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Berkshire Hathaway Inc. agree to fund Goldman Sachs Group Inc. by buying 5-billion (U.S.) worth of preferred shares -

The Oracle weighs inRTGAMWarren Buffett to the rescue! Not only did the chairman of Berkshire Hathaway Inc. agree to fund Goldman Sachs Group Inc. by buying 5-billion (U.S.) worth of preferred shares - and restoring some confidence in at least one corner of the U.S. financial system -

Mr. Buffett also said on Wednesday morning that he supported the U.S. government's contentious $700-billion rescue package.In an interview on CNBC,

Mr. Buffett said that the bailout plan was akin to the U.S. decision to go to war after the attack on Pearl Harbor in 1941, and also warned that the past week will "look like Nirvana" if the plan is not approved by Congress. He did warn, however, that the government shouldn't pay much more than the market price for the illiquid assets it plans to buy from troubled financial firms.

U.S. stock futures were higher on Wednesday morning with about an hour before markets open, suggesting stocks will rise at the start.

Futures for the Dow Jones industrial average rose 89 points, to 10,943. Futures for the broader S&P 500 rose 13 points, to 1200. Goldman Sachs rose to $131.40, up $6.35.In Europe, the U.K.'s FTSE 100 fell 0.4 per cent and Germany's DAX index fell 0.2 per cent in afternoon trading, after a reading on business confidence in the three largest European economies fell more than expected. In Asia, Japan's Nikkei 225 rose 0.2 per cent in overnight trading.Copyright 2001 The Globe and Mail

FBI was investigating four major U.S. financial institutions whose collapse helped trigger the bailout plan.

Executive pay limits gain support as bailout questioned JULIE HIRSCHFELD DAVISWednesday, September 24, 2008WASHINGTON —

Executives whose companies get a piece of the $700-billion (U.S.) government bailout will have their pay packages strictly limited under proposals that are broadly supported by both Republicans and Democrats in Congress.
The Bush administration was resisting the move as it scrambled to overcome widespread misgivings on Capitol Hill and swiftly push through its plan to rescue tottering financial firms by buying up their rotten assets.

Lawmakers in both parties are demanding changes to the administration's rescue proposal despite dire warnings from top economic officials of recessions, layoffs and lost homes if Congress doesn't approve it quickly. Both parties' presidential candidates also insist on alterations to the drastic prescription.

“We have got to look at some alternatives,” said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.
Sen. Chris Dodd, D-Conn., the panel's chairman, said the Bush administration's position was “not acceptable.”

Congressional leaders say they are working to approve the rescue by week's end, but the chances of a quick deal were dwindling.

“Just because God created the world in seven days doesn't mean we have to pass this bill in seven days,” said Rep. Joe Barton, R-Texas.
Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, was in intense negotiations with Treasury Secretary Henry Paulson on key elements of the plan.
“As long as it looks as if we are seriously engaged, it's not too late” to act, Mr. Frank said.
Law enforcement officials, meanwhile, said Tuesday that the FBI was investigating four major U.S. financial institutions whose collapse helped trigger the bailout plan.

Two law enforcement officials said the FBI was looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International Group Inc. Additionally, a senior law enforcement official said Lehman Brothers Holdings Inc. also is under investigation. The inquiries will focus on the financial institutions and the individuals who ran them, the senior law enforcement official said.
The law enforcement officials spoke on condition of anonymity because the investigations are ongoing and are in the very early stages.
Mr. Frank has proposed adding substantial congressional oversight over the bailout and a requirement that the government make an effort to renegotiate as many of the mortgages it purchases in the rescue as possible to help strapped borrowers stay in their homes. Mr. Paulson was said to be willing to accept those revisions.
Sen. Charles Schumer, D-N.Y., said Wednesday he believes Congress must act quickly to rebuild the crumbling financial system but that lawmakers must have a strong supervisory role.
If there are provisions for a return of money in connection with the absorption of bad debt at various financial institutions, he said on NBC's “Today” show, “it should go to taxpayers before bondholders, shareholders and executives.”
Sen. Jim DeMint, a South Carolina Republican, differed with Schumer, saying Congress should resist the Bush administration's pleas for the legislation. He said, “The government broke it. I don't trust them to fix it.”
The administration was still battling calls from virtually every quarter of Congress to slap tight limits on compensation for executives whose firms get a federal rescue. Mr. Frank wants the government to restrict the bailout to firms that deny their top people golden parachutes on their way out the door and institute a “clawback” rule to revoke bonuses paid for bogus gains.
Another influential Democrat, Sen. Max Baucus of Montana, proposed tax penalties on the compensation of top executives who earn more than the U.S. president; their pay would only be tax-deductible up to $400,000. Large golden parachutes also would be taxed heavily under the plan by Baucus, the Finance Committee chairman.
Mr. Paulson says such limits would discourage participation in the program.
But the curbs appear to have widespread bipartisan support.
“Clipping executive compensation is easy right now — everybody wants it,” said Rep. Jack Kingston, R-Ga.
Mr. Frank also has been pushing to allow the government to buy equity — rather than just bad debt — in companies it helps so taxpayers can benefit from future profits. That idea is also gaining bipartisan support, but Mr. Paulson argues it would hamstring the very companies the government is trying to help.
He also is strongly opposed to another key Democratic priority: letting judges rewrite mortgages to lower bankrupt homeowners' monthly payments. Democrats view that measure as the heaviest lift and the most likely to be dropped as part of a final deal.
“I share the outrage that people have,” Mr. Paulson told the Senate Banking Committee on Tuesday. “It's embarrassing to look at this. I think it's embarrassing to the United States of America. There is a lot of blame to go around.”
Without the bailout plan, Mr. Paulson and Federal Reserve Chairman Ben Bernanke have sketched out a grave scenario for lawmakers: Neither businesses nor consumers would be able to borrow money, and the world's largest economy would grind to a virtual halt.
© Copyright The Globe and Mail

U.S. money czars on hot seat

TheStar.com - Columnist - U.S. money czars on hot seat


CHARLES DHARAPAK/ASSOCIATED PRESS

Fed Chair Ben Bernanke, left, and Treasury Secretary Henry Paulson seated at the witness table before testifying before the Senate Banking Committee on Sept. 23, 2008.
Paulson, Bernanke and Cox face anger from both sides of the Senate over financial system bailout dismissed as `unacceptable' for its lack of oversight, accountability
September 24, 2008 Tim HarperWashington Bureau

WASHINGTON–Congressional momentum toward quick passage of a historic, $700 billion (U.S.) economic bailout package came to a screeching halt yesterday in a Senate committee room heavy with anger and skepticism.

The triumvirate of would-be saviours – Treasury Secretary Henry Paulson, Federal Reserve Chair Ben Bernanke and Security and Exchange Commission Chair Christopher Cox – sought quick passage of the package, citing imminent economic apocalypse, albeit in understated jargon designed to exude calm.

Instead, they received a pummelling from senators from both sides of the aisle, many running for re-election in November.

Republicans and Democrats told the trio they were seeking a blank cheque which would leave American taxpayers holding the bag while providing golden parachutes for reckless Wall Street executives who brought this woe upon themselves.

The administration's three-page plan contained no oversight or accountability and was therefore "unacceptable,'' Connecticut Senator Christopher Dodd, a Democrat and the chair of the banking committee, said following a hearing which lasted almost five hours.

A new round of uncertainty on Capitol Hill about the fate of the rescue plan sent stocks plunging again, with the Dow beginning the day in positive territory before finishing down 161 points.
Negotiations on a package acceptable to a majority in Congress continued yesterday, with White House Economic Adviser Keith Hennessey telling CNBC that there was room for discussion on details of the plan.

