Fed`s Bullard says must shield Fed independence

(BULLARD, COULD, INDEPENDENCE, THINK, YIELDS, GOING)

By Alister Bull
PHILADELPHIA (Reuters) - St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.
"If that leads to some sort of erosion, or even the appearance of an erosion, of the independence of the Fed, I think that could be very counterproductive in this environment," he said after giving a talk about monetary policy to a Global Interdependence Center event.
The atmosphere between the Fed and the U.S. Congress has become very tense in the wake of last year`s crisis. Lawmakers are angry over the taxpayer-backed rescues of investment bank Bear Stearns and insurer American International Group, which led to a public outcry that could hurt them in the polls.
Fed Chairman Ben Bernanke also endured a hostile congressional grilling last week over the Fed`s role in Bank of America`s purchase of Merrill Lynch, and lawmakers have demanded Fed emails and questioned its accountability.
All of this is taking place against the background of a record U.S. budget deficit, and an unprecedentedly aggressive Fed purchase program of U.S. government debt.
"We`ve got very large fiscal deficits. We`ve got the appearance...that the Fed is monetizing the deficit, pushing up yields. Anything that is going to erode the independence of the Fed is going to feed that expectation and drive yields higher.
"So I think we are really in a delicate situation here as regards the independence of the Fed, and that is an important consideration going forward," he said in response to a question from the audience.
Bullard said that he did not believe the Congress really wanted to clip the Fed`s wings, but warned it would be easy for foreign investors to get the wrong message, and conclude that the Fed was going to finance the deficit by printing money.
"The Congress has thought over the last 100 years about how much independence to give the central bank. And when they really think about it, at the end of the day, they want the level of independence that we have. And so I think that will be the end outcome of this," he told reporters.
"I don`t think anyone involved intends to monetize the debt, but that is what it looks like to outsiders," he said.
EXIT STRATEGY
In earlier remarks, Bullard said that the Fed`s very accommodative monetary policy will remain in place for an extended period and a premature exit from this strategy could thwart U.S. economic recovery.
But Bullard said having a plan to shrink the monetary base after the Fed massively expanded it was important to control inflation expectations. And he said selling Fed-held assets was probably the most likely way it would choose to go.
"Without an exit strategy, expectations of high inflation may develop," Bullard said at the event, which was held at the Federal Reserve Bank of Philadelphia.
"If expectations of inflation feed into today`s long-term yields, those yields will rise today and hamper recovery prospects," he said in prepared remarks.  Continued...
Original article

Related articles:
Fed`s Bullard says policy to stay loose for awhile

Fed`s Bullard says policy to stay loose for awhile

(BULLARD, COULD, INDEPENDENCE, THINK, YIELDS, GOING)

By Alister Bull
PHILADELPHIA (Reuters) - St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.
"If that leads to some sort of erosion, or even the appearance of an erosion, of the independence of the Fed, I think that could be very counterproductive in this environment," he said after giving a talk about monetary policy to a Global Interdependence Center event.
The atmosphere between the Fed and the U.S. Congress has become very tense in the wake of last year`s crisis. Lawmakers are angry over the taxpayer-backed rescues of investment bank Bear Stearns and insurer American International Group, which led to a public outcry that could hurt them in the polls.
Fed Chairman Ben Bernanke also endured a hostile congressional grilling last week over the Fed`s role in Bank of America`s purchase of Merrill Lynch, and lawmakers have demanded Fed emails and questioned its accountability.
All of this is taking place against the background of a record U.S. budget deficit, and an unprecedentedly aggressive Fed purchase program of U.S. government debt.
"We`ve got very large fiscal deficits. We`ve got the appearance...that the Fed is monetizing the deficit, pushing up yields. Anything that is going to erode the independence of the Fed is going to feed that expectation and drive yields higher.
"So I think we are really in a delicate situation here as regards the independence of the Fed, and that is an important consideration going forward," he said in response to a question from the audience.
Bullard said that he did not believe the Congress really wanted to clip the Fed`s wings, but warned it would be easy for foreign investors to get the wrong message, and conclude that the Fed was going to finance the deficit by printing money.
"The Congress has thought over the last 100 years about how much independence to give the central bank. And when they really think about it, at the end of the day, they want the level of independence that we have. And so I think that will be the end outcome of this," he told reporters.
"I don`t think anyone involved intends to monetize the debt, but that is what it looks like to outsiders," he said.
EXIT STRATEGY
In earlier remarks, Bullard said that the Fed`s very accommodative monetary policy will remain in place for an extended period and a premature exit from this strategy could thwart U.S. economic recovery.
But Bullard said having a plan to shrink the monetary base after the Fed massively expanded it was important to control inflation expectations. And he said selling Fed-held assets was probably the most likely way it would choose to go.
"Without an exit strategy, expectations of high inflation may develop," Bullard said at the event, which was held at the Federal Reserve Bank of Philadelphia.
"If expectations of inflation feed into today`s long-term yields, those yields will rise today and hamper recovery prospects," he said in prepared remarks.  Continued...
Original article

Crisis far from over: World Bank chief

(WORLD, ZOELLICK, MARKETS, DEVELOPING, COUNTRIES, THERE)

