Geithner Urges More Mortgage Help

matthew.yeomans — Fri, 10 Jul 2009 08:25:17 +0000

Three stories this morning illustrate just how much the financial fallout over the last year continues to dog the U.S. economy. The Wall Street Journal reports on the Obama administration's frustration with the pace at which mortgage companies are reworking troubled loans even though they were given incentives to do so by the government's housing rescue plan. While more than 270,000 borrowers have received modification offers, many borrowers still are "waiting for help as mortgage-servicing companies get up to speed. The administration has said its program could help as many as four million homeowners," writes the WSJ, which quotes a letter written to 25 leading mortgage companies by Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan that says: "We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share."

Talking of sharing, American International Group (AIG) is seeking permission from the Obama administration's federal compensation czar to pay a total of $2.4 million dollars in bonuses to dozens of its senior executives, including members of its disgraced financial-products unit, the New York Times reports. So far AIG has received $170 billion in bailouts from the U.S. taxpayer.

Any of those taxpayers residing in California and in receipt of state-issued registered warrants (IOUs to you and me) might want to cash them in, like, today. CNN Money reports that Wells Fargo (WFC) and Bank of America (BAC) have decided to stop accepting the 91,200 IOUs worth $354.4 million issued by State Controller John Chiang on July 2 to conserve cash while lawmakers and Gov. Arnold Schwarzenegger argue over closing a $26 billion budget gap. While many credit unions will continue to accept the warrants, the banks argue that the longer they agreed to honor the IOUs the longer the politicians will take to sort out California's fiscal mess.

Good news for the new General Motors (GM): Yesterday's court decision to reject a final legal challenge to the government takeover of GM clears the way for the automaker to emerge from bankruptcy protection as early as today, writes the BBC and WSJ. "Unprecedented, unbelievable, breathtaking ... [t]here's simply no precedent for the speed with which the government got this through court," one leading corporate-restructuring lawyer tells the WSJ. If the new GM is to succeed, much rests on the shoulders of its Chevrolet division, writes Business Week. Already it may have a hit on its hands in the shape of the new Camaro, a muscle-car throwback that "is winning over consumers looking for a little excitement in a bland landscape of look-alike sedans and watered-down sport utilities," writes the NYT. GM sold 9,300 Camaros last month: That's more than either its entire Buick or Cadillac divisions could muster on their own, notes the NYT.

Just as well, then, that the oil boom looks set to burst after crude prices dipped below $60 a barrel following two weeks of uninterrupted declines. It's an admission by traders and investors that "a global economic recovery would take longer than hoped," writes the NYT. Thursday's drop came on the back of Energy Department figures showing a substantial increase in gasoline inventories in the United States and signalling a retraction in U.S. demand for oil. Only something as serious as a Middle Eastern spat over drilling rights could reverse that trend: By coincidence, the NYT also reports that Iraq's Kurdish leaders are pushing ahead with a new constitution that "enshrines Kurdish claims to territories and the oil and gas beneath them." That puts them on a collision course with the Iraqi federal government, which recently started discussions with international oil companies over new drilling concessions.

Finally, Google Inc. (GOOG) Chief Executive Eric Schmidt is feeling pretty smug about his company's new, free Windows-killer operating system due to debut next year. Combining the OS with Google's Chrome browser is a "game changer," says Schmidt. Having been skeptical for many years about going after Windows, Schmidt now believes "Google can withstand whatever counter punches Microsoft might throw," writes Business Week.

Cyberattack Aftermath

caitlin.mcdevitt — Thu, 09 Jul 2009 10:09:50 +0000

The Wall Street Journal leads and the Washington Post tops its Business section with the targeted "cyber blitz" that hit the United States and South Korea this week. Though the Journal calls the siege a series of "relatively unsophisticated attacks"—which were possibly from North Korea—it says that it's still among the "broadest and longest-lasting assaults perpetrated on government and commercial Web sites in both countries." The paper also says that "U.S. officials noted that the attacks, which appear to have started primarily in South Korea on July 4, coincided with North Korea's latest missile launches and followed a United Nations decision to impose new sanctions." On the list of private sites that seem to have been attacked: the Web sites of the New York Stock Exchange, Nasdaq, the Washington Post (WPO), Amazon.com (AMZN), and MarketWatch. The Post reports that at least 35 government and commercial Web sites in the United States and South Korea were hit.

According to a front-page New York Times analysis, cities have gotten the short shrift when it comes to transportation funding from the federal stimulus. Despite the fact that two-thirds of the country lives in large metropolitan areas, those cities and their surrounding regions are getting far less than two-thirds of the $26.6 billion in funds intended for highways, bridges, and other transportation projects. The allocation of spending was largely up to the states, which according to one critic, "take this peanut-butter approach, taking the dollars and spreading them around very thinly, rather than taking the dollars and concentrating them where the most complex transportation problems are." The paper says, "Of 5,274 transportation projects approved so far—the most complete look yet at how states plan to spend their stimulus money—the 100 largest metropolitan areas are getting less than half the money from the biggest pot of transportation stimulus money."

Also in the Times, the paper retells what the Guardian reported yesterday: that Rupert Murdoch's British newspaper subsidiary may have paid about $1.6 million to settle court cases involving claims that its reporters had hacked into the cell phone messages of various public figures, including the former deputy prime minister and at least one other Cabinet minister. The Guardian story could not be independently verified by the Times and was rebuffed by Murdoch. Quoted in Bloomberg, he said, "If that had happened, I would know about it."

The federal program to relieve banks of their toxic assets has arrived but in watered-down form. According to the Washington Post, the plan, "once touted by officials as critical to reviving the financial system, was instead unveiled yesterday as a modest safety net aimed at preventing the banking sector from suffering a relapse." The government will invest up to $30 billion to finance purchasing of as much as $180 billion in toxic securities, the paper says. When Timothy Geithner discussed the program months ago, he said that the Treasury could provide up to $100 billion in two initiatives for purchasing up to $500 billion in toxic assets. The New York Times calls the new plan "frugal," noting that, "[t]he Treasury conceded that the program was ‘modest' but that it could be expanded if the economy or financial markets deteriorated."

An SEC official who led probes of Bernie Madoff's business—and failed to uncover the multibillion-dollar fraud—is resigning, the Washington Post reports. After directing the Office of Compliance Inspections and Examinations for 14 years, Lori Richards is stepping down. "Her office reviewed his firm at least three times, in 1999, 2004 and 2005, without finding the multibillion-dollar fraud he was conducting," the paper says. With a 700-person staff, the OCIE is responsible for ensuring compliance with securities laws.

Today's Financial Times brings semi-good news: The IMF says that the world is starting to pull out of the recession. Yet, while IMF Chief Economist Oliver Blanchard says that "the recovery is coming," he also mentions that it's likely to be a "weak" one. According to the paper, "The IMF now forecasts global growth of 2.5 per cent next year, up from 1.9 per cent in April, led by strong growth in China and India, a rebound in Japan and positive but sub-trend growth in the US."

Finally, the New York Times reports an apology from the Wall Street analyst who predicted that Disney's (DIS) animated movie Up would flop. Calling his prediction "dead wrong," the analyst wrote, "the recent success of Disney-Pixar's 'Up' (well ahead of our forecasts) has renewed investor confidence in Disney's creative capabilities." Over the weekend, Up became Pixar's second-highest grossing film ever in North America, beat out only by Finding Nemo.

White House Takes Aim At Oil Traders

sara.behunek — Wed, 08 Jul 2009 09:46:54 +0000

The Wall Street Journal leads and the New York Times off-leads with a look at the trouble facing commodities traders as regulators in the United States and abroad seek to curb speculation in oil markets in an attempt to keep oil prices low. The price of oil has climbed back up to about $73 dollars a barrel from a low of $34 earlier this year, "despite a slump in demand, bulging supplies and a world economy in the doldrums," the WSJ writes. Responding to the rise, and fearing a repeat of last summer's $145 a barrel, the Commodity Futures Trading Commission in Washington has proposed rules that would limit how much money any single trader can bet on any one commodity at a time. The commission has already adopted "tougher information requirements" that seek to identify the role of hedge funds and traders who swap contracts outside of regulated exchanges like the New York Mercantile Exchange, adds the NYT, which zeros in on the political impact the proposals have, saying they "highlight a broader shift toward tougher government oversight under President Obama."

Deftly breaking down the issue into understandable terms, the WSJ writes: "Much trade in oil futures is carried out by commercial traders such as oil companies, utilities and airlines, seeking to protect their profits against swings in energy prices. In recent years, big noncommercial traders such as hedge funds and investment banks have poured money into oil and other commodities. Such investors typically put their money in indexes that track the value of futures contracts, in which investors promise to pay a certain amount in the future for oil and other commodities." Since the beginning of the year, investors have poured some $25 billion into commodities as a hedge against inflation and a weakened dollar. The proposals have been criticized by traders, and have raised brows among analysts, who say the current volatility in the commodities market is due to uncertain prospects for economic recovery. The long-term rise, analysts say, is due to increased demand from developing countries. The investment community maintains that speculators are crucial to the futures market as they provide liquidity to hedgers, including commercial traders.

Topping the news roll at Reuters is word that Google (GOOG) is taking aim at Microsoft Corp. (MSFT) by introducing an operating system for PCs that will be available in low-cost netbooks in the latter half of 2010. The company said it will aim at full-scale PCs later on. The Journal calls the announcement, made on Google's blog, "a direct assault" on Microsoft's turf." Adds Bloomberg: "Google's plan intensifies the company's competition with Microsoft, whose Windows system runs about 90 percent of the world's personal computers. In addition to Web browsers, the companies compete in Internet search and business applications such as word-processing and spreadsheet programs."

Dubbed the Google Chrome Operating System, or Chrome OS, the software will be based on Google's Chrome Web browser, launched in 2008, which ranks a distant fourth in the Web browser market, with a 1.2 percent share as of February. Microsoft's Internet Explorer has a lockdown on No. 1 with a 70 percent market share. The "key to success will be whether Google can lock in partnerships with PC makers, such as Hewlett-Packard Co and Dell Inc, which currently offer Windows on most of their product lines," Reuters says.

The Washington Post tops its business news with a look at General Motors' (GM) Chevy Malibu, the recently revamped midsize sedan that could be its ticket back into the hearts of wary consumers. The car was named 2008 "North American car of the year" by auto journalists and in Consumer Reports' rankings of "reliability, satisfaction and cost, it beat or tied its main Japanese rivals, the Toyota Camry and the Honda Accord," the paper says. In quality surveys by J.D. Power and Associates, "it bested those competitors." However, through June 2009, the Malibu has garnered only 9.8 percent of the market share.

The paper chalks this up to the way GM develops its cars. "GM is a sprawling global corporation that typically develops products through laborious, far-flung processes

—design, engineering, financial, advertising, and so on. According to people inside and outside the company, this diffuse approach often has smothered the will to dominate the competition." But "what the new Malibu represents to many inside GM is that the company, when it decides to, can produce a car to rival Toyota and Honda in one of the most important market segments: mid-size cars." If GM can just do what it did to the Malibu to all its new cars, "its prospects will be measurably brighter," the Post concludes.

In other oil news, and in another WP report, T. Boone Pickens, the Texas oil magnate and trumpeter of clean energy (in recent years), has "temporarily shelved" plans to construct the world's largest wind farm in the Texas Panhandle. The decision was made because of low natural gas prices and due to his inability to borrow $2 billion for transmission lines to link the wind farm to the Texas grid. Mesa Power, Pickens' company, is now on the lookout for other projects that could use 667 wind turbines, or $2 billion worth, that he's already ordered, set to be delivered in 2011. The farm was to produce 4,000 megawatts, enough to power 1.3 million homes, the WP notes. The projected cost was to be $10 billion. "Boone still remains committed and focused on developing wind energy in the United States," said Jay Rosser, a spokesman for Pickens' BP Capital Management.

A Little Less Talk, a Little More Action

sara.behunek — Tue, 07 Jul 2009 09:36:37 +0000

Whether the government's stimulus is taking effect and whether it has been enough is a topic that remains front-and-center in the pages of the business press. The New York Times leads its business section with a look at the rapidity with which France has meted out funds earmarked for stimulus spending. "America is six months behind; it has wasted a lot of time," Patrick Devedjian, the minister in charge of the French stimulus, recently said. "By the time Washington gets around to doling out most of its money, Mr. Devedjian sniffed, ‘the crisis could be over,' " the Times relays. CNNMoney chimes in, saying that "with August quickly approaching, $56.3 billion, or 10 percent of stimulus funds have been paid out, and the unemployment rate has already risen to 9.5 percent"—higher than the Obama administration had expected. The largest portion of the stimulus, $22 billion, has been spent by states for Medicare and Medicaid payments.

Reuters, meanwhile, reports that Laura D'Andrea Tyson, a member of the panel advising President Barack Obama on tackling the economic crisis, is calling for the government to plan for a possible second round of fiscal stimulus spending. Speaking at a seminar in Singapore, Tyson said that "the stimulus is performing close to expectations but not in timing," and that a second round of financing should be directed at infrastructure. She dispelled the largest criticism of increased stimulus spending: inflation and the prospect of a weakened dollar. "The Federal Reserve is not going to allow the U.S. to inflate away its debt," she said, adding that, "it is almost in no one's interest to have a sharply spiraling downward dollar."

