Archive for June 5th, 2009

NEW YORK: Bank of Lincolnwood was shuttered by Illinois regulators Friday, bringing the number of failed banks this year to 37 and costing the Federal Federal Deposit Insurance Corp.’s deposit insurance fund 83 million.The two offices of Lincolnwood, Ill.-based bank will reopen Saturday as branches of Republic Bank of Chicago. Bank of Lincolnwood customers will retain their deposit insurance coverage, the FDIC said. As of late last month, Bank of Lincolnwood had total assets of about 214 million and total deposits of 202 million. Republic Bank agreed to purchase about 162 million in assets, leaving 52 million for the FDIC to sell. The number of bank failures in 2009 has already exceeded last year’s total of 25, with an average of 7 failures per month. This year’s failures have cost the FDIC a total of 11.4 billion, compared with 17.6 billion in 2008. Over the next 5 years, the FDIC expects roughly 70 billion in losses due to the failures of insured institutions. The FDIC, which is funded primarily by fees paid by banks, insures individual deposits up to 250,000. The amount was increased from 100,000 late last year in response to concerns about the stability of the nation’s banks. Separately, the FDIC confirmed to CNNMoney.com Friday that it was unable to find a buyer for the assets of wholesale banking operator Silverton Bank, which went under May 1. It was the fifth largest bank failure during the current recession in terms of assets, and cost the FDIC 1.3 billion.

Source:CNN

WASHINGTON: The Obama administration plans to release updated details in the coming weeks to guide Congress on the best way to reshape the nation’s financial regulatory system and prevent future collapses.It promises to be controversial and even politically dicey.In fact, the administration is already shelving one idea, because it’s just too messy.Treasury Secretary Tim Geithner has spoken of the need to consolidate agencies in the patchwork world of financial regulations to prevent companies from shopping for the easiest overseers. But the Obama administration has now decided to keep separate two similar regulatory agencies whose duties often overlap.Both the Securities and Exchange Commission and the Commodity Futures Trading Commission regulate complicated financial products. Many experts have long argued that their consolidation would result in stronger oversight. But combining them could have created a power struggle between their congressional overseers, pitting farm state lawmakers who speak the language of pork bellies and corn bushels against East Coast senators who talk stocks and bonds.By sidestepping the merger issue, the administration avoids a political turf war that threatened to slow efforts to regulate the kind of financial products that caused the collapse of American International Group (AIG, Fortune 500).However, the decision provides a window into the kinds of fights and compromises to come with bigger tougher turf wars between regulators like the Federal Reserve and the Federal Deposit Insurance Corp.Both the Fed and FDIC stand to gain or lose power as officials grapple with which gets new powers to decide when the government needs to shut down or prune troubled companies that threaten the greater financial system.”This becomes a big political dance,” said Robert Litan, an economist and attorney at the Brookings Institution. “It’s very difficult to merge these activities, because some people gain power and some people lose power. But if you don’t do it now, you are probably never going to do it.”A tale of two regulators0:00
/2:53The derivatives disasterThe division of labor between the SEC and CFTC works like this: The SEC oversees securities — which include shares of companies, like stocks and bonds, that can be invested or traded. The CFTC oversees trading of bets made on the future price of things like oil or corn and even currencies.But there’s still a lot of overlap between the two, especially with new kinds of financial products that could fall into either category. For example, it took years to figure out who should keep an eye on a product called a “single stock future,” which is a contract that allows traders to bet on the future position of a stock without actually owning it. (Both agencies regulate single stock futures.)Such overlap is why former Treasury Secretary Henry Paulson suggested combining the two regulators in his March 2008 blueprint for “modernized regulatory structure.” He warned that globalization and “market linkages” make maintaining two separate agencies “potentially harmful and inefficient.”A lot of people agree with that idea. Among them: SEC Chairwoman Mary Schapiro, who told lawmakers on Tuesday that “there is a logic and an efficiency that can be achieved through the merger of the two agencies.” But politics comes into play when you look beyond the two agencies and consider the congressional committees that control and fund them.The SEC answers to the House Financial Services and Senate Banking committees.The CFTC, originally created to regulate agricultural financial products, answers to the agricultural committees on Capitol Hill — even though agricultural futures are less than 15% of what the CFTC now deals with.Most veteran congressional watchers say a merger would give the banking committees more power, while the agricultural committees would lose power. The agricultural panels don’t like that idea much. Their chiefs have espoused the importance of maintaining the CFTC, saying its expertise would get lost at the SEC. They’ve even filed bills that bulk up the CFTC’s power to regulate.In addition, lawmakers who lose jurisdiction over the CFTC could lose lucrative campaign contributions from banks and investment firms. During the 2008 election cycle, House agricultural committee members collected 8.6 million and Senate agricultural committee members collected 28.4 million from the financial services sector, according to the Center for Responsive Politics.What’s next?For the past few weeks, Geithner has been talking more and more about streamlining and combining agencies without giving any details as to how he planned to do it. During a dinner Wednesday for key lawmakers who sit on both the banking and agricultural committees, Geithner indicated he would not pursue a merger of CFTC and SEC, according to an industry official familiar with the conversation.On Thursday, newly-appointed CFTC Chairman Gary Gensler told the Senate Agricultural Committee that a “merger for merger’s sake” wouldn’t address any of the “lessons learned from the crisis.” “While it will always be out there in the ether, and will be debated and discussed,” Gensler said, “we have an heavy agenda here for Congress. I don’t see it really in the lead here.” House Financial Services Chairman Barney Frank, D-Mass., had never been a vocal proponent of such a merger and has recently said he’s more interested in “filling in the gaps in the financial regulatory structure” rather than “moving boxes,” spokesman Steven Adamaske said.Frank’s committee has begun trying to figure out what full-blown regulatory reform should look like, starting with oversight of the kinds of products that the CFTC currently doesn’t oversee. Gensler suggested that the SEC and CFTC should share such oversight.

