Actual finance blog

American International Group Inc had warned of turmoil around the globe if the government allowed the insurer to fail when it appealed to U.S. regulators for its latest rescue, Bloomberg said citing an AIG presentation dated February 26.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise of Lehman Brothers Holdings Inc, according to the 21-page draft AIG presentation circulated among federal and state regulators, the agency reported.

“What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,” the agency quoted the presentation.

AIG warned its failure could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm, the agency said paydayloans.

The presentation said without more U.S. help, investment losses would mean “AIG will not be able to repay its obligations” and that cash previously provided by the U.S., which controls a 79.9 percent stake in the insurer, could be lost, it added.

AIG could not be immediately reached by Reuters for comment.

The Federal Reserve first rescued AIG in September with an $85 billion credit line after losses from toxic investments and collateral demands from banks left AIG facing bankruptcy.

Late last year, the rescue packaged was increased to $150 billion. The bailout was overhauled again last week to offer the insurer an additional $30 billion in equity.

(Reporting by Ratul Ray Chaudhuri in Bangalore; Editing by Jon Loades-Carter)

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Moores Clothing for Men says consumers will barely notice the difference when it begins running new ads next week aimed at addressing federal Competition Bureau concerns about misleading representation.

"We’ve added one word – select," said Dave Starrett, president of Canada’s leading menswear chain with 100 stores across Canada.

The bureau asked for the amendment because it felt the retailer’s previous ads failed to make clear that a national two-for-one designer suit sale applied only to some of its suits.

"In these tough economic times, consumers are more concerned than ever in getting value for their money," said Andrea Rosen, the bureau’s deputy commissioner of competition.

Since the start of the economic downturn last fall, more retailers have resorted to two-for-one deals and other offers to attract customers. While there’s nothing wrong with this approach, Rosen said: "It is important for advertisers to remember to clearly and conspicuously disclose any limitations or exclusions in their advertisements to ensure that consumers can make informed purchasing decisions good credit score."

To resolve the bureau’s concerns, Moores agreed to prominently disclose in its television, website and in-store signage that the sale applies only to select designer suits. The sale, which began the first two weeks of February, continues next week, Starrett said.

No other penalty was imposed on the retailer.

In previous cases of misleading advertising, the bureau has levied fines of more than $1 million against retailers, including Grafton-Fraser and Suzy Shier. However, in those cases the retailers were accused of inflating their regular prices to overstate the "sale price" savings to consumers.

Starrett said the bureau didn’t dispute the savings at Moores are real. "What it really came down to was the definition of `designer’."

The bureau said that by publishing its findings against Moores it hoped to deter others.

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Indonesia's central bank expects the rupiah to strengthen beyond 12,000 against the dollar in “the immediate term'' after the nation sold bonds overseas and expanded currency swap arrangements.

Indonesia's reserves rose to $53 billion after the government last week sold $3 billion of debt, Deputy Governor Hartadi Sarwono said. The central bank doubled its currency swap deal with Japan to $12 billion in February as a “precautionary measure,'' he said.

“The rupiah can return to beyond the 12,000 level against the dollar in the immediate term because foreign-exchange reserves have increased,'' Sarwono said in an interview late yesterday. “Bank Indonesia is also studying the possibility of financial cooperation among central banks.''

Bank Indonesia is seeking to expand its currency swap agreements to include Australia and the U.S. Federal Reserve to bolster confidence in the rupiah as exports decline. The swap lines are designed to act as a buffer in case of “shocks,'' Sarwono said. The central bank expects exports to drop as much as 28 percent this year, the most in 27 years, and forecasts a current account deficit for 2009.

The rupiah has declined 22.4 percent in the past six months, making it the second-worst performing among the 10 most-traded Asian currencies outside Japan. The currency fell 0.1 percent to 12,090 against the dollar at 9:28 a.m. in Jakarta, after earlier gaining as much as 0.3 percent.

`Tough Sell'

“I'm sure they'd like to see it at 10,500 to 11,000,'' said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “Near term, it's still going to be a struggle for the rupiah as it is perceived as relatively risky and anything that's a bit risky is a tough sell in the current environment.''