The administration has said it is on track to have 70 percent of the stimulus out the door by September 2010, but that, ultimately, the pace will depend on whether or not the economy shows sustained improvement. "Part of the reason stimulus has been slow-going so far is the number of hurdles projects need to clear before money gets out the door. Projects need to meet certain guidelines, as the government seeks to ensure that the money is spent wisely," CNN Money says. Indeed, France has been particularly successful in doling out the funds that have put millions of French to work on projects ranging from beatification to infrastructure because of its "centralized, state-directed economy."

Bloomberg leads with news that prosecutors say Goldman Sachs (GS) may wind up losing millions of dollars if computer software allegedly stolen by Sergey Aleynikov, an ex-Goldman computer programmer, gets into the wrong hands. A record of a hearing held on July 4, one day after Aleynikov was arrested after arriving at an airport in Newark, N.J., and made public yesterday shows Assistant U.S. Attorney Joseph Facciponti telling a federal judge that Aleynikov's alleged theft poses a risk to U.S. markets. Facciponti accused Aleynikov of transferring a proprietary code, "which is worth millions of dollars," to a computer server in Germany, where others may have had access to it. The code allows the firm to do "sophisticated, high- speed and high-volume trades on various stock and commodities markets" that generate "many millions of dollars" each year, according to the court papers reviewed by Bloomberg. Adds the Wall Street Journal: The specific program that Aleynikov worked on "was used primarily by Goldman's principal traders, who take risks with the New York company's capital because they buy securities from clients that may end up on the Goldman balance sheet."

Aleynikov's attorney said the government's allegations are "preposterous," and that Aleynikov was simply downloading programs to his personal computer to do work at home, which Goldman was aware of. The information hadn't been disseminated, the lawyer said. Aleynikov, who lives in Little Falls, N.J., posted a $750,000 bail yesterday. The programmer made $400,000 a year at Goldman and on July 2 started a job at Teza Technologies, a Chicago-based firm co-founded by a former Citadel Investment Group trader, where he was to earn $1.2 million annually for conducting high-volume automated trading. He has been suspended from his new job. According to the WSJ, sources at Goldman say there was no financial impact on the firm. "The company's surveillance systems caught the alleged breach, and Goldman notified the FBI. But the arrest shines a spotlight on the inner workings of Goldman's computer-programming department, which helps traders generate returns that contribute to the firm's reputation as one of the savviest buyers and sellers on Wall Street," the paper writes.

Keeping with the courts, the WSJ leads with word that the Department of Justice has begun examining whether large U.S. telecommunications companies, including AT&T (T) and Verizon Communications (VZ), have violated antitrust laws. In fact, the paper says, "the telecom industry is among several sectors now coming under scrutiny." Others include health care and agriculture. The informal investigation into the telecom industry, a process expected to cover all areas from land-line voice and broadband service to wireless to restrictions on outside services such as Skype, is in the early stages and may never advance into a formal process.

More than the incident itself, the increased scrutiny indicates "the Obama administration's aggressive stance on antitrust enforcement," the WSJ says. However, according to experts, the government could have a tough time proving their case. "What you'll probably see is a lot of investigations opened, but they'll bring cases where they have the best shot of succeeding in litigation and clarifying the law," Ketan Jhaveri, an attorney who once worked on the Justice Department's telecom antitrust task force told the paper. "He noted that antimonopoly litigation consumes a lot of resources: and that the "scrutiny itself might help deter anticompetitive behavior, even if suits aren't filed."

GM Clears A Major Hurdle

matthew.yeomans — Mon, 06 Jul 2009 09:10:19 +0000

General Motors (GMGMQ) overcame a major hurdle to emerge from bankruptcy after federal Judge Robert E. Gerber approved the sale of the auto maker's assets to a new government-run company, the Wall Street Journal reports. Gerber delivered his ruling late Sunday after rejecting calls from dissident bondholders and product-liability claimants to block the move, citing that the alternative—liquidating the company—would be "a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates." Under the deal, "new GM" will run the best parts of the old company, including its Chevrolet and Cadillac brands, with a less expensive work force, fewer debts, and a stripped-down dealer network. The so-called dead wood of the old company will be liquidated. Gerber said the sale will “prevent the death of the patient on the operating table," the Financial Times writes.

Speaking of rising from the ashes: Oil is back and striking fear into the hearts of economic revivalists the world over, the New York Times reports in its lead business article. Prices of crude oil have more than doubled since the beginning of the year in a wave of market volatility that has government officials both puzzled and worried that the unpredictable cost of commodities will derail any economic recovery. Despite plummeting from a record high of more than $145 just last summer, crude is currently trading at more than $70 a barrel and making life difficult for energy-intensive industries like airlines and automakers (note to GM above) as well as "households, already crimped by falling home prices, mounting job losses and credit pressures, [who] are once more forced to monitor their discretionary spending as energy prices rise."

Staying with the topsy-turvy world of commodities: Mega Anglo-Australian metal corporation Rio Tinto has agreed to sell a U.S. division of Alcan Packaging to Wisconsin-based Bemis for $1.2 billion in cash and $200 million in shares, the FT reports. Rio has been straddled with debt ever since acquiring Canadian aluminium giant Alcan at the top of the commodities market in 2007 for $38 billion. Ever since, it's been trying to offload assets—notably the noncore packaging business—as it tries to pay down the nearly $40 billion it owes creditors. "Any packaging that Rio is getting rid of [from] its balance sheet is good and will be liked by the market," Olviia Ker, an analyst with Merrill Lynch (MER) told the BBC.

Can tech maintain its 2009 surge? That's what Wall Street is keen to find out as a raft of technology companies this week report second-quarter earnings, the WSJ reports. "Makers of semiconductor chips, computers and software have blazed a path for the broader market this year as investors bet that they would be among the first beneficiaries of any economic recovery," it writes, noting that while the Dow Jones Industrial Average is down 5.7 percent for the year, the Nasdaq Composite Index is up 14 percent. But with new economic and jobs data causing analysts to question America's economic recovery, all eyes will be on the performance of tech and semiconductors in particular since they are viewed as being at the "front end of the manufacturing process for tech," as one analyst puts it.

Finally, we're watching longer and longer videos online, the NYT reports. And "while online video is not going to replace television anytime soon, it is now decidedly mainstream. About 150 million Internet users in the United States watch about 14.5 billion videos a month, according to the measurement firm comScore, or an average of 97 videos per viewer," it writes. That's a lot more crazy cat tricks to watch during lunch-hour video snacking.

The Great Dollar Debate

caitlin.mcdevitt — Sun, 05 Jul 2009 14:05:16 +0000

Beijing has already mentioned that it would like an alternative to the dollar as the world reserve currency, and it wants the topic discussed further at a summit this week, according to Reuters. Leaders from the Western economic powers, Russia, China, India, and Brazil will meet this week to mull over "global challenges." Reuters calls the discussion of the dollar "the most delicate issue" that the leaders will face in terms of the economy. Some sources say that Brazil and India have backed Beijing's call for the currency debate, but among the G8, there's been resistance to the change.

American homeowners who have seen the value of their homes plummet are pushing back against the government for lower property taxes, the New York Times reports. The appeals, which the paper says have reached "record numbers," are hurting local governments at a time when budgets are already strained. It's a widespread occurrence, too—from high-tax areas like New York City to whole towns that were hard hit by the real estate bust.

According to today's Wall Street Journal, "a humble highway fixture"—the rest stop—is increasingly at risk because of strained state budgets. The country's 2,500 interstate rest areas are built and maintained by the states, some of which are choosing to shut them down instead of spending money to repair or maintain them. The paper says, "Louisiana has closed 24 of its 34 rest areas since 2000, four of them last year. Maine, Vermont and Colorado have recently announced plans to shutter more rest areas because of cash constraints. Rhode Island, Tennessee, Arizona and others are thinking of doing likewise."

California's economic woes may be an investment opportunity, Jane Bryant Quinn reports in today's Washington Post. According to the article, "as California hurtled toward its budget deadlines last month, interest rates on its tax-free bonds jumped. Residents can get yields north of 5 percent on intermediate-term general obligation bonds and 6.2 percent on long-term bonds. Nonresidents can buy into the bonds through many national municipal funds, which buy the bonds of many states." Other advisers warn to stay away, unless the state's credit rating drops to BBB from an A, making its bonds more appealing.

The U.S. Justice Department has confirmed that it's investigating a settlement between Google (GOOG) and its authors and publishers due to antitrust issues, according to the Wall Street Journal. The agreement presently gives Google copyright licineses over the digital books it has scanned since 2004 to include in a book search service and for digital sales. Opponents have alleged that the settlement blocks other from entering the digital book market. The hearing is slated to take place in October.

China's business hub, Shanghai, is making plans to install its own version of Wall Street's famous charging bull statue, according to Reuters. The China Daily reported that the statue would weigh 6 metric tons, compared with Wall Street's 3.2 ton bull. The newspaper said that the bull should "bring confidence and fortune to the Chinese people in times of economic uncertainty."

Recession Redux

matthew.yeomans — Fri, 03 Jul 2009 08:10:08 +0000

Today's business pages are filled with nasty adjectives to describe the recession we can't seem to shake. The latest spate of bleak prognoses for economic recovery follows yesterday's grim jobs data. In June, the economy lost another 467,000 jobs, pushing the unemployment rate up to 9.5 percent. The New York Times calls it "a sobering indication that the longest recession since the 1930s had yet to release its hold." Economists polled to make sense of the data seem lost. "There’s nothing in here to show that the economy and the market are pulling out of the grip of recession," Stuart G. Hoffman, chief economist at PNC Financial Services in Pittsburgh, tells the NYT. The Washington Post points out that until yesterday's jobs numbers came out, there was hope that things were improving. Now, it seems like the economy is getting sicker. "The number of job losses had decreased every month since January before spiking again in June, and economists think it is highly likely that the jobless rate will hit double-digits later this year," the newspaper writes.

Of course, the worse-than-expected payroll numbers sent the markets bombing downward on Thursday, with the Dow, S&P, and Nasdaq all falling by more than 2 percent. It was a humbling moment for traders who were reminded that a resurgent Dow doesn't always mean everyone is better off. "People are realizing that the stock market rally doesn't mean the economy is coming back," Joseph Saluzzi, co-head of equity trading at Themis Trading, told CNNMoney.com. The jobs figures also sunk the price of crude oil, which fell by $2 a barrel in trading on Thursday, Bloomberg reports.

The NYT leads off its business coverage today with another revelatory piece about China's green-energy ambitions. The upshot? The Chinese are moving far more quickly than the United States into alternative sources of energy. "Although coal remains the biggest energy source and is almost certain to stay that way, the rise of renewable energy, especially wind power, is helping to slow China’s steep growth in emissions of global warming gases," the NYT writes. By the NYT's calculation, China may be at least two years ahead (or more) of the United States in mandating a switch to renewable energy sources—two years, that is, if the Senate eventually approves a climate change bill similar to the one that eeked through the House last week. Of course, China is still the world's biggest greenhouse gas polluter, Reuters reminds us. But it's trying to change that. The Chinese government has a $150 billion plan to attract investment in wind power. Reuters writes, "China is set to raise its wind power capacity to 100 gigawatts (GW) by 2020, eight times its current level and more than Britain's entire current power capacity, as part of a stimulus package aimed at boosting renewable energy."

Did Bernie Madoff have a secret Austrian connection? A cluster of U.S., U.K., and Austrian authorities are investigating Sonja Kohn, the former chairwoman of Austria's Bank Medici AG, who they believe was "paid more than $40 million in kickbacks to funnel billions of dollars of investments" to Madoff, the WSJ reports. Prosecutors allege that Kohn took the kickbacks and in exchange made three Bank Medici funds into "feeder funds" that gave Madoff access to an estimated $3.5 billion from European investors. Back stateside, federal marshals in NY seized Madoff's $7 million Manhattan penthouse apartment as part of its strategy to reimburse victims of his ponzi scheme the NYT reports.

Deep into tech territory but with another legal twist as the Justice Department confirmed it was conducting an "antitrust investigation into the settlement of a lawsuit that groups representing authors and publishers filed against Google," the NYT writes. The main issue for Justice is the concern that the agreement grants Google (GOOG) exclusive rights to profit from millions of so-called “orphan works,” books that are out of print and whose authors or rights holders are unknown or can't be located. All this antitrust activity brings back memories of Microsoft (MSFT) in the late 1990s, so it is with just a hint of irony that we report that the supposed software dinosaur continues to innovate with its new Bing search engine, this time adding a smattering of Twitter posts to its search results, Business Week reports. Its prediction? Google won't be far behind.

And finally, we go back to China where the country's principal trading index, the Shanghai composite index, rose by 52 points Thursday, the NYT points out, "putting the index up 68 percent this year." (Reuters points out the Shanghai composite was up again this morning, weathering nicely the rotten U.S. jobs figure from yesterday.) To hear analysts talk about the Shanghai index you'd have thought you were being teleported back in time. "Sentiment has staged a remarkable recovery," Jing Ulrich, chairwoman of China equities at J.P. Morgan told the NYT. "This is about confidence. The money has always been there, even in the dark days of 2008."

Today's Business Press will not be published on Saturday. Enjoy your Independence Day!

Report Puts Brakes on Slipping Auto Sales

sara.behunek — Thu, 02 Jul 2009 09:46:01 +0000

The New York Times leads its "Business Day" section, and the Wall Street Journal its "Business & Finance" news box, with word that Ford (F), General Motors (GMGMQ), and Chrysler have seen a slowing of the rapid slide in auto sales. New-vehicle sales in June fell 28 percent from a year earlier—the smallest decline in any month this year. In the United States, new-vehicle sales of cars and light trucks reached 860,000 in June. Invigorated by the news, executives at Toyota, GM, and Ford are calling a bottom, saying the industry has reached a turning point. The NYT highlights Ford's success at separating itself in the eyes of consumers from GM and Chrysler, which, the paper points out, have been forced to accept "government lifelines" and file for bankruptcy. Ford's sales were down 11 percent from June 2008 while GM's sales fell 33 percent and Chrysler's 42 percent.

