History > 2009 > USA > Economy (IV)
Give Spark of New Hope
for Econ Revival
April 30, 2009
Filed at 2:23 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
WASHINGTON (AP) -- Consumers are snapping back to life, kindling
springtime hopes that the recession is losing steam.
Even though the economy shrank again in the first three months of the year --
and by a lot -- Americans stepped up their purchases of cars, furniture and
appliances. The surge in consumer spending, which accounts for about 70 percent
of the economy, could set the stage for a rebound later this year.
Hopes for revival depend on those consumers, who have been fortified by fatter
paychecks from tax cuts and smaller mortgage payments from refinancings. If they
keep buying, businesses will need to boost production, feeding yet more economic
Against that backdrop, many analysts think the economy is sinking less now than
it did from January through March. Most believe it could start growing again by
summer or, more likely, by the final quarter of this year.
Federal Reserve Chairman Ben Bernanke and his colleagues, opting against further
action Wednesday to shore up the economy, detected glimmers that the recession
might be easing.
''The pace of contraction appears to be somewhat slower,'' Fed policymakers said
in a statement a few hours after the government released its report showing a
second straight big quarterly drop in the nation's gross domestic product.
On Wall Street, stocks jumped higher. The Dow Jones industrials gained nearly
In remarks prepared for the start of his news conference Wednesday night,
President Barack Obama praised recent gains but said much was left to do.
''Even as we clear away the wreckage of this recession, I have also said that we
cannot go back to an economy that is built on a pile of sand -- on inflated home
prices and maxed-out credit cards, on overleveraged banks and outdated
regulations that allowed the recklessness of a few to threaten the prosperity of
us all,'' he said.
The American consumer is still a wild card in any recovery scenario.
Though the Federal Reserve noted that spending ''has shown signs of
stabilizing,'' it also said people's buying is still constrained by rising
unemployment, falling home values and hard-to-get credit.
Those negative forces -- or the emergence of new ones, like the swine flu
outbreak -- could cause consumers to do an about-face and ratchet back spending,
throwing the economy into another tailspin.
''The economy is definitely not out of the woods yet,'' said Brian Bethune,
economist at IHS Global Insight. But, he added: ''The good news ... is that the
most severe phase of the recession is behind us.''
The economy logged a worse-than-expected 6.1 percent annualized drop in the
first three months of the year despite the rebound by consumers, the Commerce
Department reported. The culprits behind the poor overall performance: sharp
cutbacks by businesses, especially in inventories of unsold goods, and the
biggest drop in U.S. exports in 40 years.
The decline was nearly as sharp as in the final three months of last year.
That's when the economy shrank at a 6.3 percent pace, the worst showing in a
quarter-century. The biggest pullback by consumers in 28 years figured
prominently in that downward spiral.
All told, the economy logged its poorest six-month performance since the late
The bleak picture underscores the damage caused by the housing, credit and
financial crises -- the worst since the 1930s. The recession, which began in
December 2007, has battered the national economy and wiped out a net total of
5.1 million jobs.
The economy totaled $11.3 trillion at an annual rate in the first quarter,
compared with $11.7 trillion in the second quarter of 2008.
Still, consumers roared back in the first quarter of this year. They boosted
their spending at an annual rate of 2.2 percent, the most in two years. Gains in
disposable income helped by tax refunds and government benefit checks like
Social Security helped allow the spending gains.
Much stronger demand for long-lasting ''durable'' goods, including cars,
furniture and household appliances, led the increase. That spending rose at a
9.4 percent pace, the most in a year.
Consumers also boosted spending on clothing, shoes, recreation services, medical
care, gasoline and other energy products. One exception was food, on which
spending dipped slightly.
Americans' higher consumption, though, was swamped by deep spending cuts in
virtually every other area of the economy.
Businesses cut back on home building, commercial construction, equipment and
software, and inventories of goods. Sales of U.S. goods to foreign buyers sank
in the face of economic troubles abroad. Even the government trimmed spending.
It was the first time that's happened since the end of 2005.
The Federal Reserve cited some of these negative forces in warning that the
economy is likely to remain weak for a time. The Fed said it hopes the
aggressive action it's taken so far will lead to a gradual resumption of
sustainable economic growth -- though it didn't say when.
To brace the economy, the Fed on Wednesday pledged anew to keep its key lending
rate at a record low level for an extended period. Economists predict the Fed
will keep rates there well into next year.
Even if the recession were to end this year, the economy is likely to remain
feeble and unemployment will keep climbing, government officials and analysts
The Labor Department on Wednesday said all 372 metropolitan areas that are
tracked saw their jobless rates rise in March from a year earlier. The national
jobless rate is now at a quarter-century high of 8.5 percent and is expected to
hit 10 percent by the end of this year. It will probably rise a bit higher in
early 2010 before starting to slowly drift downward.
Most analysts don't think it will return to normal -- around 5 percent -- until
More layoffs were announced this week. Textron Inc. said it will eliminate 8,300
jobs, or 20 percent, of its global work force, as the recession weakens demand
for corporate planes. The maker of Cessna planes, Bell helicopters and
turf-maintenance equipment earlier this year said it would reduce its work force
by 6,200 jobs, or 15 percent, mostly at Wichita, Kan.-based Cessna.
General Motors Corp. laid out a restructuring plan that includes cutting 21,000
U.S. factory jobs by next year. Clear Channel Communications Inc., the largest
owner of U.S. radio stations, said it's cutting 590 jobs in its second round of
layoffs this year amid pressure from the recession and evaporating advertising
budgets. And bearings and specialty steels maker Timken Co. indicated it will
cut about 4,000 more jobs by the end of this year after earlier suggesting about
3,000 jobs already had been targeted.
(This version CORRECTS Bethune quote
to economy not out of woods
yet, sted recession.) )
Consumers Give Spark of
New Hope for Econ Revival, NYT, 30.4.2009,
in 2nd Straight Quarter of Steep Decline
April 30, 2009
The New York Times
By JACK HEALY
The American economy shrank rapidly in the first three months of the year,
the government reported on Wednesday, a signal that the economy is likely to
remain a dominant issue as the Obama administration looks beyond its first 100
The gross domestic product shrank at an annual rate of 6.1 percent from January
through March, the Bureau of Economic Analysis reported. It was the third
straight quarter of declines and capped the worst six months of economic
activity since the late 1950’s.
Economists had predicted a drop of 4.7 percent, and the steep dip could dampen
hopes that the pace of economic declines had begun to ebb. The decline was
almost as sharp as in the previous quarter, when the economy shrank at a pace of
6.3 percent, its worst drop in a generation.
A plunge in business investment contributed to much of the overall decline in
the nation’s economic output.
Companies slashed their capital investment at an annual rate of 38 percent, and
cut their inventories at a pace of $103.7 billion as they rushed to reduce their
costs. Business investment in software and equipment declined by an annualized
33.8 percent, and investment in new structures was down 44.2 percent.
If there was one bright spot in the numbers, it was that consumer spending edged
up by 2.2 percent after two quarters of declines. The sharper-than-expected drop
in economic output came in sharp contrast to recent signs of stabilization in
Credit markets that spiraled out of control late last year are stabilizing, and
retail sales and orders by manufacturers are no longer posting record declines.
And on Tuesday, a closely watched gauge of home prices in the United States
leveled off by a hair, the first time in 16 months that the slide in housing
prices did not accelerate.
“We’re still declining, but we can see the forces that will get us out of this,”
said Markus Schomer, global economic strategist at AIG Investments. “We still
have this massive fiscal stimulus coming. There are a lot of positives that are
coming over the next six to 12 months that will drive the recovery.”
Economists surveyed in April for the Blue Chip report on economic indicators
expected the economy to hit bottom this spring, flatten out in the summer and
then grow at a tepid rate of 1.6 percent in the last months of 2009 as tax cuts
and spending projects from the government’s $787 billion stimulus package filter
through the economy.
But even if the economy is beginning to reach a bottom, millions of Americans
are unlikely to see their fortunes improve any time soon.
Although stock markets have rallied recently on some wisps of less-awful
economic data, economists warned that job losses are likely to continue through
the rest of the year. The current unemployment rate of 8.5 percent is expected
to rise to as high as 10 percent as businesses slash their costs and institute
hiring freezes, buckling down for more bad times.
Already, more than five million workers have lost their jobs since the recession
began in December 2007. Businesses that began to cut costs with furloughs and
pay freezes are laying off workers in large numbers. Earlier this week, General
Motors announced it would slash another 21,000 jobs in the United States.
As a candidate, President Obama made the economy the centerpiece of his campaign
for the White House, and he has said that his stimulus package would save or
create three million to four million jobs over the next two years. Economists
said the next months would begin to put those promises to a test.
“‘I don’t think anyone’s going to be thrilled,” said Michael Moran, chief
economist at Daiwa Securities. “The unemployment rate is going to continue
rising, and I think this soft labor market is going to continue to give a
disappointing tone to the economy.”
U.S. Economy in 2nd
Straight Quarter of Steep Decline, NYT, 29.4.2009,
Probably Eased in 1Q
April 29, 2009
Filed at 1:02 a.m. ET
By THE ASSOCIATED PRESS
The New York Times
WASHINGTON (AP) -- The recession's grip on the country may be letting up a
The government is set to release a report Wednesday expected to show the economy
shrank at a pace of 5 percent in the first three months of this year. If Wall
Street analysts' forecasts' are correct, the figure -- while still extremely
weak -- would be viewed as a hopeful sign that the worst of the recession -- in
terms of lost economic activity -- may be past.
''The recession is easing up,'' said John Silvia, chief economist at Wachovia.
''We're probably bottoming out here in the first half of this year.''
The economy in the final three months of last year logged its worst downhill
slide in a quarter-century, contracting at a 6.3 percent annual rate as nervous
American consumers ratcheted back spending in the face of rising unemployment,
falling home values and shrinking nest eggs.
The less steep decline in economic activity anticipated by analysts in the
January-March quarter is based on the expectation that shoppers at home and
abroad didn't pull back quite as much at the start of this year.
Consumer spending, which accounts for roughly 70 percent of national economic
activity, is still expected to be negative. But it will probably log a small dip
versus the big 4.3 percent annualized decline seen in the final three months of
2008. The same rationale would hold for sales of U.S. exports, which have been
crimped as economic troubles in other countries force foreign buyers to be
Many analysts predict the economy will shrink even less in the current
April-June period -- at a pace of 1 to 2.5 percent. Tax cuts and increased
government spending on big public works projects included in President Barack
Obama's $787 billion should help bolster economic activity. Analysts hope the
economy will actually start to grow again in the final quarter of this year.
However, the recent outbreak of the swine flu, which started out in Mexico and
has spread to the United States and elsewhere, poses a new potential danger. If
the flu stifles trade and forces consumers to cut back further, those negative
forces would worsen the recession.
Moving to contain the threat, the White House asked Congress for $1.5 billion to
fight a swine flu outbreak. President Barack Obama sent a letter to lawmakers on
Tuesday, asking them for a supplemental spending plan to build drug stockpiles
and monitor future cases.
Before the flu outbreak, Federal Reserve Chairman Ben Bernanke said the
recession could end this year if the government succeeds in stabilizing the
shaky financial system and getting banks to lend again.
