Fannie Mae unveils loss of $2.3bn
Problems in the US housing market have pushed mortgage finance company Fannie Mae into the red.
The group sank to a net loss of $2.3bn in the three months to 30 June, against a profit of $1.97bn last year.
It comes days after its sister company Freddie Mac posted worse-than-expected results and its top executive warned house price falls are not over yet.
Both government sponsored firms own, or guarantee, nearly half of the nation's mortgage debt.
Shares in Fannie Mae sank in the wake of the announcement, falling 9.8% to $8.98.
Difficult market
As mortgage guarantors, Fannie Mae and Freddie Mac, must pay out when people default on their loans.
But as a result of recent woes in the US housing market and subsequent sub-prime crisis the pair have run into severe difficulty.
 |  Fannie Mae says it has the capital to weather the storm, but its looking more and more stormy by the day  John Raines, Exclusive Analysis "> |
Fannie Mae said that the current housing crisis had added to its woes to the tune of $5.3bn in credit expenses.
The latest losses at the firm - which came in at more than three times analysts' estimates - followed a $2.2bn loss for the first three months of the year.
"Our second-quarter results reflect challenging conditions in the housing and mortgage markets that began in 2006 and have deepened through 2007 and 2008," said Daniel H Mudd, president and chief executive officer of Fannie Mae.
Cost cutting
He added that the firm had also taken steps to raise an additional $7bn to help it tackle the "most difficult US housing market in more than 70 years".
As part of the plan Fannie Mae is slashing its dividend by more than 85% to 0.05 cents, raising its fees and has taken steps to cut its costs by 10%.
The group also said it would stop purchasing 'Alt-A' loans - loans made to borrowers with good credit but little proof of their income, or people who either put down a small deposit, or no deposit, for their loan.
But there was little to offer hope in near-term future with Fannie Mae warning that increased volatility in capital markets and deteriorating credit conditions meant that it would face more losses.
Bail-out
Last month, the federal government offered a financial lifeline to the two beleaguered companies offering to extend their line of credit.
However, the financial aid may leave the taxpayer facing a bill of $25bn over the next two years.
"The taxpayer is stuck if they have to be bailed out," John Raines, deputy director of political risk for Exclusive Analysis told the BBC.
He added that reports had suggested the actual cost could end up being anywhere in the region of between $10bn to $100bn.
"Right now, Fannie Mae says it has the capital to weather the storm, but its looking more and more stormy by the day."
Divided Bolivia set for referendum
| By James Painter BBC Latin America analyst |
Bolivia's President, Evo Morales, and eight of the country's elected regional governors, some of whom are his fiercest political enemies, are about to put their mandates on the line.
 Sunday's vote is likely to leave Bolivia as divided as ever |
On Sunday, Bolivians will vote in a recall referendum that will decide whether Mr Morales and the governors should stay in office.
But the referendum has already been shrouded in confusion over what percentage of the votes the governors need to survive in office, which could mean the results are contested.
There is also considerable doubt whether the referendum will help to reduce the acute social and geographical polarisation in Bolivia and make the country more governable.
Last May, President Morales agreed to the recall referendum in part because he believed he could use it to regain the political momentum against his opponents in the gas-rich eastern departments.
In the last three months, the opposition have been making the running.
In the departments of Santa Cruz, Beni, Trinidad and Tarija, significant majorities voted in support of more autonomy from the central government over a wide range of issues.
The government dismissed the referendums as illegal and blamed the governors for trying to break up the country.
Questioned
The rules for Sunday's vote are complicated and still in doubt:
- President Morales and Vice-president Alvaro Garcia Linera will be voted out of office if more than 53.7% of the voters support their removal - that was their share of the vote in the 2005 elections
- After an agreement on 31 July between the National Electoral Council (CNE) and most of the departmental courts, the regional governors will lose office if more than 50% of voters choose to have them removed
- Previously, they would have lost if they failed to secure the same number of votes they achieved in the 2005 elections plus one. The new agreement in effect raised the barrier for rejection.
But the results could still be questioned.
Mr Morales has said he is not sure if the CNE can amend the rules; the regional governor of Cochabamba, Manfredo Reyes, has refused to accept the constitutional basis for the referendum; and two of the country's nine departmental courts (Santa Cruz and Oruro) did not sign up to the agreement.
At the root of the conflict is President Morales's desire to get a new constitution approved.
 Several departments have been pushing hard for autonomy |
This would give a greater share of Bolivia's gas wealth to the poorer western departments, allocate more land to the country's indigenous majority and allow Mr Morales to stand for re-election. The eastern departments, led by Santa Cruz, are strongly opposed.
One highly possible scenario is that both President Morales and the majority of the regional governors opposed to him are confirmed in office.
Mr Morales and his party, the Movement to Socialism, are still popular with the poor majority.