According to the WSJ, "the sharp declines at GM and Chrysler were caused in part by significantly lower sales to fleet customers such as rental-car companies." Chrysler, for instance, posted a 95 percent decline in fleet sales. "The plant closings at GM and Chrysler cut sharply into both companies' sales to car rental companies and other business customers, but their bankruptcies have not scared away as many consumers as their executives say they had feared," the paper writes. Helping sales were dealers who had to scramble "to clear their inventory before closing their franchises as part of the two companies' restructuring plans." Still, writes the Times, "even a modest recovery would not put the market anywhere near its levels for most of the last decade, when auto sales in the United States were about 17 million a year before plummeting in the second half of 2008." Since the beginning of the year, car sales have posted an overall 37 percent decline with fewer than 5 million vehicles sold.

In other car news, Southfield, Mich.'s Lear Corp., the world's second-largest auto-seating supplier, plans to file for Chapter 11 bankruptcy if it can get its remaining bondholders to agree to terms. The company will be able to obtain $500 million in bankruptcy financing in the process and will exit from a syndicate led by JPMorgan Chase (JPM) and Citigroup (C). "The [announcement] represents the largest in a string of recent failures of auto parts suppliers and highlighted the pressure on the sector from sharply curtailed production and bankruptcies at [GM and Chrysler]," Reuters says. More than 20 parts-makers have filed for bankruptcy this year, including major suppliers Visteon Corp. (VSTN) and Metaldyne Corp., Bloomberg adds. In May, Lear had said it aimed to restructure its debt outside of bankruptcy court. However, the company's largest customer last year was GM, which accounted for 23 percent of the supplier's $13.6 billion in sales (followed by Ford at 19 percent), and low production contributed to a $1.05 billion net loss at the company, a cut too deep for it to bear. Bankruptcy, senior Lear executives told the press, is the most efficient option.

Not to be left out of the auto news whirl, CNNMoney casts a critical eye on GM's recently appointed CEO, Fritz Henderson, who, it reports, critics say will not bring the fresh blood GM needs to complete a successful turnaround. Henderson, who has risen through the ranks since he started at GM 25 years ago after graduating from business school, replaced ousted CEO Rick Wagoner in March. However, "most successful turnarounds have been led by outsiders," Rob Kleinbaum, previously a GM market research and planning executive and now a managing director of consulting firm RAK & Co., told CNNMoney. Kleinbaum recently completed a study with researchers from the University of Michigan on corporate turnarounds. "GM's top rivals are now led by people who are not industry veterans. Ford went outside the auto industry to find CEO Alan Mulally, a top Boeing (BA) executive before he was tapped to run Ford in 2006. Chrysler, which emerged from bankruptcy last month, is now being run by Fiat CEO Sergio Marchionne, who himself was new to the auto industry when he took over Fiat (FIATY) in 2004," the story says. But not all "auto industry outsiders" have worked out well. In 2007, when Cerberus Capital Management bought Chrysler, it installed former Home Depot (HD) CEO Robert Nardelli, who "did little to turnaround the company's fortunes." As a supplement to the coverage, the site provides a video interview with reporter Poppy Harlow and Henderson.

The Washington Post leads its business coverage with a report that Genevievette Walker-Lightfoot, a lawyer in the Security and Exchange Commission's Office of Compliance Inspections, and Examinations, warned superiors of irregularities at Bernard L. Madoff's financial management firm but was told to focus on an unrelated matter: wrongdoing in the mutual fund industry. As early as 2004, following a review, Walker-Lightfoot sent e-mails to a supervisor alerting him that Madoff's numbers didn't add up and suggesting a set of questions to ask his firm. "Several of these questions directly challenged Madoff activities that much later turned out to be elements of his massive fraud," the paper says. "If pursued, [they] may have led to discovery of the fraud." Interestingly, one of Walker-Lightfoot's supervisors in 2004, Eric Swanson, an assistant director of the department, later married Madoff's niece. Their relationship is "now under review by the agency's inspector general, who is examining the SEC's handling of the Madoff case," the WP reports. Donohue still works for the SEC but did not provide a comment for the article. Swanson, who is no longer with the agency, declined to comment. Overall, the report fuels the notion that the SEC failed miserably in its ability to detect fraud for which it has taken extensive heat.

The WSJ leads its "Money & Investing" section with a look at rising compensation packages, which could return to 2007 levels "if the good times continue to roll." Goldman Sachs (GS) in 2009 "is on track to pay out as much as $20 billion this year, or about $700,000 per employee," nearly double the firm's $363,000 average last year and slightly higher than the $661,000 for the average Goldman employee in 2007, the paper says. Morgan Stanley (MS), "the only other huge U.S. securities firm left as an independent company," will likely fork out $11 billion to $14 billion in compensation and benefits, with average pay surpassing 2008's $262,000 per employee. In 2007, Morgan Stanley paid each employee an average of $340,000. "Whether the higher payouts occur will depend on whether Wall Street earnings continue to recover from last year's bruising losses on troubled assets and bad trading bets. If the market's resilience since early March fades or a new crisis erupts, then securities firms would likely set aside far less to pay their employees than they did in this year's first two quarters. Firms can set aside money for compensation and then decide not to pay it later," the Journal writes.

Finally, Reuters reports that the Treasury Department could announce as soon as today which firms have been tapped to run the Public-Private Investment Program. As many as nine firms could be chosen, and likely candidates include PIMCO, BlackRock (BLK), Wilbur Ross, and Angelo Gordon & Co. A "key part" of the Obama administration's plan to revive markets, PPIP will use federal funds and private capital to buy banks' toxic assets.

Wal-Mart's Health Scare

matthew.yeomans — Wed, 01 Jul 2009 07:49:05 +0000

Wal-Mart (WMT), the former poster child for corporate villainy, once again has surprised both its critics and its corporate peers by backing President Barack Obama's plans to force employers to provide health insurance to workers, the Wall Street Journal reports. This show of support from the nation's largest private employer could give much-needed momentum to "one of the most-contentious aspects of legislation taking shape in Congress to fix the health system" and help provide coverage for the 46 million uninsured Americans, the paper notes. It's also making many CEOs choke on their coffee this morning. As the WSJ describes, the National Retail Federation, the industry's main lobby, said it was "flabbergasted" by Wal-Mart's move. The New York Times meanwhile shines a spotlight on the growing number of people who are forced into personal bankruptcy by huge medical bills. Three-quarters of them actually had health insurance to begin with, the NYT writes, reflecting that, "even as Washington tries to cover the tens of millions of Americans without medical insurance, many health policy experts say simply giving everyone an insurance card will not be enough to fix what is wrong with the system." Advocates argue that any universal health insurance program must guarantee a "base level of coverage" for all those it covers.

Sticking with health issues, a federal advisory panel yesterday voted to recommend a ban on Percocet and Vicodin, two of the most popular prescription painkillers in the world, because of the damage they can cause to the liver, the NYT reports. Both drugs contain a narcotic combined with acetaminophen which, when taken in high doses, has been identified as a leading cause of liver damage. People who take Percocet and Vicodin for long periods often need higher and higher doses to achieve the same pain-relief effect, the advisory panel noted. The ruling doesn't guarantee a ban from the Food and Drug Administration but this expert advice normally governs the agency's thinking. The panel also recommended that the recommended daily dose of Tylenol—one of Johnson & Johnson's best-selling products and another that contains acetaminophen—be cut from 4,000 to 2,600 milligrams. The company said it "strongly disagreed" with the ruling.

Good news, investors. The Dow Jones Industrial Average gained 11 percent in the quarter that just ended, and the blue-chip index is up an even more impressive 29 percent from the 12-year low hit on March 9, the WSJ reports. The S&P 500 stock index had an impressive Q2 as well, finishing up 15 percent for the quarter, and it is up 1.8 percent for the year. Then why all the worried looks? Simply because few Wall Street watchers are convinced the bounce-back signals a full-blown recovery. "At current levels, the market is well through pricing even a tepid economic recovery," an equity strategist at Deutsche Bank tells the WSJ. "Earnings are going to have to deliver." And while the markets look fine when viewed through the lens of the past three months, the extended picture is ugly. Business Week chooses to conduct a half-year stock market report, likening the past six months to a jarring roller coaster ride. "Halfway into a tumultuous 2009, investors are no doubt ready for their summer vacations," Business Week writes. But there is one crucial positive development: Credit is flowing again. "No one could get credit six months ago," Brian Reynolds, chief market strategist at WJB Capital Group, told Business Week. Now, "we're shoveling money at companies."

While there may be signs of hope for investors, there's nothing but pain, it seems, for the nation's newspaper publishers. Gannett, the nation's largest newspaper publisher and the owner of USA Today, will cut between 1,000 and 2,000 jobs at local dailies across the country as advertising revenues continue to fall precipitously, the WSJ reports, citing a source familiar with the plan. "The impending move, which follows several aggressive cost-cutting efforts by Gannett over the past year or so, reflects the gloomy near-term outlook for an advertising recovery," the WSJ writes, adding that Gannett cut 4,600 positions last year and instituted unpaid leave for employees earlier this year when ad revenues failed to recover. The NYT, citing a blog that covers Gannett, says the cull could be even larger. "On Gannett Blog, a former Gannett editor who closely follows the company, Jim Hopkins, quotes an unnamed person in the company as saying that it will announce on July 8 that it is eliminating 4,500 United States newspaper jobs, and cutting salaries in its broadcast division," the NYT writes in its Media Decoder blog.

Finally, Fortune has rounded up a midyear edition of its Dumbest Moments in Business, and half way through a tempestuous 2009 there's quite a lot of competition, it seems. Our favorite: South Carolina Gov. Mark Sanford's proud rejection of $700 million of federal stimulus funds for his state "based on his fiscal conservative principles." Of course, as Fortune notes, in hindsight that turned out to be the second-dumbest thing Sanford did this year.

Madoff To Rot Behind Bars

sara.behunek — Tue, 30 Jun 2009 09:37:51 +0000

The New York Times leads with and the Wall Street Journal banners with news that Bernard Madoff, architect of the largest-ever financial fraud, has been slapped with the maximum sentence of 150 years in prison six months after he confessed to his sons of running a massive Ponzi scheme. A thinner, more haggard-looking Madoff, the NYT notes, "stood impassively" as his sentence was read by U.S. District Court Judge Denny Chin. "The penalty sparked a burst of applause in a courtroom packed with victims of the fraud," the WSJ says. "The sentence far surpasses that of other recent high-profile white-collar crimes and took many noted criminal defense attorneys and former federal prosecutors by surprise," the Washington Post writes, adding: "In handing down the sentence, [Judge Chin] acknowledged that any term above 25 years would be symbolic, given Madoff's advanced age of 71. Nevertheless, the judge said, it was important that the severity of the sentence serve as a deterrent to future offenders." Madoff's lawyer had asked for 12 years, one year less than Madoff's life expectancy.

A criminal investigation is still ongoing, as prosecutors try to figure out who else was involved in the scheme. "So far, only Madoff's accountant has been arrested on criminal charges, but securities regulators have filed civil suits against several of his long-term investors, accusing them of knowingly steering other investors into the fraud scheme for their own gain," the NYT says.

In other fraud news, Allen Stanford spent last night in jail "after U.S. prosecutors told a federal judge that the accused swindler would likely flee the country," Reuters reports. Stanford faces 21 counts of criminal charges for a $7 billion Ponzi scheme. Last week, U.S. Magistrate Judge Frances Stacy said Stanford could leave federal custody as long as he came up with a $500,000 bond, a fifth of which would have to be in cash, and lived with his girlfriend in Houston. The U.S. Justice Department "opposed bail of any sort and sought to keep him in jail until his trial, now set for August," the article says. Stanford, who is 50 years old, faces life in prison.

Also topping the business news today is word that General Motors (GM), following in Chrysler's footsteps, will ask a bankruptcy judge today to allow for the sale of its assets to the Treasury-funded Vehicle Acquisition Holdings LLC—or as Reuters calls it, a "New GM." The request, according to Bloomberg, puts President Barack Obama's administration "almost a month ahead of schedule in its plan to reshape the U.S. auto industry." Despite 750 objections, which will likely be overruled, GM says Vehicle Acquisition Holding is the only potential purchaser. In a featured analysis by the WP, the paper expressed doubt over how much a new GM will repay of loans funded by taxpayers. Right now, the company is subsisting off of a $30 billion loan while it is in bankruptcy court, an amount that will balloon to $50 billion once GM emerges. "For the United States to fully recover its investment, the value of General Motors stock will have to reach levels it has never before attained," the WP writes. In fact, it will have to surpass its 2000 peak of $56 billion by an additional $12 billion. According to GM's internal projections, the company's equity value in 2012 will range from $59 billion to $77 billion, though experts say that will be difficult to attain.

