The Epic Of The Fall

byzantine_ruins @ 2008-05-16T16:57:00

2008-05-16T20:56:33Z

The European Central Bank on Thursday voiced its “high concern” at growing evidence that banks are exploiting its efforts to unblock the frozen funding Markets by using its liquidity scheme to offload more risky assets than it envisaged.

Yves Mersch, a governing council member, said the ECB was now “looking very hard at whether there is not a specific deterioration of collateral” which the central bank is accepting in return for funds.

He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank.

The Bank of England recently created a facility for UK banks to access funding for mortgages and the Financial Times has learnt that almost £90bn ($175bn) worth of bonds are being created to be placed there - almost twice the £50bn initially expected when the scheme was launched only three weeks ago.

Mersch’s comments come as banks, whose main centres of operations are not within the eurozone, are structuring new bonds based on assets other than mortgages in order to gain access to ECB funding. The ECB’s main mortgage-bond exposures so far are believed to be from Spanish, Dutch and some UK deals, but the central bank publishes few details on the collateral it holds.

However, this week Glitnir, the Icelandic bank, is in the process of clearing the use of a euro 890m ($1.37bn) collateralised loan obligation (CLO) for funding at the ECB. Meanwhile, Macquarie Leasing, has done a securitisation of Australian motor loans, which will have a euro-denominated slice so that the investors who buy the deal can use it at the ECB.

“There is moral hazard . . . and we are not in the business of taking over the market,” Mr Mersch said.

byzantine_ruins @ 2008-05-16T16:54:00

2008-05-16T20:54:16Z

byzantine_ruins @ 2008-05-16T14:20:00

2008-05-16T18:19:58Z

JERUSALEM (Reuters) - The United States and Israel agree on the need for "tangible action" to prevent Iran from developing nuclear weapons, Israeli Prime Minister Ehud Olmert's spokesman said after a visit by U.S. President George W. Bush.

"We are on the same page. We both see the threat ... And we both understand that tangible action is required to prevent the Iranians from moving forward on a nuclear weapon," Olmert spokesman Mark Regev said on Friday.

Regev described diplomatic efforts so far to exert pressure on Iran as "positive", but added: "It is clearly not sufficient and it's clear that additional steps will have to be taken".

Asked about the option of using military force, Regev said: "Leaders of many countries have talked about many options being on the table and, of course, Israel agrees with that."

Bush ratcheted up his rhetoric toward Tehran in a speech to Israel's Knesset on Thursday, saying critics' calls for talks with Iranian President Mahmoud Ahmadinejad were comparable to the "appeasement" of Adolf Hitler before World War Two.

Bush vowed that Washington would stand with Israel in opposing Iran's nuclear ambitions, saying it would be "unforgivable" if Tehran were allowed to get the bomb.

Iran has said it will not stop uranium enrichment, which it says is for generating electricity only. In a separate development on Friday, the United States said it would sign an agreement with Saudi Arabia to help the kingdom develop peaceful nuclear energy.

Level 3 Bombs As Illustrated By "The Financial Ninja"

2008-05-16T12:41:30Z

Great article from the depths of the Calculated Risk comments roll:

http://benbittrolff.blogspot.com/2008/05/bulltrap-abcp-and-level-3-bombs.html

Here's the real killer:

Level 3 assets are sure-fire made up numbers. Level 2 assets are to some mysterious degree (use 40-60% as a rule of thumb) going to end up as level 3 assets when the auditors poke the bank with a sharp fork to make it so.

The FASB (federal accounting standards board) recently relaxed the rules for level 3 accounting to keep it square and legal to have notional values pencilled in where a market no longer exists for the security by creating a class of transactions called "forced or unususal sales" that you don't have to mark your assets to, and you get to call what is forced or unusual.

This going to make banks into zombies. They will have all these liabilities they are protected from recognizing, but that they can't write off until they have profits to realize them, and they can't do that unless they lend money they don't have.

Currently, the answer seems to be to strip the Fed of cash thru the TAF-etc and speculate with that. Awesome strategy because if you fuck up playing the ponies, you can park the assets back on the Fed for fresh T-bills. Frankly, at this point you can just keep the profits and never realize the level 3 assets 'cause they Fed is such a creampuff.

My feeling is that eventually, you shift primary operations to a Gulf emirate and leave the bankrupt shell of the old bank behind to block pursuit.

byzantine_ruins @ 2008-05-15T23:21:00

2008-05-16T03:22:07Z

Fed's Direct Loans to Banks Climb to Record Level (Update2)

By Christopher Anstey and Steve Matthews

May 15 (Bloomberg) -- The Federal Reserve's direct loans of cash to commercial banks climbed to the highest level on record in the past week as money-losing lenders increasingly turn to the central bank for funds.

Funds provided through the so-called discount window for banks rose by $2.8 billion to a daily average of $14.4 billion in the week to May 14, the central bank said today in Washington. Separately, the Fed's loans to Wall Street bond dealers rose by $75 million to $16.6 billion.

Policy makers have increased the attractiveness of direct loans as they seek to alleviate the impact of the credit crunch. Fed Chairman Ben S. Bernanke said two days ago that while markets have improved, they remain ``far from normal,'' adding that the central bank is prepared to increase its twice monthly auctions of funds to banks.

``The Fed is providing an extraordinary amount of liquidity through various mechanisms,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. While ``credit markets are showing signs of improvement'' there is ``a long way to go,'' he said.

Fed officials have reduced the cost of direct loans to a quarter-point above the benchmark overnight lending rate between banks. In March, they extended the term of the loans to commercial banks to 90 days. The discount rate is now 2.25 percent, compared with the three-month London Interbank Offered Rate for the dollar of 2.72 percent.

