From David Nicklaus’ Mound City Money blog. STLtoday.com/moundcitymoney
Unanimity is rare in surveys of businesspeople, but the St. Louis Fed found it among area car dealers. The Fed’s latest Burgundy Book survey says all the dealers it talked to expect lower sales this year. Other retailers aren’t quite as pessimistic, but half expect sales to fall and only one-third expect sales to rise.
If Kansas City’s leaders want to learn about the economics of a 1,000-room convention hotel, they could drive 250 miles east and talk to the folks who recently foreclosed on the Renaissance Hotel in downtown St. Louis. Instead, they’re spending $500,000 for a feasibility study. According to the Kansas City Star’s Kevin Collison, our neighbors to the west are also establishing a 20-member steering committee to think about the idea.
We St. Louisans could save them plenty of time and money. Here are three pieces of free feasibility advice:
— It won’t work without a huge public subsidy.
— It won’t magically generate more convention business
— Even with a huge subsidy, it might not succeed.
The ESOP Association estimates that 10 million U.S. workers, about 10 percent of the private-sector work force, participate in employee stock ownership plans at 11,500 companies. Many people would look at those numbers and see upbeat, motivated employees, their incentives fully aligned with the employers’ goals auto one car insurance.
Sean Anderson, a visiting law professor at the University of Illinois, looks at ESOPs and sees a disaster waiting to happen. In an upcoming article, he says Congress should ban employer stock from all company-sponsored retirement plans. Here’s an Anderson quote, from a U of I News Bureau summary of the article that will appear in the Loyola University Chicago Law Journal. :
"ESOPs have a lot of intuitive appeal — the idea of having workers own a piece of the company they’re working for. But they’re Enron on steroids. At the end of the day, they put workers at terrible risk and more often than not work as a tool that benefits the company, not employees."
ESOPs prevent workers from diversifying their retirement savings, and workers don’t even control the price at which they invest.
My guess is that any proposal to abolish ESOPs would run into a firestorm of criticism from many of those 10 million employee-owners. I’ve talked with people who get a special sense of pride from working at an employee-owned company such as Graybar Electric or McBride & Son Homes. Any reformer would also have to contend with the ghost of Louis O. Kelso, the Cold-War-era thinker who conceived of ESOPs as a way to keep workers engaged with capitalism and opposed to communism.
Australia's Qantas Airways Ltd. said Friday it had canceled orders for 15 Boeing 787s and delayed the delivery of a further 15 aircraft due to turbulent market conditions.
Qantas Chief Executive Alan Joyce said the decision had not been influenced by Boeing Co.'s announcement earlier this week of a design issue in the 787 and further delay to the aircraft's first flight. He said discussions with Boeing about the order had started some months ago.
Qantas said it had reached a mutual agreement with Chicago-based Boeing Co. to defer the delivery of 15 Boeing 787-8 aircraft by four years and cancel orders for 15 Boeing 787-9s (which are slightly larger) scheduled for delivery in 2014 and 2015.
Joyce said Qantas remained committed to the 787 as the right choice for the international expansion of Jetstar, its low-cost subsidiary, and as an eventual replacement for Qantas' Boeing 767 fleet.
The 787 is the first commercial jet made mostly of light, sturdy carbon-fiber composites instead of aluminum. Large parts of the plane, such as the fuselage sections and wings, are made in factories around the world and flown in a huge modified 747 to Boeing's widebody plant in the Seattle area, where they are essentially snapped together no fax payday loans.
Boeing said Tuesday that it needed to reinforce small areas near the connection of the wings and fuselage before conducting a test flight of the jet.
Boeing spokesman Miles Kotay said Friday that Qantas remains one of Boeing's largest customers for the 787, with 50 still on order.
"They are committed to the 787 for their own growth and to replace their aging airplanes," he said.
The cancellation of orders for 15 787-9s would reduce the group's aircraft capital expenditure by $3 billion based on current list prices, Joyce said.
He said Qantas announced its original 787 order in 2005 and the “operating environment for the world's airlines has clearly changed dramatically since then.''
"Delaying delivery, and reducing overall B787 capacity, is prudent, while still enabling Qantas and Jetstar to take advantage of growth opportunities and market demands, both domestically and internationally," he said in a statement.
The commercial was a LONG way from Budweiser Clydesdales and Dalmatians.
