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Penn State's credit rating may be lowered because of scandal

Pennstate-EricGay-AP

Penn State's child-molestation scandal just got costlier.

Moody's Investors Service announced Friday that it may downgrade the university's credit rating in light of the lawsuits and other "reputational and financial risk" the school is likely to endure. The shocking allegations of abuse may scare away prospective students and anger deep-pocketed alumni who make large donations to the football powerhouse.

"While the full impact of these increased risks will only unfold over a period of years, we will also assess the degree of near and medium term risks to determine whether to downgrade the current Aa1 rating," Moody's said in a news release. "We will monitor possible emerging risks emanating from potential lawsuits/settlements, weaker student demand, declines in philanthropic support, changes in state relationship and significant management or governance changes."

One risk is that Penn State's insurers may balk at footing the bill for settlements with victims. They potentially could argue that top school officials, including its now-exiled president, Graham Spanier, were aware for years of the abuses allegedly committed by the football team's former assistant coach, Jerry Sandusky, but took no action.

The scandal could do lasting damage to Penn State's reputation -- and bottom line -- on many levels.

For example, Penn State has "a strong national academic brand identity that has improved substantially over the past several decades" and the school draws large numbers of "out-of-state students who pay high tuition rates," Moody's said.

Penn State had total operating revenue of $4.6 billion in fiscal year 2011, according to Moody's.

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Penn State's moral lapses

An emotional day after at Penn State

Penn State puts Mike McQueary, who reported sexual abuse, on leave

-- Walter Hamilton

Photo: Jerry Sandusky, Penn State's former assistant football coach, has been accused in a sex abuse scandal that could affect the school's credit rating. Credit: Eric Gay / Associated Press

Good news in Europe drives stocks higher

NYSE1-Reuters

The stock market ping-pong ball bounced up as investors cheered new moves by debt-hobbled European nations to tackle their fiscal woes.

The passage of an austerity budget in Italy and further steps toward a unity government in Greece comforted investors who earlier in the week had feared the potential collapse of the continent’s currency union.

Better-than-expected U.S. consumer confidence numbers also stirred optimism that the domestic economy is faring reasonably well in the face of Europe’s troubles.

The Dow Jones industrial average jumped 259.89 points, or 2.2%, to 12,153.68, its fourth gain in the last five days. The rally pushed the Dow to a modest 1.4% advance for the week.

But the sole down day was a big one -– the Dow tumbled nearly 400 points Wednesday on concern that Europe’s debt crisis would consume Italy -– and the market overall continued the volatile up-and-down trading pattern that has gripped it the last three months.

Each sign of progress in Europe sparks powerful rallies in the market, but bad news stirs equally abrupt sell-offs.

“I’ve never seen the markets in such a state, where they are so one-sided and flip-flop from day to day,” said A.C. Moore, chief investment strategist for Dunvegan Associates Inc. in Santa Barbara. “It’s really quite a phenomenon.”

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Italian bond yields dive, but fear still dogs Eurozone debt markets

Time to turn outrage over bank fees toward entire financial industry

Italian bond yields fall, but French yields soar on S&P 'error'

-- Walter Hamilton

Photo credit: Reuters

Young people think college is critical but too expensive

Students at UCLA study. Many worry about the expense of college.

Amid today's grim economy, young people think higher education is an even more critical stepping stone for their generation than it was for their parents.

But they worry that college is far less affordable than it was just five years ago. They fear taking on loads of student-loan debt. And they oppose proposals to cut federal financial aid.

Those are the findings of a survey released Wednesday by three public-policy groups -- the Institute for College Access & Success, Demos, and Young Invincibles. The groups polled 872 adults, ages 18 to 34, from Sept. 25 to Oct. 4.  The margin of error is 3.32 percentage points.

In a nod to the rancorous debate about the role of the federal government in backing student loans and funding other elements of higher education, the sponsors of the study stressed that respondents' opinions cut across racial, econonomic and -- most important -- political lines.

"Young adults across party lines are looking for leadership from Congress and sending them a message: make college more, not less, affordable," Jennifer Mishory, deputy director of Young Invincibles, said in a statement. "Protect the student aid that helps millions afford college and job training every year."

For example, "significant majorities" of Democrats, independents and Republicans are against reducing  access to federal Pell grants or charging interest on loans while students are still in school, according to the survey.

