Time for Action on Auto Rescue Plan

December 16, 2008

Once again, partisan politics prevails over national interest in the backdrop of the economic crisis due to skyrocketing foreclosures, credit crunch and now,

Record unemployment at 6.7%, expected to rise further from the lack of action by the legislators, leaving the fate of the million workers in our nation hanging in balance.

The extreme demands by the legislators voting against the rescue plan to,

The United Auto Workers (UAW) union to agree to steep wage cuts to bring their pay equivalent to the Japanese auto industry is preposterous and poses the legitimate question to them in return.

Have these legislators made similar demands to the CEO’s of the auto industry prior to urging UAW to agree to such double standards?

Further, the following question from a wise representative of democracy to the so-called lawmakers otherwise the boulders contributing to the roadblock or failure of any important legislation is praiseworthy.

Even though the question is in context with the California State of affairs, it is still relevant as the Californian legislators particularly the Republican Party representatives have sworn to mimic their federal counterparts in escalating the economic recession.

Ref: Mercury news, December 12, 2008 – Thank you.

"What sacrifices are our leaders making?

Considering the latest estimates of the financial crisis facing California, I think we should all be asking our elected officials what sacrifices they plan to make during these hard times.

We the taxpayers are bracing for increases in taxes and fees, decreases in services, huge layoffs of public and private sector employees.

I have yet to hear anything about cuts being considered to the compensation, pension plans, health care, car allowances, per diem, etc., that our representatives enjoy.

The fact is that these so-called leaders are at the helm of this shipwreck.

Ultimately, it is their responsibility to run this state in a fiscally responsible manner.

They have failed miserably.

We should demand that any plan to bridge this budget gap start with cuts to those who failed us. "

Ken Kramasz

——————————————————————

The demand is fair and justified.

More grinding facts on the consequences of bailout failure:

—————————————————————-

Article: Suppliers see their demise if Big 3 become insolvent

By Bill Vlasic and Leslie Wayne, New York Times.

Ref: Mercury News, December 12, 2008 – Thank you.

The excerpt from the article deserves attention.

“The hypotheticals about the domino effect of the companies’ troubles through the vast network of auto supplier firms – which employ more than twice as many workers as the carmakers – are becoming real.

Top of Pyramid

The Big Three, and their foreign competitors, are what most people think make up the entire auto industry.
But the car manufacturers are just the top of the pyramid.

While GM, Ford and Chrysler employ 239,000 people in the United States, the country’s 3,000 or so auto suppliers have more than 600,000 workers.

Most of the suppliers are not highly waged; they have no big pensions,…

Washington has a myopic view of the auto industry.

They just think of the Big Three and don’t think of us,” i.e. the suppliers.

————————————————————-

Challenge the Opponents:

What strategy or proposal the White House and the opposing legislators have in mind about the economy?

So far, they have been highly successful with their dogmatic policies that have led the economy towards recession.

With the lack of action in this matter, the collapse of other industries is imminent worsening the situation comparable to a black hole.

Aren’t they satisfied with the calamities they have brought upon this nation, that they are further determined to see through the peril before their much-awaited departure from the White House?

All these legislators including Senate Democrats in opposition to saving jobs and helping families through this rescue plan ought to think wisely, as they might be inadvertently putting themselves on notice in 2010.

For some, it might happen even sooner as there is a process called recall in a democratic system.

The people of the United States have learned a harsh lesson through Bush administration.

Conventional wisdom dictates that when something is of no value, it is best to discard and replace it with one of use that serves the purpose.

In the case of the incumbent administration, the notion might be what harm any inaction might do now as the term is nearing end.

History will do its part with judgment on the performance of any administration regardless of the cosmetic presentation by the representatives of the outgoing administration.

Notwithstanding the impending justice to be delivered for crime against humanity specifically violation of constitution thus far by oligarchy and their members.

In addition, the repercussions of the failures of any administration or individuals representing a political party cannot be ignored, especially if they are encouraging their clan (as it appears to be the norm in contemporary politics including democracy ) to retain Power further down the road.

No matter, how one circumvents the situation leading to the downfall of the once prosperous economy, the fact remains that willful negligence or malevolent policy to settle scores with opponents will result in their own ouster from the positions as legislators.

The elimination of the namesake lawmakers aka troublemakers will be the result of illogical conduct and abuse of power against the people and nation they falsely pledge to serve at all times and diligently during crisis.

Options for the White House to salvage the demise of the political party they represent in the coming elections is to act in the best interests of the people who are the electorate with the ability to entrust Power through electoral process.

Up until recently, the serious backlash suffered by the Republican Party represented by the incumbent administration in 2006 and 2008 is ominous that those who fail to deliver their commitments to democracy will share similar outcome reaching the point of no return to power.

——————————————————————–

Action Required:

It is incumbent on the Treasury department and the White House to come forward and immediately release the unused $15 billion from the $350 billion financial bailout draw down currently held in cash to rescue the autoworkers and millions of jobs at stake.

Failing to avert the inevitable collapse of the industries providing food and livelihood for the electorate with power to elect officials to serve the public will be detrimental to the success and approval of the final bailout $350 billion defending the finance industry.

The authorization of the $15 billion from the current $350 billion is imperative barring any mandatory demand for wage cuts and benefits to the workers and UAW.

Any conditions to the rescue plan will apply to the CEO’s of the industry from cashing in bonuses and extravagant remuneration including kickbacks and shady Washington deals with the lobbyists by the legislators elected to protect national interest rather than self-interest.

Urgency of this auto rescue measure will prove the effectiveness of democracy in action.

Therefore, it is the responsibility of the Treasury department along with the White House to act promptly by releasing the cash held $15billion from the previously approved taxpayers’ $350 billion for the financial bailout and save the American workforce as well as the economy.

Procrastination rather than action in this matter will lead to the unrequested irrelevance and perhaps the end of a major political party in the coming elections by making way for the emergence of new political faction in the near future.

Thank you.

Padmini Arhant

P.S. The suggested plan of action also applies to the California legislators, currently engaged in threatening democracy and progress in all fronts of the legislation.

Written by Padmini Arhant · Filed Under Business, Featured | Leave a Comment 

Rescue Plan – Big 3 Auto Makers

December 8, 2008

Accountability:

The Federal Reserve and the Treasury department secured a $700 billion jackpot for the finance industry bailout.

Major beneficiaries –

The financial institutions comprising investment banks for bad decisions in the subprime mortgage debacle with a prominent mismanagement by Hedge Fund managers.

The insurance industry for navigating unchartered waters in search of profit from risky ventures with no guaranteed returns.

