Life in OUR America, The Livyjr Files Volume 7 Options

[Livyjr]

"Home construction plunged in 2007"

By MARTIN CRUTSINGER, Associated Press

Last updated: 6:43 p.m., Thursday, January 17, 2008

WASHINGTON -- The steep slump in housing intensified at the end of last year, pushing home construction down by the biggest amount in nearly three decades.

Analysts forecast more bad news in the months ahead with the big question remaining whether the housing slump will be severe enough to push the country into a recession.

The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006.

It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980.

The year ended on a weak note with construction dropping by 14.2 percent in December and applications for new building permits, a good indicator of future activity, falling for a seventh consecutive month, indicating that activity will be weak at least through the spring of this year.

Economists said the current housing slump has already surpassed the 1990 downturn and will likely rival, if not surpass, the prolonged housing downturn in the late 1970s and early 1980s, a period when the Federal Reserve was pushing interest rates to the highest levels since the Civil War in a successful effort to halt a decade-long bout of high inflation.

Mark Zandi, chief economist at Moody's Economy.com, is forecasting that median sales prices for existing homes will fall by 2.5 percent for all of 2007, which would be the first annual price decline on records that go back four decades.

"I think this housing downturn will be unprecedented in terms of its breadth across the country and in its severity," Zandi said.

"I don't think we have seen anything like this, certainly since the Great Depression, and back then housing was much less of a factor in terms of the overall economy because fewer people owned their own homes."

The troubles in housing and other areas of the economy are expected to push overall economic growth to 1 percent or less, meaning the economy will be very near the stall level of a recession.

Growing fears of a recession helped to push stock prices sharply lower again on Thursday.

The Dow Jones industrial average fell by 306.95 points to close at 12,159.21, its lowest close since last March.

The Dow's frequent triple-digit declines since the start of the year mean that the index has now given back all of its 2007 gains.

Various recent reports have increased recession worries and spurred President Bush and members of Congress into talks about offering an economic stimulus either to prevent a downturn or at least make it less painful and prolonged.

Federal Reserve Chairman Ben Bernanke spoke out in favor of a stimulus package in congressional testimony on Thursday.

The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country.

Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West.

The decline in the South was a smaller 3.3 percent.

Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August.

Those problems, which have resulted in billions of dollars of losses at financial instutitions, reflected rising defaults for subprime mortgages, loans offered to borrowers with weak credit histories.

Those defaults have dumped even more houses on an already glutted market and prompted banks to tighten their lending standards, making it harder for potential buyers to qualify for loans, delivering a double whammy on builders.

They have been slashing production and offering major incentives to move homes but still face a huge glut of unsold inventories.

Analysts said the big decline in construction in December showed builders are intensifying their efforts to reduce the over-supply of homes.

"Builders have finally thrown in the towel," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

"This is a precondition for recovery as it will eventually reduce the inventory overhang."

"But there is a long way to go."

For December, housing starts totaled 1.006 million units at an annual rate, while building permits fell by 8.1 percent to an annual rate of 1.068 million units.

A survey of builder sentiment prepared by the National Association of Home Builders came in at the second-lowest level on record in January at a reading of 19.

David Seiders, chief economist for the home builders, said he believed construction activity would bottom out this spring and start to improve slowly in the second half of this year.

But other economists were not as optimistic, saying the turnaround in housing may not come until 2009.

[Livyjr]

"Lehman to cut 1,300 mortgage jobs"

Associated Press

Last updated: 4:23 p.m., Thursday, January 17, 2008

NEW YORK -- Lehman Brothers Holdings Inc. on Thursday said it would cease wholesale mortgage lending in the U.S. because of the continued housing slump, a move that includes 1,300 jobs cuts and a $40 million charge.

The nation's fourth-largest investment bank had set up a wholesale lending business to purchase loans made by others and then package them into bonds.

But, as the bottom dropped out of the subprime mortgage market, the business triggered steep losses for Wall Street's biggest banks.

Lehman has eliminated about 2,500 jobs already from its mortgage business, folding most of the operations into its Aurora Loan Services unit.

"While it was necessary for us to structure our mortgage origination businesses in the U.S. to reflect the change in industry dynamics, we deeply regret the impact this action has on our people," said Ted Janulis, global head of mortgage capital for Lehman Brothers, in a statement.

Aurora -- which makes loans to customers with higher credit ratings than subprime borrowers -- will still continue providing mortgage loans to consumers.

However, the unit's business directly from consumers is limited since Aurora doesn't have retail mortgage locations.

The cuts will lead to the consolidation of operation centers in California, Florida and New Jersey.

Defaults and delinquencies on risky subprime mortgage grew at an alarming rate last year, causing losses in mortgage-backed bonds and other investments.

Lehman, the largest U.S. underwriter of mortgage-backed bonds, has come out mostly unscathed by the credit crisis.

Lehman Brothers beat Wall Street expectations when it reported fourth-quarter results in December.

Investment management fees and equity trading offset a $3.5 billion write-down from mortgage-related losses.

By comparison, Merrill Lynch & Co. posted a record loss for the fourth-quarter and took $15 billion in write-downs.

Bear Stearns Cos. and Morgan Stanley also booked losses for the quarter.

Lehman shares fell $3.40, or 5.9 percent, to close at $54.66 Thursday.

[Livyjr]

"Legal aid programs spend money on perks"

By LARRY MARGASAK, Associated Press

Last updated: 5:53 p.m., Thursday, January 17, 2008

WASHINGTON -- Legal aid programs serving poor people spent federal money on booze, interest-free loans for staff, late charges on overdue bills and even lobby registration fees.

The parent organization that distributes grants to programs in all 50 states, Legal Services Corp., failed to monitor how the money was spent by state and local legal aid officials, according to congressional investigators in a new report.

It did not specify how much money was misspent but questioned use of more than $1 million in payments.

The new report, obtained by The Associated Press, was based on examination of spending at 14 of 138 legal aid programs financed by the Washington-based Legal Services Corp.

The top officials of the Legal Services Corp. responded, "We have no tolerance for any spending of grantee funds outside the law or the regulations of the LSC, and have formally referred all potential violations noted in the report to our Office of Inspector General."

"We will take whatever actions are warranted when all of the facts are known," said corporation President Helaine Barnett and Board Chairman Frank Strickland.

Among the organizations whose activities were questioned in the report: Nevada Legal Services Inc.; California Indian Legal Services Inc.; Legal Aid and Defender Association of Detroit; Legal Services for New York City; Philadelphia Legal Assistance Center; Wyoming Legal Services; and Laurel Legal Services Inc. of Greensburg, Pa.

Some of those groups were not identified in the GAO report, but congressional offices disclosed they were among the ones targeted by GAO investigators.

After an April 2006 visit to the Las Vegas office of Nevada Legal Services, the GAO cited the conclusion of inspectors' checking the program's performance: "Overall, this program is in very good shape."

"Its delivery structure is sound, its management is excellent, and its case handling staff are performing at a high level."

But less than one year later, during a February 2007 visit by compliance inspectors and congressional investigators, federal officials decided to investigate questionable transactions, including a complex $3.6 million real-estate deal.

The Legal Services Corp., a nonprofit corporation that is funded by Congress, distributes grants to legal aid groups in all 50 states.

The state and local groups help poor people involved in civil cases, including domestic violence, child custody, housing foreclosures, veterans and Social Security benefits, consumer problems and health issues.

Three of four clients are women, mostly mothers.

Congress gave the group $348.6 million for the last fiscal year.

The Associated Press previously reported on extravagant spending on hotels, meals, limousines and other perks by the corporation's presidentially appointed board of directors and top staff in the Washington headquarters.

The latest report angered two lawmakers who have been monitoring the program's problems.

"It is not acceptable to Congress or the taxpayers for scarce funds to be spent on the enrichment of others instead of on legal services," said Sen. Mike Enzi, R-Wyo., senior Republican of the Committee on Health, Education, Labor and Pensions.

Sen. Charles Grassley, R-Iowa, senior Republican on the Senate Finance Committee, said the findings were "more documentation of abusive and wasteful spending that is jeopardizing the ability of the Legal Services Corporation to provide legal assistance to people in need."

Among the findings:

--The New York City, Detroit and California Indian Legal Services programs used federal money to buy liquor.

Federal guidance for nonprofit corporations states that costs of alcohol are unallowable with no exceptions.

The New York officials did not return telephone messages by the AP requesting interviews.

An official in Detroit declined to comment.

The California program didn't violate any rules, its executive director, Devon Lomayesva, told the AP.

She said her group was willing to discuss the matter with the parent corporation's inspector general.

The GAO said the Detroit executive director acknowledged her program paid another organization for beer and wine costs for a reception.

The New York City executive director told GAO investigators, "LSC funds are no longer used to purchase alcohol."

--In Detroit, a contractor was paid far more than staff members, about $750,000 between 2004 and 2006, to operate computer servers and maintain the computer network.

When asked by investigators why he was not an employee, with a commensurately lower salary, "he stated that there were benefits to being an independent contractor," the GAO said.

The GAO said there appeared to be little distinction between the contractor and other legal aid employees in the same office.

--The Philadelphia office gave employees the perk of interest-free loans, which were used for college tuition, downpayments on homes and purchases of personal computers.

The GAO said there are no rules that would permit such loans.

