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 Subscribe today to The Ann Arbor News! only $29 For a school year of daily home delivery.