By Sheera Frenkel, McClatchy Newspapers, June 9, 2010
JERUSALEM — As Israel ordered a slight easing of its blockade of the Gaza Strip Wednesday, McClatchy obtained an Israeli government document that describes the blockade not as a security measure but as "economic warfare" against the Islamist group Hamas, which rules the Palestinian territory.
Israel imposed severe restrictions on Gaza in June 2007, after Hamas won elections and took control of the coastal enclave after winning elections there the previous year, and the government has long said that the aim of the blockade is to stem the flow of weapons to militants in Gaza.
Last week, after Israeli commandos killed nine volunteers on a Turkish-organized Gaza aid flotilla, Israel again said its aim was to stop the flow of terrorist arms into Gaza.
However, in response to a lawsuit by Gisha, an Israeli human rights group, the Israeli government explained the blockade as an exercise of the right of economic warfare.
"A country has the right to decide that it chooses not to engage in economic relations or to give economic assistance to the other party to the conflict, or that it wishes to operate using 'economic warfare,'" the government said.
McClatchy obtained the government's written statement from Gisha, the Legal Center for Freedom of Movement, which sued the government for information about the blockade. The Israeli high court upheld the suit, and the government delivered its statement earlier this year.
Sari Bashi, the director of Gisha, said the documents prove that Israel isn't imposing its blockade for its stated reasons, but rather as collective punishment for the Palestinian population of Gaza. Gisha focuses on Palestinian rights.
(A State Department spokesman, who wasn't authorized to speak for the record, said he hadn't seen the documents in question.)
The Israeli government took an additional step Wednesday and said the economic warfare is intended to achieve a political goal. A government spokesman, who couldn't be named as a matter of policy, told McClatchy that authorities will continue to ease the blockade but "could not lift the embargo altogether as long as Hamas remains in control" of Gaza.
President Barack Obama, after receiving Mahmoud Abbas, the head of the Palestinian Authority, said the situation in Gaza is "unsustainable." He pledged an additional $400 million in aid for housing, school construction and roads to improve daily life for Palestinians — of which at least $30 million is earmarked for Gaza.
Israel's blockade of Gaza includes a complex and ever-changing list of goods that are allowed in. Items such as cement or metal are barred because they can be used for military purposes, Israeli officials say.
According to figures published by Gisha in coordination with the United Nations, Israel allows in 25 percent of the goods it had permitted into Gaza before the Hamas takeover. In the years prior to the closure, Israel allowed an average of 10,400 trucks to enter Gaza with goods each month. Israel now allows approximately 2,500 trucks a month.
The figures show that Israel also has limited the goods allowed to enter Gaza to 40 types of items, while before June 2007 approximately 4,000 types of goods were listed as entering Gaza.
Israel expanded its list slightly Wednesday to include soda, juice, jam, spices, shaving cream, potato chips, cookies and candy, said Palestinian liaison official Raed Fattouh, who coordinates the flow of goods into Gaza with Israel.
"I think Israel wants to defuse international pressure," said Fattouh. "They want to show people that they are allowing things into Gaza."
It was the first tangible step taken by Israel in the wake of the unprecedented international criticism it's faced over the blockade following last week's Israeli raid on the high seas.
While there have been mounting calls for an investigation into the manner in which Israel intercepted the flotilla, world leaders have also called for Israel to lift its blockade on Gaza.
At his meeting with Abbas, Obama said the Security Council had called for a "credible, transparent investigation that met international standards." He added: "And we meant what we said. That's what we expect."
He also called for an easing of Israel's blockade. "It seems to us that there should be ways of focusing narrowly on arms shipments, rather than focusing in a blanket way on stopping everything and then, in a piecemeal way, allowing things into Gaza," he told reporters.
Egypt, which controls much of Gaza's southern border, reopened the Rafah crossing this week in response to international pressure to lift the blockade.
Egypt has long been considered Israel's partner in enforcing the blockade, but Egyptian Foreign Minister Hossam Zaki said the Rafah crossing will remain open indefinitely for Gazans with special permits. In the past, the border has been opened sporadically.
Maxwell Gaylard, the U.N.'s humanitarian coordinator in the Palestinian territories, said the international community is seeking an "urgent and fundamental change" in Israel's policy regarding Gaza rather than a piecemeal approach.
"A modest expansion of the restrictive list of goods allowed into Gaza falls well short of what is needed. We need a fundamental change and an opening of crossings for commercial goods," he said.