The plot: A guy stops by a convenience store to pick up a six-pack of Bud Light — as well as lip gloss, batteries and a pornographic magazine. Things quickly go downhill. A cute girl walks up — "Jim? Jim Scott? I haven’t seen you since prom!" — and is instantly scandalized. Jim tries to beat a hasty retreat but is taken hostage by a pistol-wielding robber. TV crews show up, identifying him by name as the "local porno buyer."
You won’t see the ad on TV. Not in this lifetime. Anheuser-Busch, maker of Bud Light, couldn’t get this ad past the network censors, even if it wanted to do so. (It doesn’t.)
Instead, the ad was made to live only on the Web. Quietly unveiled in February after the Super Bowl, "Magazine Buyer" was a "secret" spot, available at first only to viewers who had text-messaged Anheuser-Busch and then logged on to BudBowl.com.
The commercial is a prime example of how companies are using the Web to venture into edgier territory as they try to grab the attention of elusive and increasingly distracted consumers.
The loose, largely unregulated ethos of the Web allows mainstream brands like Bud Light — America’s bestselling beer, backed up by $500 million in measured advertising over three years — to try racier content.
"There are many more vehicles available to advertisers which accept advertisements that push to the edge, if not go off the edge of a cliff," said Dan Howard, professor of marketing at Southern Methodist University.
Numerous big advertisers have used the Internet to explore the boundaries of good taste. In 2006, electric razor maker Philips rolled out a website called shaveeverywhere.com. The site encourages "male bodygrooming," i.e., shaving … but not the face.
Anheuser-Busch has been evaluating its ability to push the envelope online as a way to build buzz among a target audience. For Bud Light, that’s guys ages roughly 21-27.
One Internet-only ad from 2007 portrays "Scott" seeking forgiveness for making a naughty video with a lady friend, and then selling it to a chain of video stores to pay for lap dances. Scott resolves the situation by getting a robot named "Apology-Bot 3000" to deliver a Bud Light to the lady.
But a Bud Light commercial called "Swear Jar" may be the granddaddy of all Internet-only ads. The plot: Office workers have to pay a quarter for every curse word, with the proceeds going to pay for Bud Light. The result: rampant and ferocious — albeit bleeped-out — cursing.
The commercial swiftly went "viral" after its 2007 launch. It has been viewed more than 12 million times on the Web, a level of exposure that a lot of TV advertisers would love to have.
Rather than passively watching, Web surfers seek out or make a decision to click on an online video. Advertisers covet that engagement.
"You’ve got to go on the Internet and look for that ad, find it and then watch it," said Howard instant payday loans. "Who’s going to do that? People who want to, who have heard it’s a great commercial."
Keith Levy, Anheuser-Busch’s vice president of marketing, said in a statement that the "Magazine Buyer" spot carried on the company’s tradition of sending outrageous humor onto the Internet.
A-B tested the "Magazine Buyer" concept extensively to make sure adult consumers appreciated the humor, Levy said.
Apparently, they did. Even though the video began its life as a "secret" spot on BudBowl.com — an A-B website that requires visitors to enter a birth date showing they are 21 or older — it quickly migrated to YouTube. It has been viewed more than 700,000 times.
Of course, testing the bounds of appropriateness doesn’t just happen on the Internet.
Hardee’s, which became infamous for ads featuring Paris Hilton washing a Bentley and another woman riding a mechanical bull, continues to use sexual innuendo. But Hardee’s, the St. Louis-based subsidiary of CKE Restaurants, is not alone. Quiznos’ TV commercials now make risqu
Charter Communications Inc.’s plan to reorganize in bankruptcy has "improper" legal releases for Paul Allen, the controlling chairman, and other company officers, said the U.S. Trustee, an arm of the Justice Department.
Diana Adams, acting U.S. Trustee, said in court documents filed Friday that the cable-TV provider’s reorganization plan shouldn’t be confirmed due to legal shields that protect officers and directors, including Allen, from lawsuits for violating state or federal law.
At a minimum, the plan shouldn’t release those parties from lawsuits brought by equity holders, the trustee said.
The "releasees appear to be acting in their own self-interest and seek to use those actions to justify enjoining equity holders, whose rights are extinguished under the plan," Adams wrote.
Under Charter’s proposed reorganization, secured claims will be reinstated and unsecured claims will be paid in full. Interest holders other than Allen, including common stockholders, will get nothing.
The legal releases say "holders of interest," including parties who signed a settlement with Charter, along with officers, directors and financial advisers will be released from lawsuits bad credit payday loans.
