LONDON (MarketWatch) -- Shares in Allied Irish Banks continued their recent slump Tuesday, falling as much as 24%, ahead of a critical government announcement that could leave the firm majority-owned by taxpayers.

After markets close Tuesday, the government will announce details on the discount that will be applied to loans being transferred to the National Asset Management Agency -- the country's "bad bank" which is buying up risky assets.

In addition the financial regulator will also give details on the new capital ratios that are going to be required of banks.

Irish Finance Minister Brian Lenihan is expected to announce the banking sector will need a further injection of around 16 billion euros ($21.6 billion) to meet the capital requirements, according to media reports.

That's likely to result in the government holding a stake of 70% or more in Allied Irish Banks and around 40% in Bank of Ireland , reports indicated.

"Today is probably one of the biggest days for the Irish economy for decades," said Stephen Taylor, a strategist at Dolmen Stockbrokers.

"It looks like capital ratios are going to have to go up by more than expected. It looks like they are going to try and take all the pain now, get everything out and try and bulletproof the financial systems for coming years," he added guaranteed pay day loans.

Shares in AIB dropped 13.6% Tuesday, having fallen as much as 24% earlier in the session. The stock has dropped a total of 34% over the last three sessions, almost wiping out strong gains since the start of the month.

Shares in Bank of Ireland were broadly flat, having dropped 10.1% in the previous session.

"Bank of Ireland doesn't need as much money as AIB as their development loans weren't as bad," said Taylor.

The state currently has a 25% potential stake in both banks held in the form of preference shares, which could be converted into common stock as part of the plan to be announced Tuesday by Lenihan. It also has a 16% stake in the common stock of Bank of Ireland.

Goodbody Stockbroker analyst Eamonn Hughes said in a note to clients on Monday that he expects AIB will need another 4.7 billion euros to 4.8 billion euros of equity assuming that it sells assets to NAMA at a 35% discount to their face value.

Bank of Ireland is likely to need around 3 billion euros of additional equity if it sells its assets at a smaller discount of 30%, he added.

Fears of government role crush Allied Irish Banks

FRESNO, Calif. – One of the dirty secrets of California's wine country is now on everyone's lips.

Somehow a voracious grape-eating moth has found its way nonstop from Europe to the heart of the Napa Valley, the land of three-figure cabernet. With valuable fruit at risk, the region's fast and loose play with federal agriculture quarantine laws is getting new scrutiny from investigators and researchers.

Suitcase smuggling is the winked-at act of sneaking in cane cuttings to clone vines from France's premier vineyards, hoping to replicate success. Vintners say it helped build a handful of exceptional vineyards in the 1980s when U.S. plant choices were limited and import testing took seven years.

As California clamps a quarantine across the heart of Napa Valley and farmers ready their pesticides, nobody is winking anymore. A new Napa reality is setting in_ that lax attitudes invite costly invasions of new pests that can threaten the country's most expensive and economically productive farmland.

"There are people who continue to spin their tales of smuggled plant material. People like a story with a glass of wine, and what that tends to do is legitimize behavior that not only threatens the industry, it's illegal," said Greg Clark, deputy agricultural commissioner for Napa County. "Knock it off."

A handful of California's best vintners today admit to having used "suitcase cloning" to avoid yearslong waits in USDA quarantine for their vines.

Their stories of success after stuffing cane buds down pants legs and in backpacks romanticized an outlaw behavior that, even if it's not directly responsible for a coming wave of vineyard spraying over most of Napa Valley, has reminded growers that one person's miscalculation can affect them all.

"The question is 'Who brought it in?" asks Jim Lincoln, who manages 400 acres of grapes in the quarantine area.

Theories are swirling around Napa like cabernet in a Riedel glass: smuggled grape cuttings; imported vineyard machinery mislabeled to avoid scrutiny, as is suspected in Chile's similar outbreak, or, even more sinister, a deliberate introduction to gain an edge in a region where an acre of fruit can sell for $15,000 and more.

"Even small percentage or a fraction of a percentage in market share has the potential to benefit someone financially," said Clark.

Agricultural officials say that had the European grapevine moth (Lobesia botrana) innocently evaded inspectors on a container ship, the first trapping of the grape eater would have been near a port quick cash. Instead the pest that has proliferated across European vineyards appeared last September in the heart of the region where fine cabernet can fetch hundreds of dollars a bottle.

"My personal belief is that there are people who feel they are above the law and that they know better and therefore they'll bring in whatever they like," said USDA spokesman Larry Hawkins. "They flaunt it."

Steep fines and improved U.S. nursery stock since the 1980s now discourage the reckless suitcase smuggling practice, though authorities believe it still exists.

Today a grower seeking shortcuts would have to pass border inspectors and circumvent quarantines at UC-Davis' Foundation Plant Services, funded to test imported plants for pests and diseases.

"There are those who think that some of the virus problems suffered in Napa have been because of smuggling," said Plant Services director Deborah Golino. "The more we move plants around the world, the more chance there is of introducing problems."

Entomologists say the life cycle of the moth, native to Italy but found across eastern Europe and the Middle East, make it difficult for it to survive on cuttings, so the suitcase smuggling theory might not hold up, despite the talk.

"I'm not saying that people don't still try to get suitcase wood in, but in this instance I'm not sure the pest would be transported like that," said Monica Cooper, the Napa County viticulture farm adviser.

Investigators with the USDA's Agriculture Plant Health Inspection Service say they may never know for certain how the moth traveled to wine country.

Traps to pinpoint the infestation are set 25 per square mile across Napa Valley as they begin to swarm in warmer weather, and less intensively in California's other grape regions.

Investigators from the USDA's Smuggling Interdiction and Trade Compliance unit are checking everything from vineyards to shipping manifests to try to find the breech in order to plug it. The task isn't easy.

"When it comes to individuals smuggling, that's a whole lot more difficult than searching a cargo ship," Hawkins said. "Looking for the source among tens of thousands of vines is like looking for a needle in a haystack."

