Paulson Wants Rest of TARP Funds From Congress

Request After Auto Bailout Leads to Uncertainty Over How and When the Second $350 Billion Tranche Will Be Accessed

By DEBORAH SOLOMON and DAMIAN PALETTA

WASHINGTON -- The U.S. government's rescue of the auto industry drained what remained in the first half of Treasury's $700 billion bailout fund, prompting Treasury Secretary Henry Paulson to call on Congress to release the rest of the money.

The move sets off a period of uncertainty for financial markets as the Bush administration and the Obama team scramble to determine how to proceed.

On Friday, Mr. Paulson said lawmakers should release the second $350 billion "to support financial market stability." He said he would discuss tapping the money "in the near future" with congressional leaders and members of President-elect Barack Obama's transition team.

Draining the current bailout fund raises the question of how the administration would handle an unexpected fiscal emergency. Mr. Paulson said in a statement Friday that Treasury, along with the Federal Reserve and the Federal Deposit Insurance Corp., has "the necessary resources to address a significant financial market event." While the first $350 billion has been allocated, not all of the money has been spent and Treasury could dip into the unused funds.

Mr. Paulson has not decided whether to formally request the second half of the Troubled Asset Relief Program -- known as TARP -- or leave that task to the Obama administration, according to people familiar with the matter. The White House suggested it may not make any requests before President George W. Bush leaves office, according to Deputy Chief of Staff Joel Kaplan.

Week on Wall Street: Fed Hits New Low

Simon Constable and David Gaffen discuss the new zero interest rate environment, plus the latest rescue of Detroit's automakers, with the government providing $13 billion loan.

But senior Democrats on Capitol Hill say they're expecting Mr. Bush to make a request in early January -- after Congress reconvenes, but before Mr. Obama takes office. Mr. Paulson would likely receive a rough reception, especially from his own party. He also would likely have to concede to such Democratic demands as a plan to help troubled homeowners, as well as tougher conditions for financial institutions that get government cash.

Mr. Paulson has so far resisted those efforts. But with his term drawing to an end, and a souring relationship with Congress, his stature on Capitol Hill has diminished.

House Financial Services Committee Chairman Barney Frank (D., Mass.) has previously said Mr. Paulson's ability to get that next $350 billion has "been destroyed" unless he agreed on a foreclosure plan that carried Mr. Obama's blessing. Mr. Frank said Friday he was in talks with his counterparts in the Senate, as well as the teams of Messrs. Paulson and Obama. He said he wanted Mr. Bush to request the remaining funds quickly.

"What I hope is we will have an agreement in early January about how the second 350 will be spent," Mr. Frank said. "Not to the penny, but in general. So that we will avoid the kind of fighting we had last time."

Obama officials said they will likely participate in negotiations if Mr. Paulson decided to request the second half of the funds. Under the legislation, the administration needs to lay out specific plans -- a financial strategy that would extend to the new administration.

Democratic lawmakers are angry the Bush administration resisted calls to embark on a large-scale program to prevent foreclosures, and that government-backed banks aren't lending more. Republicans, meanwhile, are upset about the shifting focus of TARP, a program they finally supported after a protracted fight that rocked financial markets. While Mr. Paulson initially planned to use the TARP to buy bad loans and other distressed assets, he changed gears to instead buy stakes in banks. Republicans blame the Bush administration's missteps for losing party seats in November.

"To say that he's burned bridges is an understatement," said Rep. Patrick McHenry (R., N.C.), a member of the House Financial Services Committee. "He was much more interested in cultivating the Democrats' support than ever building a relationship with Republicans."

In a sign of their cranky mood, the House Republican leadership recently released a letter critical of Mr. Paulson.

"Even direct inquiries from Congress seeking answers on behalf of concerned taxpayers do not appear to have been taken seriously," the letter said.

When Mr. Paulson met with House Republicans at a closed-door meeting in September to win support for the billion bailout package, lawmakers said his message was confused and muddled. Some members laughed derisively during his presentation, recalled Rep. McHenry. "There's nothing more insulting," he said.

The main gripe among Democrats was Mr. Paulson's refusal to use any money to prevent home foreclosures.

Rep. Marcy Kaptur (D., Ohio) said she tried for three weeks to get Mr. Paulson on the phone to discuss foreclosures in her district, which includes Toledo and Sandusky. She called Treasury on Dec. 11 and said she was going to deliver a list of 4,100 constituents who have lost their homes since Jan. 1.

Democrats want the rescue to include some version of a foreclosure-mitigation plan floated by FDIC Chairman Sheila Bair. Her plan is aimed at getting lenders to modify roughly two million mortgages, with the government sharing some of the losses if borrowers default on the new loans. Mr. Paulson argued the plan was too costly and could encourage banks to foreclose and borrowers to stop making payments to qualify.

Mr. Frank said some version of the Bair plan must be included to get Congress to approve release of more TARP money. He raised the possibility of a federal program to push mortgages to a 4.5% rate. Treasury has been mulling such a program, which would encourage banks to offer loans at a lower rate by guaranteeing that the government would buy the securities backing the loans at a price equal to the 4.5%. The Obama team is said to be interested in such a plan -- which could expand to include refinancing loans and new loans -- to help borrowers in danger of foreclosure.

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Fed OKs credit card crackdown

By Jessica Dickler, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Cash-strapped consumers got some welcome news on Thursday when regulators voted to rein in controversial credit card practices. But they'll have to wait another year and a half to get relief - the new rules won't take effect until July 1, 2010.

The Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration approved the regulation, which prohibits banks from certain practices like applying interest payments in ways that maximize penalties, and forces lenders to be more transparent about their billing practices.

"These protections will allow consumers to access credit on terms that are fair and more easily understood," Federal Reserve Chairman Ben Bernanke said in a statement.

The regulations mark an end to double-cycle billing, which averages out the balance from two previous bills. That means that consumers who carry a balance will no longer get hit with retroactive interest on their previous month's bill. And credit card companies will no longer be able to raise the interest rates on pre-existing credit card balances unless a payment is over 30 days late.