Also, U.S. Bankruptcy Judge James Peck in Manhattan has approved the "disclosure statement," or rough outline of how Charter intends to reorganize, and has said various objections, including one from by JPMorgan Chase & Co., will be considered at a confirmation hearing where Peck will be asked to approve or reject the plan.
Charter’s plan had already been amended last month to answer some concerns of the U.S. Trustee, an arm of the Justice Department that oversees bankruptcies.
JPMorgan and other creditors have argued that Charter’s debt can’t be reinstated, or replaced on existing terms, because Allen, Microsoft co-founder and the controlling chairman, cedes control of the company through its reorganization plan.
Town and Country-based Charter filed for bankruptcy protection in late March.
It could be the troubled auto sector’s ultimate win-win-win deal.
Taking advantage of an unprecedented global auto crisis, Frank Stronach, 76, scores the crowning achievement in his rags-to-riches career by taking a 20 per cent stake in Adam Opel GmbH, Germany’s second-largest automaker and for 80 years the main European arm of a now-bankrupt General Motors Corp.
Under terms of a tentative deal reached late last month, Stronach’s Magna International Inc., based in Aurora, and founded by Austrian émigré tool-and-die maker Stronach in Toronto in 1957, expands from one vehicle assembly plant, in Austria, to 10 in Germany, Britain, Spain, Portugal and Poland – becoming the only auto-parts maker ever to join the ranks of major automakers.
An insolvent GM, after surrendering 65 per cent of Opel for about $5 billion (U.S.) in German government loan guarantees, clings to its global strategy under the proposed deal by retaining 35 per cent of Opel, which also makes the Vauxhall brand in Britain.
In recent years, Opel has emerged as a key contributor to GM’s worldwide vehicle-development system. Opel models have long been the platforms, or underpinnings, of several models of Saturn, a GM division shed in its reorganization process.
Of late, though, Opel has also been responsible for engineering of all of GM’s mid-size and compact cars – the new, fuel-efficient "sweet spot" for automakers in future years of higher gasoline prices. Opel’s redesigned mid-size Insignia and Astra compact, regarded as among the best-engineered new Opel models ever, can easily be "re-badged" as Chevys or Buicks for non-European markets.
The tentative deal, to be finalized over the next few weeks, also works for OAO GAZ, the second-largest Russian automaker. GAZ’s chief creditor, state-owned Sherbank, would have a 35 per cent Opel interest, which it will likely sell to a GAZ that, for now, is in financial distress.
The GAZ link is Opel’s chance to gain a substantial foothold in Russia, which is expected to eclipse Germany as Europe’s biggest vehicle market when the global recession subsides. GAZ’s underused factories in Russia would benefit from economies of scale by turning out higher-quality, higher-priced Opels. And Opel would achieve greater efficiencies by spreading its new-product development costs over a larger sales base that could double in a few years, from 2008 sales of 1.46 million vehicles.
Much could go wrong with this multi-headed joint venture. The constant friction that characterizes most joint ventures could undermine the Magna-led consortium’s goal of lifting Opel into the top tier of world automakers.
Or the deal could be stillborn. Berlin is still welcoming rival Opel bids, presumably those that would reduce Germany’s loan exposure to Opel.
"With the Opel rescue we are throwing taxpayer money out the window with a sort of `free-beer-for-everyone’ mentality," said Michael Fuchs, chairman of the business wing of German Chancellor Angela Merkel’s party, to reporters. And thwarted suitor Sergio Marchionne, CEO of Fiat, as recently as Sunday expressed his continued interest in Opel.
But Fiat hasn’t improved its final offer. As with its deal to control Chrysler, a cash-challenged Fiat refuses to inject a penny of its own money into Opel, while the Magna-led bid called for a private-sector investment of close to $1 billion. Fiat also hasn’t offered to reduce the number of Opel layoffs and plant closings it contemplated – much deeper cuts than the Magna group envisions.
The Fiat plans for Opel are anathema not only to Merkel, with a September election on the horizon, but to GM unsecured personal loans with bad credit. As part of its own revival strategy, GM is counting on the output from Opel’s network of plants to retain and grow European market share. And some of the Opel facilities specialize in specific new technologies. Loath to see the Opel network it built dismantled, GM chose the Magna group over Fiat as its preferred final bidder.
In its struggle against larger competitors Fiat, Volkswagen, Renault and Peugeot Citroen (the latter two recipients of Paris emergency assistance), Opel has been starved for cash by its troubled U.S. parent. It also has been plagued by internal squabbles between executives in Detroit and Opel’s headquarters in Ruesselsheim, Germany.
