As Low Rates Depress Savers, Governments Reap the Benefits

The following is an excerpt from an article in:

The New York Times
Tuesday, September 11, 2012

As Low Rates Depress Savers, Governments Reap the Benefits

By CATHERINE RAMPELL

A consumer complaint is ricocheting around the world: low interest rates are eating away at savings.
Bill Taren, a retiree near Orlando, Fla., discovered in August that his credit union would pay only 0.4 percent annual interest on his saving account, even though inflation averaged 2.8 percent over the last year. So he and his wife decided to just stuff their money in the mattress, he says, because at least there “we can see the cash when we want.”

Jeanne and André Bussière, in Annecy, France, have a stable pension and a bank account that pays 2 percent interest — “almost nothing,” they say — even though the consumer price index rose an average of 2.5 percent over the last year.

Jiang Rong, an information technology professional in Xiamen, China, decided to dive back into the speculative real estate market rather than watch his savings wither at the bank. In China, too, the cost of living is outrunning savings, as local restaurants nearly double their prices.

The fact that interest yields are so low in so many parts of the world is no coincidence. Rates are determined not only by markets, but also by government policy. And right now many governments say they have good reason to keep their own borrowing costs as low as they possibly can. Just last week, the government’s report on job growth in the United States showed continued weakness, and an international forecasting group warned that the European economic powerhouse, Germany, will fall into recession later this year.

Though bad for people trying to live off their savings, low interest rates happen to be quite good for anyone borrowing money, like governments themselves. Over time, interest rates below the inflation rate allow governments to refinance, erode or liquidate their debt, making it easier to live within their budgets without having to resort to more unpalatable spending cuts or tax increases.

Along with keeping rates low, governments are using a variety of tactics to encourage captive audiences, like pension funds and banks, to buy their debt. Consumers, in other words, are subtly subsidizing governments without even knowing it. Economists have compared this phenomenon to a hidden tax on people’s wealth.

“If you ask a central banker is that what you’re doing, and why you’re doing it, they’ll say ‘No, we’re just trying to get the economy going by making it easier for the private sector to borrow,’ ” said Neal Soss, chief economist at Credit Suisse. “But I have a syllogism for you: The government makes the rules. The government needs the money. So why should it surprise if the rules encourage you to lend the government money?”

For more, visit www.nytimes.com.

Schools Pass Debt to the Next Generation

The following is an excerpt from an article in 

The New York Times
Friday, August 17, 2012

Schools Pass Debt to the Next Generation

By FLOYD NORRIS

The deleveraging of America is well under way, as individuals and companies recover from the excess borrowing that helped to produce the boom and left many people vulnerable when the bust arrived. Household debt is down nearly $900 billion over the last four years, partly from repayments and partly from defaults.

During the crazy times, homeowners could get mortgages that allowed them to pay less than the full amount of interest being charged, with the rest added to the principal. Commercial property owners generally paid the full amount of interest, but did not have to repay any principal until the loan matured in five or 10 years. For both homes and commercial properties, lenders were willing to rely on extremely optimistic appraisals.

For property buyers, those days are gone,

But for some borrowers, it is still possible to borrow now and pay nothing for decades.

There is a furor in California because the Poway Unified School District, in San Diego County, borrowed money last year on terms that even Countrywide would have laughed at during the boom. It will not pay a dime of interest or principal for more than two decades. Only then will it begin to service the bonds.

It is paying a high price. Although it has a good credit rating — Aa2 at Moody’s and AA– at Standard & Poor’s — it will eventually pay tax-exempt interest of up to 6.8 percent for the borrowings. When it issued more conventional bonds last year, it paid rates that were much lower, ranging up to just 4.1 percent.

For borrowing $105 million in 2011, taxpayers — or perhaps it would be more accurate to say the children and grandchildren of today’s taxpayers — will pay $877 million in interest between 2033 and 2051.

For more, visit www.nytimes.com.

