March 21, 2023

‘Fast & Furious 6’ Opens as Huge Hit

LOS ANGELES — Hollywood expected a box-office drag race to end them all for the Memorial Day weekend, with two huge-scale sequels, both in categories most popular with younger men, opening in rare direct competition. But it turned out to be no contest at all.

“Fast Furious 6” raced to a projected $122.2 million in ticket sales for the four-day period, easily enough claiming the No. 1 spot at North American movie theaters, while “The Hangover Part III” blew a tire and overheated, taking in a disappointing $63.8 million since its arrival on Thursday. Despite the collapse of “The Hangover” — Part II took in $135 million over its first five days in 2011 — it was still a very good weekend for studios and theater owners.

Analysts projected total sales in North America of $323 million for the holiday period. That would surpass the previous high mark for the same stretch, in 2004, when “Shrek 2,” “The Day After Tomorrow” and “Troy” contributed to $303.1 million in total sales after adjusting for inflation, according to, which compiles box-office data.

“Star Trek Into Darkness” (Paramount) was projected to take third place for the weekend, with ticket sales of about $48 million, for a two-week domestic total of $156.8 million. A new animated movie, “Epic” (20th Century Fox), was expected to place fourth, taking in a solid $44 million; it cost Fox about $93 million to make. And “Iron Man 3” (Disney) is anticipated to add $24.6 million to its pockets, for a four-week total of $372.7 million.

The differing fortunes of “Fast Furious 6” (Universal) and “The Hangover Part III” (Warner Brothers) offer a window into movie franchise management in the social-media age. Ticket buyers — even the highly forgiving ones who power the summer blockbuster season — no longer appear willing to tolerate color-by-number sequels.

“The Hangover Part II” received poor reviews and word of mouth, but most critics truly hated Part III, as evidenced by its positive score of only 21 percent on the review-aggregation site “Fast Five,” meanwhile, delighted a majority of critics and generated positive chatter on Twitter and Facebook; “Fast Furious 6” kept the quality going, receiving a 72 percent positive rating on RottenTomatoes.

“You cannot take anything for granted anymore,” said Nikki Rocco, Universal’s president for distribution about “Fast Furious 6.” “We never let up on this movie for one minute.”

Universal and a financing partner spent about $160 million to make “Fast Furious 6” and at least another $100 million to market it. The movie, which has a multiracial cast led by Vin Diesel, Michelle Rodriguez and Dwayne Johnson, was a smash among minority audiences; 32 percent of ticket buyers were Hispanic. Overseas, it was No. 1 in 59 countries, taking in $158 million, for a global total of $280.2 million.

“The Hangover Part III,” which cost Warner and Legendary Pictures about $103 million to make and was backed by a similarly costly marketing campaign, opened in three foreign countries over the weekend, taking in about $19.2 million. “The Hangover Part II” took in a total of $332.3 million overseas — an astounding amount for an R-rated comedy — and international ticket sales for “Part III” are also expected to be strong.

A Warner spokeswoman did not have an immediate comment about the movie’s North American performance.

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You’re the Boss Blog: The S.B.A. Wants to Encourage More Small Loans

The Agenda

How small-business issues are shaping politics and policy.

For the last several years, the Small Business Administration has attempted to expand its loan-guarantee programs by making them available to bigger businesses. But with the 2014 budget that the White House sent to Congress last week, the Obama administration is trying to solve a problem at the other end of the spectrum: how to induce banks to make smaller loans, to smaller businesses.

S.B.A.-guaranteed general business, or 7(a), loans for $150,000 or less have fallen from $3.5 billion in 2007, and about 24 percent of all such loans guaranteed by the agency, to $1.4 billion in 2009. Of course, 2009 was the pit of the recession, and S.B.A.-backed lending — if not all lending — had dropped to its lowest level in recent memory. But while the agency’s loan programs have since fully recovered, the total lent in these small loans has remained flat, and constituted just 9 percent of the 7(a) program, the S.B.A.’s biggest, in 2012.

The new budget for the S.B.A. would waive the agency’s fees for guaranteeing loans of less than $150,000, and this follows recent efforts to streamline one program to encourage more small loans. But some observers in the S.B.A.-lending industry doubt these moves will be sufficient.

