Life in OUR America, The Livyjr Files Volume 7 Options

[Livyjr]

"Stocks plunge on recession fears"

By MADLEN READ, Associated Press

Last updated: 4:42 p.m., Tuesday, January 22, 2008

NEW YORK -- An unusual emergency interest rate cut by the Federal Reserve gave Wall Street a partial rebound Tuesday from a precipitious early decline -- and perhaps the first steps toward a long-term recovery.

The rest of the comeback, for the economy as well as the stock market, may depend on a turnaround in the battered housing market and renewed confidence among U.S. consumers.

The Dow Jones industrial average, down 465 points shortly after trading began, bounced around throughout the session before closing with a milder drop of 128.11, or 1.06 percent, at 11,971.19, according to preliminary calculations.

U.S. stocks began the day following the lead of markets abroad that had plummeted for two straight days, and also extended their own steep losses from last week.

Fears of a U.S. recession -- one that would spread to other economies -- had investors fleeing stocks worldwide.

The Fed, in a step anticipated by many traders, moved before the opening of trading, cutting its benchmark federal funds rate by 0.75 percentage point to 3.50 percent and the discount rate, the interest the Fed charges banks directly, to 4 percent.

What was unusual was the reduction's coming between regularly scheduled meetings of the central bank's policy-making Open Markets Committee; the next gathering is a week away.

Also, the cut was larger than the half-percentage point expected to be announced at the end of that two-day meeting, and the widest cut in the target fed funds rate on records going back to 1990.

The fact stocks didn't continue their steep plunge -- the Dow fell 277 points on Tuesday and 307 on Thursday -- was a positive sign, but economists and analysts said a full recovery wasn't likely in the near term.

One of the market's greatest concerns is that consumers, who normally account for two-thirds of the economy, aren't in a position to spend the country back into solid growth.

Even if rates continue to fall, Americans have been showing increasing signs of cutting back rather than borrowing or spending, even during the holiday season.

"People are up to their eyeballs in debt, and they're being asked to borrow more," said Mike Schenk, senior economist for the Credit Union National Association.

"This is a cure for the wrong disease."

" It makes everybody feel good, but it's not going to have any ongoing benefit," said Daniel Alpert, managing director of Westwood Capital LLC.

"We need to get ourselves out of a mountain of debt and overvalued properties."

But interest rate reductions are one strategy the Fed has used in previous crises to help the economy recover.

A rate cut tends to spur the economy by making it cheaper for businesses to borrow money.

It would also lighten the burden on people with credit card debt and mortgages that have adjustable rates.

Still, its effect on Wall Street wasn't overwhelmingly positive.

The Standard & Poor's 500 index, the broad market measure most closely followed by traders, fell 14.69, or 1.11 percent, to 1,310.50, while the Nasdaq composite index lost 47.75, or 2.04 percent, to 2,292.27.

Stocks have been beaten down for months amid the housing and mortgage crisis that began with a stream of failed home loans to consumers with poor credit.

The Dow, for example, is down nearly 10 percent since the beginning of the year -- logging its worst first 14 trading days of the year ever.

It is more than 15 percent since its record close of 14,16.53 on Oct. 9, and is at its lowest close since Oct. 17, 2006.

Investors are well aware that housing worries remain: Many adjustable-rate mortgages -- similar to those that went bad last year -- will still be adjusted higher, and home prices are expected to keep falling this year.

Financial companies have lost billions due to those mortgages, retail sales are falling and companies in general aren't on a spending spree.

Investors, institutional and individual, are also in a defensive mode, one that an interest cut won't immediately change.

In the week ended Jan. 15, when many on Wall Street believed a rate cut was in the offing, investors shoveled money into cash reserves at a record pace, according to iMoneyNet.

Assets in money market funds ballooned by $15.7 billion to a high of $3.17 trillion.

And investors pulled an estimated $18.2 billion from mutual funds and exchange-traded funds, which group baskets of investments under one security, according to TrimTabs Investment Research.

So far this year, investors have shifted $41.4 billion out of these investments.

Richard Resch, a 60-year-old salesman at a steamship company, said he met two nights ago with his financial planner to rebalance his money from an 80-20 split in stocks and bonds to a more conservative 50-50 split.

His planner told him to hang in there.

"There's no point in panicking now," said Resch, who lives in Long Valley, N.J.

"If you see me jump out of a window six months from now, you'll know I was wrong."

For the market to truly gain a foothold, investors need to see strong economic and earnings data in the coming months, including earnings reports and forecasts this week from big multinational companies like Microsoft Corp., AT&T Inc., Caterpillar Inc. and Honeywell International Inc.

The market also needs to hear that financial institutions like Citigroup Inc. and Merrill Lynch & Co., which have lost billions due to investments in failed mortgages, are on their way to solid earnings as well.

"If that doesn't happen, then all this is a short-term bottom before a resumption of selling," said Peter Boockvar, equity strategist at Miller Tabak.

What it might take to ultimately turn the market around is its own dynamics.

When investors feel the market has indeed gone as low as it should, they'll start buying, even if the economy is not yet barreling higher.

The pack mentality of Wall Street could be the market's biggest driver -- it's what triggered comebacks in the past, and one reason experts say long-term investors should sit tight.

A recovery might take months or years.

After the technology bust of 2000 and the terrorist attacks of Sept. 11, 2001 sent Wall Street into a deep bear market, the market took several years to turn around -- and at that time, Americans had something sure, something physical, to put their money and confidence in: their homes.

That economic pillar, which helped support spending, has cracked.

People who took out giant mortgages with tiny down payments, or who used their homes' value to borrow money, no longer have the security of home equity amid a slumping housing market.

Moreover, banks that were burned writing mortgages for consumers with shaky credit are now wary of lending, especially since other types of consumer debt, including car loans and credit cards, are seeing defaults rise.

The Bush administration has proposed ways to ease Americans' plight, first with a plan to prevent more mortgages from going sour, and, last week, with an economic stimulus packing that included $145 billion in tax cuts.

On Tuesday, the White House said President Bush won't rule out the possibility of a larger package.

But like interest rate cuts, a stimulus package, which would first need the approval of Congress, would not work immediately.

"Economists are not generally impressed by a fiscal stimulus, because it takes a long time to produce the desired effect," said the Credit Union National Association's Schenk.

He explained that some people -- shrewdly -- would save the money they receive instead of spend it.

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AP Business Writers Jackie Farwell, Tim Paradis and Leslie Wines in New York contributed to this report.

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On the Net:

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

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

[Livyjr]

"Profits plunge at BofA, Wachovia"

By IEVA M. AUGSTUMS, Associated Press

Last updated: 4:33 p.m., Tuesday, January 22, 2008

CHARLOTTE, N.C. -- The credit crisis all but wiped out fourth-quarter earnings at Bank of America Corp. and Wachovia Corp., but the banks did make some money -- something that can't be said for Citigroup and some other Wall Street financial firms.

Profits fell 95 percent at Bank of America and 98 percent at Wachovia.

The numbers, worse than analysts expected, show that the global credit squeeze is still causing more customers to fall behind on their bills and banks to lose money on securities they own.

"The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth-quarter results substantially," Wachovia Chief Executive Ken Thompson said on a call with analysts.

Last week, the Charlotte-based banks saw their Wall Street brethren disclose billions in losses tied to investments in failed mortgages.

Merrill Lynch & Co., the world's largest brokerage, lost nearly $10 billion in the last three months of 2007, its biggest quarterly loss since it was founded 94 years ago, after writing down $14.6 billion of investments.

Citigroup, the No. 1 U.S. bank by assets, reported a $9.83 billion loss after writing down $18.1 billion due to its huge losing bets on mortgage-backed bond products called collateralized debt obligations.

The Federal Reserve stepped in -- again -- Tuesday, cutting its main interest rate by three-quarters of a percentage point to 3.5 percent in hopes of restoring stability to the faltering U.S. economy.

On a conference call with analysts, Bank of America's Chief Executive Ken Lewis said conditions are "the toughest" he's seen since becoming head of the biggest U.S. consumer bank in April 2001.

"The environment is very tough, and we expect it to remain so for some months to come," Lewis said.

With the housing and credit markets unlikely to turn around soon, and more disappointing economic news expected, Lewis said it's time to turn back to a "much more basic strategy."

"Being open for business and being willing to lend money when it's appropriate is exactly what the country needs," Lewis told The Associated Press.

Bank of America shares rose $1.42, or nearly 4 percent, to $37.39 Tuesday.

The bank recorded net income of $268 million, or 5 cents per share, in the three months ended Dec. 31, down from $5.26 billion, or $1.16 per share, a year ago.

Revenue fell 31 percent to $12.67 billion.

Despite those numbers -- and a $4.1 billion bet in purchasing beleaguered mortgage lender Countrywide Financial Corp. -- Lewis said he expects Bank of America to generate earnings this year of "well above" $4 per share, absent a market disruption of the scale seen in 2007.

Analysts on average expect a profit of $4.39 per share for 2008, according to Thomson Financial.

"Our economic expectations project minimum GDP growth and a slowdown, not a recession, as we expect a pretty rocky start to the year improving thereafter," Lewis said.

Crosstown rival Wachovia said Tuesday that its fourth-quarter profit fell to $51 million, or 3 cents per share, from $2.3 billion, or $1.20 per share, in the same period a year ago.

Excluding merger-related expenses, Wachovia earned $160 million, or 8 cents per share, during the fourth quarter.

The nation's fourth-largest bank took a $1.7 billion write-down during the quarter due to weakening credit markets.

Banks have been forced to reduce the value of bonds and debt backed by mortgages and other consumer loans that have increasingly been defaulted on in recent months.

Because of rising delinquencies and defaults, Wachovia also set aside $1 billion to cover future losses.

"These actions were necessary based on what we believe is a very realistic view of the market challenges that we face in 2008," Thompson said.

Wachovia shares rose $1.11, or 3.6 percent, to $31.91 Tuesday.

The news from the two banks was the latest in a series of declines in profit or losses at the largest U.S. financial institutions as the nation's housing crisis and a slowing economy have forced many consumers to fall behind on their bills.

