News & Current Affairs

July 15, 2009

Price of habit chokes US smoker

Filed under: Business News, Latest, Politics News — Tags: , , , , , , , , , , , , , — expressyoureself @ 6:06 pm

Price of habit chokes US smoker

Josh Muszynski

Josh Muszynski: ‘I thought someone had bought Europe’

A man in the United States popped out to his local petrol station to buy a pack of cigarettes – only to find his card charged $23,148,855,308,184,500.

That is $23 quadrillion (£14 quadrillion) – many times the US national debt.

“I thought somebody had bought Europe with my credit card,” said Josh Muszynski, from New Hampshire.

He says his appeals to his bank first met with little understanding, though it eventually corrected the error.

It also waived the usual $15 overdraft fee.

“It was all back to normal,” Mr Muszynski told his local television station, WMUR. “They reversed the negative balance fee, which was nice.”

Debt crisis

His nightmare began when he checked his online bank account a few hours after buying the cigarettes.

He thought he would be a couple of hundred dollars in the black. But his overdraft had pushed him into the red – by an amount equivalent to many times the entire US national debt.

“It is a lot of money in the negative,” he said. “Something I could never, ever, afford to pay back.

A copy of Josh Muszynski's bill

The 17-digit amount on his online bill shocked Mr Muszynski

“My children could not afford it, grandchildren, nothing like that.”

In panic, Mr Muszynski rushed back to the petrol station, but they were unable to help. He says he then spent two hours on the phone with the Bank of America.

Eventually, it assured him it would be fixed – and the next morning, it had been.

But no-one has yet explained to Mr Muszynski how such a astonishing error could have been made.

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November 25, 2008

US Fed unveils new $800bn rescue

US Fed unveils new $800bn rescue

A US home that has been repossessed

The Fed’s aim is to prevent a deep economic slump

The Federal Reserve is to pump $800bn (£526.8bn) into the markets in another bid to deal with the financial crisis.

The US central bank said it would use $600bn to buy-up mortgage-backed securities to help encourage lending.

Separately the Fed also unveiled a $200bn plan to help unfreeze the consumer credit market.

As the credit crisis has deepened, banks and other financial institutions have been reluctant to lend, deepening the economic slowdown.

Under this new rescue plan – which is in addition to the already-announced $700bn bank bail-out – the Fed is to buy up to $100bn in debt from the troubled mortgage giants Fannie Mae and Freddie Mac.

The central bank said it would also buy another $500bn in mortgage-backed securities – pools of mortgages that are bundled together and sold to investors.

New bail-out

The $600bn effort on mortgages came as the Fed also unveiled a separate program to help unfreeze the consumer debt market.

The central bank said it would lend up to $200bn to the holders of securities backed by various types of consumer loans, such as credit cards and student loans.

The Fed said that the $600 billion effort to support the mortgage market was being taken to reduce the cost of home mortgages and increase their availability.

It said the purchases of the mortgages and mortgage-backed securities would take place over a number of months.

The severe financial crisis that is rocking global markets at the moment began more than a year ago with rising defaults on subprime mortgages, loans provided to borrowers with weak credit histories.

‘Unblocking credit’

Recently, Treasury secretary Henry Paulson had indicated that the government was working on this new program, which will be supported by $20bn of credit protection provided by the existing $700bn bank bail-out fund.

The news of this latest massive financial rescue plan was generally welcomed.

“They are getting to the heart of the problem, it’s clean, it’s quick, it’s direct. It’s a good way to bring down mortgage rates, because at the end of the day they have to stabilise the housing market,” said Todd Abraham of Federated Investors, Pittsburgh.

Robert Macintosh, chief economist with Eaton Vance, Boston, said: “If they can pull it off it’ll make some people happy, but I don’t know how effective it’ll actually be.”

Scott Brown, chief economist at Raymond James Associates, Florida, said: “Here is the Fed taking a bunch of debt out of the market, which doesn’t hurt. I think it should it should help unblock the credit markets.”

October 2, 2008

US markets wary over rescue deal

US markets wary over rescue deal

Wall Street trader

The markets remain nervous

US shares have fallen sharply with investors cautious over whether the House of Representatives will back the revised bank rescue plan.

The House is due to discuss the scheme later, with a vote expected on Friday. The bill successfully passed through the US Senate on Wednesday.

On Wall Street, the Dow Jones index was down 263 points or 2.4% at 10,571, a slide dragging European shares lower.

The falls came as France said it would host a summit on the financial crisis.

