Due to a technical problem on Wednesday Jan
16, we are upgrading the news management system by a Canadian
software company, which will be
completed in coming days.
It has taken longer than
anticipated. That is one of the drawbacks of outsourcing. C'est
la vie - even Google News updating falls behind at times!
We expect to have our upgraded
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News Headlines to Jan 16 2008
Today's News Links
Tuesday's stories and links from Jan 17 2008
Newspaper Review - Irish Business News and International Stories
Principal news stories from the Irish Times,
Irish Examiner, Financial Times and New York Times.
Independent had not been updated online at the time of this posting.
The Irish Times reports that investors in Europe's leading companies
lost more than €240 billion yesterday as
global stock markets crashed amid fears that
the world is plunging into a recession.
The value of companies listed on the
Dublin Stock Exchange plummeted by 4.17 per
cent, roughly €3.6 billion, as panic spread
through Europe from Asia, where the
fear-driven sell off began on Monday
Reports estimated that losses on blue
chip indices of Europe's biggest public
companies amounted to $350 billion (€242
billion). It was the biggest one-day fall on
European stock markets since the terrorist
attack on New York's World Trade Center in
Yesterday, dealers in Dublin pointed to
over four million shares being sold in
Allied Irish Bank and almost six million in
Bank or Ireland as evidence that investors
were dumping equities.
"It's a complete meltdown, everybody just
one trader told The Irish
In Frankfurt, one of Europe's main
financial hubs, a dealer said there was
complete panic on Germany's stock exchange.
"It's a classic crash," he added.
The Morgan Stanley Capital International
(MSCI) index, which tracks the value of all
stocks on developed world markets, plunged
3.3 per cent, finally wiping out gains made
by equities over the last year.
Since the beginning of the month, its
value has fallen by 12 per cent.
Irish workers will be directly affected
by a drop in the value of their pensions,
most of which include share investments
pegged to national and international indices
such as the Iseq index of Irish shares and
The FTSE Eurofirst index, which
benchmarks Europe's top investments, dropped
5.8 per cent, taking its year-to-date losses
to 15 per cent. In London, the FTSE index
shed 5.6 per cent.
Fears that the US is about to slip into
recession and take the rest of the world
with it sparked yesterday's crash. The
problems faced by the US stem from the fact
that a large number of its banks fuelled a
credit bubble by giving mortgages to
individuals with bad credit histories, who
would normally be judged high risk,
prompting the so-called sub-prime lending
The value of the homes against which the
loans were given began to fall last year and
many of them defaulted. US banks now fear
that the problem is spreading through the
system to other forms of credit.
Last week, US president George W Bush
proposed a $140 billion package to stop the
slide into recession but stock market
analysts said yesterday that investors do
not believe it is enough.
Economist, Jim Power of Friends First,
predicted that the US and European central
banks would have to begin cutting interest
rates "aggressively" this year. This would
ease mortgage and other borrowing costs.
"The Fed (US central bank) could cut
rates by as much as 1 per cent,"
"The European Central Bank is going to have
no choice but to cut rates as well."
Mr Power warned that the Republic is
facing into a tough year.
"International investors fell out of love
with the Irish economy a year ago, if you
superimpose the negative global outlook and
stock market turmoil on that, it will
further undermine confidence," he said.
"We are facing a very challenging year at
least," he said.
"But we have got to
remember that the world economy will emerge
from this in 12 to 24 months and we have to
prepare for that by restoring some of our
"We need to continue to address our
infrastructure deficit, the Government
cannot let up on the National Development
Plan, we have to control current spending,
and there has to be wage restraint, in the
private and public sectors."
The Irish Times also reports that this week could mark the end of the bull market for Wall Street, with US
stocks likely to join a global equity market plunge triggered by fears of a US
Growing fears of a US recession and increased worries about the outlook for
the financial sector triggered a rout in Asian and European equity markets
Many indices suffered their biggest one-day declines since September 2001.
