Eeyore's News and View

U.S. may convert banks’ bailouts to equity share
White House: Approach will prevent need to seek more cash from Congress
April 19: As President Obama acknowledges that billions more may be needed to bail out struggling banks, he’s eager to be seen helping consumers as well. NBC’s John Check financial reports for each of 8,000 banks in the U.S. in the Bank Tracker, from msnbc.com and American University's Investigative Reporting Workshop.
By Edmund L. Andrews
updated 2:17 a.m. ET, Mon., April 20, 2009
WASHINGTON - President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.
In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.
While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.
The Treasury has already negotiated this kind of conversion with Citigroup and has said it would consider doing the same with other banks, as needed. But now the administration seems convinced that this maneuver can be used to make up for any shortfall in capital that the big banks confront in the near term.
More risk to taxpayers
Each conversion of this type would force the administration to decide how to handle its considerable voting rights on a bank’s board.
Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them.
Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults.
In his budget proposal for next year, Mr. Obama included $250 billion in additional spending to prop up the financial system. Because of the way the government accounts for such spending, the budget actually indicated that Mr. Obama might ask Congress for as much as $750 billion.
The most immediate expense will come in the next several weeks, when federal bank regulators complete “stress tests” on the nation’s 19 biggest banks. The tests are expected to show that at least several major institutions, probably including Bank of America, need to increase their capital cushions by billions of dollars each.
The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.
The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC program “This Week.” Mr. Emanuel asserted that the government had enough money to shore up the 19 banks without asking for more.
“We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Mr. Emanuel said. “If they need capital, we have that capacity.”
If that calculation is correct, Mr. Obama would gain important political maneuvering room because Democratic leaders in Congress have warned that they cannot possibly muster enough votes any time soon in support of spending more money to bail out some of the same financial institutions whose aggressive lending precipitated the financial crisis.
The administration said in January that it would alter its arrangement with Citigroup by converting up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity.
After the conversion, the Treasury would end up with about 36 percent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalizing a major bank.
Nationalization, or even just the hint of nationalization, is a politically explosive step that White House and Treasury officials have fought hard to avoid.
Administration officials acknowledged that they might still have to ask Congress for extra money. Beyond the 19 big banks, which are defined as those with more than $100 billion in assets, the Treasury has also injected capital into hundreds of regional and community banks and may need to provide more money before the financial crisis is over.
Treasury officials say they have more money left in the rescue fund than might be apparent. Officials estimate that the fund will have about $134.5 billion left after the Treasury completes its $100 billion plan to buy toxic assets from banks and after it uses $50 billion to help homeowners avoid foreclosure.
In practice, the toxic-asset programs are not expected to start for another few months, and it could be more than a year before the Treasury uses up the entire $100 billion. Likewise, it will be at least a year before the Treasury uses up all the money budgeted for homeowners.
But the biggest way to stretch funds could be to convert preferred shares to common stock, a strategy that the government seems prepared to use on a case-by-case basis.
Ever since the Treasury agreed to restructure Citigroup’s loans, officials have made it clear that other banks could follow suit and convert their government loans to voting shares of common stock as well.
Setting yardsticks
In the stress tests now under way, regulators are examining whether the big banks would have enough capital to withstand an economic downturn in which unemployment climbs to 10 percent and housing prices fall much further than they already have.
As their yardstick, regulators are expected to examine a measure of bank capital called “tangible common equity.” By that measure of capital, every dollar a bank converts from preferred to common shares becomes an additional dollar of capital.
The 19 big banks have received more than $140 billion from the Treasury’s financial rescue fund, and all of that has been in exchange for nonvoting preferred shares that pay an annual interest rate of about 5 percent.
If all the banks that are found to have a capital shortfall fill that gap by converting their shares, rather than by obtaining more cash, the Treasury could stretch its dwindling rescue fund by more than $100 billion.
The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policy makers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers.
Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall.
This article, "U.S. May Convert Banks' Bailouts to Equity Shares," first appeared in The New York Times.
http://www.msnbc.msn.com/id/30300700/
Here are a couple links for the companion story in FT.com
http://www.ft.com/cms/s/0/f3bc75b2-2d1a-11de-8710-00144feabdc0.html
http://www.nytimes.com/2009/04/20/business/20bailout.html?partner=msnbcpolitics&emc=rss

It's possible: Imagine no phone, no food, no fuel
Book describes what reality could be after EMP attack
A new book that describes what might happen to America following an electromagnetic pulse attack, which would be expected to destroy the power grid, telephone systems and the Internet as well as food and fuel supply chains, is being used to highlight the danger the nation faces.
