Life in OUR America, The Livyjr Files Volume 7 Options

[Livyjr]

"AP - Britain Nationalizes Northern Rock"

Sunday February 17, 12:51 pm ET

By David Stringer, Associated Press Writer

LONDON (AP) -- Treasury chief Alistair Darling said Sunday struggling bank Northern Rock PLC will be nationalized, after the government rejected two private takeover bids.

Darling told a news conference that the ailing mortgage lender would be placed under temporary public ownership because both bids had failed to meet the government's criteria for protecting taxpayers.

"The new board and the company will operate at arm's length from the government, with complete commercial autonomy for their decisions," Darling said.

He said Prime Minister Gordon Brown had agreed nationalization was the best solution available.

"Under the approach we are taking, the taxpayer will see its outstanding loans to Northern Rock repaid in full, with interest -- and that the business can be returned to the private sector as financial markets stabilize," he told the news conference.

He said neither of two private proposals -- from Richard Branson's Virgin Group and an in-house bid from the bank's management team -- "delivered sufficient value for money to the taxpayer."

The government had said more than 25 billion pounds ($49 billion) in government loans must be paid back within three years.

Darling said the two private proposals involved risks for taxpayers and very significant government subsidy.

Both also involved bidders paying below the market rate while the government continued to provide guarantees and financing.

Branson criticized the government's decision to nationalize the bank.

"We believe nationalization is not the right answer and that a commercial solution would have been the best way forward," Branson said in a statement.

Northern Rock ran into trouble in September because it relied too heavily on short-term money markets instead of deposits for funding.

A subsequent profit warning and appeal to the Bank of England for an emergency loan led to the first run on a British bank since 1866.

The government had been in the middle of an auction process to find a private buyer for Northern Rock, with revised bids submitted this weekend by Virgin and the in-house management team.

Darling had a deadline of March 17 to choose between the bids and nationalization.

That is the date when he must submit a restructuring plan to the European Union for state aid approval.

Before markets open on Monday, authorities were expected to announce the company's shares will be suspended, Darling said.

Darling said he will announce to Parliament on Monday afternoon legislation enabling the government to acquire the bank's shares and assets.

An independent valuer will determine what the government must pay for the company.

Darling said the legislation was drafted to ensure a bank can only be acquired in certain tightly defined circumstances -- and that power will only last for 12 months.

Corporate troubleshooter Ron Sandler has been appointed executive chairman of the newly nationalized bank, Darling said.

He was due to travel to the bank's headquarters in Newcastle, northern England, on Monday to meet with the bank's employees and management.

An ex-head of Lloyd's of London insurers, Sandler is regarded as close to Prime Minister Gordon Brown.

He also has previously helped the Treasury on pension policies.

Sandler told reporters that he expected the bank to be slimmed down to a "more sustainable size," but declined to comment on possible job cuts.

AP reporter D'Arcy Doran in London contributed to this report.

On the Net: http://www.northernrock.com

[Livyjr]

"Some homeless squat in foreclosed houses"

By THOMAS J. SHEERAN, Associated Press

Last updated: 2:32 p.m., Sunday, February 17, 2008

CLEVELAND -- The nation's foreclosure crisis has led to a painful irony for homeless people: On any given night they are outnumbered in some cities by vacant houses.

Some street people are taking advantage of the opportunity by becoming squatters.

Foreclosed homes often have an advantage over boarded-up and dilapidated houses abandoned because of rundown conditions: Sometimes the heat, lights and water are still working.

"That's what you call convenient," said James Bertan, 41, an ex-convict and self-described "bando," or someone who lives in abandoned houses.

While no one keeps numbers of below-the-radar homeless finding shelter in properties left vacant by foreclosure, homeless advocates agree the locations -- even with utilities cut off -- would be inviting to some.

There are risks for squatters, including fires from using candles and confrontations with drug dealers, prostitutes, copper thieves or police.

"Many homeless people see the foreclosure crisis as an opportunity to find low-cost housing (FREE!) with some privacy," Brian Davis, director of the Northeast Ohio Coalition for the Homeless, said in the summary of the latest census of homeless sleeping outside in downtown Cleveland.

The census had dropped from 40 to 17 people.

Davis, a board member of the National Coalition for the Homeless, cited factors including the availability of shelter in foreclosed homes, aggressive sidewalk and street cleaning and the relocation of a homeless feeding site.

He said there are an average 4,000 homeless in Cleveland on any given night.

There are an estimated 15,000 single-family homes vacant due to foreclosure in Cleveland and suburban Cuyahoga County.

In Texas, Larry James, president and chief executive officer of Central Dallas Ministries, said he wasn't surprised that homeless might be taking advantage of vacant homes in residential neighborhoods beyond the reach of his downtown agency.

"There are some campgrounds and creek beds and such where people would be tempted to walk across the street or climb out of the creek bed and sneak into a vacant house," he said.

Bertan, who doesn't like shelters because of the rules, said he has been homeless or in prison for drugs and other charges for the past nine years.

He has noticed the increased availability of boarded-up homes amid the foreclosure crisis.

He said a "fresh building" -- recently foreclosed -- offered the best prospects to squatters.

"You can be pretty comfortable for a little bit until it gets burned out," he said as he made the rounds of the annual "stand down" where homeless in Cleveland were offered medical checkups, haircuts, a hot meal and self-help information.

Shelia Wilson, 50, who was homeless for years because of drug abuse problems, also has lived in abandoned homes, and for the same reason as Bertan: She kept getting thrown out of shelters for violating rules.

"Every place, I've been kicked out of because of drugs," she said.

Michael Stoops, acting executive director of the National Coalition for the Homeless, hasn't seen evidence of increased homeless moving into foreclosed homes but isn't surprised.

He said anecdotal evidence -- candles burning in boarded-up homes, a squatter killed by a fire set to keep warm -- shows the determination of the homeless to find shelter.

Davis said Cleveland's high foreclosure rate and the proximity of downtown shelters to residential neighborhoods has given the city a lead role in the homeless/foreclosure phenomenon.

Many cities roust homeless from vacant homes, which more typically will be used by drug dealers or prostitutes than a homeless person looking for a place to sleep, Stoops said.

Police across the country must deal with squatters and vandalism involving vacant homes:

-- In suburban Shaker Heights, which has $1 million homes on wide boulevards, poorer neighborhoods with foreclosed homes get extra police attention.

-- East of San Francisco, a man was arrested in November on a code violation while living without water service in a vacant home in Manteca, Calif., which has been hit hard by the foreclosure crisis.

-- In Cape Coral, Fla., a man arrested in September in a foreclosed home said he had been living there since helping a friend move out weeks earlier.

Bertan and Wilson agreed that squatting in a foreclosed home can be dangerous because the locations can attract drug dealers, prostitutes and, eventually, police.

William Reed, 64, a homeless man who walks with a cane, thumbed through a shoulder bag holding a blue-bound Bible, notebooks with his pencil drawings and a plastic-wrapped piece of bread as he sat on a retainer wall in the cold outside St. John Cathedral in downtown Cleveland.

He's gone inside empty homes but thinks it's too risky to spend the night.

Even the inviting idea of countless foreclosed empty homes didn't overcome the possible risk of entering a crack house.

"Their brains could be burned up," said Reed, who didn't want to detail where he sleeps at night.

Sometimes it's hard to track where the homeless go.

In Philadelphia, the risk is too great to send case workers into vacant homes to check for homeless needing help, said Ed Speedling, community liaison with Project H.O.M.E.

"We're very, very wary of going inside."

"There's danger."

"I mean, if the floor caves in."

"There's potential danger: Sometimes they are still owned by someone," Speedling said.

William Walker, 57, who was homeless for seven years and now counsels drifters at a sprawling warehouse-turned-shelter overlooking Lake Erie, has seen people living in foreclosed homes in his blue-collar neighborhood in Cleveland.

He estimated that three or four boarded-up homes in his neighborhood have homeless living there from time to time.

Sometimes homeless men living in tents in a nearby woods disappear from their makeshift homes, Walker said.

"The guys who were there last year are not there now."

"Are they in the (foreclosed) homes?"

"I don't know."

"They are just not in their places," Walker said.