Wall Street was closed for the Martin Luther King Jnr Day holiday, although
the futures market pointed to steep losses for the S&P 500 and Dow Jones
Industrial Average when trading resumes today.
Investors said last week a $150 billion White House rescue plan was too
little too late, as more and more data signalled the US economy was headed for
If US stocks open at the levels futures were indicating, it would push major
indexes dangerously close to bear market territory - or a 20 per cent drop from
their peak in October. That would mark the death of the bull market that was
born in early October 2002. The turmoil comes as a group of the world's leading
economic commentators gather at Davos in Switzerland to discuss global finance,
economics and business.
A year ago at the same forum, Jean-Claude Trichet and Lawrence Summers
accurately warned investors about being too complacent. Now they see an erosion
of confidence that threatens to paralyse the global economy. Former US treasury
secretary Mr Summers returns to Davos this week urging quick action in the form
of economic stimulus to head off "a cascading loss of confidence" in the
US economy after the collapse of its housing market.
European Central Bank president Mr Trichet, also travelling to the Alpine
retreat, is leading international colleagues in lending emergency cash to banks.
"When you have recessions from bubbles bursting, they tend to be
protracted," said Mr Summers, a Harvard economist and the university's
"There is the possibility, not yet at all the probability, that a
recession could prove long and severe."
As the hubris that Mr Trichet and Mr Summers decried last year is replaced by
alarm, an aversion to risk-taking may worsen the outlook for the world economy.
"Davos was marked last year by an irrational exuberance," Josef
Ackermann, chief executive officer of Frankfurt-based Deutsche Bank AG,
Germany's largest bank, said yesterday.
"I hope that we don't swing to the opposite this year and give in to an
In the past 10 days, Citigroup cut 4,200 positions after its biggest
quarterly loss ever, German investor confidence fell to the lowest level since
1992 and the first signs emerged that China's economy may be slowing.
The Irish Examiner reports that
fears of a full-blown US recession gripping the US
caused havoc across markets yesterday as analysts forecast grim times ahead.
Though US markets were closed
yesterday for the Martin Luther King holiday, analysts warned the economy was in
a “bear market” implying share values across the key indices including
the S&P 500 and the Dow Jones will fall 20%-25%, while the economy goes negative
in terms of growth.
A bear market means the US will go though a serious loss of confidence resulting
in falling economic growth.
Markets tumbled yesterday despite Friday’s
announcement by US President George W Bush
of a rescue package worth $140 billion
(€100bn) to boost the economy.
Involved is a series of short-term tax cuts.
No details were given but it is understood
to include tax breaks for businesses and
individuals worth at least 1% of the
nation’s GDP, or approximately $140bn to
At the end of January the US Federal Reserve
will announce a cut of 0.5% on top of the
0.75% rate cuts introduced since last
That will bring rates to 3.75% while the Fed
is expected to slash rates to as low as 3%
to ensure the economy avoids recession.
Pessimism won out yesterday and the rout on
the European markets saw between 5% and 6%
wiped off the value of European stock
Deep fears persist that the subprime
mortgage crisis is still a huge negative for
the economy, with estimated bad debts put at
a staggering $400bn-plus by more pessimistic
market watchers, including David Roche.
A graduate of Trinity College, Mr Roche is a
founding partner of London-based Independent
Strategy. He warns the full implications of
the global lending spree of the past decade
or more is a blot on the global banking
system which is about to pay a very heavy
price for this credit binge.
Central bankers, including the former
chairman of the US Federal Reserve, Alan
Greenspan, are hugely culpable for the
current credit and stock market crisis now
threatening the global economy.
Bond insurers exposed to the billions of
this subprime lending are now in deep
trouble, he warned.
Apart from the bad debt carnage still to
hit, the end result will be much tighter
credit and constraints on the US for some
time, Mr Roche told Bloomberg yesterday.