Source:CNN

NEW YORK (CNN) — It was supposed to be a dream home for the Swidlers of Clermont, Fla., but it turned out to be a nightmare.Jill Swidler recalls the string of mishaps that eventually became the clue that something was wrong. “The AC went out, the appliances went out, we had jewelry tarnishing and the plumbing fixtures tarnishing, but none of that seemed to be related,” she recalls.The Swidlers had built their home themselves. Michael Swidler, a construction foreman by trade had overseen the building of more than 500 homes in Florida. For his own home, he bought 289 sheets of Toughrock brand drywall, made by Georgia Pacific, at a nearby lumberyard.In the months after they moved in, however, the couple’s air conditioning broke down, and other appliances also faltered. Metal faucets corroded. The fire alarm would go off randomly, copper wires turned black and soot blanketed fixtures. The house smelled of sulfur. The Swidlers knew about complaints regarding tainted Chinese drywall, which had posed similar problems for homeowners in many states. But their walls were lined with a product made by an American company.Brian Warwick, who represents the Swidlers in their lawsuit against Georgia Pacific, says the problem with the drywall used in their home, a Georgia Pacific brand called Toughrock, is that its key ingredient is synthetic gypsum — which contains chemical material scrubbed from the exhaust of coal-fired power plants.The Consumer Product Safety Commission has an investigation into drywall, with a focus on electrical and fire safety issues in homes and consumer reports of health symptoms. CPSC staff has collected samples of both imported and domestically manufactured drywall and is testing that drywall. The commissioner said in a statement that no conclusions have been reached. A report is expected in the coming weeks.The Florida Department of Health and the Department of Environmental Protection says the Swidler’s home “appears to have the same symptoms as homes containing Chinese drywall” in which state and federal studies have found sulfur. Georgia Pacific declined to comment on the Swidler’s suit. However, the company released this statement: “We are disappointed that they elected to pursue a lawsuit without first informing us of their concerns, ..We stand behind the quality of our products and take customer complaints seriously.”For now, the Swidlers have moved out of their home and into a rental home nearby. They are afraid for the health of their family.

