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Archive for June 17th, 2009

Consumer prices rise less than expected in May

Jun 17

Posted by sophie in Uncategorized

Consumer prices rose less than expected in May, fresh evidence that the recession is keeping inflation in check.

The Labor Department reported Wednesday that the consumer price index rose a seasonally adjusted 0.1 percent last month, below analysts’ expectations of a 0.3 percent rise.

Excluding volatile food and energy costs, core prices also increased 0.1 percent, matching expectations.

Low inflation enables the Federal Reserve to keep a key short-term interest rate near zero, where it has been for months.

The recession is holding down prices as the unemployment rate has reached a 25-year high and factories are operating at record-low levels. Workers concerned about their jobs are less likely to push for higher pay, while low consumer demand has made it difficult for companies to raise prices.

Gasoline prices rose 9.6 percent in May, before seasonal adjustment, the department said. But they are still much lower than last year, when prices at the pump topped $4 a gallon during the summer.

Due to that decline, consumer prices fell 1.3 percent in the 12 months ending in May, the steepest drop in 59 years. The core CPI has increased 1.8 percent since last year.

Food prices in the U.S. fell for the fourth straight month in May, the department said, as costs fell for all six of the major grocery food groups, including fruits and vegetables, meats and poultry, and dairy products.

Tobacco prices fell 0.3 percent after two months of large increases. Cigarette makers increased prices in the spring ahead of a steep tax increase.

Still, falling prices can raise fears about deflation, a destabilizing period of extended declines. Lower prices may seem like a good thing, but deflation can cause consumers to postpone purchases, leading to drops in production and wage cuts.

But most analysts say efforts by the Fed to stimulate the economy will prevent that from occurring.

Besides lowering its benchmark interest rate to record lows, the Fed has taken other measures to flood the banking system with cash to counter a severe credit crisis.

There are concerns about deflation in other parts of the world, especially in Japan, where prices have been falling. That country underwent a destabilizing bout of deflation during the 1990s, when the world’s second largest economy struggled to emerge from a real estate and banking crisis.

Price declines also have been registered in China and India.

A group of economists from the nation’s largest banks predicted Tuesday that prices will continue to fall this year. The American Bankers Association’s Economic Advisory Committee projects that core consumer prices will decline at a 1 percent annual rate by the end of 2009.

But Bruce Kasman, chief economist for JPMorgan Chase & Co. and chairman of the committee, said inflation is a greater risk than deflation over the next several years, due to huge budget deficits topping $1 trillion this year and next.

Many economists don’t expect the Fed to raise interest rates until the unemployment rate stops rising. It rose to a 25-year high of 9.4 percent in May and many forecasters believe the jobless rate will top 10 percent by year’s end.

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NKorea warns US of ‘thousand-fold’ military action

Jun 17

Posted by sophie in Uncategorized

North Korea warned Wednesday of a “thousand-fold” military retaliation against the U.S. and its allies if provoked, the latest threat in a drumbeat of rhetoric in defense of its rogue nuclear program.

Japanese and South Korean news reports said North Korea is preparing an additional site for test-firing a long-range missile that experts say could be capable of striking the United States. Russia’s deputy defense minister reportedly said it would shoot down any missile headed its way.

The warning of a military strike, carried by the North’s state media, came hours after President Barack Obama declared North Korea a “grave threat” to the world and pledged that recent U.N. sanctions on the communist regime will be aggressively enforced.

Obama and South Korean President Lee Myung-bak met in Washington Tuesday for a landmark summit in which the two leaders agreed to build a regional and global “strategic alliance” to persuade North Korea to dismantle all its nuclear weapons.

Pyongyang claims its nuclear bombs are a deterrent against the United States and accuses Washington of plotting with Seoul to topple its secretive regime — led by the unpredictable dictator Kim Jong Il who is reportedly preparing to hand over power to his 26-year-old youngest son.

“If the U.S. and its followers infringe upon our republic’s sovereignty even a bit, our military and people will launch a one hundred- or one thousand-fold retaliation with merciless military strike,” the government-run Minju Joson newspaper said in a commentary.

