11-10-08

  11-10-08Merced Sun-StarAnalyst: Central Valley's smog woes overblownBut officials reply that one violation affects many people...Mark Grossi, The Fresno Beehttp://www.mercedsunstar.com/167/story/539783.htmlThe San Joaquin Valley led the nation in ozone violations this year with 127, but no one person could have experienced all those bad-air days.That's because the total includes many days when only one or two cities had violations. On those days, most of the valley's residents were not breathing unhealthy air.One expert says the total exaggerates the region's pollution and health exposure."The number 127 is meaningless," said Joel Schwartz, a Sacramento-based analyst who studies such issues for the American Enterprise Institute, a think tank in Washington, D.C. "But this kind of number is used every year to talk about air pollution."Fresno residents, for instance, were exposed to high ozone on 52 days, according to the California Air Resources Board.Bakersfield had 40 bad days. Modesto had 18. And in Stockton, residents saw only four bad days.More numbers involvedGovernment officials reply that Schwartz is not telling the whole story. They say many residents in a wide area are affected when one monitor shows a violation. And the total number of violations is not the only number used to describe air quality, they said.Industries have made the same argument about the government exaggerating pollution impacts, but Schwartz has been among the most vocal and consistent critics in the past several years. The debate could take place anywhere in America, but it is perhaps most dramatic in the 25,000-square-mile valley, the country's largest air basin.Stockton is a case in point. As part of the valley, Stockton is under the same dirty-air category as Arvin, known as the nation's smoggiest place.Arvin, which is 235 miles south of Stockton, had 103 ozone violations, which occur in warm weather. But even in Stockton, businesses must invest a lot of money each year to buy the same clean-air technology for boilers or engines as the rest of the valley."Regulators are in the business to find new dragons to slay," Schwartz said. "They depend on having a problem to solve."In his 2008 book, "Air Quality in America: A Dose of Reality on Air Pollution Levels, Trends, and Health risks," he says air officials, environmental groups and the media often mislead the public.Government air officials say Schwartz's view is at the opposite extreme of environmentalists who emphasize health problems and push for more regulation."He's selectively choosing facts and figures," said Seyed Sadredin, executive director of the San Joaquin Valley Air Pollution Control District. "My argument is that you have to look at the problem in its entirety."Sadredin said that if Arvin's monitor records a violation, it means many surrounding towns and cities are having a problem, too. It isn't limited to the 16,000 people in Arvin, southeast of Bakersfield.All must do part, officials sayOfficials also say Stockton's air pollution is carried downwind to cities such as Merced. As part of the valley's air basin, Stockton should be a part of the air cleanup, they say.To comply with federal standards, every valley monitor must show that the air is within the health threshold, said Karen Magliano, chief of the air quality data branch at the California Air Resources Board in Sacramento. Some areas will have healthy air before others."There is incremental success in the valley," she said. "Some areas will come into attainment before others, but they all must come into attainment."She said other measures of air quality indicate the valley is showing moderate improvement. She said ozone concentrations, for instance, have been getting lower over the past several years.Sadredin said valley air officials often have told the public of cleanup successes in the past 15 years, preferring not to put a negative spin on the region's air quality. The valley's air is cleaner now than it was 10 years ago.But this year, because statewide forest fires have added so much pollution to the air, it has been difficult not to sound the alarm.The district also has begun using the new, stricter federal standard for ozone, resulting in more violations than last year. Under the old standard, the valley had 65 bad days last year -- which is about half the total under the new standard. So it may seem as though the air is worse."Everything seems to have been working against us this year," Sadredin said. "But over the long run, there has been progress."Health advocates and community activists said Schwartz's analysis is hard to believe.They said air pollution has contributed to childhood asthma rates that rank among the highest in the state.As a result of poor air quality, treatment of asthma, bronchitis and other respiratory illness has become an industry in the valley, they said.Studies have connected air pollution with lung and heart disease as well as early mortality, said Liza Bolaños, coordinator for the Central Valley Air Quality Coalition, a nonprofit group representing public health and environmental organizations.She said, "Mothers, fathers and researchers don't think the truth about the air pollution is being exaggerated." Minor injuries reported after chemical explosion at UC Merced...DANIELLE GAINES and Victor A. Pattonhttp://www.mercedsunstar.com/167/story/538433.htmlA small chemical explosion at UC Merced's Science and Engineering Building left graduate researcher Eric Joseph with minor cuts and burns.Josephs, a UC Merced graduate researcher, was taken to a hospital Saturday after a small chemical explosion in a lab at the school's Science and Engineering Building.Although the explosion was serious enough to prompt a multi-agency response, Josephs is recuperating with his family in Southern California and expected to return to school this week, said UC Merced spokeswoman Tonya Luiz. "We are really pleased that he is doing so well."Josephs, a 2007 Duke University graduate who studies under the school's quantitative systems biology program, was injured after a beaker he was holding, which contained nitric acid and butanol, exploded. Luiz said two UC Merced police officers responded to the scene at 2:48 p.m.More than a dozen firefighters from Merced County Fire Department and Merced Fire Department also arrived, in addition to a county hazardous materials team. Josephs was transported by ambulance to Community Regional Medical Center in Fresno, Luiz said.Josephs' injuries consisted of minor first degree burns to his arms. The shattered glass from the beaker resulted in the cuts to his arms and face, Luiz said.Luiz said the building has been rendered safe and classes are scheduled to be held today.UC Merced senior Rob Backman, 27, said he entered the building on Saturday and heard a blast. "It wasn't loud. It was a little deadened like it was behind a closed door," he said.Backman heard someone yell for help. He ran upstairs and saw Josephs, who was soaked in water and bleeding. Backman called 911. Luiz said the accident happened during a project Josephs was conducting as part of his research.There was no structural damage from the accident, but water from an emergency shower had flooded the second floor lab. Water was flowing from a interior balcony, like a waterfall, into the lobby of the building. To keep hazardous materials from entering the sewer system, Luiz said there is no drain in the emergency shower. Some office space was affected by the water, although the building's classrooms were not affected, Luiz said. Though most of the services weren't needed, UC Merced Police Chief Rita Spaur said she was pleased with the "quick, smooth and coordinated response" of all agencies involved.The incident was the first of its kind the university's history, Spaur said, adding that her department completed training exercises for similar situations last summer. Still, Luiz said the university will probably review security protocols as a result of the incident. "Any time we have something like this, it's just normal to review what worked and what didn't work, so I would imagine that will happen this week," Luiz said.Butanol is an alcohol with low toxicity in single-dose experiments and is considered safe enough for use in cosmetics. Nitric acid is a strong acid that is highly corrosive and toxic. It can cause severe burns.COMMENTSUC Merced is being sheltered from many of the budget cuts other UC's are facing right now. There may be a flaw in the design of the showers... or they might not have worked correctly. However, the idea that UC "values" Merced students less than other other campuses based on how a shower drain functioned is just stupid. Give me a break. :: 11/10/08 9:18am – zaphoid-----When the campus first opened - some professors in the some of the engineering labs said the number and load of the electrical outlets were inadequate for a laboratory - like running a commercial sawmill in your bathroom. Don't worry, we are confident that Facilities Management fixed all of this already. If you can't sleep at night, just ask the lab rats if the breakers trip too often. Peace Out. :: 11/10/08 9:14am – monkeyinwrench-----All of the other University of California campuses got drains in their emergency showers. Victor Patton should do some investigative reporting and photograph the drains on the other campuses. The sad truth is that Merced students are worth less to the state than the students on the other UC campuses. :: 11/10/08 9:05am – trigga-----Just curious Monkey,Where did the sub-standard electric supply comment come from? Please enlighten me. :: 11/10/08 8:43am – tolson-----These types of showers are suppose to have a self contained catch basin under them that holds up to 50 gallons of water. Were is the basin?