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Billionaire's bank customers denied their deposits - (finance.yahoo.com) Panicky depositors were turned away from Stanford International Bank and some of its Latin American affiliates Wednesday, unable to withdraw their money after U.S. regulators accused Texas financier R. Allen Stanford of perpetrating an $8 billion fraud against his companies' investors. Some customers arrived in Antigua by private jet and were driven up the lushly landscaped driveway of the bank's headquarters, only to be told that all assets have been frozen pending an investigation by Antiguan banking regulators. "I don't know what to think. I have my life savings here," said Reinaldo Pinto Ramos, 48, a Venezuelan software firm owner who flew in by chartered plane from Caracas on Wednesday with five other investors to check on their accounts. "We're waiting to see some light." Banking regulators and politicians around the region are scrambling to contain the damage after the U.S. Securities and Exchange Commission filed civil fraud charges against the billionaire on Tuesday. Regional Director Rose Romero of the SEC's Fort Worth office called it a "fraud of shocking magnitude that has spread its tentacles throughout the world." Stanford, 58, is a larger-than-life figure in the Caribbean, using his personal fortune -- estimated at $2.2 billion by Forbes magazine -- to bankroll public works and sports teams. He also is a major player in U.S. politics, personally donating nearly a million dollars, mostly to Democrats. At 6-foot-4 and 240 pounds, he towered over House Speaker Nancy Pelosi while giving her a warm hug at the Democratic National Convention last year.
Fiscal Stimulus Is a Ruse Absent Fed Pixie Dust - (Carolyn Baum at www.bloomberg.com) It’s a jobs-creation program. No, it’s investment in our future. It’s a tax-relief plan. Wait, it provides assistance to consumers hardest hit by the economic recession. It’s legislation to jump-start the economy. No, it’s a recovery program. It’s a life raft for state and local governments. It’s a spending bill. Which is it? Fiscal stimulus is all things to all people. In other words, it represents the triumph of faith over reason. When I first learned about fiscal stimulus according to John Maynard Keynes in an introductory economics course, it made a modicum of sense. The idea was that at times when the private sector isn’t pulling its weight, the government can step in and spend instead. It doesn’t take an inquiring mind very long to find the flaw in the argument. How exactly does the government get the money to pay for its spending? Neitherborrowing (today) nor taxing (tomorrow) increases aggregate demand. All they do is transfer the ability to spend from one entity to another and the timing of that spending from the future to today. In the short run, the economy will get some boost from hundreds of billions of dollars in government spending. What about the long run? (Please don’t say we’re all dead.) One dollar of federal borrowing means one dollar unavailable for the private sector.
U.S. Doubles Fannie, Freddie Backing to $400 Billion - (www.washingtonpost.com) The federal government yesterday doubled its commitment to Fannie Mae and Freddie Mac, promising to reimburse the companies for up to $400 billion in losses on their investments in mortgage loans. The massive expansion of the government backstop is a response to mounting strains on the two companies, officials said. It was announced as part of the Obama administration's broad plan to reduce foreclosures, which will further squeeze the companies' revenue by requiring the pair to refinance or modify millions of loans to lower monthly payments. And it comes as a souring economy is pushing more borrowers to default. Fannie and Freddie estimate they will need up to $65 billion from the original $200 billion backstop to cover their losses on mortgage-related investments in the second half of 2008. "It is crucial to maintain confidence in these institutions even under worse-than-expected economic conditions," Treasury Secretary Timothy F. Geithner said yesterday in a statement announcing the new aid package. The companies, both based in the Washington area, were seized by the government in September to stabilize their role as the main funding source for mortgage lending. Fannie and Freddie buy loans from originators such as banks, allowing new loans to be made before existing ones are repaid.
