Debt Rattle, July 8 2008: Don't look down

Dorothea Lange Dust Bowl Kids November 1936
"Children of Oklahoma drought refugee in migratory camp in California."

Ilargi: Set against the backdrop of US home prices falling so fast that analysts are starting to sound scared and freaked out, plunging global markets, and a $1 trillion loss in share values for US financials -this year alone- (and $2.1 trillion in share holdings, plus $3.1 trillion in home values, "without the negative wealth impact for declining prices of automobiles and other durables the total wealth loss was approximately $5.2 trillion"), today starts off with two main stories. And I don’t dare predict how the day will end.

IndyMac has lost both its capital and the trust of the markets. Fannie Mae and Freddie Mac have been told to comply with an accounting rule that will force them to raise $75 billion in fresh capital, which will be very hard to find. But you’ll invest, even though you may not know that yet.

For now, IndyMac still exists, albeit barely, and may no longer be when you read this. There is a realistic chance of a "bank-run" there today, and that will be prevented at any price (the idea is to fleece you in an orderly fashion, not in a panic; that'll come later). Fed emergency measures may be forthcoming. Trading may soon be halted. Shares were down 48% at 11.00am EDT. There are no bidders for its loan portfolio. Lights out.

When a few months ago the OFHEO loosened Fannie and Freddie’s reserve requirements, everyone could have known what I did: that they would go bonkers purchasing new and more mortgages. They now buy well over 80% of all US mortgages, or in other words: without them, there would be hardly a US mortgage industry left to speak of. There's no-one else left to buy the mortgages, and no lender wants them in their books.

Fannie and Freddie had huge financial issues then, and they have ‘huge to the factor of ten’ issues today. The latest addition is an accounting rule that applies to any other sane company: show your assets in your books.

Thing is, the OFHEO knew that this would happen, both the rule change and the cancerous growth in loan purchases. But they just keep acting the part of innocent brain damage: their line today is that F&F should not have to put their securitized assets in their books. As if the OFHEO found out only yesterday that this rule change was coming.

So who’ll cough up $75 billion? That would be you. And that is by no means the last time they’ll come knocking. The two combined have $3-4 trillion in absolutely awful loans on their books, and there’s still the implied government (that is you) guarantee.

It’s questionable whether any party will voluntarily step forward with the $75 billion, but F&F will not be allowed to fall -just yet-, so the Fed and the Treasury will give the sponsor(s) an iron-clad guarantee with your name on it. But even that isn’t enough to keep investors from getting out.

What happens now with F&F is that your tax money is used to prop lenders who are already deceased, who are breathing only because F&F buy whatever is thrown at them. If that money were used to help homeowners, that would be one thing. Using your tax money to keep a bunch of semi-criminal fat cats afloat for a few months more, that’s simply another thinly veiled massive wealth transfer from the have-nots to the haves.

Look, Fannie and Freddie are walking dead. So are 90% of the lenders. They are now being used to slush billions to the pockets of a bunch of billionaires, that rightfully belong to people who’ll soon need it to feed and cloth their children. And even though I’ve seen it coming from miles away, it still ticks me off.


Crisis wipes $1 trillion from financial stocks

U.S. financial companies have lost more than $1 trillion in value this year, and yet another decline on Monday shows concerns aren't going away soon.

Banks and brokerages began the week lower on the same fears that have been proven toxic since last summer in the ongoing credit crisis. The financial sector was hit with a confluence of troubles on Monday: cautious remarks from a Federal Reserve official and new capital concerns at Freddie Mac and Fannie Mae.

The drop in names like Lehman Brothers, Morgan Stanley and Merrill Lynch caused the financial section of the Standard & Poor's 500 index to lose almost $150 billion in value on Monday, according to the rating agency. That means S&P 500's 85 financial components have lost some $1.3 trillion since the sector reached a high last October.

Even more startling is that shares of 35 of the companies, which include insurers, have lost more than half their value so far this year. The financial sector used to be the index's main driver, and many economists believe that the broader market will rise or fall on their health.

"Some would argue that perhaps the sell-off in financials is overdone, but at the same time there is just much uncertainty out there about write-offs, loan losses, and how bad the housing market is," said Jim Herrick, a director of equity trading at Baird & Co. "For a period of time the pain was in the big money center banks, but now it's spreading."

Fannie and Freddie fell sharply after Lehman Brothers analyst Bruce Harting said the two government-backed lenders might need to raise billions of dollars in new capital. Both are facing a proposed change to accounting standards that would require financial services firms move bonds backed by pools of loans, also known as securitizations, off their balance sheets.

If this rule is passed, it would end Freddie and Fannie's primary source of generating new revenue. Harting said Fannie Mae would need to raise $46 billion in cash to meet capital requirements, while Freddie Mac would need $29 billion.

The broader financial sector was hurt after San Francisco Federal Reserve President Janet Yellen said problems in the housing market and banking system could get even worse before the economy recovers. Global banks and brokerages have lost nearly $300 billion from investments in mortgage-backed securities and other risky investments since the credit crisis began one year ago.

And there are fresh signs that Wall Street's biggest investment houses are having trouble navigating through volatile markets. Goldman Sachs Group Inc., the world's biggest investment bank, disclosed in a regulatory filing that it lost at least $100 million on nine trading days during the second quarter. Goldman reported that total trading revenue in the second quarter fell 17 percent to $4.87 billion, according to the filing.

The firm, known for aggressive trading tactics that can cause big swings from week to week, still far surpassed many of its rivals on the Street. That has put more focus on Merrill Lynch, which will report its quarterly results next Thursday.

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IndyMac Complains of Run on the Bank After Senator's Comments

IndyMac Bancorp Inc., the California- based lender that is firing half its employees, is facing "elevated levels of deposit withdrawals" after U.S. Senator Charles Schumer said the bank may be on the brink of failure.

Schumer's comments about IndyMac's reliance on deposits purchased from third parties are causing depositors to pull their money and causing added restrictions on the lender's borrowings, IndyMac said in a filing today. IndyMac dropped 32 cents to 39 cents at 10 a.m. in New York Stock Exchange composite trading. The firm, which had a market value of $3.4 billion in mid-2006, lost more than 95 percent in the past year.

Schumer, the New York Democrat, last month sent letters to the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Federal Housing Finance Board and the Federal Home Loan Bank of San Francisco, warning of a potential collapse of the lender.

"IndyMac was one of the banks that was using relatively weak underwriting standards on the basis that housing prices would continue to rise in value," said Jason Arnold, an analyst at RBC Capital Markets in San Francisco, in an interview yesterday. "With prices coming down, that became the bottom card in the house of cards built by these lenders."

The demise of IndyMac would be the biggest collapse of a U.S. mortgage lender since the bankruptcies of Fremont General Corp. and New Century Financial Corp. The company's key asset is its Southern California retail bank network with 33 branches and $18 billion in deposits, mostly insured by the FDIC, Arnold said.

IndyMac's inability to find a buyer or attract capital, despite pressure from regulators, reflects continued concern over the declining value of its loans, he said.

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Mortgage Fears Send Global Shares Down

As U.S. home prices decline and Washington struggles to end the economic malaise, Wall Street is starting to send a sobering message: The worst is yet to come.