To combat the worst financial crisis since the 1930s, the Fed has slashed a key
bank lending rate to a record low near zero and rolled out a string of radical
programs to spur lending. The Fed at the end of its two-day meeting Wednesday is
expected to keep its key rate near zero.
Besides the $787 billion stimulus, the administration is counting on its efforts
to rescue banks and curb home foreclosures to turn the economy around.
Bernanke and his colleagues have cited ''tentative signs'' of the recession
easing in some consumer spending, home building and other reports. Finance
officials from the U.S. and other top economic powers meeting here last week
also saw some hopeful signs for the global economy.
Fresh glimmers of hope emerged in the U.S. Tuesday. The Conference Board's
Consumer Confidence Index rose far more than expected in April, jumping more
than 12 points to 39.2, the highest level since November. And a housing index
showed that home prices dropped sharply in February, but for the first time in
25 months the decline was not a record.
Even if the recession were to end this year, the economy will remain feeble and
unemployment will keep climbing.
The jobless rate is now at a quarter-century high of 8.5 percent and is expected
to hit 10 percent by the end of this year. It will probably rise a bit higher in
early 2010 before starting to slowly drift downward. Still, the Fed predicts
unemployment will stay elevated into 2011, and economists don't think it will
return to normal -- around a 5 percent jobless rate -- until 2013.
More layoffs were announced this week. General Motors Corp. laid out a massive
restructuring plan that includes cutting 21,000 U.S. factory jobs by next year.
Bearings and specialty steels maker Timken Co. indicated it will cut about 4,000
more jobs by the end of this year after earlier suggesting about 3,000 jobs
already had been targeted.
Elsewhere, construction equipment maker Bobcat Co. told nearly 250 workers at
its two North Dakota plants they will be laid off indefinitely, executive search
firm Heidrick & Struggles International Inc. announced plans to cut more jobs
and reduce bonuses and salaries, and Lockheed Martin Corp. said it's cutting 225
jobs at a plant in upstate New York.
Probably Eased in 1Q, NYT, 29.4.2009,
Fed Takes Fresh Stock of Economy
April 29, 2009
Filed at 1:01 a.m. ET
By THE ASSOCIATED PRESS
The New York Times
WASHINGTON (AP) -- Taking fresh stock of economic and financial conditions,
Federal Reserve policymakers are considering whether they need to take
additional measures to ease the recession.
Most economists are betting there won't be any major announcements Wednesday at
the end of a two-day meeting given the Fed's bold $1.2 trillion move just last
month to revive the economy.
Still, analysts aren't ruling anything out as credit and financial stresses
persist and a new potential danger has arisen to the economy in the form of the
swine flu outbreak.
''Never say never with these guys. But I don't think they have a real reason to
increase support at this time,'' said Michael Feroli, economist at JPMorgan
Fed Chairman Ben Bernanke and his colleagues are all but certain to leave the
targeted range for its key bank lending rate between zero and 0.25 percent.
Economists predict the Fed will hold its key rate at that record-low level well
into next year, although some would like to see the Fed provide a more explicit
commitment on the front. The Fed has been pledging to hold the rate at super-low
levels for ''an extended period.''
With the Fed's key rate near rock bottom, policymakers will examine the
effectiveness of existing programs to help the economy. They also will weigh
whether those initiatives need to be changed or expanded, while keeping options
open for new relief measures.
The Fed hopes its various efforts will get banks to lend again, lower interest
rates and increase Americans' appetites to spend, which would help lift the
country out of a recession that began in December 2007.
Some analysts said it's possible -- but not likely -- the Fed would decide to
boost its purchases of government debt beyond the $300 billion announced last
month. Others said the Fed might make changes to a consumer lending program
that's gotten off to a rocky start in order to make it attractive to investors.
Much hope is riding on the program called the Term Asset-Backed Securities Loan
Facility, or TALF. It's been hobbled by rule changes, investor worries about
financial privacy and fears that participants might become ensnared in an
anti-bailout backlash from the public and Congress. Just $1.7 billion in loans
was requested for the second round of funding in April -- down from $4.7 billion
Investors use the money to buy newly issued securities backed by auto and
student loans, credit cards and other debt. The program will be expanded to
include commercial real-estate loans.
On the economic front, the Fed is expected to strike a somewhat less dour note
than it did at its mid-March meeting. Policymakers are likely to note some
tentative signs that the recession is easing.
Some more hopeful signals emerged Tuesday. The Conference Board's Consumer
Confidence Index rose far more than expected in April, jumping over 12 points to
39.2, the highest level since November. And a housing index showed that home
prices dropped sharply in February, but for the first time in 25 months the
decline was not a record.
The U.S. economy has sunk sharply, although analysts are hopeful the rate of
decline is lessening.
In the final three months of 2008, the economy contracted at a 6.3 percent rate
-- the worst showing in a quarter-century. Economists predict it probably
declined at a 5 percent rate in the first three months of this year. The
government will release its initial estimate for first-quarter economic activity
Bernanke has said the recession probably would end this year if the government
is successful in repairing broken banking and credit systems.
Before the swine flu outbreak, many analysts were predicting the recession would
ease further, with the economy shrinking at a rate of 1 to 2.5 percent in the
However, analysts warn that any severe outbreak of the swine flu would not only
clobber tourism, food and transportation industries, but crimp spending on other
things if consumers get spooked. For now, analysts are hopeful that any economic
fallout will be limited and short-lived. But much hinges on the scope of the flu
infections and how they affect consumer behavior.
Even if the recession ends this year, the jobless rate -- now at a
quarter-century high of 8.5 percent -- is expected to keep rising and top 10
percent early next year.
Fed Takes Fresh Stock of Economy, NYT,
Stocks Fall Amid Swine Flu Concerns
April 28, 2009
The New York Times
By JACK HEALY
As fears grew about a deadly outbreak of swine flu, investors on Monday
performed the financial equivalent of washing their hands and donning surgical
masks. They bought heavily into health care stocks, spurned the Mexican peso and
shied away from pork producers.
Wall Street followed European markets lower in early trading as investors took a
defensive crouch and waited to see how far the cases of swine flu would spread,
and how governments and people would respond. The rash of cases began in Mexico
and has spread to the United States and Canada, and probable infections have
been reported from New Zealand to Spain.
At 10:40 a.m., the Dow Jones industrial average and the broader Standard &
Poor’s 500-stock index were down slightly, after a week of light losses for the
major stock indexes.
American-traded shares of the European companies GlaxoSmithKline and Roche
Holding, which make various prescription flu drugs, were all higher — - a sign
that investors are betting they will find big new sources of sales as
governments worldwide increase their stockpiles of antiviral drugs.
Novavax, an American vaccine maker, soared 75 percent higher Friday in New York,
though it was not clear if that movement reflected anything more than a rush by
investors into any stock that might conceivably gain from the epidemic. It rose
another 130 percent Monday in early trading.
“We’ve seen these kind of effects with outbreaks before,” Richard Purkiss, a
drug sector analyst at Atlantic Securities in London, said. “Generally speaking,
you get a rally in stocks that have any kind of links to influenza.” Airline and
travel companies fell sharply as the European Union urged Europeans not to
travel to the United States, where some 20 cases of swine flu have been
confirmed, including eight in New York City, one of the biggest travel hubs and
tourist destinations in the country.
Shares of Continental, Delta and the parent companies of American Airlines and
United Air Lines were all down by double digits. The huge cruise operator
Carnival fell 8 percent on worries about the outbreak’s potential effect on
tourism to Mexico and other destinations.
Companies that make pork products and slaughter hogs were also hurting. Hormel,
the maker of Spam, and the pork producer Smithfield Foods fell after countries
including Lebanon, Thailand and Indonesia imposed restrictions on pork imports,
raising fears that countries would hastily build trade barriers as they rush to
contain the disease.
On Sunday, top American health officials tried to tamp down those fears,
reminding people that they cannot contract swine flu by eating pork.
The price of longer-term Treasury debt rose, a sign of more defensive behavior
by investors. The yield on the benchmark 10-year note, which moves in the
opposite direction of price, fell to 2.94 percent from nearly 3 percent late
“The swine flu outbreak is another watershed event for the U.S. treasury
market,” Tom DiGaloma, head of United States rates trading at Guggenheim
Capital, wrote in a note to investors.
But declines in the United States turned into a rout in Mexico, the epicenter of
the outbreak, where more than 100 people have died and more than 1,300 have
likely been infected. The Mexican Bolsa stock index tumbled nearly 4 percent,
and shares of Mexican food companies, retailers and transportation companies
Elsewhere in financial markets, investors pushed shares of General Motors nearly
25 percent higher after the beleaguered automaker said it needed an additional
$11 billion from the government and was prepared to file for bankruptcy if a
proposed exchange of debt for equity did not pan out.
General Motors said it was also planning to close more plants and dealerships
and eliminate its Pontiac brand as it tries to turn itself around and end
quarter after quarter of billion-dollar losses. Shares of Ford, which has not
taken any government bailout money, were up 5 percent.
David Jolly contributed reporting.
Stocks Fall Amid Swine
Flu Concerns, NYT, 28.4.2009,
Oil Dips to $48
on New Reports of Swine Flu
April 27, 2009
Filed at 11:13 a.m. ET
By THE ASSOCIATED PRESS
The New York Times
SIOUX FALLS, S.D. (AP) -- Oil prices dipped to around $48 a barrel Monday as
new reports of swine flu threatened to slow summer travel and sent jitters
through global markets.
Benchmark crude for June delivery fell $2.01 to $49.54 on the New York
Mercantile Exchange. Prices dipped to $48.01 at one point.
Crude prices have defied traditional market fundamentals for weeks and risen in
the face of an awful economy and growing supplies of oil.
The same cannot be said for natural gas, which fell to fresh seven-year lows
Monday. The May contract fell another 7.4 cents to $3.223 per 1,000 cubic feet.
''This begs the question ... if the fundamentals for oil are so bullish ... then
why is natural gas still tanking?'' analyst and trader Stephen Schork asked.
Some traders, including Schork, believe natural gas markets do not attract the
same amount of speculative trading, and thus are a better gauge of the economy
and market fundamentals.
As of Friday, the July natural gas contract is down 41 percent since the start
of the year while the crude contract the down only 2 1/2 percent. Schork said
the excursion between the oil and natural gas markets makes little sense.
''In other words, crude oil is extremely overbought compared with natural gas,''
he said. ''We think a regression to the mean is due.''
Meanwhile, retail gasoline prices fell two-tenths of a cent overnight to a
national average of $2.05 for a gallon of regular unleaded, according to auto
club AAA, Wright Express and Oil Price Information Service. Gas is just over a
penny higher than a month ago, but about $1.55 a gallon cheaper than it was last
year at this time.
Even in a severe recession, that's a sliver of good news for consumers.
Oil has traded near $50 a barrel this month, about a third of its record high in
July, as the global economy remains weak and traders grapple with an uncertain
outlook for recovery.
Stock market investors continue to plod through a deluge of mixed earnings
reports, and Wall Street awaits results of the government's stress tests of the
19 largest U.S. banks. Regulators briefed bank officials on Friday, but the
results will not be publicly released until May 4.
