The Weekend Economists' "Bridge Over Troubled Water" August 7-9, 2009

In a time of great turmoil, rioting, and renaissance, the arts flourished in our nation, nowhere more than in our popular music.

And the blend of populism, protest, and panache reached a peak with Paul Simon and Art Garfunkel. They could be melancholic, they could be angry, they could be both at the same time.

Simon & Garfunkel formed the group "Tom and Jerry" in 1957, and had their first taste of success with the minor hit "Hey, Schoolgirl". As Simon and Garfunkel, the duo rose to fame in 1965, backed by the hit single "The Sound of Silence". Their music was featured in the landmark film The Graduate, propelling them further into the public consciousness.

They are well known for their close vocal harmonies and sometimes unstable relationship. Their last album, Bridge over Troubled Water, was delayed several times due to artistic disagreements. They were among the most popular recording artists of the 1960s; among their biggest hits, in addition to "The Sound of Silence", were "I Am a Rock", "Homeward Bound", "A Hazy Shade of Winter", "Mrs. Robinson", "Bridge over Troubled Water", "The Boxer", "Cecilia", and "Scarborough Fair". They have received several Grammys and are inductees of the Rock and Roll Hall of Fame and the Long Island Music Hall of Fame (2007). In 2004, Rolling Stone ranked Simon and Garfunkel #40 on their list of the 100 Greatest Artists of All Time.<1>

They have reunited on several occasions since their 1970 breakup, most famously for 1981's The Concert in Central Park, which attracted about 500,000 people.

http://en.wikipedia.org/wiki/Simon_&_Garfunkel

It is The Sounds of Silence that we've had dinning in our ears for the past decade, it is the Bridge Over Troubled Water that we've been seeking.

Post them if you've got them.

First State Bank, Sarasota, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Stearns Bank, National Association, St. Cloud, Minnesota, to assume all of the deposits of First State Bank, excluding those from brokers.

The nine branches of First State Bank will reopen on Monday as branches of Stearns Bank, N.A. Depositors of First State Bank will automatically become depositors of Stearns Bank, N.A. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their existing branches until Stearns Bank, N.A. can fully integrate the deposit records of First State Bank...

As of May 31, 2009, First State Bank had total assets of $463 million and total deposits of approximately $387 million. In addition to assuming all of the deposits of the failed bank, Stearns Bank, N.A. agreed to purchase approximately $451 million of assets. The FDIC will retain the remaining assets for later disposition.

Stearns Bank, N.A. will purchase all deposits, except about $8 million in brokered deposits, held by First State Bank. The FDIC will pay the brokers directly for the amount of their funds. Customers who placed money with brokers should contact them directly for more information about the status of their deposits.

The FDIC and Stearns Bank, N.A. entered into a loss-share transaction on approximately $364 million of First State Bank's assets. Stearns Bank, N.A. will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $116 million...


Community National Bank of Sarasota County, Venice, Florida, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Stearns Bank, National Association, St. Cloud, Minnesota, to assume all of the deposits of Community National Bank of Sarasota County...

As of June 30, 2009, Community National Bank of Sarasota County had total assets of $97 million and total deposits of approximately $93 million. Stearns Bank, N.A. will pay the FDIC a premium of 0.25 percent to assume all of the deposits of Community National Bank of Sarasota County. In addition to assuming all of the deposits of the failed bank, Stearns Bank, N.A. agreed to purchase $94 million of the failed banks assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and Stearns Bank, N.A. entered into a loss-share transaction on approximately $79 million of Community National Bank of Sarasota County's assets. Stearns Bank, N.A. will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $24 million. Stearns Bank, N.A.'s acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Community National Bank of Sarasota County is the 71st FDIC-insured institution to fail in the nation this year, and the sixth in Florida.

Community First Bank, Prineville, Oregon, was closed today by the Oregon Division of Finance & Corporate Securities, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Home Federal Bank, Nampa, Idaho, to assume all of the deposits of Community First Bank, excluding those from brokers...

As of July 5, 2009, Community First Bank had total assets of $209 million and total deposits of approximately $182 million. In addition to assuming all of the deposits of the failed bank, Home Federal Bank agreed to purchase approximately $197 million of assets. The FDIC will retain the remaining assets for later disposition.

Home Federal Bank will purchase all deposits, except about $31 million in brokered deposits, held by Community First Bank. The FDIC will pay the brokers directly for the amount of their funds. Customers who placed money with brokers should contact them directly for more information about the status of their deposits.

The FDIC and Home Federal Bank entered into a loss-share transaction on approximately $155 million of Community First Bank's assets. Home Federal Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $45 million...Community First Bank is the 72nd FDIC-insured institution to fail in the nation this year, and the third in Oregon. The last FDIC-insured institution to be closed in the state was Silver Falls Bank, Silverton, Oregon, on February 20, 2009.

http://www.ft.com/cms/s/0/1f92a1ea-8057-11de-bf04-00144feabdc0.html

By Anousha Sakoui in London

Published: August 3 2009 22:01 | Last updated: August 3 2009 22:01

The prices of the most traded risky European and US loans have reached their highest levels for more than a year, in a further sign of improving conditions in credit markets.

Over the past week, European leveraged loan prices reached 89.11 per cent of face value, a high not seen since July 10, 2008, according to Standard & Poor’s LCD and Markit.

The same is true for riskier US loans, for which the average price bid rose above 90 per cent of face value for the first time since June 24, 2008.

Growing confidence in an economic recovery was further highlighted by a fall in a key barometer of financial stress, the spread between three-month dollar Libor – the rate banks charge each other to borrow – and three-month US Treasury bills. This so-called TED spread fell to its lowest level for two years on Monday – 29.3 basis points – having reached a high of 464bp last October.

The loans rally has been fuelled by growing demand for credit this year. David Shaw, co-head of European leveraged finance at Barclays Capital, said the rise in secondary leveraged loan pricing would support the issue of new leveraged loans.

The rally in loan prices above a key threshold of 80-85 per cent of face value will also reduce pressure on collateralised loan obligations, complex funds that pool loans, which at the height of the credit boom accounted for 60 per cent of the demand for leveraged loans.

As the price of their assets fall below 85 per cent, or more commonly 80 per cent, of face value, CLO managers have to mark-to-market those loans, which can lead to them breaching collateral tests and cutting off management fees.

Rating agencies have warned about the potential systemic risk posed by CLOs because many of them were exposed to the same borrowers.

Moreover, the rising loan prices should reduce the risk of a growing number of zombie CLOs – funds where managers have reduced management operations owing to the lack of fees, which threatened to make restructuring corporate debt difficult.

The recovery in prices has led to an “outstanding” year for loan funds, according to one loan investor.

Returns to European loan funds were up 22 per cent, and up 32 per cent for US loan funds during the first half of 2009, according to Standard & Poor’s. Loan funds in the US and Europe were down by about 30 per cent in 2008.

Some analysts, however, remain concerned about pressure on the sector as defaults are expected to continue to rise this year and CLOs face continued downward pressure on credit ratings.

“Loans were oversold but I am concerned that prices could now overshoot on the upside and there could be a correction,” said Michael Hampden-Turner, credit strategist at Citi in London.

http://www.ft.com/cms/s/0/9b5ad536-834a-11de-a24e-00144feabdc0.html

By Michael Mackenzie and Simone Baribeau in New York

Published: August 7 2009 13:52 | Last updated: August 7 2009 21:43

Stock markets on both sides of the Atlantic hit their highest levels in months on Friday after better-than-expected economic data in the US and Germany buttressed hopes for an economic recovery.

The US non-farms payroll report showed the economy lost 247,000 jobs in July, far below a median estimate of 320,000 jobs from economists surveyed by Reuters, while the unemployment rate slipped from 9.5 per cent in June to 9.4 per cent.

President Barack Obama hailed the news as a sign “we’re pointed in the right direction”, and investors responded by sending the S&P 500 up 1.34 per cent to close at 1,010.48, its highest level since early October.

“No longer should we have to discuss when the recession will end, but rather, what the recovery will look like,” said Joseph Brusuelas, director of Moody’s Economy.com.

In Europe, meanwhile, the FTSE Eurofirst 300 index reached a nine-month high, after Germany reported a un­expectedly large 7 per cent increase in exports, adding to the evidence of a “V-shaped” recovery in the continent’s biggest economy. Jörg Krämer, chief economist at Commerzbank, said the German exports boost was part of a “global phenomenon” that should end the debate over whether the country was vulnerable because of its reliance on exports.

The US jobs report was a blow to Wall Street bears who have argued that rising unemployment would eventually overwhelm good feeling generated by positive earnings reports from blue-chip companies.

“The bears have been hanging their hat on the poor employment picture, but job losses are running at a third of what we saw earlier this year,” said Jack Ablin, chief investment officer at Harris Private Bank.

Jim Paulsen, chief investment strategist at Wells Capital Management, said the rise of the S&P 500 above 1,010 was particularly significant for technical analysts – and potentially signalled a march to the 1,100 level.

The slowing pace of job losses was evident across broad swaths of the economy. The service sector lost fewer jobs in July than it had for 10 of the past 11 months, while the goods-producing sector lost fewer jobs in July than in any month since September. Payrolls increased in the automotive sector in July.

The optimism in the markets was tempered by the fact that the fall in the unemployment rate, which is based on a separate household survey, reflected a reduction of 422,000 people seeking employment. Another concern for investors was that trading volumes have been low. Analysts say that this could mean traders are bidding up stocks as they close out short positions – a potentially negative indicator for the long term.

US stocks hit their highest levels since October after a better-than-expected employment report on Friday buttressed hopes that the recession was nearing an end.

The US economy lost 247,000 jobs in July, according to the non-farms payroll report, below a median estimate of 320,000 jobs made by economists surveyed by Reuters. The unemployment rate slipped from 9.5 per cent in June to 9.4 per cent.

The S&P 500 rose as much as 1.9 per cent in afternoon trade to reach 1,015.81, bringing its gains from its March low to about 50 per cent. Treasury yields also rose, indicating that investors were growing more confident of a recovery.

Another concern for investors was that trading volumes have been low during the rally. Analysts say that this could mean traders are bidding up stocks as they close out short positions – a potentially negative indicator for the longer term.

US Treasury yields were higher, while corporate bonds rallied. The yield on the 10-year note was up 11 basis points to 3.86 per cent, on course to end the week at its highest level since early June. Higher bond yields also reflect worries about a record $75bn in new Treasury debt for sale next week.

http://www.ft.com/cms/s/0/6185f9b4-81ea-11de-9c5e-00144feabdc0.html

By Megan Murphy, Investment Banking Correspondent

Published: August 5 2009 23:05 | Last updated: August 5 2009 23:05

Investment banking, an industry that was on life support as recently as last autumn, is booming again as companies and governments raise vast amounts of fresh capital to shore up their finances.

The top 12 investment banks have raked in total revenues of $136bn before expenses in the first half of the year, according to new research compiled by analysts at Morgan Stanley.

The prospect of record paydays for workers at groups such as Goldman Sachs and Barclays Capital, less than a year after governments in the US and Europe were forced to pump billions into their banking systems, has rankled politicians and regulators who claim the industry has not been sufficiently chastened by the financial crisis.

Probing beneath the headline-grabbing numbers, however, reveals that investment banks have earned huge sums from a combination of market conditions that are unlikely to prevail for much longer.

If 2008 was a near-crippling year for the industry – with financial institutions suffering from extreme trading losses and unprecedented writedowns, particularly on mortgage-backed securities – the intensive capital raising of the past six months has created opportunities for bankers to make money.

With less competition in the marketplace following the collapse of key operators such as Bear Stearns and Lehman Brothers, they can also command a higher premium for their services.

The fees charged to underwrite corporate rights issues in the UK, for example, have risen to as high as 3.5 per cent, from an average of 1.8 per cent in 2008.

Analysts estimate that the margins on European government bond sales have increased between 25 and 50 per cent.

As the equities and commodities markets have rallied in recent weeks, investment banks have benefited from high trading volumes and price volatility. In the credit market, wide bid-offer spreads have also driven big gains.

To be sure, some businesses are faring better than others. Goldman, JPMorgan Chase, Credit Suisse, Deutsche Bank and BarCap have emerged as winners amid the fallout from the credit crunch.

With many of its other competitors on Wall Street now under strict government oversight, Goldman, which has earned nearly $22bn in the first half of 2009, is expected to solidify its position as liquidity returns to the market and mergers and acquisitions activity finally picks up.

The firm, recently dubbed a “great vampire squid wrapped around the face of humanity,” by Rolling Stone magazine, has already set aside $11.4bn to pay staff for the first six months of the year.

If its second-half earnings stay on track, it would pay out an average of $770,000 to each of its 29,400 employees.

BarCap’s acquisition of Lehman Brothers’ US operations increasingly looks like a well-judged move, adding capacity in areas such as cash equities while building on BarCap’s strong “flow” business – buying and selling liquid debt securities, currencies and commodities for clients.

Morgan Stanley, one of the institutions hardest hit by the crisis, is also poised to benefit from a reopening of the US equities market, a traditional area of strength for the firm.

In spite of disappointing investors by posting a $159m loss for the second quarter, total revenues before expenses rose 60 per cent in the second quarter

........

On the flip-side, UBS’s investment banking business has slipped far behind its global rivals as the bank struggles to recover from a wave of senior defections and more than $50bn in writedowns.

Among the top-12 investment banks, it is the only one to report negative revenue from its “FICC” unit – fixed-income, currencies and commodities trading, according to the Morgan Stanley research.

Longer term, the outlook for the industry is more opaque as market conditions become more “normalised” and cheap government funding dries up, analysts say.

(same link)

Drip, drip, drip. That is the sound of the deal flow coming out of the pipeline these days.

Investment bankers may be raking in the profits from trading activities, but revenues from advising companies on mergers and acquisitions have still not recovered.

Fees from completed M&A fell for the fourth consecutive quarter to $3.7bn in the second quarter, representing 21.2 per cent of the total investment banking fee pool, according to estimates from Thomson Reuters and consultancy Freeman & Co.

Since 2006, M&A has contributed an average of 44 per cent of total fees and has never previously contributed below a third.

Robert Parkes, equity strategist at HSBC, said: “As a proportion of total revenues, M&A has fallen considerably as other areas of investment banking have taken over”.

A dearth of mid-market deals – which typically account for a third of M&A volumes – has exacerbated the rapid decline of overall M&A fees.

Deals valued up to $500m fell by almost 46 per cent during the first half of the year, generating just $5bn in estimated fees for investment banks.

