Treasury Secretary Henry Paulson's plan for streamlining financial regulations is already meeting resistance. The plan basically calls for reducing the the seven current federal regulators into three agencies: the US Federal Reserve, a newly created financial regulator, and a third agency for consumer protection and business practices. He also recommends closing down the Office of Thrift Supervision and transferring its duties to the Office of the Comptroller of the Currency, which oversees national banks.In an effort to regulate the activities of mortgage brokers it is proposed to establish a ' mortgage origination commission' made up of regulatory agency representatives that would be able to set licensing standards for mortgage brokers.
However legislation is expected to be complex and is unlikely to be completed in an election year.Influential lawmakers have indicated that they need more time to study the proposals in detail. Consumer groups on their part are not sure whether the proposals are far reaching enough to be able to give them the protection they need. At the same time industry is already shouting that they go a bit too far.
The most scathing criticism of the plan came from Democratic Senator Christopher J Dodd of Connecticut who heads the Senate Banking Committee. He emphasized that the Paulson plan had nothing to help homeowners facing higher mortgage rates and foreclosures. It was helping such people which should be a priority at the moment, he said. The Democrats among other measures want local governments to be given $4 billion to purchase foreclosed properties, setting in effect a floor price for homes. Senator Dodd was also critical of the proposal to give more powers to the Fed , which he blames for the present crisis in the first place.
Paulson, an experienced Wall Street hand, on his part has clarified:' I am suggesting that we should and can have a structure that is.........more flexible, one that can better adapt to change, one that will allow us to more effectively deal with inevitable market disruptions, one that will better protect investors and consumers, and one that will enable US capital markets to remain the most competitive in the world.'
Russian Billionaire To Build America, Russia Undersea Tunnel.
Forty-one year old Roman Abramovich figures on the Forbes 2007 list as the sixteenth richest man in the world with a net worth of $18.7 billion. A college dropout he made his fortune in the Russian oil industry. He has a knack of making newspaper headlines, be it because of his controversial business deals, or for his buyout of English soccer club Chelsea, which he turned around into one of the most successful soccer teams in the world.
He is once again in the news for placing an order for the world's largest drill for almost $160 million. According to news reports, Abramovich, who heads Russian firm Infrastruktura, is planning to build an undersea tunnel, linking Russia and America, under the 58 mile wide Bering Strait. The projecct is estimated to take ten years to complete.
The 62.3 foot wide drill will be built in two years by the German engineering firm Herrenknecht. Apart from this tunnel it will also be used to build infrastructure in Russia. This drill is much wider than the 49 fot drill used by the Chinese to build a tunnel under the Yangtze river.
The tunnel will connect Russia's Chukotka region where Abramovich is also governor, with Alaska in the US. It will have the capacity of allowing transport of some 100 million tons of freight annually, as well as oil, gas and electricity from Siberia to North America. If the project goes through it will be the longest undersea tunnel in the world. Presently the distinction is held by the 30 mile long Channel Tunnel that links Britain and France. This tunnel had cost $9.5 billion to build and is yet to make a profit!
He is once again in the news for placing an order for the world's largest drill for almost $160 million. According to news reports, Abramovich, who heads Russian firm Infrastruktura, is planning to build an undersea tunnel, linking Russia and America, under the 58 mile wide Bering Strait. The projecct is estimated to take ten years to complete.
The 62.3 foot wide drill will be built in two years by the German engineering firm Herrenknecht. Apart from this tunnel it will also be used to build infrastructure in Russia. This drill is much wider than the 49 fot drill used by the Chinese to build a tunnel under the Yangtze river.
The tunnel will connect Russia's Chukotka region where Abramovich is also governor, with Alaska in the US. It will have the capacity of allowing transport of some 100 million tons of freight annually, as well as oil, gas and electricity from Siberia to North America. If the project goes through it will be the longest undersea tunnel in the world. Presently the distinction is held by the 30 mile long Channel Tunnel that links Britain and France. This tunnel had cost $9.5 billion to build and is yet to make a profit!
Lehman Brothers Swindled Out Of $355 Million.
Lehman has been conned out of more than $355 million in a sophisticated scam operation. The scam seems to have been masterminded by two employees at the Japanese trading house Marubeni Corporation. Marubeni is Japan's fifth biggest trading company.
Lehman had advanced a loan through Marubeni to a medical company called Asclepius Ltd., a now bankrupt unit of LTT Bio-Pharma Co. The money was to be used to finance medical leases and was supposedly guaranteed by Marubeni. Marubeni claims that the documents with Lehman are forged.Before advancing the money, Lehman asked to meet the Marubeni general manager involved. The man they met now appears to have been an impostor.Marubeni has fired two employees who it says might have been manipulated by the former president of Asclepius. 'We are confident in our legal claim, which we will pursue until we receive re-payment from Marubeni,' said Matthew Russell, a spokesman for Lehman.
