Zut Alors!

Doubts Raised on Big Backers of Mortgages

nobody@vox.com(Xtine) — Tue, 06 May 2008 11:19:15 -0700

By CHARLES DUHIGG
The New York Times
Published: May 6, 2008

20080505_FANNIE_GRAPHIC.jpg

As home prices continue their free fall and banks shy away from lending, Washington officials have increasingly relied on two giant mortgage companies — Fannie Mae and Freddie Mac — to keep the housing market afloat.

But with mortgage defaults and foreclosures rising, Bush administration officials, regulators and lawmakers are nervously asking whether these two companies, would-be saviors of the housing market, will soon need saving themselves.

The companies, which say fears that they might falter are baseless, have recently received broad new powers and billions of dollars of investing authority from the federal government. And as Wall Street all but abandons the mortgage business, Fannie Mae and Freddie Mac now overwhelmingly dominate it, handling more than 80 percent of all mortgages bought by investors in the first quarter of this year. That is more than double their market share in 2006.

But some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion — the capital that their regulator requires them to hold — underpins a colossal $5 trillion in debt and other financial commitments.

The companies, which were created by Congress but are owned by investors, suffered more than $9 billion in mortgage-related losses last year, and analysts expect those losses to grow this year. Fannie Mae is to release its latest financial results on Tuesday and Freddie Mac is to report earnings next week.

The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely.

And if Fannie or Freddie fail, taxpayers would probably have to bail them out at a staggering cost.

“We’ve taken tremendous risks by loosening these companies’ purse strings,” said Senator Mel Martinez, Republican of Florida and a former secretary of housing and urban development. “They could cause an economywide meltdown if they got into real trouble and leave the public on the hook for billions.”

Concerns over the companies’ finances have prompted a fierce behind-the-scenes battle between nervous government officials and the two companies. Bush administration officials, the Federal Reserve and lawmakers all believe that the companies’ financial safety cushion is far too thin and have pleaded with them to raise more capital from investors.

Freddie and Fannie, which are enjoying new growth and profits, have largely resisted those pleas, people briefed on the talks say, because selling new shares could dilute the holdings of existing shareholders and drive down their stock prices. Though executives have promised to raise money this year, they refuse to specify how much and when.

Moreover, the companies are using their newfound clout to push Congress and their regulator to roll back the limits that were imposed after recent scandals over accounting and executive pay, according to participants in those conversations.

More Capital Sought

As a result, high-ranking government officials are now quietly threatening to publicly criticize the two companies if they do not soon raise large amounts of capital, people with firsthand knowledge of those threats say. William Poole, a president of a Federal Reserve bank who has since retired, has warned that companies like Fannie Mae and Freddie Mac are “at the top of my list of sources of potentially serious trouble.”

A report last month by the agency overseeing the companies said that they pose “significant supervisory concerns” and that Freddie Mac suffers “internal control weaknesses.”

Lawmakers are pushing to rein in the companies with new legislation. Senator Christopher J. Dodd, the Connecticut Democrat who leads the Banking Committee, will soon take up legislation giving the government broad authority over the companies. Lawmakers say it is likely a bill will pass this year.

“They are on real thin ice financially,” said Senator Richard C. Shelby of Alabama, the senior Republican on the Banking Committee. “And the way the law is written right now, there is very little we can do to correct that.”

The companies say such criticisms are without merit. Their latest regulatory filings, they note, show a combined financial safety net that exceeds required minimums by $7 billion. The companies raised $13 billion from investors last year and say any future losses will be offset by new revenue and by money they have already set aside.

Criticisms Rejected

“The irony is that right now I’m seeing the best opportunities since I’ve been in this business,” said Daniel H. Mudd, chief executive of Fannie Mae, in an interview conducted last month.

The companies also say that they have not demanded anything. Rather, they say, the limitations have been dropped because of the companies’ commitment to financial transparency and aiding the housing recovery.

But others remain concerned. Though the companies’ main regulator, James B. Lockhart III, director of the Office of Federal Housing Enterprise Oversight, has voiced strong confidence in the companies, a high-ranking member of his staff said some officials had begun considering the worst.

“It’s not irrational to be thinking about a bailout,” said that person, who requested anonymity, fearing dismissal.

Fannie and Freddie do not lend directly to home buyers. Rather, they buy mortgages from banks and other lenders, and thereby provide fresh capital for home loans. The companies keep some of the mortgages they buy, hoping to profit from them, and sell the rest to investors with a guarantee to pay off the loan if the borrower defaults.

