History > 2009 > USA > Economy (II)
The Pittsburgh Post-Gazette, Pennsylvania
9 February 2009
After Bitter Split,
Unions Try to Heal
February 28, 2009
Filed at 10:12 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
WASHINGTON (AP) -- Union leaders are talking about reuniting under a single,
more powerful federation, nearly four years after a nasty breakup split
Leaders from 12 of the largest unions, along with rival federations AFL-CIO and
Change to Win, have held three meetings since January aimed at setting aside
differences and taking advantage of the most favorable political climate for
unions in 15 years.
''We've had very positive discussions and we've reached some significant
agreements,'' said David Bonior, the former Michigan congressman who is
brokering the discussions.
But Bonior stressed that significant hurdles remain as leaders work out how a
unified labor federation would be structured and what its goals would be.
Seven unions, led by the Service Employees International Union, bolted from the
AFL-CIO in 2005. They complained the federation focused too much on political
campaigns and not enough on recruiting new members. The break reflected
frustration with steadily declining union membership, from a peak of 35 percent
of the work force in the 1950s to about 12 percent today.
The political landscape has changed now that Democrats control the White House
and Congress. Union officials see a chance to accomplish goals such as passing
legislation that would make it easier for workers to organize unions.
''There's obvious benefits in terms of efficiency, message delivery, financial
savings and a host of other reasons,'' Bonior said. ''You can always be more
effective if you're talking in one house as opposed to three.''
Talks have included the 3.2 million-member National Education Association, the
nation's largest union, which was not previously aligned with either federation
but could become part of the new structure.
None of the leaders involved has talked publicly about specifics, but the pace
of negotiations has picked up. The issue is prominent on the agenda during the
AFL-CIO's annual winter meeting in Miami in the coming week.
''We are still talking,'' Change to Win chairwoman Anna Burger told reporters
Some breakaway unions swore they would never return to the AFL-CIO, so there's
talk of changing the name identified with organized labor for more than 50
Leadership is tricky, too, with AFL-CIO president John Sweeney set to step down
this year. The federation's secretary-treasurer, Richard Trumka, is a likely
successor. But some unions, particularly the Teamsters, would oppose him.
Robert Reich, former labor secretary in the Clinton administration, said the
labor split didn't really matter when Republicans ran Washington and unions
didn't stand a chance at changing labor laws.
But with Democrats in charge, unions realize that ''strength lies in unity,''
said Reich. ''A divided labor movement is inherently weaker than a united one,
especially when it comes to national politics and policy.''
Nowhere is unity more important for unions than in efforts to pass the Employee
Free Choice Act in Congress this year. The measure would take away the right of
employers to demand secret-ballot elections by workers before unions could be
recognized. Instead, unions could gain representation if a majority of workers
sign cards authorizing it.
Unions believe passage of the bill would spur a renaissance in the labor
movement, perhaps doubling union membership with the ranks of workers now
discouraged from organizing by employer intimidation. Business groups have
railed against the bill for months, saying it would deprive workers of secret
ballot voting and subject employees to union bullying.
Barack Obama indicated strong support for the measure during the presidential
campaign. But with Obama primarily focused on the economy now, the White House
has not given a clear signal on when it wants Congress to consider the bill. At
one point, unions hoped Obama would push the card-check legislation within his
first 100 days in office.
On the Net:
Change to Win: http://www.changetowin.org
After Bitter Split,
Unions Try to Heal Deep Wounds, 28.2.2009,
Clouds Obama Spending Plans
February 28, 2009
The New York Times
By PETER S. GOODMAN
The economy is spiraling down at an accelerating pace, threatening to
undermine the Obama administration’s spending plans, which anticipate vigorous
rates of growth in years to come.
A sense of disconnect between the projections by the White House and the grim
realities of everyday American life was enhanced on Friday, as the Commerce
Department gave a harsher assessment for the last three months of 2008. In place
of an initial estimate that the economy contracted at an annualized rate of 3.8
percent — already abysmal — the government said that the pace of decline was
actually 6.2 percent, making it the worst quarter since 1982.
The fortunes of the American economy have grown so alarming and the pace of the
decline so swift that economists are now straining to describe where events are
headed, dusting off a word that has not been invoked since the 1940s:
Economists are not making comparisons with the Great Depression of the 1930s,
when the unemployment rate reached 25 percent. Current conditions are not even
as poor as during the twin recessions of the 1980s, when unemployment exceeded
10 percent, though many experts assert this downturn is on track to be
Rather, economists are using the word depression — a subjective term with no
academic definition — to describe a condition of broad and extreme economic
distress that remains stubbornly in place for much longer than a typical
This is more than a matter of semantics. As the government determines its
spending plans, readying another infusion of cash for troubled banks while
contemplating an additional bailout for the auto industry, the magnitude of
those needs will hinge on the extent of the damage.
Mark Zandi, chief economist of Moody’s Economy.com, now places the odds of “a
mild depression” at 25 percent, up from 15 percent three months ago. In that
view, the unemployment rate would reach 10.5 percent by the end of 2011 — up
from 7.6 percent at the end of January — average home prices would fall 20
percent on top of the 27 percent they have plunged already, and losses in the
financial system would more than triple, to $3.7 trillion.
Allen Sinai, chief global economist at the research firm Decision Economics,
sees a 20 percent chance of “a depressionlike possibility,” up from 15 percent a
“In the housing market, the financial system and the stock market, we’re already
there,” Mr. Sinai said. “It is a depression.”
Yet, in drawing up the budget, the White House assumed the economy would expand
by a robust 3.2 percent in 2010, with growth accelerating to 4 percent over the
next three years.
“It’s a hope, a wing and a prayer,” Mr. Sinai said. “It’s a return to a sanguine
view of the economy that is simply not justified.”
If, as is widely anticipated, the economy grows more slowly than the White House
assumes, revenue will be lower, forcing the government to cut spending, raise
taxes or run larger deficits.
Economists also criticized as unrealistically hopeful the assumptions by the
Federal Reserve as it began so-called stress tests to gauge the health of the
nation’s largest banks. In testimony, Ben S. Bernanke, the Fed chairman, said
that the nation’s unemployment rate would most likely reach 8.8 percent next
“That forecast just doesn’t seem realistic,” said Dean Baker, co-director of the
Center for Economic and Policy Research in Washington, “and I don’t think it
helps the Fed’s credibility to make these sorts of forecasts right now.”
As federal regulators estimate potential losses at banks, the harshest
assumptions they are testing entails the unemployment rate topping out at 10.3
percent — the highest level since 1983, but hardly the worst case.
By Mr. Baker’s reckoning, the unemployment rate may exceed 12 percent — the
highest level since tracking began in 1948.
“We continue to see across-the-board numbers coming in worse than we expected,”
Mr. Baker said.
By Mr. Zandi’s estimation, in the most likely case, the unemployment rate will
reach 9.3 percent next year. The distress in the financial system, the job
market and real estate have become inextricably intertwined.
As troubled banks remain hesitant to lend, even healthy companies are laying off
workers. As more Americans lose jobs, they are cutting spending, depriving
businesses of revenue, and falling behind on house, car and credit card
payments, multiplying losses in the financial system. As more homes land in
foreclosure and would-be buyers fail to secure mortgages, housing prices fall
further, adding to the losses of the banks — a downward spiral.
Many economists expect that the labor data to be released next Friday will show
that as many as 700,000 jobs disappeared in February, lifting the unemployment
rate near 8 percent and pushing total job losses to more than four million since
the recession began in December 2007.
Given the brutal forces at play, some experts question the administration’s
decision to publicize the bank stress tests, as opposed to conducting them
“It invited the interpretation that this was the beginning of triage for the
banks, that we were going to start lining them up and shooting them,” said Alan
S. Blinder, a former vice chairman of the Federal Reserve and a professor at
Princeton. “There are some things in the bank supervisor role that you just keep
Others argue that the tests could sow needed assurance. “The stress test could
create transparency,” said Alan D. Levenson, chief economist at T. Rowe Price in
As the gruesome data accumulates, this much is already clear: Transparency is
not for the squeamish.
Mr. Levenson noted that the weakening economy was destroying demand for goods
and services even faster than the $787 billion stimulus program could replace
Sharper Downturn Clouds
Obama Spending Plans, NYT, 28.2.2009,
G.D.P. Shrank at 6.2% Rate
at the End of 2008
February 28, 2009
The New York Times
By CATHERINE RAMPELL
The economy at the end of last year contracted at a far faster rate than
initially estimated, a government report released Friday said.
The decline in the gross domestic product — a measure of a country’s total
output of goods and services — in the last quarter of 2008 was the worst since
the 1982 recession, and indicates that the recession has been deeper than
With the exception of government spending, every major component of the economy
shrank. The Dow Jones industrial average and the broader S.&.P. 500 were down
1.29 percent and 1.65 percent, respectively, in Friday morning trading after the
news was released.
“What a ghastly report,” said John Ryding, chief economist at RDQ Economics.
“Since the recession started in December 2007, this will almost certainly be the
longest postwar recession, and now potentially the deepest one as well.”
Output fell 6.2 percent at an annualized rate in the fourth quarter of 2008,
revised downward from a previous estimate of a 3.8 percent decline. The drop was
even steeper than many economists had feared — the consensus estimate had been a
5.4 percent decline — and was much lower than the 0.5 percent contraction from
the previous quarter.
The announcement comes on the heels of a new budget from the Obama
administration that assumes what some economists have called an overly
optimistic view of the near-term future of the American economy.
The economy took the biggest hits in exports, retail sales, equipment and
software, and residential fixed investment.
The downward revisions, though, came primarily because of a contraction in
inventories of unsold goods, which the government had previously believed had
actually grown. Lower consumer sales sliced off some of the previously reported
economic output, as well. A wider trade gap than previously reported — that is,
fewer American goods being purchased abroad — also pushed G.D.P. further
Some hail the decline in inventories as potentially good news.
“The only plus to take out of this is that inventories weren’t as high, and that
implies you don’t have to cut as much this quarter to get them back under
control,” Nigel Gault, chief United States economist at IHS Global Insight,
said. He added that inventories were still too large, given the declines in
consumer spending, and he expected companies to further scale back their
production this quarter.
During previous recessions, businesses’ inventories have declined much further
than they did in the last quarter, said Robert Barbera, chief economist at ITG.
“In terms of inventory drawdown, we ain’t seen nothing yet,” he said.
“Historically, was the decline in inventories in the fourth quarter impressive?
No. Historically, in a tough recession, inventories fall at four or five times
the pace of the fourth quarter decline.”
Many economists had been skeptical of the previously reported numbers in several
sectors, inventories in particular. They say the biggest surprises in Friday’s
report were the magnitude of the revisions and the change in prices.
Prices fell in the last quarter of 2008, but they fell slightly less than
previously reported, meaning that on an inflation-adjusted basis consumers spent
even less than believed.
Households also saved much more of their paychecks than initially estimated.
“Much of the money that would have been spent on gasoline during the gasoline
price decline in large part was saved rather than spent,” said Dean Maki,
co-head of United States economics research at Barclays Capital.
Friday’s revision, which will be followed by a final number from the Bureau of
Economic Analysis next month, usually garners little attention from analysts.
But because the contraction was more severe than previously reported, and
because the government has been grappling with how to remedy the recession, many
are looking to the numbers for a clue for where the economy is headed.
Government officials and Wall Street analysts expect that the G.D.P. decline has
bled into 2009, and many are anticipating a similar drop of around 5 or 6
percent for the first quarter of this year.
The 2010 national budget released Thursday by the White House projected a 1.2
percent decline in G.D.P. over the course of 2009. The economy grew 1.1 percent
during the full 2008 calendar year.
In Revision, G.D.P.
Shrank at 6.2% Rate at the End of 2008, NYT, 28.2.2009,
Dell Income Drops 48%
as It Seeks to Cut Costs
February 27, 2009
The New York Times
By ASHLEE VANCE
MOUNTAIN VIEW, Calif. — During past downturns in technology spending, Dell
tended to boast about its ability to weather the conditions better than
competitors bogged down by higher-priced goods and cumbersome business models.
In 2009, no such gloating has been heard.
Like its peers, Dell has watched as businesses and consumers have sharply
curtailed technology purchases. The decline in sales has proved so severe that
Dell’s earnings have fallen to the lowest level since 2002.
On Thursday, Dell reported that net income for the fourth quarter, ended Jan.
30, fell 48 percent, to $351 million from $679 million reported in the fourth
quarter of the prior year. Revenue tumbled 16 percent, to $13.4 billion from $16
Excluding one-time expenses, Dell earned 29 cents a share, 3 cents better than
the consensus forecast of Wall Street analysts, according to Thomson Reuters.
Instead of tough talk about trouncing competitors, Dell executives are focusing
on their efforts to streamline the company.
The stronger-than-expected earnings reflect work done as part of a $3 billion
cost-cutting program, which has included layoffs, the closing of manufacturing
plants and a shift toward using contract manufacturers to build more of its
Dell, based in Round Rock, Tex., said Thursday that it would cut $1 billion more
in annual costs over the next two years to improve the bottom line.
“We will be the first to admit that this is a work in progress, and there is
more to do,” Brian T. Gladden, the company’s chief financial officer, told Wall
Street analysts in a call to discuss the quarterly results.
Meanwhile, Dell’s 18-month effort to move away from personal computers and
increase sales in potential higher-profit growth areas has stalled with the
“They are doing what they can, but are basically still treading water,” said
Richard Kugele, an analyst with Needham & Company.
The main drag on Dell’s revenue came from plummeting desktop and laptop computer
sales, which dropped 27 percent and 17 percent, respectively. Sales of Dell’s
servers, software and services also fell, leaving storage products as the only
area of growth.
Michael S. Dell, the company’s founder and chief executive, insisted that it had
made progress as part of a turnaround effort he started in 2007.
“Our strategy is to develop disruptive technology and innovation and shift our
business to higher margin products and services,” Mr. Dell said on the call.
But in fact, Dell’s overall business appears very similar to what it was last
For example, servers and higher-profit services and software account for the
same overall percentage of Dell’s revenue as they did last year. And despite
making its way into 24,000 retail outlets, Dell derives only 2 percent more of
its revenue from consumer sales than it did a year ago.
Investors may give Dell some leeway with its long-term transition given the
state of the economy, which makes growth and expansion into new markets
difficult. Still, they are demanding that Dell maintain profits in the near term
as it chases changes in strategy.
“I think the issue is that their profitability today is much lower than it was
historically,” said A. M. Sacconaghi, a securities analyst with Sanford C.
Dell’s once-vaunted direct sales model continues to trail the overall
profitability of Hewlett-Packard’s PC operation, Mr. Sacconaghi said.
Competitors like Hewlett-Packard and I.B.M. have also proved better equipped to
deal with stagnant hardware orders because of vast services businesses, software
sales and long-term contracts with customers.
Shares of Dell fell 15 cents, to $8.21 Thursday, before the earnings
announcement. In after-hours trading, Dell shares rose more than 1.8 percent, to
Dell Income Drops 48% as
It Seeks to Cut Costs, NYT, 27.2.2009,
G.M. Loses $9.6 Billion;
Wagoner in Washington
February 27, 2009
The New York Times
By NICK BUNKLEY
DETROIT — The chief executive of General Motors will meet with government
overseers on Thursday to explain the carmaker’s financial situation, hours after
G.M. reported a $9.6 billion south-quarter loss and said it was rapidly spending
its cash reserves.
The G.M. chief, Rick Wagoner, is expected to ask for more assistance when he
sits down with the auto industry task force created by President Obama. The
panel, led by Treasury Secretary Timothy F. Geithner and Lawrence H. Summers,
the White House economic adviser, will oversee the restructuring at G.M. and
Even as the meeting unfolds, G.M. finances were reaching a crucial point. The
company said Thursday that its cash reserves were down to $14 billion at the end
of 2008, including $4 billion it had borrowed from the government that month.
G.M. spent $19.2 billion of its cash reserves in 2008. It spent $6.2 billion of
the reserves — $2 billion a month — in the fourth quarter alone.
Since then, G.M. has borrowed $9.6 billion more, but the company expects to go
through that money quickly, and says more aid is necessary to remain solvent.
“The economic situation is having a dramatic impact on our industry, on General
Motors,” G.M.’s chief financial officer, Ray Young, said on a conference call
Thursday. “We’re still forecasting a cash flow burn of $14 billion in ’09, so we
will need some additional funding support.”
The company has said that it needed a minimum of $11 billion to $14 billion in
reserves to finance operations, but the estimates were made before the recent
drop in auto sales and cuts by G.M. in response.
G.M. lost $30.9 billion, or $53.32 a share, in 2008. For the fourth quarter, it
lost $9.6 billion, or $15.71 a share, as its global sales fell 26 percent.
In 2007, the company lost $43.3 billion, a record, mostly the result of a
noncash accounting charge; it adjusted the figure higher by $4.6 billion on
The losses, though, are unlikely to shake investors, who have already realized
the automaker’s perilous state. G.M. said last week that it might need as much
as $30 billion to complete the restructuring plan that it has submitted to the
G.M. said it expected to receive a “going concern” notice from its auditors next
month, showing whether they think the company can continue operations. The
company said the determination will depend largely on whether it gets additional
Executives have repeatedly insisted that the company’s best option is to
restructure outside of bankruptcy. G.M. estimated last week that it would need
nearly $100 billion to finance a bankruptcy reorganization.
G.M.’s reported 2008 revenue of $149 billion was 17 percent lower than the
previous year’s revenue of $180 billion. Global sales fell 11 percent in 2008,
its centennial year, making Toyota of Japan the world’s largest automaker and
ending G.M.’s 77-year reign at the industry’s pinnacle.
Excluding one-time charges, G.M. lost $16.8 billion last year, or $29 a share.
Its fourth-quarter operating loss was $5.9 billion, or $9.65 a share, worse than
the per-share loss of $7.40 that analysts were expecting, on average.
Its revenue in the fourth quarter fell 34 percent to $30.8 billion.
G.M.’s global automotive operations lost $10.4 billion last year, compared with
a $553 million profit in 2007.It lost $2.1 billion in the quarter in North
America, the most troubled market, compared with $1.1 billion in the final
months of 2007. It reported losses in all of its other geographical regions, as
GMAC Financial Services, the automaker’s lending arm, had a fourth-quarter
profit of $7.5 billion, though it would have lost $4 billion without a bond
exchange in December.
Shares of G.M. have lost 89 percent of their value in the last year, touching a
74-year low of $1.52 last week before rebounding. Shares were flat at midday on
“2008 was an extremely difficult year for the U.S. and global auto markets,
especially the second half,” Mr. Wagoner said Thursday in the earnings
statement. The conditions “led us to take further aggressive and difficult
measures to restructure our business.”
Chrysler has borrowed $4 billion and wants an additional $5 million next month.
Its executives met with the task force Wednesday.
Mr. Obama, in his address to Congress on Tuesday, expressed a commitment to the
auto industry, saying that “millions of jobs depend on it” and that the country
“cannot walk away from it.” But he and his task force have not indicated whether
they would favor giving the companies more money.
G.M. is pressing for concessions from its bondholders and the United Automobile
Workers union to reduce its debt and cut expenses. The U.A.W. last week agreed
to a deal on many issues, but talks on retiree health care are continuing. G.M.
wants to substitute its stock for up to half of the multibillion-dollar payments
it must make into a health care trust, which would be similar to an agreement
the union reached with the Ford Motor Company several days ago.
Mr. Young, the chief financial officer, said G.M. executives were still
analyzing the union’s deal with Ford and declined to say whether it might form
the basis for an agreement with G.M.
The terms of G.M.’s loans from the government require it to obtain the
concessions. It must show progress in its restructuring by March 31 or risk
having the loans it already has received called back.
As part of its restructuring, G.M. says it will cut three of its eight brands —
Saturn, Hummer and Saab — and turn a fourth, Pontiac, into a niche brand with
fewer models. Hummer is expected to close by the end of March if a buyer cannot
be found, and Saab filed for bankruptcy protection in Sweden last week after
that country balked at providing aid.
Saturn will be phased out by 2012, unless its dealers or another entity come up
with a plan to save the 24-year-old division.
Ford , in contrast to G.M. and Chrysler, has not taken federal aid, but it has
been seeking concessions from the union and other stakeholders nonetheless to
improve its financial health. Ford, which lost $14.6 billion in 2008, the
biggest annual loss in its history, is extending more buyout and early
retirement offers to its hourly workers and is eliminating performance bonuses
for salaried workers for the second consecutive year.
G.M. is offering 22,000 of its retirement-eligible hourly workers $20,000 plus a
discount voucher worth $25,000 off a new vehicle if they leave by April 1.
G.M. also has slashed the amount of money it is spending to develop new
vehicles. In the last week it has eliminated its high-performance vehicles unit
and announced that it will use an existing plant to build engines for the highly
anticipated Chevrolet Volt, a battery-powered plug-in car, rather than building
a new plant as it had planned.
But G.M. says it has not cut too much to be successful in the future.
“As part of our plan, we do protect product investment,” Mr. Young said. “Our
spending, while reduced, is still sufficient in order to ensure that we launch
the right vehicles into the right markets with the right technologies in order
to sustain us into the future.”
G.M. Loses $9.6 Billion;
Wagoner in Washington, NYT, 27.2.2009,
Big plans have big risks
24 February 2009
By Richard Wolf
WASHINGTON — Until Tuesday, President Obama was already dealing with the
worst economy since the Depression: failing industries, teetering banks, a stock
market sliced in half and millions of people losing their homes.
Now he's added overhauling the nation's health care system to his to-do list
— a challenge that has vexed presidents from Harry Truman to Bill Clinton. Not
to mention weaning America off Middle East oil, fixing its schools, bolstering
Social Security and declaring war on deficits and debt.
"The only way this century will be another American century is if we confront at
last the price of our dependence on oil and the high cost of health care, the
schools that aren't preparing our children and the mountain of debt they stand
to inherit," Obama said in his first address to Congress Tuesday. "That is our
It's a high-risk strategy, doing everything at once. Obama is doing it for
two reasons: The economy is in free fall, and the voters gave him a sizeable
mandate in November.
"We've never seen an administration get out of the starting blocks as rapidly or
try to clear as many hurdles in the first 50 yards," says Robert Reischauer,
president of the Urban Institute and former director of the Congressional Budget
Office. "But moving at a more moderate pace I don't think decreases the risk
appreciably, because then you're going to be driven by events, reacting to
crises. He is trying to be proactive."
That won praise even from Republicans on Tuesday. "The president deserves much
credit for his willingness to tackle health care reform, the budget deficit,
Social Security and the recession all at once," said Rep. Dave Camp, R-Mich.,
while warning against tax increases.
The challenge for Obama is all the greater because he's presiding over an
incomplete government. Nearly all departments and agencies are without key
political appointees who will design and implement policy, because they've yet
to be nominated or confirmed.
Three Cabinet-level departments still lack leaders, including the Department of
Health and Human Services following the withdrawal of former Senate Democratic
leader Tom Daschle over personal tax problems. The White House has slowed the
nomination process and stepped up its vetting of candidates to avoid additional
public relations calamities.
On the other hand, Obama is helped by his willingness to name many veterans of
the Clinton administration to his top echelon of advisers. And if he needs
advice on the pitfalls of overhauling health care, Hillary Rodham Clinton is
down the street at the State Department.
Her advice could come in handy on what not to do. Her health care effort failed
in 1994 due largely to the Clinton administration's decision to craft its own
plan, rather than work with Congress. It took most of 1993 to do that, delaying
the legislative process well beyond President Clinton's honeymoon period.
The last three presidents who represented a party that reclaimed the White House
used their first budgets to make major changes, something Obama hopes to do in
the budget outline he unveils Thursday. Republican Ronald Reagan cut spending
and taxes. Democrat Bill Clinton pushed through a major deficit-reduction deal
that helped lead to budget surpluses. Republican George W. Bush focused almost
single-mindedly on his massive tax cuts.
