AIG Seeking More Government Aid

Preparing to announce a mammoth fourth-quarter loss, the largest in U.S. corporate history, troubled insurer American International Group, Inc) is reportedly seeking additional funds from the government. The company is in discussions with the government to secure more funds so that it can keep operating after next Monday, when the nearly $60 billion loss is announced.

The huge loss, stemming mainly from write-downs on assets including commercial real estate, is likely to lead to downgrades in its insurance and credit ratings, which will force AIG to raise collateral that it does not have. Also, if AIG's book value falls below a certain level, which is very much likely, it will trigger default in some of its debt instruments.

AIG, which until last September was the world's largest insurer, was saved from going bankrupt, after receiving an initial $85 billion U.S. government bailout package. The Federal Reserve and Treasury have already provided over $150 billion of aid to AIG and the federal government now owns 79.9% of the company. Not helping AIG in its crisis could unfold a chain of events that could lead to problems for several financial institutions, which still rely on AIG to insure them against losses on loans and other debt.

However, helping AIG this time around is a little tricky, as the government's stake cannot exceed the current limit. The situation creates an opportunity for officials to find a new way by which value can be transferred to the U.S. in lieu of AIG reducing its debt so that it can then borrow more from the government to meet its collateral calls.

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China & U.S. can lead world to recovery says Clinton; Obama vows to spend stimulus money wisely

U.S. Secretary of State Hillary Clinton said on Saturday the United States and China could help the world recover from economic crisis by working together, adding that Washington appreciated Beijing's confidence in U.S. government debt.

"I appreciate greatly the Chinese government's continuing confidence in United States Treasuries. I think that's a well grounded confidence," Clinton said at a news conference with Chinese Foreign Minister Yang Jiechi.

China invests the bulk of its reserves in liquid debt, notably U.S. Treasury bonds. Beijing is wary of taking excessive risks after suffering heavy book losses on stakes in financial firms such as Blackstone and Morgan Stanley.

On Friday, Clinton said Washington would press China on human rights but added that this would not keep them from working together on a range of issues such as the financial crisis. The United States has long accused China of human rights abuses and pressed Beijing to grant greater autonomy to Tibet. Clinton will also meet President Hu Jintao and Premier Wen Jiabao on Saturday.

Meanwhile U.S. President Barack Obama vowed strict oversight Friday of his $787 billion stimulus plan, pushing back against Republicans who have labeled the centerpiece of his economic agenda fiscally irresponsible.

Obama said he would name a team of managers to ensure that billions of dollars slated for infrastructure projects would be spent wisely. "The American people are watching. They need this plan to work. And they expect to see the money they worked so hard to earn spent in its intended purpose without waste, inefficiency, or fraud." Obama said at a gathering at the White House. The signing this week of the bill -- the most expensive in history -- marked a big victory for Obama and his Democratic allies in Congress.

Compiled news from the Reuters.

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FOREX-Top Headlines on Monday Morning

Yen Rises, South Korean Won drops to two month low:
The yen climbed to 91.65 against the dollar as of 2 p.m. in Tokyo from 91.93 late in New York on Feb. 13 in forex trading. It advanced to 116.92 per euro from 118.37. Japan’s currency gained 1.2 percent to 59.63 versus Australia’s dollar and rose 1.1 percent to 47.50 against New Zealand’s dollar. The U.S. dollar gained to $1.2756 per euro from $1.2862 in New York last week, and climbed to 1.1668 Swiss francs from 1.1590. The British pound fell 1 percent to $1.4214 and weakened 0.2 percent to 89.75 pence per euro.

The yen snapped two days of losses against the dollar from the Friday session last week.

South Korea’s won shed 11 percent this year, the biggest drop among the 10 most-traded Asian currencies outside Japan, on concern that a deepening global economic slump will discourage investors from buying emerging-market assets.
A forecast revealed the Korean economy will shrink 6 percent this year as the world recession takes a bigger toll on over-leveraged households and smaller companies than during the 1998 Asian crisis.