However not all of the analysts are
In a timely analysis Simon Barry, senior
economist, Ulster Bank Capital Markets said
the pessimists have got it wrong.
He rejects the view the US will go into
Housing constitutes just 5% of GDP while
services account for 84% of employment and
about 80% of the economy.
Given the credit issues, growth has to slow
but the doomsday scenario is overdone and
the services will continue to deliver as the
Fed cuts rates to 3.25%, he said.
Closer to home inflation fears will prevent
the ECB from cutting rates unless growth
slows sharply, he said.
Expect the euro to hit $1.50 as the Fed cuts
rates, with $1.55 a distinct possibility.
The Financial Times reports that lenders’
The FT also reports that
The transformation that Laurence Parisot predicts for French society could extend to France’s “first lady”, if President Nicolas Sarkozy marries Carla Bruni, the Italian model and singer, the Medef boss says.
“If she becomes the first lady of France, she will be the first wife of a president of the Republic that works for a living,” Ms Parisot said. “It is a major change in society and a terrific one,”
Ms Bruni is to relaunch an album sung in English with lyrics from W. B. Yeats, which promises to do well in France, helped by the notoriety of her romance with Mr Sarkozy, recently divorced from his second wife Cecilia.
In France, first ladies have traditionally devoted themselves to charitable work, as did Danielle Mitterrand, or their husband’s political career, like Bernadette Chirac. By comparison, in Britain, former leader Tony Blair’s wife Cherie pursued a successful legal career.
Working women are by far the norm in France. But its poor record on promoting women led to legislation last year to force companies to show by 2010 that they are suppressing wage inequality. A study by the World Economic Forum ranked France at 51 in gender-equal countries, against 11 for the UK and 31 for the US.
let the dysfunctionality
But I am
The New York Times reports that fears that the United States may be in a recession reverberated around the
world on Monday, sending stock markets from Mumbai to Frankfurt into a
tailspin and puncturing the hopes of many investors that Europe and Asia
would be able to sidestep an American downturn.
Until now, overseas
markets had largely avoided the sell-off that has caused steep declines
recently in the United States, whose markets were closed in observance of
Martin Luther King’s Birthday. But investors reacted with what many
analysts described as panic to the multiplying signs of weakness in the
And in a sign that the United States could join the sell-off on Tuesday,
trading in stock index futures pointed to a substantial decline when markets
reopen on Wall Street.
The angst about the United States belies the popular theory that Europe
and Asia are not as dependent on the American economy as they once were, in
part because they trade more with each other. The theory, known as
decoupling, has been used to explain why economies like China and Germany
have kept growing robustly, even as the United States has slowed.
“The market is not at all convinced about decoupling, and I think the
market is probably right,” said Thomas Mayer, the chief European economist
Deutsche Bank in London. “When you look at it more closely, we’re
suffering from the same issues.”
The stock sell-off was evenly distributed from east to west, with indexes
plunging in London, Paris, Frankfurt, Tokyo, Hong Kong, Seoul and Mumbai.
The DAX index of the Frankfurt Stock Exchange plummeted 7.2 percent, its
steepest one-day decline since Sept. 11, 2001. The 7.4 percent drop in the
Sensex index in Mumbai was the second-worst single-day tumble in its
Stocks followed suit when markets opened in the Western Hemisphere.
Canadian stocks were down nearly 5 percent, and a key market index in Brazil
was off 6.6 percent.
The decline continued in early trading Tuesday in Asia with some indexes
down more than 4 percent.
Shares of banks led the decline in many countries, underscoring that the
subprime mortgage crisis continues to hobble the global financial system. On
Monday, a German state bank, WestLB, said it would report a loss of $1.44
billion in 2007 because of its exposure to deteriorating mortgage assets.
“There is indeed some panic,”
Mr. Mayer said. “What we’re seeing, in
Europe and Asia, is that the markets are pricing in a recession.”