------

On the Net:

NE Ohio Coalition for Homeless: http://www.neoch.org

[Livyjr]

"Creditor plan approved for First Magnus"

Associated Press

Last updated: 10:22 p.m., Saturday, February 16, 2008

TUCSON, Ariz. -- A federal judge has approved a plan that will let bankrupt mortgage lender First Magnus Financial Corp. repay its creditors, bringing the company's ex-employees a step closer to getting their final paychecks.

Judge James Marlar authorized First Magnus on Friday to complete plans to begin repaying creditors, the Arizona Daily Star reported.

Adequate cash will have to be raised from asset sales before employees can be paid, court documents show.

First Magnus representatives have told Marlar they expect employees will receive their full wages up to a $10,000 limit per person.

The company owes former workers about $13 million.

Other unsecured creditors may receive as little as 10 cents on the dollar under the plan, company executives said in bankruptcy hearings.

Tucson-based First Magnus shut down operations in mid-August amid a credit crunch and filed for bankruptcy without paying its roughly 5,500 laid-off workers.

First Magnus' plan puts liquidation of the company in the hands of a board of creditors and two trustees selected by the company and its attorneys.

[Livyjr]

"Economic woes reveal a long-felt unease"

By ADAM GELLER, Associated Press

Last updated: 5:12 a.m., Monday, February 18, 2008

Even when experts were declaring the economy healthy, many Americans voiced a vague, but persistent dissatisfaction.

True, jobs were relatively plentiful over the last few years.

It was easy to borrow and very cheap.

The sharp rise in the value of homes and plentiful credit cards encouraged a nation of consumers to get out and buy.

But to many people, something didn't feel right, even if they couldn't quite explain why.

Now the economic tide is receding, and the undertow that was there all along is getting stronger.

Take away the easy credit and consumers are left with paychecks that, for most, haven't nearly kept pace with their need and propensity to spend.

The frustration of $3 gas and $4 milk, the worries about health care costs that have risen four times the rate of pay, become much more real.

The retirement security that is only as good as the increasingly volatile stock market seems much less certain.

Americans' declining confidence in their economy is triggered by a storm of very recent pressures, including plunging home prices, tightening credit, and heavy debt.

But it is compounded by anxiety that was there all along, the result of a long, slow drip of worries and vulnerabilities.

"The economy is currently in recession or arguably close to recession and that's certainly weighing on the collective psyche," says Mark Zandi, chief economist of forecaster Moody's Economy.com.

"But ... I do think there is an increasing level of angst that is more fundamental and is not going to go away even when the economy improves."

Much of that anxiety is the uncomfortable, but expected jolt of the economic roller coaster.

During a downturn, people become less confident about keeping their jobs or being able to find new ones, meeting household expenses and about the prospects for the future.

But there may be more to it than just cyclical ups and downs.

What does the economic future hold?

Many Americans feel increasingly unable to answer that question with assurance, and they appraise it with a sense that they are less in control of the outcome.

In Westminster, Colo., a Denver suburb, George Apodaca hears that uncertainty from the maintenance workers, drivers and others enrolled in the home budgeting class he teaches.

Most have steady jobs, but are just getting by.

They talk about challenges like the rising cost of getting to work or medical bills, not as new problems but as a continuing struggle.

"People in my class, they don't know what a recession means or what a boom means," says Apodaca, a counselor for Colorado Housing Enterprises.

"They're worried about buying the groceries, buying the gas."

A year ago -- months before economic alarms went off -- nearly two of three Americans polled by The Rockefeller Foundation said that they felt somewhat or a lot less economically secure then they did a decade ago.

Half said they expected their children to face an economy even more shaky.

Other polls have registered similar unease in the past few years, showing large numbers of Americans dissatisfied with the economy, and worried about retirement security, health care costs, and a declining standard of living.

The surprising thing about many of these readings isn't that they've recently skyrocketed.

It's that in recent years they've registered consistently high levels of worry without ever seeming to ease.

"This has just been a period of great disconnect between what the aggregate economic statistics show and what leading politicians talk about and what ordinary Americans are feeling," said Jacob Hacker, a Yale University professor and author of "The Great Risk Shift," which charts increased economic insecurity.

"I think people are saying, where did the gains go?"

"Where did the boom go?"

"And now that it's gone, what are we going to do?"

Those uncertainties have been submerged for the past few years.

The war in Iraq and the threat of terrorism dominated, drawing attention away from day-to-day economic concerns.

With employers adding workers, people's appraisal of the economy focused less on jobs, the long-standing measure of financial security.

Many people gauged their well-being in wealth -- looking at the stock market, and much more broadly, the rise of real estate prices, said Susan Sterne, president of Economic Analysis Associates.

Americans borrowed freely against the value of their homes.

But now there is nothing left to shield them from the insecurities rooted in the old measures of economic prosperity.

Except for the late 1990s, pay has been stagnant for more than a generation, barely keeping pace with inflation.

In 1973, the median male worker earned $16.88 an hour, adjusted for inflation.

In 2007, he earned $16.85.

For many families, the stagnation has been moderated by the addition of a second paycheck as more women went to work, and their pay rose over the same period.

But the largest gains went to workers at the top of the pay scale.

Now, economic worries are rising fastest in households with smaller paychecks, and that chasm is widening.

"Over the past decades, whether inflation was much higher or lower, or incomes grew faster or more slowly, there has never been such a wide divergence in the experiences" separating richer households from poorer ones, Richard Curtin, the director of the University of Michigan's consumer survey said in summing up the most recent figures.

That insecurity shows in small, but telling ways.

Shoppers at drug store chain Walgreens Inc. are increasingly bypassing name-brand cough syrups and pain relievers and choosing cheaper store brands.

Wal-Mart Stores Inc noticed that many people who received its gift cards for the holidays used them in January to buy food and other necessities instead of extras.

The pullback by consumers contrasts with years of continued spending that long seemed to contradict mounting worries.

Worker optimism, which soared in the late 1990s, never fully rebounded after the last, brief recession.

Although jobs again were plentiful, it became clear the new economy's opportunities came with few of the old assurances.

Rennie Sawade, the son of a Michigan auto worker, majored in computer science because he saw no future on the assembly line.

He was rewarded with a job at Oracle Corp., but lost it in late 2005 when the company shifted his department's work to India.

Sawade, who lives in Woodinville, Wash. near Seattle, has been unable to find a full-time replacement, instead jumping from contract job to contract job.

The contractor offers a 401(k), but contributions are entirely up to workers.

When Sawade's wife was diagnosed with thyroid cancer last year he missed the equivalent of two weeks work -- and pay -- to take care of her.

The job has health insurance but still left the family with a bill for more than $2,000.

Contractors call to offer other jobs, but the pay is frequently disappointing, he says.

"It was pretty well known when I was working on my bachelor's degree that the auto industry was going to move overseas," he says.

"Everybody said get into technology because you'll have a career."

"Now it looks like the same thing is happening to technology."

Cutbacks and changes by employers also have pushed heavy responsibilities on to workers, many who find themselves unprepared.

In the past decade, scores of companies have frozen or eliminated benefit plans providing a guaranteed pension.

Many have replaced them with 401(k) plans whose future worth depends on workers' investment skill.

Almost half of all households are at risk of coming up short in retirement, according to the Center for Retirement Research at Boston College.

Worry also grew about the cost of health care, with good reason.

Since 2001, the cost of health insurance has gone up 78 percent -- about $1,500 more per year for the average family, according to the Kaiser Family Foundation.

Over the same period, wages rose about 19 percent, and inflation about 17 percent.

About four in 10 people polled by the group say they are worried about paying more for health care or insurance.

Even the consumption made possible by easy credit has helped turn up the financial pressure.

The number of products -- from air conditioners to cell phones -- that Americans say they can't live without has grown substantially in recent years, according to the Pew Research Center.

About 6 in 10 working Americans polled by the group say they don't earn enough to lead the life they want.

Economic confidence is, largely, a self-fulfilling prophecy.

The more consumers believe the economy is heading downhill, the more likely they'll rein in spending that will contribute to a downturn.

"I think if people were generally more satisfied and less anxious perhaps they would be more resistant to thinking things were deteriorating rapidly," says Andrew Kohut, president of the Pew Research Center.

Maybe the downturn in optimism is temporary.

Americans are voracious consumers and persistent optimists.

But some believe a fundamental change in behavior and mind-set is taking place.