The poll found that 76% of people say college is less affordable today than five years ago and 73% believe graduates have more debt than they can handle. And even though it could reduce the federal deficit, 3 of every 4 respondents do not want Pell grants to be cut.

“This survey clearly shows how young adults view higher education today: It’s more important than ever but also less affordable and it comes with too much debt,” said Lauren Asher, president of TICAS.

RELATED:

California leads nation in escalation of college costs

How the University of California can remain one of the state's most valuable assets

And the top five most-expensive colleges in America are ...

‎-- Walter Hamilton

Photo: Students study at UCLA. Credit: Mariah Tauger/Los Angeles Times

Raj Rajaratnam to pay record $93 million in insider-trading case

Raj-peter-foley-bloomberg
After receiving an 11-year prison sentence, Raj Rajaratnam is now getting the bill for his insider-trading misdeeds.

A judge today ordered the once-celebrated Wall Street financier, who was convicted in May of spearheading a massive insider-trading scheme, to pay a civil penalty of nearly $93 million. That comes on top of an earlier $10-million criminal fine and forfeiture of $53.8 million in ill-gotten gains.

Rajaratnam's total tab: $156.6 million.

Both the prison sentence and the $92,805,705 civil penalty are the largest ever in an insider-trading case.

“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” Robert Khuzami, enforcement chief at the Securities and Exchange Commission, said in a statement.

The SEC alleged that Rajaratnam and more than two dozen others who have been caught up in a massive illicit-trading dragnet garnered illicit profits (or avoided losses) of more than $90 million through improper trading in at least 15 publicly traded companies.

The one-time hedge-fund kingpin was found guilty May 11 of 14 counts, including nine for securities fraud and five for conspiracy to commit securities fraud.

RELATED:

Raj Rajaratnam sentenced to 11 years for insider trading

Galleon hedge fund billionaire Raj Rajaratnam found guilty in insider trading case

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-- Walter Hamilton

Photo: Raj Rajaratnam leaving federal court after his sentencing last month. Credit: Peter Foley/Bloomberg

California launches revamped 529 college-savings plan

NotreDameUniversity-credit
California's revamped 529 college-savings plan is in place.

Investment giant TIAA-CREF has taken over management of the state's ScholarShare program from Fidelity Investments. Among the changes to the plan are a new lineup of investment options.

The revamped plan has 19 investment options, with fees ranging from 0.18% to 0.62%. That compares with 15 investment options costing 0.25% to 1.06% in the previous plan.

The accounts of existing ScholarShare investors will be transferred automatically to funds with similar investment styles and time horizons, according to the state treasurer's office. Click here for details about the changeover.

ScholarShare has more than 300,000 accounts holding roughly $4.3 billion in assets.

RELATED:

Average student-loan debt tops $25,000 for first time

TIAA-CREF chosen as new manager of California's 529 college-savings plan

California to close part of 529 college-savings plan

-- Walter Hamilton

Photo credit: Notre Dame University

Use of 'target-date' funds grows in 401(k) plans

Shuffleboard-MarkBoster-LAT

There is a bit of good news in the world of retirement investing.

According to a new study, Americans are increasing their use of so-called target-date mutual funds in 401(k) plans, and most people report being satisfied with them.

Among active and knowledgeable investors, use of target funds has nearly doubled to 41% today from 22% in 2005, according to the survey of more than 1,000 people by investment firm AllianceBernstein.

Among neophytes -- what the firm terms "accidental" investors, who handle their own 401(k) investing only because they must -- 1 in 4 people use target funds, up from 16%.

Target funds typically buy a variety of underlying mutual funds to create a diversified portfolio based primarily on a person's age and expected retirement date. Though target funds have shortcomings and risks, they're generally considered to be a wise choice for unsophisticated 401(k) investors because they handle much of the decision-making, such as which individual funds to buy and how much.

Employees seem to be happy with target funds: 81% of those surveyed said they're as satisfied or more so with them as with the other funds in their plans. Most people understood that the funds are designed to become more conservative as participants near retirement age, according to AllianceBernstein.

Still, Americans feel disillusioned overall about their retirement prospects.

The percentage of people who feel confident in their ability to achieve a comfortable retirement has risen to 26% from 18% in 2009, according to the survey. but that's down from 41% in 2007, prior to the global financial crisis. And even then, only 2 in 5 people feeling upbeat about their retirement prospects was nothing to crow about.

