April 2010

Barofsky Says Criminal or Civil Charges Possible in Alleged AIG Coverup

April 28, 2010

By Richard Teitelbaum

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Housing in U.S. Shows Recovery Signs After Prices Fell to Levels of 2003

April 28, 2010

By Kathleen M. Howley April 28 (Bloomberg) — U.S. housing prices are showing signs of recovery after a slide that sent values to levels last seen in 2003 and left almost a quarter of homeowners with properties worth less than their mortgages. The S&P/Case-Shiller index of home prices in 20 cities rose 0.6 percent in February from a year earlier, the first annual gain since December 2006, the group said yesterday. The National Association of Realtors reported last week that existing-home prices advanced 0.4 percent in March as sales climbed for the first time in four months. “We’ve turned a corner with housing, though it’s hard to see any robustness,” said economist Karl Case , who with Robert Shiller created the S&P/Case-Shiller index. “Prices could fall further, but as long as mortgage rates don’t jump and employment continues to improve, we should see housing play a key role in preventing a double-dip recession.” The gains in sales and prices come as federal efforts to prop up the housing market wind down. A homebuyer tax credit adopted last year is set to expire April 30. The Federal Reserve in March ended a $1.25 trillion program to buy mortgage-backed securities that pushed the average U.S. 30-year fixed-mortgage rate to an all-time low of 4.71 percent in December. An abundance of inexpensive homes and a stabilizing job market are helping support housing demand, according to Dean Maki , chief U.S. economist for Barclays Capital in New York. The economy probably will expand 3 percent this year after a 2.4 percent contraction in 2009, according to the median forecast of economists surveyed by Bloomberg News. Consumer Confidence Rises “Affordable home prices and the improving economy are doing more to lift sales than the tax credit,” Maki said. “Consumers are becoming more confident about a major purchase such as a house.” The Conference Board’s confidence index rose to 57.9 in April, the highest since Lehman Brothers Inc. collapsed in September 2008, according to data from the New York-based private research group. The measure averaged 97 during the last expansion. Still, evidence of a real estate recovery is mixed. The February increase in the S&P/Case-Shiller index was half the 1.3 percent rate forecast by economists in a Bloomberg News survey. Single-family home prices declined in 11 of the 20 cities. The 15 percent decline in Las Vegas from a year earlier put prices back to a level not seen since 2000. After falling 6 percent, values in Tampa, Florida, are where they stood in 2003. Seattle’s 5.6 percent loss left prices at 2005’s mark. In metropolitan New York, homes are selling at 2004 prices, after a 4.1 percent decline. Boom Times A real estate boom pushed prices in the 20 cities covered by the index to a record high in July 2006 after almost doubling in six years. From there, the benchmark tumbled 33 percent to an April 2009 low that put homes at 2003 prices. Since then, it has gained 3.4 percent. The annual pace of existing home sales was a seasonally adjusted 5.35 million in March, according to the National Association of Realtors. Sales probably will reach an annualized 5.65 million in the fourth quarter, following a third-quarter retreat coinciding with the end of the tax credit, according to an April 10 forecast by Washington-based Fannie Mae, the largest mortgage financier. Homebuyers are required to have a contract signed by the end of April and complete the transaction by July 1 to qualify for the credit of up to $8,000 for first-time purchasers and as much as $6,500 for current owners. Down, Then Up “We’ll see a surge as buyers rush to close before the deadline, followed by a subsequent falloff,” said Barclays Maki. “After that dip, we expect home sales to increase for the rest of the year.” Employment is key to the housing outlook, according to Neal Soss , chief economist at Credit Suisse Holdings USA in New York. “You’ve really got to heal the fundamentals, such as the employment situation, rather than just address the symptoms with a program like the tax credit,” Soss said. “We see housing as a lagging sector for some years into the future.” The unemployment rate probably will drop to a one-year low of 9.6 percent in the current quarter from 9.7 percent at the beginning of the year, according to the average estimate of 65 economists surveyed by Bloomberg News. The rate has been above 8 percent since 2009’s first quarter, according to data from the Bureau of Labor Statistics. Housing starts climbed to an annual rate of 626,000 last month, up 1.6 percent from February, the Commerce Department said in an April 16 report. New-home sales in March soared 27 percent as buyers took advantage of the tax credit, the department said in an April 23 report. Different Recovery Residential construction and home sales led the way out of the previous seven recessions going back to 1960. That’s not happening this time, according to Federal Reserve Vice Chairman Donald Kohn . The improvement in housing came after two quarters of economic expansion. “I do not expect that the recovery in housing construction will boost growth substantially this year, in contrast to its usual pattern early in economic recoveries,” Kohn said in an April 8 speech . “A large overhang of vacant homes is likely to weigh on new construction for some time.” Foreclosures probably will dip to 1.9 million this year from 2 million in 2009, according to a forecast by Mark Zandi , chief economist at Moody’s Economy.com in West Chester, Pennsylvania. Those will add to the excess of inventory already on the market, according to Case, the co-founder of the price index. There were 3.58 million properties for sale in March, up 1.5 percent from the prior month, according to the National Association of Realtors. About 24 percent of all U.S. homes with mortgages are underwater, or worth less than their loan balances, according to First American CoreLogic Inc., a real estate data company in Santa Ana, California. “There’s some light at the end of the real estate tunnel, but there are lots of things, like inventory, in the way,” Case said. To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

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Shell Posts Higher First-Quarter Earnings on Oil Rebound, Refining Margins

April 28, 2010

By Fred Pals April 28 (Bloomberg) — Royal Dutch Shell Plc , which competes with BP Plc as Europe’s biggest oil company, posted a 57 percent increase in first-quarter profit on a rebound in crude prices and improved refining margins. Net income rose to $5.48 billion from $3.49 billion a year earlier, The Hague-based Shell said in a statement today. Excluding gains or losses from holding inventories and one-time items, profit beat analyst estimates. Chief Executive Officer Peter Voser is cutting thousands of jobs and seeking to sell refineries to close a performance gap with BP. Shell is betting on oil-sands ventures in Canada and other unconventional projects such as a gas-to-liquids plant in Qatar and coal-seam gas reserves in Australia to reverse a seven-year decline in production. “Shell can now start to show some significant projects coming on in terms of QatarGas and other projects they have around the world,” George Godber , co-fund manager of the S&W Matterley Undervalued Returns Fund, said before the earnings were released. “The important indicator that I would look for over the next 12 to 18 months is production growth.” Shell is the second of the world’s biggest oil companies to report earnings this week. BP, which is battling a 1,000-barrel- a-day leak in the Gulf of Mexico, said first-quarter profit more than doubled to $6.08 billion. Exxon Mobil Corp. , the largest U.S. oil company, is scheduled to report earnings tomorrow. Excluding one-time items and inventory changes, Shell earned $4.83 billion. That beat the $4.03 billion median estimate of 13 analysts surveyed by Bloomberg. Refining Review Shell wants to dispose of 15 percent of its refining capacity and is selling retail assets in Africa and Latin America, putting a total of 35 percent of its current retail markets under review. Voser is assessing more than 35 projects that may add 8 billion barrels of oil equivalent resources, boosting production until 2020. Shell moved a step closer to shifting the balance of its production in favor of natural gas over oil following a joint A$3.5 billion ($3.2 billion) acquisition of Arrow Energy Ltd. The deal with PetroChina Co. will give Shell access to Arrow Energy’s holdings of coal-seam gas reserves in Australia. As much as 40 percent of the company’s capital spending in the next few years has been earmarked for the Asia Pacific region. Shell, which has been adding more gas than oil to its resources since 2005, expects the share of gas as a proportion of total output to rise to 52 percent in 2012. Perdido, Iraq The Perdido oil and natural gas platform in the Gulf of Mexico has started production and Shell expects it to reach full output of more than 100,000 barrels of oil and 200 million cubic feet of natural gas. The company is in talks on a plan to capture and sell natural gas in Iraq, after winning two contracts to develop two Iraqi oil fields. Crude prices averaged $78.88 a barrel in New York in the first quarter, about 82 percent higher than $43.32 last year. Refining profit margins picked up after slipping to a 15-year low in the fourth quarter. BP’s Global Indicator Margin, a broad measure of the profitability of turning crude in to fuels, averaged $3.08 a barrel in the first quarter after $1.49 in the fourth quarter. To contact the reporter on this story: Fred Pals in Amsterdam at fpals@bloomberg.net

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Stocks Plunge, Asia Bond Risk Climbs on Greece, Portugal Default Concerns

April 28, 2010

By Patrick Chu and Shani Raja April 28 (Bloomberg) — Stocks slid worldwide for a second day and the cost to insure against bonds losses rose after credit-rating downgrades of Greece and Portugal fueled concern about sovereign defaults. The euro strengthened from a one-year low against the dollar. The MSCI Asia Pacific Index declined 1.5 percent to 125.28 at 3:17 p.m. in Tokyo after the Standard & Poor’s 500 Index lost 2.3 percent, the most since February. The cost of protecting Asian bonds from default jumped to almost a two-month high. The euro traded at $1.3185 from $1.3145 in New York trading yesterday. S&P 500 futures rose 0.2 percent and those for the Stoxx Euro 50 decreased 1 percent at 7:17 a.m. in London. Stocks, commodities and the euro tumbled, while Treasuries rallied yesterday when S&P lowered Greece’s debt rating to junk and Portugal by two steps. European Central Bank President Jean- Claude Trichet and International Monetary Fund Director Dominique Strauss-Kahn will meet German politicians in Berlin today to promote a financial rescue plan. The euro rebounded on speculation that the IMF will provide more aid to Greece. “People are panicking about the contagion effect,” said Simon Bonouvrie , who helps manage $1.7 billion at Sydney-based Platypus Asset Management. “It’s an overreaction but the risk aversion will remain until these problems are resolved.” The IMF may increase its share of financial aid to Greece by 10 billion euros ($13.2 billion) from the current 15 billion euros, the Financial Times reported today, citing unidentified bankers and officials in Washington. Greece, Portugal Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821 and Portugal rose 54 basis points to 365, according to CMA DataVision. Greek two-year note yields soared to almost 19 percent and Portugal’s jumped to 5.7 percent. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent, the biggest decline since Dec. 17, as investors sought the relative safety of U.S. government debt. All 10 industry groups fell in the MSCI Asia Pacific Index, while the MSCI World Index lost 0.5 percent, extending yesterday’s 2.1 percent decline. Japan’s Nikkei 225 Stock Average slumped 2.4 percent and Hong Kong’s Hang Seng Index sank 1.3 percent. Finance companies were the biggest drag on the Asia index, with bank stocks falling as Goldman Sachs Group Inc. were grilled by a U.S. Senate panel. HSBC Holdings Plc lost 2.1 percent to HK$79.75 in Hong Kong. Mitsubishi UFJ Financial Group Inc. dropped 1.6 percent to 501 yen. Exporters Lose Japanese exporters fell as a stronger yen threatened overseas income. The yen appreciated to 122.90 against the euro today from 125.62 at the 3 p.m. close of stock trading in Tokyo yesterday. The yen gained to 93.16 against the dollar from 93.94. Canon Inc. , the camera maker that counts Europe as its largest market, slumped 2.4 percent to 4,280 yen. Toyota Motor Corp., which gets 10 percent of its revenue in Europe, fell 1.6 percent to 3,635 yen. Billabong International Ltd. , an Australian surfwear maker that makes 23 percent of its revenue in Europe, sank 3.4 percent to A$11.40. Material producers in the MSCI Asia Pacific Index sank 1.6 percent after the London Metal Exchange Index of six industrial metals tumbled 4.6 percent, the most since June 22. Crude oil dropped to $82.44 a barrel yesterday, the lowest settlement price since April 19. Commodity Producers BHP Billiton Ltd. , the world’s No. 1 mining company, fell 2.2 percent to A$41.08, while Rio Tinto Group, the world’s third-largest mining company, declined 2.7 percent to A$74.32. Commodities trader Mitsubishi Corp. 1.7 percent to 2,262 yen. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan jumped 9 basis points to 109.5 basis points in Singapore, its highest since March 1, according to Deutsche Bank AG and CMA DataVision. The Markit iTraxx Australia index rose 9 basis points to 97, the highest since Feb. 25, according to Nomura Holdings Inc. and CMA. The Markit iTraxx Japan index jumped 8.5 basis points to 106.5, according to CMA. The jump was the biggest since Feb. 5 and puts the index on track for its highest close since April 1, according to CMA. The euro fell to the lowest against the dollar since April 29, 2009 in New York yesterday, and traded at 123.01 yen from 122.88 yen and touched 122.37 yen, the weakest since March 25. German policy makers said Greece must outline further steps to cut its budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. ‘Signs of Contagion’ “With sovereign problems showing signs of contagion, the euro is losing its allure as an alternative currency to the dollar,” said Akio Yoshino , chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc. “The currency may test the $1.30 mark sooner rather than later.” Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Japan’s bonds advanced, pushing 10-year yields to the lowest level in four months. The yield fell 2.5 basis points to 1.28 percent. S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgrade marked the first time a euro member has lost its investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. To contact the reporters for this story: Patrick Chu in Tokyo at pachu@bloomberg.net ; Shani Raja in Sydney at Sraja4Wbloomberg.net.

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Manisha Thakor : Financial Foreplay: Are You Doing It?

April 27, 2010

Time and again money is cited as one of the top causes for fights in relationships and divorce. One way to prevent wallet wars is to engage in financial foreplay. But first… some basics. What is financial foreplay? The process of getting to know your sweetie’s most intimate feelings about money. Why is it so important? As one of my favorite personal finance bloggers, April Dykman, highlights in her piece ” Do Savers Seek Out Spenders ?” academic studies show we are hardwired to be attracted to our financial opposites. There is quite literally something intoxicating about “financial otherness” in the early stages of a relationship… a feeling that can (and usually does) wear off after you walk down the isle. So as personal finance columnist Ron Lieber of The New York Times wisely points out, it’s important to identify your financial differences before you commit to debt do you part. In this spirit, here are 3 fun questions you can ask your honey about money. 1. Fill in the blank with any word except EVIL: “Money is the root of all…. ” This simple question reveal a lot about how you each think about money. Some people will say “opportunity or freedom” while others will say “fights or problems.” This is a playful way to initiate a talk about how money was (or wasn’t) discussed when you were each growing up. 2. Fill in the blank: “Rich people are… ” This is another super telling question. Some people will say “hardworking, driven” while others will say “lucky or spoiled.” This question can help you broach your feelings about saving, spending, and financial goals. Some people want to die with their spending perfectly timed to leave $0 in their pockets while others want to live off their interest and never touch their principal. 3. Scenario analysis – today you get $20 million & a diagnosis of a rare disease that will leave you dead in exactly 10 years. What will you QUIT & what will you START? The most common answers I hear are quit my job and start traveling. This question is a great way to highlight your core priorities, and make sure they are complementary. If you love your honey “only because” she is a neurosurgeon or he is an investment banker – but her/his dream is to be a yoga instructor… you may want to talk about that! Have you ever experienced financial tension in a relationship?

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Don McNay: Goldman Sachs and the Ghost of Sam Erwin

April 27, 2010

I’m holding out for a hero” -Jim Steinman The 11 hour, Congressional “hearing” concerning Goldman Sachs is over and our Congress did something that I thought was impossible. They almost made me feel sorry for the gang at Goldman Sachs. I’ve been one of Wall Street’s biggest critics and a Goldman critic in particular. Please note my recent Huffington Post column, Too Big To Jail http://www.huffingtonpost.com/don-mcnay/goldman-sachs-too-big-for_b_542160.html I was opposed to the Wall Street bailouts that were engineered by former Goldman chief, Henry “Hank” Paulson (with Ben Bernanke and Timothy Geithner, cheering him on). I’m convinced that when all of this is said and done, you are going to find a lot of dirty dealings and a lot of bad behavior on the part of Goldman. I’m also convinced this Congress is never going to find it. They are not going to find anything except a way to get their faces on television. Any stand up comic knows that a great way to draw attention is to use profanity. Thus, it is truly sad to see a Senator I used to respect (note that I am a lifelong Democrat) like Carl Levin fall for that tactic. His performance wasn’t worthy of a United States Senator. It wasn’t worthy of a three am spot on the Comedy Channel. It was strictly designed to get him into the news cycle. Carl got his fifteen minutes of fame but the country isn’t any closer to finding out what really happened at Goldman Sachs. All we know is that our Senators are prone to potty language and preening for the cameras. When I was a child, using bad language would cause my mother to wash my mouth out with soap. We need the people at Proctor and Gamble to send a few cases of Ivory up to Washington. There was a point in time when Congressional hearings accomplished something. The last time I can remember when that was true was during the Watergate hearings. The chair of that committee, Sam Erwin, captured the attention of the American people. Not by playing to the crowd or using gutter language. He did it by holding an investigative hearing that actually investigated something. Ervin was chosen to head the Watergate committee by Senate Majority Leader Mike Mansfield because he DIDN’T want to play politics. Ervin had no desire to run for president or even seek re election. He was just there to uphold the constitution. Which he did pretty well. The only potential presidential candidate on the Watergate committee was Howard Baker, a Republican. He asked the essential question, “what did the president know and when did he know it?” It helped frame President Nixon’s involvement for the American people but it wasn’t a question designed to play to the crowd or definitely wouldn’t help Baker in a future Republican primary. Erwin and Baker ran a committee designed to find some answers and uncover cover ups. They did that pretty well. Why don’t we have leaders like that now? Another Sam, Sam Rayburn, probably had it right in his long term opposition to televising Congressional hearings. Speaker Rayburn understood Congress as well as anyone and knew that members couldn’t help themselves from playing to the cameras. Like they did today. Don McNay, CLU, ChFC, MSFS, CSSC is an award winning columnist and Huffington Post Contributor. He is touring to promote his book the ” Son of a Son of a Gambler: Winners, Losers and What To Do When You Win the Lottery. You can read more about Don at www.donmcnay.com McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983 and Kentucky Guardianship Administrators LLC in 2000. You can read more about both at www.mcnay.com McNay has Master’s Degrees from Vanderbilt and the American College and is in the Eastern Kentucky University Hall of Distinguished Alumni. McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.