The Philadelphia office did not return telephone messages left by the AP.

--In New York, the group used grant money to pay for lobbyist registration fees.

With only limited exceptions, recipients cannot use grant money for lobbying.

Each payment was only $50, but the executive director there agreed the payments violated its rules and promised it will not happen again, the report said.

--California Indian Legal Services, the New York City program and Wyoming Legal Services used funds to pay late fees on overdue accounts.

In Wyoming, a vendor who was angry over unpaid office rent "threatened to place a lien against the goods in the unit and sell them at a public auction," the GAO said.

Wendy Owens, executive director of the Wyoming organization, told the AP, "Those late payments occurred under the tenure of a previous executive director and we have long since corrected those issues."

The GAO said all three executive directors agreed there was no excuse for failure to make payments on time.

--In Greensburg, Pa., the executive director as questioned by GAO about a $30,000 payment to another organization.

The director "stated that the previous executive director entered into the agreement and that she did not know anything about the agreement, other than the fact that she continued to pay the bill every year," the GAO said.

The executive director, Cynthia Sheehan of Laurel Legal Services Inc., disputed the investigators' conclusion, saying the money went to a bar association's free legal help program.

"I can assure you I did know what it was and that the Legal Services Corporation approved the contract every year," she told the AP.

--The Las Vegas office purchased its building with federal and non-federal funds and then agreed to sell it to a developer for $3.6 million, the GAO found.

When the sale fell through, the organization was able to keep $280,000 that the developer placed in an escrow account as "earnest money."

However, the $280,000 was placed in an account that was immune from any controls by the Legal Services Corp.

Investigators described the deal as an "unusual transaction."

Legal Services officials eventually concluded the funds should have gone to a restricted account and kept under their scrutiny.

Nevada Legal Services officials declined to comment.

[Livyjr]

"Treasurys rally on Philly Fed figures"

By LESLIE WINES, Associated Press

Last updated: 6:23 p.m., Thursday, January 17, 2008

NEW YORK -- Treasury prices soared Thursday after a Philadelphia regional manufacturing survey showed an unexpectedly deep plunge in manufacturing that spelled recession to some economists.

The Philadelphia Federal Reserve's manufacturing index caved in 20.9 percent in January after dropping a much smaller 1.6 percent last month.

Economists polled by Thomson/IFR had forecast a drop this month of just 1.3 percent.

None of the analysts expected a larger fall than 7 percent.

"This data point screams recession," said T.J. Marta, fixed income analyst at RBC Capital Markets.

"Although data has been grinding lower, this is the first true recessionary indication."

Tony Crescenzi, chief fixed-income analyst at Miller Tabak, agreed.

"Rarely has the Philly survey been this weak without the economy in the throes of economic recession," he said.

Although there have been growing signs of weakness in regional and national manufacturing, the latest survey startled investors and largely distracted them from strong hints of new rate cuts and upbeat remarks about a possible economic stimulus package from Federal Reserve Chairman Ben Bernanke.

"Bernanke's speech is mainly a reiteration of earlier ones," said RBC Capital Markets' Marta.

"There is not much news here."

The benchmark 10-year Treasury note shot up 26/32 to 105 2/32 with a yield of 3.63 percent, down from 3.74 percent late Wednesday.

Prices and yields move in opposite directions.

The 30-year long bond gained 1 12/32 to 112 15/32 with a yield of 4.25 percent, down from 4.35 percent late Wednesday.

The 2-year note rose 4/32 to 101 17/32 with a yield of 2.45 percent, down from 2.51 percent the day before.

After hours trade, in general, only had a slight effect on yields.

At 5:30 p.m. Eastern the 10-year yield was unchanged at 3.63 percent, the 30-year yield edged up to 4.26 percent and the 2-year yield fell to 2.41 percent.

The yield on the 3-month note fell to 3.07 percent from 3.14 percent while the discount rate dropped to 3.00 percent from 3.07 percent.

Bernanke's comments seemed to have a greater effect on stock trading than on Treasurys.

During a Capitol Hill visit, Bernanke threw his support behind a possible federal package to stimulate the faltering economy.

He said any plan should be efficient and timely, and he reiterated concerns about the economy, adding that he is now worried business spending will slow.

Bernanke also said the risks of an economic downturn are more pronounced, and that the housing sector will be a drag on the economy for much of this year.

Other data made clear that the housing sector continues to unravel.

The Commerce Department said housing starts plunged 14 percent to 1.01 million in December, marking the weakest pace of home building in more than 16 years.

In addition, permits to build new homes dropped 8 percent last month to 1.07 million, the lowest level since 1993.

Thomson/IFR had forecast smaller declines for both housing starts and building permits.

Still, some economists pointed out that the weakness may prove helpful in the long run, as smaller inventories of homes will take some pressure off the housing sector.

Demand for safe assets like Treasurys also was fed by a Moody's Investors Service announcement late Wednesday that it may take away Ambac Financial Group Inc.'s stellar "AAA" rating.

The concern is that the insurer's exposure to risky debt assets will eat into capital and make it impossible to provide liquidity against the defaults of the bonds that Ambac insures.

The announcement sparked losses of up to 65 percent for Ambac stock, while shares of fellow bond insurer MBIA Inc. gave up as much 38 percent in heavy trade.

[Livyjr]

"Stocks end rough week with modest drop"

By MADLEN READ, Associated Press

Last updated: 4:42 p.m., Friday, January 18, 2008

NEW YORK -- Wall Street ended a painful week with another decline Friday as skittish investors unable to hold on to much optimism about the economy drew little comfort from President Bush's stimulus plan.

The day's trading reflected how fractious Wall Street has been in the new year.

Investors pulled back from a big early advance, with the major indexes trading mixed as Bush began to speak.

By the time the president finished announcing a plan for about $145 billion worth of tax relief, the indexes were well into negative territory.

"It's disappointed in the size of the economic growth package."

"Wall Street's showing its displeasure," said Kim Caughey, equity research analyst at Fort Pitt Capital Group in Pittsburgh.

"Honestly, I think the institutional investors understand the limits to the government's ability to enact economic change."

Coming after Bush's announcement, Friday's pullback made it clear that the stock market is in for a protracted period of uncertainty and continued declines.

Investors have shrugged off all the positive signs they've received in recent days, including assurances last week from Federal Reserve Chairman Ben Bernanke that the Fed is ready to act aggressively -- which means a likely big interest rate cut later this month -- to help support an economy pummeled by devastation in the housing and credit markets.

Steven Goldman, chief market strategist at Weeden & Co., contends Wall Street remains concerned about whether other economic troubles are lurking.

"It's a culmination of factors that have been in existence for a while -- it's the unknown," he said.

The market will likely need a long string of upbeat economic and corporate reports before it can regain its footing -- and with the economy clearly weak right now, it is likely to be a while before that kind of data becomes available.

According to preliminary calculations, the Dow Jones industrial average, which was up more than 180 points early in the session, fell 59.91, or 0.49 percent, to 12,099.30.

The Dow plunged 306 points Thursday amid deepening pessimism about the economy.

The broader Standard & Poor's 500 index fell 8.06, or 0.60 percent, to 1,325.19, while the technology-focused Nasdaq composite index dropped 6.88, or 0.29 percent, to 2,340.02.

For the week, the Dow and the Nasdaq lost 4 percent, while the S&P 500 gave up 5.4 percent.

In the 13 trading sessions of 2008, the Dow has lost nearly 9 percent, while the S&P has fallen 9.75 percent and the Nasdaq nearly 12 percent.

The week's sell-off left the Dow and the S&P 500 well below their October highs -- which had the Dow at a record trading high of 14,198.09.

The Dow has fallen more than 2,000 points, or 14.6 percent, while the S&P 500 is down nearly 240 points, or 15.3 percent.

Disappointment with Bush's plan came as investors were searching for those companies that might be weathering the economic slowdown well.

Some are indeed doing better than expected -- like International Business Machines Corp., which told Wall Street late Thursday to raise its 2008 profit estimates for the tech company, and General Electric Co., which posted a fourth-quarter profit rise Friday.

But many others are struggling.

Washington Mutual Inc. reported a steep loss late Thursday for the fourth quarter, as Citigroup Inc. and Merrill Lynch did earlier in the week.

With the banking industry trying to fix its shrinking portfolios and preparing for more distress in consumer debt, the economy may only have the government to fall back on -- and Wall Street didn't hear as much as it wanted from Bush.

In addition, many investors have been hoping that the Federal Reserve would put in place an intra-meeting rate cut before the central bank's next monetary policy meeting Jan. 29-30.

"The market is saying to the Fed: we want a rate cut and we want it now.

The fact that it is not getting a rate cut is causing a lot of selling that is feeding on itself," said Peter Cardillo, chief market economist at Avalon Partners.

Government bond prices slipped.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.64 percent from 3.63 percent late Thursday.

On Thursday, a dismal reading on the Philadelphia Fed's manufacturing index and ratings agency downgrades of bond insurers sent the market tumbling.

On Friday, a Bank of America Corp. analyst cut its ratings on three bond insurers -- MBIA Inc., Ambac Financial Group and Security Capital Assurance Ltd. -- to "neutral" from "buy."

MBIA fell 67 cents, or 7 percent, to $8.55 after a sharp drop Thursday.