Because of the widespread perception that the government would intervene if either company failed, they can borrow money at lower interest rates than their competitors. As a result, they have earned enormous profits that have enriched shareholders and managers alike: from 1990 to 2000, each company’s stock grew more than 500 percent and top executives were paid tens of millions of dollars.

Those profits were threatened earlier this decade, however, when new competitors emerged and after audits revealed that both companies had manipulated their earnings. The companies were forced to replace top executives, pay hundreds of millions in penalties and consent to strict growth limits.

To keep profits aloft and meet affordable-housing goals set by Congress, the companies began buying huge numbers of subprime and Alt-A mortgages, the highly profitable loans often taken out by low-income and riskier borrowers. By the end of last year, the companies had guaranteed or invested in $717 billion of subprime and Alt-A loans, up from almost none in 2000.

Then the housing bubble burst. In February, the companies revealed a $6 billion combined loss in the fourth quarter of 2007, and both companies’ stock prices fell more than 25 percent in less than two weeks. Freddie Mac fell to $17.39 on March 10 from $24.49 on Feb. 28, while Fannie Mae declined to $19.81 on March 10 from $27.90 on Feb. 28.

Despite those troubles, lawmakers had few alternatives to asking Fannie and Freddie to buy more and riskier mortgages.

“I want these companies to help with affordable housing, to help low-income families get loans and to help clean up this subprime mess,” said Representative Barney Frank, a Massachusetts Democrat and the chairman of the House Financial Services Committee. “Otherwise, why should they exist?”

Demands for Repeals

But now that the government depends on Fannie and Freddie to keep markets humming, the companies are making demands of their own — namely, repealing some of the limits created after the scandals and even some established by law.

Last year, in return for buying billions of dollars of subprime mortgages to help stabilize the market, executives won the right to expand their investment portfolios. In March, the companies agreed to raise more capital within the year. In exchange, they received an additional $200 billion in purchasing power.

Last month, the companies promised to pump money into the more expensive reaches of the housing market. In return, Congress temporarily raised the cap on the size of the mortgages they can buy to almost $730,000 from $417,000.

“We have to bow and scrape and haggle each time we need help,” said a senior Republican Senate assistant who spoke only on the condition of anonymity.

Each time Congress or regulators have given the companies new room for growth, their stock prices have risen. But so far the companies have balked at raising more capital. That hesitation has lawmakers concerned that when the companies raise money this year, it will not be enough.

In a March meeting, Freddie Mac’s chairman, Richard F. Syron, bolstered those fears by saying the company would put shareholders’ interests first. Michael L. Cosgrove, a spokesman for Freddie Mac, said Mr. Syron is committed to both satisfying the company’s public mission and creating shareholder value. Fannie Mae, which is in a regulatory-imposed quiet period because it will soon release financial information, declined to comment on capital-raising issues.

As worrisome as the need for new capital, some analysts say, are the companies’ books.

A report released earlier this month by Mr. Lockhart, the regulator, noted that although Freddie and Fannie had a combined $19.9 billion of “unrealized losses” on mortgage-related investments, neither company had reduced its earnings to reflect those declines. That is because they judged the losses to be temporary — in essence wagering that the mortgage market would recover before those assets were sold. Such a wager is permitted by the rules but difficult for outsiders to analyze.

Fannie Mae declined to discuss unrealized losses. Mr. Cosgrove, the Freddie Mac spokesman, said the company discloses all financial choices and downgrades all potentially impaired securities when appropriate.

The regulator’s report also noted that Freddie used accounting choices that gave it an immediate $1 billion capital increase. While those and other tactics are technically permitted, the regulator said, they deserve scrutiny.

“Companies can make assumptions that cause very large differences in what they report,” Mr. Lockhart said in an interview. He has repeatedly said that the companies are making good progress and have fixed many of their problems. But at least one accounting choice, he said, “concerns us.”

Mr. Cosgrove said Freddie Mac’s accounting choices had been the best way to reflect financial realities.

Both companies have also recently changed their policies on delinquent loans, which they previously recorded as impaired when borrowers were 120 days late. Now, some overdue loans can go two years before the companies record a loss.

Fannie Mae declined to discuss the accounting of impaired loans. A representative of Freddie Mac said marking loans as permanently impaired at 120 days does not reflect that many of them avoid foreclosure. But the biggest risk, analysts say, is that both companies are betting that the housing market will rebound by 2010. If the housing malaise lasts longer, unexpected losses could overwhelm their reserves, starting a chain of events that could result in a federal bailout.

