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Calm in Crisis Won Fed Job

2009-08-26T00:15:00.000-07:00

AUGUST 26, 2009

Calm in Crisis Won Fed Job
Obama Sticks With 'Bold, Persistent' Chief, but Next Term Could Be Tense
(http://online.wsj.com/article/SB125120274221856591.html)

By JON HILSENRATH, ELIZABETH WILLIAMSON and JONATHAN WEISMAN
President Barack Obama, standing in a sweaty elementary-school gym on Martha's Vineyard, nominated Ben Bernanke for a second term as Federal Reserve chairman, the culmination of several weeks of carefully orchestrated and closely guarded discussions among the president and a handful of top advisers.

The Unmoved and Unmoving Ben Bernanke
WALL STREET CRISIS

AFP/Getty Images

Bernanke in April 2008 testifies before Congress two weeks after the Fed stepped in to avert the collapse of Bear Stearns.
MORTGAGE CRISIS

Associated Press

Bernanke waits to speak to an FDIC forum in July 2008 as clouds gather over mortgage titans Fannie Mae and Freddie Mac.
RENOMINATION ELATION

AFP/Getty Images

Bernanke appears at a news conference Tuesday after President Obama named him to a second term.
"Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic free fall," Mr. Obama said, with the Fed chairman standing at his side. His "bold, persistent experimentation has brought our economy back from the brink."

The move to offer another four-year term to the man initially appointed by Republican President George W. Bush reflected a decision by Mr. Obama, Treasury Secretary Timothy Geithner and White House Chief of Staff Rahm Emanuel that the president's oft-cited commitment to "change" didn't apply to the Fed post.

Wall Street had been anticipating the news. The stock market rose modestly, but strong consumer-confidence and home-price numbers got most of the credit. Wall Street economists enthusiastically endorsed the decision. So did several, although not all, members of the U.S. Senate, who are expected to vote to confirm the renomination before Mr. Bernanke's term expires in January.

Since succeeding Alan Greenspan as Fed chief in February 2006, Mr. Bernanke, a 55-year-old Republican, has worked closely and harmoniously both with the Bush administration and the Obama administration to fight the worst recession since World War II. The next four years may be more tense. If the economy recovers as anticipated, Mr. Bernanke is expected to move -- probably not until next year -- to raise interest rates and tighten credit to avoid inflation. History suggests that moment will arrive sooner than many elected politicians and White House advisers prefer.

Some economists say Mr. Bernanke's reappointment could bolster the Fed's independence. If Mr. Obama had opted to replace Mr. Bernanke with a closer ally, it might have been seen in financial markets as an effort to assert more control over the central bank. Moreover, with another four-year term in hand, he may feel he has a freer hand to take actions the White House and Congress don't support.

Mr. Obama will have ample opportunities in the months ahead to shape Fed policy. He has already appointed one Fed governor, Daniel Tarullo, and has an opportunity to fill two more vacancies in the months ahead. The term of Fed Vice Chairman Donald Kohn, 66, expires in June 2010, possibly freeing up a senior position at the central bank.

Inside the White House, Messrs. Obama, Geithner and Emanuel began weighing the reappointment decision early in the summer. Lawrence Summers, the head of the president's National Economic Council and widely regarded as a rival to Mr. Bernanke, subsequently joined the conversations.

"The question was always continuity and stability and keeping us headed in what everyone believed was the best direction," said one administration official.

MORE
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See what lawmakers, journalists and analysts have said about his performance.

Summers, Contender, to Stay Put Advice to Bernanke: Play to Your Strengths After Slow Start, Fed Chief Found His Groove Heard: Bernanke Risks Some Exit Wounds Fed Hearings to Focus on Regulatory Reform Deal Journal: Rating Bernanke the Deal Maker Noted: Bipartisan Tradition Is Alive Reactions: Economists | Lawmakers President Makes Safe Choice at Fed Econ: Move Is Early, Not Unprecedented See a timeline of Bernanke's Fed Career A look at previous Fed chairmen Journal Community
Vote: Did Obama make the right decision to reappoint Bernanke as Fed chairman? Discuss: How do you rate Bernanke's performance? Looking Back at Paul Volcker's Departure
Journal articles on former Fed Chief Paul Volcker's departure from the job in 1987:

Fed's Volcker Is Likely to Be Reappointed if He Wants, White House Aide Indicates (June 1, 1987)Volcker May Need an Appeal to Stay on Job (June 2, 1987)Nominee Greenspan Shares Volcker's Goals but Not Yet His Clout (June 3, 1987)Volcker's Decision to Quit Sealed at Reagan Meeting (June 3, 1987)Beefcake or Banking? The Choice Is Paul Volcker's on Leaving the Fed (July 13, 1987)Mr. Obama believed that Mr. Bernanke had restored some of the markets' lost confidence. Mr. Summers didn't object to the reappointment, which appeared increasingly likely as the economy healed. Mr. Geithner, who worked closely with Mr. Bernanke first as president of the New York Federal Reserve Bank and later as Treasury secretary, polled visiting chief executives about Mr. Bernanke, and heard mostly favorable comments.

Mr. Geithner asked Mr. Bernanke in late July if he would be interested in another term, without signaling that an offer would be made. Mr. Bernanke said he would.

About three weeks ago, Mr. Obama and his advisers reached a consensus that Mr. Bernanke should stay. They concluded there was no reason to delay the announcement. Getting the news out, they believed, would head off nervousness in financial markets. By announcing the renomination Tuesday, while he was on vacation, Mr. Obama overshadowed news of the growing dimensions of the deficit the federal government faces over the next 10 years, as well as continuing attacks on his attempts to restructure the health-care system.

Last Wednesday afternoon, Mr. Geithner invited Mr. Bernanke to the White House. He arrived at about 8 p.m. Mr. Obama praised the Fed chairman's handling of the financial crisis and asked him to serve another term, officials say. Mr. Bernanke accepted, and the two talked a little about the economy, although not in great depth. The conversation lasted about 10 or 15 minutes.

Mr. Bernanke then flew to the Federal Reserve Bank of Kansas City's annual summer conference in Jackson Hole, Wyo. On Friday, he mounted a defense of his policies and went horseback riding with Alan Blinder, an old friend and former Princeton colleague. Mr. Bernanke flew back Saturday to Washington, giving no hint of the news, and worked at his office Sunday, as he often does.

The White House alerted the media Monday night to the pending announcement. Early Tuesday morning, Mr. Bernanke flew from Andrews Air Force Base to Martha's Vineyard on a military Gulfstream 3 jet. The White House told Fed staff members that Mr. Obama would be wearing slacks and a blazer, but no tie. Mr. Bernanke dressed the same, but brought along a tie just in case. Mr. Bernanke promptly returned to Washington; Mr. Obama went to play golf.

From the moment Mr. Obama was elected, Mr. Bernanke's fate has been the subject of debate and uncertainty within the administration and in financial markets. All of the past four presidents have reappointed Fed chairmen named initially by their predecessors. In two cases -- Ronald Reagan's reappointment of Paul Volcker and Bill Clinton's reappointment of Alan Greenspan -- presidents reappointed chairmen from another party.

At first, the likelihood that Mr. Bernanke would be reappointed was diminished by the fragility of the economy and the presence in the White House of Mr. Summers, an accomplished economist and former Treasury secretary who also had a stormy tenure as president of Harvard University. Some of Mr. Bernanke's friends in academia bristled as rumors began circulating shortly after the election that Mr. Summers was considered Fed chairman in waiting.

But as the markets and economy stabilized in the spring, a reappointment of Mr. Bernanke began looking likelier, despite some congressional and public criticism of him for his role in an unpopular bailout of Wall Street. In recent appearances before congressional committees, Mr. Bernanke has met unusual hostility about the Fed-orchestrated rescue of American International Group Inc. and his role pushing Bank of America Corp. to complete its takeover of Merrill Lynch & Co.

"Consideration of Chairman Bernanke's nomination to serve a second term raises several important issues," Sen. Richard Shelby of Alabama, senior Republican on the Senate Banking Committee, said on Tuesday. "The Banking Committee should carefully examine the impact of the Fed's failures as a bank regulator, how such failures contributed to the financial crisis, and whether Chairman Bernanke's performance as the chief regulator merits his reconfirmation."

Bernanke's Challenges for the Next Four Years
1:24
President Barack Obama chose the safer path by reappointing Ben Bernanke as the head of the Federal Reserve. But WSJ's David Wessel says Mr. Bernanke has two big challenges ahead: proving his independence from the President and deciding when to tighten credit.
Bernanke Reappointment Politically Shrewd
2:04
As President Obama trumpets the turnaround in the economy, WSJ's Executive Washington Editor Gerald F. Seib says the reappointment of Federal Reserve chairman Ben Bernanke, therefore, is a politically shrewd move.
Mr. Bernanke may have helped his case for reappointment by launching an unusually high-profile public-relations campaign, ostensibly to explain and defend the Fed to the American public. He appeared on television's "60 Minutes" in March and at a town-hall meeting on public television in July.

In the two years since the onset of the global financial crisis, Mr. Bernanke's Fed has cut short-term interest rates nearly to zero, has initiated a slew of ways to bypass banks to keep credit flowing in the economy, and is on course to purchase up to $1.25 trillion in mortgage-backed securities and $300 billion in long-term U.S. Treasurys. Plotting a slow exit from these programs is among Mr. Bernanke's top priorities now. If he moves too soon, it could stall a nascent recovery; if he moves too late, he could spur inflation.

Economists believe the Fed will start to increase short-term interest rates by the middle of next year. Winding down the Fed's purchases of mortgage securities could cause mortgage rates to rise even sooner. Such rate increases could be unpopular, although the Obama administration has done nothing to suggest yet that it is unhappy with Mr. Bernanke's strategy.

Another priority of Mr. Bernanke is to keep the pressure on Congress to adopt changes to the financial-regulatory system to fix flaws revealed by the economic turmoil. Mr. Bernanke has become concerned in recent weeks that a healing economy could reduce the will of lawmakers to revamp the system. That worry came up repeatedly this past weekend at Jackson Hole in meetings among central bankers. "We may be relaxing too soon," said Stanley Fischer, governor of the Bank of Israel, who was Mr. Bernanke's thesis adviser at the Massachusetts Institute of Technology.

Journal Communitydiscuss“ Perhaps the commentary should not be why or why not Bernanke is the head of the Federal Reserve, but instead why is the Federal Reserve above our government? ”
—Ralph Morrone High on Mr. Bernanke's to-do list is developing rules to close big, failing financial institutions like Bear Stearns Cos. and Lehman Brothers Holdings Inc. outside of bankruptcy court. It has been nearly 18 months since the failure of Bear Stearns, and Congress hasn't passed legislation giving the Fed and Treasury the authority they are seeking to deal with institutions other than banks that they deem too big to fail.