The government has used increased gas revenues to boost public spending on higher pensions, a higher minimum wage, and a cash transfer scheme by which free school meals and cash payments are given to mothers who ensure their children go to school.
However, it is likely that most of the regional governors like Ruben Costas of Santa Cruz will also be confirmed in office.
Opinion polls tend to show the government doing well in the western, highland provinces, but the governors doing well in the eastern departments.
'Agree to disagree'
Many Bolivia observers seriously doubt that Sunday's referendum will provide a way out of the political polarisation.
 Evo Morales is Bolivia's first indigenous president |
If Mr Morales gets significantly more votes than he achieved in 2005, he will feel emboldened to press ahead with another referendum - this time on the constitution.
But the opposition leaders will claim they too have a mandate to oppose it if they are confirmed in their posts and they could harden their intransigence.
Is there any way out of the impasse? Two recent reports by international think tanks suggest compromise has to be shown by both sides as the only way forward.
The International Crisis Group argued in a June briefing that it was "essential to move away from 'duelling referendums' aimed at subduing the other side'. Rather, they said basic consensus was needed around several issues:
- the balance between departmental autonomy and indigenous autonomies in the new constitution
- the distribution of gas revenues
- the status of the city of Sucre as the constitutional capital (but not the seat of government).
Likewise, a paper published in July by the Washington-based Inter-American Dialogue, aptly called "Bolivia's long and winding road", came to similar conclusions around the need for consensus.
It suggests the first step should be an agreement to impartial appointments in the Constitutional Tribunal and National Electoral Court.
It warned that neither side can successfully impose their political vision on the other, and argued that the need for a mentality of "agreeing to disagree" was more urgent than ever.AU to drop Mauritania after coup
 Gen Abdelaziz says they are holding the president to maintain calm |
The African Union (AU) is to suspend Mauritania's membership of the group following a coup which overthrew the democratically elected president.
The chair of the AU said that the suspension would last until a constitutional government was restored.
Renegade soldiers detained President Sidi Ould Cheikh Abdallahi on Wednesday after he tried to sack army officers.
The coup has been widely condemned by the international community and the US has suspended all non-humanitarian aid.
"The coup is a serious setback for Mauritanians because it has robbed the people of their basic right to freely elect leaders of their own choice," said Tanzania's Foreign Minister Bernard Membe, who holds the AU's rotating presidency.
No poll date
President Sidi Ould Cheikh Abdallahi is being held along with the country's prime minister in an undisclosed location.
| We will not release the deposed president at the time being for security reasons Coup leader Gen Mohamed Ould Abdelaziz  |
A representative from the Arab League said he held talks with Gen Abdelaziz and was assured that democracy would be restored.
"We got guarantees that the parliament, the democratic institutions, the political parties and freedom will continue to exist," Assistant Secretary General Ahmed bin Heli told reporters.
However, in remarks published on Saturday, Gen Abdelaziz said they would continue to detain the president to avoid any escalation.
"We will not release the deposed president at the time being for security reasons. We are now trying to make calm prevail," he is quoted as telling the London-based daily Asharq al-Awsat.
The US has withheld more than $20m (£10m) in non-humanitarian aid to the country following the coup.
The funds include $15m (£7.5m) in military-to-military co-operation, more than $4m (£2m) in peacekeeping training, and more than $3m (£1.5m) in development assistance.
Mr Abdallahi became Mauritania's first democratically elected leader in 2007 after a coup two years earlier, also instigated by Gen Abdelaziz.
It was the first free and fair poll in more than two decades in the country.
Peace bid as Ossetia crisis rages
Aftermath of the air strikes in Gori
A delegation including envoys from the US, EU and OSCE is heading to Georgia as its conflict with Russia over the breakaway South Ossetia region deepens.
The envoys hope to broker a truce after three days of fighting which are said to have killed or injured hundreds, and sent many others fleeing.
Russian jets have bombed several towns, including Gori in central Georgia.
Russia says it wants Georgian forces to withdraw to the positions they held outside South Ossetia before Thursday.
A Russian air strike on Gori, a Georgian town near South Ossetia, left 60 people dead, many of them civilians, Georgia says.
Russian officials say hundreds of civilians have been killed in South Ossetia. Georgia denies the figure, which cannot be independently verified.
Russian President Dmitry Medvedev has said his country is seeking "to force the Georgian side to peace".
Meanwhile, separatists in Abkhazia - Georgia's other breakaway region - say they have launched air and artillery strikes on Georgian forces in the Kodori Gorge.
'Broadening' conflict
The joint delegation of the US, EU and the Organisation of Security and Co-operation in Europe is due to visit Georgia on Saturday evening.
|  |
UK Foreign Secretary David Miliband said the fighting risked incurring "civilian losses on a large scale".