/????? :: 11/10/08 3:25am - jerry010-----Considering that the article witness stated; "Water was flowing from a balcony like a waterfall into the lobby of the building." It seems that zero safety consideration was built into these systems. Again - where were (are) the inspectors. What does the fire department - haz mat people say? That campus has a history of things intentionally not being built right - only to have it all ripped out and replaced at 2-3 times the bid cost. Your tax dollars at work. It just a matter of time before someone gets killed. Smells like a Sopranos episode? :: 11/09/08 6:11pm – monkeyinwrench-----If they didn't want to contaminate the sewer system, why didn't they install a drainage pipe that empties into an "emergency" container somewhere underground or off-site. That way you keep the chemicals out of the sewer, and prevent the lab from flooding. :: 11/09/08 10:41am - M1-----there are no drains for the chem shower intentionaly.So that if there is a contamination it is contained. they dont want all those chemicals in the sewer system! :: 11/08/08 11:58pm – brman-----This is typical, the state did not give UC Merced enough money for drains in emergency showers. I'm sure that the other UC campuses were given money for drains. They have drains at Berkeley! The Sun-Star should investigate this. Why is the safety of students in the Central Valley worth less than the safety of students in Berkeley? :: 11/08/08 10:29pm – trootz-----How do you install a emergency shower with no drain? This is the same campus that built buildings with no ADA compliant access and laboratories with substandard electric supply. Where are the building inspectors in this town? :: 11/08/08 8:56pm – monkeyinwrench-----Bet they the synthetic meth guy now... :: 11/08/08 7:52pm - billandmandyModesto BeeMarina left high and dry in stricken Lake Shasta...Record Searchlight, http://redding.comhttp://www.modbee.com/state_wire/story/493099.htmlLAKEHEAD, Calif. —  A marina in Lake Shasta is sitting high and dry on a sandbar after sand and silt brought by a recent rainstorm clogged a creek that empties into the drought-plagued reservoir.Antlers Resort and Marina co-owner Larry McCracken says the marina has suffered about $40,000 in damage while waiting for higher water to return. The low water level has also forced the removal of about 30 stranded houseboats.McCracken said a government decision to release stormwater from the lake hastened the marina's problems.Bureau of Reclamation manager Brian Person said the release was necessary to aid fish, improve water quality and supply cities downstream.Lake Shasta last month dropped to its lowest water level in 16 years.Fresno BeeUC Merced student hurt in science lab explosion...Rosalio Ahumada, The Modesto Beehttp://www.fresnobee.com/local/story/998925.htmlMERCED -- A graduate student was seriously injured with cuts and acid burns Saturday when his experiment exploded in a research laboratory inside the Science and Engineering building at the University of California at Merced. Eric Josephs suffered cuts to his hands and face from an exploding beaker that contained nitric acid and butanol, as well as burns to his forearms and face, said Tonya Luiz, a campus spokeswoman. His age and hometown were not available. Josephs was taken by ambulance to the burn unit at Community Regional Medical Center in Fresno, Luiz said. His studies focus on nanoscale measurement and molecular devices within quantitative and systems biology, she said. No other injuries were reported. The explosion occurred about 2:45 p.m. in the science and engineering building. Luiz said only the injured student was in the lab at the time of the explosion. Luiz said nitric acid is commonly used in many lab experiments, but campus officials did not know what type of experiment the student was working on. She said nitric acid can cause severe burns. Luiz did not know if Josephs had been wearing safety gear.After the explosion, Josephs activated a safety shower in the lab room before he fled the building to get help, Luiz said. The safety showers are used to wash chemicals off of the skin. Josephs is recuperating with his family in Southern California and is expected to return to school this week, Luiz said. MARVIN HUGHES: Congress must resolve river settlement plan...Marvin Hughes, chairman of the Friant Water Users Authority...11-8-08http://www.fresnobee.com/opinion/valley_voices/story/997114.htmlIn the weeks ahead, legislation to enact the San Joaquin River Restoration may come to a final vote in Congress. It is my opinion, and the opinion of my fellow farmers on the board of directors of the Friant Water Users Authority, that passage of the settlement legislation is necessary to ensure certainty for our water supply. As most people know, the settlement ends 18 years of litigation over whether there should be enough water in the river to support the salmon fishery that existed before Friant Dam was built. The courts have ruled that water must be made available for the salmon. Without the settlement, the court ruling would leave us with no ability to control how much water is released for a fishery and or control the resulting impacts to our families, our communities, our businesses and our land. The settlement, on the other hand, caps how much Friant water can be used for the salmon, and it makes avoiding or minimizing Friant's water loss a co-equal goal with restoration of the fishery. It also limits Friant's financial obligation to what Friant farmers are currently paying in terms of environmental charges and construction cost repayments associated with the Central Valley Project. Friant is not on the hook for unlimited costs. The settlement also ends legal threats to Friant's water supply contracts. The litigation began in 1988 when the Natural Resources Defense Council and a coalition of environmental and fishing organizations challenged renewal of Friant's water contracts, alleging that they violated federal and state environmental laws. The settlement protects Friant's 25-year water supply contracts from being invalidated by the federal court and the legislation to implement the settlement allows Friant districts to convert to perpetual water contracts. The ability to convert to perpetual contracts is part of a package of amendments that Friant and the other parties negotiated earlier this year to strengthen the settlement. The amendments, which are now part of the pending legislation, provide relief from certain provisions of the Central Valley Project Improvement Act that inhibit water transfers among Friant districts. The amendments also direct the Interior Department to begin work on a project to improve the water carrying capacity of the Friant-Kern and Madera canals, construct pump-back systems to recover lost water, and provide funding for local projects to recover water. I want to make one thing very clear: Friant is not enthusiastic about giving up any part of its water to restore salmon on the San Joaquin River. We fought against that in court for 18 years. Accepting the settlement was a pragmatic business decision to minimize our water losses and secure certainty for the majority of our supply. The alternative to settlement is to allow the courts to control our water supply. It should be plain to everyone in the Valley by now that the courts are the worst place to make decisions about San Joaquin Valley water supplies. Without the settlement, the litigation would resume and we would have to return to court and put control of our water into the hands of a federal judge whose previous rulings strongly indicate that he will send water down the river to re-establish a salmon fishery regardless of the cost to the Valley. Some have suggested that we continue to fight it out in court with the hope that Congress and the state Legislature will change the laws and save us somehow. This would mean years of water loss with very little hope of salvation from Washington or Sacramento. Continuing to fight it out in court is not realistic or prudent for the Valley. That's why Friant districts agreed to the settlement and that's why passing the settlement legislation is so important to the Valley. Sen. Dianne Feinstein and Reps. George Radanovich and Jim Costa have bridged partisan lines to encourage and support the settlement. At the request of Friant water districts, they have supported the settlement agreement because they know what's at stake for Central Valley agriculture and for all of us who live and work here. When Congress returns for its "lame duck" session after the election and takes up legislation to implement the settlement, it is likely to come to a final vote. We are hopeful that Congress will choose to enact the settlement this year. To learn more about the settlement, please visit us at www.fwua.org. Stockton RecordLodi bids for river fundsOfficials say fragile banks quickly eroding...Daniel Thigpenhttp://www.recordnet.com/apps/pbcs.dll/article?AID=/20081110/A_NEWS/811100312/-1/A_NEWSLODI - Local agencies, community activists and politicians are lining up behind the city of Lodi in its bid to find funds to fix the fragile and eroding riverbank protecting the expansive Lodi Lake Nature Area from Mokelumne River floodwaters.They worry birdwatchers and schoolchildren will lose their nature trails, that flooding will kill the lush forest and create a swampy mess that could spread mosquito-borne diseases.Mostly, they worry the town's 58-acre riverfront gem that distinguishes Lodi from many other Central Valley towns could be lost forever."