Tuesday, March 25, 2008

Using life insurance as part of your estate planning

Let's look at an example. A man and woman have no debt, and some money saved for their funeral expenses. They do not have life insurance. When they pass on, their children are able to pay for their funeral, however, they get hit with estate taxes for the large home, and other parts of the estate that they inherit. The huge burden of these taxes forces them to live in near poverty.

These parents in this example thought they had things taken care of with their no debts and money for funeral expenses. What they forgot was that anything their family inherits is taxed. Estate taxes come due nine months after a death. This is not much time if your heirs need to settle a largely illiquid estate. They may owe taxes on a huge property that they can not sell. What then?

One potential solution that should likely be apart of your estate planning is to buy a permanent life insurance policy that will cover estate taxes and provide your heirs with immediate cash, so they don't have to unload your business, home, etc. in a fire sale.

When you are young, buying life insurance that is permanent does not make sense, as it can cost up to eight times as much as a term policy. However, the point of a term policy is to provide children with money if their parent's die while the children are still young. For estate planning, the concern is not living expenses for young children, but the taxes and other expenses that come with settling an estate. Thus, for this purpose a policy that does not expire is a better plan.

Most people think whole life insurance is a terrible thing to buy, especially when life insurance companies try to sell it as an investment option. Life insurance isn't a great investment; if your primary goal is to get a good return, you'd almost certainly do better in a low-fee mutual fund. But it can be a valuable part of an estate plan, especially if you put it in a trust so it won't trigger estate taxes.

So, with these things in mind, let's take a look at a guide for permanent life insurance:

1. Pick a policy. There are three types of permanent insurance: whole, universal, and variable. Whole is the most conservative and generally the most expensive. Universal is riskier, and your premiums can get higher as you get older. Variable policies are the riskiest, because the cash value account is invested in the stock market, and you control the investments. So, if you are buying life insurance for estate planning, consider buying a second-to-die policy, which kicks in only when it's needed--when the second spouse dies. Variable, universal, and whole policies can all be designed as second-to-die plans.
2. Review your policy at least once a year. Then have your financial adviser review it.
3. Decide whether you need a trust. The rule of thumb is that if you have a net worth of more than $2 million--the point at which federal estate taxes kick in-put your policy in a trust so your heirs won't have to pay estate taxes on it. Only an irrevocable trust will protect your heirs from estate taxes.
4. Decide how much to buy. Determine your current net worth and how much it's likely to grow, then consider the nine-month IRS deadline, you'll need more insurance if a large portion of your estate is in illiquid assets, such as a business.
5. Find the best deal on insurance, watch out for commissions, fees, and more.
6. Put it in a trust sooner than later. If you die within three years of putting it in a trust, it is still considered part of your estate, and can be a real mess to sort out.

What to know about catastrophe insurance

Catastrophe insurance is something many people think about, but too many people pass up. Just ask those in Southern California who did not have fire insurance how they felt when they saw the wild fires ravaging their cities? The fact of the matter is that the 10 most expensive natural disasters in U.S. history all have occurred in the last decade. These catastrophes have resulted in insurance companies having to cover losses averaging $10 billion each year since 1989, compared with just $2 billion yearly from 1980 to 1988. This means two things: one is that you probably need catastrophe insurance more now than you did in the past, and two, it is going to cost you more.

The insurance industry is raising rates on catastrophe insurance, especially in high risk areas. They are basically saying to the homeowner, If you choose to live here, that's great, but you have to take on more of the risk. So what this means is that if you live where tornadoes, floods, hurricanes, and earthquakes are a regular occurrence, catastrophe insurance is going to cost you more, but will be worth it.

The fact is that catastrophe insurance is a great thing to have, and comes in handy if there is a catastrophe. However, with major natural disaster, some insurance companies just can't handle the expense of payouts. So, if you want to make sure you avoid paying more than you need to, and that you are with a company that won't go out of business should a huge disaster happen, ask the following questions:

Do I have proper coverage? You need to be looking at things like whether or not you are in a flood plane, whether or not you live in an area prone to fires, earthquakes, etc. Find out if you need catastrophe coverage by calling your agent or state insurance board, they can give you information about flood, fire, earthquake, etc, risks for your area, and you can consider that as you compare it to risk posed by normal hazards, which your home owner's policy will cover. If you exceed normal risk, buy the extra coverage.

Is the insurer financially stable? Let's face it, if a whole city burns down, this can be costly for insurance companies, and could put them at risk of a default that could leave policyholders uncovered. So, choose a company that will be able to make it. How do you do that? Well, A.M. Best and Standard & Poor's now rate insurance companies to reflect their ability to withstand such catastrophes. Choose someone with an A rating or better.

Can you afford the premiums and deductibles? Are they reasonable? You will see a huge jump in the cost of catastrophe insurance for high risk areas, but that does not mean you should not shop around and see look for companies and region that are not as exposed to catastrophe-related payouts and the cost will be lower. Be cautious of percentage deductibles that require you to pay a percent of the damage rather than a set figure. This can be huge if your loss is huge.

