat bewildered members of Congress, U.S. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson offered radical bailout remedies to save the lenders. Despite the fact that the proposed policies would thoroughly redefine America’s supposedly capitalistic pedigree, the moves were presented as wholly inevitable, and in the end, benevolent and costless.
Mortgage Writedowns to Total $1 Trillion, Gross Says Falling U.S. home prices will force financial firms to write down $1 trillion from their balance sheets, crimping bank lending and sparking sales of assets, said Bill Gross, who manages the world's biggest bond fund. A total of $5 trillion of mortgage loans, or almost half of the nation's home loans, belong to "risky asset categories" such as subprime and Alt-A, Gross of Pacific Investment Management Co. said in commentary posted on the firm's Web site today. About 25 million U.S. homes are at risk of negative equity, which could lead to more foreclosures and a further drop in prices, he said. A home has negative equity when it's worth less than the mortgage with which it was bought. "The problem with writing off $1 trillion from the finance industry's cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth," Gross wrote. If you are looking for a new chapter in American history, it has just begun. Call it the bailout boom.
Foreclosure filings up 120% 220,000 homes were lost to bank repossessions in the second quarter, and the annual forecast for 2008 will have to be revised upward. As foreclosures continue to soar, 220,000 homes were lost to bank repossessions in the second quarter, according to a housing market report Friday issued by RealtyTrac. That's nearly triple the number from the same period in 2007. A total of 739,714 foreclosure filings were recorded during that three-month period, up 14% from the first quarter, and 121% from the same period in 2007. That means that one of every 171 U.S. households received a filing, which include notices of default, auction sale notices and bank repossessions. "Most areas of the country are seeing at least some increase in foreclosure activity," said James Saccadic, CEO of RealtyTrac, an online marketer of foreclosed homes. "Forty-eight of 50 states and 95 out of the nation's 100 largest metro areas experienced year-over-year increases in foreclosure activity."
U.S. Foreclosures Double as House Prices Decline U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth. One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005. "Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages," said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. "That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages."
Nerves return to financial sector as investors dump shares in WaMu The fear and the speculation that has plagued the financial sector since the start of the credit crisis returned with a vengeance yesterday, with investors dumping shares in one of the country's largest mortgage lenders. Washington Mutual, the Seattle-based savings and loan company, tried to calm nerves, saying it was well capitalised, following a research report which said that many of its creditors had been quietly pulling their money out. Gimme Credit analyst Kathleen Shanley made the claim following a review of the small-print in the company's financial results statement on Tuesday. Since that statement, shares in WaMu – as the company is affectionately known – have lost almost a third of their value
WaMu Bond Risk Rises as Credit-Default Swaps Climb to Record The cost to protect Washington Mutual Inc. bonds from default rose for a third day to a record amid concern that the biggest U.S. savings and loan won't be able to weather the worst housing crisis since the Great Depression. Credit-default swaps on Seattle-based Washington Mutual traded at a record high after Gimme Credit LLC " Washington Mutual this week reported a $3.3 billion second-quarter loss and increased loan loss provisions 69 percent to $5.9 billion as borrowers fell behind on their mortgages.
Daimler's GotThe Shakes While some European automakers see their earnings prospects this year unaffected by rising raw material and gasoline prices and slowing consumer spending, Daimler begs to differ. The automaker said Thursday that car markets deteriorated significantly in June and continued to do so in July, according to TradeTheNews.com. "Overall economic conditions have not improved and we had to reassess our performance," Thomas Froehlich, spokesman for Daimler, told Forbes.com. The German automaker cut its 2008 outlook after reporting its second-quarter results, which were in line with analysts' expectations. Traders manipulated oil prices - U.S. Regulators claim firm attempted to 'bang the close' by amassing large positions just before markets closed. The government charged an oil trading firm Thursday with manipulating oil prices in the first complaint to be announced since the regulators began a new investigation into wrongdoings in the energy markets. The Commodity Futures Trading Commission accused Optiver Holding, two of its subsidiaries and three employees with manipulation and attempted manipulation of crude oil, heating oil and gasoline futures on the New York Mercantile Exchange. "Optiver traders amassed large trading positions, then conducted trades in such a way to bully and hammer the markets," CFTC Acting Chairman Walt Lukken said at a press conference. "These charges go to the heart of the CFTC's core mission of detecting and rooting out illegal manipulation of the markets." In May, under the backdrop of record oil prices and calls from legislators to crack down on speculative oil trading and market manipulation, the CFTC announced a wide-ranging probe into oil price manipulation. The agency says it has dozens of investigations ongoing.
Stocks Fall Sharply [on Thursday] Renewed Housing Worries Wall Street abruptly ended an earnings-driven rally and closed sharply lower Thursday after a steeper-than-expected decline in existing home sales and worries about the financial sector chilled the market's recent optimism. The major indexes fell about 2 percent, including the Dow Jones industrial average, which lost more than 280 points. The National Association of Realtors said sales resumed their decline in June after a slight rebound in May. Existing home sales declined by 2.6 percent in June, well beyond the 1 percent drop economists had forecast. Investors punished shares of homebuilders and financial companies Thursday because both sectors have struggled with the declining housing market.
US financial stocks in worst fall since 2000 US financial stocks suffered their worst one-day fall since 2000 on Thursday, as investors’ recent optimism was hit by renewed fears over the health of Washington Mutual and weak housing data. Financial shares had rallied more than 30 per cent in the preceding five days amid relief at smaller-than-expected losses at several leading lenders and a government crackdown on abusive short-selling. But the market cracked in the morning after the release of figures showing sharp drops in US home sales and house prices. The rout then gained momentum after Gimme Credit, a research firm, suggested that creditors and customers were cutting their exposure to WaMu – prompting a spirited response by the lender.
Sour Economy Spurs Government$$ Amid Turmoil, U.S. Turns Away From Decades of Deregulation The housing and financial crisis convulsing the U.S. is powering a new wave of government regulation of business and the economy. Federal and state governments alike are increasingly hands-on in their effort to deal with failing businesses, plunging house prices, worthless mortgages and soaring energy prices. The steps add up to a major challenge to the movement toward deregulation that has defined American governance for much of the past quarter-century since the "Reagan Revolution" of the early 1980s. In fact, some proponents today of a bigger oversight role for government are Republican heirs to the legacy of President Reagan.
Dow Skids Amid Grim Housing Data [Thursday] $$ Disappointing housing data plunged stocks into the doldrums Thursday as investors' fears about the mortgage crisis and economic weakness rekindled. The Dow Jones Industrial Average, which enjoyed a 165-point rally over the previous two sessions, erased all of those gains and then some, hobbled by sharp losses in all its financial components. The blue-chip average finished down 283.10 points, off 2.4%, at 11349.28, its lowest close since July 16. The measure has moved back within range of bear-market territory, 19.9% off its record high seen in October. The stock market opened lower and saw its losses widen after the National Association of Realtors reported a larger-than-expected drop in sales of existing homes in June. Sales were off 2.6% to a seasonally adjusted annual rate of 4.86 million units. The decline was more than double the drop expected by Wall Street.
The Short View: Oil and US banks Bastille Day, July 14, is a good day for an old order to come to a sudden and brutal end. And on July 14, the blade came down on the phenomenally successful “buy oil, sell financials” trade. This trade, popular with hedge funds, offered a rare way to make money this year. It exploited the credit crisis and the response it provoked from the Federal Reserve. Investors deserted banks in the US (and Europe to a lesser extent) and bet that liquidity would instead flow to oil. As higher oil prices made it harder to aid banks with lower rates, and intensified pressure on banks’ customers, it was self-reinforcing.
What Financials Rally?$$ Countrywide Loans Marked to Market Show Sector Frailty No sooner had financial stocks gotten up off the mat than poor existing-home sales body-slammed them. The abrupt halt Thursday to the relief rally that started last week underscored how little confidence investors have in the sector. Many feel they can't get a handle on bank balance sheets. Details that emerged earlier this week from Bank of America's purchase of Countrywide Financial help explain why that is the case. The deal's numbers show that big losses could still lurk in banks' closets. If so, their loan portfolios are worth far less than the stated values, and reserves taken against possible losses are inadequate. And if bank capital is overstated, firms could again be forced into dilutive capital raising.
GOP kills effort to release oil from US stockpile House Republicans on Thursday scuttled a bill that Democrats hoped would help lower gasoline prices by forcing the Energy Department to release 70 million barrels of oil - about a three-day supply - from the national stockpile. Democrats promised that the action would have produced immediate relief at the pump, as was the case with similar releases in 1991, 2000 and 2005. The Strategic Petroleum Reserve now holds about 700 million barrels. Despite winning a clear 268-157 majority, the measure still lost. Democratic leaders had brought the proposal up for debate under rules requiring a two-thirds vote to pass. But passing the bill by just a majority would have meant allowing Republicans to force a vote on new offshore drilling leases.
Ford posts $8.7 billion loss on asset write-downs Ford Motor Co. posted the worst quarterly performance in its history Thursday, losing $8.67 billion in the second quarter. The company also said it will retool two more North American truck and sport utility vehicle plants to build small, fuel-efficient vehicles, and it announced plans to bring six new small vehicles to North America from Europe by the end of 2012. The net loss includes $8.03 billion worth of write-offs because the sharp decline in U.S. truck and SUV sales has reduced the value of Ford's North American truck plants and Ford Motor Credit Co.'s lease portfolio. Even excluding those items, Ford lost 62 cents per share, worse than Wall Street expected. Twelve analysts surveyed by Thomson Financial, on average, expected a 27 cent loss per share.
Bleeding cash, Ford looks to Europe for help Bleeding cash and with its very survival uncertain, Ford Motor Co., an icon of American automaking, will try to import some of its success from across the Atlantic. Ford reported its worst-ever quarterly loss Thursday and announced plans to bring over six small, fuel-efficient cars it makes in Europe and start selling them in North America, where Ford is losing billions on its truck-heavy lineup. The company burned through nearly $11 billion of its cash stockpile in the past year and reported a second-quarter loss of $8.7 billion. Ford is trying to save itself by quickly morphing from a truck company into a car company. But the help from Europe won't arrive until 2010: It takes time to retool U.S. plants, and importing the cars directly is too costly. Industry watchers wonder whether Ford has enough cash to survive until then.
Ford, Daimler, Hyundai profits fall; Renault up Ford Motor Co. posted its worst quarterly loss ever Thursday in a roiling global auto market that also saw profits fall at Daimler AG, Hyundai Motor Co. and AutoNation Inc. Renault SA reported a profit increase in the first half of the year but still plans to cut jobs and scale back production. The rising cost of oil and raw materials and the economic slowdown in North America and Western Europe were generally to blame for the automakers' woes. In the U.S., auto sales dropped 10 percent in the first half of the year as consumers were stunned by high gas prices and falling home values. Sales in Europe dropped 8 percent in June and threaten to continue their slide. "Demand in Western Europe has deteriorated sharply and there are no signs of recovery in the remainder of the year," Standard and Poor's Ratings Services said Thursday as it revised its outlook on Renault to negative. AutoNation Inc., the largest U.S. auto retailer, said its second-quarter profits tumbled 33 percent to $51.8 million as sales dried up. The Fort Lauderdale, Fla.-based company announced plans to cut 1,300 jobs and sell underperforming dealerships in order to reduce costs by $100 million per year.
Retail seen to risk meltdown in next 10 years Rising costs and depressed demand could reshape Britain's retail industry over the next 10 years, with bankruptcies and job losses set to rise as companies struggle to adapt, a report showed on Friday. The cost of running a retail business is set to explode over the next decade as tighter environmental regulations, higher energy prices and more expensive supply chains create a sustained period of inflation, according to the ActiveResilience Retail Risks report by Verdict Consulting. Verdict estimates retail cost inflation could rise to 9 percent or more over the next 10 years, from 4 percent now. At the same time, it believes consumer demand will slow, with retail spending growth moderating to 2.6 percent in the 2010s from 6 percent in the 1990s. "Managing a simultaneous increase in costs and a slowdown in demand will be extremely challenging," Verdict said." Over the medium term the number of retail bankruptcies and job losses will increase steadily as players adapt to the new retail reality."
New York sues UBS for securities fraud The attorney general of New York accused UBS of consumer and securities fraud on Thursday, saying the bank misled investors when it sold them auction-rate securities. Auction-rate securities are preferred shares or debt instruments with rates that reset regularly, usually every week, in auctions overseen by the brokerage firms that originally sold them. But the $300 billion market for these instruments collapsed in February, trapping investors who had been told that they were safe and easy to cash in. Even as a senior executive at UBS called the market "a complete loser," the bank continued to pitch the securities as short-term, liquid investments, according to the civil complaint filed by Andrew M. Cuomo, attorney general of New York. At the same time, seven executives at the bank sold their personal holdings of the securities, which totaled $21 million, to avoid losses, according to the complaint.
Take taxpayers off hook for rot at Fannie, Freddie By John McCain, Special to the Times Americans should be outraged at the latest sweetheart deal in Washington. Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It's a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade. With combined obligations of roughly $5-trillion, the rapid failure of Fannie and Freddie would be a threat to mortgage markets and financial markets as a whole. Because of that threat, I support taking the unfortunate but necessary steps needed to keep the financial troubles at these two companies from further squeezing American families. But let us not forget that the threat that Fannie Mae and Freddie Mac pose to financial markets is a tribute to crony capitalism that reflects the power of the Washington establishment.
IT COULD BE CURTAINS FOR LINENS 'N THINGS Linens 'n Things has experienced alarmingly steep sales declines since it went bankrupt, raising worries that the home-furnishings chain may be forced to liquidate its business. The Clifton, NJ-based retailer - taken private in 2005 for $1.3 billion by billionaire Leon Black's Apollo Management - has been hemorrhaging customers since it filed for Chapter 11 reorganization in May, as the chain virtually stopped advertising to conserve cash following a spring ad-spending binge, sources said.
The Fed did not panic The Fed had to prevent a disaster Let us scotch one foolish and dangerous notion already gaining acceptance. Those who accuse the Fed of acting out of panic in slashing rates 75 basis points on Wednesday do not grasp the seriousness of the situation. The move was imperative to prevent a grave financial crisis spiralling into disaster. The threat of a melt-down in the $2.4 trillion market for US municipal bonds had suddenly moved from possible to imminent. No monetary authority could ignore such risks. As skittish markets showed today, more will undoubtedly be required, and soon. But at least the US authorities are facing up to the predicament that they created in the first place by fixing the price of credit artificially low for year after year, and failing to regulate banks, derivatives, and structured credit with a minimum of common sense. "Central banks have lost control," said George Soros to the chastened elites in Davos today, so humbled from the hubris of last year.
Credit card demand surges among small firms Small businesses are increasingly turning to credit cards to keep them afloat, The Bank of England's quarterley credit survey suggests. The banks report that demand for credit cards has increased at the fastest rate in a year. Demand for other forms of unsecured lending have fallen and demand for secured lending has fallen dramatically. The Bank has been conducting this survey every quarter for a year now and it is the first time that the banks report that they expect far less demand from small firms for secured lending over the next three months. What is driving this change? The banks say that they are increasing the price of unsecured and secured loans and toughening up their lending criteria. Why this is driving smaller firms to make more use of credit cards remains unexplained.
Jobs, housing hit new lowsUnemployment claims surge Two cornerstones of the economy - jobs and housing - sank to new depths Thursday, with unemployment claims bolting higher and home prices recording one of their steepest drops on record. The bleak reports underscored the self-reinforcing cycle hampering the economy: As home prices sink, foreclosures rise, banks feel pressure to shy away from lending and employers cut jobs. The Labor Department said the number of newly laid-off people filing for unemployment benefits rose to 406,000 last week, a jump of a seasonally adjusted 34,000. The last time jobless claims were higher was after the Gulf Coast hurricanes in 2005. The housing news wasn't any better: As sales of previously owned homes fell in June and a glut of unsold and foreclosed homes on the market, the value of Americans' biggest asset continued to sag.
Ford suffers record loss Shifts focus from trucks Ford Motor Co., the world's third-biggest automaker, posted a record quarterly loss of $8.7 billion and accelerated a conversion to fuel-efficient vehicles to wean itself from money-losing trucks. Ford shares fell the most in eight years after the company reported a second-quarter deficit of $3.88 a share compared to a profit of $750 million, or 31 cents, a year earlier. The figure included $8 billion in pretax write-downs for plant closings and the declining value of truck leases at Ford Motor Credit Co.
Grand jury investigating home lenders for fraud A federal grand jury is investigating mortgage lenders Countrywide Financial Corp., New Century Financial Corp. and IndyMac Bancorp Inc., a person familiar with the situation told the Associated Presson Thursday. Subpoenas seeking documents have been issued to all three companies, according to the source, who was not authorized to speak publicly about the case and requested anonymity. The subpoenas are seeking e-mails, phone bills, financial records and other information, according to the Los Angeles Times, which cited unnamed people with direct knowledge of the subpoenas in first reporting the investigation was under way. The grand jury investigation is the clearest sign yet that prosecutors are investigating whether fraud and other crimes might have contributed to the mortgage crisis that led to the demise of all three California-based lenders.
Iran ends cooperation with UN nuclear arms probe Iran signaled Thursday that it will no longer cooperate with U.N. experts probing for signs of clandestine nuclear weapons work, confirming the investigation is at a dead end a year after it began. The announcement from Iranian Vice President Gholam Reza Aghazadeh compounded skepticism about denting Tehran's nuclear defiance, just five days after Tehran stonewalled demands from six world powers that it halt activities capable of producing the fissile core of warheads. Besides demanding a suspension of uranium enrichment - a process that can create both fuel for nuclear reactors and payloads for atomic bombs - the six powers have been pressing Tehran to cooperate with the International Atomic Energy Agency's probe.
An Oil Romance On the Rocks Five Years After BP United With Russian Tycoons, a Marriage of Opportunity Is in Collapse The marriage of British oil giant BP and a group of Russian-bred tycoons in a joint venture in 2003 was strained from the start. "The first risk . . . is mutual distrust," the joint venture's executive director German Khan warned his colleagues in the company newsletter when the deal was signed. Mistrust has curdled into open hostility, despite the fact that the 50-50 joint venture, called TNK-BP, has doubled or tripled in value -- and paid out a staggering $18 billion in dividends to its shareholders in just five years. Both sides are tapping into rich reservoirs of grievance and accusation. The Russian oligarchs accuse BP of pursuing its own interests, overloading the venture with costly expatriates and refusing to let it pursue exploration opportunities in other countries, such as Cuba. Meanwhile, BP suspects that its Russia-based partners want to siphon off prized assets and seize management control. BP also believes the partners have prompted Moscow authorities to escalate tax investigations, conduct a raid on the company's offices, and turn down the visas of 148 expatriate workers who have been forced to leave the country. Separately one expatriate staff member was arrested on suspicion of espionage.
THE FINAL GLOBALIZATION OF THE U.S. BANKING SYSTEM We live in a globalized world—a world without barriers or borders, which means every aspect of our economic structure has to change. A private corporation, we call the Federal Reserve, controls the majority of our monetary system. To understand the new set of powers being advanced by the U.S. Treasury Department to the Federal Reserve, we first must recognize that the Federal Reserve Act passed in 1913never gave them (the Feds) total power over our economy. To appreciate the importance of what is currently taking place, we must first realize that as a private corporation, the Federal Reserve is not required to make public who sits on their board of Directors nor who or what banks and corporations hold stock in their private company. Additionally, they are not required to publish an annual report, and I am told, they pay no taxes. So why is it that the American people cannot forgive themselves the interest on their debt? It is because it is owed to a private corporation!
Why Democrats don't want to lower gas prices Senator lets cat out of the bag on Bloomberg TV show A Democratic senator on the Energy and Natural Resources Committee inadvertently explained why her colleagues have no intention of ending the moratorium on offshore oil drilling or increasing the areas open for exploration and production – no matter how popular the idea might be with gas prices soaring. In an interview with Bloomberg TV's "Money and Politics" last night, Sen. Maria Cantwell, D-Wash., explained Democrats don't want to increase supplies of oil and gasoline because they want to wean Americans off of petroleum products. Asked point-blank if Democrats in the Senate would consider how increasing the supply of oil would lower the prices that are pinching U.S. consumers, Cantwell replied: "Oh, we definitely want to move beyond petroleum. And so there will be a supply side offered by the Democrats and it will include everything from battery technology to making sure that we have good home domestic supply, and looking, as I said about moving faster on those kind of things like wind and solar that can help us with our high cost of natural gas." In other words, no.
Bankruptcies soar in Santa Clara County as homeowners struggle with mortgages, credit cards Like many others caught in the housing crisis, Arthur was on the verge of losing his $600,000 home to foreclosure. This month, nearing $1 million in debt, the veteran real estate agent and San Jose father of three filed for Chapter 13 bankruptcy. "I have taken upward of 25 phone calls a day from creditors," he said. "When you have 25 people grinding on you day after day, it takes a toll." Arthur can add himself to the list of 5,941 people who filed for bankruptcy in the San Jose Division of U.S. Bankruptcy Court from July 2007 through June 2008. Of the four Bay Area bankruptcy courts, San Jose's - which oversees Santa Clara, Santa Cruz, San Benito and Monterey counties - posted the highest increase in bankruptcies - 69.7 percent - over the 12 previous months. Once, job loss, massive medical bills or divorce were the primary reasons people declared bankruptcy. Now, a growing number of filings are related to the housing crisis, say local judges, attorneys and credit counselors.
Russia Conducts Test Flights Near N. Pole Flights Boost Military Presence In An Area Believed To Be Rich In Oil, Gas Russia's navy conducted test flights near the North Pole on Thursday, boosting its military presence in an area believed to contain vast quantities of oil and natural gas. Cpl. Vladimir Serga, a naval spokesman, said that Il-38 anti-submarine bombers and Tu-142 long-range strategic bombers of the Northern Fleet took part in the exercise, in which the planes' crews tested radio and weapons systems management equipment. Serga described the exercise as successful. The flights come two days after a Russian missile cruiser began patrols in the Arctic.
The next colonial scramble The news that massive deposits of oil and gas have been found in the Arctic confirms what geologists, oil companies and governments have believed for decades: that these icy wastes house vast fossil fuel resources. But the precise estimate now made by the United States Geological Survey – suggesting that the region contains about one-third of the world's undiscovered gas and about one-sixth of its undiscovered oil – is bound, at a time of high oil prices, to accelerate what could well be the world's last great colonial scramble.
That scramble has been proceeding steadily, without much fanfare, for some time. There are already more than 400 oil and gas fields north of the Arctic Circle. Shell has quietly spent $2bn (£1bn) acquiring drilling leases off Alaska. ExxonMobil and BP have spent huge sums on exploration rights off Canada. Just last week the US government lifted a 17-year ban on offshore drilling to make the US less reliant on imports.
The powers that border the Arctic – Canada, the United States, Russia, Norway and Denmark – have begun jostling for advantage. Last year a Russian submarine planted a flag under the North Pole to stake its claim. Canada is talking about commissioning 12 new nuclear-powered submarines to patrol the waters. Moscow has built a huge fleet of heavy icebreakers
Hill Budget Chief Weighs Odds, Cost Of Rescue Plan Fannie, Freddie Could Need $100 Billion or Not a Cent The Bush administration's plan to prop up troubled mortgage-finance giants Fannie Mae and Freddie Mac is likely to cost taxpayers less than $25 billion, Capitol Hill's chief budget analyst said yesterday. But there is an outside chance that a further collapse in the housing market could require an infusion of $100 billion or more. In a letter to lawmakers, Peter R. Orszag, director of the Congressional Budget Office, also said there is "a significant chance -- probably better than 50 percent" -- that federal officials would never have to use the authority to lend the firms money or buy their stock. "There is significant uncertainty involved here," Orszag told reporters. The cost "could be zero. It could be $100 billion."
Oil & the Gold-Oil Ratio (GOR) We have finally gotten our break in oil. That is a major fundamental relief because with manic oil bulls stampeding, congress and the administration fretting (and plotting hair brained solutions) and the Fed stuck in a box made with walls of Greenspan's easy money policy (inflation) and the effects of that policy (escalated prices), all of us - from the average guy going paycheck to paycheck to precious metals investors - were being held in suspended animation. The Fed is not simply pretending to be concerned about inflation in this scenario, they ARE concerned because a price explosion like that of oil - and especially the one likely in gold at a later date - threatens to discredit the institution for all to see as they pray to the munny gods for the ability to ease policy while at the same time some moonshot asset class slaps them upside the head day after day.
Oil bounces back after dropping a day earlier Oil rises above $125 a barrel after steep fall in previous session on worries over US demand Oil prices rose Thursday after shedding nearly $4 a barrel in the previous day's session on concerns that high fuel prices are dampening demand in the world's biggest energy consuming country. By the afternoon in Europe, light, sweet crude for September delivery was up $1.16 at $125.60 a barrel in electronic trading on the New York Mercantile Exchange. The contract on Wednesday dropped $3.98 to settle at $124.44 a barrel, crude's lowest finish in floor trade since June 4. A weekly report by the U.S. Energy Department's Energy Information Administration showed that gasoline demand over the four weeks ended July 18 was 2.4 percent lower than a year earlier -- offering further evidence that Americans are cutting back on fuel.
Oil Survey Says Arctic Has Riches The Arctic may contain as much as a fifth of the world’s yet to-be-discovered oil and natural gas reserves, the United States Geological Survey said Wednesday as it unveiled the largest-ever survey of petroleum resources north of the Arctic Circle. Oil companies have long suspected that the Arctic contained substantial energy resources, and have been spending billions recently to get their hands on tracts for exploration. As melting ice caps have opened up prospects that were once considered too harsh to explore, a race has begun among Arctic nations, including the United States, Russia, and Canada, for control of these resources.
Gold Falls as Dropping Energy Costs Cut Inflation-Hedge Demand Gold fell the most in six weeks as slumping energy costs and a stronger dollar cut demand for the metal as a hedge against inflation. Silver also declined. Crude-oil futures traded as low as $124.34 a barrel, a 16 percent decline from a record reached on July 11. The dollar rose for a second straight session to a two-week high against the euro. Before today, oil jumped 69 percent in the past year while gold climbed 39 percent. The metal reached a record $1,033.90 an ounce on March 17. "Investors are selling gold against the crude,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. "You've taken away the oil-inflation premium. We're ultimately blaming the short-term moves on oil because it's impacting everything.''
Wall Street Shrinks From Competing With Fannie Mae, Freddie Mac Bobby Joe Cooper says she "kicks herself every day'' for not using a Fannie Mae or Freddie Mac mortgage when she refinanced her Terre Haute, Indiana, home three years ago. Instead, the 29-year-old mother of three borrowed $55,000 at 5 percent, a point lower than a so-called conforming loan guaranteed by the nation's two biggest mortgage-finance companies. Cooper, the manager of Courtesy Cleaning Center on the city's south side, said she didn't understand it was a subprime mortgage, reserved for borrowers with poor credit histories, and that its rate would triple within two years
No Bottom Yet for Failing Financials In recent months, even the most blindly optimistic forecasters have come to grips with how our banks and investment banks took wildly imprudent risks that will result in horrific losses. The resulting sell-off in financial shares has tempted many investors to scoop up these companies at apparently fire sale prices. Wise investors should resist the temptation, as the pain for financials is just getting started. Although voices of prudence were dismissed at the time, these banks’ risks were leveraged largely through “off-balance sheet” mechanisms that generated massive financial rewards for the financials while keeping the losses supposedly at arm’s length. The resulting windfall yielded $26 billion in bonuses for Wall Street in 2007. The tolerance for the risks and leverage was based upon the widespread belief that real estate prices were set to rise without correction. We now know that this was a fairy tale.
Bush the Bartender Sure, Wall Street was drunk. But who does he think served the drinks? "Wall Street got drunk," President Bush told a group of Republicans last week, unaware that his comments were being recorded. "It got drunk, and now it's got a hangover. The question is, how long will it sober up and not try to do all these fancy financial instruments?" He's right about Wall Street. Speaking candidly, Bush pointed the finger at the now struggling financial giants that fueled the mortgage crisis with risky products that generated huge profits. But Bush neglected to add that he was behind the bar, pouring the tequila shots for most of the night, and refusing to cut off the drunks long before they'd reached their limits. And this morning, Bush offered up a hangover cure for the capital markets by throwing his support behind a federal housing package that would prop up Fannie Mae and Freddie Mac at the expense of taxpayers. The dollar's secret weapon: Intervention The global foreign exchange market has grown to be a $3.2 trillion-a-day behemoth, but one maxim still holds true: Ignore concerted central bank intervention at your peril. An international move to support a currency - in this case the dollar - may not be imminent, but traders are probably on their highest alert because monetary authorities in the United States, the euro zone and Japan rallied to the euro's defense in September 2000. As the euro rose to a record high of $1.6038 last week and threatened a new round of increases in food and fuel price, calls grew for action to strengthen the dollar. The Federal Reserve chairman, Ben Bernanke, left the door open to such a move, if needed. And even though the amount of foreign currency reserves the Group of 7 central banks have at their disposal is tiny relative to foreign-exchange market volumes, analysts insist that coordinated intervention remains a potent weapon for policy makers.
Fed report says U.S. economy continued to slow Americans are cutting back on everything from cars to food to name-brand products, the Federal Reserve said on Wednesday, in another sign that the economy could slow significantly as money from the federal stimulus checks dries up. The Fed's beige book report for June and July, considered a snapshot of the economy, highlighted fears that economic growth will stagnate as Americans cut back in the face of a weak job market and higher gasoline prices. Consumer spending accounts for more than two-thirds of the nation's total growth. Prices are also rising, particularly for fuel and food, even as wages stay steady. And while some businesses said they had not raised prices for fear of losing customers, there were signs that inflation continues to bubble.
