The European Central Bank is considering using its bond holdings to bolster Greece
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The frightful images of a sinking Italian cruise ship have scared off some cruise passengers, at least temporarily, during the industry’s peak booking season.
Travel agents — who book more than two-thirds of cruise passengers worldwide — have been nervously watching bookings since the Costa Concordia, which is owned by Carnival Corp, ran aground on Jan. 13.
On Monday, they got a new reason to be nervous: bookings fell significantly for Miami-based Carnival Corp. following the Costa accident. Attention is now focused on Royal Caribbean Cruises Ltd., which reports earnings Thursday. An increase there could show that passengers are fleeing Carnival over safety fears. A decrease could indicate an overall distrust of all cruise lines.
Nearly 11 million Americans took a cruise last year, generating an estimated $14.5 billion in revenue for the industry, according to PhoCusWright, a travel research firm. Like the rest of the travel industry, cruise lines are still recovering from the recession. Several new megaships started sailing just as passengers struggling with finances decided to stay home. But 2012 was supposed to be a year of moderate growth.
Carnival won’t say exactly how much bookings have dropped, but it disclosed Monday that in the 12 days following the Concordia capsizing, there was a percent decline “in the midteens compared to the prior year.” Reservations hit a low on Jan. 16, the company said in its annual report filed with the SEC.
Carnival operates 101 ships under several brands including Costa, Carnival, Cunard, Holland America, Princess and Seabourn. It said reservations with the Costa line are “down significantly” but difficult to interpret because many Costa customers were rebooked on other ships because of the loss of the Concordia ship.
Unlike plane tickets or hotel rooms, which are mostly booked directly through the Internet, most cruises are sold by travel agents. That scattered sales approach makes it harder to gauge the impact of an accident like the Concordia.
“Who knows how many people … (were) on the fence and decided not to book?” said Michael Driscoll, editor of Cruise Week.
Barclay’s Capital noted that on Thursday, the Carnival line began offering promotional onboard credits of up to $200 for things like drinks and spa treatments.
“Despite this ad, which in normal circumstances would have stimulated strong call volume, calls remain down 10 (percent),” Barclay’s analyst Felicia R. Hendrix wrote in a note to investors.
A major unnamed online travel agent has also seen cruise call volume fall 30 percent, Hendrix said.
Hendrix also noted that cancellations in the U.S. are up 10 to 15 percent. That’s because savvy travelers are backing out of trips now in anticipation of getting the same cruise later for less.
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OPEC’s acting president said the producer group should stay out of political battles, Iran’s official IRNA news agency reported Sunday, an apparent bid by the bloc to steer clear of a potential showdown between Tehran and the U.S. over threats to close the vital Strait of Hormuz.
Iraqi Oil Minister Abdul-Karim Elaibi said that while Iran’s “enemies” have imposed various sanctions on the Islamic Republic, the 12-nation Organization of the Petroleum Exporting Countries’ main focus should be protecting its members’ interest and not being dragged into a political struggle over oil.
Elaibi, who is also OPEC’s current president, last week said he was going to Tehran to warn against closing the strait, through which about a sixth of the world’s crude flows daily. IRNA did not say whether the tension over the waterway was raised during the oil minister’s meetings with officials.
Instead, the language reflected the warmer relations between Iran and Iraq since a U.S.-led coalition had ousted former strongman Saddam Hussein in 2003. The Shiite government in Baghdad is seen as increasingly close to Tehran, and Iran is investing heavily in Iraq.
Iran has warned repeatedly it would choke off the strait if sanctions affect its oil sales. The U.S. has enacted, but not yet put into force, sanctions targeting Iran’s central bank and, by extension, the country’s ability to be paid for its oil. The European Union, a major buyer of Iranian oil, is considering sanctions on Iranian crude.
The tension over the strait and the potential impact it would have not only on global oil supplies, but also the price of crude and the economies of the countries that buy Iranian oil, have weighed heavily on consumers and traders credit reports free.
Gulf nations have offered assurances that they would step in and provide any additional crude needed by the global market. Iran interpreted the offer as an attempt to undercut it and issued a quick warning to the Gulf Arab producers to not try to offset its exports with their own.
Elaibi’s remarks appear to be an attempt to pull the producer bloc out of the political fray, but they also reflect the uneasy balance Iraq faces.
Iraq exports most of its crude through the strait, and any attempt to shut the waterway could be a severe blow to its economy. At the same time, it appears reluctant to come across as being too harsh on its neighbor, in part because of the investments Iran provides and its ideological weight as the region’s strongest Shiite government.
