Early Edition September 23 2008 at 05:20 AM Chi-Chu Tschang and Harry Maurer
Negotiations Over $700 Billion Bailout Continue
U.S. Congressional leaders and the Bush administration are moving closer to agreement on a $700 billion plan to rescue the country's ailing financial services sector after the Treasury made concessions amid a backlash from economists and lawmakers. Politicians agreed to allow tougher oversight over the financial cleanup and provide assistance to homeowners facing foreclosure. Two key issues, though, remain unresolved: possible limits on executive compensation at firms taking advantage of the bailout and changes to bankruptcy rules that would let judges adjust the terms of mortgages.
The two presidential candidates also entered the fray. Democratic Senator Barack Obama set out his own concerns in a speech that called for a modernization of financial regulation based on institutions' activities instead of their identification as banks or mortgage brokers. Republican Senator John McCain also voiced support for calls for an annual pay cap of about $400,000 for executives at companies bailed out with public funds -- a marked break from the Bush administration.
Source: Financial Times, Wall Street Journal
Global Markets Fall On Bailout Fears
Stocks in Europe and Asian fell on Sept. 23 -- led by financial companies and commodity producers -- on concerns that U.S. Treasury Secretary Henry Paulson's plan to buy $700 billion of bank assets wouldn't prevent a global recession. The proposal to stabilize the U.S. banking system may push the national debt to the highest level since 1954, which would threaten an erosion of foreign appetite for U.S. bonds, according to economists.
Source: Bloomberg
Limits on Exec Pay Hard to Enforce
Despite politicians' attempts to limit executive pay, compensation attorneys and experts say many of the restrictions could prove tough to enforce. Executive-pay restrictions have received considerable attention publicly and in negotiations on the Hill, but the draft bills include only short, vaguely worded sections that would require the U.S. Treasury to limit pay and severance for executives at companies from which it buys troubled assets, while giving the agency wide discretion over the details.
Source: BusinessWeek
Bailout Could Lead to Less Competition
The U.S. government's intervention in the financial markets is separating companies into two categories -- some are too big to fail while others are too small to bother rescuing. The result could lead to greater concentration of power, less competition, and higher prices, according to industry watchers.
Source: Washington Post
Financial Crisis Hits Retailers
Retailers are grappling with a sputtering economy and tight-fisted consumers. The credit crisis, though, has made it harder for shop-owners to finance their operations. Most retailers that are not already bankrupt have managed to buy their winter inventories, but that happened before Wall Street was brought to its knees.
Source: New York Times
Lehman Investors Could Lose Billions
Investors owning Lehman Brothers bonds face potential losses of $110 billion due to sharp reductions in the value of assets that are likely to be left to be paid out to creditors. Further losses on the bankrupt investment bank's derivatives positions, which are still being unwound, could leave even less on the table for bond investors, according to traders. Despite the concerns, a number of former Lehman Brothers businesses reopened on Sept. 22 after a U.S. bankruptcy court approved their sale on Sept. 20 to British bank Barclays, but sales and trading businesses are not yet open.
Source: Financial Times, Reuters
Fed Loosens Banking Regulation
The U.S. Federal Reserve has loosened longstanding rules that limited the ability of buyout firms and private investors to take big stakes in banks. The move is an attempt to inject more cash into the nation's ailing banks and marks the latest attempt by the Fed to rewrite the rulebook in response to the financial crisis.
Source: Wall Street Journal
AIG To Sell Assets By Next Week
American International Group should have a list of assets it wants to sell by next week, according to its new chief executive. The New York-based financial giant, which was once the world's most valuable insurer, needs to raise cash quickly to repay an $85 billion U.S. Federal Reserve loan that allowed it to avoid bankruptcy after taking massive losses on mortgage derivatives.
Source: Reuters
China's Milk Scandal Leads to Nationwide Changes
China will start a month-long campaign to overhaul its milk collection industry after a food safety scandal that's made an estimated 53,000 babies sick and led to at least four deaths. All milk collectors now will have to register with the government and inspections of fresh milk will be increased to stamp out use of the chemical melamine to boost protein-level readings in dairy products.
Source: Bloomberg
Shell Pens Gas Deal With Iraq, Opens Baghdad Office
Oil major Royal Dutch Shell completed a multibillion-dollar natural gas deal with the Iraqi government on Sept. 22 and said it had established an office in Baghdad -- the first foreign petroleum firm to do so since Iraq nationalized its oil industry more than three decades ago. The company, though, wouldn't disclose the location of its office, and the senior Shell official who announced the gas deal was accompanied by a number of armed guards.
Source: New York Times
Western Media Battles It Out In India
Media giants know a monster market when they see one. That's why News Corp and other Western broadcasters are investing in more channels for India, which boasts a $1.8 billion TV industry.
Source: BusinessWeek
Conversation of the Day: A Change To Find Balance
Reader Tglendening Writes: "Once we get to grips with the credit problem, we will still face a growing energy one. This is more difficult to solve."
Tell Us: Will Energy Issues Fall Off the Radar as Washington Scrambles to Rescue Wall Street?
Hot Topic on the Business Exchange: Lehman Bros.
As the credit crunch hits the U. S. economy, Lehman Brothers is fighting to survive as an independent entity. Shirley Brady and others are sharing their insights.