Tensions over the regulatory proposals have emerged in recent weeks among the Fed, lawmakers and the White House. Mr. Bernanke has opposed a proposal by Mr. Geithner to strip the Fed of its power to oversee consumer-finance protections. Lawmakers, including Senate Banking Chairman Christopher Dodd of Connecticut, are wary of giving the Fed more power to oversee large financial institutions after some big banks, like Citigroup Inc., teetered under its oversight. Earlier this month, Mr. Geithner lashed out at other financial regulators in a private meeting for not taking a unified stance with the Treasury on overhauls.

—Deborah Solomon contributed to this article.
Write to Jon Hilsenrath at Jon.Hilsenrath@wsj.com, Elizabeth Williamson at Elizabeth.Williamson@wsj.com and Jonathan Weisman at Jonathan.Weisman@wsj.com

Printed in The Wall Street Journal, page A1

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2009-08-26T00:09:00.000-07:00

Blog ini merupakan kumpulan artikel-artikel yang saya kumpulkan sepanjang di KuLiyyah Economics & Management Sciences

2008-09-24T23:08:00.000-07:00

Bush warns of ‘long and painful recession’

By Andrew Ward in Washington
Published: September 25 2008 03:43 Last updated: September 25 2008 05:26

George W. Bush said the US was facing a “serious financial crisis” and risked a “long and painful recession” if Congress failed to pass his administration’s proposed $700bn bail-out of Wall Street.
In a televised address on Wednesday evening, the president said he had invited congressional leaders and both presidential candidates to the White House on Thursday in a bid to break the deadlock.
Barack Obama and John McCain, the rival presidential contenders, issued a joint statement urging Democrats and Republicans to work together to prevent “an economic catastrophe”. They said the Bush administration’s proposal was “flawed”, but agreed action was necessary. “This is a time to rise above politics for the good of the country,” they said.
Mr McCain sprung a surprise earlier on Wednesday by vowing to suspend campaigning and return to Washington to help broker an agreement, amid deep unease on Capitol Hill over the rescue package.
Democrats and Republicans alike have so far resisted the administration’s demands for runner-stamp approval of the deal and are pushing for amendments. The Democratic aide to a senior congressional leader told the Financial Times that legislators were inching closer to a compromise, with key House and Senate members scheduled to meet on Thursday morning to put the finishing touches on a bipartisan bill.
Nancy Pelosi, the Democratic House Speaker, said Congress was “committed to passing bipartisan legislation that will stabilise the markets, protect taxpayers, establish tough oversight, and curb excessive CEO compensation. And we will pass it soon”.
Mr Bush signalled willingness to accept changes to his proposal, including the creation of a bipartisan board to oversee implementation of the bail-out and measures to prevent “failed executives” profiting from public funds.
In his most lengthy and detailed remarks since the crisis struck, Mr Bush said the US risked slipping into “financial panic” if Congress failed to act and warned that the consequences would spread from Wall Street to Main Street. “Ultimately, our country could experience a long and painful recession,” he said.
Mr Bush voiced sympathy for those who resent the prospect of taxpayers’ money being used to prop up Wall Street and said his natural instinct was to allow bad investments to be punished. But he argued that circumstances were so serious that aggressive intervention was unavoidable. “Major sectors of America’s financial system are at risk of shutting down,” he said.
The proposals would help consumers and businesses by unfreezing the credit market and send “a signal to markets around the world that America’s financial system is back on track”, he added.
He argued that much, and perhaps all, of the $700bn committed to the bail out could be recouped by the government as the financial system returned to health. “The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal,” he said. “And when that happens, money will flow back to the Treasury as these assets are sold.”
Despite the recent “corrections” and “instances of abuse”, Mr Bush said “democratic capitalism” remained “the best system ever devised”.
The 15-minute address followed criticism of Mr Bush’s low-key role in his administration’s response to the crisis, having previously made only two, brief statements since the collapse of Lehman Brothers last week.
Hank Paulson, the Treasury secretary, has been the public face of the administration’s bail-out plans and many Democrats and Republicans are uneasy about the unchecked power granted to him by the original proposal. Congress wants tougher oversight and accountability of how public funds will be used.
Many Republicans on Capitol Hill have been waiting for Mr McCain to take a clear position on the rescue package before giving it their blessing – with some keen for him to oppose a deal that conservatives have condemned as “economic socialism”.
But the joint statement by the presidential candidates suggested Mr McCain was likely to support a compromise bill. “Now is a time to come together – Democrats and Republicans – in a spirit of cooperation for the sake of the American people,” they said. “The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.”
Copyright The Financial Times Limited 2008

2008-09-24T23:06:00.000-07:00

Venezuela signs Chinese oil deal

By Warren Bull BBC Americas analyst
President Hugo Chavez of Venezuela has signed a series of energy co-operation deals with China.
He said oil exports from Venezuela to China could rise threefold by 2012, to one million barrels a day.
Venezuela, one of the world's largest oil producers, is seeking new markets to reduce its dependency on exports to the United States.
Mr Chavez has now continued to Russia, for his third visit to Moscow within three months.
Energy co-operation
After holding talks with his Chinese counterpart Hu Jintao, the Venezuelan president told journalists in Beijing that China was a super-giant, which needed more energy, and that Venezuela was committed to help provide it.
"While the world enters an energy crisis, we are investing," said Mr Chavez.
Apart from oil exports to China, other plans include joint projects to build three oil refineries in the country capable of processing Venezuela's heavy crude oil.
As in Latin America, Mr Chavez is seeking to use his vast oil reserves to forge alliances away from Washington's influence.
Now he begins a visit to Russia, where, as with Beijing, energy co-operation is central to Venezuela's relationship.
But so too is military firepower.
In the past few years Hugo Chavez has signed arms contracts with Russia worth more than $4bn, and only last week a Russian Navy squadron left for Venezuela, where the two countries are scheduled to hold joint exercises in the coming weeks.
The US government says it is not concerned by the developments, but equally it cannot be happy about the encroachment by Russia, or China, into a region Washington has long considered its backyard.
Story from BBC NEWS:

2008-09-24T23:02:00.001-07:00

Kadar inflasi tertinggi dalam masa 27 tahun

Sep 24, 08 7:50pm

Kadar inflasi telah melonjak ke paras 8.5 peratus pada bulan Ogos - yang tertinggi dalam tempoh 27 tahun - ekoran peningkatan harga makanan dan bahan api, demikian menurut angka rasmi yang dikeluarkan hari ini."Ia tinggi sedikit daripada yang dijangkakan, tetapi Bank Negara tidak akan menaikkan kadar faedah untuk memastikan pertumbuhan," kata Wan Suhaimi Saidi, ahli ekonomi dari Kenanga Investment Bank."Ia tinggi sedikit daripada jangkaan saya. Saya jangka 8.4 peratus. Saya tidak fikir kerajaan akan menaikkan kadar faedah penting. "Ia akan dikekalkan pada kadar 3.50 peratus sehingga akhir tahun untuk menyokong pertumbuhan," katanya kepada agensi berita AFP.Jabatan Perangkaan telah menyemak semula dengan menurunkan angka inflasi bagi bulan Julai kepada 8.3 peratus. Ia sebelum ini meletakkan kadarnya pada 8.5 peratus.Menurutnya, kos makanan dan minuman bukan alkohol meningkat 11.7 peratus dalam bulan Ogos, berbanding dengan setahun yang lalu. Kadar inflasi yang tinggi sudahpun menjejaskan pengguna dan mendorong ramai rakyat Malaysia mengurangkan perbelanjaan mereka bagi makanan."Peningkatan (kadar inflasi bagi bulan Ogos) ditunjukkan dalam kumpulan-kumpulan terpilih utama, iaitu makanan dan minuman bukan alkohol," katanya dalam satu kenyataan.Data bulan Ogos menunjukkan peningkatan harga bagi kebanyakan kategori, termasuk pengangkutan yang melonjak 21.8 peratus, dan restoran dan hotel yang meningkat 6.5 peratus.Kerajaan telah menaikkan harga minyak sebanyak 41 peratus dalam bulan Jun, sebagai langkah untuk mengurangkan peningkatan kos subsidi, tetapi telah membayangkan bahawa kadar harga boleh diturunkan tidak lama lagi.Inflasi kekal tinggiSelepas mengumumkan Indeks Harga Pengguna (CPI) bagi bulan Ogos, Menteri Perdagangan Dalam Negeri dan Hal Ehwal Pengguna, Datuk Shahrir Abdul Samad berkata, beliau tidak menjangka CPI bagi bulan September akan lebih rendah."Walaupun, kesan sepenuhnya pengurangan harga petrol dalam bulan Ogos dan sekarang belum diambilkira sepenuhnya, CPI bagi bulan September mungkin tidak lebih rendah."Harga petrol yang rendah dijangka dijangka akan diimbangi oleh peningkatan perbelanjaan semasa cuti hari raya dan 30 surcaj bagi pengangkutan awam," kata Shahrir.Bagaimanapun, beliau tidak menjangka CPI telahpun sampai ke paras puncaknya.Shahrir berkata, kadar inflasi nampak telah stabil ekoran peningkatan bulan ke bulan hanya 0.2 peratus.Bagaimanapun, kadar purata inflasi bagi tahun ini dijangka di sekitar 4.8 peratus.

2008-09-24T22:29:00.000-07:00

Harga minyak turun lagi 10 sen

Sep 24, 08 2:44pm

Kerajaan hari ini mengumumkan penurunan sebanyak 10 sen lagi harga minyak berkuatkuasa esok.
Berikutan itu, harga minyak petrol jenis RON 97 kini turun kepada RM2.45 seliter manakala harga RON 92 pula turun kepada RM2.30 seliter.
Kerajaan juga mengumumkan pengurangan minyak diesel, juga sebanyak 10 sen, kepada RM2.40 seliter.
Ketika mengumumkan penurunan harga minyak tersebut, Perdana Menteri, Datuk Seri Abdullah Ahmad Badawi berkata, ia diputuskan dalam mesyuarat jemaah menteri hari ini."Keputusan ini diambil setelah mengambil kira harga purata minyak dunia untuk tempoh sebulan terakhir ini," katanya dalam satu kenyataan petang ini.Harga-harga berkenaan, tambah beliau, ditentukan dengan mengambil kira harga sebenar petrol daripada 1 September hingga 22 September lalu.Abdullah berkata, untuk tempoh sebulan terakhir ini, harga minyak dunia telah mengalami turun naik yang ketara. "Namun secara purata, ia telah menurun sedikit berbanding harga purata sebelumnya. Namun begitu, nilai ringgit berbanding dolar Amerika pula menyusut sepanjang tempoh yang sama. "Oleh itu, mengaplikasikan formula yang digunapakai oleh kerajaan dalam menentukan harga runcit sebelum ini, pengurangan sebanyak 10 sen ini merupakan nilai pengurangan maksimum yang dapat diberikan oleh Kerajaan."Pelarasan harga minyak ini juga merupakan pelarasan harga yang kedua dilakukan oleh Kerajaan setelah pelarasan pertama dilakukan pada 23 Ogos yang lalu," katanya.Sebelum ini, kerajaan telah menurunkan harga minyak sebanyak 15 sen.Sehubungan, perdana berkata, kerajaan berharap penurunan harga minyak yang berkuatkuasa esok, akan dapat meringankan beban orang ramai, terutamanya dalam menyambut hari raya Aidilfitri.