So, Opel has suffered more than most competitors, with its European sales this year down 21 per cent, compared with a 5 per cent decline at Fiat and a 6 per cent drop at VW. Opel’s European market share has nosedived from 12.6 per cent in 1993 to a current 7.9 per cent.
But that was before the game changed, or will change if the Magna-led bid prevails. GAZ is an opening to the huge emerging Russian market. Its owner, Russian oligarch Oleg Deripaska, is something of a protégé to Russian Prime Minister Vladimir Putin.
GM has told Magna it wants no Opels sold in North America. But GM is way behind the curve in mid-size car development. Having shed its Pontiac brand along with Saturn, Saab and Hummer in its bankruptcy reorganization, GM has North American Chevrolet and Buick dealerships in need of the wider product lineup to which they’re accustomed and they would welcome Opel products. The Opel-Saturn connection also puts a Magna-led Opel consortium in the lead position to take over manufacturing of Saturns from GM in 2011, at underused Opel and Vauxhall plants in Europe. (Saturn was recently purchased by auto-industry maven Roger Penske.) The Stronach musings lately about building Opels in Canada and assembling all-electric cars are fanciful. But turning some of Opel’s least busy plants over to "contract manufacturing" of Ford makes and other brands is not. Neither is the Opel deal. With Magna, GM, Berlin and the Russians having so much to gain from an Opel recovery, the parties have ample incentive to make their admittedly crowded partnership work.
GM is eager to retain its European presence and expand it into Russia. With the Magna-led deal, GM would "still have a tremendous broad-based global reach," Jeff Shuster, executive director of J.D. Power and Associates, told the Detroit News.
Which leaves Stronach sitting quite pretty amid a devastating industry downturn. Overly reliant on Detroit for years, Magna would have Opel demand to compensate for at least some of the decline in Detroit output in the next few years. And Magna stands to profit on the upside if the value of its 20 per cent Opel stake rises should the German firm recover.
"We dodged a bullet," Stronach told his shareholders earlier this year of Magna’s unsuccessful bid for Chrysler two years ago. By contrast with that proposed venture, in this deal Stronach limits Magna’s risk, shores up future demand for its core parts business, and has an Opel stake acquired at modest cost that could pay off with an Opel turnaround.
A turnaround that’s in the interests of so many parties that it’s not difficult to foresee – no matter how miserable the current shape of the global industry.
DETROIT — A former CEO and chairman of telecommunications giant AT&T Inc. will lead General Motors Corp.’s board after the automaker emerges from bankruptcy protection, GM said Tuesday.
Edward Whitacre Jr., 67, eventually will replace Kent Kresa, who will remain GM’s interim chairman until the reorganized automaker emerges as a new company that’s majority-owned by the U.S. government.
Whitacre was chairman and chief executive of AT&T and its predecessor companies from 1990 to 2007. During his tenure, he led the company through several acquisitions and sales.
Whitacre sits on the boards of Exxon Mobil Corp. and the railroad company Burlington Northern Santa Fe Corp.
Whitacre also was a director of Anheuser-Busch Cos. from 1988 to 2008, when the company was purchased by InBev of Belgium. He is not on Anheuser-Busch InBev’s board.
OTTAWA–Magna International Inc. chairman Frank Stronach says he expects the company's newly acquired Opel unit in Germany to break even in three years and turn a profit in four years.
Stronach was in Ottawa today unveiling his company's new electric vehicle to federal MPs.
Stronach says he expects to turn money-losing Opel around financially and expand the German carmaker's markets to Russia and other parts of the world payday loan rates.
Magna, headquartered north of Toronto, is Canada's largest auto parts maker with 74,000 employees in 25 countries.
The company announced plans to buy control of Opel on the weekend from parent company General Motors Corp., with the help of the German government.
Of the 54 job-seekers hoping to understand why all the world is atwitter about social networking, Linda Holley fell somewhere in the middle.
Unlike the unfortunate Luddite souls who arrived at last week’s Social Media Workshop unable to connect a laptop to the Internet, Holley at least brought a passing knowledge of websites and e-mail to the seminar.
Still, Holley is of a certain age. It was an age when "linked in" described a backyard fence, "delicious" was an ice cream sundae and "twitter" was what their heart did the moment they first laid eyes on the person who would become their spouse.
Holley, an unemployed travel industry sales rep, has come to terms with her limitations.
