Soon after he began running for Congress in 2009, Michael G. Grimm, a Staten Island Republican, needed to convince party leaders in Washington that he could raise enough money to become a viable candidate. Seeking help, he turned to an unlikely source: followers of an Orthodox rabbi and mystic from Israel.

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Yossef Ben Yossef

Ofer Biton, a former aide to Rabbi Yoshiyahu Yosef Pinto, is said to have helped raise money for Mr. Grimm’s 2010 House campaign.

Mr. Grimm, a former agent for the Federal Bureau of Investigation and a Roman Catholic who regularly attends Sunday Mass, traveled around the New York region with one of the rabbi’s top aides, Ofer Biton, to raise campaign money from the rabbi’s followers. In all, the Grimm campaign collected more than $500,000 from the followers, according to numerous interviews and an analysis of Mr. Grimm’s campaign records.

That money — more than half of the total that Mr. Grimm raised from individuals — proved instrumental in his upset of the Democratic incumbent in November 2010. Since then, Mr. Grimm has established a profile as a rising Republican star.

But now, Mr. Biton, an Israeli citizen, is being investigated by the F.B.I. and federal prosecutors in Brooklyn over accusations that he embezzled millions of dollars from the rabbi’s congregation. And an examination by The New York Times has highlighted Mr. Biton’s unusual role in the Grimm campaign — as well as questionable donations that the rabbi’s followers said Mr. Grimm had accepted.

The examination of Mr. Grimm’s fund-raising was based on more than 15 interviews with followers and associates of the rabbi, Yoshiyahu Yosef Pinto, who divides his time between Israel and Manhattan, where he has a large congregation.

Mr. Grimm would not respond to questions about Mr. Biton and his campaign finances beyond issuing a general statement.

“Any suggestion that I was involved in any activities that may run afoul of the campaign finance laws is categorically false and belied by my life of public service protecting and enforcing the laws of this country,” Mr. Grimm said in the statement on Friday.

In interviews, followers of the rabbi spoke repeatedly about the close ties between Mr. Grimm and Mr. Biton.

“Grimm and Biton were together all the time during the campaign,” said one of the followers, Yossi Zaga, a real estate investor who donated $4,800, the legal limit, to Mr. Grimm at Mr. Biton’s urging. “They would drive around together to the homes and offices and ask for contributions.”

Three of the rabbi’s followers said in separate interviews that Mr. Grimm or Mr. Biton told them that the campaign would find a way to accept donations that were over the legal limit, were given in cash or were given by foreigners without green cards.

Congressional campaigns are not allowed to accept cash donations of more than $100. Foreigners without green cards are barred by law from giving to political campaigns. They are also not allowed to solicit contributions for campaigns.

One follower of the rabbi said in an interview that Mr. Grimm pressed him for $20,000. The follower said Mr. Grimm instructed him to meet him “near the F.B.I. building,” in Lower Manhattan, in summer 2010 to give the money. The follower said he handed over $5,000 in cash in an envelope to Mr. Grimm in Mr. Grimm’s car.

Within a week, the follower said, he gave Mr. Grimm a $5,000 check from a friend. Mr. Grimm then repeatedly called the follower and demanded another $10,000, the follower said.

“Every day, he used to call me, over and over,” the follower said.

The follower said he ignored the calls and did not give again.

A second follower recalled that Mr. Grimm came to his office in Manhattan to solicit a legal contribution. As he was handing over the check, the second follower said, Mr. Grimm confided in him that there were ways of working around the campaign rules.

“Grimm wanted you to supply the money, and if someone wants to give and cannot give, you have to find a friend to give it through,” the second follower recalled. “Let’s say someone is not legal to give because he’s not American. Grimm wants this guy, Joe A, to give the money to Joe B so Joe B can make the contribution to the campaign.”

A third follower said he picked up, at Mr. Biton’s behest, $25,000 for Mr. Grimm’s campaign from a single Israeli.

“I give the checks to Ofer, and he gives them to Michael,” the third follower said.