Consumers will also be given a reasonable amount of time to make payments, and payments will be applied to higher-rate balances first, to reduce interest penalties and fees.

Credit card statements will clearly list the time of day that a payment is due, and any changes to accounts will be in bold or listed separately.

And, finally, no more universal defaults - a policy that allowed credit card issuers to increase the interest rate on one card if a customer missed a payment on another card.

Trouble keeping up

In the midst of a credit crunch, Americans have about $976.3 billion in revolving credit and 4.9% of all credit cards were delinquent in the third quarter, according to the latest data from the Federal Reserve.

"The U.S. is experiencing the worst economic conditions in decades. Unprecedented debt loads are crushing many families," said Linda Sherry, a director of nonprofit advocacy group Consumer Action, in a statement. "Consumer Action is pleased that the Fed has taken this step to provide substantive protections to cardholders," said Sherry.

Travis Plunkett, the legislative director for the Consumer Federation of America, a lobbyist and advocacy group, said new rules are "essential" at a time when "so many Americans are falling behind on their loans."

Representatives from the banking industry argue that while many of the changes are consumer friendly, there might be a downside to increased regulation that should not go unnoted.

"While the new rules are designed to increase protections for consumers, the Fed itself has recognized that they may result in increased costs for most card users and reduced credit availability, particularly for consumers with lower credit scores or limited credit history," said Edward Yingling, president and CEO of the American Bankers Association said a statement.

Not only could card companies have to impose higher interest rates across the board to offset losses, but low introductory offers and zero-percent balance transfers are likely to be scaled back as well, explained Peter Garuccio, a spokesman for the American Bankers Association.

In addition, "an overhaul of the market for credit cards - of this magnitude - will require time for full implementation," Yingling said.

But some consumer advocates argue that these reforms don't go far enough, fast enough.

"The Board has given banks another year and a half to continue indiscriminate interest rate increases on consumers with historically high credit card balances. When they can least afford it, cardholders will be vulnerable to the piling on of unconscionably high finance charges. This may be the straw that breaks the camel's back," Sherry said.

Plunkett said he hopes Congress will pass more sweeping credit card reforms next year that address a number of other "abusive practices" including "reckless lending to young people and high fees."

Sen. Christopher Dodd and Rep. Carolyn Maloney have both proposed credit card legislation that would impose even more constraints on issuers.

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Uncle Sam Screwed to the Tune of $17 billion in Ponzi Scheme

Madoff scandal could lead to tax losses nationwide

By RACHEL BECK
AP Business Writer

AP Photo/Jason DeCrow

NEW YORK (AP) -- Even Uncle Sam may get burned by Bernard Madoff.

Investors who lost their fortunes in Madoff's alleged Ponzi scheme will end up paying far less in taxes and may even be eligible for refunds, according to accounting experts.

By some estimates, the Internal Revenue Service could be out as much as $17 billion in lost tax revenue.

"This is one more thing federal, state and local officials will have to deal with," said John Berrie, a tax partner at the law firm Bryan Cave in New York City. "It's another heavy box on their back."

In addition, investors may be counting on a federally mandated insurance fund to bail them out, but that program lacks the money to pay for all the claims that are likely to come.

The timing couldn't be worse. Unemployment has surged, meaning fewer workers are paying payroll taxes. And housing prices have dropped, reducing property taxes.

The recession so far has cost the federal government $200 billion in tax revenues for the 12 months that ended in November, according to estimates by Moody's Economy.com.

The Madoff case, which reportedly involves $50 billion, adds another layer to the fiscal crisis gripping the nation.

In New York, for instance, where thousands of workers have lost jobs on Wall Street and big-name investment firms have tallied massive losses, State Comptroller Thomas P. DiNapoli has estimated tax revenues will be down at least $3.5 billion by March 2010.

In wealthy enclaves nationwide, Madoff's investors are desperately seeking ways to get some of their money back. Some refunds might come from the Securities Investor Protection Corp., an industry-funded organization set up by the government to protect investors from fraud. Investors who qualify could get as much as $500,000 from the SIPC.

But that will not replace the millions of dollars than many lost, and such payments, if they come, will not happen fast. SIPC officials this week said the books of Bernard L. Madoff Investment Securities LLC are in complete disarray. It could take six months or more to untangle them.

In addition, there are concerns that SIPC does not have enough money to pay out claims. It currently has $1.6 billion to make payouts, though the agency can tap a $1 billion line of credit and a $1 billion injection from the Treasury Department to get more money.

That's why some investors are considering the option of reporting "theft losses" under the IRS rules. Taxpayers who are defrauded by investment advisers or brokers can claim a deduction, as well as offset tax liabilities from the past.

Under the rules, an investor who lost $20 million with Madoff and whose adjusted gross income was $10 million can claim a theft loss of about $19 million.

To calculate the theft loss, investors must reduce the amount of the loss by 10 percent of their adjusted gross income plus $100, according to Robert Willens, an expert on tax and accounting issues for Wall Street clients.

That theft loss would wipe out the $3.5 million in taxes that would otherwise be payable on the $10 million in income. The losses can be carried back for three years or carried forward for 20 years.

If the losses wipe out current, past or future taxes, the end result is the same: The government loses money.

"I think the $50 billion of Madoff's losses, if they really are that big and we're not sure, could cost the government $15 to $17 billion in lost tax revenues," Willens said.

Investors are not automatically eligible for such deductions. They must prove to the IRS that they cannot recover their Madoff investments. The IRS also has not indicated yet whether Madoff's investors can apply the theft provision.

"The IRS is aware of the situation, but beyond that, we have no comment," the federal agency said in a statement Thursday.

Another potential recourse for investors would be to claim that the past taxes they paid on "fictitious income" from Madoff should be recouped, said Stephen Breitstone, of the law firm Meltzer Lippe Goldstein & Breitstone, who is representing Madoff investors on taxation issues.

The hurdle there is the three-year statute of limitations on amending a tax return, so that would limit investors to only the recent past even if the Madoff fraud existed long before that.

