GM bondholders wants a better Deal

WARREN, Mich. — Individuals who hold General Motors Corp. bonds said Wednesday they want a better deal than the debt-for-equity swap the company is offering.

At a news conference in the Detroit suburb of Warren, several bondholders from as far away as Colorado said holding stock in a newly restructured GM doesn’t compare to the bond interest payments they rely on to supplement their retirement or pay their property taxes or medical bills.

They also said they can’t afford to lose the principal they lent to the company.

"We’re concerned that small bondholders like ourselves have been left out of the dialogue,” said Dennis Buckholtz, who lives in Warren. "That doesn’t seem fair.”

GM is offering bondholders 225 shares of stock for every $1,000 in bonds, but analysts say those shares will be diluted when the government and the United Auto Workers union get new equity in the auto company.


About the plan
GM’s plan would give the UAW a 39 percent stake in GM if the union takes about $10 billion in payments to retiree health care trust in stock.
The U.S. government would get a 50 percent equity stake in exchange for about $10 billion in loan forgiveness.

That’s expected to leave the bondholders with just pennies on the dollar for their 10 percent equity stake. Common shareholders would end up with about 1 percent of GM.

GM has until May 26 to convert 90 percent of its $27.5 billion in outstanding unsecured notes so it can receive billions more in federal aid and avoid filing for bankruptcy protection.

Are bonds in danger?
The bondholders assembled at the Warren City Hall, where Mayor James Fouts called their plight "fundamentally undemocratic.”

The investors flanking the mayor held signs asking President Barack Obama and the auto task force to meet with them and honor their investment. They also said they hoped GM would avoid a bankruptcy filing, as their bonds — if they choose not to exchange them — would be in jeopardy.

by the associated press

Chrysler , Fiat deal expected , to go through before Chrysler run's out of Money

DETROIT — Italian automaker Fiat Group SpA will sign paperwork to become a partner with Chrysler LLC by Thursday, according to three people briefed on the deal.

The partnership is the last piece of a huge re-structuring plan needed to keep Chrysler alive as it approaches today’s government deadline to cut labor costs, slash debt and take on a partner.

The people said Wednesday that despite the partnership, Chrysler could still wind up under Chapter 11 bankruptcy protection for a short time if some creditors don’t agree to reduce their debt. But they said the government would agree to finance the restructuring rather leave Chrysler destined for liquidation. All of the people spoke on condition of anonymity because the partnership deal had not been announced.

One of the people said Fiat initially would take a 20 percent stake in the company in exchange for its small-car and engine technology. Initially Fiat would not invest any cash, but its technology is worth $8 billion to $10 billion, the person said.

Fiat’s stake could rise to 35 percent, and the company may be willing to invest money at a later date, the person said.

President Barack Obama, speaking at a town-hall style event near St. Louis, said Wednesday that he didn’t know if a deal to save Chrysler would be completed.

"We’re hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal but, ultimately, the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want,” he said.

Unions, banks concede
Chrysler has borrowed $4 billion from the government since the beginning of the year and could soon be in danger of running out of cash without more help. The government in March rejected Chrysler’s restructuring plan and gave it 30 days to make another restructuring effort.
On Sunday, the Canadian Auto Workers ratified concessions to the automaker, and the United Auto Workers in the U.S. reached a tentative cost-cutting deal that members will finish voting on by Wednesday night. Factory-level union leaders voted unanimously Monday night to recommend approval of the concessions.

Then Tuesday, four major banks that hold 70 percent of Chrysler’s $6.9 billion in secured debt agreed to a deal that would erase the debt for $2 billion in cash. But 46 hedge funds that hold the remainder of the debt have refused to go along, leading to further negotiations.

The people familiar with the deal said that if the hedge funds don’t agree, Chrysler could go into a short "surgical” bankruptcy under Section 363 of the bankruptcy code. The smaller lenders would have little power to stop the debt from being restructured in bankruptcy court, since the lenders holding the majority of the debt are on board with the plan, the people said.

If an agreement is reached, Chrysler would restructure outside of bankruptcy with government help, they said.

Fiat spokesman Gualberto Ranieri declined to comment on the deal.



by the associated press

Washington's Cyber Warfare

WASHINGTON — Shrouded in secrecy, the U.S. government’s policies on how and when to wage cyber warfare are ill-formed, lack adequate oversight and require a broad public debate, a new report by the National Research Council says.

The report warns that the "undeveloped and uncertain nature” of the government’s cyber warfare policies could lead to them being used hastily and ill-advisedly during a crisis. That danger is compounded by secrecy and lack of oversight, the report’s authors cautioned Wednesday. "Unsound policy formulated and implemented during crisis may prove difficult to change or reverse when the crisis has passed,” concludes the report, the first to take a comprehensive look at American cyber war capabilities.

The research council is the working arm of the National Academy of Sciences.

Valuable tool
The U.S. government has spoken only broadly about cyber warfare in the past, noting its value
as a national security tool. Officials routinely refuse to talk about computer attacks America has launched.

The 322-page report, prepared by an independent panel of academics and cyber security experts, comes as the Obama administration is on the verge of releasing its own review of the nation’s cyber security.

That review, however, is expected to focus largely on defensive and administrative measures, including who will lead the nation’s cyber effort, and how the government can better manage and use technology to protect everything from the electrical grid to the stock market.

Officials have warned in recent months that the nation’s computer and internet networks are at risk and are repeatedly probed by foreign governments, criminals or other groups.

U.S. offensive cyber war options could range from a more passive cyber intrusion such as listening in on a foe’s communications to an attack that cripples an enemy’s air defense systems to clear the way for a bomber attack.

A key challenge, however, may be determining who the enemy is, particularly if U.S. officials are considering a response to a cyber attack or intrusion against America.


by the associated press

Shareholders re-elect board at Morgan Stanley

PURCHASE, N.Y. (AP) -- Morgan Stanley's John Mack was in an enviable position -- a financial company CEO chairing a peaceful annual meeting.

The investment bank's meeting was a far cry from the contentious affair being held the same day in Charlotte, N.C. by Bank of America Corp. At Morgan Stanley's subdued gathering north of New York City, which ended with applause, shareholders re-elected the company's entire board of directors, including Mack, who is also chairman.

Morgan Stanley's shareholders also followed the company's recommendation in voting down proposals to split the roles of chairman and chief executive and to allow stockholders to call special meetings. Amid the ongoing crisis across the banking industry, some companies over the past year have opted to separate their top jobs and have two executives fill them.

Morgan Stanley's meeting was almost certain to unfold with fewer bumps than Bank of America's. The Morgan Stanley gathering carried only two shareholder proposals compared with 11 at Bank of America. And ballots at BofA's meeting took so long to count the company couldn't immediately announce the results of a proposal to strip Chief Executive Ken Lewis of his chairman's title.

Morgan Stanley last week reported a wider-than-expected loss of $578 million for the first quarter. Like many other banks, it has struggled with mounting losses on investments and mortgages.

Mack told reporters the company is not looking to make any major acquisitions. He said the Morgan Stanley is instead focused on implementing a venture with Citigroup Inc. in which Morgan Stanley will control a 51-percent stake in the brokerage Smith Barney. The company hopes to complete the transaction by the third quarter, which starts in July.

"Our hands are full with Smith Barney," Mack said. "That's our No. 1 focus."

The bank this month slashed its dividend 81 percent to 5 cents from 27 cents. A shareholder asked company officials how Morgan Stanley could reduce the payout to such a degree and still pay bonuses. The company paid an average of $143,000 per employee in bonuses last year.

Mack, who hasn't taken a bonus for two years, said the decision wasn't easy but he also said it was necessary for the company to preserve cash and retain employees. He said the board discussed the dividend cut for six months.