Ambac rebounded from Thursday's drop, though, rising 34 cents, or 5.5 percent, to $6.58.

The company said Friday it will ditch its previous plan to raise $1 billion in capital, a decision many investors considered an ill-advised move to maintain its ratings.

Security Capital Assurance fell 17 cents, or 9.3 percent, to $1.65.

A better-than-expected reading on consumer sentiment came as a pleasant surprise to investors Friday, but ultimately did not help Wall Street save its early advance.

The University of Michigan's index, which most economists expected show a decline for mid-January, rose instead.

Though not a perfect predictor of consumer spending, the report gave Wall Street some hope that Americans' buying might not drop off too precipitously amid worries about a recession.

The Index of Leading Economic Indicators, a gauge of future economic activity skidded 0.2 percent in December, registering its third consecutive monthly decline.

The dollar rose against most major currencies, while gold slipped.

Crude oil futures rose 44 cents to settle at $90.57 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies fell 7.41, or 1.09 percent, to 673.16.

Meanwhile, chip maker Advanced Micro Devices Inc. late Thursday said its fourth-quarter net loss widened, but the loss was smaller than Wall Street predicted.

AMD surged 73 cents, or 11.5 percent, to $7.07.

IBM rose $2.30, or 2.3 percent, to $103.40 on its strong forecast.

Washington Mutual rose $1.09, or 8.8 percent, to $13.55.

Many investors, in anticipation of an even bigger fourth-quarter loss, had driven the savings and loan's stock sharply lower Thursday.

In overseas trade, Japan's Nikkei stock index rose 0.56 percent and Hong Kong's Hang Seng index advanced 0.35 percent.

In Europe, London's FTSE 100 finished down 0.01 percent, Frankfurt's DAX fell 1.34 percent and Paris' CAC fell 1.25 percent.

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On the Net:

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

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

[Livyjr]

"Ambac downgraded, cities seen at risk"

By STEPHEN BERNARD and LESLIE WINES, Associated Press

Last updated: 3:32 p.m., Friday, January 18, 2008

NEW YORK -- A downgrade of bond insurer Ambac Financial Group Inc. is likely to have far-reaching effects, making it more difficult for cities to issue new bonds and forcing further write-downs at financial services companies, analysts said Friday.

After Ambac scrapped plans to raise $1 billion in capital, Fitch Ratings cut the company's crucial financial strength rating to "AA" from "AAA."

The downgrade likely means Ambac will not underwrite any more business, said John Flahive, director of fixed income for BNY Mellon Wealth Management.

Market prices of existing bonds insured by Ambac and MBIA Inc. were trading lower before the downgrade, and Flahive suggested any downgrade could accelerate the decline.

Ambac and chief competitor MBIA together insure $700 billion in municipal bonds, and MBIA's "AAA" rating is also under threat.

The company issued $1 billion in bonds this week to preserve the rating, though that may not be enough to satisfy the ratings agencies.

MBIA said in a statement Friday it intends to keep working toward maintaining its "AAA" rating.

Since late last year, when the agencies first raised the prospect, analysts have suggested any move to cut Ambac or MBIA below "AAA" could be disastrous.

The concern is that downgrades will lead to a reduction in the value of portfolios at dozens of financial institutions, said Donald Light, a senior analyst at Celent LLC.

"Bond insurers are the lynchpin holding together valuations of portfolios of all kinds of financial institutions," Light said.

That scenario has already played out at least once, as Merrill Lynch & Co. reduced the value of a portfolio by $3.1 billion because of investments connected to ACA Capital Holdings Inc.

ACA, with a much smaller book of business than Ambac or MBIA, was downgraded to junk status by Standard & Poor's last month.

But while downgrades threaten to send financial services firms further into a tailspin, it will also create huge problems for municipalities.

Prior to Ambac's downgrade, T.J. Marta, a fixed-income analyst at RBC Capital Markets, said a downgrade of the company would lead to downgrades of all the municipal bonds it insured.

Subsequently, it will become more difficult for cities, counties and other local entities to issue debt for building projects, Marta said.

Several types of municipal issuers will be most vulnerable if they can no longer secure insurance.

These are borrowers like small private schools and hospitals that are not backed by a regular tax base or revenue stream.

Typically, these entities have had to secure insurance to gain credibility with the public and sell their debt.

At the very minimum the troubles of the insurers will drive up borrowing costs of cities and other local entities at a time when many are strained by weaker tax revenue, said John Atkins, a fixed-income analyst at IDEAGlobal.com.

The failures of some bond insurers could open the door for those who do not get downgraded, as municipalities look to minimize borrowing costs.

"Survivors will get long-term benefit from the near-term volatility," said Steve Stelmach, an analyst at Friedman, Billings, Ramsey & Co.

Warren Buffett's Berkshire Hathaway could be one company that gets a boost.

Buffett launched a new bond insurance business in December that has a "AAA" credit rating and a solid balance sheet.

Buffett's new company also has the benefit of having no questionable loans on its books.

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AP Business Writer Josh Funk in Omaha, Neb. contributed to this report.

[Livyjr]

"Sprint Nextel to cut jobs, close stores"

By MARGARET STAFFORD, Associated Press

Last updated: 5:42 p.m., Friday, January 18, 2008

KANSAS CITY, Mo. -- Sprint Nextel Corp.'s stock plunged Friday after the wireless carrier said it will cut 4,000 jobs and close 125 retail locations in response to a steep drop in its customer base.

Sprint shares plummeted nearly 25 percent, prompting analysts to forecast even more cuts in the coming months as the nation's third-largest wireless carrier struggles to compete with AT&T Inc. and Verizon Wireless.

The layoff of about 6.7 percent of Sprint's work force and closure of 8 percent of its stores is to be completed in the first half of the year.

Sprint said in a news release that the cuts will trim labor costs by $700 million to $800 million a year.

Some analysts said the moves would not be enough to stem losses resulting from a fourth-quarter decline of 109,000 subscribers and 683,000 monthly subscribers -- in all, nearly three times the net loss Wall Street analysts predicted.

Subscribers who pay monthly for annual plans, known as postpaid subscribers, are the most profitable for wireless companies.

Sprint finished last year with 53.8 million subscribers.

Wall Street had estimated the company lost 250,000 subscribers, according to Goldman Sachs analyst Jason Armstrong.

Churn -- the number of customers who cancel service -- also remained high at 2.3 percent in the fourth quarter.

In addition to the layoffs and store closings, Sprint plans to shut down 4,000 of its 20,000 third-party distribution points, such as stalls inside consumer-electronics retailers, and reduce its use of contractors and outsourced services.

Sprint owns about 1,400 retail outlets.

In a filing with the SEC Friday, Sprint said it expected the job cuts to cost about $200 million, but it could not estimate costs associated with the closing of its distribution points and retail stores.

Company spokeswoman Leigh Horner said the company will offer severance packages to the affected workers, who include management and non-management employees.

The 4,000 jobs is about 6.7 percent of Sprint's current work force of 60,000.

Friday's announcement continued more than a year of customer losses and service problems that led Sprint to oust former Chief Executive Gary Forsee and replace him last month with Dan Hesse, who had been CEO of Sprint spinoff Embarq.

Armstrong said in a client note that the cuts had been planned before Hesse took over, meaning Hesse "has yet to take his first cut at the business."

"He has historically been aggressive on cost cuts and conservative on guidance, so look for more reductions when he finalizes his plan."

The company's struggle dates to the 2005 acquisition of Nextel Communications Inc., which left it with incompatible networks, technical glitches, a customer base filled with credit-compromised subscribers and a dubious marketing effort.

Jeff Kagan, an Atlanta-based wireless analyst, said the job cuts and retail closings are a first step in Hesse's efforts to "stop the bleeding."

"None of the moves they've made in the last two years have struck gold," Kagan said.

"Dan has to figure out what's broken and fix it."

"And he's got to do it quickly."

Walter Piecyk of Pali Research said the company needs to change its board of directors, who he said had not properly managed Sprint's acquisition of Nextel or developed a realistic plan to get the company on track.

"Any plan would be an improvement," Piecyk said.

"They need to focus on the churn and to come up with some dramatic changes in their marketing plan so they aren't simply a 'me-too' operator."

Greg Gorbatenko, an analyst Jackson Securities, said Friday's moves may make Sprint a bit leaner and more nimble in the fiercely competitive telecommunications industry, but the company still will have difficulty righting itself.

"Hesse seems like old-school Sprint," he said.

"They have to come up with new creative marketing, better customer service, some new ideas."

"They need to do some testing and go after it."

The company also said it could record a charge in the fourth quarter of 2007 for what's known as "goodwill impairment," reflecting the decreased value of its assets and share price.

The company expects to issue its fourth-quarter earnings report Feb. 28.

Besides the layoffs and closings, Hesse and his staff are considering consolidating company operations at the operational headquarters in Overland Park, Kan.

Horner said Friday that the company has made no decision on the headquarters location.

Another pressing issue is whether to continue a planned commercial rollout next year of the company's Xohm-branded WiMax service, which has been criticized within the industry as too expensive and experimental.

Sprint's shares dropped 24.81 percent Friday to close at $8.70.

