Money Beat

Wall Street Ends Week Strong

2009-05-08T18:23:07-04:00

ABC News’ Jessica Golden and Jerika Richardson report: It was a busy morning on the trading floor as investors digested the results of the bank stress tests and the jobs report.

The latest jobs report gave a mixed picture of employment in the U.S., as the pace of layoffs slowed in April, when employers cut 539,000 jobs -- the fewest in six months. But the unemployment rate climbed to 8.9 percent, the highest since late 1983, as many businesses remained wary of hiring during uncertain economic times.

How are investors reacting to today’s data? David Henderson, with investor relations for Dru Stock, said they are responding enthusiastically.

“All of the news [developments] coming out over the past two months have been a mixture of halfway decent earnings reports, halfway decent economic reports,” he said. “Everything is being interpreted in a very positive fashion.”

Henderson added that investors were expecting the jobs number to be far worse than it is, and he credits Washington for instilling confidence in investors and stepping up to the plate to put new, fresh money into the market.

Have we seen the worst of it? Investors fear that we will most likely see unemployment rise into the double digits in the coming months.

“It’s just a matter of how quickly the jobs shift between private and public sector,” said Jason Weisberg, senior vice president of Seaport Securities.

Weisberg and Henderson both said that the jobs number has been inflated by the government, which has hired a lot of people recently as part of Obama’s stimulus package.

Did the stress test results overshadow today’s jobs report?

Henderson says, “The market is looking forward and I don’t think either had a big impact. We’ve seen the stress test and it’s expectation of results of the index in the market for the past couple of weeks. Wall Street expected what we got yesterday [Thursday].”

He said banks are raising money through stock offerings rather than more government support -- a big signal, he said, that financial institutions don’t want the government’s help anymore and certainly don’t want the government’s control, which bodes well for both taxpayers and investors.

Signs of a potential economic recovery have helped increase oil prices by around 70 percent from February lows below $34 a barrel.

The Dow finished the day up 164 points to 8,574 as we head into the weekend.

Oprah Offers KFC Coupon, Internet Abuzz

2009-05-06T14:06:26-04:00

ABC News' Russell Goldman reports: Oprah Winfrey, whose endorsements have turned little-known books into best sellers and helped a little-known senator become the president, is putting her seal of approval on KFC’s newest menu item – grilled chicken.

A coupon available exclusively through the talk-show host’s Web site, oprah.com, had been searched for so frequently on the Internet that “Oprah Winfrey KFC coupons” was the fifth most searched item on Google Trends by Wednesday afternoon, hours after being posted. “KFC locations” and “Unthink KFC,” the name of the grilled chicken promotion, rounded off the site’s top 10 most searched terms.

Interest in the coupons even made it to France where one Web Site described the frenzy as “un buzz aux States.”

KFC, formerly known as Kentucky Fried Chicken and a subsidiary of Yum Brands, launched the grilled chicken line two weeks ago and has offered free samples in some participating locations.

Rick Maynard, a KFC spokesman, said the reason the company sought out Winfrey to promote the product was “pretty self explanatory. She’s got a huge audience who trust her.”

The details of the deal KFC and Winfrey worked out to offer the coupons, Maynard said, were confidential.

Oprah announced the promotion during her show on Tuesday.

Harpo, Winfrey’s production company, would not further comment on the deal.

The downloadable coupon, good only from Wednesday morning to Thursday at noon, allows holders to receive“two pieces of grilled chicken, two individual sides and a biscuit.”

Some have called Winfrey’s impact on brands she endorses the “O Factor,” and small companies whose products make the media magnate’s annual Favorite Things list have seen their sales skyrocket overnight.

Oprah has made no secret of struggling with her weight and dieting. KFC is promoting the new line as a healthy alternative to its traditional fried chicken. An Original Recipe fried chicken breast is 400 calories, versus 119 for the grilled breast, according to the KFC website.

Just How Much Bailout Money Is Left?

2009-04-01T16:02:03-04:00

ABC News’ Charles Herman reports: Congress provided $700 billion to the Treasury to stabilize the financial system through the Emergency Economic Stabilization Act.

As of March 27, the Treasury had announced programs with a maximum total funding of $667.4 billion (leaving $32.6 billion).

George Stephanopoulos asked Treasury Secretary Tim Geithner Sunday on “This Week” how much money the department had left.

"George, we have roughly $135 billion left of uncommitted resources," Geithner said.

