Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Wed 10.01.2008
"These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people's money to settle the quarrel." --Abraham Lincoln, Speech to Illinois legislature, (January 1837)
Senate to vote on rescue plan with added tax cut Senate to vote on $700 billion financial rescue plan on Wednesday with added tax cut plan In a bold bid to revive President Bush's multibillion-dollar financial rescue plan, Senate leaders scheduled a vote for Wednesday night on a version of the bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House. The goal is to net at least 12 more House votes than the rescue proposal received Monday, when lawmakers rocked the political and financial worlds by rejecting it. The gambit is certain to anger some conservative House Democrats, who object to tax cuts that are not offset with spending cuts. But Senate strategists assume it will gain more House votes than it will lose.
Main number: 202 225 -3121 - ask for your elected officials in D.C.
The Rescue Package Will Delay Recovery In his testimony to the Congress on September 24, Fed Chairman Bernanke urged the legislators to quickly approve the bailout of the financial sector with a package of $700 billion. Bernanke echoed Treasury Secretary Paulson's view that the bailout expense, while hefty, is needed to remove from banks' balance sheets the mortgage-linked assets, which are paralyzing the flow of credit. Most experts came out in strong support for the package. Without the rescue package, many large institutions that are "too big to fail" could go belly up. Many believe that the consequences of all this could be very severe to the real economy. It is true that the financial system must be rescued; it must be rescued from the institutions holding bad debt that are currently draining capital while waiting for a bailout and adding little in return. It is they that are preventing wealth-generating activities in the financial sector and the other parts of the economy from expanding real wealth.
The (Near) Death of the State I'm fully aware that Paulson and Bernanke have some nefarious scheme in mind to reverse the thrilling defeat of their criminal bailout package, a package shot down by independent members of Congress on both sides. But reflect for a few minutes on what it means that the House did this. It was a revolutionary act in the best sense of that term.The entire establishment was united in favor of what was surely the most horrible and outrageous bill ever to come before Congress. . . . .Forget back-door socialism: this was right through the front door. The consequences would have been dreadful and very scary. It was to be the first of many bailouts, since of course it cannot and would not work. Bad debts can't be made good by legislation. This means that more money would be necessary, as the middle class was sucked dry by the vampire state for years to come. Deeper and deeper economic depression — a repeat of the '30s — was certain. Best to put a stop to this now.
Senate to Vote Wednesday on Bailout Plan Senate leaders scheduled a Wednesday vote on a $700 billion financial bailout package after agreeing to add tax breaks and a higher limit for insured bank deposits in a bid to attract enough votes to reverse a shocking defeat in the House and send legislation to President Bush by the end of the week. After a day of behind-the-scenes maneuvering, top lawmakers said the Senate proposal would include a tax package as well as a plan endorsed on Tuesday by both major presidential candidates and the Bush administration to raise government coverage for bank deposits.
Lawmakers scramble to revise bailout bill Congressional leaders, prodded by presidential hopefuls, search for new rescue plan Congressional leaders labored Tuesday to find out how many changes are needed to sell the defeated $700 billion financial system rescue to rank-and-file members. John McCain and Barack Obama offered long-distance encouragement from the campaign trail, announcing separately their backing for a plan that some House Republicans had pushed earlier: raising the federal deposit insurance limit from $100,000 to $250,000. The aim would be to reassure nervous Americans and to shore up the economy. For his part, President Bush sought to avoid being marginalized, making another statement in the White House. "Congress must act," he demanded in front of the cameras. "I recognize this is a difficult vote for members of Congress," he said. "And I understand that. But the reality is we are in an urgent situation and the consequences will grow worse each day if we do not act."
Bailout by Stealth While the public is distracted by the "bailout bill" and its rejection, trillions are pumped in to keep financial balloon inflated The media is falling all over itself to report on every minutiae of the so-called Wall Street "bailout bill" and its rejection by Congress yesterday (just a few of the thousands of examples can be seen here and here and here and here). And why not? The media's breathless coverage of the bill has produced a furious backlash by the public and hysteria on Wall Street in a self-justifying feedback loop that makes the media attention seem merited. The startling truth which the controlled corporate media is not reporting, however, is that a bailout is actually taking place right now, completely out of the public spotlight. This program has already pumped trillions of dollars into Wall Street (compared to the mere $700 billion proposed in the legislation that the media is focusing on) to help prop up the faltering investment banks and promises to pump in even more, every dime of it to the detriment of the taxpayer though the public will have no stake in its success. Why, then, is this program not being talked about in the media?
Wealthy investors hoard bullion Investors in gold are demanding "unprecedented" amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich. "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars." The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds.
Investors start a fresh gold rush "Fiat money, in extremis, is accepted by nobody," Alan Greenspan, the former chairman of the US Federal Reserve, told lawmakers in Washington almost a decade ago. "Gold is always accepted," he added. The "in extremis" scenario was for years only a possibility in the mind of die-hard gold bugs, but the financial crisis is leading regular investors - from the ultra-rich to middle-class savers - to believe that the environment in which Mr Greenspan said fiat money would be worthless is now around the corner. The investors' response is a rush into physical gold not seen since the second oil crisis in 1979, bankers say. The shift into gold coins and bars is so extreme that it is causing shortages at refineries and mints around the world.
Gold rush that's all about hard currency Investors in gold are demanding "unprecedented" amounts of actual bullion bars and coins and moving them into their own vaults as fears about the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unforeseen and driven by the very rich. "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career," said Jeremy Charles, chairman of the LBMA. "The gold refineries cannot produce enough bars." The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds. Philip Clewes-Garner, associate director of precious metals at HSBC, added that investors were not flying into gold simply because they saw it as a haven amid Wall Street's woes. "It is a flight into gold because it is a physical asset," he said.
Gold slips below $900 as firmer dollar prompts profit-taking Gold slipped below $US900 an ounce in Europe as a firmer dollar and weakness in other commodities such as oil and industrial metals encouraged profit- taking. Platinum and palladium tumbled as investors worried about the outlook for carmakers who are major consumers of the platinum group metals. "I am surprised gold is not higher," Deutsche Bank trader Michael Blumenroth, said. "But the market is very long since we had the $100 move two weeks ago." "Investors are starting to take their profits in the gold market," he added. "They don't want to leave it in any investment, they just want dollars." The dollar rebounded against the euro and the yen, as investors cut back on risky positions after an emergency plan to rescue the troubled US financial sector was rejected by lawmakers.
Five Reasons Why the $700 Billion Banking Bailout Will Translate into $250 Oil . . . . As the curtain closed on the third quarter yesterday (Tuesday) - leaving many investors worried that the long-feared "Super Crash" was imminent - crude-oil futures were staring at their first decline in seven quarters and their biggest quarterly decline in 17 years, thanks to worries that a slowing economy would curtail global demand. As of early afternoon yesterday, crude oil for November delivery had dropped $39.36 a barrel - or 28% - during the third quarter to close at $100.64 yesterday afternoon.
Banking’s crisis of confidence deepens Wall Street rebounded on Tuesday in spite of a worsening crisis of confidence in the global banking system, as leaders of the US Congress moved to try to salvage the Bush administration’s $700bn bail-out plan. A proposal to increase the ceiling for government insurance on bank deposits to $250,000 emerged as the best hope of swaying reluctant Republicans and Democrats who voted against the bill on Monday. The Senate agreed late Tuesday to vote on a revised bail-out measure on Wednesday night. Meanwhile, the Securities and Exchange Commission issued guidance emphasising the flexibility companies have to depart from mark-to-market accounting in situations when markets are illiquid. The SEC move does not suspend mark-to-market rules, but goes some of the way to address criticism of the accounting regime that critics – including many conservative Republicans – say has fuelled a downward spiral in credit markets.
Derivatives market faces biggest test The $54,000bn credit derivatives market faces its biggest test in October as billions of dollars worth of contracts on now-defaulted derivatives on Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual are settled. Highlighting the opacity of this market, it is still not clear how many contracts have to be settled, and whether payouts on the defaulted contracts, which could reach billions of dollars, are concentrated with any particular institutions. According to dealers, insurance companies and investors such as sovereign wealth funds, which are widely believed to have written large amounts of credit protection through credit default swaps on financial institutions, could have to pay out huge amounts.
The Great Bank Robbery of 2008 The Paulson bailout failed in the House. If it isn't a death blow to the plan, it should be. This is not an economic plan: it is a heist. It will go down as The Great Bank Robbery of 2008. The economics behind it are nonsense. This is a money and power grab, pure and simple. Paulson's proposal — made in broad daylight and on national TV! — is almost naked in its audacity.
Socialist "Bailout" Could Spark Collapse While many of the talking heads and pundits on TV have been providing calming words of reassurance about proposed federal intervention in the financial system, analyst Peter Schiff of Euro Pacific Capital has been accurately warning for years about a financial meltdown and says that the worst, if Congress eventually passes the "bailout" bill, is yet to come . . . . Many commentators, Schiff said, are telling people that if the bailout doesn't go forward, there will be an economic crisis. However, "if we do it, there will be a bigger crisis," he predicts. . . . ."The politicians want to make believe we can avoid paying the piper if we pass these bailouts," he said. "It's just not true. It's going to collapse the currency. It's going to make a worse economic crisis because the money they’re printing is not going to buy anything."
Wall Street rally hinders attempts to save bailout A frantic behind-the-scenes effort to cajole, arm-twist and beg enough congressmen to resurrect the White House’s stricken $700 billion financial rescue package consumed Washington yesterday, as an enfeebled President Bush pleaded with Congress to pass the plan after its stunning defeat on Monday. Stepping before the cameras for the second time in 24 hours to implore the House of Representatives to back the Bill — a sign of how his influence has all but vanished in the waning months of his presidency — Mr Bush repeated his warnings that a failure to approve the package would trigger dire economic consequences. . . . Their efforts were not helped by a rally on Wall Street after its record one-day points plunge on Monday, making the calls of urgency seem overwrought to some congressmen.
Lesson From a Crisis: When Trust Vanishes, Worry In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right. A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again. Frederic Mishkin — Meyer’s grandson and, until he stepped down a month ago, an ally of Ben Bernanke’s on the Federal Reserve Board — told me this story the other day, and its moral is obvious enough. Many people in Washington fear that the country is starting to spiral into a terrible downturn. And to their horror, they see the public, and many members of Congress, turning into modern-day Meyer Mishkins, more interested in punishing Wall Street than saving the economy.
The hoi polloi vents its discontent This week, the American people rebelled against their elite. That is the big political story behind Congress’s surprise rejection on Monday of the financial rescue plan that had been laboriously – but, we were told, victoriously – patched together over the sleepless weekend. No one was thrilled by the final proposal. Wall Street’s action-man financiers would have preferred a sleeker plan that simply gave Hank Paulson a lot of ammunition and trusted him to shoot at the right targets. Academic economists leaned towards solutions that would more directly address the solvency problems in the banking system by taking equity stakes. Ideologues on both the right and left were dismayed by a package that simultaneously increased the power of government and bailed out the financial plutocracy
Main Street prepares to pay for 'greed' Dale Plumer lets out an incredulous laugh when asked if he supports the US government’s $700bn bail-out of Wall Street. "We're probably like all the other middle-income people," says Mr Plumer, a merchandiser at JBS United, a grain elevator company in Griggsville, a small town in south-western Illinois. "We don’t think we should have to bail them out." His view reflects the mood across much of middle America, where taxpayers are concerned about both the federal government’s massive intervention in the economy and how they will be affected. Like many on Main Street USA, he admits he has a poor grasp of the difficulties faced by the financial sector. "I don’t know what the ramifications are of just letting those companies fail. But it sure seems like somebody was too greedy and let it get the best of them
Congress approval rating just 10% as Bush goes from 'lame to dead duck' The controversy over the failure of the Bush administration's unpopular financial bail-out is infecting every aspect of government and the presidential election campaign. Eminent reputations lie in ruins; the august institutions of Congress, the treasury, the Federal Reserve tremble; the presidency itself is shaken. In America's year of living dangerously, few will emerge unscathed. The consensus view, if there is one in so divided a nation, is that the US has suffered a calamitous, across-the-board failure of leadership. The bankruptcy is political as well as economic. This conclusion is widely held among both supporters and opponents of the bail-out. "Monday's crash and burn of the Paulson plan on Capitol Hill reveals a Washington elite that has earned every bit of the disdain that Americans have for it. This crowd can't even make sausage," snarled a Wall Street Journal editorial yesterday. Black Monday's shambles marked a "historic abdication".
The $55 trillion question The financial crisis has put a spotlight on the obscure world of credit default swaps - which trade in a vast, unregulated market that most people haven't heard of and even fewer understand. Will this be the next disaster? If Hieronymus Bosch were alive today to paint a triptych called "The Garden of Mortgage Delights," we'd recognize most of the characters in the bacchanalia and its hellish aftermath. Looming largest, of course, would be the Luciferian figures of Greed and Excessive Debt. Scurrying throughout would be the Wall Street bankers who turned these burgeoning debts into exotic securities with tangled structures and soporific acronyms - CDO, MBS, ABS - that concealed the dangers within. Needless to say, we'd see the smooth-tongued emissaries of the credit-rating agencies assuring people that assets of lead could indeed be transformed into investments of gold. Finally, somewhere past the feckless Fannie Mae executives and the dozing politicians, one final figure would lurk in the shadows: a hulking and barely recognizable monster known as Credit Default Swaps.
FDIC asks to boost deposit limits The federal agency that guarantees bank deposits is asking Congress for temporary authority to raise the limit on the amount of money it insures for individual bank accounts. Federal Deposit Insurance Corp. Chairman Sheila Bair put out a statement late Tuesday afternoon asking that Congress allow her agency to increase the $100,000 limit per account that has been in place since 1980. "Unfortunately, there is an increasing crisis of confidence that is feeding unnecessary fear in the marketplace," Bair said. "To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits."
More bank failures expected (video) The FDIC has a list of 117 troubled banks, but analysts say the bailout could affect even more.
Wondering which bank is next Analysts brace for more bank failures after Wachovia sells out banking assets to Citi; bank stocks plunge after House rejects bailout bill. Following Citigroup's takeover of Wachovia, the collapse of Washington Mutual and the House's rejection of the bank bailout bill, Wall Street is wondering who's next. "Clearly we're going to see more bank failures, probably none on the size of whatever we've seen the last couple of days, but we'll see a lot more of them," said Sean Ryan, analyst for Sterne, Agee & Leach. Ryan said regional banks in the Rust Belt of the upper Midwest - with the exception of TCF Financial Corp. (TCB) because of its strong fundamentals - and banks with heavy mortgage-related investments in the hard-hit areas of California and Florida are vulnerable.
Shares of regional banks soar Shares of regional banks soared Tuesday as investors flooded the market in search of bargains, following one of the biggest selloffs in years the day before. Stocks plummeted Monday after the government's proposed $700 billion financial rescue package failed to win approval in the House of Representatives, heightening concerns on Wall Street about the stability of the financial system. Without a bailout plan in place, questions lingered about how ailing banks are going to handle mounting losses tied to bad mortgage debt. The proposal would have allowed the government to buy bad mortgages and other deficient assets held by troubled financial institutions.
Bush warns on failure to agree bail-out President George W. Bush warned on Tuesday that damage to the US economy would be “painful and lasting” if Congress did not pass his admininstration’s financial bail-out plan. The president maintained that “much if not all” of the $700bn cost of the plan would be eventually returned to taxplayers. "I realise this is a difficult vote for members of Congress," Mr Bush said at the White House. “But the reality is that we’re in an urgent situation and the consequences will grow worse each day’’ that Congress does not act. His comments follow the worst one-day fall in US stocks since the 1987 crash on Monday, after the House of Representatives shocked investors by voting to reject the plan.
The new bailout pitch: It's NOT a bailout The Bush administration is searching for a new way to sell its financial rescue plan after acknowledging some blunders and missteps in presenting it the first time around. One big key: Insist it's not a Wall Street "bailout." Now it's not about financial institutions. The focus has switched to everyday Americans. And it's not an expenditure of taxpayer money, it's an "investment." This was clearly evident in Bush's grim warnings on Tuesday of "economic hardship for millions" if the plan can't be revived. He declared, "For the financial security of every American, Congress must act." This emphasis was echoed on the presidential campaign trail. "Let's not call it a bailout. Let's call it a rescue," said Republican John McCain.
Failure to lead fuels Main Street backlash This week's bail-out debacle was widely criticised on Tuesday as marking a failure of US leadership on a grand scale – one that carried worrying overtones of political dysfunction in past economic crises in Japan and many emerging economies. "The entire superstructure of American political leadership failed. They couldn’t deliver," said Larry Sabato, director of the Center for Politics at the University of Virginia. The House’s rejection of the bail-out on Monday could ultimately be reversed. But it raised parallels with the early 1930s and the early 1980s – when the US was beset by economic crises during the lame-duck presidencies of Herbert Hoover and Jimmy Carter.
'I blame Bush ... all they cared about was the fat cats' On a clear day you can see the soaring skyline of downtown Manhattan from the Yonkers waterfront. But this city on the banks of the Hudson river feels a world away from the gleaming concrete canyons of Wall Street. It is a gritty town, struggling with the loss of the heavy industry that once saw it thrive, and only slowly witnessing a renovation of its scruffy Main Street. Fancy new restaurants stand amid rows of closed shopfronts and bargain-basement thrift stores. In many ways that mix makes Yonkers a typical American city. But now Yonkers residents are preparing grimly for hard times ahead. The effects of the credit crunch, the failed bail-out plan and the seemingly endless news about collapsing banks, has people on Yonkers' Main Street deeply fearful for the future.
Bill v. Barack on Banks $$ Clinton instructs Obama on finance and Phil Gramm. A running cliché of the political left and the press corps these days is that our current financial problems all flow from Congress's 1999 decision to repeal the Glass-Steagall Act of 1933 that separated commercial and investment banking. Barack Obama has been selling this line every day. Bill Clinton signed that "deregulation" bill into law, and he knows better. In BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation. Mr. Clinton's reply: "No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter.
Prudent Bear's David Tice Says Dow Average May Plunge to 5,000 The Dow Jones Industrial Average may plunge another 5,300 points because the economy is slowing, according to David Tice, whose Prudent Bear Fund has advanced 13 percent in 2008 even as the stock market dropped. Tice told Bloomberg Television that the Dow average, which closed at 10,365.45 yesterday, might sink to 5,000 or 6,000. That implies a drop of as much as 52 percent. "We don't believe that the pain is over," said Tice, who oversees $1.08 billion in Dallas. "The market hasn't even fallen that far yet and we're already throwing trillions of dollars at this."
Dow Under 8,400 a Real Possibility Stock guru Jim Cramer says problems abroad and at home could lead the Dow to a shocking new low, as far down as below Dow 8,400 — if a bailout doesn’t emerge from Congress soon. "There is so much going wrong. The credit markets are vanishing, the earnings are vanishing, and the only hope is a plan that ignites credit markets, forces money off the sidelines and gets this economy and the worldwide economy moving again," Cramer writes on TheStreet.com. A lot of America’s problems can be traced directly to big problems in the markets of its biggest foreign customers, like Brazil, Russia, India, and China, he says.
How bad is our economy? Robert Kuttner says the failed bailout bill would have helped the wrong people. J.D. Foster says the U.S. faces a fiscal crisis far greater than Wall Street's current malaise. Now that Congress blocked the compromise bailout worked out by House Speaker Nancy Pelosi and Treasury Secretary Henry Paulson, it's time for it to get things right. Taxpayers are right to be outraged over bailing out Wall Street investors, but the right-wing Republican "private market" alternative is a joke. If it takes government insurance and government tax credits to unload bad bonds, what we have is hardly a private market.
As risk grows, resources strained at Fed, FDIC If the House vote against the $700-billion financial rescue proposal stands, Americans may be in for a test of free-market economics the likes of which the country hasn't seen since the early 1930s. With the Treasury Department hobbled by the rejection of its plan, the Federal Reserve and Federal Deposit Insurance Corp. are the chief government institutions standing between the nation and the brutally Darwinian process that could unfold if the panicky financial markets are left to sort their problems out alone.
Congress decides it is worth risking depression It is just over three score years and ten since the Great Depression. Judged by its rejection of the plan put forward by Hank Paulson, US Treasury secretary, Congress believes it is time to risk another one. That slump was, arguably, the greatest catastrophe of the 20th century: it was, among other things, responsible for the events that led to the second world war – not least Hitler’s rise. One can only imagine what horrors a depression might bring now? Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com Such forebodings must seem exaggerated. So, I expect, they will be. But that dire outcome is no longer impossible, not because a slump is inevitable, far from it, but because action is needed to prevent one. We are watching the disintegration of the financial system. Finance is the web of intermediation binding economic agents to one another, across both space and time. Without it, no modern economy can survive.
Congress repeats 1930s errors with bailout vote In the 1930s, the US Congress did more than its fair share in helping to turn a financial crisis into a global depression. Yesterday it looked as though it was auditioning to assume that role again. Back then, Congress’s vote for protectionist legislation, the infamous Smoot-Hawley Tariff Act, which erected trade walls around America, almost brought to a halt the free movement of goods and services vital to the efficient functioning of the global economy. Yesterday, in rejecting a plan to help to rescue the US financial system that had been constructed and reconstructed by the Bush Administration in collaboration with the Democratic and Republican leaderships, the House of Representatives dealt a hammer-blow to an already almost immobilised global financial system.
America must seek aid for a global credit line The US Congress has refused to pass the $700bn bail-out plan. That may turn out to be appropriate. The question, however, is not whether the matter should be left to the market or whether the government should rescue those who might lose their home to foreclosure. The imperative now is to provide liquidity to the market, particularly to failing financial institutions. From Japan’s experience in the 1990s, it is clear that the US financial crisis is following a familiar pattern. However, US leaders do not seem to know what lessons to draw from history.
There are three principles you need to observe in a financial crisis. First, treat it as a systemic failure and do not act on individual cases. Second, know the sequence of events so that you solve the right problem at the right time. Third, then construct a universal system to avoid problems recurring. The US government is violating each of these principles and mixing up the sequence of events. In doing so, it is aggravating an already bad situation.
Bailout stall threatens to bring down banks throughout the West European leaders are pleading with America's lawmakers to reach an agreement on a financial rescue package "for the sake of the world" after a string of banks on this side of the Atlantic had to be saved. Financial institutions in Iceland, France, Germany and the Low Countries have become the latest victims of the contagion spreading throughout the global economy. They include Fortis, the Benelux giant which has more assets than the entire Belgian state, and Iceland's third largest bank, Glitnir, with very real fears that other banks will follow if Congress does not reverse its decision to reject a $700 billion bail-out of US banks. Johannes Laitenberger, spokesman for the European Commission, summed up the mood when he said: "The US must take its responsibility in this situation, must show statesmanship for the sake of their own companies and for the sake of the world."
This is the way the world ends This is the way the world ends This is the way the world ends Not with a bang but a whimper.
-- T.S. Eliot"The Hollow Men" (1925)
The world is not ending. Despite the wrenching turmoil in global financial markets and morbid allusions to the death throes of capitalism, it ain't over. Not until people quit believing in themselves, not until people quit believing in a better future. But the whimpering is real, and justified, because it hurts to have your world come crashing down. And global financial markets are definitely crashing, even when the impact is momentarily softened through massive injections of artificial money -- "artificial" because the fiat money does not represent a store of genuine value but rather an airy government claim to future wealth yet to be created.
Triple blow spurs central banks The world’s central banks scrambled on Tuesday to address three simultaneous crises in money markets that led to violent jumps in interest rates as the financial system remained under severe stress. The unpleasant trio were the enormous uncertainty created by the failure of the US administration’s plan to purchase toxic assets from banks, a severe shortage of US dollars in banks outside the US at the end of the quarter, and the breakdown of trust in money markets that has led to a drought of funds for those banks needing to borrow. The stress was evident in a widening gap between unsecured interest rates for bank borrowing and risk-free borrowing at maturities of three months and above.
Sales Decline at Ford and G.M. The Ford Motor Company said Wednesday that sales in the United States dropped 34 percent in September, as volatility in the financial markets compounded ongoing misery for the auto industry. But sales were better than expected at General Motors, which reported a 12 percent decline and estimated that its market share rose to the highest level in more than three years. "We are looking at a very fragile economy," Emily Kolinski-Morris, Ford’s chief economist, said on a conference call with analysts and reporters. "I don’t think anyone can say where the bottom might be."
Sallie Mae Credit Swaps Jump to Record Amid Turmoil The cost to protect against a default by SLM Corp., the biggest U.S. educational lender, reached a record as short-term corporate borrowing rates soared amid the worst financial crisis since the Great Depression. Credit-default swaps on the Reston, Virginia-based company's bonds climbed deeper into distressed levels before recovering somewhat as rates on commercial paper backed by assets such as student loans and credit card debt soared. The company, known as Sallie Mae, makes money by lending at rates that are higher than its borrowing costs.
SEC, FASB Resist Calls to Suspend Fair-Value Rules The U.S. Securities and Exchange Commission probably will resist calls to suspend the fair-value accounting rules that some members of Congress blame for exacerbating the global financial crisis, people familiar with the matter said. The SEC and Financial Accounting Standards Board today issued "clarifications" on how banks should interpret existing rules requiring them to review assets each quarter and report losses if values decline. A moratorium isn't being considered, said the people, who declined to be identified because the plan hasn't been completed.
Embattled Paulson regroups his forces An embattled Hank Paulson was on Tuesday seeking to regroup his forces and salvage his $700bn economic rescue plan following its defeat in the House of Representatives on Monday. The Treasury secretary believes the House vote was dangerous and potentially puts the stability of the financial system and the economy at risk. But he is being forced to walk a fine line between publicly warning Congress about the risks while not triggering a market panic that could cause a further wave of bank failures.
FDIC to Ask for Authority to Raise Deposit-Insurance Limits The Federal Deposit Insurance Corp. will ask Congress for permission to increase deposit insurance limits, House Financial Services Committee Chairman Barney Frank said in a memorandum to members of his panel. "Sheila Bair, chairman of the FDIC, notified me that they will be requesting authority to increase deposit insurance limits. We will provide additional details as we have them," Frank said in the memo. The FDIC currently provides $100,000 of insurance for individual bank deposits. The memo didn't specify what new level was being requested by the agency.
Treasuries Plummet on Speculation Rescue Plan Will Be Salvaged Treasuries fell, paring the biggest monthly gain since January, as speculation lawmakers will salvage financial-rescue legislation eased concern that capital markets will deteriorate further. Traders pushed up yields on two-year notes by the most in more than a week, erasing the bulk of yesterday's 44-basis-point rally, as an advance in stocks damped demand for government debt. A gauge of expectations for Treasury volatility surged to the highest in at least 20 years. Senate leaders vowed to act this week on the $700 billion rescue package, which the House rejected yesterday.
US bail-out: What will happen if the deal is not implemented For weeks, the powerful politicians and bankers grappling with a global financial crisis have pinned their hopes on a piece of legislation that would authorise the US Treasury to stake up to $700 billion relieving US banks of risky loans that threaten their future and the entire financial system. But the Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets now hangs in the balance, with no guarantee that it will win Congressional approval. So what happens if the biggest bail-out in history is not implemented? The global financial system is based on banks freely and frequently lending each other huge sums of money, money that is then lent on and on again. At the heart of the financial crisis is banks' confidence in the ability of their competitors to pay back money that they borrow. With almost every bank exposed to the risk that people and businesses to whom they have lent money will not pay it back, no one knows which banks are able to stay in business and which will be wiped out by huge losses from bad loans.
Hedge funds face worst year since 1990 Hedge funds on Tuesday closed out one of their worst-ever quarters as US managers braced for an extension of the short-selling clampdown which has robbed them of one of their most popular strategies. The hedge fund business has been left reeling by the combined forces of greater regulation – including the banning of short selling on certain financial stocks by the US Securities and Exchange Commission and other regulators across the world – the threat of investor withdrawals, a flight from risk and a squeeze on leverage.
Why the credit crunch is about more than Wall Street I'm going to try to briefly accomplish in a few paragraphs what it seems to me our government has completely failed to do in this financial crisis. No, I don't have $700 billion of my own to shell out. But to me, Congress' failure came not today on the House floor, but over the past week as both elected officials and members of the administration failed to translate the crisis into terms that have meaning for everyday Americans. I've heard the phrases "Main Street" and "Wall Street" a lot, but what I haven't heard is plain explanations of what credit really means and how essential it is to our system of doing business. Here goes. If the credit markets should freeze up--which many say is happening and will continue without massive intervention--everyone that borrows money will face a cash crunch.
And then there were none What the death of the investment bank means for Wall Street THE radical overhaul of the City of London in 1986 was dubbed the Big Bang. The brutal reshaping of Wall Street might be better described as the Big Implosion. The “bulge-bracket” brokerage model—the envy of moneymen everywhere before the crunch—has collapsed in on itself. Even more humiliating for the Green Berets of the markets, the new force in finance is the government.
Crude Oil Rises on Signs U.S. Will Revive Bank Bailout Plan Crude oil rose, rebounding from its biggest drop in seven years, after U.S. lawmakers said they intend to salvage a $700 billion bank-rescue package that may avert an economic slowdown. Oil fell more than $10 yesterday and global stock markets were battered after the House of Representatives failed to pass a rescue bill and European governments bailed out three banks. The U.S. Senate will try to revive the financial package tomorrow. "The market is being totally driven by what is happening in Washington," said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. "What happens to oil prices depends completely on whether the rescue package is approved or not."
What Goes Before a Fall? On Wall Street, Reassurance "Jim, we have a great future as an independent company,” Robert K. Steel, Wachovia’s chief executive, told James Cramer on CNBC’s “Mad Money." "We’re also focused on very exciting prospects when we get things right going forward. I didn't have time today to talk about the good things going on at Wachovia." That interview wasn’t last month or last year — it took place, amazingly, two weeks ago. Wachovia’s shares closed at $10.71 that day. On Monday, Citigroup bought the company for $1 a share. What was Mr. Steel thinking? Did he think he could "spin" his way to survival?
Bush Approves Loans for Auto Makers $$ President Bush on Tuesday signed into law a low-interest loan package to aid U.S. auto makers, but those struggling companies will still have to wait months to find out how and when they can tap the $25 billion designated to smooth their transition to building more fuel-efficient vehicles. The loan package was approved last year as a way to help auto makers and their suppliers meet fuel-economy standards set by the federal government. But the funding for the package wasn't passed by Congress until this year. One estimate put the total cost to auto makers at $100 billion to meet stricter efficiency standards that require vehicles to reach 35 miles per gallon by 2020.
No one's clean in this mess Democrats and Republicans must share the blame for the failure to pass a $700-billion bailout plan. On Sunday evening, Republican House Minority Leader John A. Boehner explained his considered opinion on the $700-billion Wall Street bailout plan: It's a "crap sandwich," he said, but he was going to eat it. Well, it turned out he couldn't shove it down his colleagues' throats. The bill failed on a bipartisan basis, but it was the Republicans who failed to deliver the votes they promised. Some complained that Democratic Speaker Nancy Pelosi drove some of them to switch their votes with her needlessly partisan floor speech on the subject. Of course Pelosi's needlessly partisan. This is news?
Banks in miser mode send borrowing rates soaring Bank-to-bank lending rates jump after House vote against bailout; T-bill demand eases slightly Bank-to-bank lending rates jumped Tuesday and Treasury bill demand eased only slightly, a day after Congress' rejection of the bank bailout plan cast an even deeper freeze over the barely operational credit markets. After the House's vote against the Bush administration's plan, investors pulled their money out of stocks and commodities Monday, sending the Dow plummeting 778 points and crude down more than $10 a barrel. That money got shoveled into Treasury bills, short-term debt issued by the U.S. government that's considered the safest investment around. On Tuesday, the yield on the 3-month T-bill recovered to 0.90 percent from 0.14 percent late Monday as the Dow Jones industrial average rebounded by more than 260 points in midday trading. The T-bill yield is still very low by historical measures, however -- particularly when compared to lending rates between financial institutions.
Jolted Congress Will Pass Bill, But Confidence Destroyed The silver lining of yesterday's market collapse: It may have woken Congress up to the severity of the economic crisis. Stocks have jumped on the hope that a slightly modified bailout bill will be passed later this week. Traders are also hoping for an emergency Fed rate cut. At the same time, the credit markets are still extremely tight, which will constrict companies' ability to do business. Our guest, Wall Street Journal Deputy Managing Editor Alan Murray, thinks Congress will eventually pass the bailout bill. He also thinks, however, that the events of the last several days have severely damaged the public's confidence in Washington's ability to deal with this crisis. Given that the crisis is really all about confidence -- banks are so scared they aren't lending to each other -- this could dampen the effect of the bailout when it's finally passed.
Global liquidity crisis runs on unabated Libor spikes; onus on central bankers as U.S. bailout stalls Massive liquidity injections haven't freed up crucial money markets, leaving the world's central bankers little choice but to try more radical measures in order to dampen the odds of a wider economic collapse, economists said Tuesday. Overnight borrowing rates and other key short-term interest rates and credit spreads rose sharply a day after the House of Representatives dramatically and unexpectedly rejected a $700 billion U.S. bank-bailout plan, roiling global financial markets and leaving Washington in a state of shock. Commercial banks have grown increasingly reluctant to provide each other with short-term loans, partly out of fear of further bank failures and concerns about the health of their own balance sheets.
France's Sarkozy battles fallout from financial crisis President Nicolas Sarkozy on Monday battled to contain fallout from the global financial crisis, moving ahead with plans for a world summit and calling a meeting of French banking and insurance chiefs. France will host a meeting of European officials to prepare a summit "in the coming weeks to establish the basis of a new international financial system," said Sarkozy, whose country holds the presidency of the European Union. Officials from Britain, France, Germany and Italy -- the EU members of the G8 -- will meet in Paris in the coming days to lay the groundwork, he said on the sidelines of an EU-India summit in the southern city of Marseille.
Chavez Says U.S. Slump Hits Like `Hundred Hurricanes' Venezuelan President Hugo Chavez said the turmoil in U.S. financial markets will stunt growth in Latin America and may send oil down to as low as $80 a barrel. "This is a hurricane, or more than one hurricane, it's a hundred hurricanes," Chavez told reporters after arriving in Manaus, Brazil for a meeting with Brazilian President Luiz Inacio Lula da Silva. "I'm in the group that believes this will be worse than the 1929 crash. No country can say it won't be affected." Oil prices should stabilize between $80 and $95 a barrel, Chavez said, adding the credit crisis in the U.S. will likely make it more difficult to obtain financing in Latin America.
TRAINING A SOCIALIST ARMY OF WORLD SERVERS Obama: “I will ask for your service and your active citizenship when I am president of the United States ... this will be a central cause of my presidency." Obama: "People of all ages, stations, and skills will be asked to serve.... I will set a goal for all American middle and high school students to perform 50 hours of service a year, and for all college students to perform 100 hours of service a year...." Saul Alinsky (Obama's Marxist mentor): "The disruption of the present organization is the first step toward community organization.... All change means disorganization of the old and organization of the new."
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Tues 09.30.2008
U.S. Heading for Deeper Economic Slump, With or Without Bailout The U.S. may face its longest recession in a quarter century no matter what action Congress takes on Treasury Secretary Henry Paulson's $700 billion plan to rescue the battered banking industry. Economists including Joseph Lavorgna of Deutsche Bank Securities and David Greenlaw of Morgan Stanley said it now appears the economy shrank in the third quarter as credit- crimped consumers cut spending for the first time since 1991. A further contraction is likely in the next two quarters, some economists predicted, which would make the recession the longest since 1981-82. "This has been a body blow to consumer and business confidence," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. "The next six months are going to be very difficult."
How did your congressman vote? House Roll Call - The 228-205 roll call Monday of the vote by which the House rejected a $700 billion emergency bailout for the nation's financial system.
Main number: 202 225 -3121 - ask for your elected officials in D.C. Our elected Senators and Representatives supposedly work for us, the taxpayers! Tell them what YOU think about the bailout proposal on the table.
Ron Paul Votes NO BAILOUT (Speech on the House Floor on 9-29-08)
Why the bailout bombed Republicans might blame Pelosi's rhetoric, but the message that mattered was the one that came from voters back home. Barely containing his temper, Virginia's Eric Cantor, deputy whip for the House Republicans, stepped to the microphone this afternoon to blame the bailout defeat on House Speaker Nancy Pelosi's "failure to listen" and her charged partisan rhetoric in condemning President George Bush's "budgetary recklessness" and "anything-goes mentality." If only it were that simple. If only the failure of the White House to muster enough votes from its own party to avert what it calls looming financial disaster could be blamed on a few ill-chosen words uttered on the House floor by San Francisco's hyper-partisan speaker. In fact, Monday's surprise defeat of the $700 billion rescue package - meant to blunt a burgeoning financial crisis - can be traced to a failure on the part of the president and his treasury secretary, Henry Paulson, to fully appreciate the ferocity of the popular revolt they touched off nine days ago.
Central banks pump in $620bn as shares plummet Central banks around the world unveiled a plan to pump massive amounts of cash into the global banking system in a concerted effort to boost market confidence and inject liquidity into the global markets. The move followed a fall in the Dow Jones of nearly 300 points in morning trade to 10,869 as the market took fright at several bank nationalisations in Europe and the US despite the approval of the "son of Tarp" - the Troubled Asset Relief Programme - bailout. The FTSE 100 index of leading shares was down almost 5 per cent, taking it to a new low for the year and below the psychologically significant threshold of 5,000. As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half.
The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever Nouriel Roubini | Sep 29, 2008 It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening). Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown…
U.S. House rejects plan for bailout Defying President George W. Bush and the leaders of both parties, rank-and-file lawmakers in the House on Monday rejected a $700 billion economic rescue plan in a revolt that rocked the Capitol, sent markets The stunning defeat of the proposal on a 228-205 vote after marathon talks by senior congressional and Bush administration officials lowered a fog of uncertainty over economies around the globe. Its authors had described the measure as essential to preventing widespread economic calamity. The markets began to plummet even before the 15-minute voting period expired on the House floor. For 25 minutes, uncertainty gripped the nation as television showed party leaders trying, and failing, to muster more support. Finally, Representative Ellen Tauscher, Democrat of California, pounded the gavel and it was done.
US banking bailout in chaos after shock House of Representatives vote The financial system lurched closer to a catastrophic breakdown last night after the US Congress dramatically rejected a bailout plan designed to restore confidence to paralysed banks. Wall Street suffered one of its worst days in history. In 24 hours five banks across the West, including Britain’s Bradford & Bingley, had to be rescued to avoid insolvency. With plans for the biggest rescue of Wall Street since the Great Depression in tatters, the Dow Jones industrial average of shares dived almost 800 points, losing 7 per cent of its value. It was the worst one-day points fall and the worst percentage fall since Black Monday in 1987. The surprise rejection of the bailout triggered fears of a new wave of banking collapses. Other economies had looked to America to lead the way out of the crisis.
The Depression of 2008? Don't Count on It $$ Wall Street is dead. Whether it was murder or suicide is beside the point: Wall Street as it has operated for the past 75 years has been obliterated in a matter of weeks. And witnessing this violent death in broad daylight has traumatized investors everywhere. The Wall Street domino has toppled just about everything in sight: U.S. stocks large and small, within the financial industry and outside of it; foreign stocks; oil and other commodities; real-estate investment trusts; formerly booming emerging markets like India and China. Even gold, although it has inched up lately, has lost 10% from its highs earlier this year. Not even cash seems entirely safe, as money-market funds barely averted a "run on the bank." Of all the dominos that have tipped over, the most psychologically damaging collapse was the last: the very notion of diversification itself.
Paulson Plan Is Still a Pig, Even With Lipstick If Treasury Secretary Hank Paulson thought he could cram a $700 billion plan to buy financial institutions' toxic mortgage-backed waste through Congress with no questions asked, he got a rude awakening last week. Paulson and Federal Reserve Chairman Ben Bernanke were grilled by Senate and House committees on the plan. Those same lawmakers were inundated with calls and e-mails from constituents expressing outrage at what they saw as a bailout of Wall Street for a problem of Wall Street's own making. It took them all weekend to hammer out something they could sign off on. Why was it so hard for Paulson to close the deal after laying the blame at Congress' feet should a failure to act result in a collapse of the financial system? Maybe his report card holds the key. Communication Skills: C-
U.S. bailout rejection spurs flight to safety Recession fears mounted and investors raced for safe havens after U.S. lawmakers unexpectedly rejected a $700 billion (388 billion pound) bailout plan for the financial industry, but Asian stocks trimmed deep early losses after Wall Street's biggest fall since the crash of 1987. A week that started badly with the rescue of three banks in Europe and the distressed sale of big U.S. lender Wachovia to Citigroup grew worse after the U.S. Congress was unable to agree on a rescue package. "It's hard to imagine what's going to happen. It's kind of scary," said Masayoshi Okamoto, head of dealing at Jujiya Securities in Tokyo. "In particular, European banks were putting up a front that nothing was wrong, but now they're falling one after another." Shares in Asia recovered from early lows but were still down about 3 percent.
U.S. Lawmakers Spurn Pleas From Leadership in Rejecting Bailout Lawmakers from Texas, Arizona, and California helped defeat a $700 billion credit-market rescue in the U.S. House, voting more in line with their followers, or constituents, than their leaders. The bill was a priority for President George W. Bush, yet 15 of 19 Republicans from his home state, Texas, voted against it. Republican presidential candidate John McCain left the campaign trail to help the measure, which didn't get a single vote from his state of Arizona. Almost half the usually loyal California Democratic delegation rebuffed House Speaker Nancy Pelosi. For too many lawmakers, five weeks before Election Day, the threat of market calamity and arm-twisting from party leaders couldn't overcome impassioned opposition back home, where the rescue plan is drawing fire as a bailout for rich Wall Street bankers.
Senate May Try to Revive Bank-Rescue Bill as Early as Tomorrow The U.S. Senate will try to salvage a $700 billion financial-rescue package after the measure was defeated in the House of Representatives. The lawmakers won't have a lot of room to negotiate. While they need to tweak the legislation enough to win over reluctant Republicans, they'll risk losing votes from Democrats if they veer too far from the delicate compromise that congressional leaders hammered out with the U.S. Treasury. "They're not going to totally revamp the bill," said Pete Davis, president of Davis Capital Investment Ideas in Washington, who spoke to House and Senate leaders yesterday. "They'll make some minor changes and pass it. This is all about political cover."
Bailout vote stuns Washington, markets Dow suffers record loss; world stocks plunge; Bush, House to try again World financial markets reeled as stunned lawmakers groped for their next move Monday after House Republicans abandoned President Bush in droves to help kill his $700 billion proposal to rescue the financial services industry. Even before the vote was announced, stocks began tanking on Wall Street. The Dow Jones Industrial Average nose-dived by more than 777 points, its worst fall ever, in a sell-off that swept markets around the globe. As fears rose that the credit crisis was spreading, Asian and European markets closed sharply down, and governments in at least eight European countries took steps to begin rescuing large banking institutions.
Fed takes fresh steps to battle credit crisis Action intended to ‘expand significantly’ the availability of cash The Federal Reserve and foreign central banks moved Monday to pump billions of dollars to cash-strapped banks at home and abroad in a dramatic bid to break through a credit clog and spur lending. The Fed said the action is intended to “expand significantly” the cash available to financial institutions, its latest effort to relieve the worst credit crisis since the Great Depression. The goal is to boost the amount of quick cash available to banks and other financial institutions so that they’ll feel more confident and inclined to lend not only to each other but also to people and businesses.
Money market freeze stirs rate cut speculation Central banks and regulators scrambled on Tuesday to relieve the strain on financial markets frazzled by another hefty blow to confidence, this time from the rejection by U.S. lawmakers of a $700 billion (388 billion pound) rescue plan. Global central banks more than doubled the amount of dollar funding to $620 billion, but the move showed no signs on Tuesday of thawing the freeze in money markets where banks are hoarding cash and bracing for more trouble ahead in the deepening year-long credit crisis. Analysts said central banks may now be forced to cut interest rates in a coordinated move because their massive fund injections have done little to ease strains that are threatening to become a bigger systemic breakdown that could endanger the global economy.
Even Hank Paulson's bail-out plan cannot detox global banking Can the rescue package really halt our slide into a new Depression, asks Ambrose Evans-Pritchard. Even if Congress backs the Paulson bail-out, the $700 billion blast cannot save the US, Britain or the world from the deepest economic slump since the Thirties. If Congress balks, God help us. The credit system is suffering a heart attack. Inter-bank lending is paralysed. Funds are accepting zero interest on US Treasury notes for the first time since Pearl Harbour, because no bank account is safe. Wherever you look – dollar, euro, sterling Libor (the rate at which banks lend to each other), or spreads on credit derivatives – the stress has reached breaking point. If borrowers cannot roll over the three-month loans that are the lifeblood of business, they will default en masse. "Money markets are imploding. If no action is taken very soon, there is a significant risk that the global economy will collapse," says BNP Paribas. Almost every trader says much the same thing. So does US treasury secretary Hank Paulson, who as Toby Harnden reports, literally dropped on bended knee to beg help from Democrats on Capitol Hill.
Panic grips world's markets Shock as American rescue plan rejected on a day of nationalisations and bail-outs The US government's $700bn bail-out of the banking industry collapsed yesterday as Congress defied the White House by voting down the plan, sending Wall Street stocks plummeting and spreading shockwaves through the global economy. In a snub to George Bush's authority, Republicans in the House of Representatives led a rebellion which defeated the rescue by 228 votes to 205. As alarm mounted on Wall Street about the stability of the financial system, the Dow Jones Industrial Average plunged by 777 points to 10,365 - its biggest percentage fall for seven years and its worst drop ever in terms of points. The package was intended to allow the government to buy toxic mortgage-related liabilities from banks, after warning that without action banks would curtail home loans, car loans and student loans, as well as credit to keep small firms trading.
Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization – via the use of public resources – can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.
'They're throwing billions around but things seem to be getting worse' World central banks desperately tried to stave off collapse of the global banking system yesterday with large cash injections into money markets buckling amid news of another rash of bank failures. The pound also suffered its biggest one-day fall since mid-1993 against the dollar as dealers focused on the fact that the US government looked as if it was going to approve its $700bn (£389bn) bail-out for US banks while the UK banking system suddenly seemed shakier than before. Sterling fell 2.3% to below $1.80 at one point. The dollar fell in late trading after the US House of Representatives voted against the bail-out plan. Mark Deans, dealing manager at Moneycorp, said: "Confidence in UK banking has fallen to a new low with the nationalisation of Bradford & Bingley. This has prompted a major sterling sell-off and, coupled with growing confidence that the US government's Wall Street bail-out may be agreed, it has resulted in the pound's heavy fall against the dollar."
Wall Street's slow demise With breathtaking speed, the world of large Wall Street investment banks has vanished. Fabled firms, some more than a century old, have been merged out of existence (Bear Stearns, Merrill Lynch), gone bankrupt (Lehman Brothers), or sought asylum as commercial bank holding companies (Goldman Sachs, Morgan Stanley). Why on earth did this happen? The death of Wall Street has been a long-running, slow-motion crisis, barely discernible to participants who had still booked huge profits in recent years. Beneath the razzle-dazzle of trading desks and the wizardry of esoteric finance lay the inescapable fact that these firms had shed their original reason for being: providing capital to U.S. business.
Anger as House rejects rescue plan Anger and confusion overwhelmed the House of Representatives on Monday as Republican legislators ripped into a $700bn financial rescue package backed by almost the entire US political establishment. Congressional leaders scrambled for an alternative course of action once it was voted down. Powerful last-minute pleas by John Boehner, the House minority leader, and Nancy Pelosi, speaker of the House, were unable to prevent the defeat of the bill by 228 votes to 205, with Republicans voting by two to one against and divided Democrats unable to make up the difference. “Nobody wants to vote for this; nobody wants to be anywhere around it,” Mr Boehner said at the end of a debate in which critics assailed the proposal and supporters provided only half-hearted backing.
Adrift and afraid in uncharted territory It was a bad plan - but it was a plan. The refusal of Congress to back Hank Paulson's bail-out takes us into new territory. George Bush told Americans to expect "a serious financial crisis" and "a long and painful recession" if the legislation was blocked. Paulson went down on his knees to beg for support. But opposition from ordinary Americans killed the bill. It was a historic day: even the decimal point on the Dow Jones average made it memorable. The final reading was: down 777.7 points. Some horsetrading in Washington may yet produce a revised deal that would be acceptable to the politicians, but the banks know there will be no easy handouts: Main Street, for better or worse, wants to see Wall Street suffer. In an election year, voters get what they want.
Many Lenders Lower Credit-Card Limits $$ It's not just your portfolio that may be shrinking lately. The spending limit on your credit card may be heading south as well. Credit-card issuers have been decreasing credit limits. "Most banks are cutting their credit limits," says Carol Kaplan, spokeswoman for the American Bankers Association. "They're doing it to everyone." Smaller credit lines spell trouble for consumers on several fronts. Lower credit limits shrink consumers' ability to spend. And should an emergency arise, consumers will have less credit to cover those costs. Consumers also could trigger penalties for going over a newly lower limit.
US wealth in shrink mode The US Congress went into labor this weekend, and gave birth to a gnat. With some cosmetic adjustments, Treasury Secretary Henry Paulson's US$700 billion bank bailout plan will be adopted this week. Markets barely budged on the news, which was punctuated by government bailouts of two giant banks - America's Washington Mutual and Belgium's giant Fortis group. A third rescue, of Britain's Bradford and Bingley, sees it taken over by the government. Paulson's plan likely will provide temporary relief to the stockholders of some American banks, whose balance sheets do not look all that different from Washington Mutual's. But this has nothing to do with the larger problem, namely the de-leveraging of the American household. Leverage is the secret of American wealth.
Treasury opens money market guarantee program The U.S. Treasury Department said on Monday its temporary guarantee program for up to $3.4 trillion in money market mutual fund assets held as of Sept. 19 was now in effect for a three-month period. The Treasury said each fund regulated by the U.S. Securities and Exchange Commission that maintains a stable stock price of $1 can now decide whether to pay a fee to participate in the program. Money market mutual fund shares acquired after Sept. 19, when the Treasury announced the plan, will not be guaranteed under the program. To receive the government guarantee, participating money market mutual funds that had a net asset value of at least $0.9975 per share on Sept. 19 must pay a fee of 1 basis point per share to the Treasury. Those with a net asset value below $0.995 on Sept. 19 are not eligible for the program, and those between $0.995 and $0.9975 on that date must pay a 1.5 basis-point fee. The Treasury created the program to try to stem a massive run on about $3.4 trillion in money market mutual fund assets after the Reserve Primary Fund -- one of the oldest U.S. money market funds -- fell below $1 per share -- a phenomenon known as "breaking the buck."
Big banks, bumbling idiots The really chilling news is that investment banks are being changed into commercial banks, which gives them the right to create - out of thin air, and then loan - money using fractional-reserve banking! Yikes! They are now banks! These greedy, thieving, lying, staggeringly stupid weenies who are at the epicenter of the biggest financial catastrophe in American history are now being given the right to increase the money supply at their whim to satisfy the willingness of customers, and themselves, to borrow the money! Astounding!
House rejects $700B bailout in stunning defeat House rejects $700B bailout in stunning defeat, driving stocks down; Treasury vows more work In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day. "We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version. Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.
The Bailout Plan's Modifications Spell Disaster For The U.S. Economy In looking at the statement from House Speaker Pelosi which outlines the bailout plan as it will be passed, the first impression of it is that the politicians have eviscerated the Treasury's original proposal to the point which makes the plan destined to fail. Failure of the plan to work means that the U.S. will enter a much deeper and longer lasting recession than it otherwise would have.
Who Really Benefits from the Bailout -- Wall Street or Main Street? According to some legislators and President Bush, the $700 billion bailout package headed for a House vote this afternoon is less a life raft for Wall Street than a means of keeping Main Street afloat. It's a nice sentiment, but as Henry and I discuss in the accompanying video, good intentions don't always translate into workable plans. It's a given that Wall Street and Main Street are inextricably linked, and that plenty of consumers binged on debt right alongside the banks currently on tap for a federal handout. But if helping homeowners and other stressed consumers in order to bolster the economy is the ultimate goal, Henry argues, why not bail them out directly and let the bad banks fail? Either way, one effect may be that Americans rededicate themselves to saving rather than spending beyond their means.
Fed makes billions available to battle crisis Fed makes billions available to battle credit crisis; pledges to act as needed The Federal Reserve and foreign central banks agreed to pump billions of dollars into the global financial system Monday to unlock tight lending that threatens to unhinge the U.S. economy. The Fed said the action is intended to "expand significantly" the cash available to financial institutions in an effort to relieve to the worst credit crisis since the Great Depression. In taking the action, the Fed cited "continued strains" in the demand for short-term funding. Central banks will continue to work closely and are prepared to take "appropriate steps as needed" to ease the crisis and get banks lending again, the Fed said. Under one new step, the Fed will boost the amount of 84-day cash loans available to U.S. banks. The Fed is increasing the amount to $75 billion, up from the current $25 billion starting on Oct. 6. Banks bid on a slice of the loans at an auction.
After Bailout, Economy Will Still Be Lousy Prepare to be disappointed: The Bailout of the Century will probably do little to make life better anytime soon for the taxpayers footing The Emergency Economic Stabilization Act of 2008 may help avert the unspecified economic disaster that Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke keep hinting at. But for most of us, it's hard to fathom this freakish financial monster lurking in the darkness, unseen by anybody except Paulson and Bernanke. Instead, we cling to quaint notions, like the idea that for $700 billion in taxpayer commitments, we ought to get something tangible in return. That's false optimism. The legislation establishes new government procedures to "protect home values, college funds, retirement accounts, and life savings." Good priorities. But that word "protect" doesn't mean you'll end up better off. No checks are going to arrive in your mailbox. Your retirement portfolio won't suddenly rebound. You won't get an iPod as thanks for your contribution to the Bailout Olympics. You'll simply be spared some sort of wipeout.
Deaf frogs and the Pied Piper A truly horrible joke from the days when vivisection was still permitted has it that a scientist took to the lab a trained frog that could jump whenever it heard the command "jump". In that respect, the amphibian was quite similar to communist party members around the world, but anyway let's carry on with the story. In the lab, the scientist placed the frog on a table and swiftly sundered one limb. He then said "jump" and the frog complied with some difficulty. He then proceeded to do the same to the limb on the opposite side and said the same thing - and the frog miraculously managed to jump again. Then the third limb and the frog defied all odds by still jumping with just one limb. Finally, the last limb was split and of course this time the frog could not jump. The scientist wrote his conclusion in the journal, "When it lost all four limbs, the frog became DEAF." With all apologies to animal lovers, the story resonated with me last week not so much because I happened to pass a French restaurant or two, but rather the triumphant signaling of the end of market capitalism that is being heralded by leftist newspapers and other media outlets globally. Across Asia, the decline of American banks and government-sponsored intervention in financial markets is being seen as the reason for everyone to return to Japanese-style interventionist policies.
Your scorecard for understanding mortgage scandal Find out who's who in the 'Rogues Gallery' of economic crisis As Congress works on a $700 billion bailout plan for the U.S. financial system, the FBI has extended fraud investigations to 26 companies involved in mortgage lending. Authorities are attempting to determine whether any of the firms have participated in accounting fraud, insider trading or inflating values of mortgage-related assets. The FBI has not disclosed a list of companies under investigation, but the following are just a few firms in distress and executives under scrutiny.
Broad Authority, Lots of Money And Uncertainty Congress is on the verge of granting Treasury Secretary Henry M. Paulson Jr. sweeping powers to stabilize the nation's financial system. He would stand largely unfettered by traditional rules, largely unrestricted in his ability to spend $700 billion of federal money. The Treasury Department would decide what kind of assets to buy, and which financial firms could sell them. It would decide how much to pay. And it would hire firms to manage its acquisitions, without having to obey the normal rules for hiring contractors. These decisions would take several weeks, Paulson said. The results will determine whether $700 billion is enough to end the financial crisis. "This is really an unusual situation, a highly unusual situation. And we need flexibility, we need a variety of tools, we need to figure out how to get out there in weeks," Paulson said in an interview last night.
Paulson to get the power he wants AFTER a week of political brinksmanship and 100 pages of concessions to political reality, US Treasury Secretary Henry Paulson seems to have finally won the power and money he asked for to mount an unprecedented rescue of the financial system. If approved by a reluctant Congress and signed into law by the President, the Economic Stabilisation Act of 2008 will authorise Paulson to continue in a bigger and systematic way what the Treasury and Federal Reserve have been doing since March when they committed $US29 billion to facilitate the sale of Bear Stearns to its stronger rival, JPMorgan Chase. And although the initial focus will be on home mortgages and mortgage-backed securities, there remains enough flexibility in the legislation for Paulson to tackle similar problems with car loans, credit card debt and loans for commercial real estate.
Americans get the wool pulled over their eyes The money men have been well prepared for the crisis sweeping the world. IN THE mid-1980s, at the height of the savings and loan scandal - a smaller crisis than what is now gripping the US, but almost an identical harbinger of promises to come - the popular Phil Donahue TV show devoted a program to the situation. An angry man from the audience demanded to know: "Why can't the government pay for these debts instead of the people?" Now we see the financial titans demanding: "Why can't the public pay for these debts instead of us?" Or even more grandly: "Why can't foreign taxpayers do so?" Back in the 1980s, the audience at Donahue's show erupted in applause at the suggestion the government, not the taxpayer, foot the bill. I expect millions of American's in their lounge rooms roundly agreed. Americans had forgotten they were the government. Years of populist politics of blaming Washington, or "big government", for their woes - the Reagan revolution - had convinced Americans their government was some sort of occupying entity determined to fleece them. So the bail-out, or bail-up, of the 1980s passed partly because Americans were sufficiently ignorant to believe that they, the people, were not their own government.
No bailout for bankruptcy Lending lobby thwarts homeowner relief plan As congressional negotiators labored over the $700 billion financial bailout plan last week, business leaders saw little to applaud in more than a few of the ideas under discussion, including demands for limits on executive compensation. But one proposal aroused particular ire: changing the nation's bankruptcy laws to make it easier for homeowners to downsize troubled home mortgages. And on Sunday, when the head-banging ended and the dust cleared, a coalition of banking and mortgage industry lobbyists had reason to celebrate: The final bill included no changes in federal bankruptcy laws. The business lobbyists' victory infuriated such pillars of the Democratic establishment as major labor unions and consumer groups. Behind the scenes, however, proponents of the change proved no match for a coalition that included the American Bankers Association, the Mortgage Bankers Association and the home builders lobby. Starting with a core of Republicans who adamantly opposed any such change, the coalition persuaded key Democratic leaders in Congress that pushing the idea could doom the rescue effort and endanger the whole economy.
Banks warned on hiding credit exposure The prudential regulator has warned the big banks to scrutinise their overall loan exposure to financial companies and their satellite funds as turmoil continues on global markets. The Australian Prudential Regulation Authority (APRA) is concerned the banks may be treating loans to companies such as Macquarie Group, Babcock & Brown and Challenger Financial and their listed funds as separate exposures, as this could allow the banks to avoid reporting them to the regulator, The Australian Financial Review reports. Prudential standards dictate that lenders must advise APRA of exposures that exceed 10 per cent of their lending books. Similarly, banks are not allowed to lend more than 25 per cent of their loan book to a single entity without APRA's permission.
A changed financial landscape For our country's sake, I hope our Washington politicians worked out a mindful financial sector bailout package over the weekend. Not that I am pro-bailout or for government intervention. It's just that our financial system is teetering at the precipice. The federal takeover and "sale" of Washington Mutual, our nation's largest bank failure to date, was yet another major body blow. Confidence has now been shaken so brutally that our policymakers can do little to repair the damage. Yet at this point, stop-gap measures to restrain collapse seem more appealing to me than no measures at all. The financial structure that fueled myriad credit bubbles, asset bubbles, economic bubbles and overliquefied the entire world is today no longer viable. Wall Street finance is at this point an unmitigated bust, with a few of the "holdout" sectors (ie the credit default market and the hedge fund community) now succumbing. The great financial alchemy of transforming endless risky loans into perceived safe and liquid "money"-like instruments has run its historic course.
RBA pumps billions into the market THE Reserve Bank is pumping money into financial markets at a record rate while nervous investors seek confirmation of the US Government's plan to rid banks of troublesome assets. The RBA yesterday accepted Authorised Deposit Taking Institution (ADI) securities worth $2.7 billion, on top of a surplus system cash position of $424 million. And the liquidity injection of more than $3.1 billion means the central bank has a record $10.7 billion out in the financial markets. Even so, long-term debt markets are still frozen, and Elstree Investment Management director Campbell Dawson said it was too early to tell whether the US Government's $US700 billion ($A840 billion) bail-out would loosen things up. "The only way you can get money is basically through banks," he said, explaining that some of the bigger requests for funds were allegedly being refused. The US House of Representatives and the Senate are scheduled to vote on the Troubled Assets Relief Program (TARP) legislation early this week but it is not clear that it has enough votes to pass the lower house. The TARP would accept responsibility for the so-called "toxic" assets held by many US financial institutions, disposing of them over several years.
US Congress's Rescue Plan Could Pose Pain For Weakest Banks A nearly final version of the federal government's rescue plan for the U.S. financial system presents some tough choices for the nations' weakest firms. The House of Representatives is likely to vote on the $700 billion measure on Monday, with the Senate moving after the House. A nearly final working draft includes provisions that will make public the prices at which the U.S. Treasury buys troubled mortgage assets from financial institutions, and will also allow Congress to recoup from participating firms any losses suffered by taxpayers after a period of five years. House Speaker Nancy Pelosi, D-Calif., on Sunday evening said that the provision giving taxpayers the right to recoup all losses from participating institutions "a major, major change" over the bill' previous format. She said the provision met "much resistance" from the administration, but is nonetheless likely to be included in the bill's final version. "In any case where there is a shortfall," for taxpayers after five years, the draft says, "the President shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall" so that any enduring cost to taxpayers "does not add to the deficit or national debt."
Plan B for Bailout Looks to New Deal For Inspiration What if it doesn’t work? Contrary to popular belief, House Financial Services Chairman Barney Frank , D-Mass., and Treasury Secretary Henry M. Paulson have a Plan B for the massive financial bailout bill, Frank said Sunday night. Should the bill (HR 3997) fail, Frank said, congressional leaders and the administration would look back to President Franklin D. Roosevelt’s New Deal for answers. But that would mean greater government intervention, not less, he warned. “Should we decide that to get us out of this hole there needs to be what was referred to under the New Deal as the Homeowners Loan Corporation . . . it may have to be a more substantial participation by the federal government,” Frank said. At the core of the current financial crisis are mortgage foreclosures - a number that reached more than 272,000 in July. Frank said the backup plan would directly address that issue. It would be based on the Home Owners’ Loan Corporation (HOLC), an agency established by Roosevelt in 1933 in the depths of the Great Depression.
It’s not just Wall Street with its back to the wall I’m in shock. Can this crisis get any worse? My instinct is it can. My deep concern is it will. This time last week, the world was breathing a sigh of relief. The “bailout” had just been announced - and share prices shot up in celebration. Financial markets were jubilant US Treasury Secretary Hank Paulson was coming to the rescue. Even inter-bank rates – what banks charge to lend to each other - were falling. So last weekend, as Paulson purred, we all saw a light at the end of the tunnel. Yet, as we now know, that light was an oncoming train. Last weekend I warned, despite the euphoria, the bailout could cause an “almighty, debilitating political dust-up”. Unfortunately, that’s what happened. Having spent the last few days in the US, I can vouch voters are very, very angry about feather-bedding a bunch of overpaid bankers. Even in New York, a city that lives and breaths high finance, the tabloids screamed “Fraud Street” - aimed directly at the Wall Street crowd.
Bailout's Bottom Line: It's a Confidence Game For all the economic debate and political wrangling, the $700 bailout package comes down to one word: Confidence. "This is about market confidence and the tools to do the job," Treasury Secretary Hank Paulson said last week during Congressional hearings on the $700 bailout plan, which is set for a House vote this afternoon. Paulson's point is financial institutions have lost confidence in each other -- credit spreads show banks are refusing to lend to each other, much less consumers or business - and only massive government intervention can restore it. The acute nature of the market was on stark display Monday as financial institutions across the globe faced disaster:
Sarkozy calls for global crisis summit Europe’s leading policymakers will convene in Paris next week to prepare the ground for a possible global summit on the financial crisis, Nicolas Sarkozy, France’s president, said on Monday. He said the Paris talks would bring together officials from France, Germany, Italy and the UK – the four European Union powers represented in the G8 group of industrialised nations – as well as Jean-Claude Trichet, the European Central Bank president, José Manuel Barroso, the European Commission president, and Jean-Claude Juncker, head of the eurozone’s finance ministers’ group. "We must not give in to the forces of destabilisation. We must support the banks. But there are structural problems. I confirm my call for a summit in coming weeks to establish the basis for a new international financial system," Mr Sarkozy said. Speaking after a summit of EU and Indian leaders in the French city of Marseille, he added: "Europe has to develop a financial and economic determination as big as the crisis that we face."
Hugo Chavez wants Venezuela to have nuclear programme Venezuelan President Hugo Chavez has announced he wants the country to develop a nuclear programme with the help of Russia. He insists, as do the Iranians, that it would be for purely peaceful purposes. "We certainly are interested in developing nuclear energy, for peaceful ends of course, for medical purposes and to generate electricity," Mr Chavez said during a political rally of his United Venezuelan Socialist Party in Caracas. "Brazil has various nuclear reactors, as does Argentina. We will have ours and Vladimir [Putin, the Russian prime minister] said Russia is ready to help Venezuela develop nuclear energy." The Venezuelan president recently returned from Moscow, where increasingly close ties were cemented with planned joint military exercises, energy accords and a Russian offer of a billion-dollar credit line to Venezuela for further arms purchases. Mr Chavez has already spent $4.4 bn on Russian aircraft, submarines and weapons. The Venezuelan president said he had forged a "profound friendship" with Mr Putin.
Venezuela to go nuclear with Russia Venezuela plans to develop its nuclear energy capacity with the help of ally Russia, Venezuelan President Hugo Chavez said in a national address. The leftist Chavez -- an outspoken critic of the United States -- said the South American country would develop a civilian nuclear energy program with Russia's help, El Universal reported Monday.
Russia says Gazprom ready to drill off Venezuela NOVO-OGARYOVO, RUSSIA: Russian Prime Minister Vladimir Putin told Reuters that Gazprom will be ready to start drilling for hydrocarbons off Venezuela by the end of October. "I am very pleased to note the launch of the first Gazprom drilling rig in the Venezuelan gulf is planned for the end of October," Putin told Venezuelan President Hugo Chavez after a meeting at his official residence on the outskirts of Moscow.
ALMOST ARMAGEDDON MARKETS WERE 500 TRADES FROM A MELTDOWN ......Without commercial paper, "factories would have to shut down, people would lose their jobs and there would be an effect on the real economy," ...... Cracks started to show in money market accounts late Tuesday when shares in one fund, the Reserve Primary Fund - which touted itself as super safe - fell below the golden $1 a share level. It had purchased what it thought was safe Lehman bonds, never dreaming they could default - which they did 24 hours earlier when the 158-year-old investment bank filed Chapter 11. By Wednesday, banks sensed a run on their accounts. They started stockpiling cash in anticipation of withdrawals. . . . .Paulson knew the $105 billion injection was not a real solution. A broader, more radical answer was needed. Hours after Paulson made his round of calls to calm the industry, word leaked out that an added $1 trillion bailout of banks was being readied. Investors cheered. At about 3 p.m., news of the plans was filtering up and down Wall Street, fueling a 700-point advance in the Dow Jones industrial average through 4 p.m. Friday. By that time, Paulson had announced the plan. It included insurance on money market accounts, a move that started in quiet Thursday morning, when the former Goldman Sachs executive saved the country from a paralyzing meltdown.
In Financial Food Chains, Little Guys Can’t Win IMAGINE, if you will, that a man who had much to do with creating the present credit crisis now says he is the man to fix this giant problem, and that his work is so important that he will need a trillion dollars or so of your money. Then add that this man thinks he is so indispensable that he wants Congress to forbid any judicial or administrative questioning of anything he does with your dollars. . . . . you should be thinking of Treasury Secretary Henry M. Paulson Jr. and the rapidly disintegrating United States of America, right here and now. . . . . In fact, there are roughly $62 trillion in credit-default swap derivatives out there, compared with about $1 trillion of subprime mortgages. These derivatives are “weapons of financial mass destruction,” in the prophetic words of Warren E. Buffett. . . .
Rep. Michael Burgess warns that "martial law" declared last night (Sat, 9.27.2008) . . . by Nancy Pelosi
Main number: 202 225 -3121 - ask for your elected officials in D.C. Our elected Senators and Representatives supposedly work for us, the taxpayers! Tell them what YOU think about the bailout proposal on the table.
Burning Down the House: What, or rather WHO (among others, Barney Frank & Barack Obama) Contributed to the Economic Crisis?
Sold to US taxpayers for $700B: banks' bad assets Congress adds oversight to $700B rescue package that sets up purchase of banks' worst assets Sold to American taxpayers for up to $700 billion: an unprecedented plan to buy distressed banks' least desirable mortgage assets. What started as a fairly simple three-page proposal giving the Treasury Secretary unchecked power to orchestrate a bailout of the country's financial system ended up as a complex rescue package, with enhanced congressional oversight, some added protections for taxpayers and a slap on the wrist to highly paid, underperforming executives. The ultimate goal of the plan remains the same: buy bad mortgage-related bets from weakened financial companies so they can raise fresh capital and resume normal lending operations to businesses, municipalities and consumers.
Bailout can't hide it - the United States is broke Even leading Republicans in Congress, including presidential nominee Sen. John McCain, recoiled from Treasury Secretary Henry M. Paulson's proposal to take absolute power over $700 billion to be borrowed by the federal government and used to purchase every sort of bad debt without ever having to answer for it - not to the courts, not to regulatory agencies, and only occasionally and incidentally to Congress itself. The bad-debt bailout would be the biggest government patronage program in history and would amount to declaring martial law over the U.S. financial system and economy. Even if such martial law is necessary, its implementation should be put in democratic hands - a non-partisan agency with full transparency, statutory standards for its purchases, and close accountability to Congress.
Too Big to Bail Every few days we hear that another leading financial institution has written down billions more on subprime investments gone bad. Nearly every major financial institution, it turns out, had a hand in loans to low-credit borrowers--borrowers whose ability to pay often hinged on endlessly low interest rates or a strong housing market. How could this happen? How could nearly all the leading lights of the financial industry--the experts in assessing and managing risk--expose themselves to such massive losses? Or, as a Fortune cover crudely put it: "What were they smoking?" A major part of the answer is: government bailout crack.
Bailout bill unveiled, heads to House Text includes some executive-pay caps, taxpayer protections Democratic congressional leaders announced their agreement on the details of a massive financial rescue plan Sunday, releasing a draft text trumpeting taxpayer guarantees and caps on executive compensation. The draft bill, entitled the Emergency Economic Stabilization Act of 2008, follows days of legislative wrangling. "This isn't about a bailout of Wall Street, it's a buy-in so we can turn our economy around," said House Speaker Nancy Pelosi in a press conference announcing the agreement. "It comes down to one word: Jobs. So we can create jobs." The bill will be introduced in the House of Representatives on Monday morning, and then will head to the Senate, said Senate Majority Leader Harry Reid.
Foreclosures are key element missing in plan $700 billion bailout likely to offer little help for struggling homeowners Hard as it is to believe, even a $700 billion bailout may not be enough to dig the economy and financial markets out of the hole they're in. By committing such a staggering sum to end the widening financial crisis, Congress and the White House are hoping to deliver a swift knockout punch to the fear gripping the global markets and economy. But to win bipartisan support, key provisions have been watered down or left vague — including any efforts to stop the wave of foreclosures at the heart of the meltdown.
The Real Reason for the Rush? One of the questions that has come up in connection with this week's scramble to pass a $700 billion bailout package for the beleaguered financial sector is: Why the rush? Why not take some time to fully explore the risks, discuss the financial, economic and political ramifications, and figure out ways to minimize the cost to taxpayers? Although those in charge have attributed their sense of urgency to fears of an imminent seize-up in financial markets, it is conceivable that policymakers could have applied a few more of the band-aids they have been using prior to now so that the issues and prospective outcomes could be examined more fully in the harsh light of day.
Who wins, who loses under proposed bailout plan? Financial industry a big winner in bailout proposal, but not so troubled homeowners The proposal to bail out U.S. financial markets to the tune of up to $700 billion creates a lot of potential short-term winners, as well as some losers. Wall Street and the banking industry are perhaps the biggest winners. Scores of banks and other financial institutions faced with going under stand to gain a lifeline that should allow them to start making loans again. Under the plan that congressional aide sought to put into final form Sunday, the Treasury Department can start buying up troubled mortgage-related securities now held by these institutions. These securities are clogging balance sheets, leaving banks without the required capital to make new loans and putting the banks dangerously close to insolvency.
Financial Troubles Humble U.S. $$ The success of the pending rescue of the U.S. financial system probably depends as much on the central banks of China and the Middle East as on Congress and the Federal Reserve. The U.S. is turning to foreign governments and other overseas investors to buy a good chunk of what could total $700 billion in Treasury debt expected to finance the bailout. Foreign investors also are needed to shore up the depleted capital of the nation's financial institutions, seen in the plan by Japan's Mitsubishi UFJ Financial Group to buy a large stake in Morgan Stanley, which is weighed down by bad debt and market distrust. This is a bittersweet moment in U.S. economic history.
A shattering moment in America's fall from power The global financial crisis will see the US falter in the same way the Soviet Union did when the Berlin Wall came down. The era of American dominance is over Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over.
Crisis puts whole of the west at risk Thursday afternoon was the moment America realised its version of capitalism is not working any more. You could feel the pain of that eureka moment from Wall Street to Main Street, where the middle class howled at the magnitude of a mooted $700bn bail-out package. The most direct expression of this epiphany was on Capitol Hill, where an apostate faction of House Republicans declared their 11th-hour opposition to the financial plan being advanced by their own president and secretary of the Treasury. Part of what was going on was political posturing ahead of the November 4 election. But at the heart of the rebellion was the fear that, as Jen Hensarling, the Texas congressman who led the resistance said, the rescue plan would lead the US down “the road to socialism”. Socialism is probably stretching it. But there is no denying that the financial crisis, and the Treasury and Federal Reserve’s response to it, mark the end of a long era of US laisser-faire capitalism and the beginning of a period of government intervention and reregulation.
What’s Free About Free Enterprise? THERE was a time, in my childhood during the Great Depression, when the streets of Manhattan were filled with unshaven men in threadbare clothes, their coat collars turned up against the cold, their shoes stuffed with newspaper to plug holes in the soles. And there were bank failures. A huge bailout plan is being hammered out in Washington precisely to avert this kind of economic calamity. The plan is needed, and it needs to be put in place quickly. But at the same time, we need to ask how the financial system came to require a rescue of this magnitude. This time around, assets are evidently so rotten in so many places that no financial institution wants to risk doing business with any other financial institution without a government backstop.
How quickly we forget the flaws of state ownership The wisdom of hindsight will be brought to bear with a vengeance this week on the pros and cons of demutualisation. The plight of Bradford & Bingley; the rescue bid by Lloyds TSB for HBOS, owner of Halifax; Alliance & Leicester’s disappearance into the maw of Banco Santander, which earlier absorbed the troubled former building society, Abbey – all this adds up to a sorry verdict on the wave of demutualisations that began under Margaret Thatcher in the 1980s. Yet before passing a devastating black and white verdict, it is worth recalling that the building societies of the pre-Thatcher era were not God’s gift to the customer. All forms of organisational ownership involve conflicts of interest. In the case of mutually-owned building societies, there was little accountability to owner-customers.
Who wins, loses in proposed bailout plan The proposal to bail out U.S. financial markets to the tune of up to $700 billion creates a lot of potential short-term winners, as well as some losers. Wall Street and the banking industry are perhaps the biggest winners. Scores of banks and other financial institutions faced with going under stand to gain a lifeline that should allow them to start making loans again. Under the plan that congressional aide sought to put into final form Sunday, the Treasury Department can start buying up troubled mortgage-related securities now held by these institutions.
Tentative accord reached on bailing out bankers Congressional negotiators and the Bush administration's top Treasury officials go to work Sunday on settling the final details of a historic $700 billion Wall Street bailout aimed at keeping credit flowing and saving the nation's shaky economy from collapsing into a crippling recession. "We've made great progress. We have to get it committed to paper so that we can formally agree," House Speaker Nancy Pelosi, D-Calif., told reporters in announcing the tentative deal shortly after midnight Sunday. Congressional leaders hope to have a House vote on the measure Monday, with a vote in the Senate coming later.
U.S. Rescue Plan Finalized, $250 Billion in Funding to be Released Up Front Congressional lawmakers have reached agreement on the final details of a $700 billion U.S. financial market rescue package that will release $250 billion of funding immediately. The 106-page document, entitled the Emergency Economic Stabilization Act of 2008, calls for $700 billion of funding to be delivered in stages. The plan will also limit compensation for executives at companies that sell mortgage assets to the Treasury. Also, companies that participate in the plan will be prohibited from offering so-called "golden parachutes". Those companies will also not be allowed to deduct executive salaries of more than $500,000.
Main Street turns against Wall Street A populist backlash is changing America's political climate. Inflamed by the financial crisis and bailouts, a form of class warfare could haunt business leaders for years to come. In one frenzied month Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke remade Wall Street. Along the way they may also have recast American politics. A month of historic government interventions shows signs of triggering a political version of climate change - unleashing a new era of class fury that could hurt U.S. companies, business leaders, and wealthy investors for years.
The current crisis was seen coming long ago and congress was warned. Want to know why nothing got done? Listen to Barney Franks' remarks when the administrations warns of impending financial trouble...
Power Shifts From N.Y. to D.C. After Wall Street's Quake, Manhattan Braces for Financial Tsunami This is the town of money -- freewheeling, high-stakes, high-risk and big-spending. The home of the $20 martini, the seven-figure bonus, the multimillion-dollar condos owned by the titans of the Street. Washington is the town of politics -- bureaucratic, stodgy, conservative. The home of cheap happy-hour beer and clean-cut young interns living in cramped quarters on the Hill, who are about making a difference, not making money. But with Wall Street hobbled by the biggest financial crisis in generations, the culture of big money has lost some of its luster. And with the Street now looking to the U.S. Treasury for an unprecedented bailout, it's suddenly Washington that has become the center of financial action -- creating, at least for this instant, an unlikely shift of power and influence.
Public anger builds over Wall St. bailout talks As politicians, financiers haggle, readers register fear, confusion, distrust As politicians and business leaders struggle to reach a deal on a $700 billion bailout for Wall Street, anger is reaching the boiling point on Main Street if readers’ e-mails to msnbc.com are any indication. In less than 48 hours, nearly 2,000 readers filled out and submitted their view of the bailout and the U.S. economy in general in response to a Gut Check America appeal asking them to vote on their top economic concern and describe how it is affecting their lives.
Compromise at top of bail-out’s agenda One of the most controversial issues was the unbridled authority the original plan gave to the Treasury secretary to buy the distressed assets he deemed necessary. The compromise legislation establishes an oversight board with the power to direct and potentially limit the secretary’s discretion. It is likely to include three heads of federal agencies (the US Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corporation) and two directors appointed by Congress. It will set up controls on conflicts of interest for investment firms hired by the Treasury to advise on the programme; establish a new Treasury inspectorate to monitor and oversee the use of the fund; require all transactions to be posted online; and make them subject to judicial review.
Backing Paulson’s bank bail-out The good news is that, after much brinkmanship, agreement has arrived on the outlines of a bail-out plan for the troubled US financial system. The bad news remains the need for such a rescue. Self-evidently, big lessons have to be learnt from the scale of the calamity. It is easy to sympathise with Republicans who oppose bail-outs on principle and Democrats who object to the generous treatment of those whose folly and greed created the current financial mess. But seizure of the credit system is now on the cards. That is not a danger a sane person should run. This scheme is indeed imperfect, but it is also the only one on offer. A sufficiently large number of members of Congress, from both sides, seem to have recognised this grim reality. They have not given Hank Paulson, US Treasury secretary, the $700bn blank cheque he demanded so importunately. But he has got most of what he wanted.
Theme is reform, not rescue, as Paulson plan goes through shredder Congress makeover shows treasury secretary out of touch with political reality The words "Wall Street" and "bail-out" are conspicuously absent from a financial plan cobbled together in Congress which is designed to look as little as possible like a rescue package for overpaid bankers. Alarmed by voters' reaction to any use of taxpayers' money to aid banks, Democrats and Republicans have filled the package with compromises, qualifications and ambiguities, to leave it far removed from the brief proposal put forward by the treasury secretary, Henry Paulson, last week.
Wall Street Seeks Signs of Response in Markets Washington hopes its sweeping bailout plan will get credit flowing again. But will it work on Wall Street? That is the $700 billion question swirling around the biggest financial bailout in American history. The first answer will come on Monday from the credit markets, where this crisis has unfolded for more than a year now. As details of the plan trickled out on Sunday, few economists saw the rescue as a quick fix. Even if the frozen credit markets thaw a bit — and many analysts say they will — the good old days of easy money are over for now. The stock market, which has lost about 17 percent this year, is bound to remain volatile. To many, a recession seems unavoidable.
Bailout vote awaited as European banks struggle U.S. lawmakers geared up to vote on Monday on creating a $700 billion government fund to buy bad debt and alleviate the financial crisis while European authorities raced to the rescue of three troubled banks. With global markets hanging on every twist and turn in Washington, European regulators on Sunday scrambled to prevent two banks from collapsing. U.S. President George W. Bush said the plan being finalized by Congress provides the tools and funding to protect the U.S. economy from a "system-wide breakdown."
