Financial thoughts

Federal Reserve Chairman Ben Bernanke said Monday that a federal agency review of foreclosure procedures at the nation’s largest mortgage servicers should be completed next month.

"We take violations of proper procedures seriously," Bernanke said in remarks prepared for delivery at a joint conference in Arlington, Va., with the Federal Deposit Insurance Corp. on Wall Street’s foreclosure procedures.

"I would like to note that we have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions," Bernanke said. "The federal banking agencies are working together to complete an in-depth review of practices at the largest mortgaging servicing operations."

"We are looking intensively at the firms’ policies, procedures and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures," he said.

Bernanke also highlighted the precarious state of the housing market.

"Now, more than 20% of borrowers owe more than their home is worth and an additional 33% have equity cushions of 10% or less, putting them at risk should house prices decline much further," he said. "With housing markets still weak, high levels of mortgage distress may well persist for some time to come."

Bernanke said the conference will also focus on results from the ongoing program by the Federal Reserve Bank called the Mortgage Outreach and Research Effort, or MORE.

The Federal Reserve chairman detailed various efforts by the MORE program to help beleaguered homeowners. These include an online tool allowing homeowners to file unemployment insurance benefits as income to quality for federal mortgage modification programs.

Bernanke said that more details of the MORE program can be accessed at the Federal Reserve Bank of Chicago’s website. 

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Social Security beneficiaries will see no increase in their benefit checks next year, the federal government said on Friday.

For more than 58 million seniors and other Social Security beneficiaries, 2011 will mark the second year in a row without an inflation adjustment.

Inflation has been low in the past two years because of the recession. The Bureau of Labor Statistics on Friday morning reported prices were up only slightly over last year.

The last Social Security inflation adjustment was in 2009: Beneficiaries got a higher-than-normal 5.8% increase because of a temporary spike in energy prices in the third quarter of 2008.

Soon after, however, energy prices plummeted. Then the bottom fell out of the economy and by the third quarter of 2009 overall price levels had fallen 2.1% from the same period a year earlier. That meant no increase in 2010 Social Security benefit checks.

This year, while there has been some inflation, prices remain lower than they were in the third quarter of 2008 — and that’s the quarter that counts.

By law, the Social Security Administration is required to track inflation using the most recent third quarter that led to an adjustment. So the 2011 decision is based on the change in inflation between the third quarter of 2008 and the third quarter of 2010. (’What deflation — prices are rising!’)

The finance and economics blog Calculated Risk noted recently that even though retirees will go two years without an increase, "those receiving benefits are still ahead because of the huge increase [they got in 2009]."

Out-of-pocket health costs rising: Even if that is correct mathematically, the idea of another year without a pay hike isn’t likely to be popular with the people who receive Social Security retirement, disability or supplemental income benefits.

"[T]he average senior can still expect to see 27% of his/her Social Security check eaten away by Medicare premiums and out-of-pocket costs next year," said Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare.

There is, however, a "hold harmless" provision that protects more than 70% of beneficiaries from having to pay higher Part B Medicare premiums, should they increase, the Social Security Administration said. (Social Security: Take the quiz)

Push for extra help: The Obama administration made a failed push last year to offer $250 payments to Social Security recipients to compensate for the lack of a COLA and to serve as economic stimulus. Such a move would have cost roughly $14 billion.

This week, House Democrats said they will try to push a similar measure when Congress reconvenes after the mid-term elections in November. And on Friday morning the White House said President Obama would renew his call for the extra $250 payment.

Critics of the idea have pointed out that Social Security benefits are intended to maintain purchasing power — which by the inflation measures used they have. And, they noted, benefits don’t decline when prices decline, which happened in 2009.

For high-income Americans still in the labor force, there’s a bit of bright news: Since there is no COLA for 2011, there will also be no increase in the amount of earnings subject to the Social Security tax, which is currently assessed on the first $106,800 of a person’s wages. 

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U.S. stocks were headed for gains Thursday, although optimism eased slightly after three key economic reports.

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were higher ahead of the opening bell, although they declined slightly after the 8:30 a.m. ET reports. Futures measure current index values against perceived future performance.

