Michigan attorney general defends employee's right to blog
Copyright By CNN News
September 30, 2010 7:51 a.m. EDT
http://www.cnn.com/2010/US/09/30/michigan.justice.blog/index.html?hpt=Sbin
(CNN) -- Michigan Attorney General Mike Cox defended an assistant's constitutional right to wage an Internet campaign against an openly gay college student, even though he considers that employee a "bully."
"Here in America, we have this thing called the First Amendment, which allows people to express what they think and engage in political and social speech," Cox told Anderson Cooper on CNN's "AC 360" on Wednesday night. "He's clearly a bully ... but is that protected under the First Amendment of the United States Constitution? Yes."
"Mr. [Andrew] Shirvell is sort of a frontline grunt assistant prosecutor in my office," Cox said. "He does satisfactory work and off-hours, he's free to engage under both our civil service rules, Michigan Supreme Court rulings and the United States Supreme Court rule."
For nearly six months, Shirvell, an assistant attorney general for the state of Michigan, has blogged about college student Chris Armstrong, an openly gay student assembly president at the University of Michigan in Ann Arbor.
is blog in late April using the online moniker "Concerned Michigan Alumnus."
"Welcome to 'Chris Armstrong Watch,'" Shirvell wrote in his inaugural blog post. "This is a site for concerned University of Michigan alumni, students and others who oppose the recent election of Chris Armstrong -- a RADICAL HOMOSEXUAL ACTIVIST, RACIST, ELITIST, & LIAR -- as the new head of student government."
Among other things, Shirvell has published blog posts that accuse Armstrong of going back on a campaign promise he made to minority students; engaging in "flagrant sexual promiscuity" with another male member of the student government; sexually seducing and influencing "a previously conservative [male] student" so much so that the student, according to Shirvell, "morphed into a proponent of the radical homosexual agenda;" hosting a gay orgy in his dorm room in October 2009; and trying to recruit incoming first-year students "to join the homosexual 'lifestyle.'"
In a written statement from his office on Tuesday, Cox distanced his office from Shirvell's comments.
"Mr. Shirvell's personal opinions are his and his alone, and do not reflect the views of the Michigan Department of Attorney General," Cox said in the written statement provided by his office Tuesday night. "But his immaturity and lack of judgment outside the office are clear."
Shirvell said he works on the blog during his off-hours.
On "AC 360" on Tuesday, Shirvell made no apologies for his blog postings, which include a picture of Armstrong with "Resign" written over his face. The same picture also had a swastika superimposed over a gay pride flag, with an arrow pointing toward Armstrong.
Shirvell acknowledged protesting outside of Armstrong's house and calling him "Satan's representative on the student assembly."
"I'm a Christian citizen exercising my First Amendment rights," Shirvell told Cooper. "I have no problem with the fact that Chris is a homosexual. I have a problem with the fact that he's advancing a radical homosexual agenda."
Armstrong has supported gender-neutral housing at the university for transgender students who haven't had sexual reassignment surgery.
Armstrong told CNN he has hired an attorney and is pursuing legal action against Shirvell.
CNN senior legal analyst Jeffrey Toobin says Armstrong may have grounds for a harassment case.
CNN's Martina Stewart and Ed Payne contributed to this report.
Thursday, September 30, 2010
More mortgage distress in the air - Price slide likely to continue as shadow inventory comes to light
More mortgage distress in the air - Price slide likely to continue as shadow inventory comes to light
By Mary Ellen Podmolik
Copyright © 2010, Chicago Tribune
September 30, 2010
http://www.chicagotribune.com/classified/realestate/ct-biz-0930-distressed-properties-20100930,0,5192202.story
Several years after the foreclosure crisis hit the Chicago area, a quiet new storm of homeowner troubles is on the horizon.
New data suggest that the number of homes taken back by lenders represents only a small percentage of the distressed residential real estate out there. There are many more homeowners struggling to make their monthly payments.
In the eight-county Chicago area, 19 percent of mortgages — representing nearly 1 in 5 residential properties with a loan — are delinquent by at least one month, helping create an inventory of almost 204,000 homes at risk of reverting back to lenders, according to data provided to the Chicago Tribune by John Burns Real Estate Consulting in Irvine, Calif. That "shadow inventory," as experts define distressed homes not yet put up for sale, is the largest in absolute terms for any metropolitan area in the country.
Based on its calculations, the firm believes that 80 percent of those homeowners eventually will lose their property, either through foreclosure or a short sale, in which the lender permits the home to be sold for less than the value of the loan.
These numbers are troubling for the economy because they reflect the deep problems many families are facing. But there is a significant spillover effect for all homeowners: Many of these houses eventually will go on the market, sold as distressed properties that will impact the value of all homes in their neighborhood.
Register with Chicago Tribune and receive free newsletters and alerts >>
Distressed sales, which are expected to account for 41 percent of activity nationally this year, should peak at 45 percent of all sales completed next year, according to Burns Real Estate Consulting. In September, 45 percent of single-family home and condo sales tracked by the Chicago Association of Realtors were foreclosures and short sales.
For Cook, DeKalb, DuPage, Grundy, Kane, Kendall, McHenry and Will counties, the shadow inventory number translates to 22 months of distressed housing supply. The combined shadow inventory for Lake County and Kenosha County, Wis., where the delinquency rate is 18.4 percent, is more than 22,000 homes, or a 23-month supply.
"A fifth of people (in the Chicago area) aren't paying their mortgage," said Wayne Yamano, a vice president at John Burns. "Next year is when you're going to have the most competition in the market and the proportion of distressed sales will be the highest."
An analysis of mortgage delinquencies in the Chicago area compiled for the Tribune by research firm CoreLogic demonstrates that the housing crisis is far from over. It shows that in many communities, less than 1 percent of homes in a given ZIP code were bank-owned at the end of June. Add in properties where the mortgage payments are at least 90 days past due and considered seriously delinquent and the percentage of affected properties grew by five-, ten- or twentyfold in some communities.
Some snapshots:
•In Evanston's 60202 ZIP code, for example, only 0.55 percent of homes were foreclosed upon and reclaimed by lenders in June. However, almost 7 percent of mortgages were at least 90 days delinquent, putting the future of those homes at risk.
•In Chicago's 60611 ZIP code, part of Chicago's affluent Streeterville and Gold Coast neighborhood, only 0.52 percent of properties were bank-owned in June, but 5.31 percent of homeowners hadn't paid their mortgages for 90 days.
•In Montgomery in June, less than 1 percent of properties were bank-owned, but almost 13 percent of mortgages were seriously delinquent.
Overall in Illinois, the drumbeat of foreclosures has continued. In August, according to RealtyTrac, foreclosure proceedings were initiated on 6,912 homes; 5,412 homes went to court-ordered foreclosure sale; and 4,484 homes were taken back by lenders. One in every 314 homes with a mortgage received some sort of foreclosure filing in Illinois in August.
Local governments are concerned about the increases and their impact, but they say they have struggled to keep track of the growing numbers.
Some municipal governments, Lansing among the most recent of them, have enacted vacant property ordinances to hold property owners, whether individuals or banks, responsible for a home's upkeep. Others try to keep tabs on foreclosures by tracking court filings and talking with local real estate agents.
But in an era of strapped budgets, communities don't have the financial resources to track foreclosures already in their neighborhoods, much less the future ones that may occur.
The village of Lincolnwood this year has logged the most property maintenance complaints in at least seven years, as residents call about vacant homes in their neighborhoods with high grass, broken windows and unattached gutters. The village tries to keep up with the complaints and file liens against property owners, but it is in the third year of a hiring freeze and has eliminated positions.
In June, 6.43 percent of mortgages in Lincolnwood were in foreclosure and another 7.3 percent were at least 90 days past due, according to CoreLogic's data.
"We don't have the mechanism in place to actively track it," said village administrator Timothy Wiberg. "We hope we've hit rock bottom, but we don't know with any clarity what's going to happen."
There is little doubt that more homeowners will lose their homes next year as foreclosure prevention efforts meet with limited success and an unemployment rate near 10 percent puts pressure on new homeowners.
Earlier this month, the Treasury Department reported that only 33 percent of the 1.3 million trial payment plans begun under the federal government's Home Affordable Modification Program had been converted into permanent mortgage modifications. Meanwhile the number of modifications that were made permanent in August was down almost 27 percent from July.
"Modifications have delayed distressed homes from coming onto the market," Yamano said. "We think most modifications are going to fail, and the (government-sponsored enterprises) are starting to ramp up foreclosure starts."
During the year's second quarter, foreclosure starts of Fannie Mae- and Freddie Mac-backed mortgages increased 12 percent nationally, while completed foreclosure sales and other sales increased 15 percent. Short sales and deeds-in-lieu of foreclosure, two loss-mitigation efforts encouraged by the government because they cause less harm to a borrower's credit score, rose 27 percent during the second quarter, according to the Federal Housing Finance Agency.
"You're seeing more product come into the marketplace, absolutely," said Mabel Guzman, president-elect of the Chicago Association of Realtors. "They want to get the product moved."
In DuPage County, where community groups are trying to educate borrowers on their options, the DuPage Homeownership Center sees 15 to 30 new faces each week at group orientation sessions designed for struggling homeowners. "I think there are people right now hanging in limbo because servicers are dealing with (loan modification) backlogs," said Dru Bergman, the center's executive director. "I get a sense that there's still a lot clogged in the pipeline."
Some real estate agents say they're seeing an increase in the number of financially strapped homeowners interested in listing their home as a short sale. They're also fielding questions from traditional sellers who held their homes off the market this year with the expectation that their home will fetch a better price in 2011.
"I'm not sure that's going to happen," said Mary Ann Manna, an agent at American National Real Estate in West Chicago. "I know what's out there and I know the pipeline is pretty full, and banks aren't even putting all the properties they have on (the market). This is not over."
mepodmolik@tribune.com
By Mary Ellen Podmolik
Copyright © 2010, Chicago Tribune
September 30, 2010
http://www.chicagotribune.com/classified/realestate/ct-biz-0930-distressed-properties-20100930,0,5192202.story
Several years after the foreclosure crisis hit the Chicago area, a quiet new storm of homeowner troubles is on the horizon.
New data suggest that the number of homes taken back by lenders represents only a small percentage of the distressed residential real estate out there. There are many more homeowners struggling to make their monthly payments.
In the eight-county Chicago area, 19 percent of mortgages — representing nearly 1 in 5 residential properties with a loan — are delinquent by at least one month, helping create an inventory of almost 204,000 homes at risk of reverting back to lenders, according to data provided to the Chicago Tribune by John Burns Real Estate Consulting in Irvine, Calif. That "shadow inventory," as experts define distressed homes not yet put up for sale, is the largest in absolute terms for any metropolitan area in the country.
Based on its calculations, the firm believes that 80 percent of those homeowners eventually will lose their property, either through foreclosure or a short sale, in which the lender permits the home to be sold for less than the value of the loan.
These numbers are troubling for the economy because they reflect the deep problems many families are facing. But there is a significant spillover effect for all homeowners: Many of these houses eventually will go on the market, sold as distressed properties that will impact the value of all homes in their neighborhood.
Register with Chicago Tribune and receive free newsletters and alerts >>
Distressed sales, which are expected to account for 41 percent of activity nationally this year, should peak at 45 percent of all sales completed next year, according to Burns Real Estate Consulting. In September, 45 percent of single-family home and condo sales tracked by the Chicago Association of Realtors were foreclosures and short sales.
For Cook, DeKalb, DuPage, Grundy, Kane, Kendall, McHenry and Will counties, the shadow inventory number translates to 22 months of distressed housing supply. The combined shadow inventory for Lake County and Kenosha County, Wis., where the delinquency rate is 18.4 percent, is more than 22,000 homes, or a 23-month supply.
"A fifth of people (in the Chicago area) aren't paying their mortgage," said Wayne Yamano, a vice president at John Burns. "Next year is when you're going to have the most competition in the market and the proportion of distressed sales will be the highest."
An analysis of mortgage delinquencies in the Chicago area compiled for the Tribune by research firm CoreLogic demonstrates that the housing crisis is far from over. It shows that in many communities, less than 1 percent of homes in a given ZIP code were bank-owned at the end of June. Add in properties where the mortgage payments are at least 90 days past due and considered seriously delinquent and the percentage of affected properties grew by five-, ten- or twentyfold in some communities.
Some snapshots:
•In Evanston's 60202 ZIP code, for example, only 0.55 percent of homes were foreclosed upon and reclaimed by lenders in June. However, almost 7 percent of mortgages were at least 90 days delinquent, putting the future of those homes at risk.
•In Chicago's 60611 ZIP code, part of Chicago's affluent Streeterville and Gold Coast neighborhood, only 0.52 percent of properties were bank-owned in June, but 5.31 percent of homeowners hadn't paid their mortgages for 90 days.
•In Montgomery in June, less than 1 percent of properties were bank-owned, but almost 13 percent of mortgages were seriously delinquent.
Overall in Illinois, the drumbeat of foreclosures has continued. In August, according to RealtyTrac, foreclosure proceedings were initiated on 6,912 homes; 5,412 homes went to court-ordered foreclosure sale; and 4,484 homes were taken back by lenders. One in every 314 homes with a mortgage received some sort of foreclosure filing in Illinois in August.
Local governments are concerned about the increases and their impact, but they say they have struggled to keep track of the growing numbers.
Some municipal governments, Lansing among the most recent of them, have enacted vacant property ordinances to hold property owners, whether individuals or banks, responsible for a home's upkeep. Others try to keep tabs on foreclosures by tracking court filings and talking with local real estate agents.
But in an era of strapped budgets, communities don't have the financial resources to track foreclosures already in their neighborhoods, much less the future ones that may occur.
The village of Lincolnwood this year has logged the most property maintenance complaints in at least seven years, as residents call about vacant homes in their neighborhoods with high grass, broken windows and unattached gutters. The village tries to keep up with the complaints and file liens against property owners, but it is in the third year of a hiring freeze and has eliminated positions.
In June, 6.43 percent of mortgages in Lincolnwood were in foreclosure and another 7.3 percent were at least 90 days past due, according to CoreLogic's data.
"We don't have the mechanism in place to actively track it," said village administrator Timothy Wiberg. "We hope we've hit rock bottom, but we don't know with any clarity what's going to happen."
There is little doubt that more homeowners will lose their homes next year as foreclosure prevention efforts meet with limited success and an unemployment rate near 10 percent puts pressure on new homeowners.
Earlier this month, the Treasury Department reported that only 33 percent of the 1.3 million trial payment plans begun under the federal government's Home Affordable Modification Program had been converted into permanent mortgage modifications. Meanwhile the number of modifications that were made permanent in August was down almost 27 percent from July.
"Modifications have delayed distressed homes from coming onto the market," Yamano said. "We think most modifications are going to fail, and the (government-sponsored enterprises) are starting to ramp up foreclosure starts."
During the year's second quarter, foreclosure starts of Fannie Mae- and Freddie Mac-backed mortgages increased 12 percent nationally, while completed foreclosure sales and other sales increased 15 percent. Short sales and deeds-in-lieu of foreclosure, two loss-mitigation efforts encouraged by the government because they cause less harm to a borrower's credit score, rose 27 percent during the second quarter, according to the Federal Housing Finance Agency.
"You're seeing more product come into the marketplace, absolutely," said Mabel Guzman, president-elect of the Chicago Association of Realtors. "They want to get the product moved."
In DuPage County, where community groups are trying to educate borrowers on their options, the DuPage Homeownership Center sees 15 to 30 new faces each week at group orientation sessions designed for struggling homeowners. "I think there are people right now hanging in limbo because servicers are dealing with (loan modification) backlogs," said Dru Bergman, the center's executive director. "I get a sense that there's still a lot clogged in the pipeline."
Some real estate agents say they're seeing an increase in the number of financially strapped homeowners interested in listing their home as a short sale. They're also fielding questions from traditional sellers who held their homes off the market this year with the expectation that their home will fetch a better price in 2011.
"I'm not sure that's going to happen," said Mary Ann Manna, an agent at American National Real Estate in West Chicago. "I know what's out there and I know the pipeline is pretty full, and banks aren't even putting all the properties they have on (the market). This is not over."
mepodmolik@tribune.com
Flaws in GOP’s pledge to balance budget
Flaws in GOP’s pledge to balance budget
By Edward Luce
Copyright The Financial Times Limited 2010
Published: September 29 2010 18:41 | Last updated: September 29 2010 18:41
http://www.ft.com/cms/s/0/3070a20a-cbec-11df-bd28-00144feab49a.html
In the build-up to the UK election in May, David Cameron’s Conservative party made little bones about the fact that Britain was heading into an “age of austerity”. In his “contract with voters” that Mr Cameron issued before polling day, he observed: “We know how unhappy you are and how doubtful you are that anyone will achieve anything or change anything.”
The contrast with the Pledge to America the Republicans issued last week as the basis for their midterm election campaign could not be sharper. One party offered the 21st century equivalent of “blood, sweat and tears” – admittedly watered down as polling day approached. The other parodied Pangloss’s hope that “all will be for the best in the best of all possible worlds”.
Nowhere in the Republican pledge was there acknowledgement of the painful decisions that all Americans must confront to avert disaster. Nor was there even a hint of admission that Republicans bore at least equal responsibility for the low regard in which all politicians are held in America, as they are in Britain. Instead of medicine, there was sugar.
This is how the pledge begins: “With this document, we pledge to dedicate ourselves to the task of reconnecting our highest aspirations to the permanent truths of our founding by keeping faith with the values our nation was founded on, the principles we stand for, and the priorities of our people.”
Such was the mood music. But the real contrast was in the substance. Although Mr Cameron’s Conservatives fudged the extent of spending cuts as the election approached, they stuck firmly to the line that there could be no tax cuts if Britain were to restore its budget to balance.
In contrast, John Boehner, the Republican leader in the House of Representatives, flanked by the “Young Guns”, only one of whom is younger than Mr Cameron, promised to maintain all the tax cuts that George W. Bush instituted, never raise any taxes again in any shape or form, and do all this while restoring America’s budget to balance.
All of which might have been plausible were it to have spelt out the draconian spending cuts that would therefore be necessary to bring the budget back to surplus. But it declined to do so. Instead it ring-fenced more than three-quarters of the US federal budget – social security, Medicare and defence spending – and promised to impose caps on the remaining, “discretionary” portion of it.
In numerical terms, the $320bn the party has specified in spending cuts over the next decade is dwarfed by the $4,000bn in tax cuts that it promises – all on top of the current double digit budget deficit.
Simon Rosenberg of the NDN, formerly known as the New Democratic Network, says the idea that this would result in a budget surplus comes from the “Harry Potter school of economics”.
If implemented, the pledge would bring about a crisis in US sovereign creditworthiness. In the name of the founding fathers it would jeopardise the dollar. Which leads us to one of two conclusions. Either the Republican Party believes what it is saying, in which case it has no further useful intellectual contribution to make. Or else it thinks the US electorate is intellectually challenged and will mistake this fantasy for a plan.
The latter cannot be discounted. If the polls are right, the Republicans are on course to capture the House on November 2. At their head are leaders who voted for every spending measure George W. Bush requested, including the unfunded $600bn expansion of prescription drugs for seniors, which was probably the most egregious instance of corporate welfare in modern US history, as well as the unfunded $260bn highways bill that included the infamous “bridge to nowhere”.
These are the same lawmakers who inherited the largest budget surplus in modern US history, when Mr Bush came to office in 2001, and bequeathed the largest ever peacetime deficit to Barack Obama in 2009. Like the Bourbons, they appear to have learnt nothing and forgotten nothing. For the sake of America’s economic future, and everyone else’s, friends of the US must hope its voters have not forgotten their recent history.
By Edward Luce
Copyright The Financial Times Limited 2010
Published: September 29 2010 18:41 | Last updated: September 29 2010 18:41
http://www.ft.com/cms/s/0/3070a20a-cbec-11df-bd28-00144feab49a.html
In the build-up to the UK election in May, David Cameron’s Conservative party made little bones about the fact that Britain was heading into an “age of austerity”. In his “contract with voters” that Mr Cameron issued before polling day, he observed: “We know how unhappy you are and how doubtful you are that anyone will achieve anything or change anything.”
The contrast with the Pledge to America the Republicans issued last week as the basis for their midterm election campaign could not be sharper. One party offered the 21st century equivalent of “blood, sweat and tears” – admittedly watered down as polling day approached. The other parodied Pangloss’s hope that “all will be for the best in the best of all possible worlds”.
Nowhere in the Republican pledge was there acknowledgement of the painful decisions that all Americans must confront to avert disaster. Nor was there even a hint of admission that Republicans bore at least equal responsibility for the low regard in which all politicians are held in America, as they are in Britain. Instead of medicine, there was sugar.
This is how the pledge begins: “With this document, we pledge to dedicate ourselves to the task of reconnecting our highest aspirations to the permanent truths of our founding by keeping faith with the values our nation was founded on, the principles we stand for, and the priorities of our people.”
