Too much, too fast: Did Fed Chairman Bernanke act too quickly and hastily in lowering interest rates on Tuesday? That seems to be the growing sentiment, based on mounting evidence that the economy is not in nearly as bad a shape as Wall Street would have you believe. Bernanke apparently freaked out after the global selloff on Monday and Tuesday, but now comes word that at least part of that selling related to the French bank Société Générale SA's unwinding of a trader's unauthorized bad bets (amazingly, Fed officials were unaware of what was happening at Société Générale). From the WSJ:
"It does look like they were snookered into cutting rates," said Lou Crandall, chief economist at research firm Wrightson ICAP LLC. The Fed could argue that responding to the stock drop was appropriate because it threatened financial stability, but that case will be harder to make if the market's drop turns out to be due to a special situation, he said. After overseas stock markets plunged Monday, which was a holiday in the U.S., Mr. Bernanke convened a meeting of the Fed's policy-setting committee to approve a 0.75-percentage-point cut in the target for the federal-funds rate, at which banks lend to each other. The cut came just a week before the committee was scheduled to meet. The timing prompted some outcries that the Fed panicked.
It is unclear how much Société Générale contributed to Monday's market drop, which began in Asia. Nonetheless, officials say they were motivated not so much by Monday's drop as the cumulative decline in stocks through January; ratings downgrades on bond insurers that could expose banks to further loan defaults; and the self-reinforcing deterioration in home and other asset prices, confidence and economic prospects. Fed officials said yesterday's news doesn't change their view that it is better to err on the side of cutting rates too much because it is harder to undo the damage of cutting too little.
This is your life, Jérôme Kerviel: There are some quick-and-dirty efforts this morning to get a reading on the 31-year-old trader from France's Société Générale who cost the bank more than $7 billion making huge unauthorized trades. (When will the first script be turned in?) The combined trading positions he built up over recent months totaled $73 billion! Some speculate that the French bank's frantic efforts to unwind the unauthorized trades may have contributed to market volatility earlier in the week, an intriguing though still questionable theory. And what of the young man himself? From the WSJ:
Early details, including accounts from executives at the French bank, paint a picture of an ordinary trader who used extraordinary means to game the bank's own system and hide massive unauthorized trades on stock-index futures. Even as bank executives were scrambling to deal with the trail of destruction, they were at a loss to describe his motivations. Société Générale executives said that the early investigation indicated the trader didn't earn a dime on his actions. They also said he appeared to be acting alone. "He was mentally weak," said the bank's co-chief executive, Philippe Citerne. "I have no idea why he did that." Société Générale -- France's second-largest bank after BNP Paribas, founded by a decree signed by Napoleon III -- has lodged a complaint against him with French prosecutors.
Gas prices dropping: California refineries have an unexpected surplus of supply, and of course there's the big dropoff in the price of oil. There's still not much indication that lower demand is at play. The latest Auto Club survey shows that the average price of self-serve regular gasoline in the Los Angeles-Long Beach area is $3.175, which is 9.1 cents lower than last week, 5 cents less than last month, and 66 cents above last year.
More informal talks: The writers and media honchos will resume their informal coffee klatch today. With the media blackout still in effect, there's no word on when or whether they'll reach the point where they can get back to formal talks. Meanwhile, the WGA announced interim deals with Lionsgate and Marvel Entertainment. Both companies will have to abide by whatever final contract is finally ratified. (Variety)
L.A. office market is strong: There's enough pent-up demand to drive a seller’s market, according to a study by law firm Allen Matkins and the UCLA Anderson Forecast. The basic explanation is that very few office buildings have come on line in recent years, while the number of businesses requiring office space has soared. OC is in worse shape because so much of the failed subprime industry is based there. (LABJ)
De La Hoya revives sale: The boxing great turned L.A. developer appears set to buy the landmark Sears property in Boyle Heights after all. The previous deal fell through for reasons that remain murky (financing probably had something to do with it). De La Hoya has plans to build a mixed-use development on the site at Olympic Boulevard and Soto Street. Don't be surprised if the story changes again; the property's owner, Mark Weinstein, says other parties are still interested in the site and are doing due diligence. (LABJ)
Feds name Broadcom co-founders: During the backdating hearing of the OC tech company's former HR executive, Henry T. Nicholas III and Henry Samueli identified as "Executive A" and "Executive B." But federal judge Cormac J. Carney told prosecutors that not identifying them would violate the principles of open court hearings. An internal audit at Broadcom indicated that Nicholas had significant responsibility for improperly backdated stock options. From AP:
Assistant U.S. Attorney Andrew Stolper argued that releasing their names, as well as another Broadcom engineer identified only as M.N., would create prejudice against them since they haven't been indicted in the case. "Both parties know exactly who we're talking about," Stolper told the judge. Carney replied: "They shouldn't get any other special treatment than the general public would. ... That's not what American justice is all about."