A version of those events began in November, when Freddie Mac’s capital fell below congressionally mandated levels. The company stemmed the decline by selling $6 billion in preferred stock. But it might not manage that again if there is another unexpected loss, analysts say.

“The last two years have shown the real need for a stronger regulator,” Mr. Lockhart said. If his agency did not curb the companies’ growth earlier this decade, he added, “they would be part of the problem right now instead of part of the solution.”

Fannie Mae Posts Another Loss (May 6, 2008)

Bernanke Urges Flexibility in Mortgage Regulation (May 6, 2008)

Times Topics: Fannie Mae

Times Topics: Freddie Mac

Times Topics: Mortgages and the Markets

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Detroit deputy mayor warns council that if tunnel deal fails, expect cuts

nobody@vox.com(Xtine) — Fri, 02 May 2008 17:08:16 -0700

By Zachary Gorchow and Naomi Patton
Free Press Staff Writers
May 2, 2008

A top aide to Detroit Mayor Kwame Kilpatrick warned the City Council today that Kilpatrick will implement “drastic cuts” in services [NB: What services? We don't have any services anymore, you witling!] if the council doesn’t approve a proposed deal to sell the city’s half of the Detroit-Windsor Tunnel.

Deputy Mayor Anthony Adams told the council the mayor would not support selling bonds to patch the $65-million hole in the 2007-08 fiscal year budget if the city doesn’t sell its half of the tunnel to a new authority run jointly by the cities of Detroit and Windsor. Under the deal, the city would transfer title on its half of the tunnel to the authority and the city of Windsor would in turn provide Detroit with $75 million.

But Councilwoman Sheila Cockrel said she wouldn’t bow to scare tactics. Cockrel said the deal may make sense, but is so complex and said the administration continues to provide information about it in a piecemeal manner at the last minute.

“I’m not going to get bullied into a transaction no matter how conceptually great it may be,” she said.

Adams responded that he wasn’t bullying anyone.

“I’m speaking to the hard fiscal realities in our city,” he said.

That prompted Cockrel to retort that instead of threatening to cut city services, the mayor should start “with all the family and friends with all the contracts in city government.”

Adams said he wanted to know what contracts to which Cockrel was referring.

“We’ll have that for you real soon,” Cockrel shot back.

In other work on the budget, Auditor General Loren Monroe told the council today he is concerned the budget's projected revenues are based on revenues such as the tunnel sale; a $25-million credit from the Police and Fire Retirement System pension fund; $22.3 million for the sale of surplus city-owned property; and $194.8 million in casino taxes.

The sales transactions have not be finalized, city officials have not completed negotiations for the pension fund credit, and the projected casino revenues were "overstated" by about $12.9 million, Monroe said.

When asked by Cockrel if the inclusion of these projected revenues in to the mayor's proposed budget really "translate in to a possible deficit," Monroe was noncommittal. The mayor’s office has said it expects the 2007-08 budget to end balanced, but the council’s Fiscal Analysis Division has projected a $113-million deficit.

Monroe said the budget "would be kind of risky based on those assumptions."

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Fed OKs plan to rein in unfair, deceptive credit cards

nobody@vox.com(Xtine) — Fri, 02 May 2008 13:48:00 -0700

By JIM ABRAMS and LAURIE KELLMAN
The Associated Press
Friday, May 2, 2008

WASHINGTON -- The Federal Reserve and other regulators initiated steps Friday to end "unfair and deceptive" credit card industry practices assailing consumers who are already struggling to cope in a bad economy.

The proposed rules would be the biggest clampdown on the industry in decades, aiming at protecting people from credit card companies that arbitrarily raise interest rates or don't give borrowers adequate time to pay their bills.

The proposals would also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. The Fed board voted Friday to approve the recommendations.

Federal Reserve Chairman Ben Bernanke said the proposed rules "are intended to establish a new baseline for fairness in how credit card plans operate." Consumers using credit cards "should be better able to predict how their decisions and actions will affect their costs," he said.

Lawmakers who have demanded tougher controls on the credit card industry were generally positive about the proposed rules, as were consumer groups. But some questioned whether the changes would be strong enough and soon enough to help the millions of households struggling with credit card debt.

The Fed drew considerable criticism for its slow response to abuses that contributed to the subprime mortgage crisis.

"These steps are a significant improvement," said Sen. Charles Schumer, D-N.Y., a member of the Banking Committee and a leader in legislative efforts to make credit card companies more forthcoming about the interest rates they charge. "While they can still go further, the Fed deserves credit for acting, particularly for banning some awful practices rather than relying solely on disclosure."