(Lodi Lake) is often described as the jewel of Lodi, and that wilderness area is really nice. I'm sure there's a lot of people who have never walked through it," Vice Mayor Larry Hansen said. "So I really hope that in the long term we can save that."On Wednesday, the City Council gave city officials the go-ahead to apply for $1.6 million worth of state grants that could be used to fund permanent fixes to the eroded riverbank.Supporters - including state legislators, the Lodi Unified School District and local environmentalists - have written letters to state officials predicting dire outcomes should the riverbank give.Erosion is at critical levels along a 500-foot stretch of riverbank that protects the park and its wildlife from the river, a strip separating the Mokelumne and a small body of water called Pig's Lake. In some places, there are only several feet of bank left between the river and lake.Erosion is common there. But engineers hired by the city earlier this year to investigate the problem say it likely has been sped up by boating, winds and the annual draining of Lodi Lake when the Woodbridge Irrigation District opens its dam. The water district plans to keep Lodi Lake full year-round.City engineers estimate that, should the riverbank fail, most of the nature area could be covered in up to 3 feet of water, cutting off access to an area that alone represents about 20 percent of the city's total park space.The Aug. 13 report, compiled by the Stockton-based engineering firm Kjeldsen, Sinnock & Neudeck Inc., suggested pile-driving the riverbank or studying a way to divert the flow of water on that section of the river.The report also outlined a steep price tag: at least $1.6 million, something city parks coffers cannot support when the city is struggling to perform routine park upkeep.The city is applying for state grant money that comes from bonds sold under Proposition 84, the wide-ranging statewide measure to protect water quality and waterways.Between two state grant programs, there is about $40 million of available funds.Jeff Hood, a city spokesman who also is coordinating the city's grant application, said there are expected to be more than 100 applicants for those state funds. "So it will be very competitive," he said.If the city loses out, there's another round of grant awards next year, he said. The city may have a little bit of time: Officials estimate the riverbank could perhaps last another five years.The city purchased the land that is now the nature area 34 years ago, and city workers first noticed erosion there about 19 years later.Crews used tree trunk stumps and strapped logs to the bank with cables to help slow the process in hopes that the work would help catch floating branches and sediment, rebuilding the riverbank.City officials say the river has eaten through those efforts, which also might have made the deterioration worse.Fresh look at campusDelta College board shift means Mountain House will be reassessed...Editorialhttp://www.recordnet.com/apps/pbcs.dll/article?AID=/20081110/A_OPINION01/811100307/-1/A_OPINIONThe high cost of the proposed south county San Joaquin Delta College campus in Mountain House is exceeded only by the high level of controversy the project has generated.Now, three of the four new trustees elected last week say they want to take another look at things. With the addition of Trustee Ted Simas, a longtime Mountain House critic, a majority of the board is in a position to do just that.Mountain House, far from the county's population centers and only 11 miles from a full-service community college campus, Los Positas Community College, has been controversial from the start. Originally, a Tracy campus was envisioned, and Tracy officials worked hard to make it happen. But curiously, trustees opted for the Mountain House site.Last summer, the San Joaquin County grand jury lambasted trustees, especially over the $30 million jurors estimated was lost on the Mountain House project. Delays, cost overruns and a parade of consultants have resulted in what was billed as a full campus being reduced to one permanent building and a collection of portables. Dirt is finally being moved, but it remains to be seen how many students will clamor to attend classes in portables.Last month, Delta trustees voted to spend an additional $49.3 million on the Mountain House project, a sum that is most of what the district has left from a $250million bond measure passed four years ago.Just why it was necessary to order the expenditure is unclear, especially on the eve of an election that the trustees had to know would radically alter the board's makeup.Fortunately, those millions have not been spent.Can a Mountain House campus be stopped? Should it be? Is it too late?Delta President Raul Rodriguez said it could cost the district $30million to back out now. There surely would be a lawsuit from the developer, who already has paid for project infrastructure.Still, the new trustees are asking the right questions, questions that should have been asked years ago.North Bay Business JournalCONSTRUCTION UPDATE: Construction: When is a development project a project?Latest CEQA ruling clouds process for public-private efforts...Jeff Quackenbushhttp://www.busjrnl.com/apps/pbcs.dll/article?AID=/20081110/BUSINESSJOURNAL/811070237&Title=Construction__When_is_a_development_project_a_project_&template=printartInstead of clarifying a long-running legal question about when a development plan becomes a “project,” triggering environmental-impact analysis, a new state Supreme Court ruling will prompt a review of commonly used public-private agreements, according to Phillip Kalsched, a construction and land-use attorney with Carle Mackie Power & Ross in Santa Rosa.“In the context of affordable housing, this ruling could have a serious chilling effect because of the need to secure assurances before going for sources of funding,” he said. “It will be a quite difficult balancing act under this decision on what goes too far.”On Oct. 30, the state’s highest court ruled unanimously in Save Tara v. city of West Hollywood that the city acted as if it had approved a 34-unit affordable housing project before studying its impacts, as required by the California Environmental Quality Act, and officially signing off on the plan. The case is the latest that has reached the state’s top courts in recent years to address the question of when CEQA review is needed during a project.The city and developers argued that the development agreement eventually stated that the project would be subject to environmental review, a common clause in land-use documents.Yet the court found that city actions – such as fronting the developers $1 million from a small city budget, stating publicly that project alternatives such as a library wouldn’t be pursued and sending one-year relocation letters to existing tenants of the property – acted as if the project proposal couldn’t be rejected. The city gave the developers a purchase option on the property to show control of the project site as part of a bid for $4.2 million in U.S. Housing and Urban Development Department grant money.“A public entity that, in theory, retains legal discretion to reject a proposed project may, by executing a detailed and definite agreement with the private developer and by lending its political and financial assistance to the project, have as a practical matter committed itself to the project,” Associate Justice Kathryn Werdegar wrote in the 34-page opinion.As a “general principle,” rather than a “bright-line rule,” a public agency mustn’t “take any action” to move a project along significantly before CEQA review if such action would not allow for project alternatives or mitigation measures that would be analyzed under CEQA.Yet the high court overturned part of a state appeals court ruling that would have moved the trigger point for preparation of CEQA documents to the time development agreements are entered and potentially enough project information is available for analysis.