Freddie Mac Set To Increase Fees Again

Freddie Mac, the second-largest provider of financing for U.S. residential mortgages, will add fees on riskier mortgages for a third time to cushion itself from the housing slump, Chief Executive Richard Syron said on Thursday.

The new fees include a 0.3 percentage point to lenders on all mortgages with loan-to-value ratios of 80 percent or more and credit scores less than 740. The government-chartered company also placed an additional charge on loans based on the risks they present, Syron said at the Reuters Housing Summit in New York.

"What we've been trying to do is become more risk-based" in pricing for Freddie Mac's guarantee program, he said.

Freddie Mac, which holds a charter from Congress to raise money for home loan lending, is boosting costs to lenders as it prepares for a housing market that it expects will continue to slump through 2008. Rising delinquencies on loans and declining bond values sent credit expenses soaring and led to a $2 billion loss in the third quarter.

The new fee is charged to lenders, who have the discretion of passing it on to borrowers, a spokesman said. If applied to a $250,000 30-year fixed-rate mortgage, monthly payments would rise by $11, he said.

Freddie Mac last year also installed a "market conditioning" fee of 0.25 percentage points that will take effect on March 9. Fannie Mae, the other publicly traded GSE, has also boosted fees.

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Mortgage Rates Rise On 30-Year Term

Rates on 30-year mortgages rose to the highest level in seven weeks, breaking above the 6 percent level.

Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.04 percent this week, up from 5.72 percent last week.

That is the highest level since the first week of the year, when the 30-year mortgage stood at 6.07 percent. For the next six weeks, the rate fell below the 6 percent level as financial markets reacted to the sharp slowdown in economic growth and growing risks of a recession by pushing interest rates lower.

Increased worries about inflation have pushed long-term rates higher in the past two weeks. However, one-year adjustable-rate mortgages are still about one-half percentage point lower than at the start of the year, reflecting the aggressive rate cuts engineered by the Federal Reserve in January in an effort to combat the economic slowdown.

"As the spread between long-term fixed-rates and adjustable-rates widens, it is possible we could see a slight increase in the popularity of adjustable-rate mortgages," said Frank Nothaft, chief economist at Freddie Mac.

In other rate moves this week, rates on 15-year mortgages, a popular choice for refinancing, edged up to 5.64 percent, compared to 5.25 percent last week.

A year ago, 30-year mortgages stood at 6.22 percent while rates on 15-year mortgages were at 5.97 percent. Five-year adjustable-rate mortgages averaged 5.96 percent and one-year ARMs were at 5.49 percent this time a year ago.

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Yahoo! Sued Over Microsoft Rebuff

Two Detroit pension funds sued Yahoo Inc. and its board Friday for rejecting Microsoft Corp's unsolicited $41.2 billion offer in a sign of growing shareholder frustration with the online search and media company.

The proposed class action, filed by veteran shareholder litigation firm Bernstein Litowitz Berger & Grossman, takes Yahoo directors to task for spurning the Feb. 1 offer and "pursuing all manner of value-destructive third-party deals."

The two plaintiffs, Detroit's Police and Fire Retirement System and General Retirement System, are concerned about news reports of a "potential imminent deal" sought by the Yahoo board with media conglomerate News Corp or Time Warner Inc's AOL that would not require a shareholder vote.

The plaintiffs asked a Delaware Chancery Court to block the Yahoo board from completing any such transaction with those companies, to force it to reconsider Microsoft's offer, and to block it from implementing defensive measures that would render the company unattractive to potential buyers.

Lawsuits by Yahoo shareholders have multiplied in the wake of Yahoo's Feb. 11 refusal to entertain the offer, which represented a 62 percent premium over Yahoo's share price.

Yahoo said at the time the bid substantially undervalues the company, failing to take into account its 500 million users worldwide, investments in its advertising platform and lucrative overseas holdings. Microsoft has yet to show signs it would raise its offer.

Before the offer, Yahoo's share price had dropped 46 percent since October as it struggled to compete with Internet search leader Google Inc.

Yahoo co-founder and Chief Executive Jerry Yang forecast a tough 2008 for the Sunnyvale, California-based company as he pledged to reduce Yahoo's work force by 7 percent last month.