Apple (APPL) founder Steve Jobs returned yesterday from medical leave, a move that was greeted by a muted reaction from investors. "Apple, up 67 percent since Jobs went on leave Jan. 14, fell 47 cents to $141.97 yesterday in Nasdaq Stock Market trading. That compares with gains in the Standard & Poor's 500 Index and the Nasdaq Composite Index," Bloomberg reports. "Investors have gotten comfortable with Apple's management team and its ability to run the company without Jobs's oversight," Ryan Jacob, head of the Jacob Internet Fund in Los Angeles, told the news service. As previously reported, Jobs underwent a liver transplant during his five-and-a-half-month leave. According to his doctors, Jobs, also a cancer survivor, is recovering well. But the company itself offered no update on his health and didn't say if his responsibilities would change, the WSJ says. Jobs' return, the paper says, will "fuel debate over the company's disclosure practices," which have drawn the attention of the Securities and Exchange Commission. The SEC opened an informal probe earlier this year and is continuing to look at the issue.

In another front-page story, the WSJ reports that Wall Street is poised to log its best quarter since the credit crisis began, with large firms citing basic operations, such as trading and underwriting, as the fuel that stoked performance. Equity offerings in the second quarter reached nearly $260 billion—"almost four times the amount recorded during the first quarter, and the highest since 2008's second quarter," the paper says. In addition, "the gap between bid and offer prices on fixed-income assets remained wide through most of the quarter, boosting profits from buying and selling these securities." Fixed-income trading drives much of Wall Street's profits. Bloomberg reports that Treasuries fell yesterday, "heading for their steepest first-half loss in three decades." The plunge precedes a report expected to show that "U.S. consumer confidence is rebounding and as rising stocks sapped demand for the safety of fixed-income assets." The MSCI World Index rose 0.4 percent, making for an overall increase of 42 percent since its 2009 low in March. The yield on government notes has been rising, but recent confidence "shows there is demand for 10-year Treasuries at 4 percent," Christoph Rieger, a fixed-income strategist at Commerzbank AG in Frankfurt, told Bloomberg.

Life Behind Bars for Madoff?

bernhard.warner — Mon, 29 Jun 2009 07:32:41 +0000

It's sentencing day for Bernard Madoff, the world's business press trumpet this morning. According to Reuters, the 71-year-old "admitted thief" (he's also a "swindler") can expect to be sentenced to life for masterminding the largest-ever Ponzi scheme, bilking his clients of billions. CNNMoney concurs, saying the judge will probably throw the book at Madoff and sentence him to remain behind bars for the rest of his life; officially, Madoff faces a 150-year term. What is certain is the high drama in court today. Victims will get their chance to detail how the Madoff swindle has ruined their lives. "Given the enormous amount of funds he has stolen and the number of victims, the sentence is going to be very, very high," Paul Radvany, a former federal prosecutor and law professor at Fordham University, tells Reuters.

Meanwhile, the search continues for the missing Madoff money—just $1.2 billion of the $13.2 billion sought by court-appointed trustee Irving Picard has been located, the Wall Street Journal writes. The victims will be compensated up to $500,000 from the Securities Investor Protection Corp. What they get on top of that comes down to whatever Picard can uncover. Most of the recovered money comes from liquidating Madoff's assets and forcing family members like wife Ruth to relinquish their millions to the courts. The hard nugget will be the remaining $10 billion or so. To recover this cash, Picard is suing investors, including trust funds and partnerships run by investors Jeffry Picower and Stanley Chais, who withdrew billions from their Madoff accounts in recent years, the newspaper writes.

There's growing tension in the world of consumer gadgetry, too. According to Fortune.com's Apple 2.0 blog, Apple (AAPL) is running low on iPhones—the 3GS model. The reportage, naturally, is conducted by analyzing the iPhone "availability app," a kind of running tally for stock on iPhones. "The availability tool, which appears on Apple’s website in times of scarcity, was last seen in the summer of 2008, when demand for the iPhone 3G was heavy and supplies short," Fortune.com reports. By yesterday morning, "there were red “sold out” lights for selected 3GS models in all but six states," Fortune.com adds. The most difficult model to keep on the shelves, apparently, is the white iPhone 3GS. "It’s not clear whether demand for that model is unusually high or if Apple just isn’t making enough of them," Fortune.com writes. Computerworld.com, though, reports there is no cause for alarm. The iPhone 3GS shortages are "a milder repeat of last summer, when Apple's stores quickly exhausted supplies of the then-new iPhone 3G," it writes.

"Life's for sharing" is the slogan of the latest T-Mobile U.K. ad campaign, and the company seems to be taking that vision to the extreme. The Financial Times reports that T-Mobile U.K. is being prepared for a sale by parent company Deutsche Telekom and that Vodafone is considering acquiring its mobile rival at a potential price of around $5 billion. The audacious merger would "have huge repercussions for the British mobile phone market" and would undoubtedly attract the attention of Europe's competition regulators. (The combined company would have a 40 percent share of revenue paid by British mobile phone users.) Still on the German merger beat (a slightly tenuous link, admittedly): Volkswagen and Porsche are still lanes apart in their attempt at a family tie-up, the New York Times reports. This weekend, Volkswagen has presented Porsche with an "ultimatum to decide by [today] whether to accept the merger on VW’s terms or risk having the deal fall apart," the paper writes, citing a report in Der Spiegel.

To the world of clean energy now and news that the top U.S. oil refiner, Valero Energy, has recently installed 33 windmills to supply a Texas refinery with green electricity to produce gasoline and diesel, the WSJ writes. For Valero, the investment is a way to guarantee a fixed price for electricity and to free itself from the fluctuations of the national grid. But by tapping into wind power, the company, "which has the capacity to process more crude than any other U.S. refiner," will also be able to argue that it is producing oil and gas products in a more environmentally responsible way—even if those products keep producing huge amounts of greenhouse gases once they're used in cars and trucks. The NYT reports that Dow Chemical (DOW) is embracing the green revolution with a plan to employ huge amounts of algae to turn carbon dioxide into ethanol. The algae would harvest the carbon dioxide, creating a ready supply of ethanol that Dow would then use as an ingredient for making plastics, its core business.

And, finally, towns across America are faced with a tough decision for this upcoming Independence Day celebration—fireworks or jobs? According to the Los Angeles Times, 50 "cash-strapped" cities and municipalities "are forgoing fireworks festivities, choosing instead to retain jobs." The LAT travels to the Cleveland suburb of Euclid, whose mayor decided that the annual $150,000 bill to put on a fireworks spectacular could be money better spent elsewhere. "It came down to this: Did we want to spend $150,000 on something that would be over in a few hours?" Euclid Mayor Bill Cervenik told the newspaper. "Or did we want to use that money to keep city workers employed?"

Ruth Madoff Relinquishes Her Fortune

caitlin.mcdevitt — Sun, 28 Jun 2009 09:28:06 +0000

Bernie Madoff's wife, Ruth, has decided to give up her claim to more than $80 million in assets, says the Wall Street Journal. She will keep $2.5 million in cash, per an agreement with federal prosecutors approved on Friday. According to court documents, Mrs. Madoff agreed to the sale of her properties in Palm Beach, Fla., Montauk, and Manhattan, in addition to boats and other vehicles. Earlier this year Mr. Madoff had requested that prosecutors allow his wife to maintain millions of dollars worth of assets held in her name, which he claimed weren't linked to his fraud. Bernie Madoff is scheduled for sentencing tomorrow. According to her lawyer, Mrs. Madoff won't be attending.

General Motors (GM) will maintain legal liability for claims filed after it exits bankruptcy—even those having to do with vehicles made by the "old company." The issue could have blocked the automaker's quick emergence from bankruptcy, but this deal should resolve it, says the New York Times. The article notes, however, that "Other legal responsibility, including previously filed product liability claims and the closing of G.M. dealers, are likely to remain tied to the G.M. entity that will be left behind in the bankruptcy."

To compensate for their own declining revenue streams, banks are hiking up customer fees on checking accounts, reports the Washington Post. Bank of America (BAC) has changed the maximum number of allowed overdraft fees from five a day to ten, in addition to charging $35 if an account remains in the red for more than five days. Citibank (C) similarly increased its overdraft and its ATM fees for non-Citibank customers. "The purpose of overdraft protection or courtesy overdraft, as it's often called, is to turn something that's like a parking ticket into a profit center," one consumer advocate told the paper, "The $4 latte becomes the $39 latte after the $35 fee."

Small banks are still lining up for TARP money, reports the Wall Street Journal. Small-bank executives who usually don't fly on corporate jets or collect huge bonuses may escape some criticism that bigger banks faced when accepting taxpayer funds. Another advantage: Many "closely held" small institutions haven't publicly announced getting TARP. On the whole, 633 U.S. banks have gotten a total of $199.57 billion in TARP money, according to the Treasury. Of the 32 banks to pay back a combined $70.12 billion thus far, around 20 are small institutions.

A company based in Taiwan, called Acer, is on a pace to overtake Dell (DELL) as the second-biggest PC maker, reports the New York Times. According to the paper, "The company made an aggressive move into the market for netbooks—the small, low-cost laptops that have been a rare bright spot during the worst slump the PC industry has ever faced." If it surpasses Dell, Acer will be the only computer company outside the United States to ever rank that high.

The death of Michael Jackson may have been a turning point for celebrity news Web site, TMZ, the Los Angeles Times notes. The four-year-old Web site broke news of the death—in what the paper calls its biggest scoop thus far—last week and followed up with play-by-play coverage of the aftermath. While some may call its coverage praise-worthy, TMZ may never gain the stature that its executives may perhaps be striving for. The paper remarks, "What may make it even tougher for the website and the TV show to win over advertisers is TMZ's overall association with sensationalism and sleaze."

Presented By:

Sun, 28 Jun 2009 09:28:06 +0000

Climate Change Bill to Heat Up Senate

sara.behunek — Sat, 27 Jun 2009 10:54:39 +0000

Word that the House has narrowly passed a (historic! landmark!) climate change bill that would employ a cap-and-trade system to reduce greenhouse gases in the United States to 83 percent below 2005 levels by mid-century, touches down on the front pages of each major paper and finds a top spot on most business news Web sites. The controversial bill now heads to the Senate, "where political divisions and regional differences are even more stark [than in the House]," according to the New York Times. Adds the Wall Street Journal, "The 1,200 page bill—formally known as the 'American Clean Energy and Security Act'—will reach into almost every corner of the U.S. economy. By putting a price on emissions of greenhouse gases such as carbon dioxide, the bill would affect the way electricity is generated, how homes and offices are designed, how foreign trade is conducted and how much Americans pay to drive cars or to heat their homes." The Congressional Budget Office estimates the measure would cost an average of $175 a year per household, Bloomberg says.

Cap-and-trade works by setting "a limit on overall emissions of heat-trapping gases while allowing utilities, manufacturers and other emitters to trade pollution permits, or allowances, among themselves. The cap would grow tighter over the years, pushing up the price of emissions and presumably driving industry to find cleaner ways of making energy," the NYT explains. Proponents of the bill, including Dow Chemical (DOW) and Ford (F), a slew of environmental clubs and the president himself, say the measure would create jobs while helping save the environment. Opponents

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<![endif]-->—chiefly House Republicans—argue that the bill is no more than a national energy tax that would, in fact, cause the economy to shed more jobs rather than gain them. Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, clearly lays out much of the opposition's view in a column published by Reuters, highlighting issues such as the lack of technology to meet the would-be requirements under the legislation: "Meeting these standards now is technologically impossible without radically reducing our standards of living, but Congress is hoping that technology will magically appear as needed." As well as the effect it would have on businesses: "Not only does the bill penalize American firms through higher costs, it gives firms a financial incentive to move abroad through 'offsets,' activities that supposedly lower carbon emissions elsewhere."

In the last court day before Bernard Madoff, 71, is sentenced in next week, U.S. prosecutors argued that he should get 150 years for conducting Wall Street's largest-ever fraud, or "a term of years that both would assure that Madoff will remain in prison for life," Reuters reports. In response, Madoff's lawyer, Ira Lee Sorkin, argued a sentence of 12 years "would be sufficient." Madoff plead guilty in March to 11 criminal charges. In other Madoff news, the WSJ reports that Ruth Madoff, Bernie's wife, has reached an agreement with federal prosecutors to cede her potential claim to more than $80 million worth of assets, instead keeping "just" $2.5 million in cash. The court has also issued an order for the family to forfeit $170 billion, "which represents the amount of money that prosecutors say flowed into his investment firm." However, the paper explains, "that massive amount is largely symbolic and simply an indication that prosecutors can tap any assets of Madoff's they can find." Over the years the $170 billion was used to pay investors' withdrawals and fund the Madoffs' "lavish lifestyle and that of some associates."

Regulators on Friday closed four small banks, bringing the total of bank closures this year to 44. That amount vastly surpasses last year's 25 failures and 2007's mere three, according to Reuters. But on a more positive note, the WSJ says small banks "are not shying away from TARP funds," casting a sharp contrast to the actions of Wall Street's biggest banks, which have rushed to pay back loans. Since May 31, 20 small banks have received a total of $164.1 million in taxpayer-funded capital, the paper says. With that, the banks are granting loans to local businesses and charities. "Analysts see no end in sight to the trend," according to the Journal. "The recession and borrowers are squeezing most of the 8,200 federally insured commercial banks and savings institutions in the U.S., so even a dollop of TARP funds could make a difference."

It appears, however, that not everyone is short on cash—or the need for advice from one of Wall Street's most sought-after sages. Yesterday, an unidentified bidder agreed to pay $1.68 million as part of a charity auction for a steak lunch with Warren Buffett. The auction marked the tenth year Buffett has participated, and the bid placed second among the most anyone has paid for the privilege. Last year's amount still holds the record at $2.11 million, which was forked over by Hong Kong-based investor Zhao Danyang. The starting price was $25,000. Winning bidders in the past have paid $650,100 (in 2007) and $620,100 (in 2006).The winner and up to seven friends may dine with Buffett at the Smith & Wollensky steakhouse in New York.

