News Radar 5/9/09

by JASON | 8:25 AM in |

The chairman of the Federal Reserve Bank of New York, Stephen J. Friedman, abruptly resigned on Thursday, days after a newspaper article raised questions about his ties to his former employer, Goldman Sachs.

Mr. Friedman, who led or co-led Goldman from 1990 until 1994 and remains a director, was chairman of the New York Fed at the same time. He also held a substantial stake in the firm as the Federal Reserve drew up plans to keep Wall Street’s banks afloat.

Denis M. Hughes, the New York Fed’s deputy chairman, will take over as interim chairman, the organization said in a statement.

The New York Fed had asked for a waiver, which, after about two and a half months, the Fed granted, the newspaper said. During that time, Mr. Friedman bought 37,300 more Goldman shares, which have since risen $1.7 million in value.

In his resignation letter, Mr. Friedman said his public service on the board was being characterized as “improper” despite his compliance with the rules. “The Federal Reserve System has important work to do and does not need this distraction,” he said.

WASHINGTON – The Federal Reserve could become the supercop for "too big to fail" companies capable of causing another financial meltdown under a proposal being seriously considered by the White House.

The Obama administration told industry officials on Friday that it was leaning toward making such a recommendation, according to officials who attended a private one-hour meeting between President Barack Obama's economic advisers and representatives from about a dozen banks, hedge funds and other financial groups.

Treasury Secretary Timothy Geithner and other officials made it clear they were not inclined to divide the job among various regulators as has been suggested by industry and some federal regulators. Geithner told the group that one organization needs to be held responsible for monitoring systemwide risk.

"Committees don't make decisions," said Geithner, according to one participant.;_ylt=ApFHP9_8EXaZs3dujxHScYSyBhIF

May 8 (Bloomberg) -- Fannie Mae, operating under a federal conservatorship since September, asked the U.S. Treasury for a $19 billion capital investment as a seventh straight quarterly loss drove the mortgage-finance company’s net worth below zero.

A wider first-quarter net loss of $23.2 billion, or $4.09 a share, pushed the company to request its second draw from a $200 billion funding commitment from the government, Washington- based Fannie Mae said in a filing today with the Securities and Exchange Commission. The company took $15.2 billion March 31.

At one bank in Alabama, the problem is a construction bust. At two in Ohio, the trouble is real estate. And in San Francisco, at Wells Fargo, the worry is credit cards — a staggering 26 percent of that bank’s card loans, federal regulators have concluded, might go bad if the economy takes a turn for the worse.

The stress tests released by the Obama administration Thursday painted a broad montage of the troubles in the nation’s banking industry and, for the first time, drew a stark dividing line through the new landscape of American finance.

On one side are institutions like JPMorgan Chase and Goldman Sachs, which regulators deemed stronger than their peers — perhaps strong enough to repay billions of bailout dollars and wriggle free of government control.

On the other side are weaker institutions like Bank of America, which now confront the daunting challenge of raising capital on their own or accepting increased government ownership, along with whatever strings might be attached. Time is short: the banks have only until June 8 to draw up their plans for regulators. As the results of the tests streamed in from the Federal Reserve, banks began racing to raise money.

May 8 (Bloomberg) -- Wells Fargo & Co. and Morgan Stanley, ordered to increase capital after the U.S. stress tests, raised $16.6 billion in stock and bond sales today, the first banks to respond to the government’s mandate.

Wells Fargo sold $8.6 billion of common stock, 43 percent more than it planned. Morgan Stanley raised $8 billion by selling shares and debt, up from $5 billion announced yesterday. Citigroup Inc. is exchanging an additional $5.5 billion of preferred securities into common stock. Bank of America Corp. plans to sell as many as 1.25 billion shares of common stock in a shelf registration and an undetermined amount of debt that wouldn’t be guaranteed by the Federal Deposit Insurance Corp.

The federal government reported yesterday that the financing arm of General Motors will need to raise $9.1 billion in new capital to ensure the firm's stability in the face of heavy losses in mortgage and auto lending and, sources said, possibly as much as $4 billion more to cover costs related to loans for Chrysler.

The sum is among the biggest required for any U.S. financial institution subjected to the government stress test, and could prove difficult for GMAC Financial Services to raise because of the limited nature of its business and the poor quality of its loans. The firm has struggled to raise money from private investors in the past and has already received $5 billion in federal assistance.

WASHINGTON — After subjecting the nation’s biggest banks to the most public scrutiny in decades, federal regulators ordered 10 of them on Thursday to raise a total of $75 billion in extra capital and gave the rest a clean bill of health.

