Finance & Business World

President Obama will propose a new tax on financial institutions Thursday to ensure that taxpayers who bailed out banks get paid back, according to a senior administration official.

The White House wants to raise as much as $120 billion through a new tax on banks to cover losses in the federal bailout program.

The law that created the $700 billion Troubled Asset Relief Program empowered the president to ask Congress to recoup money if bailouts were not paid back in full.

TARP dictates that the Office of Management and Budget consider such action five years after TARP went into effect in October 2008 to prevent the federal bailout from adding to the deficit.

When the TARP bill was hastily debated, the provision was key to winning enough support from wary lawmakers to push the bill through Congress.

This new proposal to tax banks has been under discussion since August, a senior administration official said Tuesday.

The federal bailout program has always been a controversial topic, but news of executive bonuses now being awarded for banks’ stellar performance in 2009 is throwing new fuel on populist anger.

Congress would still have to approve any proposed new tax.

Robert Gibbs, the White House press secretary, would not discuss on Monday how a possible bank fee would fit into Obama’s fiscal year 2011. But Gibbs said it is the president’s "goal" to ensure the "money that taxpayers put up will be paid back in full."

While most of the big banks have started paying back their TARP investments, the government still has a lot of money on the line and is likely to for years to come.

Last month, the Treasury estimated that the net cost of TARP to taxpayers would be $41.4 billion.

For example, Treasury Secretary Tim Geithner said last month that the bailouts of the automakers and insurer American International Group (AIG, Fortune 500) would not be paid back in full short term personal loans.

"There is a significant likelihood that we will not be repaid for the full value of our investments in AIG, GM and Chrysler," Geithner told an oversight panel.

Yet, the financial industry tax under discussion could impact the entire financial industry, a prospect the banking industry opposes.

Although few details are available about the proposed fee, the administration official suggested banks would be required to pay, even if the losses were incurred by GM and Chrysler.

"Imposing new taxes on top of the increased regulatory costs will weaken the industry, just when the industry is helping lead the economic recovery," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, a bank lobbying group.

And it’s still unclear what, if anything, can be done to prevent the fee from being passed to bank account holders.

U.S. Chamber of Commerce President Thomas Donohue said Tuesday he expected any new fee imposed would be passed on to consumers.

"If you don’t pass it on to the consumer, than you’re going to have smaller profits, and then if you have smaller profits, your stock goes down," Donohue said.

The total revenue collected from the tax would be no higher than $120 billion, since that is the highest conservative estimate of the cost of TARP, the senior administration official said. However, the Treasury Department expects the total loss number to shrink over the course of future years.

- CNN White House Correspondent Dan Lothian contributed to this report. 

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Don’t close the coffin on Saab just yet.

Spyker, a Dutch maker of exotic cars, said Sunday that it had made a new offer to General Motors for the Swedish car brand.

GM announced on Friday that it would let the brand die after it had failed to reach a deal with potential buyers, including Spyker and Swedish carmaker Koenigsegg.

Early Sunday, Spyker Chief Executive Victor Muller said the company had submitted a proposal that addresses the issues that had hung up a deal.

"Despite our collective 11th-hour set-back, we are returning to the table with a renewed offer, that addresses every known issue brought to light during the initial negotiations and that has the full backing of the Saab management," Muller said in a statement.

"Our efforts are based on our passion for saving an iconic brand that we would be honored to shepherd, and the jobs and livelihoods of thousands of loyal Saab employees, suppliers and dealers around the world," he added.

Some 3,400 employees globally would be directly affected by Saab’s closure, according to GM spokesman Chris Pruess.

In a statement on Sunday, GM said it had "received inquires from several parties" following Friday’s announcement. The company added that it would "evaluate each inquiry."

Spyker’s offer is set to expire Monday at 5 p.m. ET.

Saab has never been a big-selling car brand, but the recent global recession and news of the brand’s possible demise have driven sales down to crisis levels. Saab’s U.S. sales have fallen by more than half so far this year.

Sweden’s other major automaker, Volvo, is currently owned by Ford (F, Fortune 500), which is in the process of selling it to the Chinese automaker Geely.

What went wrong

GM previously said that the potential deals with both Spyker and Koenigsegg fell through because of unspecified issues that arose during negotiations.