Such was the mood music. But the real contrast was in the substance. Although Mr Cameron’s Conservatives fudged the extent of spending cuts as the election approached, they stuck firmly to the line that there could be no tax cuts if Britain were to restore its budget to balance.
In contrast, John Boehner, the Republican leader in the House of Representatives, flanked by the “Young Guns”, only one of whom is younger than Mr Cameron, promised to maintain all the tax cuts that George W. Bush instituted, never raise any taxes again in any shape or form, and do all this while restoring America’s budget to balance.
All of which might have been plausible were it to have spelt out the draconian spending cuts that would therefore be necessary to bring the budget back to surplus. But it declined to do so. Instead it ring-fenced more than three-quarters of the US federal budget – social security, Medicare and defence spending – and promised to impose caps on the remaining, “discretionary” portion of it.
In numerical terms, the $320bn the party has specified in spending cuts over the next decade is dwarfed by the $4,000bn in tax cuts that it promises – all on top of the current double digit budget deficit.
Simon Rosenberg of the NDN, formerly known as the New Democratic Network, says the idea that this would result in a budget surplus comes from the “Harry Potter school of economics”.
If implemented, the pledge would bring about a crisis in US sovereign creditworthiness. In the name of the founding fathers it would jeopardise the dollar. Which leads us to one of two conclusions. Either the Republican Party believes what it is saying, in which case it has no further useful intellectual contribution to make. Or else it thinks the US electorate is intellectually challenged and will mistake this fantasy for a plan.
The latter cannot be discounted. If the polls are right, the Republicans are on course to capture the House on November 2. At their head are leaders who voted for every spending measure George W. Bush requested, including the unfunded $600bn expansion of prescription drugs for seniors, which was probably the most egregious instance of corporate welfare in modern US history, as well as the unfunded $260bn highways bill that included the infamous “bridge to nowhere”.
These are the same lawmakers who inherited the largest budget surplus in modern US history, when Mr Bush came to office in 2001, and bequeathed the largest ever peacetime deficit to Barack Obama in 2009. Like the Bourbons, they appear to have learnt nothing and forgotten nothing. For the sake of America’s economic future, and everyone else’s, friends of the US must hope its voters have not forgotten their recent history.
Today's Financial News Courtesy of the Financial Times
Today's Financial News Courtesy of the Financial Times
Eurozone debt crisis leaves investors wary
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: September 27 2010 03:47 | Last updated: September 30 2010 13:10
http://www.ft.com/cms/s/0/4dd71c22-c9dd-11df-b3d6-00144feab49a.html
Thursday 13:00 BST. The eurozone’s debt crisis is the focus of investor attention after Dublin gave details of its bail-out of Anglo Irish bank and Moody’s downgraded Spain’s credit rating.
The FTSE All-World equity index is down 0.2 per cent, following a poor performance in Asia as concerns about eurozone sovereign debt risk hurt financials in the region and a soft close on Wall Street encouraged end of quarter profit taking.
Many major Asian exchanges were finished for the day by the time the statement on Anglo Irish was released. The reaction in Europe to Ireland’s central bank putting a €34bn tab on the cost of rescuing beleaguered Anglo Irish bank has been fairly phlegmatic, however.
Even though the news comes at a time of heightened anxiety about the eurozone's fiscal position following Wednesday’s rash of anti-austerity protests, the figures revealed provided clarity and were in line with expectations, and this has allowed some easing of market stress gauges.
Irish government bond prices are edging higher, while the cost of insuring Ireland's’ sovereign debt against default – as measured by credit default swaps – has dropped 7 basis points to 467 basis points. Meanwhile, the euro has reversed early losses, and bunds are edging lower as their haven attraction diminishes.
The Market Eye
The wholesale “risk-on/risk-off” trade has been less reliable of late, but one of its components, the dollar’s inverse correlation to equities, is making a stirring comeback. Traders have noted that a dip in the dollar index coincides closely with a move higher for the S&P 500. There is some sense to this. A falling dollar is good for US exporters, and a declining buck may also be a sign that investors are not scrambling for perceived currency havens, which they tend to do in times of stress. However, an important factor behind the dollar’s recent decline to 8 month lows is a falling yield differential with major currency peers as markets price in further QE. That’s a symptom of a struggling economy, which is not good for stocks unless one believes the extra liquidity will flow into equities regardless.
Whatever one’s view, according to 4Cast, the one-month correlation between the dollar index and the S&P 500 is a negative 0.92 – with minus 1 showing perfect negative correlation – and these trends have a habit of intensifying as more market participants track and act on them.
Dollar and US equities
Even Spanish bonds are gaining ground as investors considered the Moody’s downgrade to have been already discounted by the market.
The FTSE Eurofirst equity index has pared initial losses and is now off just 0.2 per cent, while London’s FTSE 100 is down 0.2 per cent. Dublin stocks are up 0.1 per cent, though AIB shares are off 28 per cent to €0.40.
US equity futures are down 0.2 per cent. This suggests Wall Street will start the last trading day of the month on the back-foot, but it would still leave US stocks up nearly 9 per cent this month. It would mean that a decidedly mixed few weeks of economic data and the prospect of US Federal Reserve support had helped deliver the best September since 1939.
Magnifying glass
Factors to Watch. In the US, traders will have to tackle the latest weekly initial unemployment claims report and the September Chicago purchasing managers’ index. Mainland China and Hong Kong markets will be closed on Friday for the National Day holiday. This will thin trading in the region – a perfect time for the Japanese Ministry of Finance to try a spot of yen intervention just before the european day gets going, perhaps.
Asia Pacific
Asia-Pacific. Shares retreated as renewed concerns about Europe’s debt crisis hammered financial shares in early trading. The FTSE Global Banks index is down 0.6 per cent.
The FTSE Asia-Pacific index is down 0.6 per cent, with Japan’s Nikkei 225 1.9 per cent lower as a strengthening yen hurt exporters and a profit warning from Nintendo spooked techs.
Australia’s S&P/ASX 200 off 1.3 per cent. South Korea’s Kospi rose 0.3 per cent and New Zealand’s NZX-50 lost 1.5 per cent.
The Shanghai composite rose 1.7 per cent as property stocks shrugged off new real estate lending restrictions. This left the mainland benchmark up 11 per cent for the third quarter, but it is still one of the worst performing exchanges so far this year, with a drop of nearly 21 per cent as concerns about the central bank’s clampdown on speculative activity continue to nag domestic investors. Hong Kong fell 0.1 per cent on Thursday
Forex Forex. The single currency fell swiftly as traders first absorbed the statement out of Dublin on Anglo Irish bank, losing 0.5 per cent to $1.3560. However, the single currency soon rebounded when investors realised the AIB news contained no shocks, and it is currently up 0.1 per cent at $1.3632. A fall in Germany’s unemployment rate to 7.5 per cent in September may be helping with euro strength.
The euro’s revival curtailed a rally in the US dollar index – which tracks the buck against a basket of its peers. The DXY, as it is known, is down 0.2 per cent to 78.63, earlier hitting a fresh eight-month low as the prospect of more Federal Reserve quantitative easing weighs on the currency.
Beijing responded to the US House of Representatives voting for measures to penalise China for keeping its currency weak by allowing the renminbi to fall 0.1 per cent from its recent highs to Rmb6.6903 versus the dollar on Thursday. Beijing later warned that the House bill could damage relations between the two nations.
Meanwhile, the yen hit its strongest level relative to the greenback since Tokyo intervened to hobble its ascent two weeks ago. The Japanese unit is up 0.4 per cent to Y83.37 versus the dollar and up 0.4 per cent to Y113.63 against the euro.
Rates
Rates. Eurozone peripheral sovereigns are rallying following the AIB statement. Ireland’s benchmark 10-year yields are down 14 basis points to 6.45 per cent; Portugal’s benchmark’s are off 13bp to 6.22 per cent; and Spain’s 10-years are down 7bp to 4.11 per cent.
US Treasury yields continue to move lower on expectations for further monetary easing and following a successful batch of auctions during the week. The 10-year benchmark yield is down 3 basis points at 2.48 per cent.
Commodities. Industrial metals are mixed, with copper little changed at $8,057 a tonne. Oil is adding to the previous session’s strong gains following a report that US refiners had cut activity back to April levels, today rising 1 per cent to 78.60 a barrel.
Gold is up 0.3 per cent at $1,312 an ounce, having hit a new nominal record of $1,314.85. Silver is at a new 30-year high of $22.02 an ounce.
Americas
Americas. On Wednesday, the S&P 500 in New York took several runs at the 1,148 mark but could not break through, thereby establishing in traders’ minds another resistance point to target. The benchmark eventually finished down 0.3 per cent as financials struggled but energy stocks were boosted by a rising oil price.
US equity mutual funds saw yet another week of outflows – now running at 21 straight weeks, according to the Investment Company Institute.
Strong oil shares were also one of the main reasons that Canadian equities claimed a two-year high. A bounce for Research In Motion, the maker of BlackBerry smartphones, also helped to push S&P/TSX composite up 0.9 per cent to 12,382.
And energy was also a main driver in Latin America. A 3 per cent jump for Petrobras led Brazil’s Bovespa up 0.6 per cent, with banks also lending support. The FTSE Latin America index climbed 0.6 per cent.
Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos
Moody’s cuts Spain’s credit rating over growth fears
By Victor Mallet in Madrid
Copyright The Financial Times Limited 2010
Published: September 30 2010 08:24 | Last updated: September 30 2010 08:50
http://www.ft.com/cms/s/0/15ab40fe-cc61-11df-a6c7-00144feab49a.html
Moody’s, the credit rating agency, downgraded Spain’s government bonds on Thursday, citing weak economic growth, a deterioration of financial strength and higher borrowing needs.
The downgrade by Moody’s by one notch from its top rating of AAA to Aa1 makes it the last of the three big rating agencies to downgrade Spain as a result of the global economic crisis.
The downgrade, which was also applied to Spain’s Fund for Orderly Bank Restructuring, known as Frob from its Spanish initials, comes with a stable outlook.
“Over the next few years, the Spanish economy is likely to grow by only about 1 per cent on average,” Kathrin Muehlbronner, a Moody’s vice-president and lead analyst for Spain, said in a statement issued by the agency.
Although the downgrade was anticipated in the financial markets, it will disappoint Elena Salgado, Spanish finance minister, who had hoped that Moody’s would diverge from Standard & Poor’s and Fitch and leave Spain in the top tier of creditworthy nations.
Apart from sluggish growth prospects, Moody’s cited Spain’s challenges in reducing its annual budget deficits, which the government has said it will cut from 11.1 per cent of gross domestic product in 2009 to 6 per cent of GDP next year, and 3 per cent in 2013.
“Although Moody’s expects the government to broadly achieve its fiscal targets both this year and next, a further reduction in the deficit beyond 2011 is likely to require more fundamental spending reforms than the government has so far tabled,” Moody’s said in a statement.
But the rating agency said Spain’s determination to tackle immediate fiscal problems was the reason it limited the downgrade to just one notch and kept the outlook stable.
Moody’s said “raising Spain’s low productivity levels and improving international competitiveness” were vital challenges for the future.
Ireland unveils bank rescue package
By John Murray Brown in Dublin and Miles Johnson in London
Copyright The Financial Times Limited 2010
Published: September 30 2010 09:31 | Last updated: September 30 2010 10:44
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Ireland will take a majority stake in its second-largest bank as part of a fresh multibillion-euro bail-out for the country’s lenders, prompting the government to redraft its budget plans.
Allied Irish Bank, the country’s second-largest bank, plans to raise €5.4bn ($7.4bn) in a share sale to be underwritten by an Irish sovereign wealth fund. The government also announced on Thursday that the current Dan O’Connor, chairman, and Colm Doherty, acting managing director, are to step down.
The cost of bailing-out Anglo Irish Bank is set to reach €34bn ($46bn) as the central bank announced additional capital injections for the bank at the centre of Ireland’s disastrous property crash.
The regulator said the final bill for Anglo would be €29.3bn. A further capital injection under what it called “severe hypothetical stress scenario” would lift the total to €34bn if commercial property prices, having fallen 65 per cent from peak values, stayed at those levels for 10 years.
In addition, Irish Nationwide Building Society will need €2.7bn, bringing its total bail-out to €5.4bn.
The bail-out costs will lift the fiscal deficit from the planned 11.75 per cent of gross domestic product in 2010 to 32 per cent. This compares with the Maastricht treaty guidelines of 3 per cent.
Patrick Honohan, the central bank governor, said the higher cost of the recapitalisations would require a “reprogramming” of the budget plans.
Ireland's economic woesMeanwhile, the National Treasury Management Agency, the Irish government’s debt agency, announced that it was suspending its bond auctions planned for October and November and would return to the markets in the first quarter of 2011.
“Yes, of course these figures are horrendous, but they can be managed over a 10-year period and they will be managed,” said Brian Lenihan, the finance minister. He pointed out that the interest bill on the €34bn was €1.7bn a year, compared with an underlying budget deficit of around €19bn. “So I think that figure has to be put in context. There is a very wide gap between our expenditure and our revenue which is not accounted for by the banking crisis.”
But he acknowledged as a result of the additional bail-out costs a “significant additional adjustment” in the fiscal consolidation plan would be required when the government comes to frame the 2011 budget in early December.
Mr Lenihan made clear senior bondholders would be repaid in full but he said “legislative arrangements” would be introduced to address the position of the €2.5bn of subordinated bondholders at Anglo Irish.
The Irish bond markets rose on Thursday as views grew that Dublin was tackling its banking problems in a sensible and responsible way.
Earlier this week yields on Irish 10-year government bonds hit a record high, while the annual cost to insure Irish bonds against default also jumped to its highest ever level.
On Thursday the yield on Irish 10-year government bond fell 12 basis points to 6.47 per cent. The cost to insure Irish government bonds against default fell to $467,000 to insure $10m of debt over five years and the extra premium Dublin pays to borrow in the markets over Germany narrrowed 11 basis points to 4.37 per cent.
Shares in Allied Irish, however, tumbled on the news, falling 18 per cent. Bank of Ireland, which Ireland’s central bank said was not in need of new capital, dropped 6 per cent.
Allied Irish’s share sale will be fully underwritten by Ireland’s state pension fund, the National Pensions Reserve Fund Commission, with up to €3.7bn available from its cash reserves to buy shares.
Allied Irish shares will be underwritten at a fixed price of €0.50 a share, or a 9.4 per cent discount to its closing price on Wednesday.
Additional reporting by David Oakley in London
US Congress backs action on renminbi
By James Politi and Daniel Dombey in Washington
Copyright The Financial Times Limited 2010
Published: September 29 2010 19:30 | Last updated: September 30 2010 04:59
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The US House of Representatives passed legislation that would punish China for undervaluing its currency and harming the competitiveness of US manufacturers and exporters, in a move that could heighten trade tensions between the two countries.
China quickly attacked the legislation on Thursday as contrary to WTO rules and “a new move of the US’ rising trade protectionism.” In a statement distributed through state media, a spokesman for the Ministry of Commerce said China “has never undervalued the yuan exchange rate to gain a competitive edge.”
Although the bill’s fate remains unclear, since it still needs to move through the Senate and be approved by Barack Obama, US president, its bipartisan passage in the House by a wide 348-79 margin reflects growing frustration with China’s economic policies.
“If China wants a strong trading relationship with the United States, it must play by the rules,” Nancy Pelosi, Democratic speaker of House, said ahead of the vote on Wednesday.
Some of the rhetoric was even stronger. “They cheat to steal our jobs,” said Mike Rogers, a Republican from Michigan, while Dana Rohrabacher, a Republican from California, attacked China’s “clique of gangsters” that was doing “great damage to the people of the United States of America”. Most Republicans supported the legislation, as did almost all Democrats.
The Obama administration has preferred to pursue a policy of engagement in an effort to persuade China to allow the renminbi to strengthen, and could see its negotiating position enhanced by mounting congressional pressure.
The Treasury department said: “Today’s vote clearly shows that lawmakers have serious concerns about the issue. The president and Secretary Geithner share those concerns. They have both said repeatedly that China needs to allow a significant, sustained appreciation over time.”
But critics have warned that the more aggressive measures in the currency legislation may not be effective in reducing the US’s trade deficit with China and a more confrontational stance could be counterproductive, since it could lead to retaliation and higher prices for US consumers. “I don’t question the problem, I question the remedy,” said Jeb Hensarling, a Texas Republican.
The legislation would allow the US to use estimates of currency undervaluation to calculate countervailing duties on imports from China and other countries.
An amendment by Sander Levin, Democratic chairman of the ways and means committee, who shepherded the bill through the House, watered down the bill recently to make it more likely to survive a challenge at the World Trade Organisation, helping it garner more support. Republicans had been concerned that the bill might be inconsistent with global trade rules.
This week, Chuck Schumer, the New York senator who has been leading congressional efforts to pass China currency legislation since 2005, vowed to push forward with a bill in the upper chamber during the “lame-duck” session between the November midterm elections and the seating of new members in January.
“This issue cannot wait for another year for a new Congress,” he said. “China’s currency manipulation would be unacceptable even in good times. At a time of almost 10 per cent unemployment, we simply will no longer stand for it,” added Mr Schumer.
Meanwhile, in another sign of US alarm at China’s growing economic clout, the House approved a bill to cut dependence on Chinese “rare earth” minerals by providing seed capital for US producers. Rare earths are vital for high technology products in the defence and green energy sectors.
China and the US have recently been sparring over poultry exports, with China this week upholding steep tariffs on US chicken imports, and the WTO ruling on Wednesday against the US in a fight over a ban on Chinese chicken that followed the outbreak of bird flu in Asia and has since been lifted.
Beijing removed the dollar peg from the renminbi – which was put in place during the financial crisis – in June. But since then, its currency has appreciated only slightly.
The vote on China currency was one of the last items on the congressional agenda before the midterm elections.
Other issues, such as the expiry of more than $3,000bn of Bush-era tax cuts, proved too contentious for any bipartisan consensus to emerge.
Additional reporting by Jamil Anderlini in Beijing
AIG reaches deal to repay US taxpayer
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 30 2010 13:21 | Last updated: September 30 2010 13:21
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AIG has agreed to repay the US government the remains of the $182bn rescue package provided by the Treasury during the financial crisis by early next year.
The agreement, which will see the Treasury swapping debt for stock, will allow the US insurer to exit the government’s rescue scheme earlier than previously expected.
AIG said it would repay the Federal Reserve Bank of New York credit facility, retire Treasury interests in AIA, the Asian business, and Alico, the life insurance business, and extricate itself from Troubled Asset Relief Programme by swapping debt for stock that the Treasury can later sell.
“This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers, and we thank the American people for their support,” said Robert Benmosche, AIG’s chief executive, in a statement. “We are very pleased that this agreement vastly simplifies current government support of AIG, sets forth a clear path for AIG to repay the FRBNY in full, and sets in motion the steps for the US Treasury to exit its ownership of AIG over time.”
AIG, which was bailed out with $182bn of public money in 2008, said it owes the Federal Reserve Bank of New York through a credit facility, also holds preferred interests totalling about $20bn in special purpose vehicles related to AIA and Alico, the life insurer which is being sold to MetLife.
Meanwhile, AIG, which has $49.1bn of Tarp preferred shares outstanding, will give the Treasury 1.655bn shares of its common stock. It will also issue up to 75m of warrants with a strike price of $45 a share to existing common stockholders.
Once this is complete, Treasury will have a 92.1 per cent stake in AIG, which it is expected to gradually sell-off in the open market.
“The exit strategy announced today dramatically accelerates the timeline for AIG’s repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company,” said Treasury Secretary Tim Geithner.
Shares of AIG rose by 0.43 per cent to $37.61 in pre-market trading after the agreement was announced.
AIG said separately on Thursday that it would sell its two Japanese life insurance units to Prudential Financial for $4.8bn.
“With this plan, we remain on track to emerge with one of the largest, most diversified property and casualty companies in the world, a leading US life insurance and retirement savings operation, and other businesses that enhance this nucleus,” Mr Benmosche said. “As our results this year underscore, AIG’s core businesses are financially strong, well-managed enterprises that are well-positioned to deliver long-term value to all of our stakeholders.”
Congressional ‘net neutrality’ deal falls apart
By Stephanie Kirchgaessner in Washington
Copyright The Financial Times Limited 2010
Published: September 30 2010 01:01 | Last updated: September 30 2010 01:01
http://www.ft.com/cms/s/0/bb91b25a-cc1b-11df-bd28-00144feab49a.html
Negotiations over “net neutrality” legislation fell apart along partisan lines, prompting calls from a top Democratic lawmaker to say that the Federal Communications Commission must act to regulate broadband companies.
In an unusual statement, Henry Waxman, the Democratic chairman of the House energy and commerce committee, said a deal that had support from cable and phone companies, as well as consumer advocates, were scuppered after his Republican counterpart said he could not support the proposal.
Mr Waxman said the proposal was designed to protect net neutrality, the principle that internet service providers may not intentionally hinder or favour the delivery of content, over the short term. It would have prohibited wireless carriers from blocking websites and prevented phone and cable groups from “unjustly or unreasonably” discriminating against any lawful internet traffic.