In the lawsuit, the pension funds accused Yang and the board of placing "personal distaste for Microsoft ahead of shareholder welfare" by refusing to negotiate with the software maker and by adopting a company-wide severance plan that would cost an acquirer an additional $1 billion to $3 billion.

The funds also feared the board was scheming to prevent a hostile takeover by Microsoft by entering into inferior deals with either News Corp or AOL that would not have to be approved by shareholders, the lawsuit said.

The pension funds asked the court to order the board to invalidate the severance plans, rescind a poison pill that would be triggered when Microsoft's stake reaches 15 percent, and ban the board from taking any action to make the company "more burdensome or expensive" for an acquirer, the suit said.

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Indian Business Empire, Tata Group, Eyes Global Role

A dozen years ago, many believed that India's Tata Group -- the country's oldest and largest conglomerate -- was a bloated behemoth that would eventually go under.

Instead, it has become a powerhouse in the 21st century, focusing on core businesses like steel and automobiles and seizing opportunities, including the hugely profitable outsourcing business, that came with India's dramatic economic transformation.

A slew of recent acquisitions, including for Britain's Tetley Tea and Boston's Ritz Carlton Hotel, have thrust the Tata conglomerate -- which comprises 98 companies and was largely unknown outside India until recently -- into the global spotlight.

A year ago, Tata Steel Ltd. became the world's sixth-biggest steelmaker when it bought Britain-based Corus Group for $13 billion. Then in January, Tata Motors Ltd. grabbed the world's attention when it unveiled the planet's cheapest car: a $2,500 four-seater that could change the global auto industry. Surprising naysayers, the company has also been named the preferred bidder for Ford Motor's Jaguar and Land Rover businesses.

The resurgence of the 140-year-old Tata brand is as much a story of the country's economic rise as it is about the success of the chairman, whose ascent to the top job in 1991 coincided with the beginning of India's shift from a socialist-style state to a market economy.

When Ratan Tata took over the company from his gregarious uncle, J.R.D. Tata, India's economy was starting to open up, but the Tata group was almost falling apart. Sales were sluggish and government controls had limited new investments. J.R.D.'s hands-off approach had led to inflated egos and squabbling among top executives at the group's many companies. All of the 1980s was marred with speculation about who would succeed the ailing J.R.D.

The company was founded in 1868 when Jamsetji N. Tata, a young trader from India's Parsi minority, set out to bring technology and money from around the world to establish India's first textile mill. The company went on to build the first steel plant, overcoming resistance of British colonial rulers, and later built the airline that eventually became the nation's flagship carrier -- Air India -- which is no longer part of the Tata group.

When Ratan became chairman, many heads of group companies had scant respect for him. He was a loner who had graduated from Cornell University with a bachelor's degree in architecture and had led a variety of Tata businesses far from the limelight. Unlike his uncle, Ratan took charge from the start. It took him years to clean up the mess from the power struggles, pushing out a generation of executives and jettisoning several peripheral businesses.

At Tata Steel, tens of thousands of jobs were cut. Tata Motors built the first fully Indian-designed car, the Indica -- a roomy hatchback rolled out in 1998. Tata Consultancy Services meanwhile hired thousands to become a global power in outsourcing, doing back office work and software engineering for Western firms.

The big change came five years ago at a company annual meeting, where the chairman "exhorted us to go treat the world as the market," recalls R. Gopalakrishnan, an executive director at Tata Sons, the group's holding company.

What followed was a massive push to acquire businesses abroad. Nearly 30 overseas buyouts have since helped the group's international revenues grow fourfold to $11 billion and contributed more than a third to its total sales last year. Takeovers include the truck unit of South Korea's Daewoo Motors, Singapore's Natsteel and Thailand's Millennium Steel. The Indian giant is also snapping up mining rights in Africa and Asia.

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US Missile Hits Spy Satellite

A missile from a U.S. Navy warship hit the defunct U.S. spy satellite 133 nautical miles (247 km) above the Earth in an attempt to blow apart its tank of toxic fuel, the Pentagon said on Wednesday.

It was too soon to tell if the fuel tank had been shattered in the operation over the Pacific Ocean, the Pentagon said in a statement, but a senior military source said initial indications suggested that goal had been achieved.

The SM-3 missile was fired from the USS Lake Erie in the Pacific at about 10:26 p.m. EST, the Pentagon said in a statement.