This disclosure could not have come at a worse time for Lehman. There have been rumors for several weeks that Lehman may have problems similar to Bear Stearns.Customers may get worried about Lehman's financial health, and if they withdraw large sums of money, Lehman could face liquidity problems.
Meanwhile Marubeni in a statement said:' We have nothing to do with the fraudulent acts, and we have no obligation to cover any re-payment requests.'
Lehman had advanced a loan through Marubeni to a medical company called Asclepius Ltd., a now bankrupt unit of LTT Bio-Pharma Co. The money was to be used to finance medical leases and was supposedly guaranteed by Marubeni. Marubeni claims that the documents with Lehman are forged.Before advancing the money, Lehman asked to meet the Marubeni general manager involved. The man they met now appears to have been an impostor.Marubeni has fired two employees who it says might have been manipulated by the former president of Asclepius. 'We are confident in our legal claim, which we will pursue until we receive re-payment from Marubeni,' said Matthew Russell, a spokesman for Lehman.
This disclosure could not have come at a worse time for Lehman. There have been rumors for several weeks that Lehman may have problems similar to Bear Stearns.Customers may get worried about Lehman's financial health, and if they withdraw large sums of money, Lehman could face liquidity problems.
Meanwhile Marubeni in a statement said:' We have nothing to do with the fraudulent acts, and we have no obligation to cover any re-payment requests.'
McCain,Obama and Clinton:Managing the Mortgage Crisis.
Predictions are that the mortgage crisis will cost the financial system at least $ 1 trillion. The calculation is fairly simple. Home prices are predicted to fall cumulatively about 20%. Given such a fall about 16 million households will have negative equity, which means the value of their homes is below the value of thir mortgages. And since the mortgages are no-recourse loans, the borrowers if they choose, can simply walk away. If only half of such borrowers were to walk away, the financial system will lose $ 1 trillion.
With the security situation in Iraq improving perceptibly, it is possible that economic problems, particularly the mortgage crisis, will take center stage in the upcoming Presidential elections.
Of the three Presidential hopefuls McCain seems to be closest to Bush's policies. In Santa Ana Tuesday, he said that he was open to ideas on handling the crisis, but that the government should not reward banks or small borrowers that had acted irresponsibly.
Obama was quick to criticize McCain, saying that the Republican would' just sit back and watch,' as millions of Americans lost their homes.He personally advocates a conservative response to the crisis. His suggestions appear to be somewhat vague, although he does talk about creating a $10 billion fund for protecting homeowners, and has emphasized the need for regulating the industry.
Clinton, to be fair to her, has been most specific and consistent in her proposals. She has proposed the creation of a $ 30 billion fund to assist homeowners in crisis. She has also proposed a 90 day moratorium on foreclosures and would freeze the interest rate on adjustable rate subprime loans for a number of years. In fact she has gone so far as to recommend that the Federal Housing Administration be given enhanced powers to oversee and perhaps to guarantee or purchase defaulted loans. 'If the Fed can extend $30 billion to help Bear Stearns adress their financial crisis, the federal government should provide at least that much emergsency help to families and communities to address theirs,' argues Clinton.
With the security situation in Iraq improving perceptibly, it is possible that economic problems, particularly the mortgage crisis, will take center stage in the upcoming Presidential elections.
Of the three Presidential hopefuls McCain seems to be closest to Bush's policies. In Santa Ana Tuesday, he said that he was open to ideas on handling the crisis, but that the government should not reward banks or small borrowers that had acted irresponsibly.
Obama was quick to criticize McCain, saying that the Republican would' just sit back and watch,' as millions of Americans lost their homes.He personally advocates a conservative response to the crisis. His suggestions appear to be somewhat vague, although he does talk about creating a $10 billion fund for protecting homeowners, and has emphasized the need for regulating the industry.
Clinton, to be fair to her, has been most specific and consistent in her proposals. She has proposed the creation of a $ 30 billion fund to assist homeowners in crisis. She has also proposed a 90 day moratorium on foreclosures and would freeze the interest rate on adjustable rate subprime loans for a number of years. In fact she has gone so far as to recommend that the Federal Housing Administration be given enhanced powers to oversee and perhaps to guarantee or purchase defaulted loans. 'If the Fed can extend $30 billion to help Bear Stearns adress their financial crisis, the federal government should provide at least that much emergsency help to families and communities to address theirs,' argues Clinton.