As of Friday, GM was still planning to sell some Saab 9-3 and 9-5 technologies to the Chinese automaker Beijing Automotive Industry Holdings Co. Ltd. That deal was announced last week.

GM has owned a major stake in the Swedish automaker since 1989 and took full ownership in 2000; Saab has been making cars since 1949. GM will now begin winding down Saab production, but warranties will continue to be honored, and spare parts will still be available, the company said.

In the past two decades, GM has made every effort to turn Saab into a profitable car brand, Smith said. But recent global economic problems were simply too much for the still-weak automaker to survive.

As part of its government-sponsored bankruptcy restructuring, GM planned to sell of or wind down four of the eight brands it recently operated.

Pontiac is being wound down; a deal to sell the Saturn brand to Penske Automotive fell through in September; and a deal to sell the Hummer SUV brand to Chinese heavy equipment maker Sichuan Tengzhong is awaiting government approvals.

GM’s remaining brands are Chevrolet, Buick, GMC and Cadillac. 

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Sales tax revenue continues to fall in Dallas and other cities across North Texas.

Dallas' sales tax revenue fell 5.3 percent for November, compared to collections for the same period in 2008. Still, it's better than the Texas average, which dropped 14.4 percent, according to state Comptroller Susan Combs.

Dallas' net payment was $14.5 million, compared to $15.4 million for the same period last year. So far this year, payments are down 9.2 percent, dropping to $205.4 million from $227 million in 2008.

Fort Worth saw its monthly payment drop a whopping 17.3 percent, to $7 million from $8.5 million a year ago. For the year, payments in Fort Worth are down 7.9 percent, to $97.8 million from $106 no fax payday loan.2 million.

Frisco saw its November collections drop 11.6 percent, Plano saw a drop of 19.1 percent, Grapevine tax revenue for the month was down 8.3 percent and Irving showed a decrease of 18 percent. Lewisville fared better than most North Texas cities, with November 2009 collections dipping less than 1 percent when compared with November 2008.

Texas collected $1.7 billion in sales taxes last month, making November the ninth consecutive month of a year-over-year decline.Combs says collections are down in all categories, including retailing, oil and gas production and construction.

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Ben S. Bernanke has the backing of a majority of U.S. senators on the Banking Committee for a second term as Federal Reserve chairman.

Eight Democrats and four Republicans, among the 23 lawmakers on the panel overseeing the central bank, made their views known in interviews, comments to reporters or written statements. Some said they will support Bernanke, while others said they’re leaning in his favor.

Committee Chairman Christopher Dodd, a Connecticut Democrat, said yesterday that Bernanke has “done a pretty good job,” and that anger in Congress over the Fed’s role in the financial crisis is “misplaced.” Judd Gregg, a New Hampshire Republican, said Nov. 20 he will “absolutely” vote for Bernanke.

Criticism of the central bank has mounted in Congress since President Barack Obama nominated Bernanke in August, with many lawmakers blaming the Fed for lax supervision of banks and for taking part in taxpayer-funded bailouts of companies including Citigroup Inc. Some senators said those concerns won’t stop them from backing the former Princeton University economist.

“He’s been far from perfect,” Senator Sherrod Brown, an Ohio Democrat, said in an interview yesterday. “He was not quick enough responding last year to many of these issues that we care about, particularly in housing. I want him to focus on jobs. But I think he’s generally done a decent job.”

Hearing Tomorrow

The banking panel holds a hearing on Bernanke’s nomination tomorrow in Washington. A vote hasn’t been scheduled, and the full Senate would then need to confirm the Fed chief. Bernanke’s four-year term ends Jan. 31.

Traders on Intrade, an online futures exchange, give Bernanke a 90 percent chance of Senate confirmation, up from 89 percent yesterday.

The Fed under Bernanke has slashed interest rates almost to zero and pumped more than $1 trillion into the financial system to battle the deepest recession since the 1930s. The Standard & Poor’s 500 Index has jumped 64 percent from its 2009 low on March 9 as the economy showed signs of revival.

Policy makers last month repeated their pledge to keep rates low for an “extended period” to bring down an unemployment rate at a 26-year high. A government report Dec. 4 is likely to show that companies reduced payrolls for a 23rd straight month, according to a Bloomberg survey of economists.

