Three Federal Reserve policy makers called on the U.S. government to try new programs to revive the housing market while differing over whether the central bank should take more steps to cut borrowing costs.
New York Fed President William C. Dudley said in New Jersey today that
Europe won modest respite from its debt crisis Wednesday as Germany and Portugal borrowed with relative ease ahead of a hazard-filled few weeks for the 17 nations that use the euro.
But Greece’s new prime minister warned that his debt-crippled country has only three months to come up with new reforms so his country can stay in the eurozone and avoid a potential default _ a reminder of how the crisis can flare up at any time. And the news that a major Italian bank had to offer an unexpectedly large discount to raise new capital showed just how wary investors are of Europe’s shaky banks.
So far this year, markets have pushed concerns about Europe to one side, especially as countries have managed to raise the money they need.
Germany, the biggest contributor in Europe’s bailouts, managed to sell euro4.06 billion ($5.3 billion) in its benchmark ten-year bonds Wednesday at an average yield of 1.93 percent, down on the previous 1.98 percent it had to pay. And Portugal, which was bailed out last April, paid a markedly lower interest rate to borrow euro1 billion ($1.3 billion) in three-month treasury bills.
But Italian bank UniCredit saw its share price tumble over 10 percent on the news it was selling new shares at a large 69 percent discount to Tuesday’s closing price. UniCredit is trying to raise euro7.5 billion ($9.8 billion) to meet new European requirements for banks to thicken their financial cushions against possible losses.
Banks are an integral part of the debt crisis because they hold government bonds. A default or steep fall in the value of government bonds could inflict heavy losses on banks and choke off credit to the European economy. That’s why the regulatory authorities want Europe’s banks to raise their buffers by euro115 billion ($150 billion) over the next few months.
The German and Portuguese auctions come ahead of severe tests for eurozone leaders as they try to navigate their way out of a crisis over too much debt in some countries.
Eurozone governments are struggling to convince financial markets that indebted governments will not default and should be able to borrow at affordable rates to repay debts as they come due. Greece, Ireland and Portugal have needed bailouts, while much larger Italy and Spain have seen their borrowing costs rise ominously.
Italy, the recent focus of the crisis, must borrow to cover euro53 billion ($69 billion) in expiring debt in the first quarter alone in debt auctions beginning Jan. 13. That will test whether the government of new Prime Minister Mario Monti is making progress in regaining market confidence through budget cuts and efforts to improve weak economic growth.
Further trouble could come from a slowing eurozone economy that may already have shrunk in the fourth quarter.
Additionally, Greece must also win approval of a second, euro130 billion ($169 billion) bailout, without which it can’t pay its debts, and strike a deal with creditors for a 50 percent reduction in their holdings of Greek debt to try to put the country back on its feet.
Greek Prime Minister Lucas Papademos warned union leaders and business groups Wednesday that decisions made in the next few weeks, ahead of a new visit by international debt inspectors, will determine whether Greece remains in the 17-nation eurozone or reverts to its pre-2002 currency, the drachma.
Portugal looks like it’s in better shape at the moment. The rate it had to pay at its auction fell to an eight-month low of 4.346 percent. Although Portugal cannot tap long-term bond markets at a reasonable price, it has sought to maintain a market presence by issuing shorter-term debt.
Analysts said the improvement may represent a sign that Portugal is regaining the markets’ confidence as it carries out spending cuts and revenue increases in return for its euro78 billion ($102 billion) bailout.
“There’s been an improvement in the risk perception of Portuguese debt, which has driven rates down” said Filipe Silva, debt manager at Portuguese financial group Banco Carregosa. “Now we just need to see whether it holds.”
Germany’s auction was better than one in November which raised fears that Europe’s debt crisis was spiraling out of control when the government sold only 65 percent of debt on offer.
Still, there was some concern over the amount of German bunds investors actually wanted Wednesday. Bids for euro5.14 billion ($6.7 billion) worth of bonds exceeded the full amount on offer of euro5 billion ($6.5 billion), but only barely, counting euro943 million ($1.23 billion) the government kept back for secondary market operations.