FDIC head says more banks skirting failure 90 listed in trouble during first quarter The chairwoman of the Federal Deposit Insurance Corp. said Tuesday more banks are in danger of failing and that the government agency expects to raise premiums to restore its reserve fund after paying out billions of dollars to depositors at IndyMac Bank. In an appearance in San Francisco, Sheila Bair sought to reassure consumers that up to $100,000 they have in a bank, failed or not, is protected by a program that's been in place since the bank failures of the late 1920s. For certain retirement accounts, deposits of up to $250,000 are covered. Bair said in an interview that she expects turbulence in the banking industry to continue well into next year, and more banks to appear on the FDIC's count of troubled institutions.
Fed Says All District Banks Report 'Price Pressures' The Federal Reserve said all 12 of its regional bank districts reported "elevated or increasing'' price pressures during June and July amid slower economic growth. Five of the districts indicated "a weakening or softening'' in their economies, and consumer spending was "sluggish or slowing'' in every region, the central bank said today in its economic survey, known as the Beige Book for the color of its cover. The survey reinforced testimony by Fed Chairman Ben S. Bernanke to lawmakers this month indicating that risks to both growth and inflation are increasing. Central bank policy makers differ over whether to increase the benchmark interest rate or leave it unchanged.
Paulson's failure will end Wall Street's dominance in American politics misguided and misinformed policies take its toll Treasury Secretary Henry Paulson has created disaster for the American economy. The Wall Street trader just did not understand the precarious condition of the housing and mortgage market. Now he is upbeat with his faulty policies and lack of basic understanding the dynamics of the economy. He predicted the Bush administration would prevail in its effort to convince Congress to pass legislation that would allow the government to rescue Fannie Mae and Freddie Mac. "I'm very optimistic that we're going to get what we need from Congress,'' Paulson said on the CBS News "Face the Nation'' program. "Congress understands how important these institutions are.'' Paulson is pushing Congress to authorize the Treasury to purchase equity stakes in Fannie Mae and Freddie Mac, which account for about half of the $12 trillion mortgage market, and expand government-backed credit lines to them.
Bank investors redefine bad news Can the bad news for banks get any worse? After the last week brought another round of woeful quarterly results from the industry, capped by news on Tuesday of multibillion-dollar losses at the Wachovia Corporation and Washington Mutual, that question is nagging banking executives and their investors. Kenneth Lewis, the chief executive of Bank of America, insisted this week that the industry was turning the corner, after his company reported a mere 41 percent drop in profit. Many investors seem to see signs of hope in red ink that once would have shocked them. But it has now been a year since the credit crisis erupted, and, so far, the optimists have been proven wrong time and again. Skeptics say it could take years for banks to recover from the worst financial crisis since the Depression. And even when things do improve, the pessimists maintain, banks' profits will be a fraction of what they were before.
Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders Fannie Mae, the largest U.S. mortgage finance company, couldn't find a buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect St. in Flint, Michigan. So broker Raymond Megie, who is handling the foreclosure sale, advised cutting the price to $5,000. Megie still couldn't sell it. "There's oversupply,'' he said. The home sold in 2005 for $110,000. Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. Unsold properties may weigh on the company's stock, which lost almost half its value since June 5, said Moshe Orenbuch, managing director of equity research at Credit Suisse Group AG in New York. Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.
San Diego sues Bank of America to halt foreclosures San Diego's city attorney said on Wednesday he filed a lawsuit against Bank of America Corp and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in the city, which he aims to make a "foreclosure sanctuary." City Attorney Michael Aguirre plans to file similar lawsuits against Washington Mutual Inc, Wells Fargo & Co and Wachovia Corp in an effort to make the lenders negotiate with mortgage borrowers facing foreclosure. "We would like to see San Diego become a foreclosure sanctuary," Aguirre said. Housing markets across Southern California, including the city of San Diego and the county of the same name, are seeing steep increases in foreclosure rates because so many homes bought there earlier this decade involved subprime mortgages and other types of risky loans
Minimum wage going up, little help as costs soar About 2 million Americans get a raise Thursday as the federal minimum wage rises 70 cents. The bad news: Higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage hike to consumers. The increase, from $5.85 to $6.55 per hour, is the second of three annual increases required by a 2007 law. Next year's boost will bring the federal minimum to $7.25 an hour. Workers like Walter Jasper, who earns minimum wage at a car wash in Nashville, Tenn., are happy to take the raise, but will still struggle with the higher gas and food prices hammering Americans. "It will help out a little," said Jasper, who with his fiancee support a family of seven, and who earns the minimum plus commissions when customers order premium car-wash services.
Slower growth, rising prices slam economy The country slogged through slower economic growth and rising prices during the summer, packing a double whammy to people and businesses alike. The Fed's new snapshot of business conditions, released Wednesday, also underscored the challenges confronting Federal Reserve Chairman Ben Bernanke and his colleagues as they try to get the economy back on track. For now, many economists predict the Fed will probably leave a key interest rate alone when it meets next on Aug. 5 - given all the economic crosscurrents. Boosting rates to fend off inflation would hurt the fragile economy and the already crippled housing market. On the other hand, the Fed isn't inclined to lower rates because that would aggravate inflation. The report "supports our notion that the Fed is firmly stuck on the horns" of a policy dilemma, said T.J. Marta, a fixed-income strategist at RBC Capital Markets. Growth and inflation barometers turned worse in the summer, according to the Fed report. Some worry that the country may be headed for a bout of stagflation, that toxic combination of stagnant growth and stubborn inflation not seen in decades.
Builders Sue Banks That Pull Financing$$ As Construction Projects Lie Unfinished The love affair between banks and builders during the housing boom has deteriorated into a series of divorces now spilling into the courts.As lenders rush to curtail their real-estate exposure and preserve sorely needed capital, they are triggering lawsuits from builders that say the banks have unfairly cut off their construction financing, stopped their projects midstream and forced their companies to the brink of bankruptcy. "Lender-liability lawsuits are coming. It's only just beginning," says Michael Hackard, a lawyer in Sacramento, Calif., who focuses on real-estate law. "There are going to be builders who argue that the lender forced me into insolvency by not acting in good faith."
The next oil shock: a stunning plunge in prices? Oil prices amazed nearly everyone with how high they went. Could the next shock be how low they’ll soon go? Crude futures in New York fell today for the sixth time in seven sessions, losing $3.51 to $124.44 a barrel, the lowest closing price since June 4. The government’s report of a larger-than-expected weekly rise in gasoline inventories helped spark the sell-off. Later, the Federal Reserve’s report on regional economic trends indicated the pace of activity had "slowed somewhat since the last report" on June 11. And that last report wasn’t exactly brimming with optimism. Oil is down 14.4% from its record closing high of $145.29 on July 3. But given how many times traders and analysts were wrong in calling the peak over the last year -- $90, $100, $120, $130 -- there’s a natural reluctance to believe this time it’s for real. "We’ve see this movie before," said John Kilduff, senior vice president of risk management at trading firm MF Global Inc. in New York. Still, he said, "Things are a little different this time because of the economy."
SemGroup Fall May Be Tied to Oil Drop$$ The collapse this week of SemGroup LP, a little known private oil-marketing firm, may have played a role in crude oil's 14% drop over the past 10 days. The Tulsa, Okla., company filed for Chapter 11 bankruptcy protection Tuesday, citing among other financial woes a loss of at least $2.4 billion in crude-oil futures. Changes in its hedging strategies coincided with big moves in oil recently. The company had taken out short positions, or bets that crude prices would fall, as a hedging strategy for oil it intended to move through a subsidiary's pipelines and sell to refiners, according to an affidavit filed in Delaware bankruptcy court by Terrence Ronan, SemGroup's senior vice president, finance. Then, when oil prices rose, SemGroup moved to "cover" its short positions by taking out equivalent long positions, or bets that oil prices would rise.
Treasurys extend losses as investors move back into stocks, react to auctions Treasury prices fell for a second straight session Wednesday as investors grew increasingly optimistic about the ability of banks and brokerages to weather the credit crisis. The drop in Treasurys came as the government sold $31 billion of two-year notes Wednesday afternoon in an auction met with relatively tepid demand, said Jay Mueller, an economist at Well's Capital Management. "I think that shows that people are somewhat leery of short maturities, which have been pretty soft over the last week," Mueller said. The Treasury Department will issue about $21 billion of five-year notes on Thursday. The auctions increase the amount of debt, and the increase in supply tends to send prices lower.
Woes Afflicting Mortgage Giants Raise Loan Rates Mortgage rates are rising because of the troubles at the loan finance giants Fannie Mae and Freddie Mac, threatening to deal another blow to the faltering housing market. Even as policy makers rushed to support the two companies, home loan rates approached their highest levels in five years. The average interest rate for 30-year fixed-rate mortgages rose to 6.71 percent on Tuesday, from 6.44 percent on Friday, according to HSH Associates, a publisher of consumer rates. The average rate for so-called jumbo loans, which cannot be sold to Fannie Mae and Freddie Mac, was 7.8 percent, the highest since December 2000.
Most foreclosures in at least 20 years Foreclosures across the state jumped to their highest levels in at least 20 years over the past three months as tens of thousands of Californians lost their homes and more than 100,000 neared the brink. Notices of default, the first step in foreclosure proceedings, rose nearly 125 percent from a year ago during the second quarter, and trustee deeds recorded, which reflect the actual homes repossessed, soared more than 260 percent, according to research firm DataQuick Information Systems. The number of defaults and foreclosures was the highest ever noted in company records, which go back to 1992 and 1988 for those categories, respectively. There were 63,061 foreclosures statewide during the second three months of the year compared to 17,458 during the same period a year ago.
Chrysler plans to cut 1,000 salaried jobs Chrysler LLC said Wednesday it will cut 1,000 salaried jobs worldwide by Sept. 30 as it tries to return to profitability amid a severe downturn in U.S. sales. The automaker announced the cuts in a letter to employees. Chrysler spokesman David Elshoff said the company hopes most of the cuts will be accomplished through early retirements, attrition and voluntary separation programs, but he said involuntary layoffs will be considered if the company fails to meet its targets.
United cuts; shares run Airline to cut 7,000 workers; falling oil prices bolster stock value United Airlines will cut more flights and lay off 7,000 workers by the end of next year amid record fuel prices, parent company UAL Corp. said Tuesday. UAL lost $2.7 billion during the second quarter, much of it related directly or indirectly to the impact of high fuel costs, the company's largest operating expense. Fuel costs are hitting all of the nation's airlines, including Denver-based Frontier, which is in bankruptcy protection. Oil prices fell again Tuesday, closing at the lowest level since June 5, delivering some relief to airlines.
Office vacancies on the rise Real-estate woes spread to commercial market Look for lots of vacant office space in Scottsdale in the months ahead as the downturn in the housing and related sectors works its way through the Valley commercial real-estate market. In the second quarter, metropolitan Phoenix experienced a negative absorption of office space for the first time in 20 years, according to a CB Richard Ellis market report released last week. That means that instead of tenants filling more new office space, the market actually had less space occupied. In this case, the negative absorption was 171,278 square feet. Office vacancies hit 16.3 percent in the quarter ending June 30, up from 13 percent a year ago. Scottsdale's overall vacancy rate was 17.7 percent.
Inflation in Canada speeds past expectations Canada's annual inflation rate sped past expectations to 3.1 percent in June from 2.2 percent in May after the biggest yearly surge in gasoline prices since Hurricane Katrina, the country's statistics office said on Wednesday. June marked the first time since September 2005 that inflation rose past the central bank's target range of 1-3 percent. The Canadian dollar rose slightly after the report. But the Bank of Canada, which last week forecast inflation would peak at 4.3 percent early next year, has signaled it will not try to curb the rampant price growth through interest rate increases because it expects the underlying price trends to stay in check.
Banking Web sites, corporate computers are insecure A new study about security problems with financial Web sites may have you thinking twice about doing online banking. And a separate study found widespread security problems in corporate computers across numerous industries. More than 75 percent of the Web sites of more than 200 financial institutions were found to have at least one design flaw that could put customer data at risk, according to a study released this week from the University of Michigan. Atul Prakash, a professor in the university's Department of Electrical Engineering and Computer Science, and two doctoral students examined the Web sites of 214 financial institutions in 2006. They found that every single one of them, including sites from some of the largest banks, had at least one flaw that can't be fixed with a software patch, like many vulnerabilities and bugs can. The flaws stemmed from the flow and the layout of the sites. For example, nearly half of the banks were found to have placed secure login boxes on insecure pages, putting customers at risk of hitting spoofed pages
THE SAD ROAD TO SOCIALISM What happens When Private Property is No Longer a Right "But if the government undertakes to control and to raise wages, and cannot do it; if the government undertakes to care for all who may be in want, and cannot do it; if the government undertakes to support all unemployed workers, and cannot do it; if the government undertakes to lend interest-free money to all borrowers, and cannot do it; if .... 'The state considers that its purpose is to enlighten, to develop, to enlarge, to strengthen, to spiritualize, and to sanctify the soul of the people’ -- and if the government cannot do all of these things, what then? Is it not certain that after every government failure -- which, alas! is more than probable -- there will be an equally inevitable revolution?” -Frederic Bastiat, "The Law,” June, 1850 It's been more than 150 years since Frederic Bastiat wrote his treatise, The Law, a small work, challenging the ravages of failing socialism thrust upon France as a result of the French revolution. In that unique pamphlet, Bastiat points out that when the law of any country supports the moral belief systems of a people, defends the rights of said people and their property, the law is perceived as being moral; a defense against evil and those who flaunt it as being immoral. Payment of taxes and civic obligations are perceived as a virtue and those who flout this as criminals. However, when the law becomes a source of plunder or pits itself in opposition to the morals of the people, the people perceive the law to be immoral and widely despise it. Indeed, in those times, flouting the law is extolled as virtue.
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Wed 07.23.2008
Oil, Gold, Crops Drop as Stronger Dollar Cuts Commodity Demand Crude oil, precious metals and crops fell as a stronger U.S. dollar limited the appeal of commodities as a hedge against inflation. Oil dropped for a second day, capping a 15 percent slide from a record $147.27 a barrel on July 11, as the dollar strengthened and gasoline demand fell. Gold traded close to its lowest in a week and corn neared a two-month low as expectations of higher interest rates supported the U.S. currency. "Oil and some other commodities are down on the back of the dollar,'' said Mike Wittner, head of oil research at Societe Generale in London. "Also, general pessimism about the economy has caused the market to refocus on the demand outlook.''
Bush Drops Opposition to Housing Bill President Bush dropped his opposition Wednesday to legislation aiming to calm the chaotic housing market despite his objections to a $3.9 billion provision. The House was expected to vote on the bill Wednesday, and it could become law as early as this week. Under the bill, the government would help struggling homeowners get new, cheaper loans and would be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion. The Bush administration and lawmakers in both parties teamed to negotiate the measure, which pairs Democrats' top priorities -- federal help for homeowners facing foreclosure and $3.9 billion for neighborhoods hit hardest by the housing crisis -- with Republicans' goal of reining in mortgage giants Fannie Mae and Freddie Mac while reassuring financial markets of their stability.
The Real Reason the Federal Reserve Can't Raise Interest Rates Given that the U.S. Federal Reserve is the master of "Three-Card Monte," can you tell what’s in the cards for short-term interest rates? Three-Card Monte is a confidence game in which manipulation and misdirection are employed as the “mark” tries to guess where the "money card" is among the three facedown choices. The Federal Reserve's job is to masterfully manipulate the public's perception of where interest rates are headed. And it runs this larger-than-life game with three specific face cards:
Inflation.
The U.S. dollar.
And the actual "money card," which is interest rates.
For the Fed, the end game is public confidence itself. The central bank actually intended to gain and keep our confidence in its ability to stem inflation and strengthen the greenback. And it pursues these two objectives by simultaneously managing the direction of interest rates and working to keep the economy from dropping into a recession, or worse, a depression.
Congressman Ron Paul talks about Bernanke's Testimony on Wednesday (takes a while to load but well worth the wait)
Paulson Eyes Sickly Hedge Funds The U.S. government can't really regulate living hedge funds, but it's looking at a way to oversee dying ones. On Tuesday, Treasury Secretary Hank Paulson said that in cases of insolvency, he wanted "additional powers to manage the resolution, or wind-down, of large nondepository financial institutions, such as larger hedge funds, so as to limit the impact of a failure on the broader financial system." Paulson has previously raised the idea that the Federal Reserve should have expanded surveillance powers over hedge funds, among other kinds of financial institutions, "to access necessary information from complex financial institutions" and "the tools to intervene to mitigate systemic risk in advance of a crisis."
Paulson & Co. Plans Fund to Provide Capital to Banks John Paulson, the money manager whose wagers against the U.S. housing market helped him earn an estimated $3.7 billion last year, is starting a hedge fund to provide capital to financial firms hurt by mortgage writedowns. The fund may open by December, according to two people with knowledge of the matter. New York-based Paulson & Co., which oversees $33 billion, hasn't set a fund-raising target, said the people, who declined to be identified because the plans aren't complete.
Oil extends decline as supply worries ebb Oil prices fall further on easing supply concerns as hurricane appears to spare Gulf rigs Oil prices slipped further Wednesday after tumbling more than $3 a barrel in the previous day's session as a hurricane looked likely to spare key oil installations in the U.S. Gulf of Mexico. Feeding bearish sentiment were expectations that U.S. oil supply data to be released later in the day would show a rise in gasoline stocks amid weakening demand in the world's largest energy consumer.
Congress Pursues $80 Oil With Trading Limits, Disclosure Rules Congress may outlaw elements of oil futures trading that lawmakers found distorted demand and contributed to the 69 percent surge in prices in the past year. U.S. legislators are considering limits on the number of oil contracts an investor can hold and may increase disclosure requirements. Speculators such as Goldman Sachs Group Inc. use the practices to bet on price swings, which may drive up prices, though they have no intention of taking delivery of underlying goods, lawmakers say.
Wachovia mortgage unit halting loans via brokers Wachovia Corp, the fourth-largest U.S. bank, on Monday said its main mortgage unit will stop offering home loans through brokers this week, joining a growing number of lenders to curb wholesale lending. "We thought it was important to focus on customers who have relationships with the bank, and in geographies where Wachovia has branches," spokesman Don Vecchiarello said. "Based on that, we've decided to discontinue doing business through our wholesale mortgage channel as of July 25." WaMu's Big Credit Cushion Brings Huge Loss Washington Mutual on late Tuesday posted a wider-than-expected quarterly loss due to a significant boost to its loan loss provision, as the bank said it expects as much as $19 billion in mortgage-related losses. The Seattle-based bank recorded a loss of $3.3 billion, or $6.58 a share. Excluding a previously disclosed EPS reduction of $3.24 a share related to the company's June conversion of preferred stock, WaMu's second quarter earnings loss was $3.34 a share. Analysts estimated the thrift would post a loss of $1.05 a share.
Wachovia posts $US8.9b loss Wachovia Corp. chief executive Robert Steel plans to cut $US2 billion of expenses by the end of next year and sell parts of the fourth-biggest US bank after posting a record quarterly loss, slashing the dividend 87% and eliminating 6350 jobs. Wachovia rose as much as 13% in New York trading on optimism that Steel, the US Treasury official hired two weeks ago, can stem damage from the worst housing market since the Great Depression. The Charlotte, North Carolina-based company posted a second-quarter loss of $US8.9 billion, or $US4.20 a share, more than it has ever earned in an entire year.Bank of America's Scheme to Stiff Countrywide Bondholder.
Bank of America's Scheme to Stiff Countrywide Bondholders A reader provided a link to a post by Institutional Risk Analytics, which in turn cites a merger filing by Bank of America with respect to its plan to acquire Countrywide. The document details what can only be called a scheme by which Bank of America intends to acquire Countrywide (specifically, the FDIC insured entity) but leave the debt behind. Now I am not a bankruptcy expert, nor am I current on the state of the art in M&A, but the intent of this deal flies in the face of a fundamental precept of well established practice. A huge no no is what is called fraudulent conveyance, and this deal is a clear, flagrant effort to do precisely that.
Japan's Inflation Rate Probably Accelerated to 10-Year High Japan's consumer prices probably rose at the fastest pace in a decade, discouraging households from spending and slowing economic growth. Core prices, which exclude fruit, fish and vegetables, climbed 1.9 percent in June from a year earlier after rising 1.5 percent in May, according to the median estimate of economists surveyed by Bloomberg ahead of figures to be released July 25.
U.S. Lawmakers Reach Deal on Fannie, Freddie Bill U.S. lawmakers reached agreement on a rescue plan forFannie Mae and Freddie Mac that the House may vote on tomorrow, Representative Barney Frank said. Under a modified version of proposals made by the Bush administration, the Treasury Department would gain authority to inject capital into the two largest U.S. mortgage finance companies, through loans and equity investments.
WaMu Shows Paulson Mortgage Rescue Plan Is Perilous Treasury Secretary Henry Paulson's plan to revive U.S. mortgage financing depends on investors buying the same kind of bonds they're shunning in Europe. Paulson wants to create a version of Europe's market for covered bonds in the U.S. just as sales of the debt have fallen to a six-month low and prices have dropped 2.5 percent this year. While the securities are backed by loans and bank assets to get AAA ratings, most are valued, on average, as if they were three levels lower.
Bush says Wall Street 'got drunk' President George W. Bush said Wall Street had “got drunk” and was experiencing a hangover at a recent closed-door fundraiser in Houston in which he also made light of the US housing crisis. In a video recording that emerged on Tuesday, Mr Bush questioned how long Wall Street banks would remain sober and “not try to do all these fancy financial instruments”. The recording, obtained by an ABC outlet in Houston and filmed even after the president apparently asked for cameras to be turned off, represents the first time Mr Bush has fallen victim to a “YouTube moment”. Politicians on the campaign trail have been forced to watch their every word since the 2006 congressional elections, when a video showing George Allen, the former Virginia senator, using a racial slur became a YouTube phenomenon, ending the Republican’s senate career and his presidential ambitions.
Oil tumbles below $127 a barrel Oil prices tumbled by more than $5 a barrel on Tuesday, resuming their retreat as Monday’s rebound proved only a temporary reprieve after last week’s sharp correction. The US Senate is to consider proposals to curb excessive speculation in oil markets after a Democratic-backed bill received procedural approval yesterday for debate. Meanwhile, T. Boone Pickens, the billionaire oil investor, warned oil prices would reach $300 a barrel in 10 years if the US failed to re-duce its dependence on imports.
Problems at loan giants push mortgage rates higher in the U.S. Mortgage rates are rising because of the troubles at the loan finance giants Fannie Mae and Freddie Mac, threatening to deal another blow to the faltering housing market. Even as policy makers rushed to support the two companies, home loan rates approached their highest levels in five years. The average interest rate for 30-year fixed-rate mortgages rose to 6.71 percent on Tuesday, from 6.44 percent on Friday, according to HSH Associates, a publisher of consumer rates. The average rate for so-called jumbo loans, which cannot be sold to Fannie Mae and Freddie Mac, was 7.8 percent, the highest since December 2000.
U.S. home prices plunge U.S. home prices fell 4.8 percent in May from a year earlier, according to the Office of Federal Housing Enterprise Oversight, as banks restricted lending in the second year of a worldwide credit crunch. The monthly house price index is down 4.9 percent from its peak in April 2007, Washington-based Ofheo said Tuesday in a report. The worst U.S. housing slump in more than a quarter of a century is deepening as banks rein in mortgage lending after recording more than $400 billion in home loan-related losses and writedowns.
Bailouts and Fannie, Freddie Revelations that the Federal Deposit Insurance Corporation (FDIC) authored faulty and improper sub-prime loans to consumers after it took over operations of Hinsdale, Illinois-based Superior Bank FSB could not be more troubling and should signal Congress that rushing to pass reactionary bailout provisions and new regulatory legislation will likely be inadequate. More than 6,700 mortgages worth in excess of $550 million were doled out to consumers under FDIC authority, and hundreds of those borrowers who couldn't afford the loans have been foreclosed on, according to the Wall Street Journal. The FDIC is being sued by Texas-based Beal Bank that bought 5,315 of the loans from Superior alleging that half of them originated while the bank was under FDIC control. The FDIC, in an initial report, estimated it could be liable for about $70 million. An agency official said the case could be settled for about $23 million.
Bank Investors Redefine Bad News Can the bad news for banks get any worse? After the last week brought another round of woeful quarterly results from the industry, capped by news on Tuesday of multibillion-dollar losses at theWachovia Corporation and Washington Mutual, that question is nagging banking executives and their investors. Kenneth D. Lewis, the chief executive of Bank of America, insisted this week that the industry was turning the corner, after his company reported a mere 41 percent drop in profit. Many investors seem to see signs of hope in red ink that once would have shocked them. But it has now been a year since the credit crisis erupted, and, so far, the optimists have been proven wrong time and again. Skeptics say it could take years for banks to recover from the worst financial crisis since the Depression. And even when things do improve, the pessimists maintain, banks’ profits will be a fraction of what they were before.
GE partners with Abu Dhabi firm for a $8 billion finance fund General Electric, seeking higher returns overseas, and Abu Dhabi's Mubadala Development formed a partnership Tuesday to invest in emerging markets in the Middle East and Africa, led by an $8 billion commercial finance fund. GE and Mubadala, run by the ruling al-Nahyan family, will each contribute $4 billion in equity over three years to the fund, with the aim of reaching $40 billion in assets, the companies said in a statement Tuesday. Mubadala separately said that it wanted to become one of the Fairfield, Connecticut-based GE's top 10 shareholders through stock purchases in the open market. Jeffrey Immelt, the GE chief executive, coping with a stock that has declined about 25 percent since he cut his 2008 forecast in April, told investors in May that GE may join with a sovereign wealth fund to invest in finance assets hurt by the global credit crunch. GE, the world's biggest maker of power-plant turbines and medical imaging machines, will also build a research center in Abu Dhabi's new Masdar City among other ties.
'They're All Toast': Roubini Says Brokers, Even Goldman, Can't Stay Independent The broker/dealer business model is "inherently unstable" and the four remaining major firms will not be independent in a few years, says Nouriel Roubini, economics professor at NYU's Stern School and chairman of RGE Monitor. Embattled Lehman Brothers is likely to seek a buyer "within months," Roubini says. Lehman Brothers ceasing to be independent is not such a shocking outcome, but Roubini ultimately sees a similar outcome for Goldman, Merrill Lynch, and Morgan Stanley. The problem, he says, is that broker/dealers use the same model as banks -- borrow short and lend long -- only they borrow on even shorter timeframes, use more leverage, and don't have the kind of government backstop banks enjoy.
US general warns Russia on bombers Russia would cross "a redline for the United States of America" if it were to base nuclear capable bombers in Cuba, a top US air force officer warned. "If they did I think we should stand strong and indicate that is something that crosses a threshhold, crosses a red line for the United States of America," said General Norton Schwartz, nominated to be the air force's chief of staff. He was referring to a Russian news report that said the military is thinking of flying long-range bombers to Cuba, and possibly establishing a base there. Schwartz and Michael Donley, nominee for secretary of the air force, appeared before a Senate confirmation hearing yesterday. They said the will work to restore trust and confidence in the beleaguered service, under fire for poor handling of its nuclear duties and other missteps.
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Tues 07.22.2008
Fannie, Freddie Rescue May Cost Taxpayers $25 Billion, CBO Says Treasury Secretary Henry Paulson's rescue package for Fannie Mae and Freddie Mac will probably cost $25 billion, the Congressional Budget Office said. "There is a significant chance -- probably better than 50 percent -- that the proposed new Treasury authority would not be used before it expired at the end of December 2009,'' the nonpartisan agency, which provides economic and budget analysis for lawmakers, said in a report today. Democratic lawmakers were seeking to determine the cost of Paulson's plan to offer emergency funding to Fannie Mae and Freddie Mac, which own or guarantee almost half of the "the demands'' of the housing downturn and will likely approve this week his request to help the government- sponsored enterprises.
Fannie Mae and Freddie Mac Should Be Cut Down and Cut Loose Cut the government-sponsored behemoths down to size and let the market take care of them Why should Fannie Mae and Freddie Mac enjoy special tax and regulatory privileges unavailable to other publicly traded corporations? Why should U.S. taxpayers be required to lend them money, or pick up the tab if they can't pay their bills? The answer of course is that Fannie and Freddie should get no such privileges and taxpayers should not have to protect them. Fannie and Freddie are specially privileged "government-sponsored enterprises." They're exempt from state and local taxes. And their required "core capital" (mainly stock) is merely 2.5 percent of assets, compared with a 6 to 8 percent norm for banks. As a result, their $5.3 trillion of debt is piled precariously atop a thin cushion of only $81 billion in core capital. It's risky business. But who bears the risk?
Posting Huge Loss, Wachovia Tries to Purge Lending Woes Moving quickly to put an end to the constant spill of red ink, the Wachovia Corporation, the banking giant, booked an $8.9 billion loss and slashed its dividend its first quarter under new leadership. Investors had been bracing for large losses since the bank named Robert K. Steel, a former Treasury under secretary, as chief executive, to help steer it through the housing crisis. At the time, the bank said that it anticipated a loss of $2.6 billion to $2.8 billion on top of an unspecified merger-accounting charge. But Mr. Steel had every incentive to kick off his tenure with a “kitchen sink” quarter as he tries to clean up the bank’s problems.
As Loan Giants Are Inspected, Bush Prods Congress Bank examiners from the Federal Reserve and the Comptroller of the Currency are inspecting the books of the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, as the Bush administration prods Congress to approve a plan that would enable it to inject billions of dollars into the companies. Treasury Secretary Henry M. Paulson Jr., in a meeting on Monday with reporters and editors of The New York Times, said the Fed and the comptroller’s office began combing the books of the two companies after their declining stock prices caused widespread anxiety in the market. The two companies guarantee or own almost half of the home mortgages in the United States. The Bush administration is hoping they can be the engine that pulls the housing market out of its yearlong slide.