"A network of land, air, sea and space-based sensors confirms that the U.S. military intercepted a non-functioning National Reconnaissance Office satellite which was in its final orbits before entering the earth's atmosphere," it said.

"Confirmation that the fuel tank has been fragmented should be available within 24 hours," the statement said.

The senior military source said the missile hit the satellite about three minutes after launch.

"There's a good indication that the fuel tank was hit because there was an explosion," said the source, speaking on condition of anonymity.

Washington says its aim is to prevent harm to humans from the satellite's tank of hazardous hydrazine fuel. Russia and China have expressed concern, with Moscow suggesting the operation could be used as cover to test a new space weapon.

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Anil Offers Free Bonus Shares To Reliance Power Investors

Taking the investing community by surprise, the Anil Ambani group today announced to consider free bonus shares to all non-promoter shareholders in Reliance Power, while alleging that corporate rivals were pulling down share prices of all group companies.

Reliance Power also demanded a probe by market regulator SEBI into "a vicious and orchestrated campaign of market manipulation and market abuse unleashed by unscrupulous rival corporate interests to hammer down all Reliance ADA stocks".

The company said its board would consider the free bonus shares at a meeting next Sunday, February 24, to benefit over four million of its investors and the cost would be accepted by promoter group by way of diluting its shareholding.

The unprecedented move comes a week after the dismal opening of Reliance Power at the stock exchanges. The scrip, after listing at Rs 547.8, slid into red within a minute and closed the day at Rs 372, a level much below the issue price.

After a fabulous response for the IPO that saw a demand of Rs 7,50,000 crore for the issue of Rs 11,560 crore, the listing-day blues had led to severe criticism of Anil Ambani.

The IPO was the maiden market venture after he created his own group in 2005, and was the worst ever opening for an Ambani IPO.

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United States Pledges To Compensate On Damages Caused By Satellite

The United States pledged on Friday to compensate countries if debris lands on their territory from a dying U.S. spy satellite that the Pentagon plans to shoot down.

Ambassador Christina Rocca said that if efforts fail to strike the satellite with a missile while it is still in space, it was expected to make an "uncontrolled re-entry into the earth's atmosphere on or about March 6".

The satellite is carrying more than 1,000 pounds (454 kg) of hydrazine fuel, and could release much of it as a toxic gas, according to Deputy U.S. National Security Adviser James Jeffrey.

"Whether the engagement succeeds or fails, the U.S. is prepared to offer assistance to governments to mitigate the consequences of any satellite debris impacts on their territory," Rocca told the Conference on Disarmament.

This was in keeping with a 1972 treaty on international liability for damage caused by space objects, which the United States has ratified, she said.

U.S. officials said on Thursday that President George W. Bush had decided to have the Navy shoot the 5,000-pound (2,270 kg) satellite with a modified tactical missile after security advisers suggested its re-entry could lead to a loss of life.

Rocca told the 65-member state forum that the timing of the strike would be chosen to "maximize the chance of hitting the fuel tank and to ensure that the resulting debris will re-enter quickly and thus not pose a danger to satellites and peaceful space operations".

Washington would seek to minimize the chances that any debris re-entering the atmosphere could hit a populated area.

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US Economy On The Brink Of Serious Depression?

According to chief economists, the American economy is so close to serious depression. See what people in authority have been saying about the US economy:

"The consequences for the US economy of doing nothing could be severe." - Alan Greenspan.

"The world is set to jump off the top of a waterfall without knowing how deep the water is below." - Kenneth Rogoff, IMF (International Monetary Fund) Head of Economic Research.

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Top Ten Reasons Why the US Economy Will Go Into Serious Depression:

#1. The United States government is currently running a budget deficit of $1.8 billion/day. Too much deficit will create a weaker American dollar and cripple the US economy.

#2. The US National Debt is $8 trillion+. It has to be paid back eventually by raising taxes.

#3. Oil prices is $60+ per crude barrel, there is a shortage of oil refineries and demand is growing due to more SUVs/trucks.

#4. China's economy is now bigger than the United States and China is now the centre of the global economy.

#5. China's trade exports out-matches the United States (ie. they can build cars/trucks/SUVs for half the price).

#6. English is no longer the international business language. Mandarin Chinese is now more important.