Once you have asked these questions you are likely ready to buy, so do the following three things:

1. Purchase all your insurance from an insurer that offers a multiple-policy discount.
2. Go with a high deductible if you can afford it, as it can save up to 20 percent in premiums.
3. Protect yourself the best you can by installing smoke detectors, a burglar alarm, storm shutters, dead bolts, and a fire-sprinkler system. These can reduce the premium on your homeowner's policy, and protect your home if a catastrophe does occur.

Five Major Ways to Save Money

There are two main roads to improving your personal finances: increasing income, and cutting costs. Increasing income is the harder road to travel. After all, you can't always get a raise or a new job when you need one. But cutting costs, that's a different story! You're in complete control in this area. And all it takes is some imagination and discipline-both of which are free. Below are five major ways to save money in the basic areas of food, shelter, clothing and transportation. They're major expenses in your life - and places for major savings.

1. Home Cooking

Food is a major expense in everyone's budget. But, in today's convenience food society, it's easy to overlook how much money can be saved by cooking meals at home. Plus, it's fun, creative, and healthier to make your own meals. The key is to cook in "bulk" to stretch the food you buy over several meals. If you're a busy person with little time to spare, a good investment is a slow cooker (or crock pot). Generally, they run from $20 to $80, depending on the size. With a slow cooker, you can set aside some time on the weekend to cook stews, soups, and other delicious meals that can be frozen for weekday use. After a hard day at work, all you have to do is pop the meal in the microwave! More than likely, you'll enjoy an additional benefit - your taste buds will wake up from mass produced food and thank you for the delicious taste of a home-cooked meal!

2. Drive less, exercise more

Is owning a car expensive? You already know the answer to that question, don't you? Gas, maintenance, insurance costs. Plus the mental aggravation of being caught in traffic jams! Why not carpool or take public transportation-the bus, train, or light rail? Or, if you live close to work, walk or bike. You'll lose weight, lower your blood pressure, and see the world at a slower pace. And, oh yes, you'll save a couple of thousand dollars in the process.

3. Cut housing costs

This is an easy and fun way to cut costs. Instead of paying a contractor to come in to make changes or repairs, make them yourself. Local hardware stores love your business and will help you with tips and tricks on home repair. Also, do your own decorating and painting. You get two benefits by doing your own changes and repairs - you get the pride of accomplishment and you save money.

4. Cut clothing costs

This can be another major area of expenses, especially if you have a family. So, try buying used clothing... dry clothes on the clothes line instead of in a dryer... learn how to mend clothes...well, you get the idea!

5. Quit your addictions

Okay, so this is not really an easy category, but if you enjoy cigarettes and a drink, this is where you can realize some major savings. Assume you're spending $5.00 a day on cigarettes. Added up over a year, that's an expense of $1825. As for liquor or wine, we all know how expensive that is. Assume you buy one bottle a week at $10 to share with family members or friends. That's $520 a year. Add both amounts up, and the total is $2,345! That's money that could be paying down your debt or going into savings. And don't forget the health benefits. You probably have many other ideas on how to save money in the five areas. If it seems hard at times to cut costs in these places, remember one thing - you're on the road to keeping more of your money in your own pocket! As the old saying goes: "Money saved is as good as money earned".

Purchase Options for Consumers

Purchase Options for Consumers

When you make a purchase...should you use cash, check, a credit card, debit card, your computer or an automatic payment?

Each payment method has advantages and disadvantages. When you buy something, merchants often offer several different ways to pay. Which way is best? To make a good decision, it's important to think about your options.

  • Cash
  • Check
  • Credit Cards
  • Debit Cards
  • Personal Computer
  • Automated Transactions
  • Reporting Unauthorized Transactions
  • Final Tips


Cash is almost always accepted, but consider:

  • Do you have enough cash to pay for your purchase as well as any other things you might have to pay for in the near future, such as a quick meal or an unexpected purchase? If not, more cash is available from an Automatic Teller Machine (ATM), but is there a service charge for using an ATM?
  • Are you losing an opportunity to earn interest by carrying too much cash? The more cash you carry, the less that can be deposited in a financial institution in an interest bearing account.
  • Is there a possibility you'll return the item you're buying? Will you be able to return it and get cash back, or will you be able to get only a store credit? Will you use the store credit?
  • Does your purchase need to be delivered? Do you want to pay in cash for something you haven't received yet? What if the item is damaged in transit, and you've already paid for it? How will you get your money back? It is generally more difficult to get a cash refund, even if you have a receipt.

In general, it's wise not to carry large amounts of cash because of the risk of loss or theft. Use cash only for those items that you'll either use immediately or take with you.


Checks are another payment option. A check represents money but is not cash. It's a piece of paper the check writer uses to instruct his or her financial institution to release funds. With proper identification, you can open a checking account at most financial institutions. Checks are reliable and convenient for most transactions. Using them frees you from the risk of carrying large sums of cash. However, you may want to consider the following:

  • Checking accounts often have fees, minimum balance requirements or a limit on how many checks you can write each month. Therefore, you may not want to write checks for small amounts unless you're mailing a payment.
  • If mailing a payment, sending a check is acceptable, but mailing cash can be risky. Cash lost in transit can't be replaced, while a lost check can be.
  • Paying with a check through the mail provides proof of payment because the recipient must endorse the check to cash it or deposit it.
  • Not everyone is willing to accept checks because they're sometimes returned for reasons such as insufficient funds in the checking account. Merchants are sometimes reluctant to accept a check because they can't be sure it will not be returned.
  • There is usually only a day or two between when a merchant receives your check and when the funds in the checking account are actually deducted for payment. Funds in your checking account continue to earn interest during this time. Debit cards and other types of electronic payments are deducted immediately.