Last week, JPMorgan Chase & Co., the third-largest U.S. bank, said its profit fell 34 percent to $2.97 billion.

Wells Fargo & Co., the nation's fifth-largest bank, reported that its net income dropped 38 percent to $1.36 billion.

"Looking forward, the banks which have reported fourth-quarter earnings signaled that credit quality will continue to deteriorate into 2008," wrote CreditSights senior analyst David Hendler in a research note.

"Credit cards are showing signs of weakness, and commercial real estate remains a worry."

Bank of America's results included $5.44 billion of trading losses, compared with profits of $460 million a year earlier.

This reflected a $5.28 billion write-down related to collateralized debt obligations, which the bank said reduced trading profit by $4.5 billion and other income by about $750 million.

CDOs are complex investments that combine slices of different kind of risk and are often backed in part by subprime mortgages -- loans given to customers with poor credit histories -- as well as other loans.

In November, Bank of America executives estimated pretax CDO write-downs of at least $3 billion.

During the quarter, the company's provision for credit losses doubled to $3.31 billion from $1.57 billion a year ago.

In the bank's consumer unit, which includes the nation's biggest credit card business and retail branch network, revenue rose 7 percent, while earnings dropped 28 due to higher credit costs.

"We certainly are not pleased with our performance," Lewis said.

"We are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half."

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On the Net:

Bank of America Corp.: http://www.bankofamerica.com

Wachovia Corp.: http://www.wachovia.com

[Livyjr]

FOR IMMEDIATE RELEASE:

January 18, 2008

"GOVERNOR SPITZER LEADS FIRST MEETING OF COMMISSION TO MODERNIZE REGULATION OF FINANCIAL SERVICES - Commission Discusses Regulatory Reform to Help Maintain New York’s Status as World Financial Capital and Ensure the Highest Standards of Consumer Protection for New Yorkers"

Governor Eliot Spitzer today hosted the first formal meeting of the Commission to Modernize the Regulation of Financial Services, which includes heads of major financial services organizations, consumer advocates, the business community, legislators and regulators.

The commission discussed an innovative proposal to institute principles-guided regulation in New York along with other potential reforms.

New York’s financial services market has been burdened by current regulations – a litany of detailed rules that are ineffective at achieving consumer protection.

The United Kingdom and other international markets are moving to principle-based regulation, which focuses on broad guidelines.

Some companies and consumers are concerned this may mean diminished compliance with specific rules, but the new principles-guided approach preserves relevant rules, while asking regulators and companies to focus on achieving desired outcomes.

The result will be healthy markets and strong consumer protection without unneeded burdens.

By reforming burdensome and ineffective regulation, the commission's recommendations will help New York retain and enhance its status as the world's financial capital.

“Modernizing regulation of financial services is first and foremost about keeping New York the financial capital of the world,” said Governor Spitzer.

“The fact of the matter is that New York’s current regulations are out of date."

"We must have regulations that promote our essential goals: a healthy, creative competitive market for financial services, access for consumers and businesses to the services they need, and strong, effective consumer protection."

"Furthermore, my experience has demonstrated to me that proper regulations will have a positive impact on the financial market."

"We have brought together many of the best minds in the State to accomplish this task.”

After the meeting, Governor Spitzer was joined by Herbert M. Allison, Chairman, President and Chief Executive Officer, TIAA-CREF, Laurence D. Fink, Chairman and Chief Executive Officer, BlackRock, John J. Mack, Chairman and Chief Executive Officer, Morgan Stanley and Martin J. Sullivan, President and Chief Executive Officer, AIG at a press conference to discuss the work of the commission and how principles-guided regulation will lead to a focus on outcomes rather than process.

Insurance Superintendent Eric Dinallo, the Chair of the Commission to Modernize the Regulation of Financial Services, said:

“The benefit of state regulation is that states can be the laboratory for developing best practices."

"We want to offer New York as a national model of how to regulate financial services.”

http://www.ny.gov/governor/press/0118081.html

"Ambac posts $3.26B quarterly loss"

By JEREMY HERRON, Associated Press

Last updated: 4:33 p.m., Tuesday, January 22, 2008

NEW YORK -- Ambac Financial Group Inc. booked a massive loss Tuesday as mortgage-related troubles spread, but the bond insurer assured investors it remains a viable company even as its business slows.

"We just got too complex," Michael Callen, interim chief executive, said of his company's foray into bonds backed by risky mortgages.

The fallout from that bet led to a $3.26 billion fourth-quarter loss.

The executive said Ambac is "evaluating strategic alternatives with a number of potential partners," as it seeks to maintain its "AAA" credit rating with two agencies and regain it after being downgraded by a third.

"We're talking to very credible parties and pools of capital," Callen said, but declined to be more specific.

Investors responded positively, sending Ambac shares surging $1.92, or 30.5 percent, to $8.03 in late trading.

The stock is still down 92 percent from its 12-month high of $96.10 set last May, after losing more than 70 percent last week.

"Callen is very much putting on an outward face that Ambac is in it for the long haul," said Donald Light, senior analyst at Celent.

"Their actual situation is not noticeably worse than other major bond insurers, but that doesn't mean it's a good one."

For years the New York firm made a tidy living backing billions in municipal bonds that rarely defaulted, paying a steady dividend.

The returns weren't spectacular, but there was little risk to the business.

When the housing market took off, and lenders starting issuing riskier mortgages, investment banks packaged them into complex bonds.

For insurers such as Ambac and competitor MBIA Inc., the new bonds were an opportunity to generate outsize returns of their own.

But when the housing bubble burst and mortgage defaults spiked, the assets underlying the bonds lost value, increasing the likelihood of issuer default and claims on bond insurance.

Those concerns have brought the once rock-solid bond insurers to their collective knees.

MBIA was forced last week to raise $1 billion to avoid a debilitating ratings downgrade.

Ambac wasn't so lucky -- it balked at shoring up its reserves, saying market rates were too unfavorable, and was promptly hit with a two-notch downgrade by Fitch Ratings to "AA."

The agencies want the insurers to have reserves sufficient to cover the expected increase in claims.

Ambac, which insures $550 billion in debt, said Tuesday it could pay $14.5 billion in claims, noting that it paid none on mortgage-backed bonds in 2007 and that the outlook for the current year is favorable.

"We don't expect more than $10 million" in claims in 2008, Chief Financial Officer Sean Leonard said on a conference call.

But the loss of the top-notch "AAA" rating could strip the insurer of its ability to drum up new business, particularly with municipalities.

They need bond insurers to have that rating because it enables them to pay lower interest rates on bonds they issue.

Ambac's business slowed sharply in the fourth quarter, with net premiums written dropping 78 percent.

Callen said he thinks Ambac can continue to write new insurance and that he is confident the company can strengthen its capital position to regain the "AAA" rating from Fitch.

Callen, who took over as interim CEO last week after the abrupt departure of Robert Genader, said his company was being "actively regulated" as it tries to recover the "AAA" rating.

On Tuesday, the New York State Insurance Department said it was working with the bond insurance market to ensure the stability and availability of that insurance.

If Ambac isn't able to write new insurance, it will still generate premium revenue and be able to pay claims, a situation known as being in a state of "run-off," where an insurer slowly winds down its business.

But Callen told investors Ambac had "banished" the word "run-off" from its offices.

Ambac's fourth-quarter loss included a write-down of $5.21 billion, or $33.14 per share, on the book value of certain financial instruments, called credit derivatives.

These contracts help insure bond buyers against losses if the bond issuer defaults or the assets underlying the bond lose value.

That total included a charge of $1.11 billion, or $7.03 per share, that the company set aside because it expects to have to pay claims on defaults related to securities backed by risky subprime mortgages.

The company's operating loss reached $6.21 per share versus a profit of $1.88 per share last year.

Analysts expected that result to be a loss of $3.50 per share, according to Thomson Financial.

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AP Business Writer Stephen Bernard contributed to this report.

[Livyjr]

"Oil prices drop on fears of recession"

By JOHN WILEN, Associated Press

Last updated: 3:34 p.m., Tuesday, January 22, 2008

NEW YORK -- Oil futures fell Tuesday on mounting concerns that the U.S. economy may be heading toward a recession that would dampen demand for crude.

While the Federal Reserve's interest rate cut helped crude futures recover from much steeper earlier losses, many investors doubt the move will stave off a serious slowdown.

"Whenever you see a rate cut of that magnitude between (Fed) meetings ... it conjures up images of desperation," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill.

Light, sweet crude for February delivery fell 72 cents to settle at $89.85 a barrel on the New York Mercantile Exchange; earlier, prices had fallen as low as $86.11.

Oil last traded that low on Dec. 6.

The February contract expired at the close of trading.

March crude fell 71 cents to settle at $89.21 a barrel.

The Fed cut the federal funds rate -- the interest that banks charge each other on overnight loans -- by three-quarters of a percentage point to 3.5 percent.

It was the biggest single cut of its kind in recent memory.

The Fed was responding to concerns about a possible recession that have sent global equities markets sharply lower in recent days.

The Nymex and other financial markets in the U.S. were closed Monday for the Martin Luther King Jr. holiday.

On Tuesday, the Dow Industrials fell sharply, though they might have fallen further had the Fed not acted.

Oil futures recovered from earlier losses because the Fed move appeared to stabilize stocks, analysts said.

"I think the oil market is now attached to the hip of the equity markets," Ritterbusch said.

Indeed, energy investors often view stocks as a proxy for economic growth, and slower economic growth could certainly cut demand for oil and petroleum products such as gasoline and heating oil.

"We have long argued that a marked deterioration in the U.S. economy -- or a perception of one -- was the 'Achilles heel' that could badly puncture the bull move in the commodity markets," said Edward Meir, an analyst at MF Global UK Ltd., in a research note.

High energy prices also have been cited as a force pushing the economy toward recession.

If oil prices continue to fall, as many analysts now expect, that could relieve some pressure on the economy.

At the pump, gas prices have mostly fallen in recent weeks after rising sharply earlier in the month as oil set a new record above $100 a barrel.

