The government is kicking off a program that aims to prevent foreclosures by letting an estimated 400,000 troubled homeowners swap their mortgages for more affordable loans. Lenders, rather than borrowers, will decide whether to participate in the program, which requires them to take a loss on the initial loan. To qualify, borrowers must be spending more than 31 per cent of their income on mortgage payments. Loans made this year are excluded, except for those completed on January 1st. Housing and Urban Development Secretary Steve Preston says for homeowners in trouble, this may be the help they need.
As the Senate moves toward passage of a $700 billion rescue plan for the financial markets, opposition in the House appears to be softening. One House Republican who, along with two-thirds of his GOP colleagues, voted against it on Monday has indicated he's reconsidering. John Shadegg of Arizona told a Phoenix radio station he'd be "inclined to vote for the bill" if it raises the cap on federal deposit insurance, and also changes a rule on the value of company assets. Congressional officials say others are also thinking about a switch. Leaders of both parties say they hope a new version of the plan can be approved by late this week. The revised package coming before the Senate adds $100 billion in tax breaks for businesses and the middle class. It also temporarily raises the deposit insurance cap from the current $100,000 to $250,000. There's been a flood of e-mails, calls and letters from constituents angry that Congress hasn't acted on the financial crisis. House Republican Whip Roy Blunt says the messages were running about 90 per cent against it earlier, and are now about 50-50. Barack Obama, Joe Biden and John McCain will be in Washington as the Senate takes up the proposal.
President Bush is telling the Senate to take the financial rescue package "very seriously" and to pass it. Bush told reporters that he is confident that the measure will be approved in the Senate this evening. He said the House is voting Friday. The president says the bill is improved from its earlier version, including addition of a temporary increase in federal deposit insurance. Bush said that it is very important for lawmakers to pass the bill to get credit flowing again and keep the nation's economic picture from getting worse.
Governors and business lobbyists are pressuring Congress to pass the $700 billion financial industry bailout. The call from Governors Rick Perry and Joe Manchin of West Virginia comes as top lawmakers prepare for another face-off on the issue--this time in the Senate. In a joint letter, Perry and Manchin say "there is a time for partisanship and there is a time for getting things done." Perry heads the Republican Governors Association, while Manchin leads the Democratic Governors Group. Their letter was aimed at signaling there are home-state political reasons for approving the massive bailout.
European Union regulators are setting out long-term regulatory changes to stabilize European banking and improve supervision for banks that operate across national boundaries. The European Commission warns that its proposals would not solve the current banking meltdown but should strengthen market confidence and banks' resilience when they come into effect in two years' time. The new rules would restrict how much banks could lend to one borrower, give financial supervisors a clearer view of the business banks do across Europe and fix new rules to assess the risk complex securitized investments--such as those based on the U.S. subprime housing market that triggered the current credit crisis.
Another $60 billion is flowing from European central banks to global money markets to keep the financial system flush with cash. The European Central Bank has offered $50 billion and the Bank of England has offered $10 billion in overnight operations. The Bank of England also says it is offering another $30 billion to markets, on top of the overnight operation. Central banks worldwide, including the Fed and ECB, have been pumping billions into money markets worldwide since Lehman Brothers filed for bankruptcy two weeks ago. Analysts say the banks' support of the financial system will have to go on for some time.
Centerpoint Energy says it has restored power to about 98 per cent of the 2.15 million customers with outages caused by Hurricane Ike. About 35,000 customers remain without power, or about two per cent of those affected.
>STRONG>Reliant Energy lost about $200 million in business because of Hurricane Ike from the reduction of power purchases because of widespread power outages. In a conference call, Reliant says it will reduce the size of its Texas retail electric business by changing how it manages risk. It plans to reduce the number of business customers as a way to cut the amount of collateral required to run its retail business. About 70 per cent of the money needed for collateral for wholesale power purchases is for customers in its commercial and industrial segment. Renewing commercial customers may have to accept shorter-term contracts to bear more of the risk from changing commodity prices.
The Minerals Management Service now says 32 platforms have extensive damage from Hurricane Ike and another 41 have moderate damage. The MMS says it has reports of damage at eight offshore natural gas transmission pipelines. About 57 per cent of oil and 45.7 per cent of natural gas production in the Gulf of Mexico remains shut in more than two weeks after Ike. The agency's count of destroyed platforms remained at 52.
Enron Creditors Recovery Corporation is making its 24th distribution to Enron creditors. About $740.5 million and about $88.4 million in Portland General Electric stock is being paid to creditors. Enron Recovery says most creditors have now received returns approaching 52 cents on the dollar. Since November 2004, creditors have received about $21.4 billion in twice-yearly distributions in April and October, as well as in "catch-up" distributions every two months. Enron expects to make a final distribution to creditors in 2009.
A measure of U.S. manufacturing activity contracted more than expected in September as new orders slowed dramatically. The reading of 43.5 from the Institute for Supply Management was down from August's 49.9. It also was worse than economists' prediction of 49.5, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR. A reading above 50 signals growth. The index has been hovering on what economists call "the boom-bust" line for most of the year.
Construction activity was unchanged in August even though spending for residential projects posted the first increase in 17 months, a rare bit of good news in the midst of the worst housing downturn in decades. The Commerce Department says construction activity was flat in August, a better-than-expected outcome than the 0.5 per cent fall that economists expected. The big surprise was a 0.3 per cent rise in residential activity, the first increase in housing activity since March 2007.
The U.S. Supreme Court has agreed to decide what share railroads and an oil company should bear of the cleanup of a contaminated industrial site near Bakersfield, California. The contamination in Arvin, California, is threatening drinking water supplies. Shell Oil, Union Pacific and Fort Worth-based Burlington Northern and Santa Fe Railway say they're being unfairly tagged with an inordinate portion of the cost of cleaning up the site. The companies contend they merely transported and sold legal, useful products and were not involved in years of soil and groundwater contamination. The site was once the home of a fertilizer and insecticides manufacturing facility.