"History suggests that particularly when the White House changes parties … the
president has a window to make bigger changes than he may be able to get later
in his term," says Robert Greenstein, founder of the liberal Center on Budget
and Policy Priorities.
With the country in economic crisis, Obama is betting that Americans are more
prepared to fix the nation's problems than they have been: 46 million people
uninsured and soaring costs for others, dependency on fossil fuels from foreign
lands, a debt approaching $11 trillion due to unsustainable government benefits.
The risk is obvious: failing.
"Clinton paid a price for not succeeding on health care," says Steve Elmendorf,
who was chief of staff to former House Democratic leader Richard Gephardt. "So
if you go out and announce, 'I'm going to do X on health care' and you don't
succeed, you pay a price."
Obama's gamble: Big
plans have big risks, UT, 24.2.2009,
Fed Chief Says Recovery
May Wait Until 2010 or Later
February 25, 2009
The New York Times
By CATHERINE RAMPELL
and JACK HEALY
WASHINGTON — As President Obama prepared to make a major Congressional
address laying out his plans to lift the faltering economy, the chairman of the
Federal Reserve, Ben S. Bernanke, warned on Tuesday that the downturn could get
even worse than recent forecasts.
Mr. Bernanke told the Senate Banking Committee that the Federal Reserve was
doing everything it could to unlock credit markets and ease the financial
crisis, but he said it could take until 2010 before government’s actions gain
“If actions taken by the administration, the Congress and the Federal Reserve
are successful in restoring some measure of financial stability — and only if
that is the case, in my view — there is a reasonable prospect that the current
recession will end in 2009 and that 2010 will be a year of recovery,” Mr.
Mr. Obama’s speech on Tuesday, while not a formal State of the Union message, is
his first to Congress and will provide a platform for him to outline a blueprint
to economic recovery, as well as a broad agenda on education, health care and
On Tuesday, two barometers of the housing market and consumer attitudes
underscored the economy’s downward trajectory.
Home prices in the United States plunged at the fastest pace on record in
December, according to a closely watched measure of the housing market,
signaling that housing was likely to continue declining.
Consumer confidence also fell, according to a report released Tuesday by the
private Conference Board. The group’s index of consumer confidence dropped to a
new low of 25 in February, from 37.4 a month earlier, as people fretted about
losing their jobs or earning less, and worsening prospects over the next six
In the first leg of Mr. Bernanke’s twice-annual report to both houses of
Congress on the state of the economy and the Fed’s actions, he painted a dire
picture of the markets going forward, but assured the committee that government
agencies were taking all necessary actions to thaw credit markets.
“The measures taken by the Federal Reserve, other U.S. government entities, and
foreign governments since September have helped to restore a degree of stability
to some financial markets,” Mr. Bernanke said in testimony. “Nevertheless,
despite these favorable developments, significant stresses persist in many
In particular, he said, most securitization markets “remain shut.”
As required by law, Mr. Bernanke addressed both halves of the Fed’s dual
mandate: stable prices and maximum employment. The former part of the mission
has largely been met, with prices more or less unchanged from their level a year
ago, and inflation is expected to glide under 1 percent during 2009.
But labor market conditions continue to deteriorate. Citing projections by the
Fed’s Open Market Committee in January, he said the unemployment rate, which hit
7.6 percent in January, would probably reach 8.5 to 8.75 percent in the fourth
quarter. The country’s gross domestic product is projected to decline 0.5 to
1.25 percent this year, he said, and foreclosure rates remain high.
But he added, “This outlook for economic activity is subject to considerable
uncertainty, and I believe that, over all, the downside risks probably outweigh
those on the upside.”
The uncertainty was clearly reflected in Tuesday’s housing report, where the
rapidly deteriorating economy and rising unemployment have scared off potential
buyers. According to the survey of the Conference Board, 2.3 percent of the
people surveyed plan to buy a home in the next six months, down from 2.9 percent
Single-family home values in 20 major metropolitan areas fell 18.5 percent in
December compared with a year earlier, according to a data released Tuesday by
Standard & Poor’s Case-Shiller home price index. Housing prices dropped 2.5
percent from November to December.
“There are so many homes out there, and there’s so much momentum behind falling
prices that they’re going to continue to drop regardless of anything, including
the Obama plan,” said Patrick Newport, United States economist at IHS Global
A week ago, President Obama laid out a $275 billion plan to help as many as nine
million families refinance their mortgages or avoid foreclosures using a variety
of incentives and subsidies to try to lower interest rates and the principal on
existing home mortgages.
The plan would be available for mortgages that are not more than 5 percent below
the current market value of a house, which could leave out homeowners in cities
whose real-estate prices have receded the most.
Nationwide, housing prices in the last three months of 2008 sank to their lowest
levels since the third quarter of 2003.
“It’s a deflationary spiral,” said Dan Greenhaus, an analyst in the equity
strategy division of Miller Tabak & Company. “Prices go down, people hold back,
prices go down further, people hold back, and so on and so forth.”
Prices fell in all of the 20 cities surveyed by Case-Shiller, but the declines
were starkest in Phoenix and Las Vegas as well as much of Florida and Southern
“We continue to believe that it is unlikely that we are anywhere near a bottom
in nationwide home prices,” Joshua Shapiro, chief United States economist at
MFR, wrote in a note.
Mr. Bernanke testified that the international nature of the slowdown, added to a
“so-called adverse feedback loop” (the idea that economic and financial
conditions become mutually reinforcing), threaten to delay recovery.
He urged support for the significant — and in many cases, unpopular — fiscal and
monetary interventions the government has made into the economy thus far.
The Fed has taken some extraordinary steps in the hopes of increasing the flow
of credit to businesses and households. In December the Federal Open Market
Committee lowered its key interest rate to virtually zero, its floor.
The Fed has been buying mortgage-backed securities — considered the leading
cause of the meltdown after the housing bubble burst — that have been guaranteed
by the federal government.
It has also begun unprecedented programs as a lender.
It has expanded the Term Auction Facility, which loans to banks. It has
introduced the Term Asset Backed Securities Loan Facility, which finances
consumer loans, and which the Fed recently announced it would expand in both
size and scope; and the Commercial Paper Funding Facility, which provides loans
in exchange for short-term business i.o.u.’s.
Mr. Bernanke said these actions had contributed to improvements in short-term
funding markets and the commercial paper market, and declines in the conforming
fixed mortgage rate and the London Interbank Offered Rate (Libor), the rate on
which borrowing costs for consumers and businesses are often based.
The Fed has also been working in partnership with the Treasury Department, led
by Secretary Timothy F. Geithner, to coordinate intervention in the financial
On Monday, the Treasury, the Fed and bank regulators announced that the
government might demand direct ownership in major banks after they undergo a
“stress test” to determine their viability going forward.
The test, which will be applied to the 20 biggest banks, will be used to measure
whether banks have enough capital to survive a worsening downturn.
While Monday’s statement stopped short of announcing a plan to “nationalize” any
banks, it indicated that banks that failed to pass the test would be forced to
accept a plan to return them to solvency using capital from public and private
In his testimony, Mr. Bernanke also addressed criticisms regarding a lack of
transparency in the administration of these and other programs.
He discussed additional reports that the Fed had been providing to Congress, and
a newly unveiled Web site on the Fed’s lending programs. He also noted that the
Fed’s vice chairman, Donald Kohn, was heading a committee to review the agency’s
publications and disclosure policies.
Catherine Rampell reported from Washington and Jack Healy from New York.
Fed Chief Says Recovery
May Wait Until 2010 or Later, 25.2.2009,
A Sharp Drop in Home Prices
at End of Year
February 25, 2009
The New York Times
By JACK HEALY
Home prices in the United States plunged at the fastest pace on record in
December, a sign that housing is likely to continue declining in the months
ahead as the economy sinks deeper into recession.
Single-family home values in 20 major metropolitan areas fell 18.5 percent in
December compared with a year earlier, according to a data released Tuesday by
Standard & Poor’s Case-Shiller home price index. Housing prices dropped 2.5
percent from November to December.
Nationwide, housing prices in the last three months of 2008 sank to their lowest
levels since the third quarter of 2003.
Prices fell in all of the 20 cities surveyed by Case-Shiller, but the declines
were starkest in Phoenix and Las Vegas as well as much of Florida and Southern
California, where development has all but dried up.
“The Sun Belt continues to get hardest hit in terms of just about any measure,”
said David M. Blitzer, chairman of Standard & Poor’s index committee.
Prices in Phoenix fell 5.1 percent in December alone, and were down 34 percent
since December 2007. In Las Vegas, which was recently rated “America’s emptiest
city” by Forbes magazine, prices dropped 4.8 percent in December and were down
33 percent for the year.
The declines for 2008 were shallowest in Dallas and Denver, where prices fell
about 4 percent.
Housing prices are now falling so quickly that economists worried that potential
buyers will stay on the sidelines and wait for the market to deteriorate
further, reinforcing the downward momentum.
“It’s a deflationary spiral,” said Dan Greenhaus, an analyst in the equity
strategy division of Miller Tabak & Company. “Prices go down, people hold back,
prices go down further, people hold back, and so on and so forth.” Although
houses are now cheaper and mortgage rates have fallen to 5.22 percent from 6.10
percent about a year ago, the rapidly deteriorating economy and rising
unemployment have scared off potential buyers, economists said. The unemployment
rate has risen to 7.6 percent nationwide, and the economy is shedding more than
500,000 jobs every month.
“We continue to believe that it is unlikely that we are anywhere near a bottom
in nationwide home prices,” Joshua Shapiro, chief United States economist at
MFR, wrote in a note.
Since the recession began in December 2007, the pace of declines in housing
prices has accelerated as the financial crisis spread and unemployment rose.
According to the National Association of Realtors, the country’s median home
price was $175,400 in December, down nearly 25 percent from its peak of $230,100
in July 2006.
The two-year decline in real-estate prices followed more than a decade of steady
growth in home prices.
A Sharp Drop in Home
Prices at End of Year, NYT, 25.2.2009,
U.S. Is Pressed
to Add Billions to Bailouts
February 24, 2009
The New York Times
By EDMUND L. ANDREWS,
ANDREW ROSS SORKIN
and MARY WILLIAMS WALSH
This article is by Edmund L. Andrews, Andrew Ross Sorkin and Mary Williams
The government faced mounting pressure on Monday to put billions more in some
of the nation’s biggest banks, two of the biggest automakers and the biggest
insurance company, despite the billions it has already committed to rescuing
The government’s boldest rescue to date, its $150 billion commitment for the
insurance giant American International Group, is foundering. A.I.G. indicated on
Monday it was now negotiating for tens of billions of dollars in additional
assistance as losses have mounted.
Separately, the Obama administration confirmed it was in discussions to aid
Citigroup, the recipient of $45 billion so far, that could raise the
government’s stake in the banking company to as much as 40 percent.
The Treasury Department named a special adviser to work with General Motors and
Chrysler, two of Detroit’s biggest automakers, which are seeking $22 billion on
top of the $17 billion already granted to them.
All these companies’ mushrooming needs reflect just how hard it is to stanch the
flow of losses as the economy deteriorates. Even though the government’s
finances are being stretched — and still more aid might be needed in the future
— it is being forced to fill the growing holes in the finances of these
companies out of fear that the demise of an important company could set off a
The deepening global downturn is dragging down all kinds of businesses, and,
with no bottom to the recession in sight, investors sent the the Dow industrials
down 250.89 points, or 3.7 percent, to 7,114.78, a 3.7 percent drop for the day
and a loss of about 50 percent from their peak in the fall of 2007. Asian
markets followed suit on Tuesday by flirting with the lows they hit last
October, with stocks in Hong Kong dropping more than 3 percent, and Japan's
Nikkei 225 index dropping more than 2 percent before rebounding slightly.
In an unexpectedly assertive joint statement after two weeks of bank stock
declines, the Treasury Department, the Federal Reserve and federal bank
regulatory agencies announced that the government might demand a direct
ownership stake in major banks that do not have enough capital to weather a
deeper downturn. The government will begin conducting a test of the banks’
financial health this week.
Administration officials emphasized that nationalizing any of the major banks
was their least favorite solution to the banking crisis, but they acknowledged
that some banks might be both too big to fail and too fragile to endure another
round of shocks without substantial help.
Banks that fail the test will have to raise additional capital. If they are
unable to raise capital in the private market, they would have to take money
from the government in exchange for preferred stock that would be convertible
into common shares, thus giving the government a bigger stake.
The administration is debating how big a role to play in the auto businesses,
what concessions the companies should make in return for aid and whether
bankruptcy should be considered, though it prefers a private sector solution.
On Monday, Steven Rattner, co-founder of a private equity firm, the Quadrangle
Group, was named an adviser to the Treasury on the auto industry.
As the administration takes bigger stakes in companies, the value held by
existing shareholders is being diluted, which could make it even harder to
attract private money in the future.
Timothy F. Geithner, the secretary of the Treasury, recently outlined a bank
recovery plan that included a program to attract a combination of public and
private money to buy troubled mortgages and other assets.
A.I.G. serves as a cautionary note about the difficulty of luring private
investors when the size of the losses is unknown. In the months since the
government initially stepped in last fall to take an 80 percent stake in the
insurer, the company has suffered deepening losses and has been forced to post
more collateral with its trading partners.
The company, according to a person close to the negotiations, is discussing the
prospect of converting the government’s $40 billion in preferred shares into
The prototype could turn out to be Citigroup, which is negotiating with
regulators to replace the government’s nonvoting preferred shares with shares
that are convertible into common stock.
“We absolutely believe that our private banking system is best off being in
private hands and we are trying our best to keep it that way,” said one senior
administration official, who spoke on condition of anonymity. But, he continued,
the government is already deeply involved in propping up the banking system and
may have no choice.
Officials said they were bracing for the possibility of new problems that might
indeed require the government to take a more aggressive stance.
“Given our involvement at this particular stage, there is an element, a
possibility over time, that we will end up with some ownership of these
institutions,” the official said. “This is really about aggressive anticipatory
action. It is an acceptance that the future is uncertain, but that we can plan
on a certain basis for it.”
Acquiring common stock would give the government more control, but expose it to
more risk. Armed with voting shares, government officials would have more power
to replace management and change company strategy. But the Treasury would lose
its claim to dividend payments, which in Citigroup’s case amount to more than
$2.25 billion a year.
A.I.G. declined to provide details of its new financial problems, citing the
“quiet period” just before it issues fourth-quarter results. But some people
familiar with A.I.G.’s negotiations said it was on the brink of reporting one of
the biggest year-end losses in American history.
Such losses lead to a bigger problem. A further credit rating downgrade would
force the company to raise more capital, according to a person involved in the
negotiations. The losses appeared to be across the board, unlike the insurer’s
losses of last September, which were confined mostly to derivative contracts
called credit-default swaps.
A.I.G. has not been writing new credit-default swap contracts, and had tried to
put the swaps disaster behind it. In November the company worked out a relief
package with the Federal Reserve Bank of New York, in which the most toxic of
its swap contracts were put into a kind of quarantine, so they could no longer
hurt its balance sheet. But A.I.G. had written several other classes of
credit-default swaps, which it kept on its books.
If the latest round of losses severely weaken A.I.G.’s capital and its
creditworthiness, then its swap counterparties may be entitled to demand that
A.I.G. come up with a large amount of cash for collateral — precisely the
problem that brought the company to its knees last September.
“They stand, unfortunately, to bring others down with them if they go down,”
said Donn Vickrey of Gradient Analytics, an independent research firm.
The difficulty of shoring up A.I.G. must weigh on the administration at this
moment. The administration’s banking statement amounted to a plan of action
demonstrating a way to demand a major and possibly a controlling stake in
systemically important banks like Citigroup and Bank of America.
“They are desperate to not nationalize the banks,” said Robert J. Barbera, chief
economist at ITG. “They know what happened when they took Iraq and they would
just as soon not take over the banks, because if you own it, you gotta fix it.”
Eric Dash and Michael J. de la Merced contributed reporting.
U.S. Is Pressed to Add
Billions to Bailouts, NYT, 24.2.2009,
Obama Stressing Fiscal Responsibility
February 23, 2009
Filed at 8:12 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
WASHINGTON (AP) -- President Barack Obama is bringing together dozens of
advisers and adversaries to discuss how to curb a burgeoning federal deficit
laden with Social Security, Medicare and Medicaid obligations.
Obama's summit at the White House on Monday is the first meeting toward a
strategy to address the long-term fiscal health of the nation. The gathering
also comes as Obama prepares ambitious plans to cut the federal deficit by half
within four years.
''It will require doing all we can to get exploding deficits under control as
our economy begins to recover,'' Obama said in his weekend Internet and radio
address. ''That work begins on Monday, when I will convene a fiscal summit of
independent experts and unions, advocacy groups and members of Congress to
discuss how we can cut the trillion-dollar deficit that we've inherited.''
Even before it began, some of its 130 invited participants cautioned against
''It can either be a nice press event. Or it can be a substantive event,'' said
Republican Sen. Judd Gregg, whom Obama appointed as commerce secretary before
the New Hampshire lawmaker balked. ''History tells us it will be the first.
We've had these meetings before. There's always a lot of people willing to point
out the problem.''
Yet, he said, there is seldom anyone willing to make the difficult decisions to
solve those problems.
As the nation's economy continues its downward spiral, Obama's advisers are
keeping their focus on the broader fiscal troubles that have sent millions to
unemployment rolls. Taken in context, the summit is but one part of the White
House's larger approach to the coming weeks focused on Obama's priorities for a
first term, including a State of the Union-style address on Tuesday.
That speech is not likely to include plans to deal with long-crumbling
The Senate's top Republican, Mitch McConnell of Kentucky, said a solution
already exists in legislation written by Gregg and his Democratic counterpart on
the Budget Committee, Sen. Kent Conrad of North Dakota.
Their measure would create a bipartisan commission to deal with Social Security,
Medicare and Medicaid. The entitlement programs face eventual bankruptcy,
although experts differ on how urgently each is threatened.
Many House Democrats, however, remain opposed to a commission, including Speaker
Nancy Pelosi. Obama has indicated he's open to the idea -- and many others -- as
a way to move toward a viable solution.
McConnell said any movement would be a step toward getting a handle on the
''So I hope what the meeting at the White House is about tomorrow is about
sobering up here and beginning to rethink the kind of debt that we're laying on
future generations,'' McConnell told CNN's ''State of the Union'' program on
That comes hand-in-hand with the president's plans to deal with the deficit.
Obama plans to cut the federal deficit in half by the end of his first term,
mostly by scaling back Iraq war spending, raising taxes on the wealthiest and
streamlining government. The goal is to halve the federal deficit to $533
billion by the time his first term ends in 2013.
He inherited a deficit of about $1.3 trillion from his predecessor, President
George W. Bush.
Meanwhile, Peter Orszag, director of the federal Office of Management and
Budget, said Monday he believes the new fiscal plan will lure some Republican
support -- in contrast to the stimulus bill that got only three GOP votes in
He said he thinks some Republicans will back the plan because of proposals to
overhaul the expensive U.S. health care system.
''Health care clearly is the key to our fiscal future,'' he said on CNN, ''so we
need to get health care costs u nder control and we want to do that this year.''
Obama Stressing Fiscal Responsibility on
Budget, NYT, 23.2.2009,http://www.nytimes.com/aponline/2009/02/23/washington/AP-Obama-Economy.html
U.S. spending more
to buy foreclosures
21 February 2009
By Katrina Goggins, The Associated Press
IRMO, S.C. — Tucked into the economic stimulus package signed by President
Barack Obama this week was $2 billion to expand a nascent and controversial
program to help cities and states buy and fix up foreclosed homes.
Last month, the Department of Housing and Urban Development signed off on
hundreds of grants to all 50 states totaling almost $4 billion. The Neighborhood
Stabilization Program, as it's known, was passed last year as part of a housing
rescue plan that was regarded at the time as the most significant housing
legislation in a generation.
But critics have assailed the program for the lack of money it will send some
hard-hit communities, a dearth of oversight and the discontent stirring among
residents who want a say in what happens to their neighborhoods.
"What houses are gonna be involved? We still don't know that and we're a month
away from the funds arriving," said Mike Aaron, president of the Livingston
Avenue Area Commission, a group in a foreclosure-ridden area of the Columbus,
Ohio. "That's what's making us uneasy right now."
The total amount coming into Ohio, for example, is $258 million, and Columbus is
getting $23 million of that. Those figures do not include new money from the
stimulus package and HUD has said it has not yet decided what the guidelines for
the new grants will be.
Aaron said Columbus has rebuffed his group's attempts to talk about the best
ways to use money, which has already been awarded to the state.
"We need to be involved in the process," said Aaron, who is pressing for an
oversight board comprised of city officials and residents.
And then there's back biting about who gets how much.
The first round money is being divvied up based on the number and percentage
of foreclosures, number and percentage of homeowners behind on their mortgages,
and the concentration of subprime mortgages.
While the formula sounds fair, some of the results aren't. California and
Florida are both getting more than $500 million in federal help, even though
California has 500,000 foreclosures — around twice the number as Florida.
Vermont, meanwhile, is getting the minimum of $20 million, even though the state
had less than 150 foreclosures last year and the lowest foreclosure rate in the
nation, according to RealtyTrac Inc.
Some city and county officials are also questioning the government's math.
Almost one in 10 houses in Merced County, Calif., are in foreclosure, one of the
highest rates in the country. Yet the county will get just $2 million of the
money going to California.
The city, which has a foreclosure rate of 12%, will get just $1.4 million.
"Someone stopped me on the street and said, 'Oh good you got the funding. So
what can you do with this money? Buy like four homes?"' city housing manager
Masoud Niromaud said, adding that there are more than 1,300 homes in foreclosure
in Merced. "Seems that they (HUD) could paid more attention to the formula — ran
it a couple of times. They didn't do that."
Economists say lenders will surely benefit from the plan, though it doesn't
include enough money to be considered a significant backdoor bailout for banks.
"In terms of bailing out lenders it's hardly the biggest thing out there but
surely there will be cases where the land purchases will be in least in part to
help politically connected lenders," said Dean Baker, co-director of the Center
for Economic and Policy Research, a Washington-based thinktank.
In many cases, government officials plan to dole out the money to nonprofit
organizations and smaller government entities that will purchase homes.
Critics and local housing officials are shaking their heads over the carte
blanche grantees have in how they spend the federal funds. One South Carolina
county said it would consider proposals to put homeless or HIV/AIDS patients in
foreclosed homes eligible for the grant, while officials in Florida's Miami-Dade
County said they plan to snap up foreclosed apartments with grant money despite
staunch public comment against it.
Many of the proposals called for renting out the homes to low- to moderate-
On the streets of neighborhoods pockmarked with vacant houses, many residents
said they'd welcome new neighbors no matter how they got into the homes.
"I would want to put somebody in it, whether they're renting it or not. That's a
house that somebody could be in," said Cheryl Poole, a 51-year-old Irmo resident
worried about home values and the empty house across the street from her
On the other extreme is Debra Oakley, a 55-year-old woman who said she isn't so
sure she wants a new neighbor.
The two houses to the left of her home are vacant, including one that nonprofits
are being encouraged to buy using stabilization grant money.
"I've often wondered about what kind of people would move over there," said
Oakley. "I like it just like that: vacant."
Susan Popkin, a researcher at the nonprofit Urban Institute, said many
homeowners have grave concerns about their changing neighborhoods and how that
might affect their already declining property values.
In major cities nationwide, tensions have risen recently as federally subsidized
renters move from housing projects and violence-ridden neighborhoods to nicer
communities in suburban areas.
"The fear is real. The reality isn't," Popkin said. "The thing they're anxious
about is what's already happening in their neighborhoods."
That's true in Columbus, Ohio, where 84-year-old Walt McKinley said he'd welcome
any help to rescue their neighborhoods.
McKinley, who lives in the city's downtrodden Linden neighborhood, said he
worries the spread of foreclosures in his neighborhood will drive up crime and
wants the city to use the grant to demolish the house next door to his, which
has been vacant since it was foreclosed upon and the owners abandoned it over
"I told 'em at work that if possible, I would even drive a bulldozer myself and
bulldoze it," McKinley said. "I would be happy to."
