Carson Block, Andrew Left, John Hempton, John Bird, Rick Pearson to expose accounting fraud of Chinese companies

I found the article below is very interesting and useful because it tells me about the accounting shenanigans of some Chinese companies listed in the US and Canada stock market. In my opinion, if anyone of you are interested in investing in Chinese companies, you have to be careful due to the fact that those companies are fraudster.  They run 'ponzi-scheme" business. I was thinking that the same practice also has been done by Indonesia companies listed in Bursa Efek.

So, I think we need those kind of the "shorts" who will be able to expose the accounting fraud of  any companies listed in Bursa Efek, both in Jakarta or Surabaya.What I mean with the "shorts" refers to the five people whom Reuters has identified as the players to successfully expose the wrongdoings of Chinese companies made.Who are they? They are :

1. Carson Block  (http://www.muddywatersresearch.com)

2. Andrew Left (http://www.citronresearch.com)

3.John Hempton (http://brontecapital.blogspot.com/)

4. John Bird (http://www.waldomushman.com)

5. Rick Pearson (TheStreet.com http://www.thestreet.com/author/1160762/rick-pearson/all.html )

You can read more about their info below.

Special report: The "shorts" who popped a China bubble - Yahoo! News

 

They are a rag-tag bunch, often working from home or tiny offices scattered round the world, from rural Texas to Beverly Hills and a suburb near Australia's Bondi Beach.

Some have never even been to China; most don't speak or read Chinese. And yet in the past nine months, this small group of "short sellers" has published research exposing accounting fraud at a series of Chinese companies listed in the United States and Canada, and made as yet unproven allegations against a whole bunch more.

As a result they have scuttled a once hot sub-sector of the American capital markets.

In a number of cases they claim to have made a killing by shorting those stocks - placing a bet that the shares would fall in value - before publishing the research. They insist they operate independently but are clearly influenced by one another's ideas and tactics.

Altogether, they have been the catalyst that has wiped more than $21 billion off the market value of Chinese companies listed in North America. The sell-off has led to big losses for some very prominent investors, including hedge fund manager John Paulson and former AIG CEO Maurice "Hank" Greenberg.

In the aftermath, a series of companies have been delisted by U.S. exchanges, auditors have quit at a number of others, investors are filing class action lawsuits, and the U.S. Securities and Exchange Commission is pursuing investigations.

To their supporters, the short sellers are doing the regulators' work for them by exposing fraud. They argue that many of these companies, which are often legally domiciled in offshore havens such as the Cayman Islands, should never have been allowed to list in America in the first place.

To their detractors, the short sellers have leveraged a handful of correct calls on accounting shenanigans into a campaign that has tainted many legitimate Chinese companies. Some accuse them of conspiring with big hedge funds to take short positions before they publish their research.

Many have jumped into the Chinese short selling game; Reuters has identified the five below as among the most prominent players.

CARSON BLOCK AGE: 35 LOCATIONS: Hong Kong and the U.S. West Coast WEBSITE: http://www.muddywatersresearch.com

Carson Block has been punching above his weight in China, judging by the impact of the reports issued by his firm, where he is the only full-time employee.

Toronto-listed Chinese timber company Sino-Forest Corp, perhaps the largest target for short-sellers, has lost more than 60 percent of its value, or more than $2.5 billion, since Block accused the company of a massive fraud in early June.

His published research has also sparked plunges in shares of the following companies: Orient Paper, RINO International, China MediaExpress and Duoyuan Global Water. He also issued an open letter to the CEO of Spreadtrum Communications, citing concerns about its financial reports, though the stock has recovered from an initial dive.

About $1.7 billion has been wiped off of the aggregate market value of these U.S.-listed companies since the reports from his firm, whose name stems from the Chinese proverb, "muddy waters make it easy to catch fish."

Before starting Muddy Waters, Block ran a Shanghai-based self-storage company called "Love Box Storage." He previously worked as an attorney at Jones Day in Shanghai and as an adjunct professor at Chicago-Kent College of Law.

His lack of a Wall Street track record has been questioned by his critics. Block, who still owns Love Box but isn't involved in day-to-day operations, says these experiences "gave me a trench level view of business in China" where he "learned about the good, the bad and the ugly."

Block says his interest in shorting Chinese stocks came after his father, Bill, president of W.A.B. Capital - which introduces small, public Chinese companies to institutional investors - asked him to examine Orient Paper for a possible investment on the long side.

The report brought a great deal of attention to Muddy Waters, and Block received tips for new companies to focus on. Orient Paper said an internal probe didn't find any fraud, but in March it said it would re-audit its fiscal 2008 results. The stock trades well below pre-report levels.

"We realized the company was a complete fraud, and I assumed at the time that there would be other likely frauds out there," Carson Block said. "I didn't have a business plan in mind when I set up Muddy Waters and wrote the report; I just figured I'd see what happened next."

Block's firm currently only takes short positions, bets that a stock will fall in price, though Block has said he may go long in the future. He declined to disclose how much the firm has in assets under management.

Block says he sends experts into China to examine factories and offices to confirm company claims, with Block often attending. He uses legal and accounting consultants as well as private investigators in his work.

The research gets posted on the firm's website. Some have accused Block of acting unethically by sending research to hedge funds, for a fee, before it is published. Block declined to comment, but his research notes contain a disclaimer that says investors should assume Block, his "clients and/or investors" already have short positions in the subject of the report.

Block says his success has made him and his wife a target for threats. He recently moved his main base to the West Coast - though he won't say exactly where - from Hong Kong. Block had already increased security measures, including removing the Muddy Waters phone number from its website. (The firm used to list a false address to increase its camouflage, a move that drew brickbats from its critics.) "I felt that the sort of attention I was getting wasn't the kind we want," he said.

JOHN HEMPTON AGE: 44 LOCATION: Sydney, Australia WEBSITE: http://brontecapital.blogspot.com/

John Hempton looks more like the public servant he used to be rather than the millionaire hedge-fund manager he has become, dressed in an olive cable-knit sweater over collared shirt and tie, jeans, docksiders and large, round spectacles.

He is reading a book on his Kindle at a beachside cafe near his home in Bronte, an affluent seaside suburb on Sydney's eastern shore. He had cycled from his home on a hybrid electric bike. His wife drives a 14-year-old car. An economics graduate, he started his career in Australia's Treasury department trying to unravel tax-avoidance schemes.

"I really do understand fraud and esoteric accounting issues, and strangely enough that comes from my days at Treasury," he said. "I was given all the gnarly avoidance problems ... I cut my teeth on stuff that was deliberately complex and a little nasty. It was a good place to learn how nasty accounting works."