Congress expected to pass rescue package Key lawmakers who struck a post-midnight deal on a $700 billion bailout for the financial industry predicted Sunday it would pass Congress, putting in place the largest government intervention in markets since the Great Depression. Flexing its political muscle, Congress insisted on a package that gives lawmakers a stronger hand in controlling the money than the Bush administration had wanted. The rescue plan casts Washington's long shadow over Wall Street with the federal government taking over huge amounts of devalued assets from beleaguered financial firms in exchange for more oversight.
Since government oversight was "fundamentally flawed" from the beginning, why should taxpayers trust promised government 'oversight on the bailout proposal?
S.E.C. Concedes Oversight Flaws Fueled Collapse The chairman of the Securities and Exchange Commission, a longtime proponent of deregulation, acknowledged on Friday that failures in a voluntary supervision program for Wall Street’s largest investment banks had contributed to the global financial crisis, and he abruptly shut the program down. The S.E.C.’s oversight responsibilities will largely shift to the Federal Reserve, though the commission will continue to oversee the brokerage units of investment banks. Also Friday, the S.E.C.’s inspector general released a report strongly criticizing the agency’s performance in monitoring Bear Stearns before it collapsed in March. Christopher Cox, the commission chairman, said he agreed that the oversight program was “fundamentally flawed from the beginning.”
Constituents oppose bailing out Wall Street 'fat-cats' Sen. Dianne Feinstein's office has heard from about 50,000 constituents since Congress began considering a financial rescue plan about a week ago - and "only one of a thousand supports it - whatever it is," the California Democrat said. Lawmakers from both parties reported similar confusion and concern among constituents as they spent their Saturday painstakingly, and sometimes painfully, trying to craft a still-elusive compromise package. Senate Majority Leader Harry Reid and Republican Leader Mitch McConnell aimed to have a final plan ready by 6 p.m. Sunday, in time for the opening of markets around the world.
Hedge Funds Are Bracing for Investors to Cash Out Even as Washington reached a tentative agreement on Sunday over what may become the largest financial bailout in American history, new worries were building inside the nearly $2 trillion world of hedge funds. After years of explosive growth, losses are mounting — and so are concerns that some investors will head for the exits. No one expects a wholesale flight from hedge funds. But even a modest outflow could reverberate through the financial markets. To pay back investors, some funds may be forced to dump investments at a time when the markets are already shaky. The big worry is that a spate of hurried sales could unleash a vicious circle within the hedge fund industry, with the sales leading to more losses, and those losses leading to more withdrawals, and so on. A big test will come on Tuesday, when many funds are scheduled to accept withdrawal requests for the end of the year.
Bailout Plan Gains Key Support $$ The emerging plan to rescue wounded U.S. financial markets received the tentative support of both presidential candidates and key lawmakers Sunday, as days of haggling over the $700 billion package appeared to be coming to a close. . . . Lawmakers plan to vote on the bailout measure on Monday. Final details haven't been released yet, but the agreement will include significant oversight of the Treasury Department's purchases of troubled assets, executive compensation restrictions, the potential for equity stakes in firms that participate in the asset-sale program, and other taxpayer protections.
Rescue bill revealed Congress details legislation to enact historic bailout of nation's financial system. Congress on Sunday made public a proposed bill that would enact a far-reaching government rescue of the financial system. The core of the bill is based on Treasury Secretary Henry Paulson's request for authority to purchase as much as $700 billion in troubled mortgage assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally.
Rival Republican bailout plan poses stark alternative Whether House Republicans accomplish what they sought by introducing a sketchy but distinctly contrarian alternative to the Bush administration's bailout plan depends on how they intended it: as a better mousetrap, an ideological line in the sand, a negotiating tactic, or a platform that will let them and their presidential candidate run against Washington, the White House and the Democrats all at once. As a straightforward alternative it is far from the "core" ideas of Treasury Secretary Henry Paulson Jr. and the Federal Reserve chairman, Ben Bernanke, ideas that the White House put forward with the utmost urgency. Instead of buying sickly mortgages with $700 billion borrowed by the Treasury, it would make financial institutions buy insurance from the government and throw in a capital gains tax cut for good measure.
Deal reached on financial markets bailout House vote could come Monday, with Senate balloting Wednesday earliest llion bailout for the financial industry predicted Sunday it would pass Congress, putting in place the largest government intervention in markets since the Great Depression. Flexing its political muscle, Congress insisted on a package that gives lawmakers a stronger hand in controlling the money than the Bush administration had wanted. The rescue plan casts Washington’s long shadow over Wall Street with the federal government taking over huge amounts of devalued assets from beleaguered financial firms in exchange for more oversight.
Bailout Deal Appears Headed to Vote $700 Billion: 'Nobody Believes That's Going to Be the Final Cost' After marathon day-and-night negotiations this weekend, the $700 billion deal to bail out the financial industry may be close to becoming reality. The Democratic chairman of the House Financial Services Committee, Barney Frank, said the House will "definitely" begin debate Monday on the rescue package. A vote could follow the same day, with the Senate possibly voting by mid-week. Democrats agreed to the deal after accepting compromises demanded by some conservative Republicans and moderate Democrats.
Bailout deal vote, market verdict awaited U.S. lawmakers pushed to finalize a deal to create a $700 billion government fund to buy bad debt and halt the financial crisis as European regulators scrambled to prevent two banks from collapsing. However, questions abound as to whether the U.S. financial rescue plan, which would use taxpayer funds to buy up toxic mortgage debt, would restore confidence to shaky markets and head off a deeper downturn.
Payback provision in US bail-out plan The US financial services sector could be forced to reimburse the US government for any losses on its $700bn rescue plan under a breakthrough agreement that paves the way for congressional approval as early as Monday. After a weekend of frenzied talks, Hank Paulson, the Treasury secretary, and Nancy Pelosi, the Democratic House speaker, announced early on Sunday that a tentative deal had been reached authorising the government to buy up to $700bn of troubled assets from financial institutions. The deal envisages historic restrictions on executive pay for banks involved in the programme and opens the door for the government to take equity warrants in those institutions.
Pelosi: This is not a bailout, it’s a buy-in House vote could come Monday, with Senate balloting Wednesday earliest Congressional leaders and the White House agreed Sunday to a $700 billion rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House for a vote Monday. The plan, bollixed up for days by election-year politics, would give the administration broad power to use billions upon billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
Boutiques provide a glimpse of a new-look Wall Street A few short weeks ago, way back on September 4, the unthinkable happened: a Wall Street investment bank – Lazard – sold $265m worth of its own stock to the public in an underwritten offering. What is more, this was a secondary offering of shares, meaning that the proceeds flowed into the pockets of the selling shareholders – in this case a long list of the bank’s most senior executives – and none of the proceeds went into the company, which has been around since 1848 and has never needed much more than a drop of capital to operate profitably anyway. The offering flew out the door. Huh? That this offering occurred at the precise moment when the pluralistic investment banking system that has thrived for so long now seems to be coming apart at the seams makes the Lazard offering all the more remarkable. But it also provides a glimpse into what the post credit-crisis Wall Street will look like.
Breakthrough Reached in Negotiations on Bailout Congressional leaders and the Bush administration reached a tentative agreement early Sunday on what may become the largest financial bailout in American history, authorizing the Treasury to purchase $700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse. Officials said that Congressional staff members would work through the night to finalize the language of the agreement and draft a bill, and that the bill would be brought to the House floor for a vote on Monday. The bill includes pay limits for some executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures.
Lawmakers Reach Accord on Huge Financial Rescue Vote on $700B Bailout Plan May Come as Early as Monday Congressional leaders and the Bush administration this morning said they had struck an accord to insert the government deeply into the nation's financial markets, agreeing to spend up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages. House and Senate negotiators from both parties emerged with Treasury Secretary Henry M. Paulson Jr. at 12:30 a.m. from a marathon session in the Capitol to announce that they had reached a tentative agreement on a proposal to give Paulson broad authority to organize one of the biggest government interventions in the private sector since the Great Depression.
Lawmakers work to nail down $700B bailout plan Lawmakers work to nail down financial rescue plan details, which House GOP still must review Key lawmakers who struck a post-midnight deal on a $700 billion bailout for the financial industry predicted Sunday it would pass Congress, putting in place the largest government intervention in markets since the Great Depression. Flexing its political muscle, Congress insisted on a package that gives lawmakers a stronger hand in controlling the money than the Bush administration had wanted. The rescue plan casts Washington's long shadow over Wall Street with the federal government taking over huge amounts of devalued assets from beleaguered financial firms in exchange for more oversight.
Congress aims to finalize rescue bill on Sunday The federal government would provide as much as $700 billion in a far-reaching plan to rescue the nation's troubled financial system, according to a draft of the proposed bill obtained by CNN. The legislation is still being negotiated and elements of the bill could still change. The core of the bill is based on Treasury Secretary Henry Paulson's request for authority to purchase troubled assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally.
Congress, White House reach financial bailout deal Congressional leaders and the Bush administration reached a tentative deal early Sunday on a landmark bailout of imperiled financial markets whose collapse could plunge the nation into a deep recession. House Speaker Nancy Pelosi announced the $700 billion accord just after midnight but said it still has to be put on paper. "We've still got more to do to finalize it, but I think we're there," said Treasury Secretary Henry Paulson, who also participated in the negotiations in the Capitol.
U.S. Democrats seek Wall Street tax in bailout plan Democrats in the U.S. House of Representatives are pushing for a new Wall Street tax that would cover the potential costs of a $700 billion bailout being negotiated by Congress and the Bush administration. U.S. House Speaker Nancy Pelosi, speaking to reporters after a meeting with fellow Democrats, said the fee could be assessed after five years if the non-partisan Congressional Budget Office determined taxpayers had lost money in the bailout. "If after five years ... the CBO decides that the American taxpayer has lost money in this, then there would be a fee on financial institutions," Pelosi said, adding that she hoped the provision could be part of a final bailout deal.
Advocates Demand Congress Put Bailout Details on Internet The prospect of a gargantuan $700 billion Wall Street bailout agreement presents a prime opportunity for Congress, and in particular the presidential candidates, to live up to their promises of using the internet to free themselves of undue influence. When Congress rushes through important legislation such as this upcoming bill, extraneous items of questionable merit are usually thrown in during the final stretch of the haggling process among key staff members behind closed doors.
Whose conservatism is it? When President George W. Bush went before the nation Wednesday evening to speak about the crisis on Wall Street, he declared that "my natural instinct is to oppose government intervention." But his ultimate recommendation to the American people was the $700 billion bailout plan outlined by his Treasury secretary, Henry M. Paulson Jr. That proposal is seen by some as the latest evidence that the Republican Party has embraced the "big government" ideology of the Democrats. Unsurprisingly, there has been a revolt on the right.
Stopping a Financial Crisis, the Swedish Way A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar? It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent. But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing. Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
Washington’s waning way: how bail-outs poison a free market recipe for the world Debating with Al Gore in the presidential election eight years ago, George W. Bush defined a new, humbler attitude towards the rest of the world. “I’m not so sure the role of the United States is to go around the world and say, ‘this is the way it has got to be’,” he said. “I just don’t think it’s the role of the United States to walk into a country and say: ‘we do it this way, so should you’.” In one area Mr Bush might be about to get his wish, though not perhaps in the way he expected. The events of the past few weeks on Wall Street have handed ammunition to the opponents of free markets well outside the financial sector and way beyond America’s shores. A model of freewheeling finance the US has pushed around the world, which had already undergone some tactical withdrawals over the past decade, appears in headlong retreat.
Wall Street, R.I.P.: The End of an Era, Even at Goldman WALL STREET. Two simple words that - like Hollywood and Washington - conjure a world. A world of big egos. A world where people love to roll the dice with borrowed money. A world of tightwire trading, propelled by computers. In search of ever-higher returns - and larger yachts, faster cars and pricier art collections for their top executives - Wall Street firms bulked up their trading desks and hired pointy-headed quantum physicists to develop foolproof programs.
Congress fiddles while Rome burns Just nine days ago - Thursday, Sept. 18 - financial Armageddon was warded off when word began to leak about the government's giant bailout plan. The news first broke around 2:10 p.m., New York time, when Bloomberg News moved an article quoting Senator Charles Schumer, Democrat of New York, as saying the government was considering a "permanent" plan to address the financial crisis. (In fact, as Schumer told me later, he had not meant for his words to sound so definitive; he really didn't know the planning was so far along.) Then, less than an hour later, CNBC reported that a plan was being readied by the Treasury Department along the lines of the savings-and-loan bailout of the 1980s. That did it. In the time between the Bloomberg article and the CNBC report, the stock market rose 145 points. In a 45-minute burst right after the CNBC report, stocks rose another 270 points. The Dow closed up 410 points.
What $700B Won't Buy: A Quick Fix for the Economy Not even $700 billion will be enough to spare the United States from more economic anguish if the government's proposed banking bailout pans out like similar desperation moves during the past two decades. It usually takes years to recover from a financial crisis severe enough for politicians to ride to the rescue with truckloads of taxpayer money. Take, for example, the U.S. government's August 1989 bailout of the savings-and-loan industry. The stock market fell by 12% within the first 14 months of the rescue plan while the economy slipped into an eight-month recession that began in July 1990. Housing prices that had just begun to erode continued to fall for another three years.
Auto Makers, DOE at Odds on Loans $$ U.S. auto makers may not have access to a proposed $25 billion loan package for at least 18 months, Bush administration officials said, setting up a potential clash with congressional lawmakers. The loan package to help companies meet stricter fuel-economy standards was passed by the U.S. House on Wednesday and is expected to be passed by the Senate as soon as Saturday. The president is expected to sign the bill. Detroit's Big Three auto makers -- General Motors Corp., Ford Motor Co. and Chrysler LLC -- said it is critical they get the low-interest loans soon so they can begin retooling auto plants to make hybrids and other fuel-efficient vehicles. As sales plummet and credit markets tighten further, their need for the loans has become increasingly urgent.
Big Banks and Bumbling Idiots The really chilling news is that investment banks are being changed into commercial banks, which gives them the right to create - out of thin air, and then loan - money using fractional-reserve banking! Yikes! They are now banks! These greedy, thieving, lying, staggeringly stupid weenies who are at the epicenter of the biggest financial catastrophe in American history are now being given the right to increase the money supply at their whim to satisfy the willingness of customers, and themselves, to borrow the money! Astounding!
Citigroup and Wells Fargo Said to Be Bidding for Wachovia Citigroup and Wells Fargo were locked in a bidding war on Sunday over a possible emergency takeover of the Wachovia Corporation, people involved in the talks said. The intense negotiations come as concern grew about Wachovia’s stability on Friday, these people said, despite a breakthrough reached Sunday by Congressional negotiators on a $700 billion bailout for the financial system. The government, led by the Federal Reserve and Treasury Department, has been involved in the talks as well, these people said. But so far, the government is resisting pressure to help bidders by guaranteeing a part of Wachovia’s assets the way it did for Bear Stearns when it was sold to JPMorgan Chase in March. The government has also opposed taking over Wachovia the way it did Washington Mutual last week, these people said, unless its financial position deteriorates more rapidly.
'Hope for Homeowners,' Still Long in Coming We interrupt this financial crisis with a word from its sponsor: the families who are losing homes to foreclosure. They're still circling the drain, to pick up on Federal Reserve Chairman Ben S. Bernanke's colorful metaphor describing credit markets as the economy's plumbing. Right now, the plumbing is clogged with bad securities backed by bad home mortgages. The federal bailout is designed to free up the system. A separate bailout for troubled homeowners is supposed to launch this week. The new "Hope for Homeowners" program, passed in late July, is scheduled to go into effect Wednesday. (That's lightning speed by government standards.) It's designed to allow refinancing for people who cannot pay their mortgage and who can't refinance into something better because their home value is now too low to pay off the unaffordable old loan.
How Fannie -- and You -- Bought a Hapless House The American taxpayers own Yellowstone, Yosemite, the Grand Canyon, dozens of parks, monuments, wildlife refuges, forests, pastureland, government complexes and historic sites. And now, for all intents and purposes, the American people are the major stakeholders in a little townhouse at 14746 Barksdale St. in Dale City. The titular owner is Fannie Mae, which the U.S. government effectively subsumed this month, though the legal machinations are still ongoing. With the Treasury backing Fannie Mae, taxpayers have a huge interest in the fate of the mortgage giant's assets. They include the 1,296-square-foot, two-level, three-bedroom, 1 1/2 -bath house on Barksdale.
Behind Insurer’s Crisis, Blind Eye to a Web of Risk "It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions." - Joseph J. Cassano, a former A.I.G. executive, August 2007 Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster. As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help. The only Wall Street chief executive participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern. Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements.
Want to know if it works? Watch the banks Earliest measure of success will be how key interest rate is affected The New Deal it is not. The government's biggest economic bailout since the Great Depression is aimed not at relieving unemployment or reforming questionable business practices, but at resuscitating financial markets debilitated by lousy bets on the housing market. Put simply, the hastily crafted plan lawmakers agreed to in principle on Sunday is intended to revive jittery and fragile banks on Wall Street with enough money — by using taxpayer funds to purchase billions upon billions of their worst mortgage-related assets — so that lending, the lifeblood of the American economy, flows freely again.
A successful bailout? Watch lending between banks Bailout's success will be evident once banks begin lending freely to each other -- and then us The New Deal it is not. The government's biggest economic bailout since the Great Depression is aimed not at relieving unemployment or reforming questionable business practices, but at resuscitating financial markets debilitated by lousy bets on the housing market. Put simply, the hastily crafted plan lawmakers agreed to in principle on Sunday is intended to revive jittery and fragile banks on Wall Street with enough money -- by using taxpayer funds to purchase billions upon billions of their worst mortgage-related assets -- so that lending, the lifeblood of the American economy, flows freely again.
Bailout Too Late to Matter Much Not even $700 billion will be enough to spare the United States from more economic anguish if the government's proposed banking bailout pans out like similar desperation moves during the past two decades. It usually takes years to recover from a financial crisis severe enough for politicians to ride to the rescue with truckloads of taxpayer money. Take, for example, the U.S. government's August 1989 bailout of the savings-and-loan industry. The stock market fell by 12 percent within the first 14 months of the rescue plan while the economy slipped into an eight-month recession that began in July 1990. Housing prices that had just begun to erode continued to fall for another three years.
Day of Reckoning for Uncle Sam How did the United States of America, the richest nation on earth, whose economy represents 30 percent of the global economy, arrive at the precipice of a financial panic and collapse? The answer lies in the abject failure of both America's financial elite and the political elite of both parties – the same elites now working together to determine how much of our wealth will be needed to bail the nation out of the crisis of their own creation. Big Government is riding to the rescue – saddlebags full of our tax dollars – to save us from the consequences of the stupidity and folly of Big Government. New York and Washington, the twin cities responsible for the crisis, are now being hailed by the media as the 7th Cavalry, coming to rescue a beleaguered nation.
Buffett warns Congress Lawmakers face "biggest financial meltdown in American history" if they don't act. Legendary investor Warren Buffett warned Congressional leaders Saturday night of "the biggest financial meltdown in American history" if they did not act to secure the financial system. Buffett, by telephone, was consulted by lawmakers who were in marathon talks on Capitol Hill to forge a deal on the administration's $700 billion economic bailout plan, according to two sources. One lawmaker in the negotiations said that the participants called Warren Buffett to get his help in gauging potential market reaction.
Bank CEOs Made Billions Before Crash As the backlash builds around the country to the proposed $700 billion bailout of Wall Street, a shocking new figure is making headlines. It turns out that the five biggest investment banks gave their top execs more than $3.1 billion over the last five years alone, doubling their pay even as those executives made the decisions that landed the country in this huge mess. From Bloomberg News, here's a couple of highlights: Merrill Lynch paid $172 million to former CEO Stan O'Neal. It paid another $86 million to CEO John Thain, for a month's work, before Bank of America bought the firm. And Bear Stearns managed to give $161 million to CEO Jimmy Cayne before it was taken over by the government. Treasury Secretary Henry Paulson, the architect of the current bailout plan, got $111 million between 2003 and 2006. He was CEO of Goldman Sachs before coming to Washington.
After the Deal, the Focus Will Shift to Regulation Even before Congress passes a $700 billion bank bailout that nearly all legislators believe to be both necessary and unpopular, the jostling has begun over legislation that may prove to be the first test for the next president: How to reshape the financial system and its regulation. It is clear that the old system failed — it wouldn’t need the bailout otherwise — but the diagnosis of why that happened may be crucial in deciding what changes are needed. Already, liberals are blaming the deregulation that began under Ronald Reagan for letting a financial system get out of control, and conservatives are pointing to market interventions by liberals — notably efforts to assure mortgage loans for the poor and minorities — as being the root cause of the mess.
Buffett's Nuclear Bargain Warren Buffett has gotten a lot of ink for his $5 billion investment in Goldman Sachs, but his other deal - the $4.7 billion takeover of Constellation Energy Group - might have been an even better one. How good a deal? Think about it this way. To build a brand new nuclear plant - assuming you can get the permits and the loans - would cost about $6 billion (at least), take about 10 years, and in the end would produce about 1,000 megawatts. Buffett has bought himself a company with 9,000 megawatts of electric power production, including four nuclear plants, for less than the price of a single new nuclear unit. Oh, and he also got the Baltimore utility, an energy trading operation and a few other odds and ends, too. Of course those Constellation nuclear plants aren't new. But they're also generating relatively cheap electricity now, and for the next few years electricity costs are almost definitely heading up. And if Congress and the next president agree on a cap-and-trade approach to climate change legislation that puts a price on carbon emissions, those nuclear plants will be even more profitable.
GM Claims 100 Miles-a-Gallon Volt 'Bragging Rights' General Motors Corp. said it reached a preliminary agreement that clears the way for U.S. regulators to certify the Chevrolet Volt, an electric vehicle that can be recharged at home or with a 1.4-liter gasoline engine, as the first 100 mile-per-gallon car. The country's biggest automaker, whose sales of pickup trucks and sport-utility vehicles collapsed this year as gasoline topped $4 a gallon, is cutting the mileage deal while urging Congress to approve $25 billion in government loans to help the industry meet new federal fuel-economy standards.
Hong Kong investors in Lehman protest again Hong Kong investors in Lehman Brothers stage another protest over banks' sales methods Investors in Lehman Brothers in Hong Kong held their second protest in a week on Sunday, accusing local banks of misleading them about investment products backed by the failed U.S. investment bank. Holding signs that said "Return my blood money" and "Crafty salesmanship, sugarcoated poison," about 400 people marched through Hong Kong's Central financial district to nearby government headquarters. The protesters complained that banks that sold them Lehman-backed bonds didn't properly explain the products to them and urged the Hong Kong government to better regulate methods of selling investment products.
Israeli Banks Can Cope With Credit Woes, Fischer Says Israeli banks are financially "strong" and can cope with the impact of the global credit crisis, Bank of Israel Governor Stanley Fischer said in an interview with Israel Radio. "Our financial system is integrated into the world, so there will be an impact," Fischer said in a recorded interview broadcast today. "But our financial system, in particular the banks, is very, very strong. We can't know how changes in the world in the long term will hurt our financial system. We have to be prepared."
Fortis Gets EU11.2 Billion Rescue From Governments Fortis, the largest Belgian financial-services firm, received an 11.2 billion-euro ($16.3 billion) rescue from Belgium, the Netherlands and Luxembourg after investor confidence in the bank evaporated last week. Belgium will buy 49 percent of Fortis's Belgian banking unit for 4.7 billion euros, while the Netherlands will pay 4 billion euros for a similar stake in the Dutch banking business, the governments said in a statement late yesterday. Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis's banking division in that country.
U.S. installs early-warning radar in Israel to warn against Iran attack JERUSALEM: The U.S. Army has deployed an advanced American radar system on Israeli soil, an official here said Sunday, allowing early detection of incoming ballistic missiles and enhancing Israel's defensive capability against any future attack by Iran. The system will at least initially be operated by an American crew. No official announcement has been made by either side about the arrival of the system. The Israeli Army said in a statement that while it "enjoys longstanding strategic cooperation" with all branches of the American military, it is not its practice to discuss details of the bilateral activities. But an official confirmed a Sept. 26 report published by Defense News weekly saying that the system had been flown to Israel in parts over the past week and was being installed in the Negev. He added that it would serve not only Israel, but the Americans, too.
Chavez says Venezuela will develop nuclear power President Hugo Chavez said on Sunday Venezuela will develop a nuclear reactor for peaceful purposes, in another challenge to Washington just days after Russia offered nuclear assistance to the socialist Latin American leader. "In Venezuela we are interested in development of nuclear energy, of course for peaceful purposes, for medical purposes, for purposes of electricity generation," Chavez said at a political rally. "Brazil has various nuclear reactors, so does Argentina. We will have ours."
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Time is running out Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike. The events of the past week are no exception. The bailout package that is about to be rammed down Congress’ throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters." That describes the current bailout package to a T. And we’re being told it’s unavoidable. The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences - predictable, that is, to those who understand sound, Austrian economics - are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!
RON PAUL SAYS "CALL THEM" With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.
Main number: 202 225 -3121 - ask for your elected officials in D.C. Our elected Senators and Representatives supposedly work for us, the taxpayers! Tell them what YOU think about any Bailout. WaMu was resolved without a taxpayer backstop.
Political Posturing, with focus on Bailout Battle, at the Clinton Global Initiative on Thursday, Sept 25, 2008. Be aware of and follow this NGO's global agenda at the Conference via the CGI Web site.
Bailout Outrage Races Across the Web The Internet is flooded with angst about Treasury Secretary Paulson's proposed $700 billion bailout- and inspiring old-fashioned street protests Arun Gupta was enraged as he learned the details of Treasury Secretary Henry Paulson's plan to fix the U.S. banking system with $700 billion in taxpayer funds. The 43-year-old copy editor and freelance journalist, who publishes his own alternative newspaper, The Indypendent, needed to channel his angst but couldn't find a live protest to attend. So on Sept. 22, he sent an e-mail to some politically active friends in New York. Within days, they'd planned a protest against the bailout in New York and at 80 other locations in the U.S. on Sept. 25. "I couldn't sit back while this plan gets rammed through Congress," says Gupta. "We live in a digital world, but change has to happen in an analog world. We married the two—the Internet helped us organize like wildfire." Gupta, now working with the online organization truemajority.org, says he expects hundreds and possibly a thousand protesters to converge at the protest near Wall Street. Protesters plan to build a pile of "citizen junk" that the government should also purchase in front of the iconic bull sculpture.
NO AMNESTY FOR WALL STREET At the time of this writing, the U.S. House and Senate are poised to pass a $700 billion bailout to Wall Street. At the behest of President George W. Bush, the U.S. taxpayers are going to be on the hook for what can only be referred to as the biggest fraud in U.S. history. Virtually our entire financial system is based on an illusion. We spend more than we earn, we consume more than we produce, we borrow more than we save, and we cling to the fantasy that this can go on forever. The glue that holds this crumbling scheme together is a fiat currency known as the Federal Reserve Note, which was created out of thin air by an international banking cartel called the Federal Reserve. According to Congressman Ron Paul, in the last three years, the Federal Reserve has created over $4 trillion in new money. The result of all this "money-out-of-thin-air" fraud is never-ending inflation. And the more prices rise, the more the dollar collapses. Folks, this is not sustainable.
What's at stake for the economy First, the good news: Even if warnings of economic catastrophe aren't enough to win approval of a controversial $700 billion Wall Street bailout, the economy is not at risk of falling into a depression, most experts agree. During the Great Depression, unemployment shot up to as much as 25% in 1933. That came after the gross domestic product, the broadest measure of economic activity, plunged 13% the previous year. Millions of people lost their savings when banks closed without any insurance for its customers' deposits. Few economists are predicting economic pain of that magnitude. Now the bad news: Even if the plan to buy up bad mortgage debt from troubled banks and Wall Street firm does pass, it probably won't be enough to stop the economy from getting worse than it is today.
Alabama Senator Calls Plan 'Flawed From the Beginning' Everything seemed to be headed toward a deal -- and then Sen. Richard C. Shelby emerged from the White House with a bit of bad news. "We hadn't got an agreement," said Shelby (Ala.), the ranking Republican on the Senate banking committee. "There's still a lot of different opinions. Mine is: It's flawed from the beginning." Shelby has made no secret of his distaste for the plan all week. His strong opposition was a primary reason that Sen. Robert F. Bennett (Utah), a close friend and political ally of Senate Minority Leader Mitch McConnell (Ky.), was leading talks on the package for Senate Republicans. But it is also what made Shelby's inclusion in White House talks, which were designed to reach agreement on a $700 billion recovery plan, something of a surprise. Inviting a lawmaker completely opposed to a plan to a negotiation usually is not a recipe for reaching a deal. Then again, those around the table could count on him to represent the contrary view, a familiar position for him.
Fed reaches $13B deal The U.S. central bank expands currency deals with the European Central Bank and the Swiss National Bank in effort to increase dollar liquidity. The U.S. Federal Reserve Bank announced an expansion of deals with European nations Friday in an effort to stabilize global financial markets. The Fed said it is boosting reciprocal-currency arrangements with the European Central Bank and the Swiss National Bank by $13 billion. The agreement allows the Fed to make another $13 billion available to the two central banks. In return, the Fed will receive the reciprocal amount of foreign currency from each country. Under these types of arrangements, the currency 'swaps' get unwound at a later date. The U.S. central bank's move to increase liquidity by reaching out to other countries is part of a larger effort to restore some level of confidence to Wall Street
Fed pumps out more dollars Fed increases deals with ECB, Swiss National bank to provide $13B to banks in Europe; U.S. banks, Wall Street firms also increase their borrowing from Fed. The Federal Reserve expanded deals early Friday morning with two of its counterparts in Europe in order to make an extra $13 billion available to banks there, after reporting increased lending to U.S. banks and Wall Street firms. The deal will have the Fed provide $10 billion to the European Central Bank and $3 billion to the Swiss National Bank. In return, it will receive a reciprocal amount of foreign currency from each country. The $13 billion comes on top of the $277 billion in such swap deals that had previously been announced, including $110 billion with the ECB and $27 billion with the Swiss National Bank.
US Mint suspends sale of 24-karat gold coins The U.S. Mint is temporarily halting sales of its popular American Buffalo 24-karat gold coins because it can't keep up with soaring demand as investors seek the safety of gold amid economic turbulence. Mint spokesman Michael White said Friday that the sales were being suspended because demand for the coins, which were first introduced in 2006, has exceeded supply and the Mint's inventory of the coins has been depleted. The Mint had to temporarily suspend sales of its American Eagle one-ounce gold coins on Aug. 15 and then later that month announced sales of the American Eagle coins would resume under an allocation program to designated dealers. White said the Mint expected to soon start distributing available Buffalo gold coins through a similar allocation program. Through Thursday, the day the Mint suspended sales of the American Buffalo, the Mint had sold 164,000 of the coins this year, up 54 percent from the same period a year ago.
Gold jumps above $920 on bailout worries Gold surges above $920 as bailout worries spur safe-haven buying; crude declines Gold prices briefly jumped above $920 an ounce Friday as a stalled plan to bail out the U.S. financial system unnerved investors and prompted a flight into safe-haven assets. Silver also rose. In other commodities trading, crude oil turned slightly lower on worries that failure to approve the $700 billion rescue package would deepen the economic crisis and further curtail U.S. energy demand. Agriculture futures also fell. Investors fixated on Washington as lawmakers huddled in meetings in hopes of sealing an agreement on the package that would win approval in both houses of Congress. The White House-backed measure would create a repository for billions of dollars of banks' bad mortgage-related debt and other risky assets. Republican lawmakers rejected the plan Thursday and proposed dramatic changes, though officials from both parties said Friday they were making progress.
Wachovia, Citigroup in early merger talks Wachovia Corp has begun preliminary merger talks with Citigroup Inc, the New York Times said on Friday, a move that would combine two giant U.S. banks battered by the global credit crisis. The talks are early and no transaction may emerge, the newspaper said, citing people briefed on the matter. Wachovia's market value was about $21.6 billion as of Friday's market close, and Citigroup's was $109.7 billion, according to Reuters data. Wachovia spokeswoman Christy Phillips-Brown declined to comment. Citigroup did not immediately return calls.
Wachovia, National City tumble on bailout, WaMu Wachovia Corp and National City Corp shares tumbled as talks on a $700 billion government bailout of the financial sector stalled and regulators seized Washington Mutual Inc. Investors fear a collapse of bailout talks could prolong the freeze in parts of the credit markets and worsen losses on bank balance sheets from troubled mortgages and other loans. "You're talking about the largest failure in banking history, so there is going to be a negative reaction, right?" said William Smith, president of Smith Asset Management in New York. "What you're going to see is the strong stronger and the weak are going to die off."
"Banker to poor" has suggestion for bankers to rich If Wall Street's storied investment banks need help easing their financial woes, they would do well to look to the world's humblest lenders, Nobel Peace Prize laureate Muhammad Yunus said on Friday. Yunus, nicknamed "banker to the poor," won the Nobel in 2006 for inspiring a global microfinance movement that has lifted millions out of poverty by granting tiny loans. Started 30 years ago with a $27 loan to women in Bangladesh, his Grameen Bank has mushroomed by providing credit to poor people who do not have access to mainstream banking. Unlike Wall Street, which is reeling from a flood of loans that may never be paid back, Grameen bank has a recovery rate of more than 98 percent.
The frozen pipes of credit Stalled bailout talks and the largest bank failure in history keep already anxious lenders from issuing loans. Just when it looked like relief was on its way, credit markets seized up again Friday. With the Treasury's $700 billion financial industry bailout proposal in jeopardy, and with Thursday night's collapse of an agreement and subsequent JPMorgan Chase takeover of Washington Mutual - the largest bank failure in the nation's history - bank lending has again stalled. "Things have frozen over again," said Steve Van Order, chief fixed income strategist with Calvert Funds. "Banks are nervous about lending to each other, and the commercial paper market has come to a standstill."
List of no-short stocks is expanding Stock exchanges now are maintaining lists of companies that can't be shorted, and perhaps fittingly, the "no-short" lists keep getting longer and longer — and they are adding some unexpected names. This week, almost 100 companies have been added to the New York Stock Exchange's list of stocks traders aren't allowed to short, including some surprising names like tech-services titan IBM and drugstore operator CVS Caremark Corp. On Sept. 19, the Securities and Exchange Commission temporarily banned short selling of 799 financial stocks, preventing investors from betting they would fall, in order to help shore up confidence. The agency then asked major stock exchanges to draft their own list of stocks that shouldn't be shorted. The NYSE started with a list of 204 stocks, and that list had grown 299 as of Thursday, and includes many financial firms. But some of the stocks on the no-short list have minimal connections to finance, or an unexpected connection.
190 Economists against bailout To the Speaker of the House of Representatives and the President pro tempore of the Senate: As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan.
We Don't Need to Be Rescued (video) Frank Curzio and David Peltier think that the market will be just fine without a rescue.
Discount Window Borrowings: $262 Billion I wrote a few weeks ago when Lehman collapsed or AIG collapsed that observing the financial markets today is like reading financial science fiction. This another unprecedented evening after an unprecedented day. There is no history to consult and no markers to guide us. We are flying seat of the pants and at the moment it appears that the pilot has had a heart attack and is slumped over the control panel. We have all read about the collapse of the rescue plan as hopes for a package faded TS Eliot style “not with a bang but a whimper”. I am fearful for the markets tomorrow as the already much stressed markets confront this latest blow to confidence. Consider the level of Discount Window borrowings in the week ended Wednesday: $262 billion. As the Romans said,”res ipsa loquitur” which in English translates to “the thing speaks for itself”.
In crisis, banks pullback consumer credit card limits After a weekend getaway in New York City, Joseph Lanza logged onto his Bank of America Visa account and was shocked to see that his line of available credit had been reduced to $1,000 from $3,800. Because of the recent charges from his trip, his balance was $970, dangerously close to his credit limit. "I had been trying to pay my debt down to improve my FICO score and also my debt-to-credit ratio," said Lanza, 26, who works at an investment firm in New Hampshire. But despite making timely payments and keeping careful track of each charge, he said, "It feels like I'm running up against a bunch of walls." Betty Riess, a spokeswoman for Bank of America, said she was unable to address the specifics of Lanza's account, but she did say the bank is "taking a more aggressive look at accounts to control risk, given the current environment."
Need for action on the banking panic Banks are not to be trusted. This is not just the view of the public and policymakers, but that of the banks themselves. Spreads on unsecured inter-bank lending have reached unprecedented levels, particularly in dollars and, to a lesser degree, sterling. Such stresses cannot continue for long, without serious damage to both the financial system and the economy. Something has to be done. The question is: what? Thursday’s spread over one month between the London interbank offered rate and future expected policy rates was close to 200 basis points for dollar loans and 120 basis points for sterling ones. In the case of dollar loans, the spread was nearly twice as high as at any point since the crisis began in August 2007. Market stress has evidently reached frightening levels. If lenders demand huge spreads for such short periods, they are either tightly constrained in their ability to lend, deeply concerned about the solvency of counterparties, or engaged in predatory behaviour. Whichever of these possibilities is true, credit to the economy will dry up. If banks do not trust banks, what do they trust? The answer is: only the government.
Bailout Negotiations in Disarray $$ Treasury's $700 Billion Proposal Hits Stalemate; Dramatic Gesture by Paulson Wrangling among the nation's top political leaders threw the Bush administration's $700 billion bailout plan into disarray late Thursday, despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal. Negotiators broke off talks Thursday night with no agreement and with plans to reconvene in the morning, without House Republicans. It was the Republicans' surprise championing of a competing plan late Thursday that derailed a carefully crafted compromise previously taking shape. Also raising the stakes: The demise of Washington Mutual Inc., the largest banking failure in U.S. history, sent a fresh message to Washington of the fragility of the financial system.
Bailout Would Add Urgency to Washington Handoff Filling Positions at Treasury Quickly Considered Critical The Bush administration's proposed bailout plan for financial firms is ratcheting up interest in how quickly the next administration will be able to move new leaders into the federal agencies dealing with the crisis. The question is particularly urgent in the case of the Treasury Department. The rescue plan proposed by the administration would give the department responsibility for buying from financial firms as much as $700 billion of the souring mortgages and mortgage securities that are at the heart of the financial crisis. Although the Treasury Department would in turn hire asset managers to buy and dispose of assets, political responsibility for overseeing those contractors would lie with a new Treasury secretary, assuming the plan is approved by Congress.
WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History $$ In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co. The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country's financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corp., could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank-insurance fund. Instead, J.P. Morgan agreed to pay $1.9 billion to the government for WaMu's banking operations and will assume the loan portfolio of the thrift, which has $307 billion in assets. The full cost to J.P. Morgan will be much higher, because it plans to write down about $31 billion of the bad loans and raise $8 billion in new capital. All WaMu depositors will have access to their cash, but holders of more than $30 billion in debt and preferred stock will likely see little if any recovery.
Government Seizes WaMu and Sells Some Assets Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history. Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution. The move came as lawmakers reached a stalemate over the passage of a $700 billion bailout fund designed to help ailing banks, and removed one of America’s most troubled banks from the financial landscape. Customers of Seattle-based WaMu, with $307 billion in assets, are unlikely to be affected, although shareholders and some bondholders will be wiped out. WaMu account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100,000.
White House calls in big guns as bailout battle rages The Bush Administration tried to tighten the screws on squabbling members of Congress on Friday as an increasingly bitter Washington debate over a $700 billion financial rescue held Wall Street in thrall. President George W. Bush acknowledged that there were disagreements over the plan, which is aimed at getting bad debts off of banks' books and reviving frozen credit markets that threaten to plunge the U.S. economy into a deep recession. But he said he expected Congress to end up passing legislation. "There are disagreements over aspects of a rescue plan but there is no disagreement that something substantial must be done," he said told reporters at the White House.
Latest Bailout Plan Spin: Its a Money Maker! Most people are unfamiliar with the evolution of financial management over the years. It began as a clubby old boys network, who you knew mattered more than what you knew. It evolved over time. Starting in the late 1970s, retail stock brokerage became a telemarketing sales business. Although that model is clearly changing, there is still trillions of assets under management today that got that way via the cold call. The cold calling sales approach was developed and refined at Lehman Brothers (perhaps their collapse was Karma). It was encapsulated by a man named Martin D. Shafiroff, who wrote up, refined and perfected various phone techniques. These include the straight line, the first trade, the trust close. All of his various techniques were published in the book "Successful Telephone Selling in the '80s" and subsequent editions ('90s, etc.)
JPMorgan Buys WaMu Bank Business as Thrift Seized JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to acquire Washington Mutual Inc.'s deposits and branches for $1.9 billion after regulators seized the thrift in the biggest bank failure in U.S. history. Customers withdrew $16.7 billion from WaMu accounts since Sept. 16, leaving the Seattle-based bank "unsound," the Office of Thrift Supervision said today. WaMu's branches will open tomorrow and customers will have full access to all their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said on a conference call. WaMu's fate played out as Congress debated an accord to end the global credit crunch that drove Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the hastily arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos., which was itself absorbed by JPMorgan. WaMu in March rebuffed a takeover offer from JPMorgan Chief Executive Officer Jamie Dimon that WaMu valued at $4 a share.
Risk of Paulson failing has the markets frozen with fear Warren Buffett did three things yesterday to help Hank Paulson in his efforts to sell the big bail-out plan to sceptical members of Congress. First, he demonstrated the acute stress in the US banking system by investing in Goldman Sachs, Paulson's old firm, on terms the great bank would once have considered humiliating. Second, he said last week's market panic would "look like nirvana" if Congress did not do something. Third, Buffett offered ideas on how the US taxpayer might avoid being ripped off. You could say that Buffett is "talking his book" as his Goldman shares are clearly more valuable if Paulson's plan is approved. Buffett admitted as much. But put that almighty conflict of interest aside for one moment to consider the Goldman investment itself. Buffett will get an annual dividend of $500m a year on his $5bn of new preference shares. So Goldman is paying 10% for its money - a pauper's rate.
Gingrich urges vote against bailout, labels $700 billion plan ‘dead loser’ Newt Gingrich said Tuesday that any lawmaker who votes for the Bush administration’s $700 billion bailout proposal, a package he called a “dead loser,” will face defeat in November. The former Speaker of the House said the bailout has the potential to turn the election — particularly the presidential race — on its head depending on what Sens. John McCain and Barack Obama decide to do if the plan comes to a vote. The Georgia Republican, talking to reporters at a lunch, added that he expects Democratic presidential candidate Obama (Ill.) to back the plan. He predicted that if McCain (R-Ariz.) ends up opposing the administration proposal, that would give the Arizona senator a chance to truly grab the mantle of reform and rewrite the current election narrative.
For Greenwich, ‘This Is Our Katrina’ With markets continuing to swoon, the next shoe to drop is likely to be hedge funds. That means tough times for hedge-fund filled Greenwich, Conn. (As Nick Paumgarten wrote in the New Yorker magazine recently, “If New York City is the heart of the marketplace, Greenwich is the liver, where toxins are processed and rich bits collect.”) Greenwich collected so many rich bits in recent years that its small population of about 60,000 contributed nearly $600 million in state income taxes in 2006. In other words, Greenwich pays 13% of all state income taxes in Connecticut with only 1.8% of the population. According to an article by Christopher Keating in the Hartford Courant, the town and state are bracing for lower tax revenue. There are no signs yet that Greenwichers are hurting–Saks, Tiffany and Brooks Brothers are still busy and the local Rolls Royce dealers (there are two) say their clientele is largely immune.
Labor unions protest in New York against bailout Hard hats, transit workers, machinists, teachers and other labor unionists railed against the U.S. government's proposed bailout of Wall Street on Thursday in a protest steps from the New York Stock Exchange. Several hundred protesters yelled their enthusiastic support as union leaders decried a proposed $700 billion plan aimed at reinvigorating the credit markets by relieving financial institutions of distressed debt. "The Bush administration wants us to pay the freight for a Wall Street bailout that does not even begin to address the roots of our crisis," said AFL-CIO National President John Sweeney.
Climbing from the wreckage After White House meeting, Dems complain of being “blindsided” by a new conservative alternative. Shares fell across Asia Friday morning, and all eyes were on Wall Street as investors and political leaders alike sifted through the wreckage left by a wild Thursday, in which Washington again failed to reach agreement on how to break the credit crunch. Talks were to resume at the Capitol on Treasury’s $700 billion rescue plan, but a high-profile White House meeting ended Thursday on a sour, contentious note after animated exchanges among lawmakers laced with presidential politics just weeks before the November elections.
GOP conservatives present rescue alternative GOP conservatives present insurance-based alternative to $700 billion Wall Street bailout A group of conservative Republicans in the House on Thursday proposed a financial rescue package of tax breaks and a new government-sponsored insurance program for mortgage-backed securities as an alternative to President Bush's proposed $700 billion bailout of Wall Street. Instead of the government buying the toxic mortgage securities, banks, financial firms and other investors holding them would pay premiums to the Treasury to finance the insurance coverage. Democrats said the idea is unworkable and said Treasury Secretary Henry Paulson agreed. The GOP plan, said House Financial Services Committee Chairman Barney Frank, D-Mass., is "a mortgage insurance approach that Secretary Paulson said does not work." The idea behind the plan is that the insurance would give investors enough confidence to buy the illiquid securities and establish a market for them.
The Depression Has Begun Has the Depression begun? Sadly the answer has to be “Yes”. In the last two weeks the two largest mortgage giants in the world (Fannie Mae & Freddie Mac) failed, the largest Insurance Company on earth crashed (all taken over by the US Government), Lehman Brothers went bankrupt (almost taking the entire financial system with it), Money Markets reeled, the two remaining giant Investment banks sought protection as “holding banks” - which means the end of Wall Street as we know it, etc, etc. Stocks are in turmoil, Oil leapt on Monday by the most ever recorded, gold is volatile - and on it goes. -The most shattering two weeks since the Great Depression. Meanwhile the US Treasury is seeking 700 billion dollars in a forlorn effort to put Humpty back together again - tragically too late.
WaMu is largest U.S. bank failure Washington Mutual Inc was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co for $1.9 billion. Thursday's seizure and sale is the latest historic step in U.S. government attempts to clean up a banking industry littered with toxic mortgage debt. Negotiations over a $700 billion bailout of the entire financial system stalled in Washington on Thursday. Washington Mutual, the largest U.S. savings and loan, has been one of the lenders hardest hit by the nation's housing bust and credit crisis, and had already suffered from soaring mortgage losses.
Plan reawakens suspicions in Congress The secretary of the US Treasury and former head of Goldman Sachs is not used to being called a socialist and invited to do remedial homework. Still less might he expect that criticism to come from congressmen and senators in his own party. But in an extraordinary week in Washington, the White House’s bail-out plan for Wall Street has been batted about and sometimes mauled in the hearing rooms of Capitol Hill. There have been dramatic scenes: hours of grilling in packed hearings by lawmakers expressing outrage at the extraordinary powers the administration is seeking; interruptions by protesters holding up placards decrying corporate welfare; the vice-president being “ripped into shreds”, in the words of one lobbyist, behind closed doors by furious Republican lawmakers. Deborah Pryce, a Republican on the House of Representatives financial services committee, on Wednesday told Hank Paulson, Treasury secretary, and Ben Bernanke, Federal Reserve chairman, to "prepare for an advanced macroeconomics class" on their plan. Jim Bunning, a senator from Kentucky, called it "financial socialism" and"“un-American".
Wall of Shame - The Bailout Plan The bailout plan is the hottest topic around, let us examine some of the plan's unique characteristics:
Talks Implode During Day of Chaos; Fate of Bailout Plan Remains Unresolved The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support. "If money isn’t loosened up, this sucker could go down," President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room. It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington.
Quick rate cut on the table in wake of rescue deal A quick rate cut in coming days is definitely on the table, several Fed watchers said Thursday. "If they cut rates 50 basis points Monday morning before the open it wouldn't surprise me," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi. "Nothing would shock me. One way or the other, they'll do anything to try to get the market settled down after the systemic shocks of Lehman, Merrill and AIG going out of existence," Rupkey said. The turbulent events in financial markets over the past week are sure to raise speculation that Federal Reserve chief Ben Bernanke gave Congress a nod or a wink about a rate cut as he pressed them to act swiftly to pass the $700 billion bailout of financial firms. It will probably never be known if there ever was such a nod or a wink - closed doors being closed doors after all. But it will probably be the talk of late night conversations of Fed watchers for years.
Debt Market Distress Spreads $$ Short-term money markets remained in turmoil, heightening the likelihood the credit pullback may harm the broader economy. Inside markets that are hidden to most Americans -- the overnight Treasury repo market, the short-term commercial-paper markets and the floating-rate municipal bond markets -- action was unfolding that will soon affect how companies meet payroll, pay vendors and make investments. These markets allow companies with ample reserves to squeeze out a few extra dollars by investing the cash in securities with life spans of just days or weeks. All that cash helps keep the economy lubricated by distributing money to other firms that need short-term loans to buy inventory or meet payroll.
Big bailout is unlikely to work The U.S. "hold-to-maturity" bailout plan is really just the new "mark-to-myth," and even its heroic proportions are not likely to paper over solvency problems in the banking system. Ben Bernanke, the chairman of the U.S. Federal Reserve, told lawmakers that the plan to spend $700 billion to buy up bad assets would allow banks to avoid unloading loans at fire-sale prices. "Auctions and other mechanisms could be devised that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets," he said, trying to persuade a skeptical Congress that the plan he and Treasury Secretary Henry Paulson Jr. have been pushing will give value for taxpayers' money.
U.S. bailout plan stalls after day of talks The day began with an agreement that U.S. government hoped would end the financial crisis that has gripped the United States. It dissolved into a verbal brawl in the Cabinet Room of the White House, warnings from an angry president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support. "If money isn't loosened up, this sucker could go down," President George W. Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room. It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets, as well as whether the first presidential debate would go forward as planned Friday night in Mississippi.
Summit ends with no deal Markets brace after House Republicans hold up agreement With the two men who want to succeed him sitting close by, President Bush on Thursday convened a historic, high-stakes summit to sell his $700 billion Wall Street bailout package, but the meeting produced fresh acrimony without clinching a deal on the rescue plan. Congressional leaders negotiated into the night with Treasury Secretary Henry M. Paulson Jr. on Capitol Hill hoping most especially to overcome objections by conservative House Republicans about the size and scope of the package. "If we get support from House Republicans, this could all be done in a couple of days," Senate Majority Leader Harry Reid said. Adding urgency to the crisis, a trio of new reports showed a rapidly weakening U.S. economy. Orders for long-lasting U.S. manufactured goods and sales of new homes plunged in August while jobless claims shot up last week to their highest level in seven years, according to the government.
Although Congress Squelches the "Paulson Plan" it’s Still $700 Billion to You and Me Did U.S. taxpayers dodge a bailout bullet? Maybe not completely. To be sure, under the $700 billion credit-crisis bailout plan proposed by U.S. Treasury Secretary Henry M. "Hank" Paulson Jr., there were some decidedly scary codicils. For one thing, there was a near complete lack of taxpayer protection. To see what I mean, just take a look at the part of the plan that reads: “Decisions by the [U.S. Treasury] Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” No courts? No administrative agency? No kidding … As Jason Linkins writes in The Huffington Post, Section 8 of the Paulson plan allows for a "consolidation of power and an abdication of oversight authority that’s so flat-out astounding that it ought to set one’s hair on fire."
Treasury bailout makes new bank deals more likely Buckle up for more bank mergers. The September tally is already a breathtaking $100 billion, the sector's third-highest monthly volume on record, according to Dealogic. This isn't run-of-the-mill M&A, but rather a desperate scramble to shore up an ailing industry. The fury of activity - including Bank of America's $44 billion acquisition of Merrill Lynch - might have been ready to wind down as exhausted bankers surveyed the overhauled competitive landscape. But a fresh wave of government action has made conditions ripe for the breakneck pace to continue. First, a small window of opportunity was opened by the ban on shorting financial stocks. This was partly designed for banks to find partners or capital by shielding the shares of selling and buying banks alike. It hasn't exactly gone according to plan, with plenty of financial stocks still falling despite the lockout of professional skeptics. But when the ban is lifted, banks may find it gets worse.
Paulson to drive world’s bankers into action Hank Paulson, US Treasury secretary, will be expected to lobby foreign central bankers to adopt similar rescue plans if Congress is to include non-US banks such as Credit Suisse and HSBC in its proposed $700bn bail-out of Wall Street, according to people A congressional aide said a deal still being thrashed out on Thursday afternoon was likely to include language that Mr Paulson should co-ordinate with global financial authorities to encourage them to adopt similar plans. “You are not going to get a guarantee: it is not as if Paulson can go around the world in the next 24 hours and say, ‘sign on the dotted line’, but it is important to mark the issue,” said one congressional aide. Lawmakers were also keeping an eye on sovereign wealth funds as a potential source of capital to help the effort. It is far from clear whether the non-binding provision would stem a potential backlash against a proposal that foreign institutions regulated in the US and employing hundreds of thousands of Americans be included in the rescue effort. The proposal has won support among some congressional leaders but has created unease in others.
U.S. Government Veers Away From Capitalism Forget AIG for a moment. Forget Freddie and Fannie, Merrill Lynch, Bear Stearns, and Lehman Brothers. Imagine a company much bigger. Imagine a company that at the end of this year will have spent $400 billion more than it has taken in. Worse, imagine that the company's accounting is so bad, the $400 billion doesn't even begin to cover the whole of this company's liabilities. In fact, the company deliberately chooses to use what's known as "cash accounting" rather than the more accurate accrual accounting. Cash accounting looks at how much cash the company has on hand, regardless of future liabilities. It's like saying if you have $75 dollars in your checking account right now, you're $75 in the black, never mind that you've deferred your car payment this month, quit your job, and have a rent check due at the end of the month. The company also practices dirty accounting tricks like "forward funding," "advance funding," and "delayed obligations," deceptive tricks that hide its precipitous finances from auditors and its investors.
'Race to Bottom' at Moody's, S&P Secured Subprime's Boom, Bust In August 2004, Moody's Corp. unveiled a new credit-rating model that Wall Street banks used to sow the seeds of their own demise. The formula allowed securities firms to sell more top-rated, subprime mortgage-backed bonds than ever before. A week later, Standard & Poor's moved to revise its own methods. An S&P executive urged colleagues to adjust rating requirements for securities backed by commercial properties because of the "threat of losing deals." The world's two largest bond-analysis providers repeatedly eased their standards as they pursued profits from structured investment pools sold by their clients, according to company documents, e-mails and interviews with more than 50 Wall Street professionals. It amounted to a "market-share war where criteria were relaxed," says former S&P Managing Director Richard Gugliada.
Credit Enters a Lockdown The words coming out of Washington this week about the American financial system have been frightening. But many have raised the possibility that the Bush administration is fear-mongering to gin up support for its $700 billion bailout proposal. In many corporate offices, in company cafeterias and around dining room tables, however, the reality of tight credit already is limiting daily economic activity. "Loans are basically frozen due to the credit crisis," said Vicki Sanger, who is now leaning on personal credit cards bearing double-digit interest rates to finance the building of roads and sidewalks for her residential real estate development in Fruita, Colo. "The banks just are not lending."
Paranoia with substance Banks desperately seeking funds as danger persists Last week the US Federal Reserve, with the assistance of the Bank of England, European Central Bank and other central banks, channelled a colossal $180bn in short-term funds to the money markets in which commercial banks find their day-to-day funding. From Frankfurt to Japan dollars were pumped, while China cut interest rates. But the vast slick of monetary oil poured out across the globe has not succeeded in calming profoundly troubled waters. Money markets remain volatile and extremely expensive, creating serious funding problems for banks – and for the companies that depend on them. As the US Congress mulls the proposed - flawed - $700bn bailout, the dangers for the international financial system do seem great.
JPMorgan Chase buys WaMu assets after FDIC seizure JPMorgan Chase buying Washington Mutual's assets after FDIC seizes ailing thrift JPMorgan Chase & Co. Inc. came to the rescue of Washington Mutual Inc. Thursday, buying the thrift's banking assets after WaMu was seized by federal regulators in the largest failure ever of a U.S. bank. This is the second time in six months that JPMorgan Chase has taken over a major financial institution crippled by bad bets in the mortgage market. The deal will cost JPMorgan Chase $1.9 billion, and the bank said in a statement it planned to write down WaMu's loan portfolio by approximately $31 billion. JPMorgan Chase, which acquired Bear Stearns Cos. last March, also said it would sell $8 billion in common stock to raise its capital position. The Federal Deposit Insurance Corp., which insures bank deposits, said it would not have to dip into the insurance fund as a result of the seizure. There had been concerns that the fund, which took a big hit after the seizure in July of IndyMac Bank, could be depleted by a WaMu seizure.
Rationale fails to win full agreement When Hank Paulson first laid out the logic of the $700bn (£381bn) rescue plan he put it in the following terms. Illiquid mortgage-related securities were “clogging up our financial system” and choking off the flow of credit to the economy. By taking these unwanted assets out of the banking system the government would allow the banks to liquify their assets, cap their losses, raise new equity and start lending normally again. That rationale was swiftly challenged by top economists and Wall Street figures. “The real problem is that the financial system has too little capital,” says Raghuram Rajan, a professor at Chicago Business School. “Buying assets at the current depressed market price will not help.” If that happened, financial institutions might even have to write their capital down further, depending on how aggressively they had marked to market already, fuelling a vicious cycle of forced sales that could further depress asset prices. Ben Bernanke answered that critique in his testimony this week, expanding on the Paulson argument in ways that made it more robust in economic terms – though more problematic politically.
Paulson's 'Bottomless Pit': Beware Law of Unintended Consequences Shortly before 2:00 p.m. EDT Thursday, news broke that Congress has reached "an agreement in principle" on the $700 billion bailout plan. The agreement would provide the funds in installments, starting with $250 billion immediately, The Wall Street Journal reports, adding: "The details still need to be ironed out with the White House." Of course, "the devil's in the details," and Joshua Rosner, managing director of Graham Fisher & Co., believes this legislation is the result of a "bipartisan effort to conspire against the taxpayer." The conspiracy is one of a lack of transparency, he adds quickly, not an intentional effort to mislead the public. But in their haste to draft legislation, lawmakers and policymakers have failed to consider other possible alternatives to this $700 billion plan says Rosner, one of the first analysts to warn of a looming crisis in the credit markets.
Gut Check You're angry. I'm angry. House Republicans are angry. We're all angry at having to put up huge amounts of cash to rescue a financial system because a lot of very rich people rolled the dice with other people's money and lost. Now let me tell you something very simple and very important: You can try to prevent a financial meltdown or you can teach Wall Street a lesson, but you can't do both at the same time. So which will it be? You say you want straight talk -- no spin, no bull, no sugar-coating. Okay, here goes. First, stop fixating on Wall Street executives -- there will be time to deal with them later. Even if you clawed back every dime they made over the past decade, it would come to several billions of dollars. That's a rounding error compared with the size of the financial problem we're facing here.
Away from Wall Street, Economists Question Basis of Paulson's Plan The Bush administration's pitch for a sweeping bailout of the financial system has centered on two simple premises: that the economy could suffer a crippling downturn if action is not taken very quickly and that this action should consist of the government buying troubled mortgage securities from banks and other institutions. But many of the nation's top economists disagree with one or both of those ideas, even as many top political leaders have swung behind them. Wall Street economists have mostly endorsed Treasury Secretary Henry M. Paulson Jr.'s plan, or a variation thereof.
China Allows Short Sales, Margin Loans to Help Market China's cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia's second-largest market after prices and trading volumes slumped, an official familiar with the plan said. The State Council signed off on a China Securities Regulatory Commission plan submitted this month to allow margin lending and short selling, said the official, who declined to be identified as he isn't authorized to speak on the issue. China's action contrasts with regulators in the U.S., Europe and Australia that have banned short selling in the past week to shore up financial shares battered by the global credit squeeze. China's government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.
Asian shares dip over stalled talks in Washington Asian stocks declined Friday over the uncertainty as talks in Washington to reach an agreement on a $700 billion financial bailout stalled. In Tokyo, the Nikkei average dipped 0.2 percent, dragged lower by blue-chip exporters like Kyocera. Financial services firm CSK Holdings tumbled more than 9 percent after saying it would post an annual loss, hurt by the turmoil in global credit markets, while shipping firms slid again on a further fall in a key freight index. Many investors were on the sidelines, watching events unfold in Washington. U.S. stocks futures were down more than 1 percent. As the U.S. Congress struggled to find agreement on modifying a proposal on the housing market crisis, a group of ultraconservative Republican lawmakers proposed an alternative mortgage insurance plan
Asian Stocks Decline After Bailout Imperiled; Mitsui Slides Asian stocks fell for a fourth day after talks on a U.S. financial rescue plan stalled, Washington Mutual Inc. became the nation's biggest bank failure and shipping rates slumped the most in 23 years. Woori Finance Holdings Co. fell 4.5 percent on concern the credit crisis is deepening after Republicans splintered over the proposed $700 billion bailout and WaMu was seized by regulators. Mitsui O.S.K. Lines Ltd., Japan's largest operator of dry-bulk ships, lost 3.8 percent. "The assumption is that the bailout will take longer than expected, which is negative," said Tsuyoshi Shimizu, a senior fund manager at Mizuho Asset Management Co., which oversees $26 billion. "As with Washington Mutual, the longer it takes to pass something, the more victims we're going to see."
Maybank Asks for Review, Extension of Indonesian Deal Malayan Banking Bhd. was asked by the Malaysia's central bank to renegotiate for a lower price on its $2.7 billion acquisition of PT Bank Internasional Indonesia to avoid losses stemming from the global financial turmoil. Maybank, as Malaysia's biggest bank by assets is known, should seek an extension to today's deadline for the completion of the purchase, according to a statement dated yesterday. Approval of Bank Negara Malaysia, the central bank, for the transaction is subject to the new price, Maybank added. The central bank's decision may boost Maybank's shares after they resume trade on speculation the Kuala Lumpur-based lender may walk away from the deal, which investors judged expensive. Indonesia's benchmark stock index has declined 24 percent since Maybank agreed to purchase Bank Internasional as a global credit crisis threatens to cut earnings at companies.
Dollar Whacked by Slowing Economy The U.S. dollar lost more ground against the yen and euro on Thursday after data showing weaker-than-expected weekly jobless claims and durable goods orders for August. The euro last traded up 0.7 percent at $1.4711, compared with $1.4685 before the release of the data. The dollar fell to 105.82 yen from 106.05 yen before the data. "Not looking too good at all," said George Davis, chief technical analyst at RBC Capital Markets in Toronto. "Obviously the data reinforces the slowdown in the U.S. economy and it is likely to generate some short term U.S. dollar weakness." New orders for long-lasting manufactured goods dropped by a sharper-than-expected 4.5 percent in August as demand for transportation equipment and many other costly items plummeted, the Commerce Department said. Economists surveyed by Reuters had forecast a 1.6 percent decline in August orders.
We need a new Global Monetary Authority Even if the US’s massive financial rescue operation succeeds, it should be followed by something even more far-reaching – the establishment of a Global Monetary Authority to oversee markets that have become borderless. Washington recognises that the crisis has become global. Hank Paulson, Treasury secretary, has said that foreign banks operating in the US will be eligible for federal assistance and he is urging other nations to fashion their own bail-out programmes. Central banks have also been synchronising injections of funds into markets. These should be steps to a more comprehensive international response designed not just to extinguish the current fires, but to rebuild and maintain the capital markets for the longer term. The current global institutional apparatus is woefully incapable of overseeing the financial system that is evolving. The International Monetary Fund is irrelevant to this crisis, the Group of Seven leading industrial countries lacks legitimacy in a world where China, Brazil and others are big players, and the Bank for International Settlement has no operational role. The US Federal Reserve is too besieged to act as a global central bank.
Libor rate soars worldwide Money-market rates around the world soared on mounting concern the U.S. Treasury's $700 billion bailout plan will be diluted as it makes its way through Congress, causing financial institutions to hoard cash. The three-month London interbank offered rate, or Libor, that banks charge each other for dollar loans jumped today by the most since 1999 and the euro rate rose to the highest level since November 2000. Rates in Hong Kong and Singapore climbed as Bank of East Asia faced a run Wednesday on deposits. The difference between the three-month dollar rate and the overnight indexed swap rate, the Libor-OIS spread, widened to the most on record. "Liquidity in the money markets in maturities over a week is desperately scarce," said Tim Bond, head of global asset allocation at Barclays Capital in London. "A near-term solution to the crisis is urgent. Unchecked, the current crisis would turn into a self-reinforcing vortex of defaults, bank capital contraction and deep recession within a matter of weeks."
U.S. president's speech received coldly in Germany Trans-Atlantic sniping over the global financial crisis intensified Thursday after President Bush cited an influx of foreign money into the United States as one of the root causes of the credit crunch. Peer Steinbrück, the German finance minister, countered in a speech in Berlin that the conditions that gave rise to the current turmoil in the markets were allowed to develop because of a reckless pursuit of short-term profit and huge bonuses in "Anglo-Saxon" financial centers — along with a lack of political backbone to stand up to what he characterized as bankers' greed. "Investment bankers and politicians in New York, Washington and London were not willing to give these up," he said. "The financial market crisis is above all an American problem"
Sarkozy sets out bigger state role Nicolas Sarkozy, France’s president, on Thursday delivered a ringing endorsement of global capitalism but said its values and practices must be fundamentally rethought in the face of the biggest financial crisis since the 1930s. He also outlined plans to strengthen the state’s role in the economy by under?writing all savers’ deposits in French bank accounts and extending regulation to every financial institution and fund. In a sombre speech to 4,000 supporters in Toulon, Mr Sarkozy said the current crisis had killed off the doctrinaire beliefs that followed the fall of the Berlin Wall that democracy and the market were the solutions to all mankind’s problems. “The idea of an all-powerful market without any rules and any political intervention is mad,” he said. "Self-regulation is finished. Laisser faire is finished. The all-powerful market that is always right is finished."
Russian Banks' Outlook Rated as 'Negative' by Moody's The outlook for Russia's banking system was rated "negative'' by Moody's Investors Services amid financial volatility that forced lenders to borrow $13 billion at an emergency auction and led to a two-day equities trading halt. Slowing asset growth, higher inflation, the slump in equities and funds leaving the country may result in deteriorating fundamentals for banks, Moody's said in its Banking System Outlook for Russia report today. Russia halted stock market trading and rushed to pledge more than $100 billion in emergency funding last week to stem the country's worst financial crisis since the government defaulted on domestic debt in 1998. Capital outflows followed last month's war in Georgia, the drop in commodity prices and capital markets' seizure, leading Standard & Poor's to cut Russia's credit outlook.
New-home sales fall; jobless rate up Three key economic indicators nosedived Thursday, lending statistical evidence to President Bush's dire warnings about the economy and adding to the sense of urgency surrounding the administration's bailout plan. New-home sales plunged and orders for durable goods fell steeply in August while initial unemployment claims soared last week, a trifecta of bad economic news that threatened to tip the U.S. economy into a recession, if one has not already begun. "The market has taken three straight punches to the jaw today," said Patrick Newport, U.S. economist for Global Insight. He described the Commerce Department report on orders and shipments of big-ticket manufactured goods as both "miserable" and "ominous."
Bank Balance Sheets Strained as Goodyear, GM Reach for Credit Balance sheets at JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and other banks face another drain on their capital as companies tap credit lines. Goodyear Tire & Rubber Co., General Motors Corp., and International Lease Finance Corp. lead companies drawing on so- called revolving loans obtained before the credit crisis began in July 2007. Banks had more than $1.4 trillion in untapped loan commitments as of a year ago, the most on record, according to the Shared National Credit survey by four U.S. regulators including the Federal Reserve.
Major firms on Wall Street face debt deadline GE, Caterpillar among those in the money-market crunch A clock is ticking on Wall Street, and it will sound the alarm Tuesday when corporate titans like GE and Caterpillar must start rolling over their debts in stressed credit markets where financing has become difficult or impossible to find. Major companies finance their day-to-day business, including salaries and rent, by borrowing for two or three months in the $1.7 trillion commercial paper market. Many of those debts come due Sept. 30. But since the credit crisis intensified with the Lehman Brothers' bankruptcy last week, buyers have been shying away from the market and it has been rapidly shrinking - falling by $61 billion in the week ending Wednesday, the Federal Reserve reported Thursday.
Orders drop sharply for U.S. factory goods Spending by American businesses on major items fell in August after three consecutive monthly increases, reinforcing the sense that businesses are nervous about making long-term investments in the current downturn. Meanwhile, sales of newly constructed homes fell for the third time in four months, and prices continued to decline. Orders for durable goods fell 4.5 percent, to $208.5 billion, the U.S. Commerce Department said on Thursday, a $9.9 billion decline. Durable goods are items intended to last three years or more, like automobiles, aircraft or household appliances. A closely watched gauge of business spending, which measures orders for civilian capital goods outside of aircraft, fell 2 percent. And even outside the transportation sector, which has been squeezed by high oil prices, orders dropped 3 percent.
Departing Circuit City CEO gets $1.8 million Circuit City Stores Inc.'s departing chief executive is receiving at least $1.8 million in a severance deal after resigning from his post at the consumer electronics retailer earlier this week, according to a regulatory filing on Thursday. Philip J. Schoonover, who agreed to step down Monday as chief executive, chairman and president of the Richmond-based company, will receive his annual base salary and the target bonus for the current fiscal year, each worth $900,000, according to documents filed with the Securities and Exchange Commission. The 48-year-old also will receive health and welfare benefit plan participation for two years, up to $50,000 in outplacement services and the acceleration of the vesting of his stock options and restricted stock awards that would have vested prior to Oct. 4, 2009.
Credit Derivatives Market Shrinks 12%, First Decline Credit-default swap dealers reduced outstanding contracts for the first time amid efforts to cut risk by cleaning up the derivatives market. The volume of trades in the worldwide market fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since New York-based ISDA started surveying traders seven years ago. Credit-default swaps grew 100-fold since 2001 as insurance companies, hedge funds and investors used the derivatives to protect against bond losses and speculate on companies' abilities to pay their debt. Traders are unwinding trades and protecting against losses after credit markets froze amid the worst U.S. housing crisis since the Great Depression. Regulators are starting to call for more oversight of the unregulated market following the bankruptcy last week of Lehman Brothers Holdings Inc.
The credit crunch: Loans out of reach The market meltdown has caused banks big and small to tighten their credit standards, making it tougher to get loans for a home, car and even college. Interest rate spreads. Libor. Collateralized debt obligations. Unless you're fluent in the language of high finance, it's tough to make heads or tails of all the terms being tossed around in the headlines lately. Simply put, the meltdown on Wall Street has made it tough for many Americans to get a loan to buy a home, purchase a car, start a business or even send a kid to college. And with all the talk of a credit crunch -- some are even calling it a credit freeze -- it may get even tougher.
GMAC's Future May Hinge on Inclusion in U.S. Rescue GMAC LLC's best chance of riding out the financial crisis intact may involve the lender finding its way into the U.S. government's $700 billion bank-rescue plan, analysts say. While Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke try to sell the package to Congress, Detroit-based GMAC is burning through cash and its bonds have fallen to a record low. The biggest drain is GMAC's Residential Capital LLC home-lending unit, which lost $1.9 billion in the second quarter -- 2-1/2 times more than the auto loan unit. "Internally, everyone's got to be hoping like heck they make it into the bailout program," said David Lykken, co-founder of Mortgage Banking Solutions, an Austin, Texas-based consulting firm. "That is probably the only option they have at this point."
GE cuts outlook, citing Wall Street woes Wall Street's woes are hurting General Electric, a corporate bellwether, raising fresh concerns that the impact of the financial turmoil will be severe on business profits and the wider economy. GE sharply reduced on Thursday its profit projections for the current quarter and the year, citing the "unprecedented weakness and volatility in the financial services markets." GE pinned the blame for the shortfall on its finance arm, GE Capital, whose global portfolio spans aircraft leasing, commercial real estate lending, credit cards and home mortgages.
Big banks delay decisions on bonuses Morgan Stanley and Goldman Sachs are delaying their decisions about year-end bonuses as they struggle with the financial crisis. The US investment banks have traditionally set the bar for European and American competitors because their fiscal years end earlier. But the two, which have been forced to seek regulated retail bank status, are putting off their October meetings on bonuses until they have greater clarity about the fourth quarter. Bulge bracket banks have warned that bonus pools will be cut sharply and that top performers will get the bulk of the money. “A falling tide lowers all boats but some people will end up above the river on stilts,” said one bank executive.
Tentative meltdown deal: Bush, McCain, Obama meet Meltdown deal reached in principle -- Bush, McCain, Obama meet Congress leaders at White House President Bush and the two men fighting to succeed him joined forces Thursday at a historic White House meeting on a multibillion-dollar Wall Street bailout plan, aiming to stave off a national economic disaster. Key members of Congress said they had struck a deal earlier in the day, but its future was unclear. The tentative accord would give the Bush administration just a fraction of the $700 billion it had requested up front, with half that total subject to a congressional veto, Capitol Hill aides said. But nothing appeared final. Amid several signs that conservatives were balking, Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, emerged from the White House and said the announced agreement "is, obviously, no agreement."
Financial crisis expected to squeeze developing economies As Europe and Asia play down the need for an American-style rescue plan, the financial crisis may threaten a different cohort of countries: those in Eastern Europe, Latin America and Africa that depend on foreign capital and share the U.S. affliction of trade deficits. Emphasizing this threat, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, called this week for a multilateral consultation to confront the crisis. "We're facing a systemic crisis and it needs a systemic response," Strauss-Kahn said Wednesday during an interview. "The IMF is the right place to organize a global response to weaknesses in the global financial system."
Buffett's deal versus Paulson's Maybe the American taxpayers should be asking Warren Buffett to be negotiating on their behalf. Treasury Secretary Henry Paulson Jr. spent a good part of two days on Capitol Hill arguing that the federal government should not demand a stake in any Wall Street concerns it bails out. Demanding such a stake, Paulson said, could scare away many of those companies from participating in the And then Buffett swooped in and announced that his company, Berkshire Hathaway, was investing $5 billion in Goldman Sachs, which made far fewer bad investments than most of Wall Street. Buffett's money will help Goldman shore up its balance sheet. What will he receive in exchange? Something like a 7 percent stake. Paulson, of course, has a different objective than Buffett. The Treasury secretary is trying to resuscitate the U.S. financial system and keep the economy from falling into a deep recession. If he drives too hard a bargain, he won't solve the problem. Buffet is merely trying to make money.
Clergymen join politicians in Europe to criticize U.S. capitalism Whatever happened to "God helps those who help themselves?" Now even religious leaders are joining the chorus of European critics of unchecked, American-style capitalism, which Continental politicians are citing as a root cause of the global financial crisis. The archbishop of Canterbury, Rowan Williams, wrote in an article this week in The Spectator, a British magazine, that the crisis had been caused by placing too much trust in the righteousness of the market, adding that this had become a kind of "idolatry." Williams cited Karl Marx's criticism of laissez-faire capitalism, saying, "He was right about that, if about little else."
Garrison Keillor: Where were the cops? Where were the cops? It's just human nature that some calamities register in the brain and others don't. The train engineer texting at the throttle ("HOW R U? C U L8R") and missing the red light and 25 people die in the crash - oh God, that is way too real - everyone has had a moment of supreme stupidity that came close to killing somebody. Even atheists say a little prayer now and then: Dear God, I am an idiot, thank you for protecting my children. On the other hand, the America's federal bailout of the financial market (yawn) is a calamity that people accept as if it were just one more hurricane. An air of crisis, the secretary of the Treasury striding down a hall at the Capitol with minions in his wake, solemn-faced congressmen at the microphones. Something must be done, harrumph harrumph. The Current Occupant pops out of the cuckoo clock and reads a few lines off a piece of paper, pronouncing all the words correctly. And the newscaster looks into the camera and says, "Etaoin shrdlu qwertyuiop." Where is the outrage? Poor Senator Larry Craig got a truckload of moral condemnation for tapping his wingtips in the men's john, but his party proposes to spend 5 percent of the GDP to buy up bad loans made by men who walk away with their fortunes intact while retirees see their 401(k) go pffffffff like a defunct air mattress, and it's business as usual.
Asia ponders the demise of Wall Street's 'superior model' A decade ago, Alan Greenspan, then the Federal Reserve chairman, declared that Asia would realize that "market capitalism, as practiced in the West, especially in the United States, is the superior model." Asian governments never quite saw it that way. Now, policy makers in the region may feel that the collapse of Wall Street investment banks and Washington's planned $700 billion bailout have vindicated their suspicion of freewheeling capitalism. The implications for investors in the region are enormous. Governments may slow deregulation, rush to the rescue of troubled companies or clamp down more quickly on market ructions. Greenspan made his comments about the "superior model" to U.S. lawmakers to justify a bailout for the collapsing Asian economies during the crisis of 1997 and 1998. He is now accused by some economists of pursuing a lax monetary policy that helped create the bubble that led to Wall Street's implosion.
Gas Shortage In the South Creates Panic, Long Lines If Drivers Can Fill Up, They Get Sticker Shock Gasoline shortages hit towns across the southeastern United States this week, sparking panic buying, long lines and high prices at stations from the small towns of northeast Alabama to Charlotte in the wake of Hurricanes Gustav and Ike. In Atlanta, half of the gasoline stations were closed, according to AAA, which said the supply disruptions had taken place along two major petroleum product pipelines that have operated well below capacity since the hurricanes knocked offshore oil production and several refineries out of service along the Gulf of Mexico.
Rice urges U.N. to address Iran threat to Israel Secretary of State Condoleezza Rice said on Friday she would ask the U.N. Security Council to take up the matter of Iranian President Mahmoud Ahmadinejad's threats against Israel. Speaking at a council meeting on Israeli settlement expansion, Rice said at the top of the list of threats to international peace and security was Ahmadinejad's assertion that Israel "should be wiped from the face of the map, should be destroyed and should not exist." "The United States of American will be asking that the council convene again to take up the matter of one member of the United Nations calling for the destruction of another member of the United Nations in a way that simply should not be allowed," Rice said.
Russia orders upgrade of its nuclear deterrent Russia said on Friday it would build a space defense system and a new fleet of nuclear submarines by 2020, beefing up its nuclear deterrent at a time of heightened tensions with Washington. Announcing the biggest defense initiative in Russia for at least a decade, President Dmitry Medvedev said this summer's war with Georgia -- which opened up new rifts between Moscow and the West -- showed the need for Russia to have a strong military. The plan for a stronger deterrent also comes against the backdrop of fierce Russian opposition to the United States' plans for a missile defense shield in eastern Europe, a project the Kremlin says is a threat to its national security.
India open for $80 billion in nuclear business Indian nuclear energy officials say they would like to do business with GE and other U.S. firms. But if they can't, there's always France and Russia. Even as a landmark U.S.-India nuclear accord hangs in limbo in the U.S. Congress, the global gates of nuclear trade with India are now open. Whether or not U.S. companies get the go-ahead to sell nuclear fuel and technology to India, the country's nuclear officials are confident they will get their uranium. "If a deal with Congress doesn't happen, we will have business with other countries. So simple," said SK Malhotra, a spokesman for India's Department of Atomic Energy.
Bush rejected Israeli strike on Iran, says paper Israel gave serious thought earlier this year to a military strike on Iran's nuclear sites but was told by U.S. President George W Bush he would not support it, a British newspaper reported on Friday. The Guardian, quoting what it called senior diplomatic sources who work for a European head of government for its information, said Bush also told Israel he did not expect to revise that view for the rest of his presidency. Then Israeli Prime Minister Ehud Olmert, who has since announced his resignation, used the occasion of Bush's trip to Israel for the 60th anniversary of the state's founding to raise the issue in a one-on-one meeting on May 14, the sources said. "He took (the refusal of a U.S. green light) as where they were at the moment, and that the U.S. position was unlikely to change as long as Bush was in office," said one source.
U.S., Pakistani troops exchange fire U.S. and Pakistani ground forces exchanged fire across the Afghanistan-Pakistan border on Thursday, the latest in a string of incidents that has ratcheted up diplomatic tension between the two allies. No casualties or injuries were reported after Pakistani forces shot at two U.S. helicopters from a Pakistani border post. U.S. and Pakistani officials clashed over whether the American helicopters had entered Pakistan. The incident follows a U.S. campaign of attacks on militant targets inside Pakistan, including a September 3 U.S. commando raid on a village compound in South Waziristan. Islamabad has protested those strikes and warned it would defend itself. "Just as we will not let Pakistan's territory be used by terrorists for attacks against our people and our neighbors, we cannot allow our territory and our sovereignty to be violated by our friends," Pakistani President Asif Ali Zardari said in New York on Thursday.
Pakistani and American troops exchange fire Pakistani and American ground troops exchanged fire along the border with Afghanistan on Thursday, a top American military official said, ratcheting up tensions as the United States increases its attacks against militants in Pakistan's restive tribal areas. The clash started after the Pakistanis fired shots or flares at two American helicopters that Pakistan says had crossed its border. The two American OH-58 Kiowa reconnaissance helicopters were not damaged and no casualties were reported. But American and Pakistani officials agreed on little else about what happened. American and NATO officials said that the two helicopters were flying about one mile inside Afghan airspace to protect an American and Afghan patrol on the ground when the aircraft were fired on by troops at a Pakistani military checkpoint near the Tanai district in Khost Province. The officials said small-caliber arms were used.
Pakistan's president calls US support a 'blessing' despite warning not to intrude Pakistan's president said Friday he still looks positively on U.S. support to his nation despite a brief exchange of gunfire between the two countries a day earlier along the border with the Afghanistan. Asif Ali Zardari's remarks came during a brief appearance alongside Secretary of State Condoleezza Rice after they emerged from an hour-long private meeting with other foreign ministers from major powers. "I look at U.S. support as a blessing. I look at the world support as a blessing to Pakistan," Zardari said. On Thursday, Zardari addressed the U.N. General Assembly and warned that Pakistan cannot allow its territory to "be violated by our friends." His speech came hours after Pakistani and U.S. troops clashed on the ground after Pakistanis fired on or sent flares at two American reconnaissance helicopters. The Pakistanis said that the U.S. choppers had crossed into the tribal Pakistani areas along the Afghan border that are semiautonomous regions where the Pakistani government has traditionally had limited influence.