Overnight, the average national price of a gallon of gas held steady at $3.01 a gallon, according to AAA and the Oil Price Information Service.

But prices have fallen 2.3 cents a gallon since Friday.

Other energy futures mostly fell Tuesday.

February heating oil futures dropped 3.48 cents to settle at $2.4726 a gallon on the Nymex, while February gasoline futures fell 2.28 cents to settle at $2.2806 a gallon.

February natural gas futures dropped 32.3 cents to settle at $7.67 per 1,000 cubic feet.

In London, Brent crude futures for March delivery, which fell on Monday, rose 94 cents Tuesday to settle at $88.45 a barrel on the ICE Futures exchange.

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Associated Press writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

[Livyjr]

"Fed cuts interest rates"

By MARTIN CRUTSINGER, Associated Press

Last updated: 4:42 p.m., Tuesday, January 22, 2008

WASHINGTON -- The Federal Reserve unexpectedly slashed a key interest rate by a bold three-fourths of a percentage point on Tuesday, responding to a global plunge in stock markets that heightened concerns about a recession.

The Fed signaled that further rate cuts were likely.

The reduction in the federal funds rate from 4.25 percent down to 3.5 percent marked the biggest reduction in this target rate for overnight loans on records going back to 1990.

It marked the first time that the Fed has changed the funds rate between meetings since 2001, when the central bank was battling the combined impacts of a recession and the terrorist attacks.

Federal Reserve Chairman Ben Bernanke and his colleagues approved the large rate cut after an emergency video conference on Monday night, a day when global markets had been pounded by rising concerns that weakness in the world's largest economy was spreading worldwide.

Despite the Fed's bold move, Wall Street plunged at the opening with the Dow Jones industrial average down 465 points before stocks began to rebound.

The Dow finished the day off 128.11 points at 11,971.19, according to preliminary calculations.

Analysts said the milder decline at the end of the day after such a rough start showed the Fed's effort to reassure Wall Street had an impact.

In a brief statement explaining its move, the Fed said that "appreciable downside risks to growth remain" and officials pledged to "act in a timely manner" to deal with the risks facing the economy.

The action was approved on an 8-1 vote.

Analysts said the fact that the Fed did not wait until its meeting next week to cut rates underscored the seriousness of the situation.

"The world's stock markets are in meltdown so the Fed came in with an inter-meeting move to try to stop the panic," said Christopher Rupkey, senior economist at Bank of Tokyo-Mitsubishi.

The Bush administration, which had announced on Friday that President Bush supported a $150 billion economic stimulus package, said Tuesday that it was not ruling out doing more than the $150 billion proposal if necessary.

Bush and Treasury Secretary Henry Paulson were conferring with congressional leaders at the White House on Tuesday, with all sides saying they want to reach agreement quickly.

The Fed was expected to cut rates further, possibly as soon as their next meeting on Jan. 29-30, if there are continued signs that the economy is weakening.

"This move by the Fed was essential," said Lyle Gramley, a former Fed governor who is now a senior analyst with the Stanford Financial Group in Washington.

"Bernanke promised in a speech earlier this month to take substantive action in a timely and decisive manner."

Gramley said that Bernanke was now exercising the kind of forceful leadership the markets had been hoping to see since the credit crisis hit in August.

David Jones, chief economist at DMJ Advisors, said Fed officials have a range of options available at next week's meeting from a quarter-point move to a half-point move to holding rates steady but indicating the Fed is prepared to move again between meetings should conditions deteriorate further.

Jones predicted the Fed would lower the funds rate to 3 percent by the end of March.

In addition to cutting the funds rate, the Fed said it was reducing its discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4 percent.

Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans.

The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent.

Global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world's largest economy, could be headed into a recession.

Many markets suffered their biggest declines since the September 2001 terrorist attacks.

In its statement, the Fed said it had decided to cut the federal funds rate "in view of a weakening of the economic outlook and increasing downside risks to growth."

The central bank said that the strains in short-term credit markets have eased a bit, but "broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households."

"Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

Before Tuesday's move, the Fed had cut interest rates three times, beginning in September, the month after a severe credit crunch had roiled Wall Street and global financial markets.

The Fed cut the funds rate by a half-point in September and then by smaller quarter-point moves in October and December.

"The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risk," the Fed statement said.

The Fed's action was approved on an 8-1 vote with William Poole, president of the Fed's regional bank, dissenting.

The statement said that Poole objected because he did not believe current conditions justified a rate move before the Fed's meeting next week.

[Livyjr]

"New armored truck sees first Iraq death"

Tue Jan 22, 4:11 AM ET

BAGHDAD - A soldier killed over the weekend south of Baghdad was the first American casualty in a roadside bomb attack on a newly introduced, heavily armored vehicle, a military spokeswoman said Tuesday.

The V-shaped hull of the huge MRAP — Mine-Resistant, Ambush-Protected — truck is designed to deflect blasts from roadside bombs, a weapon that has killed more American soldiers than any other tactic used by Sunni insurgents and militia fighters in Iraq.

The soldier who died Saturday was the gunner who sits atop the MRAP vehicle.

Three crew members tucked inside the cabin were wounded.

The vehicle rolled over after the blast and it was not clear how the gunner died — from wounds in the explosion or in the subsequent roll-over.

Maj. Alayne P. Conway, deputy spokeswoman for the 3rd Infantry Division, said the attack and the death were under investigation.

There now are more than 1,500 of the costly vehicles in service in Iraq and the Pentagon is working to get at least 12,000 more, using $21 billion provided by Congress.

MRAPs cost between $500,000 and $1 million, depending on their size and how they are equipped.

The sophisticated vehicles are being built and put into service in a bid to provide soldiers and Marines more protection than is offered by armored Humvees, which have flat bottoms that absorb the shock waves from a blast.

The bottom of an MRAP also is 36 inches above the ground, while Humvees sit much closer to the roadway.

[Livyjr]

"Asian markets rebound on Fed rate cut"

By YURI KAGEYAMA, AP Business Writer

23 January 2008

TOKYO - Most Asian markets rebounded Wednesday, reversing their recent gut-wrenching plunge as investors welcomed a hefty, surprise interest rate cut by the U.S. Federal Reserve to shore up the sagging American economy.

But European markets slipped in early trading.

Analysts said the market turmoil would linger for some time because the Fed's emergency action was seen by some as a sign American authorities view the U.S. credit crunch as a very serious problem.

"The Fed's action provided a very positive surprise," said Tsuyoshi Segawa, strategist at Shinko Securities Co. in Tokyo.

"But people are also starting to think that things may be so bad they needed to act."

In Hong Kong, the Hang Seng index surged 10.7 percent — its biggest gain 10 years — to 24,090.17, regaining much of the 13.7 percent it had shed over the previous two days.

Japan's Nikkei 225 index rose 2 percent to close at 12,829.06 after tumbling 9.3 percent the previous two days, while India's Sensex was up 5.7 percent in afternoon trading, recapturing nearly half its 12 percent losses from Monday and Tuesday.

In Shanghai, China's benchmark index, which sank 12 percent earlier this week, bounced back 3.1 percent, and Australia's market rebounded 4.4 percent, snapping a 12-day losing streak.

Fears of a U.S. recession, which would likely erode demand for Asian exports, has battered the region's markets since the start of the year.

The sell-offs accelerated Monday and Tuesday amid skepticism that a stimulus package announced by U.S. President George W. Bush on Friday would prevent the economy from contracting.

Jolted by worries of a global recession, the Fed on Tuesday slashed its federal funds rate three-quarters of a percentage point to 3.5 percent, the biggest reduction in this target rate for overnight loans on records going back to 1990.

It also was the first time the Fed has changed rates between meetings since 2001.

On Wall Street Tuesday, the Dow Jones industrial average plunged more than 450 points initially but recouped most of its losses as the day progressed to close at 11,971.19, down 128.11 points, or 1.1 percent.

U.S. stock index futures showed that Wall Street was poised for a modest drop Wednesday.

Dow futures were down 40 points, or 0.3 percent, to 11,911.

Standard & Poor's 500 futures were down 5.5 points, or 0.4 percent, to 1,303.8.

In Europe, where investors had a chance to cheer the Fed's cut the previous day, the U.K.'s FTSE 100 was down 1 percent, while France's CAC 40 slid 0.9 percent and Germany's DAX was down 0.7 percent.

Investors in Asia were already factoring in another U.S. rate cut of as much a half-point when the Fed holds its regular meeting on Jan. 29-30, traders said.

But Asian markets could slide back if Wall Street continues to decline in coming sessions, they warned.

In Hong Kong, where the benchmark index had plunged 22 percent since the start of the year through Tuesday, investors took heart from the U.S. rate cut and snapped up stocks that had fallen to attractive levels.

Francis Lun, a general manager at Fulbright Securities, estimated that the Hong Kong market had been oversold by about 15 percent.

"It's time to recover, but investors still need to be cautious because the fluctuation now is too big," he said.

The Fed's move initially helped the dollar, but later the U.S. currency dropped to 106.31 yen from 106.48 yen Tuesday in New York.

Asian-based companies welcomed the Fed's move, too.

"Anything that helps consumer sentiment is good for our business," said Bruce Rockowitz, president of Li & Fung, a Hong Kong-based exporter that sources products for major brands and retailers worldwide, including Wal-Mart Stores Inc.

"From a psychological effect, it's given people in the U.S. at least comfort that the government will do whatever they can to solve this crisis," he said.

Still, analysts warned that lower interest rates won't fix bad credit problems — and usually take several months to have an effect on an economy.

"We consider the Fed's rate cut still insufficient for the global financial markets to completely recover and help the Japanese stocks to fully rebound," Credit Suisse chief strategist Shinichi Ichikawa said.
___

Associated Press writers Dikky Sinn and Cassie Biggs in Hong Kong contributed to this report.

[Livyjr]

"U.S. stocks head for another lower open"

By TIM PARADIS, Associated Press

Last updated: 7:24 a.m., Wednesday, January 23, 2008

NEW YORK -- U.S. stocks headed for another lower open Wednesday amid continuing investor uneasiness, but futures prices pointed to less intense pressure than on Tuesday, when stocks plunged after the opening bell.