"I am not," she said, "an early adapter."
To which Steve Drake retorts: better late than ever. Drake was swept up by the Twitter craze in November.
The founder of the Chesterfield management firm Drake & Co. figures if a guy "as old as I am" can become a Twitter aficionado, anyone can.
That’s why the workshop sponsor, Businesspersons Between Jobs, asked him to facilitate the daylong seminar to introduce the social-network challenged to Facebook, LinkedIn, delicious.com (a bookmarking tool) and the ubiquitous Twitter.
From the get-go, it was pretty obvious Holley was going to be a tough sell.
"I was LinkedIn," she said during a break at the New Horizons Computer Learning Center, the St. Louis County facility that hosted the workshop. "But I didn’t have the foggiest idea what to do with it. I’m a reasonably intelligent person, which is why this is so frustrating."
What’s even more bedeviling, Holley added in a telephone interview this week, is the way online social networks suddenly emerged as the bridge between joblessness and gainful employment.
"I still think networking the old-fashioned way is not a bad way of doing things," she mused pay day loans no credit check. Be that as it may, Holley knows she has little choice but to sign up, sign on and network, network, network.
She proceeded cautiously in the days following the workshop, building up to the point where, by Wednesday of this week, I received a private message from her via Twitter.
Not long after, an invitation to join Holley’s LinkedIn network landed in my inbox.
LinkedIn also suggests Holley and I have a mutual business "connection."
And though Holley has joined Facebook, she can’t envision herself wiling away hours searching for names out of the past.
Of that, we are of the same mind: If we really cared about the long-lost friendships that materialize out of the Facebook ether, then we never would have allowed those friendships to lapse in the first place.
More to the point, Holley fails to see how a network that is the face of social interaction will help her get a job. Ditto, Twitter.
"If I want to talk to you, I can’t do it in 140 (characters)," Holley says.
Drake disagrees.
He maintains the abbreviated Twitter messages that come to the attention of recruiters or potential employers initiate a larger conversation about a job-seeker’s qualifications.
"It’s not the 140 characters" that are important, he said, "it’s the (content of the link) you post with it."
Holley, unconvinced, has decided to cast her lot with LinkedIn.
"I’m not going to bother with Twitter, I’m going to bother with getting a job," she announced.
Drake is not surprised.
"For these people, I think LinkedIn is probably the best way to go," said the 65-year-old, pointedly referring to those of a certain age.
BERLIN–Magna International emerged yesterday as a favourite to acquire General Motors Corp. unit Opel after top German officials said the Canadian car parts group had submitted a better plan than rival bidders Fiat and Belgian-listed private equity investor RHJ International.
At a briefing in Berlin, Magna co-chief executive Siegfried Wolf laid out its Opel plan for the first time, confirming it aims to team up with Russian partners but leave existing GM Europe managers to run the new group.
Crucially, Wolf vowed to retain all four Opel plants in Germany, where politicians face a federal election in September.
"Under our concept, the German sites are seen as assets and we want to keep as many jobs as possible," Wolf said. "There is a lot of know-how within the German Opel plants."
German economy minister Karl-Theodor zu Guttenberg emerged from a meeting of top ministers at which the offers were evaluated and said none of the bidders had been ruled out, but that the Magna offer had strengths.
"It would be premature to write anyone off. But it is true that we have heard many concrete things from Magna," he said.
German foreign minister and vice-chancellor Frank-Walter Steinmeier described the Magna bid as the only "sustainable" plan among the three and said it would be examined closely.
Both ministers said a decision on a preferred bidder would come next week after another meeting of ministers Monday.
But state premiers from the four German states where Opel has plants had diverging views on the Magna plan. Most backed it but Juergen Ruettgers, of North Rhine-Westphalia, said it was unacceptable and needed changes.
Fiat CEO Sergio Marchionne was cautious about the prospects for Fiat’s bid in brief remarks to reporters.
"It’s hard to say how it will end up," he said in Rome on his way to a dinner with bankers. "It’s a complicated business because this is an election year in Germany."
He was quoted in the Italian press a day earlier as saying Fiat’s chances were better than 50-50.
Opel unions also voiced opposition to the Canadian firm’s plan, under which about 10,000 jobs would be cut in Europe, including some 2,500 in Germany. All but a few hundred of those would come from the Bochum plant in North Rhine-Westphalia.
Outside of Germany, GM Europe has plants that employ a combined 15,000 in Spain, Poland, Belgium and Britain, where British Vauxhall-branded versions of Opel vehicles are produced. Sweden’s Saab, also part of GM’s assets in Europe, is being sold separately.
