The fate of a much-criticized plea deal that fines BP $50 million and sentences the oil giant to three years' probation is now in the hands of a federal judge. U.S. District Judge Lee Rosenthal listened to a final set of arguments about why she should either accept or reject the plea agreement. Rosenthal gave no indication about when she would rule. During a hearing Tuesday, attorneys for victims of the 2005 explosion at the company's Texas City plant reiterated their contention that the fine is too low and that BP would not meet its safety obligations at the facility. But federal prosecutors and BP say the fine was the highest possible and that government agencies are making sure the oil giant is running a safe plant.
Federal Reserve Chairman Ben Bernanke warns that the financial crisis has not only darkened the country's current economic performance but also could prolong the pain. In a speech to the National Association of Business Economics, Bernanke says "the outlook for economic growth has worsened." He says the financial turmoil is adding to how long we will see a period of a weakened economy and an increased "risk to economic growth." While saying the inflation numbers are "very ugly right now," Bernanke expects them to moderate over the next several months. He also admits that the Federal Reserve will "need to consider" whether it should change its stance about holding credit rates steady. Since the Fed halted its aggressive rate cutting program in June, financial and economic conditions have deteriorated and record high energy prices have begun to decline. The Fed chief's more gloomy assessment appeared to open the door wider to an interest rate cut on or before October 28th-29th, the central bank's next meeting, to brace the wobbly economy.
The Federal Reserve is buying more than $99 billion in short-term commercial debts. It's doing so under authority that dates back to the depression era, under which it's allowed to take action in "unusual and exigent circumstances." The Treasury Department, which is working with the Fed on the program, says the action will "prevent substantial disruptions to the financial markets and the economy." Companies use such so-called "commercial paper" to borrow money for short periods of time, ranging from one day to less than a week. Most of the loans are for 28 days and 84 days. Some are shorter--13-day and 17-day loans. About $100 billion in such "commercial paper" IOU's are outstanding at any given time, and most of those are sold to buyers that include pension funds and money market mutual funds. But, now those investors are too jittery to commit for longer than overnight or a couple of days. The Fed's plan is to act as a backstop that would provide another option for companies to make short term loans to cover their day-to-day operations. Officials say they will buy as much of the debt as necessary to get the market functioning again. While not saying how much that could be, the Federal Reserve estimates that $1.3 trillion worth of commercial paper would qualify for the program.
Even in the midst of a severe meltdown on Wall Street, Federal Reserve officials at their September meeting believed the risks from weaker growth and higher inflation were roughly equal. The Fed officials discussed the financial turmoil during their closed-door meeting on September 16th, according to minutes released Tuesday. The meeting was a day investment bank Lehman Brothers collapsed--the largest bankruptcy in U.S. history. It was also hours before the Fed announced it was extending an $85 billion loan to rescue American International Group, the world's largest insurance company. While concluding that no change was needed in interest rates at the September meeting, the minutes showed some members said a policy response from the central bank might be needed.
President Bush says the economic meltdown has brought tough times for many Americans. But he pledged that "we're going to come through this." "We have been through tough times before and we're going to come through this again," the president said Tuesday. He said the heart of the problem is a credit crunch that has squeezed businesses and families. He said his administration took action to prevent a painful and deep recession. Bush spoke at an office supply company in the Washington suburb of Chantilly, Virginia, after talks earlier in the day with European leaders. Bush pressed allies to coordinate their efforts to ease the financial crisis spreading around the globe. The White House said Bush was open to the idea of a leaders' summit on the economic upheaval.
Government data shows consumer borrowing fell in August for the first time in more than a decade as households, battered by rising job layoffs and the worsening economy, cut back sharply on their use of credit. The Federal Reserve said that consumer borrowing fell at an annual rate of 3.7 per cent in August. It marked the first time that total borrowing had fallen since a 4.3 per cent rate of decline in January 1998. The weakness reflected a big decline of 5.4 per cent at an annual rate in the category that includes auto loans and a 0.8 per cent rate of decline in the category that includes credit cards.
The top Congressional budget analyst says pension plans have lost as much as $2 trillion in the past 15 months. Peter Orszag told a House panel that the losses are likely to force many workers to hold off on major purchases and delay their retirements. The panel was investigating how the housing, credit and financial troubles battering the economy have affected retirement savings. More than half the people surveyed in a recent Associated Press-GFK poll said they worry that they will have to work longer because the value of their retirement savings has declined.