Hamas officials said that they were "disappointed" by Israel's announcement, and that the goods fell far short of what was actually needed.
"They will send the first course. We are waiting for the main course," Palestinian Economy Minister Hassan Abu Libdeh said in Ramallah, specifying that construction materials were the item that Gazans need most. Many Palestinians have been unable to build their homes in the wake of Operation Cast Lead, Israel's punishing offensive in the Gaza Strip in December 2008 and January 2009.
Israel said the cement and other construction goods could be used to build bunkers and other military installations.
Some of those goods already come into Gaza via the smuggling tunnels that connect it to Egypt.
(Frenkel, a McClatchy special correspondent, reported from Jerusalem. Warren P. Strobel and Steven Thomma contributed to this article from Washington.)
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
9/27 NO Money for Wall Street & War - Bail Out the Workers and the Poor
SEPTEMBER 27
International Day of Action
NO Money for Wall Street & War -
Bail Out the Workers and the Poor!
Anti-war activists need to address the latest phase of the war - the war against working people here!
Foreclose the War - Not People's Homes!
Bail Out People - Not Banks!
Money for Human Needs - Not War and Corporate Greed!
IN CHARLOTTE, NC:
Demonstration
Saturday SEPT 27
1:00 pm
Sharon Rd. & Morrison Blvd
(near Rep. Sue Myrick's office)
-and in cities across the U.S.
Download flyers for the Charlotte Sept. 27 protest to post & pass out at;
Front- https://lists.riseup.net/www/d_read/actioncenter/flyerS27front.pdf
Back- https://lists.riseup.net/www/d_read/actioncenter/flyerS27back.pdf
see http://stopwaroniran.org/ for a list of local actions
Washington wants:
* $1 Trillion to bail out mortgage bankers
* $3 Trillion on the War in Iraq
* $ Billions for War against Iran
We Demand Money for:
* Housing
* Health Care
* Jobs with a Living Wage
* Rebuilding the Gulf Coast
* Education
SIGN THE ONLINE PETITION
demanding the Feds implement an
IMMEDIATE MORATORIUM ON FORECLOSURES AND EVICTIONS, NOW!
The same institutions that profit from endless war are now demanding that the entire U.S. Treasury to be placed at their disposal to bailout corrupt banks and mortgage institutions, a declaration of endless war against people at home. Even mainstream media is describing this as the "financial equivalent of the Patriot Act," which will give the banks and their politicians in Washington a license to seize billions of dollars for the benefit of Wall Street bankers.
Many have speculated that the Bush Administration might launch an "October Surprise" - and it has. This is an outright declaration of war against working people. We're told there's no money for health care, education, infrastructure – but in one swoop – $1 trillion has been found to prop up banks and financial institutions. This money has been stolen from working people, who will face massive cuts in every social program.
Saturday's Day of Action was originally called by the Stop War on Iran Campaign to protest the Bush Administration's drive to war against Iran, and the demand "Stop War On Iran" will remain a central theme of the demonstration. In light of recent developments - Washington's declaration of war against working people in order to fund an unprecedented trillion dollar bailout of Wall Street bankers - anti-war activists need to address the latest phase of the war - the war against working people here.
No Corporate Bailout! - We need immediate moratorium on foreclosures. We need health care, education and housing.
SIGN THE ONLINE PETITION demanding the Feds implement an IMMEDIATE MORATORIUM ON FORECLOSURES AND EVICTIONS, NOW!
Donate to help with costs for this national day of action at: http://iacenter.org/donate/
Charlotte protest initiated by Students For A Democratic Society (SDS)-UNCC & Action Center For Justice
For more information, call 704-492-5226
www.charlotteaction.blogspot.com
International Day of Action
NO Money for Wall Street & War -
Bail Out the Workers and the Poor!
Anti-war activists need to address the latest phase of the war - the war against working people here!
Foreclose the War - Not People's Homes!
Bail Out People - Not Banks!
Money for Human Needs - Not War and Corporate Greed!
IN CHARLOTTE, NC:
Demonstration
Saturday SEPT 27
1:00 pm
Sharon Rd. & Morrison Blvd
(near Rep. Sue Myrick's office)
-and in cities across the U.S.
