World financial news

European politicians are discovering what cometh after pride.

A week after lambasting the U.S. for allowing its banks to run out of money and after resisting calls to set up their own rescue mechanisms, leaders across Europe yesterday bailed out banks from Belgium, Germany and the U.K. Dexia SA today received aid from France and Belgium, while Ireland's government said it would guarantee bank deposits and debt for two years.

German Chancellor Angela Merkel and U.K. Prime Minister Gordon Brown may be forced to advocate a comprehensive approach of the kind U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke are urging Congress to pass. The two Americans turned to a broad package after early attempts to deal with each financial-institution crisis individually didn't work.

“The gods of the markets are punishing those who showed hubris,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Europe has been bashing the U.S., but it's realizing now it has its own problems.''

Paulson encountered difficulties yesterday when the House of Representatives voted down the $700-billion plan by a 228 to 205 margin. The failure to pass the legislation sent the Standard & Poor's 500 Index to its biggest decline since the 1987 crash. Paulson said he will work with Congress to salvage the proposal. Lawmakers may take up the measure again this week, House Majority Leader Steny Hoyer said.

`No Choice'

“The Americans have no choice. We must have a comprehensive solution,'' European Central Bank council member Christian Noyer said on RTL radio today. “I'm counting on a solution coming very soon.''

Yesterday, the British Treasury seized Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, hours after the Netherlands, Belgium and Luxembourg agreed to inject 11.2 billion euros ($16.1 billion) into Fortis, Belgium's biggest financial-services firm, in return for minority stakes. Germany guaranteed a 35 billion-euro loan to property lender Hypo Real Estate Holding AG.

Investors will dump shares of the continent's banks and keep borrowing costs elevated if leaders don't coordinate a solution, Lena Komileva, an economist at Tullett Prebon Plc, the second-biggest broker of transactions between banks, said in London.

`Clear Message'

“The U.S. experience should send a clear message to Europe that you need a contingency plan,'' said Komileva. “The fact there still isn't one will focus investors on the vulnerability of Europe's economy and financial system.''

French President Nicolas Sarkozy pledged yesterday to support that country's banks, paving the way for the 6.4 billion euro state-backed rescue for Dexia, the world's biggest lender to local governments. He met today with executives from banks and insurers and said he will announce measures next week to address the crisis. Peer Steinbrueck, Merkel's finance minister, yesterday called his country's package “the biggest bank bailout in German history.''

When Paulson asked European leaders on Sept. 21 to “do similar things'' as he was with the bailout package, the response wasn't enthusiastic.

Steinbrueck said the U.S. would lose its status as the “superpower of the global financial system'' and that the “Anglo-Saxon'' model of banking had “an exaggerated fixation on returns.'' Sarkozy decried the “mad system'' that sparked the meltdown in New York on Sept. 23. And U.K. Chancellor of the Exchequer Alistair Darling said the situation required “not a knee-jerk reaction, but a measured response.''

Rhetoric `Backfiring'

“The European rhetoric is backfiring as its own banking system comes under pressure,'' said Marco Annunziata, chief economist at Unicredit MIB in London credit scores.

Last yesterday, Brown told reporters “we will continue to take whatever steps are necessary'' to ensure financial stability.

Europe's leaders may have been foolhardy to think their banks would avoid the fallout. Of the $591 billion in losses and writedowns recorded by global banks since the start of 2007, 39 percent are accounted for by European institutions.

At the same time, economists at Citigroup Inc. said in a report yesterday that European banks, with lower profits and interest margins than those in the U.S., have “less cushion to absorb financial strains and losses.''

National Needs

In theory, the 27-nation EU should be a means of coordinating policy. The bloc has unified laws on trade and labor standards. But reaching a consensus requires agreement among 27 capitals, many juggling their own political needs.

Budget deficits also limit Europe's firepower. Barclays Capital estimates that of the large economies, only Germany, the biggest, has the fiscal room to finance a U.S.-like plan.

The European Commission, the EU's executive body, will unveil legislation this week aimed at strengthening bank monitoring across borders. It may let national authorities set capital requirements for their lenders operating in multiple countries, according to a draft obtained by Bloomberg News.

So far, though, governments have agreed only to knit supervision closer together by 2012 and pledged to cooperate in managing a crisis. They have also resisted devising a formula for splitting the bill should a cross-border bailout become necessary.

