Buffett sees economy in 'shambles' but holds out hope

Buffett sees economy in 'shambles' but holds out hope

Master investor Warren E. Buffett warns today in his annual letter to shareholders that the economy "will be in shambles throughout 2009 -- and, for that matter, probably well beyond."

But as he has done several times in recent months, Buffett tries to rally hope, insisting that "America's best days lie ahead" despite the current economic crisis.

As usual, the billionaire's letter to his Berkshire Hathaway Inc. investors mostly reviews the company's operations and investments. Berkshire's businesses include insurance, utilities, manufactured housing and retailing, and the company also is a major shareholder of firms including Coca-Cola, Wells Fargo & Co. and Kraft Foods.

Buffett also gives his views on the broader economy, and on the government's attempts to fix the mess we're in.

The "debilitating spiral" in the financial system and economy "has spurred our government to take massive action," Buffett notes. "In poker terms, the Treasury and the Federal Reserve have gone 'all in.' Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel."

Buffett, a Democrat, says the government's moves were necessary to avoid a "total breakdown." But he predicts that "these once unthinkable dosages [of financial help] will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation."

"Moreover, major industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests," he says. "Weaning these entities from the public teat will be a political challenge. They won't leave willingly."

Still, Buffett writes, "Amid this bad news, never forget that our country has faced far worse travails in the past," citing the two World Wars, the Great Depression, and the wild inflation of the 1970s.

"Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

He makes no short-term prediction about the stock market, which is off to a horrendous start this year, with the Standard & Poor's 500 index down 18.6% since Dec. 31. But he notes that in 75% of the past 44 years, the S&P index has risen. "I would guess that a roughly similar percentage of years will be positive in the next 44 years," he says.

Buffett, who publicly recommended buying stocks amid the meltdown in October, reiterates his view that investors who are hiding out in short-term cash accounts or long-term Treasury bonds will come to regret it. He suggests that the fear-driven rally in Treasury securities that pushed yields to record lows late last year is a massive bubble on par with the dot-com bubble and the housing bubble.

"Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long," Buffett writes. "Beware the investment activity that produces applause; the great moves are usually greeted by yawns."

-- Tom Petruno

Photo: Warren E. Buffett

HSBC silent on share issue

LONDONHSBC made no comment on Saturday on reports it is planning to raise more than 12 billion pounds in a share issue as it seeks to increase its capital reserves in the face of the global economic downturn.

The Financial Times said Europe's biggest bank was likely to unveil the plan to raise the sum, equivalent to 13.5 billion euros (S$27 billion), with its full-year 2008 results on Monday.
GDP shrinks by 6.2%
New 4th-quarter estimate is far worse than prior guess The U.S. economy shrank by a larger-than-expected annualized rate of 6.2 percent during the final three months of 2008, the worst showing in about 25 years, according to a revised government estimate out yesterday.

Cash will be king in this political party season
Even as political parties are reaching out to draw big donations, the collection drive is expected to reach an all-time high once poll dates are announced.

GM plans Opel spin-off

Northern Trust says it wants to repay U.S. capital boost

Northern Trust Co. to Congress: We don't want your money.

The Chicago bank, which got $1.6 billion of taxpayer funds under the government’s financial-system rescue plan last year, said today that it was talking to its regulators "with the goal of repaying [the] funds as quickly and prudently as possible."

The bank has been pilloried over the last week for continuing its sponsorship of the annual Northern Trust Open golf tournament at the Riviera Country Club in Pacific Palisades, and for the related client parties it threw around town.

President Obama and some members of Congress have helped to stoke public anger over banks’ spending on anything deemed "inappropriate" in light of the government’s $700-billion bank rescue program.

Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, wrote to Northern Trust this week demanding that the bank pay back what it spent on the golf tournament.

In a letter today to Frank and 17 other members of Congress, Northern Trust CEO Frederick Waddell reiterated that the bank’s activities with the golf outing "were in no way reliant" on federal funds. Northern Trust, unlike many of its peer big banks, has remained profitable so far in the recession.

The bank hasn’t said so directly, but it most likely didn’t need the capital infusion, and went along with it because the government wanted participation by healthy and unhealthy banks alike.

In his letter to Frank, Waddell said: "We understand this is a time of great anxiety and financial distress, and your question regarding our support of an event such as the Northern Trust Open is legitimate.

"We deeply regret that some of the events associated with the Northern Trust Open have distracted from the positive nature of an event that has raised more than $50 million for charity since its inception."

As for repaying the $1.6 billion (which now is earning a 5% annual dividend yield for the Treasury), it isn’t clear how easy that will be. One key question is whether the government will require the bank to raise the same amount in private capital to replace the federal money. That could take time.

This may be one federal program that is easier to enter than to exit.

-- Tom Petruno

Photo: Golf pro Phil Mickelson on the 10th hole at the Northern Trust Open last Sunday. Credit: Allen J. Schaben / Los Angeles Times

GM plans Opel spin-off

RUESSELSHEIM (Germany)THE European unit of US carmaker General Motors said it planned to spin off its German arm Opel and needed 3.3 billion euros (S$6.5 billion) in state aid to avert job cuts and site closures.

Following weeks of speculation about Opel's fate, GM Europe President Carl-Peter Forster told a news conference the German carmaker would be split off into a separate unit to be majority owned by its struggling US parent.
Maryland residents will be able to buy state bonds
Maryland residents will be able to directly buy the state's AAA general obligation bonds.

Communism no party’s monopoly, I’m still a Communist: Somnath
Mr Somnath Chatterjee may no longer be the Speaker of the Lok Sabha, but the strains in his relations with his erstwhile party, the CPM, continue to show up.

More Banks Threatened: FDIC 'Watch List' Tops 250

Treasury report absolves Schumer in IndyMac collapse

Sen. Charles E. Schumer insisted last year that his surprisingly blunt public comments about IndyMac Bancorp weren't responsible for the Pasadena bank's failure.

In a report today on IndyMac’s collapse, the Treasury Department’s inspector general largely backs Schumer on that issue.

The New York Democrat on June 26 made public a letter he had sent to the Office of Thrift Supervision and the Federal Deposit Insurance Corp., saying he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers."

When the OTS seized IndyMac on July 11, it specifically fingered Schumer in the bank’s demise, saying that "the immediate cause of the closing was a deposit run that began and continued" after Schumer went public with his concerns.

But the inspector general’s report says Schumer's letter just made clear to everyone else what the OTS and the FDIC already knew: that the bank was defunct.

"While the [deposit] run was a contributing factor in the timing of IndyMac’s demise, the underlying cause of the failure was the unsafe and unsound manner in which the thrift was operated," the report says.

Inspector General Eric Thorson told the Times: "We don't think the letter caused the failure. The bank was on its way going down already."

The OTS previously attempted to blame Schumer’s comments for scotching a deal that IndyMac was said to have been negotiating with potential investors to buy the bank. Those talks were going on weeks before the letter was released, the OTS said.

Darrel Dochow, who had been the Western regional director for the OTS, told the inspector general that "there were investors who were interested in investing in IndyMac" around the time of Schumer’s letter. Dochow asserted that "interest waned after the senator’s letter was published" and the run on deposits hit.

But the inspector general’s office said it checked on Dochow’s statement and talked with a principal at the investment firm that he had mentioned.

"Contrary to what OTS’ West Region director told us, the principal said that Sen. Schumer’s letter did not affect the firm’s investment decision," the report says.

-- William Heisel

Photo: Sen. Charles Schumer. Credit: J. Scott Applewhite / Associated Press

More Banks Threatened: FDIC 'Watch List' Tops 250

ABC News’ Daniel Arnall, Matt Jaffe and Charles Herman report: The Federal Deposit Insurance Corp. reports that commercial banks and savings institutions insured by the FDIC lost $26.2 billion in the fourth quarter of 2008, the first quarterly loss for FDIC-insured banks since 1990. For all of last year, the banking industry earned $16.1 billion, the smallest annual profit since 1990.