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Alain Delaquérière and Griff Palmer contributed reporting.

Winning our Future, the Newt Gingrich-allied super PAC, is set to release another anti-Mitt Romney short documentary, this time focused on Bain Capitals involvement with a company guilty of Medicare fraud.

The video will be much shorter than the groups previous effort — a nearly 30-minute long video titled King of Bain, which focused broadly on Romneys private equity days. This one will be seven to eight minutes in length, according to Winning our Futures executive, former Gingrich press secretary Rick Tyler.

And it will focus strictly on Damon Corporation, Tyler added.

Damon Corp. was a Massachusetts-based medical testing company that pleaded guilty to defrauding the government to the tune of $25 million. Bain purchased controlling interest in the company in 1989 and Romney personally sat on the board of directors. By the time Damon Corp. paid a $119 million fine (in 1993), Bain had sold the company to Corning Inc.

Tyler would not reveal his methods for shooting the film. But he did say that there were designs to turn it into 30-second or minute-long commercials to air either in Florida or other primary states. On Thursday afternoon, Winning our Future released a trailer for the film (see above), a rapid-fire clip reminiscent of a feature-film trailer.

In a statement to the The Huffington Posts Jon Ward, Romney spokesperson Gail Gitcho noted that the last Winning our Future documentary ended up being a flop, buried by accusations that it misquoted its subjects and misled on its material.

Well, we know that the last Gingrich group film went down as a spectacular failure, Gitcho said. If they want to keep attacking free enterprise, thats fine. We will have that debate.

That said, Damon Corp. presents a more acute political problem for Romney than his private equity career at large. Already, the union AFSCME is up with ads in Florida going after the former Massachusetts governor for his service on the companys board. The spot fails to note that a federal investigation into the matter never implicated Romney. But the fact that Romney did make $473,000 during his time with Damon Corp. underscores the charge that he profited on top of a Medicare-fraud mess.

John C. White, Louisianas newly appointed Superintendent of Education, speaks with 7th-grader Michael Norris during a recent visit to Cope Middle School. In the background is principal Judy Grooms. / Jim Hudelson/The Times

Its a freak of nature, and when Hopkins looked eye-to-eye, and, well, eye-to-eye again, at the mounted head, it made him contemplate what other kind of absurd animal roamed in the wild. Why couldnt a cow with three heads be alive and mooing?

Hopkins has never been afraid to look at life differently from the rest of the pack.

Imprisoned as a teen, the oldest fighter to ever win a major championship at 46, Hopkins long ago stopped worrying about what society thinks. When the critics howl he should quit, or a promoter tells him his last pay-per-view fight bombed, Hopkins just ditches the Prada glasses and button-down designer vest and suit, steps again through the ropes and into a ring.

I refuse to be the norm, Hopkins said.

Oh, no one would dare accuse Hopkins of conforming. Hes always good for a few surprises.

At a 47th birthday celebration this week at the Philadelphia gym where he trains, Hopkins, who usually bobs and weaves around treats, licked the frosting off his cake. For a fighter known for a frugal lifestyle and a bedtime more suited for young children, it was a rare indulgence saved for a special occasion.

Believe it or Not, Bernard Hopkins is 47, was inscribed on B-Hops cake.

The event was less a birthday bash and more about the Philadelphia arrival of his wax figure. The likeness was created by Ripleys Believe It Or Not! in honor of Hopkins becoming the oldest fighter in boxing history to win a world title in May 2011. As far as the coolness factor rates, Hopkins statue fits in somewhere between similar lifelike creations of the Worlds Tallest Man and the Mexican Vampire Woman.

It was a visit to the Ripleys museum in Hollywood where Hopkins saw the double-headed calf and, in a way, could relate to the outcast bovine.

As Hopkins draws closer toward his careers final bell, the awe of winning major fights in his 40s has morphed into questions of why hes still fighting closing in on 50. After an ugly bout and controversial — and overturned — finish against Chad Dawson in October, Hopkins knows his time, at last, is running out.