Morgan Stanley cut costs by 33 percent in the first quarter from a year earlier.

"We also thought long and hard about shareholders and what was the right thing to do," he said. "This decision was taken over a long period of time. It was not something that was easy or simple."

Mack said recruiting new employees for the bank, which has taken $10 billion in U.S. government loans, has become more difficult in part because of limits on pay. "Recruiting has slowed down dramatically," Mack said.

He said the company had lost some workers to competitors like hedge funds that aren't operating with the restrictions that come with government money. Mack said about 1,200 workers from Smith Barney have left.

Morgan Stanley is one of hundreds of banks that received loans from the government last fall as part of its $700 billion financial rescue plan. Along with those loans, banks have been forced to place limits on how much they can pay top employees.

Mack contends that Wall Street firms should avoid rewarding employees who make big gambles that look good at the end of a quarter but that might unravel soon after. "Across the United States, I think compensation is going to change. It has to be more long-term focused," Mack added.

Shares of Morgan Stanley rose $1.99, or 9.4 percent, to $23.07.

by the associated press

Bank of America looking for New Chairman of Board

CHARLOTTE, N.C. — Ken Lewis, a man who thrived on scoring the next big deal, found himself sunk by one.

Lewis was stripped of his title as Bank of America Corp.’s chairman Wednesday when shareholders voted to separate that job from the CEO’s position. He’ll stay on as chief executive, but the loss of his chairman’s role is a direct result of the bank’s acquisition of Merrill Lynch & Co.

Most of the shareholders who spoke at BofA’s annual meeting Wednesday questioned Lewis’ decision to agree to a government-brokered purchase of the struggling investment bank. The deal placed Lewis, who had been chairman and CEO of the Charlotte-based bank since 2001, on shaky ground.

All 18 Bank of America directors, including Lewis, were re-elected by a comfortable margin, according to results of the vote released later Wednesday by the bank.

An aggressive dealmaker who had already snapped up big bank companies including FleetBoston Financial, MBNA and Countrywide Financial, Lewis this time didn’t buy a financial winner when BofA bought Merrill Lynch in a rushed deal last September on the same weekend that Lehman Brothers Holdings Inc. went under.

After the purchase was sealed, Merrill Lynch announced $15 billion in fourth-quarter losses. Lewis has also been criticized for allowing bonus payments to Merrill employees before the takeover was completed on Jan. 1.

The Merrill Lynch acquisition was supposed to transform the bank into a business befitting its name. A strong investment bank has been the only missing piece for Bank of America; a series of bad bets in its investment banking unit over the past year and a half helped slash companywide profits.

"That there is even a question of if the CEO of the largest bank in America should be in charge demonstrates the level of anger in the country right now,” said Michael W. Robinson, senior vice president of Levick Strategic Communications.

Robinson said of Lewis and the country’s dissatisfaction with the ongoing problems at Bank of America and other financial companies: "It’s not to say he deserved it, but a lot of anger and that blame has to go somewhere.”

Speaking before the results were announced, Robinson said that if Lewis, 62, were stripped of his title as chairman, it "absolutely” would make his job more difficult, forcing him to regain trust and support of shareholders.

The turn of events for Lewis could mirror a scenario that played out just down the street from BofA’s Charlotte offices at former rival Wachovia Corp., which has since been sold to Wells Fargo & Co.

After acquiring mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the housing boom, Wachovia’s CEO Ken Thompson lost his title as chairman in May 2008. Weeks later, he was forced out as chief executive as well.

Winning back approval from investors will only come if Lewis can lay out a clear roadmap for what Bank of America will look like, in detail, in the future. Discussing the way forward must include specifics about how the bank plans to repay government rescue funds and incorporate what Bank of America expects from the Countrywide and Merrill operations it acquired over the past year.

by the associated press

Saturn for Sale

DETROIT — The top executive of General Motors Corp.’s Saturn brand said the company will sell or phase out the brand by the end of this year, nearly two years faster than previously announced.

Saturn General Manager Jill Lajdziak said the brand most likely will be sold, given the interest of several buyers who have surfaced. She said GM will take other bids for the brand until June 1.

Detroit-based GM has said it wants to sell or get rid of Saturn, Hummer and Saab as it restructures, so it can once again become profitable.

The U.S. automaker also has announced it is planning to rid itself of the Pontiac brand.

Oklahoma ties
Meanwhile, the automaker is living on $15.4 billion in federal loans and must win concessions from unions, reduce debt and make other cost-cutting moves before June 1.
An Oklahoma City private equity firm has teamed with a group of Saturn auto dealers in an effort to buy the brand.

by the associated press

AIG , focuses investigation on employees

Federal investigators are focusing their attention on three employees at American International Group Inc's financial products unit amid a probe into derivatives contracts that nearly destroyed the insurance giant, according to a report in The Wall Street Journal.

In a statement, AIG said it is aware of ongoing investigations by the Department of Justice and Securities and Exchange Commission tied to the valuation of derivatives contracts and related disclosures.

AIG noted it is cooperating with the investigation, but added it is not "aware of any fraud or malfeasance in connection with the underwriting and creation" of the derivatives contracts.

The investigation is focused on possible ways the three executives might have misled AIG's auditors and investors about the value of derivatives products AIG sold, according to the report citing anonymous sources.

In September, AIG was undone not by its traditional insurance operations, but its financial products business which underwrote risky credit derivatives contracts known as credit default swaps.

The swaps are essentially insurance contracts protecting an investor against default on an underlying investment, such as mortgage-backed securities.

Rising defaults amid the underlying investments led to worries that AIG would not be able to cover all the outstanding swaps contracts and the effects would touch of a new, even more intense period of the credit crisis.

On the brink of collapse amid the mushrooming credit crisis and amid fears that AIG could not cover all its potential obligations, the government provided AIG with an $US85 billion ($A119.9 billion) loan in September.

As market conditions worsened and losses piled up at the insurer, the government has revised and expanded its loan package to AIG multiple times.

The package of loans now totals nearly $US180 billion ($A253.91 billion) after being expanded in March when New York-based AIG reported a fourth-quarter loss of $US61.7 billion ($A87.04 billion), the largest ever quarterly corporate loss in US history.

As part of the loan package, the government has also taken a roughly 80 per cent stake in the insurance giant.

A spokesman for the SEC declined to comment. The Justice Department said it would neither confirm nor deny any investigation related to AIG.

Shares of AIG fell 1 cent to $1.39 in morning trading.

by the associated press

Wells Fargo Cheif Hope's Economy will Rebound

WASHINGTON — Federal Reserve policymakers are weighing whether additional steps are needed to brace the economy as an outbreak of the swine flu has emerged as a potential new danger that could aggravate the recession.

Fed Chairman Ben Bernanke and his colleagues opened a two-day meeting Tuesday afternoon to take fresh stock of already fragile economic and financial conditions.

The swine flu outbreak, which started in Mexico and has spread to the United States and elsewhere, could force American consumers to retrench further. That would deal a blow to the domestic economy, which has flashed some signs the recession could be letting up a bit.

Some good signs
Other hopeful signals emerged Tuesday. The Conference Board’s Consumer Confidence Index rose more than expected in April, jumping 12 points to 39.2, the highest level since November. And a housing index showed home prices dropped sharply in February, but for the first time in 25 months the decline was not a record. To ease the impact of the recession, economists predict the Fed will keep its targeted range for its bank lending rate between zero and 0.25 percent at this week’s meeting and probably well into next year.
With its key rate already at a record low, the Fed will examine the effectiveness of programs already in place to combat the worst financial crisis since the 1930s. Fed policymakers will consider whether programs designed to ease the credit crunch need to be expanded or changed, and whether new relief efforts need to be implemented. Any decisions would come at the conclusion of the Federal Reserve’s meeting this afternoon.