2008-09-23T21:10:00.001-07:00

Buffett's firm invests in Goldman

Berkshire Hathaway, the company owned by US investment guru Warren Buffett, has bought $5bn (£2.7bn) worth of Goldman Sachs shares.
Mr Buffett, the world's most famous investor, said Goldman was an "exceptional institution".
Hit by the crisis that has engulfed other major US financial institutions, it was forced to change its status from an investment bank this week.
Goldman Sachs said the deal would bolster its finances.
Berkshire Hathaway is buying $5bn of preferred stock bearing a 10% annual interest rate.
It could increase its holding of Goldman shares as under the terms of the deal, it has the option of buying $5bn of common stock for $115 per share at any time in the next five years.
In addition, Goldman Sachs said it was raising at least $2.5 billion in common equity in a public offering.
Goldman said it was pleased that Warren Buffett had made such a significant investment.
"We view it as a strong validation of our client franchise and future prospects," said chairman and chief executive Lloyd C. Blankfein.
"This investment will further bolster our strong capitalisation and liquidity position."

Story from BBC NEWS:

2008-09-23T21:08:00.000-07:00

Buffett to take $5bn stake in Goldman

By Henny Sender and Greg Farrell in New York
Published: September 23 2008 22:58 Last updated: September 24 2008 00:41

Goldman Sachs is to raise $7.5bn from Warren Buffett and other investors, fortifying its financial base as it begins its transition from Wall Street broker to Federal Reserve-regulated bank holding company.
Goldman said late on Tuesday that Mr Buffett’s Berkshire Hathaway had reached an agreement to buy $5bn of preferred stock in a private placement and to receive warrants enabling it to purchase another $5bn of common stock. Goldman also said it planned to sell $2.5bn in common stock through a public offer.
The deal appears to represent a change in strategy for Mr Buffett, 78, who has avoided investing in Wall Street firms since helping to rescue Salomon Brothers nearly two decades ago.
The deal seems to reward Berkshire handsomely. The preferred stock will pay a dividend of 10 per cent. Although it can be bought back by Goldman at any time, the bank would have to pay Berkshire a 10 per cent premium to do so. The warrants – which can be exercised over a five-year period – have a strike price of $115, well below Goldman’s closing price of $125.05 yesterday.
The shares rose in after-market trading – a reflection of the regard Mr Buffett enjoys in the markets. Insiders said raising money from Mr Buffett represented an endorsement during a period when cash is king on Wall Street.
The $7.5bn boost in equity comes a day after Goldman received an accelerated approval from the Federal Reserve to restructure itself as a bank holding company. The transition from pure investment bank – which could operate outside the regulatory purview of the Fed – to bank holding company was designed to allay investor concerns about the future of Goldman’s business model.
As recently as Monday, senior Goldman staffers had maintained they had no need for new equity unless the new capital helped served a strategic purpose.
Sovereign wealth funds such as the Kuwait Investment Authority have long sought a stake in Goldman. In recent days, there has also been market speculation that Industrial & Commercial Bank of China, in which Goldman has a minority stake, was considering making a reciprocal investment in Goldman.
“We are pleased that, given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs,” said Lloyd Blankfein, chief executive of Goldman . “This investment will further bolster our strong capitalisation and liquidity position.”
“Goldman Sachs is an exceptional institution,” said Mr Buffett. “It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”
Copyright The Financial Times Limited 2008

2008-09-23T21:06:00.000-07:00

AS menuju era kemuflisan?

Oleh AZNAN BAKAR(Di New York, Amerika Syarikat)
KIRA-KIRA 11 tahun lalu ketika negara-negara Asia seperti Thailand, Indonesia, Korea dan Malaysia dilanda kegawatan ekonomi, Amerika Syarikat (AS) yang merupakan pendokong sistem kapitalis menentang sebarang campur tangan kerajaan dalam membantu syarikat-syarikat yang bermasalah.
Pada AS segala-galanya perlu ditentukan oleh pasaran. Jika sesuatu ekonomi jatuh maka ia tidak boleh dihalang. Syarikat-syarikat berkepentingan nasional tidak boleh diselamatkan oleh kerajaan.
Sebaliknya biar pasaran yang menentukan termasuk membiarkan syarikat terbabit ditelan oleh gergasi luar terutama dari AS.
Ketika itu nasihat atau lebih dibaca sebagai amaran oleh AS kepada negara terbabit termasuk Malaysia ialah biar pasaran yang tentukan caranya, kerajaan jangan masuk campur.
Walaupun negara-negara itu terpaksa berhadapan dengan pelbagai kesukaran seperti kadar pengangguran yang tinggi, kemiskinan meningkat dan keadaan politik menjadi kucar kacir AS tetap bertegas mempertahankan sistem pasaran bebasnya.
Malah, negara kuasa besar itu juga dengan sewenang-wenang menggelar negara-negara terbabit sebagai muflis atau bankrap kerana terpaksa berhutang untuk mengatasi kegawatan ekonomi selain berhadapan dengan belanjawan defisit berbilion dolar.
Malaysia juga tidak terlepas, apabila ia ekonominya dikatakan sebagai bermasalah ekoran belanjawan defisit.
Tetapi hari ini di sebalik segala kebongkakan AS 11 tahun lalu, negara itu terpaksa berhadapan dengan realiti pasaran bebas yang diagung-agungkannya.
AS kini berhadapan dengan krisis kewangan antara yang terburuk dalam sejarahnya yang boleh mengheret kuasa ekonomi itu ke arah kemuflisan.
Walaupun pentadbiran Bush masih lagi mempertahankan ego kononnya ekonomi mereka masih baik, dan krisis yang membabitkan institusi kewangannya terkawal, tetapi hakikatnya ekonomi AS sedang berhadapan dengan masalah besar.
Pada hari ini syarikat-syarikat kapitalis gergasi yang menjadi kebanggaan AS dan ada antaranya berusia lebih 100 tahun tersungkur kerana pentadbiran dan pengurusan pelaburan yang tidak betul.
Firma sekuriti keempat terbesar di AS, Lehman Brothers yang pejabatnya gah tersergam di Time Square, New York kini muflis.
Sebelum itu AS terpaksa mengingkari peraturan ciptaannya sendiri apabila kerajaan mengambil alih syarikat insuransnya yang terbesar, American International Group Inc. (AIG) dengan memberikan pinjaman AS$85 bilion (RM289.9 bilion).
Krisis itu tidak berhenti begitu sahaja. Sejak dua minggu lalu kerajaan AS telah mengambil alih dua syarikat pembiaya pinjaman hartanah terbesar, Fannie Mae dan Freddie Mac. Sementara firma pelaburan terkenal Merrill Lynch telah dipaksa supaya dijual kepada Bank of America kerana diancam kemuflisan.
Kini hampir keseluruhan institusi kewangan di AS terutama yang terbabit dengan pembiayaan pembelian hartanah lumpuh dan pasaran kreditnya kini beku. Antara puncanya ialah pengurusan hutang dan pinjaman yang tidak terkawal hingga membebankan sektor kewangan negara itu.
Atas nama kepentingan rakyat dan demi memastikan rakyat AS terus mempunyai kediaman maka pentadbiran Bush telah meminta Kongres memperuntukan wang pembayar cukai sebanyak AS$700 bilion untuk membeli semua hutang dalam sektor hartanah bagi membolehkan institusi- institusi kewangan terbabit kembali bernafas dan pasaran kreditnya boleh dicairkan semula.
Peruntukan AS$700 bilion itu merupakan usaha kerajaan AS untuk menyelamat atau bailout institusi-institusi kewangannya yang nazak. Langkah itu pernah ditentang oleh AS 11 tahun lalu apabila kerajaan Malaysia mahu membantu syarikat-syarikat berkepentingan nasional menghadapi gelombang krisis ekonomi supaya ia tidak terlepas ke tangan kapitalis luar.
Jika 11 tahun lalu AS lantang menentang, tetapi hari ini itulah langkah yang diambilnya dengan alasan untuk kepentingan rakyat. Itulah alasan yang diberikan oleh Bush dalam memujuk Kongres meluluskan peruntukan AS$700 bilion itu. Sedang kerajaan Malaysia ketika melaksanakan langkah yang sama 11 tahun lalu juga demi kepentingan rakyat.
Tindakan AS itu ibarat meludah ke langit yang mana akhirnya ia jatuh ke muka sendiri. Jumlah AS$700 bilion itu merupakan angka yang cukup besar yang boleh mengheret negara kuasa besar itu ke kancah hutang yang terbesar dalam sejarahnya.
Jika sebelum ini AS melabelkan negara kecil yang berhadapan dengan beban hutang luar dan bajet defisit sebagai negara yang muflis, kini jika faktor dan kriteria itu diambil kira kuasa besar itu juga kini di ambang kemuflisan.
Pada masa kini AS mengalami belanjawan defisit kira-kira AS$3 trilion (RM2,386.98 bilion) setahun. Malah AS$700 juta yang diminta supaya diluluskan segera oleh Kongres dalam usaha untuk menyelamatkan institusi kewangannya turut menekan lagi kedudukan ekonominya secara keseluruhan.
Bersandiwara
Tetapi, sebagai kuasa besar AS tetap angkuh. Pentadbiran Bush tetap bersandiwara. Dalam keadaan ekonomi yang hampir runtuh itu, Bush tetap mendakwa kedudukan ekonomi mereka masih stabil dan mantap.
Jika bajet defisit itu diambil kira ditambah pula dengan kadar pengangguran mencecah tujuh peratus setahun dan disertai dengan krisis yang melanda institusi kewangannya kini, ekonomi AS sebenarnya cukup parah. Krisis itu ibarat meletakkan garam pada luka yang menjadikan ia lebih pedih dan berbisa.
Jika AS$700 bilion itu tidak diluluskan oleh Kongres, sektor hartanah di negara itu akan lumpuh kerana institusi terbabit tidak mampu lagi untuk memberikan pinjaman.
Untuk itu, penggubal dasar di AS kini bersengkang mata mencari penyelesaian kepada krisis itu.
Keadaan bertambah rumit apabila rakyat mempersoalkan hasrat pentadbiran Bush untuk menggunakan wang cukai mereka bagi mengambil alih hutang-hutang institusi kewangan terbabit.
Tetapi apa pilihan yang kerajaan AS ada? Yang penting sistem kewangannya perlu diselamatkan. Institusi ini perlu dipastikan dapat bergerak seperti biasa dan mampu berfungsi sewajarnya.
Caranya ialah dengan membebaskan mereka daripada hutang-hutang lapuk. Untuk itu kerajaan akan menggunakan AS$700 bilion wang rakyat untuk 'membeli' hutang-hutang tersebut.
Tetapi hakikat yang mungkin ramai tidak tahu ialah, cadangan kepada usaha menyelamat itu akan menyebabkan hutang yang ditanggung AS meningkat daripada AS$10.6 trilion (RM36.15 trilion) kepada AS$11.3 trilion (RM38.54 trilion).
Sebab itu para penganalisis menggelar usaha yang dilakukan oleh Washington itu sebagai ibu kepada segala usaha menyelamat atau mother of all bailouts dalam dunia ini.
Kebimbangan yang wujud ialah adakah AS$700 bilion (RM36.25 trilion) itu akan digunakan sewajar dan turut memberi manfaat kepada rakyat. Adakah betul jika AS$700 bilion itu diagih-agihkan pasaran kredit negara kembali cair dan institusi kewangannya pula mampu pulih.
Sebab itu, ahli-ahli Kongres pula mahukan jaminan agar peruntukan itu turut digunakan untuk membantu rakyat dengan istilah yang digunakan 'Main Street' di samping institusi kewangan gergasi di Wall Street yang hilang berbilion dolar kepada keputusan pelaburan yang dangkal.
Rancangan utama pelan menyelamat AS$700 bilion itu ialah untuk mengeluarkan hutang tidak berbayar daripada buku akaun institusi kewangan terbabit dengan harapan mereka dapat meneruskan operasi pinjaman.
Mother of all bailouts ini jika dicampur dengan kos kerajaan mengambil alih Fennie, Freddie dan AIG sebenarnya mencecah AS$1 trilio (RM3.41 trilion).
Apakah maknanya semua itu? Ia boleh ditafsirkan bahawa AS kini sedang menuju ke arah muflis kerana terpaksa menanggung hutang puluhan trilion dolar akibat pengurusan dan pelaburan oleh institusi kewangannya yang tidak cekap.
Kesimpulan ini dibuat berdasarkan kriteria yang digunakan oleh AS sendiri apabila dengan sewenang-wenang melabelkan negara kecil seperti Malaysia sebagai muflis ketika berhadapan dengan krisis kewangan.
Kini AS dikatakan sedang meninjau bantuan daripada Jepun dan China untuk membantunya.
Ia menggarapkan dua negara gergasi Asia itu dapat membeli aset dan menyuntik modal dalam institusi kewangannya supaya kembali bernafas dan seterusnya menggerakkan kembali sistem kewangannya yang hampir lumpuh.