“Whenever courts lay out global tests with detailed analysis of the facts of a case, they are ripe for litigation,” Mr. Kalsched said. Contra Costa TimesTop county officials double dipping legally...Daniel Borensteinhttp://www.contracostatimes.com/danielborenstein/ci_10918125Three elected Contra Costa officials are double-dipping, drawing six-figure retirement checks on top of their county salaries and health benefits.While it's all permissible, it shouldn't be. The large compensations highlight the problems with the state rules that allow the simultaneous payments:٠ Sheriff Warren Rupf earned $256,000 in salary and benefits last year. On top of that, his annual pension is currently about $198,000 a year, for a yearly total of at least $454,000. ٠District Attorney Robert Kochly earned $239,000 in salary and benefits. Adding in his annual pension, currently about $165,000, makes for a yearly total of at least $404,000. ٠Auditor Stephen Ybarra earned $208,000 in salary and benefits. Adding in his annual pension, currently about $132,000, makes for a yearly total of at least $340,000. The three all worked for the county before seeking election to run the departments where they were employed. Once elected, they had the option to keep contributing to their pensions like other county employees or start receiving payments. The pensions are based on three factors: years of service, average of the 12 months of highest salary, and age when the pension payments began. Once they started drawing from the pension, they stopped accruing credit for years of service.For Rupf, the decision was a no-brainer. When he first started receiving retirement payments nearly 10 years ago, he already was entitled to the maximum pension payments. Because of his years of service and age at the time, he could already draw the limit of 100 percent of highest salary. Delaying his pension payments would not have increased that. Kochly and Ybarra had more nuanced calculations to make when they started drawing their pensions in early 2007. Kochly was entitled to pension payments equal to 78 percent of salary; Ybarra was entitled to 76 percent. If they waited longer, the payment amounts would have increased. Both said that they concluded that they were better off taking the money rather than receiving higher payments later.That makes sense to two pension actuaries I talked to. While there is a reduction in benefits for retiring early, in public-sector pension plans, that reduction is usually more than offset by the expected investment returns on that money. In other words, public-sector workers will earn more from their pensions and investments on the money if they take early retirement.For most county workers, there is a downside to drawing on their pensions early: They must retire or find another job — they must give up their county salary. However, elected officials don't have to leave. They can take advantage of the early retirement and keep their jobs. They get the best of both worlds. Three other elected department heads — Clerk-Recorder Steve Weir, Treasurer-Tax Collector Bill Pollacek and Assessor Gus Kramer — have not opted to start drawing their pensions. But, for Rupf, Kochly and Ybarra, it's particularly lucrative because they have spent most of their adult lives working for the county. So is this policy a good idea? I'm hard-pressed to understand why this handful of elected officials should enjoy privileges not offered to other county employees. I seriously doubt that these people opted to seek elective office so they could double-dip. Nor would they have passed up a run for elective office without the benefit.The next question is whether all employees should be given the option to start drawing their pension while still on the job. That, in essence, is what Contra Costa sheriff deputies are asking for in their negotiations with the county. I examined that proposal in an earlier column. It's hard to see a scenario that wouldn't drive up costs for the county at a time when it's already struggling to pay its bills. As a comparison, most retirement plans in the private sector require the worker to terminate employment before drawing a pension.The solution? Public-sector employees, whether or not they are elected officials, should choose between retirement and working. Put another way, pensions should be for people who are really retired.Washington PostGovernment to Grant AIG New, Larger Bailout...Carol D. Leonnighttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/10/AR2008111000502_pf.htmlThe federal government today announced an expanded effort to bail out American International Group, including a partial government takeover of the company, as the troubled insurance giant disclosed massive losses over the past three months.The new plan expands an existing government bailout program from $123 billion to $150 billion. But more significantly, it restructures the plan to include much less debt and instead provides direct government investment in the company.Under the new plan, the government will buy $40 billion of AIG preferred stock, a step that puts AIG on par with major U.S. banks, which the government partially nationalized last month. Another $52.5 billion will be used to take troubled assets off of the company's books.The new plan is an acknowledgement that an original bid to help the company was in fact weighing it down by requiring quick repayment and a high interest rate on government loans.Federal officials announced the new AIG bailout at 6 a.m. -- shortly before the company reported that it had lost $24.5 billion from July through October. AIG has now posted losses of $37.6 billion for the first nine months of the year.In a conference call with reporters this morning, Treasury officials explained that AIG needed time and more capital to weather a financial storm that had threatened to bring it down. Federal officials say the insurance giant, a company with global sweep, must not be allowed to fail because it is so deeply entwined in the U.S. economy and financial system.Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke briefed a member of President-elect Barack Obama's transition team last night about the restructured deal.The enhanced bailout plan -- nearly double an original $85 billion loan extended to the company in September -- comes with restrictions on how much AIG corporate executives get paid. The top five executives at the company are now subject to salary and bonus limits that are the most stringent the Treasury has yet struck in any financial bailout plan. The next 70 highest corporate officials are subject to the same limits on severance packages as other executives of companies participating in the $750 billion Troubled Asset Relief Program. AIG's overall bonus pool is frozen at 2006-2007 levels.AIG Chairman and chief executive Edward M. Liddy said that the new plan "addresses the liquidity issues that threatened AIG" and that the company's "goal is to repay taxpayers in full with interest.""What these transactions do is stop the cash outflow," Liddy said in a conference call this morning.The use of TARP funds to help AIG comes as federal officials try to calibrate how far to expand the program beyond its original aim of removing troubled mortgage assets from the books of banks and financial companies. About a third of the fund already has been set aside for direct capital investments in banks, and there have been demands that the program be expanded to include troubled companies outside the financial industry, such as U.S. automakers.The new plan AIG may make it more likely that the Treasury will have to ask Congress for more funds if the financial system continues to suffer and other companies near collapse. The $40 billion stock purchase will be paid for out of a $100 billion fund set aside under the TARP to react to crises like the one that hit AIG. With much of that fund now committed, one Treasury officials said of any future problems, "We can hope they would be few and far between."Facing bankruptcy as a result of its disastrous bets on real estate investments, AIG was first given an $85 billion loan from the Treasury at relatively high interest rates. That loan since has been increased to $123 billion. The company has also tapped a separate government fund, available to many companies, for an additional $20 billion.To ease the company's debt burden, the new plan cuts the outstanding loans to $60 billion, in effect converting the rest of it to direct government investment in the company and a new fund that will be used to remove troubled investments from the company's books. The interest rate on the loan initially included a premium of 8.5 percent over a benchmark bank rate; that premium is being cut to 3 percent. In addition, the repayment will be extended from two years to five years.The Treasury hopes this will eliminate the need for AIG to sell off business divisions and assets at fire-sale prices to rapidly repay the government. The goal is to increase the chances that AIG can settle some of its debts without emerging as a shell of its