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Hatoyama Backs Ozawa to Stay in Party Post After Panel Recommends Charges

April 27, 2010

By Takashi Hirokawa and Sachiko Sakamaki April 28 (Bloomberg) — Japan’s Prime Minister Yukio Hatoyama said he wants ruling party secretary-general Ichiro Ozawa to stay on even after a legal panel recommended Ozawa be charged with violating campaign finance laws. “I want him to continue to do his best,” Hatoyama told reporters today outside his official residence in Tokyo. Ozawa, the top political official in Hatoyama’s Democratic Party of Japan , should be charged in a case in which three of his aides have already been indicted, a judicial panel said yesterday. The recommendation to prosecutors would become legally binding if the panel votes the same way a second time. Ozawa yesterday said he wouldn’t step down. Hatoyama’s repeated defense of Ozawa risks further damaging the prime minister’s standing before parliamentary elections set for July. Voters are already disenchanted over his own funding scandal and a dispute over relocating a U.S. military base. Ozawa, 67, is a former DPJ leader who orchestrated the party’s landslide election victory last August, leaving more than 100 lawmakers in his debt. Prosecutors declined in February to pursue charges against Ozawa, a Diet member since 1969. “As the prosecutors’ investigations have shown, I didn’t receive any suspicious money,” Ozawa said yesterday in remarks shown on NHK Television. “I will keep doing my duties calmly.” Disenchanted Public Polls show an increasing percentage of Japanese favor Hatoyama and Ozawa stepping down before the upper-house election, and some DPJ lawmakers have suggested the same. More than half of voters think Hatoyama should resign if he can’t resolve where to move a U.S. Marine base on Okinawa by the end of a May deadline he set, a Nikkei newspaper poll this week showed. More than three-quarters of the public thought Ozawa should quit following the indictment of his aides, according to a Mainichi newspaper poll published Feb. 1. Ozawa was forced to resign as DPJ leader in May 2009 after a top campaign official was charged with falsifying fund reports. He engineered the party’s 2007 victory in the upper house of parliament, and retains the loyalty of many DPJ lawmakers for spearheading last August’s landslide in the more-powerful lower house . As party secretary-general he is in charge of determining which candidates run in elections. “Nobody can replace Ozawa,” said Jiro Yamaguchi , a political science professor at Hokkaido University in Sapporo. “I don’t think he’ll resign and DPJ lawmakers have given up calling for him to quit because he’ll take Hatoyama down too.” DPJ lawmaker Tomohiro Ishikawa , Ozawa aide Takanori Okubo , and former assistant Mitsutomo Ikeda, were indicted in February for under-reporting 545 million yen ($5.8 million) in income for 2004, part of which was used to buy land in Tokyo for Ozawa’s fund-raising group. Ozawa wasn’t charged. Prosecutors have three months to examine yesterday’s panel ruling before making a decision whether to file charges. To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net ; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net

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Oil Volatility Sinks to 3-Year Low as Supply Concern Fades: Energy Markets

April 27, 2010

By Alexander Kwiatkowski April 28 (Bloomberg) — Crude oil volatility is falling to the lowest level in almost three years as brimming stockpiles and rising OPEC investment in production capacity eases concern of shortages. Oil’s 50-day historical volatility, a measure of how much crude fluctuates around its average price during that period, declined to 23 percent yesterday, the lowest since July 2007. The measure rose to a record 108 percent at the beginning of 2009 as prices collapsed following the demise of Lehman Brothers Holdings Inc. and the onset of global recession. The Organization of Petroleum Exporting Countries said it is planning 140 oil projects over the next five years and that its 6 million barrels a day of unused production is enough to meet demand and avoid a repeat of the price swings of 2008. U.S. crude stockpiles rose to 356 million barrels on April 2, the highest since June, and inventories held on ships are climbing, according to Morgan Stanley. “When inventories go up, the precariousness of the market starts to fall as there is so much of this stuff sloshing around,” said Michael Lewis , head of commodity research at Deutsche Bank AG in London. “People are not so fearful of a supply event because spare capacity is higher.” BP Plc, the biggest oil producer in the Gulf of Mexico, said yesterday that crude’s declining volatility may limit profits from its trading this quarter. Oil has held between $69 and $88 a barrel in New York this year and is up 3.9 percent amid speculation the global economic recovery will spur demand. Prices slumped from a record $147 a barrel in July 2008 to $32 in December that year. Creeping Higher Crude oil for June delivery traded near $82 a barrel yesterday on the New York Mercantile Exchange. Volatility has weakened as prices have moved “gently” through successively higher price ranges during the past few months, said Paul Horsnell , head of commodities research at Barclays Capital in London, unlike the rapid price swings of 2008. Oil’s declining volatility also reflects increased liquidity, a phenomenon seen across most asset classes, Lewis said. Governments and central banks provided an estimated $11 trillion to rescue financial institutions and cut interest rates to spur the economy. In stock markets, volatility has decreased for the Standard & Poor’s 500 index, falling as low as 9.6 percent earlier this week on the same 50-day historical basis, the lowest since June 2007. “Volatility looks far too low,” Lewis said. “This enormous liquidity which has come into the market through central banks has been something that has been driving it lower.” Goldman’s View Volatility is rising in natural gas, where the measure increased to 41.7 percent yesterday after falling to an eight- month low of 35.3 percent on March 29. Gas futures traded in New York, prone to swings during the summer hurricane season as storms threaten to halt offshore production, traded near $4.22 per million British thermal units yesterday. Goldman Sachs Group Inc. analysts Jeffrey Currie and David Greely said in a March 31 report that commodity markets are set for “violent price spikes,” as investment constraints on new supplies and emerging market demand threaten shortages. Volatility may increase as global oil demand grows faster than supply and spare production capacity diminishes, according to Horsnell. Barclays Capital estimates that West Texas Intermediate crude will average $85 a barrel in New York this year, then rise to $97 in 2011. Recipe for Volatility “Volatility is going to be related to the amount of slack there is in the system,” Horsnell said. Barclays sees “a steady erosion of spare capacity and that is a recipe for high volatility.” Traders attempt to profit from rising or falling volatility by purchasing or selling options contracts. When volatility is expected to rise, investors may use a strategy known as a long straddle, whereby they buy both a call option and a put option on the same commodity, at the same strike price. Saudi Arabia, OPEC’s biggest producer, has sought to rein in oil, expecting that more predictable prices will allow producers to invest the billions needed to meet future demand. The nation has spare capacity of about 4 million barrels a day, Khalid al-Falih , the chief executive of state-run Saudi Aramco, said in an April 19 speech. OPEC’s Capacity OPEC, supplier of 40 percent of the world’s oil, pumped 29.2 million barrels a day in March, with another 5.6 million barrels idle, according to data compiled by Bloomberg . The group’s spare capacity was as low as about 2 million barrels a day in July 2008, when oil prices peaked. Saudi Arabia’s spare capacity acts as a “bridging loan” to meet future demand, said Lawrence Eagles , head of commodities research at JPMorgan Chase & Co. in New York. While OPEC has been increasing production, “it has been behind the curve in adding supply to meet demand,” Eagles said in an e-mail. “OPEC’s failure to respond to higher prices with higher output today has market implications that could result in a much more serious thrust higher,” he said. OPEC Secretary General Abdalla El-Badri said on Feb. 1 that the group will add 12 million barrels a day of capacity over five years. The extra oil more than offsets field declines and is enough to “satisfy demand and provide a cushion of spare capacity,” he said. To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net ;

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Japanese Retail Sales Climb 4.7%, More Than Estimates, on Better Sentiment

April 27, 2010

By Aki Ito April 28 (Bloomberg) — Japan’s retail sales rose 4.7 percent in March from a year earlier, the Trade Ministry said today in Tokyo. The median estimate of 15 economists surveyed by Bloomberg News was for a 3.6 percent gain. To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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Yuan Forwards Weaken on Concern Greek Debt Woes to Delay End of Dollar Peg

April 27, 2010

By Patricia Lui April 28 (Bloomberg) — Yuan forwards fell on concern the euro zone’s deepening debt crisis may derail a global economic recovery and prompt China to delay appreciation of its currency. Standard & Poor’s Ratings Services yesterday cut Greece’s credit rating by three notches to junk, the first time a euro member has lost its investment grade since the currency’s debut. The firm also slashed Portugal’s ratings by two steps to A-. Global stock markets slumped, and the Chicago Board Options Exchange Volatility Index , popularly known as the fear gauge, jumped the most since October 2008. “The magnitude of declines in U.S. and European stocks has substantially reduced investors’ appetite for risk,” said Dariusz Kowalczyk , chief investment strategist for SJS Markets Ltd. in Hong Kong. “Any emerging-market asset will fall under the current circumstances, and this specially applies to Chinese forwards as the likelihood of a yuan appreciation declines.” Twelve-month non-deliverable forwards fell 0.2 percent to 6.6270 per dollar as of 8:47 a.m. in Beijing, according to data compiled by Bloomberg. It was the lowest level for the contracts since April 20 and reflects bets the currency will strengthen 3 percent from the spot rate of 6.8258. The yuan has been pegged at about 6.83 per dollar since July 2008. To contact the reporters on this story: Patricia Lui at plui4@bloomberg.net

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Dan Solin: A New Lexicon for Investors

April 27, 2010

As I ponder Goldman’s $3.3 billion profit for the quarter, one thing is clear: The financial services industry wins in all markets. Investors are left to fend for themselves, hoping to save enough money to retire with dignity, and failing miserably in that effort. While there is much talk of regulatory reform, don’t count on it. The obscene profits these firms generate are funneled to lobbyists and directly to members of Congress. This is another investment that pays big dividends and will continue to do so. Real reform will come by changing the habits of individual investors so they no longer play the role of victim in a process that is set up to separate them from their money. Maybe what is needed is a new lexicon to guide investors in this process. Here is my contribution: Broker : Salesmen who sell an expertise they don’t have to investors who continue to believe they do; Wealth Management : The process by which financial advisory firms transfer your wealth to them, by selling the ability to “beat the markets”, even though all the data indicates no one has this expertise; Target Price : A way to generate sales and commissions through trading activity by predicting the price projected for a stock, even though there is no evidence anyone has this predictive power; Technical analysis : Both the red and green lights indicate profit for the sellers of these systems and losses for those who buy them; Buying quality stocks : A way to generate commissions by encouraging the purchase of stocks meeting a particular criteria, even though there is no data to support the oft-cited claim that this is an intelligent way to invest. ” Ten-bagger “: An appeal to greed by holding out the prospect of outsized returns (a “home run”) while hiding the outsized risk. ” Our analysts think “: An oxymoron, intended to generate trading and commissions; Stock research : A way to convince investors to buy stocks by engaging in a process that should make sense, but doesn’t. 5 star Morningstar rating : A sales technique for encouraging the purchase of actively managed mutual funds which generate meaningful commissions, even though these funds are unlikely to outperform lower cost index funds of comparable risk; I nvesting guru : Often applied to a “hot” fund manager on a winning streak (like once revered Legg Mason manager, Bill Miller), right before a precipitous fall. Akin to calling someone who flips 10 heads in a row, a “coin flipping guru.” Alpha : A fancy word indicating the value brokers are supposed to add to your portfolio. It is used to hide the fact they usually add “negative alpha.” ” We are very conservative “: Mantra used by brokers when markets crash, reflecting concern for market risk which was not present before the crash; Managed accounts : An appeal to exclusivity which generates a steady income to brokers for outsourcing the management of an account to a fund manager who is unlikely to outperform a globally diversified portfolio of low cost index funds; Variable and Equity Index Annuities : High commission, complex products rarely suitable for the vast majority of investors to whom they are aggressively marketed; Hedge funds : A way for fund managers to make unbelievable profits by convincing wealthy investors, pensions and trusts they have discovered a way to achieve high returns without commensurate risk. Qualifies as one of the greatest wealth transfer vehicles in modern times. Asset management : Typically refers to the mismanagement of your assets by investing them in actively managed mutual funds and individual stocks and bonds; Expense ratio : When used by actively managed mutual funds, refers to outrageous fees deducted from returns by funds that typically underperform much lower cost index funds; Risk : Something to be hidden from clients when brokers attempt to sell them investments lauded for their high returns; Possibility of bankruptcy of various countries : An excuse for self-styled experts to make predictions about the direction of the stock markets, notwithstanding the fact there is no basis for their musings and no data to support their ability to engage in this exercise with any degree of accuracy; Mandatory arbitration : The requirement investors agree to as a condition of doing business with brokers, which prevents them from obtaining any meaningful recovery for losses due to the misconduct of their broker. FINRA : An acronym for the misnamed Financial Industry Regulatory Authority. It is really an industry trade association which acts in the interest of its members. It spends a lot of money to convince investors that it is protecting them. Don’t be fooled. It should be abolished and regulation of the securities industry should revert to a governmental agency with real teeth. That would be meaningful financial reform. Don’t count on it. 401(k) plans : A faux retirement plan system geared to enrich mutual funds, brokers and advisors at the expense of plan participants; Financial experts : Self appointed pundits who shamelessly predict the unpredictable, causing no end of harm to those who believe they actually know what they are so confidently talking about. The next time you hear any of these phrases, keep this new lexicon in mind. It could save you a lot of money! Dan Solin is the author of The Smartest Retirement Book You’ll Ever Read. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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George Voinovich May SUPPORT Wall Street Reform Vote

April 27, 2010

Sen. George Voinovich may switch his vote and help Democrats advance their Wall Street reform bill tomorrow, the Ohio Republican told CNN on Tuesday . The American people “want us to get something done,” Sen. George Voinovich, R-Ohio, said in explaining why he would eventually join Democrats in insisting that the bill be debated on the floor. Voinovich, who is not seeking re-election in November, would not say exactly how long he would wait before switching his vote but said, “I have an idea of how much time it takes to cut a deal.” He also said he expects “a whole bunch” of other Republicans to make the same decision. As the HuffPost Hill newsletter reported on Tuesday (click HERE to subscribe), another Senate vote on bank reform is expected tomorrow, possibly as early as 10AM ET. Sen. Bob Corker (R-Tenn.) was unusually pessimistic about a bipartisan deal after Tuesday’s vote. “I’m basically pretty skeptical there’s going to be a bipartisan deal,” he said. “It feels to me like the goal posts continue to move. … I’m fairly skeptical that progress is being made.” Click here for more updates from Tuesday, including the Republicans’ alternative financial reform proposal.

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GOP Filibusters Wall Street Reform For Second Straight Day; Obama: ‘That’s Not Right!’

April 27, 2010

WASHINGTON — Senate Republicans, attacked for twice blocking legislation to rein in Wall Street, floated a partial alternative proposal Tuesday and said it could lead to election-year compromise on an issue that commands strong public support. The outline surfaced shortly before Senate Republicans united for the second straight day to block action on White House-backed legislation designed to prevent any recurrence of the ills that led to the economic calamity of 2008. The 57-41 vote left the measure three shy of the 60 needed to advance. The 20-page GOP alternative would prohibit the use of taxpayer funds to bail out failing financial giants of the future and impose federal regulation on many but not all trades of complex investments known as derivatives. It also calls for consumer protections that appear weaker than Democrats and the White House seek, and it would create new regulations on mortgage giants Fannie Mae and Freddie Mac. A New York Times analysis found the GOP proposal “would give consumer regulators fewer powers , and give the government less authority to rein in the activities of large financial companies, than the Democratic bill proposes to do.” On consumer protections, the Times reported , “The Democratic bill would go further in enforcement, covering other mortgage companies (like mortgage servicers and brokers) as well as large nonbank financial companies – from payday lenders to pawn shops – that currently evade oversight.” Senate Majority Leader Harry Reid, D-Nev., said he would hold additional votes later in the week, and, he, President Barack Obama and other Democrats have spent days accusing Republicans of doing the bidding of the big financial firms on Wall Street. “It’s one thing to oppose reform but to oppose just even talking about reform in front of the American people and having a legitimate debate. That’s not right!” the president said in Ottumwa, Iowa. “The American people deserve an honest debate on this bill.” Reid said, “More than two years after the financial collapse that sparked a worldwide recession, Senate Republicans are claiming we’re moving too fast. “Two-thirds of Americans support us cracking down on big bankers’ reckless risk-taking. And a majority supports us asking banks to pay for their own funerals – that’s the fund financed by the big financial firms to cover the cost of their liquidation.” The events unfolded in the Capitol as Republicans and Democrats alike spent hours at a committee hearing criticizing current and former officials at Goldman Sachs for seeking profits from the collapse of the housing market two years ago. But the Senate Republican leader, Mitch McConnell of Kentucky, said Democrats were going too far, coming up with a bill that “reaches into every nook and cranny of American business.” Moments before the vote, his second-in-command, Sen. Jon Kyl of Arizona, predicted that unlike the recent health care battle, this time bipartisan legislation eventually would pass. The current stand-off follows months of fitful bipartisan negotiations that have failed to yield agreement. The Republican summary, obtained by The Associated Press, differs from the Democratic measure on several key points. While banning the use of taxpayer funds in liquidating large financial firms, it calls for the cost to be borne by creditors and shareholders. Democrats favor a fee on banks to cover those expenses. Republicans suggested a council comprising bank regulators and independent appointees to ensure that large banks and other financial institutions do not take advantage of consumers, as opposed to a Democratic proposal for an independent agency with broader powers. Derivatives, which are complex investments that contributed to the 2008 economic collapse, would be brought under federal supervision for the first time, but not to the extent Democrats seek. Republicans also called for restrictions on government assistance to Fannie Mae and Freddie Mac and want the president to submit a reorganization plan. Both are essentially owned by the government, which took control when they lurched toward failure during the collapse of the housing market.