Download flyers for the Charlotte Sept. 27 protest to post & pass out at;
Front- https://lists.riseup.net/www/d_read/actioncenter/flyerS27front.pdf
Back- https://lists.riseup.net/www/d_read/actioncenter/flyerS27back.pdf
see http://stopwaroniran.org/ for a list of local actions
Washington wants:
* $1 Trillion to bail out mortgage bankers
* $3 Trillion on the War in Iraq
* $ Billions for War against Iran
We Demand Money for:
* Housing
* Health Care
* Jobs with a Living Wage
* Rebuilding the Gulf Coast
* Education
SIGN THE ONLINE PETITION
demanding the Feds implement an
IMMEDIATE MORATORIUM ON FORECLOSURES AND EVICTIONS, NOW!
The same institutions that profit from endless war are now demanding that the entire U.S. Treasury to be placed at their disposal to bailout corrupt banks and mortgage institutions, a declaration of endless war against people at home. Even mainstream media is describing this as the "financial equivalent of the Patriot Act," which will give the banks and their politicians in Washington a license to seize billions of dollars for the benefit of Wall Street bankers.
Many have speculated that the Bush Administration might launch an "October Surprise" - and it has. This is an outright declaration of war against working people. We're told there's no money for health care, education, infrastructure – but in one swoop – $1 trillion has been found to prop up banks and financial institutions. This money has been stolen from working people, who will face massive cuts in every social program.
Saturday's Day of Action was originally called by the Stop War on Iran Campaign to protest the Bush Administration's drive to war against Iran, and the demand "Stop War On Iran" will remain a central theme of the demonstration. In light of recent developments - Washington's declaration of war against working people in order to fund an unprecedented trillion dollar bailout of Wall Street bankers - anti-war activists need to address the latest phase of the war - the war against working people here.
No Corporate Bailout! - We need immediate moratorium on foreclosures. We need health care, education and housing.
SIGN THE ONLINE PETITION demanding the Feds implement an IMMEDIATE MORATORIUM ON FORECLOSURES AND EVICTIONS, NOW!
Donate to help with costs for this national day of action at: http://iacenter.org/donate/
Charlotte protest initiated by Students For A Democratic Society (SDS)-UNCC & Action Center For Justice
For more information, call 704-492-5226
www.charlotteaction.blogspot.com
After IndyMac's failure, which bank could be next?
Madlen Read, AP, July 14, 2008
As banks prepare to reveal quarterly results, investors wonder which could be next to fail
NEW YORK (AP) -- The bank executives who promised months ago that the worst of the financial crisis had passed are looking less and less credible to investors. And that could pose a problem as the industry releases what are expected to be dismal second-quarter earnings over the next few weeks.
Certainly, not all banks are going the way of IndyMac Corp., which was seized by the government on Friday. In fact, analysts expect several banks to come out on top as the industry consolidates in the coming years.
But for now, investors aren't taking any chances. After IndyMac was seized -- the seventh bank to fail since the credit crisis began last summer, and the second-largest bank to fail in the Federal Deposit Insurance Corp.'s 75-year history -- stocks in nearly all the nation's banks were clobbered Monday as the market bet that there will be more failures.
Stocks that were hit the hardest Monday included First Horizon National Corp., which operates in the Southern United States; Zions Bancorp, located in Utah and Idaho; and Washington Mutual Inc., the nation's largest savings and loan. Stocks of bigger banks such as Wachovia Corp., Citigroup Inc., Bank of America Corp., and Wells Fargo & Co., also tumbled.
It's going to take more than a few hopeful corporate outlooks and capital raising plans this earnings season for investors and consumers to feel at ease again. No matter how much cash a bank has on hand, if enough customers are worried about their deposits and withdraw them, that bank will be in trouble, said Adam Schneider, a principal with Deloitte Consulting LLP.
"The noise becomes the story after a while," Schneider said. "Any institution can be hurt by a run on the bank."
A virtual run by investors who had bought securities through Bear Stearns Cos. led to its demise in March, when the flailing investment bank was bought by JPMorgan Chase & Co.
By examining banks' ratios of defaulting loans to total outstanding loans and to reserves and stock -- two measures of a bank's health -- only a handful of companies appear to be in jeopardy, according to bank analyst Richard Bove of Ladenburg Thalmann. These small banks include Downey Financial Corp., Corus Bankshares Inc., Doral Financial Corp., BFC Financial Corp., BankUnited Financial Corp. and FirstFed Financial Corp.
However, bank runs are unpredictable. To be sure, IndyMac did hold an extremely high number of defaulting loans compared to its total loans and reserves -- but the Southern California lender was not on the FDIC's list of 90 banks that could be in danger of failing.
This is why even those banks that have worked to raise extra cash are still losing investors.