But critics say there's no guarantees that McKinley's neighborhood or other
hard-hit communities will benefit from the grants. No one is tracking just how
the money will be spent and grantees have been tightlipped on their plans.
HUD will monitor how states and cities spend neighborhood stabilization money,
but leave it to local governments to monitor how passthrough grants are used by
nonprofits and other, smaller government groups.
Many Republicans opposed the first round of stabilization grants and don't want
to increase the program. They say additional money will just give more slush
funds to disreputable nonprofit groups.
"Instead of trying to work out troubles in the existing funds, we're basically
doubling the size of the program and potentially doubling the size of the
problem, said Frederick Hill, spokesman for the Republican Oversight and
Government Reform Committee, about the House's plan to double neighborhood
stabilization grant money.
Some economists also have expressed concerns over a lack of oversight.
"The record of housing authorities are not very good. It's certainly reasonable
to be concerned that the money will end up going to politically connected
lenders and developers and not do very much for communities," Baker said.
Associated Press writers Meghan Barr in Columbus, Ohio; Adrian Sainz in
Miami, Fla., and Wilson Ring in Montpelier, Vt. contributed to this report.
U.S. spending more to
buy foreclosures, UT, 21.2.2009,
Oil Falls Below $39
as Economic Outlook Worsens
February 20, 2009
Filed at 4:03 a.m. ET
The New York Times
LONDON (Reuters) - Oil fell below $39 a barrel on Friday, retreating as the
global economic outlook deteriorated, dragging stock markets down across the
Oil prices rallied strongly on Thursday, jumping 14 percent after data showing
an unexpected draw in U.S. crude stocks. But worries over the health of oil
demand have resurfaced, with sentiment dented by sharp falls in equity markets.
European shares fell in early trade on Friday with the FTSEurofirst 300 down 2.2
percent, after falls in New York and Asia. The broad Topix index of Japanese
shares closed at its lowest level in about 25 years.
U.S. crude futures for March delivery, which expire on Friday, were down 89
cents at $38.59 a barrel by 3:50 a.m. EST, after posting the biggest settlement
gain since December 31 in the previous session.
April delivery contracts fell 69 cents to $39.49, while London Brent for April
delivery dropped 40 cents to $41.59 a barrel.
Most pressure appeared to be on the expiring March U.S. crude contract, which
has been weighed down by unusually high levels of crude inventories at Cushing,
Oklahoma, the delivery point for the NYMEX futures contract.
Brent and later U.S. crude futures months were more stable.
BLEAKEST DIAGNOSIS EVER
"Brent bounced back above $40 yesterday," Christopher Bellew, broker at Bache
Commodities in London, said. "In spite of economic gloom and bearish data, Brent
is holding its sideways range."
In its monthly report on Friday, the Bank of Japan reiterated that economic
conditions were deteriorating rapidly -- its bleakest diagnosis ever -- and
would likely continue to worsen for the time being.
Japan has been hit particularly hard by the global slump, triggered by the U.S.
housing market meltdown, due to its heavy dependence on exports and chronically
weak domestic consumption.
Crude inventories in the United States, the world's top consumer, fell slightly
last week on lower imports and higher demand, the U.S. Energy Information
Administration said, snapping seven straight weeks of builds against market
The bullish oil data countered pessimism in the U.S. stock market, where the Dow
industrials index closed at its lowest in more than six years on a gloomy jobs
report and fears that banks could be nationalized.
Crude prices have fallen more than $100 a barrel from the peaks hit last July as
the worsening economic crisis has bitten into oil demand, prompting the
Organization of the Petroleum Exporting Countries (OPEC) to agree to deep output
In the latest indication that OPEC members are complying with the agreed cuts,
Kuwait notified at least two buyers in Asia that it will keep curbs of 5 percent
below contracted volumes for April-June term crude oil supplies, steady from
March, trade sources said.
U.S. economic reports due out later in the day include the consumer price index
and real earnings for January, as well as the Economic Cycle Research
Institute's (ECRI) weekly index of economic activity.
(Reporting by Christopher Johnson in London and Chua Baizhen in Singapore;
Editing by Sue Thomas)
Oil Falls Below $39 as
Economic Outlook Worsens, NYT, 20.2.2009,
Obama Tells Canada
He Favors Free Trade
February 20, 2009
Filed at 6:34 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
OTTAWA (AP) -- On his maiden voyage outside U.S. borders as president, Barack
Obama sought to reassure free-trading Canadians that his country is not
cultivating a protectionist streak as its economy tanks and hemorrhages jobs.
''I want to grow trade and not contract it,'' Obama declared Thursday during a
quick visit to court warmer relations with America's snowy northern neighbor.
The president stuck to his pledge to eventually seek changes in the 1994 North
American Free Trade Agreement to increase enforcement of labor and environmental
standards. But he said he intends to do so in a way ''that is not disruptive to
the extraordinarily important trade relationships that exist between the United
States and Canada.''
His host, Canadian Prime Minister Stephen Harper, said he might be willing to
negotiate but not by ''opening the whole NAFTA and unraveling what is a very
complex agreement.'' Canada is the United States' largest trading partner and
with $1.5 billion in trade between the two nations, they have the largest
trading relationship in the world.
Harper sounded a similar warning on a ''Buy American'' clause that Congress
added to the $787 billion economic stimulus package that Obama signed this week.
''We expect the United States to adhere to its international obligations,''
Harper said. ''I can't emphasize how important it is that we do that.''
Obama's seven-hour visit north of the border was marked by throngs of
Obama-happy crowds and an eager welcome from Harper. The Conservative leader had
been close to former President George W. Bush, personally and on policy. But he
made clear with a few subtle jabs backward that he was casting his and his
country's lot now with the vastly more popular Obama.
''As we all know, one of President Obama's big missions is to continue world
leadership by the United States of America, but in a way that is more
collaborative,'' Harper said, an apparent reference to Bush's go-it-alone
He added: ''We now have a partner on the North American continent that will
provide leadership to the world on the climate change issue. And I think that's
an important development.''
Obama also delighted the Canadian public. Many spent hours on buses to come to
the snowy capital in hopes of just a glimpse, and a large crowd outside
Parliament erupted in a deafening cheer at the sight of only a brief wave from
Obama. Likewise, he made shopkeepers happy with an impromptu stop at an indoor
market to pick up pastries and souvenirs for his daughters.
Obama returned the feelings of good will.
''I love this country and think that we could not have a better friend and
ally,'' he said at Harper's side inside Gothic Parliament Hill. He later slipped
slightly as he walked to his plane and joked that the weather reminded him of
his home in Chicago.
Niceties aside, differences between the two countries came into view. On trade
as well as other topics, Obama came armed with reassurances, while Harper
offered mini-lectures, albeit gently delivered.
On the 7-year-old Afghanistan war, for instance, the Canadian leader said that
NATO and U.S. forces fighting a resurgent Taliban insurgency are not ''through
our own efforts going to establish peace and security in Afghanistan.'' With
Obama's administration undertaking a broad review of the U.S. strategy there,
Harper suggested that any new policy ''have the idea of an end date, of a
transition to Afghan responsibility for security, and to greater Western
partnership for economic development.''
Associated Press writers Rob Gillies and Ben Feller contributed to this report.
Obama Tells Canada He
Favors Free Trade, NYT, 20.2.2009,
Seek $14 Billion More in Aid
February 18, 2009
The New York Times
By BILL VLASIC and NICK BUNKLEY
DETROIT — The price tag for bailing out General Motors and Chrysler jumped by
another $14 billion Tuesday, to $39 billion, with the two automakers saying they
would need the additional aid from the federal government to remain solvent.
In return, the two companies also promised to make further drastic cuts to all
parts of their operations, in the hope that they can eventually strike a balance
between their bloated cost structures and a dismal market for new car sales.
G.M., for example, said it would cut 47,000 more of its 244,000 workers
worldwide; close five more plants in North America, leaving it with 33; and cut
its lineup of brands in half, to just four: Chevrolet, Cadillac, GMC and Buick.
The Pontiac brand will have a much smaller role, if any, in G.M.’s future, and
the company also said it would phase out its Saturn brand, which it once hoped
would build small cars to counter the best of the Japanese brands.
G.M. also said it had made progress in discussions with the United Automobile
Workers union and its bondholders to reduce its costs further.
The cash crisis will require fast action by the administration’s new
cabinet-level Presidential Task Force on Autos, which is overseeing the
reorganization of G.M. and Chrysler.
The deteriorating finances of the two companies present the Obama administration
with two options, neither of them appealing.
It can provide the money in the hopes that the companies will stabilize, and no
longer have to keep pushing workers into a growing pool of people without jobs.
But there are no guarantees, as the Treasury Department learned on Tuesday when
the automakers filed updates on their restructuring plans, that they might not
be forced to come back again with requests for more money.
But if the federal government balks at the automakers’ requests, that would mean
the two companies probably would have no choice but to file for bankruptcy
protection, because they are losing hundreds of millions of dollars each month.
And the car companies said on Tuesday that the cost of a bankruptcy
reorganization, with the government providing financing to help it through that
process, would be far greater than their latest loan requests. Without such
help, the companies would have to liquidate, creating staggering new job losses.
In a statement, the administration said Tuesday night that its task force would
be reviewing the carmakers’ reports in coming days, adding that “more will be
required from everyone involved — creditors, suppliers, dealers, labor and auto
executives themselves — to ensure the viability of these companies going
The third Detroit auto company, Ford Motor, has not received federal assistance
and has no requests pending.
By March 31, the presidential task force is expected to rule on whether G.M. and
Chrysler have restructured enough to be viable businesses for the long term.
Big questions remain, including whether G.M. and Chrysler, as well as Ford, will
be able to cut their unionized labor costs to parity with foreign automakers, as
was required in the original loan agreement from last December.
The companies have been in marathon negotiations with the United Automobile
Workers on reducing costs, as well as determining how they will finance health
care trusts for retired blue-collar workers and their surviving spouses.
G.M. is also pushing for a deal with its bondholders to help it reduce its debt
to $9 billion, from $27 billion. The U.A.W. said on Tuesday it had reached
“understandings” with the Detroit companies on modifications to their contracts.
Ron Gettelfinger, the union’s president, said “discussions are continuing”
regarding how to fund the health care trusts at each of the companies.
Rick Wagoner, G.M.’s chief executive, said there had been “good progress” in
talks with both the union and bondholders.
On the concessions in the U.A.W. contract, he said, “the things that have been
negotiated really take a big bite out of what needed to accomplish.”
G.M.’s restructuring plan extends to its global operations. It will cut 47,000
jobs worldwide by the end of this year. It also said it would close 14 plants in
North America by 2012 — five more than were included in its Dec. 2 loan request.
Mr. Wagoner said on Tuesday that the revamping plan was “comprehensive,
responsive and achievable,” and could help the company break even by 2010. Both
G.M. and Chrysler said they expected to begin paying back their federal loans by
A bankruptcy filing, Mr. Wagoner said, would be a “highly risky and costly
process.” G.M.’s president, Frederick Henderson, said the company would require
as much as $100 billion in debtor-in-possession financing from the federal
government if it filed for Chapter 11. Chrysler said it would need $25 billion
if that step were required.
G.M. and Chrysler admitted that their current federal loans would be exhausted
by March 31.
G.M. said Tuesday that it had increased its overall loan request from the
government to a total of $30 billion, up from $18 billion.
The company has received $13.4 billion so far from Treasury, and the most recent
installment — $4 billion — was turned over to G.M. on Tuesday.
But G.M. said that loan would not last long. Company officials said they hoped
to receive another $2 billion loan in March and $2.6 billion in April. Beyond
that, G.M. is asking for another $12 billion by 2011 — $7.5 billion in loans and
$4.5 billion to pay off a credit facility that comes due.
Chrysler, which has received $4 billion in loans, also increased its overall
request for funding. In December, it said it needed $3 billion more to survive
2009, but it raised that request to $5 billion.
The smallest of Detroit’s Big Three, Chrysler has drastically scaled back its
operations since being acquired in 2007 by the private equity firm Cerberus
On Tuesday, Chrysler said it would cut another 3,000 jobs and discontinue three
models — the Dodge Durango, P.T. Cruiser and Chrysler Aspen.
“Chrysler will be viable,” said the company’s chairman, Robert L. Nardelli. “An
orderly restructuring outside of bankruptcy, together with the completion of our
stand-alone viability plan and enhanced by a strategic alliance with Fiat, is
the best option for Chrysler employees, our unions, dealers, suppliers,
customers, and certainly the taxpayers.” The company is exploring a deal with
Fiat to share products.
But Mr. Nardelli said Chrysler would have to consider liquidating itself in the
event that it received no more federal aid.
G.M. executives sidestepped questions on Tuesday on whether they had been given
any assurances by administration officials about additional loans. “They fully
understood we would be coming in with additional requests,” said Ray Young,
G.M.’s chief financial officer.
But the possibility exists of a negative political reaction to the
administration’s pouring more taxpayers’ money into the companies, especially
when they continue to operate at huge losses.
Micheline Maynard contributed reporting.
Automakers Seek $14
Billion More in Aid, NYT, 18.2.2009,
Aimed at the Most Afflicted Homeowners
February 18, 2009
The New York Times
By DAVID LEONHARDT
The long-awaited housing bailout will finally be announced on Wednesday.
In a speech in Phoenix, a signature real estate boomtown gone bust, President
Obama will explain his plan to reduce foreclosures. And the key to understanding
that plan will be remembering that there are two different groups of homeowners
who are at risk of foreclosure.
The first group is made up of people who cannot afford their mortgages and have
fallen behind on their monthly payments. Many took out loans they were never
going to be able to afford, while others have since lost their jobs. About three
million households — and rising — fall into this category. Without help, they
will lose their homes.
The second group is far larger. It is made up of the more than 10 million
households that can afford their monthly payments but whose houses are worth
less than what is owed on their mortgages. In real estate parlance, they are
underwater. If they want to stay in their homes, they will have no trouble doing
so. But some may choose to walk away voluntarily, rather than continue to make
payments on an investment that may never pay off.
Scratch beneath the details of any housing bailout proposal, and the fundamental
issue is whether it tries to help the second group or just the first.
Mr. Obama has evidently decided to focus on the first group, based on the
previews of his speech that aides have offered. In coming weeks, his
administration will begin spending $50 billion to entice banks to reduce the
monthly payments of people who otherwise couldn’t afford to stay in their
houses. In effect, the government will split the losses on these mortgages with
The $50 billion will come from the money Congress has already allocated for the
bailout of the financial system. It is likely to be aimed at people who need a
significant, but not an enormous, amount of help to meet their mortgage
There are some big advantages to this approach. Bailing out all underwater
homeowners would be tremendously expensive. All told, about $500 billion in
mortgage debt is already underwater, and it’s impossible to know in advance who
is likely to walk away. So the government would have to spend hundreds of
billions of dollars to help millions of people who don’t need help staying in
But the Obama approach also brings risks. The administration is betting that few
of those 10 million underwater homeowners will walk away. (A year from now, the
number will about 15 million, Moody’s Economy.com projects.) If they begin to
abandon their homes in large numbers, however, they will aggravate the housing
bust and the financial crisis — and probably force the administration to come up
with a new, much larger housing bailout down the road.
In that case, the speech that Mr. Obama is making in Phoenix could come to look
like a rose-colored bit of incrementalism, which happens to be the very
criticism that Obama advisers have leveled against the Bush administration’s
response to the housing bust.
Underwater homeowners clearly face a difficult choice. By walking away from a
house and then renting a similar one in the same town, many could save
themselves a lot of money. And those who need to move — to take a new job, for
example, or to marry — may have little choice but to default. They may not get
enough from a sale to pay off the mortgage.
On the other hand, defaulting will wreck a homeowner’s credit rating. For
families that don’t need to move, doing so will also bring other headaches and
costs. They will be leaving behind their homes. Many other people may continue
to make their payments simply because they think it’s the right thing to do.
The current housing bust doesn’t have a good recent historical analogy. It’s too
big. But there have been some serious regional housing slumps that may offer a
window into how underwater homeowners will behave this time.
Three economists at the Federal Reserve Bank of Boston recently did an analysis
along these lines, looking at the Boston area in the early 1990s. From early
1989 until late 1991, prices in Boston fell 15 percent. They did not return to
their 1989 peak until 1997.
Yet only 6.4 percent of homeowners who had been underwater at the end of 1991
were eventually foreclosed on. And the majority of these foreclosed homeowners
weren’t merely underwater; they were also unable to make their monthly payments,
because of the severe recession hitting New England at the time, as Chris Foote,
an economist at the Boston Fed, told me. They are the kind of people the Obama
plan is meant to help.
In all, maybe only 1 or 2 percent of underwater homeowners walked away even
though they could make their payments. Mr. Foote and his colleagues predict that
the nationwide foreclosure rate over the next few years will be higher than it
was in Boston, but not radically so.
For most people, the Fed economists write, being underwater “is a necessary but
not a sufficient condition for foreclosure.”
Now, not all economists buy this argument. They say that the psychology of the
current bust is different from what it was in Boston in the early 1990s. In a
handful of metropolitan areas, including Phoenix, prices have fallen almost 50
percent from their 2006 peak.
Homeowners in such places may wonder if their houses will ever be worth more
than their mortgages. So fairly small changes in their lives — like a reduction
in work hours or the breakdown of a car — may lead them to walk away from their
“I would not minimize that risk at all,” said Frederic Mishkin, a member of the
Fed’s board of governors until last year.
If even 10 percent of the underwater homeowners walked away, Mr. Mishkin notes,
foreclosures would soar, exacerbating the economy’s many problems.
Other economists who share his view are calling for across-the-board programs
that would reduce interest rates or otherwise juice the housing market. They are
worried that without bolder government actions, the housing market will continue
to spiral downward.
In the end, the choice between the two approaches becomes a matter of
cost-benefit analysis. The more aggressive approach would almost certainly do
more to reduce foreclosures. But it would also be enormously more expensive.
If the economists from the Boston Fed are right — or even close to right — then
the aggressive approach may cost something like $500 billion to prevent 500,000
That’s $1 million per prevented foreclosure. Is that really worth it? Or could
the money be better spent in other ways? (There is also the small matter of
whether Congress would be willing to spend another $500 billion anytime soon.)
Mr. Obama is apparently going to try to get more bang for the buck by focusing
on those homeowners who would certainly lose their homes without government
The plan will also help some underwater homeowners refinance their mortgages,
but that won’t be the emphasis.
The administration’s next task is to execute its plan better than the Bush
administration executed its various housing plans. That will mean offering
subsidies that are big enough to persuade banks, finally, to rewrite mortgage
It also might help to suggest that the federal government would look unfavorably
on any bank that did not make good use of those subsidies. After all, the
government is now a shareholder in many banks.
A Bailout Aimed at the
Most Afflicted Homeowners, NYT, 18.2.2009,
Dow Nears Lowest Level in a Decade
February 18, 2009
The New York Times
By JACK HEALY
and MATTHEW SALTMARSH
Financial gloom was everywhere on Tuesday.
Markets from Hong Kong to Stockholm to London staggered lower. On Wall Street,
the Dow came within sight of its lowest levels in more than a decade. Financial
shares were battered. And rattled investors clamored to buy rainy-day
investments like gold and Treasury debt.
It was a global wave of selling spurred by rising worries about how banks,
automakers — entire countries — would fare in a deepening recession.
Shortly after 3 p.m., the Dow Jones industrial average was down more than 235
points as losses in General Motors, Bank of America and American Express dragged
the blue chips lower. The only Dow stock in positive territory was Wal-Mart,
which rose after reporting better-than-expected profits.
The broader Standard & Poor’s 500-stock index slid 3.7 percent to drop below
800, which analysts said was an important trading threshold. Crude oil closed
down $2.58 to $34.93 a barrel.
“If we get substantially below 800 then look out below,” said Marc Groz, chief
investment officer at Topos, a hedge fund in Greenwich, Conn.
The downward spiral came as President Obama flew to Denver to sign the $787
billion economic stimulus package and executives at General Motors and Chrysler
were preparing to submit major restructuring plans to the federal government
after receiving billions in bailout money.
General Motors stock, which was more than $25 last February, was trading lower
on Tuesday, at about $2.15 a share. Shares of the Ford Motor Company, which has
not received any bailout funds, were down 5 percent.
Analysts said investors were still nervous about the Treasury Department’s plans
to shore up the financial system and help remove billions of dollars in troubled
mortgage-related assets from the balance sheets of major banks.
“The administration is great at floating the rumors, but we need concrete plans
to back that up,” said Ryan Larson, head equity trader at Voyageur Asset
Management. “Without any further concreted details, the market’s really left to
wonder. And in this environment, they wonder the worst-case scenario.”
In a sign of further deterioration in the industrial sector, a gauge of
manufacturing in New York State fell precipitously in February, reflecting a
plunge in new orders, prices and employment. The Empire State Manufacturing
Survey, which is calculated by the Federal Reserve Bank of New York, fell to a
new low of minus 34.7 in February, from minus 22.2 in January.
“Robust export demand had been the main support for U.S. manufacturing for many
months,” Joshua Shapiro, chief United States economist at MFR, wrote in a note.
“Now, with economic activity weakening sharply around the world, exports are
dropping like a stone, with the pace of decline set to accelerate significantly
in the months ahead.”
In Europe, attention turned to the plight of lenders active in Eastern Europe
after Moody’s Investors Service said it might downgrade banks with units in the
region. Investors are worried about the debts owed by banks in Eastern Europe to
financial institutions in western European countries, especially Austria,
Belgium, Germany, Greece and Italy.
“The effects of the slowdown are continuing to widen geographically, especially
to countries that have been reliant on demand in the West,” said Henk Potts,
equity strategist at Barclays Wealth in London.
The International Monetary Fund has offered loans to Hungary, Latvia, Serbia and
Ukraine but there is speculation that it will have to go back into the region
and offer more.
“Market sentiment still remains very poor, corporate profits are under pressure
and management is expressing a cautious view through 2009,” Mr. Potts said.
There is also fear among investors that more banks across Europe will require
capital injections from governments. In Britain, the focus has been on Lloyds
Banking, which has been hobbled buy its forced merger with the stricken mortgage
lender HBOS. Lloyds was off 3.2 percent Tuesday, having shed 8.1 percent Monday
and 32.5 percent Friday.
The FTSE 100 index in London closed down more than 2.4 percent while the DAX in
Frankfurt slid nearly 3.4 percent.
In Japan, Finance Minister Shoichi Nakagawa said he would resign amid criticism
of his bizarre behavior a Group of 7 news conference during the weekend. The
Nikkei 225 Stock Average lost 1.4 percent. In Hong Kong, the Hang Seng index
closed down 3.8 percent, while South Korea’s benchmark Kospi index ended 4.1
percent lower, the biggest fall in the region.
In European trading, the euro pared initial losses as the German ZEW Feb
economic sentiment index came in sharply higher than expected, showing the
fourth monthly improvement. The index was minus 5.8 from minus 31 in January. It
had been expected to fall to minus 28.0. The euro was at $1.2660 before midday
in London, up from $1.2801 late Monday.
Separately, a report showed that the British inflation rate fell to a nine-month
low in January as the deepening recession and a drop in fuel costs eased
pressure on prices. Consumer prices rose 3 percent from a year earlier, compared
with a 3.1 percent pace in December. The median of forecasts in a Bloomberg
survey was for a rise of 2.7 percent. Prices fell 0.7 percent from December, the
most since January 2008.
Dow Nears Lowest Level
in a Decade, NYT, 18.2.2009,
Resisting Home Evictions
Becomes a Group Effort
February 18, 2009
The New York Times
By FERNANDA SANTOS
As resistance to foreclosure evictions grows among homeowners, community
leaders and some law enforcement officials, a broad civil disobedience campaign
is starting in New York and other cities to support families who refuse orders
to vacate their homes.
