The Goldman infallibility myth

AIG - the monstrously reckless US insurance and financial group - last night published a list of the counterparties" that benefited from the $85bn emergency loan it received in September from the US central bank, the Federal Reserve. This disclosure of which banks were on the other end of its complicated financial deals came after weeks of pressure from Congress. And it's a remarkable event: such information is typically cloaked in secrecy.

What it shows is why the US authorities felt they had to rescue AIG, while almost simultaneously Lehman to collapse. If AIG had collapsed into bankruptcy, the losses for some of the world's biggest and most important banks would have been life-threatening for them and arguably lethal for the financial system as a whole.

Now, the name that leaps out for me as a leading beneficiary of the AIG bailout is Goldman Sachs. Between 16 September and 31 December last year, Goldman received $2.6bn in collateral from AIG Financial Products which in turn had been provided by the Federal Reserve on credit default swaps (these are a kind of insurance against borrowers defaulting on loans, which are frequently used as a way of speculating on the health of businesses or other creditors).

There were subsequent payments to Goldman of $5.6bn, to purchase from it the securities underlying certain credit default swap contracts.

For more news: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/03/the_goldman_infallibility_myth.html

U.S. stock futures point to rally's extension

LONDON (MarketWatch) - U.S. stock futures climbed on Monday, as hopes for the financial system continued to fuel markets with Federal Reserve Chairman Ben Bernanke again pledging not to allow a repeat of Lehman Brothers. S&P 500 futures rose 10.3 points to 764.90 and Nasdaq 100 futures added 11 points to 1,179.00. Dow industrial futures rose 81 points.

Led by news that Citigroup was profitable during the first two months of the year and a spate of merger activity in the pharmaceutical sector, U.S. stocks had a strong week, with the S&P 500 charging 10% higher after four weeks of losses.Banks led markets in Europe and Asia higher on Monday, with the Nikkei 225 up 1.8% in Tokyo and the FTSE 100 up 2% in London.

Bernanke said in an interview on 60 Minutes the first sitting Fed chairman to conduct a television interview in 20 years that the U.S. recession will probably come to an end this year, though the nation's 8.1% unemployment rate will continue to rise."The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis," Bernanke said said. "Lehman proved that you cannot let a large internationally active firm fail in the middle of a financial crisis." A G-20 meeting of the world's top finance ministers and central bankers over the weekend produced a pledge to restore growth and boost the International Monetary Fund's resources.

The U.S., meanwhile, is going to attempt to toughen financial market oversight, by giving the Federal Reserve new powers that include heightened capital requirements for banks and the authority to take over a large financial firm that is failing, The Wall Street Journal reported, citing people familiar with the matter.

Oil futures took a hit, down nearly 5% to $44.16 a barrel after the Organization of Petroleum Exporting Countries opted not to cut production quotas over the weekend. OPEC said they would focus instead on compliance with earlier cuts.

"We suspect that this downward move will linger for most of the week, as the markets will surely conclude that there is now less 'insurance' in the system should demand take a turn for the worst, or alternatively, if cartel members step up their cheating, which thus far, has been kept to a respectable minimum," said analysts from MF Global. Monday's docket includes the Empire State index for March, Treasury inflows for January, industrial production for February and the NAHB housing market index for March.

For more news: http://www.marketwatch.com/news/story/us-stock-futures-climb-financial/story.aspx?guid={5E6ACD6E-764A-4136-912B-767E008018FF}&dist=msr_1

Fed chief defends banking bailout and predicts early recovery

Ben Bernanke, America's top central banker, predicted that the US recession will end this year if policymakers succeed in repairing the banking sector.

The chairman of the Federal Reserve said last night that he expects economic growth to resume in 2010. But he warned that the recovery could be wrecked if there was insufficient political will to solve the financial crisis.

"We'll see the recession coming to an end probably this year," said Bernanke in an interview with US TV network CBS. "The biggest risk is that we don't have the political will ... the commitment to solve this problem, and that we let it just continue," he added.

The US government will soon unveil details of a plan to mop up toxic financial assets, to encourage the sector to lend again. There is concern that this plan will reward failing banks and risk-taking firms like hedge funds, but Bernanke insisted it was essential to put the banks back on a healthier footing.

"I care about Wall Street for one reason and one reason only - because what happens on Wall Street matters to Main Street," Bernanke said.

The comments follow upbeat forecasts from some of the US's largest banks. Citigroup and Bank of America Merrill Lynch both indicated last week that they were returning to profitability - a sign that they would not need more funds from the government.

Bernanke defended the bailout of the banking sector last year, saying it had "averted" the risk of depression, although he also acknowledged public disquiet that taxpayers' money was now supporting companies such as insurance group AIG.