Since the early 1980s, consumers' contribution to the economy has risen from 63 percent, near where it had long hovered, to 70 percent.

Baby boomers spent generously on growing families.

Interest rates and inflation dropped, making homes and other assets worth more and cutting borrowing costs.

The spread of easy credit promoted spending.

Now, those are drying up and the population is aging.

Older households don't spend as much, and often assess the economy more conservatively.

Over the next generation, that could drive consumers' contribution to the economy back down to the low-60 percent range, Zandi said.

"There were tail winds behind" the growth in consumer spending over the last 25 years, he says.

"Now there are headwinds."

[Livyjr]

"Wall Street braces for more volatility"

By MADLEN READ, Associated Press

Last updated: 6:52 a.m., Monday, February 18, 2008

NEW YORK -- February's stock market so far has displayed more stability than January's, but Wall Street wants to see a stronger economy on the horizon before it trades confidently again.

Investors are not counting on this week's readings on housing, inflation and manufacturing to give them that assurance.

As a result, they are bracing for more volatility.

The market has been swinging higher and lower as traders sell off when disappointing economic data rolls in and then drive the market up when they snap up stocks that look like bargains.

The pattern is indicative of a market that has underlying demand holding it up, but one that could have a bit further to fall if more bad news comes along.

After rallying early last week and then losing steam toward the end, the Dow rose 1.36 percent for the week, the Standard & Poor's 500 index gained 1.40 percent, and the Nasdaq composite index advanced 0.74 percent.

All three indexes remain down sharply for the year, particularly the Nasdaq, which is 12.5 percent lower than it was at the end of 2007.

"We may not have hit the bottom, but people seem to be looking for things to buy rather than things to dump," said Alexander Paris, economist and market analyst for Barrington Research in Chicago.

"Things might get worse before they get better, but you've got to buy stock when things look worst."

The question is whether there's any data coming in the near future that will have the power to reinvigorate the stock market back -- or whether the market is doomed to a holding pattern until the economy starts to recover.

One overriding concern is the weak housing market.

Though investors have come to terms with falling prices, there's uncertainty over how long the downturn will last and how much it will affect homeowners' spending patterns.

And there are worries about the financial well-being of companies with investments in mortgage-backed assets.

All U.S. financial markets are closed Monday for the Presidents Day holiday.

On Tuesday, the National Association of Home Builders releases its housing industry index, which economists surveyed by Thomson Financial/IFR expect to show a decline for February.

Then Wednesday, the Commerce Department reports on housing starts and building permits -- both are expected to be weak.

Because of the housing market's deterioration, many businesses are suffering.

The Institute for Supply Management's January manufacturing report showed modest growth, but economists predict that the Philadelphia Fed's regional manufacturing index will register another contraction.

The decline is not expected to be as dismal as the December report, which caused the Dow to tumble more than 300 points a month ago, but if it is, it could send stocks reeling again.

Another worry is the inflation that is occurring alongside the economic slowdown.

The dollar's recent tumble appears to have plateaued, but it is still weak, while food and energy costs are staying high.

Consumers are finding themselves unable to spend money on discretionary items because the bulk of their wages is going toward necessities like meals, transportation and health care.

The Labor Department reports Wednesday on consumer prices, which economists predict ticked up 0.3 percent in January, the same rate as in December.

Core consumer prices, which exclude food and energy costs, are anticipated to have risen by 0.2 percent.

Also Wednesday, the Federal Reserve releases the minutes from its Jan. 29-30 meeting.

At that meeting, the central bank lowered the key interest rate by a half point to 3.00 percent and stated that the financial markets are still under considerable stress.

The Fed also said credit is tightening for businesses and households alike, the housing contraction appears to be deepening, and the job market seems to be weakening.

"It seems to be, as the data unfolds, they'll have no choice but to cut further," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

He added, though, that given how much policy makers have already slashed rates and their persistent worries about inflation, "they don't have much more to go."

The Jan. 30 move followed an emergency three-quarter-point reduction a week earlier, and three cuts in the latter part of 2007.

Rate changes tend to take at least six months to affect the economy.

The Fed meets next on March 18.

For clues about how the Fed is feeling about the economy and its monetary policy going forward, investors will listen to speeches by Minneapolis Fed President Gary Stern, who is scheduled to speak Tuesday in Golden Valley, Minn., on the economy, and by St. Louis Fed President William Poole, who is speaking Wednesday in Kirksville, Mo., on inflation dynamics.

[Livyjr]

"China's Jan. foreign investment doubles"

Associated Press

Last updated: 4:12 a.m., Monday, February 18, 2008

BEIJING -- China attracted $11.2 billion in foreign investment in January, up 109.8 percent from the same month last year, the government said Monday.

The Commerce Ministry, which reported the figure in a one-sentence statement, gave no explanation for the sharp rise.

China's economy is growing strongly at a time when investors are worried about a slowdown in the United States, and companies are racing to cash in.

The number of new foreign-financed companies rose by just 13.4 percent from the same month last year, suggesting investors were shifting to bigger, more capital-intensive projects.

A total of 2,918 companies were created by foreign investors in January, the Commerce Ministry said.

The investment figure excludes spending in the financial sector.

In 2007, China's total foreign direct investment rose 13.8 percent to $82.7 billion despite curbs meant to cool a boom in spending on real estate and other assets.

Beijing worries that runaway spending in industries, such as auto manufacturing, with an excess of factories and other assets could ignite a debt crisis if unneeded projects fail.

But Chinese leaders are still trying to attract investment to high-technology projects in industries such as telecommunications and computer chip manufacturing.

[Livyjr]

"Car bomb kills 35 Afghan civilians"

18 February 2008

KANDAHAR, Afghanistan - A suicide car bomber targeting a Canadian military convoy killed 35 civilians at a busy market in southern Afghanistan, a police official said.

At least 28 people were wounded in the attack in Spin Boldak, a town in Kandahar province near the border with Pakistan, said Abdul Razeq, the Spin Boldak border police chief.

Three Canadian soldiers were lightly wounded, he said.

The attack comes one day after Afghanistan's deadliest bombing since the fall of the Taliban in 2001.

More than 100 people were killed by a suicide bomber outside Kandahar city on Sunday.

The back-to-back bombings could indicate a change in tactics by militants.

Though attacks occasionally have killed dozens, insurgents in Afghanistan have generally sought to avoid targeting civilians.

The country saw a record level of violence last year, and analysts and military leaders here have predicted that 2008 could turn even deadlier.

One of the Canadian military vehicles was heavily damaged in the attack, as were several shops and civilian vehicles, said Abdul Razeq, the Spin Boldak border police chief.

Khalid said several of the wounded were in critical condition and that the death toll could rise.

Though the Afghan-Pakistan border had been closed Monday because of elections in Pakistan, several of the wounded were taken to Chaman, Pakistan, for treatment, Razeq said.

[Livyjr]

"World markets mixed on Presidents Day"

Associated Press

Last updated: 12:42 p.m., Monday, February 18, 2008

LONDON -- European stocks rocks rose Monday on speculation about possible new investment in the banking sector even as U.S. markets remain closed on Presidents Day, a public holiday.

Asian markets were mixed.

The U.K.'s benchmark FTSE 100 rose 2.75 percent to 5,946.6, while Germany's Dax Index gained 1.98 percent to 6,967.55.

In France, the CAC 40 advanced 1.89 percent to 4,861.80.

"It seems to be a combination of factors," said Keith Bowman, a broker at Hargreaves Lansdown Stockbrokers Ltd.

"There was press speculation over the weekend that banks reporting this week may raise their dividends and possibly sovereign investment funds will increase their investments."

In Asia, Japanese stocks inched higher and Hong Kong shares sank amid concerns about further tightening measures in mainland China.

Australian shares also fell, led by Australia and New Zealand Banking Group after the lender said it expects earnings this fiscal year to be crimped by fallout from the global credit crunch.

But Chinese stocks jumped after the securities regulator granted approval of two new equity funds and the wealth management operations of nine mutual funds.

In Tokyo, the benchmark Nikkei 225 index rose 12.84 points, or 0.09 percent, to 13,635.40 as traders bought steel issues in the hope that rising demand in emerging markets will offset higher prices.