"A lot of investors put all their eggs in one basket, and they have been wiped out, so going back and getting a tax refund might be a remedy for them," Breitstone said.

(This version CORRECTS spelling to Breitstone from Brietstone. Multimedia: An interactive that looks at who is affected by the scandal and how a Ponzi scheme works is available in the -business/ponzi-scheme folder. Moving on general news and financial services.)

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Getting paid to wear shirts

Jason Sadler isn't anyone special. (His words, not mine.) But his new project, I Wear Your Shirt, is something out of the ordinary.

The premise is simple: Companies pay him to wear their T-shirts. Sadler, 26, will don a different shirt every day next year, promoting a variety of companies, from Web start-ups to online clothing stores. (Friends and family have also purchased a few days, so who knows what kinds of get-ups they'll spring on him.)

The price for New Year's Day is $1. Each day after that is a dollar more, ending on December 31 at $365. At the end of the year, providing he finds takers for every day (he's already sold about 40%), he'll have racked up $66,795. "Not bad for just wearing shirts all year," Sadler said.

Of course, there's more to it than that. Sadler, co-owner of a Web design company, will blog, take photos and shoot video of himself on the beach, around his city of Jacksonville, Fla., and traveling the world. He'll spend the rest of his time leveraging a variety of social media tools, like Twitter and YouTube, to get the word out.

"The number [$66,795] is definitely big when you first think about it," Sadler says. "But I'm working on this thing all day long."

He estimates he's putting in anywhere from 10 to 12 hours per day on the website. Factor in zero vacation days and all the flack he's going to get from his girlfriend -- ever tried showing up to a nice restaurant in a T-shirt? -- and it might not be that sweet of a deal.

But the idea was attractive enough to spur a competitor. Jenae Plymale and her father, George, launched Girl in Your Shirt last month, and have already begun releasing episodes.

Plymale, 20, records herself, wearing ...

... branded shirts and discussing the products, five days per week. Like Sadler, she wears the shirt all day long, although right now, she doesn't plan to travel much.

The website launched to much fanfare, thanks to a blog post by TechCrunch's Michael Arrington. Since then, Girl in Your Shirt has upped its prices, from a $75 introductory rate to $199. The Plymales are now in the process of building an online video network based around the concept at inYourShirt.tv. Next up is In Your Band Shirt, a similar website but for musicians.

The "Wear your T-shirt" craze is one of those "Why didn't I think of that?" ideas that's taking off faster than a sweatshirt in the summertime.

-- Mark Milian

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The $54 million pants suit unravels again

WASHINGTON (CNN) -- A court Thursday rejected an appeal filed by a former administrative law judge who sued a dry cleaners for $54 million over a missing pair of pants.

An unidentified man talks on a cell phone in front of the Chung family's shop, Custom Cleaners.

The District of Columbia Court of Appeals "ruled resoundingly in favor of the Chung family and denied Mr. Roy Pearson's appeal of the case completely," said Christopher Manning, an attorney for the Chung family, who own Custom Cleaners.

"The D.C. Court of Appeals held that the trial court correctly ruled that Mr. Pearson's claims had no merit whatsoever," he added.

The Chungs have "some level of relief," Manning told CNN, "but they won't count Mr. Pearson out for at least trying to torment them further" with future appeals.

"We are very happy with the result and thank everyone for supporting us," Jin Chung said in a statement issued by Manning. "The past three years have been very difficult, but we hope this nightmare is finally over."

Pearson initially sought $67 million from the Chungs, calculating the amount by estimating years of legal violations, adding nearly $2 million in common law claims for fraud.

The saga began in May 2005, when Pearson took several pairs of pants to Custom Cleaners for alteration as he prepared to start his new job as an administrative law judge. He alleged that among them was a pair of pants from a blue and maroon suit. When he came to collect his clothing, he said, the Chungs tried to give him a pair of charcoal gray pants that were not his.

During a two-day trial, Pearson, who represented himself, said that when he took the pants to the cleaners, his financial situation was precarious: He had just been ordered to pay $12,000 in attorney's fees to his ex-wife, and his credit cards were at their limit.

He claimed millions of dollars in attorney fees and millions more in punitive damages for what he called fraudulent advertising under the law. He also claimed that a sign in the store's window promising "satisfaction guaranteed" was an unconditional warranty that required the defendants to honor any claim by any customer without limitation.

The Chungs' attorney argued that no reasonable person would interpret the signs to mean an unconditional promise of satisfaction. District of Columbia Superior Court Judge Judith Bartnoff agreed, ruling that Custom Cleaners did not violate the city's Consumer Protection Act.

Manning, whose law firm handled the appeal on a pro bono basis for the Chungs, said the Chungs hope the "vague and often unfair" act will be changed "so that others do not suffer like they did."

In August 2007, the Chungs dropped their bid to recover legal costs in the hopes that Pearson would drop his appeal.

Pearson may request that the appeal be heard again by the entire panel of D.C. Court of Appeals judges, Manning said. He also could petition to the U.S. Supreme Court for an appeal.

"It is the Chungs' hope that Mr. Pearson will not attempt to appeal any further and will end his frivolous and baseless attacks on the Chung family," Manning wrote in the statement.

"The 3½ years this case has been pending and appealed have been very difficult for the Chungs," he said. "They lost two of their dry cleaning stores and their realization of the American dream."

He said the family wants to "quietly return to their one remaining small dry-cleaning store ... to rebuild their lives."

Pearson was taken off the bench in May 2007 while the lawsuit was pending and was not reappointed as an administrative law judge when his term expired.

He filed a federal lawsuit in May 2008 to get his government job back, accusing city government and others of an "unlawful demotion and subsequent termination." That suit remains pending.

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Putting Your Money Where Your Mouse Is

By JOSEPH DE AVILA

(See Correction & Amplification below.)

During graduate school, Audrey Troutt managed her expenses with an Excel spreadsheet. After graduating, she wanted an easier way to handle her bills and to track her finances. "I don't want to calculate an elaborate budget," says Ms. Troutt, a 26-year-old software engineer from Philadelphia. "I don't need that. I just want something simple."

