Sunday, October 19, 2008

White House adviser says parts of U.S. in recession

WASHINGTON (Reuters) - Parts of the United States, struggling with high jobless rates, seem to be in recession, but the government's plan to support credit markets will help, President George W. Bush's top economic adviser said on Sunday.

"We are seeing what anyone would characterize as a recession in some parts of the country," Edward Lazear, chairman of the Council of Economic Advisors, told CNN.

Unemployment in some areas is running "much higher" than the 6.1 percent national level, he said.

Lazear said the administration "has taken the right steps" to thaw out credit markets and get loans flowing to businesses and consumers.

Although it will take a few months for a significant impact from the Treasury's $700 billion credit market rescue plan, the first signs of response are already apparent, Lazear said.

"Banks are now willing to lend to one another. That's a huge plus for the economy because the big problem has been that banks have been unwilling to trust one another," he said. As lending picks up, the flow of money through the economy will be "amplified immediately."

Certain benchmark credit spreads have shrunk over the past week as new liquidity measures by global central banks and governments have started to kick in.

Those spreads have been at unusually high levels, a reflection of risk aversion among banks.

"If you look at the numbers that we've seen this week ... it looks it is working. All the numbers have been going in the right direction."

Lazear said the U.S. budget deficit would grow because of the cost of the bailout plan, but declined to say how high.

"The deficit is important (but) the main focus is turning the economy around," he said.

(Reporting by Ros Krasny, editing by Maureen Bavdek)

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F.B.I. Struggles to Handle Financial Fraud Cases


WASHINGTON — The Federal Bureau of Investigation is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, according to current and former bureau officials.
Brendan Smialowski for The New York Times

Robert S. Mueller III, director of the Federal Bureau of Investigation, speaking before a House subcommittee in April.

The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties. Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes.

The pressure on the F.B.I. has recently increased with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac. The F.B.I. is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.

So depleted are the ranks of the F.B.I.’s white-collar investigators that executives in the private sector say they have had difficulty attracting the bureau’s attention in cases involving possible frauds of millions of dollars.

Since 2004, F.B.I. officials have warned that mortgage fraud posed a looming threat, and the bureau has repeatedly asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied, with no new agents approved for financial crimes, as policy makers focused on counterterrorism.

According to previously undisclosed internal F.B.I. data, the cutbacks have been particularly severe in staffing for investigations into white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels.

Over all, the number of criminal cases that the F.B.I. has brought to federal prosecutors — including a wide range of crimes like drug trafficking and violent crime — dropped 26 percent in the last seven years, going from 11,029 cases to 8,187, Justice Department data showed.

“Clearly, we have felt the effects of moving resources from criminal investigations to national security,” said John Miller, an assistant director at the F.B.I. “In white-collar crime, while we initiated fewer cases over all, we targeted the areas where we could have the biggest impact. We focused on multimillion-dollar corporate fraud, where we could make arrests but also recover money for the fraud victims.”

But Justice Department data, which include cases from other agencies, like the Secret Service and Postal Service, illustrate the impact. Prosecutions of frauds against financial institutions dropped 48 percent from 2000 to 2007, insurance fraud cases plummeted 75 percent, and securities fraud cases dropped 17 percent.

Statistics from a research group at Syracuse University, the Transactional Records Access Clearinghouse, using somewhat different methodology and looking only at the F.B.I., show an even steeper decline of nearly 50 percent in overall white-collar crime prosecutions in the same period.

In addition to the investigations into Fannie Mae and Freddie Mac, the F.B.I. is carrying out investigations of American International Group and Lehman Brothers, and it has opened more than 1,500 other mortgage-related investigations. Some F.B.I. officials worry privately that the trillion-dollar federal bailout of the financial industry may itself become a problem because it contains inadequate controls to deter fraud.

No one has suggested that a quicker response would have averted the mortgage meltdown, but some officials said a faster reaction might have deterred more of the early schemes that seized on loose federal lending regulations.

“They were very late to the game,” Representative Zoe Lofgren, a California Democrat who has quarreled with the F.B.I. over its financing priorities, said of the bureau’s response to the mortgage crisis. “They were not on top of this, and they’re just now starting to really do something.”

Republicans and Democrats in Congress are pushing for a more aggressive response by the F.B.I. Representatives Mark S. Kirk, an Illinois Republican who sits on the House appropriations committee, and Chris P. Carney, a Pennsylvania Democrat, called on Congress to triple the F.B.I.’s financing for financial crimes investigations.

“To fix our system and prevent a repeat of the events we now see,” they wrote in a letter this month to Robert S. Mueller III, the F.B.I. director, “we have got to set an example by bringing the full might of federal law enforcement against the people who illegally profited or destroyed companies at the expense of our country.”

In public, Mr. Mueller has said that the bureau is doing more with less, when it comes to criminal prosecutions. And Justice Department officials have repeatedly asserted the administration’s commitment to fight violent and white-collar crime even as they have not provided the bureau additional resources.

But current and former officials say Mr. Mueller has lost a behind-the-scenes battle with the Justice Department and the Office of Management and Budget to replenish the criminal ranks.