One of the strongest warning signs came as the week began, when shares of the most important U.S. mortgage companies, Fannie Mae and Freddie Mac, plummeted. After falling almost continuously over the past month, in just one day Freddie Mac tumbled another 18 percent and Fannie Mae lost 16 percent amid concerns that the companies would need to raise billions of dollars in fresh capital.

With renewed prospects for turmoil in the financial markets, global stocks fell Tuesday from Sydney to Stockholm. “Across the board, there are probably more write-downs to come,” Florian Esterer, a fund manager at Swisscanto Asset Management in Zurich, said. Investors need to look beyond the subprime problems, he said, and consider the decline in the quality of home-equity loans, credit card debt and commercial real estate — problems associated with the end of a “traditional credit cycle.”

Banks seem to be “in denial” about the degree of problems, he said: “I think there is much more pain to come than they are telling you.” Fannie Mae and Freddie Mac are the largest U.S. buyers of home mortgages, and traditionally the government’s backstop for the housing economy. But with the plunge Monday, each of these “government-sponsored enterprises” has now lost more than 60 percent of its market value this year.

The declines, along with a falling stock market and growing unease about the possibility of more losses at big banks, reflect a growing consensus among investors that the current housing slump will last longer, and prove more severe, than initially feared. As a result, investors are signaling that they are far from convinced that any enterprise — even ones with the strongest backing — can successfully navigate these choppy waters, and that those who do survive will pay dearly.

In Asia, the Tokyo benchmark Nikkei 225 stock average fell 2.5 percent. The Hang Seng index in Hong Kong fell 3.3 percent, and the S&P/ASX 200 index in Sydney fell 1.4 percent. Mitsubishi UFJ Financial, the largest publicly traded Japanese bank, fell 3.4 percent in Tokyo, while its rival Mizuho Financial fell 3.7 percent.

In London morning trading, the FTSE 100 index was down 2.7 percent, while the DJ Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 2.3 percent. The DAX in Frankfurt fell 2.4 percent, while the CAC 40 in Paris also fell 2.4 percent.

UBS, the Swiss banking giant whose shares have fallen 58 percent this year, fell 4.5 percent in Zurich. Its crosstown rival, Credit Suisse fell 4.8 percent. HSBC Holdings, the biggest European bank, fell 2.6 percent in London.

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Bursting Bubbles Mean Inflation to Give Way to Deflation

Widespread is the notion that inflation is back for good.  Many assume that the relative price stability of the past two decades has been irrevocably shattered by "peak oil" and the surging demand by developing economies.

Improvement of living standards in those developing countries has caused, and will continue to cause, increasing demand for calories, and final demand for food will outstrip supply. Additionally, the cost of basic materials is lifting production costs, and the cycle of higher food and fuel costs means that the prices of all imported goods to the United States will continue to rise.

The fixed income investment conclusion is that inflation is endemic, and since the market does not currently reflect such dire inflation prospects, long dated Treasury securities should be sold. We would be among the first to move to the short dated part of the curve if the economic statistics supported the above view.

Our conclusion is that deflation, not inflation, is, and will continue to be, the essential problem for the U.S. economy and that the optimum fixed income portfolio should consist of treasuries with the longest possible maturities.

Twelve months ago the annual increase in the CPI was 2.6%.  Today it is at 4.1% and rising. The Reuters/Jefferies CRB Index fell 7.3% for the year ending last June. Today the 12 month change is 36% higher.  Nevertheless, the 30 year bond yield fell to 4.5% on June 30 of this year, well down from 5.1% one year ago. This provided a remarkable 15% return for investors.

How is it possible that bonds, which have the ultimate sensitivity to inflation, would decline in yield and rise in price in such an inflationary environment? The short answer is that in the broadest terms, insufficiency of demand has, and will continue, to overwhelm inflationary forces, creating deflation in many categories.

In the second quarter, current dollar gross domestic product totaled an estimated $14.3 trillion, about $572 billion greater than a year ago. Of this gain, $359 billion can be attributed to price increases and $213 to higher real output. There are times, however, when GDP is not the final arbiter of the economy's performance, and this is one.

The seemingly large gain in GDP pales in comparison to the loss in wealth, which GDP does not capture. Over the past fiscal year, holdings in the stock market, as measured by the Wilshire 5000 Stock Index, lost more than $2.1 trillion.  Simultaneously, the 15.3% contraction in the Case Shiller Home Price Index suggests the wealth loss in value of household residences was a staggering $3.1 trillion.

Without including the negative wealth impact for declining prices of automobiles and other durables the total wealth loss was approximately $5.2 trillion. Obviously, the sum of dollars being erased from our economic system has overwhelmed the amount of dollars being increased by inflation by a factor of more than 14 to one.

Thus, once again, the bond market had it right--deflation is in ascendancy. Treasury bond yields fell, and they will continue to trend lower, creating an even more profitable environment over the next four quarters for long-term Treasury bond holders.

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IndyMac Falls 37% In Tuesday Pre-Market After Regulators Say It Isn't 'Well Capitalized'

IndyMac Bancorp Inc., the California- based lender that is firing half its employees, plunged 37 percent in early trading after being told by regulators the bank isn't "well capitalized."

IndyMac dropped 26 cents to 45 cents at 8:05 a.m. New York time in early trading. The lender will slash its workforce by 53 percent to 3,400 employees and curb lending, IndyMac said yesterday on its Web site. The Pasadena-based company said it was working with regulators on a new business plan.

"We don't expect, given the really rough state of the housing market, that IndyMac is going to be able to get out of this," said Jason Arnold, an analyst at RBC Capital Markets in San Francisco, in an interview yesterday. "The big problem is that no one will give them money. There's too much risk involved and not enough value in their franchise."

The lender's so-called operating liquidity stands at about $1.7 billion, IndyMac said in a regulatory filing today. The company's second-quarter loss will exceed the $184 million reported in the prior period, IndyMac said. The firm has lost more than 95 percent of its market value in the past 12 months.

IndyMac, the second-largest independent U.S. mortgage lender last year behind Countrywide Financial Corp., lost almost $900 million in the nine months ended in March.

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Ilargi: Well, I’ve warned about the demise of pension funds enough for now: let’s just watch the misery spread. You ain’t seen nothing yet, I assure you that.

Pension plans suffer huge losses

Report says weak markets, credit crunch have drained $280 billion from plans of largest U.S. companies

Falling stock markets around the globe and the credit crunch are putting the pension funds of some of the largest U.S. companies into deeper financial holes, according to a report released Monday. Since the credit crunch hit last fall, pension plans funded by S&P 1500 companies have lost about $280 billion in assets, according to an actuary at Mercer, a human resources consulting firm.

On paper, the losses from last October tally $160 billion. However, according to Mercer actuary Adrian Hartshorn, the asset losses are closer to $280 billion when pension plan assets and liabilities are considered together. The losses amount to about 7% of a total $4 trillion in pension plan assets.

Companies should be concerned, he said, because - assuming no change in the market - a typical U.S. company can expect their pension expenses to increase between 20% and 30% in 2009. That's due to the higher cost of servicing the pension plan's debt and the smaller return from the plan's assets.

"I think it's important for corporations to be aware of what's going on in their pension plans, as corporations would be concerned when any part of its business is performing badly," Hartshorn said. According to the report, the total losses on pension assets and liabilities from the last day of 2007 through the end of June has grown to more than $80 billion.