Cross-Border Reach

“We have been for a long number of years trying to get some kind of European supervisory authority for those institutions that have cross-border reach,'' EU Financial Services Commissioner Charlie McCreevy said yesterday in Dublin. “It is particularly difficult to get agreement among member states who want to preserve control of supervision.''

The ECB, which oversees monetary policy in the 15 nations sharing the euro, gives Europe one way of acting multilaterally. It joined the Fed, the Bank of England and other counterparts yesterday in injecting another $630 billion into the global financial system through currency swaps.

Politically, some European officials maintain they are equipped to deal with the crises. Dutch central bank governor Nout Wellink said in an interview yesterday that Fortis's rescue shows “that cross-border issues can be solved by respective governments.''

Still, Greg Fuzesi, an economist at JPMorgan Chase & Co. in London, noted that Dutch and Belgian authorities already had a support agreement in place, making Fortis “a special case.'' It remains “less clear whether European policy makers could agree and implement a system-wide fiscal package,'' he told clients.

Bank Liabilities

Ireland's decision to protect liabilities of about 400 billion euros for two years may be followed by other countries, economists said.

Daniel Gros, director of the Centre for European Policy Studies in Brussels, says European governments ultimately will have to put capital into their banks, which he calculates are more leveraged than their U.S. rivals.

“These are highly leveraged institutions which need to have support from the public purse,'' said Gros. He suggested that governments assign the European Investment Bank, the EU's financing arm, with the job of infusing 250 billion euros to support the region's banks, in return for an equity stake.

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The proposed bailout of the world’s financial system isn’t really about money, folks. It’s about psychology. In fact, you can think of it as the most expensive piece of psychotherapy in the history of the world.

The idea is that having Uncle Sam buy tons of trashy, hard-to-value financial assets will change the psychology of lending institutions throughout the world. This financial Prozac, as it were, would cure the lenders of their fear and depression, encourage them to start lending again, and induce investors to pump new capital into these capital-short institutions.

But psychology - even when practiced by masters like Treasury Secretary Hank Paulson and Federal Reserve Board chairman Ben Bernanke - isn’t an exact science.

That’s why I wouldn’t bet the farm on this bailout working as planned. How can I say that when some of the smartest investors in the land, like Warren Buffett and Bill Gross, shilled for the bailout plan?

Answer: Because Paulson and Bernanke have tried one thing after another to stimulate lending and restore confidence since the markets blew up in the summer of 2007, but nothing has worked for more than a brief period.

The two amigos had to ask Congress to fund the bailout, which comes directly from taxpayer money. But for the past 14 months they’ve thrown hundreds of billions of dollars of fed assets into the market, and lenders still won’t lend free credit report without a credit card. Recent figures show that the Fed has used recently created programs to put about $400 billion of cash and Treasury securities (which are the same as cash) into the credit markets, much of it as loans against hard-to-value securities. Despite that, debt markets are still glopped up (though things might be far worse, absent these programs).

What I find especially disturbing is that the Fed’s post-Bear-Stearns-collapse program to lend to investment banks didn’t forestall runs on investment banks, and Paulson’s guarantee of Fannie Mae and Freddie Mac debt didn’t settle those markets, forcing the Treasury to take the companies over. I thought both those programs would work.

It’s going to take quite a while to see whether the debt markets’ depression is lifted by the bailout - I wouldn’t place much faith in early reports.

And let’s not forget that there’s a long-term psychological cost to this fix: It has enraged ordinary taxpayers-and rightly so. Don’t be surprised if they lose faith in the supposed miracle of free markets, and in the financial system, and in the Fed and Treasury, which - unlike Washington pols - have been generally revered. That loss, in fact, may be the bailout’s biggest cost of all. 

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Treasury Secretary Henry Paulson fired his bazooka again, but the target remains elusive.

Paulson has proposed using $700 billion of taxpayer funds to relieve struggling financial firms of distressed mortgage assets. He did so, he said Friday, as part of a "comprehensive approach to relieving the stresses on our financial institutions and markets." He then spent the weekend and Monday on a non-stop sales call to TV studios and Capitol Hill offices.

But a selloff in the dollar and U.S. stocks shows that the stresses remain, if perhaps in different form. Investors spent Monday taking the two big pluses on the U.S. economic landscape in recent months - the recovery of the dollar and the collapse of commodity prices - and turning them back into minuses. The dollar dropped the most in its history against the euro, and oil prices surged as much as 22%. Early Tuesday, crude prices retreated sharply, falling below the $108-a-barrel mark.