Interviews and internal records show that F.B.I. officials realized the growing danger posed by financial fraud in the housing market beginning in 2003 and 2004 but were rebuffed by the Justice Department and the budget office in their efforts to acquire more resources.

“The administration’s top priority since the 9/11 attacks has been counterterrorism,” Peter Carr, a Justice Department spokesman, said. “In part, that’s reflected by a significant investment of resources at the F.B.I. to answer the call from Congress and the American public to become a domestic intelligence agency in addition to a law enforcement agency.”

From 2001 to 2007, the F.B.I. sought an increase of more than 1,100 agents for criminal investigations apart from national security. Instead, it suffered a decrease of 132 agents, according to internal F.B.I. figures obtained by The New York Times. During these years, the bureau asked for an increase of $800 million, but received only $50 million more. In the 2007 budget cycle, the F.B.I. obtained money for a total of one new agent for criminal investigations.

In 2004, one senior F.B.I. official, Chris Swecker, warned publicly that a flood of fraudulent mortgage deals had the potential to become “an epidemic.” Yet the next year, as public warnings about fraud in the subprime lending markets began to approach their height, the F.B.I. had the equivalent of only 15 full-time agents devoted to mortgage fraud out of a total of some 13,000 agents in the bureau.

That number has grown to 177 agents, who have opened 1,522 cases. But the staffing level is still hundreds of agents below the levels seen in the 1980s during the savings and loan crisis.

F.B.I. officials said they had had no choice but to make the cuts in the criminal division, which they said were necessary to expand the bureau’s national security effort, particularly in the wake of criticism of the bureau’s performance in failing to detect the Sept. 11 plot.

In white-collar crime, they said the bureau has given up only lower-level cases of marginal significance that might have never been prosecuted anyway. They say they have focused the available criminal resources on public corruption and other difficult crime issues in which the F.B.I. can make a unique contribution.

“We only had a finite number of white-collar crime agents available to address the threat that mortgage fraud posed,” said Joseph Ford, who retired from the F.B.I. this year and once served as its chief financial officer.

The Justice Department is relying more than ever on the state and local authorities to pick up the slack through joint task forces. And private investigators say that companies victimized by fraud are turning to them in increasing numbers because they are unable to attract much attention from the F.B.I. anymore.

In some instances, private investigative and accounting firms are now collecting evidence, taking witness statements and even testifying before grand juries, in effect preparing courtroom-ready prosecutions they can take to the F.B.I. or local authorities.

“Anytime you bring to the F.B.I. a case that is thoroughly investigated and reduce the amount of work for investigators, the likelihood is that they will take the case and present it for prosecution,” said Alton Sizemore, a former F.B.I. agent who is a fraud examiner for Forensic Strategic Solutions in Birmingham, Ala.

One American company facing extortion demands last year from a computer hacker used private investigators from the Kroll firm to do much of the legwork in the case as the F.B.I. monitored and directed the situation behind the scenes, said Daniel Karson, executive managing director for Kroll. The private investigators even went undercover and set up a sting operation that led them to Germany, where the authorities made an arrest.

Mr. Karson said the F.B.I. no longer had the resources to take on such lower-level cases by itself. “When you come in with a garden variety, plain vanilla crime, you may have to stand in the queue,” he said.

Some critics question whether the shift indicates not just a lack of resources, but a lack of interest by the Bush administration.

After the collapse of Enron in 2002, the Justice Department moved aggressively against corporate fraud — too aggressively, in the view of some people within the administration. It set up a national task force to tackle the problem, garnered hundreds of convictions at companies like WorldCom, Adelphia and Enron, and forced the closure of Arthur Andersen, the accounting firm, for its role in the Enron collapse.

But several former law enforcement officials said in interviews that senior administration officials, particularly at the White House and the Treasury Department, had made clear to them that they were concerned the Justice Department and the F.B.I. were taking an antibusiness attitude that could chill corporate risk taking.

Justice Department officials said political pressures had never influenced the way prosecutors approached corporate cases. But the department’s approach has become noticeably more tempered in the last several years.

This spring and summer, as public concerns about the subprime mortgage crisis were growing, Attorney General Michael B. Mukasey rejected repeated calls for the creation of a national task force like the one used after the Enron collapse. The attorney general likened the problem to “white-collar street-crime” that could best be handled by individual United States attorneys’ offices.

In the last four years, the Justice Department has scored fewer of the big-name prosecutions that marked President Bush’s first term in office. Even when investigations have pointed to corporate wrongdoing, the Justice Department has agreed, in dozens of cases in the last four years, to “deferred prosecutions" that allowed companies to pay fines in order to avoid criminal prosecution.

Paul J. McNulty, who served as deputy attorney general under Alberto R. Gonzales, said the complexity of white-collar investigations and the shortage of investigators had driven a decline in high-profile cases.

“There’s no question that the department has been stretched thin when it comes to resources generally, and that has affected white-collar enforcement in a variety of areas,” Mr. McNulty said in an interview.

“What happened is that the first years after the Enron collapse, there were some very high profile, noticeable cases — the low-hanging fruit — that gave Justice the opportunity to rack up some very big wins,” he said. “Those cases played themselves out and it became tougher to find those big cases.”