However, the recent rally in global equity markets – which have risen by more than 50 per cent from a low in mid-March – has helped boost confidence among chief executives looking to do deals.

Following the bursting of the dotcom bubble at the end of 1999, M&A volumes tracked global equity markets downward for seven straight quarters, before picking up in the first quarter of 2002.

The credit crunch cycle has already gone through seven quarters of contraction, which suggests that M&A has now reached the bottom, according to analysts at JPMorgan.

http://www.ft.com/cms/s/0/bd75c1d4-821f-11de-9c5e-00144feabdc0.html

By Hal Weitzman in Chicago

Published: August 6 2009 12:50 | Last updated: August 6 2009 12:50

The appetite for risk has returned to derivatives trading, MF Global, the world’s biggest broker of exchange-listed futures and options, said on Thursday as it reported quarterly profits ahead of Wall Street expectations even as they dropped by two-thirds from last year.

The broker said it made a net loss of $33m or 27 cents per share in the three months to the end of June, compared to net income of $14.4m or 2 cents per share in the same period last year. However adjusted for extraordinary charges and excluding stock compensation, eearnings before interest, tax, depreciation and amortisation was $31m, or 5 cents per share, slightly ahead of analysts’ average forecasts of 4 cents per share. Revenues in the quarter were $271.5m, down from $374.7m last year.

The economic crisis has led financial institutions to slash derivatives trading desks, resulting in slumping volumes at brokerages and exchanges. However, in recent months, listed futures and options volumes have shown some tentative positive signs.

In an interview with the FT, Bernard Dan, MF Global’s chief executive, noted that the company’s revenues were up sequentially, rising 6 per cent from the previous quarter, with exchange-traded volumes 11 per cent higher and revenue from Asia up 20 per cent.

“The macro-drivers in our industry are starting to stabilise,” Mr Dan said. “Risk aversion is abating, the banks have been taking more risk to drive their earnings and we’re seeing greater hedge-fund and asset-manager participation. Open interest in the last two quarters has gone up. More people are taking positions.”

Mr Dan pointed to healthy trading at the CME Group, the largest US futures exchange, in June. However, CME volumes dipped again last month, underlining concern that the derivatives industry faces a drawn-out and uncertain recovery.

Credit Suisse analysts wrote last week on MF Global: “We remain neutral rated given limited near-to intermediate term earnings power due to the headwinds of a weaker macro outlook, slower customer activity levels and the absolute low level of rates.”

Mr Dan agreed that the climate had been grim, but added: “In this atmosphere, I can only focus on what I can control. To beat expectations by a penny is a great result.”

As well as economic factors, lack of clarity over the emerging shape of post-crisis US financial regulation has also weighed on investor sentiment. In spite of the continuing uncertainty over how the debate in Washington will play out, the MF Global chief said most of the proposed changes to derivatives trading – such as mandating the central clearing of over-the-counter contracts – would end up benefiting the exchange-listed broker at the expense of the big banks that are the main dealers in the privately negotiated bilateral agreements.

Mr Dan said the results also showed how MF Global was successfully expanding away from its traditional focus as an exchange-traded interest-rate broker. The company has sought to benefit from the turmoil on Wall Street by hiring fixed-income staff, a strategy Mr Dan said was starting to show results. “It’s probably our most diverse quarter,” he said.

MF Global drew unwanted attention last year when a wheat trader at its Memphis office racked up $141m of losses in unauthorised trading in the largest trading scandal ever to hit agricultural commodity markets. The fall-out from the incident claimed the scalp of Kevin Davis, the company’s erstwhile chief executive, who bowed to investor demands to resign last October and was replaced by Mr Dan, a former chief executive of the Chicago Board of Trade.

http://www.nytimes.com/2009/08/03/opinion/03krugman.html



Americans are angry at Wall Street, and rightly so. First the financial industry plunged us into economic crisis, then it was bailed out at taxpayer expense. And now, with the economy still deeply depressed, the industry is paying itself gigantic bonuses. If you aren’t outraged, you haven’t been paying attention.

But crashing the economy and fleecing the taxpayer aren’t Wall Street’s only sins. Even before the crisis and the bailouts, many financial-industry high-fliers made fortunes through activities that were worthless if not destructive from a social point of view.

And they’re still at it. Consider two recent news stories.

One involves the rise of high-speed trading: some institutions, including Goldman Sachs, have been using superfast computers to get the jump on other investors, buying or selling stocks a tiny fraction of a second before anyone else can react. Profits from high-frequency trading are one reason Goldman is earning record profits and likely to pay record bonuses.

On a seemingly different front, Sunday’s Times reported on the case of Andrew J. Hall, who leads an arm of Citigroup that speculates on oil and other commodities. His operation has made a lot of money recently, and according to his contract Mr. Hall is owed $100 million.

What do these stories have in common?

The politically salient answer, for now at least, is that in both cases we’re looking at huge payouts by firms that were major recipients of federal aid. Citi has received around $45 billion from taxpayers; Goldman has repaid the $10 billion it received in direct aid, but it has benefited enormously both from federal guarantees and from bailouts of other financial institutions. What are taxpayers supposed to think when these welfare cases cut nine-figure paychecks?

But suppose we grant that both Goldman and Mr. Hall are very good at what they do, and might have earned huge profits even without all that aid. Even so, what they do is bad for America.

Just to be clear: financial speculation can serve a useful purpose. It’s good, for example, that futures markets provide an incentive to stockpile heating oil before the weather gets cold and stockpile gasoline ahead of the summer driving season.

But speculation based on information not available to the public at large is a very different matter. As the U.C.L.A. economist Jack Hirshleifer showed back in 1971, such speculation often combines “private profitability” with “social uselessness.”

It’s hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But it’s hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.

What about Mr. Hall? The Times report suggests that he makes money mainly by outsmarting other investors, rather than by directing resources to where they’re needed. Again, it’s hard to see the social value of what he does.

And there’s a good case that such activities are actually harmful. For example, high-frequency trading probably degrades the stock market’s function, because it’s a kind of tax on investors who lack access to those superfast computers — which means that the money Goldman spends on those computers has a negative effect on national wealth. As the great Stanford economist Kenneth Arrow put it in 1973, speculation based on private information imposes a “double social loss”: it uses up resources and undermines markets.

Now, you might be tempted to dismiss destructive speculation as a minor issue — and 30 years ago you would have been right. Since then, however, high finance — securities and commodity trading, as opposed to run-of-the-mill banking — has become a vastly more important part of our economy, increasing its share of G.D.P. by a factor of six. And soaring incomes in the financial industry have played a large role in sharply rising income inequality.

What should be done? Last week the House passed a bill setting rules for pay packages at a wide range of financial institutions. That would be a step in the right direction. But it really should be accompanied by much broader regulation of financial practices — and, I would argue, by higher tax rates on supersized incomes.

Unfortunately, the House measure is opposed by the Obama administration, which still seems to operate on the principle that what’s good for Wall Street is good for America.

Neither the administration, nor our political system in general, is ready to face up to the fact that we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer.

http://www.ft.com/cms/s/0/fcb0b4f0-8272-11de-8cc2-00144feabdc0.html


By Ralph Atkins in Frankfurt

Published: August 6 2009 12:45 | Last updated: August 6 2009 21:38

The European Central Bank has left its main interest rate unchanged at 1 per cent, just hours after another surge in Germany industrial orders lifted hopes of an early end to the severe recession in Europe’s largest economy.

German industrial orders rose by a much higher-than-expected 4.5 per cent in June, extending an already-strong 4.4 per cent rise in the previous month, according to the Berlin economics ministry. The latest data add to the evidence that the German economy is staging a firm rebound after a catastrophic start to the year.

German manufacturing exports, which were powering economic growth, were badly hit by the collapse in global confidence late last year. But the latest data indicated the country’s industrial sector was well positioned to benefit from a recent improvement in world economic prospects. In turn, a revival in Germany would lift growth across the 16-country eurozone.

Details of the orders figures showed foreign orders rose by 8.3 per cent in June, with orders from other eurozone countries up by 13.2 per cent. Eurozone orders were largely for investment goods, the ministry said. By contrast, domestic orders saw a more modest 0.2 per cent rise. The recovery was “widespread across many industrial sectors,” the ministry said, although capital equipment manufacturers were faring especially well.

“We had thought that the US and the UK might beat Germany to recovery by a short head because they seemed to be further through the inventory cycle, but numbers like this suggest that final demand is possibly picking up faster in Germany, said Robert Barrie, European economist at Credit Suisse...

http://www.ft.com/cms/s/0/1db32aec-810c-11de-92e7-00144feabdc0.html

By Vanessa Houlder and Jennifer Hughes in London

Published: August 6 2009 12:04 | Last updated: August 6 2009 19:57

Fresh doubts about the strength of the UK conomic recovery emerged on Thursday after the Bank of England’s rate-setting committee surprised markets by voting to pump an extra £50bn ($84bn) into the economy.

The bank’s monetary policy committee voted to extend its so-called quantitative easing programme of buying government and corporate bonds from £125bn to an unexpectedly large £175bn, while holding interest rates at 0.5 per cent.

After the meeting, Mervyn King, governor of the Bank and Alistair Darling, chancellor of the exchequer exchanged letters about the expansion of the asset purchase facility – the government programme of gilt and corporate bond acquisitions.

The decision came despite an array of brighter economic data this week, with upbeat survey results suggesting that the economy was emerging from recession. But the central bank said the “recession appears to have been deeper than previously thought” in the UK, although it noted that the pace of contraction had moderated.

News of the decision saw sterling tumble as investors scaled back expectations of recovery. The pound lost more than a cent against the dollar and almost as much against the euro in minutes and failed to recover. It traded at $1.677 against the dollar and at 85.5p against the euro in late London trade.

Stocks rose as investors bet that the extra support would help the banks while gilt yields fell in the belief that the extra funds signalled any interest rate rise was even further away than had been thought.
...............

The Bank of England’s quantitative easing programme, launched in March, involves buying government and corporate bonds in a bid to boost the volume of cash in the economy. It is designed to stimulate spending, support bank lending and help return the economy to growth.

The policy committee had opted not to increase the asset purchases at its two previous meetings, leading to speculation that the programme of cash injections had run its course.

Mervyn King, bank governor, said: “Though there are signs that credit conditions may have started to ease, lending to business has fallen and spreads on bank loans remain elevated.”

Some commentators reacted to the news by suggesting that the Bank’s assessment of the economic outlook was more pessimistic than that of the market, although many said its thinking would be explained in its inflation report next week. Richard Lambert, director-general of the CBI said: “This must have been a finely balanced decision.”...

http://www.ft.com/cms/s/0/b8c2e9c6-8136-11de-92e7-00144feabdc0.html

By Greg Farrell in New York and Megan Murphy in London

Published: August 4 2009 23:01 | Last updated: August 5 2009 00:22

UBS is close to hiring former Merrill Lynch executive Bob McCann as the Swiss bank tries to draw a line under the damaging tax evasion dispute with the US that has prompted clients to pull billions of dollars out of its private banking business.

The bank’s courtship of Mr McCann that started in June accelerated after last week’s agreement between the Swiss and US governments over US authorities’ demands that UBS hand over the names of thousands of US residents suspected of sheltering money abroad.

The impact of the investigation was highlighted on Tuesday as UBS reported withdrawals of a further SFr16.5bn ($15.5bn) from its domestic and international private banking units, bringing the year’s total to more than SFr130bn.

Oswald Grübel, the former Credit Suisse chief executive brought in this year to turn round UBS’s declining fortunes, is committed to rebuilding a franchise that ceded its title as the world’s largest wealth manager to Bank of America in a recent survey by Scorpio Partnership.

UBS said on Tuesday it was reorganising its global wealth management organisation, splitting its Swiss operations from its international business, amid a flurry of activity in the sector.

On Monday, Bank of America named Sallie Krawcheck as head of global wealth and investment management, heading operations that include the 15,000 Merrill financial advisers formerly overseen by Mr McCann.

People close to the situation said that although no final agreement had been reached, UBS was in talks with Mr McCann and that a deal could be struck soon.

Having lived through a painful investigation of research analysis at Merrill, Mr McCann was reluctant to enter a situation in which he would be en­meshed in regulatory woes, a person familiar with the matter said. If Mr McCann is hired, he will replace Marten Hoekstra, head of UBS’s wealth management business in the Americas.

BofA’s hiring of Ms Krawcheck, who headed Citigroup’s Smith Barney unit until her acrimonious departure last September, generated excitement among Merrill’s financial advisers. Dan Sontag, who had led the Merrill brokers, said on Tuesday he was retiring.

http://www.ft.com/cms/s/0/0a2a1be2-8275-11de-8cc2-00144feabdc0.html

By Bertrand Benoit in Berlin and James Wilson in Frankfurt

Published: August 6 2009 12:11 | Last updated: August 6 2009 22:29

Angela Merkel would give the German banking supervisor unprecedented powers over struggling banks, including the capacity to dismiss executives, if re-elected chancellor next month, according to legislation being drafted by her economics minister.

According to the 28-page draft, obtained by the Financial Times, Bafin, the regulator, could be given sweeping powers to fire managers and restructure systemically important banks that are threatened with insolvency without the agreement of shareholders.

The legislation will not be adopted before next month’s general election because of opposition from Ms Merkel’s Social Democrat coalition partners. But it would become law if she obtained enough votes to form a coalition with the Free Democratic party, as polls suggest is likely.

The leaking of the draft may be partly political – designed to demonstrate the chancellor’s toughness vis-à-vis the banks and to pre-empt the expected publication of competing proposals by the SPD-led justice ministry in the coming weeks.

But it is also part of a broader effort to replace temporary laws, rushed through parliament last year to stabilise the banking sector following the collapse of Lehman Brothers, with a more permanent legal framework.

The government was concerned its €500bn ($717bn, £428bn) bailout of the sector could encourage a return to excessive risk-taking, said a Berlin official.

The draft, a reform of German insolvency law, would allow the regulator to take the reins of failing banks and restructure them, but would stop short of allowing the state to expropriate shareholders.

The bill, drafted by Linklaters, the law firm, for Karl-Theodor zu Guttenberg, economics minister, follows the controversial nationalisation of Hypo Real Estate, a mortgage and public sector lender, this year.

Berlin’s financial sector rescue fund acquired HRE shares through a public tender offer, giving it enough votes to push through a massive capital increase to which only the government could subscribe.

The government succeeded in taking control of roughly 90 per cent of the lender’s shares partly because it had threatened to expropriate shareholders if unsuccessful under emergency laws passed in the wake of HRE’s near-collapse.