The FDIC said that 252 banks (3 percent of the banks it covers) are on its “watch list.” That’s an increase of 47 percent from the previous quarter. On average, about 13 percent of the banks on the watch list eventually fail.

The FDIC insurance fund -- money collected from banks to pay to insure your deposits should a bank fail -- was $18.9 billion as of Dec. 31, 2008, a drop of 45 percent in just 90 days.

"The unprecedented size was a result of large losses at a few institutions," FDIC chair Sheila Bair said today.

For the full year, the insurance fund fell by $33.5 billion, or 64 percent, because of more than $40 billion spent on bank closings. The fund is quickly being used, which is why the FDIC is expected to propose on Friday more than doubling the amount banks have to pay for the deposit insurance. Currently, it is 6.3 cents for every $100 insured. The proposed increase would be to 13.5 cents.

The FDIC also has a $30 billion direct line of credit with the Treasury Department. Recently the agency asked Congress to increase that line of credit to $100 billion. And if the fund were ever completely depleted, the FDIC has the support of the federal government.

Last year, 25 banks were shut down, the highest number since 1993. In just the first seven weeks of this year, 14 banks have been shut down.

One positive note: As people have pulled their money out of risky stock investments, it appears they are putting what money they do have in the bank. Literally. For all of 2008, total domestic deposits increased by 8.4 percent. And in the last three months of 2008, when the market was at its worst, total deposits increase by $307.9 billion, an increase of 3.8 percent, the fastest quarterly growth in nine years.

Commercial banks and saving institutions include everything from Citigroup, Bank of America and Wells Fargo. There are more than 8,305 of these institutions. As of Dec. 31, 2008, they had $13.8 trillion in assets (loans, etc.) and $9.0 trillion in deposits.

GM posts $47b loss
DETROITFOR General Motors Corp. nothing has stopped the bleeding. Not cutting 50,000 jobs in the US Not closing 11 factories. Not US$13.4 billion (S$20.7 billion) in government loans.

The teetering company, once the symbol of American industrial might, revealed on Thursday that it burned through US$19.2 billion in cash last year on its way to a US$30.9 billion loss. The century-old automaker said its only hope of living another year is more aid from the government.
Continuing jobless claims top 5.1 million people
First-time claims jump more than expected last week to 667,000 As bad as it is already, the economy keeps getting worse -- and government figures today provided more evidence that the downward spiral won't end anytime soon.

Yours sincerely, Somnath signs off
Speaker Somnath Chatterjee did not let go off one last chance to justify his defiance of the CPM’s demand for his resignation.

Wells Fargo says it will reduce spending on golf tournament

Wells Fargo says it will reduce spending on golf tournament

Big banks that have long sponsored high-profile golf tournaments are backpedaling fast, after Northern Trust Co. suffered withering criticism for its spending on the annual Northern Trust Open at the Riviera Country Club in Pacific Palisades.

We may be nearing the point where bankers who have accepted federal money to bolster their balance sheets will have to ask taxpayer permission to use the office water cooler.

From Bloomberg News:

Wells Fargo & Co., recipient of $25 billion in government aid, is cutting spending on the Wachovia Championship golf tournament that starts in April amid criticism from U.S. lawmakers about banks' corporate expenses.

Wells Fargo, which acquired Wachovia Corp. in December, has a sponsorship contract with the PGA Tour through 2014, spokeswoman Mary Beth Navarro said in an e-mailed statement. The company is reducing costs, including some related to client entertainment, and hasn't determined the specifics, she said.

"This event helps us drive significant revenue for our businesses by building client relationships, but we are carefully evaluating all of our expenses given the economic environment," Navarro said. "We plan to reduce expenses as much as possible, while meeting our contract obligations."

Northern Trust, which received $1.6 billion in funding through the U.S. Troubled Asset Relief Program, was criticized by lawmakers yesterday for spending on clients and employees at a company-sponsored golf tournament this month.

U.S. Bancorp spokesman Steve Dale said that the Minneapolis-based bank is not renewing its sponsorship of a PGA tournament after this year. The final U.S. Bank Championship in Milwaukee will be held from July 13 through July 19, and the company will reduce "hospitality and entertainment aspects of the event," Dale said today in an interview.

Don’t we have to wonder whether bankers' growing status as national pariahs will make them even less psychologically capable of making new loans, for fear of screwing up again? New lending, after all, was the whole point of the government-aid program.

-- Tom Petruno

Photo: At the Riviera Country Club last week. Credit: Reed Saxon / Associated Press

House clears US$410b budget

WASHINGTONTHE Democratic-controlled US House of Representatives approved a US$410 billion (S$627 billion) bill on Wednesday to fund government operations through the end of fiscal 2009, despite Republican objections to additional spending.

The House voted 245-178 for the package, which includes spending for government departments ranging from transportation to agriculture through Sept 30. Republicans complained that it was 8 per cent more money than was spent in fiscal 2008.
Existing home sales at lowest level in nearly 12 years in U.S.
While the Obama administration begins conducting "stress tests" on the nation's biggest banks to judge whether they can hold up if the recession were to worsen, there was fresh evidence of a weakening housing market, with sales of existing homes falling unexpectedly last month to the lowest level in nearly 12 years.

India to replicate some US anti-terror strategies
India is set to replicate some of the strategies adopted by the Americans to improve its anti-terror preparedness and response.

Microsoft warns of a long workout after economic 'reset'

A chief executive has to work pretty hard to push his shares lower on a day when the market overall is surging.

Microsoft Corp. CEO Steve Ballmer managed that feat today: The software titan’s stock was the only one of the 30 issues in the Dow Jones industrial average to decline.

Microsoft slipped 4 cents to close at $17.17. It traded at midday at a new 11-year low of $16.36.

Ballmer sounded gloomy about the economic outlook at an investor presentation in New York.

"You don’t beat it," he said of the economic slump. "You manage in this environment. You don’t think about it as shorter-term, you think about it as a ‘reset’ that may take several years."

Ballmer again declined to provide guidance about the company’s earnings prospects in 2009. The firm in January shocked analysts when it reported an 11% drop in fiscal second-quarter earnings and said it would cut as many as 5,000 jobs to rein-in expenses.

From PCWorld.com’s summary of today’s presentation:

In his discussion to members of the financial community, Ballmer reiterated that he does not expect the economy to improve very quickly, so Microsoft is prepared to hunker down and spend carefully until it does.

Ballmer said to figure out how, he's taking cues from how companies handled previous economic crises, most notably the Great Depression of the late-1920s and 1930s.

"I've had guys go through annual reports of a bunch of companies from 1927 to 1938 to see what were those guys saying," he said.

Microsoft is following the example of one company in particular, RCA, which kept investing in research and development during the Depression and afterward dominated its industry, Ballmer said. Microsoft, too, will try to make gains in some areas where it can improve its market-share position while the economy is down.

"We'll compete for share -- that's one thing that's economy independent," he said, adding that he is repeating a mantra of "share" to his staff to remind them of its importance.

The stock also may have been under pressure today from rival Google Inc.’s announcement that it was joining European regulators in an attack on Microsoft's dominance of the Web browser market, "injecting more bad blood between two of computing's richest and most powerful companies," as the Associated Press noted.

Ballmer also addressed Microsoft's competitive battle with Google and Apple Inc.

-- Tom Petruno

Photo: Steve Ballmer. Credit: Manu Fernandez / Associated Press

Nikkei opens higher

TOKYOJANESE share prices opened higher on Wednesday, with the benchmark Nikkei-225 index rising 99.88 points, or 1.37 per cent, to 7,368.44 in the first minute of trading.
Economy suffering 'severe contraction,' Bernanke says
The U.S. economy is suffering a "severe contraction," Federal Reserve Chairman Ben Bernanke told Congress today. But he planted a glimmer of hope that the recession might end this year if the government managed to prop up the shaky banking system, and Wall Street rallied.