Prosecutors subpoena ex-Lehman CEO Richard Fuld

A number of subpoenas were issued Friday by prosecutors investigating Lehman Brothers' demise. At issue is whether executives misled investors involved in last year's investment of 6 billion US dollars into the failing company. Among those subpoenaed was former Lehman Brothers CEO Richard Fuld

Lehman Brothers-Chief Richard Fuld
Foto: DPA

Former Lehman Brothers Holdings CEO Richard Fuld has been subpoenaed in an ongoing federal investigation of the demise of the bank

An attorney for Lehman Brothers Holdings, Harvey Miller, told a bankruptcy court judge Thursday that at least 12 people have received grand jury subpoenas in connection with several ongoing probes of the bank's demise.

He didn't identify which executives had been asked for information, but said the company is dealing with separate investigations by federal prosecutors in New Jersey, Brooklyn and Manhattan. New Jersey's attorney general has said state securities regulators there are also investigating.

Spokespeople for the U.S. attorneys in those three jurisdictions declined to comment Friday, but a person with knowledge of the subpoenas said that the subpoena recipients included Fuld and former Lehman Chief Financial Officer Erin Callan.

The person spoke to The Associated Press on the condition of anonymity because of the secrecy of grand jury investigations.

An attorney for Fuld did not immediately return a phone message Friday. Callan, who now works for Credit Suisse Group, did not return a phone message.

The existence of the Fuld subpoena was first reported by the New York Post.

Lehman Brothers filed for bankruptcy on Sept. 15, following a swift and stunning fall linked to bad investments and turmoil in the credit markets.

Barclays, the British bank, subsequently absorbed the company's key U.S. units.

The speed at which Lehman failed prompted complaints by some that the company wasn't honest about its financial condition in the months leading up to its collapse.

Federal prosecutors are reportedly looking into whether anyone at Lehman may have misled investors about its health or the value of its assets.

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The Financial Crisis Blame Game

By Ben Steverman and David Bogoslaw

U.S. Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, Chairman of the Securities and Exchange Commission Christopher Cox, and Director of the Federal Housing Finance Agency James Lockhart III. Chip Somodevilla/Getty Images

Tune in to Anderson Cooper on CNN and watch as he counts down the "10 Most Wanted Culprits of the Collapse." Pick up the New York Post and read about FBI investigations of top financial firms under the headline "Fraud Street." With a bewildering and frightening financial crisis in full swing, the new national pastime is finding someone to blame.

As markets crash and retirement dreams fade away, media and the public are full of outrage at everyone from mortgage brokers and Wall Street CEOs to real estate investors to experts who failed to predict the crisis was coming. Congress hauls the most prominent executives before tough committee hearings, while political candidates blame each other. Pundits proffer lists of the mustache-twirling villains who caused the whole thing.

An Epic Whodunit

Investigators will undoubtedly uncover fraud, cheating, and other criminal behavior. But for now, there is no shortage of players who stand accused of having a hand in the crisis. It just depends on where you think the landslide began or who gave it the biggest push.

If you blame loosened financial regulations, maybe former Sen. Phil Gramm (R-Tex.) or Securities & Exchange Commission Chairman Christopher Cox are your men.

Think that a political push to boost homeownership handed too many people mortgages they couldn't afford? Why not single out Franklin Raines, former CEO of Fannie Mae?

Maybe you think the whole housing bubble could have been avoided with an interest rate increase (Alan Greenspan, step right up). Or, that folks should never have signed up for no-doc, interest-only loans, no matter how many silhouettes danced across their computer screen in a Web ad. In that case, the villain may be no further than your bathroom mirror.

(For a walk through some of those people who are blamed for having a hand in the meltdown, go to our slide show.)

"Whole System" at Fault

Of course, all of these people had something else in mind other than wrecking the U.S. economy. Some of them were making lots and lots of money—for themselves, of course, but also for their investors. Others truly believed in the virtue of freeing the marketplace's animal spirits from the cold hand of government regulation. And how many people were arguing against the virtues of homeownership?

Just the fact that one can assemble such a long list of possible villains gives a hint as to how many institutions, officials, and regular Americans made mistakes. "It's so difficult to pinpoint one person or two people," says Georgetown University finance professor Reena Aggarwal. "It really was the whole system."

Even Presidential candidates eager for votes have acknowledged there's no easy scapegoat. "Part of the reason this crisis occurred is that everyone was living beyond their means—from Wall Street to Washington to even some on Main Street," Senator Barack Obama (D-Ill.) said on Oct. 13.

Indeed, it was a series of bad ideas, surprising linkages, and all-too-predictable blunders that came together to send the U.S. financial system, and then the entire world economy, into a serious credit crunch and global stock panic. That's not to say that it couldn't have been prevented.

A Sign: Soaring Home Price-to-Income Ratio

First, there was a bubble in the U.S. housing market as home prices hit unsustainable levels. We should have recognized a bubble when we saw it: Just a few years before, another market bubble collapsed—in technology stocks. And all the signs were there in housing.