U.S. stocks fell last week, "giving the Standard & Poor's 500 Index the first two-week decline since March, after the highest American savings rate in 15 years spurred concern that consumer spending will slow and oil retreated," Bloomberg says. The savings rate surged to 6.9 percent, the highest level since December 1993. The S&P 500 dropped 0.2 percent to 918.88; the Dow Jones Industrial Average fell 34.01 points, or 0.4 percent, to 8,438.39. The dollar lost ground on a call from China's central bank for a worldwide currency, slumping 0.7 percent. In addition to a hike in the savings rate, consumer spending in May rose for the first time since February "as federal stimulus measures boosted incomes, bolstering the view that the economy was close to emerging from recession," Reuters reports. Consumer spending, accounting for more than 70 percent of U.S. economic activity, rose 0.3 percent last month.

And finally, Wacko Jacko (Michael Jackson's erstwhile nickname) has left behind a financial mess, the NYT says in a look at the departed pop star's monetary situation. Although Jackson had made some shrewd business moves over the years—see the rights to the Beatles' catalogue—his accounts have dwindled in recent years "as he burned through millions of dollars to maintain his Neverland ranch, go on art-buying sprees and indulge in whimsies like traveling with a pet chimpanzee named Bubbles." Alvin Malnik, a former adviser to Jackson, the (maybe) executor of the pop star's estate, and the (definite) godfather of Prince Michael II, the youngest of Jackson's three children, tells the Times, "Michael never thought his personal finances were out of control. He never kept track of what he was spending. He would indiscriminately charter jets. He would buy paintings for $1.5 million. You couldn't do that every other week and expect your books to balance." What will become of Jackson's assets remains unknown.

According to the paper, Jackson is estimated to have raked in some $700 million in the '80s and on, though much of that has likely been spent. His debts, on the other hand, could reach up to $500 million. "His single biggest asset is a 50 percent share in Sony/ATV Music Publishing—which owns the rights to more than 200 Beatles songs, along with thousands of others—valued at more than $500 million, but he has about $300 million of debt against it held by Barclays, Jackson's biggest creditor. He also owns his own publishing catalog, called Mijac, which is estimated to be worth $50 million to $100 million, and has an unknown amount of debt attached," the Times writes.

Bernanke Bites Back

bernhard.warner — Fri, 26 Jun 2009 08:00:37 +0000

Fed Chairman Ben Bernanke faced down his inquisitors on Capitol Hill on Thursday, insisting the Fed acted in "the highest integrity" in counseling Bank of America (BAC) on its tumultuous acquisition of Merrill Lynch, today's business press report. The Wall Street Journal notes the testimony wasn't easy on the normally reserved Fed chief. "Bernanke faced open hostility from lawmakers who barraged him during a Congressional hearing over his handling of the financial crisis and the central bank's role in reshaping the banking system," it writes. The New York Times saw it the same way. "In three hours of grueling questions from lawmakers armed with e-mail messages and internal documents, the Fed chairman flatly denied accusations that he had threatened to oust the bank’s top management if it pulled out of the deal," the newspaper reported. Business journalists noted they couldn't recall such a harsh reception for a seated Fed chief since at least the 1990s. Bernanke's even-toned reassurances that the federal government did not strong-arm BofA into completing the Merrill deal still isn't sitting well with some lawmakers. Some Republican congressmen contend the Fed pushed a private company to the brink, while the Democrats feel Bernanke and crew were "bamboozled" into bailing out BofA.

In an analysis piece, Bloomberg wonders about the fallout of yesterday's grilling of Bernanke. It concludes the lingering harsh feelings could "reduce the odds" that the central bank will win new oversight powers as envisioned by the Obama administration. Even Democrats are concerned about giving the Fed any more authority following the bullying allegations. "It may be more important for us to find another systemic risk regulator,” Rep. Paul Kanjorski, a Pennsylvania Democrat and member of the House oversight committee, told Bloomberg. Congress should "hesitate to put any more authority on the back of the Federal Reserve," he said.

Did accused fraudster Allen Stanford tap a $100 million slush fund to bribe auditors, thus keeping alive his alleged multibillion-dollar Ponzi scheme? This was just one of the 21 charges federal prosecutors made yesterday in the U.S. District Court for the Southern District of Texas, the WSJ reports. Stanford pleaded not guilty to all the charges and is expected to be released on bail today, Bloomberg reports, replete with an unflattering photo of a shackled Stanford in orange jumpsuit.

To China now, where a remarkable development is being reported this morning on Sichuan Tengzhong Heavy Industrial Machinery's bid to buy the Hummer car brand off General Motors (GM). According to the BBC, which cites China National Radio, the Hummer sale will be blocked on environmental grounds. The Hummer, once a symbol of Wall Street excess, apparently "is at odds with the country's planning agency's attempts to decrease pollution from Chinese manufacturers," the BBC writes. The green rationale, though, may not be the whole story. China Daily reports a principle concern is that "The National Development and Reform Commission (NDRC), the nation's top economic planning body, may reject the deal on the grounds that Tengzhong lacks the expertise and resources to run Hummer's operations."

A Florida millionaire and client of UBS is the first scalp to plead guilty in the government's ongoing crackdown against the Swiss bank for allegedly helping wealthy Americans hide their income overseas, untaxed. The man is Steven Michael Rubinstein, an accountant involved in the yacht industry and the first American client of UBS's offshore private banking services to be arrested, the NYT reports. UBS is accused of helping America's rich and powerful conceal $20 billion worth of income offshore, far from the oversight of the IRS. Rubinstein faces as many as three years in prison plus fines for filing a false tax return, the WSJ adds. More prosecutions are expected.

Finally, the music world today may be mourning the death of Michael Jackson, the King of Pop, but attorneys, accountants, and auditors may already be lining up to get a piece of his sprawling and tattered estate. "The King of Pop will likely leave behind one royal estate battle," BusinessWeek predicts. In recent years, Jackson succeeded in wooing deep-pocketed financiers, including Los Angeles-based real estate developer Thomas Barrack and Denver billionaire Philip Anschutz, to help him pay off "a conga line of creditors." Jackson was to play 50 nights in Anschultz's O2 Centre in London for $1 million per show starting next month.

Bernanke, a Machiavellian Schemer?

sara.behunek — Thu, 25 Jun 2009 10:00:50 +0000

The finger-pointing seems to have just begun in the months-old acquisition of Merrill Lynch by Bank of America (BAC)—and now in the spotlight is Federal Reserve Chairman Ben Bernanke. Today, the papers report, Bernanke will testify in front of the House oversight and government reform committee on the Fed's role in the messy takeover, as Republican lawmakers accuse him of orchestrating a cover-up of Merrill's worsening financial situation. Bernanke has denied any wrongdoing. "Lawmakers, especially House Republicans increasingly hostile to the Fed, are expected to ask Mr. Bernanke about [Bank of America CEO Kenneth] Lewis's previous suggestion that the government pressured him to not disclose details about the discussions, and that officials made clear they would consider ousting management," the Wall Street Journal writes. According to Reuters, former U.S. Treasury Secretary Henry Paulson has also been called to testify before Congress next month. No date has been set for his testimony. Democratic Rep. Edolphus Towns of New York, who heads the committee, said in a statement. "I am not going to prejudge these issues. We are not even close to finishing the Bank of America-Merrill Lynch investigation at this point."

The New York Times zeros in the politics of the matter, saying that the Republicans' attack on Bernanke, one of their own, has Democrats coming to his defense. It writes: "A memo written by Republicans, citing e-mail and internal Fed documents that were subpoenaed from the central bank, is building a case that Mr. Bernanke was a Machiavellian autocrat who forced Bank of America to go through with a disastrous merger that it no longer wanted to complete. But the committee's Democratic chairman, Representative Edolphus Towns of New York, is investigating whether Bank of America executives were engaged in an elaborate shakedown, demanding that the Fed and the Treasury provide more than $100 billion in fresh capital and guarantees against the losses that were building up at Merrill Lynch."

In separate Fed news, Bloomberg reports that Federal Reserve policymakers voted yesterday to "maintain the size and pace of their $1.75 trillion program to buy mortgage debt and Treasuries" and will keep its key interest rate near zero. The measure, or lack thereof, was taken as the central bank cited a more optimistic outlook on the longevity and breadth of the recession, and a lack of serious concern for impending inflation. "By buying government bonds and mortgage-backed securities, the Fed helps raise these instruments' prices and drive down yields. The moves have lowered the interest rates that borrowers pay on everything from car loans to home mortgages, providing a spark for economic recovery," the WSJ explains. According to Bloomberg, the measure indicates that policymakers "need more time to assess the prospects for a recovery starting in the second half of the year before deciding to embark on any exit from their unprecedented credit programs." However, "complicating their task is an increase in Treasury yields, which yesterday's message failed to stem: 10-year rates rose five basis points, the most in almost a week, and a further two basis points to 3.71 percent today."

In another Bloomberg story, the site takes a look at a massive PR campaign being mounted by Wall Street's largest trade group, the Securities Industry and Financial Markets Association, "to counter the ‘populist' backlash against bankers." SIFMA represents about 600 securities firms, brokerages, and asset-management companies, including Goldman Sachs Group (GS), Citigroup (C), and JPMorgan Chase (JPM). The campaign will target policymakers and the media in New York, London, Washington, and Brussels. In the United States, part of the strategy will be to have regional securities firms and brokers, "many of which have escaped notoriety in the financial crisis," communicate with their local members of Congress the financial industry's willingness to accept needed change. To spearhead the effort, two former aides to Treasury Secretary Henry Paulson have joined the organization, which has also enlisted a number of advisers, including Democratic polling company Brilliant Corners Research and Strategies at $5,000 a month.

Lastly, in oil news, Ericsson (ERIC) Chief Executive Carl-Henric Svanberg has been named chairman of BP (BP) "in a surprise appointment that ends the oil major's lengthy search for a new chairman," Reuters writes. He will step down at Ericsson at the end of the year and fill the post currently held by Peter Sutherland at BP in January. Replacing Svanberg will be Ericsson's current CFO, Hans Vestberg. "The surprise appointment ends a fraught recruitment process at BP" that has delayed Sutherland's departure from the company almost a year, the article reports. BP initially selected Rio Tinto's (RIO) then-Chairman Paul Skinner, a former Royal Dutch Shell (RDS.A) executive, to fill the job, but Skinner withdrew "following investor unease over Rio's plan to sell $19.5 billion in assets and bonds to Chinese state-owned aluminum group Chinalco." Skinner has since left his post at Rio, and earlier this month, Rio dropped the Chinalco deal. Always the extrapolator, the Journal says that the move "shows how eager western majors are to position themselves as technology companies rather than straight-forward oil-and-gas producers, especially at a time when Big Oil is under pressure to help fight global warming by investing in green energy and high-tech solutions to climate change such as carbon capture and storage."

Big Oil Back in Iraq

matthew.yeomans — Wed, 24 Jun 2009 08:09:35 +0000

"A welcome-back party for Big Oil" is how the Wall Street Journal today sums up the Iraqi government plan to open up its oil fields to the highest bidders after three decades of tight control under Saddam Hussein. Starting next week, the Iraqi government will begin auctioning off contracts to foreign countries, opening up a market with 115 billion barrels in "proven reserves." "If all goes according to plan in the first round, foreign oil companies will move in to help Iraq revive production at six developed fields that have suffered from years of war and neglect," the newspaper writes. According to Reuters, Iraq has the third-largest oil reserves in the world and pumps out of the ground about 2.4 million barrels per day, well below the volumes seen before the 2003 U.S.-led invasion. "Oil Minister Hussain al-Shahristani is betting the contracts awarded on June 29-30, and a second round of tenders at year's end, will provide the cash and expertise needed to reverse the damage done to Iraq's oil infrastructure by decades of isolation, underinvestment and war," Reuters writes.

There are 32 companies angling for the contracts. They include Exxon Mobil (XOM), Royal Dutch Shell, Total, and BP, Reuters and the WSJ write.

The government is about to own one-third of the company, and the share price has plunged nearly 84 percent in the past year—a perfect time then for an across-the-board pay raise? That's the plan at Citigroup (C), the New York Times reports. "The troubled banking giant, which to many symbolizes the troubles in the nation’s financial industry, intends to raise workers’ base salaries by as much as 50 percent this year to offset smaller annual bonuses," the newspaper writes, citing sources in the know. And, in an effort to retain employees (and prop up the sinking share price), Citi will also award millions of new stock options, the NYT adds. The Financial Times points out there is one big hurdle if the new pay hike is to be implemented. The Citi pay rises would "have to be approved by Kenneth Feinberg, the Obama administration’s new 'pay Tsar.' " Expecting some push-back, Citi has already begun pitching the proposal to skeptical outsiders as a "pay adjustment" and not a compensation hike, the FT writes.

Boeing's (BA) new Dreamliner jet won't be taking off anytime soon after the jet maker again postponed the first flight of its much-hyped and much-delayed new addition to the fleet, the WSJ reports. Boeing cites a structural flaw—it has found problems with the aircraft body close the wings—that executives said was small "but which further dents the company's credibility and could hurt the new jet's future profitability." The Dreamliner program is nearly two years behind schedule and is testing the patience of its first customer, Japan's All Nippon Airwars Co. It "chastised Chicago-based Boeing for not providing guidance on an updated delivery schedule." The setback will likely cost the company millions of dollars in penalties and concessions to customers that have ordered the plane, writes the WSJ.