With 61 pro fights behind him, Hopkins appears on the brink of stepping away from the sport for good. He has the WBC light heavyweight championship, but no immediate fights ahead. Hed like to fight again in the spring in Atlantic City, New Jersey, or even in Canada, and a potential rematch with Dawson looms. If that falls through, Hopkins openly talks about challenging IBF super middleweight champion Lucian Bute.

Either way, the time appears right for the ageless Hopkins, second only to Joe Frazier among Phillys greatest boxers, to quit.

Just dont expect him to retire because someone else tells him its time.

They cant give you a reason other than, Youre 47 and you dont need to do it anymore, Hopkins said. I havent had that type of fight to say that, physically, Bernard Hopkins should stop fighting, or his head is not right, or he cant put three sentences together, or hes fighting to keep his electric on. That hasnt, and would not be, Bernard Hopkins.

The Dawson debacle, though, was as bizarre an ending to a Hopkins fight as any in a career that dates to 1988. Dawson lifted Hopkins off his feet by standing up, tossing him onto the canvas. Hopkins landed on his back and immediately clutched his shoulder and grimaced in pain. Apparently unable to continue, referee Pat Russell ruled Dawson hadnt fouled Hopkins, stopped the fight in the second round, and awarded the belt to Dawson.

Last month, the California State Athletic Commission overturned the decision and declared the bout a no-decision. The move means Hopkins still has never lost a fight by stoppage in his 23-year career.

The thing about that fight that disappointed me was the people who seemed to lose confidence in Bernard, trainer Nazim Richardon said.

Hopkins hasnt knocked out an opponent since Oscar De La Hoya in September 2004 — 13 fights ago. His bouts have been decided by decision since with the exception of a draw in the first Jean Pascal fight in 2010 and the no-contest against Dawson.

In the Pascal rematch, Hopkins won and dethroned George Foreman as the oldest boxer to win a world title.

Known as The Executioner, theres little left for Hopkins to chase.

Its about maximizing the dollars at this stage of my career, and what does it mean for me and my legacy, Hopkins said.

His legacy is secure as one of boxings all-time great middleweights.

Outside the ring, hes made a national name for his outlandish comments, like barking at Joe Calzaghe, Ill never let a white boy beat me, or ripping former Philadelphia Eagles quarterback Donovan McNabb.

No matter the opponent, Hopkins insists he wont announce his retirement until after his final bout. He doesnt want a farewell tour. Hopkins said no one will know heading into each bout if this is really it for the efficient fighter.

Even in his down time, Hopkins keeps winning. A Philadelphia jury this week issued a no-merit ruling in his favor in a breach-of-contract action brought by the estate of Hopkins former trainer, the late Bouie Fisher. The suit sought $1.3 million in unpaid trainers fees for several Hopkins fights from 2004-05. Fisher, who molded a raw Hopkins into a champion, died last year.

The fighter credits what he learned doing prison time for strong-arm robberies for helping him overcome obstacles on the outside.

The greatest thing I had in prison, was patience, Hopkins said. Let that clock run down 46 months. Thats a long time when youre 17 years old. I had to have patience when this guys trying to hang himself, this guys trying to cut himself with a razor blade, and this guy is trying to escape any way he can escape. Thats a strong discipline. I just transferred that discipline in there and I took it into my life.

With his dapper attire, millions stashed away, and full use of his senses, hes beaten the odds in the fight game. Hes had enough career-defining performances to fill the resumes of multiple fighters.

Hopkins has it all — except for that overwhelming desire to close the book on his career.

I will go out and I will finish this, whenever it is, the only way I know how, he said.

My way.

Citing recent progress in infrastructure, employment and ethics-related bills in the legislature, Louisiana Gov. Bobby Jindal is now focusing his efforts to improve public education with significant reform proposals.

Its a topic – buoyed by declining school test scores – that has initiated comprehensive structural changes in several states, with many more eyeing the developments.

Speaking at the Louisiana Press Association luncheon in West Monroe Thursday, Jindal, recently sworn in for his second term, said childrens future and the economic prosperity of the state are at stake.