`Good Sign'

``The fact that banks are willing to take advantage of it may be a good sign for the market,'' said Louis Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. ``They're willing to take advantage of cheap money and'' lend it on to customers, he said.

byzantine_ruins @ 2008-05-15T22:38:00

2008-05-16T02:46:02Z

Bernanke Urges `Hunkering' Banks to Raise Capital (Update4)
By Steve Matthews and Scott Lanman
Enlarge Image/Details

May 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke pushed banks to keep raising capital in the aftermath of losses from the credit crisis to avert deeper damage to the U.S. economy.

``Firms are hunkering down,'' Bernanke said at a conference in Chicago today. ``They have at least partially replaced the losses with new capital raising, but not entirely. They are being rather conservative in making new loans, which has implications for the broader economy.''

Bernanke's remarks reflect concerns he and other Fed officials expressed this week that financial markets have yet to return to normal. The Fed chief also said the central bank is considering strengthening its guidance to banks on how they manage risk after ``weaknesses'' that contributed to the crisis.

While banks and securities companies have raised about $244 billion of capital since July, they may have further to go after writedowns and credit losses in excess of $333 billion. Bernanke and Treasury Secretary Henry Paulson have repeatedly said firms should keep increasing their funds, seeking to alleviate the impact of the credit crunch.

byzantine_ruins @ 2008-05-15T13:27:00

2008-05-15T17:30:02Z

Bush slams Dems for terrorist 'appeasement'

President Bush launched a sharp but veiled attack on Sen. Barack Obama and other Democrats, suggesting they favor "appeasement" of terrorists in the same way some Western leaders appeased Hitler in the run-up to World War II.

What's that? I can't hear you over the sound of the empire falling. Did you say, "I have single-handedly destroyed the Republic, divided its people and ruined its armies, I better quit while I'm ahead"?

byzantine_ruins @ 2008-05-15T11:53:00

2008-05-15T15:54:29Z

Lifted from "David Pearson"'s post to Calculated Risk's comments:

http://biz.yahoo.com/prnews/080515/lath026.html?.v=101

Press Release Source: Downey Financial Corporation

Downey Financial Corp. Announces Thirteen Month Selected Financial Data
Thursday May 15, 6:00 am ET

NEWPORT BEACH, Calif., May 15 /PRNewswire-FirstCall/ -- Downey Financial Corp. (NYSE: DSL - News) today released monthly selected financial data for the thirteen months ended April 30, 2008.

Downey Financial Corp. is the parent company of Downey Savings and Loan Association, F.A., with assets of $13.1 billion and 169 branches throughout California and five in Arizona.

Selected Figure:

Total non-performing assets 13.24%

Government By Fear: Police Consume Almost 50% Of Debt-Burdened Allegheny County's Wage & RE Taxes

2008-05-15T15:31:11Z

Do you feel it is time for Allegheny County's 130 local governments to consolidate?

So far, a lot of boroughs and townships have been balking at the suggestion, afraid they'll have to take on the city of Pittsburgh's debt problem. But a Team 4 investigation uncovered a new twist.

PDF: List of Borough-Township Debt Service Payments

Team 4's Jim Parsons figured out that the suburbs have a huge debt problem of their own.

Everyone talks about Pittsburgh's red ink, but it turns out the debt that boroughs and townships have collectively racked up is almost as large as the city's.

This is usually what happens in western Pennsylvania when a borough or township tries to have a debate about consolidation.

Public Outburst at Council Meeting:

"I would like her removed. Remove her. Because I tell the truth and you don't. That's why I'm removed Amy. You're a liar. You are a liar. Don't touch me. "

This happened last month in Versailles Borough when council considered consolidating emergency services with nearby White Oak.

Herb Hartle is president of the Allegheny County League of Municipalities. He said boroughs and townships are opposed to any merger plan that includes giving up local control of services.

"We are highly over-policed in Allegheny County," said Hartle. "But you try to tell that to the residents, they don't want to hear that. You're taking away my police department, and I'm not going to let you do that. They have to buy in to what you're doing, because if they're not on board with it, this is going nowhere."

But something has to give, because local communities are going broke. WTAE's Team 4 investigation examined audited financial statements for all 130 local governments in Allegheny County going back five years. We found budgets that haven't been balanced for years and long term debt that is crushing in its scale.

Almost one half of all boroughs, townships and cities in Allegheny County have run a deficit for two or more years. Collectively, they have long term debt of almost $500 million, and that doesn't include the city of Pittsburgh.

A third of them have so much annual debt service that it is more than 10 percent of their budgeted expenditures.

The University of Pittsburgh's public service degree coordinator, George Dougherty, said that is way too high.

"At that point, what you're doing is cutting back on day to day services to cover capital investments," he said.

If 10 percent is too high, how about 20 percent? Team 4 found five communities where debt service is 20 percent of the budget or higher and has been for at least the past two years.

"That's a danger sign," said Jake Haulk of the Allegheny Institute for Public Policy. "The only time you should ever do that, well, you should cut spending first."

And the largest expense, by far, is police. Municipalities last year, again, not including Pittsburgh, spent a combined $143 million on police. That is almost half of all wage taxes and real estate taxes collected.

"We got to figure out a way to be more efficient and consolidate some of these departments that really are right next to each other and save money and get full time police officers on the street," said Allegheny County Chief Executive Dan Onorato.

Ohio Township Police Chief Norbert Miklos has a 24-officer department that now contracts police services with eight adjacent communities, including Ohio Township, recently added Ben Avon, Ben Avon Heights, Kilbuck and Aleppo.

