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History > 2009 > USA > Economy (V)




Economy's Fall Still Bad-Even

if Less Steep


May 29, 2009
Filed at 1:09 a.m. ET
The New York Times


WASHINGTON (AP) -- The economy took a steep tumble at the start of this year, though it may not turn out to be quite as grim as the government first thought.

The Commerce Department is set to release a report Friday that's expected to show the economy shrank at an annualized rate of 5.5 percent from January to March. If Wall Street analysts' forecasts are correct, it would mark a small improvement from the 6.1 percent annualized first-quarter drop the government initially estimated a month ago.

Either figure, though, would underscore the grim toll the recession, which started in December 2007 and is now the longest since World War II, has had on the country. Businesses have ratcheted back spending and slashed 5.7 million jobs to survive the fallout. Financial firms have taken huge losses on soured mortgage investments. Banks and other companies have been forced out of business. Home foreclosures have soared.

''When you take a fall that big, it still hurts,'' said Stuart Hoffman, chief economist at PNC Financial Services Group.

The recession struck with brutal force in the fall as the financial crisis intensified, causing the economy to contract at a staggering 6.3 percent pace, the worst in a quarter-century.

Milder cutbacks in U.S. exports and in spending on commercial construction help explain the forecasts for a slightly smaller contraction in the first quarter.

The government makes three estimates of the economy's performance for any given quarter. Each estimate of gross domestic product is based on more complete information. The third one will be released in late June. GDP, which measures the value of all goods and services produced in the United States, is the best gauge of the nation's economic health.

Even if the first-quarter figure is revised to show the economy contracted at a 5.5 percent, slightly better than the 6.1 percent first estimated, it will still mean that the economy was in a free-fall at the start of the year.

Economists are hopeful that the economy isn't shrinking nearly as much in the April-to-June quarter as the recession eases its grip. Forecasters at the National Association for Business Economics, or NABE, predict the economy will contract at a 1.8 percent pace.

Other analysts think the economic decline could be steeper -- around a 3 percent pace. Some think it could be less -- about a 1 percent pace.

Federal Reserve Chairman Ben Bernanke and NABE forecasters say the recession will end later this year, barring any fresh shocks to the economy. NABE forecasters predict the economy could start growing again in the third or forth quarter.

President Barack Obama's stimulus package of increased government spending and tax cuts, along with aggressive action by the Fed to spur lending, should help revive the economy.

Still, both the Fed and private economists caution that any recovery will be lethargic and that unemployment -- now at 8.9 percent, the highest in 25 years -- will continue to march upward in the months ahead.

Many economists say the jobless rate will hit 10 percent by the end of this year. Some say it could rise as high as 10.7 percent in the second quarter of next year before making a slow descent.

One of the forces that plunged the country into a recession was the financial crisis that struck with force last fall and was the worst since the 1930s. Economists say recoveries after financial crises tend to be slower.

In the government's initial estimate of first-quarter GDP, consumers snapped back to life after having slashed their spending at the end of 2008 by the most in 28 years. Some economists say Friday's revised GDP reading could show spending was a bit weaker than the 2.2 percent growth rate first calculated.

Looking ahead, consumers likely will stay cautious given rising unemployment. That would make for a tepid economic turnaround.

Risks abound, though, such as relapses in credit and financial markets. An upward march in mortgage rates. And troubles in the automotive sector, spreading to other manufacturers and suppliers, analysts say.

Economy's Fall Still Bad-Even if Less Steep, NYT, 29.5.2009, http://www.nytimes.com/aponline/2009/05/29/business/AP-US-Economy.html






Still Working,

but Making Do With Less


May 29, 2009
The New York Times


LINCOLN, Calif. — The Ferrells have cut back on dance lessons for their twin daughters. Vaccinations for the family’s two cats and two dogs are out. Haircuts have become a luxury.

And before heading out recently to the discount grocery store that has become the family’s new lifeline, Sharon Ferrell checked her bank account balance one more time, dialing the toll-free number from memory.

“Your available balance for withdrawal is, $490.40,” the disembodied electronic voice informed her.

At the store, with that number firmly in mind, she punched the price of each item into a calculator as she dropped it into her cart, making sure she stayed under her limit. It was all part of a new regimen of fiscal restraint for the Ferrells, begun in January, when state workers, including Mrs. Ferrell’s husband, Jeff, were forced to accept two-day-a-month furloughs.

For millions of families, this is the recession: not a layoff, or a drastic reduction in income, but a pay cut that has forced them to thrash through daily calculations similar to the Ferrells’. Even if workers have managed to avoid being laid off, many employers have cut back in other ways, reducing employees’ hours, imposing furloughs and even sometimes trimming salaries.

About 6.7 million people were working fewer than 35 hours a week in April because of “slack work or business conditions,” nearly double the number a year earlier, according to the Bureau of Labor Statistics. A recent survey of 518 large companies by Hewitt Associates, a human resources consulting firm, found 16 percent had cut pay and 20 percent had cut hours or imposed furloughs, far more than the firm has seen in previous recessions. (The actual percentage of workers affected is likely to be significantly lower.)

Some have managed to absorb the shrinking of their paychecks with minimal pain, especially households where a second income has helped cushion the blow.

Melissa Saavedra, a customer service technician for the City of Redlands, Calif., who normally earned about $38,000 a year, took a 10 percent pay cut along with other city workers in January.

In part because Ms. Saavedra’s husband was still employed at an electronics company, the family of five had so far made only modest adjustments. She and her husband take their lunch to work now; she tries to buy meat on sale at the grocery and clips coupons. “We probably had extra money left over every month,” she said. “Now there’s less of that money, but we’re still O.K.”

For families like the Ferrells, however, who were already just a car repair or an appliance breakdown away from falling behind, even a modest step down can bring hard choices.

The furloughs meant a roughly 9 percent reduction to Mr. Ferrell’s $72,000-a-year salary as an industrial hygienist, in which he evaluates health hazards in the workplace. The couple and their two sets of twins — the older twins are 7 and the younger are 20 months — have had to make do with about $450 less per month.

Should they cut the $315 a month they were spending on ballet lessons for the older twins? What about the $55 a month for the satellite television service they had because they could not get regular cable in their semi-rural home here about 40 miles outside of Sacramento?

Rising living expenses over the last few years had mostly exhausted the family’s savings and led to several thousand dollars in credit card debt.

The Ferrells had only recently begun to relax a bit after Mr. Ferrell, 55, received a 5 percent raise in December. But the furloughs, which are slated to extend at least to mid-2010, took away the raise and then some, dropping Mr. Ferrell’s take-home pay to $4,856 a month from $5,308.

In January, the couple sat down at their computer in their cluttered living room and waded through their major bills, including the mortgage, utilities and car insurance. The Ferrells concluded they had just $1,200 a month left over to cover everything else, from groceries to diapers.

Many of their remaining expenses seemed impossible to reduce by much, like the roughly $360 a month for gas. It quickly became apparent how little the family had left over for necessities like food.

“People just say: ‘Oh, it’s just a 10 percent pay cut. Cut the fat out of your budget,’ ” Mrs. Ferrell said. “But we’ve cut the fat. We’ve cut the fat all along, and so this is really pushing us close to the bone now.”

Mrs. Ferrell began mapping out family dinners a month in advance on a refrigerator whiteboard. Instead of grocery shopping at regular supermarkets, she began loading up her minivan once a month at WinCo, a giant, no-frills discount grocery chain.

“That way I can control exactly what I buy,” she said. “I make menus so that I don’t over-shop, or don’t impulse-purchase at the store.”

Mrs. Ferrell estimated the approach saves the family as much as $200 a month.

When the Ferrells told the children’s dance teacher they might have to take a break, she let them attend free for a month. Eventually, the couple decided to continue to pay for lessons, on a reduced schedule, which saved $65 a month.

“They’re little girls, and they shouldn’t have to worry about it,” Mr. Ferrell said. “They should be able to enjoy their childhood. They only get the one.”

The couple decided to keep the satellite television because of the children’s programming.

But Mrs. Ferrell has not had a haircut in six months; Mr. Farrell longer than that. They have also cut back on trims for the older twins.

“We put a lot of conditioner in,” Mrs. Ferrell said.

When the family ran short on sliced bread, Mrs. Ferrell hauled out the breadmaker. She takes few pictures of their toddlers now, because of the cost of film and developing. The Dollar Store has become a regular stop.

The air-conditioning in Mrs. Ferrell’s minivan broke recently. Instead of fixing it, she tries to drive only when it is cool out, or go to places where she knows she can park in the shade.

In the end, a stash of savings bonds that Mrs. Ferrell’s grandparents gave her as a child, which the couple had hoped to save for a home renovation, has become the family’s salvation. In late March, Mrs. Ferrell redeemed one for $2,300. She calculates that at their current rate they have enough bonds to last another year. Gov. Arnold Schwarzenegger, however, is proposing an additional 5 percent salary cut. Mrs. Ferrell hopes her family can simply hang on.

    Still Working, but Making Do With Less, NYT, 29.5.2009, http://www.nytimes.com/2009/05/29/us/29paycut.html?hp






Economic Scene

Financial Careers

Come at a Cost to Families


May 27, 2009
The New York Times


The big influx of highly educated workers into finance in the last two decades has been the subject of some national hand-wringing lately. President Obama, college presidents and economists have all worried aloud that Wall Street has hoarded human resources that might otherwise have gone to science, education, medicine or other fields.

Now, new research is suggesting that the shift also brought another cost — a cost that fell mainly on the people, especially women, who took jobs in finance. Among elite white-collar fields, finance appears to be uniquely difficult for anyone trying to combine work and family.

Finance, on this score, is worse than law and worse than academia. It is far worse than medicine, which emerges from the research as the highly paid profession with the most flexibility. Near finance at the bottom of the list is consulting, another field that became more popular in the last two decades.

The research, by Claudia Goldin and Lawrence Katz of Harvard, answers a question that college students, for all their careful career planning, rarely consider: which jobs offer the best chance at balancing work and family life? A decade or two after college, however, that question often comes to dominate conversations among friends and between spouses.

On almost every aspect of work-life balance, finance and consulting look pretty bad. People who take time off in those fields suffer large penalties, both in terms of money and career opportunities, once they return to full-time work. And part-time jobs are hard to come by, which often forces people to make a choice between working a 70-hour week and leaving a job entirely.

One set of statistics neatly summarizes the findings. After surveying Harvard College alumni 15 years after graduation, Ms. Goldin and Mr. Katz estimated the average financial penalty for someone who had taken a year and a half off and then returned to work. In medicine, that person earned 16 percent less than a similar doctor who had not taken time off. Among people with no graduate degree, the gap was 25 percent. For both lawyers and Ph.D.’s, it was about 29 percent.

For M.B.A.’s, a group dominated by finance workers and consultants, it was 41 percent. Given how much money many make, they can probably do just fine even after such a pay cut. Yet the size of it suggests that time off puts them on a completely different career track.

“The good news is that there are at least some professions where women have been able to carve out a set of policies that are compatible with family life,” Jane Waldfogel, a Columbia professor who studies families, told me. “The challenge for the next generation — and it isn’t just about women — is to extend this to other occupations.”

Ms. Goldin and Mr. Katz, who are two of the country’s leading labor economists and have published the crux of these findings in the American Economic Review, studied Harvard graduates from the last 40 years. That allowed them to compare a fairly similar group of students over a long period, but had the disadvantage of creating a decidedly atypical survey group.

So the two economists compared their results to two other surveys — the National Survey of College Graduates, run by the National Science Foundation, and a study of University of Chicago business school graduates — and found broadly consistent patterns.

According to the most recent National Survey, for instance, 21 percent of doctors in their late 30s and early 40s work less than 35 hours a week. The share was roughly 14 percent for M.B.A. graduates, as it was for lawyers and people with Ph.D.’s.

The idea that medicine offers more choices than other elite professions may come as a surprise, given that medical training requires notoriously long hours of study. But once doctors reach their 30s, many of them seem to be rewarded with a wider set of options than their counterparts in other fields.

When I heard about the new findings, I immediately thought of two friends of mine, a pediatrician and ophthalmologist married to each other and living in Colorado. Their years of training were typically grueling. While they were in medical school and residency in Northern California in the 1990s, they were surrounded by people at dot-coms who were working shorter hours and making vastly more money.

But today, they have the best work-life balance of any parents I know. She works two and a half days a week and is on call eight weekends a year. He arrives at his office early every morning and takes short lunches so that he can work four days a week. He is also on call 10 weeks a year. They have jobs they love, and they spend a lot of time with each other and their children.

As Al Franken, the comedian turned politician, has observed, “Kids don’t want quality time. They want quantity time — big, stinking, lazy, nonproductive quantity time.” And research on emotional and intellectual development suggests that kids are right to want what they do.

Obviously, certain medical specialties still don’t allow for much flexibility. But a significant number do. (The same seems to be true of public policy and a few other fields; among people with a master’s degree in something other than business, the average pay penalty for taking time off was 13 percent, slightly below what it was for doctors.)

A telling example of a flexible field, Ms. Goldin points out, is obstetrics. It seems to be the archetypal field that must operate on someone’s else clock — a baby’s. Yet as the ranks of female obstetricians have grown, they have figured out how to change that.

Group practices are now the norm, and the doctors take turns being on call. A family’s primary obstetrician isn’t guaranteed to be the one who delivers the baby. In many practices, every doctor will see a woman at least once during her pregnancy, so she knows everyone who may deliver her baby.

Wall Street, consulting firms and law firms have resisted this group approach to work. The partners claim the work is too complicated to be handed from one employee to another. In some cases, that’s no doubt true. Often, though, I bet it isn’t. “Why are women’s bodies less complicated than someone’s account?” Ms. Goldin wryly asks.