By Lesley Wroughton
WASHINGTON (Reuters) - World Bank President Robert Zoellick said on Tuesday that financial markets are showing signs of stabilization, but warned that the global crisis was far from over in developing countries.
Speaking to reporters ahead of a meeting of finance ministers from Latin America, Zoellick said developing countries were only now feeling the full force of the global economic and financial crisis, which could quickly return to advanced economies where it began.
He said demand for World Bank financing was high and growing as credit markets remained shut to many developing market clients.
"There seems some opportunities for improvement on the financial market side, but there is still great uncertainty about the scope and timing of recovery," Zoellick told reporters on a conference call
"There are risks that could threaten the turnaround and I have emphasized the world needs to recognize that dangers will come in waves," he said. Zoellick was speaking ahead of a meeting of finance ministers from Latin America in Chile on July 2.
"A number of developing countries remain under significant stress," he added.
Zoellick said the strength of the recovery and the potential for setbacks depends a lot on how policy-makers cope with risks, including in banking systems, protectionism and financing of rollover debt of private-sector companies.
The World Bank estimated in March that well over $1 trillion in emerging market corporate debt and $2-3 trillion in total emerging market debt will mature in 2009, the majority of which reflects claims of major global banks extended across borders or through affiliates in emerging markets.
Zoellick said developing countries faced a total financing shortfall in the range of $350 billion to $635 billion, of which $178 is in Latin America.
He said demand for financing from the World Bank was increasing in part because developed countries have guaranteed so much debt that it is crowding out "good developing country" debt.
"Even if they can go to the markets and go sometimes to their domestic markets, it will crowd out their private sector," Zoellick said, "So, I remain quite cautious about the overall state of the recovery. I don`t think we`re remotely through this.
"We remain in a situation where we have to be very alert to dangers because there are significant risks out there, and we are finding that the demand for our resources from all of our different instruments ... remains high and growing," he added.
Zoellick said he would discuss with Latin American finance ministers ways to bolster the World Bank`s capital base. This could include possible early replenishment of money for the Bank`s facility that provides low-cost loans and grants to 78 of the world`s poorest countries, 39 of which are in Africa.
(Reporting by Lesley Wroughton; Editing by Dan Grebler)
Original article

Soros predicts "stop-go" economy and higher rates

(SOROS, RATES, MARKETS, BUBBLE, REGULATORS, GOVERNMENT)

By Joseph A. Giannone and Jennifer Ablan
NEW YORK (Reuters) - Billionaire investor George Soros on Tuesday predicted a "stop-go" economy for the United States, saying fears of inflation will drive up interest rates and choke off growth.
Soros, one of the world`s most successful hedge fund managers who was speaking at a breakfast hosted by the Wall Street Journal, said borrowing costs are the major headwinds for the economy.
"As markets revive, fear of inflation will drive up interest rates, which will choke off recovery," he said.
Rising U.S. Treasury yields have driven mortgage rates back up, threatening a recovery in the housing market and a refinancing boom that has helped preserve the still-fragile health of recession-weary households and the banks that lend to them.
The rise in bond yields and mortgage rates may also act to check the huge recent rally in global stock markets of the past three months, with the Federal Reserve trying to end an 18-month recession and yet not spur inflation.
Soros went back into retirement earlier this year after leading his self-named firm through the 2008 crisis. He made about $1.1 billion last year, according to Institutional Investor`s Alpha Magazine.
SOROS ON `SUPER BUBBLE`
Soros, who made his fortune targeting currencies in tightly controlled markets, said international financial markets need global regulation, even while being critical of regulators and calling for minimal government intervention.
"The idea of self-correcting markets is a misconception," he said. What governments need to do, he said, is recognize they cannot prevent bubbles but instead try to control them from getting bigger.
"You cannot prevent bubbles from forming but prevent them from self-reinforcement," Soros said.
Soros, who has retired from active fund management, acknowledged that getting regulation right is not easy as he argued both for and against stricter supervision.
"The regulators will always be wrong," he said. "They should interfere as little as possible."
Regulators, he said, typically try to control money supply and then let free markets take care of everything else, but that is a fallacy.
By the same token, Soros said that efforts by regulators and governments to stop bubbles bursting for more than 25 years gave rise to the most recent "super bubble."
Soros cautioned that the U.S. government may be making some serious missteps in dealing with the current credit crunch and recession. Massive stimulus spending and bank bailouts have pumped up the U.S. government`s own balance sheet.  Continued...
Original article

Magna-Opel deal in doubt

(TUESDAY, COULD, PORSCHE, REPORTED, MAGNA, STAKE)

By Anne Jolis and Christiaan Hetzner
BRUSSELS/FRANKFURT (Reuters) - Efforts to save two leading European carmakers took a twist on Tuesday that could change the ownership of both crisis-hit General Motors Corp`s Opel and German sportscar maker Porsche.
As GM readied for bankruptcy, the Financial Times reported Belgium-based holding company RHJ International, a former bidder for Opel, was back in the running and close to a deal that would strand Canadian-Austrian auto parts group Magna International.
Elsewhere, Qatar made an offer to the Porsche and Piech families that control the Porsche SE automotive holding that could help cut its debt mountain.
Porsche and Volkswagen have been in talks to create an "integrated" automotive group after Porsche`s 9 billion euro ($12.6 billion) debt burden forced it to drop plans for a full takeover of VW. But progress toward creating a combined company stalled after Porsche chief executive Wendelin Wiedeking sought investment from Qatar`s sovereign wealth fund.
RHJ-OPEL DEAL CLOSE?
The FT reported GM was close to a deal with RHJ to sell a stake in Opel, and a memorandum of understanding could be signed within days.
Talks on a stake in Opel between its parent, GM, and Magna -- going on since Magna clinched an agreement just before GM`s bankruptcy filing in May, pipping Fiat to the post at the time -- have hit snags, the paper said.
RHJ was named as a potential Opel buyer in media reports but never confirmed or denied it had made an initial bid let alone a second, improved one. But according to the Financial Times, RHJ has improved an earlier bid and is being taken "very seriously" by GM and a memorandum of understanding could be signed in days.
The FT reported RHJ`s new offer was said to be more sensitive to job losses in Germany, which is providing $2.1 billion of bridge financing to keep the carmaker afloat as GM goes through bankruptcy proceedings.
Another sticking point in negotiations with Magna is access to the Detroit carmaker`s global technology, which Magna wants to secure on behalf of Russian partners, the paper said. Magna has teamed up with GAZ and Sberbank for the bid.
RHJ and Magna declined to comment, as did Fiat whose chief executive Sergio Marchionne has said he wants to focus on Chrysler -- in which it has taken a 20 percent stake -- after the Italian automaker`s bid for Opel failed, and that its existing bid for Opel was the best it can do.
Back in the United States, GM is due to seek approval from a court on Tuesday to sell its assets to a "New GM" in a plan to reinvigorate the automaker under government ownership.
Also on Tuesday, Hyundai Motor Co offered to allow customers to lock in fuel prices for new vehicles in a sales promotion aimed at the economic anxieties of American consumers.
(Reporting by Reuters reporters; Writing by Helen Massy-Beresford; Editing by Dan Lalor)
($1 = 0.7143 euro)
Original article