Callow forecasts the rupiah to decline to 12,500 against the dollar in the “near term free credit report and score.'' The currency may climb to 11,900 to a dollar in the second quarter, according to a median forecast of 25 economists surveyed by Bloomberg.

Overseas ownership of Indonesian government bonds has declined 26 percent to 79.24 trillion rupiah ($6.5 billion) as of March 3, from a record 106.7 trillion in August. Foreign investors have sold a net 1.9 trillion rupiah of stocks this year, compared with net purchases of 994 billion rupiah in the same period a year earlier.

Current Account Deficit

The central bank expects a current account shortfall, the broadest measure of trade in goods and services, of 0.5 percent of gross domestic product this year, from a $606 million surplus last year.

Indonesia and other Southeast Asian nations will also seek to ease restrictions on the amount countries can borrow from the region's pool of reserves under the so-called Chiang Mai Initiative, Sarwono said in a separate speech yesterday.

Under the Chiang Mai Initiative, Asian nations can borrow 20 percent of an agreed swap amount without any restrictions. The 80 percent balance can only be lent after the borrowing country agrees to International Monetary Fund-style restrictions.

The 10-member Association of Southeast Asian Nations want at least 50 percent of the swaps delinked from the rules that require economic austerity measures, Sarwono said.

Indonesia's exports plunged 30 percent in January from a year earlier, the most in 22 years. Merrill Lynch & Co. last week cut its 2009 growth forecast for Southeast Asia's largest economy to 3.6 percent, the weakest pace of expansion since 2001. That's lower than the central bank's 4 percent estimate.

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Canada's housing market has been dealt another round of bad news, this time that the mortgage market is starting to slow down with the drop in house prices.

CIBC World Markets says that the mortgage market has slowed to roughly half its pace of six months ago.

Outstanding credit rose by half a per cent a month, compared with 0.9 per cent a month advance in mid-2008, according to a report by the investment bank car loans for people with bad credit.

CIBC says that means the industry will have to generate about $55 billion in new mortgages just to compensate for the ones reaching maturity.

CIBC added that with home prices falling that could mean the next year will see either very limited or no growth in the mortgage market.

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The global economic downturn will be considerably deeper than even the International Monetary Fund forecast a month ago, the Organization for Economic Co-operation and Development’s chief economist Klaus Schmidt-Hebbel told Reuters.

Further substantial cuts in interest rates by the European Central Bank and Bank of England are totally justified, he said in an interview. These were to be expected in response to the worst spell the economy has suffered since 1946, when military spending plunged after World War Two.

“The recession will deepen…there’s no doubt,” he said. “I think this quarter will be the worst quarter of all.”

On January 28, the IMF cut its forecast for global growth to 0.5 percent in 2009 from an earlier prediction of 2.2 percent. It also forecast a 2.0 percent slide in economic output from the world’s most advanced economies as a whole, an equally large downgrading of forecasts it had made in November 2008.

Even those drastic revisions failed to reflect the extent of the downturn at this stage, said Schmidt-Hebbel.

He is preparing new forecasts for publication at the end of March by the Paris-based OECD, which will be cutting its own predictions from those it made last November.

“The shape of it will be a significantly deeper recession than what was forecast by the IMF in January, at all levels,” said Schmidt-Hebbel. “(It will be) significantly deeper and more protracted — meaning longer than what is embodied in the IMF forecasts of late January.”

Last November, the OECD predicted a 0.4 percent decrease in aggregate economic output this year from its 30 member countries. These include all of the wealthy industrialized countries and a handful of less mature economies such as South Korea, Mexico and Turkey.

“The OECD economies will do significantly worse than the world economy because in emerging economy countries like the Indias, Chinas and some others, growth will still be slightly positive in 2009,” he said low interest auto loans.

Schmidt-Hebbel said the current quarter would probably prove to be the worst one in the international downturn, after an already very bad final quarter of 2008 where U.S. output fell faster than in any quarter for 26 years.

The U.S. Federal Reserve has pushed official interest rates close to zero and Japan’s central bank is already at that point, though other central banks still have more leeway.