Moth forces wine country's secret into the open

LONDON (Reuters) – Oil tried to sustain forays above &&6;81 with Brent briefly jumping over &&6;1 as confidence over a deal to help debt-ridden Greece was tempered by worries the global recovery could still falter and keep crude demand weak.

Euro zone leaders agreed on a safety net for Greece with the International Monetary Fund late on Thursday -- a move which pulled the euro off 10-month lows and revived investor appetite for riskier assets, including commodities.

"The EU deal contributed to rising risk appetite, a weaker dollar and thus rising energy prices," said Carsten Fritsch, analyst at Commerzbank.

The euro rallied off a 10-month low against the dollar after the agreement, but the plan did not alleviate longer-term worries about Greece and other fiscally vulnerable economies in Europe, limiting market moves.

U.S. crude for May delivery rose for the first time in three days and bounced over &&6;81 and by 1126 GMT (7:26 a.m. EDT) was up 73 cents to &&6;81.26 per barrel. ICE Brent touched a high of &&6;80.68 and then slipped back to show gains of 88 cents at &&6;80.49.

"The European cacophony is not over," said Olivier Jakob at Petromatrix in a note. "Trading in (U.S. crude futures) is likely to be dominated again by reaction to the ... plan for Greece," he added.

Commerzbank&&9;s Fritsch said financial investors were stepping into the market around &&6;80 as they continued to bet on a rise in demand led by Asia, supported by tentative signs of recovery in the United States as product stockpiles declined business card.

But the fundamental supply and demand picture remained weak, he added, providing a likely cap of around &&6;83 on prices.

"There&&9;s still a risk of a large oversupply in the second quarter leading to a further build in stocks," he said, given a rise in U.S. crude oil inventories and signs that OPEC pumped even more oil in the four weeks to April 10.

Oil market players will watch for indications on the U.S. recovery from gross domestic product (GDP) data for the fourth quarter due at 1230 GMT and from a barometer of consumer sentiment for March by the University of Michigan, expected at 1355 GMT (9:55 a.m. EDT).

A report on Thursday showing the number of U.S. workers filing for jobless aid fell sharply last week helped push Japan&&9;s Nikkei average higher on Friday, mirroring gains in the Dow and S&P 500.

"The initial jobless claims was a very encouraging sign," said Clarence Chu, an energy trader at Hudson Capital Energy in Singapore. "If the number of unemployed people drops, it will be a big boost for oil."

(Editing by Sue Thomas)

Oil pivots around $81 as euro reacts to Greek plan

KANSAS CITY, Mo. – In a neighborhood dotted with boarded up homes, trash and gang graffiti, McCoy Elementary has been an oasis.

Now that the 94-year-old school is closing, residents are fearful that the neighborhood could become even worse, attracting drug dealers and vandals when the children are gone. McCoy is among the roughly half of Kansas City district schools expected to shut down before class resumes next fall, part of a wave of school closures across the country.

"When it does close, it's going to get bad around here," said Virginia Stanley, standing outside her home with her husband, her 22-year-old granddaughter and her two young great-grandchildren, who live with them.

Superintendents of struggling districts are winning praise for confronting budget woes by shuttering half-empty and underperforming schools, a move often blocked by local politics in the past. In many cases, the schools have been declining for years, but were never closed because residents and local advocacy groups fought to keep them. Now school leaders have an argument that trumps any parent outrage: The struggling economy makes these schools a luxury that districts can no longer afford.

About 6 percent of districts closed or consolidated schools this year, compared to about 3 percent in 2008-09, according to a survey conducted by the American Association of School Administrators. About 11 percent are expected to consider similar moves in 2010-11.

"It's going to continue because we don't see any short-term turnaround in the economy that would improve the situation for schools," said Dan Domenech, executive director of the American Association of School Administrators.

Kansas City's move earlier this month created waves because of how many of its schools will close. Detroit followed suit last week by moving to close nearly a quarter of its schools in a desperate bid to erase a $219 million budget deficit.

Before the Kansas City vote, civic leaders placed a full-page ad in the Kansas City Star to show support for the plan. Meanwhile, budget-balancing efforts in Detroit have won praise from Mayor Dave Bing and various parents' rights groups.

But residents in both cities say the cost-cutting has a price, robbing residents of a community resource, a meeting space for civic groups and a point of pride in otherwise blighted neighborhoods.

Kansas City residents complain that schools closed in years past have sat vacant, attracting vagrants. This time around, officials have vowed to do better finding suitable uses for closed buildings, but residents are wary.

Already, McCoy Elementary attracts drug users in the summer when classes aren't in session, Stanley's husband, James, says.

"Your property, I don't think it's going to be worth anything when you close the school," he said.

Closing schools is an unpopular business. Most have prominent local alumni to battle closures, along with sympathetic teachers, parents and kids to offer heartfelt pleas for survival. Often, many districts put it off even though operating underused buildings soaks up money that could be spent on teachers and other vital resources easy payday loans.

After years of declining enrollment and contentious debate, Seattle closed schools in 2006 and 2009 — fewer than a dozen each time. The debates and parent protests were so raucous that security officers escorted parents from school board meetings after the booing or shouting got too loud. District leaders said the plans would strengthen academics at remaining buildings and give students in some neighborhoods better access to special programs.

Recent trends are overwhelming such politics, forcing the hands of reluctant school boards or empowering reform-minded superintendents. The recession has sapped district budgets of any excess money. Charter schools are attracting children away from traditional school buildings. And new national reform efforts encourage districts to close or restructure low-performing schools to qualify for federal grants.

"One consequence of some of those reforms is that more conventional, traditional public schools will have to close," said Michael Van Beek, education policy director at the libertarian-leaning Mackinac Center for Public Policy.

In Detroit, an emergency financial manager has been brought in to straighten out the district's ailing finances. Meanwhile, Kansas City administrators wanted closures to avoid using up what little is left of the $2 billion it received as part of a groundbreaking desegregation case.