The way forward is for more choices. Our children grow up only once, Jindal said.

A contingent of representatives from Bastrop attended the luncheon, including Morehouse Police Jury President Terry Matthews, Bastrop-Morehouse Chamber of Commerce Director Dorothy Ford and its board of directors president, the Rev. Chad Ballard.

They, along with about 500 guests, heard Jindal speak on three basic educational areas his administration is focusing on revamping, including:

* Fostering equal educational opportunities for families.

* Re-assessing teacher effectiveness and salaries.

* Enabling school-system administrators to spend tax dollars in innovative, effective ways on the local level.

Jindal cited previous speeches by members of Congress and President Obama that emphasize that its the right of all children to receive a quality education – and not one predicated on race, background or zip code.

Many families move to locations where the schools are good, others send their children to private schools. Good for them, he said. But the reality is that too many families dont have those choices because they cant afford to relocate. Parents should not be trapped in a (poor performing) school district.

In response, the governor wants the legislature to give families more access to school vouchers, the formation of more charter schools, more business, online and university-led courses, and a loosening of restrictions that inhibit families ability to transfer to other districts.

He spoke at length about studies that have revealed how much the impact of a teacher can make or break a students future and aggregate income level.

According to studies, an effective fourth-grade teacher can affect whether a student goes on to college and decrease the chances of teenage pregnancies, he said.

He said more efforts are needed to eliminate the gratuitous bureaucratic paperwork that teachers tackle every school year.

Making structural changes that could replace less effective teachers with proven quality teachers is likely to draw criticism from teachers unions due to the current tenure policy, Jindal acknowledged.

Some will argue for the status quo, but now is the time to realize the need for change, he said.

With regards to localizing decision-making, Jindal said that while there are school districts facing problems, the ones that are working well in both flourishing areas and in impoverished areas all have one common denominator. They are innovative.

We must do what we can so schools can do more independently, including giving them flexibility, Jindal said.

President Obamas new plan to force colleges and universities to contain tuition or face losing federal dollars is raising alarm among education leaders who worry about the threat of government overreach. Particularly sharp words came from the presidents of public universities; theyre already frustrated by increasing state budget cuts.

The reality, said Illinois States Al Bowman, is that simple changes cannot easily overcome deficits at many public schools. He said he was happy to hear Obama, in a speech Friday at the University of Michigan, urge state-level support of public universities. But, Bowman said, given the decreases in state aid, tying federal support to tuition prices is a product of fuzzy math.

Illinois has lowered public support for higher education by about one-third over the past decade when adjusted for inflation. Illinois State, with 21,000 students, has raised tuition almost 47 percent since 2007, from $6,150 a year for an in-state undergraduate student to $9,030.

Most people, including the president, assume if universities were simply more efficient they would be able to operate with much smaller state subsidies, and I believe there are certainly efficiency gains that can be realized, Bowman said. But they pale in comparison to the loss in state support.

Bowman said the undergraduate experience can be made cheaper, but there are trade-offs.

You could hire mostly part-time, adjunct faculty. You could teach in much larger lecture halls, but the things that would allow you achieve the greatest levels of efficiency would dilute the product and would make it something I wouldnt be willing to be part of, he said.

At the University of Washington, President Mike Young said Obama showed he did not understand how the budgets of public universities work.

Young said the total cost to educate college students in his state, which is paid for by both tuition and state government dollars, has gone down because of efficiencies on campus. While universities are tightening costs, the state is cutting their subsidies and authorizing tuition increases to make up for the loss.

They really should know better, Young said. This really is political theater of the worst sort.

Obamas plan would need approval by Congress, a hard sell in an atmosphere of partisan gridlock.

In his State of the Union address Tuesday, Obama described meeting with university presidents who explained how some schools curtailed costs through technology and redesigning courses to help students finish more quickly. He said more schools need to take such steps.

Obama said at Michigan that higher education has become an imperative for success in America, but the cost has grown unrealistic for too many families and the debt burden unbearable. He said states should properly fund colleges and universities.