Nippon Steel rose 3.2 percent and JFE Holdings added 6.3 percent.

Toshiba Corp. jumped 5.7 percent on reports it may withdraw from its struggling HD DVD business.

Investors cheered the likely decision as lessening the potential for losses.

Rival Sony, which supports Blu-ray disc technology, rose 1 percent.

Market observers say that it may take a while for the Nikkei to resume a stable upward trend even though current levels are higher than the January lows.

"What seems to be a recovery is merely a technical rebound," said Seiichiro Iwasawa, chief strategist at Nomura Securities.

"Remember that the Nikkei has rebounded a few times since a huge dip in August last year, and this is like one of them."

Hong Kong's blue-chip Hang Seng Index dropped 1.61 percent to 23,759.25 points.

It had gained 6.8 percent over the previous four sessions.

Analysts said traders were cautious due to continued concerns about the American economy.

The Dow Jones industrial average slid 0.23 percent Friday.

"Most investors are taking a wait-and-see stance, given the sluggish trading volume," said Castor Pang, a strategist at Sun Hung Kai Financial.

The market expects the Federal Reserve to cut interest rates again at its next meeting in March.

Hong Kong banks tend to follow U.S. interest rate cuts because the Hong Kong dollar is pegged to its U.S. counterpart.

Li Ka-shing's property flagship, Cheung Kong, fell 1 percent after gaining 8 percent in the past four sessions.

Investors were turning their focus to China, which was expected to release January consumer price data Tuesday.

Analysts expect prices have risen 7 percent, which would be an 11-year high.

They are worried that signs of surging inflation will trigger another round of tightening measures by Beijing.

But on the Chinese mainland, investors were enthused by a report Monday from the state-run China Securities Journal that nine domestic mutual fund companies have received regulatory approvals to begin wealth management operations.

"More money will mean prices of stocks will be pushed up, and some investors are buying ahead of the wave," said Huatai Securities analyst Zhou Lin.

The benchmark Shanghai Composite Index gained 1.58 percent to 4,568.15.

China Daqin Railway rose 4.7 percent and Poly Real Estate Group gained 3.5 percent.

[Livyjr]

"Regulators' subprime mortgage cases"

Associated Press

Last updated: 3:02 p.m., Monday, February 18, 2008

State regulators and cities that have filed cases or disclosed investigations targeting Wall Street firms' roles in the subprime mortgage market:

-- New York Attorney General Andrew Cuomo has accused a major real estate appraisal company of colluding with Washington Mutual Inc., the nation's largest savings and loan company, to inflate the values of homes nationwide, contributing to the subprime troubles.

Cuomo also has issued subpoenas to Fannie Mae and Freddie Mac, seeking information about potential conflicts involving loans the government-sponsored lenders bought from banks.

And Cuomo and Connecticut Attorney General Richard Blumenthal are investigating whether banks properly disclosed risks of mortgages that were bundled into securities sold to investors.

-- Ohio Attorney General Marc Dann has accused 10 mortgage lenders and appraisal companies of pressuring appraisers to inflate home values.

Dann also has sued Freddie Mac, accusing it of defrauding Ohio's public employee pension fund by investing in subprime home loans.

Dann also is considering a broader case against Wall Street banks, lawyers and bond-rating agencies.

-- Massachusetts' top securities regulator, Secretary of State William Galvin, has accused a unit of investment bank Bear Stearns Cos. of failing to disclose to investors a conflict of interest in its trading with two Bear Stearns-managed hedge funds.

The funds collapsed after making bad bets in subprime-linked investments.

And last month, Galvin subpoenaed municipal bond insurers MBIA Inc. and Ambac Financial Group Inc., seeking information on how much the firms disclosed to cities and towns about their exposure to mortgage-related investments.

On Feb. 1, Galvin accused Merrill Lynch & Co. of fraud and misrepresentation, a day after the firm agreed to reimburse the city of Springfield, Mass., $13.9 million in a dispute over a subprime-related investment that soured.

Galvin alleges Merrill Lynch made unsuitably risky investments on behalf of Springfield without permission.

-- Attorneys general in Illinois and Florida are investigating mortgage lender Countrywide Financial Corp.

-- The city of Cleveland in January sued 21 banks and claimed their subprime lending practices have left behind abandoned homes, creating a public nuisance that hurts property values and tax collections.

Two days earlier, Baltimore sued Wells Fargo, alleging the bank intentionally sold high-interest mortgages more to blacks than to whites in violation of federal law.

------

Source: Associated Press research

[Livyjr]

"Wall Street faces fury over subprimes"

By MARK JEWELL, Associated Press

Last updated: 3:02 p.m., Monday, February 18, 2008

BOSTON -- Regulators are trying to punish Wall Street for mortgage finance practices that expanded home ownership and spread risk among a host of new players -- but also may have duped borrowers and investors who supplied cash to fuel a housing boom that's turned bust.

A handful of state securities regulators and a couple foreclosure-blighted cities have fired the opening shots with lawsuits trying to prove that investment banks and big lenders are guilty of more than just bad business decisions and failing to foresee looming mortgage troubles.

Some regulators say greed and fraud underlie much of the subprime mortgage mess that has spread across the broader housing market, triggering a spike in foreclosures.

Aside from the civil cases, the FBI is looking at possible criminal action, focusing on what Wall Street firms knew about the risks of mortgage securities backed by subprime loans, and whether they hid risks from investors.

Observers don't expect the financial penalties that regulators extract in the civil cases to be massive.

But the cases could turn up evidence that forces Wall Street to defend itself amid growing talk of government help to ease subprime-related financial strains on bond insurers.

Revelations of bad behavior turned up by the government also could spur private investors to file even more lawsuits than the hundreds they've already brought to recover losses.

"This could get a lot nastier, for many reasons," said John Akula, a business law lecturer at the Massachusetts Institute of Technology's Sloan School of Management.

"Prolonged close scrutiny often turns up all kinds of dubious practices that in normal times are under the radar."

"If the government sponsors any kind of bailout with public funds, this may be coupled with an aggressive prosecutorial agenda in support of efforts to get private parties to kick in."

Although the foreclosure-blighted cities of Cleveland and Baltimore have sued seeking to recover damages from mortgage lenders, most of the cases filed so far are from regulators alleging violations of state securities laws.

Attorneys general in New York and Ohio are targeting alleged systematic inflation of home appraisals by major lenders and appraisal firms.

Litigation in Massachusetts and other states seeks to demonstrate that investment banks failed to disclose risks to investors who bought mortgage-related securities and weren't up front about conflicts of interest across their far-flung financial operations, including trading of subprime investments.

"Over the years, the relationship between lender and borrower and a particular piece of property has been severed," said Massachusetts Secretary of State William Galvin.

"It's clear that it's become a runaway train."

Gone are the days when most borrowers simply got loans from the neighborhood bank, which used to hold the bulk of mortgage risk.

Now that risk is spread further -- mortgages are bundled together and sold to investors.

Behind the scenes, credit-rating agencies offer advice on whether the investments are secure.

Until recently, cash from Wall Street banks and investors extended growing amounts of credit to low- and middle-income Americans enticed to enter a market when home prices appeared headed nowhere but up.

Lenders wrote $625 billion in subprime mortgages in 2005, nearly four times the total in 2001.

The boom brought in big fees to mortgage brokers, lenders, banks and ratings agencies.

But now that prices are dropping, those players are hurting.

Global banks have ousted executives and have written off nearly $150 billion since mortgage securities began collapsing last summer.

Given the losses, "It's doubtful some of these entities will repeat their performance," Galvin said.

"But I think there needs to be an understanding of how we got where we are, whether that is through regulatory action, or through Congress."

States have responded by tightening rules governing how lenders and brokers arrange mortgages and are compensated.

But lawsuits and administrative complaints are the main tools regulators use to seek fines against companies accused of wrongdoing, or to set examples to deter bad behavior.

"What they can't enforce through regulation, they will try to accomplish through suing," said David Bizar, a Hartford, Conn.-based attorney with the firm McCarter & English who defends against subprime mortgage lawsuits brought by consumers and regulators.

Already, the number of subprime-related cases filed in federal courts is outpacing the rate of litigation that emerged from the savings and loan meltdown in the late 1980s and early '90s, according to a study released Thursday.