"It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets," he said, adding that the financial system would have suffered further if these companies had not been rescued.

Anger over the rescue of AIG intensified over the weekend when it emerged that its London staff will share bonuses of $450m, despite crippling the company with huge losses on derivative contracts.

Bernanke's optimism that the economic recovery will begin next year is not shared for the UK by accountancy firm BDO Stoy Hayward. It warned today that around 36,000 companies will be claimed by the recession in the UK this year. It said the picture will be even worse in 2010 when up to 39,000 companies are expected to fail.

"The deteriorating economy and expectations of a drawn-out recession has led to a downward revision in the UK outlook and has severely impacted the survival rate of UK businesses," warned Shay Bannon, the firm's head of business restructuring.

Analysts at City firm Numis also predicted the economic crisis has much further to run. In a report to clients this month, it said it "expects the UK to be mired in a deep recession through all of 2010". It added there was a risk that Britain might be pushed into bankruptcy by the government's policy of stimulating the economy by increased spending and lower taxes, which will push up the national debt.

The Centre for Economics and Business Research warned today that tax revenue from the financial services sector will plummet over the next year, badly denting the government's income from taxes.

For more news: http://www.guardian.co.uk/business/2009/mar/16/us-banking-bernanke-recession

Lessons from a Disaster

Amid the wreckage and recriminations, investors are left wondering what might warn them of the next mega-fraud

victims of Bernard Madoff's Ponzi scheme finally had one of their wishes come true. After a judge denied bail, Madoff is going directly to jail, and he isn't passing "go." But Madoff's victims still want answers.

They want to know where the money went. They want to know who else was involved. And they want to know how they got scammed.

At the courthouse, many victims said there were no warning signs and Madoff himself, in his courtroom statement, backed them up on at least one count. "The clients receiving trade confirmations and account statements had no way of knowing by reviewing these documents that I had never engaged in the transactions," Madoff said during his guilty plea.

Maybe not. But to Harry Markopolos, the risk manager who alerted the SEC to Madoff's fraud in 1999 to no avail, the foul play seemed obvious. Madoff was supposedly using a complex trading system to generate returns, a strategy he dubbed the "split-strike conversion strategy." He would buy stocks in the Standard & Poor's 100 and sell options to reduce volatility. But Markopolos' firm was running a similar strategy and couldn't match the returns. A look at the returns was all it took for Markopolos to know something was up.

For more info: http://www.businessweek.com/bwdaily/dnflash/content/mar2009/db20090312_588969.htm?chan=top+news_top+news+index+-+temp_top+story

Billionaires arenot as rich as they used to be

Don't go looking for them in soup lines just yet, but the world's billionaires have suffered too as the economy has tanked. Where there were 1,125 billionaires on last year's Forbes list, there were 793 when the new list was released Wednesday.

There was some jostling at the top. Bill Gates moved to No. 1 from No. 3, bumping investing guru Warren Buffett and Mexican telecommunications magnate Carlos Slim to No. 2 and No. 3, respectively. All of the top 10 billionaires saw their net worths fall.Forbes reported that those on the list of billionaires had an average net worth of $3 billion, down 23 percent.

American billionaires this year accounted for 44 per-cent of the money and 45 percent of the slots. That's up 7 percentage points and 3 percentage points, respectively.Houston lost two of its billionaires, with money manager Fayez Sarofim and W&T Offshore founder Tracy Krohn falling off the list. But the city gained another: Bud Adams, the former Houston Oilers owner who still takes heat for moving the team to Tennessee more than 10 years later. He broke in at No. 647 with an estimated net worth of $1.1 billion.

Houston's richest man, energy baron Dan Duncan, saw his rank rise to 81st, despite a $2 billion drop in his net worth. Rich Kinder, CEO and chairman of Kinder Morgan, and hedge fund manager John Arnold, were the only Houston billionaires on last year's list whose values increased this year.Oilman Jeffrey Hildebrand and lawyer Joe Jamail held steady at $1.5 billion each but moved up more than 300 spots to No. 468 on the list.

R. Allen Stanford wasn't listed as a Houston resident when Forbes put his worth at $2 billion on last year's list. Now the Mexia native whose company has its headquarters here has been removed from the list.In a note about Stanford's removal, Forbes said that "recent allegations have cast doubt on Stanford Financial Group's purported revenues and returns."