We are putting colleges on notice, Obama told an arena packed with cheering students. You cant assume that youll just jack up tuition every single year. If you cant stop tuition from going up, then the funding you get from taxpayers each year will go down.

Obama is targeting only a small part of the financial aid picture: the $3 billion known as campus-based aid that flows through college administrators to students. He is proposing to increase that amount to $10 billion and change how it is distributed to reward schools that hold down costs and ensure that more poor students complete their education.

The bulk of the more than $140 billion in federal grants and loans goes directly to students and would not be affected.

The average in-state tuition and fees at four-year public colleges this school year rose 8.3 percent and with room and board now exceed $17,000 a year, according to the College Board.

Rising tuition costs have been attributed to a variety of factors, among them a decline in state dollars and competition for the best facilities and professors. Critics say some higher education institutions are attempting to wait out the economic downturn and have been too reluctant to make large-scale changes that would cut costs such as offering three-year degree programs.

The federal governments leverage to take on the rising cost of college is limited because higher education is decentralized, with most student aid following the student.

The response to Obamas plan wasnt all negative. Many university presidents said they welcome a conversation about making college more affordable and efficient.

In Missouri, where Gov. Jay Nixon has proposed a 12.5 percent funding cut for higher education in the coming fiscal year, Obamas proposal could put even more pressure on public colleges and universities to limit tuition increases. By state law, schools must limit such increases to the annual inflation rate unless they receive permission for larger ones. Nixon has warned schools that he doesnt want to see a tuition increase of more than 3 percent, the latest Consumer Price Index increase.

The presidents message isnt inconsistent with the agenda that weve been pursuing here in Missouri, said Paul Wagner, deputy commissioner of the state Department of Higher Education. Its good to see him put the focus on the same things.

Obama also wants to create a Race to the Top competition in higher education similar to the one his administration used on lower grades. He wants to encourage states to make better use of higher education dollars in exchange for $1 billion in prize money.

Obama is also pushing for more tools to help students determine which colleges and universities have the best value.

I see Stephen Hesters bonus is still dominating the news agenda. I wrote on the politics of it yesterday, but today Ive had another thought. What Ive found myself wondering is this: who on earth needs that much money anyway? Mr Hesters pay is called an incentive, but at some level of pay, it must stop being an incentive and start being a disincentive. At some point, you must start accumulating wealth so quickly that you want to stop working and start spending.

Since starting at RBS in 2008, Mr Hester has been paid something like £4.8 million in basic pay, before we even consider his bonuses. Surely he has something better to do with all that money than carrying on working as a banker? He could write a novel, travel across the world in opulent style, go heliskiing every day for an entire ski season (these are only my immediate ideas). He could live out the wildest dreams of the 99 per cent of the worlds population who have to work simply to have somewhere to sleep and something to eat. Instead, he chooses to go to an office in London and work in a difficult job for long hours every day. What a colossal bore he must be.

It is an irony of our society that wealth seems to flow most efficiently to people who have no idea how to use it; the sorts of people who are most likely to make an awful lot of money are also least likely to care about it. Ultimately, people like Stephen Hester dont work for money, but for status. As Donald Trump wrote in his memoirs, money was never a big motivation for me, except as a good way to keep score. Perhaps what we need is a better way of scoring.

Charles Wohlforth, Executive Director of Citizens for the Educational Advancement of Alaskas Children, right, signs a settlement agreement with Mike Hanley, Commissioner of Education and Early Development, in the Moore v. State of Alaska case at the Attorney Generals office in Juneau on Thursday.

(CBS News)

If lawmakers could design a housing policy from scratch what might it look like?

Today Fannie Mae and Freddie Mac–two government-sponsored enterprises originally designed to increase the availability of loans and thereby raise levels of home ownership–dominate the US mortgage lending market. Fannie Mae, which was established in 1938 as part of Franklin Delano Roosevelts New Deal, provides local banks with federal money to finance home mortgages. Freddie Mac, created in 1970, underwrites mortgages that fall below a certain size threshold with the intention of helping homeowners get access the housing market. These mortgages are cheaper since they implicitly–and after 2008 explicitly–benefited from a government guarantee.