#7. Global warming is causing the US Wheat Belt to turn into desert.

#8. US universities aren't creating enough graduates to compete on the global market. Tuition is too expensive and there isn't enough university professors.

#9. The babyboomers are retiring, creating a shortage of skilled workers.

#10. George W. Bush failed Economics 101.

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"There's a 75% chance that the US will experience a currency crisis within five years." - Paul Volcker, Chairman of the US Federal Reserve.

"There's nobody home on economic policy in America right now. Its an accident waiting to happen." - Stephen Roach, Chief Economist, Morgan Stanley.

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The Remedy:

How do you fix an economy once its gone into a depression? How do you prevent the current economy from going into a depression?

#1. Stop running a fiscal deficit. Balance the books as much as possible.

#2. Place trade quotas on Chinese goods in order to prevent "flooding of the market" or place trade tariffs on Chinese/Asian goods in order to raise extra money to pay off the National Debt.

#3. Invest in renewable energy sources. Long-term gain for a short-term investment.

#4. Invest in hydrogen-fuel cell technology in order to bring the cost down so its cheaper than oil/gasoline. Gasoline prices are the biggest problem facing the United States economy. A cheaper alternative is needed. Buying gasoline from overseas is basically draining money from the American economy and shipping it to other countries, making oil-tycoons rich and the American public poor.

#5. Build more greenhouses in urban centres. Provides reliable cheaper/fresher food to a growing population and reduces our dependency on risky farming businesses. If every grocery store built a greenhouse on their rooftop, they could hire a greenhouse technician to grow most of the vegetable food they need and buy less food from distributors.

#6. Make Chinese (for Beginners) mandatory in highschools. It is now the language of business. Our people must become competitive if they are to survive in the global economy.

#7. Reduce tuition rates, train more university professors and build more universities. Our students need to be more competitive. Complacency will lead to financial ruin.

#8. Place a cap on credit card companies. Many Americans are in debt because they maxed out their credit cards on frivolous spending of things they don't need.

#9. Increase immigration (especially of skilled workers) to make up for babyboomers who are retiring.

#10. Elect a president who is fiscally responsible.

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Dollar To Tumble Further: Trade Your Dollars For Euros Today

Investors should buy the euro and sell the dollar because the Federal Reserve needs to lower interest rates faster than the European Central Bank does, Bank of America Corp. said.

The second-biggest U.S. lender expects the Fed to cut rates by a quarter percentage point in March and April to 2.5 percent, while the ECB waits until April to lower rates from 4 percent, followed by one more cut in June. This would push up the euro to a record $1.50 in a month or two, said Tomoko Fujii, head of economics and strategy for Japan at the bank.

"We don't think the euro has peaked out already," said Tokyo-based Fujii. "There will be another $1.50 try."

The euro headed for the biggest weekly drop in 1 1/2 years against the dollar after ECB President Jean-Claude Trichet signaled yesterday he may reduce interest rates.

The euro weakened 2.1 percent so far this week, the most since June 2006, and traded at $1.4484 as of 4:26 p.m. in Tokyo. It was at $1.4487 in New York late yesterday, when it touched $1.4440, the lowest level since Jan. 22. It reached a record high of $1.4967 on Nov. 23.

Bank of America recommended investors buy the euro at $1.4530 with a target of $1.50 and sell the currency should it close below $1.4395 for two consecutive days, Fujii said.

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Super Tuesday: Hillary Wins California, New York Primary

Hillary Rodham Clinton captured needed states, including the brass ring of California, even as Barack Obama ate into her traditional base of support on a topsy-turvy night where ballot victories were not the only measure of success.

The grand spectacle of Super Tuesday's coast-to-coast nominating contests marked a turning point in the Democratic presidential contest from euphoric election night victories to painstaking delegate counting. Consider it the beginning of a long hard slog.

The two candidates seesawed their way across the landscape, trading triumph and loss in state after state. Clinton won in the delegate-rich states of New Jersey, Massachusetts and New York, her home state. Obama answered with wins in Georgia, Alabama and his own home state of Illinois.

The biggest prize was California, with 370 delegates. Obama was leading in the state among white voters, but Clinton won by getting overwhelming support from Hispanics and Asians, who together comprised nearly four in 10 California voters.