Credit Cards

Credit cards and charge cards can be a convenient, efficient and reliable payment method. Actually, they allow the buyer to defer payment. Credit cards are more readily acceptable than checks because the merchant's bank guarantees payment to the merchant. Payment is made when you write a check to the card issuer. If you want to use a credit card to make payments and pay bills there are a number of things you should consider:

  • You may have to pay an annual fee to use a credit card.
  • Credit cards are more readily acceptable than checks. Sometimes they are the only option acceptable.
  • If you want to return a purchase, credit card issuers frequently have procedures to facilitate the return.
  • Since merchants pay a fee for each credit card transaction processed, they may not want to accept payment using a credit card under a certain dollar amount.
  • When you pay with a credit card, you're actually receiving a short-term loan to make the purchase. Unless you pay your credit card bill in full a short time after the bill is received, you'll have to pay an interest charge in addition to the cost of your purchase.The period between when you receive your bill and when the payment is due is usually referred to as the "grace period". Grace periods are generally 14-20 days, but can be up to 30 days. Although many card issuers offer a grace period, not all credit card issuers do. Check the terms of your card to be sure.
  • With low minimum payments and high interest rates, credit card and interest payments can extend over long periods of time - sometimes over many years.
  • Purchases are conveniently summarized in a monthly statement.
  • Credit cards can be too convenient to use. Unless you keep track of your charges, you can quickly owe more money than you can afford.
  • Some credit cards offer incentives such as cash back, shopping discounts, rental cars or airline trips based on how much is charged. These benefits should be weighed against other factors, such as the annual fee and the interest rate charged when you don't pay your bill on time or pay only a portion of your bill.
  • If your credit card is stolen or used by an unauthorized user your liability should be no more than $50 if you report the unauthorized transactions to your financial institutions.

Debit Cards

A debit card looks like a credit card but functions differently. It's used to take money out of your checking account at the time of sale. The transaction is similar to writing a check or using a credit card, except using a debit card removes funds from your checking account immediately. When using a debit card, consider the following:

  • Because your checking account will be automatically debited, you have to make sure you subtract the right amount from your checking account balance.
  • Before you use the debit card, consider how much money is in your checking account and what other expenses (rent, mortgage, utilities, other monthly payments, etc.) you have.
  • Unlike a credit card, if your debit card is stolen or used by an unauthorized user, you could be held liable for the entire amount of the loss unless you report the unauthorized transactions to your financial institutions within 60 days of receiving your statement. Also, unlike credit cards, the money has already been deducted from your account. Your money is gone and to get it back you must be able to prove that the transactions were unauthorized. Additionally, your checks may be returned for non- sufficient funds before you receive your next statement because all the money in your account was removed by the unauthorized user.
  • Unlike a check, you can't stop an electronic debit once it has been authorized because funds are removed immediately from your account. And unlike a check, there is no lag time between when funds are deducted from your account. And unlike a check, there is no lag time between when payment is made and when funds are deducted from your account.
  • If you return the item, can you get cash back or will you be able to get only a store credit? As with cash, if only a credit is available for returns you may want to use another means of payment if you don't think you'll be able to use a store credit.
  • Debit cards should not be used for pre-authorized, recurring payments such as insurance premiums or health club dues. Doing so can lead to problems later if you want to cancel your authorization. Safer methods of direct payment are available via your financial institution.

Personal Computer

Paying your bills using your personal computer can be fun and easy. More and more financial institutions offer this type of "home banking" over the Internet. Using your computer to pay bills usually functions the same way as using any electronic means to make a payment-an electronic debit is made to your account. Using your home computer to pay bills is just like using your debit card because the amount of the payment is deducted directly from your account, and there is no lag time or float between when the payment is made and when funds are deducted. When you pay bills online, it is important that you make sure your transactions are secure, and that your personal information is protected. Here are some precautions you may want to consider when making payments online:

  • Keep personal information - address, telephone number, social security number, and account numbers or e-mail address-private. It is not recommended that you provide this information unless you've initiated the transaction. Don't disclose your personal information unless you know who's collecting the information, why they're collecting it, and how they'll use it.
  • Give payment information only to businesses you know and trust, and only in appropriate places like order forms.
  • Never give your password to anyone online, even your Internet service provider.
  • Protect your account numbers and personal information by using software that encrypts or scrambles the purchase information you send over the Internet.
  • Create and keep records of your online transactions just as you do for your credit and debit card transactions. Review your periodic bank and credit card statements for any billing errors or unauthorized purchases. Notify your credit card issuer or bank immediately if you find any discrepancies.
  • Read the policies of Web sites you frequent and especially the disclosures about their security, refund policies, and privacy policy on collecting and using your personal information.