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http://www.sprint.com

[Livyjr]

"Treasurys mixed on Bush stimulus plan"

By LESLIE WINES, Associated Press

Last updated: 5:42 p.m., Friday, January 18, 2008

NEW YORK -- Treasury prices closed mixed Friday as investors expressed doubts about a White House plan to stimulate the ailing economy through $145 billion in tax relief.

President Bush, acknowledging the risk of recession, proposed tax incentives for business investment and individuals and said Congress and the administration need to settle on something as soon as possible to "keep our economy growing and create jobs."

The president said that to be effective, an economic stimulus package would need to roughly represent 1 percent of the gross domestic product -- the value of all U.S. goods and services and the best measure of the country's economic standing.

Investors overall are hoping a combination of economic stimulus and rate cuts can pull the economy back from the edge of recession.

Yet Bush's plan did not rouse market sentiment because of uncertainty how the proposal will play out.

"What stood out in President Bush's statement on the economy was that there were no Democrats present in the room; only those in his inner circle," said Tony Crescenzi, fixed-income analyst at Miller Tabak.

"This was expected, but it reminds us to be leery of the prospect for fiscal stimulus until it becomes clear that a consensus is emerging on the details of any fiscal stimulus package."

The benchmark 10-year Treasury fell 2/32 to 105 2/32 with a yield of 3.63 percent, matching its late Thursday level.

The 30-year long bond dropped 11/32 to 111 29/32 with a yield of 4.28 percent, up from 4.26 percent late Thursday.

Prices and rates move in opposite directions.

The 2-year note rose 3/32 to 101 22/32 with a yield of 2.35 percent, down from 2.41 percent late Thursday.

Yields were little changed by after hours trade.

At 5:30 p.m Eastern the 10-year yield remained 3.63 percent, the 30-year yield was still 4.28 percent and the 2-year yield remained at 2.35 percent.

The yield on the 3-month note fell sharply to 2.85 percent from 3.07 percent late Thursday as the discount rate dropped to 2.79 percent from 3.00 percent.

The decline in short-term rates, which are the most interest-rate sensitive, are a sign that investors expect the Federal Reserve to reduce the overnight Federal funds rate charges to commercial banks soon.

Investors often push market rates lower to pressure central banks into cutting official rates.

Bond market investors Friday monitored the travails of municipal bond insurers.

Insurer Ambac Financial Group Inc. called off plans to raise $1 billion in capital, a move that was until recently considered essential for the bond insurer to maintain its "AAA" financial strength rating.

The development caused credit rating agency Fitch Ratings to downgrad bond Ambac to "AA" from "AAA."

The downgrade may force the company to stop writing new insurance.

T.J. Marta, fixed income analyst at RBC Capital Markets, said the downgrade in turn will trigger downgrades of the local governments which insured their bonds with Ambac and likely slow down municipal issuance going forward.

The municipal bond market is worth about $2.3 billion, according to the Securities Industry and Financial Markets Association, with roughly half those bonds backed by "monoline" insurers like Ambac.

The problem is that the expected downgrades of municipal bonds will facing downgrades, the guarantees that have been sold on collateralized debt obligations also.

On Friday the Conference Board reported that its index of leading indicators fell 0.2 percent to 136.5 last month -- its lowest reading in more than two years -- after declining 0.4 percent to a revised 136.8 in November and 0.7 percent to 137.3 in October.

The result marked the third consecutive monthly decline for the index and signaled that the U.S. economy likely will weaken further in coming months.

Ken Goldstein, labor economist at the Conference Board said in a statement that "the latest data suggest that growth could remain slow -- and possibly be even a little slower -- in the first half of 2008."

Some economists believe that the credit crisis and troubled housing market already have thrown the U.S. economy into recession.

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"More misfortune for banks"

By RACHEL BECK, Associated Press

Last updated: 3:02 p.m., Friday, January 18, 2008

NEW YORK -- Contrarian investors who think now is the time to start buying beaten-down banking stocks could be in for a shock if they don't carefully review those companies' distressed home-equity loan portfolios.

Massive losses tied to subprime-mortgage investments knocked down bank earnings over the last year, spurring investors to flee those stocks.

But that could be only the start:

Rising delinquencies in home-equity loans and other second mortgages could keep the banks' results from improving anytime soon.

In recent days, executives at Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. said missed loan payments were a factor in their quarterly earnings declines.

Most said the problem would only get worse.

Why?

A so-far small, but growing, number of homeowners who used their homes like an ATM to fund their spending and investment bets are finding themselves in a financial pinch.

During the housing boom, many tapped the rising value of their home equity -- the difference between a home's market value and what is owed in mortgage debt -- to pay bills or tuition, do renovations, go on vacations and more.

Some borrowers also used something known as "piggyback" loans when buying their homes, which let them finance the full value of their house by combining their first mortgage with a home-equity loan.

An unknown number of them gambled that they could double down on the housing boom by tapping their equity to buy other homes and condominiums as investment properties.

But the slump in home prices has changed the dynamics of such loans.

Nationwide, prices have tumbled 5 percent since the market peak since early 2006, and some estimates say another 5- to 10-percent decline is still to come.

The pullback has been more pronounced in some parts of the country, like southern California where prices are off more than 15 percent since the downturn began, according to DataQuick Information Services.

That means many homeowners may owe close to -- or more -- than the actual value of their homes.

In the lending business, that "loan-to-value ratio" is closely watched, and when it gets above 90 percent, there is a greater tendency for borrowers to just walk away.

"Borrowers are seeing themselves get turned upside down, and then they stop paying," said Mike Larson, real estate analyst at Weiss Research Inc. in Jupiter, Fla.

"A lot of lenders underestimated the risk of these borrowers because they did not count on home prices dropping so steeply."

Some bank executives are playing the blame game for how these troubled loans got on their books.

Many say that the most problematic loans weren't originated by their own underwriters but by outside brokers who were more tolerant of risk.

Regardless of how they got there, they're a problem.

At Citigroup, the delinquency rate on its $63 billion second-mortgage portfolio jumped to a historic high of 1.38 percent in the fourth quarter.

A year ago, the delinquency rate on these kinds of loans that were at least 90 days past due was 0.3 percent.

The delinquency rate shot to 2.48 percent for borrowers with loan-to-value ratios of 90 percent or more.

Those late payments contributed to sharply higher credit costs at Citigroup.

It took a pre-tax $2.42 billion charge in the fourth quarter to build its reserves to cover anticipated losses in the coming months.

Overall, Citigroup lost $9.93 billion in the final quarter of 2007, its weakest performance in its 196-year history.

The problem for Citigroup and other banks is that "second mortgages are much more likely to go directly from delinquency to charge-off without going into foreclosure," said Citigroup CFO Gary Crittenden during the company's earnings conference call with analysts on Tuesday, according to a transcript provided by Thomson Financial.

That often happens when first and second mortgages are owned by different lenders, making it more difficult to renegotiate the terms of the loan.

If a second mortgage holder wants to foreclose because the borrower is delinquent, the owner of the first mortgage would have to be bought out.

When home prices are depreciating, there may be no value to that proposition.

JPMorgan Chase CEO Jamie Dimon also cited worse-than-expected results in home-equity loans as a contributor to the bank's 34 percent profit decline in the fourth quarter to $2.97 billion.

Home equity net charge-offs were $248 million, or a rate of 1.05 percent, in the fourth quarter, compared with $51 million, or a 0.24 percent net charge-off rate a year ago.

The bank has home-equity loan exposure on its books of $95 billion, and estimates its write-off rate could peak at around 1.55 percent to 1.6 percent.

In the fourth quarter, it took a charge of $395 million to build its home-equity loan-loss reserves.

"Given the size of its book, an overshot of this forecast in actual performance could translate into significantly higher credit costs down the road," analysts at the research firm CreditSights said in a note to its clients.

Even with such warnings, some investors may be ready for some bottom-fishing in banking stocks.

The Standard & Poor's 500 banking sector tumbled 20 percent over the last year.

The decline is much more pronounced in Citigroup's shares, which have lost 50 percent of their value in that time with much of the decline coming since August.

Those shares may look like bargains, just based on price.

But that doesn't account for the home-loan land mine that may be buried in your neighbor's yard.

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Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org

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"Tax rebates could boost economy quickly"

By MARTIN CRUTSINGER, Associated Press

Last updated: 2:02 p.m., Friday, January 18, 2008

WASHINGTON -- With the economy's prospects growing bleaker seemingly by the day, politicians in both parties have rallied around the three Ts, the mantra that any stimulus package needs to be timely, targeted and temporary.

One might add the three Bs as well -- the ability to deliver the biggest bang for the buck.

In that regard, tax rebates have quickly risen to the top of a list that also includes extended unemployment benefits and a boost in food stamp payments.

All three proposals have one very big advantage for politicians worried about what the economy will look like when voters go to the polls in November.

They offer the promise of getting assistance out quickly to low and moderate income people who won't delay in spending the extra cash.

That is considered crucial given the precarious state of the economy at the moment.

The great fear is that consumers, who have been the standout performer during the current expansion, could now be faltering under the successive blows of a steep slump in housing, spiraling energy costs, a spreading credit squeeze, rising unemployment and falling stock prices.

Some analysts believe the stimulus package may already be too late to prevent a recession, but even the most pessimistic think it is still needed to mitigate the length and severity of a downturn.

Federal Reserve Chairman Ben Bernanke lent his considerable weight on the side of a stimulus package on Thursday.