The UK’s FTSE 100 closed was down 1.8% to 4,870.3 points while Germany’s Dax index shed 2.5% and France’s Cac 40 lost 2.3%.

Sentiment was further hit by glum economic data – showing that the number of people filing for new unemployment benefit claims rose to a seven-year high, while factory orders had seen a steeper-than-expected drop in August.

European talks

The office of French President Nicolas Sarkozy said the special meeting on Saturday would discuss a co-ordinated response to the financial turmoil amongst European members of the G8 ahead of a meeting of world finance leaders in Washington next week.

UK Prime Minister Gordon Brown is due to attend, together with German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi and European Central Bank President Jean-Claude Trichet.

Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy
Aric Au, Phillip Securities

But with just two days to go before the talks start, EU members are deeply divided, correspondent said.

France and Holland favor a European response to help banks hit by the credit crisis while Germany and Luxembourg believe a joint rescue plan is not necessary.

European leaders have denied speculation that they wanted to establish a unified 300bn euro ($418.4bn; £236bn) banking rescue deal along the same lines as the US plan.

The rescue idea was said to be being proposed by France, but Mr Sarkozy insisted that there were no such plans.

“I deny both the amount and the principle [of such a plan],” he said.

‘Essential’

In the US, a number of changes had to be made to the $700bn (£380bn) bail-out plan in order to help win approval in the Senate.

These include raising the government’s guarantee on savings from $100,000 to $250,000, tax breaks to help small businesses, expansion of child tax credit, and help for victims of recent hurricanes.

President George W Bush said that the package was “essential to the financial security of every American”.

However, economists said doubts remained about how effective the package would be.

“Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy,” said Aric Au of Phillip Securities in Hong Kong.

McCain and Obama

US presidential hopefuls John McCain and Barack Obama, who both returned from the campaign trail for last night’s Senate debate, voted in favor of the rescue plan.

Senate majority leader Harry Reid, a Democrat, said he was happy with the result and praised both presidential candidates for voting.

“I think it shows that when we work together we can accomplish good things,” he said.

Mitch McConnell, leader of Republican senators, was also in jubilant mood.

“This was a measure that was much needed, to unfreeze the credit markets and get America’s economy working again,” he said.

September 18, 2008

Central banks release more funds

Central banks release more funds

Dollar bills

The extra funds are aimed at easing banking sector woes

Global central banks are pumping billions of dollars of extra funds into money markets in a co-ordinated move to lift the amount of credit available.

The move is the fourth such joint effort since December last year. It will see the US Federal Reserve inject a further $180bn (£99bn).

The Bank of England is releasing $40bn, while the European Central Bank is to provide $55bn.

The Bank of Japan and Swiss National Bank have announced similar moves.

‘Appropriate steps’

“These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,” said the Bank of England.

“The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.”

It does help to release some of those immediate tensions that have been building up in the money market
Ian Stannard, currency strategist, BNP Paribas

The central banks of South Korea, India, Canada and Australia have also released extra funds.

The co-ordinated move comes after four days of almost unprecedented turmoil in the global financial industry.

Firstly, US giant Lehman Brothers filed for bankruptcy protection, while compatriot Merrill Lynch lost its independence in a rescue takeover by Bank of America.

The US government has also had to bail-out insurance giant AIG, while in the UK, thousands of jobs are predicted to go at banking group HBOS following its sale to rival Lloyds TSB.

Major problem

Analysts said the latest move by the central banks should help to ease immediate fears.

“Obviously it does not tackle the underlying root causes of the problem, but it does help to release some of those immediate tensions that have been building up in the money market,” said Ian Stannard, senior currency strategist at BNP Paribas.

Koichi Haji, chief economist at NLI Research in Tokyo, said the co-ordinated move “shows how serious the problem has become”.

“I think the root cause was letting Lehman fail,” he said.

“That made investors reluctant to supply funds to their counterparts, particularly to the smaller banks.”

September 15, 2008

Lehman set to go into insolvency

Lehman set to go into insolvency

Graph

Preparations are being made for Lehman Brothers, the fourth-largest investment bank in the US, to file for bankruptcy.

The two strongest potential buyers appear to have pulled out of talks to rescue Lehman – the latest victim of the American credit crisis.

If no new financing comes before Wall Street opens, it will have to seek “Chapter 11” bankruptcy protection.

This could result in a severe shock to the global financial system, as banks unwind their complex deals with Lehman.

Late on Sunday the US central bank, the Federal Reserve, announced new moves to ease access to emergency credit for struggling financial companies.