S.B.A. officials trace the decline in smaller guaranteed loans to the collapse of a loan program known as S.B.A. Express, a 7(a) variant that allows lenders to use personal credit scores rather than business fundamentals as the basis for approving loans. The big banks that participated in S.B.A. Express started racking up huge losses in the program even before the recession hit, and many gave up on the smaller loans. Then, in 2010, the S.B.A. shuttered a separate loan program, Community Express, that focused on providing small loans to borrowers in struggling communities. A replacement initiative known as Small Loan Advantage has been considered too cumbersome, at least until recently, to win over lenders.

That has largely meant that borrowers have had to turn to the traditional 7(a) program, with its extensive, and expensive, underwriting requirements for banks. Those obligations are the same regardless of the size of the loan, making bigger loans more profitable for lenders than smaller loans. Moreover, banks that sell those loans on the secondary market make more money on bigger loans. “Premiums on the secondary market are at an all-time high, and that may have given bankers a reason to make larger loans rather than smaller loans,” said Arne Monson, whose firm, Holtmeyer Monson, helps small banks make S.B.A. loans. Finally, most small loans go to new businesses, Mr. Monson said, and banks are still shying away from these riskier borrowers.

Last week, Jeanne Hulit, an associate S.B.A. administrator, acknowledged these problems. “As the banks have re-entered the market in lending, they’re really looking at the business metrics and the business’s ability to repay the debt,” she said. “And if you’re going to do that kind of analysis, it’s just as costly to analyze a $1 million loan as a $100,000 loan. So clearly the banks were using their resources to lend to more established businesses, with a more predictive ability to pay.”

The S.B.A.’s solution to the small-loan drought is to waive the fees it charges banks for guaranteeing these small loans — both the one-time fee it charges at the time of the loan (percentages vary with the size of the loan) and the annual fee of .55 percent of the guaranteed portion of the loan (it would be waived for at least one year). For a loan of $150,000 with a term of more than one year, the initial fee is 2 percent of the amount the agency is guaranteeing, which amounts to $2,550. (On larger loans, the inital fee can approach 3.75 percent.) The Obama administration says that the agency can afford to do this and still get by on a smaller overall budget for 2014 because S.B.A. lending has gotten less risky with an improving economy and requires a smaller taxpayer subsidy. The proposal would require Congress’s approval.

In addition, Ms. Hulit said, “we’re doing a lot of things to streamline the transaction costs for small-dollar loans.” In particular, she said, the S.B.A. has adapted its own business credit-scoring model for making preliminary decisions about borrowers in the Small Loan Advantage program. For loans that get an early green light, banks can skip 100 pages of paperwork that normally accompany a loan application. “Lenders can cut the time required to process loans of this size by up to 60 percent, and in some cases, save as much as four full business days in processing times,” said an S.B.A. press secretary, Emily Cain.

Still, it is unclear whether eliminating the guarantee fees will spark much new lending, since banks are able to pass those onto the borrowers, and tend to roll them into the loan itself. Back in 2008, bankers contacted by The Agenda (in an earlier incarnation) expressed skepticism that a fee holiday, proposed at the time by Senator John Kerry, would do much to jump-start lending. Rohit Arora, chief executive of Biz2Credit, a business-loan broker, said he doubted the current proposal would do more than perhaps make the loans more palatable to borrowers. “From our experience,” he said, ” we have seen that streamlining the paperwork and the decision-making is more important.”

But here, too, it is hard to know whether banks are responding to the procedural changes. Mr. Arora said that the S.B.A.’s claims about reducing paperwork are overstated, in part because banks, out of habit, continue to insist on gathering all of the tax returns and financial statements required of a standard 7(a) loan. And with good reason, said Mr. Monson — if a loan goes bad, a bank better have a fully documented loan file or it may not be able to collect its guarantee. “When we perform the service for our client banks,” Mr. Monson said, “it is not streamlined.”

Many more banks now participate in the Small Loan Advantage program, but that could be simply because the agency has opened the program up to many more banks. And though lending through the program has spiked, that may reflect another change the agency made: It raised the program’s loan limit from $250,000 to $350,000. In fact, total lending at $150,000 or less across all the 7(a) programs has actually fallen slightly from the first six months in 2012.

To bring smaller loans back into the fold, the S.B.A. seems to have its work cut out for itself.