Investors were scarcely comforted by President Bush’s announcement on
Friday of an economic stimulus package of as much as $145 billion. Mr.
Bush’s “shot in the arm,” economists said, did not persuade the rest of the
world that the United States will escape a recession, or that it will
In reference to the global stock sell-off, Jeanie Mamo, a spokeswoman for
the White House, said: “We don’t comment on daily market moves. We’re
confident that the global economy will continue to grow and that the U.S.
economy will return to stronger growth with the economic policies the
president called for.”
The turmoil will put even more pressure on the
European Central Bank, which has charted a different course from the
Federal Reserve by warning that it might raise interest rates to curb
inflation, rather than cut them, as the Fed has, to ward off a recession.
Mr. Mayer and others predict the bank will be forced into an about-face in
While Asia has been less buffeted by the credit crisis than Europe, the
Bank of China now appears vulnerable, with analysts predicting it will have
to write down the value of its American mortgage holdings.
Investors in Asia have been in a state of denial about a possible
recession in the United States, said Adrian Mowat,
JPMorgan’s chief strategist in Asia. But now, he said, many believe
“there’s no debate about it.” The only question, he added, is “how long and
deep” a recession might be.
In Japan, which may be facing a new recession of its own, most indexes
were off by more than 3 percent.
In Europe, the housing market, after a long boom, is cooling, especially
in Britain, Spain and Ireland. That will depress the growth rate in those
countries, which are among the region’s economic pace-setters.
European banks continue to make unwelcome disclosures about write-downs
of mortgage assets, even if the losses are not as dire as those reported by
Merrill Lynch. Bank loans across Europe are being constrained, according
to a recent survey by the European Central Bank.
German banks, in particular, are still haunted by the American subprime
crisis. The troubles of WestLB came a week after a German property lender,
Hypo Real Estate, lost a third of its market value after it disclosed
higher-than-expected losses from the credit crisis.
WestLB, after warning that its 2007 losses would be more than twice its
earlier estimate, said its biggest shareholders, the state of North
Rhine-Westphalia and regional savings bank, had agreed to inject up to 2
billion euros ($2.9 billion) of fresh capital into the bank to stabilize it.
Also on Monday, Commerzbank warned it would make additional write-downs
in the fourth quarter of 2007. This caught analysts off guard because
Commerzbank has been fairly upbeat about its exposure.
“The amounts are not so significant,”
said Simon Adamson, an analyst at CreditSights, an independent research firm in London.
“It was more the way
the market was caught by surprise.”
Shares of Commerzbank fell 10 percent Monday, Deutsche Bank declined 6.7
Société Générale of France dropped 8 percent,
BNP Paribas decreased 9.6 percent and the
ING Group of the Netherlands fell 10.5 percent.
But the damage extended to the shares of energy companies like
Royal Dutch Shell, which dropped on worries that a global economic
slowdown would crimp the demand for oil and gas.
“The problem is more deeply rooted in anxiety about the global economy
than it is in Germany,” said Boris Boehm, an asset manager at Nordinvest in
Hamburg. “People are really afraid. But it’s a good thing because fear,
along with action, gets the market to its proper level quickly.”
Those jitters extended to fast-growing markets, like China and India,
that are thought to be relatively insulated from the United States. The
Shanghai composite index, which had risen nearly 88 percent in the year
through Friday, closed down 5.1 percent on Monday, while Hong Kong’s Hang
Seng fell 5.5 percent, also the most since Sept. 11, 2001. It had been up 24
percent in the year through Friday.
While emerging markets may have been poised for a drop after their
run-up, the rout on Monday may also signal a basic shift in sentiment,
analysts said. Mr. Mowat of JPMorgan said that it did not matter whether
markets were separated by geography or asset class because, he said,
trade together in corrections.”
No matter how many bridges, roads, and power plants China builds, or how
many new cars India sells, a downturn in the United States will ripple
across the economies of Asia, experts said.