The Fed said the step – which broadens the types of securities financial institutions can use to obtain emergency loans – was designed to mitigate the potential risks and disruptions to markets.

In a related move, a consortium of 10 investment banks announced a $70bn (£39bn) loan program that troubled financial companies can use to help ease the credit shortage.

The banks – Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS – each agreed to provide $7bn (£4bn) to the pool.

On Monday, Asian stock markets fell amid concerns over the fate of Lehman Brothers.

Singapore stocks dropped 2.26% in morning trading and shares in Taiwan fell 1.83%.

Markets in Tokyo, Hong Kong, Shanghai and Seoul were closed for public holidays.

Lehman employs about 25,000 worldwide, including 5,000 in the UK.

Accountancy firm PWC has already been lined up to run the British operations of Lehman should the firm go into administration.

BBC business editor Robert Peston says UK bank Barclays’ decision to walk away from a Lehman deal was a huge setback for the effort to rescue the Lehman.

Barclays terminated the negotiations because it was unable to obtain guarantees in relation to financial commitments faced by Lehman when markets open on Monday.

Bad bank, good bank

The rescue effort for Lehman was being co-ordinated by the US Treasury and the New York Federal Reserve.

No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value
Peter Morici
University of Maryland

The US government had hoped to arrange a bailout under which other US investment banks would finance a “bad bank” that would hold the most “toxic” investments of Lehman in the property and mortgage market.

The “good bank” or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK’s Barclays.

Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks.

However, it appears that this plan is falling apart.

“The only thing that can prevent Lehman collapsing would be a huge injection of taxpayers’ money,” a banker close to the talks told the BBC, but added that US Treasury Secretary “Hank Paulson has made it clear he doesn’t want to do that”.

Hard choices

Bank of America, meanwhile, is said to be unconvinced that buying Lehman would be in the interest of its shareholders.

Instead, according to a report in the New York Times, Bank of America is in “advanced talks” to buy investment bank Merrill Lynch for more than $38bn.

HAVE YOUR SAY

It’s amazing that companies which charge high interest to cover risk still need to be bailed out by the taxpayer.

Jack, Canada

Like other US investment banks Merrill has suffered losses of tens of billions of dollars in the subprime crisis, and has seen its share price plummet during recent months.

“No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value,” said Peter Morici of the business school of the University of Maryland.

Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.

The firm’s share price has plummeted as fears over its future have mounted.

Former Federal Reserve boss Alan Greenspan said the US government faced “very difficult decisions” over Lehman if it could not secure a rescue deal that did not involve public funds.

Yet Mr Greenspan said it would be “unsustainable” for the government to bail out every US bank that got itself into difficulty.

Predicting that Lehman would not be the last to require rescuing, Mr Greenspan added that this would not necessarily pose a problem.

“The ordinary course of financial change has winners and losers,” he said.

September 13, 2008

Thousands stranded by XL collapse

Thousands stranded by XL collapse

The collapse of the UK’s third largest package holiday group has left tens of thousands of Britons stranded abroad.

The decision to place XL Leisure Group into administration has also left thousands of staff facing the axe.

Chairman Phil Wyatt said he was “totally devastated” by the failure which has grounded XL’s 21 planes. The company flies to about 50 destinations.

There are 67,000 stranded who booked directly with XL, and another 23,000 who booked via other companies.

The Civil Aviation Authority(CAA) also said the firm had 200,000 advance bookings.

‘Sad day’

CAA EMERGENCY HELPLINE
Customers abroad: +44 (0) 2891 856547
Customers in the UK with advance bookings: 0870 5900927

“We’ve made every effort, myself and my fellow directors, to find new funding for the business – and it’s a very sad day for me personally. I am totally devastated,” XL chairman Phil Wyatt said.David Clover, a spokesman for the CAA, said it was making arrangements to help customers of the four tour companies within the XL group.

“In respect of people who are currently abroad we’re making arrangements and working very closely with the travel industry to organize repatriation flights.

“Clearly though, with XL Airways no longer operating, we’re having to bring in substitute aircraft to bring people home.”

He said package deals are covered by the CAA’s Air Travel Organizers’ Licensing (Atol) scheme and those customers will be offered repatriation flights or their money back if they have an advance booking.

Struggling

However, those who booked directly with the airline or XL.com – who are in the minority according to the CAA – will face a fee.

Anyone yet to take their flights should check their insurance policies, and with their banks or credit card companies about refunds, he added.