Part of the loss has been reflected in companies' current financial statements, but many losses incurred since the end of 2007 have yet to hit company balance sheets. The affected pension plans are qualified and non-qualified plans. 

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Freddie, Fannie Plunge on Speculation Firms May Need to Raise $75 Billion

Freddie Mac and Fannie Mae fell to the lowest in 13 years in New York Stock Exchange composite trading as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules.

Freddie Mac fell 18 percent and Fannie Mae dropped 16 percent after Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force them to raise a combined $75 billion. Speculation that the companies may take further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York.

"There's a lot of apprehension about writedowns," Tierney said. "If they have writedowns, they have to raise capital. How much do they raise and how easily can they do that? Those are the questions that everybody is asking." Fannie Mae and Freddie Mac have declined more than 60 percent this year, with declines accelerating in the past two weeks, on concern the companies' capital raisings since December may not be enough to overcome writedowns.

Washington-based Fannie Mae so far has raised $6 billion in capital to offset writedowns on mortgages it owns or guarantees. Freddie Mac, based in McLean, Virginia, raised $13.5 billion since December and said last week plans to add $5.5 billion probably won't be fulfilled until late next month. Freddie Mac fell $2.59 to $11.91 after earlier dropping as low as $10.28. Fannie Mae declined $3.04 to $15.74 and earlier fell to $14.65.

The new FAS 140 rule that seeks to stop companies keeping assets in off-balance sheet entities may force Fannie Mae and Freddie Mac to bring mortgages back onto their books, requiring them to put up capital, Lehman analysts led by Bruce Harting wrote in a note to clients today. Fannie Mae would need to add $46 billion of capital and Freddie Mac would need about $29 billion, the Lehman analysts wrote.

The companies will probably get an exemption from the rule because it would be "very difficult" for them to raise that amount of capital, the analysts said. Fannie Mae and Freddie Mac, "have been battered every single trading session," said Quincy Krosby, chief investment strategist for The Hartford, which manages $380 billion in Hartford, Connecticut. "At some point they're going to stabilize."

As mortgage delinquencies grow at a record pace, the companies likely will take further losses, Tierney said. Banks repossessed twice as many homes in May as they did a year ago and foreclosure filings rose 48 percent, according to RealtyTrac Inc., a real estate database in Irvine, California. Home prices in 20 U.S. metropolitan areas fell 15.3 percent in April by the most on record, S&P/Case-Shiller home-price index.

"There's probably an accumulation of events today that has focused investor selling," said Christopher Sullivan, who oversees $1.3 billion as chief investment officer at United Nations Federal Credit Union in New York. Fannie Mae and Freddie Mac were both trading at more than $60 as recently as October as they distanced themselves from accounting frauds that caused more than $11 billion of restatements.

Then defaults on subprime mortgages caused the credit markets to seize up and credit losses to rise. The companies, which own or guarantee almost half of the $12 trillion in U.S. residential mortgages, were so integral to boosting the housing market that Congress lifted restrictions on their buying power to help revive the economy.

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Accounting rule should not drive GSE capital: federal regulator

A proposed accounting change that may affect trillions of dollars of mortgage bonds issued by Fannie Mae and Freddie Mac should not dictate capital requirements at the housing finance companies, their federal regulator said on Tuesday.

Accounting rulemakers are considering changing a rule that could force companies to account for securitized assets, such as mortgage-backed securities, on their balance sheets. Taken literally, it could mean Fannie Mae and Freddie Mac would need a combined $75 billion in additional capital, according to Lehman Brothers.

"I have to tell you, an accounting change should not drive a capital change," James Lockhart, director of the Office of Federal Housing Enterprise Oversight, said in a CNBC interview

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Fannie, Freddie Capital Concerns Send Bond Risk to 14-Week High

Fannie Mae and Freddie Mac triggered a surge in the cost of protecting company debt from default to the highest in 14 weeks on concern the two largest U.S. mortgage finance companies may need to raise $75 billion. Credit-default swaps on Fannie Mae increased 3 basis points to 81 and contracts on Freddie Mac jumped 7 basis points to 83, according to CMA Datavision at 7:45 a.m. in New York.

Record delinquencies on home loans already helped cause financial companies worldwide to write down more than $400 billion on debt holdings and prompted Fannie Mae and Freddie Mac to raise almost $20 billion in new capital. They may need as much as $75 billion more as new accounting rules require them to bring off-balance sheet mortgages on to their books, according to Lehman Brothers Holdings Inc. analysts led by Bruce Harting.

"Fannie and Freddie spooked everything," said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. "At this stage in the cycle, it is very difficult to raise capital." Fannie Mae shares, which dropped $3.04, or 16.2 percent, yesterday in New York to $15.95, rose 21 cents at 11:13 a.m. in Frankfurt. Freddie Mac, which fell as much as 29 percent to a 16-year low yesterday, climbed 14 cents to $12.05 in Frankfurt trading.

Washington-based Fannie Mae and Freddie Mac in Mclean, Virginia, have declined more than 60 percent this year as the housing slump shows no sign of abating. U.S. pending home resales probably fell 3 percent in May, after increasing 6.3 percent in the previous month, according to the median forecast of 36 economists surveyed by Bloomberg News. That would be the biggest decline since November. The National Association of Realtors is scheduled to release its report at 10 a.m. in Washington.

Banks repossessed twice as many homes in May as they did a year ago and foreclosure filings rose 48 percent, according to Realty Trac Inc., a real estate database in Irvine, California. Home prices in 20 U.S. metropolitan areas fell 15.3 percent in April by the most on record, the S&P/Case-Shiller home-price index shows.

"Trying to raise $75 billion in the current environment would be very difficult," said Mark McCarthy, a credit trader at ABN Amro Holding NV in Sydney. "I don't think investors are going to be as forthcoming about stumping up the cash that we've seen in the past."

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IndyMac to Cut Work Force, Halt Most Loans Applications

IndyMac Bancorp Inc. said it has stopped taking most types of loan applications and will cut more than half of its work force as it struggles with losses from home-mortgage defaults. The Pasadena, Calif., mortgage company and savings-bank operator is one of the largest lenders yet to be forced by the credit crunch to ditch the bulk of its business.

IndyMac specialized during the housing boom in Alt-A loans, a category between prime and subprime that typically involves borrowers who don't fully document their incomes or assets. In this year's first quarter, IndyMac was the 11th-largest producer of U.S. home mortgages, according to Inside Mortgage Finance, a trade publication.

Hundreds of smaller lenders and mortgage brokers have gone out of business in the past two years. Last week, the largest U.S. home-mortgage lender by loan volume, Countrywide Financial Corp., was acquired in an rescue operation by Bank of America Corp. The disappearance of so many lenders is serving to raise costs for people seeking to buy homes or refinance their mortgages.

IndyMac's woes also have created worries for depositors, who have about $18 billion parked at the company's savings bank. IndyMac said more than 96% of those deposits are insured by the Federal Deposit Insurance Corp. IndyMac said Monday that it had been unable to raise fresh capital and that it is likely to report a loss for the second quarter bigger than the $184.2 million loss recorded in the first quarter. Regulators also have advised the thrift operator that it is no longer considered "well-capitalized."