The community organizing group Acorn unveiled the campaign with a spirited rally
on Friday at a Brooklyn church and will roll it out in at least 22 other cities
in the coming weeks. Through phone trees, Web pages and text-messaging networks,
the effort will connect families facing eviction with volunteers who will stand
at their side as officers arrive, even if it means risking arrest.
“You want to haul us out to jail? Fine. Let the world see how government has
been ineffective,” Bertha Lewis, Acorn’s chief organizer, said in an interview.
“Politicians have helped banks, but they haven’t helped families in the way that
it’s needed, and these families are now saying, enough is enough.”
At the onset of the foreclosure crisis, the problem was regarded by some as one
of a homeowner’s own making, the result of irresponsible decisions made by
families who chose to live beyond their means. But as foreclosures spread across
the country, devastating even solidly middle-class communities, the blame has
slowly shifted to the financial companies that made questionable loans and have
received billions of dollars in federal aid to stave off collapse.
In recent months, a budding resistance movement has grown among Americans who
believe they have been left to face their predicament on their own — and the
Acorn campaign is an organized expression of that frustration, Ms. Lewis said.
Instead of quietly packing up and turning their homes over to banks, homeowners
are now fighting back.
On Feb. 9, a man scrawled a message on the roof of his house in a suburb of Los
Angeles: “I Want 2 Be Heard.” Then he barricaded himself inside when deputies
showed up to evict him, surrendering after a few hours. In October, a woman in
San Diego chained herself to her front porch after the bank that held her
mortgage refused to renegotiate the terms. She remains in her home, but has
received a second eviction notice.
And last year in Boston, neighbors and activists locked arms outside eight
buildings that had been foreclosed upon to prevent the authorities from forcing
residents onto the streets.
Sheriffs in some places have also taken a stand. In Wayne County in Michigan,
Sheriff Warren C. Evans, suspended all evictions starting Feb. 2 until the
federal government implements a plan to help homeowners facing foreclosures.
In Cook County in Illinois, which includes Chicago, Sheriff Thomas J. Dart
directed a lawyer to review all eviction orders to protect people who kept on
paying rent after the buildings where they lived had been seized by banks. In
Butler County in Ohio, Sheriff Richard K. Jones ordered his deputies not to
evict people who had no place else to go.
“This is a cold place in the winter and I will not give people a death sentence
for not paying their debts,” Sheriff Jones said in an interview. “These are
human beings, responsible middle-class people who fell on hard times, and I just
can’t toss them out onto the streets.”
Acorn’s strategy is modeled on a movement the group led in the 1980s, when
squatters occupied and set out to renovate thousands of abandoned city-owned
buildings in New York, Philadelphia and Detroit, among other cities. The
motivation was to solve what Ms. Lewis has called “the working family’s housing
In cities like Orlando, Fla., which has one of the nation’s highest foreclosure
rates — and Boston, Houston, Baltimore, Oakland, Calif., and Tucson, Ariz. —
Acorn organizers have been creating networks to alert a homeowner’s neighbors
when an eviction has been scheduled or deputies are on the way. Some volunteers
will summon friends and relatives to converge at the home, while others will be
in charge of notifying the news media. Organizers are also recruiting lawyers
willing to defend for no fee those who are arrested.
The campaign, called Home Defenders, enlisted about 500 participants during
meetings held Friday and Saturday in New York and five other cities. Ms. Lewis
and other organizers said that they believed the number will reach into the tens
of thousands within weeks.
“This is a desperate, last-ditch effort by folks who are working two or three
jobs, single mothers, elderly people who don’t know what else to do to save
their homes,” said Ginny Goldman, Acorn’s lead organizer in Texas, where the
campaign began in Houston on Saturday.
The rally in Brooklyn, at Brown Memorial Baptist Church in Fort Greene, drew
about 150 people. There were homeowners, Acorn members, community advocates and
candidates for the City Council. One councilman, Mathieu Eugene, was carrying a
slab of papers as thick as a large dictionary, each sheet representing, he said,
a family facing foreclosure in his district, which includes parts of Crown
Heights, Flatbush and Kensington.
The church’s pastor, the Rev. Clinton M. Miller, opened the gathering with this
prayer: “If anybody here is facing foreclosure, God, we ask that a miracle be
made and a home be saved.”
Then, between homeowners’ sharing their plight, the crowd chanted, “Enough is
One homeowner, Myrna Millington, 73, who lives in Laurelton, Queens, said that
she had to take a second mortgage on her home of 38 years to pay for repairs
that turned out to more extensive than originally planned. What Ms. Millington
did not know was that she had signed for a subprime loan, which carried interest
rates so high she could not keep up with the payments. Her house was foreclosed
on in September.
“I may lose my home, but I’m only leaving in handcuffs,” Ms. Millington said.
Another homeowner, Denise Parker, a mother of three who works as a housekeeper
at two Midtown Manhattan hotels, bought a home in Springfield Gardens, Queens,
in 2005 with an adjustable interest rate that, after two years, went up every
six months. Her payments started at $3,500 and now are $5,050 a month, she said.
She fell behind last year and her house is scheduled to be auctioned off on
“I refuse to leave the home that I’ve worked so hard to keep,” Ms. Parker, 42,
told the audience. “I will not let the bank take my home and I will not leave.”
Eviction resistance actions are scheduled for Thursday in cities including New
York, Oakland and Houston. Organizers will try to recruit enough volunteers to
form a human wall on the sidewalk to avoid being arrested for trespassing. But
occupying a house or having people attach themselves to a home could also be a
The campaign has earned praise and raised concern. Sheriff Dart, in Illinois,
said it was a “slippery slope when you have individuals deciding whether they
can lawfully remain in their homes.”
Sheriff Jones, in Ohio, equated the planned resistance to “chaining yourself to
a tree that’s about to be cut down” and said that though he may not agree with
it, he sympathizes.
In Washington, Acorn has found a staunch supporter in Representative Marcia C.
Kaptur of Ohio, who, during a discussion last month about the $700 billion
bailout package for financial companies, took to the floor of the House and
instructed people to “stay in your homes — if the American people, anybody out
there, is being foreclosed, don’t leave.”
In an interview, Ms. Kaptur said, “I’m thrilled that the American people are
rising up and exercising the power that Wall Street has taken away from them.”
Resisting Home Evictions Becomes a Group
Effort, NYT, 18.2.2009,
Dead End in Detroit
for White-Collar Workers
February 17, 2009
The New York Times
By BILL VLASIC and NICK BUNKLEY
DETROIT — For all the ups and downs, and more downs, that white-collar
workers here have lived through, they have always managed to put on a brave
face, assuring one another that the American auto industry will come back
stronger than ever.
But now that resolve has given way to grim resignation, as General Motors, Ford
Motor and Chrysler have announced wave upon wave of job cuts.
After closing plants and shrinking their blue-collar work force, Detroit’s
troubled Big Three are cutting white-collar jobs in their hometown at an
unprecedented pace — more than 15,000 in the last year, with more to come.
Unlike union workers laid off from idled factories, salaried workers have no
safety net of health care or guaranteed income for a year. At best, it’s a small
severance or buyout, and a voucher for a discount on one of the hundreds of
thousands of unsold cars that G.M. or Chrysler has sitting in inventory.
White-collar workers who walk out of the headquarters of the auto companies face
few prospects in the Michigan economy. And with G.M. and Chrysler surviving on
federal loans, facing a deadline Tuesday to submit new and broader restructuring
plans to the government, the outlook grows only more bleak.
The market for the skills of auto engineers or designers in the prime of their
careers has evaporated, with no hope in sight for a turnaround. Moving to
another city is hardly an option when there are so few buyers for the suburban
homes that would have to be sold first.
“I know it’s not great everywhere, but this is probably the worst place to find
a job,” said Doug Zupan, a designer who took a buyout in November after working
at Chrysler for six years. He was one of 5,000 salaried workers who accepted a
buyout the day before Thanksgiving from his job at the Chrysler Technical Center
in Auburn Hills, Mich.
Mr. Zupan, a 35-year-old father of three preschool-age children, said he was
stunned by the sudden and rapid decline in an industry suffering through its
worst sales in more than 25 years. “I am going to do my best to get out of the
auto industry,” he said.
G.M., Ford and Chrysler have eliminated a total of 120,000 manufacturing jobs in
the last three years. And now the cuts are drastically thinning the ranks of
white-collar professionals, turning the once-bustling office towers of the
companies into half-empty monuments to better days.
G.M. delivered another blow last week when it said it would reduce its global
salaried work force by 14 percent, or 10,000 workers this year. In the Detroit
area, that could mean an additional 3,000 workers will be out of a job by May 1.
G.M.’s next round of white-collar cuts will not include buyouts. Chrysler has
not said whether it plans more cuts.
The Detroit area housing market, already deeply depressed, has plummeted since
the buyouts. In January, the foreclosure rate increased 102 percent from the
same month a year earlier in Oakland County, Mich., home to a huge number of
G.M. and Chrysler employees.
The state’s unemployment rate was 10.6 percent in December and continues to
climb. Job fairs routinely create mob scenes, drawing thousands of out-of-work
employees of the Big Three and their suppliers.
Jim Badhorn was a Chrysler engineer for 21 years before he took the buyout.
Among his accomplishments was designing the rear doors of the Chrysler 300
sedan, one of the company’s last hit products.
Recently, he attended a job fair held by a military contractor but was quickly
disappointed. So many people showed up that the police blocked off the parking
lot, he said. “You couldn’t even find the end of the line.”
He considers himself fortunate to be a renter in the Detroit area, where the
“for sale” signs are multiplying. “I have friends whose houses have lost 40
percent of their value,” said Mr. Badhorn, who lives in the suburb of
Last November, every white-collar worker in the company was offered a one-time
buyout — $75,000 for those with 10 years or more and $50,000 for those with
fewer than 10 years. With Chrysler on the brink of collapse without more federal
loans, Mr. Badhorn grabbed the buyout and put much of his $75,000 into a college
fund for two of his daughters.
Frustrated by the tight job market, Mr. Badhorn works off his stress by hitting
the gym every day. He’s lost 15 pounds since November, but it hasn’t made him
feel any better about his circumstances. “I’ve pretty much come to the
conclusion that I’m going to have to move if I want to earn what I made before,
or close to it,” he said.
The cuts are extending to the vast network of employees who worked on contract
to the Detroit companies. Craig Meyer, employed by a supplier named Aerotek, was
told by phone that his seven years as a contract designer at Chrysler were over
as he was driving to the home of his in-laws the night before Thanksgiving.
Mr. Meyer has been collecting unemployment since, although the $362 he gets a
week is less than half what he was making at Chrysler. “We’re just about able to
pay the bills each month,” he said. “Food and gas is when we need to start to
dip into savings.”
The prospects are getting worse for Detroit, not better. Last year, United
States car sales dropped 18 percent, to 13.2 million, and industry executives
expect just 10 million car sales in 2009 and possibly for years to come.
“Those white-collar jobs aren’t going to come back any more than the blue-collar
jobs are,” said Kevin Boyle, a Detroit native and author of historical books on
the city. “As bad as it is everywhere, it’s not as bad as it is in Detroit right
The unemployment rate for white-collar occupations in Michigan was 5.4 percent
in the fourth quarter of 2008, a full percentage point higher than the national
average for those jobs, according to Department of Labor estimates.
Mr. Zupan’s $50,000 buyout from Chrysler is supporting him, his wife and his
three children — ages 4, 2, and 6 months — while he looks for work. He’s
finishing a master’s degree in business administration at the University of
Michigan, paid for until last semester by Chrysler, when it could afford to
invest in the education of its white-collar staff. He recently took out loans to
have an additional financial cushion.
His last nest egg is the 300C he bought with his $25,000 buyout voucher. Mr.
Zupan said he might sell it if he needed the money.
Catherine Rampell contributed reporting.
Dead End in Detroit for
White-Collar Workers, NYT, 17.2.2009,
California, Almost Broke, Nears Brink
February 17, 2009
The New York Times
By JENNIFER STEINHAUER
LOS ANGELES — The state of California — its deficits ballooning, its
lawmakers intransigent and its governor apparently bereft of allies or influence
— appears headed off the fiscal rails.
Since the fall, when lawmakers began trying to attack the gaps in the $143
billion budget that their earlier plan had not addressed, the state has fallen
into deeper financial straits, with more bad news coming daily from Sacramento.
The state, nearly out of cash, has laid off scores of workers and put hundreds
more on unpaid furloughs. It has stopped paying counties and issuing income tax
refunds and halted thousands of infrastructure projects.
Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the
communications director for Gov. Arnold Schwarzenegger, said Monday night. “In
the absence of a budget we need to realize this savings and the process takes
six months,” Mr. David said.
After negotiating nonstop from Saturday afternoon until late Sunday night on a
series of budget bills that would have closed a projected $41 billion deficit,
state lawmakers failed to get enough votes to close the deal and adjourned. They
returned to the Capitol on Monday morning and labored into the evening but still
failed to reach a deal. They planned to reconvene at 10 a.m. Tuesday to go at it
California has also lost access to much of the credit markets, nearly unheard of
among state municipal bond issuers. Recently, Standard & Poor’s downgraded the
state’s bond rating to the lowest in the nation.
California’s woes will almost certainly leave a jagged fiscal scar on the
nation’s most populous state, an outgrowth of the financial triptych of
above-average unemployment, high foreclosure rates and plummeting tax revenues,
and the state’s unusual budgeting practices.
“No other state is in the kind of crisis that California is in,” said Iris J.
Lav, the deputy director of the Center on Budget and Policy Priorities, a
liberal research group in Washington.
The roots of California’s inability to address its budget woes are statutory and
political. The state, unlike most others, requires a two-thirds majority vote in
the Legislature to pass budgets and tax increases. And its process for creating
voter initiatives hamstrings the budget process by directing money for some
programs while depriving others of cash.
In a Legislature dominated by Democrats, some of whom lean far to the left,
leaders have been unable to gather enough support from Republican lawmakers, who
tend on average to be more conservative than the majority of California’s
Republican voters and have unequivocally opposed all tax increases.
And then there is Governor Schwarzenegger, whose budget woes far outweigh those
of his predecessor, Gray Davis, whom he drummed from office in a 2003 recall
that stemmed from the state’s fiscal problems at the time. The governor has
failed to muster votes among lawmakers in his own party, whom he often opposes
on ideological grounds, resulting in more scorn from Democrats.
Furthermore, Republican leaders in the Senate and the Assembly who have agreed
to get on board with a plan have been unable to persuade a few key lawmakers to
join them. The package needs at least three Republican votes in each house, to
join with the 51 Democrats in the Assembly and the 24 Democrats in the Senate.
For months Republicans have vowed not to raise taxes, which in California means
no increase in either the sales, gas or personal income tax.
“It is a dramatic time,” said Darrell Steinberg, the State Senate’s president
pro tempore. “The solvency of the state is on the line. It is really quite a
system where the fate of the state rests upon the shoulders of a couple of
members of a minority party. The system frankly needs to be changed.”
In the meantime, drivers are met with “closed” signs at Department of Motor
Vehicles offices two days a month, environmental programs are left unattended,
piles of dirt mark where highway lanes are to be built to ease the state’s
infamous traffic congestion, school systems mull layoffs and counties prepare to
sue the state for nonpayment of bills.
Last week, Mr. Schwarzenegger and the four legislative leaders concurred on a
series of bills that included $15.1 billion in budget cuts, $14.4 billion in tax
increases and $11.4 billion in borrowing, much of it subject to voter approval.
The Senate Republican leader, Dave Cogdill, said he thought he had all the votes
needed to get the deal done in each house. But on Sunday, two Republican
senators — Dave Cox, who was originally thought to be the last vote needed, and
Abel Maldonado, whom Mr. Schwarzenegger had been able to woo into voting against
his party in the past — said they would reject the plan.
Democrats, who had already given into Republicans’ long-held dreams of large tax
cuts for small businesses and for some of the entertainment industry and a
proposed $10,000 tax break for first-time home buyers, balked at Mr. Maldonado’s
request that the Legislature tuck a bill into the package that would allow
voters to cross party lines in primaries.
“I think with an open primary, we would have good government that would do the
people’s work,” Mr. Maldonado said.
Sunday evening ended in frustration and exhaustion for lawmakers, who returned
to work on Monday facing the state’s uncertain future.
“My boss will continue to work toward a responsible budget solution,” said Mr.
Cogdill’s spokeswoman, Sabrina Lockhart. “There are real risks and real
consequences for not passing a budget.”
Kansas in Budget Deadlock
TOPEKA, Kan. (AP) — Kansas has suspended income tax refunds and may not be able
to pay employees on time, the state budget director said Monday.
The state does not have enough money in its main bank account to pay its bills,
prompting Gov. Kathleen Sebelius, a Democrat, to suggest transferring $225
million from other accounts throughout state government. But the move required
approval from legislative leaders, and Republican leaders refused to consent on
Duane A. Goossen, the budget director, said without the money he was not sure
the state could meet its payroll. About 42,000 state employees are scheduled to
be paid again on Friday. He said the state stopped processing income tax refunds
Republican leaders are hoping to pressure Ms. Sebelius into signing a bill
making $326 million in adjustments to the budget for the fiscal year that ends
Broke, Nears Brink, NYT, 17.2.2009,
File for Bankruptcy a Third Time
February 17, 2009
Filed at 3:23 p.m. ET
The New York Times
By THE ASSOCIATED PRESS
ATLANTIC CITY, N.J. (AP) -- The three Atlantic City casinos once run by
Donald Trump filed for Chapter 11 bankruptcy protection on Tuesday -- for the
Trump Entertainment Resorts made the filing in U.S. Bankruptcy Court in Camden,
N.J., four days after the real estate mogul whose name remains on the company
and its three seaside gambling resorts resigned as chairman of its board.
Trump was frustrated that bond holders and their allies on the board rebuffed
his offer to buy the company and take it private.
''Other than the fact that it has my name on it -- which I'm not thrilled about
-- I have nothing to do with the company,'' Trump told The Associated Press
He acknowledged being sad over the end of a venture that was so publicly and
relentlessly associated with his name and image. Yet he said the company
''represents substantially less than 1 percent of my net worth, and has for some
''If I can't manage something, it's not for me,'' said Trump, who still holds 28
percent of the company's stock.
The company has $2.06 billion in assets and more than $1.74 billion in
liabilities, according to its court filing.
All three of the company's casinos will continue to operate as usual during the
Filing three times for Chapter 11 protection is uncommon in American business,
according to Harlan Platt, a professor and bankruptcy expert at Northeastern
University in Boston, who has followed Trump's casino bankruptcies for decades.
''Chapter 33! Wow! That's rare,'' he quipped.
''Mr. Trump has a way of doing business which was perfectly aligned with
American capitalism over the last 20 years, but will probably be misaligned in
the future,'' Platt said. ''He has lots of leverage and a tendency to make very
bold bets, '' Platt said.
At least 10 other companies -- including an airline, steel makers and several
retailers -- have filed for bankruptcy three times, according to an Associated
The casino company's current incarnation, Trump Entertainment Resorts, was born
of a prior trip through bankruptcy that ended in 2005.
Debt that was still left over from that restructuring was exacerbated by the
economic meltdown and competition from slots parlors in Pennsylvania and New
York that have been hammering Atlantic City for more than two years.
''It was the only option left to us,'' said Mark Juliano, the company's CEO.
''We will work to get it restructured and come out of this with an appropriate
amount of leverage.''
Top creditors listed in the filing include U.S. Bank, the trustee for
bondholders who are owed $1.3 billion; Bovis Lend Lease of Princeton, N.J.,
which managed construction of the $255 million Chairman Tower, which opened last
fall at the Trump Taj Mahal Casino Resort, owed $7.4 million; Thermal Energy
Ltd. I, a subsidiary of Pepco Energy Services that designed and operates heating
and cooling systems at the Taj Mahal, owed $1.8 million, and the Hess Corp.,
owed $1.3 million.
Other claimants include insurers, slot machine manufacturers, a food service
company, a linen supplier, a limousine company and a billboard company.
Trump Entertainment's three casinos are the Taj Mahal, Trump Plaza Hotel and
Casino, and Trump Marina Hotel Casino, which is to be sold this spring to a
company led by Richard Fields, a former protege of Donald Trump. Juliano said
the bankruptcy filing will have no effect on the Trump Marina sale.
In the meantime, Juliano stressed that all three Trump casinos will be open for
business as usual, and customer loyalty programs will remain in effect.
''This is a restructuring, not a liquidation,'' he said. ''Vendors and employees
will be paid, customers will have winning bets paid.''
He said the company is not seeking debtor-in-possession financing, and has
enough cash on hand to fund its current operations.
The company skipped a biannual $53.1 million debt payment that was due last Dec.
1 and started negotiating with its bond holders on a refinancing of $1.25
billion in debt. Those talks were extended four times before they ended with
Tuesday's bankruptcy filing.
Trump acknowledged the company has limited rights to use his name but hinted he
may seek legal action to force them to stop using it.
His daughter, Ivanka, whose image has been increasingly used to market the
casinos, also resigned from the board last Friday.
Trump Casinos File for
Bankruptcy a Third Time, NYT, 17.2.2009,
Receives Final Approval in Congress
February 14, 2009
The New York Times
By DAVID M. HERSZENHORN
WASHINGTON — Congress on Friday approved a $787 billion economic stimulus
measure, meeting the crushing mid-February deadline that Democrats had set for
adopting the centerpiece of President Obama’s early agenda but without quelling
partisan divisions in Washington. Not a single House Republican voted for the
The House vote was 246 to 183, with just 7 Democrats joining all 176 Republicans
in opposition. In the Senate, the vote, 60 to 38, was similarly partisan. Only 3
centrist Republicans joined 55 Democrats and 2 independents in favor.
The Senate finally adopted the bill at 10:47 p.m. after what appeared to be the
longest Congressional vote in history. The peculiar 5-hour 17-minute process was
required because Senator Sherrod Brown, Democrat of Ohio, had to return to
Washington from his home state after attending a funeral home visitation for his
mother, who died Feb. 2.
Under a procedural deal between the parties, the bill needed 60 votes to pass.
The vote began at 5:30 p.m., but from 7:07 p.m., when Senator Evan Bayh,
Democrat of Indiana, cast his “aye,” the tally hung at 59 to 38, until Mr. Brown
Mr. Obama is expected to sign the bill on Monday.
Among the senators voting against it was Judd Gregg, Republican of New
Hampshire, who withdrew this week as the president’s nominee for commerce
Despite the bill’s promise of increased unemployment benefits and new health
care subsidies, as well as more than $100 billion in aid for states, House
Republicans did not break rank. Even those from states hit hardest by the
recession opposed the bill, in a rebuke of the new president.
During the debate, the Republican leader, Representative John A. Boehner of
Ohio, angrily dropped the 1,073-page bill text to the floor with a thump, as he
accused Democrats of failing to read the legislation.
“The president made clear when we started this process that this was about
jobs,” Mr. Boehner said after the vote. “Jobs. Jobs. Jobs. And what it’s turned
into is nothing more than spending, spending and more spending.”
The $787 billion plan — a combination of fast-acting tax cuts and longer-term
government spending on public works projects, education, health care, energy and
technology — was smaller than Democrats first proposed. But, according to an
analysis by the Congressional Budget Office, more than 74 percent of the money
will be spent within the next 18 months, a relatively rapid pace that could
determine whether the plan succeeds.
The House voted in the afternoon, and Speaker Nancy Pelosi and fellow Democrats
cheered on the floor. Ms. Pelosi handed out chocolate bars to her committee
chairmen, a gift to her from Steven A. Ballmer, the chairman of Microsoft. The
label showed a picture of the Capitol and read, “A stimulus package we can all
sink our teeth into.”
At a news conference, Ms. Pelosi and her top lieutenants praised Mr. Obama for
completing the legislation so quickly.
“The president requested swift, bold action,” Ms. Pelosi said. “The American
people are feeling a great deal of pain. They have uncertainty about their jobs,
about health care, about the ability to pay for the education of their children,
and sad to say in our great country, even to put food on the table. And today we
have passed legislation that does take that swift, bold action on their behalf.”
