The Securities and Exchange Commission is considering taking civil action against Standard & Poor’s for its rating of a 2007 mortgage debt offering low rates payday advance. Such action could be just the first shot in a legal assault against the major credit rating agencies.
The three major agencies
The International Monetary Fund says the global financial system is more vulnerable than at any point since the 2008 financial crisis.
Risks to banks and financial markets have increased in recent months, the global lending organization said in a report Wednesday. The European debt crisis is affecting its banking system to the point where banks may pull back on lending to conserve cash, which threatens to worsen growth in the region.
Meanwhile, there are growing doubts that the U.S. lawmakers can forge the political consensus needed to reduce its growing budget deficits. Rising deficits were a key reason Standard & Poor’s downgraded long-term U.S. debt last month.
European leaders should quickly implement an agreement reached in July that provides the region’s bailout fund with more flexibility, while the U.S. and Japan must phase in steps to reduce their deficits, the IMF said.
“Risks are elevated, and time is running out to tackle vulnerabilities that threaten the global financial system and the ongoing economic recovery,” the IMF said in its semi-annual Global Financial Stability report.
The report is the second warning from fund in as many days. On Tuesday, the IMF sharply cut its growth forecasts for the global economy, the United States and Europe for this year and 2012.
The 187-member group is holding its annual meeting at the end of this week in Washington. The meeting brings together finance ministers and central bankers from around the world.
The IMF has been stepping up its pressure on Europe to resolve its financial problems, which the fund sees as major threats to the global economy. Political squabbling between European leaders has interfered with the region’s ability to reach a sustainable solution, the report said pay day loans.
Olivier Blanchard, the IMF’s chief economist, said Tuesday that “Europe must get its act together.” He criticized its leaders for being “one step behind the action.”
The IMF contributed $41 billion to a $150 billion rescue package for Greece assembled by European leaders in May 2010. Officials from the IMF and European Central Bank are reviewing Greece’s progress in cutting its government budget deficit before providing the next installment of funds from that loan.
Europe’s larger banks, which hold substantial amounts of Greek and other troubled government bonds, should boost their capital reserves, the IMF said. That would protect them in case the bonds lose more of their value or Greece defaults on its debts.
The capital should come from private markets, the IMF said. But if that isn’t available, governments should provide the funds.
In the United States, policymakers should take steps to improve the financial position of U.S. households, the report said. One way to do that would be to reduce mortgage debt for those Americans who owe more on their homes than they are worth. About one-quarter of U.S. homeowners are in that position. Reducing that debt burden would improve consumer demand and support growth, the report said.
“Restoring confidence in the stability of the U.S. housing market is the key to bolstering the prospects for U.S. banks,” which have been hurt by slower growth, the report said.
If you’re angry that Wall Street speculators have been driving up the price you pay for gasoline, these same big financial investors now are pushing up the price of your cup of joe.
Grocery shoppers have seen whopping increases this year in the price of a can of ordinary coffee, whether it’s a generic store brand or better-known ones such as Folgers and Maxwell House. Since spring, coffee has been selling at $7 to $8 a can in many parts of the country, or about twice the price of a gallon of gas.
The retail price of coffee in July was up 20.7 percent over the same month last year, according to the Bureau of Labor Statistics, which tracks changes in grocery prices. Big coffee marketers have trimmed prices a bit in recent weeks, but the price of contracts for future delivery of coffee continues to rise unabated.
What gives?
Coffee-industry veterans blame financial speculators. They say they’re taking advantage of global supply hiccups to drive up coffee prices by adding volatility to the trading of contracts for future delivery of coffee. It’s not as debilitating to family income as high crude oil prices, but the phenomenon is the same.
“It’s definitely not purely supply and demand. It’s way too volatile,” said Shawn Hamilton, vice president of operations and a veteran coffee buyer for Java City in Sacramento, Calif., a national wholesaler of coffee and a midsize regional coffee roaster.
Experts say global consumption of coffee is up, particularly in China and coffee-producing Brazil. There’s also been a weather-related dip in production from coffee-rich Colombia. These underlying supply-and-demand factors do justify higher prices, just not this high.
The hiccup in production and rising demand set the stage for Wall Street speculators
Tropical Storm Harvey has gained strength in the Atlantic Ocean and is threatening to bring high winds and several inches of rain to parts of Central America.
Tropical storm warnings have been issued for the Bay Islands of Honduras, the coast of Belize and parts of the southeastern coast of Mexico’s Yucatan Peninsula. Watches are in effect for coastal Honduras and Guatemala.
The U.S. National Hurricane Center in Miami said Friday evening that Harvey’s maximum sustained winds are near 50 mph (80 kph). The storm was centered about 130 miles (209 kilometers) east of Isla Roatan, Honduras. It was moving west at 9 mph (14 kph).
Meanwhile, far out in the Pacific, Greg has weakened to a tropical storm and is expected to dissipate in the coming days.
Premier Silvio Berlusconi faces a tough battle and likely opposition from political rivals and some unions if he is to enforce measures aimed at avoiding Italy’s financial collapse and boosting the country’s stagnant economy.
