Fed chief: Gov't needs more power when firms fail

By JEANNINE AVERSA, AP Economics Writer

AFP/Getty Images/File Photo: Federal Reserve Chairman Ben Bernanke speaks at the The Federal Deposit Insurance Corporation on July...

WASHINGTON - The nation's top economic officials urged Congress on Thursday to give them new regulatory tools to better protect the country from economic and financial havoc if a major Wall Street firm were to fail.

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Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson made the recommendations in a joint appearance before the House Financial Services Committee as fresh worries gripped investors about the financial shape of mortgage giants Fannie Mae and Freddie Mac as well as investment bank Lehman Brothers Holdings Inc.

Both Bernanke and Paulson endorsed creating new procedures by which the government can guide an orderly liquidation of a failing investment bank in an effort to minimize any fallout that might be inflicted on the broader financial system and the overall economy. Such procedures, which are in place for commercial banks, might have made the dissolution of investment firm Bear Stearns more orderly.

Although Bernanke defended the Fed's controversial decision to financially back JP Morgan Chase's takeover of the Bear Stearns, the Fed chief said, "This is not something I want to do again" were other investment firms to falter.

Given a crush of other business, Congress is unlikely to give financial regulators new powers this year. It will be for the next president and the next Congress to grapple with.

The committee's chairman, Rep. Barney Frank, D-Mass., suggested it was more important for Congress to "do it right" rather than act quickly on substantial legislative changes. Bernanke and Paulson agreed with that assessment. "Realistically it is going to be difficult to get things done this year," Paulson acknowledged.

Still, new powers could help insulate the financial system — U.S. taxpayers — from getting walloped if a big financial company were to collapse, Bernanke and Paulson said.

"In light of the Bear Stearns episode, Congress may wish to consider whether new tools are needed for ensuring an orderly liquidation of a systemically important securities firm that is on the verge of bankruptcy, together with a more formal process for deciding when to use those tools," Bernanke said.

Paulson, who recently laid out such a proposal, said: "It is clear that some institutions, if they fail, can have a systemic impact." However, financial players need to be disciplined in managing risk and not expect the government to fly to their rescue, he added. "For market discipline to effectively constrain risk, financial institutions must be allowed to fail," he said.

The recommendations were part of a broader debate about the best ways to revamp the country's antiquated regulatory system. The idea is to brace the system to better respond to modern-day crises like the housing and credit debacles that have badly bruised the economy.

The Treasury chief also sought Thursday to calm investor jitters about the financial health of mortgage giants Fannie Mae and Freddie Mac. They are "working through this challenging period," Paulson told Congress. "Their regulator has made clear that they are adequately capitalized."

Shares of Fannie and Freddie tumbled Thursday amid widespread fears on Wall Street that shareholders will be wiped out if the government is forced to rescue the two companies.

Asked whether such companies could pose a risk to the U.S. financial system, Paulson replied: "In today's world, it is not helpful to speculate about any financial institution and systemic risk."

Meanwhile, Lehman Brothers, the nation's fourth-largest investment bank, is seen by many analysts to be the weakest of Wall Street's biggest firms. The company's shares plunged Thursday morning. Concerns emerged about Lehman's liquidity and leverage last month after the investment bank reported an unexpected $3 billion loss for the second quarter.

Of the broader financial system, Paulson said: "Right now we're going through a period of unusual turmoil" and the government's focus needs to be on stabilizing the situation. Bernanke echoed that sentiment.

On the weakened value of the U.S. dollar, which has boosted exports but contributed to high oil prices, Paulson said: "We want a strong dollar. A strong dollar is in our nation's interest. ... We're going through a tough period right now."

Bernanke has called for stronger oversight of big Wall Street firms, which are regulated by the Securities and Exchange Commission. Those firms have been given unprecedented — albeit temporary — access to tap the Fed for emergency loans, a privilege that has been granted for years to commercial banks, which are more tightly regulated.

With credit problems persisting, the Fed may extend the lending privilege to investment banks into next year, Bernanke has said.

The Fed's financial backing of JPMorgan Chase's takeover of the troubled Bear Stearns has drawn criticism from Democrats, who call it a government bailout that could put billions of taxpayer dollars at risk. Both Democrats and Republicans lawmakers said changes need to be made to protect taxpayers in the future should another big firm get into trouble.

Rep. Spencer Bachus, R-Ala., said a "shock absorber" is needed to make sure that "taxpayers are not holding the bag. ... This is a tall order."

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10 Things You Might Not Know About Your Credit Card

As you might imagine, we get a lot of questions about using credit cards. Based on those piles of emails we've put together a list of 10 things a lot of people don't know about credit cards. Enjoy!