During the financial sector bailout bankrolled by the taxpayers, there were supposed to be preconditions to the bailout of the financial institutions.

Other than oversight and warranted regulations, they were,

The immediate recovery plan for the housing market – predominantly the stopgap measures on foreclosures.

Latest news articles and reports confirm otherwise.

That the foreclosures have been record high subsequent to the financial bailout.

As for other issues…

Treasury role in easing the burden on financial institutions with liabilities in the form of bad loans and securities were the reasons presented to secure the huge sum of $700 billion at that time.

Whatever has happened to accountability?

Where is the oversight?

Why foreclosures are soaring nationwide despite taxpayers’ investment in the financial sector to cure symptoms of this nature in the housing market that has contributed to the current economic recession?

It is apparent from the struggling and still volatile stock market that the financial sector has not met the requirements and honored the agreements with the taxpayer on all of the issues ranging from –

Reviving the housing market by temporarily freezing foreclosures and reassessment of payment plan programs with default homeowners.

Providing liquidity to commercial sectors to jumpstart the economy.

Last but not the least, transparency to the American public with their current lending practices.

——————————————————–

As per http://moneynews.newsmax.com/streettalk/bailout_half_gone/2008/11/12/150364.html

Street Talk – Thank you.

Who Got Bailout Money So Far?

Wednesday, November 12, 2008 9:09 AM

"The Treasury Department’s $700 billion bailout plan, also known as the Troubled Asset Relief Program (TARP), is one of the main U.S. tools to address the financial crisis.

The Treasury Department on October 14 set aside $250 billion of the program to buy senior preferred shares and warrants in banks, thrifts and other financial institutions.

Half that money was allocated to nine big banks, the Treasury Department has said.

Another $38 billion has since been earmarked for regional or small banks, according to statements from individual banks.

On Monday, the department announced its single-biggest TARP investment — $40 billion in American International Group — which the government said would not come from the $250 billion bank capital program.

———————————————-

The TARP has so far committed the following funding:

AIG $40 billion

JPMorgan $25 billion

Citigroup $25 billion

Wells Fargo $25 billion

Bank of America $15 billion

Merrill Lynch $10 billion

Goldman Sachs $10 billion

Morgan Stanley $10 billion

PNC Financial Services $7.7 billion

Bank of New York Mellon $3 billion

State Street Corp $2 billion

Capital One Financial $3.55 billion

Fifth Third Bancorp $3.45 billion

Regions Financial $3.5 billion

SunTrust Banks $3.5 billion

BB&T Corp $3.1 billion

KeyCorp $2.5 billion

Comerica $2.25 billion

Marshall & Ilsley Corp $1.7 billion

Northern Trust Corp $1.5 billion

Huntington Bancshares $1.4 billion

Zions Bancorp $1.4 billion

First Horizon National $866 million

City National Corp $395 million

Valley National Bancorp $330 million

UCBH Holdings Inc $298 million

Umpqua Holdings Corp $214 million

Washington Federal $200 million

First Niagara Financial $186 million

HF Financial Corp $25 million

Bank of Commerce $17 million

TOTAL: $203.08 billion

—————————————-

INSURANCE COMPANIES

In addition to the TARP program’s $40 billion capital injection into AIG, the Federal Reserve is providing the company with up to $112.5 billion in separate loans and funds for asset purchases.

Aid to the huge insurance company came after counterparties and rating downgrades forced AIG to post large amounts of collateral for its credit derivatives positions.

Some other insurers are interested in cash infusions, but must own a thrift or bank in order to qualify under the terms of Treasury’s current capital injection program.

——————————————-

BANKS, LENDERS

The TARP program set a November 14 deadline for smaller banks to apply for capital injection funds remaining in the pool of $250 billion. The deadline will be extended for non-publicly traded banks.

The government’s preferred shares will pay dividends of 5 percent annually for the first five years and 9 percent after that until the institution repurchases them. Participating banks must comply with Treasury restrictions on executive compensation, which limit tax deductibility of senior executive pay to $500,000.

They require bonuses to be "clawed back" if earnings statements or gains are later proven to be materially inaccurate and prohibit "golden parachute" payments to senior executives.

—————————————–

OTHER COMPANIES
Struggling automakers General Motors Corp, Ford Motor Co and Chrysler LLC have requested tens of billions of dollars in Treasury aid under TARP. However, the Bush administration says the TARP program was designed by Congress to help the financial service sector, not the auto industry.

——————————————-

REMAINING TARP MONEY

The remaining $350 billion in TARP funding can be accessed only after the White House formally notifies Congress. U.S. House Financial Services Chairman Barney Frank has said that if the initial banks participating in the program do not use the money for lending, Congress could block authorization of the final funding."

——————————————————————————–

Reality Check:

Despite the sizeable cash infusion in the financial sector to revive the stagnant economy, the results confirm the dismal performance in all quarters of the economy.

It is imperative for treasury and the Federal Reserve as the guarantors of the financial industry bail out to provide legitimate explanation to the American taxpayers in their failure to achieve the TARP purpose, prior to even contemplating to secure the remaining and final $350 billion amount.

———————————————————————–
Auto Industry – Crisis

Meanwhile, to focus on the pending national issue concerning the American workforce in the manufacturing sector of the auto industry,

It is important to shed light on the current unemployment status of our nation.

As per the recent reports…

Source: http://www.free-press-release-center.info/pr00000000000000028189_us-unemployment-rate-touches-67-halfmillion-jobs-lost-in-november-employmentcrossing-revs-up-efforts.html – Thank you.

US Unemployment Rate Touches 6.7%; Half–Million Jobs Lost in November; EmploymentCrossing Revs Up Efforts

Employers slashed 533,000 jobs in November, the most in 34 years, according to the latest US Bureau of Labor Statistics report.

Mind-boggling figures of job losses reported for the month are statistically the most since December 1974.

The unemployment rate of 6.7% was the worst rate since 1993. It’s only the fourth time in the past 58 years that payrolls have fallen by more than 500,000 in a month.

EmploymentCrossing, the leading job board in the US, agrees that the current job market has been increasingly ruthless on the employees, as widespread cuts attain a new high.

———————————————-

Analysis:

Obviously, it is a dire situation demanding immediate solutions to the burgeoning problems of the job market.

Delayed response in addressing the collapse of the major manufacturing sector will worsen the fragile economy already in recession.

There have been various good proposals from all corners and discipline presented so far for consideration by Congress.

Most proposals target similar aspects of the financial industry bailout like,

Oversight, strict regulations and accountability.

