Tuesday PM August 31st, 2010

A private research group's survey of Americans shows that consumer confidence improved slightly in August, but the mood is still gloomy amid job worries. The Conference Board says that its consumer confidence index improved slightly to 53.5, up from a revised 51.0 in July. Economists surveyed by Thomson Reuters had expected a reading of 50.5. The reading comes after two straight months of declines, but it shows that Americans are about as confident as they were a year ago. It takes a reading of 90 to indicate a healthy economy. Economists watch confidence closely because consumer spending accounts for about 70 percent of U.S. economic activity and is critical to a strong rebound.


Home prices rose in June for the third straight month amid a burst of home-buying due to tax incentives that have since expired. The Standard & Poor's/Case-Shiller 20-city home price index posted a one percent increase in June from May and was up 4.2 percent from a year ago. Home prices nationally were up 4.8 percent in the second quarter compared with the first quarter, largely due to government tax credits of up to $8,000 that caused sales to surge. Seventeen cities showed price gains on a monthly basis. Prices in Seattle and Portland, Oregon were flat from a month ago, while prices in Las Vegas fell. Nationally, prices have risen six percent from their April 2009 bottom. But they remain 28 percent below their July 2006 peak. In Dallas, home prices are up 1.2 percent from last year.


The U.S. banking industry posted its highest quarterly earnings in nearly three years, even as the number of troubled institutions grew by more than 50 in the second quarter. The Federal Deposit Insurance Corporation says banks overall made $21.6 billion in net income in the April-to-June quarter. That was the highest quarterly level since 2007. Overall, banks lost $4.4 billion in the second quarter of 2009. But number of banks on the FDIC's confidential “problem” list increased by 54 in the quarter. The decline in bank lending stemming from the financial crisis showed signs of leveling off, the data show. Total lending declined by $107.5 billion, or 1.4 percent from the first quarter. It posted the steepest drop since World War II--7.5 percent--in 2009 from the year before.

Federal Reserve Chairman Ben Bernanke will testify this week about his role in the bank bailouts that sent billions of taxpayer dollars to banks deemed “too big to fail.” Bernanke will testify Thursday before the bipartisan Financial Crisis Inquiry Commission. The panel was created by Congress to investigate the roots of the financial panic that rocked Wall Street and the global economy starting in 2008. Bernanke and other officials considered the banks “too big to fail” because they feared the banks' failures could spread panic and bring down the broader financial system. The government rescued insolvent companies such as Bear Stearns, Merrill Lynch, and AIG by brokering their sale to competitors or putting them under government control. The hearings also will include testimony from FDIC Chair Sheila Bair and Dick Fuld, who was CEO of Lehman Brothers when it filed for bankruptcy protection.

Federal Reserve officials signaled at their August meeting that they would consider going beyond a modest program to purchase government debt if necessary to boost the economy. Minutes of the Fed's discussions at their August 10th meeting show the central bank recognized that the economy could need further stimulus beyond the debt purchases. Those are intended to lower interest rates on a range of consumer loans. The minutes did not spell out what new steps might be taken. But they do indicate that the officials focused attention on the modest move the Fed did take at its August meeting to invest the proceeds from its huge mortgage bond portfolio in Treasury securities.


Federal regulators are warning credit rating agencies that they could face civil fraud charges for giving inaccurate ratings to investments. The Securities and Exchange Commission issued the warning in a report on its investigation into a possible violation of the law by Moody's Investors Service, one of the three big rating agencies. The SEC said it will not pursue Moody's for civil fraud because of uncertainty over jurisdiction. The financial overhaul law enacted in July calls for reducing the influence of Moody's, Standard & Poor's and Fitch Ratings. They were discredited in the financial crisis for giving high ratings to risky mortgage securities.