“We are expecting, and forecasting formally, significant further interest rate cuts by the Bank of England, the ECB and a number of other OECD countries with independent central banks, toward very low rates, which I think is absolutely justified by the outlook on inflation and activity for the next one or two years,” Schmidt-Hebbel said.

This would be what the OECD would say on rates when it published its new official forecasts at the end of March, he said.

Reuters polls show economists expect the ECB to cut its main euro zone rate by 50 basis points from the current 2.0 percent on Thursday and that the Bank of England too will lower its rate the same day from a current level of 1.0 percent

Schmidt-Hebbel said interest rate cuts had a limited power to support economic growth. That increased the need to consider less conventional moves, such as direct asset purchases, or “quantitative easing” of credit conditions along the lines being deployed in the United States and now Britain, he said. 

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U.K. manufacturing shrank for a 10th month and consumer lending rose at the slowest pace since at least 1993, evidence Britain’s recession is intensifying.

An index based on a survey of factories fell to 34.7 in February from 35.8 the previous month, the Chartered Institute of Purchasing and Supply and Markit research said in a report today. Net consumer lending increased in January by 1.1 billion pounds ($1.6 billion), a 15-year low, the Bank of England said.

The government is pumping billions of pounds into banks as the British economy slides into the worst recession in at least three decades. The Bank of England will probably cut the benchmark interest rate this week to a record low of 0.5 percent and start adding money to the economy through so-called quantitative easing.

“We’re going to see a continued drag in manufacturing output, and there’s not enough credit going to the household sector,” said Peter Dixon, an economist at Commerzbank AG in London. “We see a half-point rate cut this week and probably an estimate of how much the bank will do in quantitative easing.”

Today’s manufacturing reading is the weakest since the index reached a 17-year low of 34.5 in November. A measure of employment and production contracted at the fastest rate in the survey’s history, CIPS and Markit said.

Job Cuts

GKN Plc, the U.K. maker of car parts and aircraft components, reported a full-year loss on Feb. 26 and said it will eliminate an additional 2,400 jobs this year.

Officials are taking new steps to shore up struggling industries and revive lending. The Bank of England is edging closer to providing support for carmakers’ British finance units, which would help them to lend to new-car buyers, Paul Everitt, chief executive officer of the Society of Motor Manufacturers & Traders, said in an interview on Feb no teletrack payday loans. 24.

Prime Minister Gordon Brown’s government last week instructed Northern Rock, the nationalized mortgage lender, to expand lending by 14 billion pounds and is guaranteeing assets for Royal Bank of Scotland Group Plc to prevent its collapse.

Mortgage approvals were lower than the 33,000 median forecast of 24 forecasts in a Bloomberg News survey, Bank of England data showed.

Net lending secured on dwellings rose by 690 million pounds in January, compared with 1.8 billion pounds the previous month, the central bank said. Combined with net consumer credit of 403 million pounds, total net lending increased at the slowest pace since records began in April 1993.

Negative Loop

“There’s no sense yet that this downturn is bottoming out,” said Richard McGuire, an economist at Royal Bank of Canada in London. “Increasing unemployment will increase defaults and will start a negative feedback loop. We expect a half-point rate cut this week” from the current 1 percent.

The British economy contracted at the sharpest pace since 1980 in the fourth quarter and joblessness rose to a 10-year high in January. House prices dropped an annual 10 percent last month, mortgage lender Hometrack Ltd. said in London today.

The U.K. central bank will this week cut the benchmark interest rate by a half-point to the lowest since it was founded in 1694, according to the median of 60 economists’ forecasts.

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When you lose your job, it’s easy to dig yourself into a financial hole. That’s what happened to Laurie Ferrer and her husband, Carlos.

It was a deep hole: $40,000 in credit card debt, with other bills piling up. When the bill collectors started calling, the couple worried they might lose their home in Fairview Heights.

Now, Laurie has a message for those who find themselves in a similar fix. As easy as it is to fall into a financial mess, it’s possible — with some discipline — to climb out again. And it’s quite a relief when you do.

Laurie and Carlos have four kids. She’s a managing nurse; he’s a technician in a pharmaceutical firm. They live in a nice but not fancy house on a quiet suburban street.
A few years ago, they were earning about $70,000 between them. Like most Americans, they had modest savings and lived paycheck to paycheck. "We were doing OK," Laurie says.