In suburban Atlanta, the DeKalb County school district is looking at closing as many as 12 schools over the next two years to help close an anticipated $88 million deficit.

In New York, 19 schools are expected to be closed for poor performance. The nation's largest school district has closed 91 schools since 2002, converting many to smaller schools or charters.

In the Milwaukee Public Schools, five or six schools are expected to close this year, spokeswoman Roseann St. Aubin said. The district already has closed about six schools each year since 2005 because of decreasing enrollment.

The moves are money-savers, but they're gut-wrenching propositions for communities.

In rapidly shrinking Detroit, times were already tough before Sherrard Elementary, a few miles north of downtown, closed in 2007. Vacant lots where homes were burned and torn down had started to spread, as did the number of abandoned houses.

But there was the laughter of children rising above the squalor until the school was shuttered by a district feverishly trying to save money.

"People watched out for the neighborhood because they were watching the kids," said 51-year-old Ray White. "The neighborhood is basically gone now, and I don't think there is any survival in this neighborhood."

___

Associated Press writers Corey Williams in Detroit, Dinesh Ramde in Milwaukee and Donna Gordon Blankinship in Seattle contributed to this report.

Bleak budgets force schools to consider closure

LONDON (MarketWatch) -- U.S. stock futures pointed to a weaker start Monday with the insurance and pharmaceutical sectors in the spotlight as the House of Representatives passed a health reform bill, while continued jitters around Greek finances and India's rate tightening also played a role.

S&P 500 futures fell 9 points to 1,147.30 and Nasdaq 100 futures dropped 12.25 points to 1,920.00. Futures on the Dow Jones Industrial Average fell 65 points.

WSJ's Peter Landers details how the Obama Administration's health-care reform, which passed 219-212 in the House of Representatives Sunday night, will lead to great changes in the way millions of people find and buy health insurance.

An eight-session winning run for the Dow Jones Industrial Average had come to a halt on Friday as India unexpectedly hiked interest rates and as Palm shares plunged in the wake of a weak sales outlook. The Dow industrials fell by 37 points, the S&P 500 fell 5 points and the Nasdaq Composite dropped 16 points.

Another drop looked set as the House of Representatives voted for a health reform bill by a narrow margin. See full story.

Analysts at U.K. broker Panmure Gordon, who follow AstraZeneca and GlaxoSmithKline , estimate the bill will cut earnings per share by 1 personal loan for poor credit.5% to 2.2% each year for the first five years of the bill's enactment. But they recommend buying both, noting attractive valuations and dividend yields.

Besides health-related stocks, Greece also was a focus as German Chancellor Angela Merkel told a radio station that markets shouldn't expect a Greek aid package when European leaders gather later this week. The euro weakened vs. the dollar, and Greek bonds widened relative to German ones.

Williams-Sonoma and Tiffany & Co. headline Monday's set of earnings reports. Data Explorers reports that the percentage of Tiffany stock on loan has doubled over the last month to 5%.

Credit Suisse dropped over 2% after restricting banker travel to Germany, following an investigation by the country into 1,100 customers and staff. See story.

Asian stocks dropped in their first opportunity to react to the Indian rate hike news, and Europe stocks dropped for the third straight session. See Asian markets.

Oil futures fell below $80 a barrel, and metals contracts also declined.

Indications: U.S. stock futures point to weaker start

LA HABRA, Calif. – Octuplets mom Nadya Suleman could be kicked out of her Southern California home.

Mortgage holder Amer Haddadin says he is starting foreclosure proceedings on the $565,000 La Habra residence because the family hasn't kept up the payments.

His friend and adviser, Ramsey Masso, said Friday that Haddadin signed over the home to Suleman's father last year.

Ed Suleman, who leased the home to his daughter, was supposed to pay about $4,000 a month and a final balloon payment of $450,000 that was due earlier this month easy online payday loans.

Masso says the family was late on recent payments and also missed the balloon payment.

Calls to the Suleman's attorney, Jeff Czech, weren't immediately returned.

Mom of octuplets may lose home to foreclosure

WASHINGTON – For the super-rich and everyone else, the economic recovery is taking place in two very different gears.

A British company is betting there's a market in North America for a $200,000 sports car built with Formula One race technology, announcing Thursday that it will unveil the very expensive new toy late next year.

"Following any recession, there's a resurgence," said Ron Dennis, chairman of McLaren Automotive. "We intend to catch that wave."

For most people, though, the economy's still a clunker. A new Labor Department report said more than 11 million Americans are now getting unemployment benefits.

The number of first-time claims for unemployment fell last week for the third time in a row, a sign the job market is slowly healing. But claims remain above levels that would signal the economy is actually generating new jobs.

There are other signs of the economic split:

&S226; Luxury clothing stores outpaced others last month and brought in more money than expected. At Nordstrom, sales at stores open at least a year surged 10.4 percent. Sales only rose 2.4 percent at Target, and 1.2 percent at J.C. Penney.

&S226; Business at high-end hotels is coming back much faster than at mid-price or budget hotels, says Patrick Scholes, an analyst at FBR Capital Markets. Revenue at luxury hotels was up 7.7 percent last week from a year ago. At less fancy hotels, revenue fell.

&S226; While overall U.S. auto sales were up 13 percent for February, luxury brands did even better. Revenue rose 32 percent for General Motors' Cadillac brand, nearly 14 percent for BMW and 17 percent for Honda's Acura. Sales of the Lexus were up 5 percent while overall sales at Toyota fell because of widespread recalls.

Confidence in the economy has risen most among wealthier Americans, said Jonathan Basile, an economist at Credit Suisse no fax payday loans. Rising stock prices are helping: The S&P 500 index has surged more than 70 percent since its bottom last spring.

Inflation, meanwhile, has all but vanished. Consumer prices were flat in February. The absence of inflation allows the Federal Reserve to keep the short-term interest rate it controls at a record low to nurture the economic recovery.

One reason for the rebound in upscale corners of the economy is that Americans with jobs now worry less about losing them. Layoffs have slowed, and the jobless rate, now at 9.7 percent, appears to be leveling off.