When a bank or thrift is no longer deemed well-capitalized, regulators are required to ratchet up their scrutiny. "We're aware of the situation and we're working with them," Office of Thrift Supervision spokesman Bill Ruberry said. IndyMac is reducing its work force to 3,400 from its current head count of 7,200, in a bid to cut 60% of its operating expenses. "If we had another alternative, we clearly would have chosen it," Michael W. Perry, chairman and chief executive, said in a statement late Monday.

IndyMac said it will continue to make reverse mortgages, which allow consumers to tap the equity in their homes. IndyMac also plans to continue to service loans and operate a 33-branch retail network in Southern California. Late last month, Sen. Chuck Schumer (D., N.Y.) sent a letter to regulators raising questions about the solvency of the thrift and prodded them to do more to monitor the company closely. The letter spooked investors and depositors, quickly leading customers to withdraw $100 million in deposits.

IndyMac's risk-based capital was 10.26% of assets at the end of the first quarter, just above the 10% minimum needed to be classified as well-capitalized.

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IndyMac Woes Could Spell Trouble For Regional Banks

For troubled regional banks that need new capital, the stakes are becoming a matter of survival. On Monday, IndyMac Bancorp Inc. (IMB), a West Coast lender struggling with rising consumer loan delinquencies and fast-depleting cash reserves, said it is under heavy pressure from regulators to shrink its business quickly.

The Pasadena, Calif., bank said in a letter to shareholders that it has been unable to find fresh capital from new or current investors, leaving some to wonder whether it could soon become the mortgage crisis' latest casualty. In recent months, dozens of regional banks have followed their large-bank counterparts in raising new capital to offset rising losses from souring loans, and ride out the mortgage crisis.

But in contrast to large firms such as Citigroup Inc. and Merrill Lynch & Co. Inc.- which have successfully buttressed their loss-riddled balance sheets with tens of billions of dollars from new and willing investors - regional banks have had less luck. Last week, for example, Zions Bancorp (ZION) disclosed that it raised $45.7 million in preferred stock, well short of the $150 million the Salt Lake City bank originally said it might raise.

IndyMac's announcement on Monday could foreshadow the fate that some of those banks will face if they don't find the new capital that they need to continue operating, and avoid regulators' ire. After several quarters of losses, the $32.3 billion thrift came within a whisker of falling short of being well-capitalized in the first quarter, and said in May it was planning to raise capital.

"We have been working with our investment bankers to raise additional capital," said Michael Perry, IndyMac's chairman and chief executive, in the letter. "To date, we have not been successful with these efforts." The bank warned in May that if it couldn't raise the capital it needed, then regulators were likely to take action.

According to Perry's letter, that is exactly what happened. Regulators, Perry wrote, have advised IndyMac "that we are no longer 'well capitalized'" - that is, IndyMac no longer has enough capital to pass regulators' highest muster. As a result, Perry said, the bank will slash its staff by more than half and become a retail bank consisting of 33 branches and $18 billion in deposits.

The bank will write far fewer loans going forward, which will only hamper IndyMac's ability to generate profits if and when it recovers. "They're going to extremely curtail their (loan) originations," said Ryan Lentell, an analyst at Morningstar Inc. It also remains unclear whether the bank will dispose of the loans currently sitting on its balance sheet, since the company said Monday that it couldn't find buyers willing to purchase the loans for more than "fire-selling" prices.

Observers already expected IndyMac's second-quarter earnings report to be " pretty bad," said Bert Ely, the president of Ely & Co. But now, the bank's holding company's very existence could be in play. IndyMac's corporate structure includes a savings-and-loan unit whose income supports the holding company's debt and operations.

As a result, regulators could move to protect that thrift unit from failure by preventing IndyMac from accessing the thrift unit's profits to service its debts. Such a move, Ely said, could quickly push the bank's holding company into bankruptcy. Should such a fate meet IndyMac, Ely said, regulators would then take over the thrift.

The bank was already coping with a minor bank run by customers, who pulled $ 100 million in deposits after U.S. Sen. Charles Schumer, D-N.Y., wrote a letter to regulators June 26 and said he was concerned that IndyMac had "serious problems" and "could face a failure." It remains unclear whether Monday's news pushed more customers to pull their deposits.

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Merrill may write down $5 bln in Q2 - Wachovia

Merrill Lynch & Co is expected to write down about $5 billion in the second quarter, said Wachovia, which expects the No. 3 Wall Street investment bank to post a loss in the quarter and full year.

Wachovia, which said Merrill may be in need of another capital infusion, added that the potential for additional writedowns following recent results should weigh on Merrill's multiple in the near term.

Merrill is moving closer to selling stakes in financial firm BlackRock Inc and information provider Bloomberg LP in an effort to raise cash to make up for $6 billion in coming write-downs, the Wall Street Journal said Monday citing people familiar with the matter.

Asset sales in BlackRock and Bloomberg are not a good sign since these positions are one of the few remaining positive elements for the bank, Wachovia wrote in a note to clients. It, however, said that it views the Bloomberg position to be a better candidate for sale.

Wachovia reversed its second-quarter estimate for Merrill to a loss of $2.16 a share from its prior profit view of 63 cents. It also forecast a loss of $3.11 a share for 2008, down from its previous profit estimate of 15 cents.

Merrill's banking business should show weakness due to asset writedowns and declining merger and acquisition activity, but its retail business is expected to report solid results as transaction volumes hold steady, Wachovia said.

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Home Prices Fall in 23 of 25 U.S. Metropolitan Areas

Home values fell in 23 of 25 U.S. metropolitan areas in April, according to Radar Logic Inc., as sales of a record number of foreclosed homes pushed prices down.

The Sacramento, California, region saw the biggest drop, with prices falling 31.7 percent from April 2007. Sacramento was followed by the Las Vegas area (29.9 percent), San Diego (28.1 percent), Phoenix (25.5 percent) and Los Angeles (23.4 percent), Radar Logic said.

"Prices are going down so fast they can't go down much longer," said Christopher Thornberg, president of Beacon Economics LLC in Los Angeles, who predicts a total decline of 30 percent nationally in the housing recession. "We've never seen prices fall like this."

Nevada and California were the states with the most homeowners entering some stage of foreclosure in May, according to RealtyTrac Inc. of Irvine, California, a seller of real estate data. Foreclosures, which reached a record high of 2.47 percent of U.S. homes in March, sell for less than occupied homes and lower the average selling price of all homes by 6 percent, according to Lehman Brothers Holdings Inc. economists Michelle Meyer and Ethan Harris.

Motivated sales -- of foreclosed homes or houses in which borrowers have fallen behind on their payments -- accounted for 35 percent of April transactions, said Radar Logic Chief Executive Officer Michael Feder. "The percentage of transactions that are occurring by motivated sellers is increasing," Feder said in an interview on Bloomberg TV. "It's very difficult to tell if any of these markets are any closer to hitting bottom."

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Yen Gains on Speculation U.S. Mortgage Industry Losses to Widen

The yen rose against the euro on speculation widening U.S. mortgage industry losses will prompt investors to pare holdings of higher-yielding assets funded with the Japanese currency.