Treasury: Swift support needed for mortgage giants Treasury Secretary Henry Paulson said Congress needs to quickly approve a support package for Fannie Mae and Freddie Mac to make sure the two mortgage giants maintain their critically important role in housing finance. Paulson said Tuesday that the continued operations of Fannie and Freddie -- which guarantee or own almost half of the home mortgages in the country -- would be "central to the speed with which we emerge from this housing correction." Paulson made his comments in a speech in New York in which he again sought to reassure Americans that despite the recent turmoil, the nation's banking system is fundamentally sound.
Overseas investors take hard look at U.S. mortgage giants For more than a decade, Fannie Mae and Freddie Mac, the housing giants that make the American mortgage market run, have attracted overseas investors with a simple pitch: The securities they issue are just as good as the U.S. government's - and they usually pay better. The marketing plan worked: About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-government agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One-tenth of all American mortgages are, in effect, in the hands of institutions and governments outside the United States. Now that the two companies are at risk, these foreign holders are watching closely to determine the future of hundreds of billions of dollars of investments. How Fannie and Freddie's rescue is handled will ultimately test the world's faith in U.S. markets and could influence the level of interest rates and weigh on the strength of the dollar for years to come, analysts say.
The Coming Systemic Bust of the U.S. Banking System: "Dead Stocks Rallying"$$ This past week started with concerns about another systemic meltdown of the U.S. financial system as the insolvency of Fannie and Freddie was revealed and as IndyMac went bust (this third largest bank collapse in U.S. history). But the week ended with a remarkable rally of financial stocks as better than expected results from Wells Fargo, JP Morgan and Citi soothed the fears that major financial institutions were in even more distress than already predicted by market analysts. Unfortunately, this massive rally of financial stocks in the latter part of the week is just another temporary bear market rally that will fizzle away once the onslaught of bad financial and macro news builds up again.
Ambrose Evans-Pritchard: World economy in greatest danger It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution. The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7 percent to 4.1 percent growth, whilst warning of a "chance of a global recession." Plainly, the IMF cannot or will not offer any useful insights. Its "mean-reversion" model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True "mean-reversion" would imply debt deflation on such a scale that would, if abrupt, threaten democracy. The risk is that these same central banks will commit a fresh error, this time overreacting to the oil spike. The European Central Bank has raised rates, warning of a 1970s wage-price spiral. Fixated on the rear-view mirror, it is not looking through the windscreen.
Gold price manipulation is spelled out to CFTC A financial planner from Chicago, Marcus C. Rodriguez, has written a wonderful letter to the U.S. Commodity Futures Trading Commission documenting the manipulation of the price of gold on U.S. commodities exchanges and urging the commission to compare that manipulation with the huge gold derivative positions held by JPMorganChase, Bank of America, and Citibank. It could only help if other Americans wrote to the CFTC in support of an investigation of the issue Rodriguez has raised.
U.S. food companies plan more hefty price increases U.S. food companies are preparing another round of hefty price increases as soaring commodity costs force them to pass on rises to consumers. Sara Lee, maker of meat products such as Jimmy Dean sausages, said costs would compel it to push up prices on meat lines by up to a fifth later this year. "We will be taking price increases on the vast majority of the protein products in this calendar year," said C.J. Fraleigh, Sara Lee's chief operating officer for North America, in a recent interview. "Price increases vary a lot by type of products but the increases will be as low as zero and some products we will decrease on and other increases [will be] in excess of 20 per cent." Kraft Foods, Kellogg's, ConAgra, and Tyson are also pushing through increases, which are expected to contribute to inflationary pressures in the U.S. Consumer Spending Threatened by High Prices and Lower Wages Consumer spending, which accounts for more than 70% of the economy, will be seriously threatened in the months ahead, as prices continue to rise, wages plateau, and government stimulus checks wear thin. Consumer spending has remained strong in recent months, even jumping 0.8% in the month of May. But that boost was largely inflated by the $50 billion in government rebate checks that were cashed and put to use in the month.
Ford Will Offer Buyouts at 14 More Plants$$ Ford Motor Co. will expand its plant-by-plant buyout program to 14 more facilities in Michigan and Ohio as the struggling auto maker looks to further reduce its payrolls. Ford's plant-by-plant buyouts, started last month at two Kentucky and two Ohio manufacturing sites, will be expanded to the additional 14 facilities by mid-August. Packages include a $15,000 tuition reimbursement for four years, a $100,000 scholarship for family members and a flat payment of $100,000, with six months of basic health care. The auto maker is also clamping down on overtime, figuring that buyouts may look more attractive if the opportunity for extra pay is eliminated.
Poor Economy Slows Women in Workplace Across the country, women in their prime earning years, struggling with an unfriendly economy, are retreating from the work force, either permanently or for long stretches. They had piled into jobs in growing numbers since the 1960s. But that stopped happening this decade, and as the nearly seven-year-old recovery gives way to hard times, the retreat is likely to accelerate. Indeed, for the first time since the women’s movement came to life, an economic recovery has come and gone, and the percentage of women at work has fallen, not risen, the Bureau of Labor Statistics reports. Each of the seven previous recoveries since 1960 ended with a greater percentage of women at work than when it began.
Paulson confident of GSE backstop deal this week U.S. Treasury Secretary Henry Paulson said on Monday he was "quite confident" Congress would approve a backstop plan this week for Fannie Mae and Freddie Mac that would allay market concerns about the housing finance giants. "I'm quite confident that we will get the sort of program we need this week to deal with this situation," Paulson told CNBC television in an interview. "Let me say that I've been gratified by the support in Congress," Paulson added. Paulson's plan would provide the two government-sponsored enterprises with unlimited government loans and equity capital to bolster investor confidence in the two institutions that he views as a key to the recovery of the U.S. housing market and the economy overall. The backstop is being considered as part of a broader housing rescue bill that also would create a stronger regulator for the GSEs.
FDIC Faces Mortgage Mess After Running Failed Bank $$ Subprime Lender Made Problem Loans On Regulators' Watch Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn't afford them. It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court. The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank's subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.
Businesses Feel Pinch Of Tighter Lending$$ Even Blue Chips Face More Onerous Terms; Individuals Next? With the credit crunch on Wall Street entering its second year, a widening array of businesses are finding it tough to get credit. And with mortgage giants Fannie Mae and Freddie Mac roiling credit markets, individuals could soon find it harder to get a loan as well. One company feeling the strain is Chrysler Financial, the financing arm of the Big Three auto maker that was carved out of the former DaimlerChrysler AG last year. The Chrysler LLC unit has $30 billion of short-term debt due to mature in early August. And bankers, led by J.P. Morgan Chase & Co., are pushing hard to get that debt renewed.
AmEx Results Show Pain Spreading To High End Even the wealthy are showing signs of credit problems. Increasing numbers of American Express card holders defaulted in the second quarter, tarnishing the company's earnings. Late Monday, the credit card issuer posted a 40.6% lower profit in the second quarter, ended June 30, as it set aside more money to cover credit losses.
American Express Profit Falls on Higher Defaults American Express Co., the biggest U.S. credit-card company by purchases, withdrew its 2008 earnings forecast after second-quarter profit fell 37 percent on worse-than-expected consumer defaults. The shares slumped 11 percent in extended trading. Profit from continuing operations declined to $655 million, or 56 cents a share, from $1.04 billion, or 86 cents a year earlier, the company said today in a statement. The average estimate of 17 analysts surveyed by Bloomberg was 82 cents. American Express said it added $600 million before taxes to reserves for U.S. loan losses. "By almost any measure, the U.S. economy and business environment are much weaker than the assumptions'' the company had in January, Chief Executive Officer Kenneth Chenault said today in a conference call. "Unemployment rates took the largest jump in over twenty years. Home prices declined at the fastest rate in decades and consumer confidence is at one of its all-time low points.''
Measures to avoid the worst recession in 30 years Ben Bernanke, Federal Reserve chairman, this week alluded to an economy facing “numerous difficulties”. In fact there are only two, but each alone is cause for genuine concern over the US economy’s prospects: first, an implosion of the financial system triggered by the teetering housing market; and, second, record prices for oil and other commodities that are largely driven by events abroad. Policymaking in the past year has shuttled ineffectively between these two fronts. One day all eyes are focused on the prospective collapse of Fannie Mae and Freddie Mac and the next day we are preoccupied with the prospect of $200, or $500, oil. It is time to devise a programme to promote overall economic recovery by fighting for the economy’s future on both fronts simultaneously.
Paragon in takeover talks with Blackstone Paragon, the struggling buy-to-let mortgage lender, is in talks with Blackstone about a potential takeover, which shows the US private equity group may be ready to call the bottom of the credit crisis. The move shows private equity groups are still keen to invest in the mortgage market, in spite of the crisis it has suffered, as they believe the financial turmoil is creating opportunities for buying bargains. Shares in Paragon have fallen almost 90 per cent in a year, as the credit crunch has inflated the Solihull-based company’s cost of funding, eroded its profitability and restricted its ability to write new mortgages.
Chavez Goes Weapons Shopping in Russia Amid Arms Race Venezuelan President Hugo Chavez heads to Moscow today to shop for air defense systems, submarines and other weaponry as Latin America's arms race quickens amid signs that his regional influence is waning. Past Venezuelan arms purchases from Russia have strengthened ties with Moscow as its rivalry with the U.S. intensifies over President George W. Bush's plans for an Eastern Europe missile defense system and other issues. Chavez, 53, also plans to visit Belarus, a Russian ally that the U.S. considers a dictatorship. Chavez "regularly refers to us as an 'empire,' opposes our initiatives in the Americas and seeks out our adversaries as friends and allies,'' Assistant U.S. Secretary for Western Hemisphere Affairs Thomas Shannon said July 17 in testimony to a congressional committee.
Hu: China sees relationship with Russia as diplomatic priority President Hu Jintao said on Monday that the relationship with Russia has been China's diplomatic priority. He made the comment while meeting with Russia's Minister of Foreign Affairs, Sergei Lavrov. "We will work with Russia to deepen strategic coordination and upgrade the partnership to new heights," said Hu. Describing current Sino-Russian relations as stable and healthy, Hu mentioned his two meetings with Russian President Dmitri Medvedev and comprehensive cooperation and consultation in international affairs. Vital to verify N.Korea nuclear issues: U.S. envoy North Korea and its five negotiating partners must agree a clear process for verifying Pyongyang's declarations on its nuclear disarmament, top U.S. nuclear negotiator Christopher Hill said on Tuesday. Hill told reporters on arrival in Singapore that informal talks this week between U.S. Secretary of State Condoleezza Rice and foreign ministers of the two Koreas, Russia, Japan and China, would centre on Pyongyang's nuclear verification issues and the next phase of disarmament. "We have met with the others and worked together on what the elements of the verification protocol should be," Hill said. "Verification is essential and we really shouldn't think of the declaration without verification, so we are working on that and we hope to make some progress on that very soon," he said. Rice will meet North Korean Foreign Minister Pak Ui-chun for the first time on Wednesday on the sidelines of a Southeast Asian security forum, having held back from meeting him until now.
White House: Iran, DPRK remain in "axis of evil" The White House said Monday that Iran and the Democratic People's Republic of Korea (DPRK) remain part of the "axis of evil" labeled by U.S. President George W. Bush in 2002. "I think that until they give up their nuclear weapons programs completely and verifiably, I think that we keep them in the same category," White House spokeswoman Dana Perino told reporters. Perino said that thanks to great efforts by the international community, the DPRK has agreed in the six-party talks to reveal and dismantle its nuclear programs. The six-party talks, involving the United States, the DPRK, China, South Korea, Japan and Russia, were designed for the settlement of nuclear issues on the Korean peninsula. While the six-party talks are bearing fruit, Perino said "Iran's a different story ... They're missing an opportunity for a very generous incentives package, and that additional sanctions could be on the way." Perino made the remarks after the talks between European Union (EU) foreign policy chief Javier Solana and Iranian top nuclear negotiator Saeed Jalili in Geneva on Saturday.
Fed seems focused on inflation over growth As the dust settles on the latest bout of financial turmoil, the Federal Reserve appears to be focused on inflation rather than economic growth. This inflation bias comes in spite of the continuing troubles at Fannie Mae and Freddie Mac, extreme volatility in bank stocks and the recent dip in the price of oil. Those developments, while reminding policymakers that there are still serious risks to economic growth, do not appear to have fundamentally changed the assessment set out in the minutes of the June 30 policy meeting. At that meeting, the Fed in effect switched gears. The minutes said:"With increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase in the funds rate."
Oil rises past $131 on Iran deadlock, Gulf storm Oil prices rose Monday on a threat of new sanctions against Iran and as Tropical Storm Dolly headed into the Gulf of Mexico, prompting a hurricane watch for parts of Texas and Mexico. Light, sweet crude for August delivery added $2.16 to settle at $131.04 a barrel on the New York Mercantile Exchange. It was oil´s first gain in a week. For drivers in the U.S., pump prices eased by a few pennies. A gallon of regular gasoline now sells for an average just shy of $4.07, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel prices also pulled back, to an average of $4.818 a gallon. Retail prices may decline even more in the coming days as gas station operators catch up to last week's four-day oil sell-off, which left crude more than $18 below the trading record of $147.27 it hit on July 11.
In Israel House, Brown warns Iran British Prime Minister Gordon Brown warned Iran on Monday it faced growing isolation if it rejected an offer from major powers on its disputed nuclear programme. In the first address to Israel’s parliament, by a British prime minister, Brown pledged to stand by Israel and said Iranian President Mahmoud Ahmadinejad’s threats to wipe the country off the map were totally abhorrent. Iran has a clear choice to make: suspend its nuclear programme and accept our offer of negotiations or face growing isolation and the collective response not just of one nation but of all nations around the world, Brown said. He said Britain, which as a permanent member of the UN Security Council has helped push through three sanctions resolutions against Iran, will continue to lead in our determination to prevent an Iranian nuclear weapons programme.
Rice wants "serious answer" from Iran ABU DHABI (Reuters) - U.S. Secretary of State Condoleezza Rice warned Iran on Monday that it faced more sanctions if it defied a two-week deadline to agree to curb its nuclear program. Rice said Iran was stalling and must give a "serious answer" within the deadline set by six world powers, which offered trade and technical incentives if Tehran halts its uranium enrichment. The West fears Iran wants to build a nuclear bomb. "We are in the strongest possible position to demonstrate that if Iran does not act then it is time to go back to that (sanctions) track," Rice told reporters before arriving in Abu Dhabi en route to Asia. It was her first comment on the subject since Washington broke from usual policy and joined nuclear talks with Iran in Geneva on Saturday. In Jerusalem, British Prime Minister Gordon Brown warned Iran of growing isolation if it rejected the offer from the major powers.
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U.S. dollar on back foot near lows The U.S. dollar slipped on Monday, staying near a record low against the euro on concerns about the health of the U.S. financial sector, while investors focused on a proposed rescue plan for Fannie Mae and Freddie Mac. Losses were limited as confidence in the U.S. financial sector, hard-hit by the nearly one-year old credit crunch, was boosted somewhat late last week after results from Citigroup, JPMorgan Chase and Wells Fargo beat low expectations. But a flurry of earnings due this week – including Bank of America later in the day and Wachovia on Tuesday – kept investors on edge. “We're waiting to see the degree to which markets, particularly equities, are starting to stabilize after the recent mayhem,” said Stephen Koukoulas, global strategist at TD Securities.
Oil is a commodity, gold is money - decoupling will happen With the global oil price suffering a significant correction in the past few days, gold too is showing signs of weakness, but the oil price and gold price should decouple as the one is a commodity and the other ‘money'. With the oil price falling more than 10 percent over the past few days - a level sufficient to be termed a ‘correction' - the gold price has also suffered, but not nearly to the same extent percentage wise, at least so far. This could be taken as an indication of a beginning of the mooted decoupling of gold from the oil price which would have to happen if gold is to be the answer as a true hedge against inflation and economic carnage. In reality though, oil is a commodity and just like any other commodity is primarily subject to supply and demand considerations, while gold is, despite the views of some figures in the Central Banking community, a currency. Gold is still 'money' as far as much of the world is concerned and thus behaves differently from most other metals.
If You're Prospecting for Gold, Tell Them Ben Bernanke Sent You U.S. Federal Reserve Chairman Ben S. Bernanke is caught between a rock and a hard place right now. Sure, he would prefer that you focus on "core inflation," since it excludes sharply rising food and oil prices. But we all have to eat and we all consume energy. It's just a matter of time before core inflation starts rising alongside corn, wheat, beef and prices at the pump. Ordinarily, the Fed would start raising rates to stave off higher prices. But Bernanke really doesn't want to be an inflation hawk right now. Raising rates would only make the already weakening economy weaker still. (Never good in an election year). If Bernanke has to choose between a weaker economy and moderately higher inflation, I believe he will choose higher inflation, hoping that he can put the genie back in the bottle once the economy is growing again. Since gold traditionally rises with inflation, that means now is probably a good time to add to your holdings.
In the Eye of the Credit Storm Spearheading the Fannie and Freddie rescue is a government novice. When a rescue plan for Fannie Mae and Freddie Mac was hastily cobbled together over a weekend, the point man on the latest threat to the world economy was a 45-year-old Treasury official with little government experience. The official, Anthony Ryan, was thrust into the front lines of the credit crisis after Treasury Secretary Hank Paulson's top assistant, Robert Steel, unexpectedly left to become chief executive of Wachovia. Steel had been a main architect of the Bush administration's response to the mortgage crisis. So when the shares of the two mortgage giants plunged on Friday, July 11, provoking fears of a meltdown, the job fell to Ryan, who led a team of a dozen people that came up with the bailout plan. So far, he has received acceptable marks for putting the plan together. But the surprising wave of fierce resistance the plan initially drew from Congressional Republicans highlights the difficulties Ryan and the other top Treasury officials, all from the financial industry, face. They have little or no experience, working the levers of Congress.
Given a Shovel, Americans Dig Deeper Into Debt The collection agencies call at least 20 times a day. For a little quiet, Diane McLeod stashes her phone in the dishwasher. But right up until she hit the wall financially, Ms. McLeod was a dream customer for lenders. She juggled not one but two mortgages, both with interest rates that rose over time, and a car loan and high-cost credit card debt. Separated and living with her 20-year-old son, she worked two jobs so she could afford her small, two-bedroom ranch house in suburban Philadelphia, the Kia Then last year, back-to-back medical emergencies helped push her over the edge. She could no longer afford either her home payments or her credit card bills. Then she lost her job. Now her home is in foreclosure and her credit profile in ruins. Ms. McLeod, who is 47, readily admits her money problems are largely of her own making. But as surely as it takes two to tango, she had partners in her financial demise. In recent years, those partners, including the financial giants Citigroup, Capital One and GE Capital, were collecting interest payments totaling more than 40 percent of her pretax income and thousands more in fees.
Is America too big to fail? In the narrative that has governed American commercial life for the last quarter-century, saving companies from their own mistakes was not supposed to be part of the government's job description. Economic policymakers in the United States took swaggering pride in the cutthroat but lucrative form of capitalism that was supposedly indigenous to their frontier nation. Through this uniquely American lens, saving businesses from collapse was the sort of thing that happened on other shores, where sentimental commitments to social welfare trumped sharp-edged competition. Weak-kneed European and Asian leaders were too frightened to endure the animal instincts of a real market, the story went. So they intervened time and again, using government largess to lift inefficient firms to safety, sparing jobs and limiting pain but keeping their economies from reaching full potential.
Congress Moves Toward Approving Housing Bill Congress is set this week to approve a major housing bill intended to give some relief to distressed borrowers while stabilizing Fannie Mae and Freddie Mac. The House is scheduled to take up the measure Wednesday and Republicans, despite some reservations, appear willing to go along rather than risk causing more turmoil in the financial markets by delaying the rescue of the two mortgage giants. The Senate could get to it Thursday or Friday depending on Republican resistance there. But with strong administration backing and bipartisan support, it appears the housing legislation will become law. Yet Republicans remain leery of the growing Democratic push for a second economic stimulus program to be considered in September, worried that Democrats are trying to corner them with a politically appealing proposal right before the elections.
Commercial bankruptcies soar, reflecting widening economic woes Driven by a sour economy and skittish consumers, U.S. business bankruptcies saw their sharpest quarterly rise in two years, jumping 17 percent in the second quarter of 2008, according to an analysis by McClatchy. Commercial filings for the first half of 2008 are up 45 percent from last year, as the national climate for commerce continues to deteriorate amid rising energy and food costs, mounting job losses, tighter credit and a reticence among consumers to part with discretionary income. From April through June, 15,471 U.S. businesses called it quits, according to data from Automated Access to Court Electronic Records, an Oklahoma City bankruptcy management and data company. States that saw the biggest increase in filings were Delaware, Montana, Oregon, Maryland and Connecticut, suggesting that the economic gloom is spreading beyond large population centers. It was the 10th straight quarter that business bankruptcy filings have increased. Nearly 29,000 companies filed in the first half of 2008.
As goes the dollar, so the U.S. markets The U.S. government's pledge to rescue the mortgage finance companies Fannie Mae and Freddie Mac is about more than bolstering the floundering U.S. housing market. It is also aimed at shoring up the U.S. economy and, along with it, the global image of America Inc. The dollar, in many ways a proxy for the state of the economy, appeared to be stabilizing after a March trough. But last week it once again approached record lows against other major currencies, including the euro. Financial market confidence is weakening after U.S. federal regulators took over the California bank IndyMac on July 11, making it the third-largest U.S. bank failure. Just a few weeks earlier, some analysts were declaring that the worst of the credit crisis was over.
Housing prices haven't hit bottom yet The Bush administration's pledge to rescue ailing housing finance giants Fannie Mae and Freddie Mac raises anew questions about just when the nation's dismal housing market will hit bottom. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have suggested over the past year that an end is in sight. But with each prediction, things have grown worse. For many homeowners, the deep housing slump feels like a drop off a skyscraper. Every time another 15 floors have passed, there seems to be more room to fall. "I don't think we get strengthening in the housing market until late 2011 or 2012," said Mark Vitner, senior economist for Wachovia, the nation's fourth largest bank and one that this month hired the number-two man from the Treasury Department as its new chief executive officer to shore up its own growing exposure to mortgage debt. Before bottoming out, prices nationwide should fall 22 percent to 29 percent on average from their peak, according to a report that Wachovia released last Monday. "I think we're somewhere between halfway and two-thirds of the way through the correction," said Vitner, who closely studies the trends in home prices and home sales nationwide.
Trouble at Fannie and Freddie Stirs Concern Abroad For more than a decade, Fannie Mae and Freddie Mac, the housing giants that make the American mortgage market run, have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better. The marketing plan worked. About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States.
Freddie Mac May Slow Purchases of Mortgages, Bonds Freddie Mac, the second-largest U.S. mortgage-finance company, may cut purchases of home loans from banks and bonds backed by housing debt to shore up its capital amid record delinquencies. The government-sponsored company is also considering selling securities and reducing its dividend while it prepares to issue $5.5 billion of stock, McLean, Virginia-based Freddie Mac said in a July 18 filing with the U.S. Securities and Exchange Commission. JPMorgan Chase & Co. analyst Matthew Jozoff said in a report last week that growth in mortgage holdings of Freddie Mac and the larger Fannie Mae will be "weak.'' "This just means much less credit availability for mortgage borrowers,'' said Paul Colonna, who manages more than $100 billion as chief investment officer for fixed income at GE Asset Management in Stamford, Connecticut. "They were teed up to be saviors of the mortgage crisis, but now they've got their own capital issues.''
US housing woes deepen Home sales in the US probably declined in June as the housing slump headed for a third year, undermining the economy and prompting businesses and consumers to trim spending, economists said before reports this week. Combined sales of new and existing homes dropped 1.3% last month, according to the median estimate of economists surveyed by Bloomberg News. Orders for durable goods, products meant to last several years, probably fell 0.3%. The biggest housing recession in a generation, now being exacerbated by a tightening in credit as financial losses spread, threatens to stall economic growth. The surge in raw-material costs and slowing demand will likely prompt companies to keep reducing investment in a bid to protect profits.
More bank results, housing data this week Wall Street surged higher last week, but that's cold comfort to people whose stock portfolios are still down more than 10 percent this year. The week's better than expected earnings news, which helped the Street claw itself out of bear market territory, was hardly definitive. Quarterly results from some of the big banks came in above forecasts, but expectations were extremely low. Crude oil prices retreated from record highs, but are still up more than 70 percent since last summer. To be sure, some investors are hoping last week's developments were the first signs the economy would improve later this year or early next year - and after all, the stock market is considered a leading indicator. But with the housing market still sinking - not to mention several more corporate earnings left to report - it's hard for many investors to justify big bets on an upswing. "I think the epicenter of the whole thing has been, and continues to be, housing prices," said Bob Andres, chief investment strategist for Envestnet.
US economy needs time to recover, says Treasury THE US economy needs months to recover from its slowdown, but the banking system remains sound despite a home mortgage crisis that could cause more problems, US treasury secretary Henry Paulson said. Mr Paulson also said he was optimistic Congress would approve the Bush administration's request for authority to shore up the troubled mortgage giants Fannie Mae and Freddie Mac. The treasury secretary has been trying to reassure nervous financial markets and is scheduled to deliver an important speech on markets and the economy in New York this week. "We're going to be in a period of slow growth for a while," Mr Paulson said. "I think it's going to be months that we're working our way through this period." High energy prices would prolong the slowdown, but the key to recovery was stabilising the housing market, Mr Paulson said.
Sovereign Wealth Funds Reducing Exposure to U.S. Dollar State-run sovereign wealth funds are diversifying away from the U.S. dollar, as well as dollar denominated assets, at an unheralded pace, as the greenback’s protracted declined undermines the credibility of U.S. policymakers. The Financial Times reported yesterday (Thursday) that one large, unnamed Gulf fund has cut its dollar-denominated holdings from more than 80% a year ago to less than 60%. Also, China’s State Administration of Foreign Exchange (SAFE) has been actively seeking deals with private equity firms in Europe as part of a specific strategy to reduce its dollar holdings. A shift in policy at China’s SAFE is particularly significant because it holds the vast majority of China’s $1.6 trillion of foreign currency reserves in dollar-denominated assets. In addition, the FT reported, SAFE is encouraging the private equity firms with which it works to invest in natural resources companies in markets outside of the United States.
PM to warn Iran in Knesset speech Gordon Brown will insist that Israelis have a right to "live in security" Britain is determined to prevent Iran developing nuclear arms, Gordon Brown is due to tell the Israeli parliament. In the first speech to the Knesset by a UK prime minister, he will call Iranian president Mahmoud Ahmadinejad's threat to wipe Israel off the map "abhorrent". Tehran must abandon its nuclear programme, he will say, or face "growing isolation" - a hint that further sanctions could be considered. He will also vow to stand beside Israel in its "fight for liberty".
Rice Warns Iran After Nuclear Talks U.S. Secretary of State Condoleezza Rice warned Iran on Monday that it faced more sanctions if it Rice said Iran was stalling and must give a "serious answer" within the deadline set by six world powers, which offered trade and technical incentives if Tehran halts its uranium enrichment. "We are in the strongest possible position to demonstrate that if Iran does not act then it is time to go back to that (sanctions) track," Rice said, It was her first comment on the subject since Washington broke from usual policy and joined nuclear talks with Iran in Geneva on Saturday. In Jerusalem, British Prime Minister Gordon Brown also warned Iran it faced growing isolation if it rejected the offer from the major powers. "Iran has a clear choice to make: suspend its nuclear program and accept our offer of negotiations or face growing isolation and the collective response not just of one nation but of all nations around the world," Brown said.
Rice says N. Korea must answer all nuclear questions U.S. Secretary of State Condoleezza Rice said on Monday she would make clear in her first meeting with North Korea this week it must meet its obligations and answer lingering questions about its nuclear program. Rice meets North Korea's Foreign Minister Pak Ui-chun for the first time on the sidelines of a Southeast Asian-sponsored forum in Singapore on Wednesday, along with ministers from China, Japan, South Korea and Russia, the other parties involved in nuclear arms talks with Pyongyang. Former U.S. Secretary of State Colin Powell was the last top U.S. diplomat to meet the North Korean foreign minister, in July 2004, but Rice has held back on such a meeting until now.
UAE to cut oil output in Oct-Nov The UAE will reduce oil output by 150,000 to 200,000 barrels per day for 40 days in October and November for maintenance, an official at state oil company Adnoc said. The scheduled shutdown will cut oil output from the world's fifth-largest oil exporter by up to 7.5 percent. The UAE pumped around 2.6 million bpd in June, a Reuters survey showed. "It's for 40 days, around 150,000 to 200,000 bpd," the official at Abu Dhabi National Oil Company (Adnoc) said, speaking on condition of anonymity. The work will cut output just as consumers' oil demand rises ahead of peak demand in the northern hemisphere for heating during winter. UAE crude is favoured by Japanese refiners making heating oil.
New oil-fields boost for Iran Iran has discovered an oil field with potential reserves of 525 million barrels, according to Oil Minister Gholamhossein Nozari. The discovery was made near the southern port city of Assaluyeh, state broadcaster IRIB said. "A few other oil fields have also been discovered and the public will be informed soon," Nozari said. Just last week, Nozari announced the discovery of an oil field holding an estimated 233 million barrels of recoverable sweet oil and in-place reserves of 1.1 billion barrels in the southwestern province of Khuzestan. Iran - the second-largest producer in the Organization of Petroleum Exporting Countries - put its oil reserves two months ago at around 136 billion barrels.
Iran given 2 weeks to halt enrichment A US decision to bend policy and sit down with Iran at nuclear talks fizzled Saturday, with Teheran stonewalling Washington and five other world powers on their call for Iran to freeze uranium enrichment. In response, the six gave Iran two weeks to respond to their demand, setting the stage for a new round of UN sanctions. Iran's refusal to consider suspending enrichment was an indirect slap at the United States, which had sent US Undersecretary of State William Burns to the talks in hopes the first-time American presence would encourage Teheran into making concessions.