It would also have protected phone and cable companies from regulation of their high-speed internet services by the FCC, the media regulator, for two years. Julius Genachowski, FCC chairman, proposed issuing new regulations after the FCC was stripped of its authority over high-speed service in a court ruling this year.
Telecom insiders were sceptical of the announcement by Mr Waxman, who said the deal had fallen apart because Joe Barton, a Republican congressman, said he could not support it. They viewed it as a ploy designed to force telecom and cable companies to put pressure on Republicans to support the agreement.
Telecom and cable groups adamantly oppose any move to impose new regulations on them by the FCC, and Mr Waxman’s deal would give them short-term certainty that the FCC would remain at bay.
“Under this proposal, both sides would emerge as winner. Consumers would win protections that preserve the openness of the internet, while the internet service providers would receive relief from their fears of [regulation],” Mr Waxman said.
He added that he had made clear that the proposal would only move forward with Mr Barton’s support. Mr Waxman also dangled a carrot in front of the cable and telecom industry, suggesting it was still possible to pass the legislation after November’s midterm election – the so called lame-duck session of Congress.
He said failure to pass legislation meant that the FCC would have to act.
Mr Barton said Mr Waxman’s effort was a “tacit admission” that the FCC was going down the wrong path and that regulations would stifle investment and create regulatory overhang.
“I have consulted with Republican leadership and members of the energy and commerce committee, and there is a widespread view that there is not sufficient time to ensure that chairman Waxman’s proposal will keep the Internet open without chilling innovation and job creation,” he said.
Nintendo delays launch of 3D console
By Jonathan Soble in Tokyo
Copyright The Financial Times Limited 2010
Published: September 29 2010 11:45 | Last updated: September 29 2010 18:47
http://www.ft.com/cms/s/2/e0e2fbd8-cbb0-11df-a4f5-00144feab49a.html
Nintendo has said it will be unable to deliver the 3D version of its DS portable games console in time for the Christmas shopping season.
The delay contributed to a slashing by the Japanese company of its full-year earnings forecast.
The 3DS is Nintendo’s most significant product launch since it introduced its motion-sensing Wii home system in 2006.
Prototypes of the machine which, unlike a 3D television set, does not require users to wear 3D glasses have been well received at trade shows.
With its main rivals, Sony and Microsoft, selling their own motion controllers this Christmas, Nintendo will be the only major console maker without new hardware on store shelves.
Satoru Iwata, president, said Nintendo had decided it could not supply enough 3DS handheld game players this year.
“It’s a fact that this affected our full-year outlook,” he said on Wednesday as Nintendo cut its net profit forecast for the financial year to March from Y200bn ($2.4bn) to Y90bn.
Nintendo said the 3DS would go on sale in Japan on February 26. It will cost Y25,000, a significant premium over current DS models which sell for between Y12,000 and Y16,000. The company did not fix a start date for overseas sales.
It scaled back its projection for all DS models this financial year to 23.5m units from 30m.
The company first made public its plans for a 3D handheld console in March. Atul Goyal, a technology analyst at investment group CLSA, said the early disclosure had deepened Nintendo’s problems by deterring would-be buyers of existing models.
“Look at Apple, which announces new products a month before they go on sale,” he said. “Nintendo is just cannibalising its own products.”
Many analysts were expecting the company to cut its earnings guidance due to slowing sales of the Wii, which is responsible for two thirds of its revenues.
The potential for widespread 3D gaming has emerged only this year with the introduction of 3D televisions. Sony is selling a 3D upgrade for its PlayStation 3 home console, but Nintendo will be the only maker offering a portable 3D machine.
Although the 3DS has been praised by reviewers, it is unclear whether the introduction of 3D features will stem an accelerating shift away from specialised portable consoles.
Many are choosing to download low-cost games to multi-purpose devices such as Apple’s iPhone and iPad.
Shares in Nintendo ended down 2.9 per cent following the announcement.
Eurozone debt crisis leaves investors wary
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: September 27 2010 03:47 | Last updated: September 30 2010 13:10
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Thursday 13:00 BST. The eurozone’s debt crisis is the focus of investor attention after Dublin gave details of its bail-out of Anglo Irish bank and Moody’s downgraded Spain’s credit rating.
The FTSE All-World equity index is down 0.2 per cent, following a poor performance in Asia as concerns about eurozone sovereign debt risk hurt financials in the region and a soft close on Wall Street encouraged end of quarter profit taking.
Many major Asian exchanges were finished for the day by the time the statement on Anglo Irish was released. The reaction in Europe to Ireland’s central bank putting a €34bn tab on the cost of rescuing beleaguered Anglo Irish bank has been fairly phlegmatic, however.
Even though the news comes at a time of heightened anxiety about the eurozone's fiscal position following Wednesday’s rash of anti-austerity protests, the figures revealed provided clarity and were in line with expectations, and this has allowed some easing of market stress gauges.
Irish government bond prices are edging higher, while the cost of insuring Ireland's’ sovereign debt against default – as measured by credit default swaps – has dropped 7 basis points to 467 basis points. Meanwhile, the euro has reversed early losses, and bunds are edging lower as their haven attraction diminishes.
The Market Eye
The wholesale “risk-on/risk-off” trade has been less reliable of late, but one of its components, the dollar’s inverse correlation to equities, is making a stirring comeback. Traders have noted that a dip in the dollar index coincides closely with a move higher for the S&P 500. There is some sense to this. A falling dollar is good for US exporters, and a declining buck may also be a sign that investors are not scrambling for perceived currency havens, which they tend to do in times of stress. However, an important factor behind the dollar’s recent decline to 8 month lows is a falling yield differential with major currency peers as markets price in further QE. That’s a symptom of a struggling economy, which is not good for stocks unless one believes the extra liquidity will flow into equities regardless.
Whatever one’s view, according to 4Cast, the one-month correlation between the dollar index and the S&P 500 is a negative 0.92 – with minus 1 showing perfect negative correlation – and these trends have a habit of intensifying as more market participants track and act on them.
Dollar and US equities
Even Spanish bonds are gaining ground as investors considered the Moody’s downgrade to have been already discounted by the market.
The FTSE Eurofirst equity index has pared initial losses and is now off just 0.2 per cent, while London’s FTSE 100 is down 0.2 per cent. Dublin stocks are up 0.1 per cent, though AIB shares are off 28 per cent to €0.40.
US equity futures are down 0.2 per cent. This suggests Wall Street will start the last trading day of the month on the back-foot, but it would still leave US stocks up nearly 9 per cent this month. It would mean that a decidedly mixed few weeks of economic data and the prospect of US Federal Reserve support had helped deliver the best September since 1939.
Magnifying glass
Factors to Watch. In the US, traders will have to tackle the latest weekly initial unemployment claims report and the September Chicago purchasing managers’ index. Mainland China and Hong Kong markets will be closed on Friday for the National Day holiday. This will thin trading in the region – a perfect time for the Japanese Ministry of Finance to try a spot of yen intervention just before the european day gets going, perhaps.
Asia Pacific
Asia-Pacific. Shares retreated as renewed concerns about Europe’s debt crisis hammered financial shares in early trading. The FTSE Global Banks index is down 0.6 per cent.
The FTSE Asia-Pacific index is down 0.6 per cent, with Japan’s Nikkei 225 1.9 per cent lower as a strengthening yen hurt exporters and a profit warning from Nintendo spooked techs.
Australia’s S&P/ASX 200 off 1.3 per cent. South Korea’s Kospi rose 0.3 per cent and New Zealand’s NZX-50 lost 1.5 per cent.
The Shanghai composite rose 1.7 per cent as property stocks shrugged off new real estate lending restrictions. This left the mainland benchmark up 11 per cent for the third quarter, but it is still one of the worst performing exchanges so far this year, with a drop of nearly 21 per cent as concerns about the central bank’s clampdown on speculative activity continue to nag domestic investors. Hong Kong fell 0.1 per cent on Thursday
Forex Forex. The single currency fell swiftly as traders first absorbed the statement out of Dublin on Anglo Irish bank, losing 0.5 per cent to $1.3560. However, the single currency soon rebounded when investors realised the AIB news contained no shocks, and it is currently up 0.1 per cent at $1.3632. A fall in Germany’s unemployment rate to 7.5 per cent in September may be helping with euro strength.
The euro’s revival curtailed a rally in the US dollar index – which tracks the buck against a basket of its peers. The DXY, as it is known, is down 0.2 per cent to 78.63, earlier hitting a fresh eight-month low as the prospect of more Federal Reserve quantitative easing weighs on the currency.
Beijing responded to the US House of Representatives voting for measures to penalise China for keeping its currency weak by allowing the renminbi to fall 0.1 per cent from its recent highs to Rmb6.6903 versus the dollar on Thursday. Beijing later warned that the House bill could damage relations between the two nations.
Meanwhile, the yen hit its strongest level relative to the greenback since Tokyo intervened to hobble its ascent two weeks ago. The Japanese unit is up 0.4 per cent to Y83.37 versus the dollar and up 0.4 per cent to Y113.63 against the euro.
Rates
Rates. Eurozone peripheral sovereigns are rallying following the AIB statement. Ireland’s benchmark 10-year yields are down 14 basis points to 6.45 per cent; Portugal’s benchmark’s are off 13bp to 6.22 per cent; and Spain’s 10-years are down 7bp to 4.11 per cent.
US Treasury yields continue to move lower on expectations for further monetary easing and following a successful batch of auctions during the week. The 10-year benchmark yield is down 3 basis points at 2.48 per cent.
Commodities. Industrial metals are mixed, with copper little changed at $8,057 a tonne. Oil is adding to the previous session’s strong gains following a report that US refiners had cut activity back to April levels, today rising 1 per cent to 78.60 a barrel.
Gold is up 0.3 per cent at $1,312 an ounce, having hit a new nominal record of $1,314.85. Silver is at a new 30-year high of $22.02 an ounce.
Americas
Americas. On Wednesday, the S&P 500 in New York took several runs at the 1,148 mark but could not break through, thereby establishing in traders’ minds another resistance point to target. The benchmark eventually finished down 0.3 per cent as financials struggled but energy stocks were boosted by a rising oil price.
US equity mutual funds saw yet another week of outflows – now running at 21 straight weeks, according to the Investment Company Institute.
Strong oil shares were also one of the main reasons that Canadian equities claimed a two-year high. A bounce for Research In Motion, the maker of BlackBerry smartphones, also helped to push S&P/TSX composite up 0.9 per cent to 12,382.
And energy was also a main driver in Latin America. A 3 per cent jump for Petrobras led Brazil’s Bovespa up 0.6 per cent, with banks also lending support. The FTSE Latin America index climbed 0.6 per cent.
Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos
Moody’s cuts Spain’s credit rating over growth fears
By Victor Mallet in Madrid
Copyright The Financial Times Limited 2010
Published: September 30 2010 08:24 | Last updated: September 30 2010 08:50
http://www.ft.com/cms/s/0/15ab40fe-cc61-11df-a6c7-00144feab49a.html
Moody’s, the credit rating agency, downgraded Spain’s government bonds on Thursday, citing weak economic growth, a deterioration of financial strength and higher borrowing needs.
The downgrade by Moody’s by one notch from its top rating of AAA to Aa1 makes it the last of the three big rating agencies to downgrade Spain as a result of the global economic crisis.
The downgrade, which was also applied to Spain’s Fund for Orderly Bank Restructuring, known as Frob from its Spanish initials, comes with a stable outlook.
“Over the next few years, the Spanish economy is likely to grow by only about 1 per cent on average,” Kathrin Muehlbronner, a Moody’s vice-president and lead analyst for Spain, said in a statement issued by the agency.
Although the downgrade was anticipated in the financial markets, it will disappoint Elena Salgado, Spanish finance minister, who had hoped that Moody’s would diverge from Standard & Poor’s and Fitch and leave Spain in the top tier of creditworthy nations.
Apart from sluggish growth prospects, Moody’s cited Spain’s challenges in reducing its annual budget deficits, which the government has said it will cut from 11.1 per cent of gross domestic product in 2009 to 6 per cent of GDP next year, and 3 per cent in 2013.
“Although Moody’s expects the government to broadly achieve its fiscal targets both this year and next, a further reduction in the deficit beyond 2011 is likely to require more fundamental spending reforms than the government has so far tabled,” Moody’s said in a statement.
But the rating agency said Spain’s determination to tackle immediate fiscal problems was the reason it limited the downgrade to just one notch and kept the outlook stable.
Moody’s said “raising Spain’s low productivity levels and improving international competitiveness” were vital challenges for the future.
Ireland unveils bank rescue package
By John Murray Brown in Dublin and Miles Johnson in London
Copyright The Financial Times Limited 2010
Published: September 30 2010 09:31 | Last updated: September 30 2010 10:44
http://www.ft.com/cms/s/0/d8578e16-cc69-11df-a6c7-00144feab49a.html
Ireland will take a majority stake in its second-largest bank as part of a fresh multibillion-euro bail-out for the country’s lenders, prompting the government to redraft its budget plans.
Allied Irish Bank, the country’s second-largest bank, plans to raise €5.4bn ($7.4bn) in a share sale to be underwritten by an Irish sovereign wealth fund. The government also announced on Thursday that the current Dan O’Connor, chairman, and Colm Doherty, acting managing director, are to step down.
The cost of bailing-out Anglo Irish Bank is set to reach €34bn ($46bn) as the central bank announced additional capital injections for the bank at the centre of Ireland’s disastrous property crash.
The regulator said the final bill for Anglo would be €29.3bn. A further capital injection under what it called “severe hypothetical stress scenario” would lift the total to €34bn if commercial property prices, having fallen 65 per cent from peak values, stayed at those levels for 10 years.
In addition, Irish Nationwide Building Society will need €2.7bn, bringing its total bail-out to €5.4bn.
The bail-out costs will lift the fiscal deficit from the planned 11.75 per cent of gross domestic product in 2010 to 32 per cent. This compares with the Maastricht treaty guidelines of 3 per cent.
Patrick Honohan, the central bank governor, said the higher cost of the recapitalisations would require a “reprogramming” of the budget plans.
Ireland's economic woesMeanwhile, the National Treasury Management Agency, the Irish government’s debt agency, announced that it was suspending its bond auctions planned for October and November and would return to the markets in the first quarter of 2011.
“Yes, of course these figures are horrendous, but they can be managed over a 10-year period and they will be managed,” said Brian Lenihan, the finance minister. He pointed out that the interest bill on the €34bn was €1.7bn a year, compared with an underlying budget deficit of around €19bn. “So I think that figure has to be put in context. There is a very wide gap between our expenditure and our revenue which is not accounted for by the banking crisis.”
But he acknowledged as a result of the additional bail-out costs a “significant additional adjustment” in the fiscal consolidation plan would be required when the government comes to frame the 2011 budget in early December.
Mr Lenihan made clear senior bondholders would be repaid in full but he said “legislative arrangements” would be introduced to address the position of the €2.5bn of subordinated bondholders at Anglo Irish.
The Irish bond markets rose on Thursday as views grew that Dublin was tackling its banking problems in a sensible and responsible way.
Earlier this week yields on Irish 10-year government bonds hit a record high, while the annual cost to insure Irish bonds against default also jumped to its highest ever level.
On Thursday the yield on Irish 10-year government bond fell 12 basis points to 6.47 per cent. The cost to insure Irish government bonds against default fell to $467,000 to insure $10m of debt over five years and the extra premium Dublin pays to borrow in the markets over Germany narrrowed 11 basis points to 4.37 per cent.
Shares in Allied Irish, however, tumbled on the news, falling 18 per cent. Bank of Ireland, which Ireland’s central bank said was not in need of new capital, dropped 6 per cent.
Allied Irish’s share sale will be fully underwritten by Ireland’s state pension fund, the National Pensions Reserve Fund Commission, with up to €3.7bn available from its cash reserves to buy shares.
Allied Irish shares will be underwritten at a fixed price of €0.50 a share, or a 9.4 per cent discount to its closing price on Wednesday.
Additional reporting by David Oakley in London
US Congress backs action on renminbi
By James Politi and Daniel Dombey in Washington
Copyright The Financial Times Limited 2010
Published: September 29 2010 19:30 | Last updated: September 30 2010 04:59
http://www.ft.com/cms/s/0/c5f2495c-cbef-11df-bd28-00144feab49a.html
The US House of Representatives passed legislation that would punish China for undervaluing its currency and harming the competitiveness of US manufacturers and exporters, in a move that could heighten trade tensions between the two countries.
China quickly attacked the legislation on Thursday as contrary to WTO rules and “a new move of the US’ rising trade protectionism.” In a statement distributed through state media, a spokesman for the Ministry of Commerce said China “has never undervalued the yuan exchange rate to gain a competitive edge.”
Although the bill’s fate remains unclear, since it still needs to move through the Senate and be approved by Barack Obama, US president, its bipartisan passage in the House by a wide 348-79 margin reflects growing frustration with China’s economic policies.
“If China wants a strong trading relationship with the United States, it must play by the rules,” Nancy Pelosi, Democratic speaker of House, said ahead of the vote on Wednesday.
Some of the rhetoric was even stronger. “They cheat to steal our jobs,” said Mike Rogers, a Republican from Michigan, while Dana Rohrabacher, a Republican from California, attacked China’s “clique of gangsters” that was doing “great damage to the people of the United States of America”. Most Republicans supported the legislation, as did almost all Democrats.
The Obama administration has preferred to pursue a policy of engagement in an effort to persuade China to allow the renminbi to strengthen, and could see its negotiating position enhanced by mounting congressional pressure.
The Treasury department said: “Today’s vote clearly shows that lawmakers have serious concerns about the issue. The president and Secretary Geithner share those concerns. They have both said repeatedly that China needs to allow a significant, sustained appreciation over time.”
But critics have warned that the more aggressive measures in the currency legislation may not be effective in reducing the US’s trade deficit with China and a more confrontational stance could be counterproductive, since it could lead to retaliation and higher prices for US consumers. “I don’t question the problem, I question the remedy,” said Jeb Hensarling, a Texas Republican.
The legislation would allow the US to use estimates of currency undervaluation to calculate countervailing duties on imports from China and other countries.
An amendment by Sander Levin, Democratic chairman of the ways and means committee, who shepherded the bill through the House, watered down the bill recently to make it more likely to survive a challenge at the World Trade Organisation, helping it garner more support. Republicans had been concerned that the bill might be inconsistent with global trade rules.
This week, Chuck Schumer, the New York senator who has been leading congressional efforts to pass China currency legislation since 2005, vowed to push forward with a bill in the upper chamber during the “lame-duck” session between the November midterm elections and the seating of new members in January.
“This issue cannot wait for another year for a new Congress,” he said. “China’s currency manipulation would be unacceptable even in good times. At a time of almost 10 per cent unemployment, we simply will no longer stand for it,” added Mr Schumer.
Meanwhile, in another sign of US alarm at China’s growing economic clout, the House approved a bill to cut dependence on Chinese “rare earth” minerals by providing seed capital for US producers. Rare earths are vital for high technology products in the defence and green energy sectors.
China and the US have recently been sparring over poultry exports, with China this week upholding steep tariffs on US chicken imports, and the WTO ruling on Wednesday against the US in a fight over a ban on Chinese chicken that followed the outbreak of bird flu in Asia and has since been lifted.
Beijing removed the dollar peg from the renminbi – which was put in place during the financial crisis – in June. But since then, its currency has appreciated only slightly.
The vote on China currency was one of the last items on the congressional agenda before the midterm elections.
Other issues, such as the expiry of more than $3,000bn of Bush-era tax cuts, proved too contentious for any bipartisan consensus to emerge.
Additional reporting by Jamil Anderlini in Beijing
AIG reaches deal to repay US taxpayer
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 30 2010 13:21 | Last updated: September 30 2010 13:21
http://www.ft.com/cms/s/0/38341b48-cc87-11df-a6c7-00144feab49a.html
AIG has agreed to repay the US government the remains of the $182bn rescue package provided by the Treasury during the financial crisis by early next year.
The agreement, which will see the Treasury swapping debt for stock, will allow the US insurer to exit the government’s rescue scheme earlier than previously expected.
AIG said it would repay the Federal Reserve Bank of New York credit facility, retire Treasury interests in AIA, the Asian business, and Alico, the life insurance business, and extricate itself from Troubled Asset Relief Programme by swapping debt for stock that the Treasury can later sell.
“This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers, and we thank the American people for their support,” said Robert Benmosche, AIG’s chief executive, in a statement. “We are very pleased that this agreement vastly simplifies current government support of AIG, sets forth a clear path for AIG to repay the FRBNY in full, and sets in motion the steps for the US Treasury to exit its ownership of AIG over time.”
AIG, which was bailed out with $182bn of public money in 2008, said it owes the Federal Reserve Bank of New York through a credit facility, also holds preferred interests totalling about $20bn in special purpose vehicles related to AIA and Alico, the life insurer which is being sold to MetLife.
Meanwhile, AIG, which has $49.1bn of Tarp preferred shares outstanding, will give the Treasury 1.655bn shares of its common stock. It will also issue up to 75m of warrants with a strike price of $45 a share to existing common stockholders.
