Tuesday
September 28, 2004
news@michigandaily.com
BUSINESS
.5
...... . .....
BUSINESS
BRIEFS
Oil prices near
$50 as hurricane
decreases output
WASHINGTON - Oil prices
charged toward $50 a barrel yesterday,
and gasoline prices surged to $1.92 a
gallon last week, as petroleum out-
put in the Gulf of Mexico returns at a
slower-than-expected rate after Hur-
ricane Ivan and geopolitical unrest
keeps traders on edge.
The United States has lost more
than 11 million barrels of oil produc-
tion in the past two weeks, according
to government data, with Gulf of Mex-
ico output still down nearly 500,000
barrels a day. Analysts had initially
thought the region's oil production
would return to normal about a week
after the hurricane.
The blow to domestic output, while
expected to be short-lived, comes as
analysts worry about OPEC's inabil-
ity to swiftly and sharply increase
production in the event of a more
significant and prolonged supply dis-
ruption.
Real estate sales
increase in August
WASHINGTON - Sales of new
homes rose by 9.4 percent in August,
the Commerce Department said yes-
terday, as mortgage interest rates
remained at low enough levels to con-
tinue enticing buyers worried about
future rate hikes.
New home sales climbed to a sea-
sonally adjusted annual rate of 1.18
million homes, up from a revised 1.08
million sales pace in July.
The increase was the largest since
December 2000, when new home sales
jumped by 11.7 percent. In July, new
home sales fell by 7.3 percent.
Enron aide:
Fastow tried to
buy out company
HOUSTON - As Enron Corp.
scrambled to unload interest in sev-
eral barges in December 1999, former
finance chief Andrew Fastow con-
templated coming to the rescue with
a buyer he created so he would be a
hero to then-president Jeffrey Skill-
ing, Fastow's former top aide testified
yesterday.
The aide, Michael Kopper, said dur-
ing the first criminal trial to emerge
from Enron's December 2001 crash
that he considered it a risky deal for
Fastow's LJM2 partnership to buy
into, even though Fastow said it would
help Enron and "he would look like a
hero to Jeff Skilling."
But then-treasurer Jeff McMahon
was enlisting Merrill Lynch & Co.
to buy the interest in the barges and
allow Enron to book a $12 million pre-
tax profit at the end of 1999 - and the
brokerage came through.
Russian oil giant's
shares evaluated
at $15 billion
MOSCOW - Assets of Russia's
beleaguered Yukos oil company
should fetch at least $15 billion, a
senior official said yesterday, as the
company's main production unit is
evaluated for sale to offset a crushing
back-tax bill.
If applied to Yukos's main pro-
duction unit Yuganskneftegaz,
which is currently being evaluated
for sale against the tax claims, that
price tag would put it beyond the
reach of state-controlled companies,
which are strapped for free cash.
U '
economists:
Outsourcing not
threat to jobs
By Koustubh Patwardhan
Daily Staff Reporter
Outsourcing to India and China has
gone from being a buzzword among
economic analysts to a contentious
issue that has many Americans con-
cerned about the future of the U.S.
economy and their own job prospects.
Outsourcing or offshoring is the
movement of jobs from
the United States to coun- First in
tries such as India and
China, where labor costs are lower.
Most of the jobs that are moved are
blue-collar, but high-skilled jobs are
increasingly being outsourced as well.
Professors at the University who
study outsourcing trends said they do
not cause huge job losses and are a
necessary step to take as the business
world continues to globalize.
"Even though in the short term out-
sourcing is a pain, (it is) a general busi-
ness challenge that companies are facing
L
in a global market,"
said Mayuram " h u 1
Krishnan, profes- "Though i
sor at the Stephenterm outsO
M. Ross School of
Business. pain,(is)
Despite such
assurances, out- business c
sourcing has
become a hotly that comp
debated politi-
cal issue. Recent faCing In a
shifts in ser- market.
vice-sector and
software manu-
facturing jobs - Ma
have prompted Bu
Democratic
presidential candi-
date John Kerry to repeatedly criticize
President Bush for allowing compa-
nies to shift to many jobs abroad.
To stifle outsourcing, Kerry is pro-
posing a tax holiday to companies that
reinvest in the United States, while
pledging to eliminate tax incentives to
U.S. companies that outsource.
Historically, offshoring of U.S. jobs
has occurred numerous times.
In the textile and manufacturing
sectors, jobs have been exported over-
seas, and the economy has adjusted
and grown by creating new types of
jobs. The service sector has never
experienced the effects of offshoring.
Now, it is because the service sector
is being affected that the issue has
gained attention, said Robert Ken-
nedy, associate director of the William
Davidson Institute, a research division
of the Business School.
But recent outsourcing - coupled
with slow job growth since the end
of the recession - has also led some
economic analysts to begin discussing
the possibility of a "jobless recovery,"
n
a
y
U
where the economy grows without
adding new jobs.
Many college students are also
expressing concern about the effect
offshoring will have on their future
job prospects. Some worry whether
they will lose their jobs, while some
politicians are asked to take action to
stop the drain of jobs.
"The fact that startles me is that
250,000 manufactur-
a series ing jobs have been lost
in Michigan, and even
though all of them cannot be attributed
to outsourcing, greater tax subsidies
need to be given to companies who are
increasing employment opportunities
in the U.S.," said College Democrats
Vice-Chair Libby Benton.