"There's going to be drawbacks," he said. "You're going to get people who are skeptical." Those communities that have the single, one officer on a shift and three or four man departments could never offer what we offer. So, it's good for them and good for us."

But two other communities along Ohio River Boulevard, neighbors Avalon and Bellevue, are holding on to their own tiny police departments.

"That's what the residents want," said Herb Hartle of the Allegheny League of Municipalities. "If they keep electing those people back into office, that means they're satisfied with the status quo.

When asked if there should be changes, Hartle said, "Yes. I always thought Bellevue and Avalon, that the police department there should be one."

Avalon Borough has been operating in the red for three years in a row.

As for Bellevue, who knows? The audited financial statement submitted to the state is blank for all revenues and expenditures.

And Team 4 found two others, Elizabeth Borough and Cheswick, that are more than a year overdue filing their finances. But that didn't stop the state Department of Community and Economic Development from paying out grant monies to Elizabeth and Cheswick.

Parsons asked Fred Reddig, the DCED assistant secretary, what actions they take when they don't file on time?

"Again, we will send reminder letters to them, notifying them that their audit letters are due," said Reddig. "That's it."

Nothing happens. And as long as we continue to see Allegheny County not as a whole, but as a jigsaw puzzle of 130 separate pieces, experts said nothing will happen to stem the tide of red ink.

"We're putting this weight on the backs of our children in the future," said Dougherty. "Municipalities really need to find ways to share services."

In the meantime, there is one change happening because of Team 4's investigation. The Gov. Ed Rendell Administration said it would no longer release any grant funds to local municipalities that are more than nine months late filing their required audits.

Team 4 tried to get the perspective of a local government having financial difficulty. Parsons left messages with Kennedy Township's manager and the borough manager in Avalon. Neither returned our calls.

byzantine_ruins @ 2008-05-15T08:05:00

2008-05-15T12:04:28Z

Tightening credit markets have claimed a new casualty: Small Business Administration loans. Not only have entrepreneurs turned more cautious about seeking credit from the SBA, experts say, but banks have increased their credit standards for the agency's government-guaranteed 7(a) loan program, turning away businesses they might have funded only a year ago.

"I attribute this to a weaker economy," says Eric Zarnikow, associate administrator for capital access at the SBA. "The [7(a)] data has followed a similar pattern to Federal Reserve data on commercial loans."

The SBA backed about 40,000 of its flagship 7(a) loans in the quarter ending Mar. 31, 2008, down 18% from the second quarter of 2007. Particularly hard hit are women, veterans, and rural entrepreneurs, where the number of loans has fallen 15%, 20% ,and 27%, respectively. Express loans—a popular, easier to originate component of the portfolio which carries a lower government guarantee—are down 30%.

Demand Is Down
According to the Federal Reserve's most recent Senior Loan Officer Opinion Survey on Bank Lending Practices, for April, 2008, 55% of domestic banks reported tightening credit standards for commercial and industrial loans, compared to 30% in January, 2008.

Zarnikow says SBA-sponsored roundtables with its lenders over the last few months indicate demand from small business borrowers is down. Banks are also seeing fewer creditworthy borrowers, and at the same time they are tightening credit standards. He adds that lenders also became too lenient with their credit scoring of loan candidates. "Losses were too big, so they began increasing credit scores last fall," Zarnikow says. Delinquencies in the 7(a) portfolio have also increased, rising more than 50%, to 2.39% of the portfolio as of February, 2008, the SBA says.

Should Be Seeing More Volume
However Congresswoman Nydia Velazquez (D-NY), chairwoman of the House Small Business Committee, says the SBA's declining loan volume can't be attributed entirely to the bad economy. "It is important to remember the SBA's loan program was created to kick in during tough times," she says. "It was designed to provide a counterbalance when private sector lenders have to tighten their standards."

Tony Wilkinson, president and chief executive officer of the National Association of Government Guaranteed Lenders, a trade association representing banks that issue the SBA's guaranteed loans, agrees that the drop-off should not be as bad as it is. "We should be seeing more volume than we are today," he says, adding the reasons for the decline are a confluence of negative events. These include an elimination in many national markets of home equity used to either start businesses or collateralize loans for them; higher origination and maintenance costs that make 7(a) loans less profitable for bankers; and the departure of more than 368 banks from the 7(a) program since 2006.

Zarnikow says the large drop-off in express loans, originated primarily by a handful of larger banks, has skewed the results for the portfolio. Unlike traditional 7(a) loans, express loans are for smaller amounts, typically less than $350,000. Banks are now requiring higher credit scores before approving these loans. He points out that the dollar volume for the portfolio is down only 9%, to $6.2 billion for the quarter.

byzantine_ruins @ 2008-05-15T08:04:00

2008-05-15T12:03:47Z

Volcker Warns of Precedent Set by Fed Moves
Former U.S. Federal Reserve Chairman Paul Volcker said pressures in financial markets are “not unique,” but warned that the Fed’s recent use of “long-dormant” powers may be seen as a precedent for future periods of stress.

Volcker
Volcker also alluded to recent signs of improvement in financial markets, saying “we can welcome” a little more calm.

“Whatever claims might be made about the uniqueness of current circumstances, it seems inevitable that the nature of the Fed’s response will be taken into account and be anticipated, by officials and market participants alike, in similar future circumstances,” Volcker said in prepared testimony to the Joint Economic Committee of Congress.

Volcker hinted at the Fed’s recent role facilitating the rescue and proposed takeover of Bear Stearns by J.P. Morgan Chase. The Fed, he said, “felt it necessary to extend that safety net” to systemically important institutions by “providing direct support for one important investment bank experiencing a devastating run, and then potentially extending such support to other investment banks that appeared vulnerable [to] speculative attack,” Volcker said.