The 278 subprime cases filed in federal courts in 2007 already equals half of the total 559 S&L cases handled over multiple years, according to the findings from Navigant Consulting Inc.

Criminal action also could be looming.

The FBI said last month it was investigating 14 companies for possible accounting fraud, insider trading or other violations that could result in criminal charges.

The FBI didn't identify companies but said the probe involves firms across the financial services industry.

The FBI is working with the Securities and Exchange Commission, which has civil enforcement powers.

The SEC said in January that it had about three dozen active investigations under way.

In the rush to sue big business, there's plenty of blame to go around in the subprime meltdown, said Bizar, the lawyer who has represented lenders in subprime cases.

Those include everyone from investors buying mortgage-related investments without understanding the risks, to credit-rating agencies that failed to alert investors to lenders' precarious positions as mortgage delinquencies spiked.

But the mess can be blamed more on unrealistic expectations than fraud, he said.

"You had a lot of people reaching to get into homes they couldn't afford, on the theory that it would go up in value," Bizar said.

[Livyjr]

"UK govt outlines Northern Rock plans"

By JANE WARDELL, Associated Press

Last updated: 3:02 p.m., Monday, February 18, 2008

LONDON -- Prime Minister Gordon Brown's government faced accusations of mismanagement Monday as it began nationalizing stricken mortgage lender Northern Rock PLC -- the first time in 20 years that a private company has been taken into public ownership.

The government repeatedly insisted a private sale was its preferred option.

But after five months of intense speculation about the future of Britain's most public casualty of the global credit crunch, Brown said that nationalization was the best choice until market conditions improve.

"We will, and always have, put the interests of taxpayers first," he said.

The opposition Conservative Party said Britain's reputation as a major financial services center had been dealt a serious blow.

"The nationalization of Northern Rock is a disaster for the British taxpayer, a disaster for this government and a disaster for our country," said Conservative Party leader David Cameron.

The government's troubles were compounded by the threat of a drawn-out legal battle with unhappy shareholders and the potential of hundreds, or thousands, of workers losing their jobs.

Brown's reputation as a guardian of financial stability in Britain has been dented, eroding some of the plaudits he received for presiding over an unprecedented stretch of economic growth as treasury chief before becoming prime minister.

On the defensive Monday, Brown and his successor in the treasury office, Alistair Darling, disputed that Britain's international reputation has been tarnished.

"What we don't accept is that London or Britain has been uniquely affected by world events," Brown said, referring to the credit troubles that swept global markets in the late summer and led Northern Rock to seek emergency funding from the Bank of England, triggering Britain's first bank run in 150 years.

London would remain the world's "pre-eminent financial center," Darling added.

The government had rejected two private proposals from Richard Branson's Virgin Group and an in-house bid from the bank's management team because they involved too many risks for taxpayers and a very significant government subsidy.

Brown said Northern Rock will be run "at arm's length from the government under professional management until adverse market conditions change and then the bank can be returned to the private sector."

However, critics said that the temporary nationalization proposed by the government could last years as Northern Rock's new management seeks to pay back around 55 billion pounds ($107 billion) via loans from the Bank of England and deposit guarantees.

Ron Sandler, who brought back Lloyd's of London from the edge of bankruptcy in the late 1990s and has been appointed by the government to run Northern Rock, declined to comment on job losses, amid suggestions from analysts that as many as half the company's 6,250 positions could be cut.

"Temporary nationalization is at last a period where the bank can move forward and away from turbulent waters where it's been sailing in recent months," Sandler said.

Darling did not provide details on the restructure of the bank as he announced emergency legislation to allow the nationalization, saying he would provide more information when the bill begins its passage through Parliament on Tuesday.

The new laws would give the government sweeping powers to seize any other bank that runs into trouble, but Darling stressed they have a sunset clause of one year and that the government plans to use them only in relation to Northern Rock.

The Conservative Party said it plans to oppose the legislation, but the government's numbers are expected to push the bill through Parliament.

Meanwhile, trading in the stock was suspended to make way for nationalization, leaving shareholders unable to sell their holdings after the government first announced its plan Sunday.

Under British rules on nationalization, shareholders will be offered compensation for their holdings at a level set by a government-appointed panel.

The panel will calculate a figure based on the bank's value without government guarantees -- a figure most analysts expect to be very little or nothing at all.

The stock closed at 90 pence ($1.75) Friday, valuing the company at 379 million pounds ($738 million).

The price has fallen more than 80 percent since Sept. 13, one day before Northern Rock revealed it had sought the emergency funding.

[Livyjr]

FORBES

"Credit Crunch - What To Do About Wall Street"

Liz Moyer, 02.14.08, 3:05 PM ET

So who's to blame for the subprime mess?

Banks?

Investors?

Regulators?

Ratings agencies?

The epicenter of all this finger-pointing: Capitol Hill Thursday, as lawmakers, regulators, and executives gathered to debate how to deal with the crisis gripping the credit markets, particularly the perilous state of the mortgage bond industry.

New York Governor Eliot Spitzer, in testimony to the House of Representatives finance committee, laid the blame at the feet of federal regulators and ratings agencies, who failed to stop the growth of the subprime mortgage bubble before it got out of control.

And he said a swift resolution to the severe capital pressures the bond insurers are facing is necessary to stop a "tsunami" of problems in the financial markets.

Gov. Spitzer said he hoped a private effort by Wall Street banks to inject capital into some of the hardest-hit bond insurers could get done in the next three to five business days.

If not, regulators would have to resort to the "good bank, bad bank" split of the bond insurers, as proposed Tuesday by Berkshire Hathaway's Warren Buffett.

"The clock is ticking," Gov. Spitzer said.

"We will be forced to act."

The crisis in the credit markets has raised all sorts of questions about who was minding the store while the mortgage bubble grew out of control.

Ratings agencies, investment banks, mortgage lenders, and yield-starved hedge funds have taken some of the blame for creating the speculative bubble, and federal regulators are also taking the heat for failing to stop them.

At a separate hearing Thursday morning in the Senate, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and Securities and Exchange Commission Chairman Christopher Cox testified on the effects of the crisis on the economy and the efforts to fix the problems.

Senator Jack Reed, D-R.I., directly asked Bernanke if the Fed is conducting a review of the regulatory lapses that allowed the current economic situation to develop.

Bernanke punted, saying that the central bank will issue a "principles-based" report in April to make sure any problems identified don't occur again.

Rep. Michael Capuano of Massachusetts said in the House committee hearing Thursday, "the word regulation has become a swear word here in Washington."

"Good bank, bad bank" is a throwback to the Depression era--and to the savings-and-loan crisis of the late 1980s.

In each of those scenarios, the government rode in and split a company into two separate entities, taking on the bad assets to preserve the good business.

Buffett proposed the opposite: He would re-insure $800 million worth of municipal bonds backed by the three biggest bond insurers, but not take on any of the firms' exposure to credit derivatives, which have plummeted in value.

Forcing bond insurers to hold exposure to credit derivatives while ceding good liabilities like municipal bond insurance would swamp their already over-leveraged capital bases, but save municipal bond investors, taxpayers and local governments from further losses, Spitzer said.

"Municipal investors cannot be allowed to suffer from problems caused by another sector of the market," he said.

There is more than $2.6 trillion in municipal debt outstanding, about half of it backed by insurance from the companies that are now under great stress, including Ambac Financial Group (nyse: ABK) and MBIA (nyse: MBE), whose executives are to speak at an afternoon panel before the committee later Thursday.

For the fourth quarter of 2007, MBIA announced losses of $814 million, $200 million of which is not yet associated with specific transactions, as well as $3.4 billion in “market-to-market” losses.

The company says it has learned several valuable lessons from the recent bond insurance fiasco.

For one thing, start-ups and historically solid loan originators are equally susceptible to market pressures that may alter their business practices.

Second, that time-honored adage: Don’t put all your risk in one basket.

Ambac Chairman and CEO Michael Callen is looking for a cue from the feds as the industry recovers.

“During times of declining confidence in capital markets, its is critical for regulators, government agencies and those in positions of power to project confidence,” he said in his prepared testimony.

Washington and Wall Street have bristled at the thought of a bail-out for the bond insurers, though they have also been wary of leaving the municipal bond market exposed to the capital-constrained bond insurers, who face losing their triple-A credit ratings--those who haven't lost them already, that is.