The general resistance to group work — and to flexibility — instead seems to stem from old habits, much as obstetricians once would have scoffed at the notion of a group practice. The downsides of allowing people to share work would probably be outweighed by the benefits of being able to hire talented people who want satisfying careers and aren’t willing to work 70-hour weeks.

For now, that group remains largely female. But there is some reason to hope that fathers will be increasingly drawn to such jobs as well. Over the last four decades, according to the economists Mark Aguiar and Erik Hurst, men have increased the average amount of time they spend taking care of children. (Harvard men, however, have not, the Goldin-Katz data show.)

The question of how to balance work and family is almost inevitably a thorny one. Easy answers, free of compromise and sacrifice, are rare, especially for people who don’t earn nearly as much money as doctors.

But if you’re a teenager or college student trying to decide what to do with your life, you at least may want to start thinking about the question. I promise: Most of you will spend a lot of time thinking about it later.

    Financial Careers Come at a Cost to Families, NYT, 27.5.2009, http://www.nytimes.com/2009/05/27/business/economy/27leonhardt.html?hp






Recession Imperils

Loan Forgiveness Programs


May 27, 2009
The New York Times


When a Kentucky agency cut back its program to forgive student loans for schoolteachers, Travis B. Gay knew he and his wife, Stephanie — both special-education teachers — were in trouble.

“We’d gotten married in June and bought a house, pretty much planned our whole life,” said Mr. Gay, 26. Together, they had about $100,000 in student loans that they expected the program to help them repay over five years.

Then, he said, “we get a letter in the mail saying that our forgiveness this year was next to nothing.”

Now they are weighing whether to sell their three-bedroom house in Lawrenceburg, Ky., some 20 miles west of Lexington. Otherwise, Mr. Gay said, “it’s going to be very difficult for us to do our student loan payments, house payments and just eat.”

From Kentucky to Iowa to California, loan forgiveness programs are on the chopping block. Typically founded by their states to help students pay for college, the state agencies and nonprofit organizations that make student loans and sponsor these programs are getting less money from the federal government and are having difficulty raising money elsewhere as a result of the financial crisis.

The organizations say the repayment programs have been hurt by a broader effort by Congress to tackle the high cost of the federal student loan program by reducing subsidies to lenders.

Curbing the programs will make it harder to lure college graduates into high-value but often low-paying fields like teaching and nursing.

While few schools may be hiring now in this economic climate, there may be shortages later, educators say.

“You’re going to diminish the quality of the candidates who are thinking, ‘Do I take my skills in math and science into industry or do I take them into the classroom?’ ” said Tracey L. Bailey, who had loans forgiven in Florida and now is director of education policy for the Association of American Educators.

The Kentucky Higher Education Student Loan Corporation is at the extreme in cutting payments to people in midstream who have already finished their educations and are repaying loans, but organizations in many other states have curtailed their new offers to prospective teachers, nurses and others.

The New Hampshire Higher Education Loan Corporation has suspended its program for teachers, and the Pennsylvania Higher Education Assistance Authority has done so for nurses and people called to active duty in the military.

Iowa Student Loan has reduced the maximum amounts offered to people in two of its three program categories, one for teachers and one for certain types of nurses, in an effort to ensure the programs will last. ALL Student Loan, which is based in Los Angeles, ended a program for nurses last year.

The changes leave students without a critical escape hatch from their federal college and graduate school loans, and they throw up a roadblock for those who dream of teaching but fear an oppressive combination of low wages and high debt.

“I remember sitting in the financial aid office and them saying, ‘Pay for every penny of it, pay for your books through loans, because they’re going to be forgiven,’ ” Mr. Gay said. And he dutifully did, using federal loans to cover some of the costs of his undergraduate degree in communications and all the costs of his master’s program in special education, which he finished in 2006.

If he had known the forgiveness program was vulnerable, Mr. Gay said, he would have chosen a different career, perhaps public relations. “Which I am actually contemplating doing right now,” he added.

Teachers in Kentucky are hoping to get financing restored for the program. But it is not clear where the money could come from.

“We’d obviously love to see something like that happen,” said Ted Franzeim, vice president for customer relations of the organization. He added that the group had never told participants that financing for forgiveness was guaranteed — a point that schoolteachers dispute.

About 7,500 teachers, nurses and public interest lawyers have benefited from the state’s loan forgiveness program since 2003, at a cost of $77 million, Mr. Franzeim said.

The federal government and some states continue to support their programs to lure promising young graduates to less lucrative jobs. The federal Education Department still offers up to $17,500 in loan forgiveness to math, science or education teachers who have worked for at least five years at an elementary or secondary school in a low-income area.

New Mexico, New Jersey and New York pay for their programs directly instead of relying on nonprofit organizations, and they have not been cut by lawmakers. In Oregon the Legislature is debating whether to suspend funding of a program for nurses.

Another problem for some of the nonprofit groups that rely on selling their loans in a secondary market is that financing has dried up.

The Missouri Higher Education Loan Authority, for example, has stopped offering to reduce interest rates for borrowers working in public service fields like teaching and firefighting, said Will Shaffner, director of business development and governmental relations. The only investor willing to buy its loans now is the federal Education Department, which purchases loans with standard terms only.

There is no clear accounting of how many people were swayed by loan forgiveness to pursue teaching, or how many might be deterred by the absence of such programs. But the anecdotal evidence suggests the programs matter.

Mark Henderson said he weighed a job as an auditor at Humana, where he worked as temporary help in 2005, against the chance to teach math, a subject he loved. Kentucky’s loan forgiveness program persuaded him to try teaching.

“I thought, at least if I have somebody repay it, I can last five years and get rid of this debt,” said Mr. Henderson, 26, a math teacher in Louisville. He enrolled at Spalding University and graduated in 2006 with a master’s in teaching; he is not yet in repayment on his loans because he is taking classes to improve his earning potential.

He has ended up teaching at the very high school he attended, Mr. Henderson said, and teaches geometry in the same classroom where he learned it.

“As it turned out, I really liked it,” he said, “and I’ll stick around for a long time.”

    Recession Imperils Loan Forgiveness Programs, NYT, 27.5.2009, http://www.nytimes.com/2009/05/27/your-money/student-loans/27forgive.html?hpw






Restaurants Cut Lunch Prices

to Bring in Diners


May 27, 2009
Filed at 9:04 a.m. ET
The New York Times


NEW YORK (AP) -- Whether sit-down or take-out, restaurant chains are finding the key to persuading people to spring for lunch these days is keeping the tab below $10.

''There is no reason why anyone should spend more than $10 for lunch,'' said Zach Brooks, a stay-at-home dad and blogger who writes about lunch spots in Midtown Manhattan.

Restaurants certainly appear to be listening. Many have conducted extensive consumer research to determine the magic price that will get customers through their doors.

Hot sub maker Quiznos, for example, launched a new toasty sandwich in March called the Torpedo at $4 after testing it with focus groups at $4, $4.29 and $4.59 to figure out what consumers were willing to pay.

''$4 really went over the cliff,'' said Chief Executive Rick Schaden. ''If I can get fed a good-size portion for $4 and that's my lunch, they're highly interested.''

Schaden said Quiznos' overall sales jumped by double-digits and traffic is up more than 30 percent this spring. Quiznos sells a variety of toasted sub sandwiches. In January, the company cut its prices on 37 of its menu items, taking 20 of its subs under $5.

For chains without waiter service, the $5 mark seems to generate the most interest, said David Urban, a professor of marketing at Virginia Commonwealth University.

''There seems to be something about that $5 price range give or take a dollar or so that seems to sing with consumers as sort of a threshold point in their minds about whether it's worth it to go out or not,'' Urban said.

T.G.I. Friday's is pursuing the parsimonious with nine new salads and sandwiches in April for $5 -- a move Andrew Jordan, senior vice president of marketing, said has boosted the company's lunch business. The regular prices for the nine salads and sandwiches range from $6 to $11 and will go back into effect June 1. The company is also offering ''endless'' refills on soup, salad, breadsticks and drinks during lunch for $6.99.

Urban said fast-casual and even sit-down chains are stealing a strategy that has long worked well for fast-food chains. McDonald's Corp., the fast-food industry leader, has offered $1 meals and value deals for years. And its same-store sales, or sales at stores open at least a year, rose 4.3 percent in the three months ending in late March, while those at most other restaurants dropped sharply.

Lunch has been an especially difficult meal for most chains since it is one of the easiest for customers to cut out or replace with a brown bag from home.

''Obviously, when money is tight, things like lunch are out,'' Urban said, ''especially sit-down lunches at full-service restaurants.''

Hudson Riehle, senior vice president of research at the National Restaurant Association, said lunch traffic goes down whenever the number of employed consumers drops. Those without jobs have less need for convenient lunch options and have less cash to spend.

Most consumers who are still working are still eating out -- just not as frequently.

''I have been brown bagging it more often recently, but sometimes I just have to get out of the office to get some quality face time with my colleagues,'' said Dan Brown, who works at a technology public relations company outside Chicago.

In Atlanta, brand research consultant Bryan Oekel said he goes out to lunch about three times a week and typically spends about $8. Lately, he's been cutting back on ordering drinks with a meal to save a bit of cash.

''Most of the places I go to don't have the value meal,'' Oekel said. ''The drink typically is $1 or $2 more.''

Brian McAfee, a training manager for Strayer University in Newington, Va., said he tries to keep lunches out under $6 but is willing to go up to $10 if ''it's something better'' like Chipotle Mexican Grill.

Urban and Riehle both said most restaurants' lunch prices aren't likely to go back up soon.

''It's actually a very good time for consumers to get great deals and restaurant meals,'' Riehle said.

    Restaurants Cut Lunch Prices to Bring in Diners, NYT, 27.5.2009, http://www.nytimes.com/aponline/2009/05/27/business/AP-US-Restaurants-Lunch-Prices.html






World Economy Stabilizing: Krugman


May 25, 2009
Filed at 7:59 a.m. ET
The New York Times


ABU DHABI (Reuters) - The world economy has avoided "utter catastrophe" and industrialized countries could register growth this year, Nobel Prize-winning economist Paul Krugman said on Monday.

"I will not be surprised to see world trade stabilize, world industrial production stabilize and start to grow two months from now," Krugman told a seminar.

"I would not be surprised to see flat to positive GDP growth in the United States, and maybe even in Europe, in the second half of the year."

The Princeton professor and New York Times columnist has said he fears a decade-long slump like that experienced by Japan in the 1990s.

He has criticized the U.S. administration's bailout plan to persuade investors to help rid banks of up to $1 trillion in toxic assets as amounting to subsidized purchases of bad assets.

Speaking in UAE, the world's third-largest oil exporter, Krugman said Japan's solution of export-led growth would not work because the downturn has been global.

"In some sense we may be past the worst but there is a big difference between stabilizing and actually making up the lost ground," he said.

"We have averted utter catastrophe, but how do we get real recovery?

"We can't all export our way to recovery. There's no other planet to trade with. So the road Japan took is not available to us all," Krugman said.

Global recovery could come about through more investment by major corporations, the emergence of a major technological innovation to match the IT revolution of the 1990s or government moves on climate change.

"Legislation that will establish a capping grade system for greenhouse gases' emissions is moving forward," he said, referring to the U.S. Congress.

"When the Europeans probably follow suit, and the Japanese, and negotiations begin with developing countries to work them into the system, that will provide enormous incentive for businesses to start investing and prepare for the new regime on emissions... But that's a hope, that's not a certainty."


(Reporting by Andrew Hammond; editing by Thomas Atkins and Robert Woodward)

    World Economy Stabilizing: Krugman, NYT, 25.5.2009, http://www.nytimes.com/reuters/2009/05/25/business/business-us-economy-krugman.html






Job Losses

Push Safer Mortgages to Foreclosure


May 25, 2009
The New York Times


As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.

In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.

With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.

“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”

Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis.

Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.

Robert and Kay Richards live in the center of this trend. In 2006, they took a 30-year, fixed-rate mortgage — a prime loan — borrowing $172,000 to buy a prefabricated house. They erected the building on land they owned in the northern Minnesota town of Babbitt, clearing the terrain of pine trees with their own hands.

Mr. Richards worked as a truck driver, hauling timber from a nearby mill. His wife oversaw the books. Together, they brought in about $70,000 a year — enough to make their monthly mortgage payments of $1,300 while raising their two boys, now 11 and 16.

But their truck driving business collapsed last year when the mill closed. Mr. Richards has since worked occasional stints for local trucking companies. His wife has failed to find clerical work.

“Every month that goes by, you get a little further behind,” Mr. Richards said.

Last June, they missed their first payment, and they have since slipped $10,000 into arrears. They are trying to persuade their bank to cut their payments ahead of a foreclosure sale.

From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.

During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans — those given to people with slightly tainted credit — rose 159,000, to 836,000.

Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.

Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure.

But three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.”

In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.

“I don’t think there’s any chance of government measures making more than a small dent,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

Last year, foreclosures expanded sharply as the economy shed an average of 256,000 jobs each month. Since then, the job market has deteriorated further, with an average of 665,000 jobs vanishing each month.

Each foreclosure costs lenders $50,000, according to data cited in a 2006 study by the Federal Reserve Bank of Chicago, so an additional two million foreclosures could mean $100 billion in lender losses.

The government’s recent stress tests of banks concluded that the nation’s 19 largest could be forced to write off as much as a fresh $600 billion by the end of 2010, bringing their total losses to $1 trillion. The Federal Reserve concluded that these banks needed to raise another $75 billion.

Many economists pronounce that assessment reasonable, while cautioning that it could become inadequate if foreclosures continue to accelerate.

“The margin for error is not that big,” said Brian Bethune, chief United States financial economist for HIS Global Insight. “It’s kind of like, ‘Let’s keep our fingers crossed that we’ve seen the worst.’ ”

Among prime borrowers, foreclosure rates have been growing fastest in states with particularly high unemployment. In California, for example, the unemployment rate rose to 11.2 percent from 6.4 percent for the year that ended in March, while the foreclosure rate for prime mortgages nearly tripled, reaching 1.81 percent.