Geithner Pressed By G-7 to Push Ahead With Bank Bailout Plan:
Finance chiefs from the Group of Seven nations joined the chorus of U.S. investors and lawmakers pushing Treasury Secretary Timothy Geithner to move faster to fix the banking system. The G-7 repeated its traditional message that “excess volatility” and “disorderly movements” in exchange rates must be avoided. The group accounts for about two-thirds of the world economy composing of the U.S., Japan, Germany, U.K., Italy, Canada and France. The yen rose against the euro and the dollar after finance ministers from the Group of Seven nations said the “severe” global slump will persist for most of 2009 and Japan’s economy shrank by the most since 1974, spurring investors to sell riskier assets.

White House dampens stimulus expectations:
President Barack Obama's aides warned Americans on Sunday not to expect instant miracles from the $787 billion economic stimulus bill he will sign this week, but said it would help eventually. "The acceleration in job loss probably means that this economy is going to get worse before it gets better," he said. The Republicans kept up their criticism on the bill saying it is incredibly expensive. “It has hundreds of billions of dollars in projects which will not yield in jobs," said John McCain, whom Obama defeated in last year's presidential election.

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Congress dispatches Stimulus Package to Obama

An economic stimulus package worth $787 billion is headed to President Barack Obama’s desk after Congress passed the plan that Democrats say is critical to helping pull the U.S. economy out of recession. The Senate late yesterday voted 60 to 38 to approve the package of tax cuts and more than a half-trillion dollar in new federal spending. The votes give Obama the first major legislative victory of his presidency.


Democrats predict the plan will save or create 3.5 million jobs. Its costliest item is a $400 payroll tax cut for individuals and $800 for couples. Retirees, disabled veterans and others who don’t pay payroll taxes will get a $250 payment. Democrats released the text of the plan late the night before the vote, prompting complaints from Republicans they didn’t have enough time to review the legislation before voting on it. “It is over a thousand pages- it’s physically impossible for any member to have read this bill.” said a representative from Georgia Republican. Republicans argued that the bill contains too much government spending and, because of that, won’t do enough to boost the economy. The New Hampshire Republican senator Judd Gregg, who withdrew this week as Obama’s commerce secretary nominee, voted against the plan saying the “so-called stimulus plan has become sidetracked by misplaced spending and a lack of attention to the true problems facing the nation.”


The stimulus plan provides a half-trillion dollars for jobless benefits, renewable energy projects, highway construction, food stamps, broadband, Pell college tuition grants, high-speed rail projects and scores of other programs. It raises the nation’s debt limit to about $12 trillion.

The nonpartisan Congressional Budget Office said the stimulus package will cost $787 billion, rather than $789 billion lawmakers estimated earlier this week. The plan will pump $185 billion into the economy this year and $399 billion next year, the agency said. A Wisconsin Democrat said as he urged passage of the bill, “The other tool normally available to us is monetary policy in the form of low interest rates through actions of the Federal Reserve. We’ve already fired that bullet - - the only bullet left is fiscal policy.”

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FOREX and Other Headlines on Friday Morning

Yen Falls on hope Risk Appetite Will Revive:
The yen dropped against the euro and the U.S. dollar as optimism about government efforts to revive global growth improved investors’ appetite for riskier assets, pushing up Asian stocks and Forex market for the first time this week. The yen also weakened against the Australian and New Zealand dollars after Australia’s Senate approved a 42 billion AUD ($28 billion) stimulus package aimed at ensuring the economy doesn’t enter its first recession in 18 years. The greenback fell for the first time in four days on speculation a U.S. report will show that confidence among consumers declined in February, adding to signs the recession in the world’s largest economy is worsening.

G7 Meeting:
Finance ministers and central bankers from the Group of Seven major industrial nations meet in Rome here today and tomorrow. They plan to discuss exchange-rate developments.

Indian shares rise:
Indian shares rose 1.8 percent on Friday as investors speculated on a fiscal stimulus package in an interim general budget on Monday and supported by firmer Asian markets. Traders said expectations an interim railway budget, scheduled to be presented to Parliament at 11 a.m. (0530 GMT), would propose lower freight rates also underpinned sentiment.