The commentary, carried by the official Korean Central News Agency, also called Obama “a hypocrite” for advocating a nuclear-free world while making “frantic efforts” to develop new nuclear weapons at home.

“The nuclear program is not the monopoly of the U.S.,” it said.

The report did not mention the Obama-Lee summit.

Attention has been focused on North Korea since it conducted a nuclear test, its second, on May 25 in defiance of the United Nations. The U.N. Security Council responded by toughening an arms embargo, authorizing ship searches for nuclear and ballistic missile cargo and depriving the regime of the financing used to build its nuclear program.

South Korea’s Dong-a Ilbo newspaper reported Wednesday that the North has begun withdrawing money from its bank accounts in the Chinese territory of Macau and elsewhere, for fear they would be frozen under the U.N. sanctions.

But Lim Eul-chul, a research professor at South Korea’s Kyungnam University and an expert on North Korea, cast doubt on the report. He said the North likely had decreased its exposure to banks in Macau sharply after its funds were previously frozen there under U.S. sanctions.

“They know how to keep and secure their money,” Lim said, adding that North Korea can effectively hide funds in accounts in mainland China opened in the name of third parties such as local Chinese companies and ethnic Korean Chinese citizens.

Separately, Japan’s Sankei newspaper said Wednesday that the North has been showing signs of preparing two sites — the Dongchang-ni site on the northwestern coast and the Musudan-ni site on the northeastern coast — from where a long-range missile could be launched.

It was earlier thought that any launch would come only from the northwest.

South Korea’s Chosun Ilbo newspaper also carried a similar report Wednesday, quoting an unidentified government official as saying that a special train that carried a long-range missile to the northwestern site has recently moved to the northeastern site.

But South Korea’s Yonhap news agency reported that North Korea has been running an empty cargo train from a weapons factory to the two sites.

Yonhap quoted an unnamed government official as saying the movement is aimed at “confusing” foreign intelligence agencies.

Still, Paik Hak-soon, an analyst at the private Sejong Institute think tank outside Seoul, said the possibility of the North conducting a long-range missile test is high unless tension with the U.S. “is dramatically reduced.”

In Moscow, the Interfax news agency quoted Deputy Defense Minister Viktor Popovkin as saying that if a North Korean missile comes toward Russia “we will see it and shoot it down.”

South Korea’s Unification Ministry, Finance Ministry, Defense Ministry and the National Intelligence Service said they could not confirm the reports on money withdrawals or on the missiles, which ostensibly can carry a nuclear warhead. It remains unclear whether they have developed a nuclear device small enough to be carried on a missile.

North Korea, which conducted its first nuclear test in 2006, is believed to have enough weaponized plutonium for at least half a dozen atomic bombs. It revealed last week that it is also producing enriched uranium. The two materials are key ingredients for making atomic bombs.

Some analysts believe that the North’s rhetoric is aimed at showing people at home that their government can defy the powerful U.S., and eventually to give credit for it to Kim’s reported heir apparent, Kim Jong Un. The analysts say this would make Jong Un’s ascent to the top acceptable to the North Koreans.

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New Obama initiative seeks fix to finance regs

Jun 17

Posted by sophie in Uncategorized

A new consumer protection agency highlights a financial system overhaul President Barack Obama plans to unveil Wednesday in effort to avert future economic crises like the one still wreaking havoc at home and around the globe.

Obama’s sweeping change of business regulation also embraces new powers for the Federal Reserve and new rules that would reach into currently unregulated regions of the financial markets. An 85-page draft details an effort to change a regime that Obama’s economic team maintained had become too porous for the innovations and intricacies of the today’s financial markets.

With Congress already embroiled in health care legislation, Obama has set an ambitious schedule, pushing lawmakers to adopt a new regulatory regime by year’s end. The consumer agency would ride herd on credit and lending practices that largely went undetected as the economy was sliding into a deep recession.