Hempton said he had "semi-retired" at the age of 39, after making a personal fortune on the flotation of fund management firm Platinum Asset Management, where he was a junior partner and analyst covering financial, media and utilities stocks. He says he once managed A$20 billion (US$21.15 billion) in investments.

He started his new career by writing a blog on his favorite topic: the sickness at the heart of international banks.

Hempton then struck up a partnership with an old friend, Simon Maher, formerly the head of an Australian utility. They formed Bronte Capital with a small office near the famous Bondi Beach, and initially managed their own money.

After spotting his first alleged China fraud - Universal Travel Group - Hempton says there was no turning back.

"They are so obvious that this is like shooting fish in a barrel. It's not going to remain that way. We are already finding it's tougher to find them in the U.S., and the ones that are really obvious are already mostly exposed. We are looking a little in Hong Kong now."

He has written on a series of Chinese stocks that have blown up: Universal Travel Group, China Agritech, Longtop Financial Technologies, and China Media Express. His latest target is Hollysys Automation Technologies, which hit a 52-week low on Thursday.

On a recent holiday at a Thai beach resort, Hempton says he took along the accounts of financial software company Longtop Financial - which is now in the process of being delisted from the New York Stock Exchange - instead of a novel.

"I spent a very enjoyable week on the beach, drinking pina coladas and reading Longtop's accounts."

He wouldn't provide data on the size of gains or losses.

Hempton often wakes around 5:30 a.m. local time to catch the New York market close. In the summer he's often surfing or hiking during the day.

Bronte Capital holds short positions in about 50 names, a mixture of shares from China and elsewhere.

"Do we do this, that is, shorting Chinese stocks, all the time? No. But here we have seen a bundle of names with a market cap in the $300 million to $400 million range. There were so many of them, stupid frauds that were easy to see," Hempton said.

JOHN BIRD: AGE: 62 LOCATION: MANOR, TEXAS WEBSITE: http://www.waldomushman.com

John Bird does not speak Chinese, has never been to China and expresses little interest in going. Instead, he makes his bets against Chinese small-cap stocks from his 130-acre home in the Texas countryside outside of Austin where he lives with his wife of nearly 40 years and a dozen Arabian horses.

Despite his lack of direct knowledge of China, Bird is confident there is widespread fraud, and said recently that for those shorting Chinese stocks, "this is harvest time".

A little under a third of Bird's active portfolio is in short positions. He said he began shorting Chinese stocks in 2009 after seeing a note from veteran short seller Manuel Asensio saying that drugs company China Sky One Medical Inc might have problems.

China Sky, which he started to look at in spring 2009, is one of his most notable positions. He has sued the company's auditor for not acting on information that China Sky's financials might contain errors.

"It's not a matter of whether they are fraudulent companies, it's just a matter of who they are cheating," Bird told a conference in June. As a joke, he passed out a children's' toy - a Chinese finger trap -- to everyone in the audience. The trick of the toy is that it's easy to put your fingers into the trap's woven cylinder but it's much more difficult to pull them out.

Bird is long on some oil, gas and pipeline stocks but said he never goes long on Chinese companies. At 62, the white-haired investor has had years of financial experience - and his share of flops.

Public filings show several state tax liens and state tax lien releases against properties Bird owned in Texas. He describes the liens as "collateral damage" to his mid-1980s bankruptcy that came about because of a property bust.

Bird declines to describe the nature of the businesses he was associated with. Public records show companies with names like "Wishlist", "Magnetic Clone" and "Golden Fried Chicken of America". He says he was a "junior league venture capitalist" who gave money to people with good ideas.

Bird and other investors have been urging the SEC to compare reports filed with the SEC in the U.S. with those filed with the State Administration for Industry & Commerce in China. Bird says discrepancies in these documents are a good place to start looking for trouble.

Bird says he currently has about 30 short positions worth around $10 million targeting Chinese stocks. Those have recently included Harbin Electric Inc, China-Biotics Inc and Deer Consumer Products Inc.

He, too, says he gets threats via e-mail and message boards. "You get a little bit thick-skinned," he says.

While Bird says he is in touch with other short sellers, he denies they work together. "The idea of trying to picture us as a cabal is crazy," he said. "The short sellers end up trading notes, but we are all independently running our own money, because quite honestly we don't trust anybody else, including other short sellers -- in particular other short sellers."

ANDREW LEFT AGE: 41 LOCATION: BEVERLY HILLS, CALIFORNIA WEBSITE: http://www.citronresearch.com

Andrew Left has come a long way from a shuttered Florida-based commodities brokerage to making waves and money highlighting accounting inconsistencies at Chinese companies with listings in the U.S.

Left was broke and living with his family after college and answered an ad offering the chance to make $100,000 a year for a commodities brokerage called Universal Commodity Corp.

"They give you a phone and a script and some lead cards...and I'm like 'Really?'" he said. "I didn't know what a boiler room was when I was 23," he said, using the term for a high-pressure brokerage firm where salespeople cold call individuals and push questionable investments.

Left departed after 9 months, in March 1994. The Florida firm was cited in December 1995 by the National Futures Association for failure to supervise employees engaged in fraudulent practices. Left was sanctioned by the NFA as part of a wider probe into the firm. The firm was closed down in December 2008 after another infraction, the NFA says.

Left devoted himself to the late 1990s IPO boom, later switching to shorting the stocks at a friend's suggestion. "It was like a friggin' light bulb went off in my head," he said.

About 10 years ago he started writing about his research on a website called Stocklemon, later renamed Citron Research.

"Pretty much the main theme of Citron is to encourage investors to use their brains. Don't listen to an analyst all the time. Don't listen to the company. Does it make sense to you? Do your homework. And that is pretty much it," he said.

Left says he does not sell his research nor work for a hedge fund. He describes himself as an independent investor, not just a short-seller.

He's written about Chinese reverse takeover stocks for the last four years, though he's never been to China except for a couple of days in Hong Kong a decade ago.

"Lately the action has been in China. Two years from now I doubt I'll be writing about Chinese stocks anymore," he said.

In the meantime, he's hired a Chinese-speaking finance PhD. student from UCLA, to translate, read documents and make phone calls. He also hires investigators in China.

Of his Chinese positions, his biggest loser was New Oriental Education. "I wrote about it, shorted it and realized I was wrong, so I got out very quickly. It is up 100 percent since then," he said.

Left, who grew up in a Detroit suburb, won't discuss his net worth, saying only that he lives "in a nice house" in Beverly Hills.

Dressed in grey golf pants, white shirt and sockless sneakers, Left was recently in New York meeting hedge funds to talk about how they missed the dubious business practices at these U.S.-listed Chinese companies.

On the China-related shares, he published on a number of companies, including China-Biotics, China MediaExpress Holdings, Deer Consumer Products, Longtop Financial Technologies and Harbin Electric.