Social Security And Medicare Programs Face Bankruptcy.
Trustees for the government's Social Security and Medicare programs have warned that the two programs faced the prospect of financial collapse. Resources in the Social Security trust fund are expected to be exhausted by 2041 and those in the Medicare trust fund even earlier, by 2019. The financial crunch will start when the two programs start paying out more in benefits, than they collect in payroll taxes.For Medicare the tipping point will be reached this year, and for Social Security in 2017. However despite long term financial dificulties, both programs will be able to pay all promised benefits for at least 10 more years without additional funding.
The annual report of the two programs was released Tuesday by the trustees. 'This report confirms the need for acton,' said Treasury Secretary Henry Paulson. 'The sooner we take action to strengthen Social Security's financial footing, the less drastic the needed reforms will be to future generations.'
The Medicare program is in worse shape than Social Security mainly because health care costs are rising quickly. Proposals regarding the two programs have caused intense bickering in Congress between the Republicans and the Democrats. Republicans have urged quick action while the Democrats accuse them of using the report as an excuse to make cuts in benefits. Any immediate change is unlikely in an election year, and it will only be the next President who will have to find a solution. There is no easy fix to the problem. Social Security's funding over 75 years would take an inrease in the payrolls tax from 12.1% to 14%, or a 12% decrease in benefits, or a combination of both. Fixing Medicare's funding over the next 75 years would require an increase in the Medicare payroll tax from 2.9% to 6.4% or a 51% reduction in outlays to hospitals, nursing homes and home health care, or again a combination of the two.
The annual report of the two programs was released Tuesday by the trustees. 'This report confirms the need for acton,' said Treasury Secretary Henry Paulson. 'The sooner we take action to strengthen Social Security's financial footing, the less drastic the needed reforms will be to future generations.'
The Medicare program is in worse shape than Social Security mainly because health care costs are rising quickly. Proposals regarding the two programs have caused intense bickering in Congress between the Republicans and the Democrats. Republicans have urged quick action while the Democrats accuse them of using the report as an excuse to make cuts in benefits. Any immediate change is unlikely in an election year, and it will only be the next President who will have to find a solution. There is no easy fix to the problem. Social Security's funding over 75 years would take an inrease in the payrolls tax from 12.1% to 14%, or a 12% decrease in benefits, or a combination of both. Fixing Medicare's funding over the next 75 years would require an increase in the Medicare payroll tax from 2.9% to 6.4% or a 51% reduction in outlays to hospitals, nursing homes and home health care, or again a combination of the two.
Microsoft May Raise Yahoo Offer.
Although Microsoft and Yahoo have been talking off and on for the past few years, it was only early this year that Microsoft made a formal $44.6 billion bid for Yahoo. The offer appears generous as it was at about a 62% premium to Yahoo's prevailing share price.It was however turned down by Yahoo.
Reaction from arch rival Google was immediate.It said that the deal raised troubling questions......about preserving the underlying principles of the Internet: openness and innovation.Rumors are circulating that Schmidt, Google's CEO has offered his help to Jerry Yang of Yahoo to ward off Microsoft. Google currently commands 75% of search-ad revenues worldwide. It carried out almost 65% of all the Internet searches done in the US this year. Even if Yahoo and Microsoft were to combine their corresponding figure for searches would only be 28%. Microsoft is eager to seal a deal with troubled Yahoo to avoid being left out of the lucrative online ad business. It is not concerned about the possibility of Google making a counter offer as it would almost certainly be prevented by regulators, given Google's dominance in the area.
Around the middle of this month, Yahoo on its part, made a forecast that its revenues-minus advertising commissions-will climb more than 70% in the next 3 years to reach $8.8 billion in 2010. Analysts interpreted this disclosure as a sign that Yahoo was unable to find an alternative deal to Microsoft's offer and that it may be willing to negotiate with Microsoft. In fact a meeting between the top executives of the two companies has been held in Silicon valley, prompting analysts to remark that the deal appeared to be turning 'friendly.'
The latest assessment comes from Citigroup which says that Microsoft is likely to raise its $31 per share offer for Yahoo. Although other possibilities were being discussed it considers a Microsoft-Yahoo deal to be the most likely outcome.