His visit to Tehran came just days before Iraq inaugurates a new oil export outlet in the Gulf with a capacity of up to 900,000 barrels a day. It would be the first of five floating facilities that would eventually handle about 5 million barrels a day.
The new outlet will help Iraq, limited now by infrastructure bottlenecks, to export more oil.
Should Republican presidential candidate Mitt Romney choose to release his tax returns, it likely will spur yet more debate about how much the rich should pay in taxes.
In particular, a lot of scrutiny may be given to how much tax Romney paid on the money he has made from Bain Capital, an investment firm he founded in 1984 and left in 1999.
That’s because the U.S. tax code lets fund managers of some investment firms pay a far lower tax rate on much of their compensation than they would if that money were treated as a salary or bonus.
The rule applies to managers of venture capital funds and private equity funds, both of which Bain runs.
The firm, which is a privately held investment partnership, uses money from outside investors to either invest in start-ups, buy out public companies, or invest capital in private ones, all in an attempt to boost their value and sell them at a profit.
Compensation for general partners — as Romney was at Bain — is typically based in part on the profits made on winning investments.
The partnership will set a minimum rate of return that the fund must achieve when it sells an asset, say 8%. And the general partners then get 20% of any profits above that. That compensation is called "carried interest."
Fact or fiction? Romney’s private equity past
But rather than being taxed as regular income — rates on which go as high as 35% - carried interest is taxed at the much lower capital gains rate of 15%.
The case made for applying the capital gains rate is to encourage investment. But general partners are entitled to carried interest even if they have not invested their own money in the fund (although most do invest some).
That’s why many — including President Obama — have called for carried interest to be taxed as regular income that is paid in exchange for investment services.
General partners are also paid a fixed management fee, which is taxed as ordinary income. Typically that fee is worth about 2% of the fund’s assets.
Since 1999, Romney - whose personal fortune is estimated to be as high as $264 million — has continued to profit from Bain’s work thanks to the terms of his retirement package.
Those who support taxing carried interest as a capital gain make a few arguments.
First, they say, the "sweat equity" of the general partner is as valuable as the financial equity of fund investors.
Second, the partner gets paid carried interest only if the fund does well. And it’s potentially subject to a clawback if other asset sales don’t meet their minimum "hurdle" rates.
Last, they contend, if rates did go up, it would discourage investment and risk-taking.
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"Carried interest is an important aspect of the capital gains tax system that is based on the uniquely American principle that we reward those who take entrepreneurial risk, whether that risk involves investing capital or other aspects of ownership that require years of time, effort, and vision," said Ken Spain, a spokesman for the Private Equity Growth Capital Council.
Others aren’t convinced.
"It’s not going to change how people do business," said Victor Fleischer, an associate professor of law specializing in venture capital and private equity taxation at the University of Colorado. That’s because the tax increase would only affect general partners, not the people who invest the bulk of money in private equity funds, he said.
Moreover, just because carried interest is dependent on good performance and may be clawed back isn’t reason to tax it more lightly than other income, Fleischer added.
"The fact that compensation is risky and not guaranteed doesn’t justify treating it as a capital gain."
Since 2007, measures to tax carried interest as ordinary income have been included in various bills, often to help pay for the cost of other tax cuts or spending increases. Should the change ever pass, it’s not expected to swell federal coffers, raising less than $20 billion over 10 years.
A top European Central Bank official has publicly discussed the reasons for his surprise resignation, saying he is not satisfied with the direction Europe’s currency union has taken.
Juergen Stark said in an interview in Monday’s edition of Germany’s Wirtschaftswoche magazine that the ECB had done its job by keeping inflation under control across the eurozone, which it does through adjusting interest rates.
But he said some governments had tolerated excessive wage costs and unsustainable real estate booms that preceded today’s debt crisis.
Stark is leaving at the end of the year, 2 1/2 years before the end of his eight-year term on the bank’s six-member executive board. The council runs the bank day-to-day at its Frankfurt heaquarters, while interest rate decisions are taken by the broader 23-member government council, on which Stark also sits.
Stark was quoted as saying that “there is a broad theme that serves as the reason for this: that I am not satisfied with the way this currency union has developed.”
Stark said the ECB had done its part by keeping inflation under control but could not be expected to clean up policy mistakes by individual governments that ran up too much debt or let their economies become uncompetitive through high labor costs.
“Don’t overburden the central bank,” he said.
