One day after big gains, the stock market was down with its worst drop in six months, reports the Washington Post. Thursday, investors thought that rising consumer spending levels were shoring up the economy and the GDP. Friday, new economic data showed the biggest spending decline in nine months. In other words, the comeback is on hold, at best. The paper also says investors are questioning whether stock prices have climbed too far, too fast in recent months, making any more run-ups dubious in nature. Further complicating the issue is the question of what the "real" economic picture looks like. One investment officer told the Post, "Investors are trying to look past that, the stimulus, to see what is it we're ultimately going to be left with after the government isn't there to prod spending through."
Speaking of consumer spending (which the Post analyzes in a separate story), CIT (CIT), a lender that greases the skids of commerce for thousands of small businesses, could file for bankruptcy protection as soon as Sunday, reports the paper. The Wall Street Journal reports that $2.3 billion in taxpayer money is likely to be wiped out in the filing. CIT's hand is likely being forced by an urgent need to restructure its debt. The government has encouraged speedy bankruptcies for those companies that have had no option, but in this case, one lawyer tells the paper the filing "is a risky proposition. It's far from a certainty that they will be able to exit ... because of all the challenges a financial services company will face, particularly in this market." CIT has locked up the support of Carl Icahn for its plan, but only after he failed to convince other investors to support liquidation rather than restructuring. The Journal follows the CIT story with another explaining how the lender's failure could ripple through retailers' and shoppers' finances. Firms are scrambling to find lending replacements for the $60 billion CIT typically had outstanding.
The Bernard Madoff story continues to look bad for the regulators charged with catching swindlers like him. The Post reports on the interviews with Madoff conducted by an SEC inspector, where Madoff expresses disbelief that he wasn't caught sooner. Thousands of pages of transcripts were released yesterday in support of a report that sharply criticized the SEC. Among statements Madoff made were that being probed, "was a nightmare for me," because his scheme "was very basic stuff." The New York Times has a story complete with extensive documents and the fact that the SEC received six substantive tips on the Madoff fraud and botched the investigation of each one. The paper reports that young SEC investigators pestered Madoff "over incidentals like e-mail messages," instead of checking "basics like his account with Wall Street's central clearinghouse and his dealings with the firms that were supposedly handling his trades." "If you're looking at a Ponzi scheme, it's the first thing you do," Madoff said.
The Journal says General Electric (GE) and Comcast (CMCSA) are moving closer to an agreement on NBC Universal, with the main argument being over valuation of the unit. A deal could happen within three weeks. The paper also says federal guidelines for bank loans are changing, to encourage banks to modify loans rather than foreclose. There is criticism that the accounting change will allow banks to continue to hide bad loans, but the FDIC, Fed, and OCC have all signed off on the changes, which primarily affect the $1.4 trillion commercial mortgage market.
One might think megabanks are battling the Obama administration's financial regulatory reform proposals hardest, but in fact a consortium of small community banks, writes the Post, are the ones trying to "kill" the reforms. Finding strength in numbers and local politicking, 8,000 banks and their lobbyists are adroitly pulling on the levers of power in Washington.
Google's (GOOG) book scanning efforts are facing renewed criticism"”from Chinese authors, reports the Times. Two groups there claim the project is violating authors' rights. The story says Chinese authors had no idea about the project until reading about the proposed settlement in Google's American lawsuit"”which they, like some American companies, didn't like. "We think that reconciliation is extremely unfair," a copyright expert said. "We don't accept it."
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