More Financial Problems in the U.S.

Mike Larson takes a closer look at the financial problems in the U.S. and how it may be near impossible for foreign currencies to help solve these issues. In this issue of Money and Markets, Mr. Larson examines how foreign markets are purchasing U.S. companies in large quantities.

Jupiter, FL (PRWEB) January 13, 2008 -- Mike Larson takes a closer look at the financial problems in the U.S. and how it may be near impossible for foreign currencies to help solve these issues. Mr. Larson examines how foreign markets are purchasing U.S. companies in large quantities.

On January 10, Federal Reserve Board Chairman Ben Bernanke came out and essentially told the marketplace to expect imminent interest rate cuts, saying:

"Financial and economic conditions can change quickly. Consequently, the Committee must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability."

Merrill Lynch (MER) recently announced it would raise as much as $6.2 billion from Singapore's government-backed investment fund Temasek Holdings. But Merrill reportedly needs another $3 billion to $4 billion. Why? It's reportedly on the verge of announcing another staggering write down, as much as $11.5 billion.

Citigroup (C) got $7.5 billion from the sovereign wealth fund in Abu Dhabi. It's now looking for as much as another $10 billion from foreign investors. Why? For the same reason as Merrill Lynch, more write downs.

Morgan Stanley (MS) sought out a $5 billion infusion from China Investment Corp. and Bear Stearns (BSC) sold a stake of 6% to China Securities.

However, there are reasons to think foreign money will not solve the financial problems in the U.S.

First, there are regulatory hurdles. If a single investor owns 5% or more of a bank's shares, the Federal Reserve gains more regulatory authority. It can subject the bank to examinations and more careful capital scrutiny. Stakes of more than 10% or that involve board representation invite even more scrutiny from the Fed and the Treasury Department. That means the U.S. can't count on foreign money to bail it out forever.

Second, there's the possibility of political scrutiny. The more transactions, the higher the risk that legislators will move to block a deal from getting done, possibly sending financial sector stocks into even more of an uproar.

Third, shareholders in these firms will essentially get diluted each time the company raises fresh capital.

These international investors have deep pockets. But not one of the capital infusions to date has stopped the bleeding. Not one has turned around the targeted stocks for more than a brief time. And there is not one bit of evidence that the loan loss and write down problems are going away.

"Losses keep mounting, charge-offs continue rising, and house prices are still falling, giving more mortgage borrowers a reason to walk away from their home loans. Plus, the economy has started slumping toward recession, which is causing delinquencies on credit cards and auto loans to rise," Mr. Larson states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/issues.aspx?Big-Investment-Risks-in-Financial-Stocks-3

About Mike Larson and Money and Markets

Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com, where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC.

Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

###