The Federal Reserve's emergency cut of its federal funds rate by 0.75 basis points to 3.50 percent eventually helped calm U.S. markets, but it was already clear in Tuesday's trading that investors had doubts about the potency of the Fed's actions.

Rate cuts typically take months to work their way into the economy.

Meanwhile, a disappointing forecast from Apple Inc. showed how fragile investor sentiment is.

The maker of the iPod issued a forecast for its fiscal second quarter that said sales would likely grow by 29 percent.

The figure would represent faster growth than in earlier years but fell short of what Wall Street had been expecting.

Apple's news appeared to reveal fresh concerns about the prospects for consumer spending.

As consumers account for more than two-thirds of the economy, investors are keen on learning whether retailers and other companies will have a harder time prying open wallets.

Shares of Apple fell more than 11 percent in premarket trading.

Dow Jones industrial average futures fell 157, or 1.31 percent, to 11,794.

Futures for the broader Standard & Poor's 500 index fell 18.90, or 1.44 percent, to 1,290.40, and the Nasdaq composite index fell 32.00, or 1.78 percent, to 1769.00.

The decline in futures, while substantial, appeared modest compared with the heavy pressure to sell investors faced by the opening bell Tuesday.

The Dow fell by as much as 465 points in the first minutes of trading before recovering from its steepest losses to end the day down 128.11, or just over 1 percent, at 11,971.19.

Bond prices were little changed Wednesday.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, stood at 3.41 percent, flat with late Tuesday.

The dollar was mixed against other major currencies.

Light, sweet crude fell $1.28 to $87.93 per barrel in premarket electronic trading on the New York Mercantile Exchange.

While investors worldwide remain concerned about the health of the U.S. economy, the Fed's rate cut and Wall Street's ability to come off its lows Tuesday helped drive a rebound in Asian trading Wednesday.

Japan's Nikkei stock average closed up 2.04 percent after falling 5.7 percent Tuesday.

Similarly, Hong Kong's Hang Seng index surged 10.72 percent, showing its biggest gain in 10 years after falling 13.7 percent in the previous two sessions.

In morning trading in Europe, however, stocks fell.

Britain's FTSE 100 fell 1.25 percent, Germany's DAX index fell 2.16 percent, and France's CAC-40 fell 2.10 percent.

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On the Net:

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

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

[Livyjr]

"Court refuses Enron investor's appeal"

By PETE YOST, Associated Press

Last updated: 7:24 a.m., Wednesday, January 23, 2008

WASHINGTON -- The Supreme Court dealt a probable fatal blow Tuesday to Enron Corp. investors' efforts to recover $40 billion from Wall Street banks in the 2001 collapse of the Texas energy company.

Without comment, the justices refused to hear arguments in the Enron case.

Attorneys for shareholders immediately vowed to return to federal court in Houston in an attempt to prove that the investment banks misled the public and helped conceal Enron's true financial condition.

"It's an uphill battle and we'll keep fighting," Patrick Coughlin, the lead lawyer for the stockholders, said.

Attorney Greg Markel, a lawyer not connected with the case who represents corporate clients in securities fraud lawsuits, said shareholders' "chances of succeeding ... are nearly zero."

Enron's demise wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans at what had been the seventh-largest company in the country.

The Supreme Court's refusal to hear the Enron appeal was anticipated following last week's ruling in another securities fraud case in which the justices ruled that a company's investors must show they relied on deceptive acts committed by third parties before they can be sued.

In the case a week ago, the third parties were suppliers to one of the nation's largest cable TV companies.

In the case of Enron, the third parties are Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC.

In the Enron lawsuit, the 5th U.S. Circuit Court of Appeals in New Orleans already has ruled that the banks did not act directly in the market for Enron securities.

Coughlin says the legal team for Enron investors has evidence that "the analysts knew what was going on" and that the lawyers for the Enron investors can show that the banks "buoyed the market for Enron securities."

In an earlier ruling, the federal judge in the Enron case threw out the glowing statements of the research analysts praising Enron, saying lawyers for the investors had not alleged that the analysts knew their statements about the company's financial health were misleading.

To date, Enron plaintiffs have settled for $7.3 billion with several financial institutions, including JPMorgan Chase & Co., Citigroup and Canadian Imperial Bank of Commerce.

Under the settlements, the payout to investors would be $6.79 per share of common stock and $168.50 per share of Enron's stock-like preferred shares, according to a mailing sent to Enron investors, who have until April 30 to decide whether they want to participate in the settlement.

Coughlin said lawyers for the investors spent $127 million in time and $50 million in out-of-pocket expenses on behalf of Enron investors.

The judge in the Enron case had said Enron shareholders could sue as a class, but the appeals court reversed that and Enron investors now will have to overcome that.

The issue of certifying a class is a critical one.

Once the courts allow huge numbers of investors to pursue a securities fraud lawsuit, the defendants almost always settle rather than exposing their corporations to potentially catastrophic liability.

The appeals court decision in the Enron case meant that shareholders and investors could not pool their resources to sue as a group.

Lawyers for Enron investors estimate the class size at more than 1 million shareholders.

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On the Net:

Supreme Court: http://www.supremecourtus.gov

[Livyjr]

"Stocks recover from sharp losses"

By MADLEN READ, Associated Press

Last updated: 5:22 p.m., Wednesday, January 23, 2008

NEW YORK -- Wall Street pulled off a stunning comeback Wednesday, surging higher in late trading and wiping out what looked to be yet another massive decline.

The Dow Jones industrials, down more than 323 points in earlier trading, ended the day with an advance of just under 300 points.

Such volatility has become a hallmark of Wall Street's performance in recent months amid the ongoing housing and credit crisis and growing fears of recession.

And, after five straight days of pullbacks, a rebound was to be expected.

But analysts saw some positive signs in the day's trading.

The Federal Reserve's decision Tuesday to lower its benchmark federal funds rate by 0.75 percentage point to 3.5 percent, while met with some skepticism, did give intrepid investors a reason to buy Wednesday.

"You might say this is a belated reaction to what the Fed did this week, compounded by hopes for the Fed to do more next week," said Peter Cardillo, chief market economist at Avalon Partners.

Traders who bet on the Fed's target fed funds rate were pricing in on Wednesday a 100 percent chance of a 0.50 percentage-point cut by the central bank when it meets next Tuesday and Wednesday.

Rate cuts are designed to stimulate borrowing and, in turn, business activity and the overall economy.

They also will eventually boost profit margins for banks and other lenders, which have been working to lower costs and raise cash levels through layoffs and stock sales after having lost billions of dollars to bad mortgages and mortgage-related investments.

Those companies -- including Citigroup Inc., Washington Mutual Inc. and Merrill Lynch -- were the big winners Wednesday.

"The early leaders in a market recovery tend to be banks, REITs (real estate investment trusts) and homebuilders, as these are the groups that typically would benefit first from a turnaround."

"And those have been the market leaders this week," Goldman said.

"What has happened is the Fed is flooding the system with liquidity and eventually we should see some traction in the economy."

"And stocks tend to respond first."

Still, analysts were mindful that in the past months, Wall Street has been known to soar one day and succumb the next, and that there are still many economic unknowns for the market to weather.

And, given that stocks are so badly beaten down, bargain hunting played a part in Wednesday's turnaround.

According to preliminary calculations, the Dow Jones industrial average rose 298.98, or 2.50 percent, to 12,270.17, having fallen as much as 323.29 earlier.

Before Wednesday's session, the Dow had fallen nearly 10 percent since the start of the year, and it was down more than 15 percent since its record close of 14,164.53 on Oct. 9.

Wednesday's swing from negative to positive territory of 631.86 points is the largest point swing since July 24, 2002, according to Dow Jones Indexes.

The largest intraday point swing, a metric that Dow started calculating in July 1995, was a 721-point swing on April 14, 2000.

Broader stock indicators also surged Wednesday.

The Standard & Poor's 500 index rose 28.10, or 2.14 percent, to 1,338.60, while the Nasdaq composite index rose 24.14, or 1.05 percent, to 2,316.41.

Advancing issues were ahead of decliners by about 3 to 1 on the New York Stock Exchange, where volume came to a heavy 2.83 billion shares.

Bond prices turned lower as stocks rebounded.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell in earlier trading but then recovered to 3.55 percent, up from 3.41 percent late Tuesday.

At its lowest point Tuesday, the Dow was 17.9 percent below its October closing high, meaning that the stock market has come perilously close to the bear market threshold of 20 percent.

It's unclear whether Wall Street will indeed keep falling and officially enter a bear period, or whether it is bottoming out.

Buying, like selling, can feed on itself and investors may go into the market to be sure they don't miss out on a rally.

What needs to be seen is whether these gains will easily be knocked down again.

"Volatility is certainly the norm now and not the exception," said Art Hogan, chief market strategist at Jefferies & Co.

"We have had 14 trading days so far this year and only two of them have been without a triple-digit swing (in the Dow)."

"Three of those days have had 300-point swings."

Wall Street faces several months of uncertainty, with the bulk of fourth-quarter earnings reports still to come and with economic reports likely to be disappointing.

When it's more clear that companies and consumers are spending freely, investors might relax.

However, with consumers burdened by debt and in the process of cutting back their spending, it's impossible to predict when that relief will come.

The dollar was mixed against other major currencies Wednesday, while gold prices fell.

Battered small-cap companies -- which rely heavily on borrowing to grow their businesses -- got a lift Wednesday.

The Russell 2000 index of smaller companies rose 21.86, or 3.26 percent, to 693.43.

Before the turnaround in U.S. stocks, European stocks closed sharply lower on economic worries and escalating uncertainty about the European Central Bank's willingness to lower rates.

Britain's FTSE 100 closed down 2.28 percent, Germany's DAX index fell 4.88 percent, and France's CAC-40 fell 4.25 percent.

In earlier Asian trading, Japan's Nikkei stock average closed up 2.04 percent after falling 5.7 percent Tuesday.

Similarly, Hong Kong's Hang Seng index surged 10.72 percent -- its biggest gain in 10 years -- after falling 13.7 percent in the previous two sessions.