The federal budget deficit is ballooning under the latest estimates from the Congressional Budget Office. The deficit hit a record $438 billion for the budget year that ended last week, up from the $162 billion worth of red ink posted last year. CBO said that with the economy in a slump, revenues dropped by almost two per cent. Corporate income receipts dropped by $65 billion, or nearly 18 per cent. At the same time, individual income tax revenues went down by 1.6 per cent. The deficit is virtually certain to balloon even higher next year as the government sorts out the financial crisis and taps a $700 billion treasury fund to buy toxic mortgage-related securities.
The International Monetary Fund is calling for a "collective commitment" by finance officials around the world to combat the ongoing credit crisis. The IMF in a semiannual report also raised its estimate of the total losses that will be caused by the U.S. credit crisis to $1.4 trillion, up from an estimate of $1 trillion in April. The IMF's report says restoration of financial stability would "benefit from a publicly-stated collective commitment by the authorities of the affected countries to address the issue in a consistent and coherent manner." Officials in Europe have struggled to coordinate their response across the 15 nations that use the euro and the 27 members of the European Union. The report comes ahead of this weekend's semiannual meeting of the World Bank and IMF.
The Federal Deposit Insurance Corporation has approved a proposed increase in premiums that will double the average paid by U.S. banks and thrifts next year to replenish the deposit insurance fund. FDIC Chairman Sheila Bair made the proposal--which will raise the average to 13.5 per cent of the value of their insured deposits--at a meeting of the agency's board. For institutions in strong financial condition, which is roughly 91 per cent of roughly 8,500 insured banks and thrifts, the average rate will be 11.6 per cent. Thirteen federally-insured banks and savings and loans have failed this year, and more collapses are expected. The deposit insurance fund is now at $45.2 billion below the minimum target level set by Congress and the lowest it has been since 2003.
Documents released at a House hearing show how top executives at American International Group hid the firm's risky products from auditors even as the company's losses grew. House Oversight Committee Chairman Henry Waxman says that, while AIG was bleeding cash, its executives were pulling out even more money through higher dividends and stock buybacks. Testimony from a former AIG CEO outlines how the firm suffered huge losses when its credit rating was cut, thanks mostly to complex transactions known as "credit default swaps." AIG was a major seller of the swaps, which are a form of insurance, though they're not regulated that way. As one executive put it, "AIG was caught in a vicious cycle." The Federal Reserve rescued AIG with an $85 billion loan on September 16th, one day after investment bank Lehman Brothers declared bankruptcy when the government wouldn't come to its aid.
A former CEO of AIG canceled his scheduled appearance at the hearing examining the chain of events that led to the government's $700 billion bailout of the financial industry. House Oversight and Government Reform Committee spokesman Karen Lightfoot confirmed that Hank Greenberg would not be appearing at today's hearing but said she did not know the reason. CNBC reported that Greenberg had bowed out because of illness. Greenberg was one of three former AIG CEOs scheduled to testify before the committee.
Russian President Dmitry Medvedev has unveiled measures to prop up Russia's banking system. He's injecting billions of rubles to ease a liquidity shortage one day after the country's stocks suffered their worst-ever day of trading. Russian markets were mixed when they reopened after regulators suspended trading early Tuesday in a bid to avert further damage. Medvedev announced the government would lend 950 billion rubles--about $36 billion--with a five-year term to banks. Most of the money will go the country's two largest state-backed lenders in an effort to get liquidity moving through the whole system. More money will be lent to banks in particular difficulty. This comes on top of some $170 billion pledged already by the state in recent weeks in the form of loans and relief.
Port of Galveston officials say several key port tenants are once again receiving shipments, even though some facilities remain heavily damaged by Hurricane Ike. Del Monte Fresh Produce received its first refrigerated fruit shipment, and two vessels for Mitsubishi Power Systems delivered wind towers and power generation equipment. The port has temporary authority to spend as much as $55 million on initial repairs. The federal government is being asked for $500 million in assistance for other port repairs.