Reaction from arch rival Google was immediate.It said that the deal raised troubling questions......about preserving the underlying principles of the Internet: openness and innovation.Rumors are circulating that Schmidt, Google's CEO has offered his help to Jerry Yang of Yahoo to ward off Microsoft. Google currently commands 75% of search-ad revenues worldwide. It carried out almost 65% of all the Internet searches done in the US this year. Even if Yahoo and Microsoft were to combine their corresponding figure for searches would only be 28%. Microsoft is eager to seal a deal with troubled Yahoo to avoid being left out of the lucrative online ad business. It is not concerned about the possibility of Google making a counter offer as it would almost certainly be prevented by regulators, given Google's dominance in the area.
Around the middle of this month, Yahoo on its part, made a forecast that its revenues-minus advertising commissions-will climb more than 70% in the next 3 years to reach $8.8 billion in 2010. Analysts interpreted this disclosure as a sign that Yahoo was unable to find an alternative deal to Microsoft's offer and that it may be willing to negotiate with Microsoft. In fact a meeting between the top executives of the two companies has been held in Silicon valley, prompting analysts to remark that the deal appeared to be turning 'friendly.'
The latest assessment comes from Citigroup which says that Microsoft is likely to raise its $31 per share offer for Yahoo. Although other possibilities were being discussed it considers a Microsoft-Yahoo deal to be the most likely outcome.
New Deal For Bear Stearns Shareholders.
After secret discussions Sunday, it was announced early today that JP Morgan would pay $10 for every share of Bear, instead of the initial offer of only $2 per share.The reason given for the new deal is that it is fairer to the shareholders and the employees of Bear.The Fed was reportedly hesitant about backing the deal as it would invite renewed criticism that taxpayers money was being used to bail out greedy financial institutions. But at the same time the Fed did not want to appear to be opposing a fair deal for Bear investors and employees.
Rumors of a fresh deal had been doing the rounds of the market last weekend, and the Bear stock had closed the week at $5.96 on expectations of a better bargain. It was also rumored that Joe Lewis, the largest shareholder in Bears was in talks with other financiers to make a rival bid. Many shareholders felt that if they blocked the deal and sent the firm into bankruptcy protection they may get much more than $2 a share from creditors.Now with the new deal having been approved by the respective boards of both Bear and JP Morgan it remains to be seen what Mr. Lewis will do next.
Another rumor doing the rounds is that JP Morgan stands to make a killing on the deal, as the real value of Bear is much more than the price offered.Why would JP Morgan pay an extra $750 million, they argue?
Such rumors will continue till the real reasons for the take over of Bears by JP Morgan become known. Of particular interest will be the role of credit default swaps in the buyout. Credit default swaps are basically insurance purchased by lenders to institutions such as Bears, to guard against loss of capital.The system, developed in the 1990's was working fine in periods of stability.But things have changed in the last two years, since the sub prime issue surfaced. This market has grown from about $10 trillion to more than $45 trillion in this short period. The total value of the bonds insured against default is only about $5.7 trillion. There is a huge private market out there where buyers and sellers of insurance are betting on the survival or failure of companies. The big commercial banks are major players in the market. Interestingly, JP Morgan Chase is the biggest player with$7.8 trillion and Citibank is next with $3 trillion.It would be interesting to find out about JP Morgan's exposure to Bear Stearns debt, and whether it stood to lose or gain in the event of Bear's collapse
Rumors of a fresh deal had been doing the rounds of the market last weekend, and the Bear stock had closed the week at $5.96 on expectations of a better bargain. It was also rumored that Joe Lewis, the largest shareholder in Bears was in talks with other financiers to make a rival bid. Many shareholders felt that if they blocked the deal and sent the firm into bankruptcy protection they may get much more than $2 a share from creditors.Now with the new deal having been approved by the respective boards of both Bear and JP Morgan it remains to be seen what Mr. Lewis will do next.
Another rumor doing the rounds is that JP Morgan stands to make a killing on the deal, as the real value of Bear is much more than the price offered.Why would JP Morgan pay an extra $750 million, they argue?
Such rumors will continue till the real reasons for the take over of Bears by JP Morgan become known. Of particular interest will be the role of credit default swaps in the buyout. Credit default swaps are basically insurance purchased by lenders to institutions such as Bears, to guard against loss of capital.The system, developed in the 1990's was working fine in periods of stability.But things have changed in the last two years, since the sub prime issue surfaced. This market has grown from about $10 trillion to more than $45 trillion in this short period. The total value of the bonds insured against default is only about $5.7 trillion. There is a huge private market out there where buyers and sellers of insurance are betting on the survival or failure of companies. The big commercial banks are major players in the market. Interestingly, JP Morgan Chase is the biggest player with$7.8 trillion and Citibank is next with $3 trillion.It would be interesting to find out about JP Morgan's exposure to Bear Stearns debt, and whether it stood to lose or gain in the event of Bear's collapse
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