“Hence, the natural corollary is that systemically important investment banks should be regulated and supervised along at least the basic lines appropriate for commercial banks that they closely resemble in key respects,” he said.

Still, he stopped short of criticizing the Fed’s response to the Bear Stearns collapse. “I can understand why they felt they had to act,” Volcker said.

He said heavily “engineered” financial markets, using sophisticated mathematical models, led to “enormous complexity” and “opaqueness” in markets.

“In the process, close examination of particular credits with respect to risk has too often been lost; the subprime mortgage is only the leading case at point,” Volcker said. “This new system has failed the test of the marketplace.”

Volcker said the Fed’s role in banking and financial supervision “should be recognized more clearly than in present law.”

“Specifically, direct and clear administrative responsibility should lie with a senior official, designated by law” Volcker said, and more staffing at the Fed will be needed.

Given the global nature of markets, Volcker said reform can’t proceed in a vacuum and urged cooperation with the European Union and Japan, citing past successes in developing bank capital requirements, accounting standards and settlement procedures.

byzantine_ruins @ 2008-05-14T12:48:00

2008-05-14T16:48:34Z

May 14, 2008
GOP Stunned By Loss in Mississippi
By Reid Wilson

In a major blow to national Republicans, a Mississippi congressional seat that once voted for President Bush by a twenty-five point margin elected a Democrat on Tuesday. Prentiss County Chancery Clerk Travis Childers beat out Republican candidate Greg Davis, the mayor of Southaven, by a 54%-46% margin, a spread that several Republican strategists on Capitol Hill characterized as a startling wake-up call for a party in dire straits.

byzantine_ruins @ 2008-05-13T11:42:00

2008-05-13T15:42:47Z

Libor Set for Overhaul as BBA Responds to Credibility Concern

By Ben Livesey and Gavin Finch

May 13 (Bloomberg) -- The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners is set for its biggest shakeup in a decade on concern that banks misquoted their true borrowing costs.

``We have not run away or hidden from the need for reform or the need for review'' of ``serious issues'' in the U.K. financial-services industry, British Bankers' Association Chief Executive Officer Angela Knight said at a hearing of a parliamentary committee in London today.'' The BBA is set to announce the results of its most far-reaching review of the way it sets the London interbank offered rate in a decade on May 30.

The association, an unregulated London-based trade group, is under pressure to show that Libor is reliable following complaints by investors that financial institutions weren't telling the truth about their funding costs after rising mortgage defaults contaminated credit markets and drove up borrowing costs.

While the association set the one-month dollar Libor rate at 2.72 percent on April 7, the Federal Reserve said banks paid 2.82 percent for secured loans later that day. Secured loans typically yield less than unsecured debt.

``The Libor numbers that banks reported to the BBA were a lie,'' said Tim Bond, head of global asset allocation at Barclays Capital in London. ``They had been all along. The BBA has been trying to investigate them and that's why banks have started to report the right numbers.''

April Warning

Libor rates jumped after the association said April 16 that any member banks found to be misquoting rates will be banned. The cost of borrowing in dollars for three months rose 18 basis points to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze last August. The one-month rate climbed 14 basis points, the most since November.

The cost of borrowing in dollars for three months should be as much as 30 basis points, or 0.30 percentage point, higher than the current rate, Citigroup Inc. said in a report last month.

Banks are understating borrowing costs on concern they will be perceived as ``weakened'' by the credit turmoil that forced financial companies to record $323 billion of losses and credit- markets writedowns, said Peter Hahn, a fellow at the London-based Cass Business School.

``Since the credit crunch, it's something that appears to have been manipulated,'' said Hahn, a former managing director at Citigroup. ``We are in an extraordinarily delicate confidence time where a small event can shatter things quite easily.''

Review Brought Forward

The BBA accelerated its annual review of Libor to assess if there's a fault with how the rate is computed, if it reflects ``difficult markets'' or is ``giving the right answer, just one that people don't want to hear,'' Knight said yesterday.

``Libor has stood the test of two decades,'' she said at today's parliamentary committee hearing. While the association has contacted all the member banks to investigate Libor ``volatility,'' the swings in the rate are ``hardly surprising'' amid the credit turmoil, Knight said.

The association has submitted a report based on discussions with member banks to its independent Foreign Exchange and Money Market Committee, which is carrying out the review of Libor, said Brian Mairs, a spokesman for the BBA in London.

The banking group, which represents Citigroup, HSBC Holdings Plc and 14 other lenders, asks members each morning to say how much it would cost them to borrow from each other for 15 different periods ranging from a day to a year in dollars, British pounds, euros and eight other currencies.

BIS Report

The Bank for International Settlements said in a March report some lenders were manipulating the rates to prevent their borrowing costs from escalating. The system still worked as it was meant to do as the credit crunch began in the middle of last year, the Basel, Switzerland-based BIS said.

Libor is used to guide banks in setting rates on most adjustable-rate mortgages. The prices they quote for credit default swaps are also linked to Libor.

``Libor is a proxy for the effective rates of the economy,'' said Rav Singh, an interest-rate strategist at Morgan Stanley in London. ``Libor eventually feeds into the economy. There's so much on the back of the Libor problem. There are structured products, all the swaps and then there are the hedging positions.''

To ease the credit crunch, the Fed cut rates seven times, created three lending facilities to help both banks and securities firms obtain funds and backed the takeover of Bear Stearns Cos., which was on the verge of collapse. In all, the central bank made more than $600 billion available to lenders and allowed Wall Street firms to borrow money overnight at the same so-called discount rate charged to commercial banks. Fed Chairman Ben S. Bernanke provided $29 billion of financing to back JPMorgan Chase & Co.'s bailout of Bear Stearns in March.