While, others include emphasis on fuel-efficient and/or hybrid cars to deal with potential energy and present environment crisis.

The Union role in the auto industry has been unfairly targeted in the outcry against protecting the manufacturing jobs.

Without Union existence and support, the outrageous trade practices by Corporate America towards the American workforce will be emboldened with an adverse effect on the middle and poor income groups.

Typically, such scenario will widen the pre-existing canyon between the haves and have-nots.

———————————————————————————-
Rescue Plan with Clear Solutions:

First and foremost, the incumbent administration’s refusal to recognize the seriousness of the auto industry problem as an impending job market crisis is no revelation.

It is appalling that the same administration instantaneously reached out to the financial industry with the notoriety for poor judgment that triggered the entire economic crises.

Yet, it holds reservations for a sector seeking assistance with a pledge to comply with all and any legislative requirements to save the manufacturing jobs.

Moreover, unlike the financial sector, in this instance the taxpayer investment is secured with tangible assets upon default by the companies.

Given the grim unemployment status, economic recession and gloomy Retail forecasts for the holiday season, the auto industry jobs must be rescued at all costs.

Strategy:

As highlighted above, the purpose behind TARP to financial industry was to facilitate liquidity in commercial lending to various other sectors of the economy.

Referencing U.S. House Financial Services Chairman Barney Frank,

“if the initial banks participating in the program do not use the money for lending, Congress could block authorization of the final funding.”

The comment is fair and valid.

Due to the breach of $700 billion agreement proposal by the financial institutions,

The entire sum of $75 billion requested by all three major automakers will be approved and allocated accordingly:

1. The unused $15 billion from the previously drawn amount of $350 billion financial bailout is to be utilized in the approval of the $75 billion to protect the auto industry jobs.

2. The remaining $60 billion will be derived from the final amount of the $350 billion financial bailout package through an emergency resolution by Congress.

3. The recommendation to tap into the $25 billion energy bill to assist the automakers would derail any progress aimed at clean energy programs in the future.

Therefore, the rescue package for automakers is to be appropriated from the excessive financial bailout fund.

—————————————————————————–

Compliance by Automakers:

A. Besides the standard protocol for oversight, stringent regulations and executive competence, the manufacturing of hybrid models to satisfy the energy efficiency requirement is paramount to this deal.

B. Equally important are the recognition and improvement of labor laws, trade practices to benefit the American workforce and thereby increase productivity yielding expected profits for payoff towards the rescue plan.

C. Transparency and commitment to achieve pledged goals is vital to avert future crisis and maintain credibility with lenders.

D. In addition, exorbitant remuneration perks and bonuses to CEO’s of all three corporations will be eliminated from the package.

—————————————————-

Congressional Obligation:

It is incumbent on Congress particularly with members across the aisles to address the serious challenge in the manufacturing sector currently facing the nation by putting partisan politics aside and prioritizing the needs of the American labor.

The nation is grappling with an economy saddled with —

Multi-trillion dollar debt

Financial crisis

Deteriorating housing market

Unpredictable stock market

All of the above factors threatening the stability of every industry and the fabric of the economic infrastructure.

Any more layoffs in any industry particularly the manufacturing companies will debilitate the economic recovery plans in process.

It is time to bid farewell to party bickering, earmarks and Pork Barell spending that have resulted in Washington gridlock on all matter of national interest.

Legislators must act diligently and promptly by approving the entire amount $75 billion from the suggested source for all three companies to protect American jobs and the ailing economy.

It is time for action and not procrastination.

Finally, people in a democracy elect representatives and entrust power to solve problems and safeguard their interests so,

National interest must supersede all other interests.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business | Leave a Comment 

Redistribution of Wealth

October 31, 2008

The latest assault weapon for Senator John McCain and Gov. Sarah Palin against their opponent Senator Barack Obama is the "Socialist/Marxist/Robin Hood" tag on him.

Such rhetoric and false propaganda is to create doubts in the minds of entrepreneurs against Senator Obama.

The distortion of Senator Obama’s policy leading businesses to believe that,

"In Taxing 1% of the population in the 40% tax bracket while shifting the tax burden to the top 10% with 70% of tax exacerbates the entities from active participation in the economic growth."

The reason behind similar branding is the fair tax proposal presented by Senator Obama to alleviate the socioeconomic problems that has currently widened the canyon between rich and poor in our country.

Thus slowly but gradually eliminating the middle class in our society.

Senator Barack Obama’s tax policy is based on relieving all citizens including small and medium sized businesses earning less than or equal to gross income of $250,000 per annum from any tax hikes to offset expenditure.

This strategy creates financial liquidity among households and businesses alike that is desperately required to stimulate the ailing economy.

By exempting the average households from any tax increases, the consumer spending is generated that will benefit the Retail economy which in turn will permeate throughout the economic spectrum.

The strengthening of the Retail economy will boost the manufacturing, service industry… reaching all the way to top of the Corporate growth.

The Corporate growth means investment prospects for both private and public investors resulting in healthier and consistent stock market performance that has been highly volatile recently.

It is simple economics.

Supply and demand forces determine a free market system.

Unless, there is a demand for any particular goods or services the supply chain link cannot remain in force.

Simultaneously, the demand can be a catalyst in the process only through affordable consumer spending.

This is where the small and medium sized businesses come into play with the tax breaks from Senator Obama’s policy.

It is noteworthy that small and medium sized businesses deal with wholesale industries for raw materials and other items ultimately owned by major corporations in a market economy.

There are valid reasons to embrace the market economy worldwide.

A. Induces competition apart from enrichment of ideas

B. Competition enables choices in quality and price

C. Controls inflation or deflation

Therefore, the retail consumers benefit from the market economy that facilitates all small, medium and large players in competing with one another effectively for common good.

All of the above factors directly and indirectly influence the fiscal, monetary and economic policies in a Capital economy.

Briefly, the cash flow offered through tax relief by Senator Obama to a substantial group of taxpayers who are also the consumers trigger consumer spending and exponentially elevate the economic status among the various groups in the society.

It also eventually contributes to the wealth accumulation by the top ten percent in the society whose welfare alone is a major concern for McCain/Palin candidacy.

Ironically, the McCain/Palin candidacy in their zeal to own Capitalism as their trademark, fail to recognize the importance of fundamental growth in the lower and middle income groups vital for the survival of small businesses and retail industries, the structural components of a successful Capital economy.

Senator McCain’s tax policy to freeze tax increases across the board by asserting that the Bush administration’s permanent tax cuts to wealthy individuals and Corporations would somehow miraculously revive the economy is a fantasy beyond reason.