Now Ms. Troutt manages her finances entirely online, using Rudder, a free Web application. It analyzes her daily and monthly expenses and sends email updates that detail how much money she should spend per day. She likes the application for its simplicity and intuitive Web design, she says.

Like many people in her generation, Ms. Troutt skipped traditional financial-management software, such as Microsoft Money and Quicken, and instead conducts her financial life over the Internet. Thanks in part to the popularity of e-commerce sites such as eBay Inc. and Amazon.com Inc., consumers are growing comfortable with putting more of their financial life online. Indeed, about 40% of U.S. households now bank online, up from 27% in 2003, according to TowerGroup, a financial consulting firm.

Financial-service sites are increasingly confident that young people -- those raised on Facebook and iTunes -- will be drawn to their free, simple, Web-based money-management applications. Leading the way are Houston-based Rudder, as well as Thrive, a New York-based financial-management site and Mountain View, Calif.-based Mint.com.

Even some traditional financial institutions are going beyond online banking and experimenting with new ways to reach customers using social-media features, such as blogs, communities and wikis, which are Web pages that allow people to collaborate online. About 15% of nearly 70 financial institutions surveyed have added some of these features to their sites in 2008. A number of the sites have a dedicated section that allows members to exchange information through forums or blogs, according to a recent report by Corporate Insight Inc., a New York market-research firm.

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PNC

A detail of the PNC Bank's 'Virtual Wallet' shows a schedule of expenses.

PNC Bank, a unit of PNC Financial Services Group Inc., launched a new checking- and savings-account service aimed at Gen Y called "Virtual Wallet," with a flashy Web site and online tools to manage money. West Bancorporation Inc.'s West Bank has partnered with a Des Moines, Iowa, start-up called SmartyPig that takes a social networking approach to savings accounts by encouraging people to share their savings goals with others. And Wachovia Corp. provides basic customer service using Twitter, a blog site where users communicate in short messages.

The Web-based sites are hoping people will use their services to aggregate all aspects of their finances -- tracking expenses and income, as well as credit cards, bank balances and retirement accounts. TowerGroup estimates that about one million people have accounts with an online personal-finance manager.

Mint, one of the more popular of these sites with more than 650,000 registered users, allows people to track where they spend their money and pool their credit-card and bank-account information. And it recently added investment-tracking and analysis tools, so users can see how their investments are faring against benchmark stock indexes. As the economy has slowed, more users have been exploring the "Ways to Save" feature that sorts through thousands of credit-card and bank-account offerings and makes recommendations. Banks don't have to pay to be listed on the site, but some banks will pay Mint a referral fee if the customer signs up. Because of credit tightening and the weak economy, searches for credit-card offers at Mint spiked by about 100%, notes Aaron Patzer, founder and chief executive.

The recession has also prompted more members of Thrive to seek advice, such as how to accrue emergency funds, says Avinash Karnani, Thrive's chief executive. Thrive lets users aggregate information on their checking, savings and credit-card accounts. Users can also input their earnings, and Thrive will analyze their expenses and set up budgeting goals. A big chunk of Thrive's targeted demographic are people in their 20s and 30s who aren't very financially savvy but want to learn how to be, Mr. Karnani says.

Jenny Rose, a 30-year-old freelance film and television producer from New York, recently signed up for a Thrive account. "I have a history of forgetting to pay my bills," she says. "It hurt my credit report."

Now Ms. Rose says she tracks her spending more closely. And on a recommendation from Thrive, she recently transferred her Washington Mutual Inc. savings account to Citigroup Inc., where she receives a higher interest rate, she says.

The easy navigation and simple design employed by these online sites can now be found on the banking sites.

PNC Bank's Virtual Wallet has an interface that lets users manage their accounts and gives customers a variety of online tools, such as calendars and savings wish lists. PNC developed the service to attract customers between 18 and 34 years old, says Mike Ley, vice president of e-business for the bank. "They have different expectations of online services," he says, and they want a robust visual site.

PNC customers can adjust their finances with the "Money Bar," which separates their money into three segments: money in their checking account allocated for bills, money they can spend and the money they are saving. So far 27,000 PNC Bank customers have a Virtual Wallet account.

SmartyPig, partnered with West Bank, is targeting 20- and 30-somethings with social-networking features. Here, users can set up high-yield savings accounts and, if they like, share their savings goals via email, by posting on social-networking sites like Facebook, or through the SmartyPig Web site. It also lets friends and family members contribute to the account -- set up for a wedding, for example -- using a credit card or an automated clearinghouse transfer from their bank. It currently offers an interest rate of 3.9% and is FDIC insured.

"A social aspect of savings was missing," says Mike Ferrari, who co-founded SmartyPig with Jon Gaskell.

Jeremy Bingaman, a 30-year-old Web and graphic designer from Des Moines, Iowa, recently opened an account with SmartyPig. "I thought it was a really neat idea to bring in online savings and the social-media aspect," Mr. Bingaman says. His current goal is to save $3,000 for a trip to New York next year. He recently started telling family members to make a deposit to his SmartyPig account instead of giving cash as a Christmas present this year. Moreover, SmartyPig users can get customer service over the phone or even using Twitter.

Wachovia is another company that has been trying out Twitter. The bank had been watching the growth of social media and wanted to find a way to get involved, says Pete Fields, Wachovia's e-business director. "We liked the idea of starting with an online social community that was young and growing," he says.

So far Wachovia customers have been using Twitter for customer service. Wachovia employees monitor the site for questions and try to provide answers so other users can read them. If the customer needs to discuss sensitive account information, the Wachovia employee tells the user who they can contact for additional help, Mr. Fields says.

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What You Can Get for a Buck: CEOs with $1 Yearly Salaries

By Lea Hartog

The final months of 2008 have witnessed massive layoffs, an imploding financial system and an unprecedented housing crisis in the United States. In November, consumer spending dropped 3.8 percent – one of the largest one-month declines in recent history. Financial giants including Lehman Brothers have gone under, while others such as AIG (American International Group) Inc. have received billions in bailouts from the federal government in a desperate attempt to keep the U.S. economy afloat. Even CEOs of major corporations are hurting, conceding to $1 yearly salaries.