Without a triple-A rating to secure the insurance, municipalities would have a harder time raising money and would have to pay more to do so.

And investors are fleeing the sector in droves.

Auctions for some bonds are failing, jacking up the prices for many issuers.

As one example, the Port Authority of New York and New Jersey is now paying more than 20% after the failure of its auction this week.

Before that, it was paying 4%.

New York insurance regulator Eric Dinallo is set to testify this afternoon about his efforts to coordinate a Wall Street solution to the crisis in the bond insurers, including the good bank, bad bank idea, which most admit is the least palatable of the available options.

"There are billions of dollars at stake," Dinallo says in his written testimony.

"There is no agreement on--and indeed, no way to know with certainty--just how big the losses from the subprime market will be."

http://www.forbes.com/2008/02/14/washingto...artner=yahootix

[Livyjr]

"Wal-Mart profit rises, revenue up"

By MARCUS KABEL, Associated Press

Last updated: 8:22 a.m., Tuesday, February 19, 2008

Wal-Mart Stores Inc., the world's largest retailer, said Tuesday its renewed focus on low prices paid off with a 4 percent rise in profit for its fourth quarter as holiday shoppers brought discounted groceries and home electronics as well as health and wellness products.

International growth also helped boost profit and sales.

Stores in 13 countries outside the U.S. accounted for about 25 percent of total company sales in the quarter, up from 23 percent a year earlier.

Wal-Mart said net income in the quarter ended Jan. 31 rose to $4.096 billion, or $1.02 per share, compared to $3.94 billion, or 95 cents a share, a year earlier.

Net sales grew 8.3 percent to $106.27 billion, helped by 18.8 percent international growth and 5.0 percent growth at U.S. Wal-Mart stores.

Overall revenue including membership fees rose to $107.43 billion from $99.078 billion a year earlier.

Analysts surveyed by Thomson Financial had expected profit of $1.02 per share on revenue of $106.9 billion.

Wal-Mart forecast earnings per share for the 2009 fiscal year of $3.30 to $3.43.

The range of 23 analyst estimates for the full year was $3.30 to $3.55, according to Thomson.

Its shares slipped 4 cents to $49.40 in premarket trading.

Chief Executive Lee Scott said Wal-Mart's decision last year to refocus on low prices after a brief foray into fashion and trendier merchandise had paid off in a time of mounting economic uncertainty.

Wal-Mart also made progress on customer service, Scott said.

He cited cleaner stores, fewer out-of-stock products and faster checkout lanes.

"The price leadership strategy we put in place at the beginning of the year was exactly the right strategy for our customers around the world in a tough economic environment," Scott said.

Scott said Wal-Mart benefited from a strong holiday business after moving early last fall to discount groceries, toys and home electronics, including name-brand flat-screen televisions and computers.

Health and wellness items also sold well, he said.

"We knew our customers would be stretched during the holidays and we made sure they knew that they could count on Wal-Mart for low prices," Scott said.

Scott said the economy remains a critical issue for consumers this year.

"Customers were more cautious in their spending in January."

"In a volatile economy, I believe we are well positioned to succeed."

Rising fuel costs are putting pressure on margins, said the head of Wal-Mart's U.S. stores, Eduardo Castro-Wright.

Diesel for Wal-Mart's huge fleet of trucks rose about 25 percent a gallon last year and Castro-Wright called the issue a "potential headwind" for the year ahead.

Castro-Wright said Wal-Mart is introducing new clothing brands to revive its apparel business, which has lagged other areas of the store.

New lines this year include kids' brand Grranimals and more Hannah Montana products licensed from The Walt Disney Co.

For the full 2008 fiscal year ended Jan. 31, Wal-Mart earned $12.73 billion, or $3.13 a share, up from $11.28 billion, or $2.71 billion, a year earlier.

Net sales rose 8.6 percent to $374.53 billion from $344.99 billion a year ago.

Overall revenue rose to $378.80 billion from $348.65 billion a year ago.

[Livyjr]

"Credit Suisse strips $1B from 1q profits"

By FRANK JORDANS, Associated Press

Last updated: 7:22 a.m., Tuesday, February 19, 2008

ZURICH, Switzerland -- Credit Suisse suspended a number of traders in connection with a $2.85 billion overvaluation of assets.

A spokesman for Switzerland's second largest bank said Tuesday that a small number of traders were under investigation for overvaluing asset-backed securities.

"I can't tell you exactly how many, but a small number, a handful," Credit Suisse spokesman Marc Dosch told The Associated Press.

An internal review found "mismarkings and pricing errors" in the bank's structured credit trading business, which has also been affected by the subprime mortgage crisis and the subsequent downturn in world markets, Credit Suisse said Tuesday.

Shares in the bank dropped 9.2 percent to 51.55 Swiss francs ($47.21) on the Zurich exchange following the announcement that the misvaluation will reduce earnings by $1 billion in the first quarter.

The bank said it expects to remain profitable for the quarter even with the write-down.

Credit Suisse last week announced a $1.88 billion write-down for subprime-related assets, but posted fourth-quarter profits of 1.33 billion francs ($1.2 billion).

Rival UBS AG, the largest Swiss bank, has been hit much harder.

UBS posted a loss of more than $11 billion for the fourth quarter and its first full-year net loss in a decade after writing down 15.6 billion francs ($13.7 billion; 9 billion euros) in the mortgage-related investments.

The announcement by Credit Suisse raised questions among some analysts about the bank's internal oversight.

"Whilst we had received some assurance that the Credit Suisse balance sheet is not as laden with problem securities as UBS, this disclosure just raised the prospect that they may be simply bad at knowing what problems they do have," Peter Thorne of independent brokerage Helvea SA said.

Many banks have been hit by the subprime crisis, but most have been mum about the effect on this year's earnings.

Credit Suisse's disclosure is part of an ongoing internal probe into how its traders marked the value of products such as commercial mortgage-backed securities, residential mortgage-backed securities, and collateralized debt obligations, or CDOs.

The review's findings will be completed by mid-March, when Credit Suisse is scheduled to publish its annual report, a bank spokesman said.

[Livyjr]

"Wall Street heads for higher open"

By MADLEN READ, Associated Press

Last updated: 7:04 a.m., Tuesday, February 19, 2008

NEW YORK -- Stock futures rose Tuesday as investors digested earnings from Wal-Mart Stores Inc. and news of more problems at some of the world's largest banks.

Wal-Mart's fiscal fourth-quarter profit rose to $4.09 billion, or $1.02 a share, in line with expectations.

The world's largest retailer said it saw improved sales in its U.S. stores and robust international growth, but pointed to the uncertain economy as a critical factor in its performance going forward.

Wal-Mart's results are seen as a barometer of consumer spending, which has been shaky in recent months.

In addition to consumer spending, Wall Street remains concerned about the credit problems facing financial institutions.

British bank Barclays Group PLC revealed credit-related losses totaling $3.13 billion, up from a smaller write-down in November.

Also, The Wall Street Journal reported that Lehman Brothers Holdings Inc. could see big losses due to its significant investments in commercial real estate loans.

Meanwhile, Credit Suisse, Switzerland's second-largest bank, said it has suspended "a handful" of traders in connection with the overvaluation of asset-backed securities by $2.85 billion.

There have been some signs that troubled financial institutions are finding ways to regain their footing, however.

Ambac Financial Group Inc., the world's second-largest bond insurer, is discussing a plan to raise at least $2 billion in capital to maintain its superior credit rating, the Journal reported, citing people familiar with the matter.

After being closed Monday for the Presidents Day holiday, the U.S. markets were poised to rise.

Dow Jones industrial average futures rose 88, or 0.71 percent, to 12,438.

Standard & Poor's 500 index futures rose 9.10, or 0.67 percent, to 1,360.40, and the Nasdaq 100 futures rose 16.50, or 0.92 percent, to 1,803.00.

The dollar was lower against most major currencies.

Light, sweet crude oil rose $2 to $97.50 per barrel in premarket electronic trading on the New York Mercantile Exchange.

In economic news, the National Association of Home Builders is scheduled to release its monthly housing index.

In corporate news, Microsoft Corp. chairman Bill Gates said the software company is not privately haggling with Yahoo over its rejected $31-per-share buyout offer.