"Getting money to low and moderate income people is good in the sense of getting a bang for the buck," he told the House Budget Committee.

He said packages in the range of $50 billion to $150 billion would be "reasonable" to help the economy.

Bush has gone down the tax rebate road before.

Back in 2001, he added refunds of up to $300 per individual and $600 per household as a recession-fighting element of the tax cut plan that had been the centerpiece of his 2000 campaign.

The administration is examining boosting those amounts this time around to up to $800 for individual taxpayers and $1,600 for families.

Congressional aides to lawmakers participating in talks with the administration said the White House would like to eliminate the 10 percent income tax bracket for one year and quickly get the savings to taxpayers through rebate checks.

This approach has already drawn criticism from advocates for the poor who contend that it would leave out millions of Americans who don't earn enough to pay income taxes but do pay Social Security payroll taxes.

Democrats would like to tilt the relief to the poor and lower income taxpayers by adding an increase in unemployment benefits, doubling the normal 26 weeks that a jobless worker can collect benefits, and by also boosting food stamp payments.

Those proposals make economic sense because the more relief that is provided to lower income households, the more money that will get spent quickly, meaning a faster and bigger boost for consumer spending, which accounts for two-thirds of economic activity.

A study showed that Bush's 2001 stimulus package was a success in this regard, with two-thirds of the tax refund payments getting spent in the first six months.

The recession that year was mild.

It began in March but was over by November even though the country got hit during that period by the Sept. 11 terrorist attacks.

A separate study of various stimulus proposals shows that some proposals provide a much greater boost than others.

Leading this category was extending unemployment benefits, which provides $1.73 in spending increases for each $1 spent during the first year of the program.

"Extending unemployment benefits helps bolster confidence," said Mark Zandi, chief economist at Moody's Economy.com and the author of the study.

"If people start running out of their unemployment benefits, they cut back drastically on their spending and it also scares people around them."

"It is very debilitating on consumer confidence."

Providing states with federal support so they don't have to cut their own programs provides $1.24 in increased spending for each $1 it costs, while a targeted tax cut provides $1.19 boost, according to Zandi's study.

The reason these items had a bigger payout than they cost reflects the fact that the assistance goes to poorer people who spend the extra benefits quickly.

This helps trigger what economists call the "multiplier effect" in that a dollar of increased spending gets recycled through the economy, boosting the spending of other people.

By contrast, other proposals which benefit wealthier individuals such as across-the-board tax cuts and reductions in dividends and capital gains taxes were found to return less than their cost during the first year.

Bush started this year saying he did not know whether a stimulus plan was needed and if it was, he wanted to make sure that Congress made his first-term tax cuts permanent.

But the deteriorating economic situation has now convinced him of the need to offer a stimulus package.

Democrats are letting it be known that if Bush is serious about moving quickly, he will need to delink the proposal from his drive to make his tax cuts permanent.

The betting is that he will do so and that Democrats and Republicans, with their eye on the November elections, will strike a deal.

"For this to keep us out of a recession, it has to be passed by Congress quickly and I think they can do it," said David Wyss, chief economist at Standard & Poor's in New York.

"If you are a lawmaker, are you going to vote against giving your constituents a check for several hundred bucks?"

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EDITOR'S NOTE -- Martin Crutsinger has covered economics in Washington for The Associated Press since 1984.

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"Judge removes himself from Massey case"

By LAWRENCE MESSINA, Associated Press

Last updated: 12:13 p.m., Friday, January 18, 2008

CHARLESTON, W.Va. -- The chief justice of the state Supreme Court agreed Friday to remove himself from a pending case involving Massey Energy Co., days after vacation photos surfaced showing him in Monaco with the coal producer's top executive.

Chief Justice Elliott "Spike" Maynard said he was stepping down from the matter "despite the fact that I have no doubt in my own mind and firmly believe I have been and would be fair and impartial in this case."

But in his statement, Maynard said "it has now become an issue of public perception and public confidence in the courts."

Maynard helped form a 3-2 majority in November that overturned a multimillion-dollar judgment against Richmond, Va.-based Massey that another company, Harman Mining, and its president, Hugh Caperton, had won in a contract dispute.

Caperton had asked Maynard to step down from the case before the high court reconsiders that ruling.

With interest, the damages are worth $76.3 million.

"It's unfortunate that the motion had to be filed," Bruce Stanley, a lawyer for Caperton, said Friday.

"It's even more unfortunate that it took this long to get to this point."

Stanley also suggested that Maynard's recusal should negate his vote on the ruling, leaving it a 2-2 tie affirming the 2002 verdict.

A lawyer for Massey, D.C. Offutt, called that analysis absurd:

"I don't think it can act retrospectively."

Lawyers for Harman and Caperton have argued that Maynard had previously failed to disclose his ties to Massey Energy chief Don Blankenship.

Offutt noted that their friendship was raised in an unsuccessful bid for Maynard's recusal in a 2004 case involving flood litigation.

"The relationship between Justice Maynard and Blankenship has been known for a long time," Offutt said.

"They sat on this until they got these pictures."

The photos of Maynard and Blankenship together in Monaco in 2006 were included in a revised court motion filed Monday.

Both men have said they were on separate vacations, and that each paid his own way.

Maynard has also said his friendship with Blankenship has not affected his impartiality on the court.

In one picture, the men are sitting side-by-side, smiling over empty glasses at a cafe along the Riviera as the Mediterranean sun sets behind them.

In others, they are posing by the seaside.

Ten other photos were filed under seal, and depict the men with two female companions, the motion said.

The court is scheduled to hear the pending reconsideration motion on Thursday.

It must now appoint a replacement, likely a circuit judge or retired jurist, to sit in Maynard's place.

While that duty normally falls to the chief justice, Maynard's recusal sends the task to the next in line for that post, Justice Brent Benjamin.

But Harman has also challenged Benjamin's impartiality, renewing an earlier, rejected call for him to step down as well.

The company's lawyers cite millions of dollars that Blankenship spent on an ad campaign attacking a Democratic incumbent on the court that helped to boost Benjamin into office in 2004.

"We think it's now incumbent upon Justice Benjamin to reach the same conclusion" as Maynard, Stanley said Friday.

That recusal petition was filed late Thursday.

Benjamin has not yet responded, court spokeswoman Jennifer Bundy said Friday.

Massey, meanwhile, had earlier sought Justice Larry Starcher's recusal.

Starcher has made a series of public comments critical of Massey, its track record, Blankenship and his 2004 ad campaign.

Starcher declined to step down, but Massey may renew its motion, Offutt said, citing Starcher's dissenting opinion attacking the November ruling.

"We're looking at that," Offutt said.

"We haven't ruled out doing that."

Maynard has been out on sick leave since Thursday.

A Democrat elected to the court in 1996, Maynard announced plans earlier to run for a second, 12-year term in 2008.

November's ruling reversed a 2002 Boone County jury verdict that found that Massey had ruined Harman and Caperton after hijacking a lucrative coal supply contract.

Maynard, Benjamin and Justice Robin Davis concluded that while Massey's misconduct justified the ruling, the lawsuit never should have been brought in West Virginia because a related case was filed earlier in Virginia, yielding a $6 million verdict for Harman against Massey.

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"European, Asian markets recover"

By MATT MOORE, Associated Press

Last updated: 9:32 a.m., Friday, January 18, 2008

FRANKFURT, Germany -- European markets stocks rose Friday, buoyed by the prospect of a proposed economic stimulus package aimed at warding off recession in the United States.

Markets had fallen Thursday on fears the U.S. economy appeared recession-bound, but moved higher as traders expected U.S. President George W. Bush to outline his position later Friday on an emergency package being negotiated in Congress.

Worries about a slowdown in the U.S. economy -- a major export market for Asian and European countries -- have dragged down markets in both regions.

Bush told congressional leaders that he favors income tax rebates to spur the economy, which has been battered by a credit crisis and slowdown in its housing market.

In London, the FTSE 100 Index was up nearly 2 percent to 6,016.40, led by mining group Rio Tinto Group, shares of which rose by 5.6 percent amid talk that its bigger rival, BHP Billiton, will raise its takeover offer.

Some traders were skeptical about the rumor, the latest after Rio rejected the original bid last year.

Steelmakers rose, too, including Germany's ThyssenKrupp AG.

The company said that it would stick to its fiscal-year outlook despite lower than expected first-quarter earnings compared with a year ago.

ThyssenKrupp shares climbed 2.3 percent to 35.98 euros ($52.80) and rival Arcelor-Mittal benefited, too, rising 3.5 percent to 44.15 euros ($64.79) in Amsterdam.

In Frankfurt, Germany's blue chip DAX 30 index rose by 0.8 percent to 7,474.21, led higher in part by gains from retailer Metro AG, which rose 4.1 percent after it agreed to sell its 245 Extra supermarkets to Rewe Group in a deal worth 350 million euros ($513.59 million).

Shares of German drug maker Merck KGaA also gained, rising 3.7 percent.

In Sweden, the Stockholm-based OMX increased 1.3 percent to 316.97.

In Paris, the CAC-40 climbed 1.2 percent to 5,219.22.

In Asia, major markets recovered from what had been an early plunge, too.

In Tokyo, the region's biggest market, the benchmark Nikkei 225 stock index rose 0.6 percent to 13,861.29, reversing an opening 3 percent plunge in the wake of an overnight drop on Wall Street.