Iran given two weeks in nuke row Iran was yesterday facing a two-week deadline to give a final answer to world powers seeking a breakthrough in the nuclear crisis after talks with the European Union's foreign policy chief Javier Solana ended in stalemate. Iran's top nuclear negotiator Saeed Jalili and Solana hailed their latest talks in Geneva on Saturday as "constructive," but Solana lamented that Teheran had still not given a final response. Iranian President Mahmoud Ahmadinejad described the talks as a "step forward" in the nuclear standoff, which has raised fears of regional conflict and sent oil prices spiraling. Solana, who presented Iran with a major package aimed at ending the standoff on behalf of world powers last month, said he was waiting for a decision from Teheran on an initial deal to start pre-negotiations.
Top U.S. admiral says strike on Iran means turmoil White House military adviser Adm. Mike Mullen said on Sunday he was concerned that any U.S. or Israeli strike on Iran carried a notable risk of more turmoil in the Middle East. "I think it would be significant. I worry about it a lot," Mullen, chairman of the Joint Chiefs of Staff, told the "Fox News Sunday" television program. U.S. officials have played down fears of a military strike against Iran over its nuclear program, which Tehran says is for peaceful purposes. But Israel fears Iran is seeking to build atomic weapons, and speculation it would bomb Iranian nuclear installations has grown since a big Israeli air drill last month. "I worry about the instability in that part of the world and ... the possible unintended consequences of a strike like that," Mullen said.
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Fri 07.18.2008
How the U.S. fell for a Ponzi scheme Dammit, someone has to say it: Shouldn't the first clue that something was wrong with Fannie Mae and Freddie Machave been their names? Surely a country has to be courting trouble when it lets its secondary mortgage market be captured by companies that sound like things your grandmother would say instead of cursing. "Oh, Freddie Mac! Looks like we'll have to increase the money supply again, Paw." One suspects the crisis might be less urgent if the twin government-sponsored enterprises (GSEs) had stuck with their reassuringly stolid original handles: the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. (No, don't bother looking for "Freddie" in "FHLMC": The combined efforts of thousands of amateur cryptographers have already failed.) Of course, it's precisely the "federal" part that these companies have been trying to elude in recent decades, ever since Fannie Mae was privatized in 1968 and Freddie Macwas created in 1970 to provide some semblance of competition. Such a term might give the impression that the duopoly is backed by an explicit government guarantee, whereas in reality they are simply, as business-page readers have heard incessantly over the past few weeks, "too big for the federal government to allow to fail." Of course, as it turns out, this amounts to the same thing as a guarantee.
Congressman Ron Paul talks about Bernanke's Testimony on Wednesday (takes a while to load but well worth the wait)
Waits improve at IndyMac bank branches Some customers who are attempting withdrawals still report hurdles. Customers of failed IndyMac Bank faced shorter waits and less confusion at branch locations Wednesday, but some depositors who closed their accounts encountered new hurdles when they tried to deposit cashier's checks at other banks. Sheryl MacPhee, 46, said she liquidated a certificate of deposit at IndyMac's San Marino branch Tuesday morning after a two-hour wait. She then took the check to a Washington Mutual branch in South Pasadena to deposit. MacPhee said a WaMu manager told her that under a new corporate policy, the bank was not accepting IndyMac checks. If a customer insisted on depositing the check, it could be eight weeks or more before the full amount would be accessible, she said she was told.
Dinars for Dollars: Arabs Buying Out Collapsing Western Banks First it was Citibank. Now it's Barclay's and New York City's Chrysler Building skyscraper. Muslim Arabs are buying out collapsing Western banks and businesses and gaining growing international power, but some Arab investors are worried their investments may go down the drain with the American economy. The current financial crisis in the United States has spread to other countries because of a massive debt that was not backed by enough real and liquid collateral. Banks and businesses gasping for financial breath are up for sale at basement prices, but no one is certain if the basement is the bottom.
Goodbye capitalism In a capitalist economy, losers are expected to take losses and winners to gain. Private enterprise is best able to allocate capital efficiently and, where it fails to do so, markets make adjustments and capital is reallocated to efficient users. This basic tenet supports good and productive assets moving from the hands of weak players to stronger. Where this is not possible, the US system gives the government a hand in fostering that move through an efficient process called bankruptcy or reorganisation. This rule of markets and of law has always been the basis of our national supremacy in innovation and the reason ours was the world’s clear choice of a reserve currency. That was the world we lived in previously.
Biggest U.S. Bank Failures Four of the top 10 biggest failed U.S. banks and thrifts were based in California.
1. Continental Illinois National Bank, Chicago (1984) - $40 billion in assets
2. IndyMac Bank, Pasadena, Calif. (2008) - $32.2 billion (as of March 31)
4. First RepublicBank, Dallas (1988) - $17.1 billion
5. Bank of New England, Boston (1991) - $13.4 billion
6. Gibraltar Savings, Simi Valley, Calif. (1989) - $13.4 billion
7. HomeFed Bank, San Diego (1992) - $12.2 billion
8. Southeast Bank, Miami (1991) - $11.0 billion
9. Goldome, Buffalo, N.Y. (1991) - $9.9 billion
10. City Savings (1989) Somerset, N.J. - $9.8 billion
Source: FDIC
The Future of Fannie and Freddie Colossal and enfeebled, the two mortgage giants are now part of the problem. The case for an extreme makeover Fannie Mae and Freddie Mac have never seemed more indispensable than in the current credit crisis. They are the last nongovernmental players standing in the business of buying mortgages. On July 15, Treasury Secretary Henry M. Paulson Jr. asked Congress for unlimited authority to lend to them to reassure markets of their creditworthiness. He compared the requested credit line to a bazooka he hopes will never have to be used. Oddly, though, the very fact that policymakers are bending over backwards to protect Fannie Mae and Freddie Mac makes it all the more important to talk about whether they should, in the long run, live or die. When this crisis is over, should these quasi-public, shareholder-owned companies be nationalized? Privatized? Closed down entirely? Or left essentially intact, except perhaps with smaller portfolios and tighter regulation? The emerging debate will sweep up a wide range of issues, from Fannie and Freddie's implication in the housing bubble to national competitiveness. It may seem premature to plan for a restructuring in the middle of an emergency, but short-term fixes could have harmful consequences if they wind up being permanent. Peter D. Schiff, the head of brokerage Euro Pacific Capital, says Paulson's "bazooka," by propping up Fannie and Freddie, would allow them to buy "more mortgages on overvalued homes," with U.S. taxpayers and foreign dollar holders ultimately picking up the tab.
Freddie Mac takes step toward issuing stock Mortgage giant moves to bolster its troubled balance sheet Mortgage financier Freddie Mac took a step toward issuing common stock to help bolster its balance sheet Friday when it completed a filing with the Securities and Exchange Commission. The potential for a capital raise comes amid a turbulent time for Freddie and fellow mortgage giant Fannie Mae. The pair have been hit hard over the past year by mounting losses tied to the downturn in the mortgage market, and the government was forced to step in over the weekend to reassure Wall Street of the companies' solvency.
Banking Crisis Not Over, More Writedowns and Bank Failures Despite Short-covering Rallies Bank Failures On Friday July 11, 2008, after the market closed, the Federal Deposit Insurance Corporation (FDIC) took over IndyMac Bancorp (IMB) in California. This was the second largest bank failure ever in the US. About a year ago, the share price was $29. It closed on Friday at $0.28. According to the FDIC, there have been 12 bank failures so far in 2008. The concern among investors is that there will be many more failures in the months to come as loan write-offs over whelm banks without sufficient capital. Earlier on the same day, there was much consternation about the fate of the quasi-government mortgage banks Freddie Mac and Fannie Mae. An article in the Wall Street Journal and comments from a former Fed Governor indicated that these organizations were insolvent. Management at both companies claimed that this was not true and that they were fully capitalized and accepting mortgages.
FDIC Issues New Deposit Rules for Big Banks$$ The country's largest banks, particularly those more likely to fail, will have to make changes to the way they treat deposits, as federal banking regulators prepare for more trouble in the struggling banking industry. The Federal Deposit Insurance Corp., led by Chairman Sheila Bair, on Thursday issued new rules requiring around 160 of the largest banks -- those with at least $2 billion in domestic deposits and either $20 billion in assets or 250,000 deposits accounts -- to adopt new procedures allowing banking regulators to settle existing accounts in the event of a bank failure. The FDIC said the rules for big banks, which take effect Aug. 18, will "mitigate the spillover effects of a failure, such as risks to the payments system, problems stemming from depositor illiquidity and a substantial reduction in credit availability."
Merrill Can't Stop The Bleeding Hopes that the financial sector had turned the corner on the credit crisis received a massive blow Thursday from Merrill Lynch. The brokerage house recorded a wider than expected loss for the second quarter and announced asset sales to shore up its capital base. After the close of trading, Merrill Lynch reported a whopping loss of $4.97 per share, or $4.9 billion, its fourth straight, and far above the consensus analyst forecast for a loss of $1.91 per share, according to Thomson Financial. It took $9.4 billion in write-downs on mortgage-backed securities. The company spent the quarter trying to limit its exposure to alt-A mortgages, subprime mortgages, commercial real estate and leveraged loans.
A Crony Capitalism Meltdown During the famous "bank war" of the 19th century, the president of the embattled Second Bank of the United States, Nicholas Biddle, knew how to operate -- spend money liberally. Bank defender Sen. Daniel Webster wrote him once, "If it is wished that my relation to the Bank should be continued, it may be well to send me the usual retainers." It is unlikely any politician was ever so frank with Fannie Mae and Freddie Mac, the quasi-private mortgage lenders that have teetered on the verge of collapse. Washington has become a less, shall we say, direct place since the 1830s. But Fannie and Freddie have used the time-honored persuasiveness of cash to stave off reforms that might have avoided the near-disaster of recent days. Fannie Mae and Freddie Mac are called government-sponsored enterprises. At times, Congress has seemed a Fannie Mae- and Freddie Mac-sponsored enterprise. The companies spent $200 million on lobbying and campaign contributions during the past decade. They lavished dollars on members of Congress, hired key Washington players for lucrative executive positions and extended the largesse to nonprofits through a charitable foundation and to congressional districts around the country through so-called partnership offices. For a senator or congressman to get on the Senate Banking or House Financial Services committees was a guaranteed ride on the Fannie and Freddie gravy train. With their sharp lobbying elbows, sometimes it was unclear who was doing oversight on whom.
Battered mortgage giants spent about $186 million on lobbying, political contributions For years, mortgage giants Fannie Mae and Freddie Mac tenaciously worked to nurture, and then protect, their financial empires by invoking the political sacred cow of homeownership and fielding an army of lobbyists, power brokers and political contributors. New attention is being focused on the bruised mortgage companies as the Bush administration presses its rescue plan to Congress. Some lawmakers have challenged the plan's open-ended nature and expressed fears of a potential big taxpayer bailout in an election year.
Crude Reporting If journalists aren't asking the right questions about prices at the pump, then who is? The cover of a recent BusinessWeek about the runup in oil and gasoline prices framed the question of what’s causing it nicely: “Speculation or Manipulation?” But the story was maddeningly evenhanded. By dodging its own question, the magazine raised another. When it comes to the cost of gasoline, who should we believe? Here are some nominees and their viewpoints:
The oil companies: It’s supply and demand at its most basic, just like your professor outlined in your freshman economics course.
The petro-toadies in Congress: All we have to do is open up the Arctic National Wildlife Refuge and the waters off Florida and California.
The Department of Energy: OPEC has to pump more, and we’ve got to allow more refineries by rolling back environmental restrictions.
King Abdullah: OPEC pumps plenty of crude but “despicable” oil-futures speculators in the West are driving up the prices due to their “selfishness.”
Senator John McCain: Exxon Mobil has done such a good job of demonstrating the magic of the marketplace that it deserves another $1.2 billion in tax breaks.
Senator Barack Obama: Impose a windfall-profits tax to remind American oil executives that price gouging can backfire politically.
About 90 percent of the print and TV reporters in America: See No. 1. It really is that ol’ devil supply and demand.
The White House: Never mind. Nobody’s home.
Crises force Bush to embrace intervention Barney Frank, Democrat chairman of the house financial services committee, can barely contain his glee about President George W. Bush’s shift towards a more interventionist economic policy. “The top financial officials of George Bush’s administration have come before the public and said ‘We’re from the government, and we’re here to help you,’?” he told Politico, the Washington-based political newspaper. Mr Frank was referring to this week’s government rescue plan for mortgage giants Fannie Mae and Freddie Mac - the latest in a series of interventions aimed at stabilising the financial markets and shoring up the economy.
Squeezing Oil From a Stone $$ The nation's frantic search for crude-oil sources is leading to one of the oldest, richest and most-elusive prizes in the petroleum industry: oil shale. The U.S. has the largest known reserves of the coal-like rock, 80% of which lie beneath federal lands. By some estimates, U.S. oil-shale reserves could yield 800 billion barrels of oil, triple the current proven reserves of Saudi Arabia. But tapping that potential requires heating rocks buried deep beneath the earth to hundreds of degrees Fahrenheit. Oil companies are racing to find ways to do so economically, but their solutions are years away from commercial use. That means oil shale is like many other potential solutions to the nation's energy woes: a resource of staggering potential that is a decade too far. Oil beneath the Alaskan wilderness or the California coast could add billions of barrels to U.S. production but will take years to access. Wind power is contributing to the power grid in a handful of areas, but technical and logistical hurdles must be overcome before it can play more than a bit part is the broader energy picture. Next-generation nuclear plants, cellulosic ethanol, solar power and other technologies all face similar challenges.
America braces itself for a second dip For Janet Yellen, president of the Federal Reserve Bank of San Francisco, the forces that began threatening the US economy nearly a year ago are “a bit like the opening of Macbeth, with the three ghastly witches brewing up trouble amid thunder and lightning”. She adds: “Only here, the three troublemakers are the housing market, the financial markets and commodity prices.” Almost a year on, those three troublemakers are still very much at work. Financial markets remain in turmoil and the fate of the US economy once more hangs in the balance. Growth this quarter is shaping up to be quite strong. But the risk of a relapse into very weak growth or even recession has increased. The core dynamic of the credit squeeze – financial weakness and economic weakness feeding off each other – has intensified recently, reinforced by the shock from oil.
Investment firms, banks step up Fed loans Wall Street firms and banks stepped up their borrowing over the past week from the Federal Reserve's emergency lending program. A Fed report released Thursday said the investment firms averaged $9 million in daily borrowing over the past week. Investment firms didn't draw such loans in the prior week. Such borrowing rose as high as $38.1 billion in early April. The Fed opened its emergency program to investment firms on March 17. Then, the investment houses were given similar loan privileges as commercial banks after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy. The situation raised fears that other Wall Street firms might be in jeopardy. Bear Stearns was eventually taken over by JPMorgan Chase & Co. in a deal that involved the Fed's financial backing.
Official inflation rate soars to 2.2 million per cent in troubled Zimbabwe HARARE, Zimbabwe - Official inflation soared to 2.2 million per cent in Zimbabwe - by far the highest in the world - and has shot as high as 70 million per cent in the past year for some basic goods sold on the black market, the state central bank said Thursday. Worsening shortages of basic goods, and the deadly political and economic turmoil surrounding the national elections March 29 and a disputed presidential runoff vote June 27, helped spur the spike in inflation in recent months. The last announcement of official annual inflation, in February, put the rate at 165,000 per cent.
Coca-Cola drinkers to pay more after Labor Day Drinkers of Coca-Cola can expect to pay more starting this fall after the company's biggest bottler said Thursday that it would raise prices. The issues at the bottler also hurt Coca-Cola Co.'s bottom line, since it owns about 35 percent of that business. The world's biggest beverage company said its profit fell 23 percent in the second quarter as it took a charge because of the bottler's woes. Coca-Cola Enterprises, which has about 80 percent of the U.S. market for Coke, said it would raise prices after Labor Day because of higher commodity costs and declining U.S. soda sales. Bottlers set prices for retailers like grocery stores. At Coca-Cola Co., the results were again led by the international operations. The company is facing declining soda sales in the U.S., and managed to keep U.S. sales volume steady in the second quarter thanks to a boost from Glaceau's Vitaminwater, which it bought for $4.1 billion last June. International sales rose 5 percent even as they were hurt by natural disasters in Asia and labor strikes in Europe.
Smart Hillary Bides Her Time Hillary Clinton can be accused of many things. Stupidity isn’t one of them. Waiting in the wings, she’s ready to rescue her party if Mr. Wonderful continues to self-destruct… Mrs. Clinton didn’t formally terminate her candidacy for the Democratic nomination; she suspended it. She didn’t officially release the delegates pledged to her; she merely asked them to support Barack Obama. Clinton loyalists now demand her name be placed in nomination at next month’s convention. They point out that the Illinois senator wins only if he secures the support of numerous super delegates. Those superior beings can change their votes at any time, including the day of the balloting.
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Thurs 07.17.2008
Paulson Lobbies to Get Fannie-Freddie Rescue Approved Treasury Secretary Henry Paulson tried to rally support yesterday for his plan to rescue Fannie Mae and Freddie Mac and said he is confident Congress will pass it by next week. A growing number of lawmakers from both parties agree with his assessment, even if they don't back the legislation. House Minority Leader John Boehner, an Ohio Republican, said there's no question "that this will become law and become law very soon.'' Senator Christopher Dodd, a Connecticut Democrat who is chairman of the Senate Banking Committee, expects a vote on the measure next week. Fed members see next move likely a rate hike: minutes. Federal Reserve policymakers agreed at their meeting last month that their next move on interest rates would probably be an increase, after a series of easing moves, minutes released Wednesday showed. The minutes from the Federal Open Market Committee's June 24-25 meeting suggested that the panel would likely go no lower than the current federal funds rate of 2.0 percent. "With increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase in the funds rate," the minutes said. "Indeed, one member thought that policy should be firmed at this meeting. However, in the view of most members, the outlook for both economic activity and price pressures remained very uncertain, and thus the timing and magnitude of future policy actions was quite unclear."
Bernanke: Fannie, Freddie in no danger of failing Bernanke says that mortgage giants Fannie Mae, Freddie Mac in no danger of failing Federal Reserve Chairman Ben Bernanke told Congress Wednesday that troubled mortgage giants Fannie Mae and Freddie Mac are in "no danger of failing." The Fed chief made his remarks to the House Financial Services Committee, his second day on Capitol Hill where he briefed lawmakers on the problems plaguing the economy. Bernanke appeared amid a backdrop of fading confidence in the U.S. financial system and in the national economy. The Fed and the Treasury Department on Sunday came to the rescue of mortgage giants Fannie Mae and Freddie Mac, offering to throw them a financial lifeline. The two companies hold or guarantee more than $5 trillion in mortgages -- almost half of the nation's total. The Bush administration is asking Congress to temporarily increase lines of credit to Fannie and Freddie and to let the government buy their stock. The Fed has offered to let the companies draw emergency loans.
Run on Washington$$ Washington's biggest names – from President Bush to Ben Bernanke to Nancy Pelosi – have all trotted out publicly this week to declare their profound concern about the American economy. Alas, our leaders are promising to do everything except what might really do some good: Abandon what they've been doing for the past year. When the financial market turmoil hit last August, the U.S. economy was growing, albeit slowly, with moderate inflation. Washington has since embarked on a stampede of easy money from the Federal Reserve, nonstimulating tax rebates from Congress, and a crisis-driven, haphazard approach to credit market triage. The result a year later: The overall economy is still expanding, albeit slowly, but with inflation roaring and the dollar hitting historic lows. Soaring oil and commodity prices – the byproduct of a weak dollar – have tanked the airlines, the car companies and trucking firms, cattlemen and hog farmers, among many others. Meanwhile, the financial mess rolls ahead, having spread from Wall Street to the midsized banks, and engulfing even the government-chartered companies that Washington only weeks ago declared were our saviors, Fannie Mae and Freddie Mac. It's not exaggerating to say that the world is fleeing the dollar in what amounts to a global run on Washington itself – from Capitol Hill to the White House to the Federal Reserve. The world's investors are saying they lack confidence in U.S. leadership.
Oil markets: Bottoming out or taking a breather? Oil and gas prices in extended fall: Traders seek clues of bottoming-out or a breather Oil prices tumbled below $130 a barrel for the first time in more than a month Thursday, as crude's dramatic slide entered a third day accompanied by a sharp sell-off in natural gas. The declines accelerated amid growing concerns that the weakening economy and creeping inflation are eroding demand for fossil fuels in the U.S. and other large energy-consuming nations.
Fueled by Overseas Demand, U.S. Gasoline Prices Will Continue to Escalate As oil whipsaws its way toward the unheard-of-level of $150 a barrel (crude closed at $134.60 yesterday, extending a multi-day skid, but traded above $147 as recently as Friday), Americans are finally responding to the pressure of higher gasoline prices and have downshifted their consumption. Indeed, according to a report last week, U.S. consumers used 3.3% less gasoline than at the same time last year and usage now stands at a five-year low. Although the relative merits of slowing energy consumption is a subject upon which reasonable minds can disagree, the drop is nonetheless an extremely rare event in American economic history.
THIS IS NOT A DRILL by Ann Coulter (love her or hate her -- she makes a good point.) Speaker of the House Nancy Pelosi, or as she is called on the Big Dogs blog, "the worst speaker in the history of Congress," explained the cause of high oil prices back in 2006: "We have two oilmen in the White House. The logical follow-up from that is $3-a-gallon gasoline. It is no accident. It is a cause and effect. A cause and effect." ...............Conservation, efficiency and using oil we hold in reserve for emergencies does not get us more energy. It's as if we were running out of food and the Democrats were telling us: "Just eat a little less every day." Great! We'll die a little more slowly. That's not what we call a "plan." We need more energy, not a plan for a slower death.
Oil price drop can't reverse stock fall Wall Street ended a whipsaw day mostly lower, as fears of escalating instability in the financial sector kept investors on edge despite a steep retreat in oil. The Dow Jones industrials had their first close below 11,000 since July 2006. The stock market did benefit from some bargain-hunting as oil retreated from its near-record levels, but the uncertainty of the financial sector made that recovery hard to sustain. If oil prices stabilize or retreat, consumers might feel more comfortable spending on discretionary items, and in turn help the economy.
Home builders index hits another record low Contractors don't see any turnaround in next six months The home builders' sentiment index fell two points in July to record-low 16, with all three components of the survey also dropping to historic lows, the National Association of Home Builders reported Wednesday. At 16, the NAHB/Wells Fargo housing market index shows that only one-in-six home builders has a positive view of the market. New subdivisions have become ghost towns, with current sales dropping off and with the traffic of prospective buyers drying up in recent months. Few builders anticipate any improvement in sales in the next six months. The index for current sales fell from 17 to 16; the index for anticipated sales plunged from 27 to 23; and the index for traffic of prospective buyers tumbled from 16 to 12.
Single-family construction fell 5.3 pct in June Single-family home construction fell 5.3 percent in June although apartment activity increased Construction of single-family homes fell in June to the slowest pace in 17 years although a change in New York laws helped give a big boost to apartment building. The Commerce Department reported Thursday that construction of single-family homes dropped by 5.3 percent in June to a seasonally adjusted annual rate of 647,000 units, the weakest performance since January 1991, another period when the housing industry was going through a severe downturn. However, construction of multifamily units surged by 42.5 percent last month, thanks to a change in New York City building codes that spurred a wave of apartment construction in that area. Taken together, single and apartment construction rose by 9.1 percent to an annual rate of 1.066 million units.
Bad news comes in waves for economy She's a North Sider who survived the Depression, a customer for more than 20 years, and after hearing the bad news about the economy over the weekend she marched into the bank to see the boss. Although the institution is sound and the nation's financial system in no danger of collapse, Matt Gambs dropped everything to answer her worried questions. The images of depositors waiting on long lines after Friday's failure of IndyMac Federal Bank had shaken her confidence. "You can't discount people's feelings," explained Gambs, chief executive of Diamond Bank at North Avenue and Clark Street. These are scary times in the U.S. economy, and Tuesday brought more trouble to the fore. Federal Reserve Chairman Ben Bernanke voiced concerns about inflation, even as the housing bust continued to slow economic growth. Mortgage giants Fannie Mae and Freddie Mac remain on track for a taxpayer-financed rescue. The dollar stands at a record low. Unemployment is rising, and struggling General Motors Corp. said it needed to eliminate more jobs.
FBI probes possible home-loan fraud at IndyMac The FBI is investigating failed bank IndyMac Bancorp Inc. for possible fraud, an official said Wednesday of the government's latest target following the collapse of the nation's subprime mortgage market. It was not immediately clear how long the FBI's probe of the bank has been ongoing - or whether it was opened before last Friday's takeover of IndyMac by the Federal Deposit Insurance Corp. The investigation appears to be is focused on the company and not individuals who ran it, a law enforcement official told The Associated Press. The official spoke on the condition of anonymity because he was not authorized to speak publicly about the investigation. IndyMac Bank's assets were seized by federal regulators after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. The bank is the largest regulated thrift to fail in the last 20 years, regulators said. Across the country, reports of mortgage fraud have soared over the past year as the subprime mortgage market collapsed, and defaults and foreclosures soared. IndyMac's operations were transferred to the FDIC because bank regulators did not think the lender could meet its depositors' demands. The FDIC is now running the bank under the name IndyMac Federal Bank, FSB. Delta and American parent AMR swing to $1 billion-plus losses in 2nd-quarter Delta Air Lines Inc. said Wednesday it swung to a hefty loss in the second quarter despite a strong increase in sales, pushing its red ink to more than $7 billion since the start of the year. But the carrier's shares soared as the results, hit by unprecedented fuel costs and a decline in the company's market value, still beat Wall Street estimates when one-time items are excluded. Oil prices plunged by more than $4 a barrel Wednesday, bolstering stocks in the airline sector.
Americans breaking into retirement piggy banks to get through financial crises Americans are raiding their already fragile retirement piggy banks to weather financial hardships such as unemployment, medical emergencies and buying a home.And they're doing it even though borrowing a modest $5,000 can dramatically erode savings over time, according to a study released Wednesday by the Center for American Progress. The study found workers in 2004 had $31 billion in outstanding 401(k) loans, a fivefold increase from $6 billion in 1989. Between 1998 and 2004, an average of 12 percent of families with 401(k) plans borrowed from them. "They don't necessarily pay penalties. But the penalty is that they have fewer retirement savings," said Christian Weller, an author of the study. As economic conditions grow bleaker, the number of people dipping into retirement money will only rise, he added.
Retiree Benefits Take Another Hit$$ GM's Plan to End Medical Coverage For Many 65 and Over Signals a New Era; Pensions to Increase by $300 a Month General Motors Corp.'s move to eliminate retiree health benefits for salaried workers is a sobering signal to the rest of the U.S. work force: Even those who are in or near retirement shouldn't count on keeping the company coverage they have built up. GM's move to cut retiree health benefits has implications for workers in other industries:
As of now, all nonunion workers -- even those who've earned full retiree benefits -- should understand that those benefits can be eliminated, either before or during their retirement.
Workers planning to retire early might consider working at least part-time to keep active employee health coverage until they're eligible for Medicare at age 65.
Since the early 1990s, employers eager to get out from under the increasing burden of covering their retirees' health care have been whittling away at those benefits. At some companies, new or younger workers have been excluded from retiree health benefits. Older workers and existing retirees often got to keep the benefits, but had to pay a larger share of the overall costs.
The Lost Decade: How the U.S. Financial Crisis Resembles Japan’s Ten Years of Misery - And How to Play it Part I of a two-part story. By William Patalon III If you think the "Lost Decade" Japan endured during the 1990s was deep and painful, stick around: As the global financial crisis that was jump-started by the meltdown of the subprime mortgage market continues to unwind, the U.S. economy is headed for a financial Ice Age that will make Japan’s 10 wasted years seem like a single chilly night. The two meltdowns started in much the same way - with busted stock-and-real-estate bubbles. With both the United States and Japan, the market manias were ignited by laughably loose credit policies, smoldered under a lack of oversight from government regulators, market analysts or such private-sector sentinels as credit-rating agencies, and were finally fanned into a frenzied financial conflagration by the promise of easy profits. Americans are already getting financial frostbite. Unemployment is 20% higher than it was a year ago. Zooming meat, dairy and gasoline prices are eviscerating household budgets, meaning that the "real" rate of inflation is probably double or triple what the federal government would have us believe. Mortgage defaults are at their highest level in 30 years. Home prices have fallen so much that they’ve wiped out all the gains of the past four years. And U.S. stocks have eradicated a decade’s worth of profits. That’s all bad, of course. In fact, it’s downright awful. But here’s the problem. It’s going to get worse. Much worse. And here’s why.
IRAN: 'WE'LL SET ISRAEL, THE US GULF FLEET ON FIRE IF ATTACKED' "The first US shot at Iran would set the United States’ vital interests in the world on fire", said Ali Shirazi, a mid-ranking cleric who is Khamenei's representative to the naval forces of the elite Revolutionary Guards. "Tel Aviv and the US fleet in the Persian Gulf would be the targets that would be set on fire in Iran's crushing response", he said, according to the Fars news agency. The United States and its leading regional ally Israel have never ruled out attacking Iran over its nuclear drive, which the West fears could be aimed at making nuclear weapons. There has been concern an attack against Iran could be imminent after it emerged that Israel had carried out maneuvers over the Eastern Mediterranean that were effectively practice runs for a potential strike against Iranian nuclear facilities.
Iranian follies Israel and Iran are on a collision course. There is just too much talk of an impending Israeli assault on Iran; recent diplomatic and military activities magnify its probability. Yet strikingly absent is any serious domestic discussion of the prudence of such action, let alone a detailed analysis of its possible implications. Most Israelis appear resigned to this eventuality. They shouldn't be. There is no good reason for Israel to take the lead in dealing with a threat that affects the entire region and may further destabilize the global order. It makes even less sense to do so by crude military means. Now is definitely not the time for Israel to engage in an aerial escapade with uncertain consequences. Restraint, far from being an act of appeasement, is in this case the better part of wisdom. There is no question that Iran under Ahmedinejad poses a real and tangible danger. It provides ideological, financial and logistical support to militant extremists - most notably Hamas and Hizbullah - bent on asserting their hegemony in the name of radical Islam. Its systematic development of weapons of mass destruction, and especially its nuclear program, is proceeding at a truly alarming pace. These moves justifiably send shivers throughout the Middle East and beyond.