It is worth remembering for McCain/Palin campaign that the current Bush administration, as their supporter will depart shortly leaving the nation with multi-trillion dollar debt, on-going wars in Iraq and Afghanistan requiring constant capital injection, declining dollar and hosts of economic commitments willfully neglected in the past eight years.

The undecided/swing voters in every battleground state must realize that there are no precise solutions from McCain/Palin candidacy to resolve the humongous challenges confronting our nation in the absence of any meaningful tax policy.

Senator McCain’s policy to create new jobs as economic solutions again fails to meet the criteria of capital requirement in the present economy with severe financial liquidity crisis.

In fact, the recent economic strategy to bankroll the corrupt and failed financial institutions with the taxpayers funds, along with the economic stimulus package by the Bush administration fits the profile of the political stigma – "Socialism/Marxism" except,

Here, the beneficiaries are the financial institutions and their wealthiest CEO’s rather than the taxpayers, i.e. the average citizens.

Since, the same political party represents the Bush administration and McCain/Palin candidacy, it would be more appropriate to assign the factoid to the respective contenders.

Fact Check: In a progressive tax structure, Senator Obama’s policy to exempt the vast majority of taxpayers/consumers from tax increase would,

1. Promote economic status as highlighted above…

2. Ultimately, create a fair system of sharing the economic burden by all rather than only by the affluent ones.

Such farsighted and permanent solutions to persisting economic problems is in direct contradiction to the myth and misnomer cast by McCain/Palin doctrine against Senator Barack Obama to win the election.

Socialism, Marxism may well be the nemesis to Capitalism,

Capitalism cannot thrive without consumerism – That is the fact.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business, Featured | Leave a Comment 

Stock Market Stability

October 15, 2008

The Federal Reserve Chairman Ben Bernanke laid out the plans and policies currently adopted as interventional measures to stabilize the stock market.

The comprehensive proposals have the necessary means and strategies to protect the taxpayers’ interests as well as restore investor confidence.

It is important to recognize that the current overhauling of the financial infrastructure that was long overdue, is taking place in complete coordination with monetary authorities and political leadership worldwide.

Although, the necessary steps may not bring immediate recovery to the current crisis, the entire financial system has to collaborate and function both psychologically and physiologically to revive the economy and mobilize the equity and liquidity markets.

It is a consolidated effort and requires all parties concerned to come forward not only in their self-interest but also to ensure long term market security that would promote the economic growth and development.

The Retail industries are projecting sluggish sales around this time of the year due to anticipated reduced consumer spending triggered by high unemployment rate.

This in part is contributing to the lack of enthusiasm from the investors in their active participation in the market.

Again, the domino effect permeates due to resistance from the financial sectors withholding cash and confidence that could otherwise energize the market.

Please stand by for an elaborated version of these circumstances like unemployment and reduced consumer spending with the presentation of expert opinions and solutions to the current crises.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business, Featured | Leave a Comment 

Stock Market Performance

October 14, 2008

The Stock Market came roaring back on October 13, 2008 and was a major cause for celebration across the globe.

The collective and collaborative effort by the “Heads of Government” through G7 and G20 meetings, in coordination with the global monetary authorities like the World Bank and the International Monetary Fund yielded the much-required morale boost in the financial markets. Their immediate action to respond to the crisis is praiseworthy.

Despite the consolidated action to jumpstart the markets, the stock market is struggling to sustain the momentum gained on the previous day. Obviously, the indication is that the measures in the past hours and days to guarantee the smooth functioning of the financial system is not adequate.

A selective opinion highlighting the reasons for the problems currently experienced in the credit markets –

Source – http://www.americaneconomicalert.org – Thank you.

Why Federal Reserve Policy is Failing

Monday, October 06, 2008

Commentary by Thomas I. Paley, Ph.D.

The Federal Reserve and U.S. Treasury continue to fail in their attempts to stabilize the U.S. financial system. That is due to failure to grasp the nature of the problem, which concerns the parallel banking system. Rescue policy remains stuck in the past, focused on the traditional banking system while ignoring the parallel unregulated system that was permitted to develop over the past twenty-five years.

This parallel banking system financed vast amounts of real estate lending and consumer borrowing. The system (which included the likes of Thornburg Mortgage, Bear Stearns and Lehman Brothers) made loans but had no deposit base. Instead, it relied on roll-over funding obtained through money markets. Additionally, it operated with little capital and extremely high leverage ratios, which was critical to its tremendous profitability. Finally, loans were often securitized and traded among financial firms.

This business model has now proven extremely fragile. First, the model created a fundamental maturity mismatch, whereby loans were of a long term nature but funding was short-term. That left firms vulnerable to disruptions of money market funding, as has now occurred.

Second, securitization converted loans into financial instruments that could be priced according to market conditions. That was fine when prices were rising, but when they started falling firms had to take large mark-to-market losses. Given their low capital ratios, those losses quickly wiped out firms’ capital bases, thereby freezing roll-over funding.

In effect, the parallel banking business model completely lacked shock absorbers, and it has now imploded in a vicious cycle. Lack of roll-over financing has compelled asset sales, which has driven down prices. That has further eroded capital, triggering margin calls that have caused more asset sales and even lower prices, making financing impossible for even the best firms.

Though the parallel banking system engaged in riskier lending than the traditional banking system, those differences were a matter of degree. Traditional banks like Washington Mutual, Wachovia, and Citigroup have also all lost huge sums. However, the traditional banking system is more protected for two reasons.

First, traditional banks are significantly funded by customer deposits. Ironically, such deposits can be withdrawn on demand and are in principle even more insecure than short term roll-over funding. However, they stay in place because of federally provided deposit insurance.

Second, traditional banks are significantly shielded from mark-to-market accounting because they hold on to many of their loans. These loans are therefore priced by auditors on a mark-to-realization basis. However, if they were securitized their market value would be significantly lower owing to current disruptive market conditions.

The bottom line is that the banking system is in better shape not because of its virtues, but because of policy. Deposit funding is safe because of deposit insurance. Banks are spared mark-to market losses because of different accounting rules. And the Federal Reserve is providing banks with massive liquidity infusions through its discount window and its various emergency auction facilities.

Policy has therefore ring-fenced traditional banks. But in the meantime it has left the parallel system in the cold, leaving a gaping hole in the policy dyke.

This policy stance reflects the Fed’s continuing attachment to an antiquated view of the system whereby it takes responsibility for traditional banks and nothing else. Such a policy makes no sense and will fail. The Fed encouraged development of the parallel system, and that system undertakes many of the same activities as traditional banks. Meanwhile, failure of the parallel banking system will continue putting downward pressure on asset prices and lender confidence.