Bahagian Rencana Utusan Malaysia 24/9/08

2008-09-17T18:40:00.000-07:00

How We Got Here: It's Housing, Stupid

by Chris Isidore
Thursday, September 18, 2008provided by

The Wall Street crisis has been caused by plunging housing prices. So despite the billions of dollars being thrown at the problem, experts say more trouble lies ahead.

The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame.

But in the end, it all comes back to one issue - housing.

Earlier this decade, it was much easier to get a mortgage. Home prices soared about 85% from 1996 through 2006 in inflation-adjusted dollars, creating a bubble.

Then the bubble popped. And the fallout isn't over yet, experts say.

In the past two weeks, the government took over Fannie Mae and Freddie Mac, Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself to Bank of America.

If all that weren't enough, the Federal Reserve announced late Tuesday night that it was loaning $85 billion to insurer American International Group.

None of this would have happened if the housing market had not imploded, leaving all these firms with staggering losses from their investments tied to mortgages.

"These institutions, which weathered all kinds of calamities before, including depressions, are being knocked out," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. "It's a testament to the significance of the problem we have here."

Thus, experts agree that there are likely to be future shocks to the financial system until the housing market finally hits bottom.

Even Treasury Secretary Henry Paulson, the administration's point man in the many rescue discussions of the past month, admits this.

"The housing correction poses the biggest risk to our economy," Paulson said the day he announced the Fannie and Freddie seizure. "Our economy and our markets will not recover until the bulk of this housing correction is behind us."

The Problem of Falling Home Prices

But because of the depth of the housing problems, it may take a long time before real estate prices head higher again. Here's why.

Home prices, while sharply off from the 2006 peaks, are still high in comparison to long-term gains in income, rents or overall prices, suggesting that they still have a way to fall, according to experts.

The reason housing is wreaking havoc even on insurers like AIG and big investment banks, who do not make mortgage loans, is that during the boom, trillions of dollars of mortgages were packaged together into securities that promised to pay investors with the proceeds of those loan payments.

Those securities paid better rates than other types of assets during the boom years. So many investors from around the globe poured as much money as they could into those securities.

Faced with this demand, lenders starting making more loans to riskier borrowers, including people who might not be able to afford their mortgage payments in the future and even many with no proof of income.

When prices were rising, this wasn't a problem. The risk of loan foreclosure or default was limited because many homeowners were able to sell their house for more than they owed and make a profit.

But once prices topped out and began falling, loan defaults and foreclosures started shooting higher as homeowners found it more difficult to sell their house. This created problems not just for subprime borrowers but even for those with good credit and income.

When foreclosures rose, the value of the various types of securities tied to mortgages started to fall, causing huge losses up and down Wall Street. It also made banks less eager to extend credit because of the risks involved.

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A Downward Spiral

This credit crunch in of itself slowed the economy, leading to job losses and more defaults, feeding a downward spiral that has been difficult to stop.

"A really bad situation -- a home price bubble bursting -- was made significantly worse when the recession began," said Achuthan. "Now we have to let this thing play out."

Some experts even argue that the steps being taken to rescue firms like AIG could make a recovery in housing and the broader economy more difficult, as financial firms and investors become more reluctant to lend money.

"We are certainly taking credit and squeezing it tighter and tighter," said Kevin Giddis, managing director of investment bank Morgan Keegan. "Housing needs buyers. Buyers need credit."

Achuthan said that even though rates for mortgages and other types of loans have fallen in the last two weeks, those loans are becoming more difficult for many consumers and businesses to get because banks are severely tightening their lending standards.

And if housing prices do fall further, that will only cause more losses in the financial sector and perhaps more failures of banks, insurers and securities firms.

"I would hesitate to say the worst is behind us," Achuthan said.

So even with perhaps hundreds of billions of tax dollars going to AIG, Fannie and Freddie, one expert said the only real solution to the housing problem is for the correction in housing to finish running its course.

"We want home prices to return to normal," said Barry Ritholtz, CEO of Fusion IQ and author of the upcoming book "Bailout Nation."

"Until that happens, you can throw as much money at the market as you want at the situation....and it ain't going to make any difference," Ritholtz said.

Wall Street in turmoil

2008-09-15T03:42:00.000-07:00

Wall Street in turmoil

By Francesco Guerrera in London, Krishna Guha in Washington and Greg Farrell in New York
Published: September 14 2008 23:48 Last updated: September 15 2008 10:24
Wall Street was in turmoil on Monday after Lehman Brothers said it would file for bankruptcy protection and Merrill Lynch agreed a $50bn takeover by Bank of America.
BofA’s bold bid for Merrill came as the world’s top banks abandoned efforts to save Lehman and set out to build a firewall against further financial chaos with a $70bn liquidity pool to support other vulnerable institutions.
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The moves capped a weekend of high drama that could lead to one of the most radical reshapings in Wall Street history and set the scene for a volatile day on global capital markets.
The Federal Reserve said it was making it easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral. The Fed meets to decide on interest rates on Tuesday.
It widened the set of assets eligible as collateral for loans of Treasuries to include all investment grade paper, and raised the size of these Treasury loans to $200bn.
The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries.
The weekend’s dramatic events undermined confidence in financial stocks across Europe. Banks and insurance companies were the heaviest fallers on Monday while gold prices jumped higher as investors sought the safety of the precious metal.
The Markit iTraxx Crossover index, which measures the cost of insuring European junk-rated credit derivatives, widened 17 per cent on Monday to 640 basis points as the likelihood of defaults was perceived to be higher.
Monday’s market reaction will be closely watched by regulators and banking executives to gauge investor sentiment towards the credit crunch that has wreaked havoc on the financial sector for more than a year.
BofA’s rapid U-turn, which saw it abandon talks to buy Lehman and move to Merrill in the space of a few hours, will throw the spotlight on Morgan Stanley and Goldman Sachs. The two could soon become the only independent investment banks in the US.
Merrill’s board voted on Sunday night to approve BofA’s takeover all-stock bid, which was pitched at $29 a share. That is a premium of 70 per cent on Friday’s closing price of $17.05. Merrill’s shares have fallen nearly 70 per cent this year.
The sudden and dramatic turn of events came at the end of a weekend which saw top Wall Street executives locked in increasingly desperate talks over the future of Lehman and the state of the financial sector with Hank Paulson, US Treasury secretary, and Tim Geithner, president of the New York Federal Reserve.
However, bankers familiar with the talks said a rescue plan for Lehman had been seriously undermined after suitors Barclays of the UK and BofA, had walked away. Barclays pulled out in the afternoon after the US government refused to provide a guarantee to enable Lehman to continue trading until a deal had been completed.
Lehman, a 158-year-old firm that is one of the biggest names on Wall Street, said during the New York night that it would file for bankruptcy.
The filing is likely to cause thousands of job losses among Lehman’s 25,000-strong staff. On Sunday night a number of employees were seen leaving Lehman’s Manhattan headquarters with boxes stacked with their possessions, stationery and even some paintings.
In a separate move, regulators had prepared the ground for a Lehman bankruptcy by asking its derivatives counterparties to settle trades between themselves in a special trading session in the afternoon.
Merrill’s decision to enter talks with BofA, which has long coveted its rival’s large retail brokerage business, came after it became apparent that Lehman’s woes could spread to the rest of the investment banking sector in the coming weeks.
John Thain, Merrill's chief executive, who was attending the Lehman crisis talks, approached some rivals asking them whether they would be interested in bidding for his firm, according to people close to the situation.
Morgan Stanley, BofA and some foreign banks were contacted but many of them declined to pursue the talks because they had insufficient time to pore over Merrill’s complex trading books, they added. Merrill, Morgan Stanley and BofA declined to comment.
A takeover of Merrill would be a victory for Ken Lewis, BofA’s chief executive, who has long wanted to combine the lender’s commercial banking operations with Merrill’s army of retail brokers.
However, a deal could saddle BofA with more troubled assets. The bank bought the stricken mortgage-lender Countrywide and a purchase of Merrill would force it to clean up the bank’s trading books, which have already cost Merrill some $52bn in writedowns and credit losses.
Mr Thain, the former Goldman Sachs executive and former head of the New York Stock Exchange who joined Merrill last year after the departure of Stan O’Neal, is almost certain to leave the firm if the BofA takeover goes through.
He is a fervent supporter of John McCain, the Republican presidential candidate, and some experts expect him to seek a political career.
Copyright The Financial Times Limited 2008