U.S. says Iran has missile that could hit Europe The Pentagon said on Tuesday that Iran has the ability to launch a ballistic missile capable of hitting sections of eastern and southern Europe. Air Force Lt. Gen. Trey Obering, director of the Missile Defense Agency, told reporters he believes Iran now has a missile with a range of 1,250 miles, but he declined to say whether the weapon has been test-fired. Iran said last week it conducted two missile tests involving a number of weapons including what Iranian state television called a "new" Shahab-3 missile, a medium-range missile that could be used to strike Israel. Tensions over Iran's missile arsenal and accusations from the United States and its allies that Tehran is pursuing nuclear weapons have roiled international financial markets with fears of a possible military confrontation.
Iran's Missile-Rattling Ups the Ante In the wake of Iran's lighting off several medium-range ballistic missiles, or MRBMs – including one that never got off the ground, but was doctored in a widely publicized photograph to make it look as if it did – there has been much speculation about Iran's missile capability: The greatest fear being that Iranian MRBMs could strike targets almost anywhere in the Middle East, including Israel and many U.S. bases, perhaps even reaching targets in southern and eastern Europe (perhaps most of Europe if Iran decided to move some of its missiles to Hezbollah-controlled zones in Lebanon). Even worse is the prospect that a soon-to-be-nuclear Iran could tip its missiles with nuclear warheads.
Just who's country is this, anyway? Americans need to wake up! World Court Orders US to Halt Executions of Mexicans While Cases Reviewed The United Nations' highest court has ordered the United States to halt the planned executions of five Mexicans on death row in Texas while their cases are being reviewed. The International Court of Justice (ICJ) Wednesday said U.S. authorities should "take all measures necessary" to ensure the five are not put to death, pending the court's final judgment. In June, Mexico filed a request with the court to stop the executions of the five Mexican nationals, who were denied consular assistance after their arrests. Mexico charges that the United States is in breach of its international obligations.
Paulson in hot seat over Fannie, Freddie Treasury chief goes to Congress to seek authority to stand behind mortgage finance giants. He finds some support but plenty of skeptical probing. Treasury Secretary Henry Paulson was hammered by lawmakers on Tuesday over the Bush administration's plan to prop up mortgage finance giants Fannie Mae and Freddie Mac. Members of the Senate Banking Committee drilled into Paulson on a day when the shares of Fannie and Freddie were once again pummeled by investors. Paulson was asked about his request that Congress remove limits on how much money Treasury can lend to the troubled mortgage finance firms - was it just a "blank check" from taxpayers? He also faced questions about a second part of the plan - to allow Treasury to buy equities in the firm - and whether Fannie and Freddie are as safe as the companies, Treasury and regulators now claim. "I fear we're sitting on a financial powder keg," said Sen. Richard Shelby, R-Ala., the committee's ranking Republican.
Democrats See a Need for Further Economic Stimulus Many economists have concluded that a second dose of government stimulus spending is required to prevent a broad economic unraveling and provide relief to millions of Americans grappling with joblessness, plunging home prices and tight credit. Democratic leaders in Congress have already begun fashioning a package of proposed measures, but on Tuesday, President Bush and the Federal Reserve chairman, Ben S. Bernanke, both pronounced such action premature. "Our economy has demonstrated remarkable resilience,” President Bush said at a morning news conference, even as he acknowledged that growth had been “slower than we would have liked."
Is my money safe in a bank? Worried about your bank failing? If the bank collapses, but it's covered by FDIC insurance, your money will be OK -- provided you stay within certain limits that the Federal Deposition Insurance Corporation (or FDIC) requires. As a simple rule of thumb, think $100,000. Normally, if you have no more than $100,000 in a bank you will be fine. You will get back every cent even if a bank fails. But amounts higher than $100,000 can be OK too under some circumstances. The answers to the following questions from readers will help you understand those circumstances.
Goldman questioned on Bear, Lehman share fall: report Goldman Sachs has been questioned by chiefs of rivals Bear Stearns Cos and Lehman Brothers about speculation that the securities firm had a role in putting pressure on their firms' stocks, the Wall Street Journal said on Wednesday citing people familiar with their talk. Alan Schwartz, who headed Bear Stearns when it collapsed in March, has asked Goldman CEO Lloyd Blankfein whether there was any truth to talk that in the days preceding Bear Stearns's fall, traders in Goldman's London office manipulated the struggling firm's stock, the paper said. Lehman Brothers CEO Richard Fuld Jr., whose firm's shares also have been battered, has also spoken with Blankfein. The Lehman chief also contacted traders he felt may have been bad-mouthing his stock, the paper said. Spreading rumors one knows to be false with the intention of manipulating a public company's price is illegal. The U.S. Securities and Exchange Commission has been investigating whether investors have looked to profit by spreading rumors to push down Lehman and Bear shares.
U.S. Consumer Prices Climb by the Most Since 2005 Prices paid by U.S. consumers jumped in June by the most since 2005 on spiraling costs for fuel and food, intensifying the pressure on households struggling with falling home prices and the credit crunch. The cost of living soared 1.1 percent, more than forecast, after a 0.6 percent gain the prior month, the Labor Department said today in Washington. Excluding food and energy, so-called core prices climbed 0.3 percent, also more than anticipated. The figures underscore why Federal Reserve Chairman Ben S. Bernanke yesterday said inflation risks had "intensified.'' The surge in energy costs has also trimmed consumer and business spending, hurting growth and making it less likely policy makers will boost interest rates to stem even bigger price increases.
Downturn gains steam as inflation roars ahead Inflation rises at fastest pace since early 1980s as Fed chair warns of more trouble The U.S. economic downturn gained steam Tuesday, with a report of the highest inflation since the early 1980s, more bad news for banks and automakers and a suggestion by the Federal Reserve chief that worse days are ahead. President Bush sought to bolster confidence by declaring that the financial system was "basically sound," but he conceded: "It's been a difficult time for many American families." The Labor Department said wholesale inflation, driven by skyrocketing gas and food costs, rose by 9.2 percent for the 12 months ending in June -- the fastest pace since the summer of 1981, during another energy crunch. At the same time, consumers hit the brakes hard despite a massive infusion of government stimulus checks. Retail sales turned in their poorest showing in four months. Federal Reserve Chairman Ben Bernanke delivered a somber midyear outlook to Congress, saying the U.S. faces "numerous difficulties" despite the Fed's interest rate-cutting campaign, which began last September in hopes of preventing a recession. Bernanke said the Fed expected the economy to grow for the rest of this year "appreciably below its trend rate." He cautioned inflation was likely to move "temporarily higher" in the near future.
US Commodities: Gold Up, But Gains Pared As Crude Oil Slides Gold futures ended modestly higher Tuesday after plunging crude oil stifled much stronger earlier gains in the metal. August gold finished $5 firmer at $978.70 a troy ounce on the Comex division of the New York Mercantile Exchange. The contracts settled well below the day's strongest level of $988.60 an ounce. "A $9 fall in the price of oil in the afternoon saw widespread profit-taking," BNP Paribas analyst David Thurtell says in a research note. "Oil fell as worries about the U.S. economy heightened concerns about oil demand." U.S. Federal Reserve Chairman Ben Bernanke delivered a bleak outlook on the U.S. economy and President George W. Bush said the U.S. is facing "financial uncertainty." "As oil retreated gold gave up gains," said George Gero, vice president with RBC Capital Markets Global Futures. But the fact that gold held on to some of its gains despite oil's declines indicates bullishness in the gold market, as the metal is still underpinned by financial market worries and a lower dollar, analysts said.
General Motors cutting salaried workers, production, dividend General Motors said today it will lay off salaried workers, cut truck production, suspend its dividend and borrow $2 billion to $3 billion to weather a severe downturn in the U.S. market. GM said the moves will raise $15 billion to help cover losses and turn around its North American operations, including $10 billion from internal cost-cutting and $5 billion from selling some assets and borrowing against others. "In short, our plan is not a plan to survive. It is a plan to win," GM Chairman and CEO Rick Wagoner said in a broadcast to employees. GM's shares fell as much as 6 percent to a new 54-year low of $8.81, then rebounded to $10.04 in afternoon trading, up 66 cents from Monday's close. Chief Operating Officer Fritz Henderson said GM wants to reduce its total salaried costs in the U.S. and Canada by more than 20 percent.
Cramer: The Danger Is Immense You don't need me to tell you it's awful out there. You don't need me to tell you that there's no quick fix for any of these things. But what might help you understand why it feels so bad this time is that I have never, in my career, seen so many companies go off track at the same time. This is one unbelievable moment, and it is made more horrible by the day as companies' stocks just get pummeled, causing people to then question the very viability of the companies involved. First, obviously, are Fannie Mae and Freddie Mac . We don't know what will happen, but we do know that their futures are much darker than their pasts. Their best hope: a Democrat becomes president and shows the usual love to both. But as investments, they are pretty much perma-losers going forward. The losses are that heavy. Yes, it is true that two years from now they will be better, but will the government let them limp through to that? View them as calls on a Democratic win. We all know that Citigroup, Wachovia, Washington Mutual and National City are in trouble. Bank of America says it isn't in trouble, but obviously the market doesn't believe management because the stock failed to rally when it said its dividend was safe. Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?
The Perils of Freddie and Fannie - part I What we saw this weekend was the world’s biggest temporary sandbag. With the waters rising and about to swallow Freddie and Fannie, Paulson and Bernanke stepped in with—what? A bunch of promises. The Fed promised Freddie and Fannie access to the discount window, and Paulson promised an expanded (but unspecified) government credit line for the giant companies, with the vague promise of equity purchases. These vague promises may keep Fannie and Freddie from sinking beneath the waves for the next week, or month, or two months. But the Paulson/Bernanke sandbags aren’t high enough to save the companies if the economic flood waters really start to rise. If the economy slumps, mortgage delinquencies will rise, and Fannie and Freddie will find themselves in deeper and deeper trouble.
The Perils of Fannie and Freddie - part II Investors figured out today that the Paulson/Bernanke rescue plan is not going to save Fannie and Freddie in their current form as private companies. The stock of the two companies dropped—5% for Fannie and 8% for Freddie—while Freddie had a stronger than expected demand for its debt offering. This is exactly what we would expect. The two companies are now on the inevitable road to being bailed out, nationalized, and shrunk—not as bad as being drawn and quartered, but not good either. Why do I say inevitable? We now have a situation where the Treasury Secretary and the Fed Chairman have taken the first small steps towards placing the full faith and credit of the U.S. government behind two private financial companies. These steps cannot be undone. Once the promise has been made to investors - however vague - the government has to step up to fulfill it. The logical end state here is a full takeover. It’s simply not sustainable for two private companies to be able to do business as usual with a full and explicit government guarantee. It’s not fair to other companies, and it opens up the door for all sorts of risk-taking which could make the problem even worse.
Oil plunges in huge sell-off Oil prices fell harder than they have in 17 years today, as fears that record fuel prices are spreading broad economic pain exacerbated the third big sell-off in just over a week. Light, sweet crude plunged $US6.44, or 4.4 per cent, to settle at $US138.74 a barrel on the New York Mercantile Exchange in an extremely volatile session. Prices at one point plummeted more than $US10 from the day's high. In London, August Brent crude fell $US5.17 to settle at $US138.75 a barrel on the ICE Futures exchange. Mounting concerns about the risks inflation poses to the United States, the world's biggest oil consumer, helped spark the declines. Analysts also attributed the sell-off to Thursday's expiration of options contracts, which tend to increase volatility, and to computers programmed to automatically sell once prices reach certain thresholds.
Taxpayers Bear Brunt of This Bailout Since the creation of the mortgage-backed securities market in the 1970s, Fannie Mae and Freddie Mac have allowed homeowners to secure lower mortgage rates. All the benefits from the past thirty plus years, however, will likely be washed away by the federal bailout of the two firms now on the table, which critics say will eventually leave taxpayers holding the bill. It's difficult to say exactly how much homeowners have saved on lower mortgage rates from having Fannie and Freddie around. The two government-sponsored entities, which collectively own or guarantee about $5 trillion in U.S. residential mortgages, receive tax breaks and have lower costs of capital. This allows them to purchase mortgage loans and mortgage-backed securities at lower yields. In turn, banks and mortgage lenders can offer lower interest rates on mortgages to homebuyers, knowing they can sell the loans to Fannie and Freddie.
Policy shift seen in U.S. decision on Iran talks The decision by the Bush administration to send a senior American official to participate in international talks with Iran this weekend reflects a double policy shift in the struggle to resolve the impasse over the country's nuclear program.. First, the Bush administration has decided to abandon its longstanding position that it will only meet face-to-face with Iran after it first suspends uranium enrichment as demanded by the United Nations Security Council. Second, it infuses the negotiating track between Iran on the one side and the six global powers - France, Britain, Germany, Russia, China and the United States -- on the other with new importance, even though their official stance is that no substantive talks can begin until the uranium enrichment stops.
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Tues 07.15.2008
Pessimistic Words to Congress From Bernanke Warning of the dual risks of a further slowdown and higher inflation, Ben S. Bernanke, chairman of the Federal Reserve, offered a gloomy assessment Tuesday of any immediate prospect for improvement in American economic difficulties, including energy prices and instability in financial markets. In prepared testimony at the Senate Banking Committee, Mr. Bernanke avoided the word "recession" in characterizing the current economy, noting instead that consumer spending and exports were keeping growth "at a sluggish pace" while the housing sector "continues to weaken." "The economy has continued to expand, but at a subdued pace," Mr. Bernanke said. But he added that spending for personal goods had "advanced at a modest pace so far this year, generally holding up somewhat better than might have been expected given the array of forces weighing on household finances and attitudes." He said that while the risks to the overall economy were still "skewed to the downside," inflation "seems likely to move temporarily higher in the near term." The Fed, Mr. Bernanke said, needed to guard against higher prices spreading throughout the economy.
Who's Next? List of Troubled Banks Worries Wall Street, DC ABC News Has Obtained Privately-Prepared Lists of Most Troubled Banks Banks in Colorado, Maryland, Georgia and California top privately-prepared lists of troubled banks being circulated on Wall Street and in Washington. While the Federal Deposit Insurance Corporation (FDIC) is keeping secret its official list of 90 troubled banks, ABC News has obtained other lists prepared by several research groups and financial analysts. The lists use versions of the so-called "Texas ratio" which compare a bank's assets and reserves to its non-performing loans, based on financial data made public by the FDIC in March. Analysts say banks with a ratio over 100 per cent would be the most likely to fail, based on what happened to Texas savings and loans during the 1980's.
A bank fails: Should you worry? The government's seizure of IndyMac Bank may raise concerns for many consumers about whether their banks might be next. While it is unlikely the nation will see thousands of banks fail as they did during the savings and loan industry collapse in the late 1980s and early '90s, analysts predict more battered financial institutions will be unable to survive in today's marketplace. "IndyMac's failure is certainly a broader issue," said Eva Weber, an analyst at Aite Group, a financial-services research firm. "Those who are trenched in more risky business, who are feeling more heavy losses, may be at more risk."
Dick Bove's comments from yesterday, on future of Fannie Mae and Freddie Mac (gone by 2009) and possible future of regional banking system - 12 reserve banks. He talks about restructuring of the banking industry.
IndyMac Failure Raises Specter Of The S&L Crisis The government's seizure of IndyMac Bank raises concerns for many consumers about whether their banks might be next. Although it is unlikely the nation will see thousands of banks fail as it did during the savings and loan industry collapse in the 1980s and early '90s, analysts predict there will be more battered financial institutions that are unable to survive in today's marketplace. "IndyMac's failure is certainly a broader issue," said Eva Weber, an analyst at Aite Group, a financial services research firm. "Those who are trenched in more risky business, who are feeling more heavy losses, may be at more risk."
It's When, Not If, Next Bank Fails As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail during the next year. But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next? The nation's banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion. But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail during the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.
Lehman Brothers, other US banks buffeted by falling confidence INVESTMENT giant Lehman Brothers and other US banks are being roiled by falling confidence in the banking sector which has been spurred in part by hefty mortgage-related losses, analysts said. Lehman Brothers has lost hundreds of millions of dollars tied to mortgage investments, but it has also been fighting bogus rumors about its financial standing for weeks. The rumor mill has kicked into a higher gear since the near-collapse of rival bank Bear Stearns in March which was taken over by JPMorgan Chase in an eleventh hour government-backed deal. Lehman's shares closed down 14 per cent at 12.40 dollars on Monday. Its stock has tumbled heavily in the past week and dived around 80 per cent from its high this year, struck in early February, of 66 dollars. The storied Wall Street finance house's shares have now tumbled to their lowest levels since the bank went public in 1994 with a 16-dollar share price.
Wholesale prices soar in June; sales are sluggish Soaring energy, food push inflation up at fastest in 27 years;weak autos pressure retail sales The economy showed the depth of its twin problems on Tuesday, slow growth and rising inflation, as the nation wrestled with a teetering financial system, a slumping dollar and rising prices for food and fuel. The Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8 percent in June, leaving Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains. Fannie-Freddie lifeline puts taxpayers on the hook As government steps in to help Fannie and Freddie, will other institutions be too big to fail? Now that the federal government has thrown a lifeline to mortgage giants Fannie Mae and Freddie Mac, taxpayers could be on the hook for billions more if the crisis of confidence spreads. There were encouraging signs Monday for the rescue plan, but also signs of concern -- notably on Wall Street, where shares of the two companies slumped further -- that the plan won't be enough. Other banks are already teetering: National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual depositor or creditor activity. And Washington Mutual Inc.'s shares fell 35 percent, to a paltry $3.23 amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.
GM to cut salaried workers, production, dividend General Motors says it will cut salaried jobs, production, dividend to raise turnaround cash General Motors Corp. said Tuesday it will lay off salaried workers, cut truck production, suspend its dividend and borrow $2 billion to $3 billion to weather a severe downturn in the U.S. market. GM said the moves will raise $15 billion to help cover losses and turn around its North American operations. "In short, our plan is not a plan to survive. It is a plan to win," GM Chairman and CEO Rick Wagoner said in a broadcast to employees. Chief Operating Officer Fritz Henderson said GM wants to reduce its total salaried costs in the U.S. and Canada by 20 percent.
Will 401(k) losses set off panic? Sharp drop in retirement nest eggs could trigger wave of selling In the next few weeks, the millions of Americans who have been investing their retirement funds in the stock market through their 401(k) plans or Individual Retirement Accounts are going to open their second-quarter statements and be shocked by the losses in their retirement nest eggs. When they suddenly face these losses, the fear could trigger another wave of selling, this time out of panic. In fact, it’s almost surprising that the stock market losses haven't made bigger headlines. Perhaps the stock market’s decline has been overshadowed by the rise in oil prices. Or by the soaring statistics for bankruptcies and foreclosures, which hit closer to home.
U.S. Government's Containment Of Fannie, Freddie Woes Is Crucial$$ The crisis at Fannie Mae and Freddie Mac is a crucial test of U.S. economic policymaking. If mishandled, their woes could spread through the economy with dire consequences for banks, consumers and the government itself. Policy wonks need to act fast to cauterize the wound. Here is the doomsday scenario: Falling house prices and nonpaying homeowners cause the value of the trillions of dollars in outstanding debt held by these government-sponsored enterprises to plunge. Many banks have balance sheets stuffed full of this paper. They face huge losses, which some can't survive. They and other investors, such as foreign central banks, then dump the GSE paper. Fannie and Freddie would end up unable to lend, or at least to take up anything like their current 80% share of the U.S. mortgage market, further punishing the reeling housing market. This would add another twist to the spiral of falling prices, credit losses and failing lenders.
US Banking Crisis Goes from Bad to Worse The last four days have seen the already distressed US banking sector lurch towards the precipice of a full blown financial system meltdown. Banks that have already seen stock price falls of as much as 90% were again hit today with many falling a further 5% to 10% on fears that a series of cascading bank failures were about to be triggered following the collapse of Indymac bank on Friday, as a run on the bank had panicking depositors withdrew funds at the rate of a billion a day. The Federal regulators stepped in to seize the assets and guarantee 100% of the first $100k of depositors money. Meanwhile at the same time another far bigger crisis was unfolding as Freddie Mac and Fannie Mae that insure or manage more than half of US mortgages were also on the brink of collapse. US Treasury Secretary Hank Paulson stepped in to try and reassure the market that the banks were able to meet to day to day financing operations. This 'ms-information' was followed on Sunday by a U-turn by the Federal Reserve and Treasury Department by making unlimited funds available to both critical institutions so as to prevent their collapse, even going so far as the government seeking to buy the banks stock so as to put a floor under the share prices.
Wall Street banks brace themselves for more losses Wall Street is bracing itself for the worst with the start of the latest round of banking results as the continuing decline in the housing market shows no sign of abating. . . . Citigroup, . . . Merrill Lynch, . . . PMorgan Chase, . . . Wells Fargo, . . . Bank of America, . . . Wachovia, . . . Washington Mutual.
Iran's president says oil prices will go higher TEHRAN (Reuters) - Iranian President Mahmoud Ahmadinejad said on Monday crude prices will go higher for various reasons, including threats to attack his country to curb its nuclear program which the West says is a cover to build bombs. "Oil prices will go higher for different reasons that everyone knows, but one of the reasons is the threat of military attacks on our nuclear program," Ahmadinejad told state television. Oil prices are off their record highs but climbed $2 a barrel on Wednesday after Iran announced it had test-fired missiles, sending jitters through financial markets worried about a row with the West over Tehran's nuclear ambitions.
Analyst calls for Lehman Brothers to go private INVESTORS bailed out of investment bank stocks on Monday as concerns about the credit crisis prompted one analyst to call for Lehman Brothers Holdings Inc to go private. Financials such as Merrill Lynch & Co and Morgan Stanley dropped sharply amid more uncertainty about their fate. The most dramatic drop came from Lehman, which tumbled to a 9-year low on fears it does not have enough capital to stay in business. The decline in investment bank shares had David Trone, an analyst with Fox-Pitt Kelton, say the only way to stop Lehman's 79 per cent stock dive this year is to sell the company to a buyout consortium. 'This would eliminate the disconnect between Lehman's true financial condition and current stock price by eliminating the run-on-the-bank discount,' he said. Investors have retreated from financial stocks to such an extent that it has wiped off nearly US$180 billion (S$368.8 billion) of market value from the four biggest US investment houses in the past 12 months. That's enough money to pay every American roughly US$600 each.
Analyst warns on Wachovia amid more bank worries Analyst calls situation bleak for Wachovia as jitters about the banking system continue The situation is increasingly bleak for Wachovia Corp. and the bank's mortgage portfolio will continue to lose value, "seriously jeopardizing" the company's ability to generate earnings, an influential analyst warned on Tuesday. The latest note of caution came as the government moved to reassure people their money is safe in the nation's banks. Yet fears about the system persisted and financial shares were broadly lower Tuesday, signaling another tough day for the stock market. Federal Reserve Chairman Ben Bernanke is scheduled to brief Congress Tuesday on the economy, which has been walloped by high energy prices and fallout from the housing slump and credit crunch. The testimony also comes amid a backdrop of rising oil prices and a slumping dollar, and as stock markets overseas tumble amid worries about the U.S. financial system.
Dollar Falls to Record Versus Euro; Credit Woes May Damp Growth The dollar declined to a record low against the euro on speculation Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson will say credit- market losses are hurting U.S. economic growth. The currency dropped the most versus the yen since the March collapse of Bear Stearns Cos. and fell to a 25-year low versus the Australian dollar on concern confidence in the debt of Fannie Mae and Freddie Mac will diminish even after the U.S. government pledged support for the firms. The pound surpassed $2 for the first time since July 1 as inflation accelerated. "The market took the dollar weaker on the back of the bad news coming out of the financial markets,'' said Win Thin, a currency strategist at Brown Brothers Harriman & Co. in New York "Now everyone is really focused on Bernanke's speech.'' New Fed Rules Crack Down on Shady Lenders The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs. The Fed chairman, Ben S. Bernanke, and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest ”subprime” borrowers — people with tarnished credit histories or low incomes. In that regard, the plan would:
Bar lenders from making loans without proof of a borrower’s income.
Require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.
Restrict lenders from penalizing risky borrowers who pay loans off early. Such ”prepayment” penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty cannot be imposed in the first two years of the mortgage.
Prohibit lenders from making a loan without considering a borrower’s ability to repay a home loan from sources other than the home’s value. The borrower need not have to prove that the lender engaged in a “pattern or practice” for this to be deemed a violation. That marks a change — sought by consumer advocates — from the Fed’s initial proposal and should make it easier for borrowers to lodge a complaint.
Bush to lift offshore drilling ban U.S. President George W. Bush plans to lift a ban on offshore drilling on Monday to combat soaring energy prices, a largely symbolic move unlikely to have any short-term impact on the high cost of gasoline. With prices at the pump over $4 a gallon, Bush has been pushing the Democratic-controlled Congress to expand offshore drilling and give oil companies access to the Arctic Wildlife National Refuge amid strong opposition from environmentalists. High gasoline prices and soaring food prices have irked American consumers in a presidential election year, when Bush's Republicans are trying to keep the White House and wrest control of Congress from Democrats. Bush's move is largely symbolic, however, because Congress too has a ban on offshore drilling and while it expires on September 30, it could be renewed. Government officials also say it would take years for any oil to be produced in those areas.
The Fannie Mae/Freddie Mac Bailout is Necessary - But Don’t Expect a Happy Ending It's the end of the "American Dream." It’s the story of how the inevitable bailout of insolvent housing giants Fannie Mae and Freddie Mac - with the Federal Housing Administration soon to follow - will ultimately lead to such sorrowful sequels as "TheDeath of the Dollar," "The Downgrading of U.S. Government Debt" and, yes, "The Depression." Let's be very clear on one point, however: There’s no question about it - Freddie and Fannie have to be supported. If the doctrine of "too big to fail" didn’t already exist, it would have to be invented - immediately. Although many are arguing against a "bailout,"those "experts" never seem to address the fallout that would emanate from such a strategy. Nor do they ever discuss the sad series of events that brought us to this financial brink. On that latter point, the truth is so ugly and the failure of governance and its resulting greed so disgusting that to not understand it will guarantee the loss of the American Dream for generations.
Karzai opposes U.S. use of Afghan soil against Iran KABUL (Reuters) - Afghanistan opposes U.S. use of its territory for launching a possible attack against neighbouring Iran, President Hamid Karzai said in an interview broadcast on Monday. Iran has threatened to target Israel and U.S. interests in the region in the event of an attack against the Islamic Republic which is locked in a dispute with the West over its nuclear programme. Karzai said his government, which came to power after U.S.-led and Afghan forces overthrew the Taliban in 2001, had always tried to "keep the balance between the powers." "We are attentive to the dangers," Karzai told Radio Liberty when asked about the possible repercussions of a conflict between Iran and the United States.
Nuclear Showdown between the US and Iran Every day we seem to be inching more and more toward more war. According to Ali Akbar Dareini’s article in the AP, “Iran test-fired nine long and medium range missiles Wednesday during war games that officials said aimed to show the country can retaliate against any U.S. and Israeli attack.” He also says that “Israel's military sent warplanes over the eastern Mediterranean for a large military exercise in June that U.S. officials described as a possible rehearsal for a strike on Iran's nuclear facilities.” Our boys too are running war games, preparing for a possible attack on the Strait of Hormuz, “a strategic waterway through which about 40 percent of the world's oil passes.” All this because we say Iran wants Nuclear Weapons.
Senate passes mortgage rescue plan A mortgage rescue to help hundreds of thousands of struggling homeowners avoid foreclosure and get more affordable, safer loans passed the Senate overwhelmingly Friday, but it faces a bumpy road amid continuing turmoil in the housing market. The 63-5 vote reflected a keen interest by Democrats and Republicans to send election-year help to distressed homeowners with economic issues topping voters' concerns. The plan lets homeowners buckling under mortgage payments they can't afford keep their homes and get more affordable mortgages backed by the Federal Housing Administration. Banks that agreed to take substantial losses on those distressed loans could avoid costly foreclosures and be assured of recovering at least some money. The new program would let the FHA insure as much as $300 billion in new mortgages, helping an estimated 400,000 homeowners.
Previous article from June 10th on 90 troubled banks Ominously, the Federal Deposit Insurance is staffing up in anticipation of bank failures. It's already tracking 90 troubled banks, 18% more than the end of last year. None of this is good news for the troubled industry, which has been hoping for a rebound.
A Phony Crisis - and a Real One by Patrick J. Buchanan Last week, the front pages of the world press blossomed with photos of four Iranian rockets, fired in salvo, heading skyward. The image was powerful, and the message reinforced by the head of the Iranian Revolutionary Guard. Should Israel attack Iran, said Ali Shira, Tel Aviv will be "set on fire." U.S. reaction was swift and bristling. "Rice Says U.S. Will Defend Gulf," declared the headline over the AP story that began: . . . And what were the results of last week's missile crisis in the Gulf? Tensions rose, strengthening Tehran's embattled Mahmoud Ahmadinejad. And oil prices shot from $136 a barrel to a record $147. That $11-a-barrel spike alone translates into $25 million a day in fresh revenue for Ahmadinejad and Co. And as the United States imports 13 million of the 20 million barrels we daily consume, that $11 spike in price translates into $143 million more sucked out of the U.S. economy every day – into the coffers of Canada, Mexico, Venezuela, Saudi Arabia, and OPEC. Can we not see who benefits and who pays for this war talk?