The yen also advanced against the Australian and Canadian dollars after an index of commodity prices fell by the most in four months, reducing the appeal of currencies from countries that export raw materials. Lehman Brothers Holdings Inc. said yesterday Fannie Mae and Freddie Mac, the two largest U.S. mortgage financers, may have to raise $75 billion in capital. The South Korean won rose to a two-week high on speculation the government bought the currency.

"Risk reduction is causing yen-buying," said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. "News on the U.S. financial sector is raising an uncertain outlook for the markets."

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. Japan's benchmark rate of 0.5 percent compares with 4.25 percent in Europe, 7.25 percent in Australia and 3 percent in Canada.

The won rose to 1,025.90 per dollar, the strongest since June 20. President Lee Myung Bak yesterday sacked Vice Finance Minister Choi Joong Kyung, in charge of currency policy, after the currency's 11 percent slide in the past year. "The intervention could be $1 billion or more," said Jung Chan Ho, a currency dealer at Shinhan Bank in Seoul. Central banks intervene in currency markets by buying and selling foreign exchange.

The U.S. currency may decline for a third day against the euro before a National Association of Realtors housing report, due at 10 a.m. in Washington. Pending home resales probably fell 3 percent in May, the biggest decline since November, according to a Bloomberg News survey of economists.

Citigroup, JPMorgan and Merrill Lynch & Co. report quarterly earnings next week. The world's biggest banks and securities firms have racked up almost $400 billion in writedowns and credit losses since the collapse of the U.S. subprime mortgage market last year, according to Bloomberg data.

"There is likely to be much bad news coming in from the U.S. earning reports," said Joseph Kraft, head of capital markets in Tokyo at Dresdner Kleinwort, an investment bank owned by Germany's Allianz SE. "I expect this month to become dollar- selling, stock-selling and bond-buying markets." The dollar may fall to $1.5850 per euro this month, he said.

"The U.S. dollar is a sell," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. "When you look at the state of the U.S. economy, the conclusion is that the dollar is a weak currency."

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Japan Bank Lending Rises at Fastest Pace in Two Years

Lending by Japanese banks rose at the fastest pace in two years in June as higher raw-material costs increased short-term funding needs and amid an increase in loans to energy-related companies.

Loans excluding those by credit associations quickened for a sixth month, rising 2 percent from a year earlier, the Bank of Japan said today. Lending by Japan's 10 city banks, which include Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., rose 0.9 percent, the second monthly gain.

"Banks are lending more to large companies that need more working capital because of soaring raw-material prices," said Michio Kitahara, associate director-general of the central bank's surveillance department. "There were also a number of large loans to companies in energy-related sectors such as steel and oil and to automobile and electrical companies."

Funding needs at exporters are increasing as iron ore, coal and fuel prices climb to records. That may pose a problem for some banks given Japan's economic growth is slowing and the loans are to pay for increasing costs rather than expansion, according to Credit Suisse Group.

"The nature of the funding demand is different from that seen when the economy is expanding," said Shinichi Ina, a Tokyo- based analyst at Credit Suisse in a report today.

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Fed's Loans to Wall Street May Prevent Raising Rates This Year

The Federal Reserve may hold off on its first interest-rate increase since 2006 until policy makers judge that financial markets are stable enough to allow the central bank to withdraw its lending backstop for Wall Street.

Raising rates while at the same time removing securities dealers' access to direct loans from the central bank would be a double hit to markets that officials probably want to avoid, Fed watchers said. The Fed also may have a hard time justifying higher borrowing costs before it has a plan for ending emergency lending to nonbanks.

The timing difficulty, along with continued strains in credit markets, means traders may be mistaken in estimating the odds of a rate boost by year-end at 74 percent. "We think they'll wait until 2009," said Brian Sack, who used to head the Fed's monetary and financial market analysis group before he joined Macroeconomic Advisers LLC as senior economist in Washington.

Successfully dealing with an end to the Primary Dealer Credit Facility is "a hurdle for credit markets to get past before the Fed will likely start tightening," he said. Bernanke, who spurred expectations for a rate increase when he said last month the Fed would "strongly resist" a jump in inflation expectations, speaks today on financial stability and regulation. His remarks to a Federal Deposit Insurance Corp. forum are scheduled for 8 a.m. in Arlington, Virginia. Treasury Secretary Henry Paulson also speaks.

The Fed started the PDCF in March, invoking its powers under "unusual and exigent circumstances" to forestall a collapse in confidence after the near-bankruptcy of Bear Stearns Cos. New York Fed President Timothy Geithner, who spearheaded the central bank's rescue of Bear Stearns, said June 9 that the Fed's emergency measures would be in place as long as markets remained distressed.

Persistent credit strains may leave officials unwilling to end the PDCF in September, after they said March 16 it would last for "at least" six months. Credit-default swaps on Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Morgan Stanley debt are trading close to their highest since March. The contracts let investors bet on the risk that a company will default on its bonds.

Another gauge of financial stress watched by the Fed has also remained elevated. The difference between the overnight indexed swap rate, a measure of what traders expect for the Fed's benchmark rate, and three-month interbank loans in dollars was 0.78 percentage point yesterday, about the same as the start of May. In addition, commercial-bank loans outstanding have dropped to their lowest level since March, Fed statistics show.

That will "put a severe stranglehold on economic growth," said former Fed governor Lyle Gramley. Raising rates in such an environment "would be a very risky strategy," said Gramley, now senior economic adviser at Stanford Group Co. in Washington. "I don't think they're going to do that, and I think markets have been premature in jumping to that conclusion."

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Bernanke seeks new powers for Fed

Federal Reserve Chairman Ben Bernanke said Tuesday that the Fed should have additional powers to prevent and limit financial market turmoil. Congress should consider giving the Fed power to set standards for capital liquidity holdings and risk management for investment banks, Bernanke said.

In the past, the Securities and Exchange Commission has been the primary regulator of broker dealers. In addition, Congress might give the Fed broad power to promote financial market stability, Bernanke said. If Congress makes this choice, "I do not think the Fed could fully meet these objectives without the authority to directly examine banks and other financial institutions that are subject to prudential regulation," Bernanke said.

Bernanke spoke at a conference on lending to low- and middle-income borrowers, sponsored by the Federal Deposit Insurance Corp. Bernanke did not discuss the economic outlook in his remarks.Increased power for one agency typically comes at the expense of other agencies that have their own strong alliances with powerful members of Congress.

Although Treasury Secretary Henry Paulson has said that he would like to see Congress give the Fed more power to ease the fallout of financial market turmoil on the economy, it is another matter for an agency to be seen as seeking power for itself.
As a result, Bernanke bent over backwards to suggest, rather than demand, that the Fed get broad new regulatory responsibilities.

But it was clear from his remarks that the Fed wants new powers. "This is the first time I ever recall the Fed coming out and arguing that it needs to have expanded oversight and responsibilities," said former Fed official Robert Eisenbeis in comments to Bloomberg television. "The Fed is seeking broad oversight responsibilities that have been rejected in the past," Eisenbeis said.

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Fed to Get Role in Setting Investment Banks' Capital

The Federal Reserve will get a role in setting capital cushions at securities firms under an agreement designed to allay fears a failing financial company without central bank oversight could threaten the economy.

The Fed and U.S. Securities and Exchange Commission will collaborate in determining "guidelines or rules concerning the capital, liquidity and funding" arrangements of investment banks, the Washington-based regulators said in an accord released today. They will also cooperate in designing "risk management systems and controls" for securities firms.