Altogether, 22 states were in play but neither candidate could emerge with enough delegates to secure the nomination. Clinton led with 173 delegates in early voting Tuesday, while Obama captured 149, though that did not include all the states where outcomes had been declared.

Both were winning in all regions of the country, Obama held an advantage in the Midwest and the central Plains states, and Clinton in the Northeast. The two split the South.

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Microsoft Aims For Yahoo! Acquisition

Having spent north of $10 billion buying and building a Web business, Microsoft finally acknowledged its best efforts have done nothing to stall Internet leader Google. On Feb. 1, the software giant took its most audacious step yet, announcing an unsolicited $44.6 billion bid for online rival Yahoo!.

The deal would combine the second- and third-largest players in Web search. For Microsoft, it may be something of a Hail Mary pass, a last best attempt to catch Google while it still can. "We have been making good progress," says Microsoft CEO Steven Ballmer. "We're in this game, and we're going to be in this game. But the market leader is getting stronger."

Microsoft offered a 62% premium on a share price that's been sliding for the better part of a year amid five consecutive quarters of profit declines. So the overture will be hard to resist and a rival bid is unlikely. Some analysts said the deal makes strategic and financial sense, especially for Yahoo. The company's stock surged 48% to $28.38.

Still, whether and how quickly a combined Microsoft and Yahoo can mount a meaningful counteroffensive against Google is by no means clear. The cost savings won't be easy to achieve in an economy veering toward recession, the companies will struggle to elegantly combine disparate operations, and Google can be expected to use the time to lengthen its lead in the quickly growing online ad market. Regulators will probably approve the deal, but not before a lengthy review that could involve imposing conditions aimed at ensuring competition.

Microsoft vs. Dominant Competitor
Microsoft believes it can eke out $1 billion a year in cost savings from the combined operations. Anant Sundaram, a professor at Dartmouth's Tuck School of Business who has studied mergers and acquisitions, says that may be ambitious. "With the economy looking increasingly wobbly, it is not clear that the revenue synergies will start to happen any time soon," Sundaram says.

There's little doubt that Microsoft's interest in Yahoo has grown more fervent as Google's lead has increased. The battle to catch Google grows harder by the day. "I think Microsoft is desperate," says Forrester Research analyst Charlene Li.

In Google, Microsoft sees a foe that is very much like the one it was in the early days of personal computing. Back in the 1980s and '90s, Microsoft created what's known as a network effect, whereby a service becomes more valuable as more people use it, with its Windows operating system. The more people used it, the more applications got written for it. That made Windows ever more appealing to computer users, ultimately helping the company garner more than 90% of the operating system business.

Microsoft hopes to diminish Google's advantage through the Yahoo acquisition. If Microsoft can smoothly mesh Yahoo into its MSN and Windows Live Internet businesses, it could create a network that approaches Google's size. Google accounted for 56.3% of all Web searches in December, compared with a combined 31.5% for Microsoft and Yahoo, according to Nielsen Online. A combined Microsoft and Yahoo would "bring together critical mass," Ballmer says, and "we'll build off that strength."

It's unclear, though, whether advertisers prefer a single strong rival to Google or two lesser companies fighting for their business. Increasingly, advertisers are looking at smaller sites to target their ads, says Jarvis Coffin, co-founder and CEO of Burst Media (BRST.L), an ad network that helps place ads for such brands as Alamo, Disney (DIS), and ESPN. Getting together won't make Microsoft and Yahoo "more responsive to what the market is looking for and what consumers are looking for online," Coffin says. "It isn't going to make it any more relevant and powerful for advertisers."


The deal would eclipse Microsoft's largest acquisition—the August, 2007, purchase of online ad firm aQuantive—by sevenfold. And it would drain the $21.1 billion that Microsoft had in cash as of Dec. 31, since Microsoft plans to pay for half of the deal with cash and the remainder in stock. Microsoft generates more than $1 billion a month in free cash, so its coffers could be restored in short order.

While Microsoft shares dipped on the news, falling 6.6% to $30.45 on Feb. 1, Sanford C. Bernstein analyst Charles Di Bona believes shareholders will come around. Microsoft built assets like its adCenter online advertising platform to compete with Google. But it wasn't able to leverage those offerings with the relative smattering of users it had. "What they are admitting is that they can't monetize those assets without a sizable community," Di Bona says.

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