In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation (FNM) is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups. sergent
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
Citigroup Inc. agreed to acquire Wachovia Corp.'s banking operations in another deal orchestrated by the federal government -- this time by the Federal Deposit Insurance Corporation and one in which the agency could be on the hook for loan losses.
The Federal Reserve and Treasury Department were also part of the effort, another sign of how proactive the government has been in preventing ailing financial firms from failing and instead pushing for stronger firms to acquire some assets of the weaker companies.
Citigroup also said it plans to sell $10 billion of common stock and slash its quarterly dividend in half to 16 cents a share to maintain a strong capital position, in the wake of its takeover of Wachovia's banking operations.
Over the past year, Citigroup has racked up more than $40 billion in write-downs and other losses stemming from the mortgage meltdown. The company was a leader in creating and marketing some of the exotic securities that have been at the heart of the credit crunch. Its stock price has shriveled to less than $20, compared to more than $50 early last summer.
Citigroup is buying what the FDIC said is "the bulk of" Wachovia's assets and liabilities, including five depository institutions, and assumes the company's senior and subordinated debt. Not being sold are the A.G. Edwards brokerage division and Evergreen Investments operations.
The FDIC also has entered into a loss-sharing arrangement on a pre-identified pool of loans under which Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans, with the FDIC covering anything beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing the risk.
The troubles at Wachovia, based in Charlotte, N.C., and of Fortis, based in Utrecht and Brussels, signal the first time that major commercial banks are now at risk of being forced into sales or breakups since the onset of the credit crisis a little more than a year ago. Wachovia is a big lender to midsize U.S. companies, and at the end of last year, it oversaw a commercial-loan portfolio totaling $190 billion. In the real-estate industry, Wachovia had signed off on $35 billion in loans.
Federal officials are involved in the Wachovia talks and were believed to be pushing the bank to seal a deal fast to avoid further pressure to its deposit base. While Wachovia is much larger than Washington Mutual in terms of assets, Wachovia's business mix is broader, including a strong commercial bank and solid securities brokerage.
Warren Buffett told CNBC's Becky Quick his opinion of the bailout plan over the weekend, "It's what I would do if I were there."
Analysis of Buffett's recent investment in Goldman Sachs and how dividends play a role.
Festival of Stocks - Many posts on individual stocks and the ongoing financial crisis
One of our readers asked about my thoughts on Trident Microsystems (Nasdaq: TRID). Trident is an electronics company that designs and manufactures integrated circuits for different digital media products such as digital television and liquid crystal displays.
Analysts cite a large drop in same store sales, and there is a fear out there that Build-A-Bear is a fad whose time has now passed.
Amisco's stock price is at $1.64, which is down 84% from the $10.15 price in April 2004. The P/B on Amisco's stock is currently just 0.38.
Nordic American Tanker is not a dividend achiever but a component of the NYSE Composite and Zacks Yield Hog index. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 29.10 % to its shareholders. The stock gained 19 % value so far in 2008.
Have you ever pondered the concept of forever or infinity?
Warren Buffett tells CNBC he's making a $5 billion investment in Goldman Sachs because "the price was right, the terms were right, and the people were right." Best quote: "Why buy a Wall Street firm after his difficult experience with Salomon in the early 1990s? "The pain has worn off," he joked."
Todd Sullivan thinks Goldman Sachs is raising money in order to pick up some cheap assets. I'm thinking Buffett saw some cheap assets as well by providing the financing.
Dear Mr. Bryant:
We have carefully reviewed your September 17th letter and are disappointed with your unwillingness to discuss our proposal. We continue to believe that our proposal is a “Superior Proposal” or, at a minimum, represents a “bona fide Acquisition Proposal” that “will lead to a Superior Proposal,” as defined in the Agreement and Plan of Merger, dated August 12, 2008, with CVS Caremark Corporation (CVS). It is clear that your stockholders agree. As you have been unwilling to speak with us, we have no option but to address the points raised in your September 17th letter in this letter. In your September 17th letter, you take the position that Walgreens is not willing to accept the inherent regulatory risks in connection with an acquisition of Longs. This statement is not accurate. We are confident that the combination of Longs and Walgreens would receive all required regulatory approvals in a reasonable period of time and do not believe that anything even approaching the threshold of divestitures that we already have agreed to in our proposal would be required. We believe that your advisors would agree with this conclusion. If there is any confusion, we want to make clear that our commitment to divest covers the stores and assets of both Longs and Walgreens. We also believe that your position overstates the significance of this concern, as the outcome of the FTC process will be apparent before you would terminate your agreement with CVS.
We also believe that you have significantly overstated the regulatory risk. The retail pharmacy business is highly competitive. Upon consummation of the proposed transaction, the combined Walgreens/Longs will account for less than 35% of the retail pharmacies in almost every metropolitan area where the two companies both participate. In the few areas where the combined share of stores would exceed 35%, it would do so by only a small margin, and additional competitive influences, such as mail order, competition from health plan pharmacies and the potential for new entry and expansion by existing competitors should ensure that those areas remain highly competitive. In that regard, CVS has recently announced plans to expand in several parts of Northern California, independent from the Longs transaction, further eroding current market shares in those areas.
We believe that the regulatory review process will be successfully completed without undue delay for several reasons: (1) our team is already working with the FTC and has been from the first day that our proposal was announced, (2) the FTC is familiar with Longs, having completed a process recently in connection with the CVS transaction, (3) if necessary, we are prepared to discuss remedies with the FTC at an early stage, and (4) we are working closely with our real estate and operating partners on a parallel process to provide any necessary solution or remedy. In order to address any divestitures that may be required, we have partnered with experienced real estate investors. Our real estate partners have significant experience in your markets and have a strong track record of success in partnering in strategic transactions. Klaff Realty, LP (“Klaff”) is a privately owned real estate investment company based in Chicago, Illinois that engages in the acquisition, redevelopment and management of commercial real estate throughout the United States. To date, Klaff and its partners have acquired portfolios in excess of 112 million square feet of retail and office properties with a value in excess of $6 billion and its current portfolio of properties consists of approximately over 40 million square feet of retail space and distribution centers across the United States. Lubert-Adler Management Company, L.P. (“Lubert-Adler”) is a real estate private equity firm specializing in acquisitions and redevelopments through joint ventures with local operating partners. Since its inception in 1997, Lubert-Adler has invested in over $15 billion of real estate assets.