Harbin was hit after his reports on the viability of a loan agreement for a pending buyout. Shares recovered following his report, yet it still trades well below the $24 buyout offer price. He hasn't backed away from his position on Harbin, he said.

He says his best trade wasn't a short position and had nothing to do with China. At the depths of the market downturn in April 2009 he went long U.S. banks.

"It was the end of the world and I decided to take my daughter to Disneyland... The world was going to hell on CNBC and I'm waiting on line, not even for a ride," he said.

Seeing how crowded Disney was convinced him the economy wasn't so terrible. He returned home and covered his short bets, then went long by shorting the ProShares UltraShort Financials ETF-- a leveraged short play on financial stocks.

"(I) loaded up on things like that and just held on. Thank you Disneyland!"

To watch an interview with Andrew Left: http://link.reuters.com/veg59r

RICK PEARSON AGE: 39 LOCATION: BEIJING, CHINA WEBSITE: Columns for TheStreet.com http://www.thestreet.com/author/1160762/rick-pearson/all.html

Rick Pearson is one China specialist who actually knows the country: He studied finance and Mandarin at the University of Southern California and began traveling to China in the early 1990s, spending six years there all told.

He says he his familiarity with the country has been a double-edged sword: It helped him gain access to factories and management, but the closeness may have made him too credulous.

The former Deutsche Bank convertible bonds banker, who is currently living in Beijing, says he lost a lot of money on long positions in Chinese stocks. He won't say exactly how much, but described his long position in Orient Paper Inc as particularly "painful."

He was long when Muddy Waters released a report on the company. He then bought more shares because he thought the report was wrong only to see the stock plunge further.

After that experience, Pearson grew more critical of Chinese companies and disclosed short positions in China-Biotics, China ShenZhou Mining, Gulf Resources, Harbin Electric and Longtop Financial in an occasional column he writes for TheStreet.com.

Pearson said in June he began to realize that some Chinese stocks were "a giant Ponzi scheme."

Still, Pearson resists being grouped with other shorts, arguing he would rather be long Chinese stocks and expressing concern that the moniker will impede his access in China.

He says he thinks the China small-cap short trade may be close to an end as a viable strategy. "There's too many stocks whose share prices are already too low. There's too many stocks that have already been attacked by people. In my opinion it doesn't necessarily make a lot of sense to go shorting a $3 stock."

Pearson recently got out of all of his investments - he had some long positions in Chinese Internet stocks - because of concerns about the U.S. debt ceiling debate.

His intelligence-gathering methods are varied: taking people for coffee or karaoke, ferreting out executives' cell phone numbers, contacting sales representatives through Chinese e-commerce site Alibaba, and coming back to visit factories at unscheduled times. Pearson also counts employees and the number of vehicles in parking lots, looks at the age and condition of factory equipment and contacts customers and checks information in SEC filings with a company's China staff.

Pearson said he does not work with other investors, but he does occasionally keep in touch. One of the things that he says he learned from Texas-based short seller John Bird is the importance of filings with the Chinese authorities. When Pearson showed up to meet Bird for what he said was the first time in Los Angeles in June, he came wearing a T-shirt that stated, "John Bird was right."

(Reporting by Daniel Bases, Ryan Vlastelica and Clare Baldwin in New York; Mark Bendeich in Sydney; Editing by David Gaffen, Martin Howell)

 

IPO Air Asia..Will you buy its shares?

JPNN.COM : AirAsia Listing Pengujung 2011

 

PT Indonesia Air Asia (IAA) berencana go public lewat mekanisme penawaran saham perdana (initial public offering/IPO) pada kuartal empat 2011. Maskapai penerbangan dengan biaya rendah (low cost carrier/LCC) itu, membidik dana taktis senilai USD 150-200 juta, dengan skema pelepasan saham hingga 20 persen.

Namun, sebelum IPO itu geber, perseroan bakal terlebih dahulu menyatukan kepemilikan saham domestik, yang kini terpecah menjadi satu. Kepemilikan domestik menjadi satu sebesar 51 persen dan asing 49 persen. Setelah IPO, masing-masing akan terdilusi dengan sendirinya. ”Beberapa yang terdilusi, masih dalam kajian,” tutur Dharmadi, Presiden Direktur IAA, di Jakarta.

Saat ini, 51 persen saham IAA dimiliki lokal terbagi dalam tiga pihak, yaitu: PT Langit biru 21 persen, Pin Harris 20 persen, dan PT Fersindo Nusaperkasa 10 persen. Sehingga tidak bisa melebihi kepemilikan 49 persen saham oleh AA International Limited (AAIL), anak usaha dari AirAsia Berhad Malaysia. Mengenai kajian penggabungan lebih lanjut, klaim manajemen masih dalam kajian. Termasuk kajian mengenai proses IPO. Untuk keperluan itu, perseroan telah menunjuk dua penjamin emisi, yaitu Creddit Suisse dan CIMB Niaga Securities. Keduanya diputuskan setelah melakukan beauty contest (seleksi), pada Februari lalu.
 
Dharmadi melanjutkan, IPO merupakan bagian rencana perseroan untuk meningkatkan permodalan serta mendukung rencana ekspansi dimasa mendatang. Dana itu nantinya akan dipakai untuk pembelian sejumlah pesawat baru dan juga modal kerja. Selain menambah modal, IPO juga akan membuka kesempatan masyarakat serta karyawan perusahaan memiliki saham IAA. “Kami perlu dipandang sebagai bagian dari Indonesia,” imbuhnya.

Dari dana segar senilai USD 150-200 juta itu, perseroan akan membeli armada sebanyak lima pesawat baru jenis Airbus A320. Armada itu dibutuhkan, sesuai dengan konsep low cost carrier, yang akan mengangkut banyak penumpang dengan biaya bahan baker cost of fuel  yang sama.
Saat ini IAA memiliki 20 pesawat sewa jenis airbus, dimana 16 diantaranya beroperasi. Nantinya, perseroan mengharapkan bisa memiliki 30 pesawat jenis airbus pada 2015. Untuk pembelian, akan dilakukan secara bertahap. Manajemen mengharapkan bisa mendapat bagus dengan harga murah. Dalam membeli pesawat, manajemen menerapkan strategi tersendiri yaitu mengunci (lock) harga pada saat penandatanganan perjanjian. Pesawat yang dibeli pun tidak full option.

Dengan tambahan armada itu, perseroan mengharapkan kinerja akan bertumbuh seiring banyaknya penumpang serta rute yang ditempuh. Pada tahun 2010, kinerja perseroan meningkat pesat. Di mana pendapatan tercatat Rp 2,76 triliun naik 39 persen dari 2009, sementara laba bersih mencapai Rp 474 miliar naik lebih dari 351 persen dibanding tahun sebelumnya.