Dodd said in August that while he’s had “serious differences” with the Fed, reappointing Bernanke is “probably the right choice.”

‘Pins and Needles’

Asked yesterday about his vote, Dodd told reporters, “I want you to be on pins and needles and wait until Thursday to hear this exciting news.”

Jim Bunning, the Kentucky Republican who was the only senator to oppose Bernanke’s first nomination in 2005, hasn’t changed his views.

“His job rating would be zero minus F,” Bunning said in an interview yesterday. “He has catered to the big banks, to the Wall Street elitists, to every major money concern in the country and in the world.”

Senator Bernard Sanders, a Vermont independent who isn’t on the banking committee, said today that he placed a procedural hold on Bernanke’s nomination, which requires 60 votes to break. “Mr. Bernanke has failed,” Sanders said in an e-mailed statement. “It’s time for him to go.”

The other Democrats on the banking panel expressing support for Bernanke include South Dakota’s Tim Johnson, Jack Reed of Rhode Island, New York’s Charles Schumer, Evan Bayh of Indiana, Hawaii’s Daniel Akaka and Virginia’s Mark Warner.

Three said they’re undecided, including Wisconsin’s Herb Kohl, Jon Tester of Montana and Jeff Merkley of Oregon.

‘Earth Shattering’

Among Republicans, Nebraska’s Mike Johanns said Bernanke “will have my support.” Utah’s Robert Bennett said he’ll probably vote in favor, while Bob Corker of Tennessee said he is likely to back Bernanke “if nothing earth-shattering comes out of the hearings and the follow-ups.”

Alabama Senator Richard Shelby, the panel’s top Republican, declined to comment except to say, “You’ll be there Thursday.”

Bernanke, 55, has presided over the most expansive use of Fed powers since the 1930s, taking control of insurer American International Group Inc. and launching unprecedented programs to contain fallout from a run on money-market funds and to buy short-term debt from companies such as General Electric Co.

Some lawmakers have accused the Fed of overstepping its authority and failing to properly supervise the financial firms that packaged and sold the mortgage-backed securities at the heart of the crisis.

‘Abysmal Failure’

Dodd, calling the Fed’s record on banking supervision an “abysmal failure,” introduced legislation in November that would strip the central bank of that role. Also last month, the House Financial Services Committee approved a proposal to remove a three-decade ban on congressional audits of Fed interest-rate decisions.

The Fed chief said in a Nov. 29 commentary in the Washington Post that curbing the central bank’s authority to supervise the banking system and tampering with its independence would “seriously impair” economic stability in the U.S.

Frederic Mishkin, a former Fed governor who now teaches at Columbia University in New York, called the measure that would allow audits of Fed policy “incredibly dangerous.”

“If you make the central bank beholden to politicians on a short-run basis, you get very bad outcomes: high inflation and less of the ability to deal with shocks like the ones we had recently,” Mishkin said yesterday in an interview.

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The U.S. Defense Department is moving the Boeing EA-18G Growler to full production, Boeing said Monday.

Boeing’s EA-18G program, which is based in St. Louis, will now begin building 22 aircraft per year for U.S. Navy, the Pentagon said.

The news represents a $386 million modification to a previously awarded contract, according to the Pentagon.

The EA-18G is derived from the F/A-18F aircraft and includes electronic attack capabilities.

Work will be performed in Baltimore (46.5 percent); Bethpage, N.Y. (22.7 percent); St. Louis (13.5 percent); Melbourne, Fla. (5.5 percent); Fort Wayne, Ind. (3.7 percent); Thousand Oaks, Calif. (3.7 percent); Wallingford, Conn. (2.6 percent); Nashua, N.H. (1.1 percent); and Westminster, Colo. (0.7 percent), and is expected to be completed in December 2012.

Chicago-based Boeing Co. (NYSE: BA) is prime contractor on the Growler. The team also includes Northrop Grumman, Raytheon and General Electric Aircraft Engines.

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The U.S. dollar may come under renewed pressure from emerging market currencies and the euro after a meeting of the world’s top finance officials failed to take concrete action on rebalancing global money flows.