Responding to its plunging stock price, National City said Monday it "is experiencing no unusual depositor or creditor activity," and that it had more than $12 billion in extra short-term liquidity at the close of the business day Friday. National City is expected to report a second-quarter loss on July 24.
And Washington Mutual tried to reassure investors Monday by saying it has enough cash available to survive tough conditions.
But home values are still falling, giving the market little reason to believe in a rebound anytime soon.
"It is a bit premature to suggest that this is the bottom," said Aite Group LLC bank analyst Eva Weber. "We'll need to keep a close eye on what the housing market continues to do."
The situation could be worse, according to Deloitte's Schneider. "We're not seeing massive runs on the bank on a Depression-era scale." And the ones that have occurred are "pretty orderly failures."
Also, big-name banks that have been losing money for nearly a year now -- like Citigroup Inc. -- have not yet seen depositers bail.
Citigroup, the nation's largest bank by assets, is expected on Friday to post a second-quarter loss, which would be its third-straight quarterly shortfall. The other four big U.S. banks are also expected to report worse results than last year and issue grim outlooks. Wachovia Corp. already announced it will post a loss for the second quarter, and analysts predict JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo will report profit declines.
Washingto Mutual is expected to report a second-quarter loss next week. Lehman Brothers analyst Bruce Harting predicted Monday the thrift will take a $4 billion loss provision, and that its loan losses will eventually amount to $26 billion.
For consumers, the worry is that they'll have an even more difficult time finding loans at affordable rates. When a bank says it is tightening lending standards and shedding assets, it means it's issuing fewer loans and charging higher rates -- particularly for mortgages and home-equity loans.
"They can expect a harder and longer search, and they can expect that rates will vary from institution to institution," Schneider said, noting that banks are targeting customers with better credit histories and more stable jobs and incomes.
The FDIC estimated it will take $4 billion to $8 billion to cover IndyMac's deposits, likely lowering its reserve ratio to a level that would require it to reassess the rates it charges banks.
When it comes to the day-to-day business of operating checking and savings accounts, not very much is changing for the consumer. But IndyMac's failure serves as a stark reminder to not deposit more than $100,000 in an account at a single institution -- the FDIC generally only guarantees up to $100,000 of your money if your bank goes under, or $250,000 for some retirement accounts. Beyond that amount, the government decides whether to pay back the customer on a case-by-case basis.
As banks prepare to reveal quarterly results, investors wonder which could be next to fail
NEW YORK (AP) -- The bank executives who promised months ago that the worst of the financial crisis had passed are looking less and less credible to investors. And that could pose a problem as the industry releases what are expected to be dismal second-quarter earnings over the next few weeks.
Certainly, not all banks are going the way of IndyMac Corp., which was seized by the government on Friday. In fact, analysts expect several banks to come out on top as the industry consolidates in the coming years.
But for now, investors aren't taking any chances. After IndyMac was seized -- the seventh bank to fail since the credit crisis began last summer, and the second-largest bank to fail in the Federal Deposit Insurance Corp.'s 75-year history -- stocks in nearly all the nation's banks were clobbered Monday as the market bet that there will be more failures.
Stocks that were hit the hardest Monday included First Horizon National Corp., which operates in the Southern United States; Zions Bancorp, located in Utah and Idaho; and Washington Mutual Inc., the nation's largest savings and loan. Stocks of bigger banks such as Wachovia Corp., Citigroup Inc., Bank of America Corp., and Wells Fargo & Co., also tumbled.
It's going to take more than a few hopeful corporate outlooks and capital raising plans this earnings season for investors and consumers to feel at ease again. No matter how much cash a bank has on hand, if enough customers are worried about their deposits and withdraw them, that bank will be in trouble, said Adam Schneider, a principal with Deloitte Consulting LLP.
"The noise becomes the story after a while," Schneider said. "Any institution can be hurt by a run on the bank."
A virtual run by investors who had bought securities through Bear Stearns Cos. led to its demise in March, when the flailing investment bank was bought by JPMorgan Chase & Co.
By examining banks' ratios of defaulting loans to total outstanding loans and to reserves and stock -- two measures of a bank's health -- only a handful of companies appear to be in jeopardy, according to bank analyst Richard Bove of Ladenburg Thalmann. These small banks include Downey Financial Corp., Corus Bankshares Inc., Doral Financial Corp., BFC Financial Corp., BankUnited Financial Corp. and FirstFed Financial Corp.