But it was becoming clear passage would neither be swift, nor easy.
"This proposal is stunning and unprecedented in its scope and lack of detail," Dodd said.
"It would do nothing, in my view, to help a single family save a home ... it would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of American taxpayers, but at the same time do nothing to stop the very authors of this calamity to walk away with bonuses and golden parachutes worth millions of dollars."
Then Dodd took direct aim at the unfettered power Paulson was conferring on himself.
"After reading this proposal, I can only conclude that it is not just our economy that is at risk, but our constitution as well," he said.

Many observers called yesterday's hearing the most important financial meeting ever held in the capital.

And many U.S. legislators now believe the rush to action after the 9/11 attacks conferred too much power in the White House and led to speedy passage of the flawed U.S. Patriot Act.
So they resolved not to be stampeded yesterday – after hearing from outraged constituents over the weekend who wanted to know what they were going to get for such a massive outlay of taxpayers' money.

Paulson said he shared much of that outrage, admitting the crisis was "embarrassing" for the United States of America.
"You worry about taxpayers being on the hook?" he said at one point. "Guess what – they're already on the hook.

"Regrettably, not every homeowner is going to save their home," Paulson said.
As he was speaking, the U.S. government housing agency reported that house prices dropped another 0.6 per cent in June, bringing the cumulative decline across the U.S. to 5.8 per cent since housing prices peaked in April 2007.

Even before Paulson unveiled his plan, the U.S. deficit for the 2009 fiscal year was already projected to be a record $438 billion. And if only half the bailout money is used in this fiscal year, the deficit could soar to $900 billion.

Richard Shelby of Alabama, the ranking Republican on the committee, said the Paulson plan combined with an estimated $300 billion already spent propping up failing Wall Street firms has pushed the bailout price tag to $1 trillion.

He said Wall Street bet the government would ride to its rescue if it created this mess "and it appears that is the one bet which will pay off."

Both presidential candidates, Republican John McCain and Democrat Barack Obama, will vote on a final package, but neither is involved in crafting the bill.

McCain said yesterday that congress must "trust, but verify,'' but he said inaction was not an option.

Obama told a press conference the Bush administration was showing "stubborn inflexibility'' in its determination to force quick passage of the bailout plan and he said taxpayers must benefit because they are bearing the risk in the plan.

With files from Reuters News Agency

Q&A with ABBY BADWI and D. Pescod

Q&A with ABBY BADWI
PRESIDENT AND CEO with BANKERS PETROLEUM
(As of September 22, 2008)
As we touch base with some of the oil and gas stories that
have been beaten and battered, but still should have big to
huge production growth in the coming years, one story
that definitely comes to mind is Bankers Petroleum. Abby
Badwi who had so much success in Egypt with Rally Energy
has now reunited much of the team for their Patos-
Marinza project in Albania.
Abby was on a tour talking about Bankers through some
of the financial districts in the United States last week
when the financial crisis was at its peak. Needless to say,
he blames the financial collapse in the US for destroying
some of value he had helped create. But it’s time to get
caught up with Abby:
David Pescod: Abby, the crisis that’s just been created
has been courtesy of the financial industry – the housing
crisis and the “fly-by-nighters” that tried to finance them,
but it does make one concerned about ones banking relationships.
How does your debt/credit position sit now and
how solid do you feel about it?
Abby Badwi: Bankers is in a strong financial position. We
have a positive working capital of $60 million mainly in
cash with major Canadian Banks, minimal bank debt, for a
company our size, of $29 million and we generate $20 million/
quarter in net operating income. Our capital program
is fully funded from our cash flow.
David Pescod: We’ve had a big drop in oil prices from
$150 to $100, but no oil and gas companies were ever
priced as if oil was really that high and now we see many
oil and gas companies priced as if oil was $80. What do
you see for oil prices down the road in a very new environment?
Abby Badwi: Our capital expenditure plans for 2009 and
2010 are based on Brent oil price of $84 and $80. $100 oil
is a bonus. I am bullish on oil price since it’s a depleting
commodity and a world that is consuming some 80+ million
barrels per day.
Bankers Petroleum
Bankers Petroleum (T-BNK) $3.17 -0.01


E&P companies cannot find 80 to100 million barrel oil
fields every single day. Oil prices will continue to have
wide fluctuations due to the economic health of the US
financial sector, the US$ and geopolitical issues
around the world.
David Pescod: Albania has just increased its royalty
rates, but they still remain some of the better ones on
the face of earth, particularly compared to what has
happened in Alberta lately. Your thoughts on working
in Albania and any interesting characteristics that
should be apparent?
Abby Badwi: Albania is hungry for foreign investments
and Bankers is one of the largest investors in the country.
A democracy since 1992, Albania is pro free market
economy, privatization of the public sector corporations
and has a slogan of “Albania is open for business”.
It has been invited to join NATO and is an aspiring
nation to join the EU.
David Pescod: The Patos-Marinza project in Albania
has huge, make that enormous reserves. How much of
it do you think is recoverable and what kind of production
rates can you see going forward?
Abby Badwi: With two billion barrels of oil in place,
Patos-Marinza has already produced 120 million barrels
and has another 150 million barrels of 2P reserves remain
to be recovered through primary recovery methods
of reactivating existing wells and infill vertical and
horizontal drilling. We believe that we can recover another
10% to 20% by secondary and tertiary recovery
applications of water flood and thermal injection. The
Kucova oil field has 500 million barrels of oil in place, it
has produced 25 million barrels to date and we expect
to recover a similar amount. We will be announcing our
reserves for this field shortly. Our current plans target
is 20,000 BOPD by the end of 2010.
David Pescod: I guess in a world like this, where
things seem to be coming out of left field, what are
your concerns about the global economy and particularly
in the oil and gas business?
Abby Badwi: The escalating problems that hit major
financial institutions in the US this year reached its
peak with the downfall of Lehman last week and vulnerability
of several other big banking names being added
to the list.


David Pescod 780-408-1750 Debbie Lewis 780-408-1748 Fax: 780-408-1501 Page 3
DEB’S DITTY:
One Sunday morning, the pastor noticed little Alex standing in the foyer of
the church staring up at a large plaque. It was covered with names and small
American flags mounted on either side of it. The six-year old had been staring
at the plaque for some time, so the pastor walked up, stood beside the
little boy, and said quietly, 'Good morning Alex.'
'Good morning Pastor,' he replied, still focused on the plaque. 'Pastor, what is
this? The pastor said, 'Well son, it's a memorial to all the young men and
women who died in the service.'
Soberly, the just stood together, starring at the large plaque.
Finally, little Alex's voice, barely audible and trembling with fear asked,
'which service, the 8:30 or the 10:45?'
To receive the Late Edition and be on our daily circulation simply e-mail Debbie at
Debbie_lewis@canaccord.com and give your address, phone number and e-mail and we’ll have you
on the list tonight.
The US Government intervention stabilized the situation for the time being and I believe that the US economic
powers will do its share through M&A transactions that will create bigger and stronger financial institutions. Our
industry is strong but you will also see increased activities in M&A in our industry this year carrying on into 2009.
David Pescod: There are an awful lot of oil and gas stocks that have been absolutely beaten up over the last few
weeks. Are there any that you would recommend at these prices?
Abby Badwi: Major Canadian E&Ps such as Encana and Canadian Natural Resources lost 30% in share value over the
last three months and should recover well. Of course, Bankers Petroleum is also a very good bet.
Disclosure: Canadian Natural Resources: Canaccord Capital covers this stock and has a Buy rating on it. (Buy: The stock is