Japan props up Elpida with $1.7 billion in aid

(JAPAN, MAKER, ELPIDA, MEMORY, BILLION, LOANS)

By Mayumi Negishi
TOKYO (Reuters) - Japan pledged to prop up loss-making chip maker Elpida Memory Inc (6665.T) with up to $1.7 billion in public and private capital and loans, the country`s first capital injection in a company since the financial crisis.
The 160 billion yen ($1.7 billion) aid package includes a possible 20 billion yen capital injection from Taiwan Memory Company, which was set up by Taiwan to save its own chip sector and had chosen Elpida as a technology partner.
Elpida and other makers of dynamic random-access memory (DRAM) chips, used mainly in PCs, have tumbled into the red due to falling prices and weak consumer demand, compounded by the global recession.
Elpida, the world`s fourth-biggest maker of DRAM chips, becomes the first Japanese company to get aid under a scheme that makes public funds available to businesses hit by the global financial crisis.
"This shows that the government is determined to support the sector, that they are determined not to let Elpida fail," Hajime Kurabayashi, a strategist at Okasan Securities said on Tuesday.
Elpida is Japan`s last hope in PC memory chips in an industry dominated by South Korea`s Samsung Electronics Co Ltd (005930.KS) and Hynix Semiconductor Inc (000660.KS).
"Elpida is Japan`s only DRAM maker, and it has been hit by extremely severe conditions amid the global economic slump, despite its superior technology," Trade Minister Toshihiro Nikai told reporters.
Elpida`s shares gained 3 percent, having risen more than 60 percent over the past three months, helped by media reports on the government aid. The benchmark Nikkei average .N225 has added about 20 percent over the same period.
Elpida is scheduled to issue 30 billion yen in preferred securities to the state-owned Development Bank of Japan in August, which will also extend 10 billion yen in loans, Japan`s trade ministry said.
Private banks will also provide 100 billion yen in loans, the ministry said.
($1=96.06 Yen)
(Reporting by Mayumi Negishi and Taiga Uranaka; Editing by Edwina Gibbs and Anshuman Daga)
Original article

Russian budget revenue to account for 16% of GDP in 2009 - Putin

(BUDGET, GDP, RUSSIA, 2009, REVENUE, PUTIN, WHICH)

NOVO-OGARYOVO, June 28 (RIA Novosti) - Federal budget revenue will account for about 16% of national GDP in 2009, and the same figure is expected in 2010-2012, Russian Prime Minister Vladimir Putin said on Sunday.
At a meeting with the heads of State Duma factions, Putin said that some estimates put this figure at 15.7%-16.5% of GDP.
"This is a normal and stable level of revenue, which we count on," he said, adding that budget revenue made up 23-24% of GDP in the pre-crisis years.
Russia has been hard hit by the global financial crisis, which has forced the government to review spending amid declining revenues, while maintaining social commitments.
The premier said that the budget deficit should not exceed 2-3% of GDP in the future.
In 2009, Russia is expected to post a budget deficit for the first time in recent years. Russia`s Finance Ministry expects the budget deficit to reach 7.5%-9% of GDP in 2009, and up to 10% of GDP in 2010 taking into account spending from the National Welfare Fund.
Putin said the yearly price of oil could average $50-55 per barrel in 2009, compared with the price of $41 projected in the federal budget.
The global financial crisis has forced Russia, which receives a large part of its revenue from oil exports, to gradually devalue the ruble amid capital flight and a fall in global oil prices, which declined from their peak of $147 per barrel in July 2008 to around $40 per barrel in early 2009, before climbing back in recent weeks to about $70.
Putin also said that Russia would continue its ban on imports of agricultural equipment this year and next year.
"We will not yield to pressure to open up our market for imported agricultural equipment," Putin said.
 
Original article

Gas contracts with Ukraine will not be changed - Gazprom CEO

([FINANCIAL], UKRAINE, RUSSIAN, SUPPLIES, RUSSIA, GAZPROM, UKRAINIAN)

A map of Russian gas suppliers to Europe via Ukraine
MOSCOW, June 26 (RIA Novosti) - Gas contracts with Ukraine will not be revised, despite the Ukrainian president`s demands, the head of Russian energy giant Gazprom said at an annual meeting of shareholders on Friday.
Ukraine`s Viktor Yushchenko has called for a review of 10-year gas supply and transit contracts signed with Russia at the turn of 2009.
"The contracts should be implemented and are not subject to change," Miller said, adding that he "understood" the problems facing his Ukrainian partners.
Russian authorities have repeatedly voiced concerns that Ukraine will not have enough money to pay for gas supplies, which would cause difficulties for Russia and European gas consumers. The next payment is due on July 7.
Yushchenko said last Friday that Naftogaz was $2 billion short of being able to pump natural gas into its underground storage systems to prepare for winter. The ex-Soviet state is seeking a syndicated loan of over $4 billion from European banks to pay it debts to Gazprom until November 2009.
Ukrainian Prime Minister Yulia Tymoshenko said on Thursday Ukraine had pumped 1.1 billion cubic meters in June and pledged to pay $250 million for gas supplies in June on time.
Kiev paid some $500 million for 2.38 bcm of Russian natural gas in May, according to Naftogaz.
The Gazprom CEO urged Ukraine to come up with a comprehensive solution to the payments issue.
"The Naftogaz [financial] situation is considered serious. We hope international financial organizations will make the correct decision and that together with Russia they will be able to arrange Russian gas purchases for Ukraine," Miller said.
He also expressed hope that there would not be another gas crisis with Ukraine and pledged Gazprom would do "everything possible" to prevent it.
Russia, which supplies around one fifth of Europe`s gas, briefly shut down supplies via Ukraine`s pipeline system at the start of the year over Kiev`s unpaid debt.
The conflict was resolved in January, when the Russian and Ukrainian premiers agreed on $1.7 as a fee for transiting 1,000 cubic meters of natural gas per 100 km for 2009.
 