Automated Transactions

Direct Payment is a safe, reliable service that allows you to pay your bills automatically. With Direct Payment, you authorize a company to deduct money from your checking or savings account in order to pay a monthly bill.

Direct Payment transactions are generally prearranged or recurring payments, such as monthly utilities, insurance premiums, and mortgage payments.

Automated transactions can also be credits or deposits to your account. Many people work for companies that use Direct Deposit to automatically deposit pay into their employees' checking or savings accounts instead of distributing checks on payday. Direct Deposit of Social Security benefits, expense reimbursements, and pension benefits are other examples of automated credit transactions.

Direct Payment and Direct Deposit transactions flow through the Automated Clearing House (ACH) payments network. The ACH network is more than 25-years-old and is an established network responsible for transferring billions of dollars each day between financial institutions. You can learn more about Direct Payment or Direct Deposit by visiting the following sites:

DirectDeposit.orgoffsite link - operated by the Direct Deposit and Direct Payment Coalition.

Report Unauthorized Transactions Immediately

Whether you use a credit card, a debit card, a personal computer or ACH, the transaction is electronic and is governed by the Electronic Funds Transfer Act, or Regulation E. The regulation includes procedures for resolving errors and provides limited liability for unauthorized transactions. Send written notices by certified mail, return receipts requested, and keep a copy of your letter for your own files. However, be aware that liability for credit cards is different than electronic debit transactions. Your maximum liability on a credit card is $50. On an electronic debit, unless you contact your financial institution within 60 days of receipt of your statement, there may be no limit to your liability for unauthorized transactions. Additionally, before you receive your next statement, your checks may be returned for non- sufficient funds.

Final Tips

  • Since debit cards and credit cards look the same, be sure you know which one you're using when making a transaction.
  • Consumer liability on a credit card is generally limited to $50. Be sure to report a lost or stolen credit card immediately to prevent its misuse.
  • Under certain conditions, consumer liability on a debit card can be unlimited.
  • Save your receipts for transactions made with credit cards or debit cards. Review your statement regularly and report discrepancies at once.
  • Do not download files sent to you by strangers or click on hyperlinks from people you don't know. Opening a file could expose your system to a computer virus.

Budget Your Finances Now, to Minimize Damage Later

s the process of healing and rebuilding continues ever so slowly in areas ravaged by Hurricane Katrina and Hurricane Rita, many of us are taking a closer look at our own lives. While most of us don't live in hurricane-prone areas, we are all reminded of the possibility of disaster knocking at our door. Mother Nature may provide the most striking examples with hurricanes, earthquakes and tsunamis, but a house fire, car accident, serious illness, or a lost job could prove just as devastating.

We all hope it never does, but if disaster should strike, finances are the last thing you'll want to worry about. You can make it easier on yourself, and your loved ones, if your finances are in order. Disaster-proof your finances with a budget. Here are a few suggestions to help in the same

Create a monthly spending plan.
The US Bureau of Economic Analysis estimates that personal savings as a percentage of disposable personal income was negative 0.7 percent in August. That means the average person spent more money than he or she made in August. If you're on par for average here, you probably won't need to wait for Mother Nature to create a disaster, you're creating your own.

Create a budget, and stick to it. Since budgets are in that same category as diets – most of us begin one every January and are done by February – you need to find one that works for you in order to stick with it. For most of us, that means finding a software program that is automatic and able to easily track transactions from multiple checking accounts, debit cards and credit cards. But even if you use cash and the paper envelope method of budgeting, create a spending plan, and stick to it. Make sure you set aside some money for personal spending for those impulse buys. This will give you some freedom without negatively affecting your overall plan.

Back up your financial records, or use a web-based system.
If you are not taking advantage of the Internet to track and control your finances, you may be taking an unnecessary gamble. PC-based systems, as well as paper, can be destroyed in a disaster. In his September 8th column for the Baltimore Sun, titled "Flood might destroy your PC, but not off-site backup files," Mike Himowitz described how even a broken water pipe or a small house fire could destroy your computer, and the records held on it.

"More importantly, with online banking, you can access your account and pay bills from any PC that has an Internet connection," stated Himowitz. "One of the main concerns voiced by those who fled their homes to escape Hurricane Katrina is that they have no access to their money and no physical way to pay their bills. With online transactions, your physical location - and the location of the PC you're using - no longer matter."

Himowitz suggests that using a storage company to provide online backup, although pricey, can be a wise investment. However, for far less money, you can also use a secure online spending management program, like Mvelopes Personal (www.mvelopes.com). It will help track and control your finances, and pay your bills from any computer with an Internet connection – and you don't have to worry about expensive backup storage.

Set aside the equivalent of three to six months' living expenses in an emergency fund.
An easily accessible emergency fund is one of the single most important things you can do for your financial wellbeing. In the event that disaster strikes, if you don't have enough set aside to cover basic living expenses, including mortgage, food, and car payments, things could quickly go from bad to worse.

If setting aside this much money seems unattainable, start small. Cut out those daily trips to the vending machine. You'll be amazed how quickly the money adds up. Use cash gifts, tax refunds and annual bonuses to build your fund. When you set up your monthly spending plan, include a contribution to your emergency fund, and make it automatic.