Lynnae McCoy, who runs a money-saving blog called beingfrugal.net, said she's noticed a difference in sentiment between readers who have jobs and those who don't.

A year ago, when the stock market sank to 12-year lows, "there was lots of panic" among her readers. Those out of work are still taking extreme steps, such as making their own detergent. But those who still have jobs aren't as interested in clipping coupons.

McLaren, meanwhile, is banking on renewed spending to bolster demand for its MP4-12C sports car, which will go on sale in late 2011 with a price of 125,000 to 150,000 pounds — as much as $228,000 at today's rates.

The company plans to make up to 1,000 of the cars next year, with up to 40 percent being sold in North America.

"Our volumes are very much linked to how we see the recovery," Dennis said.

__

AP Writers Jane Wardell in London and Anne D'Innocenzio and David Brinkerhoff in New York contributed to this report.

Two-track economy: 9.7% unemployment, $200K cars

MADRID (MarketWatch) -- Switzerland has deftly managed to sidestep much of Europe's crisis-laden period, but its central bank and some companies are facing battle on another front as investors drive up its currency.

Switzerland's SMI index of blue-chip stocks is up 45% over 12 months, trailing a 53% gain for the pan-European Stoxx 600 index, through Monday afternoon.

However, year-to-date, it's up over 4% versus a 1% gain for the pan-European index, with other major regional indexes around Europe either in negative territory or flat.

Meanwhile, investors fleeing euro-related uncertainty have piled into the Swiss franc, which is up 4% from December, with the value of a euro falling from 1.51 francs to around 1.45 francs.

The Swiss National Bank said last week it would continue to "act decisively to prevent an excessive appreciation of the franc against the euro," in a statement after its monthly meeting. The central bank is believed to have drawn a line in the sand at 1.45 euros against currency speculators. See full story.

The central bank is battling sentiment that rates will go higher soon as Switzerland's economy has recovered faster than its Europe neighbors. Rate hikes generally tend to cause home currencies to rise.

"The investment case in general is that now we are at a very critical 1.45, 1.46 (francs)," said Panagiotis Spiliopoulos, head of research at Vontobel in Zurich, Switzerland. "1.55 is what Swiss companies would like. Everything below 1.50 is really hurting companies."

"It's an issue for every company because Europe is a very important region for all Swiss companies," he said, adding that more than 60% of all Swiss company exports go to the euro zone. Companies with production in Switzerland and the largest export market in the euro zone, hence, get hit by double translation effects.

Global Dow

"For those that have an imbalance between cost structure and revenue distribution, such as 80% of their cost base is in Switzerland, but 60% of their revenue is in the euro zone, they also get a hit on the margin," he said.

Of course, investors have to consider there are varying degrees to which many of Switzerland's global companies will be affected by a strong franc. Spiliopoulos said food giant Nestle , for example, is less vulnerable to big hits a single currency movement because it has a "wide range of exotic currencies with usually high volatility."

And Swiss power and automation technology group, ABB , derives 50% of its orders from emerging markets, making a weak euro less crucial, as for a traditional machinery maker or building supplier, he said.

But David Hussey, head of pan European equities at MFC Global Investors, said a strong Swiss franc won't help overseas sales translations for a company like Nestle and will hit emerging market sales, a major growth plank for them business card templates. He owns Nestle, Credit Suisse , Novartis and Roche .

"Credit Suisse is more exposed to the franc/dollar rate as the bulk of the investment assets are denominated in dollars and a similar issue arises for the pharma stocks Novartis and Roche who report in dollars," he said in emailed comments.

"The overwhelming challenge for managements to combat this is to be as efficient as possible -- a similar issue the Germans have had to deal with to realign their labor cost competitiveness problems, and of course as far as possible to align manufacturing with end sales so that the currency issue is minimized, but this an issue most global companies are faced with," said Hussey.

Ralf Rybarczyk, who manages Swiss equity funds for DWS, said 85% of companies listed in Switzerland's main stock market are mid-caps. It's a case-by-case basis, when looking at currency effects, he said.

"Most of them are focused on the outside on foreign markets like Europe, South America and Asia. You have to look at the other markets at the currency exchange rates, look at what the sales markets are really doing abroad to judge the financial situation of the company," said the Frankfurt-based manager.

He said Switzerland's smaller companies are often very well financed that they can weather the storm much more.

One company that he owns is Europe's biggest maker of toilet-flushing systems, Geberit . The company said in an update March 11 that it doesn't see a recovery in its markets before 2011. In Swiss francs for 2009, its total Europe sales fell 11%, or dropped 6% when adjusted for currency translation effects.

Rybarczyk said a lot of Swiss companies in the industrial sector such as Geberit have been surprising on the margin side. "You see the top line is still sluggish, but the bottom line is doing quite well because of the efficiency of companies has increased so much."

At the end of the day, what Switzerland does offer investors is an independent currency, fiscal policy and monetary regime. "This independence on the one hand and on the other hand the flexibility to act are very, very strong weapons."

He said the Swiss stock index delivers high expected annual returns and low volatility, largely because of big defensive blue chips such as Nestle and pharmaceutical group Novartis . Those two stocks, both in his top ten holdings, remained flat in 2008 when the rest of global markets were crashing he said.

Allan Nichols, Chicago-based international equity analyst at investment researcher Morningstar Inc. said it's worth noting that a lot of Swiss companies held up better from mid-1997 to the bottom in March 1999.

"They didn't drop as much and didn't rise as much later on, and now they're holding up better than others. Concerns in Europe over the sovereign credit issue have brought a lot of fear into a lot of Europe.

"You don't have those sovereign fears in Switzerland," said Nichols.

European Stocks to Watch: Swiss stocks: A currency mountain or molehill?

WASHINGTON – Congressional Democrats want a stalled overhaul of college aid programs to get strapped onto a fast-track health care bill, giving both Obama administration priorities a better chance of passage.