Ford says its U.S. sales dropped 34.6 per cent in September as tight credit, economic uncertainty and financial market turmoil continue to keep buyers away. Ford is the first automaker to report monthly sales Wednesday. Industry analysts are predicting another down month for U.S. sales despite strong incentives from automakers. Dealers have said customers are having trouble qualifying for loans under stricter credit guidelines from banks and finance companies. Several automakers also have either restricted or discontinued leasing. At Ford, September car sales fell 19.4 per cent from a year earlier, while truck sales dropped 39.4 per cent.
Carmax says it is laying off 600 employees as the auto retailer tries to cut costs due to a decline in car and truck sales. Spokeswoman Trina Lee said the reductions are in its service operations departments at its 60 production superstores. The employees reconditioned vehicles. Lee says the Richmond, Virginia, company expects about $7 million in severance costs will be included its results for the third quarter ending November 30th. Carmax said last month it was reducing staffing levels and reducing store growth because of slowing sales. The company employs more than 15,000 people at 99 stores and its headquarters.
The money sent home by Mexicans living in the U.S. has registered its biggest drop since record-keeping began 12 years ago. The Bank of Mexico says remittances in August dropped 12 per cent to $1.9 billion. That compares to $2.2 billion in August 2007. The central bank said that remittances had reached $15.5 billion in the first eight months of this year--four per cent less than the same period the year before. Remittances began dropping this year as the U.S. economy slowed and the U.S. government stepped up enforcement of its borders with record deportations and increased border security. Remittances are Mexico's second-largest source of foreign income, next to oil exports.
Southwest Airlines says it will set aside priority security lanes for business-fare customers and frequent fliers at seven airports beginning next month. It's similar to an announcement two weeks ago by American Airlines, which is adding priority security screening and boarding for its top customers. Long considered an airline catering to leisure travelers, Southwest has been making a push for business travelers. Customers who buy more expensive "business select" tickets will qualify for the faster "Fly By" security screening. Southwest is the only major U.S. airline to remain profitable this year.
Southwest Airlines has "very limited financing needs" and little immediate exposure to the turmoil in the financial markets. That's the word from Southwest finance chief Laura Wright. She says the Dallas-based airline has no exposure to bankrupt Lehman Brothers and only a small amount to brokerages that don't have a commercial banking side. Southwest enters fuel-hedging transactions with financial services firms as counterparties. Wright says southwest has enough cash set aside to cover about 85 per cent of its fuel-hedging positions. Southwest reported about $5.8 billion in cash and short-term investments on June 30th. Separately, Southwest said it would set aside priority security lanes for business-fare customers and frequent fliers at seven airports beginning next month. It's similar to an announcement two weeks ago by American Airlines, which will add priority security screening and boarding for top customers.
Southwest announced plans to begin service next year to Minneapolis. It's the first new city in more than a year for Dallas-based Southwest. CEO Gary Kelly says other U.S. carriers have sharply cut flights this fall, creating "tremendous opportunities" for Southwest to expand. Southwest has bought 26 new jets this year and has three more deliveries scheduled before year's end.
Florida has joined Texas and seven other states in suing Merck alleging deceptive marketing of its former prescription painkiller Vioxx. Florida is seeking restitution for all money spent by state health programs on Vioxx, plus interest. Merck pulled Vioxx from the market four years ago after its research showed the drug doubled risk of heart attack and stroke. A Merck spokesman says the New Jersey-based company acted responsibly. Merck says Vioxx was effective and the company carefully studied the drug and consistently made results available to regulators and the medical community. Alaska, Louisiana, Michigan, Mississippi, Montana, New York, Texas and Utah have previously sued--as has New York City. Except for the Texas case, those suits are pending in New Orleans before U.S. District Judge Eldon Fallon.
A series of eight online videos are offering a glimpse into billionaire Warren Buffett's life in Omaha. The videos feature Alice Schroeder, who wrote the new biography The Snowball: Warren Buffett and the Business of Life. Scroeder's book and the first video debuted Monday. A new video will be posted each week until November 18th online. Amazon.com ranked the Buffett book first on its best-seller list Tuesday afternoon. Schroeder's book has been eagerly anticipated because it is the first one Buffett has cooperated with. The book delves deep into Buffett's personal life as well as his business record to show what's behind his ideas. Buffett is chairman and CEO of Berkshire Hathaway.
Berkshire Hathaway is buying $3 billion worth of General Electric preferred shares, even as the diversified conglomerate is preparing to sell at least $12 billion worth of common stock to the public. GE says Berkshire Hathaway will buy $3 billion of perpetual preferred stock in a private offering. Berkshire also received warrants to buy $3 billion worth of common shares at $22.25 each over five years. GE says that the Berkshire funds will boost its capital position and permit it to make opportunistic investments if they arise. The deal comes on the same day Fairfield, Connecticut-based General Electric said it was having no trouble selling their commercial paper, short-term loans it arranges directly with institutional investors.
Nearly half the workers in America expect to still be working when they hit 67 and not just because they'll need the money. A survey by the U.S. division of Toronto-based Sun Life Financial finds more than 80 per cent of those who plan to work past the usual retirement age say the main reason they'll be doing it is to stay mentally engaged. But money is a big factor. The second most commonly cited reason is to earn enough money to live well. And fewer than half those surveyed are very confident they'll have enough money to take care of even basic living expenses when they reach traditional retirement age. Many also say they'll need to keep working to hang onto their health-care benefits. But some people say they plan to keep working into their golden years because like their job and like being around people.