Lonjakan keuntungan itu, disebabkan peralihan pesawat yang dilakukan perseroan. Tahun lalu, IAA melakukan pergantian beberapa pesawat dari  jenis 737 yang hanya memiliki 148 penumpang ke airbus, yang mampu mengangkut 184 penumpang. Nah, tahun ini, IAA menargetkan bisa mencapai pendapatan sebesar Rp 3,3 triliun, sementara laba diharap menembus level Rp 500 miliar. “Itu didukung kenaikan jumlah penumpang, yang kami harap mencapai 4,5 juta penumpang,” tukas Dharmadi.

Analis PT Anugerah Securindo Indah, Viviet S Putri menilai, IAA memiliki prospek sangat bagus. Baik secara industri maupun pengelolaan manajemen. Melihat kinerja IAA positif, dengan pertumbuhan laba yang baik didukung efisiensi perseroan. “Manajemen mampu menekan biaya yang tidak perlu dikeluarkan untuk industri penerbangan. Di samping kemampuan menambah pendapatan, melalui ancillary,” ulas Viviet. (far)

 

Fake drug

Fake drugs: Poison pills | The Economist

 

Fake drugs

Poison pills

Counterfeit drugs used to be a problem for poor countries. Now they threaten the rich world, too

Sep 2nd 2010 | NEW YORK

DRUG smugglers can expect harsh penalties nearly everywhere—if the drugs in question are heroin or cocaine. Those who smuggle counterfeit medicines, by contrast, have often faced lax enforcement and light punishment. Some governments deem drug-counterfeiting a trivial offence, little more than a common irritant. After all, whose spam filter does not groan with ads for suspiciously cheap “Viagra”?

This could be changing, however. The pharmaceutical industry has persuaded several governments to stiffen regulations against fake drugs and to conduct more aggressive raids (see chart). Companies are also devising novel technologies to outfox the criminals. Even the Catholic church is joining the cause, issuing a stern statement in August that it is in “the best interest of all concerned that smuggling of counterfeit drugs be fought against”.

The pope’s concern is justified. Counterfeit drugs can kill. Many are shoddily made, containing the wrong dose of the active ingredient. Taking them instead of the real thing can turn a treatable disease into a fatal one. It can also foster drug resistance among germs. This has been a big problem for a long time in developing countries. Studies of anti-infective treatments in Africa and South-East Asia have found that perhaps 15-30% are fakes. The UN estimates that roughly half of the anti-malarial drugs sold in Africa—worth some $438m a year—are counterfeits.

Roger Bate of the American Enterprise Institute, a think-tank in Washington, DC, cautions that any such estimates should be treated with care. The countries with the most fakes may not be cracking down, so official figures will look rosy; in contrast, countries with a smaller counterfeit trade that are vigilant may end up with more seizures. The World Health Organisation agrees, and has recently taken its estimates off its website. Even so, Mr Bate says his field work has convinced him that counterfeits kill at least 100,000 people a year, mostly in the poor world.

Now it appears that fakes are taking off in the rich world too. Yes, Viagra still tops the list of knock-offs seen by Pfizer, says John Clark, the American drug firm’s global head of security; but fake versions of at least 20 of its products (including Lipitor, a blockbuster cholesterol drug) have been detected in the legitimate supply chains of at least 44 countries. Mr Clark’s intelligence comes from Pfizer’s global network of informants, consumer tip-offs and in-store inspections. He sees worrying trends.

Counterfeiters used to operate chiefly in developing countries, says Mr Clark, but now his firm sees fakes coming from such rich and well-regulated places as Canada and Britain. And the crooks are growing more technologically sophisticated: some can even counterfeit the holograms on packets that are meant to reassure customers that pills are genuine.

A consumer study funded by Pfizer recently found that nearly a fifth of Europeans polled in 14 countries had obtained medicines through illicit channels. That, the firm reckons, makes for a grey market in the EU of over €10 billion ($12.8 billion). Terry Hisey of Deloitte, a consultancy, thinks the global market for fakes could be worth between $75 billion and $200 billion a year. Those staggering sums, he argues, help explain the emergence of a flurry of new technologies and companies hoping to help the drugs industry “secure its global supply chain”.

In July Oracle, an American software giant, unveiled Pedigree, a programme that helps drugs firms “track and trace” pills all the way from the factory to your fingers. IBM has a rival offering, as well as one using radio-frequency identification (RfID) chips, which are embedded in packaging to detect tampering and allow precise tracking. 3M, a materials company, and Abbott Laboratories, an American medical firm, are also rolling out an RfID-based product. A division of Johnson & Johnson, a drugs giant, has developed web-based software to help customs officials quickly verify whether drugs are fake or real.

Poor countries find it hard to take advantage of such technologies. Sophisticated radio tags and database software are not much use in places where street hawkers peddle fakes with impunity. Still, even in such difficult circumstances, a combination of political will and business ingenuity can make a difference.

Bottom-up battle

A Ghanaian start-up firm, mPedigree, has come up with a clever way to use mobile phones in this fight. Participating drugs companies emboss a special code onto packages, which customers find by scratching off a coating. By sending a free text with that code, they can find out instantly if the package is genuine or a fake.

Bright Simons, the firm’s boss, argues that technologies like his can be a useful bottom-up complement to top-down enforcement. Having successfully completed initial trials, he says, mPedigree is ready to expand its service in the region. The government of Nigeria, where fakery is rife, recently declared its intention to adopt such a text-based validation system.

Thomas Kubic of the Pharmaceutical Security Institute, an industry-funded outfit, gives warning that this war will be hard to win. After more than 30 years as an investigator, he is sure that crooks will eventually find a way around any defence.

Even so, he thinks novel approaches such as mobile-based validation may “harden the target”, just as a burglar alarm makes your home somewhat trickier to rob. If the cost and complexity of faking drugs goes up, crooks may choose to fake Gucci handbags instead. This would still be theft, not to mention a crime against fashion. But it will not kill anyone.

 

The success of banking, more so than any other industry, is based on privilege rather than performance

www.fool.com

You'll be hearing a lot about banker bonuses in the coming weeks. Big banks will officially report "the number," or the average total compensation per employee for 2009.

How much money are we talking about? At trading banks Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS), this number could be ridiculous -- perhaps $700,000 per employee. It isn't as shocking at commercial banks like Bank of America (NYSE: BAC) and Citigroup (NYSE: C) because the total workforce is substantially larger, made up of tens of thousands of lowly paid tellers and back-office staff. In either case, average compensation masks that a few traders, executives, and department heads can literally make tens of millions of dollars (in some cases upward of $100 million). There's a good amount of skewing here.