Source:CNN

NEW YORK: An appeals court Friday upheld Chrysler LLC’s plan to exit bankruptcy.The new company will be owned jointly by the U.S. governent, an autoworker’s union retiree fund and the Italian Automaker Fiat.Indiana Treasurer Richard Mourdock had appealed the ruling of a federal bankruptcy court on May 31 allowing Chrysler to sell its best-performing assets, including factories and dealerships, to a new company called the Chrysler Group. Mourdock made his appeal was on behalf of three pension funds — for Indiana teachers and state police, as well as a “Major Moves” construction fund. The funds hold about 42 million, or less than 1%, of Chrysler’s 6.9 billion debt. The automaker has been trying to leave behind its debt as part of the Chapter 11 process, which would wipe out part of the pension fund’s holdings. It filed for Chapter 11 on April 30. The Chrysler Group would be comprised by several major stakeholders. The biggest share, of 55%, would be controlled by a United Auto Workers union trust. The Italian automaker Fiat would own 20% initially, though this share could eventually increase. A minority stake of 8% would go to the U.S. government, and 2% would be held by the federal and provincial governments of Canada and Ontario. Mourdock said the pension funds are secured creditors and therefore they deserve a place at the table. White & Case, the prominent law firm representing his appeal, is arguing that the bankruptcy court ignored various legal points in approving the asset sale.Chrysler’s asset sale was approved just hours before bankruptcy filing of General Motors (GMGMQ) on June 1.The Big Three automakers have been hammered in the last of couple years by rising fuel prices, the drying-up of bank loans to customers, and a recession that has severely hampered consumer spending. — A Reuters report was used in compiling this article.

Source:CNN

Iceland near to Icesave debt deal
Iceland’s Prime Minister Johanna Sigurdardottir says a deal, with the UK and Netherlands, is near over savings accounts frozen when its banks failed.She said agreement is being negotiated on the Icesave accounts of Landsbanki, which collapsed with other main Icelandic banks in October. The deal would give Iceland seven years to reimburse the frozen savings. The total debt owed on the accounts is estimated at about 640bn Icelandic crowns (5.28bn: 3.2bn). The money would be repaid at 5.5% interest, Ms Sigurdardottir said. “This is a much more agreeable solution than we were looking at in the winter,” she said. “The interest rates are lower, we’ll have longer time to pay out and last, but not least, it means the assets of Landsbanki in the UK will cover most of the debt.”
Source:BBC

NEW YORK: Toymaker Mattel Corp. agreed Friday to pay 2.3 million in civil penalties for violating a federal lead paint ban that resulted in the recall of millions of its Barbie, Dora and other popular-branded toys in 2007.The Consumer Product Safety Commission said the fine against the No. 1 toymaker and its Fisher-Price pre-school division was the highest ever for the agency’s regulated product violations and the third largest in its history.While agreeing to the penalty, Mattel and Fisher-Price denied violating any laws, the CPSC said. “This penalty should serve notice to toy makers that CPSC is committed to the safety of children, to reducing their exposure to lead, and to the implementation of the Consumer Product Safety Improvement Act,” CPSC acting chairman Thomas Moore, said in a statement.The agency said Mattel (MAT, Fortune 500) and Fisher-Price knowingly — as defined in the Consumer Product Safety Act — imported and sold children’s toys with paints or other surface coatings that contained lead levels that violated a 30-year-old federal law.In 1978, a federal ban was put in place that prohibited toys and other children’s articles from having more than 0.06% lead by weight in paints or surface coatings.The agency said the penalty settles allegations that Mattel imported up to 900,000 non-compliant toys between September 2006 and August 2007, including the Sarge toy car from the movie “Cars” and numerous Barbie accessory toys.Fisher-Price imported up to 1.1 million non-compliant toys between July 2006 and August 2007, including certain licensed character toys, the agency said.In 2007, about 95 Mattel and Fisher-Price toy models were determined to have exceeded this limit, the agency said. Lead can be toxic if ingested by young children and can cause adverse health consequences. Mattel recalled millions of Chinese-manufactured toys in 2007 for both lead paint contamination and small parts hazards to young children.In August of that year, Mattel recalled 1.5 million of its Fisher-Price branded products such as Elmo, Big Bird and Dora toys over risks associated with lead and small, high-powered magnets. Three month later, the toymaker recalled another 9.5 million toys in the United States and 11 million in its overseas markets.In August 2008, Congress passed the Consumer Product Safety Improvement Act, which gave makers and sellers of children’s products such as toys, clothing and books have until Feb. 10, 2009 to comply with stricter standards for permissible lead, phthalate content limits and other mandatory safety requirements. Following considerable pushback from toymakers who said the deadline was unrealistic and also applied to products that had already been shipped, the CPSC agreed to delay the deadline for the new testing and certification requirements by a year to Feb. 10, 2010.”Today’s settlement announcement by the U.S. CPSC resolves Mattel’s outstanding issues with the agency related to certain matters that arose in 2007,” according to a statement form Mattel. “Mattel promptly took a series of steps after discovering compliance issues with some of our toys at that time. We were able to effectively minimize any potential concerns by launching a fast-track recall of the affected product in conjunction with the CPSC and other global regulatory agencies,” the statement said. “By taking several steps to enhance our product compliance protocols and procedures to confirm that every Mattel toy is safe for children to enjoy. Mattel continues to be vigilant and rigorous in ensuring the quality and safety of our toys,” the company said.

