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Countrywide reportedly under FBI investigation
The troubled home loan servicer
is being probed by Feds for using fraudulent lending practices, financial reporting.
NEW YORK -- The FBI has launched an investigation
into the lending practices of battered home lender Countrywide Financial Corp., according to a report in The Wall Street
Journal. The mortgage company is suspected of widespread fraud, the paper said, which may have contributed to the subprime
mortgage crisis that has rocked the U.S. economy.
The probe will examine underwriting and mortgage origination practices, and
whether the company misrepresented losses related to subprime loans.
Bank of America, which agreed in January to acquire Countrywide for $4 billion
in stock, denied any knowledge of a federal investigation.
Calabasas, Calif.-based Countrywide is the nation's largest home lender, responsible
for roughly one-fifth of the mortgages in the United States.
When the housing crash began, Countrywide was faced with an increasing
number of subprime customers who were delinquent with their mortgage payments. The company was forced to essentially shut
down its subprime lending operations last year to focus on originating loans that conform to Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500) guidelines, considered to be safe investments.
On Friday Countrywide's founder and former CEO, Angelo Mozilo, testified before
the House Committee on Government and Oversight Reform, along with two other CEOs who resigned in the wake of the mortgage
crisis -- Charles Prince of Citigroup (C, Fortune 500), and Stanley O'Neal of Merrill Lynch (MER, Fortune 500). All three defended their lofty compensation packages, despite the loss of
billions to their companies and shareholders.
There is no evidence to suggest that Bank of America (BAC, Fortune 500) will back out on its acquisition of Countrywide, the paper said, and may even
be trying to speed up the process, according to some sources.  ...cnn/ips/wire services.
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Bush Vetoes Waterboarding Bill
Washington) — President Bush said Saturday he vetoed
legislation that would ban the CIA from using harsh interrogation methods such as waterboarding to break suspected terrorists
because it would end practices that have prevented attacks.
The bill Congress sent me would take away one of the most
valuable tools in the war on terror," Bush said in his weekly radio address taped for broadcast Saturday. "So today I vetoed
it," Bush said. The bill provides guidelines for intelligence activities for the year and includes the interrogation requirement.
It passed the House in December and the Senate last month.
"This is no time for Congress to abandon practices that have a proven track
record of keeping America safe," the president said.
Supporters of the legislation say it would preserve the United States' ability
to collect critical intelligence and raise country's moral standing abroad.
House Speaker Nancy Pelosi said Congress would work to override Bush's veto
next week. "In the final analysis, our ability to lead the world will depend not only on our military might, but on our moral
authority," said Pelosi, D-Calif.
But based on the margin of passage in each chamber, it would be difficult
for the Democratic-controlled Congress to turn back the veto. It takes a two-thirds majority, and the House vote was 222-199
and the Senate's was 51-45.
Senate Majority Leader Harry Reid said Bush often warns against ignoring the
advice of U.S. commanders on the ground in Iraq. Yet the president has rejected the Army Field Manual, which recognizes that
harsh interrogation tactics elicit unreliable information, said Reid, D-Nev.
"Democrats will continue working to reverse the damage President Bush has
caused to our standing in the world," Reid said.
Jennifer Daskal, senior counterterrorism counsel at Human Rights Watch, said
Bush "will go down in history as the torture president" for defying Congress and allowing the CIA to use interrogation techniques
"that any reasonable observer would call torture."
"The Bush administration continues to insist that CIA and other nonmilitary
interrogators are not bound by the military rules and has reportedly given CIA interrogators the green light to use a range
of so-called 'enhanced' interrogation techniques, including prolonged sleep deprivation, painful stress positions, and exposure
to extreme cold," Daskal said. "Although waterboarding is not currently approved for use by the CIA, Attorney General Michael
Mukasey has refused to take it off the table for the future."
The intelligence bill would limit CIA interrogators to the 19 techniques allowed
for use by military questioners. The Army field manual in 2006 banned using methods such as waterboarding or sensory deprivation
on uncooperative prisoners.
Bush said the CIA must retain use of "specialized interrogation procedures"
that the military does not need. The military methods are designed for questioning "lawful combatants captured on the battlefield,"
while intelligence professionals are dealing with "hardened terrorists" who have been trained to resist the techniques in
the Army manual, the president said.