Over the last several years, Klaff and Lubert-Adler (collectively, “KLA”) have co-invested, in some cases as members of a consortium, in a number of very significant acquisitions. These include a portion of the Albertsons privatization ($2.3 billion acquisition of 661 stores including in-store pharmacies), Cub Supermarkets in the Chicago market ($25 million acquisition of 25 stores including in-store pharmacies), Shopko ($1.2 billion acquisition of 204 stores) and Rex Stores ($83 million acquisition of 87 stores). As a direct example, KLA and its partners successfully operated Albertsons and then sold certain stores to other first-class operators, such as Save Mart in Northern California and Publix in Florida. In New Mexico, the consortium acquired additional stores and expanded Albertsons’ footprint. In addition to their broad retail investment experience, we have chosen KLA as a partner due to the depth of the west coast and drug store management team that will work with Walgreens. Each of Klaff and Lubert-Adler have significant experience working with operating partners and we continue discussions with additional potential operating partners. With respect to the proposed transaction, KLA has agreed, subject to due diligence, to acquire Longs or Walgreens stores and other assets that may be required to be divested to obtain the required regulatory approvals for the transaction.
In your September 17th letter, you argue that Walgreens is not proposing to compensate Longs stockholders for any potential delays in consummating a transaction with Walgreens. Our $75.00 per share cash offer is superior to the CVS transaction. Relative to the CVS offer of $71.50 per share, our $75.00 proposal will return a higher value to Longs’ stockholders and the fact that they will continue to receive dividend payments will mitigate the impact of the time required to obtain the required regulatory approvals. As indicated in our initial proposal, we are prepared to agree to terms and conditions that are at least as favorable to Longs stockholders as those in the CVS merger agreement.
You should have no concern with our ability to finance the proposed transaction. Walgreens is highly rated from Standard & Poor’s and Moody’s, has a strong balance sheet and has sufficient liquidity and access to the necessary capital required to consummate the proposed transaction. We have had discussions with our financing sources and we are confident in our ability to secure committed financing prior to Longs terminating the merger agreement with CVS and entering into an agreement with Walgreens.
Our proposal is compelling—it would deliver superior value to Longs stockholders relative to the CVS transaction and can be consummated without undue delay. We again request that we be given an opportunity to conduct customary due diligence pursuant to the terms of your agreement with CVS as soon as possible. Although we would unquestionably prefer to work directly with you to complete a negotiated transaction, we are prepared to take our transaction directly to your stockholders. We are available to meet with you and your advisors as soon as possible to discuss our proposal and to answer any of your questions. We, as well as KLA, are prepared to commit all necessary resources to quickly complete due diligence and negotiate a mutually acceptable agreement.
Philip Morris USA said it filed a suit to overturn a San Francisco law that would ban convenience drugstores from selling tobacco products. Altria is the Richmond, Va., tobacco company. Philip Morris said late on Wednesday that it sued in U.S. District Court for the Northern District of California, asking the court to declare the ordinance unconstitutional. The city Board of Supervisors has passed the law, and a separate suit in state court has also challenged the ordinance, Philip Morris said. "Although called a ban on sales," the law suppresses "communications directed to adult smokers, in violation of our constitutional rights," said Joe Murillo, Altria client-services vice president and associate general counsel, said in a statement
Sears (SHLD), IBM (IBM) and My Virtual Model, Inc. today unveiled a first-of-its-kind 3D visual search and e-commerce capability for Sears.com that will significantly improve and enhance a consumer's online shopping experience. Sears is the first retailer to apply both a visual search and virtual model to an entire catalogue online.
The updated Sears site, powered by IBM WebSphere Commerce and My Virtual Model, will allow consumers to recreate their in-store shopping experience online by enabling them to search for merchandise using images versus words, and to virtually "try on" selected items using a personalized model of themselves to ensure that the style, color, pattern and fit are right before purchasing.
The Sears site will enable shoppers to search on a specific style -- such as long-sleeve tunic shirts or cropped cargo pants -- and find products from the company's expansive catalogue of clothing, shoes and accessories using 3D images versus words. Shoppers can create countless combinations using a virtual model they can build and personalize to match their measurements -- height, weight, body shape -- and a headshot photo to ensure that the style, color, pattern and fit are right. The 3D angle allows users to view garments on themselves from the front, side and back, and shoppers can also email images of their looks to friends and family to help them make final purchasing decisions.
"Sears is transforming the online shopping experience by offering consumers cutting edge visual search and virtual model capabilities," said Rob Mills, vice president, Sears Online Business Unit. "By allowing shoppers to visually search for and view items in 3D, to see how they'll actually look on themselves in various combinations, and virtually share their finds with friends and family, Sears is providing shoppers with a superior social and e-commerce experience that we believe will increase satisfaction and loyalty."
Thank you, Bill (Ford, Jr.) for your kind words and the invitation to be here today.
As Bill mentioned, I was here two years ago. At that time, I shared my concerns about the state of manufacturing and the weak economy. But I am an optimist and in the back of my mind I thought, surely, it can’t get any worse, right?
Instead, we’ve witnessed two years of continual slide capped by the unprecedented meltdown in the financial sector last week. Frankly, we’re just now beginning to see the repercussions of that crisis as markets respond and re-settle themselves.
Wall St. isn’t the only place feeling pain, of course. Main Street USA is feeling it, too. People in every town and city across the country are uneasy these days. And for good reason.
Since I was here last, oil has risen from the mid-$70s a barrel to around $100 today.
Housing starts are at their lowest level since 1991, and there seems to be no bottom in sight. Consumer prices are expanding at the fastest pace in 17 years, affecting every consumer item from fuel to food.
On top of that, we have the sobering news that the economy lost some half a million manufacturing jobs since the end of 2006. And I’m sure you all saw the jobs report last month for the entire nation: 84,000 jobs lost in August alone.
September, it appears, won’t look any better.
And the rank and file employees who are still working? They earned three percent less last month than they had a year earlier simply because of inflation.
Even the small things are more expensive. I saw a report in the New York Times recently that the price for the common paper clip – this small item holding my talk together – is up 40 percent.
As that great American philosopher, Will Rogers, once said, we seem intent on showing the entire world we’re prosperous … even if we have to go broke to do it.
Given all the doom and gloom, it really is hard to remain an optimist. But I am reminded of the advice that I’ve given others so many times – that often the difference between success and failure is nothing more than pure persistence and hard work.
So here we are, talking again about a difficult economy and what to do with it.
Talking … again … about a real energy crisis that will have no quick or painless solution.
Talking once more about how to return this country to a position of strength and vigor.
As Bill said, on my last visit before you I did state that the United States was THE indispensable nation in the world. As a foreign citizen who has benefited enormously from the American freedom and enterprise model, I stand by that statement today more than ever.
The world would be a much poorer – and a much more dangerous – place were it not for the United States and its global influence.
But as I travel around the world and I see other countries putting together comprehensive and well thought-out plans for energy, manufacturing and sustainable economic development – I have concerns.