Even states seemingly removed from the real estate bubble are seeing foreclosures accelerate as the recession grinds on.

In Minnesota, three of every five people seeking foreclosure counseling now have a prime loan, according to the nonprofit Minnesota Home Ownership Center.

In Woodbury, Minn., Rick and Christine Sellman are struggling to persuade their bank to reduce their $2,200 monthly mortgage on their five-bedroom home.

Mr. Sellman, a construction worker, found some work putting in asphalt driveways last summer, but he is now receiving unemployment. Ms. Sellman’s scrapbooking businesses shut down last summer. Since then, they have slipped $19,000 behind on their mortgage.

“We were always up on our house payments,” Ms. Sellman said. “You work so hard to keep what you have, and because of circumstances beyond our control now, there’s nothing we can do about it.”

    Job Losses Push Safer Mortgages to Foreclosure , NYT, 25.5.2009, http://www.nytimes.com/2009/05/25/business/economy/25foreclose.html






States Barter Fish and Bullets

to Save Money


May 23, 2009
The New York Times


Minnesota was looking for a bargain on the tiniest walleye fish, known as frylings, that the state stocks in some of its lakes. Wisconsin needed more of the longer fingerlings for its fishing lakes. So the neighbors have decided to share fish — Wisconsin’s frylings for Minnesota’s fingerlings — along with hundreds of other items: bullets for the police, menus for prisoners, trucks for bridge inspections and sign language interpreters.

With governors from opposing political parties and residents who often share only sports rivalries, Minnesota and Wisconsin are being drawn into the unusual alliance by financial circumstance. The sharing, officials in the two states say, could save them $20 million over the next two years.

Lawmakers in at least nine other states, and countless cities and counties across the country, are also engaged in a kind of barter system, often allowing them to cut the size of government, split their costs and share services. Some of the makeovers might have made sense at any time, but the urgent political will to change — cut jobs, close offices and give up power — was absent before the recession.

“What you have is an economy that is forcing people to share,” said Joseph N. DiVincenzo Jr., the county executive in Essex County, N.J., which (for $4 million a year) began accepting juvenile detainees this spring from neighboring Passaic County, which closed its own facility (to save $10 million a year).

In St. Louis, Mayor Francis Slay announced last month that he wanted the city to become part of St. Louis County, an idea he had raised before but with a new urgency now. In the two-century-old borough of West Alexander, Pa., residents shocked some elected officials when they voted to dissolve and become part of neighboring Donegal Township to save money.

“Hard to believe they voted for it,” said Frank Blakemore, who was, until its dissolution this year, the mayor of West Alexander, “but it took a lot of headaches away from us.”

In Michigan, where as many as 10 prisons may be closed to save money, officials are in talks with other states to keep some of the facilities open by filling them with out-of-state inmates. Among the possibilities, Michigan workers would continue to run the prisons, but they would essentially be extensions of the other states’ corrections systems.

John D. Cherry, Jr., the lieutenant governor of Michigan, said his state had little choice but to rethink the most basic questions about the role of state government and whether its size and shape still matched Michigan’s economic base. Should the state, for instance, be regulating the environment if the federal government is already doing that?

“We don’t have any easy gimmicks left,” Mr. Cherry said. “It really is a matter of making fundamental decisions about what remains and what goes.”

The deal between Minnesota and Wisconsin grew out of a budget planning session in which Gov. Tim Pawlenty of Minnesota, a Republican, and his staff were searching for ways that counties and school districts might share services. “It just clicked,” Mr. Pawlenty said, “that the state, too, should figure out who we could partner with.”

By last month, it had blossomed into a blow-by-blow, 130-page report on the services they intend to share, like inspecting amusement rides and making license plates (Minnesota inmates may soon be pressing Wisconsin’s endangered-species plates). On nearly every front, the two states are considering buying in bulk, sharing computer systems and swapping intelligence about contracts that could be found more cheaply.

“We had been talking about it over the years, and we have had some minor collaborations,” said Gov. James E. Doyle of Wisconsin, a Democrat. “But with the Wall Street collapse and the effects of that rolled out across the country, it was time for us to really, out of necessity, intensify those talks.”

Still, some of the efforts to reshape government have faltered or faded away. In some cases, the arrival of federal stimulus money (“spackle,” in the words of one budget expert, to patch the most immediate cracks in the state budget) seemed to have quieted the calls for wholesale government restructuring. Elsewhere, efforts to make drastic changes were overwhelmed by more immediate fiscal woes.

In Indiana, Gov. Mitch Daniels, a Republican, called for getting rid of the state’s more-than-century-old township system of government, but those politically sensitive plans were quickly left behind, aides to Mr. Daniels said, while state lawmakers struggled to resolve next year’s budget and shore up the state’s unemployment trust fund, which ran out of money.

“It may be that the fiscal crisis will finally move some of these ideas over the finish line,” said Lori Grange, a senior officer at the Pew Center on the States, a nonpartisan research group, “but it’s also a testament to how tough some of these proposals are that even in this climate they aren’t automatic winners.”

The real question, budget experts say, is how much all this condensing, overhauling and sharing will actually save, an issue that has been little researched.

“The financial crisis has given us an opportunity to think about all of this,” said Mildred E. Warner, a professor in Cornell University’s department of city and regional planning, “but if you think about it in terms that you’re just going to save money, one can’t promise that it will.”

In St. Paul, Jason B. Moeckel, a state fisheries official, is helping to draw up a plan in which Minnesota will share 40,000 walleye fingerlings with Wisconsin each year in exchange for 400,000 frylings. The fish swap could save Wisconsin $10,000 a year, and Minnesota $20,000, Mr. Moeckel estimates, as well as at least $1 million more that Minnesota might otherwise spend building a facility to grow the smaller fish.

But there are uncertainties. “You’re dealing with a living creature,” Mr. Moeckel said. “You’re talking about moving fish across state lines.”

He and his colleagues are conducting genetic testing of the fish; introducing a new strain of walleye into a particular region, he said, could compromise their ability to reproduce. There are worries, too, about carrying invasive species or disease between the two states. And the cost of transporting the fish, in cold-water tanks on trucks, must still be assessed.

“We don’t want to be saving a few dollars in terms of the growing of the fish,” Mr. Moeckel said, “and then burning a lot more fossil fuels in the transportation of the fish.”

    States Barter Fish and Bullets to Save Money, NYT, 23.5.2009, http://www.nytimes.com/2009/05/23/us/23share.html?hp






As Dollars Pile Up,

Uneasy Traders

Lower the Currency’s Value


May 23, 2009
The New York Times


The dollar was on a roll just a few months ago, bounding higher against foreign currencies as investors sought a safe hiding place for their money amid a global downturn. But now, many are rethinking their decision to buy American.

The dollar skidded to its lowest point in five months this week, battered by creeping fears that Washington’s costly efforts to stimulate the economy are growing harder to finance and may set off an unwelcome bout of inflation. Analysts are increasingly concerned that a rise in prices could hurt consumer spending, deepening the recession.

The dollar fell more than 3 percent this week, weakening to $1.40 against the euro on Friday and to $1.59 against the British pound. Experts said the flight to quality that made United States Treasury debt and dollar holdings so valuable at the height of the financial crisis was now heading for a rough landing.

“Those little footsteps coming down the hallway have begun to frighten many people,” said David M. Darst, chief investment strategist at the Global Wealth Management Group of Morgan Stanley. “The dollar has sold off inexorably, slowly but surely. The key thing driving it is psychology.”

The Federal Reserve is printing money from thin air, and the government is issuing trillions of dollars in new debt as it tries to spend its way out of the recession with a huge stimulus package, new lending programs, health care overhauls and automotive rescues.

Experts warned there might not be enough demand to sop up all those new dollars and dollar-denominated Treasury securities. That led investors to fret about the sustainability of the United States government’s AAA sovereign credit rating after the Standard & Poor’s ratings agency warned this week that the sovereign rating of Britain — which is spending hundreds of billions of pounds to engineer a recovery — is under threat.

On Thursday, the influential bond fund manager Bill Gross of Pimco said in an interview on Bloomberg Television that the United States might eventually lose its triple-A credit score.

The dollar’s sharp slide has renewed concern that investors worldwide were beginning to favor other currencies, foreign economies and commodities like oil and metals.

Stock markets fell modestly on Friday, adding to big declines from a day earlier, and demand for longer-term Treasury debt ebbed, pushing the yield on the benchmark 10-year note to 3.44 percent, its highest point in six months. The Dow fell 14.81 points, or 0.2 percent, to 8,277.32 while the broader Standard & Poor’s 500-stock index was down 1.33 points, or 0.2 percent, at 887.

Crude oil futures rose above $60 a barrel this week, and gasoline prices climbed to a nationwide average of $2.39 a gallon, according to AAA, the automobile club. The price of gold — a hedge against inflation — rose to nearly $960 an ounce, its highest price in two months, and investors also raised the prices of copper, wheat and corn.

Interest rates were higher. The Treasury’s benchmark 10-year note fell 22/32, to 97 9/32, and the yield, which moves in the opposite direction from the price, was at 3.45 percent, up from 3.36 percent late Thursday.

Only recently, the economy was veering into a spiral of lower prices and lower wages that economists feared would deepen the downturn. As prices dropped precipitously at the end of last year, consumers could stretch their dollars farther. But policy makers worried that a deflationary cycle would make consumers less likely to spend money if they constantly believed prices would be cheaper in the future.

Now, some are starting to warn about an economic beast called stagflation — the combination of higher prices and a struggling economy.

“The economy may be at greater risk of inflation than the conventional wisdom indicates,” Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, warned in a speech Thursday. He said prices could climb 2.5 percent in 2011, a higher forecast than the Fed’s expectations of 1 to 1.9 percent inflation.

Although the United States government officially supports a strong dollar, policy makers have let its value slide in past years because a weaker dollar makes American exports cheaper and more attractive. But a weaker dollar also makes imports — like crude oil from the Middle East — more expensive, raising the costs of energy and transportation.

“Everyone says a little inflation can’t hurt us,” said Martin D. Weiss, chairman of Weiss Research. “What they don’t seem to understand is, that’s inflation in a growing economy. Inflation on top of rising unemployment is another thing entirely. It’s much more painful, and it could be the straw that breaks the camel’s back.”

Some experts say fears of inflation and the loss of the dollar’s strength are overblown.

With the global economy in its worst downturn since World War II, and European banks facing up to $1 trillion in new losses from Eastern European investments, the euro may begin to weaken on its own against the dollar, they say. The United States remains the world’s default reserve currency, these experts add, and Treasury debt is still considered the world’s safest investment.

The Federal Reserve’s own forecasts call for inflation to hover in a “low range,” rising only about 0.6 to 0.9 percent this year. Consumer prices dropped sharply over the last six months as demand plummeted, and prices were flat last month after falling slightly in March.

According to the Labor Department, consumer prices in April were down 0.7 percent from a year earlier, their biggest decline in decades. Airline tickets cost less, gasoline is cheaper than last year, and retailers are still offering deep discounts to beckon consumers.

But while lower demand and a sluggish economy normally act to constrain inflation, some experts said the pressure on prices in the months ahead might be driven by economic activity elsewhere in the world, not just inside its biggest economy.

“There is growth in the emerging markets,” said Mr. Darst of Morgan Stanley. “There’s an international demand as well as a U.S. demand. The inflationary pressures are going to be coming from outside the walls of Troy.”

    As Dollars Pile Up, Uneasy Traders Lower the Currency’s Value, NYT, 23.5.2009, http://www.nytimes.com/2009/05/23/business/economy/23dollar.html?hpw






G.M. Draws Another $4 Billion

From Treasury


May 23, 2009
The New York Times


DETROIT — General Motors, facing the almost certain prospect of a bankruptcy filing, said Friday that it had drawn another $4 billion from the Treasury Department, raising its total from the government to $19.4 billion.

G.M. originally said that it would need an additional $2.6 billion from the government to operate through June 1, but added $1.4 billion to that amount.

The company, in a regulatory filing, also increased — to $7.6 billion — the amount it said it would need from the Treasury after June 1, the deadline set by the Obama administration for a restructuring plan.

G.M. gave the Treasury a note for $266.8 million as security against the additional money that it borrowed on Friday. The financing does not appear to be the last that G.M. will draw, according to the filing with the Securities and Exchange Commission.

It says that by June 1, it expects to have borrowed a total of $21.4 billion from the Treasury. In its original request to Congress last fall, G.M. asked for $18 billion in loans to keep it afloat while it restructured. With its latest injection from Treasury, it has surpassed that request.

Lawyers for G.M. and the government are preparing documents for a G.M. bankruptcy filing, which is expected to come around June 1.

People briefed on G.M.’s finances said the automaker would require debtor-in-possession financing during its reorganization of $40 billion to $70 billion.

If G.M. drew the full $70 billion while in bankruptcy, the government would have provided the company with more than $90 billion in total, including the money it has drawn to date.

Also on Friday, the Canadian Auto Workers union said that it had reached a second cost-cutting agreement with General Motors of Canada, even as bondholders for the parent company stood firm in their decision to reject an offer to convert their debt into G.M. stock.

The automaker and the Canadian union had agreed to several concessions in March. But the governments of Canada and Ontario subsequently said they would not provide financial assistance to G.M.’s Canadian unit without additional concessions from labor, forcing another round of talks.

The union’s president, Ken Lewenza, was vague Friday about the exact amount of savings under the second contract. He said, however, that the pact matched the labor costs at the Canadian operations of Honda and Toyota. That was the target for the governments, which estimate the Japanese companies’ costs at 57 Canadian dollars an hour.