"As a scientist and engineer now serving my 17th year on the House Armed Services Committee, I have studied the threat of EMP with the world's experts," said U.S. Rep. Roscoe Bartlett. "It is real."
The book is "One Second After" by New York Times best-selling author William R. Forstchen, who talked about the possible impact of such an attack on the Sean Hannity Radio Show today.
The book traces the changes that could happen in the United States over the course of a year following such an attack, a year in which society could crumble as food supply chains are severed, fuel sources are left inoperable, computers and telephones don't function and even cars become lumps of metal in the driveway.
"It is very disturbing that EMP is well understood and EMP capability is actively pursued by America's potential foes, but is virtually unknown by the American public," the congressman said.
"Imagine a world where the only person you could talk to is the person next to you, the only way you could go anywhere is to walk and the electronic grid was destroyed," he continued. "That is the beginning of the impact from an EMP attack."
WND readers already know about the dangers of EMP attacks, with the numerous reports already published.
Last year WND reported on hearings in the House Armed Services Committee on the threat, a danger that had been highlighted in WND's report more than four years earlier.
The House Armed Services Committee in its hearing a year ago heard from William R. Graham, President Reagan's top science adviser and the chief of the Commission to Assess the Threat to the United States from Electromagnetic Pulse Attack.
Graham had warned in 2005 that Iran was not only covertly developing nuclear weapons but was already testing ballistic missiles specifically designed to destroy America's technical infrastructure with the aim of neutralizing the world's lone superpower.
The radical Shiite regime has conducted successful tests to determine if its Shahab-3 ballistic missiles, capable of carrying a nuclear warhead, can be detonated by a remote-control device while still in high-altitude flight, Graham said in his report.
Graham said then there was no other plausible explanation for such tests than preparation for the deployment of electromagnetic pulse weapons – even one of which could knock out America's critical electrical and technological infrastructure, effectively sending the continental U.S. back to the 19th century with a recovery time of months or years.
Iran would have that capability – at least theoretically – as soon as it has one nuclear bomb ready to arm such a missile.
The stunning report was first published in Joseph Farah's G2 Bulletin, the premium, online intelligence newsletter published by WND's founder.
You can subscribe to the G2 Bulletin here and now!.
Iran surprised intelligence analysts by describing the mid-flight detonations of missiles fired from ships on the Caspian Sea as "successful" tests. Even primitive Scud missiles could be used for this purpose. And top U.S. intelligence officials reminded members of Congress that there is a glut of these missiles on the world market. They are currently being bought and sold for about $100,000 apiece.
Then only days ago, North Korea launched a similar missile which later fell into the ocean 2,000 miles away.
When that missile was launched, former House Speaker Newt Gingrich on Fox News raised the issue of an EMP attack, and cited Fortschen's book.
"If you look at the new book … and you look at electromagnetic pulse capabilities, which can take out – one weapon could take out a third of the electric generating capacity of the United States," he warned.
"We do not appreciate the scale of threat that is evolving on the planet, and North Korea is a totally irresponsible dictatorship run by a person who is clearly out of touch with reality, and I think to say, you know, we're now going to have another meeting at the U.N. to have another paper resolution that has meaningless effect is very dangerous," he continued.
He said there are several techniques that could have been used to take out the North Korean missile test "to say we're not going to tolerate a North Korean missile launch, period."
President Obama sought U.N. action against North Korea for its launch, which violated previously U.N. statements, but ended up with nothing more than a letter of the "sense" of the U.N.
On previous occasions when the issue of EMP has been raised, other leaders reported their grave concerns about the lack of preparation for a defense of such an attack.
"A terrorist organization might have trouble putting a nuclear warhead 'on target' with a Scud, but it would be much easier to simply launch and detonate in the atmosphere," wrote Sen. John Kyl, R-Ariz., in the Washington Post in 2005 after reading Graham's report. "No need for the risk and difficulty of trying to smuggle a nuclear weapon over the border or hit a particular city. Just launch a cheap missile from a freighter in international waters – al-Qaida is believed to own about 80 such vessels – and make sure to get it a few miles in the air."