However, bank runs are unpredictable. To be sure, IndyMac did hold an extremely high number of defaulting loans compared to its total loans and reserves -- but the Southern California lender was not on the FDIC's list of 90 banks that could be in danger of failing.
This is why even those banks that have worked to raise extra cash are still losing investors.
Responding to its plunging stock price, National City said Monday it "is experiencing no unusual depositor or creditor activity," and that it had more than $12 billion in extra short-term liquidity at the close of the business day Friday. National City is expected to report a second-quarter loss on July 24.
And Washington Mutual tried to reassure investors Monday by saying it has enough cash available to survive tough conditions.
But home values are still falling, giving the market little reason to believe in a rebound anytime soon.
"It is a bit premature to suggest that this is the bottom," said Aite Group LLC bank analyst Eva Weber. "We'll need to keep a close eye on what the housing market continues to do."
The situation could be worse, according to Deloitte's Schneider. "We're not seeing massive runs on the bank on a Depression-era scale." And the ones that have occurred are "pretty orderly failures."
Also, big-name banks that have been losing money for nearly a year now -- like Citigroup Inc. -- have not yet seen depositers bail.
Citigroup, the nation's largest bank by assets, is expected on Friday to post a second-quarter loss, which would be its third-straight quarterly shortfall. The other four big U.S. banks are also expected to report worse results than last year and issue grim outlooks. Wachovia Corp. already announced it will post a loss for the second quarter, and analysts predict JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo will report profit declines.
Washingto Mutual is expected to report a second-quarter loss next week. Lehman Brothers analyst Bruce Harting predicted Monday the thrift will take a $4 billion loss provision, and that its loan losses will eventually amount to $26 billion.
For consumers, the worry is that they'll have an even more difficult time finding loans at affordable rates. When a bank says it is tightening lending standards and shedding assets, it means it's issuing fewer loans and charging higher rates -- particularly for mortgages and home-equity loans.
"They can expect a harder and longer search, and they can expect that rates will vary from institution to institution," Schneider said, noting that banks are targeting customers with better credit histories and more stable jobs and incomes.
The FDIC estimated it will take $4 billion to $8 billion to cover IndyMac's deposits, likely lowering its reserve ratio to a level that would require it to reassess the rates it charges banks.
When it comes to the day-to-day business of operating checking and savings accounts, not very much is changing for the consumer. But IndyMac's failure serves as a stark reminder to not deposit more than $100,000 in an account at a single institution -- the FDIC generally only guarantees up to $100,000 of your money if your bank goes under, or $250,000 for some retirement accounts. Beyond that amount, the government decides whether to pay back the customer on a case-by-case basis.
Mortgage Losses Push Hedge Funds to Brink
By David Cho and Tomoeh Murakami Tse, Washington Post Staff Writers, Washington Post, June 21, 2007; D02
Two Bear Stearns hedge funds, worth more than $20 billion, teetered on collapse yesterday after absorbing major losses from investments in the subprime mortgage industry.
The troubled funds, which lost a key financial backer yesterday, are the latest sign that the problems in subprime mortgage industry are spreading across the financial markets. If the hedge funds fold and their holdings are sold off at a discount, the value of similar assets owned by other banks, hedge funds and investors also could fall.
That ripple effect worried financial markets yesterday. The Standard & Poor's 500-stock index dropped 1.4 percent, its steepest decline in two weeks. The Dow Jones industrial average lost 1.1 percent.
The yield on the 10-year Treasury note, which affects rates on mortgages and corporate loans, rose to 5.14 percent yesterday from 5.09 percent the previous day.
Bear Stearns, a major investment bank, is the biggest hedge fund broker. The unraveling of two of its funds is "at best an embarrassment for [the firm], and at worst, it threatens to have a ripple effect on valuations across the subprime sector," Kathleen Shanley, an analyst at Gimme Credit, wrote in a report released this week.
Wall Street has developed an intricate relationship with the mortgage industry. Many financial firms buy massive pools of loans from lenders, repackage them as bonds called mortgage-backed securities, and sell them to hedge funds and other investors for a profit. Hedge funds make money off these securities by turning them into complex investment tools called derivatives and selling them to other investors.
The rise of such financial partners has empowered the lending industry to sell riskier loans, including those considered subprime, which are mortgages made to people with blemished credit histories. Since 2000, more than $1.8 trillion of securities backed by subprime mortgages have been created, according to Inside Mortgage Finance.