The Treasury’s proposed seven hundred billion dollar asset purchase program will help put a needed floor under asset prices. However, it does nothing to tackle the parallel banking system’s roll-over funding crisis that is crimping lending and pushing firms into bankruptcy. That is causing distress to spread far beyond the mortgage market, undermining the ability of any asset purchase program to put a floor under asset prices.

The urgent implication is the Fed (and other central banks) must extend its safety network to include the parallel banking system. Just as the traditional banking system needs liquidity assistance, so too does the parallel system. That assistance can be provided through such vehicles as the discount window and Federal Reserve auction facilities, and it should be allocated to qualified firms able to post appropriate collateral.

A credit based system is a chain, and a chain is only as strong as its weakest link. The Federal Reserve’s antiquated view has it protecting links connected to the traditional banking system while neglecting everything else. That is a recipe for failure.

Dr. Thomas Palley is a widely published economist and was formerly Chief Economist at the US-China Economic and Security Review Commission.
____________________________

Analysis: Certainly, the emphasis is on the oversight with effective policies for the entire financial structure to alleviate stagnation in the liquidity markets. The investor confidence overall is marred with concerns and skepticism despite stunning performance on October 13, 2008.

The resistance from the free market system towards proposed measures is one of the factors for the current trend. However, the necessary action could eliminate many underlying problems surrounding the entire financial infrastructure, contributing to the volatility in the markets.

Meanwhile, the investors’ active participation to restore momentum and strengthening market gains across all sectors is important for the common good and benefit in the short and long run.

An optimistic approach to the crisis with an absolute integrity in the implementation of policies will assist the markets to rebound now and in the future.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business, Featured | Leave a Comment 

Stock Market Crisis

October 10, 2008

Courtesy: http://www.godlikeproductions.com – Thank you.

Whats Driving the Stock Market Chaos??

Denninger Speaks… – Thank you.

Quote

What The Media *Didn’t* Cover

So yesterday the “news” was all about the long end of the Treasury curve rocketing higher (yield), which many people believe is about “risk acceptance” and The Fed (along with other central banks) cutting rates by 50 basis points.

Uh huh.

Let’s talk about what’s really going on.

First, our rates. The EFF (Effective Fed Funds) rate has been trading at 1.5% now for a couple of weeks. Two percent schmoo percent; a target rate only in name is no target at all. In reality the 50 bips cut, even though it resulted in an instantaneous 40 handle rocket shot in the /ES futures Wednesday morning, was entirely a CONfidence game (with the emphasis on “Con”!)

The RTS (Russian Market) is down 87% YTD, and is closed until further notice. The Nikkei is trading below the DOW – that’s not good. Indonesia’s stock market was shuttered Wednesday and remains closed after tripping “lock limits” within 90 minutes of the opening bell. As of Thursday morning the RTS was closed again after Putin allegedly strong-armed a whole bunch of Russian wealthy to “stick it in” (to the stock market); this sort of v-fib in a market does horrifyingly bad things to ordinary investors who find themselves out just before the market rockets higher without underlying economic cause.

Iceland has essentially melted down. Their currency went straight into the toilet and two of the three largest banks were nationalized – all in the space of 24 hours. The culprit? Bad loans. Where have we seen this movie before?

Mexico’s peso has fallen some 40% in days against the dollar. Great if you’re traveling there as an American. Sucks severely if you’re a Mexican. That alleged fence on our southern border is going to need reinforcements.

Wednesday morning Britain and the EU zone all announced major bank rescue operations. Same deal – “throw money at it, paper it over.”

Nowhere a mention of forcing balance sheet transparency and truth.

Except in one place – here in the US! Plans to standardize CDS contracts and force them onto an exchange are actually under way. This is a major positive move and fulfills one of the three prongs of my view of how to solve this problem, once implemented. We’ll see how much pushback we get, and whether OTC derivatives are actually banned (as they should be), or whether the big trading houses and banks insist on being able to play “pick pocket” along side the “regulated” world.

The NY Fed announced plans to extend a further $39.6 billion credit line to AIG. The tab is now almost $120 billion dollars. Where did the other $80 billion go? Has it been vaporized trying to raise capital to pay down CDS contracts that have gone the wrong way on them?

Speaking of which, Thursday is D-Day – D standing for either “derivative” or, if things go sideways on people, “detonation.”

See, this is the day that Lehman’s CDS contracts are supposed to be resolved. Since Lehman’s bonds are trading at ~20-30% recovery (horrible, on balance) the writers may have to fork up 60 to 70 cents on the dollar.

The $64,000 question is how many of those contracts net out. The real liability is what’s left once everything is “balanced” (a long and short held by the same guy net to zero, assuming that both contracts are “money good”, leaving the holder with no liability – and no asset)

This has the potential to be a big “nothingburger”, a minor tremor, or a 250′ high tsunami that washes over Lower Manhattan (and the City) tomorrow. There’s no good way to know in advance which outcome will manifest, since nobody (at present) knows what the true netted-out open interest is. This is one of the problems with not having a public exchange; lack of knowledge.

The bright light of reality will shine tomorrow……

The architects of this, by the way, are the folks who took the cuffs off the banks, going back to the Gramm-Leach-Bailey law and the repeal, piece-by-piece prior but finished by GLBA, of Glass-Steagall. GLBA, by the way, was passed in 1999 – just as the Internet bubble was in full force. Coincidence? No. The root cause of this mess? Right there. Thank Congress, and make sure you include those members who have been around for the entire thing, including John McCain.

On the equity market side shorting is once again available, the order having expired. The lack of shorts was a definite factor in the stiff selloff that we’ve seen, and Chris Cox owes investors in America an apology – on the air. This was an objectively stupid decision, as shorts provide necessary liquidity during serious downturns. Without them you get “no bid” circumstances, and they sporadically appeared during the last few days in financials, which certainly exacerbated the selloff.

In the bond markets Treasury refunded some “off the run” bonds and got an ugly surprise – the market didn’t want them. They had to pay a 40 bips “tail” to get them to go, which may be the start of a really troublesome trend. See, Treasury is now throwing over $100 billion a week into the market, and this only works on days when the market is crashing. THEN you can get people to suck up all you puke out, but the rest of the time you’re going to have to pay up, and Treasury has had to do so – dearly.

This may be the start of the “bond market dislocation” that I have long feared. I hope and pray not, but if this trend continues Treasury is going to find that it cannot sell its debt into the market without slamming rates higher, especially on the long end of the curve, which means an instantaneous implosion of what’s left in the housing market.