Original article

Recovery frail but stimulus exit must be timely

(CENTRAL, BIS, BANKS, RECOVERY, ANNUAL, STILL, AFTER)

By Krista Hughes and Natsuko Waki
BASEL, Switzerland (Reuters) - Unprecedented attempts to stimulate economic growth may fail to bring a sustained recovery, yet withdrawing them too late could be even more risky, leading central bankers said on Monday.
Regional currencies would gain in importance, they also said after two days of talks. But the U.S. dollar still had no serious rival in playing a lead role in foreign reserves and trade settlement, according to the monetary policy chiefs from the world`s major industrial and emerging economies.
The Bank for International Settlements warned that although authorities had tried to arrest sharp declines in economic output, it was still an open question whether the stimulus would lead to a sustained recovery.
Still, waiting too long to withdraw support could fuel inflation and create new imbalances, the BIS, which acts as a forum for the world`s central banks, said in its annual report.
"It may be too early to take exit strategies now; we don`t think it`s too early to talk about them," BIS general manager Jaime Caruana told Reuters Television after the bank`s annual meeting.
Although it was risky to wait too long, "experience suggests that the bigger risk is exiting too late and too slowly or, in the case of fiscal policy, not exiting at all," he said after the meeting at the BIS headquarters in the Swiss city of Basel.
As the financial crisis has deepened, central banks around the world have slashed interest rates and poured extra liquidity into markets, some by buying assets directly.
Governments have rushed to help banks and promised extra public spending this year worth about 2 percent of economic output of the Group of 20 nations, according to the International Monetary Fund.
Central bank chiefs attending the meeting, including European Central Bank President Jean-Claude Trichet, U.S. Federal Reserve Chairman Ben Bernanke and Bank of Japan Governor Masaahi Shirakawa, believe that eventually ending the very expansionary policies will be a major challenge.
Mexico`s Guillermo Ortiz told Reuters that it may be premature to detail exit strategies as yet. Amando Tetangco of the Philippines said central banks could refrain from raising interest rates, warning that exit strategies should avoid disorderly adjustment.
ONLY TEMPORARY HELP
The BIS said governments may not have acted quickly enough to remove problem assets from the balance sheets of key banks, instead focusing on guarantees and capital -- also exposing taxpayers to potentially large losses.
Past experience showed that the key to recovery was to force the banking system to take losses, dispose of non-performing assets, eliminate excess capacity and build their capital base.
"These conditions are not being met. A significant risk is therefore that the current stimulus will lead only to a temporary pickup in growth, followed by protracted stagnation," the BIS said in the annual report.
"The lack of progress threatens to prolong the crisis and delay the recovery because a dysfunctional financial system reduces the ability of monetary and fiscal actions to stimulate the economy."  Continued...
Original article

Central banks seek rankings for financial products

(OF, BIS, FINANCIAL, THEIR, BANKS, GOVERNMENT, PRODUCTS)

By Huw Jones and Krista Hughes
BASEL (Reuters) - Financial products should be treated like medicines and sold to consumers only when they are certified safe to prevent a repeat of last year`s financial meltdown, the world`s central bankers said on Monday.
The Bank for International Settlements (BIS), which acts as a forum for central banks, said government efforts to revive the global economy might have only a temporary impact because banks are not being pushed hard enough to fix their underlying problems.
Banks` lending and other practices, including the approval of risky mortgages in the United States, led the global economy into the worst recession in decades. Governments have poured trillions of dollars into rescuing the financial system and easing a recession that has cut through company workforces.
A rise in Japanese industrial output and a pick-up in euro zone economic confidence showed the unprecedented government spending is having an effect.
But policymakers said it was too early to conclude a recovery was taking root and officials in the United States, Europe and China said the need for further stimulus measures should not be ruled out.
"I think that we are not out of the woods yet," said Guillermo Ortiz, Mexico`s central bank governor and the BIS board chairman. "One important question is whether these green shoots actually take root.
Global recovery hopes have pushed world stocks more than 20 percent higher in the second quarter. But the rally has stalled recently on worries that markets may have been too aggressive in their bets on the strength and timing of the nascent upturn.
U.S. stocks are expected to open flat to higher following mixed signals from Asia and Europe. Tokyo shares fell 1 percent, but European stocks were up 0.9 percent by 1200 GMT. <MKTS/GLOB>
RISK OF "PROTRACTED STAGNATION"
The BIS was alarmed by how a collapse in the value of opaque and complex securitized products propelled the world`s financial system into crisis. It said in its annual report all financial products should be registered like medicines.
The safest instruments would be available to everyone, a second tier only to people with authorization, like prescription drugs, and a third tier to a limited number of pre-screened individuals and institutions, like experimental drugs are.
A final tier would be securities deemed illegal.
"Such a registration and certification system creates transparency and enhances safety ... This will mean that issuers bear increased responsibility for the risk assessment of their products," the BIS said.
The BIS also said that while governments have moved quickly to support their economies, they have not done enough to remove problem assets from banks` balance sheets.
"A significant risk is therefore that the current stimulus will lead only to a temporary pickup in growth, followed by protracted stagnation," it said.  Continued...
Original article