26/11 chargesheet today
Mumbai police will file a chargesheet on the 26/11 terror attacks.

Microsoft goofed up payments

JPMorgan slashes dividend but sees a first-quarter profit

Wall Street has shown strong faith that JPMorgan Chase & Co. will survive this deep recession, but the bank today still opted to play it safer -- by hacking its dividend payment to shareholders.

At the same time, the company said it has been "solidly profitable" so far this quarter, offering a ray of hope amid the latest stock market meltdown.

JPMorgan said it would slash the quarterly cash dividend on its common stock to 5 cents a share from 38 cents. The bank said the move would allow it to hold on to $5 billion a year in cash to bolster its equity.

"While we recognize our tremendous obligation to shareholders to maintain dividend levels, we also understand that extraordinary times require extraordinary measures," Jamie Dimon, JPMorgan’s chief executive, said in a statement.

"Our action today is being done as a strong precautionary measure to help ensure that our fortress balance sheet remains intact -- even if conditions worsen significantly," he said. "As always, our highest obligation during an economic crisis is to keep our company and franchise healthy, vibrant and strong for the future."

The company said that its first-quarter financial performance so far was "solidly profitable even after significant additions to [loan-loss] reserves, and the outlook for the quarter is roughly in line with analyst expectations."

The market reacted positively to the news overall: JPMorgan’s shares, which fell 39 cents to $19.51 in regular trading, rose to $20.65 in after-hours activity.

The move comes ahead of the government’s plans to put the biggest U.S. banks through a "stress test" to determine whether they have enough capital to survive rising loan losses. Those that fail the test will be compelled either to raise private capital or to take more government money, which could dilute current shareholders’ stakes.

Dimon said the dividend cut was "not directly related" to the government-aid program, the Troubled Asset Relief Program, or TARP. The bank received $25 billion in Treasury capital late last year under TARP.

"Our reason for accepting TARP capital still holds -- namely to help stabilize the banking system and economy," Dimon said. "The decision to retain additional common equity does, however, help position our company to repay TARP as soon as is prudent -- and still maintain a strong capital position."

Unlike shares of rivals Citigroup and Bank of America Corp., JPMorgan’s stock hasn’t descended to levels that would suggest investors believe that nationalization is imminent.

JPMorgan’s dividend cut could make it easier for Wells Fargo & Co. to cut as well. Wells’ shares have been hammered for the last two weeks, although they edged up 12 cents to $11.03 today.

Wells has insisted it would maintain its dividend. But the annualized dividend yield on the stock is 12.3% based on the current payout -- a sign the market doesn’t believe the dividend rate will be sustained.

-- Tom Petruno

Photo: JPMorgan CEO Jamie Dimon. Credit: Mark Lennihan / Associated Press

Microsoft goofed up payments

SAN FRANCISCOMICROSOFT on Monday said it goofed in trying to get back money it overpaid departing employees in severance packages and sent word to the former workers to keep the cash.

The US software giant said that last week it told 25 recently-departed employees they had accidentally been paid too much in severance and that the overages should be returned to the company.
Major stock market indexes fall to 1997 levels
Wall Street has turned the clock back to 1997.

Bengal pins hope on FM Pranab
Congress’ all-season man Pranab Mukherjee, in his new role as stand-in finance minister, appears to have fired a new ray of hope to many Kolkata-based banks, corporates and even the CPM.

Nikkei opens lower

TOKYOJANESE share prices opened lower on Monday, with the benchmark Nikkei-225 index falling 102.08 points, or 1.38 per cent, to 7,314.30 in the first minute of trading.
Should you lend them money?
Tread carefully when family and friends ask you to help out Tread carefully when family and friends ask you to help out.

Swat violence reveals fallacy of peace deal
External affairs minister Pranab Mukherjee has said that Pakistan’s ceasefire deal with the Taliban was a matter of concern for India.

JRC files bankruptcy protection

How to fix the economy: Emergency Christmas!

In case you missed it -- some Daily Show ideas for stimulating the economy. (Hat tip to Calculated Risk.)

. . .

The Daily Show With Jon StewartMTh 11p / 10cYou're WelcomeFixing the EconomyDaily Show Full Episodes
Important Things With Demetri MartinFunny Political News
Joke of the Day
JRC files bankruptcy protection

PHILADELPHIATHE Journal Register Co has filed for bankruptcy protection from its creditors and says slumping advertising revenue and circulation are to blame.

In court documents filed on Saturday in US Bankruptcy Court in Manhattan, company Chairman and Chief Executive James W. Hall says the recession has placed an even greater burden on an already distressed industry.
Preservation grant to Baltimore Heritage
The National Trust for Historic Preservation said this week that it awarded an $80,000 matching grant to preservation group Baltimore Heritage Inc. to help traditionally African-American neighborhoods with new transit development.

Yoga piracy: India shows who's the guru
India is going all out to save yoga from western pirates.

Regulator who had oversight of IndyMac Bank retires

Regulator who had oversight of IndyMac Bank retires

A federal regulator who played a role in both the 1989 failure of Lincoln Savings & Loan and last year's collapse of Pasadena's IndyMac Bank is retiring.

Darrel W. Dochow had earlier been relieved of his duties as Western regional director of the federal Office of Thrift Supervision. That action came late last year after the Treasury Department's inspector general found that IndyMac had been allowed to alter its financial statements in a way that delayed disclosure of the extent of its problems.

"I must admit that being singled out for a series of highly personal attacks after the failure of a prominent thrift has been painful, but I have been humbled by the tremendous support and words of encouragement by many people who truly know me and the job that I have done over the years," Dochow, 59, wrote in an e-mail to colleagues today.

IndyMac was seized by the Federal Deposit Insurance Corp. last July and is expected to cost the agency more than $9 billion. In addition, more than $600 million in uninsured deposits were lost by customers.

"After more than 30 years of government service Darrel Dochow has announced his decision to retire from the OTS. And we wish him well," said OTS spokesman William Ruberry, who declined to comment further.

Two decades ago, as head of supervision and regulation at the Federal Home Loan Bank Board in Washington, Dochow ignored pleas from California state regulators to intervene against Irvine-based Lincoln Savings. Two years after those requests were made, Lincoln collapsed in what was then the largest S&L failure.

Dochow was demoted but then worked his way back up the ranks and was promoted in September 2007 to be OTS’ regional director for the West -- putting him directly over the nation’s largest savings and loans, Washington Mutual and IndyMac.

The Times revealed in December that the Treasury Department's inspector general was investigating how IndyMac was allowed to falsify its financial statements to make it look as if a capital infusion received from its parent company last May had happened before March 31.

That was an important distinction because it allowed the bank to meet a key financial benchmark for the first three months of the year and keep its doors open through spring -- during which time it raised interest rates to lure in cash from new depositors.

-- William Heisel

Photo: Darrel Dochow. Credit: James Kegley

Europe to aid automakers?

MILANAUTOMAKER Fiat cancelled some 8,000 layoffs thanks to government help, while Sweden wrestled with how to save 4,500 jobs at Saab after the General Motors' unit sought protection from creditors.

Friday's developmentsand calls for more help for automakers in Britain and Germanyshow the pressure European governments are under to step up bailout packages and save industrial jobs.
January rise in consumer prices largest since July
Consumer prices rose modestly in January, propelled by higher energy costs, but economists said they remain more concerned about the threat of price declines throughout the economy.

26/11 probe: Money from Pak used to buy VoIP card
The FBI investigations into the November terror attack have established a Pakistan link to the payments made for the VoIP card from Callphonex of the US.