Friday’s accord followed one on Thursday in the United States, where the United Automobile Workers union said it had reached a tentative agreement with G.M. on how to finance obligations estimated at $20 billion for retiree health care.

While G.M. has made progress with its union, its bondholders threaten to derail its efforts to eliminate $27 billion in debt before June 1.

The automaker has offered its bondholders 225 shares for each $1,000 worth of debt, which over all would give them a 10 percent stake in the company.

The company has said that it needs 90 percent approval from its bondholders by Tuesday if it is to avoid a bankruptcy filing. But the committee of G.M.’s biggest bondholders, which represent 20 percent of the overall debt, said there was no support for the current offer. Bondholders have said that competing creditors, like the U.A.W., have received better treatment.

“It’s been a universal ‘no’ from the get-go,” a spokesman for the committee, Nevin Reilly, said. “Bondholders are being seen as speculative bad guys, but bondholders are investors, many of whom put their retirement money into G.M.”

With their agreement Friday, union members in Canada will give up some tangible benefits, assuming they approve the latest contract, but some of the savings appear to be a matter of redefinition.

Mr. Lewenza told a news conference that some savings came from the company’s agreeing to count “the incredible productivity” of G.M.’s Canadian assembly plants when calculating costs. Although he subsequently declined to define that amount.

The 2008 edition of Oliver Wyman’s Harbour Report, an annual productivity study, found that a Canadian assembly plant jointly owned by G.M. and Suzuki used the least amount of labor per vehicle of any factory in North America. G.M. plants in Oshawa, Ontario, where the Canadian operation is based, took second and third place.

(While the study included Toyota’s North American plants, Honda did not participate.)

The largest direct cost savings appears to be an agreement by the union to forgo previously negotiated annual increases in pension rates until September 2015.

The union also agreed to divert to the pension fund a payment of 3,500 Canadian dollars that was originally intended to compensate members for reduced vacation time.

In turn, Mr. Lewenza said that G.M. had agreed to fully finance its Canadian pension fund once its restructuring plan had been approved and it had begun to receive money from the governments in Canada and the United States.

Several years ago, the Ontario government allowed G.M. to break its pension financing rules by underfunding the plan, to ease the company’s cash shortage.

There has been some public resistance to auto industry aid in Canada, particularly in rural regions where other hard-hit industries, like forestry, have not received similar assistance.

It is not clear if the two Canadian governments have received a guarantee from G.M. to maintain its current share of North American production in Canada, an amount that has been estimated at 15 to 20 percent, in exchange for financial assistance.

Mr. Lewenza said the union was told on Thursday that the matter was still being negotiated.


Bill Vlasic reported from Detroit and Ian Austen from Ottawa. Micheline Maynard contributed reporting from Detroit.

    G.M. Draws Another $4 Billion From Treasury, NYT, 23.5.2009, http://www.nytimes.com/2009/05/23/business/global/23auto.html?hpw






A Casino Rises

in the Place of a Fallen Steel Giant


May 23, 2009
The New York Times


BETHLEHEM, Pa. — For decades, Georgine Corroda watched from her home across the street as the symbol of the region’s pride, the mighty Bethlehem Steel Company, went from an industrial powerhouse to a vacant wasteland.

By the time the company declared bankruptcy in 2001, the blast furnaces had been cold for nine years, the 20,000-strong work force had largely been dispersed and the property tax base had plummeted, along with values of the homes of Ms. Corroda and her neighbors.

Yet on Friday, when the elegant $743 million Sands Casino Resort Bethlehem opened atop the site of the gigantic ore pit, Ms. Corroda was among the first in line with an ear-to-ear grin that exuded optimism for the area that has been lacking for some time.

“I told my father before he died that I would be here for opening day,” said Ms. Corroda, 61, who worked at the plant, as did many other relatives over the 146 years it was in operation. “I watched the steel go to nothing. Now, it’s coming back. The land is coming back. Look at what they’re doing here. We’ve got a casino, Emeril Lagasse’s here, come on.”

Time will tell if the 3,000-slot-machine casino with four restaurants, including Mr. Lagasse’s, will reverse the fortunes of this long-depressed area along the picturesque Lehigh River in northeast Pennsylvania.

But opening day drew such crowds that the chief lawyer for the owner, Las Vegas Sands, was corralled into duty valet-parking cars, and visitors waited in lines as long as an hour just to sign up for the resort’s players club.

“I would be euphoric if every slot machine we have all over the world performed as well as what I’m hearing they’re doing today,” said Sheldon Adelson, the company chief executive, in a telephone interview from Las Vegas. “Even in this economy, people still want to challenge luck.”

While the Bethlehem effort has always been seen as a revitalization project for the city, in the past year it has also become a bit of one for the battered Sands company.

The economic downturn and a high debt load have dragged the stock price to below $9 as of Friday, down from the October 2007 high of $148. The company has had to halt construction of a condominium tower in Las Vegas and more than one new hotel-casino in Macao because of tightening credit.

Also delayed are a 300-room hotel and a mall in Bethlehem; their frames stand next to the casino. But Mr. Adelson said he expected to be able to restart most of this construction by year’s end.

“Early on, you would look at the quarterly reports and the Bethlehem Steel facility would barely get a mention in the overall strategy of the corporation,” said Bethlehem’s mayor, John Callahan. “Now, it’s become clear this facility has become critically important to the survival of the company.”

It is also critically important to the city. The mayor said he expected the casino, the largest in Pennsylvania, to draw more than 4.5 million visitors a year and provide about $9 million to the city’s general fund, which this year stands at $55 million. Mr. Callahan sees this as the entertainment part of a redevelopment that also includes plans for an arts center and television station, a museum focused on American industrial history and condos to be built in a former steel plant building.

But while opening day may be promising, the resort has significant competition from casinos in the Poconos and Atlantic City, among other places in the general region.

“I do think this is quite lovely, but it’s not as close to me as the casinos I already go to,” said Francine Andrews, 55, of Lawrenceville, N.J. “I might come back, but only for a special occasion.”

Here in Bethlehem, what delighted people like Ms. Corroda and Rich Fenstermacher, who worked for Bethlehem Steel for 34 years and is now a casino security officer here, were the homages to the company whose product helped build skyscrapers, railroads and military armament for a century. Exposed piping and a turreted ceiling were built to resemble the style of some of the buildings, and brick walls match the look of the structures that housed the factories.

“Just walking around in here, they don’t even have to pay me,” gushed Mr. Fenstermacher, 65. “I mean, this is Bethlehem Steel. Just look around you. You see the lighting that makes it look like dripping metal. The glow in those windows, that’s how the windows lit up in the evening. They are preserving a legacy here.”

    A Casino Rises in the Place of a Fallen Steel Giant, NYT, 23.5.2009, http://www.nytimes.com/2009/05/23/us/23casino.html?hpw






44 States Lost Jobs in April,

Led by California


May 22, 2009
Filed at 10:42 a.m. ET
The New York Times


WASHINGTON (AP) -- Forty-four states lost jobs in April, led by California where employers slashed 63,700 positions, as the recession took a further toll on U.S. workers.

The U.S. Labor Department says that behind California in over-the-month job losses were: Texas, which saw 39,500 jobs vanish; Michigan, which lost 38,400 jobs; and Ohio, which lost 25,200.

California's unemployment rate dipped to 11 percent last month, fifth-highest in the country. Michigan's jobless rate was the highest at 12.9 percent, followed by Oregon at 12 percent, South Carolina at 11.5 percent and Rhode Island at 11.1 percent.

    44 States Lost Jobs in April, Led by California, NYT, 22.5.2009, http://www.nytimes.com/aponline/2009/05/22/us/politics/AP-US-State-Unemployment.html






Op-Ed Contributor

Notes From Another Credit Card Crisis


May 18, 2009
The New York Times



AS President Obama stages a populist campaign against credit card companies’ predatory practices, the United States Senate is working on new regulations to protect card holders. Meanwhile, Americans’ credit card debt has risen to the point where it now tops $960 billion. And with the economy in a downswing, it’s hard to see how the debt can ever be paid back.

If it’s any consolation, South Koreans have been there, done that and come out alive — if just barely.

In 1999, after the Asian financial crisis, the South Korean government encouraged banks to issue credit cards to as many people as possible as a way to increase consumer spending (as well as to make it easier to collect taxes, which had been harder to monitor in a predominantly cash economy).

Hong Kwon-heui, a columnist for Dong-A Ilbo, a South Korean newspaper, recalled how, in the early 2000s, the streets of Seoul were littered with credit card vendors. Sitting in a Starbucks facing Sejong Avenue, he told me, “They were literally handing them out to college students, to the unemployed, to anyone who had time to fill out an application.” He said, “The country was force-feeding its people debts.”

South Koreans became hooked on plastic so dizzyingly fast that by 2003 they owned on average four credit cards each and their collective debts amounted to about $100 billion.

The cards had an additional allure as a status symbol, because previously in South Korea only the elite had them. “When I used credit cards, I somehow felt that others regarded me highly and that gave me confidence — and I forgot that I needed to pay it all back later,” said Kang Hee-yun, an office worker in her mid-40s, who eventually had to resort to “card kiting,” the trick of using one card to repay the debt on another.

The bill soon came due for many South Koreans. In 2003, a 34-year-old housewife harassed by creditors leapt to her death from her high-rise apartment after pushing out her three children. Families unraveled as their breadwinners lost their savings. A sudden surge in crime and prostitution led South Koreans to bemoan their “bankrupted society.” Finally, after millions had defaulted on payments, the government stepped in to help bail out LG Card, then the country’s largest issuer.

“The excess was similar to what’s happening with the American housing market today,” recalled Song Ji-hoon, a Rolex-wearing lawyer in his mid-30s who worked on behalf of one of the credit card companies. “Koreans wanted fancy cars, bigger TVs — although there was no real money to buy them — much the way those Americans thought that they could own houses with nothing but loans. Of course, in both instances, banks got greedy extending credits and mortgages to people who couldn’t pay back.”

It’s true that South Korea’s economic path bears little resemblance to America’s. In the 1960s, the South Korean government had nationalized the banks and divided the country’s resources among a handful of companies, including Samsung, Hyundai and LG. These family-owned conglomerates, known as the chaebol, dominated the economy.

In the early 2000s, the credit card divisions of Samsung and LG, trailed by Hyundai, competed fiercely in the new market.

Even today, despite the efforts of previous presidential administrations to decrease the power of the chaebol, it is still not unusual for a South Korean to wake up in a Samsung-made bed in a Samsung-built apartment, eat Samsung-manufactured food and drive a Samsung car to the office of a Samsung-affiliated company. Back in the early 2000s, a Samsung credit card, or one issued by Hyundai or LG, would have been another such extension. The chaebol had become the face of Korea, both domestically and abroad, and when their credit card divisions faltered in 2003, the South Korean government had little choice but to step in and ease social unrest by forgiving individual debts. The move was criticized by some as a return to the old ways of keeping the chaebol afloat.

Still, the government’s bailout worked. Although unemployment and personal bankruptcy rates remained high for a while, the worst was soon over. The credit card companies instituted stricter rules for issuing cards, and consumer spending plummeted briefly.

The real hangover can be seen in a shift in buying habits. Before the mass use of credit cards, Koreans had been big savers. In a culture where family members are expected to help one another financially, they put money away for everything. They also joined private money-pooling groups called “gye,” which allocate money for everything from children’s school and weddings to the celebration of a parent’s 60th birthday. In 1998, the household savings rate was 25 percent. By 2007, it had fallen to 2.5 percent.

South Korea managed to weather the storm, albeit with no shortage of heartbreak. Today Seoul’s neon-lighted streets burst with credit-card friendly shops — but high household debt has depressed spending. Some habits are hard to break.

Finishing his cappuccino, Mr. Hong, the newspaper columnist, opened his wallet to show me his cards. Not as many as he once had. One came with free passes to cultural events, another offered discounted loans. The third, well he couldn’t recall which perks it offered — save for comfort.


Suki Kim is the author of “The Interpreter,” a novel.

    Notes From Another Credit Card Crisis, NYT, 18.5.2009, http://www.nytimes.com/2009/05/18/opinion/18kim.html






Industrial Production

Falls by Least in 6 Months


May 15, 2009
Filed at 9:53 a.m. ET
The New York Times


WASHINGTON (AP) -- The nation's industrial production fell in April by the smallest amount in six months, fresh evidence that the pace of the economy's decline is slowing.

Output by U.S. factories, mines and utilities fell by 0.5 percent last month, after revised declines of 1.7 percent in March and 1 percent in February, the Federal Reserve said Friday. Analysts expected a drop of 0.6 percent in April.

Still, the report shows that U.S. industry remains weak. Industrial production has fallen in 15 of the 17 months since the recession began in December 2007, and is down 16 percent since then.

That has led industrial companies to idle more of their plants and equipment. The overall operating rate for factories, mines and utilities fell to 69.1 percent last month from a revised 69.4 percent in March. That's the lowest rate on records dating to 1967.

That also compares with the 80 percent rate usually seen during a healthy economy. It stood at 80.6 percent when the recession began.

A 3.2 percent drop in mining output as oil and gas production fell, contributed to the overall decline, the Fed said. Utilities boosted their output 0.4 percent last month.

Manufacturing production fell 0.3 percent, as the factory operating rate dipped to 65.7 percent from 65.8 percent. That's the lowest on records dating to 1948.

Auto factories actually increased production 1.4 percent after cutting back sharply in January. But the increase isn't expected to continue as Chrysler LLC and General Motors Corp. are closing plants in May and June.

Manufacturers have been forced to reduce production as companies seek to clear stockpiles of unsold goods. The effort to reduce inventories also leads to fewer orders for new goods.