The threat of expropriation, a tool used by the Nazi and East German dictatorships, raised eyebrows among conservatives and economic liberals, prompting the cabinet to mandate the economics and justice ministries to come up with new legal tools of crisis management.

The justice ministry would comment neither on its own nor on what a spokesman referred to as the “Linklaters draft, which we only received this morning and only after asking”.

Officials close to Ms Merkel said the justice ministry’s take on a reformed insolvency law gave Bafin more limited powers and therefore had the backing of the banking sector.

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By Andrew Ward in Stockholm

Published: August 6 2009 22:26 | Last updated: August 6 2009 22:26

Icelandic authorities are facing pressure to step up their investigation into possible wrongdoing before the country’s banking system collapsed last year, as fresh revelations emerge about questionable lending practices that helped spawn the crisis.

Public anger has been simmering for months as Iceland conducts a postmortem on its failed banks and seeks to apportion blame for a crisis that turned one of the world’s richest nations into an economic basket case.

But a fresh wave of fury has been released this week as Icelanders digest a risk report revealing the financial secrets of Kaupthing Bank shortly before it and two other lenders crumbled last October.

The document – first exposed by Wikileaks, the whistleblower website, last weekend – showed how the bank was dangerously exposed to a handful of large clients and lent heavily to its biggest shareholders, sometimes with little or no collateral.

One of the most striking examples involved Agust and Lydur Gudmundsson, the brothers behind the Bakkavor food empire, who controlled 23 per cent of Kaupthing through their investment group, Exista. The report claimed Exista and its subsidiaries owed Kaupthing about €1.4bn ($2bn, £1.2bn) in the weeks before the crisis erupted.

Kaupthing first sought to suppress the leak with a court order that blocked Icelandic media from reporting it but the bank was forced to withdraw the injunction on Tuesday amid public outrage over the censorship.

Kristinn Hrafnsson, an investigative reporter for RUV, the Icelandic state broadcaster, the primary target of the gagging order, says the revelations intensified public pressure for people to be held accountable.

While there was no evidence of criminal wrongdoing in the leaked report, Mr Hrafnsson says Kaupthing’s prolific lending, often on lax terms, has fuelled perceptions of impropriety.

Multiple investigations are already under way by Iceland’s Financial Supervisory Authority into the meltdown, and isolated cases of alleged market manipulation and fraud have already been referred to a special prosecutor.

Kaupthing denies any wrongdoing and says its sole motivation for trying to block the leaked report was client confidentiality.

The revelations have increased scrutiny of the small band of wealthy Icelandic bankers and investors, whose aggressive international expansion left the country disastrously exposed to the global credit crunch.

Foreign hedge funds were initially blamed by many Icelanders for bringing the country to its knees, but Vilhjalmur Bjarnason, director of the Iceland Shareholders Association, says the evidence increasingly suggests home-grown culprits. “We did not need hedge funds to bring the system down. The insiders did at least as much damage,” he says.

Mr Hrafnsson says ordinary Icelanders are furious they have to pay the price for the mistakes of the business and financial elite.

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By Francesco Guerrera in New York

Published: August 5 2009 22:06 | Last updated: August 7 2009 02:00

Harvey Golub, a respected former head of American Express, has emerged as the frontrunner to become chairman of AIG, in a move that would provide the stricken insurer with a robust defender against congressional critics.

Mr Golub, who joined AIG’s board in June, has the edge over other candidates, including ­Dennis Dammerman, the former General Electric executive who is also a director of the government-controlled insurer, people close to the situation said.

They added that no decision had yet been made and the situation remained fluid.

AIG’s board is expected to decide on the new chairman in the next few days, following this week’s decision to appoint ­Robert Benmosche, former head of the insurer MetLife, as chief executive.
.........
The management reshuffle has been driven by the decision by Edward Liddy, chairman and chief executive, to step down next week after a torrid 11 months marked by several government bail-outs and a political furore over employee bonuses.

Mr Liddy agreed to receive just $1 for his services, but the new chairman and chief executive are expected to be paid in line with industry standards, with Mr Benmosche believed to have agreed a package of $7m-$10m a year.

Officials at the US Treasury and the New York Federal Reserve, which have propped up AIG with $80bn in loans and capital, have been monitoring the selection process for the chairman and chief executive.

Mr Golub, 70, and Mr Dammerman, 63, were among several new directors picked by government officials over the past few months as the authorities revamped a board that had been criticised for failing to spot AIG’s huge problems.

The insurer’s new chairman will have to manage the company’s strained relationship with lawmakers and ensure its government paymasters are happy with the pace of disposals of most of its global operations.

Mr Golub, who is also non-executive chairman of the private equity group Ripplewood, the food group Campbell Soup and The Readers’ Digest Association, has been an outspoken critic of government involvement in financial matters.

In an editorial in the Wall Street Journal after Barack Obama’s presidential victory in November, Mr Golub said he was “pessimistic about whether our next president and the savants in Congress can deal with the massive economic issues we face”.

“Members of Congress...will continue to meddle in matters beyond their knowledge. In doing so they will exacerbate our current economic downturn,” wrote Mr Golub, who used to be on the board of Dow Jones, the owner of the WSJ.

As chairman and chief executive of Amex between 1993 and 2001, Mr Golub was credited with turning round the fading US corporate star. During his tenure, Amex’s shares rose more than sixfold.

http://www.bloomberg.com/apps/news?pid=20601103&sid=acpqG2YokZKo#

By Hugh Son

July 28 (Bloomberg) -- American International Group Inc., the insurer dismantling itself to repay U.S. loans, used $2.4 billion from asset sales to shore up a property-casualty unit instead of paying down its government credit line.

Proceeds from the two biggest business divestitures New York-based AIG announced so far were left with Chartis Inc., formerly known as AIU Holdings Inc., to improve the firm’s capital. AIG was required to hold the funds by regulators and rating firms that monitor the insurer’s ability to pay policyholder claims, said Mark Herr, a company spokesman.

The insurer’s need to retain some sale proceeds may draw questions from lawmakers about whether AIG can repay loans within its U.S. bailout, which ballooned to $182.5 billion. AIG’s debt on a Federal Reserve credit line exceeded $40 billion most of this year, even after the company announced more than $7.3 billion in asset sales since being rescued in September.

“The taxpayer should not have been exposed to these risks,” said Representative Brad Sherman, a California Democrat on the House Financial Services Committee, in an interview. “We’re going to lose something on the AIG bailout, let’s hope it doesn’t have too many digits.”

Chief Executive Officer Edward Liddy has said AIG would repay its debts, which include the credit line and $40 billion from the Troubled Asset Relief Program, within five years if economic markets don’t worsen. The company plans to hand over stakes in two non-U.S. life insurance units in exchange for a $25 billion reduction of its Fed debt.

‘Quality of Capital’

The $1.9 billion sale of auto insurer 21st Century to Zurich Financial Services AG and $500 million from the $1.1 billion public offering of shares in reinsurer Transatlantic Holdings Inc. will go toward improving the “quality of capital” at Chartis, the insurer said in statements this month and in June.

“Many factors affect each asset sale and how the net proceeds are applied,” Herr said. “Proceeds have been applied to maintain appropriate levels of capital in AIG’s insurance subsidiaries, as is required by AIG’s state regulators and ratings agencies, while some proceeds have been paid to the government.”

The trustees managing the majority U.S. stake in AIG declined to comment, said spokesman Peter Bakstansky, as did the New York Fed, said spokeswoman Deborah Kilroe.

Liddy has said Chartis, which sells property-casualty coverage to corporations and high-net worth individuals in 160 countries and jurisdictions, will have the core remaining operations after AIG sheds a plane-leasing unit, consumer lender and asset manager.

Reinvesting Proceeds

The company gave the unit a separate brand, AIU Holdings, which yesterday was renamed Chartis, as management positions it for a public offering or sale of a minority stake. The subsidiary is “well capitalized” and had net written premiums of $36 billion last year, said Kristian Moor, president of Chartis, in an April statement.

“In effect, the Federal Reserve has decided to reinvest those proceeds” in Chartis, said William Poole, former president of the St. Louis Fed. “How do we know whether the Fed will get a decent return when the funds go that way, rather than repaying the Fed right now?”

Under the terms of a credit agreement signed days after the New York Fed first rescued AIG with an $85 billion credit line in September, AIG is required to use net cash proceeds from asset sales to repay its loan within five days after the close of a transaction. Net proceeds exclude funds from regulated insurance subsidiaries that could be downgraded if the capital were removed. AIG has to seek permission from regulators to move the proceeds, according to the document.

Preservation Plan

“You want to preserve the company’s ability to pay the debt down the road,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware in Newark. “There will be problems if there’s a need for capital in a subsidiary and the asset value falls.”

AIG will pay back its loans with sale proceeds “to the extent we can get out of the insurance companies whatever’s been sold,” Liddy said in a May 13 hearing in Congress.

The two overseas life units, American International Assurance Co. and American Life Insurance Co., have a value of about $25 billion and $18 billion, and Chartis is worth as much as $38 billion based on assets minus liabilities, Liddy said at the hearing. The values give taxpayers “great opportunity” to be repaid, he said.

AIG said today that it sold a so-called premium finance business, which makes loans to wealthy life insurance buyers, to Wintrust Financial Corp. for about $679.5 million. Wintrust, based in Lake Forest, Illinois, may buy additional assets for $61.2 million, the statement said.

AIG Policyholders

Two New York-regulated subsidiaries of Chartis, American Home Assurance Co. and Commerce and Industry Insurance Co., owned parts of 21st Century and marked the asset as part of their surplus, said Hampton Finer, deputy superintendent for the New York Department of Insurance. AIG hasn’t asked permission to move the funds, he said.

“Simply losing that surplus is not necessarily the best thing for policyholders,” Hampton said.

AIG and the government repeatedly underestimated the funds needed to prop up the insurer and the amount of time to turn around the company. The company’s bailout was revised three times as declines from mortgage linked assets mounted, causing almost $100 billion in net losses last year. The U.S. lowered the interest rate charged on its loans and extended the credit line to five years from two.

The bailout includes a $60 billion credit line, as much as $70 billion in TARP funds and $52.5 billion to buy mortgage linked assets owned or backed by AIG.

Firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. have repaid TARP money to free the companies from compensation limits.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

No, it's NOT about CDS and CDOs, but about germs. Click on link for stunning display.

http://www.ft.com/cms/s/0/965eb33e-8112-11de-92e7-00144feabdc0.html?ftcamp=rss

http://www.ft.com/cms/s/0/8cc23146-805b-11de-bf04-00144feabdc0.html

By Jonathan Birchall

Published: August 3 2009 19:59 | Last updated: August 3 2009 19:59

Clorox, maker of bleach and other cleaning products, on Monday joined a select group of US companies that have seen sales lifted by the H1N1 swine flu pandemic.

Larry Peiros, chief operating officer, said sales volumes of bleach cleaners had risen by 10-15 per cent during the fourth quarter against a year ago due to swine flu fears, with strong growth in Latin America.

“We are preparing for the potential of H1N1 . . . expanding during the traditional flu system, and we’re working closely with our retailer partners to take advantage of any opportunities that may accrue to us,” Mr Peiros said.

Don Knauss, chief executive, said the company had noted an increase in concern over disinfecting public areas at locations such as airports that was creating a demand for products.

Sales of liquid bleach under brand names including Clorox and Ayudin account for about a quarter of Clorox’s sales outside North America, including in Mexico, where the H1N1 virus was first identified in April.

In Mexico, the company’s marketing and information campaigns linked to the flu outbreak have included offering guidance on using its products to disinfect hotel rooms, restaurants and offices as well as homes. In May, it donated cases of bleach worth $100,000 to the Mexican Red Cross and government agencies.

Reckitt-Benckiser, owner of the Lysol and Dettol brand disinfectants, has also been actively promoting its products globally as a weapon against the spread of swine flu.

Kimberly-Clark and 3M, who manufacture disposable paper face-masks, both reported a surge in demand for their masks since the start of the H1N1 outbreak.

Makers of anti-bacterial hand soaps have also reported stronger demand linked to flu concerns. PZ Cussons, a UK company that makes Carex hand sanitiser, said last week it had seen weekly sales triple since before the flu outbreak.

For Clorox, the increased sales in its international business, which accounts for about 15 per cent of its sales, were offset by a 3 per cent decline in sales volumes in North America against last year, partly reflecting its decision to exit its private label food bag business. In dollar terms, overall sales were flat, at $1.5bn, as the stronger dollar weighed on its international earnings.

However the company reported an 8 per cent increase in earnings to $170m, or $1.20 per share, as it benefited from lower commodity costs and cost-cuttting efforts that helped it to increase its gross profit margins.

http://www.ft.com/cms/s/0/7cb023e0-82b2-11de-ab4a-00144feabdc0.html

By Andrew Jack in London

Published: August 6 2009 19:56 | Last updated: August 6 2009 19:56

Pfizer on Thursday became the first research-based pharmaceutical company to agree a deal with the Clinton Foundation that substantially cuts the price of a medicine for patients in low-income countries.

The move, which signals fresh flexibility from the US company over drug pricing in developing countries, also undercuts Pfizer’s generic competitors.

It will result in a 60 per cent reduction on the current emerging market price of rifabutin, a tuberculosis treatment for patients with HIV.

Jeff Kindler, Pfizer’s chief executive, stressed that the discount would still allow the drug to be sold at a small profit. “Long-term success and sustainability will come from commercially viable models,” he said.

Pfizer’s agreement comes at a time of growing willingness by research-based pharmaceutical companies to offer discounts on their medicines as they expand business in emerging economies and respond to pressure to boost drugs access for the world’s poorest.

The action has followed sharp reductions in drug prices for HIV medicines in the past few years as drug manufacturers have begun selling generic medicines into poorer countries, supported by funding from international donors.

The deal, brokered by the Clinton HIV/Aids Initiative, part of the foundation established by former US President Bill Clinton, was accompanied by a separate agreement with Mylan, the US based generics group, to reduce the price of a “second line” combination treatment for HIV, prescribed once patients fail to respond to an initial cocktail of drugs.

Mylan will reduce the price of four HIV drugs that are off-patent – atazanavir, ritonavir, tenofovir and lamivudine – to $475 a year, falling to $425 a year from 2010, which is 28 per cent less than current prices. It will also make ritonavir available in a heat-stable version more suitable for tropical climates.

Rifabutin, which is given to patients with TB who are already taking second line antiretroviral medicines for HIV, will be sold by Pfizer through a procurement network co-ordinated by the Clinton Foundation.