In 2008, after incurring significant losses on their portfolios, Fannie and Freddie were taken over by the government; still, they finance the majority of mortgages in the US.

According to my latest research,* this arrangement is problematic. My research shows that houses financed with loans through Fannie and Freddie have higher prices than comparable homes bought with unsubsidized (jumbo) mortgages. In other words: the credit that Fannie and Freddie provide ostensibly to help homebuyers get a foot on the property ladder, has the unintended consequence of increasing house prices. That means a fraction of the lower cost of credit is passed on to the sellers of homes.

My colleagues, Manuel Adelino at Dartmouth College and Felipe Severino a PhD candidate at Sloan, and I looked at deed records from ten big US cities, including New York and Boston, for the ten-year span of 1995-2005. We compared the sale prices of houses that were eligible for financing through Fannie and Freddie with houses that were sold for prices just above the conforming loan limit (CLL). Fannie and Freddie underwrite home loans that fall beneath the CLL, an amount set by Congress each year. Mortgages for amounts greater than the CLL are considered non-conforming loans or jumbo loans.

We find that houses that were eligible for Fannie and Freddie loans cost $1.10 more per square foot than houses eligible for jumbo loans. Considering that the average home size is 1,800 sf, this represents a disparity of $1,980 or a .5% difference in price per square foot from year to year. This credit helps buyers afford a home, to be sure, but a big fraction of that subsidy goes to home sellers in the form of higher prices.

My concern is that the costs of Fannie and Freddie might vastly outweigh their benefits. On one hand, Fannie and Freddie provide a slight reduction in borrowing costs to homebuyers. On the other hand, the cost imposed on taxpayers through the bailout of Fannie and Freddie, and the lobbying efforts of these entities in the period leading up to the crisis, have proven to be humongous.

In February, the White House announced plans to reduce the governments outsized role in mortgage funding and wind-down Fannie and Freddie. This is a very welcome goal. But the findings from our study also caution that the winding down of government support for the mortgage market has to be gradual, since we would surely see a reduction in the average price of houses. In the short run a drop in asset prices could have negative multiplier effects, which is certainly not what we want in the current economic environment.

Unwinding Fannie and Freddie over a period of time seems the best way to go. This could happen through restructuring the overall loan support that is provided or by lowering the CLL every year by a preset amount. The influence on house prices would be smoother, and more incremental, as opposed to a big shock that might take place if the government were to, say, close down Fannie and Freddie tomorrow. Of course, the big question is whether the political process allows for such a smooth transition or if these efforts would be diverted over time by opposing political interests.

Bio: Antoinette Schoar is the Michael Koerner 49 Professor of Entrepreneurial Finance at MIT Sloan School of Management. The opinions expressed in this commentary are solely those of the author.

Bond investors are driving down the
price of debt issued by retailers as they report comparable-
store sales for the holiday season that are failing to live up
to a record Thanksgiving weekend.

The cost of protecting bonds of Gap Inc. (GPS) from default
approached a record last week and contracts on JC Penney Co.
had the biggest two-day surge in 14 months. Merchandiser
debentures have lost 0.4 percent this month with Family Dollar
Stores Inc. the only one of the top 50 borrowers in Bank of
America Merrill Lynch’s US retailer index showing positive
returns for January. Investment-grade corporate bonds overall
are little changed.

San Francisco-based Gap, Target Corp. (TGT) and Kohl’s Corp. (KSS)
reported December same-store sales that were below analysts’
estimates after mistiming promotions or running out of
inventory. Weaker retailers will struggle to maintain market
share as competition increases, according to Fitch Ratings.

“It’s a case of hangover,” said Anthony Valeri, market
strategist at LPL Financial, which manages $330 billion. “After
a strong start to shopping over Thanksgiving weekend, big
discounts and weaker-than-forecast December sales have left
investors a little queasy.”