Emissaries from the US and Europe, all of them Nato members, are hardly likely to be seen as honest brokers by the Kremlin, when it comes to Georgia, BBC's diplomatic correspondent Bridget Kendall says.
The danger now is that Russia will not only use this crisis to demonstrate its military power in the region, but argue it is time to redraw the map, she adds.
Russian PM Vladimir Putin, arriving in Russia's North Ossetia region on his return from the Olympics, said it was unlikely now that South Ossetia would reintegrate with the rest of Georgia.
This, our diplomatic correspondent says, is precisely the outcome Georgia was trying to avoid.
Russia's ambassador to Nato, Dmitry Rogozin, said there could be no "consultations" with Georgia until Georgian forces returned to their positions and re-established "the status quo".
Accounts differ over who controls South Ossetia's capital, with Moscow saying it has "liberated" Tskhinvali.
The crisis began spiralling when Georgian forces launched a surprise attack on Thursday night to regain control of South Ossetia, which has had de facto independence since the end of a civil war in 1992.
The move followed days of exchanges of heavy fire with the Russian-backed separatists.
In response to the Georgian crackdown, Moscow sent armoured units across the border into South Ossetia.
'Total... aggression'
The Georgian parliament has approved a presidential decree declaring that the country is in a state of war for 15 days.
| ARMED FORCES COMPARED GEORGIA Total personnel: 26,900 Main battle tanks (T-72): 82 Armoured personnel carriers: 139 Combat aircraft (Su-25): Seven Heavy artillery pieces (including Grad rocket launchers): 95 RUSSIA Total personnel: 641,000 Main battle tanks (various): 6,717 Armoured personnel carriers: 6,388 Combat aircraft (various): 1,206 Heavy artillery pieces (various): 7,550 Source: Jane's Sentinel Country Risk Assessments |
Georgian President Mikhail Saakashvili has denounced Russian reports of a high civilian death toll from his forces as an "egregious lie".
Mr Saakashvili said he had decided to declare that Georgia was in a state of war because it was "under a state of total [Russian] military aggression".
Georgia is withdrawing its entire contingent of 2,000 troops from Iraq to help deal with the crisis.
US President George W Bush said the Russian attacks outside South Ossetia marked a "dangerous escalation in the crisis" and said Georgia's territorial integrity had to be respected.
"The attacks are occurring in regions of Georgia far from the zone of conflict in South Ossetia," he said while attending the Olympics.
"The violence is endangering regional peace."
Tskhinvali 'destroyed'
Fighting continued around Tskhinvali overnight and into Saturday morning, although not at the same intensity as on Friday, Russian media reported.
| SOUTH OSSETIA TIMELINE 1991-92 S Ossetia fights war to break away from newly independent Georgia; Russia enforces truce 2004 Mikhail Saakashvili elected Georgian president, promising to recover lost territories 2006 S Ossetians vote for independence in unofficial referendum April 2008 Russia steps up ties with Abkhazia and South Ossetia July 2008 Russia admits flying jets over S Ossetia; Russia and Georgia accuse each other of military build-up 7 August 2008 After escalating Georgian-Ossetian clashes, sides agree to ceasefire; however Georgia launches a surprise attack 8 August 2008 Russia sends in columns of armour and troops and fighting erupts with Georgian forces in and around Tskhinvali 9 August 2008 Russian jets bomb central Georgian town of Gori, Russia says its troops have "liberated" Tskhinvali |
Later, the Russian Army's Ground Forces commander, Gen Vladimir Boldyrev, said his troops had "fully liberated" the city and were pushing Georgian forces back.
But the secretary of the Georgian National Security Council, Khakha Lomaia, insisted that the city remained "under the complete control of our troops".
Russian commanders, who said reinforcements were being sent to the region, confirmed that two Russian jets had been shot down over Georgia.
Speaking to Russian news agency Interfax, Russia's ambassador to Georgia, Vyacheslav Kovalenko, said on Saturday that 2,000 civilians and 13 Russian peacekeepers had been killed in Tskhinvali.
"The city of Tskhinvali no longer exists," he said. "It is gone. The Georgian military has destroyed it."
The International Red Cross (ICRC) said it had received reports that hospitals in the city were "overflowing" with casualties.
In Gori, Russian aircraft bombed mostly military targets, where Georgian troops had been massing to support their forces engaged in South Ossetia.
The BBC's Richard Galpin in Gori heard loud explosions and saw large plumes of smoke rising into the sky; soldiers and civilians were seen running through the streets.
Injured civilians were being pulled from the buildings, which were on fire.
The Georgian foreign ministry said the Black Sea port of Poti, the site of a major oil shipment facility, had been "devastated" by a Russian air raid.
Meanwhile Georgian TV reported that the Georgian-controlled section of the Kodori Gorge in Abkhazia was under fire, blaming the bombardment on Russian forces.