I’m concerned that our economic dependence on others is continuing to increase every day. I’m concerned that we’re in the midst of the greatest wealth transfer out of this country in history … $500 billion plus spent annually for foreign oil … and too few in Washington seem alarmed.
And I’m concerned – most concerned – that the U.S. is forfeiting its dominant position as THE indispensable nation because it has lost sight of what first made it strong: a vibrant industrial and manufacturing base that drives innovation, technology – and creates jobs – from the shop floor, to the engineering centers, to the R&D labs and to the white collar offices.
Ladies and gentlemen, let us never forget that the very life force and strength of this great country begins here – in America’s heartland. A country can’t be strong abroad if it’s not strong at home. It can’t be strong in China or Chile if it’s not strong in places like Cleveland and Canton. It can’t be strong in Dubai if it’s not strong first in Detroit.
Somehow, our government has lost sight of that. Instead of implementing policies that make our industrial heartland stronger, government has made it weaker. And we’ve allowed bad economic policies to drive good jobs out of the country.
In fact, between the bankers in New York, the lawyers in Washington, and the actors and entertainers from Hollywood, we have allowed people who know nothing of the might and intellect of our manufacturing base to make laws and decisions on our behalf.
We’ve allowed them to create an industrial crisis in this country that is undermining our nation’s strength … and they don’t even know it.
If you want to do something enlightening, go to the Internet and Google for the phrase “energy crisis.” You’ll get over 4,000 stories.
Then search for “economic crisis.” You’ll get more than 5,000 hits.
Then search for the phrase “industrial crisis,” something that is just as real and felt just as deeply by everyday Americans. You’ll get fewer than 10 stories – and none will be about the United States.
So, yes. I am still an optimist. But I’m an impatient optimist because at Dow we know there is a better way.
So what I’d like to do today is lay out for you the broad components of a new industrial policy. Not one characterized by central planning and the picking of winners and losers. We know that approach doesn’t work.
What I’m talking about is a pro-industrial policy crafted and developed by manufacturers for manufacturers, a policy that rejuvenates our economic base.
Consider it a new strategy, if you will, to make American industry competitive again, re-establish our economic and energy independence and re-grow jobs in America.
What are the components of this plan? There are two.
First, we must look with fresh eyes at the structural costs that have weakened the very foundation of our manufacturing enterprises and remove the obstacles hurting our competitiveness.
And second, we must develop a comprehensive energy policy.
Now, I will admit that some people, like the ones I referenced before, don’t like the words “industrial policy.” I understand.
But the truth is that in this country today we already have an industrial policy – except, in reality, it’s mostly an ANTI-industrial policy – a set of contradictory, ill-planned and ultimately self-defeating laws and regulations that are creating havoc at the manufacturing base.
Consider this alarming fact: Thirty years ago, manufacturing made up nearly 22 percent of the U.S. economy. Today, it’s less than 12 percent and falling.
This will be no surprise to anyone in Michigan but the number of manufacturing jobs in the U.S. has fallen by 3.7 million over the past 10 years. We’re projected to lose another 1.5 million over the next eight years.
That’s 5.2 million jobs – 5.2 million jobs that today pay more than $17 an hour plus benefits. To put it another way, that’s $190 billion in wages and $76 billion in benefits.
I ask you this: What elected official in his right mind would develop an industrial policy that destroys $190 billion in annual wages? Which politician would want to tell the American voters they just lost $76 billion in benefits?
The sad fact is that nobody intentionally sought to do this. But it’s happening right under our noses. Anti-industrial policy is hurting a lot of good people.
If it were just the U.S. and nobody else, it wouldn’t matter. But there ARE countries around the world that DO see the uplifting power of manufacturing. I spent much of my career at Dow working in Asia. I saw first hand how the “Asian tigers” used manufacturing and trade to go from grinding poverty to growing prosperity.
Today the emerging economic powers like China and India understand that when you build an economy from the ground up – make a strong manufacturing base as its foundation – benefits flow to everyone.
Those nations are our competitors and many of them are beating us at our own game.
Do we have to change? Well … no. As the quality guru Edward Deming put it: Change isn’t necessary. No one said survival was mandatory.
History is replete with once-great countries that have dissolved into obscurity precisely because they didn’t change.
If we want to keep the economic lead we’ve had for a century, however, we have to re-tool a few things. If we want to keep the many benefits that accrue from a strong economy, we must change course.
Times change, and strategies have to change with them.
And we have to start, first and foremost, with the structural costs that are suffocating industry in this country. We must level the playing field by removing the artificial, ANTI-industrial policy costs that disadvantage American businesses against the rest of the world.
Think about this. The 14 million men and women who work in U.S. manufacturing created about $1.6 trillion of wealth in 2007.
That’s a huge, almost mind-blowing number. But the sad fact is it could be so much larger, and we could be so much more competitive.
We’re burying our manufacturers under red-tape, weighing them down with structural burdens that push our production costs a staggering 32% higher than our major trading partners.
Understand: I’m not talking about top-down economic planning in any way, shape or form. I’m talking taking into account Tom Friedman’s “flat world” and using a little forethought about the policies that affect business.
I’m talking about little more coordination with policies in place already, and a lot more coordination with reality.
And I’m talking about resolving the conflicts in law and regulation that hamper our abilities to do business efficiently and effectively.
I propose work in four areas to bring our costs in line with our competitors.
1- Lowering the corporate tax rate.
2- Re-inventing regulation.
3- Reforming our civil justice system.
4- And finding a solution to the crisis known as healthcare in America.
Each one of these puts U.S. industry at a competitive disadvantage above and beyond the cost of labor. And each one of these burdens could be lightened or eliminated by our own government.
I won’t go into each of these for the sake of time. Besides, most of you already know, for example, that America has the second highest corporate tax rates in the world.
But did you also know that of the 30 members who comprise the Organization of Economic Cooperation and Development, nine dropped their corporate tax rates last year to attract more investments.
Germany dropped its tax rate. So did Canada and the UK. Even the Czech Republic!
Not the U.S. Why should that be?
As one great leader said, some in this country regard private enterprise as if it were a predatory tiger to be shot. Or they look upon it as a cow they can milk. Only a handful see it for what it really is: the strong horse that pulls the whole cart.
That was Winston Churchill who fought his own battles a half century ago to keep Britain’s economy unencumbered and vibrant. He was unsuccessful, if you hadn’t noticed.
If you want a cautionary tale about what this economy could look like if we continue to push manufacturing out of the country, look across the great pond. The service-based economy of the U.K. rises and falls at the mercy of others.
This point is really being brought home right now as the financial crisis in the US has been felt in full force in the UK, which has no other sector available to buttress this effect.