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DealBook: Bankia Stock Value Is Nearly Wiped Out Under Recapitalization Plan

Bankia's chairman, Jose Ignacio Goirigolzarri.Juan Medina/ReutersBankia’s chairman, Jose Ignacio Goirigolzarri.

MADRID — Shares in Bankia, the giant Spanish mortgage lender whose collapse last year led to a banking crisis in Spain, slumped Monday in the first day of trading after regulators wiped out most of the stock’s value.

The shares closed at 14.7 euro cents, down 41 percent from the close on Friday.

Regulators said Friday that Bankia shares would be revalued at 1 cent each, as the custodial managers who now oversee the bank try to create a clean slate. The new valuation was a condition of Bankia’s getting a capital injection of 10.7 billion euros ($13.9 billion) from European rescue funds.

The action is the latest blow to the tens of thousands of the bank’s consumer clients who bought into the initial public offering two years ago, when Bankia was valued at 3.75 euros a share.

Standard Poor’s lowered Bankia’s rating by one notch, to BB-, which is three rungs below investment grade. The ratings agency said the bank was likely to remain dependent on funding from the European Central Bank for the time being. It also said the cut was justified because the positive impact of Bankia’s plans to increase its capital by converting 6.5 billion euros of hybrid debt into equity ‘‘will not be as great as we previously expected.’’

In February, Bankia reported a loss of 19.2 billion euros for last year, a record for the Spanish banking industry. But it forecast a swift return to profit after the bailout and the cleaning up of its balance sheet.

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News Analysis: A ‘Cyprexit’ Might Not Hurt Euro Zone Much

A messy Cyprus exit from the euro currency union would have a devastating effect on the country’s citizens, who are among the most indebted in the euro zone. And for European unity and diplomacy, the Cyprus debacle has already been at least a short-term disaster.

But for the broader financial system in Europe, the losses resulting from a Cypriot banking collapse and the country’s return to its own currency would be minimal compared with the havoc that Greece would have created had it not been bailed out and instead returned to the drachma last year.

And that, economists and investors contend, is precisely why Germany and its Dutch stalking horse, Jeroen Dijsselbloem, the uncompromising leader of Eurogroup of finance ministers were so adamant that depositors — large and small, Cypriot and Russian — contribute €5.8 billion, or $7.5 billion, toward the €10 billion bailout of Cyprus’s largest banks.

Greece may well have been too big to fail last year, but Cyprus, which creates less than one-half percent of the euro zone’s gross domestic product, is certainly not.

From a financial standpoint, what is most noteworthy is that the combined debt of the Cypriot people, companies and government is 2.6 times the size of the country’s gross domestic product. Only Ireland, still struggling to recover from the banking collapse that required an international bailout in 2010, has a higher debt-to-G.D.P. ratio among euro zone countries.

As debts in Europe mount in inverse proportion to the ability of its citizens, companies and governments to make good on them, the view is forming in Berlin and Brussels that — especially in the wake of the latest Greek rescue — a signal must be sent that for the euro zone to survive in the long run, citizens and investors must start accepting losses.

“There have been too many bailouts in Europe; it’s time to remove the air bags,” said Stephen Jen, a former economist at the International Monetary Fund who runs a hedge fund based in London. “This is not a Lehman,” he said, referring to the disastrous chain reaction triggered by the collapse of Lehman Brothers in 2008.

With Cyprus, “the links are psychological, not mechanical,” Mr. Jen said. “In Greece the links were both mechanical and psychological.”

Eric Dor is a French economist who has studied in detail the mechanics of how a country might remove itself from monetary union. By his calculations, the euro zone — via its central banking system and its national banks — has just €27 billion in outstanding credit exposure to Cyprus. That is a mere rounding error compared with the overall euro zone G.D.P. of €9.4 trillion.

Estimates of the potential cost if Greece had been forced into a disorderly euro exit have ranged from €200 billion to €800 billion, given the much larger exposure that the E.C.B. and European banks had to the country.

“This explains why Germany and others are putting so much pressure on Cyprus,” said Mr. Dor, head of research at the Iéseg School of Management in Lille, France. “They are saying we can take the risk of pushing Cyprus out of the euro zone, and that Europe can take the losses without going broke.”

Mr. Dor notes that the current euro zone-wide system of insuring bank deposits up to €100,000 was put in place following the financial panic that followed the Lehman collapse. Those deposits are supposed to be insured by national governments.