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Main number: 202 225 -3121 - ask for your elected officials in D.C. Our elected Senators and Representatives supposedly work for us, the taxpayers! Tell them what YOU think about the Wall Street Bailout.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. —Thomas Jefferson, 1802
Ron Paul EXPLAINS the underlying problems with the Wall Street Bailout being shoved down our throats by the bureaucrats of Wall Street and Capitol Hill. . . .
Bailout protesters plan day of action Thursday The public backlash against the Bush administration's proposal to use tax dollars to bailout Wall Street spilled into the streets "People all over the country are up in arms about this," said David Elliot, a spokesman for grassroots advocacy group UsAction. "Our members are livid, and they're hitting the streets." TrueMajority.com, an online forum for activists, said its members had organized 251 events in more than 41 states to protest the bailout. Several other grassroots organizations were involved in the protests, including Democracy for America, the Association of Community Organizations for Reform Now (Acorn) and labor unions.
Bailout Idea a Disaster Treasury Secretary Henry Paulson's proposed bailout plan is "astonishing, devastating, and very harmful for America," internationally-known investor Jim Rogers told The New York Sun. Rogers says the current monetary climate in Washington reminds him of when then-Fed Chair Arthur Burns refused to let anyone fail. Rogers insists Washington is making the same mistake again. "We're in for the worst recession since World War II, as well as higher long-term interest rates, higher inflation, higher taxes, a weaker dollar, and substantially lower stock prices," Rogers says. Even worse, Rogers believes it's "embarrassing to see how little the presidential candidates know or grasp what's going on, just like the current administration."
An absence of leadership as Bush fumbles It took President Bush until Wednesday night to address the American people about the nation's financial crisis, and pretty much all he had to offer was fear itself. There was no acknowledgement of the shocking failure of government regulation, or that the country cannot afford more tax cuts for the very wealthy and budget-busting wars, or that spending at least $700 billion of taxpayers' money to bail out Wall Street and the banks should be done carefully and with oversight by Congress and the courts. We understand why he may have been reluctant to address the nation, since his contempt for regulation is a significant cause of the current mess. But he could have offered a great deal more than an eerily dispassionate primer on the credit markets in which he took no responsibility at all for the financial debacle.
A Bailout We Don't Need Now that all five big investment banks -- Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley -- have disappeared or morphed into regular banks, a question arises. Is this bailout still necessary? The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They're called "loans." With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.
George Soros hates Paulson's bailout George Soros, billionaire financial speculator, philanthropist and liberal boogeyman to many conservatives, doesn't like Treasury Secretary Henry Paulson Jr. $700 billion bailout plan. Indeed, from his Financial Times opinion piece, it doesn't sound like he'd allow Paulson to manage any of his billions of dollars. Here's an excerpt. Pay close attention to what he says about "asymmetric information," one of his favorite subjects. it's the idea that not all parties in financial transactions have equal access to best-informed party usually has the upper hand: Mr Paulson's record does not inspire the confidence necessary to give him discretion over $700bn. His actions last week brought on the crisis that makes rescue necessary. On Monday he allowed Lehman Brothers to fail and refused to make government funds available to save AIG. By Tuesday he had to reverse himself and provide an $85bn loan to AIG on punitive terms. The demise of Lehman disrupted the commercial paper market. A large money market fund "broke the buck" and investment banks that relied on the commercial paper market had difficulty financing their operations. By Thursday a run on money market funds was in full swing and we came as close to a meltdown as at any time since the 1930s. Mr Paulson reversed again and proposed a systemic rescue.
No Blank Check For Paulson Billionaire George Soros says giving a "blank check" to U.S. Treasury Secretary Henry Paulson would be a huge mistake. The $700 billion package as originally proposed is rife with new risks, including the shocking deferral of power directly to Paulson, Soros writes in the Financial Times. "Mr. Paulson's record does not inspire the confidence necessary to give him discretion over $700 billion," Soros writes. Soros charges that Paulson so far has brought chaos, not resolution, to the markets. For instance, Paulson let Lehman fail and then had to be forced to provide $85 billion to AIG, Soros argues. Lehman's end then disrupted the commercial paper market to the point that money market funds were forced to shut down. Commercial banks couldn't get financing.
An inadequate case for the bailout plan Under skeptical questioning in the Senate Banking Committee on Tuesday, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke gave no ground in defense of their $700 billion proposal to bail out the financial system. They also gave little reason to believe that their proposal would protect taxpayers from huge losses. Instead, they said that any eventual loss would be less than the losses that Americans would endure if lending froze up, as it did briefly last week in the panicked aftermath of the failure of Lehman Brothers and the near-death of the American International Group. The candor is appreciated, but it is not a good enough answer for Congress or the American people. Rather than rushing to approve the $700 billion bailout, lawmakers need to examine alternatives. They should look for one that ideally would let taxpayers share in the gains from any post-bailout revival, along with the bankers and private investors who will make money if the bailout succeeds. Several ideas have been advanced that Congress should examine.
US 'will lose financial superpower status' The US is poised to lose its role as a global financial "superpower" in the wake of the financial crisis, Peer Steinbrück, German finance minister, said on Thursday as he called for a regulatory crackdown on financial markets. “The US will lose its status as the superpower of the world financial system. This world will become multipolar” with the emergence of stronger, better capitalised centres in Asia and Europe, Mr Steinbrück told the German parliament. "The world will never be the same again." Mr Steinbrück launched a biting attack at the US government for resisting calls for stricter regulations of financial markets even after the subprime crisis erupted last summer, for which he said Washington was partly responsible. In language that went much further than recent comments by Angela Merkel, Germany’s chancellor, Mr Steinbrück said tougher capital market rules were an urgent necessity. "Crisis management alone will not rebuild the lost confidence," he said. "We must civilise financial markets, and not just through moral appeals against excess and speculation. Self-regulation is no longer sufficient."
Total Bailout At Least $1.2 Trillion The banks will need another $500 billion on top of the $700 billion being requested by Treasury Secretary Henry Paulson, says bond guru Bill Gross. Gross told CNBC that the government's current plan will help clear up bank balance sheets but leaves just $50 billion in free cash to lend out. "The plan goes far but it doesn't go far enough in terms of recapitalization," Gross said. "The banking system and the investment banking system in total really requires about $500 billion more. Where that comes from is still up in the air." Separately, banking experts already predict that the Federal Deposit Insurance Corporation (FDIC) could need an additional $150 billion to cover coming bank failures.
FDIC Could Need $150 Billion The government agency that is supposed to bail out depositors when a bank fails might need a bailout itself — to the tune of $150 billion. The Federal Deposit Insurance Corporation (FDIC) has a "secret list" of 117 banks it is watching, writes David Evans of Bloomberg News. It won't reveal bank names for fear of immediate runs on those banks. So far in 2008, 12 banks with assets of $42 billion have gone under. Indymac, which had $32 billion, was the largest by far. Yet the FDIC has just $45.2 billion to back up its more than 8,000 covered institutions. Meanwhile, Christopher Whalen, managing director of Institutional Risk Analytics in Torrance, California, figures it will need $200 billion during 2009 alone to dig out additional failing banks.
Bosses’ greed releases class war This week, America discovered class war. Newt Gingrich denounced the Treasury’s $700bn plan to flush the toxic debt off Wall Street balance sheets as a "very, very bad idea" and accused the White House of being bamboozled by its ex-Goldman Sachs advisers. John McCain railed against CEO "greed" and said no boss of a corporation bailed out by the government should "be making more money than the highest paid government official". Rupert Murdoch’s New York Post newspaper ran a two inch-high front-page headline yesterday that simply read: "FRAUD ST". And that’s just the voices on the right. For a sense of the discourse on the left, consider the quarter-page ad run this Tuesday in the New York Times by the Institute for America's Future, a progressive think-tank. It accused Wall Street of "extorting” US taxpayers, and asked:"“Rather than just bailing out bankers, shouldn’t we be helping the folks they victimised?"
Banking after the bail-out Who would have ever thought that the most sophisticated financial system in the world – that of the US – would trigger the most dramatic government rescue operation in history? Some may see this as a sad indication of the sharp and rapid deterioration in the standing of the country. More accurately, it speaks to how quickly the cruel realities of an unanticipated deleveraging process can alter the policy and institutional landscape. As is now widely recognised, left to their own devices, US financial markets simply could not accommodate the large and simultaneous shrinkage of multiple balance sheets without major damage to institutions and, critically, the system. Last week, the damage had migrated to the essential component of any financial system – the smooth functioning of cash, collateral and counterparty risk management.
Why Mark-to-Paulson Accounting Won't Save Banks There's one glaring weakness in Treasury Secretary Hank Paulson's plan to save the U.S. financial system: We know what the plan is. Any other problems with it are mere details. Much like the credo of Brad Pitt's character in the 1999 movie "Fight Club," the first rule of market manipulation is you don't talk about market manipulation. Give Paulson a $700 billion check without asking any questions, and the former Goldman Sachs boss might have a shot at kick-starting the credit markets using some mysterious, black- box, trading sorcery. Because the money isn't his, though, he has to give us at least a vague outline of what he's up to. Now, even if Congress approves some form of his proposal, it's far less likely to work because we're all in on the deal. The plan goes like this: Treasury will pay financial institutions above-market prices for garbage assets nobody else wants. Then, through the magic of mark-to-Paulson accounting, everybody else that owns similar stuff will use those same prices, or marks, to value the trash on their own balance sheets.
Dear Hank: Here’s How to End the Credit Crisis at No Cost to Taxpayers While it’s clear from the current credit crisis that our financial system is at a critical juncture, it’s just as clear that there’s no agreement over how we should fix the problems we face. The reality is that neither the plan put forth by U.S. Treasury Secretary Henry M. "Hank" Paulson Jr. - nor any of the addendums offered up by Congress or the lobbyists - will resolve this crisis. The key culprits are the structured financial products that reside on the balance sheets of banks, dead investment banks, insurance companies, hedge funds and all manner of other duped and unsuspecting investor entities worldwide, as well as the proliferation of the unregulated $62 trillion credit default swaps (CDS) market. Because all these securities, and in the case of credit default swaps, bilateral contracts, are impossible to value and impossible to guarantee, no one trusts them. As a result, everyone is afraid of these securities and contracts.
Asia Needs Deal to Prevent Panic Selling of U.S. Debt Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank. "We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. "If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.'' An agreement is needed so that no nation rushes to sell, "causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion. Asian countries together hold half of the $2.67 trillion total held by foreign nations.
Senator Bunning Blasts "Financial Socialism" John McCain claims to be a straight talker, but it is Senator Jim Bunning, Republican of Kentucky, who on Tuesday, in front of Treasury Secretary Henry Paulson and Federal Reserve Board chairman Ben Bernanke, labeled the Paulson/Bernanke $700 billion Wall Street takeover plan “financial socialism.” He also called it “un-American.” Bunning’s comments, which have been reported widely, have alerted many Americans to the proposed radical transformation of the U.S. economy that is being pushed by the Bush Administration and mostly Congressional Democrats on Capitol Hill. Bunning’s views are consistent with the 2008 Republican platform, which declares, "We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself. We believe in the free market as the best tool to sustained prosperity and opportunity for all."
Dollar falls as traders fret over rescue plan The dollar took a hit on Thursday after further delays to the US government’s proposed $700bn rescue package for the financial system. As markets grew increasingly anxious over whether the bail-out would pass through Congress undiluted, traders liquidated dollar positions.
The New York Times Spreads Disinformation About the Paulson Plan Vikas Bajaj of the New York Times is an able reporter and I have often enjoyed his work. I was therefore taken aback when I read his article, "Plan’s Basic Mystery: What’s All This Stuff Worth?" since it misleads readers as to the intent and thrust of the so-called Troubled Asset Relief Program. This is part of a disturbing pattern in the mainstream media as far as the plan is concerned. Despite the considerable diversity of opinion and political orientation among economists, the criticism of the plan among economists has been widespread, verging on unanimity (with Alan Blinder a notable outlier). Yet the press has treated the plan with vastly more deference than it deserves. How did this come about? Perhaps select members of the media got a version of the scary talk that Paulson gave to the Congressional leadership behind closed doors. But that still does not explain the obfuscation of how the plan will work. In a nutshell, the article seeks to explain why a lot of the assets likely to be bought by the program are hard to value, and does a good job on that front. Fair enough. But get a load of the premise:
Paulson's vacuum cleaner? Would banks and other financial institutions be allowed to act as conduits to hedge funds selling these securities? Given that Ben Bernanke has conceded that it is the government's intention to purchases assets at a "hold-to-maturity" price rather than at a price near market bids, banks favored by Paulson could earn a nice living serving as a market-maker to any entity in the world holding bad paper. Bank buys "toxic" asset from hedge fund, individual, foreign government, whomever, for something above the market bid and then resells to Treasury for the "hold-to-maturity" price, earning a nice spread. All those "blockages" in the financial system might start flowing real fast, into as well as out of our poor sclerotic banks. This adds to concerns expressed by others that banks would acquire bad mortgages and structure new assets eligible for "hold-to-maturity" sale.
A $700 billion slap in the face The initial Treasury stance on the bailout was one of sheer demand for authority: give us total discretion and a blank check, and we’ll fix things. There was no explanation of the theory of the case — of why we should believe the proposed intervention would work. So many of us turned to our own analyses, and concluded that it probably wouldn’t work — unless it amounted to a huge giveaway to the financial industry. Now, under duress, Ben Bernanke (not Paulson!) has offered an explanation of sorts about the missing theory. And it is, in effect, a metastasized version of the "slap-in-the-face" theory that has failed to resolve the crisis so far.
An inadequate case for the bailout plan Under skeptical questioning in the Senate Banking Committee on Tuesday, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke gave no ground in defense of their $700 billion proposal to bail out the financial system. They also gave little reason to believe that their proposal would protect taxpayers from huge losses. Instead, they said that any eventual loss would be less than the losses that Americans would endure if lending froze up, as it did briefly last week in the panicked aftermath of the failure of Lehman Brothers and the near-death of the American International Group. The candor is appreciated, but it is not a good enough answer for Congress or the American people.
Corruption, Whispers & Receivership The United States has transformed itself, the most radical degraded aspects having occurred in the last eight years. Many might object or cringe at repeated mention of the Fascist Business Model implemented by the Clinton Administration, and carried to extreme by the Bush II Administration. It is a harsh departure from Beacon of Freedom. Too bad, fact of life! This merger of state and big business in the midst of a climax, the biggest display of exported financial toxin in modern history, and the disintegration of the financial structure for the nation owning the world reserve currency. The Fascist Business Model has criminal fraud & corruption as its chief characteristic, alienation & resentment as its chief foreign effect, and systemic failure & collapse as its chief outcome. Broad war often follows.
Bush and co. talking down economy? Used to be talking down the economy was something government officials weren't supposed to do, especially senior U.S. officials. Conservatives often bashed liberals who they frequently perceived as trying to talk the economy into recession for political reasons. And on occasion liberals even attacked conservatives for allegedly cynically talking down the economy for the same reasons. Now its open season on the economy. Everyone seems to be talking it down, particularly those top government officials who are usually so guarded in their public comments they won't even discuss in detail U.S. policy towards the value of the dollar for fear of affecting markets. From President Bush, to Treasury Secretary Henry Paulson Jr. to Federal Reserve Chair Ben Bernanke, the message is the economy will essentially go down the tubes if Congress don't pass the $700 billion bailout "national rescue plan" quick, fast and in a hurry.
Congress Close to Bailout Deal as Bush Urges Action Congress moved closer to an agreement on a $700 billion financial rescue plan as President George W. Bush urged swift action to help avert "a long and painful" recession. "The package is basically done," Representative Paul Kanjorski, a Pennsylvania Democrat, told CNBC today. "The hard issues are resolved. They have to shake hands. They have to smile and they have to have the photo set." The Bush administration paved the way for a deal by making major concessions. They include curbs on executive compensation, help for homeowners facing mortgage foreclosure and independent oversight of the Treasury-managed program. Treasury Secretary Henry Paulson also agreed to a Democratic demand that the government take equity stakes in companies it assists.
Credit Crisis Update: U.S. Stocks Skid as Bailout Bogs Down, President to Address the Nation U.S. stocks dropped for the third straight day yesterday (Wednesday) on worries that increasingly rancorous debates will squelch a proposed $700 billion bailout of the U.S. financial system even as Federal Reserve Chairman Ben S. Bernanke warned Congressional leaders that the credit crisis was already damaging the American economy. As part of his most dire commentary about the U.S. economy since he became the central bank chief two years ago, Bernanke said the credit crisis posed "grave threats" to American financial stability and urged Congress to pass U.S. Treasury Secretary Henry M. Paulson’s $700 billion plan to excise devalued - and even worthless - assets from the banking system, Bloomberg News reported. Noting that "economic activity appears to have decelerated broadly," Bernanke told members of the Senate’s Joint Economic Committee that "stabilization of our financial system is an essential precondition for economic recovery."
Bernanke Moves Closer to Rate Cut as Risks to Economy Intensify Federal Reserve Chairman Ben S. Bernanke moved closer to cutting interest rates, signaling that risks to U.S. growth are greater than policy makers saw them just last week. The "intensification" of the financial crisis in recent weeks is curbing Americans' access to borrowing, making the outlook for consumer spending "sluggish at best," Bernanke told lawmakers in Washington yesterday. While he noted that risks to inflation remain, the Fed chief's testimony focused on "grave threats" to the banking system.
Bringing Down Wall Street as Ratings Let Loose Subprime Scourge Frank Raiter says his former employer, Standard & Poor's, placed a "For Sale" sign on its reputation on March 20, 2001. That day, a member of an S&P executive committee ordered him, the company's top mortgage official, to grade a real estate investment he'd never reviewed. S&P was competing for fees on a $484 million deal called Pinstripe I CDO Ltd., Raiter says. Pinstripe was one of the new structured-finance products driving Wall Street's growth. It would buy mortgage securities that only an S&P competitor had analyzed; piggybacking on the rating violated company policy, according to internal e-mails reviewed by Bloomberg.
Covered Bonds Head for Worst Month Since 1999 on Credit Turmoil Covered bonds, securities which Treasury Secretary Henry Paulson has advocated to boost U.S. mortgage lending, are poised for their worst month this decade as credit market turmoil erodes investor confidence in the top-rated debt. The bonds have handed investors a 1.12 percent loss this month, the biggest decline since they tumbled 1.41 percent in June 1999, according to Merrill Lynch & Co.'s European Covered Bond Index. Investors are demanding the highest yields, or spreads, to buy the securities relative to government debt in almost eight years.
Libor Soars on Concern Bank Bailout Will Be Diluted Money-market rates around the world soared on mounting concern the U.S. Treasury's $700 billion bailout plan will be diluted as it makes its way through Congress, causing financial institutions to hoard cash. The three-month London interbank offered rate, or Libor, that banks charge each other for dollar loans jumped today by the most since 1999 and the euro rate rose to the highest level since November 2000. Rates in Hong Kong and Singapore climbed as Bank of East Asia Ltd. faced a run on deposits. The difference between the three-month dollar rate and the overnight indexed swap rate, the Libor-OIS spread, widened to the most on record.
New home sales plummet in August, prices tumble New home sales plunge in August to slowest pace in 17 years as prices fall by record amount New home sales tumbled in August to the slowest pace in 17 years, while the average sales price fell by the largest amount on record, demonstrating the depth of the problem that Washington is trying to solve. The Commerce Department said Thursday that new homes sales fell by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales pace since January 1991. It was a much bigger sales decline than the small 1 percent drop that economists had been expecting. The average price of a new home sold in August dropped by a record amount of 11.8 percent to $263,900, compared to the July average of $299,100. The median price was also down, falling 5.5 percent to $221,900.
Jobless claims pushed to 7-year high Hurricanes Ike and Gustav and weak economy push jobless claims to 7-year high New claims for unemployment benefits jumped last week to their highest level in seven years due to the impact of a slowing economy and Hurricanes Ike and Gustav, the Labor Department reported Thursday. The department said new requests for jobless benefits for the week ending Sept. 20 increased by 32,000 to a seasonally-adjusted 493,000, much higher than analysts' expectations of 445,000. Wall Street was more focused on Washington, though, where lawmakers and the administration appeared to be moving closer to a $700 billion bailout package for the financial system. Stocks rose, with the Dow up more than 200 points in early trading.
GE cuts 3Q forecast, citing financial market woes General Electric lowers profit forecast, plans to boost reserves on financial market woes General Electric Co., whose shares have been battered by anxiety over the health of its big loan and lease business, lowered its earnings forecast on Thursday, saying the unit's profits were falling and that it was taking action to bolster its reserves. The moves, prompted by "unprecedented" weakness and volatility in the markets, come as Wall Street grapples with the collapse of Bear Stearns and Lehman Brothers, the government takeover of insurer AIG, and the fierce debate over a $700 billion plan for Washington to bail out banks weakened by risky mortgage-backed securities.
US Democrats claim Wall St. bailout breakthrough Democratic Rep. Barney Frank said on Wednesday Democrats had reached an agreement to stem one of the worst U.S. financial disasters in decades, and that there would be enough votes to pass the measure and send it to President George W. Bush to sign into law. "We now have between House and Senate Democrats an agreement on what we think should be in the bill, and we have a meeting scheduled at 10 a.m. tomorrow to meet with the Republicans," said Frank, chairman of the House of Representatives Financial Services Committee. Proponents of a rescue plan have expressed hope that a bill could be delivered to Bush within days. While the Bush administration had asked Congress for $700 billion for an unprecedented Wall Street bailout, Frank said that amount might not be delivered all at once. "One tranche doesn't work," he said, adding that "safeguards" were needed.
Bush pitches bailout, calls summit McCain suspends campaign for crisis President Bush said that the U.S. economy is "in danger" but that his administration is responding with "decisive action," during a nationally televised prime time address Wednesday night. Congressional leaders, meanwhile, signaled they were nearing agreement on a rescue package and said they would draft a final bill in the morning. And the president announced he has invited the two presidential candidates and congressional leaders from both parties to the White House Thursday morning "to help speed our discussions."
Fixing the bail-out Wall Street and Washington are never soulmates. Building a coalition to bail out financiers with public money would never be easy, especially when this involves massive spending without clear aims during an election cycle. Last weekend, Hank Paulson, US Treasury secretary, unveiled a plan to save US finance by setting up a $700bn fund to buy mortgage-backed securities. By getting them at a price above current market price but below their “fair value”, the taxpayer should make a profit, the scheme would establish a floor price for these securities, bank capitalisation would improve and banks would have swapped dubious assets for clean cash.
Win-win? No. The plan has some serious flaws. In particular, there is no reason why public sector buyers should be better at pricing these assets than private bidders. This could, potentially, lead to significant losses. This is the concern of congressional Democrats, who have suggested an alternative model.
Bailout Needs a Bridge to Main Street Although it's bad-mannered to crow when you've been right about something, consumer advocates, civil rights organizations and community housing groups should be shouting, "We told you so!" The Neighborhood Assistance Corp. of America, ACORN, NeighborWorks, the Center for Responsible Lending and the National Community Reinvestment Coalition, to name a few, were screaming about the subprime mess and predatory lending practices before it became prime-time news here and around the world. These organizations long ago predicted that a crisis in the housing market would result in a staggering increase in foreclosures and cause the largest loss of personal net worth since the Great Depression.
Paulson's Panic Why acting too hastily could create even more problems. Call it Paulson's Panic. That's both unfair and accurate. It's unfair because Treasury Secretary Hank Paulson didn't create the underlying conditions that led to today's financial turmoil, and the failure for not quelling it is shared by Federal Reserve Chairman Ben Bernanke. But it's also accurate, because as world financial markets verged on panic, Paulson himself panicked. He saw no remedy except a massive bailout: having the government buy up to $700 billion worth of risky bonds. Historians will judge whether his outsized proposal was necessary, but the notion that its congressional enactment—assuming that happens—would magically end the crisis seems like wishful thinking. Americans often delude themselves that all problems can be "solved" if only government would act "boldly." This may be another example.
Hedge funds move $100bn into safe havens Hedge funds charging hefty fees for sophisticated trading strategies aimed at outperforming the wider market have collectively parked $100bn in simple money market funds typically used by investors seeking safe rather than spectacular returns. Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds, normally seen as some of the safest places to invest cash. However, last week, those money funds became embroiled in the wider financial crisis to the point that the US Treasury was forced to offer a blanket guarantee on them as part of its attempts to prevent the spillover of the financial crisis into the $3,400bn sector. The extreme measures taken by the Treasury followed mounting fears that retail investors in the sector could be starting to panic and might withdraw funds on a large scale.
Auto industry to get $25 billion in federal loans U.S. automakers get relief in massive spending bill approved by the House In the next few years, consumers could see the fruits of $25 billion in government loans for the auto industry through a broader lineup of gas-electric hybrid vehicles, new plug-in electric cars and an expansion of fuel-efficient engines. The loans, approved by the House as part of a larger spending bill Wednesday, are intended to help the industry refurbish decades-old plants and develop advanced batteries and gas-electric hybrids. The loans are a major win for General Motors, Ford and Chrysler, who lobbied for the funding as they dealt with a sluggish economy and weak sales.
Jack Welch says U.S. faces "deep downturn" Former General Electric Co Chairman and Chief Executive Officer Jack Welch said the U.S. economy faces a deep downturn in coming quarters, and he supports a proposed $700 billion government rescue package for the financial sector. "I now believe we are in for one hell of a deep downturn," Welch told the World Business Forum in New York on Wednesday, adding that the first quarter of 2009 will likely be "brutal." Until recently, Welch said, he had believed the U.S. economy could avoid recession, but he has changed his mind. "I am now caving," he said. "Get ready for real tough times. They're coming. There is no credit available."
Bush warns of 'long and painful recession' Bush warns of 'long and painful recession' if Congress fails to act on financial crisis President Bush on Wednesday warned Americans and lawmakers reluctant to pass a historic financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs, closed business and "a long and painful recession." He spoke just after inviting Democrat Barack Obama and Republican John McCain, one of whom will inherit the mess in four months, and key congressional leaders to an extraordinary White House meeting Thursday to hammer out a compromise.
Bush, candidates, lawmakers to meet on rescue plan Bailout: Bush asks candidates, congressional leaders to meet, yields on 'golden parachutes' President Bush summoned Barack Obama, John McCain and legislative leaders to an extraordinary White House summit, warning Americans and Congress on Wednesday night that failing to act on a $700 billion financial industry bailout could lead to "a long and painful recession." Earlier, Bush bowed to Democratic demands to limit the pay of executives whose tottering companies would be rescued. Democrats and Republicans were nearing agreement on the rescue legislation, the most sweeping government intervention in the market since the Great Depression, and set a meeting early Thursday to draft a bipartisan bill. Bush acknowledged in a prime time television address Wednesday night that the bailout would be a "tough vote" for lawmakers.
Executive pay limits in bailout Paulson gives in to Congress' demand Treasury Secretary Henry M. Paulson Jr. Wednesday agreed to congressional demands to limit the pay of bank executives in one of his biggest concessions to date to try to secure quick passage of a $700 billion bank bailout. The Treasury gave ground on the politically potent executive pay issue after Republicans and Democrats questioned why taxpayers should pay for multimillion-dollar "golden parachutes" and other perks for executives who got their banks into trouble with toxic mortgages. "The American people are angry about executive compensation and rightfully so," Mr. Paulson told the House Financial Services Committee Wednesday. "Many of you cite this as a serious problem, and I agree. We must find a way to address this in the legislation, but without undermining the effectiveness of this program."
Bernanke pledges to 'act as needed' Fed chief tells Congress Fed will act to minimize disruptions to business Federal Reserve Chairman Ben Bernanke said Wednesday that the worsening financial crisis could prove a major weight on U.S. business growth and pledged to “act as needed” to brace the wobbly economy. Bernanke and his Fed associates are fighting the biggest financial debacle since the Great Depression. On Wednesday, the Fed chief faced a second straight day of tough questioning on Capitol Hill about the Bush administration’s proposed $700 billion bailout plan.
Budget panel told of 'chaos' Orszag echoes need for action Failure to pass a substantial bailout package would risk "utter financial market chaos," Congressional Budget Office Director Peter Orszag told the House Budget Committee on Wednesday. The financial markets are expecting "a significant package" addressing the problems of liquidity and solvency, Mr. Orszag said. "If there's no package whatsoever," he told the committee, "it would be a very bad situation" that could produce a "a financial market meltdown, which would cause very severe economic dislocation, which may be on the order of magnitude of Great Depression-type effects." He warned of a "self-reinforcing negative spiral" that would damage the economy, intensify downward pressure on home prices, erode retirement savings and significantly raise the budget deficit.
Faber Says U.S. $700 Billion Rescue Plan Isn't Enough The U.S. government's $700 billion bank rescue plan won't be enough to revive the finance industry, said investor Marc Faber, who forecast the so-called Black Monday crash in 1987. The government should buy out home owners, Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report, told reporters on the sidelines of an investor conference in Hong Kong. He's also predicting Chinese economic growth to "disappoint" and Indian stocks to decline. "The U.S. has many problems," Faber said. "It's a period of hardly any growth in real terms in the economy for several years."
Bailout Plan a Blank Check Yale professor and co-founder of the Case/Shiller housing index Robert Shiller admires Treasury Secretary Henry Paulson. "He's decisive and not afraid to do unusual things," Shiller told The Wall Street Journal. "He's thrown out a plan that none of us understand." What bothers Shiller is that if Paulson's plan goes through, U.S. taxpayers will have effectively given the Treasury secretary a blank check he will then use to pay too much for whatever Treasury buys. "Nobody else can value these securities, how is Treasury going to value them?" Shiller asks. "They'll do it in some crazy and arbitrary way. I don't like the sound of this at all."
Hank Tries Damage Control After taking a drubbing in the Senate, the Treasury secretary yields on C.E.O. pay curbs Trying to recast the $700 million bailout proposal as a taxpayer rescue package rather than a boon to Wall Street, Treasury Secretary Hank Paulson today appeared to embrace curbs on executive compensation, a hot-button issue among thousands of people who are inundating their lawmakers with complaints about lending moguls at hand at the expense of taxpayers. "The American people are angry about executive compensation and rightfully so," Paulson told a jammed hearing of the House Financial Services Committee. "Many of you cite this as a serious problem. And I agree. We must find a way to address this in legislation without undermining its effectiveness."
U.S. Firms Gird for Hits and Draw On Credit Now $$ Fearful of tightening credit and bank failures, a growing number of companies are hoarding cash by taking the unusual step of tapping credit lines they don't actually need. During the past week, large companies like General Motors Corp. and Texas beauty-care retailer Sally Beauty Holdings Inc. have drawn funds typically set aside for short-term working-capital needs, such as retooling a plant or a product launch. These companies say it is best to get the cash now, for fear that a bank may withhold it or be unable to deliver the funds down the road.
Bailout Pact Gains Momentum Amid Push for Tough Controls $$ A dramatic flurry of activity late Wednesday, including a prime-time address by President George W. Bush, appeared to galvanize efforts to finalize the administration's $700 billion financial-markets bailout, despite continuing tensions and an occasionally heated debate on Capitol Hill. Democratic leaders hope to nail down details of the measure early Thursday, ahead of an extraordinary summit meeting in the afternoon at the White House, which will bring together Republican and Democratic presidential nominees, along with Mr. Bush and top leaders from Congress. Much is still uncertain and the contours of a likely bill could change. But the outlines of a potential compromise began to emerge late Wednesday after congressional leaders started considering restrictions on the bailout plan that could break the pool of money into installments.
SEC Presses Hedge Funds $$ The Securities and Exchange Commission ordered more than two dozen hedge funds to turn over trading information as it ramps up its investigation into whether traders were spreading rumors to manipulate shares, according to people familiar with the matter. The order, dated Sept. 22, identifies six financial institutions the SEC believes may have been subject to such manipulation. The order is akin to a subpoena and requires information to be handed over with a sworn statement attesting to its accuracy. It seeks a wide range of trading data and email communications over a period of three weeks involving American International Group Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Morgan Stanley, Washington Mutual Inc. and Merrill Lynch & Co., according to the order, which has been viewed by The Wall Street Journal.
Paulson Seeks Mortgage Value That Eluded Bear, Lehman U.S. Treasury Secretary Henry Paulson's bailout plan hinges on answering the question that has vexed global markets for more than a year and sunk two securities firms: What's a bad mortgage worth? Pay too much for hard-to-value mortgage debt held by banks and recouping taxpayers' $700 billion investment becomes less likely, Merrill Lynch & Co. analysts led by Akiva Dickstein wrote in a Sept. 22 report. Pay too little and the banks may either refuse to sell or be forced to hoard cash to make up for losses, the analysts said. "This pricing thing is the 800-pound gorilla, the absolute core of the whole plan," said Bert Ely, a banking industry consultant in Alexandria, Virginia. "If the government takes an aggressive posture, it benefits taxpayers but it means some of the banks will have serious capital problems. This has the potential of politically being very troubling."
Bailout cost unknown - CBO Budget agency can't give an estimate. But given the assets the Treasury would buy, they would return value. Average Americans aren't the only ones who think they don't have enough information to assess the Treasury's proposal to buy up to $700 billion of troubled mortgage assets. Even one of the country's top bean counters can't say with certainty how much the plan will ultimately cost taxpayers, if anything. The Congressional Budget Office says that it is "impossible" to estimate the bottom line cost of the Treasury's bailout proposal given its lack of specificity. However, in testimony before the House Budget Committee on Wednesday, CBO Director Peter Orszag said that the CBO expects the net cost to be "substantially less" than the $700 billion requested by the Bush administration. "It seems implausible that the U.S. would lose every cent on the dollar for the purchases it made," Orszag said.
Wall Street titans prepare to feel the pain Hank Paulson, US Treasury secretary, on Wednesday acknowledged that his proposed $700bn bailout of Wall Street would have to take aim at executive pay, bending to political anger in Congress. By abandoning his previous assertion that congressionally-mandated curbs on executive compensation would make the bailout less effective, Mr Paulson handed Washington lawmakers their first scalp – Wall Street bankers. “We must find a way to address this in legislation but without undermining the effectiveness of this programme,” he said. At a hearing on Tuesday, Christopher Dodd, the chairman of the Senate banking committee, categorically stated that the administration should “count on” executive pay being a part of any legislation approved by the Democratic-controlled Congress.
A Hole In Henry's Bailout Bucket Congress offered up a menu of grilled regulators on Wednesday, raking Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke over the coals as they questioned the $700.0 billion plan to bail out the American financial system. Paulson and Bernanke struggled to justify the massive expenditure of taxpayer money as legislators grew increasingly aggressive in their rolling interrogation. The two regulators, one with the field marshall manner of a chief executive and the other a contemplative academic, lost footing with politicians as they weakly sold their plan. It was the second day the bailout got a cool reception from lawmakers.
Bailout Not Necessary Banking industry expert Bert Ely has a stellar track record in predicting crises and calling false alarms. Now he says that the banking industry does not need subsidies and can recover fully without government help. "I have run the numbers looking at the capacity of the industry to pay the tab," Ely said during an interview at Institutional Risk Analytics. "It's not going to be cheap, but the banks can handle it and clean up their own mess. The losses will feed back through the industry to depositors and borrowers in the form of lower rates on deposits and higher cost of loans." Ely opposes the idea of the government putting preferred equity into solvent but troubled banks that cannot raise capital on reasonable terms. "There is absolutely no need for the Treasury to have the authority to inject capital into solvent banks that are temporarily unable to raise new capital," Ely asserts.
The Bailout Rush: Time Is Money or Haste Makes Waste? For Some Financial Experts, a Rushed Bailout Has Echoes of Hasty Bush Administration Policies Though the ongoing financial crisis was years in the making and its fallout will undoubtedly shape U.S. fiscal policy for years to come, the secretary of the treasury urged Congress Tuesday to act "quickly and cleanly" on approving a multibillion-dollar bailout measure. Time is money, goes the old proverb, but members of Congress -- both Democrat and Republican -- as well as a chorus of economists have questioned the urgency with which Bush administration officials want to act. They want a measure that would not only allow the federal government to buy up and resell $700 billion worth of troubled mortgages, but also put much of the authority to do so directly into the hands of the treasury secretary. . . . . "Weren't these the same guys who two months ago told us everything was fine? The administration is proposing the biggest bailout in history. Shouldn't we not rush into this?" he asked.
Barrick Sees 'Large-Scale' Gold Buying on Bailout Barrick Gold Corp. Chairman Peter Munk said bullion prices will go higher, driven by large-scale buying by "major, major" holders of dollars who fear the effects of the U.S. government's bailout plan on the currency. Central banks or sovereign wealth funds are among those likely to buy gold to diversify their investments and hedge against the risk of a weaker dollar, given the government's $700 billion plan to support the banking system, Munk said today. "That impact on holders of U.S. dollars in China or Russia or Abu Dhabi or Kuwait is that they're going to say, 'What is that going to mean for the U.S. dollar, and what alternative are we going to have?'" Munk said in an interview in New York. "So gold is going to have very powerful support." Munk, 80, founded Toronto-based Barrick in 1983 and made it the world's largest gold producer.
Dollar Falls Before Home Sales, Traders Raise Fed Rate Cut Odds The dollar ended two days of gains against the euro before a U.S. government report that economists estimate will show new home sales dropped and as traders raised bets for a Federal Reserve cut in interest rates next month. The dollar declined versus the British pound and Swiss franc as President George W. Bush said the U.S. is in the "midst of a serious financial crisis" and "our entire economy is in danger." Futures show 80 percent odds the Fed will lower borrowing costs in October compared with 58 percent on Sept. 23 as Congress delays a $700 billion bailout proposal.
Debt and the dollar “How are you, comrade Bush?” When Hugo Chãvez, Venezuela’s left-wing leader, cheers from the sidelines, the US government must be acting radically. The financial rescue plan is still being hammered out on Capitol Hill, but early estimates put next year’s fiscal deficit at about $1,000bn; a doubling of this year’s, to perhaps 7 per cent of GDP. Adding in the need to roll over existing borrowing, the Treasury will have to raise about $1,500bn in 2009. Yet the implications for the dollar are not all bad, if only because prospects are little better elsewhere. Indeed, when the last financial lifeboat – the Resolution Trust Corporation – began to buy bad assets in 1989, economic growth, house prices and equity markets did not bottom out for another 12-18 months. The dollar, however, traded sideways.
Clients of troubled money-market funds get help Two brokerage firms told their customers Wednesday that they will cover up to $83 million of losses in a fallen money market fund, while clients of a Putnam Investments fund that suddenly closed last week were told their assets will be moved to another firm. The moves came a week after the Reserve Primary Fund's underlying assets fell below $1 for each investor dollar put in. The extremely rare instance of a fund "breaking the buck" exposed investors to losses of pennies on the dollar, triggering fears that prompted the government on Friday to take emergency steps to prop up the more than $3 trillion money-market mutual fund industry. TD Ameritrade Holding Corp. said that it will cover up to $50 million of losses in the Primary Fund. Ameriprise Financial Inc., meanwhile, said that it will commit up to $33 million.
Bernanke stays neutral despite slowdown Inflation and slowdown are both "significant" concerns Despite signs of a broad economic slowdown, and historic upheaval in the U.S. financial industry, Federal Reserve Chairman Ben Bernanke seemed in no mood to step on the gas a bit and lower interest rates. In testimony prepared for the Joint Economic Committee, Bernanke said that risks of higher inflation and risks of a serious downturn were both "significant" concerns. For Fed watchers, this keeps the Fed stance on rates in balance, or "neutral," toward future interest rate moves. Many financial market participants were looking for signs that Bernanke may cut rates again soon. Investors in the futures market have increased the odds that the next move by the central bank would be a rate cut. The Fed has kept its benchmark short-term interest rate at 2% since April. The majority of the central bankers have agreed that is the proper level that provides some support for growth but is not so low as to spark inflation. Prior to the dramatic events in financial markets over the past month, there was a vocal minority on the central bank pushing for a rate increase.
'Trust me' on the bailout? That's just not good enough America's financial mess was caused to a great degree by a culture of lax regulation and even less oversight, in which ordinary Americans were told to trust the government and Wall Street to do the right thing. President Bush's proposed solution, which he wants Congress to authorize immediately, tells taxpayers to write a check for $700 billion and trust the government and Wall Street to do the right thing - with inadequate regulation and little oversight. We agree with Barack Obama that the administration's plan lacks regulatory muscle, and we agree with John McCain when he said: "When we're talking about a trillion dollars of taxpayer money, 'trust me' just isn't good enough."
The Rescue Needs Rescuing The rescue needs rescuing. And here's the deal. No deal, unless we change the deal, and fast. That's not democrats saying that about a $700 billion rescue package that looks like an increasingly fragile package. That's the republican presidential candidate John McCain. He's heading back to Washington. Suspending his campaign, and promising to roll up his sleeves. And get this, calling for cancelling Friday's big debate with Barack Obama to cobble together something...anything...to get this financial bailout off life support. President Bush himself set to address the nation tonight. He too sensing this thing ain't looking like quite a sure deal anymore. Treasury Secretary Hank Paulson got a clear sense of that in testy hearings today. So too fed head Ben Bernanke. They pitched. Congress bitched.
Washington Mutual May Be on Block Even as Washington moves to bail out financial institutions, the fortunes of Washington Mutual have spiraled downward. On Wednesday, Standard & Poor’s, a major credit rating agency, downgraded Washington Mutual’s debt further into junk territory, citing the increased chance that the company might have to be split up to facilitate a sale. Washington Mutual insists that it is well-capitalized and has adequate access to funding and noted “the rating actions do not affect the safety of customer deposits, which are insured up to the limits allowed” by the federal government. Brad Russell, a Washington Mutual spokesman, declined to comment on speculation about a possible sale. Still, shares fell 94 cents, or 29 percent, to $2.26 a share on Wednesday, leaving them down 83 percent this year.
Community banks react to rapid industry changes As Congress and the Bush administration spar over the proposed $700 billion bailout of troubled financial firms, small town bankers are making sure they're not forgotten. Community bank groups responded quickly as policy makers devised solutions that could cost some banks millions of dollars or create unfair competition between hometown banks and Wall Street investment firms. A central problem: About 800 banks nationwide have invested heavily in preferred stock in the mortgage companies Fannie Mae and Freddie Mac, said Paul Merski, the chief economist at the Washington-based Independent Community Bankers of America. The preferred stock was believed to be a safe investment for banks because it had the backing of the government and it provided a reliable revenue stream through quarterly dividends.
Mortgage Probes Focusing on How They Were Valued The FBI now says 26 companies are being investigated. Several ongoing investigations into the Wall Street crisis are increasingly focusing on asset valuation: the question of whether firms properly reported the value of their mortgage assets on their balance sheets, as well as whether mortgage-related securities were properly marketed to investors, sources have told CNBC. While sources describe asset valuation as a fertile area for investigation, they also say it's difficult to prove. With the market itself having trouble valuing the assets, it may be difficult to prove that firms intentionally overvalued them. "That's the million dollar question," one investigator said.
Goldman and Morgan Stanley prepare for battle Wall Street's two largest investment banks are girding themselves for a long battle. In the past three days, Goldman Sachs Group Inc and Morgan Stanley became bank holding companies after investors last week lost confidence in their freewheeling, high-risk broker model. They're also busy stockpiling capital, sacrificing near-term results as they focus on getting through the downturn. Goldman announced deals that will raise $15 billion from Warren Buffett's Berkshire Hathaway and public investors. Morgan Stanley plans to sell as much as a 20 percent stake for roughly $8.5 billion to Japan's Mitsubishi UFJ Financial Group, one of the world's largest banks.
Traders await bailout decision Tension grew in the financial markets Wednesday, sending stocks mostly lower as investors worried about the effectiveness of a still-emerging government plan to rescue banks from crippling debt. The credit markets also showed added strain, with rising demand for short-term Treasury bills, considered the safest of investments. Wall Street was calmer than during the first two days of this week, with stocks meandering in and out of positive territory while investors tried to determine what shape the $700 billion plan might take. But the atmosphere was uneasy enough to erode the market's initial enthusiasm over investor Warren Buffett's decision to invest $5 billion in Goldman Sachs Group Inc.
The power of negative thinking Greed - and its crafty sibling, speculation - are the designated culprits for the financial crisis. But another, much admired, habit of mind should get its share of the blame: the delusional optimism of mainstream, all-American, positive thinking. As promoted by Oprah Winfrey, scores of megachurch pastors and an endless flow of self-help best sellers, the idea is to firmly believe that you will get what you want, not only because it will make you feel better to do so, but because "visualizing" something - ardently and with concentration - actually makes it happen. You will be able to pay that adjustable-rate mortgage or, at the other end of the transaction, turn thousands of bad mortgages into giga-profits if only you believe that you can. Positive thinking is endemic to American culture - from weight loss programs to cancer support groups - and in the last two decades it has put down deep roots in the corporate world as well. Everyone knows that you won't get a job paying more than $15 an hour unless you're a "positive person," and no one becomes a chief executive by issuing warnings of possible disaster.
The Panic of 1907 There was more than a little déjà vu in the dead-tired appearances of Treasury Secretary Henry Paulson and Ben Bernanke of the Federal Reserve, the desperate late-night meetings, and the dramatic scenes in New York board rooms as the assets drain began to gurgle on Wall Street. It is said to be the worst financial crisis since 1929, and no one today can say whether anything will work, or whether another Great Depression is about to descend. But I am thinking of a financial crisis 101 years ago, the "Panic of 1907," as it was called. In late October of that year, the greatest banker of his day, and perhaps any day, J.P. Morgan, 70 years old but at the height of his power, returned early from a meeting of Episcopalians in Virginia to gather titans of Wall Street together in the red room of his famous library. He was suffering from a bad cold, but got through the following days and nights on heavy doses of Havana cigars. All around him markets were crumbling, venerable companies were going into receivership, banks were about to go under as crowds of people lined up to get their money out before the entire edifice collapsed.
U.S. gasoline inventories lowest since 1967 U.S. gasoline inventories shrunk to the lowest level since 1967 after Hurricanes Gustav and Ike shut Gulf Coast oil refineries, but the Bush administration said there is still no need to ask for emergency fuel supplies from European allies. The drop in fuel stocks has caused long lines at service stations in southern cities. Retail outlets, including those in Atlanta and Memphis and as far away as Ohio, have run out of fuel. Nonetheless, U.S. Energy Secretary Sam Bodman said on Wednesday the Bush administration would not reconsider making a request to the International Energy Agency for emergency gasoline supplies. Bodman said last week the Energy Department was "reasonably satisfied" with the recovery of the U.S. oil sector after the hurricanes.
GMAC's Future May Hinge on Inclusion in U.S. Government Rescue GMAC LLC's best chance of riding out the financial crisis intact may involve the lender finding its way into the U.S. government's $700 billion bank-rescue plan, analysts say. While Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke try to sell the package to Congress, Detroit-based GMAC is burning through cash and its bonds have fallen to a record low. The biggest drain is GMAC's Residential Capital LLC home-lending unit, which lost $1.9 billion in the second quarter -- 2-1/2 times more than the auto loan unit.
GM to put French factory, Hummer brand up for sale General Motors Corp.'s treasurer said Wednesday that the automaker is planning to put its Strasbourg, France, manufacturing operation and its Hummer truck brand up for sale, and it may announce more asset sales later this year. Company Treasurer Walter Borst said in a slide presentation at the Deutsche Bank Leveraged Finance Conference that the company expects to distribute marketing materials for both operations in October. The slides posted on GM's Web site Wednesday say the assets under review are worth $2 billion to $4 billion. The presentation also says GM continues to review other asset sales and will make more announcements in the fourth quarter.
Daimler in talks to sell the rest of Chrysler German carmaker says talking with private-equity firm Cerberus Germany's Daimler AG said Wednesday that it is in talks to sell its remaining stake in Chrysler LLC to private-equity firm Cerberus Capital Management LP. Daimler spokesman Han Tjan confirmed a report in Germany's Manager Magazin that the company is in talks to sell the 19.9 percent it owns in the U.S.-based automaker, but he would not say how long the discussions have taken place or give other details. Cerberus said in a statement that it approached Daimler about the purchase. If the transaction is successful "all existing industrial relationships between Daimler and Chrysler would continue," the statement said, giving no details.
Fitch downgrades GM's 'junk' rating further Analyst sees company struggling with demand, raw materials, capital Fitch Ratings downgraded General Motors Corp.’s credit rating deeper into junk status Monday, saying the automaker faces headwinds in almost every direction and its liquidity could drop to "minimum required levels" within the next year. The credit ratings agency said it reduced GM’s issuer default rating one notch to "CCC" from "B-." Both ratings are noninvestment, or junk, grade. Fitch analyst Mark Oline said GM faces pressures from tightening credit in the U.S., weakening overseas sales, rising raw materials prices, continued sales declines in North America and the need for a large amount of capital spending to transform its lineup from trucks and sport utility vehicles to smaller, more fuel-efficient models.
Managing the Bailout: He’d Do It for Nothing One of the chief concerns about the Treasury Department’s $700 billion bailout plan is that the same Wall Street firms that helped create the crisis could make a killing cleaning it up. William H. Gross, the manager of the country’s largest bond mutual fund, has a solution: he is offering to sort through the toxic assets — free. “We have a large and brilliant staff that can analyze and has analyzed subprime mortgages that can help the Treasury out,” Mr. Gross, the co-chief investment officer for the Pacific Investment Management Company, said in an interview at the company’s headquarters here. He added, "And I’d even be willing to say that if the Treasury wanted to use our help, it would come, you know, free and clear."
Buffett Considering Buying AIG Assets Bottomfeeder's bold buys with taxpayers playing backstop Billionaire investor Warren Buffett said on Wednesday his Berkshire Hathaway Inc insurance and investment company would consider buying some units from American International Group Inc, the insurer bailed out by the U.S. government. Buffett said he expressed interest in buying parts of the giant insurer over the September 13-14 weekend, when regulators and financial industry executives were holding emergency talks on problems that included the fate of Lehman Brothers Holdings Inc, which filed for bankruptcy protection on September 15. Speaking on CNBC television, Buffett said he "expressed an interest in one or two" AIG units that weekend, "but the pressures were such and the hole was deep enough that they simply couldn't get it worked out.
Credit crunch freezes hiring, expansion When small businesses can't get loans, job growth and economic expansion stall. After 41 years in business, Hull Printing shut down its printing presses for good in March, laying off 19 workers and closing one of the oldest family-run businesses in Barre, Vt. The catalyst: Hull Printing's bank slashed its line of credit, kicking off a death spiral that led to the company's collapse. "All of the equipment's gone and been liquidated," said Jon Hull, 32, whose grandparents started the commercial printing business in 1967. "The bank got all of their money back, but it left a lot of unsecured creditors that will never be paid back, including many other small businesses in town."
House approves bill to curb credit-card abuses House lawmakers on Tuesday voted to 312 to 112 to approve credit-card legislation that would curb fees and practices that critics have called unfair to consumers. The bill would ban retroactive interest-rate increases on existing balances and require advance notice of interest-rate hikes to cardholders, among other moves. "Amidst the financial turmoil on Wall Street, today the House took steps to help those on Main Street," said Rep. Carolyn Maloney, D-N.Y., who has spearheaded the legislation. "It's now abundantly clear that in the area of consumer credit, the same lack of reasonable regulations, transparency and prudent lending has led to a level of pain on Main Street that matches or exceeds the pain on Wall Street." Consumer advocates say the bill is needed to protect cardholders from overly aggressive fees. "We consider winning a House vote ... to be an important milestone because it sends a clear message to the Fed not to weaken proposed rules. Banks are begging the Fed to weaken rules," said Ed Mierzwinski, consumer program director with U.S. Public Interest Research Group.
Credit card insiders tell of deceptive practices Two former employees of credit card issuer MBNA, now owned by Bank of America, said on Wednesday they were forced to use aggressive and deceptive practices with customers in order to boost revenues. Cate Colombo, from Maine, said she signed up for a customer service job but was instead instructed to make insistent sales pitches aimed at getting MBNA customers deeper into debt. "I was hired to sell money," she said on a conference call organized by Americans for Fairness in Lending, an advocacy group. "We had a goal of selling $25,000 an hour, $4 million per month. And I was one employee among hundreds, just at this one site." To meet these goals, Colombo said she was told to turn every regular call from a customer into a sales call. She would do this by running the customer's name through the computer and finding out every possible line of credit they had ever obtained through MBNA.
U.S. Economy Faces Deep Downturn Former General Electric Co Chairman and CEO Jack Welch said the U.S. economy faces a deep downturn in coming quarters, and he supports a proposed $700 billion government rescue package for the financial sector. "I now believe we are in for one hell of a deep downturn," Welch told the World Business Forum in New York on Wednesday, adding that the first quarter of 2009 would likely be "brutal." Until recently, Welch said, he had believed the U.S. economy could avoid recession, but he has now changed his mind. "I am now caving," he said. "Get ready for real tough times. They're coming. There is no credit available." Welch said mortgage lenders, legislators, investment bankers and others are all to blame for the crisis, which stemmed from easy credit and investors' appetite for yield. "The problem was money didn't cost anything," Welch said. "People took swings."
Occidental to buy Midwest oil fields for $1.25B Occidental Petroleum to buy rest of Plains Exploration's stake in Midwest oilfields for $1.25B Occidental Petroleum Corp. said Thursday it will buy out Plains Exploration & Production Co.'s stakes in two jointly operated Midwest oil and gas fields for $1.25 billion. Los Angeles-based Occidental currently owns 50 percent of the properties, which include the Permian Basin in west Texas and New Mexico, and the Piceance Basin in Colorado. The deal is expected to close in the fourth quarter, pending government approval. The facilities currently produce about 13,000 barrels of oil equivalent per day, and have about 92 million barrels of oil equivalent proved reserves. At the Piceance Basin alone, Occidental said that during the first half of 2008 it produced 50 million cubic feet of natural gas per day, and expects to hit 200 million cubic feet per day by 2010.
Precursor to WAR? . . . or an excuse to take focus off of Wall Street Bailout?
Pentagon Says Pakistan Fired on U.S. Aircraft, Expects Explanation Pakistani troops fired on U.S. helicopters patrolling eastern Afganistan Thursday, the Pentagon said, adding that it expects an explanation Two American OH-58 reconnaissance helicopters, known as Kiowas, were on a routine afternoon patrol in the eastern province of Khost when they received small arms fire from a Pakistani border post, said Tech Sgt. Kevin Wallace, a U.S. military spokesman. There was no damage to aircraft or crew, officials said. "They did not cross the border and they did not fire back," Wallace said. The Pakistani military disputed that assertion, saying its troops fired warning shots when the two helicopters crossed over the border — and that the U.S. helicopters fired back.
Pakistan Said to Fire on U.S. Copters Pakistani troops fired at American reconnaissance helicopters patrolling the Afghan-Pakistan border Thursday, heightening tensions as the U.S. steps up cross-border operations in a region known as a haven for Taliban and al-Qaida militants. Two American OH-58 reconnaissance helicopters, known as Kiowas, were on a routine afternoon patrol in the eastern province of Khost when they received small arms fire from a Pakistani border post, said Tech Sgt. Kevin Wallace, a U.S. military spokesman. There was no damage to aircraft or crew, officials said. ''They did not cross the border and they did not fire back,'' Wallace said. The Pakistani military disputed that assertion, saying its troops fired warning shots when the two helicopters crossed over the border -- and that the U.S. helicopters fired back.
Pakistani Troops Fire on US Helicopters at Border Pakistani troops fire on US helicopters at Afghan border; US demands explanation Pakistani troops fired at American reconnaissance helicopters patrolling the Afghan-Pakistan border Thursday, heightening tensions as the U.S. steps up cross-border operations in a region known as a haven for Taliban and al-Qaida militants. Two American OH-58 reconnaissance helicopters, known as Kiowas, were on a routine afternoon patrol in the eastern province of Khost when they received small arms fire from a Pakistani border post, said Tech Sgt. Kevin Wallace, a U.S. military spokesman. There was no damage to aircraft or crew, officials said. "They did not cross the border and they did not fire back," Wallace said. The Pakistani military disputed that assertion, saying its troops fired warning shots when the "When the helicopters passed over our border post and were well within Paskitani territory, own security forces fires anticipatory warning shots. On this, the helicopters returned fire and flew back," a Pakistani military statement said. The Pakistani military said the matter was "being resolved" in consultations between the army and the NATO force in Afghanistan. A NATO statement said the militaries were "working together to resolve the matter.
Israel's Peres calls Iranian leader a "disgrace" Israeli President Shimon Peres called Mahmoud Ahmadinejad a danger and a disgrace on Wednesday, rebuking the Iranian president for his vitriolic condemnation of Israel and Zionism at the United Nations. Taking the podium a day after Ahmadinejad's speech blaming "Zionist murderers" for everything from the Wall Street crisis to Russia's invasion of Georgia, Peres said: "His appearance here is already a shame." This week's annual General Assembly gathering of world leaders was the latest setting for a long-running war of words between Israel and Iran as Tehran presses ahead with its nuclear program in defiance of U.N. sanctions. Israel's Peres says Ahmadinejad 'taking world for a fool' Israeli President Shimon Peres sharpened his attack on Iran's President Mahmoud Ahmadinejad on Thursday, accusing him of "taking the world for a fool" in his statements to the UN General Assembly. "(Ahmadinejad) has committed a fatal error, and is taking the world for a fool. He thinks he is an absolute prophet, proclaiming that there is no more hope for the United States or Israel," Peres told Israeli public radio. "It is shameful to Islam, to all religions, to the United States, and to democracy. His voice does not come from heaven but hell and one day it will pass away like a breeze," he said in the interview conducted in New York. Israel has long considered Iran its greatest threat, both because of Tehran's accelerating nuclear programme and repeated statements by its leaders predicting the demise of the Jewish state.
Russia will not meet with U.S. on Iranian nuclear program Russia said that it would not participate in a meeting with the United States this week to discuss Iran's nuclear program, the most significant indication yet of how Russia's war with Georgia has spoiled relations regarding other security issues. Russia's move apparently effectively scuttled the meeting. The Russian Foreign Ministry issued a biting statement Tuesday that criticized remarks made last week by the U.S. secretary of state, Condoleezza Rice, who declared that Russia had taken "a dark turn" away from democracy and respect for international norms. "We would very much like Washington, in the end, to make up its mind what kind of relations they want with Moscow," a ministry spokesman, Andrei Nesterenko, said in the statement. "If they want to punish Russia, that is one thing. If they agree that we have common interests that need to be jointly advanced, then that's another."
Pentagon: crashed "drone" in Pakistan not from U.S. The Pakistani military said on Wednesday a pilotless aircraft that crashed in the northwestern region of South Waziristan had been recovered, but the Pentagon denied any U.S. drone had been lost in the area. Other countries with troops in the NATO-led force in neighboring Afghanistan use unmanned aerial vehicles, but the United States is the only one known to fly them inside Pakistan. Britain also said none of its aircraft operating in Afghanistan were missing. A spate of recent missile attacks by unmanned U.S. aircraft in Pakistan has strained ties between the allies. Pakistan has said such attacks are a violation of its sovereignty and the army has vowed to defend Pakistani territory. The U.S. military said on Wednesday one of its aerial vehicles had gone down with engine problems in Paktika province in eastern Afghanistan, about 60 miles west of the Pakistani border on Tuesday, but U.S. forces had immediately recovered the aircraft. Pentagon spokesman Bryan Whitman said there were no reports of any downed unmanned aerial vehicles in Pakistan. It was not immediately possible to reconcile the Pakistani and U.S. statements.
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US dollar set to be major casualty of Hank Paulson's bailout "This may prove to be the dollar’s epochal moment – the moment historians look back at as its major turning point." Whether or not tomorrow’s accounts of today’s turmoil prove David Owen of Dresdner Kleinwort right; whether or not this is the beginning of the end of the dollar’s pre-eminence in the world’s central banks and foreign exchanges, the economic landscape has undoubtedly changed forever. The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen. But as investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable – the US dollar will have to take another major fall.
Washington must heed fiscal alarm bell By David Walker What do AIG, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch have in common? Some thought that these companies were too big to fail. They were wrong: all of these companies have either filed for bankruptcy, been “bailed out” by the government, or, owing to the sub-prime crisis, have been acquired. Over the weekend, the US government went one step further, with its proposals for an estimated $700bn (€493bn, £391bn) bail-out to ease the credit crisis. The US government truly is too big to fail. However, there are disturbing parallels between the factors that led to the sub-prime crisis and the deteriorating financial condition and fiscal foundation of our federal government. These similarities ought to ring an alarm bell for Congress and the presidential candidates. The question is, will they hear it and wake up? The first parallel relates to the dangerous disconnect between the parties who benefit from various imprudent practices and those who bear the related risk and ultimately pay the price. In the housing crisis, some originators of unwise mortgages have not paid a price for their actions. In the case of our federal government, politicians have increased spending, expanded government entitlement programmes, and agreed tax cuts without considering their long-term costs.
Hitler gets a margin call . . . .
U.S. Troops In Homeland "Crowd Control" Patrols From October 1st U.S. troops returning from duty in Iraq will be carrying out homeland patrols in America from October 1st in complete violation of Posse Comitatus for the purposes of helping with “civil unrest and crowd control” - which could include dealing with unruly Americans after a complete economic collapse. This shocking admission was calmly reported on September 8th by the Army Times website, which reports that from the beginning of next month the 3rd Infantry Division’s 1st Brigade Combat Team "Will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks." The article notes that the deployment "marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities."
Bailout: It’s all part of the New International Economic Order According to a recent Rasmussen Reports survey, 28% of Americans support the banker bailout plan and another 35% are not sure what to think. “Adding weight to the large number of undecideds is the finding that 82% of Americans are following the bailout story, including 44% who say they are following it very closely. Sixty-five percent (65%) say they are at least somewhat confident they understand the reasons why the plan is being proposed.” In fact, most people have no idea what’s behind the plan because the corporate media is not telling them the whole story. Most do not realize there is a crash right around the corner and it is part of the New International Economic Order — synonymous with the phrase New World Order — proposed by the Trilateral Commission, a coterie of bankers and directors of transnational corporations headed up by the chairman of Chase Manhattan Bank and a central figure in the Council on Foreign Relations, David Rockefeller.
Paulson plan throws oil on fire With the creation of the so called Mortgage and Financial Institutions Trust (MFI), the unfolding financial crisis, considered by many to be the worst in over 60 years, has become ever-more dangerous. While such an institution has not existed in any country, the MFI could prove to be disastrous for US public finance, economic growth, the dollar, relations with major foreign holders of dollars, the global financial system, and could ignite the worst inflation in the economic history of the United States and reverse globalization to levels not seen since the Great Depression. The initial cost of the MFI, put at US$700 billion, could easily escalate to trillions of dollars. At the same time, the Congressional Budget Office had previously projected a record fiscal deficit of US$500 billion for 2009. The MFI will further blow up the deficit to an unprecedented level, exceeding US$1.4 trillion. US debt, jumping with the takeover of Fannie Mae and Freddie Mac to 86% of GDP, has moved to an unsustainable level.
Bush Considering Address to Nation on Market Crisis President George W. Bush may give a national address on the crisis in U.S. financial markets as his administration steps up pressure on Congress to approve a $700 billion rescue plan, his spokeswoman said. "This is a huge moment for America and if we don't take decisive and bold action we could face financial calamity," White House press secretary Dana Perino said today. "How the president addresses this issue, whether, how, when and where, is under consideration." With the nation facing the worst financial upheaval since the Great Depression, Bush is proposing that the government take over the troubled assets of financial companies. He canceled a trip to a political fundraiser in Florida today to focus on the economy.
Congress balks at huge US financial bailout US lawmakers were digging their heels in Wednesday against the government's 700-billion-dollar financial rescue package, setting the scene for a fierce showdown on Capitol Hill watched anxiously by markets around the globe. Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson were facing another day of testimony, after Tuesday's cold-shoulder reception by senators balking at a swift passage of the bailout. The duo argued that failure to pass the emergency measure quickly would put the entire US economy at risk, but lawmakers appeared unwilling to let Wall Street off the hook at the massive expense of US taxpayers, while the FBI reportedly launched a probe of failed banks and mortgage giants.
Paulson, Bernanke Put Bank Aid Ahead of Best Deal Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke have signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys. "I am not advocating that the government intentionally overpay," Bernanke told the Joint Economic Committee today, in response to a question from U.S. Rep. Jim Saxton, a New Jersey Republican.
Buffett Buys Goldman Stake in 'Economic Pearl Harbor' Billionaire Warren Buffett, calling turmoil in the markets an "economic Pearl Harbor," said his $5 billion investment in Goldman Sachs Group Inc. is an endorsement of the Treasury's $700 billion bank rescue plan. "I am betting on the Congress doing the right thing for the American public and passing this bill," Buffett said on cable channel CNBC today. "I certainly have a vote of confidence in Goldman and vote of confidence in Congress." Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke are pushing Congress to quickly approve the proposal to remove illiquid assets from the banking system. Buffett is buying a stake in New York-based Goldman after three of the investment bank's biggest competitors collapsed or were forced into emergency sales.
Analyst says intervention big mistake While some push for an extension of the US bail-out to homeowners, others argue that the whole idea of a Government rescue is folly. Peter Schiff is the president of Euro Pacific Capital in Connecticut. He believes in the purist free market principles of what's called the 'Austrian School of Economics'. Peter Schiff says the market must be left to deal with the mess, and Government intervention will merely delay the inevitable reckoning and lead to a far worse crash. PETER SCHIFF: Well I don't think it's gonna rescue us from anything. I think what we're doing is the equivalent of selling our financial souls to the devil, because it was the government that got us into this mess. It's Henry Paulson, it's Ben Bernanke and his predecessor Alan Greenspan, they created this mess, not the free market and there's no solution that involves more government. And there's certainly no solution that involves more inflation. I mean if we think we can solve our problems by creating inflation, we ought to send some of these guys down to Zimbabwe to see how well it's working out for them.
Commercial-Property Players Find Their Pressures Growing $$ As Crisis Spreads, Market Seizes Up; Capital Preservation For the commercial-real-estate players that were in hot water before the capital-markets crisis of the past two weeks, the temperature is rising. Retail giant Centro Properties Group, New York developer Macklowe Properties, office-building investor Broadway Real Estate Partners LLC and others are now facing an even rougher ride in the wake of Lehman Brothers Holdings Inc.'s bankruptcy, the collapse of American International Group Inc. and the buyout of Merrill Lynch & Co. by Bank of America Corp. After these and other market crises, cash-flow projections for properties are being scaled back in anticipation of a greater economic slowdown. The sales market -- long considered the last hope of many distressed players -- has virtually ground to a halt.
Paulson Plan Seeks Value for Mortgages That Eluded Bear, Lehman U.S. Treasury Secretary Henry Paulson's bailout plan hinges on answering the question that has vexed global markets for more than a year and sunk two securities firms: What's a bad mortgage worth? Pay too much for hard-to-value mortgage debt held by banks and recouping taxpayers' $700 billion investment becomes less likely, Merrill Lynch & Co. analysts led by Akiva Dickstein wrote in a Sept. 22 report. Pay too little and the banks may either refuse to sell or be forced to hoard cash to make up for losses, the analysts said.
Bernanke, Paulson and the US Government Following Eggertsson Buy High Policy Many people have been wondering what the cost of all this intervention may be. I firmly believe that Bernanke, Paulson and the US Government are following the ideas laid out in Eggertsson's work "An interpretation of The Deflation Bias and Committing to Being Irresponsible". The following is from the work that Eggertsson did and I interpreted. It shows that the plan to buy assets was long in place before the current problems. One of those credited in the paperby Eggertsson is Ben Bernanke: ---- What Eggertsson means is if tax cuts are so large as to cut govt spending by 10% (tax breaks forever?) then to keep an inflationary bias as a credible outcome (keep inflation expectations in the mind of Institutions, Business and Joe Public) would require the use of a sum equivalent to 70% of US GDP to buy "real assets".
Bernanke Sees 'Grave Threats' to Financial Stability Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing "grave threats" to financial stability and warned that the credit crisis has started to damage household and business spending. "Economic activity appears to have decelerated broadly," Bernanke said today to a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. "Stabilization of our financial system is an essential precondition for economic recovery." Bernanke's remarks may stoke investors' expectations for the Fed to lower interest rates by year-end to alleviate the impact of the worst financial crisis since the Great Depression. The Fed chief reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion rescue fund to remove devalued assets from the banking system.
Bail-out cost 'impossible' to estimate The cost of the Treasury plan to save the US financial system from collapse cannot be estimated because it is too vague, Peter Orszag, head of the Congressional Budget Office, told legislators on Wednesday. At a hearing before the House budget committee, Mr Orszag said: ”The secretary would have the authority to purchase virtually any asset, at any price, and sell it at any future date; the lack of specificity regarding how that authority would be implemented makes it impossible at this point to provide a quantitative analysis of the net cost to the federal government.” But Mr Orszag added that the CBO, which analyses the cost of legislation on a non-partisan basis, expected the Treasury to ”fully use” the $700bn authority in the fiscal year of 2009 it is demanding. Over time, he said, the government would recover some of that money, but the extent to which this would happen could not be estimated. His comments could further inflame opposition to the Treasury plan on Capitol Hill, where both Democratic and Republican politicians have expressed anger at the prospect of giving a ”blank cheque” to the government.
Mushroom Cloud over Wall Street as US Constitution Burns These are dark times. While you were sleeping the cockroaches were busy about their work, rummaging through the US Constitution, and putting the finishing touches on a scheme to assert absolute power over the nation's financial markets and the country's economic future. Industry representative Henry Paulson has submitted legislation to congress that will finally end the pretense that Bush controls anything more than reading the lines from a 4' by 6' teleprompter situated just inches from his lifeless pupils. Paulson is in charge now, and the coronation is set for sometime early next week. He rose to power in a stealthily-executed Bankster's Coup in which he, and his coterie of dodgy friends, declared martial law on the US economy while elevating himself to supreme leader.
"All Hail Caesar!" The days of the republic are over. Section 8 of the proposed legislation says it all:
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
Right; "non-reviewable" supremacy.
Congress, of course, is more than eager to abdicate whatever little authority they have left. They're infinitely grateful for their purely ceremonial role, the equivalent of Caligula's horse, albeit, with considerably less dignity. Has even one senator spoken out against this madness, which--according to informal internet polls--is resoundingly rejected by the voters?
A default by the US government is no longer unthinkable So, here we are – the start of a new world order. After the tumultuous events of the last fortnight, the global economic landscape will never look the same again. Power has tangibly shifted – away from the United States and the Western world generally, and towards the fast-growing giants of the East. That’s been happening for some years now. But September 2008 marks the moment when the scale of our excesses, the extent of our debts and the moral bankruptcy of our financial regulatory system finally began to be I say began to be exposed. Back in March, Standard and Poor’s, the US ratings agency, estimated some $285bn (£156bn) of mortgage-backed securities would eventually be written-off by the global banking sector. On Friday, almost unnoticed amid the panic, that forecast was upped to $378bn. In reality, total credit losses will be much higher — at least $750bn in my view. But the extent of the 33 per cent one-off increase in S&P’s estimate speaks volumes. It reflects just how little anyone truly knows about either the ultimate size of the sub-prime losses or who ultimately holds the related securities. But with one in ten US mortgages now “delinquent” or “in foreclosure”, and house prices still falling, such "toxic waste" is burning holes in balance sheets wherever it sits. That’s why this crisis is far from over.
Fed plows $30 billion in money markets overseas Federal Reserve plows $30 billion into money markets overseas to ease credit stresses The Federal Reserve, in coordinated action with foreign central banks, plowed $30 billion into money markets overseas Wednesday, part of an ongoing effort to fight a global credit crisis. The Fed's action -- taken at 1 a.m. EDT -- sets up temporary "swap" arrangements to supply dollars to the central banks of Australia, Denmark, Norway and Sweden in exchange for their currencies. "These facilities, like those already in place with other central banks, are designed to improve liquidity conditions in global financial markets," the Fed said in a brief statement. "Central banks continue to work together during this period of market stress and are prepared to take further steps as the need arises," the Fed added.
Former IMF chief calls for global market regulator Former IMF chief Camdessus: Financial markets should have international regulation A former director of the International Monetary Fund says financial markets need international regulation to avoid another crisis. Michel Camdessus says the international community should have spoken out against the unregulated banking practices that spread globally from the United States. He describes many of those practices as ethical failures. Camdessus was head of the IMF for 13 years, including the period of the Asian financial crisis in the late 1990s.
Hey Congress, You Already Passed Homeowner Bailout As Congressional Democrats and the Bush Administration wrangle over the need for aid to homeowners in the Wall Street bailout plan, both sides appear to have forgotten that Congress approved a $300 billion mortgage rescue package in late July. “We already have a rescue package for homeowners,” says Nariman Behravesh, chief economist at Global Insight, sounding a bit dumbfounded by the development. “Things get so weird in a presidential election year.” Among the provisions of the Housing And Economic Recovery Act of 2008 is the Hope for Homeowners program, which was designed to provide up to $300 billion for the refinancing of about 400,000 mortgages whose default might lead to foreclosure. The program starts Oct. 1 and runs for three years. Expensive, too. Put together, the Hope for Homeowners and Wall Street bailout total $1 trillion.
No bailout The massive federal scheme ($700 billion and apparently growing) to have taxpayers buy up bad mortgages that is currently being cobbled together by the Bush administration and a bipartisan coalition on Capitol Hill is a terrible idea. It constitutes a large transfer of wealth from the American taxpayer in an effort to revive failed private-sector businesses that should be permitted to fail - something that is essential if a free-market capitalist system is to survive and prosper in the future. Aside from the dubious substance of the legislation, Treasury Secretary Henry Paulson, the Bush administration's point man in pushing for the mortgage bailout bill, is pressing Congress to act with what can only be called unseemly haste, insisting that if lawmakers do not fork over the money right away, the American economy will collapse. Congress may vote on the bill (which is still being written) as early as Friday. This bailout package does not represent fiscal conservatism. It is untenable. If ever there were legislation that deserves careful, deliberate analysis and consideration, it's this measure.
Issue Is Payback, Not Bailout So are you for the bailout or against it? Many people, I'm guessing, don’t have an immediate answer to the question. They understand that the financial crisis is serious enough to require a big response from the government. But they also hate the idea of rewarding Wall Street for its failures and are wary of yet another assurance from the Bush administration that this step will be the one that contains the crisis. Imagine, then, what it’s like to be in Congress this week. Most members of Congress have no expertise in the byzantine details of mortgage finance — or even have aides on their staff with such expertise. "The problem here is none of us has that kind of advice," Senator Charles Schumer, Democrat of New York, who knows more about Wall Street than most of his colleagues, told me.
Congress Objects to Lack of Help Aimed at Homeowners The White House waged a multifront campaign Tuesday to persuade Congress to accept its vast economic bailout plan, though many in Congress, still unhappy with what they were hearing, continued to push for changes that would provide stronger protection for taxpayers and impose tougher terms on financial institutions. President Bush told world leaders that the United States had taken “bold steps” to deal with the financial crisis, while Vice President Dick Cheney and other top officials went to Capitol Hill to address lawmakers. Treasury Secretary Henry M. Paulson Jr. and the chairman of the Federal Reserve, Ben S. Bernanke, faced five hours of grilling by skeptical, angry members of the Senate Banking Committee. But with just six weeks before an election, Congress and the administration were negotiating intensely behind the scenes to resolve major sticking points in the plan, and some of the drama was intended for hometown audiences.
Only 28% Support Federal Bailout Plan Most Americans are closely following news reports on the Bush Administration’s federal bailout plan for the country’s troubled economy, but just 28% support what has been proposed so far. Over one-third of voters (37%) oppose the $700-billion plan, and nearly as many (35%) are undecided, according to a new Rasmussen Reports national telephone survey taken Sunday night. Details of the plan were made public on Saturday. Investors, who account for 62% of the nation’s voters, are evenly divided on their views of the plan: 36% favor it, and 36% oppose it. Twenty-eight percent (28%) are undecided. Among non-investors, only 15% support the plan, while 41% oppose it.
Consumer, Investor Confidence Nearing All-Time Lows Consumer and investor confidence continues to fall and is now approaching the lowest levels ever recorded in the seven-year history of the Rasmussen Index. The turmoil on Wall Street has wiped out three months worth of improving economic confidence. The Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, fell two more points on Thursday to 70.3. That’s down sixteen points since the failure of Lehman Brothers ignited the latest round of financial concern and is just four points above the lowest level of confidence ever measured. Overall, adults are pessimistic on the current state of their personal finances. While only 21% feel that their personal finance are getting better, most (54%) claim their finances are worsening. Among men, 24% say their finances are getting better; 50% claim they're getting worse. Women are much less positive--18% state their finances are improving, but 58% feel they're worsening.
Opposition to Bailout Plan Grows but Still Expected to Pass The more voters learn about the proposed $700 billion federal bailout plan for the U.S. economy, the more they don’t like it, according to a new Rasmussen Reports national telephone survey taken Monday night. Now 44% oppose the taxpayer-backed plan, up seven points from 37% yesterday. Twenty-five percent (25%) support it now, versus 28% in the earlier poll. Thirty-five percent (35%) were undecided before; now 31% are. While 35% think the bailout plan will help the economy, nearly as many (30%) say it will hurt, and 13% believe it will have no impact at all. But, despite their concerns, 74% of voters also believe it is at least somewhat likely to be approved by Congress this week.
Paulson bailout: seizing moral high ground can be hazardous They are at it again, the moral hazard fundamentalists. Critics of the Paulson bailout plan insist that the banks must pay for having their toxic assets removed. Otherwise, the proposal “completely eviscerates the concept of moral hazard”, according to Henry Waxman, a leading Democratic congressman. This is because it would enrich the Wall Street executives whose reckless investments caused the financial crisis. Having learnt the term, people tend to get a great deal too excited about moral hazard, the idea that by compensating people for the cost of their own reckless behaviour you encourage similar behaviour in the future. The US Federal Reserve was accused of ignoring moral hazard when it helped JPMorgan Chase to rescue Bear Stearns. As if arranging for shareholders to get $2 a share for stock with a book value of $80 would encourage reckless lending in future.
U.S. Economy: Home Resales Drop; Bernanke Sees Tighter Credit Sales of previously owned U.S. homes fell more than forecast in August and prices dropped the most on record as Federal Reserve Chairman Ben S. Bernanke suggested the housing market may get worse before it gets better. Sales of existing homes dropped 2.2 percent to an annual rate of 4.91 million units from 5.02 million the prior month, the National Association of Realtors said today in Washington. The median price declined 9.5 percent from August 2007 and the number of properties fell from a record.
Republicans Press Paulson for Time to Revise Rescue Proposal House Republicans warned Treasury Secretary Henry Paulson today that his $700 billion financial rescue plan wouldn't pass and asked for more time to consider alternative ideas, a lawmaker said. "The $700 billion bill is simply not going to pass, and they recognize that," Representative Ray LaHood of Illinois said after Republicans met with Paulson behind closed doors at the U.S. Capitol today. "Now it is up to Congress."
Meltdown and Bailout: Why Our Economic System Is on the Verge of Collapse Bush wants to fleece us for hundreds of billions in the financial crisis, but that's just the first layer of a more fundamental economic problem. The immediate cause of our financial meltdown is unchecked, unbridled greed. Mainstream newspapers and the business press are doing a fairly good job of explaining how the lack of regulatory oversight led us into this nightmare. But you have to dig down one layer to find the cause of that situation. Under cover of the ideological euphemism known as the "free market" and with enormous cash investments over the past four decades, business elites have captured the regulatory organs of powerful democratic states -- nowhere more so than the United States -- and promoted their own narrow economic agendas for short-term gain.
US at a turning point This is now a national disaster for the United States. The centrality and import of inexpensive and available credit to America's function is total. We have moved well beyond a subprime crisis. We have moved well beyond a financial industry crisis. The position of the US economy is in jeopardy and the employment security and wealth of the nation is now very much in play. Like the nations of East Asia in the aftermath of the Asian financial crisis of 1997-8, or Eastern Europe after the collapse of the Soviet Union in 1991, our way of economic life - warts and all - is imperiled. No matter what happens as the week comes to a close our lives have changed. Shock waves are emanating out from the debt collapse ground zero. US$3.6 trillion in global stock market wealth has evaporated this week. The job losses and macro effects are not far off.
Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. Section 8 (which ironically reminds one of the popular name of the portion of the 1937 Housing Act that paved the way for subsidized affordable housing ) of this legislation is just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Mad as hell - taxpayers lash out We asked you what you had to say about the bailout, and we heard you loud and clear: 'No way!' "NO NO NO. Not just no, but HELL NO," writes Richard, a reader from Anchorage, Alaska. "This is robbery pure and simple," Anna from Denver posted on CNNMoney.com's TalkBack blog this weekend. "It's our money! Let these companies die," added Claudio from Plainville, Conn. After President Bush petitioned Congress Saturday for the authority to spend up to $700 billion to to bail out a financial industry on the verge of collapse, he said the high price tag was not only justified, but essential. "It is a big package because it's a big problem," Bush told reporters at a news conference. "The risk of doing nothing far outweighs the risk of the package." But when asked what they thought of the government's proposal, most readers gave an overwhelming thumbs down.
Americans Oppose Bailouts, Favor Obama to Handle Market Crisis Americans oppose government rescues of ailing financial companies by a decisive margin, and blame Wall Street and President George W. Bush for the credit crisis. By a margin of 55 percent to 31 percent, Americans say it's not the government's responsibility to bail out private companies with taxpayer dollars, even if their collapse could damage the economy, according to the latest Bloomberg/Los Angeles Times poll. Poll respondents say Democratic presidential nominee Barack Obama would do a better job handling the financial crisis than Republican John McCain, by a margin of 45 percent to 33 percent. Almost half of voters say the Democrat has better ideas to strengthen the economy than his Republican opponent.