As bear markets go, we're back to the 1930s experience

With today's drop, major stock market indexes are back to showing Depression-era declines.

The Standard & Poor's 500 index, which lost 1.2% to 778.94, is down 50.3% from its record high reached in October 2007.

That exceeds the 49.1% total decline during the 2000-2002 bear market and the 48.2% drop during the 1973-1974 bear. Those were the worst losses of the post-World War II era -- until now.

The S&P 500 still is 3.5% above its lowest closing level reached last fall, which was 752.44 on Nov. 20. At that point it was off 51.9% from the 2007 high. But that slide below the 50%-loss threshold lasted just one day; the S&P bounced back 6.3% on Nov. 21.

There were three bear markets during the Depression years of the 1930s, according to Stanard & Poor’s calculations. The worst was the 1929-1932 plunge, which slashed 86.2% from the S&P 500. The second, from March 1937 to March 1938, saw the index tumble 54.5%. During the third, from late-1938 to 1942, the S&P slumped 45.8%.

Sorry to throw out so many numbers, but I wanted to make the point: In terms of the loss of equity wealth, we now have fallen through what had been the previous worst experiences of the modern era.

We aren’t in uncharted territory, but by the simple measure of stocks’ percentage decline from their peak, we’re in territory that hasn’t been charted since the 1930s.

Photo: From the 2008 movie "Grizzly Park." Credit: American World Pictures

UBS refuses US demand

WASHINGTONSWISS banking giant UBS on Thursday refused a US government demand to provide information on 52,000 US clients, requested in a lawsuit filed earlier in the day as part of a tax fraud investigation.

The US government filed a lawsuit in Miami, Florida, asking the court to order UBS to reveal to the US tax authorities the identities of the bank's US customersidentified with the moniker 'John Doe''with secret Swiss accounts,' the Justice Department said.
Dow falls 90, closes at lowest level in more than 6 years
The Dow Jones industrial average tumbled to its lowest close in more than six years today as sharp declines in key financial shares led the market lower.

Reduced Indo-Pak tension to help Islamabad curb terror: Holbrooke
US special envoy on Afghanistan and Pakistan Richard Holbrooke said that reducing tension between India and Pakistan was crucial for getting Islamabad to focus on its western borders with Afghanistan.

Fed warns that U.S. economy will get worse in 2009

Could regulators have jumped faster on Stanford CD sales?

U.S. regulators seem to have known in 2007 that something was amiss with Stanford Group Co.'s claims about the uninsured bank certificates of deposit it was selling.

Did another mega-scam slip through their net?

From Bloomberg News:

U.S. brokerage regulators fined R. Allen Stanford’s firm more than a year ago for misleading investors while selling certificates of deposit, raising new questions about watchdogs already under scrutiny for missing Bernard Madoff’s alleged $50-billion Ponzi scheme.

Stanford Group Co. was fined $10,000 by the Financial Industry Regulatory Authority in November 2007 for distributing marketing material that "failed to present fair and balanced treatment" of the risks associated with CDs.

The Securities and Exchange Commission yesterday filed a civil lawsuit calling the sales by the Houston-based firm a "massive, ongoing fraud."

"From what we know, the problem that led to the fine was a red flag," said Robert Hillman, a securities law professor at UC Davis. "If you have a red flag of this nature, then you have to do something more than simply levy a fine and close the file."

Finra spokeswoman Nancy Condon and SEC spokesman Kevin Callahan had no immediate comment.

Blogger Felix Salmon at portfolio.com notes that various reports have had the SEC investigating Stanford for months, if not longer.

Bloomberg reported in July that the SEC was probing Stanford’s CD sales.

The SEC’s outgoing enforcement chief, Linda Chatman Thomsen, said on Tuesday that the agency was moving "quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."

Decisively, maybe. But quickly?

-- Tom Petruno

Photo: R. Allen Stanford. Credit: Lefteris Pitarakis / Associated Press

From 'Smash-Me' Madoff to Monopoly: Toys Tackle the Recession

ABC News’ Alice Gomstyn reports: In a tough economy, at least one toymaker has gone right for the jugular. Phoenix-based ModelWorks has made a Smash-Me Bernie doll -- a doll-sized doppelganger of disgraced investor Bernard Madoff, who stands accused of running the largest Ponzi scheme in history and losing tens of billions of his clients’ dollars. Incensed Madoff clients may find the $99.95 toy especially soothing -- it comes equipped with a hammer that players can use to whack the doll silly.

Smash-Me Bernie was just one of about 100,000 toys on display at the 106th annual Toy Fair, held this week in New York. ModelWorks wasn’t the only vendor paying homage to today’s economic crisis, though other exhibitors were more subtle.

We met with Hasbro, which is marketing “family game nights” with board games that cost less than $20 and new versions of its classic Monopoly game, including Monopoly City. It sells for $34.99 and allows players to build cities right on the board.

“In today’s day and age, where the economy is front and center to many families, Monopoly’s a great game because it allows people to play and negotiate and for young kids to understand what it’s all about,” said John Frascotti, Hasbro’s chief marketing officer.

There’s a limit, of course, to exactly how much the real estate-based board game will teach kids about today’s economic problems. Asked whether game play includes mortgage-backed securities, Frascotti laughed.

“No,” he said, adding the company wanted “to keep it simple.”

In other make-believe real estate news, Mattel told us that Barbie’s iconic pink Dreamhouse -- known today as the Barbie Dream Townhouse -- has undergone some nifty renovations: The home’s bathroom now includes a toilet that makes flushing noises as well as a (fake) pop-up flat-screen TV. The house sells for $149.99.

Economic slump or not, Barbie isn’t losing any of her style, promised Richard Dickson, the general manager and senior vice president of Mattel’s of Barbie Worldwide division.

“What you can’t lose when you’re dealing with today’s times, particularly in a fashion brand like Barbie, is that you can’t lose the eye candy,” Dickson said.

“What we just have to do is make sure we present the utmost best product to them that excites them at reasonable and realistic price points,” he said.

So what does Mattel consider realistic? Most of the dolls on display ranged in price from about $10 to $50.

“Barbie is all about fashion, and today it’s got to be fashion at a price,” Dickson said. “I don’t think that’s any different than any fashion brand is dealing with.”

With reports from Charles Herman and The Associated Press.

Transcontinental cuts 1,500
Canada's Transcontinental cuts 1,500 jobs OTTAWA, Feb 18, 2009 (AFP)North America's sixth largest printer on Wednesday slashed 1,500 jobs and substantially cut costs after several of its customers postponed printings until after the economy recovers.
Fed warns that U.S. economy will get worse in 2009
The Federal Reserve warned today that the nation's crippled economy is even worse than thought and predicted it would deteriorate throughout 2009, with no sign that the housing market will stabilize.

Centre ignoring Bihar, charges NDA
Ahead of the Lok Sabha elections, the NDA raised the pitch of its campaign in Bihar, accusing the Manmohan Singh government of discriminating against the state even on a serious issue such as Kosi flood.

Tokyo stocks open lower

Miracle on Wall St.: The Dow escapes a new closing low

A day like this on Wall Street should drive the conspiracy theorists wild.

For nearly the entire session the Dow Jones industrial average threatened to drop below its Nov. 20 close of 7,552.29, which had marked the worst of the 2008 sell-off.

Each time the Dow got within range of that number today, it bounced up. Then, in the last two minutes of trading, the index sank as low as 7,551.33, before a few final trades managed to lift it a hairbreadth above the Nov. 20 close to finish at 7,552.60.

So on the same day that President Obama signs the $787-billion economic-stimulus bill, a nearby headine doesn’t read: "Stocks plunge to new lows."

"It’s kind of fishy," acknowledges Ryan Detrick, a market technician at Schaeffer’s Investment Research in Cincinnati.

It still was a day of major damage: The Dow lost 297.81 points, or 3.8%, and most broader indexes suffered heavier losses as the gloom over the financial system and the global economy thickened anew.