Wednesday's release of the Commerce Department's advance estimate of economic
growth figures for the first quarter of the year should hint to the state of any
Although oil prices in the short term could go either direction, investment
adviser group Raymond James believes prices will rebound somewhat by 2010, but
left the door open to a strong comeback for energy prices.
Analyst J. Marshall Adkins maintained the group's 2010 price forecast of $65 a
''While we are confident that 2010 crude prices will be higher, the magnitude of
the improvement is still very much up in the air,'' Adkins wrote in a client
note. ''If the global economy stabilizes or improves in 2010, these estimates
will likely move much higher.''
On Sunday, Abdalla el-Badri, Secretary General of the Organization of Petroleum
Exporting Countries, warned that oil prices of $50 per barrel are ''insufficient
for continued investment'' and urged that prices rise to $70 barrel.
OPEC has announced output quota reductions of 4.2 million barrels a day since
''Against our initial expectations, OPEC production cutbacks have been very
significant,'' said a report on the energy sector by Bank of America-Merrill
Lynch, which estimated cuts of 5.3 million barrels day since July, ''helping
create a floor to global crude oil prices.''
At the same time, the report said there was ''little potential for energy price
spikes in the next 12 months even if the global economy recovers.''
In other Nymex trading, gasoline for May delivery fell 7 cents to $1.3721 a
gallon and heating oil slid 7.42 cents to $1.2941 a gallon.
In London, Brent prices fell $2.89 to $48.69 a barrel on the ICE Futures
Associated Press Writers Pablo Gorondi in Budapest, Hungary, Alex Kennedy in
Singapore and Madlen Read in New York contributed to this report.
Oil Dips to $48 on New
Reports of Swine Flu, NYT, 27.4.2009,
GM to Cut 21, 000 US Factory Jobs,
April 27, 2009
Filed at 11:12 a.m. ET
By THE ASSOCIATED PRESS
The New York Times
DETROIT (AP) -- General Motors Corp. said it will cut 21,000 U.S. factory
jobs by next year, phase out its storied Pontiac brand and ask the government to
take more than half its stock in exchange for half of GM's government debt as
part of a major restructuring that would leave current shareholders holding just
1 percent of the company.
The struggling automaker said it will offer 225 shares of common stock for every
$1,000 in notes held by bondholders as part of a debt-for-equity swap that aims
to retire most of GM's $27 billion in unsecured debt.
The announcements came in a filing Monday with the Securities and Exchange
GM is living on $15.4 billion in government loans and faces a June 1 deadline to
restructure and get more government money. If the restructuring doesn't satisfy
the government, the company could go into bankruptcy protection.
GM said it will ask the government to take more than 50 percent of its common
stock in exchange for canceling half the government loans to the company as of
June 1. The swap would cancel about $10 billion in government debt.
In addition, GM is offering the United Auto Workers stock for at least 50
percent of the $20 billion the company must pay into a union run trust that will
take over retiree health care expenses starting next year.
If both are successful, the government and UAW health care trust would own 89
percent of the company's stock, with the government holding more than a 50
percent stake, GM CEO Fritz Henderson said.
President Barack Obama's administration said in a statement that the bond
exchange filing is an important step in GM's restructuring efforts. The
administration has not made a final decision about taking stock for part of its
loans to the company, the statement said.
''The interim plan that GM laid out in this filing reflects the work GM has done
since March 30 to chart a new path to financial viability. We will continue to
work with GM's management as it refines and finalizes this plan and with all of
GM's stakeholders to help GM restructure consistent with the President's
commitment to a strong, vibrant American auto industry,'' the statement said.
Henderson said that although the government would own 50 percent or more of GM's
outstanding common shares, the Treasury ''hasn't demonstrated interest in
running the company,'' but would have someone on the board looking out for the
taxpayer's interest. The task force has directed current board chairman Kent
Kresa to replace several board members.
''The shareholders, the VEBA (health care trust) and the government would want
to have a someone on the board of directors,'' he said. ''Shareholders have the
right to basically select board members.''
Deals with the UAW and the Treasury have yet to be finalized, he said.
Henderson said the objective of the bond exchange is to reduce GM's $27 billion
of outstanding public debt by about $24 billion. The company estimates that
after the exchange, bondholders would own 10 percent of the company.
That would leave current common stockholders with only 1 percent of the company
under the deals, GM said.
GM shares rose 46 cents, or 27.2 percent, to $2.15 in morning trading.
The plans would reduce GM's debt by $44 billion from the present figure of about
''We would be substantially less levered as a company,'' said Henderson, who
answered questions at GM's Detroit headquarters while sitting in a chair on a
stage with a gray curtain behind him. At times, he drank from a glass of water
on a small table nearby.
Henderson said if the exchange isn't successful, he would expect GM to file for
bankruptcy protection somewhere around June 1, but such a filing would be
unlikely very long before the deadline. Bondholders have until May 26 to accept
the exchange offer.
Henderson said the company still prefers to restructure outside of court, but he
acknowledged that the prospect GM will file for bankruptcy protection is more
likely now that it was a few weeks ago.
''The task at hand in terms of what we need to get done is formidable,''
Henderson said. ''But it can be done.''
GM said it would speed up six additional factory closings that were announced in
February, although it did not identify them in its news release. Additional
salaried jobs cuts also are coming, beyond the 3,400 in the U.S. completed last
Henderson said there would be three more factory closures in 2010 beyond the six
that were previously announced. He expects to identify them by publicly sometime
in May. They will include assembly, engine and transmission and parts stamping
factories, he said.
Including previously announced plant closures, the restructuring will leave GM
with 34 factories at the end of next year, 13 fewer than the 47 it had at the
end of 2008.
The company also said it plans to reduce its dealership ranks by 42 percent from
2008 to 2010, cutting them from 6,246 to 3,605. When asked how GM would
accomplish that, Henderson would say only that the company would be making
offers to the dealers in the coming weeks.
Henderson said the new plan lowers GM's break-even point in North America to an
annual U.S. sales volume of 10 million vehicles, the company said. That's
slightly more than the current sales rate, and most economists expect an uptick
in the second half of the year.
''This lower break-even point better positions GM to generate positive cash flow
and earn an adequate return on capital over the course of a normal business
cycle, a requirement set forth by the U.S. Treasury,'' the statement said.
The company said it would phase out its storied Pontiac brand no later than next
year, and the futures of its Hummer, Saturn and Saab brands will be resolved by
the end of this year by either selling them or phasing them out.
For Pontiac, the decision means the death of a brand known for its muscle cars
including the Trans Am made famous in movies and the GTO, the subject of a
nostalgic song by the Beach Boys.
Henderson said in a news conference that the company was spread too thin to make
''We didn't think we had the resources to get this done from a product
perspective,'' or marketing, he said Monday at a news conference.
He said the decision was very tough for many at GM because of the brand's
Henderson said GM wants to develop a plan that doesn't have to be repeated.
''We only want to do this once,'' he told reporters.
Henderson said talks continue with potential parties to buy a stake in Opel and
are expected to continue through the end of May. He said the company would
continue to have a presence in Europe as a stakeholder.
''I don't expect we would be absent from the European market,'' he said, adding
that it would be under a different structure than current ownership of Opel.
One of the conditions to get aid from Germany is to have a private investor in
Opel. Henderson said discussions on Opel continue. Chevrolet is one of the
fast-growing car segments in Eastern Europe and Russia, he said.
AP Auto Writer Bree J. Fowler in New York and AP Business Writer Stephen Manning
in Washington, D.C., contributed to this report.
GM to Cut 21, 000 US
Factory Jobs, Shed Pontiac, NYT, 27.4.2009,
Yanks in Crisis
April 24, 2009
The New York Times
By DAVID BROOKS
We’re in the middle of the biggest crisis of capitalism in 70 years. We’ve
got a new administration in Washington active on every front. What’s all this
done to the public mind?
A poll to be released today by The National Journal and Allstate gives a pretty
good view. As you’d expect, there’s a lot of economic anxiety in the country,
spanning every income category. Sixty-four percent of Americans believe there
are more risks that endanger their standards of living today than in their
parents’ time. On the other hand, there’s still some sense of opportunity.
Forty-two percent believe there are more opportunities to move up than a
generation ago, compared with 29 percent who think there are fewer.
In short, there’s a feeling of greater volatility, both up and down. People
don’t seem to feel as if they are sliding into a hole, but neither do they feel
So whom do they turn to in times like these? Themselves. Americans have always
felt that they are masters of their own fate. Decade after decade, Americans
stand out from others in their belief that their own individual actions
determine how they fare. That conviction has been utterly unshaken by the global
crisis. In question after question, large majorities say their own actions will
determine how much they will make, how well they will endure the recession, how
healthy they will be and so on.
The crisis has not sent Americans running to government for relief. Nor has it
led to a populist surge in anti-business sentiment. In a recent Gallup poll, 55
percent of Americans said that big government is the biggest threat to the
country. Only 32 percent said big business. Those answers are near historical
Americans have always been skeptical of activist government, and that skepticism
remains. When Gallup asked specifically about the current crisis, 44 percent of
Americans said they disapprove of an expanded role for government during the
crisis; 39 percent said they approve of an expanded role but want it reduced
when the crisis is over; and only 13 percent want to see a permanently expanded
role for government.
When asked by the National Journal group more specifically where good ideas and
financial solutions come from, 40 percent said corporate America and 40 percent
said government. When asked what could best enhance income security, half of all
Americans said it was a matter of individual responsibility, 19 percent said
government regulations like increasing the minimum wage were most effective and
15 percent said government programs.
The area where the National Journal poll found the most desire for government
activism is health care. A recent Pew Research Center survey found that while
there is less support for a health care overhaul than there was in 1993, the
public still wants reform that at least improves the current system.
My friend Ron Brownstein of The National Journal looks at the data and concludes
that while Americans are still skeptical of government, they are open to
rethinking what the social safety net should look like in the 21st century. I
look at the data and conclude that the tumult has not significantly changed the
way Americans look at government, corporations or the social contract. Americans
are open to good ideas from government, as always, but they are still skeptical
and fiercely self-sufficient. The economic crisis has produced a desire for
change but not a philosophical shift.
The big lesson for the Obama administration is that the American people will
continue to support its agenda as long as they think it is competent. It was not
automatic that an administration led by a 47-year-old man with little Washington
experience would run a professional, smoothly functioning operation. Yet he has.
The administration has unveiled a dazzling array of proposals with a high degree
of efficiency and managerial skill. This has inspired confidence in his team, if
not in the government as a whole.
If that aura of nonideological competence fades, however, support for the agenda
will crater. There is little philosophical backing for a government as activist
as the one Obama is proposing. Middle-class voters are not willing to hand over
higher taxes in exchange for more federal services. The public is significantly
to Obama’s right on economic matters and needs constant evidence that he is not
trespassing on personal freedom and individual responsibility.
For Republicans, the message is that all is not hopeless. Swing voters have
temporarily rejected the party, but not the Weltanschauung. After this crisis is
over, they still want a return to normalcy, with balanced budgets and a limited
state. Americans still want to see power dispersed among a diversity of
institutions, not concentrated in the hands of supertechnocrats in Washington.
The Great Depression altered the national consciousness. So far, the Great
Recession has not.