The flight from U.S. assets reflects fears that the tab for the financial system bailout isn’t about to be closed out any time soon. Paulson’s plan for Wall Street creates an opening for congressional Democrats to demand a similarly costly plan for Main Street, says Benn Steil, director of international economics at the Council on Foreign Relations. Meanwhile, it’s far from certain that the Paulson proposal - or the Main Street alternative - will do anything to stabilize tumbling values in the housing or asset markets.

"I’m extremely worried about this plan," said Steil. "This looks like something cobbled together in a panic."

Steil knows a thing or two about plans to clear the market for troubled mortgage assets, having presented one himself last December in the pages of the Financial Times. Steil and co-author Mark Fisch sketched out a proposal in which a new government entity, modeled after the Resolution Trust Corp. used in the savings and loan bailout of the 1980s, would evaluate mortgage-backed securities and classify those presented for sale in one of five tiers.

The government would offer to pay 70 cents on the dollar for Tier A assets, 60 cents for Tier B, and so on down to 30 cents for Tier E. The goal of this setup, Steil says, is to put a floor under asset values - an event that should bolster the credibility of financial companies’ balance sheets. Setting a floor on the value of these assets could also entice the deep-pocketed opportunists who have largely kept to the sidelines - namely hedge funds and private equity funds - to enter the market, perhaps in some cases outbidding the government for the assets and thus limiting taxpayers’ exposure.

Steil points to investments such as Citadel’s purchase of troubled securities from E*Trade (ETFC) last November as an example of the types of deals that might take place given greater transparency on asset values pay day loan. A similar but more recent deal had Merrill Lynch (MER, Fortune 500) selling a huge portfolio of troubled debt to Lone Star Funds for less than a quarter on the dollar.

By contrast, Paulson’s plan threatens to turn $700 billion of taxpayer dollars loose on the marketplace, in an apparent bid to prop values up. But while details of the plan remain scarce, skeptics of the setup note an absence of the transparency that Paulson himself has been such an outspoken advocate of, and the fear that in the absence of private bidders for mortgage assets, the government’s balance sheet will end up stuffed with junk.

"These are very toxic assets, whose valuations are extraordinarily uncertain at best," said Steil. "I can’t see this not having an impact on the dollar."

Indeed, the dollar made its worst-ever daily showing against the euro Monday, slumping to $1.48 to the euro from $1.38 just two weeks ago. And the dollar could fall further once the fears of a financial system unwinding finally pass, whenever that happens. The greenback managed to crawl higher early Tuesday, up $1.47 versus the euro.

"Once the liquidity crisis subsides, the market is likely to focus on tallying up the bill to the U.S. taxpayer," wrote Merrill Lynch economist Alex Patelis. "We remain concerned with the repercussions that this crisis will have on financial flows into the United States against the context of a still large current account deficit."

The mortgage bailout is the latest episode in a long-running drama pitting Paulson and other policymakers against the unwinding of the credit bubble that inflated earlier this decade.

In one memorable scene in July, Paulson - trying to justify his request for the authority to use taxpayer funds to backstop the mortgage finance companies Fannie Mae and Freddie Mac - advised Congress that "if you have a bazooka in your pocket and people know it, you probably won’t have to use it."

Two months later, alas, the debt markets were in disarray again, prompting Paulson to drop the military imagery and take the companies into government conservatorship.

It will be days or weeks before the mortgage legislation wends its way through Congress, meaning that a final verdict on the project is still a ways off. In the meantime, Steil believes there is one surefire bull market: in lobbying Congress over the final shape of the bailout legislation.

"The amount to be spent in lobbying will be huge," he said. "It’s difficult to see where this all ends."  

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Chancellor of the Exchequer Alistair Darling vowed to respond to the financial crisis by tightening regulation and cracking down on bonuses, as the U.K. government tries to improve its standing with voters.

The Treasury will introduce a bill in Parliament within two weeks to redraw U.K. banking rules, and regulators will probe a bonus culture that spurred excessive risk-taking, Darling told the ruling Labour Party's annual conference in Manchester.

“We are putting in place both here in the U.K. and internationally the tougher financial regulation no one can doubt we need,'' he said. “I will continue to do whatever it takes to maintain financial stability and I remain confident we will do so.''