Microsoft Corp. made an unsolicited offer to buy the struggling Internet company just over two weeks ago.

Overseas, Japan's Nikkei stock average closed up 0.90 percent.

In afternoon trading, Britain's FTSE 100 fell 0.57 percent, Germany's DAX index lost 0.51 percent, and France's CAC-40 fell 0.29 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

[Livyjr]

"Stocks end lower amid inflation fears"

By MADLEN READ, Associated Press

Last updated: 6:03 p.m., Tuesday, February 19, 2008

NEW YORK -- Wall Street gave up a big early advance and closed mixed Tuesday after oil prices closed above $100 for the first time and stoked fears that inflation will stymie an already troubled economy.

Soaring oil prices could bring more problems for consumers, having already made many Americans shy about spending in recent months.

Consumer spending, a key driver of U.S. economic growth, has also been shaken by falling home prices and the volatile stock market.

The market was also concerned that rising inflation might make the Federal Reserve reconsider its bias toward lowering interest rates to help the economy.

The central bank, which next meets March 18, last month slashed rates by 1.25 percent.

"I think there are still a lot of worries in the market that we have this stagnant growth in the economy and higher prices," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati.

Investors likely were positioning themselves ahead of a half-dozen economic reports that could give the market further direction.

Paramount will be Wednesday's Labor Department report on consumer prices for January, which is a closely watched gauge for inflation.

The Fed will also release minutes from its last meeting.

Meanwhile, new concerns that banks are facing more financial problems this year dragged the sector sharply lower -- and reminded investors that the credit crisis appears far from a resolution.

The Dow Jones industrial average fell 10.99, or 0.09 percent, to 12,337.22 after being up more than 150 points earlier in the session.

Broader indexes also moved lower.

The Standard & Poor's 500 index fell 1.21, or 0.09 percent, to 1,348.78; and the Nasdaq composite fell 15.60, or 0.67, 2,306.20.

But advancing issues were ahead of decliners on the New York Stock Exchange by about 9 to 7, while on the Nasdaq Stock Market, decliners had a modest lead.

Consolidated volume on the NYSE came to about 3.50 billion shares, compared to 3.36 billion on Friday.

Government bonds dipped as stocks gained.

The yield on the 10-year Treasury note, which moves opposite its price, jumped to 3.87 percent from 3.77 percent late Friday.

It rose to 3.90 percent in after-hours trading.

The dollar was mixed against most major currencies.

Light, sweet crude for March delivery rose $4.51 to settle at a record $100.01 a barrel on the New York Mercantile Exchange after earlier rising to $100.10, a new trading record.

It was the first time since Jan. 3 that oil had been above $100.

Other commodities, including gold and soybeans, rose as well.

At the pump, gas prices rose further above $3 a gallon.

Beyond inflation, investors also continued to worry about the financial sector.

So far, global banks have written down more than $150 billion from bad bets on mortgage-backed securities -- and more losses are expected to the first quarter.

British bank Barclays Group PLC revealed credit-related losses totaling $3.13 billion, up from a smaller write-down in November, while Credit Suisse, Switzerland's second-largest bank, said it has suspended "a handful" of traders in connection with the overvaluation of asset-backed securities by $2.85 billion.

Also, The Wall Street Journal reported that Lehman Brothers Holdings Inc. could see big losses due to its significant investments in commercial real estate loans.

Lehman fell $1.35, or 1.3 percent, to $53.42.

"Can these financial stocks get to the bottom of their questions of soundness in asset quality?"

"We have to reach a tipping point here," said Richard Cripps, chief market strategist for Stifel Nicolaus.

"That's the part that I think has to occur for this market to have a sustained advance."

There have been some signs that troubled financial institutions are finding ways to regain their footing, however.

Bond insurer Ambac Financial Group Inc. is discussing a plan to raise at least $2 billion in capital to maintain its superior credit rating, the Journal reported, citing people familiar with the matter.

The move would mirror a $3 billion cash-raising effort by rival bond insurer MBIA Inc., which said Tuesday that its former chairman and chief executive has returned to the lead the company.

Ambac fell 19 cents to $10.03, though, after a Goldman Sachs Group Inc. analyst cut his price target for the insurer to $7 from $10 and said the company will probably to need to raise about $3.5 billion to maintain its "AAA" rating.

MBIA slipped 41 cents to $11.83.

In economic news, the National Association of Home Builders said its index measuring homebuilder confidence inched up in February.

Wall Street remains wary about the prospects for the housing market, however.

The Russell 2000 index of smaller companies rose 0.82, or 0.12 percent, to 702.34.

Overseas, Japan's Nikkei stock average gained 0.90 percent.

Britain's FTSE 100 advanced 0.34 percent, Germany's DAX index added 0.50 percent, and France's CAC-40 increased 0.49 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

[Livyjr]

"Treasurys end lower on crude oil surge"

By LESLIE WINES, Associated Press

Last updated: 5:53 p.m., Tuesday, February 19, 2008

NEW YORK -- Treasury prices fell in volatile trading Tuesday after a rally in the crude oil market touched off worries that inflation is spiraling.

Prices were uneven much of the day but turned decisively lower after oil futures shot to a new record above $100 Tuesday for the first time since the start of the year.

There was no single driver behind oil's sharp price jump.

But in the bond market it was viewed as a sign that an unusually durable commodities rally will unleash price pressure throughout the economy.

The bond market tracks price trends carefully and often sells off on signs of higher inflation, which erodes the value of fixed income.

The benchmark 10-year Treasury note fell 9/32 to 96 29/32 with a yield of 3.87 percent, up from 3.77 percent late Friday, according to BGCantor Market Data.

The 30-year long bond dropped 13/32 to 95 16/32 with a yield of 4.66 percent, up from 4.58 percent at the end of last week.

The 2-year note lost 4/32 to 100 5/32 with a yield of 2.04 percent, up from 1.92 percent.

More selling in after hours trade sent yields still higher.

At 5:30 p.m. Eastern time, the 10-year yield was 3.90 percent, the 30-year yield was 4.67 percent and the 2-year yield was 2.08 percent.

The 3-month yield rose to 2.24 percent from 2.21 percent late Friday as the discount rate ticked up to 2.19 percent from 2.16 percent.

Fixed-income investors fear that recent heavy interest rate reductions by the Federal Reserve have put the economy on an inflationary spiral.

The Fed has lowered the overnight fed funds rate by 1.25 percentage points since the start of 2008 and signaled that more rate cuts are being considered.

There are worries that a central bank excessively focused on stimulating the economy has grown lax about inflation.

The bond market has an ambivalent attitude toward rate cuts, which are considered positive because they cheapen the cost of money and stimulate market activity.

At the same time, cheaper money generally produces higher prices over time and inflation erodes the value of fixed income investments.

"Traders are worrying more and more about inflation, especially when the Fed seems to be content with driving short-term yields lower and lower," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan.

The latest inflation concerns have left investors eager to view last month's consumer price report, which will be released Wednesday.

According to Thomson/IFR, consumer prices should register a 0.2 percent January increase from December levels, when prices also increased by 0.2 percent.

The core rate, which is closely watched by the Fed and strips out food and energy costs, also should show a 0.2 month-over-month advance.

If both the headline and core components are as expected, consumer-level inflation will remain well within the Fed's target range.

Although recent housing data reports generally have been extremely weak, a new survey Tuesday showed improving sentiment among home builders.

The National Association of Home Builders sentiment index rose to 20 this month, up from 19 in January.

The reading was in line with analysts' expectations.

[Livyjr]

"More people tap 401(k) accounts for cash"

By J.W. ELPHINSTONE, Associated Press

Last updated: 3:13 p.m., Tuesday, February 19, 2008

Trent Charlton knew the risks when he borrowed $10,000 from his 401(k) and cut his retirement savings in half.

But Charlton, a 40-year-old account executive at an Irvine, Calif., trucking company, said he had little choice because he and his wife could not keep up with monthly expenses after American Express reduced the limits on three credit cards.

As home prices fall and banks tighten lending standards, more people are doing the same thing: raiding their retirement savings just to get by and spending their nest eggs to gas up SUVs, pay mortgages or put food on the table.

But dipping into 401(k) accounts can carry risks because defaulted loans and hardship withdrawals are taxed as income and are subject to a 10 percent penalty if the worker is under 59 1/2 years old.