"This is a good meeting for Fed policymakers to pause and take stock of what they’ve done so far and allow programs to do their thing,” said Michael Feroli, economist at JPMorgan Economics.

Feroli and others aren’t expecting the kind of aggressive action the Fed took at its last meeting in mid-March. That was when the Federal Reserve decided to plow $1.2 trillion into the nation’s economy to try to lower interest rates and stimulate borrowing and spending.

Before the swine flu outbreak, many analysts were predicting the recession would ease further, with the economy shrinking at a rate of 2 to 2.5 percent in the current quarter.

However, analysts warn that any severe outbreak of the swine flu would not only clobber tourism, food and transportation industries, but crimp spending on other things if consumers get spooked.

For now, analysts are hopeful that any economic fallout will be limited and short-lived.

by associated press

Swine Flu FEAR

NEW YORK (AP) -- The swine flu outbreak is unleashing a side effect the global economy is in no condition to handle: fear.

Travelers are canceling or delaying trips to Mexico, Cuba banned all flights to its neighbor and Argentina announced Tuesday a five-day ban on flights arriving from Mexico. China, Russia and South Korea have banned imports of some North American pork, despite assurances that the flu is not spread through meat. Investors just starting to regain their nerve have again caught the jitters.

The threat of a pandemic comes just as the world economy is showing the barest glimmerings of what analysts say might be the light at the end of what remains a long, dark tunnel. And now this.

"This is just another negative shock when the economy can least afford another negative shock," said Jay Bryson, global economist at Wachovia Corp.

So far, fear of the flu is at least as responsible for the economic disruption as the disease itself.

The number of confirmed cases in the United States climbed to 66, and federal officials warned that deaths were likely. In New York, the city's health commissioner said "many hundreds" of schoolchildren were ill at a school where some students had confirmed cases.

President Barack Obama asked Congress for $1.5 billion in emergency funds to fight the disease.

Economists remember well the financial damage the SARS outbreak inflicted in 2003. An epidemic of that scale or greater could inflict severe damage on a global economy already badly listing.

"On top of a synchronized global financial and economic crisis, an outbreak of swine fever is the last thing we need just now," Neil MacKinnon, chief economist at The ECU Group PLC, based in London, wrote this week.

There are already early signs that swine flu fear is taking an economic toll.

In Mexico City, canceled events and closed movie theaters, night clubs, museums and other establishments are costing at least $57 million a day, according to city's Chamber of Trade, Services and Tourism.

That's a 36 percent drop in revenue generated by tourism and services in the Mexican capital, chamber president Arturo Mendicuti said.

Royal Caribbean Cruises suspended stops at Mexican ports indefinitely, and Carnival Cruise Lines canceled Mexico port calls through May 4. Norwegian Cruise Line canceled the Norwegian Pearl's final two calls in Mexico this week and said its schedules do not include any other ports in Mexico until the end of September 2009.

In Chicago, traders bid down the price of pork futures Tuesday for a second straight day, reflecting what analysts say are consumer worries about catching the virus from meat. The drop in prices came even as China -- the third-biggest market for exports of U.S. pork -- banned shipments of the meat from California, Texas and Kansas, along with those from Mexico. Russia and South Korea have announced similar measures.

The bans caused consternation for U.S. pork farmers, despite assurances from public health agencies that the flu isn't spread by eating meat.

"We have everybody ... all saying pork is safe to eat and that this isn't in the swine herd, definitely not in the U.S. swine herd," said Dave Warner, of the National Pork Producers Council. "I think the economics right now is being driven by fear of what could happen, rather that what really is happening."

Agriculture Secretary Tom Vilsack even pushed to change the name of swine flu to protect the hog market.

The danger of economic fallout helps explain the cautious stance of the World Health Organization, which has not recommended travel restrictions as it has in previous outbreaks.

WHO, accountable to its member countries, is a health agency, but its policies are driven at least partly by financial considerations. In recent years, the agency has shied away from actions that might upset member nations. Dr. Margaret Chan, the agency's head, has repeatedly said that her priority is to serve her countries.

That is in direct contrast to the strong action WHO took to contain the SARS epidemic in 2003, when it issued travel advisories that recommended postponing nonessential travel to cities including Hong Kong, Beijing and Toronto.

The economic impact was devastating as air traffic slowed to a crawl. Canada was so incensed it sent a delegation to WHO's Geneva headquarters to protest. But WHO's leader at the time, Gro Harlem-Brundtland of Norway, insisted the advisories were necessary to contain SARS.

Ultimately, world health experts say the travel advisories sharply cut the spread of SARS.

"There really is a careful balance between scaring people and downplaying it too much. And the reason why that's so important is that the various interventions that are available to public health authorities all have a cost associated with them," said Ross Hammond, part of a group at the Brookings Institution that builds computer models to study how pandemics and public fears interact.

On Monday, WHO increased its alert level from 3 to 4 -- out of 6. Its influenza chief, Keiji Fukuda, warned that "at this time containment is not a feasible option," rejecting calls for a travel ban or other restrictions on Mexico or the United States.

"Border controls do not work. Travel restrictions do not work," WHO spokesman Gregory Hartl said. "There was much more economic disruption caused by these measures than there was public health benefit."

The SARS virus -- which killed nearly 800 people -- wreaked most of its damage in Asia. In Hong Kong, businesses shut and the number of tourists plunged by 70 percent. The local economy contracted by about 9 percent in the second quarter of 2003, when the epidemic was at its peak.

But the damage also sent wide ripples. In Canada, particularly greater Toronto, the outbreak sharply reduced tourism, and kept even residents home rather than out shopping. The city's economy lost about $950 million, a contraction of about 0.5 percent, according to The Conference Board of Canada.

The SARS outbreak was short-lived and came at a time of relative economic stability. Today's economy can ill afford such a setback. But the worry reflected in stock markets is about the possibility, still remote, that a new outbreak could erupt into something far more serious.

A report by the World Bank, updated last year, estimated that a severe pandemic -- like the Spanish flu outbreak in 1918 that killed between 40 million and 100 million people -- would cause a nearly 5 percent drop in global economic activity, costing the world about $3.1 trillion.

"Even a mild pandemic has significant consequences for global economic output," a pair of Australian researchers wrote in a 2006 report cited by the World Bank.

In a global recession, a pandemic could present a greater threat. On Friday, the World Bank warned developing nations that slashing public health budgets could put their citizens' health at risk.

Meanwhile, economic markets are waiting to see the fallout.

Fear of a pandemic has to make people wonder. In the U.S., where unemployment is expected to top 10 percent before the end of the year, could the shock of a flu outbreak make it 12 percent instead? Think what that would mean to retailers, to people's ability to pay their mortgages, to companies' ability to get work done.

"When you're steaming full speed ahead and are hit by a torpedo, you can just keep going," Wachovia's Bryson said. "But you take a torpedo after four or five torpedoes which you've already taken, and this could be the thing that sinks the ship."


by the associated press

U.S. Fights Swine FLU

WASHINGTON — Confirming at least 40 cases of swine flu in the U.S., the Obama administration said Monday it was responding aggressively as if the outbreak would spread into a full pandemic. Officials urged Americans against most travel to Mexico as the virus that began there spread to the United States and beyond.

President Barack Obama urged calm, saying there was reason for concern but not yet "a cause for alarm.”

Yet just in case, administration officials said that they were already waging a vigorous campaign of prevention, unsure of the outbreak’s severity or where it would show up next.