We can’t afford to follow down a path of economic malaise like U.K. by destroying our manufacturing sector.
Making things – real, tangible things – still matters.
The leaders of this country should remember that the word “industry” created this great country’s might by opening up the West … by fighting two World Wars … by putting a man on the moon … and by improving our lives and the lives of our children by creating high paying jobs and rewarding careers.
They should remember … but they don’t.
Instead, they’ve saddled it with huge corporate taxes … AND a crisis in health care costs … AND an out-of-control civil justice system that adds a huge cost burden to American enterprise … AND an inefficient regulatory system that costs us as much as $10,000 per employee in the manufacturing sector.
Don’t we owe it to America’s families, and especially to the next generation, to put back in place a Pro-Industrial Policy that stimulates investments and jobs by removing the structural costs that are holding us back?
This brings me to the second key component of an Industrial Policy for the 21st Century – the need for a comprehensive Energy Plan.
I don’t need to tell those of you here today that energy is the life-blood of our modern economy. But I do want to point out that the current energy crisis goes far deeper than the price of gasoline at the pump and those high heating bills on the way this winter.
Here’s what I mean by way of an example. Dow is currently on track to spend $32 billion – yes, I said billion with “B” - $32 billion this year on energy and feedstock costs. That’s more than the entire U.S. chemical industry spent just a few years ago.
That’s just one way to measure the impact of rising energy costs. The race for affordable energy also affects where we invest and where we build plants.
Keep in mind that every dollar of energy consumed creates 20 dollars of GDP value-add. That dollar also creates five of the kind of high-paying manufacturing jobs Michigan and every other state needs so badly.
It seems like common sense to keep those kinds of investments inside our borders.
Instead, most of those investments are now occurring outside the U.S.
Dollars are flowing - in unprecedented amounts - to places like China, Saudi Arabia and Kuwait, and many other countries that want the value-add to their economy that manufacturers bring.
What I don’t understand is why our political leaders don’t see that.
Maybe it’s because they hear TV commentators say the price of oil has “dropped” to $100 a barrel! Or that gas has “dropped” below $4 a gallon! This type of irresponsible reporting is creating a false sense of security.
It does, however, confirm what James Schlesinger, the first Secretary of Energy in the U.S., first noticed decades ago: When it comes to energy policy, he said, America has only two modes: panic and complacency.
A slight, temporary moderation in price is no excuse for complacency. $100 oil brings me no comfort. Gas at $3.70 is no cause for celebration.
Frankly, this country needs a little panic because the truth hasn’t sunk in yet. We have entered a new era in energy – one driven by a new global fact of life: less supply and more and more demand.
Even with greater conservation, energy consumption is soaring. It’s forecast to rise 53 percent between now and 2030. Earlier this year the International Monetary Fund put out a report projecting the number of automobiles by themselves increasing 2.3 billion by 2050.
The good news for Detroit is that somebody will have to manufacture all those cars. The bad news is that we’ll still have to power them and they’ll still add to our growing energy consumption.
And despite the exponential increases in the amount of wind, solar and renewable energy coming on line, the fact is that these sources won’t be able to keep up with overall demand.
So the energy of tomorrow – like today – will depend predominantly on fossil fuels: oil, natural gas and coal.
Everyone in Washington knows this. So where’s the policy to deal with this new reality? This country doesn’t have one.
I say “this country” has no strategy. But what I really mean is that Washington has no coherent strategy. Americans everywhere else already know the solutions.
Ninety-two percent of Americans believe that developing alternative energy sources is a step in the right direction. 88 percent want cars that are more fuel efficient. 67 percent believe we need more oil refineries and 73 percent believe off-shore drilling is a good idea. And, I’m heartened to say, 82 percent believe that conservation is important to our overall energy policy.
Even in Santa Barbara – the city where 200,000 gallons of oil spilled offshore some 40 years ago and where the movement to ban off-shore drilling began – even Santa Barbara gets it. The County Board of Supervisors there voted just last month in support of new drilling off its shore.
When it comes to energy, there’s no ideology among the American consumer. Almost everyone wants more conservation, alternative energy, greater fuel efficiency, and environmentally responsible offshore drilling to help us right now.
And, yet, here we are … constrained by the old politics, separated by silos of thinking and ill-served by politicians intent on fighting the last war instead of the one in front of us.
And what is most worrisome to me – what is most vexing – is that Washington doesn’t understand that the energy crisis isn’t just about energy. The energy crisis is also about jobs … about manufacturing competitiveness. And at its base, the energy crisis is an industrial crisis that is threatening America’s strength and standing in the world.
Four years ago we at Dow proposed a way out of this. We proposed an Energy Plan with three key components.
The first is to pass comprehensive federal goals on energy efficiency and conservation. To me, this is common sense.
Now, I realize I’m in Detroit and energy efficiency goals sound like code words for new fuel standards. It's heartening to see all the Big Auto’s developing new models to consume less fuel. But what I’m mostly talking about here is improving the efficiency of buildings.
Consider this: buildings are responsible for 40 percent of our total energy use, 70 percent of our electricity use and 38 percent of our CO2 emissions. A combination of federal incentives and local energy efficiency building codes could lower all of those numbers and significantly improve this country’s energy security.
A very achievable 25-percent improvement in the energy efficiency of our economy would save this country the equivalent of all of its oil purchases from the Middle East and be the foundation for a secure energy future. It’s the first and easiest step to implement.
The second component is to increase and diversify our domestic energy supplies. This is simple logic.
We have the oil deposits here. We have natural gas deposits. And we certainly have the coal reserves.
We should be accessing – responsibly and safely – every source we have to produce as much energy as we can at home.
We also have the best technology in the world. Why not use that to build new, safe nuclear power facilities? Why not begin – today – an Apollo-like R&D project to solve the carbon capture and sequestration question so we can use – safely and responsibly – that 200-year supply of coal beneath our feet?
The third component of our plan is to accelerate the development of all alternative energy sources – including renewables – and provide the financial support on research and development to get us there.
Given the situation we’re in today, it’s amazing to me that this Congress can’t even seem to pass an extension of the Renewable Energy Tax Credits and, as a result, is putting this country’s renewable energy industry – along with 100,000 jobs and $20 billion in investments – at risk.
Congress should also live up to its commitment and fund the direct loan program it created last year to help lower the cost of capital so the auto industry can retool to make more fuel-efficient vehicles.
The fact is we don’t need to limit our possibilities by limiting our choices. Solar. Wind. Biomass and other renewable and alternative supplies. We need them all. And we
need them now.
Will these give us energy independence? No.
Energy independence is a pipe dream for the U.S. But these steps will help us achieve the more realistic goal of energy security.