Best Buy Co., Inc. Confirms Receipt of Unsolicited Indication of Interest

Press release:

Best Buy Co., Inc. Confirms Receipt of Unsolicited Indication of Interest

Minneapolis, August 6, 2012 Best Buy Co., Inc. (NYSE: BBY) today confirmed that its Board of Directors has received a letter requesting due diligence and outlining an unsolicited, highly conditional indication of interest from Richard Schulze, former chairman of Best Buy, to acquire all of the outstanding shares of Best Buy that he does not already own for a per-share price of $24 to $26.   This has come through a public letter addressed to the Board.  Best Buy's Board of Directors will review and consider the letter in due course, consistent with its fiduciary duties, in consultation with its financial advisors, Goldman, Sachs & Co. and J.P. Morgan and its legal advisor, Simpson Thacher & Bartlett LLP.  Best Buy said that its Board of Directors will evaluate this proposal carefully and will, as always, pursue the best course for its shareholders. About Best Buy Co., Inc. Best Buy Co., Inc. (NYSE: BBY) is a leading multi-channel global retailer and developer of technology products and services. Every day our employees - 167,000 strong - are committed to helping deliver the technology solutions that enable easy access to people, knowledge, ideas and fun. We are keenly aware of our role and impact on the world, and we are committed to developing and implementing business strategies that bring sustainable technology solutions to our consumers and communities. For information about Best Buy, visit http://www.bby.com and to shop at Best Buy, visit http://www.bestbuy.com. #  #  #

Husband & Wife Plead Guilty in $3 M Fraud Scheme

Husband and Wife Plead Guilty to Roles in $3 Million Fraud Scheme Using Art as Collateral 

U.S. Attorney’s OfficeMarch 07, 2012

Northern District of Texas(214) 659-8600

DALLAS—Eugenio D. Leo and his wife Jody L. Meyer, formerly of Allen, Texas, pleaded guilty yesterday before U.S. District Judge Ed Kinkeade to their respective roles in a $3 million fraud scheme they ran from February 2004 to November 2004, announced U.S. Attorney Sarah R. Saldaña of the Northern District of Texas.

Leo, 30, pleaded guilty to one count of wire fraud and faces five years in prison and a fine of up to $250,000 or twice the loss to the victims. Meyer, 46, pleaded guilty to one count of mail fraud and faces a five-year term of probation and a fine of up to $250,000 or twice the loss to the victims. Both Leo and Meyer, who now reside in Harwood Heights, Illinois, will remain on bond pending sentencing, which is set for June 20, 2012 before Judge Kinkeade.

According to documents filed in the case, during the time of the fraud, Leo worked as a commodities broker at Compass Financial, a commodities brokerage firm located in Richardson, Texas. He devised a mail and wire fraud scheme that involved inducing the victims, K.P. and L.P., to invest their money by making short-term loans to museums in Europe. These loans would be secured by pieces of artwork worth significantly more than the loan value. At Leo’s request, K.P. provided a power of attorney to Leo so that he could make the necessary arrangements for the short-term loan. Leo falsely reported to K.P. that K.P.’s loan was repaid plus interest.

Instead of a short-term museum loan, however, Leo actually purchased art with K.P.’s money, and then sold that art to K.P., never disclosing that he put himself in the purchase chain and made more than $800,000 from the sale. Leo, aided and abetted by Meyer, falsely represented that Leo owned K.P.’s artwork so that Leo could obtain a loan (using the art as collateral) from Art Capital Group for approximately $300,000.

Leo made material misrepresentations to facilitate the scheme to defraud his victims. He used his authority under a power of attorney from the victim to act contrary to the victim’s instructions, contrary to the victim’s best interest and for his own personal benefit. Leo and Meyer defrauded K.P. and L.P. of more than $3 million.

The case was investigated by the FBI. Assistant U.S. Attorneys Aisha Saleem, Paul Yanowitch and Dayle Elieson are prosecuting.