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AP Business Writers Leslie Wines and Tim Paradis in New York contributed to this report.

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On the Net:

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

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

[Livyjr]

"CBO sees $250B federal budget deficit"

By ANDREW TAYLOR, Associated Press

Last updated: 1:53 p.m., Wednesday, January 23, 2008

WASHINGTON -- The deficit for the current budget year will jump to about $250 billion under Congressional Budget Office figures released Wednesday, as a weaker economy and lower corporate profits weigh on the government's fiscal ledger.

And that figure does not reflect more than $100 billion in red ink from an economic stimulus measure in the works.

"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.

The figure greatly exceeds the $163 billion in red ink registered last year.

Adding likely but still unapproved outlays for the wars in Iraq and Afghanistan brings its "baseline" deficit estimate of $219 billion to about $250 billion, the nonpartisan CBO said.

House Budget Committee Chairman John Spratt Jr., D-S.C., said the 2008 deficit might reach $379 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.

The CBO crunches economic and budget data for lawmakers.

Unlike an increasing number of economists, CBO does not forecast a recession this year.

It instead forecasts a growth rate of 1.7 percent, down from 2.2 percent real growth in the gross domestic product (GDP) last year.

"Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession," CBO said.

The CBO economic forecast was completed last month, before a recent spike in unemployment and the release of disappointing holiday retail sales figures.

"A number of ominous economic signs have emerged since CBO finalized last month the forecast underlying today's report," Spratt said.

"Today's new economic forecast thus adds to the growing evidence that the economy has weakened, and that policymakers in Washington must take action."

CBO Director Peter Orszag testified before the House Budget Committee.

He warned them again that regardless of the short-term fluctuations in the deficit, the longer-term picture remains bleak due to expected spiraling costs of Medicare, Medicaid and Social Security as the Baby Boom generation retires.

"A substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of the two will be necessary to maintain the nation's long-term fiscal stability," Orszag said.

Officially, CBO predicts the 2008 deficit at $219 billion, but that figure fails to account for at least an additional $30 billion in war costs and the likely infusion of deficit-financed economic stimulus measures such as income tax rebates, business tax breaks and help for the unemployed now under discussion on Capitol Hill and at the White House.

The deficit seems to be an afterthought as lawmakers race toward agreement with President Bush on a plan to pump perhaps $150 billion worth of deficit spending into the economy.

The bulk of the plan would come as tax cuts, though Democrats are pressing for additional help for the unemployed and people on food stamps.

Constituency groups in both political parties are pressing for even more, such as Democratic-sought aid to cash-strapped states and people with high heating bills.

"I am concerned that, in our rush to help, we will talk ourselves into a quick, feel-good hit today that will leave us with a bigger budgetary hangover tomorrow," said Rep. Paul Ryan of Wisconsin, top Republican on the Budget panel.

"We simply cannot spend our way to prosperity ... (and) use the excuse of fiscal stimulus to push through a wish list of new spending, further worsening our budget outlook and our nation's economic future."

Most of any economic stimulus bill would be released before the Oct. 1 start of the 2009 budget year, with any benefits to the economy -- and therefore federal revenues -- lagging behind.

The White House is set to release its 2009 budget on Feb. 4, and Bush has promised a plan that would erase the deficit by 2012 if his policies are followed.

The 2006 deficit was $248 billion and had closed from a high of $413 billion registered in 2004.

The deficit picture remains worse than it was when Bush took office seven years ago.

Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.

But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist attacks adversely affected the books.

Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses.

The national debt has risen to $9.2 trillion.

"This guy will come close to doubling the debt of the country during his period of presidency," Conrad said.

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On the Net:

Congressional Budget Office: http://www.cbo.gov

[Livyjr]

"Bleak outlook sends Motorola plummeting"

By DAVE CARPENTER, Associated Press

Last updated: 4:53 p.m., Wednesday, January 23, 2008

CHICAGO -- Motorola Inc.'s new CEO Greg Brown spooked investors Wednesday with a gloomy assessment of the cell phone maker's inability to turn around its ailing handset division, saying a recovery will take longer than expected.

Shares nose-dived more than 23 percent to a 4 1/2-year low on the company's outlook for worse-than-anticipated first-quarter results and Brown's acknowledgment that Motorola is short on promising new products.

Motorola also reported results from the fourth quarter that were about as weak as analysts had feared, with net profit falling 84 percent and mobile phone sales down 38 percent.

Brown said global market share -- already down to 13 percent late last year from 23 percent at the end of 2006 -- is continuing to drop as Nokia and other competitors carve into its sales.

"The recovery in Mobile Devices will take longer than expected and there is a lot more work to be done," said Brown, who took over after Ed Zander resigned following four roller coaster years.

"Demand for some of our products has slowed in an intensified competitive landscape," he said later on a conference call.

"Our consistency of new product introduction is still not where it needs to be."

"And we still have gaps in the portfolio in areas that are experiencing high rates of growth, including 3G (third-generation), China and other emerging markets."

Motorola shares, which traded Wednesday at more than seven times their recent average volume, dipped to $9.43 -- their lowest price since Aug. 14, 2003 -- then recovered to close at $10.01, down $2.31 or 18.8 percent.

They have lost 62 percent of their value in the last 15 months and are down 38 percent so far in 2008.

JMP Securities analyst Samuel Wilson said there's "still a long way to go before Motorola is fixed."

"Motorola still has a number of issues with its volatile business model."

"We believe it may be one to two years before the company has redeveloped its handset business to be less hits-driven and more platform-oriented," he said in a note to investors.

The $100 million profit was its first quarterly earnings since the first quarter, albeit small by Motorola's historical standards.

It amounted to 4 cents per share and was down from a year-earlier profit of $623 million, or 25 cents per share.

Sales fell to $9.65 billion from $11.79 billion a year earlier.

Income from continuing operations was 5 cents per share, including charges of 9 cents per share for asset write-downs, layoffs and a legal settlement.

That was 8 cents less than the consensus estimate of analysts polled by Thomson Financial.

Motorola executives had told analysts that a series of innovative new cell phones would help break the company out of a slump that began when sales of the iconic Razr phone leveled off and the company had no other hit product to maintain momentum and market share.

The Schaumburg, Ill.-based company showed tentative progress toward a turnaround in the third quarter during a disastrous year which saw its handset sales tumble 33 percent overall from 2006.

But sales from the mobile devices division, dominated by cell phones, sank to $4.8 billion in the fourth quarter as the company failed to connect with consumers over the holidays.

The handset unit, its biggest, had an operating loss of $388 million and shipped 40.9 million devices during the quarter, in line with analyst expectations but down sharply from past quarters.

Motorola's other businesses fared better.

The home and networks segment, which sells TV set-top boxes and modems, saw sales rise 11 percent to $2.7 billion although operating earnings decreased 14 percent to $192 million.

The enterprise mobility solutions unit, which sells computing and communications equipment to businesses, registered a 40 percent increase in operating earnings to $451 million on $2.1 billion in sales, up 35 percent from a year ago due largely to the acquisition of the Symbol business in early 2007.

The company forecast a first-quarter loss from continuing operations of 5 cents to 7 cents per share, below analysts' consensus estimate of 10 cents per share.

Brown indicated in response to an analyst's question that more cost cuts are possible in the cell-phone division.

The company already cut 7,500 jobs last year to try to stem its slide.

Separately, Motorola announced it will put Qualcomm Inc. chipsets into some of its handsets starting at the end of the year.

Terms were not disclosed.

Motorola will put the chipsets into some of its third-generation handsets that offer voice, text and other features.

For 2007, Motorola had a net loss of $49 million, or 2 cents per share, compared with a profit a year earlier of $3.67 billion, or $1.46 per share.

Revenue declined 15 percent to $36.6 billion from $42.8 billion.

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On the Net:

Motorola Inc.: http://www.motorola.com

[Livyjr]

"Oil falls on concerns demand will fall"

By JOHN WILEN, Associated Press

Last updated: 6:13 p.m., Wednesday, January 23, 2008

NEW YORK -- Crude oil futures skidded lower Wednesday, falling more than $2 a barrel to their lowest closing price in three months on concerns that oil supplies are growing even as the economy and demand for oil are cooling.

Global stock markets have fallen sharply in recent days on fears that the U.S. economy is close to entering a recession, if it hasn't already.

Energy investors fear a slowdown would curtail demand for oil and petroleum products such as gasoline and heating oil.

Meanwhile, domestic oil inventories likely grew last week by 1.8 million barrels, according to the average estimate of analysts surveyed by Dow Jones Newswires.

Supplies of gasoline and heating oil also likely rose.

The Energy Department's Energy Information Administration will issue its weekly inventory report on Thursday this week, a delay of one day due to the Martin Luther King, Jr. holiday.

Light, sweet crude for March delivery fell $2.22 to settle at $86.99 a barrel on the New York Mercantile Exchange Wednesday.

Oil last closed below $87 a barrel on Oct. 23.

The Federal Reserve's decision Tuesday to slash its benchmark fed funds rates by three-quarters of a percentage point to 3.5 percent has done little to limit declines in oil prices.

While the Fed is expected to cut rates further next week, many investors remain worried about whether the cuts will stave off recession.

"We shall see how stimulative our current monetary policy is," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos.

Investors are also concerned that high energy prices may be contributing to the economic slowdown.

At the pump, gas prices held steady overnight at $3.01 a gallon, according to AAA and the Oil Price Information Service.

Prices have mostly fallen lately, but remain more than 85 cents a gallon above year-ago levels.

In Cairo Wednesday, U.S. Energy Secretary Samuel Bodman said high oil prices are beginning to affect the economy.

"The economy has been able to withstand it until now," Bodman said.

"I believe the $100 price of oil is starting to have an impact."

Oil rose as high as $100.09 a barrel earlier this month before falling back on economic concerns.

Other energy futures were mostly lower Wednesday.

February heating oil futures fell 4.95 cents to settle at $2.4231 a gallon on the Nymex while February gasoline futures dropped 2.98 cents to settle at $2.2508 a gallon.