As this was the secretary’s first public announcement about the remaining TARP funds, the Government Accountability Office – GAO -- sat down Monday and crunched the numbers and reviewed them with Treasury and found Treasury’s projected use of funds stood at $590.4 billion. That means $109.5 billion remains to be spent.

The $25 billion difference between the GAO figure and Secretary Geithner comes from whether or not banks return the money they have already received. Geithner told Stephanopoulos, "Now that, that estimate includes a judgment, a very conservative judgment, about how much money is likely to come back from banks that are strong enough not to need this capital now to get through a recession. But that's a reasonably conservative estimate. And it gives us, and this is very important, substantial resources to move ahead with this broad based sweep of initiatives to help get the financial system back in the business of providing credit.”

Yesterday, for the first time, three banks returned the money they had received through the TARP program, giving back a total of $310 million.

So Geithner believes the amount available is larger, while those overseeing the Treasury’s implementation of the program hold to the figure $590.4 billion.

Whether it’s $32.6 billion, $109 billion or $135 billion, will it be enough for the banks and the auto industry and whatever else needs financial assistance?

"We'll cross that bridge when we come to it in terms of whether we need additional resources,” Geithner said Sunday. “And, of course, if we come to that point, we'll go to the Congress and give them the strongest case possible and help them understand why this'll be cheaper over the long run to move aggressively."

FINANCIAL STABILITY PLAN FUNDS (nee TARP) as of March 30

To date, $667.4 billion committed of the $700 billion, $109.6 billion remaining.

-- $218 billion available to financial institutions (previously $250 billion). As of 3/30/09 banks had received $198.8 billion

-- $40 billion for AIG. AIG received the money on 11/25/08.

-- $20 billion in additional funds for Citigroup (announced 11/23/08, provided 12/31/08)

-- $5 billion committed to any potential losses from Citigroup announced on 11/23/08

-- $45 billion for Term Asset-Backed Securities Loan Facility (previously $100 billion)

-- $5 billion to GMAC on 12/29/08

-- $1 billion for GM related to GMAC on 12/29/08

-- $9.4 billion for GM on 12/31/08 ($4 billion that day and $5.4 billion on 1/16/09)

-- $4 billion to Chrysler on 1/2/09

-- $4 billion to GM promised on 2/17/09 (subject to meeting certain conditions)

-- $20 billion to Bank of America promised (1/16/09)

-- $7.5 billion committed to any potential losses from Bank of America (1/16/09)

-- $1.5 billion loan to a special purpose entity created by Chrysler Financial (1/16/09)

-- $50 billion for Homeowner Affordability and Stability Plan ($25 Freddie/Fannie)

-- $30 billion to AIG (3/2/09)

-- $15 billion SBA loans under the Consumer and Business Lending Initiative to improve terms for securities backed by SBA loans in the TALF (3/16/09)

-- $5 billion Auto Supplier Support Program (3/19/09)

-- $100 billion for Public Private Initiative Fund (3/23/09)

For the latest click here: http://www.financialstability.gov/docs/transaction_report_03-30-2009.pdf

GM Boss Wagoner to Resign, Source Says

2009-03-29T17:30:11-04:00

ABC News' Jake Tapper, Zunaira Zaki and Charles Herman report: A White House official tells ABC News that the Obama administration asked GM chairman and CEO Rick Wagoner to step down, and Wagoner agreed to do so.

GM had no official comment.

The move is part of the administration's plans to restructure the auto industry, which President Obama is expected to announce Monday.

"We think we can have a successful U.S. auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean, mean and competitive than it currently is," President Obama said in a taped interview broadcast today on CBS' "Face the Nation."

Since late last year, General Motors and Chrysler, the No. 1 and No. 3 automakers in the country, respectively, have received more than $17 billion total in aid as the two companies struggled to stay afloat amid plummeting auto sales and a difficult credit market. Last month, GM and Chrysler requested an additional $22 billion.

Liddy: AIG Name 'So Thoroughly Disgraced' It'll Have to Change

2009-03-19T13:40:31-04:00

ABC News’ Alice Gomstyn reports: The government bailout of AIG is of historic proportions, but will the name AIG become history too?

According to the embattled insurance giant’s CEO, the answer is yes.

Late into Wednesday’s House Financial Services hearing on AIG -- in between the spirited and sometimes testy exchanges over the AIGFP bonus controversy -- CEO Edward Liddy revealed that while the company’s healthy businesses would survive, its name probably wouldn’t.

“I think the AIG name is so thoroughly wounded and disgraced that we're probably going to have to change it,” he said.