Finance ministers and central bank governors of the Group of 20 major countries, meeting in Scotland at the weekend, launched a “framework” in which they will discuss how to reduce trade and savings imbalances between nations.

But their communique talked only in general terms about rebalancing economies, and implied they might not agree on specific policies for individual countries to adopt before the end of next year at the earliest.

The result may be a continuation of heavy fund flows into emerging markets, boosting currencies there. And central banks intervening to slow currency appreciation may keep investing much of the money they obtain in the euro, pushing up that currency too.

“We’re probably looking at fresh dollar weakness in the short term” in the wake of the G20 meeting, said Kenneth Broux, senior markets economist at Lloyds TSB.

CHINA, BRAZIL

At the center of the currency issue is China’s reluctance to permit appreciation of its tightly controlled yuan, which it has kept flat against the dollar since mid-2008.

That has prompted additional fund flows into emerging market currencies that do trade freely, such as the Brazilian real, which has soared over 30 percent this year. Last month, Brazil slapped a 2 percent tax on foreign investments in fixed income and stocks in an effort to slow the real’s rise.

Last week, Brazilian officials said they would discuss this problem at the G20 meeting. But the G20 communique made no reference to the issue, and Brazil appeared to get little sympathy from a senior official of the International Monetary Fund, which is a key player in the global rebalancing campaign.

Youssef Boutros-Ghali, who chairs the International Monetary and Financial Committee, the IMF’s policy steering committee, told Reuters that Brazil’s tax was unlikely to work and that “we should not be fixated on currencies.

Officials from several countries, including Brazil, Japan and Indonesia, urged China on the sidelines of the meeting to let the yuan move more flexibly.

But as a group, the G20 did not press China on the sensitive issue, G20 sources said. British finance minister Alistair Darling told reporters: “We didn’t discuss the renminbi. I think that’s a question for China rather than us.”

In fact, China appeared in a combative mood. Finance Minister Xie Xuren and central bank governor Zhou Xiaochuan, speaking to the official Xinhua news agency after the meeting, made no mention of the yuan and instead warned developed countries to focus on the quality of their own policies.

Xie said countries with global reserve currencies should work to maintain the currencies’ value, to avoid destabilizing the global economy — implying it was up to Washington, not Beijing, to resolve the issue of the weak dollar.

The silence on the yuan in Scotland suggested countries accepted the G20 was not a forum in which to press China. The other main global economic forum, the Group of Seven nations, last met in October; it did mention the yuan, but only in the softest terms, “welcoming China’s continued commitment” to free up the yuan without referring to a timetable. 

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While foreclosure rates are easing in some of the hardest-hit cities, the crisis is beginning to expand into new metro areas.

On Wednesday, RealtyTrac released its list of cities with the biggest foreclosure problems during the third quarter. As expected, towns in California, Florida and Nevada dominated the top 10, with Las Vegas taking the top spot with a rate of 1 in 20 homes. That’s a 53% increase over the third quarter 2008.

But there was a bright spot: Half of the cities in the top 10 showed year-over-year declines in their foreclosure rates, and 60% showed improvement compared with the second quarter.

For example, second place Merced, Calif., saw foreclosures fall by 11% from last year and 13% from last quarter, to 1 out of every 27 homes. And Stockton, Calif., slipped to No. 4 from No. 2 last quarter. The city, which is 80 miles east of San Francisco, had ranked highest for all of 2008.

"We’re not sure if that will be a one-time thing or a true continued trend, but it’s one of the first positive signs we’ve seen," said Rick Sharga, a senior vice president at RealtyTrac.

New hotspots. But if Las Vegas was the big loser, its neighbor, Reno, Nev., was hot on its heels. The No. 9 city posted an 80% gain in foreclosures — 1 in 37 homes — compared to the third quarter of last year. And it’s just one of several smaller metro areas that are creeping their way up RealtyTrac’s foreclosure list payday advance loan.

"Foreclosure activity is spreading from primary cities into secondary areas," said Sharga. "These aren’t your LAs and Phoenixes — it’s moving into outlying regions."

Boise, Idaho, cracked the top 20 for the first time as foreclosures jumped 141% — the largest increase from 2008. Similarly, Provo, Utah, rose 120%.