The ugly is that 3-month LIBOR widened today, as did the TED Spread. Both should have come in. They did not. LIBOR is essentially unsecured lending and the bad news is that a lot of corporate (and some personal) borrowing is indexed off it. If you are, you’re screwed.

Why has LIBOR refused to come in despite these “coordinated” effort? Its simple: the underlying trust issue has not been addressed, and nobody is seriously proposing to do so.

Paulson and Bernanke now are truly caught in the box, as I have been talking about for more than a year. As they introduce and fund these silly programs like the “TARP” each new program produces more foreclosures by depressing home values and thus tightens the spiral.

See, as long rates go up house prices go down, since the value of a home for most people is Dependant on what they can finance, and that is directly related to interest rates. Get out your HP12C and run the principal value change for a fixed payment if interest rates change from 6% to 8% or 10% – that’s the impact on the value of your house from these changes that are occurring in the Treasury marketplace.

This outcome is what I warned of in “Our Mortgage Mess” back in April of this year; a potential ramping of borrowing costs for government debt, which will not only make sustaining government spending (and perhaps government operation) impossible, but in addition destroy private credit by driving costs in the private sector skyward as well.

Simply put, the “TARP” or “EESA” must be repealed here and now.

It is unacceptable to risk Treasury Funding destruction in order to bail out some bankers. And make no mistake – there is and will be no benefit to taxpayers.

We are also now entering into earnings season, and Alcoa was a warning blast. They missed badly. That won’t be the last.

This is the “value trap” problem that many investors fall into. You see the market down 30% and think its a great buying opportunity.

It is a great buying opportunity only if earnings going forward can be sustained. But in this case, they cannot. It is flatly impossible; with Treasury borrowing money like a madman, tacking on more than 20% to the national debt in the space of months, carrying costs will inevitably rise as will taxes. Both of these have a multiplier effect (in the wrong direction) on corporate profits, and in addition the “faux profits” from financial engineering have all disappeared at the same time.

The S&P 500’s profit, in terms of gross dollars, are almost certainly going to come in by 50% from the highs, and that assumes we get a garden-variety recession and not something worse. This of course puts “Fair Value” on the SPX down around 750, or another 25% down from here.

The ugly stick potential is what I discussed yesterday, and that risk is very real. Treasury borrowing cost ramps can produce a 1930s-style dislocation in credit, and if it happens then you will see mass bankruptcies not only in corporate America but among individuals as well as borrowing costs ramp to the point of shutting down the marketplace for credit.

Treasury and Bernanke claimed that “credit markets seized”; this is only half-true. Credit markets always close to those who are lying, because there is no reason to loan someone money if you’re not reasonably sure you will get paid back.

But there is a second form of seizure and this is the frying pan into which we’ve now jumped – that is a credit market that prices beyond what the market can bear at its imputed rate of return. In that market credit is available but it does not matter, as you can’t make enough profit to generate a positive carry on the borrowed money, and consumers in that environment fall into a vortex of interest payments that spiral faster than they can borrow to stay ahead of them.

That rabbit hole is how we got the 1930s, and it is the danger we now face. Congress was in fact conned by Treasury, George W. Bush and the banking industry (including Ben Bernanke), who instead of forcing the malefactors into the open and exposing those who were bankrupt (or just plain corrupt – notice the common stem on both words?) threw them a line – unfortunately, the line is cleated to the entire economy of the United States, and they have enough negative buoyancy to drag us all under the waves.

——————————————————

Analysis: This is one of many opinions floating around all over the cyberspace regarding the latest downward spiral in the stock market. The consensus is clear; a few operatives with a major stake in the gamut of the financial world are driving the mania for their profiteering with utter disregard for the rest of the population around the world.

It is time for the people of the United States and around the world to rise to the occasion and intervene as the snowballing of losses in market shares is not a natural event. Clearly, this kind of manufactured, well-orchestrated and premeditated mechanism is the result of greed, corruption and cronyism that is rampant and has now come to surface.

Not surprisingly, there is no investigation or reports by the media as the Corporations, the de facto beneficiaries own them. The world must awaken now and deal with the reality to bring all of these entities to justice. It is time to make every one of them accountable for their actions and inaction as well as make them absorb all of the losses generated by their devious “modus operandi”.

The current situation is not an isolated occurrence. The cause and effect factor is evident in the existing stock market turmoil. As suggested earlier, the unethical practices resulting from the lack of accountability and oversight is contributing to the pandemonium in the market worldwide with the infusion of the “survival of the fittest” theory.

The world is shocked and in despair, seeing no end to the plundering of wealth that rightfully belongs to the righteous and not the self-righteous. However, it is presumptuous of those involved in this mass abduction of world treasury that they will not be exposed and brought to spotlight.

Perhaps, Armageddon is the only alternative now to restore morality and world order. The degradation of principles, ethics and democratic values by the ruling power will not escape the judicial verdict.

Therefore, it is in the best interest of all those involved in the conspiracy to come forward and demonstrate figment of integrity by stabilizing the stock market decline or be prepared to deal with the wrath of natural phenomenon.

Further, to those entities responsible for the current economic disaster, “the end justifies the means”.
Any attempt to ignore the warning will be an invitation to their peril.

If the authorities in power fail to exercise diligence, proper management, and immediate interventional policies to stabilize the market, they will share similar destiny as the recently convicted O.J. Simpson.

The judicial mantle seized by the power is in denial and defiance of the existence of force that will deliver justice.

The mortals brought nothing upon their birth hence; take nothing upon death.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business | Leave a Comment 

Investment Prospects

October 8, 2008

Existing and potential investors should view the current stock market situation as an excellent opportunity for investments in different sectors. They range from blue chips to housing and manufacturing industry. All sectors are bound to get a major boost from innovative technology and major breakthroughs in science this year alone.

With the energy crisis, there is great enthusiasm and capital infusion into manufacturing clean and green energy products. The automotive and energy companies are involved in research and development in deriving energy independent solutions to the global problem.

The recent legislation of the “rescue” plan involving tax credits for solar and wind based manufacturing companies is a window to promote renewable energy products and services. This is one of the best measures by Congress and deserves praise for the action. It must also ensure that the tax credit benefit trickles down to retail consumers as well. More is required in addressing serious environmental issues at both national and global front.

Despite the doom and gloom in the housing sector, all those investors with surplus cash have enormous opportunity to invest in real estate for long-term gains and perhaps contribute to the revival of the housing market. The energy sector is involved in alternative energy programs to combat the global energy crisis. Therefore, there are opportunities in this industry as well.