U.S. customs officials began checking people entering U.S. territory. Millions of doses of flu-fighting medications from a federal stockpile were on their way to states, with priority given to the five already affected and to border states. Federal agencies were conferring with state and international governments.



"We want to make sure that we have equipment where it needs to be, people where they need to be and, most important, information shared at all levels,” Janet Napolitano, head of the Homeland Security Department, told reporters.

Her briefing came shortly before the World Health Organization raised the severity of its pandemic alert level to four from three on a six-point scale.

Dr. Richard Besser, acting director of the Centers for Disease Control and Prevention, said that so far the disease in the United States seemed less severe than the outbreak in Mexico, where more than 1,600 cases had been reported and where the suspected death toll had climbed to 149. No deaths had been reported in the U.S.

UAW support Chryler Deal

STERLING HEIGHTS, Mich. — Factory-level leaders of the United Auto Workers union voted unanimously Monday night to recommend approval of concessions that could give a union-run trust 55 percent ownership of a restructured Chrysler LLC.

Union President Ron Gettelfinger said the deal will help keep the automaker out of bankruptcy.

A summary of the revised Chrysler-UAW contract says that Italian automaker Fiat Group SpA eventually will own 35 percent of a restructured Chrysler, with the remaining 10 percent stake divided between the U.S. government and secured lenders, mostly banks and hedge funds.

The Obama administration required that equity fund at least 50 percent of Chrysler’s $10.6 billion obligation to a union-run trust that will take over retiree health care costs starting next year, according to the summary.

It also said that under the agreement, workers will no longer get most of their pay if they are laid off. Instead, they’ll get supplemental pay from the company equal to 50 percent of their gross base pay.

Union leaders say ratification votes across the nation should be finished by Wednesday. That’s one day before Chrysler’s government-imposed deadline to restructure or the government will end all aid to the struggling company.

Chrysler is living on $4 billion in U.S. government loans and must win concessions from its unions, swap equity for debt and ink a partnership deal with Fiat.

Without the deals, Chrysler almost certainly will be auctioned off in pieces.

The Chrysler deal almost certainly will be the template for GM, although GM Chief Financial Officer Ray Young said negotiations with the union had not resumed in earnest. In addition, both companies have deals with the Canadian Auto Workers.

Fiat has been in discussions with Chrysler to take a 20 percent stake in the Auburn Hills, Mich., automaker in exchange for Fiat’s small-car technology. Fiat could end up building cars in Chrysler’s U.S. factories.

by the associated press

GM is slashing more Jobs and Plants

DETROIT — General Motors will become a leaner, government-owned company if the Obama administration goes along with the automaker’s plan to slash jobs, close plants and eliminate the Pontiac brand.

As GM laid out the proposal Monday, new agreements fell into place between Chrysler and its unions in the United States and Canada, making it apparent that the future of both companies now rests with their creditors.


Historic exchange
General Motors CEO Fritz Henderson said the company would offer the Treasury Department more than 50 percent of its stock to absolve GM of $10 billion in government loans.
The automaker also proposed that the United Auto Workers take GM stock for at least half the $20 billion the company owes to a union-run trust that will assume retiree health care expenses starting next year.

Combined, the union and government would own 89 percent of the century-old automaker, which has been bleeding red ink and is saddled with more than $62 billion in debt.

"It is unprecedented, but it signifies the importance of the automobile industry,” said David Lewis, a retired professor at the University of Michigan of business history for 43 years.

Although the government has loaned money to corporations in the past, including to Chrysler in the 1970s, Lewis could not recall a time when it had taken a majority stake in a company.

White House press secretary Robert Gibbs said the administration does not want to own GM or any other auto company.

"This administration has no desire to run an auto company on a day-to-day basis,” Gibbs said. "We strongly back an auto industry we believe can, and should, be self-reliant of government funding.”

But GM’s plan depends on persuading unsecured bondholders who have loaned GM $27 billion to forgive that debt in exchange for a 10 percent stake in the company. Current GM shareholders would own only about 1 percent.


What’s next
GM’s announcement sent its shares up 21 percent to $2.04 Monday.
General Motors is surviving on $15.4 billion in government loans, and said Monday that it envisions getting an additional $11.6 billion.

GM said it will speed up six factory closings announced in February and close three additional facilities in 2010. Henderson expects to identify the plants in May and said they will include assembly, engine, transmission and parts-stamping factories.

by the associated press

Obama gives his word , for Science Investment

WASHINGTON (AP) -- President Barack Obama promised a new era of science and technology for the nation, telling the National Academy of Sciences on Monday that he wants to devote more funds to research and development.

America has fallen behind other countries in science, Obama said.

"I believe it is not in our character, American character, to follow -- but to lead. And it is time for us to lead once again. I am here today to set this goal: we will devote more than 3 percent of our gross domestic product to research and development," Obama said in a speech at the annual meeting of the National Academy of Sciences.

That 3 percent would amount to about $420 billion.

"We will not just meet but we will exceed the level achieved at the height of the space race," he said.

That pursuit of discovery a half century ago fueled the nation's prosperity and success, Obama told the academy.

"The commitment I am making today will fuel our success for another 50 years," he said. "This work begins with an historic commitment to basic science and applied research."

And he set forth a wish list including solar cells as cheap as paint; green buildings that produce all the energy they consume; learning software as effective as a personal tutor; prosthetics so advanced that you could play the piano again and "an expansion of the frontiers of human knowledge about ourselves and world the around us.'

"We can do this," Obama said to applause.

In recent years, he said, "scientific integrity has been undermined and scientific research politicized in an effort to advance predetermined ideological agendas."

He then drew chuckles, commenting: "I want to be sure that facts are driving scientific decisions, not the other way around," Obama said.

"At such a difficult moment, there are those who say we cannot afford to invest in science, that support for research is somehow a luxury at a moment defined by necessities. I fundamentally disagree," Obama said.

"Science is more essential for our prosperity, our security, our health, our environment, and our quality of life than it has ever been," he said.

Obama said he plans to double the budget of key science agencies over a decade, including the National Science Foundation, Department of Energy Office of Science and the National Institutes of Standards and Technology.

He also announced the launch of the Advanced Research Projects Agency-Energy. It is a new Department of Energy organization modeled after the Defense Advanced Research Projects Agency, that led in development of the Internet, stealth aircraft and other technological breakthroughs.

And he said the Energy Department and the National Science Foundation will offer programs and scholarships to encourage American students to pursue careers in science, engineering and business related to clean energy.

by the associated press

Six Flags to close Mexico Park , cause of Swine Flu

NEW YORK — Six Flags Inc. confirmed Monday that it shut down indoor facilities — including restaurants and show venues — at its Mexico City theme park over the weekend at the recommendation of Mexican health officials working to contain the spread of swine flu.

Spokeswoman Sandra Daniels said the park will continue to cooperate fully with the Mexican government on the swine flu outbreak, which is suspected of causing up to 149 deaths in Mexico.

Daniels noted that the entire park is closed today as part of its normal operating schedule unrelated to the health scare.

Other U.S. companies are also curtailing operations in Mexico City — the epicenter of the swine flu outbreak.

Starbucks Corp. said Monday it has shut down 10 of its cafes in Mexico City in response to the swine flu outbreak. One of its employees in the city is being treated for flu symptoms, although it is unclear if the worker has swine flu.

Starwood Hotels & Resorts Worldwide Inc. said restaurants at its hotels in Mexico City will have limited operations and close at 6 p.m. to comply with a requirement by the Mexico City government. The company noted that all bars and night clubs in the city are closed by order of the government.

by the associated press

Study shows gaps in Gender in Federal Jobs, are shrinking

WASHINGTON (AP) — Women working in the federal government still earn less than their male counterparts, but the pay gap is shrinking.