Scandalized by federal regulators who had sex with oil company executives and negotiated with them for jobs, the agency that oversees offshore drilling is imposing a first-ever ethics policy that bars inspectors from dealing with a company that employs a family member or personal friend. Michael Bromwich, head of the Bureau of Ocean Energy Management, says the new policy should help restore credibility to the beleaguered agency, formerly known as the Minerals Management Service. President Barack Obama has pledged to end the agency's “cozy relationship” with the oil industry. Besides the rule on family and friends, the new policy bars inspectors from work involving their former employers for two years.


A federal magistrate has ruled that a lawsuit by Oregon Army National Guard veterans against contractor Kellogg Brown & Root can continue. U.S. District Magistrate Paul Papak denied KBR's second motion to dismiss the suit on Monday. In 2009, 26 Oregon guard veterans sued KBR, saying its managers downplayed or dismissed the presence of a toxic chemical. The veterans were among hundreds of U.S. soldiers in Iraq who were potentially exposed to sodium dichromate, which contains hexavalent chromium. The Oregon soldiers and others were protecting KBR workers at a water-treatment plant in Iraq beginning in May 2003 when they say they were exposed to the chemical. KBR denies wrongdoing. Spokeswoman Heather Browne said the company was disappointed in the ruling.


The Department of Justice says Hewlett-Packard has agreed to pay $55 million to settle claims it paid kickbacks to companies so that they would recommend its products to federal agencies. Hewlett-Packard has already announced earlier this month it will take a charge of two cents per share in the third quarter to settle the claims. HP has denied engaging in any illegal conduct in connection with the claims.


Power utilities are trying to buy the next wave of nuclear reactors much like a consumer buys a light bulb: right off the shelf. A tough economy and the aftermath of the Three Mile Island accident stalled nuclear expansion a generation ago. Now, company executives want to avoid earlier problems, including using too many reactor designs. There are 104 commercial reactors in the country--none are exactly alike. Two nuclear reactors proposed for eastern Georgia are being evaluated under a new system. The new rules encourage utilities to pick from a handful of reactor designs, then replicate them elsewhere. Supporters say system will produce nuclear plants that are quicker to build and easier to regulate. Critics question whether there are still too many reactor designs.


Many private colleges are sweetening financial aid packages for students from their own backyards. It's an effort by the schools to portray themselves as more affordable and better neighbors. They also want to stay competitive. Among the schools is Northwestern University, which is targeting Chicago-area students in financial need. Northwestern is also attempting to increase its minority scholarships. Its “good neighbor, great university program” scholarships will be awarded to 100 incoming local freshmen. There will be no income cut-off for students whose families show financial need. The majority who qualify will receive enough aid to fully cover the cost of Northwestern's $40,000 annual tuition and fees.


Experimental unmanned rockets being developed by California and Texas firms will make multiple test flights to the edge of space under a newly announced NASA funding plan. The space agency says that Masten Space Systems of Mojave, California, and Armadillo Aerospace of Rockwall, Texas, have been awarded a total of $475,000 by NASA's Commercial Reusable Suborbital Research Program. NASA wants the flights to demonstrate capabilities to carry small payloads to what it terms “near-space”--altitudes between 65,000 feet and 350,000 feet--and to land them safely. The flights will be launched this year and early next year from Mojave Air & Spaceport in California's high desert and at Spaceport America in New Mexico. Masten last year edged Armadillo in a $1 million contest for flights simulating lunar landings.


Hollywood is finishing its summer with record revenue. But the story has a twist. The film industry has seen the lowest actual movie attendance in five years. Domestic receipts from the first weekend in May through the upcoming Labor Day weekend should come in at nearly $4.4 billion--$100 million more than the record set last year. That's according to Paul Dergarabedian, box-office analyst for Hollywood.com. Attendance is down because of a steep rise in ticket prices, heavily due to a surge in 3-D screenings, which cost a few dollars more than regular movie admissions. Through Labor Day, the actual number of tickets sold during the summer season is expected to come in at 552 million, the lowest since 563 million tickets were sold in summer 2005.


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