He said governments should have avoided financial trouble by reining in labor costs. Stark was quoted as saying governments also failed to rein in excessive real estate booms that collapsed and contributed to the eurozone debt crisis. He didn’t mention individual countries but wage costs rose in Greece, hampering the economy and state finances, and Ireland and Spain had debt-fueled real estate booms that collapsed.
The ECB earlier said Stark was leaving at year-end for personal reasons.
Analysts have said he appears to have left because of opposition to the European Central Bank’s program to buy government bonds. But Stark was not quoted in the interview as mentioning the bond purchase program.
The purchases lower the borrowing costs faced by indebted governments such as Italy and Spain. High borrowing costs are threatening to leave them unable to be able to borrow anew to pay off bonds that are maturing, resulting in a disastrous default that would shake the eurozone and global economy.
The bank and its President Mario Draghi have said the program is limited and only aimed at steering interest rates, and that governments must reform their finances and not wait for a central bank bailout.
Stark repeated his longstanding opposition to calls for the ECB to sharply increase the bond purchases through its power to create new money. He said that would violate the prohibition in the EU treaty on the ECB using its monetary powers to finance governments, although it is a step that the U.S. Federal Reserve has been allowed to take.
Stark dismissed calls by “real or self-styled experts” to use the “big bazooka” of printing money. “It is a fundamental arrangmenet of a currency union that the monetary financing of state debts through the ECB is not permitted,” he said.
A judge on Monday used unusually harsh language to strike down a $285 million settlement between Citigroup and the Securities and Exchange Commission over toxic mortgage securities, saying he couldn’t tell whether the deal was fair and criticizing regulators for hiding the details of the firm’s wrongdoing from the public.
U.S. District Judge Jed Rakoff said the public has a right to know what happens in cases that touch on “the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives.” In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.
Rakoff said he had spent hours trying to assess the settlement but concluded that he had not been given “any proven or admitted facts upon which to exercise even a modest degree of independent judgment.”
The SEC replied in a statement issued by enforcement director Robert Khuzami, saying the deal “reasonably reflects the scope of relief that would be obtained after a successful trial.”
The SEC had accused the bank of betting against a complex mortgage investment in 2007
Spain’s next prime minister is a lusterless career politician who thrives on ambiguity _ rarely revealing what he thinks.
With results Sunday night showing that his conservative Popular Party crushed the ruling Socialist party and won a big parliamentary majority, Mariano Rajoy may finally be forced to show his hand.
Rajoy inherits a devastating economic downturn that has caused unemployment to swell to more than 21 percent, and comes as similar financial crises in fellow EU nations like Greece and Italy threaten to combine with Spain’s woes and drag down the global economy.
As Rajoy, 56, begins forming the next government Monday, all eyes will be on whether the gray-bearded, bespectacled leader will finally unveil a clear political vision or continue to dodge efforts to pin him down.
Many see him as a the perfect caricature of his native region _ Galicia. The people of the misty and rainy northwestern region are legendary for pokerfaced obscurity. According to a Spanish saying, when you meet a Galician on the stairs you can never tell if he’s going up or down.
“He is a Galician. They say things but you have to read between the lines,” said Rodrigo Herrero, 48, a villa caretaker.
“He’s not spontaneous or extroverted like other politicians,” added Herrero. “He lacks that friendliness and touch of charm.”
Others says there is a hidden side.
“He’s a master because he achieves his aims without apparently doing anything,” Xavier Pomes, a Catalan politician and friend of Rajoy, told El Pais, Spain’s leading newspaper.
“He’s sensible, frank. Some see him as indolent and indecisive but in reality he’s reflexive,” said Pomes.
But true to his cagey character, Rajoy has so far made little known of his plans. And with bond interest rates soaring and stock markets jittery, he is not likely to have any more time to dawdle or fudge.
In a lengthy interview in El Pais on Thursday, Rajoy said that barring pensions, “cuts will have to be made wherever they can.” But the paper pointed out that he “maintained his ambiguity on what sacrifices Spaniards will face.”
Eurasia Group analyst Antonio Barroso expects Rajoy to initially go for a “shock and awe strategy” with “quick policy changes in an effort to impress markets and his European partners, and boost Spanish credibility.”
That would also dispel questions about his own credibility.
Rajoy, a property registrar by training, held four ministerial portfolios _ among them education and interior _ in the governments of Jose Maria Aznar between 1996 and 2004. But being hand-picked as party leader in 2003 by Aznar set Rajoy up for years to accusations that he was never actually elected by those in his party, a smear that weakened his attempts to shake himself free of Aznar’s shadow.