On the tech front now, and Oracle beat the street with a strong fiscal fourth quarter in terms of sales, profits, and new software bookings, Business Week reports. Oracle (ORCL) shares jumped 2.7 percent in extended trading as part of an 8.8 percent surge in the past three months. Despite investor confidence, the WSJ takes a more downbeat view, noting that Oracle's numbers show a revenue decline for the first time since 2002, as the company was "hurt by a strong dollar and companies' continued reluctance to spend on new technology projects." In other tech news, Intel and Nokia announced an alliance yesterday that is aimed at developing designs for new mobile devices and the chips that would be used in them, the WSJ notes.

And finally, Apple (AAPL) shareholders yesterday got some welcome news from an unlikely source—Methodist University Hospital in Memphis, Tenn. Doctors there posted to the hospital Web site on Tuesday an update on Apple CEO Steve Jobs' health status after it emerged this weekend that Jobs had undergone a liver transplant. How's he doing? "Mr. Jobs is now recovering well and has an excellent prognosis," a statement by Dr. James D. Eason, the hospital’s chief of transplantation, read. It's quite an about-face, the NYT reports. "As recently as Monday, a spokeswoman for Methodist said the hospital did not have any records to indicate that a patient named Steve Jobs had received any kind of treatment there. In its statement Tuesday, the hospital said it was making the disclosure with Mr. Jobs’s permission."

You Say Toyota, I Say Toyoda

sara.behunek — Tue, 23 Jun 2009 09:49:59 +0000

Akio Toyoda, grandson of the founder of Toyota Motor Corp. (TM), has officially been handed the reins of his family's auto empire after a 25-year apprenticeship, Reuters reports in an in-depth look at the issues facing Toyota as it tries to find its footing amid the global recession. The move has long been anticipated—and has been previously explored at length by the New York Times and Wall Street Journal in articles published in the past six month—but upon the handoff actually taking place, analysts interviewed by Reuters expressed doubts about 53-year-old Toyoda's ability to make any real difference.

"A drastic reform at Toyota would involve cutting back its domestic production base," Kurt Sanger, a Tokyo-based auto analyst at Deutsche Securities tells Reuters. The company builds about half of its vehicles in Japan, "which works against it with the dollar squarely below 100 yen," he says. In addition, Toyoda's promise to get back to basics and the company's overall unwillingness to make drastic changes will prevent it from experiencing a V-shaped recovery, which would otherwise be possible. The company is expecting last year's losses, its first-ever loss in its 80-or-so-year history, to "balloon to about $8.8 billion in the year to March 2010," though experts say it will probably be half that.

Leading the WSJ's front page is a look at the drastic slide in stocks and industrial commodities yesterday, as "investors are showing doubts about the prospects for global growth." Simply put, fundamentals, such as the housing industry and joblessness (which have improved but are still not looking great), didn't support the paper gains, and "a growing number of investors decided to take some money off the table." Fueling the sell-off, according to CNNMoney, was the World Bank's modification to its 2009 forecast, which now predicts "global growth will shrink by 2.9 percent versus its earlier forecast for a 1.7 percent contraction." What's more, "global trade is expected to plummet 9.7 percent this year."

Until now, the market had experienced three solid months of gains—"in the three months through June 12, the Dow industrials had soared 34 percent," according to the WSJ—which had infused consumers, not to mention investors, with renewed hope. The Dow Jones Industrial Average yesterday fell 200.72 points to 8339.01. The day's loss equated to 2.35 percent but to a total of 5 percent when taking into account the past six trading sessions. "Monday's performance represents the Dow's sharpest point and percentage drop since April 20 and its lowest close in almost a month," the Journal says. The S&P 500 fell 3.06 percent to 893.04 for a 1 percent loss for the year so far. "The S&P 500 has now lost 6.6 percent off the highs from 2 weeks ago," CNNMoney points out. An analyst interviewed by the site says he thinks "the broad index could end up pulling back a total of 10 percent to 15 percent before the sell-off runs its course."

Topping the NYT's business coverage is word that Stanley Chais, a California money manager and one of Bernard Madoff's earliest investors, had been charged in a civil suit filed by the Securities and Exchange Commission for helping Madoff perpetuate his massive fraud. The lawsuit was just one of three filed yesterday, offering insight into the "who, what, why and how" of a scheme that fleeced investors of some $65 billion. "The second civil fraud case, also filed by the SEC, contended that three senior executives at the Cohmad Securities Corporation, a small brokerage firm co-founded by Madoff, knowingly helped finance the Ponzi scheme and conceal it from regulators for years. The third suit, filed in federal bankruptcy court by the trustee seeking assets for Madoff victims, also named Cohmad and its three senior executives, along with more than a dozen of its current or former employees," the paper writes. In each case, the defendants deny knowing anything of the scheme and claim that like the other victims, they, too, lost a handful (and pocketful and wallet-full) of money. The WSJ supplements its coverage of the suits with a 10-minute video titled "Inside the Madoff Scandal: Chapter One."

CNNMoney turns its eye on the criminal charges Madoff is facing, reporting that in less than a week the 71-year-old is scheduled to be sentenced by Judge Denny Chin of the U.S. District Court in New York, and asks, rather rhetorically, if Madoff will die in jail. According to the article, the maximum sentence is 150 years in a federal prison. In recent months, Madoff's victims have pleaded with the judge in letters to put Madoff behind bars for the rest of his life, and legal experts interviewed by CNNMoney say that is likely. "Generally, pending sentences carry a minimum-to-maximum range. But in Madoff's case, the list of legal offenses is so severe that there is no mandatory minimum sentence listed in legal documents filed by the Justice Department," the site says, adding that "through his crimes, Madoff tallied up an ‘offense level' of 54, far exceeding the requirements for a life sentence."

Finally, Bloomberg reports that Ben Bernanke, chairman of the Federal Reserve, will be put on the hot seat as he seeks reappointment to the agency that could possibly become an even larger governing force in coming years. His term is set to expire Jan. 31. So far, President Obama has not said anything about reappointing Bernanke. And Treasury Secretary Timothy Geithner, "in reference to a possible candidacy for Obama economic official Lawrence Summers, told a lawmaker last week it wasn't ‘appropriate' to pledge that top advisers weren't in the running for the job." In Bloomberg's analysis, taking into account input from experts, "odds favor the former Princeton University economist." Bernanke has doubled the central bank's balance sheet to $2.1 trillion and helped "thaw credit markets and put the economy on a path toward recovery."

However, "the vultures are circling," David Jones, a former Fed economist and president of DMJ Advisors LLC in Denver, tells the site. "Bernanke is ‘going to be on the defensive,' even after ‘turning confidence around' since the depths of the crisis, he predicted." Other contenders include Summers or Janet Yellen, "both among the most prominent Democratic economists and veterans of the Clinton administration."

A Stimulus Won't Save Us Now

bernhard.warner — Mon, 22 Jun 2009 08:04:53 +0000

There is grim news from the World Bank this morning. According to the Wall Street Journal, the combined GDP of developing nations will barely grow this year, a stark decline from the past two years. The World Bank report confirms what some had already feared—there is "little hope that the [developing world] countries will provide the spark for the global economic engine," the newspaper writes. How bad is the overall economic picture? The World Bank says global GDP will fall this year by 2.9 percent, pulled down by the world's largest economies, which are expected to sink by 4.5 percent. Reuters quotes the World Bank report as saying that "the prospects for the global economy remain 'unusually uncertain.' " Even more worrying is that some top economists are saying we are fresh out of bullets to jump-start the global economy. "There is a moment where you can't spend anymore and you can't accumulate any more debt. I think we are at that moment," European Central Bank President Jean-Claude Trichet said on Sunday, warning that governments will have to now start paying down the massive deficits they've created rather than look to stimulus spending.

Is there another mega-merger on the cards in the mining industry? The global business press is abuzz this morning with speculation that Switzerland-based Xstrata will merge with rival Anglo American. The BBC, doing a back-of-the-envelope calculation, says the deal would create a £41 billion global mining giant with operations in Australia and South Africa. The New York Times, reporting from Paris, says both Anglo American and Xtstrata have confirmed that they have conducted merger talks, though they stressed they are at a preliminary stage. It's anything but a "done deal." The NYT writes, "[A]s Anglo had been initially reluctant to enter into the talks, analysts say, Xstrata might need to pay a premium to bring it on board." Merger talk in the mining industry (and this one had been rumored for weeks) is being driven by a slowing global economy that is forcing giants to mull joining forces to cut down on massive operating costs. Earlier this month, BHP Billiton (BHP), the world’s biggest mining company, forged a 50-50 joint partnership with Rio Tinto, "a deal they said would save them more than $10 billion by reducing overlap," the NYT adds.

Staying on the M&A beat, Dow Jones Newswire in Beijing is reporting this morning that two of China's struggling state-run airlines, China Eastern Airlines Corp. and Shanghai Airlines Co., are close to a deal. To acquire Shanghai Airlines, China Eastern will raise $1.02 billion via a private placement in both Shanghai and Hong Kong, the newswire said, citing a source. Back home, struggling airlines are looking at much smaller transactions—what USA Today refers to as airlines' "a la carte fees"—to boost revenues as passenger numbers continue to decline. "Even Southwest Airlines, a longtime opponent of extra charges, announced new ones last month," the newspaper writes.

Twenty-three of the 30 largest states (accounting for 88 percent of the nation's total population) have seen their welfare rolls swell in recent months, the WSJ reports this morning, citing a survey conducted by the paper and the National Conference of State Legislatures. The biggest increases are in states with some of the worst jobless rates, including Oregon, South Carolina, and California—"a sign that the welfare system is expanding at a time of added need, assuaging fears of some critics of [former President Bill] Clinton's welfare overhaul who said the truly needy would be turned away," writes the WSJ. Indeed, the fallout from the current recession is the first real test of Clinton's 1996 radical welfare overhaul. What remains to be seen is how already-stretched state budgets will be able to allocate funds to cope with this new surge in registered welfare recipients.

The smartphone smorgasbord just got a new addition in the form of T-Mobile's myTouch 3G, the second phone based on the Android operating system, developed by a Google-led consortium, Business Week reports. The myTouch is a refined and yet more mass-market version of the G1, which has sold more than 1 million units since last December. T-Mobile wants to beat that figure and is making myTouch the "centerpiece [of our marketing] for the second half of our year," Cole Brodman, chief technology and innovation officer at T-Mobile USA, tells Business Week. Sticking with a Google (GOOG) theme: The search/technology giant has started including entries from user-generated encyclopedia Wikipedia as content on its Google News site, the NYT writes. The NYT notes that many of the news-related entries on Wikipedia are meticulously sourced, offering another way of news aggregation for readers. News orgs, meanwhile, will likely see this as yet another example of Google making money off their second-hand content.

And, finally, it sounds so 1999: Former General Electric (GE) CEO Jack Welch is investing $2 million of his own money into the creation of an online MBA program that will bear his name, the WSJ reports. "Mr. Welch says the MBA program will integrate his philosophy of leadership and human resources into a 12-course curriculum designed for mid-career workers," the newspaper writes. Welch himself will not teach the courses, but he plans to record a stimulating weekly video for the students.

Toyota Zooms Ahead

caitlin.mcdevitt — Sun, 21 Jun 2009 10:43:51 +0000

Contraction of the U.S. auto business has made Japanese car maker Toyota Motor Corp. (TM) the new industry front-runner, the Wall Street Journal reports. The paper has declared Toyota to be the "No. 1 winner" out of the many companines benefiting from the bankruptcies of General Motors (GM) and Chrysler. Its share of the North American light-truck and car market may rise to around 20 percent.

The world's most successful bond-fund manager has recently emerged as a powerful voice in the national financial crisis, the New York Times reports. The paper paints a colorful picture of Bill Gross of the money management firm Pimco, who reportedly gambles in Las Vegas, wears Hermès ties, and does yoga. His savvy financial judgment has won him the esteem of Warren Buffett and Alan Greenspan and, recently, the attention of the White House. His fund is hoping to be chosen to relieve banks carrying bad mortgage debt so they can start lending freely again. According to the paper, "Mr. Gross calls the plan a ‘win-win-win' for the banks, taxpayers and Pimco investors." Though he does admit, "You want to shake hands with the government. But maybe it shouldn't be a super-firm handshake."

In health care news, the pharmaceutical industry agreed yesterday to spend $80 billion over the next 10 years to better drug benefits for seniors on Medicare and to defray the cost of Obama'a health care legislation, the Wall Street Journal reports. The arrangement was negotiated over months and led by U.S. Sen. Max Baucus, chairman of the Finance Committee.

As the morning coffee wars heat up, Starbucks (SBUX) has announced that it's stepping up its game, with plans to grind and brew its coffee more frequently, the LA Times reports. Containers will be refreshed every 24 minutes, instead of every 30 minutes, as of next month. "As stores typically have three batches going at once, a new pot could be ready as often as every eight minutes," a spokesperson told the paper. Facing competition from McDonalds (MCD), Starbucks is aiming to emphasize the quality of its product to gain an advantage.

Your credit score may be more important than you think, the Washington Post reports this morning. Lenders are increasingly looking at credit scores as a reason to deny credit altogether. "Credit scores have taken on a new degree of importance," Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, an industry group told the paper: "In the past it was a question of 'What will your interest rate be?', and now it's 'Will you even get a loan?' "

Finally, microbiologists and food safety investigators are trying to figure out what precisely caused the outbreak of E. Coli-related illness that has been tied to Nestlé Toll House cookie dough. According to the Washington Post, the outbreak has caused at least 65 people in 29 states to fall ill already. As was the case with the country's recent peanut-butter-linked food borne-illness outbreak, officials are especially worried about young people getting infected. The stats so far do suggest that kids are indeed the ones consuming the most cookie dough—more than two-thirds of the 65 victims are younger than 19.

