Archive for November, 2008

U.S. CEOs urge at least $300 billion fiscal stimulus (Reuters)

Tuesday, November 18th, 2008 | Finance News

WASHINGTON (Reuters) –
Chief executives of leading U.S. companies called for a fiscal stimulus package worth at least $300 billion and urged president-elect Barack Obama to swiftly name his economic team.

Dozens of chief executives met at the Wall Street Journal CEO Council event in Washington D.C. to identify what they think should be priorities for the Obama administration and the new Congress.

Wachovia Corp's Robert Steel and pension fund TIAA-CREF CEO Roger Ferguson were among those calling for a fiscal stimulus package to encourage consumer spending in the short term.

Overall, chief executives agreed that the U.S. economy could not recover independent of the rest of the world, and they urged the international community to coordinate stimulus plans.

A global financial crisis has led several countries into recession, tightened credit markets, raised unemployment and wrecked havoc on consumer spending.

Leaders of industry emphasized investment in infrastructure and programs with long-term benefits, and said the United States should favor permanent tax cuts over tax rebates.

However, a broad economic stimulus bill, which Obama wants the U.S. Congress to pass promptly, is opposed by many Republican lawmakers and is unlikely to be approved by the current Congress during its short legislative session this week.

Obama's chief of staff, Rep. Rahm Emanuel of Illinois, later told the conference that key components of a stimulus package would include tax cuts and what he called investments in "green" infrastructure. "The economy needs it, the American people need it," Emanuel said.

CEOs lamented lack of young talent in science, technology and math, and called for a partnership with the private sector to promote a more competitive workforce. Improving education was the group of executives' second-highest priority after a global economic stimulus plan.

New York Sen. Charles Schumer told the executives, "I see lots of businesses, and they come in and lobby on everything and rare is the business that comes in and lobbies on education."

A subgroup of chief executives said the Treasury Department should use funds remaining from the $700 billion financial services rescue plan, and possibly additional funds, to buy illiquid assets from financial institutions, the original intent of the plan.

"These are assets that need to get moving," said Wachovia CEO Steel, who until early July was under secretary for domestic finance and a close advisor to Treasury Secretary Henry Paulson. But buying the troubled assets was the lowest on a wish list of 18 priorities voted on by the larger group of chief executives present at the conference.

The finance subgroup, that included Steel and Time Warner's Jeffrey Bewkes, also called for creation of a panel to consider changes to financial regulations.

Sen. Maria Cantwell, a Democrat from Washington state, urged the CEOs to be more specific on all fronts. In terms of financial regulation, Cantwell said she only had three words: "Transparency, transparency, transparency."

"If you don't work hard on transparency, you will get another Sarbanes-Oxley (corporate reform law)," she told the conference.

A sub-group of CEOs voted to support "comprehensive reform" of the U.S. healthcare system. About 47 million Americans lack health insurance, and the group backed universal access to affordable care, with a requirement that individuals buy their own health insurance, known as an "individual mandate."

(Reporting by Rachelle Younglai; Editing by Toni Reinhold and Tim Dobbyn)

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Cuban responds to SEC, says no secrecy deal (Reuters)

Tuesday, November 18th, 2008 | Finance News

NEW YORK (Reuters) –
Billionaire basketball team owner Mark Cuban responded to U.S. insider trading charges on Tuesday, saying on his website that he had not agreed to keep information about a proposed stock sale confidential.

The response, posted on Cuban's blogmaverick.com, disputes a U.S. Securities and Exchange Commission charge that he acted on nonpublic information to avoid more than $750,000 in losses when he sold his stake in Canadian Internet search engine Mamma.com.

Cuban's legal team, writing on his behalf on his website, cited an excerpt from an interview it conducted with Mamma's former chief executive, Guy Faure, as evidence that Cuban had not agreed to any confidentiality arrangement.

Dewey & LeBoeuf attorney Stephen Best did not return a telephone call seeking comment.

The SEC complaint said that in 2004 Faure called Cuban to tell him he had confidential information to share, and that Cuban, owner of the Dallas Mavericks basketball team and an Internet and media entrepreneur, agreed to hear it in secrecy.

The information was about a stock offering in Mamma, now known as Copernic Inc, that Cuban learned would dilute the holdings of existing shareholders and be sold at a discount to the market price.

According to the SEC, Cuban told Faure, "Well, now I'm screwed. I can't sell," and later told his broker to sell anyway. The SEC's complaint said Cuban sold 10,000 of 600,000 shares in after-hours trading on June 28,2004, and sold the rest the following day.

After markets closed that day, Mamma announced its private placement offering. The next day, the stock fell 9.3 percent.

Cuban, one of the 400 richest Americans with a net worth of $2.6 billion according to Forbes magazine, plans to fight the SEC charge. He is the highest-profile U.S. figure to be named in such circumstances since lifestyle and home decor guru Martha Stewart.