The student loan measure would be the biggest change in college assistance programs since Congress created them in the 1960s. The bill would end federal subsidies to private lenders and have the government originate all loans to needy students.

Democrats in the House and Senate were working to incorporate the legislation, which passed the House last September but bogged down in the Senate, into a single, expedited budget bill that could pass in the Senate with a simple majority.

After a presidency marked by stalemate, the strategy would give President Barack Obama the best opportunity to achieve simultaneous victories on two of his top priorities in a single, swift act of Congress.

Consolidating the college aid package with health care would create a double sweetener for Democrats. It would make it easier to pass the college aid plan in the Senate, where it seemed unable to muster 60 votes to overcome procedural hurdles. And it would give House Democrats a popular incentive to ease their anxieties over voting for health care changes.

The health care bill "is a controversial, difficult bill for a lot of people," said Rep. Robert Andrews, D-N.J. "The more things that you can go home and say were in the bill that are sort of universally popular, yeah, it helps."

Sen. Tom Harkin, the chairman of the Senate Health, Education, Labor and Pensions Committee, said lawmakers had an opportunity for a "twin victory" by joining the student loan measure to the health care package.

And White House spokesman Robert Gibbs said the budget package, known as a "reconciliation bill," would be a means to pass the student aid plan. "This is an important reform for the president," he said.

To ease the way for the far-reaching health care legislation, Democrats have had to resort to a fast-track process. The House would pass an already approved Senate version of the bill, then use a separate measure to make changes more to their liking. Under the special process, Senate Democrats could approve that second "fix-it" bill with a simple majority.

Momentum for linking the health and college aid measures increased Thursday when the Senate parliamentarian ruled that any budget package that made budgetary fixes to health care would also have to include adjustments to legislation under the jurisdiction of Harkin's committee fast cash without a hassle.

By ending subsidies to banks and other private lenders, the original House bill would have saved $87 billion between 2010 and 2019, with the money used to provide needy students with Pell Grants. But colleges have been shifting to more direct government lending, already reducing the subsidies paid by the government to private lenders. As a result, the savings for 2011-2020 are now estimated at $67 billion.

At the same time, a spike in higher education enrollment caused by the bleak job market has created a massive shortfall in the Pell Grant program.

The student loan plan also would pay for construction at K-12 schools and for new preschool programs.

House Education and Labor Committee Chairman George Miller, D-Calif., said the student loan measure would have to undergo adjustments to address the new, smaller savings picture, likely reducing the size of the grants and other spending. He said Democrats would also address the Pell Grant red ink.

The bill initially envisioned using the subsidy savings to increase the maximum Pell Grant by $1,400 to $6,900 over the next decade. That number would have to be adjusted.

Adding the student loan measure in the Senate could cost Democrats a vote or two, but with the party controlling 59 votes, it can afford some erosion. Even a 50-50 split in the Senate would spell success for Democrats because Vice President Joe Biden would cast the tie-breaking vote.

Republicans broadly oppose both the student loan measure and the attempts to link it to the health care package.

"I'm not sure the public thinks this current debate is about that issue," said Senate Republican Leader Mitch McConnell, R-Ky. "And it would show again the lengths to which they were willing to go to have the government expand its tentacles into absolutely everything."

___

Associated Press Special Correspondent David Espo contributed to this report.

Democrats look to resurrect college aid plan

Years after Charles Ponzi was imprisoned for a fraud that cost victims millions of dollars in 1920, the state of Massachusetts determined it had recovered all the assets it could, and began to distribute them to victims, who stood to receive less than 30 cents for each dollar they invested.

To get the money, the victims had to turn over the notes they had received from Ponzi. But many of them refused to do so when the cash was offered in 1931.

Those who refused, wrote Donald Dunn in his book, “Ponzi, The Incredible True Story of the King of Financial Cons,” were “holding onto the belief that Ponzi somehow would yet make good on his promise of 50 percent interest.”

He did not.

That was probably not the first, and certainly not the last, example of what might be called “buyer’s denial.” It is the belief that somehow a fraud was not what it seemed to be, and that there was still a way to avoid losing the money the victim had foolishly invested.

“One has to ignore a lot of data to come to that conclusion. But that may be better than having to admit to yourself that it is over and you’re never going to get your money back,” said Dean G. Kilpatrick, the director of the National Crime Victims Research and Treatment Center and a professor at the Medical University of South Carolina. “It stands to reason that some would prefer to believe something else.”

To conclude that, it may be necessary to believe that there is some large conspiracy involving the government. Otherwise, why would prosecutors have wrongly claimed there was a huge fraud?

Perhaps the largest case of “buyer’s denial,” at least in terms of alleged damages, is in the fraud involving a tiny company known as CMKM Diamonds, which purported to have valuable diamond mining claims. In reality, what it had was a publicity machine, including the sponsorship of a car at “funny car” races around the country.

Several shareholders in CMKM — some of whom kept buying shares after the government exposed the fraud — want 10 current and former commissioners of the Securities and Exchange Commission to pay them $3.87 trillion, an amount equal to about half the United States government debt in public hands. You might think that would be enough, but the suit claims those are merely compensatory damages. They also want punitive damages, but do not cite a figure.

That is an impressive amount for a company whose last published balance sheet showed total assets of $344. That is dollars, not millions.

The tale the shareholders tell, in a lawsuit filed in January in federal district court in Santa Ana, Calif., is of a conspiracy involving not just the S.E.C., but also the Justice Department and the Department of Homeland Security.

Before getting into their view of reality, we’ll look at the record as developed in court cases filed by the S.E.C. and the Justice Department.

By their account, CMKM Diamonds illegally issued hundreds of billions of shares of stock, which insiders proceeded to sell into the market while the company issued a series of false news releases and failed to file required financial statements with the S.E.C.

With volume in the stock reaching billions of shares a day, the company needed an explanation for where all those shares came from. Disclosure that the company was simply printing them might have alarmed even the least astute investor.

CMKM came up with an explanation that would also be used later by another “pump and dump” fraud named Universal Express. It blamed “naked” short-selling by criminals who had sold shares they had not borrowed beforehand.