If you ever drove through row after row of new tract homes sprouting from the California desert and wondered, "How can all these people afford $500,000 houses?" the answer was, they couldn't. For the two decades until 2001, the national median home price went up and down, but it remained between 2.9 and 3.1 times the median household income, according to the Harvard Joint Center for Housing Studies. By 2004, however, the ratio of home prices to income hit 4.0, and by 2006 the ratio was 4.6. Or consider this statistic: in 2006, at the height of the bubble, more than four in every 10 California households owning a home spent 30% or more of their incomes on housing.

"As a system, we were pressing beyond what the economics were suggesting people could afford," says Michael Strauss, chief economist at Commonfund. Nonetheless, nearly everyone in the system had a "false sense of security that housing prices would always go up."

That included home buyers and real estate and mortgage professionals.

Another Sign: The Securitization Monster

But what turned a nasty housing downturn into an extinction-level event for the whole economy was a Wall Street innovation called securitization.

With interest rates low, investors around the world were eager for places to put their money that offered substantial returns. While the federal funds rate was at 6.5% for much of 2000, by the end of 2001 Federal Reserve Chairman Greenspan had lowered the rate to below 2%. It remained there until late 2004. In 2003, the yield on the one-year Treasury bill dipped well below 2%, its lowest level in the past 40 years. Securitization, and the new investment products it could spawn, seemed to be the answer for a Wall Street seeking a bigger payoff.

Through securitization, Wall Street firms would buy up mortgages, bundle them together, and sell them off to investors. These mortgage-backed securities were highly complex and hard to price accurately. But selling them offered returns for financial firms far above those of safer investments. And with home prices continuing to rise, many, including ratings agencies, assumed that assets backed by U.S. mortgages were safe.

"The development of the securitization pipeline [meant] there was a lot of pressure to create the loans," says University of Kansas finance professor George Bittlingmayer. Mortgages were given to buyers with low credit scores—so-called subprime borrowers—and other high-risk borrowers, with little concern that they wouldn't be able to pay the loans off. The easy money, in turn, contributed to an "upward spiral" of home prices, Bittlingmayer says—"until the bubble collapsed."

Most of the mortgage brokers who originated these loans weren't "bad people," Bittlingmayer adds. "They were doing what the system was asking them to do."

Wall Street was eager to buy up, bundle, and securitize the mortgages. Washington, in turn, had urged the mortgage industry to give more loans to low-income home buyers. During the Clinton and Bush Administrations, "there was a push to try to put homes within reach of everyone," says Larry Tabb, founder and chief executive of the TABB Group, a capital markets research and advisory firm.

No "Skin in the Game"

That led some lawmakers to overlook serious problems at federally chartered mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). Major players in the securitization process, both were taken over by the government in early September after it became clear the firms wouldn't have enough capital to cover mounting losses from defaulting mortgages.

"Everybody thought they were passing on the risk to someone else through securitization," Aggarwal says. When the housing bubble collapsed, the folly of the securitization process and the mortgage craze became apparent.

The problem was that investment banks didn't have "skin in the game," says Dan Lufkin, one of the founders of Donaldson, Lufkin & Jenrette. Banks "made plenty of money putting [mortgage-backed securities] out on the marketplace. But they could explode a day later and you are not impacted one single iota."

That means that unlike the old-fashioned community savings and loan officer who pored over your pay stubs to make sure you'd make the monthly payments, Wall Street had little incentive to ensure the quality of the underlying loans in its mortgage-backed securities. Credit agencies awarded high ratings to mortgage-backed securities, giving investors more confidence that they were safe investments.

All the large Wall Street investment banks were enthusiastic participants in the securitization process. But two firms, Lehman Brothers and Bear Stearns, were most aggressive about their mortgage investments. According to Thomson Reuters (TRI), Lehman issued more U.S. mortgage-backed securities than any other firm in 2007, $95.8 billion out of an industry total of $922.1 billion. Bear Stearns had the top spot in 2006, issuing $100 billion in U.S. mortgage-backed securities out of an industry total above $1 trillion. Both firms' reliance on the mortgage business helped lead to their failures in 2008.

"A Lot of Smoke and Mirrors"

With all the brainpower on Wall Street—and many of those who created securitized products had doctorates in math or physics—few made the connection between the trillions of dollars in real estate assets held by financial firms and what would happen if the value of those assets suddenly dropped.

But this might not have created a serious economic crisis without other ingredients.

Wall Street had become increasingly sophisticated in the past few decades, and this complexity made the entire system extremely fragile. In addition to securitizing mortgages and other assets, financial firms created a vast array of other products, called derivatives. The buying and selling of these obligations, such as credit default swaps, was supposed to be "a way of reducing risk, not adding risk," Strauss says.

However, "there was a lot of smoke and mirrors," says Bob Ried, president of Ried Thunberg ICAP, a financial research firm. For example, because the products were highly complex, there was no central marketplace, making it difficult to know how much they were worth.

Ironically, the huge number of derivative contracts between institutions actually increased the chances that problems at one firm would ripple through the financial system, causing a chain reaction of losses. That's what prompted Berkshire Hathaway (BRKA) Chief Executive and legendary investor Warren Buffett to call derivatives "financial weapons of mass destruction" in 2003.