"This is a pretty momentous agreement," said Gilbert Schwartz, a former Fed associate general counsel who's now a partner at Schwartz & Ballen LLP in Washington. The plan gives the Fed a role "in setting the supervisory capital and liquidity positions for investment banks and primary dealers."

The agreement to exchange information about financial companies formalizes sharing in place since March when the Fed put examiners in securities firms and began lending them money. The move followed a run on Bear Stearns Cos. that pushed the New York-based company to the brink of bankruptcy.

The sharing will continue even if the Fed stops lending to securities firms, giving it a permanent hand in overseeing Wall Street. The Treasury Department urged expansion of the Fed's role after the central bank rescued Bear Stearns with $30 billion in financing to secure a sale to JPMorgan Chase & Co.

The Fed will share with the SEC data on commercial banks' "financial condition" that may threaten the companies' brokerage units. The Fed will also provide assessments of financial markets that may affect the health of securities firms. Officials from the Fed and SEC will meet at least four times a year to exchange information and discuss the companies they regulate.

The agencies are "using our existing authorities and executing our existing responsibilities in a smart way by sharing information that both of us have," SEC Chairman Christopher Cox said today in a Bloomberg Television interview. "As a result you will see the SEC stronger and wiser." Wayne Abernathy, an executive director at the American Bankers Association, said he's concerned Fed monitoring of investment banks may lead to increased risk-taking.

"The more you get the Fed involved the more you increase the impression that these securities firms have some sort of federal backstop," said Abernathy, a former assistant Treasury secretary under President George W. Bush. "To the extent you do that, you decrease market discipline."

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Bernanke Says Fed May Extend Wall Street Lending Access to 2009

The Federal Reserve may extend securities dealers' access to direct loans from the central bank into 2009 as long as emergency conditions "continue to prevail," Chairman Ben S. Bernanke said.

"The Federal Reserve is strongly committed" to financial stability and is "considering several options, including extending the duration of our facilities for primary dealers beyond year-end," Bernanke said in a speech to a conference in Arlington, Virginia. Bernanke also endorsed proposals to set up a federal liquidation process for a failing investment bank.

The Treasury should "take a leading role in any such process, in consultation with the firm's regulator and other authorities," he said. The comments reflect the Fed's assessment last month that financial markets "remain under considerable stress," even after the Fed started the unprecedented lending programs in March. Bernanke at the same time is aiming to address criticism that the Fed's loans to Wall Street may encourage more reckless lending, sowing the seeds of future crises.

The Fed chairman didn't comment on the outlook for the economy or monetary policy in the prepared text of his remarks today to a Federal Deposit Insurance Corp. forum on mortgage lending. Treasury Secretary Henry Paulson and JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon are also scheduled to speak at the event.

The Fed's Primary Dealer Credit Facility, which provides direct loans, and the Term Securities Lending Facility, which auctions as much as $200 billion in Treasuries, were created in March in response to the credit crisis and collapse of Bear Stearns Cos. Both programs are aimed at the 20 primary dealers in U.S. government debt.

Bernanke's speech today marks the first time he has indicated how long he may extend both programs, which were created under the Fed's authority to lend to nonbanks in "unusual and exigent circumstances." Officials in March said the PDCF would last for "at least" six months.

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Platts review bars Lehman from key oil trade window

Energy pricing agency Platts has put Lehman Brothers under a temporary review that effectively excludes it from trading benchmark-setting oil contracts, four sources close to the matter said on Monday.

The exact cause of the move was not immediately clear, although the practice of disallowing a market player from trading during Platts' price-setting window is relatively common and can be imposed for a variety of reasons, from credit issues to trade disputes to shipment technicalities.

But it will be a setback for the No. 4 Wall Street bank, which has strived in recent years to build up a commodity and energy trading division to rival that of the long-standing giants Goldman Sachs and Morgan Stanley, and has seen its shares slump by nearly two-thirds on write-downs.

"Yes, it's because of credit issues," said a source familiar with the matter who declined to be named, when asked for the reason for the review. The source was not able to be more specific about what kind of credit issues had prompted the review. A Lehman spokeswoman was not immediately able to comment, while Platts declined to confirm or deny the review on Lehman.

"Issues occasionally arise in our assessment processes that may merit review," Platts, a unit of McGraw-Hill Co Inc, said in a statement to Reuters in response to questions. "Reviews may result in Platts not publishing bids and offers for short or long periods of time, depending on the situation. Such reviews are routine matters."

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Evil speculation and the Onion Futures Act

Congress is back in session and oil prices are still through the roof, so pointless or destructive energy legislation is all but guaranteed. Most likely is stiffer regulation of the futures market, since Democrats and even many Republicans have so much invested in blaming "speculators" for $4 gas.

Congress always needs a political villain, but few are more undeserving. Futures trading merely allows market participants to determine the best estimate – based on available information like supply and demand and the rate of inflation – of what the real price of oil will be on the delivery date of the contracts.

Such a basic price discovery mechanism lets major energy consumers hedge against volatility. Still, "speculators" always end up tied to the whipping post when people get upset about price swings. As it happens, though, there's a useful case-study in the relationship between futures markets and commodity prices: onions. Congress might want to brush up on the results of its prior antispeculation mania before it causes more trouble.

In 1958, Congress officially banned all futures trading in the fresh onion market. Growers blamed "moneyed interests" at the Chicago Mercantile Exchange for major price movements, which could sink so low that the sack would be worth more than the onions inside, then drive back up during other seasons or even month to month.

Championed by a rookie Republican Congressman named Gerald Ford, the Onion Futures Act was the first (and only) time that futures trading in a specific commodity was prohibited, and the law is still on the books. But even after the nefarious middlemen had been curbed, cash onion prices remained highly volatile. In a classic 1963 paper, Stanford economics professor Roger Gray examined the historical behavior of onion prices before and after the ban and showed how the futures market had actually served to stabilize prices.

The fresh onion market is highly seasonal. This leads to natural and sometimes large adjustments in prices as the harvest draws near and existing inventories are updated. Speculators became the fall guys for these market forces. But in reality, the Chicago futures exchange made it possible to mitigate the effects of the harvest surplus and other shifts in supply and demand.

To this day, fresh onion prices still cycle through extreme peaks and troughs. According to the USDA, the hundredweight price stood at $10.40 in October 2006 and climbed to $55.20 by April, as bad weather reduced crop yields. Then it crashed due to overproduction, falling to $4.22 by October 2007. In April of this year, it rebounded to $13.30.

Futures trading can't drive up spot prices because the value of futures contracts agreed to by sellers expecting prices to fall must equal the value of contracts agreed to by buyers expecting prices to rise. Again, it merely offers commodity producers and consumers the opportunity to lock in the future price of goods, helping to protect against the risks of future price movements.

Tellingly, the absence of that option for onions now has some growers asking Congress to lift the ban. But instead of learning from its onion mistakes, the political class seems eager to repeat them.

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Bradford & Bingley shares tumble to record low

Bradford & Bingley suffered a further knock today as its shares fell 17pc, to a record low, as fears persist over the future of the mortgage lender.