“Yes, it was covered, so that’s a relief,” said Marc Ostwald, a markets strategist at Monument Securities. “On the other hand, the coverage was poor.”
Germany can borrow cheaply because its economy is the strongest in the eurozone but concerns about the costs of bailing out fellow eurozone nations have raised questions about Germany’s finances as well.
Wednesday’s auction results follow a recent trend. On Tuesday, the Netherlands saw its borrowing rates fell to near zero percent in a pair of short-term auctions, in a sign that investors are searching out what they consider to be Europe’s safer assets.
Italy also sold large chunks of debt last week and analysts say the run of smooth auctions may be largely due to a massive euro489 billion ($636 billion) infusion of cheap, 3-year credit to eurozone banks by the European Central Bank.
Some of that cheap money may be being used by some banks to buy higher-yielding short-term debt. Italy’s longer-term borrowing rate in the markets remain at dangerously elevated levels near 7 percent, a point that prompted Greece, Ireland and Portugal to seek bailouts.
Boeing Co. beat Lockheed Martin Corp. to win a $3.48 billion, seven-year contract that lets it keep its role as the primary developer of the U.S. shield against intercontinental ballistic missiles.
The Missile Defense Agency announced the contract in a statement Friday. The agency oversees the Ground-based Midcourse Missile Defense, which includes interceptors in Alaska and California, ground- and sea-based radar, satellites and a command and control system.
The Boeing team, which included Northrop Grumman Corp. of Falls Church, Va., delivered “a cost-effective approach to program management and execution,” Dennis Muilenburg, chief executive of Boeing’s defense unit, said in a statement.
Lockheed, the world’s largest defense contractor, was seeking to dislodge Boeing from the contract it has held since 1998. Boeing has said the program totaled as much as $18 billion during the 10 years ending 2011.
Lt. Gen. Patrick O’Reilly, head of the Missile Defense Agency, said in August 2010, when the agency was preparing to call for bids, that it needed to contain costs.
“But before we get to cost, bidders have got to demonstrate they’ve the capacity and capability, and also an ability to do upgrades,” he said high risk personal loans.
Lockheed’s team included Raytheon, which makes the non-exploding warhead that is designed to seek and destroy enemy missiles. Raytheon was on both teams.
The news for Boeing officials came just one day after they and St. Louis leaders lauded a $30 billion deal for the company to provide Saudi Arabia with 84 new F-15 fighters. The deal will prolong production of the F-15, which is largely built at Boeing’s plant in north St. Louis County, by about five years, through 2020.
The Regional Chamber and Growth Association on Friday estimated that the F-15 work supports 1,000 manufacturing jobs at Boeing and contributes to nearly 4,000 more through local suppliers and spinoff activity.
The Boeing jobs generate $1.1 billion a year in wages and other economic activity, and the indirect impact is another roughly $1.8 billion, according to RCGA economist Ruth Sergenian.
Tim Logan of the Post-Dispatch contributed to this report.
If you take a trip outside Canada, it
Jon Corzine’s three days of testimony on MF Global’s collapse offered little to satisfy lawmakers or clients who lost millions when the securities firm failed. Yet legal experts say Corzine helped himself by choosing words with care and articulating an explanation that’s hard to disprove.
Corzine, a Democratic former senator and governor of New Jersey, told three congressional panels that he never intended to “misuse” client money or order anyone else to do so. He said no reasonable person who worked with him could have concluded otherwise.
He also rebuffed an assertion that he knew about customer money that might have been transferred to a European affiliate just before MF Global collapsed. It could be hard to build a persuasive case that he did know, experts say.
“It’s remarkable how he really has narrowly walked that line _ to be able to communicate effectively while preserving his defenses,” said Jacob Frenkel, a former enforcement attorney with the Securities and Exchange Commission, one of the regulators investigating MF Global. “He could have hurt himself by testifying. That has not happened.”