Too Much Leverage

Another big risk that financial firms took was in borrowing heavily. Many firms were employing leverage—debt used in investing—of 30 to 40 times their core holdings. Previously, the SEC had kept firms to leverage ratios of 10 to 15 times their core holdings, but the agency loosened the rules for investment banks in 2004. With leverage, "you can make fantastic income when things are going the right direction," Tabb says. "When things go against you, it unwinds very quickly."

Why did Wall Street ever take such dangerous risks?

The big reason, obviously, is greed. Wall Street bankers were taking home a lot of money by making these gambles. The chief executive of Lehman, Richard Fuld Jr., for example, earned $34.4 million in 2007. "Once this business model gets going, it's very hard to stop," Tabb says. Firms had hired risk managers who should have spoken up, but they were not supposed to "get too much in the way of generating revenue."

Many also have criticized the way Wall Streeters are paid. "People [were] compensated on the returns they got, and so there was a motivation to take more risk," Aggarwal says. In the record year of 2006, Wall Street executives took home bonuses totalling $23.9 billion, according to the New York State Comptroller's Office. Wall Street traders were thinking of the bonus at the end of the year, not the long-term health of their firm, Tabb says.

The whole system—from mortgage brokers to Wall Street risk managers—seemed tilted toward making short-term risks while ignoring long-term obligations. The most damning evidence is that most of the people at the top of the banks didn't really understand how those credit default swaps and other instruments worked.

"Regulators Didn't Regulate"

Finally, all this risk-taking by firms added up to a big gamble for the entire financial system, which only became fully apparent as the crisis unfolded. Because no firm knew of other firms' exposures to toxic assets or complex derivatives, it was difficult to predict how problems would flow through the system. "It's very hard to tell the risks various parties are exposed to," says Bittlingmayer. "We don't have transparency."

As the crisis approached, few in government spotted these problems. And no one in a position of power moved to prevent them.

"The regulators as a whole didn't regulate," Ried says. Some officials, often at the state or even city level, did warn of the risk but were ignored (BusinessWeek, 10/9/08). Ried blames regulators for relying on a "free market philosophy" that "just let things go."

But Wall Street also made it worth Congress' while to look the other way. According to the Center for Responsive Politics, the securities and investment industry, including donors at Goldman Sachs (GS), Morgan Stanley (MS), Merrill Lynch (MER), Lehman, and Bear Stearns, gave $97.7 million to federal political candidates for the 2004 election, and another $70.5 million for the 2006 congressional election.

A big reward for Wall Street came in 1999, when Congress passed, and President Bill Clinton signed, legislation loosening New Deal-era bank rules, including the Glass-Steagall Act creating strict separation between investment banks and commercial banks. Commercial banks, which rely on deposits for funding, were allowed to encroach on investment banks' turf. That, in turn, spurred investment banks to take on even more leverage and risk to survive.

"Investment banks started operating more like hedge funds," Aggarwal says.

In the End, Basic Bad Banking

The complexity of the people, actions, and instruments behind the meltdown are truly mind-boggling. But strip things down to their essence and you are left with some surprisingly simple notions.

Investment banks and corporations engaged in basic bad banking, says Robert Ellis of the financial consulting firm Celent. They broke a cardinal rule: "Never borrow short to lend or invest long." Firms were relying on short-term funding sources for long-term obligations. When the crisis froze up short-term markets, these institutions ran dangerously short of cash.

Even more basic was the mistake of taking too much risk. More risk allows for bigger payoffs for participants, but it put the whole system in jeopardy.

Finally, even as problems were becoming apparent, few spoke up. Maybe it was because everyone assumed that someone smarter than them understood how it all worked.

"There were so many financial incentives and political incentives that were aligned toward making this work," Tabb says. "It was very difficult to stop it."

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9 Sites That Help With Everyday Budgeting

by Kelli B. Grant

Most consumers could use a little financial handholding these days.

Nearly half of the workers recently surveyed by said they live paycheck to paycheck. Even those who do have cash left after paying the bills are struggling -- 52% reported they have less than $100 per month to put into savings.

One silver lining to these tough economic times: a slew of new free online tools and services that help consumers save money and manage it wisely. Whether you're looking to track your credit score, find a better savings rate or finally balance that monthly budget, these nine sites can help:


Worried you're paying more than you need to for your wireless plan? BillShrink searches various cell phone plans to find you the best deal. Answer five simple questions about your usage (or better yet, upload your latest bill), and this service searches plan and add-on service combinations at all providers. It even factors in call quality and the cost to switch. The site offers a similar tool for credit cards that tallies the cash you'd save -- in terms of interest rates and fees -- by switching to another card.

Credit Karma

Thanks to the credit crunch, your credit score carries a lot more weight than it used to, especially when you want to land a loan or open a credit card. Credit Karma offers free daily access to your credit score from partner credit reporting bureau TransUnion. Most lenders use a different formula -- the so-called FICO from Fair Isaac Corp. -- but it's still an effective tool for keeping track of any score fluctuations. (Other sites charge $8.99 and up a month for continuous monitoring of your FICO score, or require you to sign up for other subscription services.) Credit Karma also offers a Credit Simulator that gauges the affect of such actions as opening a new credit card or paying your bills on time.