No bailout? Even scarier

Market News: After the Bell
The close: No bailout? Even scarier
RTGAM


Investors listened to Ben Bernanke and Henry Paulson make their bailout pitch before lawmakers on Tuesday, and they didn't like what they heard.
Oh sure, the $700-billion (U.S.) price tag on the rescue package for financial institutions didn't surprise anyone. But they learned that Democrat and Rebublican senators alike have voiced some opposition to the package, which could delay its passing. As well, investors learned that the plan does not involve buying toxic assets from beleaguered financial institutions at firesale prices, but rather something close to the market value. That, potentially, leaves a lot of downside risk for taxpayers and no upside potential.
As for delaying or modifying the package, Mr. Bernanke outlined the risks in his testimony before the Senate Banking Committee: "I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover."
In other words, who wants to own stocks in this uncertain environment? The Dow Jones industrial average closed at 10,854.17, down 161.52 points, or 1.5 per cent, after treading water throughout most of the day. The broader S&P 500 closed at 1,188.22, down 18.87 points, or 1.6 per cent.
The losses were widespread - and, combined with Monday's loss, erased most of the gains enjoyed during a rally last Thursday and Friday. All 10 subindexes at the S&P 500 fell. At the Dow, 27 of the 30 members fell during the day. General Motors Corp. fell 7.4 per cent, General Electric Co. fell 4.6 per cent and Bank of America Corp. fell 2.5 per cent.
In Canada, the S&P/TSX composite index closed at 12,532.63, down 105.44 points, or 1.5 per cent. There, the losses weren't nearly as widespread though, with four of the 10 subindexes rising.
Fairfax Financial Holdings Ltd., which has made bearish bets on the stock market and may benefit from the demise of American International Group Inc., rose another 5.3 per cent - bringing its cumulative rise to more than 40 per cent in the past four trading days. Other financial stocks performed well: Royal Bank of Canada rose 1 per cent, Bank of Nova Scotia rose 3.3 per cent and Manulife Financial Corp. rose 4.2 per cent.
Energy and materials stocks declined, though, following the price of crude oil and gold. Oil fell to $106.61 a barrel, down $2.76; gold fell to $891.20 an ounce, down $17.80. Suncor Energy Inc. fell 2.7 per cent, Goldcorp Inc. fell 2.1 per cent and Potash Corp. of Saskatchewan Inc. - an agriculture stock that generally moves with commodities - fell 9.7 per cent.
Copyright 2001 The Globe and Mail

This parrot is dead

This parrot is dead

Tuesday, September 23, 2008

With the markets becoming more incomprehensible by the day, Canaccord Adams decided to toss out the fundamental analysis books and instead pull the Monty Python reels off the shelf for inspiration and wisdom."Has the turmoil translated to new stability ahead? Or has a (dead) cat (bounce) temporary treed the bear (market)?," Canaccord asked investors in its weekly junior mining update. "In keeping with the loony market activity, we felt a series of Monty Python quips would help in identifying with our important question posed above."So, ladies and germs, the quips (and Canaccord's interpretations) ...

"He's not pining, he's passed on. This parrot is no more. He has ceased to be. He's expired and gone to meet his maker. He's a stiff, bereft of life, he rests in peace. If you hadn't have nailed him to the perch he'd be pushing up the daisies.

He's rung down the curtain and joined the choir invisible. This is an ex-parrot!"(replace: 'parrot/he' with 'market')'Bring out yer dead.''Here's one.''I'm not dead.''Ere, he says he's not dead.'

'Well, he will be soon, he's very ill.''I'm getting better.' (replace: 'one/he' with 'the market')

'It's just a flesh wound. 'Tis but a scratch.' 'A scratch? Your arm's off.' 'I've had worse. Oh! Had enough, eh? Come back here and take what's coming to you! I'll bite your legs off!'(market decline)"It's funny, isn't it? How your best friend can just blow up like that?"(replace 'best friend' with 'market')"When you're chewing on life's gristle,Don't grumble, give a whistle.And this'll help things turn out for the best ...And ... always look on the bright side of life ...Always look on the light side of life ...""Well, we'll not risk another frontal assault. That rabbit's dynamite."(short sellers vs. U.S. regulatiors, ie rabbits )'I'm not a witch I'm not a witch!' 'But you are dressed as one.' 'They dressed me up like this!' 'We didn't! We didn't ...' 'And this isn't my nose. It's a false one.' 'Well?''Well, we did do the nose.' 'The nose?' 'And the hat, but she is a witch!' 'Yeah! Burn her! Burn her!'"
Now, back to work.
© Copyright The Globe and Mail

Oil prices leaped more than $25 (U.S.) a barrel Monday — the biggest one-day price jump ever

Oil leaps to $130

STEVENSON JACOBS
Monday, September 22, 2008
NEW YORK — Oil prices leaped more than $25 (U.S.) a barrel Monday — the biggest one-day price jump ever — as anxiety over the U.S. government's $700-billion bailout plan battered the dollar and touched off frenzied buying of safe-haven investments including crude.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back somewhat to trade at $123.77, up $19.22. The contract was set to expire at the end of the day, adding to the volatility; the October price began accelerating sharply in the last hour of regular trading.
Crude has gained about $40 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The huge rally was poised to shatter crude's previous one-day price jump of $10.75, set June 6.
Oil's sharp gains came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness.
“They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer,” said Matt Zeman, head trader at LaSalle Futures in Chicago. “Right now it's fear and anxiety driving people who want tangible assets.
© Copyright The Globe and Mail

A Wall Street Week Of Biblical Proportions
Sept. 21, 2008
(CBS) We're taking stock this morning of the economic whirlwind that swept from Wall Street across the world this past week. Our Cover Story is reported by Martha Teichner:
At least the Dow ended the week up … 410 points Thursday, 366 points Friday, a glimmer of optimism that the economy might not be allowed to implode after all.From the moment word reached Wall Street Thursday afternoon that Treasury Secretary Henry Paulson was about to meet with congressional leaders about a massive bailout plan, stocks soared.

The photo op after the meeting was a picture of cooperation and bipartisan unity. Then there was Paulson, looking like a man in a hurry, announcing his plan: "We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses."And President Bush, speaking to an audience larger than Wall Street, on

Friday morning: "Investors should know that the United States government is taking action to restore confidence in America's financial markets so they can thrive again."Confidence … there is no more ephemeral, or essential, component in what amounts to a huge gamble that our leaders can pull our economy (perhaps even the global economy) back from the brink of collapse. Yes, that's apparently how bad things had gotten."

These are the most difficult times I think our markets have faced in the last 200 years," former Securities and Exchange Commissioner Harvey Pitt told Martha Teichner. Pitt spent a dozen years at the SEC and was its head from 2001-2003."Certainly it's been historical; it could've been Biblical," said Mark Zandi, chief economist of Moody's Economy.com and author of the book "Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis" (FT press). "I mean, I was waiting for the locusts to fly through my office at one point."


"This could be comparable to the Great Depression in terms of just its effect on financial markets," said Robert Reich. Now a professor at Berkeley, Reich was Labor Secretary under Bill Clinton.

We asked him what lots of Americans are asking: How did it come to this?"The people who were issuing warnings were not listened to," he said, "partly because Wall Street is very powerful in Washington. Wall Street kept on saying, 'Well, don't worry about anything, we have everything under control, we don't need more regulation.'"Regulatory firewalls were put in place to prevent the financial excesses that led to the Great Depression. By the 1970s, banks and securities firms, caught up in major turf wars, lobbied for deregulation … and got it."We had over-leveraging in many of these firms," said Pitt, "and the net result was that people were leveraged, in some cases, as high as 100 to one."People were also making piles of money by trading in packages of questionable mortgages and complicated, unregulated securities, called derivatives."Derivatives, essentially, are bets on how stocks or how bonds are going to move, and they're called derivatives because they are derived from those movement," said Reich.But what if you bet wrong?

That, say, the housing market will just keep going up but instead, the subprime mortgage meltdown happens?