The shadow banking system is unravelling Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders. Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a self?fulfilling and destructive run on its ?liquid liabilities. But unlike banks, which are sheltered from the risk of a run – via deposit insurance and central banks’ lender-of-last-resort liquidity – most members of the shadow system did not have access to these firewalls that ?prevent runs. A generalised run on these shadow banks started when the deleveraging after the asset bubble bust led to uncertainty about which institutions were solvent. The first stage was the collapse of the entire SIVs/conduits system once investors realised the toxicity of its investments and its very short-term funding seized up.
Bernanke and Paulson: Here's Why We're Screwing You At today's Wall Street Bailout Hearings, we finally learned what Hank Paulson and Ben Bernanke are thinking. Specifically, we learned what prices they plan to pay for the crap assets they're buying (more than they're worth). And we learned why they picked this plan instead of one more like Sweden's in the early 1990s, which included the government taking ownership stakes in the banks it saved. The main justification for the plan is that taxpayers are already screwed because banks have stopped lending money. The big difference between this bailout and the ones that have come before, meanwhile, is that the banks aren't yet on death's door. Thus, in Paulson and Bernanke's opinion, these banks must be persuaded to participate in the bailout--by making it a boon to them and a liability for taxpayers. What Paulson and Bernanke are trying to do, in other words, is fast-forward the economic-crisis movie a couple of months: Instead of waiting until the banks realize that they are hosed and come begging for help, we'll just solve all their problems now.
Understanding the Crisis What caused this? It is a simple question, and yet answers are all over the map, as you might expect. Here's mine in two words: fiat money. The word fiat means: out of nothing. Money out of nothing is money that is eventually worth nothing. The possibility of precisely that happening emerged on August 15, 1971. Since Nixon severed the last tie of the dollar to gold, the world's monetary system has not been restrained by anything physical. We've depended on the discretion of central bankers. We can't trust that, and this crisis shows precisely why. Of course there are subsidiary factors. The lifting of restrictions on Freddie and Fannie. Subsidized lending. The Fed's artificially low interest rates. The Community Reinvestment Act. Financial "deregulation." The war. Bush profligacy. Debt. There is much more besides. But fighting each of these forces individually is like battling down flies at the garbage dump. The core issue is that there is nothing to restrain money creation. The first time that people hear this, they find their minds rather boggled, and they want to know more. My whole experience in this area is that once people start digging around the area of monetary theory, they find that 1) it is not as difficult a subject as it seems, 2) it is endlessly fascinating, and 3) it explains far more than they realized before.
Bailouts will lead to rough economic ride Ron Paul commentary on bailouts Many Americans today are asking themselves how the economy got to be in such a bad spot. For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression. Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention. Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage home building and home ownership.
The Bailout Plan: Welcome to Economic Shock and Awe See if this sounds familiar: There is a gathering threat to the safety of the United States. We must take immediate action. Congress must quickly grant the President and the Secretary what they want and also give them full and unfettered authority to execute the plan. Welcome to Economic Shock and Awe (or as some have dubbed it, according to Paul Krugman, "the Authorization for Use of Financial Force"). Even the amount of taxpayer money being bandied about -- $1 trillion -- is similar. Think you got your money's worth for the Iraq war? Congratulations -- you're about to buy another pricey debacle. We've seen how negligent the Bush administration is with our money -- flushing billions on wasteful, mismanaged Iraq reconstruction and Katrina recovery projects. Now the same folks who brought us those no-bid, profit-guaranteed, crony-friendly, war-and-disaster-profiteering boondoggles want us to hand them control of a $700 billion Wall Street slush fund -- with no strings attached.
Auto loans included in must-pass spending bill A mammoth spending bill to keep the U.S. government running through March will include a $25 billion loan guarantee package for the struggling auto industry, House Appropriations Chairman David Obey said on Tuesday. The must-pass spending measure, which carries a price tag of more than $600 billion, is likely to come up for a vote on the House of Representatives floor on Wednesday, Obey told reporters. The inclusion of the low-interest loan guarantees is a victory for struggling U.S. manufacturers General Motors Corp, Ford Motor Co, and Chrysler LLC, which is controlled by private equity firm Cerebus Capital Management LLC.
Dire warnings fail to sway senators on big bailout Refusing to be pushed, Republicans and Democrats alike rebuffed dire warnings Tuesday from the government's top economic officials of recession, layoffs and foreclosed homes if Congress doesn't quickly approve the administration's emergency $700 billion financial bailout plan. Congressional leaders still predicted passage — with significant changes — but Wall Street's nerves were hardly soothed. The Dow Jones industrials sank 161 points and now are off more than 500 this week after initially surging on the bailout announcement last week.
Libor's Accuracy Becomes Issue Again $$ Questions on Reliability of Interest Rate Rise Amid Central Banks' Liquidity Push The accuracy of a widely used interest rate, seen as critical to judging the health of the financial markets at a precarious time, is coming under question for the second time this year. Doubts about the London interbank offered rate, or Libor, center on whether banks are understating what it costs them to borrow dollars in stressed financial markets. Libor's reliability became an issue again this week when banks paid higher interest rates to borrow using collateral than they did for unsecured loans.
Hank Paulson is shocked, shocked by Wall Street I am glad that Hank Paulson, who wants to raise a $700bn US government fund to buy distressed mortgage securities in an effort to restore confidence to financial markets, is an old Wall Street hand. In a world where Sarah Palin, the US Republican vice-presidential nominee, claims expertise about Russia because it can been seen from her home state of Alaska, it is reassuring to have a US Treasury secretary with actual experience. It is definitely more comforting to have Mr Paulson in the hot-seat than John Snow or Paul O’Neill, his predecessors. That said, Mr Paulson’s background as the former chairman and chief executive of Goldman Sachs, does raise questions.
Chris Cox versus Alan Greenspan on derivatives Listening to Chris Cox, the chairman of the Securities and Exchange Commission, giving evidence to Congress a few minutes ago, I was particularly struck by his assault on the lack of regulation of the over-the-counter derivatives market. Mr Cox described the unregulated $58,000bn credit default swaps market as "ripe for fraud and manipulation", saying that it was a forum for the shorting of corporate debt without the oversight imposed on cash markets.
Paulson’s plan was not a true solution to the crisis Desperate times call for desperate measures. But remember, no less, that decisions taken in haste may shape the financial system for a generation. Speed is essential. But it is no less essential to get any new regime right. No doubt, the crisis has long passed the stage when governments could leave the private sector to save itself, with just a little help from central banks. For the US, the rescue of Bear Stearns was the moment when that option evaporated. But the events of the past two and a half weeks – the rescues of Fannie Mae and Freddie Mac, the failure of Lehman Brothers, the sale of Merrill Lynch, the rescue of AIG, the flight to safety in the markets and the decisions by Morgan Stanley and Goldman Sachs to become regulated bank holding companies – have made a comprehensive solution inevitable. The US public expects action. The question is whether it will get the right action. To answer it, we must agree on the challenge the US financial system faces and the criteria for judging how it should be met.
Bail-out faces flak from wary Congress The US plan to create a $700bn financial rescue fund encountered widespread discontent in Congress on Tuesday as Ben Bernanke suggested that the government should buy toxic mortgage assets at more than their current distressed prices. The Federal Reserve chairman said that if the Treasury buys assets at a price "close to the hold-to-maturity price" rather than current "firesale" price there would be "substantial benefits". Banks would be able to mark their portfolios to the new higher prices rather than the current firesale prices. Mr Bernanke said taxpayers would still be reasonably safe as the government would pay less than the cash flow value of the securities. In effect, he argued that there could be a win-win solution for both taxpayers and banks.
Administration plan will be hard sell Administration may get financial bailout passed but only after hard sell to Congress The biggest government bailout in history may eventually win congressional approval but not easily, not without changes and not before lawmakers are finished venting what they call the frustrations of ordinary Americans over Wall Street greed and bad judgment. Fear that the economy would worsen if the government does nothing could help propel the legislation to passage. But the bipartisan skepticism that greeted Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke on Capitol Hill on Tuesday showed the $700 billion rescue package will be a hard sell at best.
Good luck to Congress on Wall St pay cut There was much at today's Senate Banking Committee hearing on the Treasury Department's proposed $700 billion bailout of Wall Street about executive compensation. Even Treasury Secretary Henry Paulson Jr., who himself made a fortune on Wall Street, said the incredible compensation packages on Wall Street troubled him: I've heard your comments on executive compensation. I share your frustrations. I feel those frustrations. Practices throughout America also upset me. Sen. Chris Dodd, chairman of the committee, told Paulson and Federal Reserve Chairman Ben Bernanke that whatever legislation the Congress agreed to would definitely address the pay issue.
National Banks fall with market National bank stocks end down after wobbling with market; analyst cuts 3rd-qtr, year estimates Stocks of national banks ended lower Tuesday, falling along with the broader market after tracking indexes back and forth through much of the session. Investors sent the market lower as Congress grilled Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on their plan to buy up $700 billion in soured loans from financial institutions. Meanwhile, high-profile analyst Meredith Whitney at Oppenheimer cut her forecasts for major banks and other financials, citing the recent market strain. "A virtual suction of liquidity has occurred in the credit and lending markets, and consumer and corporate credit is already showing the effects," wrote Whitney in a note to clients. "What started last summer has accelerated and intensified so much so that we believe any government bailout plan has little hope of improving core fundamentals over the near and medium term."
Paulson on bailout: Trust but verify The Senate Banking Committee and the government's top economic experts are getting into the weeds of the Paulson plan. But there is one overarching theme emerging: Let Treasury handle it. Treasury Secretary Henry Paulson has repeatedly expressed his view that Congress resist the temptation to legislate the mechanics of the plan as much as possible. One area in which Paulson has offered resistance involves giving taxpayers an equity stake in the outcome of the purchases and sales of the distressed assets. Another involves the method (as yet undeveloped) through which the assets would be valued and purchased by the government. Sen. Robert Bennett (R-Utah) described the challenge that would face the Treasury Department: "In theory, it's easy to describe and it will work," Bennett said. "But if you end up paying too little to this institution, you're not giving them the support that they need. If you end up paying too much, there is no upside potential for the taxpayer when you liquidate these assets."
Singapore fund warns of lengthy crisis in U.S. A Singapore sovereign wealth fund that bought large stakes in banks UBS AG and Citigroup Inc. warned Tuesday that the worst of the U.S. financial crisis may not be over even if Washington implements a $700 billion bailout plan. The Government of Singapore Investment Corp., or GIC, said the turmoil in the U.S. banking system will likely undermine the future earnings of the fund, which manages more than $100 billion. "The proposal put forth by the U.S. Treasury should stabilize the markets to some extent," said GIC Deputy Chairman and Executive Director Tony Tan at a news conference. "But we should not assume the worst is over. Financial markets and the economic situation have deteriorated significantly in the last five months."
Berkshire buying $5 billion stake in Goldman Sachs Warren Buffett's Berkshire Hathaway Inc. is investing at least $5 billion in Goldman Sachs, a huge vote of confidence for one of the survivors of the credit crisis that felled two of its investment banking peers. In addition to buying $5 billion in preferred stock, Berkshire also got warrants to buy another $5 billion in Goldman's common stock. Goldman also said late Tuesday it would raise another $2.5 billion in its own public stock offering. The news sent shares of Goldman Sachs and stock index futures soaring in electronic trading, after the Dow Jones Industrial Average posted a triple-digit decline for the second day in a row.
Republican anger at 'financial socialism' Congressional Republicans on Tuesday voiced their strongest objections to date about the Bush administration’s $700bn financial rescue plans, dealing a blow to White House ambitions for them to be quickly approved. As Hank Paulson, Treasury secretary, and Ben Bernanke, chairman of the Federal Reserve, predicted grim consequences if the plan were rejected, the Republicans’ Senate leadership called for new provisions on executive pay, which the administration opposes, while others cast doubt on the whole package. "We are going to advance taxpayers’ dollars, and government ends up in effect taking an equity position in businesses," Mitch McConnell, Senate minority leader, said. "I think the taxpayers should expect no less than strict limits on the type of executive compensation that might be possible for those involved in these partially government-controlled enterprises."
Bernanke: US should pay higher prices for assets Federal Reserve Chairman Ben Bernanke told Congress Tuesday the government should pay more than "fire-sale" prices for the toxic assets it would acquire under a proposed $700 billion bailout plan. That could mean both higher initial costs for taxpayers and reduced returns when the assets are later resold. Bernanke's comment was the first indication of how he and Treasury Secretary Henry Paulson are thinking about formulating the rescue plan's medicine in a way that doesn't kill the patients. Requiring banks and other financial institutions to sell troubled loans and other assets anywhere close to recent sales prices of only a few cents on the dollar could wipe out the net worth of many and lead to a new wave of bank failures. The Fed chairman said he favors buying the assets based on their "hold-to-maturity" value, which would require an estimate to be made of what each security will eventually be worth as payments come in over the years.
Proposed Bailout Faces Opposition, Wall Street on Sale As the ongoing effects of the capital markets credit crisis continue to be felt, U.S. government financial leaders urged Congress to make a speedy intervention, while foreign banks capitalized on U.S. distress by snapping up assets at bargain prices. U.S. markets sank yesterday (Tuesday) as a quick turnaround on the proposed bailout legislation seemed less and less likely as criticism for Paulson’s plan in its current form became more widespread.
How Complex Securities, Wall Street Protectionism and Myopic Regulation Caused a Near-Meltdown of the U.S. Banking System [In Part III of his three-story investigation of the credit crisis,Money MorningContributing Editor Shah Gilani details how the very complexity of the global financial system brought us to the brink of a total meltdown. In a special addendum tomorrow (Thursday), the former professional trader and hedge-fund manager will detail a banking-system overhaul that would immediately end the credit crisis - possibly without a single penny of taxpayer money.] There’s no time to beat around the bush. Let’s flush out the three credit-crisis catalysts that have remained hidden for too long, thanks to Wall Street protectionism and myopic regulation. Those catalysts - which brought us to the brink of a financial meltdown - are structured collateralized debt obligations, credit default swaps, and the horrific offspring of the two - credit default swaps on structured collateralized debt obligations. Part 1 Part 2
In Bailout Furor, Wall Street Pay Becomes a Target Congress wants Wall Street to feel it where it hurts: the wallet. The stratospheric pay packages of Wall Street executives have become a lightning rod issue as Congress shapes a historic $700 billion bailout for financial firms. Proposals circulating on Capitol Hill vary, but they all would impose some limits or approval authority on salaries of executives whose firms seek help. The moves in Washington mirror the popular outcry — in constituent e-mail messages and postings in the blogosphere — over the prospect of Wall Street’s tarnished titans walking away with tens of millions of dollars a year while taxpayers pick up the bill.
FBI probing Fannie, Freddie, Lehman, AIG The FBI is investigating four major U.S. financial institutions whose collapse helped trigger a $700 billion bailout plan by the Bush administration. Two law enforcement officials said Tuesday the FBI is looking at potential fraud by mortgage-finance giants Fannie Mae and Freddie Mac, Lehman Brothers Holdings Inc. and insurer American International Group Inc. The inquiries, still in preliminary stages, will focus on the financial institutions and the individuals that ran them, a senior law enforcement official said. Officials said the new inquiries bring the number of corporate lenders under investigation during the last year to 26.
US blue-collar workers look for bail-out For workers at the General Motors truck plant in Flint, Michigan, the nearby Wooden Keg pub is like a shelter from the economic storm ripping across the US. Craggy men in baseball caps and well-worn T-shirts nurse bottles of Budweiser at the bar, peering up at a muted TV showing live coverage of OJ Simpson’s armed robbery trial in Las Vegas. A one-line update on the latest Wall Street turmoil scrolls across the news ticker at the foot of the screen, but the financial crisis otherwise appears to be attracting little attention. Lew Rough, a 50-year-old industrial equipment contractor, says the local economy was already so bad, people were immune to further shocks. Money Magazine named Flint the worst place to live in the US 20 years ago, and Mr Rough says it has only got worse since. "We’re not losing sleep over a few people losing their jobs on Wall Street."
Upheaval on Wall St. Stirs Anger in the U.N. Wall Street and the Bush administration’s record of financial oversight came under attack at the United Nations on Tuesday, with one world leader after another saying that market turmoil in the United States threatened the global economy. "We must not allow the burden of the boundless greed of a few to be shouldered by all," said President Luiz Inácio Lula da Silva of Brazil in an opening speech that reflected the tone of the gathering.
Iran's leader gives thumbs down during Bush speech Iran's leader flashed a thumbs-down Tuesday as President Bush denounced Tehran as a sponsor of global terrorism in his farewell address to the U.N. Then Bush got less than 10 seconds of polite applause at the end of a speech in which he urged world leaders to take "an unequivocal moral stand" against suicide bombings, hostage taking and other terror tactics. It was a decidedly low-key appearance, rehashing familiar themes, devoid of the passion Bush displayed in the early years of his presidency when he summoned the world after Sept. 11, 2001, to a battle against terrorism and tried — but failed — to win U.N. backing for the war in Iraq.
I'm Ben Stein, And I've Erred Financially Feeling Bad About Your Recent Financial Choices? You're Not Alone Aug. 3, 2008 These days I spend even more time than usual beating myself up. I'm supposed to know a lot about economics and finance. And I guess compared to some people and my dogs I do. But I still have made major money mistakes lately. I have a lot more real estate than I should have. When prices were skyrocketing that was mighty sweet. Not so much now. I have a lot more stock than I probably should have. A year and a half ago, that looked smart. Now we have some stock market days that turn my stomach.
Senators skeptical of bailout plan Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers Tuesday they risk a recession with higher unemployment and increased home foreclosures if they fail to pass the Bush administration's $700 billion plan to bail out the financial industry. Bernanke sketched a scenario in which neither businesses nor consumers could borrow money as President Bush and top lawmakers leaders in both parties voiced hope for agreement within days on a plan to ease the crisis. "Nobody is happy" about the bailout request, said House Majority Leader Steny Hoyer, D-Md., although he spoke of possible passage of legislation by the weekend. "Nobody wants to have to do this," agreed Rep. John Boehner of Ohio, the Republican leader. He said he was hopeful of a quick agreement, despite withering criticism from conservative GOP lawmakers, some of whom likened the plan to socialism.
Bailout on Trial: What Does Taxpayer Get Other than a $700B Bill? The drama on Wall Street took center stage in Washington Tuesday as Treasury Secretary Paulson, Fed Chairman Bernanke and SEC Commissioner Cox testified before Congress. Paulson and Bernanke, specifically, made the case for the $700 billion bailout plan for banks, with the Fed chairman warning in prepared testimony of "very serious consequences" if the plan isn't approved. But Bernanke and Paulson faced some tough push-back from a number of Senators -- of both parties.
"This plan is stunning in its scope and lack of detail," said Connecticut Sen. Christopher Dodd, chairman of the Senate Banking Committee. "It does nothing in my view to help a single family save a home."
"I am concerned that Treasury's proposal is neither workable nor comprehensive, despite its enormous price tag," said Alabama Senator Richard Shelby, the ranking Republican on the committee.
Wall Street wavers amid testimony on bailout Investors wonder whether plan will stabilize economy or spur inflation Financial markets resumed their pullback Tuesday as investors worried that lawmakers were losing the sense of urgency seen last week, when the government proposed a massive bailout for financial institutions as a way to revive ailing credit markets. Investors grew fearful that top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan were facing a greater degree of second-guessing from lawmakers than expected. The Dow Jones industrials, up for much of the session, fell more than 125 points by early afternoon. Still, trading appeared more orderly than Monday, when investors rushed into hard assets like oil and gold. Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short-term financial asset, while the dollar regained ground after being hard hit Monday.
FDIC Chief wants home loans part of bailout plan FDIC Chief Bair wants home loans part of $700 billion bailout plan; says banks holding up well As Congress moves on the financial bailout plan, restructuring of troubled mortgages should be part of the final package, the head of the Federal Deposit Insurance Corp. said Tuesday. FDIC Chairman Sheila Bair said she hoped that changes on home loans "will be a feature of that." Under the $700 billion proposed bailout plan, the government could acquire troubled mortgage assets or provide a guaranty for delinquent loans, buying them and removing them from the overall pool of mortgages, Bair suggested. Mortgage finance giants Fannie Mae and Freddie Mac, taken over earlier this month by the government which is operating them under a conservatorship, buy mortgages from banks and other lenders and guarantee them in exchange for fees.
Investment-Bank Demise May Speed Regulatory Overhaul The financial crisis that obliterated the lines between banks and securities firms may be about to do the same to divisions between federal regulators. The demise this week of independent securities firms may accelerate a change Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson have called for: a single supervisor to ensure market stability. It may also avert a battle over which regulator might gain or lose power because the Securities and Exchange Commission's role is already diminished.
How the Democrats Created the Financial Crisis The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story. Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex. But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally. Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.
Bernanke push for bail-out The US economy could grind to a halt if Congress refuses to back its $700bn financial rescue plan, the administration warned on Tuesday as it stepped up efforts to win round doubting members of President George W. Bush’s own Republican party. At the first congressional hearing on the plan to authorise the administration to buy banks’ toxic assets, Ben Bernanke, Federal Reserve chairman, warned that global markets remained “under extraordinary stress”. He added: “Action by the Congress is urgently required to stabilise the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy.” Hank Paulson, Treasury secretary, added that the plan would "avoid a series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both small and large and the very health of our economy".
Dodd On Paulson Plan: "Not Just Our Economy At Risk...Our Constitution As Well" Senator Christopher Dodd opened today's Senate Banking Committee hearing by offering deep concern over the bailout package proposal that's been put forth by U.S. Treasury Secretary Henry Paulson. During his opening remarks, Dodd criticized the underlying thinking behind the proposal, pointing out its lack of attention to taxpayers, its allowance of "golden parachutes" for CEOs, and its dearth of detail. Most importantly, however, Dodd squarely aimed a shot at Section 8 of the proposal, which stipulates that, under the plan, the Secretary's actions would be "non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." "After reading this proposal," said Dodd, "I can only conclude it is not just our economy that is at risk but our Constitution as well."
Finance Officials Face Wary Lawmakers Treasury Secretary Henry M. Paulson Jr. received an angry and skeptical reception on Tuesday when he appeared before the Senate Banking Committee to ask Congress to promptly give him wide authority to rescue the nation’s financial system. Mr. Paulson urged lawmakers "to enact this bill quickly and cleanly, and avoid slowing it down with other provisions that are unrelated or don’t have broad support." The Federal Reserve chairman, Ben S. Bernanke, who appeared with Mr. Paulson, said the financial system "continues to be very unpredictable, and very worrisome," and that inaction could lead to a recession. But one after another, senators from both parties said that, while they were prepared to move fast, they were far from ready to give the administration everything it wanted in its proposed $700 billion plan to buy up and hopefully resell troubled mortgages.
Fears emerge over $700bn rescue The dollar buckled, stocks tumbled and the price of oil jumped on Monday as the $700bn (£376bn) US government bail-out plan for the financial sector made slow progress in Washington and once-mighty Wall Street names turned to Japan to safeguard their future. Meanwhile, the Federal Reserve threw open the doors to investment in the US banking industry by private equity firms, sovereign wealth funds and corporate investors – in the hope that this would direct much-needed capital to US banks.
Banks Take Bigger-Than-Estimated Hit on Freddie, Fannie Conservatorship We have said more than once that a terribly misguided aspect of the Freddie and Fannie conservatorship was the elimination of dividends on the GSE's preferred stock. Preferred was the best vehicle that struggling financial firms had for raising new capital. Eliminating the dividend lead to big losses in all financial preferred stocks, since investors assumed any bailout would similarly trash the preferred. Indeed, it is quite possible that this move accelerated Lehman's demise, since it closed off its best funding option. A second reason for taking a dim view of this move was that the Treasury had encouraged banks to buy Fannie and Freddie preferred stocks, so any losses on these holdings would reduce the equity of banks that owned the stock. Paulson alluded to the issue in his statement announcing the conservatorship, and claimed very few banks would be affected, and the impact would not be significant:
Freddie and Fannie bank losses grow US regulators have underestimated potential bank losses on preferred stock issued by Fannie Mae and Freddie Mac, the American Bankers Association said on Monday. Nearly a third of US banks hold preferred stock issued by the two mortgage financiers that were taken into conservatorship this month, according to an industry survey conducted by the ABA. The average bank exposure to such securities relative to core equity capital was 11 per cent. “The negative impact on banks – particularly Main Street community banks – is far greater than regulators first thought,” wrote Edward Yingling, chief executive of the ABA in a letter to the Treasury, the Federal Reserve and other banking regulators.
Politics influenced 1930s precedent Casting about for a precedent for the bail-out, most analysts have picked the Resolution Trust Corporation, set up at the end of the 1980s to cope with the bad assets the US government inherited from collapsed savings and loan institutions. But a more apposite comparison might be a the Reconstruction Finance Corporation, a body set up by President Herbert Hoover and expanded by Franklin D. Roosevelt to help troubled banks during the Great Depression. While the RFC has been credited with helping to keep the banking system functioning, it illustrates how politics can influence technocratic decisions.
Paulson and Bernanke warn of costs of bailout delay U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on Tuesday urged Congress to act swiftly to put in place a $700 billion financial system bailout, warning delay would put the economy at risk. Testifying before a sometimes-skeptical Senate Banking Committee, they said financial markets were in serious stress and needed to be stabilized quickly by cleansing them of illiquid assets. Paulson wants lawmakers to approve a massive war chest, funded by taxpayers, to buy distressed debt from financial institutions to try to keep credit markets from choking up. Lawmakers have vowed to move without delay, but also are insisting on changes. These include more protections for taxpayers and limits on compensation for executives of firms that would be offloading their bad assets onto the government.
Retirees Filling the Front Line in Market Fears Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover. As companies have switched from fixed pensions to 401(k) accounts, retirees risk losing big chunks of their wealth and income in a single day’s trading, as many have in the last month. "There's a terrified older population out there," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "If you're 45 and the market goes down, it bothers you, but it comes back. But if you're retired or about to retire, you might have to sell your assets before they have a chance to recover. And people don't have the luxury of being in bonds because they don’t yield enough for how long we live." Today’s retirees have less money in savings, longer life expectancies and greater exposure to market risk than any retirees since World War II. Even before the last week of turmoil, 39 percent of retirees said they expected to outlive their savings, up from 29 percent in 2007, according to a survey by the Employee Benefit Research Institute, an industry-sponsored group in Washington.
Chrysler: Government loans could head off deeper cost cuts Chrysler LLC Chief Executive Bob Nardelli said on Tuesday that without a low-cost government loan package, the automaker would be forced to cut costs more deeply to free up funds for electric car technology. Chrysler CBS.UL also said it planned to bring an electric vehicle to market by 2010, about the same time when General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) rolls out its all-electric Chevy Volt plug-in car. The automaker showed off the prototypes for three electric vehicles -- one based on its popular minivan, one based on a Jeep SUV, and an all-electric sports car. Chrysler executives said the decision has not yet been made on which vehicle it would manufacture first or where production would be based. Nardelli told reporters that without the $25 billion loan package now before Congress, Chrysler could be forced to cut more jobs to fund the investment for the new vehicles.
Unrepentant Bush delivers his last speech to UN There was no departing from his usual script of indignant impatience at the shortcomings of other world leaders, governments and institutions as President George Bush came to New York today to give his eighth and last address to the United Nations, a body that has never found him particularly palatable. An unrepentant Mr Bush, who might have been on the defensive not least because of the meltdown of American financial institutions over recent days, if not the continuing war in Iraq, instead rehearsed familiar appeals for pushing out the boundaries of freedom, justice for terrorists and punishment for countries that may harbour them. While paying some lip service to the UN saying that it and other "multilateral organisations are needed more than ever," he implied that the body and its members had been too passive in combating terrorism, which he said, remained the greatest "threat to our civilisation".
Russia-Venezuela moves stir cold war ghosts A Russian military fleet set off from its Arctic Sea port of Severomorsk on Monday, bound for military exercises off Venezuela in mid-November that would mark the first such Russian action in the region since the end of the cold war. Coming just days after supersonic, nuclear-capable Tu-160 bombers streaked home to Russia after a flying visit to Venezuela, the move evokes images of the time when Latin America was a prime theatre of US-Soviet rivalry, from the 1962 Cuban missile crisis to the 1980s civil wars in Nicaragua and El Salvador. As Washington criticises Russia for seeking to extend its sphere of influence in neighbouring countries, the Kremlin has sought to embarrass the US by deepening ties with a part of the world the US has traditionally seen as its backyard.
Pakistani leaders 'should have been at bombed hotel' The Pakistani President, Prime Minister and military chief of staff were due to attend a banquet at the Marriott Hotel in Islamabad, where bombers killed at least 53 people, but a last-minute change of venue saved them. The disclosure that the leadership of the country was the likely target of the attack on Saturday came as militants kidnapped Afghanistan’s top diplomat in the country and British Airways suspended all flights to and from Pakistan because of security concerns. The Interior Minister, Rehman Malik, said that the venue for a banquet to mark the inaugural address of President Zardari to a joint session of Parliament was moved to the residence of the Prime Minister because of intelligence warning of an attack. A bomber blew up a lorry containing 600kg (1,320lb) of explosives, including artillery shells, outside the Marriott, wrecking the hotel. At least 11 foreign nationals, including the Czech Ambassador and two US military personnel, were killed in the blast inside the high-security zone of Islamabad. "The last-minute decision saved the leaders," Mr Malik said.
The gloves are off in Pakistan KARACHI - Pakistani authorities have compared Saturday evening's devastating truck suicide attack on the Marriott Hotel in the capital Islamabad to the September 11, 2001, attacks on the United States. In terms of its psychological effect, the blast, which killed more than 80 people, injured hundreds and burnt out the hotel, has traumatized the nation, and, like 9/11, marks the beginning of a new battle: this time not the "war on terror", but the war by terrorists. Pakistan is now the declared battleground in this struggle by Islamic militants to strike first against American interests before the United States' war machine completes its preparations to storm the sanctuaries of al-Qaeda in Pakistan.
Orange Ties... Collapses... Thieves... Police State... Cleaners Those with eyes to see could tell it clearly from the picture of Treasury Secretary Paulson as he was in meetings with Federal Reserve Chairman Bernake and all of the President's men regarding the $700 billion bailout of the Wall Street Bankers, Red China, and the other Banks of the World, which represents the final death knells of the America we knew so well......the Constitutional Republic...the united States. . . . . Let's skip the History Lessons and go to the Meat. The cascading collapse of the credit markets, and the less discussed arcane securities instruments .....Derivatives which are estimated at $455 Trillion or more.......which are behind the collapse of these large Banks, Fannies, and Freddies, and these AIG Insurers......will not be staved off by efforts being attempted now by desperate greedy and EVIL men and women. They will keep cascading and the FEDERAL RESERVE NOTES DIGITALLY BEING CREATED.....will cause hyperinflation and rejection of the DOLLAR and the complete collapse of the U.S. Stock and Bond Markets and the U.S. Banking system.......in essence your lives will be turned upside down and the pain, bankruptcies, foreclosures, crime, starvation will cause such great upheaval in our society that WE THE PEOPLE will become very angry.
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Tues 09.23.2008
No "Panic, Apocalypse, Free Fall, Crash, Pandemonium, or Meltdown" The Wall Street Journal, New York Times, and CNN have banned the use of scary words to describe the current financial crisis episode. The New York Times also refuses to speculate about which banks will fail next, like WaMu. And mainstream media still wonders why people read blogs?
Capitalism in convulsion: Toxic assets head towards the public balance sheet In the space of just two momentous weeks, the landscape of global finance has been dramatically transformed. President George W. Bush’s administration has mounted a multi-billion-dollar rescue of the financial system at the cost of inflicting severe damage on the US model of free-market capitalism. Heavy costs will be inflicted on the American taxpayer, who is now subsidising Wall Street – and indeed financial institutions around the world – in a bail-out of unprecedented size. The sequence of events that led to this extraordinary socialisation of finance began with the de facto nationalisation of Fannie Mae and Freddie Mac, the bankrupt government-sponsored mortgage lenders at the heart of the US housing finance system. There followed a rise in the cost of insuring against default in the world’s most powerful economy. On some independent estimates, the overall response to crisis could take the outstanding US public sector debt from readily manageable status to a level comparable with such fiscally stretched countries as Italy and Japan. Concern about the creditworthiness of the US is nonsensical, according to Charles Goodhart of the London School of Economics. It has nonetheless surfaced, along with worried punditry about the dollar’s role as a reserve currency.
Did We Say $500 Billion? Sorry, Bailout Will Cost $1 Trillion Hank Paulson stressed the need for a "bold approach" to fixing the nation's crumbling financial institutions. How bold? One trillion dollars bold. Politico: Congressional leaders said after meeting Thursday evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that as much as $1 trillion could be needed to avoid an imminent meltdown of the U.S. financial system. ..."We're talking hundreds of billions," Paulson told reporters. "This needs to be big enough to make a real difference and get to the heart of the problem."
Dollar Falls as Bailout Plan Erodes Confidence in U.S. Finances The dollar fell for a second day against the yen on concern a U.S. proposal to buy $700 billion of troubled assets will erode investor confidence in the nation's finances. The greenback weakened for a fifth day against the euro, its longest losing stretch since February, as Treasury Secretary Henry Paulson's plan would increase the nation's debt ceiling by 6.6 percent to $11.315 trillion. The currency also fell before U.S. reports this week that may show home sales slowed, adding to the case for the Federal Reserve to lower interest rates.
Paulson's Bailout Plan Will Screw Taxpayers: Here's a Better One Hank Paulson's plan will soon be rammed through Congress, likely with strings attached for "homeowners" and executive pay. Too bad, because the plan is seriously flawed and taxpayers are likely to get hosed. Especially too bad The main problem with Paulson's plan is this: If the government pays as little for the banks' troubled assets as it should to protect taxpayers (i.e., the market rate), the banks will still be screwed. Why? Because they'll have to raise humongous amounts of new capital to offset the losses. Where is this capital going to come from? Paulson doesn't say. Under the Paulson plan, the way this problem will likely be resolved is that the government will overpay for the assets--to "save the financial system." In the process, the government will also save two constituencies who deserve no protection whatsoever: bank shareholders and bondholders.
Bailout debate mulls making Wall Street pay The planned $700 billion bailout to shore up the battered U.S. financial system looked set to drag into next week as Washington lawmakers haggled over how exactly they could make Wall Street pay for its rescue. Stocks and the U.S. dollar tumbled on Monday as emerging details of the plan left many players skeptical that the rescue, which would give powers to the U.S. Treasury Department to buy up toxic mortgage-related debt from financial groups, would work. "The big detail we want to know is how is the government going to buy these securities, and what they will pay, how that reverse auction will work," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "And the big question is, 'Will this bring us out of the woods?'"
Impact of Wall Street bailout becoming clearer What this means for your job, your mortgage and your taxes Though the devil's in the details of the emerging government response to the collapse on Wall Street, a clearer picture is beginning to emerge. Here are answers to some common questions about what it means for homeowners, consumers and taxpayers. The system of financing homeownership has run off the rails after lenders — and the investors who put up the money — made what has turned out to be a trillion-dollar mistake.
Goldman, Morgan Scrap Wall Street Model, Become Banks in Bid to Ride Out Crisis $$ End of Traditional Investment Banking, as Storied Firms Face Closer Supervision and Stringent New Capital Requirements The Federal Reserve, in an attempt to prevent the crisis on Wall Street from infecting its two premier institutions, took the extraordinary measure on Sunday night of agreeing to convert investment banks Morgan Stanley and Goldman Sachs Group Inc. into traditional bank holding companies. With the move, Wall Street as it has long been known -- a coterie of independent brokerage firms that buy and sell securities, advise clients and are less regulated than old-fashioned banks -- will cease to exist. Wall Street's two most prestigious institutions will come under the close supervision of national bank regulators, subjecting them to new capital requirements, additional oversight, and far less profitability than they have historically enjoyed.
Treasury Agrees to Equity Stake in Bailout The Bush administration has accepted changes to its $700 billion Wall Street bailout plan that would give the government a stake in institutions unloading assets under the plan, the chairman of the House of Representatives Financial Services Committee said Monday. The administration also has agreed that the plan should include more efforts to prevent home foreclosures and that an oversight board should be created to monitor the bailout, said Massachusetts Democratic Rep. Barney Frank. "We got a lot of advice from people in the financial community that (Treasury) should also be able to take some equity and we agreed, and the secretary's agreed with that," Frank told reporters at a briefing. "We also made it clear that if he takes that equity, it has to be with warrants," he said.
Treasury Relents on Key Points $$ Plan Now Envisions Oversight of Cleanup, New Homeowner Aid The Bush administration and the Democratic Congress inched closer to agreement on a $700 billion plan to rescue troubled financial firms, with the Treasury making most of the concessions amid an increasing backlash from a range of economists and lawmakers. The administration agreed to allow tougher oversight over the cleanup and provide fresh assistance to homeowners facing foreclosure, two Democratic priorities. In addition, negotiators neared agreement on allowing the government to take equity stakes in certain companies that participate in the rescue. Congress may raise the cost of a $700 billion market-rescue deal by adding a new economic stimulus plan to benefit taxpayers, according to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
All sorts claim piece of pie Amid the war of words that has erupted between Capitol Hill and the White House over the shape and scope of the proposed $700bn Wall Street bail-out, there is another set of interested parties quietly seeking a piece of the action from behind closed doors. From the Washington lobbyists who represent the banking industry to consumer advocates seeking to change the bankruptcy code, those with close ties to Democratic lawmakers and the Bush administration will scramble to make their mark on the bill. Issues dominating lobbyists’ attention range from accounting rules to the question of which companies will serve as asset managers for the US Treasury once the plan is enacted. At the centre of the push are hopes that the legislation passed by Congress remains broad, allowing as many firms as possible to claim a piece of the bail-out or, potentially, profit from it. Banking lobbyists for foreign financial groups, includingDeutsche Bank, HSBC and Credit Suisse, won a big concession this weekend when, after frenzied work with lawmakers and the administration, Hank Paulson, the Treasury secretary, made clear that foreign banks with significant business operations in the US would be eligible to benefit from the bail-out.
Congress, Bush team agree on some bailout terms Administration accepts some Dem demands in bailout bill, but haggles over exec compensation Scrambling for a swift deal on the $700 billion bailout for failing financial firms, key Democrats and Bush administration officials agreed Monday to include mortgage help for beleaguered homeowners but wrangled over other issues, including "golden parachutes" for executives who benefit from the unprecedented rescue. Democrats demanded that the measure limit pay packages for executives of companies helped by the biggest financial rescue since the Great Depression. The administration was balking at that, and also at a proposal by Democrats to let judges rewrite mortgages to lower bankrupt homeowners' monthly payments. President Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching."
Foreign Banks Will Get Treasury Support Too It looks like foreign banks, which were initially excluded from Treasury Secretary Henry Paulson's bailout proposal, will be able to sell the toxic American mortgage debt owned by their American units to the Treasury and wind up getting the same treatment as U.S.banks. "It's a distinction without a difference whether it's a foreign or a U.S. one," Paulson told Fox News. Though millions of American citizens hold accounts in foreign banks with offices in the U.S., a number of U.S. legislators are worried that including foreign institutions may add to the pain of what could ultimately turn out to be a trillion-dollar bailout for Wall Street.
Two Years Until Banks Stabilize Bank analyst Richard Bove approves of the Bush administration's plan to buy up to $700 billion of troubled mortgage assets from major financial institutions. But, he says, it will still take two years for the banking industry to recover. Bove, who works for Ladenburg Thalmann, told Bloomberg News that the government plan isn't big enough to erase all of the industry's woes. "It's unrealistic to assume the Treasury Department will go out and buy all the bad loans from Bank of America, for example," he says. "I doubt Congress would allow that. And even if it would, the government would demand a huge portion of Bank of America's equity, and Bank of America would refuse." Small banks are likely to be the biggest beneficiaries of the new plan, Bove says.
Hold Everything: Banks May Still Be Screwed FBR analyst Paul Miller says stay the hell away from financial stocks until we know the specifics of the rescue plan. The devil is in the details. Also, the rescue plan does little to alter the fundamentals of the housing market, which remains weak and which most banks heavily rely upon for a large proportion of their profits and cash flow:
Bush Urges Democrats to Act Quickly on Bailout Plan As President Bush urged lawmakers to act quickly on the bailout legislation, Senate Democrats on Monday put forward their version of the rescue plan, including a bold addition aimed at helping homeowners at risk of foreclosure. President Bush urged the legislators to resist the temptation to add provisions that, he said, “would undermine the effectiveness of the plan.” But it is becoming clear that Democrats have their own ideas about what should be in the plan, who should be helped and who should not. The Democrats’ refusal to automatically go along with the administration, plus emerging opposition from some conservatives, increased the prospect that the $700 billion plan might not go through quickly, despite an expression of confidence from the Treasury Department that an agreement can be reached with Congress this week.
Cox 'Asleep at Switch' as Paulson, Bernanke Encroach On Aug. 19, U.S. Securities and Exchange Commission Chairman Christopher Cox summoned the press to a conference room at the SEC's Washington headquarters for an important announcement. The agency's new computer technology to make corporate filings more useful to investors was almost ready, and Cox wanted to give reporters a preview. In a flourish uncharacteristic of the normally buttoned-down ex-congressman, Cox, 55, strutted across the stage, took off his suit jacket and sat down at a computer to demonstrate the new Extensible Business Reporting Language, or XBRL. Investors were given a chance to ask questions about the technology online as an aide wrote a live blog. When it came time for reporters to pose questions, however, it didn't take long for the queries to turn to the news of the day: the roiling controversy over the sale of billions of dollars of so-called auction-rate securities to investors who found they couldn't get their money back. Cox urged reporters to stick to the topic of technology and then gave a brief answer.
Bailout a mystery with lots of questions Biggest government bailout in history raises plenty of questions of how and how much It's the largest government bailout in U.S. history and two days after it was introduced to the Americans paying for it, the proposal is still largely a mystery. Among the unanswered questions: How will the government mop up the bad mortgage debt on banks' books, who will run the process and how much will it cost? Key elements of the plan remain in flux as behind closed doors Democrats demand modifications that would provide more help for ordinary Americans in return for bailing out the country's financial giants. In the spare, three-page draft legislation that the Treasury provided lawmakers on Saturday, the administration's plan seemed straight forward enough.
Greenspan’s sins return to haunt us Federal Reserve, came to Britain to pick up his knighthood. His biggest fan, Gordon Brown, now the UK prime minister, had ensured that the citation said it was being awarded for promoting “economic stability”. During his trip, Mr Greenspan visited the Bank of England’s monetary policy committee. He told them the US financial system had been resilient amid the bursting of the internet bubble. Share prices had halved and there had been massive bond defaults, but no big bank collapses. Mr Greenspan lauded the fact that risk had been spread, using complex derivative instruments. One of the MPC members asked: how could this be? Someone must have lost all that money; who was it? A look of quiet satisfaction came across Mr Greenspan’s face as he answered: “European insurance companies.” Six years later, AIG, the largest US insurance company, has in effect been nationalised to stop it blowing up the financial world. The US has nationalised the core of its mortgage industry and the government has become the arbiter of which financial companies should survive or die.
FDIC To WaMu: Do A Deal Now Federal regulators are putting pressure on hairball WaMu to either self itself or raise more capital. The list of potential buyers ranges from Citigroup, to JP Morgan, to Wells Fargo, to Banco Santander of Spain. WSJ: While some people close to the discussions hope a deal could be struck within days, one stumbling block is that a straightforward sale of WaMu would require the buyer to absorb the company's troubled assets. With WaMu expecting losses of $19 billion on its mortgage portfolio during the next 2? years, some would-be bidders favor a government-assisted takeover, people familiar with the matter said. One scenario is that the Federal Deposit Insurance Corp. would seize control of WaMu's banking unit and then sell its deposits to another bank.
Other G7 members have no plans to follow US Finance ministers from the world’s richest countries on Monday expressed sympathy and support for the proposed US bail-out but showed no immediate sign of following suit. In a conference call convened by Hank Paulson, US Treasury secretary, his counterparts in the Group of Seven economies promised continued vigilance over developments in the global financial system but said they saw no reason to organise a US-style rescue operation in their own markets. A statement largely repeated standard G7 language: “We pledge to enhance international co-operation to address the ongoing challenges in the global economy and world markets and maintain heightened close co-operation between finance ministries, central banks and regulators.” French officials said that Mr Paulson asked his counterparts whether they were thinking of setting up similar schemes, without pressing them to do so, but was told that none as yet thought it was necessary.
One size fits all In the space of a week, the four remaining large independent investment banks have disappeared.Lehman Brothers collapsed, Bank of America is taking over Merrill Lynch and Morgan Stanley and Goldman Sachs are turning themselves into regulated banks. In return for tighter regulation, the two last can look forward to stable funding. But the demise of stand-alone investment banks does not purge the system of risk – it merely shifts it. Morgan Stanley and Goldman Sachs were under pressure from investors and regulators alike to change their business models. Forcible deleveraging would have come anyway. Their metamorphosis beat the authorities to it. Investors also needed reassurance that reliance on wholesale markets would be reduced. As ordinary banks, they should find funding easier: both banks will now have permanent – not just temporary – access to the Federal Reserve primary credit facility, while being able to build deposit bases. Besides diversifying into retail banking, Morgan Stanley and Goldman Sachs can go about their investment banking business, albeit with lower leverage, profits and pay cheques.
The new capitalism "Capitalism is mutating once again", writes Martin Wolf, the FT’s chief economics commentator. Mr Wolf argues that the institutional scenery of two decades ago is disappearing into economic history and we are witnessing the transformation of mid-20th century managerial capitalism into global financial capitalism. How should one evaluate this latest transformation of capitalism? Is it a “good thing”? How is unfettered finance reshaping the global economy?
Markets remain on edge as investors seek safety Markets see volatility as investors await bailout details; oil surges as traders seek safety Volatility swept the financial markets again Monday as investors grew nervous about an amorphous government plan to buy $700 billion in banks' mortgage debt. Stocks fell sharply, taking the Dow Jones industrials down more than 370 points, while investors sought safety in hard assets such as gold and oil, which at one point shot up more than $25 a barrel. The credit markets were still uneasy but not showing the frantic trading they saw last week. And the dollar skidded lower, contributing to oil's surge.
Unfettered finance is fast reshaping the global economy "In Rome everything is for sale." – Prince Jugurtha in Sallust’s Bellum Jugurthinum "Yes to market economy, no to market society." – Lionel Jospin, French Socialist ex-prime minister It is capitalism, not communism, that generates what the communist Leon Trotsky once called “permanent revolution". It is the only economic system of which that is true. Joseph Schumpeter called it “creative destruction”. Now, after the fall of its adversary, has come another revolutionary period. Capitalism is mutating once again. Much of the institutional scenery of two decades ago – distinct national business elites, stable managerial control over companies and long-term relationships with financial institutions – is disappearing into economic history. We have, instead the triumph of the global over the local, of the speculator over the manager and of the financier over the producer. We are witnessing the transformation of mid-20th century managerial capitalism into global financial capitalism.
Wall St. shakeup leaves big banks ahead The street's fallout leaves a few winners still standing; boutique financial companies are coming out on top as well, targeting an increase in merger and acquisition activity. A few winners are already beginning to emerge out of the debris from one of the most tumultuous weeks in Wall Street history. J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc. are poised to rule investment banking because of their easy access to vaults of deposits. At the other end of the spectrum, boutique firms, including Evercore Partners, Greenhill & Co. and Lazard Ltd., are busily seizing clients and staff from devastated rivals.
Investment bank model abandoned; bailout debated Goldman Sachs and Morgan Stanley sought shelter with the Federal Reserve to survive a financial storm that destroyed their rivals, and Wall Street braced for a week of political wrangling over a proposed $700 billion bailout for troubled banks. Morgan Stanley went a step further and struck a deal with Japan's largest bank, Mitsubishi UFJ Financial Group, which agreed on Monday to buy up to a 20 percent stake in the prestigious 73-year-old investment bank, sending Morgan Stanley shares up 10 percent in morning trading. The Fed's agreement to convert the once high-flying investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets. It followed frantic talks between the Bush administration and Congress to prevent the crisis from pushing the economy into severe recession.
Shift for Goldman and Morgan Marks the End of an Era Goldman Sachs and Morgan Stanley, the last big independent investment banks on Wall Street, will transform themselves into bank holding companies subject to far greater regulation, the Federal Reserve said Sunday night, a move that fundamentally reshapes an era of high finance that defined the modern Gilded Age. The firms requested the change themselves, even as Congress and the Bush administration rushed to pass a $700 billion rescue of financial firms. It was a blunt acknowledgment that their model of finance and investing had become too risky and that they needed the cushion of bank deposits that had kept big commercial banks like Bank of America and JPMorgan Chase relatively safe amid the recent turmoil.
Wall Street R.I.P. Morgan Stanley and Goldman Sachs will soon be bank holding companies. This means Wall Street as we knew it has ceased to exist. The Fed granted a request from Morgan and Goldman to make the switch, subject to a five day waiting period. This will have several impacts: •Their primary regulator will now be the Fed Reserve, not the SEC. This will make them subject to tighter disclosure and regulatory requirements. •They will be able to accept bank deposits, which eventually should provide a more stable base of financing (but not "stable"). •They will have better access to the Fed's lending facilities. •They may be able to avoid mark-to-market accounting on some of their assets, instead accounting for them as "held to maturity," the way banks do. This could be huge, as it's the mark to market that has killed the capital ratios of many firms. •They will more easily be able to buy or merge with banks, thus rapidly increasing the size of their deposit bases. •They will likely decrease their leverage: Morgan Stanley is talking about moving from 20X+ to 10X-15X.
Financial meltdown feels like Oklahoma oil bust Financial meltdown on Wall Street reminds Oklahomans of oil bust 25 years ago Oklahomans who lived through the 1980s oil bust find themselves feeling a bit of deja vu as they are bombarded by headlines about the failure of Wall Street financial institutions, plummeting housing values in large urban areas and families losing their homes. The financial meltdown attributed to the sub-prime mortgage market crisis has barely been felt in Oklahoma, where a strong energy industry has helped keep the state's economy humming. But it was a different story 25 years ago, when oil prices collapsed and speculative bank loans based upon energy values turned sour. Oklahoma bankers and those involved in the state's banking industry say the two events -- separated by a quarter century -- bear striking similarities in their root cause. And the fallout from the Wall Street mess will probably also closely resemble what happened in Oklahoma, where regulations were tightened and banks came under more scrutiny.
Unrest has investors questioning risk fundamentals Market turmoil leaves investors wondering whether lessons about risk still apply A financial crisis being described as the worst since the Great Depression has left investors thinking far beyond the realm of whether it's time to buy or sell. No matter how close they are to retirement, many are considering getting out of the stock market entirely by shifting to cash or even gold, believing the market is so shaky they're willing to take the potential tax and inflation erosion they'll suffer from a quick pullout. Others are staying in, even after this year's 14 percent decline to date in the Dow Jones industrial average has eaten away at what they had thought were safe portfolios. "Right now, it is just a loss on paper. If I pull out now, it becomes an actual loss," says Deborah Allen, a 51-year-old administrative assistant at a Royal Oak, Mich., school district who's trying to protect a nest egg she's relying on to take early retirement next year.
The Credit Crisis and the Real Story Behind the Collapse of AIG [In Part II of his three-story investigation of the credit crisis, Money Morning Contributing Editor Shah Gilani shows us how American International Group, a perfectly sound company that's survived f" " or CDS.] There’s nothing fundamentally wrong with the core insurance business units of American International Group Inc. (AIG). Nothing at all. What imploded the venerable insurance giant was an accumulation of misplaced bets on credit default swaps. By the best estimates of the International Swaps and Derivatives Association and the Bank for International Settlements (BIS), often referred to as the central banks’ central bank, the notional value of credit default swaps is some $62 trillion, or 35 trillion British Pounds at an exchange rate of $1.78. A credit default swap (CDS) is akin to an insurance policy. It’s a financial derivative that a debt holder can use to hedge against the default by a debtor corporation of sovereign. But a CDS can also be used to speculate. . . . . Part 1 of 3
A Sense of Resentment Amid the 'For Sale' Signs The bailout doesn't smell right to the people of Manassas Park, where the foreclosure signs are as common as azaleas. They know all about bad debt here. This is a terrain of oversize dreams, misjudgment, financial calamity -- and empty houses. "Foreclosure. Foreclosure. Foreclosure," said Ed Merkle, 58, as he pointed to the "for sale" signs lining his street. But Merkle, a defense contractor, said he has lived within his means in an era of easy credit. He didn't take on a huge loan even when his bank encouraged him to dream bigger. "I've been financially responsible with my own money. Why should I now be responsible for the fact that you were not?" he said. This may be a Main Street bailout backlash in the making. The details of the financial crisis are still hard for most people to follow -- what with talk of exotic "derivatives" known as "credit-default swaps" and so on -- but the central fact of the matter hasn't been lost on anyone in this Northern Virginia community: The taxpayers are on the hook for the bad judgment of others.
Spreading pain will cost 90,000 jobs Retailers to be hit hard; tourism may finally weaken Before Lehman Bros. went belly up, Merrill Lynch & Co. was forced to sell itself, and AIG got bailed out, the deepening financial crisis had already prompted the owners of The Michael Jordan Steakhouse to chop more than $4 off the price of their hamburgers. “We saw the economics in New York and wanted people to have a price point that was more acceptable,” says Glazier Group co-owner Penny Glazier, of the new $14.95 offering. The trouble on Wall Street will clearly ripple beyond burgers. Prior to last week's turmoil, the Independent Budget Office had forecast 33,000 Wall Street jobs would disappear in the current downturn. Now, even more are likely to go. And since the securities industry drives the local economy—the sector accounts for 5% of the city's jobs but as much as 23% of its wages - the cutbacks will reverberate throughout the five boroughs. Wall Street salaries average $340,000, or more than five times those in the rest of the city's economy. Each securities job creates two others, according to the state comptroller's office, meaning the hurt will be felt everywhere from retail and restaurants to law and accounting. Economists have predicted the city will shed as many as 90,000 jobs during this downturn.
Oil spikes $25 amid anxiety over bailout Trading suspended as crude prices soar to biggest one-day increase ever Oil prices spiked more than $25 a barrel Monday — the biggest one-day price jump ever — as anxiety over the government’s $700 billion bailout plan, a weak dollar and an expiring crude contract ignited a dramatic rally. Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, a common occurrence when a contract is about to go off the board.
Fitch downgrades GM’s ‘junk’ rating further Analyst sees company struggling with demand, raw materials, capital Fitch Ratings downgraded General Motors Corp.’s credit rating deeper into junk status Monday, saying the automaker faces headwinds in almost every direction and its liquidity could drop to “minimum required levels” within the next year. The credit ratings agency said it reduced GM’s issuer default rating one notch to “CCC” from “B-.” Both ratings are noninvestment, or junk, grade. Fitch analyst Mark Oline said GM faces pressures from tightening credit in the U.S., weakening overseas sales, rising raw materials prices, continued sales declines in North America and the need for a large amount of capital spending to transform its lineup from trucks and sport utility vehicles to smaller, more fuel-efficient models.
Microsoft to buy back $40 billion of stock Microsoft board OKs $40 billion stock buyback plan, raises dividend Software giant Microsoft Corp. said Monday its board approved a plan to buy back up to another $40 billion of its shares. The program expires on Sept. 30, 2013. As of July 28, Redmond, Wash.-based Microsoft had about 9.13 billion shares outstanding, according to a regulatory filing. The company said it has completed its previous $40 billion stock repurchase program. Microsoft also raised its quarterly dividend to 13 cents from 11 cents. The dividend is payable Dec. 11 to shareholders of record on Nov. 20.
Hewlett-Packard board OKs $8B stock buyback Hewlett-Packard approves repurchase of $8 billion in shares Computer maker Hewlett-Packard Co. said Monday its board approved the repurchase of up to $8 billion in shares. The buyback comes on top of a previous $8 billion repurchase program started in November. About $3 billion remains from that authorization. The company said it bought $1.6 billion of its shares in the fiscal quarter ended July 31. HP said it authorized the new move to counteract the dilutive effect employee stock plans have on ownership percentages. The company has about 2.5 billion shares of common stock outstanding.
Nike announces $5 billion buyback program Nike to buy back $5 billion in stock, following completion of $3 billion buyback program Sports retailer Nike Inc. said Monday its board approved a four-year, $5 billion buyback program. Nike said the repurchase of $5 billion in Class B common stock will begin following completion of its current $3 billion buyback program. Nike had about 492.4 million shares of Class B common stock outstanding as of Aug. 31. "Over the past 10 years, Nike has returned $5.5 billion to shareholders through the repurchase of more than 157 million shares," Chief Executive Mark Parker said in a statement.
MILLIONS AT RISK OF FORECLOSURE FRAUD Angela Carter's family has lived for 46 years in the same small two-story home in Chicago, perhaps a 15-minute ride from Barack Obama's adopted Hyde Park neighborhood. But today a piece of paper says someone else owns the property, and a judge will soon decide if Carter and her mom get to stay in her home. The reason Carter, 55, is facing eviction, she says, is that she fell for a high-stakes scam that’s sweeping the nation, preying on the 1 in 11 consumers who are either behind on their mortgage payments or already in foreclosure. Interviews with legal aid offices and law enforcement officials around the nation indicate the problem of so-called “foreclosure rescue scams” has spread like wildfire, neatly paralleling the downturn in the mortgage market.
China paper urges new currency order after "financial tsunami" Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday. The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc "may augur an even larger impending global 'financial tsunami'." The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.
Japanese Bank Gets Chunk Of Morgan Stanley Struggling U.S. Investment Bank Agrees To Partner With Mitsubishi UFJ Financial Group Investment bank Morgan Stanley said Monday it signed a letter of intent to sell up to 20 percent of the company to Mitsubishi UFJ Financial Group Inc. Financial terms of the deal were not disclosed. If the deal is completed, the price would be based on Morgan Stanley's book value after Japan's largest bank completes a due diligence review. The letter of intent signed by both banks is nonbinding. The framework for a deal comes just hours after Morgan Stanley, one of Wall Street's biggest investment banks, received regulatory approval from the Federal Reserve to become a bank holding company - making it a commercial bank and allowing it to receive deposits. Morgan Stanley will also now be regulated by the Fed instead of the Securities and Exchange Commission.
North Korea moves closer to restarting its nuclear program In a setback for an international nuclear disarmament agreement, North Korea asked the International Atomic Energy Agency on Monday to remove seals and surveillance cameras from the country's nuclear reprocessing facility, the agency's director said. The request offers further evidence that North Korea plans to restart the facility that separates plutonium for use in nuclear weapons at its complex at Yongbyon and suggests that the North may be preparing to resume its nuclear weapons program. "This morning," North Korea "asked the agency's inspectors to remove seals and surveillance equipment to enable them to carry out tests at the reprocessing plant, which they say will not involve nuclear material," the agency director, Mohamed ElBaradei, announced to the 35-country Board of Governors. He confirmed that the agency's inspectors had observed the restoration of some equipment that North Korea had previously removed during the dismantling process.
Russian warships sail to Venezuela A squadron from the Russian Navy's North Sea Fleet sail for Venezuela on Monday, a Russian Navy spokesman said, in a bid by Russia to bolster military links in Latin America as relations with the United States continue to deteriorate. The convoy - including the nuclear-powered guided missile cruiser Peter the Great and the anti-submarine ship Admiral Chabanenko - left the fleet's base in Severomorsk bound for the Venezuelan coast where it will take part in joint maneuvers with the Venezuelan Navy sometime in November, said Igor Dygalo, a Russian Navy spokesman. Stung by the West's strong condemnation of Russia's actions in last month's war with Georgia, Moscow appears to have redoubled its efforts to strengthen ties with Venezuela, Cuba and other Latin American countries in moves reminiscent of the Soviet Union's proxy battles with the United States in the region during the Cold War.
Russia sends ships on exercises in U.S. 'backyard' Russian warships set sail on Monday for manoeuvres in the Caribbean area calculated to demonstrate to the United States Moscow's return as a global power on the military and political stage. The exercises, drawing on a strong alliance with Venezuela's anti-American President Hugo Chavez, will be closely watched by Western navies as the first such projection of Russian power close to U.S. shores since the collapse of the Soviet Union. Navy spokesman Igor Dygalo said the nuclear-powered heavy missile cruiser Peter the Great and antisubmarine destroyer Admiral Chabanenko left their base near Murmansk with two support ships for the 15,000 mile passage to Venezuela. Washington denounced Moscow for its crushing of pro-Western Georgia in a brief conflict last month over two rebel provinces. Russia then expressed anger over the appearance of U.S. warships in the Black Sea region -- which it considers its sphere of influence -- to deliver aid to Georgia.
Crisis Draws Attention to McCain Social Security Plan $$ Support for Market Could Be Hurt by Financial Strife Financial turmoil may not just boost government's role in markets. It could undermine a push in recent years by conservatives, including John McCain, to inject more market forces into government-run and heavily regulated programs. On the presidential campaign trail, Democrat Barack Obama is seizing on the recent turbulence to lambast proposals by Sen. McCain on Social Security and health care, two areas on which the Republican presidential nominee has embraced market-oriented solutions. These proposals -- particularly private accounts carved out of Social Security -- were controversial to begin with, and the new crisis only heightens the concerns. The accounts are designed to generate greater returns than the government gets holding onto the money. But if workers invest their Social Security taxes in the stock market, what happens if the market is down when it comes time to retire?
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Dollar May Get 'Crushed' as Traders Weigh Up Bailout Treasury Secretary Henry Paulson's plan to end the rout in U.S. financial markets may derail the dollar's three-month rally as investors weigh the costs of the rescue. The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion, according to Barclays Capital interest-rate strategist Michael Pond in New York. While the rescue may restore investor confidence to battered financial markets, traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates. "As we get to the other side of this, the dollar will get crushed,'' said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion.
Congress braces for 'Mother of all bailouts' $700 billion and counting, 'doesn't mean we will stop there'-- Henry Paulson Congressional leaders appear ready to act quickly on the Bush administration's demand for authority to bail out as much as $700 billion in bad mortgage debts, but not without adding some conditions and possibly added costs of their own. Democratic leaders are demanding limits on pay for executives of financial firms that unload their bad debts on the government in what one Republican leader is calling "the mother of all bailouts.'' And they are renewing their push for a new job-creating economic stimulus package, with an added cost of $50 billion, as the White House presses Congress to approve a bailout before adjournment for elections at the end of this week. Yet, despite the enormousness of the federal action which Treasury Secretary Henry Paulson is pressing Congress to swiftly approve - possibly exceeding what Congress has spent on the war in Iraq, and pushing the federal deficit to new record highs - it is clear that he has convinced congressional leaders of the urgency of acting to avert a meltdown in credit for American consumers.
When the Thundering Herd Comes up Lame There’s nothing like greed and avarice to bring the entire U.S. financial system to the brink of collapse. With the demise of Merrill Lynch & Co. Inc., the thundering herd has galloped off the cliff – taking 94 years of history with it. Same, too, with Lehman Brothers Holdings Inc.. Lehman’s bankruptcy filing last week caps 158 year "we" caused this … how, according to the mainstream media, "we" somehow did this to our financial system. Baloney. For the most part, "we" didn’t do squat. The average American had nothing to do with this. For the most part, "we" pay our taxes, "we" pay our credit card debt and "we" pay our mortgages – on time, and in full.
Some hard truths about the bailout The fifth major federal bailout this year - after Bear Stearns, Fannie Mae, Freddie Mac and American International Group - is in the works. American taxpayers have every right to be alarmed and angry. This crisis could have been avoided if regulators had enforced rules and officials had dared to question risky lending and other dubious practices. If done right, this bailout could succeed where the others have failed and remove the threat of a system-wide financial collapse. But the cost will be enormous. So will the risk of losses in the long run - on top of the risks already incurred. The new plan would commit taxpayer money to buy hundreds of billions of dollars of troubled loans and other mortgage-related securities from banks and Wall Street firms. It is based on the reasonable premise that as long as institutions are stuck with those assets, the flow of credit, the economy's lifeblood, will be constrained, or as in the past week, all but frozen. Congress, with one eye on last week's volatile Dow and the other on November's election, could authorize the plan as early as this week. It is painfully clear that the financial system will not rebound on its own from the excessive lending and borrowing of the Bush years. Lawmakers and administration officials must be prepared to tell Americans some hard truths:
Dire Bernanke Speech Shocked Congress 'The Air Came Out of the Room,' Dodd Tells Stephanopoulos Congressional and administration leaders split today over how a bailout package for U.S. financial markets should look, even as all sides called for swift action. Wrangling over the size and shape of the relief package belied a universal sense of urgency about getting it through Congress after a week of turbulence on Wall Street and concerns about global implications of a possible U.S. economic meltdown. Treasury Secretary Henry Paulson told ABC News' "This Week with George Stephanopoulos" that the government was preparing to extend bailout protection to foreign companies caught up in the nation's financial crisis, but Paulson rejected proposals that the bailout include new caps on executive compensation or steps to protect American homeowners, who are facing foreclosure in unprecedented numbers. "We need a lot of reforms. And this is going to be something Congress and the next administration is going to be working on for a long time," Paulson told Stephanopolous. "But these can't be done, and shouldn't be done, in a matter of days. And we need this program in days in order to protect the American people. "We've been focused on homeowners for a long time, working to avoid foreclosure," he said. "It sure seems to me that, as we buy these mortgage-backed assets, we will have much more leverage in working on the kinds of programs we need to work on."
Paulson urges a quick bailout US calls on world to save banking system The US government last night urged other countries to follow its model of bailing out stricken banks after Treasury secretary Hank Paulson unveiled an unprecedented $700bn (£380bn) rescue plan to prevent a collapse of the financial system. The proposal would allow the Treasury to buy up "toxic" mortgage-related debts from financial institutions, including US arms of foreign banks, to try to stem the worst financial crisis since the Great Depression. With Congress set to vote this week on the emergency legislation, Mr Paulson took to the airwaves, warning that the massive bailout was the only way to avoid catastrophe and that other countries must take similar measure. "We have a global financial system and we are talking very aggressively with other countries around the world and encouraging them to do similar things and I believe a number of them will," Mr Paulson said.
In Crisis, Paulson’s Power Is Magnified Just over two years ago, Henry M. Paulson Jr. took the job of Treasury secretary, though the post had become so devalued that others had turned it down. He is likely to leave as one of the most powerful of the 74 secretaries in history and to pass those powers on to his successor. Suddenly the next president’s selection for Treasury secretary, a job that was ranked with the secretaries of defense and state until its importance dimmed in the early years of President Bush’s tenure, has become even more consequential. The financial emergency has expanded the Treasury secretary’s authority beyond anything that Alexander Hamilton could have foreseen when George Washington tapped him 219 years ago this month. And that was before Mr. Paulson sent Congress a spare three-page proposal for broad new powers. Newsweek magazine put Mr. Paulson on its cover as “King Henry.” Congressional leaders indicate they will impose some limits this week, and an adviser to Senator John McCain, the Republican nominee, said on Sunday that the senator might express concerns this week that the proposal would give too much power to one person.
Bush's Paulson, master of the universe When Treasury Secretary Henry Paulson was appointed by President Bush as his third and presumably last Treasury Secretary in 2006, a lot of observers assumed Paulson was coming in to be a mere caretaker. That was a bad call. Shakespeare has a line about some men being born great, some men achieving greatness and others having greatness thrust upon them. Paulson jumps out of that last category. When Wall Street was healthy, it made him very rich. Now that it's ailing, it's made him famous. Because of his energetic and sweeping response to the Wall Street meltdown, Paulson has turned out to be one of the most powerful and activist Treasury secretaries in recent U.S. history. If there were an Alexander Hamilton Award for using federal power vigorously in times of economic crisis, he would get it by acclamation. Only time will tell if the way he has seized and used the levers at his disposal was the right thing at the right time.
Backlash Over Bailouts Grows in Congress, Wall Street As the U.S. government takes stronger measures to stabilize financial markets, some former Federal Reserve officials, "Every time they intervene, they do more harm than good,'' said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut, a brokerage that manages $1 billion. Critics of the rescues agree that government actions, such as those that prevented the failures of Fannie Mae, Freddie Mac and American International Group Inc., can't postpone the inevitable worsening of housing and financial markets. They say the bailouts by the Fed and Treasury also encourage future reckless risk-taking by investors.
Proposed Treasury Authority to Purchase Troubled Assets Fact sheet from Treasury with Saturday night revisions allowing foreign banks into program. Washington – The Treasury Department has submitted legislation to the Congress requesting authority to purchase troubled assets from financial institutions in order to promote market stability, and help protect American families and the US economy. This program is intended to fundamentally and comprehensively address the root cause of our financial system's stresses by removing distressed assets from the financial system. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to significantly damage our financial system and our economy, undermining job creation and income growth. The following description reflects Treasury's proposal as of Saturday afternoon.
Foreign banks may get help In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night. The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States. Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people." "If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.
Foreign Banks Hope Bailout Will Be Global PARIS — The financial crisis that began in the United States spread to many corners of the globe. Now, the American bailout looks as if it is going global, too, a move that could raise its cost and intensify scrutiny by Congress and critics. Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks. On Sunday, the Treasury secretary, Henry M. Paulson Jr., indicated in a series of appearances on morning talk shows that an original proposal introduced on Saturday had been widened. “It’s a distinction without a difference whether it’s a foreign or a U.S. one,” he said in an interview with Fox News. The prospect of being locked out of the bailout set off alarm bells among chief executives of overseas banks whose American affiliates also hold distressed mortgage-related assets, like Barclays and UBS. The original text provided access to the $700 billion bailout for any financial institution based in the United States.
U.S. Lawmakers Attack Bailouts as France-Like; French Say Merci Two U.S. senators have said their government's bailouts of financial institutions make capitalist America seem more like France. They didn't mean it as a compliment, but French lawmakers are taking it that way. "There's nothing wrong with being French," said French Finance Minister Christine Lagarde. With stakes worth 125 billion euros ($179 billion) in publicly traded companies, the French government has more experience in marketplace intervention than the U.S., which still is coming to terms with its American International Group Inc. takeover and bailouts of Bear Stearns Co., Fannie Mae and Freddie Mac.
Taxpayers shoulder trillion-dollar deficit On top of a string of unprecedented events stemming from the credit crunch, the US Treasury’s $700bn rescue plan for distressed mortgage assets seems likely to give us another: the trillion-dollar deficit. The long-term cost – or even profit – of the operations being launched in Washington depends on a number of known unknowns and possibly some unknown unknowns as well. But whatever the final cost to American taxpayers will be, they are now directly or indirectly providing a backstop for assets worth a great deal more than the federal government’s current $5,400bn (£2,950bn, €3,750bn) in debt. The US was already expected to run a federal deficit of $438bn, or 3 per cent of gross domestic product, next year, according to the Congressional Budget Office. The $700bn mortgage securities rescue fund is authorised for two years, but even if not all is spent in the first year, the federal deficit could easily top $1,000bn next year, economists say. Ken Rogoff, a Harvard academic and former chief economist at the International Monetary Fund, says: “I can’t imagine this crisis is going to end up costing the government less than six to seven per cent of GDP.” In practice, it could even end up costing more. Democrats in Congress have already talked about providing direct help to homeowners in addition to the asset-purchasing plan – a move likely to come next year rather than as part of this emergency package.
Can the Levee Hold? The short-selling ban implemented by the Securities and Exchange Commission may carry upward momentum into the coming week, but analysts say there are still too many variables in the market that could derail a complete recovery. Last week, the collapse of Lehman Brothers, the surprise acquisition of Merrill Lynch by Bank of America and the $85 billion bailout of AIG weighed on the stock market, forcing the worst selloff Wall Street has experienced since the first trading day after the Sept. 11 terrorist attack in 2001. Despite a strong rally over the previous two trading sessions, spurred by the SEC's decision to put into place temporary measures to prohibit short-selling in financial companies as well as the government's plan to buy mortgage-backed securities and support the mortgage market with more liquidity, the major indices finished little changed for the week. The Dow Jones Industrial Average dipped 20 points, while the S&P 500 tacked on 3 points and the Nasdaq Composite added 12 points.
The post-Lehman world A few years ago, real estate was all the rage. Earlier this year, the business magazines were telling us to invest in Lehman Brothers and Merrill Lynch, because those stocks were bound to zoom. Now another herd is on the march. We're in a paradigm shift, its members say. The current financial turmoil marks the end of the era of wide-open global capitalism. Today's gigantic government acquisitions signal a new political era, with more federal activism and tighter regulations. This observation is then followed by a string of ethereal gottas and shoulds. We Americans gotta have smart regulation that offers security but doesn't stifle innovation. We gotta have rules that inhibit reckless gambling without squelching sensible risk-taking. We should limit excesses during booms and head off liquidations when things go bad. It all sounds great (like buying a house with no money down), but do you mind if I do a little due diligence?
Where Things Stand in Quest to Fix the Financial Mess $$ Treasury Secretary Henry Paulson is asking Congress for unprecedented authority to buy from financial firms the troubled assets at the "root" of the worst financial crisis since the 1930s. While many details remain unresolved, here's a rundown of how things stand. Why is Treasury asking for authority to do this? With credit markets frozen, the engines of the U.S. economy are essentially stuck. Companies are having trouble financing operations and lending for everything from homes to automobiles has slowed. Treasury argues the root of the problem is rotten assets sitting on the balance sheets of financial institutions. Buying these assets will help jump-start the economy by allowing financial institutions to raise more capital and begin lending and investing.
Gov't rushing to finish huge financial rescue plan Bush administration wants hundreds of billions, new powers ASAP to attack financial crisis The Bush administration sketched out a multi-faceted effort on Friday to confront the worst U.S. financial crisis in decades, outlining a program that could cost taxpayers hundreds of billions of dollars to buy up bad mortgages and other toxic debt that has unhinged Wall Street. President Bush, flanked by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, acknowledged that the program will put a "significant amount of taxpayers' money on the line." The administration is asking Congress to give it sweeping new powers to execute the plan. Paulson said it "needs to be big enough to make a real difference and get to the heart of the problem." Paulson gave few details but said he would work through the weekend with leaders of Congress from both parties to flesh out the program, the biggest proposed government intervention in financial markets since the Great Depression. Members of the Senate Banking Committee said they had received no details of the proposal.
Crisis endgame On Sunday, U.S. Treasury Secretary Henry Paulson tried to draw a line in the sand against further bailouts of failing financial institutions; four days later, faced with a crisis spinning out of control, much of Washington appears to have decided that government isn't the problem, it's the solution. The unthinkable - a government buyout of much of the private sector's bad debt - has become the inevitable. The story so far: The real shock after the feds failed to bail out Lehman Brothers wasn't the plunge in the Dow, it was the reaction of the credit markets. Basically, lenders went on strike: U.S. government debt, which is still perceived as the safest of all investments - if the government goes bust, what is anything else worth? - was snapped up even though it paid essentially nothing, while would-be private borrowers were frozen out. Thus, banks are normally able to borrow from each other at rates just slightly above the interest rate on U.S. Treasury bills. But Thursday morning, the average interest rate on three-month interbank borrowing was 3.2 percent, while the interest rate on the corresponding Treasuries was 0.05 percent. No, that's not a misprint.
Welcome to the World's Largest Gold Vault Just a Few Blocks From the Bustle of Wall Street Sits $200 Billion in Gold Gold. It's one of the oldest and most prized possessions we have. Egyptian pharaohs were buried with it, the Romans traded it and gold is even mentioned as a gift in the Bible. As stocks plummet and many realize they don't understand how their money is invested, some on Wall Street are turning to gold as a haven. Who can blame them? Gold is something you can see, hold and fully understand. In the last two days, the price of gold shot up $110 to $892.70 an ounce. Just a few blocks away from all the turmoil and panic of the stock market sits the world's largest stockpile of gold. Deep under the streets of Manhattan sits more gold than "James Bond" villain Goldfinger could ever imagine. And I recently got a private tour inside the little-known vault. Nearly $200 billion worth of gold rests on bedrock five stories underground, 30 feet below the city's subway system, inside the Federal Reserve Bank of New York's vault. That's more than can be found in Fort Knox. Very little of it belongs to the U.S. government.
Can Uncle Sam Afford All This? These are momentous times in the financial markets. That's why the Federal Reserve has been taking extraordinary steps to stabilize financial conditions — even to the point of stretching its own finances. The central bank has been generously using taxpayer dollars to bail out ailing financial firms and keep liquidity flowing in the battered marketplace. The latest handout came this week with the $85 billion loan promised to American International Group to prevent the corporate giant from collapsing under the weight of its insurance commitments on risky debt. Sure, the government is getting a hefty interest rate for its cash — one that tops 11.5 percent — but there is still no guarantee that such funds will be returned. Long considered the lender of last resort, Ben Bernanke's Fed is up against one of the biggest financial crises in decades. That's why it has actively been trying to keep the financial system functioning through turmoil caused by massive losses on mortgage debt and other risky assets.
Bailout tab hits $700B Plan would give Treasury chief unprecedented power The Bush administration asked Congress on Saturday to grant sweeping new powers to the Treasury secretary to buy as much as $700 billion in deeply troubled mortgage-related assets as part of a herculean effort to clean up Wall Street's financial crisis. Lawmakers will spend the weekend poring over a draft of the proposal. As written, Treasury Secretary Henry Paulson and his successor would be handed expansive authority, beyond the reach of U.S. courts, to attempt to rescue staggering financial markets. At the White House, President George W. Bush acknowledged the immensity of the plan, which would give the Treasury secretary enormous control and bypass many of the traditional checks and balances of government. "This is a big package, because it was a big problem," Bush said.
Pimco's Gross looks to manage government's rescued assets Bill Gross, chief investment officer of Pimco, said he is interested in managing a pool of assets acquired by the government through recent financial rescue plans. "We have interest in managing this giant pool of assets, and we expect to be called," Gross said on CNBC television in response to a question on whether Pimco had been consulted by the government about doing so. Gross also said he expected the government to buy mortgage-backed securities in the secondary market at about 65 cents on the dollar.
AIG Holders Meet on U.S. Takeover; Ex-CEO Refuses Severance Pay American International Group Inc. shareholders, opposed to an $85 billion Federal Reserve takeover that dilutes their stakes, plan to meet today in New York City to discuss alternatives. Maurice "Hank'' Greenberg, the former chief executive officer of the New York-based insurer and one of the biggest stakeholders, will probably be represented at the afternoon meeting, said his lawyer, David Boies, in an interview late yesterday. Attorneys for other investors contacted Boies in the past week about the gathering, he said, without naming them or saying how many will attend. The insurer, crippled by losses tied to the worst U.S. housing slump since the Great Depression, agreed to turn over control to the U.S. last week in exchange for a federal loan of as much as $85 billion. The original terms said the U.S. would get warrants equal to a 79.9 percent stake, and that shareholder approval would be sought. A new description filed late Friday omitted any mention of warrants or a shareholder vote.
Big Financiers Start Lobbying for Wider Aid Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it. Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages. At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees. Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions. "The definition of Financial Institution should be as broad as possible," the Financial Services Roundtable, which represents big financial services companies, wrote in an e-mail message to members on Sunday. The group said a wide variety of institutions as varied as mortgage lenders and insurance companies should be able to take advantage of the bailout, and that these companies should be able to sell off any investments linked to mortgages.
In Newest Crisis, Hedge Funds Face Chaos Hedge funds usually thrive when markets turn volatile. But even these fast-money investors are struggling to cope with the wild swings in the markets, raising concerns that some may not survive. Even before the Bush administration proposed its vast bailout for financial institutions, the hedge funds — those secretive, sometimes volatile investment vehicles for the rich — were on course for their worst year on record. The average fund is down nearly 5 percent so far this year. One major hedge fund investor said that he had started to buy Morgan Stanley at $23 on Wednesday, convinced that the rumors of Morgan Stanley’s demise were unfounded. But as the stock began to plummet, he canceled his trade and watched with amazement as the stock sank to a low of $12 on Thursday. And he stayed on the sidelines as the stock more than doubled that day and ended the week at $27 a share. Volumes were high, fear was higher — but conviction, the final and most crucial ingredient, was lacking. “With this kind of fear you can’t do anything,” the hedge fund investor said. "You never have heroes when you get these kinds of violent moves. The heroes only come out when the stock is down and stays down."
Estimating hedge fund leverage Abstract: Hedge funds are major players in the international financial system and nimble investment strategies including the use of leverage allow them to build up large positions. Yet the monitoring of systemic risks posed by the build-up of leverage is hampered by incomplete information on hedge funds' balance sheet positions. This paper describes how an extension of "regression-based style analysis" and publicly available data on fund returns yield an indicator of the average amount of funding leverage used by hedge funds. The approach can take into account non-linear exposures through the use of synthetic option returns as possible risk factors. The resulting estimates of leverage are generally plausible for several hedge fund families, in particular those whose returns are well captured by the risk factors used in the estimation. In the absence of more detailed information on hedge fund investments, these estimates can serve as a tool for macro-prudential surveillance of financial system stability.
'Huge Game Changer': What Happens to Wall Street Banks Now Coordinated government intervention, featuring a temporary ban on short selling, plus a government plan to buy banks' distressed debt and insurer money market funds had the desired effect on financial stocks Friday. Citigroup, Washington Mutual, Bank of America were each recently up more than 18% in heavy trading, pacing a more-than 10% rise in the Financial Spyder. (On the down -- and dark -- side of the government's action, trading in Short Financials ProShares and UltraShort Financials ProShares was suspended, at least temporarily.) But do soaring bank stocks change the calculus for managers of companies that either just completed mergers or are on the verge of doing deals.
Credit markets calm for now, but remain jittery Credit markets pull back from brink; still jittery as investors await action on $700B bailout U.S. stock futures were falling Sunday night, a sign that investors are still nervous about the government's $700 billion rescue plan to resuscitate frozen credit markets. But take it from Treasury Secretary Hank Paulson: If you want to know whether the maelstrom that seemed poised to take down financial markets last week has eased, you have to pay attention to what companies and individuals are doing with their cash. "The stock market going up and down is not what we should be looking at. We And on that score, the early signs were promising. Yields on Treasury securities were rising Sunday night, a sign that the flight-to-quality push by panicked investors last week to put their cash in what they viewed as only the safest of investments was easing.