For Goldman and Morgan Stanley, here are a few numbers to chew on:

Goldman Sachs               

Metric	2008	2007	2006
Revenue/Employee	$739,000	$1.51 million	$1.42 million
Compensation/Employee	$364,000	$661,000	$622,000
Earnings per Share	$4.47	$24.73	$19.69

Sources: Company filings, author's calculations.

Morgan Stanley

Metric	2008	2007	2006
Revenue/Employee	$479,000	$571,000	$691,000
Compensation/Employee	$262,000	$340,000	$324,000
Earnings per Share	$1.45	$2.98	$7.07

Sources: Company filings, author's calculations.

In all likelihood, 2009's compensation will eclipse 2007's record. That makes people want to scream. That bankers get record pay a year after essentially failing and being saved by taxpayers seems completely absurd. And it is.

Here's my view
Prior to joining The Motley Fool, I did brief (thankfully) stints in investment banking and private equity. This was 2006-2007, when cheap money bubbled out of the drinking fountains.   

At the investment bank, compensation for mid-to-upper level employees was based on deal volume generated. If you put together a $50 million merger, add that to your scorecard. Same with private equity. Private equity firms rarely sell their portfolio holdings, so yearly compensation was typically based on the size of companies purchased. If you helped acquire a $100 million business, add it to your scorecard.

In both cases, you ate what you killed. Employees were paid for performance. This is the argument bankers use to defend their pay: "Yes, we make ungodly amounts of money, but we earn it. Capitalism, my friends."

The problem with this argument is that it doesn't consider what percentage of the "scorecard" comes from bankers' skill and hard work versus factors outside their control, like monetary policy and favorable regulations.

Here's an example: 2006 and 2007 were golden years at the private equity firm. You could finance anything -- anything -- you wanted at ridiculously low interest rates. So-called "deal flow" was endless. Many, many large acquisitions were made, and record compensation followed accordingly.

But were employees earning this pay due to superior intelligence and sophisticated market insight? Ha … ha … ha. Hardly. They were riding a speculative wave of cheap money largely engineered by the Federal Reserve. A large portion of pay was based on factors they had nothing to do with.

This isn't to say bankers aren't hardworking people. There's truth to the saying, "If you don't show up on Saturday, don't bother coming back on Sunday."

But solely attributing their stupendous pay to hard work and skill is fantasy. One columnist recently opined that those decrying banker bonuses "rarely have the numerical skills necessary to put together mergers and trades." Maybe so. But do all bankers themselves have these skills? How about the highly paid mortgage traders whose 2005 models didn't even allow the possibility of declining real estate prices? We can debate whether that took "skill." In many cases, they were simply in the right place at the right time.

That brings us to 2009
Over the past year, substantially all of Wall Street's profits came from fixed-income trading. See for yourself here, here, and here. Moreover, nearly every bank's earnings came from this segment, not just a smart few.

This happened for one of two reasons: (a) Every fixed-income trader suddenly woke up in early 2009 with newfound brilliance; or (b) they're riding the largest wave of cheap money in history, financed by the Fed lending money at 0% that traders then use to buy ultra-safe government securities yielding 2%-4%. Guess which one. Furthermore, Bear Stearns and Lehman Brothers were allowed to die while others seemed chosen at random to be saved, eroding competition for the lucky survivors.

How are these factors -- all completely outside bankers' control -- accounted for when determining compensation? They aren't.

That's what's infuriating about banker pay. It isn't that they're earning mountains of money. It's that they're earning mountains of money based on factors they had nothing to do with. Other companies that employ equally intelligent and driven workers -- Johnson & Johnson (NYSE: JNJ), Google (Nasdaq: GOOG), Microsoft (Nasdaq: MSFT) -- never see that kind of advantage. The success of banking, more so than any other industry, is based on privilege rather than performance.

The economy has slowed but it is certainly not sinking

It's pointless to panic | The Australian

The economy has slowed but it is certainly not sinking

THE good news is that yesterday's bad economic information, showing the economy contracted by 0.5 per cent in the December quarter, could have been worse. There is no denying that the first decline in eight years and the job losses that inevitably accompany it are unfortunate. But this is a result that all Australia's major trading partners would wish they had had. While yesterday's national accounts demonstrate that Australia's economy was dead in the water last year, with annual growth of just 0.3 per cent, at least it did not sink fast. In contrast, the US economy declined by five times our figure in the last quarter of 2008 and Japan sank by 3.3 per cent, not for all of 2008, but for just the last three months. Even China ceased to steam ahead. While the comrades are careful with information and do not publish quarterly figures, analysts predict the Chinese economy did not grow at all in the last three months of last year.

But there is no reason to revel in our relatively good performance, because the poor performance of these large economies shows us the shape of things to come. Certainly, with the banks still solvent Australia is in better shape than virtually all members of the G20 group of developed economies and there is the occasional ray, however feeble, of economic sunshine. On Tuesday, the Reserve Bank declined to cut interest rates, demonstrating that while the economy is taking water, it is still safely afloat. However, there is no way we can navigate around the wrecks of the world economy. If the US, whose consumers buy Asia's exports, continues to go backwards, it is hard to see how China, Japan, and the rest of export-oriented Asia, for that matter, can grow this year. And without global growth, demand for our energy exports will drop, dragging the rest of the economy down with it. The chance of the last quarter being the only occasion when the economy contracts is remote. News yesterday that vehicle sales in the first two months of the year were 20 per cent down on the comparable period last year is just one of many signs that times are hard.

The question is how much harder they will get and for how long. Just as we are still suffering from Treasurer Wayne Swan's determination to slay the non-existent inflation dragon by urging the Reserve Bank to raise interest rates in the first half of last year, the impact of government stimulus packages and interest rate cuts will take a while to have an impact. It took time for the Government's $10.4 billion Christmas cash splash to breathe any fire into the economy, and the effects of the $42billion stimulus package announced in early February will not be apparent for months. There is also a risk that people frightened by a worsening economy will save their cash payments, as many did with some of the money they received in December. Yesterday, Prime Minister Kevin Rudd warned that Australia cannot not swim against the global economic tide. True enough. But as a beach-going people, we know that the tide turns, that rips don't run forever, and that the way to survive in rough water is not to panic.

RBA Australia : Interest rates fell to a 45-year low of 3.25%

Interest rate cut | rates set for all-time low

March 2, 2009 - 12:25PM

The Reserve Bank of Australia is tipped to cut interest rates to a record-low level in March, as the effects of the global downturn threaten to really hit the domestic economy.

Thirteen of 16 economists surveyed by AAP expect the Reserve Bank of Australia to cut the cash rate when it holds its monthly board meeting tomorrow.

The median forecast was for a 50-basis point rate cut, which would take the cash interest rates to a record low of 2.75% when the RBA announces its decision at 2.30pm tomorrow.

The RBA has already slashed interest rates by 400 basis points - or four percentage points - since September.