The difference between average annual salary for men and women in the federal work force declined from 19 cents to 11 cents on the dollar between 1998 and 2007, according to a draft report from the Government Accountability Office.

The draft, obtained by The Associated Press, is set for release Tuesday at a hearing of the Congress' Joint Economic Committee.

All but 7 cents of the gap can be accounted for by differences in measurable factors, such as differences in education levels and the type of jobs men and women had, the report said. The gap narrowed the more men and women shared characteristics, including the jobs held, levels of experience and education.

The GAO said factors such as work experience outside government and discrimination may account for some or all of the remaining gap.

New York Rep. Carolyn Maloney, who chairs the Joint Economic Committee, said the report shows the need for federal legislation to address the remaining pay gap.

"As families continue to struggle during this economic crisis, they should not also be robbed by discrimination against women in the labor market," Maloney said.

The gap among federal employees has been steadily shrinking since 1988, when female government workers earned 28 cents on the dollar less than their male co-workers.

In the general work force, a previous GAO study found that women earned on average 20 cents less for every dollar earned by men in 2000 when differences for occupation, work patterns, marital status and other factors were considered.

Maloney and other congressional Democrats have been trying for years to pass pay equity legislation that would treat gender discrimination involving pay in the same as race, disability and age discrimination.

The bill, known as the Paycheck Fairness Act, would allow for compensatory and punitive damages, ban employers from retaliating against workers who share salary information with colleagues and require employers to prove that paying a woman less than a man is job-related and necessary.

The measure, which passed the House last year but stalled in the Senate, could have new life under President Barack Obama and the increased Democratic majority in Congress.

by the associated press

Your Assets Health

NEW YORK — Could your finances survive a stress test? If you’re unsure, it might be time to play a game of Wall Street regulator at home.

The idea behind the Obama administration’s "stress tests” is to gauge whether the nation’s 19 largest banks are financially sound. Regulators are expected to put firms into three groups: those that are healthy, those that need more money and those at risk to fail.

For the purpose of your home experiment, let’s assume you’re laid off, have a medical emergency or need major repairs on your car or home. How long could you make ends meet? "The ideal situation is that you prepare when you still have time,” said Karin Maloney Stifler, a certified financial planner with True Wealth Advisors in Hudson, Ohio. The rule of thumb is that you should maintain an emergency fund of three to six months of living expenses. But emergency funds are often an ideal rather than a reality. And with the ranks of unemployed in March being out of work for an average of five months, chances are you’d have to dig deeper.

To gauge your ability to pull through a financial calamity, work through the four steps below. For each, rate your strength on the topic from 1 to 5. Give yourself a 1 if that aspect of your finances couldn’t provide any help in an emergency; give yourself a 3 if you feel the area could use some work; and rate yourself a 5 if you feel entirely comfortable with that part of your financial plan.

If you score less than 3 on more than one area, it may be time to start fortifying your financial plan.


STEP 1:
→Check the accessibility of your reserves.
In an emergency, how quickly would you be able to get to your cash? How much money do you have available, including certificates of deposit, emergency funds and retirement accounts?

Keep in mind that getting a loan will only get harder if you’re laid off. So if you currently fear losing your job, tweak your strategy accordingly. That means thinking twice before locking up money in long-term CDs or retirement funds.

"You want to focus on preserving your money rather than growing it,” Stifler said.

If your money is already locked up, factor in any penalties you’d have to pay to get it out.

With CDs that last two to 18 months, for instance, penalties of three months’ interest are common, according to Bankrate.com. So if you put $10,000 in a 1-year CD with a 2 percent rate and wanted to withdraw money after five months, you’d forfeit around $50.

For future reference, remember that one way to avoid problems with tying up your savings is to set up a "ladder” of CDs with staggered maturities.

As for counting on retirement accounts, think again. You can’t borrow from your 401(k) once you’ve been laid off. And there are only limited circumstances where you can take a hardship withdrawal. Plus, taking a distribution before you’re 59

means paying a 10 percent penalty — that’s in addition to the income taxes on the withdrawal.

Your best bet is a Roth IRA, if you have one. This lets you take out any money you contributed without penalty since it’s after-tax money. To take out any earnings before you’re 59

, however, you’ll need to pay a 10 percent penalty.


STEP 2:
→Determine where you can slash expenses.
Examine your spending and weigh every expense, no matter how trivial. This exercise will help create an emergency budget you could trigger in a dire situation.

"Think of things you don’t think are significant. An extra $10 or $20 for cable or phone service or Netflix can all add up to $100 or more a month,” said William Driscoll, a certified financial planner and president of Driscoll Financial in Plymouth, Mass.

Ask everyone in your household to bring ideas. Your spouse might agree to stop buying lunch at work. Your teenage daughter might limit her text messages each month. You might cut back on movies and books.

You’ll probably discover a slew of cuts worth making immediately. Other cuts can be saved for when the stress arises.

How do your assets check out?
Comments 1
Buzz up!BY THE ASSOCIATED PRESS
Published: April 26, 2009
NEW YORK — Could your finances survive a stress test? If you’re unsure, it might be time to play a game of Wall Street regulator at home.

Advertisement
The idea behind the Obama administration’s "stress tests” is to gauge whether the nation’s 19 largest banks are financially sound. Regulators are expected to put firms into three groups: those that are healthy, those that need more money and those at risk to fail.

For the purpose of your home experiment, let’s assume you’re laid off, have a medical emergency or need major repairs on your car or home. How long could you make ends meet? "The ideal situation is that you prepare when you still have time,” said Karin Maloney Stifler, a certified financial planner with True Wealth Advisors in Hudson, Ohio. The rule of thumb is that you should maintain an emergency fund of three to six months of living expenses. But emergency funds are often an ideal rather than a reality. And with the ranks of unemployed in March being out of work for an average of five months, chances are you’d have to dig deeper.

To gauge your ability to pull through a financial calamity, work through the four steps below. For each, rate your strength on the topic from 1 to 5. Give yourself a 1 if that aspect of your finances couldn’t provide any help in an emergency; give yourself a 3 if you feel the area could use some work; and rate yourself a 5 if you feel entirely comfortable with that part of your financial plan.

If you score less than 3 on more than one area, it may be time to start fortifying your financial plan.


STEP 1:
→Check the accessibility of your reserves.
In an emergency, how quickly would you be able to get to your cash? How much money do you have available, including certificates of deposit, emergency funds and retirement accounts?

Keep in mind that getting a loan will only get harder if you’re laid off. So if you currently fear losing your job, tweak your strategy accordingly. That means thinking twice before locking up money in long-term CDs or retirement funds.

"You want to focus on preserving your money rather than growing it,” Stifler said.

If your money is already locked up, factor in any penalties you’d have to pay to get it out.

With CDs that last two to 18 months, for instance, penalties of three months’ interest are common, according to Bankrate.com. So if you put $10,000 in a 1-year CD with a 2 percent rate and wanted to withdraw money after five months, you’d forfeit around $50.

For future reference, remember that one way to avoid problems with tying up your savings is to set up a "ladder” of CDs with staggered maturities.

As for counting on retirement accounts, think again. You can’t borrow from your 401(k) once you’ve been laid off. And there are only limited circumstances where you can take a hardship withdrawal. Plus, taking a distribution before you’re 59

means paying a 10 percent penalty — that’s in addition to the income taxes on the withdrawal.

Your best bet is a Roth IRA, if you have one. This lets you take out any money you contributed without penalty since it’s after-tax money. To take out any earnings before you’re 59

, however, you’ll need to pay a 10 percent penalty.


