Thursday, August 14, 2008

Bear bet that netted £141m throws fresh suspicion on collapse

By Stephen Foley in New York

Suspicion over the collapse of Bear Stearns is centring on a massive options trade, less than two weeks before the historic investment bank went under in March, by which a single investor made a profit of more than $270m (£141m) on a bet against the company's share price.

In a "whodunnit" that has gripped Wall Street for months, many traders and senior executives at Bear Stearns have become convinced the firm was brought down by a conspiracy of rivals and hedge funds, who spread malicious rumours and ultimately triggered a collapse in confidence among its trading partners.

These conspiracy theorists received new evidence yesterday, with news of an extraordinary bet placed in the derivatives market on 11 March, near the start of the week when rumours of Bear's financial problems snowballed. By 14 March, the Federal Reserve was having to extend emergency funding as Bear's customers deserted. On 16 March it was sold at a fraction of the previous share price to JPMorgan Chase.

The derivatives trade involved put options that gave purchasers the right to sell 5.7 million Bear Stearns shares for $30 each on 20 March, and 165,000 shares for $25 each also on 20 March, according to Bloomberg data. The options cost the anonymous investor $1.7m.

That was less than half the $62.97 price at which Bear Stearns shares were trading on 11 March, suggesting the investor was confident the stock was going to crash. Many traders said yesterday such a big, short-term bet would be highly unusual, even for a hedge fund. Others, though, pointed to the 158 per cent return to suggest it was a bet with a reasonable risk-reward ratio.

Bear Stearns executives first heard rumours on 10 March which were suggesting the company faced a liquidity crisis, and business television began reporting the company's denials that day.

The Securities and Exchange Commission has subpoenaed trading records and email archives at dozens of Wall Street banks and hedge funds to see if people with a financial interest in Bear's demise were spreading rumours they knew to be false.

At the shareholder meeting that agreed the firesale to JPMorgan, Jimmy Cayne, Bear's chairman, told shareholders he believed a "conspiracy" was behind its collapse and said he hoped the authorities would "nail the guys who did it".

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Foreclosure fallout: Houses go for a $1

Ron French / The Detroit News

DETROIT -- One dollar can get you a large soda at McDonald's, a used VHS movie at 7-Eleven or a house in Detroit.

The fact that a home on the city's east side was listed for $1 recently shows how depressed the real estate market has become in one of America's poorest big cities.

And it still took 19 days to find a buyer.

The sale price of the home may be an anomaly, but illustrates both the depths of the foreclosure crisis in Detroit and the rapid scuttling of vacant homes in some of the city's impoverished neighborhoods.

The home, at 8111 Traverse Street, a few blocks from Detroit City Airport, was the nicest house on the block when it sold for $65,000 in November 2006, said neighbor Carl Upshaw. But the home was foreclosed last summer, and it wasn't long until "the vultures closed in," Upshaw said. "The siding was the first to go. Then they took the fence. Then they broke in and took everything else."

The company hired to manage the home and sell it, the Bearing Group, boarded up the home only to find the boards stolen and used to board up another abandoned home nearby.

Scrappers tore out the copper plumbing, the furnace and the light fixtures, taking everything of value, including the kitchen sink.

"It about doesn't make sense to put the family out," Upshaw said. "Once people are gone, you're gonna lose the house in this neighborhood."

Tuesday, the home was wide open. Doors leading into the kitchen and the basement were missing, and the front windows had been smashed. Weeds grew chest-high, and charred remains marked a spot where the garage recently burned.

Put on the market in January for $1,100, the house had no lookers other than the squatters who sometimes stayed there at night. Facing $4,000 in back taxes and a large unpaid water bill, the bank that owned the property lowered the price to $1.

$1 sale to cost bank $10,000

While it's not unusual for $1 to be exchanged when property is transferred for legal reasons, listing a home in the Multiple Listing Service for $1 was surprising and unsettling to Kent Colpaert, the listing real estate agent for the property.

"I've never seen a home listed for $1," Colpaert said.

