Despite the Federal Reserve's efforts Wall Street fears a big US bank is in trouble

From The Times
March 13, 2008

Siobhan Kennedy and Suzy Jagger

Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive.

The name on most people's lips was Bear Stearns. Although the Fed billed the co-ordinated rescue as a way of improving liquidity across financial markets, economists and analysts said that the decision appeared to be driven by an urgent need to stave off the collapse of an American bank.

“The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn't flush with cash and needed funds in a hurry,” Simon Maughan, an analyst with MF Global in London, said.

Mr Maughan said that the most likely victim was Bear Stearns, the first bank to run into trouble in the sub-prime crisis and the one that, among all wholesale and investment banks, is most reliant upon the use of mortgage securities for raising funds in the money markets.

“The average financial institution was up 7.5 per cent yesterday after the Fed's actions, but Bear Stearns rose just 1 per cent on massive trading volume,” Mr Maughan said. “The market is telling you it's Bear Stearns.”

The Fed's intervention sparked fears of deeper underlying trouble because it came only days after it had made $200 billion (£99 billion) available in emergency funds. The nature of the financing was also unusual, bankers say, because it was the first time that the Fed had offered to lend Treasury securities in exchange for ordinary AAA-rated mortgage-backed securities as collateral.

Chris Whalen, of the financial consultancy Institutional Risk Analytics in New York, said: “The Fed move is confirmation that at least one of the banks is in trouble. A huge part of the banks' inventories are illiquid. If a broker-dealer is illiquid, it dies.”

Speculation has swirled for months about the collapse of an American bank as the credit crisis has escalated and spread from sub-prime to other mortgage-backed securities, treasuries and bonds. As well as Bear Stearns, attention has focused on UBS, the Swiss bank, which has been forced to make more than $18 billion in sub-prime writedowns, and Citigroup, the world's largest financial institution, which has turned to sovereign wealth funds to help to shore up its credit-stricken balance sheet.

Bankers say that mortgage lenders, such as Paragon, Alliance & Leicester and Bradford & Bingley, could also be teetering on the brink soon if they cannot raise enough money in the markets to continue to lend to customers. All the banks have denied that they are facing a cash crunch and each has said that its liquidity position is strong. Nonetheless, the speculation continues to mount. Alan Schwartz, the Bear Stearns chief executive, reiterated that stance yesterday after Punk Ziegel analysts gave warning that the bank could be forced to seek a merger partner.

“We don't see any pressure on our liquidity, let alone a liquidity crisis,” Mr Schwartz told CNBC yesterday. He said that Bear had finished fiscal 2007 with $17 billion of cash sitting as a“liquidity cushion”. He added: “That cushion has been virtually unchanged. We're in constant dialogue with all the major dealers, and I have not been made aware of anybody not taking our credit.”

Yet banking sources said yesterday that a collapse seemed inevitable. One senior banker in London said: “Someone will go under in this crisis, that's for sure. The question is whether they stay under or get rescued. Let's see whether this latest round of stabilisation helps, but if it doesn't, it's difficult to see what Plan B is. The Fed can't just keep on printing money.”

One problem with the credit crunch is that banks' solvency positions can change overnight. As banks force firesales of assets to recover their loans from hedge funds, the prices of those assets fall. But as the prices fall, the amount of capital that the banks need rises. Lena Komileva, a Tullett Prebon economist, said: “This is what is fuelling the vicious cycle. Things can deteriorate very rapidly and banks can reach insolvency almost overnight.”

Ms Komileva said it was clear that the Fed was reacting to address a “specific counterparty risk”, although she declined to comment on which bank might be in trouble. She said: “The speed and severity of their action appeared disproportionate to what had actually happened, so, consequently, it seems the Fed really reacted to prevent a Northern Rock-style problem in the US.”

She said that the Fed's moves amounted to window-dressing. “All the signs of stress that were there before are still here,” she said.