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Colon Cancer Risks Cut With Single, Five-Minute Procedure, Researchers Say

April 27, 2010
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Blankfein Says Firm Doesnt Need to Disclose Position

April 27, 2010
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Stocks, Euro Plunge as Treasuries Gain on Greece, Portugal Debt

April 27, 2010

By Michael P. Regan April 27 (Bloomberg) — Stocks tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank. The S&P 500 lost 2.3 percent at 4 p.m. in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to the highest ever. Oil sank 2.1 percent, while gold rallied 0.7 percent. S&P lowered Greek debt to junk and Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut its budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. Financial shares led U.S. stocks lower as the Senate’s interrogation of Goldman Sachs Group Inc. executives spurred concern of tighter regulation. “It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.” Goldman Hearings The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs executives in Washington. U.S. trading volume slipped while Fabrice Tourre , an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released. U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.” “What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.” Goldman Rises Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16. “The damage is already built into the stock price,” said Jason Weisberg , director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.” Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent. Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Debt Insurance Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365. The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22. The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008. Winning Streak Today’s sell-off follows eight straight weeks of gains for the Dow Jones Industrial Average , the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade. The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against. S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. Greece said today’s downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening. ‘Sustainable’ Plan German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible. “I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo , director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.” Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd. , the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped. Emerging Markets The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar. The Shanghai Composite Index slid 2.1 percent to the lowest level since October. China Vanke Co. dropped to a 13- month low after predicting “rapid” house-price gains will end as the government curbs real-estate loans. China may use capital requirements for developers as a policy tool to restrain the property market, Ba Shusong , deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

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Stocks, Euro Plunge as Treasuries Gain on Greece, Portugal Debt

April 27, 2010

By Michael P. Regan April 27 (Bloomberg) — Stocks tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank. The S&P 500 lost 2.3 percent at 4 p.m. in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to the highest ever. Oil sank 2.1 percent, while gold rallied 0.7 percent. S&P lowered Greek debt to junk and Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut its budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. Financial shares led U.S. stocks lower as the Senate’s interrogation of Goldman Sachs Group Inc. executives spurred concern of tighter regulation. “It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.” Goldman Hearings The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs executives in Washington. U.S. trading volume slipped while Fabrice Tourre , an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released. U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.” “What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.” Goldman Rises Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16. “The damage is already built into the stock price,” said Jason Weisberg , director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.” Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent. Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Debt Insurance Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365. The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22. The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008. Winning Streak Today’s sell-off follows eight straight weeks of gains for the Dow Jones Industrial Average , the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade. The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against. S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. Greece said today’s downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening. ‘Sustainable’ Plan German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible. “I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo , director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.” Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd. , the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped. Emerging Markets The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar. The Shanghai Composite Index slid 2.1 percent to the lowest level since October. China Vanke Co. dropped to a 13- month low after predicting “rapid” house-price gains will end as the government curbs real-estate loans. China may use capital requirements for developers as a policy tool to restrain the property market, Ba Shusong , deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

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Mexico Issues Travel Warning for Arizona Over Law

April 27, 2010

By Jonathan J. Levin and Catherine Dodge April 27 (Bloomberg) — Mexicans in Arizona should carry documentation and “act carefully” after the state passed a law requiring local police to determine the immigration status of anyone suspected of being in the country illegally, Mexico’s Foreign Ministry said. The ministry said the warning is directed toward Mexicans living, studying or planning to travel to the southwestern U.S. state, which shares a border with northern Mexico, according to the e-mailed statement sent today. It comes as members of U.S. President Barack Obama’s administration said they have concerns about the new law and may seek to overturn it in court. “There is an adverse political environment for migrant communities and all Mexican visitors,” Mexico’s ministry said. “It’s important to act carefully and respect the local laws.” The Arizona law makes it a state crime to be in the U.S. without proper documentation. The state has an estimated 460,000 residents living there illegally, the seventh highest total in the country, according to the U.S. Department of Homeland Security. Opponents say it will lead to discrimination and racial profiling by law enforcement authorities. Arizona Governor Jan Brewer , who is running for re- election, signed the bill into law on April 23, saying it would address problems of violence along the border with Mexico and crime due to illegal immigration while protecting individual rights. ‘Murderous Greed’ “We cannot sacrifice our safety to the murderous greed of drug cartels,” Brewer said. “We cannot delay while the destruction happening south of our international border creeps its way north.” Homeland Security Secretary Janet Napolitano said during congressional testimony in Washington today that her agency has “deep concerns” about the law and that it will “detract from and siphon resources that we need to focus on those in the country illegally who are committing serious crimes.” U.S. Attorney General Eric Holder said today that the Justice Department may go to court to challenge the statue. The law, which goes into effect 90 days after the Arizona legislative session ends, states that police must investigate if they have “reasonable suspicion” that someone is undocumented, according to Gabriel Chin, a professor of Law and Public Policy at the University of Arizona in Tucson. Police officers may face lawsuits if they fail to do so, he added. ‘Angered and Saddened’ “It’s very hard for me to see how this law can be enforced without discrimination,” Chin said in a telephone interview today from Tucson. “It seems to be inevitable.” Mexican President Felipe Calderon said April 26 that his country’s citizens are “angered and saddened” by the Arizona law, which he said “doesn’t adequately guarantee respect for people’s fundamental rights.” About a quarter of Arizona’s 6.6 million residents are of Hispanic descent, according to the U.S. Census Bureau. U.S. Democratic Party leaders said last week that an overhaul of immigration law could advance through Congress this year if Senate Majority Leader Harry Reid can pick up enough support to muscle it through the Senate first, according to April 22 remarks by Reid and House Speaker Nancy Pelosi. Pelosi told reporters that she will find the votes for the measure in the House — where Democrats have 254 of 435 seats — if the Senate can clear it. Senator Lindsey Graham , a South Carolina Republican who has been working with Democrats on an immigration overhaul, said rushing legislation this year would be a mistake because it doesn’t have the votes yet to pass. “The worst thing we could do is bring up immigration reform and have it crash and burn politically,” he told Napolitano. “If immigration comes up this year, it’s absolutely devastating to the future of this issue.” To contact the reporters on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net ; Catherine Dodge in Washington at cdodge1@bloomberg.net

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Mexico Issues Travel Warning for Arizona Over Law

April 27, 2010

By Jonathan J. Levin and Catherine Dodge April 27 (Bloomberg) — Mexicans in Arizona should carry documentation and “act carefully” after the state passed a law requiring local police to determine the immigration status of anyone suspected of being in the country illegally, Mexico’s Foreign Ministry said. The ministry said the warning is directed toward Mexicans living, studying or planning to travel to the southwestern U.S. state, which shares a border with northern Mexico, according to the e-mailed statement sent today. It comes as members of U.S. President Barack Obama’s administration said they have concerns about the new law and may seek to overturn it in court. “There is an adverse political environment for migrant communities and all Mexican visitors,” Mexico’s ministry said. “It’s important to act carefully and respect the local laws.” The Arizona law makes it a state crime to be in the U.S. without proper documentation. The state has an estimated 460,000 residents living there illegally, the seventh highest total in the country, according to the U.S. Department of Homeland Security. Opponents say it will lead to discrimination and racial profiling by law enforcement authorities. Arizona Governor Jan Brewer , who is running for re- election, signed the bill into law on April 23, saying it would address problems of violence along the border with Mexico and crime due to illegal immigration while protecting individual rights. ‘Murderous Greed’ “We cannot sacrifice our safety to the murderous greed of drug cartels,” Brewer said. “We cannot delay while the destruction happening south of our international border creeps its way north.” Homeland Security Secretary Janet Napolitano said during congressional testimony in Washington today that her agency has “deep concerns” about the law and that it will “detract from and siphon resources that we need to focus on those in the country illegally who are committing serious crimes.” U.S. Attorney General Eric Holder said today that the Justice Department may go to court to challenge the statue. The law, which goes into effect 90 days after the Arizona legislative session ends, states that police must investigate if they have “reasonable suspicion” that someone is undocumented, according to Gabriel Chin, a professor of Law and Public Policy at the University of Arizona in Tucson. Police officers may face lawsuits if they fail to do so, he added. ‘Angered and Saddened’ “It’s very hard for me to see how this law can be enforced without discrimination,” Chin said in a telephone interview today from Tucson. “It seems to be inevitable.” Mexican President Felipe Calderon said April 26 that his country’s citizens are “angered and saddened” by the Arizona law, which he said “doesn’t adequately guarantee respect for people’s fundamental rights.” About a quarter of Arizona’s 6.6 million residents are of Hispanic descent, according to the U.S. Census Bureau. U.S. Democratic Party leaders said last week that an overhaul of immigration law could advance through Congress this year if Senate Majority Leader Harry Reid can pick up enough support to muscle it through the Senate first, according to April 22 remarks by Reid and House Speaker Nancy Pelosi. Pelosi told reporters that she will find the votes for the measure in the House — where Democrats have 254 of 435 seats — if the Senate can clear it. Senator Lindsey Graham , a South Carolina Republican who has been working with Democrats on an immigration overhaul, said rushing legislation this year would be a mistake because it doesn’t have the votes yet to pass. “The worst thing we could do is bring up immigration reform and have it crash and burn politically,” he told Napolitano. “If immigration comes up this year, it’s absolutely devastating to the future of this issue.” To contact the reporters on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net ; Catherine Dodge in Washington at cdodge1@bloomberg.net

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Clegg Targeting More Seats as Party’s Rise Points to Hung U.K. Parliament

April 27, 2010

By Thomas Penny and Mark Deen April 28 (Bloomberg) — Liberal Democrat leader Nick Clegg said his party raised its target for the number of House of Commons seats it is trying to win in the May 6 U.K. election after it surged to second place in most opinion polls. “We’ve done a lot of work over the last week or two to identify a raft of seats we’re now targeting against both Labour and the Conservatives,” Clegg said in an interview as he returned to London after campaigning in southern England yesterday. “We started by targeting well over 100, which is more than we ever have before.” Clegg did not say which seats or how many had been added to the list. Gains in seats by the Liberal Democrats increase the likelihood of a hung Parliament in which neither Prime Minister Gordon Brown’s Labour Party nor the main opposition Conservatives would have a majority. That outcome may roil markets on concern that power sharing between parties would create a government too weak to fix Britain’s finances. A ComRes Ltd. poll last night indicated Labour and the Liberal Democrats are battling for second place behind the Conservatives. Because of the uneven distribution of votes, that may still enable Labour to be the biggest bloc in Parliament, though without a majority. Televised Debates The Liberal Democrats have been buoyed by Clegg’s performances in televised debates, which boosted their ratings from around 20 percent. The ComRes poll put their support at 29 percent, which would translate into 93 lawmakers in the 650-seat House of Commons , up from 62 at the last election in 2005. The poll showed Labour, which also has 29 percent support, are set to win 277 seats, with the Conservatives taking 248, even though they are leading with 32 percent of the vote.      The pound has dropped 1.7 percent against the dollar since the first TV debate as polls have pointed increasingly to a hung Parliament. Investors are concerned about possible lack of action to narrow the U.K.’s budget deficit, the biggest of any Group of Seven country. The deficit widened 76 percent in the year through March to 152.8 billion pounds ($233 billion), the largest since World War II. Labour and the Liberal Democrats are seeking to reassure voters that such an outcome would not lead to economic instability, countering concerns expressed by the Conservatives. “I think that the markets have pretty well discounted whatever the result,” the Labour government’s business secretary, Peter Mandelson , said yesterday. “I think that they know that in our political system you will get sensible, stable, grown-up politics.”      Vince Cable , who handles Liberal Democrat economic policy, echoed that sentiment. ‘Not Stupid’      “All the signs I get are that the market has factored it into their pricing,” he said yesterday. “The guys in the banks are not stupid, they understand these things.”       George Osborne , the Conservatives’ Treasury spokesman, predicted this week that a hung Parliament could lead to a “dip in confidence,” a slump in the pound and “disastrous” increases in interest rates that would “paralyze” the country.      The challenge for Clegg now is to translate his party’s extra national support into more lawmakers by scoring victories in individual districts. “They were already targeting seats around Newcastle and Liverpool, so it might be a case of widening their targets around there,” YouGov Plc pollster Anthony Wells said in a telephone interview. “That means taking Labour areas.”      Wells said Clegg might also be trying to gain seats in southwest England the Liberal Democrats previously expected the Conservatives to win.  Clegg said he’s “pretty confident” party members would back him on any post-election agreement, even though the applause at the party’s conference in Birmingham last month was louder for attacks on the Conservatives than Labour. “We’ve got serious plans on tax reform, banking reform, education and reforming politics, that’s what we’ll be pursuing,” he said. Clegg has ruled out propping up a Brown-led government if Labour finishes third in the popular vote, even if it wins the most seats. To contact the reporters responsible for this story: Thomas Penny in London at tpenny@bloomberg.net ; Mark Deen in London at markdeen@bloomberg.net .

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Clegg Targeting More Seats as Party’s Rise Points to Hung U.K. Parliament

April 27, 2010

By Thomas Penny and Mark Deen April 28 (Bloomberg) — Liberal Democrat leader Nick Clegg said his party raised its target for the number of House of Commons seats it is trying to win in the May 6 U.K. election after it surged to second place in most opinion polls. “We’ve done a lot of work over the last week or two to identify a raft of seats we’re now targeting against both Labour and the Conservatives,” Clegg said in an interview as he returned to London after campaigning in southern England yesterday. “We started by targeting well over 100, which is more than we ever have before.” Clegg did not say which seats or how many had been added to the list. Gains in seats by the Liberal Democrats increase the likelihood of a hung Parliament in which neither Prime Minister Gordon Brown’s Labour Party nor the main opposition Conservatives would have a majority. That outcome may roil markets on concern that power sharing between parties would create a government too weak to fix Britain’s finances. A ComRes Ltd. poll last night indicated Labour and the Liberal Democrats are battling for second place behind the Conservatives. Because of the uneven distribution of votes, that may still enable Labour to be the biggest bloc in Parliament, though without a majority. Televised Debates The Liberal Democrats have been buoyed by Clegg’s performances in televised debates, which boosted their ratings from around 20 percent. The ComRes poll put their support at 29 percent, which would translate into 93 lawmakers in the 650-seat House of Commons , up from 62 at the last election in 2005. The poll showed Labour, which also has 29 percent support, are set to win 277 seats, with the Conservatives taking 248, even though they are leading with 32 percent of the vote.      The pound has dropped 1.7 percent against the dollar since the first TV debate as polls have pointed increasingly to a hung Parliament. Investors are concerned about possible lack of action to narrow the U.K.’s budget deficit, the biggest of any Group of Seven country. The deficit widened 76 percent in the year through March to 152.8 billion pounds ($233 billion), the largest since World War II. Labour and the Liberal Democrats are seeking to reassure voters that such an outcome would not lead to economic instability, countering concerns expressed by the Conservatives. “I think that the markets have pretty well discounted whatever the result,” the Labour government’s business secretary, Peter Mandelson , said yesterday. “I think that they know that in our political system you will get sensible, stable, grown-up politics.”      Vince Cable , who handles Liberal Democrat economic policy, echoed that sentiment. ‘Not Stupid’      “All the signs I get are that the market has factored it into their pricing,” he said yesterday. “The guys in the banks are not stupid, they understand these things.”       George Osborne , the Conservatives’ Treasury spokesman, predicted this week that a hung Parliament could lead to a “dip in confidence,” a slump in the pound and “disastrous” increases in interest rates that would “paralyze” the country.      The challenge for Clegg now is to translate his party’s extra national support into more lawmakers by scoring victories in individual districts. “They were already targeting seats around Newcastle and Liverpool, so it might be a case of widening their targets around there,” YouGov Plc pollster Anthony Wells said in a telephone interview. “That means taking Labour areas.”      Wells said Clegg might also be trying to gain seats in southwest England the Liberal Democrats previously expected the Conservatives to win.  Clegg said he’s “pretty confident” party members would back him on any post-election agreement, even though the applause at the party’s conference in Birmingham last month was louder for attacks on the Conservatives than Labour. “We’ve got serious plans on tax reform, banking reform, education and reforming politics, that’s what we’ll be pursuing,” he said. Clegg has ruled out propping up a Brown-led government if Labour finishes third in the popular vote, even if it wins the most seats. To contact the reporters responsible for this story: Thomas Penny in London at tpenny@bloomberg.net ; Mark Deen in London at markdeen@bloomberg.net .