Yanks in Crisis, NYT,
Plight of Carmakers
Could Upset All Pension Plans
April 24, 2009
The New York Times
By MARY WILLIAMS WALSH
Decisions that the government will make soon on the future of General Motors
and Chrysler could accelerate the decline of traditional pension plans, which
have sheltered generations of workers from an impoverished old age.
Pension experts predict that a government takeover of the two giant plans would
spur other auto companies and all types of manufacturers to abandon such
benefits for competitive reasons.
For hundreds of thousands of retired auto workers, a federal pension takeover
would mean sharply reduced benefits. For the federal agency that insures
pensions, it would mean a logistical nightmare in the short term — and most
likely a slow demise eventually as fewer and fewer small plans remain in the
system and pay premiums.
So far, the prospect of a grueling grind through bankruptcy court has been a
major deterrent to companies that might want to rid themselves of pension
obligations. But retirement and labor specialists are watching closely to see
whether the administration’s auto task force will give either of the auto
companies an easier way to shed their huge pension funds, blazing a simplified
trail for others to follow.
With or without a bankruptcy filing, the government is quietly making the
preparations that would be needed to take over Chrysler’s pension plan, with its
255,000 participants, according to government officials.
Even if Chrysler manages to strike a deal to sell many of its assets to Fiat,
perhaps in conjunction with a bankruptcy filing, experts doubt Fiat will agree
to take on its pension plan without extraordinary assistance. One possibility
being considered is a cash infusion of $1 billion from Daimler, which previously
owned Chrysler and had agreed to backstop a pension failure for several years.
The future of General Motors’ pension plan is also unclear. G.M. has until June
1 to come up with an acceptable business plan. If it declares bankruptcy, it
still may try to keep its pension plan afloat. G.M.’s plan for hourly workers,
which covers 485,000 people, was in reasonably good shape until last fall’s
market turmoil, and would not require cash contributions until 2013.
If one or both of these plans collapse, the federal agency that insures pension
benefits, the Pension Benefit Guaranty Corporation, will lose a big source of
the premium revenue it collects from companies with pension funds. But more
important, the demise of the bellwether auto plans might set a template for
other companies seeking to cut costs and stay competitive.
“If one of these companies solves its pension problem by shunting it off to the
federal government, then for competitive reasons the others have to do the same
thing,” said Zvi Bodie, a professor of finance at the Boston University School
of Management and longtime observer of the government’s pension insurance
system. “That is the death spiral.”
Though the automakers’ plans each have a gap between what they have on hand and
what they owe their retirees over the years, if they failed, most of that
shortfall would be made up by workers in the form of smaller benefits — not by
the companies or the government.
The government estimated that Chrysler’s plan was $9.3 billion short as of last
November — but said it would be responsible for only about $2 billion of that.
Most of the shortfall would be sliced from workers’ benefits. At G.M., the
estimated shortfall was $20 billion as of last November, but the government
would assume $4 billion of obligations and G.M.’s workers would lose the rest.
When Daimler sold a majority stake in Chrysler in 2007 to a private equity firm,
Cerberus, it promised to pay $1 billion into the government’s pension insurance
program if the pension plan failed within five years. The Treasury could try to
persuade Daimler to put some of that money into the plan to avoid a failure.
For years, traditional pensions — those that shield workers from market risk —
have been in a slow decline, with troubled sectors like aviation and steel
shedding their plans in bankruptcy court as new types of individually managed
benefits like 401(k) plans have taken hold.
But big sectors, particularly manufacturing and financial services, have clung
to the old plans. The Pension Rights Center, a consumer group in Washington,
estimates that 18 million Americans are still building up such benefits every
year, and millions more retirees are receiving guaranteed payments from their
“Those that are fortunate enough to have those plans are sleeping soundly,” said
Karen Ferguson, director of the center.
The loss of the auto pensions would be devastating partly because Detroit
sustains many other businesses and partly because of their history. It was the
United Automobile Workers union, more than any other force, that pushed Congress
to enact laws forcing companies to put money behind their pension promises and
creating the federal guarantor. The failure of a major auto workers plan would
be a blow to the whole system.
Not only would Ford have reason to opt out of the expense of maintaining a
pension plan, but so would Toyota and Honda, which also have pension plans at
their American plants, said Teresa Ghilarducci, a professor of economics at the
New School for Social Research and former member of the P.B.G.C.’s advisory
Professor Ghilarducci said she believed the Obama White House had selected
people for its auto task force who understood these stakes, and would strive to
find some middle ground.
The pension insurance agency, currently operating with an $11 billion deficit,
has long viewed the automakers’ plans with anxiety, though its officials
declined to discuss the situation. G.M.’s plan alone is bigger than the
guarantor. The agency has roughly $67 billion in assets to cover the benefits of
nearly 4,000 failed pension plans; G.M. has $84 billion in trust just to cover
promises to its own workers.
In a failure of that size, the agency’s immediate challenge would be logistical,
not financial. Its insurance covers a simple benefit, not the much richer
pensions negotiated over the years by the U.A.W. It would have to process
applications from thousands and thousands of workers, most of whom would get the
bad news that they were going to get less than promised.
The government’s maximum benefit is $42,660, but coverage falls off rapidly for
workers who are younger when their plan fails. For a 55-year-old, the maximum is
Calculating which workers would bear how much of the losses would be fiendishly
complex. The government’s rules favor older participants and contain tripwires
and arbitrary cutoffs that can leave similar workers with sharply different
None of this can be sorted out in advance, because the calculations also depend
on the amount of money in a pension fund on the day it terminates — something
the pension benefits corporation does not yet know.
Some pension specialists, aware of these difficulties, are hoping the Obama
administration’s auto task force will spare at least the G.M. pension fund. Not
only would that let laid off workers keep receiving full benefits, but it could
also break the death spiral among other plans.
For traditional pension plans, “maybe this is their last stand,” said Jeffrey B.
Cohen, a partner with the law firm Ivins, Phillips & Barker in Washington who
was chief counsel for the Pension Benefit Guaranty Corporation from 2005 to
2007. If the automakers’ plans fail, he added, “the biggest domino will have
fallen for the P.B.G.C.”
Plight of Carmakers
Could Upset All Pension Plans, NYT, 24.4.2009,
Falls for First Time in 23 Years
April 24, 2009
The New York Times
By ASHLEE VANCE
Fresh off one of the worst quarters in company history, Microsoft offered
investors little evidence that a beleaguered personal computer market would
recover anytime soon.
On Thursday, Microsoft set the wrong kind of record, as it reported the first
year-over-year quarterly revenue decline since it first sold stock to the public
in 1986. In its third quarter, which ended March 31, Microsoft said its revenue
fell 6 percent, to $13.65 billion, from $14.45 billion. It reported net income
of $2.98 billion, or 33 cents a share — a 32 percent drop from the $4.39
billion, or 47 cents a share, reported in the period last year.
The company’s Windows franchise has come under unprecedented pressure during the
recession as consumers and businesses have shied away from buying new computers
or have purchased cheaper machines. While Intel, the chip maker, said last week
that the worst of the PC decline had passed, Microsoft displayed no such
“I didn’t see any improvement at the end of the quarter that gives me
encouragement that we are at a bottom and coming out of it,” Christopher P.
Liddell, Microsoft’s chief financial officer, said during a conference call to
discuss the company’s results. “They stopped getting worse, but that’s different
from they started getting better.”
The recession has generated a series of firsts for Microsoft, including its
first large layoff and first decline in Windows sales.
Microsoft, based in Redmond, Wash., said its earnings included 6 cents of
charges related to the layoffs and impairments to investments.
Analysts surveyed by Thomson Reuters had expected Microsoft to earn 39 cents a
share, excluding the one-time charges, on revenue of $14.1 billion.
Intel supplies the processors for most PCs, while Microsoft supplies the key
operating system software.
Last week, Intel’s chief executive, Paul S. Otellini, declared that “the worst
is now behind us.”
Mr. Liddell of Microsoft maintained a more somber tone. “While we would all like
to think a recovery will be soon and painless, we actually believe it will be
slow and painful,” he said.
Still, shares of Microsoft rose in after-hours trading after release of the
results as investors apparently took solace from the company’s cost-cutting
Microsoft has lowered its forecast of its operating expenses by as much as $1
billion for the year.
“Microsoft, like everyone else, has got serious about cost-cutting,” said
Brendan Barnicle, a software analyst with Pacific Crest Securities. “They never
really had to do that before, and investors had been hoping they would cut
Microsoft’s online services business, which competes with Google and Yahoo,
continued to disappoint observers as a depressed advertising market pushed sales
down to $721 million, from $843 million.
“The online business looked bad, but I still believe they have to be in that
space to fulfill the larger vision of where Microsoft is going,” said Richard
Williams, the senior software analyst at Cross Research. “It may mean that they
have to acquire rather than build.”
Microsoft has been in talks with Yahoo about some kind of partnership in online
In the company’s core Windows business, sales declined to $3.4 billion in the
quarter, down from $4 billion in the period last year.
Netbooks, the cheap, small laptops that have surged in popularity, remained the
big story. According to Microsoft’s research, PC sales fell 7 to 9 percent
during the quarter. Excluding netbooks, traditional PC sales fell 15 to 17
Last quarter, netbooks accounted for about 10 percent of PC sales, Microsoft
said. Netbooks are a mixed blessing for Microsoft. The company’s average selling
price for Windows has declined, because it ships a discounted version of the
older Windows XP on netbooks. Microsoft’s Windows profit fell 19 percent, to
On a positive note, many customers have bought netbooks as complements to their
existing computers, representing fresh revenue for Microsoft and Intel during
these lean times.
However, “there are some real challenges in that business behind this shift to
the low end,” said Israel Hernandez, director of software research at Barclays
Capital. “And on the horizon, you have Apple and Google who appear ready to
introduce their own takes on netbooks.”
Microsoft declined to offer specific financial guidance for the coming quarters.
Shares of Microsoft ended regular trading Thursday at $18.92, up 14 cents. The
company released third-quarter figures after the market closed, and in
after-hours trading the shares rose more than 3 percent, to $19.50.
Microsoft Profit Falls
for First Time in 23 Years, NYT, 24.4.2009,
Oil Hovers Below $50
as Eventual Recovery Weighed
April 24, 2009
Filed at 5:34 a.m. ET
By THE ASSOCIATED PRESS
The New York Times
SINGAPORE (AP) -- Oil prices hovered below $50 a barrel Friday in
Asia as investors pondered whether a possible second half recovery will help
boost U.S. crude demand, in the doldrums amid rising unemployment and a severe
Benchmark crude for June delivery rose 31 cents to $49.93 a barrel by late
afternoon in Singapore in electronic trading on the New York Mercantile
Exchange. The contract rose Thursday 77 cents to settle at $49.62.
Oil prices have traded near $50 a barrel for most of this month as investors
ponder whether massive government stimulus packages around the world will be
able to spark a rebound from the global recession.
''The price has been fairly resilient at the $50 level given the oil market
fundamentals in the near term are very negative,'' said Victor Shum, energy
analyst with consultancy Purvin & Gertz in Singapore. ''Some investors are
looking ahead, believing in the eventual revival in global economy.''