The drug is no longer protected by a patent from Pfizer, and is also sold by at least two other generic manufacturers, Lupin of India and Med Shine Pharma of China. But the deal will result in the US company which developed the drug offering it at a lower price than its rivals.

Daniel Berman from Médecins sans Frontières’ essential medicines campaign, welcomed the discounts, but warned that funding from donors to buy drugs at lower prices was under threat.

http://www.ft.com/cms/s/0/f7b4cdec-811e-11de-92e7-00144feabdc0.html

By Brooke Masters and Joanna Chung in New York

Published: August 4 2009 19:26 | Last updated: August 4 2009 23:26

International financial services groups should be ex­cluded from the US market if they are based in countries that are havens from regulation, according to the head of a US congressional committee.

Barney Frank, chairman of the House financial services committee, said he was concerned the new US push to regulate banks and brokers more rigorously could put it at a competitive disadvantage if other countries did not follow suit.

As a result, he would like to ban US banks from doing business with countries not subject to similarly tough standards on everything from leverage limits and capital requirements to rules on transparency and clearing of derivatives.

“Once we have rules  . . . we will say to anybody who wants to be an outlier, ‘you forfeit your right to participate in the American system’,” Mr Frank told the Financial Times. “We will instruct the and Treasury and the Fed to deny access to the American financial system to any country that holds itself out as a haven to escape our financial regulation.”

Mr Frank says he envisages an exclusion programme that would work similarly to the sanctions the Bush administration imposed on Iranian banks in 2006 as part of efforts to deter that nation from developing nuclear weapons. The main Iranian banks are prohibited from directly accessing the US financial system.

Analysts say that programme has made business more difficult for Iranian banks, although they are able to route transactions through intermediaries.

While Mr Frank is a powerful committee chairman, he would have to win over the rest of Congress and the administration to get his idea made into law. He is also certain to face strong opposition both inside and outside the US.

“It is absolutely the wrong approach,” said a top industry lawyer, who did not want to be identified criticising Mr Frank. “The assumption is that everybody has to do business in the US and we can set global standards. That is absolute nonsense. There are alternatives, including Hong Kong,” the lawyer added.

..............
The idea of excluding lightly regulated financial groups is not new. Since 1991, the Fed has been able to exclude overseas banks if their home country regulators do not hold them to similar standards to those for US banks. US regulators can also keep out banks and brokers that fail to comply with international money-laundering standards.

“It’s already in place to some extent. It’s not clear whether Frank is just talking about tightening it or something new,” says Doug Landy, banking law partner at Allen & Overy.

The European Commission has an exclusion provision in its proposed directive on alternative investment managers. Outside managers and funds would be excluded if their home states did not offer comparable levels of regulation and tax co-operation. That proposal is seen as a protectionist effort to box out US groups and may be revised.

Mr Frank’s interest in banning groups from non-co-operating countries stems in part from the US experience after it adopted the Sarbanes-Oxley corporate accountability law. Many overseas companies opted to list outside the US rather than comply with Sarbox requirements.

“We are determined to protect our people against any outliers,” Mr Frank said.

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By Jamil Anderlini in Beijing

Published: August 5 2009 20:30 | Last updated: August 5 2009 20:30

Details are emerging of China’s largest suspected bank fraud after the former chairman of a company listed on London’s Alternative Investment Market appeared in a Chinese court last week.

Prosecutors in the southern Chinese city of Guangzhou allege that Wang Sheng, former chairman of Canton Properties, a prominent developer in southern China, obtained about Rmb4.8bn ($702m) of illegal loans from Bank of Communications, a state-controlled lender 18.6 per cent owned by HSBC.

Mr Wang, also known as Keng Wong, was the main recipient of the illegal loans, which were arranged with the help of a senior BoComm executive and never made available to the company, prosecutors claim.

Liu Changming, former president of BoComm’s Guangzhou headquarters, fled the country soon after authorities launched an investigation in late 2007, according to state officials and people familiar with the case.

He is still on the run in spite of a global alert issued through Interpol to apprehend him.

According to people familiar with the case, the loans were channelled through subsidiary companies of Canton Properties without the knowledge of shareholders, who were told the company had no unpaid bank debt.

After Mr Wang disappeared in August 2008, Canton Properties suspended its shares and most of the company’s board members, including Sir David Brewer, former lord mayor of London, resigned.

The shares have yet to resume trading.

Tony Knight, chief executive of Canton Properties, who was appointed in February to try to recover investments of foreign shareholders, said: “We later discovered Mr Wang had been arrested but it wasn’t until recently that we discovered the true scale of the alleged fraud”.

Canton Property, which listed in August 2007, was the only Aim company invited to meet Gordon Brown, UK prime minister, at the opening of the London Stock Exchange Beijing representative office in 2008.

The trial is being conducted behind closed doors, according to the Chinese financial magazine Caijing, which says the case involves as much as Rmb9.8bn, three times as much as the largest previous reported bank fraud in China.

Half the money has been recovered, but about Rmb4.6bn is still classified by BoComm as non-performing loans.

BoComm said the investigation had been going on for more than two years but the bank could not comment on details because of the trial.

HSBC executives said they were unaware of the case.

Mr Knight said he had reason to believe Mr Liu, the former BoComm president who was also known as Richard Liu, is currently in Boston in the US.

After fleeing China, Mr Liu was a regular participant in meetings in London between Canton Property executives and shareholders and although he was never introduced formally he was always treated as the real head of the company by the rest of his delegation, according to people who attended some of those meetings.

In August last year, Canton Property’s assets, which include two shopping centres and a large exhibition centre in Guangzhou, were valued at $963m.

That same month the company announced it had no outstanding bank debt and Mr Wang was arrested in connection with the bank fraud.

http://www.ft.com/cms/s/0/0ec404fc-8120-11de-92e7-00144feabdc0.html

By Jamil Anderlini in Beijing

Published: August 4 2009 19:20 | Last updated: August 4 2009 19:20

China’s gross domestic product figures are among the world’s most closely watched since they can move markets or boost hopes of an imminent recovery.

But the latest set of first-half numbers provided by provincial-level authorities are far higher than the central government’s national figure, raising fresh questions about the accuracy of statistics in the world’s most populous nation.

GDP totalled Rmb15,376bn ($2,251bn) in the first half, according to data released individually by China’s 31 provinces and municipalities, 10 per cent higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics.

All but seven of the regions reported GDP growth rates above the bureau’s first-half figure of 7.1 per cent. At the start of the year, Beijing set 8 per cent as China’s growth target for the year.

With the rest of the world looking to China as a beacon of expansion, the discrepancy is a reminder that statistics there are often unreliable and manipulated regularly by officials for personal and political purposes.

In recent years, provincial figures have suggested consistently the world’s third-largest economy is bigger than Beijing’s published estimate, but the discrepancy appears to have widened this year.

Even state-controlled media reports and editorials have in recent days raised questions over their accuracy.

The Global Times, controlled by the People’s Daily, the Communist party mouthpiece, reported that the public reacted with “banter and sarcasm” to NBS figures showing average urban wages in China rose 13 per cent in the first half to $2,142.

It quoted an online poll showing 88 per cent of respondents doubted the official numbers.

An editorial on Tuesday in the China Daily, the government’s English-language mouthpiece, quoted another survey that found 91 per cent of respondents sceptical of official data, up from 79 per cent in 2007.

Economists abroad have also questioned the reliability of the data in recent months.

SEE LINK FOR Beijing’s ‘string of pearls’

Interactive graphic: China’s development of strategic links and assets

“Despite starkly limited resources and a dynamic, complex economy, the state statistical bureau again needed only 15 days to survey the economic progress of 1.3bn people,” said Derek Scissors, of the Washington-based Heritage Foundation, referring to the time it took for the bureau to produce the figures after the end of the first half this year. “At worst, results are manufactured to suit the Communist party.”

Some economists say provincial officials have enormous incentives to improve their career prospects by exaggerating local economic growth.

The NBS itself is often wary of data provided by local governments and tends to revise down preliminary estimates using its own statistical model, according to official economists.

Calls to the NBS, which like most Chinese government agencies rarely responds to requests for comment, were not returned.

The criticism has prompted the NBS to launch a campaign last week, entitled “Statistical Feelings: We have walked together – Celebrating the 60th anniversary of the founding of New China,” to boost confidence among statisticians.

The campaign has already produced works such as: “I’m proud to be a brick in the statistical building of the republic.” In another poem, a contributor writes: “I can rearrange the stars in the sky because I have statistics.”

http://www.ft.com/cms/s/0/b56c2ad0-8050-11de-bf04-00144feabdc0.html

By Farhan Bokhari in Islamabad and James Lamont in New Delhi

Published: August 3 2009 18:26 | Last updated: August 3 2009 18:26

Suppliers of carpets from China’s northern Xinjiang region received a shock last month when their wares were turned back by Pakistani officials at the mountain crossings between the two countries.

As Beijing moved to assert its control of the predominantly Muslim region, Pakistan’s carpet ban was a consequence of efforts to stop Uighur Muslim separatists from escaping Xinjiang. Although unlikely ever to register as a complaint at the Geneva-based World Trade Organisation, the move offered the carpet- weavers of central Asia some welcome protection from highly competitive Chinese looms.

“We had no idea our decision to block the Chinese be so welcomed by top-of-the-line carpet buyers,” says a Pakistani government official involved in monitoring Chinese traders. “They are glad the Chinese are not coming.”

One such dealer is Imran Aman. He avoids dealing in Chinese carpets on the grounds that they undermine a high-price market.

Mr Aman recalls how one of his clients, who had spent several thousand dollars on what she thought were Iranian silk carpets in the far east, was stunned when the Islamabad carpet dealer told her she had bought Chinese-made counterfeits.

Mr Aman of Kashan Carpets, a carpet store in Islamabad, says: “By then, it was too late for her. She had paid much more than what her carpets were worth. The Chinese are now copying every type of high-value carpet.”

Mr Aman is eager to retain the loyalty of his customers. Many are unable to tell the qualities of a bona fide Persian carpet, yet are willing to spend thousands of US dollars. So he keeps Chinese variants out of his shop. But he is among a shrinking minority of carpet sellers in a country known to many foreign buyers as a trading centre for those made in Pakistan, Iran, Turkmenistan and Afghanistan.

For the untrained buyer, knowing the difference between an ornate Chinese- made carpet and a genuine Iranian carpet or a Turkish renowned Hereke carpet is often difficult. One sure sign is price. A Chinese copy of an Iranian silk carpet could be sold at anywhere between a third and half the price of the real thing, say dealers.

Mr Aman cites an example from Turkey where a Chinese carpet – a copy of a Turkish Hereke carpet – was put up for sale. While the original price of the Chinese copy was just $1,000, it was eventually sold in Turkey at a price of more than $6,000.

“The Chinese may not have their original designs. But they have acquired such a skill at copying other people’s designs that they can produce counterfeits of the perfect kind,” says Mr Aman.

There are varied accounts of just when and how Chinese carpet manufacturers began large-scale copying of Iranian silk carpets.

Some believe the practice became common in the 1990s in parts of Xinjiang. But one of the largest handmade Persian carpet producers, Henan Yilong, is based in central China.

“The Chinese found that it was very profitable to copy Iranian and Turkish carpets because buyers were likely to be crazy and obsessed with these products, and not everyone knew how to differentiate between a Chinese copy and other top-of-the-line carpets,” says a western diplomat who has regularly collected Iranian carpets.

Not everyone is convinced the Chinese will retain their competitive edge. Already some carpet buyers predict the downfall of the “copy-cat manufacturer”.

Latif Shah, an Afghan carpet businessman in Karachi, Pakistan’s southern port city, believes “the commercial success of the Chinese will force them to produce more and more carpets. When you go into mass production of this product, you are bound to lose out on quality.”

Mr Shah says an increasing number of carpet stores have now openly begun keeping their Chinese stock separately from their Middle Eastern wares in a bid to reassure high-spending customers.

“I have clients who spend upwards of $20,000 a year on buying carpets. They not only have the eye to know the difference between an original Iranian and a Chinese copy, they are also among my best customers. I wouldn’t like to lose out on them.”

http://www.ft.com/cms/s/0/6384584e-7fe9-11de-bf04-00144feabdc0.html

By Michiyo Nakamoto in Tokyo

Published: August 3 2009 06:02 | Last updated: August 3 2009 12:28

Wages in Japan have suffered their sharpest drop since tracking began almost two decades ago, fuelling concerns that the economy will remain under pressure from depressed consumer spending.

The plunge comes as Japan prepares to vote at the end of the month in elections that could topple the long-serving Liberal Democratic Party, with both the incumbents and the rival Democratic Party of Japan, which is leading in the polls, wooing voters with promises of better conditions for workers.

Labour Ministry figures showed monthly wages, including overtime pay and bonuses, slid 7.1 per cent from a year earlier in June to Y430,620, the 13th consecutive decline but the biggest since the data series started in 1990.

The steep June decline stemmed in large part from deep cuts to bonuses as manufacturers in particular continued to suffer from weak demand. Bonuses, which are generally distributed in June and December, suffered a 14.5 per cent fall from a year ago.

“This kind of drop in bonuses would be unthinkable in normal times,” said Naoki Murakami, chief economist at Monex Securities.

Overtime hours worked continued to fall by double digits, with overtime in the manufacturing sector declining 40 per cent year-on-year. Overtime pay fell 17.7 percent in June from a year earlier.

“In coming months Japan’s unemployment rate is set to rise, with surveys showing the vast majority of firms feel their staffing levels are excessive,” said Nikhilesh Bhattacharyya, an associate economist with Moody’s Economy.com. “The jobs-to-applicant ratio was at a record low in June, while the unemployment rate was just short of a record high.”

For consumers, the drop in wages was somewhat offset by government stimulus measures. Mr Murakami said that incentives to buy fuel efficient vehicles and energy efficient electronic products have had a stronger impact on consumption than many economists had expected. Hybrid cars, for example, have enjoyed firm demand, helping to push vehicle sales back to levels of a year ago.

Combined with one-off government payments, the stimulus measures are likely to have had their strongest impact in the April-June quarter, Mr Murakami said. Overtime hours however rose 2.2 per cent in June from May, reflecting an improvement in industrial production.

Economists warned that the impact of stimulus measures is likely to taper off towards the end of the year, which could hurt consumption. The question is how much the US economy will recover by then and how much this will help Japanese exporters, Mr Murakami said.