Vilified symbol of greed Madoff to hear prison term

By Grant McCool
NEW YORK (Reuters) - Bernard Madoff, who became a symbol of greed in the financial crisis for masterminding Wall Street`s biggest investment fraud, faces the rest of his life in prison in one of the stiffest punishments for white-collar crime when he is sentenced on Monday.
The courtroom drama will unfold with the swindler hearing angry defrauded investors speak of their financial ruin. As he makes what could be his final appearance in public, Madoff, 71, will read a statement before a judge hands down a decision.
"Mr. Madoff has been very stone-faced throughout the whole process. He doesn`t seem to have a lot of remorse," said Anthony Sabino, professor of law and business at St. John`s University in New York. "To date, he has refused to implicate anyone else."
More than six months after Madoff`s arrest, U.S. prosecutors remain uncertain how much was involved -- such was the complexity of the financial web he wove around the world to operate his Ponzi scheme.
In a Ponzi scheme early investors are paid with money from new clients.
About 1,341 account holders lost about $13 billion in the classic "cash in, cash out" fraud, according to court papers. They also say $170 billion flowed through Madoff`s principal account over decades and last November, Madoff claimed accounts held nearly $65 billion, when in fact he had never traded any securities, investigators said.
Madoff, a former nonexecutive chairman of the Nasdaq stock market, pleaded guilty in March to 11 charges, including securities fraud, money laundering and perjury that carry a combined maximum sentence of 150 years. The only other person charged so far is his outside accountant.
LIFE TERM SOUGHT
"It is unlikely that he will come back out," Jayne Barnard, a law professor at the College of William & Mary in Williamsburg, Virginia, said, echoing the view of several legal experts on the likely sentence for an audacious scheme.
U.S. prosecutors argued in court papers on Friday that sentencing Judge Denny Chin should make sure Madoff spends the rest of his life in prison because of the "unique scope and duration" of his crimes.
"Madoff`s crimes were the product of a series of decisions made over the course of years, and it was within his power to stop his crimes at any point in time," the government said ahead of the 10 a.m. EDT proceeding in Manhattan federal court.
The arch thief and his wife of 45 years, Ruth Madoff, have been stripped of all their luxury homes and possessions. His wife is being allowed to keep $2.5 million in cash, according to an agreement with prosecutors.
Madoff`s lawyer Ira Lee Sorkin asked the judge to impose a sentence of less than life, suggesting a 12-year term or 15 to 20 years as sufficient.
Victims have sent more than 100 letters to the judge, most demanding the maximum punishment allowed. They describe entire savings lost for several generations of families, mortgages unpaid and elderly people unable to pay for medical coverage.
Madoff`s wife, two sons and his brother, who have all been the target of swindled investors` vitriol and suspicion, were not expected to attend the hearing. Since his arrest by the FBI in December, the gray-haired Madoff has made all of his court appearances alone, except for his lawyers.  Continued...
Original article

Kumho Asiana to sell Daewoo Engineering

By Cheon Jong-woo
SEOUL (Reuters) - South Korea`s Kumho Asiana Group said on Sunday it had decided to put Daewoo Engineering & Construction Co (047040.KS) up for a sale to ease investors worries about its liquidity.
Kumho Asiana may consider various ways to unload Daewoo including a sale of a 39 percent stake held by financial investors with management rights, a sale of a 50 percent stake plus one share, or a sale of a 72 percent stake owned by the group and financial investors.
The group has a stake of about 33 percent in Daewoo with financial investors holding 39 percent and the rest free-floating shares. It bought Daewoo for about 6.4 trillion won ($5.01 billion) in 2006.
"The size of the sale will be decided after talks with the main creditor and advisers to minimise the group`s losses from the sale of Daewoo and to reduce buyer`s acquisition burdens," Kumho Asiana said in a statement.
Kumho Asiana plans to consider a tender offer or a sale to a private equity fund of the state-run Korea Development Bank (KDB), its main creditor, the group added.
The group said it had talks with plural investors at home and abroad but failed to reach a final agreement as their proposal may boost the group`s debt.
Kumho Asiana has been haunted by worries about its liquidity after buying two coveted assets -- Daewoo and Korea Express (000120.KS) in the past few years.
The concerns deepened as the global financial crisis delayed its announced plans to raise 4.55 trillion won by selling non-core assets.
The construction and airline-focused group may be liable to pay substantial sums due to a put-back option agreement with investors in its 2006 takeover of Daewoo as its stocks have remained far below a pre-set price for the option.
Kumho Asiana offered an option to buy back Daewoo shares at 32,000 won each by the end of this year, local media said, while shares in Daewoo ended at 12,850 won on Friday. Officials at the group were not available for comments on the option price.
Earlier this month, Kumho said the KDB had agreed to the proposal to attract new financial sponsorship for Daewoo by the end of July -- a move to replace the existing investors in Daewoo, who have the option.
($1=1278.3 won)
(Editing by Jerry Norton)
Original article