Study: Public unaware of Iraq toll

Only 28 percent know that nearly 4,000 U.S. troops have been killed

By Karen DeYoung

The Washington Post

updated 12:01 a.m. ET March 13, 2008

Twenty-eight percent of the public is aware that nearly 4,000 U.S. personnel have died in Iraq over the past five years, while nearly half thinks the death tally is 3,000 or fewer and 23 percent think it is higher, according to an opinion survey released yesterday.

The survey, by the Pew Research Center for the People and the Press, found that public awareness of developments in the Iraq war has dropped precipitously since last summer, as the news media have paid less attention to the conflict. In earlier surveys, about half of those asked about the death tally responded correctly.

Related Pew surveys have found that the number of news stories devoted to the war has sharply declined this year, along with professed public interest. "Coverage of the war has been virtually absent," said Pew survey research director Scott Keeter, totaling about 1 percent of the news hole between Feb. 17 and 23.

The Iraq-associated median for 2007, he said, was 15 percent of all news stories, with major spikes when President Bush announced a "surge" in forces in January of that year and when Gen. David H. Petraeus, the U.S. commander in Iraq, testified before Congress in September.

"We try not to make any causal statements about the relationship between the absence of news and what the public knows," Keeter said. "But there's certainly a correlation between the two. People are not seeing news about fatalities, and there isn't much in the news about the war, whether it be military action or even political discussion related to it."

Although Iraq topped the list of the public's most closely followed news stories in all but five weeks during the first half of 2007, according to Pew's research, interest fell rapidly in the fall, and Iraq has not held the top spot since October. That corresponded with a sharp drop in the rate of U.S. casualties in Iraq and increased news coverage of the U.S. presidential campaign.

More track Ledger than war
During the last week in January, 36 percent of those surveyed said they were most closely following campaign news, while 14 percent expressed the most interest in the stock market and 12 percent in the death of actor Heath Ledger. In contrast, 6 percent said they were most closely following coverage of Iraq.

Compared with those Americans surveyed who correctly identified U.S. casualties at around 4,000 (3,975 as of yesterday morning, according to the Pentagon), 84 percent identified Oprah Winfrey as the talk-show host supporting Sen. Barack Obama (Ill.) for the Democratic presidential nomination, and 50 percent knew that Hugo Chavez is president of Venezuela.

All education levels in the recent survey were similarly uninformed, Keeter said. The Pew "Political Knowledge Update" was based on nationwide telephone interviews of 1,003 adults conducted Feb. 28 through March 2. The margin of error was plus or minus 3.5 percentage points.

© 2008 The Washington Post Company

URL: http://www.msnbc.msn.com/id/23602987/

February retail sales worse than expected

Decline of 0.6 percent another worrisome sign for the economy

The Associated Press

updated 9:06 a.m. ET March 13, 2008

WASHINGTON - Consumers, battered by plunging home prices and a credit crunch, stayed away from the malls in February, pushing retail sales down by a larger-than-expected amount. It was another worrisome sign that the country could be falling into a recession.

The Commerce Department reported Thursday that retail sales fell by 0.6 percent last month, far worse than the small 0.2 percent increase that analysts had been expecting.

The weakness was widespread with sales of autos, furniture and appliances all down.

It marked the second time in the past three months that retail sales have taken a tumble. Sales had fallen by an even bigger 0.7 percent in December, the largest drop in six months, as the nation’s retailers suffered through a dismal holiday shopping season. Sales posted a modest 0.4 percent gain in January.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity. Many economists believe that the country will suffer a mild recession in the first half of this year as the economy is unable to withstand the blows from a prolonged slump in housing, record-high energy prices and a severe credit crisis brought on by soaring mortgage defaults.

In another report, the Labor Department said that the number of laid-off workers filing applications for unemployment benefits was unchanged this past week at 353,000, the same number as last week. That was a slightly better showing than analysts had been expecting although the benefit applications remain at elevated levels indicating the labor market is under stress.

The government reported last week that employers slashed payrolls by 63,000 in February, the second straight monthly decline in employment and the most dramatic evidence to date that the country could be sliding into a recession.