Last year the Fed proposed rules that would make credit card bills and solicitations easier to understand, but Friday's proposals go well beyond those in tightening interactions between the industry and consumers.

"At first blush, this does seem to be good news for credit card holders," said Sen. Robert Menendez, D-N.J., author of pending legislation addressing some of the same credit card abuse issues. "However, it remains to be seen if these proposals will go far enough."

The banking industry opposes the changes, and says they could lead to higher interest rates. The rules could be finalized by the end of the year.

The proposed new rules would prohibit:

- Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay;

- Unfairly allocating payments among balances with different interest rates;

- Retroactively raising interest rates on pre-existing balances;

- Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account;

- Unfairly computing balances in a computing tactic known as double-cycle billing;

- Unfairly adding security deposits and fees for issuing credit or making credit available;

- Making deceptive offers of credit.

The agencies said the proposed rules also would require federal credit unions to give consumers a chance to opt out of an overdraft protection program. And they would prohibit those institutions from charging a fee for an overdraft caused by a hold placed on consumer's funds when a person uses a debit card.

Ken Clayton, senior vice president of card policy for the American Bankers Association, described the proposed changes as "aggressive regulatory intervention in the marketplace that will result in higher prices and less consumer credit."

"If card companies cannot fully reflect risk, then millions of consumers with good credit histories will end up with higher rates," the ABA's president and CEO, Edward L. Yingling, said in a statement.

"It's unfortunate that the industry continues to buck the immense groundswell of support that is building for credit card reform," said Rep. Carolyn Maloney, D-N.Y., who has introduced consumer protection legislation in the House. She said the Fed endorsement of provisions in her bill "puts to rest the credit card companies' assertion that reform will somehow harm consumers or the economy."

The Consumer Federation of America estimates that credit card debt held by consumers is about $850 billion, some four times what it was in 1990. The group says the average debt for those 58 percent of card-holding households that do not pay their balance in full every month is about $17,000.

Travis Plunkett, legislative director for the federation, said the rules were a "good-faith effort by the Federal Reserve to curb some of the most significant abuses that have been hurting credit care users for over a decade." He singled out the practice of lenders increasing interest rates on a borrower because of a supposed problem with another creditor or a drop in the borrower's credit score.

The Fed is acting in conjunction with the National Credit Union Administration and the Office of Thrift Supervision.

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shrub sucks some more.

nobody@vox.com(Xtine) — Tue, 29 Apr 2008 09:46:42 -0700

our flourishing economy

Bush Fixes Economy Whines About Congress

Dorkus W. Dildo had a press conference today, in his garden. He is very rich and has an entire hospital to attend to him and bombs anything that makes him confused and no matter what crime he does, he never gets sent to prison, so he is exactly like ordinary poor Americans like you. Bush Junior has heard about how maybe the "economic" is a problem, so he told those losers who still have to act like he's important — you know, the White House correspondents — that he "figured out" what was wrong and guess what, it's Congress, which has Democrats.

"The average person wants to know whether or not we know that they're paying higher gasoline prices and they're worried about staying in their homes," Bush said. Yes, that's a bunch of jumbled nonsense with a slight relation to the subject, so Consumer Confidence immediately plunged to its lowest level in nearly six years and consumer sentiment plunged to its lowest level in 26 years and inflation rose again and home prices are falling faster than ever with "no sign of the bottom" and the number of Americans who can even dream of affording a little vacation in the next six months fell to a 30-year low.

Said Bush Junior: "I repeatedly submitted proposal to help address the problems. Time after time, Congress chose to block them."

Nobody has any idea what he's talking about, or even cares about how he thinks he "repeatedly submitted proposal."

Congress and the White House did agree to send everybody in America a little bit of money, and those checks will start arriving this week. Many people plan to "splurge" by spending their Economic Stimulus money on the heating bill, or a 50-lb. sack of rice, or half a tank of gas.

Bush Says Congress Blocking Progress [CNN]

Too stupid to learn how to speak Yankistani let alone English, but can make $$$ hand over fist while we move and change jobs so we can afford gasoline.

Wonkette's so lovely.

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Food crisis - Tufton says import bill out of control - Urges nation to increase agri produce

nobody@vox.com(Xtine) — Thu, 17 Apr 2008 12:04:55 -0700

published: Thursday | April 17, 2008

Shelly-Ann Thompson, Staff Reporter

Minister of Agriculture Dr Christopher Tufton makes his contribution to the 2008/2009 Budget Debate in the House of Representatives yesterday. - Rudolph Brown/Chief Photographer

AN APPEAL for Jamaican consumers to decrease their dependence on food imports was yesterday put out by Agriculture Minister Dr Christopher Tufton, who warned that the developing world food crisis posed a "clear and present danger" to the nation.