Biggest Bailout Ever: Did the Government Go Too Far? Americans, Get Ready for an Enormous Tax Bill "America's economy is facing unprecedented challenges. We're responding with unprecedented measures," President Bush declared in a press conference Friday. Bush, of course, was speaking of the government's coordinated efforts to tackle a financial crisis that has roiled global markets and brought down venerable financial institutions. "These measures will require us to put a significant amount of taxpayer dollars on the line," the President added. Ah, yes. There is no free lunch. Just how significant an amount of taxpayer dollars remains unknown, but it's going to be massive.
Wall Street Fastens Its Seatbelt, Preparing for This Week’s Ride Frazzled traders and money managers spent an angst-filled weekend struggling to fathom the sweeping bailout the Bush administration proposed for financial institutions in the United States and what it will mean for the world’s markets. At big banks, staff members rushed to update trading records before the opening bell sounded on Monday morning in New York. Quants, those math-loving traders who use complex computer models to hunt out investments, tinkered with algorithms. Some hedge fund managers, unsure where the markets will go or what the government will do, sought safety in cash. Securities lawyers sorted through new rules from the Securities and Exchange Commission that will require such funds to disclose their bearish bets on financial companies. And in between, everyone tried to catch up on some sleep.
In Turmoil, Capitalism in U.S. Sets New Course $$ This past week marks a decisive turn in the evolution of American capitalism. Black September, the biggest financial shock since the Great Depression, is prompting a Republican Treasury secretary and Federal Reserve chairman to devise the most muscular government intervention in the economy since the Great Depression in an effort to prevent the economic devastation of the Great Depression. Abandoning its one-rescue-at-a-time strategy of recent months, the government suddenly has shifted to a broad attack on what Treasury Secretary Henry Paulson calls "the root cause of our financial system's stresses," the rot on the balance sheets of America's financial system. Gone is the faith, shared by the nation's leadership with varying degrees of enthusiasm, that the best road to prosperity is to unleash financial markets to allocate capital, take risks, enjoy profits, absorb losses. Erased is the hope that markets correct themselves when they overshoot.
Treasuries Irresistible as Deflation Trumps Paulson As details of Treasury Secretary Henry Paulson's plan to revive the U.S. financial system by pumping as much as $700 billion into the markets emerged Sept. 19, bond investor Michael Cheah was reminded of Japan. When that country's real estate bubble burst, leaving a trail of bad real estate loans, officials flooded the economy with cash only to see banks hoard the money instead of lending it out. The result has been a series of recessions and persistent deflation for more than a decade.
Treasury, Congress ramp up bank bailout talks The Bush administration and Congress on Sunday ramped up talks on an unprecedented $700 billion bank bailout as they battled the clock to prevent further financial market turmoil that risks hurtling the economy into a deep and damaging recession. The plan for the largest-ever bank rescue would give sweeping powers to the U.S. Treasury to buy up toxic mortgage-related debt from financial firms, including U.S. subsidiaries of foreign banks. Democratic leaders in Congress promised swift action, but also want to throw a lifeline to homeowners, not just Wall Street. With the economy issue No. 1 in an election less than six weeks away, lawmakers are striving to get a plan in place by week's end, fearful that delay could send markets reeling.
Congress Haggles Over Bailout Plan Lawmakers were reportedly grappling Sunday over what to add to the Bush administration's plan for a sweeping rescue of the financial system. The plan didn't appear in danger of being delayed or stopped, according to a report in The Wall Street Journal. But some members of Congress want provisions inserted that are aimed at protecting taxpayers -- who will be on the hook for the plan's cost -- and providing relief to homeowners, the report said. The Treasury Department wants Congress' blessing to buy up to $700 billion in bad mortgage-related debt. The hope is that such purchases will stem the financial crisis that has shuttered investment banks, forced mergers and caused panic among investors. At the root of the crisis are soured mortgages, but Wall Street amplified their impact using derivatives and leverage.
Lawmakers Battle Over Wall Street Rescue Plan $$ Lawmakers are scrambling to put their mark on the Bush administration's $700 billion plan to save financial markets -- a fast-moving test of wills that could reshape one of the biggest bailouts in U.S. history. There's no sign yet that Congress will delay or derail the proposal. Democrats are looking to add provisions that include beefed-up congressional oversight, aid for individual homeowners and changes to bankruptcy laws. Some of the measures are opposed by the administration. Perhaps the biggest looming fight is over Democratic efforts to require the program's participants to curb what they pay their executives. Last week, as deep new fissures opened in global financial markets, the U.S. Treasury unveiled a plan to spend up to $700 billion to buy soured mortgages and mortgage-related securities from financial institutions. In many respects, the financial sector last week all but ceased to function. The hope is that relieving banks of these troublesome holdings will help lending markets to stabilize.
No laughing matter Of all the points raised by different analysts about the economy last week, surely the best was Representative Barney Frank's reminder that Ronald Reagan's favorite laugh line was telling audiences that: "The nine most terrifying words in the English language are: 'I'm from the government, and I'm here to help."' Hah, hah, hah. Are you still laughing? If it weren't for the government bailing out Fannie Mae, Freddie Mac and AIG, and rescuing people from Hurricane Ike and pumping tons of liquidity into the banking system, our economy would be a shambles. How would you like to hear the line today: "I'm from the government, and I can't do a darn thing for you." In this age of globalization, government matters more than ever. Smart, fiscally strong governments are the ones best able to empower their people to compete and win. I was just in Michigan to give a talk on energy. I can't tell you how many business cards I collected from innovators who had either started renewable-energy companies or were working for big firms, like the Dow Chemical Co., on clean energy solutions.
Volcker, Brady Called for Market Bailout The government must take drastic action to avoid "the mother of all credit contractions," argued former Treasury Secretary Nicholas Brady, former Controller of the Currency Eugene Ludwig, and Reagan-era Federal Reserve Chairman Paul Volcker. The economists wrote their views days before Treasury Secretary Henry Paulson announced a sweeping plan to bail out the remaining investment banks on Wall Street and to shore up financial markets. "Until there is a new mechanism in place to remove this decaying tissue from the system, the infection will spread, confidence will deteriorate further, and we will have to live through the mother of all credit contractions," they wrote in a joint editorial in The New York Times. "This contraction will undercut the financial system, and with it, the broader economy that so far has held up reasonably well."
Crashing banks and golden parachutes With America's financial system teetering on a cliff, the compensation arrangements for executives of the big banks and other financial firms are coming under new scrutiny. Bankers' excessive risk-taking is a significant cause of this financial crisis and has contributed to others in the past. In this case, it was fueled by low interest rates and kept going by a false sense of security created a debt-fueled bubble in the economy. Mortgage lenders blithely lent enormous sums to those who could not afford to pay them back, dicing the loans and selling them off to the next financial institution along the chain, which took advantage of the same high-tech securitization to load on more risky mortgage-based assets.
Primary Fund Investors Not Allowed To Participate in Guaranty Program $$ Investors in the Reserve Primary Fund, the money market fund which went below a $1 net asset value, will not be able to participate in the federal guaranty program meant to insure money fund investors against losses. The U.S. Treasury announced this program on Friday in an attempt to win back investor confidence, the loss of which brought key parts of the financial system to a halt last week. In the two days after the Primary Fund announced that its net asset value was 97 cents per share, panicked investors withdrew nearly $130 billion out of the $3.4 trillion-money market fund industry. The redemption pressure caused another fund, the Putnam Prime Money Market fund (Institutional), to shut down. To check these massive outflows, the government tapped a depression-era fund, which would essentially insure the holdings of money market mutual funds which sign up for this guaranty program. The program will be available only for a year.
Radical bailout plan has a jawdropping price tag Struggling to stave off financial catastrophe, the Bush administration on Friday laid out a radical bailout plan with a jawdropping price tag - a takeover of a half-trillion dollars or more in worthless mortgages and other bad debt held by tottering institutions. Relieved investors sent stocks soaring on Wall Street and around the globe. The Dow-Jones industrials average rose 368 points after surging 410 points the day before on rumors the federal action was afoot. A grim-faced President Bush acknowledged risks to taxpayers in what would be the most sweeping government intervention to rescue failing financial institutions since the Great Depression. But he declared, "The risk of not acting would be far higher."
ALMOST ARMAGEDDON MARKETS WERE 500 TRADES FROM A MELTDOWN The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post. Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor. According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning. The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.
Does Wall Street Have a Death Wish? After several days of violent fluctuations, the world’s stock markets registered a massive increase in share prices on Thursday afternoon and on Friday, September 18 and 19, 2008. Why? As the Associated Press put it, “investors stormed back into the market, relieved that the government plans to restore calm to the financial system by rescuing banks from billions of dollars in bad debt. The Dow Jones industrials rose about 365 points, giving them a massive gain of about 775 over two days.” Other stock markets also rose tremendously: on Friday the S&P 500 closed up more than 49 points, or Exactly what the government will do remains to be determined. Officials from the Treasury and the Fed and members of Congress intend to spend the weekend hammering out the details. Be afraid, be very afraid.
The Confidence Game It's doubtful that Princeton University economist Ben Bernanke and former Goldman Sachs CEO Hank Paulson imagined what awaited them when they took charge of the Fed and the Treasury, respectively, in 2006. Since then, they have put their agencies on a wartime footing, trying to avert the financial equivalent of an army's collapse. As in war, there have been repeated surprises. As in war, the responses have involved much improvisation -- for instance, the $85 billion rescue of American International Group. But last week their hastily built defenses seemed to be crumbling, so Paulson proposed a radical solution of having the government buy vast amounts of distressed debt to shore up the financial system. It's all about confidence, stupid. Every financial system depends on trust. People have to believe that the institutions they deal with will perform as expected. We are in a crisis because financial managers -- the people who run banks, investment banks, hedge funds -- have lost that trust. Banks recoil from lending to each other; investors retreat. The ultimate horror is when everyone wants to sell and no one wants to buy. Paulson's plan aims to avoid that calamity.
Goldman, Morgan Stanley Become Bank Holding Companies The Federal Reserve Sunday announced that Goldman Sachs( and Morgan Stanley would transform themselves from investment banks into traditional bank holding companies. The Fed's announcement comes after a stunning week in which a financial cataclysm changed the landscape of Wall Street, making large, independent investment banks an endangered species. The crisis forced the closing of Lehman Brothers and the sale of Merrill Lynch to Bank of America, and sent Morgan Stanley scrambling to find a partner. By becoming bank holding companies, Morgan Stanley and Goldman will come under the scrutiny of national banking regulators and will be subject to new capital requirements, The Wall Street Journal noted.
Wall Street: The dark theory 'Pollyanna Creep' theorists blame Washington's economic statistics. No shortage of villains stand accused of igniting the brushfire raging across Wall Street: greedy lenders, gullible home buyers, negligent regulators, numbskull credit ratings agencies, and vicious short-sellers, for starters. Maybe they share the blame. But what if the underlying problem goes deeper? What if the reality is that the US economy has been a lot worse than was thought for a long time, and now the chickens are finally coming home to roost? That's the dark thinking beyond what is known as "Pollyanna creep," a phrase coined by an economist named John Williams and supported by a cadre of other macroeconomic dissidents. Williams, who lives in California, runs a Web site called Shadowstats.com that trades in the idea that key government statistics have become so optimistically misleading as to become essentially useless. Yes, this sounds a bit like the thinking of the black helicopter crowd, or the plotline of a Matrix movie. But given what's gone on in the financial sector of late, it doesn't sound quite so fringe.
Ex-Drexel Chief Talks Crisis In an exclusive interview with IDD, Frederick Joseph discusses the financial crisis, his experiences at Drexel and more. Last week, IDD caught up with Frederick Joseph, former chief executive of Drexel Burnham Lambert, who is now a managing director at mid-market investment firm Morgan Joseph & Co. His firm has completed over $27 billion worth of transactions since June 2001 and has 160 employees. Until its bankruptcy in the late 1980s, Drexel was a pioneer and a leading force in the development of the high yield bond market. Joseph characterized the Lehman deal as a great opportunity for Barclays because of Lehman’s tremendous talent pool. Also, he counseled investors and Lehman employees not to second-guess Dick Fuld or judge his decisions too harshly. Joseph has more than four decades of experience on Wall Street. Prior to his work at Drexel, the Harvard Business School graduate was chief operating officer of Shearson Hammill.
Sovereign Funds Retreat From Wall Street Banks With their $59 billion investment last year in U.S. banks and investment houses down more than 20%, they're loath to boost their exposure When three officials of Lehman Brothers parachuted into Seoul in early June seeking a cash injection from South Korea's $22 billion sovereign wealth fund, they were quickly shown the door. After buying 5% of Merrill Lynch for $2 billion in January, Korea Investment Corp. had a pretty good idea what was happening on Wall Street. So just a few hours after a quick tea with the Lehman team, the fund's managers said no without even taking the time to look through the bank's books. "Lehman's profile is similar to that of Merrill, and we concluded it would be better for us to avoid concentrating our exposure to Wall Street banks," says Kim Ryoung, a KIC director. It was another moment in the cooling romance between the world's giant sovereign funds and financial firms. Last year big sovereign funds—which invest government money in private companies—plowed tens of billions of dollars into the likes of Citigroup, UBS, and Merrill. Today, though, the funds are no longer riding to the rescue. "Everybody is adopting a wait-and-see attitude," says Tarek Abdel-Meguid, a partner at New York investment firm Perella Weinberg who works closely with sovereign funds.
G.E., a Giant of Lending, Is Dragged Down Along With Banks General Electric is best known as an industrial powerhouse, with manufacturing prowess in businesses that range from giant generators to jet engines to alternative energy technologies like wind mills and solar panels. Yet General Electric is as much a bank as a blue-chip industrial company. Half of its profits come from its giant finance arm, GE Capital, whose global portfolio spans aircraft leasing, commercial real estate lending, credit cards and home mortgages. Indeed, G.E. is the largest nonbank finance company in the United States, with assets of $696 billion and $545 billion in debt. If it were a bank, GE Capital would be the nation’s fifth-largest. So G.E. found itself engulfed last week in the market turmoil, treated by fearful investors as another financial company potentially in peril, until news of a planned federal bailout brought a rebound in the markets late Thursday and Friday.
The housing meltdown: Why did it happen in the United States? Abstract: The crisis enveloping global financial markets since August 2007 was triggered by actual and prospective credit losses on US mortgages. Was the United States just unlucky to have been the first to experience a housing crisis? Or was it inherently more susceptible to one? I examine the limited international evidence available, to ask how the boom-bust cycle in the US housing market differed from elsewhere and what the underlying institutional drivers of these differences were. Compared with other countries, the United States seems to have: built up a larger overhang of excess housing supply; experienced a greater easing in mortgage lending standards; and ended up with a household sector more vulnerable to falling housing prices. Some of these outcomes seem to have been driven by tax, legal and regulatory systems that encouraged households to increase their leverage and permitted lenders to enable that development. Given the institutional background, it may have been that the US housing boom was always more likely to end badly than the booms elsewhere.
Treasury to work with homeowners in bailout Democrats seek 'Main Street' protections Congressional Democrats yesterday began to put their imprint on the Bush administration's historic $700 billion bank rescue plan, persuading the Treasury to use the new powers it would acquire to keep people from losing their homes. In the first of what are likely to be a series of concessions sought by Democrats, Treasury said it would use its leverage when acquiring defaulted loans to work with homeowners to avoid foreclosure, although it cautioned that not everyone can be saved. Democrats are demanding assistance for "Main Street" as well as Wall Street as a condition for getting the bailout bill quickly through Congress this week to ensure financial markets do not head back into a tailspin when they reopen Monday.
The Mortgages of the Future IN this time of economic crisis, help for troubled homeowners often arrives late, when it arrives at all. All too frequently, families are going into default on their mortgages, facing foreclosures and evictions that may have traumatic consequences. It doesn’t need to be this way. Mortgages could be structured differently, so that adjustments in payments would be made as a matter of routine — systematically, automatically and continuously — starting even before any distress is perceived by borrower or lender. By avoiding thousands and even millions of individual family crises, we might also make institutional crises, like the collapse of Lehman Brothers and Bear Stearns, less likely.
How Financial Madness Overtook Wall Street Major media only telling half the story: It's not just Wall Street's fault. If you're having a little trouble coping with what seems to be the complete unraveling of the world's financial system, you needn't feel bad about yourself. It's horribly confusing, not to say terrifying; even people like us, with a combined 65 years of writing about business, have never seen anything like what's going on. Some of the smartest, savviest people we know — like the folks running the U.S. Treasury and the Federal Reserve Board — find themselves reacting to problems rather than getting ahead of them. It's terra incognita, a place no one expected to visit. Every day brings another financial horror show, as if Stephen King were channeling Alan Greenspan to produce scary stories full of negative numbers. One weekend, the Federal Government swallows two gigantic mortgage companies and dumps more than $5 trillion — yes, with a t — of the firms' debt onto taxpayers, nearly doubling the amount Uncle Sam owes to his lenders.
What next? Global finance is being torn apart; it can be put back together again FINANCE houses set out to be monuments of stone and steel. In the widening gyre the greatest of them have splintered into matchwood. Ten short days saw the nationalisation, failure or rescue of what was once the world’s biggest insurer, with assets of $1 trillion, two of the world’s biggest investment banks, with combined assets of another $1.5 trillion, and two giants of America’s mortgage markets, with assets of $1.8 trillion. The government of the world’s leading capitalist nation has been sucked deep into the maelstrom of its most capitalist industry. And it looks overwhelmed.
Real estate market slow to respond to gov't plan Government rescue package will do little to help more homebuyers qualify for mortgages By late Saturday afternoon, only three prospective homebuyers had visited the open house Valerie Morrill was hosting. The Prudential real estate agent recalled a year ago, she'd see 10 to 15 people during an open house in this midtown Kansas City neighborhood. She said the government's efforts to bring stability back to the economy and the credit markets may help but she's seen no immediate improvement. "It's just the buyer pool is so low," she lamented. "Eighteen months ago, you needed $500 to buy a house." Now, all the special rates and government programs are gone, leaving buyers facing a 10 percent down payment. "You have to have money and nobody has money." And there's the rub.
How to deal with failing financial institutions Policymakers at the Federal Reserve and in the Bush administration were slow to admit they had a mortgage mess on their hands. Foreclosure rates are shattering previous records, just to be broken a few months later. The Mortgage Bankers Association reports that the share of mortgages that entered foreclosure in the second quarter of 2008 stood at 1.1 percent, and the share of all mortgages in foreclosure was 2.8 percent during the same period. Since the 1970s, the share of mortgages entering foreclosure never exceeded 0.5 percent before the end of 2006, and the share of total mortgages in foreclosure never exceeded 1.5 percent before the second half of 2007. The solutions have been tepid and so far not particularly successful in stemming the tide in foreclosures, as the string of continuing failures, such as Bear Stearns, Lehman Brothers and AIG, vividly illustrates. The track record of interest-rate cuts and voluntary industry-based mortgage work-out efforts does not inspire confidence.
The New Short-Selling Rules: A Day Late and $2 Trillion Dollars "Short?" "short-selling" of stocks by forcing “short-sellers” to actually deliver the shares of companies they’re shorting. Now the SEC has taken an "emergency action" and temporarily halted short selling on 799 financial companies. Talk about shutting the barn door after the horses have bolted … Still, this issue is worth a closer look. Short selling, in case you're not familiar with it, is essentially a bet that a stock is going to drop in price. Traders borrow shares they don’t own and sell them, reaping the proceeds from the sale. If the price drops, the trader then buys the shares back at the lower price, repays the loan of the shares, and pockets the difference.
Federal bailout could kill Merrill merger With the firm’s survival assured by the government's bailout plan, Merrill Lynch shareholders may be cool to the company's $50 billion merger plan with Bank of America. The federal government's decision to bail out ailing banks by acquiring their toxic assets ironically could imperil Merrill Lynch’s efforts to help itself by merging with Bank of America, according to a UBS research report. “We think [Merrill] holders may be less interested in seeing this deal happen," wrote UBS's Glenn Schorr in a client note Friday. Mr. Schorr figures that investors could well decide to vote down the $50 billion merger, if they conclude that the government's move offers Merrill and other investment banks some time to breathe and figure out ways to remain independent.
How Wall Street Lied to Its Computers That’s what has been running through my head as I watch some of the oldest and seemingly best-run firms on Wall Street implode because of what turned out to be really bad bets on mortgage securities. Before I started covering the Internet in 1997, I spent 13 years covering trading and finance. I covered my share of trading disasters from junk bonds, mortgage securities and the financial blank canvas known as derivatives. And I got to know bunch of quantitative analysts ("quants"): mathematicians, computer scientists and economists who were working on Wall Street to develop the art and science of risk management.
Consumers Cut Health Spending, As Economic Downturn Takes Toll $$ As the credit crunch threatens to throw the economy into a deep slump, Americans are already cutting back on health care, a sector once thought to be invulnerable to recession. Spending on everything from doctors' appointments to preventive tests to prescription drugs is under pressure. The number of prescriptions filled in the U.S. fell 0.5% in the first quarter and a steeper 1.97% in the second, compared with the same periods in 2007 -- the first negative quarters in at least a decade, according to data from market researcher IMS Health. Despite an aging and growing U.S. population, the number of physician office visits also has been declining since the end of 2006. Between July 2007 and 2008, the most recent month for which data are available, visits fell 1.2%, according to IMS.
Oil rises near $100 a barrel on bank bailout plan Oil rises near $100 as investors soothed by US plan to ease credit crisis Oil prices rose past $100 a barrel Friday, gaining for a third day as a government plan to absorb billions of dollars of banks' toxic debt emboldened investors to put money back into the markets. Light, sweet crude for October delivery rose $2.64 to $100.52 a barrel in early trading on the New York Mercantile Exchange after earlier rising as high as $103.64. Crude has climbed about $10 in past three days as a historic government intervention into the financial system at least temporarily halts a steep fall below the $100 level. But analysts say prices could resume their downward trend, noting that demand for energy will likely remain weak as a slumping economy leads Americans to drive less and businesses to scale back operations.
Ford, Dow execs to announce national summit in '09 Ford, Dow execs to announce 2009 national summit on future of industry, energy and environment Amid the turmoil on Wall Street, leaders from two global companies hard hit by economic and industrial upheavals are expected to unveil plans Monday for a national convention being held next year to discuss the future of manufacturing, technology, energy and the environment. Ford Motor Co. Executive Chairman Bill Ford and Dow Chemical Co. Chairman and Chief Executive Andrew Liveris were scheduled to announce The National Summit after the Detroit Economic Club meeting Monday. The nonpartisan, nonprofit group is convening the summit, which is set for June 15-17 at Ford Field, the home of the Detroit Lions. Beth Chappell, the economic club's CEO, said the idea grew out of listening to leaders who have addressed the venerable speakers' forum during the past couple years.
Shares of national banks soar on government plans Shares of national banks skyrocket on government's rescue plans, SEC's ban on short-selling Shares of national banks soared in early trading Friday, extending the previous session's rally, as investors cheered the government's plans to rescue banks from billions of dollars of bad debt. A new ban on short selling also helped boost financial stocks. The government's rescue plan is expected to help financial companies remove soured real estate debt from their books. Meanwhile, the Federal Reserve said Friday it will expand emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
Schering-Plough cuts 1,000 sales jobs The Kenilworth, N.J.-based pharmaceutical company said it will cut 20% of its U.S. sales force, leaving 4,000 positions. Schering-Plough Corp. said Friday it will cut 1,000 sales jobs as part of broader cuts in a move to reduce costs and reposition itself in an ever-changing industry. The Kenilworth, N.J.-based pharmaceutical company said it will cut 20% of its U.S. sales force, leaving 4,000 positions. The layoffs are part of a 10% reduction in staff announced in April. In all, the company hopes cost cuts and layoffs since the buyout of biotechnology company Organon Biosciences in November will save it $1.5 billion annually by 2012.
Retailers face worst holiday in years Not ho-ho, maybe not even ho-hum. Horrible? The impending U.S. holiday shopping season is expected to be a weak one, but the debate is coming down to whether it could go down as one of the worst on record, as U.S. consumers show an increasing reluctance to spend. In the past year, consumers have been battered by the housing market downturn, surging food and fuel costs, a credit crunch, and a weakening job market.
Iran's president replaces Central Bank chief TEHRAN: President Mahmoud Ahmadinejad replaced the governor of the Central Bank on Saturday after an escalation in their differences over monetary policy and inflation, according to the Iranian news agency Fars. Tahmasseb Mazaheri, the Central Bank governor, was appointed a year ago after his predecessor left office in a similar policy clash with Ahmadinejad. It is not clear whether Mazaheri resigned or was dismissed. "I have heard the news, too," Mazaheri told Fars about being replaced. He will be succeeded by Mahmoud Bahmani, the Central Bank's general secretary, Fars reported. For months, reports of Mazaheri's differences with Ahmadinejad have fed speculation that he would be the next official to leave the cabinet. About a dozen ministers and vice presidents, including the ministers of economy and interior, have resigned or been dismissed since the president was elected in 2005.
Iran vows to block any attack Iran will stop any attacker before he can "pull the trigger" and sanctions intended to isolate the Islamic Republic have not worked, President Mahmoud Ahmadinejad told a military parade on Sunday. The United States and its allies are seeking to step up U.N. sanctions on Iran over its disputed nuclear plans, which the West sees as a bid to build nuclear arms. Iran denies this. There has been persistent speculation Washington or Israel might launch strikes on Iran's nuclear sites, as neither country has ruled out military action if diplomacy fails to end the row.
A Peace From the Bottom Up Middle East Peace id dead - What's Next? Amid the din of the financial crisis and the presidential campaign, the Bush administration's attempt to broker an Israeli-Palestinian peace deal has quietly expired. Secretary of State Condoleezza Rice's 16 trips to the region over the past 21 months; last year's Annapolis peace conference; months of meetings between Israeli and Palestinian negotiating teams -- all have sunk under the weight of the corruption charges against departing Israeli Prime Minister Ehud Olmert and the competition of crises from Georgia to Pakistan. Nor is the peace process likely to revive anytime soon. The winner of last week's party primary election to replace Olmert, Tzipi Livni, will probably be mired in efforts to form a new government for weeks or even months. To succeed she probably will have to make promises to coalition partners that would make a deal impossible. If she fails, Israel will have an election in which the favorite, for now, is hard-liner Binyamin Netanyahu. Those are just Israel's hurdles. The Palestinians are still split between Mahmoud Abbas's Palestinian Authority in the West Bank and Hamas in the Gaza Strip. And if the presidential campaign is any indication, promoting a Middle East peace won't crack the top 10 on the next administration's list of priorities. How could it? With Wall Street's meltdown, the failing Afghan war, the growing U.S. military engagement in Pakistan and Russia's neo-imperialist eruption -- not to mention the nuclear threats of Iran and North Korea -- the perpetual headache of the West Bank and Gaza, where violence is at a relative low point, can barely be felt in Washington.
When a New President Inherits a Mess Even in the best of times, it's a grueling job. But the problems of 2008 seem unusually intractable, and despite the fine talk one sometimes hears about reconciliation, the electorate will be divided no matter who wins in November. Even Bush's snarkiest critics would have had trouble predicting all the rough weather of the second term, from Hurricane Katrina to the smoldering wars in Iraq and Afghanistan to the bursting of the housing bubble, the financial meltdown and the Recession That Dare Not Speak Its Name. Would any sane person want to inherit this? Of course, even to pose that question assumes that candidates for the nation's highest office are normal reasoning creatures. Most of us would pause before spending millions of dollars to travel thousands of miles to eat hundreds of chicken dinners with people who snipe at our clothes, our hair cuts and our every public utterance. Losing is no fun, but is winning even worse? "Being president is like being a jackass in a hailstorm," Lyndon B. Johnson once said. "There's nothing to do but to stand there and take it."
Obama calls financial bailout price tag "staggering" Democratic presidential candidate Barack Obama on Sunday called the $700 billion price tag for a financial market bailout "staggering" and said the final product must protect U.S. taxpayers and include a commitment to new regulatory reforms. At a rally in downtown Charlotte, North Carolina, Obama laid the blame for the Wall Street crisis on Republican economic policies favored by John McCain, his rival in the November 4 presidential election. "We're now seeing the disastrous consequences of this philosophy all around us -- on Wall Street as well as Main Street," Obama told the crowd estimated at about 20,000.
Obama: No Blank Check on Bailout Senator Barack Obama said the government plan to stabilize the nation’s financial markets came with “a staggering price tag,” but he told voters here on Sunday that any rescue plan needed to include new regulations of the financial system. “First, there must be no blank check when American taxpayers are on the hook for this much money,” Mr. Obama told supporters at an outdoor rally in downtown Charlotte. "Second, taxpayers shouldn’t be spending a dime to reward C.E.O.s on Wall Street while they’re going out the door." In his first public remarks about the $700 billion proposal that the Treasury Department and the Federal Reserve presented to Congressional leaders, Mr. Obama offered qualified support for the bailout. Until complete details emerge this week on Capitol Hill, aides said, Mr. Obama would not render a final judgment. But he said any plan had to include protections for taxpayers and assistance for homeowners at risk of losing their property.
McCain urges broad oversight of massive bailout Republican presidential candidate John McCain on Sunday called for broad oversight of the Bush administration's $700 billion plan for rescuing Wall Street. In an interview on financial cable TV channel CNBC, McCain said responsibility for the bailout should be spread beyond Treasury Henry Paulson. "I think we need to appoint an oversight board of the most respected people in America, such as maybe Warren Buffett, who's an Obama supporter, Mitt Romney, Mike Bloomberg, so that there can be some kind of oversight of, instead of just putting all this responsibility on a person who may be gone in four months," McCain said. The Arizona senator also said the bailout should set limits on compensation for chief executives of financial institutions that would be rescued by the federal government.
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Fri 09.19.2008
Now do you believe in Santa Clause? It's beginning to sound a lot like Christmas, . . . on Wall Street.
Paulson, Bernanke Push New Plan to Cleanse Books U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution. Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative is aimed at removing the devalued mortgage- linked assets at the root of the worst credit crisis since the Great Depression. Today, the Treasury announced a $50 billion program to insure the holdings of money-market mutual funds for a year.
Backlash Against Bailouts Grows on Capitol Hill, Wall Street Amid calls for the government to take stronger measures to stabilize financial markets, some former Federal Reserve officials, lawmakers and Wall Street executives are saying too much has already been done. "Every time they intervene, they do more harm than good," said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut, a brokerage that manages $1 billion. Critics of the rescues agree that government actions, such as those that prevented the failures of Fannie Mae, Freddie Mac and American International Group Inc., can't postpone the inevitable worsening of housing and financial markets. They say the bailouts by the Fed and Treasury also encourage future reckless risk-taking by investors.
Stocks soar at opening after gov't rescue plan Wall Street begins big rally on bank rescue hopes, temporary ban on short sales of financials Wall Street extended a huge rally Friday as investors stormed back into the market, relieved that the government plans to rescue banks from billions of dollars in bad debt. The Dow Jones industrials rose nearly 400 points, giving them a massive gain of more than 800 over two days. A new ban on short selling, or placing bets that a stock will fall, was likely adding to the market's gains. And Friday was a quarterly "quadruple witching" day, which marks the simultaneous expiration of options contracts, an event that often adds to volatility.
Treasury, Fed move to bolster money market funds Treasury, Fed announce steps to support nation's money market funds industry The Treasury Department and the Federal Reserve announced separate actions Friday designed to bolster the nation's $2 trillion of assets in money market fund assets, which had come under threat from one of the worst financial crises in decades. The Treasury said it will tap into a Depression-era fund to provide guarantees for the money market mutual funds. The Fed said it will expand its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds. The central bank's move should help the funds to meet demands for redemptions. The central bank, which has moved aggressively in recent days to pump money into the nation's financial system, also announced Friday it plans to purchase short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, a source of low-cost funding for mortgages, small businesses and farms.
Russian stocks suspended amid surge Russian stock exchanges suspend trading twice after shares rise sharply Russian stock exchanges halted trading Friday after stocks shot higher, rebounding off a two-day closure amid a financial crisis as the government rushed through emergency measures that included more money for banks and purchases of shares to stem plunging prices. Exchanges suspended trading for a second time in just several hours of trading Friday after shares on the benchmark RTS and MICEX surged by 20 percent and 26.3 percent, respectively. Trading was to resume later in the day.
Multiple quick fixes tried for US financial crisis Gov't safeguards money market funds, blocks short-selling of some stocks, readies rescue plan Urgently moving on multiple fronts to stem the worst financial crisis in decades, the government on Friday said it would safeguard assets in money market mutual funds and temporarily banned short-selling of financial company stocks. The Treasury Department has asked Congress to give it sweeping power to buy up toxic debt that has unhinged Wall Street. President Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds. Both moves are designed to bolster the huge money market mutual fund industry, which has come under stress in recent days.
Central banks keep cash flowing to markets despite rally The world's central banks jumped to grease money market wheels again on Friday, pouring in more money even as stocks and the dollar rallied in response to an emergency U.S. plan to mop up toxic debt. Japan, Australia, India and Indonesia pumped over $42 billion into their money markets as cash remained hard to find despite Thursday's unprecedented move, coordinated by the U.S. Federal Reserve, to make an extra $180 billion in dollar funds available to the banking system.
U.S. mega-bailout in the works Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, and leaders of Congress started work on an ambitious plan for the government to buy up toxic mortgage-linked assets from U.S. financial firms. The plan, which Congress hopes to have finalized by the end of next week, could easily be the largest bailout in U.S. history. (The New York Times) The idea of the unspecified plan is to buy up the distressed assets so that banks will resume borrowing and lending. (Los Angeles Times) Possibilities include creating an $800 billion fund to buy the toxic assets and having Fannie Mae and Freddie Mac buy them. "It sounds like there's going to be a giant dumpster for illiquid assets," said Mirko Mikelic at Fifth Third Asset Management. (Bloomberg)
SEC bans short-selling for financials The U.S. Securities and Exchange Commission took what it called "emergency action" on Friday and temporarily banned investors from short-selling 799 financial companies. The temporary ban, aimed at helping restore falling stock prices that have shattered confidence in the financial markets, takes effect immediately. Short sellers borrow stock with the aim of selling it, then buy it back at a lower price, hoping to pocket the difference. The commission said short sellers add liquidity to the markets during normal conditions, but recent unbridled short selling has contributed to the recent tailspin in the stock market.
Rescue package could cost half-trillion dollars Largest chunk of the plan would require congressional approval Treasury Secretary Hank Paulson briefed congressional leaders Thursday night on plans to address the "illiquid assets" on U.S. financial institutions' balance sheets, possibly including the creation of a government facility to take on financial firms' bad debts. The proposal to create a massive facility to buy mortgage-backed securities could cost as much as a half-trillion dollars and would involve the purchase of both private-label and government-guaranteed mortgages, according to an administration official. The plan would have two parts. The largest part would be the purchase of private-label (those underwritten by Wall Street) mortgages by some as-yet unnamed vehicle. Financing would occur through the sale of treasuries, the official said. That part of the plan would require congressional approval. The idea is to hold the securities to maturity. The average mortgage has a life of about 7 years.
To Plan B, With All Deliberate Speed In an effort to restore investor confidence, ease the anxieties of election-year voters and get out ahead of a financial crisis that threatens to spin out of control, Washington is moving toward creation of a new government entity to . . . . Well, that's the question, isn't it: to do what? Judging from the sobering statements of administration and congressional leaders last night, there is a strong political instinct at the White House and on Capitol Hill to do something. Everyone agrees that there's a better solution than having the Treasury and the Federal Reserve continue to do these ad-hoc, midnight rescues, stretching their balance sheets and their legal authority. And everyone agrees that we better do something quickly, before there's even more of a run on the money markets and the stock market does another nosedive.
Paulson, Bernanke Push New Proposal to Cleanse Balance Sheets U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution. Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.
Despite Late Surge, Markets Still Show Signs of Instability The rampaging credit crisis continued to roil the world's markets yesterday, but in a week of steep downdrafts, U.S. stock prices rallied on news of the government efforts to shore up the global financial system. The respite came despite ominous signs that the markets remained remarkably unstable. Investors on Tuesday withdrew nearly $80 billion from money-market funds -- long viewed as among the safest of investments -- and some firms took the dramatic step of shutting down their funds at a loss to investors. Morgan Stanley, one of the two remaining independent investment banks, continued to flirt with selling a huge stake to a Chinese investor or agreeing to an outright sale.
Citing Grave Financial Threats, Officials Ready Massive Rescue Lawmakers Work With Fed, Treasury To Try to Restore The Flow of Money The Bush administration is urgently preparing a massive intervention to revive the U.S. financial system, including a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers. Congressional leaders gave bipartisan support to the administration's efforts after a meeting last night with Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke. Paulson and Bernanke presented a "chilling" picture of the state of the financial system, according to a participant in the meeting who spoke on condition of anonymity. Lawmakers were told that the consequences would be grave if they failed to pass legislation by the end of next week. Sen. Harry Reid (D-Nev.) and Rep. Nancy Pelosi (D-Calif.) committed to meeting that deadline.
U.S. Drafts Sweeping Plan to Fight Crisis As Turmoil Worsens in Credit Markets $$ Paulson Briefs Congress on Idea to Buy Bad Assets From Banks, Insure Money- Market Funds; Stocks Rebound Sharply The federal government is working on a sweeping series of programs that would represent perhaps the biggest intervention in financial markets since the 1930s, embracing the need for a comprehensive approach to the financial crisis after a series of ad hoc rescues. At the center of the potential plan is a mechanism that would take bad assets off the balance sheets of financial companies, said people familiar with the matter, a device that echoes similar moves taken in past financial crises. The size of the entity could reach hundreds of billions of dollars, one person said.
Paulson-Bernanke Doctrine improvised in crisis The government let one big firm go down. It looks as if it is determined not to let another one do so. If you think it will fail in that effort, you still might want to hesitate before selling the shares short. In addition to the normal risk - that you might lose money if the shares go up - you face the likelihood that you will be carefully scrutinized by the same government that looked the other way when the likes of Lehman Brothers and AIG were taking risks that eventually brought them down. Richard Fuld Jr., the man who ran Lehman into the ground, made the mistake of taking too much risk to survive and too little risk to be saved. Had he had the foresight to write a lot more credit default swaps - so that the government feared chaos if Lehman defaulted - then perhaps the government would have nationalized Lehman, just as it nationalized AIG, Fannie Mae and Freddie Mac. Or it would have subsidized a takeover, as it did for Bear Stearns.
U.S. seeks comprehensive plan to stabilize markets The head of the Treasury and the Federal Reserve Board began discussions Thursday with congressional leaders on what could become the biggest bailout in U.S. history. While details remain to be worked out, the plan is likely to authorize the government to buy distressed mortgages at deep discounts from banks and other institutions. The proposal could result in the most direct commitment of taxpayer funds so far in the financial crisis that Fed and Treasury officials say is the worst they have ever seen. Senior aides and lawmakers said the goal was to complete the legislation by the end of next week, when Congress is scheduled to adjourn. The legislation would grant new authority to the administration and require what several officials said would be a substantial appropriation of U.S. government money, though no figures were disclosed in the meeting.
US financial rescue plan due 'in hours' Treasury Secretary Henry Paulson says the government is crafting a plan to rescue banks from bad debts that are at the heart of Wall Street's worst financial crisis in decades. Paulson said late Thursday the plan will need congressional approval. He and Federal Reserve Chairman Ben Bernanke briefed lawmakers on the options they are considering. Democratic Senate Majority Leader Harry Reid said he expected the administration and the Fed to have a proposal to lawmakers in a matter of hours, rather than days. Paulson, Bernanke and Securities and Exchange Commission chair Christopher Cox asked lawmakers at the session to pass legislation giving the government power to buy distressed assets. "It will be the power - it may not be a new entity - it will be the power to buy up illiquid assets," Democratic Rep. Barney Frank said.
U.S. Economy's Prospects Worsen $$ Fears on Wall Street Threaten to Spread To Other Industries The outlook for the U.S. economy, already weakened before the Wall Street debacle, is getting decidedly darker as the credit crisis spreads. Before the collapse of several major financial firms, the U.S. economy appeared on the edge of recession, if not in one. So far, Main Street hasn't been hit nearly as hard as Wall Street. But the latest stage of the crisis may worsen the downturn. "The brutal dynamics of the past few weeks in financial markets gave us another tightening of the credit screws," said Robert Barbera, an economist at the New York trading-services firm Investment Technology Group Inc.
The Real Reason for the Global Financial Crisis… the Story No One’s Talking About Are you shell-shocked? Are you wondering what's really going on in the market? The truth is probably more frightening than even your worst fears. And yet, you won’t hear about it anywhere else because "they" can’t tell you. "They" are the U.S. Federal Reserve and the U.S. Treasury Department, and they can’t tell you what’s really going on because there’s nothing they can do about it, except what they’ve been trying to do - add liquidity.
Failed firms gave big to politicians Both presidential candidates, industry critics got donations Before the government committed billions of taxpayer dollars to rescue troubled corporate giants, executives at those firms were directing millions of dollars in lobbying efforts and campaign donations to the very politicians who now blame Wall Street's excesses and greed for America's financial crisis. The corporate largesse flowed to members of Congress, the political parties, the nominating conventions and the two presidential candidates through the summer, even as many of the companies and their executives were teetering toward collapse. An analysis by The Washington Times found that both parties cashed in heartily, with Democrats slightly more likely to benefit.
A lesson rooted in the Great Depression Will future historians write about the Great Depression of the 2000s as they did about the one in the 1930s? The world's central bankers sought to answer "no" Thursday - resoundingly, though not definitively. With a huge infusion of cash, the U.S. Federal Reserve, joined by its fellow central banks around the globe, unleashed their most forceful volley of financial firepower yet. The goal was to persuade a convulsing banking system that there will be no shortage of money to meet essential obligations, now or in the future. The $180 billion in additional funds they committed Wednesday was only the start. That is in sharp contrast to what happened in the 1930s when the Fed stood idly by as waves of defaults drained money from the banking system, starved the American economy of credit and eventually dragged Europe down as well.
The Next Bailout: Detroit Do the big three automakers deserve $25 billion in federal aid? With just two weeks in the current session of Congress left to land potentially life-saving federal loans, Detroit's car companies and Michigan's congressional delegation were in a state of chaos. Michigan lawmakers trying to sell the deal to a skeptical Congress were frustrated by what they saw as a lack of effort from the automakers, several congressional sources tell NEWSWEEK. Auto execs were annoyed that they were being lumped with the Wall Street bailout crowd, which didn't help Detroit's plea for $25 billion in low-cost federal loans to see it through its cash crisis. The acrimony came to a head in a tense conference call Sept. 11 involving 25 power brokers in Washington, D.C., and Detroit, including some of the Big Three CEOs, according to Congressional sources. As congressmen and their staffers debated the minutia of how to craft the legislation for the loans, the CEOs on the other end of the line kept asking everyone to speak up. "We were very much in the weeds, which is not a good idea with a conference call of 25 people," says Rep. Dave Camp, a Republican from Midland, Mich. "It's been difficult to get consensus [with the carmakers]. It's been very frustrating."
What they're saying: World reaction to the financial crisis Comments from around the world on the financial crisis:
"This will come to be seen as the greatest regulatory failure in modern history. The degree of leverage that these institutions took on is indefensible." Roger Altman, former deputy Treasury Secretary
Central Banks Attempt to Boost Liquidity as Money Market Melts Down Central banks yesterday (Thursday) launched a coordinated effort to flood global money markets with U.S. dollars in hopes of easing strained financial systems in danger of freezing up entirely. However, many analysts see this as only a short-term solution that will lower overnight lending rates but fail to assist financial institutions with longer-term cash needs. In a statement released at 3 a.m. yesterday morning in Washington, just as the markets opened in Europe, the U.S. Federal Reserve announced that it had authorized a $180 billion expansion of its swap credit lines, allowing banks to borrow more dollars at a lower rate. The Fed, Bank of Canada, European Central Bank, Bank of England, Swiss National Bank, and Bank of Japan increased their swap credit lines to $247 billion, nearly quadruple the current amount of $67 billion.
Fed and Treasury Offer to Work With Congress on Bailout Plan The head of the Treasury and the Federal Reserve began discussions on Thursday with Congressional leaders on what could become the biggest bailout in United States history. While details remain to be worked out, the plan is likely to authorize the government to buy distressed mortgages at deep discounts from banks and other institutions. The proposal could result in the most direct commitment of taxpayer funds so far in the financial crisis that Fed and Treasury officials say is the worst they have ever seen.
Fed Funds Price in 100% Chance of Rate Cut as Markets Rally Fed funds futures have priced in a 100% chance of a rate cut for the next FOMC meeting scheduled for October 29, as markets rallied today on a CNBC report that the U.S. government has come up with a plan to deal with the financial crisis in the U.S. Markets are now pricing in an 82% chance of a 25 bps cut and an 18% chance of a 50 bps rate cut for the next meeting. The report on CNBC said Treasury Secretary Henry Paulson is considering the creation of an entity similar to the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s.
Possible financial crisis fix sends stocks soaring Possible financial crisis fix sends Dow up more than 400; fast congressional action promised The stock market finally found reason to rally Thursday, and Congress promised quick action as the Bush administration prepared a plan to rescue banks from the bad debt at the heart of the worst crisis on Wall Street since the Great Depression. Details of the plan were still being worked out, but Treasury Secretary Henry Paulson emerged from a nighttime meeting on Capitol Hill to say he hoped to have a solution "aimed right at the heart of this problem." As word of a government plan began to reach Wall Street earlier in the day, the Dow Jones industrial average jumped 410 points, its biggest percentage gain in nearly six years.
Hip, Hip, Hooray! Markets cheer a Paulson plan to fix crisis, but the pain is likely far from over. Wall Street is hoping that Washington will come to its rescue. Stocks surged late in the trading day on Thursday after CNBC reported that Treasury Secretary Henry Paulson is planning to create a federal agency to bail out troubled financial institutions. The agency would likely be something akin to the Resolution Trust Corporation that liquidated hundreds of savings and loans after that banking fallout. In this case, such an agency would take the bad debt off of the balance sheets of troubled financial institutions so that they can return to a more normal course of business. Details of the plan, including the cost to taxpayers, were not known.
Investors, Hungry for Hope, Send Dow Up 410 A seesaw day on Wall Street ended with a rush of euphoria Thursday as investors raced back into beaten-down banking shares, heartened by signs that the government is taking more drastic steps to tamp down problems plaguing the financial markets. In a rally that came in the final hour of trading, the Dow Jones industrials surged to a 410-point gain, nearly erasing the 449-point loss sustained on Wednesday. But it was by no means a sign that the crisis on Wall Street had turned a corner. Fear and stress still abounded in the credit markets, where investors flocked to the safety of Treasury bills and banks charged each other higher loan rates, a reflection of lingering anxiety about the health of the financial industry.
Asian stocks soar on possible US rescue package Asian stock markets soar on Wall Street rally, news of possible US rescue package Asian stock markets soared Friday as a news of a U.S. government plan to rescue banks from risky mortgage debt brought hope of a letup in the world's worst financial crisis in decades. Japan's Nikkei 225 average advanced 3.2 percent to 11,859.75, while Hong Kong's Hang Seng Index shot up nearly 7 percent to 18,836.90. Stock measures in China, Taiwan, South Korea and Australia were also sharply higher.
Wall Street mega bailout ahead? CNBC reported this afternoon that Treasury Secretary Henry Paulson is shopping an idea around Capitol Hill whereby the feds would create a virtual landfill for the toxic assets now owned by financial institutions. Such a move would allow institutions to dump those assets of dubious value -- mortgage-backed securities and the like -- onto taxpayers. The institutions would clear their books which should allow them to start lending again and free up the credit markets. Anybody who didn't like the Bear Stearns, Fannie Mae, Freddie Mac and AIG bailouts will really hate this one. Arguably, this would be the ultimate in creating moral hazard. And once again the argument could be made that it's another example of profits being privatized while losses are socialized. But there may be little alternative
What to Do After a Big Rally Investors should look to take a hard look at their portfolios and make some sales tomorrow after today's huge rally, Jim Cramer told viewers of his "Mad Money" TV show Thursday. Cramer advised selling into any future rallies to free up cash for the declines that are most certainly ahead. "Get into position for the next big sale," he told viewers. He said today's 410-point rally in the Dow was entirely due to rumors that the federal government is considering a resolution mortgage trust to begin buying up bad home loans in an effort to rescue the U.S. banking system.
Bond Insurers Are Facing Downgrades MBIA and the Ambac Financial Group may have their debt rankings cut several grades by the credit ratings company Moody’s Investors Service after Moody's raised its forecast for losses on securities backed by subprime mortgages. Syncora Guarantee, the Financial Guaranty Insurance Company and CIFG Assurance North America will also be evaluated for the effect of the higher loss projections, Moody's said. "Because both Ambac and MBIA are meaningfully exposed to the risk of U.S. subprime mortgages and other residential mortgage products, the revised assumptions are expected to have a significant impact on the firms' capital positions, and multi-notch downgrades are possible," Moody’s said.
Bloomberg and Financial Times Running Contradictory Reports on Interest in WaMu Reader Dwight pointed out this amusing disparity in reporting. The Financial Time is definitive, It title: "No bidders come for Washington Mutual": Hopes of finding a buyer for Washington Mutual dimmed on Thursday as an auction for the beleaguered US bank had yet to attract any bids...
The Bloomberg headline? "WaMu Said to Attract Multiple Potential Bidders"; Washington Mutual Inc., the savings and loan that put itself up for sale this week after the stock tumbled, has attracted several potential bidders for all or part of the bank, a person familiar with the matter said.
The person declined to identify the companies. JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. may bid for WaMu, three other people with knowledge of the talks said earlier.....
Vintage Whine Accounting rules and short-sellers didn't sink A.I.G. A.I.G sunk itself. The markets are inundated with zombie myths. No matter how many times you stab them through the heart, you just can't kill them. What's taking down these grand financial icons such as Lehman and A.I.G.? It couldn't possibly be that the companies themselves made stupid and shortsighted decisions. So it must be a conspiracy of the short-sellers. It must be some wrong-headed accounting rules and bad regulation. In the wake of the demise of A.I.G., we are hearing them again. If only the insurer didn't have to mark its positions to market, this foolishness would have been avoided and we'd all be celebrating how wonderful the economy is. The S.E.C. has rushed to put up restrictions against short-selling again.
Morgan Stanley, others may get gov't lifeline Morgan Stanley, bankers may get lifeline from Washington, slowing need for forced combinations America's battered financial services industry is close to getting the lifeline it was desperately seeking as government leaders sketched out a plan late Thursday to rescue banks from bad debts that threatened their survival. Treasury Secretary Henry Paulson said after a meeting with congressional leaders that there was consensus on a plan to deal with illiquid real estate and other assets on the books of financial institutions. That could require massive amounts of additional federal funding, but leaders from both parties in Congress said they are prepared to act quickly on legislation needed to save big Wall Street firms and Main Street banks alike from collapse amid the biggest realignment of the financial system since the Great Depression.
To Avoid Risk and Diversify, Sovereign Funds Move on From Banks As the American investment banking industry seems to teeter, many investors are asking why the sovereign wealth funds from the Middle East have not stepped up. Less than a year ago, the funds spent billions of dollars for minority stakes in Wall Street banks. As oil prices peaked near $145 a barrel this year, the Middle East sovereign wealth funds amassed even more cash. Still, even as the values of banks like Goldman Sachs and Morgan Stanley are swooning, Middle East funds are not biting. The explanation is simple, bankers in the region say. Plenty of other, more attractive assets are out there right now. With markets having been hit by the global downturn, compelling, value-priced deals are numerous - from sports teams in Britain and publicly traded companies in Russia to deals closer to home, like Middle East infrastructure buys, Youssef Nasr, chief executive of HSBC Bank Middle East, said.
Europe and Asia see U.S. as no longer practicing what it preaches Is the United States no longer the global beacon of unfettered, free-market capitalism? In extending a last-minute $85 billion lifeline to AIG, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, it has also likely undercut future American efforts to promote such policies abroad. "I fear the government has passed the point of no return," says Ron Chernow, a leading American financial historian. "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."
Bush says he’s worried about financial crisis President cancels fundraising trips to focus on continuing market meltdown Eager to show that he feels people’s pain, President Bush told the country Thursday his administration is working feverishly to calm turmoil in the financial markets. With reports swirling of possibly imminent new government action, the president met with his treasury secretary and the head of the Federal Reserve. Nothing was announced immediately after the 40-minute meeting at the White House, which included Securities and Exchange Commission Chairman Christopher Cox, along with Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke.
Global central banks unite to offer a lifeline Reflecting severe concerns about the health of the global financial system, the U.S. Federal Reserve and other major central banks sharply escalated their assistance to global markets Thursday, making almost a quarter of a trillion dollars available to banks after lending had stalled and threatened to derail growth. In a statement released as markets opened in Europe and were well under way in Asia, the Fed said it had authorized a $180 billion lending program to help banks in need of emergency cash. That took the total size of the Fed's swap facilities with other central banks to $247 billion, a figure that includes existing arrangements. Asian stocks tempered their initial sharp falls. Stocks on Wall Street climbed after the announcement, following gains in Europe, but the markets gave ground later. Paul Mortimer-Lee, head of market economics at the London office of BNP Paribas, said the action reflected official concerns that the financial markets now appeared to be facing their gravest problems since the Great Depression of the 1930s.
Fed, ECB pump billions into money markets Federal Reserve, other central banks to pump billions more dollars into money markets The world's major central banks banded together on Thursday to inject as much as $180 billion into money markets in a bid to stave off the growing global financial crisis. The Federal Reserve joined with the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank to pump more short-term dollar liquidity into the financial system. Credit markets have tightened since Monday after the weekend collapse of investment house Lehman Brothers Holdings Inc., and central banks already provided billions Monday and Tuesday in hopes of turning the tide and to keep fearful banks from hoarding cash. The hope is that that would help stabilize world financial markerts which have been reeling.
New world Order's Great Divide Likely Morgan Merger Leaves Goldman Last Man Standing As of this writing, the fate of Morgan Stanley remains uncertain although continued independence seems unlikely. The investment bank is having merger talks with a variety of players, including Wachovia and HSBC, while China's sovereign wealth fund is looking to raise its stake in the firm, according to various reports. (After rallying early Thursday on such reports, Morgan shares recently turned negative, about $2 below its early high of $22.32. The bigger story is a Morgan merger would leave Goldman Sachs as the last remaining major independent brokerage firm, when four existed a week ago and five were operating at the beginning of 2008.
Kraft replaces AIG in Dow Jones Industrial Average Dow Jones & Co. said Thursday that Kraft Foods Inc. will replace struggling insurer American International Group Inc. in the Dow Jones Industrial Average when trading begins Sept. 22. In a statement, Robert Thomson, managing editor of The Wall Street Journal, said another financial company is not being added to the 30-stock index because of "extremely unsettled conditions." Kraft was chosen because there is no food maker on the DJIA, said Thomson, who oversees the makeup of the widely watched index. AIG is being removed as the company's poor health prompted the Federal Reserve to provide an $85 billion emergency bailout loan. Shares of the company have plunged 83 percent over just the last three sessions as AIG faces a liquidity crunch amid the continued downturn in the credit markets. AIG's freefall has dragged the DJIA down sharply.
Hit the Panic Button Central banks steady the markets. But for how long? With fear paralyzing the global money markets, the world's leading central banks are riding to the rescue, announcing that they will pump in huge amounts of U.S. dollars into the system. More than $180 billion will be made available to banks for short-term financing, under a coordinated effort among the Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Bank of Canada, and the Swiss National Bank. The Fed also says that it's taking steps in order to be better able to transfer dollars to foreign banks. While the crisis of confidence has gripped nearly all money markets, the stress in dollar-denominated markets has been particularly acute in recent days.
A Bid to Curb Profit Gambit as Banks Fall Traders who have sought to profit from the financial crisis by betting against bank stocks were attacked on two continents on Thursday. The Securities and Exchange Commission is considering a temporary ban on short sales of some or all shares and an announcement could be made as early as Friday morning. Earlier Thursday, the S.E.C. scrambled to put together an emergency rule to force major investors to disclose their short sales daily. In Britain, regulators announced new rules to bar short selling. Short selling - a bet that a stock price will decline - is the practice of selling stock without owning it, hoping to buy it later at a lower price, and thus make a profit. It has often been blamed for forcing prices down in times of market stress, but the level of anger has intensified as the American government has been forced to bail out major financial institutions and the leaders of some investment banks have asked for action to protect their shares.
$17,000 an hour. No success required. Are you capable of taking a perfectly good 158-year-old company and turning it into dust? If so, then you may not be earning up to your full potential. You should be raking it in like Richard Fuld, the longtime chief of Lehman Brothers. He took home nearly half-a-billion dollars in total compensation between 1993 and 2007. Last year, Fuld earned about $45 million, according to the calculations of Equilar, an executive pay research company. That amounts to roughly $17,000 an hour to obliterate a firm. If you're willing to drive a company into the ground for less, apply by calling Lehman Brothers at (212) 526-7000. Oh, nevermind.
S.E.C. No Evil Under chairman Christopher Cox, the commission has undermined and demoralized its enforcement staff. For the next administration, restoring the agency's role as market watchdog won't be easy. For months, Christopher Cox, the chairman of the Securities and Exchange Commission, has been under fire for a belated response to market upheavals stemming from the subprime fiasco and for being soft on big corporations. He’s eager to dispel his critics. In his 10th-floor office, with a postcard view of the Capitol, Cox appears fit and buoyant despite a recent bout with a rare cancer of the thymus gland. He denies any suggestion that he has oriented the S.E.C. away from tough enforcement and investor protection. "I spend more time on enforcement than on any aspect of my job," he says.
SEC weighs broad move on short-selling SEC considering taking dramatic move to ban ordinary short-selling of stocks Amid the spiraling market crisis and mounting pressure from lawmakers, the Securities and Exchange Commission is considering taking the dramatic step of temporarily banning the routine practice of betting against company stocks. The move, if taken by the SEC, may well be unprecedented and a reflection of regulators' concern about the widening scope of the financial crisis as entreaties come from all quarters to stem a swarm of short-selling. A recent wave of the market maneuvers -- profiting by selling unowned shares of companies in the anticipation their prices will drop -- has been blamed in part for the demise of venerable investment firm Lehman Brothers and other big companies.
McCain Says He Would Fire SEC's Cox If President Republican presidential nominee John McCain said he would fire Securities and Exchange Commission Chairman Christopher Cox if he were president. "The chairman of the SEC serves at the appointment of the president and in my view has betrayed the public's trust," McCain said at a rally in Iowa. "If I were president today, I would fire him." SEC spokesman John Nester declined to comment. President George W. Bush's spokeswoman, Dana Perino, said in response that Cox "has the president's confidence."
Crisis Exposes Flaws in U.S. Economy, Tarnishes Image The rapid-fire rescues of financial firms may end up tarnishing America's free-market reputation as the moves expose defects in the U.S. economy, undermining its standing with foreign buyers of the dollar and U.S. Treasury securities. The government's actions might add hundreds of billions to a budget deficit already expected to hit a record next year. The salvage operations, which include Tuesday's takeover of American International Group Inc., also raise questions about the U.S. commitment to a free-market economy that, until recently, was the envy of the world.
T-bill demand runs high as investors seek safety The Treasury markets were only marginally calmer Thursday as investors increasingly anxious about turbulent markets dumped their money into the 3-month Treasury bill, considered one of the safest investments around. The moves into T-bills, which followed Wednesday's intense buying, show that money market and other fund managers are frantic to keep their clients' money out of anything that might plunge in value. The flight is also a symptom of extreme tightness in other markets that banks and hedge funds use to stash cash for a short period of time — notably, the repo, or repurchase markets, which are temporary loan markets. Thursday's promise by the world's central banks to inject the global financial markets with as much as $180 billion put a small damper on Treasury buying, sending yields up slightly. But the level of uncertainty remains higher than it's been in anyone's memory, said John Spinello, bond strategist at Jefferies & Co., who has been in the business for 30 years. "I don't even think the authorities know what the end game is," Spinello said. "Everyone's very tired, both physically and mentally ... Things change from day to day, hour to hour, minute to minute. It's survival to keep capital, as opposed to increase capital."
Henry Paulson’s Frankenstein This is how a federal bailout works these days. The government purchases 79.9 percent of the company in question. It can’t be more than that, because if it goes over the magical number of 80 percent, the company’s debts are then required to be consolidated onto the federal government’s balance sheet. Keeping it at 79.9 percent allows the government to maintain the fiction that it is still not responsible for the company’s solvency. The purchase isn’t even a purchase of the stock of the company. Rather, it is a purchase of warrants giving the federal government the right to buy some number of shares. This permits the federal government to further claim that it doesn’t even have an ownership interest.
What You Should Be Watching Now Big financial companies appear to be falling like dominoes as the credit crisis intensifies. In just the past two weeks, Fannie Mae and Freddie Mac were made wards of the state, Lehman Brothers filed for bankruptcy, and Wall Street's signature brokerage, Merrill Lynch, rushed into a hastily arranged marriage with Main Street mainstay Bank of America. Market players have anticipated further asset writedowns and credit-rating downgrades for other big industry players by whacking their stock prices sharply lower.
Wells Fargo chairman: 'I feel like a kid in a candy store' Wells Fargo Chairman Dick Kovacevich says the battered banking industry is rife with buyout opportunities. The San Francisco banker has a long-standing reputation as a disciplined buyer who often sits on the sidelines when banks are selling at robust prices. But he doesn't mind picking up damaged goods when the price is right. "Wells Fargo often buys fixer uppers," Kovacevich said in a speech at the Association of Corporate Growth 2008 conference in Beverly Hills Wednesday. "Given the financial conditions today I feel like a kid in a candy store. "There is a lot out there today," he said. "We are buying with both hands right now, as we have done for the past year," he added.
Cramer: What This Government Must Do Confidence matters. But no one has confidence in anyone. Or anything. I know that we on Wall Street are deeply cynical and untrusting. I also know that the president of the United States doesn't command the moral or political authority that the office needs. Still, I find myself asking, where is the president? Why wasn't President Bush on television last night explaining, in plain English, that we will see our way through this financial crisis, and that the money Treasury has spent is well spent. Or that your money is safe at your bank, nothing's changed. Or that the problems of Wall Street will be sorted out and the Treasury, the Fed and the regulators, who are well aware of the problems. Why is that so hard? Why not try to calm people? Perhaps the president thinks that Lehman or AIG don't matter? Maybe he thinks that the Fannie and Freddie thing is too abstruse to talk about? Whatever he's doing, it isn't enough. What else can be done? We need to have a break in the action here. We need to have the Treasury and the Fed on television saying that they will issue $300 billion in one-year paper that will be used to finance the purchase of distressed assets that do not have home equity loans attachments at 30 cents on the dollar for those who want to sell them. This matters, because right now we have no idea what anything in the mortgage market is worth. Nothing. So the tendency is to either value them at zero or overstate them (as Lehman did, thereby wrecking their credibility).
Moody's may cut Lloyds, HBOS on planned merger Moody's Investors Service said Thursday it placed Lloyds TSB long-term ratings on review for possible downgrade on their planned merger. Both of their Prime-1 short term ratings were affirmed. The ratings agency believes the merger of two large financial institutions will face challenges given the difficult conditions in the global financial markets and the deteriorating economic environment in the U.K.
Professional Money Fund Is Closed by Putnam For the second time in a week, a multibillion-dollar money market fund has been forced to take extraordinary steps to deal with sudden cash withdrawals by nervous institutional investors. Putnam Investments, one of the oldest names in the mutual fund industry, announced Thursday that it was closing and liquidating its Putnam Prime Money Market Fund, a $12.3 billion fund that serves only professional investors. The action does not affect Putnam money funds that are sold to retail investors. But the unusual step shows just how nervous investors — especially the professional ones — have suddenly become about a type of investment that was long considered to be as risk-free as a bank checking account.
HBOS fails as carnage spreads to Britain Carnage in the banking sector spread to Britain yesterday as Lloyds TSB agreed a £12 billion ($32.82 billion) emergency takeover of Halifax Bank of Scotland in a deal that could lead to 40,000 job cuts and the closure of hundreds of branches. Prime Minister Gordon Brown intervened to smooth the deal's passage amid fears that the alternative would have been bankruptcy for HBOS or nationalisation. The Government believes it can get the merger past competition rules because of the severity of the situation. Ministers told bosses in London's financial district that HBOS, with 15 million savers and 20 per cent of the entire mortgage market, was simply too important to be allowed to collapse.
U.S. to Sell $100 Billion in Bills to Fund Fed Moves The U.S. Treasury said it will sell an additional $100 billion in short-term debt to aid the Federal Reserve's balance sheet, amid the biggest extension of central- bank credit to financial companies since the Great Depression. The Treasury today announced plans to sell $30 billion in 59-day bills at 11:30 a.m. tomorrow, $30 billion in 45-day bills at 1 p.m. tomorrow and $40 billion in seven-day bills on at 11:30 a.m. on Sept. 24. Yesterday the Treasury started a special program to help finance the Fed's portfolio with an initial $100 billion in bill auctions. The proceeds will give the central bank cash to boost liquidity in credit markets struggling from $519 billion in writedowns and losses since the start of last year.
Central Banks Offer Extra Funds to Calm Money Markets The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s. The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion "to address the continued elevated pressures in U.S. dollar short-term funding markets." The Bank of England, the Bank of Canada and the Swiss National Bank also participated.
Fed, central banks move to boost global confidence Fed, global central banks pump billions of dollars into system to lift confidence The worst global financial crisis since the Great Depression forced the Federal Reserve and central banks in other countries to pump billions of dollars into the world's banking system in an urgent bid to stop further damage. The Fed plowed as much as $180 billion into money markets overseas. At home, the New York Federal Reserve acted to ease a spike in overnight lending rates by injecting $55 billion into the banking system. Wall Street initially rallied, but trimmed gains as the morning wore on. President Bush canceled an out-of-town trip to stay in Washington and to huddle with Treasury Secretary Henry Paulson. Bush pledged to do all that was necessary to stem the crisis, whose fallout threatens the already fragile economy.
BNY Mellon Institutional Cash Fund Hit by Lehman Debt Losses An institutional fund run by Bank of New York Mellon Corp. designed to work like a money-market account fell to less than $1 a share after losses on debt issued by bankrupt Lehman Brothers Holdings Inc. The $22 billion BNY Institutional Cash Reserves fell to $0.991 a share on Sept. 16, according to an e-mail sent by a bank representative to one client. BNY Mellon has "isolated the Lehman assets in the fund into a separate structure," Ivan Royle, a spokesman for the New York-based company, said today in an e-mailed statement. The fund invests cash deposited as collateral by clients who borrow securities from BNY Mellon, the world's largest custody bank. Lehman debt represented 1.13 percent of the fund's holdings, according to the statement. Royle declined in an interview to say whether investors withdrawing money from the fund would realize losses.
MBIA Comments on Moody's Ratings Review MBIA Inc. MBI today commented on the decision by Moody’s Investors Service to place the insurance financial strength rating of MBIA Insurance Corporation on review for possible downgrade. Moody’s mortgage research group published a special report today titled “Subprime RMBS Loss Projection Update: September 2008” that suggests an increase in expected losses on subprime first mortgages originated in 2006 from a range of 14-18% to an average of 22%. The report acknowledges that there is uncertainty in the assumptions and that the estimates may be too high.
Bombs Away Kevin Barry has deactivated a live explosive device on a suicide bomber - his skills for defusing a potent situation hold clear lessons for managers dealing with today's turmoil. As the current meltdown on Wall Street makes painfully clear, today's managers are never too far from a crisis where the priorities set and the decisions made will critically impact everyone around them. While the situation may vary—the crisis could be anything from an S.E.C. investigation to a hostile-takeover attempt—the consequences are the same: One bad move could cause things to blow up in your face. No one knows better the unique challenges of managing a potentially explosive situation than Detective Kevin Barry, who spent 16 years as a bomb-squad technician in the New York Police Department during the '80s and '90s, and is now chairman of the advisory board of the International Association of Bomb Technicians and Investigators. Barry holds the distinction of being the only bomb technician in America to ever deactivate a live explosive device while it was still strapped to the body of a suicide bomber, having been called upon in 1991 to defuse an armed-robbery suspect in Queens, New York, who'd rigged himself to explode if he was caught.
Central Banks Pump Cash Into Market Reflecting concerns about the health of the global financial system, the Federal Reserve and the world’s other major central banks significantly escalated their assistance to global markets on Thursday, making almost $200 billion available after bank lending froze to a near halt and threatened the global economy. In a statement released at 3 a.m. in Washington, just as the markets opened in Europe, the Fed said that it had authorized a $180 billion expansion of its temporary reciprocal currency arrangements, known as swap lines, to allow banks to borrow more dollars in money markets at a lower rates. Paul Mortimer-Lee, head of market economics in the London office at BNP Paribas, said the move reflected concerns that the financial markets now appear to be facing their gravest problems since the Depression.
Oil Prices Return to $100 Territory After spending only three days under $100 a barrel, oil prices shot back up on Thursday morning, erasing most of a $10-a-barrel decline in just two days. Crude oil futures traded above $100 shortly after the open, before falling back slightly to $99.75. The rise follows a large jump on Wednesday when oil gained 6.6 percent as panicky investors fled the stock market to seek shelter in the perceived safety of commodities. After six months in the triple-digits, oil prices had slumped earlier in the week because of concerns that the financial turmoil on Wall Street would slow economic growth and hurt oil demand. Prices, which had fallen to $91.51 a barrel on Tuesday, have since made up their losses.
Financial Crisis Enters New Phase The financial crisis entered a potentially dangerous new phase on Wednesday when many credit markets stopped working normally as investors around the world frantically moved their money into the safest investments, like Treasury bills. As a result, the cost of borrowing soared for many companies, while the stocks of Wall Street firms like Goldman Sachs and Morgan Stanley that only a couple of weeks ago were considered relatively strong came under assault by waves of selling. Investors were so worried that they snapped up three-month Treasury bills with virtually no yield and they pushed gold to its biggest one-day gain in nearly 10 years. Stocks fell by nearly 5 percent in New York. The stunning flight to safety, away from other kinds of debt as well as stocks, could cause serious damage to an already weakened economy by making it more expensive for businesses to finance their daily operations.
Profit From Fear "Be fearful when others are greedy and greedy when others are fearful." That is one of my favorite quotes, and I think it is particularly relevant today. It is from the Oracle of Omaha, Warren Buffett, a man who knows a thing or two about the markets. This morning, I turned on my laptop and when the Yahoo! home page popped up, there were three headlines greeting me. The first read "American's Feeling Anxious," followed by a quick summary and a quote from inside the story that said simply, "kind of scary." Under it were two related stories. The first was titled "Candidates Scramble to Respond." The other read: "Will AIG Cost Taxpayers Money?" Watching television last night, it's all anybody talked about. Anybody who is breathing knows that the markets have gone in the tank this week.
Bank of America Growth, Wachovia Talks No Cheer for Charlotte Sales of the $8.25 Uptown Roast Beef sandwich are down at the Tic Toc Diner on North Tryon Street in Charlotte, North Carolina. Next door at Woodie's Auto Service & Repair Center, the manager has noticed customers are putting off replacing worn tires and shocks. The 30,000 or so locals who work for Bank of America Corp. and Wachovia Corp. just aren't spending like they used to, said Wade Serhals, who sold the Tic Toc last week. "Finance is the main industry in this city, so the whole street feels it when things slow down," Serhals said after visiting the new manager yesterday, estimating sales were off 5 to 10 percent. "People are telling me they're starting to pack their lunch."
Tighter Credit Transforming the Economy The latest outgrowth of the housing crisis, the breakdown on Wall Street, threatens to gradually corrode economic activity on Main Street, mainly by disabling the credit on which so many everyday transactions depend - but also by frightening people. Lenders of all types had already been raising the bar for borrowers, turning away all but the best customers. This week, they became even less willing to part with their money, further crimping budgets and family spending. An economy propelled by easy credit for more than a decade is fraying as credit disappears. American Express, to take one striking example, is reducing the maximum credit limit for half of its tens of millions of cardholders.
Many Russians shrug at financial crisis As the Kremlin struggles with a financial crisis, many ordinary Russians say they don't understand what all the fuss is about. Russia's main stock exchanges have been shut down after falling as much as 25 percent in three days, and the government is pumping money into financial markets in an attempt to stabilize them. But unlike in the United States, few ordinary Russians own stocks. And they say they have confidence in the Kremlin, which is making a concentrated effort to assure them that Russia has plenty of money to deal with the financial difficulties and they have nothing to fear. Roman Digomer, 31, a security guard at one of the giant shopping malls that have sprung up in Moscow in recent years, said he has "no worries whatsoever." "You know a guy called Putin? He said that everything is okay, everything is under control, the situation is being dealt with effectively and no one should panic," said Digomer, watching over a mall that teems with shoppers late into the night. "So everything is fine. No worries whatsoever."
Anti-Jewish and anti-Muslim attitudes rise in Europe Anti-Jewish and anti-Muslim attitudes have been rising nearly in tandem in several European countries, apparently reflecting concerns over immigration, globalization and economic ills, according to a new international survey. Anti-Jewish feelings were particularly strong in Spain, Poland and Russia - with negativity up significantly since 2006, according to the Pew Research Center's polling. Anti-Muslim views were also strong in those three countries, as well as in Germany and France. "There is a clear relationship between anti-Jewish and anti-Muslim attitudes," said the report from Pew, released Wednesday. "Publics that view Jews unfavorably also tend to see Muslims in a negative light." Negative views of Muslims were also strong in several Asian countries: Half or more of the Japanese, Indians, Chinese and South Koreans surveyed said they had negative impressions of Muslims.
Iran's President Denies Hostility to Israelis The Iranian president, Mahmoud Ahmadinejad, took the unusual step on Thursday of explaining that while he strongly opposed the state of Israel, his hostility did not extend to the Israeli people. "We have no problem with people and nations," he said. "Of course, we do not recognize a government or a nation for the Zionist regime." Mr. Ahmadinejad has long been seen as a threat to Israel, especially since he angered the West and Jews worldwide in 2005 when he repeated a slogan from the early days of the revolution, saying, "Israel should be wiped off the map."
Solana: IAEA's Iran report worries Russia, China European Union foreign policy chief Javier Solana said Thursday he believes Russia and China are "quite worried" about a new IAEA report saying Iran has blocked efforts to investigate its nuclear program. Solana said the report presented Monday by the U.N. nuclear watchdog "isn't good for Iran" - though he stopped short of expressing support for France's push for more U.N. Security Council sanctions against Tehran. Solana said the U.N. General Assembly will analyze the situation. He was speaking on the sidelines of a Paris meeting of EU foreign ministers with their counterparts from five central Asian nations. Western nations fear Iran's program masks intentions to build bombs. Iran insists its plan is to generate electricity.
Gates Says U.S. Monitoring Potential Instability in North Korea Defense Secretary Robert Gates said the U.S. is monitoring North Korea closely for potential instability in the communist nation following reports leader Kim Jong Il suffered a stroke last month. "At this point it's not entirely clear how seriously ill he is," Gates told reporters yesterday in London, where he is holding informal talks with NATO counterparts. The U.S. and "all of North Korea's neighbors are concerned about instability, in no small part because of the possibility of large flows of refugees." Kim, who has led the impoverished nation of 23 million people since his father Kim Il Sung died in 1994, failed to attend 60th anniversary celebrations of North Korea's founding on Sept. 9, fueling speculation about his health.
Russia Test-Fires Ballistic Missile 6,700 Kilometers to Pacific Russia successfully fired its newest intercontinental ballistic missile from a submarine located in the White Sea to a target on the Pacific coast 6,700 kilometers (4,200 miles) away, the military said. The Bulava missile was fired from the Dmitry Donskoi submarine at 6:45 p.m. and struck the Kura range on the Kamchatka Peninsula at 7:05 p.m. Moscow time yesterday, state television said. "Initial data indicates the missile performed according to plan," it cited the Defense Ministry as saying.
U.S. could use Georgia as bridgehead to attack Iran Georgia would be an ideal bridgehead for a U.S. invasion of Iran, Russia's NATO envoy said Wednesday. The United States and Israel have consistently refused to rule out the possibility of military action against Iran over its refusal to halt its uranium enrichment. At a news conference at NATO headquarters in Brussels Dmitry Rogozin said that Russian intelligence had obtained information indicating that the Georgian military infrastructure could be used for logistical support of U.S. troops if they launched an attack on Iran. "This is another reason why Washington values Saakashvili's regime so highly," Rogozin said, adding that the United States had already started "active military preparations on Georgia's territory" for an invasion of Iran. "Georgia's president is ready to make his nation a virtual hostage of a risky military gamble," he said. Iran has been in a prolonged diplomatic standoff with the West over the country's nuclear program. The Islamic Republic is currently under three sets of relatively mild UN Security Council sanctions for defying demands to halt uranium enrichment, which it says it needs purely for electricity generation despite Western accusations that the program is geared toward weapon production.
McCain on U.S. economy: from 'strong' to 'total crisis' in 36 hours Early this week, as the American financial system absorbed one of its biggest shocks in generations, Senator John McCain said, as he had many times before, that he believed the fundamentals of the economy were "strong." Hours later he backpedaled, explaining that he had meant that American workers, whom he described as the backbone of the economy, were productive and resilient. By Tuesday he was calling the economic situation "a total crisis" and denouncing "greed" on Wall Street and in Washington. Meantime, he moved from adamant opposition to resigned acceptance of the big government bailouts. The sharp turnabouts in tone and substance reflected a recognition not only that McCain had struck a discordant note at a sensitive moment but also that he had done so with regard to the very issue on which he can least afford to stumble.
Catholics could play pivotal role in U.S. election Until recently, Matthew Figured, a Sunday school teacher at the Holy Rosary Roman Catholic Church here, could not decide which candidate to vote for in the presidential election. He had watched progressive Catholics work with the Democratic Party over the last four years to remind the faithful of the party's support for Catholic teaching on the Iraq war, immigration, health care and even reducing abortion rates. But then his local bishop plunged into the fray, barring Senator Joseph Biden Jr. of Delaware, the Democratic vice-presidential nominee, from receiving communion in the area because of his support for abortion rights. Finally, bishops around the country scolded another prominent Catholic Democrat, Nancy Pelosi of California, speaker of the House of Representatives, for publicly contradicting the church's teachings on abortion, some admonishing parishioners not to vote for politicians who hold such views.
Financial Upheaval Narrows Options of Next U.S. President $$ Sometimes events reshape a presidential campaign. Sometimes they reshape the world the candidates seek to lead. This week's Wall Street earthquake is such a big event that it is doing both. Much chatter is being devoted to how the market tremors are affecting the campaign -- whether they help Sen. Barack Obama by reinforcing his "change" message, whether Sen. John McCain has hurt himself with his initial declaration that the fundamentals of the economy remain sound, and so forth. Here's the more important reality: Already, even before it is fully played out, the crisis means the next president -- that would be President Obama or President McCain -- will enter office with handcuffs on. Options are being reduced for the next president every day, as the real and psychological costs of the crisis mount.
SEC chairman rebuke distances McCain from Bush John McCain on Thursday found yet another way to separate himself from President Bush, this time by throwing fellow Republican Christopher Cox under his Straight Talk Express for not regulating Wall Street enough as chairman of the Securities and Exchange Commission. "The chairman of the SEC serves at the appointment of the president and, in my view, has betrayed the public's trust," Mr. McCain, now losing ground in some polls to Barack Obama, told a Cedar Rapids rally in Iowa. "If I were president today, I would fire him." Quickly responding, White House press secretary Dana Perino said Mr. Cox has Mr. Bush's confidence.
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Thurs 09.18.2008
Gold posts record gain The precious metal jumps 9% amid a weakening dollar and slumping stocks in the wake of the Wall Street meltdown. Gold prices posted their biggest one-day jump ever Wednesday, as jitters over the health of the financial sector sent stocks tumbling and the dollar weakened. Gold for December delivery was up $70, or 9%, to settle at $850.50 an ounce. The gain surpassed the previous mark, $64, set Jan. 29, 1980, during a period of surging inflation. "People are losing confidence in the financial sector," said Peter Spina, president of goldseek.com, a gold trading analysis Web site. "You look around you, where are you going to put your money? Gold is safety." The commodity is often seen as a hedge against inflation and a safer bet in the wake of the financial crisis roiling Wall Street.
Gold Surges on Lure of Safe Haven The price of gold soared more than 8 percent yesterday, the biggest one-day jump in at least eight years, as investors looked for a safe place to park their money during the spreading financial crisis. "Nothing else is working for long-term investors," said Ned Schmidt, editor of the Value View Gold Report in Boca Raton, Fla. Gold for December delivery rose more than $70 to close at $850.50 per ounce in trading yesterday. Silver went up $1.158 to $11.675. Several analysts yesterday predicted an ounce of gold, the traditional currency of last resort, could top $1,000 by year's end. The run on gold is just the latest ripple from the Federal Reserve's announcement Tuesday evening that it was lending $85 billion to bail out insurance giant American International Group.
Gold prices post biggest 1-day gain ever Gold prices exploded Wednesday - posting the biggest one-day gain ever in dollar terms - as fears of more credit market turmoil unnerved investors and triggered a flood of safe-haven buying. Gold for December delivery rose as much as $90.40, or 11.6 percent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session. That was the biggest one-day price jump ever; gold's previous single-day record was a $64 gain on Jan. 29, 1980. In percentage terms, it was gold's largest one-day advance since 1999. The huge rally came after the government moved overnight to rescue troubled insurer American International Group Inc. with an $85 million bailout loan. The Federal Reserve stepped in after AIG, teetering on collapse from losses tied to the subprime crisis and the credit crisis, failed to find adequate capital in the private sector.