The LDP’s policy manifesto pledges to create 2m jobs over the next 3 years and increase household after-tax income by Y1m within 10 years. The DPJ, meanwhile, is proposing an increase in the minimum wage to Y1,000 from about Y700 an hour.

I think Mr. Wang can expect a very short trial followed by a bullet to the back of his head by the Chinese government.

http://www.ft.com/cms/s/0/4bcd5bd6-81f8-11de-9c5e-00144feabdc0.html

By Joanna Chung, Brooke Masters and Francesco Guerrera in New York

Published: August 5 2009 23:07 | Last updated: August 5 2009 23:07

The US Securities and Exchange Commission should fund itself directly from industry fees, a system that would allow it to tackle more complex investigations and invest more in technology and skilled people, Mary Schapiro, its chairman, told the Financial Times.

The SEC rakes in more than $1bn annually in registration and transaction fees but, unlike other US financial regulators, cannot spend any of it without going to Congress each year to have its budget approved. That has made it difficult to plan ahead and invest in multi-year information technology projects.

“Self-funding has been discussed over the years but I think it may now well be the moment,” Ms Schapiro said in an interview. “Some stability in funding would be an enormous benefit because it would help us with long-term planning in such areas as technology and staffing.”

Her comments, which come as Congress and Barack Obama’s administration redesign the US regulatory framework, highlight the SEC’s perennial resource problems. The agency oversees everything from mutual funds to credit rating agencies but has seen its budget decline or stay flat in recent years.

It is under pressure to be more aggressive after oversight failures, such as missing Bernard Madoff’s investment fraud. In recent days, the SEC has reached settlements with Bank of America and General Electric. It is likely to gain responsibilities in the regulatory revamp, including oversight of the credit derivatives market.

“Self-funding will help us to avoid periods of drought,” Ms Schapiro said. “Think about what the markets were doing in terms of growth and innovation at the same time the SEC was in a hiring freeze.”

US banking regulators, including the Federal Deposit Insurance Corporation and the ­Federal Reserve, can use what they collect in fees, deposit insurance premiums and interest income. The UK Financial Services Authority is entirely self-funded.

The SEC expects to collect $1.3bn in 2009 but may spend only the $960m authorised by Congress. For 2010, the administration has asked for a budget of $1.026bn, though the SEC expects to collect $1.5bn in fees.

Senior Democrats in Congress are divided on the regulator’s future funding.

On the surface, seems like a good idea . . . but maybe only esp. if funded from actions the industry can be counted on to oppose . . .

http://www.ft.com/cms/s/0/97a92022-8107-11de-92e7-00144feabdc0.html

By Francesco Guerrera and Joanna Chung in New York

Published: August 4 2009 16:36 | Last updated: August 5 2009 00:34

General Electric agreed to pay $50m on Tuesday to settle civil accounting fraud charges by US regulators, calling into question the conglomerate’s legendary ability to deliver consistent earnings growth.

The settlement with the Securities and Exchange Commission – which accused GE of bending the “accounting rules beyond breaking point” – involves a relatively small payment. But it is a blow for Jeffrey Immelt, chief executive, and Keith Sherin, chief financial officer.

The action also underlines the aggressive stance taken by Mary Schapiro, the agency’s new head, coming the day after Bank of America agreed to pay $33m to settle SEC allegations that it misled investors during the acquisition of Merrill Lynch.

The SEC’s action concludes its probe into GE but does not preclude charges against individuals. Under the settlement, GE did not admit or deny the SEC’s allegations that it used improper accounting methods to increase earnings or revenues and avoid negative results on four occasions in 2002 and 2003.

In a statement, GE said the accounting errors “fell short” of its standards. But the conglomerate added it was “committed to the highest standards of accounting” and had cooperated with regulators throughout the four-year probe.

Mr Immelt, whose eight-year tenure at GE has been marked by a disappointing share price performance, said in a statement that he and the board had “complete confidence in Keith . These issues have nothing to do with his leadership”.

The SEC accused GE, whose stellar reputation with shareholders was built on its famed ability to beat analysts’ expectations every quarter, of misleading investors by reporting “false and misleading results”.

“GE bent the accounting rules beyond the breaking point,” said Robert Khuzami, director of the SEC’s division of enforcement.

The four accounting errors alleged in the SEC’s civil complaint boosted GE’s earnings by more than $780m during the period, the regulators said.

In 2003, the SEC alleged GE changed its accounting approach to hedges related to its commercial paper programme in a way that enabled it to avoid missing analysts’ expectations.

The other alleged accounting violations included a failure to correct an error related to interest rate swaps, a decision to report sales of locomotives that had not yet occurred, and an “improper” change to accounting for sales of aircraft engines and spare parts.

Missing analysts’ expectations has been seen as unacceptable at GE since the days of Jack Welch, who handed over to Mr Immelt in 2001.

http://www.ft.com/cms/s/0/acf1abc2-8051-11de-bf04-00144feabdc0.html

By Greg Farrell and Francesco Guerrera in New York

Published: August 3 2009 18:30 | Last updated: August 4 2009 00:30

Bank of America is to pay $33m to settle US regulators’ claims that it made “materially false and misleading claims” to shareholders about bonuses that were paid by Merrill Lynch last year, it was revealed on Monday.

The Securities and Exchange Commission and Andrew Cuomo, New York attorney-general, are investigating whether BofA should have warned investors about Merrill’s losses before a December 5 shareholder vote on BofA’s acquisition of the investment bank.

BofA’s Merrill unit has been providing much of the profit at BofA, the recipient of $45bn in government aid. However, the regulatory probes demonstrate the depth of the problems the combination with Merrill has created.

The settlement came as BofA revealed a management revamp that included hiring Sallie Krawcheck, a former Citigroup executive, to oversee wealth management. Ms Krawcheck will widen the pool of potential successors to Ken Lewis, BofA’s embattled 62-year-old chief executive. “(BofA) continues to add more new blood at senior leadership positions,” Michael Mayo, analyst at CLSA, said in a note to clients, adding: “It is unclear what role the regulators played in these changes (if any).”

In the SEC settlement, BofA neither admitted nor denied the allegations. According to the SEC, the merger argeement struck last September between BofA and Merrill allowed for Merrill to pay up to $5.8bn in discretionary bonuses for 2008. But in a joint proxy statement issued by both companies in November, the SEC said BofA “represented that Merrill had agreed not to pay year-end performance bonuses” prior to the deal being closed “without Bank of America’s consent”

In January, the Financial Times reported that Merrill Lynch paid more than $3bn in bonuses in the last days of 2008, in spite of recording losses of $28bn for the year.

BofA told the FT at the time that its involvement in the Merrill bonus payments was minimal, and blamed the matter on John Thain, the former chief executive of Merrill. Mr Thain was fired, but insisted that he kept BofA management fully apprised of the bonus payments.

BofA subsequently said it had been aware of the payments, and that one of its executives had been involved in determining how much money each recipient would get.

In addition to the SEC probe, BofA faces shareholder suits claiming that Mr Lewis and his board did not adequately disclose Merrill’s worsening financial condition before the shareholder vote. In January, when Merrill’s disastrous fourth-quarter results were disclosed, BofA said it needed $20bn in taxpayer funds to salvage the deal.


SEE LINK FOR INTERACTIVE GRAPHIC: Tarp funds and bonuses: Bonus breakdown

Interactive graphic: Which recipient of Tarp funds spent the most on bonuses in 2008?

Sigh. I got a little behind, what with all this extra work...but the Kid wants some supper, so that's it for now. Keep on keeping on!

http://blog.buzzflash.com/analysis/874

by Meg White

The locavore may be an endangered species. The effort to eat food grown within 100 miles of one's dinner table may someday be impossible, if the new breed of agricultural investor gets their way.

In an article published late last week in the online version of Germany's Der Spiegel, the practice of buying up land in third world countries and exposing it to first world growing techniques is examined. The authors, Horand Knaup and Juliane von Mittelstaedt, start by setting a desolate scene reminding the reader of the 2008 food crisis which was so easily forgotten in the wake of the subprime debacle:

Food is becoming the new oil. Worldwide grain reserves dropped to a historic low at the beginning of 2008, and the ensuing price explosion marked a turning point, just as the oil crisis did in the 1970s. There were bread riots around the world, and 25 countries, including some of the biggest grain exporters, imposed restrictions on food exports.

But these savvy investors know that everyone has to eat; mortgages, on the other hand, are not necessary for survival.

The article goes on to note that third world countries are eager for the agricultural investment of foreign companies and countries, hoping that the influx of cash will not only revolutionize their agriculture sector, but alleviate hunger. In Knaup and von Mittelstaedt's words, countries hope these investments "achieve what development agencies have been unable to do in the past few decades" in a way that might very well be a "win-win" situation.

But as is often the case in situations that are touted as "win-win," it's more like "heads I win, tails you lose." And I'm not merely being pessimistic about the future. The Der Spiegel article notes that the king of Saudi Arabia recently collected the first rice harvest farmed exclusively for his country in Ethiopia, a country infamous for its perpetually starving citizens.

The article goes on to note that the investment contracts signed abroad often don't include environmental protections, and instead are filled with commonly-broken promises to build roads and schools:

Even when investors live up to their promises, the benefits to the host governments and local farmers are often short-lived. In the long term, however, they must suffer the consequences of over-fertilizing, deforestation, over-consumption of water, reduction of ecological diversity and the loss of local species. To boost harvests and achieve annual returns of 20 percent or more, the foreign large landowners must operate their farms on an industrial scale. And when the soil becomes depleted after a few years, many investors simply move on. Land is so cheap that they are not forced to value sustainable farming practices.

In other words, just because they are global conglomerates doesn't mean they feel any stewardship toward the globe itself....

:D

:hi:

That's the first I've heard of it. Do you want to do that next week?

I could take a weekend off.....

But, seeing as Logan's world seems to be what the Health Care Insurance Denials Companies are claiming (Hmm... 'claiming' there's an ironic choice of wording) with their scaremongering that we're trying to build with Reform. I was thinking maybe you'd give it to them! :o

Anyway, from the looks of the WE so far, you had plenty to post already! :wow:

although people might need a few weeks notice to collect or write some appropriate haiku.

Even then, it might be a bit limited. Maybe we could expand it to haiku, poetry, and limerick weekend.

There once was a man from the Fed...

.
..
...

Why? Why not?

limerick. :D

but I'm figuring if we can go to the web for song lyrics and movie quotes, that there just might be some good stuff waiting to be googled.

That's the theory, of course. Actual mileage may vary. Greatly.

But how about this....

There once was a man from the Fed.
Great power placed deep in his head.
Some thought him a hero
But he's only a zero
As our country sinks deeply in red.

I bet you could do a good one with Hank from Goldmans/Treasury!

Where is Paulson nowadays? he seems to be keeping a low profile.

Visions of "Wait, Wait, Don't Tell Me!"

I only heard the first 15 minutes, about Clinton picking up the two journalists in Korea.

just hadn't gotten around to listening yet

It's all still a little fuzzy this morning, but, I'm pretty sure it's reality.

Reality hit home yesterday. I was expecting a mild shock. Somewhere in the neighborhood of nine volts. I didn't expect to get strapped into the electric chair and fried.

We've all seen the numbers. We've all seen the foreclosures popping up in the neighborhood. And we've all seen the "deals" to be had in the real estate market. Well, reality bites.

I decided, an the spur of the moment to refinance the house a couple of weeks ago. With the standard deduction, I couldn't write off the interest anymore, and lower rates, I figured I could cut my interest, and cut the term of my loan to 15 years, so I went to my bank. Everything looked fine. Improvements, new roof, garage door, and new fence. Credit score above 800. Taxes paid. Homeowners insurance paid.

Then we got to the appraisal. :wtf:

It seems that the house is now worth just over half of what it was appraised at 2 years ago! It's now worth 30% less than what I bought it for seven years ago. :wow:

We're not in any trouble or anything. The mortgage is still less than we could rent a lesser place for. But, it sure is a shocker.

I've been jiggering some things around too... I'm likely to find much the same.

How does your appraisal compare with what is listed on www.zillow.com or one of the other RE sites out there?

Right about where I guessed. And all the recent sales are right on the money. But, it looks like several foreclosures in the neighborhood really drug the comps down.

Hasn't happened around here... Either. :scratchingheadwithwonderment:

Both the city and the county are scrambling.

At least you have a way to keep a roof overhead.

Just the shock.

This may have been posed already: is the bank still working with you on the re-fi?

alas, I am too exasperated to read most of the links. The trogdolytes are out in force in my local paper, screetching about euthanizing granny, etc. while they no doubt peer from their duct-taped basement windows for Black Helicopters.

Demeter always comes up with some deep themes.

One of my favorites is Simon's "Slip Sliding Away".

Paul Simon Slip Slidin' Away - Live at Abbey Road

http://www.youtube.com/watch?v=nKxyoud_c-E

the effects of lack of sleep, I expect.

Some people are just too stupid to talk to.

and get angry at the right people for the right reason--making fools out of them.

http://news.yahoo.com/s/nm/20090808/bs_nm/us_usa_debt_2

WASHINGTON (Reuters) – U.S. Treasury Secretary Timothy Geithner formally requested that Congress raise the $12.1 trillion statutory debt limit on Friday, saying that it could be breached as early as mid-October.

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Geithner said in a letter to Senate Majority Leader Harry Reid that was obtained by Reuters.

SAY WHAT?



A Treasury spokeswoman declined to comment on the letter.

Treasury officials earlier this week said that the debt limit, last raised in February when the $787 billion economic stimulus legislation was passed, would be hit sometime in the October-December quarter. Geithner's letter said the breach could be two weeks into that period, just as the 2010 fiscal year is getting underway.

The latest request comes as the Treasury is ramping up borrowing to unprecedented levels to fund stimulus and financial bailout programs and cope with a deep recession that has devastated tax revenues.

It is expected to issue net new debt of as much as $2 trillion in the 2009 fiscal year ended September 30 and up to $1.6 trillion in the 2010 fiscal year, according to bond dealer forecasts.

The request to increase the debt limit will likely raise the ire of Republicans who have accused President Barack Obama of runaway spending. They may try to hold up the legislation in effort to win concessions on Obama's health care reform plan.

Geithner urged Reid to not let politics hamper U.S. credit-worthiness and said he looked forward to working with the Nevada Democrat to secure enactment of legislation on the debt limit as early as possible.

