Fed boss didn’t know Lehman masked its debt

Bernanke: Fed didn’t know Lehman used accounting gimmick to mask debt

 

Jeannine Aversa, AP Economics Writer, On Monday April 19, 2010, 4:22 pm EDT

WASHINGTON (AP) — The Federal Reserve wasn’t aware that now-defunct Lehman Brothers used an accounting gimmick to mask billions in debt ahead of the 2008 financial crisis, Fed Chairman Ben Bernanke said Monday.

Even if the Fed did know the investment firm was using the accounting gimmick, dubbed Repo 105, if wouldn’t have changed the Fed’s view that the company was in bad financial shape, Bernanke said in prepared remarks to a House committee.

The remarks were released Monday in advance of Tuesday’s hearing before the House Financial Services Committee.

Although the Securities and Exchange Commission was Lehman’s chief regulator, the Fed began to monitor the firm after trouble surfaced in the financial industry.

Two Fed employees were placed at Lehman to keep tabs of the company’s liquidity position and its general financial condition, Bernanke explained. Beyond information gathering, the employees had no authority to regulate Lehman’s disclosures, capital standards, risk-management practices or other business activity, Bernanke pointed out.

The Fed and other government agencies were unable to engineer a private-sector rescue of the failing firm or come up with some other solution. Lehman was forced to declare bankruptcy — the biggest in U.S. history — in the fall of 2008. That threw financial markets in the United States and around the globe into crisis.

Bernanke said the case underscores the need for Congress to pass a sweeping financial overhaul. That legislation includes a mechanism to allow the government to safely wind down ailing financial companies whose collapse could take down the entire financial system and the broader economy.

Last month an examiner appointed by the bankruptcy court to investigate the Lehman debacle issued a 2,200-page report, finding that the firm masked $50 billion in debt by using the so-called Repo 105 accounting maneuver. Since then, interest has grown on Capitol Hill to find out if the accounting gimmick was widely used by Wall Street firms to hide their debt.

http://finance.yahoo.com/news/Fed-boss-didnt-know-Lehman-apf-2954403204.html?x=0

Oil prices fall, dollar weakens

Chavon Sutton, staff reporter, On Monday April 12, 2010, 2:55 pm

Oil prices fell amid choppy trading on Monday as investors digested new details about Greece’s bailout package.

What prices are doing: Crude oil for May delivery slipped 58 cents to settle at $84.34 a barrel. Prices had fallen as much as 84 cents during the day amid skepticism over Greece’s bailout plan.

Though crude oil is down about 2% over the past week, prices are still 69% higher than this time last year.

What’s moving the market: Over the weekend, the European Union pledged nearly $40 billion to help Greece ameliorate its fiscal problems. This helped push the dollar down near a one-month low against the euro.

Typically, a weaker dollar makes crude, which is priced in the U.S. currency, cheaper for foreign investors and, in turn, bolsters demand and prices. Instead, oil prices dipped as traders remained bearish about the prospects of the bailout.

The EU has been back and forth on a solution to Greece’s debt problems over the past few months and the debt-laden country had been reluctant to formally ask for help.

The oil markets turned higher for a short while after more details about the package surfaced, but almost immediately reversed gains.

What analysts are saying: “I don’t know if the energy markets know which way to go,” said Mark Waggoner, president of Excel Futures. “Everyone’s trying to evaluate what happened over the weekend.”

Still, many analysts say prices are too high, given historically low oil demand and persistent weakness in economy.

“Given the Fed’s outlook for a slow pace of economic recovery, we don’t feel that current prices of oil are justified by the economic backdrop,” said Tom Pawlicki, a research analyst for MF Global.

According to the latest Energy Information Administration inventory report, demand remains well below historical norms. And economists from the National Bureau of Economic Research on Monday said that it’s too soon to say the recession is over.

Add to that, rising gas prices, which are up over 40% to $2.86 a gallon on average according to the motorist group AAA, could stifle demand as consumers avoid the pumps.

Looking ahead: A spate of economic reports are due out this week. Of particular interest to oil traders will be the jobless claims reports, retail sales and consumer price index.

Waggoner says that traders will be seeking direction from these economic reports. Positive news could point to higher future demand for oil and could send crude prices higher.

Still, choppy trading could continue this week as investors in the U.S. rush to complete tax forms ahead of the April 15 deadline. “This is typical of the market during tax time,” he said.

Link :

http://finance.yahoo.com/news/Oil-prices-dip-despite-weak-hmoney-3463071947.html?x=0

Financial

Interest rates rise on further signs of growth

Interest rates climb; 10-year Treasury yield touches 4 percent for 1st time since June

Stephen Bernard, AP Business Writer, On Monday April 5, 2010, 5:15 pm EDT

NEW YORK (AP) — Interest rates rose Monday in the bond market on fresh signs the economy is continuing its slow, steady recovery.

The yield on the 10-year Treasury rose note briefly touched 4 percent for the first time in intraday trading since June. It hasn’t ended the day above 4 percent since before the credit crisis erupted in late 2008. The yield is often used as a benchmark for consumer loans.

The 10-year note yield rose to high as 4.02 percent Monday, before pulling back to 3.99 percent. It ended Friday’s holiday-abbreviated trading session at 3.94 percent. The bond market closed early for Good Friday.

The price of the note maturing in February 2020 fell 14/32 to 97 in late trading Monday. An auction for 10-year Treasury Inflation-Protected Securities had little affect on trading.

Monday’s yield on the 10-year note was its highest since October 2008 when it hit 4.09 percent. That came just before the credit crisis peaked and investors bought up safe Treasurys, sending yields plummeting. The yield fell as low as 2.06 percent by December 2008 before slowly starting to recover.

Treasury yields have been rising recently because of weak demand at new auctions and continued signs of economic growth. Yields typically rise and prices fall when the economy improves because investors will pull money out of safe, government-backed bonds and opt for riskier investments, like stocks, that have the potential for bigger returns.

Inflation also typically increases when the economy is strong, so Treasury yields and interest rates must move higher to keep pace.

The government auctioned $8 billion of Treasury Inflation-Protected Securities, or TIPS, Monday. The bid-to-cover ratio was 3.43, much stronger than the demand seen for TIPS in January and February. Demand for the notes can climb when inflation is a concern since it protects investments from rising prices.

Monday brought two fresh signs of economic improvement that sent investors out of Treasurys and into stocks. A private trade group said the service sector grew in March at its fastest pace since 2007 and the National Association of Realtors’ pending home sales index for February jumped more than expected.

The Institute for Supply Management’s service sector index rose to 55.4 in March, from 53 in February. Any reading above 50 indicates growth in the sector, which covers about 80 percent of the nation’s work force and the majority of economic activity.

Economists polled by Thomson Reuters forecast the index would rise to 54.

Meanwhile, the National Association of Realtors said its index of sales agreements rose 8.2 percent to 97.6 in February. Economists had been predicting the index would fall to 90.3.

In other trading, the yield on the two-year note that matures in March 2012 rose to 1.18 percent from 1.11 percent. Its price fell 4/32 to 99 21/32.

The yield on 30-year bond that matures in February 2040 rose to 4.84 percent from 4.80 percent. The price fell 19/32 to 96 20/32.

The yield on the three-month T-bill that matures July 1 was unchanged from 0.16 percent. Its discount rate was 0.17 percent.