About $1.2 billion was found to be missing from client accounts when MF Global failed on Oct. 31, becoming the eighth-largest bankruptcy in U.S. history. Much of the missing money belonged to farmers, ranchers and other business owners who used MF Global to reduce their risks from the fluctuating prices of commodities such as corn and wheat.
Brokers such as MF Global generally are required to keep customer money in separate accounts to protect it in case the company fails. MF Global apparently failed to do so. Congress, regulators and criminal investigators are looking into the case.
Those investigations, still in their early stages, will likely yield clearer answers about how client money came to be misused. For now, it remains a mystery.
“I think it was unrealistic for Congress to expect substantive answers to these questions, because no one is that naive,” Frenkel said. “That’s why these investigations are ongoing _ to figure out what happened to the money and who is responsible.”
Some of the lawmakers who questioned Corzine appeared to agree.
“If you did anything wrong, the criminal investigators will find that; I won’t,” said Massachusetts Rep. Michael Capuano, the top Democrat on the panel Corzine faced Thursday.
Corzine was careful to testify that he never “intended” for client money to be misused. That’s because intent is a key requirement of criminal prosecution, Frenkel said.
“If someone intended to violate (rules requiring the separation of client accounts), then the conduct is criminal,” he said. “If it was unintentional, we are only in the zone of civil enforcement, if that.”
If Corzine or others at MF Global are found guilty of civil violations, they might have to pay financial penalties.
One regulator raised the possibility Thursday that crimes were committed. As a primary dealer, MF Global made trades with the Federal Reserve Bank of New York. As the firm’s finances worsened in its final weeks, the New York Fed required MF Global to put aside more money to cover the Fed’s losses in case the firm failed.
New York Fed General Counsel Thomas Baxter testified that MF Global gave “express representation in writing” that the money it put up was not from client accounts.
“If that representation turns out to be false, a federal criminal offense has been committed,” Baxter said.
Michael Greenberger, a professor at the University of Maryland School of Law and a former regulator, said the hearings resolved none of the questions surrounding MF Global’s failure.
“Regulators’ enforcement divisions and the Justice Department will work together because if the money is missing, somebody did something wrong,” Greenberger said.
And given the damage done by MF Global’s failure, there’s little Corzine can do to revive his public image, said Michael Robinson, a former SEC official who now works in crisis communications.
“Unless Jon Corzine can look under the mattress in his house and find $1.2 billion to give back to customers, his reputation is beyond repair,” Robinson said.
He noted that Corzine spent a career branding himself as an effective manager. Corzine rose from the trading floor of Goldman Sachs to become the investment bank’s co-chairman. He then ran successfully for the U.S. senate and one term as governor of New Jersey. Corzine joined MF Global shortly after losing his bid for a second term.
Now, to protect himself legally, Corzine must avoid being precise about what occurred at the firm he led until last month. That’s why many legal experts had expected Corzine to invoke his Fifth Amendment right against self-incrimination. He never did.
Much of Corzine’s testimony Thursday involved an allegation that he knew about customer money that may have been transferred to a European affiliate just before MF Global collapsed.
“I did not instruct anyone to lend customer funds to MF Global or any of its affiliates,” Corzine told a House panel. He also said he didn’t know about “the use of customer funds on any loan or transfer.”
It was his first public appearance since Terrence Duffy, CME Group Inc.’s executive chairman, alleged Tuesday that he might have known about the $175 million transfer. MF Global traded on exchanges managed by CME Group.
According to Duffy, an MF Global employee told a CME auditor that “Mr. Corzine was aware” of the earlier transfer. Duffy said he referred the matter to the Justice Department and the Commodity Futures Trading Commission.
The transaction Duffy described wasn’t necessarily illegal. Brokers such as MF Global are allowed to borrow from customer accounts temporarily in some circumstances _ to reduce their own risk, for example.