NEW YORK (AP) -- Federal regulators on Friday shut down Westsound Bank of Bremerton, Wash., making it the 33rd bank to fail this year. Westsound Bank is the second bank based in the state of Washington to collapse this year, after the Bank of Clark County in January. Westsound, which served the Puget Sound area, was hit hard by losses in construction loans. It had total assets of $334.6 million as of March 31, and total deposits of $304.5 million.

The Bank of England is concerned that the UK's banking system is heading for a third wave of crisis that could snuff out fragile signs of recovery in the economy.

On Thursday the Bank surprised the City by announcing that it would pump an extra £50bn of new money into the economy despite recent stockmarket rallies.

Now the Guardian has learned that this increase in quantitative easing was driven by fears in Threadneedle Street that the credit crunch is still sucking the life out of the British economy and the banking sector remains in deep trouble.

A new gun law being considered in Congress, if aligned with Department of Homeland Security memos labeling everyday Americans as potential "threats," could potentially deny firearms to pro-lifers, gun-rights advocates, tax protesters, animal rights activists, and a host of others – any already on the expansive DHS watch list for potential "extremism."

Rep. Peter King, R-N.Y., has sponsored H.R. 2159, the Denying Firearms and Explosives to Dangerous Terrorists Act of 2009, which permits the attorney general to deny transfer of a firearm to any "known or suspected dangerous terrorist." The bill requires only that the potential firearm transferee is "appropriately suspected" of preparing for a terrorist act and that the attorney general "has a reasonable belief" that the gun might be used in connection with terrorism.

A Texas member of Congress is warning Americans that unless they act – and act now – the nation soon will have a "hate crimes" law that actually was written so that it protects pedophiles and others with alternative sexual orientations such as voyeurism and exhibitionism.

"If you guys don't raise enough stink there's not chance of stopping it," U.S. Rep. Louis Gohmert said today on a radio program with WND columnist Janet Porter.

President Barack Obama is a "cult leader," former Rep. Tom Tancredo said this week on the conservative news-radio program "Dateline: Washington."

The remarks came on in a rush as a charged-up Tancredo was being asked about the new administration and its emerging immigration policy – an issue that Tancredo has adopted as his own and who ran for President on a platform to enforce immigration laws.

He described the President’s policy as representing nothing less than amnesty – although the chief executive obfuscated this obvious conclusion with his "Obamaesque" way of addressing the hot-button topic, reports The Hill newspaper.

He also criticized the Obama administration for not closing the border with Mexico as the Swine flu erupted there. Tancredo said that such a closure would have been in keeping with established protocols, and that it was a “mistake” not to follow them.

As to how Obama can apparently pull off anything on his agenda, Tancredo lashed out: “He is – you have to admit – he is a cult leader. And the cult will go with him wherever he wants to go,” Tancredo said

“You just don’t know about the size of the cult; how big it is – if it’s shrinking or growing,” Tancredo added. “He is not just a political figure; he is truly a cult leader.”

WASHINGTON – President Barack Obama's budget proposal does away with funding to extend the border fence along the U.S.-Mexico border.

The move is significant departure from the approach to border security advocated by President George W. Bush, whose administration oversaw construction and planning of 670 miles of pedestrian fencing and vehicle barriers erected along roughly one-third of the nation's 1,947 mile border with Mexico.

President Obama's budget cuts do leave some funds for roads, lights and other minor border construction projects, but no money to extend the fence.

The proposal is also a bit of a turnaround for the president who, as a Democratic senator from Illinois, joined 79 other senators in 2006 to support construction of the border barrier system.

WASHINGTON -- President Barack Obama's proposed foreign affairs budget calls for a massive hiring drive at the State Department and the U.S. Agency for International Development to staff a dramatic shift from military to civilian operations abroad.

The spending plan submitted to Congress on Friday calls for adding 1,226 new foreign and civil service diplomatic positions at the two agencies in the budget year that starts in October. It projects a 25 percent boost in the total number of foreign service officers by 2013 and doubling the number at USAID by 2012.

There are currently 6,600 foreign service officers at the State Department and another 1,000 at USAID.

"Smart power starts with people," said Jacob Lew, the deputy secretary of state for management and resources who detailed the specifics of the $53.9 billion budget proposal for reporters on Friday. "We want to be able to pursue the policies that we're calling smart power and we don't have the troops to do it without this buildup."

President Barack Obama has asked Congress to end federal payments to states and communities for jailing illegal immigrants as he continues along a path toward legalization of undocumented aliens.