So when the president of Cyprus admitted this week that his country did not have the funds to backstop the €30 billion of guaranteed bank deposits — a figure greater than the Cypriot economy itself — a crucial bond of trust between a government and its citizens was snapped.

“It is the first time ever that the leader of a euro zone country has admitted that he could not afford to pay the guarantee,” Mr. Dor said.

By that reckoning, whatever grievances the Cypriot people have toward the euro zone finance ministers might be better directed toward their own national leaders who have failed to protect their savings.

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Cyprus Delays Bailout Vote, Fueling Euro Zone Turmoil

Facing eroding support, the new president, Nicos Anastasiades, asked Parliament to postpone until Monday an emergency vote on a measure to approve the bailout terms, amid doubt that it would pass. The euro fell sharply against major currencies ahead of the action, as investors around the world absorbed the implications of Europe’s move.

In an address to the nation, Mr. Anastasiades painted an apocalyptic picture of what would happen if Cyprus did not approve the strict terms: a “complete collapse of the banking sector”; major losses for depositors and businesses; and a possible exit of Cyprus from the euro zone, the 17 countries that use the euro as their currency.

He said he was working to persuade European Union leaders to modify their demands for a 6.75 percent tax on deposits of up to 100,000 euros, a move that would hit ordinary savers.

“I understand fully the shock of this painful decision,” he said, speaking with a grim look on his face as he stood between the Cypriot and European Union flags in the presidential palace. “That is why I continue to fight so that the decisions of the Eurogroup will be modified in the coming hours.” The Eurogroup is made up of the 17 euro zone finance ministers.

By size, Cyprus’s economy represents not even half a percent of the combined output of the 17 euro zone countries. Yet the impact of this weekend’s decision by European leaders to impose across-the-board losses on bank depositors — from the richest Russian oligarchs, who have increasingly deposited their money in Cyprus’s banks, to the poorest Cypriot pensioners — in return for 10 billion euros, or $13 billion, in bailout money could not be more far-reaching.

After five years of bailouts financed largely by European taxpayers, wealthy European nations have decreed that when a bank or country goes broke, bond investors and perhaps even bank depositors will pay a significant portion of the bill.

The change is driven in no small part by the growing reluctance by residents of nations like Germany — whose chancellor, Angela Merkel, faces an election this year — to continue to finance bailouts of troubled neighbors like Greece, Portugal, Italy, Spain, and now Cyprus. The resulting turmoil could create a wave of investor contagion that will challenge Mario Draghi, the president of the European Central Bank, to make good on his promise to do whatever it takes to protect the euro.

On Sunday, it was clear that a majority of Cyprus’s 56 lawmakers would not approve the terms of the bailout, which would lead to a likely loss of the rescue money that Cyprus so desperately needs.

The government extended a bank holiday it had imposed over the weekend, meaning banks will not open Tuesday as planned. There was talk that they might not open Wednesday, either.

In response, the European Central Bank applied more pressure to have the deal approved, sending two representatives to Cyprus on Saturday night to assure Cypriot banks that the central bank was “here for them — as long as the bill goes through Sunday or Monday morning before financial markets in Europe open,” said Aliki Stylianou, a press officer for the central bank of Cyprus.

Mr. Anastasiades’s cabinet gathered early Sunday with the heads of the central bank and the finance ministry to discuss how to carry out the levy, should it pass.

But some analysts expressed skepticism about the measure’s long-term effects even if Cyprus approves it.

“Whether the Parliament approves the measure or not, the effect will be the same,” said Stelios Platis, the managing director of MAP S.Platis, a financial services firm, and a former economic adviser to Mr. Anastasiades. “As soon as banks in Cyprus reopen, people will rush to take all their money out” because they do not believe it will not happen again.

To some degree, this policy shift was foreshadowed last month when Jeroen Dijsselbloem, the finance minister for the Netherlands who was recently tapped to lead the Eurogroup, forced investors of a failing Dutch bank to pay their share by writing down 1.8 billion euros’ worth of high-risk bonds to zero.

But it is one thing to wipe out bond investors and quite another to force a loss on bank depositors, including Cypriot savers who had their deposits insured and, like people all over the world, had the impression that a government-backed savings account was inviolable.

Liz Alderman reported from Nicosia, Cyprus, and Landon Thomas Jr. from London.