But the White House now gets at least one more day to convince investors that the stimulus plan, and the housing-rescue program that Obama is set to announce on Wednesday, offer reasons to be hopeful about the economy.

Breaking through the November lows would send a simple, dire message: The bear market isn’t over. Investors who had been hanging on, hoping they’d seen the worst, might bail, making a deeper decline self-fulfilling. That, in turn, could feed back into the economy, fueling a downard spiral.

The conspiracy-free view of the Dow’s bullet-dodging performance is that the action near the closing bell was just a coincidence of speculative trading games.

For example, some chart-watchers may have waded in, figuring that if the Dow bounced once at this level (the late-November-to-early-January mini-rally) it could do it again, said Ryan Larson, head trader at Voyageur Asset Management in Chicago.

Also, some bearish "short sellers" may have been buying at the end of the session to take profits after the market slid as they expected.

Even if the 30-stock Dow had closed at a new bear-market low, it would have been alone among major share indexes: Despite their losses today, most broader indexes still have some daylight between their current levels and their Nov. 20 nadirs.

The Nasdaq composite, which lost 4.2%, remains 11.7% above its Nov. 20 close. The Standard & Poor’s 500, off 4.6% in the session, is 4.9% above its November low (although it’s down 12.6% this year).

But the Dow is the market to most people â€"- and it certainly is to most headline writers.

-- Tom Petruno

Tokyo stocks open lower

TOKYOJapanese share prices opened lower on Wednesday, with the benchmark Nikkei-225 index falling 105.55 points, or 1.38 per cent, to 7,539.96 in the first minute of trading. -- AFP
GM, Chrysler seek more federal aid, will cut more jobs
The U.S. auto industry needs even more help from the government to survive than originally thought.

Pak-Taliban deal cause for concern
Taliban appeasement by Pak admin is a cause of worry for the Govt.

Wegmans supermarket planned for Harford County

Is Ireland the next big bomb in the global debt crisis?

Ireland's main stock index dived 4% today, the fifth straight decline, after European media reports over the weekend focused on the possibility of the once-booming Emerald Isle reneging on its debt.

"Fears are mounting that Ireland could default on its soaring national debt pile, amid continuing worries about its troubled banking sector," Britain’s Sunday Times reported.

In the credit-default-swap market, the cost to insure $10 million in Irish sovereign debt against default jumped to $377,000 on Friday, up from $262,000 at the end of January and just $24,000 a year ago, MarketWatch.com reported.

The Times noted that pledges made by Ireland to support its crumbled banking sector amount to 220% of the country’s annual economic output. Loans outstanding at Irish banks are more than 11 times the size of the economy.

Ireland still has a "Aaa" credit rating from Moody’s Investors Service, but the rating was placed on "negative outlook" last month, meaning it’s at risk of a downgrade.

Across the North Atlantic, tiny Iceland already is a financial basket case. But the rest of Europe has much more at stake in Ireland, because the latter is a member of the European Union and one of 16 countries that use the euro currency.

Ireland’s euro-zone membership means the country’s problems also become the problems of the European Central Bank. That's a good thing, or a bad thing, depending on where you sit in Europe.

From MarketWatch.com:

Ireland differs from Iceland in one important respect, said Nick Stamenkovic, fixed-income economist at RIA Capital in Edinburgh: "Ireland has recourse to the European Central Bank and a lot of funds," he said.

Iceland didn’t. As a result, comparisons between Ireland and Iceland are "overdone," he said.

Of course, there is the matter of the so-called no-bailout clause of the Maastricht Treaty, the agreement that established European economic and monetary union. The clause ostensibly prohibits fellow euro members from coming to the rescue of a member state in risk of default.

But the threat of a default would likely force fellow members to come to Ireland's aid "to keep the currency intact," Stamenkovic said.

Economist John McHale, writing on the Irish Economy blog, asserts that Ireland is "well removed from a full-blown financial crisis," despite what the credit-default-swap market is implying.

-- Tom Petruno

Photo: The Bank of Ireland's offices in Dublin. Credit: Crispin Rodwell / Bloomberg News

Better deal for Madoff clients?

NEW YORKBANCO Santander SA , Spain's biggest bank, has quietly improved a deal to compensate selected private banking clients who lost money to accused swindler Bernard Madoff, the Wall Street Journal reported on its website on Monday.

Santander in January offered to return a portion of the money lost by its clients in the purported US$50 billion (S$75 billion) fraud carried out by the New York-based investment manager.
Wegmans supermarket planned for Harford County
Wegmans Food Markets Inc., the grocer known for massive stores with gourmet offerings such as European-style cafés, patisseries and sushi, said today it will open a new supermarket in Abingdon in Harford County, creating as many as 600 jobs.

Cong not ready to concede more seats to NCP
By the looks of it, the Congress appears is in no mood to concede to the demand of its alliance partner NCP for more seats in the coming Lok Sabha elections

Top Obama adviser says auto industry's viability plan must include sacrifices by all involved

White House seeks to ease final rules on bank pay limits

Aides to President Obama suggested today that he wants to soften the curbs on bank pay that Sen. Chris Dodd inserted into the fiscal stimulus bill that Congress approved on Friday.

From the Associated Press:

Facing a stricter approach to limiting executive bonuses than it had favored, the Obama administration wants to revise that part of the stimulus package even after it becomes law, White House officials said Sunday.

While President Barack Obama plans to sign the $787-billion stimulus bill in Denver on Tuesday, his administration will seek changes in the government's approach to executive compensation, senior Obama adviser David Axelrod said.

"We all have the same goal. We all have the same sentiment. And we want to do something that's workable, and we'll work with them to get to that point," Axelrod said on "Fox News Sunday."

Obama press secretary Robert Gibbs, appearing on CBS's "Face the Nation," also said the administration would seek to "strike the right balance" on the compensation question by discussing changes in the provisions with House and Senate members. Asked if Obama would enforce the bill and was satisfied with it, Gibbs replied, "We will sign this bill into law on Tuesday."

Dodd's provision stunned the financial-services industry because the Connecticut Democrat made pay restrictions retroactive for banks that have already received government capital. Obama favored curbs only on lenders getting new aid.

But the industry's biggest beef is with the bonus limits that Dodd set. If Obama signs the bill as it's now written, annual bonuses for the highest-paid bank and brokerage executives would be limited to a maximum of one-third of their compensation, and must be paid in company stock that could be cashed in only after the bank has repaid government capital.

Wall Street fears that will drive some talent, such as top traders who count on huge bonus payouts each year, out of banks and brokerages and into hedge funds or other financial firms that haven't gotten government aid.

But Rep. Barney Frank (D-Mass.) and Sen. Richard Shelby (R-Ala.) both said today the pay rules should be enforced as is.

From the :

"Mr. Gibbs may not like it, but it is going to be enforced," Rep. Barney Frank, chairman of the House Financial Services Committee, said on CBS. "This is not an option. This is not, frankly, the Bush administration, where they're going to issue a signing statement and refuse to enforce it. They will enforce it."

Sen. Richard Shelby, the ranking Republican on the Senate Banking, Housing and Urban Affairs Committee, said the compensation provisions were necessary to protect taxpayer money. Of Gibbs' comments about the provisions and their enforcement, he told CBS, "It seemed to me that he was waffling a little bit."

-- Tom Petruno

Tokyo stocks open lower

TOKYOJANESE share prices opened down 0.60 per cent on Monday after the government said the world's second largest economy suffered the worst contraction in almost 35 years in the last quarter of 2008.
Top Obama adviser says auto industry's viability plan must include sacrifices by all involved
WASHINGTON — President Barack Obama's senior adviser said Sunday that any plan to shore up the auto industry will need to require sacrifice by all involved, from auto workers and industry executives to shareholders and creditors.