"But it's been hit hard: It's just a shell."

On Tuesday, listed one other single-family home, one duplex and one empty lot at $1 in Detroit.

Dollar property sales are the financial hangover from the foreclosure crisis, said Anthony Viola of Realty Corp. of America in Cleveland.

Lenders that made loans to unqualified buyers during the height of the subprime market now find themselves the owners of whole neighborhoods of vacant, deteriorating homes.

"No one has much sympathy for these banks that made subprime loans," Viola said. "And in some cities like Cleveland, judges aren't letting them sit on the properties -- they're ordering them to tear them down or sell them."

So desperate was the bank owner of 8111 Traverse Street to unload the property that it agreed to pay $2,500 in sales commission and another $1,000 bonus for closing the $1 sale; the bank also will pay $500 of the buyer's closing costs. Throw in back taxes and a water bill, and unloading the house will cost the bank about $10,000.

"It doesn't make sense in some neighborhoods to keep paying costs and costs," Colpaert said. "It can make more financial sense to give it away."

Buyer calls it an investment

Colpaert declined to provide the name of the prospective purchaser, because the deal had not been through closing. The agent did say that the buyer agreed to pay the full list price of $1, and planned to pay cash.

The buyer, a local woman, considers the home to be an investment property and will not live there, Colpaert said, though exactly how soon the buyer can expect to recoup her four-quarter investment is questionable. Replacing the guts of the house will costs tens of thousands of dollars, and the owner will have trouble keeping scrappers from stealing the improvements as quickly as they're installed. Home demolition costs about $5,000, Colpaert said.

Meanwhile, the new owner will owe $3,900 in property taxes in 2009 on her dollar purchase unless she challenges the tax assessment.

While selling a home for the amount of change most people could find between their couch cushions is unusual, some abandoned homes in Detroit sell for $100; vacant lots can be purchased for $300.

"My 14-year-old son could buy a block of Detroit property," said Ann Laciura, senior servicing specialist for the Bearing Group.

You can reach Ron French at (313) 222-2175 or

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Interest in new rules boils over

By Ruth Mantell, MarketWatch

In public comments on proposed credit-card rules, consumers complained about "loan sharks," "crooks," "leeches" and "usury." Many said rates seemed to be raised arbitrarily and punitively, adding that they should have a fair amount of time to pay bills