"We created alternative procedures to question the most dangerous al- Qaida
operatives, particularly those who might have knowledge of attacks planned on our homeland," Bush said. "If we were to shut
down this program and restrict the CIA to methods in the field manual, we could lose vital information from senior al-Qaida
terrorists, and that could cost American lives." ..........wires services/IPS
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Sinking
dollar, rising portfolio
Stocks have soared even as the greenback drops like a brick. .
New York, When you're traveling abroad, it's easy,
if unpleasant, to grasp the impact of a sinking dollar. Now that the euro is at an all-time high against the greenback, dinner
for two at a modest Paris café will set you back $200.
When you're trying to decide how to steer your 401(k) or
other investment accounts, the implications aren't so clear. But if history is any guide, the dollar's woes will eventually
weigh down U.S. stocks. Here's why, and how you can keep your portfolio above water. Simply put, when the dollar is strong
against other currencies, it signifies that our economy is good and the world's faith in the U.S. is high. Conversely, "a
weak dollar is a sign that something's wrong," says Gordon Fowler, chief investment officer for Glenmede Investment Management.
The dollar has had declines of 25 percent or more twice
in the recent past; the current fall is 36 percent since 2002 against a basket of foreign currencies. In the early 1970s,
the peculiar combination of rising inflation and low demand known as stagflation was weighing the buck down. In the mid-'80s,
the dollar fell amid fears the U.S. was about to be overtaken by Japan Inc. as the world's economic superpower.
This time around, the reasons for the decline are more
subtle. The U.S. economy has been expanding, but that growth has not been spread evenly; now the meltdown in the housing market
poses a recession threat. Moreover, we're running a large federal deficit and a trade gap of nearly $60 billion a month. All
of that puts downward pressure on the dollar.
So far that pressure has been beneficial: It's made U.S.
goods sold overseas more affordable, helping to cut the trade deficit. And it is boosting the bottom lines of U.S. exporters
because their foreign sales are in currencies that are appreciating.
"This is a healthy, corrective development for our economy,"
says Eaton Vance chief economist Robert MacIntosh. Certainly the stock market seems comfortable with the trend. The S&P
500 has risen 35 percent in the five-plus years that the dollar has been on the decline.
Dollar up, stocks down?
But the flip side of our stuff being cheaper overseas is that imports are more expensive here. And
we do like to import. Eventually that means rising inflation. In both the early '70s and mid-'80s, inflation related to a
falling dollar led the Federal Reserve to raise interest rates. That stabilized the buck - and sank the stock market. (See
the graphic to the right.)
"Whenever the dollar turns, it will probably mark the beginning of the next bear market," says Christopher
Orndorff, head of equities for Payden & Rygel, an asset management firm in Los Angeles.
There are scenarios that Orndorff foresees that could allow the market to evade this fate. First,
Fed chairman Ben Bernanke could prove more artful than his predecessors at fighting inflation without killing stocks. Or the
dollar could strengthen without the Fed's intervention, not necessarily because of good news for the U.S. but because economies
in Europe or Asia run into trouble.
There is, however, a longer-term bearish outlook for the dollar too. In this scenario, which Warren
Buffett worries about, overseas investors financing our fiscal and trade deficits by buying Treasuries grow impatient with
the sinking buck - which, after all, is worth less in their home currencies.
So they sell, and then buy investments in other currencies, further weakening the dollar and forcing
up interest rates here. That, in turn, chokes off the U.S. economy, so the overseas investors sell even more, weakening the
dollar again. The cycle then repeats. If that's what unfolds, "economic superpower" really will end up no longer being used
near the words "United States."
You don't need to buy into doomsday thinking, however, to try to tack your portfolio in a way that
limits the damage from eventual consequences of a sinking dollar. Here are three ways to do that:
Large U.S. growth stocks
You can take advantage of a falling dollar by buying foreign stocks. But after a six-year run, international
equities aren't cheap. Giant U.S.-based multinationals, which have lagged the overall market since the late 1990s, are a ready-made
alternative, says James Stack, editor of the InvesTech Market Analyst newsletter.
An easy way to invest in these stocks is through a mutual fund like Jensen ( Charts), a member of the Money 70, our list of recommended funds. Among Jensen's top holdings are global leaders such as General Electric ( Charts, Fortune 500) and 3M ( Charts, Fortune 500). Of course, if history repeats itself and the U.S. market sinks once the dollar stabilizes, these stocks could get hit too.