Landry's plans to reopen in Kemah in a few weeks, after repairs from Hurricane Ike are complete. The Boardwalk complex is on schedule to open before spring break next year. Landry's CEO Tilman Fertitta says three of his seven Galveston restaurants aren't expected to reopen until next year. Fertitta is trying to take his company private. Closures in Kemah and Galveston, the global credit crisis and reduced spending on eating out have caused him to seek a reduced amount of financing than for the original deal of $23.50 a share announced in January. Landry's shares closed at $13.11 on Monday.
The Energy Department says the cost of heating your home this winter will be a lot more expensive, especially for the tens of millions of households that use fuel oil or natural gas. Households that use oil can expect to spend an average of $2,388--or $449 more than last year--for the October-April heating season. Users of natural gas will probably spend on average just over $1,000--or $155 more than last year. The winter outlook released by the department's statistical agency predicts the price of heating oil--widely used in the northeast--will average 60 cents per gallon more than last winter. The cost of electricity and propane is expected to be 10 per cent to 11 per cent higher.
A new U.N. report says current trade policies tilt the market for biofuel in favor of producers in developed countries. The U.N. Food and Agriculture Organization is calling for an urgent review of agriculture and biofuel subsidies and trade barriers. It says their removal would increase opportunities for developing countries to take advantage of the rising demand for biofuel. The agency also says that the imposing of price controls and export bans prevents markets from adjusting and may prolong and deepen the food crisis. Biofuels are made from crops such as sugar cane and corn. While the growing demand for them will contribute to food price increases, it can also promote rural development in poor countries if small farmers have access to markets and receive support to boost their production.
Advanced Micro Devices announced that it'll spin off its factories into a new joint venture with investors in the Persian Gulf state of Abu Dhabi. The Silicon Valley-based computer chip maker says the move is aimed at dramatically cutting costs and better competing with rival chip maker Intel. The new venture will be based in the United States and called Foundry Company. The transaction is expected to close at the beginning of 2009, pending regulatory approvals. Foundry Company will launch operations with about 3,000 employees from AMD facilities in Silicon Valley; New York; Dresden, Germany; and Austin. If "commercially justified," AMD says Foundry might also build new factories in Abu Dhabi.
The chairwoman of the National Automobile Dealers Association says the credit crunch and economic problems are likely to cause 700 auto dealers to go under this year. Speaking to the Automotive Press Association in Detroit, Annette Sykora urged fast government action on putting a $700 billion financial industry rescue plan in place.
A General Motors official says the automaker could consider selling its downtown Detroit headquarters as part of a way to raise cash, but plans to stay in the towering complex. The Detroit News reports General Motors wants to borrow about $500 million from one or both of Detroit's pension funds to refinance the Renaissance Center, which it bought earlier this year for $626 million. GM's Executive Director of Worldwide Real Estate John Blanchard says talks are preliminary and the automaker is "committed to the city." It moved its headquarters from midtown Detroit in 1996 and initially leased the building. GM earlier announced it was putting assets such as its Hummer truck brand up for sale and could announce more asset sales this quarter.
Texas will receive $4.2 million as part of a $62 million settlement with Eli Lilly. Texas and three other states sued the pharmaceutical company for downplaying the side effects of its antipsychotic drug Zyprexa and marketing the drug for "off-label uses."
Corinth, Texas-based Labinal, which builds wiring harnesses for the aerospace industry, plans to close its factory in Pryor, Oklahoma, in 2009. The move jeopardizes the jobs of 485 people in the Mid-America Industrial Park in Pryor. The announcement comes just four months after Georgia-Pacific announced that it was shutting down the paper plant it had operated in Pryor for 44 years. That move affected more than 100 jobs. Executives of the company told Pryor employees that they are assured jobs for the next 60 days. Labinal has offered incentive packages to encourage employees to stay until the factory formally closes, the release said. It has established a career center on the grounds to provide resources to laid-off employees.
With stock markets sinking and fear of recession rising, what's the affluent consumer to do? Neiman Marcus hopes a few of them will escape the grim headlines by splurging on diamonds, Dior and other diversions. The upscale retailer unveiled its Christmas book and made surprisingly few concessions to the financial crisis running from Wall Street to Main Street. You can be the first on your block to own a limited-edition BMW sedan, a backyard golf course designed by Jack Nicklaus or a collection of every top 100 record from 1955 to 1990. Neiman Vice President Ginger Reeder said wealthy customers aren't much affected by the economy, but that so-called aspirational shoppers--more middle-income yet yearning for touches of luxury--could be stretched thin.