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Financial-Rules Debate Blocked Again by Senate Republicans in 57-41 Vote

April 27, 2010

By Alison Vekshin April 27 (Bloomberg) — U.S. Senate Republicans refused for a second time to let Democrats start floor debate on a Wall Street regulation overhaul that President Barack Obama says is needed to prevent another financial meltdown. Like yesterday, no Republican broke ranks to join Democrats in the 57-41 vote, with 60 needed to begin consideration of the bill. “There will be more votes” this week, Majority Leader Harry Reid , a Nevada Democrat, said in a statement after today’s vote. “Republicans will have more opportunities to show whose side they are truly on.” The bill would strengthen rules governing the financial services industry in response to the worst economic crisis since the Great Depression. Republicans say they want more time to work on a bipartisan compromise before considering the plan on the Senate floor. “This bill isn’t ready,” Senate Minority Leader Mitch McConnell , a Kentucky Republican, said on the Senate floor. “It falls short of our constituents’ demands to prevent future bailouts” of failing financial companies. Obama criticized Senate Republicans for blocking debate. ‘Honest Debate’ “I’m not even asking them to vote for the bill. I just want to let them debate it,” the president said at a town hall event in Ottumwa, Iowa. “The American people deserve an honest debate on this bill.” Democrats are holding the votes in an effort to demonstrate that Republicans are obstructing the overhaul of Wall Street rules. Democrat Ben Nelson of Nebraska joined Republicans in voting not to begin debate, as he did yesterday. Reid filed a procedural motion yesterday that allows him to schedule a third vote tomorrow. Senate Banking Committee Chairman Christopher Dodd , the Connecticut Democrat who wrote the bill, is negotiating toward a compromise with Alabama Senator Richard Shelby , the banking panel’s top Republican. Senator Bob Corker , a Tennessee Republican, said he doubted Dodd and Shelby would get to a deal. “I just know where they are policy-wise and I just don’t think any time in the near future there’s going to be a bipartisan agreement,” Corker told reporters after today’s vote. ‘Hanging Together’ Shelby, who said earlier today that he and Dodd had “made considerable progress in the last several days,” told reporters after the vote, “I appreciate the Republicans hanging together, sending a message that we’re opposed to the Dodd bill.” Dodd said the repeated votes were “accomplishing making clear that we can’t get to the bill.” Dodd also said he plans to support an amendment by Senator Barbara Boxer , a California Democrat, which would ban the government from using any taxpayer money for bailouts. Republicans say the bill would set up a permanent bailout of Wall Street banks and create bureaucracies. Democrats say it would save the government from having to step in with taxpayer money to prop up ailing financial firms. Language on derivatives “has not been totally resolved and there’s a lot of anxiety and concern about that,” Shelby said. Consumer Protection Dodd’s legislation would create a consumer financial protection bureau at the Federal Reserve with authority to write rules and enforce them at banks and credit unions with more than $10 billion in assets. Shelby wants bank regulators to have a say in the agency’s rule-writing and enforcement decisions. “They don’t want a consumer protection agency at all,” Dodd told reporters today. “The biggest obstacle is probably the consumer agency and the reach and scope of it right now,” Shelby said. The bill is designed to prevent a repeat of the $700 billion in taxpayer-funded aid Congress approved in 2008 to firms including Citigroup Inc. and American International Group Inc. The bill would limit the Fed’s regulatory authority to banks with assets of at least $50 billion, transferring its powers to monitor smaller lenders to other regulators. It would also set up a council of regulators to monitor the economy for systemic risk and ban proprietary trading at U.S. banks. Today’s Senate vote coincided with testimony by Goldman Sachs Group Inc. executives, including Chief Executive Officer Lloyd Blankfein , before a Senate subcommittee. Goldman Sachs, the most profitable securities firm in Wall Street history, was sued on a fraud claim earlier this month by the Securities and Exchange Commission. The company contests the claim. Market-Makers Blankfein told the panel that market-makers have no obligation to tell clients about their own position in a security. Senator Carl Levin , a Michigan Democrat who leads the Senate’s Permanent Subcommittee on Investigations, has released e-mails and other documents that he said show “Goldman repeatedly put its own interest and profit ahead of the interests of its clients.” The company’s behavior “brings into question the whole conduct of Wall Street,” Levin said at the hearing. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Financial-Rules Debate Blocked Again by Senate Republicans in 57-41 Vote

April 27, 2010

By Alison Vekshin April 27 (Bloomberg) — U.S. Senate Republicans refused for a second time to let Democrats start floor debate on a Wall Street regulation overhaul that President Barack Obama says is needed to prevent another financial meltdown. Like yesterday, no Republican broke ranks to join Democrats in the 57-41 vote, with 60 needed to begin consideration of the bill. “There will be more votes” this week, Majority Leader Harry Reid , a Nevada Democrat, said in a statement after today’s vote. “Republicans will have more opportunities to show whose side they are truly on.” The bill would strengthen rules governing the financial services industry in response to the worst economic crisis since the Great Depression. Republicans say they want more time to work on a bipartisan compromise before considering the plan on the Senate floor. “This bill isn’t ready,” Senate Minority Leader Mitch McConnell , a Kentucky Republican, said on the Senate floor. “It falls short of our constituents’ demands to prevent future bailouts” of failing financial companies. Obama criticized Senate Republicans for blocking debate. ‘Honest Debate’ “I’m not even asking them to vote for the bill. I just want to let them debate it,” the president said at a town hall event in Ottumwa, Iowa. “The American people deserve an honest debate on this bill.” Democrats are holding the votes in an effort to demonstrate that Republicans are obstructing the overhaul of Wall Street rules. Democrat Ben Nelson of Nebraska joined Republicans in voting not to begin debate, as he did yesterday. Reid filed a procedural motion yesterday that allows him to schedule a third vote tomorrow. Senate Banking Committee Chairman Christopher Dodd , the Connecticut Democrat who wrote the bill, is negotiating toward a compromise with Alabama Senator Richard Shelby , the banking panel’s top Republican. Senator Bob Corker , a Tennessee Republican, said he doubted Dodd and Shelby would get to a deal. “I just know where they are policy-wise and I just don’t think any time in the near future there’s going to be a bipartisan agreement,” Corker told reporters after today’s vote. ‘Hanging Together’ Shelby, who said earlier today that he and Dodd had “made considerable progress in the last several days,” told reporters after the vote, “I appreciate the Republicans hanging together, sending a message that we’re opposed to the Dodd bill.” Dodd said the repeated votes were “accomplishing making clear that we can’t get to the bill.” Dodd also said he plans to support an amendment by Senator Barbara Boxer , a California Democrat, which would ban the government from using any taxpayer money for bailouts. Republicans say the bill would set up a permanent bailout of Wall Street banks and create bureaucracies. Democrats say it would save the government from having to step in with taxpayer money to prop up ailing financial firms. Language on derivatives “has not been totally resolved and there’s a lot of anxiety and concern about that,” Shelby said. Consumer Protection Dodd’s legislation would create a consumer financial protection bureau at the Federal Reserve with authority to write rules and enforce them at banks and credit unions with more than $10 billion in assets. Shelby wants bank regulators to have a say in the agency’s rule-writing and enforcement decisions. “They don’t want a consumer protection agency at all,” Dodd told reporters today. “The biggest obstacle is probably the consumer agency and the reach and scope of it right now,” Shelby said. The bill is designed to prevent a repeat of the $700 billion in taxpayer-funded aid Congress approved in 2008 to firms including Citigroup Inc. and American International Group Inc. The bill would limit the Fed’s regulatory authority to banks with assets of at least $50 billion, transferring its powers to monitor smaller lenders to other regulators. It would also set up a council of regulators to monitor the economy for systemic risk and ban proprietary trading at U.S. banks. Today’s Senate vote coincided with testimony by Goldman Sachs Group Inc. executives, including Chief Executive Officer Lloyd Blankfein , before a Senate subcommittee. Goldman Sachs, the most profitable securities firm in Wall Street history, was sued on a fraud claim earlier this month by the Securities and Exchange Commission. The company contests the claim. Market-Makers Blankfein told the panel that market-makers have no obligation to tell clients about their own position in a security. Senator Carl Levin , a Michigan Democrat who leads the Senate’s Permanent Subcommittee on Investigations, has released e-mails and other documents that he said show “Goldman repeatedly put its own interest and profit ahead of the interests of its clients.” The company’s behavior “brings into question the whole conduct of Wall Street,” Levin said at the hearing. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Junk Bonds Poised for Par as Profit Growth Spurs Upgrades: Credit Markets

April 27, 2010

By John Detrixhe April 27 (Bloomberg) — Junk bonds are trading within a half cent of face value for the first time since June 2007 in a sign that investors are convinced the economic recovery and profit growth will keep the neediest borrowers from defaulting. High-yield bonds rose to 99.67 cents on the dollar, up from a low of 54.78 cents in December 2008, according to Bank of America Merrill Lynch index data. The debt last reached par on June 11, 2007, just before credit markets began to seize up as losses on subprime mortgages spread. Even after returning 86 percent since the market bottomed in 2008, JPMorgan Chase & Co. and Morgan Stanley Investment Management are recommending that investors buy the debt. Rising earnings are making it easier for companies to meet payments, leading Moody’s Investors Service to lift the ratings on 142 junk bonds and cut 105, data compiled by Bloomberg show. Last year, it boosted 229 and lowered 902. “New issue prices and structures now are favoring the issuer,” Mark Shenkman , who became the first high-yield bond portfolio manager at Fidelity Investments in 1977, told investors this week at the Milken Institute Global Conference in Beverly Hills, California. “It was a buyers’ market for most of last year. Now clearly it is a sellers’ market,” said Shenkman, president of Shenkman Capital Management Inc. in New York. Issuance Soars Companies have issued $96 billion of junks bonds this year, or 59 percent of the record $162.7 billion sold in all of last year, Bloomberg data show. The ability to sell bonds is helping companies rated below Baa3 by Moody’s and less than BBB- by Standard & Poor’s to refinance debt and extend maturities. Elsewhere in credit markets, the cost to protect European sovereign debt from default surged after S&P cut its ratings on Greece to junk status and downgraded Portugal. American Express Co. joined Toyota Motor Corp. in marketing asset-backed bonds, the subordinated debt of Synovus Financial Corp. soared and developing-nation bonds tumbled. Credit-default swaps tied to Greek government bonds climbed 114 basis points to 824.5, while those on Portugal rose 67.4 to 383, according to CMA DataVision. S&P reduced Greece’s rating three levels to BB+, and slashed Portugal to A- from A+. S&P has a “negative” outlook on both nations, meaning more downgrades may come. ‘Contagion Risk’ “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” said Axel Botte , a strategist at AXA Investment Managers in Paris. “The contagion risk is real. It’s much easier to bail out a bank than to bail out a country.” In the U.S., credit-default swaps on the Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 7.5 basis points to a nine-week high of 98.4 basis points, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and falls as it improves. Swaps on Goldman Sachs Group Inc. climbed for a fifth day as a U.S. Senate panel questioned bank executives and employees about the New York-based firm’s role in the financial crisis. The contracts jumped 6 basis points to 173 basis points, CMA DataVision prices show. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Toyota, American Express Toyota boosted its planned sales of bonds backed by auto loans to $1.25 billion from $775 million, according to a person familiar with the offering who declined to be identified because terms aren’t set. American Express is marketing $804.5 million of securities backed by credit-card payments, according to people familiar with the offerings. Both offerings may be priced tomorrow, the people said. Borrowers are selling asset-backed debt as demand holds up following the end last month of the Federal Reserve’s Term Asset Backed Securities Loan Facility. Ford Motor Co., through its finance arm, sold $1.09 billion of bonds backed by auto loans last week. Daimler AG, Bayerische Motoren Werke AG and Deere & Co. sold similar debt this month, Bloomberg data show. Top-rated securities backed by credit cards are yielding about 0.53 percentage point more than Treasuries, compared with a spread of 3.50 percentage points a year ago, based on a Bank of America Merrill Lynch index. Synovus Bonds Synovus Financial’s bonds were among the most active in the U.S. corporate high-yield bond market today. The company’s 5.125 percent notes due in 2017 soared 8.5 cents on the dollar to 90.5 cents after Synovus said it would repay the securities with stock, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. NBC Universal Inc., the media company in which Comcast Corp. has agreed to acquire a majority stake from General Electric Co., sold $4 billion of notes, Bloomberg data show. Proceeds will be used to help pay down a portion of NBC Universal’s $6.1 billion bridge loan to finance the Comcast deal, GE spokeswoman Anne Eisele said yesterday in an e-mail. Concern that Europe’s worsening government finances may spread led investors to push relative yields on emerging-market bonds wider by 0.22 percentage point to 2.63 percentage points, the widest in more than a month, according to the JPMorgan Emerging Market Bond Index. In Brazil, futures show policy makers are poised to raise borrowing costs at the fastest pace since President Luiz Inacio Lula da Silva took office in 2003 after central bank chief Henrique Meirelles pledged “vigorous action” on inflation.     The biggest two-day surge in six months on yields of the overnight interest rate futures contract due in July reflects speculation Meirelles will raise the benchmark Selic rate 2.25 percentage points to 11 percent by the June policy meeting, according to data compiled by Bloomberg. Junk Bond Spreads Yield spreads on junk bonds shrank to 5.42 percentage points on April 26, down from the record 13.2 percentage points in December 2008 and the narrowest since June 17, 2008, Bank of America Merrill Lynch index data show. Spreads widened today to 5.55 percentage points. Further evidence of the economic recovery came today, as confidence among U.S. consumers increased in April to the highest level since September 2008. The Conference Board’s index rose more than forecast, to 57.9 from 52.3 in March, according to the New York-based private research group. Of the 193 companies in the S&P 500 Index that have reported first-quarter earnings, 85 percent have exceeded analysts’ per-share estimates, Bloomberg data show. With profits rising, the number of distressed companies, or those with yield spreads of more than 10 percentage points, relative to all high-yield U.S. credit fell to 6.7 percent as of April 15, S&P said in a statement. That’s down from 9.7 percent the previous month. ‘Sharp Retreat’ Junk bond prices approaching par “reflects the more favorable fundamental outlook, including lower default expectations, while for borrowers it implies more attractive rates,” said Eric Takaha , director of corporate and high-yield for the Franklin Templeton Fixed Income Group, which manages more than $230 billion. In the first quarter, 1.3 percent of companies with speculative-grade liquidity were downgraded, a “sharp retreat” from the 13.6 percent a year earlier, Moody’s said in a report. The firm predicts the U.S. speculative-grade default rate will fall to 3.1 percent by the end of the year, a from the trailing 12-month rate of 9.9 in the first quarter and 13 percent in December. ‘Tilted’ JPMorgan Chase & Co. analysts led by Peter Acciavatti , the top-ranked high-yield strategist in Institutional Investor magazine’s annual survey for the past seven years, said in an April 23 report to the bank’s clients that investors should remain “overweight” junk bonds. In their monthly report to clients, Morgan Stanley Investment Management said its portfolios are “tilted” toward investment-grade and high-yield debt. The firm pointed out that the average spread for junk bonds as measured by the Citi High Yield Market Index is 5.79 percentage points, compared with the average of 5.63 percentage points over the past 20 years. “Companies are starting to see the pickup in the economy translate into better earnings prospects,” said John Puchalla , an analyst at Moody’s. “We’ve seen likely the worst for a number of industries and if the cycle starts to pick up, then that’s translating into better cash flow projections.” To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Junk Bonds Poised for Par as Profit Growth Spurs Upgrades: Credit Markets

April 27, 2010

By John Detrixhe April 27 (Bloomberg) — Junk bonds are trading within a half cent of face value for the first time since June 2007 in a sign that investors are convinced the economic recovery and profit growth will keep the neediest borrowers from defaulting. High-yield bonds rose to 99.67 cents on the dollar, up from a low of 54.78 cents in December 2008, according to Bank of America Merrill Lynch index data. The debt last reached par on June 11, 2007, just before credit markets began to seize up as losses on subprime mortgages spread. Even after returning 86 percent since the market bottomed in 2008, JPMorgan Chase & Co. and Morgan Stanley Investment Management are recommending that investors buy the debt. Rising earnings are making it easier for companies to meet payments, leading Moody’s Investors Service to lift the ratings on 142 junk bonds and cut 105, data compiled by Bloomberg show. Last year, it boosted 229 and lowered 902. “New issue prices and structures now are favoring the issuer,” Mark Shenkman , who became the first high-yield bond portfolio manager at Fidelity Investments in 1977, told investors this week at the Milken Institute Global Conference in Beverly Hills, California. “It was a buyers’ market for most of last year. Now clearly it is a sellers’ market,” said Shenkman, president of Shenkman Capital Management Inc. in New York. Issuance Soars Companies have issued $96 billion of junks bonds this year, or 59 percent of the record $162.7 billion sold in all of last year, Bloomberg data show. The ability to sell bonds is helping companies rated below Baa3 by Moody’s and less than BBB- by Standard & Poor’s to refinance debt and extend maturities. Elsewhere in credit markets, the cost to protect European sovereign debt from default surged after S&P cut its ratings on Greece to junk status and downgraded Portugal. American Express Co. joined Toyota Motor Corp. in marketing asset-backed bonds, the subordinated debt of Synovus Financial Corp. soared and developing-nation bonds tumbled. Credit-default swaps tied to Greek government bonds climbed 114 basis points to 824.5, while those on Portugal rose 67.4 to 383, according to CMA DataVision. S&P reduced Greece’s rating three levels to BB+, and slashed Portugal to A- from A+. S&P has a “negative” outlook on both nations, meaning more downgrades may come. ‘Contagion Risk’ “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” said Axel Botte , a strategist at AXA Investment Managers in Paris. “The contagion risk is real. It’s much easier to bail out a bank than to bail out a country.” In the U.S., credit-default swaps on the Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 7.5 basis points to a nine-week high of 98.4 basis points, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and falls as it improves. Swaps on Goldman Sachs Group Inc. climbed for a fifth day as a U.S. Senate panel questioned bank executives and employees about the New York-based firm’s role in the financial crisis. The contracts jumped 6 basis points to 173 basis points, CMA DataVision prices show. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Toyota, American Express Toyota boosted its planned sales of bonds backed by auto loans to $1.25 billion from $775 million, according to a person familiar with the offering who declined to be identified because terms aren’t set. American Express is marketing $804.5 million of securities backed by credit-card payments, according to people familiar with the offerings. Both offerings may be priced tomorrow, the people said. Borrowers are selling asset-backed debt as demand holds up following the end last month of the Federal Reserve’s Term Asset Backed Securities Loan Facility. Ford Motor Co., through its finance arm, sold $1.09 billion of bonds backed by auto loans last week. Daimler AG, Bayerische Motoren Werke AG and Deere & Co. sold similar debt this month, Bloomberg data show. Top-rated securities backed by credit cards are yielding about 0.53 percentage point more than Treasuries, compared with a spread of 3.50 percentage points a year ago, based on a Bank of America Merrill Lynch index. Synovus Bonds Synovus Financial’s bonds were among the most active in the U.S. corporate high-yield bond market today. The company’s 5.125 percent notes due in 2017 soared 8.5 cents on the dollar to 90.5 cents after Synovus said it would repay the securities with stock, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. NBC Universal Inc., the media company in which Comcast Corp. has agreed to acquire a majority stake from General Electric Co., sold $4 billion of notes, Bloomberg data show. Proceeds will be used to help pay down a portion of NBC Universal’s $6.1 billion bridge loan to finance the Comcast deal, GE spokeswoman Anne Eisele said yesterday in an e-mail. Concern that Europe’s worsening government finances may spread led investors to push relative yields on emerging-market bonds wider by 0.22 percentage point to 2.63 percentage points, the widest in more than a month, according to the JPMorgan Emerging Market Bond Index. In Brazil, futures show policy makers are poised to raise borrowing costs at the fastest pace since President Luiz Inacio Lula da Silva took office in 2003 after central bank chief Henrique Meirelles pledged “vigorous action” on inflation.     The biggest two-day surge in six months on yields of the overnight interest rate futures contract due in July reflects speculation Meirelles will raise the benchmark Selic rate 2.25 percentage points to 11 percent by the June policy meeting, according to data compiled by Bloomberg. Junk Bond Spreads Yield spreads on junk bonds shrank to 5.42 percentage points on April 26, down from the record 13.2 percentage points in December 2008 and the narrowest since June 17, 2008, Bank of America Merrill Lynch index data show. Spreads widened today to 5.55 percentage points. Further evidence of the economic recovery came today, as confidence among U.S. consumers increased in April to the highest level since September 2008. The Conference Board’s index rose more than forecast, to 57.9 from 52.3 in March, according to the New York-based private research group. Of the 193 companies in the S&P 500 Index that have reported first-quarter earnings, 85 percent have exceeded analysts’ per-share estimates, Bloomberg data show. With profits rising, the number of distressed companies, or those with yield spreads of more than 10 percentage points, relative to all high-yield U.S. credit fell to 6.7 percent as of April 15, S&P said in a statement. That’s down from 9.7 percent the previous month. ‘Sharp Retreat’ Junk bond prices approaching par “reflects the more favorable fundamental outlook, including lower default expectations, while for borrowers it implies more attractive rates,” said Eric Takaha , director of corporate and high-yield for the Franklin Templeton Fixed Income Group, which manages more than $230 billion. In the first quarter, 1.3 percent of companies with speculative-grade liquidity were downgraded, a “sharp retreat” from the 13.6 percent a year earlier, Moody’s said in a report. The firm predicts the U.S. speculative-grade default rate will fall to 3.1 percent by the end of the year, a from the trailing 12-month rate of 9.9 in the first quarter and 13 percent in December. ‘Tilted’ JPMorgan Chase & Co. analysts led by Peter Acciavatti , the top-ranked high-yield strategist in Institutional Investor magazine’s annual survey for the past seven years, said in an April 23 report to the bank’s clients that investors should remain “overweight” junk bonds. In their monthly report to clients, Morgan Stanley Investment Management said its portfolios are “tilted” toward investment-grade and high-yield debt. The firm pointed out that the average spread for junk bonds as measured by the Citi High Yield Market Index is 5.79 percentage points, compared with the average of 5.63 percentage points over the past 20 years. “Companies are starting to see the pickup in the economy translate into better earnings prospects,” said John Puchalla , an analyst at Moody’s. “We’ve seen likely the worst for a number of industries and if the cycle starts to pick up, then that’s translating into better cash flow projections.” To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Singapore to License Bigger Hedge-Funds as Scrutiny Increases After Crisis