Eventually, the S.E.C. ordered a temporary halt to the trading, citing the lack of public information on the company auto loan interest rates. The insiders kept selling shares, earning a total profit of at least $64 million, according to the government.

The case stands as a tribute to the ineffectiveness of civil remedies against determined crooks. The S.E.C. sued the insiders in federal court in Nevada. Most of them did not bother to reply. The S.E.C. got an order requiring John Edwards, a British citizen said to be the mastermind of the fraud, to pay $55 million in restitution, damages and interest. He left the country.

Urban Casavant, the company’s chief executive and the man who ran the publicity machine, was ordered to pay almost $69 million, but did not. He moved to Canada.

Both of those men, along with four other people said to have been involved in the fraud, were indicted by a federal grand jury in Nevada. Mr. Edwards is fighting extradition from Britain. Mr. Casavant is a fugitive.

The other view of CMKM is advanced by A. Clifton Hodges, a lawyer in Pasadena, Calif. In his class-action suit representing shareholders, and in an interview, he maintained that the government had set up a sting to catch the criminals who were doing the naked shorting.

The government had, the suit says, “evidence that short-sellers were utilizing their activities to illegally launder moneys, wrongfully export moneys, avoid payment of taxes and to support foreign terrorist operations.”

The government supposedly set up a sting using the services of Robert Maheu, a former F.B.I. agent and associate of Howard Hughes, who briefly served as a director of CMKM and complained that he was not paid. Mr. Maheu has since died.

The government now should distribute to shareholders the money it made on the scheme, the suit maintains. It does not explain how it arrived at a number in the trillions.

Mr. Hodges told me he had evidence to back up his case, but would not reveal it now.

He said the suit is allowed under a 1971 Supreme Court decision that allowed victims of ostensibly improper searches by federal narcotics agents to sue the agents as individuals, even though they could not sue the government. He thinks that justifies suing everyone who was an S.E.C. member from 2004 to the present.

Mr. Hodges told me that he could produce testimony from an unnamed witness who had heard Christopher Cox, then the S.E.C. chairman, direct that no enforcement action be taken against CMKM. Mr. Cox declined to comment, citing the pending litigation, but it is worth noting that the S.E.C. did file enforcement actions against the company while Mr. Cox was at the helm.

Mr. Hodges told me he has the phone number of Mr. Casavant, the fugitive former chief executive, in the Canadian province of Saskatchewan, and had spoken to him. He would not provide the number.

While pursuing his own theory of what happened at CMKM, Mr. Hodges does not seem to have done an especially thorough job of keeping up with the official version. The federal indictment of Mr. Casavant was unsealed in September, six months ago. But when I spoke to him this week, Mr. Hodges told me that Mr. Casavant had not been indicted.

Because I had written about CMKM several years ago, several shareholders brought this suit to my attention. When I told one I believed that the suit was unlikely to succeed, another called to ask me if the government was paying me off to suppress the news.

If the suit is dismissed, those shareholders are not likely to conclude that the claim is nonsense. Instead, they probably will see the dismissal as proof of an even larger conspiracy. Buyer’s denial can be a powerful thing.

High & Low Finance: Dealing With Financial Fraud by Denying It

Filed at 12:58 a.m. ET

HONG KONG (AP) -- Cathay Pacific Airways Ltd. returned to profit in 2009 as cost-cutting measures and bets on fuel prices helped Asia's No. 3 carrier rebound from its biggest loss ever the year before.

Hong Kong's flagship airline reported profit of $4.7 billion Hong Kong dollars ($601 million) in the 12 months ended Dec. 31, the company said in a statement Wednesday.

That compared to a record loss of HK$8.6 billion ($1.1 billion) in 2008 amid plummeting demand for travel and volatile fuel prices that soured the company's hedging contracts.

For all of 2009, revenue declined by nearly 23 percent to around $HK70 billion (close to $9 billion).

Cathay said there was a pickup in passenger and cargo traffic as the recession abated but demand had yet to bounce back to levels seen before the slump.

Also helping the airline were measures it took to drastically reduce costs and the sale of part of its stake in Hong Kong Aircraft Engineering for $243 million infrared quartz heaters.

Higher fuel prices, meanwhile, helped the company recoup on its hedging bets. Cathay reported a gains of nearly $258 million last year on its hedging contracts.

"While we welcomed the improvement in business in the latter part of 2009, we remain cautious about the prospects for 2010," Cathay's chairman Christopher Pratt said in a statement

Passenger traffic at Cathay and its subsidiary Dragonair was down by 1.6 percent. Meanwhile, the company brought in about 30 percent less revenue from cargo traffic, with the amount of freight carried by Cathay and Dragon slipping around 7 percent.

Cathay shares were up 1.9 percent in afternoon trade.

Cathay Pacific Returns to Profit

The American International Group agreed Sunday to sell a second major insurance unit, this one to MetLife for about $15.5 billion, the two companies confirmed Monday. It was the second deal the insurer has struck in one week, raising about $51 billion to repay its taxpayer-financed rescue.

Now comes the hard part.

Even after wiping away $51 billion of debt, A.I.G. will owe roughly $50 billion to the government. That amount is likely to keep slowly growing, because the government made large sums available — $182 billion in a number of forms — when it came to the rescue. The company has not drawn down that full amount, but every few months it taps a billion or two billion more, to finance its restructuring or bolster its insurance units.

The boards of both companies met Sunday and approved the sale of the A.I.G. unit, the American Life Insurance Company, known as Alico, the people briefed on the matter said.

The two latest deals involve selling what the insurance giant has called its “crown jewels,” leaving it with no obvious pieces to sell off to raise big blocks of cash to pay the rest of the debt.

If the company continues to draw on its government assistance, it will have to make the value of its businesses grow even faster, in order to stay ahead.

“There’s a lot going on and it’s still uncertain,” said Bill Bergman, a senior equity analyst at the market research company Morningstar. He said the company’s revenue, in the form of insurance premiums, seemed to have stabilized in the fourth quarter, “and that’s helpful.”