But such cases are a narrow exception. A firm couldn’t use customer money to pay trading partners if its speculative trades lost value. Even in cases where borrowing clients’ money was legal, the firm would have to replace it with a safe, cash-like investment such as a U.S. Treasury security.
Corzine also was questioned about whether he used his relationships with regulators to gain advantages for MF Global.
Corzine has been a major fundraiser for Democrats. He was co-chairman of Goldman Sachs Group Inc. In that role, he worked with two other Goldman executives at the time: Gary Gensler, now chairman of the CFTC, and William Dudley, now president of the Federal Reserve Bank of New York.
Gensler has recused himself from the investigation because of his long history with Corzine. Along with other Wall Street executives, Corzine lobbied Gensler and his staff last summer against a possible CFTC rule that would limited how their firms can invest clients’ money. Afterward, the CFTC delayed adopting the rule until earlier this month.
Early this year, the Federal Reserve allowed MF Global to join an elite group of 22 dealers that help the government sell Treasury securities. The Fed did not assess MF Global to see if it was taking on too much risk. Instead, Fed officials relied on oversight by the CFTC, the SEC and others.
The role of primary dealer conferred on MF Global a seal of financial strength. It gave the firm a competitive edge and likely lowered the interest it was charged to borrow, experts said.
Asked whether he received privileged treatment from the regulators because of his connections, Corzine said, “We didn’t ask for special treatment” from the Fed.
And he said, “I do not believe we were given special treatment” from the CFTC regarding the rule to limit firms’ investments of customer funds.
Walmart has already posted maps online showing where low-priced laptops and Xbox 360 consoles will be placed throughout its stores on Black Friday.
Old Navy is handing out a limited number of free digital cameras to customers who spend at least $40. And Best Buy is playing the movie “Harry Potter and the Deathly Hallows: Part 2″ on a big screen and offering free kettle corn and energy drinks to folks waiting in line outside of its Fairview Heights store.
And yes, many stores and shopping malls are opening earlier than ever
The bottom line is that Germany is likely to be the last man standing. The Euro is important to them and the responsibility for saving it will be decided in Berlin - not Paris, Brussels, or Frankfurt. It will be messy and will involve revamping the main treaty - the Treaty of Lisbon cashadvance.
Cam Harvey provides an overview of some of the finer points. Click here for blog.
The millions that Jon Corzine amassed as head of Goldman Sachs have become an alluring target for investors who were crushed by the collapse of MF Global, the brokerage firm he led until earlier this month.
And Corzine isn’t the only one who may be financially vulnerable after the eighth-largest bankruptcy in U.S. history. Others include MF Global’s other top executives; its auditor, PricewaterhouseCoopers; and some big Wall Street banks.
Even MF Global itself, which can’t be sued while in bankruptcy protection, could sue its former executives.
Corzine and other senior executives likely share a liability insurance policy to cover potential lawsuits against them. But experts say potential damages sought could well exceed the limits of their policy.
Corporate bankruptcy is a “litigation nightmare: Everyone ends up suing everyone,” said Charles Elson, a professor and director of the Weinberg Center for Corporate Governance at the University of Delaware. “The officers and directors are in for a lot of litigation.”
Private litigation has already begun. At least two class-action lawsuits on behalf of MF Global shareholders have been filed against Corzine and three other top executives. They accuse the firm and its top executives of making false and misleading statements about MF Global’s financial strength, internal controls and cash balances.
MF Global filed for bankruptcy protection on Oct. 31 after a disastrous bet on European government debt. In just a week, stock investors lost about $585 million, the shareholders say.
More than $600 million in clients’ money is still missing. Regulators say MF Global moved the money out of client accounts within days as the firm’s cash dried up.
No one at MF Global has been charged with a crime or civil violation. But regulators and the FBI and other criminal investigators are investigating MF Global’s failure, and Corzine has hired a prominent white-collar defense attorney.
A public relations firm hired by Corzine declined to comment Monday. An MF Global spokeswoman had no immediate comment. And Corzine’s lawyer didn’t immediately a return call.