No Comment

Bank representatives declined to say what recommendations they are making to change Libor.

HSBC and HBOS Plc spokesmen declined to comment, as did Bank of America Corp. spokesman Scott Silvestri. Barclays, Royal Bank of Scotland Group Plc, Lloyds TSB Group Plc also declined to comment. Deutsche Bank AG spokesman Ronald Weichert wasn't immediately able to comment.

``I can confirm that along with the other 15 members of the BBA, as happens every year, we have been in consultations,'' said Richard Bassett, a London-based spokesman for WestLB AG. Rabobank Groep NV spokesman Anthony Arthur wasn't immediately available for comment.

Spokesmen for Mitsubishi UFJ Financial Group Inc. and Norinchukin Bank Ltd. weren't immediately available. A Royal Bank of Canada spokeswoman said it had discussions with the BBA as part of consultations with all Libor panel members and awaits the association's recommendations.

byzantine_ruins @ 2008-05-13T11:40:00

2008-05-13T15:41:04Z

In North Dakota, regulators recently told service stations their mechanical pumps could use half-pricing, provided they use signs to alert costumers and find a permanent solution by April 2009.

South Dakota is preparing similar rules, officials say. And in Minnesota, rural service station owners whose pumps cannot display the right price are being told to cover up the incorrect numbers.

"The consumer can only see the gallons turning," said Bill Walsh, a spokesman for the Minnesota Department of Commerce. "Then they just have to settle up with a calculator, basically." Colville and about a dozen other service station owners in Washington have received temporary variances from the state to allow them to half-price fuel.

Stations granted variances are required to post signs telling customers that the final price they will pay is twice what the pump meter indicates.

"No, that don't bother me. The price does," said Jim Puls, a third-generation rancher who pulled up to Colville's diesel pump to fill up his flatbed truck at $4.41 a gallon. "I can understand what they have to do."

byzantine_ruins @ 2008-05-13T07:36:00

2008-05-13T11:49:44Z

LBO Debt Buybacks Trigger Review of Lending Rules (Update1)

By John Glover and Cecile Gutscher

May 13 (Bloomberg) -- The Loan Market Association, the European banking trade group, is reviewing rules on corporate loans as private-equity firms take advantage of the credit crunch to buy back their debt at a discount.

Kohlberg Kravis Roberts & Co. and PAI Partners bought loans used for their takeovers after prices tumbled in February. The purchases helped cut the global backlog of LBO debt to $91 billion from $230 billion nine months ago, according to Bank of America Corp. They also create potential conflicts because buyout firms may join bank groups that determine borrowing rules for the companies they own.

``The concern is that a basic principle of syndicated lending, that each lender gets treated the same, is being violated,'' Clare Dawson, executive director of the Loan Market Association in London, said in an interview. ``It's a question that hasn't been contemplated in syndicated loan documentation.''

KKR is among at least five LBO firms in talks to buy some of the $16 billion of loans it used to acquire Nottingham, England- based Alliance Boots last year in Europe's biggest buyout, said three people with knowledge of the discussions. KKR's credit affiliate, KKR Financial Holdings LLC, invests in corporate debt.

KKR spokesman David Lilly declined to comment.

Equal Opportunity

TDC AS, Denmark's biggest phone operator, purchased some of the debt from lenders that was used to finance its $13.8 billion takeover by firms including New York-based KKR, the company said in its annual report last month.

PAI in Paris bought loans used to fund its 1.96 billion-euro ($3 billion) leveraged buyout of Lafarge SA's roofing business at 55 percent of face value, Chief Executive Officer Dominique Megret said in an interview last week.

The LMA is reviewing loan rules to ensure all lenders get an equal opportunity to sell their debt, Dawson said. ``It's an ongoing discussion that we'll conclude as soon as we can,'' she said.

Financial institutions ended up with debt they couldn't sell to investors after agreeing to lend a record $735 billion for LBOs last year, according to data compiled by Bloomberg. Buyout firms borrow to finance about two-thirds of the cost of acquisitions.

When the collapse of subprime mortgages contaminated credit markets in July, investors fled all but the safest bonds and banks were left holding the high-yield, high-risk debt. The loans are rated below investment grade, or less than Baa3 by Moody's Investors Service and BBB- by Standard & Poor's.

Subprime Redux

Banks have been forced to write down the value of their leveraged loans, contributing to $323 billion of losses and credit costs.

Lenders are getting rid of the loans by providing investors with financing to make the purchases.

Citigroup Inc. sold $8 billion of LBO debt to private-equity firms last month, offering buyers $6 billion at lower rates than it pays to borrow, according to people familiar with the transaction. Deutsche Bank and Royal Bank of Scotland Group Plc are also offering credit to buyers to help cut their holdings.

Buyers of the debt risk repeating the mistakes of investors in subprime mortgages, according to Terra Firma Capital Partners Ltd.'s Guy Hands, the London-based private-equity manager that bought music publisher EMI Group Plc for 2.4 billion pounds ($4.9 billion) last year. If the global rate of company defaults rises five-fold to 10 percent, buyout firms' equity in the loans will disappear, Hands said in an interview.

U.S. leveraged loans are trading at 92.42 percent of face value on average after falling to as low as 86.28 in February, according to S&P.

byzantine_ruins @ 2008-05-12T08:30:00

2008-05-12T12:30:58Z

Pakistan Inflation Accelerates to Fastest in 25 Years (Update2)

By Farhan Sharif

May 12 (Bloomberg) -- Pakistan's inflation accelerated at the fastest pace in at least 25 years in April because of surging food and fuel prices, straining a six-week-old coalition government already on the brink of collapse.