While some retailers such as Macy’s Inc. (M) had sales that
beat estimates and boosted earnings forecasts, analysts say
revenue for Samp;P 500 retailers grew 6.4 percent last quarter,
compared with 7.2 percent for the overall index excluding
financial companies, according to data compiled by Bloomberg.

Searching for Bargains

An initially “bullish view” of the holiday sales season
didn’t pan out, said Scott Tuhy, an analyst at Moody’s Investors
Service. Retailers may have hurt their own profits by offering
deals just to get consumers in the door, he said.

“The consumer wasn’t going to come out unless there was a
deal, because they’ve been so trained by retailers to expect a
deal,” Tuhy said.

Fitch estimates that the 45 retailers it rates or monitors
have $12 billion of debt coming due this year.

Elsewhere in credit markets, a benchmark gauge of US
company credit risk rose for a fourth day with the Markit CDX
North America Investment Grade Index, which investors use to
hedge against losses or to speculate on creditworthiness,
climbing by 0.3 basis point to a mid-price of 120.3 basis points
as of 12:13 pm in New York, according to Markit Group Ltd.

The index typically rises as investor confidence
deteriorates and falls as it improves. Credit-default swaps pay
the buyer face value if a borrower fails to meet its
obligations, less the value of the defaulted debt. A basis point
equals $1,000 annually on a swap protecting $10 million of debt.

Fannie Mae

The odds of credit rating downgrades on the bonds of Fannie
Mae (FNMA) and Freddie Mac rose after lawmakers tapped the government-
supported mortgage companies to pay for last month’s extension
of a payroll tax cut, according to Bank of America Corp.

Investors in the so-called agency debt market should favor
the bonds of other government-sponsored enterprises such as the
Federal Home Loan Banks and Federal Farm Credit Banks because of
the risk, Ralph Axel, a Bank of America analyst in New York,
wrote in a Jan. 6 report.

Congress, to finance the two-month extension of the tax cut
in December, ordered an increase in the premiums that
Washington-based Fannie Mae and Freddie Mac (FMCC) in McLean, Virginia,
charge to guarantee mortgage debt. The funds generated by the
extra fees will be directed to the government for the next 10
years.

Bankruptcy Opposed

Investors in Residential Capital LLC’s debt are pressuring
Ally Financial Inc. to support the unprofitable mortgage unit.
Bondholders that own more than $800 million of ResCap’s secured
debt hired White amp; Case LLP to oppose a possible bankruptcy
filing for the unit, the law firm said in a statement. The law
firm said the group is “concerned” that Ally may try to walk
away from the unit’s liabilities.

Even as Ally, the former financing arm of automaker General
Motors Corp., prepares to repay $17.2 billion in government
bailout funds, its mortgage unit faces lawsuits over faulty
loans that could wipe out the parent company’s profits. ResCap
hired Centerview Partners LLP to weigh options, including
bankruptcy, a person familiar with the talks said Nov. 9.

While the National Retail Federation raised its forecast
for the holiday shopping season after a record $52.4 billion in
sales during the Thanksgiving weekend, Target, Kohl’s, and JC
Penney lowered their fourth-quarter profit estimates after
ramping up discounts. Sales were forecasted to rise 3.8 percent
for the season, compared with 5.2 percent in 2010, the
Washington-based trade group said Dec. 15.

Gap Default Swaps

Credit-default swaps on Gap surged to 313 basis points on
Jan. 6, which is 0.1 basis point shy of an Oct. 4 record,
according to data provider CMA. Gap’s comparable sales for
December declined 4 percent, the company said Jan. 5, compared
with the average estimate for a 1.3 percent drop from analysts
surveyed by researcher Retail Metrics Inc.

“They have to reinvent the company from the outside in,”
Craig Johnson, president of consulting firm Customer Growth
Partners in New Canaan, Connecticut, said Jan. 5 in a Bloomberg
Television interview. “They’ve lost their way.”