Stimulus Aims Two-Phase Jolt at U.S. With Tax Cuts, Spending:
The stimulus plan emerging from Congress may jolt the U.S. economy in successive waves: relief to cash-strapped consumers, businesses and states, then a job- creating lift from spending on roads, utilities and public transit. Economic activity begins to tick up in third quarter of 2009, but the biggest effect of the stimulus bill is being expected in 2010.The hope is, with the stimulus, that we actually stop losing jobs by the end of this year, marked an analyst. The stimulus bill contains about $54 billion to help states with expenses. The plan has more than $60 billion to increase unemployment benefits and a boost to food-stamp programs, housing assistance programs and other aid for the hardest-hit Americans.

Obama Pays Tribute to Abraham Lincoln:
The United States on Thursday 12th February, marked Lincoln's 200th birthday with ceremonies at the US Capitol in Washington and at historical sites across the country, including his presidential library in Springfield, Illinois and the Gettysburg battlefield in Pennsylvania. President Barack Obama often invokes the name and symbols of the assassinated president who ended slavery and brought the U.S. through the Civil War. Both men rose from the Illinois state legislature to the highest office in the land and both built reputations as skilled political orators.

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US Equities Dive as Risk Aversion Prevails

The safe-haven currencies benefited amid heightened risk aversion, with the dollar and yen advancing against the majors. US Treasury Secretary Geithner provided additional details on the Obama administration’s financial bail-out plan – prompting a sharp sell-off in stocks. The Dow Jones and S&P 500 were both lower by over 4% and the NASDAQ sliding by nearly 3.5% in the New York afternoon.

Geithner described buying up to $1 trillion in banks’ toxic assets and up to $1 trillion in purchases of consumer debt – in an effort to free up the credit markets. Geithner fell short of providing any key details on a comprehensive bail-out program, prompting markets to sell-off sharply amid growing uncertainty over the prospects for the government to successfully.

Euro Pressured on Russian Debt Restructure rumor:

The euro whipsawed around the 1.30-level against the greenback in the Tuesday session on a combination of news about the US financial rescue plan and speculation over potential debt restructuring by Russia. The heightened risk aversion prompted the euro to slide to 1.2812 versus the dollar and 116.68 against the yen. EURUSD remains mired near the 1.29-level, with support seen at 1.2880, followed by 1.2820 and 1.28. Further selling pressure will be tempered at 1.2770, backed by 1.2740 and 1.27. Gains will target interim resistance at 1.2930, followed by 1.2970 and 1.30. Subsequent ceilings are seen at 1.3040, followed by 1.3070 and 1.31.

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FOREX- Yen Rises on Speculation, Dollar Gains highest against Yen, Retreats shortly

Dollar hits one month high vs yen later retreats

The yen rose against the dollar on Monday with demand from Japanese exporters lending support after it earlier hit a one-month low as gains in stock markets pointed to an easing of risk aversion. The dollar hit a one-month high against the yen earlier as the Japanese currency carried over its weakness from Friday, when U.S. shares rallied even as data showed that U.S. job losses in January were the deepest in 34 years
But the dollar later shed its gains against the yen due to selling by Japanese exporters, traders said. The yen advanced versus 14 of the 16 most-active currencies today. Against the yen, Australia’s dollar fell 1.3 percent to 61.23, South Africa’s rand declined 1.3 percent to 9.4747 and New Zealand’s dollar weakened 1.5 percent to 48.24. The dollar fell 0.3 percent against the yen to 91.73 yen .The dollar earlier rose to 92.42 yen on trading platform EBS, its highest since early January. The euro rose 0.1 percent to $1.2946. Against the yen, the euro was 0.3 percent lower at 118.70 yen, having retreated from a three-week high of 119.99 yen hit on EBS earlier in the day. The pound fell for the first time in five days against the dollar after the Confederation of British Industry also said Prime Minister Gordon Brown’s government must act quickly to revive lending as businesses battle the worsening credit squeeze.

U.S. financial stability plan to be outlined on Tuesday

In the near term, currencies are seen likely to take their cues from how the stock market reacts to President Barack Obama's financial stability plan, to be outlined by Treasury Secretary Timothy Geithner in a speech on Tuesday. The stabilization steps were initially due to be unveiled on Monday today, but the Obama administration pushed back the announcement as it pressed lawmakers to settle their differences over a huge economic stimulus package. The dollar broke above the triangle pattern against the yen on technical charts late last week, suggesting it has more room to rise.

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