China Cools Economy While U.S. Prepares to Loot Retirement Accounts

In this weeks congressional hearings Mr. Henry Paulson was terrified, as he was in his last appearance, and he stammered through looking terribly unprofessional and unknowledgeable. On the other hand, Mr. Geitner looked like an arrogant lying sociopath, which he is. 

The Fed returned $46 billion to the Treasury last year. The Fed owes $1.8 trillion in government debt and mortgage related securities, up from $497 billion a year earlier. Their expenses were $6 billion. Only a full audit will tell us what has been really going on.

The latest from the SEC that money market funds can suspend payouts has been put into place to keep these funds from selling Treasuries. Many of these funds are still deep into Agencies and toxic garbage, so they as well do not want this garbage marked to the market.

Home Depot Inc., the world’s largest home improvement retailer, will cut 1,000 US jobs as it shrinks its pool of human resources and construction workers and closes three test stores.

Home Depot will start cutting most of the jobs by the end of the week, Ron Defeo, a spokesman, said yesterday. The positions being eliminated are also in finance and real estate. The company will also add 200 jobs, resulting in a net loss of 800 positions, he said.

Chairman and chief executive Frank Blake announced the reductions in a memo to employees, saying it “makes business sense to consolidate some functions’’ as store construction slows. Defeo provided a copy of the memo.

The job cuts include 150 at its Atlanta headquarters, Defeo said. Stores in Wilson, N.C.; Waveland, Miss.; and Austell, Ga., with 100 employees will close in six to eight weeks, after merchandise is sold, he said.

Verizon Communications Inc., coping with subscriber losses at its fixed-line phone business, plans to cut about 13,000 jobs at the division this year after posting fourth-quarter revenue that missed analysts’ estimates.

Massachusetts regulators have charged Securities America, a broker owned by Ameriprise Financial Inc., with selling $697 million in investments without fully warning investors about the risks involved.

The promissory notes were issued by companies owned by Medical Capital Holdings Inc., which ended up defaulting on $1 billion in obligations in August 2008. Medical Capital is under investigation by the Securities and Exchange Commission for fraud.

Secretary of State William F. Galvin yesterday charged Securities America because he said it placed more than one-third of Medical Capital’s $1.7 billion in notes. That includes $7.2 million in notes sold to 60 Massachusetts investors. Galvin said Medical Capital paid Securities America $26 million in compensation and funded trips for Securities America executives, including vacations at Las Vegas resorts and golfing outings to Pebble Beach in California.

“People invested their life savings, while this dealer hid from them the truth of what they were getting into,’’ Galvin said in a statement. He wants Securities America to reimburse Massachusetts investors for their Medical Capital holdings.

Oregon’s voters approved a $727 million tax increase on businesses and high-income earners, forestalling deeper budget cuts in a shift for a state with a history of defeating levies at the polls.

Oregonians voted to keep taxes enacted by Democratic Governor Ted Kulongoski in July, according to a count of ballots cast by more than half of the state’s registered voters. Measure 66, which raises taxes on households earning $250,000 or more, passed by 54 percent. Measure 67, which increases corporate levies, garnered favor of 53 percent.

Legislators enacted the tax boost last year to help close a $4 billion hole that the U.S. recession opened in the state’s budget. The levies spurred a challenge from foes who gathered enough signatures to force the referendum. By targeting businesses and the wealthy, proponents parried resistance from voters who twice defeated tax increases in the wake of the 2001 recession.

“It’s a go-after-the-rich strategy,” said John Matsusaka, president of the Initiative and Referendum Institute at the University of Southern California in Los Angeles. “It shows that some voters have switched their minds and they’re more likely to go after the rich.”

U.S. securities regulators are abandoning a plan to ban money-market mutual funds from buying anything other than the most highly rated debt after companies said the requirement would hurt the commercial-paper market, three people familiar with the matter said.