A third report Thursday showed that U.S. import prices rose last month by 0.2 percent after jumping an even larger 1.6 percent in January. Compared to a year ago, import prices are up a sharp 13.6 percent, reflecting the fact that petroleum prices are up 60.9 percent over the past year.

The rising cost of imported goods reflects the bind the Federal Reserve faces at the current time as it must deal with the twin threats of a sluggish economy and higher inflation.

Analysts expect that the Fed will continue to emphasize its battle against recession and cut interest rates sharply when officials hold a regularly scheduled meeting next Tuesday.

© 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

URL: http://www.msnbc.msn.com/id/23609249/

Parents may be jailed over vaccinations

MARIA CHENG
Associated Press
Wednesday, March 12, 2008

LONDON - As doctors struggle to eradicate polio worldwide, one of their biggest problems is persuading parents to vaccinate their children. In Belgium, authorities are resorting to an extreme measure: prison sentences.

Two sets of parents in Belgium were recently handed five month prison terms for failing to vaccinate their children against polio. Each parent was also fined 4,100 euros ($8,000).

"It's a pretty extraordinary case," said Dr. Ross Upshur, director of the Joint Centre for Bioethics at the University of Toronto.

"The Belgians have a right to take some action against the parents, given the seriousness of polio, but the question is, is a prison sentence disproportionate?"

The parents can still avoid prison — their sentences were delayed to give them a chance to vaccinate their children. But if that deadline also passes without their children receiving the injections, the parents could be put behind bars.

Because of privacy laws, Belgian officials would not talk specifically about the case, such as why the parents refused the vaccine or how much longer they have to vaccinate their children.

The polio vaccine is the only one required by Belgian law. Exceptions are granted only if parents can prove their children might have a bad physical reaction to the vaccine.

"Polio is a very serious disease and has caused great suffering in the past," said Dr. Victor Lusayu, head of Belgium's international vaccine centre. "The discovery of the vaccine has eliminated polio from Europe and it is simply the law in Belgium that you have to be vaccinated. ... At the end of the day, the law must be respected."

Some ethicists back the hardline Belgian stance.

"Nobody has the right to unfettered liberty, and people do not have a right to endanger their kids," said John Harris, a professor of bioethics at the University of Manchester.

"The parents in this case do not have any rights they can appeal to. They have obligations they are not fulfilling."

Aside from Belgium, only France makes polio vaccinations mandatory by law. In the United States, children must be vaccinated against many diseases including polio, but most states allow children to opt out if their parents have religious or "philosophical" objections.

In the U.S. state of Maryland, prosecutors and school officials in one county threatened truancy charges against parents who failed to vaccinate their children. The measure sharply reduced the number of unvaccinated children although nobody has been charged.

FULL STORY: CLICK HERE

Video Shows Cop Tasering Already Restrained Disabled Man

Abuse of "last option before lethal force" continues
Steve Watson
Infowars.net
Wednesday, March 12, 2008

Recently uncovered video of a disabled British Columbia man being shocked with a taser by a Royal Canadian Mounted Police officer has sparked controversy and once again brought the use of such weapons into the limelight.

The video, which was shot in 2004 but only recently released to legal representitives, shows John Dempsey, who suffered from a debilitating muscle disorder similar to Parkinson's disease, being forced to the ground by two RCMP officers inside a Kamloops, B.C. RCMP detachment.

The video shows Dempsey being led into the booking room after being arrested for trying to intervene in the arrest of a friend whom he believed the police were being too heavy handed with.

Already handcuffed and subsequently shoved face down to the ground, an officer then fires a taser into Dempsey's back at point blank range.

"I wasn't resisting arrest, I calmly walked, he grabbed me, and said this will teach you not to [profanity] with us, that's what he said," Dempsey later commented.

Watch the video:

Dempsey had initiated a lawsuit accusing the RCMP of excessive force, but was sadly killed in a traffic accident recently.

Had he been able to see his case through, Dempsey may have been as successful as Jared Massey, who has accepted a $40,000 settlement in a lawsuit filed against the state and a Utah Highway Patrol trooper, after he was stopped and tased for refusing to sign a speeding citation.