former self.Liddy, in a news release, said the new program will "create a durable capital structure that will make possible an orderly disposition of certain of AIG's assets."Of two separate funds totaling $52.5 billion set up to take troubled investments off of AIG's books, the government will spend $22.5 billion buying troubled real estate investments that were partly the cause of the company's near-failure. AIG would contribute another $1 billion to this pool. The government could hold these investments long enough that the underlying mortgages and assets recover some of their value. Establishing this fund will let the company repay and close a $37.8 billion loan the government provided in October, further reducing its debt payments."These new measures establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plan to sell certain of its businesses in an orderly manner, promote market stability, and protect the interests of the U.S. government and taxpayers," the Treasury said in a press release.The New York Fed will also provide up to $30 billion to remove from the company's books a series of other troubled assets, known as Collateralized Debt Obligations, that were also dragging the company down. AIG will provide $5 billion to that effort.After the Federal Reserve of New York first extended the $85 billion loan to AIG on Sept. 16, the company quickly began using up the funds. Each week, AIG was tapping billions from the government fund to post collateral for banks and other firms whose mortgage investments AIG had promised to insure. The firms were demanding greater collateral because of AIG's declining credit rating, and because of the rapidly falling value of the mortgage investments themselves.But when the company sought to sell assets that would help it repay the federal loans, it wasn't finding many takers. This was making AIG's management increasingly anxious about whether it would be able to meet the interest payments.The new plan "is a very, very positive development for AIG and taxpayers, because now the company has a realistic chance of paying the taxpayer back," said an official close to the renegotiation talks. News of a restructured deal was reported yesterday evening by the Wall Street Journal.A Quiet Windfall For U.S. BanksWith Attention on Bailout Debate, Treasury Made Change to Tax Policy...Amit R. Paleyhttp://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155_pf.htmlThe financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin."Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. "This is part of our overall effort to provide relief," he said.The Treasury itself did not estimate how much the tax change would cost, DeSouza said.A Tax Law 'Shock'The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury's work seemed focused almost exclusively on the bailout."It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops," said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. "I've been in tax law for 20 years, and I've never seen anything like this."More than a dozen tax lawyers interviewed for this story -- including several representing banks that stand to reap billions from the change -- said the Treasury had no authority to issue the notice.Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to "carry out the purposes of this section."Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world."This has never been a good economic policy," said Kenneth W. Gideon, an assistant Treasury secretary for tax policy under President George H.W. Bush and now a partner at Skadden, Arps, Slate, Meagher & Flom, a law firm that represents banks.The opposition to Section 382 is part of a broader ideological battle over how the tax code deals with a company's losses. Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.During the current Bush administration, senior officials considered ways to implement some version of the policy. A Treasury paper in December 2007 -- issued under the names of Eric Solomon, the top tax policy official in the department, and his deputy, Robert Carroll -- criticized limits on the use of losses and suggested that they be relaxed. A logical extension of that argument would be an overhaul of 382, according to Carroll, who left his position as deputy assistant secretary in the Treasury's office of tax policy earlier this year.Yet lobbyists trying to modify the obscure section found that they could get no traction in Congress or with the Treasury."It's really been the third rail of tax policy to touch 382," said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.'The Wells Fargo Ruling'As turmoil swept financial markets, banking officials stepped up their efforts to change the law.Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country's largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort. Lobbyists for the biotechnology industry also raised concerns about the provision at an April meeting with Solomon, the assistant secretary for tax policy, according to talking points prepared for the session.DeSouza, the Treasury spokesman, said department officials in August began internal discussions about the tax change. "We received absolutely no requests from any bank or financial institution to do this," he said.Although the department's action was prompted by spreading troubles in the financial markets, Carroll said, it was consistent with what the Treasury had deemed in the December report to be good tax policy.The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.The Jones Day law firm said the tax change, which some analysts soon dubbed "the Wells Fargo Ruling," could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.The tax world, meanwhile, was rushing to figure out the full impact of the notice and who was responsible for the change.Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.Over the next month, two more bank mergers took place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank, Willens said. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said. A spokesman for PNC said Willens's estimate was too high but declined to provide an alternate one; Santander declined to comment.Attorneys representing banks celebrated the notice. The week after it was issued, former Treasury officials now in private practice met with Solomon, the department's top tax policy official. They asked him to relax the limitations on banks even further, so that foreign banks could benefit from the tax break, too.Congress Looks for AnswersNo one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.DeSouza, the Treasury spokesman, said Congress is not normally consulted about administrative guidance.Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call."We're all nervous about saying that this was illegal because of our fears about the marketplace," said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. "To the extent we want to try to publicly stop this, we're going to be gumming up some important deals."Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal. "Congress wants to help," Grassley said. "We also have a responsibility to make sure power isn't abused and that the sensibilities of Main Street aren't left in the dust as Treasury works to inject remedies into the financial system."Carol Guthrie, spokeswoman for the Democrats on the Finance Committee, said it is in frequent contact with the Treasury about the financial rescue efforts, including how it exercises authority over tax policy.Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely.But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy."None of us wants to be blamed for ruining these mergers and creating a new Great Depression," one said.Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq."It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system," said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. "We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"CNN MoneyFannie's loss: $29 billionContinued problems in housing market continue to drag down government-controlled mortgage finance giant...Chris Isidorehttp://money.cnn.com/2008/11/10/news/companies/fannie_mae/index.htm?postversion=2008111011NEW YORK (CNNMoney.com) -- Troubled mortgage-finance giant Fannie Mae reported on Monday that it lost $29 billion in the most recent quarter, putting the firm closer to having to draw on the $100 billion in taxpayer dollars committed to it in September.Fannie Mae (FNM, Fortune 500) said that as of Friday it had yet to draw on those funds. But the company warned in a filing that "if current trends in the housing and financial markets continue or worsen...we may have a negative net worth as of December 31, 2008." In that event, Fannie said it would need to tap into an unspecified amount of those taxpayer dollars. The company would not comment on whether it had started to receive those funds as of Monday, and a spokeswoman from Treasury had no comment on the Fannie results or the filing.Much of the loss was due to a $21 billion non-cash charge related to how it accounts for tax credits it had been carrying on its books - Fannie is no longer confident