Your emergency fund needs to be easily accessible. That means in a savings or money market account, not real estate investments or stocks. Select an account with no service fees, which can be as high as $100 a year. Also, make sure you are getting a good interest rate – many online banks, like NetBank, EverBank or EmigrantDirect, currently have savings accounts paying three to four percent – that uses an average daily balance instead of minimum daily balance.

This account should only be used for real emergencies, not holiday spending sprees or other indulgences. If you do draw from the account, make repaying it a top priority.

The American Experience With Money

Money Matters brochure imageThe Beginnings... and Beyond

From the earliest times when commodities such as tobacco and beaver pelts were used as money, to the present when credit and debit cards are commonplace, money has always played a central role in the American experience.

Early in our history, our monetary system consisted of numerous foreign coins and paper currencies issued by the thirteen colonies and the Continental Congress. More than two hundred years later, we now have a single national currency and privately owned banks chartered by state and federal governments. Furthermore, a central bank, the Federal Reserve, has replaced gold as the regulator of the value of our money.

The evolution from a decentralized system to a more centralized system has been marked by controversy and slowed by a general suspicion of banking power. Each change has involved extensive legal debate focusing on the rights of state and federal governments and the freedom of the individual.

Another important dimension of our nation's economic development is the role of gold. Once a cornerstone of the financial system, gold has gradually but perceptibly become less important, both as a medium of exchange and as a regulator of the money supply. This process was driven by the nature of gold itself as well as by the changing needs of our modern and complex economy.

The Constitution and Money

The framers of the Constitution were apparently undecided about the form of financial system they should establish. Some preferred a centralized system with most of the power residing in the federal government. These framers wanted a national currency and a single federally chartered bank with branches throughout the country.

Others involved in developing the Constitution envisioned a decentralized financial system with principal authority resting in the states. They preferred that each state charter its own banks, and each bank issue its own bank notes-that is, its own paper currency. There would be no uniform national currency and no central bank.

After long debate, the framers of the Constitution permitted the federal government "to coin money, (and) regulate the value thereof and of foreign coins . . ." They also declared that "no state shall . . . coin money, [nor] emit bills of credit [i.e., paper currency] . . . " Significantly, no mention was made of a national currency nor federally chartered banks.

The Constitution specified little involvement for the federal government in our financial system. Congress was expressly permitted only the right to mint metal coins, regulate the percentage of precious metal in those coins, and determine the metallic content of the many kinds of foreign coins that circulated throughout the states. In other words, Congress' involvement in the financial system focused on the intrinsic value of coins, which was determined by the amount of precious metal in the coin.

Fear of Paper

Many of the framers of the Constitution opposed paper money largely because of their experience during the Revolutionary War. In 1775 the Continental Congress faced the problem of fighting a war without the means to pay for it. The British blockade of our ports limited trade, reducing revenues from tariffs, and European nations were reluctant to lend us money. Left with little alternative, the Continental Congress authorized $2 million of Continental currency. This was the first of many issuances. In total, between 1775 and the adoption of the Constitution in 1787, Congress authorized the printing of about $242 million in "Continentals."

$5 Continental bill

This $5 Continental bill was worth only 5 cents when it was redeemed in 1790.

Congress promised to pay the holders of the currency the face value of the bills in gold or silver or in Spanish coins, widely circulated at the time. However, Congress did not have enough gold or silver to make payment. In reality, there was no "backing" for the Continentals; that is, there was no mechanism, except the authority of the Continental Congress, to fix the value of Continentals or to limit the amount that could be issued. As a result, Congress issued more Continentals than the economy could handle without inflation.

The colonies experienced a rapid increase in inflation as the government printed money without restraint. The resulting oversupply of money undermined the purchasing power, and therefore value, of the Continentals.

To support the faltering currency, Congress declared that any person convicted of refusing Continentals at face value was an enemy of the country and should be "precluded from all trade . . . with the inhabitants of these colonies."

Despite such efforts to maintain the Continental's value, people paying in these notes were charged more than people paying with foreign coin of gold and silver. In other words, Continentals were discounted.

Although the printing of Continentals was an emergency measure that helped to win the war, this episode illustrated the perils of issuing too much currency.

Sunday, March 16, 2008

Bankers probe finance issues

MANAMA: A total of 60 senior bankers from Bahrain, the GCC, Malaysia and Indonesia took part in a two-day seminar on corporate governance issues in Islamic finance.

The event was held at the Regency InterContinental.

The event was organised by the Islamic Financial Services Board (IFSB), the World Bank corporate governance departments and the Global Corporate Governance Forum and hosted by the Central Bank of Bahrain.

"The IFSB has drafted a series of principles on Islamic finance and this event was designed to raise awareness of these issues," said Global Corporate Governance Forum senior projects officer Eugene Spiro.

"We will be following this up with further seminars dedicated to raising awareness and to provoke discussion and debate on governance."


A LONG history of money worries within the local NHS will be eradicated permanently as a result of the ongoing shake-up, say health bosses.

Already the PCT has managed to persuade the Government to wipe out its historic debts on the back of the Closer to Home proposals. Now it is working to tackle its finances for the long term, ensuring that the books balance year-on-year.

