Palin Accidentally Reprimands Her Own Supporters

Posted by Scott Conroy

(CBS)

From CBS News' Scott Conroy:

(RICHMOND, VA.) - Protesters at Sarah Palin’s rallies can always expect to be shot down with some choice words from the candidate. But at a rally here today, the confused Alaska governor mistakenly issued a stern rebuke to her own supporters.
he outdoor crowd was so massive that many were unable to hear Palin speak, so about midway through the Alaska governor’s remarks, some of them tried to take matters into their own hands, shouting in unison, “We can’t hear you!”

When that didn’t get the candidate’s attention, they tried a new tactic.

“Louder!” they shouted.

Palin appeared flustered as she stopped reading from the prepared remarks, which were coming across her teleprompter.

“I would hope at least that those protesters have the courage and the honor of thanking our veterans for giving them the right to protest!” she admonished the confused crowd.

Palin’s husband Todd tried to put an end to the awkward episode by approaching his wife on stage and telling her, “They just can’t hear you back there. That’s it.”

Palin responded, “OK. I’m doing that,” and then continued with her stump speech.

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A £516 trillion derivatives 'time-bomb'

By Margareta Pagano and Simon Evans

The market is worth more than $516 trillion, (£303 trillion), roughly 10 times the value of the entire world's output: it's been called the "ticking time-bomb".

It's a market in which the lead protagonists – typically aggressive, highly educated, and now wealthy young men – have flourished in the derivatives boom. But it's a market that is set to come to a crashing halt – the Great Unwind has begun.

Last week the beginning of the end started for many hedge funds with the combination of diving market values and worried investors pulling out their cash for safer climes.

Some of the world's biggest hedge funds – SAC Capital, Lone Pine and Tiger Global – all revealed they were sitting on double-digit losses this year. September's falls wiped out any profits made in the rest of the year. Polygon, once a darling of the London hedge fund circuit, last week said it was capping the basic salaries of its managers to £100,000 each. Not bad for the average punter but some way off the tens of millions plundered by these hotshots during the good times. But few will be shedding any tears.

The complex and opaque derivatives markets in which these hedge funds played has been dubbed the world's biggest black hole because they operate outside of the grasp of governments, tax inspectors and regulators. They operate in a parallel, shadow world to the rest of the banking system. They are private contracts between two companies or institutions which can't be controlled or properly assessed. In themselves derivative contracts are not dangerous, but if one of them should go wrong – the bad 2 per cent as it's been called – then it is the domino effect which could be so enormous and scary.

Most markets have something behind them. Central banks require reserves – something that backs up the transaction. But derivatives don't have anything – because they are not real money, but paper money. It is also impossible to establish their worth – the $516 trillion number is actually only a notional one. In the mid-Nineties, Nick Leeson lost Barings £1.3bn trading in derivatives, and the bank went bust. In 1998 hedge fund LTCM's $5bn loss nearly brought down the entire system. In fragile times like this, another LTCM could have catastrophic results.

That is why everyone is now so frightened, even the traders, who are desperately trying to unwind their positions but finding it impossible because trading is so volatile and it's difficult to find counterparties. Nor have the hedge funds been in the slightest bit interested in succumbing to normal rules: of the world's thousands of hedge funds only 24 have volunteered to sign up to a code of conduct.

Few understand how this world operates. The US Federal Reserve chairman, Ben Bernanke, tapped up some of Wall Street's best for a primer on their workings when he took the job a few years ago. Britain's financial regulator, the Financial Services Authority, has long talked about the problems the markets could face on the back of derivative complexity. Unfortunately it did little to curb the products' growth.

In America the naysayers have been rather more vocal for longer. Famously, Warren Buffett, the billionaire who made his money the old-fashioned way, called them "weapons of mass destruction". In the late 1990s when confidence was roaring in the midst of the dotcom boom, a small band of politicians, uncomfortable with the ease with which banks would be allowed to play in these burgeoning markets, were painted as Luddites failing to move with the times.

Little-known Democratic senator Byron Dorgan from North Dakota was one of the most vociferous refuseniks, telling his supposedly more savvy New York peers of the dangers. "If you want to gamble, go to Las Vegas. If you want to trade in derivatives, God bless you," he said. He was ignored.

What is a Derivative?

Warren Buffett, the American investment guru, dubbed them "financial weapons of mass destruction", but for the once-great-and-good of Wall Street they were the currency that enabled banks, hedge funds and other speculators to make billions.

Anything that carries a price can spawn a derivatives market. They are financial contracts sold to pass on risk to others. The credit or bond derivatives market is one such example. It is thought that speculation in this area alone is worth more than $56 trillion (£33 trillion), although that probably underestimates the true figure since lax regulation has seen the market explode over the past two years.