JPMorgan CEO warns against too many regulators

CHICAGO (Reuters) - Too many regulators will only increase costs and reduce credit opportunities for consumers, JPMorgan Chase & Co Chief Executive Jamie Dimon warned in a column he wrote in Saturday`s Wall Street Journal.
While praising President Barack Obama`s efforts to reform the U.S. financial system, Dimon said the emphasis should be on strengthening existing regulators over creating new ones.
"Any regulatory overhaul should ensure that governmental oversight of the financial system is efficient," wrote Dimon, who is widely regarded as the top banker to have been least tarnished by the financial crisis. "We should avoid the temptation to have multiple regulators just for the sake of having them.
"Three or four different regulators all looking at (and fighting over) the same issue is not a wise use of taxpayer money," he said. "Companies can`t operate that way. Neither should the government."
Obama last week unveiled a sweeping package of reforms to rewrite the rules for banks and capital markets in response to a severe financial crisis that has dragged down economies worldwide for more than a year.
Dimon said he supports the creation of a single bank regulator, a move he said was long overdue.
Another major Obama goal is to do more to protect consumers by transferring consumer protection dealing with mortgages, credit cards, payday loans and other financial products out of 10 agencies and into a new agency.
Dimon agreed with the need to boost consumer protection but warned regulators must be careful.
"Before creating an entirely new federal bureaucracy, policy makers should first examine ways to strengthen and refocus the authority of existing regulators," he wrote. "Creating duplicative and overlapping functions could increase costs and reduce credit opportunities for the consumers we are trying to protect."
A key catalyst for the financial crisis has been the enormous amount of debt shouldered by Americans during a real estate bubble fueled by subprime mortgages that many borrowers could not afford or understand.
As defaults and foreclosures rose last year, exotic financial instruments backed by shaky mortgages broke down and the capital markets froze for a time amid uncertainty about the condition of banks` balance sheets.
The combined effects helped drag the United States into recession.
Dimon said financial institutions need to clean up their act and earn back the public`s trust.
"Company leadership must foster a culture within their institutions that focuses on integrity, strong execution, quality products, long-term value creation and doing the right thing," he wrote.
"Golden parachutes, special contracts, and unreasonable perks must disappear."
(Reporting by Ben Klayman; Editing by Bill Trott)
Original article

Porsche fumes at VW, Lower Saxony "extortion"

FRANKFURT (Reuters) - Volkswagen and its key shareholder, the state of Lower Saxony, have confronted Porsche with an ultimatum to accept a tie-up of the two carmakers under VW`s tutelage or else face more severe financial turmoil, Web site Spiegel online reported.
Porsche Chief Executive Wendelin Wiedeking and Chairman Wolfgang Porsche have been urged to agree by the end of June that VW takes a 49 percent stake in Porsche`s sports car business for 3-4 billion euros ($4.2-$5.6 billion), Spiegel magazine reported in its online edition on Saturday, without saying who provided the information.
According to the proposal, the Emirate of Qatar would buy Porsche`s stock options in VW, which would subsequently integrate the Porsche sports car business into its operations.
VW would not comment on the report. Porsche was not immediately available for comment, neither was the Emirate of Qatar.
The new merged carmaker would eventually be 40 percent owned by the Porsche and Piech families, 20 percent owned by Lower Saxony, 15 percent owned by Qatar with another sovereign wealth fund holding a further 5 percent, Spiegel reported.
VW threatened it could insist on redemption in September of a 700 million euro loan it granted to Porsche, should Porsche reject the offer, Spiegel online said.
Porsche racked up 9 billion euros of debt trying to swallow its much bigger peer Volkswagen before the financial crisis turned the tables and threatened to unravel the deal.
Porsche, which owns 51 percent in VW, had abandoned plans to raise its stake to 75 percent but still owns options to buy VW shares.
The tie-up proposal was devised by Christian Wulff, the state premier of Lower Saxony, which holds a blocking minority of 20 percent in VW, as well as Porsche co-owner Ferdinand Piech and by the CEO and CFO of VW, Spiegel online said.
Qatar would only pursue an investment in a merged VW and Porsche if all major shareholders agree on the set-up, the Web site added.
In a separate article, daily Sueddeutsche Zeitung reported on Saturday that Qatar plans to buy Porsche`s stock options in VW and is no longer interested in buying an interest in Porsche alone, citing unspecified sources.
Porsche had said on Friday it was close to reaching a deal with Qatar that could help solve its financial problems.
(Reporting by Ludwig Burger, Hendrik Sackmann and Arno Schuetze)
Original article

U.S. regulators close four small banks

WASHINGTON (Reuters) - U.S. regulators closed four small banks on Friday -- two in Georgia, one in Minnesota and one in California, bringing the total of U.S. bank failures to 44 this year.
The Federal Deposit Insurance Corp said the closings were:
-- Community Bank of West Georgia, a small bank in Villa Rica, Georgia, with assets of $199.4 million and total deposits of $182.5 million, as of May 15. A buyer could not be found, so the FDIC was appointed as receiver and will mail checks to insured depositors for their insured funds on June 29.
-- Neighborhood Community Bank, of Newnan, Georgia, with $221.6 million in assets and $191.3 million in deposits, as of March 31. CharterBank, of West Point, Georgia, agreed to assume the insured deposits and $209.6 million of the assets. Neighborhood`s four offices will reopen as CharterBank branches.
-- Horizon Bank, of Pine City, Minnesota, with $87.6 million in assets and $69.4 million in deposits as of March 31. Stearns Bank, NA, of St Cloud, Minnesota, agreed to assume all of Horizon`s deposits and to buy $84.4 million of its assets. Horizon`s two offices will reopen on Saturday as Stearns branches.
-- MetroPacific Bank, of Irvine, California, with $80 million in assets and $73 million in deposits, as of June 8. Sunwest Bank, of Tustin, California, agreed to assume all of the deposits, excluding those from brokers, and virtually all of MetroPacific`s assets. MetroPacific`s sole office will reopen on Monday as a branch of Sunwest Bank.
Customers can access their money over the weekend by check, teller machine or debit card, the FDIC said.
In 2008, 25 U.S. banks were seized by officials, up from only 3 in 2007.
During the current financial crisis, Seattle-based lender Washington Mutual became the biggest bank to fail in U.S. history. It was closed in September while suffering from losses from soured mortgages and liquidity problems.
The FDIC will insure up to $250,000 per account.
The agency also has running a tally of problem banks that its examiners closely monitor. At the end of the first quarter, 305 undisclosed institutions were on that list.
(Reporting by Charles Abbott and Karey Wutkowski; Editing by Gary Hill)
Original article