'Divide and fool' is Iran's plan While our media have been preoccupied with faked pictures of rockets put out by Iran's sabre-rattling Revolutionary Guards, Tehran's equivalent of the Gestapo, there have been extraordinary developments behind the scenes, in the ongoing drama over the West's outlawing of Iran's main opposition movement, the only real hope of a democratic, secular alternative to that fundamentalist tyranny. Last month the British Government was forced by the Lord Chief Justice and the Court of Appeal to remove the People's Mujahideen of Iran (PMOI[MEK]) from its list of banned terrorist organisations. Britain had only outlawed the PMOI, part of the National Council of Resistance in Iran (NCRI), in a bid to appease Tehran - even though the Revolutionary Guards themselves help to spread terror through the Middle East, from Lebanon and Gaza to Iraq and Afghanistan. For the mullahs, the lifting of the ban was a serious defeat, since they used this proscription (which Britain persuaded the EU to copy) as evidence to the Iranian people that the West regarded their chief popular opposition as terrorists.
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Mon 07.14.2008
A new American reality: The government as provider In a country that holds itself up as a citadel of free enterprise, Washington has morphed from being the lender of last resort into effectively the only resort for home loans for millions of Americans engaged in the largest transactions of their lives.Before, the government's more modest mission was to make more loans available at lower rates. Now it is to make sure the loans that matter most to middle class Americans are made at all.The new reality is scorned by libertarians and conservatives, who fear intrusions by the state in the market, and by populists and progressives, who rue a society in which education and housing increasingly rest upon the government's willingness to finance it."If you're a socialist, you should be happy," said Michael Lind, a fellow at the New America Foundation, a research institute in Washington. "But you should really wonder whether you want people's ability to pay for housing and college dependent on the motives of people in Washington."
More US Banks May Fail After IndyMac More U.S. banks may fail after the collapse of mortgage lender IndyMac Bancorp, straining a financial system seeking stability after years of lending excesses. More than 300 banks could fail in the next three years, said RBC Capital Markets analyst Gerard Cassidy, who had in February estimated no more than 150. While analysts decline to speculate about which banks might fail, several smaller lenders and even larger ones appear to have elevated levels of soured loans relative to their sizes. "You have to look at companies with the greatest exposure to the highest-risk assets, which include construction loans and exotic mortgages," Cassidy said. "The final nail in the coffin for any depository institution would be a funding crisis where it is unable to gather deposits at reasonable cost, or wholesale funding markets are cut off."
After IndyMac, Who's Next? I’m outside IndyMac headquarters all day Monday (or should I say IndyMac Bank FSB), as every depositor in America watches to see what happens when a big bank fails and the FDIC comes in to take over. I feel like a kid again. Back in the ‘80s I was chasing Charles Keating around a federal courthouse and trying to track down then-California Senator Alan Cranston, one of the “Keating Five” (which included John McCain). Chris Thornberg at Beacon Economics says, “IndyMac was the first major institution that wasn’t too big to fail.” He says as the Feds are busy worrying about “the big boys”—Fannie and Freddie—hundreds, maybe thousands, of smaller, regional banks will now realize they have no savior. Thornberg says investors in those banks have to ask themselves, “Is this institution fundamentally safe?” Depositors with accounts insured by the FDIC don’t have to worry…unless the FDIC starts to run low on funds. That looks unlikely at the moment. It has $53 billion, and says IndyMac—by far the largest bank takeover this year—will cost it between $4 billion and $8 billion.
Fannie, Freddie Woes Worse Than Bear's in Some Ways In March the crisis du jour was Bear Stearns Cos. Now it is Fannie Mae and Freddie Mac. Both have shaken Wall Street and raised concerns about the financial system's stability. But there are striking differences between Bear, an investment bank that collapsed and had to be rescued by J.P. Morgan Chase & Co., and the two mortgage giants. Bear collapsed seemingly overnight because it lost its customers and funding in what amounted to a run on the bank. That kind of meltdown is unlikely to happen with Fannie and Freddie because the federal government implicitly guarantees their debt. People are still willing to lend money to the two government-sponsored enterprises. "The credit markets have always treated them as special," said Lawrence J. White, a professor of economics at New York University's Stern School of Business. He said the market has always believed that, "if they ever got into financial difficulty, it would be highly likely that the federal government would step in to honor their obligations."
Paulson Seeks Authority to Shore Up Fannie, Freddie Treasury Secretary Henry Paulson swung the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages. Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank. The announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the companies that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.
Federal deficit grows to $268.7 billion The Treasury Department says the federal deficit swelled to $268.7 billion in the first nine months of this budget year as record spending during the period outpaced revenues.The department's fresh look at the government's balance sheets, released Friday, shows that the deficit for the budget year that began Oct. 1 was up sharply from the red ink of nearly $121 billion for the corresponding nine-month period last year.The new year-to-date deficit of $268.7 billion was the third-highest on record. A flood of tax rebates, aimed at stimulating the sluggish economy, left the government's coffers and contributed to the bigger deficit, according to an analysis by the Congressional Budget Office. Spending totaled $2.2 trillion, while revenues came to $1.93 trillion.
Dollar Index May Decline to Record Low on Charts, Goldman Says The U.S. Dollar Index may extend its decline to reach a record low of 70.70 should it close below so- called support at 71.82, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc., the world's biggest securities firm. The index, which tracks the performance of the dollar against six of the nation's biggest trading partners, has fallen through the lower boundary, or support, of an ascending channel that connects the lows of March 17, April 22 and May 22, London- based Edgeley said. The next support level at 71.82 is the low set on May 22, he said. Support is a level where buy orders may be clustered. ``The Dollar Index has broken below the shallow bull channel base line again, testing wave support at 71.82,'' Edgeley wrote in a research note yesterday. ``A close below would suggest a retest of the all-time lows at 70.70.''
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IndyMac bank crisis signals new takeover era A new era for the U.S. government's takeover of failed banks is about to begin. IndyMac Bancorp became the biggest casualty of the subprime mortgage crisis over the weekend, as federal regulators shut down the troubled Pasadena, Calif.-based savings bank in one of the largest U.S. bank failures ever. The Federal Deposit Insurance Corp. (FDIC) said in a statement that it will take over operations of IndyMac, which will open for business today as IndyMac Federal Bank. The thrift - the fifth U.S. bank to fail so far this year — had total assets of $32 billion as of March 31. In a televised statement Sunday afternoon, FDIC Chief Operating Officer John Bovenzi said that "come Monday morning, it will be business as usual," and urged customers to "view this as a change in ownership."
US spells out Fannie-Freddie backstop plan Fed offers to lend to mortgage companies, Treasury plans possible equity investment Scrambling to bolster eroding investor confidence, the Federal Reserve and the Treasury Department announced steps to brace slumping mortgage giants Fannie Mae and Freddie Mac. The companies' shares, which have plunged as losses from their mortgage holdings threatened their financial survival, opened higher Monday. Fannie Mae rose 27 cents to $10.53, while Freddie Mac climbed 34 cents to $8.08. The plan, unveiled Sunday, is intended to signal the government is prepared to take all necessary steps to prevent the credit market troubles that erupted last year with losses from subprime mortgages from engulfing financial markets. The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies "should such lending prove necessary." They would pay 2.25 percent for any borrowed funds -- the same rate given to commercial banks and big Wall Street firms.
Fannie & Freddie - Our brand of Socialism Time for comrade Paulson to pull the plug on the Fannie and Freddie charade Are Fannie Mae and Freddie Mac adequately capitalised, as asserted recently by US Treasury Secretary Hank Paulson, Federal Reserve Board Chairman Ben Bernanke and their regulator Office of Federal Housing Enterprise Oversight Director James B. Lockhart III? The answer is: obviously not, if these two government-sponsored enterprises of the US federal government had to make a living on normal private commercial terms. Obviously not if they were subject to the market discipline preached by Paulson and Bernanke, but not practiced when it comes to large financial institutions perceived as systemically important (too large or too interconnected to fail) or too politically sensitive to fail. The Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) are government-sponsored enterprises of the US federal government. They are shareholder-owned corporations authorized to make loans and loan guarantees. Fannie Mae was founded as a government agency in 1938 as part of Franklin Delano Roosevelt’s New Deal. For the next 30 years, it held a virtual monopoly on the secondary mortgage market in the United States.
Ripple Effects From Fannie And Freddie Mortgage Giants' Problems Could Mean Higher Loan Rates The crisis at Fannie Mae and Freddie Mac, once the unwavering giants of the mortgage finance industry, could make getting a home loan even more difficult at a time when lenders are already tightening their grip on credit, industry experts and financial advisers said. If you're thinking of buying or refinancing a home, expect to see a rise in mortgage rates, the experts said. But if you already have a mortgage, even one backed by Fannie Mae or Freddie Mac, you should have nothing to fear as long as you have no pressing need to refinance, they said. A spike in rates could also drive homeowners into foreclosure as hundreds of thousands try to refinance out of adjustable-rate mortgages that are scheduled to reset this summer.
More bank failures to come after IndyMac, say analysts As many as 300 banks could fail over the next three years More U.S. banks may fail after the collapse of mortgage lender IndyMac Bancorp, straining a financial system seeking stability after years of lending excesses. More than 300 banks could fail in the next three years, said RBC Capital Markets analyst Gerard Cassidy, who had in February estimated no more than 150. Banks face pressure as credit losses once concentrated in subprime mortgages spread to other home loans and debt once-thought safe. This has also led to investor worries about the stability of mortgage finance companies Fannie Mae and Freddie Mac; IndyMac is not related to either. While analysts decline to speculate about which banks might fail, several smaller lenders and even larger ones appear to have elevated levels of soured loans relative to their sizes.
Midwestern banks brace for tough round of results A wave of gloomy results from the second quarter are expected to be the highlight of reports that Midwestern regional banks will issue in the coming days, analysts say. Regional stalwarts U.S. Bancorp, Marshall and Ilsley Corp. , Huntington Bancshares , Comerica Inc. and KeyCorp are all slated to report earnings over the next two weeks. Most banks across the nation have warned that plummeting housing prices and other financial strains on borrowers are forcing large loan write-offs and provisions for bad loans, undermining quarterly profits. But regional banks could benefit from strong market presence because they know their customers and markets well enough to weather most impending financial turmoil, Greg Ketron, a Citigroup analyst, wrote in a note to investors. U.S. Bancorp will report earnings on Tuesday and is expected to post a profit of 60 cents a share, down slightly from the profit of 65 cents a share the Minneapolis-based bank recorded a year earlier. The nation's sixth-largest commercial bank operates 2,522 offices in 24 states.
Gold advances in Asian trade Gold improved its position in Asian trade Monday, hovering near its highest level in almost four months hit last week, as record high exchange-traded fund holdings suggested flight-to-safety buying was gaining pace. Investors buy gold as a hedge against inflation, and fears of military confrontation between Iran and Israel have helped send oil prices to lifetime highs. Volatility in equities and currency markets also drives investors into safe-haven gold.
Egypt to produce 8 tonnes of gold in 2009 Egypt, which stopped gold production in 1958, will produce 8 tonnes of the metal from mines in the eastern desert in 2009, the chairman of the Egyptian Geological Survey and Mining Authority said on Monday. The Arab world's most populous country, which once considered gold the skin of the gods, is revisiting ancient gold deposits, some unworked for 2,000 years. "We have been producing gold since last December and one of the mines that started production has a reserve of 13 million ounces of gold," Hussein Hammouda said. "Once this mine is fully operational, it won't be only one of the biggest in Africa, but rather one of the biggest worldwide," he told Reuters in a telephone interview from Cairo.
Iran says discovers oil field in its southwest TEHRAN: Iran has discovered a new oil field holding an estimated 233 million barrels of recoverable sweet oil, Oil Minister Gholamhossein Nozari said on Sunday. The field, which has in-place reserves of 1.1 billion barrels, lies in the oil-rich southwestern province of Khuzestan, north of the city Andimeshk, state television quoted Nozari as saying. Iran, the second-largest producer of the Organisation of the Petroleum Exporting Countries (OPEC), two months ago put its oil reserves at around 136 billion barrels. Iran is a big producer of sour oil with a higher sulphur content than sweet crudes. Sour oil sells at a discount to sweet types.
Citigroup's $1.1 Trillion of Mysterious Assets Shadows Earnings At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank's $2.2 trillion balance sheet, the biggest in the U.S., was a Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.
Subprime Crisis Again in the Spotlight as the Meltdowns of Fannie Mae and Freddie Mac Fuel Fears of a Deeper Downturn We've been warning you since the start that the subprime crisis would have some real staying power. Indeed, every time optimistic prognosticators have predicted an end to this global financial debacle, we’ve had the same response: Don't you believe it. Again just recently, after several big banks announced yet another round of major write-offs - all of them related to the subprime crisis, albeit indirectly - analysts, and even some banking-industry executives, said the write-downs were coming to an end.
Iran Attacking Dollar, Switching to Euros in Oil Trades Iran plans to switch from dollars to Euros on the country's oil trading market, a move that could weaken the dollar, whose value has fallen sharply the past year. "Iran has really gone and done it now," commented the Saudi Gazette. It wrote, "The consequences are horrendous: with the dollar no longer the sole currency with which to trade oil, its credibility as the benchmark has weakened gravely and thrown all world currencies into a tailspin."
Iran's propaganda campaign Once again, the government of Iran is deliberately stirring up trouble in hopes of winning concessions from oil-hungry nations. Last week, Iran released photographs and video footage of what Tehran said were test-firings of several ballistic missiles. The launches were reported by Iran's state media to have included Iran's newly improved Shahab-3 surface-to-surface missile, which, with an extended range of 2,000 kilometers, puts Israel and much of the oil-producing Middle East within Tehran's crosshairs. This saber-rattling by Iran, which possesses the world's fourth-largest proven oil reserves, has sent the price of crude oil shooting up once again after a brief respite. This is precisely the effect that Iran's belligerent leadership intended to achieve, since the world is more sensitive than ever to soaring oil prices. By making trouble and getting away with it, Tehran can show that it has improved its bargaining position and might even be allowed to keep its nuclear development program going.
Assad: Israel to Pay 'Heavy Price' if Iran Attacked Syrian strongman Bashar Assad warned Monday that a military attack on Iran would have dire results for Israel. Speaking on France's InterRadio, Assad said: "Iran has already noted that Israel will pay a direct price for such an attack." "The problem," he explained, "is that when one side initiates such an operation in the Middle East, it will not be possible to control the repercussions which could influence the region for many years afterwards." Regarding the United States, Assad said that while reason dictated that the Americans should not strike Iran, "Bush's administration seeks war. It does not act in accordance with our logic and with that of most European states and the nations of the world."
Oil hits new high, metals shine Oil prices zoomed to a record $147.50 this week and aluminium hit all time highs as many commodities were boosted by supply worries, growing tensions over Iran and the weak US currency. Commodity prices swung higher ... as increased tensions between Iran and the West triggered fresh safe-haven demand for oil and metals, said James Moore, analyst at TheBullionDesk.com. Dollar weakness also provided upside momentum he said. The struggling dollar boosts demand for dollar-priced raw materials which become cheaper for buyers using stronger currencies.
Iran to "cut hands" off any attacker, president says Iran's president said that even before its enemies "get their hands on the trigger" the country's military would cut them off, media said on Sunday, in a growing war of words that has intensified Middle East tension. But President Mahmoud Ahmadinejad also suggested Iran would consider any proposal by the United States for a U.S. interests section in the Islamic Republic, if it was forthcoming. The two countries have not had diplomatic ties since 1980.
OPEC Warns War With Iran Would Cause 'Unlimited' Oil Price Hike World energy needs will spike by more than 50 percent by 2030 but adequate oil reserves, conservation and new methods of recovery mean supply will keep pace with demand, the Organization of Petroleum Exporting Countries said Thursday. Still, OPEC's secretary general acknowledged that dangers to steady supply exist. Addressing one — the threat of a U.S. or Israeli attack on Iran because of its nuclear defiance — he warned that his organization was unprepared - and unable - to make up for resulting oil shortfalls. "It is impossible to replace the production of Iran," OPEC's No. 2 producer, Abdalla Salem El-Badri told reporters at the presentation of the organization's long term oil market outlook. “The prices would go unlimited ... I can't give you a number."
US Treasury rescue for Fannie Mae and Freddie Mac Treasury secretary looks at $15 billion cash injection for crisis-hit mortgage lenders US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms. The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world. Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market. The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies.
The $5 trillion mess Fannie Mae and Freddie Mac were created by Congress to help more Americans buy homes. Now their shaky condition threatens the entire housing market. They own or guarantee $5 trillion worth of mortgages? - nearly half of all the country's outstanding home loan debt-and they're crashing. Big time. Fannie Mae and Freddie Mac are struggling with an investor loss of confidence so great that, while they're unlikely to go under, they could conceivably see their ability to function impaired. That would wreak yet more havoc on an already wrecked housing market- making loans tougher to come by and possibly pushing hundreds of billions of dollars in cost onto U.S. taxpayers. How could the companies end up in such awful straits? Given the way they were created and run, a better question might be: how could they not?
Freddie Mac's Next Hurdle: Raise Cash Treasury Working to Make Sure Debt Sale Succeeds Unlike the situation facing Bear Stearns earlier this year, Fannie Mae and Freddie Mac are not short of cash. Treasury Department officials were working the telephones yesterday to make sure that Freddie Mac, one of the nation's two troubled mortgage giants, will be able to sell $3 billion of its securities tomorrow in a previously scheduled sale that has now become a crucial test of investor confidence. Though officials said they were optimistic the sale would be a success, anything less would pose new questions about how far the federal government is willing to go to prop up Freddie Mac, its sister Fannie Mae and other faltering financial enterprises. Officials spoke yesterday with major banks that normally purchase securities, like the short-term debt offered by Freddie, to ensure these firms still plan to place bids tomorrow. This was part of an effort by officials at Treasury, the Federal Reserve and other agencies this weekend to gauge market sentiment and check that investors still have faith in Freddie Mac and Fannie Mae after the steep decline in their stock prices last week.
Fannie and Freddie Grew, Protected by Washington As the Bush administration scrambles to address the sudden decline of the country’s two largest mortgage finance companies, some of their longtime critics say the crisis has been building for years. Among them is Jim Leach, a Republican former representative from Iowa, who began arguing two decades ago in Congress that the government-chartered mortgage companies, Fannie Mae and Freddie Mac, were unfairly insulated from the real world. They were not subject to the same financial standards and tax burdens as their competitors, he warned, and if they ran into trouble, an implicit government guarantee to back them up meant taxpayers would be left with the losses.
Obama cautious on steps to help Freddie/Fannie Democratic White House hopeful Barack Obama said on Saturday he was confident "prudent steps" by the U.S. government would stabilize mortgage giants Fannie Mae and Freddie Mac but that it was necessary to see how the situation developed before deciding on what steps to take. In his first comments on market turmoil over the two companies, Obama told reporters on a flight to San Diego that he was monitoring the situation of the two institutions closely and that it was of "extraordinary concern."
The fall of IndyMac Feds seize bank - once a leading mortgage lender. It may turn out to be most expensive collapse ever. One thing is sure: The credit crisis is still with us. In what could turn out to be the most expensive bank failure ever, troubled mortgage lender IndyMac Bancorp Inc. was taken over by federal regulators on Friday. The operations of the Pasadena, Calif.-based thrift - once one of the nation's largest home lenders - were shut down at 3 p.m. PDT by the Office of Thrift Supervision and transferred to the Federal Deposit Insurance Corp. About 95% of the $19 billion in deposits in the bank are insured, but that leaves $1 billion that was not covered by FDIC guarantees. According to the agency, 10,000 IndyMac customers could lose as much as half of that amount, or $500 million. The agency says the failure will cost the Deposit Insurance Fund between $4 billion and $8 billion, based on preliminary estimates.
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Dollar Plunges on Fannie Mae and Freddie Mac Scare The dollar was sharply lower versus other key currencies Friday after mortgage lenders Fannie Mae and Freddie Mac saw their stocks plummet on fears they may have to be nationalized for a lack of capital. US Treasury Secretary Henry Paulson offered no hint of a bailout but said the government would work to help the companies recover in their current form. “Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” Paulson said. Stocks pared some losses after a Reuters report that Federal Reserve Chairman Ben Bernanke had told Freddie Mac CEO Richard Syron that the two government-sponsored enterprises could access the discount window.
Widespread Panic Fannie, Freddie, Lehman, oil, stocks: How Wall Street became paralyzed with fear. Nearly a year into the credit crisis and four months after Bear Stearns imploded, panic has officially set in on Wall Street. This week was a maelstrom of fear across the board. The Dow Jones industrials officially hit bear market territory, Iranian missile tests helped drive the price of oil to another record high, rumors and anxiety sent shares of Lehman Brothers so low that its name is nearly synonymous with Bear Stearns, and the two most important players in the mortgage market, Fannie Mae and Freddie Mac, appeared to be on the brink of becoming obsolete. Investors have every right to be nervous. And the scariest part is there are no signs of abatement anytime soon. Panic only begets more panic. The cliff dive that Fannie and Freddie shares took this week is particular cause for alarm. The government-sponsored entities borrow money at favorable rates in order to buy and repackage mortgages from issuing banks, thus freeing up the banks to make more loans. They then sell those repackaged securities as bonds and guarantee they'll be repaid. It's nearly impossible to overestimate their importance to the function of the capital markets - they're the grease that keeps them running. They back or own more than half of the country's $12 trillion mortgage debt.
Paulson Backs Fannie, Freddie in Their 'Current Form' U.S. Treasury Secretary Henry Paulson signaled that a government takeover of Fannie Mae and Freddie Mac won't be necessary, saying they should continue as shareholder- owned companies with federal charters. "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,'' Paulson said in a statement in Washington. President George W. Bush told reporters separately that the two firms are "very important institutions'' and that he discussed market "concerns'' with Paulson earlier today. Paulson's remarks indicate he wants to reassure shareholders they won't be wiped out by any government efforts to ensure the stability of the firms that own or guarantee almost half the $12 trillion in U.S. mortgages.
Nervous Investors Bid Up Gold Prices Gold prices were surging Friday as worries about the financial system combined with higher oil prices and tensions in the Middle East to boost demand for the metal. Benchmark bullion futures were gaining $23.90 at $965.90 an ounce in recent action on the Comex division of the New York Mercantile Exchange. The dollar was retreating against the euro, the British pound and the Japanese yen. The price of dollar-denominated assets, such as gold, tend to rise as the value of the U.S. currency drops. "There are any number of reasons for people to be concerned about the world, and investors are responding by purchasing large amounts of gold and silver," says Jeff Christian, managing director at New York-based specialty commodities research firm, CPM Group.
5-Alarm Fire at Fannie, Freddie: Paulson Nixes Bailout -- for Now Fannie Mae and Freddie Mac tumbled again Friday as speculation about possible government intervention accelerated, thanks to a NY Times story on the subject. Hopes for a government bailout rose further - and stocks climbed from their initial descent - on reports Treasury Secretary Paulson would make a statement on the GSEs. But the optimism proved misplaced. Paulson downplayed the likelihood of a government bailout of Fannie and Freddie, and financial markets tumbled anew. "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,'' Paulson said in a statement.
Silence of the Lenders: Is Anyone Listening? DAN A. BAILEY JR. was desperate when he sat down on May 19 to send an e-mail message to his mortgage lender, the Countrywide Financial Corporation, pleading, yet again, for help. Behind on his payments and fearful of losing his home of 16 years — a 900-square-foot bungalow in Wilmington, N.C. - Mr. Bailey had spent the previous six months unsuccessfully lobbying Countrywide, at the time the nation’s largest home lender and loan servicer. Mr. Bailey, 41, promised in his e-mail message that he would pay every nickel he owed if Countrywide would modify his mortgage in a way that allowed him to keep his home. He sent the message to a grab bag of Countrywide e-mail addresses, which he had received from www.LoanSafe.org, an online forum for borrowers. Among the recipients of his e-mail was someone he had never heard of before: Angelo R. Mozilo, Countrywide’s co-founder and chief executive. Lo and behold, Mr. Mozilo replied — inadvertently, as it turned out.
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Fri 07.11.2008
Friday after hours ALERT!! . . . .
IndyMac taken over by regulators Mortgage lender IndyMac Bancorp Inc was taken over by the Federal Deposit Insurance Corp on Friday, the second largest financial institution to close in U.S. history. The FDIC said the estimated cost of the California-based bank's failure to its insurance fund is between $4 billion and $8 billion. The regulator said it will operate IndyMac to maximize the value of the firm for future sale. IndyMac's primary regulator, the Office of Thrift Supervision, blamed a senior lawmaker's comments for causing a run on the deposits at the largest independent publicly traded U.S. mortgage lender.
IndyMac Bancorp Is Seized By Federal Regulators$$ IndyMac Bancorp Inc., a prolific mortgage specialist that helped fuel the housing boom, was seized Friday by federal regulators in one of the largest bank failures in U.S. history. The Pasadena, Calif. thrift was one of the largest savings and loans in the country with about $32 billion in assets. It now joins an infamous list of collapsed banks, topped by Continental Illinois National Bank and Trust Co., which failed in 1984 with $40 billion of assets. IndyMac specialized in Alt-A loans, a type of mortgage that can often be offered to borrowers who don't fully document their incomes or assets. The company sold most of the loans it originated but continued to hold some on its books. As defaults piled up, IndyMac's finances deteriorated. The bank will be run by the Federal Deposit Insurance Corp., a federal regulator, and will reopen Monday.
Office of Thrift Supervision shuts down IndyMac Office of Thrift Supervision steps in and closes IndyMac Bank; FDIC takes over operations IndyMac Bank's assets were seized by federal regulators on Friday after succumbing to the pressures of tighter credit, tumbling home prices and rising foreclosures. The Office of Thrift Supervision said it transferred IndyMac's operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors' demands. IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said. Other bank services, such as online banking and phone banking were scheduled to be made available on Monday. The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said. "This institution failed today due to a liquidity crisis," OTS Director John Reich said.
IndyMac Seized by U.S. Regulators Amid Cash Crunch IndyMac Bancorp Inc. became the second-biggest federally insured financial company to fail today after a run by depositors left the California mortgage lender short on cash. The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank, starting next week, the Office of Thrift Supervision said in an e-mail today. Customers will have access to funds this weekend via automated teller machines. The Pasadena, California-based bank specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. Its home state has been among the hardest hit by foreclosures.
Lehman Free-Fall Continues Lehman Brothers shares plummeted as much as 23% Friday, as investor confidence in the investment bank's capital position continued to erode. It was the second straight day of big losses for the firm, which on Thursday was battered by a rumor -- later discredited - that bond giant Pimco was curtailing trading with the firm. On Friday, however, despite little news, investors continued to make bearish bets against Lehman. Spreads on credit default swaps on Lehman debt, which insure the debt against default, were widening, while options traders pushed implied volatility, a measure of the expectation of a price change in the underlying stock, to levels 50% above their level when Bear Stearns neared collapse on March 17.
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A trickle that turned into a torrent The word began spreading across Wall Street trading desks on Monday morning: Fannie Mae and Freddie Mac, the giant companies at the heart of the nation's housing market, might be in trouble. The tumult, which continued on Thursday, started with a cautionary analyst's report, one that might have caused few ripples in normal times. But these are not normal times. Within minutes, the price of the companies' shares was plunging, sending shock waves through the financial markets, the economy and Washington. Fannie Mae and Freddie Mac are so big - they own or guarantee roughly half of the nation's $12 trillion mortgage market - that the thought that they might falter once seemed unimaginable. But now a trickle of worries about the companies, which has been slowly building for years, has suddenly become a torrent. Virtually every home mortgage lender, from giants like Citigroup to the smallest local banks, relies on Fannie Mae and Freddie Mac to grease the wheels of the mortgage market. Virtually every Wall Street bank does business with them. And investors around the world own $5.2 trillion of the debt securities backed by the companies.
Fannie and Freddie Shares Fall by as Much as 50 Percent Shares of Fannie Mae and Freddie Mac, the beleaguered mortgage finance companies, were poised to plummet again on Friday morning, as senior Bush administration officials consider a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, according to people briefed about the plan. Fannie Mae stock was down as much as 50 percent in pre-market trading on Friday morning compared with Thursday’s closing price; Freddie Mac stock was down as much as 48 percent. The overall market was also poised for a painful start: Dow Jones industrials futures were down more than 100 point just before the 9:30 a.m. opening bell.
Fannie Mae, Freddie Mac Tumble on Takeover Option Fannie Mae and Freddie Mac, the biggest providers of financing for U.S. home loans, tumbled for a third day as concern escalated that the government may be forced to start a rescue of the companies. Fannie Mae fell $5.03, or 38 percent, to $8.17 at 9:37 a.m. in New York Stock Exchange trading to the lowest level in more than 17 years. Freddie Mac slid $3.61, or 45 percent, to $4.39. A government takeover of one or both companies is among several options being weighed by the Bush administration, said Joshua Rosner, an analyst with Graham Fisher & Co. Inc., who met with officials in Washington yesterday. Officials may push for the firms, which own or guarantee almost half of the $12 trillion in U.S. home loans outstanding, to be placed in a conservatorship if their problems get worse, he said. A government-led takeover would likely make the common stock of each company worthless.
Cramer: Blame the Mortgage Insurers The blowhards and bluff artists and the Gang of Four -- Ambac , MBIA, MGIC and PMI -- truly have blood on their hands for this moment. So do the ratings agencies, the mortgage insurers and the salespeople who packaged undocumented loans and pushed buying homes with no money down. The whole apparatus stinks and we are now seeing the unwinding, but I think that the false assurances created by the Gang of Four and their insistence to not worry made everyone way too complacent. Their glib promises as well as the incredibly lax work of the ratings agencies, S&P and Moody's, enabled the whole edifice to be propped up. And once it was clear to them that they needed more capital, they chose to forgo the window and attack the shorts. Had they raised the capital they needed and had the ratings agencies said they can't bless any more of this junk, we might have never been in this spot.