The whole house of cards collapses, taking Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch and AIG with it."We're scared, we're panicked, we don't even trust our money market mutual funds, which we all thought was one step removed from the mattress," said Zandi.How's this for scared: Last Wednesday, after problems emerged in several funds, investors pulled nearly $90 billion out of others. "

Confidence, or the lack thereof, is what's driving this mess that we're in," Zandi said.Which is why the U.S. government felt it had to intervene … fast. "I am convinced that this bold approach will cost American families far less than the alternative: a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson said this week, in announcing the government's bid to bail out struggling financial institutions by purchasing their bad debt, at the cost of hundreds of billions of dollars.We know a little more today about the proposal Paulson took to Congress: it would give the Treasury two years and $700 billion of taxpayer money to buy up distressed mortgages.And then there's this scary number: $11,315,000,000,000, to which the federal debt ceiling would have to be raised, from the current $10.6 trillion dollars.

So will the bailout end the crisis?"I think we're in the sixth inning of a nine-inning game," Zandi said, "and I don't think this is a double-header. So I think we're closer to the end than the beginning.""Until we know for certain we've reached the bottom, that up-and-down motion is just going to continue," Reich said.

"I think that there will be a certain amount of continued difficulty through the end of the year," Pitt predicted.But first there's tomorrow, when markets around the world take their next vote of confidence on the American economy as it prepares for emergency shock treatment.Source

House Of Cards: The Mortgage Mess

House Of Cards: The Mortgage Mess
May 25, 2008


One hundred of the world's biggest financial institutions now are on the hook for a reported total of $379 billion in bad debt - and counting. As for Stockton, it remains the nation's foreclosure capital, with more than 6,000 homes currently in default or foreclosure.

(CBS) This story was originally broadcast on Jan. 27, 2008. It was updated on May 23, 2008. Since last summer, Americans have seen their investments shrink and their property values plummet. At the heart of the problem is something called the subprime mortgage crisis, which began back then and continues to ricochet through the economy. It sounds complicated, but it's really fairly simple: banks lent hundreds of billions of dollars to homebuyers who can't pay them back. Wall Street took the risky debt, dressed it up as fancy securities, and sold it around the world as safe investments. If it sounds like a shell game or Ponzi scheme, in some ways it was a house of cards rife with corruption, greed, and negligence. And as correspondent Steve Kroft first reported in January, it started in places like Stockton, Calif.
Real estate agent Kevin Moran gave Kroft a tour of the wreckage in one subdivision called "Weston Ranch," with block after block of vacant and abandoned houses. "If you see a 'for sale' sign in this neighborhood that probably is a sign of distress, right?" Kroft asks. "I would say that, yeah. Two out of three of all the sales are probably foreclosed properties, and/or people who are in distress," Moran explains. The "for sale" signs and the overgrown lawns in Weston Ranch only show part of the picture. To get a real overview, you need to look at a map from Sean O’Toole's Web site, foreclosureradar.com, which tracks distressed properties in Stockton and other California communities. "The light blue circles are folks that have gone into default. And that means that's the first step of the foreclosure process," O'Toole says, explaining how his maps color-code properties. "The dark blue is auction properties. And the red icons are properties that were sold at auction, had no bid, and therefore went back to the lender." As of last week, there were 4,200 Stockton homes either in default or foreclosure; $1.4 billion in bad loans in just one California community, and it is far from over. "Two months from now, what's this map gonna look like? How many of those light blues are gonna be red?" Kroft asks O'Toole. "We'll probably see at least 60, 70 percent of these light blues turn red. And we'll see at least this many light blues again," O'Toole predicts. Banks are auctioning off houses all over California and in South Florida, in Nevada, and in parts of Ohio and Texas, the result of a huge real estate bubble that began forming in Stockton back in 2003, when people priced out of the Bay Area and Silicon Valley discovered that you could buy a four-bedroom home there for just $230,000. Developers started turning asparagus fields into subdivisions, and lenders handed out free money to anyone who wanted to buy. "What do you mean by free money?" Kroft asks Jim Grant, the editor of "Grant's Interest Rate Observer" and one the country's foremost experts on credit markets. "I mean free money. I mean you had to apply not to get a loan, almost. Sometimes you have to apply to get a loan, you almost had to apply not to get one," Grant says. "When you opened your mailbox in 2004, 2005, you could barely -- people were pressing on you, if you were not institutionalized, all matters of schemes in which to expand your personal debt and mortgage debt. You could, and people did, borrow more than 100 percent of the price of a house with the most fragile of financial bonafides," Grant explains. Most of the mortgages issued in Stockton, and half of those now in default or foreclosure, were something called subprime loans, meaning less than prime quality. The borrowers often had sketchy credit, were financially strapped or lacked sufficient income to qualify for a standard mortgage. After a year of artificially low payments, the interest rates on subprime loans jumped all the way to ten or 11 percent. But Jerry Abbott, who runs the Coldwell Banker office in Stockton, says it didn’t concern the borrowers, many of whom were getting mortgages for more than their houses were actually worth. "They were getting loans in excess of 100 percent of the value of the property," Abbott says. "That type of thing. So, most of 'em were actually putting a little bit of money in their pocket at close of escrow." "So, they were getting paid to buy a house?" Kroft asks. "They were getting paid to buy a house. Yes. Yeah," Abbott says. And strangely enough, it didn't seem to bother the lenders either, who were collecting huge fees just for landing the loans. "Whatever they wanted to state for their income. The bank accepted that at face value and made the loan based on that income," Abbott says. Abbott says borrowers got the money, without a down payment. Jim Grant calls it an invitation to fraud. "You apply to a bank, or a mortgage broker for a loan. And you would fill out a form. And you would say, 'I have an income of, oh, $400,000 a year.' They say, 'You do? Fine. Just sign right there.' And they would nod, and because they were being paid, not by the veracity of the information, but by the consummation of the deal. The lending office would say, 'Ah. You have verified this?' 'Why, yes, we have.' And the lending officer would say, 'Great. So do I.' And he'd pass it on to Wall Street," Grant says. "And he got a cut, too?" Kroft asks. "Yes, oh, yes. Everyone gets a cut," Grant says. Almost all of the people involved in the transactions made huge amounts of money, then passed the risk on to somebody else. Instead of keeping the dicey loans in their own portfolios, the big banks and giant mortgage companies that originally underwrote them resold the mortgages to big New York investment houses. Firms like Bear Stearns and Merrill Lynch sliced the loans into little pieces and packaged them up with other investments, then sold them to their best customers around the world as high-yield mortgage-backed securities, turning sows' ears into silk purses, all with the blessing of rating agencies like Standard & Poor’s. "At every step in the way, somebody has his or her hand out, getting paid. And everyone, for the time, is happy. The broker got paid. He or she was happy. The lending officer, ditto. The rating agencies got paid for passing judgment on these securities. They, too, were pleased, and their stockholders were happy. And on and on. And it would never end, except that it did," Grant says. It was all predicated on the idea that real estate prices would keep going up, and up and up, and for a long time they did. But by the summer of 2005, speculators flipping houses in Stockton had helped drive the price of that four-bedroom house to more than $400,000 and the market began to soften, then to tumble. All of a sudden those subprime borrowers who had taken the free money found themselves upside down, owing more on their new house than it was worth. It’s not exactly clear how a mortgage broker was able to qualify Phil Fontenot and his wife Kim Monroe for their $436,000 house, from which they run a small day care center. They say they wanted to move to a better neighborhood. A mortgage broker approached the Fontenots and offered to get them a loan. They told her the most they could afford, at most, was $2,500 a month. But the monthly payment on the adjustable rate mortgage she gave them quickly jumped to $4,200. "Did you understand any of this?" Kroft asks. "No, not really. Not much of it," says Phil Fontentot, who also says he didn't have a lawyer look over the paperwork. "But you knew this was a big decision, right? You were borrowing hundreds of thousands of dollars," Kroft remarks. "I didn't really look at it like that," Fontenot says. "How did you look at it?" Kroft asks. "I looked at it as far as my family. I can get my family off of this block," he replies. "And that we could pay the payments that she said that we could pay," Fontenot's wife Kim adds. "But after it was all said and done, and the paperwork was drawn up, it was something different." But Matt and Stephanie Valdez say they knew exactly what they were doing when they bought a small two-bedroom for $355,000. They could afford the initial payments and planned to refinance the mortgage before the interest rate jumped to 11 percent. But they couldn't do it because the value of the house had fallen below what they owed on the mortgage. They say they can afford the higher payments, but see no point in making them. "You're saying, essentially, that you're going to stop making payments on it? You're just gonna let it go into foreclosure?" Kroft asks. "You know, that's the only advice we've gotten so far is walk away from the home. We don't want to do that to our credit. Why can't our mortgage company work with us?" Stephanie Valdez says. There is a certain cold logic to just walking away. Kevin Moran, the real estate agent who gave Kroft the tour of foreclosed houses in the Weston Ranch subdivision, says it is happening every day. They were never really invested. Most of the people who lost the houses didn’t lose any money because they never put any money down. Though their credit is damaged, and they could face legal action in some circumstances, they got to live in a new house for a couple of years, and some of them even managed to get some money with home equity loans or by refinancing. "Nobody seems to be saying, 'Look, I made a contract with you. I borrowed money from you. I'm gonna do everything I can to pay off that obligation.' People just seem to be saying, 'Look, take the house. Good-bye. I'm leaving,'" Kroft says. "There was a time, I think, when people felt really bad about not paying off a debt." "Yeah, I think in those days, loans were made by your local banker or building and loan associations or savings and loan. They were guys you saw in the grocery store. They were on the little league team with you, the PTA, the school. And I think as mortgages became securitized and Wall Street became involved, they became very transactional and there was no relationship built with the borrower and the lender. And I think that makes it easier for someone to see it as an anonymous party at the other end of the transaction and just walk away from it," Moran says. "Just a business decision," Kroft says. "A business decision that has to be made," Moran agrees. "It turns out that if you give people free money, they will take it without really worrying too much about giving it back. Because after all, it was free," Jim Grant says. Asked if it's a case of greed, Grant says, "Greed, sure. Greed on both sides of the table." "What do you mean?" Kroft asks. "Lenders and borrowers," Grant says. "Everyone was gaming the system." That is not to suggest that there aren’t huge losers in all this and much suffering and particularly hard-working people who have lost their dream. Home values are plummeting, and the housing sector - one of the largest and most vital parts of the American economy - has ground to a standstill, pushing the country towards recession. The Wall Street and foreign investors are now stuck with the millions of distressed properties on Sean O’Toole's map, the unsold condos in Miami, the unfinished apartments on the Vegas Strip, the developments in Atlanta that are sitting idle and the thousand stucco houses in Stockton. Not even Kevin Moran, who has copies of the foreclosed mortgages, can figure out who exactly owns them. "That’s the fascinating part of this whole debacle we’re in. Mortgages are sold in mortgage backed securities, so they’re pooled. I’ve seen everything from some of the largest financial institutions in the country, and you see 'Deutsche Bank' in a series and a series of numbers and letters to a mortgage pool," he says. The pools are part and parcel of those high-yield mortgage backed securities everyone gobbled up a few years ago, and are now stuck in the windpipe of the world's financial system. No one wants to buy them, so no one can sell them. "Bonds marked triple-A are now quoted at 50 cents to the dollar, 40 cents on the dollar. Some of them, much less," Grant says. "How much on the dollar, do ya think?" Kroft asks. "Some of them are worth nothing on the dollar. Nothing on the dollar. This is the worst thing that has happened to Wall Street in a long time," Grant says. Asked how many of these securities are out there, Grant says, "A trillion with a T-plus." Asked who bought them and owns them, Grant says, "You know, state pension funds, the hedge funds bought them. Foreign central banks own some of these things, if you please. So the ownership is very widely dispersed, which accounts for the general anxiety, and the persistence of anxiety." There’s already a two-year supply of properties on the market in Stockton and so many foreclosures that real estate agent Cesar Diaz decided to start the "Repo Bus" to take bargain hunters and bottom feeders on a weekly tour to see some of them. He got the idea from the Hollywood tour of the stars' homes. The day Kroft went along, there were two busloads checking out houses that are now 70 percent cheaper than they were when the crisis began. The consensus seemed to be prices are going to drop still further. Not particularly encouraging news for the past two chairmen of the Federal Reserve Board. "Alan Greenspan and his successor, Ben Bernanke, would say over and over that it's contained. The problem's contained. It turns out, it is contained only on planet Earth," Grant says, laughing. "That's it."
One hundred of the world's biggest financial institutions now are on the hook for a reported total of $379 billion in bad debt - and counting. As for Stockton, it remains the nation's foreclosure capital, with more than 6,000 homes currently in default or foreclosure. Produced By L. Franklin Devine and Jennifer MacDonald