This site offers information on thousands of financial accounts, ranging from credit cards and checking accounts to 529 college savings plans. Search for the best balance transfer rates on credit cards or which CDs pay the most in interest. Also, find out about other consumers' experiences through the customer reviews and ratings. (Dow Jones owns half of FiLife, which launched in June; is a joint venture of Hearst and Dow Jones.)


Mint provides one-stop shopping for consumers who want to get a better handle on all of their household finances. Not only does it allow users to track their 401(k), but it also lets them customize their budget for specific expenses, including groceries and gas. One downside: the "Ways to Save" section only includes offers from partner credit card issuers.


Want to get the best rates on a CD, money market or high-yield savings account? MoneyAisle will pit participating financial institutions (mostly small community banks and credit unions) against one another in a real-time auction to compete for your business. The auctions take just a few minutes, and users can decline deals they don't like. For peace of mind, MoneyAisle only deals with FDIC-insured institutions that carry favorable safety ratings from industry experts.

Quicken Online

The web-based version of the popular desktop software ditched its $2.99-a-month fee. Now users have access to an overview of all of their accounts, as well as a 10-day outlook that projects how upcoming expenses will impact account balances. Quicken also assesses user's risk level for incurring overdraft fees and will send text-message alerts when they're overspending.


This combination search engine-online community helps users dig up the best mortgage rates. Enter a zip code to find out what rates and other terms lenders in the area are offering. Then find out what rates consumers with credit scores similar to yours are receiving at various banks.


Want to know where you stand in terms of fiscal fitness? This new budgeting and money management site, which is currently in beta testing, calculates your overall financial health. By looking at spending behaviors and other data, such as account balances, it determines how well equipped you are to meet certain financial goals like retirement or buying a home. Not financially fit enough? The site offers step-by-step advice for gradual improvement.


Like Quicken, Thrive and Mint, this site allows users to handle all of their accounts in one place and to set budget and savings goals. Users can also create their own categories for purchases and select statistics (say, the percentage of the family budget spent on gas) to display as a graphed comparison against those of other site users. The idea: see how others are managing their finances and take away lessons to improve your own.

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'Axis of Diesel' forced to change its ways by plummeting oil price

Oil field

Oil prices have fallen 50 per cent from a peak of $147 in July. Declining oil revenues may force Russia, Iran and Venezuela to curtail anti-Western policies

Together they form an “Axis of Diesel”. Buoyed by petrodollars, Russia, Iran and Venezuela hectored the West as they extended their reach abroad, backing separatists in Georgia, Islamists in the Middle East and Leftists around the world.

Now those oil-producing powers may be forced to draw in their horns as crude prices tumble. They face austerity budgets that could force them to scale back their military spending and foreign assistance even as falling oil prices fuel domestic dissent.

“All countries heavily dependent on petroleum revenue are nervously watching oil prices as they drop not just far, but quickly,” said Jonathan Elkind, a senior Fellow at the Brookings Institution in Washington.

“That price adjustment is raising questions in all these capitals about the suitability of the economic model that has been making them feel so full of themselves in the recent period.

“It would be a serious mistake for people in the United States or other net consumers to feel a sense of the satisfaction that ‘Happy days are here again',” he said. “They're not.”

Leaders in Tehran, Moscow and Caracas have gloated as the financial crisis has hobbled the United States and its Western allies. Analysts say that the three swaggering petro-states are the most vulnerable oil producers to the steep price declines. From a record high of $147 (£85) a barrel in July, crude oil is now trading at around $70 after dipping to its lowest level since August 2007.

Deutsche Bank estimated in a recent research note that Iran and Venezuela need an oil price of more than $95 a barrel to balance their budgets, and Russia requires a price of $75. That compares to a break-even figure of $55 for Saudi Arabia.

Iran and Venezuela have led so-called oil hawks in recent days to push the producer cartel Opec to bring forward an emergency meeting to next Friday, from mid-November, to discuss cutting output quotas to drive up the price. While Russia has prudently salted away much of its oil windfall in “rainy day” funds, Iran and Venezuela are much worse prepared for the downturn, Mr Elkind said.

The tumbling oil prices are grim news for President Ahmadinejad of Iran as he prepares to fight for re-election next June. The populist son of a blacksmith won a landslide election victory three years ago by pledging to give the poor a fairer share of Iran's oil wealth. Now the economy is his Achilles' heel. His profligate spending of petrodollars from record oil revenues has stoked inflation, which topped 29 per cent last month, compared with 12 per cent when he took power.

Bazaar merchants - a potent middle-class force - went on strike last week for the first time since the run-up to the country's Islamic revolution, forcing Mr Ahmadinejad to scrap plans to impose 3 per cent VAT to help to replenish Iran's coffers.

Iranian reformers are urging the headstrong Mr Ahmadinejad to prepare for lower oil revenues by slashing subsidies on commodities such as sugar, cooking oil and wheat. Instead, with an eye on the elections, he continues to tour the provinces, attempting to buy rural support by dispensing largesse in cash and loans.