Democratic Congress May Adjourn, Leave Crisis to Fed, Treasury The Democratic-controlled Congress, acknowledging that it isn't equipped to lead the way to a solution for the financial crisis and can't agree on a path to follow, is likely to just get out of the way. Lawmakers say they are unlikely to take action before, or to delay, their planned adjournments -- Sept. 26 for the House of Representatives, a week later for the Senate. While they haven't ruled out returning after the Nov. 4 elections, they would rather wait until next year unless Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, who are leading efforts to contain the crisis, call for help. One reason, Senate Majority Leader Harry Reid said yesterday, is that "no one knows what to do" at the moment.
Bush Absent on Financial Crisis as Paulson Leads U.S. Response This week, President George W. Bush held a state dinner for Ghana's president, surveyed Texas hurricane damage, posed with Youth of the Year award finalists, and met with Army General David Petraeus. During that time, Bush has publicly uttered 160 words about the worst Wall Street crisis since the Great Depression, saying the government is working to "reduce disruptions" in U.S. financial markets.
Wall St dealmaking intensifies as markets tumble Wall Street dealmaking reached fever pitch, with Morgan Stanley holding preliminary sale talks, while other financial firms scrambled to find buyers as fear gripped markets, sending Asian stocks sharply lower. With the financial landscape undergoing its most dramatic transformation since the Great Depression, potential takeovers lurked for No. 2 U.S. investment bank Morgan Stanley, weakened top U.S. savings bank Washington Mutual and major UK mortgage lender HBOS.
Bank fears, AIG fallout drive Wall St sell-off U.S. stocks dropped to a three-year low on Wednesday as the U.S. rescue of insurer AIG failed to calm a crisis of confidence in global markets and banks were scared to lend to each other. The Dow fell almost 450 points and the Nasdaq fell nearly 5 percent in its worst day since the aftermath of the September 11 attacks in 2001 as rattled investors worried about who could be the next victim of the global credit crisis. Of the two remaining major investment banks, Goldman Sachs stock suffered its biggest one-day drop ever. Morgan Stanley stock had its worst day in at least 15 years as investors worried whether it would survive as an independent investment bank in the current environment, after Lehman Brothers Holdings went bankrupt and Merrill Lynch was forced to sell itself this weekend. "The fear is, 'Who is next?'"
Panic grips credit markets The panic in world credit markets reached historic intensity on Wednesday, prompting a flight to safety of the kind not seen since the second world war. Barometers of financial stress hit record peaks across the world. Yields on short-term US Treasuries hit their lowest level since the London Blitz, while gold had its biggest one-day gain ever in dollar terms. Lending between banks, in effect, stopped. Speculation mounted that the Federal Reserve, which refused to cut rates on Tuesday, could be forced into an embarrassing U-turn or might further expand its market liquidity operations. The $85bn emergency Fed loan for the troubled insurance group AIG, announced on Tuesday night, failed to curb the surge in risk aversion. Instead, markets were hit by a fresh wave of anxiety.
A New Role for the Fed: Investor of Last Resort The mighty Federal Reserve is being stretched to its limits, both in the range of problems it is being asked to fix and in its financial firepower. The central bank has also transformed itself almost overnight into the Fed Inc. by essentially taking over American International Group after already taking on hundreds of billions of dollars in mortgage securities to help ailing financial institutions. Instead of just setting monetary policy in its Ivory Tower-like setting, the Fed now must wear several hats — that of insurance conglomerate, investment banker and even hedge fund manager. “This is unique, and the Fed has never done something like this before,” said Allan Meltzer, a professor of economics at Carnegie-Mellon University and author of a sweeping history of the Federal Reserve. “If you go all the way back to 1921, when farms were failing and Congress was leaning on the Fed to bail them out, the Fed always said ‘It’s not our business.’ It never regarded itself as an all-purpose agency.”
Another Wall St. Shocker Market Down Almost 450 Points After Fed Rescues Insurance Giant With $85B Takeover Wall Street plunged again Wednesday as anxieties about the financial system ran high after the government's bailout of insurer American International Group Inc. and left investors with little confidence in many banking stocks. The Dow Jones industrial average lost about 450 points, giving it a shortfall of more than 800 so far this week. As investors fled stocks, they sought the safety of hard assets and government debt, sending gold, oil and short-term Treasurys soaring. The market was more unnerved than comforted by news that the Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company, which lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has extensive ties to various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy. However, the ramifications of the world's largest insurer going under likely would have far surpassed the demise of Lehman.
How Safe Is Your Money Fund? The strains on the Reserve Primary Money Market Fund have prompted investors to ask whether their own money-market funds could be at risk. Money-market funds are not insured or guaranteed by the Federal Deposit Insurance Corp. or any government agency. But fund companies have historically covered losses. Money-market observers expect that the losses Reserve's investors took will be an isolated event. "Though money fund investors will undoubtedly be shocked and nervous . . . we believe Reserve will be an anomaly," Crane Data, a money-market news and data company, said in a posting on its Web site yesterday. The best way to understand your fund's vulnerability is to know what types of securities it holds. The safest funds hold only U.S. Treasury securities, which are backed by the federal government. Some funds hold Treasurys and government-backed securities from other issuers.
Asia Stocks Tumble Overnight Asia stocks tumbled overnight, with stocks in Japan suffering losses of 3.4% and Hong Kong falling more than 7%, after stocks in the U.S. fell more than 4% Wednesday on continued credit fears. Japan's Nikkei 225 Stock Average fell 402.87 points, or 3.4%, to 11,346.92, while the Hang Seng index in Hong Kong dropped 1,270.89 points, or 7.2%, to 16,366.30. The Hang Seng index is down for a seventh-straight day. It lost more than 15% the previous six trading days.
"Huge Wave of Panic" Hits Money Markets as T-Bill Rates Near Zero A spectacular loss of confidence in the safety of financial assets is creating an unprecedented event that strategists are calling "a huge wave of panic." Three-month U.S. T-bills are yielding 0.0304%, down from 1.50% on Monday as investors flock to the safest short-term assets. "It's the equivalent of putting your money under your mattress. It's a huge wave of panic," said Carlos Leitao, chief strategist and economist at Laurentian Bank. "What you see is firms hoarding cash. Cash is not just king, it's emperor." Leitao called the yield in T-bills "absolutely absurd". It means a $1,000,000 investment will pay $1,000,076 at maturity - far below the rate of inflation.
Fed Prepared to Take Bigger Role in Combating Financial Crisis Federal Reserve officials are signaling they are prepared to take an even larger role in trying to contain the deepening financial crisis. A day after Fed officials seized control of American International Group Inc., the Treasury yesterday acted at the Fed's request to fortify the central bank's balance sheet with $100 billion in new cash. Fed officials can use the proceeds to pump money into financial institutions fearful of lending to each other, or to catch the next insolvent bank that's unable to raise capital.
Fed Prepared to Take Bigger Role in Combating Financial Crisis Federal Reserve officials are signaling they are prepared to take an even larger role in trying to contain the deepening financial crisis. A day after Fed officials seized control of American International Group Inc., the Treasury yesterday acted at the Fed's request to fortify the central bank's balance sheet with $100 billion in new cash. Fed officials can use the proceeds to pump money into financial institutions fearful of lending to each other, or to catch the next insolvent bank that's unable to raise capital.
U.S. taps piggy bank, borrows to aid market Credit crisis is starting to tax even the Federal Reserve’s deep pockets Where does Uncle Sam come up with huge sums of money during a financial emergency? Like the rest of us, the government taps its reserves and borrows if it needs more. The federal government has pledged eye-popping amounts - more than $600 billion in the past year — to bail out, or help bail out, some of the biggest names in American finance. The latest was American International Group Inc. Now the credit crisis is starting to tax even the Federal Reserve's deep resources.
Bloomberg Warns Of "Next Wave" Crisis More Financial Pain Possible If Foreign Entities Stop Buying U.S. Debt, Says NYC Mayor New York Mayor Michael Bloomberg warned Wednesday a "next wave" of financial pain may come from overseas if foreign entities stop buying U.S. debt. The billionaire mayor spoke before an audience at Georgetown University, telling them it's not clear who is going to continue buying U.S. debt as financial firms try to cope with a crisis of confidence on Wall Street. The financial markets have undergone a tumultuous last week: Investment bank Lehman Brothers filed for bankruptcy and later sold off its North American trading division to British bank Barclays PLC; Insurance giant AIG needed an $85 billion bailout from the U.S. government in order to stay afloat; and investment firm Merrill Lynch sold itself to Bank of America.
Depositors, investors waiting it out - for now Customers spooked by Wall Street, banking news, but they’re holding firm Despite the stomach-churning drops on Wall Street and the bad news about failing financial institutions, ordinary investors do not appear to be streaming to banks and brokers in large numbers to pull their money. Government regulators and financial experts have blanketed newspapers and television news shows with reassurances that most people’s money is safe, despite the weekend collapse of Lehman Bros., the sudden sale of Merrill Lynch and concerns about the future of Washington Mutual. So far, it seems, the vast majority of depositors are watching from the sidelines, said Michael M. Heller, president of Veribanc, a national bank rating service.
Is Washington Mutual for Sale? Rumors Abound That the Troubled Bank Will Sell Itself After Losing $5 Billion in Customer Deposits Washington Mutual, a savings-and-loan that has seen tremendous losses stemming from the nation's mortgage crisis, is reportedly on the auction block. The New York Times, citing unnamed sources, has reported that an auction for WaMu arranged by investment bank Goldman Sachs began several days ago. WaMu, meanwhile, is staying tight-lipped on the issue. "We don't comment on rumor or speculation," a WaMu spokesman told ABC News. Jaime Peters, an analyst with investment research firm Morningstar in Chicago, told ABCNews.com that rumors have been swirling about a WaMu sale for months but have strengthened recently because of current market conditions.
Is Washington Mutual the next to fall? Seattle-based S&L has seen its stock plummet; but new CEO is on the case Washington Mutual, a company that once considered itself the Starbucks of banking, now has a stock price lower than that of a latte. The question on many investors' minds is whether WaMu is more like IndyMac, the big bank taken over by the Federal Deposit Insurance Corp. in July, or Wachovia, a troubled institution that under new CEO Robert Steel appears to have won back some investor confidence.
Sale of Washington Mutual is looking likely Concession by equity group gives nation's largest thrift breathing room Ailing bank Washington Mutual Inc. appeared headed toward a sale Wednesday after a major investor removed a potential stumbling block and nervous banking regulators began approaching the most logical buyers. The New York Times, citing unidentified people familiar with the matter, said an auction of the bank was already under way, and The Wall Street Journal reported Wells Fargo & Co. and Citigroup Inc. expressed interest in a takeover.
Will Dollar Be the Next Victim of Economic Meltdown? What a week this one is turning out to be, with currencies rising and falling like a roller coaster. For instance, the EUR/USD opened at 1.4480 on Monday and lost all its gains on the same day; dropping all the way down to 1.41. Tuesday was no better, as traders were waiting for the FOMC meeting for any hints as to how the dollar would fare. Since Monday morning's abrupt awakening when Lehman Brothers told the world they were filling for bankruptcy, markets have been deeply frustrated, with DOW JONES losing a record 500 points and NIKEI dropping 600 points. These are fragile times for the world economy and news that two of the biggest Investment groups, Lehman Brothers and Merrill Lynch were in turmoil, made investors even more wary and therefore a broad liquidation occurred.
AIG Bailout Won’t End Financial Crisis Investment guru Mohamed El-Erian says the Federal Reserve’s bailout of insurer American International Group (AIG) won’t solve the world’s financial meltdown. “The AIG issue may help a little bit, because it reduces uncertainty. But it won’t be a huge help,” the CEO of Pimco told CNBC. The Fed agreed Tuesday to lend AIG $85 billion in exchange for a 79.9 percent equity stake in the world’s biggest insurance company. The two-year loan currently carries a steep interest rate of 11.4 percent. “The deal is well designed for the government,” El-Erian says. “The interest rate is high, and the loan is well collateralized. I think the government will make money out of this.” But the biggest issue is the health of the financial system. “The problem with the AIG deal is that it may not stabilize the system,” he says.
SEC Made This Mess Jim Cramer holds the SEC largely responsible for the current market mess. "Christopher Cox and his crowd of academics and theoreticians did more to destroy the confidence of this market with their adherence to free-market destruction of stocks than any of the managements of the companies themselves," Cramer writes. The rules against naked shorting and shorting without upticks were designed to create firebreaks in the system, Cramer says, but firebreaks don't always work. Using AIG as an example, Cramer says that neither the company nor the SEC recognized that AIG stock is different and worse than the AIG company. "The stock could not be insulated with a firebreak from short-sellers who knew that if you broke the stock's back, you broke the company's back," Cramer asserts, because short-sellers could not be forced to wait for buyers to come in and pay up.
SEC Issues Rules on Abusive Short Selling New rules aimed against abusive naked short selling of stock in all publicly traded companies were issued by the U.S. Securities and Exchange Commission Wednesday. The SEC's new rules, which include a requirement to deliver a security by the settlement date, are effective Thursday. "These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," SEC Chairman Christopher Cox said in a statement. Short sellers and their broker dealers are now required to deliver securities by the close of business on the settlement date, which is three days after the sale, or they will face penalties.
Why the Fed pulled the trigger on AIG What did the government get for its $85 billion? Time to try to unwind a company with $1 trillion in assets. The federal government's rescue of American International Group gave the insurance titan something even more important than access to $85 billion ... it gave AIG time. Time is what the beleaguered insurer needs to unwind its sprawling operations - it has $1.1 trillion in assets and 74 million clients - in an orderly manner. Had the company been forced into bankruptcy, it would have to unload its subsidiaries quickly and at a deep discount. "It gives time for AIG to sell assets without having to put out the fire sale sign," said Stewart Johnson, portfolio manager with Philo Smith & Co. a Stamford, Conn.-based investment bank specializing in insurance.
If the Fed Keeps Swimming Against the Tide, it Will End up Drowning there’s one lesson you can take away from this financial crisis, it’s this: Whenever the U.S. Federal Reserve squares off against the financial markets, it ends up as the loser. In recent weeks, I’ve written several articles suggesting that the credit crisis isn’t over and detailed the three indicators that led me to this conclusion - despite what the politicians, the pundits and all the other so-called "experts" would have you believe. Now, there’s a fourth. It should come as no surprise that there’s more distressed debt trading right now than at any other point in history - nearly $184 billion worth. And that’s just the "official" tally; we know that the actual total is much higher - it just hasn’t been fully tallied and reported, yet.
White House says AIG rescue key for economy Bush administration says deal to offer $85 billion in public funds to failing insurance giant was warranted. The White House says the extraordinary federal takeover of American International Group was needed to prevent broader harm to the reeling economy. But officials there also are acknowledging that taxpayers may never get fully back paid on the deal. In the most far-reaching intervention into the private sector ever for the Federal Reserve, the government stepped in Tuesday to rescue American International Group Incorporated with an $85 billion injection of taxpayer money. The government will get almost an 80% stake in the company. White House spokeswoman Dana Perino said Wednesday that the harm to the taxpayer could be even higher if AIG were to fail.
Shorts face big Mack attack The Morgan Stanley chief goes on the offensive after a solid earnings report fails to halt the stock's collapse. For Morgan Stanley and Goldman Sachs, the two remaining standalone investment banks, the world has become an ugly place. So ugly, in fact, that Morgan Stanley CEO John Mack sent out a firmwide note Wednesday afternoon blaming nefarious forces for the beating his company took in the stock and credit markets today. Morgan shares plunged to a 52-week low in heavy volume, in spite of a solid third-quarter earnings performance.
Money Market Funds Enter a World of Risk Money market funds have been among the few places that investors could put their cash and sleep peacefully. At the moment, that is not necessarily true. On Tuesday, the Reserve Primary Fund, a giant money market fund whose parent helped invent that investment, said its customers would lose money. Instead of each share being worth a dollar for every dollar invested, it said its customers’ shares were worth only 97 cents. In Wall Street parlance, it “broke the buck,” a rare occurrence. So far, it appears that no other money market funds have fallen below a dollar a share. And other money market managers have hastened to reassure investors that their money is safe. But the Primary Fund’s announcement did raise this question: What, in today’s world, is truly safe?
On Wall Street, employees brace for next disaster Who's next? Hours after the U.S. Federal Reserve threw an $85 billion lifeline to American International Group Inc, Wall Street workers took little comfort from the massive rescue and instead tried to guess who would get swept away next. Even staff at Goldman Sachs Group Inc, among the few investment banks largely unscathed by the credit crisis, signaled fear as the firm's stock plunged. "We're all in this together," said one Goldman employee who has been with the firm for six years and currently works in its asset management unit. She declined to give her name. "We are still concerned since we work on Wall Street. We are not secure. Nobody is secure."
Treasury to auction debt for the Fed Central bank is dealing with unprecedented borrowing The Treasury Department will begin selling bonds for the Federal Reserve in an effort to help the central bank deal with unprecedented borrowing needs resulting from the current credit crisis. Treasury officials said Wednesday that the new program would be part of the normal auctions it conducts to finance the government's budget deficits, which have been soaring because of the current economic slump.
FDIC Insurance Fund Falls Below Target Level Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the American taxpayer may be the lender of last resort. The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the largest U.S. thrift, or another struggling rival fails, economists and industry analysts said Tuesday. Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of investment bank Bear Stearns to J.P. Morgan Chase.
Wall Street losing faith in banks Bank stocks plunge again as investors wonder whether commercial banks are the next to fall after Lehman and AIG. A day after the historic takeover of AIG and two days after the bankruptcy of Lehman Brothers, investors seemed to be betting that commercial banks are the next shoe to drop in the financial crisis. Nervousness about the sector sent bank stocks broadly lower Wednesday. The S&P Banking Index fell more than 6%. And shares of several big banks took even bigger drops. Citigroup and Wachovia tumbled 12% and 21% respectively. Shares of Washington Mutual, the nation's largest saving and loan, continued to spiral downward Wednesday as well, falling 13% despite several published reports indicating that the battered bank had hired Goldman Sachs to try and find a buyer.
Profits Privatized, Losses Socialized In one $85 billion (47 billion pound) fell swoop, the U.S. Federal Reserve may have wiped out what credibility it won resisting Lehman Brothers' rescue plea and opened its door to countless other companies to come calling for cash. By providing a massive loan to American International Group on Tuesday, just two days after refusing to use public funds to save Lehman Brothers from bankruptcy, the central bank also invited tough questions on how exactly it determined whether a company was too big to fail. Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday's $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion.
Who’s Paying the Bill? How the government's bailouts will hit taxpayers. In the middle of an already turbulent year for America's financial markets, the Federal Reserve announced late Tuesday the details of an $85 billion bailout package for floundering insurance giant AIG. The fund package, which will give the government control of almost 80 percent of the company's future activities, comes after a $100 billion rescue of government-sponsored banks Fannie Mae and Freddie Mac in July and a $30 billion loan package offered to Bear Stearns earlier in February before its sale to JPMorgan Chase. The federal government will foot much of the bill, leading taxpayer groups to wonder how much blame for the collapses falls on the Washington and how much federal regulators can do to avoid similar problems in the future. Some market analysts have speculated that tighter regulation of lending practices could have prevented many of the foreclosures currently straining the financial markets. Treasury Secretary Henry Paulson denied personal responsibility Monday, telling reporters that he was simply "playing the hand that was dealt me."
Regulators Try to Change Rules to Match the Need Federal officials issued a raft of proposed and final rules this week aimed at shoring up the weakened financial markets and strengthening the eroding balance sheets of banks. With little notice, regulators at four agencies that oversee the nation’s banks and savings associations on Monday and Tuesday proposed a significant change in accounting rules to bolster banks and encourage widespread industry consolidation by making them more attractive to prospective purchasers. The regulators and the Bush administration have decided to resort to further loosening of the accounting rules to try to get the industry through problems that some experts have attributed in large part to years of deregulation. Separately, the Securities and Exchange Commission imposed new limits on short-selling and issued guidelines to help financial institutions prop up money market accounts in light of losses reported Tuesday by a large fund.
Reserve's money fund 'breaks the buck' The world's first money-market fund's $62B in assets fall below a safety benchmark due to soured investments in Lehman. The assets of a money-market fund that held $62 billion three months ago have fallen below a safety benchmark intended to ensure investors who put money in can get it all back - just the second unsettling instance in which a fund has exposed investors to potential losses in the nearly four-decade history of money-market funds. Reserve Management Co.'s announcement that its Reserve Primary Fund had "broken the buck" after its assets fell sharply because of soured investments in Lehman Brothers Holdings Inc. marked the first such investor exposure to money-market losses since 1994.
Finance Fatcats Live Large as Firms Crumble With Golden Parachutes and Glitzy Homes, Financial Executives of Crisis Have Few Gripes It is one of the ironies of the subprime mortgage crisis that while millions of people stand to lose their homes because they can no longer afford to pay their mortgage, the people at the top of the financial institutions that wrote the loans or packaged the risky debt on Wall Street are still tucking themselves in at night, safe and sound inside some very ritzy real estate. On Monday Lehman Brothers declared bankruptcy, and late Tuesday night AIG, the largest insurance firm in the world, was essentially taken over by the federal government in an effort, the government explained, to stave off further disruption to the economy. Thousands of employees are prepping their resumes and many more people are left to contemplate their dwindling nest eggs. But for the companies' executives, men who months ago were given multi-million dollar bonuses despite peering the devastation on the horizon, there is little to worry about. When Lehman Brothers declared bankruptcy on Monday, the company left about 25,000 workers worldwide in the lurch, wondering where their next paycheck will come from. CEO Richard Fuld, on the other hand, can contemplate his next move from a lavish home in Greenwich, Conn. The multi-million dollar manse has 20 rooms and includes an indoor squash court. Fuld and his wife regularly make the ArtNews list of Top Collectors for their interest in "works on paper, especially postwar art." And Fuld has some pretty powerful friends. He managed to get no less a luminary than Bill Clinton to give the commencement address at Middlebury College last year. Fuld's son was graduating.
U.S. Commercial Real Estate Curtailed by Liquidity Crunch The credit crunch continues to filter into the U.S. commercial real estate market, which is seeing a "pronounced" effect not from lack of demand, but from challenges of obtaining credit, according to Wednesday's National Association of Realtors (NAR) Commercial Real Estate Outlook, a quarterly look at data in the office, industrial, retail and multi-family markets. "Although capital remains available for residential loans, the credit crunch is pronounced in commercial lending. Combined with a slowing economy, the lack of credit is curtailing activity in the commercial real estate sectors," said NAR chief economist Lawrence Yun. "As a result, there's been a slowdown in the net absorption of space, which is leading to higher vacancies and more modest rent growth."
August Housing Starts at 17 1/2 Year Low Construction starts on new U.S. homes plummeted to a 17-1/2-year low during August as builders scaled back sharply to try to cope with the worst slump in U.S. housing since the Great Depression. The Commerce Department reported on Wednesday that starts on new homes fell 6.2 percent to a seasonally adjusted annual rate of 895,000, their lowest since January 1991 and well below the 950,000 rate that Wall Street economists surveyed by Reuters had anticipated. The August rate of starts on single-family homes was down 1.9 percent to 630,000, which also was the softest rate since the start of 1991. Starts in August were a whopping 33 percent below the level a year earlier.
Home values plunge in Southern California Median home price fell 34% in August from last year, sales up 10% during period but many driven by foreclosures. The median home price in Southern California fell 34% in August from last year, a research firm said Wednesday. The cost of new and resale homes and condos dropped to $330,000 last month in a six-county region. It was down from $500,000 in August 2007 and down 5.2% from $348,000 in July, MDA DataQuick said. A total of 19,366 homes and condos were sold last month, up about 9% from August 2007 but down almost 5% from July. MDA DataQuick president John Walsh said much of the sales activity has been logged in lower-priced inland areas where the market has been driven by foreclosures. "Foreclosure activity remains high, credit is still tight, affordability remains strained on the coast and the job market is soft," Walsh said.
FDIC's Bair Says IndyMac Plan Should Act as a "Catalyst" Federal Deposit Insurance Corporation (FDIC) Chairperson Sheila Bair said that she hopes that IndyMac program will act as a catalyst to promote more loan modifications for troubled borrowers across the country. Bair made the comment while testifying before the House Financial Services Committee on the home loan program in Washington D.C. "The FDIC strongly supports programs that result in mortgage loans that are sustainable over the long term and avoid unnecessary foreclosures that harm individual borrowers and the economy," she said. "Prudent workout arrangements are in the long-term best interest of both the financial institution and the borrower."
How we got here: It's housing, stupid The Wall Street crisis has been caused by plunging housing prices. So despite the billions of dollars being thrown at the problem, experts say more trouble lies ahead. The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame. But in the end, it all comes back to one issue - housing. Earlier this decade, it was much easier to get a mortgage. Home prices soared about 85% from 1996 through 2006 in inflation-adjusted dollars, creating a bubble. Then the bubble popped. And the fallout isn't over yet, experts say.
Pentagon: Tanker Bids Differed by $3 Billion The Pentagon's top weapons buyer said the proposed aerial refueling tankers from both Northrop Grumman and Boeing were "technically outstanding" but differed by almost $3 billion on price. John Young, the undersecretary for acquisition, technology and logistics, said in an interview at the Pentagon yesterday that under the tanker proposal from Northrop Grumman and its partner European Aeronautic Defence & Space, developing the first 68 aircraft would have cost $12.5 billion, compared with $15.4 billion under Boeing's plan. It was the first time Young or any top official at the Pentagon has talked in detail about the long-running, $40 billion tanker deal since Defense Secretary Robert M. Gates said last week that the competition would be punted to the next administration because it had become so politically charged.
Federal Aid to Detroit Seems Likely After a series of government interventions in the private markets, one seemingly more astonishing than the next, lawmakers found themselves confronted on Wednesday with the question of when and where to draw the line on future aid. But with billions of dollars in financial backing already authorized for Wall Street, and with Election Day fast approaching, Congressional leaders seemed uninterested in denying help to large employers of blue-collar Americans. Even as lawmakers in both parties unleashed a barrage of questions about the wisdom of a government rescue for the American International Group, support seemed to be growing quickly on Capitol Hill for $25 billion in loan guarantees to assist the ailing auto industry.
A brief history of General Motors Corp. As General Motors Corp. prepares to celebrate its 100th anniversary, some key events in the giant automaker's history:
GM, Domino's, Qwest Say Wall Street Woes Spreading Executives at companies from General Motors Corp. to Domino's Pizza Inc. and Qwest Communications International Inc. say the credit crunch triggered by Wall Street's upheaval is rippling through the U.S. economy. Debt costs surged and stocks tumbled today on concern more financial institutions will collapse, closing off financing to companies and consumers. Lending tightened further this week after Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was taken over by Bank of America Corp. and the government assumed control of American International Group Inc.
Olive Garden and Red Lobster to raise prices Parent company announce bigger than usual increase to investors Olive Garden and Red Lobster customers will have to pay a bit more for their favorite dishes in the months ahead as the restaurant chains struggle to keep revenue and profit growing in a depressed economy. On a conference call with analysts Wednesday, the parent company of both brands - Darden Restaurants Inc. - said its prices in the 2009 fiscal year that began this summer will be higher than in years past. The company said its menu prices at Olive Garden and Red Lobster have typically gone up between 2 percent and 3 percent each year, with price increases usually falling in the middle of that range. But for 2009, Darden said it will have to raise prices by a percentage closer to the high end of that range.
Asian markets tumble as financial fears deepen Asian stock markets dive after Wall Street's fall, AIG bailout deepens financial fears Asian stocks tumbled Thursday, tracking declines on Wall Street as investors feared more companies could succumb to the global financial crisis that forced the U.S. to bail out troubled insurer American International Group Inc. Every regional benchmark fell deeply in the red. Hong Kong's Hang Seng Index led the region's losses, tanking 1,272.86 points, or 7.22 percent, to 16,364.33 -- its lowest level in over two years. In Japan, the Nikkei 225 stock index was down 445.67 points, or 3.79 percent, at 11,304.12. Australia's S&P/ASX200 index fell more than 3.5 percent, South Korea's Kospi lost 3.6 percent and Shanghai's index fell 5.8 percent.
Asia Stocks Tumble to 3-Year Low on Bank Woes; Macquarie Slumps Asian stocks tumbled to the lowest level in three years as credit markets seized up and concerns grew that more financial companies will collapse. Macquarie Group Ltd., Australia's largest investment bank, plunged a record 22 percent as Morgan Stanley and HBOS Plc sought buyers to avoid becoming victims of the financial crisis. Newcrest Mining Ltd. rose as gold extended its biggest jump in 26 years. U.S. three-month Treasury yields traded near the lowest since World War II as investors fled stocks for safer havens.
Russia’s Politics of Isolation Leave it Economically Stranded in a Time of Crisis While U.S. financial turmoil has seeped into virtually every global market, Russia has been devastated, as the country’s largest stock exchanges, the MICEX and RTS, have suffered their biggest losses since the 1998 financial crisis. However, Moscow only has itself to blame after heavy-handed economic, political, and military tactics scared away the foreign investments it didn’t oust directly. Regulators suspended trading on both the MICEX and RTS for the second day in a row yesterday (Wednesday), after the nation’s two biggest exchanges suffered their worst losses in nearly a decade.
Politicians Point Fingers, Assign Blame When the fingers of blame are pointing in all directions, as they are even while the nation’s financial crisis is still unfolding, this much is inevitable: the pointers as well as the pointees are getting poked in the eyes. In the culture of Washington, few rituals are as predictable as the blame game, and this one was under way even before the government’s quasinationalization of the American International Group late Tuesday. With just 47 days until the presidential election, the game is all the more hard-fought because the stakes are so high. “Whether it’s a banking crisis, a food scare, Hurricane Katrina or Iraq, anytime something in the public policy arena doesn’t go well, then fingers are pointing. This is Washington,” said Bert Ely, a longtime consultant on financial institutions.
McCain says government 'forced' to bail out AIG Republican presidential candidate John McCain, a day after flatly rejecting the idea of a taxpayer bailout for American International Group Inc., said Wednesday that the government had been "forced" into proposing an $85 billion loan to the nation's largest insurer. McCain appeared to soften his opposition to the bailout proposed by the Treasury Department, treating the plan as a necessary evil to protect ordinary Americans with finanical ties to AIG — and asserting that such a financial collapse should not be allowed to happen again. He also called for an investigation to uncover any wrongdoing. "The government was forced to commit $85 billion," McCain said in a statement. "These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America," McCain said in a statement. "The focus of any such action should be to protect the millions of Americans who hold insurance policies, retirement plans and other accounts with AIG," he said. "We must not bail out the management and speculators who created this mess. They had months of warnings following the Bear Stearns debacle, and they failed to act."
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Stocks tumble after government bailout of AIG Wall Street sinks again after Fed bails out AIG, Barclays buys Lehman businesses; Dow down 450 Wall Street plunged again in a crisis of confidence Wednesday as anxieties about the financial system still ran high after the government's bailout of insurer American International Group Inc. The Dow Jones industrial average dropped about 450 points, and investors seeking the safety of hard assets and government debt sent gold, oil and short-term Treasurys soaring. The market was more unnerved than comforted by news that the Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company, which lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy. The ramifications of the world's largest insurer going under likely would have far surpassed the demise of Lehman. "People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"
Wall Street firms plunge as survival is questioned New York City's last two independent investment banks, Morgan Stanley and Goldman Sachs, got hammered Wednesday over concerns about their future survival. Shares in Goldman Sachs and Morgan Stanley plunged Wednesday, posting their worst one-day drops ever, amid growing investor concern about whether the last independent investment banks can survive. "There just isn’t any confidence in these institutions,” says Damon Vickers, who runs hedge fund Nine Points Capital Partners and is short both Goldman and Morgan. “No one has any concept of what’s on their books. And look, Lehman and Bear Stearns told us things were fine until the very end."
Welcome to the Impasse A failure to regulate led us to these problems, but the calendar now leaves Washington powerless to fix them. Bear Stearns, Fannie Mae, Freddie Mac, A.I.G., and…who's next? Washington Mutual? There will most certainly be another government bailout of a private sector failure, but no one seems to know how or when this ugly chapter in U.S. finance will end. "The question is, and it's just a question, is, 'Are we at the point where the private market has made so many bad decisions and is so depressed that it can't get out from under?'" Barney Frank, chairman of the House Financial Services committee, asked this week.
Fed in an $85 Billion Rescue of an Insurer Near Failure Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group. The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history. With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy. . . . . the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.
Potential Cost of Mortgage Mess to Taxpayers Approaching $1 Trillion The Congressional Research Service estimated in July that the Iraq War has so far cost $648 billion in current dollars. While the government thus far during the credit crunch has committed to spending about $300 billion as a result of the recent housing bill, potential costs from other bailouts and loan programs could potentially put taxpayers on the hook for $901 billion, Reuters reports. Here is the sum of the housing bill, the bailouts of Fannie Mae, Freddie Mac, AIG, Bear Stearns, and Lehman, as well as the Term Auction Facility loans currently lent:
Morgan Stanley, Goldman plummet as crisis mounts Shares of Wall Street firms Morgan Stanley and Goldman Sachs plummeted on Wednesday and the UK's biggest mortgage lender, HBOS Plc, looked set to be bought in the latest signs of financial industry distress. Tuesday's $85 billion rescue of insurer American International Group by the U.S. Federal Reserve did little to calm investor nerves. The move capped a week of bailouts, a bankruptcy on Wall Street, and central banks around the world flooding the financial system with money to prevent it from seizing up. The result: a seismic shift in the financial industry, with some of Wall Street's biggest names disappearing overnight.
Is Your Money Market Fund the Next Subprime Mortgage Debacle? The financial meltdown surpassed another dismal milestone today as the bankruptcy of Lehman Brothers forced one of the world's premiere money market funds to record a loss -- the first for such a fund in 14 years. If you're scared that you, too, are going to get slammed, put your money in an FDIC-insured savings account and/or invest it in a money-market fund at a major firm that will be publicly humiliated if its funds drop. This is no guarantee, of course (the fund that lost money today is a big one), but it's better than investing in little money-market funds no one has ever heard of.
The Fund to Save the World $85 billion rescue of A.I.G. calms markets but changes the game in Washington. A new American financial conglomerate has emerged virtually overnight, and if it should run into trouble, Washington won't be able to help. Because it is Washington. Adding to its portfolio of mortgage-finance companies, the government has taken control of American International Group, the world's largest insurance company by assets.
Stocks sink after government bailout of AIG Wall Street tumbles again after government bails out AIG, Barclays buys Lehman businesses Wall Street stumbled again Wednesday, with anxieties about the financial system still running high even after the government bailed out the insurer American International Group Inc. The Dow Jones industrial average dropped nearly The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the insurer, after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
Russia Halts Trading on Concerns for Banks Russian financial regulators halted stock trading for the second time this week on Wednesday in a move that immediately stirred memories of Russia’s traumatic financial crisis in 1998. The Russian stock market has in recent years muscled its way onto the global financial stage, spawning dedicated hedge funds from New York to London to Stockholm and enriching a generation of investors. But its sharp fall this summer is a reminder that it has remained, in many ways, a wobbly emerging market. It dropped more than 25 percent in just three days this week and is off 57 percent since its peak in May. Still, officials are promising measures to jump-start a rebound and halt a spiral of margin-call selling. They have released billions of dollars in federal money to banks in a strategy that came into sharper focus on Wednesday.
In Asia, the Bloom Is Off the A.I.G. Rose While American International Group may have dodged a bullet with this week’s rescue by the Federal Reserve and the Treasury Department, the ailing insurer still faces a tough task: regaining the confidence of its global customers. No where is that more true than Asia, where the 89-year-old financial group was founded, and where it benefited from a reputation for prudence and reliability in a region plagued by shoddy financial companies. While it is too early to know what the fallout will be among insurance companies, the initial reaction from customers in Asia was worrisome, analysts said. If A.I.G.’s reputation suffers heavily, the company will face an uphill battle in Asia, one of its largest and fastest-growing markets. The region accounts for about 40 percent of A.I.G.’s $34 billion in life insurance premiums and retirement services last year.
Steel shares decline with markets Steel shares drop as ArcelorMittal unveils plans to cut costs by $4B through investments, cuts Steel industry shares slid Wednesday as the world's largest steelmaker unveiled plans to cut costs by $4 billion over the next five years through smarter investments and job cuts. ArcelorMittal's plan includes investments in North American and European facilities, and job cuts through voluntary retirement plans and attrition, according to a presentation set for Wednesday at the company's annual investor day in London. The Luxembourg-based company said it will focus on increasing employee productivity, reducing energy consumption, and cutting costs by improving its subcontracting and purchasing methods.
Automotive shares tumble with markets Shares of auto makers and suppliers tumble as overall market falls on credit industry worries Shares of U.S.-based automakers and suppliers tumbled Wednesday, pulled down by a steep drop in the overall market and worries about what effects the continued troubles in the lending industry could have on the sector. In midday trading, The Dow Jones industrial average dropped about 300 points, following the government's bailout of insurer American International Group Inc. Recent days have also seen Lehman Brothers Holdings Inc.'s file for bankruptcy protection and Merrill Lynch sell itself to Bank of America.
Oil rebounds, airlines fall Airline shares fall on weak United Airlines guidance and rebounding oil prices Airline shares fell sharply Wednesday following disappointing guidance from United Airlines and a rebound in oil prices. The Amex Airline Index declined 9.1 percent. Oil prices rose $1.45 to $92.60 a barrel, after falling $10 the previous two days to their lowest level in seven months. And UAL Corp.'s United Airlines said its third-quarter fuel hedges are under water by $544 million. It also said it expects third-quarter passenger revenue to increase 4.5 percent to 5.5 percent per mile, and that it is reducing overall capacity by around 3.6 percent for the quarter.
Socialism, 21st Century Style The government Tuesday nationalized the American International Group, the financial giant that could not find anyone else willing to lend it the billions of dollars it needed to stay afloat. That is not the official version. Fed staffers, who briefed reporters at 9:15 Tuesday night, don’t even want us to say the government will control A.I.G. The government will name new management, and will have veto power over all important decisions. And it will have a warrant allowing it to take 79.9 percent of the stock whenever it wants. But they contend there is no control until the warrant is exercised.
Poof! There go Americans' dreams So much for the fairy tale about the little guy buying stocks for a sweet life and a safe retirement. Now that vision is crumbling along with some of Wall Street's giants. As one major financial institution after another succumbs to crushing losses this year, it is mourning in America for the hopes of average working people who believed in the myth of stock ownership as a sure path to a better life now and a safe retirement later. It may sound like a gross exaggeration to say that the dreams of Main Street are dying on Wall Street this week, but it is a fair interpretation of recent events. For the capital that is required to fund businesses, schools, streets, farms, vacations, homes and cars is quite literally evaporating like dew at the start of a summer day with the untimely death of every bank, brokerage and insurance company
ECB doyen Otmar Issing calls crisis "extremely dangerous" Otmar Issing, the former chief economist of the European Central Bank, has warned that confidence in the world's financial system is draining away, leaving authorities facing the gravest challenge in living memory. "There is no doubt that this is the most serious crisis since 1929, and it will have tremendous consequences," he told The Daily Telegraph. "The crises we faced in 1987 and 2001 were not negligible, but they were very soon digested. What is extremely dangerous is that we have a loss of confidence which goes on and on," he said. Dr Issing, who was in London for the launch of his book 'The Birth of the Euro', said central banks around the world incubated the crisis by pursuing lax monetary policies over the years, and by failing to control asset bubbles.
Fed to lend $85 billion to AIG, take 80 percent stake The U.S. Federal Reserve Board on Tuesday said the Federal Reserve Bank of New York will lend up to $85 billion to the American International Group in a plan aimed at saving the insurer from a "disorderly failure" that could wreak economic havoc. The Fed said under the two-year facility the U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto payment of dividends to common preferred shareholders in the deal, which has the full support of the Treasury Department. "The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.
Wall Street's wipeout It is oddly reassuring that the U.S. Treasury Department and Federal Reserve let Lehman Brothers fail, did not subsidize the distress sale of Merrill Lynch to Bank of America, and tried to line up loans for the American International Group, the troubled insurer, rather than making the loan themselves. Government intervention would have been seen either as a sign of extreme peril in the global financial system or of extreme weakness on the part of federal regulators. Instead, the dizzying events on Wall Street suggest, at least for now, that the system may be strong enough to absorb the downfall of Lehman and Merrill and the chaos at A.I.G. The stock market's initial reaction - a brutal drop, but not a Black Monday-style sell-off - also offered a ray of hope that the disruption may be manageable. And, more important, barring the risk of cascading failures, regulators finally seem willing to hold Wall Street accountable for its mistakes.
U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up $$ Emergency Loan Effectively Gives Government Control of Insurer; Historic Move Would Cap 10 Days That Reshaped U.S. Finance The U.S. government seized control of American International Group Inc. -- one of the world's biggest insurers -- in an $85 billion deal that signaled the intensity of its concerns about the danger a collapse could pose to the financial system. The step marks a dramatic turnabout for the federal government, which had been strongly resisting overtures from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy. Just last weekend, the government essentially pulled the plug on Lehman Brothers Holdings Inc., allowing the big investment bank to go under instead of giving it financial support. This time, the government decided AIG truly was too big to fail.
WaMu Defiant The embattled thrift Washington Mutual say its health shouldn't be judged by its stock price, and it isn't going to go the way of Lehman Brothers. As of last week, Washington Mutual said it wasn't looking for a buyer, but Wall Street is hoping otherwise. A WaMu spokesperson told Forbes.com that its stock performance over the last few weeks is not indicative of how the bank is performing on "Main Street."
Money Market Fund Breaks The Buck, Freezes Redemptions One of the first and largest money market funds has put a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1, in a rare instance in the fund industry of what is called "breaking the buck." Primary Fund, a $64 billion fund managed by money market fund inventor The Reserve, said late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero.
The Doomed 'Turkeys' Have Opened Up The 'Magic Piggy Banks' ormer Fed Chairman Alan Greenspan's done it again. Back in 1996 he defined an era. Then Robert Shiller immortalized it in "Irrational Exuberance." Well, Alan's done it again. In his updated memoir, "The Age of Turbulence," you'll find the perfect label for the current global credit crisis: "Magic Piggy Banks!" .... So now we have two tragic actors, Ben and Hank, running America's two "Magic Piggy Banks." "Black Swan" author Nassim Nicholas Taleb says: "Anyone who knows anything about the history of banking ... will tell you that the subprime crisis was so bound to happen [but] banks have a tendency to sit on 'time bombs' while convincing themselves that they are conservative."
AIG Hit With Downgrades To Debt Ratings Credit Agencies Hammer World's Largest Insurer As It Struggles To Raise Cash American International Group Inc., the world's largest insurer, was hit by a wave of downgrades by credit-rating agencies worried that the deteriorating housing market is further undermining the company's battered finances. All three major agencies - Standard & Poor's, Moody's Investors Services and Fitch Ratings - dropped AIG's ratings at least two notches late Monday. While the new ratings are all still considered investment grade, the downgrades add to the pressure on AIG as it seeks billions of dollars to strengthen its balance sheet. AIG spokesmen did not return calls seeking comment on the impact of the downgrades. But last month, the company estimated in a regulatory filing that a one-notch downgrade of its long-term senior debt ratings by both S&P and Moody's would force it to post $13.3 billion in extra collateral.
AIG Rescue: Small Players to Pay Price $$ It didn't take long for the government to flinch. Days after refusing to backstop a sale of Lehman Brothers Holdings, the Federal Reserve and the Treasury moved to rescue American International Group. This is a reminder that for all the talk of a free-market system where failure is the flip side of success, the government deems some institutions too big to fail. That arguably makes sense to protect global markets. But it could perversely lead to a two-tier financial system that rewards institutions that concentrate risk. Granted, the case for government action was compelling. AIG is a financial-services titan. An AIG bankruptcy would have conceivably wreaked havoc, starting a destabilizing chain reaction of losses and forced asset sales around the world. And the government will extract a pound of flesh, diluting AIG's shareholders and, it is to be hoped, forcing a long-needed restructuring of the firm in exchange for an $85 billion loan. That may help mitigate any taxpayer losses that result.
Derivatives And Dangerous Times The collapse of Lehman Brothers has triggered an enormous crisis in derivative markets. Prior to the firm's spectacularly swift demise, no major counterparty in the world's biggest financial market had ever gone under. A major counterparty failure threatens the delicate web of trading in securities that are gargantuan in dollar amounts but totally lacking in transparency to the public. AIG has a credit default swap portfolio of $400 billion notional value, but it cannot be fairly valued because there is literally no real market for many of these contracts, Croesus has learned.
Lehman Collapse Spurs Call for Credit Clearinghouse Banks may accelerate efforts to move trading in the $62 trillion credit-default swaps market through a central clearinghouse or to an exchange after the bankruptcy of Lehman Brothers Holdings Inc. and the credit downgrade of American International Group Inc. Lehman, the first major market-maker to go bankrupt in the decade-long history of the privately negotiated, unregulated business, may leave behind billions of dollars in potential losses for trading partners, according to Barclays Plc of London. No one knows exactly how much because there's no central exchange or system for recording trades. "The fact that I can't tell you the notional value of derivatives contracts Lehman has written the day after a bankruptcy is a scary thing," Brian Yelvington, a strategist at New York-based bond research firm CreditSights Inc., said yesterday.
Bernanke Bets on Targeted Loans Over Rate Cut to Aid Wall St. Federal Reserve Chairman Ben S. Bernanke is betting he can use targeted emergency loans rather than another interest-rate cut to pull Wall Street through the credit crisis. The Fed kept the benchmark rate at 2 percent yesterday, citing risks to growth and inflation. Two days earlier, officials allowed securities firms use equities as loan collateral to ease the impact of Lehman Brothers Holdings Inc.'s bankruptcy. Hours after the meeting, the Fed agreed to an $85 billion loan as part of a government takeover of American International Group Inc.
Ford assessing Lehman role in credit facilities Ford says it's assessing possible impact of Lehman bankruptcy on automaker's credit facilities Ford Motor Co. said Tuesday that it is assessing the impact Lehman Brothers Holdings Inc.'s bankruptcy filing may have on the automaker's credit facilities, which include commitments from Lehman subsidiaries. Ford said in a Securities and Exchange Commission filing that Lehman Commercial Paper Inc. is one of the lenders participating in the automaker's $11.5 billion revolving credit facility. Lehman Commercial Paper's commitment under the Dec. 15, 2006, credit agreement is $890 million, all of which is presently unfunded, Ford said.
Rate Cuts if Liquidity Injections Fail The U.S. Federal Reserve will need to cut interest rates if a series of liquidity injections by global central banks fails to calm volatile markets, Pimco chief executive Mohamed El-Erian said Tuesday. Central banks pumped vast amounts of funds into world financial markets for a second day Tuesday in an increasingly fraught effort to contain the fallout from the crisis sweeping Wall Street's biggest firms and the markets. "The emphasis so far is on massive emergency liquidity provision. A rate cut would be needed if this injection fails to liquefy broad segments of the markets," El-Erian, whose investment firm, Pacific Investment Management Co, manages the world's largest bond fund, told Reuters. Pimco oversees more than $812 billion in assets.
Fed statement on AIG loan Central bank explains terms, reasons behind $85 billion loan to troubled insurer. Here is the text of the Federal Reserve's statement on the loan to American International Group from its Web site: The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers. The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.
AIG certain to shrink An eleventh-hour from the federal government, but its future is surely going to be very different. The Federal Reserve's ninth inning rescue of AIG may soothe capital markets and keep the company's bondholders from taking a beating, but the financial services titan's future will look very different, and likely much narrower. AIG has secured an $85 billion bridge loan from the Federal Reserve in exchange for a stake in the company that could reach 80%. But the deal comes with the provision that AIG sell off businesses to raise capital and repay the debt. It's likely to have to sell any number of insurance units that were long-time cornerstones of its franchise to raise funds.
SEC played a big role in creating this chaos TheStreet.com's Jim Cramer says they had no idea how catastrophic pulling the naked-shorting rules would be. Christopher Cox and his crowd of academics and theoreticians did more to destroy the confidence of this market with their adherence to free-market destruction of stocks than any of the managements of the companies themselves. I know that is a strong statement, but you have to understand that the rules against naked shorting and shorting without upticks were about having firebreaks in the system. Consider these rules a swath of chopped-down trees meant to slow a fire so firefighters have a real chance to put out a monster conflagration.
Fed repaid JPMorgan $87 billion for Lehman financing The New York Federal Reserve intervened aggressively to shore up the U.S. financial system this week, providing at least $87 billion to help underpin trades with units of bankrupt Lehman Brothers Holdings Inc, court documents show. The Fed's action is the latest sign of how U.S. authorities have been seeking to prop up financial markets following the failure of Lehman and as big insurer American International Group fights for survival. While the government had pledged not to fund a rescue of Lehman, the disclosure on Tuesday showed that authorities were taking other financial steps to prevent markets from descending into chaos.
Fed pumps $70 billion into financial system Amid Wall Street meltdown, central bank wants to keep cash flowing Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped another $70 billion into the U.S. financial system to help ease credit stresses. The Federal Reserve Bank of New York's action came in two operations in which $50 billion and then another regularly scheduled $20 billion were injected in temporary reserves. The maneuver takes place as Federal Reserve Chairman Ben Bernanke and his central bank colleagues prepare to meet to decide their next move on interest rates and conduct a fresh assessment of the country's financial and economic troubles.
Barclays to Buy Lehman U.S. Units for $1.75 Billion Barclays Plc, the U.K.'s third- biggest bank, will acquire the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion, two days after abandoning plans to buy the entire firm. The London-based bank is paying $250 million in cash for the Lehman businesses and $1.5 billion for the securities firm's New York headquarters and two data centers, it said in a statement on its Web site today. The operations employ about 10,000 people, almost two-fifths of Lehman's total.
GM, Domino's Say Wall Street's Woes May Ripple Through Economy Executives at companies from General Motors Corp. to Domino's Pizza Inc. and Novell Inc. say Wall Street's upheaval may stunt demand as a credit crunch ripples through the U.S. economy. The cost of borrowing in U.S. dollars surged to the highest level since 2001 following Lehman Brothers Holdings Inc.'s collapse, Merrill Lynch & Co.'s takeover by Bank of America Corp. and a cash shortage at American International Group Inc. that threatened to plunge the insurer into bankruptcy.
What Shoe Will Drop on Wall Street Next? The Federal Reserve and Treasury Secretary Henry Pauson Hold Key to Solving Financial Woes After a gut wrenching day of trading, the worst since Sept. 11, 2001, Wall Street returned Tuesday morning to face another potentially volatile day. Markets in Asia, which were closed Monday due to national holidays, saw significant losses that in turn could lead to more sell-offs in the United States.
Banks, lawmaker push SEC to curb illegal shorting A U.S. banking group is pressing securities regulators to clamp down on illegal short-selling after weeks of heavy selling pressure on shares of financial companies. The American Bankers Association said many of its members have seen precipitous declines in their stock, high trading volumes and huge spikes in so-called failures to deliver, leading them to conclude that their stock is being manipulated. The U.S. Securities and Exchange Commission expects to issue new rules against abusive short selling within 24 hours, an SEC spokesman said late Tuesday. However, the banking association said it feared the steps would not be enough.
Federal bank insurance fund dwindling If Washington Mutual fails it may require loan from the Treasury Dept. Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort. The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.
Some signs of market stability emerge after global rout U.S. stock indexes slipped modestly in afternoon trading Tuesday as a glimmer of stability seeped into the markets after indexes in Europe and Asia had tumbled amid fears about financial contagion from the turmoil engulfing Wall Street. Several factors lifted the mood - slightly. Analysts pointed to increasing hopes of an interest rate cut later Tuesday from the Federal Reserve, although the Fed chose to keep crucial interest rates unchanged.
Readers want accountability on Wall Street Some say the government should aid average workers, not giants It’s been a tumultuous few days on Wall Street, and msnbc.com’s readers have been reacting to some momentous events, including the collapse of Lehman Brothers, the largest bankruptcy in U.S. history, and Bank of America’s takeover of troubled Wall Street icon Merrill Lynch. Now American International Group, the world’s largest insurance company, appears likely to fall victim to the credit crisis unless it can get help raising some much-needed capital.
Japan, Australia Inject $22 Billion to Soothe Markets Central banks in Japan and Australia injected $22.4 billion into their financial systems amid ongoing efforts to calm markets roiled by the demise of Lehman Brothers Holdings Inc. and crisis at American International Group Inc. The Bank of Japan pumped 2 trillion yen ($18.9 billion) and the Reserve Bank of Australia added A$4.285 billion ($3.45 billion) into their financial systems today. Global central banks from Tokyo to Frankfurt have added more than $200 billion since the beginning of the week. "Central banks want to make sure that liquidity is sufficient because banks are concerned about extending credit to each other," said Tomo Kinoshita, chief economist for Asia outside Japan at Nomura Holdings Inc. in Hong Kong. "It's an act to calm the markets.
China paper urges new currency order after "financial tsunami" Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday. The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc "may augur an even larger impending global 'financial tsunami'." The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper. Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets.
Oil Prices Continue Precipitous Drop Falls $10 A Barrel In Two-Day Slide Amid Market Uncertainty; Settles Below $92 Oil prices extended their retreat Tuesday, shedding $10 a barrel in a violent, two-day slide as tumult on Wall Street dims hopes for a swift economic recovery and signals another drop in U.S. energy demand. Light, sweet crude for October delivery fell $4.56 to settle at $91.15 a barrel on the New York Mercantile Exchange, after earlier dipping to $90.51, its lowest level since Feb. 8. On Monday, prices closed below $100 for the first time in six months, shedding more than $5 and wiping out all of oil's gains for the year. In London, November Brent crude fell $5.02 to settle at $89.22 a barrel on the ICE Futures exchange, after earlier dipping to $88.90.
Big money market fund freezes withdrawals Savers to get 97 cents on the dollar as The Reserve Fund writes off $785 million in debt related to Lehman Brothers, in the first such shortfall in 14 years. The Reserve Fund, a Manhattan-based firm that invented money market funds, said late Tuesday that the net asset value of its flagship Primary Fund fell to 97 cents per share. Money market funds nearly always price at a rock-solid $1 per share, but the Reserve Fund’s Primary Fund fell short because it had to write off $785 million in debt securities issued by Lehman. In industry parlance, the Reserve Fund "broke the buck"—the first time such a thing has happened since 1994. "This is astounding," said Peter Crane, chief executive of Crane Data, a Massachusetts-based firm that tracks the money market industry. “Nobody believed this would happen."
A Time To Cut Monetary Policy: The Federal Reserve held interest rates steady at its meeting Tuesday, perhaps alarmed at volatility in the bank's overnight lending market. At some point, however, a rate cut is in order. Only a month ago, the Fed was letting Wall Street and Main Street know its next rate move was likely to be up, not down. The only question was when and how much. What a difference a month makes. Now fed funds futures markets put a 72% probability on a 25- basis-point cut in the 2% benchmark rate by October, and a 32% chance it'll be 50 points lower by the end of November. Suddenly, the rate-cutting sentiment has changed.
Wash. jobless rate rises to 6 percent Washington state unemployment rate jumps to 6 percent, highest in 4 years Washington's unemployment rate jumped to 6 percent last month, the highest level in nearly four years, with more than 200,000 people unemployed and seeking work, economists said Tuesday. Washington's sour employment news comes amid the nation's continued economic slide, punctuated this week by further collapses in the financial sector. Officials said the state's rising jobless rate is significant, but not extraordinary, since it fits into the recent pattern of negative economic indicators.
Mortgage rates are lower, but getting a home loan is no easier Bailout eases mortgage rates and -- maybe -- will loosen underwriting The government takeover of mortgage giants Fannie Mae and Freddie Mac has pushed mortgage rates lower, a boon for some home buyers and homeowners seeking to refinance, but it is not automatically going to make home loans easier to obtain.
Alabama County Sued by Bond Insurers Amid Stalled Debt Talks Jefferson County, Alabama, was sued by bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co., seeking to strip local officials of control over the sewer system that has pushed the county toward bankruptcy. The companies filed the lawsuit in U.S. District Court in Birmingham yesterday asking that a receiver be placed in charge of the sewer system, which doesn't make enough money to cover the interest on $3.2 billion of debt, the two said in a statement. The insurance companies guarantee $2.8 billion of the bonds against default.
JP Morgan chases after Washington Mutual Banking conglomerate JP Morgan Chase is considering making a low-ball offer for Washington Mutual in an effort to save the troubled American bank amid concerns over its capital adequacy. JP Morgan, which rescued Bear Stearns in March of this year following its own near-collapse, could become WaMu's "white knight" after the bank's shares dropped 34pc this week alone. JP Morgan chairman and chief executive Jamie Dimon is understood to have expressed an interest in buying WaMu earlier in the year, and is believed to have made similar overtures to the bank's new chief executive, Alan Fishman, this wee
House passes bill allowing offshore drilling The U.S. House of Representatives passed legislation Tuesday that lifts a longstanding ban on offshore oil drilling, opening most of the U.S. coastline to exploration. The package proposed by Democrats would give states the option to allow drilling between 50 and 100 miles (80 and 160 km) off their shores. Areas more than 100 miles from the coast would be completely open to oil exploration and drilling. The House voted 236 to 189 in favor of the package.
Asian central banks spend billions to prevent crash Japan, Australia and India flooded money markets with cash on Tuesday and Indonesia cut one interest rate, as central banks tried to prevent the Wall Street upheaval from freezing the global financial system. The region's banks spent nearly $27 billion, after the $70 billion U.S. Federal Reserve injection into American money markets, which seized up after Lehman Brothers became the latest casualty of a 13-month-old credit crisis. The Bank of Japan gave the banking system its biggest cash injection in almost six months as the prime minister met top financial policy makers to discuss the fallout of the crisis that led to Lehman's bankruptcy.
Investors see golden era for distressed securities Major investors said on Tuesday that turmoil in credit markets and the stunning collapse of big investment banks mark the beginning of a boom in turning around distressed companies or buying their debt. The collapse of Lehman Brothers Holdings and the merger of Bank of America and Merrill Lynch & Co this week will be followed by hundreds more bank failures that will result in buying opportunities in the transportation, publishing, home-building and even real estate sectors, investors said during a private equity conference in New York.
Porsche maneuvers to take control of VW Porsche, whose speedy roadsters are synonymous with excitement and luxury, effectively claimed control Tuesday of Volkswagen, born as the maker of the so-called people's car and now Europe's largest automaker. The move by Porsche to increase its stake in VW from 31 percent to just more than 35 percent - a controlling interest under German law - comes amid rising tensions between the two companies, as well as within the Porsche family.
Bush could still attack Iran Despite the main finding in the latest report from the International Atomic Energy Agency that it "has been able to continue to verify the non-diversion of declared nuclear material in Iran", the western media has focused on the issue of Tehran's lack of transparency over the IAEA investigation into recent intelligence allegations. These involve missile re-entry vehicle projects and have been rejected by the Iranians, who have not even been permitted to see the documents upon which the allegations are founded. This week the US Congress is debating two non-binding resolutions which, if passed, will greatly increase the likelihood of military intervention against Iran.
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S.E.C. No Evil For months, Christopher Cox, the chairman of the Securities and Exchange Commission, has been under fire for a belated response to market upheavals stemming from the subprime fiasco and for being soft on big corporations. He’s eager to dispel his critics. In his 10th-floor office, with a postcard view of the Capitol, Cox appears fit and buoyant despite a recent bout with a rare cancer of the thymus gland. He denies any suggestion that he has oriented the S.E.C. away from tough enforcement and investor protection. "I spend more time on enforcement than on any aspect of my job," he says.
But a look at his record since he became chairman in 2005 suggests that, behind the scenes, Cox has engineered a series of procedural and tactical changes, effectively reducing the S.E.C. enforcement division’s power. The division, one of four in the S.E.C., investigates and litigates violations of securities laws. Under the new rules, enforcement staffers no longer have the freedom to negotiate fines against public companies in a select group of cases. Instead, the commissioners—three Republicans and two Democrats—dictate the maximum penalty the enforcement division can seek. Since the rule was imposed, penalties have dropped. For example, in March, the commission approved a fine of $10 million against pharmaceuticals manufacturer Biovail, significantly less than the enforcement staff had sought.
At the S.E.C., which has come under fire from Congress for its apparent lack of vigilance in the subprime mess, such tensions between frontline investigators and the politically appointed commissioners to whom they report have become commonplace. Former senior enforcement officials say Cox has used his control over the commission’s calendar to delay major cases and water down others. Cox and other commissioners have shifted the agency’s focus away from strong enforcement action against big public companies and Wall Street firms, instead emphasizing what S.E.C. lawyers consider petty-fraud cases, such as small Ponzi schemes. Penalties against companies, individuals, and brokerage firms have sunk from a high of $1.5 billion in 2005 to $507 million last year.
In the coming months, the S.E.C. will be expected to sort out whether malfeasance contributed to the current economic crisis—and if so, whose. But the fundamental changes at the enforcement division will make this all the more difficult. The division has been significantly weakened by the exodus of top supervisors and is hamstrung by the new limits on its powers. Even if a new administration in the White House replaces Cox, whose term expires in 2009, it is not as though a switch could be flipped to begin more aggressive prosecution. Gearing up would require restoring the depleted ranks and finishing pending cases, both of which could entail substantial delays at a time when the market needs to quickly regain the confidence of battered investors.
Cox did not accomplish these changes on his own. Internal agency politics, critics say, played a major role, with Cox’s Republican colleagues, particularly Paul Atkins, pressing him to roll back enforcement and rein in the division’s independence. Beginning in late 2007, the White House, which nominates S.E.C. commissioners, helped clear the way for retrenchment in enforcement by delaying the replacement of two Democratic commissioners whose terms had ended. From January through July 2008, the commission had just three members, all Republican. This gave Atkins and Kathleen Casey de facto veto power over the more moderate chairman.
The perceived absence of support for major investigations has alienated many staff members and prompted some of the enforcement division’s senior officials to quit. Since Cox took office in 2005, the staff count in the division has dropped 9 percent, to 1,124 people this year. His predecessor, William Donaldson—like Cox, a Republican—long declined to speak publicly about changes at the S.E.C. He told me recently, though, that he was aware of a "high degree of frustration” among the staff. “With the kind of problems we have now," he said, "any attempt to reduce the effective role of the S.E.C. as a policeman has been a mistake."
At the time President Bush named him S.E.C. chairman, Cox had served 17 years in Congress, where he stood out as one of the most effective pro-business representatives in a strongly pro-?business class of House Republicans. He took the helm at the S.E.C. during a period of corporate backlash against the agency and the stringent regulations imposed by the 2002 Sarbanes-Oxley Act. The departing chairman, Donaldson, was a Bush family friend who had been appointed by the White House with the expectation that he would temper the S.E.C.'s activism. Instead, he embraced the agency's role as cop. The business community felt "that Donaldson was too tough on corporate America and Wall Street," says a former enforcement official. "Cox was brought in to chill it out."
Besides pulling back on enforcement, Cox also cut back on the S.E.C.'s new risk-assessment office, created under Donaldson to help the agency do a better job of anticipating financial upheavals. After the head of that office left, Cox didn’t replace him for nearly two years. Although Donaldson had authorized and filled eight positions and planned to expand the staff to 15, by 2007 the office was staffed mainly by part-timers, who in federal budget records were regarded as the equivalent of only two full-time workers. Cox says in response that he has allocated staff to other departments that he contends perform similar functions.
Also, under Cox, the commission loosened a key limit on short-selling in 2007, scrapping what’s known as the uptick rule, which is meant to forestall plunges in share value by allowing short-selling only when a stock is rising. A year later, after heavy short-selling threatened the survival of certain large financial companies, the S.E.C. temporarily restricted the short-selling of 19 mortgage-company and bank stocks.
Cox and other S.E.C. officials have said that it wasn't possible to anticipate the effects of the real estate bubble’s bursting. And Cox has said he’s able to do more with less by prioritizing enforcement and oversight efforts. The S.E.C., he told Congress in July, has more than four dozen pending investigations into the credit crisis. Some relate to whether improper short-selling and insider trading spurred the Bear Stearns collapse. But some members of Congress and the federal government clearly aren’t impressed. The Treasury Department has proposed grabbing for itself and the Federal Reserve some of the S.E.C.’s most important powers, including enforcement authority over brokerages and investment banks. At a Senate hearing in May, Senator Richard Durbin, a Democrat from Illinois, faulted Cox for endorsing the White House’s request for only a minor increase in the S.E.C.'s budget for 2009. Durbin noted that Cox’s budget request would mean the loss of at least 94 more staff positions throughout the S.E.C. “Developments and trends in the market call for more, not less, vigilance, to protect investors,” Durbin stated in a press release following the hearing.
Cox, in an interview that he allows to go well beyond the allotted hour, defends his record and dismisses repeated interruptions from a secretary. He is adamant that he has stepped up enforcement: "We are redoubling our efforts in every way that we know how." He attributes the decline in penalties to an inevitable shift in the mix of cases after the resolution of big accounting scandals in the first half of this decade.
Under his leadership, Cox says, the S.E.C. has become forward-looking "in ways that traditionally we might not have been." And he takes great pains to present himself as a champion of the small-time investor.
After we’ve shaken hands and I'm nearly at the elevator, Cox summons me back to examine a column of framed mementos on his office wall. He’s often mentioned these items when testifying before Congress as symbols of his personal commitment to regulation. They relate to Samuel Insull, the Chicago electricity magnate whose company went bust in 1932, wiping out hundreds of thousands of investors and helping prompt the establishment of the S.E.C. in 1934. The display includes a photo of Insull and a check for $3.36 made out to Cox’s grandfather—all that he got back on a $6,000 investment in the company.
Almost from the moment Cox took office, former enforcement officials say, he began chipping away behind the scenes at the S.E.C.'s enforcement division—the largest and most high-profile of the agency’s four divisions. Approval of the enforcement division’s requests to initiate investigations, which was an expeditious process under former chairman Donaldson, turned into a logjam, as the commission closely scrutinized each one. "It was like someone poured molasses on the enforcement division," says a former enforcement division supervisor.
When the commission was divided over cases, Cox would simply take them off its agenda. The same supervisor says, "You had cases where the enforcement staff had worked hard for three years. It was finally done, on the calendar. The general counsel has reviewed it. The day arrives for your hearing before the commission, and you’re told that morning it’s been pulled. Taken off the calendar. When’s it going back on? We don't know." By mid-2006, this had become routine. "Cases are held up, pulled, held up, pulled," the supervisor says.
Cox's treatment of Linda Thomsen, the S.E.C.'s first female enforcement director, was seen by staffers as a sign of the division’s declining clout. A longtime S.E.C. lawyer, Thomsen had been named director by Donaldson just prior to his departure. Her predecessor, Steve Cutler, who had worked closely with Donaldson and several earlier enforcement directors going back to Stanley Sporkin, who held the job in the 1970s, told me that this kind of open-door relationship was the norm. Several former senior S.E.C. staffers say Thomsen had far less access.
Thomsen defends her boss. "This chairman has an extremely busy schedule," she says. "I can get to him if I need to." But she acknowledges that "sometimes it can take days." Cox says, "She has complete and total access to me." An S.E.C. spokesman says the two met as often as eight times a day during recent settlement negotiations with banks over auction-rate securities. The banks agreed to repay nearly $27 billion to investors.
Some former S.E.C. staffers say Thomsen complied too easily with the push to restrict enforcement. Cox boasts that the commission approves “99.999 percent” of the enforcement division’s recommendations. But some former S.E.C. enforcement officials say he maintains that high percentage by prevailing on Thomsen to water them down. Thomsen confirms that she has revised recommendations "from time to time" but denies that the commission has curbed enforcement efforts. "Everybody’s pro-law-enforcement" among the commissioners, she says. "Nobody likes crooks."
Demoralized, key enforcement staffers started heading out the door. Veteran S.E.C. lawyer James Coffman left in 2007 after he was passed over for a promotion. He says that Thomsen told him he didn’t get the job because he was viewed as "too tough." Thomsen, noting that toughness is one of the qualities necessary for an enforcement job, dismissed the notion that anyone would be denied a promotion for being “too tough.”
A budget shortfall led the S.E.C. to impose a hiring freeze in 2005. The enforcement division’s staff is divided into groups, and ordinarily 15 lawyers report to an assistant director in each one. But as the freeze dragged on, some groups dwindled to seven or eight lawyers. An S.E.C. spokesman says that if one group is overburdened, cases are reassigned to a different group.
Enforcement staffers cite two cases as examples of the agency’s retreat from tough prosecution. One is the Biovail case. When eight women died after their bus smashed into a truck loaded with Biovail antidepressant pills, the pharmaceutical maker attributed a revenue decline to inventory lost in the crash. S.E.C. enforcement lawyers charged that not only was the company’s explanation false, but Biovail had also set up a company in Barbados to inflate reported profits and was in cahoots with a pharmaceutical distributor to stage a sham sale of pills, according to the S.E.C. complaint. Although an outside expert retained by the S.E.C. recommended a much larger fine, the commissioners decided on $10 million. Biovail accepted the penalty without admitting or denying wrongdoing. Cox says the commission relied on the advice of the agency’s chief economist.
The other case involved Tenet Healthcare, a hospital company that had allegedly boosted earnings through Medicare fraud. In March 2007, the S.E.C.’s settlement talks with Tenet nearly collapsed over whether the company would be granted a “safe harbor” provision, which protects a company from liability for financial projections that are made in good faith. The S.E.C. had routinely denied this protection in fraud settlements. Accordingly, enforcement lawyers refused to make an exception for Tenet. But on the night before they were set to appear before the commission, Tenet’s lawyer fired off an appeal to the S.E.C. commissioners.
The next day, a majority of the commissioners, including Cox, made it clear that they would grant Tenet safe harbor, according to several people who attended the meeting. The enforcement staff drafted a settlement. (The company paid a $10 million penalty.) The commission’s break with precedent on this and other cases caused consternation among the enforcement staff and helped spur the departure of Randall Lee, the veteran head of the S.E.C.’s Los Angeles office, which had handled the case. Cox says the commissioners took into consideration that Tenet had new management.
A January analysis by the law firm Morgan Lewis found that S.E.C. penalties have dropped by a “staggering degree” and that “the numbers suggest a philosophical shift by the Cox commission in what constitutes an appropriate penalty.”
A spokesperson for the S.E.C., in an email statement, insists that “by any objective measure, the S.E.C.’s enforcement division has never been more effective or enjoyed greater support from the commission. The commission’s unparalleled support has brought unparalleled results from investors.”
While major cases were bogged down, commissioners quickly approved minor ones involving penny stocks, boiler-room operators, and Ponzi schemers who fleeced groups of small investors. According to former S.E.C. officials, this apparent shift in agenda was pushed in large measure by former commissioner Atkins, who stepped down in August after his term expired. One former S.E.C. official claims to have heard Atkins remark that he believed that the S.E.C. was "unconstitutionally constituted." Atkins denies this, saying that if he had believed the S.E.C. was unconstitutional, he would not have served on the commission. But a friend of Atkins' says, "If you surprised Paul and asked him what he really thinks of the S.E.C., he'd probably say, 'Blow it up.'?"
Atkins, whom one former commissioner describes as “probably the most effective commissioner in the history of the S.E.C.,” benefited from Cox’s desire to build consensus. Cox shunned divided votes, delaying important matters until he could engineer a majority. Atkins wasn’t inclined to compromise. He castigated the enforcement division in speeches around the country and filed detailed public dissents in response to some of the agency’s decisions.
Atkins says the push against small-scale fraud cases has not come at the expense of large investigations. He suggests that by emphasizing such efforts, the S.E.C. adopted a strategy similar to one that former New York mayor Rudy Giuliani employed to reduce the city’s crime rate—cracking down on quality-of-life offenses and securing arrests for minor violations. “You have to concentrate on the muggings and graffiti because that builds up respect for the rule of law,” Atkins says.
But demoralized staffers don’t agree. In one instance, after commissioners had approved penalties in a microcap fraud case, Atkins says an enforcement lawyer came up to the colleague who had conducted the investigation, slapped him on the back, and said sarcastically, "Congratulations on your small case."
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Tues 09.16.2008
AIG Credit Rating Cut Threatens Quest for Funds, Roils Markets American International Group Inc. had its credit ratings cut by Standard & Poor's and Moody's Investors Service, threatening efforts to raise funds to keep the company afloat and roiling global financial markets. S&P lowered AIG's long-term counterparty rating three grades to A- because of "reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses," the rating company said yesterday. Moody's cut AIG's senior unsecured debt rating two grades to A2.
Money-Market Rates Double Amid Global Credit Seizure The cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings inc. and credit downgrades of American International Group Inc. led banks to hoard cash. The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump, according to the British Bankers' Association. The rate was 2.19 percent a month ago and 2.15 percent last week. Lehman filed for bankruptcy yesterday after succumbing to mounting credit-market losses. The credit squeeze deepened after American International Group Inc.'s debt ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening the company's efforts to raise emergency funds. The biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital, according to two people familiar with the situation.
Goldman Sachs net plunges Goldman Sachs Group Inc said on Tuesday third-quarter earnings plunged 70 percent as one of the worst market slumps ever weighed on banking and trading results. The largest U.S. investment bank reported net income of $845 million, or $1.81 a share, for the quarter ended August 29, down from $2.85 billion, or $6.13 a share, a year earlier. Net revenue fell by half to $6.04 billion from $12.3 billion.
Goldman Profit Drops 70%, Says It's 'Well-Positioned' Goldman Sachs Group Inc., the largest of the two remaining independent U.S. securities firms, said third-quarter profit fell 70 percent, the sharpest decline in its nine years as a public company, and said it remains "well positioned"' Goldman fell 7 percent in New York trading after the New York-based firm said in a statement that net income dropped to $845 million, or $1.81 a share in the three months ended Aug. 29, from $2.85 billion, or $6.13, a year earlier. The earnings compare with the average estimate of $1.71 a share of 19 analysts surveyed by Bloomberg. Goldman has beaten estimates for 13 straight quarters.
Bond Risk at Record on AIG's $441 Billion Counterparty Concern American International Group Inc.'s downgrade pushed the cost of protecting corporate bonds from default to a record on investor concern the company may face demands for more cash to back $441 billion of credit derivatives. AIG may have to post as much as $17 billion in collateral after the company's credit ratings were cut yesterday, UBS AG analysts said. The biggest U.S. insurer by assets is seeking as much as $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. after posting $18 billion in losses over the past three quarters, according to two people familiar with the situation.
AIG in focus as financial meltdown spreads American International Group Inc, thrown a $20 billion lifeline by New York state, came under renewed pressure on Tuesday as ratings agencies downgraded the insurer's debt and the financial sector meltdown spread. Fears that AIG, once the world's largest insurer by market value, could be the next financial giant to tumble fueled worries about the potential fallout. "If AIG tanks, that will be the big one. AIG has more to do with the oil price right now than the Saudis do," said Larry Grace, an energy analyst at Kim Eng Securities in Hong Kong.
Clock Ticks for A.I.G. Why the insurer may not be allowed to fail. When American International Group was run with an iron hand by Hank Greenberg some years back and the insurer was regularly churning out profits, the main criticism of the company was that it was a black box. Now that A.I.G. is battling to survive, it is its black box that may save it yet. Black box refers to accounting or investments so complex and arcane that they remain unknown to most investors. In the case of A.I.G, these are credit-default swaps that the company sold as insurance on complex securities, including collateralized-debt obligations. Nearly every bank has some form of derivatives exposure to A.I.G. Ken Lewis, the chief executive of Bank of America, said today that a collapse of the insurer would be a "much bigger problem" than the failure of Lehman.
Stocks Plunge as Crisis Intensifies AIG at Risk; $700 Billion In Shareholder Value Vanishes The Federal Reserve and Treasury Department struggled yesterday to contain the fallout from an upheaval among the country's largest investment banks as they moved on to their next challenge -- engineering a $75 billion private rescue of the nation's largest insurance company. The insurer, American International Group, faces a cash crunch that grew more severe last night when the major credit-rating agencies warned investors that the company could have greater difficulty in meeting its obligations. It was unclear whether the downgrades by the agencies would force AIG to post additional collateral at a time when it is having difficulty raising money.
Congress Plans Vote on Second $50B Stimulus Package The House will debate legislation this month to inject another $50 billion in economic stimulus into the faltering U.S. economy, mostly with the goal of creating new jobs, a senior House Democratic aide said Monday.While details were still being worked out, the aide said the approximately $50 billion would be used to spark needed road, bridge and other construction projects that help create jobs. The money also would be used to help low-income families pay winter heating bills and to extend unemployment benefits.
Wall Street Upheaval May Sap Economy, Spurs Rate-Cut Pressure The Wall Street convulsions that took down two of the largest investment banks in 24 hours threaten to make it harder for consumers and companies to borrow, push unemployment higher and put pressure on the Federal Reserve to consider an interest-rate cut. The Federal Open Market Committee meets in Washington today amid a crisis atmosphere triggered by the collapse of Lehman Brothers Holdings Inc. with $613 billion of debt. While policy makers haven't signaled a cut and few economists predict one today, futures traders put the odds of a reduction at 68 percent, up from 12 percent at the end of last week.
Americans Right to be Worried About Bank Deposits With the "financial storm of the century" hitting financial institutions, many Americans are worried about the safety of their bank deposits. While the FDIC insures individual accounts up to $100,000, the reaction to IndyMac's failure this summer — lines outside retail branches — shows Americans have limited faith in the Federal Deposit Insurance Corp., which guarantees individual accounts up to $100,000. "The banking system is safe and sound," Treasury Secretary Hank Paulson declared at a mid-afternoon press conference Monday, seeking to ameliorate such concerns.
The Price of Nationalization Last week, the U.S. government took the unprecedented step of effectively nationalizing mortgage giants Fannie Mae and Freddie Mac. Together, the two companies hold or guarantee some $5.2 trillion, or about half, of all American residential mortgages. A substantial portion of this debt is tilting toward default. Given the size of the numbers, American tax payers should be very concerned. In many ways Fannie and Freddie were flawed at birth. They were in effect the favored child, encouraged to play recklessly with their generous allowance. Endowed with an 'implied' government guarantee, they were given favored access to cheap financing. Furthermore, they were, as their massive lobbying payments confirm, 'close' to government. Some would say they were too close.
Treasury's Paulson Says U.S. Banking System a "Safe and Sound" One Treasury Secretary Henry Paulson reassured the American public Monday that the U.S. banking system is a "safe and sound one" following the weekend bankruptcy of investment bank Lehman Brothers and the Bank of America takeover of Merrill Lynch, and that he will take further action if needed to maintain stability. . . . He reassured the American people that they can be "very confident" in their accounts and the U.S. banking system.
All Eyes Are on Fed's Meeting for Rates $$ Federal Reserve officials aren't inclined to veer from plans to hold short-term interest rates steady at Tuesday's meeting, even though financial markets are putting strong odds on a quick rate cut. The Fed's thinking could change, particularly if there is another sharp deterioration in markets and the financial sector Tuesday. The most immediate worry is American International Group Inc.'s funding crunch after ratings firms cut the insurer's credit ratings late Monday. Even if officials decide to stay on hold, they could signal in their end-of-meeting statement a greater willingness to consider rate cuts if the economy or markets worsen.
Gross's Fund Guaranteed $760 Million of AIG Debt Through Swaps Bill Gross, manager of the world's largest bond fund, guaranteed $760 million of debt issued by American International Group Inc. as of June 30, obligations that may prove costly if the insurer fails to stay afloat. Pimco Total Return Fund, which oversees $132 billion in assets, backed the bonds by selling credit default swaps to investors that pay off if AIG defaults, according to a filing with the U.S. Securities and Exchange Commission last month. The fund had sold insurance on $7.7 billion of bonds, including $4.8 billion issued by financial-services companies, as of the end of June.
Lehman demise ripples across Asia financial system The Bank of Japan injected 2.5 trillion yen, or $24 billion, into money markets Tuesday as regulators across Asia moved to bolster their financial systems after the collapse of U.S. investment house Lehman Brothers. From Tokyo to Hong Kong and Seoul, operations of Lehman's local units were suspended and governments sought to reassure investors that the toll on regional companies exposed to the bank would be limited.
WaMu Waits Despite the chaos on the Street, Washington Mutual kept its cool on Monday, insisting that it has liquidity enough to last. But investors weren't feeling reassured and Standard & Poor's wasn't helping. Washington Mutual has had erratic few days, losing more than half of its value in the last week, as Wall Street collapses around it. Just a week after the government effectively nationalized Fannie Mae and Freddie Mac, many are hoping that it will again jump in to help out the thrift. But things aren't looking good as Lehman Brothers Holdings and Merrill Lynch were left to their own fates, Lehman seeking refuge in Chapter 11 bankruptcy protection and Merrill finding salvation in the arms of Bank of America.
European Markets Follow Asia in Slide European markets opened lower Tuesday, following a slide in Asia, as investors remained focused on the financial turmoil engulfing Wall Street and amid pessimism that inter-bank lending would remain stagnant for some time without more help from central banks. After the collapse of Lehman Brothers on Sunday and the sale of Merrill Lynch, investors were digesting the downgrade of American International Group’s credit ratings by the agencies Standard & Poor’s and Moody’s, which threatened efforts to raise emergency funds to keep the company afloat. "A.I.G. has its tentacles in just about every financial institution in the world," said Roger Cursley, an equity strategist at Investec in London. "There’s a real sense of impotence and at the same time grave concern at the situation."
Gold Spikes as Wall Street's "Fire Break" Fails to Hold Treasury Bonds Jump; Central Banks Unleash Emergency Funds SPOT GOLD PRICES jumped 2.6% at the Asian opening on Monday but drifted back to $770 an ounce as world stock markets sank and money fled into government bonds following the overnight demise of two Wall Street giants. Lehman Brothers – a major player in the commodity futures market – filed for Chapter 11 bankruptcy just as the London Stock Exchange opened for business today, driving the FTSE100 share index more than 3.4% below Friday's close. US regulator the Commodity Futures Trading Commission (CFTC) said it was "closely monitoring" derivatives in raw materials as a result. Traders across forex, bond, derivative and stock markets also struggled to identify losses, gains and default positions owed by the failed investment bank.