Once this is complete, Treasury will have a 92.1 per cent stake in AIG, which it is expected to gradually sell-off in the open market.
“The exit strategy announced today dramatically accelerates the timeline for AIG’s repayment and puts taxpayers in a considerably stronger position to recoup our investment in the company,” said Treasury Secretary Tim Geithner.
Shares of AIG rose by 0.43 per cent to $37.61 in pre-market trading after the agreement was announced.
AIG said separately on Thursday that it would sell its two Japanese life insurance units to Prudential Financial for $4.8bn.
“With this plan, we remain on track to emerge with one of the largest, most diversified property and casualty companies in the world, a leading US life insurance and retirement savings operation, and other businesses that enhance this nucleus,” Mr Benmosche said. “As our results this year underscore, AIG’s core businesses are financially strong, well-managed enterprises that are well-positioned to deliver long-term value to all of our stakeholders.”
Congressional ‘net neutrality’ deal falls apart
By Stephanie Kirchgaessner in Washington
Copyright The Financial Times Limited 2010
Published: September 30 2010 01:01 | Last updated: September 30 2010 01:01
http://www.ft.com/cms/s/0/bb91b25a-cc1b-11df-bd28-00144feab49a.html
Negotiations over “net neutrality” legislation fell apart along partisan lines, prompting calls from a top Democratic lawmaker to say that the Federal Communications Commission must act to regulate broadband companies.
In an unusual statement, Henry Waxman, the Democratic chairman of the House energy and commerce committee, said a deal that had support from cable and phone companies, as well as consumer advocates, were scuppered after his Republican counterpart said he could not support the proposal.
Mr Waxman said the proposal was designed to protect net neutrality, the principle that internet service providers may not intentionally hinder or favour the delivery of content, over the short term. It would have prohibited wireless carriers from blocking websites and prevented phone and cable groups from “unjustly or unreasonably” discriminating against any lawful internet traffic.
It would also have protected phone and cable companies from regulation of their high-speed internet services by the FCC, the media regulator, for two years. Julius Genachowski, FCC chairman, proposed issuing new regulations after the FCC was stripped of its authority over high-speed service in a court ruling this year.
Telecom insiders were sceptical of the announcement by Mr Waxman, who said the deal had fallen apart because Joe Barton, a Republican congressman, said he could not support it. They viewed it as a ploy designed to force telecom and cable companies to put pressure on Republicans to support the agreement.
Telecom and cable groups adamantly oppose any move to impose new regulations on them by the FCC, and Mr Waxman’s deal would give them short-term certainty that the FCC would remain at bay.
“Under this proposal, both sides would emerge as winner. Consumers would win protections that preserve the openness of the internet, while the internet service providers would receive relief from their fears of [regulation],” Mr Waxman said.
He added that he had made clear that the proposal would only move forward with Mr Barton’s support. Mr Waxman also dangled a carrot in front of the cable and telecom industry, suggesting it was still possible to pass the legislation after November’s midterm election – the so called lame-duck session of Congress.
He said failure to pass legislation meant that the FCC would have to act.
Mr Barton said Mr Waxman’s effort was a “tacit admission” that the FCC was going down the wrong path and that regulations would stifle investment and create regulatory overhang.
“I have consulted with Republican leadership and members of the energy and commerce committee, and there is a widespread view that there is not sufficient time to ensure that chairman Waxman’s proposal will keep the Internet open without chilling innovation and job creation,” he said.
Nintendo delays launch of 3D console
By Jonathan Soble in Tokyo
Copyright The Financial Times Limited 2010
Published: September 29 2010 11:45 | Last updated: September 29 2010 18:47
http://www.ft.com/cms/s/2/e0e2fbd8-cbb0-11df-a4f5-00144feab49a.html
Nintendo has said it will be unable to deliver the 3D version of its DS portable games console in time for the Christmas shopping season.
The delay contributed to a slashing by the Japanese company of its full-year earnings forecast.
The 3DS is Nintendo’s most significant product launch since it introduced its motion-sensing Wii home system in 2006.
Prototypes of the machine which, unlike a 3D television set, does not require users to wear 3D glasses have been well received at trade shows.
With its main rivals, Sony and Microsoft, selling their own motion controllers this Christmas, Nintendo will be the only major console maker without new hardware on store shelves.
Satoru Iwata, president, said Nintendo had decided it could not supply enough 3DS handheld game players this year.
“It’s a fact that this affected our full-year outlook,” he said on Wednesday as Nintendo cut its net profit forecast for the financial year to March from Y200bn ($2.4bn) to Y90bn.
Nintendo said the 3DS would go on sale in Japan on February 26. It will cost Y25,000, a significant premium over current DS models which sell for between Y12,000 and Y16,000. The company did not fix a start date for overseas sales.
It scaled back its projection for all DS models this financial year to 23.5m units from 30m.
The company first made public its plans for a 3D handheld console in March. Atul Goyal, a technology analyst at investment group CLSA, said the early disclosure had deepened Nintendo’s problems by deterring would-be buyers of existing models.
“Look at Apple, which announces new products a month before they go on sale,” he said. “Nintendo is just cannibalising its own products.”
Many analysts were expecting the company to cut its earnings guidance due to slowing sales of the Wii, which is responsible for two thirds of its revenues.
The potential for widespread 3D gaming has emerged only this year with the introduction of 3D televisions. Sony is selling a 3D upgrade for its PlayStation 3 home console, but Nintendo will be the only maker offering a portable 3D machine.
Although the 3DS has been praised by reviewers, it is unclear whether the introduction of 3D features will stem an accelerating shift away from specialised portable consoles.
Many are choosing to download low-cost games to multi-purpose devices such as Apple’s iPhone and iPad.
Shares in Nintendo ended down 2.9 per cent following the announcement.
Mammogram Benefit Seen for Women in Their 40s
Mammogram Benefit Seen for Women in Their 40s
By GINA KOLATA
Copyright by The Associated Press
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/health/research/30mammogram.html?hpw
Researchers reported Wednesday that mammograms can cut the breast cancer death rate by 26 percent for women in their 40s. But their results were greeted with skepticism by some experts who say they may have overestimated the benefit.
The study’s authors include Dr. Stephen Duffy, an epidemiologist at the University of London, and Dr. Laszlo Tabar, professor of radiology at the University of Uppsala School of Medicine in Sweden, who have long been advocates of mammography screening. Their paper is published online in the journal Cancer and will be presented on Friday at a meeting sponsored by the American Society for Clinical Oncology and five other organizations.
The study’s conclusions contrast with those of a report last year by the United States Preventive Services Task Force, an independent group that issues guidelines on cancer screening, questioning the benefit of screening women younger than 50.
The new study took advantage of circumstances in Sweden, where since 1986 some counties have offered mammograms to women in their 40s and others have not, according to the lead author, Hakan Jonsson, professor of cancer epidemiology at Umea University in Sweden.
The researchers compared breast cancer deaths in women who had a breast cancer diagnosis in counties that had screening with deaths in counties that did not. The rate was 26 percent lower in counties with screening.
The study, said Dr. Jennifer C. Obel of the oncology society, “captured the real-world experience of mammograms in this age group.” She suggested that all women, starting at age 40, should “speak to their doctors about mammograms.”
Other experts were not convinced. One problem, said Dr. Peter C. Gotzsche of the Nordic Cochrane Center in Copenhagen, a nonprofit group that reviews health care research, is that the investigators counted the number of women who received a diagnosis of breast cancer and also died of it. They did not compare the broader breast cancer death rates in the counties.
It is an important distinction, Dr. Gotzsche said, because screening finds many cancers that do not need to be treated or found early. With more harmless cancers being found in the screened group, it will look like the chance of surviving breast cancer is greater in that group. “The analysis is flawed,” he said.
Dr. Jonsson said the aim of screening “is to find breast cancers early and to reduce mortality from breast cancer.” He and his colleagues plan to look at the overdiagnosis later, he said.
But Donald Berry, a statistician at MD Anderson Cancer Center, said the overdiagnosis problem was a serious one. “We are finding cancers that would never be found if we didn’t look,” he said. “Small wonder people think screening is great — some of the cancers it finds were not lethal in the first place.”
By GINA KOLATA
Copyright by The Associated Press
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/health/research/30mammogram.html?hpw
Researchers reported Wednesday that mammograms can cut the breast cancer death rate by 26 percent for women in their 40s. But their results were greeted with skepticism by some experts who say they may have overestimated the benefit.
The study’s authors include Dr. Stephen Duffy, an epidemiologist at the University of London, and Dr. Laszlo Tabar, professor of radiology at the University of Uppsala School of Medicine in Sweden, who have long been advocates of mammography screening. Their paper is published online in the journal Cancer and will be presented on Friday at a meeting sponsored by the American Society for Clinical Oncology and five other organizations.
The study’s conclusions contrast with those of a report last year by the United States Preventive Services Task Force, an independent group that issues guidelines on cancer screening, questioning the benefit of screening women younger than 50.
The new study took advantage of circumstances in Sweden, where since 1986 some counties have offered mammograms to women in their 40s and others have not, according to the lead author, Hakan Jonsson, professor of cancer epidemiology at Umea University in Sweden.
The researchers compared breast cancer deaths in women who had a breast cancer diagnosis in counties that had screening with deaths in counties that did not. The rate was 26 percent lower in counties with screening.
The study, said Dr. Jennifer C. Obel of the oncology society, “captured the real-world experience of mammograms in this age group.” She suggested that all women, starting at age 40, should “speak to their doctors about mammograms.”
Other experts were not convinced. One problem, said Dr. Peter C. Gotzsche of the Nordic Cochrane Center in Copenhagen, a nonprofit group that reviews health care research, is that the investigators counted the number of women who received a diagnosis of breast cancer and also died of it. They did not compare the broader breast cancer death rates in the counties.
It is an important distinction, Dr. Gotzsche said, because screening finds many cancers that do not need to be treated or found early. With more harmless cancers being found in the screened group, it will look like the chance of surviving breast cancer is greater in that group. “The analysis is flawed,” he said.
Dr. Jonsson said the aim of screening “is to find breast cancers early and to reduce mortality from breast cancer.” He and his colleagues plan to look at the overdiagnosis later, he said.
But Donald Berry, a statistician at MD Anderson Cancer Center, said the overdiagnosis problem was a serious one. “We are finding cancers that would never be found if we didn’t look,” he said. “Small wonder people think screening is great — some of the cancers it finds were not lethal in the first place.”
Gates Fears Wider Gap Between Country and Military
Gates Fears Wider Gap Between Country and Military
By ELISABETH BUMILLER
Copyright by The Associated Press
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/us/30military.html?hpw
DURHAM, N.C. — The United States is at risk of developing a cadre of military leaders who are cut off politically, culturally and geographically from the population they are sworn to protect, Defense Secretary Robert M. Gates told an audience at Duke University on Wednesday night.
In a speech aimed at addressing what he sees as a growing disconnect between the country as a whole and the relatively few who fight its wars, Mr. Gates said that although veterans from Iraq and Afghanistan were embraced when they came home, “for most Americans the wars remain an abstraction — a distant and unpleasant series of news items that do not affect them personally.”
Even after Sept. 11, 2001, Mr. Gates said, “in the absence of a draft, for a growing number of Americans, service in the military, no matter how laudable, has become something for other people to do.”
The defense secretary said that military recruits came increasingly from the South, the mountain West and small towns, and less often from the Northeast, West Coast and big cities. The military’s own basing decisions have reinforced the trend, he said, with a significant percentage of Army posts moved in recent years to just five states: Georgia, Kentucky, North Carolina, Texas and Washington.
The speech reflected the issues within the military about the merits and costs of an all-volunteer force fighting two wars for nearly a decade, the longest sustained combat in American history. The wars in Iraq and Afghanistan, Mr. Gates said, are the first protracted large-scale conflicts since the American Revolution fought entirely by volunteers, but with a force of 2.4 million of active and reserve members that is less than 1 percent — the smallest proportion ever — of the population it serves.
He said that it was junior and mid-level officers and sergeants in ground combat and support who had borne the brunt of repeat deployments and exposure to fire. While they are “the most battle-tested, innovative and impressive generation of military leaders this country has produced in a very long time,” he said he had to ask the question: “How long can these brave and broad young shoulders carry the burden that we — as a military, as a government, as a society — continue to place on them?”
Mr. Gates dismissed any notion of reinstituting the draft, terming the all-volunteer force that began in the 1970s a “remarkable success.” But he called for the return of R.O.T.C. to elite campuses across the country — Duke is unusual in that it has three programs — and for the academically gifted to consider military service.
“In short, students like you,” Mr. Gates told the group of 1,200 in the Page Auditorium at the university.
Mr. Gates said he was encouraged that a number of prominent universities were reconsidering having R.O.T.C. return to their campuses. He said some were doing so at the urging of well-known graduates, among them President Obama.
That was an indirect reference to Harvard, Mr. Obama’s alma mater, which expelled the R.O.T.C. program from its campus in 1969 during protests against the Vietnam War. Drew Faust, Harvard’s president, has since said she would welcome R.O.T.C. back to campus on repeal of the “don’t ask, don’t tell” policy that bars gay soldiers from serving openly in the armed forces.
In his comments to the students, Mr. Gates said that beyond the hardship and heartbreak of seeing friends die in war, there is another side to military service — “the opportunity to be given extraordinary responsibility” at a young age.
“Our young military leaders in Iraq and Afghanistan have to one degree or another found themselves dealing with development, governance, agriculture, health and diplomacy,” he said. “And they’ve done all this at an age when many of their peers are reading spreadsheets and making photocopies.”
By ELISABETH BUMILLER
Copyright by The Associated Press
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/us/30military.html?hpw
DURHAM, N.C. — The United States is at risk of developing a cadre of military leaders who are cut off politically, culturally and geographically from the population they are sworn to protect, Defense Secretary Robert M. Gates told an audience at Duke University on Wednesday night.
In a speech aimed at addressing what he sees as a growing disconnect between the country as a whole and the relatively few who fight its wars, Mr. Gates said that although veterans from Iraq and Afghanistan were embraced when they came home, “for most Americans the wars remain an abstraction — a distant and unpleasant series of news items that do not affect them personally.”
Even after Sept. 11, 2001, Mr. Gates said, “in the absence of a draft, for a growing number of Americans, service in the military, no matter how laudable, has become something for other people to do.”
The defense secretary said that military recruits came increasingly from the South, the mountain West and small towns, and less often from the Northeast, West Coast and big cities. The military’s own basing decisions have reinforced the trend, he said, with a significant percentage of Army posts moved in recent years to just five states: Georgia, Kentucky, North Carolina, Texas and Washington.
The speech reflected the issues within the military about the merits and costs of an all-volunteer force fighting two wars for nearly a decade, the longest sustained combat in American history. The wars in Iraq and Afghanistan, Mr. Gates said, are the first protracted large-scale conflicts since the American Revolution fought entirely by volunteers, but with a force of 2.4 million of active and reserve members that is less than 1 percent — the smallest proportion ever — of the population it serves.
He said that it was junior and mid-level officers and sergeants in ground combat and support who had borne the brunt of repeat deployments and exposure to fire. While they are “the most battle-tested, innovative and impressive generation of military leaders this country has produced in a very long time,” he said he had to ask the question: “How long can these brave and broad young shoulders carry the burden that we — as a military, as a government, as a society — continue to place on them?”
Mr. Gates dismissed any notion of reinstituting the draft, terming the all-volunteer force that began in the 1970s a “remarkable success.” But he called for the return of R.O.T.C. to elite campuses across the country — Duke is unusual in that it has three programs — and for the academically gifted to consider military service.
“In short, students like you,” Mr. Gates told the group of 1,200 in the Page Auditorium at the university.
Mr. Gates said he was encouraged that a number of prominent universities were reconsidering having R.O.T.C. return to their campuses. He said some were doing so at the urging of well-known graduates, among them President Obama.
That was an indirect reference to Harvard, Mr. Obama’s alma mater, which expelled the R.O.T.C. program from its campus in 1969 during protests against the Vietnam War. Drew Faust, Harvard’s president, has since said she would welcome R.O.T.C. back to campus on repeal of the “don’t ask, don’t tell” policy that bars gay soldiers from serving openly in the armed forces.
In his comments to the students, Mr. Gates said that beyond the hardship and heartbreak of seeing friends die in war, there is another side to military service — “the opportunity to be given extraordinary responsibility” at a young age.
“Our young military leaders in Iraq and Afghanistan have to one degree or another found themselves dealing with development, governance, agriculture, health and diplomacy,” he said. “And they’ve done all this at an age when many of their peers are reading spreadsheets and making photocopies.”
Four Suicides in a Week Take a Toll on Fort Hood
Four Suicides in a Week Take a Toll on Fort Hood
By JAMES C. McKINLEY Jr.
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/us/30hood.html?hpw
HOUSTON — Four veterans of the conflicts in Iraq and Afghanistan died this week from what appeared to be self-inflicted gunshot wounds at Fort Hood in central Texas, raising the toll of soldiers who died here at their own hands to a record level and alarming Army commanders.
So far this year, Army officials have confirmed that 14 soldiers at Fort Hood have committed suicide. Six others are believed to have taken their own lives but a final determination has yet to be made. The highest number of suicides at Fort Hood occurred in 2008, when 14 soldiers killed themselves, said Christopher Haug, a military spokesman.
About 46,000 to 50,000 active officers and soldiers work at the base at any given time, making this year’s suicide rate about four times the national average, which the Centers for Disease Control and Prevention estimates at 11.5 deaths per 100,000 people.
The largest base in the United States, Fort Hood and the surrounding communities have suffered high rates of crime, domestic violence, suicide and various mental illnesses as wave after wave of soldiers have been deployed abroad over nine years of continual warfare, often serving more than one tour.
Last November, an Army psychiatrist, Maj. Nidal M. Hasan, was charged with killing 13 people with a pistol in a rampage at a building on the post.
On Sunday, Sgt. Michael Timothy Franklin and his wife, Jesse Ann Franklin, were found fatally shot in their house on the base.
Army investigators said they believed that Sergeant Franklin, who was 31 and had served two tours in Iraq, killed his wife and then turned the gun on himself. The couple had two small children.
Maj. Gen. William F. Grimsley, the Fort Hood senior commander, said in a statement released at a news conference on Wednesday that “leaders at all levels remain deeply concerned about this trend.”
Mr. Haug said that the general did not believe that additional measures were necessary to stop the trend and that the base already had an extensive suicide-prevention program.
But advocates for soldiers who have suffered mental breakdowns said the programs were not effective.
Cynthia Thomas runs the Under the Hood Café, an organization of antiwar activists and veterans who provide referrals for soldiers to mental health professionals. She said a stigma remained among soldiers about seeking help from Army counselors for suicidal thoughts or other mental problems. And those soldiers who do seek counseling are often given medication and put back on duty, she said.
“You don’t get counseling, you get medication,” Ms. Thomas said. “These soldiers are breaking.”
By JAMES C. McKINLEY Jr.
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/us/30hood.html?hpw
HOUSTON — Four veterans of the conflicts in Iraq and Afghanistan died this week from what appeared to be self-inflicted gunshot wounds at Fort Hood in central Texas, raising the toll of soldiers who died here at their own hands to a record level and alarming Army commanders.
So far this year, Army officials have confirmed that 14 soldiers at Fort Hood have committed suicide. Six others are believed to have taken their own lives but a final determination has yet to be made. The highest number of suicides at Fort Hood occurred in 2008, when 14 soldiers killed themselves, said Christopher Haug, a military spokesman.
About 46,000 to 50,000 active officers and soldiers work at the base at any given time, making this year’s suicide rate about four times the national average, which the Centers for Disease Control and Prevention estimates at 11.5 deaths per 100,000 people.
The largest base in the United States, Fort Hood and the surrounding communities have suffered high rates of crime, domestic violence, suicide and various mental illnesses as wave after wave of soldiers have been deployed abroad over nine years of continual warfare, often serving more than one tour.
Last November, an Army psychiatrist, Maj. Nidal M. Hasan, was charged with killing 13 people with a pistol in a rampage at a building on the post.
On Sunday, Sgt. Michael Timothy Franklin and his wife, Jesse Ann Franklin, were found fatally shot in their house on the base.
Army investigators said they believed that Sergeant Franklin, who was 31 and had served two tours in Iraq, killed his wife and then turned the gun on himself. The couple had two small children.
Maj. Gen. William F. Grimsley, the Fort Hood senior commander, said in a statement released at a news conference on Wednesday that “leaders at all levels remain deeply concerned about this trend.”
Mr. Haug said that the general did not believe that additional measures were necessary to stop the trend and that the base already had an extensive suicide-prevention program.
But advocates for soldiers who have suffered mental breakdowns said the programs were not effective.
Cynthia Thomas runs the Under the Hood Café, an organization of antiwar activists and veterans who provide referrals for soldiers to mental health professionals. She said a stigma remained among soldiers about seeking help from Army counselors for suicidal thoughts or other mental problems. And those soldiers who do seek counseling are often given medication and put back on duty, she said.