STEP 2:
→Determine where you can slash expenses.
Examine your spending and weigh every expense, no matter how trivial. This exercise will help create an emergency budget you could trigger in a dire situation.

"Think of things you don’t think are significant. An extra $10 or $20 for cable or phone service or Netflix can all add up to $100 or more a month,” said William Driscoll, a certified financial planner and president of Driscoll Financial in Plymouth, Mass.

Ask everyone in your household to bring ideas. Your spouse might agree to stop buying lunch at work. Your teenage daughter might limit her text messages each month. You might cut back on movies and books.

You’ll probably discover a slew of cuts worth making immediately. Other cuts can be saved for when the stress arises.


STEP 3:
→As sess income sources.
On top of spending less, you need to figure out ways to supplement your income if your finances come under pressure.

For instance, don’t expect to get by on unemployment checks alone. The figures vary depending on the state you live in, but benefits on average are 50 percent of your wages, with a cap on how much you can get. In California, for instance, the weekly cap is $450.

If you’re married, ask if your spouse could take on additional overtime. While you’re at it, be sure that you’re keeping each other posted about job security. The last thing either of you need is to be surprised.

Check in with human resources, too. You need to know what short-term and long-term disability benefits you can count on in a medical emergency. How long do benefits last and how much money can you expect?

Another source of cash might be right under your nose. Look around the house. Is there a room you could rent out? How about items you could sell?

Make a list of everything you think could sell and estimate how much each item is reasonably worth.

"In an emergency situation, you have to take stock of whatever you have and use it,”Driscoll said.

STEP 4:
→Ev aluate your support network.
When planning for an emergency, friends and family might be your first thought. But they should be tapped as a last resort, Stifler said.

Many people are struggling right now, and it’s unfair in any scenario to expect someone else to support you.

That said, there may be very close family members you feel comfortable talking to about a loan in a true emergency. If so, be clear on how much they could afford, and under what terms.

If you’re not comfortable broaching the topic, don’t count on their help as a sure bet.

by the associated press

Trustee wants to take Madoff's Gains

NEW YORK (AP) — The trustee unraveling Bernard Madoff's Ponzi scheme is threatening legal action to recover $735 million from investors who unwittingly made money off the swindle.

For decades, Madoff paid steady profits to his clients, telling them the money came from the stock market.

But the gains were fictitious. Madoff pleaded guilty last month to stealing from some investors to pay bogus profits to others.

Trustee Irving Picard has sent letters to 223 investors, ordering them to return money they withdrew before the scheme collapsed.

He wants the money to be divided evenly among all victims.

Lawyers representing some of those investors expressed dismay over the letters and said they would challenge their legality.

by the associated press

MIT college will Downsize varsity Sports

Name the college that sponsored 41 varsity sports this year, tying with Harvard for most in the country. The answer is about the last school you’d think of: math and science powerhouse MIT, the university with perhaps the brainiest — and nerdiest — reputation in America.

The Engineers shared the honor with their bigger, wealthier neighbor in Cambridge, Mass., and have long competed in everything from football to fencing, softball to squash.

That’s going to change, though.

The Massachusetts Institute of Technology announced Thursday it is eliminating eight teams because of the sputtering economy. Gone are men’s and women’s hockey, men’s and women’s gymnastics, skiing, golf, pistol shooting and wrestling.

MIT joins the list of colleges dropping sports to counteract budget deficits. Northern Iowa and Vermont are nixing baseball. Women’s volleyball and men’s soccer are done at Maine; men’s track and women’s swimming will be out at Pepperdine.

The cuts leave athletes scrambling to figure out what to do with the years they expected to be filled with practices and games.

MIT students say the same intensity that drives them to embrace the school’s brutal academics makes them want to compete in sports at the highest level they can.

by the associated press

GM gets another $ 2 Billion for bailout

WASHINGTON (AFP) — The US Treasury Friday announced it had loaned General Motors an additional two billion dollars to help the troubled auto giant operate until a June 1 deadline for submitting a new restructuring plan.

The government said earlier in the week that it would provide GM with five billion dollars and give competitor Chrysler 500 million dollars while the two loss-making firms came up with plans to return to profitability.

The Treasury has yet to provide any new money to Chrysler, which is due to submit its restructuring proposals to the government by May 1.

Authorities have warned that bankruptcy was an option for both companies if they failed to come up with realistic plans for becoming "viable" by the deadlines.

GM, which had already received 13.4 billion dollars in loans from the government, was given 60 days to present an aggressive restructuring plan after authorities rejected previous proposals from the firm in late March.

Chrysler, considered the most fragile of the big US automakers, has received four billion dollars in loans. US media reported this week that the Treasury was pressing the company to prepare to file for bankruptcy as early as next week when its deadline to provide a realistic survival plan expires.

by the associated press

Crude still bucks traditional market basics

NEW YORK (AP) -- Oil prices appeared again to buck traditional market fundamentals, rising for the third straight day Friday despite a huge surplus and weak global demand.

Concerns that the U.S. bank bailout will spark a wave of inflation sent money flowing into hard assets like oil.

Benchmark crude for June delivery jumped $1.93 to settle at $51.55 a barrel on the New York Mercantile Exchange. In London, Brent prices rose $1.56 to settle at $51.67 a barrel on the ICE Futures exchange.

"It's surprised a lot of people that oil is hanging around $50 and not $40" a barrel, said Andrew Lebow, senior vice president and broke at MF Global.

Trader and analyst Stephen Schork suggested there was little reason for even small upward price movements, considering the sorry state of the world's economy. The government reported this week that the U.S. petroleum appetite is the lowest in a decade and oil inventories are now bloated with the biggest surplus in nearly 19 years.

"We do not have a thoughtful explanation as to why crude oil moved higher," Schork said in his Schork Report, "other than, there were more buyers than sellers."

Equities markets also moved higher Friday, which recently has propped up oil prices. Investors look to equities for signs that the economy is recovering, and they tend to pump money into commodities when the stock market rises.

The Dow Jones industrials average rose 1.7 percent and the Standard & Poor's 500 index rose 1.9 percent in late afternoon trading.

Natural gas futures, some say, give a better idea of what is happening in the economy.

In a break for consumers, natural gas prices fell again after dropping Thursday to the lowest price in more than six years. On Friday, natural gas for May delivery slipped 11.2 cents to settle at $3.297 per 1,000 cubic feet.

Natural gas, which is a major power source for electrical utilities, has been building up in storage at levels well above seasonal averages as manufacturers cut back on production. The Energy Information Administration reported Thursday that natural gas in U.S. storage is now 36 percent greater than it was at this time last year.

On Friday, American Electric Power blamed tepid electricity demand for a 37 percent drop in its first quarter earnings. The Columbus, Ohio, based power company said Friday that electricity use by industrial customers in its region fell 15 percent.

That falling demand can also be seen clearly in recent unemployment figures, with energy intense industries like manufacturing hit particularly hard.

The three major U.S. automakers have slowed down production this year to match a plunge in demand.

General Motors said Thursday it would shutter 13 assembly plants for up to 11 weeks this summer. That will disrupt the lives of nearly 24,000 workers.

Ford Motor Co. also has cut back on manufacturing this year.

Oil producers have been busy slashing crude exports in hopes of draining the global oil reserves and boosting prices.

On May 28, the Organization of Petroleum Exporting Countries is expected to consider another output reduction on top of the 4.2 million barrels a day it pledged to cut last year.

Deutsche Bank analyst Adam Sieminski said Friday in a research note that OPEC, which controls about 40 percent of global crude supplies, needs to slow its operations even more "to provide a more solid foundation to the oil price."