Spooky Stats from the U.S. Mint I had just gotten off the phone to find out why the silver I ordered last month has not arrived, and I get some runaround about how there is no silver to be had to fill my order. Naturally, being familiar with how the supply/demand dynamic works, I call the little clerk a lying piece of thieving garbage, because it is impossible that the market price of silver is going down in an environment of zero supply and obviously rising demand! Well, the phone mysteriously went dead right after that, and before I could call him back and REALLY tell him off, I see where this is common right now, as Theodore Butler says that "Premiums are up and delivery delays are longer. This is something we are all witnessing for the first time."
Old-School Banks Emerge Atop New World of Finance $$ More than 200 years after it was born at the base of a buttonwood tree, Wall Street as we have known it is ceasing to exist. The rapid demise of 158-year-old investment bank Lehman Brothers Holdings Inc., together with the takeover of 94-year-old Merrill Lynch & Co., represent a watershed in the banking industry's biggest restructuring since the Great Depression. For decades, the world of banking was divided largely into two kinds of businesses. Commercial banks took deposits and made loans, eking out a decent return under the burden of heavy regulations designed to protect depositors. Standalone securities firms such as Lehman, Merrill and the now-defunct Bear Stearns Cos. took no deposits and were lightly regulated, freeing them to take big risks and make fat profits at the cost of occasional losses. More recently, some of the biggest institutions, such as UBS AG and Citigroup Inc., combined the two.
Cutting time for Bernanke? Suddenly the markets expect to see another rate cut. Is the dollar's late-summer rebound at risk? The U.S. financial crisis has pushed Fed chief Ben Bernanke off the front page lately, but he may soon return with a vengeance. Treasury Secretary Henry Paulson and Federal Reserve Bank of New York President Timothy Geithner have grabbed the headlines for the past week with their efforts to stabilize the financial system. But in the wake of the nationalization of Fannie Mae and Freddie Mac, Sunday's bankruptcy filing at brokerage firm Lehman Brothers, the rushed sale of Merrill Lynch to Bank of America, and the efforts to raise new capital for insurer AIG, investors have taken flight from risky assets for the umpteenth time.
FOMC Preview: Opinions Split Over What Fed Will Do, What Fed Should Do In contrast to the last two meetings, expectations from economists, analysts, and futures markets are deeply divided over whether the Federal Open Market Committee (FOMC) will hold the target interest rate at 2.00% upon concluding the monetary policy meeting on Tuesday. While some say the Fed will be forced to cut rates, others are deeply critical of such a move.
Fed Rate Cuts Possible to Settle Financial Markets The Federal Reserve seems likely to stop short of lowering interest rates on Tuesday, but could signal a willingness to do so soon as it seeks to settle financial markets jolted by the bankruptcy of Lehman Brothers Holdings Inc. Through last week, markets had seen almost no chance of a rate cut at Tuesday's policy-setting meeting. However, Lehman's downfall further roiled already unsettled markets, and futures prices on Monday implied as much as a 92 percent chance of a cut before settling down to around 60 percent by midday.
Fed set to hold rates steady, may signal cuts Federal Reserve policy-makers are expected to stop short of lowering U.S. interest rates at a meeting on Tuesday but could signal readiness to cut them quickly if needed to protect the economy from one of the most serious financial crises in decades. The Fed has held the interbank overnight interest rates steady at a low 2 percent since April to help the economy recover from a deep housing market decline and sharp lending pullback. "The Fed appears more willing to address the current credit and economic difficulties through an expanded discount window and credit facilities rather than a cut in interest rates," said John Silvia, chief economist for Wachovia Economics Group in Charlotte, North Carolina. The U.S. central bank will announce its decision on interest rates at around 2:15 p.m. EDT.
ECB and BOE Inject Billions, Bank of China Cuts Rates as Central Banks Central banks around the world, including the European Central Bank, the Bank of England and the People’s Bank of China, scrambled yesterday (Monday) to shore up liquidity and protect domestic markets against the fallout from the collapse of Lehman Bros Holdings Inc..The Bank of England and the European Central Bank injected billions of dollars into global money markets and the Bank of China cut interest rates for the first time in six years and lowered capital reserve requirements for its smaller banks.
A Race for Cash at A.I.G. as Ratings Are Downgraded Major credit ratings agencies downgraded the American International Group late Monday, worsening its financial health, as Federal Reserve officials and two leading investment banks were in urgent talks to put together a $75 billion line of credit to stave off a crisis at the company. The credit downgrades are likely to force the company to turn over billions of dollars in collateral to its derivatives trading partners. Without the financing, which was being arranged by Goldman Sachs and JPMorgan Chase in talks with the Federal Reserve officials, A.I.G. might be forced to declare bankruptcy, according to two people briefed on the situation. The talks, which began last week and continued through the weekend, added to the sense of agitation in the stock market on Monday, as investors grappled with the implications of the bankruptcy of Lehman Brothers, which, like A.I.G., was a large counterparty to derivatives contracts held by countless financial institutions.
Washington Mutual cut to junk by S&P Washington Mutual Inc, was downgraded to "junk" status on Monday by Standard & Poor's amid concern about mortgage losses, causing shares of the largest U.S. savings and loan to slide after-hours following a 27 percent plunge in regular trading. The credit rating agency lowered the Seattle-based thrift's credit rating to "BB-minus," three notches below investment grade, from "BBB-minus." It cut its rating on Washington Mutual's banking unit one notch to "BBB-minus" from "BBB." S&P's outlook is "negative," indicating another cut is possible within two years. Washington Mutual responded that none of its unsecured debt is subject to ratings-based financial covenants and that it does not expect the downgrade to have a material impact on its borrowings, collateral or margin requirements.
Paulson says Lehman bailout was never an option Paulson says Americans can remain confident in the soundness, resilience of financial system Treasury Secretary Henry Paulson said Monday the American people can remain confident in the "soundness and resilience in the American financial system." Briefing reporters at the White House, Paulson said he "never once" considered it would be appropriate to put taxpayer money at risk to resolve the problems at Lehman Brothers. The nation's fourth largest investment bank filed for bankruptcy protection earlier Monday. Starting Friday, Paulson participated in three tense days of negotiations at the New York Federal Reserve Bank in which he held firm to the position that the federal government would not step in and supply any money to resolve the crisis at Lehman.
U.S. Bank System Capital Insufficient Mohamed El-Erian, a co-chief executive of top bond fund Pimco, said Friday that the U.S. banking system lacks sufficient capital to weather the current credit crunch related to massive mortgage-related losses. "Recent developments highlight the extent to which the banking system as a whole lacks sufficient capital to comfortably navigate this period of sharp deleveraging," El-Erian, of Pacific Investment Management Co, which oversees more than $812 billion in assets. . . .
Financial Russian roulette the U.S. financial system collapse today, or maybe over the next few days? I don't think so - but I'm nowhere near certain. You see, Lehman Brothers, a major investment bank, is apparently about to go under. And nobody knows what will happen next. To understand the problem, you need to know that the old world of banking, in which institutions housed in big marble buildings accepted deposits and lent the money out to long-term clients, has largely vanished, replaced by what is widely called the "shadow banking system." Depository banks, the guys in the marble buildings, now play only a minor role in channeling funds from savers to borrowers; most of the business of finance is carried out through complex deals arranged by "non-depository" institutions, institutions like the late lamented Bear, Stearns - and Lehman.
Wall Street's troubles are yours, too Lehman, Merrill - even Goldman - got levered up to their eyeballs during the boom. Now they, and the rest of us, are paying the price. In the end, the weight of the housing collapse was too much for the weaker players in an over-leveraged U.S. financial sector to bear. Sunday evening brought ominous tidings. Lehman Brothers is likely to be liquidated after officials at the Federal Reserve and Treasury failed to line up a buyer. But what's likely to be more distressing for investors around the globe are the reports that Lehman is far from the only U.S. financial titan that stands in need of help.
Before economy stabilizes, housing must Mortgage debt goes from bad to worse as home values keep falling The spectacular collapse of two big investment banks — and the scramble by a major insurance company to stay afloat — has many on Wall Street and Main Street wondering: Is this as bad as it gets? The answer is that nobody knows — not the heads of surviving banks, Treasury officials or policymakers at the Federal Reserve. The reason is that the true value of the investments being held by banks and other financial institutions cannot be known until home prices stop declining and the job market stabilizes. Until that happens, more losses are inevitable. "I do not understand how we got into this situation," said New Jersey Gov. Jon Corzine, a former chief executive of Goldman Sachs.
Lessons From the Financial Fallout In his post-mortem of a brutal day on Wall Street , Jim Cramer told viewers on his "Mad Money" TV show on Monday that the fall of Lehman Brothers, Merrill Lynch and American International Group demonstrated once again the need for market "transparency" and the height of CEO "arrogance and denial." Cramer singled out Richard Fuld, Lehman's CEO, who, he said, passed up opportunity after opportunity to save his company. He said Fuld hurt his company by being so "self-absorbed," "self-interested" and "so sure of his company's future." . . . Cramer said the Securities and Exchange Commission complicated matters by not pushing for greater transparency as it did when when it dealt with E-Trade's problems. Cramer called today's historic market collapse "a disgraceful period in laissez-faire capitalism" that was marked by poor government oversight.
GOLD--THE ONLY WAY TO OPT OUT OF A VERY BROKEN SYSTEM When your building is on fire, you face systemic risk, so you opt out of the building if you can get out. When not only the U.S. economy but also the global economy is facing systemic risk, the only wise thing to do is get out if you are able. And the only way to get out of the systemic risk inherent in the global economy is to opt out of fiat money and into real, asset-based money - namely, gold. True, gold has been coming down in value of late, as the whole system has started a deflationary process that, if left alone, would culminate in a deflationary depression far greater than that of the 1930s. We are not ruling that possibility out. Indeed for now, our IDW is strongly suggesting that is a possibility. On the other hand, we know that our policy makers are now moving toward fascist/communist economics.
Shareholders Sue Merrill Over BofA Deal Shareholders on Monday filed a lawsuit against Merrill Lynch & Co Inc CEO John Thain and the firm's board of directors over the proposed buyout of Merrill by Bank of America Corp, claiming the terms of the deal are unfair.
Economic meltdown: Where is it headed from here? and other timely videos from MSNBC
Dow plunges 500 points in worst fall since 9/11 The pullback occurred around much of the globe as investors absorbed Lehman's bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. While those companies' situations had reached some resolution, the market remained anxious about American International Group Inc., which is seeking funding to shore up its balance sheet. A faltering of the world's largest insurance company likely would have implications far beyond that of Lehman, already the largest U.S. bankruptcy in terms of assets.
Wall Street Posts Worst Loss Since 2001 In another unnerving day for Wall Street, investors suffered their worst losses since the terrorist attacks of 2001, and government officials raced to prevent the financial crisis from spreading. Trading opened sharply down Monday morning, and the mood later turned even gloomier, despite efforts by President Bush and Treasury Secretary Henry M. Paulson Jr., in separate appearances at the White House, to reassure markets that Wall Street’s deepening problems would not weaken an already anemic economy.
Barclays talks to buy Lehman core U.S. unit: sources British bank Barclays is in talks with Lehman Brothers to buy its core U.S. broker-dealer businesses, including equity, fixed income, M&A advisory and other parts, people familiar with the matter said. Barclays said earlier on Tuesday it was in talks to buy some of Lehman's assets. It declined to comment further.
Standards differ for government bailouts Jobs, nationwide impact of companies matter, but timing plays a role too Bear Stearns got one. Lehman Brothers didn't. Life can seem unfair in the world of government bailouts. But decisions about who gets help from the government are based on circumstances and pressure generated by the political or financial crisis of the moment. An overriding factor explains why The Bear Stearns Cos. Inc. won and Lehman Brothers Holdings Inc. lost: speed. Bear Stearns suffered a sudden, massive heart attack that could have roiled a shocked and surprised financial industry. Until its collapse earlier this year, it was among the largest global investment banks and brokerage firms. The Bush administration felt immediate surgery was needed to prevent a meltdown.
Paulson: We're Prepared to Act to Ensure Stability U.S. Treasury Secretary Henry Paulson said on Monday the U.S. financial system remained sound despite current stresses and said he was prepared to take further actions if necessary to maintain stability.
World Turned Upside Down In one day, Wall Street has been blown apart. Now comes the truly hard part. This is the day of reckoning for Wall Street. The bankruptcy of Lehman Brothers, the sale of Merrill Lynch, and the troubles at American International Group have combined to send huge shock waves throughout the financial world. Who could be next and when does the credit storm ease up? How does Washington deal with the fallout?
Global Economy Faces Difficult Test The global economy faces its most difficult test in many years with economic growth slowing sharply even as high commodity prices put pressure on inflation, a senior International Monetary Fund official said last Tuesday. IMF first deputy managing director John Lipksy said strains on financial markets remained significant more than a year after wider tensions from problems in U.S. mortgage markets surfaced, constraining growth and banks' balance sheets. Commodity prices remained high and volatile, bringing risks of knock-on inflation effects, but recent sharp falls in oil prices should ease short-term inflation pressures in advanced economies.
Ex-oil chief warns of need for gas rationing One of the oil industry's most influential voices called Monday for a temporary 1970s-style rationing of gasoline in parts of the United States to help avoid hurricane-related shortages and declared that the Bush administration, the Congress and the two men running for president have failed to exhibit the courage needed to solve America's longer-term energy problems. "We need to get a Congress that is willing to make some courageous decisions, and we need to have a president willing to make courageous decisions with respect to energy supply," former Shell Oil Co. President John Hofmeister told editors and reporters at The Washington Times.
Oil dives $3, hammered for second day by bank woes Oil tumbled by as much as 4 percent to a seven-month low on Tuesday, in free fall for a second day as Lehman Brothers' collapse made investors ditch oil for safe-haven assets, and on fears the credit crisis will hurt the real economy. Reports that Hurricane Ike caused minor damage to U.S. oil platforms and refineries also weighed on prices, adding to the previous session's more than $5 fall and over 37-percent decline from its peak above $147 in mid-July.
Crude Oil Falls To $92 In Asia Crude oil fell to $92.63 a barrel in Asia in electronic trading on the New York Mercantile Exchange as the turmoil in the financial markets stoked fear in investors that weakness in the global economy could lead to less demand for fuels. Reformulated gasoline fell 6 cents to $2.50 a gallon, while heating oil fell 8 cents to $2.71 a gallon. The price of crude dipped briefly below $92 a barrel in Asia overnight.
HP to cut 24,600 jobs; to take $1.7 billion EDS charge Hewlett-Packard Co plans to cut 7.5 percent of its work force, or 24,600 jobs, seeking to realize savings from its recent acquisition of Electronic Data Systems Corp, the company said on Monday. HP said it would carry out the cutbacks over the next three years, while replacing about half the jobs in new areas of its services business. It announced the plan ahead of a meeting with Wall Street analysts to detail the merger plans. Nearly half of the job reductions will take place in the United States, the Palo Alto, California-based company said.
Gov. Paterson Sees Wall St Losing Up to 30,000 Jobs New York Gov. David Paterson Monday said Wall Street might lay off 30,000 workers in a worst-case scenario following Lehman Brother's bankruptcy filing and problems at other big financial firms. Paterson, speaking a news conference where he also noted the impact of Bank of America's surprise agreement to purchase Merrill Lynch and problems threatening insurer American International Group, said the impact of the financial sector's downturn may not be known for months or even years.
As Wall Street falls, so do apartment prices Already softening New York City apartment prices could be hit much harder by the struggles of financial investment houses, whose bankers, researchers and brokers helped drive record prices. Prices could fall between 4 percent and 20 percent, some experts said, in response to the job losses and bonus cuts from the failure of Lehman Brothers Holdings Inc , Bank of America Corp's acquisition of Merrill Lynch & Co Inc and the head winds facing insurer American International Group Inc. "We can't say if New York will go into the toilet or will continue to prosper," said Robert Toll, chief executive of Toll Brothers, which has built a 12-story plus penthouse condominium project in Manhattan's Murray Hill neighborhood. "It depends very much on the continued interest from overseas and all those people who want to move to New York."
Lehman fallout threatens deeper, wider recession The fall of Lehman Brothers raises the risk of a deeper U.S. recession that engulfs a broader swath of the global economy as skittish banks around the world lock their vaults. Countries that had so far escaped the yearlong credit crisis largely unscathed scrambled on Monday to quantify the potential losses after Lehman Brothers Holdings Inc filed for bankruptcy. Banks' borrowing costs soared because of the uncertainty over how far and wide the Lehman impact might extend. If that translates into a crackdown on lending terms for companies and consumers, the economic fallout will be severe.
Lehman CEO Fuld's hubris contributed to meltdown Not long ago, when Lehman Brothers CEO Richard Fuld talked about "everyone's worst nightmare" he was referring to a massive fraud at French bank Societe Generale. Just a few months later Fuld, a 30-year-veteran of Lehman who had ably steered it through near-death experiences like the Asian debt crisis of 1998, is living his own worst nightmare as the venerable investment bank stands on the verge of collapse. How the 158-year-year institution came to this is a tale of hubris and overreaching -- and a big dose of bad luck. Lehman's fall from grace was brutally fast. Until June, it had never even reported a quarterly loss as a public company.
Goldman, Morgan Stanley face biggest market test It's getting lonely on Wall Street. Bear Stearns melted down in March and has disappeared inside JPMorgan Chase & Co, Merrill Lynch absorbed more than $40 billion in write-downs and rushed into the arms of Bank of America, and Lehman Brothers is being sold for scrap after it declared bankruptcy on Monday. Now investors and analysts worry whether even the largest securities firms, Goldman Sachs Group Inc and Morgan Stanley, may be vulnerable as markets lose confidence in the financial foundations on which investment banks are built. "If you accept that the broker-dealer model is broken -- for now at least -- it does reasonably lead you to question whether Goldman Sachs and Morgan Stanley can survive. I think that's an increasingly reasonable question to ask," said Les Satlow, a fund manager at Cabot Money Management in Salem, Massachusetts, which manages about $500 million.
The end of Wall Street As Lehman's demise and Merrill's acquisition make clear, a business model built on ramping up risk and leverage simply doesn't work. Rumor has it that Lehman Brothers CEO Dick Fuld recently wanted to turn off the firm's signature Jumbotron, the giant panels that flash the Lehman name day and night at its headquarters in New York's theater district. Running the lights, the story goes, was costing Lehman $500,000 a year. But New York City rejected Fuld's plea, since buildings in the Times Square area are required to keep their facades aglow to create the arcade effect that dazzles the tourists. The lights are still on at Lehman HQ, but they're going out both for the 158-year old firm and for the Wall Street business model that it represents.
On Wall St. as on Main St., a Problem of Denial How can it even be possible that we wake up on a Monday morning to discover that Lehman Brothers, a firm founded in 1850, a firm that has survived the Great Depression and every market trauma before and since, is suddenly bankrupt? That Merrill Lynch, the “Thundering Herd,” is sold to Bank of America the same weekend? Just months ago, Lehman assured investors that it had enough liquidity to weather the crisis, while Merrill raised some $15 billion over the last year to shore up its balance sheet. Now they’re both as good as gone.
US STOCKS-Wall Street mauled by Lehman bankruptcy, AIG fears * Wall Street has worst day since September 2001 * Lehman Brothers files for bankruptcy * Bank of America buys Merrill Lynch * AIG shares off over 60 pct on capital fears * Dow off 4.4 pct, S&P down 4.7 pct, Nasdaq off 3.6 pct Wall Street had its worst day since markets reopened after the September 11 attacks as fears about the U.S. financial system's stability surged on Monday after Lehman Brothers filed for bankruptcy and insurer AIG struggled for survival. The day followed one of Wall Street's most agonizing weekends ever, which saw the demise of Lehman Brothers and forced Merrill Lynch to accept a takeover by Bank of America Corp.
World policy makers try to calm markets Policy makers and central banks globally have mobilised to try to calm investors and prevent the upheaval on Wall Street from sending financial markets into a dizzying sell off. . . . BRITISH FINANCE MINISTER ALISTAIR DARLING, TO BBC: "We need to take action internationally, and we are. "It means that central banks need to help -- and yesterday you saw right across the world the American Fed, the ECB, our own Bank of England and Japan, all intervening." "This is clearly a difficult time. I am confident that we will get through it."
As Europe Watches Wall Street Fall, Schadenfreude Gives Way to Worry Europeans have long viewed Wall Street with a mix of awe, envy and skepticism, but the kind of gloating that might have accompanied the collapse of a Wall Street titan like Lehman Brothers in the past has been muted by fears of what it portends for Europe’s own increasingly global financial institutions. “Europeans like to have a bit of schadenfreude about the U.S., but not too much, because when it gets serious, we’re all in the same boat,” said Nicolas Véron, a research fellow at Bruegel, a research center in Brussels that focuses on Europe’s place in the global economy. ["schadenfreude" is enjoyment taken from the misfortune of someone else.]
Asian markets plunge on Lehman, Merrill woes Asian markets plunge as demise of Lehman and Merrill fan fears of global financial crisis Asian stock markets tumbled Tuesday as the collapse of Lehman Brothers and takeover of Merrill Lynch spurred fears of a global financial crisis. European markets, which fell sharply Monday, extended losses in early trading. Japan's benchmark Nikkei 225 index sank nearly 5 percent to 11,609.72 -- its lowest close since July 2005. Hong Kong's blue-chip Hang Seng Index shed 5.4 percent. Both markets -- Asia's two biggest -- had been closed for holidays on Monday, when news first broke about the turmoil on Wall Street that has dramatically changed its landscape.
Tokyo platinum down by daily limit after Lehman Benchmark Tokyo platinum futures plunged by the daily 300-yen limit on Tuesday as the failure of Lehman Brothers deepened concerns over the global economy and demand for the metal.
Nikkei falls 5 percent to 3-year low as Lehman failure bites TOKYO - The benchmark Nikkei average slid 5 percent to a three-year low on Tuesday, with investors dumping shares across the board after Lehman Brothers' collapse fueled fears about the U.S. financial system and hit stock markets worldwide.
Texas rushes Ike relief as health crisis looms Texas officials warned of a health crisis on Monday and urged thousands of people to leave Galveston, where relief supplies were scarce for hungry, exhausted residents of the island city ravaged by Hurricane Ike. In Houston, millions struggled to cope without power in the U.S. energy hub. About 2,000 people have been plucked from flooded areas by helicopters and boats in the largest rescue effort in the state's history as searchers scoured battered communities along the coast and Galveston Bay. Galveston, a city of 60,000, was decimated when the hurricane made landfall there on Saturday morning and 15,000-20,000 people remained in quickly degrading conditions.
South Korea Turns Tables on Wall Street After Bailout In 1999, Kim Jung Yul sat at a table negotiating the sale of Korea First Bank to San Francisco-based Newbridge Capital LLC as it sought cash to stay afloat during the Asian financial crisis. Nine years later, he's scouting for a Korean buyer for a U.S. bank. "I was determined to squeeze one more dollar out of them, " said Kim, recalling four months of talks in Seoul as the state- run company he worked for sold its controlling stake. "Now, it's U.S. institutions that desperately need capital."
The world cannot afford a new Cold War the Berlin Wall fell in 1989, the world had enormous expectations that it would finally harvest peace dividends from the ruins of the Cold War. Indeed, despite the turbulent transition of the international system, we saw some progress. Relations between the major powers improved significantly and the UN Security Council began to function again. The threat of World War III and nuclear holocaust fizzled and the arms race was halted. Strategic rapprochement - especially among United States, China, Russia - occurred and tensions became manageable. Democracy and open society spread across the globe.
Man in the Gap Javier Solana has taken center stage in the Israeli-Palestinian peace talks. The United States won’t be able to continue leading the talks until the new administration gets its footing. Until then, the only person capable of filling the void is EU foreign policy chief Javier Solana, according to an article published in the International Herald Tribune, Aug. 26, titled “Europe Into the Breach.” Solana is eager to take up the role. Right now he’s in the Middle East meeting with Israeli and Palestinian leaders, and then he’s off to New York for a series of meetings on the Middle East. In an address to the Committee on Foreign Affairs of the European Parliament on Wednesday, he said the EU must take responsibility for continuing the negotiations.
EU strives to revive stalled ME talks EU Foreign Policy Chief Solana says he is prepared to keep negotiations between Syrians and Israelis moving by pressuring both sides. Javier Solana spoke at a press conference in the Jordanian capital Amman on Sunday at the end of his Middle East tour which included Egypt, Palestine and Jordan.
In Candidates, 2 Approaches to Wall Street The crisis on Wall Street will leave the next president facing tough choices about how best to regulate the financial system, and although neither Senator Barack Obama nor Senator John McCain has yet offered a detailed plan, their records and the principles they have set out so far suggest they could come at the issue in very different ways. On the campaign trail on Monday, Mr. McCain, the Republican presidential nominee, struck a populist tone. Speaking in Florida, he said that the economy's underlying fundamentals remained strong but were being threatened "because of the greed by some based in Wall Street and we have got to fix it."
Obama, McCain promise to tackle Wall Street reform White House candidates Barack Obama and John McCain promised on Monday to move quickly to reform Wall Street, with both blaming an antiquated regulatory structure for the financial meltdown. As the Federal Reserve and U.S. Treasury grappled with the worst financial crisis since the Great Depression, Democratic presidential nominee Obama said policy-makers lacked the tools needed to contain the problems and were "making it up as they go along."
Obama Says Government Not Responsible For "Bad Debts" In an interview with Bloomberg on Monday night, U.S. presidential candidate Barack Obama said he doesn't think the Federal Reserve has to "do everything." He said Treasury Secretary Henry Paulson's streamlined rules were a good choice, and that it was "premature" for the U.S. government to buy "bad debts."
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Americans Should Worry About Bank Deposits if Congress Doesn't Act With the "financial storm of the century" hitting financial institutions, many Americans are worried about the safety of their bank deposits. While the FDIC insures individual accounts up to $100,000, the reaction to IndyMac's failure this summer -- lines outside retail branches -- shows Americans have limited faith in the Federal Deposit Insurance Corp., which guarantees individual accounts up to $100,000. Such concerns are justified, says Nouriel Roubini, of NYU's Stern School and RGE Monitor, who notes there is already a "slow-motion run on retail banks" occurring nationwide. That "run" could accelerate as people realize the FDIC fund has about $50 billion to "insure" about $1 trillion in assets at the nation's financial institutions, says Roubini. "They're going to run out of money" unless Congress acts soon to recapitalize the FDIC.
Pimco, Vanguard Are Biggest Lehman Bond Fund Losers Pimco Advisors LP, Vanguard Group Inc. and Franklin Advisers Inc. are among investment companies that may face losses of at least $86 billion stemming from the collapse of Lehman Brothers Holdings Inc., the biggest bankruptcy in history. Mutual fund companies' filings show they hold more than $143 billion of bonds, led by Newport Beach, California-based Pacific Investment Management Co., manager of the world's biggest bond fund, and Valley Forge, Pennsylvania-based Vanguard, according to data compiled by Bloomberg as of June 30. "The losses look set to be widespread, hurting the public through their mutual and pension funds," said Ciaran O'Hagan, a credit strategist at Societe Generale SA in Paris. "It's clearly a disaster for public confidence."
New York Fed Accepts $50 Billion in Overnight Repos $$ A sharp jump in fed funds levels prompted the Federal Reserve Bank of New York to inject additional liquidity in money markets in an unusual second round intervention. The U.S. central bank's move comes as its peers around the developed world took action to ensure their domestic money markets had sufficient liquidity and to rein in domestic money market rates. The Fed's overnight repurchase agreement is technical in nature, and exists simply to tweak liquidity levels. But it was unusual in that it followed a $20 billion overnight repo transaction that came at the central bank's typical intervention time of around 9:30 a.m. ET.
Fed Likely to Stand Pat on Rates $$ Federal Reserve officials have for weeks been on a path to leave interest rates unchanged at Tuesday's policy meeting. They seem unlikely to want to veer from that path despite the collapse of Lehman Brothers Holding Inc. Still, the extreme uncertainties in the market could change their thinking -- and how they describe their inclinations in their policy statement. Financial markets quickly priced in the possibility of the Fed shifting back into rate-cutting mode.
Lehman Brothers, Moral Hazard and Who’s Next For months, Treasury Secretary Hank Paulson has been drilling one point hard: moral hazard. The government wasn’t going to rescue risk-takers. But what if regulators’ plan backfired and the government itself became a cause of moral hazard? That is, what if the government’s roles in this year’s bailouts resulted in companies believing the Treasury or Federal Reserve would step in with financing no matter how dire the situation?
Edgy Wall Street waits for AIG plan American International Group looked to be at risk of becoming the latest victim of the biggest financial shake-up since the Great Depression as the insurer's shares plunged as much as 71 percent on fears of credit losses. AIG's struggles followed the failure of frantic attempts to find a rescuer for investment bank Lehman Brothers Holdings Inc, and Merrill Lynch & Co's agreement to be taken over by Bank of America Corp. Reports said AIG, once the world's largest insurer, had asked the Federal Reserve for an emergency loan over the weekend, and the company was now the focus of attention as it plotted a way out of a liquidity crisis caused by massive losses from guaranteeing bad mortgage investments.
AIG looking at 'options' for businesses, capital American International Group looks at "options" after stock drop; restructuring possible American International Group Inc. said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings. "A lot of meetings (are) going on. We're looking at a lot of options. We're talking with a lot of parties," said spokesman Nicholas Ashooh, declining to comment further. New York Insurance Superintendent Eric Dinallo and a representative of the state's governor's office have spent the weekend at AIG's offices working with the company and others to craft a solution that protects policyholders, said Dinallo's spokesman David Neustadt in an e-mail.
AIG shares fall 52 percent Shares of American International Group fell more than 50 percent in early trading on reports that the insurer had turned to the Federal Reserve for $40 billion in bridge financing to ward off a liquidity crisis and ratings downgrades. AIG shares dropped 52 percent to $5.82 on the New York Stock Exchange before recouping a bit to $7.41. The shares have fallen 80 percent this year and closed Friday at $12.14. The up-front cost of insuring $10 million of AIG debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.
Pimco's Gross: Global Credit Crunch Is Worsening Pimco's Bill Gross told CNBC that the global credit crunch is worsening after Lehman Brothers' filed for bankruptcy protection stemming from mortgage-related losses. "It continues to get worse," Gross told CNBC. Gross is chief investment officer of Pacific Investment Management Co, which oversees more than $812 billion in assets. He said what is missing from a rescue plan for the banking system is capital rather than liquidity.
WaMu Slides on Concern Capital, Buyers Are Limited Washington Mutual Inc., the biggest U.S. savings and loan, fell 21 percent in New York trading on concern it won't be able to find new capital or a buyer to keep the lender in business. WaMu dropped 54 cents to $2.19 at 11:52 a.m. as investors gauged whether the Seattle-based company can continue without fresh cash to cushion as much as $19 billion in bad mortgages over the next 2-? years. Lehman Brothers Holdings Inc., beset by losses tied to home loans, declared bankruptcy earlier today after failing to find new funds or an acquirer.
Wilbur Ross sees about 1,000 bank closures Wilbur Ross, founder of private equity firm WL Ross & Co LLC, expects as many as a thousand U.S. bank closures in the coming months, CNBC said on its website on Monday. The billionaire investor, who made his fortune making investments on distressed industries, said the closures will create opportunities for investors, CNBC said, adding that he is looking at picking up smaller distressed institutions. "I do think a lot of the regional ones will (close), just as they did in the last savings and loan crisis in the 1990s," the website quoted Ross saying.
Surging Debt Makes U.S. More Dependent on China, Russia, Gulf States The demise of Lehman Brothers, Merrill Lynch, and Bear Stearns this year has investors contemplating the long-term outlook for other once-venerable institutions, including Dow members Citigroup, AIG and Bank of America. But there's an even bigger financial institution with greater debt and an increasing level of bad loans on its books: The U.S. government.
China Cuts Rates as U.S. Turmoil Adds to Global Risks China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dimmed the outlook for economic growth. The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point. The changes were in a statement on the central bank's Web site today. Lehman Brothers Holdings Inc. filed for bankruptcy today and Merrill Lynch & Co. agreed to be sold, adding to evidence that the credit crisis is deepening and threatening the global economy. The slowest inflation in 14 months has given China room to cut borrowing costs and protect jobs in the world's fourth- largest economy.
Fannie, Freddie Takeover Diminishes Financing Options for Banks Treasury Secretary Henry Paulson's decision to seize Fannie Mae and Freddie Mac may choke off the biggest source of funding for financial companies suffering from the collapse of the subprime mortgage market. When Paulson took control of Fannie and Freddie on Sept. 7, he scrapped dividends on the preferred stock of the government- sponsored enterprises. He also said the U.S. would buy as much as $200 billion of new securities that would rank ahead of existing issues. The plan sent shares tumbling on concern it will become a model for financial institutions reeling from $511 billion of writedowns and credit losses since the start of 2007. Financial companies raised $361 billion in capital to replenish their balance sheets, data compiled by Bloomberg show. Banks with the 10 biggest writedowns sold at least $85 billion of preferred securities, or 47 percent of the total, the data show.
Citi, exposed to Lehman, says it has ample capital Citigroup, the top U.S. bank by assets, sought to reassure investors that its exposure to bankrupt investment bank Lehman Brothers Holdings Inc would not excessively damage its capital position. Citigroup CEO Vikram Pandit said in a memo to employees on Monday that the company's financial strength makes it a favored counterparty and that its balance sheet was in excess of 2 trillion dollars. Citi has raised nearly $50 billion since the beginning of the year by reducing assets and deleveraging, Chief Financial Officer Gary Crittenden said in remarks posted on the bank's website.
Banks roll out $70 billion loan program Major global banks unveil $70 billion loan program to guarantee liquidity A group of global banks and securities firms announced late Sunday a $70 billion loan program that financial companies can tap to help ease a credit shortage that threatens global financial markets. The ten banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool. The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs. The banks said the program will be available to participating banks which can get a cash infusion up to a maximum of one-third of the total size of the pool. The size of the loan program might increase as "other banks are permitted to join." All participating banks intend to use this facility beginning this week, the statement said. The banks also include Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Merrill Lynch & Co., Morgan Stanley and UBS.
Wall Street crisis could put Fed rate cut in play Upheaval on Wall Street could resurrect talk of Fed interest rate cut Wreckage from a massive crisis on Wall Street could prompt the Federal Reserve to do an about face and once again cut a key interest rate this week or possibly later this year, economists said Monday. Just a few days ago, a rate cut appeared largely off the table. Now it has emerged as a possibility as the Fed prepares to meet Tuesday against a backdrop of historic upheaval in the U.S. financial system. Lehman Brothers Holdings Inc., the country's fourth-largest investment firm, filed for bankruptcy protection on Monday. And, Bank of America is buying Merrill Lynch in a $50 billion deal. "It puts a Fed rate cut back on the table," said Stuart Hoffman, chief economist at PNC Financial Services Group.
Life Inside a Battered Brokerage Firm Want to Know What's in Store for Lehman Employees? Ask a Bear Stearns Vet As the country's fourth-largest investment bank unravels, the more than 20,000 employees of Lehman Brothers have to contend with uncertain job prospects, plummeting stock holdings and the resulting emotional distress. John Ryding can empathize. Ryding was the chief U.S. economist at Bear Stearns when that investment bank collapsed in March and was purchased at a fire-sale price by JPMorgan Chase.
Fannie, Freddie chiefs lose 'golden parachutes' Government denies departing executives millions in separation payments The government yesterday said it would not allow Fannie Mae and Freddie Mac to pay their departing chief executives the separation payments, known as "golden parachutes," outlined in their contracts. The Federal Housing Finance Agency (FHFA), the regulator that seized control of the mortgage giants last weekend and removed their chief executives, declined yesterday to specify what the executives would lose. Former Fannie Mae chief executive Daniel Mudd and former Freddie Mac chief executive Richard Syron together were eligible to receive as much as $25 million, according to outside compensation consultants who last week reviewed the companies' financial disclosures.
Wall Street crisis deepens Wall Street was in turmoil on Monday after Lehman Brothers filed for bankruptcy protection and Merrill Lynch agreed a $50bn takeover by Bank of America. Confidence in financial institutions around the world was shaken as central banks introduced a series of emergency measures to ease the crisis in the global financial system. Equity markets fell heavily and debt spreads widened as banks, investment managers and insurance companies came under heavy selling pressure. BofA’s bold bid for Merrill came as the world’s top banks abandoned efforts to save Lehman and set out to build a firewall against further financial chaos with a $70bn liquidity pool to support other vulnerable institutions. The moves capped a weekend of high drama that could lead to one of the most radical reshapings in Wall Street history.
Helicopter Ben Strikes Again Scrambling to cope with the latest credit crisis, the Federal Reserve lowers its collateral standards for investment banks and temporarily waives limits on banks' investments in subsidiaries. With credit markets quaking amid one of the most tumultuous days on Wall Street in a generation—including, perhaps, the failure of the fourth-largest U.S. investment bank—the Federal Reserve late Sunday moved to calm nerves by saying it would greatly expand its emergency lending programs for banks. The Fed also agreed to temporarily waive limits on how much regulated banks can invest in affiliated financial institutions. Hours earlier, Bank of America, which agreed to buy the crippled mortgage lender Countrywide Financial earlier this year, also entered talks to buy the struggling investment bank Merrill Lynch. The Fed created both emergency-lending programs—the Primary Dealer Credit Facility, which provides overnight loans to unregulated investment banks, and the Term Securities Lending Facility, which lends those same banks large sums for 28 days—earlier this year. The goal was to keep struggling investment banks afloat as they began to write off billions of dollars in losses on dodgy mortgages and mortgage-backed securities.
Credit-Default Risk Soars After Lehman Files for Bankruptcy Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern that the $62 trillion credit-derivatives market will unravel. Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt. Lehman, the fourth-largest securities firm until last week, has been one of the 10 largest counterparties in the market for credit-default swaps, according to a 2007 report by Fitch Ratings. The market, which is unregulated and has no central exchange where prices are disclosed, has been the fastest- growing type of so-called over-the-counter derivative, according to the Bank for International Settlements.
Banks Hoarding Cash Send Fed Funds to Decade High Over Fed's Target Rate The rate for overnight loans between banks soared to its greatest margin over the Federal Reserve's target rate in at least a decade as banks hoard cash after Lehman Brothers Holdings Inc.'s bankruptcy. Fed funds traded as high as 6 percent, or 4 percentage points above the target rate, according to ICAP Plc, the world's largest inter-dealer broker. The difference is the greatest since Bloomberg began tracking the data in 1998. The rate dropped to 4 percent after the central bank added a total of $70 billion in temporary reserves to the banking system.
Investment Bank, R.I.P. With Bear, Lehman, and Merrill all potentially under new ownership, what does the future hold for Morgan Stanley and Goldman Sachs? And then there were two. In just six short months (or long ones, depending on where you sit), the number of major investment banks on Wall Street has shrunk from five to two. Bear Stearns fell in March. And now, with Lehman Brothers in bankruptcy and Merrill Lynch in the arms of Bank of America, just Morgan Stanley and Goldman Sachs are left standing. Regulators have long wondered whether the market is better off with investment banks as independent firms or as divisions of larger commercial banks. That question will undoubtedly continue to be asked as a new administration is ushered into the White House in the coming months. Regardless of what Washington may ultimately decide, the market has made its choice clear this year: the independent investment banking model is dead.
Bloody Sunday: Wall Street Hit by Financial Tsunami The U.S. financial system was badly shaken Sunday by the expected failure of Lehman Brothers , the surprise takeover of Merrill Lynch and big asset sales by major insurer American International Group. The developments indicate that chief executives on Wall Street and regulators in Washington are accepting that massive triage is necessary in the face of the 13-month old credit crisis and destructive U.S. housing bust. "The U.S. financial system is finding the tectonic plates underneath its foundation are shifting like they have never shifted before," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey."It's a new financial world on the verge of a complete reorganization."
Roubini Predicts Another 20 Percent Stock Drop, Sale of Goldman, Morgan After failing to find a buyer this weekend, Lehman Brothers filed for the largest bankruptcy in U.S. history while Merrill Lynch agreed to be acquired by Bank of America for $50 billion. Such extraordinary events set the stage for a wild Monday on Wall Street, and most likely beyond. These incredible, once unthinkable developments have caught a lot of people off guard, but not Nouriel Roubini, of NYU's Stern School and RGE Monitor, whose alarming predictions about the housing market and financial system have been coming to pass with alarming frequency. This morning, Roubini forecast another 20% drop in stock prices, and reiterated a prior view that there will be no major independent broker/dealers standing before this crisis ends. In other words, Goldman Sachs and Morgan Stanley should be seeking suitors today, or face a similar fate as Lehman later.
Wall Street awakes to 2 storied firms gone 2 storied Wall Street firms vanish as US financial markets roiled by further shock waves When Wall Street woke up Monday morning, two more of its storied firms had vanished. Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed. Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in an $50 billion all-stock transaction. The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns. The world's largest insurance company, American International Group Inc., also was forced into a restructuring. And a global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
A Chaotic Sunday Opens Wall Street's Week $$ Moral Hazard's Exit Leaves Investors To Sort Out the Mess Investors are going to be staring in the face of moral hazard when markets open Monday. The collapse of Wall Street firm Lehman Brothers Holdings Inc. coupled with a restructuring of insurer American International Group Inc. and a deal by Merrill Lynch & Co. to sell itself to Bank of America could cause a decline, particularly among financial stocks, when markets open. Despite serious efforts by potential bidders and Lehman, a deal never came together over the weekend, largely because the federal government refused to put up any cash. After backstopping Bear Stearns, Fannie Mae and Freddie Mac, the Treasury and Federal Reserve said no more. The government's logic was that if investors were bailed out again, they would expect a bailout every time, and the so-called moral hazard would disappear, making people willing to take massive risks in the belief they would be saved.
Stunning Fall for Main Street’s Brokerage Firm It’s the end of an era for Merrill Lynch, the brokerage firm that brought Wall Street to Main Street. John A. Thain, chief executive of Merrill Lynch. The company decided to sell itself to Bank of America after billions in losses. Merrill, which has lost more than $45 billion on its mortgage investments, agreed to sell itself to Bank of America for $50.3 billion in stock, according to people briefed on the negotiations. It is a remarkable fall from grace for the 94-year-old Merrill, whose corporate logo — a bull — has long symbolized the fundamental optimism of Wall Street. After a frantic weekend of talks between Wall Street executives and federal officials over the fate of the teetering Lehman Brothers, fear spread on Sunday that Merrill, staggered by losses, might also falter. The merger would combine Bank of America’s banking and lending strength with Merrill Lynch’s wealth management expertise.
Asian Stocks, U.S. Futures, Dollar Tumble on Lehman Bankruptcy Asian stocks, U.S. futures and the dollar tumbled after Lehman Brothers Holdings Inc. prepared to file for bankruptcy, deepening a financial crisis that threatens to tip the global economy into a recession. Macquarie Group Ltd., Australia's biggest investment bank, tumbled 7.6 percent while Shin Kong Financial Holding Co. fell 6.9 percent in Taipei on concern more banks will fail, adding to $514 billion of credit-related losses. The dollar declined against the yen while treasuries and gold rose as investors sought safer assets. The cost to protect corporate bonds from default surged.
Derivatives market trades on Sunday to cut Lehman risk Major players in the $455 trillion global derivatives market rushed Sunday to scale back exposure to a potential bankruptcy filing by investment bank Lehman Brothers in a rare emergency trading session. Trading took place as U.S. regulators and bankers were making last-ditch efforts to prevent toxic assets from ailing Lehman Brothers spilling into global markets and rupturing investor faith in the international financial system. "This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in today's highly disrupted financial markets, the unthinkable is thinkable," said Mohamed El-Erian, the chief executive of Pimco, the world's biggest bond fund, based in Newport Beach, California.
Fed moves to deal with financial crisis Federal Reserve announces new efforts to shore up financial markets by expanding loan programs The Federal Reserve announced late Sunday several steps to cope with the worst credit crisis in decades, including broadening the types of assets that investment banks can put up to get emergency loans from the Fed. The action came as U.S. and foreign commercial banks were hashing out a plan to inoculate the global financial system against the possible failure of Lehman Brothers. Federal Reserve Chairman Ben Bernanke announced the actions in a statement, saying they were being taken after a weekend of discussions with officials from the Treasury Department and the Securities and Exchange Commission and top executives of financial firms.
Fed's statement The Federal Reserve Board on Sunday announced several initiatives to provide additional support to financial markets, including enhancements to its existing liquidity facilities. "In close collaboration with the Treasury and the Securities and Exchange Commission, we have been in ongoing discussions with market participants, including through the weekend, to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses," said Federal Reserve Board Chairman Ben S. Bernanke. "The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets."
Treasuries Show Paulson 'Bazooka' Misfire U.S. bond prices show Henry Paulson's "bazooka" fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac. Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. Lehman Brothers Holdings Inc., American International Group Inc., Merrill Lynch & Co. and Washington Mutual Inc. all plunged last week. For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Federal Reserve may need to cut interest rates by year-end.
Lehman rescue fails, BofA seen buying Merrill A failed plan to rescue Lehman Brothers was followed Sunday by more seismic shocks from Wall Street, including an apparent government-brokered takeover of Merrill Lynch by the Bank of America. A forced restructuring of the world's largest insurance company, American International Group Inc., also weighed heavily on global markets as the effects of the 14-month-old credit crisis intensified. A global consortium of banks, working with government officials in New York, announced late Sunday a $70 billion pool of funds to lend to troubled financial companies. The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.
Wall Street banks fight for life By Francesco Guerrera in London, Krishna Guha in Washington and Greg Farrell in New York Wall Street was in turmoil on Sunday as Merrill Lynch found shelter in a $44bn takeover by Bank of America and Lehman Brothers headed towards filing for bankruptcy. BofA’s bold bid for Merrill came as the world’s top banks appeared close to abandoning efforts to save Lehman and set out to build a firewall against further financial chaos with a $50bn liquidity pool to support other vulnerable institutions. The Federal Reserve was set to make it easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral. The Fed meets to decide on interest rates on Tuesday. The moves capped a weekend of high drama that could lead to one of the most radical reshapings in Wall Street’s history. It widened the set of assets eligible as collateral for loans of Treasuries to include all investment grade paper, and raised the size of these Treasury loans to $200bn.
Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash $$ Fed Will Expand Its Lending Arsenal in a Bid to Calm Markets; Moves Cap a Momentous Weekend for American Finance The American financial system was shaken to its core on Sunday. Lehman Brothers Holdings Inc. faced the prospect of liquidation, and Merrill Lynch & Co. was close to a deal to sell itself to Bank of America Corp. The U.S. government, which bailed out Fannie Mae and Freddie Mac a week ago and orchestrated the sale of Bear Stearns Cos. to J.P. Morgan Chase & Co. in March, played much tougher with Lehman. It refused to provide a financial backstop to potential buyers
Hard Fall for a Venerable Firm It’s the end of an era for Merrill Lynch, the brokerage firm that brought Wall Street to Main Street. Merrill, which has lost more than $45 billion on its mortgage investments, agreed to sell itself to Bank of America for $50.3 billion in stock, according to people briefed on the negotiations It is a remarkable fall from grace for the 94-year-old Merrill, whose corporate logo — a bull — has long symbolized the fundamental optimism of Wall Street. After a frantic weekend of talks between Wall Street executives and federal officials over the fate of the teetering Lehman Brothers, fear spread on Sunday that Merrill, staggered by losses, might also falter. The merger would combine Bank of America’s banking and lending strength with Merrill Lynch’s wealth management expertise. "It is an enormous shock,” said Steve Fraser, a Wall Street historian and author of “Wall Street: America’s Dream Palace."
U.S. banking woes seen hitting Wall St. Stocks are seen opening sharply lower at the start of the week after last ditch efforts to save investment bank Lehman Brothers appeared to have failed late Sunday. The ongoing impact of the global credit crunch of the past year also saw reports of a bid for Merrill Lynch by Bank of America and talk of asset sales by the world's largest insurer. U.S. stock index futures tumbled late on Sunday, pointing to a sharply lower Wall Street open on Monday on fears the meltdown in asset values in the U.S. banking system could impact the broader U.S. economy as credit is restricted further while U.S. house prices continue to fall.
AIG reportedly plans major restructuring Insurer faces downgrade of credit rating in face of inablity to secure capital The Wall Street Journal reported Sunday that American International Group Inc. plans to disclose a restructuring by early Monday that's likely to include the disposal of major assets including its aircraft-leasing business and other holdings. AIG's chief executive, Robert Willumstad, who took the reins on the world's largest insurer in June, has indicated he was willing to shed some assets, saying about a month ago that a "less complex AIG would be a better competitor.
In Frantic Day, Wall Street Banks Teeter In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, hurtled toward liquidation after it failed to find a buyer, people briefed on the deals said. The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of tens of billions of dollars in losses because of bad mortgage finance and real estate investments.
Wall Street banks fight for life Wall Street was in turmoil on Sunday as Merrill Lynch found shelter in a $44bn takeover by Bank of America and Lehman Brothers headed towards filing for bankruptcy. BofA’s bold bid for Merrill came as the world’s top banks appeared close to abandoning efforts to save Lehman and set out to build a firewall against further financial chaos with a $50bn liquidity pool to support other vulnerable institutions. The Federal Reserve was set to make it easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral. The Fed meets to decide on interest rates on Tuesday. The moves capped a weekend of high drama that could lead to one of the most radical reshapings in Wall Street’s history.
Wall St. Goliath Teeters Amid Fear of Wider Crisis Fearing that Lehman Brothers is only days away from collapse, government officials and senior Wall Street executives met on Saturday to try to arrest a downward spiral that might imperil other financial institutions. For a second day, the group convened at the Federal Reserve Bank of New York in Lower Manhattan, but the situation remained fluid, and the talks were set to resume on Sunday morning. Adding urgency to the meeting were growing concerns that other big financial institutions like the insurance giant American International Group and the nation’s largest brokerage firm, Merrill Lynch, might face a similar crisis and also need billions of dollars in capital to strengthen their businesses. The group discussed the financial condition of other firms beyond Lehman and the overall state of the markets.
Banks roll out $70 billion loan A group of global banks and securities firms announced late Sunday a $70 billion loan program that financial companies can tap to help ease a credit shortage that threatens global financial markets. The ten banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool. The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs
US Stock Futures, Dollar Plunge on Wall Street Jitters U.S. stock futures and the dollar sank late on Sunday as the first official trades of a new business week took place while talks to sell Lehman Brothers faltered, shaking confidence and pushing dollar-exposed investors towards safe haven U.S. Treasuries. U.S. stock index futures pared earlier falls in New York late Sunday, but still pointed to a steep drop when trading begins on Monday, with S&P 500 futures down 28 points and the Dow Jones industrial average futures off 211 points and Nasdaq 100 futures 31 points softer in early Asian trading.
The chicken game over Lehman After propping up the financial system for more than a year, the government seems to be drawing the line - and for good reason. A crew of top federal officials has spent the past year racing from one fire to the next in a harried effort to smother financial blazes that keep inflaming the markets and threatening the rest of the economy. But after disgorging billions in taxpayer funds and effectively taking over three big companies, the emergency response team has apparently changed its tactics when it comes to Lehman Brothers. Just a week after they effectively nationalized mortgage giants Fannie Mae and Freddie Mac, and six months after they financed a hasty takeover of Bear Stearns, the Federal Reserve and Treasury are delivering Wall Street a different message: you'll have to learn to save yourselves.
Lehman CEO Sees Star Fade As Firm Faces Bankruptcy Ten years ago, Dick Fuld brought Lehman Brothers back from the brink of disaster when the giant hedge fund Long Term Management imploded, squeezing Lehman's balance sheet. Ever since, the Lehman CEO has earned the respect, confidence and—most of all—the trust of Lehman's employees who were proud to say they "bleed Lehman Green." But those days are gone, vanishing in a few months of missteps by Fuld, once regarded as one of the best CEOs on Wall Street for building Lehman into a powerhouse investment bank with his tough, hands-on management styles.
Rescuers reach beach areas flattened by Ike Houston under weeklong cleanup curfew; death toll at 32 in 8 states More than 48 hours after Hurricane Ike swamped the Gulf Coast, rescuers flew for the first time Monday into areas cut off by the storm and found a scene of devastation, with whole subdivisions obliterated, and began evacuating survivors. 10 oil platforms destroyed The hurricane also battered the heart of the U.S. oil industry as Ike destroyed at least 10 production platforms, officials said. Details about the size and production capacity of the destroyed platforms were not immediately available, but the damage was to only a fraction of the 3,800 platforms in the Gulf.
Oil drops to six-month low in Ike aftermath U.S. oil prices dropped more than $2 (U.S.) to a six-month low below $99 a barrel on Sunday as dealers bet on a swift recovery of the nation's energy production after Hurricane Ike and the U.S. government loaned oil to two refiners. The losses add to a steady downtrend in oil prices since mid-July's peak of over $147 a barrel amid mounting evidence that high energy costs and a weakening economy are cutting deeply into fuel consumption. . . . . "The oil market is selling off because the early indications show Ike didn't do as much damage as feared," said Chris Jarvis, senior analyst at Caprock Risk Management. "That said, this sell-off could prove to be a bit premature, since it could be a while before things get back to normal."
Commodities and the Markets (video) The Lehman failures impact on commodities and the financial markets, and a statement from Treasury Secretary Paulson, with John Kilduff, MF Global; Vince Farrell, Soleil Securities CIO; Carlos Mendez, ICP Capital sr. managing director, hedge fund manager; and CNBC's Dylan Ratigan & Michelle Caruso-Cabrera.
Merrill Deal Details Notes on the Merrill-Bank of America deal, with CNBC's Maria Bartiromo
Merrill Lynch to Be Bought By BofA for $29 a Share Merrill Lynch, the world's largest broker, agreed to be acquired by Bank of America for $29 a share, or $43.5 billion, after being pressured into a deal by federal regulators. Merrill agreed to the BofA sale, which represents a huge premium to its closing price on Friday of $17 a share, after talking to several other potential acquirers, including Morgan Stanley. Morgan turned down a possible acquisition because it couldn't examine Merrill's books in 48 hours, a person close to the matter said. Merrill plans to make an internal announcement to employees sometime between 8 and 9 am Monday morning.
Bank of America Reaches Deal for Merrill $$ In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion. The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter. Driven by Chief Executive Kenneth Lewis, Bank of America has already made dozens of acquisitions large and small, including the purchase of ailing mortgage lender Countrywide Financial Corp. earlier this year. In adding Merrill Lynch, it would control the nation's largest force of stock brokers as well as a well-regarded investment bank.
Rush Is On to Prevent A.I.G. From Failing The American International Group, the insurance company, is planning a major reorganization and a sale of its aircraft leasing business and other units to stabilize its finances, a person briefed on the company’s strategy said on Sunday. A.I.G. became one of the focuses at an emergency gathering of Wall Street executives over the weekend, and was trying to arrange a capital infusion in the face of possible credit downgrades. It was unclear whether A.I.G. would succeed in its capital search, but a person briefed on the discussions said it was seeking more than $40 billion even as it tried to sell assets to shore up its financial footing. Among the businesses likely to be sold is A.I.G.’s aircraft leasing business, the International Lease Finance Corporation. Founded in 1973, the business has nearly 1,000 planes in its fleet.
AIG, facing liquidity crunch, reaches out to regulator Insurer American International Group Inc, working to stave off rating downgrades and shore up the capital of its holding company, has made an unprecedented approach to the Federal Reserve seeking short-term financing, media reports said. Chief Executive Robert Willumstad reached out to the Fed late on Sunday, according to the Wall Street Journal and business news channel CNBC. The Fed normally oversees monetary policy and supervision of banks, but CNBC said AIG was seeking the funds as a temporary measure and planned to repay the Fed with the proceeds from asset sales.
AIG Scrambles to Raise Cash, Talks to Fed $$ Insurer Looks to Sell Automotive Business, Annuities Unit; It Seeks $10 Billion in Fresh Capital as Downgrade Threatens Insurer American International Group Inc., succumbing to relentless investor pressure that drove its shares down 31% on Friday alone, is pulling together a survival plan that includes selling off some of its most valuable assets, raising more capital and going to the Federal Reserve for help, people familiar with the situation said. The measures are aimed at staving off a downgrade by major credit-rating firms. AIG executives worried that such an action would set off a chain reaction that could be fatal to the firm. The insurer, which has already raised $20 billion in fresh capital so far this year, was seeking to raise an additional $40 billion to avoid a downgrade.
AIG Seeks $40 Billion Fed Bridge Loan American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion bridge loan from the Federal Reserve as it tries to sell assets, the New York Times reported. The insurer has turned down a private-equity investment because it would have meant handing over control of the company, the Wall Street Journal said on its Web site, citing unnamed people. AIG may get access to the Fed's borrowing window in an "extreme liquidity scare," Citigroup Inc. analyst Joshua Shanker said in a Sept. 12 research note.
Washington Mutual Hobbled By Increasing Defaults on Option ARMs Washington Mutual Inc., the thrift that lost 92 percent of market value in the past year, is being dragged down by a mortgage product once hailed by former Chief Executive Officer Kerry Killinger as a boost to profit. As many as 45 percent of borrowers with payment-option adjustable-rate mortgages issued from 2004 to 2007 and bundled into securities may default, according to Fitch Ratings analysts Roelof Slump and Stefan Hilts. Washington Mutual held $52.9 billion of the mortgages, also called option ARMs or negative amortization loans, on its books in the second quarter, with defaults doubling to $3.2 billion from the end of 2007, according to a filing with the U.S. Securities and Exchange Commission.
Greenspan: Economy in 'once-in-a-century' crisis In an interview Sunday, the former Federal Reserve chairman said that more financial firms will fail and that housing won't stabilize until 2009. The U.S. credit squeeze has brought on a "once-in-a-century" financial crisis that is likely to claim more big firms before it eases, former Federal Reserve chief Alan Greenspan said Sunday. Greenspan told ABC's "This Week" that the situation "is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go." "Indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes," Greenspan said. He predicted that would not happen until early 2009, and said the odds of U.S. recession have gone up in recent months.
Russia's Market Plunge May Temper Medvedev's Georgia Moves When it comes to containing Russia, the invisible hand of the markets may be the West's most potent weapon. Tightening access to international credit and mounting stock losses are hurting Russian billionaires as well as state- owned corporations, prompting calls by businessmen to heed Western complaints over Kremlin policy in Georgia. The country's biggest business association, the Russian Union of Industrialists and Entrepreneurs, will raise the issue today at a meeting with President Dmitry Medvedev, said Igor Yurgens, a board member and adviser to Medvedev.
Jittery Road Ahead Wall Street and the federal government played a game of chicken over the weekend, and neither side backed down, pushing Lehman Brothers toward bankruptcy and setting off worries of a worldwide sell-off when markets open on Monday. While some fear a precipitous decline in the markets, others hoped that Bank of America’s surprise announcement Sunday that it was buying Merrill Lynch might provide enough reassurance to calm investors.
Stagflation is now a dwindling threat For the past year, policymakers in the high-income countries have been caught in a painful dilemma. Do they focus on the financial crisis or do they concentrate on rising headline inflation? For good or, more probably, ill, the dilemma is on its way to resolution. Contractionary forces are winning. If so, this does at last clarify priorities. Divergences between headline and “core” inflation (from which energy and food, in particular, have been stripped out) have become remarkably large: in the US, for example, the headline rise in consumer prices was 5.5 per cent in the year to July, against core inflation of 2.5 per cent; in the eurozone, the corresponding figures were 4.1 per cent and 1.7 per cent and in the UK 4.4 per cent and 1.9 per cent. Behind these huge divergences were extraordinary surges in commodity prices, particularly of energy and food, in recent years. According to the Goldman Sachs indices, aggregate prices of commodities jumped 76 per cent in the year to June 2008. Energy prices alone rose 96 per cent and even non-energy prices jumped 31 per cent. These huge increases came at the end of six years of rising commodity prices. These increases also had startling effects on headline inflation rates. In general, the impact on emerging economies was even bigger than on high-income ones.
Consumers Are Starting to Hit The Wall Attention shoppers: You are not spending enough to keep the economy afloat and live up to the reputation of the resilient American consumer. Attention Wall Street: Add the precipitous slowdown in consumer spending to the list of worries and reasons to think a recession is underway or imminent. If that’s not enough to get your attention, consider that the latest retail sales data show that barring a healthy bounce in September activity, which many consider unlikely, the US economy is going to have its first quarterly decline in consumer spending in 17 years.
US May Be Running Out Of Options To Stop Recession Now what? After a bailout of Fannie Mae and Freddie Mac, $168-billion of fiscal stimulus measures, a housing-rescue package and three-and-a-quarter percentage points worth of Federal Reserve interest rate cuts, the economy is still struggling and in some ways looks worse than ever. And while the recent one-two punch of rising joblessness and shrinking payrolls restarted the recession debate, it begs an even bigger question: What will it take to bring the economy back to health, especially in a presidential election year?
Fifth of wealth funds 'unaccountable' One fifth of sovereign wealth funds are not accountable to their domestic legislatures, according to a new survey supported by the International Monetary Fund. The survey of 20 such funds found that 21 per cent were not accountable, while 58 per cent reported to their legislatures through a board chair or minister of finance. The survey was conducted under the auspices of the IMF by the international working group of sovereign wealth funds (IWG) as part of a process towards drafting a set of principles for them. Following a summit in Santiago, Chile, this month, the IWG reached agreement on a draft set of 24 principles expected to be unveiled next month.
No Govt.-Backed Loans to Auto Industry The U.S. government should not back $25 billion or more in loans to help General Motors Corp and the other domestic auto companies, the top Republican on the Senate Banking Committee said on Friday. "I would say no to them," Richard Shelby of Alabama said as Democratic leaders of the House of Representatives and Senate seek to push through a measure in the coming weeks that is necessary to put the credit program in motion.
U.S. Bank System Capital Insufficient Mohamed El-Erian, a co-chief executive of top bond fund Pimco, said Friday that the U.S. banking system lacks sufficient capital to weather the current credit crunch related to massive mortgage-related losses. "Recent developments highlight the extent to which the banking system as a whole lacks sufficient capital to comfortably navigate this period of sharp deleveraging," El-Erian, of Pacific Investment Management Co, which oversees more than $812 billion in assets, told Reuters in an interview.
America Is Not Too Big to Fail ....In fact, the United States is harrowingly close to the same kind of utter financial collapse that Americans once thought only shaky Latin American regimes could suffer. The Fannie and Freddie bailouts, monster entitlement programs for retiring baby boomers, Wall Street in flames, and sliding home values are coming to a head at exactly the wrong moment. The chances we'll be able to muddle through are slimmer every day
Home Foreclosures Rise to Record High in August Foreclosures on U.S. properties climbed again in August, but emergency measures to help troubled homeowners may be tempering the housing crisis, foreclosures database firm RealtyTrac said on Friday. One in every 416 U.S. households got a foreclosure filing in August, affecting 303,879 properties nationwide, for increases of 12 percent from July and 27 percent from August 2007, the firm said in its monthly analysis. The total number of properties affected and the national foreclosure rate "were both the highest we've seen in any month since we began issuing our report in January 2005," said RealtyTrac. Chief Executive James Saccacio.
Paulson applauds actions to aid market stability U.S. Treasury Secretary Henry Paulson said on Sunday he supported this weekend's actions by market participants, the Federal Reserve and the Securities and Exchange Commission to strengthen and enhance financial market stability. Without mentioning the fate of Wall Street investment bank Lehman Brothers nor the widely reported deal for Bank of America to buy Merrill Lynch, Paulson said the actions were critical to "facilitating liquid, smooth-functioning markets and addressing potential concerns in the credit markets."
Bushes' 'New World Order' Is Yielding to 'Post-American' Era Barack Obama wants to take American foreign policy back to the 1990s. For John McCain, the model is the 1950s. Democratic presidential candidate Obama wants the U.S. to use economic leadership to navigate an increasingly borderless world, as it did in the last decade, while Republican McCain sees military might as the path to continued prosperity, as happened under the cloud of the Cold War's nuclear standoff. Whichever man wins, he will inherit what Johns Hopkins University political scientist Francis Fukuyama calls a "post- American world," replacing the U.S.-dominated "new world order" that President George H.W. Bush proclaimed after the collapse of the Soviet Union. No longer the "hyperpower" of the 1990s, the U.S. is slipping toward a first-among-equals status, narrowing the foreign-policy options of whoever moves into the White House in January. For 20 years, U.S. leaders "have assumed American dominance; they've assumed that they're working in a unipolar world," says Fukuyama, who gained fame in 1992 by declaring that the collapse of Soviet communism heralded the eventual triumph of liberal democracy in the "end of history." Now, he says, "there's been this big redistribution of power."
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Fri 09.12.2008
Worst is Yet to Come for Banking Meredith Whitney, the Oppenheimer & Co. analyst who called Wall Street's mortgage market meltdown last fall, now says the worst is yet to come for the global financial industry. "What's ahead is much more severe than what we've seen so far," Whitney told Fortune magazine. She submits that banks are facing dramatically larger credit losses than they have reported so far and thinks the economy is about to sink into an "early 1980s-style recession," that will "devastate 10 percent of the population," which became financially overextended during the housing boom.
The End of Lehman A push for a sale by Monday has political hurdles. After 158 years, the days of Lehman Brothers as an independent investment house are rapidly dwindling. Federal officials are pressing Lehman to sell itself before Asian markets open for trading on Sunday night. The Washington Post says regulators "have been in touch with Lehman on an almost hourly basis in recent days." The team that helped engineer the rescue of Bear Stearns—Treasury Secretary Hank Paulson, Timothy Geithner, the president of the Federal Reserve Bank of New York, Ben Bernanke, the Fed chairman, and Christopher Cox, the chairman of the Securities and Exchange Commission—have been discussing options for Lehman, reports say. Bank of America and Barclays of Britain are cited as the most likely buyers of Lehman. BofA could certainly afford Lehman, but it is a surprising suitor given that BofA is already engaged in the process of integrating another troubled financial firm, mortgage lender Countrywide Financial, and Ken Lewis, the bank's C.E.O., last talked about the investment-banking business in the same way that people politely make reference to the fact that sewage has flooded their basement.
WaMu May Be Forced to Sell Deposits to Stay Afloat Washington Mutual Inc., facing up to $19 billion in bad home loans and slammed by a 34 percent drop in its stock this week, may sell parts of a nationwide 2,300-branch network to raise capital. "The only real asset they have that's worth anything to other banks is the deposit base, because of their branches,'' said L. William Seidman, chairman of the Federal Deposit Insurance Corp. from 1985 to 1991. Seattle-based WaMu can probably sell branches in New York and Chicago, said Bert Ely, president of Ely & Co. Inc., a bank consulting firm based in Alexandria, Virginia. Alan Fishman, WaMu's new chief executive officer, may have to shed branches that hold $143 billion in deposits. The biggest U.S. savings and loan is headed for its fourth straight quarterly loss. Suitors have walked away because of potential damage to their earnings and WaMu's chief regulator, the Office of Thrift Supervision, has told it to boost risk management and compliance.
How Lehman Brothers’ Own Risk Management Strategy May Cause it to Fail When Lehman Brothers Holdings Inc. (LEH) announced a third-quarter loss of $3.9 billion earlier this week, the investment bank’s shares plunged as Wall Street questioned its long-term ability to survive. Of the five big investment banks that were in operation at the outset of this year, The Bear Stearns Cos. has already failed and been taken over and Lehman Brothers is trying to avoid a similar fate. That leaves only three members of the original group - Goldman Sachs Group Inc. (GS), Merrill Lynch & Co. Inc. (MER) and Morgan Stanley (MS) - a casualty rate as steep as the one experienced by second lieutenants on World War I’s Western Front. And that begs the question: Just where were all the risk-management experts who should have assessed the pitfalls these companies faced, and how could they have missed the massive risks that are now threatening to take this entire sector down? The answer may be more than a minor exercise in financial irony. Lehman, the latest Wall Street investment bank forced to the brink of failure, may have put itself out on that precipice with its own risk-management strategies. Let’s take a closer look.
Take this weekend off, Hank I do not know what plans Hank Paulson, the US Treasury secretary, has for the weekend. Bird-watching, perhaps. Whatever they are, may I suggest that he sticks to them? Mr Paulson is a keen ornithologist but he is also an energetic intervener in financial markets and, when he has worked on weekends recently, the US taxpayer has paid dearly. In March, it was a line of funding to steer Bear Stearns, the investment bank, into the hands of JPMorgan Chase. On Sunday, it was the bail-out of Fannie Mae and Freddie Mac, the quasi-public mortgage lenders, which could cost the US government $200bn or more. It is only Thursday and, already, others seem to be preparing to interrupt his days of rest again. The first is Lehman Brothers, whose shares fell sharply after the failure of its talks with Korea Development Bank aimed at gaining a capital injection to offset its mortgage-related losses. It disclosed on Wednesday a $3.9bn loss and plans to sell a stake in its fund management arm. Then there are the US regional banks that hold preferred shares in Fannie and Freddie, which Mr Paulson caused to plunge in value. They face their own financial crises and Tony James, president of Blackstone, the private equity group, this week predicted “massive defaults”.
Credit Crisis Strains Government's Options $$ A year into a credit crisis that started with troubled mortgages to sketchy borrowers, the financial system is reeling once again, casting a pall over a widening array of financial institutions just days after history-making efforts by policy makers to contain the problem. The Federal Reserve has already slashed interest rates to counteract a deepening credit freeze and instituted its broadest expansion of lending facilities since the Great Depression to keep financial markets functioning. Over the weekend, the nation's two main mortgage finance firms -- Fannie Mae and Freddie Mac -- were placed under government control. Federal officials and market players are struggling with the same issues: Why haven't the steps taken so far calmed the system? What can policy makers do next? Should the U.S. government let a big institution fail rather than stage another potentially costly bailout?
Financial Rescues Show That Faith in Free Market Is Shaken Self-reliance. Individual responsibility. A faith in free markets and a belief that people should have the opportunity to fail or succeed on the basis of their hard work and ingenuity. These are qualities that have been as central to the national identity as they have been to the American economic model. Which is why it is so extraordinary that the government now finds itself hip-deep in the direct management of the financial system, rescuing four of the country's biggest financial institutions -- Bear Stearns, Fannie Mae, Freddie Mac and now Lehman Brothers -- from the harsh discipline of markets and the consequences of their own misjudgments. This unprecedented intrusion of government is coming in the waning days of the administration of a Republican president who made privatization, deregulation and a faith in free markets the centerpiece of his economic policies and of his political agenda.
Lehman's Fate $$ Wall Street in a financial crisis has rules similar to those on the African savannah: The hyenas pick off the weakest wildebeest first. And so it has gone this week as investors and lenders stalk the venerable but sickly Lehman Brothers investment bank. The rest of the financial herd is also spooked, but we hope this is one institution the taxpayers don't have to rescue to calm everyone down. Lehman shares took another tumble Thursday, dropping by 45% or so for the second time in a week. . . . . This is one ironic result of the earlier Bear Stearns rescue, when J.P. Morgan CEO Jamie Dimon threatened to walk away if the feds didn't assume the risk on $29 billion in dodgy Bear paper. Treasury Secretary Hank Paulson and the Federal Reserve gave in, and an ominous precedent was set. Thus a Fed guarantee intended to stem financial contagion in March may make it harder to contain this bank run six months later. The "moral hazard" that goes with government bailouts is once again proving to be more than an academic exercise.
Lehman's Fuld Races to Sell Firm as Fed Balks at Funding Deal Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld is seeking buyers for the investment bank amid signs that the U.S. government may balk at providing the funding that enabled Bear Stearns Cos. to sell itself and avoid bankruptcy. Fuld, who built Lehman into the biggest U.S. underwriter of mortgage securities during his four decades at the firm, was cornered into a potential forced sale after talks about a cash infusion from Korea Development Bank ended, sparking a 70 percent drop in the firm's market value during the past three days. Unlike when JPMorgan Chase & Co. took over Bear Stearns, the Federal Reserve and Treasury aren't likely to put up money for a purchase of Lehman, people briefed on the matter said yesterday.
Poole Says Fed Shouldn't Give Funding to Any Lehman Agreement William Poole, former president of the Federal Reserve Bank of St. Louis, said the U.S. central bank and the government shouldn't provide funding for any purchase of Lehman Brothers Holdings Inc. by another bank. "Absolutely, I would say we cannot provide assistance in this case," Poole said in an interview with Bloomberg Television today. The Fed should tell any bank asking for help to buy Lehman that "this case is different and we're not going to provide that assistance and you've got to make your own decision. We'll help you work through it but we're not going to give you any cash."
U.S. Helps Lehman Go Up for Sale Regulators Are Seeking a Weekend Deal Not Involving Public Money The Federal Reserve and Treasury Department are actively helping Lehman Brothers put itself up for sale, and officials are hoping a deal will be in place this weekend before the Asian markets open on Monday, according to sources familiar with the matter. The government is looking for an agreement that would not involve public money. One scenario that is emerging includes multiple suitors acquiring different pieces of the venerable investment bank, which has suffered staggering losses from its bets on real estate and mortgages. The situation was still fluid yesterday, and there was no guarantee what form an agreement would take or even that it would be in place by Monday, the sources said on condition of anonymity because they had not been authorized to speak.
BofA, JC Flowers, CIC planning joint Lehman Brothers bid Bank of America, JC Flowers & Co, the financial investor, and China Investment Co, the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman Brothers, the embattled Wall Street bank. According to people familiar with the matter, the BofA-led group is among those examining a rescue of Lehman, which is racing to find a buyer after shareholders, creditors and counterparties gave a thumbs-down to its efforts to survive as an independent entity. Lehman shares were trading down 10.7 per cent at $3.77 in mid-morning trading in New York. A forced sale of Lehman Brothers at a fire sale price appears to be the most likely option in the wake of the massive drop in Lehman’s share price over the last few days, people familiar with the matter add. “The only question now is what price,” says one person who has been in discussions with Lehman over possible asset sales as well as with regulators.
Lehman shares down on Paulson bailout reluctance Concern that Lehman Brothers Holdings Inc may fail to find a buyer because the U.S. government is reluctant to provide financial backing sent the investment bank's shares tumbling to a nearly 14-year low on Friday. Bank of America Corp was widely seen as a leading contender for the role of white knight, with British bank Barclays Plc also named as a possibility. The Financial Times reported that BofA, the No. 2 U.S. bank by assets, was considering a joint bid for Lehman along with private equity investor JC Flowers and sovereign wealth fund China Investment Co. Lehman shares fell as much as 16 percent in early trading, though they trimmed those losses by about half following the FT report. Lehman declined to comment.
Lehman Meltdown No Bear Stearns as Money Markets Show No Panic Rising speculation that Lehman Brothers Holdings Inc. may fail is generating less concern among investors than when Bear Stearns Cos. imploded in March. Unlike the days leading up to the forced sale of Bear Stearns to JPMorgan Chase & Co., volatility in the money markets remains relatively muted. The difference between what the U.S. government and banks pay to borrow in dollars for three months, the so-called TED spread, rose 11 points the past two weeks to 121 basis points, compared with an increase of 38 basis points to 160 basis points in the period leading up to Bear's failure. Investors are showing less fear after the Fed set up special lending facilities following the Bear Stearns bailout, giving securities firms the same access to its cash as commercial banks. The ability to tap the Fed for funds means financial troubles at one investment bank are unlikely to bring down others.
Capitalism and the credit crunch What does the great credit crunch do to the case for competitive capitalism? Many revisionist left-of-centre politicians not only have risked their careers to make the case for market forces, but have also had to jettison their deepest lifetime convictions. Are they now to stand on their heads and say they have been wrong all along? And if they did so, where would they turn? Even if in the end we suffer no more than an average post-second- world-war recession it will still look like a narrow escape owing to the readiness of leaders such as Hank Paulson, the US Treasury secretary, not merely to jettison free-market principles but to take risks with prudence to bail out US corporate bodies. There will be no “glad confident morning” for free-market principles for a long time to come.
U.S. Treasury moves to calm Japanese investors Nikkei: U.S. authorities seek to prevent unloading of Fannie, Freddie bonds Seeking to head off any unloading of Fannie Mae and Freddie Mac bonds by Japanese investors, the U.S. Treasury Department is taking the unusual step of directly contacting Japanese financial institutions about the plan to rescue the mortgage giants, according to a published report. Because a massive unloading of Fannie Mae holdings could hamper the U.S. government's efforts to shore up the mortgage firms' finances, the Treasury Department is effectively asking investors to refrain from doing so, Japanese business daily Nikkei said on its Website in a report dated Friday. According to sources familiar with the matter, Treasury Undersecretary for International Affairs David McCormick on Thursday phoned senior executives at major Japanese banks as well as the Life Insurance Association of Japan to explain Washington's plans for Fannie Mae and Freddie Mac, the report said.
What happens if my bank fails? Amid the recent collapse and government seizure of savings and loan giant IndyMac Bank and heightened anxiety this week over the financial stability of No. 1 thrift Washington Mutual Inc., consumers are concerned about the safety of their bank deposits. As of June 30, Seattle-based WaMu and its subsidiaries had assets of $309.73 billion and $181.92 billion in deposits. By comparison, Pasadena, Calif.-based IndyMac had $32 billion in assets and $19 billion in deposits when it was shut down by federal regulators on July 11. If Washington Mutual were to tumble, the magnitude of its failure would dwarf the largest bank collapse in U.S. history -- that of Continental Illinois National Bank in 1984, with $33.6 billion in assets. Besides IndyMac, 10 more federally insured banks and thrifts have failed this year and were closed by regulators, compared with three in all of 2007. Federal banking officials say more institutions are in danger of collapsing as turbulence from the housing slump, mounting defaults on mortgages, and the yearlong credit crisis continues to pile on soured loans for banks.
A Vicious Cycle, Gone Global Oil prices have now dipped back near $100, other commodity prices are in a free fall, interest rates are down, and the dollar is up smartly against just about every currency. From one angle, that all looks to be good news. Since food, energy and commodities were behind the recent surge in prices, inflation suddenly looks like less of a threat, particularly since a strong dollar also lowers the prices of other imports. Lower energy prices take some of the pressure off such hard-hit industries as autos and airlines, and off households that have been forced to cut back on other expenditures. More growth, less inflation -- nothing to complain about there. But what if it weren't that simple? What if what's really happening is that sky-high energy and commodity prices weren't a reflection of a fundamental shift in supply and demand, but merely another speculative investment bubble? And what if that bubble burst because the investment herd finally realized that double-digit annual economic growth in developing countries was not a sure thing -- that it was actually unsustainable, the result of underpriced currencies and an investment boom that had created bubbles in asset prices and economic output?
Orwellian Hogwash The Peter G. Peterson Foundation is now marketing a new documentary called I.O.U.S.A. I have only seen the trailer. Based on my reading the website and watching the trailer, I'd say that it is slick, Orwellian hogwash. If the national debt was almost ten trillion dollars before the housing bill and, if my estimate is right, approximately ten trillion dollars has been stolen since 1997, then do we have a debt problem or do we have an aristocracy problem? One of the beauties of I.O.U.S.A. is that all the luminaries interviewed as experts on this “debt problem” were in a position to stop or warn us that the $10 trillion dollars was leaving. They did not. The implication is that the American people are slobs who are irresponsible and wrecked the place while the leaders who ran the country were helpless to do a thing about it. . . . America does not have a debt problem. We have a political problem. We have created a system where secret governments can steal and have Congress, the U.S. Treasury, and the Federal Reserve replace whatever they stole. The theory is that the end of the world will come unless we bail them out. That is not true, for all the reasons you learned in kindergarten about letting bullies have their way.
Gold up 1 pct on bargain hunting, tone cautious Gold gained more than 1 percent on Friday after falling to its weakest since October 2007, but investors refrained from taking large positions, with their confidence already shaken by turmoil in financial markets. Platinum jumped more than 4 percent on bargain hunting but poor car sales weighed on sentiment. Reports that U.S. investment bank Lehman Brothers was in talk about a possible sale may also encourage investors to ditch commodities, including precious metals. Gold rose to $750.90/751.70 an ounce from $739.60/741.20 an ounce late in New York on bargain hunting and steadier oil. It struck an 11-month low of $736.00 on Thursday after the dollar hit another 1-year high against the euro. "News on Lehman seems pretty substantial at the moment and the markets are reacting rather edgy. But I think the real driver now is the dollar. It seems very strong," said Adriah Koh, an analyst at Phillip Futures in Singapore.
Merrill Lynch shares catch Lehman bug Merrill Lynch & Co Inc's shares fell nearly 17 percent on Thursday as worries over Lehman Brothers Holdings Inc's future raised questions on which investment bank may be next to face questions about its survival. "I think the market's telling you that if Lehman is going to go away, Merrill is probably the next victim," said Malcolm Polley, chief investment officer at Stewart Capital Advisors. Lehman shares slid 42 percent to $4.22, dragging the entire sector lower. Merrill stock fell was especially hard hit because it is seen as having similar weaknesses, investors said. Merrill fell $3.87 to $19.43 on the New York Stock Exchange to their lowest level in nearly 10 years. The decline reflected investor concerns that the bank's commercial mortgage exposure might cause more write-downs.
WaMu cut to "junk," sees $4.5 billion loss reserve Washington Mutual Inc was downgraded to below investment-grade status by Moody's Investors Service, after the largest U.S. savings and loan projected a $4.5 billion third-quarter increase in reserves for bad loans but said it has more than enough capital. Moody's cut the Seattle-based thrift's senior unsecured debt rating two notches to "Ba2," its second-highest "junk" grade, from "Baa3," with a "negative" outlook. It also lowered its rating for the banking unit to "Baa3" from "Baa2." "Washington Mutual's access to the debt and equity markets remains severely constrained," Craig Emrick, a Moody's senior credit officer, said in an interview.