Or are they? While many executives have made the public gesture to rescind their annual paychecks, these corporate leaders are hardly in the poor house. Stock options, company perks and other intangible forms of compensation are still common for these CEOs, no matter how badly their companies are doing.

Regardless, the fact that — according to executive compensation research firm Equilar — CEOs of at least 32 companies took $1 or no base salary in the past year is certainly creating a buzz. Here’s a rundown of the most notable salary-less executives:

Baby You Can Drive My Car — PLEASE

The three major U.S. automobile makers — Ford Motor Co., GM (General Motors) Corp. and Chrysler LLC — have been hurting for some time. While overseas competitors, most notably Toyota Inc., have been investing in and producing small fuel-efficient cars during the past decade, the Big Three have continued to roll out gas-guzzling SUVs despite skyrocketing fuel prices. Now foreign manufacturers are sitting pretty while the American auto industry is on its knees, begging for a bailout.

Rick Wagoner, GM: After graduating from Harvard Business School in 1977, Wagoner joined GM as an analyst. He was named the CEO in 1992 and oversaw a 96 percent drop in GM’s stocks from June 2006 to November 2008. Initially balking at Illinois Rep. Peter Roskam’s suggestion that Wagoner give up his salary to save his company in November 2008, he and the other Big Three CEOs have now agreed to a $1 yearly paycheck in exchange for federal assistance.

Robert Nardelli, Chrysler: Nardelli got his start in business as a manufacturing engineer at GE (General Electric) Co. in the early 1970s. By 1995, he was president and CEO of GE Power Systems, after which he became the CEO of Home Depot USA Inc. in 2000. While heading the home-improvement retailer, Nardelli saw Home Depot’s stock freeze at a standstill as its leading competitor’s, Lowe’s, doubled. He became the CEO of Chrysler in August 2007.

Alan Mulally, Ford: Before becoming the president and CEO of Ford in 2006, Mulally served in a variety of executive, managerial and engineering positions at The Boeing Company and its subsidiaries. Once at Ford, he revived the Taurus — one of the manufacturer’s leading sellers — which lead to the company’s first profitable quarter in two years. Mulally also oversaw Ford’s sale of Jaguar and LandRover to Tata Motors, an India-based car company. Despite these prudent economic decisions, Ford hemorrhaged money in 2008, forcing Mulally’s salary to drop to $1 per year in exchange for government loans.

We’re Totally Not in the Money

Financial tycoons are notorious for their exorbitant salaries. After flushing the US economy down the toilet this year, however, these folks deserve anything but outrageous compensation.

Edward Liddy, AIG: Liddy has been around the block in the financial world. Currently the CEO of AIG, he was formerly the president and CEO of Allstate Corp., the CEO of GD Searle & Co. and a board member of investment banking firm The Goldman Sachs Group Inc. In return for a federal $85 billion bailout deal, Liddy is now receiving a $1 yearly salary, though he will likely receive millions of dollars in retention benefits next year.

Paula Rosput Reynolds, AIG: Reynolds is the vice chairman and chief restructuring officer of AIG. Like Liddy, Reynolds joined AIG in the fall of 2008 but will receive no salary for her work this year.



Richard Fairbank, Capital One Financial Corp.: Fairbank is a financial mastermind. A graduate of Stanford Business School, Fairbank revolutionized the credit card industry by building a tool that compiles purchasing behavior information which can be used to predict individuals’ upcoming buys. Faribank co-founded Capital One in 1988 and serves on the board of MasterCard International. He has a nonexistent salary but has earned $249.42 million in stock options, according to Forbes.com.

Just Doin’ It for the Fun of It

These CEOs decided to receive $1 per year salaries well before the recession hit this year. A publicity stunt or true altruism? It’s hard to say. Either way, these executives are still doing well with stock options and other executive perks.

Steve Jobs, Apple Inc.: Jobs has been earning a $1 per year salary since rejoining his pet company in 1997. That doesn’t mean he’s been in the poor house, however. Eight years ago Apple gave Jobs a Gulfstream V jet worth $90 million dollars. The company also pays him for use of the plane, which came in at over $700,000 in 2007 alone. That year Jobs additionally gained $14.6 million in stock options that were due to expire.

Sergey Brin, Larry Page and Eric Schmidt, Google: The Google dream team might have developed the most popular Internet search engine ever, but their $1 yearly salaries are nothing to be impressed by. That doesn’t mean they aren’t taking home the dough, though. According to Corporate Library, Schmidt earned $480,561 in 2007 alone. And Page and Brin each have a few billion dollars worth of Google stock.

Terry Semel and Jerry Yang, Yahoo!: Both of these former Yahoo! CEOs received a mere $1 yearly salary while working at the Internet titan. Semel, however, was more than adequately compensated with stock options; over the past three years, he has sold 18.1 million stocks for a gain of $450 million. Yang didn’t do too badly either — according to Portfolio.com, he still has a $1.4 billion stake in Yahoo!.

John Mackey, Whole Foods Market: Only a fantastically wealthy person can say that he or she “no longer want[s] to work for money,” as Mackey stated in early 2007. Since that announcement, Mackey has received no compensation from the health-foods supermarket company he founded in 1980.


Jeff Katzenberg, DreamWorks Animation SKG Inc.: Not only did Katzenberg receive only $1 in salary last year, but he waived $11 million in stock options and awards. His finances, though, are more than secure considering that he owns millions of shares in the film-production company.

What do you think of CEOs earning just a buck? Leave your thoughts in the comments box below.

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AG takes himself out of Madoff fraud probe

By PETE YOST and MARCY GORDON, Associated Press Writers Pete Yost And Marcy Gordon,

Play Video CBS 2 New York – Charities Among Hardest Hit In Madoff Fraud

WASHINGTON – The fraud investigation of Wall Street money manager Bernard L. Madoff took unusual twists Wednesday as the U.S. attorney general removed himself and the Securities and Exchange Commission looked into the relationship between Madoff's niece and a former SEC attorney who reviewed Madoff's business.