The pair of cities "are the first two cases where areas with very high unemployment are breaking into the top spots," Sharga said. "That will continue over the next few months."

Outlook. "The fact is, we’re still seeing record levels of foreclosure activity," said Sharga, who doesn’t expect rates will peak until 2010 because many option-ARMs will reset over the next several months.

Still, the housing market seems to be adjusting, because home prices are stabilizing — albeit at a lower level, Sharga said.

A record number of properties "are coming down the foreclosure pipeline" as well, Sharga said, and they will be trickling into the housing market over the next four years.

"We expect a longer, less robust recovery for the housing market," Sharga said. "We won’t know what’s what until everything gets worked out of the system." 

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Henderson Land Development Co. said it sold a duplex apartment in Hong Kong for a record price, hours after city Chief Executive Donald Tsang signaled the government may release more land to deflate a property bubble.

The apartment, on the 68th floor of Henderson’s 39 Conduit Road development, fetched HK$439 million ($57 million), or HK$88,000 a square foot excluding parts of the building shared by all residents, the company controlled by billionaire Lee Shau-kee said today. Henderson said it may ask HK$100,000 per square foot for two penthouses on the 88th floor.

Last year, the fewest apartments were completed since at least 1972. Prices, especially for luxury homes, have rallied in 2009 on record-low interest rates and an influx of money from China. The government is Hong Kong’s biggest provider of land and has altered supply to support or depress prices.

“The relatively small number of residential units completed and the record prices attained in certain transactions this year have caused concern about the supply of flats, difficulty in purchasing a home and the possibility of a property bubble,” Tsang said in his annual policy address.

Tsang, 65, said his administration will closely monitor “market changes” and may direct the Urban Renewal Authority and subway operator MTR Corp., both controlled by the government, to bring readily-available building sites to market.

Tsang, Hong Kong’s leader since 2005, may be concerned the luxury-market boom will fuel wider price increases, Centaline Property Agency Ltd. analyst Wong Leung-sing said.

‘Social Issue’

“He’s more concerned whether mass-market housing prices would get pulled up by the momentum in the luxury market,” Wong said. “If that happens, it’ll become a social issue.”

Instead of changing the government’s land-sales system, Tsang is more likely to have the MTR speed up the sale of suburban land, Wong said. The MTR develops sites around its stations in ventures with developers and uses the proceeds to help pay railway construction costs.

The city’s Hang Seng Property Index, which includes six companies, climbed 1.6 percent today, taking this year’s gain to 66 percent. The benchmark Hang Seng Index rose almost 2 percent and has advanced 52 percent this year to a 14-month high.

Billionaire Owners

Hong Kong, where property companies owned by billionaires including Henderson’s Lee and Cheung Kong (Holdings) Ltd.’s Li Ka-shing account for about 10 percent of the benchmark stock index, stopped supplying new land in 2002 during a seven-year property rout. The government started a new system of land auctions in 2004, after prices stabilized.

Hong Kong brokers typically count a portion of the common areas when they price properties. On that basis, the price for the 6,158 square-foot (572 square-meter) home on Conduit Road came to the equivalent of HK$71,280 a square foot, according to Thomas Lam, Henderson’s general manager for sales.

One Hyde Park in London set the previous record of 6,000 pounds (HK$74,318 or $9,590) a square foot, Lam said at a press conference in Hong Kong today.

Sun Hung Kai Properties Ltd., the world’s largest developer by market value, last month raised the asking price of two penthouses in Hong Kong by 50 percent to a record HK$75,000 a square foot, including a share of common areas in the building, as demand surges for luxury apartments.

Housing completions in Hong Kong have been lower than initial government projections in the past two years. Builders finished 8,780 units, fewer than the forecast 10,980 last year, and 10,470 in 2007 against the forecast 12,740, the Rating and Valuation Department said in March. It then estimated completions at 14,740 for this year.

Policy Changes

Tsang announced policy changes aimed at promoting the redevelopment of old industrial buildings, which have fallen into disuse as companies use cheaper factories in China instead.

Hong Kong is determined to improve air quality and will promote the use of electric cars and energy-saving light bulbs, according to Tsang.