Hong Kong's blue chip Hang Seng index rose 0.4 percent to 25,201.87 after plummeting as much as 3.9 percent in morning trade.

"The reports that Mr. Bush may have a plan for the subprime mortgage crisis made the Nikkei rise," said Noritsugu Hirakawa who monitors stock trading at Okasan Securities Co. in Tokyo.

"Japanese stocks may be bottoming out."

Gainers in Hong Kong included Industrial & Commercial Bank of China, up 5.4 percent, and China Telecom, which rose 2.8 percent.

In Japan, Nippon Steel Corp. jumped 5.2 percent and property company Sumitomo Realty & Development Co. surged 8 percent.

Others markets, however, fell sharply.

India's benchmark index dropped 3.5 percent, and in Philippines' key index sank 2.5 percent.

Some speculation emerged in Hong Kong that the U.S. Federal Reserve might cut interest rates before their next meeting on Jan. 29-30 -- and perhaps even later in the day.

"We bet on a 50 basis-point rate cut by the U.S. Fed before the FOMC meeting later this month, with a good chance tonight," said Ernie Hon at ICEA Securities, referring to the policy-setting Federal Open Market Committee.

Beyond alleviating concerns about the American economy, a rate cut by the Fed would also benefit the local market, particularly property stocks.

Hong Kong rates tend to track U.S. rates because of the local currency's peg to the U.S. dollar.

Still, investors around the world remain jittery about the full extent of the subprime mortgage crisis in the U.S., which has led to a credit crunch and billions of dollars (euros) of losses at major American investment banks Citigroup and Merrill Lynch & Co. due to write-downs of bad assets.

And recent signs of slower U.S. consumption has added to concerns that the American economy might contract, weakening demand for Asian electronics, autos, clothing and other exports.

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AP Business Writer Yuri Kageyama in Tokyo and Associated Press writer Cassie Biggs in Hong Kong contributed to this report.

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"New York commission urges regulation of financial services to follow 'principles'"

By DAN SEYMOUR, Associated Press

Last updated: 5:53 p.m., Friday, January 18, 2008

NEW YORK -- A commission helping redraft the regulatory framework for New York's finance industry is considering placing greater emphasis on "principles" than on strictly defined rules, Gov. Eliot Spitzer said Friday.

Regulations based on broad guidelines -- such as "observe proper standards of market conduct," and "maintain adequate financial resources" -- could inject some flexibility into the arcane and Byzantine rules governing the industry now, Spitzer said.

While the governor said the move to revamp the state's regulatory system began long before last year's mortgage crisis reached a boiling point, he said the turmoil in financial markets underscores the need to modernize the system.

"There is also a premium to restoring the credibility to a regulatory framework that I think a lot of people look at and say, 'You have failed,'" he said.

Spitzer established the commission by executive order in May to issue recommendations to the state for regulatory change, aiming for regulations that can keep markets running smoothly and protect investors and consumers.

Composed of more than 40 members including bank executives, lawyers, regulators and consumer advocates, the Commission to Modernize the Regulation of Financial Services held its first meeting Friday at New York University.

A principle-based regulatory framework would more closely resemble that used in London.

Spitzer said such a system would serve as a foundation for interpreting existing laws, and urge regulators to concentrate on outcomes instead of the process.

Much of the regulatory structure overseeing the industry in New York today is a holdover from an era in which walls separated different types of finance companies, such as commercial banks, investment banks and insurers.

After those walls were broken down, the "silos" that sprouted to oversee each type of industry remained.

As a result, many companies are regulated by a number of different bodies, and sometimes different companies selling the same product are bound by different sets of rules.

Spitzer declined to discuss any timetable for the implementation of changes.

The commission's members include the chief executives of investments banks Goldman Sachs, Morgan Stanley and Merrill Lynch; insurers MetLife and AIG; and the New York Stock Exchange and the Nasdaq.

[Livyjr]

"Bush to seek less drastic cuts in state and local homeland security grants"

By EILEEN SULLIVAN, Associated Press

Last updated: 2:42 p.m., Friday, January 18, 2008

WASHINGTON -- The Bush administration will cut counterterrorism money for police, firefighters and rescue departments next year, but not by as much as it originally proposed.

Next month the White House will request $2.2 billion to help states and cities protect against terrorist attacks in 2009, and not $1.4 billion, an administration aide told Rep. Peter King, R-N.Y., on Friday.

That would be 10 percent more than the president requested for 2008, but 40 percent less than Congress gave the department this year.

King and other lawmakers were outraged in December when they learned the administration wanted to slash these funds by more than half in its final budget request before Bush leaves office.

"I see this as a solid victory in that we reversed OMB's cuts," King said, referring to the Office of Management and Budget, which oversees the administration's spending plans.

"But we're still short of where we have to be."

King thinks the Homeland Security Department should get between $3.5 and $4 billion for these counterterrorism programs in 2009.

"We won the first round, but now we still have a few more rounds to go," he said.

The Homeland Security Department has given $23 billion to states and local communities to fight terrorism since the Sept. 11 attacks, but a Nov. 26 document said the administration was not convinced the money was well spent and thinks the nation's highest-risk cities have largely satisfied their security needs.

For the 2009 fiscal year, the department requested $3.2 billion, but the OMB in November said it would ask Congress for less than half of that -- $1.4 billion, according to the document.

King said the request in the Nov. 26 document was done without the president's knowledge or approval.

After Bush learned of the drastic cuts, "The president overruled the bean counters," King said.

Last year, the White House requested $2 billion for these programs.

Congress, which ultimately decides how much money the department will get, appropriated $3.7 billion for this year.

The plan outlined in the November document called for elimination of programs for port security, transit security and local emergency management operations in the next budget year.

King said he was not told whether the White House still plans to eliminate those popular programs.

"We've maintained throughout that our budget would continue to support state and local municipality homeland security grants, and we are confident that this will be reflected in February when the final budget is released," said OMB spokesman Sean Kevelighan.

The president's budget is to be released Feb. 4.

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"Bush to lay out stimulus ideas Friday"

By ANDREW TAYLOR, Associated Press

Last updated: 8:02 a.m., Friday, January 18, 2008

WASHINGTON -- President Bush is putting together his first public call for an emergency fiscal stimulus bill while negotiations on Capitol Hill focus on rebates for taxpayers and other steps to jump-start the sagging economy.

Bush planned to lay out his position Friday, but he wasn't expected to go into specifics.

Press secretary Dana Perino said Bush would demand that any package be effective, simple and temporary -- mirroring calls by Democratic lawmakers for a "timely, targeted and temporary" stimulus measure.

Taxpayers could receive rebates of up to $800 for individuals and $1,600 for married couples under a White House plan.

Although lawmakers were considering smaller rebate checks and more money for food stamp recipients and the unemployed, Bush told congressional leaders that he favors income tax rebates for people and tax breaks for business investment.

"What he believes is that we've got to do something that is robust."

"It's going to be temporary and get money into the economy quickly," Treasury Secretary Henry Paulson said Friday on CBS's "The Early Show."

"It's going to be focused on consumers, individuals, families -- putting money in their pocket."

"And it's going to be focused on giving businesses the incentive to hire people, to create jobs."

Federal Reserve Chairman Ben Bernanke entered the stimulus debate Thursday, endorsing the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy.

The scramble to take action came as fears mounted that a severe housing slump and a painful credit crisis could cause people to clamp down on their spending and businesses to put a lid on hiring, throwing the country into its first recession since 2001.

Aides to lawmakers involved in the talks said the White House also wants to eliminate the 10 percent income tax bracket for one year and issue a rebate within months.

Advocates for the poor said that tens of millions of people in lower income ranges would be left out or not fully feel the benefit of the White House plan.

Lawmakers were instead discussing a $500 rebate for individuals, the aides said, with details for couples and people with children still being negotiated.

The rebates would likely be limited to individuals with incomes of $85,000 or less and couples with incomes of $110,000 or less, the aides said, speaking on condition of anonymity because no final decisions had been made.

The president did not push for a permanent extension of his 2001 and 2003 tax cuts, many of which are due to expire in 2010, officials said.

That would eliminate a potential stumbling block to swift action by Congress, since most Democrats oppose making the tax cuts permanent.

White House counselor Ed Gillespie said Friday on CNN the White House would still like to see the tax cuts made permanent, but the president believes a stimulus plan needs to be put into place within the next few weeks.

Bernanke voiced his support for a stimulus package in an appearance before the House Budget Committee.

He stressed that it must be temporary and must be implemented quickly -- so that its economic effects could be felt as much as possible within the next 12 months.

"Putting money into the hands of households and firms that would spend it in the near term" is a priority, he said.

Especially important is making sure a plan can put cash into the hands of poor people and the middle class, who are most likely to spend it right away, he said, though he added that research shows affluent people also spend some of their rebates.

Bernanke declined to endorse any particular approach, but he did say he preferred one that would not have a long-term adverse impact on the government's budget deficit.

Senior aides to House Democrats and Republicans said in addition to included tax rebates for individuals, the emerging measure would contain tax breaks for businesses investing in new equipment, increases in food stamps, and higher unemployment benefits.

They spoke on condition of anonymity, since the talks are ongoing and lawmakers have promised not to reveal details.