April 27, 2010

By Netty Ismail April 28 (Bloomberg) — Hedge-fund firms in Singapore that manage more than S$250 million ($183 million) will need to be licensed under regulator proposals to increase oversight of the investment-management industry. Hedge-fund managers are currently exempt from holding a capital-markets services license provided they manage funds on behalf of 30 or fewer of what the Monetary Authority of Singapore describes as “qualified” investors. Under the proposals, managers with less than S$250 million won’t need a license, though they will have to maintain a base capital of at least S$250,000. The review is the most sweeping of the fund-management industry since the city-state introduced incentives to lure alternative asset managers in 2002, and comes as hedge funds and private-equity firms are under scrutiny from regulators and lawmakers worldwide, who say they are partly to blame for the worst financial crisis in a generation. Singapore’s hedge-fund industry has grown into Asia’s second biggest behind Hong Kong. “They’ve done a neat job of keeping the exempt regime which is probably the most sophisticated hedge-fund regulatory regime in any jurisdiction, but also being seen to have a regime for more substantial managers, which is much more homogenous with regulatory regimes elsewhere,” said Peter Douglas , the principal of GFIA, a Singapore-based hedge-fund consultancy firm that also runs a wealth management business. As fund-management firms expand their businesses and their assets under management grow, “they will require closer supervision in view of their greater market impact,” the MAS said in an e-mailed statement yesterday. Public Consultation The regulator is seeking comments from the public till May 31 on the proposed changes “to raise the quality and standard of players” and sustain the industry’s growth, it said. Fund-management firms that oversee S$250 million or less and serve not more than 30 qualified investors, of which 15 or fewer are funds, will need to maintain a base capital of at least S$250,000, the MAS said. These managers will be called “notified fund management companies,” according to the proposed changes. “While the authority recognizes the usefulness of the exempt fund-manager regime in facilitating the growth of the fund-management industry in Singapore, a review of the regime is timely given recent developments in the global regulatory landscape,” the MAS said. While the regulator said it understands the industry’s concern over increases in start-up costs, especially for smaller managers, maintaining a minimum base capital “improves the viability of new fund-management companies by acting as a buffer for unexpected costs, especially during adverse market conditions.” Capital Requirements The MAS also plans to introduce a new set of rules for licensed fund-management firms that serve “accredited” and institutional investors, it said. Hedge-fund managers with more than S$250 million in assets can apply for a license under this category. Fund-management firms that serve retail investors will need to be licensed, the MAS said. All fund managers will need to meet capital requirements and “business conduct,” including maintaining clients’ assets with independent custodians as well as segregating the duties between fund management and administration, the regulator said. The MAS “remains committed to building Singapore as a fund-management and alternative investment hub,” it said. The regulator, also Singapore’s central bank, in 2002 eased rules that limited investments in hedge funds to make it easier for them to set up in Singapore than in other Asian cities such as Hong Kong and Tokyo, helping fuel the industry’s growth in recent years. Expansion Singapore now has 138 single-strategy hedge-fund managers employing more than 800 professionals from near zero in 1997, according to a survey by the local chapter of the Alternative Investment Management Association. The industry oversees at least $34.9 billion, excluding assets managed by several of the large global firms, the survey said, making it Asia’s second biggest. The island-state’s “lighter regulatory touch” has enabled hedge-fund managers to set up business “relatively quickly,” without risking any delay in getting the necessary licenses from the regulator, according to an overview of the industry published by AIMA. The authority recognizes that the ease of setting up a fund-management business in Singapore and compliance costs are important to industry participants and has taken these factors into consideration, the MAS said in yesterday’s statement. World leaders, including the Group of 20 countries that make up most of the world’s economy, have called for stricter oversight of the pools of private capital in the wake of the global financial crisis. The size of Singapore’s asset management industry shrank about 26 percent to S$864 billion ($630 billion) in 2008 from a year earlier because of the global financial crisis, the authority said in its latest survey released in September. To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net

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Singapore to License Bigger Hedge-Funds as Scrutiny Increases After Crisis

April 27, 2010

By Netty Ismail April 28 (Bloomberg) — Hedge-fund firms in Singapore that manage more than S$250 million ($183 million) will need to be licensed under regulator proposals to increase oversight of the investment-management industry. Hedge-fund managers are currently exempt from holding a capital-markets services license provided they manage funds on behalf of 30 or fewer of what the Monetary Authority of Singapore describes as “qualified” investors. Under the proposals, managers with less than S$250 million won’t need a license, though they will have to maintain a base capital of at least S$250,000. The review is the most sweeping of the fund-management industry since the city-state introduced incentives to lure alternative asset managers in 2002, and comes as hedge funds and private-equity firms are under scrutiny from regulators and lawmakers worldwide, who say they are partly to blame for the worst financial crisis in a generation. Singapore’s hedge-fund industry has grown into Asia’s second biggest behind Hong Kong. “They’ve done a neat job of keeping the exempt regime which is probably the most sophisticated hedge-fund regulatory regime in any jurisdiction, but also being seen to have a regime for more substantial managers, which is much more homogenous with regulatory regimes elsewhere,” said Peter Douglas , the principal of GFIA, a Singapore-based hedge-fund consultancy firm that also runs a wealth management business. As fund-management firms expand their businesses and their assets under management grow, “they will require closer supervision in view of their greater market impact,” the MAS said in an e-mailed statement yesterday. Public Consultation The regulator is seeking comments from the public till May 31 on the proposed changes “to raise the quality and standard of players” and sustain the industry’s growth, it said. Fund-management firms that oversee S$250 million or less and serve not more than 30 qualified investors, of which 15 or fewer are funds, will need to maintain a base capital of at least S$250,000, the MAS said. These managers will be called “notified fund management companies,” according to the proposed changes. “While the authority recognizes the usefulness of the exempt fund-manager regime in facilitating the growth of the fund-management industry in Singapore, a review of the regime is timely given recent developments in the global regulatory landscape,” the MAS said. While the regulator said it understands the industry’s concern over increases in start-up costs, especially for smaller managers, maintaining a minimum base capital “improves the viability of new fund-management companies by acting as a buffer for unexpected costs, especially during adverse market conditions.” Capital Requirements The MAS also plans to introduce a new set of rules for licensed fund-management firms that serve “accredited” and institutional investors, it said. Hedge-fund managers with more than S$250 million in assets can apply for a license under this category. Fund-management firms that serve retail investors will need to be licensed, the MAS said. All fund managers will need to meet capital requirements and “business conduct,” including maintaining clients’ assets with independent custodians as well as segregating the duties between fund management and administration, the regulator said. The MAS “remains committed to building Singapore as a fund-management and alternative investment hub,” it said. The regulator, also Singapore’s central bank, in 2002 eased rules that limited investments in hedge funds to make it easier for them to set up in Singapore than in other Asian cities such as Hong Kong and Tokyo, helping fuel the industry’s growth in recent years. Expansion Singapore now has 138 single-strategy hedge-fund managers employing more than 800 professionals from near zero in 1997, according to a survey by the local chapter of the Alternative Investment Management Association. The industry oversees at least $34.9 billion, excluding assets managed by several of the large global firms, the survey said, making it Asia’s second biggest. The island-state’s “lighter regulatory touch” has enabled hedge-fund managers to set up business “relatively quickly,” without risking any delay in getting the necessary licenses from the regulator, according to an overview of the industry published by AIMA. The authority recognizes that the ease of setting up a fund-management business in Singapore and compliance costs are important to industry participants and has taken these factors into consideration, the MAS said in yesterday’s statement. World leaders, including the Group of 20 countries that make up most of the world’s economy, have called for stricter oversight of the pools of private capital in the wake of the global financial crisis. The size of Singapore’s asset management industry shrank about 26 percent to S$864 billion ($630 billion) in 2008 from a year earlier because of the global financial crisis, the authority said in its latest survey released in September. To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net

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Japanese, Australian Stock Futures Drop on European Debt Crisis; BHP Falls

April 27, 2010

By Norie Kuboyama and Kotaro Tsunetomi April 28 (Bloomberg) — Japanese and Australian stock futures fell, extending a global rout, after credit-rating downgrades of Greece and Portugal spurred concern Europe’s debt crisis will derail the global economic recovery. American depositary receipts of Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank by market value, finished 3 percent lower than the Tokyo close yesterday. Canon Inc., a camera maker that counts Europe as its largest market, lost 2.8 percent as the euro weakened against the yen. ADRs of BHP Billiton Ltd. , the world’s No. 1 mining company and Australia’s top oil producer, sank 2.8 percent as commodity prices tumbled. “Concerns about European budget issues are increasing again, and that’s discouraging people from putting their money into risk assets,” said Hiroichi Nishi , an equities manager in Tokyo at Nikko Cordial Securities Inc. “Investors are enticed to lock in profit after the recent gains.” Yen-denominated futures on Japan’s Nikkei 225 Stock Average expiring in June closed at 10,895 yesterday in Chicago, 2.8 percent lower than 11,205 in Singapore. They were bid in the pre-market at 10,840 as of 8:06 a.m. in Osaka, Japan. The Nikkei 225 closed at 11,212.66 yesterday. Futures on Australia’s S&P/ASX 200 Index slid 1.8 percent today. New Zealand’s NZX 50 Index fell 0.7 percent in Wellington. Futures on the Standard & Poor’s 500 Index were little changed today. The index retreated 2.3 percent yesterday in New York, its biggest drop since Feb. 4. The Stoxx Europe 600 Index fell 3.1 percent, its largest decline since Nov. 26. European Debt Concerns Greece’s credit rating was cut three steps to BB+, or junk, by Standard & Poor’s, the first time a euro member has lost its investment grade since the currency’s 1999 debut. The rating company also warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The Greek move came minutes after the rating company reduced Portugal by two steps to A-. The yen appreciated to 122.37 against the euro today from 125.62 at the 3 p.m. close of stock trading in Tokyo yesterday, reducing the value of overseas income at Japanese companies when converted into their home currency. The yen strengthened to 92.82 against the dollar from 93.94. Crude oil for June delivery dropped 2.1 percent yesterday in New York to $82.44, the lowest settlement price since April 19. The London Metal Exchange Index of six industrial metals, including copper and zinc, plummeted 4.6 percent, its biggest decline since June. The MSCI Asia Pacific Index was little changed at 127.18 yesterday, with almost two stocks falling for each one that rose. The gauge has climbed 11 percent from its low this year on Feb. 8 as better-than-estimated economic and earnings reports offset concern Greece will default on its debt. To contact the reporters for this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net ; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net .

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Japanese, Australian Stock Futures Drop on European Debt Crisis; BHP Falls

April 27, 2010

By Norie Kuboyama and Kotaro Tsunetomi April 28 (Bloomberg) — Japanese and Australian stock futures fell, extending a global rout, after credit-rating downgrades of Greece and Portugal spurred concern Europe’s debt crisis will derail the global economic recovery. American depositary receipts of Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank by market value, finished 3 percent lower than the Tokyo close yesterday. Canon Inc., a camera maker that counts Europe as its largest market, lost 2.8 percent as the euro weakened against the yen. ADRs of BHP Billiton Ltd. , the world’s No. 1 mining company and Australia’s top oil producer, sank 2.8 percent as commodity prices tumbled. “Concerns about European budget issues are increasing again, and that’s discouraging people from putting their money into risk assets,” said Hiroichi Nishi , an equities manager in Tokyo at Nikko Cordial Securities Inc. “Investors are enticed to lock in profit after the recent gains.” Yen-denominated futures on Japan’s Nikkei 225 Stock Average expiring in June closed at 10,895 yesterday in Chicago, 2.8 percent lower than 11,205 in Singapore. They were bid in the pre-market at 10,840 as of 8:06 a.m. in Osaka, Japan. The Nikkei 225 closed at 11,212.66 yesterday. Futures on Australia’s S&P/ASX 200 Index slid 1.8 percent today. New Zealand’s NZX 50 Index fell 0.7 percent in Wellington. Futures on the Standard & Poor’s 500 Index were little changed today. The index retreated 2.3 percent yesterday in New York, its biggest drop since Feb. 4. The Stoxx Europe 600 Index fell 3.1 percent, its largest decline since Nov. 26. European Debt Concerns Greece’s credit rating was cut three steps to BB+, or junk, by Standard & Poor’s, the first time a euro member has lost its investment grade since the currency’s 1999 debut. The rating company also warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The Greek move came minutes after the rating company reduced Portugal by two steps to A-. The yen appreciated to 122.37 against the euro today from 125.62 at the 3 p.m. close of stock trading in Tokyo yesterday, reducing the value of overseas income at Japanese companies when converted into their home currency. The yen strengthened to 92.82 against the dollar from 93.94. Crude oil for June delivery dropped 2.1 percent yesterday in New York to $82.44, the lowest settlement price since April 19. The London Metal Exchange Index of six industrial metals, including copper and zinc, plummeted 4.6 percent, its biggest decline since June. The MSCI Asia Pacific Index was little changed at 127.18 yesterday, with almost two stocks falling for each one that rose. The gauge has climbed 11 percent from its low this year on Feb. 8 as better-than-estimated economic and earnings reports offset concern Greece will default on its debt. To contact the reporters for this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net ; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net .