That means if the trend grows, many Americans will risk coming up short on retirement savings or may have to rely on an overburdened Social Security system.

"People who take out a loan or withdrawal are adding to a looming retirement crisis over the next 30 to 40 years," said Eric Levy, a partner at global consulting firm Mercer.

"And what implications will that have (for) our economy?"

Some of the nation's largest retirement plan administrators, such as Great-West Retirement Services and Fidelity Investments, are seeing double-digit spikes in hardship withdrawals and increases in loan requests, a sharp departure from levels that traditionally varied little.

Administrators say consumers are using retirement savings to pay for unmanageable mortgages, maxed-out credit cards, and costly utilities and groceries.

Charlton and his wife used the retirement money and $7,000 from savings to pay down their credit card debt.

They also cut monthly expenses by pawning a diamond ring and selling camera equipment he owed money on.

And he's looking for someone to take over his $550 monthly payment on a gray BMW 335i he leased last April.

Charlton said his goal is to pay off the 401(k) loan in two years.

He has not decided whether he will contribute to the plan during that time.

"I made the best decision I could," he said

"I keep hearing about bankrupting your future retirement."

"But I feel like it's far enough away that I'll be able to save up enough."

Charlton's predicament arose as lenders are taking steps to rein in credit because more consumers are missing payments on mortgages, credit cards and loans.

Borrowers are finding their credit limits suddenly reduced and low-interest cards hard to come by.

Mortgage lenders have also reduced limits on home-equity lines of credit.

Meanwhile, jobs are harder to find, and consumers are getting pinched by higher food and fuel prices.

Consumers who tap their retirement accounts can take a loan from their 401(k) accounts worth up to $50,000, or 50 percent of the amount invested, whichever is less.

There are no tax consequences for a loan in good standing.

But if a borrower defaults, the loan is considered a withdrawal and subject to the same tax penalties.

If Charlton repays his loan and continues making contributions, his account balance at 62 will be nearly the same as if he had not borrowed, according to projections by Alicia Munnell, director of The Center for Retirement Research at Boston College.

But if he repays the loan and suspends contributions for five years, his final account balance would fall by 18 percent.

Based on current savings rates, the center estimates that 43 percent of households risk not being able to fund the same standard of living during retirement as they have in their working years.

That percentage increases to 49 percent for Americans between 36 and 43 whose main retirement plans are 401(k) accounts, not employer-funded pension plans like older generations.

Some plans don't allow workers to make contributions while making payments on loans.

Others require workers to wait a set time before contributing again after taking a withdrawal.

If the employer matches contributions, workers are taking a double hit.

"The idea of paying yourself back is not necessarily a plus," said Charlie Nelson, a senior vice president at Great-West Retirement Services.

"For a loan, you're paying back using after-tax dollars, so generally, over time, you won't earn as much."

Great-West Retirement Services, the unit of a Colorado-based insurance company that manages 3.5 million accounts for employers, said hardship withdrawals jumped 14 percent last year, and the number of loans rose almost 13 percent, with a dramatic increase occurring in the fourth quarter.

Fidelity Investments, which jockeys with Vanguard Group as the nation's largest mutual fund provider, said it saw withdrawals surge 17 percent in 2007, with record withdrawals in December, but a smaller increase in loans.

Vanguard saw no change.

"What we're talking about is people spending their retirement now and lowering their standard of living when they retire ..."

"People aren't willing to make some of the tougher choices in the short-term to make a better future for themselves," said Stuart Ritter, a certified financial planner with T. Rowe Price.

In the last three decades, 401(k)s have replaced traditional pension plans as employers' preferred retirement offering, which has shifted the responsibility of saving to employees from employers.

Only 32 percent of workers ages 36 to 43 have any coverage by a pension plan.

If Americans find they didn't save enough, they may have to work longer and shorten their "golden years" of retirement, Munnell said.

Otherwise, workers will have to cut corners and settle for a frugal retirement.

Theresa Perry, who manages benefits for the firm PinkSlip LLC in San Francisco Bay, said she's been surprised by the number of people using hardship withdrawals to make payments on so-called "piggyback" loans, which are home-equity loans wrapped with a first mortgage to allow borrowers to fully finance a home's value.

"I've been doing benefits administration for 15 years and using 401(k)s to keep mortgage payments under control is new to me," Perry said.

"They're not taking money out to purchase homes anymore."

"They're taking money out to keep the home they already have."

Ritter worries that unaffordable mortgages or other financial troubles will persist for many consumers, even after they have tapped retirement funds.

"That's not a smart strategy."

"You don't want to apply a short-term fix to a long-term issue," he said.

But for Americans who are struggling to keep afloat in a slumping economy, today's money problems are more urgent than a far-off retirement date.

Said Charlton: "We have to take care of ourselves now and put retirement on the back burner."

[Livyjr]

"Pact eases banking rules - New York joins New Jersey, Pennsylvania to cut oversight on state-chartered banks"

By CHRIS CHURCHILL, Business writer, Albany, New York Times Union

First published: Tuesday, February 19, 2008

The New York banking department has negotiated a unique pact with two neighboring states in an attempt to ease the regulatory burden on state-chartered banks that expand across borders.

The agreement with Pennsylvania and New Jersey means a bank operating in more than one of the three states will face oversight only from its home state.

The deal is expected to be finalized and announced later this month, said Jackie McCormack, spokeswoman for the banking department.

State-chartered banks operating in multiple states have long complained that they face a greater regulatory burden than federally chartered banks, which answer only to the Office of the Comptroller of the Currency.

Reporting to regulators in several states requires a major investment of time and resources, bankers say.

And that investment has played a role in leading some larger banks, including HSBC and JPMorgan Chase & Co., to abandon their New York charters, leading to fears about the viability of the state-chartered banking system.

Michael Smith, president of the New York Bankers Association, which has long pushed for the pact, says the move is an attempt to respond to the trend away from the state system.

Smith estimated the agreement would affect only about 10 banks, mostly in central New York and the New York City metropolitan area.

But it could increase the number of New York banks that expand across state lines, he said.

The agreement with New Jersey and Pennsylvania could be a precursor of other pacts, as McCormick said the banking department intends to explore similar moves with other neighboring states.

[Livyjr]

"Al-Sadr threatens to lift cease-fire"

By QASSIM ABDUL-ZAHRA, Associated Press

Last updated: 4:54 a.m., Wednesday, February 20, 2008

BAGHDAD -- Radical Shiite cleric Muqtada al-Sadr has threatened to lift by the end of the week a six-month cease-fire widely credited with helping reduce violence in Iraq, officials said Wednesday.

Sheik Salah al-Obeidi, a spokesman for al-Sadr in the Shiite holy city of Najaf, said that if the cleric failed to issue a statement by Saturday saying that the cease-fire was extended "then that means the freeze is over."

The cease fire was declared in August and due to expire at this month's end.

Al-Sadr's Mahdi Army is among the most powerful militias in Iraq.

The crux of the message being sent by the organization was that al-Sadr followers would be free to resume their activities if no message was sent by the cleric on Feb. 23.

According to al-Obeidi, this "has been conveyed to all Mahdi Army members nationwide."

The threat was confirmed by another al-Sadr official, who asked not to be named because he was not authorized to speak to the media.

The U.S. military has welcomed the cease-fire, saying it is a major factor in the estimated 60 percent decline in violence in the country in the second half of 2007.

But the military has insisted on continuing to stage raids against what it calls Iranian-backed breakaway factions of the Mahdi Army militia, and anger among the cleric's followers has been building.

Influential members of al-Sadr's movement said recently that they had urged the anti-U.S. cleric to call off the cease-fire when it expires.

Al-Sadr's followers claim the U.S.-Iraqi raids, particularly in the southern Shiite cities of Diwaniyah, Basra and Karbala, are a pretext to crack down on the wider movement.

The maverick cleric announced earlier this month that he would not renew the order unless the Iraqi government purges "criminal gangs" operating within security forces he claims are targeting his followers.

That was a reference to rival Shiite militiamen from the Badr Brigade who have infiltrated security forces participating in the ongoing crackdown.

The Badr Brigade and the Mahdi Army also are involved in a violent power struggle for control of the oil-rich south.