And, while I’m at it, let me remind you we have to do all of this within the context of reducing our carbon footprint. That’s why Dow – along with the Big Three automakers, other large and diversified companies and leading environmental groups – are members of the U.S. Climate Action Partnership and are committed to driving the Federal government to adopt measures to reduce greenhouse gas emissions.
So there are three steps to Dow’s Energy Plan for America. Improve efficiency and conservation. Diversify domestic supplies. Find new alternatives and renewables.
If we take these steps – in concert with one another – we can literally provide the fuel that will restore the power to American industry.
Do these sound familiar? They should.
They are now being talked about more and more … by more and more politicians, companies, CEOs, and yes, even the President of the United States and the two candidates that want to succeed him.
I suppose we should be pleased that this plan is finally being talked about. But it’s hard to take pleasure when all we hear is talk.
We have yet to see any significant action by Congress. We have yet to see a bipartisan approach to getting it ALL put in place. And I mean ALL.
Not what partisanship brings us, but what common sense demands we do.
The right path forward is not one of “divide-and-conquer.” That’s what got us into this mess to begin with.
The right path forward – the only path forward – is one of collaboration and coordination: public and private sectors, Republicans and Democrats, industry and environmentalists, working together with the goal of finding and removing obstacles.
And we need to start where the major challenges of our day intersect: on manufacturing … on jobs … on energy … and the environment.
That’s what we call the Dow Energy Plan for America – a workable plan and a real solution to rebuild the industrial base in this country and put Americans back to work.
One of the things I love about democracies – like America – like my native Australia – is that every few years we get to elect new leaders and chart a new course.
This country is entering an historic era. It will elect either its first African-
American President or its first female Vice President.
And this new leadership must marshal the courage to re-establish America’s place in the world as THE indispensable nation.
If this nation is going to live up to its legacy – if it’s going to fulfill its potential of independent influence – our leaders must remember that its strength comes not necessarily from strong politicians … but from a strong economy. Not from strong words … but from strong, practical policies that rebuild the industrial heartland and create new jobs for Americans in every part of this great country.
We do that by removing the artificial anti-industrial policy costs that disadvantage American manufacturers.
And we do it by insisting – at every turn – on an energy policy that promotes efficiency … alternatives and renewables … AND new domestic supplies.
We at Dow are committed to this defining idea and plan. We are committed to this state and to this great country.
And I look forward to working with all of you – in the private AND public sectors – as we build this new future together and re-establish America’s preeminence in the world.
Chairman Dodd, Senator Shelby, and members of the Committee, I appreciate this opportunity to discuss recent developments in financial markets and the economy. As you know, the U.S. economy continues to confront substantial challenges, including a weakening labor market and elevated inflation. Notably, stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.
The downturn in the housing market has been a key factor underlying both the strained condition of financial markets and the slowdown of the broader economy. In the financial sphere, falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital. Investor concerns about financial institutions increased over the summer, as mortgage-related assets deteriorated further and economic activity weakened. Among the firms under the greatest pressure were Fannie Mae (FNM) and Freddie Mac (FRE), Lehman Brothers, and, more recently, American International Group (AIG). As investors lost confidence in them, these companies saw their access to liquidity and capital markets increasingly impaired and their stock prices drop sharply.
The Federal Reserve believes that, whenever possible, such difficulties should be addressed through private-sector arrangements--for example, by raising new equity capital, by negotiations leading to a merger or acquisition, or by an orderly wind-down. Government assistance should be given with the greatest of reluctance and only when the stability of the financial system, and, consequently, the health of the broader economy, is at risk. In the cases of Fannie Mae and Freddie Mac, however, capital raises of sufficient size appeared infeasible and the size and government-sponsored status of the two companies precluded a merger with or acquisition by another company. To avoid unacceptably large dislocations in the financial sector, the housing market, and the economy as a whole, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship, and the Treasury used its authority, granted by the Congress in July, to make available financial support to the two firms. The Federal Reserve, with which FHFA consulted on the conservatorship decision as specified in the July legislation, supported these steps as necessary and appropriate. We have seen benefits of this action in the form of lower mortgage rates, which should help the housing market.
The Federal Reserve and the Treasury attempted to identify private-sector approaches to avoid the imminent failures of AIG and Lehman Brothers, but none was forthcoming. In the case of AIG, the Federal Reserve, with the support of the Treasury, provided an emergency credit line to facilitate an orderly resolution. The Federal Reserve took this action because it judged that, in light of the prevailing market conditions and the size and composition of AIG's obligations, a disorderly failure of AIG would have severely threatened global financial stability and, consequently, the performance of the U.S. economy. To mitigate concerns that this action would exacerbate moral hazard and encourage inappropriate risk-taking in the future, the Federal Reserve ensured that the terms of the credit extended to AIG imposed significant costs and constraints on the firm's owners, managers, and creditors. The chief executive officer has been replaced. The collateral for the loan is the company itself, together with its subsidiaries.1 (Insurance policyholders and holders of AIG investment products are, however, fully protected.) Interest will accrue on the outstanding balance of the loan at a rate of three-month Libor plus 850 basis points, implying a current interest rate over 11 percent. In addition, the U.S. government will receive equity participation rights corresponding to a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders, among other things.
In the case of Lehman Brothers (LEH), a major investment bank, the Federal Reserve and the Treasury declined to commit public funds to support the institution. The failure of Lehman posed risks. But the troubles at Lehman had been well known for some time, and investors clearly recognized--as evidenced, for example, by the high cost of insuring Lehman's debt in the market for credit default swaps--that the failure of the firm was a significant possibility. Thus, we judged that investors and counterparties had had time to take precautionary measures.
While perhaps manageable in itself, Lehman's default was combined with the unexpectedly rapid collapse of AIG (AIG), which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit--where available--to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds. A marked increase in the demand for safe assets--a flight to quality--sent the yield on Treasury bills down to a few hundredths of a percent. By further reducing asset values and potentially restricting the flow of credit to households and businesses, these developments pose a direct threat to economic growth.
The Federal Reserve took a number of actions to increase liquidity and stabilize markets. Notably, to address dollar funding pressures worldwide, we announced a significant expansion of reciprocal currency arrangements with foreign central banks, including an approximate doubling of the existing swap lines with the European Central Bank and the Swiss National Bank and the authorization of new swap facilities with the Bank of Japan, the Bank of England, and the Bank of Canada. We will continue to work closely with colleagues at other central banks to address ongoing liquidity pressures. The Federal Reserve also announced initiatives to assist money market mutual funds facing heavy redemptions and to increase liquidity in short-term credit markets.
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions’ balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.