Oil Falls Below $97 as Ike Spares Refineries, Lehman Collapses

2008-09-15T03:41:00.001-07:00

Oil Falls Below $97 as Ike Spares Refineries, Lehman Collapses

By Grant Smith
Sept. 15 (Bloomberg) -- Crude oil fell below $97 a barrel to the lowest in seven months as refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike and Lehman Brothers Holdings Inc. filed for bankruptcy.
Refiners reported no major damage after Ike struck the Houston area, home to more than 20 percent of U.S. refining capacity, and said preparations are under way to restart plants. Investment bank Lehman Brothers Holdings Inc. filed for bankruptcy, raising concern a worsening credit crisis will slow the economy and cut fuel demand. ICE Futures, the exchange for Brent oil, suspended Lehman's access to the exchange.
``The oil sector has escaped a nightmare scenario here,'' said Rob Laughlin, senior broker at MF Global Ltd. in London. ``There has been very little structural damage to onshore oil operations and I expect production to start cranking up during the week.''
Crude oil for October delivery fell as much as $4.87, or 4.8 percent, to $96.31 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since Jan. 22. The contract was at $96.80 at 10:56 a.m. in London.
Crude has declined 33 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce energy demand.
A total of 14 Texas and Louisiana refineries, with combined crude processing capacity of 3.57 million barrels a day, are shut because of Ike.
Valero Energy
Brent crude oil for October settlement fell as much as $4.74, or 4.9 percent, to $92.84 a barrel on London's ICE Futures Europe exchange. It was trading at $93.37 a barrel at 10:47 a.m. in London. Prices have tumbled 13 straight days.
Valero Energy Corp., the largest U.S. refiner, said it found ``no significant structural damage'' at three Houston-area refineries shut before the storm.
Exxon Mobil Corp. said its Baytown refinery, the largest in the U.S., has power and damage appears ``limited,'' while it is checking its Beaumont, Texas, plant, which is without power.
Royal Dutch Shell Plc said it was assessing its Texas plants and it was too early to say when they will restart.
ConocoPhillips said its Sweeny, Texas refinery has power and its condition is being assessed. LyondellBasell Industries' Houston refinery will be down for at ``least several days,'' said David Harpole, a company spokesman. Marathon Oil Corp. and Motiva Enterprises LLC said they were evaluating their plants.
Hedge Funds
Hedge-fund managers and other large speculators cut their net-long position in New York crude-oil futures in the week ended Sept. 9, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 6,336 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 7,995 contracts, or 56 percent, from a week earlier.
To contact the reporter on this story: Grant Smith in Vienna at gsmith52@bloomberg.net.

Gas Prices Climb Quickly as Refineries Remain Closed

2008-09-15T03:37:00.000-07:00

September 15, 2008
Gas Prices Climb Quickly as Refineries Remain Closed

By CLIFFORD KRAUSS
HOUSTON — Oil companies were warning motorists on Sunday that they would not be able to produce adequate supplies of gasoline in the days ahead because so many of their refineries were still not operating in the aftermath of Hurricane Ike. As a result, prices at the pump began soaring again.
Already in the last two days the average price for a gallon of gasoline has increased to nearly $3.80 from $3.68, according to AAA, a jump that has been rare since the oil price spikes of the 1970s and 1980s. Drivers throughout the South and Midwest, which depend on Gulf refineries, are reporting increases of 30 to 40 cents at some gasoline stations over the last couple of days.
The culprit is a combined blow from Hurricanes Gustav and Ike, which have shut down almost all oil and natural gas production in the Gulf of Mexico for over two weeks and thrown a wrench into refinery operations in Texas and Louisiana.
At least 14 Texas refineries, representing nearly a quarter of the nation’s refining capacity, will probably remain shut for the next week or more. Three more Louisiana refineries may be damaged from widespread flooding.
“It may not be possible for us — and other manufacturers — to maintain normal supplies in the coming days,” Chevron stated in a bleak assessment on its Web site on Sunday, warning of “severe supply disruptions in the wake of Hurricane Ike.”
The Energy Department said it would release more than 300,000 barrels of reserves from the Strategic Petroleum Reserve to refiners, and indicated that it would help to keep supplies going to refineries that were still running. But oil companies said power outages at refineries and pipelines and at hundreds of gasoline stations around the Gulf area were going to make distribution of fuel difficult for awhile.
Refiners began to send crews as early as Saturday afternoon to visit refineries along the coast after Hurricane Ike passed quickly through the area. Preliminary reports indicated that the refineries in Texas did not suffer significant flooding or other damage, but company officials said they did not want to speculate about how long it would take to resume normal operations.
It will also take time for companies to fly over and board hundreds of oil and gas platforms on the Gulf that were jostled by Hurricane Ike’s extensive wake and gusts. The United States Minerals Management Service reported that at least 10 platforms — out of 3,800 in the Gulf — had been destroyed. At least two oil drilling rigs broke loose from their moorings. There has been no estimate yet of any environmental damages.
Platforms and other production facilities around the Gulf account for about 25 percent of domestic oil production and nearly 15 percent of domestic natural gas output.
“We don’t even know when we can start the restart process, let alone how long the restart process will take,” said Bill Day, a spokesman for Valero Energy, the country’s biggest refiner. Valero has three big refineries in Houston, Port Arthur, Tex., and Texas City, Tex., that have been closed since a few days before the hurricane made landfall as a Category 2 storm Saturday morning.
Mr. Day said that crewmen had not found any serious structural damage at the three facilities, but there was no power for the Texas City and Port Arthur refineries because of a regional blackout. Meanwhile none of the three facilities have adequate fresh water supplies to generate steam because the storm surge pushed salt water through the region’s waterways.
Since most of the Houston refineries are clustered in a small area, are supplied by the same utilities and most are expected to face similar problems.
Senator Kay Bailey Hutchison, Republican of Texas, said on CBS’s “Face the Nation” on Sunday, “We are looking at another week or eight or nine days before refineries are up and going, so refined gasoline is going to be in a shortage situation because of the power outages and flooding.”
“It is going to be felt for the next week that we have gasoline shortages,” Ms. Hutchison said, “so people need to be prepared for that.”
The disruptions come as drivers were just getting used to lower gasoline prices.
Just before Hurricane Gustav hit Louisiana on the Labor Day weekend, the national average for a gallon of unleaded regular gasoline was $3.69, more than 40 cents below the highs in July. Gasoline prices had fallen sharply until the last few days mainly because oil prices have dropped since early summer by more than $40 dollars a barrel to about $100, about the level at the beginning of the year.
Crude prices on the New York Mercantile Exchange declined again on Sunday by more than 2 percent, to $99.70 a barrel a six-month low, as traders continued to view declining economic trends as more important than an active hurricane season. Declining oil prices mean that once the disruption subsides, gas prices could easily drop as quickly as they are now rising.
Hurricanes Gustav and Ike are the first major challenge to Gulf oil operations since Hurricanes Katrina and Rita of 2005, which crippled more than 100 production platforms, disrupted refinery operations and sent oil and gas prices rising for weeks.
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Lehman and Merrill to pound already bloody job market

2008-09-15T03:35:00.000-07:00

Lehman and Merrill to pound already bloody job market

Mon Sep 15, 2008 2:33am EDT
By Jonathan Spicer
NEW YORK (Reuters) - The likely disappearance of investment banks Lehman Brothers and Merrill Lynch presents a double-barreled hit to an already wounded job market, and will likely depress salaries on Wall Street.
With Lehman headed for bankruptcy and Merrill swallowed by Bank of America, two of Wall Street's four pillars have crumbled overnight.
Headhunters and consultants said the U.S. financial services sector, already suffering from a glut of unemployed talent after shedding more than 100,000 jobs this year, must now brace for up to 50,000 more.
"The resume flow will start on Monday like there's no tomorrow," said Michael Karp, chief executive at executive search and consulting firm Options Group in New York.
"This is seriously going to impact compensation this year, across the Street and all over the world as well," he said.
"The golden years of compensation in the financial services industry are over, and it doesn't help with the Bear Stearns people still looking for work."
On Sunday, eleventh-hour talks to sell Lehman failed, making bankruptcy a certainty.
At the same time, Bank of America, the second-largest U.S. bank, was wrapping up a surprise acquisition of Merrill, the world's largest brokerage, in a deal that would save Merrill from Lehman's fate.
The takeover would make Bank of America the top U.S. bank, and was likely to put 40 percent, or about 24,000 of Merrill's 60,000 non-broker employees, out of work, said Gustavo Dolfino, president at New York-based recruiting firm WhiteRock.
'BEGGARS, NOT CHOOSERS'
That, combined with Lehman's approximately 26,000 workers, will send shockwaves through the job market.
The two firms' probable disappearance would also squeeze New York City, which relies heavily on the financial services industry.
"Some of these professionals are not going to get what they usually get because they're beggars, not choosers, and they're competing with others," Dolfino said, adding there will be "a lot less money for the state and the federal government."
"We're going to ride it out, but what it truly means for the tax base is that the government will have no option than to raise taxes," he said.
Although Wall Street is not New York's biggest employer, it is the city's economic anchor. Each financial-sector worker is believed to create as many as four other New York jobs, due to their high salaries.
The year-long credit crunch has led to deficits in both the city and state budgets.
Democratic City Comptroller William Thompson said last week he was "very concerned" about the resolution of the Lehman saga, and warned it would impact New York's economy and tax revenues.
Further tremors could hit that tax base in coming months, as Lehman's undoing was expected to spark a drop in world stock markets that could push other wobbly financial companies to the brink.
The recruiters said the job losses would drive even more talent to the buy-side and to overseas countries, despite the global economic slowdown, which was spawned by the breakdown in the U.S. subprime mortgage market last year.
Karp said "hedge funds, money managers and family offices" should benefit from the job losses at Lehman and Merrill.
Dolfino pointed to the Middle East and Russia as regions hungry for U.S. financial professionals: "The demand is on the buy-side and it's international and it's opportunistic," he said.
(Reporting by Jonathan Spicer; editing by Simon Jessop)