Darling and Prime Minister Gordon Brown are counting on their handling of the financial turmoil to turn around Labour's political fortunes as polls point to a landslide victory for the opposition Conservative Party at the next general election.

Darling said a “culture of huge bonuses'' had distorted financial decisions, although he dismissed calls from unions and some Labour lawmakers for legislation to limit the payouts to bankers. He defended the decision to limit the influence of speculators by banning short selling of financial shares for the rest of the year.

Banking Bill

The government will introduce the banking reform bill when Parliament returns from its summer break early next month, he said.

The legislation, promised by Brown in May, was prompted by the collapse of Northern Rock Plc a year ago. Depositors besieged Northern Rock branches for days after the credit crunch cut off the mortgage lender's main source of funds.

The bill aims to make it easier for U.K. authorities to intervene when a bank gets into difficulties and increase the safety of customer deposits by expanding compensation arrangements.

Brown is staking his own survival on convincing voters that his command of the crisis — he last week helped to secure the takeover of HBOS Plc after shares in the mortgage lender collapsed — proves he is the best person for the job.

A revolt against Brown's leadership erupted this month as about a dozen Labour lawmakers called for a contest to replace him, although no one has joined in recent days after Cabinet ministers rallied behind him and demanded an end to the squabbling.

Endorsement

Darling began his speech with an explicit endorsement of Brown.

“These are very uncertain times. But one thing I am certain about is that we have the right prime minister,'' he said faxless payday advances. “A prime minister with experience and judgment who has helped deliver a decade of rising living standards.''

Brown began to lose support in October, three months after he took over from Tony Blair, after he allowed speculation about an early election to build, only to back away when a Conservative tax-cutting pledge proved popular with voters.

His woes deepened as the housing slump worsened and soaring food and fuel prices ate into household incomes. With Britain on the brink of a recession, popular support for the Conservatives is at its highest since Margaret Thatcher was prime minister 20 years ago, an Ipsos-Mori Ltd. poll published last week showed.

The slump has damaged Brown's reputation, built during a decade as finance minister, as a competent manager of the economy who presided over the longest expansion in 200 years.

`Times are Hard'

Darling today repeated that Britain is a victim of global events, and that the economy is well placed to deal with the fallout. He acknowledged that that “times are hard,'' saying unemployment had risen and that inflation is higher than he would like.

Critics meanwhile say Brown stood by while households amassed record debts, much of it tied to a housing boom that burst, and bankers earned billions for bets that led to the credit crunch. In the U.K. alone, bonuses totaled 7 billion pounds ($13 billion) last year.

Darling “must curb boardroom pay,'' said David Prentis, general secretary of the Unison union, which represents 1.34 million government workers. “That is causing huge resentment among ordinary, hard-working families.''

Brown has also left little room to offer a U.S.-style fiscal stimulus after he borrowed heavily to pay for investment in schools and hospitals, the Conservatives say. Debt has climbed to 38.3 percent of gross domestic product, from 30 percent six years ago, putting Brown at risk of breaking the 40 percent ceiling he imposed in 1997.

Darling ruled out immediate tax rises to curb the budget deficit, saying now is not the time to take money out of the economy, but left the door open to increases in future.

Governments had to live within their means in the medium- term, and the annual pre-budget report later this year will set a course of “sound'' pubic finances, Darling said.

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U.S. stocks were little changed this week.

The CHART OF THE DAY shows the swings in the Standard & Poor's 500 Index that left the equity benchmark up 0.3 percent since Sept. 12. That's the smallest weekly move for the S&P 500 in a month, even as it posted the biggest daily plunges in seven years and the steepest two-day surge since the aftermath of the October 1987 stock-market crash.

The index tumbled more than 4.7 percent twice after Lehman Brothers Holdings Inc.'s bankruptcy, Bank of America Corp.'s takeover of Merrill Lynch & Co. and the government seizure of American International Group Inc. The S&P 500 ended the week by jumping 8.5 percent in two days on the government's plan to purge banks of bad assets and crack down on short sellers bad credit payday loans.

“We moved around a lot to get nowhere,'' said Douglas Peta, a New York-based market strategist at J&W Seligman & Co., which manages about $20 billion. “If you were away for a week and just came back and looked at the indexes, you'd say to the person next to you, `nothing happened while I was gone, huh?'''