But their global dominance and often-generous dividends will help cushion the blow. Foreign government bonds
Jeffrey Knight, head of global asset allocation at Putnam Investments in Boston, says that investing
in overseas government bonds is a "pure play" on the falling dollar since you're betting on the health of economies, not corporations.
And unlike an international stock fund, a fixed-income portfolio such as John Hancock Strategic Income ( Charts) is unlikely to fall as hard as stocks in difficult times. Inflation-protected bond fundsRemember that in the past, the dangerous time for stocks came after
the Fed stepped in to curb the eventual consequence of a falling buck: inflation.
Robert Arnott, manager of the Pimco All Asset fund, notes that a simple way to protect your portfolio
is to invest in Treasury Inflation-Protected Securities (TIPS). Unlike traditional bonds, whose returns can be ravaged by
inflation, TIPS' principal value rises with the consumer price index. The best deal in TIPS is the Vanguard Inflation-Protected Securities fund ( Charts), in our Money 70. It's shelter in a storm, and it comes at a good price. 
Get a Money Makeover. Are you a baby boomer nearing retirement - or already retired - whose
finances could use some help? Tell us your story for an upcoming feature in Money Magazine. Contact makeover@moneymail.com XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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Citigroup:
'Gimme shelter'
should we protect banks from their mistakes?
(Fortune Magazine) -- This may sound silly, but let me ask you a question. Let's say that I maxed out
my credit at Citigroup to speculate on a house whose market price is now less than what I paid. Citi wants its money, but
instead I say, "Sorry, the house is selling for less than its true value. As soon as it sells for what it should, I'll send
you a check." What do you think Citi's reaction would be? How about "Sir, where should I send the repo man?"
Well, folks, Citi ( Charts, Fortune 500) seems to have put itself in just such a fix by borrowing lots of money to buy assets that have dropped in market value.
But instead of summoning the repo (as in repossession) man, some of the world's biggest hitters are trying to set up a huge
fund to buy time for Citi and some other institutions with similar problems.
The idea is to set up a $100 billion "master liquidity enhancement conduit" to take some of the $80 billion of suspect securities
off Citi's hands so that it doesn't have to sell them in the current market. Other institutions have about $300 billion worth.
(This conduit is being called a superfund, to the delight of those of us who live in New Jersey, for whom the term evokes
images of toxic industrial waste. But I digress.)
The problem here, as you probably know, involves seven of Citi's "structured investment vehicles," known as SIVs. They
borrowed short-term money to buy long-term assets, such as mortgage-backed securities, that have fallen in market value. Regulators
and various big institutions are trying to stabilize things to avoid what we can call SIVilis. That's a financially transmitted
disease that could infect the world's financial markets, leading to cascading failures and other consequences too dire to
even think about.
Citi won't talk to us about SIVs. The only player who would go on the record is Treasury Secretary Hank Paulson, whose
department is in charge of maintaining orderly financial markets.
The problem, Paulson told Fortune, is not merely "the repricing of risk" but also analyzing the immensely complicated securities
the SIVs own. "What you're dealing with here is complexity," he told us, and the proposed master conduit would pool not only
money but analytical information as well. An interesting concept.
Paulson wouldn't discuss Citigroup or provide details about how bad SIVilis is. But he gets points for coming out and talking.
Citi clearly screwed up with its SIVs. When a financial institution borrows short term to buy long-term assets, it's supposed
to have a plan for when its bet goes bad - rather than just whining about "disorderly markets."
Citi now says it has put together enough borrowings to carry its SIVs through year-end, which may be why Paulson told us
the problem "isn't urgent."
If Citi's only problem is that it can't liquidate its SIVs without a profit hit, too bad. If Citi's very existence is at
risk, I don't think we dare let it fail, because that would drag down institutions throughout the world. But if the bank needs
help, its shareholders should have to pay. Bigtime.
Step one would be to eliminate its common stock dividend, currently more than $10 billion a year. Step two would be to
force Citi to raise the capital it needs by selling new stock at a price well below its recent $42 a share. That would force
holders to either ante up or have their Citi stake diluted. That just might inflict enough pain on shareholders that someone
other than underlings would pay for Citi's SIV sloppiness.
In any event, if we believe in markets, Citi should have to take its chances. We small fry take chances when we borrow,
and we pay the price if we're wrong. Big fish should have to do the same.
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