In Venezuela the Government has unveiled an austerity budget. Just as in Iran, however, Mr Chávez maintains his populist social spending ahead of municipal and state elections. Economic analysts predict that the Government will be forced to raise taxes and devalue the currency.

First affected may be Venezuela's foreign allies. The country's energy aid to friendly nations, which has bought it influence across the continent, is likely to be reined in. Its generous credit programme for Caribbean partners in the PetroCaribe energy accord has been reduced from 50 to 40 per cent.

Defence spending may also be hit. Venezuela has bought about $4.4 billion-worth of Russian military equipment since 2005. Last month it got a $1 billion Russian loan for more purchases - the first time it has sought financing for arms deals with Moscow.

Russia is best positioned for the crisis, having built up the world's third-largest foreign currency reserves before the crisis, at $580 billion. As its stock market plunged it has been forced to spend more than $32 billion in the past two weeks to prop up the currency and bail out banks. The Kremlin will be forced to plug holes in next year's budget by dipping into the Reserve Fund, a $154 billion repository of windfall oil revenues forecast to grow to $174 billion by 2010, but may now start to shrink instead.

President Medvedev, however, is determined to press on with modernisation of the military and has adopted an increasingly strident tone with the West. He has ordered a renovation of Russia's nuclear deterrent and the creation of new space and missile defence shields by 2020, as well as the “mass production of warships... and multi-purpose submarines”.

Nevertheless, Western diplomats detected signs of a new Russian flexibility during last month's UN General Assembly, when Moscow backed an extension of the Nato mandate in Afghanistan and agreed to a meeting on Iran's nuclear programme.

Frank Verrastro, of the Centre for Strategic and International Studies in Washington, noted that oil prices had only fallen to last year's levels and cautioned that it would take more sustained price falls to trigger long-lasting changes by major oil producers.

“It's premature to say people are radically changing their behaviour,” he said. “I think they will, but not yet.”

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Prosecutor Seeks Life Term for Italy Slay Suspect

By FRANCES D'EMILIO Associated Press Writer

In this Sept. 26, 2008 file photo, American murder suspect Amanda Knox is escorted by Italian... Expand

Italian prosecutors on Saturday accused an American student of fatally stabbing her British house mate in a Satanic rite and asked a court to put an alleged African accomplice in prison for life, defense lawyers said.

The American, Amanda Knox, 21, proclaimed her innocence at the closed-door hearing in the Umbrian university town of Perugia and accused police of hitting her and calling her a liar during an interrogation, defense lawyers said.

At his lawyers' request, a fast-track trial is being conducted for Rudy Hermann Guede, the Ivorian accused in the case. He has acknowledged being in the bedroom where Meredith Kercher's body, stabbed in the neck and lying in a pool of blood, was found in November 2007 in the house she rented with Knox.

Fast-track trials sometimes result in lighter penalties. But prosecutors asked the court to convict Guede and mete out Italy's stiffest punishment — life imprisonment. Italy has no death penalty.

The court deciding Guede's fate is also hearing arguments on whether Knox and her former boyfriend, Italian student Raffaele Sollecito, should stand trial for the slaying. A ruling is expected by the end of October.

All three suspects have denied wrongdoing.

Prosecutors on Saturday "laid out a scenario like from some crime novel," Sollecito's lawyer, Luca Maori, said by telephone after the seven-hour hearing.

Prosecutors "alleged it was some kind of Satanic rite, with Amanda allegedly first touching Meredith with the point of a knife, then slitting her throat, while Sollecito held her by the shoulders, from behind, Guede held her by an arm" and tried to sexually penetrate her, Maori said.

One of Knox's lawyers, Carlo della Vedova, told reporters that prosecutors had laid out "a presumed scenario" with no hard evidence to justify putting his client on trial.

Prosecutor Giuliano Mignini, contacted by The AP, declined to elaborate on his allegations Saturday about the slaying nor comment on his request for life imprisonment for Guede.

In the hearing, Knox "proclaimed her innocence, and got emotional when she recalled her interrogation by police in Perugia," another member of Knox's defense team, Luciano Ghirga, said in a telephone interview.

In this Sept. 26, 2008 file photo, American murder suspect Amanda Knox is escorted by Italian... Expand

The lawyer denied Italian news reports that she wept, but said Knox was upset as she recounted "the pressure, the aggressiveness of the police who called her a liar."

Maori said Knox accused police of hitting her on the head during her questioning.

Italian TV showed a brief, partial view of Knox as she addressed the court. Only her hands, busily gesticulating, could be seen. There was no audio.

Knox and Sollecito, 24, have been jailed since shortly after the slaying. The pair have given conflicting statements.

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

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Wall Street banks in $70bn staff payout

Simon Bowers

Wall Street demonstrators

Demonstrators protesting in New York before the $700bn Wall Street bail-out earlier this month. Photograph: Nicholas Roberts/AFP/Getty images

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.

Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.

The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.

At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

In the first nine months of the year Citigroup, which employs thousands of staff in the UK, accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.

At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP Morgan $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the total accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of August by 3% to $3.7bn.