"Congress has never failed to raise the debt limit when necessary. Because members of both parties have long recognized the need to keep politics away from this issue, these actions have traditionally received bipartisan support," he wrote. "This is clearly a moment in our history that calls for continuation of that tradition."

http://www.marketwatch.com/story/berkshire-reports-14-increase-in-quarterly-profit-2009-08-07?siteid=yahoomy




By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) -- Berkshire Hathaway reported a 14% increase in quarterly profit late Friday as the insurance-focused conglomerate run by Warren Buffett benefited from a rebound in the value of its derivatives exposures and large equity investments.

Berkshire said second-quarter net income came in at $3.3 billion, or $2,123 per Class A equivalent share, versus $2.88 billion, or $1,859 per Class A equivalent share, a year earlier.

Operating earnings, which exclude investment and derivatives gains and losses, were $1.78 billion, or $1,147 per Class A equivalent share, down from $2.27 billion, or $1,465 per Class A equivalent share, in the same period a year earlier.

Berkshire reported a book value of $73,806 per Class A equivalent share at the end of June. That was up 4.6% from the end of 2008 and up 11.4% versus the end of the first quarter, the company noted. Book value is an important measure of companies' net worth, or assets minus liabilities.

The stock market rallied strongly during the second quarter, with the Standard & Poor's 500 index up more than 15%. That boosted the value of some of Berkshire's large equity investments.

Shares of Wells Fargo and American Express , two large Berkshire holdings, jumped roughly 70% in the second quarter.
Derivatives

Berkshire reported derivatives gains of $1.53 billion, or $976 per Class A equivalent share, during the latest quarter. That was over $1 billion more than during the same quarter last year.

Berkshire said the derivatives gains in the latest period mainly came from long-term put option contracts the company wrote on major equity market indexes. As stock markets rallied during the second quarter, the value of these contracts increased.

The market value of derivatives have to be recorded each quarter, so this can produce big swings in quarterly results. Operating earnings, which exclude this and other items such as realized investment gains and losses, give analysts and investors a better idea of the underlying performance of insurance companies.

Berkshire has a $37.1 billion portfolio of put option contracts on the Standard & Poor's 500 Index, the FTSE 100 in the U.K., Japan's Nikkei 225 and the Euro Stoxx 500 in Europe. The derivatives require Berkshire to pay its counterparties if these equity indexes fall below where they were when the contracts were signed.

Most of these agreements were set up more than a year ago, when stock markets were much higher.

However, the contracts don't mature for 15 to 20 years, and Berkshire doesn't have to post collateral to its counterparties. The company also got premiums of $4.9 billion for taking on these risks, and that's money Buffett has been investing.

Operating units

Beyond derivatives action, Berkshire's operating businesses generated less profit in the second quarter, versus a year earlier, partly because of the deep recession.

The company's non-insurance businesses, which include utilities, food distribution, building materials, real estate agencies and jewelers, generated operating profit of $574 million, down by almost half from a year earlier.

Berkshire's insurance businesses, which include auto insurer Geico and reinsurer General Re, made an underwriting profit of $83 million in the latest quarter, down from $360 million in the same period of 2008.

http://news.yahoo.com/s/nm/20090807/pl_nm/us_usa_congress_unemployment_4

By Andy Sullivan Andy Sullivan Fri Aug 7, 12:45 pm ET

WASHINGTON (Reuters) – The U.S. Congress will consider extending unemployment benefits after it returns in September to help 1.5 million Americans who risk exhausting them, Senate Majority Leader Harry Reid said on Friday.

"Soon after Congress returns to Washington we'll need to address this matter," Reid said. "There is an economic case to be made for extending unemployment benefits."

The unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, according to Labor Department data released on Friday. It was the first time the U.S. jobless rate has fallen since April 2008.

But the number of long-term unemployed continues to rise as the country struggles with the longest recession since the Great Depression of the 1930s, and many analysts attributed the dip in July to people giving up the job hunt.

Data ranging from home sales to manufacturing have pointed to an economic revival, but the unemployment rate is expected to remain high, which could lead to an anemic recovery. Obama administration officials say they still expect the unemployment rate to reach 10 percent this year.

As of July 25, 6.31 million people were collecting long-term unemployment benefits, according to Labor Department data.

Some 1.5 million of those people could exhaust those benefits by the end of the end of the year, according to the National Employment Law Project.

"We must help those who are suffering as a result of an economic crisis they did not create," Reid said.

Congress has already extended unemployment benefits for up to 79 weeks and Obama administration officials and Democratic leaders in the House of Representatives have said they will work to extend them further.

But that could widen the already yawning budget deficit, which shot up another $300 billion in July to reach a record $1.3 trillion for the first 10 months of fiscal 2009, according to the Congressional Budget Office.

The CBO expects the budget deficit to top $1.8 trillion for the fiscal year which ends September 30, in large measure due to a $787 economic stimulus bill passed by Congress in February.

Polls show rising public unease with the record deficit and Republicans have sharply criticized it.

"Instead of seeking new ways to expand the government, this Congress needs to get back to the basics of deficit reduction," Republican Senator Judd Gregg said in a statement.

(Additional reporting by Susan Cornwell, editing by Anthony Boadle)

http://www.ft.com/cms/s/0/d7531cf0-7fb3-11de-85dc-00144feabdc0.html

By Bernard Simon in Toronto

Published: August 3 2009 00:00 | Last updated: August 3 2009 00:00

US car scrappage incentives appear to have spawned a dramatic shift in Americans’ car-buying habits, with most participants in the “cash-for-clunkers” scheme trading in old sport-utility vehicles and pick-up trucks for small cars. Ford Motor, which has emerged as one of the scheme’s chief beneficiaries, said on Sunday that its small Focus saloon was the top car purchased, based on claims submitted so far to the US transportation department.

By contrast, Ford’s Explorer, for many years North America’s top-selling SUV, was the most traded-in vehicle. Ford officials also said that, based on government data, eight of the top 10 vehicles bought under the scheme are in two of the smallest categories.

Transportation department officials were not available to confirm the data. Luxury car marques have not benefited to the same degree.

Ford said on Sunday that it had posted a year-on-year increase in sales for the first time since November 2007.

The House of Representatives rushed through legislation on Friday to allocate another $2bn to the incentive scheme after the initial $1bn was almost entirely used up in its first week.

“This has been a wildly popular programme and given new life to auto dealers,” Ray LaHood, transportation secretary, said.

However, Senate approval is still required for the extension to become law. Mr LaHood said that, even without Senate approval, the programme would remain in force until at least Tuesday.

Under the scheme, modelled on similar incentives in operation in several European countries, car buyers who trade in old vehicles for those with lower fuel consumption receive a rebate of $3,500 or $4,500. It is likely to have pushed US July car sales, details of which will be published on Monday, to their highest monthly level this year.

Japan’s Subaru, which makes mostly smaller cars, said that sales in the US soared by 30 per cent last month, reaching an all-time record.

Chris Ceraso, of Credit Suisse, estimated that US light-vehicle sales would reach an annualised 12.1m-12.4m, only 3 per cent lower than July 2008 and the first time this year they have topped 10m.

http://www.ft.com/cms/s/0/172e6042-7f54-11de-85dc-00144feabdc0.html

By Jonathan Soble in Yokohama, Japan

Published: August 2 2009 14:30 | Last updated: August 2 2009 14:30

Pure-electric vehicles could account for 10 per cent of all new car purchases by 2020, Carlos Ghosn, head of the Renault-Nissan alliance, predicted on Sunday as he unveiled the Leaf, an emissions-free family hatchback the Japanese carmaker is aiming at mass-market buyers.

Mr Ghosn said at Nissan’s new global headquarters in Yokohama, south of Tokyo: “We don’t see the electric car as a niche car. We see it as a mass-market car.”

Powered by an 80kW electric motor and rechargeable lithium-ion battery, the Leaf will be introduced in Japan and the US late next year. From 2012, when Nissan aims to begin selling the Leaf worldwide, it plans to build 200,000 of thm a year – by far the most ambitious production target for an all-electric vehicle.

Noboru Tateishi, programme director for electric vehicles, said Nissan planned eventually to build the Leaf at its UK assembly plant in Sunderland. So far, the company has designated factories in Oppama, Japan, and Smyrna, Tennessee as initial production sites, although battery production will also take place in the UK and Portugal.

In June, Nissan received a $1.6bn low-interest loan from the US government to retool the Smyrna plant for electric-car production. The British and Portuguese governments also have offered low-interest loans and other incentives.

Nissan said the Leaf could travel at least 160km (100 miles) on a full charge, a range it said exceeded the typical daily driving needs of 70 per cent of car owners.

The car can be recharged in eight hours from a standard home wall socket. It can also be charged to 80 per cent capacity in 30 minutes using a high-powered “quick charger” Nissan is pushing to have installed in petrol stations, car parks and other public facilities.

The question of recharging infrastructure remains a considerable obstacle to the widespread adoption of electric cars, according to analysts.

Nissan still has to win over doubters. CSM Worldwide market research has estimated that global carmakers will together build just 100,000 electric cars by 2015. JPMorgan analysts expect cheaper petrol-electric hybrids to account for 13 per cent of sales by 2020.

Other carmakers are also testing the all-electric market, however. Japan’s Mitsubishi Motors is to begin selling a smaller electric car, the iMiev, in Japan this month. It has priced the car at Y4.6m ($48,600) – about three times more than a petrol version of the same car – and is eyeing annual output of 30,000 units.

Nissan has not set a price for the Leaf but said on Sunday its cost would be “competitive” with “well-equipped” petrol-powered cars in the same class. The price will not include the battery, however, which drivers will lease separately from the carmaker.

http://news.yahoo.com/s/ap/20090804/ap_on_go_pr_wh/us_cash_for_clunkers_transparency


By BRETT J. BLACKLEDGE, Associated Press Writer Brett J. Blackledge, Associated Press Writer Tue Aug 4, 4:46 pm ET

WASHINGTON – The Obama administration is refusing to quickly release government records on its "cash-for-clunkers" rebate program that would substantiate — or undercut — White House claims of the program's success, even as the president presses the Senate for a quick vote for $2 billion to boost car sales.

The Transportation Department said it will provide the data as soon as possible but did not specify a time frame or promise release of the data before the Senate votes whether to spend $2 billion more on the program.

Transportation Secretary Ray LaHood said Sunday the government would release electronic records about the program, and President Barack Obama has pledged greater transparency for his administration. But the Transportation Department, which has collected details on about 157,000 rebate requests, won't release sales data that dealers provided showing how much U.S. car manufacturers are benefiting from the $1 billion initially pumped into the program.

The Associated Press has sought release of the data since last week. Rae Tyson, spokesman for the National Highway Traffic Safety Administration, said the agency will provide the data requested as soon as possible.

DOT officials already have received electronic details from car dealers of each trade-in transaction. The agency receives regular analyses of the sales data, producing helpful talking points for LaHood, White House spokesman Robert Gibbs and other officials to use when urging more funding.

LaHood said in an interview Sunday he would make the electronic records available. "I can't think of any reason why we wouldn't do it," he said.

LaHood, the program's chief salesman, has pitched the rebates as good for America, good for car buyers, good for the environment, good for the economy. But it's difficult to determine whether the administration is overselling the claim without seeing what's being sold, what's being traded in and where the cars are being sold.

LaHood, for example, promotes the fact that the Ford Focus so far is at the top of the list of new cars purchased under the program. But the limited information released so far shows most buyers are not picking Ford, Chrysler or General Motors vehicles, and six of the top 10 vehicles purchased are Honda, Toyota and Hyundai.

LaHood has called the popular rebates to car buyers "the lifeline that will bring back the automobile industry in America." He and other advocates are citing program data to promote passage of another $2 billion for the incentives -- claiming dealers sold cars that are 61 percent more fuel efficient than trade-ins.

LaHood also said this week that even if buyers aren't choosing cars made by U.S. automobile manufacturers, many of the Honda, Toyota and Hyundai cars sold were made in those companies' American plants.

But there's no way to verify his claims without access to DOT's data.

Senate GOP leader Mitch McConnell of Kentucky has argued against quick approval of $2 billion for the program because little is known about the first round of $3,500 and $4,500 rebates.

"We don't have the results of the first $1 billion," McConnell spokesman Don Stewart said. "You don't have them. We don't have them. DOT doesn't have all of it. We'd hate to make a mistake on something like that."


THIS DATA DID COME OUT A DAY OR TWO LATER--I SAW IT IN THE WSJ PRINT EDITION, WHICH I'VE BEEN THROWING THIS WEEK...

http://www.atimes.com/atimes/Global_Economy/KH08Dj02.html

Syntactical corrections for government mandated bailouts are usually required because such programs usually say one thing and deliver something quite the opposite. That notion is true for the "Cash for Clunkers" program in the US government, which has had the effect instead of delivering Clunkers for Cash.

The difference in the syntax is of course to suggest that what started as a move to get old cars off the road has instead turned out to be a case of putting good money after bad. Another nail in the Keynesian coffin from where I stand, but that’s getting ahead of ourselves.

Late on Thursday, the US Congress decided to extend its Cash for Clunkers program by adding to it a further US$2 billion. The idea of turning old cars ("clunkers" in the American vernacular) to get cash that can be used to fund new car purchases has clearly caught on; and nowhere more so than in the case of General Motors (GM), the car company that is now majority owned by the US government and trade unions.

As of the beginning of August, 18.7% of the clunkers were GM vehicles essentially flattering the company's car sales; while Toyota came to second position at 17.9% and Ford a distant third. Despite the help provided to American carmakers, 47% of all clunker deals went to these companies, which also includes Chrysler; Japanese companies benefited but not as significantly.

Looking at the government-mandated-program itself, there were a total of over 184,000 clunker deals, costing the taxpayer $775 million in all. That works out to $4,200 per clunker - an amount that is likely far in excess of the actual value of these cars; used car sellers would have been happy to get rid of quite a few of them at $1,500 for example. In effect, the program counts as yet another subsidy being provided by the US government, but perhaps without much regard for the consequences.

Sure, the US isn't the only country to have suggested or implemented such a program. Many others, including Japan, South Korea, Germany, the United Kingdom, Spain and France have versions of the same program, albeit with different details, including the "nationality" of the car company in some cases. The American program is fairly straightforward in that it doesn't overtly target for assistance American carmakers, but that isn't necessarily by design (or intent) either.

What are some of the other consequences of the program, besides the obvious fiscal hole that is being dug at great cost to the American taxpayer?