November natural gas futures fell 4.9 cents to settle at $7.621 per 1,000 cubic feet.

In London, March Brent crude futures fell $1.83 to settle at $86.62 a barrel on the ICE Futures exchange.

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Associated Press writers Pablo Gorondi in Budapest and Thomas Hogue in Bangkok, Thailand, contributed to this report.

[Livyjr]

"Sallie Mae lost $1.6 billion in 4Q"

By MARCY GORDON, Associated Press

Last updated: 6:52 p.m., Wednesday, January 23, 2008

WASHINGTON -- Sallie Mae, the embattled student lender, said Wednesday it lost $1.6 billion in the fourth quarter as borrowing costs rose and it set aside $575 million to cover bad loans.

To address the growing number of delinquencies and defaults on loans not backed by the government, Sallie CEO Albert Lord said the company is shying away from lending to students it considers unlikely to graduate or attending schools with inferior graduation rates.

Sallie also reported Wednesday that the Securities and Exchange Commission has asked for information concerning its public disclosures around the time of stock sales by its executives and board members.

The SEC last year initiated an investigation of trading in Sallie shares related to a planned buyout of the student lender.

During a conference call, Lord apologized for his behavior during a stormy call last month in which he refused to answer analysts' questions and ended the session by uttering an expletive.

Shares of Sallie, formally SLM Corp., fell 1.7 percent, or 33 cents, to $18.69 Wednesday.

That is a mere fraction of the $60-per-share buyout offer made last spring by an investor group led by private-equity firm J.C. Flowers & Co.

The $25 billion offer for Sallie was later rescinded.

The October-December loss at Sallie Mae was equivalent to $3.98 a share, compared with a profit of $18 million, or 2 cents a share, in the fourth quarter of 2006.

Reston, Va.-based Sallie has slashed its earnings forecast for this year, recently held a special sale of stock to raise $2.9 billion in cash and is cutting 350 jobs from its workforce of 11,000 to help reduce costs 20 percent by 2010.

The company's newly installed executive team expects that $625 million to $700 million will have to be set aside this year for soured student loans.

The company's new chief financial officer, John Remondi, said Wednesday the company is very close to securing the $26 billion in credit it needs by Feb. 15, to fund its loans.

Sallie Mae likely will "pay dearly" for it in interest in light of the current tight credit market, he acknowledged.

The company reported a loss on a "core" basis of $139 million, or 36 cents a share, in the fourth quarter, compared with profit of $326 million, or 74 cents a share, a year earlier.

Core earnings exclude treatment for student loans bundled together as securities and derivatives, the complex financial instruments used as a hedge against interest rate swings.

The per-share "core" loss still was milder than Wall Street's expectations: analysts surveyed by Thomson Financial anticipated a loss of 55 cents a share.

For all of 2007, the student-loan provider posted a net loss of $896.4 million, or $2.26 a share, compared with net profit of $1.15 billion, or $2.63 a share, in 2006.

The company announced earlier this month that it will cut back on its core business of making student loans, but executives homed in Wednesday on the importance of graduation as a predictor of an individual's higher earnings potential and likelihood to repay loans.

People attending less "traditional" schools, offering associate degrees or with low graduation rates, will be far less likely to get loans from Sallie Mae, even at high rates, under the new policy.

Core net-interest income in the fourth quarter was $612 million, down from $651 million a year earlier.

Net interest income is the difference between how much it costs to borrow money and the amount received from lending money.

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On the Net:

SLM Corp.: http://www.salliemae.com

[Livyjr]

"Treasurys stall as stocks stage rebound"

By LESLIE WINES, Associated Press

Last updated: 6:03 p.m., Wednesday, January 23, 2008

NEW YORK -- Treasurys gave back much of a vigorous rally in late trading Wednesday when a sagging stock market suddenly regained strength and stopped the flow of money into bonds.

The volatile price swings typify the uncertainty that has swept the markets in recent weeks as investors grapple with sudden developments in the economic and interest rate outlooks.

Earlier in the session, Treasurys rallied forcefully, causing the 2-year yield to plunge to a four-year low as it mirrored investors' belief that the Federal Reserve has embarked on a rate cutting spree.

The frenetic session also saw the yield on the 30-year bond hit its lowest point ever as it skidded below the 4.15 percent it held when first issued in 1977.

The initial rally was part of an advance that began Tuesday after the Fed lowered the benchmark fed funds target by a sizable 0.75 percentage point to 3.5 percent.

The Fed is holding a regularly scheduled monetary policy meeting next Tuesday and Wednesday.

"The perception is that the Fed will have to reduce rates by another 0.50 percentage point on Jan. 30," said Tom di Galoma, head of Treasurys trading at Jefferies & Co.

Although bond market investors remain convinced they will see more rate cuts next week, a late afternoon surge in the stock market lessened demand for safe assets.

The Dow Jones industrial average managed to close with a 299-point gain, after earlier trading 323 points lower.

The 2-year yield closed off its highs, rising 1/32 to 102 11/32 with a yield of 1.98 percent, down from 1.99 percent in late trade on Tuesday.

Earlier, the yield fell as low as 1.85 percent, its lowest since February 2004.

The benchmark 10-year note gave back all its gains to close down 3/32 at 106 25/32 with a yield of 3.43 percent, down from 3.41 percent late Tuesday.

At the height of Wednesday's rallly, the yield sank to its weakest point since June 2003.

The 30-year long bond rose 5/32 to 113 26/32 with a 4.18 percent yield, down from 4.20 percent late Turesday.

During the session the long bond's yield sank to a record low of 4.13 percent yield, placing it below its 1977 debut at 4.15 percent yield.

The dramatic late session rally in the stock market caused heavy selling of Treasurys in after hours trade that sent yields well above the historic lows struck earlier in the day.

At 5:30 p.m. Eastern time, the 2-year yield was 2.14 percent, the 10-year yield was 3.60 percent and the 30-year yield was 4.32 percent.

The yield on the 3-month note fell to 2.25 percent from 2.32 percent late Tuesday as the discount rate fell to 2.20 percent from 2.27 percent.

Recent Treasury market rallies have pushed the yield on the 2-year note, which is the most sensitive to interest rate policy, sharply lower to reflect investors' belief that the Fed has no option but to cut rates again next week to stimulate battered credit markets and a faltering economy.

Prices and yields move in opposite directions

Traders study the spread, or distance, between the Fed funds rate and the 2-year yield for clues as to the direction of official rates.

On Wednesday, the difference between the 2-year yield and the Fed funds target was as large as 1.64 percentage points.

Generally the yield and the target rate trade within 0.25 percentage point of each other.

The gaping difference between the two rates is a classic signal investors expect rate cuts and also puts pressure on the Fed to make those reductions.

At the start of the credit market crisis in August 2007, the Fed sought to avoid reacting directly to turbulent financial markets and tried to hinge monetary policy mainly on economic data.

But huge losses on Wall Street this year appear to have played a part in the Fed's move this week.

The Fed met in emergency session to authorize the latest rate reduction Monday, when global stock exchanges suffered massive selling routs and Wall Street was closed for a holiday.

There is now a sense that the stock and bond markets are helping guide Fed policy, according to Alan Tedford, a fixed-income portfolio manager at Stephens capital Management.

"The Fed has a lot more work to do," he said.

Investors are wrangling to see the fed funds rate below all major Treasury yields, he said noting that the 10-year yield also is below the 3.5 percent Fed funds target.

"The Fed has got to get the fed funds rate to where banks can lend again," he said.

"Right now, it costs banks more to borrow than to lend."

The fed funds target is the rate the Fed charges on its 24-hour commercial loans to banks.

The demand for Treasurys also reflects increased investor demand for safe assets after a number of prominent economists have speculated that the economy has entered a recession.

However, a recession consists of two consecutive quarters of economic contraction and can only be declared after the fact.

[Livyjr]

"World markets still volatile"

By TOBY ANDERSON, Associated Press

Last updated: 10:03 a.m., Wednesday, January 23, 2008

LONDON -- European shares dropped sharply Wednesday while Asian shares rose in a volatile market mix as investors digested the U.S. Federal Reserve's surprise interest rate cut aimed at shoring up the sagging American economy.

In Europe, the U.K.'s FTSE 100 dipped 3.7 percent to 5,528.7, while Germany's DAX fell 5.4 percent to 6,401.29.

France's CAC slipped 4.2 percent to 4,614.04.

The FTSE and the CAC had finished in positive territory Tuesday after the rate cut, but analysts said market swings were expected to linger for some time because the Fed's quick action between scheduled meetings was seen by some as a sign American authorities view the U.S. credit crunch as a very serious problem.

"The U.S. rate cut will not prevent the U.S. and world markets from slowing or even sliding into recession but it sends a positive signal that the Fed will do all it can do ... to halt the liquidity crunch that is paralyzing the financials sector," said Lawrence Peterman, investment director at Eden Financial in London.

Markets may have taken their cue from a statement from European Central Bank President Jean-Claude Trichet that suggested he was sticking with his anti-inflation stance -- and would not follow the Fed in cutting rates.

Lower rates boost stocks.

Trichet said it was his duty to "solidly anchor inflation expectations to avoid additional volatility."

Some analysts think, however, that the global market meltdown and a decelerating economy could finally shake the ECB's steel nerves and see it cut interest rates as soon as the second quarter of this year.

In Hong Kong, the Hang Seng index surged 10.7 percent -- its biggest gain 10 years -- to 24,090.17, regaining much of the 13.7 percent it had shed over the previous two days.

Japan's Nikkei 225 index rose 2 percent to close at 12,829.06 after tumbling 9.3 percent the previous two days, while India's Sensex climbed 5.2 percent, recapturing nearly half its 12 percent losses from Monday and Tuesday.

In Shanghai, China's benchmark index, which sank 12 percent earlier this week, bounced back 3.1 percent, and Australia's market rebounded 4.4 percent, snapping a 12-day losing streak.

Fears of a U.S. recession, which would likely erode demand for Asian exports, has battered the region's markets since the start of the year.

The sell-offs accelerated Monday and Tuesday amid skepticism that a stimulus package announced by President Bush on Friday would prevent the economy from contracting.