“You don’t get counseling, you get medication,” Ms. Thomas said. “These soldiers are breaking.”
A.I.G. and U.S. Government Agree on Exit Plan
A.I.G. and U.S. Government Agree on Exit Plan
Copyright By THE NEW YORK TIMES
Published: September 30, 2010
http://www.nytimes.com/2010/10/01/business/01aig.html?hp
The American International Group said Thursday that it had completed a plan to repay United States taxpayers for bailing out the insurance giant during the height of the financial crisis.
Under the plan, the Federal Reserve Bank of New York would be repaid the nearly $20 billion that it is owed and the Treasury Department would convert the $49.1 billion in preferred stock that it holds into 1.66 billion common shares. Over all, A.I.G. received a bailout package of nearly $180 billion.
With the conversion, the Treasury Department will own 92.1 percent of A.I.G., the statement said. The government will then sell its stake over time on the open market. In addition, A.I.G. said it would issue up to 75 million warrants with a strike price of $45 a share to existing common shareholders.
The A.I.G. chief executive, Robert H. Benmosche, said the plan would allow the company to “remain on track to emerge with one of the largest, most diversified property and casualty companies in the world.”
The company said it expected to repay the Fed and issue the stock to the Treasury before the end of the first quarter of next year.
Timing of the share sale could be crucial to determining the actual amount of money that will be returned to taxpayers. If shares are sold too quickly, it could drive down the company’s market value and lessen the return. In addition, a rapid exit by the government could lead to a credit downgrade, which would hurt the company’s ability to sell insurance.
Separately on Thursday, A.I.G. said that it would sell two Japanese units, the Star and Edison life insurance companies, to Prudential Financial for $4.8 billion, which includes $4.2 billion in cash and $0.6 billion in debt.
A.I.G. has been selling various units to repay its bailout assistance, which as of June 30, was $132.1 billion, The Associated Press reported.
The $49.1 billion from the Treasury Department, initially in the form of loans, was part of the government’s Troubled Asset Relief Program.
While acknowledging that “there is a lot of work ahead,” Treasury Secretary Timothy F. Geithner said Thursday that A.I.G.’s exit plan put “taxpayers in a considerably stronger position to recoup” their investment.
A.I.G. had been negotiating for weeks with officials from the Federal Reserve Bank of New York and the Treasury, as well as with representatives for a trust holding A.I.G. stock that was set up on behalf of the nation’s taxpayers. Still, breaking away from the insurance giant will be complicated, in part because of A.I.G.’s fragile state and because several parties were involved in saving the company in 2008 and used different forms of assistance.
Copyright By THE NEW YORK TIMES
Published: September 30, 2010
http://www.nytimes.com/2010/10/01/business/01aig.html?hp
The American International Group said Thursday that it had completed a plan to repay United States taxpayers for bailing out the insurance giant during the height of the financial crisis.
Under the plan, the Federal Reserve Bank of New York would be repaid the nearly $20 billion that it is owed and the Treasury Department would convert the $49.1 billion in preferred stock that it holds into 1.66 billion common shares. Over all, A.I.G. received a bailout package of nearly $180 billion.
With the conversion, the Treasury Department will own 92.1 percent of A.I.G., the statement said. The government will then sell its stake over time on the open market. In addition, A.I.G. said it would issue up to 75 million warrants with a strike price of $45 a share to existing common shareholders.
The A.I.G. chief executive, Robert H. Benmosche, said the plan would allow the company to “remain on track to emerge with one of the largest, most diversified property and casualty companies in the world.”
The company said it expected to repay the Fed and issue the stock to the Treasury before the end of the first quarter of next year.
Timing of the share sale could be crucial to determining the actual amount of money that will be returned to taxpayers. If shares are sold too quickly, it could drive down the company’s market value and lessen the return. In addition, a rapid exit by the government could lead to a credit downgrade, which would hurt the company’s ability to sell insurance.
Separately on Thursday, A.I.G. said that it would sell two Japanese units, the Star and Edison life insurance companies, to Prudential Financial for $4.8 billion, which includes $4.2 billion in cash and $0.6 billion in debt.
A.I.G. has been selling various units to repay its bailout assistance, which as of June 30, was $132.1 billion, The Associated Press reported.
The $49.1 billion from the Treasury Department, initially in the form of loans, was part of the government’s Troubled Asset Relief Program.
While acknowledging that “there is a lot of work ahead,” Treasury Secretary Timothy F. Geithner said Thursday that A.I.G.’s exit plan put “taxpayers in a considerably stronger position to recoup” their investment.
A.I.G. had been negotiating for weeks with officials from the Federal Reserve Bank of New York and the Treasury, as well as with representatives for a trust holding A.I.G. stock that was set up on behalf of the nation’s taxpayers. Still, breaking away from the insurance giant will be complicated, in part because of A.I.G.’s fragile state and because several parties were involved in saving the company in 2008 and used different forms of assistance.
Pakistan Halts NATO Supplies to Afghanistan After Attack
Pakistan Halts NATO Supplies to Afghanistan After Attack
By ISMAIL KHAN and JANE PERLEZ
Copyright by The New York Times
Published: September 30, 2010
http://www.nytimes.com/2010/10/01/world/asia/01peshawar.html?hp
PESHAWAR, Pakistan — Pakistan closed the most important border crossing for trucks supplying NATO-led coalition troops in Afghanistan on Thursday in apparent retaliation for an attack by coalition helicopters on a Pakistani security post hours earlier.
Trucks and oil tankers were stopped at the border post of Torkham just north of Peshawar and it was unclear when the post, one of two land crossings, would reopen, a Pakistani security official said.
A closure of the crossing through which NATO and American troops receive most of their non-lethal equipment is rare, and signaled a worsening in the military relationship between Pakistan and the United States just three months before the Obama administration takes stock of progress in Afghanistan.
The Pakistani interior minister, Rehman Malik indicated that NATO strikes in Pakistan were being taken extremely seriously. “We will have to see whether we are allies or enemies,” he said Thursday.
The incident on Thursday followed two attacks in a week by coalition helicopters in Pakistan that had fueled anger over the growing use of drone strikes.
American commanders in Afghanistan, fearful that Pakistan could choke off vital supplies, have been seeking alternate routes through the Central Asia but with little success.
A NATO helicopter attacked a border post at Mandati Kandaw, a town close to the capital of Parachinar in the Kurram area of Pakistan’s tribal region, at 5 a.m. on Thursday, the official said. Three paramilitary soldiers of the Frontier Corps were killed, and three others injured, he said. Another border post at Kharlachi in the Kurram region was struck a few hours later, the official added. The two posts are about 15 miles apart and border Paktia Province in Afghanistan.
The incident occurred as the director of the Central Intelligence Agency, Leon Panetta, was in Islamabad for a previously scheduled visit. He was expected to meet the head of the Pakistani military, Gen. Ashfaq Parvez Kayani, later on Thursday, American officials said.
The helicopter attacks into Pakistani territory Thursday came after American military helicopters launched three airstrikes last weekend killing more than 50 people suspected of being members of the Haqqani network of militants.
American officials in Afghanistan tried to temper Pakistani anger about those attacks, saying that the helicopters entered Pakistani airspace on only one of the three raids, and had acted in self-defense after militants fired rockets at an allied base just across the border in Afghanistan.
American military commanders say they have become increasingly frustrated at the tempo of deadly attacks against American troops in Afghanistan by the Haqqani militants who shelter in Pakistan’s tribal region.
A spokesman at NATO headquarters in Afghanistan said the incident was under investigation.
Ismail Khan reported from Peshawar, Pakistan, and Jane Perlez from Islamabad.
By ISMAIL KHAN and JANE PERLEZ
Copyright by The New York Times
Published: September 30, 2010
http://www.nytimes.com/2010/10/01/world/asia/01peshawar.html?hp
PESHAWAR, Pakistan — Pakistan closed the most important border crossing for trucks supplying NATO-led coalition troops in Afghanistan on Thursday in apparent retaliation for an attack by coalition helicopters on a Pakistani security post hours earlier.
Trucks and oil tankers were stopped at the border post of Torkham just north of Peshawar and it was unclear when the post, one of two land crossings, would reopen, a Pakistani security official said.
A closure of the crossing through which NATO and American troops receive most of their non-lethal equipment is rare, and signaled a worsening in the military relationship between Pakistan and the United States just three months before the Obama administration takes stock of progress in Afghanistan.
The Pakistani interior minister, Rehman Malik indicated that NATO strikes in Pakistan were being taken extremely seriously. “We will have to see whether we are allies or enemies,” he said Thursday.
The incident on Thursday followed two attacks in a week by coalition helicopters in Pakistan that had fueled anger over the growing use of drone strikes.
American commanders in Afghanistan, fearful that Pakistan could choke off vital supplies, have been seeking alternate routes through the Central Asia but with little success.
A NATO helicopter attacked a border post at Mandati Kandaw, a town close to the capital of Parachinar in the Kurram area of Pakistan’s tribal region, at 5 a.m. on Thursday, the official said. Three paramilitary soldiers of the Frontier Corps were killed, and three others injured, he said. Another border post at Kharlachi in the Kurram region was struck a few hours later, the official added. The two posts are about 15 miles apart and border Paktia Province in Afghanistan.
The incident occurred as the director of the Central Intelligence Agency, Leon Panetta, was in Islamabad for a previously scheduled visit. He was expected to meet the head of the Pakistani military, Gen. Ashfaq Parvez Kayani, later on Thursday, American officials said.
The helicopter attacks into Pakistani territory Thursday came after American military helicopters launched three airstrikes last weekend killing more than 50 people suspected of being members of the Haqqani network of militants.
American officials in Afghanistan tried to temper Pakistani anger about those attacks, saying that the helicopters entered Pakistani airspace on only one of the three raids, and had acted in self-defense after militants fired rockets at an allied base just across the border in Afghanistan.
American military commanders say they have become increasingly frustrated at the tempo of deadly attacks against American troops in Afghanistan by the Haqqani militants who shelter in Pakistan’s tribal region.
A spokesman at NATO headquarters in Afghanistan said the incident was under investigation.
Ismail Khan reported from Peshawar, Pakistan, and Jane Perlez from Islamabad.
Waiting for Somebody By GAIL COLLINS
Waiting for Somebody
By GAIL COLLINS
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/opinion/30collins.html?th&emc=th
Let’s talk for a minute about education.
Already, I can see readers racing for the doors. This is one of the hardest subjects in the world to write about. Many, many people would rather discuss ... anything else. Sports. Crazy Tea Party candidates. Crop reports.
So kudos to the new documentary “Waiting for Superman” for ratcheting up the interest level. It follows the fortunes of five achingly adorable children and their hopeful, dedicated, worried parents in Los Angeles, New York and Washington, D.C., as they try to gain entrance to high-performing charter schools. Not everybody gets in, and by the time you leave the theater you are so sad and angry you just want to find something to burn down.
My own particular, narrow wrath was focused on the ritual at the heart of the movie, where parents and kids sit nervously in an auditorium, holding their lottery numbers while somebody pulls out balls and announces the lucky winners of seats in next fall’s charter school class. The lucky families jump up and down and scream with joy while the losing parents and kids cry. In some of the lotteries, there are 20 heartbroken children for every happy one.
Charter schools, please, stop. I had no idea you selected your kids with a piece of performance art that makes the losers go home feeling like they’re on a Train to Failure at age 6. You can do better. Use the postal system.
On a more sweeping level, the film has sparked a great debate about American education. The United States now ranks near the bottom of the industrialized countries when it comes to reading and math. It’s not so much that schools here have gotten worse. It’s just that for the last several decades, almost everybody else has gotten better. Finland, what’s your secret?
The director of “Waiting for Superman,” Davis Guggenheim, says he’s not offering an answer: “It’s not ‘pro’ anything or ‘anti’ anything. It’s really: ‘Why can’t we have enough great schools?’ ”
But plot-wise, the movie seems to suggest that what’s needed is more charter schools, which get taxpayer dollars but are run outside the regular system, unencumbered by central bureaucracy or, in most cases, unions. However, about halfway through, the narrator casually mentions that only about a fifth of American charter schools “produce amazing results.”
In fact, a study by the Center for Research on Education Outcomes found that only 17 percent did a better job than the comparable local public school, while more than a third did “significantly worse.” I’m still haunted by a debate I stumbled across in the Texas Legislature a decade ago in which conservatives repelled any attempt to impose accountability standards on the state’s charter schools, even after only 37 percent of the charter students passed state academic achievement tests, compared with 80 percent of the public schoolchildren. There’s something about an unfettered school that lifts the hearts of the Born Free crowd.
Then there’s the matter of teachers’ unions. Guggenheim is the man who got us worried about global warming in “An Inconvenient Truth.” In his new film, the American Federation of Teachers, a union, and its president, Randi Weingarten, seem to be playing the role of carbon emissions. The movie’s heroes are people like the union-fighting District of Columbia schools chancellor, Michelle Rhee, and Geoffrey Canada, the chief of the much-praised, union-free Harlem Children’s Zone.
“I want to be able to get rid of teachers that we know aren’t able to teach kids,” says Canada.
That’s unarguable, and the Obama administration’s Race to the Top program has turned out to be a terrific engine for forcing politicians and unions and education experts to create better ways to get rid of inept or lazy teachers. But there’s no evidence that teachers’ unions are holding our schools back. Finland, which is currently cleaning our clock in education scores, has teachers who are almost totally unionized. The states with the best student performance on standardized tests tend to be the ones with the strongest teachers’ unions.
Older teachers tend to respond to calls for education reform with cynicism because they’ve been down this road so many times before. In 1955, a best seller, “Why Johnny Can’t Read,” stunned the country with its description of a 12-year-old who suffered from being “exposed to an ordinary American school.” Since then, the calls for reform have come as regularly as the locusts. Social promotion has been eliminated repeatedly, schools have been made bigger, then smaller.
But dwelling on that won’t get us anywhere. Right now, the public is engaged. The best charter schools are laboratories for new ideas. But the regular public schools are where American education has to be saved. We can do better. Superman hasn’t arrived. But we may be ready to fly.
By GAIL COLLINS
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/opinion/30collins.html?th&emc=th
Let’s talk for a minute about education.
Already, I can see readers racing for the doors. This is one of the hardest subjects in the world to write about. Many, many people would rather discuss ... anything else. Sports. Crazy Tea Party candidates. Crop reports.
So kudos to the new documentary “Waiting for Superman” for ratcheting up the interest level. It follows the fortunes of five achingly adorable children and their hopeful, dedicated, worried parents in Los Angeles, New York and Washington, D.C., as they try to gain entrance to high-performing charter schools. Not everybody gets in, and by the time you leave the theater you are so sad and angry you just want to find something to burn down.
My own particular, narrow wrath was focused on the ritual at the heart of the movie, where parents and kids sit nervously in an auditorium, holding their lottery numbers while somebody pulls out balls and announces the lucky winners of seats in next fall’s charter school class. The lucky families jump up and down and scream with joy while the losing parents and kids cry. In some of the lotteries, there are 20 heartbroken children for every happy one.
Charter schools, please, stop. I had no idea you selected your kids with a piece of performance art that makes the losers go home feeling like they’re on a Train to Failure at age 6. You can do better. Use the postal system.
On a more sweeping level, the film has sparked a great debate about American education. The United States now ranks near the bottom of the industrialized countries when it comes to reading and math. It’s not so much that schools here have gotten worse. It’s just that for the last several decades, almost everybody else has gotten better. Finland, what’s your secret?
The director of “Waiting for Superman,” Davis Guggenheim, says he’s not offering an answer: “It’s not ‘pro’ anything or ‘anti’ anything. It’s really: ‘Why can’t we have enough great schools?’ ”
But plot-wise, the movie seems to suggest that what’s needed is more charter schools, which get taxpayer dollars but are run outside the regular system, unencumbered by central bureaucracy or, in most cases, unions. However, about halfway through, the narrator casually mentions that only about a fifth of American charter schools “produce amazing results.”
In fact, a study by the Center for Research on Education Outcomes found that only 17 percent did a better job than the comparable local public school, while more than a third did “significantly worse.” I’m still haunted by a debate I stumbled across in the Texas Legislature a decade ago in which conservatives repelled any attempt to impose accountability standards on the state’s charter schools, even after only 37 percent of the charter students passed state academic achievement tests, compared with 80 percent of the public schoolchildren. There’s something about an unfettered school that lifts the hearts of the Born Free crowd.
Then there’s the matter of teachers’ unions. Guggenheim is the man who got us worried about global warming in “An Inconvenient Truth.” In his new film, the American Federation of Teachers, a union, and its president, Randi Weingarten, seem to be playing the role of carbon emissions. The movie’s heroes are people like the union-fighting District of Columbia schools chancellor, Michelle Rhee, and Geoffrey Canada, the chief of the much-praised, union-free Harlem Children’s Zone.
“I want to be able to get rid of teachers that we know aren’t able to teach kids,” says Canada.
That’s unarguable, and the Obama administration’s Race to the Top program has turned out to be a terrific engine for forcing politicians and unions and education experts to create better ways to get rid of inept or lazy teachers. But there’s no evidence that teachers’ unions are holding our schools back. Finland, which is currently cleaning our clock in education scores, has teachers who are almost totally unionized. The states with the best student performance on standardized tests tend to be the ones with the strongest teachers’ unions.
Older teachers tend to respond to calls for education reform with cynicism because they’ve been down this road so many times before. In 1955, a best seller, “Why Johnny Can’t Read,” stunned the country with its description of a 12-year-old who suffered from being “exposed to an ordinary American school.” Since then, the calls for reform have come as regularly as the locusts. Social promotion has been eliminated repeatedly, schools have been made bigger, then smaller.
But dwelling on that won’t get us anywhere. Right now, the public is engaged. The best charter schools are laboratories for new ideas. But the regular public schools are where American education has to be saved. We can do better. Superman hasn’t arrived. But we may be ready to fly.
JPMorgan Suspending Foreclosures
JPMorgan Suspending Foreclosures
By DAVID STREITFELD
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/business/30mortgage.html?th&emc=th
In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures.
The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.
The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.
Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.
Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.”
In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.
Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do.
GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.
Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt.
GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.
The pressure on the lender, which began as the auto financing arm of General Motors, is continuing to increase. Senator Al Franken, Democrat of Minnesota, asked Wednesday for the Treasury, the Justice Department and other regulators to collaborate on “a thorough investigation into the alleged misconduct.”
Defense lawyers have consistently complained that the lenders’ law firms were sending through cases that were at best sloppy. The Florida attorney general’s office says it is investigating four so-called foreclosure mills.
“The GMAC announcement was the mushroom cloud,” said one Florida defense lawyer, Matthew Weidner. “The fallout will burn through the entire mortgage servicing industry.”
Judges who oversee a lot of foreclosure cases increasingly agree that there is a serious problem.
“I don’t want to say that every one of these cases is wrong and a fraud on the court, but it is a big concern for us,” J. Thomas McGrady, chief judge of the Sixth Judicial Circuit in Florida, said in an interview last week after GMAC’s announcement.
Judge McGrady predicted that the foreclosure process in Florida, which the Legislature has been trying to speed up, would have to slow down.
“Everyone is going to have to look at these cases more closely,” said Judge McGrady, whose circuit includes St. Petersburg.
The foreclosure process in many states is already torpid. This benefits delinquent homeowners, who can live in their properties free for years, as well as lenders who do not have to write down the value of the original loan. But it also threatens to prolong the housing crisis for many years.
Chase said that unlike GMAC, it had not withdrawn any affidavits in pending cases. It also said that if foreclosures were completed, it was allowing its agents to proceed with the sale of the properties. GMAC has stopped its sales.
Chase followed the lead of GMAC in playing down the impact of the situation. “Affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records,” the spokesman, Mr. Kelly, said.
But many questions are unresolved. One is whether completed foreclosures will be vulnerable to what GMAC is calling “corrective action.” If those former homeowners press their claims, they could conceivably dislodge the new buyers.
Such cases are probably not imminent. The more immediate consequences for the lenders using robo-signers will be determined by the homeowners who are fighting their cases in court.
Lilliana DeCoursy, a real estate agent in Safety Harbor, Fla., has a rental property in foreclosure with GMAC. Now that the lender has withdrawn the affidavit in her case, Ms. DeCoursy said she was determined to press every advantage.
“I think they should have to answer for this,” she said.
William Neuman contributed reporting.
By DAVID STREITFELD
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/business/30mortgage.html?th&emc=th
In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures.
The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.
The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.
Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.
Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.”
In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.
Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do.
GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.
Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt.
GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.
The pressure on the lender, which began as the auto financing arm of General Motors, is continuing to increase. Senator Al Franken, Democrat of Minnesota, asked Wednesday for the Treasury, the Justice Department and other regulators to collaborate on “a thorough investigation into the alleged misconduct.”
Defense lawyers have consistently complained that the lenders’ law firms were sending through cases that were at best sloppy. The Florida attorney general’s office says it is investigating four so-called foreclosure mills.
“The GMAC announcement was the mushroom cloud,” said one Florida defense lawyer, Matthew Weidner. “The fallout will burn through the entire mortgage servicing industry.”