A spike in joblessness and waning consumer spending during the last six months
has helped keep prices from rising further. The Labor Department said Thursday
that initial claims for unemployment compensation rose to a seasonally adjusted
640,000, up from a revised 613,000 the previous week. That was slightly above
The number of workers continuing to file claims for unemployment benefits topped
General Motors Corp. said Thursday it will temporarily close 13 assembly plants
in the U.S. and Mexico between 3 weeks and 11 weeks, laying off nearly 24,000
workers to pare back a bloated inventory.
The Organization of Petroleum Exporting Countries, which produces about 40
percent of global supply, is next meeting on May 28 and may announced another
output cut on top of the 4.2 million a day of quotas reductions the cartel has
pledged since September.
''More bad macroeconomic or company news could pull down oil,'' Shum said. ''If
it goes down toward $40, it would put pressure on OPEC to cut.''
One sign of the speed of the economic downturn is natural gas in storage is now
36 percent greater than it was at this time last year. The Energy Department's
Energy Information Administration said Thursday in its weekly report that
natural gas inventories held in underground storage in the lower 48 states are
23 percent above the five-year average.
''Investors can only hold up the price without fundamentals for so long,'' Shum
In other Nymex trading, gasoline for May delivery fell 0.29 cent to $1.39 a
gallon and heating oil was steady at $1.32 a gallon. Natural gas for May
delivery dropped 1.5 cents to $3.39 per 1,000 cubic feet.
In London, Brent prices rose 20 cents to $50.31 a barrel on the ICE Futures
Oil Hovers Below $50 as
Eventual Recovery Weighed, NYT, 24.4.2009,
Elton John, McCartney
Hit By Economic Crisis:
April 24, 2009
Filed at 5:04 a.m. ET
The New York Times
LONDON (Reuters) - British singers Paul McCartney, Elton John and Mick Jagger
have lost large chunks of their personal fortunes during the economic crisis
over the last year, according to a rich list published on Friday.
Along with many of the world's richest people, their wealth has been eroded by
sharp falls in the value of property, shares and other investments, the annual
survey for the Sunday Times newspaper said.
Elton John's personal wealth fell by more than a quarter to 175 million pounds
from 235 million pounds ($342.3 million) last year.
The flamboyant 62-year-old, whose hits include "Your Song," and "Rocket Man,"
saw his wealth tumble due to a combination of the effects of the downturn, the
end of a lucrative run of Las Vegas concerts and donations to charity worth 42
Former Beatle McCartney saw 60 million pounds wiped off his fortune, a 12
percent decline on last year.
Jagger, lead singer of the Rolling Stones, fared even worse. His wealth slipped
by 16 percent to 190 million pounds.
Top of the list of British music millionaires was a less well-known name: Clive
Calder, who founded the Zomba record label, home to artists like Britney Spears.
He sold it seven years ago for about $3 billion.
The rich list said his current wealth is unchanged from last year at 1.3 billion
The biggest climber was Judy Craymer, the producer of hit musical "Mamma Mia!."
Her finances grew by 29 percent to 75 million pounds on the back of the
successful Hollywood adaptation of the show.
It was a bad year for troubled British soul singer Amy Winehouse whose fortune
was cut in half to 5 million pounds after releasing no new records last year.
The list of the richest 1,000 in Britain is out on Sunday.
(Reporting by Michael Holden)
Elton John, McCartney
Hit By Economic Crisis: Rich List, NYT, 24.4.2009,
Freddie Mac Exec
Faced High Stress After Takeover
April 24, 2009
Filed at 5:16 a.m. ET
By THE ASSOCIATED PRESS
The New York Times
McLEAN, Va. (AP) -- David Kellermann started at Freddie Mac 16 years ago as
an accountant, immersing himself in the company and working tirelessly to
establish his career.
At his wife's 40th birthday, Kellermann described how much he appreciated his
life: His determination to excel and joyful work attitude had paid off. It was a
zest that would fade.
By September, the 41-year-old took on the role of chief financial officer for
Freddie Mac. The days became more stressful, the nights longer: Government
''shadows'' -- regulators examining his every move -- loomed at his desk. Some
$50 billion in company losses. Confused employees left with virtually worthless
stockholdings. A public infuriated by the foreclosure crisis and downright
outraged at corporate bonuses.
Kellermann was found dead in his basement this week in an apparent suicide, only
a day after speaking to a human resource officer at the company and arranging to
take time off because he'd been working such long hours. After seven months of
trying to help the company he loved emerge from financial disaster, some close
to him wondered if it was just too much for Kellermann to try to pick up the
''If there was a reason it had to be the stress, the mounting stress and
pressure of a company ... he worked so hard to help and resurrect and make
good,'' said David Gorder, a movie producer in Hollywood Hills, Calif., who was
a fraternity brother of Kellermann's at the University of Michigan. ''Maybe he
kept it inside too much.''
It can be a mystery what makes people -- even those seemingly successful -- take
their own lives. But Kellermann had clearly been under immense stress at Freddie
Mac, which has dealt with an unceasing torrent of bad news that began six years
ago, when an accounting scandal forced the resignation of two chief executives.
Kellermann rose up the ranks at Freddie Mac after starting as an accountant.
Gorder, who shared an apartment with him when he first started at the company,
remembered how much he cherished the job.
''He loved Freddie Mac to no end,'' Gorder said. ''I never met anyone so
dedicated ... to establish their career and excelling within the ranks of the
company. He was enthralled with the work and being an accountant.''
After the government's takeover last fall, morale sank and employees watched
their company stock holdings all but evaporate. Workers remain confused about
what the Obama administration plans to do with Freddie Mac and sibling company
Freddie Mac, which owns or guarantees about 13 million mortgages, has been
criticized for financing risky loans that fueled the real estate bubble and are
now defaulting at a record pace. Last month, David Moffett, the
government-appointed chief executive, resigned in frustration over strict
The pressure in jobs like Kellermann's was inescapable.
Amid the crisis last fall, the government regulators known as ''shadows'' made
themselves at home in the offices of Freddie Mac executives including
Kellermann, recalled one former Freddie Mac manager and professional friend of
Kellermann's. The ex-manager spoke on condition of anonymity because he was not
authorized to speak for the company.
Kellermann had near-daily meetings with Moffett, discussions that became a study
in conflicting obligations, according to the former Freddie Mac manager.
Freddie Mac found itself caught between the policy goals of the government and
the company's duty to its shareholders, who have suffered staggering losses.
As acting CFO, he oversaw a staff of about 500 at Freddie Mac's headquarters in
McLean and had been working on the first-quarter financial report, due by the
end of May. But he'd also been caught recently in a dispute between Freddie and
the Securities and Exchange Commission over its financial reports, according to
a law enforcement official who spoke on condition of anonymity because the
person was not authorized to discuss the case.
Freddie is also the subject of a criminal probe by federal prosecutors in
Virginia, though there are no indications that Kellermann was considered a
Freddie Mac lost more than $50 billion last year, and the Treasury Department
has pumped in $45 billion to keep the company afloat.
''Freddie Mac was just a huge part of his life,'' said Timothy Bittsberger,
Freddie Mac's former corporate treasurer, who kept in touch with Kellermann
after Bittsberger left the company last fall. ''It's just unfortunate he had to
deal with so many conflicting priorities which were unfairly and unnecessarily
thrown upon him.''
Neighbors saw the strain on Kellermann. Some even advised him to quit, but
Kellermann responded that he wanted to help the company through its
And there were other worries, too. Neighbors noticed a security detail showed up
at his sprawling suburban home in the upscale Washington suburb of Vienna after
executives at Freddie Mac faced intense criticism for deciding to pay retention
bonuses. Kellermann was to receive $850,000 paid out in four installments. He
had already received $170,000 in December.
The company acknowledged the stress Kellermann was facing on Tuesday, when
Freddie Mac's chief human resources officer asked him to take some time off
because he'd been leaving work after 8 p.m. and sometimes working at home for
hours, said a person close to the company who spoke on condition of anonymity
because the individual wasn't authorized to discuss it publicly. Kellermann
agreed to do so, and his work responsibilities would be given to two employees,
the individual said.
He never came back. On Wednesday, authorities responding to a 911 call found his
body in the home he shared with his wife and 5-year-old daughter.
Associated Press writers Pete Yost, Brett Zongker and Devlin Barrett contributed
to this report from Washington. Jeff Karoub contributed, reporting from Detroit.
Freddie Mac Exec Faced
High Stress After Takeover, NYT, 24.4.2009,
on Freddie Mac Official Incomplete
April 23, 2009
Filed at 12:03 p.m. ET
The New York Times
By THE ASSOCIATED PRESS
McLEAN, Va. (AP) -- Medical examiners have completed an autopsy on a Freddie
Mac executive found dead in an apparent suicide, but say a final determination
on his cause of death could be weeks away.
David Kellermann of Vienna, Va., was found dead in his home Wednesday. Police
say it looked like the 41-year-old chief financial officer committed suicide.
Nancy Bull, the regional administrator for the medical examiner's office, said
Thursday the final determination won't be made until all the lab results are
received. But she said the preliminary findings are consistent with a suicide.
A law enforcement official speaking on condition of anonymity told The
Associated Press that Kellermann hanged himself. He asked not to be identified
because the investigation was ongoing.
Autopsy on Freddie Mac
Official Incomplete, NYT, 23.4.2009,
New Jobless Claims
Rise More Than Expected to 640K
April 23, 2009
Filed at 11:08 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
WASHINGTON (AP) -- New jobless claims rose more than expected last week,
while the number of workers continuing to filing claims for unemployment
benefits topped 6.1 million.
Both figures are fresh evidence layoffs persist amid a weak job market that is
not expected to rebound anytime soon. New housing data also were worse than
expected, diminishing optimism about a recovery in that battered market.
The Labor Department said Thursday that initial claims for unemployment
compensation rose to a seasonally adjusted 640,000, up from a revised 613,000
the previous week. That was slightly above analysts' expectations of 635,000.
Economists are closely watching the unemployment compensation data because they
believe a sustained decline in the number of initial claims could signal the end
of the recession is nearing. Jobless claims have historically peaked six to 10
weeks before recessions end, according to a report by Goldman Sachs. Initial
claims reflect the level of job cuts by employers.
But the latest report shows job losses remain high. The four-week average of
claims, which smooths out volatility, dropped slightly to 646,750, about 12,000
below the peak in early April. Goldman Sachs economists have said a decline of
30,000 to 40,000 in the four-week average is needed to signal a peak.
Abiel Reinhart, economist at JPMorgan Chase Bank, said further declines in the
four-week average ''would show that our forecast for a resumption of economic
growth in (the third quarter) is reasonable.'' Other economists said despite the
rise in new claims being more than expected, the range has remained mostly
steady for about two months, a signal that the pace of layoffs may be leveling
But in another sign of labor market weakness, the number of people continuing to
claim benefits rose to 6.13 million, setting a record for the 12th straight
As a proportion of the work force, the total jobless benefit rolls are the
highest since January 1983. The continuing claims data lag initial claims by a
Meanwhile, the National Association of Realtors said home sales fell 3 percent
to an annual rate of 4.57 million last month, from a downwardly revised pace of
4.71 million units in February. Sales had been expected to fall to an annual
pace of 4.7 million units, according to Thomson Reuters. The median sales price
plunged to $175,200, from $200,100 a year earlier, but up from $168,200 in
On Wall Street, stocks turned lower after the disappointing housing figures were
released. The Dow Jones industrial average lost about 45 points in morning
trading, and broader indices also fell
A year ago new jobless claims stood at 353,000, while there were 2.93 million
continuing claims. The Labor Department also said an additional 2.3 million
people were receiving benefits under an extended unemployment compensation
program enacted by Congress last year, as of April 4, the latest data available.