(Reporting by Robert MacMillan)

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Lawmakers, Treasury lock horns on foreclosures (Reuters)

Tuesday, November 18th, 2008 | Finance News

WASHINGTON (Reuters) –
Treasury Secretary Henry Paulson and members of Congress clashed on Tuesday over the best use for the $700-billion financial bailout fund, with lawmakers demanding money to stem a national wave of mortgage foreclosures.

At a House of Representatives Financial Services Committee hearing where he was grilled over his handling of the program, Paulson said the bailout plan wasn't "a panacea for all our economic difficulties" and would be more effectively used by investing in financial companies to shore up the system.

"The rescue package was not intended to be an economic stimulus or an economic recovery package. It was intended to shore up the foundation of our economy by stabilizing the financial system," the Treasury chief insisted.

Under stiff questioning from lawmakers who charged Treasury was making up strategy as it went along, Paulson conceded he hadn't totally ruled out using bailout funds to help homeowners, but said he had "reservations" about a proposal put forward by the Federal Deposit Insurance Corp.

Rep. Barney Frank, the Massachusetts Democrat who chairs the panel, lectured Paulson, telling him mortgage relief was spelled out as an option under the bailout passed by Congress.

"The fundamental policy issue is our disappointment that funds are not being used out of the $700 billion to supplement mortgage foreclosure reduction," Frank said. "There, I believe, is an overwhelmingly ... powerful set of reasons why some of the ... money must be used for mortgage foreclosure."

FDIC Chairman Sheila Bair, at the same hearing, told lawmakers it was "essential" Treasury offer loan guarantees and credit help to slow foreclosures, and warned that 4 million to 5 million mortgages will enter foreclosure over the next two years if nothing is done.

The FDIC says its plan could avert about 1.5 million foreclosures by encouraging lenders to restructure loans by having the government share in the cost of defaults. It is estimated the plan could cost the federal government about $24 billion.

"We are clearly falling behind the curve," Bair said. "Much more aggressive intervention is needed if we are to curb the damage to our neighborhoods and broader economic health."

FED ADDS ENDORSEMENT

Rising U.S. mortgage defaults have touched off a credit crisis that is weighing on economies around the globe and threatening to push the United States into a deep and long recession.

Federal Reserve Chairman Ben Bernanke endorsed the FDIC's approach to ease foreclosures, but with some reservations, noting it could expose the government to substantial costs.

"I want to say this is a very promising approach," he said. "A very strong point of the FDIC program is it's simple and it's run by the (loan) servicers rather than the government."

The financial bailout program approved last month was originally intended to buy bad loans from banks to free them up to make fresh loans, but Treasury has scrapped that plan and has focused on using it to buy equity in financial institutions.

Some lawmakers were clearly upset at the change of course.

Democratic Rep. Gary Ackerman of New York said Congress was caught by surprise by what "seems to be the second-largest bait-and-switch scheme that history has ever seen, second only to the reasons given us to vote for the invasion of Iraq."

Even the banking industry seemed puzzled. "It's been very confusing and very difficult," Edward Yingling, president of the American Bankers Association, told the committee. "It's confusing for bankers ... customers don't know how to react."

Some $290 billion of the first $350 billion authorized under the program already has been used or committed for use, and Paulson said he wanted to reserve the balance for the incoming administration of President-elect Barack Obama, who takes office on January 20.

"This financial crisis is unpredictable and difficult to counteract," Paulson said. "So early last week, we concluded it was only prudent to reserve our ... capacity, maintaining not only our flexibility, but that of the next administration."

LITTLE HELP FOR AUTOMAKERS

Paulson was also pressed about possibly tapping bailout funds to help distressed U.S. automakers but again ruled that out. He said any solution for automakers, who are pressing their case in Congress on Tuesday, should be one that helped them to re-tool to make more energy-efficient vehicles, and that wasn't what the bailout fund was set up to do.

He said Treasury was working with the U.S. central bank on a potential program, to be run by the Fed, that could be used to buy highly rated debt backed by auto loans, which could help automakers and make it easier for consumers to obtain loans.

Paulson said the bailout had "turned a corner in terms of stabilizing the system" but added that falling housing prices were the root cause of the current downturn and a correction in the housing sector may be prolonged by a weakening economy.

A real estate trade group on Tuesday reported that U.S. single-family home prices in metropolitan areas plunged 9.0 percent in the third quarter from a year earlier, pressured by the high number of foreclosed and other distressed properties on the market.

Bernanke said continuing to inject capital into banks "will be critical for restoring confidence and promoting the return of credit markets to more normal functioning."

He said there were some signs of a return to more normal conditions but said markets were still unsettled and many banks continued to restrict their lending through October.

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