B&B's crisis-hit past few weeks forced the bank to fall back on its large investors for a capital injection on Thursday, after private equity firm Texas Pacific Group (TPG) walked away from a deal to pay £179m for a 23pc stake. The lifeboat was organised with substantial input from the City regulator, the Financial Services Authority.

Goldman Sachs, the bank's advisor, is to be paid a substantial fee. The fee is understood to be in part its basic payment for advising the board of B&B during the last few weeks as well as an extra sum once a funding package is completed, The Sunday Telegraph reported.

B&B's almost one million small shareholders may be surprised to learn Goldman will receive a fee, given the dire straits the bank is in. In the past year, B&B's shares have collapsed from over £4 to around 41p today. It is not clear how much will be earned by Goldman, which has advised B&B since it floated on the stock market in December 2000 at 247p a share, but it is understood that it was to earn about £5m if the TPG deal had gone through.

The fee is now expected to be substantially lower. Meanwhile, Sir Callum McCarthy, FSA chairman, said yesterday the regulator would continue to closely monitor B&B. "We have taken a close interest in it," he told Reuters. Under the revised plan, Standard Life, M&G, Legal & General and Insight Investments, which between them control about 15pc of B&B, will step in to take on TPG's £179m investment.

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Britain at serious risk of recession as orders fall sharply

Britain is now at "serious risk" of a full-scale recession, the British Chambers of Commerce will warn today, as a series of new indicators suggests the economy is now slowing much more quickly than had previously been thought.

In particular, the BCC will say that the services sector is experiencing a sharp downturn, publishing figures that show more firms saw a fall in the number of orders during than the second quarter than a rise, the first time this indicator has turned negative since 1990.

The BCC warned the UK now faces a "serious risk" of moving into recession, with its data suggesting a "menacing deterioration" in the outlook for the UK. David Kern, the BCC's economic adviser, said: "The outlook is grim and we believe that the correction period is likely to be longer and nastier than anticipated."

The BCC's survey of 5,000 companies also shows that business confidence among services companies, which are responsible for three-quarters of the UK economy, is also continuing to fall, with sentiment also at its most depressed level since 1990. The grim warning was underlined by new figures showing that manufacturing fell five times faster than economists had predicted during May.

The Office for National Statistics said manufacturing output fell 0.5 per cent during the month, compared with the 0.1 per cent dip that City economists forecast. The downturn in May means that manufacturing output over the past three months was down 0.2 per cent on the previous quarter, a more long-term measure that analysts take seriously.

Howard Archer, chief economist at the consultancy Global Insight, said the outlook for the manufacturing sector was poor, with the latest surveys of purchasing managers suggesting that output contracted further during June. "The bad news on the UK economy is coming thick and fast at the moment, and the downturn appears to be deepening appreciably," Mr Archer said.

Hetal Mehta, senior economic adviser to the Ernst & Young Item business group, said that the figures were particularly depressing because a fall in the value of sterling during May should have boosted exports from the industrial sector. "It appears that the weak pound is not boosting the industrial sector, indicating that overseas demand is weak as the global economy experiences a slowdown," he said.

The warnings come just two days before the Bank of England's Monetary Policy Committee is due to begin its monthly interest rate meeting. However, analysts said there was little prospect of an interest rate reduction while inflation remained high. The BCC said its figures showed 45 per cent more manufacturers are currently planning price hikes than cuts, as the cost of raw materials continues to increase, underlining the inflation difficulties faced by the MPC.

Nevertheless, Mr Kern urged the committee to take action. "A major recession can still be avoided, but forceful measures are needed to improve confidence," he said. "The MPC must resist misguided calls for higher interest rates – indeed, if wage pressures remain muted, the option of early interest rate cuts must be considered."

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Debt collectors on the rampage

Six months after Rob Hruskoci closed his business, a debt collector called and demanded payment that day for the $5,000 balance on his business credit card. "They want me to wire them $1,900 in 5 hours," Hruskoci said. "It was all about intimidation and harassment."

With the economy in a tailspin, more consumers like Hruskoci are falling behind in their loan repayments, and finding themselves the target of aggressive debt collectors. Complaints against debt collectors have risen substantially in the last few years, according to the Better Business Bureau - up 20% in 2006 and 26% in 2007, according to preliminary figures.

As cash-strapped consumers struggle to make ends meet, third-party collection agencies are buying up debt from companies and actively trying to recoup losses and collect commissions. Collection services go after past-due accounts referred to them by various credit grantors such as credit card issuers, banks, car dealerships, stores and hospitals - any business that extends credit or offers payment installment plans.

There are about 6,500 collection agencies in the United States. And they serve a useful purpose - debt collectors returned $39.3 billion to the U.S. economy in 2005, according to the Association of Credit and Collection Professionals.

Third-party collectors are regulated by the Fair Debt Collection Practices Act (FDCPA), which is administered by the Federal Trade Commission (FTC). There are strict guidelines aimed at protecting consumers from abusive or unfair debt collection practices. But there are also agencies that blatantly disregard those rules.

After a bad bicycling accident, Mike Gambino, 28, had a $20,000 bill from the hospital and no savings with which to pay it. He tried to work out a payment plan, but despite what agreement he thought he had made, his debt ended up in the hands of a collection agency. Then began the months of harassment, he said, with agents often calling five or six times a day - from 6 in the morning to 12:30 at night.

"They were harassing me, one of them threatened to throw me in jail," he said. So Gambino learned what his rights were and got himself a lawyer. In fact, collectors may contact you in person, by mail, telephone, or fax. However, they may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not tell you that you will be arrested if you do not pay.

If a debt collector contacts you, your first move should be to ask for proof of the debt, said Linda Sherry, of Consumer Action, a consumer advocacy group. "What you should get is a real document with your signature that shows you applied for the debt." Collection agencies use a practice of tracking people down called "skip tracing."

"Sometimes they make huge leaps between what's real and what's not," Sherry said. You might have been contacted erroneously, just because you have the same name as the debtor they are looking for, or their old cell phone number.

Even if the debt is yours, it could be old enough to no longer be collectable. Some debt has a statute of limitations, which can range from three to 15 years, depending on your state. Make sure you find out your debt's expiration date because once you pay a portion or initiate a payment plan, the clock starts ticking all over again, Sherry said.

What's prohibited:
Harassment
Debt collectors cannot use threats of violence or harm, publish a list of consumers who refuse to pay their debts, use obscene or profane language, or repeatedly use the telephone to annoy someone.
False statements
Debt collectors cannot falsely imply that they are attorneys or government representatives, falsely imply that you have committed a crime, falsely represent that they operate or work for a credit bureau, misrepresent the amount you owe, indicate that papers being sent to you are legal forms when they are not, or indicate that papers being sent to you are not legal forms when they are.
Unfair practices
Debt collectors cannot collect any amount greater than your debt, unless your state law permits it; deposit a post-dated check prematurely; use deception to make you accept collect calls or pay for telegrams; take or threaten to take your property unless this can be done legally; or contact you by postcard.

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Spanish banks see rating action on worsening economic environment

Standard & Poor's Rating Services said it took rating action on some Spanish banks triggered by a sharp deterioration in economic conditions and increasingly difficult operating environment in Spain.