Jolted by worries of a global recession, the Fed on Tuesday slashed its federal funds rate three-quarters of a percentage point to 3.5 percent.

It was the first time the Fed has changed rates between meetings since 2001, underscoring the sense of urgency.

On Wall Street Tuesday, the Dow Jones industrial average plunged more than 450 points initially but recouped most of its losses as the day progressed to close at 11,971.19, down 128.11 points, or 1.1 percent.

In the first minutes of trading Wednesday, the Dow Jones industrial average fell 261.10, or 2.18 percent, to 11,710.09.

Broader stock indicators also declined.

The Standard & Poor's 500 index fell 28.97, or 2.21 percent, to 1,281.53, and the Nasdaq composite index slid 53.19, or 2.32 percent, to 2,239.08.

Investors in Asia were already factoring in another U.S. rate cut of as much a half-point when the Fed holds its regular meeting on Jan. 29-30, traders said.

But markets could slide back if Wall Street continues to decline in coming sessions, they warned.

In Hong Kong, where the benchmark index had plunged 22 percent since the start of the year through Tuesday, investors took heart from the U.S. rate cut and snapped up stocks that had fallen to attractive levels.

------

Associated Press writers Dikky Sinn and Cassie Biggs in Hong Kong contributed to this report.

[Livyjr]

"Drought could force nuke-plant shutdowns"

By MITCH WEISS, Associated Press

Last updated: 12:52 p.m., Wednesday, January 23, 2008

LAKE NORMAN, N.C. -- Nuclear reactors across the Southeast could be forced to throttle back or temporarily shut down later this year because drought is drying up the rivers and lakes that supply power plants with the awesome amounts of cooling water they need to operate.

Utility officials say such shutdowns probably wouldn't result in blackouts.

But they could lead to shockingly higher electric bills for millions of Southerners, because the region's utilities could be forced to buy expensive replacement power from other energy companies.

Already, there has been one brief, drought-related shutdown, at a reactor in Alabama over the summer.

"Water is the nuclear industry's Achilles' heel," said Jim Warren, executive director of N.C. Waste Awareness and Reduction Network, an environmental group critical of nuclear power.

"You need a lot of water to operate nuclear plants."

He added: "This is becoming a crisis."

An Associated Press analysis of the nation's 104 nuclear reactors found that 24 are in areas experiencing the most severe levels of drought.

All but two are built on the shores of lakes and rivers and rely on submerged intake pipes to draw billions of gallons of water for use in cooling and condensing steam after it has turned the plants' turbines.

Because of the yearlong dry spell gripping the region, the water levels on those lakes and rivers are getting close to the minimums set by the Nuclear Regulatory Commission.

Over the next several months, the water could drop below the intake pipes altogether.

Or the shallow water could become too hot under the sun to use as coolant.

"If water levels get to a certain point, we'll have to power it down or go off line," said Robert Yanity, a spokesman for South Carolina Electric & Gas Co., which operates the Summer nuclear plant outside Columbia, S.C.

Extending or lowering the intake pipes is not as simple at it sounds and wouldn't necessarily solve the problem.

The pipes are usually made of concrete, can be up to 18 feet in diameter and can extend up to a mile.

Modifications to the pipes and pump systems, and their required backups, can cost millions and take several months.

If the changes are extensive, they require an NRC review that itself can take months or longer.

Even if a quick extension were possible, the pipes can only go so low.

If they are put too close to the bottom of a drought-shrunken lake or river, they can suck up sediment, fish and other debris that could clog the system.

An estimated 3 million customers of the four commercial utilities with reactors in the drought zone get their power from nuclear energy.

Also, the quasi-governmental Tennessee Valley Authority, which sells electricity to 8.7 million people in seven states through a network of distributors, generates 30 percent of its power at nuclear plants.

While rain and some snow fell recently, water levels across the region are still well below normal.

Most of the severely affected area would need more than a foot of rain in the next three months -- an unusually large amount -- to ease the drought and relieve pressure on the nuclear plants.

And the long-term forecast calls for more dry weather.

At Progress Energy Inc., which operates four reactors in the drought zone, officials warned in November that the drought could force it to shut down its Harris reactor near Raleigh, according to documents obtained by the AP.

The water in Harris Lake stands at 218.5 feet -- just 3 1/2 feet above the limit set in the plant's license.

Lake Norman near Charlotte is down to 93.7 feet -- less than a foot above the minimum set in the license for Duke Energy Corp.'s McGuire nuclear plant.

The lake was at 98.2 feet just a year ago.

"We don't know what's going to happen in the future."

"We know we haven't gotten enough rain, so we can't rule anything out," said Duke spokeswoman Rita Sipe.

"But based on what we know now, we don't believe we'll have to shut down the plants."

During Europe's brutal 2006 heat wave, French, Spanish and German utilities were forced to shut down some of their nuclear plants and reduce power at others because of low water levels -- some for as much as a week.

If a prolonged shutdown like that were to happen in the Southeast, utilities in the region might have to buy electricity on the wholesale market, and the high costs could be passed on to customers.

"Currently, nuclear power costs between $5 to $7 to produce a megawatt hour," said Daniele Seitz, an energy analyst with New York-based Dahlman Rose & Co.

"It would cost 10 times that amount that if you had to buy replacement power -- especially during the summer."

At a nuclear plant, water is also used to cool the reactor core and to create the steam that drives the electricity-generating turbines.

But those are comparatively small amounts of water, circulating in what are known as closed systems -- that is, the water is constantly reused.

Water for those two purposes is not threatened by the drought.

Instead, the drought could choke off the billions of gallons of water that pass through the region's reactors every day to cool used steam.

Water sucked from lakes and rivers passes through pipes, which act as a condenser, turning the steam back into water.

The outside water never comes into direct contact with the steam or any nuclear material.

At some plants -- those with tall, Three Mile Island-style cooling towers -- a lot of the water travels up the tower and is lost to evaporation.

At other plants, almost all of the water is returned to the lake or river, though significantly hotter because of the heat absorbed from the steam.

Progress spokeswoman Julie Hahn said the Harris reactor, for example, sucks up 33 million gallons a day, with 17 million gallons lost to evaporation via its big cooling towers.

Duke's McGuire plant draws in more than 2 billion gallons a day, but most of it is pumped back to its source.

Nuclear plants are subject to restrictions on the temperature of the discharged coolant, because hot water can kill fish or plants or otherwise disrupt the environment.

Those restrictions, coupled with the drought, led to the one-day shutdown Aug. 16 of a TVA reactor at Browns Ferry in Alabama.

The water was low on the Tennessee River and had become warmer than usual under the hot sun.

By the time it had been pumped through the Browns Ferry plant, it had become hotter still -- too hot to release back into the river, according to the TVA.

So the utility shut down a reactor.

David Lochbaum, nuclear project safety director for the Union of Concerned Scientists, warned that nuclear plants are not designed to take the wear and tear of repeatedly stopping and restarting.

"Nuclear plants are best when they flatline -- when they stay up and running or shut down for long periods to refuel," Lochbaum said.

"It wears out piping, valves, motors."

Both the industry and NRC spokesman Scott Burnell said plants can shut down and restart without problems.

[Livyjr]

AND AS THE PALESTINIAN PEOPLE ARE BEING STARVED INTO A STATE ON NON-EXISTENCE ....

AMERICA IS CONCERNED THAT THEY ARE GETTING SOME FOOD TO EAT IN EGYPT ....

"US worried about Gaza border breach"

By ANNE GEARAN, AP Diplomatic Writer

Wed Jan 23, 12:38 PM ET

WASHINGTON - The United States expressed concern Wednesday about tens of thousands of Palestinians pouring into Egypt from the Gaza Strip across a broken security barrier at the border of the small territory run by Hamas militants.

"We are concerned about that situation and frankly I know the Egyptians are as well," State Department deputy spokesman Tom Casey said.

David Welch, the assistant secretary of state for the Middle East, and American diplomats in Cairo have talked to Egyptian authorities about the situation, Casey said, but he didn't offer details.

He said the Egyptians take border security seriously and that he has no indication the situation has affected Israeli-Palestinian relations for now.

"I'm not going to try and speak for Egypt, give public recommendations to the Egyptian government on how to control their sovereign border," Casey said, adding that the United States is available to offer advice or support.

The Palestinian exodus was a protest against the closure of the impoverished Palestinian territory imposed last week by Israel.

Israel controls most of Gaza's land borders, while Egypt shares a small border with the territory around the market town of Rafah.

Egypt generally keeps its border with Gaza under tight control, although Israel accuses Egypt of looking the other way when it comes to smuggling operations.

The border crossings put Israel and the United States in an awkward spot as President Bush pushes new Israeli-Palestinian peace talks.

Egypt is one of only two Arab states to make peace with Israel, and holds a historic role as Arab host and broker for peace talks.

Israel has come under international criticism for sealing off Gaza as a pressure tactic against Hamas militants who took over the strip in June, but is reluctant to criticize Egypt for allowing Palestinians free passage Wednesday.

The United States does not want to publicly criticize either Israel or Egypt.

It aimed instead at Hamas, the militant political and military organization pledged to Israel's destruction.

Israel and the United States are backing Palestinian President Mahmoud Abbas, of the rival Fatah Party, in a bitter fight between the Palestinian factions.

"The Palestinians living in Gaza are living under chaos because of Hamas, and the blame has to be placed fully at their feet," White House press secretary Dana Perino said Wednesday.

Jubilant men and women crossed unhindered over the toppled corrugated metal along sections of the barrier in Rafah, carrying goats, chickens and crates of Coca-Cola.

Some brought back televisions, car tires and cigarettes and one man even bought a motorcycle.

Vendors sold soft drinks and baked goods to the crowds.

They were stocking up on goods made scarce by the Israeli blockade and within hours, shops on the Egyptian side of Rafah had run out of stock.

Earlier Wednesday, Secretary of State Condoleezza Rice offered a muted response, saying in Switzerland that the U.S. wants to see stability in the region, but that "most importantly both the security concerns of Israel and the humanitarian concerns of Gazans be met."