1. Higher prices for "lemons": The extension of the program suggests that the US government has driven into yet another temporary arrangement that quickly turns into long-term policy. If the public expect the program to continue indefinitely, the net effect will be to increase the price of old cars that are frequently inefficient and unreliable (an old rule of thumb has it that cars lose about 2%-5% fuel efficiency every year). In turn, this means that the decision to buy a new car becomes more difficult if one has a three-year-old car that isn't eligible for the program but is otherwise useless.

BULLSHIT. A USED CAR IS NOT NECESSARILY A LEMON.

Overall, it is quite possible that the pace of new car sales will reduce in America as a direct consequence of this program: an unintended consequence if there was one. Secondly, the government program will be scrapped if ever a Ron Paul-type figure (that is, a sensible, Austrian economist-minded person) enters the White House and when it is, the entire "assumed value" of cars in the US will be proved incorrect.

2. Penalizing higher-quality car makers: The average American car has poor reliability compared with the average Japanese or Korean car, leave alone the hordes of more expensive European cars. I know people who have had their Toyota Land Cruisers for the better part of the past 25 years (although why anyone would drive a Toyota is beyond the imagination of a car snob like me). None of these people would want to exchange their cars, especially after paying more as compared with an equivalent American car in the first place. The net effect of all this is that higher-quality manufacturing actually could suffer a setback as a result of this program and particularly if carmakers start working towards a seven-year lifespan.

3. Financial trap persists: The idea of getting debt-addled Americans to visit showrooms and exchange their clunkers for cash and perhaps leave with a new car that usually carries a new debt burden is singularly irresponsible. Instead of encouraging Americans to cut their overall debt load, the government appears to be encouraging a new round of binge borrowing on the back of what are essentially false assurances of future values (as above).

4. Raft of unintended consequences. There are many other unintended consequences of the program, ranging from the prices of scrap steel to the use of old parts from clunkers (other than the engine units which are rendered unusable by the injection of sodium silicate, prices for which have jumped significantly since the program began). So the next time your garage replaces your shock absorbers, the question cannot be far from the mind - "is that from one of those clunkers

THIS IS BULLSHIT. SHOCKS ARE REPLACED WITH AFTER-MARKET NEW PARTS--NOBODY EVER REPLACES WORN SHOCKS WITH USED ONES.

Bailout parallels

The notion that governments can influence the course of consumer purchases is of course erroneous in the long run and that is precisely why bailouts do not work. One of the more persistent discussions by lackeys of governments in Britain, France, Germany and the United States of late has been the apparent "return to profitability" of institutions that were bailed out by government. Be it the banks in Britain, industrial companies in France or automotive companies in the US, bureaucrats are going blue in their faces explaining the financial recovery of the firms in the first half of the year.

In my previous article this week (see Faith-based Investing, Asia Times Online, August 5, 2009), I covered the point about erroneous analysis and valuations of stocks and earnings. Keeping those comments in mind, there are a few other observations that are pertinent here:

1. Robbing Peter to pay Paul: In most cases of government bailouts, we have seen a radical shifting of previously well-held principles. For example, the US government rescue of GM led to the destruction of creditors' rights as well as the closure of a number of auto dealerships outside their contractual terms. The positive effect of these moves helped or will help to flatter earnings going forward for such companies; optically providing profits in the case of GM but not so when the losses of creditors and auto dealers are also accounted for.

2. Continued capacity: Whether it is the useless industrial companies of France or the banks in the United Kingdom, disallowing the diminution of capacity that is an essential pre-condition to the return of sensible margins only helps to perpetuate the unstable equilibrium that existed in the first place. That in turn disallows the more important technological and structural reforms that are required in many of these economies.

3. Higher prices: Overall, the profits of bailed-out companies come from their ability to charge prices that are otherwise unlikely. British banks for example have expanded their loan-deposit interest margin since they were bailed out, an ability that they previously lacked because retail depositors had been more choosy (but have consolidated after the government takeovers and guarantees).

On the other side, the banks have been choosy about lending funds, and charged vastly more for their transactions because private-sector players were more conservative. To some extent, this falls back in the "rob Peter to pay Paul" angle above, but also highlights the data dissonance (for example, higher prices of certain items) that will seep through, in turn providing more confusion on macroeconomic data.

4.Core problems unfixed: The government bailouts haven't fixed the core problems of the entities. British banks still don't seem to know how to lend money, racking up significant loan losses in the first half of the year; GM car sales were down 19% in July as another example. If such entities - banks that don't know how to lend profitably, and carmakers who can't sell cars except with special deals - survive, long-term economic efficiency reductions in turn have implications for broader growth considerations.

Those who can, pay
By far the worst implication of the existence of these bailed-out companies is that companies and individuals who behaved responsibly effectively have to lose by the following additional costs:

1. Higher taxes - most countries that have bailed out parts of their economy are now embarking on higher tax rates (Ireland, the United Kingdom, France and so on), which hurts the people with the highest disposable incomes the most.

GOOD!

2. Lower choices for various products as programs such as Cash for Clunkers eat into consumer choice and perpetuate sub-optimal products.

NOT PROVEN!

3. Higher prices for various products and services as the true cost of government bailouts usually translate into lower production and service efficiency in the long term

4. Lower income from banks (as interest rates were cut to zero) means a greater need to speculate than is strictly warranted at this stage of the recession.

Damps the holiday spirits, doesn't it?

http://www.greencarreports.com/blog/1033891_cash-for-clunkers-the-data-on-why-its-working

UPDATE, Aug 5: Revised data from the Department of Transportation indicates that the five most traded-in models under the clunker program are: Ford Explorer (4WD), Ford F-150 (2WD), Jeep Grand Cherokee (4WD), Jeep Cherokee (4WD), and Dodge Caravan/Grand Caravan (2WD).

Following the top-five list are: Chevrolet Blazer (4WD), Ford Explorer (2WD), Ford F-150 (4WD), Chevrolet C-1500 (2WD), and finally Ford Windstar (4WD) bringing up the rear. Of these 10, five are sport utilities, three are pickup trucks, and two are minivans.

In fact, the Ford Explorer--that quintessential sport-utility of the 1990s--occupied no fewer than six of the top 10 trade-in slots. Explorers from model years 1994, 1995, 1996, 1997, 1998, and 1999 were in the top 10, with EPA mileage ratings of 14 to 18 miles per gallon depending on drivetrain.

Two more Top 10 trade-in slots were sport utilities as well--the Jeep Cherokee and Jeep Grand Cherokee--with two minivans, the 1997 Ford Windstar and the 1999 Dodge Caravan bringing up the rear. All 10 of the top trade-ins were domestic vehicles.

So what replaced the SUVs? Mostly small sedans from a mix of domestic and foreign carmakers. Of the first 80,000 trade-ins, according to the Transportation Department, 47 percent of the replacements came from US automakers General Motors, Ford , and Chrysler.

That's marginally higher than the US carmakers' current overall market share of 45 percent. Among foreign brands, Honda and Toyota particularly benefitted as well.

2009 Ford Focus S

2009 Ford Focus S
Enlarge Photo

The single highest-selling vehicle in that group was the 2009 Ford Focus. Beyond that, in order, were the Honda Civic, Toyota Corolla, Toyota Prius, Ford Escape, Toyota Camry, Dodge Caliber, Hyundai Elantra, Honda Fit, and Chevrolet Cobalt.

Just one of the 10 was a hybrid; nine were compact or midsize sedans or hatchbacks, and one was a crossover sport utility. It's also worth noting that one of every three Volkswagens sold in July was a Jetta TDI clean diesel, though its sales didn't reach the Top 10.

Of all the new vehicles purchased, initial data suggests that far more than half were built in North America, whether by domestic or foreign carmakers--including six of the top seven, with only the Toyota Prius manufactured exclusively in Japan.

Winners and losers

But to the program's second goal, the annualized sales rate for the last week of the month rose well over the watermark 10-million number, to a rate perhaps as high as 12 or 13 million by some estimates.

Ford even managed a year-over-year sales gain for the month, its first since 2007, as it continues to benefit from being the only one of the Detroit Three not to enter bankruptcy and be bailed out by the Federal government.

The Administration's view: "This is the one stimulus program that seems to be working better than just about any other program," US Secretary of Transportation Ray LaHood said to CNBC. "It's a lifeline for automobile workers and automobile makers."

And President Barack Obama chimed in as well, saying: "This program has been an overwhelming success, allowing consumers to trade in their less fuel efficient cars for a credit to buy more fuel efficient new models ... has proven to be a successful part of our economic recovery, and will help lessen our dangerous dependence on foreign oil, while reducing greenhouse gas emissions and improving the quality of the air we breathe."

http://www.myride.com/content/CashForClunkers/index.cfm?action=browser&mileage=24&year=1994&make=Saturn&model=SL&trim=4%20cyl%2C%201.9%20L%2C%20Auto%204-spd%20%28MPFI%29&firstpass=1



Of course not! My Saturn is 24 mpg....

Spouse had 1995 big Ford van, lots of things starting to go wrong and gas hog too. So he looked around and decided to trade for Chevy Aveo. $16,000 vehicle, and out the door for $10,000. Couldn't pass it up, paid cash.

So now we are going to play musical vehicles. I get the new car, son gets my 2000 Cavalier, son gives spouse big Chevy truck. And everyone is happy!

Except, the rebate on the new car gets added to the debt which my son's babies get to payoff.
:(


Now I'll see if I can post some worthy articles.

http://www.ft.com/cms/s/0/06aa7db4-7f8b-11de-85dc-00144feabdc0.html

By Lina Saigol in London

Published: August 2 2009 22:23 | Last updated: August 3 2009 16:42

Sovereign wealth funds are regaining their appetite for deals in western markets after making the lowest number of foreign investments during the first quarter since 2005, following a series of disastrous bets in high-profile public companies.

State-owned investment funds from oil-rich countries and Asian exporters made just 26 investments worth a total $6.8bn in the first three months of the year, according to Monitor Group, the advisory firm, and Fondazione Eni Enrico Mattei, an international research centre.

That represents a fall of more than 50 per cent on the number of investments made in the first quarter last year, highlighting their retreat from international markets...

I'M GUESSING THIS WAS THE WHOLE POINT OF THE BAILOUTS--TO GET THE SWF BUYING TOXIC DEBT AGAIN.

http://www.ft.com/cms/s/0/761e4072-7f8b-11de-85dc-00144feabdc0.html

By Lina Saigol and Martin Arnold

Published: August 2 2009 23:04 | Last updated: August 2 2009 23:04

The biggest private equity groups are sitting on a $400bn debt mountain that needs to be repaid over the next five years, putting the future of some of the largest buy-out deals in doubt.

Private equity firms raised large amounts of bank debt to buy companies between 2005 and 2007.

Private equityThey face more than $21bn of debt maturities in the next two years, another $50bn in 2012, $115bn in 2013 and $192bn in 2014, according to data from S&P LCD.

With debt still in short supply and expensive, private equity groups are being forced to find new ways to pay down this debt ahead of schedule.

These include putting new equity into their portfolio companies, selling stakes in businesses to strategic buyers and buying back debt in their own companies at a discount.

They are also trying to persuade lenders to extend maturities on existing loans.

Henry Kravis, co-founder of Kohlberg Kravis Roberts, said: “In every company we have that has debt, we consider either buying it in with excess cash flow where that is possible, refinancing it or effecting an exchange of the debt.”
EDITOR’S CHOICE
Lex: Debt’s all she wrote - Aug-03
In depth: Private equity - Mar-30
Buy-outs act early on debt mountain - Aug-02

KKR has been reducing debt of several of its portfolio groups including NXP, the Dutch chipmaker, and ProSiebenSat.1, the German broadcaster.

The private equity group succeeded in pushing back the maturity date on loans coming due in HCA, the US hospital group that it took private for $33bn in one of the biggest buy-outs of the boom, by issuing $1.5bn of bonds earlier this year.

The urgent need to refinance the debt mountain is driving private equity groups to the high-yield bond market, which has been virtually closed since mid-2007 at the start of the credit crisis.

The level of corporate high-yield bond issuance in Europe and the US in the past three months rose to its highest level since the peak of the debt boom in mid-2007, according to data from Dealogic.

“We think in most cases we can refinance these companies and increase their earnings enough to reduce and refinance the debt,” said Tom Lister, co-managing partner of Permira.

“Private equity owners across the world have started early on this effort.”


:nopity: WORLDS SMALLEST VIOLIN FOR THESE VULTURES

forgive me for asking the obvious.

8/5/09 Guns and Butter - "The Collapse Gap"

"The Collapse Gap" with Dmitry Orlov, author of "Reinventing Collapse - The Soviet Example and American Prospects". Dmitry Orlov's repeated travels to Russia throughout the early nineties allowed him to observe the aftermath of the Soviet collapse first-hand. Being both a Russian and an American, Dmitry was able to appreciate both the differences and the similarities between the two superpowers. Eventually he came to the conclusion that the United States is going the way of the Soviet Union. His emphasis is on all the things that can still be made to work, and he advocates simply ignoring all that will fall by the wayside.

appx 1 hour audio
http://www.kpfa.org/archive/id/52976

8/8/09 John Xenakis: The Principle of Maximum Ruin. Like the generational panic and crash of 1929-32, the current crash will financially ruin the maximum number of people as possible, to the maximum extent possible. There is no way to break this spiral except through a discontinuity - a massive financial crisis.
more text...
http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e090808#e090808


The graph below shows that public debt has been increasing exponentially since the 1950s.




http://www.comstockfunds.com/files/NLPP00000/421.pdf

8/10/09 The Fog of Numbers by James Kunstler

One of main reasons behind the vast confusion now reigning in the USA, our failure to construct a coherent consensus about what is happening to us (or what to do about it), is our foolish obsession with econometrics -- viewing the world solely through the "lens" of mathematical models. We think that just because we can measure things in numbers, we can make sense of them.
.
.
The number problems we face are now hopeless. America will never be able to cover its current outstanding debt. We're effectively finished at all three levels: household, corporate, and government. Who, for instance, can really comprehend what to do about the number problems infesting Fannie Mae and the mortgages associated with her? There's really only one way out of this predicament: to get ready for a much lower standard of living and much different daily living arrangements. We can't wrap our minds around this, so the exercise du jour is to play games with numbers to persuade ourselves that we don't have to face reality. We're entertaining ourselves with shell games, musical chairs, Chinese fire drills, Ponzi schemes, and Polish blanket tricks (where, to make your blanket longer, you cut twelve inches off the top and sew it onto the bottom).