At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand. Certainly, the shortcomings and weaknesses of our financial markets and regulatory system must be addressed if we are to avoid a repetition of what has transpired in our financial markets over the past year. However, the development of a comprehensive proposal for reform would require careful and extensive analysis that would be difficult to compress into a short legislative timeframe now available. Looking forward, the Federal Reserve is committed to working closely with the Congress, the Administration, other federal regulators, and other stakeholders in developing a stronger, more resilient, and better regulated financial system.
Based on consultation with the Department of Justice regarding the applications of Goldman Sachs and Morgan Stanley to become bank holding companies, the Federal Reserve Board announced on Monday that the transactions may be consummated immediately without the application of the five-day antitrust waiting period.
The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.
To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve's primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF); the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch. In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.
Once in Golconda "In this book, John Brooks-who was one of the most elegant of all business writers-perfectly catches the flavor of one of history's best-known financial dramas: the 1929 crash and its aftershocks. It's packed with parallels and parables for the modern reader." -From the Foreword by Richard Lambert Editor-in-Chief, The Financial Times Once in Golconda is a dramatic chronicle of the breathtaking rise, devastating fall, and painstaking rebirth of Wall Street in the years between the wars. Focusing on the lives and fortunes of some of the era's most memorable traders, bankers, boosters, and frauds, John Brooks brings to vivid life all the ruthlessness, greed, and reckless euphoria of the '20s bull market, the desperation of the days leading up to the crash of '29, and the bitterness of the years that followed. Praise for Once in Golconda "A fast-moving, sophisticated account.embracing the stock-market boom of the twenties, the crash of 1929, the Depression, and the coming of the New Deal. Its leitmotif is the truly tragic personal history of Richard Whitney, the aristocrat Morgan broker and head of the Stock Exchange, who ended up in Sing Sing." -Edmund Wilson, writing in the New Yorker "As Mr. Brooks tells this tale of dishonor, desperation, and the fall of the mighty, it takes on overtones of Greek tragedy, a king brought down by pride. Whitney's sordid history has been told before..But in Mr. Brooks's hands, the drama becomes freshly shocking." -Wall Street Journal "It's all there in Once in Golconda-the avarice of an era that favored the rich; and the later anguish of myriads of speculators doomed by a bloated market, easy credit, and their own cupidity and stupidity."
Today Fitch Ratings ("Fitch") issued a press release in which it downgraded the ratings associated with certain of Sears Holdings Corporation's ("SHC") outstanding debt obligations. SHC does not agree with Fitch's action given our current liquidity position, reduced debt levels, demonstrated history of cash flow generation and available assets. We believe that we are being unfairly treated, as many of our biggest competitors have dramatically increased debt levels over the past several years with little or no consequence to their ratings.
SHC has consistently maintained a strong capital structure and generated significant cash flow from operations. In fact, SHC has generated $5.2 billion of operating cash since the merger and $1.5 billion last year. The $4 billion credit facility entered into at the time of the Sears/Kmart merger was structured to provide significantly more liquidity than Sears Holdings anticipated requiring in order to provide flexibility to fund our working capital needs and to pursue a variety of value creating strategies. Since the merger in March 2005, the largest amount outstanding under the facility at any time to date has been $1.8 billion, of which $1 billon represented standby letters of credit issued primarily to support our insurance programs. Over this same period, SHC has paid down approximately $2 billion of the outstanding debt assumed from Sears at the time of the merger. SHC has also made contributions of approximately $1 billion to fund the frozen pension plans of its predecessor companies. This credit facility, by its terms, continues through March 2010 and carries no financial ratio covenants that are applicable (the financial ratio covenants contained in the agreement are only applicable at SHC's election).
SHC has significant assets, including cash of $1.5 billion, owned and attractive long-term leased real estate, a stable of nationally recognized proprietary brands (Kenmore, Craftsman, Lands' End and DieHard) and a 70% equity interest in Sears Canada. In addition, SHC has $9 billion of inventory that currently secures the $4 billion credit facility.
We wish to thank Fitch for retracting the incorrect statement that appeared in its Retail Register Report published on September 17, 2008 in which reference was made to concerns stemming from the elimination of the Bank of America cash-backed letter of credit facility. As noted in the correction issued today by Fitch, that facility did not provide incremental liquidity over and above the existing $4 billion credit facility. The Bank of America facility was designed as a less expensive means for Sears Holdings to issue letters of credit at a time when we had several billions of dollars of excess cash with which to collateralize the facility. With lower cash levels, the facility no longer made economic or operational sense and was significantly reduced, with a small amount retained to continue certain outstanding international letters of credit. Bank of America continues to hold one of the largest commitments in our existing $4 billion credit agreement.
Given that Fitch's rating change utilizes mid-year debt levels and credit metrics, we have requested that Fitch monitor our credit rating for upgrade as soon as the calculations on which their decision is based no longer govern. At a time when many companies are suffering from excessive leverage undertaken over the past several years, Sears Holdings is well positioned from decisions we made to reduce our leverage since the merger and to allow for the inevitable cycles that tend to occur in the retail business.
Citigroup Inc. (C), moving to take advantage of the turmoil that is hobbling banks throughout the U.S., is considering making a bid for Washington Mutual Inc. (WM), according to people familiar with the situation.
"People view us today as being a source of the solution, instead of part of the problem," Gary Crittenden, Citigroup's chief financial officer, said in an interview. He declined to comment specifically about WaMu.
Citigroup and several other banks are reviewing the Seattle thrift-holding company's books, which are packed with shaky mortgages, people familiar with the matter said Thursday. Other interested parties include Banco Santander SA, of Spain, and Wells Fargo & Co. (WFC), of San Francisco. J.P. Morgan Chase & Co. (JPM), which was spurned by WaMu earlier this year, is biding its time on a potential bid, people close to J.P. Morgan said.
When investors purchase their initial position in a stock, it is usually after their most rigorous research. Once a stock is in their portfolio, some investors relax on the research for subsequent purchases. Each and every time you purchase a stock, you should run it through the same process as if you were buying it for the first time.
Colgate-Palmolive Company (Colgate) is a consumer products company, whose products are marketed throughout the world. Colgate’s Oral Care products include toothpaste, toothbrushes, oral rinses, dental floss and pharmaceutical products. Linked here is a detailed stock analysis and commentary.
Since cars are big-ticket items, a drop in spending has manifested itself with utmost clarity in the auto retail space. US motor vehicle sales were down some 18% in June year over year. As a result, many car retailers have been punished in the market.
Some are once again questioning Warren Buffett's current investments, but Whitney Tilson comes continues to defend him.