It isn’t clear just how much money Corzine is worth. He spent roughly $100 million of his fortune to win a U.S. Senate seat and the New Jersey governorship. In 2005, the last full year that he was a U.S. senator, he was estimated to be worth between $125 million and $175 million.
Corzine’s disclosure filings as governor, through 2009, provide less detail on his finances. They do show he held interests in real estate partnerships, investment companies, hedge funds and private equity funds.
After the MF Global bankruptcy, Corzine declined to take his $12 million severance pay.
Legal experts say Corzine could be held personally liable for misrepresenting to investors the risks that the firm had taken payday advance online.
MF Global didn’t list the European debt on its balance sheet for all to see. Instead, those holdings were shifted to the company’s “off-balance sheet,” deep in its financial statements. Some separate filings with regulators excluded the European debt entirely.
Under a 2002 anti-corporate fraud law _ which Corzine co-wrote as a U.S. senator _ CEOs of public companies must personally certify the accuracy of their company’s financial statements.
If client money was used by the firm for its own purposes, Corzine could be held responsible, said Thomas Ajamie, an attorney who specializes in financial fraud cases.
“That would be the house gambling with customers’ money,” Ajamie said.
Other top MF Global executives also could face legal jeopardy, experts say. And members of the board of directors could be accused of failing to properly oversee Corzine’s trading strategy and the firm’s risk management.
PricewaterhouseCoopers, MF Global’s auditors, could be targeted, too. So could the Wall Street banks that put up money for floating the firm’s own bonds.
With MF Global in bankruptcy, new potential litigants could step forward, in addition to civil and criminal authorities and shareholders. The trustee the bankruptcy court appointed will conduct an investigation and could sue top executives on behalf of the company to recover money for creditors.
“Anyone who has a deep pocket gets sucked in,” Elson said.
Major companies typically provide liability insurance for top executives and their directors. The insurance covers the legal costs in case they’re sued by shareholders or others and the damages they might have to pay.
The insurance provides a single pot of money for executives and board members, usually in the hundreds of millions of dollars. Companies offer the insurance as a perk to recruit executive talent, experts say. The insurance kicks in if executives or directors are accused of breaches of duty and “wrongful acts” that stop short of fraud, such as misstatements to investors.
Experts say the damages or penalties that could be sought in MF Global’s case could far outstrip executives’ insurance coverage. That’s because multiple parties could sue each executive or director for tens of millions. The payouts could exceed each official’s share of the coverage.
Craig Welin, a lawyer at Frandzel Robins Bloom & Csato, which specializes in bankruptcy and financial litigation, said he thinks Corzine could be tied up in litigation for five to 10 years.
“They’ll be looking under every rock,” Welin said. “And if that rock has deep pockets, they’ll look even closer.”
Stock indexes are edging higher in early trading ahead of a key confidence vote in Italy that is the next step in Europe’s unfolding debt crisis.
Italian bond yields have spiked this week, a sign that markets are questioning the country’s ability to pay its debts. Italian Premier Silvio Berlusconi’s main coalition ally urged him to step aside Tuesday ahead of a vote that could force his resignation. Many investors believe a new government would enact additional austerity measures that could help Italy cut its massive debt burden payday loans lenders.
The Dow Jones industrial average was up 30 points, or 0.2 percent, to 12,097 five minutes after the market opened. The S&P 500 rose 4, or 0.3 percent, to 1,265. The Nasdaq composite gained 16, or 0.6 percent, to 2,712.
Embattled Greek Prime Minister George Papandreou is preparing to start talks to try to form a four-month coalition government, aimed at securing continued rescue funds for the near-bankrupt eurozone country.
Papandreou is due to meet President Karolos Papoulias at noon (1000GMT) Saturday, hours after winning a confidence vote in the Socialist-led parliament on a pledge that he was willing to step aside and form a cross-party caretaker government.
But it remains unclear whether the main opposition conservatives and other parties will take part in the talks and abandon their demand for a snap general election.