TSX Makes History

Market rally Close 848.42 WOW

The close: Deja vu?

RTGAM

You have to feel sorry for the United States on a day like Friday: U.S. authorities made the bold moves to steady the teetering financial system, and yet U.S. stock market indexes lagged most of the rest of the world.

Not that the gains were slight, by any stretch. The Dow Jones industrial average closed at 11,388.44, up 368.75 points or 3.4 per cent - more or less erasing the horrendous losses earlier in the week. The broader S&P 500 made a similar rebound, closing at 1254.98, up 48.47 points or 4 per cent. Last Friday, before the current bout of financial mayhem struck the market, the index closed just below 1252.

But those gains were mere noise compared to what happened elsewhere, where investors took off their hard hats and danced on their heads. In Canada, the S&P/TSX composite index closed at 12,912.13, up 847.56 points or just over 7 per cent - the biggest percentage gain since 1987.In the U.K., the FTSE 100 rose 8.8 per cent. Brazil's Bovespa stock index rose 9.5 per cent and Hong Kong's Hang Seng index rose 9.6 per cent.

The interesting part about the U.S. rally was that although it was widespread, it was nowhere near as widespread as other rallies during the year. For example, it is not unheard of to see all 30 stocks in the Dow rise during a rally. On Friday, though, there were actually 7 stocks - or 23 per cent of the index - that were left out.These laggards included Wal-Mart Stores Inc., Procter & Gamble Co., Johnson & Johnson, Coca-Cola Co. and Microsoft Corp.

It seems as though investors turned their backs on highly profitable firms in favour of those whose future was uncertain just a day ago. Among stocks in the S&P 500, Morgan Stanley rose 20.7 per cent, Wachovia Corp. rose 29.3 per cent and Washington Mutual Inc. rose 42 per cent.In Canada, financial stocks also did well. Royal Bank of Canada rose 7.2 per cent, Toronto-Dominion Bank rose 9.6 per cent and Bank of Nova Scotia rose 5.6 per cent.

But bigger gains were made by materials stocks: Barrick Gold Corp. rose 12.3 per cent and Agrium Inc. rose 13.4 per cent. Among energy stocks, Suncor Energy Inc. rose 14.3 per cent and Canadian Oil Sands Trust rose 17.5 per cent after the price of oil surged to $104.55 (U.S.) a barrel, up $6.67. Where have we seen that price before? Ah yes, last week.

Market rally due to short-selling ban: Sprott

JOHN PARTRIDGE
Friday, September 19, 2008

Eric Sprott thinks most of the massive rally in world equity markets is due to temporary bans on short sales of financial services stocks already imposed by U.S. and European regulators.
“I suspect most of today's rally is because of the change in the short-sale rule,” the hedge fund manager said Friday in a telephone interview. Canada's key market regulator continued to deliberate whether to follow the lead of Britain's Financial Services Authority, the U.S. Securities & Exchange Commission and other regulators.