it will make enough money in the future to allow it to use those tax credits.The company would not estimate what the loss would have been without the charge. But it appears that the other losses would have been weaker than in past periods, and worse than expected. With more loans in default, credit-related losses soared to $9.2 billion from $5.3 billion in the second quarter and $1.2 billion a year earlier.The overall loss came to $13 a share, far worse than the $2.3 billion, or $2.54 a share it lost in the second quarter. A year earlier, Fannie lost $1.4 billion, or $1.54 a share. Analysts surveyed by Thomson Reuters had forecast a loss for the quarter of only $2.5 billion, or $1.60 a share.Conditions deteriorateJust about every measure of the status of the mortgage loans Fannie Mae owns or backs grew worse in the past quarter. The company took a $1.8 billion hit on the reduced value of its mortgage securities that were backed by subprime or Alt. A loans, those that were made without full documentation of a borrower's income.And the losses are poised to climb higher. The amount the firm has set aside to cover bad loans has shot up 75% in just the past three months to $15.6 billion.The value of loans that are "non-performing" or in foreclosure shot up 37% over just the past three months to $71 billion as of Sept. 30. Its inventory of foreclosed single-family homes now stands at 67,519, up by more than a thousand homes a week during the quarter, and a little more than double the number of foreclosed homes in in its inventory a year ago.The company says it expects that home-price declines will be at the upper end of its forecasted range, between 7% and 9% this year. It added that the total decline from the peak of home prices to the low point sometime next year also will be at the upper end of its forecasted range, between 15% and 19%.But the way that Fannie calculates price declines produces a more modest drop than other measures, such as the widely-followed S&P/Case-Shiller price index.Using that measure, and including the impact of the price of foreclosed properties on overall prices, Fannie calcuates it will see prices fall between 12% to 16% this year alone, and that the overall decline from peak to bottom will be end up being a 27% to 32% plunge in home values.Housing market still needs Fannie and FreddieThe Treasury Department took over control of Fannie Mae along with rival Freddie Mac (FRE, Fortune 500) on Sept. 7, after it concluded the firms were facing rising losses from mortgage-backed securities. The two firms together control or guarantee about $5 trillion in mortgage loans, and they have become nearly the only financial institutions able to bundle loans together into securities that could be sold to investors. Their ability to continue to do so has become a crucial source of funding for banks and other mortgage lenders, which need to sell the loans they make in order to have the funds to make additional loans.The two firms were set up by the federal government, even though they were owned by shareholders. In July, Congress voted to give Treasury authority to pump unlimited amounts of money into Fannie and Freddie, a move that the firms and Treasury Secretary Henry Paulson said at that time they believed would be unnecessary.But in September, with the threat of mounting losses, Treasury had to put the firms into conservatorship, a form of reorganization similar to bankruptcy, as it announced it stood ready to use taxpayer dollars to cover further losses. The move was the first of a series of federal bailouts of the nation's top financial institutions in response to the crisis in credit and financial markets.Circuit City to stay open in bankruptcyBeleaguered No. 2 electronics retailer urges budget-conscious consumers not to shun its stores for holiday gifts...Parjia B. Kavilanzhttp://money.cnn.com/2008/11/10/news/companies/circuit_city/index.htm?postversion=2008111013NEW YORK (CNNMoney.com) -- Circuit City Stores Inc., the No. 2 electronics seller after Best Buy, filed for bankruptcy protection Monday, hoping the move will allow it to stock its shelves in time for the crucial holiday shopping season.The move comes about a week after Circuit City said it would close 155 stores as it deals with a worsening economic downturn that has left more consumers with less money to shop. The company intends to keep its remaining stores open through the bankruptcy procedings. Circuit City (CC, Fortune 500) said consumers should continue to shop at its stores."Chapter 11 is not a closing or liquidation," the company said in an e-mail to CNNMoney.com. "We remain committed to doing a better job of taking care of our guests, and making it easier to shop at Circuit City." For anyone that's on the hunt for a sweet deal on a flatscreen TV, Circuit City spokesman Jim Babb said it's "safe to assume" that consumers can expect deep discounts on TVs and other products in those Circuit City stores that are being liquidated. In the rest of its stores, Babb said the company's prices will remain competitive with the market over the coming weeks.Circuit City said it is seeking approval from the bankruptcy court to honor customer programs such as returns, exchanges and gift cards. "Approval of such programs normally is granted," the company said in the e-mail.The electronics seller said it will still accept credit cards, including Circuit City-branded credit cards, which the company said are not impacted by its bankruptcy.Circuit City also said it will continue to honor its warranty plans, including its Circuit City Advantage Protection Plans.Despite these measures, one industry watcher remained unconvinced that Circuit City could still attract shoppers from here on and especially through the holiday season."Consumers will be skeptical about buying a $1,000 or $2,000 flatscreen TV with a warranty at Circuit City," said Craig Johnson, retail analyst and president of Customer Growth Partners. "In their mind, there's no guarantee that the company will still be around in the future." "Regarding gift cards, if you are buying a $50 gift card for Christmas, where would your comfort level be higher? At a Circuit City or a Best Buy (BBY, Fortune 500)?" Johnson said.The company's bankruptcy filing was also made at a crucial time of the year for merchants who are preparing for the year-end holiday shopping season.The November-December period can account for 50% or more of retailers' annual profits and sales. But this year, many Americans have clamped down on their shopping habits amid a weak economy and a shaky job and credit market.Industry analysts warn that retailers will have to do whatever they can this year if they hope to have at least decent holiday sales. Will stay in business for nowAccording to the company's Chapter 11 filing with the U.S. bankruptcy court in Richmond, Va., Circuit City has 566 operating stores in the United States and will continue to do business and pay its workers while it restructures debt and its business operations. In announcing the store closings last week, Richmond-based Circuit City said it would cut about 17% of its 40,000 domestic workers.Johnson said Circuit City's problems are partly its own making. On the external front, the retailer's competitive landscape has became much more formidable as Best Buy continues to enhance its product offerings and service. Circuit City has also felt the squeeze from discounters like Wal-Mart (WMT, Fortune 500) who has aggressively expanded into electronics over the last few years.More importantly, Johnson believes Circuit City shot itself in the foot when the company decided last year to fire more than 3,000 of its highest-paid sales staff and replace them with lower-paid workers. "This was a huge strategic blunder," said Johnson. "People want a knowledgeable sales person when they are spending $2,000 on a TV. They don't want to buy it from some kid at Wal-Mart," he saidThe company said it has negotiated a commitment for a $1.1 billion credit line to supplement its working capital. The company said the credit line will replace the company's $1.3 billion asset-based line provided by its lenders.Circuit City said the credit line will give it immediate liquidity while it works to reorganize the business and enable it to pay its vendors and employees. "We recently have taken intensive measures to overcome our deteriorating liquidity position," James Marcum, Circuit City's acting president and chief executive officer, said in a statement."The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively," he said.Where AIG's new bailout ranksAIG got another hand from the government. Here's where it fits among other government programs...David Goldman http://money.cnn.com/2008/11/10/news/economy/aig_bailout_comparison/index.htm?postversion=2008111012NEW YORK (CNNMoney.com) -- AIG may have gotten a $150 billion deal Monday, but that's just a small fraction of the nearly $3 trillion in financial rescue programs the government has created to stabilize the U.S. economy.The Federal Reserve and U.S. Treasury Department officials worked with AIG executives over