I guess if you read as many annual reports as Saj and I have in the past few months you get hungry for some excitement! So to quench this desire, I decided to skip directly to the note disclosure on goodwill and intangibles! The interesting part between these items ended up residing with the disclosure on intangibles.
Nokia is an international dividend achiever. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 5.00 % to its shareholders. Nokia’s share price has not recovered yet form its all time highs in the early 2000. The stock has lost over 45% of its value so far in 2008.
Walter J Schloss answers questions at the Ben Graham Center for Value Investing February 12, 2008.
The DIV-Net's Investing Carnival #13 with posts on dividends, value investing, stock analysis, general market commentary and real estate
Archer Daniels Midland is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 33 consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 6.50 % to its shareholders. The stock has lost over half its value so far in 2008.
Summary of the Lehman Brothers bankruptcy coverage including a link to the official Lehman Brothers' press release.
Todd Sullivan comments on Bank of America CEO Ken Lewis' decision to takeover Merrill Lynch.
As a result of these recent developments, the Commission has concluded that there continues to exist the potential of sudden and excessive fluctuations of securities prices generally and disruption in the functioning of the securities markets that could threaten fair and orderly markets. Based on this conclusion, the Commission is exercising its powers under Section 12(k)(2) of the Act.2 Pursuant to Section 12(k)(2), in appropriate circumstances the Commission may issue summarily an order to alter, supplement, suspend, or impose requirements or restrictions with respect to matters or actions subject to regulation by the Commission if the Commission determines such an order is necessary in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.
In these unusual and extraordinary circumstances, we have concluded that, to prevent substantial disruption in the securities markets, temporarily prohibiting any person from effecting a short sale in the publicly traded securities of certain financial firms, which entities are identified in Appendix A (“Included Financial Firms”), is in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.
The chairman of the No. 2 U.S. mortgage bank said on Wednesday that his company was "buying with both hands" and, given the distressed state of financial assets, he felt "like a kid in a candy store."
Wells Fargo (WFC) Chairman Richard Kovacevich declined to comment to Reuters at a conference in Beverly Hills, California, on whether the company is interested in buying Washington Mutual Inc (WM) or Wachovia Corp (WB) but indicated he was interested in buying other banks in distress.
"Wells Fargo often buys fixer uppers," companies that have had some hard knocks and can be rehabilitated in two or three years, he said in a speech at the Association of Corporate Growth 2008 conference. "Given the financial conditions today I feel like a kid in a candy store. There is a lot out there today."
"We are buying with both hands right now, as we have done for the past year," Kovacevich said, describing himself as a "confessed serial acquirer."
Washington, D.C., Sept. 17, 2008 — Securities and Exchange Commission Chairman Christopher Cox and SEC Enforcement Division Director Linda Chatman Thomsen issued the following statements today concerning ongoing and forthcoming Commission actions to investigate fraud and manipulation in the nation's securities markets:
"Millions of investors entrust their savings to our securities markets because they can be confident that our markets are orderly, liquid, efficient, and rational," said Chairman Cox. "The turmoil in today's markets, particularly in the financial sector, is challenging that assumption for ordinary Americans. Markets are the best tool a free society has to price and allocate assets across a complex economy, but as is well known from experience, sometimes the wisdom of crowds is supplanted by crowd behavior. We need well-functioning markets to help us draw the line between reasonable miscalculation and error or something worse involving the failure of due diligence, self-dealing, and conflicts of interest. It is thus vitally important that the market mechanism continue to inspire investor confidence.
"In order to ensure that hidden manipulation, illegal naked short selling, or illegitimate trading tactics do not drive market behavior and undermine confidence, the SEC today took several actions to address short selling abuses," Chairman Cox continued. "In addition to these initiatives, which will take effect at 12:01 a.m. ET on Thursday, I am asking the Commission to consider on an emergency basis a new disclosure rule that will require hedge funds and other large investors to disclose their short positions. Prepared by the staffs of the Division of Investment Management and the Division of Corporation Finance, the new rule will be designed to ensure transparency in short selling. Managers with more than $100 million invested in securities would be required to promptly begin public reporting of their daily short positions. The managers currently report their long positions to the SEC."
Chairman Cox continued, "Director Thomsen and the Division of Enforcement will also expand their ongoing investigations by undertaking a series of additional enforcement measures against market manipulation. The Enforcement Division will obtain disclosure from significant hedge funds and other institutional traders of their past trading positions in specific securities. Those institutions will also be required immediately to secure all of their communication records in anticipation of subpoenas for these records."
SEC Director of Enforcement Linda Chatman Thomsen said, "The Enforcement Division has been investigating and will continue to investigate any suggestion of manipulative trading. We are committed to using every weapon in our arsenal to combat market manipulation that threatens investors and capital markets."
The Commission is actively considering additional actions as appropriate.
Longs Drug said its board won't have negotiations or provide due diligence materials Walgreen was seeking. It also said Walgreen (WAG) has given no assurances the deal will be completed as it gave no timetable. Walgreen on Friday told Longs it was looking to offer $75 a share, subject to additional due diligence. Walgreen said it was "confident" it could secure antitrust approvals and had hired two real estate investment firms to handle potential store sales.
"We are disappointed with the refusal of the Longs board to discuss our superior proposal," Walgreen said in a statement. "We remain committed to pursuing our proposal, which we believe creates superior value for our respective stockholders."
FOR IMMEDIATE RELEASE
2008-204
Washington, D.C., Sept. 17, 2008 — The Securities and Exchange Commission today took several coordinated actions to strengthen investor protections against "naked" short selling. The Commission's actions will apply to the securities of all public companies, including all companies in the financial sector. The actions are effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.
"These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," said SEC Chairman Christopher Cox. "The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation."
In an ordinary short sale, the short seller borrows a stock and sells it, with the understanding that the loan must be repaid by buying the stock in the market (hopefully at a lower price). But in an abusive naked short transaction, the seller doesn't actually borrow the stock, and fails to deliver it to the buyer. For this reason, naked shorting can allow manipulators to force prices down far lower than would be possible in legitimate short-selling conditions.
Today's Commission actions, which are the result of rulemaking under the Administrative Procedure Act, go beyond its previously issued emergency order, which was limited to the securities of financial firms with access to the Federal Reserve's Primary Dealer Credit Facility. Because the agency's exercise of its emergency authority is limited to 30 days, the previous order under Section 12(k)(2) of the Securities Exchange Act of 1934 expired on Aug. 12, 2008.
The Commission's actions were as follows:
Hard T+3 Close-Out Requirement; Penalties for Violation Include Prohibition of Further Short Sales, Mandatory Pre-Borrow
The Commission adopted, on an interim final basis, a new rule requiring that short sellers and their broker-dealers deliver securities by the close of business on the settlement date (three days after the sale transaction date, or T+3) and imposing penalties for failure to do so.