The foreign minister in Abkhazia's self-declared government, Sergei Shamba, said Abkhaz forces had launched an attack aimed at driving Georgian forces out of the gorge.
It was not clear whether planes used in the attack on the gorge belonged to Russia or to the Abkhaz separatists.
Russia has a peacekeeping force in Abkhazia under an agreement made following civil wars in the 1990s, when the region declared independence and formed links with Moscow.
Venezuela
The autocrat of Caracas
Hugo Chávez tightens the state’s grip on politics and the economy
The man of many companiesFOR much of the past eight months, since suffering defeat in a referendum on changing the constitution, Hugo Chávez has seemed to be on the defensive. Abroad, he repaired strained relations with Colombia’s president and with Spain’s King Juan Carlos. At home, he backpedalled on unpopular measures, such as a new socialist educational curriculum and a draconian intelligence law. He met local businessmen in June and urged them to invest, in the hope that increased production would damp inflation of over 30%. But with Mr Chávez moderation rarely lasts, and he has now veered left again.
On July 31st he announced that the government would buy the country’s third-biggest bank, Banco de Venezuela, owned by Spain’s Grupo Santander. Days later, the government published 26 decrees, many of which mimic the constitutional changes rejected in the referendum. Some of them will further tighten the state’s stranglehold on the economy.
This has been growing stronger since Mr Chávez won a second six-year term in an election in December 2006. Since then he has taken over the telecoms and electricity companies, as well as other businesses (see table). In June he told the local businessmen that he had no more nationalisations in mind.
But Banco de Venezuela was on offer: Santander was reportedly close to completing its sale to a local private bank. The first the bank’s managers knew of Mr Chávez’s intention to purchase was when he announced it on live television during a speech about education. Spain’s government, which had hosted him in Madrid days previously, was also kept in the dark.
Bankers have done well from Mr Chávez’s “Bolivarian Revolution”. They have profited by arbitraging exchange controls, and from the government’s penchant for issuing debt (despite its record oil revenues). But banks face increasingly onerous regulations. These set interest rates, and require around half of loans to go at subsidised rates to favoured purposes, such as farmers and housing. Alí Rodríguez, the new finance minister, has ordered banks to cut their holdings of some government paper, on which they are likely to make a loss. On top of all this, growth is slowing. “What is it that Banco Santander is seeing that makes it want to leave Venezuela when it is making so much profit?” asked José Manuel González, the president of the employers’ confederation.
Mr Chávez has promised Santander a “friendly” deal. His oil wealth has allowed him to pay for the businesses he takes over, avoiding the friction that would be prompted by expropriation. As proliferating controls make doing business in Venezuela harder, more firms may fall into the government’s lap. “I don’t think this will be the last bank to end up in state hands, and it’s going to be happening in other sectors too,” says Gustavo García of IESA, a business school.
The takeover of Banco de Venezuela will make the state the biggest banker in the country. The president wants to turn his new acquisition, which has a big branch network, into a “socialist bank”, which will administer social security and welfare payments. This change of status may not be to the liking of the bank’s workers. The government often obliges state employees to attend political rallies, and regularly sacks those who show signs of political dissent. Some 2m of the 6.5m Venezuelans with formal jobs are now employed by the state.
The decrees will further increase the state’s powers, hobble opponents and limit the scope of private enterprise. Because the opposition boycotted the last legislative election, Mr Chávez’s supporters dominate the National Assembly. Nevertheless, after his re-election he obtained the power to pass laws on his own for a period of 18 months. The latest crop of decrees were issued on the day before this power was to expire, in such a rush that their full texts were not published until later.
Under one decree a chavista militia will become a new branch of the armed forces. Another tightens state control over food production and distribution, threatening those accused of hoarding with up to ten years in jail. A third makes it easier for the government to take over private companies in general. Another creates powerful new regional officials. They will rival state governors, who are due to be chosen in November in an election in which the opposition hopes to dent Mr Chávez’s near-monopoly of power.
Several of these measures violate the constitution of 1999, which Mr Chávez himself sponsored. “Here we have no constitution, no law and the president does exactly what he wants,” Luis Miquilena, a former ally who broke with the president, told the Wall Street Journal. Mr Chávez says anyone who disagrees with the new laws should complain to the supreme court. But the court is beholden to the president. This week it upheld a decision by the auditor-general to ban hundreds of candidates from standing in the state and municipal elections for alleged corruption, even though none has been convicted by the courts. The main apparent target is Leopoldo López, the opposition mayor of Chacao, a district in the capital. Opinion polls had given him a strong chance of being elected as mayor of Caracas.
Those polls suggest that a small majority of Venezuelans still support Mr Chávez. But voters showed in the referendum eight months ago that they do not want his autocratic socialism. They may have to show him that once again.
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