That provides an additional 20 to 33 weeks on top of the 26 weeks typically
provided by the states.
The high level of continuing claims is a sign that many laid-off workers are
having difficulty finding new jobs.
Employers have cut 5.1 million jobs since the recession began in December 2007
in an effort to slash costs as consumers and businesses have sharply reduced
spending. The department said earlier this month that companies cut a net total
of 663,000 jobs in March, sending the unemployment rate to 8.5 percent, the
highest in 25 years.
Based on another increase in continuing claims, Reinhart expects the
unemployment rate will rise to 8.9 or 9 percent this month. Many private
economists expect the monthly jobless rate will climb to 10 percent by the end
of this year.
The jobless rate in the U.S. is expected to average 8.9 percent this year and
climb to 10.1 percent next year, the IMF said.
The job cuts reflect the depth of the downturn, which has been global in scope.
The International Monetary Fund estimated Wednesday that the global economy
would shrink 1.3 percent this year, the first drop in more than six decades. The
IMF projects the U.S. economy will decline 2.8 percent, the worst since 1946.
''The world economy is going through the most severe crisis in generations,''
Treasury Secretary Timothy Geithner said Wednesday.
The Obama administration is counting on its $787 billion stimulus package,
enacted in February, to ''save or create'' 3.5 million jobs.
More job losses were announced this week. Yahoo Inc. said it will layoff 700
employees, the third round of mass layoffs this year. And oilfield services
provider Halliburton Co. said it has cut 2,000 positions in the first three
months of the year.
Among the states, Florida saw the largest increase in claims with 9,303 for the
week ending April 11, which it attributed to more layoffs in the construction,
service and manufacturing industries. The next largest increases were in
Pennsylvania, California, Wisconsin and New York.
Michigan saw the largest drop in claims with 12,566, which it said was due to
fewer layoffs in the automobile industry. The next biggest declines were in
North Carolina, Missouri, Kentucky and Oregon.
New Jobless Claims Rise
More Than Expected to 640K, 23.4.2009,
I.M.F. Puts Losses From Crisis
at $4.1 Trillion
April 22, 2009
The New York Times
By MARK LANDLER
WASHINGTON — With the global economic downturn deepening and confidence in
the financial system still elusive, the International Monetary Fund estimates
that banks and other financial institutions face aggregate losses of $4.1
trillion in the value of their holdings as a result of the crisis.
In its global financial stability report, released Tuesday, the fund estimated
that financial institutions would have to write down an estimated $2.7 trillion
in loans and securities originating in the United States from 2007 to 2010. That
estimate is up from $2.2 trillion in the fund’s report in January, and $1.4
trillion last October.
The financial crisis “is likely to be deep and long lasting,” the report said,
noting that global financial stability has deteriorated further since its
October report, especially in emerging markets, particularly in Europe, where
banks face more write-downs and may require fresh equity, even as businesses
seek to refinance debt.
The authorities “have been proactive in responding to the crisis,” the fund
said, but “policies are being challenged by the scale of resources required.”
The fund also cast doubt on recent market optimism, noting that in spite of
“some improvements in short-term liquidity conditions and the opening of some
term funding markets, other measures of instability have deteriorated to record
or near-record levels.”
The report has become a closely watched barometer of the severity of the crisis,
in which the fund has taken a leading role, dispensing more than $55 billion in
loans. Leaders of Group of 20 nations agreed in London this month to provide
about $1 trillion in new funding for the organization. Among European countries,
Hungary, Serbia, Romania, Iceland, Ukraine, Belarus and Latvia have all sought
loans from the fund since the start of the crisis.
On Tuesday, Colombia became the second Latin American country to seek aid,
requesting $10.4 billion. On Friday, the fund approved a $47 billion line of
credit for Mexico, making it the first country to qualify for a lending facility
for strong-performing emerging economies.
Underscoring the degree to which credit-related losses have spread beyond the
United States, losses in loans and securities originating in Europe are now
estimated at $1.12 trillion. Japan remains comparatively insulated, with
projected losses of $149 billion. Until this report, the fund had not tried to
calculate the potential losses from “toxic assets” outside the United States.
Banks are expected to shoulder about two-thirds of the write-downs, the fund
estimated, though other institutions, like pension funds and insurance
companies, also face heavy losses.
Banks have raised about $900 billion in fresh capital since the crisis began,
the fund said, but that is far outweighed by $2.8 trillion in credit-related
losses. The fund estimates that the banks have already taken about one-third, or
$1 trillion, of those write-downs.
The report also illustrates the uneven pace of the response to the crisis. The
fund estimates that in the United States, for example, banks reported $510
billion in write-downs by the end of 2008 and face an additional $550 billion in
2009 and 2010. In the euro zone, banks reported just $154 billion in write-downs
by the end of last year and still face $750 billion. British banks are in
somewhat better shape: having written down $110 billion, they face $200 billion
more, the fund said.
David Jolly contributed reporting from Paris.
I.M.F. Puts Losses From
Crisis at $4.1 Trillion, NYT, 22.4.2009,
663,000 Jobs Lost in March;
Total Tops 5 Million
April 4, 2009
The New York Times
By PETER S. GOODMAN
and JACK HEALY
With 663,000 more jobs disappearing from the American economy last month,
swelling the total number of jobs surrendered to the recession beyond five
million, the government’s response to the downturn is being put to a strenuous
When drafting plans in January to spend roughly $800 billion to stimulate the
deteriorating economy, the Obama administration operated on the assumption that
the unemployment rate would reach 8.9 percent by the end of the year — without
the extra federal spending. Three months into the year, the unemployment rate
has already soared to 8.5 percent, from 7.6 percent, the highest level in more
than a quarter-century.
Between January and March, more than two million jobs were lost, according to
the Labor Department’s employment report, released Friday.
The severity and breadth of the job losses in March — which afflicted nearly
every industry outside of health care — prompted economists to conclude that an
agonizing plunge in employment prospects was still unfolding.
“It’s really just about as bad as can be imagined,” said Dean Baker, a director
of the Center for Economic and Policy Research in Washington. “There’s just no
way we’re anywhere near a bottom. We’ll be really lucky if we stop losing jobs
by the end of the year.”
The pace of retrenchment has prompted talk that another wave of government
stimulus spending may be needed to accompany the $787 billion already in the
“We’re clearly looking at a worse downturn than they had been anticipating when
they planned the stimulus,” said Mr. Baker, whose organization tends toward
liberal policy prescriptions. “We’re going to need some more.”
But others — not least, decision-makers inside the Obama administration — deemed
such talk premature. The dreadful jobs report landed among tentative signs of
improvement in a few areas of the economy, with recent snippets of data lifting
stock markets and sowing cautious hopes that the beginnings of a recovery might
be taking shape.
After a miserable holiday season, retail sales appear to have stabilized. Auto
sales, while extremely weak, improved slightly in February. Houses have been
selling in markedly greater numbers in important markets like California and
Florida, albeit at substantially reduced prices. Consumer spending appears to
have leveled off after plummeting over the last three months of 2008.
“The downturn is still very intense, but it’s no longer intensifying,” said Mark
Zandi, chief economist at Moody’s Economy.com.
The surge of government spending is just beginning to work its way through
federal and state bureaucracies and is expected to support jobs in construction
and related industries later this year.
“We’re attacking this in a very aggressive way,” the labor secretary, Hilda L.
Solis, said Friday in an interview, arguing that it was too early to consider
another round of stimulus spending. “We will revisit that once we expend all the
money that we have accrued.”
For now, the same factors that have assailed the economy for more than a year
remain in force, with tattered banks reluctant to lend, and even healthy
households and businesses averse to borrowing and investing in the face of grave
The very perception that millions more will lose jobs and housing prices will
fall have turned such outlooks into reality: As businesses scramble to cut costs
and confront gloomy sales prospects, many are shrinking their work forces,
removing more paychecks from the economy.
“There’s a lot of survival job-cutting going on throughout American business,”
said Stuart G. Hoffman, chief economist at PNC Financial Group in Pittsburgh.
“There won’t be any job growth at all this year. The economy is far, far from
being out of the woods.”
Still, Mr. Hoffman is inclined to wait a few months and hope for improvement
before calling for a new wave of stimulus spending.
“You don’t just double the dose if the patient doesn’t immediately improve,” he
The Treasury recently outlined plans for an expanded bank rescue aimed at
lowering borrowing costs for businesses and households. The Federal Reserve has
begun buying $300 billion worth of long-term Treasury bonds in an effort to
drive down the interest rates on mortgages, auto loans and other forms of
The panic that has ruled financial markets since last fall has abated
considerably in recent weeks. The average interest rate on a 30-year, fixed-rate
mortgage dropped to a record low of 4.61 percent last week, according to the
Mortgage Bankers Association, from more than 6 percent a year ago. Banks are
charging each other less to borrow money. Investors are tiptoeing back into the
market for corporate bonds.
“Credit markets have improved across the board,” said Michael Darda, chief
economist at the research and trading firm MKM Partners. “We’re not going to see
it in the economy for a while, and we’re not going to see it in the labor market
for an even longer time, but in the financial market, indicators are starting to
move in the right direction.”
Manufacturing remains exceedingly weak around the world, a response to
plummeting demand for goods. Still, an index tracked by JPMorgan Chase that
gauges global production has climbed for three consecutive months.
In London, leaders of the world’s major economies left a summit meeting this
week with promises to try to bolster global trade.
But economic recovery will require incomes to improve, giving Americans the
spending power to consume, thus creating jobs that generate more wages — an
upward spiral. For now, that dynamic is working in reverse: during the first
three months of the year, wages and salaries shrank at a 4 percent annual rate,
which is on pace to eliminate some $265 billion from the economy, according
David A. Rosenberg, an economist at Merrill Lynch.
“This prevalent view that the recession is about to bottom out has somehow
bypassed the most important part of the economy, which is jobs and income,” Mr.
Rosenberg wrote in a note to clients.
Friday’s report catalogued the myriad ways in which American working people
remained under assault. The number of unemployed people rose to 13.2 million in
March. Those unemployed for longer than six months reached 3.2 million.
As the unemployment rate edged up to 8.5 percent, from 8.1 percent the previous
month, the manufacturing sector again led the way down, shedding 161,000 jobs in
March. Employment in construction declined by 126,000, and has fallen by 1.3
million since it peaked in January 2007. Professional and business services
employment fell by 133,000.
In New Jersey, Henry Perez, 34, and his family are living in the basement of his
sister’s house in Rochelle Park and struggling to find work. They are refugees
of sorts from the real estate collapse in Las Vegas, where Mr. Perez once lived,
investing heavily in housing.