The S&P 500 added 3.38 points to 1,255.08 this week.

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BOSTON — Putnam Investments on Thursday suddenly closed a $12 billion money-market fund and announced plans to return investors’ money after institutional clients pulled out cash despite the fund’s lack of exposure to troubled financial firms such as Lehman Brothers Holdings Inc.

The move, believed to be unprecedented in the nearly $3.4 trillion money-market fund industry, came a day after asset managers sought to reassure investors in the wake of a massive pullout from large retail fund Reserve Primary Fund. The run on that fund caused its assets to plunge in value by nearly two-thirds and fall below $1 for each dollar invested, exposing investors to losses of 3 cents on the dollar.

While Boston-based Putnam said its Prime Money Market Fund continued to hold $1 in assets per dollar share as of Tuesday, it "experienced significant redemption pressure" on Wednesday.

The firm’s trustees voted to close the fund and distribute all assets to investors, an action Putnam said was "not related to the portfolio’s credit quality, but was instead a reaction to marketwide liquidity issues."

When a fund suffers a sudden rush of orders to pull out money, fund managers must sell assets, typically at a loss when it must be done quickly, and especially amid this week’s market turmoil.

On Wednesday alone, investors pulled more than $89 billion from money-market mutual funds, according to data from iMoneyNet, publisher of the newsletter Money Fund Report faxless payday loan. Combined with an additional $80 billion removed in the five preceding business days, total fund assets shrank nearly 5 percent from Sept. 10 to Wednesday, when the total stood at $3.35 trillion — the biggest weekly drop since iMoneyNet began tracking such data in 1975.

In explaining its decision to close Prime Money Market Fund, Putnam said, "Serious constraints on liquidity in money market instruments created the risk that in order to process redemptions, the fund would realize losses in selling its portfolio securities. In the face of these challenges, the trustees determined to close the fund to ensure equitable treatment of all fund shareholders."

Putnam also asserted that the fund, like its other money market funds, had no exposure to securities of Lehman Brothers, Washington Mutual or AIG at the parent-company level.

Putnam spokeswoman Sinead Martin said the fund held $12.3 billion in assets as of Tuesday, down from $15.4 billion on Aug. 31.

The four-year-old fund is limited to institutional investors — such as corporations and pension funds — making initial investments of at least $10 million. Putnam’s website says the fund’s top holdings included several financial firms, led by Unicredito Italiano, and such banks as Royal Bank of Scotland and Bank of America.

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The Federal Reserve and Treasury's efforts to solve the financial crisis may have only undercut the ability of banks and Wall Street firms to raise new equity capital, leaving them to fail or be taken over.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are now working with Congress on what Paulson described as a more “comprehensive approach,'' after finding that case- by-case bailouts only produce runs on more firms. The new plan will help banks get rid of “illiquid assets'' on their books, he said after meeting legislators late yesterday.

Over the last six months, each decision on the fate of a failing firm prompted traders to speculate on the outcome at others. The Fed's $114 billion in loans to protect the creditors of Bear Stearns Cos. and American International Group Inc., and the U.S. Treasury's backstopping of $5.2 trillion in Fannie Mae and Freddie Mac debt and securities added to the domino effect.

“Bailouts are creating weird incentives,'' said Raghuram Rajan, a University of Chicago economist and former chief economist at the International Monetary Fund. “When you point out the guys you are going to back, you point out the next sitting duck.''

While the Fed and Treasury refused to commit public resources to Lehman Brothers Holdings Inc., the negotiations pointed to large risks inside investment banks. Shares of Morgan Stanley plunged more than 40 percent this week before gaining 3.7 percent yesterday following news of the talks on creating an authority to buy up illiquid assets.

`Unintended Consequences'

The “unintended consequences of bailouts are at work,'' said Gerald O'Driscoll, a former vice president of the Dallas Fed and a scholar at the libertarian Cato Institute in Washington. “Lehman Brothers came under attack because investors rationally assumed it was plagued by some of the same problems that ailed Fannie and Freddie: failure to mark assets to market.''

Now, Treasury and the Fed are in discussions with congressional leaders on a wider plan to break the cycle americashadvance.

Shareholders lost in the rescues of creditors to Fannie Mae, Freddie Mac, AIG, and Bear Stearns Cos. Shares of Fannie Mae closed at 43 cents yesterday after trading above $7 two weeks earlier. Shares of AIG closed at $2.69 after ending last week at $12.14.