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Economix Blog: Polls vs. Markets

Who should be believed? The markets or the consumer-confidence polls?



Notions on high and low finance.

The Conference Board reported Tuesday that the preliminary January figure for consumer confidence in the United States had plunged to its lowest level in more than a year, with a decline in expectations leading the way.

The stock market has done very well in January.

The consumer confidence numbers are based on answers to only five questions, three of them calling for forecasts six months out. Those determine the expectations index.

All those forecasts — on business conditions, on employment and on personal income — got worse this month. People are more negative about the first two than at any time since October 2011, a time when talk of a double-dip recession was widespread and the stock market had done a summer swoon. But the income forecast is where confidence seems to have plunged the most.

As recently as last October, more Americans polled by the Conference Board expected their income to increase than decrease over the following six months. Now just 14 percent expect an increase and 23 percent expect a decline. That difference, of nine percentage points, is the largest since the spring of 2009, when the credit crisis was at its worst.

The difference is charted below.

Source: The Conference Board

What brought this on? One analysis is that it is the payroll tax increase that took effect at the start of the year. Others point to the so-called fiscal cliff fight.

But those looking for only domestic explanations may be missing something. Italy’s consumer confidence index for December, reported earlier this week, fell to the lowest level since it began to be calculated in 1996, noted Michael Shaoul of Marketfield Asset Management. And yet the Italian stock market has been rising rapidly since last summer, as fears of a euro zone collapse have abated.

The world economy does look better now than it did only a few months ago, at least to economists and stock traders. But a lot of people seem to think things are going in the opposite direction. At some point, that divergence is going to have to end.

Mr. Shaoul, discussing Italy, says “the odds are that it will be a surge in confidence rather than a collapse in the equity market which restores some balance.”

Here’s hoping he is right.

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Bucks Blog: Advice for Avoiding Bad Investment Decisions

Paul Sullivan, in his Wealth Matters column this week, uses the fourth anniversary of the collapse of a string of investor frauds (including the biggest, the one involving Bernard L. Madoff) to offer some advice on avoiding similar frauds.

Other than the obvious advice — steer clear of funds whose returns seem to be too good to be true — the first step would be to determine if your adviser is honest. Paul mentions two Web sites, AdviceIQ and BrightScope, as sources of information about advisers. But perhaps the simplest piece of advice, from someone who has studied organizational behavior, is to ask yourself whether the investment is a bad idea. The time taken to answer the question may be enough to keep you from rushing into making a poor decision.

Assuming that you have made bad investment decisions, what have you learned from your mistakes? Please share your experiences below.

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Irish Court Rules Ex-Tycoon Sean Quinn Bankrupt

Sean Quinn, a businessman who was once one of the richest men in Ireland, was declared bankrupt on Monday by a court in the country, where stiff regulations could prevent him from resuming his business activities for up to 12 years.

Mr. Quinn, 65, who did not appear in the Dublin court where the ruling was made, unexpectedly dropped his opposition to the bankruptcy proceedings. They are connected to more than 2.8 billion euros, or $3.5 billion, that he owes to the former Anglo Irish Bank, now known as the Irish Bank Resolution Corporation.

The bank was at the center of Ireland’s property collapse and was nationalized in early 2009. Last week, it successfully challenged Mr. Quinn’s bankruptcy declaration in Northern Ireland, where more lenient rules would have permitted him a fresh start within 12 months.

“Today Anglo achieved their goal of ensuring that I will never create another job,” Mr. Quinn said in a statement issued after the hearing. “As I have previously stated, Anglo has been pursuing a vendetta against me and my family.”

He added, “The position of the Irish taxpayer could have improved significantly by a more reasonable approach.”

The court declaration does not put an end to the legal strife between the bank and Mr. Quinn. His family is pressing a court in Dublin to challenge the legality of loans that Anglo Irish made to him.

The bank is also pursuing efforts to seize Quinn family properties in Russia, Ukraine and India, where offshore companies have been challenging their takeover.

After the bankruptcy hearing, the Irish Bank Resolution Corporation issued its own statement challenging Mr. Quinn’s accusations that he was a target of the bank’s wrath.

“It is disappointing to note that Mr. Quinn continues to assert that his bankruptcy is a matter of a personal vendetta by I.B.R.C. against him and his family,” the statement said. “This simply is not true.”