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Resistance to Boosting BOJ Stimulus Said to Rise on Japan Recovery Signs

April 27, 2010

By Masahiro Hidaka and Mayumi Otsuma      April 28 (Bloomberg) — Bank of Japan Governor Masaaki Shirakawa may find resistance among board members to expanding an emergency loan program after economic reports indicated the recovery is strengthening.     More members may oppose boosting the fund after two voted against doubling it to 20 trillion yen ($214 billion) last month, a person familiar with the matter said. The bank has yet to fully judge the impact of that step, said a second person informed of the matter. They spoke on condition of anonymity because the talks before the April 30 BOJ meeting were private.     The potential split reflects signs of a rebound — including unemployment at an 11-month low and the highest household confidence level since 2007 — with a lingering threat of deflation. Some board members may argue that enlarging the bank-loan program would help assure consumer prices rise, said economist Hiroaki Muto .      “We can’t completely rule out the chance that the BOJ will take more action this week, as the end of deflation is still far away,” said Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “But more board members will oppose easing amid improving signs for prices and economic growth.”      The central bank may upgrade its twice-yearly outlook for gross domestic product and prices at the meeting. Policy makers will predict an inflation rate of at least zero for the year ending March 2012, up from the current estimate for a 0.2 percent drop, according to 14 of 16 economists surveyed by Bloomberg News. Fall Short The projections are likely to fall short of the 1 percent rate that the central bank regards as meeting price stability, according to the median estimate of board members. The International Monetary Fund said last week that the BOJ must remain open to widening monetary easing to beat deflation. Prime Minister Yukio Hatoyama’s government wants even higher inflation, with Finance Minister Naoto Kan last week calling for price gains of as much as 2 percent and the ruling Democratic Party of Japan saying it may include a target in its platform for a July election. “The government and the ruling party won’t stop urging more easing unless a recovery is perceived more widely and solid price increases are achieved,” said Jun Ishii , chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “The government may intensify pressure in June, when it reveals economic growth strategies and fiscal reform plans.” Rate on Hold Shirakawa and his seven colleagues will keep the benchmark interest rate at 0.1 percent at the meeting, according to all 16 economists. Thirteen expect the bank to refrain from adding funds. The board’s policy decision and economic forecasts are scheduled to come hours after the government publishes data for March that may point to a sustained recovery, along with persistent deflation. Industrial production climbed 0.8 percent from the previous month, the jobless rate held at 4.9 percent and household spending rebounded, according to the median estimates of economists. Meanwhile consumer prices excluding fresh food, the bank’s preferred gauge, likely slid 1.2 percent from a year earlier, the survey of analysts showed. Japan’s rebound from its worst postwar recession is spreading from exporters as wage declines ease and job prospects brighten. Seven & I Holdings Co. and Fast Retailing Co., the nation’s biggest retailers by market value, this month raised their profit forecasts on increased demand. Stocks Rally Rising corporate earnings have started to stoke stocks, with the benchmark Nikkei 225 Stock Average rising 0.4 percent yesterday to 11,212.66 after Fanuc Ltd., IHI Corp. and Konica Minolta Holdings Ltd. reported their results. Governor Shirakawa has repeatedly said this month that the risk of another downturn has “pretty much gone.” Some policy makers have indicated they are open to more action to cement the recovery, while others say it’s not needed. Deputy Governor Kiyohiko Nishimura and board member Ryuzo Miyao have said over the past month that the effect of monetary easing may be more pronounced when the economy is picking up. By contrast, Miyako Suda and Tadao Noda opposed the doubling of the lending program in March, saying it wasn’t justified because of the economy’s improvement. The IMF cited a stronger yen as one risk for Japan’s recovery this year, given the economy’s reliance on exports rather than domestic demand. A surge in the currency to a 14- year high in November prompted the BOJ to introduce the bank- loan program, which offers funds to lenders at the 0.1 percent overnight rate, for three months. Any further monetary easing would focus on expanding the loan facility rather than “monetizing” the nation’s record debt by increasing its monthly purchases of government bonds, Sumitomo Mitsui’s Muto said. The central bank currently purchases 1.8 trillion yen of sovereign debt each month. “The BOJ will try to avert political calls for drastic monetization measures,” Muto said. “But the problem is, the bank can’t depend on this tool limitlessly as there isn’t much room left to beef it up.” To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net ; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

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Resistance to Boosting BOJ Stimulus Said to Rise on Japan Recovery Signs

April 27, 2010

By Masahiro Hidaka and Mayumi Otsuma      April 28 (Bloomberg) — Bank of Japan Governor Masaaki Shirakawa may find resistance among board members to expanding an emergency loan program after economic reports indicated the recovery is strengthening.     More members may oppose boosting the fund after two voted against doubling it to 20 trillion yen ($214 billion) last month, a person familiar with the matter said. The bank has yet to fully judge the impact of that step, said a second person informed of the matter. They spoke on condition of anonymity because the talks before the April 30 BOJ meeting were private.     The potential split reflects signs of a rebound — including unemployment at an 11-month low and the highest household confidence level since 2007 — with a lingering threat of deflation. Some board members may argue that enlarging the bank-loan program would help assure consumer prices rise, said economist Hiroaki Muto .      “We can’t completely rule out the chance that the BOJ will take more action this week, as the end of deflation is still far away,” said Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “But more board members will oppose easing amid improving signs for prices and economic growth.”      The central bank may upgrade its twice-yearly outlook for gross domestic product and prices at the meeting. Policy makers will predict an inflation rate of at least zero for the year ending March 2012, up from the current estimate for a 0.2 percent drop, according to 14 of 16 economists surveyed by Bloomberg News. Fall Short The projections are likely to fall short of the 1 percent rate that the central bank regards as meeting price stability, according to the median estimate of board members. The International Monetary Fund said last week that the BOJ must remain open to widening monetary easing to beat deflation. Prime Minister Yukio Hatoyama’s government wants even higher inflation, with Finance Minister Naoto Kan last week calling for price gains of as much as 2 percent and the ruling Democratic Party of Japan saying it may include a target in its platform for a July election. “The government and the ruling party won’t stop urging more easing unless a recovery is perceived more widely and solid price increases are achieved,” said Jun Ishii , chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “The government may intensify pressure in June, when it reveals economic growth strategies and fiscal reform plans.” Rate on Hold Shirakawa and his seven colleagues will keep the benchmark interest rate at 0.1 percent at the meeting, according to all 16 economists. Thirteen expect the bank to refrain from adding funds. The board’s policy decision and economic forecasts are scheduled to come hours after the government publishes data for March that may point to a sustained recovery, along with persistent deflation. Industrial production climbed 0.8 percent from the previous month, the jobless rate held at 4.9 percent and household spending rebounded, according to the median estimates of economists. Meanwhile consumer prices excluding fresh food, the bank’s preferred gauge, likely slid 1.2 percent from a year earlier, the survey of analysts showed. Japan’s rebound from its worst postwar recession is spreading from exporters as wage declines ease and job prospects brighten. Seven & I Holdings Co. and Fast Retailing Co., the nation’s biggest retailers by market value, this month raised their profit forecasts on increased demand. Stocks Rally Rising corporate earnings have started to stoke stocks, with the benchmark Nikkei 225 Stock Average rising 0.4 percent yesterday to 11,212.66 after Fanuc Ltd., IHI Corp. and Konica Minolta Holdings Ltd. reported their results. Governor Shirakawa has repeatedly said this month that the risk of another downturn has “pretty much gone.” Some policy makers have indicated they are open to more action to cement the recovery, while others say it’s not needed. Deputy Governor Kiyohiko Nishimura and board member Ryuzo Miyao have said over the past month that the effect of monetary easing may be more pronounced when the economy is picking up. By contrast, Miyako Suda and Tadao Noda opposed the doubling of the lending program in March, saying it wasn’t justified because of the economy’s improvement. The IMF cited a stronger yen as one risk for Japan’s recovery this year, given the economy’s reliance on exports rather than domestic demand. A surge in the currency to a 14- year high in November prompted the BOJ to introduce the bank- loan program, which offers funds to lenders at the 0.1 percent overnight rate, for three months. Any further monetary easing would focus on expanding the loan facility rather than “monetizing” the nation’s record debt by increasing its monthly purchases of government bonds, Sumitomo Mitsui’s Muto said. The central bank currently purchases 1.8 trillion yen of sovereign debt each month. “The BOJ will try to avert political calls for drastic monetization measures,” Muto said. “But the problem is, the bank can’t depend on this tool limitlessly as there isn’t much room left to beef it up.” To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net ; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

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Goldman Sachs `Armed’ Salespeople to Dump Mortgage Assets, E-mails Show

April 27, 2010

By Joshua Gallu and Jesse Westbrook April 28 (Bloomberg) — Goldman Sachs Group Inc. , seeking to reduce assets tied to the declining U.S. housing market, urged its sales force in 2006 and 2007 to sell those products to clients, newly disclosed internal e-mails show. The e-mails, including communications from Chief Executive Officer Lloyd Blankfein , show that employees discussed how to “arm” salespeople to shed bonds the firm found too risky to hold. The e-mails were released yesterday by Senator Carl Levin in connection with a hearing where current and former managers testified about the firm’s role in the financial crisis. Levin, the Michigan Democrat who heads the Senate’s Permanent Subcommittee on Investigations , grilled the executives about the firm’s bets against the housing market and its disclosure to clients. In one of the e-mails, Blankfein asked whether employees were doing enough to sell bonds backed by home loans including subprime mortgages. “Could/should we have cleaned up these books before and are we doing enough right now to sell off cats and dogs in other books throughout the division,” Blankfein, 55, wrote in an e- mail dated Feb. 11, 2007. The e-mails show that as early as the fall of 2006 clients were questioning products tied to the mortgage market. On Oct. 19, 2006, Mitchell Resnick sent an e-mail to two colleagues asking whether the firm had material about “how great” BBB bonds tied to home loans were. BBB is a credit rating from Moody’s Investors Service and Fitch Ratings that indicates an asset is two levels above junk. ‘Common Response’ “A common response I am hearing” from potential investors is “a concern about the housing market and BBB in particular,” Resnick wrote. “We need to arm sales with a bit more. Do we have anything?” Goldman Sachs Chief Financial Officer David Viniar convened a meeting of mortgage traders and risk managers on Dec. 14, 2006, according to a document prepared by the firm that the Senate panel released yesterday. At the time, Goldman Sachs had a “net long exposure” to the subprime-mortgage market, meaning the bank was betting the market would continue to rise. At the meeting, executives agreed that the firm should “reduce its overall exposure to the subprime mortgage market,” the document said. Goldman Sachs’s Stacey Bash-Polley sent an e-mail to colleagues six days later with the subject line “Mezz Risk,” a reference to lower tranches of collateralized debt obligations linked to mortgages. Investors in mezzanine tranches are among the first to lose money when the asset starts souring. ‘Thinking Collectively’ “We have been thinking collectively about how to help people move some of the risk,” wrote Bash-Polley, an executive in the Goldman Sachs division that sold bonds. “We need to make sure we arm” salespeople “with our pricing and have them focus on the more difficult positions.” In targeting clients, Bash-Polley wrote that Goldman Sachs should focus on those that “can possibly do larger size at a level that would be attractive when you take into consideration the size of risk we could move.” “Makes sense to me,” responded Kevin Gasvoda , a Goldman Sachs colleague. Goldman Sachs spokesman Samuel Robinson declined to comment on the e-mails. The Senate hearing comes less than two weeks after the U.S. Securities and Exchange Commission sued the firm and employee Fabrice Tourre , 31, on claims they withheld material information from investors in a CDO. Goldman Sachs said it will vigorously contest the case, and Tourre told the senators yesterday, “I deny categorically the SEC’s allegations.” Reasonable Expectation Levin said at the hearing that Goldman Sachs “profited by taking advantage of its clients’ reasonable expectation that it would not sell products that it didn’t want to succeed, and that there was no conflict of economic interest between the firm and the customers it had pledged to serve.” In a Sept. 26, 2007, e-mail released by the committee, Peter Kraus , Goldman Sachs’s then co-head of investment management, told Blankfein that some clients were expressing concern that the firm was making money for itself but not its customers. Goldman Sachs had reported six days earlier that third- quarter net income rose 79 percent to $2.85 billion after the bank bet against mortgage bonds. Kraus told Blankfein he had met with more than 10 clients and “individual prospects” since the earnings announcement. “The institutions don’t and I wouldn’t expect them to, make any comments like ur good at making money for urself but not us,” wrote Kraus, who left Goldman Sachs in September 2008 after working at the company for 22 years. “The individuals do sometimes, but while it requires the utmost humility from us in response, I feel very strongly it binds clients even closer to the firm. The alternative of take ur money to a firm who is an under performer and not the best, just isn’t reasonable. Clients ultimately believe association with the best is good for them in the long run,” he wrote. To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net ; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net

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Goldman Sachs `Armed’ Salespeople to Dump Mortgage Assets, E-mails Show

April 27, 2010

By Joshua Gallu and Jesse Westbrook April 28 (Bloomberg) — Goldman Sachs Group Inc. , seeking to reduce assets tied to the declining U.S. housing market, urged its sales force in 2006 and 2007 to sell those products to clients, newly disclosed internal e-mails show. The e-mails, including communications from Chief Executive Officer Lloyd Blankfein , show that employees discussed how to “arm” salespeople to shed bonds the firm found too risky to hold. The e-mails were released yesterday by Senator Carl Levin in connection with a hearing where current and former managers testified about the firm’s role in the financial crisis. Levin, the Michigan Democrat who heads the Senate’s Permanent Subcommittee on Investigations , grilled the executives about the firm’s bets against the housing market and its disclosure to clients. In one of the e-mails, Blankfein asked whether employees were doing enough to sell bonds backed by home loans including subprime mortgages. “Could/should we have cleaned up these books before and are we doing enough right now to sell off cats and dogs in other books throughout the division,” Blankfein, 55, wrote in an e- mail dated Feb. 11, 2007. The e-mails show that as early as the fall of 2006 clients were questioning products tied to the mortgage market. On Oct. 19, 2006, Mitchell Resnick sent an e-mail to two colleagues asking whether the firm had material about “how great” BBB bonds tied to home loans were. BBB is a credit rating from Moody’s Investors Service and Fitch Ratings that indicates an asset is two levels above junk. ‘Common Response’ “A common response I am hearing” from potential investors is “a concern about the housing market and BBB in particular,” Resnick wrote. “We need to arm sales with a bit more. Do we have anything?” Goldman Sachs Chief Financial Officer David Viniar convened a meeting of mortgage traders and risk managers on Dec. 14, 2006, according to a document prepared by the firm that the Senate panel released yesterday. At the time, Goldman Sachs had a “net long exposure” to the subprime-mortgage market, meaning the bank was betting the market would continue to rise. At the meeting, executives agreed that the firm should “reduce its overall exposure to the subprime mortgage market,” the document said. Goldman Sachs’s Stacey Bash-Polley sent an e-mail to colleagues six days later with the subject line “Mezz Risk,” a reference to lower tranches of collateralized debt obligations linked to mortgages. Investors in mezzanine tranches are among the first to lose money when the asset starts souring. ‘Thinking Collectively’ “We have been thinking collectively about how to help people move some of the risk,” wrote Bash-Polley, an executive in the Goldman Sachs division that sold bonds. “We need to make sure we arm” salespeople “with our pricing and have them focus on the more difficult positions.” In targeting clients, Bash-Polley wrote that Goldman Sachs should focus on those that “can possibly do larger size at a level that would be attractive when you take into consideration the size of risk we could move.” “Makes sense to me,” responded Kevin Gasvoda , a Goldman Sachs colleague. Goldman Sachs spokesman Samuel Robinson declined to comment on the e-mails. The Senate hearing comes less than two weeks after the U.S. Securities and Exchange Commission sued the firm and employee Fabrice Tourre , 31, on claims they withheld material information from investors in a CDO. Goldman Sachs said it will vigorously contest the case, and Tourre told the senators yesterday, “I deny categorically the SEC’s allegations.” Reasonable Expectation Levin said at the hearing that Goldman Sachs “profited by taking advantage of its clients’ reasonable expectation that it would not sell products that it didn’t want to succeed, and that there was no conflict of economic interest between the firm and the customers it had pledged to serve.” In a Sept. 26, 2007, e-mail released by the committee, Peter Kraus , Goldman Sachs’s then co-head of investment management, told Blankfein that some clients were expressing concern that the firm was making money for itself but not its customers. Goldman Sachs had reported six days earlier that third- quarter net income rose 79 percent to $2.85 billion after the bank bet against mortgage bonds. Kraus told Blankfein he had met with more than 10 clients and “individual prospects” since the earnings announcement. “The institutions don’t and I wouldn’t expect them to, make any comments like ur good at making money for urself but not us,” wrote Kraus, who left Goldman Sachs in September 2008 after working at the company for 22 years. “The individuals do sometimes, but while it requires the utmost humility from us in response, I feel very strongly it binds clients even closer to the firm. The alternative of take ur money to a firm who is an under performer and not the best, just isn’t reasonable. Clients ultimately believe association with the best is good for them in the long run,” he wrote. To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net ; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net

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Stocks, Euro Plunge as Treasuries Advance on European Credit-Rating Cuts

April 27, 2010

By Michael P. Regan April 27 (Bloomberg) — Stocks tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank. The S&P 500 lost 2.3 percent at 4 p.m. in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to the highest ever. Oil sank 2.1 percent, while gold rallied 0.7 percent. S&P lowered Greek debt to junk, while Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut the region’s largest budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. “It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.” Goldman Hearings The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs Group Inc. executives in Washington. U.S. trading volume slipped while Fabrice Tourre , an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released. U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.” “What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.” Goldman Rallies Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16. “The damage is already built into the stock price,” said Jason Weisberg , director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.” Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent. Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Debt Insurance Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365. The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22. The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008. Winning Streak Today’s sell-off follows eight straight weeks of gains for the Dow Jones Industrial Average , the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade. The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against. S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. Greece said today’s downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening. ‘Sustainable’ Plan German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible. “I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo , director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.” Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd. , the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped. Emerging Markets The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar. The Shanghai Composite Index slid 2.1 percent to the lowest level since October. China Vanke Co. dropped to a 13- month low after predicting “rapid” house-price gains will end as the government curbs real-estate loans. China may use capital requirements for developers as a policy tool to restrain the property market, Ba Shusong , deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

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Stocks, Euro Plunge as Treasuries Advance on European Credit-Rating Cuts

April 27, 2010

By Michael P. Regan April 27 (Bloomberg) — Stocks tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank. The S&P 500 lost 2.3 percent at 4 p.m. in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to the highest ever. Oil sank 2.1 percent, while gold rallied 0.7 percent. S&P lowered Greek debt to junk, while Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut the region’s largest budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. “It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.” Goldman Hearings The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs Group Inc. executives in Washington. U.S. trading volume slipped while Fabrice Tourre , an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released. U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.” “What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler , a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.” Goldman Rallies Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16. “The damage is already built into the stock price,” said Jason Weisberg , director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.” Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent. Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Debt Insurance Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365. The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22. The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008. Winning Streak Today’s sell-off follows eight straight weeks of gains for the Dow Jones Industrial Average , the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade. The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against. S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+. Greece said today’s downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening. ‘Sustainable’ Plan German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible. “I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo , director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.” Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd. , the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped. Emerging Markets The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar. The Shanghai Composite Index slid 2.1 percent to the lowest level since October. China Vanke Co. dropped to a 13- month low after predicting “rapid” house-price gains will end as the government curbs real-estate loans. China may use capital requirements for developers as a policy tool to restrain the property market, Ba Shusong , deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

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Greece’s Junk Contagion Pressures EU to Broaden Bailout After Market Rout

