Top Stories 
 

  • Treasury’s change to tax policy boosts banks, angers lawmakers
    While Congress debated the White House’s proposal for a $700 billion banking rescue, the U.S. Treasury quietly changed tax policy that resulted in a $140 billion windfall for American banks. Lawmakers did not immediately notice the sweeping change made to more than 20 years of tax policy, but some were furious when the change came to light. “Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the Joint Committee on Taxation’s former chief of staff. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.” The Washington Post (10 Nov.)

  • Fed won’t say which banks got $2 trillion in emergency loans
    Bond investors said secrecy from the Federal Reserve regarding its $2 trillion in emergency loans to banks — including its refusal to identify the banks, the assets being accepted as collateral or the methodology used to value those assets — is crippling the ability of financial markets to recover. Fund managers said this lack of transparency is a serious problem because “the market is very nervous and very thin.” The nation’s biggest banks declined to comment on whether they borrowed from the Fed. Bloomberg (10 Nov.)

  • Asset-backed lending dries up, shuts out commercial mortgages
    Regional banks and insurance companies, the primary sources for commercial real-estate finance after credit markets froze, have completely stopped lending for this market, analysts at RBS Greenwich Capital Markets said. Thawing of short-term markets was a welcome first step, but “it is a baby step” that does little for commercial real estate, analyst Lisa Pendergast said. Bloomberg (07 Nov.)

  • Private equity looks for downside protection on deals in India
    Faced with spectacular paper losses on private investment in public equity — aka Pipe — with Indian companies, players are looking for ways to structure investments. Straight equity may give way to loans enhanced with extra downside protection, such as guaranteed returns and mechanisms, to capture eventual upside gains. Pipe deals in India have dropped off drastically since company stock prices collapsed because of the financial crisis. Financial Times (09 Nov.)

  • Other News

  Market Activity 

  • Asian markets surge on news of China’s stimulus package
    Announcement of China’s $586 billion economic-stimulus plan helped boost shares Monday throughout Asia, specifically resource stocks. The Shanghai Composite on mainland China soared 7.3%, and the Shenzhen All Share Index rose 6.4%. In Hong Kong, the Hang Seng China Enterprises Index jumped 9.1%, and the Hang Seng Index advanced 3.5%. Tokyo’s Nikkei 225 Average climbed 5.8%, the broader Topix index gained 4.3% and India’s Sensex was up 4.5% in early trading. Australia’s S&P/ASX 200 added 1.4%, New Zealand’s NZX 50 rose 1.7% and Singapore’s Straits Times went up 1%. MarketWatch (10 Nov.)

  • Berkshire Hathaway suffers another quarter of declined profit
    Berkshire Hathaway saw its net income drop 77% in the third quarter, marking the longest streak of quarterly declines for the company in more than a decade. Hurricanes hurt returns on insurance operations, and investments lost value. Owner Warren Buffett sees opportunity in the turmoil and committed at least $28 billion this year to acquire companies, finance buyouts and purchase securities at depressed prices. Bloomberg (08 Nov.)

  • Analysts suggest European governments issue joint bond
    As fundraising in capital markets becomes nearly impossible, analysts have started suggesting that some European governments issue their first joint-debt instrument. “Several minor highly rated issuers could band together for common issuance,” said Meyrick Chapman, fixed-income strategist at UBS. “In our judgment, the likely club of common issuers may include Austria, Belgium, Finland, Ireland, Luxembourg and Spain.” Financial Times (07 Nov.)
  Economics 

  • Yen weakens on prospect of Chinese stimulus plan
    For those who borrowed money in Japan, there is renewed reason to buy high-yielding assets, as the yen fell for a second day against the euro in anticipation of China’s massive economic stimulus. “Optimism over China’s stimulus plan is contributing to stock-market gains. This is helping to calm investor sentiment and causing the yen to weaken,” said Takeshi Tokita, vice president of foreign-exchange sales at Mizuho Corporate Bank. The yen fell 1.7% against the euro, from 124.90 to 127.01. Against the dollar, it fell from 98.24 to 99.05. Bloomberg (10 Nov.)

  • Australia’s central bank anticipates slower growth
    Faced with the likelihood of much slower growth during the next two years than previously projected, the Reserve Bank of Australia is taking another look at interest rates. Its forecasts are even lower than the government’s predictions last week. The bank cut its forecast for economic growth in 2008 to 1.5% from 2% and for 2009 to 1.75% from 2.5%. CNBC/Reuters (09 Nov.)
  Geopolitical/Regulatory 

  • G-20 leaders plan to speak with united voice on crisis
    At the Group of 20 summit in Washington this week, world leaders will strive to stand united about dealing with the economic crisis. Many observers said their actions may not be as united as their rhetoric. The French want to establish a regulatory regime, but the Americans are wary of the concept. The British are seeking to make the International Monetary Fund more powerful. The Russians oppose the idea. G-20 ministers met in Sao Paulo, Brazil, during the weekend to prepare for this week’s meeting and to discuss a global economic-stimulus package, but they did not approve a final plan. The Wall Street Journal (subscription required) (10 Nov.) , International Herald Tribune/The Associated Press (09 Nov.)

  • Brazil demands bigger voice for emerging powers: Brazilian President Luiz Inacio Lula da Silva told a gathering of finance ministers and central-bank chiefs that it is time for a “new financial architecture for the world” that is more inclusive than a system dominated by the richest countries. He said Brazil is “ready to face up to its responsibilities” and help build the system. Lula criticized the “dogmatic faith in noninvention in markets” promoted by the U.S. Reuters (09 Nov.)

  • Obama to carefully consider members for economic team
    President-elect Barack Obama said in his first post-election news conference that he will not be rushed into naming a Treasury secretary. But he may name some senior staffers this week, sources said. Obama’s transitional staffers want to avoid the mistakes former President Bill Clinton made when he appointed Cabinet officials before fully forming his senior staff. Bloomberg (10 Nov.)

  • Analysis: Improved financial reporting begins with disclosures
    Those looking to improve financial reporting should begin with improved disclosure and transparency, this BusinessWeek analysis suggests. Corporate managers should keep capital markets well informed about their prospective cash flow and what they intend to do with the capital raised. The structure of securitized assets could be more transparent if there is a data bank that combines information from all asset pools. BusinessWeek (10 Nov.)

  Financial Products 

  • Untangling begins for market of credit-default swaps
    Although misguided criticism has been heaped on the market for credit-default swaps, the market grew rapidly and relatively unchecked in a short time and needed to be sorted out. The collapse of Lehman Brothers, the near meltdown of AIG and other developments have shoved the relatively obscure corner of the financial sector into the spotlight. CDS are expected to be reshaped, resulting in a duller, less lucrative market that is much safer. The Economist (06 Nov.)
  Ethics 

  • Switzerland gives U.S. information on undeclared UBS accounts
    Swiss authorities turned over to the U.S. information on about 70 UBS clients who failed to declare their Swiss accounts to the Internal Revenue Service. The information is noteworthy because the Justice Department wanted data on people whose names it did not have. In the past, Switzerland generally required the U.S. to identify the owner of an account and provide evidence of criminal activity before authorizing the release of account information. The Washington Post (10 Nov.)