When housing prices started falling, many subprime borrowers stopped making monthly payments. Default rates on loans made last year soared to levels not seen since the late 1990s. That caused a drop in the value of subprime mortgage-related securities and bonds.
Bear Stearns's 10-month-old High Grade Structured Credit Strategies Enhanced Leverage Fund, which made huge bets in the subprime market, dropped about 20 percent this year. A related fund sustained slightly smaller declines.
As the losses mounted, the managers scrambled to save the funds and contain the fallout. But at least one backer, Merrill Lynch, decided to pull out.
Merrill Lynch yesterday began auctioning off about $800 million worth of assets held as collateral for the loans it made to the hedge funds. The fund managers at Bear Stearns made a last-ditch effort to avoid the auction but were not able to stop it.
Securities and Exchange Commission Chairman Christopher Cox said the agency was tracking the turmoil at Bear Stearns. "Our concerns are with any potential systemic fallout,'' Cox told Bloomberg News in an interview yesterday. "So far, so good on that score.''
The President's Working Group on Financial Markets, which was created after a major hedge fund collapsed in the late 1990s, said in February that the current system for preventing market turmoil is "working well."
But Hugh Moore, partner of Guerite Advisors and a former executive at a subprime mortgage lending company, described the situation as a "slow train wreck."
"I wouldn't be at all surprised if we hear about more [hedge funds] blowing up in the coming months, as the subprime market meltdown continues," he said. "You've got $250 billion dollars of subprime [adjustable-rate mortgages] that are going to reset this year. I don't think it's going to be systematic . . . but for those people who invested in those hedge funds, its certainly not going to be fun."
The unraveling of the Bear Stearns hedge funds is the latest in a series of problems that have surfaced in the subprime mortgage industry. Last month, another hedge fund run by an arm of the Swiss bank UBS said it would shut down after losing big in the mortgage market.
Friday, Moody's Investors Service downgraded 131 bonds backed by subprime mortgages. Those bonds were issued in 2006.
Tse reported from New York. Staff writer Nell Henderson contributed to this report.
Two Bear Stearns hedge funds, worth more than $20 billion, teetered on collapse yesterday after absorbing major losses from investments in the subprime mortgage industry.
The troubled funds, which lost a key financial backer yesterday, are the latest sign that the problems in subprime mortgage industry are spreading across the financial markets. If the hedge funds fold and their holdings are sold off at a discount, the value of similar assets owned by other banks, hedge funds and investors also could fall.
That ripple effect worried financial markets yesterday. The Standard & Poor's 500-stock index dropped 1.4 percent, its steepest decline in two weeks. The Dow Jones industrial average lost 1.1 percent.
The yield on the 10-year Treasury note, which affects rates on mortgages and corporate loans, rose to 5.14 percent yesterday from 5.09 percent the previous day.
Bear Stearns, a major investment bank, is the biggest hedge fund broker. The unraveling of two of its funds is "at best an embarrassment for [the firm], and at worst, it threatens to have a ripple effect on valuations across the subprime sector," Kathleen Shanley, an analyst at Gimme Credit, wrote in a report released this week.
Wall Street has developed an intricate relationship with the mortgage industry. Many financial firms buy massive pools of loans from lenders, repackage them as bonds called mortgage-backed securities, and sell them to hedge funds and other investors for a profit. Hedge funds make money off these securities by turning them into complex investment tools called derivatives and selling them to other investors.
The rise of such financial partners has empowered the lending industry to sell riskier loans, including those considered subprime, which are mortgages made to people with blemished credit histories. Since 2000, more than $1.8 trillion of securities backed by subprime mortgages have been created, according to Inside Mortgage Finance.
When housing prices started falling, many subprime borrowers stopped making monthly payments. Default rates on loans made last year soared to levels not seen since the late 1990s. That caused a drop in the value of subprime mortgage-related securities and bonds.
Bear Stearns's 10-month-old High Grade Structured Credit Strategies Enhanced Leverage Fund, which made huge bets in the subprime market, dropped about 20 percent this year. A related fund sustained slightly smaller declines.
As the losses mounted, the managers scrambled to save the funds and contain the fallout. But at least one backer, Merrill Lynch, decided to pull out.
Merrill Lynch yesterday began auctioning off about $800 million worth of assets held as collateral for the loans it made to the hedge funds. The fund managers at Bear Stearns made a last-ditch effort to avoid the auction but were not able to stop it.
Securities and Exchange Commission Chairman Christopher Cox said the agency was tracking the turmoil at Bear Stearns. "Our concerns are with any potential systemic fallout,'' Cox told Bloomberg News in an interview yesterday. "So far, so good on that score.''