House Speaker Nancy Pelosi said she wanted legislation enacted within a month and said the government must "spend the money, invest the resources, give the tax relief in a way that again injects demand into the economy, puts it in the hands of those who need it most and into the middle class ... so that we can create jobs."

For now, Bernanke was hopeful the country could skirt a dangerous downturn.

"We're not forecasting recession but, rather, at this point, slow growth," he told lawmakers.

Still, the toll of the housing and credit debacles will be felt into early next year, he added.

[Livyjr]

"Army panel seeks brain injury studies"

By KIMBERLY HEFLING, Associated Press Writer

Thu Jan 17, 6:57 PM ET

WASHINGTON - As many as 20 percent of U.S. troops leave war with signs they may have had a concussion, and some do not realize they need treatment, Army officials said Thursday.

Concussion is a common term for mild traumatic brain injury, or TBI.

While the Army has a handle on treating more severe brain injuries, it is "challenged to understand, diagnose and treat military personnel who suffer with mild TBI," said Brig. Gen. Donald Bradshaw, chairman of a task force on traumatic brain injury created by the Army surgeon general.

The task force, which completed its work in May, released its findings on Thursday.

It estimated that from 10 percent to 20 percent of soldiers and Marines leaving Iraq and Afghanistan are affected by mild traumatic brain injury.

The most common cause was blast from an explosion.

The symptoms can include headaches, dizziness, nausea, light sensitivity, sleep problems, memory problems, confusion and irritability.

With treatment, more than 80 of patients recover completely, the task force said.

Less than half who suffered from a mild traumatic brain injury in combat have persistent symptoms associated with it, said Col. Robert Labutta, a neurosurgeon with the Army surgeon general's office.

In some cases, however, symptoms from the injury such as irritability affect a soldier's interaction with his or her family and fellow soldiers, said Col. Jonathan Jaffin, deputy commander of the U.S. Army Medical Research and Materiel Command.

"By identifying them, giving them a diagnosis, so they don't think they're just going crazy ... we think that helps them deal with it," Jaffin said.

Thousands of troops have been treated for traumatic brain injury, and it is commonly called the signature wound of the war.

Reports that troops were not properly treated or diagnosed for the injury led to some improvements in care.

Today, all troops brought to military treatment facilities from a war zone are screened for traumatic brain injury, Bradshaw said.

But troops lacking more outward signs such as bleeding following a blast or other incident might not realize they experienced a concussion, Bradshaw said.

One of the challenges in treating a mild traumatic injury is that it can have some of the same symptoms as post-traumatic stress disorder, such as difficulty sleeping.

Labutta said more research and tracking is needed to determine if a mild traumatic brain injury can put someone at greater risk for Alzheimer's disease and Parkinson's disease.

The task force praised work done at Fort Carson, Colo., where soldiers going back to war are screened for brain injury.

Surveys there found that about 17 percent of the soldiers returning to war could have a traumatic brain injury.

The task force identified problems associated with the treatment of troops with traumatic brain injuries, such as inconsistent treatment and documentation at some facilities, but it said some of its recommendations have already been implemented.
___

On the Net:

Army Medicine: http://www.armymedicine.army.mil

Defense and Brain Injury Center: http://www.dvbic.org/

[Livyjr]

"Texas justice charged in arson case"

By MONICA RHOR, Associated Press Writer

Fri Jan 18, 1:25 AM ET

HOUSTON - A Texas Supreme Court justice was indicted Thursday on suspicion of tampering with evidence in a fire that destroyed his home, a blaze the judge's wife is accused of setting, their attorney said.

Justice David Medina and his wife, Francisca, have denied involvement in the June fire, which caused nearly $1 million in damage, attorney Terry Yates said.

"We were shocked and dismayed that this occurred," Yates said.

"We will vigorously fight both these charges."

Harris County District Attorney Chuck Rosenthal, who convened the grand jury to investigate the fire, told a television station he will move to dismiss the indictments for lack of evidence.

"It is our collective feeling there is not enough evidence to pursue prosecution of the indictments and that the indictments be dismissed," Rosenthal told KHOU-TV.

If convicted of the third-degree felony, Medina faces two to 10 years in prison and a fine as high as $10,000.

If the indictment is not dismissed, the State Commission on Judicial Conduct can suspend Medina with or without pay until the case is resolved.

Rosenthal did not immediately return a call from The Associated Press.

Grand jury foreman Robert Ryan and assistant foreman Jeffrey Dorrell told the Houston Chronicle that if the indictments are dismissed, the grand jury panel might reconvene and re-indict the two.

"This is ludicrous."

"This is not right."

"This is a miscarriage of justice," Ryan said.

"If this was David Medina, comma, truck driver, comma, Baytown, Texas, he would have been indicted three months ago."

"I've just never seen anything like the vigor with which these two defendants were defended by the Harris County District Attorney's Office," Dorrell said.

"It was theater of the absurd."

"We knew before we handed the indictment down that the district attorney was going to refuse to prosecute, but we did it anyway."

The fire began June 28 in the three-car garage next to the Medinas' house in the Houston suburb of Spring and spread to the home next door.

The fire engulfed the rest of the Medinas' home and damaged a third house.

The fire was not electrical or accidental, the Harris County fire marshal's office has said.

A dog detected an accelerant, and authorities identified six "persons of interest."

Investigators became suspicious after discovering that a mortgage company sued in June 2006 to foreclose on the home.

The suit, filed after the family missed payments for five months, was settled in December.

It was the second fire at the home in 10 years, and both blazes started in the garage, KHOU reported.

In a November interview with the AP, Yates acknowledged Medina's financial problems.

In addition to the attempted foreclosure, the family owed nearly $1,900 in fees to its homeowners association.

Yates also pointed out that the Medinas had let their homeowners' insurance policy lapse, meaning losses from the fire weren't covered.

Medina is a Republican appointed to the Supreme Court by Gov. Rick Perry in 2004.

He was a corporate attorney in 1996 when appointed by then-Gov. George W. Bush as a state district judge in Harris County.

He won election later that year and was re-elected in 1998.

Halfway through his second term, Medina returned to corporate work, saying he did it to save college money for his four children.

In 2002, he was arrested on suspicion of drunken driving.

The jury couldn't reach a verdict, and Medina pleaded guilty to making an improper lane change and paid a fine.

In 2004, Medina became Perry's general counsel and was appointed to the Supreme Court about 10 months later.

After the fire, the Medinas moved to Austin.

[Livyjr]

"Pakistan military retreats from Musharraf's influence"

By Tim Johnson, McClatchy Newspapers

Fri Jan 18, 3:59 PM ET

ISLAMABAD, Pakistan — As President Pervez Musharraf grows more unpopular in Pakistan , his newly named successor as army chief is seeking to distance the institution from the Musharraf regime and pull back its virtual occupation of the top senior ranks of civilian ministries and state corporations.

Gen. Ashfaq Parvez Kayani , who was named to the top military job in late November, took two steps this week.

First, he barred all senior military officers from meeting directly with Musharraf without prior approval and prohibited officers from having any direct involvement in politics.

Second, he recalled many army officers from civilian job assignments.

Kayani's new path could help restore the image of a military that's bruised by association with Musharraf's excesses during eight years of rule since a 1999 coup and weakened by the worsening domestic security situation.

It also could be the Pakistan military's best chance to defeat an increasingly aggressive Islamist insurgency and check rising political violence in a nation that's fast becoming the central front in the Bush administration's battle with Islamic radicalism.

Musharraf had placed more than 1,000 active and retired officers in lucrative and powerful jobs in various ministries, such as those for education, transportation, railways, sports and culture, as well as semi-autonomous institutions such as the National Highways Authority and the sprawling Water and Power Development Authority.

While senior officers in Pakistan have for decades expected such posts as a reward for their military service upon retirement, Musharraf's embedding of hundreds of active-duty officers in prominent civilian posts sparked cries that the country's bureaucracy was being militarized.

Kayani's ban on senior army officers meeting directly with Musharraf or politicians appeared designed to undercut interference in the upcoming election.

"Some of the commanders were being used by Musharraf to hobnob with politicians," said retired Lt. Gen. Hamid Gul , a former head of Pakistan's intelligence service.

The top army spokesman, Maj. Gen. Athar Abbas, wouldn't confirm how many active-duty officers would step back from civilian posts or how soon it would occur.

"It's not clear."

"I cannot say anything more," Abbas said.

But Gul said the army chief's office already has notified some active-duty officers in civilian posts that they must return to their military careers.

"Symbolically, it's very important."

"They (the active-duty officers in civilian posts) have become a symbol of domination of Pakistani civilian affairs," said Absar Alam , chief of the Geo-TV newsgathering bureau in the capital.

"It has brought down the image of the army," added Gul.

"The army has gotten into every nook and cranny of the administration of this country."

Retired army Lt. Gen. Kamal Matinuddin said in an opinion column in The News, a national daily, that the retreat from the civilian posts "will also keep the army officers away from certain corrupt practices, which come their way when heading lucrative appointments in the civil sector."

Retired officers are the first to acknowledge that the army's standing has fallen.

"He knows that the army is not popular now."

"The reason is that it's been in politics so long."

"It's come under severe criticism," said retired Lt. Gen. Talat Masood , a political commentator.

"The Pakistan nation used to love the army."