But some economists counter that
outsourcing is actually beneficial for
the U.S. economy in the long run. Ken-
nedy said offshoring encourages coun-
tries to specialize in making the goods
and services that they are best at, and
therefore produc-
theshort tivity increases.
the short "gn;;;
Companies
urcing is a will explore all
LLI,1I~ a the resources
a general they have to
compete effec-
allenge tively in the
increasingly
inies are global economy,
Kennedy said.
global "The only way
for an economy
to grow is by
using all avail-
'uram Krishnan able resources,"
siness professor he said.
Kennedy
added that off-
shoring is a "small phenomenon" and
represents a small portion of the jobs
lost in the United States.
The benefits of offshoring also out-
weigh the costs of the displaced jobs,
Kennedy said. He added that job losses
are painful for some industries, but that
outsourcing and free trade are more
advantages, and in the long run is ben-
eficial to society.
When they outsource, companies are
able to provide cheaper services because
the costs of producing are lower. Lower
costs are beneficial to the economy
because the firm delivers more profits
and provides better job security for its
employees, Kennedy said.
While outsourcing may be a prod-
uct of globalization, Benton said the
strength of U.S producers is important
for the country to remain competitive
in the global field.
"The economy is becoming increas-
ingly global, and it is not necessarily a
bad thing, but we have to strengthen
our economy by ensuring that every-
body has a level playing field," she said.
Key Economic
Indicators
Unemployment rate:
- 5.4 percent nationally
- 6.7 percent in Michigan
Consumer Price Index:
- Prices for a typical bundle of
goods increased by 2.7 percent
since August 2003.
Worker Productivity:
- Increased by 2.5 percent in
second quarter of 2004.
Mich. Stocks
Close Change
Pfizer: 29.62 - 0.4
Comcast
Corp: 27.87 -0.27
DTE
Energy: 41.55 +0.1
Borders
Group: 24.35 - 0.10
General
Motors: 41.15 -0.21
Ford
Motor Co: 13.89 + 0.09
Daimler-
ChryslerAG: 41.18 - 0.38
1950
1916.7
- o
1883.3
1850
9-11
1140
1130
1120
1110
1100
9-1 3
10350
10200
10050
9900
9-13 9-209-27
3 9-20 9-27
DATE
9-20 9-27
DATE
Fannie Mae agrees to fix accounting problems
WASHINGTON (AP) - Under pressure resolving these concerns and helping to assure
from federal regulators, Fannie Mae's board has safe and sound operations," Federal Housing
agreed to take sweeping action to correct what Oversight Director Armando Falcon said in a
were cited as serious accounting problems.
statement yesterday.
A Treasury official
Fannie Mae agreed to
giant's capital, recal-
culate key transactions
back to 2001 and tighten
internal controls.
The government-char-
tered mortgage financer
and its regulator said yes-
terday they had reached
an agreement after nego-
tiations last week and
over the weekend.
A week ago, the Office
of Federal Housing
Enterprise Oversight told
boost the mortgage
Under pressure from
federal regulators, the
mortgage giant agreed
to recalculate key
transactions back to
2001 and tighten internal
controls.
renewed the Bush admin-
istration's call for tighter
government reins over
Fannie Mae and Fred-
die Mac, the other huge
government-sponsored
mortgage company,
which faced an account-
ing crisis 15 months ago.
"We think the leg-
islation needs to be re-
enacted, and the sooner
the better," Wayne
Abernathy, the assistant
financial institutions, told
raised the possibility of removing top manage-
ment of Fannie Mae, the biggest financer of home
mortgages in the country and the second-largest
U.S. financial institution after Citigroup Inc.
That's still possible.
The revelations pushed down Fannie Mae's
stock more than 13 percent, to a 52-week low, in
a three-day slide last week. The shares rose 53
cents to $66.04 in yesterday trading on the New
York Stock Exchange.
Neither the regulators nor the company said
whether Fannie Mae would have to restate its
earnings. Freddie Mac wound up having to
restate $4.5 billion in earnings for 2000-2002.
Fannie Mae will increase its cushion of reserve
capital by about $5 billion.
To raise that money, Fannie Mae has several
options. It could issue new stock, a move that
could further weaken its share price; sell assets
from its portfolio of investments, which includes
billions in mortgages plus items such as aircraft
leases; or even scale back its purchase of home
mortgages, which could reduce the supply of
home loans for prospective buyers.
The company also agreed to recalculate all
its transactions for derivatives, financial instru-
ments it uses to hedge against interest-rate and
other risk, for all quarters going back to 2001.
Morgan Stanley and Prudential Equity Group
swiftly downgraded their rating of Fannie Mae
stock yesterday. "We believe that the require-
ment to carry extra capital could slow (Fannie
Mae's) growth over the near to intermediate
term," Prudential analyst Bradley Ball said in a
written statement.
Ball wrote that requiring the company to recal-
culate its accounting "will at a minimum create
uncertainty and confusion surrounding (Fannie
Mae's) past and prospective future results."
Fannie Mae and Freddie Mac pump money into
the home mortgage market by buying billions of
dollars of home loans each year from banks and
other lenders, then bundling them into securities
that are resold to investors. Their stock and debt
are widely held by investors in the United States
and around the globe.
The Securities and Exchange Commission also
is investigating the company's accounting.
Fannie Mae that its
Treasury secretary for
eight-month-old investigation had found perva-
sive earnings manipulation to meet Wall Street
expectations and serious accounting misdeeds. It
ordered "immediate remedial action."
"This agreement is an important step toward
reporters. He said action by lawmakers might even
be possible in the few remaining weeks before
Congress adjourns. Key Republican senators and
House members also have urged such a measure.
The housing oversight regulators last week
- Compiledfrom Daily wire reports
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