Judges who oversee a lot of foreclosure cases increasingly agree that there is a serious problem.
“I don’t want to say that every one of these cases is wrong and a fraud on the court, but it is a big concern for us,” J. Thomas McGrady, chief judge of the Sixth Judicial Circuit in Florida, said in an interview last week after GMAC’s announcement.
Judge McGrady predicted that the foreclosure process in Florida, which the Legislature has been trying to speed up, would have to slow down.
“Everyone is going to have to look at these cases more closely,” said Judge McGrady, whose circuit includes St. Petersburg.
The foreclosure process in many states is already torpid. This benefits delinquent homeowners, who can live in their properties free for years, as well as lenders who do not have to write down the value of the original loan. But it also threatens to prolong the housing crisis for many years.
Chase said that unlike GMAC, it had not withdrawn any affidavits in pending cases. It also said that if foreclosures were completed, it was allowing its agents to proceed with the sale of the properties. GMAC has stopped its sales.
Chase followed the lead of GMAC in playing down the impact of the situation. “Affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records,” the spokesman, Mr. Kelly, said.
But many questions are unresolved. One is whether completed foreclosures will be vulnerable to what GMAC is calling “corrective action.” If those former homeowners press their claims, they could conceivably dislodge the new buyers.
Such cases are probably not imminent. The more immediate consequences for the lenders using robo-signers will be determined by the homeowners who are fighting their cases in court.
Lilliana DeCoursy, a real estate agent in Safety Harbor, Fla., has a rental property in foreclosure with GMAC. Now that the lender has withdrawn the affidavit in her case, Ms. DeCoursy said she was determined to press every advantage.
“I think they should have to answer for this,” she said.
William Neuman contributed reporting.
In Tax Cut Plan, Debate Over the Definition of Rich
In Tax Cut Plan, Debate Over the Definition of Rich
By DAVID KOCIENIEWSKI
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/business/30rich.html?_r=1&th=&adxnnl=1&emc=th&adxnnlx=1285851740-mtMlayuBpZofK4o59sircA
Much of the debate about whether to extend the Bush tax cuts has focused on big economic issues: how the decision might affect the fragile economy, the widening federal deficit and hiring by small businesses.
As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.
President Obama has proposed preserving the cuts for middle-class Americans and letting them expire for the top 2.5 percent of taxpayers — individuals who make more than $200,000 a year and families whose income exceeds $250,000.
But others in Congress have questioned why ending what Mr. Obama frequently calls “tax cuts for millionaires and billionaires” should also raise taxes on families making $250,000. The Senate will not vote on the matter until after the midterm elections, and some Democrats are pushing for a compromise that would leave the cuts in place for those higher up the income scale.
“I think the $250,000 level is too low,” said Senator James Webb, Democrat of Virginia. “I’m asking that it be raised.”
One proposal being discussed is a millionaires’ tax, which would create one or two additional tax brackets for the wealthiest Americans and eliminate the Bush tax cuts only for those who earn more than seven-figure incomes.
But Mr. Obama and Democratic leaders in Congress have thus far held firm to the dividing line of $200,000 for individuals and $250,000 for families. And others warn that making the tax code more complicated often has the unintended consequence of encouraging taxpayers to circumvent the system.
“If you make the tax law simpler, more easily understood and fairer, you end up with a higher level of compliance and more revenue,” said Senator Judd Gregg, Republican of New Hampshire, co-sponsor of a tax overhaul plan that would eliminate many deductions and exemptions and reduce the total number of brackets from six to three.
Leaders in the Senate announced last week that they would not vote on the matter until after the elections on Nov. 2 because some Democrats in tight races worried that Mr. Obama’s plan would leave them vulnerable to campaign attack ads accusing them of raising taxes.
Most of the opposition to the plan has come from those who warn that ending the cuts, even on the wealthiest, would further weaken the struggling economy and harm small businesses.
But because the cuts will have expired for everyone on Jan. 1 unless Congress takes action, lawmakers are virtually certain to revisit the issue in the lame-duck session.
At the heart of the debate is the fact that, like most Western countries, the United States has a progressive tax code that levies higher rates on people with higher incomes. But the concept of class and the issue of taxes are both so politically charged that discussions about how to calibrate those rates and how much income qualifies someone as rich in the contemporary United States are incendiary.
During the presidential campaign in 2008, the Republican nominee, Senator John McCain of Arizona, set off a fury when he was asked the dividing line between middle class and rich and replied that it was $5 million, a statement he said was intended as a joke. Mr. Obama’s response was $150,000, a figure that is three times the median family income.
With unemployment at 9.6 percent and the economy languishing, discussions about the financial pressures facing the wealthiest Americans can quickly devolve into shouting matches.
A University of Chicago professor earlier this month wrote a post on an academic blog complaining that if Mr. Obama’s proposal became law, he and his wife, who earn more than $300,000 combined, might have to lay off their housekeeper.
Responses to the post were so visceral and angry that the professor, M. Todd Henderson, deleted it from the Internet, saying that the “electronic lynch mob” had made him fear for his family’s safety.
But in some expensive sections of the country, many families with income levels near the $250,000 cutoff insist that they have more in common with middle-class Americans than millionaires or billionaires.
“You take a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school,” said Vincent R. Cervone, a certified public accountant in New York City. “They’re grateful to be working. They aren’t in danger of eviction or starving. But the cost of the average house is $500,000 — five times the national average. Taxes are higher than the rest of the country. If they have a couple of children in college, can you call them rich? Not by any common-sense standard.”
The dispute over what income level qualifies as rich is caused, in part, by the tendency of people to gauge their own wealth by comparing themselves to those closest to them. A study released this month by two Princeton University professors found that in most of the country, people feel comfortably middle class if they earn $70,000. But in New York City, the figure was $165,000. The median income in New York City is $55,980, according to the Census Bureau.
J. Bradford DeLong, an economics professor at the University of California, Berkeley, said many of the top earners in the United States did not consider themselves rich because they compared themselves to the statistically small segment of the people who earned more than them, rather than the much larger segment who made less.
“It is pathetic and embarrassing that somebody with five times the median household income, someone in the top 2 or 3 percent of the population, thinks of himself as just another ‘average Joe,’ ” said Professor DeLong, who was a deputy assistant secretary of the Treasury Department in the Clinton administration. “Why don’t you ask someone who makes $40,000 or $50,000 a year if they have a lot in common with a family making $250,000?”
The fact that families making $250,000 are sometimes being invoked in the same terms as billionaires is a symptom of one of the paradoxes of the American tax system: at the same time that wealth has become far more concentrated in recent decades, the tax code has become far less precise in differentiating levels of affluence.
Today’s tax code not only has far lower rates than it had a half century ago, it has fewer brackets — just six. Mr. Obama’s plan would raise the top bracket (which affects income for individual filers who earn over $382,550) to 39.6 percent, from 35 percent. It would also raise the second-highest bracket to 36 percent, from 33 percent.
Mr. Obama’s plan would charge the same rate on the 382,551st dollar of earnings as it would on the 30 millionth.
Tax brackets at the upper end of the income scale were not always drawn so broadly. In 1970, when someone earning $37,000 had the buying power of a $200,000 income today, there were 25 income brackets. The taxpayer with $37,000 was taxed at the middle of the scale — 13 of the brackets charged higher rates to those with higher income.
Congress reduced the number of brackets in the 1980s in an effort to make the tax code simpler and to cut down on the abuse of shelters and deductions.
In the last 30 years, however, the percentage of total income earned by the top 1 percent of Americans has grown sharply — to 23.5 percent in 2007, from about 9 percent in 1979. And the income share of the top 0.1 percent has grown even faster — to 6 percent in 2007 from 2 percent in 1988.
Mr. Obama has used those income gains to argue that his plan is fair; at a town hall meeting last week, the president noted that 85 percent of the cost of extending the upper-income tax cuts would go to benefit “millionaires and billionaires.”
But it is unclear what, if anything, Congress will do to address the issue. Republicans uniformly oppose letting any of the tax cuts expire. Democrats have vowed to pass Mr. Obama’s plan after the elections. Given that they are likely to lose seats — and possibly control of one or both houses of Congress — it is uncertain whether they will follow through, compromise or simply extend all the cuts for a limited period.
Eric J. Toder, an economist at the Tax Policy Center, said that while the overall tax system was progressive now, there was historical precedent for creating new brackets to address a shift in income to the very highest end of the scale.
“The reason they fiddle around with the rate schedules and new brackets is to fine-tune,” he said. “The economic question is, What economic effects do you get in terms of sheltering income and how would it affect investment? But politics, not economics, will determine the outcome.”
By DAVID KOCIENIEWSKI
Copyright by The New York Times
Published: September 29, 2010
http://www.nytimes.com/2010/09/30/business/30rich.html?_r=1&th=&adxnnl=1&emc=th&adxnnlx=1285851740-mtMlayuBpZofK4o59sircA
Much of the debate about whether to extend the Bush tax cuts has focused on big economic issues: how the decision might affect the fragile economy, the widening federal deficit and hiring by small businesses.
As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.
President Obama has proposed preserving the cuts for middle-class Americans and letting them expire for the top 2.5 percent of taxpayers — individuals who make more than $200,000 a year and families whose income exceeds $250,000.
But others in Congress have questioned why ending what Mr. Obama frequently calls “tax cuts for millionaires and billionaires” should also raise taxes on families making $250,000. The Senate will not vote on the matter until after the midterm elections, and some Democrats are pushing for a compromise that would leave the cuts in place for those higher up the income scale.
“I think the $250,000 level is too low,” said Senator James Webb, Democrat of Virginia. “I’m asking that it be raised.”
One proposal being discussed is a millionaires’ tax, which would create one or two additional tax brackets for the wealthiest Americans and eliminate the Bush tax cuts only for those who earn more than seven-figure incomes.
But Mr. Obama and Democratic leaders in Congress have thus far held firm to the dividing line of $200,000 for individuals and $250,000 for families. And others warn that making the tax code more complicated often has the unintended consequence of encouraging taxpayers to circumvent the system.
“If you make the tax law simpler, more easily understood and fairer, you end up with a higher level of compliance and more revenue,” said Senator Judd Gregg, Republican of New Hampshire, co-sponsor of a tax overhaul plan that would eliminate many deductions and exemptions and reduce the total number of brackets from six to three.
Leaders in the Senate announced last week that they would not vote on the matter until after the elections on Nov. 2 because some Democrats in tight races worried that Mr. Obama’s plan would leave them vulnerable to campaign attack ads accusing them of raising taxes.
Most of the opposition to the plan has come from those who warn that ending the cuts, even on the wealthiest, would further weaken the struggling economy and harm small businesses.
But because the cuts will have expired for everyone on Jan. 1 unless Congress takes action, lawmakers are virtually certain to revisit the issue in the lame-duck session.
At the heart of the debate is the fact that, like most Western countries, the United States has a progressive tax code that levies higher rates on people with higher incomes. But the concept of class and the issue of taxes are both so politically charged that discussions about how to calibrate those rates and how much income qualifies someone as rich in the contemporary United States are incendiary.
During the presidential campaign in 2008, the Republican nominee, Senator John McCain of Arizona, set off a fury when he was asked the dividing line between middle class and rich and replied that it was $5 million, a statement he said was intended as a joke. Mr. Obama’s response was $150,000, a figure that is three times the median family income.
With unemployment at 9.6 percent and the economy languishing, discussions about the financial pressures facing the wealthiest Americans can quickly devolve into shouting matches.
A University of Chicago professor earlier this month wrote a post on an academic blog complaining that if Mr. Obama’s proposal became law, he and his wife, who earn more than $300,000 combined, might have to lay off their housekeeper.
Responses to the post were so visceral and angry that the professor, M. Todd Henderson, deleted it from the Internet, saying that the “electronic lynch mob” had made him fear for his family’s safety.
But in some expensive sections of the country, many families with income levels near the $250,000 cutoff insist that they have more in common with middle-class Americans than millionaires or billionaires.
“You take a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school,” said Vincent R. Cervone, a certified public accountant in New York City. “They’re grateful to be working. They aren’t in danger of eviction or starving. But the cost of the average house is $500,000 — five times the national average. Taxes are higher than the rest of the country. If they have a couple of children in college, can you call them rich? Not by any common-sense standard.”
The dispute over what income level qualifies as rich is caused, in part, by the tendency of people to gauge their own wealth by comparing themselves to those closest to them. A study released this month by two Princeton University professors found that in most of the country, people feel comfortably middle class if they earn $70,000. But in New York City, the figure was $165,000. The median income in New York City is $55,980, according to the Census Bureau.
J. Bradford DeLong, an economics professor at the University of California, Berkeley, said many of the top earners in the United States did not consider themselves rich because they compared themselves to the statistically small segment of the people who earned more than them, rather than the much larger segment who made less.
“It is pathetic and embarrassing that somebody with five times the median household income, someone in the top 2 or 3 percent of the population, thinks of himself as just another ‘average Joe,’ ” said Professor DeLong, who was a deputy assistant secretary of the Treasury Department in the Clinton administration. “Why don’t you ask someone who makes $40,000 or $50,000 a year if they have a lot in common with a family making $250,000?”
The fact that families making $250,000 are sometimes being invoked in the same terms as billionaires is a symptom of one of the paradoxes of the American tax system: at the same time that wealth has become far more concentrated in recent decades, the tax code has become far less precise in differentiating levels of affluence.
Today’s tax code not only has far lower rates than it had a half century ago, it has fewer brackets — just six. Mr. Obama’s plan would raise the top bracket (which affects income for individual filers who earn over $382,550) to 39.6 percent, from 35 percent. It would also raise the second-highest bracket to 36 percent, from 33 percent.
Mr. Obama’s plan would charge the same rate on the 382,551st dollar of earnings as it would on the 30 millionth.
Tax brackets at the upper end of the income scale were not always drawn so broadly. In 1970, when someone earning $37,000 had the buying power of a $200,000 income today, there were 25 income brackets. The taxpayer with $37,000 was taxed at the middle of the scale — 13 of the brackets charged higher rates to those with higher income.
Congress reduced the number of brackets in the 1980s in an effort to make the tax code simpler and to cut down on the abuse of shelters and deductions.
In the last 30 years, however, the percentage of total income earned by the top 1 percent of Americans has grown sharply — to 23.5 percent in 2007, from about 9 percent in 1979. And the income share of the top 0.1 percent has grown even faster — to 6 percent in 2007 from 2 percent in 1988.
Mr. Obama has used those income gains to argue that his plan is fair; at a town hall meeting last week, the president noted that 85 percent of the cost of extending the upper-income tax cuts would go to benefit “millionaires and billionaires.”
But it is unclear what, if anything, Congress will do to address the issue. Republicans uniformly oppose letting any of the tax cuts expire. Democrats have vowed to pass Mr. Obama’s plan after the elections. Given that they are likely to lose seats — and possibly control of one or both houses of Congress — it is uncertain whether they will follow through, compromise or simply extend all the cuts for a limited period.
Eric J. Toder, an economist at the Tax Policy Center, said that while the overall tax system was progressive now, there was historical precedent for creating new brackets to address a shift in income to the very highest end of the scale.
“The reason they fiddle around with the rate schedules and new brackets is to fine-tune,” he said. “The economic question is, What economic effects do you get in terms of sheltering income and how would it affect investment? But politics, not economics, will determine the outcome.”
Wednesday, September 29, 2010
Chicago Sun-Times Editorial: Take it on blind faith -- or learn about religion
Chicago Sun-Times Editorial: Take it on blind faith -- or learn about religion
Copyright by the Chicago Sun-Times
September 29, 2010
http://www.suntimes.com/news/commentary/2755594,CST-EDT-edit29b.article
Sunday school teachers across the country have to be shaking their heads about this one.
A new survey conducted by the Pew Forum on Religion and Public Life found that although 86 percent of Americans say they believe in God or a higher power, many can't answer basic questions about their own faith or that of others.
In fact, the average American correctly answered only half of the questions they were asked about topics such as the name of the holy book of Islam, the religion of the Dalai Lama and the significance of the bread and wine Catholics use for Communion. You can find the Pew survey at tinyurl.com/22nvrdv.
Ironically, atheists and agnostics were the most knowledgeable about religion, an outcome that likely reflects the careful consideration and study they undertake before deciding to become nonbelievers. Jews and Mormons came in second and third place, respectively, while Protestants and Catholics scored the lowest overall.
The survey seems to make a compelling argument for more high schools to offer comparative religion courses as an elective, something that, contrary to what many Americans think, wouldn't violate the First Amendment.
Such courses would give students a common base of knowledge with which to combat misinformation and to make sense of what's happening in the world.
Given the enormous impact religion has had -- and continues to have -- on the history and culture of this country, it's a shame we know so little about it.
Copyright by the Chicago Sun-Times
September 29, 2010
http://www.suntimes.com/news/commentary/2755594,CST-EDT-edit29b.article
Sunday school teachers across the country have to be shaking their heads about this one.
A new survey conducted by the Pew Forum on Religion and Public Life found that although 86 percent of Americans say they believe in God or a higher power, many can't answer basic questions about their own faith or that of others.
In fact, the average American correctly answered only half of the questions they were asked about topics such as the name of the holy book of Islam, the religion of the Dalai Lama and the significance of the bread and wine Catholics use for Communion. You can find the Pew survey at tinyurl.com/22nvrdv.
Ironically, atheists and agnostics were the most knowledgeable about religion, an outcome that likely reflects the careful consideration and study they undertake before deciding to become nonbelievers. Jews and Mormons came in second and third place, respectively, while Protestants and Catholics scored the lowest overall.
The survey seems to make a compelling argument for more high schools to offer comparative religion courses as an elective, something that, contrary to what many Americans think, wouldn't violate the First Amendment.
Such courses would give students a common base of knowledge with which to combat misinformation and to make sense of what's happening in the world.
Given the enormous impact religion has had -- and continues to have -- on the history and culture of this country, it's a shame we know so little about it.
Today's Financial News Courtesy of the Financial Times
Today's Financial News Courtesy of the Financial Times
Europe struggles as China factory data lift Asia
By Jamie Chisholm in London and Song Jung-a in Seoul
Copyright The Financial Times Limited 2010
Published: September 27 2010 03:47 | Last updated: September 29 2010 14:20
http://www.ft.com/cms/s/0/4dd71c22-c9dd-11df-b3d6-00144feab49a.html
Wednesday 13:00 BST. European stocks are struggling to make headway as investors seem reluctant to load up on riskier assets as a strong quarter draws to a close.
A firm showing in Asia has helped push the FTSE All-World equity index up 0.3 per cent to a near five-month high and gold has hit a new record, with investors in both assets exercised by hopes and fears respectively about what further central bank quantitative easing could mean for the investing environment.
The All-World has risen 14 per cent since the start of July – primarily on hopes that the US economy can avoid a double-dip, and the Federal Reserve stands ready to help if required – and wary traders recognise that such a gain may tempt some fund managers into a bout of profit-taking in the past few days of the quarter.
US equity futures are lower by 0.1 per cent and Treasuries little changed. The FTSE Eurofirst 300 stock index is down 0.2 per cent, despite news of a surprising uptick in eurozone business sentiment.
The european banks index is down 1 per cent on nagging concerns about the sector’s health, even though institutions needed to borrow less than was expected at the ECB’s latest longer-term refinancing operation – a trend that would usually demonstrate diminished stress in the system.
The FTSE 100 in London is off 0.1 per cent and Madrid is lower by 0.8 per cent as Spain suffers a general strike.
The Market Eye
Some people have suddenly gone very bearish on volatility – and by implication, pretty bullish on stocks. The put/call options ratio for the CBOE’s Vix, a measure of expected equity market volatility, on Tuesday spiked to 2.83, compared to an average of 0.75 over the past 12 months. This may mean there has been a sharp net rise in those who think the Vix will shortly move lower from its current level around 22, a trend that usually coincides with a rising stock market. It’s a bold bet given the S&P 500’s storming September and October’s reputation for scares.
Factors to Watch. A thin day for economic data later in the global session, with little of note on the slate from the US. Television images of European anti-austerity strikes may knock sentiment, while later lawmakers on Capitol Hill will vote on whether to pass a bill to put pressure on China to allow the renminbi to rise – a move that could exacerbate trade tensions.
Asia-Pacific. Stock markets moved higher, taking their lead from a firm finish on Wall Street and after the Bank of Japan’s Tankan survey shows better-than-expected business sentiment. A better-than-expected performance by China’s manufacturing sector in September has added to the positive mood.
The FTSE Asia-Pacific index is up 0.8 per cent to a five-month high and Japan’s Nikkei 225 climbed 0.7 per cent, with gains curtailed by a strengthening yen. South Korea’s Kospi rose 0.6 per cent higher. However, Australia’s S&P/ASX 200 has edged down 0.5 per cent, with banks proving a drag on fears the market for mortgages was slowing. New Zealand’s NZX 50 has lost 0.1 per cent.