"Now, I will not use the word 'hate,' but there's a true disaffection toward the army," Gul said.

What has political observers peering most into the tea leaves, though, is the evolving relationship between Musharraf, who was forced to shed his uniform and control of the army late last year, partly due to pressure from Washington, and Kayani, the 55-year-old general who now holds the military reins.

It's unclear whether the new army chief is acting with Musharraf's cooperation in restricting the army's role in politics and non-military government agencies.

Musharraf picked Kayani, a member of Pakistan's dominant Punjabi ethnic group, partly because he felt he'd earned Kayani's loyalty.

Kayani had taken part in several investigations into assassination attempts on Musharraf's life earlier in the decade.

"On the other hand, Kayani is enigmatic and Musharraf unpopular," said James Revill , a scholar at the Pakistani Security Research Unit at the University of Bradford in England .

"Should internal conflicts in the (tribal areas) worsen, or further violent protests occur as the elections get closer, then Kayani may choose to abandon Musharraf for the sake of the army and the country."

Parliamentary elections in early January were postponed after the Dec. 27 assassination of Benazir Bhutto , a former prime minister and the nation's most popular politician.

The vote is now scheduled for Feb. 18 , although a spate of suicide bombings and the apparent reluctance of Musharraf to approach elections that may remove him from power have heightened day-to-day uncertainty.

Even as Pakistan's political environment remains chaotic, retired military officers say the army is simply weary of governing.

"I'm quite convinced that the army is rethinking its own policy of involvement in politics."

"Whether General Kayani is really thinking about that change and can carry along the institution is yet to be seen," Masood said.

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"White House missing CIA, Iraq e-mails"

By PETE YOST, Associated Press Writer

19 January 2008

WASHINGTON - Apparent gaps in White House e-mail archives coincide with dates in late 2003 and early 2004 when the administration was struggling to deal with the CIA leak investigation and the possibility of a congressional probe into Iraq intelligence failures.

The gaps — 473 days over a period of 20 months — are cited in a chart prepared by White House computer technicians and shared in September with the House Reform and Government Oversight Committee, which has been looking into reports of missing e-mail.

Among the times for which e-mail may not have been archived from Vice President Dick Cheney's office are four days in early October 2003, just as a federal probe was beginning into the leak of Valerie Plame's CIA identity, an inquiry that eventually ensnared Cheney's chief of staff.

Contents of the chart — which the White House now disputes — were disclosed Thursday by Rep. Henry Waxman, a California Democrat who chairs the House committee, as he announced plans for a Feb. 15 hearing.

Waxman said he decided to release details from the White House-prepared chart after presidential spokesman Tony Fratto declared "we have absolutely no reason to believe that any e-mails are missing."

Among the periods of time for which the chart indicates e-mail is missing is a five-day span starting on Jan. 29, 2004, when the White House was dealing with the possibility of an election-year probe by Congress into Iraq intelligence failures.

Not archived by the office of the vice president is e-mail for Jan. 29-31, 2004, according to chart information released by Waxman.

In addition, all e-mail from the White House Office in the Executive Office of the President was listed as missing for one of those days.

The chart indicates that e-mail also was not archived by the White House on the following Monday — Feb. 2, 2004 — the day President Bush took a big step in averting what could have been a politically troublesome congressional inquiry.

He ordered an independent investigation into intelligence failures in Iraq.

The president conferred that day with former chief weapons inspector David Kay, declaring, "I want to know all the facts."

The commission named by Bush reached a harsh verdict about the U.S. intelligence community's performance, but the panel stopped short of addressing the White House's use of the intelligence data to support the idea of war with Iraq.

The White House says computer back-up tapes should contain substantially all e-mails between 2003 and 2005.

However, the White House recycled backup tapes until sometime in October 2003, taping over existing data.

That could mean some e-mail is gone forever if it is also missing from archives.

An example might be any missing e-mail from Cheney's office in the early days of the CIA leak probe.

The White House has not said when in October 2003 it halted the recycling of backup tapes.

E-mails in early October 2003 could reveal key discussions between White House personnel in the week after the Justice Department opened a criminal investigation into the leak of Plame's CIA identity.

The White House denied that Cheney chief of staff I. Lewis "Scooter" Libby or top presidential adviser Karl Rove were involved in the leak, an assertion that turned out to be false.

"Can it be a mere coincidence that some of the missing e-mail correspond to a key period during the Valerie Plame investigation?" asked Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington.

"Given everything else we know, that is nearly impossible to believe."

Her organization is one of two private advocacy groups suing the White House in the e-mail controversy.

At issue on Oct. 1, 2003, was the push by congressional Democrats for Attorney General John Ashcroft to step aside and appoint an independent prosecutor to investigate the White House.

Ashcroft eventually recused himself, and at the end of 2003 U.S. Attorney Patrick Fitzgerald was appointed by a Justice Department official to head the probe.

Two years later, Libby was indicted, and he was later convicted of obstructing the investigation.

His 30-month prison sentence was commuted by Bush.

Rove was questioned by a federal grand jury five times but was never charged.

In January 2006, shortly after Libby was indicted, a letter from Fitzgerald to Libby's lawyers was the first public disclosure that the White House was having a problem with its e-mail system.

Fitzgerald wrote:

"We have learned that not all e-mail of the Office of Vice President and the Executive Office of the President for certain time periods in 2003 was preserved through the normal archiving process on the White House computer system."

The White House says the e-mail matter arose in October 2005 in connection with the Justice Department's CIA leak probe, in which Fitzgerald later that month obtained a grand jury indictment against Libby for perjury, obstruction and lying to the FBI.

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"Teen suspect held in Bhutto's killing"

By ISHTIAQ MAHSUD, Associated Press Writer

Sat Jan 19, 8:53 AM ET

DERA ISMAIL KHAN, Pakistan - A teenager who said he was part of a team of assassins sent to kill former Prime Minister Benazir Bhutto was arrested near the Afghan border, Pakistani officials said Saturday.

The teen also confessed to taking part in a plot to attack Shiites during Ashoura, even as police in Pakistan's far south said they had foiled suicide attacks planned for the Shiite Muslim festival.

In Karachi, police chief Azhar Farouqi said officers detained five men who were in the possession of explosives, detonators and a small quantity of cyanide intended for attacks on this week's Ashoura processions.

"With these arrests we have foiled major attacks," Farouqi said.

The intelligence official said the 15-year-old told investigators that the five-person squad was dispatched to Rawalpindi, where Bhutto was killed, by Baitullah Mehsud, a militant leader with strong ties to al-Qaida and an alliance with the Taliban in nearby Afghanistan, on Afghanistan's northwest border.

The senior official from Pakistan's North West Frontier Province, who spoke on condition of anonymity because he was not authorized to speak to the media, said the teen was arrested Thursday and was involved in a plot to attack Shiites during an Ashoura festival on Sunday.

Pakistan's Sunni extremists, who regard Shiites as heretics, often attack the community during Ashoura.

On Thursday, 11 people died and 20 were injured in a suicide attack on a Shiite mosque in Peshawar, the capital of North West Frontier Province.

A senior district police officer in Dera Ismail Khan, a town 168 miles southwest of Islamabad, confirmed the teen's arrest there and said the suspect made "a sensational disclosure."

The officer also asked not to be named because of the sensitivity of the matter.

In the capital, Islamabad, Interior Ministry spokesman Jawed Iqbal Cheema said he had no information about any arrests in the border area, or about any new developments in the Bhutto case.

Maulvi Mohammed Umar, a purported spokesman for Mehsud, denied his group had links with the teen, and said he had not been dispatched by Mehsud to kill Bhutto.

"It is just a government propaganda," he said.

"We have already clarified that we are not involved in the attack on Benazir Bhutto."

Bhutto, a former prime minister, died on Dec. 27 when one member of the squad, whom the teen allegedly identified as Bilal, fired at her and detonated an explosive vest as Bhutto was leaving a campaign rally in Rawalpindi, which is adjacent to Islamabad.

The blast killed at least 20 other people and wounded scores more.

The death of Bhutto, Pakistan's most popular opposition leader, threw the country into turmoil and triggered riots that left more than 40 people dead.

It forced the government of President Pervez Musharraf to delay by six weeks parliamentary elections that had been set for Jan. 8.

In Washington, U.S. intelligence officials have concluded that Mehsud, who heads a network of armed groups in the lawless region along Pakistan's border with Afghanistan, organized the attack on Bhutto as part of a campaign of assassinations of Pakistani officials and suicide bombings in the country.

Bhutto had returned to Pakistan in October after spending nearly eight years in exile following the military coup in which the U.S.-allied Musharraf seized power in 1999.

Bhutto had vowed to support tough military measures against Islamic militants who have used the border areas as staging points for infiltration into Afghanistan.

On Friday, the military said that up to 90 Islamic militants aligned with Mehsud had died in clashes with Pakistani troops in South Waziristan.

The intensifying combat highlighted the deteriorating security in the region.

On Saturday, Mehsud's spokesman denied that the army had killed 90 of their people.

"The army is killing innocent people in our area, and we will avenge it," he told The Associated Press.

In a new show of strength, hundreds of Mehsud's fighters mounted attacks in the past several days on the two forts in the region, exposing the Pakistani military's weak grip over the area.

On Saturday, the army said it had arrested 50 suspected militants in the area.