Detonated at a height of 60 to 500 kilometers above the continental U.S., one nuclear warhead could cripple the country – knocking out electrical power and circuit boards and rendering the U.S. domestic communications impotent.
The 2008 hearing was chaired by U.S. Rep. Ike Skelton, D-Mo., who said, "The potential damage that could be caused by an EMP attack on our country is significant."
Bartlett recalled his work during 1999 when he was on a team sent to Austria to meet with members of the Russian government, including Vladimir Lukin.
"Lukin was very angry, and he sat with his arms folded looking at the ceiling for a couple of days during these discussions. We developed a framework agreement, which about half a dozen days later was adopted by the G8 and ended the Kosovo controversy. At one point Vladimir Lukin looked up. He said, 'If we really wanted to hurt you with no fear of retaliation, we'd launch an SLBM from the ocean, detonate a nuclear weapon high above your country and shut down your power grid and your communications for six months or so,'" Bartlett recalled.
"And Alexander Shebonoff, the handsome blond Communist, smiled and said, 'If one weapon wouldn't do it, we'd have some spares, like about 10,000 I think,'" he said.
Bartlett said the book needs to be read by the American people.
"It was the story of a ballistic missile EMP attack on our country. The weapon was launched from a ship off our shore, and then the ship was sunk so that there were no fingerprints," he said. "The weapon was launched about 300 miles high over Nebraska, and it shut down our infrastructure country-wide. The story runs for a year … I understand that this is a realistic assessment of what a really robust EMP lay-down could do to our country."
He described the likely scenario: "There would be no electricity. ... Our substations and so forth would all be gone. The large transformers would be destroyed, and we don't make those. It would take a year and a half or so to buy them from somebody overseas who makes them. We would then be in a world – it's my understanding – where the only person you could talk to is the person next to you, unless you happen to be a ham operator with a vacuum tube set, which is a million times less susceptible. And the only way you could go anywhere is to walk, unless you happened to have a car that had coil-end distributor and you could get some gasoline to put in it."
William Graham in a Washington Times editorial last year said an EMP attack is "equally credible when compared to the threat of a weapon smuggled into the United States."
"But the DHS and their institutional advisers are so fixated on the 'conventional wisdom' of the threat from a nuclear bomb smuggled in that they are doing far too little to detect and prevent nuclear terrorists and their state sponsors from executing an electromagnetic pulse (EMP) attack on the United States," he said.
He continued, "A high-altitude EMP results from the detonation of a nuclear warhead at altitudes above 25 miles over the Earth's surface, and covers the area within line-of-sight from the bomb. The immediate effects of EMP are disruption of, and damage to, electronic systems that are indispensable to the operation of critical national infrastructures – the electric power grid, wired and cell telephone systems, fuel handling, land and air transportation, government operations, banking and finance, food storage and distribution, and water treatment and supply – that sustain our economy, military power and civilian population."
http://wnd.com/index.php?fa=PAGE.view&pageId=95085

UN chief: economic crisis threatens more racism
April 20, 2009 - 7:29am
GENEVA (AP) - U.N. Secretary-General Ban Ki-moon urged the world Monday to rally against the threat that intolerance could rise as a result of the economic crisis, saying "the time is now" to stamp out racism.
Ban, opening the global body's first racism conference in eight years, said racism including anti-Semitism and Islamophobia needed to be tackled.
"I fear that today's economic crisis, if not handled properly, could evolve into a full-scale political crisis marked by social unrest, weakened governments and angry publics who have lost faith in their leaders and their own future," the U.N. chief said.
"In such circumstances, the consequences for communities already victimized by prejudice or exclusion could be frightening."
He also said he regretted the absence of the United States and eight other Western nations that have pulled out because of fears Muslim nations will dominate the conference with calls for to denounce Israel and for a global ban on criticizing Islam.
"There comes a time to reaffirm our faith in fundamental human rights and the dignity and worth of us all," Ban told the gathering of thousands of ministers, diplomats and dignitaries at the U.N.'s European headquarters in Geneva.
The administration of Barack Obama, America's first black president, announced Saturday it would boycott the weeklong meeting because it makes reference to a declaration made in 2001 at the global body's first racism conference in Durban, South Africa.
That document was agreed after the United States and Israel walked out over attempts to liken Zionism _ the movement to establish a Jewish state in the Holy Land _ to racism.