Steve Jobs' Illness No Longer a Mystery

sara.behunek — Sat, 20 Jun 2009 10:49:21 +0000

The Wall Street Journal pulls no punches, slapping news that Apple founder Steve Jobs underwent a liver transplant at the top of the front page (no banner). The question of Jobs' health has long troubled investors, journalists, and Apple (AAPL) fans the world over. No longer: "The chief executive has been recovering well and is expected to return to work on schedule later this month, though he may work part-time initially," the paper reports. In Jobs' stead while he is working part-time, Tim Cook, Apple's chief operating officer, may take "a more encompassing role." Cook is also likely to be appointed to Apple's board in the "not-too-distant future." Jobs has been on medical leave since January, though he never divulged what was ailing him. The move has since drawn ire from investors whose thinking is that Jobs' health is central to the health of the overall company. To watch video commentary from Fortune on how Jobs' health affects the company, click here. "In this case, it is unclear whether the surgery is material because Mr. Jobs was already on leave," the Journal says. The transplant took place about two months ago in Tennessee and is one application we're hoping works with his operating system. Ba-da-ba.

In other top news, R. Allen Standford, the "once high-flying Texas billionaire with a Caribbean knighthood and a penchant for publicity and cricket," as Reuters describes him, has been indicted on fraud, conspiracy, and obstruction charges. The "brash 59-year-old mustachioed financier"—again, a Reuters gem—surrendered to the FBI yesterday, "four months after regulators accused him and three of his companies of a ‘massive ongoing fraud.' " Specifically, the Securities and Exchange Commission claims that Stanford "fraudulently sold $8 billion in high-yield certificates of deposit," or in layman's terms, operated a giant Ponzi scheme, defrauding some 30,000 investors. The New York Times reports that in addition, Stanford paid out up to $100,000 to Antigua's "top banking regulator," Leroy King, to keep the SEC at bay—literally. King, now a former Antiguan official, was also indicted.

In a story that has become commonplace, Bloomberg describes how Lincoln National Corp. (LNC), a Philadelphia-based insurer, flew insurance agents and company executives to the Grand Wailea resort on Maui—at $369 per night—the week before accepting almost $1 billion in TARP money. It also hosted a pair of conferences attended by more than 100 salespeople, the last one ending the night before the firm accepted the bailout funds. The story comes a day after a WSJ article on the use of company jets for private use by the executives of the biggest banks. That story, however, elicited a negative reaction from readers, who said "enough with the wealth envy" already! As for Lincoln, a spokesomwan for the insurer said the trip was part of an incentive program, which is not an unusual practice, according to Bloomberg.

Also on the platter today, Reuters explores what will become of Goldman Sachs' (GS) relationship with Warren Buffett. As you'll recall, after Lehman Bros. failed last year and before the government unveiled its massive plan to bailout banks, Buffett stepped up and handed over $5 billion to Goldman in exchange for preferred shares and warrants to buy common stock. Now that the bank has returned taxpayers' $10 billion in loans, investors are left wondering: What can be expected from Buffett? Well, not much, is the anticlimactic conclusion. "He has a history of making fairly large investments in these kinds of companies and sitting back and letting the management team run the company," Vahan Janjigian, author of the book Even Buffett Isn't Perfect, told the site. "Janjigian expects Buffett to sit tight as Berkshire collects $500 million of annual dividends on the preferred shares and earns paper profits on accompanying warrants to buy $5 billion of common stock at $115 per share for up to five years," Reuters writes. Pulling out its calculator, the site says that Berkshire Hathaway (BRK.A) "would earn more than $1 billion in profits if it cashed the common stock warrants now. That is in addition to the 10 percent preferred stock dividend, which is twice the 5 percent rate the government was getting from the TARP investment."

Finally, CNNMoney Editor-At-Large Paul R. La Monica ponders whether the recession in fact ended this spring. Gathering insight from a number of experts, La Monica crafts an answer that, in the end, is not much of an answer. Instead, he leaves the debate open, giving views of both sides of the argument. "We're still in a recession. Are we past the worst point of it? 100% yes. But is the downturn over? It's far too premature to make that assessment," said David Rosenberg, chief economist & strategist at Gluskin Sheff + Associates, a wealth-management firm. On the other hand, Liz Ann Sonders, chief investment strategist with Charles Schwab & Co., "believes that the recession ended sometime in the past two months and that the market is doing what is usually does, heading higher before it's common knowledge that the economy is recovering."

Either way, it's a wait-and-see game, La Moncia says. "The National Bureau of Research makes the official call on recessions by looking at various economic trends beyond GDP. And the NBER is notoriously slow in deciding when recessions begin and end. It didn't declare until July 2003 that the 2001 recession ended in November of that year. The NBER also waited until last December to announce that the current recession started in December 2007," he writes. But in the meantime, none of the experts interviewed is advising clients to do anything different. The recession being over does not mean there will be growth or that the pain on Main Street is over.

Obama Plan Catches Corporate Flak

matthew.yeomans — Fri, 19 Jun 2009 08:10:44 +0000

The Obama administration's new financial system overhaul is drawing fire from both the private sector and politicians, the business press report today. According to the Wall Street Journal, corporate lenders would feel the pinch from the new plan as they would be required to register with the Federal Reserve if they are in the practice of issuing their customers credit cards, making loans, and providing other financial transactions. That would put retailers like Target (TGT) and firms like Harley-Davidson (HOG) and Pitney Bowes (PBI) "in the same regulatory category" as Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), thus "subjecting the non-banks to much greater government oversight," the newspaper writes. The WSJ predicts that the added oversight and red tape may force the companies to simply ditch these financial offerings, "potentially shutting off another source of credit for consumers."

Another potential obstacle to the plan can be found on Capitol Hill. Treasury Secretary Timothy Geithner was on the Hill yesterday defending the plan to skeptical senators. If the chilly reception at the Senate banking committee is anything to go by, this could be a tough sell. The New York Times writes that senators "signaled an unwillingness to accept the White House recommendations intact, particularly the idea of expanding the powers of the Federal Reserve to enable it to regulate risk across the financial system." Geithner tried to play down the new Fed powers as "quite modest," but the senators weren't buying it. His next stop is the House financial services committee, where another hostile audience awaits.

Today's white-collar-crime beat leads off with the arrest of billionaire financier R. Allen Stanford outside his girlfriend's home in Fredericksburg, Va., Bloomberg reports. The 59-year-old is accused of masterminding a complicated $8 billion investment fraud through his Antigua-based bank. Stanford's attorney Dick DeGuerin told Bloomberg the bust went down like this on Thursday: "Federal agents in black SUVs surrounded his girlfriend's house this afternoon, and just sat there. I told him to walk out and introduce himself. So he did, and he asked them, 'If you've got a warrant, take me into custody. If you don't, I'm going to Houston.' And they did, so they arrested him." It was a bad day for former HealthSouth (HLS) CEO Richard Scrushy, too. On Thursday, Scrushy was hit with a "staggering" $2.88 billion civil suit judgement for his part in an accounting scam that unraveled in 2003. "But after six years of legal wrangling over the fraud at the rehabilitation chain, the question is, does Mr. Scrushy have any money left to pay the judgment?" the WSJ wonders.

The pace of job losses across the nation seems to be slowing according to new figures from the Labor Department, the AP reports via the NYT. The total number of people on the unemployment-insurance rolls fell by 148,000, to 6.69 million—the first decrease since early '09 and the largest monthly drop in seven years, notes the Christian Science Monitor. However, before we all get too excited, nearly half of the unemployment recipients had exhausted the 26 weeks of benefits provided under the regular state-level programs without finding new work. That suggests while the mass culling of jobs has eased, employers still see little reason to start hiring again. And just to temper optimism further, the number of new people signing up for benefits for the first time rose 3,000 to 608,000.

Hedge funds may be taking a bit of a kicking in the United States and Europe, but China seems pretty gung-ho on the sector. Sovereign-wealth fund China Investment Corp. (CIC) is set to invest $500 million in a Blackstone Group hedge-fund unit, the WSJ reports, just "part of a broad effort to put cash to work while global markets are rallying but remain below earlier peaks." CIC, underwritten by the Chinese government, is one of the world's largest sovereign-wealth funds and controls some $200 billion. The WSJ reports that CIC Chairman Lou Jiwei is considering a number of hedge-fund plays as he grows concerned that "his fund may miss opportunities near the bottom of the market."

And finally, CEOs of bailed-out companies continue to keep the corporate jet in operation, even for questionable purposes despite vows by Washington to crack down on the perk. According to the WSJ, "flight records show numerous occasions when banks receiving federal money have flown their planes to destinations near resorts or executives' vacation homes, including spots in Europe, Mexico, the Caribbean, south Florida and Aspen, Colo. In some cases, it's clear that bank executives were traveling for personal reasons; for other flights, many of which were over weekends or holidays, the passengers and purpose couldn't be established."

He Ain't No Roosevelt

sara.behunek — Thu, 18 Jun 2009 09:59:55 +0000

The administration's planned overhaul of the financial regulatory system gets top billing across the board, but the public's muted support for the proposals casts a shadow over the (not so) grand scheme, unveiled yesterday by President Obama. The New York Times calls the plan "little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself," and Reuters says it "only partially tackles a task once seen as vital—a top-to-bottom revamp of financial regulatory agencies." However, the financial industry is arguing the potential changes are drastic enough that they "could stifle innovation and make loans more expensive," the Wall Street Journal writes. Next up, the bill will head to Congress, where more than a dozen committee hearings on the plan are scheduled between now and mid-July, Reuters reports. In that time, it can be expected that banks will lobby hard against the bill, particularly the tenet that would vest the Federal Reserve with increased powers.

Among the proposed changes is increased scrutiny of executive compensation, hedge funds, and over-the-counter derivatives as well as other securitized instruments and institutions deemed (all together now) too big to fail. It would also require that banks hold more capital and create a regulatory agency that would oversee financial products for consumers, including mortgages. Finally, it would ensure that consumers are offered more "plain vanilla" financial products.

Reacting to the bill, banks have surprisingly rallied around the Office of Thrift Supervision, a branch of the Treasury established two decades ago to supervise savings-and-loans, which under than plan would be merged with the Office of the Comptroller of the Currency, according to CNNMoney. OTS was the regulator for many of the "high-profile financial casualties of the past year"—namely IndyMac, Countrywide, Washington Mutual, and AIG (AIG)—and its acting director was put on leave in March amid a probe by the Treasury into the agency's actions in an accounting scandal at IndyMac. Given that, "you wouldn't think the proposal would stir much interest, let alone opposition," the site says. But "bankers say eliminating OTS would wipe out a culture that understands the needs of small thrifts, which are obliged to channel most of their lending to housing-related activities." However, in keeping the agency as a stand-alone entity, it would allow banks to participate in "regulatory arbitrage," a practice in which they shop for the most lenient overseer.

Topping the WSJ's Marketplace section is word that Eddie Bauer (EBHI), your mom's favorite clothing store, has filed for Chapter 11 bankruptcy protection, burdened with a heavy debt load it says it incurred during its split with parent Spiegel. The Bellvue, Wash., retailer has already received an offer from New York private-equity firm CCMP Capital Advisors, which has said it will pay $202 million in cash for the company's assets. According to the Seattle Times, CCMP has said it wants to take over the struggling retailer within 45 days and "continue a 2-year-old turnaround effort to remake it into a serious outdoor-gear and -apparel brand." Jonathan Lynch, a managing director at CCMP, said the plan is to operate Eddie Bauer with little or no long-term debt and that Eddie Bauer CEO Neil Fiske will stick around. He added that the firm has no plans for layoffs or moving the company's headquarters. "Bankruptcy rumors had been swirling as Eddie Bauer struggled with slumping sales amid the recession. It reported a loss for the first quarter of $44.5 million as sales fell 16 percent to $179.8 million. The publicly held company had $476.1 million in assets and $426.7 million in debt at the time of the filing Wednesday," the Seattle Times writes. Other buyers may also still bid while the company is under bankruptcy protection.

It's official: Ten banks have now repaid $68 billion in government loans, "as they race to extract themselves from government restrictions on pay for top executives," Reuters reports. JPMorgan Chase (JPM) said it repaid $25 billion to TARP, while Goldman Sachs Group (GS) and Morgan Stanley (MS) said they repaid $10 billion each. U.S. Bancorp (USB) said it repaid $6.6 billion, Capital One Financial Corp. (COF) $3.6 billion, American Express Co. (AXP) $3.4 billion, BB&T Corp. (BBT) $3.1 billion, Bank of New York Mellon Corp. (BK) $3 billion, State Street Corp. (STT) $2 billion, and Northern Trust Corp. (NTRS) $1.57 billion. All but Northern Trust underwent government stress tests, and each was given permission to repay the funds last week.

And more from Reuters: Bing, Microsoft's (MSFT) new search engine, won increasing market share last week, nabbing 12.1 percent of U.S. Internet searches. The week prior, Bing's launch week, the engine caught 11.3 percent of all searches. The week before that, it was 9.1 percent. "For comparison," Reuters writes, "Google (GOOG) got 65 percent of U.S. searches in May, the last full month for which figures are available, followed by Yahoo (YHOO) with 20.1 percent and Microsoft with 8 percent."