Qantas cancels Dreamliners in new Boeing setback

By Mette Fraende
SYDNEY (Reuters) - Boeing Co (BA.N), the world`s No.2 plane-maker, suffered another heavy blow to its Dreamliner project on Friday when a major customer, Australia`s Qantas Airways (QAN.AX), scrapped and deferred orders for 30 new planes.
Aviation analysts warned that more Boeing customers could follow Qantas, noting that cancellations of the fuel-efficient, long-haul plane were gaining momentum as airlines worldwide looked to conserve capital during the global recession.
Citing the tough operating environment, Qantas canceled orders for 15 of the B787-9 Dreamliners that had been due for delivery in 2014-15 and deferred for four years an order for another 15 of the same aircraft. It said the decision would save the company $3 billion in capital spending.
Qantas denied it was reacting to this week`s fresh delays to the Dreamliner`s development, when the first test flight was set back for a fifth time, but analysts said there was a clear risk of more order cancellations or deferrals from other airlines.
"It wouldn`t surprise me at all if we see more deferrals and more cancellations, particularly given the economic environment in the U.S. at the moment, it`s a complete basket case," said Bruce Low, investment analyst at Australian fund manager Fortis Investment Partners.
"The aviation industry is suffering very badly ... I guess the Boeing delays actually give the airlines an opportunity to pull out or defer."
Boeing`s defense unit was recently hit hard by sweeping cuts announced by U.S. Defense Secretary Robert Gates in the Pentagon`s fiscal 2010 budget request this year.
Even before the Qantas decision, the plane-maker had logged only nine net orders so far in 2009 as global economic weakness has spurred a string of cancellations, including 58 Dreamliners.
Rival Airbus (EAD.PA) faces the same economic pressures.
In March, Air France (AIRF.PA) said it would defer taking delivery of the sixth and seventh Airbus A380 aircraft in an order for 12 of the giant planes, to save cash on down payments.
Qantas CEO Alan Joyce said in a statement that "the operating environment for the world`s airlines has clearly changed dramatically" since Qantas announced its original B787 order in December 2005.
Qantas shares rose as much as 2.5 percent in early trade.
The stock has dived 24 percent so far this year, while the wider S&P/ASX 200 index .AXJO has risen about 5 percent.
Last month, Qantas said it expected to navigate the current aviation crisis, the industry`s worst, without having to further cut capacity or jobs or raise capital.
But it has forecast a loss in the second half of its 2009 financial year, and announced in March it would shed 90 top management positions, adding to 1,500 job cuts announced in 2008.  Continued...
Original article

Bernanke denies Fed threatened BofA over Merrill deal

By Mark Felsenthal and Kim Dixon
WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke, facing his toughest grilling yet by U.S. lawmakers, said on Thursday he had never threatened to fire Bank of America`s management if they pulled the plug on a planned merger with Merrill Lynch.
During a tense three-hour hearing, lawmakers repeatedly pressed Bernanke on whether he had coerced Bank of America chief Kenneth Lewis in December to go forward with the deal despite Merrill`s quickly deteriorating finances.
Bernanke, holding his ground, told the members of the House of Representatives Oversight and Government Reform Committee the Fed never did anything "beyond the law or unethical."
"I did not tell Bank of America`s management that the Federal Reserve would take action against the board or management," he said.
Bernanke also said neither he nor other Fed officials had "ever directed, instructed, or advised" the bank to withhold information about Merrill`s mounting losses from the public, another charge lawmakers have leveled at the central bank.
The Fed has faced intense scrutiny from both Democrats and Republicans on Capitol Hill for many of the extraordinary actions it has taken since the financial crisis erupted in the summer of 2007.
After Bank of America`s eventual decision to go through with its purchase of Merrill, the bank received a fresh injection of $20 billion in public funds and a government backstop on potential losses on a $118 billion pool of shaky assets.
"It is still unclear whether Bank of America was forced by the federal government to go through with the Merrill deal or whether Ken Lewis pulled off what may have been the greatest financial shakedown in a long, long time," the committee`s chairman, Representative Edolphus Towns, said.
Representative Darrell Issa, the panel`s top Republican, charged on Wednesday that the Fed had covered up its involvement in the merger and "deliberately hid" important details from other federal regulators.
During the hearing, lawmakers cited an e-mail written by Richmond Federal Reserve Bank President Jeffrey Lacker as possible evidence of undue Fed pressure on Lewis. In the e-mail, Lacker said Bernanke had told him he planned to make it clear that pulling back from the merger could result in managers losing their jobs if Bank of America ended up needing aid.
SYSTEMIC RISK ROLE QUESTIONED
The probe into the merger comes as lawmakers debate an Obama administration plan for a regulatory overhaul that would expand the Fed`s powers over the financial system. Some lawmakers said lingering questions over the Fed`s role raised doubts about whether it should be given more power.
Financial market participants watched the hearing with some anxiety that it signals a search for a scapegoat for the financial crisis and a possible erosion of political support for a Fed chairman who has earned high marks on Wall Street.
"It does have a kind of a Watergate feel to it," said Chris Rupkey of Bank of Tokyo/Mitsubishi UFJ in New York, referring to dramatic congressional hearings in the early 1970s that were precursors to the resignation of President Richard Nixon.
The controversy over the Fed`s role in the Bank of America-Merrill deal could also color President Barack Obama`s looming decision on whether to reappoint Bernanke when his four-year term as chairman expires January 31.  Continued...
Original article

