Early Edition September 24 2008 at 05:51 AM Chi-Chu Tschang and Harry Maurer
No Solution On Bailout As Politics Overshadows Financial Deal
Despite tough talk from U.S. Treasury Secretary Hank Paulson, many in Congress still remain unhappy with the $700 billion bailout package and continue to push for changes that would provide stronger protection for taxpayers and impose tougher terms on financial institutions. With just six weeks before the U.S. presidential election, Congress and the administration are negotiating behind the scenes to resolve major sticking points of the plan. Lawmakers have objected to the broad authority Paulson has requested to deal with the crisis, the lack of additional steps to help homeowners avoid foreclosure, and the absence of any demands for ownership stakes in the banks that would be helped.
In light of the ongoing turmoil, economists and financial analysts argue there are a number of alternatives to the bailout that would reduce taxpayers' liabilities and would more effectively address the urgent crisis. One approach would seek to reduce taxpayers' liability by offering collateral-backed loans to troubled banks, while another would be to have the government set up a profit-driven investment fund to infuse the financial system with cash without taking on bad debt.
Source: New York Times, Washington Post
Goldman Taps Buffett For $5 Billion Investment
U.S. financial giant Goldman Sachs will raise $7.5 billion from Warren Buffett and other investors in an attempt to strength its financial base as it makes the transition from investment bank to a Federal Reserve-regulated bank holding company. Buffett's Berkshire Hathaway firm will buy $5 billion of preferred stock in a private placement and receive warrants enabling it to purchase another $5 billion of common stock. A further $2.5 billion in common stock will be sold through a public offer.
Source: Financial Times
FBI Investigates Financial Turmoil
Federal investigators have opened probes into the financial troubles of four high-profile companies that are at the center of the current financial turmoil, according to senior law-enforcement officials. The Federal Bureau of Investigation's preliminary inquiries are focusing on whether fraud helped cause some of the troubles at Fannie Mae, Freddie Mac, Lehman Brothers, and American International Group.
Source: Wall Street Journal
Economic Woes Push Obama Ahead Of McCain In Polls
The growing pessimism about the U.S. economy has altered the shape of the presidential race, giving Democratic nominee Barack Obama a clear lead over Republican candidate John McCain, according to the latest Washington Post-ABC News poll. The poll found that, among likely voters, Obama now leads McCain by 52% to 43%. Two weeks ago -- in the days following the Republican National Convention -- the race was essentially even, with McCain at 49% and Obama at 47%.
Source: Washington Post
Bailout Could Benefit Bank Balance Sheets
After hearing the details of the proposed $700 billion bailout fund, industry analysts say it could bolster bank balance sheets and may let some companies "write up" the value of their soured mortgage assets. If assets were purchased near the hold-to-maturity price, "some of the banks may get helped out indirectly if it seems they marked their prices too low," said Brian Gardner, an analyst at Keefe, Bruyette & Woods.
Source: Wall Street Journal
WaMu Takeover Talks Fail To Find Firm Bidder
Washington Mutual remains in preliminary talks with several potential suitors as its board considers how to structure a sale of all or parts of the beleaguered bank. Due diligence is under way with a handful of potential buyers -- and proposals have been exchanged on both sides -- but it's still unclear whether any of the interested banks will make a firm bid for WaMu.
Source: Financial Times
Dollar Smacked by Bailout Talks
The dollar continues to fall against the euro as the U.S. Congress studies the government's $700 billion rescue proposal. The greenback also has approached a one-month low versus the British pound, spurred on by a report that economists forecast U.S. home sales have dropped, which bolsters the case for a Fed interest rate cut.
Source: Bloomberg
Fed Sets Up $30 billion Of Currency Swaps
The U.S. Federal Reserve said on Sept. 24 it had set up $30 billion worth of new currency swaps with central banks in Australia and Scandinavia. The action comes on top of $247 billion that already has been committed to currency swaps with other major central banks.
Source: Reuters
European Banks Lack Regulatory Oversight
If one of the Europe's financial giants found itself under threat -- as has happened to some banks in the U.S. -- the European Central Bank would be forced to deal with a multitude of potential crisis managers, none with overarching authority. EU bank regulation has hardly kept up with the expansion of the continent's financial sector, leaving many firms vulnerable if economic conditions continue to worsen
Source: New York Times
France's EDF To Buy British Energy For $23.1 Billion
French utility EDF launched a $23.1 billion agreed takeover bid of power producer British Energy on Sept. 24 in an attempt to secure Britain's nuclear future. EDF -- the world's biggest maker of nuclear energy -- said it had offered to pay $14.38 per British Energy share.
Source: Reuters
Luxury Retailers Target Outlet Stores For Growth
With the economy stalled and consumer spending in free fall, luxury retailers are taking their outlet operations out of the shadows and launching an aggressive expansion plan. Increasingly, outlets stores are offering not just discontinued or leftover inventory from a previous season, but many items currently available at the mainline stores.
Source: BusinessWeek
Pakistan Turns To West To Avoid Debt Defaults
Pakistan President Asif Ali Zardari will ask the U.S., Britain, and other industrial nations for financial aid amid concern South Asia's second-largest economy is in danger of defaulting on its debt. Zardari will seek "economic assistance" at a Sept. 26 meeting with representatives of other Group of Eight countries.
Source: Bloomberg
Conversation of the Day: Corporate Twittering
Reader Gini Dietrich Writes: "Microblogging is a little creepy, but it is also cool. Remember to be truthful and transparent while communicating about your business and your brand."
Tell Us: Do You Tweet, Or Do You Think Twittering's For Birds?
Hot Topic on the Business Exchange: AIG
AIG is one of the biggest insurance companies in the world, and a company that is now being hit by the turmoil in the credit markets, coming on the heels of several years of controversy over the actions and ouster of long-time CEO Hank Greenberg. Craig Sturgis and others are sharing their insights.
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