While the new moves announced Friday by the government were welcomed by some analysts, others criticized the measures to spur growth as too vague and some in the opposition demanded a change of government _ an option Berlusconi dismisses.
Berlusconi’s government devised a euro70 billion ($99 billion) austerity package last month. But on Friday, after intense pressure from markets and fellow European leaders worried that Italy might become the next victim of Europe’s debt crisis, Berlusconi agreed to speed up the process.
“In a month, the world has changed,” Finance Minister Giulio Tremonti said in announcing the measures alongside Berlusconi on Friday evening.
Crucially, the government agreed to bring forward its goal of balancing the budget in 2013 instead of 2014 as originally planned. It also has promised to make the balanced budget a constitutional requirement.
The measures are seen as paving the way for a possible move by the European Central Bank to buy Italian bonds in an effort to bring down the country’s borrowing costs. The bank has not confirmed this, but a close Berlusconi ally and Italian Cabinet minister, Umberto Bossi, said the bank “has assured us that starting Monday it will buy our bonds,” according to the ANSA news agency and other news reports.
The government hopes to generate between euro17 billion and euro20 billion (between $24 billion and $28 billion ) through cuts to its pensions system, which was brought forward to the 2012-2013 period. It also will enforce cuts to tax breaks.
“Italy is complying with all the main requests of fiscal hawks,” said Alan Ruskin, an analyst at Deutsche Bank, foreseeing a positive impact for Italy’s bonds. But, he added, “the sheer scale of Italian debt relative to possible future official support will still leave it vulnerable to (monetary union) contagion from elsewhere.”
Italy’s debt is among the highest in the eurozone at nearly 120 percent of GDP, but poor growth is viewed by many as he overriding issue. Italy is expected to grow only by 1 percent this year, according to some estimates.
The government’s move, announced after the markets had closed Friday, capped a week that saw the Milan Stock Exchange consistently fall. Italy’s borrowing costs rose above Spain’s for the first time in more than a year, heightening concerns over the health of the eurozone’s third-largest economy.
Berlusconi said Friday he is open to new ideas, including from his bitter rivals in the center-left opposition. But it remains unclear how much support Berlusconi would get from his political adversaries in a country that, despite calls for national unity, remains highly polarized.
After Friday’s announcement, some in the opposition signaled the possibility of supporting the government or working with it, saying the new measures marked a departure and a step in the right direction. But many insist Berlusconi first must go. Critics say Berlusconi’s weakened leadership, amid sex scandals and legal woes, adds to the market concerns because it makes it harder for him to pass unpopular measures and focus on reforms.
Berlusconi’s five-year term ends in 2013, and on Saturday the prime minister dismissed speculation he might step down next year and push for early elections.
“This was never an option,” he told reporters outside his Rome residence, according to the ANSA news agency.
Tremonti is hoping to liberalize the labor market by reforming the workers’ chart and making it easier to hire and fire workers. He wants more direct negotiations between companies and employees’ unions, rather than the blanket regulations of the workers’ chart. He also wants to liberalize services and cut red-tape to set up business _ broadening the constitutional provision sanctioning that private enterprise in Italy is free.
Tremonti is set to present some of these proposals next week to parliamentary commissions hastily reconvened despite the summer recess.
However, any constitutional change requires a lengthy and complex parliamentary procedure and a qualified majority. Berlusconi has a majority in parliament but would need support from some opposition forces to obtain a qualified majority.
The labor market changes promise to be very divisive because of opposition from at least some unions. Previous attempts to liberalize the market was met with huge demonstrations.
“In the case of the labor-market reform, it is not difficult to foresee a complicated journey and one that will potentially be divisive for unions,” said Saturday’s financial daily Il Sole 24 Ore.
The leader of the largest Italian labor confederation, Susanna Camusso, wasted no time in criticizing of the new measures. “To move forward the measure means to destroy the country,” she said in a newspaper interview.
Minnesota’s Democratic Gov. Mark Dayton offered major concessions Thursday in a bid to end a government shutdown, dropping his pursuit of tax hikes to say he was willing to accept a Republican offer made just before the state closed for business two weeks ago.
Dayton attached significant conditions to his offer. He said Republicans must drop a list of policy changes and a plan to reduce the state workforce by 15 percent. In exchange, he would sign off on a Republican proposal that would raise $1.4 billion, half by delaying state aid checks to school districts and the other half by selling tobacco payment bonds.
“I believe this is the best option for Minnesota,” a weary-sounding Dayton said after announcing his offer in a speech at the University of Minnesota. “I know in my soul that I am doing what I believe.”
Aides said GOP leaders were reviewing Dayton’s offer and had no immediate comment. The governor said he had invited them to meet Thursday afternoon, but no meeting was set.
If the Republicans agree to Dayton’s proposal and the pieces fall into place, the first-term governor said he is prepared to call a special session within three days.
The Minnesota impasse was months in the making, with Dayton insisting on raising income taxes on the highest earners to soften the effect of budget cuts necessary to resolve a $5 billion deficit. More recently, Dayton had offered to consider an array of other ways to raise revenue, including cigarette and alcohol taxes and a broader sales tax.