Tufton, in making his debut presentation in the annual Budget Debate in Parliament yesterday, spent just under three hours stressing the necessity for the nation to increase its agriculture output and feed its own people.

Noting that some 61 per cent of the country's basic food items were imported, the agriculture minister said data from the Statistical Institute of Jamaica showed that the nation's food import bill had increased from US$479 million in 2002 to US$662 million up to November 2007.

"The frightening reality of increasingly high food prices, together with the daunting projections, are in fact a summons to action now," Tufton said. "Countries the world over, regardless of size or economic profile, are taking conscious and deliberate steps to combat this emerging threat."

Food-planting project

However, though the agriculture minister outlined measures aimed at addressing the spiralling food bill, those measures will not immediately slash costs.

Chief among the measures announced is a national food-planting programme that is intended to be the highlight of Labour Day 2008.

Tufton said Cabinet agreed on Monday to place the focus of Labour Day, to be observed on May 23, on food security. The theme will be 'Eating What We Grow and Growing What We Eat'.

The school garden programme will also be expanded through the Jamaica 4-H clubs in collaboration with the ministry.

At a cost of $30 million, the ministry will distribute some 200,000 packets of vegetable seeds to each student from grades eight to 11 in every secondary institution. These seeds are expected to be planted at home or within their communities on Labour Day.

In addition, commencing this year, school gardens will be established within 966 public institutions.

Backyard gardening

"The intention is to encourage our young people to appreciate agri-culture, nature and the environment, and to impress on them the critical importance of food security," said Tufton.

Another initiative to boost agricultural production is an Urban Backyard Garden Programme, which will be implemented immediately within 400 households in Portmore and Spanish Town, St Catherine.

Initially, selected residents within these communities will be given free of cost a backyard garden kit, developed by the Rural Agricultural Development Authority.

Tufton said that, by planting two cycles of tomato, cucumber, sweet pepper and pak choi, the average household would save some $12,000 annually.

"This Government believes that we must return to the days when householders grew a little something for themselves in their backyards," said Tufton.

Funding for agriculture initiatives

Agriculture Minister Dr Christopher Tufton says the successful implementation of a technology-driven programme and food security initiatives will require sustained funding. This funding will be secured through:

The Planning Institute of Jamaica, working with the Caribbean Development Bank to access some US$8 million at two per cent, with a payback period of 30 years. It is expected that these funds will be channelled through the Development Bank of Jamaica (DBJ).

The DBJ has approved a loan package of $250 million, at an interest rate of 7.8 per cent, to be on-lent through the PC banks and credit unions and other micro financing institutions.

The Government is currently finalising a US$2.5 million grant grant from the Chinese Government, to be used for agricultural development projects.

Through a $15 million programme financed by the International Development Bank, the DBJ, supported by the Agricultural Credit Board, will be conducting a restructuring exercise within the PC banks.

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Jobless claims jump more than expected; Michigan is second

nobody@vox.com(Xtine) — Thu, 20 Mar 2008 22:50:58 -0700

State has 2,236 more people unemployed in week
By MARTIN CRUTSINGER
ASSOCIATED PRESS
March 20, 2008

WASHINGTON — The number of newly laid-off workers filing for unemployment benefits rose last week to the highest level in nearly two months, providing more evidence that the weak economy is having an adverse impact on the labor market.

The Labor Department said Thursday that applications for jobless benefits totaled 378,000 last week. That was an increase of 22,000 from the previous week and was a far bigger jump than had been expected.

The four-week average for new claims rose to 365,250, which was the highest level since a flood of claims caused by the 2005 Gulf Coast hurricanes.

The current economic slowdown, which many economists believe has already turned into a full-blown recession, is starting to show up in the labor market in terms of higher layoffs and weaker hiring numbers.

The total number of payroll jobs fell by 63,000 in February, an even bigger decline that the drop of 22,000 jobs in January, which had been the first monthly decline since mid-2003.

“We have no doubt that the trend in claims is upwards and is approaching the levels seen in the earlier stage of the recession in 2001,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Part of the increase in benefit applications in recent weeks occurred because of a three-week strike at a major parts supplier to General Motors Corp., which has forced GM to close all or part of 28 plants, affecting more than 37,000 hourly workers.

The number of unemployed workers who are receiving benefits totaled 2.865 million, the largest amount since late August 2004.