Presidential hopefuls spell out China policy

2008-09-15T03:30:00.000-07:00

Presidential hopefuls spell out China policy

Mon Sep 15, 2008 1:54am EDT
BEIJING (Reuters) - Presidential contenders John McCain and Barack Obama both vowed to press China on trade and to work with it on climate change if elected, and Obama said he would make shifting Beijing's currency policies a priority.
Democratic candidate Obama and Republican candidate McCain laid out their views on Beijing's rising diplomatic and economic power in position papers published by the American Chamber of Commerce in China on Monday (http://www.amcham-china.org.cn).
Both senators want China to grant citizens wider rights, but stressed security, economic and environmental issues that make ties between Washington and Beijing globally important and often contentious.
The U.S. trade deficit with China hit a record $256.3 billion in 2007. "Central to any rebalancing of our economic relationship must be change in currency practices," Obama said in his policy paper.
"I will use all the diplomatic avenues available to seek a change in China's currency practices," he said.
Obama said China pegs its yuan currency at an "artificially low rate," making its exports unfairly cheap.
He has backed legislation that would define currency manipulation as an illegal subsidy so that the United States could slap duties on more Chinese goods.
In his paper, McCain accused his Democrat rival of "preying on the fears stoked by Asia's dynamism," but the Republican candidate also said "China has its obligations as well".
"(China's) commitment to open markets must include enforcement of international trade rules, protecting intellectual property, lowering manufacturing tariffs and fulfillment of its commitment to move to a market-determined currency," McCain said.
The yuan has appreciated a further 18.47 percent since it was revalued by 2.1 percent to 8.11 per dollar in July 2005, and freed from a dollar peg to float within managed bands. Now one U.S. dollar buys about 6.85 yuan.
While the Republican and Democratic candidates have sparred over energy policy, they found some common ground in vowing to bring China into firmer international commitments to control greenhouse gases stoking global warming.
The U.S. and China are the world's two biggest emitters of the main greenhouse gas, carbon dioxide, and they will play a decisive role in negotiations to forge a global climate pact to build on the Kyoto Protocol, which expires in 2012.
China has insisted that, as a developing country, it must grow first and not accept any caps until wealthier. Washington has refused to ratify the Kyoto Protocol, noting it did not impose caps on China and other big, developing economies.
"Given the environmental challenges so evident in China today, pressing on with uncontrolled emissions is in no one's interest," said McCain. The U.S. could in turn "take the lead" in spreading low-carbon technology to poorer countries.
Obama said the two nations must "develop much higher levels of cooperation without delay" to produce new means of reducing the threat from climate change.
(Reporting by Chris Buckley; Editing by Paul Tait)

AIG Seeking Capital, May Sell Units to Help Ratings (Update2)

2008-09-15T03:26:00.000-07:00

AIG Seeking Capital, May Sell Units to Help Ratings (Update2)
By Hugh Son

Sept. 15 (Bloomberg) -- American International Group Inc., the largest U.S. insurer by assets, was working on plans late yesterday to raise capital and sell units to forestall credit downgrades from hobbling the company.
AIG asked the Federal Reserve for a $40 billion bridge loan after rejecting an offer from J.C. Flowers & Co. that would have given the buyout firm an option to acquire the whole company, the New York Times said, citing an unidentified person. AIG may get access to the Fed's borrowing window in an ``extreme liquidity scare,'' Citigroup Inc. analyst Joshua Shanker said Sept. 12.
Chief Executive Officer Robert Willumstad is under pressure to raise capital after three quarterly losses totaling $18.5 billion. AIG fell 27 percent in German trading today on investor concern the New York-based insurer can't raise enough cash to withstand further writedowns from credit-default swaps, contracts AIG sold to protect fixed-income investors.
``The driving force in this is to raise capital to give them more of a cushion to stave off a downgrade,'' said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance.
Standard & Poor's said Sept. 12 it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital.
AIG slumped to $8.84 by 11:12 a.m. in Germany, after closing at $12.14 on the New York Stock Exchange on Sept. 12. The stock has fallen 79 percent this year in New York.
`The Public Good'
A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said.
``We would not be surprised to see the Federal Reserve open its borrowing window to AIG,'' Shanker said in a note to investors Sept. 12. ``The Fed could argue the action is for the public good as it protects the security of many housing loans.'' AIG has units that originate, guarantee and invest in mortgages.
AIG spokesman Nicholas Ashooh and the Fed's Michelle Smith didn't return phone calls seeking comment.
The Federal Reserve yesterday widened the collateral it accepts for loans to Wall Street bond dealers as the financial industry braced for a Lehman Brothers Holdings Inc. bankruptcy filing. The 158-year-old securities firm filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today.
``The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement released in Washington yesterday.
J.C. Flowers
The insurer was in discussions with buyout firms including KKR & Co. and J.C. Flowers to raise $20 billion in capital, said people familiar with the situation. The firms met with AIG executives in New York, said one of the people, who declined to be named because the talks were private. AIG is said to be working with advisers JPMorgan Chase & Co., Citigroup Inc. and Blackstone Group LP.
J.C. Flowers had offered $8 billion for a stake in the insurer that would have given the firm an option to buy the rest of AIG, the Times said.
The insurer may also seek $20 billion through asset sales, said a person familiar with AIG's planning.
American General Finance, AIG's consumer lender, could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc. is worth about $2.2 billion, based on the Sept. 12 share price.
Dinallo, Paterson
Bank of America Corp. analyst Alain Karaoglan said Willumstad, 63, should reconsider the decision to keep its aircraft-leasing unit, International Lease Finance Corp. which could sell for $7 billion to $14 billion.
The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said Aug. 7.
New York Governor David Paterson and Insurance Superintendent Eric Dinallo have been ``very, very closely involved,'' in AIG's planning, said David Neustadt, a spokesman for Dinallo, in an interview yesterday. ``We've spent the last two days at AIG headquarters.''
AIG's former CEO and Chairman Maurice ``Hank'' Greenberg, who controls the largest stake in the insurer, wasn't involved in the company's planning this weekend and has ``repeatedly offered'' to assist the firm, said spokesman Glen Rochkind.
Greenberg, 83, saw the holdings decline by $3.1 billion last week. He controls 11 percent of AIG shares through two investment firms and personal holdings.
To contact the reporter on this story: Hugh Son in New York at hson

China Cuts 1-Year Lending Rate; Reduces Lending Curb (Update1)

2008-09-15T03:24:00.000-07:00

China Cuts 1-Year Lending Rate; Reduces Lending Curb (Update1)

By Li Yanping
Sept. 15 (Bloomberg) -- China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside after economic growth slowed and amid tumult on Wall Street.
The People's Bank of China cut the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio by 1 percentage point at some banks. The changes were in a statement on the central bank's Web site today.
Cooling inflation has given the central bank more room to move, while global financial turmoil adds to the risk of bigger slowdowns in China's export markets. Policy makers want to protect jobs and prevent a slump in the world's fourth-biggest economy after four quarters of slowing growth.
``This is the first tangible sign of a move to a pro-growth stance by the Chinese government,'' said Mark Tan, who helps oversee about $3 billion in Asian equities at UOB Asset Management in Singapore.
The central bank pushed the reserve requirement to a record 17.5 percent in June. The nation's largest banks were excluded from the cut. The requirement for smaller banks drops by 1 percentage point from Sept. 25. For lenders in earthquake- affected areas, the reduction is 2 percentage points.
-- With reporting by Chua Kong Ho in Shanghai. Editors: Paul Panckhurst, Michael Dwyer
To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net

Zimbabwe rivals in historic pact

2008-09-15T03:18:00.000-07:00

Zimbabwe rivals in historic pact

Zimbabwe's President Robert Mugabe has signed a historic power-sharing deal with his long-time rival, opposition leader, Morgan Tsvangirai.
The two smiled and shook hands at the ceremony in the capital, Harare, attended by African dignitaries.
Mr Tsvangirai said the agreement provided the best hope for Zimbabwe and called on President Mugabe to work together to implement the deal.
Details are still emerging of how exactly power will be shared.
Mr Mugabe, MDC leader Morgan Tsvangirai and Arthur Mutambara - leader of a breakaway MDC faction - signed the agreement in front of some 3,000 invited guests in Zimbabwe's International Conference Centre.
REPORTED DEAL Robert Mugabe:
President
Heads armed forces
Chairs cabinet
Zanu-PF has 15 ministers Morgan Tsvangirai:
Prime minister
Chairs council of ministers
Controls police force
MDC has 16 ministers - 3 from smaller faction
The signatories were introduced in the terms used in the agreement; Robert Mugabe as president, and Mr Tsvangirai as prime minister.
To rapturous applause, the leaders shook hands after exchanging signed copies of the accord.
Mr Tsvangirai said the agreement was a "product of painful compromises" and that it did not provide "an instant cure" to the fortunes of Zimbabwe.
"I've signed this agreement because I believe it represents the best opportunity for us to build a peaceful and prosperous democratic Zimbabwe," he said.
He said his hope for the future was stronger than the grief felt for "the needless suffering of the past years".
He called for the support of the international community and African neighbours in helping to rebuild the country - healthcare, education and economy.
The new deputy prime minister, Mr Mutambara, said the compromise agreement was a victory for Zimbabwe.
"This is a victory of Zimbabweans saying to each other there is more that brings us together than that which divides us," he said.
The BBC's George Alagiah in Harare says that the mood among ordinary Zimbabweans is one of relief rather than outright jubilation; people just want to get on with their lives.
'Highly polarised'
Negotiations started at the end of July, but stalled over the allocation of executive power between Mr Mugabe and Mr Tsvangirai.
The breakthrough came late on Thursday after months of difficult negotiations mediated by South African President Thabo Mbeki.
Details of the agreement were expected to be made public on Monday.
HAVE YOUR SAY Let's just say the deal is a step in the right direction GS, Harare
As prime minister, Mr Tsvangirai is expected to chair a council of ministers which is responsible for the day-to-day managing of the country's affairs.
According to the leaks, the MDC and another MDC faction will together have 16 ministers, while President Mugabe's Zanu-PF will have 15 ministers.
Some members have called it a climb-down, although others have said it is the best available.
David Coltart, an MP from the smaller MDC faction, said on Friday that most MDC members who are due to become ministers "have at some stage in the last nine years been brutalized on the instructions of those they will now have to work with".
The MDC accuses the army and Zanu-PF of organising a campaign of violence against opposition activists to ensure victory in the June presidential run-off.
"Zimbabwe remains highly polarised and it will take statesmanship on all sides to make this work," he said in an e-mail to his supporters.
Mr Tsvangirai and President Mugabe have not commented on the agreement.
'A new page'
The deal opens the way for international donors to help to revive Zimbabwe's collapsing economy, where inflation is at more than 11,000,000%.
The BBC's Allan Little in Johannesburg says Morgan Tsvangarai's trump card was that he alone could attract the foreign-funded reconstruction effort that Zimbabwe needs.
But he also knows that the foreign donor countries will want to see hard evidence - and soon - that power really has shifted away from Robert Mugabe, our correspondent says.
European Union foreign policy chief Javier Solana said a decision on lifting sanctions on Zimbabwean officials had been postponed until October.
Mr Solana said the EU needed to study the details of the power-sharing agreement but that he expected it to open "a new page" for Zimbabwe.
Mr Mugabe, in power since independence from Britain in 1980, won a controversial presidential run-off election in June.
He ran unopposed after Mr Tsvangirai withdrew, claiming the MDC was the target of state-sponsored violence.
In the first round of the presidential election in March, Mr Tsvangirai gained more votes than Mr Mugabe, but official results say he did not pass the 50% threshold for outright victory.