Chinese stocks were mixed despite news that HSBC’s China Purchasing Managers’ index showed that manufacturing expanded faster this month than in August, reducing fears that recent monetary tightening had hobbled the sector. The Shanghai Composite index fell just 0.03 per cent, while Hong Kong added 1.2 per cent, the latter happier to follow the global trend.
Rates. Core government bonds are steady following their strong advance over the last few sessions.
A US auction of five-year notes on Tuesday saw a record low yield of 1.26 per cent, with strong bidding from direct and indirect bidders, suggesting a large fundamental demand for the bonds. In trading, they fell 6 basis points to 1.23 per cent, an all-time low, but are today at 1.26 per cent.
Ten-year US bond yields are up 1bp at 2.48 per cent, close to the lowest yield since January 2009. The US will auction $29bn of new seven-year notes later on Wednesday.
Ten-year gilt yields, which fell sharply on Tuesday after Adam Posen of the Bank of England’s monetary policy committee said it was time for more quantitative easing, are down 1bp to 2.92 per cent following news UK service sector output fell for a second month running in July.
Japanese government 10-year yields are down 3bp to 0.93 per cent, just 2bp shy of a seven-year low, as investors price in the chances of more stimulus measures to revive the economy.
Irish, Portuguese and Greek benchmark yields are little changed, but still near record highs, as fiscal worries linger.
Forex. The yen seems to have used the kerfuffle surrounding talk of currency wars and the dollar’s QE-induced slide to eight-month lows to slip furtively back below the Y84 level versus the buck. The move is unlikely to have gone unnoticed by Japan’s Ministry of Finance, however, and traders will be on their toes for any further bout of intervention to weaken the yen.
Today the Japanese unit is up 0.3 per cent to Y83.62 against the dollar and up 0.3 per cent to Y113.79 versus the euro. The US dollar index – which tracks the buck against a basket of its peers – is down 0.2 per cent to 78.78, close to eight-month lows.
Commodities. Gold has hit another nominal high, printing a spot trade at $1,313.20 an ounce in Asian dealing. It is currently up 0.1 per cent at $1,308 as some in the market forecast that investors’ loss of faith in central banks will deliver further strong gains for the bullion over coming months. Silver has breached $22 an ounce, a fresh 30-year peak, and is now trading at $21.80.
The positive manufacturing report out of China has lent support to industrial metals. Copper is up 0.6 per cent at $8,030 a tonne, the first time it has cracked the $8,000 mark since April. Oil is up 0.2 per cent at $76.33 a barrel ahead of US inventory data published later today.
Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos
Currencies clash in new age of beggar-my-neighbour
By Martin Wolf
Copyright The Financial Times Limited 2010
Published: September 28 2010 22:46 | Last updated: September 28 2010 22:46
http://www.ft.com/cms/s/0/9fa5bd4a-cb2e-11df-95c0-00144feab49a.html
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.” This complaint by Guido Mantega, Brazil’s finance minister, is entirely understandable. In an era of deficient demand, issuers of reserve currencies adopt monetary expansion and non-issuers respond with currency intervention. Those, like Brazil, who are not among the former and prefer not to copy the latter, find their currencies soaring. They fear the results.
This is not the first time for such currency conflicts. In September 1985, now 25 years ago, the governments of France, West Germany, Japan, the US and the UK met at the Plaza Hotel in New York and agreed to push for depreciation of the US dollar. Earlier still, in August 1971, the US president Richard Nixon imposed the “Nixon shock”, levying a 10 per cent import surcharge and ending dollar convertibility into gold. Both events reflected the US desire to depreciate the dollar. It has the same desire today. But this time is different: the focus of attention is not a compliant ally, such as Japan, but the world’s next superpower: China. When such elephants fight, bystanders are likely to be trampled.
First, as a result of the crisis, the developed world is suffering from chronically deficient demand. In none of the six biggest high-income economies – the US, Japan, Germany, France, the UK and Italy – was gross domestic product in the second quarter of this year back to where it was in the first quarter of 2008. These economies are now operating at up to 10 per cent below their past trends. One indication of the excess supply is the decline in core inflation to close to 1 per cent in the US and the eurozone: deflation beckons. These countries hope for export-led growth. This is true both of those with trade deficits (such as the US) and of those with surpluses (such as Germany and Japan). In aggregate, however, this can only happen if emerging economies shift towards current account deficit.
Second, private sectors are working in just this direction. In its April forecasts (soon to be updated), the Washington-based Institute for International Finance suggested that this year the net flow of external private finance into the emerging countries would be $746bn (see chart). This would be partially offset by a net private outflow from these countries of $566bn. Nevertheless, with a current account surplus of $320bn as well, and modest official capital inflows, the external balance of the emerging world, without official intervention, would be a surplus of $535bn. But, without the intervention, that could not happen: the current account must balance the net capital flow. The adjustment would go via a higher exchange rate. In the end, the emerging world would run a current account deficit financed by a net inflow of private capital from the high-income countries. Indeed, that is precisely what one would expect to happen.
Third, this natural adjustment continues to be thwarted by the build-up of foreign currency reserves,. These sums represent an official capital outflow (see chart). Between January 1999 and July 2008, the world’s official reserves rose from $1,615bn to $7,534bn – a staggering increase of $5,918bn. This increase was, one might argue, a form of self-insurance after earlier crises. Indeed, reserves were used up during this crisis: they shrank by $472bn between July 2008 and February 2009. No doubt, this helped countries without reserve currencies cushion the impact. But this use of reserves was a mere 6 percent of the pre-crisis level. Moreover, between February 2009 and May 2010, reserves rose by another $1,324bn, to reach close to $8,385bn. Mercantilism lives!
China is overwhelmingly the dominant intervener, accounting for 40 per cent of the accumulation since February 2009. By June 2010, its reserves had reached $2,450bn, 30 per cent of the world total and a staggering 50 per cent of its own GDP. This accumulation must be viewed as a huge export subsidy.
Never in human history can the government of one superpower have lent so much to that of another. Some argue – Komal Sri-Kumar of the Trust Company of the West, in Tuesday’s Financial Times, for example – that such management of the exchange rate is not manipulative, contrary to views in the US Congress, since adjustment can occur via “changes in domestic costs and prices”. This argument would be more convincing if China had not worked hard and successfully to suppress the natural monetary and so inflationary consequences of its intervention. In the meantime, the inevitable adjustment towards current account deficits in the emerging world is being shifted on to countries that are both attractive to capital inflows and unwilling or unable to intervene in the currency markets on the needed scale. Poor Brazil! Could we even be seeing the starting gun for the next emerging market financial crisis?
John Connally, Nixon’s secretary of the Treasury, famously told the Europeans that the dollar “is our currency, but your problem”. The Chinese respond in kind. In the absence of currency adjustments, we are seeing a form of monetary warfare: in effect, the US is seeking to inflate China, and China to deflate the US. Both sides are convinced they are right; neither is succeeding; and the rest of the world suffers.
It is not hard to see China’s point of view: it is desperate to avoid what it views as the dire fate of Japan after the Plaza accord. With export competitiveness damaged by its soaring currency and pressured by the US to reduce its current account surplus, Japan chose not the needed structural reforms, but a huge monetary expansion, instead. The consequent bubble helped deliver the “lost decade” of the 1990s. Once a world-beater, Japan fell into the doldrums. For China, self-evidently, any such outcome would be a catastrophe. At the same time, it is difficult to envisage a robust configuration of the world economy without large net capital flows from the high-income countries to the rest. Yet it is also hard to imagine that happening, on a sustainable basis, if the world’s biggest and most successful emerging economy is also its largest net exporter of capital.
What is needed is a route to these needed global adjustments. That will demand not just a will to co-operate that now seems sorely lacking, but greater imagination about both domestic and international reforms. I would like to be optimistic. But I am not: a world of beggar-my-neighbour policy is most unlikely to end well.
martin.wolf@ft.com
Dubai’s Emaar to launch $375m bond
By Simeon Kerr in Dubai, Robin Wigglesworth in Abu Dhabi and Anousha Sakoui in London
Copyright The Financial Times Limited 2010
Published: September 29 2010 13:20 | Last updated: September 29 2010 14:20
http://www.ft.com/cms/s/0/f8e19118-cbbf-11df-a4f5-00144feab49a.html
Dubai’s Emaar Properties is set to launch a convertible bond of $375m with an option up to $500m, as the real estate company seeks to bolster its finances amid a continuing property slump in the emirate, people aware of the matter say.
The five-year bond, with indicative pricing of 7.25-8.25 per cent, has received strong interest, two people involved in the deal say. The conversion premium is 20-30 per cent.
The property giant, which drove the growth of the real estate market after the emirate opened to foreigners in 2003, has weathered the Dubai financial crisis better than other developers. But it remains affected by the real estate crash, which has seen valuations at least halved since 2008.
“The money will be used to pay back some of its short-term debt and general company spending,” said one person aware of the deal. “It may be mildly dilutive to shareholders but it is cheap debt,” he added.
Details of the transaction have yet to be released. The company declined to comment.
Emaar, the most widely traded stock on the Dubai Financial Market, is expected to announce the issue – the first convertible bond in the UAE since 2008 – later on Wednesday.
The developer, which built the Burj Khalifa tower in central Dubai, the world’s highest, has expanded into other markets, including an ill-fated foray into the US via John Laing Homes. In June the developer handed over non-Middle Eastern rights to Hamptons International, a property agency, to Countrywide, a UK estate agency.
The move comes amid rising optimism about Dubai’s ability to access credit markets as the government prices a $1.25bn bond on Wednesday.
But the extent of oversupply in the real estate market remains one of the city’s biggest headaches as it tries to forge an economic recovery.
Consultants believe that demand is unlikely to match supply for the next few years, potentially driving prices lower.
The government says the real estate regulator is cancelling 495 projects, around half of the total planned in the city.
Courts are full of hearings launched by buyers and contractors battling developers in an attempt to recover funds from properties that look like they may never be completed.
Junk buying fuels ‘yield chasing’ fears
By Aline van Duyn in New York
Copyright The Financial Times Limited 2010
Published: September 28 2010 20:26 | Last updated: September 28 2010 20:26
http://www.ft.com/cms/s/0/fd58cb58-cb33-11df-95c0-00144feab49a.html
Retail investors in the US have sharply increased their direct buying of junk bonds in the third quarter of the year, providing evidence of a trend of “yield chasing” that is worrying regulators.
Finra, which regulates US securities firms, said the trend was a concern given the risks involved in this part of the corporate bond market.
Corporate bond trading activity analysed by Finra shows that the ratio of buying relative to selling of junk bonds by retail investors has jumped in the last quarter. Junk bonds, also called high-yield bonds, are sold by companies with ratings below investment grade, a category which has a higher risk of default.
For retail trades, defined by Finra as transactions of $100,000 or less, this “buy-sell trade ratio” jumped to over 1.2 in the third quarter, more than double the level it was at in the second quarter.
In contrast, the high-yield “buy-sell trade ratio” for institutional investors fell in the third quarter to close to zero, indicating a more “neutral” stance towards junk bonds by professional investors than their retail counterparts, Finra said.
Steve Joachim, executive vice president at Finra, said the strong buying by retail investors was a “concerning trend” because of the impact on these investors’ investment portfolios “when the market does turn”.
“Investors are doing some yield chasing,” Mr Joachim said. He added that Finra had already reminded bond dealers of their duties to warn investors of risks.
This included alerting investors to factors which might affect the value of corporate bonds, such as changes in credit ratings.
Mr Joachim, speaking last week at a Bond Dealers of America conference in Dallas, said the daily trading volumes by retail investors had also risen sharply.
He said the average number of daily high-yield bond trades had more than doubled since the beginning of 2009 to over 4,000 per day. Average daily retail trades of investment grade corporate bonds had fallen in that period from over 18,000 per day to 12,000.
Record low official interest rates and plunging yields on US government bonds has led to a sharp increase in investor demand for corporate bonds. Investors have put a record amount of money into funds investing in corporate bonds and companies have sold record amounts of new debt to tap into this.
The poor performance of equity markets in the last decade has fuelled this trend as investors seek a regular stream of income and assets that are more likely to retain their value.
Even though the yields paid on high yield bonds are close to historic lows, the average yield pick-up paid by companies relative to US Treasury debt remains higher than before the credit crisis.
AIG ready to discuss Treasury exit plan
By Tom Braithwaite in Washington and Francesco Guerrera in New York
Copyright The Financial Times Limited 2010
Published: September 29 2010 00:23 | Last updated: September 29 2010 00:23
http://www.ft.com/cms/s/0/b1eed1fa-cb27-11df-95c0-00144feab49a.html
AIG’s board is set to finalise a restructuring plan on Wednesday that would increase the US Treasury’s stake in the insurer to about 90 per cent as a step toward an eventual government exit.
People close to the situation said AIG directors were expected to formally discuss for the first time the Treasury’s plan to convert $49bn in preferred shares into common stock. This would raise the government’s stake from the current 80 per cent, while diluting the holdings of existing shareholders.
To make up for this dilution, the government would offer the outside shareholders warrants giving them the right to buy AIG shares in the future at a discount to the current price.
People familiar with the situation said the plans were fluid but added that issuing warrants, rather than common stock, would enable AIG to keep its share count down while offering some solace to diluted shareholders.
“This would give other people the chance to buy shares on the cheap as well,” said a person familiar with the deal. A second person familiar with the plan said the warrants would pay off only after the government had made money.
The Treasury is expected to sell its AIG stock in the market over a period, as it has with its investment in Citigroup. AIG and the Treasury declined to comment.
Approval of the plan by the AIG board would mark a significant step in freeing the insurer of government control and repaying taxpayers for the $182bn of public money used to buttress the group at the peak of the crisis in 2008.
Official estimates of the government’s ultimate loss range from $36bn to $50bn but AIG executives and officials hope the plan will deliver a better outcome. The restructuring includes the repayment of loans to the New York Federal Reserve Bank, partly with proceeds from next month’s planned initial public offering of Asian subsidiary AIA.
The plan comes as the Treasury this week prepares to end payments from the $700bn troubled asset relief programme and announce that it now expects a much lower loss, and perhaps even a profit, on the investments that helped shore up the financial system in 2008 and 2009.
AIG has warned investors in filings that the conversion of the government’s preferred stock into common equity could result in a severe dilution in the value of the holdings of non government shareholders. The plan for warrants represents an attempt to cushion the blow.
People involved with the restructuring plan, developed over several months by AIG, the New York Fed and the Treasury, have been surprised at the resilience of AIG stock.
Japanese business optimism grows
By Lindsay Whipp in Tokyo and Justine Lau in Hong Kong
Copyright The Financial Times Limited 2010
Published: September 29 2010 03:18 | Last updated: September 29 2010 11:50
http://www.ft.com/cms/s/0/b545a012-cb69-11df-95c0-00144feab49a.html
Japanese manufacturers were more optimistic about business conditions in September than economists had expected, but the Bank of Japan’s closely watched quarterly Tankan business survey has painted a gloomy picture ahead.
Chinese manufacturers were also upbeat about business in a separate survey which should help ease fears of a hard landing. China’s economy is set to overtake Japan’s in annual output for the first time this year while the latter battles to maintain anaemic growth.
The surprise optimism among businesses in Japan was helped by the remaining effects of economic stimulus and other extraordinary factors such as the hot weather, economists said. However, lacklustre underlying demand exacerbated by years of deflation has taken its toll on the domestic economy over the years, leaving it a less attractive business destination compared with its emerging market neighbours.
The government is planning a supplementary budget of around $55bn to shore up the domestic economy and help create jobs. Economists say the economy needs long-term structural reforms and corporate tax reform to spur a domestic revival.
“Breakfast in the Orchid room at the Okura [Hotel] used to be a who’s who [of international business people],” said Steve Bernstein, chief executive of Oppenheimer Investments Asia over in Japan on a business trip. “A few weeks ago it was almost empty.”
The survey of business conditions, released on Wednesday, put large manufacturers’ confidence at 8 on a diffusion index. A positive number reflects an excess of optimists over pessimists. Economists had expected a survey result of 6.
The Tankan forecasts a return to pessimistic territory of minus 1 in the coming months after registering only two quarters of optimism since mid-2008.
HSBC’s China purchasing managers’ index rose from 51.9 in August to a five-month-high of 52.9 this month, thanks to higher survey readings of production and new business. In July, the index fell below the key 50 threshold which separates expansion from contraction.
The downbeat outlook by Japanese businesses underscores the challenges that companies face improving profits in the face of slowing underlying demand in some of Japan’s most important export markets, with the additional pain of the yen’s persistent gains to 15-year highs, while domestic demand looks lacklustre.
Exporters worry about losing competitiveness in major markets, particularly to peers in South Korea and Germany which have had the advantage of weaker currencies, the former of which has benefited from intermittent intervention.
Japan’s finance ministry intervened in the markets for the first time in more than six years earlier this month, but the currency has since been creeping back toward the pre-intervention high.
Tankan respondents have accordingly adjusted their exchange rate expectations higher since the last survey in June, forecasting the yen will trade at an average Y89.44 against the US dollar between October and next March.
This rate however would be much lower than the current Y83.71 and the average market rate of Y88.99 seen since April, suggesting that there is room for further damage to sentiment, economists said.
The pessimistic outlook does not mean the economy is headed back into recession, just slower growth, some economists stressed. This is mainly because employment conditions and production capacity have not worsened.
However, all eyes will be on the Bank of Japan early next month to see if it introduces additional easing, following a local report saying it is considering new measures. Governor Masaaki Shirakawa reiterated earlier in the week that the central bank will take appropriate measures if necessary.
Barclays Capital said the Tankan results alone did not call for additional monetary easing. But Kyohei Morita, chief Japan economist, said there was a 60 per cent chance that the central bank would take further easing measures because of “yen appreciation, deteriorating consumer/business sentiment, slowing exports, pressures to coordinate with fiscal policy and the possibility of additional easing by the Fed”. The latter could result in further dollar weakness.
BA, Iberia and AA set to start sharing revenue
By John O’Doherty
Copyright The Financial Times Limited 2010
Published: September 29 2010 09:17 | Last updated: September 29 2010 09:41
http://www.ft.com/cms/s/0/f3a0852a-cb96-11df-a4f5-00144feab49a.html
The long-awaited revenue-sharing agreement between British Airways, Iberia and American Airlines could begin as early as next week, after BA announced on Wednesday that the final agreement to begin the venture had now been signed.
Under the terms of the agreement, a share of the revenue from a transatlantic flight booked by one of the three carriers will redound to that carrier, even if the flight is not ultimately operated by that carrier.
The commercial co-operation will extend to all transatlantic flights operated by the three airlines on routes between Mexico, Canada or the US; and all countries in the European Union as well as Norway and Switzerland. The three airlines estimate the combined value of their transatlantic business is worth $7bn (£4.4bn) in annual revenues.
The revenue sharing will begin in October, although British Airways declined to specify the exact date.
The agreement will help place the Oneworld alliance, of which Iberia, American and BA are part, on an equal footing with other airline alliances, such as Star Alliance and SkyTeam.
Both Star and SkyTeam have already received approval from the US Department of Transport to operate a transatlantic consortium, and have been doing so for years, although those partnerships are operating without the approval of European regulators, who are examining the deals.
Oneworld secured approval from the US Department of Transport in February of this year. The final hurdle for the transatlantic deal came in July, when competition authorities in Brussels approved the tie-up.
That approval from Brussels came at the same time as another decision approving the separate issue of an outright merger between BA and Iberia.
Shares in BA rose 0.4 per cent, or 1p, to 246.2p in early trading; and in Madrid, shares in Iberia gained 0.2 per cent, or less that a cent, to €2.88.
Europe struggles as China factory data lift Asia
By Jamie Chisholm in London and Song Jung-a in Seoul
Copyright The Financial Times Limited 2010
Published: September 27 2010 03:47 | Last updated: September 29 2010 14:20
http://www.ft.com/cms/s/0/4dd71c22-c9dd-11df-b3d6-00144feab49a.html
Wednesday 13:00 BST. European stocks are struggling to make headway as investors seem reluctant to load up on riskier assets as a strong quarter draws to a close.
A firm showing in Asia has helped push the FTSE All-World equity index up 0.3 per cent to a near five-month high and gold has hit a new record, with investors in both assets exercised by hopes and fears respectively about what further central bank quantitative easing could mean for the investing environment.
The All-World has risen 14 per cent since the start of July – primarily on hopes that the US economy can avoid a double-dip, and the Federal Reserve stands ready to help if required – and wary traders recognise that such a gain may tempt some fund managers into a bout of profit-taking in the past few days of the quarter.
US equity futures are lower by 0.1 per cent and Treasuries little changed. The FTSE Eurofirst 300 stock index is down 0.2 per cent, despite news of a surprising uptick in eurozone business sentiment.
The european banks index is down 1 per cent on nagging concerns about the sector’s health, even though institutions needed to borrow less than was expected at the ECB’s latest longer-term refinancing operation – a trend that would usually demonstrate diminished stress in the system.
The FTSE 100 in London is off 0.1 per cent and Madrid is lower by 0.8 per cent as Spain suffers a general strike.
