Tuesday PM January 22nd, 2008
by: Ed Mayberry, January 22, 2008 5:01:00 am
Enron investors suffered a major setback before the U.S. Supreme Court. Justices refused without comment to take up their appeal in a lawsuit that alleged securities fraud by Wall Street investment banks. Those are banks that did business with Enron. Stockholders are seeking more than $30 billion from Merrill Lynch, Credit Suisse First Boston and Barclays Bank. The Enron stockholders accuse the Wall Street investment banks of colluding with the energy company to hide its losses. To date, Enron plaintiffs have settled for $7.3 billion in compensation from several financial institutions, including JPMorgan Chase, Citigroup and Canadian Imperial Bank of Commerce. Enron stockholders can still revive their case before the 5th U.S. Circuit Court of Appeals, but the New Orleans-based court has ruled against them once before. The chances that Enron shareholders can recover more money dimmed a week ago with justices ruled against investors in a separate suit. Those investors had alleged that two suppliers doing business with a cable TV company engaged in securities fraud.
The Federal Reserve has cut a key interest rate amid a global stock sell-off. The Fed is cutting the federal funds rate to three and a-half percent, from four and a-quarter. The rate is what banks charge each other on overnight loans. The action is the most dramatic signal the Fed can send that it's concerned about a potential recession in the United States. It's the biggest one-day move by the central bank in recent memory. The Fed says it decided to cut the rate "in view of a weakening of the economic outlook and increasing downside risks to growth.'' The decision was made during an emergency telephone conference with Fed officials last night, after global financial markets plunged on concerns about a U.S. recession.
Treasury Secretary Henry Paulson is urging Congress and the Bush administration to agree quickly on a package of tax cuts. Paulson says Congress and the White House need to agree quickly on a package of tax cuts and other measures to boost the economy. Paulson tells the U.S. Chamber of Commerce "time is of the essence'' and says President Bush "stands ready to work on a bipartisan basis'' to enact legislation as soon as possible. He spoke as the Federal Reserve announced it was cutting the federal funds rate by three-quarters of a percentage point, to 3.5 percent.
As Wall Street plummets, the White House says the president isn't ruling out a more aggressive economic stimulus package. Bush and Congressional leaders have been hashing out a plan to inject as much as $150 billion into the ailing economy to stave off a recession. But the White House says it's not closing the door to the idea that the package could balloon. A White House spokeswoman says that doesn't mean she's "suggesting that anyone believes it has to be bigger.'' Bush last week offered the outline of a short-term economic boost.
BP says the Feds took the harshest option available in brokering a $50 million fine over a deadly refinery explosion. The fiery March 2005 accident at BP's Texas City unit left 15 workers dead and more than 170 others hurt. The court filing was in response to some accident victims and their families who've objected to the plea agreement. Those critics say the government was too generous to BP. But BP's response, filed in federal court in Houston, says the government had four options after investigating the refinery accident: decline criminal prosecution, enter into a deferred prosecution agreement, file a misdemeanor charge or file a felony charge, which is what the Justice Department pursued. A call to the U.S. Attorney's Office wasn't immediately returned.
It could be a sign of possible movement in the impasse between striking writers and Hollywood. Officials with the Writers Guild of America have held informal talks with the studios. And a person familiar with the bargaining strategy says the informal talks could lay the groundwork for the resumption of full-scale negotiations between the two sides. The writers have been on strike since November 5th. They walked over issues like royalties for shows that are sold as DVD's or sold online. The informal talks began on the day Oscar nominees were announced.
With the holiday weekend behind, investors don't have much to look forward to, at least regarding fresh economic data. There's nothing due until Thursday. The initial jobless claims will be mined for any signs of weakness in the job market. Also due on Thursday, the National Association of Realtors releases a report on sales of previously owned homes.