Lehman BOTHERS NEW RUMOR DRAWS FRESH BLOOD FROM STREET STALWART Lehman Brothers CEO Dick Fuld yesterday found himself taking a thrill ride he'd just as soon have avoided, as fresh rumors about the firm's future sent the company's stock reeling. Shares plunged as much as 23 percent in early trading, falling to their lowest level in eight years, amid rumors the giant bond manager Pacific Investment Management and the $16 billion hedge fund SAC Capital were pulling business from the firm. If true, the news could have rung the death knell for the 158-year-old company. Both firms publicly denied the talk, and the stock pared its losses but still ended down 12 percent, or $2.44, to $17.30 in New York Stock Exchange trading. The punishing plunge was reminiscent of the precipitous decline of now-defunct Bear Stearns.
Housing Bubble's Pop Could Doom Boomers The collapse of the housing bubble will likely wipe away most -- if not all -- of the wealth families have accumulated over the last two decades, according to a new report from the Center for Economic and Policy Research. While younger households stand to lose more, the economic-policy group found that Baby Boomers approaching retirement will feel worse effects, since they have less time to accumulate additional wealth or change spending and savings patterns. As a result, tens of millions of Americans may be almost entirely dependent on Social Security and Medicare in their golden years. The group projects that most families' wealth will drop to 1989 levels, if not lower. Even if home prices stay flat through 2009, the median household headed by someone between the ages of 45 and 54 will have 25% less wealth than their counterparts five years ago. If prices fall 10%, those households will have 35% less wealth.
Crude Oil Rises to Record on Speculation Israel May Attack Iran Crude oil rose more than $5 a barrel to a record on concern that Israel may be preparing to attack Iran as a strike in Brazil and renewed militant activity in Nigeria threaten to cut supplies. Oil jumped as high as $147.27 a barrel in New York after the Jerusalem Post said Israeli war planes practiced over Iraq. A Brazilian union said it plans a five-day strike and Nigerian militants pledged to renew attacks on oil facilities. Prices have jumped more than $10 a barrel in the past two days. "The Iran premium has come into the market over the last two days,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. "Nothing has changed except the perception about whether there will be a deal between the U.S. and Iran. The possibility of a conflict is of tremendous concern to the market.''
Oil Climbs to Near $147 a Barrel Oil prices spiked Friday as continued tensions in the Middle East and concerns of renewed violence in Nigeria pushed the price for a barrel of oil to a record near $147. By midday in Europe, light, sweet crude for August delivery jumped $5.25 to $146.90 on the New York Mercantile Exchange. Oil prices had fallen $10 over two days to start the week and as oil rebounded Friday, Dow Jones industrial average futures fell more than 120 points. In London, August Brent crude soared $4.92 to $146.95 a barrel on the ICE Futures exchange after hitting a record $147.25. ''There's always a fear premium in pricing. The tensions in Iran and the threat of supply disruption will help support oil prices,'' said Jeff Brown, managing director of FACTS Global Energy in Singapore. JBC Energy in Vienna, Austria, said the news about Iran, Nigeria, as well as a reported threat of a strike by oil workers in Brazil were ''enough to wake the market from its two-day slumber.''
Speculation heats up over Fannie and Freddie A favourite parlour game in Washington and on Wall Street for years involves speculating about what the government might do if Fannie Mae and Freddie Mac were close to collapse. Although the US has never explicitly said it would rescue the two mortgage groups, whose debt stands at about $5,300bn (€3,350bn, £2,680bn), many investors have come to believe they are too large and too critical to the housing industry and the broader economy to fail. Now, after a week in which shares in Fannie Mae and Freddie Mac have fallen sharply, speculation about a bail-out has intensified. But the form that any government intervention could take - as well as the timing and the cost to taxpayers - is highly uncertain.
Hedge Funds Get Hammered$$ June Is Cruel to Big Names As Prentice, Tosca Get Hit The June stock-market rout has battered two high-profile hedge funds. Prentice Capital Management LP, the New York firm started in May 2005 with about $400 million in start-up money from the huge hedge-fund firm SAC Capital Advisors LLC, has plunged 46% this year. Almost half of that drop happened during June as the value of the firm's stock and debt investments in retailers plummeted, according to investors. Last month, Prentice barred clients from withdrawing money, resorting to a defensive step hedge funds can take to avoid selling assets in desperation when clients ask to pull significant amounts. In London, an even bigger hedge fund, Martin Hughes's Tosca Fund, has declined almost 30% this year as its bets on financial and U.K. home-builder stocks suffered. The fund, which started the year with about $5 billion in assets, is the largest overseen by Toscafund Asset Management LLP, started in 2000 after Mr. Hughes left star investor Julian Robertson's Tiger Management. Tosca headed into this year bringing in new money, in no small part because it posted three straight years of 20% or better gains, according to investors.
Russia's Car Market Booms$$ Rising Middle Class Lures Foreign Makers; German Lead at Risk Russia is poised to overtake Germany this year to become Europe's largest automotive market by vehicles sold, auditor PricewaterhouseCoopers LLC said. The surging price of oil has revitalized the country's economy, providing many Russians the means to buy foreign-made cars. Meanwhile, rising fuel costs have made car ownership more expensive in Europe and the U.S., where sales are stagnating. Car sales in Russia rose 41% in the first half of 2008 to 1.65 million, with a total value of $33.8 billion, PwC said in a report, citing figures from the country's customs service and a trade group. The auditor said that the figure is larger than the number of new-car registrations in Germany, but that Russia's total includes used imported cars. "If the market growth remains at the same level in the second half of the year, sales in Russia will exceed sales in Germany," PwC said.
Shares of GM hit new low on bankruptcy worries Shares of GM tumble to new 54-year low on speculation about financial health, bankruptcy Shares of General Motors Corp. slid to another record low Thursday, as speculation swirled about the financial viability of U.S.-based automakers and a possible bankruptcy filing at GM. GM shares fell 25 cents, or 2.4 percent, to $10.08 in afternoon trading, after tumbling to $9.42 earlier, passing Monday's five-decade low by 50 cents. Thursday's low marked the Detroit-based automaker's lowest share price since July 2, 1954, when its stock dropped to $9.15, according to the Center for Research in Security Prices at the University of Chicago. The price is adjusted for splits and other changes.
Insurance Dilemma Adds to Distress$$ Amid their many problems, Fannie Mae and Freddie Mac also are contending with woes in an industry that is supposed to help reduce their risk: mortgage insurance. The little-noticed firms, which sell insurance to borrowers who can't make ample down payments, are under stress thanks to the problems in the housing market that are taxing Fannie and Freddie, the government-sponsored mortgage firms. Fannie and Freddie need the coverage these firms provide in case borrowers default on mortgages. But as defaults rise and home prices fall, the insurers' losses are mounting and their stocks are getting crushed. Despite the rough conditions, the insurers, and many outsiders, say they will be able to pay their claims. "They do have a depth of capital, and they should be able to continue paying claims," said Dan Kelly, director of mortgage-insurer relations for Freddie.
Hedge fund manager describes rock bottom One by one, John Devaney sold his treasures, hoping to forestall what was in the end inevitable. He sold his Renoir and his Gulfstream, his home and his helicopter. Even his cherished yacht - gone. But on Wednesday Devaney, who made and then lost a fortune trading mortgage investments, finally called it quits. He shut his hedge fund, and told his investors that all their money was gone too. "I'm devastated, I'm totally devastated," Devaney said by telephone from Aspen, Colorado "I feel horrible that I've lost my own money and that so many people who saw the skills I have and trusted in us have now been hurt."
Washington struggles to avoid a federal bailout of Fannie Mae and Freddie Mac Top officials in Washington struggled Thursday to reassure the markets about the financial health of the nation's two largest mortgage finance companies as their stock prices plunged to their lowest levels in 17 years on fears that they could face the possibility of a government bailout. The rapid sell-off of shares of Fannie Mae and Freddie Mac followed comments from a former central banker that the institutions might not be solvent, as well as a critical report about Freddie from an analyst at UBS. The turmoil also shook the debt of the government-sponsored companies, as the gap between the yield on Fannie Mae bonds and ultrasafe U.S. Treasury bonds widened to the highest level since the days before the Fed rescued Bear Stearns from bankruptcy in March.
Rice says US will defend Gulf; Iran tests missiles Condoleezza Rice flexed America's muscles in the Middle East Thursday, forcefully warning Iran the U.S. won't ignore threats and will take any action necessary to defend friends and interests in the Persian Gulf. A fresh Iranian missile test prompted a show of force from Israel as well. Rice said Iran's leaders should understand that Washington won't dismiss provocations from Tehran and has the ability to counter them. "I don't think the Iranians are too confused, either, about the capability and the power of the United States to do exactly that," she said.
Iran Humbled By Total An extra round of test-fired missiles on Thursday may have comforted Iran, as it puffed out its chest in the face of potential military action from either Israel or the United States. But the decision of France's Total to back off from a potentially major investment in Iran highlighted just how isolated and fragile the country has become. Although the Iranian oil minister was reported by TradeTheNews as saying on Thursday that Iran would develop its South Pars natural gas field "with or without Total," the country is running out of options. Only a Western major like Total has the technology and expertise necessary to develop such a project and get exports up and running, but on Thursday the company decided against investing in the field.
Fannie and Freddie Keep Falling Shares in Fannie Mae and Freddie Mac extended their slides on Thursday as worries about the financial stability of the firms swirled through the financial markets. Their values have plummeted recently on fears of mortgage defaults and of shareholder dilution resulting from possible sales of new stock. The companies' fortunes have been declining with the subprime-battered U.S. housing market. William Poole, the former St. Louis Federal Reserve president, is the proximate cause of the companies' latest downward leg. He was quoted on Wednesday as saying the pair were "insolvent" and might require a government bailout. On Thursday, he said on television that the enterprises should be nationalized, TradeTheNews.com reported.
Lehman tumbles to new low on more credit fears Lehman Brothers Holdings Inc. shares plunged as much as 19 percent Thursday morning as continued credit fears shook Wall Street, and government officials again reiterated that no bank is too big to fail. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson both testified before the House Financial Services Committee that the government's overhaul of regulators will help increase oversight. However, they both said that doesn't mean financial institutions are too big to fail. "We aim not only to make the financial system better able to withstand future shocks but also to mitigate moral hazard and the problem of too big to fail by reducing the range of circumstances in which systemic stability concerns might prompt government intervention," Bernanke said in a prepared speech.
Oil rebounds as Iran tensions flare Crude oil prices rebound from recent drop as anxiety escalates over Iranian missiles Oil prices rebounded by more than $5 a barrel Thursday, as another missile launch by Iran stoked worries that escalating political tensions in the Middle East could cut off supplies out of the region. A day after Iran tested a missile capable of reaching Israel, Secretary of State Condoleezza Rice warned the oil-producing nation that the United States will defend its allies. Iran then responded with another missile launch. The mounting hostilities drew buyers back into the jittery energy markets, said John Kilduff, senior vice president of risk management at MF Global LLC. "We fell awfully fast, awfully far," Kilduff said, "and these Iranian tensions are putting a higher and higher floor under this market."
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Thur 07.10.2008
Fannie, Freddie Tumble on Bailout Concern, UBS Cut Fannie Mae and Freddie Mac, the two biggest providers of financing for U.S. home loans, tumbled to the lowest levels in 17 years in New York trading after a former Federal Reserve president said the companies may need a government bailout. Fannie Mae tumbled as much as 24 percent and Freddie Mac slumped as much as 34 percent in New York Stock Exchange composite trading after UBS AG analysts said in a report today that Freddie Mac's decline creates "challenges'' for the company's plan to raise $5.5 billion. Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don't have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.
U.S. Mulls Future of Fannie, Freddie $$ Administration Ramps Up Contingency Planning as Mortgage Giants Struggle The Bush administration has held talks about what to do in the event mortgage giants Fannie Mae and Freddie Mac falter, according to three people familiar with the matter, as the stock prices of both companies continue to fall sharply. These discussions have been going on for months and are part of normal contingency planning that the Treasury Department and other financial regulators regularly undertake. The talks have become more serious recently given the financial woes of the shareholder-owned, government-chartered companies, whose stability is vital to the functioning of the nation's housing market, these people say.
Fannie Mae and Freddie Mac Shares Tumble Fannie Mae and Freddie Mac, the mortgage lenders at the heart of the nation’s housing finances, fell to their lowest share prices in 17 years on Thursday on concern that the companies could face the possibility of a government bailout. Provocative comments from a prominent central banker — who labeled the firms “technically insolvent” — and a harsh report about Freddie Mac from analysts at UBS led to a rapid sell-off of the companies’ shares. Freddie Mac’s stock plunged more than 30 percent and Fannie Mae’s more than 20 percent in the first hour of trading. Shortly before noon, Freddie Mac was down 20 percent, to $8.24, and Fannie was down 9 percent, to $13.95. It was the second straight day of painful declines for the companies.
Cramer: Poole's Not All Wet Amazing. Just amazing. Bill Poole agrees with me: Fannie and Freddie are virtually kaput, they are insolvent. They don't have a right to be stocks. I know that when I did my rant last year, it was really focused on Bill Poole, the Federal Reserve member who had been most opposed to my view that the Fed had to cut and cut hard. I called him a reckless man. Put aside that I called for his resignation, because he was calling for my resignation. Now he understands it. Here's what I see happening: The people who own these stocks are going to lose everything. The man who understood this more than anyone in the country, Bob Steel, just jumped from the American frying pan to the Wachovia fire. But he was needed to figure out how to save Fannie Mae/Freddie Mac the companies -- forget the common stock.
Bernanke Urges Consolidated Investment Bank Oversight Federal Reserve Chairman Ben S. Bernanke said Congress should give a single federal regulator enhanced power to set standards for the capital, liquidity and risk management of investment banks. "Reforms in the oversight of these firms must recognize the distinctive features of investment banking,'' Bernanke said today in remarks prepared for testimony before the House Financial Services Committee. Federal supervisors must take care not "to induce a migration of risk-taking activities to less- regulated or off-shore institutions.'' The Fed is discussing with other federal agencies overhauling regulation of financial institutions following the near-bankruptcy of Bear Stearns Cos. and market turmoil triggered by the collapse of the subprime mortgage market. Bernanke didn't specify which federal agency needs more power.
Bernanke: Empower financial regulators FED CHIEF, PAULSON PUSH FOR NEW POWERS TO RESPOND TO HOUSING, CREDIT PROBLEMS Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told Congress today that new regulatory powers are needed to insulate the national economy from damage if a big Wall Street firm collapses. Their recommendations were part of a broader debate before the House Financial Services Committee about the best ways to revamp the country's antiquated regulatory system. The idea is to brace the system to better respond to modern-day crises like the housing and credit debacles that have badly bruised the economy. Both Bernanke and Paulson endorsed creating new procedures by which the government can guide an orderly liquidation of a failing investment bank in an effort to minimize any fallout that might be inflicted on the broader financial system and the overall economy. Such procedures, which are in place for commercial banks, might have made the dissolution of investment firm Bear Stearns more orderly.
Inside Wall Street: The Real Reasons the U.S. Banking System Lost its Way Unlike Dorothy in "The Wizard of Oz," the brutalized U.S. banking system will never again return to that comfortable, cozy, and cushy capital place it once happily referred to as "home." But its "Wicked Witch" was its own greed. The curtain has finally been pulled back on the machinery, and the hot air used to pump up the U.S. banking system’s version of the Emerald City in the Land of Oz. For decades, American banks operated on a simple - and nicely profitable - business model: They took in deposits and lent out money. In the simplest model, a bank might take in deposits of a million dollars and lend out a million dollars. In a perfect world, such a "matched book" is established if they know that the deposit will be left in the bank for a year and the loan they made has a maturity of one year. If the bank pays the depositor 3% and charges the loan borrower 5%, it can assume a profit for the year of 2% (the difference between the 5% loan rate and the 3% payout to depositors). It Takes Money to Make Money - Disappear
US foreclosure filings surge 53 percent in June Foreclosure filings continue to rise as US housing crisis drags on The number of homeowners stung by the rout in the U.S. housing market jumped last month as foreclosure filings grew by more than 50 percent compared with June a year ago, according to data released Thursday. Nationwide, 252,363 homes received at least one foreclosure-related notice in June, up 53 percent from the same month last year, but down 3 percent from May, RealtyTrac Inc. said. One in every 501 U.S. households received a foreclosure filing last month.
Fed chief: Empower financial regulators Bernanke, Paulson call for safety net if Wall Street firm fails; Urge more regulatory clout Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told Congress Thursday that new regulatory powers are needed to insulate the national economy from damage if a big Wall Street firm collapses. Their recommendations were part of a broader debate before the House Financial Services Committee about the best ways to revamp the country's antiquated regulatory system. The idea is to brace the system to better respond to modern-day crises like the housing and credit debacles that have badly bruised the economy.
Lehman tumbles to new low on more credit fears Lehman Brothers shares hit new low as Bernanke, Paulson indicate no bank is too big to fail Lehman Brothers Holdings Inc. shares plunged as much as 19 percent Thursday morning as continued credit fears shook Wall Street, and government officials again reiterated that no bank is too big to fail. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson both testified before the House Financial Services Committee that the government's overhaul of regulators will help increase oversight. However, they both said that doesn't mean financial institutions are too big to fail.
Fannie, Freddie stocks and bonds plummet A firestorm of anxiety over the ability of U.S. mortgage giants Fannie Mae and Freddie Mac to get the capital they need to survive sent their debt and stocks plummeting on Thursday. Stoking concerns, former St. Louis Federal Reserve President William Poole said the two major U.S. mortgage finance companies were "insolvent" and may need a U.S. government bailout, according to Bloomberg News. The outlook was so dire that Bush administration officials were meeting with regulators to discuss contingency plans should they be unable to raise funds and support the worst housing market since the Great Depression, according to a report in the Wall Street Journal.
Abu Dhabi buys 90% of New York City's Chrysler Building The government of Abu Dhabi bought a 90 percent stake in the Chrysler Building on Tuesday for $800 million from German real estate investors and Tishman Speyer. But while it might seem that the buyer, the Abu Dhabi Investment Council, got a controlling interest in the Art Deco tower, a landmark, for that kind of money, that was not the case. Despite having only a 10 percent holding, Tishman Speyer Properties will continue to control the property and manage it, much as it has since 1997, because it controls the land beneath the 77-story tower, with its trademark stainless steel crown, gargoyles and elevator cabs that evoke the chrome-laden autos of the 1930s.
OPEC chief warns of 'unlimited' oil prices if Iran is attacked The head of the Organization of Petroleum Exporting Countries warned Thursday that oil prices would see an "unlimited" increase in the case of a military conflict involving Iran, because the group's members would be unable to make up the lost production. "We really cannot replace Iran's production - it's not feasible to replace it," Abdalla Salem El-Badri, the OPEC secretary general, said in an interview. Iran, the second-largest producing country in OPEC, after Saudi Arabia, produces about four million barrels of oil a day out of the daily worldwide production of close to 87 million barrels.
Iran Launches More Test Missiles, Draws Rebuke From Rice Iran conducted a second day of high-profile missile tests today, as Secretary of State Condoleezza Rice warned the Islamic republic that it would defend Israel or other Citing broadcasts on state-run Iranian television, the Associated Press reported out of Tehran that the country had continued an ongoing military exercise in the Persian Gulf with another round of missile tests. The tests included the use of more long-range rockets capable of reaching Israel, as well as other devices with what state-controlled media referred to as "special capabilities," though no further details were provided.
Rice Warns Iran That U.S. Will Defend Allies The confrontation between Tehran and Washington seemed to sharpen on Thursday as Iran said it tested missiles for a second day and Secretary of State Condoleezza Rice said the United States would defend its allies and protect its interests against an attack. Ms. Rice was speaking in the former Soviet republic of Georgia at the end of a three-day tour of Eastern Europe. Shortly after she spoke, state-run media in Iran began reporting the new missile tests, which followed a warning from an Iranian official earlier this week that Tehran would strike Tel Aviv and United States interests if Washington attacked it first. Iranian state television showed a missile blasting off in darkness, trailed by a fiery exhaust plume. The television said the new tests took place during the night into Thursday. A commander in the Revolutionary Guards had said earlier that night missile maneuvers would take place but did not give details.
U.S. spy cases raise concern on China's intentions Gregg Bergersen was a navy veteran who liked to gamble on occasion but spent far more time worrying about how to earn some serious money after he left his career as an analyst at the Defense Department. At 51 and supporting a wife and a child in the Virginia suburbs, he wondered how he could get himself cast in that distinctly Washington role many Pentagon types dream of: a rewarding post-retirement perch at one of the hundreds of military-related companies that surround the capital and flourish off lucrative government contracts and contacts. Bergersen believed he had found what he was seeking when he was introduced to Tai Shen Kuo, a native of Taiwan, who had lived in New Orleans for more than 30 years. Kuo, an entrepreneur who imported furniture from China, was active enough in civic affairs to have been named to a state advisory board on international trade. He told Bergersen that he was developing a defense consulting company.
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Wed 07.09.2008
Paulson: Home Foreclosures Will Remain High U.S. Treasury Secretary Henry Paulson said Tuesday that home foreclosure starts may hit 2.5 million this year, many of them the borrowers' own fault for taking out loans they couldn't afford. "There is little public policy-makers can, or should, do to compensate for untenable financial decisions," Paulson told a forum on mortgage lending to low and medium-income homeowners. He said flatter sales of existing homes in recent months implied some stabilizing in home-buying demand but warned foreclosures stemming from a housing correction that began in 2006 likely will continue for some time. Paulson said that Treasury is continuing its efforts to assist "preventable foreclosures," chiefly among low- and moderate-income people who fell behind on payments when their variable-rate loans reset at higher rates.
Bernanke, Paulson, FDIC Eye Taxpayer Bailouts, More Power "The Federal Reserve is strongly committed" to financial stability and is "considering several options, including extending the duration of our facilities for primary dealers beyond year-end," Bernanke said in a speech to a conference in Arlington, Virginia. Bernanke also endorsed proposals to set up a federal liquidation process for a failing investment bank. The Treasury should "take a leading role in any such process" in consultation with regulators, he said. Such a resolution mechanism may help reduce concern that investors and dealers begin counting on Fed aid in case their bets go wrong.Securities firms have cut back on their use of the programs in recent weeks. The balance of loans outstanding from the PDCF dropped to zero as of July 2, the first time that's happened since the program began. On March 26, the end of the first full week of operation, the PDCF had a balance of $37 billion.
Iran test-fires long- and medium-range missiles Iran test-fired nine long- and medium-range missiles Wednesday during war games that officials said were intended to show the country can retaliate against any U.S. or Israeli attack, state television reported. The test-firings were widely condemned in the United States, notably by the White House and the two main candidates for the presidency. The exercise was being conducted at the mouth of the Strait of Hormuz, a strategic waterway through which about 40 percent of the world's oil passes. Iran has threatened to shut down traffic in the strait if attacked. Gen. Hossein Salami, the air force commander of Iran's elite Revolutionary Guards, said the exercise would "demonstrate our resolve and might against enemies who in recent weeks have threatened Iran with harsh language," the TV report said.
Despite conflict, U.S. does business with Iran The rhetoric between the Bush administration and Iran may get tougher and tougher, but the trade marches on. Terrorists and nuclear ambitions aside, the United States sells Iran brassieres and bull semen, cosmetics, cigarettes and a host of other goods, possibly even rifles. In the words of President Calvin Coolidge: “The chief business of the American people is business.” So true! U.S. exports to Iran grew more than tenfold during President Bush’s years in office even as he accused it of nuclear ambitions and sponsoring terrorists. America sent more cigarettes to Iran, at least $158 million worth under Bush, than any other product.
China's economy to become world's biggest in 2035: China's economy will overtake that of the United States by 2035 and be twice its size by midcentury, a study released Tuesday by a US research organization concluded. The report by economist Albert Keidel of the Carnegie Endowment for International Peace said China's rapid growth is driven by domestic demand more than exports, and will sustain high single-digit growth rates well into the 21st century. "China's economic performance clearly is no flash in the pan," Keidel writes. "Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the 21st century, unfettered by world market limitation."
What if what they taught you is wrong? In this Financial Times commentary, Wolfgang Münchau comes ever so close to asking what must be one of the most difficult of all questions for any practicing economist to ask, "What if what they taught you is wrong?" In a story appearing elsewhere at the Financial Times under the much more direct title of "The villains are not the bankers, but the economists", Mr. Munchau questions the very foundation of accepted economic theory and modern central banking. As the Bank of International Settlements said in its latest annual report, subprime might have been the trigger for this crisis, but not the cause. We do not have a full understanding yet of what happened but the BIS suggested that fast expansion of money and credit must have played a role. I would go further and say this is not primarily a crisis of financial speculation, but one of economic policy. Its principal villains are therefore not bankers,
U.S. sees 9.8% spike in '09 electric bills Americans may face dramatically higher electric bills next year, according to a government report released Tuesday. The U.S. Energy Information Administration forecast that electricity prices will climb an average of 9.8% in 2009. Only a month ago, the agency was forecasting a 3.6% increase for next year. The new forecast projects that electricity prices will climb 5.2% in 2008, an increase of nearly 1.5 times the projected 3.7% increase that was forecast in June. "Within the past few weeks, a number of utilities have requested permission from state regulators to raise electricity rates in response to rapidly increasing delivered fuel costs for power generation," EIA wrote. "It is likely that most other utilities will soon need to pass through these increased costs to retail customers as well."
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Tues 07.08.2008
Bernanke: Fed May Extend Wall Street Lending Federal Reserve Chairman Ben Bernanke said Tuesday the U.S. central bank may keep an emergency lending facility for big Wall Street firms open past year-end while it seeks to restore financial market stability. In remarks to a mortgage lending forum sponsored by the Federal Deposit Insurance Corp., Bernanke said credit costs have been driven higher and the pace of U.S. economic growth also has been hurt by market turmoil."We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said.
IndyMac Sinks on Capital Shortage, $0 Price Target IndyMac Bancorp shares fell by more than 40 percent on Tuesday, a day after the large California mortgage specialist said it doesn't have enough capital and will stop offering most home loans, and an analyst said shareholders may be wiped out. Paul Miller, a Friedman, Billings, Ramsey analyst, cut his price target for Pasadena, California-based IndyMac to zero per share from $1.00. "Given continued home price declines, management's higher loss estimates, recent ratings agency downgrades on the company's mortgage-backed securities and the company's decision to stop new mortgage originations, we do not believe that there is any value left for common shareholders," Miller wrote."We are not predicting IndyMac's failure, but we expect that the value of the common equity left after (Monday's) announced actions will be immaterial," he added.
Fannie, Freddie Sink on Capital Concerns Fears that Fannie Mae and Freddie Mac could be forced to raise as much as $75 billion in additional capital sent shares of both mortgage backers plunging on July 7 and helped derail a rally in the stock market. Fannie's shares fell 16.2% to close at 15.74, while Freddie's shares fell 17.9% to end at 11.91. The rout followed a warning in a note from Lehman Brothers Equity Research that the Financial Accounting Standards Board (FASB) is considering a new rule that may include removing the qualified special-purpose entity concept from what's known as FAS 140. That would have the effect of requiring off-balance-sheet assets to be brought onto balance sheets, and could force the two government-sponsored enterprises, or GSEs, to raise huge new sums of money to meet capital requirements. That could have devastating implications for the U.S. housing market, whose extended slump has yet to hit bottom, since Fannie and Freddie are the largest providers of financing for home mortgages in the U.S. Fannie Mae currently has $2.27 trillion of off-balance-sheet mortgage-backed securities and Freddie Mac has $1.42 trillion of them. If they were forced to bring off-balance-sheet assets onto their balance sheets, Fannie's minimum capital requirements would jump by more than $46 billion, and Freddie would need to raise $29 billion in additional capital.
Wall Street loans mean no rate hikes The Federal Reserve will hold off on an interest rate hike until central bankers first stop providing loans to Wall Street banks, according to a Bloomberg report. For as long as the Fed has to maintain (or even extend) its emergency lending program, the report says, it’s unlikely that the market will be stable enough to handle higher borrowing costs.“We think they’ll wait until 2009,” Brian Sack, who used to head the Fed’s monetary and financial market analysis group before he joined Macroeconomic Advisers, tells Bloomberg. Successfully dealing with an end to the Primary Dealer Credit Facility is “a hurdle for credit markets to get past before the Fed will likely start tightening,” he said. The Fed opened its window to investment banks in March after the near-bankruptcy of Bear Stearns, which sold for cheap to JPMorgan Chase, in an effort to keep markets calm. The decision to make Fed loans available to a group of institutions that include Lehman Bros., Merrill Lynch, Morgan Stanley, and Goldman Sachs, was highly unusual. The Fed had traditionally provided loans to commercial banks but not investment banks.
Renewed pain for home sales The number of homes under contract to be sold fell more than expected in May after an unexpected spike the month before, a report showed Tuesday. The Pending Home Sales Index from the National Association of Realtors (NAR) fell to 84.7 in May, down 4.7% from an upwardly revised reading of 88.9 in April. The index was 14% below the 98.5 it measured in May 2007. The decline was steeper than the 2.8% fall that economists had expected, according to a consensus of estimates compiled by Briefing.com. "The overall decline in contract signings suggests we are not out of the woods by any means," said Lawrence Yun, NAR chief economist, in a statement. But Yun pointed out that some pullback was expected after April's surprise increase. The index jumped more than 7% in April as falling home prices sparked a bout of bargain hunting.