Don't give alcohol to alcoholic, Menon to tell Holbrooke
US special envoy Richard Holbrooke's 'listening' visit to India, which takes place immediately after Pakistan's admission on terrorism, is being viewed as an important event by the Indian establishment.

Late fix in stimulus bill imposes tighter limits on bank pay

The economic stimulus bill passed by the Senate on Friday includes curbs on executive pay that go well beyond what Wall Street had been expecting.

Sen. Christopher Dodd (D-Conn.), the chairman of the Senate Banking Committee, slipped the provisions into the bill late in the process. The entire stimulus package now heads to President Obama for his signature.

From the Washington Post:

The bill limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid.

Unlike compensation rules the White House had previously issued for executives of companies getting additional government capital, Dodd made his measure retroactive, the Post said:

The limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.

"This is a big deal. This is a problem," said Scott Talbott, chief lobbyist for the nation's largest financial services firms. "It undermines the current incentive structure."

Talbott said banking executives expected certain restrictions would be applied to them but are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.

Dodd’s move could backfire if it fuels another exodus of investors from battered bank stocks, which could weaken the institutions and force some to appeal for new government help.

The KBW index of 24 major bank shares plunged 14% this week to close at 26.11 on Friday, just above the 14-year low of 25.34 reached on Jan. 20. The index has dived 41% this year.

In a statement, Dodd said he was "delighted that my amendment to impose tough new limits on huge bonuses for executives working in firms that receive taxpayer funds will be included in the final economic recovery bill.

"The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy.  American taxpayers deserve better. With vigorous oversight by the Treasury Department and by Congress, these tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”

-- Tom Petruno

Photo: Sen. Chris Dodd. Credit: Matthew Cavanaugh / EPA

China grants Jamaica $178m

SAN JUAN (Puerto Rico)CHINA has pledged to grant Jamaica US$118 million (S$178 million) in loans to boost trade, farming and growth amid the global economic downturn.

China's Vice-president Xi Jinping says US$100 million in credit will help finance the island's trade, much of which is with China, while US$1.1 million will help Jamaican farmers buy equipment.
More people putting off retirement
H ave you decided to postpone retirement because of the economy or a nest egg that's been hit hard of late? You have plenty of company.

Kerala to set up life science park
State-run Kerala State Industrial Development Corp (KSIDC) will set up a state-of-the-art life science park near here, it was announced Saturday.

In a historic first, S&P 500 companies will post a net loss

A grim new data point for this recession: Companies in the Standard & Poor's 500 index are on track to post an overall net loss for the fourth quarter -- a dismal feat they’ve never before accomplished in the modern era.

With quarterly results now in for nearly 80% of the companies in the index, S&P calculates that the bottom line is showing a loss of $10.44 a share for the index as a whole.

That first-ever red ink is primarily a result of massive write-offs that many companies, particularly banks, took last quarter to try to clean up their balance sheets. So the number overstates the effect of the economy’s downturn on companies’ results.

Still, a huge write-off, even if it’s an accounting entry, is an admission of a major corporate mistake that shareholders must bear.

Excluding write-offs, the S&P 500 companies will show an overall profit for the fourth quarter. But it will be the worst number in 17 years. And that’s without adjusting for inflation.

S&P calculates that "operating" earnings for the index now stand at $5.77 a share for the quarter, down 62% from the fourth quarter of 2007 and the lowest since the fourth quarter of 1992.

The magnitude of the plunge in operating results tells you that this is no ordinary recession. The worst year-over-year decline in S&P quarterly operating earnings during the 2001 recession was 39%.

Earnings are a function of sales, and sales were disastrous last quarter as consumers and businesses closed their wallets: Total revenue for the S&P 500 firms that have reported so far was down 9.8% from a year earlier.

Stimulus package, anyone?

-- Tom Petruno

House passes $787 billion stimulus plan
Bill moves to Senate on 246-183 vote with no GOP help Bill moves to Senate on 246-183 vote with no GOP help

An NRI chef in Lancashire found dead
An NRI Chef, who recently joined one of the popular Indian restaurant in Lancashire after moving from Birmingham, had been found dead.

Baltimore Sun announces consolidation steps, cuts

Wells Fargo boosts quarterly loss on accounting change

Wells Fargo & Co. today said its fourth-quarter loss was bigger than previously reported because of a change in how it accounts for the value of certain securities it holds.

The San Francisco bank said it recorded a non-cash, pretax charge of $328 million in the quarter, boosting its reported net loss to $2.73 billion, or 84 cents a share, from $2.55 billion, or 79 cents.

Wells said it took an "other-than-temporary impairment" charge against certain so-called perpetual preferred securities in its portfolio. The charge was triggered by "credit events" that occurred after Wells announced its results Jan. 28, the bank said.

That could mean that the issuer of the preferred securities had its credit rating downgraded. Wells didn't provide additional details.

The charge just reflects a change in how Wells accounts for the securities on its books; the drop in the value of the securities had been previously recorded as "unrealized."

Still, the stock took a hit in after-hours trading, dropping to $16.25 following the announcement. Wells’ shares had fallen as low as $15.27 during regular trading, then rebounded with the rest of the market to close at $16.80, off 70 cents.

The stock has tumbled 43% year to date, reflecting some investors’ concerns that Wells will need to raise more capital to bolster its finances against rising loan losses. Wells has insisted that its balance sheet is strong.

-- Tom Petruno

"Wall Street"Not Michael Douglas, But Michael Moore

ABC News' Charles Herman reports:  Documentary filmmaker Michael Moore has tackled a range of subjects in his films, from the auto industry to Columbine to health care . Next up? Wait for it. ...  It’s Wall Street!   

Moore, known as much for his baseball cap as for his trenchant and at times controversial documentaries, is beseeching workers on Wall Street to “come forward and share” what they know on his web site. 

“I am humbly asking you for a moment of courage, to be a hero and help me expose the biggest swindle in American history,” he writes, before turning  to patriotism. “The important thing here is for you to step up as an American and do your duty of shedding some light on this financial collapse.”

During a hearing on Capitol Hill Wednesday in which CEOs from eight of the largest banks were grilled about how they are using billions of taxpayer dollars, John Stumpf, president and CEO of Wells Fargo, said, “We're Americans first and bankers second.”

Highly doubtful he’ll “spill the beans” to Moore.

Baltimore Sun announces consolidation steps, cuts
The Baltimore Sun will move its suburban bureau employees to its downtown Baltimore office and also plans to reduce its staff again, a union leader says.

Sene campaign a blessing in disguise for B’lore pubs
While the country is frowning at the campaign against ‘pub culture’ and Valentine’s Day by some Hindu rightwing groups, Bangalore pub owners are laughing from ear to ear.

One Republican's economic fix: Higher taxes, more controls

As long as we're all feeling the pain of the financial-system crash and the deep recession, let's double up on the misery factor by making some hard national choices, says Charles Munger, the longtime business partner of Warren Buffett.

In an op-ed article in the Washington Post today, the 85-year-old Munger -- a billionaire Republican -- argues for raising taxes to help fund the economic-stimulus tab so that the budget deficit doesn’t blow out further.

He also wants to impose new regulations on the financial system to restore some sense of "morality and prudence."

"A key question: Should we opt for even more pain now to gain a better future?" Munger asks. "For instance, should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes."

Clearly, he hasn’t been talking to Rush Limbaugh.

As for "new controls" (a.k.a. re-regulation), Munger takes aim at the credit-default-swap market, which allows speculators to bet that a company or municipality will default on its bond debt.

Munger writes:

This system, in which completely unrelated entities bet trillions with virtually no regulation, created two things: a gambling facility that mimicked the 1920s "bucket shops" wherein bookie-customer types could bet on security prices, instead of horse races, with almost no one owning any securities; and, second, a large group of entities that had an intense desire that certain companies should fail. Croupier types pushed this system, assisted by academics who should have known better. Unfortunately, they convinced regulators that denizens of our financial system would use the new speculative opportunities without causing more harm than benefit.