Businesses cut inventories 1 percent in March, the seventh straight decrease, the Commerce Department said Wednesday. Still, the reductions in stockpiles eventually should help businesses get their inventories more in line with reduced sales. If that occurs, any strengthening in consumer demand should lead to increased production.

Industrial production plummeted at a 19.2 percent annual rate in the first three months of this year, the Fed said, but some economists expect that pace to slow to less than 10 percent in the current quarter.

The steep drops in the first quarter contributed to a 6.1 percent decline in gross domestic product, the broadest measure of the economy. Analysts expect a smaller decline of about 3 percent in the current quarter.

    Industrial Production Falls by Least in 6 Months, NYT, 15.5.2009, http://www.nytimes.com/aponline/2009/05/15/us/politics/AP-US-Industrial-Production.html






Chrysler Plans to Shut

One Quarter of Its U.S. Dealers


May 15, 2009
The New York Times


DETROIT — Chrysler told about a quarter of its dealers on Thursday that they are being eliminated by June 9.

The carmaker, which filed for bankruptcy protection two weeks ago, sent letters to 789 of its 3,200 dealers revoking their franchises. It also filed a list of the dealers it is cutting in bankruptcy court Thursday.

Chrysler said the “rejected dealers” accounted for 14 percent of its overall sales volume and that half of them sell fewer than 100 vehicles a year.

Pennsylvania is the state losing the most dealerships, 53. Fifty are in Texas. About a fifth are in Michigan, Ohio, Indiana or Illinois. Hawaii has one. Alaska is the only state with none.

“This has been a gut-wrenching process over the last six weeks,” Steven J. Landry, Chrysler’s vice president for North American sales, said on a conference call. “It isn’t that we have too many dealers, but we don’t have enough industry. There’s not enough business for the dealers that have high fixed and variable costs today.”

Mr. Landry said closing the underperforming dealerships would help Chrysler become viable and allow the ones that remain to be more profitable.

Many dealers being cut only sell one or two of Chrysler’s three brands. In about 190 cases, Chrysler plans to reassign the franchise another nearby dealer, so that all three brands would be available in one location.

Currently, 62 percent of Chrysler’s dealers sell Chrysler, Dodge and Jeep vehicles. That will rise to 84 percent after this process is completed.

The dealerships losing their franchises will not necessarily close. Mr. Landry said 658 of them sell more used cars than new ones and therefore might be in a position to stay open as a used-car lot.

Chrysler said there are no instances where its only dealer for many miles will close, leaving customers without a location to have their vehicle serviced.

“The problem we have is the dealers are too close together,” Chrysler’s vice chairman, James E. Press, said. “This will really improve the franchise value and profitability without sacrificing customer convenience and satisfaction.”

The Treasury Department said in a statement that it “played no role in deciding which dealers, or how many dealers” would lose their franchises.

“We understand that this rationalization will be difficult on the dealers that will no longer be selling Chrysler cars and on the communities in which they operate,” the statement said. “However, the sacrifices by the dealer community — alongside those of auto workers, suppliers, creditors, and other Chrysler stakeholders — are necessary for this company and the industry to succeed.”

On Friday, 1,000 to 1,200 General Motors dealers are expected to receive notices that they are being cut. Their franchises will expire in October 2010, a G.M. spokeswoman, Susan Garontakos, said. G.M. has said it wants to cut about 2,600 of its 6,200 dealers, with the rest occurring through consolidation and the sale or closure of Pontiac, Saturn, Saab and Hummer.

Officials from the National Automobile Dealers Association are meeting Thursday with members of the Obama administration’s auto industry task force. The association is urging the task force to let G.M. and Chrysler keep more dealerships and argues that the cuts will cause the two companies to lose a significant number of sales in the months ahead. About 150 dealers flew to Washington on Wednesday to plead their case with members of Congress.

“We’re not objecting to consolidation. We understand the realities of the marketplace,” John McEleney, the N.A.D.A. president and owner of two G.M. dealerships in Iowa, said. “The situation’s going to get taken care of by natural market forces. To radically accelerate the process doesn’t seem to make sense in this environment.

Separately, in a federal bankruptcy court on Thursday, Judge Arthur J. Gonzalez denied a motion by a group of Chrysler retirees to form a committee to oversee the protection of health care benefits for some of the company’s retired workers.

A lawyer for Chrysler said that the current plan was for these benefits to be assumed by the new Chrysler, to be formed through the asset sale to Fiat.


Michael de la Merced contributed reporting from New York.

    Chrysler Plans to Shut One Quarter of Its U.S. Dealers, NYT, 15.5.2009, http://www.nytimes.com/2009/05/15/business/15dealers.html?hp






$30 Million

Paid So Far to Madoff Victims


May 15, 2009
The New York Times


Checks for about $30 million have been mailed out so far to individual victims of Bernard L. Madoff’s multibillion-dollar Ponzi scheme, according to the court-appointed trustee handling the case.

Those checks are part of $61.4 million already approved for payment by the Securities Investors Protection Corporation, the federally chartered agency which oversees the liquidation of brokerage firms. The total of approved claims is expected to reach $100 million by Memorial Day, the trustee said.

So far, the 125 claims that have been fully processed add up to losses of $368 million, said Irving H. Picard, the trustee, in a news conference on Thursday.

Of the checks mailed so far, almost all were for $500,000, the maximum protection provided under the S.I.P.C. law.

The rest of the customer losses must be covered out of whatever assets the trustee can gather in the liquidation process.

As part of that effort, Mr. Picard has already sued to recover $10.1 billion from six investors who withdrew substantial amounts from their Madoff accounts in the final years of the Ponzi scheme’s life. It is not clear how much of that money can actually be recovered, however.

Mr. Picard said he has also sent letters designed to open negotiations with more than 100 Madoff family members, former employees and other insiders over the recovery of as much as $735 million paid out to them.

“The purpose of the letters was to ask people to give us a call,” he added, noting that the recipients “may have defenses” to his claims.

Stephen Harbeck, the chief executive of S.I.P.C., noted that the agency has raised the amount it assesses each securities firm to insure it has enough money to cover both the maximum customer payments and the expenses of operating the asset search and claims-paying process that has been set up to handle the Madoff case.

The S.I.P.C. assessment, which had been capped at $150 a year, has been raised to .25 percent of net operating revenues, Mr. Harbeck said.

“This is an unprecedented undertaking,” Mr. Harbeck said. “But I believe that we can now say that we are at the ‘end of the beginning’ in this incredibly complicated case.”

To date, the trustee has gathered about $1 billion in assets to cover customer claims, but Mr. Picard said he expected that number to “move up significantly” over the next few weeks, as settlement negotiations with various investors bear fruit.

In a formal update to customers, Mr. Picard also explained the methodology he is using to determine customer claims — an issue that has raised considerable controversy among Mr. Madoff’s former customers.

Many have argued that reimbursements should be based on their final account statements. But Mr. Harbeck noted in the news conference that this approach would favor longer-term customers over more recent investors — which would violate the fairness requirements built into the law that created his agency.

    $30 Million Paid So Far to Madoff Victims, NYT, 15.5.2009, http://www.nytimes.com/2009/05/15/business/15madoff.html?hpw






Op-Ed Contributor

The Almighty Renminbi?


May 14, 2009
The New York Times


THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear.

Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time.

But what could replace it? The British pound, the Japanese yen and the Swiss franc remain minor reserve currencies, as those countries are not major powers. Gold is still a barbaric relic whose value rises only when inflation is high. The euro is hobbled by concerns about the long-term viability of the European Monetary Union. That leaves the renminbi.

China is a creditor country with large current account surpluses, a small budget deficit, much lower public debt as a share of G.D.P. than the United States, and solid growth. And it is already taking steps toward challenging the supremacy of the dollar. Beijing has called for a new international reserve currency in the form of the International Monetary Fund’s special drawing rights (a basket of dollars, euros, pounds and yen). China will soon want to see its own currency included in the basket, as well as the renminbi used as a means of payment in bilateral trade.

At the moment, though, the renminbi is far from ready to achieve reserve currency status. China would first have to ease restrictions on money entering and leaving the country, make its currency fully convertible for such transactions, continue its domestic financial reforms and make its bond markets more liquid. It would take a long time for the renminbi to become a reserve currency, but it could happen. China has already flexed its muscle by setting up currency swaps with several countries (including Argentina, Belarus and Indonesia) and by letting institutions in Hong Kong issue bonds denominated in renminbi, a first step toward creating a deep domestic and international market for its currency.

If China and other countries were to diversify their reserve holdings away from the dollar — and they eventually will — the United States would suffer. We have reaped significant financial benefits from having the dollar as the reserve currency. In particular, the strong market for the dollar allows Americans to borrow at better rates. We have thus been able to finance larger deficits for longer and at lower interest rates, as foreign demand has kept Treasury yields low. We have been able to issue debt in our own currency rather than a foreign one, thus shifting the losses of a fall in the value of the dollar to our creditors. Having commodities priced in dollars has also meant that a fall in the dollar’s value doesn’t lead to a rise in the price of imports.

Now, imagine a world in which China could borrow and lend internationally in its own currency. The renminbi, rather than the dollar, could eventually become a means of payment in trade and a unit of account in pricing imports and exports, as well as a store of value for wealth by international investors. Americans would pay the price. We would have to shell out more for imported goods, and interest rates on both private and public debt would rise. The higher private cost of borrowing could lead to weaker consumption and investment, and slower growth.

This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. For the last two decades America has been spending more than its income, increasing its foreign liabilities and amassing debts that have become unsustainable. A system where the dollar was the major global currency allowed us to prolong reckless borrowing.

Now that the dollar’s position is no longer so secure, we need to shift our priorities. This will entail investing in our crumbling infrastructure, alternative and renewable resources and productive human capital — rather than in unnecessary housing and toxic financial innovation. This will be the only way to slow down the decline of the dollar, and sustain our influence in global affairs.


Nouriel Roubini is a professor of economics at the New York University Stern School of Business and the chairman of an economic consulting firm.

    The Almighty Renminbi?, NYT, 14.5.2009, http://www.nytimes.com/2009/05/14/opinion/14Roubini.html






Op-Ed Contributor

China’s Heart of Gold


May 14, 2009
The New York Times



IN China, many people refer to the dollar as mei jin, or “American gold.” Government officials, businessmen and people on the street all use the term. So if a Chinese person tells you that he owes you 100 American gold, don’t expect a big fortune, because he’s planning to pay you $100.

Chinese impressions of the American dollar as the gold standard were so deeply entrenched that they survived President Richard Nixon’s 1971 delinking of gold and the greenback. Around 30 years ago, China’s foreign exchange reserves were as little as $167 million. At one important meeting in the late 1970s, Deng Xiaoping, the leader of China, prophesied to an audience of top government officials: “Comrades, just imagine! One day we may have a foreign reserve as big as $10 billion!” Silence fell on the audience, because that figure seemed so improbable. After a long pause, Deng went on to tell the unconvinced crowd: “Comrades, just imagine! With 10 billion American gold, how much China can do!”

Deng’s view of the dollar reflected his admiration for many positive elements of American capitalism. In November 1986, I served as Deng’s interpreter when he met with John Phelan, the chairman of the New York Stock Exchange, who was visiting Beijing. During the meeting, Deng told him: “You are the rich capitalists with great wealth, and China is still very poor with little wealth. You know finance and capital markets very well. You need to teach China a lot about finance and capital markets. One day in the future, China will also have its own stock exchange.”

That was the prelude to China’s rapid economic growth. China’s foreign reserves are now close to $2 trillion, and around $1.5 trillion of it is invested in dollar assets. With the global financial crisis, the attention of the world often focuses on this huge pile of American dollars in Chinese hands.

What many don’t remember is that for years, there was either a shortage or a feared shortage of American dollars. In the 1980s, for example, the government required everyone to convert dollars into the Chinese currency, the renminbi, which literally means “people’s money.” As a result, American gold became a status symbol. Despite the mandatory conversion into renminbi, many people held onto their dollars, or bought them at inflated exchange rates, if they could find a seller at all.

No one knows for sure when the tide started to turn, or the exact moment when American gold started its slow but seemingly irreversible loss of luster. But now, many shops in China no longer accept dollar-based credit cards issued by foreign banks (the customer pays in dollars, but the shopkeeper is paid in renminbi) and foreigners cannot convert American dollars into renminbi beyond a given quota.

In the past, people held dollars for no immediate purpose. Today, they are more likely to keep them only if they need them to send their children abroad for school, travel or to do business in another country. Over all, the government is becoming more worried about the safety of its investments in the United States, which are largely in Treasury bonds and quasi-sovereign securities issued by Fannie Mae and Freddie Mac.

Beijing recently called for a greater role in international trade for the special drawing rights currency of the International Monetary Fund. But China is also fully aware that the United States can veto an I.M.F. decision. China’s call was more meant to sound an alarm to the United States.

Many Chinese people increasingly fear the rapid erosion of the American dollar. The United States may want to consider offering inflation-protection measures for China’s existing investments in America, and offer additional security or collateral for its continued investments. America should also provide its largest creditor with greater transparency and information.

We still call the dollar American gold. But the United States should not assume that this will never change.


Victor Zhikai Gao is an executive director of the Beijing Private Equity Association and a director of the China National Association of International Studies.

    China’s Heart of Gold, NYT, 14.5.2009, http://www.nytimes.com/2009/05/14/opinion/14Gao.html?ref=opinion






U.S. Retail Sales

Fall for a Second Month


May 14, 2009
The New York Times


Retail sales fell in April as consumers spent less on gasoline, appliances and groceries, the government reported on Wednesday, a sign that consumers are not likely to begin spending again in droves anytime soon.

The Commerce Department reported that retail sales fell a seasonally adjusted 0.4 percent last month, a worse drop than expected. Economists predicted that sales would be flat, their declines halted by increases in consumer confidence and some signals that traffic in stores was improving.