the weekend to restructure its original bailout deal, the core of which was a high-interest-rate loan. The tough terms of the initial package were meant to send a message that more bailouts won't come easily.But AIG said it would have a difficult time paying back the loan. Worried that an AIG collapse would result in a domino effect throughout the financial system and a loss of billions of taxpayer dollars, the government reworked the deal.That raises questions about potential government assistance for other troubled companies, such as automaker General Motors (GM, Fortune 500), which said Friday it was running dangerously low on cash. "Clearly there are other industries interested in accessing TARP (Troubled Asset Relief Program) funds, and the Treasury will continue to work on a strategy that will most effectively deploy the remaining funds," a Treasury official said Monday. The Treasury has been authorized to use up to $700 billion of taxpayer funds to buy equity stakes and troubled assets from companies. It has used about $172 billion of that so far to inject capital into about 49 banks, according to analysts at Keefe, Bruyette & Woods. The Treasury also has used $40 billion to inject capital into AIG (AIG, Fortune 500).With the possibility of more bailouts on the way, here is how the government has thus far invested billions of dollars to rescue banks, companies, consumers and their homes:SAVING WALL STREETThe government has taken these steps to aid financial institutions.Term-auction facility: $1.5 trillion in loans to banks so far in exchange for otherwise unwanted collateral. The Fed increased its monthly auction limit to $300 billion in October, up from $20 billion when the Fed began the program.Dollar swap lines: Unlimited dollars to 13 foreign central banks to provide liquidity to foreign financial institutions. The Fed lifted its cap after raising it to $620 billion in October from $24 billion in December.Bear Stearns: $29 billion in a special lending facility to guarantee potential losses on its portfolio. With the lending facility, JPMorgan was able to step in to save Bear from bankruptcy.Lending to banks: $77 billion lent on average every day to investment banks, after facility opened to non-commercial banks for first time in March.Cash injections: $250 billion to banks in exchange for equity stake in the financial institutions in the form of senior preferred shares.Mortgage-backed securities purchases: Up to $410 billion allotted to purchase troubled assets from banks.Fed rate cuts: Down to 1% in October 2008, from 5.25% in September 2007.SAVING MAIN STREETConsumers are benefiting from the government's actions in recent months.Stimulus checks: $100 billion in stimulus checks made their way to 140 million tax filers to boost consumer spending and help grow the economy.Unemployment benefits: $8 billion toward an expansion of unemployment benefits, to 39 weeks from 26 weeks.Bank takeovers: $13.2 billion drawn down so far from the FDIC's deposit insurance fund after 19 bank failures in 2008.Rehab foreclosed homes: $4 billion to states and municipalities in assistance to buy up and rehabilitate foreclosed properties.Student loan guarantees: $9 billion so far in government purchases of student loans from private lenders. Higher borrowing costs made student loans unprofitable for a number of lenders, many of whom stopped issuing the loans.Money-market guarantees: $50 billion in insurance for money-market funds. The Fed then began to lend an unlimited amount of money to finance banks' purchases of debt from money-market funds. The Fed then agreed to purchase up to $69 billion in money-market debt directly. In October, the Fed said it would loan up to $600 billion directly to money-market funds.Housing rescue: $300 billion approved for insurance of new 30-year, fixed-rate mortgages for at-risk borrowers. The bill includes $16 billion in tax credits for first-time home buyers. But lenders have been slow to sign on.Deposit insurance: $250,000 in insurance for interest-bearing accounts, up from $100,000. The FDIC also issued unlimited guarantees on non-interest- bearing accounts and newly issued unsecured bank debt.SAVING CORPORATE AMERICAUncle Sam has intervened to help companies in the following ways.Business stimulus: $68 billion in tax breaks to corporations to help loosen the stranglehold on businesses trying to finance daily operating expenses.Fannie Mae, Freddie Mac: $200 billion to bail out the mortgage finance giants. Federal officials assumed control of the firms and the $5 trillion in home loans they back.AIG: $152.5 billion restructured bailout, including a direct investment through preferred shares, a easier terms on a $60 billion loan, and new facilities meant to take on the companies exposure to credit-default swaps.Automakers: $25 billion in low-interest loans to speed the industry's transition to more fuel-efficient vehicles.Commercial paper facility: $243 billion in corporate debt purchased so far by the Fed since its so-called Commercial Paper Funding Facility opened.AIG: Uncle Sam's do-overFed restructures loan and creates 2 programs to rescue insurance giant from bad bets. Treasury buys $40 billion in shares. AIG quarterly loss: $25 billion...David Goldman.  Tami Luhby contributed to this articlehttp://money.cnn.com/2008/11/10/news/companies/aig/index.htm?postversion=2008111013NEW YORK (CNNMoney.com) -- Troubled insurer American International Group got a reworked $152.5 billion deal from the federal government Monday, as the Federal Reserve and Treasury Department made significant changes to the terms of the company's original bailout.The Fed announced that it will reduce AIG's original $85 billion bridge loan to $60 billion, cut the interest rate by 5.5 percentage points and extend the borrowing period to five years from two years.In addition, the Treasury will use its special authority under last month's $700 billion bailout law - the so-called Troubled Asset Relief Program - to purchase $40 billion in preferred stock. The new bailout was worked out between government officials and AIG executives over the weekend. AIG was having difficulty paying back its original bridge loan, which it intended to use to sell off many of its subsidiaries to restore the company to a stable condition."This is definitely what AIG needed in the sense that it got rid of the first deal," said Donald Light, senior analyst with Celent. "This one is more tailored to the actual issues affecting the company and has a much better chance of getting AIG the help it needs."Shares of AIG jumped 13% on the news, but still have fallen about 90% since the company received its first bailout in mid-September.The credit crisis has proven to be a difficult environment to spin off assets. Furthermore, the company's investors continued to demand that the insurer post collateral to back its credit default swap agreements - essentially insurance contracts that AIG had sold to customers worldwide - forcing AIG to borrow more and more from the government. As the company drew down billions, the high interest rate on the original loan became too punitive."The Treasury determined AIG was a systemically significant institution," a Treasury official said. "Bringing more equity to the company puts AIG in a better position to dispose of its assets, and it was done to protect the taxpayer."Trying to stop the bleedingThe Fed is also creating two new entities designed to stanch the bleeding in two of the company's divisions that are threatening to topple the insurer. First, to shore up the insurer's shaky securities lending business, the Federal Reserve of New York will inject $22.5 billion and AIG $1 billion into an entity that will purchase $23.5 billion of residential mortgage-backed securities. This will take the place of a $37.8 billion lending facility made available to AIG last month.In this division, AIG lent securities to others for a fee and invested the money elsewhere -- much of it in mortgage-backed securities -- hoping for a gain. But it ran into trouble after the mortgage-backed securities declined in value, leaving AIG unable to unwind the loans as the deals expire. AIG said this is the major reason for its recent liquidity issues.The second entity announced Monday seeks to address the source of the original problems that nearly brought AIG down in mid-September.Funded with $30 billion from the New York Fed and $5 billion from AIG, it will purchase up to $70 billion of multi-sector collateralized debt obligations, or CDOs, on which AIG's financial products division wrote credit default swaps. As the value of these CDOs plummeted, AIG was forced to post more collateral to back up the swaps. Some 95% of the division's writedowns originate from these multi-sector CDOs.Once this entity is funded, the credit default swaps on these CDOs will be terminated. This is aimed at stopping the collateral calls that have been overwhelming the insurer.Analysts speaking on a conference call pressed the company on whether it could convince CDO holders to sell them at 50 cents on the dollar. Executives said the Federal