“If the United States consumer quits buying things, it is going to hurt
in Asia,” said Deborah Schuller, an Asia regional credit officer for Moody’s
Investors Service. She said most rated corporations there would be able to
withstand a nine-month recession in the United States, but if it were to
stretch to 12 months or more, there could be some serious problems.
Worries about China are adding to Asia’s uneasiness. Its private property
market is in the midst of a shakeout, and scores of small developers have
gone out of business.
In both Asia and Europe, there may be further shocks as banks tally the
fallout from their investments in the American mortgage market. Deutsche
Bank, for one, will report its annual results on Feb. 7.
“There’s an old saying in the market that banks lead us into recession
and banks lead us out,” Mr. Boehm of Nordinvest said.
The NYT also reports that everyone wants to know who is to blame
for the losses paining Wall Street and
The answer, it seems, is
A wave of lawsuits is beginning to
wash over the troubled mortgage market
and the rest of the financial world.
Homeowners are suing mortgage lenders.
Mortgage lenders are suing Wall Street
banks. Wall Street banks are suing loan
specialists. And investors are suing
The legal and regulatory wrangles
could dwarf the ones that followed the
technology stock bust and the Enron and
WorldCom debacles. But the size and
complexity of the modern mortgage market
will make untangling the latest mess
even trickier. Some cases stretch across
continents. Others are likely to involve
state and federal regulators.
“It will be a multiring circus,” said
Joseph A. Grundfest, a professor of law
and business and co-director of the Rock
Center for Corporate Governance at
Stanford. “This particular species of
litigation will be manifest in many
different types of lawsuits in many
The legal battles stretch from Main
Street to Wall Street and beyond.
Homeowners and subprime mortgage lenders
are squaring off in scores of cases that
claim some lenders engaged in predatory
lending practices and other wrongdoing.
Cleveland and Baltimore are pursuing
cases against Wall Street banks, saying
local residents are suffering because
the banks fostered the proliferation of
high-risk home loans.
Two questions lie at the heart of
many of the cases. The first is whether
lenders and investment banks alerted
borrowers and investors to the risks
posed by subprime loans or securities
backed by them. The second is how much
they were legally obliged to disclose.
“Those are the two issues that are
frequently raised,” said Jayant W. Tambe,
a partner at the law firm Jones Day.
As defaults and foreclosures rise,
the various players in the housing
market are all pointing fingers at each
other. State prosecutors like
Andrew M. Cuomo, the attorney
general of New York, are investigating
whether investment banks that packaged
mortgages into securities disclosed the
risks to investors and credit ratings
agencies. Investment banks, in turn, are
accusing lenders and mortgage brokers of
shoddy business practices.
“What strikes me here is that this a
tainted system from A to Z,” said Tamar
Frankel, a law professor at
Boston University. “Everybody blames
everybody else. If you look at what is
being said, there isn’t one who doesn’t
blame another and there is half-truth in
Wall Street banks that sold mortgage
investments around the world face legal
complaints from as far away as Australia
Lehman Brothers, the Wall Street
bank with the biggest mortgage business,
is being sued by towns in Australia that
say a division of the firm improperly
sold them risky mortgage-linked
investments. Lehman has denied the
charges and has said the unit, formerly
known as Grange Securities, acted
Closer to home, members of a New
Jersey family have sued Lehman for $4.14
billion, saying the firm steered them
into complex securities that have become
difficult to sell, Bloomberg News
reported Friday. Lehman denied the
In the United States, Lehman is suing
at least six mortgage lenders and
brokers like Fremont Investment and Loan
Fieldstone Investment Corporation,
claiming they sold Lehman dubious loans.