Swaps tied to the debt of Plano, Texas-based JC Penney
had the worst two-day stretch since October 2010 as the third-
largest department store chain cut its fourth-quarter profit
forecast, citing declining sales and deeper discounts than
anticipated. Profit will be at most 70 cents a share, JC
Penney said in a statement Jan. 5, less than an earlier
projection of as much as $1.15 and below the average analyst
estimate of $1.08.

Junk-Rated Retailers

The contracts jumped 45.6 basis points on Jan. 4 and 5 to
327.9 basis points, according to CMA, which is owned by CME
Group Inc. and compiles prices quoted by dealers in the
privately negotiated market. They declined to 326.6 on Jan. 6.

The loss in retailer bonds this month compares with a
decline of 0.07 percent for US investment-grade debentures,
Bank of America Merrill Lynch index data show. Gap bonds have
lost 0.83 percent on average, Target debt declined 0.21 percent,
and Kohl’s decreased 0.87 percent, while Matthews, North
Carolina-based Family Dollar has gained 0.37 percent, the only
positive return in the US Corporates, Non-Food and Drug Retail
index.

While bonds of junk-rated retailers have gained 0.28
percent this month, they’re trailing the high-yield market
overall, which has returned 0.76 percent, Bank of America
Merrill Lynch index data show. High-yield bonds are graded below
Baa3 by Moody’s and lower than BBB- by Standard amp; Poor’s.

Target, Kohl’s

Minneapolis-based Target, the second-largest US discount
retailer, said fourth-quarter profit would be at most $1.43 a
share, 10 cents below the maximum forecast earlier. The average
analyst estimate in a Bloomberg survey was for $1.48. December
comparable-store sales rose 1.6 percent, less than the estimated
3.3 percent gain.

Menomonee Falls, Wisconsin-based Kohl’s cut its fourth-
quarter profit forecast by 31 cents to at most $1.73 a share,
and same-store sales dropped 0.1 percent, compared with the
projection for a 2.4 percent increase.

Stronger, growth-oriented retailers will continue to build
market share, and the industry’s same-store sales will climb as
much as 3 percent in 2012, Fitch said in a note dated Nov. 22.
Debt maturities this year are “moderate,” with $12 billion
coming due across the 45 companies that Fitch rates or monitors.

Macy’s

Macy’s reported a 6.2 percent increase in same-store sales,
topping the 4.6 percent estimate. The Cincinnati-based company
boosted its fourth-quarter earnings forecast by 3 cents to as
much as $1.60 a share. Analysts projected an average $1.61.

Retailers such as Macy’s have “effectively and
efficiently” managed and planned their inventory, have stronger
logistics, and have been “been able to maintain their margins
better than others,” said David Brown, a money manager who
helps oversee $82 billion of fixed-income assets at Neuberger
Berman LLC in Chicago.

Macy’s $611.9 million of 7.875 percent notes due July 2015
have climbed to 116.1 cents on the dollar as of Jan. 6 from as
low as 113.98 cents on Oct. 11, Trace data show.

“Where the rising tide is not helping all ships, the
better operators are standing out more,” he said in a telephone
interview. “You have a highly competitive industry with modest
growth. Some of those companies who are not very tightly
managing their inventory and cash flow and properly investing in
their stores are going to continue to struggle.”

Personal spending climbed 0.1 percent in November, the
Commerce Department reported Dec. 23. That was less than the
median 0.3 percent gain projected by a survey of 79 Bloomberg
economists.

Even as the jobless rate unexpectedly dropped in December
to 8.5 percent, the lowest level in almost three years, “it’s a
long road back to strong employment, so these types of consumer
spending levels are probably here for a little while,” Brown
said.

“It’s just difficult for us to see in the context of a
sluggish economic growth that retailers as a whole are going to
outperform,” Moody’s Tuhy said.

To contact the reporter on this story:
Mary Childs in New York at
mchilds5@bloomberg.net

To contact the editor responsible for this story:
Alan Goldstein at
agoldstein5@bloomberg.net

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