As the economic slowdown squeezes families across the nation, wheels are turning in Washington to curb perceived credit-card abuses that can keep borrowers mired in debt. The public comment period recently closed for credit-card rules proposed by U.S. agencies, and with tens of thousands of responses from consumers the issue's importance is clear.
Less clear, however, is which strategies regulators should take to curb abuses while maintaining consumers' access to credit.
Consumers who didn't have opinions about precise actions that should be taken were still sure that something needs to be done.
Barbara Conley, of Akron, Ohio, commented: "Help protect the unsuspecting credit-card user. Too many people have gotten themselves deeply in debt from credit-card company practices. Please help the uninformed from getting themselves in trouble and unable to recover from their debts."
Lindsey Baccus, from Clarksville, Tenn., said: "Now is the time to reign in these 'white collar, criminal like' practices of the credit-card companies! Banks and card companies blatantly display a ... predatory personality when it comes to their ability to think of new ways to financially rape the public. In fact, they should be required to repay or pay penalties for their 'dark side' practices. Sincere thanks for making them toe the line!"
Individuals also acknowledged consumer responsibility:
"I agree that 30 days late is late -- one day is not late! I support the 21 day period that you are proposing for issuers to mail deliver the bill to me. It gives me a chance to avoid expensive late fees and maybe even a penalty interest rate," wrote Mary Kleiss, Port Charlotte, Fla.
Tightening controls
Regulators are looking to complete final credit-card rules this year. Proposals from the Federal Reserve, Office of Thrift Supervision, and National Credit Union Administration would take steps such as:
  • Prohibiting a rate increase on an outstanding balance, except under limited circumstances, such as when a minimum payment has not been received within 30 days after the due date
  • Prohibiting institutions from applying payments over the minimum in ways that maximize interest charges
  • Requiring a reasonable amount of time for consumers to make payments
  • Prohibiting interest charges using the "two-cycle" method that computes interest on balances on days in billing cycles before the most recent billing cycle
  • For deposit accounts, requiring institutions to provide consumers with notice and the opportunity to opt out of automatic overdraft payments, before any overdraft fees or charges may be imposed
Problems in the housing market, as well as general economic weakness, have been contributing to delinquency rates for credit cards, according to the American Bankers Association. Delinquencies in the first quarter for credit cards provided by banks rose more than one-tenth of a percentage point to 4.51%, compared with the five-year average delinquency rate of 4.4%, ABA reported last month.
Advocacy group Consumers Union told the agencies that the proposals are a "strong beginning," and supported steps such as restricting rate increases on existing balances for consumers who haven't been more than 30 days late.
"Penalty interest rates are unfair when applied retroactively," according to Consumers Union. "The restriction on penalty rates as applied to existing balances is the heart of the proposed rule. This protection will do more than any other to return some balance and fairness to the credit-card marketplace."
The group added that agencies should go further than the current proposals, with moves such as:
  • Ending all retroactive interest-rate increases, including for consumers who have had a 30-day late payment
  • Limiting how high credit-card issuers can set "penalty" interest rates, and how long issuers can keep consumers at these rates
  • Prohibiting fees to pay a credit card by phone or Internet
Card issuers balk
Credit-card firms say restricting their ability to raise interest rates on existing balances would prevent them from adjusting the rate to reflect the higher risk of a consumer defaulting. According to public notes of a May meeting with Fed officials and representatives from the ABA, Capital One, Bank of America and Citibank, the industry believes allowing issuers to raise rates only on new transactions is insufficient because the "greatest risk is on funds already extended."
Further, industry groups said the proposal would lead issuers to raise rates and reduce the availability of credit for all consumers, rather than only for those who present the greatest default risk.
"Rather than prohibiting rate increases on existing balances, the final rule should permit such increases if consumers also have the ability to opt out of the increase by closing the account," according to the public notes. "If a rate increase accurately reflects the available market rates for that consumer, it is rational for a consumer to accept the increase and not opt out because, if they close that account, the consumer may not be able to get a lower rate with another card issuer."
There are also proposals on credit cards in Congress, including a Credit Cardholders' Bill of Rights from Rep. Carolyn Maloney, D-N.Y., that has been approved in committee. That legislation aims to protect consumers against arbitrary interest-rate increases.
Echoing concerns about the agencies' proposals, industry participants have said Maloney's bill could be overly restrictive and force rate increases across the board by limiting the ability of lenders to adjust interest for customers who become riskier.
While proposals from agencies are helpful, some consumer advocates say it's more important for Congress to enact legislation, which would be tougher to alter once the nation's attention turns away from credit-card issues.

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Study says most corporations pay no U.S. income taxes

WASHINGTON (Reuters) - Most U.S. and foreign corporations doing business in the United States avoid paying any federal income taxes, despite trillions of dollars worth of sales, a government study released on Tuesday said.

The Government Accountability Office said 72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005.

More than half of foreign companies and about 42 percent of U.S. companies paid no U.S. income taxes for two or more years in that period, the report said.

During that time corporate sales in the United States totaled $2.5 trillion, according to Democratic Sens. Carl Levin of Michigan and Byron Dorgan of North Dakota, who requested the GAO study.

The report did not name any companies. The GAO said corporations escaped paying federal income taxes for a variety of reasons including operating losses, tax credits and an ability to use transactions within the company to shift income to low tax countries.

With the U.S. budget deficit this year running close to the record $413 billion that was set in 2004 and projected to hit a record $486 billion next year, lawmakers are looking to plug holes in the U.S. tax code and generate more revenues.

Dorgan in a statement called the report "a shocking indictment of the current tax system." Levin said it made clear that "too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States."