XL – which carried 2.3 million passengers last year – is the latest travel business to face financial difficulties, as the industry struggles with high fuel costs and an economic downturn.

But an agreement has been reached whereby Straumur investment bank has acquired XL’s German and French subsidiaries, which Straumur considers to be financially viable and sustainable businesses.

They will continue operations as separate commercial entities.

Share prices in holiday firms TUI Travel and Thomas Cook were up 6% and 7% following the collapse of their rival.

Economic downturn

“As the travel industry matures in Europe, there was always going to be pressure on those operating in the mid-market,” said Lastminute.com chief executive Ian McCaig.

A statement on the XL group’s website said: “The companies entered into administration having suffered as a result of volatile fuel prices, the economic downturn, and were unable to obtain further funding.”

XL COMPANIES
XL Leisure Group
XL Airways UK
Excel Aviation
Explorer House
Aspire Holidays
Freedom Flights
Freedom Flights (Aviation)
The Really Great Holiday Company
Medlife Hotels
Travel City Flights
Kosmar Villa Holidays

BBC travel correspondent Tom Symonds added that the industry would be facing an “enormous challenge” as it deals with the fall out of XL’s collapse.

“XL wasn’t just an airline it was a fundamental link Britain’s package holiday industry,” he said.

“Getting these people to and from their holidays will be an enormous challenge not least because of the shortage of aircraft caused by so many airline collapses in recent weeks.

“XL can’t use its own airliners for among other reasons it has no insurance now.”

The CAA said it was working with the travel industry to bring stranded holidaymakers home, and denied it had been responsible for the grounding of XL’s planes.

Airlines BA, Easyjet, BMI, Flybe and Ryanair have offered to fly some of the stranded passengers home.

Easyjet chief executive Andy Harrison told that its fuel efficient planes had helped it cope with the high cost of aviation fuel although on Thursday it said it would cut up to 60 jobs to remain competitive.

Fuel pressures

Mr Wyatt added that spiralling oil prices had increased the firm’s costs “year-on-year by over $80m”.

“So where many people have been making hay with high oil prices, this is the repercussions of that hay – 1,700 people potentially out of work today in the UK,” he said.

Rival TUI warned that rising fuel costs meant that “airlines with less than robust business models” – such as XL and Futura – were now failing.

It added that the government should take steps to ensure all holiday companies must belong to the Atol scheme, which offers package holiday makers financial protection.

In the US, one flight from Orlando to Manchester managed to set off, while one bound for Gatwick was grounded. A source at the airport said accommodation was being found for the “distressed” passengers.

In the UK, air traffic control prevented three XL aircraft from taking off from Manchester Airport.

The XL group, which is based in Crawley, West Sussex, runs an airline and owns several travel companies, including Travel City Direct, Medlife Hotels Limited, The Really Great Holiday Company, Freedom Flights and Kosmar Holidays.

‘Going nowhere’

The company flies mainly from bases at Gatwick, Manchester and Glasgow airports.

Travel writer Simon Calder warned that many thousands of XL customers hoping to fly to the Caribbean, Mediterranean, North Africa and North America, from airports across the UK in coming weeks and days “simply won’t be going anywhere”.

Jim Duwaine, from Portsmouth, said he was given the news when he arrived at Gatwick where he had been due to catch an early morning flight to Menorca.

HELP OFFERED TO XL CUSTOMERS
Flybe – offering flights for 90 euros (£71.50)
BA– offering a one-way discount
Easyjet– flights offered for £75
BMI – provided aircraft to CAA for transport people home
Ryanair – has offered spare plane to CAA for transport

He said: “Absolutely devastated. Got up at midnight planning on going on holiday, but got let down, unfortunately. We’re here, just trying to get some other flights, but it’s not looking good. I think everyone else has got the same idea.”

Other holidaymakers have said they have been quoted vastly inflated prices for replacement flights.

Robert Spurgeon, of Norwich – an XL customer who had been due to fly to Tenerife from Gatwick – said: “We’ve not been told anything but my wife’s been quoted £2,000 for alternative flights.”

Also among those affected are a 130-strong choir on tour to Canada from Wales who were booked on Zoom and lost £50,000 when it folded last month, and then re-booked with XL.

XL is the current kit sponsor of West Ham United but football club said it would end the sponsorship deal and play on Saturday in an unbranded kit.


Are you struggling to make your way home from your holiday destination? Have you paid for a holiday that you may not be able to take? If you were an employee of XL what are your views? Send us your comments

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