Stocks rallied Wednesday as investors bet that the Fed will announce plans next month to resume large-scale purchases of Treasurys.

Economy: Initial jobless claims rose to 462,000 in the latest week from a revised 449,000 the week before, the Labor Department said.

The government’s latest reading on inflation at the manufacturing level rose 0.4% in September, matching the pace in August. Excluding volatile food and energy prices, core PPI rose 0.1%, also the same rate as the month before.

The U.S. trade balance widened to $46.3 billion in August from a revised $42.6 billion in July, the Commerce Department said.

Companies: Shares of Yahoo (YHOO, Fortune 500) shot up more than 11% in premarket trading after The Wall Street Journal reported AOL is considering teaming up with private-equity firms to make a bid for the search engine.

World markets: European markets were mixed in mid-day trading. Germany’s DAX rose 0.6%, while the CAC 40 in Paris inched up 0.2% and the FTSE 100 fell 0.1%.

In Asia, stocks closed in positive territory. The Hang Seng in Hong Kong rose 1.7% and the Shanghai Composite gained 0.6%. Japan’s Nikkei edged higher 1.9%.

Commodities and Currencies: The dollar fell against major international currencies including the British pound, the Japanese yen and the euro.

The greenback has plummeted against major currencies recently, as investors anticipate another round of asset purchases from the Federal Reserve. That policy, known as quantitative easing, could push interest rates down, prompting investors to run away from the dollar and flock to higher-yielding assets.

Gold futures for December delivery rose $6.90 to $1,377.40 an ounce. In earlier trading, gold reached $1,388.10 an ounce — a new intra-day trading high.

The price of oil rose 46 cents to $83.47 per barrel.

Bonds: The price fell on the benchmark 10-year U.S. Treasury, pushing up the yield to 2.44% from 2.42% late Wednesday. 

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Government prosecutors got their first conviction of a person accused of defrauding the Troubled Asset Relief Fund Friday.

Charles Antonucci, the former president of the Park Avenue Bank, pleaded guilty in federal court to defrauding the TARP fund, securities fraud, self-dealing, bank bribery and the embezzlement of bank funds.

"Today’s plea marks an important chapter and demonstrates that SIGTARP and its law enforcement partners will ensure that would-be wrongdoers who seek to profit criminally from this historic program will be caught, charged, and brought to justice," Special Inspector General Neil Barofsky said in a statement.

Barofsky heads SIGTARP, the watchdog group charged with prosecuting those who waste, steal or abuse TARP funds.

Antonucci, who was arrested in March, was convicted after misrepresenting his bank’s capital position in the process of trying to secure more than $11 million in TARP funds.

In addition, he pleaded guilty to accepting bribes in exchange for approving various bank transactions. Among the payoffs: use of a private aircraft, a luxury car and over $250,000 in cash payments. 

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Stocks finished mixed after a sluggish session Thursday afternoon, as cautious investors paused and geared up for the monthly jobs report due Friday.

The Dow Jones industrial average (INDU) closed down 19 points, or 0.2%. The blue chip index started off the day with a pop and was less than 2 points shy of the 11,000 mark, a level it hasn’t traded at since May. But the Dow drifted as the session wore on and sank almost 75 points before recovering.

The S&P 500 (SPX) lost 2 points, or 0.2%, while the tech-heavy Nasdaq (COMP) added 3 points, or 0.1%.

Stocks surged earlier this week, with all three major indexes hitting 5-month highs. But investors have had trouble keeping up that momentum, as reports showed continued weakness in the labor market.

Some of that sentiment briefly lifted Thursday morning as weekly jobless claims fell to a 3-month low, but traders remain wary ahead of the the true test — Friday’s monthly payrolls report.

"We’re likely to have a muted day on Wall Street because the of September jobs report coming up tomorrow," said Timothy Ghriskey, chief investment officer at Solaris Asset Management. "We still have incredible weakness in the job market, so there is some concern leading up to the numbers."