Source:CNN

NEW YORK: We’re just getting the latest figures on unemployment. But it’s not just about the number of people out of work, at issue is also how long people are out of work. It’s taking people about 22 weeks on average to find new employment. That’s the highest ever on record according to the government. And that figure doesn’t even count people who have stopped looking for work.In 2006 people were out of work for about 4 months … but the number of weeks has been creeping up steadily upward.Here’s how to cope if you’ve been unemployed a while:Call your state’s unemployment office. There’s some good news here. Unemployment benefits have been extended dramatically. In most states you can get from 72 to 79 weeks of unemployment. Plus, you’ll also get an extra 25 per week in your paycheck and the first 2,400 of benefits won’t be subject to income tax. To find out what you’re eligible for, you’ll need to call and ask. Get work. Even if you are picking up a job at Starbucks, the reality is that if you aren’t doing anything the perception of employers can be that you are growing stale or worse, lazy says Bradley Richardson, the author of “Career Comeback.” It’s not fair, but it’s true. Seek out part-time or contract work to keep those skills sharp. Bottom line: get out and do something even if it isn’t in your chosen field. Don’t wait to hit the home run — a full-time job with full benefits. Volunteer work is acceptable too.Give yourself a break. Understand that the nature of employment has changed in the last five to seven years. A rollercoaster career path is not unusual because we have had wild swings in employment due to the booms and busts of the last few years. Employers understand this, so if your resume looks a little uneven it won’t be surprising to HR professionals. Find some staffing firms that are active in your field. It’s critical to understand that these firms specialize — some are high-end boutique firms that find jobs for CEOs, others staff temp positions, others do part time work. Find the right staffing firms to pitch and get them working for you. Give them lists of the people you want to meet; copies of the magazine articles that illuminate changes in your field, lists of the companies you want to work for.Develop structure to your daily schedule. You’re not having it imposed by your employer, so you’ll have to put it together yourself. Schedule time to work the social networking sites and research jobs. Having a schedule you can rely on will help keep you from going insane.Got a financial dilemma? Go to CNNMoney.com/helpdesk to submit questions, read the Help Desk articles and check out new Help Desk videos. And tune in to CNN’s Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions.