Days before it collapsed into bankruptcy protection a month ago Lehman Brothers revealed $6.12bn of staff pay plans in its corporate filings. These payouts, the bank insisted, were justified despite net revenue collapsing from $14.9bn to a net outgoing of $64m.

None of the banks the Guardian contacted wished to comment on the record about their pay plans. But behind the scenes, one source said: "For a normal person the salaries are very high and the bonuses seem even higher. But in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don't do so well."

Many critics of investment banks have questioned why firms continue to siphon off billions of dollars of bank earnings into bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions. One source said: "That's a fair question - and it may well be that by the end of the year the banks start review the situation."

Much of the anger about investment banking bonuses has focused on boardroom executives such as former Lehman boss Dick Fuld, who was paid $485m in salary, bonuses and options between 2000 and 2007.

Last year Merrill Lynch's chairman Stan O'Neal retired after announcing losses of $8bn, taking a final pay deal worth $161m. Citigroup boss Chuck Prince left last year with a $38m in bonuses, shares and options after multibillion-dollar write-downs. In Britain, Bob Diamond, Barclays president, is one of the few investment bankers whose pay is public. Last year he received a salary of £250,000, but his total pay, including bonuses, reached £36m.

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Thousands march in Baghdad against U.S. pact

By Waleed Ibrahim

BAGHDAD (Reuters) - Thousands of followers of anti-American cleric Moqtada al-Sadr took to the streets on Saturday in a demonstration against a pact that would allow U.S. forces to stay in Iraq for three more years.

Iraq's foreign minister said a draft of the agreement hammered out after months of negotiations was now final and being reviewed by political leaders. Parliament would be given a chance to vote for or against it, but not to make changes.

The agreement "has been presented as a final text by the two negotiating teams. The time now is time for a decision," Foreign Minister Hoshiyar Zebari told a news conference. "I believe the next few days will be crucial for the Iraqi leaders to make a political decision and a judgment on this agreement."

At the demonstration across town, marchers waved Iraqi flags and chanted "Yes, yes Iraq! No, no to the occupation!"

A white-turbaned cleric read out what he described as a letter from Sadr calling on parliament to vote down the pact.

"I reject and condemn the continuation of the presence of the occupation force, and its bases on our beloved land," the letter said, calling the pact "shameful for Iraq." Marchers set fire to a U.S. flag, but the atmosphere appeared mostly calm.

"It is a peaceful demonstration, demanding that the occupier leave and the government not sign the pact," Ahmed al-Masoudi, a Sadrist member of parliament, told Reuters.

Iraqi authorities said the demonstration was authorized and security had been increased to protect the protesters, who were marching from Sadr's stronghold of Sadr City in the east of the capital to a nearby public square at a university.

"They have permission from the prime minister and the interior minister to hold a peaceful demonstration," the government's Baghdad security spokesman Qassim Moussawi said. "It is a part of democracy that people can protest freely."

The show of strength was a reminder of public hostility to the pact, which would give the U.S. troops a mandate directly from Iraq's elected leaders for the first time, replacing a U.N. Security Council resolution enacted after the invasion in 2003.


Support for the accord in Iraq's fractious parliament is far from assured, even though Iraq won important concessions from Washington over the course of months of negotiations.

U.S. officials have yet to explain the pact in public, but Iraqi leaders disclosed its contents this week.

The pact commits the United States to end patrols of Iraqi streets by mid-2009 and withdraw fully from the country by the end of 2011 unless Iraq asks them to stay, an apparent reversal for a U.S. administration long opposed to deadlines.

"This is a temporary agreement. It is not binding. It doesn't establish permanent bases for the U.S. military here in the country," Zebari said. "We are talking about three years, and it is subject to annual review also."

The pact describes certain conditions under which Iraq would have the right to try U.S. service members in its courts for serious crimes committed while off duty, an element that was crucial to winning Iraqi political support.

In Washington, officials in the administration of President George W. Bush briefed members of Congress about the pact on Friday and sought to reassure them that it protects U.S. troops.

"I think there is not reason to be concerned," Defense Secretary Robert Gates told reporters, adding that top military brass were happy with the legal protections in the accord.

The administration says it does not need congressional approval for the pact, but has nonetheless sought political support. Gates and Secretary of State Condoleezza Rice briefed the two U.S. presidential candidates on the pact on Friday.

(Writing by Peter Graff; Editing by Dominic Evans)

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Guest Blog - A Crisis of Conscience

by Michael Kleinman

Wanted to follow the recent pieces on world hunger and declining humanitarian funding with a post by Alison Woodhead of Oxfam, about Stand Up and Take Action, which starts today. (To take action through, click here.)

Sometimes, it seems like writing about humanitarian relief is simply describing a parade of horribles - which makes Alison's post, about what we can do to help change the situation, all that much more important.

A Crisis of Conscience

The numbers are mind boggling; the sense of panic is contagious. The global financial crisis has galvanised world leaders into finding unimaginable sums of money almost overnight to prevent banks collapsing, shore up failing systems and reassure nervous punters.

The arguments for urgent action to avoid systemic collapse are of course genuine and persuasive. But they reveal something extremely dark about the world’s priorities: we can find the money to bail out banks, but not to prevent the deaths of 30,000 children a day from poverty.

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