The news comes on the back of internal reports by Vancouver police, which have revealed that the force regularly use Tasers to subdue people who are unarmed and non-violent.

The reports, released via a freedom of information request, state that in a number of cases police used the Taser as soon as someone displayed a "fighting stance" or simply to get a non-violent suspect to do what they were told.

Other cases we have highlighted also corroborate the fact that the weapon, which is designed to be a last resort before lethal force, is now being used as a compliance tool. Every week we post stories of incidents, which often feature old women, children and disabled people as the victims. The weapons are even being used in schools.

The police are now trained that "pain compliance," a euphemism for torture, is acceptable in apprehending anyone even if that person poses no physical danger. If you electrify any person, they suffer extreme pain and stand a high chance of being killed.

Many Civil Liberties Associations and police departments across North America have called for a moratorium on the weapons after hundreds of Taser-related deaths have garnered headlines from coast to coast. However, infinitely more police continue to use the weapons without question.

Despite claims by Taser proponents the weapons are safe, scientists and doctors have raised concerns about possible links between Tasers and potential heart and respiration problems, mental health and an individual’s state of exhaustion or agitation in confrontations with authorities.

Amnesty International has also cited hundreds deaths around the world after Taser use and has called for a full taser suspension while a thorough investigation into the impact of the weapon is conducted.

Recently, a UN Committee said the stun gun "causes acute pain, constituting a form of torture".

Carlyle Capital in default, on brink of collapse

AMSTERDAM (Reuters) - An affiliate of U.S.-based buyout firm Carlyle Group has defaulted on about $16.6 billion of debt and expects its lenders to seize remaining assets as the global credit crunch tightens around leveraged investors.

Carlyle Capital Corp (CARC.AS: Quote, Profile, Research), a fund listed in Amsterdam, said in New York on Wednesday that negotiations with lenders deteriorated late in the day after a drop in the value of its mortgage investments would result in margin calls of $97.5 million on top of the $400 million it was already facing.

A "successful refinancing is not possible," Carlyle Capital said, after trying for the past week to work out a deal with lenders to stave off bankruptcy.

Bund futures in Europe rose after the news back to levels they traded at before the U.S. Federal Reserve and other central banks coordinated on Tuesday to inject liquidity into credit markets. The dollar also fell.

The credit crunch, triggered last year when subprime mortgages made to risky U.S. borrowers went sour, has put increasing pressure on lenders to shore up capital and made it difficult to value collateralized debt, mortgage portfolios and other fixed-income securities -- the investments that Carlyle Capital was set up to invest in.

"The credit angst is back," said Tim Condon, head of Asia research with investment bank ING.

The default by the fund prompted spreads to widen on the iTRAXX Asia ex-Japan investment grade index, and European credit spreads also widened, returning close to record wide levels touched earlier in the week. The news also sent the dollar lower, where it touched 12 year-lows against the yen .

Carlyle Capital, based in Britain's offshore dependency of Guernsey, said in the only assets it has left are AAA-rated residential mortgage-backed securities, and that it expected lenders to foreclose on the this collateral.

"It has become apparent to the company that the basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible," Carlyle Capital said.

Its shares tumbled 73 percent to $0.76 at 1002 GMT, a fraction of their $20 debut price last July.

Dutch market regulator AFM said it was monitoring developments closely.

"Sentiment is broadly negative and news of missed margin calls at large highly leveraged funds only elevates fear of a vicious cycle of more forced selling at deep loss, collateral shortfalls, and more missed margin calls," said Brett Williams, credit analyst with BNP Paribas in Hong Kong.

Among the counterparties for Carlyle's repurchasing agreements, Deutsche Bank, Merrill Lynch & Co. and Bear Stearns Cos. have sold off assets, the Wall Street Journal reported.

FEARS

June Bund futures FGBLM8 were 33 ticks higher at 117.95, and by 0839 GMT, the Markit investment-grade iTraxx Europe index was at 156.5 basis points, according to data from Markit, 10.5 basis points wider and erasing Wednesday gains.