Consumer prices jumped 17.21 percent from a year earlier after gaining 14.1 percent in March, the Federal Bureau of Statistics said in a statement in Islamabad today.

Finance Minister Ishaq Dar said on May 4 that soaring oil and food prices are undermining the fight against poverty. Pakistan's ability to rein in prices may be hampered as Nawaz Sharif's party said it may quit the coalition led by the Pakistan Peoples Party today.

``If the trend continues, it will cause serious concerns to the new government,'' said Farhan Rizvi, an economist at JS Global. ``Oil prices have added to already high food prices, which directly hit the masses.''

Oil at more than $125 a barrel and declining wheat production are straining state finances as food and fuel are subsidized in the nation of 160 million people. Hundreds of people queue for hours outside state-run shops to buy the subsidized wheat flour and other essential goods across the nation.

Food prices in April rose 25.5 percent from a year ago and fuel prices climbed 8.6 percent, according to the data. Historical inflation data is compiled by JS Global Capital Ltd. in Karachi. The statistics bureau doesn't have data preceding the year 2000.

Stocks, Currency

Pakistan's key stock index rose 0.4 percent to 14,286.61 at the 2:15 p.m. local time close today, after falling 4.9 percent last week, the biggest weekly decline in almost nine months. The rupee, rose 1 percent to 69 today, after losing 6.8 percent last week, the most since 1998.

Almost half the population of Pakistan, the world's seventh- most-populous nation, faces difficulty gaining access to affordable food because of the soaring cost of cereals, a World Food Program spokesman Paul Risley said on April 23.

The Rome-based United Nations agency increased its estimate of the number of so-called food insecure people in Pakistan to 77 million from 60 million.

The nation may import more than 1.5 million metric tons of wheat this year to ease the shortage, farm minister Chaudhry Nisar Ali said on April 24.

The average price of pulses has risen about 50 percent since January, said Fareed Qureshi, chairman of the Karachi Retail Market Association. Average edible oil prices have climbed 16 percent since the start of the year and rice is 26 percent more costly than it was on Jan. 1, he said.

``Pakistan's prices of wheat, flour, edible oil and pulses are at a record now,'' Qureshi said.

Oil Bill

Pakistan, which imports about 85 percent of the oil it uses, increased prices of gasoline for the first time in more than 22 months on Feb. 29 after record crude prices increased import costs for the nation's refiners. Oil & Gas Regulatory Authority, the regulator, has since raised prices three more times.

The trade deficit widened to $2.3 billion in April from $1.1 billion because of the rising oil import bill, the Bureau of Statistics said on May 10.

The central bank increased its benchmark interest rate for a second straight meeting on Jan. 31 to tame inflation. The discount rate for commercial lenders was raised half a percentage point to 10.5 percent for the six months ending June 30. Inflation may exceed the government's target of 6.5 percent this year, curbing economic growth, the central bank said on March 31.

``The inflation is paced mainly by food and oil prices,'' said Suleman Akhtar, an economist at Foundation Securities in Karachi. ``In current conditions, a rise in interest rates would not do much.''

MBIA Posts $2.4bn Loss As CDO Slump Deepens

2008-05-12T12:25:16Z

MBIA Posts Loss of $2.4 Billion as CDO Slump Deepens (Update2)

By Christine Richard

May 12 (Bloomberg) -- MBIA Inc., the bond insurer whose market value tumbled 87 percent in the past year, posted a net loss of $2.4 billion as the slump in mortgage securities deepened.

MBIA dropped 5.5 percent in early New York Stock Exchange composite trading after reporting a first-quarter operating loss of $3.01 a share, more than twice the average analyst estimate from a Bloomberg survey of $1.21. Unrealized losses from derivatives were $3.58 billion, Armonk, New York-based MBIA said in a statement today.

The loss was MBIA's third straight and comes less than three months after the bond insurer successfully retained its AAA credit rating. MBIA, Ambac Financial Group Inc. and the rest of the industry posted record losses after misjudging the value of collateralized debt obligations and securities backed by home- equity loans they guaranteed. MBIA said today it expects to pay more than $1 billion in additional claims.

``We're not out of the woods yet,'' said Richard Larkin, senior vice president at Herbert J. Sims & Co. in Iselin, New Jersey. ``I'm not sure AAA bond insurers will ever be viewed the same way as in the past.''

MBIA raised $2.6 billion in capital to help convince Moody's Investors Service and Standard & Poor's to preserve its AAA rating. Chief Executive Officer Jay Brown said this week the company won't need to raise more.

`Ample Liquidity'

``We have ample liquidity, our balance sheet is built to withstand credit stress levels many multiples of what we're experiencing now,'' Brown said in the statement today.

The net loss was $13.03 a share. The company reported a profit of $198.6 million, or $1.46 a share, a year earlier. So- called Level 3 assets, those that are most difficult to value, totaled $7.3 billion, in the first quarter, MBIA said.

MBIA fell 52 cents to $8.91 at 8:07 a.m. in early New York Stock Exchange composite trading. The stock traded above $70 a year ago. MBIA's book value slumped to $8.70 a share on March 31 from $29.16 at Dec. 31, in part because of new shares sold in the capital raising.

``Earnings pressure will remain for several quarters as writedowns continue,'' Peter Plaut, senior vice president at Imperial Capital, wrote in an e-mail today. ``This is no longer a AAA industry for the players that diversified into volatile financial derivatives.''

CDO Losses

MBIA estimates it will have $827 million of actual losses from paying claims on nine CDO transactions.