Source:CNN

NEW YORK (Fortune) — It’s starting to look like the spring awakening in bank stocks may not be enough to save the CEOs of America’s biggest troubled banks, Citigroup’s Vikram Pandit and Bank of America’s Ken Lewis. A top banking regulator is agitating for Pandit’s removal, according to a report Friday in the Wall Street Journal. The clash between Pandit and Sheila Bair, the head of the Federal Insurance Deposit Corp., comes just a month after restive shareholders at Charlotte-based BofA (BAC, Fortune 500) stripped CEO Lewis of his chairmanship.The FDIC told CNN it had no comment on the story. Citi (C, Fortune 500) says it stands behind Pandit, who took over as CEO at the end of 2007 and has spent much of his tenure trying to clean up the messes left by his predecessors Chuck Prince and Sandy Weill. In a statement to CNN Friday, Citi chairman Dick Parsons said the company was “confident in our management.” BofA has similarly endorsed Lewis, and the three-month-long rally in bank stocks has quieted talk of wholesale government takeovers of these firms. But given the massive investor losses at these banks and the failure of their top managers to anticipate the industry’s meltdown last year, few would shed a tear at either executive’s departure. “These companies are sort of the poster children for the excesses that created this crisis,” said Eric Jackson, an activist investor and managing member of Ironfire Capital in Naples, Fla. “I think it’s appropriate for the regulators to push for substantial changes in management and on the boards.” Jackson’s firm does not own shares of either bank. Citi and BofA have been the two biggest bank recipients of federal aid since the financial crisis erupted last fall. Together they have taken some 500 billion in federal aid, the lion’s share of which has come in the form of federal guarantees of their troubled assets. Recently, both firms have shown some signs that they have broken out of what earlier this year looked like terminal decline. Shares of Citi have tripled since Pandit surprised Wall Street by saying Citi was on track for its first quarterly profit since mid-2007. BofA’s stock price has quadrupled during the same time frame.Both banks went on to report better-than-expected first-quarter results in April. Those surprises further boosted the shares even as many observers warned the numbers were padded by one-time gains and legal but incredible accounting maneuvers, such as profits tied to the declining value of the banks’ own debt. The hopes of a banking sector recovery only intensified after regulatory stress tests showed banks didn’t need that much more money. The findings helped spur a surge of capital raising from the private sector that has bolstered the balance sheets of many big institutions. 0:00
/4:01′Government won’t run Citi’But while investor fears of a giant bank failure have dissipated, regulators haven’t lost sight of the problems ahead. Though the 10 of the 19 biggest banks that had to raise 75 billion in capital after the stress tests had no trouble doing so, future loan losses will surely dwarf that figure — which means further capital raises could be necessary. “There’s a desire to make sure the banks don’t get complacent,” said Douglas Elliott, a former investment banker who is an economic studies fellow at the Brookings Institute in Washington. “Until we have a better grasp on exactly how bad the losses are going to be, it’s important to be cautious.” Even before the FDIC’s push to oust Pandit came to light, it was clear that policymakers intended to shake up the big banks. BofA named a new chief risk officer this week after regulators questioned the management failures that led BofA into its current morass. Citi shook up its own board earlier this year, with former Time Warner (TWX, Fortune 500) chief Parsons replacing Win Bischoff as chairman and Clinton administration Treasury Secretary Robert Rubin stepping down. (Time Warner is the parent company of Fortune and CNNMoney.com.)Still, skeptics such as Jackson say a change here and there won’t be enough, given the size and visibility of the two big banks.”How can you have such massive failures without there being accountability?” said Jackson, who doesn’t have positions in the stocks. “Citi and BofA are so large, so critical, they’re almost a case unto themselves.”And some observers believe that even management changes won’t be enough, and BofA and Citi will have to be broken up. Vernon Hill, a longtime bank executive who is now chairman of investment firm Hill-Townsend Capital in Bethesda, Md., notes that a recent national customer satisfaction survey showed Citi was either last or tied for last in each of the five regions in which it does retail banking.”Citi has been dysfunctional as long as I can remember,” said Hill, who owns “only minor amounts” of both stocks. “How many times are we going to let these guys get in trouble before we put an end to it?” CNN’s Amy Sahba contributed to this report.