Obama said Tuesday he will put forward “a very strong set of regulatory measures that we think can prevent this kind of crisis from happening again.”

Christina Romer, who heads the Council of Economic Advisers, called it an “appropriate balance” and said the administration was “not bulldozing the whole system.” But House Republican Leader John Boehner said that it would have “the federal government deciding what interest ought to be charged on credit cards” and what financial products are available.

“I think it’s just going to be too big of a foot on an industry that already is having financial problems,” Boehner said in an appearance on ABC’s “Good Morning America” Wednesday.

The financial sector and lawmakers from both parties concede the need for significant changes in the rules that govern the intricate and interconnected world of banking and investment. But the details of Obama’s proposal already are facing resistance, signaling a tough sell for a president who is spending major political capital on his health care overhaul.

Under Obama’s plan, the Fed would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the nation’s financial system. But even as it gains new powers, the Fed also would lose some banking authority to a new Consumer Financial Protection Agency.

Obama’s proposal would require the Fed, which now can independently use emergency powers to bail out failing banks, to first obtain Treasury approval before extending credit to institutions in “unusual and exigent circumstances.”

The expanded Fed role and the new consumer regulator are likely to be the two main political flash points in the administration’s proposal. Many bankers oppose a new consumer protection regulator and many lawmakers worry the Fed could become too powerful. Friction over those points could slow any major overhaul.

Besides having the Federal Reserve supervise “systemically significant” institutions, Obama will recommend a council of regulators, which would include the Fed, to monitor risk throughout the broader financial system. The arrangement is designed to prevent crashes like those that felled AIG and Lehman Brothers.

In conjunction with the Fed’s authority over large financial institutions and the new consumer agency, Obama also will propose:

• Additional protections for investors, including greater disclosure by hedge funds; regulation of credit default swaps and over-the-counter derivatives that previously operated outside of government oversight; and new conditions on brokers and originators of asset-backed securities.

• A system for the orderly disposition of any troubled, interconnected firm whose failure poses a risk to the entire financial system, together with rules that insist that financial institutions hold more capital to avoid over-leveraging.

Obama’s plan does not attempt major consolidation of turf-conscious regulatory agencies and does not inject itself into an ongoing debate over whether to bring some insurance companies under federal oversight.

“We don’t want to tilt at windmills,” Obama said on CNBC.

Obama’s decision to create a consumer agency comes amid criticism that mortgage lenders and credit card companies have taken advantage of unwitting customers and saddled them with debt.

The new regulator would have the power to demand that customers have the option of simple financial products, to impose fines and to allow states to pass laws that are stricter than the federal standards. Consumer protections are now spread among various state and federal authorities, including the Fed, the Securities and Exchange Commission, the Federal Trade Commission and banking regulators.

Financial lobbyists rallied against the new agency, saying it’s impossible to separate bank regulation from oversight of the products they offer.

Democratic Sen. Christopher Dodd of Connecticut, chairman of the Senate Banking, Housing and Urban Affairs Committee, has advocated an alternative plan to strip the Fed of its regulatory role entirely and create a new consolidated bank regulator that would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks.

Dodd, however, is a strong proponent of a consumer protection agency and is likely to champion that component of Obama’s plan.

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Goldman Sachs to repay $10B in government funds

Jun 17

Posted by sophie in Uncategorized

Goldman Sachs says it is ready to repay a $10 billion government investment on Wednesday.

The bank made the disclosure in letters to high-ranking congressmen and senators on Tuesday.

Goldman Sachs is one of 10 large U.S. banks that obtained approval last week to pay back a total of $68 billion received as part of the government’s $700 billion Troubled Asset Relief Program. The program was aimed at reviving the stagnant credit and lending markets.

Wednesday is the first day banks are eligible to begin repaying the investments.

Morgan Stanley is also expected to repay on Wednesday the $10 billion it received, according to a person familiar with the talks between the bank and the government.

Eight other banks received approval last week to repay the government funds: JPMorgan Chase & Co., American Express Co., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp., BB&T Corp. and Northern Trust Corp.

