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Tuesday PM June 10th, 2008

National gasoline average hits $4.04 per gallon…One of three Merrill Lynch executives convicted in Enron sham sale asks for investigations into alleged prosecutorial misconduct…Several airlines roll back weekend fare increase…

The price of gasoline continues on its record-setting pace. AAA and the Oil Price Information Service say the latest survey of service stations across the country shows the national average of regular gasoline has risen two cents to a record of just over $4.04 a gallon. Gas prices are following crude oil prices higher, and aren’t likely to stop rising until crude prices hit their peak. Jim Rutterbusch, who heads an energy consultancy in Illinois, says, “when crude tops out, we’ll finally start getting some relief at the pump.”

With gasoline now averaging more than $4 a gallon, Senate Democrats are pushing a wide-ranging energy package. The plan includes a number of provisions that have drawn veto threats, including repealing $17 billion worth of tax breaks that oil and natural gas companies now enjoy. A plan to stop filling the Strategic Petroleum Reserve won overwhelming approval in the House and Senate. President Bush signed it even though he felt it wouldn’t impact oil prices.

Senate Republicans blocked a Democratic plan to tax the windfall profits of the largest oil companies. Democrats failed to get the 60 votes needed to overcome a GOP filibuster of the energy package, and bring the bill up for consideration. Democrats said the huge profits enjoyed by the largest U.S. oil companies should be reined with motorists paying more than $4 a gallon for gasoline and oil prices soaring well beyond $100 a barrel. But Republican critics said higher taxes on oil companies would increase — not lower — gasoline prices and reduce the incentive for domestic oil exploration and production. There was bipartisan support for many of the tax breaks for parents, teachers and businesses and the credits to promote new energy sources. The House has passed a similar bill. But Republicans opposed new sources of revenues to pay for the tax relief. Those sources included closing loopholes allowing corporations to defer tax payments on money earned overseas. The bill would also have shielded for one year people facing the alternative minimum tax. Senate Finance Committee Chairman Max Baucus said the bill “is about jobs, energy and paying our nation’s bills.” New Mexico Republican Senator Pete Domenici says “people are clamoring for relief at the pump” but he warns that the bill would have given them “exactly what they don’t want” with higher taxes and increased oil imports. North Dakota Democratic Senator Byron Dorgan says Congress has to do something about what he terms “an orgy of speculation” in the oil markets. He also says that “Americans are furious about what’s going on.”

An attorney for one of three Merrill Lynch executives convicted for participating in a sham barge sale with Enron has asked for investigations into alleged prosecutorial misconduct. Sidney Powell represents James Brown, and alleges prosecutor Matthew Friedrich withheld evidence. Powell is asking for a Congressional, Justice Department and American Bar Association investigations. She plans to file similar requests for investigations of two other two prosecutors. All convictions against Daniel Bayly and Robert Furst—two other Merrill defendants—and most against Brown were overturned in 2008, and they are awaiting re-trials.

A number of major airlines have rolled back a weekend fare increase. It marks first time in more than half a dozen attempts that a widespread price hike failed to take hold across the struggling industry. One industry observer says the moves may reflect softening demand among consumers. The carriers themselves, however, declined to say whether the shift signals concern about customer demand. American Airlines launched the $20 round-trip increases across much of its domestic network Saturday. That move was quickly matched by many of its closest competitors, including United Airlines and Delta Air Lines. Continental Airlines was among the carriers that matched the increase over the weekend, but it rolled back the higher prices Monday, putting pressure on other carriers to do the same. Airlines have been scrambling to cut costs and increase revenue as jet fuel prices have soared by about 77 percent more than it did a year ago.

The Bush administration appears to be easing off its hands-off approach to managing the value of the dollar. As the greenback continues to sag against the Euro and other international currencies, President Bush said the U.S. is committed to keeping its currency strong. He says a strong dollar is in the nation’s interest and told the Times of London he wants “the dollar to strengthen.” Treasury Secretary Henry Paulson has declined to rule out direct intervention–the buying by the government of dollars in currency markets — as a way to influence the currency’s value. A strong dollar has long been stated U.S. policy, but that usually never amounts to specific steps. The weak dollar shares some of the blame for the high cost of oil.

President Bush says Europeans may not necessarily always like the U.S. president, “but they like America.” He made the comment to a reporter on arriving in Slovenia to begin a week-long European tour. It will take him to Berlin, Rome, Paris and London. At first glance, the trip appears a glamorous farewell tour with a leisurely schedule that includes lavish dinners and jaunts to country castles. But analysts say Bush hopes to accomplish some important diplomatic objectives — specifically, stiffening European resolve on Iran. The president’s tour starts in Slovenia, where he’s taking part in the annual U.S.-European Union summit. And on his visits to Italy, Germany, France and England, he’ll meet with leaders critical to building support for new, harsher measures aimed at preventing Iran from going ahead with a suspected plan to build a nuclear bomb.

Despite a recent spike in the unemployment rate, Fed Chairman Ben Bernanke says the danger the economy has fallen into a “substantial downturn” appears to have waned. Bernanke spoke at a Fed conference in Massachusetts Monday night. He said a government report last week showing the unemployment rate rising from five percent in April to 5.5 percent in May was “unwelcome.” However, the Fed chief said other forces should “provide some offset to the headwinds that still face the economy.” Bernanke says the Fed’s powerful doses of interest rate cuts, the economic stimulus package and other factors should help the economy over the remainder of this year.

About 80,000 people gathered in South Korea’s capital, waving candles and protesting the plan for U.S. beef imports to resume. The entire cabinet has offered to resign in the uproar over the policy. Police blocked roads with shipping containers to prevent the crowd from marching to the nearby presidential Blue House. Officials say about 21,000 riot police were deployed to keep order. Earlier, thousands of conservative activists supporting the deal protested near the site of the anti-U.S.-beef rally. The government agreed in April to lift almost all restrictions that had been imposed on imports of U.S. beef over fears of mad cow disease. Protesters are demanding that the government scrap or renegotiate the beef deal because of perceptions that it doesn’t do enough to protect citizens.

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