Paulson said after yesterday's meeting that he and Bernanke are working on “an approach to deal with the systemic risk and the stresses in our capital markets. We talked about a comprehensive approach that will require legislation to deal with illiquid assets'' held by financial institutions.

Bankers Complain

The meetings on Capitol Hill came as the banking lobby complained that the federal seizure of Fannie Mae and Freddie Mac hurt commercial banks by devaluing their holdings in the government-sponsored enterprises.

“The unexpected losses to holders of GSE preferred shares will inhibit a sizable number of banks from making new mortgages or providing other financing,'' American Bankers Association President Bradley Rock said in a letter to Bernanke and Paulson. Rock asked for “prompt, comprehensive action to alleviate the unintended consequences'' of the takeover of the GSEs.

Bernanke came into office advocating rules and transparency as a matter of public accountability. Now, the central bank's Board of Governors, advised by the New York Fed, has been determining on a case-by-case basis who wins and who fails.

“Random bailouts confuse markets so that investors have no idea what to do,'' said Joseph Mason, a Louisiana State University finance professor who served in the bank-research division of the Office of the Comptroller of the Currency from 1995 to 1998. “Such a policy will certainly draw out the economic effects of the crisis for far longer than would otherwise be the case.''

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Morgan Stanley topped the list of major financial firms scrambling to find a buyer, while central banks rushed in $180 billion of extra liquidity to bring some calm to panicked stock and money markets.

Morgan Stanley was discussing a deal with U.S. regional banking powerhouse Wachovia, according to a source familiar with the matter, while CNBC said HSBC Holdings and China’s CITIC Group were also eyeing Wall Street’s second-largest investment bank.

Morgan Stanley shares were up 5 percent in trading before the New York Stock Exchange opened.

British bank Lloyds TSB took advantage of the market turmoil to achieve a long-held ambition by scooping up the country’s biggest mortgage lender HBOS in a $22 billion all-share deal to end a slump in HBOS shares prompted by fears about its funding.

HBOS stock soared 49 percent, while the UK government promised to rewrite competition laws to let the deal go through.

As Morgan Stanley cast around for a lifeline, the Government of Singapore Investment Corp (GIC) said it would consider all possibilities, including taking a stake if approached.

A Morgan Stanley spokesman in Hong Kong declined to comment cash advance loans. A spokeswoman at HSBC, which this week became the world’s biggest bank by market value, also declined to comment, though a source told Reuters the bank wasn’t interested.

A senior executive at the Chinese group’s CITIC Securities arm said his firm was not in any talks about investing in Morgan Stanley, and an official at the CITIC group could not be reached for comment. 

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How do you measure the fuel economy of an electric car? Is it the equivalent of 80 miles per gallon? 8,000?

Turns out it’s a thorny issue - and General Motors is currently in long-term discussions with the Environmental Protection Agency to develop a standard.

The decision could make a big difference for GM (GM, Fortune 500), which is expected to unveil the Volt this week. The automaker’s first long-range electric car could hit showrooms by 2010. The compromise between GM and the EPA could have a major impact on how effectively the Volt is marketed.

Discussions are still a long way from resolution, but progress is being made, said GM spokesman Kyle Johnson. "This is a very analytical and a very thoughtful process," Johnson said.

The EPA will say only that it is "still developing its policy for testing, measuring, and reporting fuel economy for plug-in electric hybrid vehicles."

Fuel economy for hybrid vehicles like the Toyota Prius is displayed in the same way as it is for any other gasoline-powered vehicle. It gets 46 mpg, for example, versus 19 mpg for a V-6 Ford Mustang.

That standard works because all the energy used by the Prius ultimately comes from burning gasoline. The Prius just uses that energy more efficiently than other cars do.

The Chevrolet Volt, on other hand, will get its power from two sources - a battery as well as a gasoline engine. How much of each depends largely on how far the car is driven.

The Volt’s lithium-ion batteries will hold enough juice to drive the car for about 40 miles, GM has said. Once the car goes beyond that, a small gasoline engine will turn on, generating electricity to power the wheels.

When gasoline is providing the power, the Volt might get as much as 50 mpg. Since the gas engine is only generating electricity and because the battery will still have enough charge leftover to provide additional power for passing and merging, the Volt will still be very efficient even when running on gas power.