All but Northern Trust were subjected to the government’s stress tests earlier this year. The stress tests were used to determine how much of an additional capital cushion the nation’s largest 19 financial firms will need to protect against losses if the economy continues to worsen.

Before receiving approval to repay the TARP funds, the banks had to prove they could raise capital in the public markets without the support of the government.

Repaying TARP funds frees the financial firms of limitations the government imposed on recipients, such as caps on executive compensation. The financial firms will also no longer be burdened with high dividend payments that they had to pay the government for borrowing the money.

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Iranian opposition leader calls for rally Thursday

Jun 17

Posted by sophie in Uncategorized

Iranian opposition leader Mir Hossein Mousavi issued a direct challenge Wednesday to the country’s supreme leader and cleric-led system, calling for a mass rally to protest disputed election results and violence against his followers.

A crackdown on dissent continued, with more arrests of opposition figures reported, and the country’s most powerful military force — the Revolutionary Guard — saying that Iranian Web sites and bloggers must remove any materials that “create tension” or face legal action.

Supreme Leader Ayatollah Ali Khamenei has told Mousavi to pursue his demands through the electoral system and called for Iranians to unite behind their Islamic government, an extraordinary appeal in response to tensions over the presidential vote. But Mousavi appears unwilling to back down, issuing on his Web site a call for a mass demonstration Thursday.

“We want a peaceful rally to protest the unhealthy trend of the election and realize our goal of annulling the results,” Mousavi said.

He called for “a new presidential election that will not repeat the shameful fraud from the previous election.”

Web sites associated with Mousavi and the reformists called for at least one rally later Wednesday but the opposition leader made no reference to the gathering in his official statement.

Mousavi and his supporters accuse the government of rigging the June 12 election to declare hard-line President Mahmoud Ahmadinejad the overwhelming winner. Their street protests, paired with dissent from powerful clerical and political figures, have presented one of the gravest threats to Iran’s complex blend of democracy and religious authority since the system emerged from the 1979 Islamic Revolution.

Blogs and Web sites such as Facebook and Twitter have been vital conduits for Iranians to inform the world about protests and violence.

The Web became more essential after the government barred foreign media Tuesday from leaving their offices to report on demonstrations on the streets of Tehran.

Mousavi condemned the government for blocking Web sites, saying the government did not tolerate the voice of the opposition.

The violence has left at least seven people dead, according to Iran’s state media, although videos and photos posted by people inside Iran show scenes of violence that have not been reported through official channels. The new media restrictions make it virtually impossible to independently verify much of the information, which includes dramatic images of street clashes and wounded demonstrators.

Much of the imagery has been posted anonymously. In other cases, those who have posted have declined to be identified due to fear of government retaliation, or cannot be reached due to government restrictions on the Internet and mobile phones.

The Revolutionary Guard, an elite military force answering to Khamenei, said through the state news service that its investigators have taken action against “deviant news sites” that encouraged public disturbance and street riots. The Guard is a separate military with enormous domestic influence and control of Iran’s most important defense programs. It is one of the key sources of power for the ruling establishment.

The statement alleged that dissident Web sites were backed by Canadian, U.S. and British interests, a frequent charge levied by Iranian hard-liners against their opposition.

“Legal action will be very strong and call on them to remove such materials,” it said.

Meanwhile, election tensions appeared to be spreading further into the Iranian political and religious classes.

The semiofficial ISNA news agency and the private ILNA news agency reported that scuffles broke out between two legislators — one a reformist and the other a hard-liner — in an open session of parliament after they argued about the vote results.

The agencies said hard-liner Ruhollah Jani Abbaspour attacked reformer Amir Taherkhani after a parliamentary committee probing the protests met Mousavi and the speaker of parliament gave a report on the probe.

Iran’s most senior dissident cleric, Grand Ayatollah Hossein Ali Montazeri, said widespread vote fraud had undermined the legitimacy of the ruling Islamic system and that “no sound mind” would accept the results.