The study showed about 28 percent of large foreign corporations, those with more than $250 million in assets, doing business in the United States paid no federal income taxes in 2005 despite $372 billion in gross receipts, the senators said. About 25 percent of the largest U.S. companies paid no federal income taxes in 2005 despite $1.1 trillion in gross sales that year, they said.

(Reporting by Donna Smith, Editing by David Wiessler)

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Give me the $866 million Olympic sponsorship. I know how to spend it

The money spent on the Games is colossal. Better to spend it on something useful, not the antics of athletes

Were you up for Rebecca? Did you catch that split-second moment when her hand touched the edge of the pool first? Or did you perhaps read about her Jimmy Choos yesterday; the promise from her mum of a new pair of Christian Louboutin heels if she won?

I am not sure whether the dull details of the Olympic gold medal-winner's training regime (“in the run-up to the Games, she was training from 6am to 8am, swimming about 7,000-8,000m per two-hour session”) or the slavering over her love of designer shoes (“I want one pair for every outfit”) is more mind-numbing. Or perhaps the striking moment when the young diver Tom Daley looked “askance” at his diving partner who was talking on the phone!

These people: they jump in a pool, they swim, sometimes they dive, or they do both. Good on 'em, if it's what they want to do: even I can see the achievement in being the fastest in the world, if that is your ambition. But must we all join in the pretence that the shenanigans in Beijing are important in any way for the rest of the country; that the Games tell us anything of any consequence about humanity, about ourselves, about our nation? We invest all this effort, all this faux national pride, the pages of blather, the air miles, the travelling dignitaries, the full panoply of pomp - and in the end, all that's happened is somebody has managed to swim fast. Or run. Or jump. Perhaps all three.

I feel sorry for some of the athletes: identified as potential champions as children, their remaining childhood and youth is stolen from them by gruelling training regimes and rounds of international competitions.

I once interviewed Sebastian Coe and was struck by his description of a childhood spending all the hours outside school plodding up and down the Pennines, and his teenage years “trudging around tracks on the northern circuit when my friends were backpacking around Europe”. It doesn't sound like a lot of fun being an athlete - and think of all the ones not in Beijing, those who have fallen by the wayside en route. You can often see the parents of the high-achievers hovering in the background, eyes fixed on their offspring, faces shining with ambition for them. I wonder: would a child push him or herself so hard without that pressure?

If they do get to the Olympics itself, one bloated marketing festival awaits them. A dozen firms, including Coca-Cola, Samsung, Kodak, General Electric, Johnson & Johnson and McDonald's have paid a total of $866 million to be official sponsors of the Beijing Games, and have demanded exclusivity. So since mid-July, the Chinese authorities, via the organising committee for the Games, have grabbed control of all prominent advertising sites in the capital and at transport hubs, and limited their use to official sponsors only.

Broadcasters must avoid showing close-ups of any spectators enjoying unofficial food or drinks, or wearing clothing displaying the wrong brand. From the spectators corralled in to fill empty seats for the television cameras, to the little girl whose voice opened the Olympics but whose face was replaced by a cuter one, the entire spectacle is a triumph of manipulation. Imagine being that seven-year-old girl watching a prettier, “flawless” child mime the words to your song, to international applause. It is the very opposite of sporting.

I was idly mulling over these things, with curiosity and mild irritation, as I opened my mail and came across a letter about some parking tickets. The letter from Samantha of the parking company was irritating in many ways, as these things tend to be (stick with me, it is the same column), but what shot straight into my brain and continues to buzz inside it today like an annoying wasp was this: “As you received two charges notices you should of queried the first one.”

I should of, should I? There has been a fair amount of correspondence on the Times letters page recently about proper spelling, after some academic from something calling itself a university suggested allowing students to get away with “variant” spelling, or what you and I would call “misspelling”, of words such as “ignor”, “opertunity” and “speach”. He was joined by the Spelling Society, champions of bad spelling, who argue that all “ee” sounds - team, quay, people, sardine - should be spelt with “ee”.