1) Unsigned Cards Are Not Valid And Merchants Can And Will Refuse Them
You might think that everyone knows that you have to sign your credit card in order for it to be valid — after all — there's a panel on the back that says "Not Valid Unless Signed," but you'd be shocked at the number of angry emails we get from people who have tried to use an unsigned credit card with "SEE ID" or "CHECK ID" written on it and were turned away when they refused to sign their card.

Here's what VISA says should happen when you present an unsigned card:

1) The merchant will ask for your government ID.
2) You will be asked to sign the card. If you sign it, the signature on the card will be compared to the signature on the government ID. If you refuse, the card will not be accepted.

Here's VISA's official statement on "See ID":

Some customers write “See ID” or “Ask for ID” in the signature panel, thinking that this is a deterrent against fraud or forgery; that is, if their signature is not on the card, a fraudster will not be able to forge it. In reality, criminals don’t take the time to practice signatures: they use cards as quickly as possible after a theft and prior to the accounts being blocked. They are actually counting on you not to look at the back of the card and compare signatures—they may even have access to counterfeit identification with a signature in their own handwriting. “See ID” or “Ask for ID” is not a valid substitute for a signature. The customer must sign the card in your presence, as stated above.

Most merchants don't follow this policy, but some (most notoriously— the U.S. Postal Service), are quite strict.

2) The Maximum Liability For Unauthorized Use Of A Credit Card* Is $50 According To Federal Law
The Fair Credit Billing Act protects you from suffering damages due to unauthorized use of your credit card. If you report a lost or stolen card before anyone uses it, you are not responsible for any charges. If you do not report it before an unauthorized use you are liable for a maximum of $50.

(*Credit cards only. Debit cards and ATM cards are covered under the Electronic Fund Transfer Act, and your liability depends on how quickly you report the loss. Unlike credit cards, debit and ATM cards can have unlimited liability in certain circumstances.)

3) Merchants Cannot Require You To Present ID, Unless Your Card Is Unsigned
Some consumers enjoy it when a clerk asks to see their ID. Others do not. In some states, it's actually illegal for a store to record any additional information (such as an address or drivers license number) as a condition of processing a credit card transaction (unless the address is needed for shipping, of course.) For some reason this is always a hotly debated topic, so we'll go right to VISA for the answer:

Although Visa rules do not preclude merchants from asking for cardholder ID, merchants cannot make an ID a condition of acceptance. Therefore, merchants cannot refuse to complete a purchase transaction because a cardholder refuses to provide ID. Visa believes merchants should not ask for ID as part of their regular card acceptance procedures. Laws in several states also make it illegal for merchants to write a cardholder’s personal information, such as an address or phone number, on a sales receipt.

We think that's pretty clear. Don't want to show your ID? Don't.

4) Merchants Cannot Require A Minimum Transaction Amount
It's a violation of the credit card company's merchant agreement to refuse a transaction because it is below the "minumum."

VISA says:

Imposing minimum or maximum purchase amounts in order to accept a Visa card transaction is a violation of the Visa rules.

Mastercard says:

A Merchant must not require, or indicate that it requires, a minimum or maximum Transaction amount to accept a valid and properly presented Card

5) Merchants Cannot Charge A Surcharge For Using A Credit Card, However, They Can Offer A "Cash Discount"
You may have noticed that gas stations are starting to offer a different, higher price for credit cards. This isn't technically allowed— unless it is marketed as a "cash discount." In other words, if you fill up your car and find that you've been charged more than advertised because you paid with a credit card — that's not allowed. If, however, you decide to pay with cash because you saw an advertised "cash discount" to the "regular price" — that's ok. A subtle distinction, but an important one.

(There is something called a "convenience fee" that some institutions are allowed to charge if they do not typically accept credit cards in their normal course of business. The example VISA gives is a utility company where the customary way is to pay by mail or in person. The rules for charging this fee are somewhat complicated and there are loopholes, etc.)

6) Many Credit Cards Have Programs That Will Automatically Double The Manufacturer's Warranty And Other Excellent Benefits
We get a lot of complaints that can be easily solved by the complainee's credit card company. We've helped readers get laptops replaced out of warranty, and helped them get their money back when Best Buy sold them a box full of bathroom tile instead of a hard drive. Your card may come with extended warranty protection, 90 day accidental damage protection that includes vandalism, rental car insurance, road side assistance, baggage insurance, and return protection. You should be aware of what benefits your credit or debit card offers so that you remember to use them when you need them.

7) Merchants Are Not Allowed To Make You Give Up Your Right To A Chargeback
You might see a receipt that has suspicious-looking waiver stating that you're agreeing to give up your right to issue a chargeback against the merchant for any reason, no matter what, period. These waivers are the result of some crafty entrepreneurs selling sales-receipt paper with the waiver printed on it, claiming that it helps protect the merchant. It's all nonsense and it isn't allowed. If you see it, you should report the merchant.