The technology sector is robust with a wide range of activities throughout the industry. The high tech companies are competing with one another in the innovative technology areas such as high -end microprocessors other hardware and software products challenging the technological pace more than ever.

There is never a dull moment in the biotech industry with major breakthroughs in modern medicine like “sequencing DNA and Human Genome Project”. The stem cell research is another area drawing deserving attention and investments. The pharmaceutical companies’ progress in research and development of new drugs is in synchronization with the biotech advancement.

The finance sector is not going to fall apart as they are the “gateway” to the flourishing of “commercial sectors”. The financial institutions with necessary regulations and stopgap measures are attractive in many ways. It must address the foreclosures effectively and cooperate with the government in expediting the financial liquidity in the housing and commercial sectors.

Investors must get into a buying frenzy and not the other way around, as the prospects are far greater in the near future and an opportunity for people of the United States to own their assets rather than leaving it for foreign venture capital.

The United States as a nation has never failed in its endeavors and will never fail now or in the future. It is important for the people of the United States to restore confidence in their ability to rebuild a great nation that has accepted a great many challenges in the past, emerged successful in all frontiers and shared the progress and prosperity with the rest of the world.

The present time may appear to be tough but this nation has sailed through rough seas and the “Superpower” status is testimony to the resilience and intellectual power of the people.

The United States has every reason to be proud of all its achievements. The future ahead of us is bright, with a remarkable work force prepared to overcome all obstacles in their path to success and glory.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business, Economy, Featured | Leave a Comment 

Foreclosures

October 7, 2008

The stock market performance particularly on October 6 and 7, 2008 is a strong indication of the lack of effective measures to address the problems that triggered the financial crisis and subsequently the economic meltdown. The tumbling of the stocks due to aggressive selling day after day is from panic and deep concern among investors across the globe.

The “Treasury” has secured the financial package for the “rescue” plan as an instant relief to the current crisis. However, in preparation to relieve the financial institutions from “bad debts” and “toxic assets”, it has failed to look beyond the “Corporate” horizon. The immediate priority is to lift the nation from the burgeoning “housing market” crisis i.e. “foreclosures” and provide relief to the “homeowners”.

The Congress must act now on bipartisan basis to implement “Moratorium” on the “foreclosures”, and vigorously re-enact the “Bankruptcy provision” to relieve homeowners across the nation. It should not be at the discretion of the financial institutions that are primarily responsible for the mortgage crisis to resolve on their own terms and conditions. As stated earlier, the “foreclosures” are the result of the multi-tiered structures in the financial and real estate industry engaging in unethical practices and reckless conduct with no oversight.

If the “rescue” package does not involve the solutions to the problems of the current economic and stock market turbulence, the entire effort by the Congress is futile. Therefore, it is necessary for government intervention to relieve all homeowners dealing with “foreclosures” and delinquency on their mortgage payments due to the sudden increase in interest rates initially offered as “teaser” rates on the subprime mortgage loans.

The urgent and direct focus on the “housing market” is the only prudent economic strategy available to revive the “housing sector”, one of the structural foundations of the economy. The consistent decline of “home values” is a major factor for the “economic stress” with a ripple effect on the entire financial and commercial sectors.

The “housing” and “energy” industry are fundamental components of the economic infrastructure. Hence, the rescue plan must address the “cause” of the current financial crisis i.e. the “foreclosures” besides facilitating financial liquidity in the commercial sector to stimulate economic growth and development. In terms of the economic stimulus package under consideration, the “energy” subsidies would highly benefit the economy and ease the burden on the “main street” anticipating high “energy” costs in winter.

The impending purchase of the mortgage-backed securities under the “rescue” plan must follow the guidelines to benefit the investor i.e. the taxpayers in both the short and long run. It is important to address effectively any concern by experts such as “The HOPE for Homeowners Act needs to pay less than 36.5 % of the face value of the subprime mortgage backed securities. If more is paid the government loses money in the long run and owners of the securities profit now” and any loopholes that might hamper the deal in the investor i.e. taxpayer’s favor must be eliminated as a safety measure.

The consensus on the legislation of the bill “HOPE” for The Homeowners Act, 2008 is promising and expected to provide relief to an estimated 400,000 families. It is important to follow through the process and ensure transformation of “HOPE” into reality for “homeowners” severely hit in the “housing” market crisis due to massive “foreclosures”.

“Congress” and the financial institutions could reverse the current stock market decline through diligence and prudent economic strategy combined with robust fiscal policy and financial measures to boost investor confidence. Meanwhile, domestic and foreign investors must restrain short selling in the wake of current crisis that is contributing to the pandemonium in the stock market.

The stock market turmoil will cease upon following all of the above measures with no further procrastination to protect the interests of all i.e. the “main street”, the “wall street” and the global market.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business, Economy, Featured | Leave a Comment 

Bailout Failure

September 29, 2008

The democratic system has failed to rescue the nation at the hour of crisis. The party bickering and “partisan politics” has taken precedence over “main street” struggles. It is clear from the action of the legislators voting against the “emergency” plan that their concern for the return to power is paramount than the “average citizen’s” livelihood. The explanation for their refusal to cooperate does not resonate with the realities in the “main street”. The nature of global economy is slighted with distracted opinions and determined position in this crucial legislation.

Excerpt of one of the legislators reason to vote against the bailout.

Source : Democracynow.org – Thank you.

According to Democratic Congressman Rep. Dennis Kucinich – “Is this the United States Congress or the Board of Directors of Goldman Sachs?” Rep. Dennis Kucinich Rejects $700 Billion Bailout
The House is set to vote today on a $700 billion emergency bailout plan for the financial industry. The proposed legislation was forged during a marathon negotiating session over the weekend between lawmakers from both parties and Treasury Secretary Henry Paulson. The 110-page bill would authorize Paulson to initiate what is likely to become the biggest government bailout in US history, allowing him to spend up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates.

AMY GOODMAN: Right, but the Democrats are in charge of this.

REP. DENNIS KUCINICH: Right. You know, I’ll tell you something that we were told in our caucus. We were told that our presidential candidate, when the negotiations started at the White House, said that he didn’t want this in this bill. Now, that’s what we were told.

AMY GOODMAN: You were told that Barack Obama did not want this in the bill?