S&P said the lowering of long-term ratings on Caja de Ahorros del Mediterréneo (CAM) and Castellán y Alicante (Bancaja) reflects S&P's expectation that asset quality will continue to deteriorate after years of strong growth, S&P said. CAM has a substantial inflow of new nonperforming loans (NPLs), S&P said.

It has taken some measures to tighten its underwriting policies, but its high exposure to real estate developers and small and midsize enterprises (SMEs) makes it vulnerable to the real estate sector's abrupt adjustment, S&P said. It said asset quality deterioration will reduce Bancaja's financial strength as the savings bank's provision coverage declines.

S&P said it expects Bancaja's earnings to be pressured by a weaker operating environment, lower revenues from the real estate business, and higher funding costs and provisioning needs. In addition, Bancaja has higher market risk than its rated peers because of its portfolio of equity stakes, S&P said.

S&P said it affirmed ratings on Banco Popular Español, S.A., Caja de Ahorros y Monte de Piedad de Madrid (Caja Madrid) and
since it believes these institutions' financial performance will remain robust and their solvency stable, despite the increase expected in NPLs but S&P revised the outlooks on these banks to negative, given Spain's rapidly deteriorating economic and operating environment.

The current review has taken place against the backdrop of a rapidly changing economy in Spain, S&P said. It said Spanish banks benefited for more than 10 years from a robust economy but now the economy is decelerating rapidly, driven by the abrupt adjustment in the real estate sector.

The persistent uncertainties prevailing in the global financial markets are accelerating this trend and increasing funding costs, with a weakening economic and operating environment is resulting in an escalating number of NPLs and charge-offs, and is putting pressure on profitability, S&P said. The more vulnerable portfolios are those with a majority of residential mortgages granted in recent years with high loan-tovalue ratios and more stretched affordability, S&P said.

'We expect a fast increase in the number of corporate insolvencies in the real estate sector as a result of the sharp contraction occurring in housing demand,' S&P said. Spanish banks face the current weakening environment from a position of strength, however and in line with regulatory requirements, Spanish banks have been making credit provisions well above their needs, S&P said.

Also, Spanish banks enjoy generally robust profitability, greatly supported by strong efficiency levels, which provides them with flexibility to withstand the impact of lower business growth and higher provisioning needs as the economy decelerates, S&P said.

Some banks enjoy further cushions, such as high capital ratios or significant unrealized capital gains in their equity portfolios, S&P said. It said increasing NPLs will gradually erode the banks' cushions, however, and this erosion could accelerate if the economic situation becomes more severe than expected, which will place the ratings on the banks under additional pressure.

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Biofuels May Be Even Worse than First Thought

An internal report put together by the World Bank and leaked to the Guardian claims that biofuels may be responsible for up to 75 percent of recent rises in food prices. Even environmental groups haven't gone that far in their estimates.

With soaring food prices high on the agenda for next week's G-8 Summit in Japan, World Bank President Robert Zoellick has been clear that action needs to be taken. "What we are witnessing is not a natural disaster -- a silent tsunami or a perfect storm," he wrote in a Tuesday letter to major Western leaders. "It is a man-made catastrophe, and as such must be fixed by people."

According to a confidential World Bank report leaked to the Guardian on Thursday, Zoellick's organization may have a pretty good idea what that fix might look like: stop producing biofuels. The report claims that biofuels have driven up global food prices by 75 percent, according to the Guardian report, accounting for more than half of the 140 percent jump in price since 2002 of the food examined by the study. The paper claims that the report, completed in April, was not made public in order to avoid embarrassing US President George W. Bush.

A US analysis recently came to the conclusion that just 3 percent of the food price increases could be attributed to biofuels. The World Bank on Friday sought to limit the impact of the leak. A spokesman for the organization, who asked not to be identified, told SPIEGEL ONLINE that the report obtained by the Guardian was just one of many internal reports prepared on biofuels and that it was never meant for publication.

He pointed out that the World Bank has long agreed that biofuels were a factor in pushing up food prices but said it has declined to put a number on the impact. "Biofuels is no doubt a significant contributor," Zoellick said this spring, establishing the World Bank line on biofuels. "It is clearly the case that programs in Europe and the United States that have increased biofuel production have contributed to the added demand for food."

Still, in an atmosphere of growing criticism of biofuels and increasing concern over the impact of rising food prices, the report is a bombshell. It estimates that rising energy and fertilizer costs have only accounted for a food price jump of 15 percent. Even the environmental group Oxfam hasn't gone as far as the World Bank report. In a study released at the end of June, called "Another Inconvenient Truth," Oxfam said that biofuels have driven more than 30 million people into poverty -- but had contributed just 30 percent to the global food price rise.

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Is the EU Turning its Back on Biofuels?

The storm of critique against biofuels may finally be having some effect. Even as the European Commission remains true to its goal of increasing the use of biofuels, others aren't so sure. The European Parliament is trying to put on the brakes.

In January, the European Union's policy on biofuels seemed clear. By 2020, the European Commission decided, 10 percent of the fuel used by cars and trucks on roads in the EU should come from biofuels and other renewable energy sources. It was a far-reaching plan, hammered out in 2007, that aimed at cutting the emission of harmful greenhouse gases from European exhaust pipes.

Now, though, the European Union may be considering taking its first baby steps away from the once-touted environmental elixir. Over the weekend, French Ecology Minister Jean-Louis Borloo, at an informal meeting in Paris with his colleagues from other EU member states, suddenly remembered that not all of the 10 percent cut needed to come from biofuels.

"We reminded ourselves that the (Climate Action and Renewable Energy Package) also makes reference to powering vehicles with gas, electricity or hydrogen," Borloo said. "Renewable doesn't just mean biofuels." Jochen Homann, a deputy in Germany's Economics Ministry, went even further. "We have to decide if the quota can be kept," he told reporters. "It might be changed."

The apparent shift comes as the storm of criticism against biofuels continues unabated. For months, many environmentalists have been criticizing the fuel -- made from plants and grains grown on farmland -- for providing only a marginal benefit to the environment. The big business of biofuels, say many, encourages farmers in the developing world to cut down rainforests and drain peat bogs, thus destroying areas valuable for their capacity to absorb CO2 from the atmosphere.

Furthermore, biofuels may be significantly contributing to the ongoing dramatic rise in food prices. An internal World Bank report, leaked to the Guardian last week, even claims that up to 75 percent of the rise in food prices can be laid at the doorstep of biofuels. But is the European Union really considering an about-face? According to Ferran Tarradellas Espuny, the European energy commissioner's spokesperson, nothing has changed.

In response to Borloo's sudden epiphany, Espuny told SPIEGEL ONLINE: "We never wanted to focus on biofuels to the exclusion of other technologies." Given the complexity of other technologies -- electric automobiles, hydrogen-powered cars and others -- biofuels is still likely to remain on the top of the list of renewable energies when it comes to vehicles in Europe, he said. "It is true that we are under a lot of criticism," he went on, "but at this point in time the evidence is not that we should revisit our policy on biofuels."

There are many who would disagree. Environmental groups began attacking the EU commitment to biofuels even before the ink on the January agreement had dried. When one takes into account the fertilizer used for many biofuels crops, the destruction of rainforests and other carbon sinks for biofuel crop plantations and the costs of transport, so goes the argument, biofuels aren't carbon neutral at all, and may even do more harm than traditional fossil fuels do.

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