Just four weeks into Mr. Obama’s presidency, the Democrats boasted that they had
already approved three major bills: a measure to curb pay-discrimination against
women in the workplace, a broad expansion of the state children’s health
insurance program and the stimulus.
“We have yet to pass the 30th day of this administration,” said the House
majority leader, Steny H. Hoyer, Democrat of Maryland. “And we have passed
Stimulus Plan Receives
Final Approval in Congress, NYT, 14.1.2009,
Funds boost gold ETFs to record
Fri Feb 13, 2009
By Frank Tang - Analysis
NEW YORK (Reuters) - Investors expecting years of inflation and global
economic instability are pouring money into securities backed by gold bullion,
helping turn a simple safe haven into a mainstream asset class.
SPDR Gold Trust GLD.PGLD.A, popularly known as GLD, said the gold bullion it
owned rose by more than 100 tonnes to 970.57 tonnes as of Thursday, which marked
the biggest weekly gain in the history of the gold-backed exchange-traded fund.
However, fund managers say that setbacks in the price of gold are possible
following a sharp rally when investors small and large are piling into the
GLD is now the second biggest U.S. ETF, with market value of $27.5 billion,
which ranks it behind only the popular SPDR S&P 500. GLD currently owns more
gold bullion than the government of Japan, according to the World Gold Council.
Holdings of COMEX Gold Trust IAU.P, another U.S. gold ETF, also climbed to a
record high 70 tonnes on Friday.
Diversification into gold out of traditional asset classes, such as stocks,
bonds and currencies, by many sizable non-gold investment funds has fueled GLD's
rally. Some pension funds and advisors to wealthy investors are now recommending
5 to 7 percent allocation toward gold and gold stocks.
"More and more generalist money managers are looking at gold. A lot of money
mangers find comfort with the idea of owning gold via GLD. It's quite convenient
to own the GLD, versus having to pay warehouse costs on your own," said Brian
Hicks, co-manager of the $500 million Global Resources Fund at Texas-based U.S.
Gold ETFs are listed on stock exchanges and offer investors exposure in bullion
without taking physical delivery. Sponsors of the funds buy a matching amount of
physical gold and keep it in bank vaults.
Hicks' fund currently owns more than 4 percent of GLD, which is the largest
single position of his fund.
U.S. gold futures for April delivery climbed on Thursday above $950 an ounce,
the loftiest level since July. They traded at $940 on Friday, but have still
risen almost 20 percent from their low in January.
GOLD AS LONG-TERM INFLATION HEDGE
The furious rally in bullion stems from the inflationary expectation arising
from the U.S. government's need to borrow more than $2 trillion to finance a
bank rescue plan and to enact an aggressive package to stimulate the world's
biggest economy and help reverse a global slowdown.
"The government does not know what it is doing, but it's doing a lot to it. It's
just a matter of time for the Federal Reserve to come in to inflate the system,"
said Axel Merk, portfolio manager of California-based Merk Mutual Funds, which
have more than $310 million of assets.
"It (gold) is moving more toward the mainstream. There are retail investors, but
it is also becoming part of the asset allocation of larger fund managers having
a portion in gold. That also shows me that we are far away from the top of the
gold market," Merk said.
There was recent market talk about a shortage of physical gold bullion as more
investors turned to gold as a safe haven.
However, George Milling-Stanley, manager of investment and market intelligence
of WGC, which helped launch GLD in 2004, said there was "not any problem
whatsoever" for GLD's authorized dealers to acquire gold bars to create new
Dennis Gartman, independent investor and author of the daily Gartman Letter,
said that the low yield of currencies and U.S. Treasury bonds because of
stimulus plans by central banks made gold -- which produces no interest -- more
However, Gartman also said the price of gold could easily retrace back to the
$920 level because of over-extended buying in too short a period of time.
"It's a little worrisome that so many people are piling in," Gartman said.
(Editing by Walter Bagley)
Funds boost gold ETFs to
record, R, 13.2.2009,
After the Stimulus
February 13, 2009
The New York Times
While it is beyond the scope of any one bill to counter the worsening
recession, the $789 billion stimulus and recovery package that Congress approved
this week could have accomplished more than it did.
The bill is, for the most part, a step in the right direction. But political
wrangling, including President Obama’s futile pursuit of bipartisanship,
rendered it smaller and less focused than it needed to be.
It was especially lamentable that the stale politics of Washington ended up
including $70 billion for relief from the alternative minimum tax. The relief is
necessary, but it has nothing to do with stimulus or recovery. It is a perennial
issue that Congress should have handled in another bill. To include it in the
stimulus package — and stay beneath a self-imposed $800 billion spending limit —
lawmakers had to ditch far more effective measures, such as aid to states for
education and health care.
Still, there is merit in the bill. It significantly bolsters financing for
unemployment benefits and food stamps, generally the most efficient and powerful
forms of stimulus. It helps some unemployed workers pay for health coverage. It
expands significantly the number of low-income working families who can qualify
for a tax credit of up to $1,000 per child. It pays for highways, bridges and
The final version also has jettisoned some of the most wasteful proposals of
Senate Republicans, including $39 billion for a tax credit for home buyers that
was largely a windfall for people prepared to buy a home anyway.
All told, the package is projected to boost demand enough to create about 3.5
million jobs. That’s not enough; the economy is currently coming up short by
more than five million jobs. But it could take the edge off what is sure to be a
The real question is what the Obama administration does for a follow-up. Unless
the stimulus is accompanied by a successful twin effort to stem foreclosures and
stabilize the banks, the downward pull of falling home prices and constrained
credit will be too great to overcome.
Unfortunately, after a botched rollout this week of their bank bailout plans,
administration officials will likely need another few weeks to develop a
coherent proposal — and weeks thereafter to vet and implement it.
They need not, and should not, wait to start a foreclosure-prevention effort,
but it’s not clear whether Mr. Obama’s team understands the scale of the effort
required. Earlier this week, Treasury Secretary Timothy Geithner suggested that
some $50 billion from the bank-bailout funds may be used on foreclosure
prevention. That is the low end of the estimate that had been floated.
The administration also appears to be waffling in its support for passing new
legislation that would allow bankrupt homeowners to have their mortgages
modified under court protection. To be powerful, an anti-foreclosure effort must
include both carrots, like interest-rate subsidies that would make it easier for
lenders and borrowers to agree on modified loan terms, and sticks, including the
option for a bankruptcy court judge to impose a settlement on lenders who aren’t
doing enough to prevent unnecessary foreclosures.
The administration’s next shot at advancing its economic aims will be Mr.
Obama’s first budget. The new president should stop courting Republicans who
have shown no interest in compromise or real economic fixes. The budget
resolution is immune from filibustering. If every Republican wants to vote
against it, Mr. Obama should leave them to explain that decision to voters who
are in danger of losing their jobs or their houses or both.
After the Stimulus, NYT, 13.2.2009,
$2.5 Trillion and a Strong U.S. Hand
February 11, 2009
The New York Times
By EDMUND L. ANDREWS
and STEPHEN LABATON
WASHINGTON — The White House plan to rescue the nation’s financial system,
announced on Tuesday by Timothy F. Geithner, the Treasury secretary, is far
bigger than anyone predicted and envisions a far greater government role in
markets and banks than at any time since the 1930s.
Administration officials committed to flood the financial system with as much as
$2.5 trillion — $350 billion of that coming from the bailout fund and the rest
from private investors and the Federal Reserve, making use of its ability to
Mindful of previous financial crises at home and abroad that became protracted
because governments moved too slowly, Mr. Geithner pointedly criticized the Bush
administration for not acting boldly and quickly enough.
But the initial assessment of the plan from the markets, lawmakers and
economists was brutally negative, in large part because they expected more
Basic questions about how the various parts of the program would work,
especially those involving the unsellable mortgages that banks are holding and
preventing home foreclosures, were left for another day. Some Wall Street
experts criticized the plan for relying too heavily on the same vague solutions
proposed by the Bush administration.
The stock market, propped up for weeks on the expectation that Washington would
finally deliver a comprehensive rescue plan, dipped almost as soon as Mr.
Geithner began speaking in the morning. The Dow Jones industrial average fell
382 points, or 4.6 percent, by the time the market closed. Yields on Treasury
bills dropped, indicating a flight from stocks to the safety of government
bonds. Asian markets slipped more narrowly.
While traveling in Fort Myers, Fla., President Obama welcomed the news that the
Senate voted 61-37 to approve its $838 billion economic stimulus bill Tuesday,
but dismissed the market reaction to his bank rescue plan.
“Wall Street, I think, is hoping for an easy out on this thing and there is no
easy out,” Mr. Obama said in an interview with ABC News.
Many of the vital details of the program remain unsettled and are the subject of
an intense behind-the-scenes debate.
The president himself had built up expectations that the plan would get ahead of
the crisis — and not lurch from pillar to post as the Bush administration did
last year, often in partnership with the New York Federal Reserve under its
then-president, Mr. Geithner.
A central piece of the plan — and the one item that investors most craved
information about — would create one or more so-called bad banks that would rely
on taxpayer and private money to purchase and hold banks’ bad assets. But the
administration provided the least amount of details about this part of the plan.
Another centerpiece of the plan would stretch the last $350 billion that the
Treasury has for the bailout by relying on the Federal Reserve’s ability to
create money, in effect, out of thin air. The Fed’s money will enable the
government to become involved in the management of markets and banks in ways not
seen since the Great Depression.
In the credit markets, for instance, the administration and the Fed are
proposing to expand a lending program that would spend as much as $1 trillion to
make up for the $1.2 trillion decline between 2006 and last year in the issuance
of securities backed primarily by consumer loans.
The plan’s third major component would give banks new helpings of capital with
which to lend. Banks that receive new government assistance will have to cut the
salaries and perks of their executives and sharply limit dividends and corporate
They will also have to make public more information about their lending
practices. A Treasury fact sheet said that banks would have to state monthly how
many new loans they make, but stopped short of ordering banks to issue new loans
or requiring them to account in detail for the federal money.
Mr. Obama, in the ABC News interview, suggested that banks would be required to
reveal more about their mortgage holdings.
“Essentially what you’ve got are a set of banks that have not been as
transparent as we need to be in terms of what their books look like. And we’re
going to have to hold out the Band-Aid a little bit and go ahead and just be
clear about some of the losses that have been made because until we do that,
we’re not going to be able to attract private capital into the marketplace.”
The day was the first big test of Mr. Geithner as Treasury secretary, who has
one of the toughest sells in America: convincing lawmakers and taxpayers that
they should again bail out the very banks whose mistakes contributed to the loss
of more than three million jobs and caused acute financial pain.
It was clear during the hours he spent before the cameras and lawmakers that he
was well-spoken and thoughtful. But his career until now had played out behind
the scenes as a civil servant and a central banker. He occasionally lapsed into
financial jargon and struggled to connect to a broader public audience.
As the day wore on, Mr. Geithner faced growing skepticism from Democratic and
Republican lawmakers, many of them channeling deep voter disgust with the way
the government has handled the bailout over the last nine months.
Even Democrats who are supportive of the administration said that it had failed
to provide more information about how it would be spending the remaining money
in the bailout program.
“We need more details from Treasury on how exactly it plans to remove bad assets
while protecting the taxpayer,” said Senator John Kerry, the Massachusetts
Democrat who is a senior member of the Senate Finance Committee. “We have zombie
banks that are weighed down because their liabilities exceed their assets.
Without a precise mechanism for addressing toxic assets, it will be difficult to
The pessimism seemed to indicate that Mr. Geithner missed the mark with one of
his shorter-term goals — to quickly instill confidence that the Obama
administration has a coherent approach to the banking crisis and that the
transparency and oversight of the new program will differ markedly from the Bush
administration’s management of the first $350 billion that Congress authorized
last year for the Troubled Asset Relief Program, or TARP.
“The spectacle of huge amounts of taxpayer money being provided to the same
institutions that helped cause the crisis, with limited transparency and
oversight, added to the public distrust,” the Treasury secretary said, in a
clear swipe at the Bush administration.
“We will have to try things we’ve never tried before. We will make mistakes. We
will go through periods in which things get worse and progress is uneven or
interrupted,” Mr. Geithner said.
Representative Barney Frank, the Massachusetts Democrat who heads the House
Financial Services Committee, criticized the Obama administration for not
putting out more details and said it should commit more than $50 billion to
avert home foreclosures.
“The secretary said the administration would present details of their
foreclosure reduction plan in a few weeks, which is too much time,” Mr. Frank
Appearing on Tuesday afternoon before the Senate banking committee, Mr. Geithner
vowed to move quickly to provide more details. But Republicans were skeptical.
“Is there a concrete plan here?” Richard Shelby of Alabama, the senior
Republican on the committee, asked Mr. Geithner point blank, after noting that
Mr. Geithner had been part of the leadership involved in last year’s bailout
efforts. “What is different about the process that you are offering here to
devise your plan such that we should have confidence that it is well thought
There was also withering criticism from Wall Street. Ethan Harris, co-head of
United States economics research at Barclays Capital, said the program was
“shock and uh.” He said the Treasury made a “tactical mistake” by building up
expectations about a plan before it had much to announce.
“What’s striking is that these are not new issues that they are facing,” Mr.
Harris said. “These are the same issues that the Treasury faced last fall — how
do we price the assets? The fact that it’s so been so difficult to figure out
the answer may tell you something about whether it’s worth doing or not.”
Mr. Harris warned that setting up a so-called bad bank would be very expensive,
as Mr. Geithner himself acknowledged when he set the goal of creating a fund
that would reach $1 trillion. Frank Pallotta, a former managing director at
Morgan Stanley and a veteran mortgage trader, said the gap was so wide between
what banks were valuing their assets and what investors were willing to pay that
the government would attract investors to buy only if it provided a subsidy of
one form or another.
“Right now, the banks aren’t selling anything,” said Mr. Pallotta, now a
consultant to both buyers and sellers of distressed mortgages. “You have Chase
thinking that its assets are worth 75 cents on the dollar, and Joe Hedge Fund
who thinks they are only worth 45 or 25. There is a huge gap, and the government
has to find out if there is some middle point where they can get in.”
Mr. Pallotta said he did not fault the Treasury for failing to offer specifics
yet, but he said it could not delay for long. “If we don’t hear in the next 30
days about how this thing will flesh out, then I would be upset.”
Jeff Zeleny contributed reporting from Fort Myers, Fla.
Bailout Plan: $2.5 Trillion and a Strong U.S.
Hand, NYT, 11.2.2009,
Obama Warns of ‘Catastrophe’
Unless Bill Passed
February 10, 2009
The New York Times
By SHERYL GAY STOLBERG and HELENE COOPER
WASHINGTON — President Obama took his case for his $800 billion economic
recovery package to the American people on Monday, as the Senate cleared the way
for passage of the bill and the White House prepared for its next major hurdle:
selling Congress and the public on a fresh plan to bail out the nation’s banks.
Warning that a failure to act “could turn a crisis into a catastrophe,” Mr.
Obama used his presidential platform — a prime-time news conference, the first
of his presidency, in the grand setting of the White House East Room — to
address head on the concerns about his approach, which has by and large failed
to win the Republican support he sought.
“The plan is not perfect,” Mr. Obama said in an eight-minute speech before
taking reporters’ questions. “No plan is. I can’t tell you for sure that
everything in this plan will work exactly as we hope, but I can tell you with
complete confidence that a failure to act will only deepen this crisis.”
The news conference was the centerpiece of an intense and highly orchestrated
campaign by the administration to wrest control of the stimulus debate from
Republicans and reframe it on Mr. Obama’s terms.
Earlier Monday, the president took his message on the road, traveling to one of
the most economically distressed corners of the nation, Elkhart, Ind. — a city
whose hard luck story, including an unemployment rate of 15.3 percent, he
invoked hours later at the White House as he sought to highlight the severity of
problems facing ordinary Americans.
“If there’s anyone out there who still doesn’t believe this constitutes a
full-blown crisis,” Mr. Obama said, “I suggest speaking to one of the millions
of Americans whose lives have been turned upside down because they don’t know
where their next paycheck is coming from.”
As he has since the outset of his presidency, Mr. Obama sought to draw sharp
distinctions between himself and his predecessor, on both domestic and foreign
He took a swipe at the economic policy championed by George W. Bush through good
times and bad, saying that “tax cuts alone can’t solve all of our economic
problems.” He also criticized President Hamid Karzai of Afghanistan, a close
ally of Mr. Bush. Yet he echoed Mr. Bush when he said the most “sobering moment”
of his adaptation to the presidency has been writing letters to families of
Mr. Obama’s tone was for the most part serious and businesslike, and he was
pointed in rebutting Republican criticisms of his economic plan, saying he was
not willing to take advice from “the folks who presided over a doubling of the
And while his answers were frequently lengthy, he steered clear of disclosing
any details of the forthcoming bank bailout and housing plans or foreign policy
On Monday evening, the stimulus bill advanced in the Senate by a vote of 61 to
36; three centrist Republicans and two Independents joined 56 Democrats to move
the legislation forward, with a vote on final passage expected Tuesday. But the
bill passed by the Senate differs substantially from its counterpart in the
House, and the two versions will have to be reconciled before Mr. Obama can sign
the legislation into law.
“There have been a lot of bad habits built up here in Washington,” Mr. Obama
said, explaining why he thought so few Republicans have voted for the plan,
despite overtures that included inviting them to the White House and putting
three Republicans in his cabinet.
The past few weeks have been rocky ones for the fledgling Obama administration,
as Republicans have successfully cast the stimulus plan as an exercise in
pork-barrel spending. The news conference and presidential road trips were an
effort by the White House to tap into Mr. Obama’s considerable rhetorical
skills, in effect putting him back onto the campaign trail.
In Indiana on Monday, Mr. Obama sounded as much like a candidate as a president,
scolding what he said were greedy Wall Street bankers and taking aim at the
Republicans whose support he was still trying to attract, even as he conceded he
was not 100 percent certain that every single item in his plan would create
“We can’t posture and bicker and resort to the same failed ideas that got us
into this mess in the first place,” Mr. Obama told the enthusiastic crowd that
packed into a high school gymnasium, where he took questions from the crowd that
he said had not been screened. He added: “You didn’t send us to Washington
because you were hoping for more of the same. You sent us there to change
Leading Democrats said Monday that it was critical for the new president to take
back the debate.
Senator Kent Conrad, Democrat of North Dakota and chairman of the Senate Budget
Committee, said Mr. Obama had to persuade Americans that the recession is
“substantially more serious” than was apparent even a few weeks ago and that “it
is going to take a series of steps, not just one economic recovery package” to
To that end, Mr. Obama began Monday’s news conference by laying out the stark
economic facts facing the country, beginning with the 598,000 jobs lost last
month alone — a figure, Mr. Obama said, that is ‘’nearly the equivalent of
losing every job in the state of Maine.”
At several points, Mr. Obama made clear that more action would be needed in the
future — starting with the next steps to bail out ailing financial institutions,
and with unknown measures yet to come. Mr. Obama’s treasury secretary, Timothy
F. Geithner, is set to introduce the next $350 billion installment of the
financial rescue package on Tuesday, but Mr. Obama said he could not yet
estimate how much more money might be needed to get the credit markets operating
“We don’t know yet whether we’re going to need additional money, or how much
additional money we’ll need,” he said. Saying he had not come to Washington
“ginned up” to spend billions of taxpayer dollars, the president said that
pushing a stimulus package “wasn’t how I envisioned my presidency beginning.”
But he said his first priority was to arrest a downward economic spiral and put
an end to what he called Wall Street’s profligate ways.
“The party is now over,” he said.
He said he had a fundamental disagreement with those Republicans who argued that
government could not solve the economic crisis.
On foreign affairs, Mr. Obama took aim at Mr. Karzai, who administration
officials have been criticizing more strongly — and publicly — of late for
failing to crack down on corruption and drug trafficking, which they say is
fueling the Taliban insurgency. Afghanistan’s “national government,” Mr. Obama
said, “seems very detached from what’s going on in the surrounding community.”
He also said that he was reviewing a Bush policy that barred the news media from
or photographing the coffins of soldiers killed in Iraq and Afghanistan, but
that he had not yet determined whether to lift it.
On Iran, a nation Mr. Bush labeled a rogue state, Mr. Obama said he was “looking
at areas where we can have constructive dialogue where we can directly engage
“My expectation,” he said, “is that in the coming months we will be looking for
openings that can be created where we can start sitting across the table face to
Peter Baker contributed reporting from Elkhart, Ind.
Obama Warns of
‘Catastrophe’ Unless Bill Passed, NYT, 10.2.2009,
Months After Plant Closed,
Many Still Struggling
February 10, 2009
The New York Times
By MICHAEL LUO
NEW FRANKLIN, Ohio — It has been 10 months since most of the workers walked
out of the plain, low-slung factory here for the final time. The building, which
had been home to the Manchester Tool Company since just after World War II, sits
dormant now, a “for sale or lease” sign in front, buried recently in a fresh
But the fallout of the plant’s closure last year by Kennametal, a global
conglomerate based in Latrobe, Pa., just a few months into the recession,
continues to weigh heavily on the lives of the roughly 100 employees who lost
“Some of us bounced back,” said Bill Luplow, 66, who worked on the shop floor of
the industrial tool-making plant for nearly 45 years. “And some of us haven’t.”
In fact, an examination by The New York Times of the fates of the laid-off
workers found that less than 15 percent of the hourly workers had steady jobs
almost a year later.
Many of the rest are sliding perilously close to the economic precipice. Some
let their health insurance lapse; others are in danger of losing their modest
homes. A similar experience — or worse — may lie ahead for the hundreds of
thousands of Americans who continue to lose their jobs every month.
Age seems to have played a role in the outcome for the Manchester employees.
Many of the older hourly workers, some of whom had worked at the plant since
graduating from high school, appear paralyzed, struggling with their
self-confidence as they consider their bleak odds of finding work.
The machines they worked with at Manchester tended to be specific to that plant,
and the skills to run them were not necessarily transferable. Many have resisted
retraining, deciding it did not make sense. A few who tried found it too
At least seven mostly younger workers, on the other hand, decided to take
advantage of federal grants to go back to school.
With more education and skills, the approximately 35 salaried employees at
Manchester, including engineers, accountants and other office workers, appear to
have fared better than their hourly counterparts. About a third were asked to
stay on at least several more months with Kennametal; several remain with the
company. In all, some 40 percent of them appear to be earning a regular
paycheck, according to interviews.
Among the hourly workers, at least four who did manage to find jobs were laid
off a second time recently because of the slowing economy. Even the lucky few
who are still working typically found they had to accept a significant decrease
Unemployment insurance has proved to be a critical bridge for those who remain
jobless. But the regular checks also prevented many from considering
lower-paying jobs, once they calculated that they would be earning roughly the
Nonetheless, it is slowly sinking in that the middle-class lives they
constructed at Manchester, in this suburb of Akron, may now be slipping from
“I think it’s gone forever for a lot of people,” said John Foss, 50, who worked
at the plant for 13 years, most recently as a stockroom clerk, and remains
Around the nation, 3.6 million jobs have been lost since the recession began in
December 2007, including 1.1 million in manufacturing, according to the Bureau
of Labor Statistics. A dismal report from the bureau last week showed job losses
accelerating in January.
At Manchester, plant workers, represented by the United Steelworkers, earned $18
to $22 an hour, adding up to more than $50,000 a year in some cases with regular
overtime. Workers averaged some 20 years on the job.
Mr. Foss, who started as a machinist at Manchester, applied for scores of jobs
after his layoff, combing the newspaper and Internet and dropping in on
employers to fill out applications. He has not heard back from anyone.
A job search he initially thought might take a few weeks has stretched into its
11th month. And his initial hopes of landing a job that paid close to the $18.12
an hour he used to make have faded. He now believes $8 to $12 an hour is more
“Some days are worse than others,” Mr. Foss said. “Sometimes depression takes
over more than other times.”