MBIA took $3.5 billion of writedowns in the fourth quarter of last year, mainly on CDOs it guaranteed through derivative contracts. Those contracts, backed by the repayment of subprime mortgages, have contributed to $323 billion of losses at banks since the beginning of 2007. Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather.

``This valuation task is clearly one that stretches the ability of mere mortals,'' Brown said in a letter to shareholders published May 6.

Death of Reason: McCain Advisor Carly Fiorina Attacks Gas Tax Holiday As Thinking, Not Feeling

2008-05-12T10:38:46Z

Economic advisor to John McCain defends gas tax holiday

Also on the talk show circuit, aides to Hillary Clinton say she still can win the nomination. If Barack Obama wants her out of the race, Howard Wolfson says, 'beat her.'

By Noam N. Levey, Los Angeles Times Staff Writer

May 12, 2008
WASHINGTON -- One of John McCain's leading economic advisors said Sunday that she couldn't name a credible economist who supported the presumptive Republican presidential nominee's proposal to suspend the federal gas tax for the summer.

But Carly Fiorina, chairwoman of the Republican National Committee's 2008 fundraising and get-out-the-vote efforts, scoffed at the lack of support from economic analysts. "I don't think it matters," she said.

Appearing on ABC's "This Week," Fiorina, who was chairwoman and chief executive of Hewlett-Packard Co. until being ousted in 2005, said economists "sometimes argue about the theory" while Americans worry about filling their gas tanks.

Amazing Coincidence: Truce Declared In Sadr City, Hezbullah Removes Its Jaws From Around Lebanon

2008-05-12T10:33:46Z

In case you missed it, truce in Sadr City, and Hezbullah is off the streets in Beiruit but still kicking ass on the Druze and anybody else they can get their hands on out in what passes as the "hinterland" of Lebanon.

Isn't it insane media just ignores this?

State Within A State: Secret Service Divulges Racist Emails Between Leadership Figures From 2003

2008-05-10T00:53:29Z

WASHINGTON – Secret Service supervisors engaged in crude sexual jokes and racially derogatory banter about blacks, and passed around an anecdote about a possible assassination of the Rev. Jesse Jackson, according to internal e-mails disclosed in a federal court filing on Friday by lawyers for black Secret Service agents.

The filing includes 10 e-mails that were among documents the agency recently turned over to lawyers for the black agents as part of an increasingly bitter discrimination case. The messages were written mainly between 2003 and 2005, and were sent to and from e-mail accounts of at least 20 Secret Service supervisors.

The e-mails offer a glimpse into the darker recesses of a secretive agency that is known for protecting presidents and other dignitaries but whose culture is regarded as one of the most insular in federal law enforcement.

The disclosure of the e-mails follows an incident last month in which a noose was found in a room used by a black instructor at a Secret Service training center in Maryland. Agency officials said the episode is the subject of an internal investigation.

A spokesman at the Secret Service headquarters in Washington did not immediately respond to a request for comment.

In some of the documents, the senders of the e-mails are identified by the jobs they now occupy as well as the rank they held when the messages were sent. For example, an Oct. 9, 2003, e-mail referring to a “Harlem Spelling Bee,” ridiculing black slang, was sent by Thomas Grupski, then assistant director in charge of protective operations who, according to the filing, now heads the office of government liaison and public affairs.

A March 3, 2003, e-mail describing Mr. Jackson as the “Righteous Reverend” was passed among several e-mail accounts of Secret Service supervisors. The message is a purported joke about a missile striking an airplane in which Mr. Jackson and his wife were traveling, one that says such an incident “certainly wouldn’t be a great loss and it probably wouldn’t be an accident either.”

Another e-mail contains what one official said was a joke referring to interracial sex and is accompanied by a photograph of a black man and white woman, both of whom are nude. E-mails with the joke circulated in February and March 2003. It was sent, according to the lawsuit, from Donald White, who currently heads the presidential protective detail, to Kurt Douglass, agent in charge of the Secret Service office in Cincinnati.

The legal skirmishing in the discrimination suit has heated up in recent months, with federal Magistrate Judge Deborah A. Robinson rebuking the Secret Service for failing to produce documents, and for destroying relevant records and e-mails that she said the agency should have turned over nearly two years ago.

Judge Robinson had ordered the agency to turn over the documents by late March, but the e-mails disclosed in the court filing on Friday were not turned over to lawyers for the agents until late April.

E. Desmond Hogan, a lawyer for the black agents, said the agents were “shocked but not surprised by the late production of significant evidence of racism at high levels in the Secret Service. The government’s delay follows a pattern of the Secret Service stonewalling plaintiffs and ignoring court orders, depriving African-American agents of the fundamental evidence of race discrimination that is key to their claims.”

The discrimination lawsuit was initially filed in 2000, but has dragged on without resolution through years of litigation. The suit was filed by 10 black agents who charged they were unfairly denied promotions to management jobs. The agency employs about 3,200 agents, of whom about 10 percent are black.

Secret Service agents who work in what are regarded as glamorous protective details work long and irregular shifts while others staff a network of 150 field offices in the United States and overseas. Black agents have complained that promotions seem to be awarded on the basis of connections to an old boy network as well as merit.

France & Italy Plan For Lebanon Evac

2008-05-09T23:49:51Z

France plans for possible Lebanon evacuation

5 hours ago

PARIS (AP) — France is creating a plan to evacuate its citizens from Lebanon in case the country's sectarian violence spreads, Foreign Minister Bernard Kouchner said Friday.

Kouchner, speaking on France-Info radio, also said that France, along with Spain and Italy, are working on an initiative to bring calm to Beirut. He did not provide details of the initiative.

Kouchner said that France, Lebanon's former colonial ruler, has not yet decided to evacuate its citizens. But, he added, "that does not mean we shouldn't prepare something, just in case."