But that mpg figure does not take into account that the car has already gone 40 miles with no gas at all.

So let’s say the car is driven 50 miles in a day. For the first 40 miles, no gas is used and during the last 10 miles, 0.2 gallons are used. That’s the equivalent of 250 miles per gallon.

But, if the driver continues on to 80 miles, total fuel economy would drop to about 100 mpg.

And if the driver goes 300 miles, the fuel economy would be a just 62.5 mpg faxless cash advance.

One way to perform a these tests has been suggested by the California Air Resources Board, which will have to test these cars to ensure compliance with that state’s strict emissions standards. The CARB tests are based on a set of standards created by the Society of Automotive Engineers in 1999, anticipating just this sort of challenge.

"Right now, this is definitely the most complex testing we’ve ever done - by far," said John Swanton, an air pollution specialist with CARB.

CARB has proposed testing the cars twice.

Once, the cars will be run through a standard set of laboratory "driving" tests on a fully charged battery. These tests will only be used to verify electric-only driving range.

A second test will be with the battery drained, forcing use of the gas engine for the entire time. That will give CARB engineers a "worst case scenario" picture of tailpipe emissions.

CARB will use both tests to determine the emissions and fuel economy.

If CARB uses the SAE’s standards then, based on the Volt’s all-electric range, its fuel economy would be roughly double the "worst case scenario."

So if the Volt were to get, say, 50 miles a gallon while operating solely with its gasoline engine, the fuel economy rating would be 100 mpg.

Even so, that would be highly theoretical, much more so than for other cars. A Prius gets about 45 mpg in city driving no matter how far you drive it. The Volt’s fuel economy estimate would apply only in one specific scenario.

GM’s solution: Embrace the complexity.

A fuel economy window sticker proposed by GM in an April 2008, presentation to federal regulators shows fuel economy measured three ways: City and highway miles per gallon, city and highway miles per kilowatt hour and city and highway range (electric-only and total range.)

Assuming car shoppers know their local electrical rates, that information should allow them to judge how much the Volt would cost them to drive compared to other cars.

The trend with federal regulators like the EPA and NHTSA has been to simplify information for consumers, though, not make it more complex. In this case, that will be hard to do while still providing something meaningful. 

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Asian economies will expand at a slower-than-expected pace this year and next as growth in the U.S., Europe and Japan weakens and central banks pursue policies to quell inflation, the Asian Development Bank said.

Asia excluding Japan will grow 7.5 percent this year, less than an April estimate of 7.6 percent, the Manila-based institution said in a report today. The region will expand 7.2 percent in 2009, the lender said.

The U.S. housing slump has roiled financial markets and forced Lehman Brothers Holding Inc. to file for bankruptcy yesterday, deepening a crisis that threatens to tip the world into a recession. A slowdown will hurt demand for Asian-made goods and reduce expansion in a region the ADB says will account for more than a fifth of global growth this year.

“The global economy is in trying times,'' the ADB said. “The financial crisis has spread and has severely affected even those countries with limited exposure to the problem of the U.S. subprime market. Developing Asian economies are being caught between rising inflation pressures and weakening growth prospects.''

The economies of Europe and Japan contracted last quarter, while the U.S. has lost 605,000 jobs this year. The world may face “Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, said Tony Tan, deputy chairman of sovereign wealth fund Government of Singapore Investment Corp payday loan.

Inflation in Asia will reach 7.8 percent this year, higher than an April forecast of 5.1 percent that was already the most in a decade, the ADB said. Prices may ease to 6 percent next year, the report said.

Tightening Measures

“Monetary policy has a major role in containing these price pressures, and regional economies need to address rising inflation even at the expense of slower short-term growth,'' the ADB said. “Central banks should impose the requisite tightening measures to prevent inflation from becoming entrenched in their economies.''

The ADB left its forecast for China's growth this year unchanged at 10 percent, and reduced its prediction for next year to 9.5 percent from 9.8 percent. India will expand 7.4 percent in 2008, and 7 percent next year, lower than initial projections, it said.

The People's Bank of China will probably start easing bank lending controls in the second half, the ADB said. China yesterday said it will lower the one-year lending rate and cut the proportion of deposits that the nation's smaller banks must set aside.

In India, the central bank will probably implement “additional tightening in policy'' to fight inflation, according to the ADB.

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