The Securities and Exchange Commission will vote today to cut the so-called tier two securities money funds can buy, instead of barring purchases as proposed in June, said the people, who declined to be identified because the agency’s plans aren’t public. Current SEC rules allow funds to invest up to 5 percent of their assets in debt that carries the second-highest rating from Moody’s Investors Service or Standard & Poor’s.

The SEC recommended new rules six months ago to increase the liquidity and stability of money-market funds after the collapse of the $62.5 billion Reserve Primary Fund in 2008 raised concerns about whether the industry could meet investor redemptions during financial panics. The agency changed its proposal after the U.S. Chamber of Commerce, Time Warner Inc. and Comcast Corp. said in comment letters that the ban on lower- rated assets would make it harder for companies to fund payrolls and other short-term expenses through sales of commercial paper.

Traders are buying protection against defaults on sovereign debt at more than five times the rate of company bonds as governments fund ballooning deficits.

The net amount of credit-default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the jump, with the amount of protection on Portugal climbing 23 percent, Spain 16 percent and Greece 5 percent.

Rising use of derivatives to insure against defaults or speculate on government bond prices is spilling over into the corporate debt market, stemming a rally that drove yields to the lowest relative to sovereign benchmarks since December 2007, according to BNP Paribas SA. The global financial system remains “fragile,” with sovereign debt posing a risk to markets, the Washington-based International Monetary Fund said yesterday in its Global Financial Stability Report.

Weeks after rescuing the American International Group with an $85 billion taxpayer loan in late 2008, Federal Reserve Board officials rejected a proposal that would have forced the insurer’s trading partners to return $30 billion in cash that they had received from A.I.G. in the preceding months. 

         The Fed chose instead to let the banks keep the cash and to receive additional billions from taxpayers. 

This decision was made, internal documents show, after two Fed governors expressed concern that such a plan might be “a gift” to the company’s trading partners, including Goldman Sachs and Société Générale, a major French bank. The documents were provided to Congressional investigators by the Federal Reserve and were obtained by The New York Times. 

          Lawyers for the Fed argued in the documents that it did not have the legal authority to guarantee A.I.G.’s obligations. The New York Fed’s chief counsel is expected to reiterate this point in Congressional testimony on Wednesday. Lawmakers may also ask Mr. Paulson about the extensive bailout work done by Dan Jester, a Treasury adviser who was a top executive alongside Mr. Paulson at Goldman Sachs.

Treasury Secretary Timothy F. Geithner said the government rescued American International Group Inc. to prevent a “catastrophic” blow to the U.S. economy, not to save any of AIG’s counterparties. 

        “We did not act to protect the financial interests of individual institutions,” Geithner said in excerpts released today by the Treasury Department ahead of a hearing tomorrow before the House Oversight and Government Reform Committee. “We did not act to help foreign banks,” Geithner said. 

        “We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses.” 

Former Treasury Secretary Henry M. Paulson Jr. has a very direct message for the House committee investigating the bailout of the American International Group: Don’t blame me for paying about 100 cents on the dollar to A.I.G.’s trading partners to unwind tens of billions of dollars in credit default swaps. 

         “I was not involved in any of the decisions made with respect to those payments, nor was I involved in any of the decisions about A.I.G.’s public disclosure of those payments,” Mr. Paul said in his prepared testimony for a hearing of the House Oversight and Government Reform Committee on Wednesday. “Those matters were handled by the Federal Reserve Bank of New York and the Federal Reserve Board. They sought to make appropriate decisions on those matters.”

In his prepared testimony for Wednesday’s hearing, Mr. Barofsky said that the New York Fed “refused to use its considerable leverage as the regulator of several institutions to compel haircuts” because it was acting on behalf of A.I.G. instead of as a regulator, and that the New York Fed “was uncomfortable interfering with the sanctity of the counterparties’ contractual rights with A.I.G., which entitled them to full par value.”…Mr. Barofsky said in his testimony that the New York Fed was effectively paying A.I.G.’s counterparties par value “for securities that collectively had a market value, based on the amount of the collateral payments, of approximately 48 cents on the dollar.”