The Federal Reserve this week cut a key interest rate by a sizable three-quarters of 1%, wrapping up the most aggressive two months of credit easing by the central bank in a quarter century.

The Fed has also greatly expanded its loans to cash-strapped banks and used a Depression-era process to supply money to Wall Street investment houses in an effort to keep a serious credit squeeze from pushing the country into a deep recession.

For the week ending March 8, 28 states and territories reported an increase in jobless claims and 25 reported declines. The states with the biggest increases were California, up by 3,755; Michigan, up by 2,236, and Indiana, with an increase of 2,158. The layoffs in Michigan and Indiana were attributed in part to higher layoffs in the auto industry.

The states with the biggest drop in claims two weeks ago were New York, down by 13,504, and Connecticut, which fell by 2,228.

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Chrysler closes plants in dispute with supplier

nobody@vox.com(Xtine) — Mon, 04 Feb 2008 13:41:31 -0800

Mon Feb 4, 2008
By Ben Klayman and Nick Carey

DETROIT (Reuters) - Chrysler has closed four assembly plants and may be forced to shutter the rest of its global assembly operations within a short time due to a dispute with supplier Plastech Engineered Products Inc, which filed for bankruptcy court protection on Friday.

The dispute has so far not affected Plastech's other customers, including General Motors, Ford and Toyota.

Chrysler, which terminated all its contracts with Plastech on Friday due to the supplier's "ongoing financial struggles," said in documents filed with the U.S. Bankruptcy Court in the Eastern District of Michigan that it may be forced to quickly close 12 assembly plants around the world because the supplier is no longer shipping parts to the Chrysler plants.

The U.S. automaker's plants operate on a "just-in-time" basis, where parts are shipped as needed so any disruption would be immediately felt.

"Even a short term interruption ... will inevitably lead to the shutdown of more production lines at Chrysler," the automaker said in its objection filed on Saturday.

The closed Chrysler plants are in Rockford, Illinois; Newark, Delaware; Sterling Heights, Michigan, and Toledo, Ohio. The automaker also said its Toledo supplier park has eliminated a work shift.

The Plastech parts are also used in various Chrysler engine plants and international facilities where vehicle kits are shipped for final assembly, according to court documents.

Chrysler has asked the court for "immediate relief" to allow it to take its tooling equipment from the Plastech plants so it can be shipped to another supplier.

Plastech, a privately held minority-owned supplier based in Dearborn, Michigan, provides Chrysler with hundreds of parts, including door panels, floor consoles and engine covers, that are used in the assembly of almost all of Chrysler's vehicles -- almost 2.3 million per year.

Plastech, which was founded in 1988, has 35 facilities and 7,700 employees in the United States and Canada.

Chrysler and "various other customers" of Plastech provided the struggling supplier with $46 million so it could continue to supply parts, according to court documents. Chrysler said it kicked in $6.9 million of the total.

That group included GM and Ford, both of which said on Monday they were still receiving parts from Plastech and production had not been affected.

"We're working with Plastech to make sure that we have continuity of parts and components to keep our factories operating," Ford spokesman Todd Nissen said. "We've not had any production disruptions and don't expect any."

Plastech makes a number of different parts for Ford, its largest customer, including plastic interior and exterior parts for such vehicles as the Ford F-150 pickup truck and the Ford Edge crossover vehicle. Plastech makes various parts for GM, including door handles and bumpers.

Other customers include Toyota and Johnson Controls. Toyota said it had not been affected and Johnson Controls was not immediately available for comment.

Along with that initial payment from the customers, Chrysler said Plastech agreed all tooling would belong to the respective customers and they would have the right to take possession of the equipment at any time without payment, according to court documents.

However, Plastech came back to Chrysler and said it needed more money so Chrysler and the other customers entered into a second agreement on January 22, under which Chrysler accelerated $10.7 million in payments to Plastech under existing contracts, according to court documents. In total, the customer group gave Plastech $40 million in accelerated payments.

Chrysler decided to take possession of the tooling, getting a Wayne County Circuit Court to give it a temporary restraining order that allowed the automaker to send "a team of trucks" on Friday to the supplier's plants, according to court documents. However, Plastech filed for bankruptcy to prevent that.

Plastech was "clearly using the automatic stay as a sword ... assumingly in hopes of extracting additional financial accommodations," Chrysler said in court documents.

Chrysler said Plastech had caused "tremendous jeopardy" by stopping production of parts for the automaker and refusing to release the tooling equipment so Chrysler can have other suppliers build the parts, according to court documents.