“You can see what stocks went up the most: they're financial stocks,” said Mr. Sprott, who heads Sprott Asset Management Inc. in Toronto, acknowledging that his firm has had “to take a bit of a hit here.”
Short-sellers borrow and then sell stocks in the belief that their prices will fall, enabling them to go back into the market later and replace the borrowed shares at lower cost and pocket the difference as profit.

However, the temporary bans have forced practitioners back into the market to cover their positions by buying up the stocks they have sold, thus driving up the prices demand for those shares.

Many market players and observers have blamed massive short-selling for decimating the stocks of several U.S. financial industry pillars, pushing them to the brink of insolvency.
In an emergency order issued late Thursday, the SEC said recent market conditions have made it concerned that short-selling of a wide range of financial stocks “may be causing sudden and excessive fluctuations of the prices of such securities in such a manner as to threaten fair and orderly markets.”
“Such price declines,” it added, “can give rise to questions about the underlying financial condition of an issuer, which in turn can create a crisis of confidence, without a fundamental underlying basis.”

The move against short-sellers is just one of an array of measures taken by the U.S. government and central banks and market regulators around the world as they seek to stave off the worst financial crisis since the Great Depression. Central banks have pumped tens of billions of dollars into the banking system and Washington has unveiled plans to help banks shift bad real-estate loans off their books as well as moving to protect the value of money-market funds.
Whether or not the Investment Industry Regulatory Organization of Canada (IIROC) plans also to impose a temporary ban on short sales was still unclear as Friday wore on.

The matter is still “under discussion,” Paul Bourque, IIROC's senior vice-president of enforcement, policy and registration, said in a mid-morning telephone interview, reiterating a statement he made before the opening bell.

Mr. Bourque's comment was echoed by Jean St-Gelais, the head of Quebec's securities regulator, the Autorité des marchés financiers. “We have to see if we have a problem in Canada, first,” he said after speaking to a conference on corporate governance and financial markets in Montreal.
The key is to co-ordinate efforts with the various regulatory organizations around the globe, he added. “Everyone right now is looking to take quick action but without improvising,” he said.
However, Mr. Sprott, who opposes the clampdown, figures Canadian regulators are almost sure to follow suit.

“They're on the team, aren't they, with the U.S. and the U.K.?,” he said. “The authorities are changing the rule book because the rules aren't working for them. I'm disappointed that they have had to go so far.”

“Legitimate” shorting of financial stocks is “a portfolio technique to support you in difficult financial markets, which we are in for sure,” Mr. Sprott added.

The hedge fund chief also said, however, that he firmly supports bringing back the so-called uptick rule, a 69-year-old regulation that the SEC dropped in July 2007.

Under this rule a short sale could be made only after an uptick, or rise, in the price of a stock, which meant that shorts could not pile into a stock in an unbroken freefall. The SEC felt the rule was a constraint on market liquidity and did little to prevent market manipulation. But critics say the removal of the rule has left the market a more volatile and risky place.

Mr. Sprott agreed. “I don't know why people got rid of that rule, it just seems ridiculous,” he said. “I'd like to see that enforced.”

As IIROC continued its deliberations, at least six Canadian banks and insurers whose shares trade in New York as well as in Toronto have already won at least partial protection against the shorts by being included on a list of about 800 financial services stocks covered by the 10-day ban imposed by the SEC. They are: Royal Bank of Canada, Bank of Nova Scotia, Manulife Financial Corp., Sun Life Financial Inc., Fairfax Financial Holdings Ltd. and Kingsway Financial Services Inc.

Meanwhile, Switzerland's stock exchange issued what it called “reminder” to its members Friday that so-called naked, or uncovered, short-selling is not allowed and said it will monitor the situation strictly. In a naked short transaction, a trader sells shares before actually borrowing them.

Mr. Sprott dismissed the rules against naked shorting most jurisdictions have long had on the books as a “joke,” because regulators have simply failed to enforce them. “I think the naked shorting of Canadian stocks has been quite significant,” he added.

The SWX also warned market players that “the spreading of rumours of a nature that violates the applicable rules of conduct is also forbidden.”

However, it also said that covered shorts, where the trader has actually borrowed the shares, “remain fundamentally permissible.”

As it happens, the volume of short-selling on the Toronto Stock Exchange has been declining since peaking at a total of just under 1.43 billion shares on March 31. As of Sept. 15, the total number of shares sold short on the exchange had fallen to just over 1.2 billion.

As well, fortnightly figures compiled by the exchange show that no bank or other financial services stock has cracked the list of the top 20 largest short positions on the exchange since July 31, when Canadian Imperial Bank of Commerce came in at No. 20.
The perennial leaders include such companies as Nortel Networks Corp., Rogers Communications Inc., Research in Motion Ltd. and Bombardier Inc.

However, I-Shares Canadian S&P/TSX 60 Index Fund took over the top spot with the largest short position as of Sept. 15, up from sixth largest at Aug. 31.

With files from reporters David Parkinson in Toronto and Bert Marotte in Montreal
© Copyright The Globe and Mail

Market gain a 21-year high on on financial rescue plan

Market gain a 21-year high on on financial rescue plan, but investors not out of woods yet 14 minutes ago TORONTO — North American stocks ended one of the most tumultuous weeks in their history with a massive bounceback Friday, propelling Canadian share prices to their biggest rally since the 1987 market crash. After falling into a bear market earlier, the Toronto Stock Exchange gained more than 850 points as investors welcomed a U.S. government plan to bail out troubled Wall Street banks to ease the global credit crunch. The surge of just over seven per cent on the TSX produced the biggest one-day percentage gain on the Canadian market since the post-Black Monday crash of Oct. 21 1987, when shares soared nine per cent two days after an 11 per cent drop. On Wall Street, the Dow Jones industrials rose nearly 370 points, on top of a 400 point gain the day before. "This is going to be remembered as a historic week in equity markets," said George Vasic, equity strategist and chief economist at UBS Warburg. With massive swings in stock prices every day this week, investors managed to break even at the end of the trading day Friday. However, brokers pocketed big trading commissions because of the huge volumes on Wall Street and Bay Street markets. In the U.S., a new government ban on short selling, or placing bets that a stock will fall, likely added to the huge Dow rally. "A big chunk of this is scaring all the shorts to cover their bets," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co. Most of Friday's investor optimism was fuelled by a series of sweeping steps taken by the U.S. government to prop up the world's biggest and most influential financial system. Key measures included rescuing banks from billions of dollars in bad debt and a ban on short selling, or placing bets that a stock will fall. Treasury Secretary Henry Paulson, speaking about the rescue plan, said a bold approach is needed to remove troubled assets from the books of financial firms. He offered few details, but said he would work on the plan through the weekend with congressional leaders. For much of the last two months, the financial world has been gripped by fear that the credit crisis sparked by millions of defaulted U.S. mortgages was not only not subsiding, but getting much worse. Danger bells were sounded with the government bailouts of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group. Those fears were brought to a fever pitch by the collapse of Lehman Brothers Holdings, the fourth-largest U.S. investment bank, on Monday. For the Toronto market, that meant a big slide that took it down nearly 20 per cent over two months and put it into a what traders call a bear market, or a period of prolonged stock selloffs. When central banks began to step in on Thursday, injecting billions of dollars into the global financial system, traders took heart and North American markets began to groggily recover. Friday's big leap - the TSX soared almost 850 points, or seven per cent, while the Dow gained close to 370 - was further sparked by higher oil prices and a U.S. and European crackdown on short selling, where traders borrow stock and sell it, bet the price will take a big dive, buy it up when it gets cheaper and pocket the difference. Short selling can cause a company's stock price to drop dramatically and was blamed for eroding share values in investment and commercial banks. Canadian regulators were mulling a similar move. But Norm Rothery, chief investment strategist at Dan Hallett and Associates, said the interventionist steps taken by the U.S. government could hurt the market in the long run. "My view is this is a short-term salve that's been put on the market, but it bodes poorly for the longer term," said Rothery. "The scale of government intervention is very high, and people will now have to adjust to it." He said halting short selling could inflate stock prices, making them unreliable, which could in turn "prolong the downturn." The markets will likely stabilize on the steps taken by the U.S. government, but Rothery said he remains "moderately bearish" on concerns the financial woes on Wall Street aren't fixable by government alone. "Unless they're willing to wander out and buy up everyone's mortgages and to prop up real estate prices, you're holding a rear-guard action on the market," he said. "It's a good attempt but I think the problem is too big for them." Vasic said he expects the regulatory steps to even out some of the volatility seen this week. "Now that (investors) presumably have, or will have, some clarity on the magnitude of potential risks, they can remove a lot of the what-if scenarios they had been fearing," he said. "The worst fears are off the table, but now we can return to the ongoing cyclical fears we had previously." He added that the spike seen Thursday and Friday is a short-term trend that will be halted by ongoing economic uncertainty in global markets. "We don't think this is the beginning of a new V-shaped recovery in equity markets because there's still too much ground yet to cover," he said. Meanwhile, Prime Minister Stephen Harper again asserted there is no need for Canadians to fear financial instability. "I have to reiterate ... the Canadian financial system is very strong," he said, speaking in Farnham, Que. "The balance sheets of the Canadian financial system are very strong. The core banks and insurance companies in this country are in, for the most part, very good financial shape." "We don't anticipate any crisis in the Canadian financial system." His U.S. counterpart, President George Bush, sounded a similar, though more cautious, note. "In the long run Americans have good reason to be confident in our economic strength," Bush said as his administration announced it will move to safeguard assets in money market mutual funds. But the cost of the U.S. bailout plan "will be enormous, darkening the U.S. fiscal picture in an environment where there is already plenty of concern over rising deficits and the integrity of the Fed's balance sheet," noted Scotia Capital currency strategist Steve Malyon.