Sunday’s ballot was third-time lucky for Rajoy. He lost general elections in 2004 and 2008 against Jose Luis Rodriguez Zapatero, who is now deeply unpopular and did not seek re-election this time. In many ways, it’s a tribute to his dogged determination to survive.
In 2004, Rajoy was also strongly tipped to win. But he lost amid voter outrage over the Madrid terror bombings by Islamic militants three days before the election. The massacre killed 191 people direct payday lenders. Rajoy and his party had initially blamed Basque separatists and continued to do so even as evidence of Islamic involvement emerged.
The party was devastated by the defeat and Rajoy had to battle to keep it unified amid divisions between moderate and more conservative factions. The 2008 loss, although not as severe, exacerbated his tenuous position, thrusting even normally friendly rightist media against him.
But Rajoy fought on, skillfully remaining silent while his party and the media were ablaze with the succession debate. His efforts bore fruit at a party congress in June when his candidacy as leader _ albeit the only one presented _ was backed by 84 percent of delegates.
A cycling and sports enthusiast, Rajoy has freely acknowledged he reads little and prefers light sports dailies to mainstream newspapers or literature. However, sensing he may soon be representing Spain on the international stage, he is now studying English, a language none of his predecessors has ever managed to command.
At 24, he suffered a serious car accident that left his face badly scarred, reportedly the reason he grew the beard.
Stiff in manner, Rajoy has never topped popularity polls and is not known for imagination or charm. In a recent TV debate with his Socialist opponent Alfredo Perez Rubalcaba, Rajoy almost never took his eyes off prepared notes. Nevertheless he scraped through the near two-hour clash, skirting questions and shedding no light on his program.
No one can deny Sunday’s victory came easy, with his opponents in the governing Socialist party crippled by their inability to cope with the economic crisis.
Over the past two years, Rajoy used the crisis to perfection in weekly parliamentary debates, hammering away relentlessly at the Zapatero government’s perceived incompetence.
But careful not to scare potential voters, Rajoy remained virtually mute on what he would do differently besides pledging to make things easier for small and medium-sized businesses _ which provide 80 percent of employment in Spain _ and indicating he will carry out the labor market and social welfare system reforms he deems necessary.
Outside the economy, he has traditionally been a close ally of the Catholic Church on moral and social issues and has repeatedly said he will revise Spain’s abortion law. His party has also appealed the country’s gay marriage law before the Constitutional Court. Both bills were considered key achievements of the Zapatero governments.
In the past, he has demanded strict law-and-order measures to control immigration and education reforms to improve one of Europe’s worst dropout rates.
A lover of Cuban cigars, Rajoy has also suggested he may ease Spain’s anti-smoking ban in the workplace.
On foreign policy, he is likely to try to win back the special friend status Aznar held with U.S. while taking a less open approach than Zapatero to some of the more radically left-leaning governments of Latin America such as Cuba and Venezuela.
____
Jorge Sainz contributed to this report.
The complex network of flood defenses erected to shield Thailand’s capital from the country’s worst floods in nearly 60 years was put to the test early Saturday as coastal high tides hit their peak. No major breaches were immediately reported.
Fear gripped Bangkok early in the day as tides along the Gulf of Thailand crested at about 9 a.m. and pushed the city’s main waterway, the Chao Phraya river, to its brink. Overflows so far have lightly inundated riverside streets from Chinatown to the famed Temple of the Emerald Buddha.
But the white-walled royal Grand Palace was dry, less than 24 hours after being ringed by ankle-deep water, and the landmark remained open to tourists. Many visitors carried parasols to protect themselves from the blistering sunshine.
Prime Minister Yingluck Shinawatra said in her weekly radio address that floodwaters that had wreaked havoc to provinces north of Bangkok in the last several weeks had started to recede, and she urged citizens to let the crisis take its course.
“We have the good news that the situation in the central region has improved as runoff water gradually decreased,” she said. “I thank people and urge them to be more patient in case this weekend is significant because of the high tide.”
She also said that the government had implemented a plan to accelerate the drainage rate and that water in the greater Bangkok area should recede by the first week of November.
Meanwhile, the streets of downtown Bangkok _ the country’s financial heart _ were bone-dry and bustling with taxis, restaurant-goers and tourists snapping pictures. But the city remained in peril, as high tides along the gulf were expected to crest again late in the day, threatening to obstruct the flood runoff from the north. The government also is worried major barriers and dikes could break.