April 27, 2010

By Simon Kennedy and Emma Ross-Thomas April 28 (Bloomberg) — Europe’s worsening debt crisis is intensifying pressure on policy makers to widen a bailout package beyond Greece after a cut in the nation’s rating to junk drove up borrowing costs from Italy to Portugal and Ireland. As German Chancellor Angela Merkel delays approval of a 45 billion-euro ($59 billion) Greek rescue, the crisis is spreading. Portugal’s benchmark stock index yesterday fell the most since the aftermath of Lehman Brothers Holdings Inc.’s collapse, while the extra yield that investors demand to hold Italian and Irish debt over bunds rose to a 10-month high. The danger for European officials is that the fiscal turmoil which started six months ago with fudged Greek budget data will spin out of their control. As Greece waits for its euro-region partners to disperse funds, the European Union has announced no concrete plans to help other nations should aid be needed. The euro weakened to the lowest in a year. “Policy makers need to get ahead of the curve,” Eric Fine, who manages Van’s Eck’s G-175 Strategies emerging-market hedge fund. “This is no longer a problem about Greece or Portugal, but about the euro system.” Governments may hold a summit in early May to discuss Greece, officials said. The euro dropped 1.5 percent to $1.3183 yesterday, taking its decline for the year to 8 percent. The spread on the debt of Italy, the euro region’s third-largest economy, rose 30 basis points to 217 points. Portugal’s PSI-20 stock index dropped 5.4 percent, the most since October 2008. Real Risk “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” said Axel Botte , a fixed- income strategist at AXA Investment Managers in Paris. “The contagion risk is real.” Bonds plunged as Standard & Poor’s lowered its rating on Greece by three steps to BB+ from BBB+ and warned that investors could recover as little as 30 percent of their initial outlay if the country restructures its debt. The shift came minutes after the rating company reduced Portugal by two steps to A- from A+. The moves exacerbated concern that Portugal and other nations trying to cut budgets will be left to fend for themselves by an EU that took two months to agree on a plan for Greece. “As long as there is no Greek solution there will be continuous problems with the other peripheral economies,” said Gilles Moec , an economist at Deutsche Bank AG. “Every week we think we have clarification and then things become murkier.” Market Attack Portuguese Finance Minister Fernando Teixeira dos Santos said yesterday his country must react to “attacks by markets.” The crisis is deepening as German lawmakers debate whether to put taxpayers’ money at risk in the face of public opposition and an election in the state of North Rhine-Westphalia on May 9. Bild Zeitung , Germany’s biggest-selling tabloid, yesterday ran a front-page headline asking: “Why do we have to pay Greece’s luxury pensions?” European Central Bank President Jean-Claude Trichet, who declined to comment to reporters on yesterday’s downgrades, is in Berlin today to brief lawmakers on Greece’s deficit-cutting plans. The country is struggling to convince investors it can push its shortfall below the EU’s limit of 3 percent of gross domestic product from 13.6 percent last year. The yield on the Greek two-year note rose 505 basis points to 18.99 percent yesterday, more than 20 times the comparable German bond and 6 percentage points more than similar-maturity notes from Pakistan. Portugal’s 10-year bond yield jumped 41 basis points to 5.724 percent. Redemption Greece, which faces 8.5 billion euros in bonds coming due on May 19, must still agree on terms for its rescue package, which will be co-financed by the euro region and the International Monetary Fund. Greek Prime Minister George Papandreou last week activated the aid package and is facing fire from investors who say his budget steps need to go further and from voters who are staging strikes to protest further austerity measures. As the turbulence exposes the weakness of having a currency area without a single fiscal authority, some economists said policy makers need to create a lending mechanism that will help other euro areas members through fiscal crises. “What is missing in Europe is an authority that can back sovereigns through a crisis,” James Nixon , co-chief European economist at Societe Generale SA in London. “We desperately need this.” The ECB should consider the “nuclear option” of buying government bonds to fight the crisis, said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc. While the central bank is prohibited from buying assets directly from governments, it can do so on the secondary market. Shock “It sends a signal to investors that the ECB is confident member states won’t default,” said Cailloux. “It’s a powerful confidence shock.” ECB officials including Trichet have down played the risk of contagion from Greece, arguing other economies are in better shape even if they need to cut deficits. “There is no economic cause for a contagion discussion,” Governing Council member Ewald Nowotny said in an April 24 interview. Still, Ireland’s deficit was 14.3 percent of GDP last year, the highest in the EU. Spain’s was 11.2 percent and Portugal’s 9.4 percent. Marc Faber , the publisher of the Gloom, Boom & Doom report, said the time had come to eject euro members that repeatedly violated the region’s budget rules, even though no mechanism for such steps yet exists. “The best would be to kick out Greece and the countries that abuse the system,” Faber said in an interview. “They didn’t have the fiscal discipline that was essentially imposed by EU.” To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net ;

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Greece’s Junk Contagion Pressures EU to Broaden Bailout After Market Rout

April 27, 2010

By Simon Kennedy and Emma Ross-Thomas April 28 (Bloomberg) — Europe’s worsening debt crisis is intensifying pressure on policy makers to widen a bailout package beyond Greece after a cut in the nation’s rating to junk drove up borrowing costs from Italy to Portugal and Ireland. As German Chancellor Angela Merkel delays approval of a 45 billion-euro ($59 billion) Greek rescue, the crisis is spreading. Portugal’s benchmark stock index yesterday fell the most since the aftermath of Lehman Brothers Holdings Inc.’s collapse, while the extra yield that investors demand to hold Italian and Irish debt over bunds rose to a 10-month high. The danger for European officials is that the fiscal turmoil which started six months ago with fudged Greek budget data will spin out of their control. As Greece waits for its euro-region partners to disperse funds, the European Union has announced no concrete plans to help other nations should aid be needed. The euro weakened to the lowest in a year. “Policy makers need to get ahead of the curve,” Eric Fine, who manages Van’s Eck’s G-175 Strategies emerging-market hedge fund. “This is no longer a problem about Greece or Portugal, but about the euro system.” Governments may hold a summit in early May to discuss Greece, officials said. The euro dropped 1.5 percent to $1.3183 yesterday, taking its decline for the year to 8 percent. The spread on the debt of Italy, the euro region’s third-largest economy, rose 30 basis points to 217 points. Portugal’s PSI-20 stock index dropped 5.4 percent, the most since October 2008. Real Risk “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” said Axel Botte , a fixed- income strategist at AXA Investment Managers in Paris. “The contagion risk is real.” Bonds plunged as Standard & Poor’s lowered its rating on Greece by three steps to BB+ from BBB+ and warned that investors could recover as little as 30 percent of their initial outlay if the country restructures its debt. The shift came minutes after the rating company reduced Portugal by two steps to A- from A+. The moves exacerbated concern that Portugal and other nations trying to cut budgets will be left to fend for themselves by an EU that took two months to agree on a plan for Greece. “As long as there is no Greek solution there will be continuous problems with the other peripheral economies,” said Gilles Moec , an economist at Deutsche Bank AG. “Every week we think we have clarification and then things become murkier.” Market Attack Portuguese Finance Minister Fernando Teixeira dos Santos said yesterday his country must react to “attacks by markets.” The crisis is deepening as German lawmakers debate whether to put taxpayers’ money at risk in the face of public opposition and an election in the state of North Rhine-Westphalia on May 9. Bild Zeitung , Germany’s biggest-selling tabloid, yesterday ran a front-page headline asking: “Why do we have to pay Greece’s luxury pensions?” European Central Bank President Jean-Claude Trichet, who declined to comment to reporters on yesterday’s downgrades, is in Berlin today to brief lawmakers on Greece’s deficit-cutting plans. The country is struggling to convince investors it can push its shortfall below the EU’s limit of 3 percent of gross domestic product from 13.6 percent last year. The yield on the Greek two-year note rose 505 basis points to 18.99 percent yesterday, more than 20 times the comparable German bond and 6 percentage points more than similar-maturity notes from Pakistan. Portugal’s 10-year bond yield jumped 41 basis points to 5.724 percent. Redemption Greece, which faces 8.5 billion euros in bonds coming due on May 19, must still agree on terms for its rescue package, which will be co-financed by the euro region and the International Monetary Fund. Greek Prime Minister George Papandreou last week activated the aid package and is facing fire from investors who say his budget steps need to go further and from voters who are staging strikes to protest further austerity measures. As the turbulence exposes the weakness of having a currency area without a single fiscal authority, some economists said policy makers need to create a lending mechanism that will help other euro areas members through fiscal crises. “What is missing in Europe is an authority that can back sovereigns through a crisis,” James Nixon , co-chief European economist at Societe Generale SA in London. “We desperately need this.” The ECB should consider the “nuclear option” of buying government bonds to fight the crisis, said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc. While the central bank is prohibited from buying assets directly from governments, it can do so on the secondary market. Shock “It sends a signal to investors that the ECB is confident member states won’t default,” said Cailloux. “It’s a powerful confidence shock.” ECB officials including Trichet have down played the risk of contagion from Greece, arguing other economies are in better shape even if they need to cut deficits. “There is no economic cause for a contagion discussion,” Governing Council member Ewald Nowotny said in an April 24 interview. Still, Ireland’s deficit was 14.3 percent of GDP last year, the highest in the EU. Spain’s was 11.2 percent and Portugal’s 9.4 percent. Marc Faber , the publisher of the Gloom, Boom & Doom report, said the time had come to eject euro members that repeatedly violated the region’s budget rules, even though no mechanism for such steps yet exists. “The best would be to kick out Greece and the countries that abuse the system,” Faber said in an interview. “They didn’t have the fiscal discipline that was essentially imposed by EU.” To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net ;

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Timothy Geithner: Using Education to Cope With a Complex Economy

April 27, 2010

While Americans from Wall Street to Main Street focus on much-needed financial reforms that will set and enforce clear rules across the financial marketplace, we also need to recognize that most Americans don’t have the knowledge and skills they need to make the right financial decisions for themselves and their families. Last year, the FINRA Investor Education Foundation’s National Financial Capability Study , conducted in consultation with the Department of the Treasury, found that too many Americans are giving away their hard-earned dollars to bank and credit card fees. Most don’t maintain a rainy-day fund for emergencies. Few are able to perform basic interest calculations necessary to compare the cost of a loan or to figure out how much to try to save. On just about all measures, the study found young adults are the least money-savvy. In December, the administration announced the National Financial Capability Challenge, a partnership between the Departments of Treasury and Education focused on promoting financial education among high school students and assessing their knowledge of personal finance. The results are in. More than 2,500 teachers and 76,000 students in all 50 states participated in the voluntary exam, which shows interest is strong. But the scores were disappointing. The average student is just squeaking by with 70% correct. Students failed to answer basic questions about credit cards, car insurance, and compound interest. This shows we have a lot of work to do. Luckily we have important models to follow. For example, at Stonewall Jackson High School in Manassas, VA, teacher Terri Carson helps students manage the student-run credit union and includes a financial literacy boot camp in all her classes. She had over 100 students take the Challenge. Over half of them scored in the top 20% nationally; 17 had perfect scores. Those results are commendable, and Carson is working to replicate them. She is hoping to work with her school and the Prince William County School District to make sure that all students demonstrate a basic understanding of personal finance in order to graduate. Today we are recognizing Carson and many teachers and students who participated in the National Financial Capability Challenge, for their commitment to financial education. We hope to see more locally driven efforts to make youth financial education a priority in schools across the country. At the same time, we’ll be doing our part at the federal level. In our schools, we will promote a well-rounded education that includes financial literacy. We will give consumers the information and education they need to make smart financial choices. And we will work to provide all American families with access to the bank accounts they need to manage their daily finances. The agenda is clear. Let’s pass serious financial reform. Let’s promote financial access. And at the same time, let’s make sure that we are providing all Americans — especially our youth — with the financial education they need to succeed in this increasingly complex, fast-moving economy. Their futures — and ours — depend on it. Timothy Geithner is the current U.S. Secretary of the Treasury. Arne Duncan is the current Secretary of Education. And Valerie Jarrett is an Obama White House Senior Advisor.

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Timothy Geithner: Using Education to Cope With a Complex Economy

April 27, 2010

While Americans from Wall Street to Main Street focus on much-needed financial reforms that will set and enforce clear rules across the financial marketplace, we also need to recognize that most Americans don’t have the knowledge and skills they need to make the right financial decisions for themselves and their families. Last year, the FINRA Investor Education Foundation’s National Financial Capability Study , conducted in consultation with the Department of the Treasury, found that too many Americans are giving away their hard-earned dollars to bank and credit card fees. Most don’t maintain a rainy-day fund for emergencies. Few are able to perform basic interest calculations necessary to compare the cost of a loan or to figure out how much to try to save. On just about all measures, the study found young adults are the least money-savvy. In December, the administration announced the National Financial Capability Challenge, a partnership between the Departments of Treasury and Education focused on promoting financial education among high school students and assessing their knowledge of personal finance. The results are in. More than 2,500 teachers and 76,000 students in all 50 states participated in the voluntary exam, which shows interest is strong. But the scores were disappointing. The average student is just squeaking by with 70% correct. Students failed to answer basic questions about credit cards, car insurance, and compound interest. This shows we have a lot of work to do. Luckily we have important models to follow. For example, at Stonewall Jackson High School in Manassas, VA, teacher Terri Carson helps students manage the student-run credit union and includes a financial literacy boot camp in all her classes. She had over 100 students take the Challenge. Over half of them scored in the top 20% nationally; 17 had perfect scores. Those results are commendable, and Carson is working to replicate them. She is hoping to work with her school and the Prince William County School District to make sure that all students demonstrate a basic understanding of personal finance in order to graduate. Today we are recognizing Carson and many teachers and students who participated in the National Financial Capability Challenge, for their commitment to financial education. We hope to see more locally driven efforts to make youth financial education a priority in schools across the country. At the same time, we’ll be doing our part at the federal level. In our schools, we will promote a well-rounded education that includes financial literacy. We will give consumers the information and education they need to make smart financial choices. And we will work to provide all American families with access to the bank accounts they need to manage their daily finances. The agenda is clear. Let’s pass serious financial reform. Let’s promote financial access. And at the same time, let’s make sure that we are providing all Americans — especially our youth — with the financial education they need to succeed in this increasingly complex, fast-moving economy. Their futures — and ours — depend on it. Timothy Geithner is the current U.S. Secretary of the Treasury. Arne Duncan is the current Secretary of Education. And Valerie Jarrett is an Obama White House Senior Advisor.

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Steven G. Brant: The Death of Goldman Sachs

April 27, 2010

I saw something die today. It didn’t die accidentally either. It was killed. This was a very painful event to watch, not just because death is tragic and not because this death was intentional rather than accidental. It was very painful to watch because the thing being killed didn’t even know it was dying… and it didn’t know it was actually participating in its own death. It didn’t know it was helping the hangman not just put the noose around its neck but helping the hangman open the trap door under its feet. What died today was Goldman Sachs. It has existed for 140 years. But today all that ended, as the head of Goldman Sachs, Lloyd Blankfein, in his prepared remarks before the Senate Governmental Affairs Subcommittee on Investigations , said “We have been a client-centered firm for 140 years and if our clients believe that we don’t deserve their trust, we cannot survive.” That was Lloyd Blankfein putting the noose around Goldman Sachs’ neck. And then – in his opening exchange with Subcommittee chair Senator Carl Levin – Lloyd Blankfein proved that Goldman Sachs absolutely, positively does not deserve the trust of its clients. That was Lloyd Blankfein helping open the door under Goldman Sachs’ feet. In his Senate appearance, Lloyd Blankfein participated in the death of his own company. It was really a stunning thing to watch. I expect Goldman Sachs to be out of business by the end of this year and maybe before the November election. That’s just my opinion, of course. But I’ll justify it in a moment. I will post C-Span’s coverage of this testimony as soon as it’s available. I predict it will be viewed for years to come by students of business ethics but also by students of famous moments in the civic life of America. I believe this moment will be seen on par with the famous incident in which Senator McCarthy was brought down with the simple question “Have you no sense of decency?” Senator Carl Levin’s simple question – the one that killed Goldman Sachs – was “Do you think its proper for Goldman Sachs to bet against the security it is selling to a client without telling that client that it is making that bet?” (I will check the transcript later, to make sure I have the wording of this question correct.) Mr. Blankfein said over and over again that it was proper for Goldman Sachs to do what they had done. He even said at one point that the minute Goldman Sachs sells something to its customer, it no longer owns that security and has “the opposite interest” to its client regarding that security. This was just one of many breathtaking moments, as I could tell that Mr. Blankfein had no idea what he was doing to his firm. In late 2001, the collapse of ENRON led to the death of the legendary accounting firm Arthur Andersen . Arthur Anderson’s reputation was unmatched in the field; but, in 2002, Arthur Andersen was found guilty of criminal charges related to its auditing of ENRON and gave up its license to practice accounting. Criminal behavior. No trust. Reputation destroyed. No customers. Firm dead Welcome to the Arthur Andersen reality, Goldman Sachs. Criminal charges of fraud brought , and there may be more coming . No trust. Reputation destroyed. No customers. Firm dead. What a fascinating time we are living in. If things really do play out the way they did with ENRON and Arthur Andersen – and I think they will – I guess we’ll be able to say that there is such a thing as white-collar justice in America.