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Bill would remove penalty for tapping 401(k) to avoid foreclosure

Solo 401(k) lets self-employed shelter more of their income

401(k) 'education' by provider may be a sales pitch

-- Walter Hamilton

Photo credit: Mark Boster/Los Angeles Times

Groupon shares rise 31% in first day of trading

Groupon-TimBoyle-Bloomberg
The initial public offering of daily-deals site Groupon Inc. was a good deal for some of its investors.

Groupon shares jumped in their eagerly awaited stock-market debut Friday, rising almost 31% from their IPO price. But the stock closed below the $28 level at which trading opened and the $31.14 high of the day.

That meant big profits for professional investors who were lucky enough to get in early, but immediate losses of as much as 16% for many smaller investors who bought in during much of the day.

“It’s successful for the insiders, including the investment bankers, the company and the flippers” who sold at a quick profit, said Francis Gaskins of IPOdesktop.com in Marina del Rey. “The outsiders will probably get burned.”

Nevertheless, Groupon’s offering is likely to be viewed as success overall, thus setting the stage for a host of other offerings in coming months, including those expected from social-media behemoths Zynga Inc. and Facebook Inc.

“It’s really an astonishing first-day opening considering all the criticism it’s endured over the past couple of months,” said Lee Simmons, an IPO researcher at Dun & Bradstreet. “This signals that there’s really pent-up demand for these types of stocks.”

The stock, which was priced Thursday night at $20, closed at $26.11. Groupon raised $700 million in the offering, which valued the company at $12.7 billion. The stock trades on the Nasdaq Stock Market under the ticker symbol “GRPN.”

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Groupon IPO: Shares surge on first day of trading

Groupon prices IPO at $20 a share

LinkedIn third-quarter loss disappoints investors

-- Walter Hamilton

Photo: The entrance to Groupon's headquarters in Chicago. Credit: Tim Boyle/Bloomberg

Average student-loan debt tops $25,000 for first time

College-2-Uof Chicago-credit2UofC

You don't have to be a math major to understand this statistic: The average student-loan debt of last year's college graduates tops $25,000 -- the first time it's ever exceeded that ignominious mark.

Seniors who graduated in 2010 had an average student-loan burden of $25,250, up 5.2% from the $24,000 owed by the class of 2009, according to a report by the Project on Student Debt at the Institute for College Access & Success in Oakland.

Some experts had expected a bigger increase in debt given the gloomy economy, but increased financial aid at some schools partially offset the hit for low-income students and those at pricier colleges.

Still, the increased debt load is another negative for college graduates who already were facing a punishing job market. The unemployment rate for college graduates ages 20 to 24 rose to 9.1% last year, up from 8.7% in 2009 and the highest annual rate on record, according to the nonprofit research organization.

The report is based on data reported voluntarily by more than 1,000 public and private nonprofit four-year colleges. It did not include so-called for-profit colleges.

In California, the average debt load last year was $18,113, with 48% of graduating seniors owing money, according to the study.

Students and their families (who, after all, will be footing many of the college bills) can get data on average student-loan rates for many schools on the group's website in the link above.

RELATED:

California's 529 college-saving plan to gain options under TIAA-CREF

California's 529 college savings plan to be revamped

Contributions to college-savings 529 plans are rising sharply after falling during recession

-- Walter Hamilton

Photo credit: University of Chicago

 

California to close part of 529 college-savings plan

CollegeCalifornia is dropping a portion of its 529 college-savings plan.

Early next year, the state will close its “advisor-sold” unit, a small portion of the 529 in which residents invest in the plan through brokers and financial planners.

The state this year announced a revamp of its 529 ScholarShare plan, with mutual-fund
giant TIAA-CREF replacing Fidelity Investments as program manager.

TIAA-CREF will oversee the so-called “direct” portion of the 529, in which residents invest directly in the program (as opposed to buying through brokers or other outside advisors, which normally involves additional fees).

The “direct” unit, which has assets of $3.9 billion in 277,343 accounts, is much larger than the “advisor” unit, which holds $283 million in 22,565 accounts. Investors in the advisor program will automatically be shifted to the direct portion next spring.

TIAA-CREF will begin managing the direct program Nov. 7. Annual fees will range from 0.18% to 0.62%.

The state treasurer’s office tried to maintain the advisor program but couldn’t find a company willing to manage it.