The President's Working Group on Financial Markets, which was created after a major hedge fund collapsed in the late 1990s, said in February that the current system for preventing market turmoil is "working well."
But Hugh Moore, partner of Guerite Advisors and a former executive at a subprime mortgage lending company, described the situation as a "slow train wreck."
"I wouldn't be at all surprised if we hear about more [hedge funds] blowing up in the coming months, as the subprime market meltdown continues," he said. "You've got $250 billion dollars of subprime [adjustable-rate mortgages] that are going to reset this year. I don't think it's going to be systematic . . . but for those people who invested in those hedge funds, its certainly not going to be fun."
The unraveling of the Bear Stearns hedge funds is the latest in a series of problems that have surfaced in the subprime mortgage industry. Last month, another hedge fund run by an arm of the Swiss bank UBS said it would shut down after losing big in the mortgage market.
Friday, Moody's Investors Service downgraded 131 bonds backed by subprime mortgages. Those bonds were issued in 2006.
Tse reported from New York. Staff writer Nell Henderson contributed to this report.
Consumer prices up sharply
By MARTIN CRUTSINGER, AP Economics Writer, AP June 15, 2007
WASHINGTON - Consumer prices surged in May at the fastest pace in 20 months, fueled by another big rise for gasoline and an increase for food as well.
Inflation was docile in other areas, with prices for computers, clothes, cars and airline tickets all falling.
The Consumer Price Index posted an increase of 0.7 percent, the biggest one-month gain since the fall of 2005 when energy prices surged after Hurricane Katrina shut down Gulf Coast oil production. Excluding energy and food, the increase for so-called core inflation was just 0.1 percent.
Wall Street chose to focus on the lower-than-expected core reading, believing the Federal Reserve will be happy such underlying inflation pressures are beginning to ease and will leave interest rates alone at their meetings for the rest of the year.
The Dow Jones industrial average rose 85.76 points to close at 13,639.48, capping a 344-point surge over the past three trading sessions, the best three-day point gain since November 2004.
While investors were happy, the big increases in energy and food still meant consumers were falling behind in the cost-of-living struggle. The government said in a separate report that weekly earnings for non-supervisory workers, after adjusting for inflation, fell by 0.2 percent last month. That was the fourth decline in the past five months, reflecting the bite inflation is taking out of paychecks.
"While financial markets love the fact that underlying inflation is tame, if you are an average American and see your food costs rising rapidly and gasoline above $3 per gallon, then inflation doesn't seem so low," said Mark Zandi, chief economist at Moody's Economy.com.
In other news, the government reported that industrial output was flat in May after a strong 0.4 percent gain in April. However, analysts said the weakness in May was heavily influenced by a return to more normal weather after a colder-than-normal April. The change resulted in a big drop in demand for electricity to heat homes.
Financial markets have been roiled in recent weeks by global inflation concerns. The yield on the benchmark 10-year Treasury security hit a five-year high earlier this week, causing a dive in stock prices. Investors were worried that rising interest rates could prolong the troubles in the slumping housing market.
However, stocks have since rebounded on the good readings on core inflation. A report on Thursday had found core wholesale prices rose by only 0.2 percent.
While investors have abandoned hopes that the Federal Reserve might cut interest rates this year, they are becoming more confident that moderate inflationary pressures will keep the Fed from raising the short-term rates that it controls.
In a third report, the deficit in the current account, the broadest measure of foreign trade, increased by 2.5 percent to $192.6 billion in the January-to-March period, compared with $187.9 billion in the fourth quarter. The increase, which was slightly below what analysts had expected, reflected higher foreign oil imports.
So far this year, consumer prices have been rising at an annual rate of 5.5 percent, double the 2.5 percent for all of 2006. The acceleration has occurred because of the surge in energy costs and increases in food costs that have been caused in part by higher demand for ethanol, which is produced with corn.
Excluding food and energy, core prices are up at an annual rate of 2.1 percent through May, a better showing than the 2.6 percent rise for all of 2006.
It is the core figure that officials at the Federal Reserve follow closely. Fed policy-makers pushed interest rates up for two years in an effort to slow the economy enough to keep inflation under control, but since the last rate hike in June 2006, they have been content to leave rates unchanged.