[Livyjr]

"CBO sees $250B federal budget deficit"

By ANDREW TAYLOR, Associated Press

Last updated: 1:53 p.m., Wednesday, January 23, 2008

WASHINGTON -- The deficit for the current budget year will jump to about $250 billion under Congressional Budget Office figures released Wednesday, as a weaker economy and lower corporate profits weigh on the government's fiscal ledger.

And that figure does not reflect more than $100 billion in red ink from an economic stimulus measure in the works.

"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.

The figure greatly exceeds the $163 billion in red ink registered last year.

Adding likely but still unapproved outlays for the wars in Iraq and Afghanistan brings its "baseline" deficit estimate of $219 billion to about $250 billion, the nonpartisan CBO said.

The deficit seems to be an afterthought as lawmakers race toward agreement with President Bush on a plan to pump perhaps $150 billion worth of deficit spending into the economy.

"I am concerned that, in our rush to help, we will talk ourselves into a quick, feel-good hit today that will leave us with a bigger budgetary hangover tomorrow," said Rep. Paul Ryan of Wisconsin, top Republican on the Budget panel.

"We simply cannot spend our way to prosperity ... (and) use the excuse of fiscal stimulus to push through a wish list of new spending, further worsening our budget outlook and our nation's economic future."

The deficit picture remains worse than it was when Bush took office seven years ago.

The national debt has risen to $9.2 trillion.

"This guy will come close to doubling the debt of the country during his period of presidency," Conrad said.

MONEY CAN BUY YOU LOVE ....

YEAH .....

RIGHT .....

And so ....

"The U.S. Financial Crisis - in Iraq"

By DANIEL PEPPER/BAGHDAD

Wed Jan 23, 11:55 AM ET

The U.S. military in Iraq has been extolling the achievements of its cooperation with civilians in the fight against extremists and insurgents.

The mechanism of that cooperation, however, is greased by cash - and the budgetary spigot for it has been tightening in recent months.

That does not sit well for officers like Captain Joel Brown, in charge of Eagle company for the 2-2 Styker Cavalry Regiment.

For him, money spent bankrolling the Sunni al-Sahwa ("Awakening") movement is money well spent.

Al-Sahwa patrols neighborhoods in his area and effectively works as a local muscle, beating back insurgents and keeping the peace where local law enforcement has long since abandoned.

When Brown's company arrived in southern Baghdad in August they found 50 roadside bombs in one day; they would sometime engage in two or three firefights daily.

Now he pays nine Sunni contractors to manage 10 checkpoints with about 300 guards, in the process protecting schools, clinics and key intersections 24 hours a day.

Soon there will be a total of 1,000 guards.

When these so-called "Concerned Citizens' League" (CLC) programs began, attacks against his men started decreasing.

For Brown, the calculus is clear:

"Every time we loose one of our guys it costs us $400,000 [in life insurance paid to family members]."

"Each Hellfire missile is $60,000 and we've used a ton of those."

"What's the price of peace?"

"It's probably not as costly as the price of unrest."

"Money is my non-lethal ammunition."

"I'd rather give somebody a job than have to fight them."

That sentiment is echoed by captain David Dehart, a military intelligence officer working with Brown and other commanders in an area of southern Baghdad that used to be a no-go zone for U.S. troops.

"A lot of these guys are $50 away from either putting in an IED [roadside bomb] or standing on a checkpoint with an AK" guarding the neighborhood for us, says Dehart.

Commanders on the ground draw their money from CERP (Commander's Emergency Response Program) funds.

CERP funds are meant to cover everything from condolence payments to water and electricity infrastructure improvements.

They also can give out micro-grants to neighborhood patrol and checkpoint contracts.

The CERP budget for fiscal year 2007 was $750 million and while no cutbacks are expected for 2008 the money hasn't been authorized yet by Congress, which means the army's top brass is playing it safe and tightening its belt.

According to Lt. Col. Gerry Messmer, A U.S. civil military operations officer in Baghdad, there is no problem with funding.

"We are reviewing all requests for funds and asking the important question of how can we help [Iraqis] help themselves."

But the military bureaucracy can itself be a threat to the funds.

A recent turnover of generals in Baghdad has led to a routine review of guidelines, regulations and spending.

But what the incoming generals might view as cutting the fat off programs, lower-ranking officers see as a threat to the very goodwill and positive rapport they've worked months to established between themselves and community leaders.

Brown says that higher-ups are going to cut the money each contractor receives - Sunni leaders who stick their necks out and who have been increasingly targeted by insurgents in the past few months.

About 75% of the contract goes toward the salaries of the guards hired by the contractors.

The remaining 25% - or about $11,000 - goes toward so-called administrative costs, which, apart from the minimal amount used to pay for uniforms, goes straight to the contractor himself.

Brown says that initially the plan was to reduce the contractor's take from 25% to a 4%-8% range, upon renewal of each contract.

However, he says that officers spoke out and now the reduction is going to be more gradual, from 25% to 20%, and then to 10%.

There will be cuts for the salary of checkpoint supervisors as well.

"You are asking them to risk their lives and then cutting their salary down."

"It's not fair," says Brown, who regularly stops by his contractors' homes in the evening to sip small cups of sweet, hot Iraqi tea and learn about the neighborhood.

For captain Douglas Willig, who is in charge of an area adjacent to Brown's, the new CLC contracts will mean that 30% of all his workers will take a 30% pay cut next month.

"My CLCs are going to change pretty drastically," says Willig.

Previously Willig thought he could at least rely upon funds for micro-grants project to spark economic activity by helping Iraqis who wouldn't transition from the CLCs to the army or police to segue into small business.

"The feeling was [micro-grants] was the best thing going," says Willig.

He has received application packets for $150,000 in grants, but the colonel overseeing his command has only $200,000 in grant money for an area that is more than four times as large as Willig's.

The colonel told Willig he will receive $25,000 in grant money, a fifth what he was expecting.

Another line of CERP funding is supposed to provide Willig with $10,000 from which to draw up to $1,000 at a time to pay Iraqis whose property has been damaged during operations.

Two families seeking damages - one for $400 and one for $450 for windows blown out and walls broken down during different operations have been waiting for months because Willig's funding has run dry.

"I've been telling them to come back later - I haven't had [this line of CERP funding] since October."

"There's bureaucracy involved and reviews and allocation at different levels."

"Two months ago I would have said come back tomorrow [to pick up the payment]", says Willig.

"Today I've got no idea."

And without funds to encourage cooperation, the fragile peace of the last few months may come undone.

This post has been edited by Livyjr: Jan 24 2008, 07:02 AM

[Livyjr]

"Big Dig contractors to settle for $458M"

By DENISE LAVOIE, Associated Press Writer

23 January 2008

BOSTON - Contractors will pay more than $450 million to settle the state's lawsuit over a fatal tunnel collapse and to cover leaks and design flaws in the Big Dig, officials said Wednesday.

Bechtel/Parsons Brinckerhoff, the consortium that oversaw design and construction of the nation's costliest public works project, has agreed to pay $407 million, U.S. Attorney Michael Sullivan said in announcing the deal involving the nation's costliest and most complex highway project.

Several smaller companies will pay about $51 million collectively.

"The citizens of Massachusetts entrusted Bechtel/Parsons Brinckerhoff to act as their eyes and ears on the Central Artery Project," Sullivan said.

"They grossly failed to meet their obligations and responsibilities to the citizens of Massachusetts and the United States."

Under the settlement, Bechtel/Parsons Brinckerhoff will not face criminal charges in the deadly Interstate 90 tunnel ceiling collapse in July 2006.

Milena Del Valle, 39, of Boston, was crushed by 26 tons of concrete as she and her husband drove to Logan International Airport.

The deal also does not bar the consortium from receiving future government contracts.

Bechtel/Parsons Brinckerhoff was paid more than $2 billion to manage the project.

State officials will be able to seek additional damages from Bechtel/Parsons Brinckerhoff only if there is a catastrophic event ”defined as causing more than $50 million in damages"

Its liability will be capped at $100 million, and an arbitrator would decide whether the consortium was to blame.

The settlement does not have a direct effect on a separate lawsuit filed by Del Valle's family.

"We believe that today's global agreement is the best possible resolution."

"I do not say perfect, but the best possible resolution at this time," Attorney General Martha Coakley said.

Powers Fasteners Inc., the only company that has been criminally charged in the tunnel collapse, also is the only one out of 15 companies that has settled with the Del Valle family.

Powers, which provided the epoxy blamed for the collapse, has agreed to pay the family $6 million.

The Brewster, N.Y.-based company, which has been charged with involuntary manslaughter, has denied responsibility for the collapse.

Max Stern, the company's lawyer in the criminal case, criticized the decision by prosecutors to allow Bechtel/Parsons Brinckerhoff, a multibillion-dollar consortium, to avoid criminal charges while pursuing charges against Powers, a smaller, family-owned business.

"Obviously, this is out of Powers' price range," Stern said of the $407 million settlement.

"The sheer size of this settlement underlines what we think is the undeniable fact that Bechtel bears the real responsibility for this accident."

"After all, Bechtel was responsible for the design, it was responsible for the construction and it was responsible for the inspection of the tunnel, and yet, it escapes all criminal charges."

If convicted, Powers faces a fine of $1,000, the maximum penalty for a company charged with manslaughter in Massachusetts.

No individuals were indicted, but prosecutors did not rule out future indictments against individuals.

Del Valle's death sparked a flurry of finger-pointing and investigations.

The National Transportation Safety Board found that the wrong type of epoxy was used to hold up concrete ceiling panels that collapsed and fell on Del Valle's car.

The NTSB concluded the collapse could have been avoided if designers and construction crews had considered that the epoxy holding support anchors for the panels could slowly pull away over time.

Dec. 31 marked the end of the joint venture that teamed Bechtel/Parsons Brinckerhoff with the Massachusetts Turnpike Authority to bury the old elevated Central Artery that ran through the heart of Boston with a series of tunnels, ramps and bridges.

The $14.79 billion Big Dig, which had an initial price tag of $2.6 billion, has been plagued by problems and cost overruns throughout the two decades it took to design and build.