According to a consensus of economists polled by Briefing.com, the number of jobs is expected to remain flat in the upcoming monthly report. At the same time, the unemployment rate is expected to have ticked up to 9.7% from 9.6%.

Ghriskey added that investors will also be cautious as companies begin reporting third-quarter financial results.

While PepsiCo (PEP, Fortune 500) reported results in line with forecasts before the bell Thursday, Ghriskey said the company’s performance is not as reflective of broader economic conditions as a company like aluminum maker Alcoa (AA, Fortune 500). Alcoa, which delivered results after the market close Thursday, will also be in focus during Friday’s trading session.

Stocks also felt some pressure Thursday afternoon as the dollar gained ground. Though it remained broadly weaker, the buck clawed back and rallied against the euro, which had climbed above $1.40 earlier Thursday. It also moved higher versus the pound.

The dollar index, which measures the greenback against a basket of rival currencies, gained almost 0.4% before easing back.

Economy: The initial jobless claims number was the lowest in nearly 3 months, providing a breath of fresh air to the market. The Labor Department on Thursday reported that jobless claims totaled 445,000 in the week ended Oct. 2 — down 11,000 from the prior week.

Economists were expecting the government to report 455,000 Americans filed for unemployment for the first time last week, pointing to continued weakness in the job market.

Investors are also eyeing retailers’ September same-store sales figures Thursday for indications about consumer spending. Thomson Reuters, which tracks same-store sales for a group of 28 national chains, said total sales for the group rose 2.8% in September — better than its initial forecast of a 2.1% gain in the month.

Companies: Rumors that Apple (AAPL, Fortune 500) is preparing a version of its iPhone for Verizon (VZ, Fortune 500) — the phone is currently only carried by AT&T (T, Fortune 500) — started swirling again, after the Wall Street Journal published a report saying the phone may be on shelves early next year. Apple’s stock edged higher as Verizon’s slipped.

PepsiCo (PEP, Fortune 500) was the first major company to report third-quarter results Thursday. Pepsi earned $1.22 per share during the quarter, in line with analysts’ forecasts and up 13% from the year-ago quarter. But the beverage giant reduced the higher end of its profit outlook for the the year. Pepsi decreased about 3%.

Alcoa (AA, Fortune 500) was the first Dow component to report results. The aluminum giant raked in $61 million, or 6 cents per share. Excluding certain items, Aloca brought in 9 cents per share, topping forecasts for earnings of 5 cents per share. Sales rose 15% to $5.3 billion, beating expectations for $4.96 billion in revenue.

Adobe (ADBE) shares jumped almost 12% late Thursday after a New York Times blog reported a Microsoft (MSFT, Fortune 500) team, including chief executive Steve Ballmer, held a secret meeting with Adobe CEO Shantanu Narayen on a number of topics including the possibility of a merger between the two tech giants.

World markets: European shares finished mixed. Britain’s FTSE 100 fell 0.3%, while the DAX in Germany and France’s CAC 40 closed with slight gains.

Asian markets were also flat. Japan’s Nikkei index and the Hang Seng in Hong Kong both finished little changed. The Shanghai Composite is closed for a week-long holiday.

Currencies and commodities: As investors anticipate another round of asset purchases from the Federal Reserve, the dollar has continued to fall against the Japanese yen.

But the greenback climbed higher against the euro and the pound after suffering sharp declines Thursday.

As the dollar gained ground, commodity prices fell under pressure.

Gold futures for December retreated from record territory. The precious metal’s price fell $12.70 to settle at $1,335.00 an ounce. It had touched a new intraday high of $1,366 an ounce earlier.

The price of crude oil for November delivery decreased $1.56 cents to settle at $81.67 per barrel.

Bonds: Despite the bid for safer investments, Treasury prices were flat. The yield for the benchmark 10-year U.S. Treasury held steady at 2.40%. 

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Google Inc. has introduced its new Google TV service that combines several new partnerships with media companies including NBC Universal Inc. and Amazon Inc.

The new service will let users access the Internet and search for videos on their television.

Mountain View-based Google (NASDAQ: GOOG) designed the software as a platform for content companies and others to develop TV applications. The company has promised "a new world of apps available for TV."