He has more recently worked in online commerce and as a marketer at an office
furniture company. But after being laid off at the end of last year, he has
found nothing, even as he has sharply dropped his expectations, applying for
jobs at restaurant chains.
“We’re just sitting here all day long looking for jobs on the computer,
frustrated and scared as hell,” Mr. Perez said. “I’m looking for anything.”
The report reinforced the reality that the pains of the downturn were hardly
confined to the jobless. Those working part time because they cannot find
full-time work, or because their hours have been cut, climbed by 423,000 in
March, reaching 9 million.
In the Atlanta suburbs, Meg Fisher, 46, has been looking for work since she lost
her job as a legal secretary in February. Her husband’s hours at his pharmacy
job were scaled back. Their previous annual income of about $79,000 has been
sliced to $20,000.
Ms. Fisher is applying for food stamps, while seeking freelance work as a
“It’s not going to replace my salary,” she said. “It’s not even going to come
close, but it’s better than sitting around.”
663,000 Jobs Lost in
March; Total Tops 5 Million, NYT, 4.4.2009,
People in Need
Are Filling and Taxing Libraries
April 2, 2009
The New York Times
By SUSAN SAULNY
and KAREN ANN CULLOTTA
ARLINGTON HEIGHTS, Ill. — The public library here had just closed its doors
one evening in December when two homeless men who had been using the stacks as
shelter from the cold got into a fight on the outside steps.
What began as bickering took a violent turn when one of the men pulled out a
knife and stabbed the other six times, leaving him bleeding beside the book
Like libraries across the country, Arlington Heights Memorial had strived to
keep pace with the changing times, ensuring its relevance in the digital age by
becoming something of an indoor town square, and emphasizing that its
money-saving services catered to the community’s needs.
These days, however, community need reaches far beyond reference help — and in
many libraries, it is turning a normally tranquil place into an emotional and
As the national economic crisis has deepened and social services have become
casualties of budget cuts, libraries have come to fill a void for more people,
particularly job-seekers and those who have fallen on hard times. Libraries
across the country are seeing double-digit increases in patronage, often from 10
percent to 30 percent, over previous years.
But in some cities, this new popularity — some would call it overtaxing — is
pushing libraries in directions not seen before, with librarians dealing with
stresses that go far beyond overdue fines and misshelved books. Many say they
feel ill-equipped for the newfound demands of the job, the result of working
with anxious and often depressed patrons who say they have nowhere else to go.
The stresses have become so significant here that a therapist will soon be
counseling library employees.
“I guess I’m not really used to people with tears in their eyes,” said Rosalie
Bork, a reference librarian in Arlington Heights, a well-to-do suburb of
Chicago. “It has been unexpectedly stressful. We feel so anxious to help these
people, and it’s been so emotional for them.”
Urban ills like homelessness have affected libraries in many cities for years,
but librarians here and elsewhere say they are seeing new challenges. They find
people asleep more often at cubicles. Patrons who cannot read or write ask for
help filling out job applications. Some people sit at computers trying to use
the Internet, even though they have no idea what the Internet is.
“A lot of people who would not normally be here are coming in to use the
computers,” said Cynthia Jones, a regional branch manager in St. Louis.
“Adults complain a lot about kids just playing games and you know, ‘I need to do
a résumé, or ‘I need to write, I need some help,’ ” Ms. Jones said. “There’s a
bit of frustration.”
Ms. Jones instructed her staff to tread carefully. “You don’t want to upset
people,” she said. “You don’t know what might set somebody off.”
Paul LeClerc, president of the New York Public Library, said résumé writing had
become a major use of library computers, and every librarian in the system had
received training in how to better assist patrons conduct job searches. The 40
million visits to New York libraries over the past year, he said, is the
greatest ever in a 12-month period.
Here in Arlington Heights, newly homeless patrons are showing up in their
business suits, said Paula Moore, the library’s director.
“They are living in their cars after losing a job they had for a number of
years,” Ms. Moore said.
The American Library Association does not keep statistics on incidents in and
around libraries, but anecdotal evidence from around the country suggests that
some libraries are struggling with their newfound popularity and the social ills
that can come along with it.
In Los Angeles, the police say the Central Public Library has become a magnet
for thieves, and that, excluding shoplifting at stores, there were more thefts
of personal property at the library last year than any other location in central
“We hope things get better,” said Lt. Paul Vernon, a spokesman for the Los
Angeles Police Department, noting the difficulty of policing libraries. “The
library is a place where people tend to congregate, and from a public and
government standpoint, you can’t really restrict people.”
In Sacramento this year, two branches of the public library temporarily stopped
accepting cash as fines for overdue books, after thieves struck three times
since June — in one instance, taking off with a safe filled with money.
In Lynchburg, Va., a gunman shot a man outside the public library on a Monday
afternoon in late January. The victim, who survived, staggered into the library
bleeding and looking for help. Since then, an off-duty police officer has been
hired by the library for extra security.
And in Quincy, Mass., where a man was recently arrested in the library and
charged with assault and battery with a dangerous weapon, among other offenses,
a police officer on beat patrol now walks through the library during operating
Though homelessness is not new to Arlington Heights, security at the library has
been tightened since the stabbing. (The man was charged with attempted murder,
and the victim survived.) Although such violence is unusual, a library patron,
Judi Crawford, said the scene around the building still made her uncomfortable.
“I don’t like my 16-year-old son to study at the library at night anymore,” Ms.
Crawford said. “If he is studying here, I make sure he stays inside until he
sees me pull up, and he can just run out and get in the car.”
Other things have changed at the library here, too.
It has tried to anticipate the new needs of its neighborhood. Next to its
welcome desk, it created a job-search desk, and it has recruited volunteer
professionals to review résumés, set up a support and networking group for the
unemployed, and assembled a Web site offering the best of its online resources.
Officials said the library was experiencing double-digit increases in the
circulation of DVDs, CDs and books on tape. The library’s many children’s
programs and cultural arts events are also filled to capacity, reflecting a
growing demand, linked to the economy, for free entertainment.
With an estimated 2,500 patrons visiting the library every day, employees must
now park at a parking lot at a nearby church.
“When you walk by our new job-search desk, you see people in line and even
waiting on the benches for assistance,” said Ms. Moore, the director of the
Arlington Heights Memorial Library.
A therapist is planning to give a workshop at the library called “Finding Hope
After Losing a Job,” while also offering advice to library employees who are
increasingly being thrust into the role of first responder to emotionally
distraught patrons who view them as confidantes.
“I’ve had people come in and talk for hours,” said Barbara Vlk, a librarian
specializing in business at Arlington Heights. “More and more people are in need
of help and direction.”
Malcolm Gay contributed reporting from St. Louis.
People in Need Are
Filling and Taxing Libraries, NYT, 2.4.2009,
A World of Hurt
In Workplace Injury System,
Ill Will on All Sides
April 2, 2009
The New York Times
By STEVEN GREENHOUSE
TONAWANDA, N.Y. — The sprawling DuPont plant along the Niagara River here can
be a grim place, but less so on the days when the company hands out coupons to
reward workers for a few weeks without injury.
Called “safety bucks,” the coupons look like real money and can be redeemed at
Red Lobster, Home Depot and several other businesses in the area.
For some workers who risk their fingers and bones to make Corian, the stonelike
countertop material that is the plant’s major product, the coupons have become a
modest blessing and benefit. But other workers regard them as a curse, as a way
to mobilize peer pressure against workers who might consider reporting an
“You know that if you report an injury, everybody says, ‘You son of a bitch,’ ”
said Dan Austin, who worked at the plant for 30 years. “I’ve heard people say,
‘So-and-so reported an injury and it’s going to cost us our safety bucks this
Companies across the state have recently introduced reward programs to curtail
injuries, in part to keep their workers safe, in part to cut down on workers’
compensation claims, which managers cite as a huge factor in the high cost of
doing business in New York.
“There are an awful lot of situations where people aren’t truly injured on the
job,” said Gregory Harden, the president of Harden Furniture, a 380-employee
company based in McConnellsville. “I tend to be a little cynical. Monday is
always the day with the highest injury rate for us. Someone comes in on Monday,
and their back is really sore for whatever reason, and they end up missing a few
weeks of work.”
The state’s multibillion-dollar workers’ compensation system is plagued by many
shortcomings: endless delays, suspect doctors, and a rudimentary form of justice
that prevails as employees and employers seek to survive.
But perhaps the most powerful way to appreciate how the system has failed is to
see what it has done to New York’s workplaces. A century ago, when the state
created its workers’ compensation system, the goal was a no-fault insurance
program that would foster workplace harmony by resolving disputes over injuries
without litigation or recrimination.
Today, however, employers and employees are still at war over workplace
injuries, a war marked by mistrust and fear. Each side is angry; each side has
its own powerful evidence to justify that anger.
Workers say companies are going to extraordinary lengths to cut back on claims:
contesting injuries, checking on workers at home, even firing those who file for
Employers say that the compensation system is so expensive, so riddled with
fraudulent claims, that they need to take aggressive steps to curb their costs.
A single injury can easily cost $10,000, and sometimes several hundred thousand
dollars when a badly maimed worker draws benefits for life.
Though no independent study has established that claimant fraud is rampant, many
executives say the system is skewed against them by judges who favor claimants
and by malingerers who collect benefits when they are well enough to work.
The state is putting reforms in place to reduce costs for companies and ease
tensions in the workplace, but it remains unclear how much they will help. And
the economic downturn has only added to the pressure to control costs.
So to cut back on claims, some factories are using scoreboards to record days
passed without an injury. Some companies reward workers who report no injuries
with a banquet featuring a lottery with a cash prize. Other plants play safety
bingo: if there are enough consecutive injury-free days, one worker gets bingo
and wins a cash jackpot.
“It keeps everybody’s mind on safety because every day when they come in, that
bingo board is right next to the time clock,” said Ed Prunier, safety manager at
Ball Metal Container in Saratoga Springs.
Some companies are also using a less fun-filled program, known as progressive
discipline. At the DuPont plant here, workers face five progressive steps when
they suffer repeated injuries deemed to be partly their own fault: verbal
warning, written warning, probation, five-day suspension and dismissal.
“There’s like a philosophy that unless your arm is falling off, don’t tell
anybody, take the pain, don’t go the emergency room,” said Jerry Graves, a
DuPont machine operator who injured his thumb. “Say you smashed your finger with
a hammer at home.”
Experts say it is difficult to estimate how often employers in New York
retaliate against workers who file compensation claims because there is no
tracking of such data. But several studies have found that the perception of
widespread retaliation has contributed to the decline in the number of
compensation claims in New York and nationwide in recent years.
“There are lots of people out there who aren’t filing claims because it’s not
worth the hassle and because of the fear of retaliation by the employer,” said
Leslie Boden, a professor of public health at Boston University.
Legal experts say New York makes it easy to fire workers who file claims. The
law bars retaliation, but states that as long as an employer has a “valid
reason,” like a prolonged absence, the firing is legitimate.
Some of the workers most affected by efforts to curtail claims are immigrants,
who make up an increasing part of the state’s blue-collar work force. Many of
them do not know about the compensation system, and when they get hurt, their
employers often pressure them not to apply for benefits, worker advocates said.
