Dow closes above 13,000 since May 2008

U.S. stocks gained Tuesday after an index showed consumer confidence
at a 12-month high and oil prices slid, helping boost the Dow Jones
Industrial Average (DJI) to its first close above 13,000 since May
2008.

The Dow average rose 23.61 points, or 0.2%, to 13,005.12. The S&P 500
gained 4.59 points, or 0.3%, to 1,372.18, its fourth straight session
of gains.

The Nasdaq Composite added 20.60 points, or 0.7%, to 2,986.76, also
its fourth day of gains.

S&P Announced Greece in Default

Standard & Poor's ratings agency downgraded Greece's long-term credit rating to selective default from double-C. It is a result of a debt write-down deal with private creditors that is an integral part of the second bailout. S&P had said this month that it would consider Greece in default if it added "collective-action" clauses to its sovereign debt, effectively forcing all bondholders to accept a bond-swap offering.

Greece became the first Euro-zone member officially to be rated in default, 13 years after the single European currency was adopted to strengthen the European Union.

Credit Default Swap: Powerful force in Greek debt crisis

A Credit default swap (CDS) has become one of the most powerful forces in the crisis faced by Greece and other members of the euro zone recently. European policy makers have looked cautiously at credit-default swaps, while they structured the Greek rescue over the last six months, according Smartinmoney.com. They aimed for a voluntary debt exchange that would not trigger the credit event, fearing that payments on the swaps might set off destabilizing chain reactions through Europe’s financial system.

Credit default swaps were invented by Wall Street in the late 1990s as a form of insurance contract against the default of one or more borrowers. Between 2000 and 2008, the market for such swaps ballooned from $900 billion to more than $30 trillion. In sharp contrast to traditional insurance, swaps are totally unregulated. CDSs are not traded on an exchange and there is no required reporting of transactions to a government agency. During the 2007-2010 financial crisis the lack of transparency became a concern to regulators. They played a pivotal role in the global financial meltdown.

Credit default swaps are a type of credit insurance contract in which one party protect another party from the risk of default on a particular debt instrument. The purchaser of the swap pays an annual premium (like an insurance premium) for protection from the credit risk. Just as house insurance will cost more for those living next to a fireworks factory, a CDS becomes more expensive when the finances of the bond issuer deteriorate, such as in the Greek debt crisis.

If the underlying debt instrument defaults, the CDS insurer compensates the insured for his loss. As with any insurance contract, there is scope for dispute about when a claim can be made on a default. Under a sovereign CDS, a claim depends on a “credit event”, which is defined broadly as a failure to pay interest, a moratorium on principal repayments or a restructuring of the debt.

Would a re-profiling of Greek debts qualify? It depends how it was done. If investors agree to such a deal of their own free will, as happened for Uruguay in 2003, it would not constitute a credit event. Nor would one occur if European banks succumbed to some arm-twisting by their own governments to agree to a swap. But a credit event probably would occur if all bondholders were forced into the switch. Should there be a dispute in the CDS market over a Greek re-profiling, it would be resolved by the International Swap Dealers Association (ISDA), a voluntary body which governs the market. Under ISDA rules, each region has a “determinations committee”, comprising ten bankers and five investors, which rules on such issues. Read “Credit Default Swap: Powerful force infinancial crisis” on Smartinmoney.com

Government and banks reached record housing settlement of more than $26 billion

State and federal government officials on Thursday announced a record housing settlement of more than $26 billion with five of the country's biggest banks over foreclosure abuses after more than a year of negotiations. The deal is expected to help more than one million U.S. homeowners.

For more than a year state attorneys-general and federal officials have been in discussions with banks over the robo-signing crisis - the practice of assigning bank employees to rapidly approve numerous foreclosures with only cursory glances at the glut of paperwork to determine if all the documents are in order. In the end, 49 states participated in the settlement, including California and New York which had previously held out for a better deal.

The settlement is with five big banks: Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co., and Ally Financial Inc., the company formerly known as GMAC.

Of the $26 billion in the deal with the five banks, $17 billion must be spent by the banks to assist struggling homeowners. Of that amount, 60% must be employed to reduce the amount owed by troubled borrowers, known as principal reduction. The amount must be spent within three years, or banks will need to make cash payments to regulators.

Dow’s best closing level since 2008

When one of the most closely watched jobs market reports showed a generally strong picture of the United States economy on Friday, stocks on Wall Street picked right up and surged throughout the day, extending the strong start to 2012 and sending the Dow to its best closing level since 2008.

The government's monthly snapshot of the jobs market showed some acceleration in the United States economy in January. Aside from the performance of the Dow, the markets responded with milestones of other
sorts, with the broader market as measured by the Standard & Poor's 500-stock index pushing ahead by 6.94 percent for the year to date, its best such showing since the 13.97 percent gain in the similar period in 1987.

In addition, the Nasdaq composite index turned in its best close since December 2000, when the boom in Internet stocks was turning to bust.

On Friday, the S.& P. was up 1.46 percent, or 19.36 points, at 1,344.90, and the Dow Jones industrial average rose 1.23 percent, or 156.82 points, to 12,862.23, its best close since May 19, 2008, before the financial crisis. The Nasdaq surged by 1.61 percent, or 45.98 points, to 2,905.66, its highest close since Dec. 12, 2000.

The gains extended what has been one of the best starts to a year in decades. The three major indexes each ended January higher, with the broader market as measured by the S.& P. up more than 4 percent, its biggest January gain since 1997.

The jobs report was the latest in a series of economic reports that have given the United States equities market cause for optimism and provided an important counterpoint to the sovereign debt crisis in the euro zone.

In addition, the Commerce Department said factory orders rose 1.1 percent in December, although that was below forecasts of 1.5 percent and compared with the upwardly revised 2.2 percent jump in November.

Another report, from the Institute for Supply Management, showed that economic activity in the nonmanufacturing sector grew in January for the 25th consecutive month.

Facebook Exceeds Google in Internet Company IPO

Facebook Inc.'s $5 billion initial public offering would make it the biggest U.S. Internet IPO in history, surpassing the debut of its arch-rival Google Inc.

The social networking giant Facebook filed its much-anticipated IPO filing late Wednesday, setting the stage for what's expected to be the biggest public trading debut for an Internet company since 2004 when Google went public in a $1.7 billion offering.

The Facebook's IPO would also mark a high point in the rapidly growing social networking market, underscored last year by the public trading debuts of such players as LinkedIn (the professional networking site) and (Zynga Inc.) the social gaming company.

The IPO of Facebook also would rank among the top 10 biggest overall in U.S. history of U.S.-based companies. That list is led by Visa Inc., whose 2008 IPO was worth $17.9 billion, followed by General Motors in 2010 at $15.8 billion, AT&T Wireless Group in 2000 at $10.6 billion and Kraft  in 2001 at $8.7 billion, according to S&P Capital IQ.