For May, energy prices rose by 5.4 percent, driven by a 10.5 percent jump in gasoline pump prices. The surge in gasoline costs appears to be moderating with the nationwide average falling by 7 cents in the past three weeks to $3.11 per gallon, according to the Lundberg Survey. That was still 95 cents higher than at the start of the year, and many economists say they are not looking for gas prices to fall much further as the country moves into the peak summer driving season.
Food costs were up 0.3 percent in May. Vegetable prices fell, but beef, poultry and fresh fruit prices were up.
The cost of new cars fell by 0.2 percent, while the cost of airline fares was down 0.6 percent and clothing costs dropped by 0.3 percent.
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On the Net:
Consumer prices: http://www.bls.gov/cpi
Industrial production: http://www.federalreserve.gov
WASHINGTON - Consumer prices surged in May at the fastest pace in 20 months, fueled by another big rise for gasoline and an increase for food as well.
Inflation was docile in other areas, with prices for computers, clothes, cars and airline tickets all falling.
The Consumer Price Index posted an increase of 0.7 percent, the biggest one-month gain since the fall of 2005 when energy prices surged after Hurricane Katrina shut down Gulf Coast oil production. Excluding energy and food, the increase for so-called core inflation was just 0.1 percent.
Wall Street chose to focus on the lower-than-expected core reading, believing the Federal Reserve will be happy such underlying inflation pressures are beginning to ease and will leave interest rates alone at their meetings for the rest of the year.
The Dow Jones industrial average rose 85.76 points to close at 13,639.48, capping a 344-point surge over the past three trading sessions, the best three-day point gain since November 2004.
While investors were happy, the big increases in energy and food still meant consumers were falling behind in the cost-of-living struggle. The government said in a separate report that weekly earnings for non-supervisory workers, after adjusting for inflation, fell by 0.2 percent last month. That was the fourth decline in the past five months, reflecting the bite inflation is taking out of paychecks.
"While financial markets love the fact that underlying inflation is tame, if you are an average American and see your food costs rising rapidly and gasoline above $3 per gallon, then inflation doesn't seem so low," said Mark Zandi, chief economist at Moody's Economy.com.
In other news, the government reported that industrial output was flat in May after a strong 0.4 percent gain in April. However, analysts said the weakness in May was heavily influenced by a return to more normal weather after a colder-than-normal April. The change resulted in a big drop in demand for electricity to heat homes.
Financial markets have been roiled in recent weeks by global inflation concerns. The yield on the benchmark 10-year Treasury security hit a five-year high earlier this week, causing a dive in stock prices. Investors were worried that rising interest rates could prolong the troubles in the slumping housing market.
However, stocks have since rebounded on the good readings on core inflation. A report on Thursday had found core wholesale prices rose by only 0.2 percent.
While investors have abandoned hopes that the Federal Reserve might cut interest rates this year, they are becoming more confident that moderate inflationary pressures will keep the Fed from raising the short-term rates that it controls.
In a third report, the deficit in the current account, the broadest measure of foreign trade, increased by 2.5 percent to $192.6 billion in the January-to-March period, compared with $187.9 billion in the fourth quarter. The increase, which was slightly below what analysts had expected, reflected higher foreign oil imports.
So far this year, consumer prices have been rising at an annual rate of 5.5 percent, double the 2.5 percent for all of 2006. The acceleration has occurred because of the surge in energy costs and increases in food costs that have been caused in part by higher demand for ethanol, which is produced with corn.
Excluding food and energy, core prices are up at an annual rate of 2.1 percent through May, a better showing than the 2.6 percent rise for all of 2006.
It is the core figure that officials at the Federal Reserve follow closely. Fed policy-makers pushed interest rates up for two years in an effort to slow the economy enough to keep inflation under control, but since the last rate hike in June 2006, they have been content to leave rates unchanged.
For May, energy prices rose by 5.4 percent, driven by a 10.5 percent jump in gasoline pump prices. The surge in gasoline costs appears to be moderating with the nationwide average falling by 7 cents in the past three weeks to $3.11 per gallon, according to the Lundberg Survey. That was still 95 cents higher than at the start of the year, and many economists say they are not looking for gas prices to fall much further as the country moves into the peak summer driving season.
Food costs were up 0.3 percent in May. Vegetable prices fell, but beef, poultry and fresh fruit prices were up.
The cost of new cars fell by 0.2 percent, while the cost of airline fares was down 0.6 percent and clothing costs dropped by 0.3 percent.
___
On the Net:
Consumer prices: http://www.bls.gov/cpi
Industrial production: http://www.federalreserve.gov
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