Plastech said its liquidity had been reduced due to the downturn in the domestic auto market and rising commodity costs, according to court documents.

It had already hired Conway, MacKenzie & Dunleavy as financial advisers and Lazard Freres & Co LLC as investment bankers to explore options, including the sale of some or all of its business, according to court documents.

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Rogue Trader Held in French Bank Scandal

nobody@vox.com(Xtine) — Sat, 26 Jan 2008 16:51:28 -0800

By PIERRE-ANTOINE SOUCHARD
The Associated Press
Saturday, January 26, 2008

PARIS -- Police on Saturday questioned the young trader blamed for a massive fraud that cost France's Societe Generale bank more than $7 billion, as the country's president accused global financial institutions of having "gone haywire" and urged common sense.

The possible motivations of the 31-year-old trader, Jerome Kerviel, remained a mystery, and the bank said it appeared that he made no personal gain from the unauthorized trades.

Judicial officials said Kerviel was taken into custody earlier in the day - two days after Societe Generale's announcement that he was responsible for one of history's biggest frauds. The officials spoke on condition of anonymity because the investigation was ongoing. Under French law, Kerviel can be held up to 48 hours.

The debacle further rattled an already nervous banking sector and has fueled a debate about risk management.

"If we can make profits in a matter of hours, we can also have huge losses," President Nicolas Sarkozy said during a visit to India. "We must stop with this system that has gone haywire and that has lost track of its aim."

He added: "It appears to be time to ... inject a bit of common sense into all these systems."

French officials said the trader had been dealing with more than $73.3 billion. That figure outstrips the bank's market capitalization of $52.6 billion, and is close to the annual GDP of entire nations such as Slovakia, Qatar or Libya.

It remains unclear whether Kerviel's actions, if proved, were motivated by malevolence, ambition or some other reason. Three union officials representing Societe Generale employees said managers at the bank who briefed them about the fraud told them Kerviel was having family problems.

Acquaintances described Kerviel as reserved and considerate, a young man who once taught children judo and held the door for elderly neighbors.

Experts and others including France's prime minister have questioned whether a single futures trader could have managed such large sums. Some have suggested Societe Generale might have used Kerviel as a scapegoat for other losses.

Paris prosecutors are conducting a preliminary investigation based on three complaints: one by the bank accusing Kerviel of fraud, and two by small shareholders.

In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, dismissed the notion that the bank's actions helped fuel the turmoil on world markets.

"It's absurd!" Bouton told Le Figaro daily in an interview published Saturday. "Anyone could calculate our contribution to the market in recent days."

Bouton said Kerviel had been betting throughout 2007 that markets would fall - a winning position. But the trader overstepped his authority and wagered much more money than he should have, Bouton said.

So at the beginning of January, Bouton said, Kerviel voluntarily created losing positions to neutralize his earlier gains and cover his tracks.

But this month's quickly dropping markets turned "this sad affair ... into a Greek tragedy: His virtual losing position became huge," Bouton was quoted as saying.

Despite the bank's $7.14 billion losses, which Bouton called "enormous and abnormal," he insisted Societe Generale's viability was not at risk.

In Thursday's statement, the company also announced another $2.99 billion subprime-related loss and said it planned to raise $8.02 billion in new capital.

French Finance Minister Christine Lagarde, speaking Saturday at the World Economic Forum in Davos, Switzerland, said she has been asked to compile a report on the fraud, Dow Jones Newswires reported.

Lagarde said her report will look at "the reality of facts based on real hard data," and "how and why" the bank's security controls failed to prevent the fraud.

The bank says the scale of the damage was so great only because of the bad timing of the discovery - right before the worst day in world markets since Sept. 11, 2001. It also fired Kerviel's supervisors.

Societe Generale's shares have lost nearly half their value over the past six months. After an up-and-down day Friday, the shares closed down 2.5 percent at 108.62.

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Societe Generale Uncovers Massive Fraud

nobody@vox.com(Xtine) — Thu, 24 Jan 2008 09:13:56 -0800

By EMMA VANDORE
The Associated Press
Thursday, January 24, 2008

PARIS -- French bank Societe Generale said Thursday it has uncovered a $7.14 billion fraud - one of history's biggest - by a single futures trader whose scheme of fictitious transactions was discovered as stock markets began to stumble in recent days.

CEO Daniel Bouton said the trader's motivations were "irrational," netting the trader no personal financial gains.

A person familiar with the case named the trader as Jerome Kerviel. Bank officials said earlier the trader was a Frenchman in his 30s who probably acted alone. The person spoke on condition of anonymity because of the sensitivity of the case.