Now that Newsweek Magazine -- along with the mendacious cretins at CNBC -- have declared the "recession" officially over, it's a sure thing that we are entering the zone of greatest danger. Some foul odor rides the late summer wind, as of a rough beast slouching toward the US Treasury. The stock markets have gathered in the critical mass of suckers needed to flush all remaining hope out of the system. The foreign holders of US promissory notes are sharpening their long knives in the humid darkness. The suburban householders are watching sharks swim in their driveways. The REIT executives are getting ready to gargle with Gillette blue blades. The Goldman Sachs bonus babies are trying to imagine the good life in Paraguay or the archepelego of Tristan da Cunha.

more...
http://kunstler.com/blog/2009/08/the-fog-of-numbers.html

Oh Man....I love that writing! :D Great Read!

http://dailyreckoning.com/hunky-dory/

...Here, in the dog days of summer, it seems to me that the situation in the USA is so fundamentally bad, so unpromising, so booby-trapped for failure, that I wonder if there has ever been a society so badly deluded as ours. We’re prisoners of our wishes, living in a strange dream-time, oblivious to the forces gathering at the margins of our vision, lost in a wilderness of our own making.

Anything can happen now. I certainly wouldn’t rule out international mischief as we arc around into fall. The air is so full of black swans that the white swan now seems like the exceptional thing. Whatever else happens, it sure will be interesting to see the public’s reaction to Wall Street’s announcement of Christmas bonuses. The folks at Rockefeller Center better be thinking about getting a fireproof tree.

Yeah, not the typical stuff posted here. But what they hey...

The Bastards Never Die

A short history of why we eat oil, can't smoke pot, and why assault weapons are so expensive in our hour of need

By Joe Bageant

(With running commentary by THE SCREAMING MAN)

Well, for starters, the above title is a damned lie, since this little screed is not a history. It's just rumination on the tilting point at which Americans started the slide into the deepest sort of cultivated consumer consciousness -- which is to say our corporate managed engorgement and swinedom at the service of the rich.

Very rich families and corporatists, to whom, as in earlier articles, we shall refer to as "the bastards," have always been with us. Even Tom Jefferson thought periodic revolution against wealth and authority was desirable to keep these bastards in check. Which implies that he figured they would inevitably get us by the throat down on the floor from time to time.

But the bastards scared the hell out of later presidents too. Abe Lincoln feared the large corporations born of business profiteering during the U.S. Civil War -- the military industrial complex of the day -- easily constituted the greatest threat to the American republic. Being president and all, he couldn't call them what they were, and settled for the term "money power," and predicted that, "money power will … work upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."

And as everyone knows, Dwight Eisenhower famously feared the same military-industrial complex was busy taking over the nation. What we never hear about though, is that Eisenhower's definition of the complex included among the bastards, not only the military defense industry corporations, but also right alongside them the news media and the university and private research establishments.

If nothing else can be said for the bastards, we must admit they do plan far ahead, (or seemed to anyway, before the latest meltdown) even if only to screw us blind, which is usually the case. Since the early robber baron era of John D. Rockefeller's Standard Oil, just after the turn of the century, the bastards understood that the key to national domination was oil -- creating an economic culture based on petroleum -- and planned toward that end. Big corps such as E.I. DuPont had invested heavily in the oil industry since the turn of the century, and especially since the 1930s creating synthetic materials such as plastics, in which the public was decidedly uninterested in buying. Then World War II came along, creating big demand for synthetics such as nylon for parachutes, tires, tents, ropes. DuPont and similar bastards had drawn a royal flush.

SCREAMING MAN HERE!: RIGHT! IT'S THE ONLY SURE RACKET. ASK ICE MAN CHENEY. YOU MAKE STUFF, SELL IT TO THE PENTAGON MOB AND RAM THE PRICE CLEAR UP THEIR ASSES. THEN THEY BLOW THE STUFF UP, INCENERATE IT, AND COME BACK FOR MORE AT DOUBLE THE PRICE BECAUSE NOW THERE'S A SHORTAGE! FOR A FAST DEPENDABLE BUCK, YOU CAN'T BEAT INDUSTRIAL SCALE WARFARE WITH A GODDAMNED STICK!

(Ahem!)

Unfortunately all good things end, no matter how bloody profitable. But those super-expanded wartime corporations that had cranked out planes and tanks were not going to downsize just because we had run out of Dresdens to bomb. They intended to remain dominant and even expand. With the war drawing to a close, and with fewer burning jeep tires on the battlefields and fewer parachutes left dangling in the trees of Belgium, American citizens were going to have to eat the slack. The bastards would have to stuff'em fuller than a Christmas goose; make them eat petroleum based synthetics, if it came down to that. Which it eventually did of course, in the form of petrochemical agriculture, food dyes, etc.

SCREAMING MAN: YOU GOTTA A FUCKING PROBLEM WITH NUMBER TWO RED DYE OR SOMETHING, ASSHOLE? DON'T BULLSHIT THESE PEOPLE, YOU FLAMING OLD FRAUD! I'VE SEEN YOU EAT A WHOLE BOX OF PINK HO-HOS BEHIND A BOTTLE OF JAY DEE AND SOME COLUMBIAN BUD! AM I GONNA HAVE TO TAKE MY NEEDLE NOSED PLIERS TO YOUR LYING ASS?

Plastics, heralded as durable and everlasting (and today lamented for the same reason) eventually gobbled up nearly every other material market, in the from of jewelry, dashboards, dishes, clothing, napkin rings, perfume bottles, knickknacks, flooring and carpeting, resin building materials, vinyl raincoats and boots, molded furniture, radio sets … America was remade in the image of open chain hydrocarbons. That nine tenths of what was produced and marketed was unnecessary, and downright shitty did not go unnoticed by the American public, which had been deeply distrustful of plastics and synthetics from the time they were first ballyhooed at the 1933 Chicago World's Fair. People were just not buying the sales job. But the combination of wartime shortage frustrations and massive industrial public relations delivered the one-two punch, and the consumer knuckled under. Or perhaps they were just worn down by industry PR, which enlisted the help of trusted figures such as Frank Capra and Walt Disney, among others, along with in-school industry propaganda for the next generation: "Our story of the miracle of plastics starts with an oil well in a faraway place by the Persian Gulf … "

AND IT GODDAMNED WELL IS GONNA END THERE TOO! IN ABOUT 15 MINUTES, IF IT HASN'T ALREADY! DOES ANYBODY REALIZE THE NUMBER OF SARAH PALIN BLOW-UP DOLLS SHIPPED TO THE TROOPS IN IRAQ? IF THAT'S THE KIND OF ARMY WE'RE SENDING TO KILL OFF THE PALM VERMIN, THEN WE'RE GONERS ALREADY!

As I was saying, the bastards not only created an economy by and for themselves, based on the black sticky stuff, they also built a civilization. From the tallest building right down to the petrochemical soaked dirt in which the food supply is grown, and all along the chain through processing and plastic packaging and distribution, The black stuff was cheap and it was plentiful, so long as the bastards were willing to buy off the top dog sheiks like ibn Saud, who would in turn keep the dusky peasantry in line through good old perennials such as beheadings and public stonings.

SCREAMING MAN MISSES THOSE POST 9/11 BEHEADING VIDEOS, DON'T YOU? IT WAS SO EASY TO TELL WHO AMERICA'S ENEMIES WERE THEN. BUT AT LEAST WE'VE STILL GOT BEN BERNANKE AND BILL GATES.

During the 1940s AND '50S while ibn Saud was fathering some 60 children by 22 wives in Arabia and dishing out corporeal punishment to the far flung wretches of his kingdom, here at home the corporations were doing their own hit jobs on the this nation's peasantry -- the farmers. Petroleum based synthetics, with legislative help, wiped out one quarter of the domestic cotton market in the first few years following the war, along with flax for linen, and hemp fiber, replacing them with ugly but profitable synthetic nylon and polymer textiles. Not to mention replacement of literally hundreds of farm produced natural organic materials for medicines, cosmetics, milk by products such as casein for glues and paints, with synthetic petro-based commodities, all of which were mercilessly hammered into the populace as "miracles of modern science."

More ====>> http://www.joebageant.com/joe/2009/07/the-bastards-never-die.html

That was good, everything in that article, even folklore about Dillinger.

I'm thinking about filing for Mel Martinez' Senate seat. Not that I would stand a chance of winning, but it would be so much fun to stand on a stage and call Marco Rubio a little Battista-ite fascist. That, and say a lot of things that need to be said, that nobody is saying.

I talked to a few people this morning. They said "Go for it". I look at it as starting a pie fight at a tea-bagger convention.

and... Good luck! Get in there before some Blue Dog shows up. :thumbsup:

Did anyone ever get around to saying why Martinez' immanent resignation became so... immanent?


Speaking of things that maybe shouldn't be done sober... I spent the morning updating to Firefox 3.5.2.

Although, the process is fairly opaque under Linux for some reason... (The major reason being the software update tool only shows FF ver. 3.0.11 or so.) it was a VERY worthwhile undertaking. 3.5 is noticeably faster. Like about 3 or 4 times faster according to the Mozilla web site.

Now, I'm off to see if my obscure collection of plug-ins and add-ons still work. Tah-for-now! Hon. Sen. Dr. Phool.

Last weekend I updated from SP2 to SP3, IE6 to IE7, Firefox 2 to Firefox 3. Yeh, I usually wait for others to get out the bugs before attempting the major updates. :P

Firefox 3.5 is noticeably faster? I might have to jump in with that one, though Firefox 3 is working just fine!

If I can notice it on my primitive hardware. It must be true.

http://www.mozilla.com/en-US/firefox/performance/ <--- They gloat on the performance improvement here.

http://www.mozilla.com/en-US/firefox/all.html <--- pick a flavor.

considering, I just recently upgraded from Firefox 2!

but then Crist said he wouldn't appoint himself to the vacancy.

Maybe Crist will do the same--resign and then let his buddy appoint him?

Things are different in Florida.

This country needs people who know what's going on, and willing to talk about it!

I just want a platform to say things that need to be said, and covered.

After running for Congress in 2004, I've come to loathe fund raising. If I do decide to file, my intentions are to give the Democratic Party a strong tug to the left. Since I'm now registered as "No Party Affiliation", I'd have to change or be completely ignored. I resigned from my DEC, in protest, after they continued funding for the war. I changed party affiliation after the FISA vote. My wife suggested filing as a Repuke, and running on a platform to return sanity to the party. I just can't bring myself to do that. I could say, "Just think of me as Sarah Palin, with a brain, and no cleavage".

I've got a lot of phone calls to make this week, and I've arranged a few meetings. Then I'll make a decision. These repukes are getting totally out of control with the town hall meetings. I know Kathy Castor personally, and you would never meet a nicer person. And she has to leave meetings under armed guard?

It's turning to fascism as we speak. The brown shirts just aren't wearing brown...yet.

Then file and run like hell. Maybe Tansy Gold would be game to write your campaign speeches.

Credit is not flowing. In fact, credit is contracting. That means things aren't getting better; they're getting worse. When credit contracts in a consumer-driven economy, bad things happen. Business investment drops, unemployment soars, earnings plunge, and GDP shrinks. The Fed has spent more than a trillion dollars trying to get consumers to start borrowing again, but without success. The country's credit engines are grinding to a halt.

Bernanke has increased excess reserves in the banking system by $800 billion, but lending is still slow. The banks are hoarding capital in order to deal with the losses from toxic assets, non performing loans, and a $3.5 trillion commercial real estate bubble that's following housing into the toilet. That's why the rate of bank failures is accelerating. 2010 will be even worse; the list is growing. It's a bloodbath.

The standards for conventional loans have gotten tougher while the pool of qualified credit-worthy borrowers has shrunk. That means less credit flowing into the system. The shadow banking system has been hobbled by the freeze in securitization and only provides a trifling portion of the credit needed to grow the economy. Bernanke's initiatives haven't made a bit of difference. Credit continues to shrivel.

The S&P 500 is up 50 percent from its March lows. The financials, retail, materials and industrials are leading the pack. It's a "Green Shoots" Bear market rally fueled by the Fed's Quantitative Easing (QE) which is forcing liquidity into the financial system and lifting equities. The same thing happened during the Great Depression. Stocks surged after 1929. Then the prevailing trend took hold and dragged the Dow down 89 percent from its earlier highs. The S&P's March lows will be tested before the recession is over. Systemwide deleveraging is ongoing. That won't change.

No one is fooled by the fireworks on Wall Street. Consumer confidence continues to plummet. Everyone knows things are bad. Everyone knows the media is lying. Credit is contracting; the economy's life's blood has slowed to a trickle. The economy is headed for a hard landing.

Bernanke has pulled out all the stops. He's lowered interest rates to zero, backstopped the entire financial system with $13 trillion, propped up insolvent financial institutions and monetized $1 trillion in mortgage-backed securities and US sovereign debt. Nothing has worked. Wages are falling, banks are cutting lines of credit, retirement savings have been slashed in half, and home equity losses continue to mount. Living standards can no longer be bandaged together with VISA or Diners Club cards. Household spending has to fit within one's salary. That's why retail, travel, home improvement, luxury items and hotels are all down double-digits. The easy money has dried up.

More ===>> http://www.smirkingchimp.com/thread/23207

Anyone who might actually generate jobs and profits with lower credit costs gets the cold shoulder.

"The Fed is abandoning the printing presses (presumably) because China told Geithner to stop printing money or they'll sell their US Treasuries. It's a wake-up call to remind the Fed of its limits.

That puts Bernanke in a pickle. If he stops printing; interest rates will skyrocket, stocks will crash and housing prices will tumble. But if he continues QE, China will dump their Treasuries and the greenback will vanish in a poof of smoke. Either way, the malaise in the credit markets will persist and personal consumption will continue to sputter."

I guess spring is finally over. It was glorious while it lasted!

I did three routes today, in 99% humidity and the blessed dark. I'm really tired, too.

Only one more Sunday of madness, then no more subbing for others!

I'm not sure if I'm making a profit on the deal, what with hiring all these helpers...but I'm keeping a bunch of young folks a few dollars away form disaster for a bit.

The news on the economic front is so grim and hopeless, why don't the experts just admit it?

Why don't our leaders show some responsiveness to reality? They can't be THAT far removed from it, not for very long, anyway. There's an election coming in 15 months. If things don't start responding, it will be a bloodbath and another step backwards.

I could accept the fact that the BFEE had every intention of stealing everything, nailed down or not. I cannot accept that Obama will continue the policy.

Put your feet up and relax...you deserve it. Just remember "It was written on the subway walls and in tenement halls"...years ago. Eventually someone will listen.
:hug:

http://www.youtube.com/watch?v=GYKJuDxYr3I


What more could anyone say?