So I cheered (cheared?) to read yesterday of the small explosion by a judge at the Old Bailey who branded an official from the Crown Prosecution Service (CPS) an “illiterate idiot” for making grammatical errors and spelling mistakes on a charge sheet. The defendant had been charged with causing “greivous bodily harm”, and using a weapon, “namely axe”, which should have read “namely an axe”. “It's quite disgraceful,” fumed the judge, David Paget. “This is supposed to be a centre of excellence. To have an indictment drawn up by some illiterate idiot is not good enough.”

Quite. It's not. Give me $866 million to throw at literacy, any day. Or give me, in fact, £9.3 billion, the amount Britain is gearing up to squander on its own Olympics shindig. That is just about the annual budget of the entire Home Office - let us use it to teach CPS officials to spell instead.

Let us take the £10 billion being squandered on London 2012, cancel the grandiose stadiums, turn away the marketing men and employ 50,000 “superheads” to show Samantha how to differentiate between a preposition and a verb. Let us spend that money on every child who spells speech as speach; on every adult who does not know that it's it's; and on sacking each and every teacher and university lecturer who declares that it does not matter.

It does matter. Much more than medals, more than Rebecca's training regime. Or regeem.

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U.S. to take control of Georgian ports: Saakashvili

TBILISI (Reuters) - President George W. Bush's pledge to send aid to Georgia means that the U.S. military will take control of the ex-Soviet state's ports and airports, Georgian President Mikheil Saakashvili said on Wednesday.

"You have heard the statement by the U.S. president that the United States is starting a military-humanitarian operation in Georgia," Saakashvili said in a television address.

"It means that Georgian ports and airports will be taken under the control of the U.S. defense ministry in order to conduct humanitarian and other missions. This is a very important statement for easing tension."

(Reporting by Margarita Antidze, writing by Ron Popeski)

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Minorities expected to be majority in 2050

(CNN) -- By 2050, minorities will be the majority in America, and the number of residents older than 65 will more than double, according to projections released Thursday by the U.S. Census Bureau.

The Census Bureau looks at 2000 results and assumptions about future childbearing, mortality rates and migration.

The Census Bureau looks at 2000 results and assumptions about future childbearing, mortality rates and migration.

Minorities, classified as those of any race other than non-Hispanic, single-race whites, currently constitute about a third of the U.S. population, according to Census figures. But by 2042, they are projected to become the majority, making up more than half the population. By 2050, 54 percent of the population will be minorities.

Minority children are projected to reach that milestone even sooner. By 2023, the bureau said, more than half of all children will be minorities.

"Part of it is a higher fertility rate for some of the minority groups, Hispanics in particular," said Dave Waddington, chief of the Census Bureau's population projection branch, which issued the report. "Those groups also tend to be more of the childbearing age. Non-Hispanic white people tend to be a little bit older."

The projections are based on Census 2000 results and assumptions about future childbearing, mortality rates and net international migration, the bureau said.

The group predicted to post the most dramatic gain is the Hispanic population. It is projected to nearly triple, from 46.7 million to 132.8 million, from 2008 through 2050, the bureau said. Its share of the total U.S. population is expected to double from 15 to 30 percent. "Thus, one in three U.S. residents would be Hispanic," the Census Bureau said in a news release.

The African-American population is projected to increase from 41.1 million to 65.7 million by 2050, going from 14 percent of the U.S. population to 15 percent. The Asian-American population is expected to increase from 15.5 million to 40.6 million, or from 5.1 percent to 9.2 percent of the population.

Among the remaining races, the bureau said, American Indians and Alaska natives are projected to increase from 3.9 million to 8.6 million, going from 1.6 percent to 2 percent of the U.S. population. Native Hawaiian and Pacific Islanders are expected to more than double, increasing from 1.1 to 2.6 million.

In addition, the number of U.S. residents identifying themselves as being of two or more races is projected to more than triple, increasing to 16.2 million from its current 5.2 million, the Census Bureau said.