Madoff Loss Spawned in ‘Bargain With Devil’ at Cerberus Bank - (www.bloomberg.com) “Aozora and Shinsei were managed like many banks in America, investing in derivatives and other toxic assets,” said Neil Katkov, head of Asia research at Boston-based Celent LLC. “It was a bargain with the devil.” Buyout firms including Cerberus and J.C. Flowers & Co. are stumbling with investments from Japan to Germany as their acquisitions are battered by the credit crisis and the deepest recession since the early 1980s. As many as 50 percent of companies owned by private-equity firms may default by 2011, according to a study of 328 holdings by Boston Consulting Group. The failures are affecting a cross section of the global economy. Mervyn’s LLC, Lyondell Chemical Co. and Linens ‘n Things Inc. -- all controlled by buyout firms -- have filed for bankruptcy. Cerberus received U.S. government aid for Chrysler LLC and GMAC, the lender affiliated with General Motors Corp.
British finances deteriorating at 'alarming' rate - (finance.yahoo.com) The British government's finances deteriorated in January as tax receipts fell off a cliff, official figures showed Thursday, generating fears that finance minister Alistair Darling will be forced to increase his borrowing projections for the year in his Budget in April. The Office for National Statistics revealed that the government's surplus during the month was only 3.3 billion pounds ($4.3 billion) in January against market expectations of a near 7 billion pound surplus. January's surplus was also much lower than the equivalent 13.9 billion pounds recorded in the same month last year and came as the British economy is suffering its worst recession since the early 1980s. The government runs a deficit overall, but usually reaps a surplus in January, which is the most important tax-raising month of the year for the government as individual tax receipts from the self-employed combine with quarterly payments from businesses. The surplus recorded this January was the lowest since 1995. "The public finances continue to deteriorate at an alarming rate," said Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, which uses the same forecasting model as the British Treasury.
Auto bailout tab could top $130 billion - (money.cnn.com) GM and Chrysler say they need $21.6 billion more in loans. But that won't be enough to save Detroit. Here's a rundown of all the auto bailout proposals. General Motors and Chrysler LLC asked the government Tuesday for $21.6 billion in additional loans, but the final cost of a bailout of the auto industry could be significantly higher. The two struggling auto giants have already received a total of $17.4 billion in loans. If they get the new loans they want, the price tag of the bailout would climb to $39 billion. What's more, $7.5 billion in loans have already been approved for the financing arms of GM and Chrysler. Congress also approved funding last year for $25 billion in loans to help automakers convert their plants to produce more fuel efficient cars. But dealers and suppliers are also asking for federal aid. And consumers may eventually get further incentives from the government to buy new cars.
Commercial real estate's crisis point approaching? - (www.signonsandiego.com) With credit markets still shaky, about $171 billion in loans backed by offices, shopping centers, hotels and other commercial buildings are coming due this year. Experts increasingly wonder whether there's enough credit capacity in the system to refinance them. Yesterday, at a conference sponsored by the Burnham-Moores Center for Real Estate at the University of San Diego, bankers and real estate experts tried to tackle the crucial questions facing the market. Two of them were: When will the credit freeze thaw, and what can commercial landlords expect when dealing with lenders? The overall message was that it's too soon to know. Too much uncertainty remains over the direction of the economy and federal efforts to shore it up. For months, experts have been saying commercial buildings will be the next shoe to drop in a real estate-led downturn that began with toxic subprime home loans and has spread to every sector of the economy. One reason for concern is that the market for commercial-mortgage-backed securities – bondlike investments backed by bundled commercial mortgages – has all but dried up. Such securities accounted for about half of commercial real estate loans during the boom years of 2006 and 2007. If landlords can't refinance, it could lead to distress sales as they're forced to get rid of their buildings or face foreclosure – further driving down values of real estate assets – many of which are secured by mortgages held by banks.