Lehman claims that borrowers’ incomes
were overstated, appraisals were
inflated and the homes were in poor
condition. In most cases, the lenders
are fighting the allegations and
Lehman’s demand that they buy back
defaulted or otherwise problematic
In another case, the PMI Group, a
mortgage insurer, sued WMC Mortgage, a
subprime lender that has stopped making
loans, and its corporate parent,
General Electric, in California
Superior Court. PMI is trying to force
the companies to buy back or replace
loans that the firm was hired to insure
and that it says were made fraudulently
or in violation of the standards that
the lender said it was using.
According to the lawsuit, a review of
loans found “a systemic failure by WMC
to apply sound underwriting standards
and practices.” Reviewing a sample of
the nearly 5,000 loans in the pool,
Clayton, a consultant that reviews
mortgage loans, identified 120
“defective” loans for which borrowers’
incomes and employment were incorrect or
where the borrower’s intention to live
in the home was incorrect. WMC offered
to buy back 14 loans, according to the
Some of the loans have defaulted, and
a trustee’s report on the pool of loans
packaged and underwritten by
UBS, the Swiss investment bank,
shows that losses on some defaulted
mortgages are as high as 100 percent. As
of November, about 27 percent of the
loans in the pool were either delinquent
60 days or more, in foreclosure or had
resulted in a repossessed home.
PMI is on the hook for losses on
defaulted loans, lost interest and
principal payments to investors who own
a $29.6 million slice of bonds backed by
the mortgages. A senior vice president
at PMI, Glenn Corso, said he was unsure
how much the company had paid out so
A spokesman for G.E., Robert Rendine,
declined to comment, citing the pending
Securities lawyers say cases
involving mortgage-backed securities,
which were generally sold privately to
sophisticated institutional investors,
are far more complicated than those
involving stocks, which were sold
publicly to everyday investors.
Class-action lawsuits, a favorite tool
of plaintiffs’ attorneys, will be
employed less than they were after the
plunge in technology stocks a few years
ago because mortgage securities tend to
vary in composition and disclosure.
“This is going to be much more
complicated to prove, and it’s going to
be case by case as opposed to
class-actions,” said David J. Grais, who
is a partner at the Grais & Ellsworth
law firm in New York and an author of a
recent paper on the legal liabilities of
credit ratings firms.
the S&L crisis in the ’80s much more
than it does the tech bubble in the
Class-action filings spiked earlier
this decade, jumping to 497 in 2001,
from 215 the year before, according to
Cornerstone Research, which compiles the
figures in cooperation with the Stanford
Law School. As those suits were
resolved, new filings fell to a low of
118 in 2006. But as of mid-December,
filings had jumped to 169, with about 32
of the cases related to the mortgage
Through the end of 2006, settlements
in technology- and
suits brought by shareholders totaled
$15.4 billion, with more than a third of
that coming from one company, WorldCom,
according to Cornerstone. Settlements in
Enron-related cases have totaled about
$7.2 billion so far; the figure does not
include Securities and Exchange
Commission fines and settlements.
Bringing securities fraud cases has
been made harder by recent
Supreme Court decisions that favored
Wall Street, companies and professionals
like accountants. The court ruled
earlier this month that two technology
vendors could not be held liable for
taking part in a scheme designed by a
cable company to inflate its revenue.
Last summer, in a ruling favoring the
Tellabs, the court said that
securities cases could be dismissed if
investors did not show “cogent and
compelling” evidence of intent to
Some plaintiffs are using other legal
avenues like the pension law, the
Employment Retirement Income Security
Act. Under that law, managers who handle
pension funds must act in the fiduciary
interest of their clients. State Street
Global Advisors, which manages pension
money, has set aside $618 million to
settle claims that the firm invested in
risky mortgage-related securities.
Some legal experts say that the
recent Supreme Court decisions, which
are largely based on cases bought by
shareholders, may not have much bearing
on the more complex cases that stem from
securitization of mortgages.
“There will be a whole new set of
claims that deal with the unique nature
of the securitization market,”
Tambe of Jones Day said. “There will
have to be new decisions that deal with
those claims and a learning process for
the bar and judiciary in those cases.”