Fears that more private equity groups, hedge funds and mortgage lenders are struggling with their financing are putting heavy pressure on global equity markets, which have tumbled in recent months on fears of a U.S. recession and the widening fallout from a global credit crunch.

On Tuesday, the U.S. Federal Reserve expanded a securities lending program to prove short-term liquidity of $200 billion.

"The Fed will remain vigilant that it does not cause systemic problems, but I don't think we can rule out more instances of stress," Condon said.

U.S.-based buyout giant Carlyle Group CYL.UL participated actively in negotiations with lenders and last year extended a $150 million credit line to its affiliate.

Managers at Carlyle Group own about 15 percent of Carlyle Capital, which listed in July 2007, as the credit crunch began to take hold of the global financial system.

The Carlyle Group, based in Washington, DC, has more than $75 billion under management and has attracted a string of high-profile advisers including U.S. President George Bush in the early 1990s and former British Prime Minister John Major.

One of the world's largest private equity firms, The Carlyle Group owns a range of companies including TV ratings firm Nielsen, doughnut seller Dunkin' Brands and former General Motors unit Allison Transmission.

According to CCC's annual report, counterparties for its repurchasing agreements as of the end of 2007 were Bank of America, Bear Stearns, BNP Paribas, Calyon, Citigroup, Credit Suisse, Deutsche Bank, ING, JP Morgan, Lehman Brothers, Merrill Lynch and UBS.

Dollar Falls to 12-Year Low of 100 Yen on Carlyle Fund Failure

March 13 (Bloomberg) -- The dollar fell below 100 yen earlier today for the first time since 1995 and to a record low against the euro after a Carlyle Group fund moved closer to collapse, triggering concern of more turmoil in financial markets.

The dollar approached parity with the Swiss franc and slumped against the British pound after Carlyle said lenders will take over the assets of its mortgage-bond fund and President George W. Bush acknowledged the U.S. currency's decline was not ``good tidings.'' The dollar's drop may prompt Middle East central banks to reduce dollar holdings, Greg Gibbs, a strategist at ABN Amro Holding NV in Sydney, said in a report.

``Sentiment for the dollar continues to deteriorate very, very rapidly and if we're not careful this will turn into a dollar crash,'' said Mitul Kotecha, head of foreign-exchange research in London at Calyon, the securities unit of Credit Agricole SA, France's second-biggest bank. ``The risk is that we see a fairly aggressive move sharply lower towards 95 yen, and that could really perk up the interest of the Bank of Japan.''

The dollar fell as low as 99.77 yen, the weakest since Nov. 9, 1995, before trading at 100.24 at 7:38 a.m. in New York, from 101.79 yesterday. The dollar dropped to $1.5624 per euro, the lowest since the common European currency's debut in 1999, and was at $1.5591 from $1.5551. It also slumped to a record 1.0045 Swiss francs. Japan's currency advanced to 156.27 per euro, from 158.30.

The U.S. currency fell against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined to 71.94.

Yen Sales

Japan sold the yen on the four occasions since 1995 when the currency approached 100 to support exporters including Toyota, the world's second-biggest automaker. The Bank of Japan sold 14.8 trillion yen ($148 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

The yen's 24 percent gain against the dollar from a 4 1/2- year low on June 22 was ``unexpected'' and will damage earnings, Toyota Motor Corp. President Katsuaki Watanabe said today.

``We must continue cost cuts by all means, but the currency has reached the level where we have to think about other measures,'' Watanabe told reporters in Tokyo. A gain of 1 yen against the dollar cuts Toyota's annual operating profit by 35 billion yen, according to the automaker.

The yen may rise as high as 95 per dollar, according to forecasts this month by Citigroup Inc., the third-biggest currency trader, Lehman Brothers Holdings Inc., the fourth- biggest U.S. securities firm, and Mizuho Financial Group Inc., Japan's second-largest publicly traded bank. Deutsche Bank AG and UBS AG, the world's two biggest currency traders, had predicted the dollar would hold above 100.