At the core of this market is the credit derivative swap, effectively an insurance policy against the default in the interest payment on a corporate bond. One doesn't even need to own the bond itself. It is like Joe Public buying an insurance policy on someone else's house and pocketing the full value if it burns down.

As markets slid into crisis, and banks and corporations began to default on bond payments, many of these policies have proved worthless.

Emilio Botin, the chairman of Santander, the Spanish bank that has enjoyed phenomenal success during the credit crunch, once said: "I never invest in something I don't understand." A wise man, you may think.

Simon Evans

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GM, Chrysler in merger talks: source

By Kevin Krolicki and Jui Chakravorty Das

DETROIT/NEW YORK (Reuters) - General Motors has had talks with smaller rival Chrysler LLC about a merger that would combine the No. 1 and No. 3 American automakers at a time when both are struggling to cut costs and shore up cash, according to a source briefed on the matter.

Separately, Ford Motor Co, plans to sell shares from its $1.4-billion stake in Japan's Mazda Motor Co, a second source said.

Barron's reported that GM was preparing to approach the U.S. Federal Reserve about borrowing money from the central bank's discount window because of the logjam in credit markets that has shut it out of other borrowing.

The moves come as all three Detroit-based automakers are struggling with a plunge in U.S. sales to 15-year lows and facing tough questions from investors and creditors about whether they have the cash to ride out a deepening downturn.

Analysts said urgent steps by all three U.S. automakers to shore up cash could be expected as the global financial crisis begins to dampen auto sales in what had been fast-growing markets in Europe, Asia and South America.

But they also questioned whether an outright merger with Chrysler could serve GM's interests.

"On the surface, it frankly doesn't make sense," said Aaron Bragman, an analyst with Global Insight. "The acquisition of Chrysler wouldn't solve and problems GM has and would only make some existing ones worse."

Representatives of Cerberus Capital Management, the private equity firm that owns an 80.1-percent stake in Chrysler, were not immediately available for comment.

Chrysler declined comment. GM declined to comment on whether it had any talks with Chrysler but said talks with other automakers were a routine part of business.

"GM officials routinely discuss issues of mutual interest with other automakers," said GM spokeswoman Renee Rashid-Merem. "As a policy, we do not confirm or comment publicly on those private discussions, which in many cases, do not lead anywhere."

Cerberus is also in exploratory talks with other parties, including Renault-Nissan, to sell Chrysler, the source said.

But any deal would hinge on the completion of the sale of Daimler AG's remaining 19.9-percent stake in Chrysler to Cerberus, the source said. Cerberus last month said it had approached Daimler to buy that remaining stake.

Chrysler's private owners and GM have had "very early" and "very exploratory" talks about a merger, the source said.

The talks between GM and Cerberus, first reported by the New York Times and the Wall Street Journal, began more than a month ago and are not certain to produce a deal.

The Journal said that Cerberus had proposed a swap of assets with GM that would give the private equity firm full ownership of finance company GMAC.

In exchange, GM would get the loss-making auto operations of Chrysler, the newspaper said.

Cerberus currently owns 51 percent of GMAC, GM's former captive finance company which has been hobbled by its exposure to the U.S. mortgage market. GM owns the remainder of GMAC.

Global Insight's Bragman said a deal structured in that way would benefit Cerberus since the private equity firm would end up with GMAC just as a $700 billion U.S. government bailout fund to buy up distressed debt begins operations.

"They would get rid of an auto company that has weighed on their results and they would get full control of GMAC just as the government is about to come to the rescue," Bragman said.

LONG PROCESS

The reported talks between the two sides would revive discussions between Chrysler and GM about a potential merger in early 2007 when Germany's Daimler AG began the process of selling off Chrysler that culminated in a deal later that year to sell the automaker to Cerberus.

GM Chief Executive Rick Wagoner also said last year that he saw some potential for Cerberus to combine GMAC with Chrysler Financial, the finance company affiliated with the No. 3 automaker.

Analysts have questioned Chrysler's ability to survive as a stand-alone automaker, given its reliance on sales to North America for some 90 percent of its revenue.

But a combination with GM would match two companies with overlapping weaknesses, analysts said.

For one thing, both GM and Chrysler have been hurt by their reliance on sales of trucks and SUVs. For another, both have been struggling to cut union-represented production jobs in reaction to weaker U.S. sales.

"It would be taking two cash-burning companies and putting them together so they burn cash faster," said Erich Merkle, an auto industry consultant with Crowe Horwath.

Chrysler, which no longer discloses results as a private company, has also had discussions about a tie-up with India's Tata Motors and Italy's Fiat in recent months.

GM shares fell to near a 60-year low this week on fears the global financial crisis could derail its turnaround plans.

GM and Ford both ruled out on Friday seeking bankruptcy protection.

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