Source:CNN

NEW YORK: Michigan officials said Friday that the state is closing three prisons and five prison camps in hopes of narrowing a 1.4 billion budget gap for fiscal 2010.The state, which has been hammered by the auto industry meltdown, estimates that it will save 120 million by shuttering the eight facilities. None of the 4,149 prisoners in the facilities will be released early, but up to 1,000 workers may lose their jobs.Michigan is not alone in turning to its prison system for savings. Some 25 states cut spending on corrections in fiscal 2009 and another 25 are proposing to do so in fiscal 2010, as they struggle to address massive budget shortfalls.The Wolverine State is targeting the correctional system because it takes up 22% of the state’s general fund budget, the largest component. (Education is funded separately.) The state must close the 1.4 billion gap before its fiscal year ends on Sept. 30.In part because of a 5-year-old initiative to reduce recidivism, Michigan has seen its prison population decline to 47,552, down 7.3% from January 2007. It already closed two prisons and a camp earlier this fiscal year for a savings of 30 million, Cordell said. The latest downsizing eliminates 6,400 beds from the system.”Rightsizing our prison system is the responsible thing to do,” said John Cordell, a spokesman for the Michigan Department of Corrections.The facilities being closed are Camp Cusino in Shingleton, Camp Kitwen in Painesdale, Camp Lehman in Grayling, Camp Ottawa in Iron River and Camp White Lake in White Lake. Camps are the lowest security facilities in the system and house the lowest-risk prisoners who are within two years of release. Camp detainees, who do public works projects for the state or local communities, will be transferred to other locations. These are the last remaining camps in the system, signaling an end to the program that has existed for more than 50 years.The three prisons that are closing are Muskegon Correctional Facility, a medium security institution in Muskegon, Hiawatha Correctional Facility, a minimum security location in Kincheloe, and Standish Maximum Correctional Facility in Standish.Dire straitsFriday’s announcement was the latest in a string of spending cuts in Michigan. 0:00
/02:56State budgets: billions shortWith tax revenues coming in below estimates, Gov. Jennifer Granholm last month was forced to slash spending by 350 million, including a 4% across-the-board reduction. The move comes after the governor cut 134 million from the budget in December.”Michigan government can no longer afford to be all things to all people,” Granholm said in a May 5 statement. “We expect to have to make more cuts like these in the future, which are the very type of wrenching cuts we have worked so hard to avoid in the past.” The cuts made in May mean adults on Medicaid are losing dental and vision coverage. New state trooper graduates are losing their jobs, and local communities are losing 1/3 of their remaining state revenue-sharing funds.Like other states, Michigan is seeing its tax revenues dry up. Personal income taxes are down 22.6%, while sales taxes fell 7.6%.

Source:CNN

Floating wind turbine launched
By Jorn Madslien
Business reporter, BBC News
The world’s first floating wind turbine is to be towed out to sea this weekend. Statoil’s Alexandra Beck Gjorv told the BBC the technology, the Hywind, to be put off Norway’s coast – “should help move offshore wind farms out of sight”. And it could lead to offshore wind farms eventually being located many miles offshore, away from areas where they cause disruption, Ms Gjorv added. This would benefit military radar operations, the shipping industry, fisheries, bird life and tourism. “Taking wind turbines to sea presents new opportunities,” said Ms Gjorv, of Statoil’s new energy division. “The wind is stronger and more consistent [and] areas are large.” The Hywind, a 2.3 megawatt (MW) wind turbine built by Siemens, combines technologies from both the wind farming industry and the oil and gas sectors, and will be tested off the coast of Norway for two years. In a similar way to how large parts of icebergs are hidden below the sea surface, the turbine has a 100 metre draft that is anchored to the seabed with cables, that can be up to 700 metres long. Wealthy customers
Offshore wind farms cost considerably more than wind farms on land, and initially floating ones will be more expensive than static offshore installations. But over time, insisted Ms Gjorv, the floating turbines should not cost more than fixed ones. Statoil plans to target markets where there is both an ability to pay as well as large and growing demand for energy, she added. Floating wind farms could later be established off both coasts of North America and off the Iberian peninsula and the coasts of Norway and the United Kingdom, she said. Floating wind farms could provide an additional source of energy for countries that have run out of space for their onshore wind farms, or where there is not enough wind on land, Ms Gjorv added. “The global market for such turbines is potentially enormous, depending on how low we can press costs,” she said, though she was not able to quantify it or to outline a timescale for when floating wind farms would become commercially available.
Source:BBC