GM and the German government are in a race against time to finalize a sale of Opel cash advance loan no fax. Headquartered in Ruesselsheim, near Frankfurt, it traces its roots in Germany to the 19th century.
The U.S. government has given GM until June 1 to restructure its operations or face bankruptcy.
The decision on who gets Opel will be made by GM. But the German government will play a big role because it is expected to provide billions of euros in financing guarantees to the eventual winner.
Magna is competing for Opel against Belgium-listed industrial holding company RHJ International, as well as Fiat.
The bidding has been coloured by politically charged pre-election debate in Berlin.
Chancellor Angela Merkel’s conservatives, including Guttenberg, are keen to preserve Opel jobs but want to limit the state’s role in any rescue.
The rival Social Democrats, led by Steinmeier, say the government should do all it can to save Opel and have sought to portray Merkel as insensitive to the fate of its workers.
Marchionne has led a public relations campaign in recent weeks, racing around in a Maserati and his trademark wool sweaters to meetings with top government officials.
Italian foreign minister Franco Frattini late yesterday put Fiat’s chances at 50-50 and dismissed talk that Magna’s bid would be successful as "preliminary skirmishing."
Marchionne wants to create the world’s second-biggest automaker behind Japan’s Toyota by adding the assets of Opel and British GM unit Vauxhall to a stable that includes the brands of Fiat and U.S. car maker Chrysler, now restructuring under U.S. bankruptcy protection.
The company has said it foresees fewer than 10,000 job cuts in Europe, but Germany would be harder hit than under the Magna plan, several politicians said.
The Fiat plan is seen by some in Germany, including Opel unions, as overly ambitious and unwieldy.
Also, Fiat has told the German government it would need up to 7 billion euros in support from relevant governments for its scheme, about 2 billion more than Magna and RHJ say they would require.
Magna’s Wolf said that, under his company’s plan, GM and Russian partner Sberbank would each hold a 35 per cent stake in Opel, with Magna taking 20 per cent and employees 10 per cent.
Russian car maker GAZ would be an industrial partner and the goal would be for Opel-GM to gain a 20 per cent market share in Russia in the short term and eventually sell 1 million vehicles there.
Wolf suggested that job cuts would centre on Opel sites in Belgium and Britain. The Magna consortium would invest 500 million to 700 million euros in Opel, he said.
The Obama administration moved on Wednesday to exert more control over the shadowy over-the-counter derivatives market, now closely linked to the global credit crisis.
Federal regulators proposed subjecting all over-the-counter derivatives dealers — whose trades are not made through an exchange, making them hard to monitor — to “a robust regime of prudential supervision and regulation,” including conservative capital, reporting and margin requirements.
The plan, sketched out by Treasury Secretary Timothy Geithner and top regulators at a news conference, marks a big step in the administration’s push to rewrite rules for banks and financial markets in response to a credit crisis that has sent economies around the globe reeling.
U.S. officials have pumped billions of dollars of taxpayer money into banks and automakers to try to stem the crisis. Last week, they wrapped up “stress tests” at the nations 19 largest banks and told ten of them to raise a combined $74.6 billion.
The Obama administration is now aiming to bolster regulatory oversight of the financial system.
Over-the-counter derivatives are presently difficult to monitor and supervise. Billionaire investor Warren Buffett has called derivatives “financial weapons of mass destruction.”
Under current law, they are only loosely policed.
“We’re going to require for the first time all standardized over-the-counter derivative products be centrally cleared,” Geithner told the news conference compare car insurance prices.
EXPLOSION IN TRADING
Trading of OTC derivatives, instruments that derive their value from other assets, exploded in size in recent years, with many large firms — such as mega-insurer American International Group — charging into the burgeoning market.
The global market is pegged at about $450 trillion.
When the U.S. real estate bubble burst, firms such as AIG were left with mountains of complex, hard-to-sell financial instruments on their books.
In the United States, four large banks control over 90 percent of the derivatives market: JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, and Goldman Sachs Group Inc. All have received taxpayer aid.
Officials did not make clear which agency would be in charge of the crackdown. They said they would work together to prevent “forum shopping” for weak rules. Lawmakers disagree over which agency should oversee OTC derivatives clearing.
Laws enforced by both the Securities and Exchange Commission and Commodity Futures Trading Commission would have to be amended by Congress to accommodate the administration’s plans.
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