REP. DENNIS KUCINICH: That he didn’t want the bankruptcy provisions in the bill. Now, you know, that’s what we were told. And I don’t understand why he would say that, if he did say that. And I think that there is a—the fact that we didn’t put bankruptcy provisions in, that actually we removed any hope for judges to do any loan modifications or any forbearance. There’s no moratorium on mortgage foreclosures in here. So, who’s getting—who’s really getting helped by this bill? This is a bailout, pure and simple, of Wall Street interests who have been involved in speculation.

AMY GOODMAN: Congressman Kucinich, can you explain how it is that the Democrats are in charge, yet the Democrats back down on their demand to give bankruptcy judges authority to alter the terms of mortgages for homeowners facing foreclosure, that Democrats also failed in their attempt to steer a portion of any government profits from the package to affordable housing programs?

REP. DENNIS KUCINICH: Well, I mean, those are two of the most glaring deficiencies in this bill. And I would maintain there was never any intention to—you know, well, many members of Congress had the intention of helping people who were in foreclosure. You know, this—Wall Street doesn’t want to do that. Wall Street wants to grab whatever change they can and equity that’s left in these properties. So— .”
____________________

Review: There is no disagreement in this context. However, the repercussions of failing to act is far greater than the stakes involved in the initial bailout that is being carried out cautiously and judiciously by the remaining members of the “Congress”. The legislators’ rhetoric does not serve the purpose as the U.S economy is the engine of the global markets and the ripple effect is already felt in Europe and worldwide. Today’s plummeting of the stock market is yet another sign of the “financial catastrophe” at our doorstep.

With respect to the elimination of “bankruptcy provision” as discussed in the above interview, the “Democratic Presidential Candidate”, i.e. Senator Barack Obama’s position is apparent in the “housing market” debacle. It is time for the Democratic Party to be forthcoming to the democratic base as well as others and explain the reason behind such notion to alienate the worst hit population i.e. the “homeowners” in this bailout proposal.

As for the GOP members of Congress, defying the national interest by voting against the bailout proposal, the following questions arise,

1. Where were the legislators when the economic meltdown was happening under their watch?

2. Why did they not alert their own party and the administration that is notorious for reckless
policies and “bankrupting” the economy under their reign of power?

3.Whatever happened to the passion and pessimism about the “Wall Street” performance leading
the world’s economic power on the verge of collapse?

Alas, “Rip Van Winkle” is awakened by the financial “thunderbolt” and causing havoc in the “Capitol Hill” , the heavenly abode of the legislators.

Ironically, the two extreme political factions appear to come in terms with agreement on a single platform , i..e. protests the bailout and attempts to derail the entire economic infrastructure. The spectacular performance is to earn voter confidence and retain power for further economic disasters.

It is time to focus on the dire situation and market reaction in the United States and worldwide that is beckoning to act promptly and effectively by facilitating liquidity in the financial market.

The lawmakers concerned about taxpayers must also realize that taxpayers’ investments are the major casualty in the current political fiasco.

It is the duty of every legislator to put “partisan politics” aside and act diligently by coming forward and resolving the national and world financial crisis in the best interest of the people, responsible for their power.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business | Leave a Comment 

Glimpse of “Hope and Promise” in the Horizon!

June 25, 2008

Source: guardian.co.uk
Tech earnings diverge as U.S. economy weakens
• Reuters
• , Friday July 18 2008
By Jim Finkle

BOSTON, July 18 (Reuters) – IBM and other technology companies whose products help big corporations save money or expand data storage capacity are faring better than those relying on consumers as the U.S. economy slows.

International Business Machines Corp, the world’s biggest technology company, impressed investors by easily beating quarterly profit expectations and raising 2008 forecasts when it reported along with other big tech companies on Thursday.

In contrast, Microsoft Corp missed estimates amid concern about its online business and the economy, while Google Inc also disappointed. The Web leader told investors it was operating under “uncertain economic conditions” after a weaker-than-expected 35 percent quarterly profit increase.
Darren Bagwell, director of equity research at Thrivent Asset Management, which manages $73 billion, reckons IBM’s results point to strong performances for companies like EMC Corp, the world’s biggest maker of corporate storage gear. EMC releases its results on July 23.
“IBM’s mainframe business was on fire,” he said, pointing to a new line of computers that IBM introduced in February. They sold out at the end of the second quarter after the company’s first major upgrade to its mainframes in almost three years. They are used in “green” data centers that help businesses save money on energy and maintenance costs.
In a teleconference with analysts and reporters on Thursday, IBM said demand from companies in developed countries looking to expand data centers contributed to its better-than-expected 22 percent rise in quarterly profit.
Bagwell noted both Microsoft and Google said they plan to invest heavily to develop larger, more sophisticated data centers so they can better compete with each other.
“They are spending a lot of money to build out the infrastructure they need,” he said. “Someone is going to get the benefit of that, obviously.”
Bagwell expects such infrastructure investment will also bolster profits at VMware Inc, whose software helps companies save money by allowing them to boost the efficiency of server computers.
SIZE MATTERS
Companies the size of IBM could fare better in a weakening economy than smaller rivals, analysts said, as customers pare back the number of vendors to focus on those deemed most resilient to an economic slowdown.
Demand for hardware appears to be trickling down to smaller manufacturers such as Sun Microsystems Inc, whose shares have been battered, losing 48 percent this year.
Sun, a maker of high-end servers, reported on Tuesday preliminary results in line with expectations, but that sparked a rally in its shares by investors who had feared much worse.
Jerry Dodson, a portfolio manager with Parnassus Investments, which manages $1.5 billion, said he fears other software makers may post weak earnings after Microsoft’s disappointing results.
“It (the rough economy) seems to be hitting software more than the hardware,” Dodson said.
SAP AG and Oracle Corp, the two biggest makers of business management software, look vulnerable, he said. Germany-based SAP is scheduled to report on July 29, while its California-based rival released results for its most-recent quarter last month, issuing a cautious earnings outlook and saying it expected software sales growth to slow.
Microsoft’s online division posted an eighth consecutive quarter of decline, reporting an operating loss of $488 million. Industry analysts feel that bodes poorly for Microsoft’s rival and acquisition target, Yahoo Inc, which reports results on Tuesday.
“Their weakness in the online division is an indicator in display advertising, which has follow-through implications for someone like Yahoo,” Bagwell said. (Editing by Braden Reddall)

Analysis: It appears from the above report that overall software industry and Web based innovators are experiencing the teething pain of a slowing economy worldwide. However, other technology giants like IBM, EMC and emerging companies such as VMware Inc. could benefit from the major corporations strategy to streamline costs and modify their existing system infrastructure.

Written by Padmini Arhant · Filed Under Business | Leave a Comment 

« Previous Page