To do this bosses have come up with a £31.3m cost improvement plan over the next three years, which will be achieved by moving more services into the community and out of the expensive and unnecessary acute settings.

But they anticipate major initial investment will be needed in order to reap long-term benefits.

As a result, £10m has been set aside to develop community services over the first three years of the plan, with a further £9.2m available between 2009 and 2012. An additional sum of £8m a year, over five years, will help the acute trust cover costs of the shake-up.

This subsidy will decrease year-on-year until the services become self-financing. John Critchley, the PCT’s director of resources, said this will ultimately deliver financial stability to Cumbria. “Nine months ago we were in a position where the economy was effectively broke. There was an £18m recurring deficit, massive cost improvements to find, together with a huge historic debt. I am now 150 per cent confident this plan will give us a much better ability to manage risk, instead of no plan at all and financial free-fall,” he said.

He added that the work within the PCT has to be combined with better management of social service funding to be a complete success, but said he is fairly confident that this is starting to happen.

Finance chiefs urge mortgage market revamp

WASHINGTON: America's top financial chiefs yesterday urged mortgage firms, credit rating agencies and banks to overhaul their practices as a spreading credit crunch rocks Wall Street and the US economy.

US Treasury secretary Henry Paulson, Federal Reserve chairman Ben Bernanke and Securities and Exchange Commission chairman Christopher Cox endorsed a set of recommendations aimed at boosting business transparency and risk management.

Paulson said the President's Working Group on Financial Markets wanted mortgage firms, credit rating agencies and banks to reform their business practices to avert liquidity crunch.

Among numerous recommendations backed by the panel was a call for federal and state regulators to strengthen oversight of mortgage lenders.

Meanwhile, US consumers cut spending last month and the labour market continued to weaken, suggesting the household-spending pillar that had supported the economy's expansion may be giving way.

Retail sales unexpectedly plunged 0.6 per cent, while the ranks of workers remaining on state unemployment benefit rolls hit the highest level in nearly 2-1/2 years.

Today's Business Headlines

WANH board will quit if Stokes gets seat at table
All four of West Australian Newspaper Holdings' non-executive directors will quit the board rather than serve alongside Kerry Stokes. The West

BHP Billiton's bid to keep China at bay
Canberra has become the new fornt in the battle for control of Rio tinto, as Don Argus wraps himself in the Australian flag. The Fin Review

US group throws troubled pSivida $83m lifeline
US pharmaceuticals group Alimera Sciences has thrown Perth-founded biotech pSivida a lifeline by agreeing to amend its licence and collaboration deal by taking an extra 30 per cent stake, delivering the cash strapped outfit up to $83 million over four years. The West

Fed bails out Bear Stearns
The US Federal Reserve used powers not employed since the Great Depression to bail out one of Wall Street's top five firms, Bear Stearns, on Friday. The Fin Review

Free trade dirve 'Aussie ute' exports
Holden will export its iconic Australian ute and a new high-performance sedan to North America in a major boost for the Aussie automotive industry. The Fin Review

Business: All four of West Australian Newspaper Holdings' non-executive directors will quit the board rather than serve alongside Kerry Stokes.

US pharmaceuticals group Alimera Sciences has thrown Perth-founded biotech pSivida a lifeline by agreeing to amend its licence and collaboration deal by taking an extra 30 per cent stake, delivering the cash strapped outfit up to $83 million over four years.


Page 1: The US Federal Reserve used powers not employed since the Great Depression to bail out one of Wall Street's top five firms, Bear Stearns, on Friday.

Page 3: Holden will export its iconic Australian ute and a new high-performance sedan to North America in a major boost for the Aussie automotive industry.

World: US President George Bush is seeking to calm investors, saying policy-makers will stabilise the financial system following the near collapse of Bear Stearns.

Markets: Following the plunge of key US indices on Friday, investors in Australia face another day of losses when trading starts this morning.

Ministry remains mum on financial setbacks

혻혻 By Koh Byung-joon
SEOUL, March 17 (Yonhap) -- South Korea's Finance Ministry stayed tight-lipped on a recent stock plunge and the drop of the nation's currency against the U.S. greenback on Monday, apparently underlining the severity of ongoing financial market instability.

혻혻 "No comment," said Kim Kyu-ok, a spokesperson for the Ministry of Strategy and Finance, during a weekly press conference. Asked about how the ministry is responding to the current situation, he also remained mum, expressing concern that any comment might have a negative impact on the market. "No one in our ministry will talk about the issue," he added.

혻혻 Finance Minister Kang Man-soo didn't attend the press conference as he was at a government policy review meeting, Kim said. The conference was held on the heels of worsening financial woes in the local bourse and currency markets.

혻 혻 South Korea's benchmark KOSPI plunged more than 3 percent to 1,549.92 as of 11:54 a.m., the lowest level in nearly one year, as foreign investors unloaded shares on renewed concerns over a credit crisis in the United States.

혻혻 The won was down 28.6 won to 1,025.9 won, marking the first time in more than two years that the Korean currency has fallen below the 1,000-won mark.