Market gain a 21-year high on on financial rescue plan

Market gain a 21-year high on on financial rescue plan, but investors not out of woods yet
14 minutes ago

TORONTO — North American stocks ended one of the most tumultuous weeks in their history with a massive bounceback Friday, propelling Canadian share prices to their biggest rally since the 1987 market crash.

After falling into a bear market earlier, the Toronto Stock Exchange gained more than 850 points as investors welcomed a U.S. government plan to bail out troubled Wall Street banks to ease the global credit crunch.

The surge of just over seven per cent on the TSX produced the biggest one-day percentage gain on the Canadian market since the post-Black Monday crash of Oct. 21 1987, when shares soared nine per cent two days after an 11 per cent drop.

On Wall Street, the Dow Jones industrials rose nearly 370 points, on top of a 400 point gain the day before.

"This is going to be remembered as a historic week in equity markets," said George Vasic, equity strategist and chief economist at UBS Warburg.

With massive swings in stock prices every day this week, investors managed to break even at the end of the trading day Friday. However, brokers pocketed big trading commissions because of the huge volumes on Wall Street and Bay Street markets.
In the U.S., a new government ban on short selling, or placing bets that a stock will fall, likely added to the huge Dow rally.

"A big chunk of this is scaring all the shorts to cover their bets," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co.

Most of Friday's investor optimism was fuelled by a series of sweeping steps taken by the U.S. government to prop up the world's biggest and most influential financial system. Key measures included rescuing banks from billions of dollars in bad debt and a ban on short selling, or placing bets that a stock will fall.

Treasury Secretary Henry Paulson, speaking about the rescue plan, said a bold approach is needed to remove troubled assets from the books of financial firms. He offered few details, but said he would work on the plan through the weekend with congressional leaders.
For much of the last two months, the financial world has been gripped by fear that the credit crisis sparked by millions of defaulted U.S. mortgages was not only not subsiding, but getting much worse.

Danger bells were sounded with the government bailouts of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group.
Those fears were brought to a fever pitch by the collapse of Lehman Brothers Holdings, the fourth-largest U.S. investment bank, on Monday.

For the Toronto market, that meant a big slide that took it down nearly 20 per cent over two months and put it into a what traders call a bear market, or a period of prolonged stock selloffs.
When central banks began to step in on Thursday, injecting billions of dollars into the global financial system, traders took heart and North American markets began to groggily recover.
Friday's big leap - the TSX soared almost 850 points, or seven per cent, while the Dow gained close to 370 - was further sparked by higher oil prices and a U.S. and European crackdown on short selling, where traders borrow stock and sell it, bet the price will take a big dive, buy it up when it gets cheaper and pocket the difference.

Short selling can cause a company's stock price to drop dramatically and was blamed for eroding share values in investment and commercial banks.
Canadian regulators were mulling a similar move.

But Norm Rothery, chief investment strategist at Dan Hallett and Associates, said the interventionist steps taken by the U.S. government could hurt the market in the long run.
"My view is this is a short-term salve that's been put on the market, but it bodes poorly for the longer term," said Rothery.

"The scale of government intervention is very high, and people will now have to adjust to it."
He said halting short selling could inflate stock prices, making them unreliable, which could in turn "prolong the downturn."

The markets will likely stabilize on the steps taken by the U.S. government, but Rothery said he remains "moderately bearish" on concerns the financial woes on Wall Street aren't fixable by government alone.

"Unless they're willing to wander out and buy up everyone's mortgages and to prop up real estate prices, you're holding a rear-guard action on the market," he said.
"It's a good attempt but I think the problem is too big for them."

Vasic said he expects the regulatory steps to even out some of the volatility seen this week.
"Now that (investors) presumably have, or will have, some clarity on the magnitude of potential risks, they can remove a lot of the what-if scenarios they had been fearing," he said.
"The worst fears are off the table, but now we can return to the ongoing cyclical fears we had previously."

He added that the spike seen Thursday and Friday is a short-term trend that will be halted by ongoing economic uncertainty in global markets.

"We don't think this is the beginning of a new V-shaped recovery in equity markets because there's still too much ground yet to cover," he said.
Meanwhile, Prime Minister Stephen Harper again asserted there is no need for Canadians to fear financial instability.
"I have to reiterate ... the Canadian financial system is very strong," he said, speaking in Farnham, Que.
"The balance sheets of the Canadian financial system are very strong. The core banks and insurance companies in this country are in, for the most part, very good financial shape."
"We don't anticipate any crisis in the Canadian financial system."
His U.S. counterpart, President George Bush, sounded a similar, though more cautious, note.
"In the long run Americans have good reason to be confident in our economic strength," Bush said as his administration announced it will move to safeguard assets in money market mutual funds.
But the cost of the U.S. bailout plan "will be enormous, darkening the U.S. fiscal picture in an environment where there is already plenty of concern over rising deficits and the integrity of the Fed's balance sheet," noted Scotia Capital currency strategist Steve Malyon.

Debt plan, U.S. short-selling curbs lift spirits

Debt plan, U.S. short-selling curbs lift spirits
Tony Munroe and Will Waterman

Friday, September 19, 2008
HONG KONG/LONDON — — A radical U.S. plan to mop up toxic mortgage debt and a spreading ban on short-selling drove bank stocks up as much as 40 per cent on Friday as urgent talks over rescue takeovers in the sector continued.