But there was evidence that some members of OPEC, pummeled by low prices, have begun to break quota agreements. Oil Movements, which tracks oil shipments at sea, said this week that OPEC compliance with quotas has stalled.

As global demand continues to sputter, companies continue to pump huge volumes of crude onto idle supertankers, effectively taking millions of barrels out of circulation. The goal is to bring that oil ashore once prices rise.

Oil Movements noted this week that tanker companies are reserving more space to store oil on top of the 100 million barrels that analyst say are already floating around at sea.

"Because the sellers can't find a bid for oil that they like, they'd rather just store it," said Andrew Lipow, president of Lipow Oil Associates.

Shipping lanes started to fill with idle tankers earlier this year when oil prices plummeted below $35 a barrel. Crude prices have stabilized around $50 a barrel, but Lipow said it still makes sense to store it.

Tanker companies have cut their rates during the past several months as OPEC exports less, and a number of new supertankers take to the seas, he said.

In other Nymex trading, gasoline for May delivery increased 4.76 cents to settle at $1.442 a gallon. Heating oil also rose 5.04 cents to settle at $1.3683 a gallon.


by the associated press

Ford may drive away without a bailout

DEARBORN, Mich. — Better-than-expected earnings from Ford raised hopes Friday that the automaker’s restructuring and new products may be enough to spare it from a federal bailout, while General Motors received more government help and Chrysler raced to avoid bankruptcy.

Ford still lost $1.4 billion from January through March, but that was less than expected, and executives said the outlook for future sales was good enough to increase production of its most popular vehicles. Ford Motor Co. has taken several steps over the last few years to avoid government intervention: cutting costs, focusing on its core brands, and introducing vehicles and advanced features.

"Ford is building the best stuff it’s ever made in terms of quality rankings and critical reviews,” said Aaron Bragman, auto analyst at IHS Global Insight. "The vehicles are sufficiently improved and people are starting to realize that.”

While Ford tries to go it alone, federal officials are questioning every penny spent by General Motors Corp. and Chrysler LLC, which are both subsisting on government loans.

Friday, the Treasury Department said it loaned $2 billion to GM, bringing the automaker’s total to $15.4 billion. Chrysler has borrowed $4 billion and could get $500 million more so it can keep running while it restructures.

But Ford, under the leadership of former Boeing Corp. CEO Alan Mulally, mortgaged all of the automaker’s assets — including the trademark blue logo — a few years ago, when loans were easier to get from the private sector.

Are things improving?
As of March 31, Ford had $21.3 billion to help it survive the worst market for U.S. auto sales in 27 years.
The company said Friday it had spent just $3.7 billion of its cash during the first three months of this year, far less than the $7.2 billion it burned in the fourth quarter of 2008. Investors sent Ford’s shares up 11 percent.

"I think the important comparison for us is ‘Are we improving versus the fourth quarter?’” Chief Financial Officer Lewis Booth said. "Because the fourth quarter, things were really dreadful.”

He said cost cuts and better pricing for its vehicles helped Ford narrow its losses from $5.9 billion in the fourth quarter, and he expects continued improvement.

Ford said it was able to charge more for its vehicles, which now come loaded with features such as electronic blind-spot detection and technology that links cell phones and MP3 players to a voice-activated command center.

by the associated press

Purina Mills recalls Food

Land O’Lakes Purina Feed LLC has initiated a limited voluntary recall of a single lot of a Country Acres poultry feed in 50 pound sacks.

The the St. Paul, Minn.-based company said Friday that the feed has the potential to have higher than acceptable levels of salt.

The maker says higher salt levels can cause serious health issues and, at high levels, potential mortality in poultry.

The recall was initiated after a small number of customers complained that their birds died, the company said.

The product was manufactured at the St. Joseph, Mo., feed plant and was distributed to dealers in northeastern Oklahoma, eastern-central Kansas, western Arkansas, and western Missouri.

Dealers have been contacted and asked to hold these products and to notify and retrieve the product from customers.

The affected product should be returned to the retail dealer and not used.

The feed typically is used by small-flock owners. The recalled feed has lot number 9MAR19STJ3 printed on the sewing strip of the bag.

by the associated press

Ex Freddie Mac CEO returns

WASHINGTON (AP) — Mortgage finance company Freddie Mac, coping with the apparent suicide of its acting chief financial officer, said Friday that its former chief executive is coming back temporarily as a consultant.

David Moffett, the former government-appointed CEO who resigned from Freddie Mac in March, will return as a consultant to the company's interim CEO John Koskinen, aiding him with producing financial statements.

In an interview with The Associated Press on Thursday, Moffett said he would "be happy to help them in any way."

David Kellermann, the company's acting chief financial officer was found dead Wednesday in the basement of his home. The 41-year-old Kellermann was promoted in September when the government seized McLean, Va.-based Freddie Mac and ousted top executives.

Koskinen said in a statement he was "grateful to (Moffett) for offering to assist us during this challenging time," and that Freddie Mac will continue looking for a permanent CFO.

by the associated press

Secret Bank test results

NEW YORK — It was the banking industry’s equivalent of Judgment Day: Dark-suited bank executives called into top-secret meetings with Federal Reserve officials to learn whether their institutions might live or die if the economy took a sharp turn for the worse.

The disclosure of the stress-test results for the nation’s 19 biggest financial firms made for high drama on Wall Street, which buzzed with anticipation even though the banks’ report cards won’t be made public until early next month.

Bank executives learned their grades in meetings at Federal Reserve banks across the country. The proceedings were shrouded in secrecy. By law, the banks can’t publicize the results without the government’s permission. Most banks refused even to confirm that the meetings took place.


About the tests
The stress tests are among the ways the government has tried to restore confidence in banking amid the gravest financial crisis since the Great Depression.
The air of mystery fed Wall Street’s anticipation. On the financial news network CNBC, a countdown clock ticked away the seconds until the Fed’s release of the methodology used to conduct the stress tests.

Financial stocks mostly rose after the Federal Reserve said the government would rescue any of the 19 financial companies if they became weakened by a deeper recession.

Giving the banks their results Friday, more than a week before they’re to be released, is supposed to give them time to process the data internally.

The Fed, which is overseeing the tests, asked banks not to reveal their results during quarterly earnings announcements. Regulators worry investors might batter those banks without any good news to announce. Many banking experts who say it’s difficult to predict how the results will be received.

Bert Ely, a longtime banking analyst, said he worried the tests could backfire by unnecessarily alarming investors.

"We’re going to get a warts-and-all look at the banks, and the market may overreact,” he said.

Most banks refused to discuss any aspect of the tests. Only one, PNC Financial Services Group Inc. even confirmed that it met with regulators.

by the associated press

Government may save some Banks

WASHINGTON — The Federal Reserve on Friday said the government is prepared to rescue any of the banks that underwent "stress tests” and were deemed vulnerable if the recession worsened sharply.

The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.

Separately, bank executives were being briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government’s permission, but Wall Street buzzed with anticipation and most financial stocks rose. The Dow Jones industrial average added more than 153 points to about 8,111 in afternoon trading.

The stress tests were designed to gauge how banks would fare during a much worse recession than most economists expect. But the Fed said that a bank needing more capital to cushion against loan losses under its "adverse” economic scenario should not be considered insolvent.

Rather, such a bank — if it could not raise additional money from private investors — could get financing from the Treasury’s bailout fund.

Even if the tests showed a bank needs more capital, that "is not a measure of the current solvency or viability of the firm,” the Fed said in a description of the tests’ methodology.

Stabilization goals
Battling the worst financial crisis since the 1930s, the government has committed more than $11 trillion in loans, investments and other measures to prop up troubled institutions and stabilize the banking system.
For months, officials have put off questions about the banking system by saying they’re awaiting the stress-test results.