Liddy cited one example: AIG’s U.S. property casualty business, American International Underwriters, which is being “rebranded” as AIU. The AIG cord for AIU hasn’t been cut completely yet -- the business’ Web site, near the top, reads “a member company of American International Group Inc.”

Many of AIG’s life insurance businesses already have distinct names, Liddy said.

“So where there may have been an approach to use one single name like AIG,” he said, “we're reversing that and going back to some of their individual brand names.”

AIG won’t be unique in trying to save face through a name change: Phillip Morris Cos. distanced itself from its increasingly controversial tobacco products by reemerging as Altria, while discount airliner ValuJet -- which saw its reputation disintegrate after the crash of one of its planes in 1996 -- flies today as AirTran Airways.

While the AIG name remains in use, some are having a bit of snarky fun with the abbreviation, which is short for American International Group.

AIG stands for “arrogance, incompetence and greed,” Rep. Paul Hodes, D-N.H., said during Wednesday’s House hearing.

“Who cares what their name is,” one ABC News reader recently posted on the Political Punch blog. “They could (c)all themselves An Irrelevant Gaffe for all I care.”

O'Neill's Prescription for the Financial System

2009-03-17T13:31:02-04:00

As banks continue to undergo the stress tests announced last month by the Obama administration, former Treasury Secretary Paul O’Neill is advocating his own prescription for the financial system. O’Neill laid out his proposal to ABCNews.com.

I believe there is no hope for a market bottom until we embrace the companion ideas of truth and transparency. If I were in charge I would require each financial institution to classify their assets, by amount, into rating classes, beginning with AAA, and then down through the investment grade ratings. For assets such as credit card debt, I would have them post the dollar amounts, late pays and defaults and update the numbers every day. All of this would be posted on the Internet. For those assets the institutions claim cannot be properly valued, I would have them specify the amount and put them into a separate category called the quarantine account. The expectation would be that such assets would be held to maturity or until some event causes them to be reclassified.

The argument against doing this is that we can't handle the truth. However gruesome the truth may be, I believe the truth would give us a base to build on. ... We can't build a base so long as uncertainty causes the market to act as though there are no valuable assets at any financial institution.

The stress test idea is inside baseball. Is the market going to accept a judgment from people who have no credibility? I don't think so. If we, the people, had the facts I have called for, we could make an informed decision as to what action should be taken next. Without these facts one has to wonder, what is the basis for the actions that are being taken and contemplated by the people in our government?

Former AIG CEO Greenberg Defends Reputation

2009-03-16T18:50:20-04:00

ABC News’ Alice Gomstyn reports: Former AIG chief executive Hank Greenberg is defending himself against criticism that his creation of AIG’s Financial Products unit was what ultimately led to the company’s spectacular decline.

“I’ve been out of the company for four years,” he said in an interview with ABCNews.com. “How could I be responsible for the problems they are suffering?”

A source close to AIG told ABC News that Greenberg was to blame for creating a unit that "put the whole company and the whole economy at risk.”

But Greenberg, who also criticized AIG for its retention bonuses today, said that under his tenure, the unit earned $5 billion by writing credit default swaps -- financial instruments that essentially act as insurance policies on other investments -- that passed the standards set by “the best risk management (departments) in the damn industry.”

Greenberg said after he left the company in 2005, AIGFP wrote double the number of credit default swaps but those swaps, he said, were of a lower quality than before.

“The losses didn’t come from what we did -- the losses came from what they did afterwards,” he said.

Greenberg also dismissed criticism that he created a culture of extreme risk-taking at AIG that later led to its calamitous investments.

“We had a culture of being innovative but prudent,” he said. “You rewarded creativity, not stupidity.”

--With reports from ABC News’ Matt Jaffe.

Betting on Geithner’s Future

2009-03-10T15:59:38-04:00

ABC News’ Charles Herman reports: Complaints about the administration’s response to the worsening economic situation have zeroed in on the Treasury Department and Secretary Timothy Geithner.

Despite all that his overworked department has accomplished in the first 50 days of the new administration, his less-than-successful unveiling of the Financial Stability Plan (or Troubled Assets Relief Program 2.0) and subsequent public appearances and on Capitol Hill have resulted in Geithner receiving low marks for his leadership, as my colleague Jake Tapper reported.

Now the wondering is not just about when Geithner will reveal specifics about how to tackle the toxic mortgage assets still polluting banks’ balance sheets, but whether Geithner will keep his job.

Intrade, which lets you trade in predictions, has set up a futures market on whether or not Geithner will still be in office by the end of June and another one for him leaving office by the end of December.