“The bank’s singular focus is to recover as much as possible from the remaining assets,” it said.

In April, the bank seized control of the privately held Quinn Group, a conglomerate based in Northern Ireland that operated a mix of insurance companies, luxury hotels, wind farms and radiator factories.

Since then, Quinn properties have been a regular target of vandalism. On Friday evening, a fire broke out at a vacant company office in Derrylin, Northern Ireland. Last month, a truck smashed into the building’s employee cafeteria.

The Quinn family has disavowed the violence, which included the firebombing last summer of a car that belonged to the new chief executive appointed by the bank to run the Quinn Group.

Mr. Quinn’s family farm in Northern Ireland is the site of the Quinn Group’s headquarters. He started the business in the 1970s with a £100 loan to dig a gravel quarry on his father’s land.

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In Fed Officials’ 2006 Meetings, No Deep Worry on Housing

They laughed about the cars that builders were giving to buyers. They laughed about efforts to make empty homes look occupied. They laughed at a report that one builder said inventory was rising “through the roof.”

The officials, meeting every six weeks as the central bank’s top policy committee to discuss the health of the nation’s economy, did not seriously consider the possibility that problems in the housing market would send the nation into recession.

“We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they met in December 2006.

By then the economy had started to contract by at least one important measure, the level of gross domestic income, and by the end of the following year the Fed had begun its desperate struggle to prevent the collapse of the financial system and the onset of the first full-fledged depression in almost a century.

The transcripts of the Fed’s Open Market Committee meetings in 2006, released after a standard five-year delay, suggest that some of the nation’s pre-eminent economic policy makers did not fully understand the basic mechanics of the economy that they were charged with supervising. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in models that turned out to be broken.

“It’s embarrassing for the Fed,” said Justin Wolfers, an economics professor at the University of Pennsylvania. “You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.”

“It’s also embarrassing for economics,” he continued. “My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.”

The transcripts show that Fed officials were aware the housing market had most likely reached a peak as the year began.

“The bigger question now is whether we will experience the gradual cooling that we are projecting or a more pronounced downturn,” said the Fed’s staff forecast, which was presented at the beginning of the January meeting.

The transcripts are unlikely to burnish the reputation of any Fed officials, inasmuch as none of them was able to see the problems already undermining the economy. But the Fed’s chairman, Ben S. Bernanke, appears as the most consistent voice of warning that problems in the housing market could have broader consequences.

At his first meeting as chairman, in March, he said “Again, I think we are unlikely to see growth being derailed by the housing market.”

As the year rolled along, however, he grew increasingly concerned.

The general consensus on the board, summarized by Mr. Geithner, was that problems in the housing market had few broader ramifications.

“We just don’t see troubling signs yet of collateral damage, and we are not expecting much,” he said at the September meeting.

Mr. Bernanke increasingly took the view that his colleagues were too sanguine.

”I don’t have quite as much confidence as some people around the table that there will be no spillover effect,” he said.

The consequences that he described, however, amounted to nothing like the chaos about to unfold.

Evidence of the decline accumulated with each subsequent meeting.

“We are getting reports that builders are now making concessions and providing upgrades, such as marble countertops and other extras, and in one case even throwing in a free Mini Cooper to sweeten the deal,” George C. Guynn, then president of the Federal Reserve Bank of Atlanta, told colleagues at their June 2006 meeting.

“The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us,” Janet Yellen, then president of the Federal Reserve Bank of San Francisco, said three months later.

One builder she spoke with, she said, “toured some new subdivisions on the outskirts of Boise and discovered that the houses, most of which are unoccupied, are now being dressed up to look occupied — with curtains, things in the driveway, and so forth — so as not to discourage potential buyers.”

But other members of the board saw evidence that the housing downturn would be brief and relatively mild.

Indeed, some members of the board argued that a housing slowdown would be good for the broader economy.

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DealBook: Corzine’s Testimony Came With Plenty of Caveats

Jon S. Corzine, MF Global's former chief executive, testifying at a House hearing into the collapse of the firm.Michael Reynolds/European Pressphoto AgencyJon S. Corzine, MF Global’s former chief executive, testifying at a House hearing into the collapse of the firm.

MF Global’s former chief executive, Jon S. Corzine, was gingerly questioned by the House Agriculture Committee for almost three hours on Thursday, in the end saying little enlightening about the firm’s collapse or the customer money that has gone missing.