The balm for Mr. Foss has been that his wife, Marie, is still working as an
office manager at a printing company, enabling them to cover their bills for
now. Mrs. Foss has been screwing up her courage to ask her customers if they are
hiring. One called her back recently and said he might have some openings this
month, lifting her spirits.
“Today was a good day,” she said. “At least it was something to hope on.”
Cindy Starcher, 35, and Lorraine Norrod, 50, are among the small group of
Manchester workers who decided to seek retraining in a new field. Their
rationale is easy to understand: in Ohio, more than 280,000 manufacturing jobs
have been shed since 2000.
The women carpool now to classes Monday through Thursday at Northcoast Medical
Training Academy, studying to become medical assistants. Those jobs typically
pay about $20,000 to $30,000 a year, they said, much less than what they used to
But as Ms. Norrod put it, “It pays more than being laid off.”
Ms. Starcher, who has two young children at home, said she settled on health
care as a potential career after much deliberation, concluding the jobs would
always be needed.
“There’s always going to be sick people,” she said. “It’s the one thing you
can’t send overseas.”
Other Manchester workers said additional schooling was never an option, even if
they wanted it badly, because they had bills to pay, or needed the health
benefits that came with a job.
For still others, a return to the classroom proved too intimidating.
Randy Smith, 56, a 14-year veteran of Manchester who worked in the stockroom
with Mr. Foss, enrolled in a class in October to become a motorcycle mechanic
but quickly found himself overwhelmed in a class full of students half his age.
Fretting about keeping up, he had trouble sleeping.
“This is almost embarrassing to say,” he said. “I only stayed there like three
Mr. Smith now fills his days going back and forth to his former wife’s house to
take care of their 21-year-old daughter, who is handicapped.
“Do I feel like a failure sometimes?” he said. “Yes, I do sometimes.”
Maureen Petrie, 63, who worked at Manchester for nearly 30 years, managed to
survive a four-month class in programming for computer-automated machinery. At
one point, she told her instructor she was quitting because she could no longer
handle the stress. But she was urged by another former Manchester worker to
stay, finally finishing last month.
Now she is back to looking for a job. Strangely, however, she admitted to
feeling immobilized, struggling to muster the courage to aggressively look for
“There’s too many people out there looking for jobs,” she said. “I don’t know
how to sell myself.”
Jennifer Pelton, 48, is one of the few former Manchester workers who is working,
although with a 30 percent cut in pay. In June, she joined a company that makes
medical equipment, but she said she would most likely have to take on a second
job to make ends meet.
Nevertheless, Ms. Pelton credits her employment to a combination of luck and
determination. Unlike many other Manchester workers, who waited until the plant
finally closed last March to begin looking for work, Ms. Pelton began
distributing her résumé right away.
“I didn’t want to lose what I had worked so hard for,” she said.
Because the company had been highly profitable, many former plant workers remain
angered by the closure, wondering why Kennametal bought Manchester in early
2007, only to close the plant a year later.
But Kennametal, like other publicly traded companies, faced pressure from
shareholders to cut costs and consolidate its operations, said Van Simpson, 57,
Manchester’s former executive vice president and general manager, who lost his
job himself at the end of last month.
Mr. Simpson, who worked at Manchester for 35 years, said he had tried to avoid
bitterness but grew emotional several times in an interview at his home when
talking about the challenges that lie ahead for many of his former workers.
“Some are going to have a very difficult time,” he said. “It’s going to be an
extremely painful situation.”
Months After Plant Closed, Many Still
Struggling, NYT, 10.2.2009,
G.M. to Cut 10,000 Salaried Workers
February 11, 2009
The New York Times
By NICK BUNKLEY
DETROIT — General Motors, which must submit a satisfactory restructuring plan
to the government next week to keep billions of dollars in loans, said Tuesday
that it would lay off 10,000 salaried workers worldwide this year and reduce pay
for those who remain by as much as 10 percent.
The announcement comes a week after G.M. extended more buyout and early
retirement offers to its hourly work force and three months after it shed 5,100
salaried jobs, also through buyouts.
This time, however, the cuts are being made through layoffs rather than
voluntary programs because the government loan terms prevent G.M. from using
money from its overfunded pension fund to pay for buyout packages, as it has
“There may be some opportunities for people to volunteer, but they’re
essentially involuntary,” a G.M. spokesman, Tom Wilkinson, said.
G.M., whose sales fell 11 percent globally in 2008, said it plans to cut 3,400
of its 29,500 salaried jobs in the United States, mostly by May 1. Workers who
lose their jobs will receive severance payments, benefit contributions and help
finding new work. Most would get less money than they would have by leaving the
company during last year’s buyouts.
Because G.M. is using taxpayer money to avoid having to file for bankruptcy
protection, it must bring payments to departing workers more in line with what
is typical of companies in other industries.
Starting May 1, most salaried workers in the United States will receive what
G.M. characterized as a temporary pay cut. The reductions range from 10 percent
for executives to 3 percent to 7 percent for other employees. G.M. plans to
review the pay cuts at the end of this year.
The company said it might also reduce pay for workers in other countries.
G.M.’s chief executive, Rick Wagoner, has already agreed to work for $1 a year
until the company can repay its loans to the government. It has borrowed $9.4
billion so far and is scheduled to receive a third installment of $4 billion as
soon as next week.
The latest cuts amount to 14 percent of the 73,000 salaried workers it employs
As part of its restructuring, G.M. has said it needs to eliminate about 31,500
hourly and salaried employees.
Its crosstown rival, Chrysler, which has borrowed $4 billion from the
government, also is cutting thousands of jobs.
Each of the three Detroit automakers, including the Ford Motor Company, which is
not taking federal aid, have eliminated tens of thousands of jobs since 2006.
G.M. to Cut 10,000
Salaried Workers, 11.2.2009,
In Florida, Despair and Foreclosures
February 8, 2009
The New York Times
By DAMIEN CAVE
LEHIGH ACRES, Fla. — Desperation has moved into this once-middle-class exurb
of Fort Myers, where hammers used to pound.
Its straight-ahead stare was hidden amid the chatter of 221 families waiting for
free bread at Faith Lutheran Church on a recent Friday morning; and it appeared
a block away a few days earlier, as laid-off construction workers in flannel
shirts scavenged through trash bags at a home foreclosure, grabbing wires, CDs,
anything that could be sold.
“I knew it was coming,” said Gloria Chilson, 56, the former owner of the house,
as she watched strangers pick through her belongings. “You take what you can;
you try not to care.”
Welcome to the American dream in high reverse. Lehigh Acres is one of countless
sprawling exurbs that the housing boom drastically reshaped, and now the bust is
testing whether the experience of shared struggle will pull people together or
tear them apart.
The changes in these mostly unincorporated areas outside cities like Charlotte,
N.C., Las Vegas and Sacramento have been swift and vivid. Their best economic
times have been immediately followed by their worst, as they have generally been
the last to crest and the first to crash.
In Lehigh Acres, homes are selling at 80 percent off their peak prices. Only two
years after there were more jobs than people to work them, fast-food restaurants
are laying people off or closing. Crime is up, school enrollment is down, and
one in four residents received food stamps in December, nearly a fourfold
increase since 2006.
President Obama is scheduled to visit Fort Myers on Tuesday to promote his
economic stimulus plan. But residents here tend to view it as the equivalent of
an herbal remedy — it can’t hurt but it probably won’t heal. Instead, in church
groups and offices, people call for “industry” and repeat one telling question:
“What do we want to be when we grow up?”
“That’s one of the things we struggle with: What is our identity?” said Joseph
Whalen, 37, president of the Lehigh Acres Chamber of Commerce. “We don’t want to
be the bedroom community of southwest Florida; we don’t want to be the
A Legacy of the ’50s
Lehigh Acres, like much of Florida and many suburbs nationwide, was born with
speculation in its DNA.
The area got its start in the 1950s when a Chicago pest control baron, Lee
Ratner, and several partners bought thousands of acres of farmland and plotted
about 100,000 lots. With Fort Myers, 15 miles to the west, developers left
little room for schools, parks or even businesses.
What they sold was sun and quiet living.
“They used to bring 20 busloads a day,” said Bob Elliott, a former salesman for
Mr. Ratner’s company who struck out on his own in 1982. “We had 300 customers,
seven days a week.”
By 2000, the lots had been sold, but most stayed empty. Only about 30,000 people
were living in an area roughly four times the size of Manhattan. The builders
really started to arrive in 2004, setting up model homes on Lee Boulevard next
to Mr. Elliott’s office with the faded wooden sign that said “$50 lots.”
Bill Spikowski, a city planning consultant in Fort Myers, said that because
Lehigh Acres had so many parcels and few restrictions on what could be built,
smaller companies battled for customers. From 2004 to the end of 2006,
developers completed 13,183 units in Lehigh Acres — nearly doubling the total
stock of 15,216 that existed in 2000, according to Lee County figures.
Residents remember the boom for its noise, with dump trucks lining the streets
and power tools heard in nearly every neighborhood. Housing prices doubled, then
tripled, and jobs were plentiful, nearly all of them tied to real estate.
Signs of trouble were ignored. “Sometimes houses would sell three or four times
in a few months, and no one would move in,” Mr. Elliott said.
Then in 2007, it all went quiet. Houses stopped selling. Foreclosures
multiplied. The median home price in the Fort Myers area dropped to $215,200 in
December 2007, from a peak of $322,300 in December 2005. It had fallen to
$106,900 two months ago.
Work disappeared with the profits. According to the federal Bureau of Labor
Statistics, Lee County lost a higher percentage of jobs (8.8 percent) from June
2007 to June 2008 than any other county in the nation. Unemployment in the
county rose to 9.8 percent in November, from 3.5 percent in March 2007.
Lehigh Acres was particularly hard hit because it relied on construction. This
was where the carpenters and exterminators of southwest Florida lived because it
was more affordable or close to work. And by last spring, life as they knew it
had come to an end.
The Downward Spiral
Trinkets for $1 were an early sign of trouble. Early last year, garage sales and
estate auctions became more common in Lehigh Acres as families sold what they
could to survive. No one seemed interested in buying whole houses, and
foreclosures soon gave way to empty homes that became magnets for crime.
Thieves stole air conditioner parts for scrap. And on distant roads with only a
few new homes and faded blue street signs from the ’50s — on Narcissus
Boulevard, on Prospect Avenue — drug dealers moved in.
In 2007 and 2008, the Lee County Sheriff’s Department shut down more than 100
houses in Lehigh Acres where marijuana was being grown. In 2008, the police
confiscated nearly 3,000 plants valued at nearly $7 million.
Last winter, Charlotte Rae Nicely, executive director of Lehigh Community
Services, noticed something else. More people were going hungry. Demand was
increasing at the food pantry she runs at a nondescript office park, with dozens
of new faces appearing week after week, even as the population was declining.
Wondering what other social service agencies were experiencing, she decided to
form a group that would coordinate assistance. It was the first sign that Lehigh
Acres was fighting the recession in an organized way, and the group’s mission
appeared in its name: Team Rescue.
The monthly meetings now include about a half-dozen churches, nonprofit groups,
business owners and representatives from county government, including the
Discussion at one recent gathering centered on the host of troubles that follow
unemployment — issues that until recently had rarely been seen in new American
suburbs. Hunger was chief among them.
The organizations offering food in Lehigh Acres have seen demand increase by as
much as 75 percent in the last year. And the people being served are no longer
just the chronic poor.
The line at Faith Lutheran included a mix of ages, races and former income
Luis Oquendo, 38, said he had been showing up for his weekly bread allotment
since last fall, after full-time construction work disappeared.
Fred Csifortos, 62, a retiree surviving on $650 a month in disability payments,
said the free food left more money for his medications.
Megan Brown, standing in line with her well-dressed daughters, Kayley, 2, and
Sydney, 4, had come because she feared the worst. Her husband still had his job,
she said, “but things are getting more and more tight.”
Team Rescue, of which Faith Lutheran is a member, considers itself successful,
not just because it has helped more families but also because organizers believe
that the links they are forming will be the foundation of a tighter community.
Ms. Nicely said she was especially encouraged by the Sheriff’s Department’s new
“weed and seed” program, intended to revive Lehigh’s most troubled neighborhoods
by involving residents in community policing and cleanup.
And home sales in Lee County are picking up, running roughly even with
“Six months ago, you might get one out of 20 houses with a multiple offer,” said
Kevin Williamson, a real estate agent who has lived in Lehigh Acres for 22
years. “A couple of weeks ago, I had one with 13 offers.”
But no one here would describe Lehigh Acres as out of the woods. Real estate
agents said the homes that are selling here typically go for only about $45,000,
a third of what they cost to build. They predict that foreclosures will continue
to keep prices low for two more years.
Job growth is also still nonexistent. Randy Burns, 50, the gregarious owner of
Lehigh Discount Furniture, says he now receives 15 to 20 calls a week from
people asking him to buy their furniture or help them move out of town — and he
said he planned to leave, too.
“Until there’s jobs and foreclosures stop,” he said, “nothing’s going to
The Latest Battle
Creating a community in a deepening recession, many here now say, feels harder
than dealing with a Category 5 hurricane. Panic is a powerful headwind.
Voters defeated a proposal last year to incorporate Lehigh Acres, partly because
residents feared higher taxes. And Team Rescue, for all its strength as a
unified front, is still trying to figure out how to curb the spread of
Most recently the group has been struggling with a growing wave of families that
either visit multiple food pantries using aliases or return the food to
supermarkets for money or other items.
Ms. Nicely, at Lehigh Community Services, said that in November she started
using a magic marker to blacken UPC symbols on cans so grocery stores would not
accept them as returns.
“We even had to do that on the toys for Christmas,” Ms. Nicely said. Without
such limits, she said, the neediest families might not be served.
Still, she often feels torn, saying, “I can’t be sure I wouldn’t do the same
thing if I was a single parent and my kids were hungry.”
“The needs are so strong now,” she added, noting that there were more canned
peas than peanut butter on her shelves because of growing demand. “They’ve never
been this big before.”
A similar struggle between cohesion and chaos was also evident at a recent
evangelical men’s meeting, where 8 of the 15 members said they had been laid off
in the last year. Even as the group had helped some of the men cope, others said
their families had been broken up by the stress.
And then there is Ms. Chilson. She lost her house partly because of the boom (if
not for easy credit, she might not have refinanced her mortgage a few years
ago), the bust (which led to her husband being laid off from his pest control
job) and overspending (which led to more than $20,000 in credit card debt).
She and her husband had lived in their simple green ranch house for 18 years,
and the night they were kicked out, they stayed across the street with an
elderly man whom Ms. Chilson had often helped with his medication.
Ms. Chilson put her couch in an old friend’s house, her frozen steaks in
another. And as she scrambled to find work and a place to rent, she decided to
thank those she could.
At one point, she tried to vacuum a neighbor’s house as an act of appreciation.
But the vacuum stayed quiet. Ms. Chilson discovered that the electricity had
been turned off because the bill had not been paid. Any day now, she said, her
neighbor will be leaving Lehigh Acres with all the others.
In Florida, Despair and
Foreclosures, NYT, 8.2.2009,
For Bank of America and Merrill,
Love Was Blind
February 8, 2009
The New York Times
By LOUISE STORY
and JULIE CRESWELL
IN mid-September, as Wall Street unwound and venerable financial institutions
were brought to their knees, the mood inside the Manhattan law offices of
Wachtell, Lipton, Rosen & Katz was decidedly celebratory.
After a weekend of whirlwind deal-making and emergency meetings at the Federal
Reserve Bank of New York, John A. Thain and his team at Merrill Lynch had sold
their troubled brokerage firm to the Bank of America Corporation, dodging the
financial sinkhole that was swallowing Lehman Brothers.
But before Wachtell lawyers, who were representing Bank of America, signed off
on the deal, they told Merrill’s lawyers that they wanted to be sure about just
one more thing: the size of the bonuses that Mr. Thain and his colleagues would
snare at the end of the year. A page was ripped from a notebook, and someone on
Merrill’s team scribbled eight-digit figures for each of Merrill’s top five
executives, including $40 million for Mr. Thain alone.
Although Merrill had been bleeding money all year — and would continue to do so
— the bonuses weren’t, as Merrill executives later explained to colleagues,
about that performance. Rather, they were fees for getting the merger done, akin
to what investment bankers receive for blockbuster deals. Mr. Thain in
particular felt he deserved a hefty payout for his deal-making heroics,
according to five individuals with detailed knowledge of the situation who
requested anonymity because of their personal and business relationships with
A few weeks later, Merrill’s human resources director visited John D. Finnegan,
the head of the compensation committee on Merrill’s board, and told him about
the bonuses, according to four people briefed on the conversation. “That’s
ludicrous,” said Mr. Finnegan, the chief executive of the Chubb Group of
Insurance Companies. He thought that the lush bonus requests came across as
greedy and insensitive — particularly because Wall Street was in such dire
straits that it was likely taxpayer support would be needed to survive.
An internal debate with Mr. Thain over his bonus ensued; a person familiar with
Mr. Thain’s thinking said that a $40 million bonus was “never a subject of
serious discussion.” Even so, others at Merrill were put off by his bonus
negotiations, which helped splinter the carefully tended image of Merrill’s
chief executive, a man perceived during most of his career to be a robotic and
More important, the episode revealed the rampant hubris and sense of entitlement
embedded on Wall Street, foreshadowing the myriad problems that would eventually
threaten the merger of the two beleaguered financial giants.
Hailed as the path forward for a Wall Street in disarray, the merger offered
Merrill a chance to rebound from billions of dollars in mortgage-related
mistakes and gave Bank of America access to Merrill’s well-known brand and its
vast network of brokers, known as the thundering herd.
But the merger, in which Bank of America agreed to pay about $50 billion in
stock for Merrill, soured at light speed. Back then, the combined companies
would have been valued by the stock market at about $176 billion. Today, the
combination has a market capitalization of only $39 billion.
Interviews with almost 30 current and former Bank of America and Merrill
executives and employees convey just how messy the merger has been. All of them
asked not to be identified because they either did not have permission from the
banks to speak or because they had signed confidentiality agreements with their
On one side is Mr. Thain, who was viewed as someone who promised far more to
Merrill than he delivered. Although he has repeatedly said that he helped heal
the firm’s financial wounds and its battered morale, he wound up insulating
himself from most top Merrill executives and failed to protect the firm from a
stunning $15.3 billion loss in the fourth quarter of last year, according to
several current and former senior Merrill insiders.
On the other side of the deal is Kenneth D. Lewis, a pragmatic, no-nonsense
banker who, as Bank of America’s chief executive, monitored the Merrill takeover
from a remote base in his Charlotte, N.C., headquarters and who, according to
people at his bank, was perhaps blinded to Merrill’s risks by his own ambitions
and penchant for empire building.
While Mr. Lewis has maintained in calls with analysts that his team dug deep
into Merrill’s books in mid-September, analysts have repeatedly questioned
whether the reviews were thorough. Although Mr. Lewis contends that he was
surprised by the magnitude of Merrill’s losses, his financial team on the ground
in New York had daily access to Merrill’s trading books, which would have
allowed them to detect the mounting exposures.
Spokesmen for Mr. Thain and Mr. Lewis declined to comment for this article.
Now, after dismissing Mr. Thain amid public criticism about his bonus
negotiations and the huge losses, Mr. Lewis faces an uphill battle as he
struggles to make the marriage of two financial giants work.
Taxpayers are furious that Bank of America hit up the government for a second
round of bailout funds in order to close the Merrill deal earlier this year,
bringing its tab at the federal trough to $45 billion and potentially exposing
taxpayers to further losses. Shareholders were shocked to see the stock of what
was a solid retail banking operation recently trade below $5 a share. And Bank
of America employees are angry that their own bonuses have all but evaporated
because of what they see as Mr. Lewis’s mistakes.
While Bank of America’s board has affirmed its support for Mr. Lewis, 61, many
analysts believe that his job — and his own legacy — is in jeopardy if the
ambitious bet he placed on Merrill plays out poorly.
Mr. Lewis is now scrambling to shore up his bank and its image by conserving
cash and selling corporate jets. The bank, meanwhile, is providing reams of
documents to the New York attorney general, who is investigating whether all
aspects of the Merrill merger were handled legitimately.
Above all, individuals inside the bank say, Mr. Lewis is desperate to avoid
greater government intervention and maintain control over his wobbling financial
“When you go into a deal, you hope for the best but expect the worst,” says
Nancy Bush, a banking analyst. “I think Bank of America did plenty of due
diligence; they just ignored what they found. They knew it was there. They just
didn’t completely grapple with the fact that it could get uglier. And it did.”
ON Jan. 22, only shortly after the Merrill takeover was formally complete,
breaking news drew Bank of America’s traders away from their blinking computer
screens in New York to nearby televisions: John Thain was out. Spontaneous
applause broke out across the trading floor and bets were placed on which one of
Mr. Thain’s highly paid lieutenants would be next.
That reaction was hardly a surprise. In the eyes of Bank of America employees,
Mr. Thain sold them a lemon of a company that put their own company — and their
jobs — at risk. The animosity was fueled by reports of Mr. Thain’s lavish $1.2
million office renovation and last-minute bonuses that he paid out to Merrill
employees days before the deal closed. A manager at Bank of America said that he
and others were ordered to cut already-low bonuses by 20 percent the day after
Merrill’s loss became public. A Bank of America spokesman said the bank did not
tie its bonuses to Merrill’s results.
What is a surprise, however, is just how disliked Mr. Thain, 53, had become
inside Merrill. When he arrived at Merrill in late 2007, he was given a hero’s
welcome. Mr. Thain, lanky and square-jawed at 53, was brought in to fix the
wayward firm battered by losses and the ouster of its controversial leader, E.
Merrill’s board thought Mr. Thain perfect for the job. He had traded mortgage
securities at Goldman Sachs in the 1980s and rose quickly through that
investment bank’s ranks to become one of the youngest chief financial officers
on Wall Street. He left Goldman in 2003 to lead the New York Stock Exchange, in
part because Goldman had passed him over for the top job there.
Ultimately, Mr. Thain’s tenure at Merrill would generate distinctly different
internal assessments of his character within the firm. Initially, people
considered him aloof but hard-working and well intentioned. After he helped
engineer the sale to Bank of America at a moment when Lehman was collapsing, he
was regarded as a savvy deal maker who saved the firm. But after publicity about
his lavish office redecoration and his bonus negotiations was coupled with the
firm’s huge losses, people came to resent what they considered to be his
feckless and self-aggrandizing behavior.
When he was first ensconced at Merrill, he brought over his closest associates
from the Big Board, including Margaret D. Tutwiler to run communications. A
seasoned political operator who spent most of her career working for Republican
administrations in Washington, Ms. Tutwiler largely spent her time cultivating
Mr. Thain’s image.
Ms. Tutwiler quickly scheduled a series of interviews for Mr. Thain from
Merrill’s trading floor. As the cameras flashed, he shook hands with the troops.
When the cameras left, so did Mr. Thain.
“He went on a series of speeches all over the world. He was being called a hero.
The press was incredible,” remarked one Merrill Lynch executive. “What was not
happening was that he was not meeting with Merrill people.”
Mr. Thain, who always carefully parses his public comments and is a well-known
micromanager, seemed to insulate himself from longtime Merrill executives and
didn’t take time to familiarize them with his plans for reviving the firm.
Instead, he surrounded himself with former colleagues. In addition to luring his
N.Y.S.E. deputies, he showered cash on former Goldman executives to bring them
to Merrill. He paid $25 million to Peter S. Kraus, who ran Goldman’s investment
management unit, to oversee business strategy at Merrill. He shelled out $39
million to Thomas K. Montag, who was co-head of Goldman’s global securities
unit, to run Merrill’s trading operations.
Mr. Kraus and Mr. Montag have already received all of that money, some in cash
and some in stock and options. Mr. Kraus, who was not offered a job at Bank of
America, left Merrill weeks later to become C.E.O. of AllianceBernstein. Mr.