"One of our goals with Google TV is to finally open up the living room and enable new innovation from content creators, programmers, developers and advertisers," the company said in a blog post Monday.

The service will be available through set-top boxes from companies including Sony, on its Internet TV and Blu-Ray player, and Logitech, which has U.S paydayloan. headquarters in Fremont.

It will include video on demand from Amazon, with access to more than 75,000 movies and TV shows for a fee, and video streaming from Netflix Inc.

Media partners have been working to make content interactive. Websites of companies including Turner Broadcasting System Inc.'s TBS and CNN have been modified so they appear better on television screens.

NBC Universal has worked with Google TV to offer CNBC Real-Time, an app that tracks stocks and accesses news feeds.

HBO will offer hundreds of hours of programming to the Google TV service, and the NBA has developed NBA Game Time, an app that allows users to get scores and highlights in real-time.

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whose wife, Billie, was at the dinner — had given him and his first wife, the late Susan Buffett, the idea of funding charitable foundations for their children, Susie, Howard and Peter. Today, each of the three is deeply involved in running a foundation endowed with Buffett money.

Then, Buffett supplied the biggest news of the evening, by stating exactly what his children are slated to get from him when he dies. A little perspective here: Precisely 24 years ago, when Fortune first wrote about Buffett’s views on this subject (Should You Leave It All to the Children?, September 29, 1986), Buffett emphatically said no to the title’s question. He thought "a few hundred thousand dollars" might be a good amount for him and his wife to leave each of the kids. But inflation and his own ruminations have since changed his opinions.

He told the dinner attendees that Susan’s will had left each of the children $10 million and that his own will, which he happened to have just rewritten, provides that each will get $15 million. That figure obviously reflects a huge leap from "a few hundred thousand dollars."

But that’s a total of $45 million, with an "m." That’s minuscule compared to Buffett’s fortune of close to $50 billion, with a "b." Almost all of the Buffett fortune is scheduled to go to foundations, at their lead the Bill and Melinda Gates Foundation.

How going public with giving has affected the pledged

Talking to Fortune a few days after the dinner, Sandy Weill said he believed that Buffett’s speech supplied valuable perspective to two sets of monied people — those thinking about what to give their children and the children themselves. Weill thought it "terrific" that Buffett spelled out what his will says.

When his own turn came to speak, Weill used his Giving Pledge experience to address the dread that many wealthy people have of publicly identifying themselves as big givers and thereby attracting new requests for donations. Weill said the commitment letter that he and his wife wrote, and that was posted, elicited only a small number of solicitations. Instead, about 80% of the responses the Weills received, he estimated, were letters and calls congratulating them for being an inspiration to other people of wealth.

Post-dinner, the fastest action appears to have been taken by prospect Leon "Lee" Cooperman. Within days, he sent a letter to Buffett, the Gateses, and Bloomberg that said he and his wife, Toby, "enthusiastically agree to take the Giving Pledge."

Both Cooperman’s letter and a short talk he gave at the dinner recalled his up-from-nothing history, a background common to many other Giving Pledge signers. He is the son of a South Bronx plumber and was the first in his family to get a college degree. A Columbia University MBA got him to Goldman Sachs (GS, Fortune 500), where he says he spent nearly 25 years of "happiness and good fortune" before moving on to found hedge fund Omega Advisors.

Talking to Fortune this week about the Bloomberg dinner, Cooperman mused about his Goldman days when he says Mike Bloomberg came to him "literally begging" that Cooperman put Bloombergs on the desks of the people working for him. That’s a long way, noted Cooperman, from hosting a billionaires’ dinner.

As for Cooperman’s giving, his letter concludes with a Talmudic declaration: "A man’s net worth is measured not by what he earns but rather what he gives away."

Fortune senior editor-at-large Carol Loomis, who wrote this article, is a longtime friend of Warren Buffett’s. Additionally, her husband, John Loomis, is a partner in First Manhattan Co., whose founding partner, David S. "Sandy" Gottesman, was a guest at the Bloomberg dinner. 

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