The developments reflect growing criticism that Wall Street and regulators in Washington have grown too close. Madoff himself has boasted of his ties to the SEC.

The question of Madoff's connection to regulators goes to the heart of the investigation of the alleged $50 billion fraud, SEC Chairman Christopher Cox told reporters.

Congress jumped into the Madoff scandal, too. The chairman of the House capital markets subcommittee, Rep. Paul Kanjorski, D-Pa., announced an inquiry that will begin early next month into what may be the biggest Ponzi scheme of all time and how the government failed to detect it.

In New York, Madoff showed up at the federal courthouse to sign some papers in his case, wearing a baseball cap and walking silently past a reporter who asked Madoff whether he had anything to say to his alleged victims. Free on $10 million bail, Madoff now has a curfew and an ankle-bracelet to monitor his movements.

U.S. Attorney General Michael Mukasey recused himself from the Madoff probe because his son, Marc Mukasey, is representing Frank DiPascali, a top financial officer at Madoff's investment firm. The Justice Department refused to say when Mukasey became aware of the conflict but confirmed Wednesday he was removing himself from all aspects of the case.

DiPascali was the Madoff employee who had the most day-to-day contact with the firm's investors. Several described him as the man they reached by phone when they had questions about the firm's investment strategy, or wanted to add or subtract money from their accounts.

The turmoil at the SEC came as the investigation into the scandal widened.

Massachusetts Secretary of State William Galvin's office said he subpoenaed Madoff's brother, Peter Madoff, who is the chief compliance officer of Madoff's company, and Marcia Beth Cohn, chief compliance officer of Cohmad Securities Corp., which is in the same building in New York. Galvin is trying to determine the relationship between Madoff's firm and Cohmad Securities, as well as the names and numbers of all Massachusetts investors with both companies.

The events unfolded the day after Cox delivered a stunning rebuke to his own career staff, blaming them for a decade-long failure to investigate Madoff.

Credible and specific allegations regarding Madoff's financial wrongdoing going back to at least 1999 were repeatedly brought to the attention of SEC staff, said Cox. Cox said he was gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate the allegations or at any point to seek formal authority from the politically appointed commission to pursue them.

Cox's critics said that targeting the staff was Cox's attempt to salvage his own reputation.

"He put in place the people he is now shifting the blame to," said Ross Albert, a former SEC senior special counsel, former federal prosecutor and now a private attorney in Atlanta.

Senate Majority Leader Harry Reid, D-Nev., suggested Cox bears some of the responsibility for what went wrong.

"I served in Congress with Christopher Cox, but I don't think he's going to make the All-Star team," said Reid.

SEC Inspector General David Kotz is looking into the agency's failure to uncover the alleged fraud in Madoff's operation. One area Kotz said he will examine is the relationship between a former SEC attorney, Eric Swanson, and Madoff's niece, Shana, who are now married.

As an SEC attorney, Swanson was part of a team that examined Madoff's securities brokerage operation in 1999 and 2004. Neither review resulted in any action against Madoff. In a statement about Swanson's role, the SEC compliance office cited its strict rules prohibiting employees from participating in cases involving firms where they have a personal interest.

A spokesman for Swanson said that he and Shana Madoff met at a breakfast in October 2003, started dating in April 2006 and married last year.

Kotz said his office would move as quickly as possible to complete the inquiry into why regulators didn't pursue Madoff more aggressively.

Kanjorski, the lawmaker, said his subcommittee's inquiry will examine the alleged Madoff fraud and try to determine why the SEC and other regulators "failed to detect these substantial evasions."

With the scandal swirling around Madoff, he was unable to find co-signers of his bail package. The judge modified the bail package, and gave lawyers until next Monday to come up with additional paperwork.

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SEC Implicates Paul Hastings Associate in Alleged Insider-Trading

Posted by Dan Slater

Today the SEC filed a complaint alleging a massive insider-trading scheme involving, among others a former Lehman Brothers employee and Eric Holzer, who the complaint describes as “a tax associate in the New York City office of an international law firm.”

Holzer is an an associate with Paul Hastings in New York. In a statement, the firm said, “We learned today of allegations brought against an associate of the firm, which have no connection to any firm or client matters. We will fully cooperate with the authorities in any investigation.” According to this early WSJ report, Holzer, 34, was arrested by the FBI at his residence this morning.

Here’s the complaint, which begins:

Over a four year period, from at least March 2004 through July 2008, Matthew C. Devlin, then a registered representative at Lehman Brothers, Inc. (”Lehman”) in New York City, traded on and tipped at least four of his clients and friends with inside information about 13 impending corporate transactions. Some of Devlin’s clients and friends, three of whom worked in the securities or legal professions, tipped others who traded in the securities. In all, the illicit trading yielded over $4.8 million in profits.

Attempts to reach Matthew Devlin were unsuccessful.

The complaint alleges that Matthew Devlin misappropriated the confidential non-public information about the transactions from his wife. “As a reflection of the value of the inside information that Devlin provided,” says the complaint, some of the defendants “referred to Devlin and his wife as the ‘golden goose.’” Ms. Devlin is a partner in Brunswick, a firm that does public relations for M&A deals.

In a statement, a Brunswick spokeswoman said: “The husband of a Brunswick employee has been arrested by U.S. authorities for using information obtained illegally from her, and without her knowledge, which he has then passed to third parties. It is our understanding that the information, which relates to a limited number of her clients, was obtained by being in close proximity to his wife and from the implications of her travel schedule.”

James J. Benjamin, Jr., partner in the law firm of Akin Gump, who’s counsel for Ms. Devlin, says:
“Nina Devlin is devoted to her clients and colleagues and has always sought to uphold the highest standards of professionalism in her work. She was completely unaware that confidential information about her job was being used as the basis for securities trading. She is devastated by this terrible situation.”