Interest rates fell to a 45-year low of 3.25% in February following a 100-basis-point rate cut.

A 50-basis-point cut this week will send the cash rate under the all-time low monthly average rate of 2.89% seen in January 1960.

While domestic business data is still strong, many economists say deteriorating conditions among Australia's key trading partners will weigh on the domestic economy in future months.

More optimistic analysts say the recent run of rate cuts and $52 billion in Federal Government stimulus programs will support local demand.

RBC Capital Markets senior economist Su-Lin Ong said a 50-basis-point rate cut in March was a close call, with the RBA near the end of its easing cycle.

"It's going to be a close decision," she said.

"It's pretty clear from the RBA that they are very reluctant to cut any more, but the reason we think a move is justified is the global downturn has worsened since the last board meeting."

Forecast strategist Mike Katz said the RBA would cut by 50 basis points in March before unemployment levels rose sharply.

"The labour market has held up so far," he said.

"The RBA will want to get rates as stimulatory as possible before that pessimistic data starts to be released."

UBS senior economist George Tharenou said the prospect of a technical recession - measured by two consecutive quarters of negative economic growth - in the first half of 2009 justified the need for a 50-basis-point cut this week.

"We expect the RBA to lean against the deteriorating global backdrop and try to support domestic growth and limit the extent of the downturn," he said.

However, ANZ economist Riki Polygenis said the economy was yet to feel the full effects of the large RBA rate cuts since September and that reinforced the case for a smaller, 25-basis-point rate cut in March.

"We think now the RBA clearly has rates at an expansionary setting," Ms Polygenis said.

"It's a good idea for them to keep some in reserve in case the economy deteriorates more sharply later in the year."

Australian Bureau of Statistics data released last week showed capital expenditure by business surged 6% in the December quarter, a much better result than market forecasts for a 3% decline.

AMP Capital Investors chief economist Shane Oliver, who is also tipping a 25-basis-point cut in March, said while the Australian economy was holding up well, a slowdown in the economies of the nation's key trading partners would prompt the RBA to keep cutting rates.

"On the one hand, domestic demand is stronger than expected ... but the global case has been unrelentingly bad and far worse than the Reserve Bank have been factoring in for their figures, particularly countries we trade with like Japan, South Korea and China," Dr Oliver said.

Japan, one of Australia's biggest trading partners, is experiencing its worst recession in three decades, with a slowdown in the global economy causing its exports to fall by 46% in the year to January.

The Australian government has already announced two fiscal stimulus programs, worth a combined $52 billion, to shield the economy from the effects of a possible recession.

From April, farmers, students and low to middle-income earners are due to receive $900 cheques as part of a $12 billion fiscal allocation from the Rudd government's second $42 billion stimulus package.

RBA governor Glenn Stevens told a parliamentary hearing in Canberra earlier in February that big rate cuts, fiscal stimulus programs and a weaker Australian dollar would help support domestic demand in 2009.

Citigroup managing director of economics Paul Brennan said the remarks indicated rates would be left on hold in March.

"They probably want to keep their powder dry for the bad news in the local economy over the next six months," Mr Brennan said.

Commonwealth Bank chief economist Michael Blythe, who also expects rates to stay on hold in March, said the large rate cuts at the end of 2008 were already working to stimulate consumer spending and the housing market.

"Recent RBA commentary seems to imply they have a desire to take a step back and allow time for what they've done to flow through," he said.

ICAP senior economist Adam Carr said while the RBA was likely to cut rates by 50 basis points in March, there was a good chance rates would be raised again by the end of 2009.

"There's very little justification to hold the cash rate that low for so long," he said.

457 visas 'may cost local-born jobs'

457 visas 'may cost local-born jobs' | Australian IT

 
Paul Maley | February 20, 2009

AUSTRALIA'S record intake of temporary skilled migrants during the economic downturn could boost the number of Australian-born unemployed, as research suggests it is being used as a "back door" to permanent entry by low-wage workers.
The claim comes from Monash University population expert Bob Birrell, who said more of Australia's permanent skilled migrants were being sourced from the 457 visa program, which was drawing on workers from low-wage countries in increasing numbers. The visas are widely used in the ICT industry.

"People at the lower end of the spectrum are becoming permanent residents," Professor Birrell said. "They're vulnerable to exploitation because the employer knows they're not going to quibble with what he's offering them because they're desperate to get the permanent resident nomination."

As the global recession worsens, Professor Birrell said it was time for the Rudd Government to rethink its record high migration intake.

He said the tough economic climate would give employers added incentives to employ or retain cheap overseas labour in the place of local workers.

Professor Birrell, a long-time critic of a high migration quota, said the research, which was co-authored by Ernest Healy and 457 visa expert Bob Kinnaird, was in response to Immigration Minister Chris Evans's decision in December to give priority to migrants with a job or with critically needed skills.

That decision was seen as an alternative to cutting the migrant quota, an option flagged by Kevin Rudd last year in response to the worsening economic conditions.

Last May, Senator Evans announced an increase in the permanent migration program of 37,500. The increase brought the total number of skilled migrants to 133,500, plus 56,500 family reunion places and 13,500 humanitarian visas.

Overall, Australia is taking more than 200,000 new migrants a year.

In 2007-08, about 58,050 migrants came in under the 457 program, a figure that excludes their family members.

Professor Birrell said, in that year, about 90 per cent of the 17,760 permanent migrants who were sponsored by an employer onshore were former 457 visa holders.

Holders of 457 visas are subject to less stringent language requirements and there is no labour market testing, meaning employers do not have to demonstrate that the position cannot be filled locally.

A minimum salary level of $43,440 applies for most 457 visa workers.

In a trend that has alarmed unions, who fear the 457 program is being exploited by business to undercut wages, the program is increasingly sourcing workers from the developing world.

In 2007-08, 8250 Indian workers came in under the program, compared with 2880 in 2004-05.

Over the same period, the number of Filipino workers jumped from 600 to 5120, and the number of Chinese workers rose from 930 to 3360.

A spokesman for Senator Evans said yesterday the 457 program had sharply declined amid worsening financial conditions. "Figures show that application rates for subclass 457 visas in January 2009 are now 30per cent lower than in September 2008, when the economic downturn struck," the spokesman said.

Furthermore, plans to introduce market rates for 457 workers would effectively make them a more expensive option, the spokesman said.

A cut in next year's migration program was also likely, he added.

Economic reverse

A chat with the ex is a good idea | The Australian

BROKE bread with a former prime minister the other day. We share a native habitat, Sydney's lower north shore. We reminisced about old times. He recalled his best bowling figures, 6 for 76, and I mine, 8 for 2 off 10 overs. For cricket tragics, the passage of 50 years does not eliminate memory of one's most gratifying achievements.