As the shutdown persisted, the pressure for a resolution has intensified.
The partisan standoff has closed state parks and rest stops, prevented many people from getting licenses they need to launch careers or move ahead with businesses, and cut off funding streams to countless social service programs. It has also cost the state millions in preparation costs and lost revenue.
Dayton has been on the road this week, holding public events around the state, and said he received a clear message from the people he met: End the shutdown.
“They want this resolved and they don’t even care how. I care how,” Dayton told a University of Minnesota audience in Minneapolis.
Dayton said he is reluctant to accept the Republicans’ way out of the budget impasse.
“Despite my serious reservations about your plan, I have concluded that continuing the state government shutdown would be even more destructive for too many Minnesotans,” he said in a letter to GOP leaders that he read aloud. “Therefore, I am willing to agree to something I do not agree with _ your proposal _ in order to spare our citizens and our state from further damage.”
Dayton is also asking lawmakers to approve a construction projects bill totaling at least $500 million.
ConAgra’s fourth-quarter net income more than doubled thanks to higher food prices and an insurance settlement.
But the company warned Thursday that first-quarter earnings may fall below last year’s numbers in what CEO Gary Rodkin calls a “challenging” market place. ConAgra shares fell 3 percent in premarket trading.
ConAgra and other food producers have had to raise prices as higher ingredient and material costs cut into profits. This quarter, the company’s consumer foods segment saw cost inflation rise 9 percent.
The maker of Slim Jim, Healthy Choice, Chef Boyardee and other food products earned $254.9 million, or 61 cents per share, for the period ended May 29. That’s up from $90.6 million, or 20 cents per share, a year earlier.
Adjusted earnings from continuing operations rose to 47 cents per share from 38 cents per share, the company said Thursday.
Analysts polled by FactSet expected 48 cents per share.
The current quarter’s results included about 16 cents per share from an insurance settlement, approximately 2 cents per share in restructuring charges and other items.
Revenue climbed 5 percent to $3.21 billion from $3.05 billion, just edging out Wall Street expectations.
The consumer foods division, which made up 63 percent of the quarter’s sales, reported a slight sales increase in the quarter with strength in brands such as Hebrew National, Peter Pan, Wesson, Slim Jim and others.
ConAgra said it raised prices for cooking oil-related products, frozen foods and snacks loans for people with bad credit. The company said more prices hikes have been made in early fiscal 2012 and that prices will rise again if needed.
In the commercial foods segment sales rose 15 percent on higher flour milling prices, price increases and better volumes for Lamb Weston specialty potato products. The unit comprises 37 percent of the quarter’s sales.
For the year, ConAgra reported net income of $817 million, or $1.88 per share. That compares with $725.8 million, or $1.62 per share, in the previous year.
Adjusted earnings from continuing operations were $1.75 per share.
Annual revenue improved to $12.3 billion from $12.01 billion.
ConAgra Foods Inc., based in Omaha, Neb., expects fiscal 2012 adjusted earnings per share to climb by a low- to mid-single digit percentage rate from fiscal 2011’s $1.75 per share.
Analysts forecast $1.87 per share for the year.
The company also said it expects its first-quarter earnings to come in below the prior-year period’s 34 cents per share.
Wall Street predicts quarterly earnings of 36 cents per share.
ConAgra’s shares dropped 77 cents to $24.65 before the market opened.
The company maintained its long-term earnings per share forecast for 6 percent to 8 percent growth each year.
Israeli policemen entered a sensitive Jerusalem holy site Friday and used stun grenades to disperse dozens of Palestinian protesters who were hurling stones at security personnel, police said.
The scene of the clash was the Old City compound known to Jews as the Temple Mount and to Muslims as the Noble Sanctuary.
Israeli spokesman Micky Rosenfeld said police entered the compound after Palestinians began lobbing stones at security forces stationed outside one of the gates. The clash began immediately after Friday prayers at the Al-Aqsa mosque.
Police used stun grenades to disperse the crowd, he said.
Officers made three arrests, no one was injured and order was quickly restored, Rosenfeld said.
The compound, holy to Jews and Muslims and captured by Israel in 1967, is one of the most combustible sites on earth. Clashes there in the past have ignited broader violence.
A Muslim clerical body known as the Waqf runs the compound under Israel’s overall security control easy to get unsecured personal loans.
Also Friday, a Hamas leader said Israel had stepped up a campaign of arrests against members of the Islamic militant group in the West Bank, which Israel controls.
Mushir al-Masri, a Hamas official in the Gaza Strip, said around 100 Hamas members had been arrested by the Israeli military in the last two weeks in the West Bank, including eight of the group’s leaders.
The Israeli military had no immediate comment.
The Western-backed Fatah, which governs Palestinian population centers in the West Bank and has also carried out arrests of Hamas members, recently signed a reconciliation deal with Hamas and has scaled back pressure on the rival group.
The reconciliation followed a four-year split after Hamas’ bloody seizure of Gaza Strip that left Fatah in control only of the Weset Bank.
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