CBI latest to warn of recession

2008-09-15T03:17:00.001-07:00

CBI latest to warn of recession

The CBI has become the latest organisation to predict that the UK will fall into recession this year.
The business group estimates that the economy will shrink by 0.2% between July and September, and then by a future 0.1% from October to December.
Its report follows similar warnings from the European Commission and the British Chambers of Commerce.
An economy is generally considered to be in recession after two successive quarters of declining output.
'Twin impacts'
Although the CBI predicts two quarters of downturn, it adds that it will be a "shallow recession", and not a return to the prolonged economic woes of the early 1990s.
The UK may have entered a mild recession that will hopefully prove short lived CBI director general Richard Lambert
For 2009, the CBI predicts the UK economy will grow at a "feeble" rate of 0.3% - the worst performance since 1992.
CBI director general Richard Lambert blamed the likely recession on the sharp rise in energy and food costs this year, and the downturn in the housing market, both of which had knocked consumer sentiment.
"Over the past year our forecasts for economic growth have been shaved lower and lower as the UK economy continues to struggle with the twin impact of higher energy and commodity prices and the credit crunch," he said.
"Having experienced a rapid loss of momentum in the economy over the first half of 2008, the UK may have entered a mild recession that will hopefully prove short lived."
'Falling inflation'
The CBI added that while inflation - as measured by the government's preferred consumer price index - should hit a peak of 4.8% this quarter - it expects it to fall back "quite rapidly" over 2009 as energy and other commodity prices decline.
This will give the Bank of England the breathing space to start cutting interest rates, says the CBI, which predicts that rates will fall from the current 5% to 4% by next spring.
"As inflation falls, we should be well placed to move beyond this difficult stage in the business cycle," added Mr Lambert.
The latest official data from the Office for National Statistics (ONS) showed that the UK economy failed to grow between April and June.
The ONS has also said that UK manufacturing output fell in July for a fifth straight month.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7615207.stm

Merrill Lynch sold in $50bn deal

2008-09-15T03:14:00.000-07:00

Merrill Lynch sold in $50bn deal

Bank of America is to buy Merrill Lynch in a deal worth $50bn (£28bn) that will create a new financial giant.
The deal came amid a hectic weekend on Wall Street, with Lehman Brothers announcing that it would file for bankruptcy protection.
There were worries that Merrill would be the next bank to lose the confidence of investors as it has been hit hard by bad mortgage debt.
Merrill has written down more than $40bn of assets in the past year.
Under the terms of the deal, Bank of America will pay about $29 for each Merrill share.
While that represents a 70% premium to the closing share price on Friday, Merrill's share price stood at $50 in May and was above $90 at the start of 2007.
'Great opportunity'
"Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders," said Bank of America chairman and chief executive Ken Lewis said in a statement.
[The deal] catapults Bank of America into positions of strength in three businesses where they were weak James Ellman, Seacliff Capital
"Together, our companies are more valuable because of the synergies in our businesses."
The deal will also see three Merrill Lynch directors join the board of Bank of America.
"Merrill Lynch is a great global franchise and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world with the combination of these two firms," said John Thain, Merrill's chairman and chief executive.
The deal - which is expected to be completed in the first quarter of 2009 - has been approved by directors of both companies, but now will need the approval of shareholders and regulators.
Merrill's share price had fallen last week as Lehman Brothers undertook its ultimately unsuccessful search for a buyer.
Analysts said the combination of Bank of America and Merrill Lynch would be a good fit.
"It catapults Bank of America into positions of strength in three businesses where they were weak," said James Ellman from hedge fund Seacliff Capital.
"Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world."
Story from BBC NEWS:

Q&A: Lehman Brothers bank collapse

2008-09-15T03:11:00.000-07:00

Q&A: Lehman Brothers bank collapse

Wall Street bank Lehman Brothers has filed for chapter 11 bankruptcy protection after emergency talks to find a buyer failed.
Confidence in the 158-year-old investment bank - the fourth largest in the US - crumbled last week amid growing concerns that its large portfolio of mortgage-backed assets was worth far less than it was originally valued.
During the past year Lehman reported billion-dollar losses and saw its share price plummet more than 95%.
Why did Lehman fail?
Lehman Brothers is considered one of Wall Street's biggest dealers in fixed interest trading and was heavily invested in securities linked to the US sub-prime mortgage market.
With these investments now shunned as high risk, analysts say it was inevitable that confidence in Lehman Brothers would likely be hit - particularly after the collapse of Bear Stearns earlier this year.
In its June to August period last year, the bank said it would make write downs of $700m as it adjusted the value of its investments in residential mortgages and commercial property.
One year on this figure soared to $7.8bn, which last week resulted in Lehman reporting the largest net loss in its history. The bank also admitted that it still had $54bn of exposure to hard-to-value mortgage-backed securities.
Despite having access to cash reserves, worried investors pummelled the firm's shares last week after talks to raise billions of dollars from outside investors ran into a brick wall.
How does it affect me?
Nobody has a Lehman Brothers cheque book or current account. The company is an investment bank that specialises in big and complex deals and investments.
Despite this, Lehman's collapse will probably be felt by millions of people around the world - at least indirectly.
Most of our banks and pension funds have dealings with Lehman, or with firms like hedge funds that traded extensively with Lehman.
Unwinding Lehman's complex deals could take weeks or months. During that time the global financial system will be snarled up. Many banks won't know for sure how much they are exposed to Lehman, and will have difficulty freeing up the money in those deals.
This in turn is likely to intensify the credit crunch, with potentially dire consequences for businesses and consumers.
And the dramatic collapse of Lehman Brothers has also shaken the financial markets, with share prices slumping around the world.
Are any other firms in trouble?
Well, for starters there is Merrill Lynch, another large US investment bank. In a surprise move, Bank of America agreed on Sunday to buy Merrill Lynch.
The fear was that investors would have started a witch hunt for the next bank with heavy exposure to debt linked to mortgages, the value of which continues to tumble, and Merrill Lynch would have been the likely suspect.
The biggest worry, though, is insurance giant AIG. Reports suggest that AIG has asked the US central bank for a $40bn bridging loan.
If AIG is in trouble, it would directly affect millions of consumers and companies around the world. It would also hurt the whole financial system.
And compared to AIG, the crisis surrounding Bear Sterns and Lehman is small beer.
Why didn't the US Treasury save Lehman Brothers?
When Bear Stearns ran into trouble, the US Treasury made the terms favourable for JP Morgan Chase to buy it.
And just last week, the US government effectively nationalised Fannie Mae and Freddie Mac, which between them own or guarantee about half of the $12 trillion US mortgage market.
So already the US tax payer has been put at risk of shouldering the burden of billions of dollars of losses, and it is becoming politically less acceptable for the government to keep bailing out private companies.
By not giving UK bank Barclays a guarantee for Lehman's trading obligations as part of a deal to buy the business, analysts say the US Treasury has put a line under its willingness to use public money to rescue banks which have made wrong decisions.
Instead, government officials have focused on supporting the financial system in other ways, announcing measures to ease access to emergency credit for struggling financial companies.
How big is Lehman Brothers?
Founded in 1850 by three Jewish immigrants from Germany, Lehman Brothers has been a prominent investment bank in Wall Street for decades.
It operates at a wholesale level, dealing with governments, companies and other financial institutions, employing 25,000 people worldwide, including 5,000 in the UK.
Its core business includes buying and selling shares and fixed income assets, trading and research, investment banking, investment management and private equity.
As the crisis in financial markets has gathered momentum, it has seen its share price collapse from $82 to less than $4 - a fall of 95%.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7615974.stm

Lehman Bros files for bankruptcy

2008-09-15T03:08:00.000-07:00

Lehman Bros files for bankruptcy

The fourth-largest investment bank in the US, Lehman Brothers, has said it will file for bankruptcy protection, amid a growing global financial crisis.
Lehman had incurred losses of billions of dollars in the US mortgage market.
The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman.
Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America in a dramatic weekend of events for Wall Street.
Stock markets in Europe and Asia dropped sharply and the dollar tumbled against the euro and the yen as Lehman's failure raised fears about the strength of the global financial system.
The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence Robert Peston, BBC business editor
The FTSE 100 index of leading UK shares was down 160 points, almost 3%, at 5256.50 in early exchanges.
Wall Street is also expected to open lower in what is likely to be a tense day of trading.
The Bank of England and the European Central Bank said they were monitoring money markets and stood ready to intervene if necessary.
Talks collapse
The chance that Lehman Brothers could collapse increased sharply after the strongest potential buyers pulled out at the weekend.
Barclays and Bank of America had been in talks to rescue the bank but negotiations faltered when it became clear that the US Treasury was strongly opposed to using government money to help clinch a deal.
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Lehman Brothers employees leave their office with cardboard boxes Greg Wood, the BBC's North America business correspondent, said that police had cordoned off the bank's headquarters in New York and staff were leaving with cardboard boxes as onlookers gathered to watch the bank's demise.
"I think the whole history - 150 years of effort and hard work - that's the most saddening part for me," said one Lehman employee as she left the building.
The bank, which employs about 25,000 staff worldwide, including 5,000 in the UK, was founded in 1850 by three brothers.
'Extraordinary 24 hours'
Lehman Brothers said it intended to file for Chapter 11 bankruptcy protection, which allows a company time to reorganise and devise a plan to pay creditors over time.
FROM THE TODAY PROGRAMME
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It said that its broker-dealer division and asset management division Neuberger Berman Holdings would not be included in the filing.
The accounting firm PriceWaterhouseCoopers said the UK operations of Lehman Brothers have been placed under administration, and the business would be wound down in an orderly fashion.
Bank of America said it had agreed to buy investment bank Merrill Lynch for $50bn (£28bn), in a deal that will create the world's largest financial services company.
Three of the top five US investment banks have now fallen victim to the credit crunch. Lehman and Merrill join Bear Stearns, which was sold to JP Morgan for a knockdown price in March.
The BBC's business editor, Robert Peston, said that it had been Wall Street's most extraordinary 24 hours since the late 1920s.
He said that Merrill's sale was almost as shocking as Lehman's demise.
"The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence," he said.
Insurer in trouble
In addition to Lehman and Merrill Lynch, problems at AIG, once the world's largest insurer, are also mounting.
Reeling from losses on its exposure to real estate, AIG has sought $40bn from the Federal Reserve to shore up its finances, the New York Times has reported.
To help prevent panic on financial markets, the Federal Reserve said for the first time it will accept stocks owned by banks as collateral for short-term cash loans, broadening its emergency lending programme.
Also 10 of the world's biggest banks on Sunday agreed to establish a $70bn emergency fund, with any one of the banks able to able to tap up to a third of it should they face any liquidity problems.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7615931.stm