The Fed's Police Power

matthew.yeomans — Wed, 17 Jun 2009 08:22:47 +0000

More details of President Obama's plan to dial up federal oversight of Wall Street continue to emerge Wednesday morning, hours before he is set to formally announce them. The Wall Street Journal and Reuters got a sneak peek at the blueprints. The juiciest change, according to Reuters and the WSJ, is to grant new policing powers to the Fed. "We propose a comprehensive review of the ways in which the structure and governance of the Federal Reserve System affect its ability to accomplish its existing and proposed functions," the document reads, according to Reuters. The news agency adds, a principal aim of the plan is to have the "Fed become a 'systemic risk' regulator to keep tabs on large firms and emerging financial threats that could hit the entire economy."

According to the WSJ, the plan would also take aim at precarious, unregulated financial products plus offer greater consumer protections for benign forms of credit. "President Barack Obama's plan will touch almost every corner of financial markets, from tougher consumer-protection policies to stricter rules over exotic financial products, such as credit derivatives," the newspaper writes.

In an effort to help the country go nuclear (in a cleaner fashion), the U.S. Energy Department is distributing $18.5 billion in loans to four domestic power utilities to finance the construction of next-generation reactors, the WSJ reports. The stakes are high. The financing agreement marks "the biggest step in three decades to revive the U.S. nuclear industry and one that could vault the utilities ahead of some of the sector's strongest players," the newspaper writes. The recipients are UniStar Nuclear Energy, NRG Energy Inc. (NRG), Scana Corp. (SCG), and Southern Co., selected from 17 firms who applied for the federal financing. These high-tech reactors are so expensive, the newspaper adds, that the firms needed preferential financing in order to begin building as the price tag ranges from $5 billion to $12 billion, too pricey for most cash-strapped utilities. The Associated Press, meanwhile, publishes a cautionary tale into mothballing older, dirtier nuclear power plants. Its investigation shows the costs to idle an old nuclear plant have soared to $4.6 billion, leaving a large percentage of nuclear plants incapable of taking them properly offline. "Federal regulators are expected to release a report later this week that will describe shortfalls at 30 of the nation's 104 nuclear plants and ask operators for details about how they plan to resolve the problem," the AP reports.

The social media universe yesterday underwent a severe realignment with the news that MySpace is slashing 30 percent of its work force, leaving it with 1,000 employees, CNN Money reports. "Simply put, our staffing levels were bloated and hindered our ability to be an efficient and nimble team-oriented company," said MySpace Chief Executive Owen Van Natta. That's another way of saying that MySpace has got its butt kicked by Facebook and Twitter. Back in April 2008, 73 percent of the total time spent on social networks was spent on MySpace, according to a recent Nielsen study, but by April of this year, that number had dropped to 23 percent compared with nearly 66 percent for Facebook, notes the Los Angeles Times.

Saab, the venerable Swedish car brand that looked set for the General Motors (GMGMQ) scrap heap, just got a new lease of life thanks to a speciality and high-rev compatriot called Koenigsegg, the WSJ reports. The new owner—maker of supercars capable of clocking 250 mph—couldn't be more different from the swollen giant of GM. Koenigsegg employs a mere 45 staff members in a "former aircraft hanger in Angelholm, southern Sweden" and builds just four of its cars at a time. Saab, meanwhile, last year made 89,000 cars and employs 3,400 people. Saab's good fortune contrasts sharply with the fates of many U.S. auto part makers, now that the Obama administration has turned down their request for $8 billion to $10 billion in additional federal loan guarantees, CNN Money reports. Widespread bankruptcies throughout the sector would likely result, the head of the Original Equipment Suppliers Association warned.

And, finally, the cost of text messaging could be probed by the FCC for suspicious-looking, across-the-board price hikes by the nation's largest cell phone operators. According to the Los Angeles Times, Sen. Herb Kohl of Wisconsin believes "that from 2006 to 2008, the price charged by the four biggest carriers for sending and receiving such messages rose from 10 cents to 20 cents," necessitating the need for a federal investigation into possible collusionary pricing. Kohl's concerns also triggered a series of class action lawsuits against the firms. Already, the nation's biggest carriers have stormed to Capitol Hill to defend their pricing tactics. Verizon (VZ), AT&T (ATT), Sprint-Nextel Corp. (S), and T-Mobile USA were on the Hill yesterday calling the claims of price fixing "absolutely false," Dow Jones Newswire reports.

Regulation? No Biggie, Banks Say

sara.behunek — Tue, 16 Jun 2009 09:53:36 +0000

From Reuters to Bloomberg to the Wall Street Journal, the business press this morning takes a look at reactions to the administration’s proposed financial regulation overhaul, laid out yesterday in a Washington Post op-ed piece by Treasury Secretary Timothy Geithner and Lawrence Summers, director of the National Economic Council. The plan—which would raise capital and liquidity requirements for all banks; put controls in place on asset-backed securities “including a requirement that their creators retain some risk,” Reuters explains; and implement regulation of derivatives contracts and dealers—will be presented to Congress tomorrow. It would also give the Federal Reserve more power and would merge the Office of Thrift Supervision, regulator of savings and loans, with the Office of the Comptroller of the Currency, which oversees national banks, Bloomberg adds.

According to Reuters, bankers don’t seem to be sweating the proposed changes, which are the most drastic since those proposed during the Great Depression. In the wake of the announcement, they took care to not attack the plan, instead playing up the fact that the proposals were merely that, proposals, and said they were waiting to hear more details on Wednesday. Wayne Abernathy, executive director for financial institutions policy at the American Bankers Association, told Reuters: "Have we had enough say yet? No, but the process has really just gotten started.” In one WSJ story about the overhaul that focuses in on changes to the securitization industry, the paper reports that there are doubts that any of the changes will make a difference, as most are already in play or are on the table from other regulatory proposals. In fact, Bloomberg posits that banks’ willingness and ability to repay government loans may ease pressure for the changes to go through and will force the overhaul to take a backseat to more pressing issues such as health care reform and climate control.

In another story that leads the paper's What's New, the WSJ points out that the way the administration went about drafting the proposals is a departure from its previous approaches, with Congress being left with few of the initial details. In the case of health care and energy policy, for example, “the White House has left the fine print to be filled in by Congress.” The approach this time “reflects how some of the administration's most senior officials are personally invested in the finance overhaul. Others say the package only works if all the pieces are designed to fit together,” the Journal writes. The proposals were drafted by members of a regulatory team whose every idea was put through the ringer by Summers. During those meetings he became known for his ability to “shred and discredit any idea presented, forcing aides to scramble to defend their proposals.” And while it was a particularly onerous exercise, officials think it will make Wednesday on Capitol Hill go much smoother.

The WP turns its eyes westward with a report on the pitiful state of California’s economy. The administration has denied requests from California lawmakers to bail out the state, which has a $24 billion or so deficit, saying that it could set a precedent that would lead to other states requesting federal aid, too (um, Michigan). But with an economy larger than Canada's or Brazil's, California officials are harkening back to an all-too-memorable argument: “We are too big to fail.” No matter. After a series of meetings, Geithner, Summers, and another top White House economist, Christina Romer, among others, “have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.” One such fix, according to Bloomberg, is a tax increase—a measure that is being talked up by the state’s Democrats who control the Legislature. A tax increase would take the place of budget cuts proposed by Republican Gov. Arnold Schwarzenegger that “would eliminate entire welfare programs and leave 1 million children without health insurance. Democrats yesterday proposed a new $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.” Officials told the WP that the administration would keep a close eye on California and might step in if the situation continues to worsen. But in that case, federal help would "carry conditions to protect taxpayers and make similar requests for aid unattractive to other states."

Stocks dove at the start of the week, taking their biggest plunge in a month. But the domestic sell-off was merely part of a larger global slide that sent the MSCI World Index down the most it’s been in two months, Bloomberg reports. The Dow fell 187.13 points, or 2.1 percent, to 8612.13. The S&P 500 fell 2.4 percent to 923.72, its lowest close in about two weeks. Leading the decline were commodity producers, as oil and metal prices fell. Oil futures declined Friday and Monday, dropping 2 percent to $70.62 per barrel. Prior to that, oil had reached $72.68 on Thursday—its highest level since October. “The drop in part reflected a rise in the dollar, which gained 1.5% against the euro,” the WSJ adds. The price on Treasuries also rose, sending the yield on the 30-year bond down to 4.54 percent. Analysts expressed little concern over the movements, saying the decline could easily be reversed.

However, economic data in the pipeline for this week could have “a greater impact on the market,” according to the Journal. “Reports on housing starts and manufacturing activity will provide clues as to whether the economy continues to stabilize. Consumer and producer-price index reports could shed light on whether inflation is starting to build, as some in the market believe.” Already, the National Association of Home Builders reported that confidence among U.S. homebuilders has fallen after being on the rise for two months. “A prime concern was the rise in mortgage rates that followed a recent sell-off in U.S. Treasurys,” the Journal says.

Finally, in a rare bit of good news for people deep in the red, the practice of settling credit card debt for substantially less than is owed has risen in recent months as more and more individuals face insurmountable bills, the New York Times reports. Indeed, officials say many credit card issuers have “revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.” However, only Bank of America (BAC) and American Express (AXP) admit to the practice, saying only that they decide on a case-by-case basis. Revolving credit, “a close approximation of credit card debt,” reached $939.6 billion in March. The Federal Reserve reported that 6.5 percent of credit card debt was at least 30 days past due in the first quarter of this year—the highest percentage since the agency began tracking the number in 1991. The amount being written off has also reached peak levels, the paper reports.

Obama, the Street Buster

bernhard.warner — Mon, 15 Jun 2009 08:13:25 +0000

The Wall Street Journal this morning scoops the details of President Obama's landmark plan to regulate Wall Street. According to the Journal, it amounts to no less than "the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking from how mortgages are underwritten to the way exotic financial instruments are traded." The most controversial pieces of the proposal, all of it to be announced on Wednesday, would be to put the Federal Reserve in charge of overseeing the largest financial services institutions and to give Washington the power to break up major companies "much like the Federal Deposit Insurance Corp. does with failed banks." Finally, the plan would include the appointment of a new regulator for consumer-oriented financial products.

To be sure, it's a slightly watered-down version of what some lawmakers had been calling for—more absolute powers to regulate big business. But it still has some bite. "It will make it much harder for large companies to be so overleveraged that they threaten the broader economy," the WSJ writes. Business Week wonders though whether the plan will really make for meaningful reform. The magazine notes that Congress is already getting cold feet about supporting such sweeping change, potentially sabotaging its best chance for financial reform. "With it may go a once-in-a-generation opportunity to aggressively tackle some badly needed changes in the U.S. financial system," the magazine writes.

The next act in the seemingly endless drama of AIG will kick off today. Former AIG CEO Maurice R. Greenberg, better known in the financial press and on CNBC as "Hank," is on trial today, accused of plundering $4.3 billion from a trust set up to pay top-performing AIG (AIG) employees, the New York Times reports. Greenberg and his attorneys contend there was no wrongdoing—that the $4.3 billion in shares were not held in a trust at all and that, besides, he had the authority to offload them. Time calls it "a battle over who's more deserving"—Greenberg or AIG. The accusations, from 2005, predate the collapse of AIG. Still, the NYT writes, "the trial may delve into the broader questions of who is responsible for A.I.G’s near collapse and whether, as chief executive of A.I.G., Mr. Greenberg was more preoccupied with financial maneuvers than with fostering sound risk management."

It's Paris Airshow time, and that prompts a number of Boeing-related stories from both sides of the Atlantic. The WSJ previews the "anticipated and long-delayed takeoff" of Boeing's (BA) most sophisticated commercial jet, the 787 Dreamliner, but notes that the Seattle plane manufacturer's strategy of looking to defense contracts to offset passenger jet sales "is being tested as military hardware spending is under pressure globally, at the same time commercial jet orders are slumping." Enter an unlikely savior in the form of Irish budget-airline Ryanair. It is in discussions with Boeing and Airbus about ordering some 300 aircraft in a potential deal that would "make the low-budget carrier more than double the size of British Airways," the Guardian writes. Ryanair has done better than most airlines during the current economic meltdown, expanding its business while other major players contract. If Ryanair added another 300 aircraft, it would have just less than 600 planes in total, compared with British Airways' current fleet of 248. No wonder Boeing CEO Jim McNerney described the potential order as "the deal of the year."

Dutch satellite navigation maker TomTom is looking to raise $600 million through a new share offering to escape the mountain of debt it took on by acquiring digital map maker Tele Atlas in 2007, the Financial Times reports. TomTom's share price has plummeted nearly 66 percent in the past year as a result of concerns about its debt, but the stock price jumped last week after the company announced it would start selling a navigation application for Apple's (AAPL) iPhone—part of a strategy to diversify away from navigation devices for cars and return to its roots of building software, this time for mobile phones.

And finally, here's one more for the "Don't mention we're British" file. Chicago's famed Sears Tower is about to get a name change, soon to be rebranded the Willis Tower, after London-based insurance company Willis Group, the Guardian writes. A foreign brand on North America's biggest building? Cue a popular uprising on Facebook and among the Chicago-area press. (They've deployed the heavy artillery: "Big Willie" headlines.) The Willis Group's response? Play down the U.K. angle. Cheekily, the Guardian gives us a history lesson on just how British Willis is. "It famously provided cover for the Belfast-built Titanic," the newspaper writes, adding it's listed on the London Stock Exchange and its global headquarters are on Lime Street, the heart of the Square Mile.

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