It seems unlikely that anything at the hearing can be used against him by criminal and civil investigators, so in that sense the testimony was a victory for Mr. Corzine.

Rather than invoke the Fifth Amendment to protect himself, Mr. Corzine couched his answers with enough caveats and denials of specific knowledge that it would be nearly impossible to claim that he lied or misled the committee. He never even took a firm stand about MF Global’s demise, unlike Enron‘s former chief executive, Jeffrey K. Skilling, who loudly proclaimed he had acted properly when he ran the company – statements that came back to haunt him at his criminal trial a few years later.

In his prepared statement, Mr. Corzine pointed out that he did not have access to records and notes that would help his recollection, thereby giving himself an out in case he made any misstatements. He disclaimed responsibility for much of the firm’s daily operations related to the missing customer money, asserting that “even when I was at MF Global, my involvement in the firm’s clearing, settlement and payment mechanisms, and accounting was limited.”

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And he spread the blame around the firm for the decisions that resulted in its collapse into bankruptcy. Mr. Corzine pointed out that the decision to invest in European sovereign debt “was disclosed to the board of directors, the senior officers of the company, the company’s accountants and numerous outsiders.”

In response to questions from committee members, Mr. Corzine was hardly a font of information. Although he told Representative Renee L. Ellmers, Republican of North Carolina, “The buck stops here,” just being a chief executive is not a basis for any criminal or civil liability.

He denied having any responsibility for the missing $1.2 billion, about which he said in his prepared statement, “I simply do not know where the money is, or why the accounts have not been reconciled to date.” When pressed about whether customer money was moved around in the firm, he responded, “I never intended to break any rules,” and if any employee thought he directed use of the money, “it was a misunderstanding.”

Mr. Corzine’s legal strategy was clear: respond to questions, but say as little as possible while maintaining that MF Global was operated properly.

If there were violations, he did not know about them, and certainly had no intent to defraud. The firm’s demise appears to be largely chalked up to a growing lack of confidence in the markets that caused financing sources to dry up.

In other words: “Stuff happened, but it was not really my fault.”

In this initial phase, Mr. Corzine’s approach is primarily directed at damage control, which explains why he was unwilling to assert the Fifth Amendment because that would label him as someone who perceived himself as being aware of wrongdoing. He is scheduled to testify before additional Congressional committees, and so we can expect more of the same from him.

As long as the customer money remain missing, it will be difficult for Mr. Corzine to take a more aggressive stance in challenging the perception that there was criminal misconduct at the firm. For the time being, he is limited to appropriately apologetic statements about the losses suffered while denying he had any involvement in the missing customer money.

The larger question is whether the federal government will pursue any actions against Mr. Corzine. Both the Commodity Futures Trading Commission and the Securities and Exchange Commission have strict regulations on maintaining adequate financial records, and a chief executive can be held responsible for any violations.

I think there is a good chance of a civil enforcement action from one or both agencies that names Mr. Corzine, especially because those types of violations do not require proof of intentional misconduct. But that could be months down the road as investigators sort through MF Global’s records.

On the issue of potential criminal liability, the problem prosecutors will face is the same hurdle that has dogged investigations of executives at Wall Street firms involved in the financial meltdown – proving intent. Mr. Corzine stressed his ignorance, something usually not seen from a former governor, senator and co-chief of Goldman Sachs. But that is, in effect, what Thursday’s testimony emphasized, his lack of any knowledge of the firm’s operations that led to the loss of customer money or intent to mislead.

The investigation is still in an early stage, and a key to establishing criminal liability in any organization is to find those lower down the corporate ladder willing to provide incriminating information about senior management. Whether that type of witness exists in the ranks of MF Global remains to be seen, but once investigators are able to figure out how the customer money went missing, we may see criminal cases develop.

For now, Mr. Corzine appears to have passed the first public test by responding to questions without putting himself in a position to have his testimony used against him at a later time. With little concrete information, the others Congressional hearings will likely stay at a fairly general level that allows Mr. Corzine to deflect questions or plead ignorance — for now. But that may change as investigators dig deeper into the firm’s records and piece together what actually happened.

Peter J. Henning, who writes White Collar Watch for DealBook, is a professor at Wayne State University Law School.

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