“There’s weakness across quite a large number of categories,” said Nigel Gault, chief United States economist at IHS Global Insight. “We had huge declines during the fourth quarter, and then we had a couple of decent months of rebound. But now we’ve reversed most of that.”

Sales at retailers ranging from clothing shops to bookstores to restaurants were down 10.1 percent from a year ago.

In April, consumers spent slightly more on automobiles and car parts, and more on home-improvement supplies and sporting goods and books. But sales at electronics and appliance stores fell 2.8 percent from March, and sales at gas stations fell 2.3 percent.

The numbers showed that consumer spending, which accounts for 70 percent of the economy, seems to be bumping along at lower levels.

Last week, 30 of the country’s largest retailers, discounters and clothing chains reported that their sales last month grew by an average of 1.2 percent, according to Thomson Reuters, largely because of warm weather, strong sales at Wal-Mart and the fact that Easter fell in April this year.

While higher-end retailers like Saks continued to suffer and Abercrombie & Fitch posted a year-over-year decline of 22 percent in sales at stores open at least a year, many stores said the picture at the cash register was looking a little less grim. Sales at Aeropostale rose 20 percent, and Target swung from nine straight months of losses to a 0.3 percent gain in April.

Consumers are still cautious about spending money, and they are squirreling more away into savings accounts as the recession plods on and unemployment rises. But retail analysts say spending has stabilized since late last year, when consumer spending plunged as the financial crisis broke out.

Shoppers may not be returning to their old spendthrift ways, but they are returning to the malls, and they are willing to buy when they see bargains, analysts said. Consumer spending rose at a 2.2 percent annual rate in the first quarter, but much of that increase was due to sharp increase in January that tapered off in February and March.

“What we’ve got is a consumer that’s roughly stabilized, but not a consumer who’s ready to come back and drive the economy,” Mr. Gault said.

For retailers, the new American thriftiness means stores will have to keep offering fat discounts and two-for-one sales to entice shoppers through the front door. But analysts said many retailers have trimmed back their inventories to match lower levels of demand, so they will likely not have to slash priced by 80 percent or more simply to clear their overstocked shelves.

    U.S. Retail Sales Fall for a Second Month, NYT, 14.5.2009, http://www.nytimes.com/2009/05/14/business/economy/14econ.html?hp






Obama Urges Congress

to Act on Credit Card Bill


May 14, 2009
Filed at 2:00 p.m. ET
The New York Times


RIO RANCHO, N.M. (AP) -- President Barack Obama urged Congress on Thursday to quickly send him legislation ending abusive credit card practices. But his populist appeal also included a stern warning to shoppers whose eyes are bigger than their budgets.

''There's no doubt that people need to accept responsibility,'' Obama said at a town hall-style appearance at a high school here. ''This is not free money -- it's debt and you should not take on more than you can handle.''

Obama's event began with a testimonial from a woman who said she had been mistreated by her credit card company when her interest rate inexplicably and suddenly shot up to 30 percent. Obama's audience also included several dozen other people who have expressed frustrations in letters and e-mails to the president about their credit card companies.

He asked for accountability from individual citizens who often buy far more than they can afford.

''Banks are businesses too. So they have a right to insist that timely payments are made,'' Obama said.

Still, his main purpose in appearing here was to lobby Congress from afar to make it harder for credit card companies to hike interest rates precipitously, charge unfair late fees, or impose other impossible conditions on consumers.

''Those days are over,'' he said.

''This is America and we don't begrudge a company's success when that success is based on honest dealings with consumers,'' Obama said. ''We need reform to restore some sense of balance.''

With Obama demanding a bill on his desk by Memorial Day, the House has approved legislation containing some of the protections Obama seeks. A slightly different version is pending in the Senate, where a vote could come as early as this week.

Both measures would ban interest rate increases on previous balances in most cases, and require that customers be given 45 days notice before their rates are hiked. The bills also would deter companies from giving a credit card to minors.

The issue is a top one for Obama, particularly as the recession continues and consumers complain about being abused by credit card issuers. Nearly 80 percent of U.S. households have a credit card, and just under half carry a balance, according to the White House.

Obama also discussed the bill in his radio and Internet address last Saturday. And he had industry representatives come to the White House for a meeting last month.

''We didn't agree on anything -- everything -- as you might imagine,'' Obama said about the meeting, then laughing as he realized his verbal mistake. ''That was a slip of the tongue,'' he joked. ''We didn't agree on everything.''

Indeed, as the industry isn't sitting quiet.

The American Bankers Association has warned senators that the measure could backfire by restricting credit for consumers at a time when they need it the most. The industry also argues that new rules by the Federal Reserve, scheduled to take effect in July 2010, address many of the concerns expressed by Obama and members of Congress. Obama doesn't believe those rules go far enough to fix the problem.

    Obama Urges Congress to Act on Credit Card Bill, NYT, 14.5.2009, http://www.nytimes.com/aponline/2009/05/14/us/AP-US-Obama-Credit-Cards.html






Homeownership Losses

Are Greatest Among Minorities,

Report Finds


May 13, 2009
The New York Times


After a decade of growth, the gains made in homeownership by African-Americans and native-born Latinos have been eroding faster in the economic downturn than those of whites, according to a report issued Tuesday by the Pew Hispanic Center.

The report also suggests that the gains for minority groups, achieved from 1995 to 2004, were disproportionately tied to relaxed lending standards and subprime loans.

An exception to the reversal of homeownership gains, the research shows, can be found among foreign-born Latinos, whose rate of ownership, while low, has stalled during the downturn but has not fallen.

After peaking at 69 percent in 2004, the rate of homeownership for all American households declined to 67.8 percent in 2008. For African-American households, it fell to 47.5 percent in 2008 from 49.4 percent in 2004. Latinos, native and foreign-born together, had a longer period of growth, with homeownership rising until 2006, to 49.8 percent, before falling to 48.9 percent last year. Homeownership for native-born Latinos fell to 53.6 percent from a high of 56.2 percent in 2005.

The decline among whites was more modest, to 74.9 percent last year from 76.1 percent in 2004.

So was the decline among immigrants, to 52.9 percent last year from 53.3 percent in 2006. Latino immigrants, who have the lowest rate of homeownership among the groups studied, did not lose any ground, remaining at the high of 44.7 percent they reached in 2007.

The numbers are a reflection that immigrants today have typically been living in the country longer than immigrants of the past, said Rakesh Kochhar, associate director of research for the Pew Hispanic Center, a project of the nonprofit Pew Research Center. The longer immigrants are here, the more secure they tend to become. Among foreign-born Hispanics, “the force of assimilation into homeownership is strong,” even during a downturn, Mr. Kochhar said.

The decline in homeownership among other groups, he said, reflects both high foreclosure rates and lower rates of home buying.

Even with the decline, the rate for all groups together remains higher than before the boom, with nearly 68 percent of American households owning homes last year, up from 64 percent in 1994.

The gaps between white and minority households remain significant, however, with homeownership rates for Asians (59.1 percent), blacks (47.5 percent) and Latinos (48.9 percent) well below the 74.9 percent among whites.

Like previous studies, the report found that blacks and Hispanics were more than twice as likely to have subprime mortgages as white homeowners, even among borrowers with comparable incomes. In 2006, the last year of heavy subprime lending, 17.5 percent of white home buyers took subprime loans, compared with 44.9 percent for Hispanics and 52.8 percent for blacks.

These loans, which typically require little or no down payment and are meant for borrowers with low credit scores, made homeownership possible for many black and Hispanic families during the boom years, but also led to high rates of foreclosure.

“Basically, that gap was closed on poor loans that never should have been made and wound up harming folks and their neighborhoods,” said Kevin Stein, associate director of the California Reinvestment Coalition, an organization of nonprofit housing groups.

African-Americans and Latinos remain more likely than whites to be turned down for mortgages, with 26.1 percent of applications from Hispanics rejected in 2007, 30.4 percent of applications from blacks and 12.1 percent of applications from whites.

Though there were no figures available on the race or ethnicity of homeowners in foreclosure, the researchers found that counties with high concentrations of immigrants had particularly high foreclosure rates.

But the research did not suggest that high rates of immigration on their own caused high levels of foreclosure, Mr. Kochhar said. High unemployment, falling home prices, subprime loans and high ratios of debt to income all contributed.

Enrique Lopez, a Miami real estate agent, said that with the tightening of credit, his Hispanic clients had had a harder time getting mortgages than non-Hispanics, in part because they had lower credit scores.

Mr. Lopez, a member of the National Association of Hispanic Real Estate Professionals, said, “There are people we work with that make enough money, and we can’t put them in homes.”

Carmen Gentile contributed reporting.

    Homeownership Losses Are Greatest Among Minorities, Report Finds, NYT, 13.5.2009, http://www.nytimes.com/2009/05/13/us/13homeowner.html?hpw






Records Show Billions Withdrawn

Before Madoff Arrest


May 13, 2009
The New York Times


About $12 billion was pulled out of accounts at Bernard L. Madoff’s firm in 2008, according to several people briefed on an analysis of Mr. Madoff’s business records.

About $6 billion, or half, was taken out in just the three months before the financier was arrested in December and charged with operating an extensive Ponzi scheme, these people said.

Those figures offer a bit of hope for Mr. Madoff’s thousands of defrauded customers. Under federal law, the trustee overseeing the Madoff bankruptcy can sue to retrieve that money from the investors who withdrew it.

Indeed, the trustee, Irving H. Picard of Baker & Hostetler, filed two lawsuits on Tuesday seeking the return of a total of $6.1 billion, which he estimated had been withdrawn over the last decade.

One case seeks the return of $5.1 billion from various trust funds and partnerships run by Jeffry M. Picower, a prominent Palm Beach, Fla., investor whose charitable foundation was considered one of the notable victims of Mr. Madoff’s fraud.

Mr. Picard also sued to recover $1 billion withdrawn last year by Harley International, a hedge fund based in the Cayman Islands and administered by a unit of the Dutch bank Fortis.

Both lawsuits were filed in Federal Bankruptcy Court in Manhattan. And both assert that the defendants, as professional investors, should have realized that their profits were too high and too consistent — and Mr. Madoff’s paperwork and procedures were too sloppy — to be legitimate.

But the complaint against Mr. Picower goes further, accusing him of participating in a web of transparently false transactions with Mr. Madoff that were aimed at compensating him for “perpetuating the Ponzi scheme” at the expense of other investors.

In 1999, for example, one of Mr. Picower’s accounts posted an annual profit of more than 950 percent, the suit said. That account was one of two that reported annual returns from 1996 to 1999 ranging from 120 percent to more than 550 percent, the suit said.

In other accounts, backdated transactions generated billions of dollars of fictional year-end losses and one account grew by 30 percent in just two weeks in 2006 — thanks to trades that purportedly occurred months before the account was even opened.

A lawyer for Mr. Picower and his wife, Barbara, who was also named as a defendant, denied the allegations.

“Mr. and Mrs. Picower considered themselves friends of the Madoffs for over 35 years,” said the lawyer, William D. Zabel of Schulte Roth & Zabel. “They were totally shocked by his fraud and were in no way complicit in it.”

Mr. Zabel added: “They lost billions in personal assets, and most dear to them, all of the assets of their esteemed foundation.” The Picower Foundation closed its doors after Mr. Madoff’s arrest.

According to people familiar with the analysis of Mr. Madoff’s cash records, most of the $12 billion that flowed out of his fraudulent money-management operation last year was withdrawn by various “feeder funds,” which had raised cash from investors and pooled it to invest with Mr. Madoff.

Several of those feeder funds have already been the targets of lawsuits by Mr. Picard, who is searching for assets to be shared among customers who lost what they believed to be almost $65 billion in the Ponzi scheme.

It is not clear where the cash taken out of the Madoff accounts is located, or how much of it can be recovered through litigation.

In the lawsuit seeking to recover more than $1 billion withdrawn by Harley International, Mr. Picard asserts that the fund should have detected the fraud before investing more than $2 billion of its clients’ money.

According to that complaint, Harley International made 14 transfers out of its Madoff account over the last six years, including $425 million that was withdrawn three months before the Ponzi scheme became public.

A spokeswoman for Harley International, Jamie Moss, did not return calls seeking comment.

In the complaint, Mr. Picard said Harley International, which invested client money with Mr. Madoff since at least 1996, received “unrealistically high and consistent annual returns” of about 13.5 percent. That outpaced the swings in the stock index on which Mr. Madoff had apparently based his trading strategy.

Trading records indicate that the Madoff firm, Bernard L. Madoff Investment Securities, made at least 148 stock trades in Harley International’s account in the last decade at prices that did not match the trading range for those stocks on the dates the trades supposedly occurred.

Mr. Picard claims those trades should have raised red flags for “any investment professional managing the account.”

The Harley lawsuit is similar to one Mr. Picard has filed recently against J. Ezra Merkin, the New York financier who lost over $2 billion investing with Mr. Madoff.

The lawsuit against Mr. Picower mirrors similar allegations Mr. Picard made in a complaint against Stanley Chais, an investment manager and prominent Los Angeles philanthropist. Both investors have said they intend to fight the lawsuits.

Mr. Picard has raised about $1 billion in assets for Mr. Madoff’s victims, but the lawsuits filed in the last two weeks could push that number much higher.

Mr. Madoff pleaded guilty on March 12 to running the biggest Ponzi scheme in history. He is scheduled to be sentenced next month and faces 150 years in prison.

    Records Show Billions Withdrawn Before Madoff Arrest, NYT, 13.5.2009, http://www.nytimes.com/2009/05/13/business/13madoff.html?hp






What Happens to the American Dream

in a Recession?


May 8, 2009
The New York Times


Given the battered economy, increasing joblessness and collapse of the housing market, what is the state of the American dream?

Pollsters for The New York Times and CBS News set out last month to try to answer that question. And the results seemed somewhat contradictory.