As for raising taxes, Munger invokes the example of the U.S. Marshall Plan, which helped rebuild Europe after World War II.

Just as Congress reached a consensus on the Marshall plan out of "moral duty, supplemented by prudential considerations," Munger asserts that "the modern form of this duty would demand at least some increase in conventional taxes or the imposition of some new consumption taxes. In so doing, the needed and cheering economic message, ‘We will do what it takes,’ would get a corollary: ‘and without unacceptably devaluing our money’ " by driving the federal deficit ever higher.

And raise taxes on whom? Hedge fund managers would be a good place to start, Munger suggests.

-- Tom Petruno

Photo: Charles Munger at the USC Gould School of Law in 2007; he was delivering the commencement address. Credit: Stephen Osman / Los Angeles Times

Nikkei opens lower

TOKYOJANESE share prices opened lower on Thursday, with the benchmark Nikkei-225 index falling 103.41 points, or 1.30 per cent, to 7,842.53 in the first minute of trading.
PSC orders Md. utilities to account for energy rate spike
State energy regulators have launched a review into why Maryland residents are receiving higher-than-usual utility bills this winter.

VS refuses to say Balanandan letter on Lavalin was fabricated
That the days when CPM leaders quivered when its central leadership send a directive were over was once again evident when Kerala chief minister V S Achuthanandan refused to buy the polit bureau line that the late veteran Marxist E Balanandan was not opposed to the deal with Canadian firm SNC Lavalin.

Would your bank pass the Treasury's new 'stress test'?

Would your bank pass the Treasury's new 'stress test'?

The Obama administration plans to create a "stress test" for big banks as part of the new financial-system rescue plan.

That might have contributed today to the vicious sell-off in financial shares, which once again led the stock market lower. Some investors may have had visions of their bank keeling over during the stress test, much like a terribly out-of-shape person collapsing on a treadmill.

An index of 24 major bank stocks dived nearly 14% today, although it held above its lows of last week. Bank of America Corp. slumped 19% to $5.56, Wells Fargo & Co. tumbled 14% to $16.35 and Citigroup plunged 15% to $3.35.

Here’s how the Treasury’s fact sheet on the new rescue plan describes the stress test:

"A key component of the Capital Assistance Program is a forward-looking comprehensive 'stress test' that requires an assessment of whether major financial institutions have the capital necessary to continue lending and to absorb the potential losses that could result from a more severe decline in the economy than projected.

"All banking institutions with assets in excess of $100 billion will be required to participate in the coordinated supervisory review and comprehensive stress test."

What happens if a bank fails the stress test? In a briefing for the press after Treasury Secretary Timothy Geithner's speech, officials suggested that the test wouldn't be "pass or fail," but a question of what level of capital was adequate. The Treasury fact sheet said that a bank that has undergone a stress test "will have access to a Treasury-provided capital buffer to help absorb losses and serve as a bridge to receiving increased private capital."

But that raises the specter of greater government ownership of the big banks -- creeping nationalization -- if they are basically forced to take more taxpayer capital to bolster their balance sheets against further loan losses.

"People think 'nationalization,' and that scared them" on Wall Street, said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.

Just in the last two weeks, banking giants including Bank of America and Wells Fargo have assured shareholders that they had no plans to ask for additional government funds.

Now they might have to add, ". . . assuming we pass the stress test."

-- Tom Petruno

Photo credit: Stephen Osman / Los Angeles Times

TARP, RIP

ABC News' Betsy Stark reports: Today the Obama administration unveils the financial stability plan, leg  No. 2 of the three-legged stool  the president says  he is building to rescue the economy.

Leg  No.  1 is the stimulus plan working its way through Congress. Leg  No. 3 is a plan to stabilize the housing market, TBA. The goals here are daunting:  to "fix" the nation's banks and to unfreeze the nation's credit markets.

As Treasury Secretary Timothy Geithner is expected to say today, and as Obama has said before, the economy cannot function with dysfunctional banks and credit markets.

This is both an overhaul and an expansion of the Bush administration's TARP, which was successful at preventing the wholesale collapse of the financial system but has been criticized for its ad hoc approach, its failure to revive lending to businesses and consumers and for an embarrassing lack of accountability of how the taxpayers' money was spent.

Here are some fuller explanations of the key features:

1. STRESS TEST for Participating Banks:  The administration plans to evaluate the financial health of banks the taxpayer is supporting.  How much cash do they have?  How many toxic assets do they hold?  How many performing and nonperforming loans?

2. MORE CITAL INJECTIONS : Money will be available to those banks whose balance sheets need more cushion to continue lending to their customers.

3. EXPANDED ROLE FOR FEDERAL RESERVE SYSTEM:  As private investors have disappeared from the credit markets, the Federal Reserve has attempted to flood these markets with liquidity by using its  ability to "print money" as the nation's lender of last resort.  The Fed will get more seed money from the remaining TARP funds, which it can leverage into a far greater amount. It will then use that money to try to restart the purchase of loans that are backed by assets ranging from cars to credit cards to student loans to commercial real estate.  These "asset-backed" loan markets are critical and they are largely frozen.

4. ‘BAD BANK’ : This idea goes back to the original intent of the Bush TARP  program -- to use the bailout money to buy toxic assets from banks in order to cleanse their balance sheets and restore public confidence in their health.  But the Obama administration hopes to limit the taxpayers' exposure to these risky assets by making the purchase of these assets a partnership with the private sector.  The devil will be in the details here.  How do you price these assets that no one wants to buy?  How do you incentivize the private sector to participate?

5. HELP FOR HOMEOWNERS:  Using TARP money to help prevent foreclosures was only a vague requirement in the TARP program.  The quid pro quo will now be more explicit:  If a bank wants help from the federal government, it has to help homeowners.  The new administration will try to come up with some "national" rules for loan modifications and is expected to advocate to allow bankruptcy court judges to alter terms. 

6. TRANSPARENCY:  We should all be able to view the results of these efforts on a Web site the Treasury Department plans to set up to monitor how banks are using taxpayer funds.

Nike may cut 4% of jobs

NEW YORKNIKE Inc, the world's largest athletic shoe and clothing maker, said on Tuesday it could cut up to four percent of its workforce to reduce costs as it restructures its business.

Up to 1,400 jobs out of about 35,000 globally could be cut.
Senate passes recovery plan for economy
Talks with House on slightly different version of $838 billion bill next step Vote of 61-37 sets up negotiations with House on slightly different version of $838 billion bill

Satyam fraud: Singapore expresses faith in Indian government
The Indian government seems to have allayed fears about Satyam in the international community, at least for now.

British Jan retail sales jump

Wanted: Private buyers for toxic assets. See Uncle Sam

To rid banks of their toxic loans, the Obama administration apparently wants to rely on purchases of those assets by private investors -- but with the government’s help.

Whether those investors will step up will depend on how favorable Uncle Sam makes the terms. And the better for them, conceivably, the worse for taxpayers.

Treasury Secretary Timothy Geithner is set Tuesday to announce the administration’s plans for Phase 2 of the financial system bailout.

The White House had been looking at creating a government-run "bad bank" to vacuum up toxic assets. But that apparently has been judged to be too expensive, at least in terms of initial outlays.

So a central element of the new plan reportedly calls for the government to offer some level of guarantee to hedge funds, private equity firms and other investors that agree to buy troubled assets from banks. For example, the Treasury could put a floor under the assets, ensuring that investors’ losses couldn’t exceed a set amount.

Purchases by private investors could help banks dispose of rotting loans that have long clogged their balance sheets, freeing them up to attract fresh capital, boost lending and spur the economy.