Intervention Risk

``There's more than a 50 percent probability that the U.S. is in recession,'' Eisuke Sakakibara, dubbed ``Mr. Yen'' when he was Japan's top currency official from 1997 to 1999, said in an interview on March 6. ``The dollar-yen rate is dependent on the state of the U.S. economy.''

The Group of Seven, which next meets April 12-13 in Washington, may signal its intent to consider coordinated intervention, UBS strategists wrote in a March 3 report. Unilateral intervention ``seems unlikely'' after Japan's economy has grown every year since 2002, it said.

The yen is a favored funding currency for carry trades, in which investors borrow in a country with low interest rates and invest in one with higher yields, earning the spread between the two. The risk is that currency moves erase those profits.

The nation's benchmark rate of 0.5 percent, the lowest among major economies, compares with 3 percent in the U.S., 4 percent in Europe, 7.25 percent in Australia and 8.25 percent in New Zealand.

Carlyle Defaults

Carlyle Capital Corp., co-founded by David Rubenstein, said in a statement it defaulted on about $16.6 billion of debt as of yesterday. Lenders will ``promptly'' take over all of its remaining assets and any remaining debt is expected ``soon'' to go into default, it said.

The yen has rallied 13 percent against the dollar as the Fed cut rates amid the worst housing slump in a quarter of a century and $190 billion of U.S. subprime-mortgage-related losses and markdowns at the world's biggest financial institutions.

``Investors are starting to lose confidence in the dollar, given the increased uncertainty over credit-related losses,'' Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note to clients today. ``Carlyle is unlikely to be the last hedge fund in difficulty. That will only further depress investor sentiment.''

Recession Concern

The biggest job losses in five years and record fuel costs are eroding U.S. consumer confidence and spending, which accounts for more than two-thirds of the economy. Lehman and JPMorgan Chase & Co. last week said the U.S. is headed into a recession.

A report today is forecast by economists to show retail sales rose 0.2 percent in February after a 0.3 percent gain in the previous month, according to a Bloomberg survey. The Commerce Department will release the data at 8:30 a.m. in Washington.

``Dollar-yen is going lower,'' said Ray Farris, head of foreign-exchange strategy at Credit Suisse in London. ``It will definitely overshoot our 98 forecast in the very near term. Our forecast was for the dollar to reach 98 in three months. The big question now is whether there will be intervention.''

Japanese officials are unlikely to intervene now in the foreign-exchange market, because the yen is ``cheap'' compared to other currencies, Sakakibara said. The U.S. and Japan may intervene to weaken the yen should it break through 90 and head toward 80 per dollar, he said.

Trading Partners

The yen's real effective exchange rate, measured against 15 currencies of major trading partners including China, Europe and Canada, is 99.5, according to Bank of Japan figures. The rate averaged 121.9 in the first quarter of 2004, when the bank last intervened on behalf of the Ministry of Finance.

Central banks intervene in the foreign-exchange market when they buy or sell currencies to influence exchange rates.

``The yen hasn't played its part in terms of dollar depreciation,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup in New York. As carry trades unwind, ``we could find ourselves moving down toward 95 very, very quickly in the next couple of weeks.''

The yen may strengthen further as global growth slows and other central banks will lower interest rates, prompting Japanese investors to send money back home, said Scott Ainsbury, who helps oversee about $12 billion in currency as a portfolio manager in New York at FX Concepts Inc.

IMF Forecast

Japan's economy, the world's second-largest, may expand 1.5 percent this year, matching the growth rate in the U.S., the International Monetary Fund said on Jan. 29. It would be the first time Japan doesn't lag behind the U.S. since 1991.

Japanese mutual funds have reduced purchases of overseas assets by 9 percent to 33.5 trillion yen in January, from 36.9 trillion yen in December, according to the Investment Trust Association data.

``Money is flowing back toward Japan, rather than going out to the rest of the world,'' said Ainsbury. ``Why put the money in the U.S. where stocks are sliding and the dollar is sliding? It's just a double whammy.''

The yen will reach 95 per dollar in three months, he predicted.