Italy, too, "is preparing to envisage the worst, that is, an evacuation" of Italians, Kouchner said. Italy is current commander of UNIFIL, the U.N. force in southern Lebanon.

Kouchner reiterated his support for the Lebanese government, called on all parties in the conflict to lay down their arms and denounced Hezbollah's takeover of the Muslim sector of Beirut.

Security officials say at least 14 people have been killed in three days of street battles in the Lebanese capital between the Shiite gunmen and Sunnis loyal to the U.S.-backed government, the worst sectarian clashes since Lebanon's 15-year civil war.

World Shits Collective Pants As Hezbullah Makes Clear The Lebanese State Exists At Its Sufferance

2008-05-09T22:12:59Z

Envoys rush to contain crisis in Lebanon

By Andrew England and Roula Khalaf

Published: May 9 2008 21:42 | Last updated: May 9 2008 23:08

As Hizbollah on Friday seized control of western parts of Beirut, the Lebanese capital, Arab and western officials embarked on a flurry of activity amid fears that the conflict could grow into a wider regional crisis.

A US official said the pro-western government was being undermined by the “criminal acts of an illegitimate armed gang”, in reference to Hizbollah, while the weak Lebanese administration accused the Shia militant group of conducting a coup d’état.

Washington has been a key backer of the government of Fouad Siniora, the prime minister, while Hizbollah is supported by Iran and Syria. The stand-off between the opposing factions has become part of a wider struggle for influence in the Middle East between the US, its Sunni allies and Tehran.

An adviser to Saudi Arabia’s government, which has been a staunch backer of Mr Siniora’s administration, said the events in Beirut had been met “with complete and utter dismay”.

“This is something we will not tolerate and the red line has clearly been crossed,” the adviser told the Financial Times, although it was not clear what measures Saudi Arabia would take. The kingdom and Egypt, the region’s two diplomatic heavyweights, have called for an emergency meeting of Arab League ministers.

At least 18 people have been killed in Beirut clashes over the past three days, which have involved gun battles and rocket-propelled grenade fire. Hizbollah on Friday shut down a pro-government newspaper and television station and tightened its grip on the capital in a powerful display of force. There were also reports of clashes in the north and parts of the Bekaa valley.

Syria described the crisis as an internal affair and Iran blamed “the adventurist interferences” of the US and Israel for the violence. The US and Israel regard Hizbollah as a terrorist group, but it is viewed in the Arab world as a legitimate resistance movement fighting the Jewish state.

Office Of Thrift Supervision Waives H&R Block's "Option One" 3% Capital Rule

2008-05-09T20:57:13Z

H&R Block Inc. achieved another goal toward repositioning itself, announcing Friday that the Office of Thrift Supervision has eliminated a financing requirement related to H&R Block Bank.

The OTS previously required Kansas City-based H&R Block (NYSE: HRB) to keep 3 percent of its tangible capital at all times, as long as it owned H&R Block Bank. Tangible capital is physical assets, such as machinery, buildings and land, according to Investopedia.com.

Significant losses from its Option One Mortgage Corp. subsidiary had put H&R Block out of compliance with the rule, and as a result, the company was not allowed to repurchase its shares in the market.

In a letter Wednesday, the OTS said the shutdown of mortgage loan origination and the sale of Option One's servicing rights reduced Block's risk profile for operating a bank. The OTS said it rescinded the 3 percent requirement as of April 30.

"We are elated with the OTS action, which eliminates a significant constraint on the structure of H&R Block's balance sheet," Block Chairman Richard Breeden in a release. "We are now able to plan for the future of H&R Block Bank with much greater certainty and to look at ways to utilize the highly flexible thrift charter to the advantage of our consumer clients without disadvantaging our shareholders."

Citi To Sell, Spin Off Or Put $400bn Or More In "Run-Off" Mode

2008-05-09T13:17:25Z

Citigroup considers $400bn asset sale
By Francesco Guerrera in New York

Published: May 9 2008 00:41 | Last updated: May 9 2008 00:41

Citigroup will on Friday identify as much as $400bn in non-core assets that could be sold as part of plans to reduce costs and restore profit growth to double-digit rates, according to people close to the situation.

At a long-awaited meeting with Wall Street analysts, Vikram Pandit, Citi’s chief executive, also plans to confirm his pledge, first disclosed in the Financial Times, to cut Citi’s cost base of over $60bn by about 20 per cent.

Mr Pandit is likely to say that about 20 per cent of Citi’s $2,000bn-plus balance sheet consists of “legacy” assets – entire businesses or trading positions outside its core businesses in commercial, consumer and investment banking.

The sale of the assets is likely to take years, and some of the non-core holdings may never be sold, according to people close to the situation. Nevertheless, Mr Pandit’s decision to classify such a large portion of the balance sheet as non-core highlights his determination to root out underperforming businesses.

Under Mr Pandit, who took over in December after the departure of Chuck Prince and other top executives, Citi has sold several peripheral units, including its leasing business and its Diners Club charge card network. It has been reported to be looking at the sale of Primerica, a seller of life insurance and investments.

Analysts have speculated that Citi could sell its retail banking operations in Germany and Brazil, as well as some businesses and equity stakes in Asia.

Citi declined to comment on the analysts’ meeting. People close to the situation said the plans to be announced by Mr Pandit had not been finalised and could change.

Ha'aretz Reports Last Pro-Gov Forces In Lebanon Laying Down Their Arms

2008-05-09T10:30:27Z

From Ha'aretz:

13:16 Pro-government Lebanese forces lay down weapons in last Beirut stronghold (Reuters)