The complaint alleges that the defendants — nine individuals and three investment companies — traded with inside information about impending transactions, including Alcoa’s 2007 tender offer for Alcan, Electronic Arts’ 2008 tender for Take-Two and InBev’s 2008 tender offer for Anheuser-Busch.

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Castro proposes prisoner swap for U.S. talks

By Raymond Colitt

BRASILIA (Reuters) - Cuban President Raul Castro proposed on Thursday a swap of prisoners with the United States as a goodwill "gesture" to pave the way for talks with incoming U.S. President Barack Obama.

His offer to release political dissidents in exchange for the release of five convicted Cuban spies in U.S. prisons was the most specific proposal yet to ease ties with the United States since Obama, who takes office on January 20, was elected in November.

Castro's comments are likely to fuel growing expectations in Latin America that the Obama administration will help thaw U.S.-Cuba ties that have been frozen since Washington imposed an economic embargo in 1962.

"Let's do gesture for gesture," Castro told reporters during a visit to the Brazilian capital Brasilia.

"These prisoners you talk about -- they want us to let them go? They should tell us tomorrow. We'll send them with their families and everything. Give us back our five heroes. That is a gesture on both parts," he said, referring to the convicted Cuban spies.

On Tuesday, 33 Latin American and Caribbean leaders urged Obama to lift the embargo on the Communist country as soon as he takes office. They also demanded the immediate lifting of measures taken in the past five years by President George W. Bush to toughen the embargo against Cuba, where Fidel Castro seized power in a 1959 revolution.

"It's not Cuba who has to ask for the end of the embargo," said President Luiz Inacio Lula da Silva, who held the news conference with Castro. "There is no more justification for the embargo."

OPEN TO TALKS

Obama has said he was open to talks and has pledged to ease limits on Cuban-Americans who travel to their homeland and send money to relatives living there.

But he has said he would keep the four-decade-old U.S. trade embargo as leverage to influence changes in the one-party state.

Obama has so far not commented on remarks made by Raul and his brother, former Cuban president Fidel Castro, signaling a willingness to hold talks with his administration.

Castro said he was open to meet Obama anywhere but that the encounter had to be on equal terms, with U.S. recognition of the island's sovereignty.

"Without a shadow (of doubt) over our sovereignty," said Castro.

Castro, who at one point was visibly irritated by a reporter's question about political dissidents in Cuba, was on the last day of his first foreign trip as president.

Since taking office in February, Raul Castro has bolstered ties with Russia and China and is now seeking to take advantage of Brazil's stated goal of boosting Cuban trade, especially in its nascent oil industry.

"We want to help Cuba become self-sufficient in energy," Lula told the Cuban delegation over lunch.

A U.S. court in June upheld the convictions of the so-called "Cuban Five," who are serving long prison sentences for spying and conspiracy to commit murder, but opened the door to new and possibly lighter sentences for three of the men.

The men are celebrated by many in Cuba as national heroes who were spying on armed exile groups in Miami to prevent attacks on their country and are victims of Washington's campaign against the communist-run island.

The United States regularly calls for the release of political dissidents held in Cuban prisons.

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Man who found skull in Caylee case sent police tips months ago

ORLANDO, Florida (CNN) -- The meter reader who led authorities last week to remains believed to be those of Caylee Anthony called police four months ago, directing them three times to same site, authorities said Thursday.

Caylee Anthony, 2, has been missing since June in a case that has received national attention.

At a news conference, Capt. Angelo Nieves, an Orange County Sheriff's Department commander, said investigators are looking into whether the tips, called in August 11, 12 and 13, were properly followed up.

In one of those phone calls, the meter reader reported seeing a gray bag on the side of the road, Nieves said. On August 13, a deputy responded to the site and did a "cursory search" but found nothing, Nieves said.

Casey Anthony, 22, faces charges including first-degree murder in the June disappearance of her daughter, Caylee, who was 2 at the time. Remains described as being those of a small child were found last week a half-mile from Casey Anthony's parents' home, in the area where the meter reader first directed police.

Nieves said police were getting more information from the tipster and the deputy who responded to the tips. He said the department was investigating the "thoroughness" of the deputy's response but would not identify the deputy.

The meter reader "is not a suspect," Nieves said. "He is a credible witness."

Nieves' latest announcement is raising questions about whether police missed several chances to find remains believed to be Caylee's.

The meter reader is not the only one, or the first, to have pointed police toward the site containing the remains.

KioMarie Cruz, Casey Anthony's childhood friend, also told police to investigate the same wooded area near Hidden Oaks Elementary School a month before the meter reader, according to CNN affiliate WFTV.

In an interview with detectives, according to WFTV, Cruz said that she and Anthony "pretty much used to hang out there most of our time," would "snack on food for hours" and went there to "get away from our parents."

The sheriff's office followed up on that tip, but the wooded area was covered in floodwaters, preventing a search. Nieves said the water may have been present at the time of the meter reader's tips as well.

Nieves also said Thursday that searchers combing the site after the skull's discovery had found "significant skeletal remains" consistent with those of a small child on the outer perimeter of the search area.

The area will be enlarged, and processing and searching of the site will continue, probably into the weekend, he said.

Some of the remains have been sent to the FBI lab in Quantico, Virginia, in an effort to identify them. Authorities have said the remains are believed to be Caylee's, but an identification is pending.

Sheriff's spokesman Carlos Padilla said last week that authorities believe the remains are Caylee's for three reasons: No other children have been reported missing in the area; the remains are consistent with those of a child of Caylee's age; and the remains were found near the home of the grandparents, where the 2-year-old and her mother were living just before Caylee disappeared.

FBI spokesman Richard Kolko said Monday that he did not know when tests would be complete, but an attorney for Anthony's parents said the FBI is likely to have results "within the next week."

Casey Anthony could face a sentence of life in prison if convicted. Prosecutors said this month that they would not seek the death penalty.

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Women's rights activist beheaded in Iraq

BAGHDAD, Iraq (CNN) -- Gunmen broke into the house of a women's rights activist in the volatile northern Iraqi city of Kirkuk on Thursday and beheaded her, police said.