IndyMac Woes Could Spell Trouble For Regional Banks For troubled regional banks that need new capital, the stakes are becoming a matter of survival.On Monday, IndyMac Bancorp Inc. (IMB), a West Coast lender struggling with rising consumer loan delinquencies and fast-depleting cash reserves, said it is under heavy pressure from regulators to shrink its business quickly. The Pasadena, Calif., bank said in a letter to shareholders that it has been unable to find fresh capital from new or current investors, leaving some to wonder whether it could soon become the mortgage crisis' latest casualty.In recent months, dozens of regional banks have followed their large-bank counterparts in raising new capital to offset rising losses from souring loans, and ride out the mortgage crisis. But in contrast to large firms such as Citigroup Inc. (C) and Merrill Lynch & Co. Inc. (MER) - which have successfully buttressed their loss-riddled balance sheets with tens of billions of dollars from new and willing investors - regional banks have had less luck.Last week, for example, Zions Bancorp (ZION) disclosed that it raised $45.7 million in preferred stock, well short of the $150 million the Salt Lake City bank originally said it might raise.IndyMac's announcement on Monday could foreshadow the fate that some of those banks will face if they don't find the new capital that they need to continue operating, and avoid regulators' ire.
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Mon 07.07.2008
ETF Securities physical gold ETF holdings soar 15 pct ETF Securities said on Monday the amount of bullion backing its Physical Gold exchange-traded fund PHAU.L rose 15 percent last week to a record 1.459 million ounces. The rise reflected gains across its physically backed precious metal exchange-traded commodities, with its platinum and palladium ETFs extending last week's gains to new records and silver holdings rising by 1 percent. The fund's Physical Platinum ETF PHPT.L holdings rose 3.5 percent to 407,000 ounces, a new all-time high, while its Physical Palladium ETF PHPD.L grew by 6.5 percent to a record 247,000 ounces. ETFs, which issue securities backed by physical stocks of a particular metal, have represented a major source of new demand for precious metals in recent years.
Final Globalization Of The US Banking System By The Federal Reserve We live in a globalized world-a world without barriers or borders, which means every aspect of our economic structure has to change. A private corporation, we call the Federal Reserve, controls the majority of our monetary system. To understand the new set of powers being advanced by the U.S. Treasury Department to the Federal Reserve, we first must recognize that the Federal Reserve Act passed in 1913 never gave them (the Feds) total power over our economy. To appreciate the importance of what is currently taking place, we must first realize that as a private corporation, the Federal Reserve is not required to make public who sits on their board of Directors nor who or what banks and corporations hold stock in their private company. Additionally, they are not required to publish an annual report, and I am told, they pay no taxes. So why is it that the American people cannot forgive themselves the interest on their debt? It is because it is owed to a private corporation!
The Shrinking Influence of the US Federal Reserve Humiliation for Mr. Dollar: Ben Bernanke, the chairman of the United States Federal Reserve Bank, faces a general investigation by the International Monetary Fund. Just one more example of the Fed losing its power. The United States Federal Reserve Bank, or Fed, seems as much a part of America as Coca-Cola or Pizza Hut. But at least one difference has become apparent in recent days. While the pizza chain and soft-drink maker are likely to expand their scope of influence in the age of globalization, the US central bank is finding that its power is shrinking. No Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing. This is partly down to circumstances. Inflation is going up and up, and this year's average will likely top 4 percent. But this time Mr. Dollar is also Mr. Powerless. He can raise interest rates in the fall, or he can pray, which would probably be the better choice. At least prayer would not prevent the US economy from growing, a highly likely outcome if interest rates go up.
Retail Property Has Worst Second Quarter in 30 Years U.S. store closings and cutbacks turned the second quarter into the worst for strip mall owners in 30 years, as budget-conscious consumers flocked to low-cost warehouse-style grocery centers, according to a report by real estate research firm Reis. Strip malls, which are usually anchored by grocery or drug stores, saw average vacancies spike 0.5 percentage points to 8.2 percent, a level unseen since 1995, according to the report released on Monday. Vacancies at regional malls rose 0.4 percentage points to 6.3 percent, the highest level since the first quarter of 2002, according to the preliminary results. "They definitely came up weaker than our expectations and we've been pretty bearish on our outlook for retail for some time," Reis Chief Economist Sam Chandan said. "In the market in general there have been a lot of store closings."
GM Mulls Thousands of Job Cuts, Sale of Brands: WSJ General Motors, the No. 1 automaker in the U.S., is planning to cut thousands of white-collar jobs and is considering whether it should sell or stop production of more of its brands, The Wall Street Journal said, citing people familiar with the matter. Both moves are part of a broader re-evaluation of the company's strategy and of its ability to meet an internal projection of returning to profitability in 2010, the people told the paper. The job cuts are likely to be approved when GM's board of directors meets in early August, the people said. The reductions would be in addition to earlier announced cuts. Management may also present the board with options for raising additional cash, they told the paper.
Merrill raids its rainy-day fund Merrill Lynch & Co., faced with mounting losses from the credit fallout, is doing the equivalent of borrowing against its 401(k). The nation's biggest brokerage reportedly is close to selling its stake in Bloomberg L.P. and BlackRock Inc. amid a cash crunch. Merrill is expected to report a $6 billion write-down, exceeding analysts' expectations, when it reports second-quarter earnings next week. Though Merrill could raise up to $17 billion from the sale of those stakes, it's likely only to sell a fraction of that in order to value its existing stakes. Merrill carries Bloomberg at zero. If it sells part of it, it can hold the rest on its books at a value set by the sale price. Still, any sale represents a significant blow to the firm. The Bloomberg stake has been paying returns to Merrill and a sale will not only eliminate that boost to the bottom line, but require additional taxes.
Financial market losses could top 1,600 billion dollars: The global report financial crisis could lead to losses of 1,600 billion dollars for financial institutes, according a report in the Swiss Sunday newspaper SonntagsZeitung. It quoted a confidential study by the hedge fund Bridgewater Associates as saying losses for banks holding risky assets could be four times greater than the 400 billion dollars previously estimated. The hedge fund expressed doubts that the financial institutes would be able to drum up enough funds to cover the losses, something it said could exacerbate the crisis. Bridgewater, one of the world's biggest hedge funds, based its calculations on the state of risky debt-based US assets, such as mortgages, credit and credit card demands. The value of such risky assets is 26,600 billion dollars, according to the hedge fund. The losses would amount to 1,600 billion dollars if these assets were valued at market rates and not in the form of securitization, the newspaper said.
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Gas hits fresh record before July 4 holiday Retail gas prices rose overnight to a record high for the fourth day in a row, ahead of the July 4 holiday weekend - one of the nation's busiest weekends for travel. The national average price for a gallon of regular gas rose to an all-time high of $4.098 from $4.092 the day before, a daily survey by motorist group AAA showed Thursday. Gas prices are now 3% higher than they were last month and nearly 39% higher, or almost $1.15 more, than year-ago levels.
Oil Sails Past $145 The perfect storm for oil prices showed no signs of dissipating Thursday, as supply worries combined with dollar weakness pushed crude to a new record of $145. Crude oil futures pushed up to $145.01 per barrel, from $143.57 per barrel, during early trading on the New York Mercantile Exchange. Europe's Brent crude benchmark reached $145.58 per barrel, up from $144.25 per barrel, late Wednesday. The latest record is a sign that the balance between supply and demand is still uncomfortably tight, and will likely remain so for the rest of the year.
Bush's Dollar Drop Maps Loss of U.S. Clout at Final G-8 Summit When President George W. Bush went to his first Group of Eight summit in 2001, a dominant issue was the dollar -- the strong dollar, that is. The U.S. currency was on a record-setting streak, and the free-marketeering president wasn't going to stand in the way. On the eve of Bush's last G-8 appearance, the dollar's gyrations are again in the crossfire. This time, it is a weak currency, upended by slumping growth, a housing recession and record gas prices, that is gnawing away at the world economy. The dollar's 41 percent drop against the euro during Bush's term writes the economic epitaph of an administration that set out to restore American preeminence. Instead, Bush heads to Japan next week for his final international summit with diminished leverage as Russian and Chinese influence grows.
Arson Surges Across U.S. for Foreclosed Homes Lost to Subprime At 10:40 p.m. on April 27, a blaze at the beige Victorian house at 19 Nye St. lit up a neighborhood littered with boarded-up homes on the north side of New Bedford, Massachusetts. It left charred wood and melted vinyl siding on the three-story structure. The house had been abandoned after the owner defaulted on a $240,000 home loan from GreenPoint Mortgage Funding, a Novato, California lender that shut down in August, 2007. The fire was one of four suspicious blazes in foreclosed properties that month in the southern Massachusetts city. All are under investigation.
American Airlines plans nearly 7,000 job cuts American Airlines expects to cut nearly 7,000 employees by the end of the year, or about 8 percent of its worldwide work force, as it reduces flights and grounds aircraft because of high fuel costs, the airline told employees Wednesday. American said in a regulatory filing that it expected to record a second-quarter charge of as much as $1.3 billion to account for the layoffs and to write down the value of the MD-80 and Embraer 135 regional jets that it is retiring as it eliminates flights.
June Jobless Claims In The Recession Zone U.S. employment offices are going to have to figure out how to manage recession-length lines. On Thursday, the government reported more people applying for unemployment for the first time than had been expected. Initial jobless claims were 404,000, versus the 385,000 expected. However, prior continuing claims were downwardly revised to 3.135 million, from 3.139 million.
Gov. disappointed with energy attitude Gov. Bill Ritter said he’s disappointed by the oil and gas industry’s campaign assailing proposed new regulations as “job-killing” because the goal is to balance energy development with other important Colorado resources. Ritter, in an interview with The Associated Press Wednesday, said he believes the industry “can absolutely thrive” in Colorado. “Oil is at $140-plus a barrel,” Ritter said. Natural gas prices have increased several times over, he added. The proposed overhaul of Colorado’s oil and gas regulations amid a natural gas boom is intended to allow the industry to continue to flourish while looking out for the state’s wildlife, air, water and communities, Ritter said. “We really have to keep striving for this balance,” Ritter said. “We should not expect that Colorado would somehow bail us out of an energy crisis, for lack of a better word, on the backs of the Colorado mountains or trout streams or elk and deer herds.” A record 6,368 drilling permits were issued last year — about six times the total in 1999 — and more are expected this year.
U.S. is in no shape to give advice, Medvedev says Russia's new president, Dmitri Medvedev, less swaggering than his predecessor but as touchy about criticism from abroad, said in an interview that an America in "essentially a depression" was in no position to lecture other countries on how to conduct their affairs. With soaring oil revenues bolstering the Russian economy and Kremlin confidence, Medvedev brushed aside American criticism of his country's record on democracy and human rights. He also said that a revived Russia had a right to assume a larger role in a world economic system that he suggested should no longer be dominated by the United States.
Businesses Take Less Office Space Nationwide Landlords Feel Pain As Market Softens; Tenants Gain Edge Companies are taking less office space across the nation, driving down rents in most markets and causing pain for real-estate landlords. It is also making it easier for businesses to rent space. Nationwide, rents on office properties -- including landlord concessions and discounts -- rose 0.7% in the second quarter to $25.16 a square foot, the slowest growth since the second quarter of 2005, when the office market was just emerging from a half-decade-long slump, according to Reis Inc., the New York real-estate research firm.
Muni Market 'Fire in the Disco' Burns Hospitals, Schools, Towns MBIA Inc. and Ambac Financial Group Inc. lost their AAA credit ratings. The biggest hospital in Sarasota, Florida, is paying the price. David Verinder, chief financial officer of the Sarasota Memorial Health Care System, received daily e-mail messages last month informing him that interest costs on an $83 million bond issue were rising to 1.45 percent, to 1.75 percent, to 3.25 percent, to 5.9 percent, and finally to 9 percent by June 24, a more than fivefold increase.
Where's the beef?. . . . Lehman issues shares to all its employees Lehman Brothers has issued shares to all employees representing about 20 per cent of their equity compensation for the year, a person close to the matter said on Wednesday. The early partial payment of annual bonuses follows demands from employees who believe the stock, hammered this year during the credit crunch, is likely to rise significantly in value, the person said. It is also meant to boost morale and encourage employees to stay at the investment bank. Lehman on Wednesday declined to comment on the bonuses.
Paulson, Darling Warn on Economy $$ U.S. Treasury Secretary Henry Paulson ended a four-day European trip Thursday, joining with U.K. Finance Minister Alistair Darling to warn that the near-term economic outlook remains difficult and the global inflation threat is serious. Days ahead of the Group of Eight leaders meeting in Japan, Mr. Paulson said high oil prices represent a "strong headwind" for the U.S. economy and are likely to prolong its slowdown. His comments came as oil hit a new record, breaching $145 a barrel.
Employers cut jobs for 6th straight month Employers cut jobs for 6th straight month; Jobless rate holds steady at 5.5 percent Employers cut payrolls by 62,000 in June, the sixth straight month of nationwide job losses, underscoring the economy's fragile state. The unemployment rate held steady at 5.5 percent. The latest snapshot of business conditions, released by the Labor Department on Thursday, showed continued caution on the part of employers who are chafing under high energy prices and are uncertain about how long the economy will be stuck in a sluggish mode, reflecting fallout from housing, credit and financial troubles.
LA Times to cut 250 jobs, including 150 news jobs The Los Angeles Times plans to cut 250 positions, including 150 jobs in the print and online news departments, amid a continuing industry wide slump in ad sales, the paper's editor said Wednesday. The decline in advertising, fueled by a weak real estate market, has boosted the copy-to-ads ratio above the industry target of 50-50, giving readers more stories than they can digest, while the paper competes for attention with the Internet and TV, editor Russ Stanton said.
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Wed 07.02.2008
Gold futures fall, as traders eye dollar, oil Gold futures declined Wednesday, as traders trimmed positions following the metal's surge in the previous session. Gold for August delivery fell $8 to $936.50 an ounce on the New York Mercantile Exchange. On Tuesday, gold rose $16.20 to finish at $944.50 an ounce. Jon Nadler, senior analyst at Kitco Bullion Dealers, said that some profit-minded traders opted to "cash in a few chips." "However, bullion remains fairly well-supported near the $920 and $930 marks at the moment, as participants factor in a small ECB rate hike ... and little in the way of a Fed response to inflationary pressures in the near term," Nadler said.
Small Banks' Reckoning Day Is Coming $$ Billions in Troubled Construction Loans Promise to Pose Test for Regional Lenders Wall Street is bracing for regional and small banks to fess up to large losses from their mounting volume of soured construction loans made primarily to home builders. According to the Federal Deposit Insurance Corp., $45.4 billion of the $631.8 billion in construction loans outstanding at the end of the first quarter were delinquent. When banks announce second-quarter results in coming weeks, they are expected to report sharp increases in loans that builders can't repay. Banks are also facing intensifying pressure from federal and state regulators to deal with the problem loans on their books.
Currency Intervention Won't Halt the U.S. Dollar's Nosedive Last week the U.S. Federal Reserve moved one step closer to acknowledging reality. Unfortunately, it didn’t let that admission move it from a policy course firmly guided by fantasy - meaning the central bank opted to stand pat on interest rates, despite the clear escalation of inflationary pressures.In the policy statement that accompanied that decision last week, Fed Chairman Ben S. Bernanke and the other members of the interest-rate-setting Federal Open Market Committee (FOMC) took an important step in noting that inflationary concerns had taken hold in the country at large.
Paulson Calls for Process to Liquidate Failing Firms U.S. Treasury Secretary Henry Paulson called for regulatory changes that would allow financial firms to fail without threatening broader market stability. The Treasury chief also proposed steps providing for the president to approve of any use of taxpayer funds to aid a financial company. In excerpts of a speech for delivery in London today, Paulson identified a legal gap that leaves unspecified how to deal with failures of companies that don't take deposits, such as investment banks. Paulson's proposals aim to tighten supervisors' oversight of lenders and dealers while at the same time discourage companies from depending on a government rescue if their bets go wrong. His speech comes a week before a congressional hearing to debate a regulatory overhaul in the wake of the credit crisis that caused the near-bankruptcy of Bear Stearns Cos.
Paulson sees U.S. and Europe in similar economic straits As Treasury Secretary Henry Paulson Jr. travels through Europe this week, he wants to reassure jittery audiences that the United States will right its economy and its financial markets. But with both sides of the Atlantic now suffering from a similar combination of sagging growth, rising inflation and shaky banks, Paulson's visit is turning into a case of misery loves company. Overdue Home-Equity Credit Lines Rise Most Since 1987 Consumers fell behind on loans secured by their homes at the fastest pace in two decades in the first quarter, signaling deeper distress in the U.S. economy, the American Bankers Association reported. Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1 percent of accounts for the quarter, the Washington-based group said today in a statement. Delinquent credit-card accounts increased 13 basis points to 4.51 percent, the highest level since 2006. "People are looking for any source of funds to pay their daily expenses," Carol Kaplan, spokeswoman for the bankers' group, said yesterday in an interview. "It's a sign of the overall condition of the economy that people are having trouble making their payments."
Forecast for U.S. workers: Gloom As automakers dropped their latest batch of awful sales numbers on the market on Tuesday, reinforcing the gloom spreading across the economy, the troubles confronting American workers seemed to intensify. Plummeting home prices have in recent months eliminated jobs for hundreds of thousands of people, from bankers and real estate agents to construction workers and furniture manufacturers. Tighter lending standards imposed by banks in the wake of huge mortgage losses have made it hard for many Americans to secure credit - the lifeblood of expansion in recent years - crimping the appetite of consumers, whose spending amounts to 70 percent of the economy.
No Loans at Mountain 1st Means Credit Drying Up at Local Banks Mountain 1st Bank & Trust Co. Chief Executive Officer Greg Gibson forecast 12 percent loan growth for his North Carolina bank this year. Instead, he's spending more time handing out freshly baked cookies than extending credit. Gibson is "standing on the brakes'" because Mountain 1st, owned by 1st Financial Services Corp. of Hendersonville, North Carolina, can no longer sell trust-preferred stock to raise capital for loans so customers can buy airplanes or build veterinary clinics, Gibson said in a June 20 telephone interview.
Manufacturers struggle to overcome rising prices Each week, Ira Cooper opens a letter from another supplier with the same message as the last: We're raising our prices, effective immediately. We can't tell you how long the new prices will last. "We used to get quotes good for six months," said Cooper, president of QED Inc., a lighting company based in Lexington, Ky. "Now you're lucky if you can get a quote good for 15 days." Manufacturers of everything from wallpaper to cereal are feeling the same hit. The Institute for Supply Management said Tuesday that its index of prices manufacturers pay for raw materials hit 91.5 in June, up from 87 in May and the highest reading since 1979.
Sense of crisis prevails in US healthcare America’s healthcare system is broken. If there is one statement on which the majority of Republicans and Democrats agree – along with employers and individuals and even some health plans – that is it. Fixing it will be another matter. Hard numbers explain the sense of crisis – and why all the presidential candidates in recent US primaries felt the need to offer at least a partial blueprint for reform.
79,000 private sector jobs lost in June The number of private sector jobs fell by 79,000 in June, according to a payroll report released Wednesday, with the decline exceeding economists' forecasts. The National Employment Report from Automatic Data Processing showed a 76,000-job drop for goods-producing businesses, the 19th monthly decline in a row, coupled with a 3,000 job decline in the services sector. A majority of the production job losses came from the manufacturing sector, which lost 44,000. Economists polled by Briefing.com had expected jobs to decline by 20,000 in June. The ADP report measures non-farming private employment based on payroll data.
June car sales plummet; more declines expected GM hangs on to title of US sales leader as auto industry sees worst June sales in 17 years A last-minute no-interest financing offer and strong sales of some cars helped General Motors Corp. keep its U.S. sales over Toyota Motor Corp. last month, but it was still the worst June for the industry in 17 years and a harbinger of more misery ahead. "We're going to continue to see declines for the rest of the year," predicted Jesse Toprak, chief industry analyst for auto information site Edmunds.com.
Car Sales at 10-Year Low NO DEAL Cars and trucks jammed American dealers' lots as sales fell to a 10-year low. Sales of new cars and trucks plunged to their lowest level in more than a decade in June, as high gas prices and a weak economy kept American consumers away from dealer showrooms. With the drop last month of more than 18 percent, automakers now expect to sell well below 15 million new vehicles this year, far fewer than the norm this decade of more than 16 million vehicles a year. Detroit automakers were hit hard.
Starbucks to cut up to 12,000 jobs, close 600 stores Starbucks Corp said on Tuesday it plans to close another 500 underperforming stores and eliminate as many as 12,000 full- and part-time positions, lifting shares nearly 6 percent. The company, which now plans to close a total of 600 underperforming stores versus its previous estimate of 100, said the majority of the stores will be closed by the end of March 2009.
More Misery Ahead for GM, Ford, and Chrysler For a while, it was a long, slow decline. Now, the plight of General Motors, Ford, and Chrysler appears to be a rout. The shift away from trucks and SUVs--and from vehicles built by the Detroit 3 in general--became dramatic earlier this year. And this summer, it's only intensifying. For the first six months of the year, the domestic automakers have seen staggering sales declines of nearly 20 percent, compared with 2007. Their combined share of the U.S. market has fallen below 50 percent for the first time ever. And if gas prices stay near $4 per gallon, it's likely to keep falling. "We see meaningful revenue declines in 2008 and 2009," says Mark Oline of Fitch Ratings. "Market share losses will accelerate through year-end.
New Trend' Begun in Iran Nuclear Talks Iran, which is considering an incentives offer by world powers to halt its uranium enrichment program, said a "new trend" has started in negotiations. "A new trend of change is taking place and it started with Iran putting forward a package," Iran's Foreign Minister Manouchehr Mottaki was quoted as saying by the official Islamic Republic News Agency. European governments joined the U.S., Russia and China in offering on June 14 a package of economic and technology incentives for Iran in exchange for the suspension of uranium enrichment. The sensitive fuel can be used in a reactor or for building weapons.
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Tues 07.01.2008
Fed's flinch galvanizes gold One expert sees price topping $1,200 an ounce this year The Fed flinch galvanizes gold, and the gold bugs think victory is at hand. Comex August gold closed Friday at $931.30. Australia's The Privateer, adhering to a refreshing national tradition of blunt expression, wrote: "In what is an all but unprecedented event, gold has soared almost $50 straight up in the immediate aftermath of an FOMC meeting at which the Fed did what (almost) everybody expected them to do -- precisely nothing. "But it was not the Fed's lack of action that galvanized financial markets, it was the amazingly fatuous 'reasons' they gave for their decision not to decide in the official press release ... Then the stress really did make itself felt. ... Gold woke up with a vengeance. In short, everything that Mr. Bernanke and crew have been desperately seeking to avoid for months blew up in their faces at once. The signal could not have been clearer, and it was heeded. The Fed is helpless."
Broad Says U.S. Economy in Worst Recession Since World War II Billionaire investor Eli Broad said the U.S. economy is in the 'worst period' of his adult life as a housing market recovery remains "several years" away. "This is worse than any recession we've had since World War II,'' Broad, 75, said in an interview yesterday. Broad, the founder of homebuilder KB Home, said the U.S. should avoid a depression on the scale of the 1930s because the country now has sufficient "safety nets.''
A Bearish Dow Has its Worst June Since the Great Depression High oil prices, a steep drop in consumer confidence, declining home values and a weak dollar conspired to drive the Dow Jones Industrial Average to its lowest point in two years, and made for the benchmark index’s worst June since the Great Depression. After falling more than 300 points last Thursday and extending losses on Friday, the Dow lost 4.2% in the week ended closing at 11,346.51 - its lowest level since September 2006. All totaled, the Dow plunged 9.5% in June - its worst mid-year performance since the 18% drop in the 1930s. Where were you when inflation was in bloom? Alex Patelis, a 37-year old economist at Merrill Lynch, suggested to a group of financial journalists recently that it would be hard for them to write about inflation because they had never really experienced it. That was not entirely true -- a couple of those present remembered paying those double-digit 1970s price rises -- but the point was taken. For many people in the finance industry, from journalists to economists, traders and analysts, inflation is a textbook concept -- and that could have serious implications for how accurately markets are able to price financial assets. California starts fiscal year without budget California lawmakers have missed the deadline to approve a state budget for the fiscal year that starts Tuesday. Republicans and Democrats in both houses of the state Legislature remain far apart on how to close the state's $15.2 billion budget shortfall. Republicans, including Gov. Arnold Schwarzenegger, favor wide-ranging cuts to services and programs. Democrats want to raise taxes by anywhere from $6 billion to $11 billion.
Factories hit worldwide as commodity prices soar Soaring commodity costs are denting manufacturing activity in Asia and Europe and the outlook looks bleak as new orders drop off in the face of rising prices, surveys showed on Tuesday. Manufacturing activity in the euro zone contracted in June for the first time in three years while business confidence in Asia's largest export markets is buckling and output has likely contracted further in the United States.
Chrysler Idles a Van Plant, Citing Need to Cut Costs $$ Chrysler LLC Monday said it will idle a minivan plant outside St. Louis and eliminate a work shift at an adjacent truck plant later this year. The moves came ahead of auto makers' June sales reports on Tuesday. Citibank projected the month's vehicle sales will drop to an annualized rate of 12.8 million, compared with 16.3 million a year ago. Chrysler's moves are aimed at keeping the company on track to meet the financial targets set by its majority owner, Cerberus Capital Management LP, despite the deep downturn in U.S. auto sales. When Cerberus bought the company last year, its business plan foresaw Chrysler losing money in 2007 and 2008, and then generating positive cash flow for part of 2009, people familiar with the matter said. Although Chrysler's global sales have fallen about 14% this year, neither Cerberus nor Chrysler is considering revising the financial goals at this time, the people said.
CIT Sells Home-Lending Business $$ Struggling lender CIT Group Inc. reached separate agreements to sell its home-lending business and manufactured-housing portfolio for $1.8 billion as the company continues to shed assets for cash-raising purposes. The commercial-finance company agreed to sell its home-lending business to hedge fund Lone Star for $1.5 billion and its $470 million manufactured-housing portfolio to Vanderbilt Mortgage and Finance Inc. for $300 million.
Stocks head to lower open in 1st day of 2nd half Wall Street to begin second half sharply lower on worries about oil, economy Wall Street appeared headed for a sluggish start to the third quarter Tuesday, hurt by ongoing concerns about the damage rising oil prices will do to the economy. Crude oil held near its record high of $143.67 in overnight trading amid concerns about tensions in the Middle East and a weakening dollar. A barrel of light sweet crude jumped $2.43 a barrel to $143.34 in premarket trading on the New York Mercantile Exchange. The concern on Wall Street is that higher energy prices will hurt consumer spending, which accounts for more than two-thirds of the U.S. economy. That has put even more weight on economic reports set to be released in coming weeks.
Bill Gross to Obama: Tough economy awaits next president The world's biggest bond fund manager anticipates that Barack Obama will be the next U.S. president, and warns that he will face stern economic circumstances. Bill Gross, chief investment officer of Pacific Investment Management Co, or PIMCO, manages the $130 billion PIMCO In his monthly "Investment Outlook" letter for July, he says the next president will inherit a swelling budget deficit that's likely to hit $1 trillion during his administration. Newspapers, reeling from slumping ads, slash jobs Deep job cuts, outsourcing and more asset sales coming as the newspaper industry retrenches Even for an industry awash in bad news, the newspaper business went through one of its most severe retrenchments in Half a dozen newspapers said they would slash payrolls, one said it would outsource all its printing, and Tribune Co., one of the biggest publishers in the country, said it might sell its iconic headquarters tower in Chicago and the building that houses the Los Angeles Times. The increasingly rapid and broad decline in the newspaper business in recent months has surprised even the most pessimistic financial analysts, many of whom say it's too hard to tell how far the slump will go. "They're in survival mode now," said Mike Simonton, a media analyst at Fitch Ratings, a credit analysis agency.
10 Reasons Why Oil Bubble Set to Burst After hitting $143.67 per barrel earlier today, crude prices have since retreated but the oil juggernaut shows little signs of slowing down. On the contrary, says Liz Ann Sonders, chief investment strategist at Charles Schwab, who lists 10 reasons why "signs of bubble-like conditions are growing [and] increasing the odds of a major crack in oil prices": • Congressional hearings on oil speculation. • Bernanke's comments on the dollar. • Airlines and autos getting crushed. • Nonstop media coverage of the "energy crisis." • Gasoline subsidies being lifted or limited in Asia and India. • U.S. Strategic Petroleum Reserve additions being halted. • Wall Street analysts' aggressive upside oil price targets. • Record decline in vehicle miles driven while SUV sales implode. • U.S. consumption of oil and oil products down nearly 4% in the first quarter. • Iranian [tankers] with 28 million barrels of oil sitting in the Persian Gulf betting on higher prices (and/or because of no buyers).
PREPARING THE BATTLEFIELD The Bush Administration steps up its secret moves against Iran. L ate last year, Congress agreed to a request from President Bush to fund a major escalation of covert operations against Iran, according to current and former military, intelligence, and congressional sources. These operations, for which the President sought up to four hundred million dollars, were described in a Presidential Finding signed by Bush, and are designed to destabilize the country’s religious leadership. The covert activities involve support of the minority Ahwazi Arab and Baluchi groups and other dissident organizations. They also include gathering intelligence about Iran’s suspected nuclear-weapons program.
Israel May Attack Iran This Year, Pentagon Official Tells ABC Israel is increasingly likely to attack Iranian nuclear facilities this year, a U.S. Defense Iran's government dismissed as propaganda the ABC report on the unidentified Pentagon official's comments. Israeli government officials declined to comment on the report. An Israeli strike might be triggered by the production of enough enriched uranium at Iran's Natanz nuclear plant to make a bomb, ABC cited the official as saying. A second possible trigger would be the delivery of a Russian SA-20 air-defense system, the installation of which would make an Israeli attack more difficult, the U.S. official told ABC.
Mixed Reactions to Report on U.S. Moves Against Iran More than two years after his reporting stoked worries that there might be another American war in the Middle East, Seymour Hersh is getting a lot of attention with another installment in this week’s New Yorker titled "Preparing the Battlefield." In 2006, his major revelation was that the United States had accelerated military planning against Iran. His new article focuses on a “major escalation” of covert activities against Iran following a finding, or declaration, signed by President Bush late last year.
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