GM says bankruptcy sale delay would kill suppliers

DETROIT (Reuters) - General Motors Corp needs to exit from bankruptcy quickly in order to avoid a "fatal" blow to many of its suppliers and the loss of thousands of jobs, Chief Executive Fritz Henderson said in a court filing on Thursday.
"Many of GM`s suppliers are already in the midst of a severe liquidity crisis, which has only been exacerbated by the current shutdown of certain GM production facilities," Henderson said.
GM has shut 13 of its U.S. assembly plants for up to 11 weeks in some cases as part of a bid to cut production and run down inventory as it reorganizes.
Henderson said tentative plans to resume operations at some GM plants by July 13 could be endangered if the court does not approve GM`s sale of its best assets out of bankruptcy in a deal brokered by the Obama administration`s autos task force and funded by the U.S. Treasury.
"If ... (the) new GM is not able promptly to commence operations, many of GM`s suppliers will have further draconian reductions in revenue and no income," Henderson said.
That could force suppliers "to shut down their respective operations -- perhaps permanently -- and thereby (terminate) thousands of jobs."
GM, which filed for bankruptcy on June 1, is seeking bankruptcy court approval to sell its best assets to a reorganized company funded by the U.S. Treasury .
Judge Robert Gerber of the federal bankruptcy court in Manhattan has scheduled a June 30 hearing on the proposed sale.
Some of GM`s smaller unions, including the IUE-CWA and the United Steelworkers and a group of states, including Ohio and Connecticut have filed objections to the sale.
No competing bidders have emerged as an alternative to the U.S. government`s $60 billion financing for GM, including a proposed equity investment of $50 billion that would give the U.S. Treasury a 60 percent ownership stake.
At least 15 auto parts suppliers have filed for bankruptcy or had their assets seized by creditors in 2009, according to the Motor & Equipment Manufacturers Association, which represents the industry.
Those suppliers include Visteon Corp, Metaldyne Corp and Noble International Ltd.
Last week, the White House rejected a request for up to $10 billion in additional emergency funding from the auto parts industry.
The case is In re: General Motors Corp, U.S. Bankruptcy Court, Southern District of New York, No. 09-50026.
(Reporting by Kevin Krolicki; editing by Andre Grenon)
Original article

Nominees emerge for U.S. panel on Wall Street meltdown

By Karey Wutkowski
WASHINGTON (Reuters) - A bipartisan panel armed with subpoena power to investigate causes of the Wall Street meltdown is on the brink of being launched, as Congress embarks on an ambitious effort to reform policing of the financial sector.
A short list of names has emerged for the Financial Crisis Inquiry Commission that includes former Republican presidential candidate Fred Thompson; former Democratic head of the Commodities Futures Trading Commission Brooksley Born; and Alex Pollock, a fellow at the conservative think tank American Enterprise Institute, according to a source familiar with the matter.
Congress last month created the 10-member commission to study how fraud, regulatory lapses, monetary policy, accounting, lending practices and executive pay contributed to the worst U.S. financial crisis since the Great Depression.
House of Representatives Speaker Nancy Pelosi has said the panel is modeled after the Pecora Commission, a Depression-era U.S. Senate panel that investigated the causes of the 1929 Wall Street crash.
"I think the announcement should be coming in the near future," Pelosi spokesman Nadeam Elshami said about the naming of the appointees.
The source, speaking anonymously because discussions were still ongoing, said other possible appointees include Bill Thomas, former Republican chairman of the House Ways and Means Committee; Jake Garn, former Republican senator; and Bob Graham, the former Democratic senator and Florida governor.
Born, Pollock and Thomas declined to comment. Thompson, Garn, and Graham did not immediately respond to messages.
The crisis commission must report its findings to Congress in December 2010. Its work will run parallel to Congressional efforts to draft the most dramatic overhaul of the financial regulatory system since the 1930s.
President Barack Obama has said he hopes reform legislation can be finalized by the end of this year. Obama`s proposal, unveiled earlier this month, calls for the Federal Reserve to police systemic risks to the economy and proposes consolidating primary bank supervision into a new regulator.
The plan also calls for creating a new consumer financial product watchdog and for giving the federal government the power to unwind troubled firms whose stability impact the broader financial system.
The Financial Crisis Inquiry Commission will study what led to the failure of several large Wall Street firms, which prompted Congress last year to pass a $700 billion financial bailout that has been unpopular among voters.
The U.S. economy has shed six million jobs since December 2007 in the midst of a recession that has seen the jobless rate hit 9.4 percent.
The crisis commission was given the power to hold hearings and to subpoena witnesses` testimony as well as correspondence and documents.
(Reporting by Karey Wutkowski, additional reporting by Jeremy Pelofsky; editing by Carol Bishopric)
Original article

Airline execs say industry outlook still grim

By Neil Chatterjee and Sara Webb
KUALA LUMPUR (Reuters) - Demand for air travel could decline further despite signs of a more stable global economy, and prospects of a recovery this year look slim, industry executives said at a meeting of the world's airlines on Sunday.
Cargo demand may have stabilized, but a pick-up is unlikely until demand recovers in the United States, said the CEO of Korean Air, the world's top air cargo carrier.
"I think we have hit the bottom," Cho Yang Ho told Reuters.
European aircraft manufacturer Airbus said it was sticking to its 2009 sales target of 300 gross orders but that it would be more difficult to accomplish.
"It is more of a stretch now," Airbus Commercial Director John Leahy told Reuters.
"We see the market improving, and we have negotiations for orders ongoing."
International Lease Finance Corp (ILFC), the world's largest plane-leasing company, said it was negotiating for more planes with Airbus and Boeing Co, but "at the right price."
The annual meeting of the International Air Transport Association began on a somber note, with last week's still unexplained crash of an Airbus A330-200 adding to the woes of an industry hurt by the financial crisis and volatile oil prices.
But several airline executives were quick to defend the plane.
"It's a safe plane, it's a good plane," said Chew Choon Seng, the chief executive of Singapore Airlines, which has 16 A330-200s on order. "We should not jump to conclusions."
All 228 people on board the Air France plane were killed when it crashed in the Atlantic Ocean, the world's worst air disaster since 2001.
Airline chiefs saw other concerns ahead, from rising unemployment to a surplus of plane capacity that could hurt profitability.
MAY GET WORSE
"I think it's probably going to get worse," Rob Fyfe, chief executive of Air New Zealand, told Reuters on the sidelines of the meeting.
The bearish comments contrast with the more positive outlook from some global policymakers and economists about a global recovery in the wake of recent data such as the slowing pace of U.S. job losses. Continued...
Source: Reuters