For more news: http://www.chron.com/disp/story.mpl/business/6306398.html

The World's Top 25 Billionaires 2009

Rank	Name	Citizenship	Age	Net Worth ($bil)	Residence
1	William Gates III	United States	53	40.0	United States
2	Warren Buffett	United States	78	37.0	United States
3	Carlos Slim Helu & family	Mexico	69	35.0	Mexico
4	Lawrence Ellison	United States	64	22.5	United States
5	Ingvar Kamprad & family	Sweden	83	22.0	Switzerland
6	Karl Albrecht	Germany	89	21.5	Germany
7	Mukesh Ambani	India	51	19.5	India
8	Lakshmi Mittal	India	58	19.3	United Kingdom
9	Theo Albrecht	Germany	87	18.8	Germany
10	Amancio Ortega	Spain	73	18.3	Spain
11	Jim Walton	United States	61	17.8	United States
12	Alice Walton	United States	59	17.6	United States
12	Christy Walton & family	United States	54	17.6	United States
12	S Robson Waton	United States	65	17.6	United States
15	Bernard Arnault	France	60	16.5	France
16	Li Ka-shing	Hong Kong	80	16.2	Hong Kong
17	Michael Bloomberg	United States	67	16.0	United States
18	Stefan Persson	Sweden	61	14.5	Sweden
19	Charles Koch	United States	73	14.0	United States
19	David Koch	United States	68	14.0	United States
21	Liliane Bettencourt	France	86	13.4	France
22	Prince Alwaleed Bin Talal Alsaud	Saudi Arabia	54	13.3	Saudi Arabia
23	Michael Otto & family	Germany	65	13.2	Germany
24	David Thomson & family	Canada	51	13.0	Canada
25	Michael Dell	United States	44	12.3	United States

For more news: http://www.forbes.com/lists/2009/10/billionaires-2009-richest-people_The-Worlds-Billionaires_Rank.html

Area Jobless Rates Climb to Levels Not Seen in More Than a Decade

Unemployment rates in the Washington region rose again in January to their highest levels in more than a decade, according to numbers released yesterday by the U.S. Bureau of Labor Statistics.

The District's unemployment rate in January jumped to 9.3 percent, from 8.2 percent in December, its highest point since the 1980s. Virginia's January unemployment rate rose to 6 percent, from 5 percent the previous month, the highest level since 1992. And Maryland's rate rose to 6.2 percent, from 5.4 percent, the highest since 1993.

The D.C. increase put the city's unemployment rate on pace to top 10 percent late this year or early next year, according to the Office of the Chief Financial Officer.

About 10,000 jobs were lost since January 2008 in professional services, transportation, utilities and other trades, according to a report by the D.C. Department of Employment Services.

"It's a major concern," said Robert Ebel, the city's chief economist. "We're worried about an accelerating effect."

City officials anticipated the job loss and 9.4 percent unemployment for January last year, said Fitzroy Lee, director of revenue estimation. "We've already built the impact into our revenue estimate," Lee said.

Ebel and Lee said the city's unemployment rate could surpass 11 percent in late 2010, a high not seen since December 1983.

"I don't know that . . . we've hit bottom," Lee said. "We have the unemployment rate going up to 11.5 next year. It's in line with other major urban areas. It means a lot of people are losing jobs."

In Virginia, where Circuit City, the technology retailer headquartered in Richmond, closed Sunday after filing for bankruptcy, the unemployment rate was also expected to continue to rise, though slowly.

"It will probably go over 6 percent," said William F. Mezger, chief economist for the Virginia Employment Commission. "We don't think it will go up a whole bunch above that. In the summer it will be high when the students are out of school, and it should drop again toward the end of the year."

Mezger said a statewide breakdown of unemployment data won't be prepared until tomorrow, so he could not discuss its impact. "I've been here 46 years," he said. "The last time it was this high . . . was in 1993, after the '91 recession. It got up to 8 percent in 1982 and 1983."

In Maryland, assistant secretary for labor, licensing and regulation Andy Moser said the unemployment rate is "the highest I've seen. I've been on the job for 10 years."

The state's unemployment rate rose to 6.8 percent in 1993 and went as high as 8.7 percent a decade before that, after the 1981 recession. Moser said the state had no estimate for how high the unemployment rate might go. "Obviously we're part of the national economy," he said. "We're not on an island."

Reflecting job losses nationwide, Maryland shed workers in construction, manufacturing and retail as consumers stopped spending. "You have to look at the state number in relation to the national number. Compare us to Pennsylvania, which is 7 percent," Moser said.

Michigan, at 11.6 percent, had the highest unemployment rate. Wyoming, at 3.7 percent, had the lowest. Michigan is home to the nation's struggling automakers. Wyoming thrives on agriculture.

South Carolina, Rhode Island, California and Oregon joined Michigan as the states with the five highest unemployment rates. North Dakota, Nebraska, South Dakota and Utah joined Wyoming as the states with the lowest.

For more news: http://www.washingtonpost.com/wp-dyn/content/article/2009/03/11/AR2009031103832.html?hpid=sec-metro