“A government that is based on intervening in (people’s) vote has no political or religious legitimacy,” said Montazeri, who had once been set to succeed Ayatollah Ruhollah Khomeini as supreme leader until he was ousted because of criticisms of the revolution.

The U.S.-based International Campaign for Human Rights in Iran said that several dozen noted figures associated with the reform movement have been arrested, among them politicians, intellectuals, activists and journalists.

Tehran-based analyst Saeed Leilaz, who is often quoted by Western media, was arrested Wednesday by plainclothes security officers who came to his home, said his wife, Sepehrnaz Panahi.

At least 10 Iranian journalists have been arrested since the election, Reporters Without Borders said.

A Web site run by former Vice President Mohammad Ali Abtahi said the reformist had been arrested.

Prominent reformer Saeed Hajjarian has also been detained, Hajjarian’s wife, Vajiheh Masousi, told The Associated Press. Hajjarian is a close aide to former President Mohammad Khatami.

In an attempt to placate the opposition, the main electoral authority has said it was prepared to conduct a limited recount of ballots at sites where candidates claim irregularities.

The recount would be overseen by the Guardian Council, an unelected body of 12 clerics and Islamic law experts close to Khamenei.

Mousavi charges the Guardian Council is not neutral and has already indicated it supports Ahmadinejad. He and the two other candidates who ran against Ahmadinejad are calling for an independent investigation.

His representative, reformist cleric Ali Akbar Mohtashamipour, said after a meeting with the council Tuesday the number of votes in counted in 70 districts was higher than the population in those districts. He also said many polling stations were closed sooner than scheduled on election night while people were still lining up.

On Tuesday, the government organized a large rally in Tehran to show it too can bring supporters into the streets. Speakers urged Iranians to accept the results showing Ahmadinejad was re-elected in a landslide.

The appeal for unity failed to calm passions, and a large column of Mousavi supporters marched peacefully in north Tehran, according to amateur video.

A witness told the AP that the pro-Mousavi rally stretched more than a mile (1.5 kilometers) along Vali Asr Avenue, from Vanak Square to the headquarters of Iranian state television.

Security forces did not interfere, the witness said, speaking on condition of anonymity for fear of government reprisal.

Ahmadinejad, who has dismissed the unrest as little more than “passions after a soccer match,” attended a summit in Russia that was delayed a day by the unrest in Tehran. That allowed him to project an image as Iran’s rightful president, welcomed by other world leaders.

In Washington, President Barack Obama expressed “deep concerns” about the legitimacy of the election and post-voting crackdowns.

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A Very Costly Kiss: Senior Denied Diploma

Jun 17

Posted by sophie in Uncategorized

For teens, there is no greater joy than graduating high school. Shaking off the shackles of education and claiming that hard-fought diploma is truly an epic day. Unfortunately, for several students at Bonny Eagle High School in Maine, their natural exuberance has led to some surprisingly serious problems.

On Friday night, when the senior class was waiting to graduate, excitement began to grow. Students bounced a large inflatable rubber duck. The noise level rose. And then came “the kiss.” When called, one student walked on stage to receive his diploma and blew a kiss to his family. The school administrator, clearly not the sentimental sort, sent the student back to his seat … sans diploma.

The seemingly harsh punishment has sent the Web all aflutter. Searches on “student denied diploma” and “bonny eagle high school” are both through the roof. Additionally, blogs and news papers are chiming in with opinions on whether or not the administration overreacted. The student’s mother has given interviews and is quite upset at her son’s treatment. According to an article from Fox News the outraged mother said, “A bow, a kiss to your mom is not misbehavior.”

But the administrators feel they were just enforcing the rules that students agreed to. At a meeting following the debacle, school superintendent Suzanne Lukas said that “if a student doesn’t adhere to the expectations, then the consequences are clearly spelled out.”

This isn’t the first time that rambunctious (dare we say “fun”?) behavior affected a graduation ceremony at Bonny Eagle. “Four years ago we had some issues with silly string and beach balls,” said Lukas.

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