The bombshell announcement destabilized a major bank already heavily exposed to the subprime crisis and rattled the global banking sector. France's second largest bank said it will seek 5.5 billion euros ($8.02 billion) in new capital.

Societe Generale says it has filed complaint with French prosecutor against the trader. Prosecutors opened a preliminary investigation into the case earlier Thursday based on a complaint filed by a small shareholder, a judicial official said.

Trading in Societe Generale's shares, which have lost nearly half their value over the past six months, was suspended Thursday morning. When trading resumed midday, the bank's shares dropped 5.5 percent to 74.77 euros ($108.97).

Societe Generale said it detected the fraud over the weekend at its French markets division.

Once uncovered, Bouton said the bank alerted market regulators and moved immediately to close the trader's positions, incurring heavy losses amid sharp declines on world markets.

"Detecting the fraud over the weekend was problematic because world stock markets on Monday and Tuesday fell hugely around the world," said Janine Dow, senior director at Fitch Ratings financial institution group in Paris. "When the positions had to be unwound, the bank did that in a terrible market of falling equities."

The bank said the trader has misled investors since 2007 through a "scheme of elaborate fictitious transactions." The trader, who was not named, used his knowledge of the group's security systems to conceal fraudulent positions, the bank said.

"In hindsight, it was this guy's superior knowledge of the control system of every aspect of trading at the bank that allowed him to build up fraudulent positions and hide them," Dow said.

The man acknowledged the fraud, the bank said, and was being dismissed. Four or five of his supervisors were to leave the group. Bouton offered his resignation but it was rejected by the board.

The trader had worked for the bank since 2000 and earned a salary and bonus of less than 100,000 euros ($145,700), executives said.

"I'm convinced he acted alone," said Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking, who interviewed the trader when the fraud was uncovered.

The trader was responsible for basic futures hedging on European equity market indices, the company said, betting on how the markets would perform at a future date.

The Bank of France, the country's central bank, said it was informed of the fraud and was investigating.

The trader had until last year been betting that markets would fall, but then changed his position at the start of this year to bet they would rise, said Kinner Lakhani, an analyst at ABN Arno in London who specializes in Societe Generale shares, citing the bank's management.

There had been "daily rumors" this week that something had gone wrong at Societe Generale, he said.

"The market was sniffing something," Lakhani said.

Because the trader previously had worked in trading accounting offices, "he would have known how the risk management worked," Lakhani said. In an extended conference call with analysts Thursday morning, bank officials "talked about this guy bypassing systems and setting up false counter-trades."

"Everyone clearly is very surprised, to say the least," he said.

The fraud appears to be the largest ever by a single trader. If confirmed, it would far outstrip the Nick Leeson trading scandal in 1995 that bankrupted British bank Barings. Barings collapsed after Leeson, the bank's Singapore general manager of futures trading, lost 860 million pounds - then worth $1.38 billion - on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.

The fraud was not as big as the 1991 scandal that led to the demise of the Bank of Credit and Commerce International. Claims by depositors and creditors there exceeded $10 billion at the time.

The Bank of Credit and Commerce International failed after a 1991 scandal that led to claims by depositors and creditors exceeding $10 billion at the time.

Gilles Glicenstein, president of asset management at rival French bank BNP Paribas - France's largest - said, "It shows that we are in a very troubled period for banks, and I think that it's in such troubled periods that difficult things happen."

"This is not good news for Societe Generale, but also for banks in general. It can create doubt, but at the same time in this period, we are making efforts to be transparent in order to give confidence back," he said at the World Economic Forum in Davos, Switzerland.

Axel Pierron, senior analyst at Celent, an international financial research and consulting firm, was stunned that a trader could be involved in such a massive fraud 13 years after the Barings Bank collapse.

"The situation reveals that banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can getting round them to hide his losses," he said.

At Societe Generale, the fraud announcement came on the back of subprime-related difficulties. Subprime writedowns linked to the crisis in financial markets amounted to €2.05 billion ($2.99 billion), Societe Generale said.

As a result, the bank is planning a capital hike in the "following weeks" by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley. Following the transaction, the bank's Tier 1 ratio, a measure of its financial strength, will rise to 8 percent from 6.7 percent.

The write-down and losses will lead the company to post a net profit of 600 million euros to 800 million euros ($874 million to $1.16 billion) for all of 2007, the Paris-based bank said.

Full-year results will be announced Feb. 21. In 2006, net profit was 5.2 billion euros.

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