Iraqi Interior Ministry troops conduct inspections at a checkpoint in the southern Iraqi city of Basra in May.

The victim was identified as Nahla Hussain, the leader of the women's league of the Kurdish Communist Party. She was alone in the house at the time of her death.

It is not known what the circumstances were that led to the attack. Violence against women has been an ongoing problem in Iraq.

The killing comes ahead of next month's provincial elections, a post-Saddam era watershed event that's generating an uptick in civil unrest and political infighting.

Twenty-four officers from the interior and defense ministries were arrested this week accused of facilitating the activities of former Baathist regime members, the Iraqi prime minister's media spokesman said Thursday.

The arrests appear to have been politically motivated, a senior U.S. military official told CNN Thursday. The official said Prime Minister Nuri al-Maliki is believed to be behind the arrests.

Iraqi Interior Ministry officials said the detained officers have links to the al-Awda party, an underground successor to Saddam Hussein's Baath party, .

The Baathist movement ruled Iraq for 35 years but was banned after Hussein was overthrown in the 2003 U.S.-led invasion of Iraq.

The arrests, which were made inside and outside ministerial offices, were carried out by an elite force that reports directly to al-Maliki, according to an Interior Ministry official who spoke on condition of anonymity.

Al-Maliki's media spokesman, Yasseen Majeed, denied that report and said the arrests were made by Iraqi security forces acting on judicial arrest warrants.

Majeed, al-Maliki's military office, and Maj. Gen. Qassim Atta, spokesman for the Baghdad Operations Command told Iraqi State TV that reports of a planned coup are incorrect.

Majeed said the arrests were precautionary measures. He said investigations are continuing into the suspects, who are accused of facilitating the activities of "terrorists" and "outlaws."

Initial reports listed arrest tolls that ranged from 20s to the 30s and said the arrested were all from the Interior Ministry, which oversees policing, border enforcement and internal security.

The ministry has been criticized by Iraqi and U.S. officials for inefficiency, corruption and infiltration by Shiite militia groups during the Sunni-Shiite violence in 2006 and 2007.

According to the Interior Ministry's spokesman, Maj. Gen. Abdul Karim Khalaf, the highest-ranking person taken into custody was a brigadier general, and the others were low-ranking officers. He said 23 officers were detained and judicial authorities were questioning them.

The Interior Ministry official who spoke on condition of anonymity said at least 32 ministry employees were arrested between Monday and Wednesday. That official had no information on the reasons behind the arrests.

He said at least two generals were among the arrested, and identified one as Gen. Ahmed Taha Abu Ragheef, head of the ministry's Internal Affairs Department.

Khalaf said Ragheef was not among those arrested, and Ragheef himself appeared on state TV to issue a denial. He said he took part in the investigation that led to the action.

It is not yet clear how many Sunnis and Shiites were arrested in the case, but Saddamists tend to be Sunnis. Al-Maliki is a Shiite, and the government is dominated by a Shiite bloc, called the United Iraqi Alliance, and a Kurdish bloc.

One knowledgeable Iraqi politician told CNN he believes this and other discord at present in Iraq, such as attacks, arrests and political infighting, stems from internal conflicts between political parties ahead of the January 31 provincial elections.

The voting -- to be held in 14 of Iraq's 18 provinces -- has been much anticipated by U.S. and Iraqi officials, who hope the election of local government officials can empower grass-roots Iraqis and give alienated Sunni Arabs more political clout.

Sunnis, who had more power under Saddam than they do now, feel they have been marginalized in Iraq's new political system, where the majority Shiite population and the Kurds have emerged as powers.

Elections won't be held in Tameem province, where political disputes in the city of Kirkuk have yet to be resolved, and in the three Kurdish autonomous region provinces.

As for the Interior Ministry, a September 2007 report assessing the status of Iraq's security forces slammed it and the National Police, which it operates.

The report by the Independent Commission on Security Forces in Iraq, called Interior "a ministry in name only" and said it was "widely regarded as being dysfunctional and sectarian, and suffers from ineffective leadership."

It said the National Police force has been "operationally ineffective" and "sectarianism in its units undermines its ability to provide security; the force is not viable in its current form. The National Police should be disbanded and reorganized."

The Defense Ministry oversees the military. The 2007 report had promising words for the Iraqi army, special forces, navy and air force, describing them as "increasingly effective" and "capable of assuming greater responsibility for the internal security of Iraq."

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Jobless claims fall - remain high

By Kenneth Musante, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The number of Americans filing for first-time unemployment benefits fell more than expected last week, according to a government report released Thursday. However the ranks of the jobless continued to swell.

The Labor Department said that initial filings for state jobless benefits fell to 554,000 for the week ended Dec. 13. That was a decline of 21,000 from the 26-year high of a revised 575,000 claims a week earlier.

A week ago, the government reported the highest number of jobless claims since Nov. 27, 1982 when initial filings hit 612,000.

Economists were expecting jobless claims slip to 558,000, according to a poll by Briefing.com.

But the reduction in filers "really was not enough to offset the significant gain we saw after the Thanksgiving holiday," said Andrew Gledhill, economist with Moody's Economy.com.

Over the past four weeks, new unemployment claims have risen to an average of 543,750 a week, up 2,750 from the moving average of 541,000 reported last week.

The number of people continuing to collect unemployment declined to 4.38 million in the week ended Dec. 6, the most recent data available. The measure was a decrease of 47,000 from the preceding week's revised level of 4.31 million

Over the previous four weeks the number of people on unemployment averaged 4.23 million a week, the government said.

The rash of unemployment claims shows no sign of slackening, according to Gledhill, and may hit the retail sector particularly hard as consumers reign in spending.

"Consumers are going to continue to find ways to cut spending any way they can," he said.

The number of new jobless claims rose the most in Tennessee, rising by 12,170 due to layoffs in the manufacturing industry, the Labor Department said.

Wisconsin saw jobless claims fall the most, by 8,593, due to fewer layoffs in the construction, manufacturing and service industries.

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