The Market Eye
Some people have suddenly gone very bearish on volatility – and by implication, pretty bullish on stocks. The put/call options ratio for the CBOE’s Vix, a measure of expected equity market volatility, on Tuesday spiked to 2.83, compared to an average of 0.75 over the past 12 months. This may mean there has been a sharp net rise in those who think the Vix will shortly move lower from its current level around 22, a trend that usually coincides with a rising stock market. It’s a bold bet given the S&P 500’s storming September and October’s reputation for scares.
Factors to Watch. A thin day for economic data later in the global session, with little of note on the slate from the US. Television images of European anti-austerity strikes may knock sentiment, while later lawmakers on Capitol Hill will vote on whether to pass a bill to put pressure on China to allow the renminbi to rise – a move that could exacerbate trade tensions.
Asia-Pacific. Stock markets moved higher, taking their lead from a firm finish on Wall Street and after the Bank of Japan’s Tankan survey shows better-than-expected business sentiment. A better-than-expected performance by China’s manufacturing sector in September has added to the positive mood.
The FTSE Asia-Pacific index is up 0.8 per cent to a five-month high and Japan’s Nikkei 225 climbed 0.7 per cent, with gains curtailed by a strengthening yen. South Korea’s Kospi rose 0.6 per cent higher. However, Australia’s S&P/ASX 200 has edged down 0.5 per cent, with banks proving a drag on fears the market for mortgages was slowing. New Zealand’s NZX 50 has lost 0.1 per cent.
Chinese stocks were mixed despite news that HSBC’s China Purchasing Managers’ index showed that manufacturing expanded faster this month than in August, reducing fears that recent monetary tightening had hobbled the sector. The Shanghai Composite index fell just 0.03 per cent, while Hong Kong added 1.2 per cent, the latter happier to follow the global trend.
Rates. Core government bonds are steady following their strong advance over the last few sessions.
A US auction of five-year notes on Tuesday saw a record low yield of 1.26 per cent, with strong bidding from direct and indirect bidders, suggesting a large fundamental demand for the bonds. In trading, they fell 6 basis points to 1.23 per cent, an all-time low, but are today at 1.26 per cent.
Ten-year US bond yields are up 1bp at 2.48 per cent, close to the lowest yield since January 2009. The US will auction $29bn of new seven-year notes later on Wednesday.
Ten-year gilt yields, which fell sharply on Tuesday after Adam Posen of the Bank of England’s monetary policy committee said it was time for more quantitative easing, are down 1bp to 2.92 per cent following news UK service sector output fell for a second month running in July.
Japanese government 10-year yields are down 3bp to 0.93 per cent, just 2bp shy of a seven-year low, as investors price in the chances of more stimulus measures to revive the economy.
Irish, Portuguese and Greek benchmark yields are little changed, but still near record highs, as fiscal worries linger.
Forex. The yen seems to have used the kerfuffle surrounding talk of currency wars and the dollar’s QE-induced slide to eight-month lows to slip furtively back below the Y84 level versus the buck. The move is unlikely to have gone unnoticed by Japan’s Ministry of Finance, however, and traders will be on their toes for any further bout of intervention to weaken the yen.
Today the Japanese unit is up 0.3 per cent to Y83.62 against the dollar and up 0.3 per cent to Y113.79 versus the euro. The US dollar index – which tracks the buck against a basket of its peers – is down 0.2 per cent to 78.78, close to eight-month lows.
Commodities. Gold has hit another nominal high, printing a spot trade at $1,313.20 an ounce in Asian dealing. It is currently up 0.1 per cent at $1,308 as some in the market forecast that investors’ loss of faith in central banks will deliver further strong gains for the bullion over coming months. Silver has breached $22 an ounce, a fresh 30-year peak, and is now trading at $21.80.
The positive manufacturing report out of China has lent support to industrial metals. Copper is up 0.6 per cent at $8,030 a tonne, the first time it has cracked the $8,000 mark since April. Oil is up 0.2 per cent at $76.33 a barrel ahead of US inventory data published later today.
Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos
Currencies clash in new age of beggar-my-neighbour
By Martin Wolf
Copyright The Financial Times Limited 2010
Published: September 28 2010 22:46 | Last updated: September 28 2010 22:46
http://www.ft.com/cms/s/0/9fa5bd4a-cb2e-11df-95c0-00144feab49a.html
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.” This complaint by Guido Mantega, Brazil’s finance minister, is entirely understandable. In an era of deficient demand, issuers of reserve currencies adopt monetary expansion and non-issuers respond with currency intervention. Those, like Brazil, who are not among the former and prefer not to copy the latter, find their currencies soaring. They fear the results.
This is not the first time for such currency conflicts. In September 1985, now 25 years ago, the governments of France, West Germany, Japan, the US and the UK met at the Plaza Hotel in New York and agreed to push for depreciation of the US dollar. Earlier still, in August 1971, the US president Richard Nixon imposed the “Nixon shock”, levying a 10 per cent import surcharge and ending dollar convertibility into gold. Both events reflected the US desire to depreciate the dollar. It has the same desire today. But this time is different: the focus of attention is not a compliant ally, such as Japan, but the world’s next superpower: China. When such elephants fight, bystanders are likely to be trampled.
First, as a result of the crisis, the developed world is suffering from chronically deficient demand. In none of the six biggest high-income economies – the US, Japan, Germany, France, the UK and Italy – was gross domestic product in the second quarter of this year back to where it was in the first quarter of 2008. These economies are now operating at up to 10 per cent below their past trends. One indication of the excess supply is the decline in core inflation to close to 1 per cent in the US and the eurozone: deflation beckons. These countries hope for export-led growth. This is true both of those with trade deficits (such as the US) and of those with surpluses (such as Germany and Japan). In aggregate, however, this can only happen if emerging economies shift towards current account deficit.
Second, private sectors are working in just this direction. In its April forecasts (soon to be updated), the Washington-based Institute for International Finance suggested that this year the net flow of external private finance into the emerging countries would be $746bn (see chart). This would be partially offset by a net private outflow from these countries of $566bn. Nevertheless, with a current account surplus of $320bn as well, and modest official capital inflows, the external balance of the emerging world, without official intervention, would be a surplus of $535bn. But, without the intervention, that could not happen: the current account must balance the net capital flow. The adjustment would go via a higher exchange rate. In the end, the emerging world would run a current account deficit financed by a net inflow of private capital from the high-income countries. Indeed, that is precisely what one would expect to happen.
Third, this natural adjustment continues to be thwarted by the build-up of foreign currency reserves,. These sums represent an official capital outflow (see chart). Between January 1999 and July 2008, the world’s official reserves rose from $1,615bn to $7,534bn – a staggering increase of $5,918bn. This increase was, one might argue, a form of self-insurance after earlier crises. Indeed, reserves were used up during this crisis: they shrank by $472bn between July 2008 and February 2009. No doubt, this helped countries without reserve currencies cushion the impact. But this use of reserves was a mere 6 percent of the pre-crisis level. Moreover, between February 2009 and May 2010, reserves rose by another $1,324bn, to reach close to $8,385bn. Mercantilism lives!
China is overwhelmingly the dominant intervener, accounting for 40 per cent of the accumulation since February 2009. By June 2010, its reserves had reached $2,450bn, 30 per cent of the world total and a staggering 50 per cent of its own GDP. This accumulation must be viewed as a huge export subsidy.
Never in human history can the government of one superpower have lent so much to that of another. Some argue – Komal Sri-Kumar of the Trust Company of the West, in Tuesday’s Financial Times, for example – that such management of the exchange rate is not manipulative, contrary to views in the US Congress, since adjustment can occur via “changes in domestic costs and prices”. This argument would be more convincing if China had not worked hard and successfully to suppress the natural monetary and so inflationary consequences of its intervention. In the meantime, the inevitable adjustment towards current account deficits in the emerging world is being shifted on to countries that are both attractive to capital inflows and unwilling or unable to intervene in the currency markets on the needed scale. Poor Brazil! Could we even be seeing the starting gun for the next emerging market financial crisis?
John Connally, Nixon’s secretary of the Treasury, famously told the Europeans that the dollar “is our currency, but your problem”. The Chinese respond in kind. In the absence of currency adjustments, we are seeing a form of monetary warfare: in effect, the US is seeking to inflate China, and China to deflate the US. Both sides are convinced they are right; neither is succeeding; and the rest of the world suffers.
It is not hard to see China’s point of view: it is desperate to avoid what it views as the dire fate of Japan after the Plaza accord. With export competitiveness damaged by its soaring currency and pressured by the US to reduce its current account surplus, Japan chose not the needed structural reforms, but a huge monetary expansion, instead. The consequent bubble helped deliver the “lost decade” of the 1990s. Once a world-beater, Japan fell into the doldrums. For China, self-evidently, any such outcome would be a catastrophe. At the same time, it is difficult to envisage a robust configuration of the world economy without large net capital flows from the high-income countries to the rest. Yet it is also hard to imagine that happening, on a sustainable basis, if the world’s biggest and most successful emerging economy is also its largest net exporter of capital.
What is needed is a route to these needed global adjustments. That will demand not just a will to co-operate that now seems sorely lacking, but greater imagination about both domestic and international reforms. I would like to be optimistic. But I am not: a world of beggar-my-neighbour policy is most unlikely to end well.
martin.wolf@ft.com
Dubai’s Emaar to launch $375m bond
By Simeon Kerr in Dubai, Robin Wigglesworth in Abu Dhabi and Anousha Sakoui in London
Copyright The Financial Times Limited 2010
Published: September 29 2010 13:20 | Last updated: September 29 2010 14:20
http://www.ft.com/cms/s/0/f8e19118-cbbf-11df-a4f5-00144feab49a.html
Dubai’s Emaar Properties is set to launch a convertible bond of $375m with an option up to $500m, as the real estate company seeks to bolster its finances amid a continuing property slump in the emirate, people aware of the matter say.
The five-year bond, with indicative pricing of 7.25-8.25 per cent, has received strong interest, two people involved in the deal say. The conversion premium is 20-30 per cent.
The property giant, which drove the growth of the real estate market after the emirate opened to foreigners in 2003, has weathered the Dubai financial crisis better than other developers. But it remains affected by the real estate crash, which has seen valuations at least halved since 2008.
“The money will be used to pay back some of its short-term debt and general company spending,” said one person aware of the deal. “It may be mildly dilutive to shareholders but it is cheap debt,” he added.
Details of the transaction have yet to be released. The company declined to comment.
Emaar, the most widely traded stock on the Dubai Financial Market, is expected to announce the issue – the first convertible bond in the UAE since 2008 – later on Wednesday.
The developer, which built the Burj Khalifa tower in central Dubai, the world’s highest, has expanded into other markets, including an ill-fated foray into the US via John Laing Homes. In June the developer handed over non-Middle Eastern rights to Hamptons International, a property agency, to Countrywide, a UK estate agency.
The move comes amid rising optimism about Dubai’s ability to access credit markets as the government prices a $1.25bn bond on Wednesday.
But the extent of oversupply in the real estate market remains one of the city’s biggest headaches as it tries to forge an economic recovery.
Consultants believe that demand is unlikely to match supply for the next few years, potentially driving prices lower.
The government says the real estate regulator is cancelling 495 projects, around half of the total planned in the city.
Courts are full of hearings launched by buyers and contractors battling developers in an attempt to recover funds from properties that look like they may never be completed.
Junk buying fuels ‘yield chasing’ fears
By Aline van Duyn in New York
Copyright The Financial Times Limited 2010
Published: September 28 2010 20:26 | Last updated: September 28 2010 20:26
http://www.ft.com/cms/s/0/fd58cb58-cb33-11df-95c0-00144feab49a.html
Retail investors in the US have sharply increased their direct buying of junk bonds in the third quarter of the year, providing evidence of a trend of “yield chasing” that is worrying regulators.
Finra, which regulates US securities firms, said the trend was a concern given the risks involved in this part of the corporate bond market.
Corporate bond trading activity analysed by Finra shows that the ratio of buying relative to selling of junk bonds by retail investors has jumped in the last quarter. Junk bonds, also called high-yield bonds, are sold by companies with ratings below investment grade, a category which has a higher risk of default.
For retail trades, defined by Finra as transactions of $100,000 or less, this “buy-sell trade ratio” jumped to over 1.2 in the third quarter, more than double the level it was at in the second quarter.
In contrast, the high-yield “buy-sell trade ratio” for institutional investors fell in the third quarter to close to zero, indicating a more “neutral” stance towards junk bonds by professional investors than their retail counterparts, Finra said.
Steve Joachim, executive vice president at Finra, said the strong buying by retail investors was a “concerning trend” because of the impact on these investors’ investment portfolios “when the market does turn”.
“Investors are doing some yield chasing,” Mr Joachim said. He added that Finra had already reminded bond dealers of their duties to warn investors of risks.
This included alerting investors to factors which might affect the value of corporate bonds, such as changes in credit ratings.
Mr Joachim, speaking last week at a Bond Dealers of America conference in Dallas, said the daily trading volumes by retail investors had also risen sharply.
He said the average number of daily high-yield bond trades had more than doubled since the beginning of 2009 to over 4,000 per day. Average daily retail trades of investment grade corporate bonds had fallen in that period from over 18,000 per day to 12,000.
Record low official interest rates and plunging yields on US government bonds has led to a sharp increase in investor demand for corporate bonds. Investors have put a record amount of money into funds investing in corporate bonds and companies have sold record amounts of new debt to tap into this.
The poor performance of equity markets in the last decade has fuelled this trend as investors seek a regular stream of income and assets that are more likely to retain their value.
Even though the yields paid on high yield bonds are close to historic lows, the average yield pick-up paid by companies relative to US Treasury debt remains higher than before the credit crisis.
AIG ready to discuss Treasury exit plan
By Tom Braithwaite in Washington and Francesco Guerrera in New York
Copyright The Financial Times Limited 2010
Published: September 29 2010 00:23 | Last updated: September 29 2010 00:23
http://www.ft.com/cms/s/0/b1eed1fa-cb27-11df-95c0-00144feab49a.html
AIG’s board is set to finalise a restructuring plan on Wednesday that would increase the US Treasury’s stake in the insurer to about 90 per cent as a step toward an eventual government exit.
People close to the situation said AIG directors were expected to formally discuss for the first time the Treasury’s plan to convert $49bn in preferred shares into common stock. This would raise the government’s stake from the current 80 per cent, while diluting the holdings of existing shareholders.
To make up for this dilution, the government would offer the outside shareholders warrants giving them the right to buy AIG shares in the future at a discount to the current price.
People familiar with the situation said the plans were fluid but added that issuing warrants, rather than common stock, would enable AIG to keep its share count down while offering some solace to diluted shareholders.
“This would give other people the chance to buy shares on the cheap as well,” said a person familiar with the deal. A second person familiar with the plan said the warrants would pay off only after the government had made money.
The Treasury is expected to sell its AIG stock in the market over a period, as it has with its investment in Citigroup. AIG and the Treasury declined to comment.
Approval of the plan by the AIG board would mark a significant step in freeing the insurer of government control and repaying taxpayers for the $182bn of public money used to buttress the group at the peak of the crisis in 2008.
Official estimates of the government’s ultimate loss range from $36bn to $50bn but AIG executives and officials hope the plan will deliver a better outcome. The restructuring includes the repayment of loans to the New York Federal Reserve Bank, partly with proceeds from next month’s planned initial public offering of Asian subsidiary AIA.
The plan comes as the Treasury this week prepares to end payments from the $700bn troubled asset relief programme and announce that it now expects a much lower loss, and perhaps even a profit, on the investments that helped shore up the financial system in 2008 and 2009.
AIG has warned investors in filings that the conversion of the government’s preferred stock into common equity could result in a severe dilution in the value of the holdings of non government shareholders. The plan for warrants represents an attempt to cushion the blow.
People involved with the restructuring plan, developed over several months by AIG, the New York Fed and the Treasury, have been surprised at the resilience of AIG stock.
Japanese business optimism grows
By Lindsay Whipp in Tokyo and Justine Lau in Hong Kong
Copyright The Financial Times Limited 2010
Published: September 29 2010 03:18 | Last updated: September 29 2010 11:50
http://www.ft.com/cms/s/0/b545a012-cb69-11df-95c0-00144feab49a.html
Japanese manufacturers were more optimistic about business conditions in September than economists had expected, but the Bank of Japan’s closely watched quarterly Tankan business survey has painted a gloomy picture ahead.
Chinese manufacturers were also upbeat about business in a separate survey which should help ease fears of a hard landing. China’s economy is set to overtake Japan’s in annual output for the first time this year while the latter battles to maintain anaemic growth.
The surprise optimism among businesses in Japan was helped by the remaining effects of economic stimulus and other extraordinary factors such as the hot weather, economists said. However, lacklustre underlying demand exacerbated by years of deflation has taken its toll on the domestic economy over the years, leaving it a less attractive business destination compared with its emerging market neighbours.
The government is planning a supplementary budget of around $55bn to shore up the domestic economy and help create jobs. Economists say the economy needs long-term structural reforms and corporate tax reform to spur a domestic revival.
“Breakfast in the Orchid room at the Okura [Hotel] used to be a who’s who [of international business people],” said Steve Bernstein, chief executive of Oppenheimer Investments Asia over in Japan on a business trip. “A few weeks ago it was almost empty.”
The survey of business conditions, released on Wednesday, put large manufacturers’ confidence at 8 on a diffusion index. A positive number reflects an excess of optimists over pessimists. Economists had expected a survey result of 6.
The Tankan forecasts a return to pessimistic territory of minus 1 in the coming months after registering only two quarters of optimism since mid-2008.
HSBC’s China purchasing managers’ index rose from 51.9 in August to a five-month-high of 52.9 this month, thanks to higher survey readings of production and new business. In July, the index fell below the key 50 threshold which separates expansion from contraction.
The downbeat outlook by Japanese businesses underscores the challenges that companies face improving profits in the face of slowing underlying demand in some of Japan’s most important export markets, with the additional pain of the yen’s persistent gains to 15-year highs, while domestic demand looks lacklustre.
Exporters worry about losing competitiveness in major markets, particularly to peers in South Korea and Germany which have had the advantage of weaker currencies, the former of which has benefited from intermittent intervention.
Japan’s finance ministry intervened in the markets for the first time in more than six years earlier this month, but the currency has since been creeping back toward the pre-intervention high.
Tankan respondents have accordingly adjusted their exchange rate expectations higher since the last survey in June, forecasting the yen will trade at an average Y89.44 against the US dollar between October and next March.
This rate however would be much lower than the current Y83.71 and the average market rate of Y88.99 seen since April, suggesting that there is room for further damage to sentiment, economists said.
The pessimistic outlook does not mean the economy is headed back into recession, just slower growth, some economists stressed. This is mainly because employment conditions and production capacity have not worsened.
However, all eyes will be on the Bank of Japan early next month to see if it introduces additional easing, following a local report saying it is considering new measures. Governor Masaaki Shirakawa reiterated earlier in the week that the central bank will take appropriate measures if necessary.
Barclays Capital said the Tankan results alone did not call for additional monetary easing. But Kyohei Morita, chief Japan economist, said there was a 60 per cent chance that the central bank would take further easing measures because of “yen appreciation, deteriorating consumer/business sentiment, slowing exports, pressures to coordinate with fiscal policy and the possibility of additional easing by the Fed”. The latter could result in further dollar weakness.
BA, Iberia and AA set to start sharing revenue
By John O’Doherty
Copyright The Financial Times Limited 2010
Published: September 29 2010 09:17 | Last updated: September 29 2010 09:41
http://www.ft.com/cms/s/0/f3a0852a-cb96-11df-a4f5-00144feab49a.html
The long-awaited revenue-sharing agreement between British Airways, Iberia and American Airlines could begin as early as next week, after BA announced on Wednesday that the final agreement to begin the venture had now been signed.
Under the terms of the agreement, a share of the revenue from a transatlantic flight booked by one of the three carriers will redound to that carrier, even if the flight is not ultimately operated by that carrier.
The commercial co-operation will extend to all transatlantic flights operated by the three airlines on routes between Mexico, Canada or the US; and all countries in the European Union as well as Norway and Switzerland. The three airlines estimate the combined value of their transatlantic business is worth $7bn (£4.4bn) in annual revenues.
The revenue sharing will begin in October, although British Airways declined to specify the exact date.
The agreement will help place the Oneworld alliance, of which Iberia, American and BA are part, on an equal footing with other airline alliances, such as Star Alliance and SkyTeam.
Both Star and SkyTeam have already received approval from the US Department of Transport to operate a transatlantic consortium, and have been doing so for years, although those partnerships are operating without the approval of European regulators, who are examining the deals.
Oneworld secured approval from the US Department of Transport in February of this year. The final hurdle for the transatlantic deal came in July, when competition authorities in Brussels approved the tie-up.
That approval from Brussels came at the same time as another decision approving the separate issue of an outright merger between BA and Iberia.
Shares in BA rose 0.4 per cent, or 1p, to 246.2p in early trading; and in Madrid, shares in Iberia gained 0.2 per cent, or less that a cent, to €2.88.
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