Although the nation has plunged into its deepest recession since the Great Depression, 72 percent of Americans in this nationwide survey said they believed it is possible to start out poor in the United States, work hard and become rich — a classic definition of the American dream.

And yet only 44 percent said they had actually achieved the American dream, although 31 percent said they expect to attain it within their lifetime. Only 20 percent have given up on ever reaching it. Those 44 percent might not sound like much, but it is an increase over the 32 percent who said they had achieved the American dream four years ago, when the economy was in much better shape.

Compared with four years ago, fewer people now say they are better off than their parents were at their age or that their children will be better off than they are.

So even though their economic outlook is worse, more people are saying they have either achieved the dream or expect to do so.

What gives?

We asked Barry Glassner, who is a professor of sociology at the University of Southern California and studies contemporary culture and beliefs.

“You want to hold on to your dream even more when times are hard,” he said. “And if you want to hold on to it, then you better define it differently.”

In other words, people are shifting their definition of the American dream. And the poll — conducted on April 1 to 5 with 998 adults, with a margin of sampling error of plus or minus 3 percentage points— indicated just that.

The Times and CBS News asked this same open-ended question four years ago and again last month: “What does the phrase ‘The American dream’ mean to you?”

Four years ago, 19 percent of those surveyed supplied answers that related to financial security and a steady job, and 20 percent gave answers that related to freedom and opportunity.

Now, fewer people are pegging their dream to material success and more are pegging it to abstract values. Those citing financial security dropped to 11 percent, and those citing freedom and opportunity expanded to 27 percent.

Here’s some respondents’ answers that were put in the category of freedom and opportunity:

“Freedom to live our own life.”

“Created equal.”

“Someone could start from nothing.”

“That everybody has a fair chance to succeed.”

“To become whatever I want to be.”

“To be healthy and have nice family and friends.”

“More like Huck Finn; escape to the unknown; follow your dreams.”

Those who responded in material terms were hardly lavish. Here’s a sampling:

“Basically, have a roof over your head and put food on the table.”

“Working at a secure job, being able to have a home and live as happily as you can not spending too much money.”

“Just financial stability.”

“Owning own home, having civil liberties.”

Mr. Glassner said, “For the vast majority of Americans at every point in history, the prospect of achieving the American dream has been slim but the promise has been huge.”

“At its core, this notion that anyone can be president or anyone can be a billionaire is absurd,” he said. “A lot of Americans work hard, but they don’t become president and they don’t become billionaires.”

Still, he said, Americans have always believed in possibilities. And they have consistently said over time that they can start poor in this country and become rich, regardless of the economy or their circumstances. The 72 percent who feel that way today is down from the 81 percent who felt that way in 2007, but 72 percent is still a very high percentage, especially given the downward economy.

“It would be hard to find another country where it’s as high,” Mr. Glassner said.

The percentage of people who say the American dream does not exist or is only an illusion has remained low — 3 percent today and 2 percent four years ago. As one such person put it to our pollsters last month: “A bunch of hooey.”

By the way, the phrase “the American dream” is generally agreed to have been coined first in 1931, in the midst of the Depression. In his book, “The Epic of America,” the historian James Truslow Adams wrote, “It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain the fullest stature of which they are innately capable.”

    What Happens to the American Dream in a Recession?, NYT, 8.5.2009, http://www.nytimes.com/2009/05/08/us/08dreampoll.html






Retailers Report

Smaller Sales Declines

in April


May 7, 2009
Filed at 12:53 p.m. ET
The New York Times


NEW YORK (AP) -- Consumers enticed by warmer weather and glimmers of hope for the economy bought a few more items in April, helping discounter Wal-Mart Stores and many mall clothing chains post better results for the month than expected.

Business in many areas remains weak, however, and analysts expect a slow recovery as unemployment remains high and other economic woes persist.

Among merchants that reported sales Thursday, mall-based clothing stores including Gap, American Eagle and Wet Seal posted smaller declines than analysts had forecast. The Children's Place, T.J. Maxx owner TJX Cos. Inc. and The Buckle saw bigger gains than expected.

But warehouse store operator Costco Wholesale Corp. reported a deeper-than-expected same-store sales drop, hurt by the closing of its stores on Easter.

''I think we are seeing signs of stabilization that is taking hold,'' said Michael Dart, senior partner at consulting firm Kurt Salmon Associates. ''But this will be a long, drawn-out recovery, rather than a quick rebound'' amid a litany of economic problems.

One of the biggest worries for people is job security. New claims for jobless benefits fell to the lowest level in 14 weeks, the Labor Department said -- a possible signal that the wave has peaked. Still, the number of unemployed workers getting benefits hit a new record.

Wal-Mart is continuing to take market share away from rivals as shoppers look for deals in the recession. Grocery, health and wellness products, entertainment and home furnishings were among its best-selling items.

''We gained new customers, improved our market share position, and found that when customers had more money to spend, they spent it more often at Wal-Mart,'' Vice Chairman Eduardo Castro-Wright said in a statement. Sales at stores open at least a year, or same-store sales, are a key indicator of retailer performance since they measure growth at existing stores rather than newly opened ones.

Wal-Mart reported a 5 percent same-store sales gain, much better than the 2.9 percent increase that analysts surveyed by Thomson Reuters had expected. That excludes fuel sales.

But Castro-Wright said the second quarter will be challenging compared with the year-ago period, when people received their government stimulus checks.

A tally by Goldman Sachs and the International Council of Shopping Centers found that same-stores sales rose 0.7 percent, the first overall increase in six months. But April benefited from a shift in the Easter holiday from mid-March last year. Michael P. Niemira, chief economist at ICSC, said because of that a better gauge was the overall March-April average, which was down 1.4 percent.

Retailers' business in April was also helped by warmer weather and tax refunds. Signs of an improving an economy -- a stock market rally and better news about the housing market -- have helped improve shoppers' confidence.

Sentiment levels are still hovering near historic lows, however, as shoppers worry about their jobs, available credit and their shrunken retirement funds.

Niemira cited the better tone in April's reports but cautioned that they don't prove a broadening recovery -- only that inventory cuts and stores closings are starting to have an effect. He believes stores will start to see a broader recovery in late summer.

Discounter Target Corp. said same-store sales edged up 0.3 percent, not quite the 0.4 rise expected, but predicted first-quarter results will likely beat expectations. Grocery and health care products were among the best sellers. Clothing and home products were weaker.

Costco, though, said its April same-store sales dropped 8 percent, more than the 6.8 drop that analysts expected.

Among clothing and department stores, there was guarded optimism, though luxury stores still struggled with sharp sales drops. Macy's Inc. saw a 9.1 percent decline in same-stores sales, worse than forecast, but boosted its first-quarter outlook. J.C. Penney's 6.6 percent drop was a little worse than expected, but better than the company's own guidance. It also upgraded its first-quarter profit outlook.

Gap Inc. had a 4 percent decline, better than the 7.8 percent drop expected.

Among teen merchants, Wet Seal Inc. reported a 2.2 percent drop, much smaller than expected. American Eagle Outfitters Inc. had a 5 percent decline, much better than the 8.8 percent anticipated. The Buckle enjoyed an 18.2 percent gain, beating estimates, while The Children's Place had a 5 percent gain when expectations had been for sales to be flat.

    Retailers Report Smaller Sales Declines in April, NYT, 7.5.2009, http://www.nytimes.com/aponline/2009/05/07/business/AP-Retail-Sales.html






For Small Employers,

Shedding Workers and Tears


May 7, 2009
The New York Times


GRAFTON, Wis. — In a small, windowless conference room, the nine members of the management team at Ram Tool gathered to consider which employees should be laid off in the company’s latest round of cutbacks. They debated each name and weighed issues like seniority and skills. Could they do multiple jobs? What was their attendance record?

Finally, after three days of discussions, they arrived at a list, and it fell to Shelly Polum, the vice president for administration at this small, family-owned tool-and-die manufacturing company here, to inform four workers they were being let go. She put on what her husband called her “stone-cold face” and walked out onto the shop floor.

When it was over, trying to maintain her composure, she rushed back to her office and shut the door quickly.

Then she sank to the floor and burst into tears.

“It was a rush of emotions,” Mrs. Polum said later. “I think what really hit me was, I wanted this to be the last time. Is this enough? Is this the end? I guess I hoped this was the last time I have to do this.”

Since the economy went into a freefall last September, Mrs. Polum, 43, has had the task of laying off 26 workers. It is a delicate and often painful assignment being carried out across the country by business owners, human resources executives and other managers, and it can carry a large emotional toll. That is particularly true at small and medium-size companies with fewer than 500 employees, like Ram Tool, which employ half the nation’s private sector workers and where cutbacks are often very personal.

Charlie Thomas III, vice president of Shuqualak Lumber in Shuqualak, Miss., had to dismiss nearly a quarter of his work force, which used to number about 160 employees, at the end of October. He also dismissed a handful of workers in January.

He wrote out a speech for the announcement in October in front of his men, whom he told to gather in the lumberyard. Midway through delivering it, Mr. Thomas had to stop and go back into his office to compose himself.

“I couldn’t get it out,” he said. “It just killed my soul.”

Ram Tool, which was founded 30 years ago by Mrs. Polum’s father, Roy Kannenberg, in his garage, had nearly 100 employees as recently as several years ago but is now down to about 50.

The company’s customers come from industries like oil and gas, construction and automotive, all sectors hurt by the economic downturn. Sales, which began to slow in late summer, have plummeted by half, leaving the company struggling for survival. After slashing hours and making other cutbacks, the company began the process of laying off workers several at a time in October.

In the management team meetings, each member, armed with an employee roster by department, suggested workers to be cut. A vote was taken on each worker. Some got reprieves; others were added to the list.

A premium was put on workers with diversified skills. One employee was saved because he happened to have a commercial driver’s license, so he could make deliveries as well.

There were impossible dilemmas: what to do about two equally valued employees when one was single and the other had a family to support; how to balance an employee’s talent against his cost.

Once an initial list of names was settled upon, the small group of family members who own and run the company met again to finalize the decision. Over the last few months, they have even approved the layoffs of two of their relatives.

But it has been left to Mrs. Polum to carry out the decisions. Some of her relatives have offered to relieve her of the duty, but she insists that it is part of her job.

“I wanted to make sure I knew what was being said to that employee,” she said. “I wanted to be the person that said it, and I wanted to be the last person that had anything to say.”

The process of steeling herself begins the night before, when Mrs. Polum said she usually cannot bring herself to eat.

“It affects me so internally because I know I’m going to hurt somebody,” she said. “I’m affecting their lives.”

On their half-hour drive into work from their home in Slinger, Wis., Mrs. Polum’s husband, Dennis, who handles purchasing, said he instructs her to block out her feelings.

“I call it a ‘stone-cold face,’ ” Mr. Polum said. “You can’t show any emotions. You almost have to step outside of yourself to do it.”

On the morning of the most recent layoff in late March, Mrs. Polum called an employee meeting in the lunchroom. She explained the company’s deteriorating financial situation and informed them some people would have to be let go.

Instead of calling workers to her office, as she had done in the past, Mrs. Polum has been pulling workers aside after handing them their weekly paycheck.

Just before she went out on the floor, Mrs. Polum wrote on the palm of her hand the names of the workers she would have to approach.

“To make sure I’m hitting the right people,” she explained.

It was when Mrs. Polum got to the final worker on her palm that her emotions finally caught up to her. The employee and his wife care for several adopted children. Even though his department had been slow for months, he had been deliberately spared by the managers in previous layoffs.

“We were all avoiding it,” said Mike Kannenberg, Mrs. Polum’s brother, who oversees manufacturing.

But now the members of the management team believed they had no other choice.

The worker erupted at Mrs. Polum, asking how he was supposed to support his family now.

Mrs. Polum mumbled an apology, guilt washing over her. For employees at Ram, she said later, “you’re part of my family. We’ve been together. I’m supposed to protect you.”

She tries to remind herself that she is doing what is necessary to keep the company afloat. But sometimes that is of little solace.

Hurrying back to her office that morning, Mrs. Polum shrugged off a colleague who asked if she was O.K. She closed the door and slumped into the corner in tears.

“I’m hoping we’ve found the bottom,” she said. “I feel like we can see the light. There is a chance we’re done. We’ve seen the worst. I’m hoping.”

    For Small Employers, Shedding Workers and Tears, NYT, 7.5.2009, http://www.nytimes.com/2009/05/07/us/07layoff.html?hpw






Bright Spot in Downturn:

New Hiring Is Robust


May 6, 2009
The New York Times


Everyone knows the grim news — unemployment in the United States has jumped to 8.5 percent, a 25-year high, and is racing toward double digits. Since November, the nation has lost more than three million jobs.

But not everyone knows the brighter side to the equation: deep in the maw of the deepest recession since the Great Depression, millions are still being hired.

So, while 4.8 million workers were laid off or chose to leave their jobs in February, employers across the country hired 4.3 million workers that month, according to the Bureau of Labor Statistics.

“The best thing you can say about these numbers is it speaks to the dynamism of the U.S. economy, and the net negative number that we all traffic in masks that,” said Robert J. Barbera, chief economist at ITG, a research and trading firm. “Ninety out of 100 people who know the number — 650,000 were lost in February — think that means no one was hired and 650,000 were fired.”

In February — before the economy started to show the first faint signs of a possible recovery — there were three million job openings nationwide. And despite large new job losses likely to be announced Friday, there are still millions of job openings.

Who is hiring? Hospitals, colleges, discount stores, restaurants and municipal public works departments. I.B.M. is hiring more than 700 people for its new technical services center in Dubuque, Iowa, while the Cleveland Clinic has 500 job openings, not just for nurses but also for pharmacy aides and physical therapists. And after President Obama’s stimulus package kicks into gear, state, local governments and road-building contractors are expected to hire more.