Just back from a short trip to Canada, the ex-PM looked roseate and relaxed. He is 40,000 words into his memoirs, though this count may not hold up, since he lets it all rip as he talks into a recorder but plans to cut and edit the transcripts. Asked if he would settle a few scores with his book, he hesitated only briefly before replying, "I don't think so. There's a lot of real stuff to write about."

The former PM talks to a lot of people and is up to date with current events, but in the detached way appropriate for an ex.

I've indulged in this rather long-winded prelude to make the point that the former PM seems entirely content with his formerness and nourishes no fantasies about being monarch in exile. He has opinions, though, and believes Kevin Rudd's $42 billion spending package will do little or nothing to stimulate the economy.

"What would have been a better move?" I asked.

"Set aside $16 billion to compensate the states for suspending payroll taxes for a year."

I was taken aback. Though it has been only a little over 12 months, I had virtually forgotten directness and simplicity as a tool of politics.

But a vague recollection came to me, sharpened subsequently with the aid of Google, of the reaction by Rudy Giuliani, damp squib US presidential candidate but triumphant mayor of New York, when he first heard of our payroll tax from an Australian Financial Review interviewer: "I don't understand that. We have about 20 forms of taxation in New York city and some of them are strange, but nothing like that one."

The federal government started levying a 2per cent tax on wages and salaries paid out by employers in 1941, with the specific purpose of financing child endowments. In 1971 the feds handed the right to tax payrolls over to the states and territories as part of the payback for grabbing their income taxing powers. They immediately doubled the rate.

Nowadays every state and territory has a different starting point and imposes a different taxation rate. South Australia starts earliest, hitting payrolls over $504,000 with a 5.5per cent tax. Tasmania lets its employers pay out $1,010,000 before imposing a 6.1 per cent tax.

Queensland has a sliding scale for payrolls between $850,000 and $3.4 million, which means, I guess, that you jump a bracket if you get careless about hiring a tea lady.

Payroll tax is a major earner, second only to land taxes as a source of revenue for the states and territories.

Being a bit worn down by global thinking, I shaped my thoughts about a suspension of payroll taxes in the context of the effect on myneighbourhood.

At the heart of the lower north shore is the electorate of North Sydney, held by the new shadow treasurer, Joe Hockey, who is almost inordinately proud of it. North Sydney, Hockey boasts, is home to 25,000 small businesses and has the highest proportion among federal electorates of working women and people with professional and trade qualifications.

That's a profile of a community with heavy shocks coming its way in the event of drastic economic reverses.

On the other hand, a cost saving of 6per cent achieved by release from NSW's tax on payrolls over $600,000, plus removal of the considerable cost in time and money of compliance with a complex system, might see many established enterprises remain in the hands of experienced, creative, aspiring (or desperate) individuals, able to employ sufficient staff to hold the line and even to grow and flourish.

Moreover, this admirable outcome might be achieved by the federal Treasury's signing only eight cheques a month, instead of the tens of thousands that will be required just for Sydney's lower north shore, to launch and sustain Rudd's suite of favoured industries: school refurbishing, home insulation, building bicycle tracks. Not to mention the pointillist detail involved in distributing all those $900 handouts.

I am not in a position to say with confidence whether Rudd's $42 billion spending package will stimulate anything. Nor, from the sound of it, is he.

But I know governments will make heavy weather of disbursing that kind of money throughout the country and that the very fact of its availability will inspire unprecedented snorting at the trough.

When coaching young cricketers, Mark Taylor constantly urged them: "Keep it simple. Keep it simple."

Pity he didn't go into politics.

the immigration intake will exceed the number of jobs the Commonwealth?

Migrants won't cancel job boost - Gillard | The Australian

THE Federal Government has rejected research which shows its $42 billion economic stimulus package will not save jobs unless Australia's immigration intake is slashed.

In a paper to be released today, demographic experts warn that new permanent and temporary migrant workers will soak up the 90,000 jobs the package is supposed to support.

That is because the immigration intake will exceed the number of jobs the Commonwealth was trying to protect, The Australian Financial Review reports.

The experts advocate cutting the skilled intake to between 40,000 and 50,000 visas - down from a projected 133,500 - and forcing employers who want to import staff to prove that local skills are not available.

"It seems to me that this research could not be right,'' federal Employment Minister Julia Gillard told ABC Television.

"We are expediting the immigration of people who have the skills that we need.''

THE global economic crisis has replaced al-Qa'ida as the greatest threat to Western security

Financial crisis now main threat, says US | The Australian

THE global economic crisis has replaced al-Qa'ida as the greatest threat to Western security, according to the new US intelligence chief.

In his first threat briefing to the US Congress, National Intelligence Director Dennis Blair said yesterday that the economic crisis risked creating "regime-threatening insecurity" in countries that have been worst hit by the downturn, such as Pakistan. He described the downturn as "the primary near-term security concern" for the US.

"The longer it takes for the (economic) recovery to begin, the greater the likelihood of serious damage to US strategic interests," he said.

The economic crisis left a number of important US allies at risk of becoming unable to "fully meet their defence and humanitarian obligations".

"Statistical modelling shows that economic crises increase the risk of regime-threatening instability if they persist over a one- to two-year period," Mr Blair said.

About a quarter of the world's countries, notably in Europe and the former Soviet Union, had experienced "low-level instability", including government changes and even fast-growing China and India had taken a hit.

Mr Blair also warned that corruption within Afghan President Hamid Karzai's Government had now "exceeded tolerable levels" and was contributing to the rising influence and popularity of Islamic militants.

As US special envoy to South Asia Richard Holbrooke met Mr Karzai and other leaders in the capital yesterday to discuss a new anti-terror strategy, Mr Blair said the Afghan and Pakistan governments had lost ground to militants in the past year because they had failed to address corruption, mounting economic hardships and lack of basic services.

The assessment reflects the view of US President Barack Obama, who has described the two countries as the main front in the war on terror, and is understood to be on the verge of sending an additional 30,000 troops to Afghanistan.

"Kabul's inability to build effective, honest and loyal provincial and district-level institutions capable of providing basic services and sustainable licit livelihoods erodes its popular legitimacy and increases the influence of warlords and the Taliban," Mr Blair said. Mr Blair said progress had been made against al-Qa'ida, describing the deaths of four leaders in Pakistan's tribal areas as a blow "as damaging to the group as any since the fall of the Taliban in 2001".

The organisation was now "less capable and effective", but far from beaten, he said, adding that al-Qa'ida's use of Pakistan's tribal areas as a base for terror training meant the security situations of Afghanistan and Pakistan remained linked.

The Obama administration flagged its intention last month to treat the growing security crisis in the two countries as a single issue and this week dispatched its new envoy to both countries to begin a strategy review.