As the authorities brought out the big guns to tackle the financial crisis, U.S. investment bank Morgan Stanley continued talking to Wachovia Corp. and other banks about a merger, while discussing a possible increased investment from China's sovereign wealth fund, sources familiar with the plans said.

British lender HSBC Holdings walked away from a $6.3-billion deal for control of Korea Exchange Bank, fuelling speculation it may be turning its attentions to one of its embattled rivals in the West instead.

And the Eurozone's largest bank, Spain's Santander, declined to comment on a media report it was eyeing Bank of Ireland, which has been pummelled by a property market slump at home.
After Britain's Financial Services Authority imposed a four-month ban on short-selling financial stocks on Thursday, the U.S. Securities and Exchange Commission followed suit on Friday with an immediate ban for an initial 10 days. French regulator AMF said it was also talking to other Eurozone regulators about market dealings, leading to expectations that the shorting ban would snowball.

Meanwhile, the world's central banks redoubled their efforts to lubricate the seized up money markets. Japan, Australia, India and Indonesia pumped in $42-billion after the U.S. Federal Reserve co-ordinated a $180-billion package a day earlier.

In Europe, there were signs that the stress was easing. The cost of borrowing dollars overnight fell back towards the Fed's 2 per cent target, and three-month borrowing costs slid. The Bank of England offered $40-billion to banks, but only half of it was taken up.

Thursday's proposals by Washington to draw the poison from banks' mortgage assets and the first of the short-selling bans had an immediate and dramatic effect.

U.S. stocks clocked their biggest percentage gain in six years late on Thursday, powering a rally in the dollar and pushing oil prices higher, and on Friday Asian and European markets picked up where New York's left off.

The price of gold and government bonds, traditional safe havens in times of turmoil, both slipped back.
U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on a plan to deal with the toxic bank assets that have been choking the financial system for a year.

"This is a more substantial and systemic solution than the ad hoc interventions we have seen in recent days," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong.
"At present confidence is the most important factor, and this will only be maintained if the rescue plans are delivered on both sides of the Atlantic," said Andrew Turnbull, senior sales manager at ODL Securities.

Stock markets did not wait for details.
The MSCI index of regional shares excluding Japan was up 7 per cent, and Tokyo stocks ended up 3.8 per cent. The Shanghai index roared 9.5 per cent higher after the Chinese government stepped in with a reform package to halt a 69 per cent slide from last October's record high.
In Europe, all the continent's major markets jumped in early trade. The pan-European FTSEurofirst 300 was up 6.3 per cent, while some of Europe's biggest banks, UBS, HBOS, Lloyds TSB and Royal Bank of Scotland were up between 29 and 47 per cent.
Sovereign wealth fund China Investment Corp, Morgan Stanley's largest shareholder, with a 9.9 per cent stake it bought for $5 billion in December, was in talks that could see its stake climb to as much as 49 per cent, sources familiar with the matter said.
Beijing is wary of adding to its Morgan Stanley holding, given that its existing holding is carried at a steep loss — the whole bank was only worth $24 billion at Thursday's close. An unidentified CIC official told the Xinhua news agency that an increase in the stake would face U.S. political obstacles.
Sources familiar with the plans said Morgan Stanley's parallel discussions with Wachovia began Wednesday night with a proposal from Wachovia CEO Robert Steel to Morgan Stanley CEO John Mack and have since reached a more formal stage.
Morgan Stanley declined to say it was in talks, but a spokeswoman confirmed it was "focused on solutions" to address its falling stock price.
A U.S. fund to deal with bad mortgage-related assets would be similar to the Resolution Trust Corp, which was set up to clean up bad debts from the savings and loan crisis in the late 1980s at a $400 billion cost to taxpayers.
"We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets," Mr. Paulson told reporters.
According to two Congressional aides, he has been shopping around a plan to create the fund.
Rep. Barney Frank, who is chairman of the House Financial Services Committee, said there was concern that establishing a formal entity to buy the assets would take too long.
"I think it will start to provide a floor to asset values and allow institutions to work through this in a systematic manner. They won't have to rush into the arms of suitors to avoid collapsing," said Haag Sherman, co-founder and managing director of Salient Partners in Houston.
In addition, New York's Attorney General Andrew Cuomo began a wide-ranging probe into possible illegal short-selling in the stocks of Wall Street firms such as Morgan Stanley and rival Goldman Sachs Group Inc.
At one stage on Thursday, Morgan Stanley's stock dropped as much as 42 per cent and Goldman as much as 25 per cent, adding to several days of huge declines that have wiped out tens of billions of dollars of market value. However, after news of the moves by authorities in the U.S. and Britain, they were both trading higher in after-hours trade.
Investors are questioning whether the investment banking model is doomed after the bankruptcy filing earlier this week of Lehman Brothers Holdings Inc. and the proposed sale of Merrill Lynch.
There has even been speculation that Goldman, the most powerful investment bank and once seen as untouchable, may be in need of a partner, possibly a retail bank.
Copyright © 2002 Bell Globemedia Interactive.

Markets Rally Today

QEC stock-price target of C$8.25

Click For The Full BNN Report starts at 30 minute mark

Goldman Sachs analysts :Another commodity bull is having second thoughts about crude oil.

Another bull bites the bullet

Wednesday, September 17, 2008

Another commodity bull is having second thoughts about crude oil. Goldman Sachs analysts made big headlines this year when they predicted oil would rise in a “super spike” to $200 (U.S.) a barrel. Now, they cut their three-month target to $115 a barrel from $149 previously. They cut their six-month target to $125 from $142.

However, that's still pretty bullish, given where oil prices have gone in recent weeks. With oil trading at about $93 a barrel on Wednesday afternoon, the new targets still imply a 24 per cent rise by the end of the year and a 34 per cent rise at the end of the first quarter of 2009.

“We will stand by our bullish view on oil but just think it will now take longer to get to our previous price targets,” the analysts said in their report. “The supply side of the market still remains severely constrained.”

The analysts' revision comes as rising development costs in the Canadian oil sands are overshadowing commodity moves. UTS Energy Corp. announced on Wednesday that the cost of the Fort Hills project has surged to about $24-billion (Cdn.) – a stunning 50 per cent increase since the preliminary estimate in June, 2007 – raising alarms about feasibility.

UTS, which has a 20 per cent stake in the project, saw its shares wilt 40 per cent on Wednesday. Teck Cominco Ltd., which also has a 20 per cent stake, fell 3.3 per cent. Petro-Canada, which owns a 60 per cent stake, fell 4.4 per cent.
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Copyright © 2002 Bell Globemedia Interactive.

New SEC Short-Selling Rules Vow 'Zero Tolerance'

New SEC Short-Selling Rules Vow 'Zero Tolerance'

By Reuters
Reuters
17 Sep 2008 10:40 AM ET

New rules aimed against abusive naked short selling of stock in all publicly traded companies were issued by the U.S. Securities and Exchange Commission Wednesday.

The SEC's new rules, which include a requirement to deliver a security by the settlement date, are effective Thursday.

"These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," SEC Chairman Christopher Cox said in a statement.

Short sellers and their broker dealers are now required to deliver securities by the close of business on the settlement date, which is three days after the sale, or they will face penalties.

Broker-dealers failing to comply will be prohibited from further short sales in the same security unless the shares are pre-borrowed. That prohibition on the broker-dealer's activity will also apply to all short sales for any customer.

The SEC also adopted a rule that deems it fraudulent for customers to deceive broker-dealers about the intention or ability to deliver securities in time for settlement.

The third measure the SEC adopted requires option market makers to deliver securities by settlement date.

A "naked" short sale occurs when an investor sells stock that has not yet been borrowed.

Broker-dealers will sometimes accidentally fail to deliver stock to investors who have arranged to borrow it. If this is done intentionally, it is already illegal.
Copyright 2008 Reuters. Click for restrictions.

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