Also on Saturday, the government’s Flood Relief Operations Center was forced to move its headquarters from its base at Don Muang airport, which is used mostly for domestic flights, to a government building nearby after a power transformer malfunctioned. Authorities were forced to shut down the airport this week after floodwaters rushed in.
On Friday, saffron-robed monks and soldiers piled sandbags outside the capital’s most treasured temples and palaces as the Chao Phraya swelled precariously beyond its banks. Most of the water receded at low tide, but worried Bangkokians were buying up bright orange lifejackets and inflatable boats, fearing the worst is yet to come.
“You have to prepare,” said Fon Kanokporn, a banker who bought a rubber boat from a store that had several hanging from trees out front as advertisements.
Employees at the shop said they had sold well over 3,000 boats in the last week. The brisk business is a measure of the fear gripping Bangkok and a reflection of the tragedy of neighboring provinces that have been submerged for weeks. Several buyers said they needed boats because their submerged homes outside the capital were no longer accessible by road.
Three months of relentless monsoon rains have caused the worst flooding in Thailand in more than half a century, triggering a national crisis that has overwhelmed Yingluck’s government online payday loans.
The water has crept from the central plains south toward the Gulf of Thailand for weeks, engulfing a third of the country and killing nearly 400 people and displacing 110,000 more. Now, Bangkok is in the way _ surrounded by behemoth pools of water flowing around and through the city via a complex network of canals and rivers.
On Friday, army trucks dumped thousands of sandbags outside the riverside Siriraj Hospital, where Thailand’s ailing and revered King Bhumibol Adulyadej has stayed since 2009.
Elsewhere along the Chao Phraya, dozens of monks at the 200-year-old Temple of the Dawn stacked hundreds more along a secondary barrier to protect against river overflows.
“It’s likely going to get higher, but I don’t think its going to get high enough to cause chaos,” said Phramaha Abhin, a 42-year-old monk. Still, he said, “we cannot neglect the risk to this temple. It’s one of the country’s landmarks, one of the things Thailand is known for. We have to protect it.”
The State Railway of Thailand said all train services from Bangkok to southern Thailand were suspended after the tracks in Bangkok’s suburbs were submerged by floodwaters.
Thais and expatriates alike continued to leave Bangkok as foreign governments urged their citizens to avoid the threatened city, citing transportation difficulties and shortages of certain food items.
Seven of Bangkok’s 50 districts _ all in the northern outskirts _ are heavily flooded, and residents have fled aboard bamboo rafts and army trucks and by wading through waist-deep water. Eight other districts have seen less serious flooding.
New flooding was reported Friday in the city’s southeast when a canal overflowed in a neighborhood on the outer parts of Sukhumvit Road. And high tides briefly touched riverside areas closer to the city’s central business districts of Silom and Sathorn. But the day passed without major incident.
“It is clear that although the high tides haven’t reached 2.5 meters (8.2 feet), it was high enough to prolong the suffering of those living outside of the flood walls and to threaten those living behind deteriorating walls,” Bangkok Gov. Sukhumbhand Paribatra said.
The flood walls protecting much of the inner city are 8.2 feet high, and Saturday’s high tide was expected to reach 8.5 feet (2.6 meters).
International charity Save the Children said it was concerned that crocodiles and snakes were lurking in stagnant floodwaters it said are growing filthier by the day.
“Every day we see children playing in the water, bathing or wading through it trying to make their way to dry ground,” said Annie Bodmer-Roy, the group’s spokeswoman in Thailand.
The aid group said many families have been left without access to running water or clean toilets.
“There is a very real risk of waterborne or communicable diseases such as diarrhea and skin infections taking hold if families can’t maintain basic standards of hygiene,” Bodmer-Roy said. “It is essential that the risks facing children in this crisis are understood and steps taken to keep them safe.”
For five years, two of the region’s biggest developers have been working to get NorthPark
Stock futures are falling a day after the Dow Jones industrial average posted its largest gain since early August.
Investors worried that Slovakia might not approve a plan to strengthen Europe’s bailout fund. All 17 countries that use the euro must agree on the plan, which is considered essential to resolving the region’s debt crisis. Sixteen countries have approved it so far.
In the U.S., Alcoa Inc. will become the first major company to report third-quarter results low interest rate personal loans.
Ahead of the opening bell Tuesday, Dow industrial average futures are down 35, or 0.3 percent, at 11,333. Standard & Poor’s 500 futures are down 6, or 0.5 percent, at 1,185. Nasdaq 100 futures are down 6, or 0.3 percent, at 2,271.
The Dow rose 330 points Monday, its largest gain since Aug. 11.