They were a little nonchalant about their finances. They carried balances on their credit cards despite the hefty interest charges. "If the minimum payment was $100, I’d pay $150." They liked take-out food and restaurant meals. But their major extravagance was to send their children to Catholic schools, at $600 per month.

"Back then, we had no budget. If we wanted to do something special, I’d work a couple of shifts of OT. We were not really balancing the checkbook," she says.

Things went fine as long as the paychecks kept coming. Then, in 2004, Carlos lost his job when his employer closed. He went without work for six months.

That began their long slide. Carlos used his severance money to pay off his car loan. "We had his car, but we still owed on the house and a few credit cards. We still had to pay utilities," Laurie says.

Despite their growing troubles, the couple were determined to give their children a Catholic education. "I ended up having to get a loan to pay tuition," Laurie says.

Groceries went on the credit cards, and their balances began building. Laurie and Carlos started making only the minimum payment. Then they began skipping some bills entirely to pay others. "It got to, ‘Which one is going to be the lucky one today?’"

Credit card companies hiked their interest rates as high as 32 percent as they fell farther behind. Carlos got another job, which helped, but he took a pay cut. The bills kept piling up. Relatives offered them money, "and that made us feel horrible." There was a Christmas with no presents.

In 2006, Laurie gave birth to her youngest child. The baby was cleared to leave the hospital, but there was a major power outage that affected their home and the baby needed a special electric light to treat jaundice. The medical staff recommended they go to a hotel, but they couldn’t pay for it.

In 2007, payments on their adjustable mortgage jumped $200 a month, and they began to fall behind.

"I started getting stressed out," Laurie says. "There were lots of arguments about money high risk personal loans. I’d say, ‘Why do you need that six-pack of beer?’ He’d say, "Do you need those new panty hose?’"

People like Laurie and Carlos are candidates for a Chapter 13 bankruptcy, says T.J. Mullin, one of the region’s busiest personal bankruptcy lawyers. Chapter 13 is a "wage earner plan," which can allow a family to keep their house and often their cars. Families pay a small part of their credit card and other unsecured debt over time and the rest is simply wiped out.

In the end, Laurie and Carlos went in another direction. Early last year, during one of many sleepless nights, Laurie got up and began cruising the Internet. She found Clearpoint Financial Solutions, a credit counseling agency.

Such groups help families set up a budget. Then they mediate with creditors, often reducing interest rates and penalties. Clients send monthly payments to the counseling service, and the service pays the creditors. Clients usually end up paying their creditors in full.

That seemed a fairer option to Laurie; she’d taken on the debt, and she wanted to pay it back.

Such services aren’t free; Clearpoint charges a maximum of $35 per month for a payment plan, although the agency says it will serve clients who can’t pay.

Consumers have to be careful in picking a credit counselor. There are shady operators in the business who overcharge for bad repayment plans. Suzanne Gellman, a consumer economics specialist at the University of Missouri’s extension service, recommends choosing services that are members of the National Foundation for Credit Counseling (www.nfcc.org), which sets standards for membership. Clearpoint, a national group that bought the old Consumer Credit Counseling Service of St. Louis, is a member.

Laurie Ferrer is a poster person for Clearpoint. She says she wrote a testimonial for the Clearpoint website and the company paid her $3,000 to use her picture in their promotions. You may have seen her face on the side of a bus.

Her credit card companies knocked the interest rates on her debt down to the 7 to 11 percent range, which she can afford. Just as important, the counselor taught her how to budget and cut spending.

"Initially, it was hard. I wasn’t used to having to figure this out," she said. "Now, everything I buy is a necessity. I shop coupons and sales. I have to be very diligent in looking in newspapers ads for food I normally buy. A couple of weeks ago, they had soup on sale, so I got 10 cans. For my kids, eating lunch at school was like $80 a month." So now they brown-bag it.

She pays $1,000 a month on her debts. With what’s left over, she’s building a savings account. Her credit card debt is down to $32,000, and she should be free of it three years from now.

They’ll celebrate that day. But Laurie, 41, says she’s happy now. "Being able to sleep at night is enough," she said.

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