The administration's concept "is pretty attractive," said Steven Persky, chief executive of Dalton Investments, a West Los Angeles-based hedge fund firm that launched a fund focusing on distressed residential-mortgage securities last summer.

"If they’re doing things like guaranteeing a floor or providing very cheap non-recourse financing, that will be very effective in terms of [coaxing investors into] buying securities and starting to unfreeze the system," Persky said.

The success of the new plan will rest in part on whether on the government can persuade investors that it will stick with the idea, and won’t switch gears as it has with other bailout efforts since last fall.

"What’s necessary is a sense that the rules are going to be reasonably constant," said Tad Rivelle, chief investment officer at Metropolitan West Asset Management in L.A.

What’s unclear is how much this plan might ultimately cost the government, and therefore taxpayers.

A key risk is that the plan could help a relative handful of private investors pick up appealing assets at favorably cheap prices, while leaving the government with all the dreck "and taxpayers with all the losses," said Julia Whitehead, president of Whitehead Miller Advisors Inc.

-- Walter Hamilton

Photo credit: Reed Saxon/Associated Press

SEC Enforcer Leaves Agency After 14 Years

ABC News’ Matthew Jaffe reports: As the Securities and Exchange Commission continues to come under fire for failing to stop Bernie Madoff's alleged $50 billion Ponzi scheme, the leader of the agency's enforcement division is leaving her post to return to the private sector.

The SEC announced today that Linda Chatman Thomsen, the director of the Division of Enforcement, is leaving after 14 years at the agency.

The SEC has been hit by an avalanche of criticism in recent weeks from people who say it failed to adequately protect investors from Madoff's alleged Ponzi scheme. Just last week, a whistleblower and lawmakers alike blasted agency officials at a congressional hearing.

"You couldn't find your backside with two hands if the lights were on," Rep. Gary Ackerman, D-N.Y., told SEC officials.

But today, the new head of the SEC had nothing but praise for Thomsen, saying she led a historic period of SEC law enforcement and noting that, in the last two years, the agency has brought the second- and third-highest number of enforcement actions in its history.

"Linda's achievements have been nothing short of extraordinary, even heroic, in an era of unprecedented challenges in our securities markets," SEC chairwoman Mary Schapiro said in a statement. "Linda has distinguished herself in public service through her keen intellect, profound understanding of our securities laws, and relentless pursuit of wrongdoers. While Linda's wisdom, judgment, integrity, and humor will be sorely missed by all of her colleagues, the agency and the investors we serve will always be grateful for Linda's service."

Thomsen had been at the SEC since 1995. She called her time at the SEC "an extraordinary privilege."

"For nearly 14 years, I have been surrounded by smart, hardworking, creative, wonderful colleagues who have been devoted to public service, this agency, and its essential mission of investor protection," Thomsen said. "There is no higher honor than to serve the public and I am grateful to have had the opportunity to do so during my time at the commission."

British Jan retail sales jump

LONDONBRITAIN'S retailers saw a surprise rise in sales in January as higher food prices and strong demand during New Year sales helped drive the best performance since May, a retailing lobby group said on Tuesday.

In its monthly survey, the British Retail Consortium said like-for-like sales, which strip out new stores and space, increased by 1.1 per cent in January from the previous year. In December, they had fallen by 2.2 per cent.
ECONOMIC RECOVERY PLAN Obama calls anew for quick stimulus action
President visits Indiana ahead of first prime-time news conference tonight Read CBO breakdown, analysis of stimulus bills: House bill | Senate bill President visits Indiana ahead of first prime-time news conference tonight

BJP hopes economic slump & terror will fuel its poll rath
As the BJP wound up the three-day national executive-cum-council at Nagpur, not very far from the RSS headquarters, the broad contours of its strategy for the forthcoming Lok Sabha elections started taking shape.

Wells defends spending on employee 'recognition events'

Wells Fargo & Co. today came out swinging against critics of the bank's spending on corporate events to recognize top employees.

The company took out full-page ads in the New York Times and Washington Post to defend events held to award high achievers. One such meeting -- a trip to Las Vegas for key mortgage employees -- had been scheduled for last week, but was canceled by Wells after some in Congress said it was inappropriate spending for a bank that has received $25 billion in government funds to bolster its finances.

In the newspaper ads, headlined "The Value of Team Member Recognition," Wells CEO John Stumpf wrote that "many media stories on this subject have been deliberately misleading. These one-sided stories lead you to believe every employee recognition event is a junket, a boondoggle, a waste, or that it’s for highly paid executives. Nonsense!”

He said the events were an important way for the bank to acknowledge workers' contributions, including their efforts to fuel new lending to help lift the housing market.

“For many, it’s the only time in their lives that they’re publicly recognized and thanked for a job well done,” Stumpf wrote. “This recognition energizes them. It inspires them."

Nonetheless, San Francisco-based Wells said last week that it decided to cancel the mortgage event "in light of the current environment." The meeting had been planned for the Wynn Las Vegas hotel and resort.

The bank said it had no other recognition events planned for 2009.

Wells got $25 billion in government capital last fall as part of the Bush administration's plan to strengthen major banks and encourage them to boost lending.

Here's my modest suggestion for all banks: If you want to hold awards dinners or other get-togethers for your valued employees, do it in your headquarters city or somewhere other than a lavish resort. And in particular, avoid lavish resorts in Sin City. No matter how you try to defend it, a meeting of bankers in Las Vegas just isn't going to sit right with the public "in the current environment," to borrow Wells' phrase.

-- Tom Petruno

Photo: Wells Fargo CEO John Stumpf. Credit: Jim R. Bounds/Bloomberg News

Japan core machine orders fall

TOKYOJAN'S core private-sector machinery orders, a key gauge of corporate capital spending, fell 1.7 per cent in December from the previous month, government data showed on Monday.

That compared with a median market forecast for an 8.8 per cent decrease, and with a record drop of 16.2 per cent marked in November.
Riding out the recession: Consider calendar when buying
If you're trying to cut the budget and curb spending, you'll find some of the best bargains by working the calendar.

108 killed in deadliest-ever Australian wildfires
Number of dead stood at 108, a grim toll that rose almost by the hour as officials reached farther into the fire zone.

Grim GDP outlook for Italy

Grim GDP outlook for Italy

ROME - THE global financial crisis is taking a toll on Italy's economy, with GDP expected to fall sharply this year, while the budget deficit and debt are set to rise, the International Monetary Fund said.

In its so-called Article 4 consultations with Italian authorities, posted on its website late on Friday, the IMF confirmed its forecast of a 2.1 per cent contraction of GDP in 2009 from a 0.6 per cent fall in 2008, 'with risks tilted to the downside'.
Consumer borrowing down for third month
WASHINGTON Consumer borrowing fell for a third straight month in December, the longest stretch in 17 years, as households cut spending amid a steep recession and rising job layoffs. The Federal Reserve said yesterday that consumer borrowing dropped at an annual rate of 3.1 percent in December. The $6.6 billion decline was nearly double what analysts expected. It followed an $11 billion drop in November that was the biggest monthly plunge on records going back to 1943. The weakness in December reflected a big 7.8 percent decline in the category that includes credit card debt, and a 0.2 percent drop in the category that includes auto loans. The cutback in consumer spending, which accounts for about 70 percent of economic activity, is the major reason the overall economy, as measured by the gross domestic product, contracted at an annual rate of 3.8 percent in the final three months of last year. That was the biggest drop in the GDP since 1982. Consumer spending fell in both the third and fourth quarters last year, the first back-to-back declines since the 1990-91 recession. The three straight months of declines in consumer borrowing was the longest stretch of weakness since a seven-month plunge that ended in December 1991.
US to consult Russia on missile shield in Europe: Biden
The US will continue to work on a planned missile defence system in central Europe, but it will consult Russia, Vice President Joe Biden said Saturday.