While Shanghai has been designated by China as a center for financial services and trade — two of Hong Kong’s main industries — the development of the two cities can be cooperative, Tsang said. For example, Hong Kong can help China develop its offshore yuan business.

Hong Kong’s economy will keep improving this year, Tsang said.

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Billionaire hedge-fund manager George Soros called on the world’s leaders to create “global regulations” to ensure stability as the world emerges from the financial crisis.

“We need to establish proper regulation because the system we allowed to develop for the last 25 years did collapse,” Soros said today during a video link with a conference in Yalta, southern Ukraine. “The authorities need to agree on that, but whether they will be able to do that is an open question.”

President Barack Obama and other Group of 20 leaders meeting in Pittsburgh are uniting behind a plan to force banks to tie compensation more closely to risk and to tighten capital requirements, while they agreed to maintain stimulus measures to spur the global economy amid the worst financial crisis in more than six decades, according to officials from G-20 governments.

The regulatory “should not be led particularly by the U.S., but it is very important to bring China into it,” Soros said. He criticized the Obama administration on bank bailouts.

“That was a mistake,” Soros said. “More radical recapitalization should have been done even if that would have meant that the state would take temporary control of the banking system,” Soros said. “But Obama felt that it would not be accepted and decided they would not do it.”

Soros said he expects the U.S. economy to show “very slow” expansion over the next several years even after the government injected “tremendous amount of money” into the economy to renew growth.

‘Better Balance’

“Next year or the year after, there will be a drop, but it will not be severe,” Soros predicted faxless cash advance. “China has resources to sustain its economy and it will drive the global economy. Europe will be in better balance” than the U.S., “but I cannot see growth there either. Brazil will show good growth,” he said.

U.S. gross domestic product shrank at a 1 percent annual rate in the second quarter, less than the 1.5 percent decline projected by economists in a Bloomberg survey. The drop in GDP was the fourth in a row, the U.S.’s longest contraction since quarterly records began in 1947. The world’s largest economy has shrunk 3.9 percent since last year’s second quarter, marking the deepest recession since the Great Depression.

Withdrawing stimulus measures from the economy “will be a very risky operation,” Soros said. “I do not think we will see run-away inflation, but the fear will increase interest rates and cause slow growth.”

Derivatives Markets

Soros also said that derivatives markets should be under more control. “Some derivatives carry tremendous risks and they cause systemic risks,” he said. “This is why I think that some kinds of instruments need to be licensed and some instruments should be banned.”

He said the U.S. dollar likely will retain its position as a reserve currency.

“Clearly, the dollar has lost its dominant position as the most desirable and widely used reserve currency, but there is no alternative to the dollar,” said Soros. “There is general reluctance now to hold currencies, there is a flight toward commodities or real assets.”

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China’s central bank may be forced to tighten its “loose” monetary policy in the second quarter of 2010 when inflation is expected to reach 4 percent, according to Citigroup Inc.

“China worries about inflation more than asset market bubbles,” Shen Minggao, Citigroup’s chief economist for the Greater China region, said in an interview in Hong Kong yesterday. Rising prices may spook low-to-medium income groups and threaten social stability, he added.

The People’s Bank of China may issue bills to soak up cash or raise its capital reserve ratio when inflation exceeds the government’s 4 percent target, Shen said. Consumer prices in Asia’s second-largest economy, which declined for a sixth straight month in July, may start to increase again in the fourth quarter, he said.

In 2008, the Chinese central bank slashed interest rates and reserve requirements to help shield the economy from the global recession business card. Premier Wen Jiabao also unveiled a 4 trillion yuan ($585 billion) stimulus package to buoy growth.

China’s top economic planning agency, the National Development and Reform Commission, on Aug. 27 denied the country faces a sharp and sustained increase in prices. The agency called on local governments to “strengthen price monitoring” on consumer goods.

Consumer prices in China plunged 1.8 percent in July from a year earlier, the biggest decline since 1999. The key one-year lending rate is 5.31 percent and the nation’s biggest banks are required to set aside 15.5 percent of their deposits as reserves.

Citigroup’s Shen expected consumer prices to rise 3.2 percent next year. The median estimate of 16 economists surveyed by Bloomberg News is for a 2.7 percent increase in 2010.

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