Organizers have sought to steer clear of the controversies that marred the Durban meeting, but have run into many of the same contentious issues. Australia, Canada, Germany, Israel, Italy, Netherlands, New Zealand and Poland are also not participating, while Iran's hardline President Mahmoud Ahmadinejad is scheduled to take the floor later Monday.
The major sticking points in the draft final declaration prepared for the current meeting concern its implied criticism of Israel and an attempt by Muslim governments to ban all criticism of Islam, Sharia law, the prophet Muhammad and other tenets of their faith.
Obama, speaking in Trinidad on Sunday after attending the Summit of the Americas, said: "I would love to be involved in a useful conference that addressed continuing issues of racism and discrimination around the globe."
But he said the language of the U.N.'s draft declaration risked a reprise of Durban, during which "folks expressed antagonism toward Israel in ways that were often times completely hypocritical and counterproductive."
"We expressed in the run-up to this conference our concerns that if you adopted all of the language from 2001, that's not something we can sign up for," Obama said.
Ban said no society _ rich or poor, large or small _ is immune to the dangers of racism, which he called a "denial of human rights, pure and simple."
Addressing intolerance in its various forms, Ban said racism "may be institutionalized, as the Holocaust will always remind us," but that it may manifest itself in more subtle forms through the "hatred of a particular people or a class _ as anti-Semitism, for example, or the newer Islamophobia."
Many Muslim nations want curbs to free speech to prevent insults to Islam they claim have proliferated since the terrorist attacks in the United States on Sept. 11, 2001. They cite the 2005 cartoons of Muhammad published by a Danish newspaper that sparked riots in the Muslim world, and allegations that authorities in the West have targeted innocent Muslims through anti-terror and other police action.
Those demands had been largely resisted by the United States and other Western nations, some of whom are participating in the conference.
Ban steered clear of the issue of a global ban on religious defamation, as demanded by Muslim nations, but urged action against a "new politics of xenophobia" that is on the rise and could become dramatically worse as a result of new technologies that proliferate hatred.
http://wtop.com/?nid=105&sid=1612562

You knew this was coming, and was happening.
TiVo to sell instant data on what people watch, fast-forward
NEW YORK — The company that's made it so easy for television viewers to avoid watching ads will unveil Monday a plan to help stations sell them.
TiVo (TIVO) will challenge Nielsen, whose audience ratings provide the basis for most ad sales, with Stop/Watch Local Markets. It will supplement TiVo's measurements of national TV audiences with data from all but the smallest of the nation's 210 markets.
TiVo will offer stations, advertisers and program producers year-round, second-by-second information about the shows and commercials watched by people who have one of the company's DVRs. The anonymous data will come directly from the boxes.
"Imagine a local news department that has to decide where to put the sports and weather and how much time to devote," says Todd Juenger, TiVo's audience research and measurement general manager. "Having second-by-second graphs that show when the audience goes up, goes away or fast-forwards is a tremendous new piece of insight."
Advertisers likely will be the most interested in the data. Nielsen just measures local program viewing four months a year in all but the 21 largest communities.
Information about "who's viewing the commercial is a big plus for us," says Kevin Gallagher, executive vice president at ad buyer Starcom USA. "Is it a be-all and end-all? We'll have to look at it and see."
TiVo's sales of audience data supplement revenue from its struggling DVR business. The company has 3.3 million subscriptions, down 25% from its peak in early 2007. It would not discuss pricing for the data service.
TiVo's privacy-protection policies prevent it from collecting important information that Nielsen can provide, including the number of people watching a TV set and demographic breakdowns.
"Our ratings are based on samples that reflect the viewing behavior of all households, not just those who have DVRs," says Nielsen spokesman Gary Holmes.
Juenger says TiVo owners tend to be richer, better educated "and, unfortunately, a little more white" than the overall population, but "it isn't a gigantic difference."
He adds that DVRs will be "the way that most people will watch television in the near future."
TiVo says its data will come from most of the DVRs that use its service, including ones that get it from DirecTV. It wouldn't say whether Comcast will participate. Samples will range from 25,000 in the largest markets to 5,000 in small ones. Customers can opt out at TiVo's website. Nielsen's local samples range from 400 to 900.
http://www.usatoday.com/tech/news/2009-04-20-tivo-data-new-plan_N.htm