혻혻 A bearish stock market could result in a drop in consumer spending, and a weak local currency is feared to raise inflation pressures. South Korea is already struggling to boost corporate spending and rein in price hikes amid higher energy and commodity prices.

혻혻 Since its inauguration last month, the new government has pledged to put top priority on controlling inflation to help stabilize people's livelihoods. It also aims to achieve around 6-percent economic growth this year by encouraging corporate investment and domestic consumption.

혻혻 Experts say that the fall of the local currency could help boost exports in overseas markets but might serve as a downside factor for Asia's fourth-largest economy, as it may cause a buildup in inflationary pressures by raising prices of imported raw materials.

World Bank finances health project

WASHINGTON — The World Bank on Thursday decided to finance US$60 million of the Northern Highlands Health Support Project to strengthen district hospitals and improve access to health services.

The project will improve health workforce capacity and hospital management, develop pilot models to increase staff retention and provide basic medical equipment.

It will also provide financial support for the Government’s Decision 139 to provide health care for the poor. The project will support provincial and district agencies to strengthen monitoring, reporting and supervision of the Health Care Fund for the Poor’s implementation until 2014. — VNS

PM backs Finance Ministry plan to spur economy with village fund

BANGKOK, March 17 (TNA) – Prime Minister Samak Sundaravej on Sunday expressed his support for the Finance Ministry's plan to inject Bt15 billion to stimulate the country's economy through the small-, medium-, and large-village fund (SML).

Speaking during his weekly 'Samak Talk' program broadcast live on Channel 11, the prime minister said Finance and Deputy Prime Minister Surapong Suebwonglee met and discussed with him on Saturday proposed spending of Bt15 billion using the SML scheme to ensure that people at the grass-roots level have access to such budgets in a wide-ranging manner.

The premier insisted the establishment of the SML fund is not economic populism.

"We neither mean to hand out money nor support borrowing. Instead, we intend to bring money to finance village development projects. People in the village are encouraged to jointly decide what they want to do," he said.

Mr. Samak conceded he had ordered the suspension of the OTOP Fair event originally set for March 29 since he disagreed with officials' decision to spend Bt85 million to hire the event organiser. (TNA)-E005

Fed Cuts Lending Rate to Financial Institutions to 3.25%

WASHINGTON -- Federal Reserve Chairman Ben Bernanke said new steps announced by the central bank Sunday should help squeezed financial institutions get cash infusions-- a fresh effort to provide relief to a spreading credit crisis that threatens to plunge the economy into recession.

The central bank approved a cut in its lending rate to financial institutions to 3.25% from 3.50%, effective immediately, and created another lending facility for big investment banks to secure short-term loans.

"These steps will provide Finance Programs with greater assurance of access to funds," Bernanke told reporters in a brief conference call Sunday evening.

The new lending facility will be available to financial institutions on Monday.

It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25% and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the loans.

The steps are "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement. "Liquid well-functioning markets are essential for the promotion of economic growth."

The Fed also approved the financing arrangement announced Sunday in which JPMorgan Chase & Co. ( will acquire rival Bear Stearns Cos. The deal valued at $236.2 million, a stunning collapse for one of the world's largest and most venerable investment banks. The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.

Treasury Secretary Henry Paulson said he was pleased by Sunday's developments.

"Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said.

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Europe Longs for a Weaker Euro

Ever since the Euro was rolled out in 2002, champions of the currency have worked long and hard to establish the tender as a serious, strong rival to the dollar. Now many of those euro enthusiasts are growing nostalgic for the money's runtier days. Because with the dollar falling to a new record low of $1.5624 during trading Thursday, many European economists and business leaders are worried about how they'll ever be able to sell their products to customers who use dollars. The Euro sign has become an alarm for "expensive."

Commentators in Europe point out that the dollar's continued slide against most international currencies has largely been fueled by domestic American factors — notably the credit tension and business failures in the wake of the subprime crisis, and wider signs that the U.S. has or is entering into recession. But plummeting investor confidence in the American economy has only accelerated the greenback's erosion, which in a little over two years has depreciated from $1.1826 per euro in January, 2006 to Thursday's $1.56. The result is that products manufactured by companies paying euro-fixed salaries and supplies wind up in stores with dollar-denominated price tags looking prohibitively expensive to shoppers.

For example, A Dolce & Gabanna woman's watch marked down on Bestfinancnews.com France to 192.72 euros — or $300 — is hardly a bargain compared to the same watch on Amazon's U.S. site selling for $225. Why should dollar-spenders even think of shopping Europe? On the other side, the profits European companies make on dollar sales are shrunken by the time they get converted back to euros. For the euro-zone economy with a projected growth rate of only around 2% in 2008, the upshot is a major pinch on export revenues threatening to stunt growth even more.

That discomfort is especially great on companies and countries that have been slow to reform their economies — such as France and Italy, whose considerable price tags for cars, trains, airplanes, luxury goods and food products have become absolutely daunting once they've traversed the euro-dollar exchange. In places like the Netherlands, Germany, and Austria — where enormous pressure on salaries and production costs have made goods and companies more competitive in recent years — the rise of the euro has been less catastrophic, though only in relative terms. Whereas Germany has watched the plummeting dollar eat at its healthy trade surplus, France blames that slide for worsening its growing trade deficit. The consequences have been similar in both countries: as BMW warned that the 5,600 jobs it was eliminating as part of a cost-cutting plan would increase if the euro surged substantially beyond $1.50, plane maker Dassault said it might have to follow the example of other heavy manufacturers in Europe by shifting production to dollar-dominated markets to save money.