Reserve will drive negotiations and expects them to succeed."We cannot continue to hemorrhage cash in posting collateral for credit default swaps," said AIG Chief Executive Edward Liddy. "We need to stop that, and we need to stop that now."Andrew Barile, an insurance consultant at Andrew Barile Consulting Corp., said the bailout will help ease AIG's need to continue to post more collateral. But he said the company will continue to have trouble selling off its subsidiaries. In the current environment, other smaller companies may rather pluck talent away from AIG than assume its unwanted companies."People also underestimate the time it takes to sell off assets of an insurance company, which takes months and months," said Barile.Also on Monday, AIG reported its biggest quarterly loss ever: $24.5 billion, or $9.05 per share, in the third quarter. Excluding one-time charges, AIG lost $9.2 billion, or $3.42 per share, in the three months ended Sept. 8. That compares to a gain of $1.35 per share during the same period a year earlier.Liddy attributed the poor results to "extreme dislocations and volatility in the capital markets" during the quarter.Insurance on properties destroyed by Hurricanes Gustav and Ike contributed to $1.4 billion of losses for the company.The giant insurer, which has more than 100,000 employees worldwide, reported revenue of $11.7 billion, down 0.8% from $11.8 billion in the third quarter of 2007.But in an encouraging sign, ratings agency Fitch said it removed the company from its so-called credit watch list immediately following AIG's announcement, saying the move is important in promoting global financial stability.Another turnabout for rescue effortsThe new bailout marks a stunning turn in the Bush administration's efforts to address the escalating financial crisis. It is likely to stoke calls from those advocating federal rescue plans for other troubled companies such as automaker General Motors (GM, Fortune 500), which said Friday it was running dangerously low on cash."Clearly there are other industries interested in accessing TARP (Troubled Asset Relief Program) funds, and the Treasury will continue to work on a strategy that will most effectively deploy the remaining funds," a Treasury official said Monday. Many taxpayers have expressed anger at the government's bailout, saying it rewards risky and unscrupulous behavior of corporations. But Liddy said taxpayers have much to benefit from an equity stake in AIG."It is not exactly a bailout, because the American taxpayer will and has been offered considerable returns due to their equity stake in AIG," Liddy said. "This plan is a win-win: When things get better, the government will do well, and AIG will do well."The Treasury said its $40 billion capital injection into AIG is not part of the $250 billion that was set aside for equity purchase of banks. Rather, the funds came from an additional $100 billion that President Bush requested. The transaction's "one-off" status allowed the government to impose more stringent criteria on executive compensation than on banks receiving Treasury assistance.As part of the new deal announced Monday, Treasury will limit "golden parachutes" and freeze the size of the annual bonus pool for the top 70 company execs. Most banks participating in the Treasury program face compensation curbs on only their top five executives.AIG has come under fire from lawmakers and state officials for seeking to make big payouts to former executives and planning pricey corporate events after receiving the federal loans.In mid-September, AIG (AIG, Fortune 500) teetered on collapse, pressured by the effects of the credit crisis. Worried that the company's failure would domino through the rest of the financial system, the government provided an $85 billion bridge loan. Later, the Fed gave the insurer $37.8 billion line of credit, and made available $20.9 billion in a debt purchasing facility.Under the new plan, AIG has borrowed the full $40 billion from the Treasury to pay off the $37.8 billion from the Fed. It has drawn down $15.3 billion of the $20.9 billion it can borrow from the Fed's Commercial Paper Funding Facility, and it has already borrowed $21 billion of its reduced $60 billion bridge loan. The rate on the bridge loan was reduced to 3 percentage points over 3-month Libor from 8.5 points over Libor - currently 5.24%, compared to 10.74%. On the unused portion, AIG now has to pay 0.75% interest, down from 8.5% in the original deal."The original bailout was just too onerous for the timing and the cycle," said Barile. Liddy, who was installed as CEO after the government's September rescue, attempted Monday to quell fears that the company was rapidly losing business. He said that AIG remains "well-capitalized and disciplined in insurance writing," and it continues to hold on to the vast majority of its clients - losing just 10% of its insurance business.But Barile said given the vast size of AIG, that 10% is a huge amount of lost business, and customers will likely continue to leave AIG when their policies expire."With Fortune 500 companies set to renew their insurance policies on Jan. 1, it will be a real test to see small the company can get," he said.Financial TimesAIG receives $150bn state  bail-out... Francesco Guerrera in New York...11-09-08 http://us.ft.com/ftgateway/superpage.ft?news_id=fto111020080627161251&referrer_id=yahoofinanceAIG is to receive a new $150bn US government bail-out that will allow the troubled insurer to reduce interest payments and give it more time to sell assets and save itself from collapse.The new deal will increase the government’s aid to the stricken insurer from $123bn to $150bn but leave the federal authorities to reap most of the gains if AIG’s troubled assets recover in value.People close to the situation said the new plan – which comes less than two months after the Federal Reserve took an 80 per cent stake in AIG in exchange for an $85bn rescue loan – could be announced on Monday, with the insurer’s third-quarter results.The renegotiation of the bail-out, which could be politically controversial, came after AIG rapidly used up most of the government original facility, raising fears that it could run out of cash.Under the new plan, which was approved by AIG’s board after a weekend of talks between the insurer, the New York Fed and the US Treasury, the government will swap the $85bn two-year loan for a $60bn, five-year loan. The interest rate of the loan will be reduced from 8.5 per cent over the London Interbank Borrowing Rate to 3 per cent over Libor. AIG will pay only 75 basis points in interest on the portion of the loan it does not use, instead of 850 basis points currently.The government will also use a recently announced $700bn facility to buy some $40bn in preferred shares in AIG. The shares will carry an annual interest rate of around 10 per cent.That is the same as the one being paid by Fannie Mae and Freddie Mac, the mortgage finance groups that have been nationalised but double the interest rate charged to the banks that have received a Treasury cash injection.The government’s stake in the insurer will remain unchanged at 79.9 per cent, according to people close to the situation. The Fed will also take over AIG’s troubled credit default swaps and the mortgage-backed assets in the company’s securities lending unit – the two divisions that caused the insurer’s near-collapse in September. The continued fall in the value of those assets has drained billions of dollars from AIG’s battered balance sheet by forcing it to put up extra capital to its counterparties. Under the new plan, the Fed will put $30bn in a new vehicle that will purchase some $70bn of AIG’s CDSs from its counterparties. AIG will contribute $5bn to the vehicle. If, over the next few years, the value of the CDSs increases from the current depressed price, the Fed will keep two thirds of the profits, with AIG getting the rest.The regulators will also invest $22.5bn in debt, with AIG putting $1bn in equity, into a second vehicle that will purchase the residential mortgage-backed securities held in the insurer’s securities lending unit.If the value of those assets rises, the Fed will keep the majority of the gains. A $37.5bn liquidity facility provided by the Fed to AIG’s securities lending unit, which lent securities to investors in exchange for fees that were invested in the toxic mortgage assets, will be cancelled. AIG, Blackstone, who is advising the insurer, the Fed and Treasury declined to comment.The decision to renegotiate the AIG rescue could be controversial for the Fed, at a time of rising political opposition to the injection of taxpayer’s money into financial institutions. Tim Geithner, the president of the New York Fed, is a candidate to become Treasury secretary in Barack Obama’s administration. AIG officials counter that the new deal was needed to stave off a collapse that would have wreaked havoc on global capital markets. The insurer had already used $81bn of the combined $122.5bn Fed facility and Edward Liddy, AIG’s chief executive, had warned that it might run out of cash.