If a short sale violates this close-out requirement, then any broker-dealer acting on the short seller's behalf will be prohibited from further short sales in the same security unless the shares are not only located but also pre-borrowed. The prohibition on the broker-dealer's activity applies not only to short sales for the particular naked short seller, but to all short sales for any customer.
Although the rule will be effective immediately, the Commission is seeking comment during a period of 30 days on all aspects of the rule. The Commission expects to follow further rulemaking procedures at the expiration of the comment period.
Exception for Options Market Makers from Short Selling Close-Out Provisions in Reg SHO Repealed
The Commission approved a final rule to eliminate the options market maker exception from the close-out requirement of Rule 203(b)(3) in Regulation SHO. This rule change also becomes effective at 12:01 a.m. ET on Thursday, Sept. 18, 2008.
As a result, options market makers will be treated in the same way as all other market participants, and required to abide by the hard T+3 closeout requirements that effectively ban naked short selling.
Rule 10b-21 Short Selling Anti-Fraud Rule
The Commission adopted Rule 10b-21, which expressly targets fraudulent short selling transactions. The new rule covers short sellers who deceive broker-dealers or any other market participants. Specifically, the new rule makes clear that those who lie about their intention or ability to deliver securities in time for settlement are violating the law when they fail to deliver. This rule also becomes effective at 12:01 a.m. ET on Thursday.
The Federal Reserve Board on Tuesday, with the full support of the Treasury
Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.
The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
The Massachusetts Insurers Insolvency Fund (the "Fund"), created by Mass. Gen. L. c. 175D, is a nonprofit unincorporated association of all insurers writing liability and property insurance in the Commonwealth. It is available to settle up to $300,000 per claim that arises from an insurance policy issued by an insolvent insurer. The Fund's obligations and expenses are met by mandatory contributions by all liability and property insurers who write insurance in the Commonwealth.
The Massachusetts Insurers Insolvency Fund (the "Fund"), created by Mass. Gen. L. c. 175D, is a nonprofit unincorporated association of all insurers writing liability and property insurance in the Commonwealth. It is available to settle up to $300,000 per claim that arises from an insurance policy issued by an insolvent insurer. The Fund's obligations and expenses are met by mandatory contributions by all liability and property insurers who write insurance in the Commonwealth.
In connection with the filing today by Lehman Brothers Holdings Inc. (Lehman Brothers) of a Chapter 11 bankruptcy petition, Wells Fargo & Company (the Company) will record other-than-temporary impairment and take a non-cash charge to earnings in third quarter 2008 for investments in senior unsecured notes and perpetual preferred securities issued by Lehman Brothers. The Company’s investments in the notes and preferred securities are included in securities available for sale at a cost of approximately $90 million and $109 million, respectively. The notes currently trade at 25-30 cents on the dollar. The preferred securities currently trade at less than one percent of par value. The Company estimates that as of September 12, 2008, it had approximately $50 million of unsecured counterparty exposure to Lehman Brothers. The Company has no direct lending exposure to Lehman Brothers, and the Wells Fargo Advantage Money Market Funds do not have any direct exposure to Lehman Brothers
The Federal Reserve will cut its target overnight borrowing rate by a half percentage point to 1.50% at its meeting tomorrow, said Merrill Lynch economists David Rosenberg and Drew Matus in a note Monday. "In the current environment, the Fed may feel the need to get in front of the situation with a more aggressive move" instead of the standard quarter-point reduction, they said. Merrill (MER 19.30), one of the 19 primary security dealers that trade directly with the New York Fed, was bought by another dealer, Bank of America (BAC) overnight. "Recent events suggest a large deleveraging of the banking system is picking up steam and suggests the risks to the economy are entirely concentrated in the growth outlook," Rosenberg and Matus said. Merrill analysts had previously expected the Fed to reduce rates in the first quarter as inflation subsided. "Inflation concerns will take a backseat, or move to the trunk," they said. The Fed may also remind markets that the discount window and other liquidity facilities are available.
The Federal Reserve Board on Sunday announced several initiatives to provide additional support to financial markets, including enhancements to its existing liquidity facilities.
"In close collaboration with the Treasury and the Securities and Exchange Commission, we have been in ongoing discussions with market participants, including through the weekend, to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses," said Federal Reserve Board Chairman Ben S. Bernanke. "The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets."
"We have been and remain in close contact with other U.S. and international regulators, supervisory authorities, and central banks to monitor and share information on conditions in financial markets and firms around the world," Chairman Bernanke said.
The collateral eligible to be pledged at the Primary Dealer Credit Facility (PDCF) has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks. Previously, PDCF collateral had been limited to investment-grade debt securities.
The collateral for the Term Securities Lending Facility (TSLF) also has been expanded; eligible collateral for Schedule 2 auctions will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged.
These changes represent a significant broadening in the collateral accepted under both programs and should enhance the effectiveness of these facilities in supporting the liquidity of primary dealers and financial markets more generally.
Also, Schedule 2 TSLF auctions will be conducted each week; previously, Schedule 2 auctions had been conducted every two weeks. In addition, the amounts offered under Schedule 2 auctions will be increased to a total of $150 billion, from a total of $125 billion. Amounts offered in Schedule 1 auctions will remain at a total of $50 billion. Thus, the total amount offered in the TSLF program will rise to $200 billion from $175 billion.
The Board also adopted an interim final rule that provides a temporary exception to the limitations in section 23A of the Federal Reserve Act. It allows all insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repo market. This exception expires on January 30, 2009, unless extended by the Board, and is subject to various conditions to promote safety and soundness.
Walgreens said it would pay $75 a share in cash to buy the California-based Longs, besting CVS's price of $71.50 per share, also in cash, which was equivalent to about $2.7 billion. Either deal would also include the assumption of about $200 million in debt.
Walgreens CEO Jeffrey Rein said in a letter to Longs' board of directors that the company would prefer to negotiate with Longs directly but was also prepared to take the offer directly to the company's shareholders.
Rein also noted in the letter, which Walgreens disclosed in a press release late Friday, that Walgreens had expressed an interest in acquiring Longs earlier for $70 a share but never received due diligence materials from the company.
Helix Energy Solutions Group, Inc. (Helix) is an international offshore energy company providing reservoir development solutions and other contracting services to the energy market, as well as to other oil and gas properties. Helix operates in the Gulf of Mexico, North Sea, Asia Pacific and Middle East regions. The Contracting Services segment utilizes the vessels and offshore equipment that when applied with the methodologies reduce finding and development (F&D) costs. The Oil and Gas segment is engaged in prospect generation, exploration, development and production activities. On December 11,