JPMorgan acquires troubled Bear

The deal values Bear Stearns at just $2 a share. Regulators hope purchase will stave off wider chaos in financial markets.

NEW YORK (CNNMoney.com) -- JPMorgan Chase & Co. said Sunday that it would acquire troubled Wall Street firm Bear Stearns for a mere fraction of what it was once worth amid deepening fears about further erosion of the world's financial markets.

But the reaction of stock markets in Asia was not promising: Major indexes were selling off, with the market in Hong Kong down nearly 5%.

The all-stock deal values Bear Stearns at $236 million, or just $2 a share. The company's stock had closed at $30 on Friday, down a staggering 47% for the day.

Regulators support the deal and the Federal Reserve provided $30 billion in funding: With the global credit crisis worsening, the Fed has been taking dramatic action to help banks and prevent widespread panic.

Over the past three days, roughly 200 JPMorgan staffers were working on the deal, assessing the strengths of Bear Stearns' different businesses and its exposure to toxic mortgage securities, JPMorgan executives said during a conference call held Sunday night.

They noted that the offering price, which comes at a steep discount to Bear Stearns book value price of $84 per share, was to provide a cushion to protect JPMorgan in turbulent times and would provide the company "margin for error."

The fire-sale price raises questions about the value of other investment banks.

"A $2 per share price will send a shudder through every investment bank investor in the world," said James Ellman, head of San Francisco-based Seacliff Capital, a hedge fund specializing in financial services. "Many will say that stand-alone investment banks' days are numbered."

That could spell trouble for firms such as Lehman Brothers and Jefferies Group, which, like Bear Stearns, don't have large asset or wealth-management businesses for support. These divisions are helping prop up firms such as Morgan Stanley during these tough times on Wall Street.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan (JPM, Fortune 500) and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan. Bear was dealing with a classic run-on-the-bank: The firm's short-term creditors refused to lend the firm any more money and simultaneously demanded repayment of outstanding debt.

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

The fast-track deal, which is expected to close by the end of June pending shareholder approval, is expected to generate roughly $1 billion in after-tax earnings for JPMorgan over the next 12 to 18 months.

JPMorgan says it will buy ailing Bear Stearns for $2 a share, or $236.2 million

NEW YORK - JPMorgan Chase said Sunday it will acquire crippled rival Bear Stearns for a bargain-basement $236.2 million - or $2 a share - a stunning collapse for one of the world's largest and most storied investment banks.

The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.

The U.S. Federal Reserve and the government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened. Early indications, though, pointed to continued fear about the stability of the U.S. market, as the dollar hit fresh record lows against the Euro, gold broke through $1,015 an ounce and Asian stocks sank.

"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."

The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets. Meanwhile, JPMorgan said it will guarantee all business - such as trading and investment banking - until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter.

JPMorgan Chase chief financial officer Michael Cavanaugh did not say what would happen to Bear Stearns' 14,000 employees worldwide or whether the Bear Stearns name would survive. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns' prime brokerage business, which completes trades for big investors such as hedge funds.

Risky bets on securities tied to subprime mortgages - loans given to customers with poor credit history - crippled Bear Stearns, the nations' fifth-largest investment bank. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis.

At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 per cent from 3.50 per cent and created another lending facility for big investment banks. The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to two per cent.

"Having taking Bear Stearns out of the problem category, and the strong action by the Federal Reserve, we would anticipate the market will behave quite differently on Monday than it was Thursday or Friday," Cavanaugh told analysts during a conference call.

Some analysts expected it to be a brutal day for global stocks, nevertheless. Japan's benchmark Nikkei stock index has plunged more than three per cent in morning trading.The Nikkei 225 stock index fell 407.81 points, or 3.33 per cent, to 11,833.79 on the Tokyo Stock Exchange shortly after the market opened Monday.

A collapse of Bear Stearns could have heightened anxiety in world financial markets amid a deepening credit crunch. JPMorgan's acquisition of Bear Stearns represents roughly one per cent of what the investment bank was worth just 16 days ago.

The deal marked a 93.3 per cent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 per cent discount to its book value as of Feb. 29. The company is set to report its first-quarter results after the closing bell on Monday.

Bear Stearns shares closed Friday at $30 a share. At their peak, the shares traded at $159.36.

"The past week has been an incredibly difficult time for Bear Stearns," said Bear Stearns chief executive Alan Schwartz in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."

Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of the world's largest investments bank - it was a prop for the U.S. economy and the global financial system. An outright collapse could cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.

The government, led by the Treasury Department and the Fed, was reported to have closely monitored the talks between JPMorgan and Bear Stearns. Treasury Secretary Henry Paulson, former chief executive of Goldman Sachs Group Inc., "has been in nearly continuous consultations all weekend," said Brookly McLaughlin, a Treasury Department spokeswoman.

After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.