Montag, who is still at Merrill, declined to comment on his compensation, as did
Mr. Thain took control of Merrill’s gigantic trading and risk-management
operations, saying that his mortgage expertise would help him solve the firm’s
problems. He also quickly raised capital — $12.8 billion by early 2008. Enough,
he repeatedly told Wall Street analysts, to cover the firm for the year.
Along the way, Ms. Tutwiler helped get out the message: Mr. Thain was cleaning
house and getting rid of Mr. O’Neal’s problems.
But on the ground at Merrill, gridlock ensued. For months, there were inquiries
from hedge funds and other buyers about a range of mortgage assets and
securities, but Merrill’s mortgage desk was blocked from distributing price
lists because Merrill’s management refused to agree on market estimates,
according to Merrill insiders.
By last summer, these people say, Mr. Thain began to realize that he, in fact,
didn’t have a handle on Merrill’s mortgage mess. When he learned the firm’s
second-quarter earnings were devastated by mortgage losses, he picked up a chair
and threw it against a wall, according to two people who were briefed on the
On a conference call shortly after that, he was testy with an analyst who asked
about Merrill’s toxic portfolio of securities known as collateralized debt
obligations, or C.D.O.’s: “I did not create these C.D.O.’s,” he said.
After Mr. Thain decided to sell a batch of Merrill’s C.D.O.’s at a cut-rate
price, he had to raise more capital. That incurred a fee with certain Merrill
investors, forcing the firm to pay them $4.6 billion.
On top of that, Mr. Thain’s point man for the C.D.O. sales alienated a potential
buyer, Guggenheim Partners, that had been willing to pay north of $2 billion
more in cash than Merrill received, driving yet more cash out the door just when
investor confidence in Wall Street was about to nose-dive — all of which
eventually pushed Mr. Thain into Bank of America’s arms.
IN New York on Monday, Sept. 15, after that weekend of meetings at the New York
Fed, Mr. Thain and Mr. Lewis shook hands for photographers as they announced the
merger. Mr. Thain emphasized his successes at Merrill, saying that “we have been
consistently cleaning up the balance sheet, repairing the damage that was done
over the last few years.”
Mr. Lewis had built Bank of America into one of the nation’s largest and most
powerful banks through numerous mergers. Some acquisitions — like Merrill and,
earlier, Countrywide Financial — were riskier than others. He felt strongly that
Merrill’s brokers, tied to his bank’s retail branches, would increase his bank’s
ability to sell its products.
That included his firm’s own stock. When Bank of America raised $10 billion in
new capital just a few weeks after announcing the merger with Merrill, Mr. Lewis
got on a conference call with Merrill’s financial advisers and encouraged them
to sell his bank’s stock to their clients. It wasn’t the most propitious time to
be pushing a bank stock: a week later, the government pumped $125 billion into
nine large banks, including Bank of America.
Mr. Thain, meanwhile, was already in the running for other jobs. He was rumored
to be Senator John McCain’s choice for Treasury secretary. When Senator McCain
lost the presidential election, Mr. Thain still had a nice option: possibly
taking the reins at Bank of America when Mr. Lewis retired. New trouble,
however, was brewing on Merrill’s trading floor. Under Mr. Montag’s direction,
Merrill’s traders were far more active than they had been since Mr. Thain’s
Said by Merrill insiders to be an unpopular figure, Mr. Montag further alienated
many people — already stunned by the $39 million package Mr. Thain gave him —
when he insisted on a holiday before starting at Merrill. His late arrival, many
individuals at Merrill say, left traders navigating troubled markets on their
own and uncertain about when their boss would arrive to guide them.
Mr. Montag has little interaction with traders on the floor, largely
communicating through short, sometimes castigating, e-mail bursts, according to
Merrill insiders. Others say that when a Merrill trader or colleague disagrees
with him, Mr. Montag — like Mr. Thain — often points out that he didn’t create
the financial mess at Merrill.
Last October, Mr. Montag’s traders dove into higher-quality, though risky,
mortgage assets known as alt-A loans, according to people familiar with
Merrill’s trading books. The fate of those maneuvers is now hotly disputed
inside and outside of Merrill.
Several individuals familiar with the alt-A trades, as well as others involving
bets on such things as interest rates and equity derivatives, say that these
gambits contributed about a third of the firm’s $15.3 billion fourth-quarter
loss. But a senior Merrill trader and a former senior Merrill executive contend
that there were no “significant” trading losses taken in the quarter. The former
executive said that any investigation of the firm’s trading would support that
Whatever transpired on the trading desk, Merrill was still contending with
withering assets that predated Mr. Thain’s arrival. Despite the fact that Mr.
Thain inherited these assets, Merrill insiders say they could have been hedged —
moves well within Mr. Thain’s purview as head of risk management at the firm.
Yet he never did so, according to three people who worked closely with him. An
individual familiar with Mr. Thain’s thinking said that Mr. Thain didn’t believe
hedges would have been effective.
Losses in those so-called legacy assets would reach $10 billion in the quarter.
By most accounts, few at Merrill knew how much the fourth-quarter losses would
be. Many chalk that up to the fact that Mr. Montag reported directly to Mr.
Thain, bypassing other Merrill executives.
Still, other individuals inside Merrill note that Bank of America, shortly after
the deal was announced, quickly put 200 people at the investment bank, including
a large financial team. A Bank of America executive was sent to New York from
Charlotte to act as an interim chief financial officer and had daily access to
Merrill’s profit-and-loss statements.
Likewise, Bank of America was well aware of the $3.2 billion in bonuses that
Merrill paid to its rank and file in late December. The two companies had agreed
in September that Merrill might pay up to $5.8 billion, according to a private
agreement reviewed by The New York Times.
Several weeks after that agreement was struck, a top deputy to Mr. Lewis met
with Mr. Thain and asked him to lower the bonus pool below $3.5 billion and to
increase the portion paid in cash. Mr. Thain agreed to do so, according to two
people familiar with the meeting.
Mr. Thain, meanwhile, lobbied for a bonus of his own until December, according
to people familiar with his board discussions. The initial $40 million
suggestion floated on his behalf was no longer viable and Mr. Thain himself
suggested a figure of $5 million to $10 million. After that number was pilloried
in public, he formally asked the board to award him nothing.
On Dec. 9, Mr. Thain flew to Charlotte to attend Bank of America’s board
meeting, where Merrill’s financial results through November were presented.
Already 60 percent of Merrill’s losses were visible, but neither Mr. Lewis nor
his board questioned Mr. Thain about the losses, according to a person close to
Mr. Thain. Mr. Lewis did not immediately disclose the losses to his
shareholders, who had voted to approve the merger just days before.
Mr. Lewis later said that the losses greatly accelerated in mid-December, which
caught him off guard. On Friday, James Mahoney, a Bank of America spokesman said
that “we have not disputed that we were kept informed about the financial
condition of the company.”
During the last two weeks of December, while Mr. Thain was skiing in Vail, Mr.
Lewis told federal regulators that he was thinking of backing out of the deal
because of the losses. Government officials, according to Mr. Lewis, told him he
had to complete the deal in order to keep markets calm. But Mr. Lewis did not
tell Mr. Thain about his talks with the government until Jan. 5, according to a
person close to Mr. Thain.
AS the merger closed, and a new year began, Mr. Thain was prepared to take on a
leadership role at Bank of America, even though several of his top deputies,
longtime Merrill leaders, began leaving the bank themselves. Mr. Lewis, battered
by analyst questions about the wisdom of the Merrill takeover, became
disenchanted with Mr. Thain. In mid-January, he met with Mr. Thain at Merrill’s
downtown headquarters. After a five-minute meeting, Mr. Thain was out.
Furious, Mr. Thain paced the halls of Merrill, venting his frustration to at
least two people. “I don’t know how these people can run this company without
me,” he told them.
For Bank of America and
Merrill, Love Was Blind, NYT, 8.2.2009,
A Stimulus for the Poor
February 7, 2009
The New York Times
The stimulus package taking shape in Congress does little to provide
affordable housing for the country’s poorest families. That is grim news.
Affordable housing has been hard to find in recent years. It’s even harder now
that many Americans have lost their jobs and homes.
Congress could help low-income Americans find homes — and create jobs doing it —
by providing money for the National Housing Trust Fund, a worthy program it
created last summer but has so far failed to finance. The Senate and House
versions of the stimulus bills do not now contain such money, but funds could
and should be added in the conference committee that must reconcile the bills.
The trust fund was originally envisioned as a project that would encourage
developers to build 1.5 million affordable housing units in mixed-income
developments. The government-backed mortgage companies, Freddie Mac and Fannie
Mae, were to provide the money. Both, however, ran into financial trouble.
Congress can take up the slack. The need for affordable housing has increased
dramatically in the last six months, and the Department of Housing and Urban
Development has already done a lot of advance planning.
Estimates by the National Low Income Housing Coalition suggest that a
Congressional down payment of $10 billion for the fund, plus $3.5 billion in
housing vouchers under the Section 8 program, could produce affordable housing
for up to 400,000 people. New construction would, of course, spawn new jobs
The Senate’s stimulus bill would give home buyers a tax credit of 10 percent of
the price of a primary residence, up to $15,000. This would help middle- and
upper-income buyers, but not the elderly, poor and disabled who don’t earn
enough to qualify for this break. Congress can help them by reviving the
National Housing Trust Fund.
A Stimulus for the Poor,
Plan to Help Banks Sell Bad Assets
February 7, 2009
The New York Times
By STEPHEN LABATON
WASHINGTON — After weeks of internal debate, the Obama administration has
settled on a plan to inject billions of dollars in fresh capital into banks and
entice investors to purchase their most troubled assets.
The new financial industry rescue plan, to be outlined in broad terms on Monday
in a speech by the Treasury secretary, Timothy F. Geithner, will not require
banks to increase their lending. That is despite criticism that institutions
that already received money from the Troubled Asset Relief Program, or TARP,
either hoarded it or used the funds to acquire other banks.
The incentives to investors could be in the form of commitments to absorb some
of the losses from any assets they purchase, should their values continue to
decline. The goal is to relieve the banks of their worst assets so that private
investors might then provide more capital.
Officials hope that that part of the plan is not labeled a “bad bank”
administered by the government, although they expect that some might call it
No matter what it is called, the government would assume some of the risk of
declining assets at the heart of the economic crisis. But by relying on a
combination of private investors and government guarantees, the administration
hopes to reduce its exposure to losses and avoid the problem of having to place
a value on assets that the institutions have been unable to sell.
A central element of the plan would be a major expansion of a lending facility
begun in November by the Federal Reserve Bank of New York when it was headed by
Mr. Geithner. The program, which was initially financed by $200 billion in Fed
money and $20 billion in seed capital from the $700 billion bailout fund, lent
money to investors to buy securities backed by student, auto and credit card
loans, as well as loans guaranteed by the Small Business Administration.
Obama administration officials say they have rejected nationalizing institutions
by taking large ownership stakes. They also will not immediately seek additional
money from Congress beyond the $350 billion left in the TARP fund.
With reports of lavish executive pay, extravagant corporate retreats and
expensive office renovations at some of the institutions receiving assistance,
political support for the program has sharply eroded in recent weeks. And as the
White House has put forward a stimulus package of about $800 billion, there is
recognition that Congress will very likely balk now at another request for
But lawmakers said they expected the administration to seek more money for the
rescue program later this year.
The banking plan will involve a close review of financial institutions, possibly
including a so-called stress test to measure whether they have enough resources
to weather a continued economic decline. It will also enable the government,
when it provides a new round of investment, to convert the warrants for
preferred stock it has already received from many institutions into common
stock. The move, which essentially would swap debt for equity, would help
relieve the balance sheets of those institutions, although it would also hurt
other existing shareholders by diluting their common stock.
Lawmakers said they were told that Mr. Geithner would not spell out the details
of much of the program next week, including how the government would use more
than $50 billion from that program to help homeowners facing foreclosure.
For weeks, administration officials have been exploring several alternatives for
reducing the wave of foreclosures. One proposal involves Fannie Mae and Freddie
Mac, the mortgage finance companies now under government control, to help
further stabilize the housing markets by providing guarantees on low-rate
Another proposal, said to be favored by Lawrence H. Summers, the senior White
House economic official, would provide incentives to entice investors in pools
of mortgages — and the companies that service mortgages — to refinance troubled
An announcement on that part of the plan is expected to be made by President
Obama, lawmakers said, possibly as early as next week.
Although critics have blamed the administration of George W. Bush for
mismanaging the TARP fund by not pressing the banks receiving assistance to
increase their lending, the new round of capital injections is not expected to
come with government demands that the institutions provide more loans. But the
new administration was expected to take other steps to encourage institutions to
increase their lending, as well as to explain how much their lending had
increased or decreased each quarter.
Democratic lawmakers who have been given previews on aspects of the plan praised
“The plan is very smart,” said Senator Charles E. Schumer, Democrat of New York,
who declined to provide details of his discussions about the plan with senior
administration officials. “It avoids one-size-fits-all. It will have an
overarching effect on many institutions. But it doesn’t put all institutions in
the same box.”
While some of the elements of the plan are similar to those used by the Bush
administration, officials said on Friday that they hoped to overcome the
mounting criticism of the earlier effort by lawmakers and economists by making
the program more transparent and equitable.
This week’s new restrictions on executive pay and last week’s announcement of
new lobbying rules that banks and other groups seeking assistance must follow
have been part of the effort by the Obama administration to restore credibility
to the program and regain support in Congress. That effort will be essential if
the administration returns to Congress for more money.
Plan to Help Banks Sell
Bad Assets, NYT, 7.1.2009,
Obama Calls Stimulus Necessary
to Save Jobs
February 7, 2009
Filed at 7:04 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
WASHINGTON (AP) -- With the Senate moving toward a tenuous compromise on the
White House's economic stimulus plan, President Barack Obama hammered at the
urgent need to pass a bill that will jump-start the struggling economy and put
people back to work.
''Americans across this country are struggling, and they are watching to see if
we're equal to the task before us. Let's show them that we are. And let's do
whatever it takes to keep the promise of America alive in our time,'' Obama said
Saturday in his weekly radio and Internet address.
Obama made an aggressive push for House and Senate lawmakers to work quickly to
resolve their differences in an economic bill whose pricetag has swung from $720
billion upward toward a trillion dollars. The new president had hoped to sign
economic legislation on his first day in office, but instead has spent his first
three weeks in office wrangling with a reluctant Congress -- including fellow
Democrats -- to heed his leadership.
Obama inched closer to a completed economic bill, as lawmakers sought to put
their own stamp on the legislation. The House -- without a single Republican
vote -- passed an $819 billion bill that gave many moderates pause for its size
Senate leaders went to work paring down that bill, working late into Friday to
produce a $780 billion version. A vote on the measure could come as soon as
Most Republicans still looked at the bill skeptically, with only two publicly
signing onto the proposal.
Sen. John McCain, Obama's Republican opponent in last November's election,
mocked the bill and said lawmakers could call it many things, ''but 'bipartisan'
is not one of them.''
Obama and his advisers have grown more assertive in recent days, reminding
Democrats that voters gave them the White House, the House and the Senate to
bring change, not partisan gamesmanship.
''In the midst of our greatest economic crisis since the Great Depression, the
American people were hoping that Congress would begin to confront the great
challenges we face,'' Obama said in the address, released before he made his
first trip to Camp David, the presidential retreat in the Maryland mountains.
''That was, after all, what last November's election was all about.''
Republicans characterized Obama's rhetoric as arrogant.
''Democrats have controlled both branches of government for less than a month.
And you have to wonder if all that power has gone to their heads,'' Republican
National Committee Chairman Michael Steele said in the GOP's weekly address.
''For the last two weeks, they've been trying to force a massive spending bill
through Congress under the guise of economic relief.''
The economic bill is the first legislative test of his presidency, one his top
aides have worked to turn into a victory. But Obama has found it increasingly
difficult to manage the liberal wing of his party, which wanted more money
directed to infrastructure, governors who wanted more money allocated to help
patch their thin budgets and moderate members of his own party.
He also sought to bring Republicans into the mix, pledging to listen to them,
praising the late-Friday negotiations.
Obama said that ''by the evening, Democrats and Republicans came together in the
Senate and responded appropriately to the urgency this moment demands.''
GOP leaders, however, said the rhetoric didn't match what was written.
''Republicans stand ready to work with reasonable Democrats to do what is right
for America,'' Steele said in his first address as chairman of his party. ''But
it will take more than bipartisan words from the president. It will require
fair-minded action from Democrats in Congress.''
Republicans have pushed for the bill to include more tax cuts and less spending.
The Senate's top Republican took the floor of the Senate to oppose the measure.
''Now, if most Republicans were convinced that this would work, there might be a
greater willingness to support it,'' Sen. Mitch McConnell of Kentucky said.
''But all the historical evidence suggests that it's highly unlikely to work.
And so, you have to balance the likelihood of success versus the crushing debt
that we're levying on the backs of our children, our grandchildren, and, yes,
Obama acknowledged the bill was far from perfect but said it would be too
dangerous to leave it lifeless on the table.
''Legislation of such magnitude deserves the scrutiny that it's received over
the last month, and it will receive more in the days to come,'' Obama said.
''But we can't afford to make perfect the enemy of the absolutely necessary. The
scale and scope of this plan is right. And the time for action is now.''
On the Net:
Obama Calls Stimulus
Necessary to Save Jobs, NYT, 7.1.2009,
Obama calls job losses
Fri Feb 6, 2009
WASHINGTON (Reuters) - President Barack Obama said the job losses in January
were "devastating news" on Friday and underscored the need for immediate action
to revive the economy.
"It is inexcusable and irresponsible to get bogged down in distraction and delay
while millions of Americans are being put out of work," Obama said in prepared
remarks for an event to announce an economic advisory panel.
"It is time for Congress to act. It is time to pass an Economic Recovery and
Reinvestment Plan to get our economy moving again," he said.
Job losses mounted in January as employers slashed payrolls by 598,000, the most
in 34 years, and the unemployment rate jumped to a 16-year high of 7.6 percent.
(Reporting by Tabassum Zakaria; Editing by Patricia Zengerle)
Obama calls job losses "devastating news", R,
Economy Sheds 598,000 Jobs
February 7, 2009
The New York Times
By EDMUND L. ANDREWS
WASHINGTON — The United States lost almost 600,000 jobs last month and the
unemployment rate rose to 7.6 percent, its highest level in more than 16 years,
the Labor Department said Friday.
It was the biggest monthly job loss since the economy tipped into a recession
more than a year ago, and it was even worse than most forecasters had been
In addition, the government revised down its estimates for previous months by
400,000. For December, the government revised the job loss to 577,000 compared
with an initial reading of 524,000. Overall, it said, the nation has lost 3.6
million jobs since it slipped into a recession in December 2007.
“Businesses are panicked and fighting for survival and slashing their payrolls,”
said Mark Zandi, chief economist at Moody’s Economy.com. “I think we’re trapped
in a very adverse, self-reinforcing cycle. The downturn is intensifying, and
likely to intensify further unless policy makers respond aggressively.”
Despite the jobless number, Wall Street opened strongly with all three major
exchanges up more than 1.4 percent.
As in previous months, employers in January slashed their payrolls in almost
every industry except health care Manufacturers eliminated 207,000 jobs, more
than in any year since 1982. The construction industry eliminated 111,000 jobs.
And retailers, who were wrapping up their worst holiday shopping season in
years, eliminated 45,000 jobs.
One modest exception to the bad news was in workers’ wages, which have thus far
not reflected the dramatic plunge in employment. Hour earnings edged up to
$18.46, up five cents, and average weekly earnings climbed $614.72, up $1.67.
But overall, the new data reinforced the impression of an economy that has
become increasingly trapped a vicious circle slumping consumer demand, falling
business investment, rising unemployment and mounting losses in the banking
Although the United States officially slipped into a recession in December 2007,
the decline was erratic and temporarily disguised by the impact of the emergency
tax-rebate last spring.
Since September, analysts say, economic activity suddenly plunged on almost
every front. The monthly pace of job losses shot up to about 500,000 a month for
the last three months of 2008, and the new report offered no hint that bottom is
in site. Last week, the number of Americans filing first-time jobless claims
reached a 26-year high, with 626,000 filling out initial applications.
Most forecasters had predicted that the economy would lose about 540,000 in
January. Instead, the Labor Department estimated that 598,000 jobs disappeared.
To be sure, monthly payroll numbers are subject to big revisions in the months
that follow. But most other indicators of the job market had been trending worse
Major retailers, rocked by one of the worst holiday shopping seasons in memory,
have been shutting stores and laying of armies of workers in recent weeks. On
Thursday, the nation’s retailers reported that sales fell 1.6 percent in
January, the fourth consecutive month of steep sales declines.
And in sign that the country’s slowdown continues to reach beyond its borders,
Canada, America’s largest trading partner, reported Friday that its unemployment
rate jumped to 7.2 percent in January, from 6.7 percent in December.
In Washington, Friday’s gloomy job report put more pressure on Congress to pass
an economic stimulus bill. The House passed a bill last week that would provide
more than $800 billion in spending and tax cuts. In the Senate, still bogged
down by objections from Republicans, lawmakers were hoping to be able to muster
enough votes to pass a measure on Friday
For comparison, the unemployment rate was 4.9 percent in January 2008. But some
analysts contend that the current unemployment rate of 7.6 percent understates
the labor market’s problems because the percentage of adults participating in
the labor force has slumped in recent years, and those people are not listed as
Peter Morici, an economist at the University of Maryland, estimated that if the
labor force participation rate today was as high as it was when President Bush
took office, the unemployment rate would be 9.4 percent.
Ian Shepherdson, chief North American economist for High Frequency Economics in
Valhalla, N.Y., said the government had become the only source of energy left to
break the cycle of slumping demand for goods and falling production.
“The public sector needs to act,” Mr. Shepherdson wrote in a note to clients.
“It needs to prevent an endless spiral of attempts to increase saving, leading
to reduced spending, leading to reduced incomes, leading to further attempts to
raise savings, and so on.”
“We remain firmly of the view that the package now in Congress is the bare
minimum required to slow the shrinkage of the economy over the next year.”
Many economists expect that the economy will continue to contract until July at
the very least, but at a slowing pace in the second quarter. That would make it
the longest recession since the 1930s, outlasting the two record-holders, the
mid-1970s and early 1980s downturns. Each of these recessions lasted 16 months.
The current recession, which started in December 2007, would reach that
milestone in April.
The Federal Reserve continues to pump money into the financial system at a
furious pace. Since September, the central bank has more than doubled its
reserves, from $900 billion to more than $2 trillion, by literally creating new
The Fed has used some of that money to help bail out financial institutions,
from Citigroup and Bank of America to the American International Group.
It has been pumping hundreds of billions of dollars into new lending programs,
stepping in for banks and other financial institutions to buy up a widening
array of corporate debt. Later this month, the Fed will begin a $200 billion
program, in conjunction with the Treasury, to finance consumer debt ranging from
car loans and credit card debt to student loans.
But analysts say that the big problem is not a shortage of money, but a shortage
of demand for products by businesses and consumers. As a result, banks are
overloaded with excess reserves, made available by the Fed, which they are often
simply parking at the Fed.
Jack Healy contributed reporting from New York.
Economy Sheds 598,000
Jobs in January; NYT, 7.1.2009,
U.S. job losses accelerate
Fri Feb 6, 2009
By Glenn Somerville
WASHINGTON (Reuters) - U.S. job losses accelerated in January as 598,000 were
slashed, the most in 34 years, and the unemployment rate soared to a 16-year
high, pressuring lawmakers to act quickly to counter a deepening recession.
"The economy is just falling into oblivion and it will get worse," said Greg
Salvaggio, vice president for trading at Tempus Consulting in Washington. The
Senate resumed debate less than two hours after report was issued on a package
of measures to spur the economy that could cost $800 billion or more.
Democratic leaders want a vote on Friday on stimulus measures. "It is
inexcusable and irresponsible for any of us to get bogged down in distraction
and delay or politics as usual while millions of Americans are being put out of
work," President Barack Obama said at the White House.