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Simon Johnson: Three Modest Proposals For Goldman Sachs

April 27, 2010

The following is also posted on BaselineScenario.com At this stage in the proceedings, the Goldman Sachs’ public relations people must be feeling more than a little down. The firm’s lawyers are still breathing fire, Lloyd Blankfein trod the fine line between not being apologetic and actually saying “it’s capitalism, stupid”, and the more junior executives interrogated today did not say anything blatantly incriminating. But the public image of the firm around the world – including with finance ministers and pension funds – has taken a severe beating. In the interests of finding a more positive and cooperative way forward, here are three suggestions for the PR team to take up with senior management – once they are in mood to think long-term about their “franchise value” again. Come out in support of some form of financial reform. The really clever move would be to support something that is not likely to pass, such as size restriction on the biggest banks – keeping in mind that this would hinder JP Morgan Chase and Citigroup much more than Goldman (which was a much safer size not so long ago). Almost as smart would be to endorse the consumer protection agency for financial products – given that Goldman does not deal with many retail investors. In any case, surprise us with support for something that the administration in general or Mr. Volcker in particular is proposing. Create a corporate pledge not to use “astro turf”/fake grass-roots organizations to spread disinformation, then invite other leading firms to sign on. The current leading fraud in this area is incredibly embarrassing for the financial sector ; in the language of Jamie Dimon, it self-demonizes the entire industry. Why would you, Goldman Sachs, want this? This is not a good trade and it is getting worse; the traditional deniability claims will not help against the coming backlash. Close the position – and make sure you get maximum public relations points for doing so. Settle the SEC case as soon as possible. Pay whatever it takes. Agree to change the nature of your business, if necessary. You know that the next crazy boom will take a different form in any case. All the feds really want to do is to bolt the stable door after the horse is long gone; at least allow them that face-saving measure. Goldman Sachs is at a crossroads. Either they can significantly change their image in our society or they can face the consequences. All the senators I saw at the hearing today were angry, with good reason, with one or more (or all) of Wall Street’s practices. Senator Ted Kaufman is not a lonely voice any more . He has brought a lot of smart, motivated, and focused mainstream people with him. Goldman should get out of ahead of this curve as quickly as possible – and the other big players on Wall Street should do the same. If the megabanks do not take major steps towards making amends (and themselves safer, in a deep structural sense), we are heading for a long and painful (for the banks and their employees) period of confrontation. It is all so unnecessary. The Wall Street temptation, of course, will be to just increase campaign contributions – and I’m sure we will see some of that. But remember that Goldman has already become toxic in some European quarters. Politicians would be well advised not to accept their donations at this time; and Goldman would do much better to find more positive, pro-society ways to address the Senate’s legitimate concerns about their behavior.

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Greater New York Launch A Victory Party In The Middle Of A War

April 27, 2010

Last night’s Wall Street Journal blowout had all the makings of a victory party. As a few hundred of New York’s most prominent personalities looked on, faces alternating the colors of the lights shining beneath the dome of Gotham Hall, Rupert Murdoch spoke of the launch of the paper’s new Greater New York section as if he’d just found the final piece to an unsolvable puzzle. With the new section, Murdoch told the crowd, the paper would bring a “fresh, robust perspective” on the “city, the country, and the world.” It will be, Murdoch continued, “New Yorkers’ essential source for news and information.” Bold words for something less than 24-hours old, but coupled with the earlier announcement that the Journal had overtaken USA Today as the country’s number one paper, there were more than a few in the audience who believed it. To drive that last point home, Murdoch couldn’t help but reference a certain Gray Lady whose name was on everyone’s minds, mentioning with barely constrained smugness that the New York Times local circulation had “declined by 40 percent over the past several years.” The audience laughed and cheered, and looking around at the top shelf open bar, the three types of smoked salmon, and endless assortment of delectables and delicacies, one could understand why: in a sense, they had won. New York loves an up-and-comer, a rookie to cheer for, even if that newcomer is part of a hundred-year-old company and related to Fox News. The Times is fading, scaling back and reformatting. Nobody loves a loser. Just ask the Knicks. The Journal is moving forward, somehow, and in many minds that means progress, and progress means not having to look too hard at the barren wasteland of New York’s once-fertile media landscape. It means that the last three years didn’t really happen. Or if they did, then that they weren’t really the harbingers of doom that all had predicted. Murdoch was pushing forward as only he and a handful of others in the world could. And the crowd, no matter how prominent or small the personality, wanted to come too. Everyone (save perhaps the mayor himself) wanted to hitch their wagons to the near-octogenarian Australian: they wanted to believe. So, for an evening Murdoch and the Wall Street Journal truly had won. Not a war, as many in the company would surely like to believe, but just one battle in what will surely be a long line of them. Will Murdoch be able to keep people believing? Only time will tell. (For photos from the event, CLICK HERE )

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Oil Spill Gulf Of Mexico 2010: Congress Demands Answers From BP, TransOcean As Feds Launch Investigation

April 27, 2010

As the massive oil spill caused by the worst rig explosion in decades continues to spread across the Gulf of Mexico, more questions are being raised about the safety procedures and environmental response plans of BP and TransOcean, the oil behemoth and contractor drilling the well. On Monday, the Huffington Post reported that BP and Transocean, along with dozens of other members of the oil industry, have vigorously opposed new safety regulations proposed last year by a federal agency that oversees offshore drilling. The new regulations, which have been attacked by the industry in over 100 letters sent to the agency, were prompted by a study showing many accidents on such rigs from 2001 to 2007. In addition, a lawsuit filed by the wife of one of the 11 oil workers presumed dead in the accident claims that the companies violated “numerous statutes and regulations” issued by federal agencies. The cause of the explosion has not been determined. Now, members of Congress are demanding answers from the companies and the agency and administration officials have launched a full investigation of the incident. Homeland Security Secretary Janet Napolitano and Energy Secretary Ken Salazar announced a joint investigation into the incident, with the power to issue subpoenas, hold public hearings and call witnesses. “We will remain focused on providing every resource we can to support the massive response effort underway at the Deepwater Horizon, but we are also aggressively and quickly investigating what happened and what can be done to prevent this type of incident in the future,” said Salazar. Sen. Robert Menendez (D-N.J.) wrote a letter to MMS on Tuesday, demanding that the agency “stand up to industry pressure, and finalize its proposed rulemaking” to require operators to develop and implement a safety and environmental management plan for offshore oil and gas development. He continues: Until the investigation is complete we have no way of knowing whether this rule could have prevented the tragedy at the Deepwater Horizon oil rig, but if this rule can make oil rig operations safer then we should finalize the rule as soon as possible. I understand BP and other major oil operators have opposed this rulemaking, but given the current tragedy unfolding in the Gulf of Mexico it seems clear that tighter safety procedures are in order. In addition, the House Committee On Energy and Commerce announced an investigation into the companies’ environmental response plan to the incident, including “the adequacy of the companies’ risk management.” Chairman Henry A. Waxman (D-Calif.) and Subcommittee Chairman Bart Stupak (D-Mich.) sent letters to Lamar McKay, the chairman and president of BP America, and Steven Newman, president and CEO of TransOcean. Also, BP is being investigated by MMS over a whistleblower’s claims that the company violated federal law by not keeping key documents related to another deepwater production platform in the Gulf of Mexico, reports the Guardian . Spokespersons for BP and TransOcean did not return calls for comment. Read the letter from Sen. Menendez to MMS: 20100427150956845

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Felix Salmon: Despite Reform Efforts, ‘Big Banks Have Enough Lobbying Power To Continue Taking Big Risks’ (VIDEO)

April 27, 2010

Felix Salmon , Reuters’ widely influential blogger, sat down with Huffington Post’s Ryan McCarthy at the Milken Institute’s Global Conference, to talk about the SEC’s case against Goldman Sachs and the future of the U.S. financial system. (Check out Salmon’s blog here .) The SEC’s civil fraud charges against Goldman Sachs wouldn’t have surprised anyone they had been filed against Bear Stearns or Merrill Lynch, Salmon observed. But the “noble bank of Robert Rubin,” he said, has shocked the public, and revealed Goldman to be no different than the “other traders on Wall Street who are just out to make a quick buck.” Salmon went on to suggest that the Senate subcommittee’s focus in today’s hearings on Goldman’s shorting of the mortgage market is misguided. “That’s what banks do,” say Felix. “There’s nothing inherently wrong about having a short position in the mortgage market.” The current proposals to establish a $50 billion fund paid by banks to absorb losses of failed financial firms won’t cover the costs of the kind of large-scale meltdown that occurred over the last few years, Salmon noted. “This financial crisis certainly cost more than $50 billion dollars,” Salmon said, “but [the fund] is definitely a start.” When asked whether banks will begin to be regulated more like utilities, Salmon suggested that, even with the financial reform poised to move through the Senate, the industry will have enough lobbying firepower to retain its core profit sectors. “We will see a banking system that’s more like a utility system in one year. The question is how close do we get? Do we get to a system with very boring banks like Canada where everyone can sleeps well at night, and no one has to worry about it? Or do we still have a system where banks are competing hard… and trying to be the center of financial universe, which is always going to be much more dangerous. I think that, realistically, the big banks have enough lobbying power to continue to take big risks. ” WATCH the interview:

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Norb Vonnegut: Goldman Sachs, Goldfish Eat Their Young

April 27, 2010

Is paranoia necessary to survive on Wall Street? In one sense, Goldman Sachs is no different from other investment banks. Junior employees are expendable. Like goldfish, investment banks eat their young when brand-protection and self-interest make cannibalism seem rationale. Smart guys, rainmakers, anybody in the trenches–they’re all vulnerable. Case in point: “fabulous Fab” otherwise known as Fabrice Tourre. He’s thirty-one. His time at Goldman Sachs, it seems, is running out. I’m no apologist for Tourre. But he’s turning into a villain, which misses the point. Here’s why: 1. During 2006, Goldman’s traders clashed over the direction of subprime mortgages. According to the New York Times , there were two camps inside Goldman Sachs. The pro-CDO traders enjoyed the upper hand until the fourth quarter of 2006. They placed big bets that mortgage bonds were safe and would rise in value. These traders skirmished with others inside Goldman, who were structuring bets against subprime. In a firm the size Goldman Sachs, it’s plausible that different camps had conflicting calls on CDOs. 2. Fabrice Tourre, negative on CDOs, found a way to do business. There are no bonuses for avoiding train wrecks. Wall Street pays employees to write business. Not to wring hands and cry, “The sky is falling.” Tourre generated $15 million in fees from a hedge fund that shared his skepticism. Abacus 2007-AC1 was a synthetic CDO, which means it was based on credit default swaps. Said another way, Abacus 2007-AC1 could only exist by virtue of an investor’s negative sentiment. In this case, it was John Paulson. 3. After subprime blew up, Goldman employees acknowledged Tourre’s prescient call. Goldman Sachs made $4 billion on its short bets during 2007. I never worked at Goldman and have no direct knowledge whether Tourre reached hero status. But employees, according to The New York Times , acknowledged and respected his market savvy. “Egol and Fabrice were way ahead of their time,” said a former Goldman worker. “They saw the writing on the wall in this market as early as 2005.” Somewhere along the way, Tourre received a $2 million bonus. Investment banks don’t pay this kind of money to people who do a bad job. 4. In an angry world, Tourre became an easy target. Goldman paid about $16 billion in bonuses on its 2009 bungee-jump earnings. This comp decision turned into the mother of all PR nightmares –except perhaps for one. Fabrice Tourre wrote some really unfortunate e-mails. First, there was “fabulous Fab.” Tourre’s words evoke images dating back to Tom Wolfe’s Bonfire of the Vanities . Now, there are additional e-mails that reveal Tourre’s doubts about subprime and details about his personal life. On Saturday, Goldman released them, which led the Wall Street Journal to write: The scope of the released documents led to widespread speculation that Goldman was seeking to make more-senior executives who also are caught in an uncomfortable political and public-relations spotlight look better by comparison to the 31-year-old trader. I’m not buying it. Fish rot from the head down. And so do corporations. If Goldman Sachs turned negative on the subprime sector during the first quarter of 2006, why didn’t they pull the Abacus 2007-AC1 deal at the last minute. Firms pull deals all the time. 5. It’s not just “client beware.” It’s “employee beware.” We’ll see what happens to Tourre in the months to come. On the Abacus 2007-AC1 pitch book, I counted the names of sixteen Goldman Sachs employees. It’s not clear, from the marketing materials, why Tourre was so prominent on this deal. We know Goldman will maximize its self interest. It’s normal behavior. We know Goldman faces huge challenges to its brand. There’s not only the Abacus problem but also the allegations that link an ex-director to insider trading at Galleon. What we don’t know, in the aftermath of the financial crisis, is whether the employees of investment banks can trust their firms. If firms sacrifice their employees, Tourre in this case, what kind of future does scapegoating spell for Wall Street and the guys in the trenches? Norb Vonnegut

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Jim Randel: Playing Whack-A-Mole with the Regulators

April 27, 2010

As Congress contemplates how to sculpt the next phase of regulations to prevent overaggressive or unethical conduct in the financial world, we need to ask a basic question. Can the regulators ever keep up? It is my feeling that whereas of course well-crafted regulations administered by nimble regulators can make a difference, they can never anticipate or prevent all the schemers. There will always be creative types willing to trade fair play for great pay. That is why consumers need to educate themselves. Consumers must be the front line in the fight against unethical and illegal conduct intended to remove money from their wallets. Consumers need to be helped by a national commitment to financial literacy. For example, it is a shame that our high schools and colleges do not require courses that educate young adults about mortgages, credit cards, debt instruments, budgeting and investing. In my view, we will never be able to regulate away all the potential bad conduct. Although we have to try, we also must devote an equivalent amount of energy and capital to raising the financial literacy of our young adults. Jim Randel is the founder of award-winning Skinny On™ book series, unique explanations of important financial topics. See www.theskinnyon.com

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CEOs’ Looks Affect How Much Money They Make

April 27, 2010

After conducting what they bluntly call “beauty contest experiments” involving scores of big-company CEOs, Duke business-school researchers say “competent” looking bosses get paid more regardless of company profitability.

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CEOs’ Looks Affect How Much Money They Make

April 27, 2010

After conducting what they bluntly call “beauty contest experiments” involving scores of big-company CEOs, Duke business-school researchers say “competent” looking bosses get paid more regardless of company profitability.

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Kim Davis: PRODUCT WARRANTY PROPOSAL FOR THE RATINGS AGENCIES

April 27, 2010

PRODUCT WARRANTY PROPOSAL FOR RATINGS AGENCIES An enduring mystery of the debate about regulatory reform is the extent to which the ratings agencies are a second order issue of concern. Firms like S&P and Moody’s are Nationally Recognized Statistical Rating Organizations (or “NRSRO”) and issue credit ratings that the SEC permits other financial firms to use for certain regulatory purposes. This imprimatur of legitimacy creates a lucrative revenue base for these firms; but they are fundamentally unregulated and unsupervised. Their reckless issuance of AAA ratings in combination with their quasi official status fueled the permissive atmosphere that led to an explosion in the issuance of worthless mortgage backed securities – perhaps the most immediate single cause of our financial system meltdown. I believe that there is a simple solution if we want the managements of these firms to administer the ratings process with the degree of intellectual integrity and analytical rigor that the investing public should have expected and now should demand. Specifically, any financial system regulatory overhaul bill should include a provision that would impose a defined liability for the rating agencies when a bond defaults. Essentially, this would be mandated product warrantly. The amount of warranty coverage provided by a ratings firm would vary depending on whether a bond had been rated AAA ( in which case, if it defaults, they were really, really wrong and should have a large warranty exposure) or BB ( in which case, if it defaults, they were perhaps only slightly wrong). No warranties would be required for any bonds rated below BB on the theory that those types of bonds are, by definition, speculative and the fact that no warranty would be applicable would be a proper admonition to any potential buyer with respect to the due diligence that should be performed in connection with a purchase of such a security. If the warranty were calculated as a variable percentage of the face value of the bond with the percentage dependent upon the initial rating ( the higher the rating, the higher the percentage) then the agencies would have a strong economic interest to get the ratings right. The ratings agencies probably would raise the prices they charge for issuing ratings due to the “product warranty” exposure. However, those price increases will be limited both by natural competition between the firms and by the fact that, over time, the very presence of the warranty exposure will lead to higher quality ratings and minimal payouts. Nonetheless, even if the cost of ratings rises somewhat, our financial system will be a lot sounder if we have a systemically higher quality ratings process. The point of this proposal is to create a system that does not rely on a lengthy court process to determine whether the ratings agencies acted in good faith when a bond turns out to have been materially misrated; rather it is to implement a system where the ratings agencies, in return for the right to benefit from the revenue that they generate as a result of their status as an NRSRO, should bear clear liability for the quality of their work.

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Kim Davis: PRODUCT WARRANTY PROPOSAL FOR THE RATINGS AGENCIES

April 27, 2010

PRODUCT WARRANTY PROPOSAL FOR RATINGS AGENCIES An enduring mystery of the debate about regulatory reform is the extent to which the ratings agencies are a second order issue of concern. Firms like S&P and Moody’s are Nationally Recognized Statistical Rating Organizations (or “NRSRO”) and issue credit ratings that the SEC permits other financial firms to use for certain regulatory purposes. This imprimatur of legitimacy creates a lucrative revenue base for these firms; but they are fundamentally unregulated and unsupervised. Their reckless issuance of AAA ratings in combination with their quasi official status fueled the permissive atmosphere that led to an explosion in the issuance of worthless mortgage backed securities – perhaps the most immediate single cause of our financial system meltdown. I believe that there is a simple solution if we want the managements of these firms to administer the ratings process with the degree of intellectual integrity and analytical rigor that the investing public should have expected and now should demand. Specifically, any financial system regulatory overhaul bill should include a provision that would impose a defined liability for the rating agencies when a bond defaults. Essentially, this would be mandated product warrantly. The amount of warranty coverage provided by a ratings firm would vary depending on whether a bond had been rated AAA ( in which case, if it defaults, they were really, really wrong and should have a large warranty exposure) or BB ( in which case, if it defaults, they were perhaps only slightly wrong). No warranties would be required for any bonds rated below BB on the theory that those types of bonds are, by definition, speculative and the fact that no warranty would be applicable would be a proper admonition to any potential buyer with respect to the due diligence that should be performed in connection with a purchase of such a security. If the warranty were calculated as a variable percentage of the face value of the bond with the percentage dependent upon the initial rating ( the higher the rating, the higher the percentage) then the agencies would have a strong economic interest to get the ratings right. The ratings agencies probably would raise the prices they charge for issuing ratings due to the “product warranty” exposure. However, those price increases will be limited both by natural competition between the firms and by the fact that, over time, the very presence of the warranty exposure will lead to higher quality ratings and minimal payouts. Nonetheless, even if the cost of ratings rises somewhat, our financial system will be a lot sounder if we have a systemically higher quality ratings process. The point of this proposal is to create a system that does not rely on a lengthy court process to determine whether the ratings agencies acted in good faith when a bond turns out to have been materially misrated; rather it is to implement a system where the ratings agencies, in return for the right to benefit from the revenue that they generate as a result of their status as an NRSRO, should bear clear liability for the quality of their work.

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