Lower the Rent or Else - (Mish at globaleconomicanalysis.blogspot.com) If you are stuck in a lease on bad terms, you might consider what Pier 1 Imports is doing: issue an ultimatum and threaten to leave. CoStar is discussing how
Retailers Pressure Landlords Publicly for Rent Cuts, With Varying Results. Faced with a deepening recession and declining shopper spending, retail chains are increasingly exerting public pressure on landlords to renegotiate leases to achieve rent cuts and other concessions, warning they could be forced to join the growing list of retailers closing stores unless their contracts are amended. For example, Pier 1 Imports, Inc. (PIR) on Feb. 3 announced a plan it described as designed to "meet the challenges of the current environment and to position itself for optimum performance in a post-recession economy." The furniture and home accessories retailer said it has already begun, via the services of Melville, NY-based DJM Realty, to open talks with landlords to "achieve rental reductions across the chain." The company then warned that if such rental reduction negotiations were unsuccessful, it would terminate the leases of up to 125 stores. [My Comment: Pier 1 Imports is sitting on about $117 million in cash and is burning up that cash at a rate of about $31 million per quarter. Its share price is 32 cents. I doubt Pier 1 survives the year no matter how much lower it negotiates is leases.] Pier 1 isn’t alone. Following is just a sampling of retailers that have made their lease renegotiation efforts public, along with some commentary from retailers and their landlords -- and their property disposition, tenant rep and lease restructuing specialists -- on the degree of success they’ve have had in reducing occupancy costs. GAP: Gap isn't just trying to reduce rent paid for its stores, it's trying to do so by reducing its store square footage by 10% to 15%, which also results in additional vacant space for landlords. In its most recent quarterly conference call with analysts, Gap Chairman and CEO Glenn Murphy, commented on the casual apparel retailer's progress in negotiating with landlords.
OTHER STORIES:
US, UK, Eurozone Banks Face Meltdown - (Mish at globaleconomicanalysis.blogspot.com) With all the hype from various US dollar bears about the crisis with US banks, few on this side of the Atlantic are paying any attention to happenings in Europe. For those who look, a strong case can be made that European banks are as bad off if not much worse off than their US counterparts. "The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point" says Ambrose Evans-Pritchard in Failure to save East Europe will lead to worldwide meltdown. Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut. Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble. "This is the largest run on a currency in history," said Mr Jen. In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.Could 'Fairness Doctrine' Be Used to Police the Internet? - (www.foxnews.com) Obama OKs 17,000 More Troops for Afghanistan - (apnews.myway.com)Phoenix AZ is the Kidnapping Capital of the USA - (www.abcnews.go.com)"Produce the Note!" - (www.google.com/hostednews/ap) US Housing Starts Fall to Record Low - (www.bloomberg.com)GM, Chrysler Seek $22 Billion More US Loans - (www.reuters.com)Downgrades Loom for Hungary, Poland, Czech - (www.bloomberg.com)Greenspan: Recession Will Be Worst Since 1930's - (www.reuters.com)Los Angeles Nears Water Rationing - (www.reuters.com)Video: Americans' Standard of Living Has Changed Permanently - (www.bullnotbull.com)Starbucks "Instant" Brand Degredation - (www.seekingalpha.com)
Euro Advances on Speculation Germany Will Signal Aid for Region - (www.bloomberg.com)
Bank of Japan steps up efforts to ease credit crunch - (www.reuters.com)
Sales Tax Time Bomb Explodes - (Mish at globaleconomicanalysis.blogspot.com)
Kansas Suspends Income Tax Refunds; California One Vote Shy On Budget Impasse - (Mish at globaleconomicanalysis.blogspot.com)
Taiwan falls into recession - (www.ft.com)
Chinese Firms Turn to Pawn Shops as Loans Dry Up - (www.cnbc.com)
U.S. Jobless Benefit Rolls Reach Record 4.99 Million - (www.bloomberg.com)
Fed Offers Bleak Economic Outlook - (www.nytimes.com)
Obama Pledges $275 Billion to Stem U.S. Foreclosures - (www.bloomberg.com)
U.S. January Producer Prices Rise More Than Forecast - (www.bloomberg.com)
U.S. weekly jobless claims unchanged at 627,000 - (www.marketwatch.com)
$275 Billion Plan Seeks to Address Crisis in Housing - (www.nytimes.com)
Ben Bernanke, Fed Chairman and Newly Minted Radical - (www.washingtonpost.com)
Hewlett-Packard’s Profit Declines 13% - (www.nytimes.com)
Sales of new cars, trucks continue to fall - (www.usatoday.com)
Shoppers departing department stores - and may not be back - (www.dallasnews.com)
UBS Will Disclose Names, Pay $780 Million to U.S. - (www.bloomberg.com)
Kraft tells analysts it expects continuing weakness in the 1st quarter - (www.chicagotribune.com)
Modifying Mortgages Can Be Tricky - (www.nytimes.com)
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