However, Republican leaders branded the proposals as excessive and bound to
drive up U.S. deficits.
Last month's job cuts were the most severe since December 1974, while the
unemployment rate hit 7.6 percent, its highest level since September 1992. The
jobless rate, which stood at a low 4.9 percent a year ago, has jumped a full
percentage point over just the last three months.
HUMAN TOLL CITED
"Today's grim job numbers underscore the human toll of our economic crisis and
add to the overwhelming evidence for getting a recovery package to the
president's desk fast," said the chairman of the Congressional Joint Economic
Committee, Democratic Rep. Carolyn Maloney of New York.
Many private-sector analysts agreed on the need for some action to try to slow
the relentless slide in job prospects.
"These are huge, huge declines, said Nigel Gault, director of U.S. economic
research for Global Insight in Lexington, Mass. "Hopefully it will concentrate
some minds in the Senate so they can come to an agreement (on a stimulus
Stock prices were up strongly in afternoon trade on investor hopes that
lawmakers will be jolted into moving forward with stimulus measures, rather than
arguing whether tax cuts or spending measures would be the best way to boost
But U.S. Treasury debt securities prices dropped for fear that a wave of
government borrowing will be coming to fund any new spending or make up for
revenue losses from tax cuts.
Economist Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania, said
conditions were clearly worsening and will do so until confidence improves.
"Firms have decided that survival is job one and if that means slashing workers,
so be it," he said, adding that it was critical for Washington to adopt stimulus
that creates demand.
U.S. Commissioner of Labor Statistics Keith Hall emphasized the degree the
deterioration in labor markets has gathered steam as a U.S. recession wears on.
"January's sharp drop in employment brings job losses to 3.6 million since the
start of the recession in December 2007," Hall said in a statement, and "about
half the decline occurred in the last three months."
An analysis of the department's historical data showed it was the most severe
consecutive string of job losses since World War Two.
U.S. manufacturing bled jobs at the sharpest rate in January in more than 26
years, shedding 207,000 workers after cutting 162,000 in December. The last time
more factory jobs were lost in a single month was in October 1982 when 221,000
were cut. An index measuring total paid hours for factory workers dropped to its
lowest level since 1940, department officials said.
Construction industries dropped 111,000 jobs in January after 86,000 in December
and Hall said that pace of cuts was accelerating. Retail businesses cut another
45,000 positions after shedding 82,700 in December.
There were 121,000 job losses among professional and business services providers
in January on top of 106,000 that were eliminated in December. Only education
and health services added jobs as did the government.
Analysts said there was no sign of relief on the horizon, judging from the depth
and breadth of January's labor market plunge.
"It is just another confirmation that we're are in a deep and long recession,
and the bottom is not even in sight," said Robert MacIntosh, chief economist for
Eaton Vance Management in Boston. "Manufacturing is incredibly weak -- it's
going to be a long haul."
(Reporting by Glenn Somerville; editing by Neil Stempleman)
U.S. job losses
accelerate, NYT, 6.2.2009,
As Layoffs Surge,
Women May Pass Men in Job Force
February 6, 2009
The New York Times
By CATHERINE RAMPELL
With the recession on the brink of becoming the longest in the postwar era, a
milestone may be at hand: Women are poised to surpass men on the nation’s
payrolls, taking the majority for the first time in American history.
The reason has less to do with gender equality than with where the ax is
The proportion of women who are working has changed very little since the
recession started. But a full 82 percent of the job losses have befallen men,
who are heavily represented in distressed industries like manufacturing and
construction. Women tend to be employed in areas like education and health care,
which are less sensitive to economic ups and downs, and in jobs that allow more
time for child care and other domestic work.
“Given how stark and concentrated the job losses are among men, and that women
represented a high proportion of the labor force in the beginning of this
recession, women are now bearing the burden — or the opportunity, one could say
— of being breadwinners,” says Heather Boushey, a senior economist at the Center
for American Progress.
Economists have predicted before that women would one day dominate the labor
force as more ventured outside the home. The number of women entering the work
force slowed and even dipped during the boom years earlier this decade, though,
prompting a debate about whether women truly wanted to be both breadwinners and
Should the male-dominated layoffs of the current recession continue — and
Friday’s jobs report for January may offer more insight — the debate will be
moot. A deep and prolonged recession, therefore, may change not only household
budgets and habits; it may also challenge longstanding gender roles.
In recessions, the percentage of families supported by women tends to rise
slightly, and it is expected to do so when this year’s numbers are tallied. As
of November, women held 49.1 percent of the nation’s jobs, according to nonfarm
payroll data collected by the Bureau of Labor Statistics. By another measure,
including farm workers and the self-employed, women constituted 47.1 percent of
the work force.
Women may be safer in their jobs, but tend to find it harder to support a
family. For one thing, they work fewer overall hours than men. Women are much
more likely to be in part-time jobs without health insurance or unemployment
insurance. Even in full-time jobs, women earn 80 cents for each dollar of their
male counterparts’ income, according to the government data.
“A lot of jobs that men have lost in fields like manufacturing were good union
jobs with great health care plans,” says Christine Owens, executive director of
the National Employment Law Project. “The jobs women have — and are supporting
their families with — are not necessarily as good.”
Nasreen Mohammed, for example, works five days a week, 51 weeks a year, without
sick days or health benefits.
She runs a small day care business out of her home in Milpitas, Calif., and
recently expanded her services to include after-school care. The business brings
in about $30,000 annually, she says, far less than the $150,000 her husband
earned in the marketing and sales job he lost over a year ago. “It’s peanuts,”
She switched from being a full-time homemaker to a full-time businesswoman when
her husband was laid off previously. She says she unexpectedly discovered that
she loves her job, even if it is demanding.
Still, her husband, Javed, says he and their three children — who are in third
grade, junior college and law school — worry about her health, and hope things
can “return to the old days.”
“In terms of the financial benefit from her work, we all benefit,” he says. “But
in terms of getting my wife’s attention, from the youngest daughter to our
oldest, we can’t wait for the day that my job is secure and she doesn’t have to
do day care anymore.”
Women like Ms. Mohammed find themselves at the head of once-separate spheres:
work and household. While women appear to be sole breadwinners in greater
numbers, they are likely to remain responsible for most domestic
responsibilities at home.
On average, employed women devote much more time to child care and housework
than employed men do, according to recent data from the government’s American
Time Use Survey analyzed by two economists, Alan B. Krueger and Andreas Mueller.
When women are unemployed and looking for a job, the time they spend daily
taking care of children nearly doubles. Unemployed men’s child care duties, by
contrast, are virtually identical to those of their working counterparts, and
they instead spend more time sleeping, watching TV and looking for a job, along
with other domestic activities.
Many of the unemployed men interviewed say they have tried to help out with
cooking, veterinarian appointments and other chores, but they have not had time
to do more because job-hunting consumes their days.
“The main priority is finding a job and putting in the time to do that,” says
John Baruch, in Arlington Heights, Ill., who estimates he spends 35 to 45 hours
a week looking for work since being laid off in January 2008.
While he has helped care for his wife’s aging parents, the couple still
sometimes butt heads over who does things like walking the dog, now that he is
out of work. He puts it this way: “As one of the people who runs one of the
career centers I’ve been to told me: ‘You’re out of a job, but it’s not your
time to paint the house and fix the car. Your job is about finding the next
Many women say they expect their family roles to remain the same, even if
economic circumstances have changed for now.
“I don’t know if I’d really call myself a ‘breadwinner,’ since I earn
practically nothing,” says Linda Saxby, who assists the librarian at the
Cypress, Tex., high school her two daughters attend. Her husband, whose
executive-level position was eliminated last May, had been earning $225,000, and
the family is now primarily living off savings.
Historically, the way couples divide household jobs has been fairly resistant to
change, says Heidi Hartmann, president and chief economist at the Institute for
Women’s Policy Research.
“Over a long, 20-year period, married men have stepped up to the plate a little
bit, but not as much as married women have dropped off in the time they spend on
household chores,” Ms. Hartmann says. This suggests some domestic duties have
been outsourced, as when takeout substitutes for cooking, for example. And as
declining incomes force families to cut back on these outlays, she says, “women
will most likely pick up the slack.”
A severe recession could put pressure on these roles.
“It has definitely put a strain” on my marriage, says Debbie Harlan, an
executive assistant at a hospital system in Sarasota, Fla. Four months ago, her
husband closed his 10-year-old independent car sales business, and the couple
have been asking their children to help with bills. “So far we’ve worked through
it, but there have been times when I wasn’t sure we could.”
The Mohammeds say things are not as stressful as they were the last time Mr.
Mohammed lost his job. He has been helping out with the cooking and with
paperwork for his wife’s business, and she says she works to prop up family
“Things are not happy in the house if I blame him all the time, so I don’t do
any of that anymore,” Ms. Mohammed says. “I know he is doing his best.”
As Layoffs Surge, Women
May Pass Men in Job Force, NYT, 6.2.2009,
No Dough in the Do-Re-Mi:
Songwriters Take On the Recession
Instead of 'Brother, Can You Spare a Dime?'
It's 'Buddy, Can You Spare a Trillion Dollars?'
FEBRUARY 6, 2009
The Wall Street Journal
By ROBERT TOMSHO
Michael Adams doesn't claim to be the equal of famed Depression-era
songwriters like Woody Guthrie. Still, the 39-year-old from Tucson, Ariz., aims
to leave his musical mark on the current economic crisis.
Editor of the nutrition-oriented Web site naturalnews.com, Mr. Adams says his
personal outrage about all the federal funds being shoveled to crippled
corporations prompted him to write a hip-hop song called "I Want My Bailout
Money." Since he posted it on YouTube in January, more than 85,000 people have
listened to his lyrics, which include:
I want my bailout money
Keep the con coming
Sweet green cash just dripping with honey
Mr. Adams is one of a growing number of tunesmiths trying to set the nation's
economic woes to song. So far, contemporary bards haven't come up with anything
as big as E.Y. Harburg's lyrics for "Brother, Can You Spare a Dime?" That
dolorous 1932 hit became the unofficial anthem of the Depression:
Once I built a railroad,
made it run,
made it race against time.
Once I built a railroad;
now it's done.
Brother, can you spare a dime?
But online sites are brimming with their efforts.
Lyricist Marcy Shaffer offers musical parodies such as "Bearish" (sung to the
tune of the Association's 1966 classic hit "Cherish") at versusplus.com, a Los
Angeles Web site she runs with her husband. On his own site, singer Roy
Zimmerman, in Marin County, Calif., describes his compositions as "funny songs
about ignorance, war and greed." His recent compositions include "Buddy, Can You
Spare a Trillion Dollars?"
Such melodic sarcasm is a far cry from the cheery love and novelty songs that
dominated popular music during the hard times of the 1930s. The Depression
spawned its share of sharp-edged blues and union-organizing songs, but most got
little play on the radio at the time. Although folk legend Woody Guthrie
composed the likes of "I Ain't Got No Home," during the era, his work didn't
gain broad popularity until the 1940s.
Rich man took my home and drove me from my door
And I ain't got no home in this world anymore.
Depression-weary listeners couldn't seem to get enough of escapist broadcast
fare like "We're in the Money," "Life Is Just a Bowl of Cherries," and
"Lazybones." At the time, "very, very few topical songs made it anywhere," says
William H. Young, co-author of a book about Depression-era music. "If you are
out of a job, you don't want to be reminded you are out of a job."
The current crisis has yet to produce a chart topper. "The Recession," a CD by
Young Jeezy, an Atlanta purveyor of "gangsta" rap, made it to No. 1 on the
Billboard magazine chart in September, but, despite what the title would seem to
indicate, its songs have little to do with the economy, at least the one Wall
Street investors track.
Among other well-known recording artists, guitarist Neil Young recently posted
an online video featuring a downturn-related song called "Fork in the Road."
There's a bailout coming, but it's not for you.
It's for all those creeps hiding what they do.
So far, about 72,000 people have given it a listen on YouTube. Only about 650
have tuned in to guitarist Reggie Miles's recession-related posting on the same
site, but he doesn't feel ignored.
A longtime busker who plays most days at Seattle's Pike Place Market, Mr.
Miles says he has never had the money to buy stocks and bonds and that his only
retirement plan is to stay healthy enough to keep playing until he drops dead.
The 54-year-old was inspired to write about Wall Street's current troubles one
day last October after watching TV coverage of a particularly bad day in the
market. "All of a sudden, my ear got kind of attuned to all the jargon they were
using, and it hit me that those were some great lines," says Mr. Miles, who
hopes that the resulting song, "Wall Street Bail Out Blues," will help listeners
vent their feelings.
Mr. Miles certainly does in the second of the song's 14, sometimes caustic
Wall Street millionaires
Vultures comin' home to roost
They want more corporate welfare
To pad their golden parachutes
New York guitarist and aspiring actor Kevin Rockower used a gentler hand when he
wrote his song about Bernard Madoff. "I'm hoping eventually that I'll find my
niche, and maybe writing political songs is it," says Mr. Rockower, 29, whose
sweetly sung ode includes a wordplay on the alleged swindler's last name:
Mr. Santa, help me if you can, sir
I've nothing left in my portfolio
For Christmas can I have my Christmas bonus
Cause good old Bernie Madoff with my dough
Talya Lieberman, 24, who is pursuing a master's degree in classical trumpet
performance at the University of North Carolina School of the Arts in
Winston-Salem, and her boyfriend, guitarist Pavle Jefferson, 29, posted "Fannie
Mae Eat Freddie Mac and Cheese," their absurdist take on the times, on YouTube
in November. The two hope that their collaboration might provide an opening to a
career in entertainment.
Veteran folk singer Tom Paxton, 71, who has lived through a downturn or two,
thinks such paydays are unlikely. Through the years, he has written topical
songs about everyone from Alaska Gov. Sarah Palin to the late evangelist Jerry
Falwell. He calls them his "short shelf life" songs because their subjects
generally quickly fade from view and none have ever made him much money. "These
are pro bono," he says. "Now and then, somebody records one of them, and I get a
royalty check, but I certainly don't count on it."
Such numbers often prove to be good icebreakers with live audiences, and they
give Mr. Paxton a chance to get things off his chest. With that in mind, he
recently overhauled a song he wrote after the federal government's 1979 bailout
of Chrysler Corp.:
I am changing my name to Fannie Mae;
I am changing it to AIG.
On this bail-out I am betting;
Just a piece of what they're getting,
Would be perfectly acceptable to me.
I am changing my name to Freddie Mac;
I am leaving for that great receiving line.
I'll be waiting when they hand out
Seven hundred million grand out --
That's when I'll get mine.
Hear some of the recession-era melodies, plus see excerpts of some lyrics
"Bearish" by Marcy Shaffer
Prayerish and absurd I characterize.
Every tool of a bull too cool to analyze:
The implications of an oil price that's double.
The generations of the labor force in trouble.
"Bernie Madoff Song" by Kevin Rockower
Mr. Santa help me if you can sir
I've nothing left in my portfolio
For Christmas can I have my Christmas bonus
Cause good old Bernie Madoff with my dough
"Buddy, Can You Spare a Trillion Dollars?" by Roy Zimmerman
From Wall Street to Main Street to Sesame Street
And I'm flat out on the sidewalk with my hat out in the snow
Buddy, can you spare a trillion dollars?
"Fannie Mae Eat Freddie Mac and Cheese" by Talya Lieberman & Pavle Jefferson
Let's act like we're really rich
Build houses we couldn't pitch
For the government's
"I'm Changing My Name to Fannie Mae" by Tom Paxton
Everybody and his uncle is in debt,
And the bankers and the brokers are upset.
Goldman Sachs's, Merrill Lynch's
Saw themselves as lead-pipe cinches,
Now they've landed in the biggest screw-up yet.
"I Want My Bailout Money" by Michael Adams
I want my bailout money
Keep the bills coming
Sweet green cash just drippin like honey
I'm a new kind of thug with a Washington buzz
"Wall Street Bail Out Blues" by Reggie Miles
Everybody's bloggin' 'bout
The 2008 recession
It's a who's who of who's lost everything
And who's gonna get possession
No Dough in the
Do-Re-Mi: Songwriters Take On the Recession, WSJ, 6.2.2009,
U.S. Plans to Curb Executive Pay
for Bailout Recipients
February 4, 2009
The New York Times
By EDMUND L. ANDREWS and VIKAS BAJAJ
WASHINGTON — The Obama administration is expected to impose a cap of $500,000
for top executives at companies that receive large amounts of bailout money,
according to people familiar with the plan.
Executives would also be prohibited from receiving any bonuses above their base
pay, except for normal stock dividends.
President Obama and Treasury Secretary Timothy F. Geithner plan to announce the
executive compensation plan on Wednesday morning at the White House.
The new rules would be far tougher than any restrictions imposed during the Bush
administration, and they could force executives to accept deep reductions in
their current pay. They come amid rising public fury about huge pay packages for
executives at financial companies being propped up by federal tax dollars.
Executives at companies that have already received money from the Treasury
Department would not have to make any changes. But analysts and administration
officials are bracing for a huge wave of new losses, largely because of the
deepening recession, and many companies that have already received federal money
may well be coming back.
Crucial details remained unclear on Tuesday night, including whether the
restrictions would apply to all companies that receive money under the so-called
Troubled Asset Relief Program, or TARP, or whether they would apply only to the
“exceptional” companies that were being rescued from collapse.
Under the Treasury’s $700 billion rescue program, most companies that have
received money so far have been considered “healthy” rather than on the brink of
But five of the biggest companies to get help — Citigroup, Bank of America and
the American International Group, General Motors and Chrysler — were all facing
acute problems. And top executives at those companies made far more than
$500,000 in recent years.
Kenneth D. Lewis, the chief executive of Bank of America, took home more than
$20 million in 2007. Of that, $5.75 million was in salary and bonuses.
Vikram Pandit, who became chief executive of Citigroup in December of 2007 and
previously held other senior positions at the bank, made $3.1 million.
Richard Wagoner, the chief executive of General Motors, made $14.4 million, much
of it in stock, options and other non-cash benefits. He earned a $1.6 million
“That is pretty draconian — $500,000 is not a lot of money, particularly if
there is no bonus,” said James F. Reda, founder and managing director of James
F. Reda & Associates, a compensation consulting firm. “And you know these
companies that are in trouble are not going to pay much of an annual dividend.”
Mr. Reda said only a handful of big companies pay chief executives and other
senior executives $500,000 or less in total compensation. He said such limits
will make it hard for the companies to recruit and keep executives, most of whom
could earn more money at other firms.
“It would be really tough to get people to staff” companies that are forced to
impose these limits, he said. “I don’t think this will work.”
President Obama last week branded Wall Street bankers “shameful” for giving
themselves nearly $20 billion in bonuses as the economy was deteriorating and
the government was spending billions to bail out some of the nation’s most
prominent financial institutions.
“If the taxpayers are helping you, then you have certain responsibilities to not
be living high on the hog,” Mr. Obama said Tuesday, in an interview with “NBC
Mr. Obama’s new rules are coming just as he is expected to ask for additional
sums of money, beyond the $700 billion already authorized, to prop up the
financial system, even as he pushes Congress to move quickly on a separate
economic stimulus package that could cost taxpayers as much as $900 billion.
If the new pay limit applies to all companies that receive Treasury money, it
would be almost as tough as a $400,000 limit proposed last week by Senator
Claire McCaskill, Democrat of Missouri.
Senator McCaskill, reacting to reports of extravagant perks and bonuses at
companies like Merrill Lynch and Citigroup, had blasted Wall Street executives
as “a bunch of idiots” who were “kicking sand in the face of the American
The banks that have received bailout funds already are subject to limits on
compensation, but the Bush administration intentionally left them lax. The top
five executives at banks that get an equity infusion from the government are
restricted from offering golden parachutes, as rich severance packages are
called, and any compensation above $500,000 is not tax deductible to the
Companies that received emergency money, like Citigroup, faced somewhat tougher
restrictions, including a requirement to reduce the bonus pool for the top 50
executives by 40 percent. But even those restrictions come nowhere near the
In a letter to Congress last month, Lawrence H. Summers, director of Mr. Obama’s
National Economic Council, suggested that the new pay restrictions would apply
to all companies that get Federal help.
Without mentioning a particular dollar limit, Mr. Summers wrote that “executive
compensation above a specified threshold amount be paid in restricted stock or
similar form that cannot be liquidated or sold until the government has been
Eric Dash contributed reporting.
U.S. Plans to Curb
Executive Pay for Bailout Recipients, NYT, 4.2.2009,
Witness on Madoff
Tells of Fear for Safety
February 4, 2009
The New York Times
By DIANA B. HENRIQUES
The man who tried unsuccessfully for almost a decade to spur federal
securities regulators to investigate Bernard L. Madoff did not initially
disclose his own identity to regulators because he feared for his life,
according to testimony he has apparently prepared for a Congressional hearing
The witness, Harry Markopolos, will testify that Mr. Madoff “was one of the most
powerful men on Wall Street and in a position to easily end our careers or
worse,” and that his fund “posed great danger” to those who investigated it,
based on a version of his remarks that emerged Tuesday evening.
While the testimony, posted on the Fox Business and Wall Street Journal Web
sites, mirrors statements he has made on his own site and elsewhere, neither he
nor his lawyers could be reached to confirm its authenticity.
Mr. Markopolos, an independent investigator who works for institutional
investors, is to be questioned about his frustrated dealings with regulators by
members of a House Financial Services subcommittee led by Paul E. Kanjorski,
Democrat of Pennsylvania.
The subcommittee has also called senior staff members at the Securities and
Exchange Commission to respond to Mr. Markopolos’s criticism, which he
summarized in his prepared testimony by saying the agency “is nonfunctional and,
as witnessed by the Madoff scandal, is harmful to our capital markets and
harmful to our nation’s reputation as a financial leader.”
Mr. Markopolos has been harshly critical of the “financial illiteracy” of the
S.E.C. investigators he encountered over the years, and has accused them of
failing to detect the fraud with which Mr. Madoff has now been charged — a fraud
that he himself has put at $50 billion, according to a criminal complaint.
Much of the testimony that was posted Tuesday repeats information already
available on Mr. Markopolos’s Web site, but it provides a year-by-year account
of the work he and several other researchers carried out and his many
unsuccessful efforts to prompt the S.E.C. to open an aggressive investigation.
In the testimony, Mr. Markopolos also offers explanations for why he did not
carry his concerns to other regulators and law enforcement agencies when the
S.E.C. did not respond.
He and his colleagues avoided taking their allegations to the industry
self-regulatory agency, now called Finra, he said in the statement, because he
believed Mr. Madoff and his brother, Peter B. Madoff, wielded too much power
with that organization. Peter Madoff worked in his brother’s firm but has not
been implicated in the apparent fraud.
“We were concerned that we would have tipped off the target too directly and
exposed ourselves to great harm,” he wrote.
They did not turn to the F.B.I., he said, “because we believed the F.B.I. would
have rejected us” without the endorsement of the S.E.C. staff. He did not
address why he did not approach members of Congress, attorneys general in New
York or Boston, or state or federal prosecutors.
The hearing is the latest effort by members of Congress and their advisers to
use the lessons of the Madoff scandal to guide the overhaul of the nation’s
financial regulatory system.
The S.E.C. itself has ordered an internal investigation into the agency’s
failure to act on credible tips it had received over the years about Mr. Madoff
— including those from Mr. Markopolos.
His efforts are laid out in extensive detail in his testimony, which runs to
almost 60 pages, not counting 115 exhibits, ranging from itineraries for his
investigative trips to e-mail exchanges with S.E.C. staff members.
The subcommittee is also scheduled to hear from five senior S.E.C. staff
members: Linda Thomsen, director for enforcement; Andrew J. Donohue, director
for investment management; Erik Sirri, director for trading and markets; Andy
Vollmer, acting general counsel; and Lori A. Richards, director for compliance
inspections and examinations. Stephen Luparello, the interim chief executive of
Finra, is also scheduled to testify.
Witness on Madoff Tells
of Fear for Safety, NYT, 4.2.2009,