The delays have led investors to fret: If the tests show every bank to be strong, they will look like a whitewash and won’t be taken seriously. Yet if investors could distinguish stronger from weaker banks, they could start selling off weaker banks that remain stable but might falter if the recession got much worse.

The banks will have a few days to review the government’s stress tests results and appeal any findings they disagree with. Regulators will give them the final results next Friday, according to two people familiar with the matter who spoke on condition of anonymity because they were not authorized to discuss it publicly.

In a conference call with journalists, senior Fed officials said regulators will be keeping a close eye on banks to make sure they have adequate capital to withstand likely losses on mortgages and other assets as the recession drags on.

by the associated press

Bank's have stress , however the Stock market does not

NEW YORK — Investors set aside some of their worries about banks and the economy Friday after the government unveiled its methods for testing the health of banks.

The Federal Reserve report was light on details, but didn’t bring any bad news. Investors were also pleased about quarterly results from Ford Motor Co., American Express Co. and Microsoft Corp.

That cleared the way for a 119-point gain in the Dow Jones industrial average, leaving it down slightly for the week.

The Dow and the S&P 500 broke their six-week winning streak, but the Nasdaq extended its string of weekly gains to seven.

The Fed, in outlining the tests’ methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.

Separately, bank executives were briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government’s permission, but Wall Street buzzed with anticipation and most financial stocks rose.

The day was not without volatility, however. After the Fed’s release, the stock market at times gave up huge chunks of gains before finishing solidly higher. Financial stocks, were leading the way.

The Dow rose 119.23, or 1.5 percent, to 8,076.29, after rising by as many as 170 points. For the week, the Dow slipped 0.7 percent, the S&P 500 dipped 0.4 percent, and the Nasdaq rose 1.3 percent.

Steve Sachs, director of trading at Rydex Investments, in Rockville, Md., said market has held up well during a week in which about a quarter of the companies in the S&P 500 index have released earnings, including the major banks.

"We are looking for the signs of economic recovery,” he said. "The market clearly is comfortable that it sees the signs of economic stability that it needs to see.”


by the associated press

Bondholders Want Bankruptcy , GM

With the Treasury Dept. directing Chrysler to prepare to file for bankruptcy, it might be expected that the bondholders who own $28 billion in General Motors (GM) debt might be scared into cutting a deal. Don't be so sure.

The barriers to getting a deal done with GM bondholders, and negotiating away enough of that debt to strike a deal and avoid a planned, government-assisted bankruptcy, remain very big, with five weeks to go before the deadline.

First, all of the constituents may be willing to take a piece of equity in place of the cash they are owed. But even with a restructured GM that carries less debt and has more value, there is only so much equity to go around. It may be impossible to give everyone the equity stake that they want, say two sources close to the talks. And second, some of the bondholders own credit default swaps, which amount to an insurance policy against the debt and pay them in full if GM defaults. Those bondholders actually fare much better if GM goes into bankruptcy.

Bankruptcy May Be GM's Best Option
If enough bondholders refuse to budge, GM and the U.S. Treasury Dept.'s auto task force will likely see bankruptcy as the best option to dispose of the debt and solve other issues like cutting labor costs and getting more than 1,500 car dealerships to go away. "When you look at the pros and cons, there are a lot of benefits for GM bankruptcy," says Michael Robinet, vice-president of CSM Worldwide, an auto industry research and consulting firm in Northville, Mich.

It may be the only way to accomplish the government's goal of getting rid of most of the $28 billion in bond debt. GM wants the bondholders to take most, if not all, of their debt in stock. But how much stock is a big issue.

That's problematic. GM also owes the United Auto Workers $20 billion for a retiree health-care trust that will pay medical benefits. Treasury and GM want to give the union a big chunk of that in stock.

Government Could Take Equity
And there's one more player likely to own a big chunk of GM: the feds. The government has loaned GM $15.4 billion, including $2 billion more given to the automaker on Apr. 24. In or out of bankruptcy, GM's debt to the government could easily reach $30 billion. And that doesn't count the possible $8 billion from the Energy Dept. to GM for fuel economy improvements.

The auto task force doesn't want to replace $48 billion in bond and union debt with government loans, so the government could take a big piece of equity, too. The $9 billion owed to secured creditors, by the way, wouldn't be touched, sources say.

That raises some very thorny questions at the bargaining table. First, how much is GM worth once you scrub away much of the debt and union obligations? That depends on your assumptions about the size of the car market, what GM's share of it will be, and what kind of pricing the company's models can command. All of that is very subjective and complicates negotiations, say sources close to the talks.

The Credit Default Swap Hitch
There's another huge catch. Internally, GM has been trying to find out how many of its bondholders hold the credit default swaps that will pay them in full if the automaker goes bankrupt. But the company has not reached a conclusion.

But it could be big enough to keep a deal from happening. Put it this way: Treasury wants to get about 90% of the bondholders to take the debt-for-equity exchange. So you only need about $2.8 billion worth of debt in the hands of people who also own the swaps and a few others who won't take the deal to hold things up.

There are some $2.7 billion worth of GM credit default swaps swimming around in the market, says Tim Backshall of Credit Derivatives Research.

Swap owners are not required to own the debt as well, so some may own swaps but not bonds. But if all of them hold GM debt and decide to get repaid in full through insurance policies in bankruptcy, it won't take too many more recalcitrant bondholders to get a deal done. "That's why you'll probably have to have a bankruptcy," says Richard Christopher Whelan, senior vice-president and managing director of Institutional Risk Analytics.

Discarding Pontiac?
While GM is preparing an offer for its bondholders, the company is also mulling the fate of its brands. GM has resisted suggestions to ditch its GMC truck brand, and two GM executives say the company has won the argument. News reports from Australia, where GM's Holden unit makes the Pontiac G8 sports car, suggest that GM may ditch Pontiac instead of keeping it around as a one- or two-car niche brand. Insiders say GM may dump it since the company has no new Pontiac models in the works.

At the same time, GM has several interested bidders in the Saturn retail network. One is a dealer group affiliated with private equity firm Black Oak Partners. Another is Renault-Nissan (NSANY). The French-Japanese auto alliance has been approached and gave it a look.

But any European carmaker may have trouble entering the U.S. even with Saturn's network, says James N. Hall, principal of 2953 Analytics, a Detroit-area auto consulting firm. European models are made with more expensive content because their buyers pay more for smaller cars due to expensive fuel. Plus, exchange rates hurt their profit potential, Hall says.

In any case, if GM enters bankruptcy, it could dispose of the unwanted brands more easily, says CSM's Robinet. Dealers could still sue under state franchise laws, but good luck getting any cash when the secured creditors, parts makers, government, UAW, and bondholders are already in line.


by BUSINESSWEEKLY

Polls shows America is on the way back

WASHINGTON — Millions of people jobless. Billions of dollars in bailouts. Trillions of dollars in U.S. debt. And yet, for the first time in years, more Americans than not are saying that the country is on the right track.

An Associated Press-GfK poll shows that 48 percent of Americans believe the United States is headed in the right direction — compared with 44 percent who disagree.

The "right direction” number is up 8 points since February and a 31 points since October, the month before President Barack Obama’s election.

The AP-GfK poll shows, as Obama approaches his 100th day in office Wednesday, that more of those polled than not consider their new president to be a strong, ethical and empathetic leader.

This is the first time since January 2004 than an AP survey included more "right direction” than "wrong direction” respondents.

The poll was conducted April 16-20.

It involved phone interviews with 1,000 adults. The margin of sampling error was plus or minus 3.1 percentage points.

by the associated press