But under the surface, he said it was hard to know how profitable the new insurance policies written by the company would prove to be. The insurance business is considered soft at the moment, with companies unable to raise their prices to increase profitability.

One way for A.I.G. to repay the rest of its bailout would be to eventually convert the government’s existing holdings of preferred stock in A.I.G. into common shares that could then be sold over time, according to a person briefed on the matter.

But investors’ appetite for A.I.G. stock is uncertain. A.I.G. was not profitable in 2009. About $5 billion of its approximately $11 billion loss for the year stemmed from a one-time accounting charge. Setting aside additional money in reserve to pay future claims caused $2.7 billion of its loss, the company said, something Mr. Bergman called “a red flag.”

But the purchase of Alico by MetLife also carries uncertainties. A. M. Best, a ratings firm that specializes in insurance companies, said in February that it was reviewing MetLife’s ratings, with a negative outlook, in light of the possible acquisition.

“There is uncertainty with respect to the impact on MetLife’s balance sheet, capitalization and financial metrics,” A. M. Best said in a statement.

Under the terms of the deal, MetLife will pay about $6.8 billion in cash, with the rest of the purchase being made in a mixture of common and preferred shares no teletrack payday loans. The first $9 billion in proceeds from the sale will go toward redeeming preferred shares in Alico held by the Federal Reserve Bank of New York, with the remainder to be used to reduce the New York Fed’s lending commitment to A.I.G.

For MetLife, the acquisition of Alico will give it instant access to dozens of international markets. Alico operates in more than 50 countries, with its largest operations in Japan and Britain. Other operations are in Latin America, the Middle East and other parts of Asia. It is expected to begin significantly adding to MetLife’s earnings per share in 2011, a person briefed on the matter said.

Stock analysts have said they will view MetLife’s foreign expansion favorably, because other big American life insurers like Prudential Financial and Aflac already have significant international presences. Through the sale, A.I.G. will initially hold about an 8 percent stake in MetLife, though it will essentially lack independent voting rights, these people said. As A.I.G.’s preferred shares are converted into common stock over the next few years, that stake could rise to more than 20 percent.

The deal is expected to close by the end of 2010, these people said.

The MetLife agreement came just a week after A.I.G. accepted an offer for its other big overseas life insurer, American International Assurance, from Prudential, a British company that is not related to Prudential Financial. The British company offered to pay about $35.5 billion for A.I.A., and the first $15 billion will be used to redeem another block of preferred stock held by the Federal Reserve Bank of New York. The remainder will reduce the Fed’s lending facility to A.I.G.

A number of steps remain before the New York Fed receives the full $50 billion from these two transactions. But if all goes as planned, the Fed’s lending commitment to A.I.G. will shrink to about $10 billion, from $35 billion, where it has stood since Dec. 1. The commitment was $60 billion before that, but the Fed reduced it by swapping $25 billion of the commitment for preferred equity in the two subsidiaries now being sold.

The company continues to take on fresh debt even now, more than a year after its government rescue. A.I.G. still cannot roll over its commercial paper, even as most other large companies have been able to end their reliance on a special program set up by the Fed when the credit markets froze in the fall of 2008.

The Fed has been winding down that program, so A.I.G. recently drew $3.1 billion from its lending commitment from the Fed and used the money to pay back the Fed’s commercial paper program.

That transaction increased A.I.G.’s borrowings from its New York Fed lending commitment to a total of $21 billion, from $17.9 billion at the end of the year.

A.I.G. Sells Unit to MetLife

LONDON – The European Central Bank left its benchmark interest rate unchanged at 1 percent for the tenth month running Thursday and confirmed that it will keep scaling back crisis lending measures even though the economy in the 16 countries that use the euro is barely growing.

The Bank of England also decided to keep its main interest rate on hold at the record low of 0.5 percent and held back from asking the government for the ability to pump more cash into the economy. Figures last week showed that the British economy grew by more than initially thought — albeit at only a quarterly rate of 0.3 percent — in the last three months of 2009.

Both central banks are expected to keep borrowing costs unchanged for much, if not all, of this year, as the recovery from recession proves to be far from electrifying. The U.S. Federal Reserve has taken a similar stance, withdrawing some special measures but indicating rates are not going up soon.

While the Bank of England issued a limited statement, providing no explanation for its decision, the European Central Bank president Jean-Claude Trichet told a press briefing that the recovery in the eurozone was "on track" but likely to "remain uneven" — figures earlier confirmed that the economy grew by a paltry 0.1 percent in the last three months of 2009 as the recovery in Germany stalled and Italy contracted once again.

"Overall, the governing council expects the euro area economy to grow at a moderate pace in 2010, in an environment marked by continued uncertainty," Trichet said.

Trichet said the ECB expects growth this year to be between 0.4-1.2 percent, against December's forecast of between 0.1-1.5 percent. For 2011, the ECB expects growth of 0.5-2.5 percent, up from December's forecast of 0.2-2.2 percent.

Trichet also said price developments "remain subdued" and that the ECB expects inflation to be around 1 percent in the near-term, below the target of below, but close to 2 percent.

Despite the fairly modest economic recovery taking place in the eurozone, Trichet confirmed that the Bank will continue to get rid of cheap bank lending operations introduced when the financial crisis first exploded — these were designed to allow the commercial banks to have access to money at a time when the credit markets had seized up cash advance.

"The gentle exit continued with the ECB further phasing out its crisis liquidity measures," said Carsten Brzeski, senior economist at ING Belgium.

Trichet said the ongoing improvement in financial market conditions and the need to prevent distortions in the provision of credit were behind the decision to scrap a 6-month credit offering at the end of this month, and to return to the pre-crisis practise of offering shorter-term loans at a variable rate and not at the benchmark 1 percent rate.

However, Trichet insisted that support to the eurozone banking system remained generous, especially as the bank will continue to provide unlimited money in its one-week offering at the benchmark rate of 1 percent — at least until Oct. 12.

