kiplinger connection
Financial Sector • Business Tech • Global Economy

Financial Sector: Don’t count on Fannie Mae and Freddie Mac to save the credit markets.
Business Tech: Set up an online social network to find new hires.
Global Economy: China and India continue to sizzle; EU hanging on.

Financial Sector
Will Fannie and Freddie be the credit markets’ white knights? Don’t count on it. The idea of using Fannie Mae and Freddie Mac to ride to the rescue of mortgage lending ... and stabilize credit markets while they’re at it ... is going to fall victim to political infighting.
Democrats would like to expand the duo’s authority, allowing the two to purchase more mortgages in the secondary market. This could include raising the $417,000 limit on loans they can buy plus extending their reach to lower-quality mortgages such as subprimes.
But this is a no-go for the White House. Its primary goal with Fannie and Freddie is to ensure that they receive tougher oversight. Both were embroiled in multibillion-dollar accounting scandals that stung their shareholders and led to the ouster of top executives. The administration will OK expanded mortgage mandates for the two only as part of broader reform legislation passed by Congress.

Hedge fund victims may have trouble recouping their losses. A lot of these funds, used mainly by wealthy and institutional investors, are expected to go belly-up because of risky bets in the mortgage market. And plenty of investors want to sue them for fiduciary irresponsibility. Two bankrupt funds run by Bear Stearns, which held $20 billion in assets, have at least seven class action suits pending in American courts.
Blame the 2005 bankruptcy law and its Chapter 15 option, which helps shield foreign firms and U.S. companies incorporated abroad from lawsuits and collection attempts by parties within the U.S. Of the nearly 9,000 hedge funds worldwide, about 75% are incorporated in the Cayman Islands ... including the two Bear Stearns funds.

Wall Street is bracing for more job losses as the mortgage mess sends many investors into hibernation. Roughly 5% of the 848,000 people working at brokerages, investment firms, fund management companies, and the like are at risk of receiving pink slips through next year.
It won’t be as bad as the post-Internet-bubble shakeout, though. About 10% of financial sector jobs disappeared between 2001 and 2003. Financial firms are more global now, with more staff posted overseas. These employees are in safer employment territory than domestic staff.

Business Tech
The search for business contacts is fast moving online.
Social networking Web sites are attracting the corporate set on the hunt for sales leads, new hires, new jobs, vendors, contractors, funding sources, and more. The leader in the field is currently LinkedIn, with over 13 million members, up from 4.4 million at the end of 2005. Some other, smaller players: Orkut, Spoke, Ryze, and Tribe.net.
Firms can set up their own networks using the online service Ning or their in-house software. Customers or business partners can visit to exchange ideas or ask questions, generating leads and opportunities.

Global Economy
The rest of the world will weather the U.S. subprime storm.
We peg world economic growth at 3.3% next year, off just a tad from this year. China’s expansion is likely to come in at 10% in 2008, vs. 11% this year, only because investment will slow after the Olympics in Beijing next summer. India’s growth will be close to this year’s 8.8%.
Europe will fare pretty well, despite its own subprime problems. We see euro zone growth slowing by three-tenths of a percentage point, to 2.3%. Still, this won’t cheer French President Nicolas Sarkozy, who needs a brisk economy to help push through labor and pension reforms. Any drop-off in French job gains is sure to sap support for such moves.
Closer to home, Mexico and Canada have little to worry about as long as the neighboring U.S. economy isn’t sunk by housing woes. Mexican gross domestic product should accelerate to about 3.7%, while Canadian growth will register a 2.5% expansion ... same as this year.