Meanwhile, the non-Hispanic white population is not expected to post dramatic gains in the same period. By 2050, whites are expected to number 203.3 million, slightly increased from the 2008 number of 199.8 million. Whites will comprise 46 percent of the U.S. population by 2050, down from the current level of 66 percent, the bureau said, as the group is projected to lose population in the 2030s and 2040s.

By 2030, all baby boomers will be age 65 and older -- comprising nearly 20 percent of U.S. residents, or one in five Americans, the bureau said. By 2050, the 65-and-older age group will increase to 88.5 million, more than doubling its current number of 38.7 million. Meanwhile, the number of those age 85 and older is expected to more than triple, from 5.4 million in 2008 to 19 million by 2050.

Non-Hispanic whites make up most of the baby boomers, Waddington said. "They're in a higher mortality rate ... nonminority groups tend to be older and dying off faster" instead of reproducing at the rate projected for minorities.

Obviously, the projections will have "very strong policy implications," he said -- medical care for an increasingly elderly population, for instance, educational needs for increasing numbers of minority children and economic effects for the labor force.

"Who's going to do the jobs that are characteristically held right now by certain types of people?" Waddington said. "All those things are subject to change."

The United States is projected to reach the 400 million population milestone in 2039, according to bureau projections. By 2050, the population is expected to be 439 million. Of those, 235.7 million are expected to be minorities.

As U.S. cities and towns have increasingly become more diverse, Census officials knew the day of a majority minority would come, Waddington said. And "the aging one is sort of simple," he added. "That's demography 101."

Other highlights from the report released Thursday:

• By 2050, 62 percent of the nation's children will be minorities, up from 44 percent today. Of those, 39 percent are projected to be Hispanic, up from 22 percent in 2008, and 38 percent are projected to be white, down from 56 percent in 2008

• The percentage of the U.S. population between the ages of 18 and 64 -- the "working age" population -- is projected to decrease to 57 percent in 2050 from 63 percent in 2008.

• The working-age population will become more than 50 percent minority in 2039, and by 2050 will constitute 55 percent of the population.

• By 2050, the working-age population will be more than 30 percent Hispanic, up from 15 percent in 2008; 15 percent African-American, up from 13 percent in 2008; and 9.6 percent Asian, up from 5.3 percent in 2008.

Waddington said the timelines are not written in stone. "It's a projection. And things like the baby boom generation couldn't be predicted." Major changes in policy affecting families and children, or a major policy affecting immigration, could have an impact on the expectations, he said.

The nation's undocumented workers -- estimated at 12 million or more -- are included in the projections, Waddington said. Census data includes all U.S. residents, regardless of their legal status, he said.

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Alleged KBR Rape Victim Sues the U.S.

There’s a new lawsuit in the sad and sordid saga of Jamie Leigh Jones.

A former KBR employee who made national headlines with her heart-wrenching account of being raped while working at Camp Hope in Baghdad, Jones filed a lawsuit several days ago in Houston federal court against the United States of America. She filed a lawsuit against her former employer more than a year ago.

The Houston woman is suing the government for negligent supervision and hiring of its contractors and for failing to provide a safe living and working environment.

Jones claims that in July 2005, she was living in a two-story barracks with 420 men and only 20 other women, and that the facility was under the “direct control and supervision” of the U.S. government and its employees. Jones complained about constant sexual harassment and asked to be moved to a safer location, but her superiors did not transfer her.

Instead, later that same evening, according to the lawsuit, Jones was drugged and “brutally raped” in her room by several Halliburton/KBR firefighters.

Jones claims that she woke up the next morning, badly bruised with blood running down her leg, according to the lawsuit. Jones also states that her breast implants were disfigured and her pectoral muscles were torn, later requiring reconstructive surgery.

Jones’ attorney, L. Todd Kelly, was not immediately available for comment this morning.

Jones recounted her experience before Congress in December and started the Jamie Leigh Foundation, a nonprofit organization dedicated to helping victims of sexual harassment and sexual abuse while working abroad for federal contractors, corporations, or government entities.

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