Goldman May Take $2B Mark-to-Market Loss Goldman Sachs Group Inc may incur mark-to-market losses of about $2 billion from its remaining exposure to troubled assets, said Deutsche Bank analyst Mike Mayo, who cut his third-quarter earnings outlook for the company. Analysts at Keefe, Bruyette, Woods also cut their quarterly profit forecast on the largest U.S. securities firm. Shares of Goldman Sachs fell as much as 5 percent in morning trade on Thursday, after analysts cut their estimates and Lehman Brothers Holdings Inc's weak third-quarter results sparked worries over the health of the financial sector.
Lehman in sale talks as survival questioned Lehman Brothers Holdings Inc was forced into talks about a possible sale after the Wall Street investment bank's shares plunged more than 40 percent on Thursday, raising questions about its survival. Lehman and U.S. officials were in intensive discussions about a number of options, including a complete sale, sources with direct knowledge of the talks said. One of the sources said the firm was resisting government intervention. The Treasury and Federal Reserve were engaged in the talks, which could be completed as soon as this weekend, a second source said. The U.S. government is hoping to avoid spending money on a bailout, another person familiar with the situation told Reuters. Bank of America Corp or Barclays could be suitors, according to various reports. Bank of America, Barclays and Lehman declined to comment.
Consumer debt defaults looming large As more Americans lose jobs, credit cards, loans won't be paid The government doesn't want Fannie Mae or Freddie Mac to go broke, but it better start thinking about what happens if the rest of us do. The latest data on the job market paint an ugly picture: The unemployment rate shot to a five-year high in August, and payrolls are being cut at an alarming rate. With more people out of work, that likely means many are having a tougher time paying their bills. If that leads to a surge in defaults on debt assets beyond just mortgages, such as credit cards, auto loans and more, we can forget about the credit crisis being over any time soon.
Don't Rule Out Another Fed Rate Cut This Year Though there’s virtually no chance the Fed will change interest rates at its meeting next Tuesday, there’s a growing likelihood it will make subtle changes in the language of its policy statement, placing greater emphasis on the risks to growth than the threat of inflation. And that may be the first step in a stunning policy reversal that could lead to yet another interest rate cut at the end of this year or early 2009, a move widely considered out of the question as little as a week ago. With both the labor market and consumer spending behaving worse than expected and the economic growth of the second quarter likely to peter out sometime in the following two quarters, the Fed’s aggressive rate cutting earlier this year looks unlikely to achieve a soft landing.
Money for Highway Trust Fund The Senate voted to shift $8 billion into the highway trust fund, staving off what could have been crippling delays in federal aid for road and bridge projects around the country. The voice vote came five days after Transportation Secretary Mary Peters said the trust fund would be out of money by the end of the month. The House passed a nearly identical bill in July and was expected to act quickly to send a final version of the legislation to the president.
No V-Shaped Recovery For Housing If you're hoping that home prices will recover as sharply as they fell, forget it, says Robert Shiller, Yale economist and co-developer of the Case-Shiller housing index. Housing markets simply don't experience the "V-shaped" recoveries that most of the homeowners who Shiller and Karl Case recently surveyed believe, Shiller said in an interview with Yahoo Finance. "Homeowners are not as optimistic as they used to be, but it's still widely believed that home prices are going to go up quite substantially in the long run," Shiller reports, adding that recovery level expectations are still way too high
No Sign Home Prices Stabilizing Federal Reserve Vice Chairman Donald Kohn said on Thursday there was no clear evidence the plunge in U.S. house prices was coming to an end. "The jury is still out on whether housing prices are close to finding a bottom," Kohn said in prepared remarks for delivery at a Brookings Institution conference where he was commenting on a series of academic papers. He said some researchers have noted some easing in the pace of home price declines in some markets but said mortgage conditions have tightened since spring and that may have a further impact on prices since it makes it harder for buyers to qualify.
Democrats call for 90-day foreclosure freeze Senators urge Fannie Mae and Freddie Mac not to foreclose on mortgages they hold and help borrowers stay in homes. Senate Democrats are urging Fannie Mae and Freddie Mac to immediately freeze foreclosures on mortgages they hold. The troubled home loan giants, seized by the government Sunday, should instead work to help struggling borrowers stay in their homes, four senators say in a letter to the firms' new chief executives and the regulator now controlling them. They're calling for a 90-day freeze on foreclosures
Fannie, Freddie Urged to Halt Foreclosures U.S. Senate Democrats Thursday urged Fannie Mae and Freddie Mac to halt all pending foreclosure proceedings on mortgages they hold for at least 90 days. In a letter to the mortgage finance companies and their regulator Federal Housing Finance Agency Director James Lockhart, four members of the Senate Banking Committee said the loan modifications could help both homeowners and the companies. The U.S. government took both troubled companies into conservatorship at the weekend. The senators also asked them to revisit their policies and practices governing modifications involving mortgage backed securities issued by the agencies.
Continuing Jobless Claims Soar to 5-Yr. High The number of U.S. workers filing new claims for jobless benefits declined by 6,000 last week, the Labor Department reported Thursday, but the longer-term trend toward a weakening labor market remained intact. Initial claims for state unemployment insurance benefits dropped to a seasonally adjusted 445,000 during the week ended Sept. 6 from a revised 451,000 in the prior week. Analysts polled by Reuters had forecast 440,000 claims last week. The latest reporting week included the Labor Day holiday but department officials said seasonal adjustment factors took that into account.
A Dozen Companies Which Should Lay-Off 10,000 People This Year The evidence that sales at many companies are struggling and that employment will suffer are almost everywhere. Recently, a division of GMAC said it would let 5,000 people go. According to MSNBC, "Job cuts announced by U.S. employers last month jumped 12 percent over a year ago to cap the busiest summer of downsizing in six years." Job cuts through October could top what they were for all of 2007. The economy is beginning to look like it did during the deep recessions in the early 1990s and 1973. Eric Rosengren, the president of the Boston Federal Reserve Bank, sees the situation getting much darker in the second half. Speaking of deteriorating financial conditions he said, "It may push the unemployment rate up to 6%, with more than 2 million people losing their jobs since the financial turmoil began last summer.".
Trade Deficit Surges to 16-Month High America's trade deficit shot up in July to the highest level in 16 months as oil imports hit an all-time high, offsetting strong export growth. The deficit with China climbed to the second highest level on record. The Commerce Department reported Thursday that the deficit rose by 5.7 percent to $62.2 billion in July, much worse than the $58 billion deficit that Wall Street expected. It pushed the gap between what America imports and what it sells abroad to the highest level since March 2007. The trade deterioration reflected the fact that crude oil prices hit a record in July, pushing America's foreign oil bill to an all-time high of $51.4 billion, up 13.7 percent from June.
Seeking Federal Loans, Automakers Cite Alternative-Energy Goals General Motors says federal dollars could help advance its electric Chevrolet Volt, whose chassis was on display in January. “It’s a way for us to accelerate technology so you can get it in the hands of people faster and so they can afford it,” Chrysler’s vice chairman, James E. Press, said at an industry event. His comments came as Congressional leaders began discussions on whether to pay for the loan program that was created last year as part of legislation requiring a 40 percent increase in fuel economy.
Made (again) in America The rising cost of labor and shipping abroad are driving manufacturing back to the U.S. So are the logistics of dealing with far-flung suppliers. Talk of a reverse migration of manufacturing from China to the U.S. has been buzzing across union halls and factory floors, corporate boardrooms and Wall Street. The cost of shipping outsourced goods from China to U.S. customers has doubled in just two years thanks to high oil prices, and labor costs in China are rising sharply.
Rule Changes Would Give FBI Agents Extensive New Powers The Justice Department will unveil changes to FBI ground rules today that would put much more power into the hands of line agents pursuing leads on national security, foreign intelligence and even ordinary criminal cases. The overhaul, the most substantial revision to FBI operating instructions in years, also would ease some reporting requirements between agents, their supervisors and federal prosecutors in what authorities call a critical effort to improve information gathering and detect terrorist threats. The changes would give the FBI's more than 12,000 agents the ability at a much earlier stage to conduct physical surveillance, solicit informants and interview friends of people they are investigating without the approval of a bureau supervisor. Such techniques are currently available only after FBI agents have opened an investigation and developed a reasonable suspicion that a crime has been committed or that a threat to national security is developing
The next little thing? In his 20s, Michael Janzen made pottery and lived in a cabin in rural California that he estimates was "about the size of a two-car garage." After he married, he went into Web design for a bank, and now at 40 has all the trappings of a successful homeowner: in-ground pool, maid service, a yard landscaped with Japanese black pine bonsai trees. His 1,800-square-foot home in Fair Oaks, California, a one-story model by Streng Brothers, midcentury builders in the Eichler mold, is of a kind coveted by fans of modern design. So why has Janzen spent the summer building an 80-square-foot "tiny house" out of free stuff he found on Craigslist? There he is on nights and weekends, designing a floor plan whose dimensions are measured not in feet but inches, nailing scavenged wood pallets together for the frame, or fixing up an old trailer to serve as the foundation. The initial reaction from his wife, Julia: "Is this a Unabomber building?"
Another North Korean missile site found North Korea has quietly built a long-range missile base that is larger and more capable than an older and well-known launching pad for intercontinental ballistic missiles, according to independent analysts relying on new satellite images of the site and other data. Analysts provided images of the previously secret site to The Associated Press. Construction on the site on North Korea's west coast began at least eight years ago, according to Joseph Bermudez Jr., senior analyst with Jane's Information Group, and Tim Brown with Talent-keyhole.com, a private satellite imagery analysis company. Bermudez first located the site in early spring, and analysts have tracked its construction using commercial and unclassified satellite imagery. "The primary purpose of the facility is to test," Bermudez said in an interview last week. A base capable of a long-range test could obviously be used in wartime to launch a missile that carried a warhead. "This is a clear indication North Korea is continuing its ballistic missile development program," Bermudez said.
Venezuela insults United States, expels ambassador Venezuela's President Hugo Chavez has thrust the OPEC nation into its worst diplomatic crisis for years by expelling the U.S. ambassador in a growing feud between Washington and Latin America's leftist leaders. Chavez, who calls ex-Cuban leader Fidel Castro his mentor, also on Thursday repeated a threat he has made often to cut off Venezuela's oil supply to the United States. "Go to hell, shit Yankees, we are a dignified people, go to hell a hundred times," Chavez shouted at a political rally to thousands of roaring supporters dressed in red. Chavez is the most radical of a growing number of leftist governments in Latin America that to a greater or lesser degree oppose Washington's traditional dominance in Latin America.
Atomic Allies Iran’s entrance into the club of nuclear nations is imminent and “irreversible.” So says Leonid Reznikov, president of the state-run Russian company Atomstroiexport. Reznikov ought to know. After all, his company is building Iran’s first nuclear plant. Referring to Iran’s atomic power plant in Bushehr, Reznikov recently speculated that it is just months away from becoming fully operational. “I think that in December, January and February a whole range of technological events will be conducted that will demonstrate the irreversibility of the plant's physical launch in the foreseeable future,” Reznikov said.
A North Korea Without Kim Jong-il Rumors that Kim Jong-il suffered a stroke have triggered concerns over the ramifications of instability and regime change in North Korea, particularly in regards to that nation's arsenal of nuclear weapons. Over the years, there have been scores of rumors regarding Kim, including illness, incapacitation, coup, assassination, and even death. Subsequently, jaded Korea watchers view such reports with skepticism. But one day the rumors will be true, and the most recent report could certainly be the one. For that reason, it is important to carefully and dispassionately think through all that Kim's departure from power might mean. Of course, the demise of Kim's regime would present an enormous opportunity to achieve peace, security, and freedom on the Korean Peninsula. But as much as the peninsula—and the world, for that matter—stands to gain, the opportunity comes with a number of difficult, dangerous problems
Danger in South Asia If most Americans think Iran and Georgia are the two most volatile flashpoints in the world, one can hardly blame them. The possibility that the Bush administration might strike at Tehran's nuclear facilities has been hinted about for the past two years, and the White House's pronouncements on Russia seem like Cold War déjà vu. But accelerating tensions between India and Pakistan, coupled with Washington's increasing focus on Afghanistan, might just make South Asia the most dangerous place in the world right now, a region where entirely too many people are thinking the unthinkable.
Why Our Elites Fear Faith NOTHING in recent memory has driven home the divide between our self-appointed aristocracy and "commoners" as sharply as the intelligentsia's rush to mock Gov. Sarah Palin's religious faith. While the attacks and insults are backfiring on the mortified elites, the double standard applied to "Sarah America" is a disgrace that can't be excused as "just politics." Certainly, much of the left-wing fury over Palin stems from the Democratic Party's assumption that it "owned" the exclusive right to nominate women to the executive branch (despite the crushing of Hillary Clinton's candidacy). How dare the Republicans advance a woman? How dare they change this year's election script? But the root of the left's dread of this happily married mother of five seems to be that she actually believes in God: How could anyone be that stupid?
Saudi: OK to kill owners of 'immoral' TV networks Top cleric in Saudi judiciary: it's OK to kill owners of TV networks airing 'immoral content' Saudi Arabia's top judiciary official has issued a religious decree saying it is permissible to kill the owners of satellite TV networks that broadcast immoral content. The 79-year-old Sheik Saleh al-Lihedan said Thursday that satellite channels cause the "deviance of thousands of people." Many of the most popular Arab satellite networks -- which include channels showing music videos often denounced as obscene by Muslim conservatives -- are owned by Saudi princes and well-connected Saudi businessmen. Al-Lihedan did not specify any particular channels. Al-Lihedan is chief of the kingdom's highest tribunal, the Supreme Judiciary Council. Saudi Arabia's judiciary is made up of Islamic clerics whose decrees, or fatwas, on everyday issues are widely respected. Their fatwas do not have the weight of law. In the courts, cleric-judges rule according to Islamic law, but interpretations can vary.
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Thurs 09.11.2008
Fed's next move could be to lower rates The central bank is likely to keep its key interest rate at 2% at its September 16 meeting but expectations are growing for a rate cut before year's end. While the Federal Reserve is widely expected to once again hold a key interest rate at 2% when it meets on Tuesday, there is a growing sense that the Fed may have to cut rates by the end of the year. If the Fed does so, it would mark a dramatic change in the central bank's assessment of the economy. As recently as the Fed's last meeting in August, Fed members indicated that their next move would be to hike rates at some undetermined point in the future in order to fight inflation. The Fed typically lowers interest rates during an economic slowdown in order to stimulate more borrowing and looks to raise them when it is more concerned about inflation.
Is The Big One Coming? The market is rumbling and absent the implicit Government guarantee - which differs from the explicit guarantee we saw on Sunday - the question is simple: Who will step in and save the day? We've long discussed the laws of diminishing ammunition, offering that the last bullet would be pointed inward. Using another analogy, leaks are springing all over the financial dam and there are only so many fingers to plug those holes, particularly after two fingers - the middle one on each hand - were used on Sunday. Faith in the system -- credibility, psychology, perception, social mood and risk appetite -- is paramount here.
The Hidden Bailout Of $1.4 Trillion In Fannie / Freddie Credit-Default Swaps Something extraordinary happened on Monday, September the 8th, 2008. The government takeover of Fannie Mae and Freddie Mac triggered the pending settlement of $1.4 trillion in credit-default swaps. This single event could have led to a cascading series of failures that might have bankrupted Wall Street - and much of the rest of the financial world - by the end of the week. That isn't happening, and indeed, the media is treating this as something close to a non-event. However, a very real $1.4 trillion event happened - whose resolution effectively constitutes one of the largest government bailouts in history. Nobody noticed, for even though this is occurring in "plain sight", the simple fact is that few people outside of the financial industry understand the $600 trillion derivative securities market. In this article, written the day after the event, we will briefly explain why this hidden, massive bailout - not of Fannie and Freddie but of the financial derivatives industry - is hugely significant, with potentially profound - and arbitragable - implications for the dollar, the markets and your personal financial future.
Fed May Expand Funding Aid to Banks in a 'Mother of Year-Ends' The Federal Reserve may have to increase the cash it provides to banks and brokers, already a record, to help them balance their books at the end of the year. Six bank failures in the past two months and rising concern about Lehman Brothers Holdings Inc.'s capital levels pushed lenders' borrowing costs to near a four-month high yesterday. They may climb further as companies rush for cash to settle trades and buttress their balance sheets at year-end.
US authorities hope for private solution The US authorities are desperately hoping that Lehman Brothers’ efforts to find a private-sector solution to its troubles succeed – knowing that failure to do so would force them to consider yet another large-scale bail-out. That choice would be a very difficult one, in part because of the lack of a proper legal framework for dealing with the orderly unwinding of investment banks. "There are no good options," one former policymaker told the Financial Times. US officials are anxious not to fuel moral hazard. “You have to draw the line somewhere,” a second former official said. Yet there remains deep concern over systemic dangers. Moreover, experts worry that if Lehman succumbs, market pressure could simply shift to Merrill Lynch.
HAS HEDGING KILLED THE GOOSE THAT WAS TO LAY THE GOLDEN EGG? Gold mining executives would like to forget the hedging fiasco as you would the worst nightmare of your life. But the ghost of this greatest shareholder rip-off will not let them. It keeps haunting them, and for a very good reason, too. There are still more skeletons in the cupboard. Just take a look at gold mining share prices and their reaction, or rather the lack of it, to the unfolding banking crisis. They eloquently tell a tale of deep distrust in the veracity and competence of gold mining executives. This is an industry that is totally incapable of analyzing and admitting past mistakes, let alone learning from them. The full extent of the fiasco will not be known for many more years because we don’t know how high the gold price will go in the wake of the banking crisis. What is clear already is the disconnect between gold and gold mining shares. It will remain as long as the industry fails to get its past and present sins off its chest and reform itself. According to a Hungarian proverb, dead fish stink because of the head. This can be readily applied to the gold mining industry which obviously stinks. Senior gold producers pretend that it is business as usual. It is not. The same executives responsible for the rip-off are still in charge.
What Glitters Is Gold Producers As Call Contracts Draw Interest $$ Options traders appeared to be making bullish bets on gold producers despite a 3.7% drop in the price of the metal that marked the eighth straight day of losses. Among the most active companies was Barrick Gold Corp. Trading in the Toronto producer jumped to twice the normal level, according to Track Data, with investors picking up 37,000 "call" contracts, which allow them to buy the company's stock, and 19,000 "put" contracts, which allow them to sell it. . . . "Some people might think the selloff in gold has been a little overdone," said Frederic Ruffy, an analyst with WhatsTrading.com. "The price has fallen more than 8% in the last several sessions, and that's a pretty substantial move."
China's Absence Is Killing Commodity Plays It's China, stupid. We have to stop kidding ourselves that the only reason commodity plays are going down is because of selling by hedge funds. Sure, it's exacerbating and speeding it up and taking it to levels where it may not even matter whether China exists, but it is all China, or more specifically, the absence of China. Take steel. An article in the Financial Times about steel consumption last week stated point-blank that it is going to slow "markedly" in the second half of this year. When you combining tight central banks in Europe -- totally as ridiculous as the tight money in the U.S. while it was obvious what was going to happen.
The Commodities Nightmare "It's never been harder to buy anything commodity related," Jim Cramer told viewers of his "Mad Money" TV show Tuesday. "And it may not be worth your time, effort or sanity." Cramer said commodity stocks bear no relation to the actual health of the companies. In effect, companies that are doing well are seeing their stocks slammed in the stock market. That's because these stocks are completely under the control of large hedge funds, some of whom are much larger than the companies they trade, he said. With the end of the quarter nearing and fund redemptions on the rise, Cramer said there's a rush to get out of the commodity stocks like he's never seen before. He said the speed and volatility of the decline in some of these stocks is mind-blowing.
Gold prices skid to 1-year low on stronger dollar Gold prices tumbled to their lowest levels in a year Wednesday due to a stronger dollar, which has sharply curtailed investors' appetite for precious metals. Silver hit a two-year low. In other commodities, crude oil fell slightly while corn, soybeans and wheat also traded lower. The dollar has gained ground against the euro and other currencies in recent days as speculation mounts that an economic slowdown that has hampered the United States is spreading to Europe and Japan. The 15-nation euro bought $1.401 on Wednesday, down slightly from $1.4168 late Tuesday. A stronger dollar is considered bearish for commodities, which are usually bought by investors seeking a hedge against inflation or weakness in the U.S. currency.
Panicking Out of Gold is Not the Answer Watching the US markets, including the dollar, rally of late in light of the stream of horrific economic news, including this past weekend's announcement of a historic US government bailout of Fannie Mae and Freddie Mac, was sort of like watching Barry Bonds chase down Hank Aaron's all-time baseball home run record last year. One watched him being cheered at his home base of AT&T Park in San Francisco as he got closer to that record, but Bonds was booed most everywhere else he played in light of the steroids revelations and his alleged use of them. Human nature and emotions being what they are, the reaction of his "home crowd" was understandable; but surely, they too, in time, would come to realize what everyone else did, despite any short-term hysteria. That is where I believe we are today with this ongoing dollar rally and continued decline in the gold and commodities sector. Despite the news of physical shortages and delivery delays for the precious metals, their paper prices continue to plunge. Short term "noise" can distort and throw for a loop the best laid out strategies and investments, to be sure.
Another Day, Another Bank: Is WaMu Next? Analysts Say That the U.S. Mortgage Crisis Could Sink the Bank As investment bank Lehman Brothers fights for its survival, some wonder whether the U.S. mortgage crisis will take down another major financial institution: Washington Mutual. WaMu "is the next most likely candidate to have major issues and run into a Lehman-type situation," said Jaime Peters, an analyst with Morningstar in Chicago. "They got into subprime lending, they got into ARMs [adjustable-rate mortgages]. Their home equity book is quite large, and these losses are building and building and building on their balance sheets and they simply do not have the capital to absorb these easily," Peters said. Since April, the bank's share price has plummeted some 75 percent from $13.15 to under $3 during trading today. In July, the bank reported a $3.3 billion loss for the second quarter. WaMu is especially vulnerable because many of its mortgage investments are in places with the weakest housing markets, said Lawrence J. White, an economics professor at New York University's Stern School of Business.
WaMu Falls 30 Percent to 17-Year Low Washington Mutual Inc shares sank 30 percent to a 17-year low and the perceived risk of its debt soared on worries the largest U.S. savings and loan will not find a buyer or raise enough capital to combat soaring mortgage losses. The stock closed down 98 cents at $2.32 on the New York Stock Exchange, and are down 44 percent in the last two days. It fell earlier to $2.30, the lowest since January 1991, according to Reuters data. Analysts attributed the decline in part to anxiety that potential buyers might walk away because of a pending accounting rule requiring they value the assets of targets at market prices, and perhaps the need to raise capital.
Federal Shortfall To Double This Year Next President To Inherit Deficit Of $500 Billion A weak economy and a sharp increase in government spending will drive the federal budget deficit to a near-record $407 billion when the budget year ends later this month, and the next president is likely to face a shortfall in January of well over $500 billion, congressional budget analysts said yesterday. A deficit of that magnitude could severely constrain the next administration's agenda, regardless of whether Sen. John McCain (Ariz.), the Republican candidate, or Sen. Barack Obama (Ill.), his Democratic opponent, wins in November. Each has promised billions in new tax cuts or new spending. The expanding deficit also will increase the national debt and could impair future economic growth, particularly if lawmakers are forced to pay down that debt by raising taxes.
Fed auctions $25B to banks The sale of the 84-day loans is the Fed's latest attempt to help squeezed banks recover from credit stresses. The Federal Reserve has auctioned another $25 billion in loans to squeezed banks to help them overcome credit problems. The central bank on Wednesday released the results of its most recent auction. It's part of an ongoing program started in December that seeks to ease financial turmoil and credit stresses. Those programs -- along with the depressed housing market -- have shaken the economy, forcing companies and people to clamp down. In the latest auction, commercial banks paid an interest rate of 2.530% for the 28-day loans. There were 53 bidders. The Fed received bids for $46.24 billion worth of the loans. On Tuesday, the Fed auctioned $25 billion worth of 84-day loans to banks.
Lehman Retools In Bid for Recovery Investment Bank Loses $3.9 Billion In Third Quarter Lehman Brothers, anxious to show it can weather a credit crisis that contributed to the firm's $3.9 billion third-quarter loss, said Wednesday that it would sell a majority stake in its investment-management division, slash its dividend and spin off about $30 billion of real estate assets. The announcement did little to calm investors' concerns that Lehman, the smallest of the four major Wall Street investment banks, might suffer the same fate as former rival Bear Stearns, which was acquired by J.P. Morgan Chase in a deal regulators brokered in March after a bank run that shook the securities industry.
A Bid to Rescue Homeownership As soon as I heard about the federal government's takeover of Fannie Mae and Freddie Mac, I began wondering what this will mean for homeowners long-term. First, to fully understand the importance of these two companies and their bailout, you have to appreciate how they helped millions of people become homeowners. Fannie and Freddie don't directly lend money to individuals. Instead, they were created to establish a regular flow of money to lenders who actually make home loans. The institutions buy loans from mortgage lenders -- commercial banks, savings institutions and credit unions. That in turn allows those institutions to make additional home loans. Fannie Mae was created in 1938 during the administration of President Franklin D. Roosevelt when millions of families couldn't afford to buy a home. Freddie Mac came along 32 years later.
Don't Steal…the Government Hates Competition 'Taxpayers take on trillions in risk,' says the headline in yesterday's USA Today. 'You can call it a bailout, you can call it a safety net or you can call it a rescue package,' the paper quoted a research director at Argus Research, ‘but the bottom line is the American taxpayer is left footing the bill.’ The story is breathtaking. Staggering. Dumbfounding. But there it is - the biggest nationalization in history. Freddie and Fannie finance 3 out of 4 new mortgages. And now, the mortgage industry depends neither on willing buyers and sellers…nor on willing lenders and borrowers…but on the U.S. government. The Land of the Free has put its housing under the control of the state! Yes, there is still plenty of room for private initiative and private decision-making. But, ultimately, millions of Americans now depend on the U.S. government for the roofs over their heads.
This article from 20 July, 2008 ---
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.
And this article - from 24 July, 2008 (Europe 'got the picture' before we did) --
Fannie’s and Freddie’s free lunch Much has been made in recent years of private/public partnerships. The US government is about to embark on another example of such a partnership, in which the private sector takes the profits and the public sector bears the risk. The proposed bail-out of Fannie Mae and Freddie Mac entails the socialisation of risk – with all the long-term adverse implications for moral hazard – from an administration supposedly committed to free-market principles. Defenders of the bail-out argue that these institutions are too big to be allowed to fail. If that is the case, the government had a responsibility to regulate them so that they would not fail. No insurance company would provide fire insurance without demanding adequate sprinklers; none would leave it to “self-regulation”. But that is what we have done with the financial system.
A Quantum Leap Toward Socialism Unfortunately, we Americans now realize that the decision by Ben Bernanke to slash the Fed Funds rate to 2% (a three hundred twenty five basis point reduction) was just the opening act in this Republican administration's socialism play. At the time some wondered why the government didn't just allow home prices fall to historical averages rather than seeking to lower the value of the U.S. dollar and send inflation to a 17-year high. Now we have learned just this past weekend that the Department of the Treasury has come up with a plan for conservatorship of the GSEs, enacting the largest bailout in the history of the United States.
Democrats pushing 2nd stimulus package With the economy the No. 1 issue just eight weeks from Election Day, majority-party Democrats are trying to push a second stimulus package through Congress to follow the tax rebate checks sent out earlier this year. So far, Republicans are not joining the march, echoing the reservations expressed by presidential nominee John McCain and the White House. Pressure is building for lawmakers to do something — anything, perhaps. Democratic leaders plan to forge ahead with a $50 billion stimulus package in the short time Congress will be in session between now and the election. "It's about jobs. Jobs, jobs, jobs, jobs — a four-letter word," House Speaker Nancy Pelosi said Tuesday, discussing possible contents of a stimulus package.
Robbing the Poor of Jeffersonian Wisdom "Because the government (in our case, through its proxy the Federal Reserve) creates excessive amounts of money and credit...the poor must consume less, and the money they spend flows to the rich guys who borrowed the money in the first place!"
President Thomas Jefferson once said, "A government big enough to give you everything you want is big enough to take away everything you have."
Naturally, I am jealous of Thomas Jefferson, as he gets quoted all over the place, whereas the only time I was ever quoted was that time when I said, "I'm innocent, I tells ya!" which made everybody laugh because everybody knew I wasn't, since they had all that videotape evidence, two busloads of eye witnesses, and the cranky old woman herself yelling, "That's him, officer! That's the guy who called me a stupid, moronic, ugly, half-witted old bag because I would not agree to buy more gold, silver and oil to somehow 'save myself' from the economic collapse that he sees coming as a result of the Federal Reserve creating all that excess money and credit all those years, especially since 1997 when it REALLY got cranking! And he wanted to me give him twenty dollars as a donation to finance his trip to track down Alan Greenspan, former chairman of the Federal Reserve from 1987-2006, and slap his nasty, ugly face as but a small prelude to the punishment he deserves for what he has done to the country and its money!"
Don't Like Bailouts? Consider the Alternatives. First came the rescue of Bear Stearns and the Fed loans to cash-strapped investment banks. Then the government stepped in to fill the financing gap left when private lenders retreated from the college loan business. Last weekend brought the takeover of Fannie Mae and Freddie Mac. And now the Not-So-Big Three are headed our way looking for $50 billion in retooling loans. Don't Like Bailouts? Consider the Alternatives. When is this going to end? The honest answer: With stock markets swinging 300 points a day and the economy diving into recession, not anytime soon. Indeed, the chances are pretty good that by year's end, Washington will have to bail out another big bank or investment house along with a bond insurer or two. And taxpayers will be called on to replenish the coffers of the federal agencies that insure private bank deposits and private pensions.
A Bid to Rescue Homeownership As soon as I heard about the federal government's takeover of Fannie Mae and Freddie Mac, I began wondering what this will mean for homeowners long-term. First, to fully understand the importance of these two companies and their bailout, you have to appreciate how they helped millions of people become homeowners. Fannie and Freddie don't directly lend money to individuals. Instead, they were created to establish a regular flow of money to lenders who actually make home loans. The institutions buy loans from mortgage lenders -- commercial banks, savings institutions and credit unions. That in turn allows those institutions to make additional home loans.
Senate OKs $8B for highway trust fund Lawmakers attempt to avoid crippling delays in federal funding as gas tax revenues dry up. The Senate is putting $8 billion into the highway trust fund in a move to stave off what could be crippling delays to federal aid for road and bridge projects around the country. The Senate voice vote came two days after Transportation Secretary Mary Peters said the trust fund would go broke by the end of this month. The fund is made up of money drivers pay through federal gas taxes and is the main source of funds for transportation construction projects.
Energy bill: Drowning in Washington Senators to convene at Capitol Hill energy summit on Friday but experts are skeptical as to whether Congress can agree on an energy bill by Sept. 26 deadline. An energy summit is taking place Friday on Capitol Hill and all 100 senators - including the presidential candidates - are invited to attend. But with all the partisan sniping on The Hill, it's hard to tell if a comprehensive energy bill will be signed into law anytime soon. There have been numerous attempts to get a bill passed to change America's energy policy in the face of high gas prices and an over-reliance on overseas energy sources - and all have succumbed to partisan politics. Democrats and Republicans are still working on multiple bills, but none of them are close to being signed into law. Now, with an adjournment goal of Sept. 26, the Senate is facing crunch time.
Consumer Spending Joy Ride is Over For years, the U.S. consumer carried the country's economy and acted as the spender of last resort for the rest of the world. But the consumer spending joy ride is over, and consumers are not likely to reverse their behavior until 2010, says Diane Swonk, chief economist and senior managing director at Mesirow Financial. "We are not likely to see consumers become a major driver of overall economic growth until well into 2010," she recently wrote in a note to investors. Excessive, easy credit provided the bulk of support for consumer spending, especially in the housing and vehicle market. But that began to change last year. Consumer spending has only been expanding at 1.2 percent in the last year.
Managing credit card changes Your credit card terms may be getting a makeover, for the worse. Thanks to the ailing economy, a tight credit market and banking woes, credit card issuers are increasing fees or slashing risk. Here's what you need to know. First, interest rates on credit cards are trickling higher, says Curtis Arnold of Cardratings.com. In addition, fees on balance transfers are going up. Credit lines have been cut up to 50% in some cases he says. Reward cards carry more strings; card issuers have been increasingly closing out credit cards if you haven't been using them frequently enough. And variable rate credit cards are putting floors on how low the interest rate can fall to, according to Arnold.
As Credit Lines Fade, Credit Cards Step In The credit card offers are in the mail. Just as the slowing economy has made access to cash a higher priority for a lot of small businesses, banks have become more reluctant to extend traditional lines of credit to those businesses, experts say. But banks have been offering "small business" credit cards. Bank cards and lines of credit both offer money when it is needed, but there is a fundamental difference: lines of credit have low, fixed interest rates or slow-moving, variable ones, while interest rates on credit cards can jump unpredictably. “Small-business cards have fundamentally replaced lines of credit,” said Alan L. Carsrud, executive director of the Global Entrepreneurship Center at Florida International University in Miami.
Slowing Hawaii economy brings more bankruptcies Hawaii economy slows, bankruptcies jump with sharpest increase this year Hawaii bankruptcy filings jumped 50 percent last as consumers struggling with mortgage payments, rising gas prices and credit card debt sought protection from the court. There were 187 filings at U.S. Bankruptcy Court in Honolulu, nearly all personal bankruptcy filings. The 50 percent spike from August 2007 was the sharpest increase this year. Bankruptcies across the nation have been rising as the economy slows and housing prices drop. Locally, Hawaii's economy has been hit hard by falling tourism, higher gasoline and electricity prices, costlier groceries and more than 5,300 layoffs since the beginning of the year. Many people are filing because they can't make their mortgage payments, said bankruptcy attorney Stuart Ing, adding he's hiring more staff to keep up with the increased business.
United States a Cheap Manufacturing Haven The latest cheap manufacturing haven for European companies isn't China or Eastern Europe. It's the United States, say top executives of some of the country's largest companies. The reason isn't the still relatively cheap dollar, it's the increasing size of financial incentives that are drawing foreign manufacturers stateside. "With the amount of money U.S. states are willing to throw at you, you would be stupid to turn them down at the moment," a senior executive at Fiat told the Financial Times. "It is one of the low-cost locations to be in at the moment."
Union says Boeing strike is about contractors Aerospace giant wants to maintain freedom to use contingent workers Boeing’s striking workers are on the front line of a battle for job security that’s playing out in workplaces across the country, unionized or not. At the heart of the scrimmage between the International Association of Machinists and Aerospace Workers and Boeing’s management is the growing use of contract workers at factories doing the same jobs as full-time union employees. “It’s a big deal here. We call it job security,” said Mark Blondin, chief negotiator for the union.
NYers take second jobs to make ends meet More than a third of the city's residents have taken a second job or added overtime to compensate for the economy, while more than half believe standards of living will decline for the next generation New Yorkers are trying to take their economic fate into their own hands by seeking overtime and getting second jobs, according to a poll released Wednesday by the Siena Research Institute. In the last six months, 34% of the state’s residents have started a second job or added overtime to their schedules to make ends meet. Of the respondents, 13% of retirees said they’ve taken on extra work, as did 43% of lower-income residents. Researchers said that residents are partly trying to save up for their winter energy bills. "Gas and food prices have most people’s attention, and many are driving less, juggling spending or rewriting the family shopping list to include more store brands and fewer cookies, but everyone is bracing for the heating bills this winter," said Don Levy, founder of the Siena Research Institute, in a statement. "Upstate, downstate; all incomes, nearly 80% of New Yorkers are concerned about the bite energy will take when the weather turns."
Gov't officials probed about illicit sex, gifts Fed watchdog reveals improper relationships among oil brokers, energy company employees Government brokers responsible for collecting billions of dollars in federal oil royalties operated in a "culture of substance abuse and promiscuity" that included having sex with energy company employees, accepting lavish gifts and rigging contracts to favored firms, investigators said Wednesday. The alleged transgressions involve 13 former and current Interior Department employees in Denver and Washington. Their alleged improprieties include influencing contracts, working part-time as private oil consultants and having sexual relationships with -- and accepting golf and ski trips, snowboarding lessons and concert tickets from -- oil company employees, according to three reports released Wednesday by the Interior Department's inspector general.
Beer drinkers sue to stop InBev-Bud merger They contend deal would create a monopoly in United States brew market Ten angry beer drinkers are trying to derail the largest brewery takeover in history. The group filed a federal lawsuit Wednesday claiming Belgium-based InBev’s $52 billion purchase of Anheuser-Busch Cos. Inc. would violate U.S. antitrust law if completed as planned in the coming months. The suit, filed in Anheuser-Busch’s hometown of St. Louis, does not seek financial damages but asks a judge to block the deal. The Department of Justice often reviews large acquisitions to determine if they are legal under U.S. law. But attorneys behind the lawsuit said they want to halt the deal regardless of the verdict in Washington.
Lehman Takes Huge Loss, Does Nothing Lehman Brothers (LEH) released its critical Q3 earnings and strategic plan: a huge writedown and lots of options. The real news is that, after seven months of crisis management, Lehman is still evaluating half a dozen options...and consummating none of them. The release does say that Lehman is now considering "all" strategic alternatives, which presumably means it is considering selling itself (which is new). Aside from that, there's little in the release that we didn't know already:
The firm plans to spin off $25-$30 billion of its crappy real-estate assets into a "bad bank". This begs the question where the equity financing will come from. The release doesn't answer this question.
The firm plans to sell a majority stake in its investment management business.
Lehman plans sales, posts $3.9 billion quarterly loss Lehman Brothers Holdings Inc said it plans to sell a majority stake in its investment management unit and spin off commercial real estate assets, but failed to announce specific transactions and posted a third-quarter loss of $3.93 billion. Shares of Wall Street's fourth-largest investment bank gave up some of their overnight gains as investors expressed disappointment that Lehman, whose business model and outlook face wide scrutiny, did not announce more concrete actions. "What you are dealing with is a confidence issue," said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey, "There is still an underlying level of uncertainty as to what Lehman's future is. Essentially, what people are saying is that there has been no resolution of the problem."
Is the London Fix in for Gold? The market is at a critical juncture, and it’s testing my whole paper-versus-physical-metal theory and analysis. Lowest close in gold and silver: Gold 764, silver 11.17 at the time of this writing. Below the 775 level, many charts pick up on.massive physical buying and, same as last time, it’s paper gold trading down here. There hasn't been a London Gold Fix below the 775 level in this whole sell-off; note the London AM fix last night was 799+. The physical market will tell us much tonight at the rate-set. If it sets below 775, I'll be shocked, and if it sets below there for 10 days, I'll have to re-assess my whole analysis. This is the litmus test. The current 764 price is some $35 an ounce below physical yesterday.
Inflation surges in July The annual inflation rate surged to 5.6% in July - the highest point in 17 years, the government announced Thursday. The previous month's reading on annual inflation was 5%. The July increase matched the 5.6% level in January 1991, when the Persian Gulf War was raging. "It's obviously disturbing - it's a bad number," said David Wyss, chief economist for Standard & Poor's. The report from the Bureau of Labor Statistics is the latest sign of economic misery for Americans, on top of mounting job losses and the imploding home market. On a monthly basis, the Consumer Price Index jumped by 0.8% in July. That is twice the increase that economists had expected.
The incredible shrinking cereal box The packaging may look the same but the amount inside has gone down, that's how companies try to pass on food inflation. But consumers are wising up. Consumers are starting to notice a few less snaps, crackles and pops in their Cocoa Krispies lately. That's because cereal boxes - and the amount of cereal inside - are shrinking along with most food packages in the grocery store. As manufacturers cope with the rising cost of raw ingredients and fuel, downsizing their package sizes is one increasingly popular way to pass along a price increase without drawing too much attention. "They're raising the prices a little, and shrinking the boxes a little," said Marcia Mogelonsky, consumer analyst with Mintel International, a consumer research firm in Chicago. "If you're running through the supermarket, you don't necessarily notice that your cereal box is an ounce or two smaller. That's how they're controlling the prices."
Economic Gloom Runs Strong Two Months from Election Day Consumer Confidence Within Striking Distance of Record Low The election campaign enters its post-Labor Day sprint with the economy dominating the political landscape and consumer confidence within striking distance of its record low in 22 years of ABC News polls. ABC's Consumer Comfort Index stands at -47 on its scale of +100 to -100, the same as last week and 4 points from its lowest on record, -51 in May. Just 14 percent of Americans rate the national economy positively, 21 percent call it a good time to buy things and 45 percent say they their own finances are good, tying the year's low. Other economic indicators are troubling as well. Unemployment's topped 6 percent for the first time in five years, the federal government's seized mortgage-finance giants Fannie Mae and Freddie Mac and gas prices, while down the past two months, are nonetheless at $3.65 a gallon, 29 percent higher than a year ago.
Two Russian strategic bombers land in Venezuela Temporary presence of Russian Tu-160 strategic bombers in Venezuela is not linked to the recent events in the Caucasus. According to Venezuelan President Hugo Chavez the bombers had arrived to carry out test flights. Some see it as revival of the "cold war" and Russia’s reply to the conflict in the Caucasus. However, President Chavez denied the allegations on Wednesday.
Russian bombers arrive in Venezuala for military exercises Two Russian Tupolev bombers arrived in Venezuela for training exercises with the Venezuelan military. The bombers are TU-160s, also known as Blackjacks. They arrived ahead of joint naval maneuvers planned for this year and amid tension between Russia and Western nations over NATO naval exercises in the Black Sea. President Hugo Chávez told state television that the bombers had come at a time when the United States was reactivating plans to kill him. "What's more, I'm going to pilot one of these," he said of the bombers.
N. Korea has quietly built long-range missile base North Korea has quietly built a long-range missile base that is larger and more capable than an older and well-known launch pad for intercontinental ballistic missiles, according to independent analysts relying on new satellite images of the site and other data. Analysts provided images of the previously secret site to The Associated Press. Construction on the site on North Korea's west coast began at least eight years ago, according to Joseph S. Bermudez, Jr., senior analyst with Jane's Information Group, and Tim Brown with Talent-keyhole.com, a private satellite imagery analysis company. Bermudez first located the site in early spring and they have tracked its construction using commercial and unclassified satellite imagery. "The primary purpose of the facility is to test," Bermudez told The Associated Press in an interview last week. A base capable of a long-range test could obviously be used in wartime to launch a missile that carried a warhead.
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Red Lipstick on a Pig, Or Green Envy on an Outsmarted Community Organizer? A bitterly chastened Barack Obama is striking out like a rattlesnake in heat now that a gun-toting grandma-to-be from Alaska has stolen his thunder, absconded with his female voters, fleeced five million dollars from Chicago donors who should know better, and ripped off his mojo… This is what happens in the big leagues of politics when a sexist community organizer casts off a 60s-something feminist and her 18 million votes like so many worthless American flags at a Democratic convention. Things have gotten so nasty for the Messiah that some experts are no longer certain that the Anointed One will be resurrected and seated at the Right hand of power come November 4. As one would expect from a community organizer who has never held a real job with adult responsibilities, Barack Obama is not handling this CHANGE well.
Two-party 'charade' must end, Ron Paul says Republican Rep. Ron Paul of Texas called on voters to back a third-party candidate for president Wednesday, rejecting his party's nominee and offering equally harsh words for the Democratic candidate. Rep. Ron Paul attacks the two-party system Wednesday at the National Press Club in Washington. Paul, who unsuccessfully sought the Republican presidential nomination this year, told supporters at the National Press Club in Washington that he is not endorsing GOP nominee Sen. John McCain or Democratic nominee Sen. Barack Obama.
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Wed 09.10.2008
Cost of US loans bail-out emerging The US on Tuesday began to face the financial consequences of the bail-out of Fannie Mae and Freddie Mac after Congress’s budget watchdog said the housing giants' operations should sit on the government’s books and the cost of insuring against a US default crept higher. With the stock market tumbling, the non-partisan Congressional Budget Office said the government takeover of Fannie and Freddie meant the companies should no longer be regarded as outside the public sector. Peter Orszag, CBO director, said: "It is the CBO view that Fannie Mae and Freddie Mac should be directly incorporated into the federal budget."
Dick Bove: WaMu Losses Will Be Huge Ladenburg Thalmann banking analyst Richard Bove expects Washington Mutual will lose $40 billion on its loan portfolio over the next three years and continues to include WaMu on his list of top 12 banks and thrifts at greatest risk of failing. "The future of the company is questionable" if the economy continues to weaken, Bove told The Wall Street Journal. "The problem is very simple," Bove says. "They made a lot of bad loans, and they are absorbing high levels of loan losses. The solution for their problem is to find some mechanism for reducing the bad loans. That can't be done by a new CEO."
Berkshire Unit Stops Insuring Bank Deposits Billionaire investor Warren Buffett's Berkshire Hathaway Inc has told one of its units to stop insuring bank deposits above the amount guaranteed by the U.S. federal government, the Wall Street Journal reported. The subsidiary, Kansas Bankers Surety Co, is notifying about 1,500 banks in more than 30 states that it will no longer offer a program called "bank deposit guaranty bonds."
Lehman to sell stake in investment division Wall Street bank taking steps to outrun the nation’s financial crisis Another of Wall Street’s renowned firms is taking drastic steps to try to outrun the nation’s worst financial crisis since the Depression. Lehman Brothers said Wednesday it will sell a majority stake in its prized investment management business, slashed its dividend and indicated it may even consider selling the whole company. It reported an almost $4 billion third-quarter loss, boosting its losses so far this year to about $6.5 billion.
Oil Investors Pulled $39 Billion in Futures, Triggering Decline Commodity index investors, blamed for record oil prices, sold $39 billion worth of oil futures between their July record and Sept. 2, causing crude to plunge, according to a report to be released today. The work by Michael Masters, president of the Masters Capital Management hedge fund, blames investors who buy and hold an index of commodities for driving prices to records, and for their subsequent drop. It comes a day before the U.S. Commodity Futures Trading Commission is set to discuss its own study of energy trading with a congressional committee.
Cost of US loans bail-out emerging The US on Tuesday began to face the financial consequences of the bail-out of Fannie Mae andFreddie Mac after Congress’s budget watchdog said the housing giants’ operations should sit on the government’s books and the cost of insuring against a US default crept higher. With the stock market tumbling, the non-partisan Congressional Budget Office said the government takeover of Fannie and Freddie meant the companies should no longer be regarded as outside the public sector. Peter Orszag, CBO director, said: "It is the CBO view that Fannie Mae and Freddie Mac should be directly incorporated into the federal budget." The Bush administration appeared to be caught by surprise. A spokeswoman for the Office of Management and Budget told the Financial Times: "We are working through this issue with Treasury and other stakeholders."
Powerful Democrats question reforms Two of the most powerful Democrats on Capitol Hill have cast doubts over the Bush administration’s plans for reform of Fannie Mae and Freddie Mac, as Congress lays the ground for a fierce debate over the future of the mortgage groups. Barney Frank, chairman of the House Financial Services Committee, dismissed proposals to scale down Fannie and Freddie starting in 2010 as a “sop to the rightwing” and predicted the plan would never come into effect. Meanwhile, Christopher Dodd, chairman of the Senate banking committee, said that he was withholding support for the government’s takeover of the groups until he found out why it was needed. The remarks were early shots in what is sure to be a contentious and ideologically-charged battle to determine the government role in the US mortgage market. Hank Paulson, Treasury secretary, announced plans on Sunday to bring Fannie and Freddie under government control on condition that they shrink in size by 10 per cent a year from 2010.
Bail-out hands Pimco $1.7bn payday The Bill Gross-managed Pimco Total Return fund reaped a $1.7bn payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac. While shareholders in Fannie and Freddie suffered deep losses, the world’s biggest bond fund saw its highest ever one-day rise against its benchmark index on Monday, benefiting from the bet made by Mr Gross on mortgage bonds issued by the agencies. Mr Gross had made a big shift out of US Treasuries and corporate bonds over the past year and into agency bonds, betting that the government would support Fannie and Freddie Mac. By May this year, more than 60 per cent of his $132bn fund was in mortgage debt. Mortgage-backed bond prices rose after the US government seized control of the agencies.
Pimco's Total Return Fund Has Record Day The world's biggest bond fund, Pimco's Total Return Fund, had its best ever day on Monday relative to its benchmark index as prices of mortgage-backed securities rose after the government seized control of mortgage finance agencies Fannie Mae and Freddie Mac. "Our mortgage overweight and the performance of mortgages on Monday gave the Total Return fund its greatest one day relative performance (compared to our index) in its history," Bill Gross, chief investment officer of Pacific Investment Management Co. told Reuters on Tuesday. According to fund tracker company Morningstar, the Pimco Total Return Fund's total returns for Monday were 1.32 percent. The Total Return Fund is benchmarked against the Lehman Brothers U.S. Aggregate Index.
Budget Deficit Likely Doubled for Fiscal '08 $$ The Congressional Budget Office said the U.S. budget deficit for fiscal 2008 -- $407 billion -- will be more than double the deficit for 2007, hit by the wars and a weak economy, and predicted it is likely to rise further in fiscal 2009. "The figures make it challenging to avoid playing the dismal economist," said CBO director Peter Orszag in a statement. The agency foresees an increase to $438 billion by fiscal 2009, which begins Oct. 1, with the government takeover of Fannie Mae and Freddie Mac further complicating budget projections. The fiscal 2008 budget deficit will rise to 2.9% of gross domestic product this year, according to the agency, up from 1.2% of GDP in 2007. The fiscal 2007 deficit was $161 billion. "The budget deficit has risen substantially over the past year," Mr. Orszag said. "And according to CBO's updated economic forecast, the economy is likely to experience at least several more months of weakness."
Fannie and Freddie bailout frustrates U.S. voters The Bush administration's bailout of U.S. mortgage giants Fannie Mae and Freddie Mac frustrated many voters who worried it would set a bad precedent and that well-paid executives would go scot-free. "It reinforces my theory that if the world was run by retired waitresses, we'd all be in much better shape," said Melissa Reddington, 46, an event planner in Philadelphia. "Nobody would be able to go home at night until their sidework was done, their stations were prepped for the next day and their money came out right. If you did those three basic things, 90 percent of everything else falls into line."
Fannie, Freddie To Be Removed From S&P 500 $$ Standard & Poor's will remove Fannie Mae and Freddie Mac from its S&P 500 Index after the close of trading Wednesday. The minimum market capitalization a company must maintain to be eligible for the S&P 500 Index in $5 billion. At the close of trading on Tuesday, Freddie's market capitalization was $614 million and Fannie's was $1.04 billion Standard & Poor's will replace Freddie Mac in the index with software applications company Salesforce.comInc. and Fannie Mae with Fastenal Co., an industrial supplies maker. Saleforce.com and Fastenal will be added to the index after the close of trading Friday.
Fannie and Freddie Just the Beginning of the Derivatives Deleveraging Bailout What a momentous weekend. I was pounding the table about the need to move quickly on Fannie and Freddie in my last few letters, and especially this last letter. And then they did it. There are a lot of details that have yet to come out, and it is likely to be far more expensive the Savings and Loan crisis was for the US taxpayer, but it did get done. Hopefully, we can get some real regulation for part of our costs, as well as get rid of the implicit guarantees by US taxpayers so that something like this never happens again. The fact that it did was the fault of the regulatory environment and Congress. They fired the heads of Fannie and Freddie (with multi-million dollar parting gifts), but sadly, the truly responsible parties will be re-elected to perpetrate yet more frauds.
Fannie and Freddie's New Derivatives Cliffhanger The bailout triggers settlement of $1.4 trillion in unregulated credit-default swaps. Do the hedge funds have the money? In taking over Fannie Mae and Freddie Mac, Henry M. Paulson Jr. and the U.S. Treasury Dept. cleared up uncertainty surrounding the companies' common stock, preferred shares, and senior and subordinated debt. But Uncle Sam's intervention also triggered a default event, according to the International Swaps & Derivatives Assn., and now roughly $1.4 trillion in outstanding credit-default swaps, a type of derivative contract, must be settled. You remember the credit-default swap (CDS). It began life as an "insurance policy" that big players such as hedge funds took out to hedge investment risks. Over time, however, the CDS became a tool that big funds, financial institutions, and others used as a way to place bets on whether a company would go bankrupt. They're contracts negotiated between two parties and - unlike insurance policies - there's no regulator verifying that companies can actually make good on the $62 trillion of swaps outstanding.
Lehman Death Watch: Will Paulson Let Lehman Fail? The short answer is yes, but we need to define fail. As readers no doubt know, Lehman broke down after word got out that talks with Korean Development Bankhadfialed to produce an investment agreement. After Freddie and Fannie, Paulson cannot be perceived to be rescuing another firm, particularly a private company that plays no special role (as far as most people are concerned) in things they care about, like housing. Unlike Bear, Lehman is not a big credit default swaps protection writer. That was the exposure that led the powers that be to worry about a systemic failure. Even though Bear and Lehman are similar in size, their business mix differs in ways that makes Lehman dispensable. In fact, Paulson almost needs to let a financial player fail to prove that he is not a toady of the industry. Mind you, that does not mean Lahman will go under. But they look like a fish on the dock, flailing and gasping for air. If they don't secure some help soon, they are history.
Lehman: Running out of options The battered Wall Street firm says it will announce quarterly results and unveil 'key strategic initiatives' Wednesday morning. But can Lehman raise the capital it needs? Beleaguered Wall Street firm Lehman Brothers will unveil "key strategic initiatives" for the firm, along with its expected third-quarter earnings, Wednesday morning before the market opens. However, it may prove difficult for Lehman to convince investors that it will be able to raise the capital it needs to keep doing business after the 45% plunge in its stock price Tuesday.
Lights Out for Lehman? Reports of a failure to raise capital in Korea and a bigger-than-feared loss next week raise questions about the firm's future. Bear Stearns…Fannie Mae…Freddie Mac…and Lehman Brothers? Lehman Brothers' stock fell as much as 43 percent Tuesday amid reports that the firm had failed to secure additional financing and was preparing to announce larger-than-expected losses next week. Some financial bloggers were speculating that Lehman, the fourth-largest player on Wall Street, "might truly be compelled to fold," in part because the federal government, which had engineered the fire sale of Bear Stearns earlier this year, was now too busy rescuing Fannie and Freddie to throw a lifeline to Lehman.
Lehman in Free Fall as Default Fears Mount Lehman Brothers shares fell 45% Tuesday, as a prospective deal to raise capital hit a snag and concern the firm would default on its debt mounted. Lehman Brothers shares fell $6.36, or 45%, to $7.79 at Tuesday's close after Dow Jones reported that Jun Kwang-woo, chairman of the Financial Services Commission in South Korea said Korea Development Bank and Lehman have ended discussions. Mr. Jun could not be reached and a Lehman Brothers spokesman declined to comment. Lehman's stock is off 88% from its 52-week high. Richard Bove, an analyst at Ladenburg Thalmann, predicted that the government would broker a private investment in or takeover of Lehman or one of its businesses overnight before the market opened on Wednesday.
Reduced Exit Packages Urged for Ousted Executives Senator Barack Obama and two other prominent Democrats urged federal housing regulators on Tuesday to cut the golden parachutes of the ousted leaders of Fannie Mae and Freddie Mac, another sign that the government bailout of those mortgage giants could reverberate through the presidential campaign. Mr. Obama, the Democratic presidential nominee, asked that any “inappropriate windfall payments” to the chief executives and senior managers of those agencies be voided, in a letter to Treasury SecretaryHenry M. Paulson Jr. and the director of the Federal Housing Finance Agency, the new regulator for Fannie and Freddie.
Tight-Lipped Lehman Worries Investors Investors deserted Lehman Brothers Holdings on Tuesday, possibly fearing that the venerable brokerage house, which seems to have been jilted by a Korean suitor, has a dark secret that it does not care to share with the world. Lehman Brothers Holdings slid 38.5%, or $5.44, to $8.71, in late trading on Tuesday. The "equity market has recently noted that Lehman Brothers has ceased to issue bonds" that it already has filed to offer under a shelf registration, said Brad Hintz of Sanford C. Bernstein and a former Lehman executive. "This move is a clear sign that the company has some material nonpublic information that it doesn't want to disclose in a bond prospectus."
HEDGE HOGS HUNKERSHELL SHOCKED FUNDS REDUCE RISK, POTENTIAL REWARD Hedge funds - the daredevils of Wall Street - are backing away from risk, fearful of getting beaten up by the market's persistent turbulence. JPMorgan Chase's Highbridge Capital and Phil Falcone's Harbinger Capital are among a growing number of big-name hedge funds that are hunkering down, moving into cash and reducing the use of borrowed money, or "leverage," to inflate returns, sources said. "Markets are irrational and the best thing to do when markets are irrational is to move into cash, increase liquidity and take down risk," said an official at Harbinger, which manages $21 billion.
Thinking the Unthinkable: U.S. Default Hard not to think the unthinkable in the wake of recent events. Specifically, what is the likelihood of the U.S. defaulting on its debt? Admittedly, it would never be because of this one episode -- it would be that, plus multiple financial seismic shocks. But all of these are more likely than they were before. Default, while still wildly unlikely, is more plausible than it was a day/week/year/decade ago.
The power of deflation Save the home lenders, save the world? If only it were that simple. The just-announced federal takeover of Fannie Mae and Freddie Mac, the giant mortgage lenders, was certainly the right thing to do - and it was done fairly well, too. The plan will sustain institutions that play a crucial role in the economy, while holding down taxpayer costs by more or less cleaning out the stockholders. But the action needs to be seen in a larger context - that of the attempt by the Federal Reserve and the U.S. Treasury to contain the fallout from the ongoing financial crisis. And that's a fight the feds seem to be losing. We've come a long way from the days when Alan Greenspan declared a national housing bubble "most unlikely." There was indeed a bubble, and since it popped two years ago home prices have fallen faster than they did during the Great Depression.
Auto Industry Lining Up For Bailouts The U.S. House of Representatives is discussing an auto industry request to set in motion at least $25 billion in government-backed loans to help beleaguered U.S. manufacturers retool plants to make more efficient cars and trucks, Majority Leader Steny Hoyer said on Tuesday. Hoyer could not say precisely when or if any proposal would come before lawmakers for a vote before they are scheduled to break at the end of September - possibly for the remainder of the year.
Union Plans a Protest Strike as Renault Looks to Cut 6,000 Jobs Through Buyouts Plans by the carmaker Renault to cut about 6,000 jobs through buyouts met with resistance Tuesday, as a union called a one-day protest strike. “The sickness at Renault today isn’t that there are too many employees,” a spokesman for the union, the Confédération Générale du Travail, said. “The problem is that demand is weak.” The spokesman, who asked not to be identified, in keeping with union rules, said that rather than cut jobs, the company should introduce affordable new models that customers want.
Congress weighs loans for automakers Congressional Democratic leaders expressed the intent on Tuesday to make it possible for beleaguered U.S.-based auto companies to access at least $25 billion in low interest loans, a priority for industry facing tougher requirements for fuel efficient vehicles. "It's very important to our country," House of Representatives Speaker Nancy Pelosi told reporters about credit assistance aimed mainly at helping General Motors Corp, Ford Motor Corp and Chrysler LLC retool factories and spark more investment in battery research. Domestic manufacturers, whose core sport utility and truck business has collapsed amid record high fuel prices and a sluggish economy, lag behind Japanese and other overseas competitors in making gasoline/electric hybrids and other fuel efficient cars that consumers are now demanding.
Dollar May Weaken as Lehman Issues Threaten Credit Market Stability Traders held the EUR USD and USD GBP steady to better on Tuesday as major issues arose regarding Lehman Brothers, once again threatening the stability of the U.S. credit markets. Forex traders are for the most part ignoring the weekly economic reports and instead are focusing on the inability of the U.S. to rid itself of the problems that are putting pressure on the major financial institutions' ability to conduct normal business. Although the trend is still down, and there has not been a massive reversal up in these two pairs to signal a major bottom, the trade was tentative near the lows of the day as traders appeared to be hesitant to print new lows for the week. Given the grossly oversold conditions in these two markets with the USD GBP close to a record amount of shorts, be careful shorting at current levels and tighten up trailing stops in short positions.
Lehman Stock Slides More Than 40% -- Is Bailout for the Brothers Next? Some Question If the Bank Can Save Itself; Are There More Shoes to Drop? Worries about another major investment bank failure escalated Tuesday as shares in Lehman Brothers, the country's fourth largest brokerage firm, plummeted more than 40 percent. Concerns about Lehman helped erase most of the rebound that Wall Street saw on Monday, after the Dow Jones industrial average surged more than 289 points on news that the federal government was bailing out ailing mortgage giants Fannie Mae and Freddie Mac. On Tuesday, the Dow plunged some 280 points while the share price for Lehman Brothers Holdings Inc. dropped below $8 as investors worried about whether Lehman would be able to cover the losses it continues to sustain from its mortgage holdings. "There's a strong suspicion in the marketplace that a lot of their assets, which are related to residential and commercial mortgages, are not worth what they're being carried on the balance sheet for," said Lawrence J. White, an economics professor at New York University's Stern School of Business. "One of these days, Lehman is going to have to recognize that."
How many corporate bailouts are too many? Is the definition of what's too big to fail getting broader? Over the past decade, Washington has thrown a lifeline to everything from Long-Term Capital Management, a troubled hedge fund, to the airline and insurance industries after the Sept. 11 terrorist attacks in 2001. Now, Fannie Mae and Freddie Mac, the mortgage finance companies whose rescue plan was announced Sunday, are the latest to join the club. In all these cases, the overall risk to the U.S. economy of an outright collapse was judged by policy makers to be greater than what economists term the moral hazard problem - the fear that the private sector will take on greater, even foolhardy, risks in the future as investors in major businesses, and their executives, assume that government, with its essentially bottomless pockets of cash, will always be there to provide a backstop.
Greenspan Supports GSE Bailout Plan, Expects Housing To Settle in Late 2008 Former Federal Reserve Chairman Alan Greenspan threw his support behind the U.S. Treasury's plan to bail out Fannie Mae and Freddie Mac in an interview on CNBC. "I certainly do support the rescue of Fannie Mae and Freddie Mac," said Greenspan. "We must remove the ambiguity from the markets."
Gold marks lowest close this year as crude slides Gold futures fell for a seventh straight session Tuesday, closing at their lowest level this year as falling crude-oil prices reduced investment demand for gold as a hedge against inflation. Other metals contracts also came under selling pressure. Gold for December delivery sank $10.50, or 1.3%, to end at $792 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing level this year. It dropped to $780.20 earlier, the weakest intraday level since November. All told, the benchmark gold contract has slumped $45.20 an ounce in the seven trading sessions since Aug. 28. "Gold continued to trade lower as oil prices fell further following news that OPEC sees its market essentially in balance and will not curtail current output levels," wrote Jon Nadler, senior analyst at Kitco Bullion Dealers.
favourable long-term outlook for gold Despite the gold price slipping to around $800 and gold shares appearing increasingly vulnerable, the long-term outlook for gold is favourable, according to Daniel Sacks, portfolio manager at Investec Asset Management. Sacks explained that some of the recent fall in the gold price was attributable to the bounce in the dollar, against the Euro and the Yen. He explained: "Although gold has no fundamental reason to be correlated with the Euro/$ exchange rate, it does have a 91pc historical correlation to the movements in the Euro/$ exchange rate. A dollar strengthening from current levels could therefore derail the positive outlook for gold." He continued: "We still believe that the dollar will continue to weaken against the emerging currencies which are fundamentally important for the gold market. . .
Debt Deflation Turning Economic Democracy Into a Financial Oligarchy On Friday afternoon the government announced plans to place the two mortgage giants, Fannie Mae and Freddie Mac, under “conservatorship.” Shareholders will be virtually wiped out (their stock already had plunged by over 90 per cent) but the US Treasury will step in to protect the companies' debt. To some extent it also will protect their preferred shares, which Morgan-Chase have marked down only by half. This seems to be the most sweeping government intervention into the financial markets in American history. If these two companies are nationalized, it will add $5.3 trillion dollars to the nation's balance sheet. So my first question is, why is the Treasury bailing out bondholders and other investors in their mortgage IOUs? What is the public interest in all this? The Treasury emphasized that it was under a Sunday afternoon deadline to finalize the takeover details before the Asian markets opened for trading. This concern reflects the balance-of-payments and hence military dimension to the bailout. The central banks of China, Japan and Korea are major holders of these securities, precisely because of the large size of Fannie Mae and Freddie Mac – their $5.3 trillion in mortgage-backed debt that you mention, and the $11 trillion overall U.S. mortgage market.
GDP fails 'commonsense sniff test' Skeptics maintain 2Q didn’t perform as well as calculations indicate It was a rare bit of stellar economic news. The Commerce Department revised Gross Domestic Product upward last month, saying the broad measure of the economy grew at an annual rate of 3.3 percent for the second quarter, up from an initial estimate of 1.9 percent. One problem: A vocal group of analysts and economists isn't buying it. "Quite frankly, we do not think the report passes the economic commonsense sniff test," wrote economists John Ryding and Conrad DeQuadros at RDQ Economics.
Inventories Grow Faster as Sales Fall Inventories at wholesalers increased in July twice as fast as forecast, led by gains in stockpiles of automobiles, machinery and petroleum as sales fell. The gain in the value of stockpiles was 1.4 percent and followed a revised increase of 0.9 percent in June, the Commerce Department said on Tuesday. “While we remain watchful of an unwanted backup in stocks, thus far there is little evidence to suggest a burgeoning problem,” said Michelle Girard, a senior economist at RBS Greenwich Capital in Greenwich, Conn. Another report showed fewer Americans than forecast signed contracts to buy previously owned homes in July. That report, the index of pending home resales compiled by the National Association of Realtors, showed a 3.2 percent decline after a revised 5.8 percent gain in June. The decline is the fourth this year as tighter credit conditions keep would-be buyers from taking advantage of lower prices.
Opec makes surprise cut to oil output Opec on Wednesday surprised the oil markets by announcing that it would make a small but symbolic reduction in its output because the oil cartel views the market as oversupplied. Traders had been betting the group, which controls about 40 per cent of world oil production, would maintain status quo, and at best make gradual unannounced reductions in its production. Instead, Opec, after a five hour session in Vienna, agreed to abide by the production limit it had set for its members in September 2007. This would reduce the group’s production by 520,000 barrels per day over the next 40 days. If all members adhered to the cut, Opec production would fall back to 28.8m barrels per day.
2008 A Tough Year For Hedge Funds Assets Recorded Smallest Growth In Six Years; 35 Percent Of Firms Lost Assets The U.S. economic downturn has spread to hedge funds, according to survey results that show slowing growth in assets at the exotic investment vehicles. Hedge fund assets grew by 4.3 percent from January through June, the smallest growth for any six-month period in the six years that the magazine Absolute Return has been tracking such data. The latest period's performance fell short of the previous low of 10 percent asset growth in the second half of last year, according to the New York-based monthly, published by the firm HedgeFund Intelligence. In the first half of last year, growth was 23 percent.
Blackstone: $5B Limit for LBO Bank Financing The chief operating officer of private equity firm Blackstone Group LPsaid Tuesday that the limit on bank financing for leveraged buyouts was about $5 billion. But COO Tony James said despite the limit, the company has had an active 12 months, investing $8.7 billion in 27 deals since the credit meltdown. "People say you can't do leveraged buyouts," said James, speaking at a Lehman Brothers conference that was webcast. "That's not correct. We are getting bank financing for LBOs (leveraged buyouts), but we're not getting bank financing for deals over about $5 billion in size."
Enron shareholders win billions in suit About 1.5 million people or business entities will share the more than $7.2 billion in settlements paid out from the lawsuit related to the company's collapse. A federal judge has approved a plan to distribute more than $7.2 billion recovered as part of a lawsuit by Enron Corp. shareholders and investors in connection with the company's collapse. U.S. District Judge Melinda Harmon also approved $688 million in attorneys fees, the largest ever in a securities fraud case.
Pick one: Your business or your house When cash flow gets tight, small business owners pay their business bills first, mortgages second, a new study finds.Which baby do you love more, your home or your business? When times are tight, small business owners are more likely to pay their business expenses than their mortgage, according to a new study by credit rating agency Experian. Experian studied the financial behavior of 2.7 million business owners from April 2007 to April 2008, focusing in particular on those with a "severe mortgage delinquency" of payments more than 90 days past due. The agency found that when owners fall behind on their home payments, most remain diligent about their business obligations. While the delinquency rate for consumer transactions reached as high as 59% among individuals with severely overdue mortgages, the delinquency rate for commercial transactions never rose above 8%. Furthermore, business owners in trouble on their home loans are likely to turn to the commercial markets for financing.
Pending home sales fall more than expected Housing market continues its struggle as index dips 3.2 percent in July Pending U.S. home sales fell more than expected in July as the housing market's struggles continued, an industry group said Tuesday. The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2 percent to a reading of 86.5 from an upwardly revised June reading of 89.4. The index was 6.8 percent below year-ago levels. Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one-to two-month lag before a sale is completed.
Condo Buyers In Florida Seek To Exit Deals $$ But Courts' Rulings Suggest Many Investors May Be Stuck; Defining 'Olympic Style' Pools With Florida awash in tens of thousands of empty or unfinished condominiums, many investors there are turning to the courts in an effort to cancel their contracts and recoup their deposits. So far, they haven't had much luck. Condo buyers in hard-hit markets across the country have been scouring their contracts for loopholes and flaws that would allow them to back out. Investors in Florida, where many were looking to flip their condos for a quick profit in a rising market, have been particularly aggressive in using the courts. And that's no surprise, given that the condo market there is one of the worst in the country, with average condo prices down 22% since the market peaked in 2005, according to the Florida Association of Realtors -- and they're still falling.
California home to priciest housing markets California cities among U.S.'s most expensive housing markets; Midwest most affordable Californians rave about year-round sunshine, temperate climate and easy access to surfing, snowboarding and everything in between. But when it comes to getting the most out of their homebuying dollar, they've got nothing on homeowners in the Midwest, a new study suggests. Eight out of the top 10 most expensive housing markets in the U.S. are in California, while eight Midwestern cities are among the 10 most affordable markets, according to the Coldwell Banker Home Price Comparison Index released Tuesday. The study compared the average value of 2,200-square-foot houses with four bedrooms, two and a half baths, a family room and a two-car garage across 315 U.S. markets. The results underscore the vast disparity in how much homeowners in different markets pay essentially for the same amount of living space.
U.S. May be Vulnerable to Sovereign Funds The United States' current reliance on foreign governments for financing represents a strategic vulnerability, according to a report by the Council of Foreign Relations released on Tuesday. The longer the United States relies on international central banks and sovereign funds to support large external deficits, the greater the risk the economy's need for external credit will constrain the government's policy options, the report said. It also warns that countries that do not share U.S. political values and policy goals could use large holdings of U.S. assets as political and economic leverage. "This does not mean foreign creditors are certain or even likely to use their financial assets as a weapon. It does mean that they could do so if they want,"
Rice presses Congress on India nuclear deal U.S. Secretary of State Condoleezza Rice on Tuesday launched an all-out effort to persuade the U.S. Congress to approve an agreement to end a three-decade ban on nuclear trade with India this year. Rice went to Capitol Hill to call on House of Representatives Speaker Nancy Pelosi and Foreign Affairs Committee Chairman Howard Berman to discuss how to win congressional approval for the accord before U.S. President George W. Bush leaves office on January 20. A spokesman for Pelosi said she Rice discussed the process for considering the agreement once it is submitted.
China Too Costly for Manufacturers China has been enjoying a robust annual manufacturing growth rate recently of 11 percent or more, but the party may soon be over. According to The New York Times, Chinese factories reported a sharp drop in new orders in August. Economists now expect Chinese growth to go as low as 9 percent or 9.5 percent over the next year. Exports are barely growing, several Chinese factories are either closed or cut back on their consumption, and the real estate market is weakening, particularly in southeastern China. "China has slowed down a lot already, but it's going to slow down more,"...
From a 'halo' car to an expensive folly Viper looks set to become a victim of Chrysler’s austerity Once synonymous with power and brawn, the high-performance Dodge Viper was launched 16 years ago to show off Chrysler’s engineering prowess. These days, in the era of $4-a-gallon gasoline, the Viper is more akin to an expensive folly, and it looks set to become the latest victim of a new era of austerity at Chrysler. Late last month, Chairman and Chief Executive Bob Nardelli said the automaker is looking at its options for the iconic sports car, including the possible outright sale of the nameplate and its manufacturing facilities. Nardelli said Chrysler has been approached by third parties "interested in exploring future possibilities with Viper."
Reduced Dominance Is Predicted for U.S. An intelligence forecast being prepared for the next president on future global risks envisions a steady decline in U.S. dominance in the coming decades, as the world is reshaped by globalization, battered by climate change, and destabilized by regional upheavals over shortages of food, water and energy. The report, previewed in a speech by Thomas Fingar, the U.S. intelligence community's top analyst, also concludes that the one key area of continued U.S. superiority -- military power -- will "be the least significant" asset in the increasingly competitive world of the future, because "nobody is going to attack us with massive conventional force." Fingar's remarks last week were based on a partially completed "Global Trends 2025" report that assesses how international events could affect the United States in the next 15 to 17 years. Speaking at a conference of intelligence professionals in Orlando, Fingar gave an overview of key findings that he said will be presented to the next occupant of the White House early in the new year. "The U.S. will remain the preeminent power, but that American dominance will be much diminished," Fingar said, according to a transcript of the Thursday speech. He saw U.S. leadership eroding "at an accelerating pace" in "political, economic and arguably, cultural arenas."
Bush's border fence to cost extra $400 million The Bush administration needs an extra $400 million to complete its fence along the country's southwestern border, and government investigators say that may not even be enough to finish construction by the end of this year. To complete the 670-mile fence--already half built--the administration has asked Congress to approve the use of $400 million set aside for other programs, mostly surveillance technology projects along the U.S.-Mexico border, Jayson Ahern, the deputy commissioner of Customs and Border Protection, told The Associated Press Tuesday. Higher costs of fuel, steel and labor have led to the $400 million shortfall, Ahern said. "If we run out of money, unfortunately the construction will have to stop," Ahern said. He said it is not known exactly how much extra it will cost to build each mile of the fence, because the costs differ due to varying terrain and environmental issues.
It's OK to Kidnap Ahmadinejad An Israeli Cabinet minister and onetime spy who helped kidnap Nazi mastermind Adolf Eichmann and bring him to trial thinks the same tactic could be used on Iranian President Mahmoud Ahmadinejad. Ahmadinejad is feared and reviled in Israel because of his repeated calls to wipe the Jewish state off the map. His aggressive pursuit of nuclear technology has only fueled Israel's fears. "A man like Ahmadinejad who threatens genocide has to be brought for trial in The Hague," seat of the international war crimes tribunal, Rafi Eitan said. "And all options are open in terms of how he should be brought."
Obama joins critics of Fannie, Freddie pay packets Democratic presidential contender Barack Obama on Tuesday denounced the possibility of rich exit pay packets for the outgoing chiefs of Fannie Mae and Freddie Mac as lawmakers weighed how to restructure the seized mortgage finance companies. The government decision on Sunday to take control of the two companies had sparked a big rally on Wall Street on Monday as investors saw the move as helping to pave the way for a recovery for the slumping housing market. U.S. stock markets, however, reversed course on Tuesday as the euphoria gave way to renewed worries about the financial sector on concerns about investment bank Lehman Brothers' ability to raise capital to cover mortgage-related losses. The Dow Jones industrial average closed down 280 points, a near-complete reversal of Monday's gain.
Poll shows big shift to McCain among white women Democratic presidential candidate Barack Obama on Tuesday brushed aside a survey that showed him losing support among white women voters to John McCain since the Republican standard-bearer named Sarah Palin as his running mate. A Washington Post/ABC News survey published on Tuesday found most of McCain's surge in the polls since the Republican National Convention was due to a big shift in support among white women voters. "The notion that people are swinging back and forth in the span of a few weeks or a few days this wildly generally isn't borne out," Obama told reporters during a campaign stop in Riverside, Ohio.
Poll shows Obama and McCain in virtual tie Democratic presidential candidate Barack Obamaleads Republican John McCain by 47 percent to 46 percent, a statistical dead heat, in an NBC News/Wall Street Journal poll released on Tuesday.
Palin Energizing Women From All Walks of Life Susie Baron is a Republican, a mother of two and a home-schooler. She voted for Mike Huckabee in the Ohio primary, but now -- because of Sarah Palin -- she thinks she is part of something much bigger. "I wouldn't even call it a Palin movement, I'd call it a sleeping giant that has been awakened," Baron, 56, said at a rally here Tuesday. She described its members as a silent majority of women in Middle America who "are raising our families, who work if we have to, but love our country and our families first." "And until now, we haven't had anyone to identify with," Baron said, adding that traditional feminist groups such as the National Organization for Women do "not represent me."
Paul rejects plea to endorse McCain Republican Rep. Ron Paul, the Libertarian-leaning lawmaker who attracted a devoted following in the GOP primaries, said Wednesday he rejected an appeal to endorse John McCain's presidential bid. And Paul said the request came from Phil Gramm, the former McCain adviser whom the campaign jettisoned after he said the country was a "nation of whiners" about the economy.
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Tues 09.09.2008
Asia Breathes Deep Sigh of Relief Fannie, Freddie Rescue Allays Fears About Risk of U.S. Mortgage Holdings Financial institutions and governments across Asia yesterday applauded the takeover of Fannie Mae and Freddie Mac, a move that came after several central banks in the region expressed growing alarm over the future of their vast investments in the two ailing mortgage lenders. Asian investors, led by central and commercial banks in China, Japan and South Korea, are among the largest holders of Fannie Mae's and Freddie Mac's mortgage-related debt, the value of which has now effectively been guaranteed by the U.S. government.
Paulson: "Homeowners should not anticipate a government bail-out. Banks should not expect to be bailed-out by government, despite intervention by the Federal Reserve in the near-collapse of Bear Stearns in March." Translation: Critical banks and GSEs must not be allowed to fail.
Paulson: "For market discipline to be effective, market participants must not expect that lending from the Fed, or any other government support, is readily available. For market discipline to effectively constrain risk, financial institutions must be allowed to fail." Translation: Expect the mother of all bailouts at taxpayer expense.
Bill Gross: "Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami. If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury." Translation: Please rescue PIMCO. I bet the farm on a bailout.
Jim Rogers: Socialism for the Rich!
US Is "More Communist than China" The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is "more communist than China right now" but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday. "America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich... it's just bailing out financial institutions," Rogers said. Stock markets jumped after the U.S. government's decision to launch what could be its biggest federal bailout ever, in a bid to support the housing market and ward off more global financial market turbulence. But Rogers said in the long term the move spelled trouble. "This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this."
Fannie Mae's Patron Saint $$ Taxpayers are now on the hook for as much as $200 billion to rescue Fannie Mae and Freddie Mac, and if you want to know why, look no further than the rapid response to this bailout from House baron Barney Frank. Asked about Treasury's modest bailout condition that the companies reduce the size of their high-risk mortgage-backed securities (MBS) portfolios starting in 2010, Mr. Frank was quoted on Monday as saying, "Good luck on that," and that it would never happen. There you have the Fannie Mae problem in profile. Mr. Frank wants you to pick up the tab for its failures, while he still vows to block a reform that might prevent the same disaster from happening again.
Estimates say fed budget deficit nearing $407B Budget deficit expected to reach a near-record $407B under new congressional estimates The federal government will run a near-record deficit of $407 billion for the budget year ending Sept. 30, according to the latest Capitol Hill estimates. The Congressional Budget Office figures released Tuesday say the flood of red ink will spill over into next year, when the deficit would reach a record $438 billion -- and could go even higher as the government takes over mortgage giants Fannie Mae and Freddie Mac. The CBO figures for this year are slightly worse than White House predictions released in July. The White House foresees a $389 billion deficit for 2008, growing to $482 billion in 2009.
BofA's Bailout Benefit Ken Lewis may be getting the last laugh. For months Bank of America's chief executive has been ridiculed for buying Countrywide, but the federal government’s rescue of Fannie Mae and Freddie Mac, which he helped design, might make his acquisition, as banking analyst Dick Bove put it, “a stroke of genius” leaving BofA “the single largest beneficiary” of the bailout. Why? The Ladenburg Thalman analyst argues that Bank of America, and Countrywide, have the existing infrastructure to start buying and securitizing loans on a large scale. He even said in a phone interview that Bank of America's capital levels would allow it to guarantee mortgage payments. This promise to pay has been Freddie and Fannie's traditional role in the U.S. housing market.
Mortgage Giants' Rescue Imperils Some Banks The bailout of Fannie Mae and Freddie Mac threatens the financial health of several dozen of the banks that bought shares in the two companies, regulators say, including some institutions active in the Washington region and banks focused on less-profitable community development lending. Executives at some of those banks say they felt encouraged to invest in the companies because a federal agency, the Office of the Comptroller of the Currency, had classified shares in Fannie Mae and Freddie Mac as extremely low-risk investments.
Wells Fargo to Take Hit on $480 Million of GSE Preferreds Wells Fargo & Co. said after market close on Monday that it will record other-than-temporary impairment and take a non-cash charge to earnings for its investments in perpetual preferred securities issued by Fannie Mae and Freddie Mac. HW reported earlier on Monday that the bank was among major preferred equity shareholders at both GSEs. In a filing with the Securities and Exchange Commission, Wells Fargo said that its “perpetual preferred investments in Fannie Mae and Freddie Mac are included in securities available for sale at a cost of $336 million and $144 million, respectively.” The bank said its holdings in both GSEs are currently trading at 5 to 10 percent or par value.
Lehman Nears Boiling Point Lehman Brothers is under new pressure as it shakes up its management team and the prospects of it receiving a cash infusion from KDB slip further away. In afternoon trading, Lehman's shares slid 12.2%, or $1.98, to $14.18. Early in 2007, before the U.S. housing crisis and subsequent turmoil in the world's credit markets began affecting the company's outlook, the shares changed hands at more than $80.
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