Mr Holbrooke spent three days in Pakistan this week meeting civilian and military leaders, who appealed for increased military and development aid to fight the militant insurgency.

Mr Holbrooke is understood to have delivered a message from Mr Obama to the Afghan and Pakistan leaderships that new aid would be contingent on greater co-operation in the fight against a jihadist build-up in the border regions.

Mr Blair echoed that sentiment."No improvement is possible in Afghanistan without Pakistan taking control of its border areas," he said.

Mr Holbrooke is due to meet Indian government officials in New Delhi over the weekend to discuss progress in the investigations into last November's Mumbai bomb attack, which claimed the lives of close to 180 people.

Mr Holbrooke's visit to the region is widely believed to have prompted Pakistan's admission on Thursday that the Mumbai attacks were launched and partly planned on Pakistani soil.

Interior Minister Rehman Malik said Pakistan had already arrested six of eight Pakistani suspects identified during a government probe into the attacks and was seeking further information from New Delhi so it could proceed with prosecutions.

Toyota to first loss in 59 years

Slump to send Toyota to first loss in 59 years | The Japan Times Online

Slump to send Toyota to first loss in 59 years

NAGOYA (Kyodo) Toyota Motor Corp. is expected to report an unconsolidated operating loss in the fiscal year through March amid a widening slump in global auto sales and the yen's sharp appreciation against the dollar, sources said Friday.

It will be the first time Toyota has reported an unconsolidated loss on a full-year basis since fiscal 1949.

But Toyota, which has Daihatsu Motor Co. and Hino Motors Ltd. under its group, is likely to make a consolidated operating profit for fiscal 2008, although it will be reduced substantially from the year before, they said.

Toyota is expected to announce its downward revisions to consolidated and unconsolidated earnings projections next week.

In early November, Toyota revised downward its unconsolidated and consolidated earnings projections for fiscal 2008.

On an unconsolidated basis, Toyota forecast a net profit of ¥510 billion, down 55.2 percent from the year before, and an operating profit of ¥140 billion, down 87.4 percent, on sales of ¥10.6 trillion, down 12.2 percent.

On a group basis, Toyota projected a net profit of ¥550 billion, down 68.0 percent from the previous year, and an operating profit of ¥600 billion, down 73.6 percent, on sales of ¥23 trillion, down 12.5 percent.

Since then, Toyota has been experiencing a slump in sales of small vehicles, which had been relatively strong compared with those of larger vehicles, observers said. Auto sales in emerging economies, which had been robust, have also weakened.

Toyota assumed a foreign-exchange rate of ¥100 to the dollar for the October-March period, but the dollar has fallen to around ¥90 due partly to concern about the future of the troubled U.S. automakers.
¥4,000 pay hike eyed

NAGOYA (Kyodo) The 63,000-member Toyota Motor Workers' Union envisions demanding an average monthly base wage hike of more than ¥4,000 in next spring's annual "shunto" labor-management wage negotiations, union officials said Thursday.

The number would mark a sharp increase in the union's demand for an average ¥1,500 made to Toyota Motor Corp. management at the outset of this year's bargaining. The union eventually settled for a ¥1,000 increase.

Automakers, as well as home electronics appliance makers, are the pacesetters in annual wage talks. Talks at Toyota in particular act as a yardstick, influencing the course of action for many other companies' unions.

But the union officials said they are considering limiting the combined summer and winter bonus demand for the coming business year to some ¥2 million on average in view of the rapidly worsening business environment for the automaker.

US President George W Bush today signed an economic rescue bill just hours after the US House of Representatives reversed course and approved the historic $US700 billion ($908.21 billion) Wall Street bailout.

$US700bn Wall St bailout bill passed | Business | News.com.au

$US700bn Wall St bailout bill passed

US President George W Bush today signed an economic rescue bill just hours after the US House of Representatives reversed course and approved the historic $US700 billion ($908.21 billion) Wall Street bailout.

The House, which sparked market and political turmoil by rejecting an earlier version of the bailout on Monday by 228 votes to 205, voted 263 to 171 to pass the largest US government economic intervention since the 1930s.

House Democrats piled up 172 votes for the bailout, compared to 91 members of the minority party, reflecting the waning power of the Bush administration which backed the bailout during two weeks of high political drama.

Democratic leaders credited White House nominee Barack Obama for helping to win over votes of wavering Democrats to end a political crisis which became a major test of leadership between he and Republican John McCain.

"I am hopeful that we have gone a long ways towards restoring confidence in our markets,'' Democratic Senate Majority whip James Clyburn said.

Lawmakers said the combination of tumbling stocks, which pulled down market-linked pension plans, and a credit freeze which had bitten deep into the day-to-day economy, had changed the political calculation since Monday.

The top House Republican John Boehner said the version of the bailout passed by the House was superior to the original version requestion by the Bush administration, which some critics described as a "blank cheque''.

"The passage of this flawed but necessary bill is not cause for celebration,'' he said, saying Congress had allowed sectors of the finance industry to "run amok''.

House speaker Nancy Pelosi immediately signed the bailout package, which allows the US Treasury to buy up billions of dollars in bad mortgage debts choking the US economy, and sent it to President George W Bush for his signature.

And she paid tribute to Mr Obama, who will take responsibility for the reeling economy if he manages to defeat Republican McCain in the election on November 4.

"I really want to commend Barack Obama,'' Ms Pelosi, said, saying the Illinois senator had helped reassure lawmakers in tough re-election fights.

"He really gave them confidence that this was the right thing to do,'' Ms Pelosi said.

The Senate passed a revised version of the bailout package 74-25 on Wednesday, including sweeteners on extending bank deposit insurance and expired tax breaks in order to get more House Republicans behind the legislation.

The debate resumed amid more shocking news for the world's largest economy, which shed about 159,000 jobs in September as the weight of the housing collapse and credit crunch hit a broad swath of industries.

The unemployment rate held at 6.1 per cent, a five-year high, with payrolls having fallen by 760,000 this year, the Labour Department said.

Global stocks had sunk heavily early today with losses in Asia as some lawmakers continued to make known their opposition to using vast amounts of taxpayer money to bail out Wall Street firms.

The amended version of the plan is laced with $US150 billion ($194.62 billion) in tax breaks to coax reluctant lawmakers from both the Democratic and the Republican parties to get on board.

The bailout gives the US Treasury power to buy up toxic mortgage debt which has been choking the financial industry and will create a $US700 billion ($908.21 billion) federal program to buy bad assets from banks and other financial firms.

The Senate raised the ceiling on federal insurance for bank deposits from $US100,000 ($129,744) to $US250,000 ($324,360), and added up to $US150 billion ($194.62 billion) in tax break extensions for middle class families and business.

They also retained limits on "golden parachute'' severance payments to disgraced Wall Street executives.