“Their bosses tell them, ‘Don’t go to the hospital. Don’t say it happened at
work. I’ll take care of you. I’ll take care of your medications.’ ” said Gonzalo
Mercado, executive director of El Centro del Imigrante, a workers’ center on
Staten Island. “In most cases, the employer never does any of that.”
Gerver Lopez, for example, was putting up aluminum siding in May 2007 when the
scaffolding broke and he fell to the ground, hurting his spine.
Mr. Lopez, an immigrant from El Salvador, could not get up. He said his boss
shouted: “Don’t call an ambulance. I don’t want no trouble. I have 30 houses to
do, and I don’t want to lose any of them.”
An uncle drove him to Nassau University Medical Center, and doctors there told
him that he would never walk again, he said. By the time his
two-and-a-half-month stay ended, his medical bills topped $45,000.
Now 22, he remains paralyzed, and is supported by his mother, a waitress.
“The boss said he was going to pay for everything and I shouldn’t say anything,”
Mr. Lopez said. “He didn’t give me a penny.”
Hurt on the Job
Fred Willette followed his father into metal grinding, a world of dangerous dust
and deafening noise.
At Kodak, where he worked for several years, a machine would collect the dust
spun off by his efforts. But when he took a similar job at Addison Precision
Manufacturing, a metal-parts factory in Rochester, he said his new bosses did
not want to spend the $3,000 for such a machine.
“They said, ‘All we have to do is provide you with a dust mask,’ ” Mr. Willette
So for seven years, he said, he did what he was told, grinding tools that are
used to make parts for rockets, snowmobiles and medical equipment.
Then the shortness of breath began. One day he passed out and was rushed to the
emergency room, the first of several trips. The doctors initially thought it was
asthma. But on a return visit, a doctor asked him what he was grinding.
“Tungsten carbide with cobalt,” he replied.
It turned out he had hard-metal pulmonary disease, which, like black lung
disease, can be hobbling, even fatal.
Mr. Willette said that in March 2000 he told his bosses he was going to apply
for workers’ compensation to tide him over until he recovered. They fired him
the next day, he said, a position the company disputes.
“They were saying: ‘You’re a liability. You’re getting all these people
involved. We don’t need you,’ ” he said. He was 48 at the time.
Robert Grey, a claimant lawyer, said New York’s law against retaliation “is
close to useless, both as a deterrent and a remedy.”
The courts have said employers can fire a claimant who misses too many days or
if they need to hire someone to do the claimant’s work. As a result, lawyers
seldom pursue retaliation cases, said Michael T. Berns, a member of the state
Workers’ Compensation Board until last June. “The burden of proof is with the
claimant,” he said. “It’s a very difficult burden.”
Some states take a tougher stance. In Oregon, claimants retain the right to be
reinstated to their job within three years of filing a claim, so long as they
are still able to do the job.
Mr. Willette said that even after he was dismissed, the company challenged his
claim. A private investigator for its insurance carrier began parking outside
his house and trailing him to the doctor and the supermarket, he said.
“At first we thought it was the police,” Mr. Willette said. “But the cops said,
‘He’s a private investigator watching you.’ ”
Rodney Champagne, one of the owners of Addison Precision, declined to discuss
Mr. Willette’s case. “I’m not really interested,” he said.
But the company’s insurer said in official filings that the lung disease stemmed
largely from smoking, not metallic dust. The company’s chief executive, Robert
Champagne, said during the compensation trial that he was concerned about his
workers’ safety and that Mr. Willette had not been fired for filing a claim. He
was sent home, he said, because he was upset and shaky at work and had not
brought in a requested note about the medication needed to control his
After leaving Addison, Mr. Willette held a few lower-paying jobs for a few
months, but his breathing did not improve, and he slipped into a depression for
nearly a year. He felt too short of breath for his favorite pastime, fishing.
Now he spends his days watching television. Occasionally he visits his father,
gathering strength to go out for an hour or two by using an oxygen tank at home.
He now receives benefits, $278 a week. But because the company challenged his
claim, those benefits did not start until 18 months after he was let go.
“You feel very low from what they put you through,” he said. “They try to grind
As the sixth president in the Curtis Screw Company’s 100-year history, Paul
Hojnacki wants the company to survive another century in Buffalo, the city where
it was founded.
But Mr. Hojnacki is so angry about the state’s workers’ compensation system that
he sometimes talks of moving the factory, which makes precision auto parts. He
denounces the delays in settling cases, complains about the “pro-worker judges”
and about the way some employees, he said, are allowed to milk the system. Most
of all, he indicts the costs.
Curtis Screw, he said, spent $4,900 per employee in 2007 for workers’
compensation coverage for its 220 workers, more than 10 times what it cost at
its factory in Cornelius, N.C.
“The cost of this monstrosity,” he said of the system, “has to be taken into
consideration because it’s driving businesses out of New York State.”
Mr. Hojnacki said the compensation bill represents 2.5 percent of the Buffalo
plant’s revenues, at a time when manufacturers often have profit margins of 3
percent. At the plant, where wages average $15.50 an hour, compensation costs
translate into $2.50 for every hour that employees work, he said.
One of the reforms the state has pushed through in recent years reduced
compensation premiums for many companies by 20 percent, but Curtis Screw
self-insures, so it has yet to see any savings.
“New York State, prior to the reform, was one of the most expensive states in
the country for workers’ comp,” said Kenneth Adams, the president of the
Business Council of New York State. “With these reductions in premiums, the cost
of workers’ comp for most employers has fallen into line with the average of
other states. But if you’re in manufacturing, it can still be a significant
Mr. Harden, whose family-owned furniture company was founded in 1844, bridles at
paying $1,800 per employee for compensation insurance. He complains that a
compensation judge in 2004 ordered his company to pay $400 in weekly death
benefits for life to the widow of a driver who died of pneumonia while making a
delivery in Texas.
“It wasn’t from anything on the job,” Mr. Harden said of the death. While
acknowledging that some compensation was in order, he said, “we feel the terms
of our payments are excessive.”
Mr. Hojnacki says he is similarly upset by the $200,000 his company pays out
annually to 15 former employees who have been classified as having permanent
partial or permanent total disabilities. Nearly all of them, he said, were
terminated for poor performance, then filed for compensation.
“We have 15 people that we terminated that we cut a check to every week, some
that date as far back as 1993-94,” he said. “It’s absolutely ludicrous. Even
with the workers’ comp reforms, this legacy cost we literally have to pay until
these people pass.”
The Buffalo factory self-insures because Curtis Screw finds it cheaper to pay
its compensation costs itself, rather than use an outside insurer. Mr. Hojnacki
said his yearly compensation expenses include $850,000 to cover medical expenses
for current workers, replacement wages for those workers and state assessments
to finance the comp system.
Mr. Hojnacki cited a machinist who worked at Curtis Screw for several years and
then filed a claim for a back injury.
“We did surveillance on him,” Mr. Hojnacki said. “We had a videotape where this
individual was doing work on his house, lifting sheets of drywall and carrying
them around and taking them from the outside to the inside by himself. We took
it to the judge. The judge ruled, ‘We find that the individual was having a good
The worker was classified as having a permanent partial disability, for which,
Mr. Hojnacki said, the company pays him $400 a week.
“The workers’ comp judges are totally sympathetic with the workers,” he
continued. “One judge told me, ‘It’s workers’ comp. It’s not employers’ comp.’ ”
One reason that Curtis Screw’s costs are so high, Mr. Hojnacki acknowledged, is
that his company has so many injuries, including a half-dozen workers who have
had costly surgery for carpal tunnel problems. None of his workers in North
Carolina have ever received compensation for such an injury, he said.
“We have 25 injuries each year, and of the 25 the vast majority are legitimate
situations where people scrape a finger or slip or twist a knee,” he said. “The
vast majority of workers, they can’t wait to be released from workers’ comp and
come back to work. For them, workers’ comp is exactly what it should be — it
compensates them for the short period they’re out. But then there’s this small
group of employees that play the system.”
Mr. Hojnacki said that with his company facing competition from China, high
energy costs and a devastating downturn in the auto industry, it cannot afford
to be saddled with illegitimate compensation claims.
“It’s just devastating that you can have people who take advantage of the
system,” he said. “They are taking money that we could be sharing with other
At FTT Manufacturing in Geneseo, the safety bingo pot starts at $25 and
increases $2 for every day without an injury. Each day a number is drawn, and
workers keep tabs on their game cards.
If someone gets bingo after 20 days, the winner receives $65, but the pot
continues to grow until an injury is reported. The maximum pot is $150.
“We didn’t want to give them something cheesy — where people say ‘big deal,’ ”
said Wade Smith, co-director of FTT’s safety programs.
Within a year of introducing the game, he said, injuries fell by a third at the
company, which makes high-precision parts for many industries.
The game was set up for FTT by an outside firm, Safety Pays, which has sold
bingo games to more than 3,000 companies and is converting the clamor over
compensation costs into profits.
Safety Pays provides a format for the game, plus bingo boards, cards, balls and
“Winner’s Circle mini-posters.”
“The individual,” Safety Pays says in its advertising brochure, “who at one time
alleged the occasional ‘backache’ in order to get a couple of extra days off
will be hard-pressed to do so when his co-workers are anticipating a financial
windfall by winning a jackpot.”
Mr. Smith said injured employees are never subjected to more than some
good-natured “locker room pressure.”
But many safety advocates and labor unions are worried about the growth of such
programs, which the Occupational Safety and Health Administration considered
banning in the 1990s.
Robert K. McLellan, former president of the American College of Occupational and
Environmental Medicine, told the House Education and Labor Committee last year
about a worker who told his doctors he had hurt himself at home when the injury
had really happened on the job. The worker later admitted lying because he did
not want his co-workers to lose a promised steak dinner.
Last year, the committee’s staff criticized these programs, saying in a report,
“Since workers are human and inevitably make errors, the consequence of rewards
or punishment is often a failure to report incidents, rather than a reduction of
Seth Marshall, founder of Safety Pays, says the games promote healthy peer
pressure that increases everyone’s focus on safety and discourages workers from
reporting fraudulent injuries.
At the DuPont plant here, officials base performance bonuses in part on how many
injuries occur at the plant. But they say they never want to deter the reporting
of legitimate injuries.
“All safety incidents, regardless of size, are to be reported and investigated,”
said Beth Turner, DuPont’s director of global operations safety, health and
Wendy Hughes, however, says she believes DuPont punished her when she crushed
her thumb one day in 2002. The brakes of her forklift failed, she said, and when
she tried to stop the forklift with her leg, her thumb got caught between it and
Doctors did a bone graft and inserted six pins in her thumb. She said DuPont
seemed eager not to have her report a lost-time accident to OSHA, so her
supervisors ordered her to return to the factory directly from the emergency
Ms. Hughes said she was not given any days off to recuperate. Instead, she was
ordered to spend her days biding time in the factory’s break room. When other
workers complained about seeing her there, she said management ordered her to
spend each day inside a four-by-six closet where protective work clothes were
stored. DuPont declined to discuss her case, citing privacy concerns.
“All my co-workers started saying things like, ‘We’re not going to get any
performance-based bonus,’ ” she recalled. “ ‘There go our safety bucks for the
In Workplace Injury
System, Ill Will on All Sides, NYT, 2.4.2009,