The budget plan Obama released on Thursday would end the State Criminal Alien Assistance Program (SCAAP), under which states received $400 million in the current fiscal year to cover the cost of incarcerating convicts and pre-trial detainees who are illegally in the U.S.

KABUL -- A joint U.S.-Afghan investigation confirmed that an unspecified number of civilians died in a southern Afghan battle local officials say killed dozens of villagers, but the initial findings released Saturday appeared to blame Taliban militants who used locals as "human shields."

MOSCOW -- Rows of missiles and tanks rolled through Moscow's Red Square and dozens of combat jets roared overhead in the Victory Day parade Saturday in the largest show of Russia's military might in its post-Soviet history.

Victory Day, marking the defeat of Nazi Germany, is Russia's most important secular holiday, and the parade reflected the Kremlin's efforts to revive the nation's armed forces and global clout.

In a speech opening the parade, President Dmitry Medvedev said the nation's armed forces are "ready to give adequate response to any aggression."

Saturday's parade displayed about 9,000 troops, more than 100 combat vehicles, including new Topol-M intercontinental ballistic missiles. For the first time, it featured the state-of-the art S-400 air defense missiles which Russian officials say are unrivaled in their combat capability.

Also taking part in the parade were 69 combat planes and helicopters _ twice the number featuring in last year's show. They included the world's heaviest An-124 Ruslan cargo plane, Tu-160 and Tu-95 strategic bombers and scores of fighter jets and helicopter gunships.

In late January, WikiLeaks released a 186 page secret Israeli Ministry of Defense database, which showed the full extent of illegal Israeli settlements in Gaza and the West Bank. A version of the document had first been obtained by the well regarded Israeli newspaper Haaretz. The leak made headlines, but its global political impact was limited by its presentation in Hebrew.

Subsequently the United States commissioned the Central Intelligence Agency’s Open Source Center to translate the leak to English. The translation was not released by the CIA, but a copy was obtained by Stephen Aftergood, editor of the US based Federation of American Scientist’s Secrecy News and is presented here.

According to Haaretz, “An analysis of the data reveals that, in the vast majority of the settlements - about 75 percent - construction, sometimes on a large scale, has been carried out without the appropriate permits or contrary to the permits that were issued,”, and “The database also shows that, in more than 30 settlements, extensive construction of buildings and infrastructure (roads, schools, synagogues, yeshivas and even police stations) has been carried out on private lands belonging to Palestinian West Bank residents.”

A high-seas mission departs from San Francisco next month to map and explore a sinister and shifting 21st-century continent: one twice the size of Texas and created from six million tonnes of discarded plastic.

May 7 (Bloomberg) -- Sallie Mae, the biggest U.S. provider of college loans, says it doesn’t oppose President Barack Obama’s plan to wipe out much of that business. The company just has a few suggestions.

“What we’ve thought about here is how to make the president’s proposal better,” Jack Remondi, chief financial officer of the company, known formally as SLM Corp., said in an interview.

Obama has proposed saving $94 billion over 10 years by issuing all federal college loans directly instead of using private lenders led by Sallie Mae.

The federal government projected that 19 of the nation’s biggest banks could suffer losses of up to $599 billion through the end of next year if the economy performs worse than expected and ordered 10 of them to raise a combined $74.6 billion in capital to cushion themselves.

The much-anticipated stress-test results unleashed a scramble by the weakest banks to find money and a push by the strongest ones to escape the government shadow of taxpayer-funded rescues.

The Bank of England stepped up its campaign to boost the struggling economy, raising the size of its asset purchase programme on Thursday in a surprise move tantamount to printing an extra 50 billion pounds to get banks lending again.

The central bank kept rates at a record low of 0.5 percent as expected, but surprised markets by moving swiftly to reassure them that its scheme to buy up government and corporate bonds with newly-created money would last at least 3 months more.

The Obama administration is considering an unprecedented fall vaccination campaign that could entail giving Americans three flu shots — one to combat annual seasonal influenza and two targeted at the new swine flu virus spreading across the globe.

If enacted, the multibillion-dollar effort would represent the first time that top federal health officials have asked Americans to get more than one flu vaccine in a year, raising serious challenges concerning production, distribution and the ability to track potentially severe side effects.

The Armed Forces will be drafted in to run state schools under plans to drive up discipline and respect in classrooms. Ministers are in talks with defence chiefs about taking over a handful of schools and turning them into military academies. Alongside daily lessons, pupils would be expected to take part in activities such as drills, uniformed parades, weapons handling and adventure training. The first state schools set to gain 'military academy' status are understood to be based in Portsmouth and Colchester. The controversial scheme will initially be in areas where there are a large number of military families, but is set to be rolled out across the country.