8) Merchants Are Not Allowed To Place A Hold For The Estimated Tip
Because so many consumers have instant access to their account information, merchants aren't allowed to place an "authorization" for an estimated tip. For example, if you go to dinner and the bill is $100 and you pay with a credit card, the restaurant might be tempted to "authorize" your card for $120—a 20% tip. If you choose to leave a 15% tip and then check your balance — it will appear that you have been overcharged. This apparently results in lots of angry customers, so the practice has been forbidden in VISA's merchant agreement.

9) If Merchants Suspect You Of Fraud They Are Supposed To Call With A "Code 10"
If a merchant is suspicious of you, they are supposed to make a "Code 10" call. They are instructed to take your card, call in, and say “I have a Code 10 authorization request." They will then be asked a series of questions that can be discreetly answered with either yes or no. The merchant bank will then authorize or deny the card. They are not supposed to threaten to call the police or try to detain you. Mastercard says that if the police need to be involved, the "Code 10" operator will call the police while the clerk waits on hold.

10) If Merchants Break These Rules, You Can Report Them To The Credit Card Company
Here's Mastercard's Merchant Violation form. To report merchant violations to VISA, they ask that you report them to the financial institution that issued you your Visa card. You should be able to find the number your on Visa statement or on the back of your card.

(Photo: Maulleigh )

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Abu Dhabi buys 90% of New York City's Chrysler Building

Adam Rountree/The Associated Press

The government of Abu Dhabi bought a 75 percent stake in the landmark Chrysler building Tuesday for $800 million.

The government of Abu Dhabi bought a 90 percent stake in the Chrysler Building on Tuesday for $800 million from German real estate investors and Tishman Speyer.

But while it might seem that the buyer, the Abu Dhabi Investment Council, got a controlling interest in the Art Deco tower, a landmark, for that kind of money, that was not the case.

Despite having only a 10 percent holding, Tishman Speyer Properties will continue to control the property and manage it, much as it has since 1997, because it controls the land beneath the 77-story tower, with its trademark stainless steel crown, gargoyles and elevator cabs that evoke the chrome-laden autos of the 1930s.

Tishman Speyer Properties and the Abu Dhabi Investment Council, an arm of the Gulf emirate government, which tends to shun publicity, did not return calls requesting comment.

Teresa Miller, a spokeswoman for Prudential Real Estate Investors, which managed the German fund, confirmed on Wednesday that "we no longer own a 75 percent stake in the Chrysler Building."

Miller declined to disclose the fund's sale price. But real estate executives who were told about the transaction said that Tishman Speyer sold the investment council an additional 15 percent, and that the total price was $800 million. The investment council is also negotiating to buy the retail space in the seven-story glass Trylons, or pavilion, that Tishman Speyer built next to the Chrysler Building.

Tishman Speyer and its partner, Travelers Group, bought the Chrysler Building, at 42nd Street and Lexington Avenue, and the adjoining Kent Building in 1997 for about $220 million from a consortium of banks and the estate of Jack Kent Cooke.

Jerry Speyer, the chairman of Tishman Speyer, outmaneuvered competing bidders for the property by pre-emptively securing a 150-year lease with Cooper Union, which owns the land underneath the tower.

The tower was built in 1930 by Walter P. Chrysler, the automaker, and was briefly the tallest building in New York, losing out months later to the Empire State Building.

The Chrysler Building's lobby featured African marble and chrome, and the Sky Club on the 66th floor offered spectacular views.

But by the 1970s, the building was badly in need of refurbishing.

Tishman Speyer poured $100 million into a three-year renovation, which included erecting a retail pavilion on East 42nd Street under three glass pyramids between the Chrysler Building and the 32-story Kent Building, which was not included in the sale.

Less than four years later, Travelers sold its 75 percent stake for $300 million to the German real estate fund, TMW. "Tishman Speyer will maintain a controlling interest and full decision-making authority" over the building, Mr. Speyer said at the time.

Prudential later acquired TMW and sold its share of the Chrysler Building on Tuesday. Such funds generally buy assets for five to seven years and are not interested in being long-term owners of real estate.

Miller of Prudential Real Estate said that the fund had earned a 20 percent annual return on its investment in the Chrysler Building, the last property in that fund to be sold before it closes.

Last year, TMW and Tishman Speyer sold 666 Fifth Avenue, a 1.5-million-square-foot office tower, for $1.8 billion. They had bought it in 2000 for $518 million from Sumitomo Realty, a Japanese company that acquired the building in 1988 for $488.6 million.

Japanese companies and institutions flooded into New York during the 1980s real estate boom, with Mitsubishi Estate's purchase of Rockefeller Center touching off an outcry over foreign control of American property.

The Japanese lost a fortune after property values plunged by 50 percent during a recession in the early 1990s.

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