You can basically look at the trade price as the percentage of people who think that some event will happen. Accordingly, 22 percent of people trading believe Geithner will leave office by the end of this year.

Intrade has futures markets for a range of topics like whether Apple CEO Steve Jobs will leave by the end of this year (55 percent), whether Osama bin Laden is captured in September (8 percent) and if General Motors files for bankruptcy by December (75 percent).

(Psst ... Adam Lambert is currently predicted to win “American Idol”).

Govt. Free Credit Reports Hit YouTube

2009-03-10T13:44:32-04:00

ABC News’ Andrew Springer reports: How much did you pay for your last “free” credit report?

Guitar in hand, surrounded by friends, one young man in a new video isn't lamenting his poor credit history but how much he had to pay to see it. But this isn't from the average YouTube user. It's from the Federal Trade Commission.

The FTC released two "spoof" videos today to let consumers know the only place to get a free credit report is from its site: AnnualCreditReport.com. The two videos parody the popular ads from FreeCreditReport.com -- a site that allows users to view a copy of their credit report only if they sign up for a trial of a paid credit monitoring service.

"More than ever, consumers need to know there's a place they can go to get a free credit report," said Eileen Harrington, acting director of the FTC's Bureau of Consumer Protection. She said that's because as the economy gets worse, it's getting harder and harder for consumers to get credit. The FTC says that checking your credit is an effective way to deter and detect identity theft.

Consumers under a 2003 federal law have the right to get a free copy of their credit report once every 12 months. The commission set up AnnualCreditReport.com in response, but this is the first time since it went online nationwide in 2005 that the commission has made videos to promote it.

The site the videos parody, FreeCreditReport.com, provides access to a free credit report only with a trial membership in one of its credit monitoring services. Users have seven days to cancel their membership, or start paying $14.95 a month, according to the company's Web site.

Harrington said the FTC has received complaints about FreeCreditReport.com. "Consumers are confused," she said.

In 2005, the FTC settled charges against the site's parent company, Experian, alleging its ads for free credit reports were deceptive. Alhough she said the FTC has criticized the company's ads for deceptiveness in the past, Harrington won't comment now.

After posting its own PSAs on its Web site, YouTube and MySpace, the FTC hopes the videos will go viral, so it can get the word out to as many people as possible.

AIG: The Mother of All Bailouts

2009-03-02T11:05:46-05:00

ABC News’ Betsy Stark reports: Before this is over, AIG may earn the dubious distinction of being the mother of all bailouts.

The U.S. taxpayer was on the hook for $150 billion before today's $30 billion lifeline from the Troubled Assets Relief Program’s round four of government efforts to save AIG. What taxpayers have gotten in exchange is an 80 percent stake in a monstrous global insurance company now trading on the open market as a penny stock, i.e., worth well less than a dollar a share.

AIG has lots of good businesses that still make money but not nearly enough money to cover the cost of AIG's disastrous bets on "credit default swaps." In the simplest terms, AIG sold insurance policies on the trillions of dollars of mortgage-backed securities that made financial firms a fortune as housing prices went up. And for a time it made AIG a fortune, too.

But now that the tide has gone out, to borrow Warren Buffett's metaphor, we see that while AIG insured approximately $450 billion of these securities, incredibly, it failed to set aside any funds to cover potential losses. Why? Credit default swaps were not considered a traditional insurance product, so they were not regulated. So AIG was not required to set aside money for potential losses. And here's the kicker (as explained so well by Joe Nocera in his Feb. 28 column this weekend in the New York Times): The customers who bought these products all felt safe because these securities carried the coveted AAA rating, conferred because AIG was, once upon a time, so well run that its default swaps deserved a AAA rating.

OK, but why does the federal government -- i.e., American taxpayers with plenty of problems of their own -- continue to bail out this company that behaved so irresponsibly? Isn't this is a classic example of the government throwing good money after bad?

Today the Treasury Department conceded this $30 billion bailout may not be the last. "This will take time and possibly further government support if markets do not stabilize and improve," Treasury warned in a press release. But it went on to explain its belief that AIG's long tentacles have the government in a choke hold: "Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high. AIG provides insurance protection to more than 100,000 entities, including small businesses, municipalities, 401(k) plans and Fortune 500 companies that together employ over 100 million Americans. AIG has over 30 million policyholders in the U.S. and is a major source of retirement insurance for, among others, teachers and nonprofit organizations. The company is also a significant counterparty to a number of major financial institutions."

In other words, the government believes it faces a terrible choice: Bail out AIG or risk bailing out all the businesses, cities, retirement funds and individual Americans AIG still insures.