"All these measures aim to provide the banking sector with the necessary tools to ensure a smooth transition to more normal conditions in the money market," said Frederik Ducrozet, eurozone economist at Credit Agricole.

Trichet also praised Greece's latest set of budget cuts announced Wednesday and repeated his previous comment that the country's departure from the eurozone was an "absurd hypothesis."

He said the ECB was "making a very positive judgement" about Greece's decision Wednesday to slash its budget by a further euro4.8 billion this year and dismissed suggestions that the International Monetary Fund should play a more prominent role in the Greek crisis by stumping up cash.

"I do not trust it would be appropriate to have the introduction of the IMF as a supplier of help through standby or any kind of such help," Trichet said.

ECB holds rates, withdrawing some crisis measures

LONDON &S212; Could Britain be on the verge of a debt panic?

The fiscal crisis in Greece and a growing worry that the coming elections here could result in a hung Parliament, with no political party strong enough to push through unpopular deficit-cutting measures, have sparked fears that Britain will experience its own sovereign-debt meltdown. In such an event, foreign investors would sharply cut back on their purchases of British government bonds, leading to an interest-rate spike and a potential double dip-recession, if not worse.

&S220;If you really want a fiscal problem, look at the U.K.,&S221; said Mark Schofield, a fixed-income strategist at Citigroup. &S220;In Europe the average deficit is about 6 percent of G.D.P. and in the U.K. it&S217;s 12 percent. It is only just beginning.&S221;

Since the Labour government&S217;s intense fiscal intervention in 2008 and 2009, yields on British government debt have soared to among the highest in Europe. And on a broader scale, which includes the borrowing of households and companies, the overall level of debt in Britain is the second-largest in the world, after Japan&S217;s, at 380 percent of the country&S217;s gross domestic product, according to a recent report by the consulting company McKinsey.

In recent weeks, the focus of attention has been on debt scofflaws in Europe like Greece, Portugal and Spain, countries where borrowing costs have shot up in line with their burgeoning deficits as investors demanded higher rates to compensate them for the added risk of lending the governments money.

But the recent plunge in the value of the pound below $1.50 and the gradual move upward of Britain&S217;s benchmark 10 year borrowing rate on government bonds, or gilts, to above 4 percent suggest that investors are now getting ready to reassess the country&S217;s fiscal condition.

On Tuesday, the pound was at $1.4977 and the yield on 10-year gilts was down 6 basis points at 4.02 percent. That followed a big fall in the value of the pound Monday, after polls released over the weekend indicated that the opposition Conservatives had lost their clear lead in the election race.

Britain is not in the 16-nation euro zone and, unlike Greece and other struggling countries that use the currency, it retains control over its monetary policy. As it result, it has benefited so far from a huge bond-buying program undertaken by the Bank of England &S212; proportionally, the largest in the world &S212; that has kept mortgage rates and gilt yields at unusually low levels.

That means the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation.

Indeed, the increase in private and government debt here contrasts sharply with the deleveraging that has been going on in the United States.

British household debt is now 170 percent of overall annual income, compared with 130 percent in the United States. In an echo of the U.S. rush into subprime mortgages with low teaser rates, millions of homeowners in Britain have piled into variable-rate mortgages that are linked to the rock-bottom base rate.

As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. &S212; equal to Greece&S217;s &S212; at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year low fee payday advance.

&S220;It&S217;s not just &S216;basket cases&S217; like Greece that can be considered candidates for sovereign crises,&S221; said Simon White of Variant Perception, a London-based research house that caters to hedge funds and wealthy individuals. &S220;Gilts and sterling will continue to come under pressure as scrutiny of the U.K. fiscal situation intensifies.&S221;

Adding to this concern is the precarious condition of the British consumer. As interest rates have hit new lows, the popularity of variable-rate loans has grown. At the end of December, 40 percent of new mortgages were tracking the government&S217;s base rate.

Despite comments from Mervyn King, the governor of the Bank of England, that he might restart his quantitative easing program in light of current economic weakness, the view among investors is growing that interest rates here will rise further along with higher inflation and Britain&S217;s increased risk profile.

In a speech this year, Andrew Haldane, the executive director of financial stability at the Bank of England, warned about how vulnerable Britain was to a rate increase, pointing out that an increase of one percentage point would cause debt service costs relative to income to double, to 13 percent.

&S220;This is a ticking time bomb,&S221; said Nick Hopkinson of Property Portfolio Rescue, a company that assists overleveraged homeowners. &S220;There are over 400,000 people who are in arrears with their mortgage rates the cheapest they have ever been. When rates increase, a lot of people will be tipped over the edge.&S221;

As a result, those counting on the British consumer to take up the slack from any scaling back of government borrowing could be in for a shock. Consider Sheridan King, a sales manager who is struggling to pay off his &<63;32,000, or $47,800, in nonmortgage debt. Far from thinking about going shopping, his first priority is keeping clear of his creditors.

And even though his variable mortgage of about &<63;100,000 carries a very low rate, interest costs are already chewing up a substantial portion of his pay and he is deeply worried about the future.

&S220;If rates go up, it will be a very dangerous situation for me,&S221; Mr. King said. &S220;It might lead me to consider bankruptcy.&S221;

For the time being, at least, the British government faces no such threat.

Despite its borrowing and spending excesses, Britain still maintains an AAA credit rating and much of its debt is long term. But with 29 percent of British bonds held by foreigners, Britain, like Greece, remains highly vulnerable to the vicissitudes of outside investors.

Since early this year, foreign holdings of British bonds have fallen from 35 percent, a trend that has tracked the pound&S217;s decline and contributed to the increase in the yield on its 10-year gilts.

As to which political party he thinks is best placed to handle these challenges, Mr. King takes a skeptical view. &S220;We are just struggling to get by with all this debt,&S221; he said. &S220;It&S217;s time the government got its house in order.&S221;

News Analysis: U.K. Teeters on the Brink of Its Own Greek Debt Tragedy