“The decision to drop the advisor-sold plan was a difficult one and made only after ScholarShare made a concerted effort to keep it going,” Joe DeAnda, a spokesman for the treasurer’s office, said in a statement. “In the end, we were not able to find a manager that could deliver a competitive plan for our account-holders, and we felt the best option was to transfer them to our direct-sold plan.”

RELATED:

California's 529 college-saving plan to gain options under TIAA-CREF

California's 529 college savings plan to be revamped

Contributions to college-savings 529 plans are rising sharply after falling during recession

-- Walter Hamilton

Photo: Graduates of Emory University's School of Theology celebrate during a commencement ceremony in Atlanta. Credit: David Goldman / Associated Press

Americans cut college and retirement savings amid bad economy

Shuffleboard-MarkBoster-LAT
A sad old joke holds that people worried about their finances stuff their savings under their  mattresses.

Sadder still is that many Americans actually may be doing that.

More than one-quarter of Americans polled in a new survey said the best place to stash their limited savings is underneath their mattresses.

As with other recent studies of consumer attitudes in the troubled economy, the survey released Monday by Allianz Life Insurance Company of North America reflects the grim financial outlooks of many Americans, particularly toward their retirement and college-savings prospects.

Slightly more than half of working-age Americans question whether 401(k) and similar retirement plans will provide enough money for secure retirements.

Nearly half say the troubled economy has had an influence on their retirement saving. One in five people has cut spending to maintain their retirement savings levels, while 30% have either reduced their retirement contributions or stopped making them altogether.

“Given the gut-wrenching events and market volatility of late summer, consumers are questioning traditional retirement savings vehicles and changing their savings habits,” said Katie Libbe, a consumer expert at Allianz Life. “Recent events have only deepened the uncertainty many have felt about retirement since the market meltdown of 2008.”

The picture isn’t much better for college savings, with one in four people reducing or stopping their college contributions.

RELATED:

Weak stock market may be hurting weak economy, report suggests

Golden years take on new meaning: Americans expect to work

In paying for college, better to be lucky than smart

-- Walter Hamilton

Photo: A game of shuffleboard. Credit: Mark Boster / Los Angeles Times

Weak stock market may be hurting weak economy, report suggests

Luxury-spending-MariahTauger-LAT
Is the stock market a mirror that simply reflects what's going on in the underlying economy? Or is it a force unto itself, actually pushing the economy up or down?

That question -- whether there's a "wealth effect" or, in today's troubled economy, a "reverse wealth effect" -- has been debated a lot over the years. But it's getting renewed attention lately as investors, corporate managers and just about everybody else try to make sense of the stubbornly weak economy.

The basic question is whether the dramatic gyrations in the stock market -- and to lesser degrees, in the fixed-income and commodities markets -- affect consumer and business spending.

A new report from Merrill Lynch suggests the answer may be yes -- that the stock market is weighing on the economy because its acute fluctuations are so psychologically unsettling.

"Market expectations can be self-fulfilling in the short-run; the equity market can create its own reality," economists Neil Duta and Ethan Harris write in their report "The chicken or the egg?"

"In an environment of high uncertainty, the economy is more vulnerable to financial shocks," they wrote. "A sharp negative shift in investor sentiment can feed on itself, reducing economic activity. This is the big risk for the economy today."

Merrill points to the stock market's deep selloff last month after the U.S. government's credit rating downgrade by Standard & Poor's. The economy was weak but wasn't demonstrably worsening. But the selloff was so severe that it raised worries that the economy was sinking quickly.

The report quotes two prominent experts bemoaning the negative effect of the market.

“On days without much news, the market is simply reacting to itself," said Robert Shiller, a Yale University economics professor. "And because anxiety is running high, investors make quick, sometimes impulsive, responses to relatively minor events.”

And this from famed hedge-fund manager George Soros:

"If a double-dip recession was in doubt a few weeks ago, it is less in doubt now because financial markets have a very safe way of predicting the future: They cause it."

RELATED:

It's not 2008 all over again — yet

Americans are saving more in 401(k) retirement plans

Small investors feel -- what else? -- gloomy

-- Walter Hamilton

Photo: Shoppers wander down Rodeo Drive outside the Salvatore Ferragamo store in Beverly Hills. Credit: Mariah Tauger/Los Angeles Times

 

 

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