Bank Of America 2 buy Merill for $50billion

2008-09-15T03:07:00.000-07:00

Bank of America to buy Merrill for $50 billion

Mon Sep 15, 2008 5:29am EDT
By John Poirier and Elinor Comlay
WASHINGTON/NEW YORK (Reuters) - Bank of America Corp said it agreed to buy Merrill Lynch & Co Inc in an all-stock deal worth $50 billion, snagging the world's largest retail brokerage after one of the worst-ever weekends on Wall Street.
The deal came after tense negotiations over the fate of Lehman Brothers Holdings Inc, which triggered concern that market participants would lose faith in other investment banks. Lehman said early on Monday that it would file for Chapter 11 bankruptcy protection.
"It catapults Bank of America into positions of strength in three businesses where they were weak," said James Ellman, portfolio manager at hedge fund Seacliff Capital.
"Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world," Ellman said.
Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.
The bank is buying about $44 billion of Merrill's common shares, as well as $6 billion of options, convertibles, and restricted stock units.
Bank of America said it expects to achieve $7 billion in pretax expense savings, fully realized by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.
The price, which comes to about $29 per share, represents a 70 percent premium to Merrill's share price on Friday, although Merrill's shares were trading at $50 in May and over $90 at the beginning of January 2007.
The deal has been approved by directors of both companies. Three Merrill directors will join the Bank of America board.
Stuck with some of the same toxic debt -- much of it mortgage-related -- that torpedoed Lehman's balance sheet, Merrill has been hit hard by the credit crisis and has written down more than $40 billion over the last year.
Last month, Thain arranged to sell over $30 billion in repackaged debt securities to Dallas-based private equity firm Lone Star Funds for 22 cents on the dollar.
In spite of its exposures to complex debt securities, the bank had seen by some as undervalued, in part because of its massive brokerage business, which analysts have said is worth more than $25 billion. The brokerage is the largest in the world by assets under management and number of brokers.
Merrill also has a stake of about 45 percent in the profitable asset manager BlackRock Inc, worth more than $10 billion.
"It could be a powerful fit," said Rick Meckler, chief investment officer at LibertyView Capital Management in New York, before news of the deal emerged.
DUE DILIGENCE
Still, there are risks for BofA, which had little time to complete due diligence of Merrill's books, a particular concern given the complexity of the company's exposure to mortgage-related securities and other complex debt.
"While we view this clearly as a long-term positive for (Bank of America), the stock will likely not respond accordingly as investors near term will focus on greater systemic risk," Oppenheimer & Co analyst Meredith Whitney said in a report on Sunday.
With the brokerage and the BlackRock shares worth more than $35 billion combined, and Merrill's market capitalization at around $26 billion on Friday, investors had been ascribing a negative value to the investment bank, implying huge potential embedded losses.
But this is not the first time Bank of America has done a quick acquisition. In 2005, the bank bought credit card company MBNA after less than a week of due diligence, with Lewis saying the company was comfortable with the acquisition because it knew the people and business well.
Bank of America under Lewis has in fact become renowned for large acquisitions and it has spent over $100 billion since 2004 buying other companies.
Most recently it acquired troubled mortgage lender Countrywide Financial Corp and -- although many were skeptical about this purchase -- veteran analyst Dick Bove said last week the takeover could prove to be a master stroke by Lewis, since the government takeover of mortgage agencies Fannie Mae and Freddie Mac could fuel business for other lenders.
Bank of America was advised by JC Flowers & Co, Fox-Pitt Kelton Cochran Caronia Waller and Bank of America Securities. It was represented by Wachtell, Lipton, Rosen & Katz. Merrill Lynch was represented by Shearman & Sterling.
(Additional reporting by Paritosh Bansal and Dan Wilchins; Editing by Quentin Bryar)
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Selected News for Today

2008-09-15T02:45:00.000-07:00

Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash

Fed Will Expand Its Lending Arsenal in a Bid to Calm Markets; Moves Cap a Momentous Weekend for American Finance
By CARRICK MOLLENKAMP, SUSANNE CRAIG, SERENA NG and AARON LUCCHETTISeptember 15, 2008 4:24 a.m.

NEW YORK -- The American financial system was shaken to its core on Sunday. Lehman Brothers Holdings Inc. said it would file for bankruptcy protection, and Merrill Lynch & Co. agreed to be sold to Bank of America Corp.
It was a gut-wrenching weekend for Wall Street, with Lehman Brothers headed toward possible liquidation, Merrill Lynch about to be taken over and AIG facing shareholder wrath. WSJ's Dennis Berman and Matthew Karnitschnig look at what's ahead.
The U.S. government, which bailed out Fannie Mae and Freddie Mac a week ago and orchestrated the sale of Bear Stearns Cos. to J.P. Morgan Chase & Co. in March, played much tougher with Lehman. It refused to provide a financial backstop to potential buyers. Without such support, Barclays PLC and Bank of America, the two most interested buyers, walked away. Barclays said Monday it pulled out of the potential deal after deciding it wasn't in the best interest of shareholders.
Late Sunday night, Lehman said it intends to file for protection under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. Lehman said none of the broker-dealer subsidiaries or other subsidiaries of LBHI will be included in the Chapter 11 filing and all of the broker-dealers will continue to operate. Customers of Lehman Brothers, including customers of its wholly owned subsidiary, Neuberger Berman Holdings LLC, may continue to trade or take other actions with respect to their accounts, Lehman said.
On Sunday night, Bank of America struck an all-stock deal to buy Merrill Lynch for $29 a share, or $50 billion. (See related article.)
Though it steered clear of a bailout, the Federal Reserve is expected to take new steps to stabilize the broader financial system. These steps, expected to be temporary, would make it easier for banks and securities firms to borrow from the central bank by using a wider range of collateral. Bankers say these financial institutions might need short-term funds as they unwind their many trading positions with Lehman. (See related article.)
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The Lehman board authorized the filing of the Chapter 11 petition in order to protect its assets and maximize value, the firm said. In conjunction with the filing, Lehman intends to file a variety of first-day motions that will allow it to continue to manage operations in the ordinary course. Those motions include requests to make wage and salary payments and continue other benefits to its employees.
Lehman said it is exploring the sale of its broker-dealer operations and, as previously announced, is in advanced discussions with a number of potential purchasers to sell its Investment Management Division. Lehman said it intends to pursue those discussions as well as a number of other strategic alternatives. Neuberger Berman LLC and Lehman Brothers Asset Management will continue to conduct business as usual and will not be subject to the bankruptcy case of the parent company, and its portfolio management, research and operating functions remain intact. In addition, fully paid securities of customers of Neuberger Berman are segregated from the assets of Lehman Brothers and aren't subject to the claims of Lehman Brothers Holdings' creditors, Lehman said.
The damage on Wall Street is the latest consequence of a storm that began last year with the sharp decline in American housing prices and losses on loans and other assets tied to home values. Massive capital infusions have failed to stem write-offs and losses, and financial firms are running out of options to escape the damage.
Regulators and others were preparing for a hectic Monday. The New York Stock Exchange prepared contingency plans over the weekend to reassign the approximately 200 blue-chip stocks that Lehman's specialist unit trades, according to people familiar with the matter. If Lehman is forced into liquidation, the exchange will likely transfer the stocks to one or more of the remaining specialist firms, most likely using the same technology and staff that currently trade the stocks.
Dozens of Wall Street desks have trades with Lehman. As word spread that the Barclays deal was falling apart, worries that the company could be thrown into bankruptcy mounted, and traders labored to get out of those contracts.
At approximately 2:30 p.m., government officials hosted a call, and a trading session was opened to ease fears. One trader said it was agreed that other brokers would pick up contracts that trading desks have with Lehman. If Lehman does open on Monday, the deals struck on Sunday, often at a worse price, would be void. "It is utter chaos here," the trader said.
At many Wall Street firms, traders of credit-default swaps -- contracts that act as insurance against debt defaults -- were told to come to work immediately. Concerned investors were rushing to buy swaps tied to other brokerages and corporations, sending the cost of protection on investment banks such as Goldman Sachs and others sharply higher.
In a statement Sunday, the International Swaps and Derivatives Association, a trade group whose members include many large dealers, said a "netting trading session" took place between 2 p.m. and 6 p.m. on Sunday. The idea was to allow firms to try to unwind their derivatives transactions with Lehman by finding other parties to step into Lehman's shoes.
"The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy filing," it said. It added that trades conducted during this period "are contingent on a bankruptcy filing on or before 11:59 p.m. New York time" on Sunday. If no filing takes place, the trades will be canceled, ISDA said.
Some traders said it was difficult to find new counterparties for many of their outstanding trades with Lehman. The snags included different terms and maturity dates on derivatives contracts, and market prices changed rapidly Sunday afternoon. "People were screaming at each other over the phone, asking: How can this work?" one trader said.
William Gross, chief investment officer at bond-fund giant Pacific Investment Management Co., said very few Lehman trades were offset. "There's an immediate risk related to the unwind of these positions," he said.
Many Wall Street firms concluded that a liquidation of Lehman's assets likely would proceed in an orderly fashion, people familiar with the situation said. That means other firms could quickly buy real estate, securities and other investments, preventing the assets from flooding the market. Because of that, these people said, some participants in the New York Fed talks decided that liquidation was no worse an option than selling Lehman to a buyer such as Barclays.
"There will be an orderly wind down," said one banker involved in the matter. "This was the default option. It happens when you have no buyer."
The outside firms decided that instead of making guarantees for Barclays or some other purchaser of Lehman, they would prefer to pool their resources and buy the assets themselves, taking on the risks and carrying costs, along with the possibility of profiting down the road.
Those firms would likely then buy assets such as mortgage-backed securities, leveraged loans, private-equity positions and investments in real estate or hedge funds.
Roger Freeman, a nine-year Lehman employee who analyzes brokerage firms, spent the weekend gathering cellphone numbers and email addresses from colleagues who also are likely to lose their jobs. He plans to clean out his desk Monday morning. "We worked long hours here, we've made some of our best friends here. We're suddenly being ripped apart," he said. "It's just unbelievable."
--Jon Hilsenrath, Jeffrey McCracken and David Enrich contributed to this article.

Be on Top of The world

2008-09-14T00:19:00.000-07:00

Salam.

We as Muslim cannot deny that the power of information in this world.With a great and vast information all a round the world we may connect those relationship in giving the best protection to our society.Thus start to read and be remember that "KNOWLEDGE IS CONNECTING THE DOTS BETWEEN EACH AND ANOTHER."

Tq Allah, my family and DR.ARIF..