Zachary Schaefer has hired 72 people since February for the Culver’s hamburger and frozen custard restaurant that he and several partners just opened in Surprise, Ariz.

“The amount of applicants who are qualified is definitely up,” he said. “Whereas before we were counting on a lot of high school applicants, now there are a lot more middle-age people applying.”

Eddie Hamm, a former construction worker, was unemployed for five months when he drove by the site where the Culver’s was under construction. Mr. Hamm, 29, applied for a job there, and now he’s a “fry guy.”

“I’m just happy I got hired — I didn’t want to stay home, not doing anything,” he said, hardly complaining that he is earning half the $15 an hour he made in construction. “I don’t look at it like I’m making $7.50. I look at it — I’m having a job in a down time, and it’s a job where I can move up.”

Economists and job counselors advise the unemployed that there are definitely jobs to be had, even if there aren’t nearly enough to go around. With 13.2 million people out of work, there are 4 1/3 unemployed Americans for every job opening. “You’re facing more competition for every job you apply for, but the reality is there is a lot of hiring going on,” said Andrew M. Sum, director of the Center for Labor Market Studies at Northeastern University. “You’re never going to find anything unless you apply.”

Even industries that have taken a beating are doing plenty of hiring. According to the Bureau of Labor Statistics, construction companies hired 366,000 workers in February, and manufacturers hired 249,000. Retailers hired 536,000 workers in February, but that was down 25 percent from the previous February.

Some job openings are to replace retirees, some to replace employees who left for other jobs, but many openings result from expansion. Companies that are still growing are blessed with talented applicants.

“It’s easier to hire in a recession — we have about five applications for every position,” said Howard Glickberg, principal owner of Fairway Market, the well-known grocery company based in Manhattan.

Fairway just hired 350 people for its month-old store in Paramus, N.J., the first Fairway outside of New York State. The company plans to add 1,200 more workers over the next two years by opening stores in Queens; Pelham Manor, N.Y.; and Stamford, Conn.

“What you have to be afraid of is hiring someone who can’t find something better at the time, and when they find something better they leave you,” Mr. Glickberg said. “I want to hire someone who will make a career of it.”

The nation’s largest private-sector employer, Wal-Mart Stores, is also hiring aplenty. Wal-Mart, with 1.4 million workers nationwide, hires several hundred thousand workers each year because of employee turnover, and expects to increase its domestic work force by nearly 50,000 this year, thanks to plans to open 150 new stores.

Shawnalyn Conner is running a hiring center for a Wal-Mart store that will open on June 17 in Weaverville, N.C., near Asheville. She plans to hire 350 workers.

“The biggest comment that we get from people is that they’re looking for a company that’s growing, and Wal-Mart offers that,” said Ms. Conner, who, as the top manager of the new store, has hired 77 people so far. Gisel Ruiz, senior vice president for the people division of Wal-Mart U.S., said the company had a hiring program for former junior military officers, often for jobs as assistant store managers. With many veterans having a hard time landing jobs, Wal-Mart hired 150 former officers last year.

The health care industry has held its own in hiring. The University of Miami medical school, which runs three hospitals, has 250 openings and is hiring about 35 people a month, compared with 100 a month in good times. Cleveland Clinic has 500 job openings, compared with 2,000 during better times.

“We have a hiring freeze on, but even when there’s a hiring freeze, we need to maintain our head count,” said Joe Patrnchak , Cleveland Clinic’s chief human resources officer. “We have 40,000 people, and you’re going to have some openings.”

He is encountering an unusual snag in hiring people. “A challenge we have now is people from other areas are having problems selling their homes,” Mr. Patrnchak said. “People aren’t quite as mobile nowadays.”

The University of Miami medical school is also facing an unexpected problem. “There’s a flood of applicants, but even so, it’s harder to find really good, experienced people,” said Paul Hudgins, its associate vice president for medical human resources. “We’re seeing people hunkering down and saying they’re going to stay where they are.”

The recession has encouraged people to cling to their jobs. Just 1.5 percent of workers voluntarily quit their jobs in February, the lowest level since the Bureau of Labor Statistics began collecting those numbers eight years ago.

Like many educational institutions, Washington University in St. Louis continues to hire. It has 175 job openings in admissions, residential life and other areas. There is a flood of job applicants, and Ann Prenatt, vice chancellor for human resources, said that has pros and cons, the advantage being that the university does not have to offer large premiums as often to draw coveted applicants.

    Bright Spot in Downturn: New Hiring Is Robust, NYT, 6.5.2009, http://www.nytimes.com/2009/05/06/business/economy/06hire.html






Economic Scene

As Unemployment Growth Slows,

a Recovery Could Stir


May 6, 2009
The New York Times


Ben Bernanke sounded more optimistic on Tuesday than he has in a long time, and President Obama has talked about glimmers of hope. The stock market has risen 34 percent from its 2009 nadir.

On Friday morning, we will get the clearest sign yet of whether these glimmers are real. That’s when the Labor Department will release its monthly jobs report, the single most important economic indicator out there. As bad as the job market is, it no longer seems to be getting worse at an accelerating pace. In both February and March, the economy lost fewer than 670,000 jobs; in January, it had lost 741,000.

In past recessions, a slowdown in the rate of job loss has been a telling sign. A few months after that, the economy typically began growing again. The vicious cycle turned virtuous.

After a stretch of unrelenting bad news, dating to last year, the economic signals have been more mixed lately. In just the last week, data on home sales, manufacturing and the service sector have all been better than expected. This welcome news has caused many of us who are pessimistic about the economy’s near-term fortunes to reassess.

“At the moment,” says Joshua Shapiro, chief United States economist with MFR, a New York research firm, “those forecasting nearer-term recovery have the recent data on their side.”

There is still a strong case to be made that the economy won’t feel truly healthy anytime soon, not this year or perhaps even next.

The overhang from the 20-year bubble in stocks and then real estate won’t simply go away. As Mr. Shapiro says, “Wage and salary growth has evaporated, credit is very tight, home prices continue to decline, financial asset values have been decimated and household balance sheets are extremely stressed.”

But the difference between a bad economy and a depression is real. We’ve taken a few steps away from depression lately. If Friday’s jobs report shows more progress, it will suggest that Mr. Bernanke’s optimism is legitimate.

Wall Street has a notoriously bad forecasting record. It almost always predicts that the economy will grow by something like 3 percent a year, which happens to be correct most of the time. But when a forecast would most be useful — when the economy is turning — Wall Street doesn’t offer much guidance. Amazingly enough, Wall Street’s consensus forecast has failed to predict a single recession in the last 30 years.

A small firm in New York called the Economic Cycle Research Institute has a much better record. It was founded by Geoffrey Moore, an economist who helped invent the idea of leading indicators. He used historical patterns to predict the economy’s direction, and unlike most Wall Street forecasters, he wasn’t afraid to stand apart from the crowd. In 2006, while most forecasters were still talking about 3 percent growth, Mr. Moore’s protégés were issuing warnings (though they were still too optimistic).

Today, they think the economy is on the verge of turning. “We’re in the worst recession since World War II,” says Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. “However, the days of this recession are limited.”

The main reason, he says, is the economy’s normal self-correcting mechanism. That mechanism, I realize, is somewhat counterintuitive. You often hear — and we in the news media often write — about the vicious cycle of job cuts, spending cuts and yet more job cuts. Eventually, though, the cycle always ends, and momentum reverses.

How? Prices fall by enough to tempt households to spend. Businesses cut their costs, become profitable again, and begin to expand. Spending begets more spending. This is what’s happening now, Mr. Achuthan argues. The stimulus plan is also making a difference, he says, and so are the government’s efforts to reduce the cost of borrowing.

Obama administration officials have been a bit more circumspect. They have said, as you would expect them to, that more disappointments are likely. But Lawrence Summers, the top economic adviser, has also been talking lately about the economy’s tendency to self-correct.

To replace worn-out vehicles and accommodate a growing population, Americans need to buy roughly 14 million vehicles a year, Mr. Summers says. Recently, they have been selling at an annual pace of only nine million. At some point, more people will have to start buying.

The Economic Cycle Research Institute’s data show that, in every previous downturn in the last 75 years, the economy has started to grow no more than four months after its pace of deterioration has unquestionably slowed. So that’s what the institute is forecasting: the Great Recession will most likely be over by Labor Day.

Friday’s jobs report, covering April, will support this case if, at the very least, it shows job losses of no more than 650,000 a month. The average forecast among economists is roughly 610,000. The Labor Department’s revisions to its February and March numbers will also be worth watching.

Still, even most optimists, including Mr. Achuthan, are not predicting a fabulous recovery. The forces weighing on the economy are too strong.

Stock prices, despite their dizzying fall, are only slightly below their historical average, relative to long-term earnings, which suggests that a true bull market is unlikely. Home prices still have some way to fall. Eventually, the government will need to bring down the budget deficit, and doing so will hold back economic growth.

Morgan Stanley’s economists put out a thoughtful report this week, pointing out that the aggressive steps taken by the government have so far muted the impact of “deleveraging” — the paying down of debt by households and Wall Street. But this debt repayment is still happening, and it will be a drag on growth for a long time. The debt and the severity of this recession also raise the risk that the recent signs will turn out to be a false dawn, much as the economy slipped back into a deep downturn in the mid-1930s.

And whenever the economy begins growing again, it won’t feel good for a while. Slowing job losses aren’t the same as job gains. The unemployment rate may continue to rise into 2010 — and not come down to a healthy level until even later.

As a point of reference, the recession of the early 1990s ended in March 1991, but Americans were still so dissatisfied that they removed George H. W. Bush from office a year and a half later.

So the situation is not as dark as it was a few months ago. Maybe Friday’s jobs report will bring more reason for hope. But the Great Recession, or at least its impact, still has a way to go.

    As Unemployment Growth Slows, a Recovery Could Stir, NYT, 6.5.2009, http://www.nytimes.com/2009/05/06/business/economy/06leonhardt.html?hp






Bernanke Sees Hopeful Signs

but No Quick Recovery


May 6, 2009
The New York Times


WASHINGTON — The chairman of the Federal Reserve, Ben S. Bernanke, said on Tuesday that the economy appeared to be stabilizing on many fronts but cautioned that a recovery was still months away and that “further sizable job losses” will continue even after an upturn begins.

“We continue to expect economic activity to bottom out, then to turn up later this year,” Mr. Bernanke told the congressional Joint Economic Committee, according to his prepared remarks.

“Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while,” he predicted. “We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly.”

Notwithstanding his caveats, the Fed chairman gave his most upbeat assessment since the United States fell into its most severe financial crisis since the Depression and its steepest recession since at least the early 1980s.

He noted that consumer spending, which sank sharply the second half of 2008, actually grew in the first quarter of this year. Sales of existing homes have been “fairly stable” since late last year, in part because plunging home prices have made houses more affordable and interest rates on some fixed-rate mortgages have fallen below 5 percent.

Mr. Bernanke said conditions in credit markets have revived slightly in recent weeks. Homeowners are refinancing mortgages at a rapid clip, and financial institutions have stepped up their sale of securities backed by of credit card loans, automobile debt and student loans.

At the same time, the Fed chairman made it clear that the recession is not yet over and that many people will experience harder times in the months ahead. The nation has already lost five million jobs since the recession began more than one year ago, and unemployment usually continues to climb for many months after economic growth begins.

Mr. Bernanke noted that business investment was still “extremely weak,” which means that businesses are still contracting and will continue to shed workers. The unemployment rate hit 8.5 percent in March, and the Labor Department is expected to report on Friday that the jobless rate jumped sharply again in April.

Though Mr. Bernanke stopped short of saying the financial crisis is ending, he said the government’s much-criticized program to bail out banks and Wall Street firms had helped avoid a complete collapse. “I think we are in far better shape than we were in September and October,” he said.

The Fed chairman suggested that many of the nation’s 19 biggest banks will be instructed to raise additional capital when the Fed announces the results of “stress tests” on Thursday, and he tacitly acknowledged that the federal government will become a bigger shareholder in at least some of those institutions.

The tests are designed to determine whether the banks would have enough capital if the economic downturn is worse than expected. The banks have six months to raise that capital from private investors, but will have to take government money in exchange for shares of common stock if private money is unavailable.

“Following the announcement of the results, bank holding companies will be required to develop comprehensive capital plans,” Mr. Bernanke said, without specifying an exact number. Asked if he expected banks to raise the “majority” of the required capital from private sources, Mr. Bernanke predicted only that the amount could be “significant.”

Mr. Bernanke came under sharp criticism for his decision against immediately stopping credit card companies from abruptly doubling or tripling their interest rates to consumers, often for people who have remained current on all their payments.

The Fed is preparing new protections for credit card customers, but it will not impose them until much later this year. Senator Charles E. Schumer, Democrat of New York, said he had asked Mr. Bernanke to use the Fed’s emergency powers to act immediately but that the Fed chairman refused to do so.

“The Federal Reserve’s failure to protect consumers from these outrageous rate increases is unconscionable,” Mr. Schumer said. Noting that the Fed had swiftly used its emergency powers to rescue “teetering financial institutions,” he attacked the Fed chairman for refusing to act more quickly to protect credit card customers.

“What about the the family that has a $10,000 balance and had its rate jump from 7 to 23 percent?” Mr. Bernanke said he was “very concerned” about such practices, but said that cutting short the normal process for approving new regulations might simply provoke banks to raise their rates even more quickly or to cut many customers off entirely.

“It’s a quandary,” he told Mr. Schumer.

“I’m very frustrated,” the senator responded. “You could have figured out a better way than the one you have chosen.”

    Bernanke Sees Hopeful Signs but No Quick Recovery, NYT, 6.5.2009, http://www.nytimes.com/2009/05/06/business/economy/06fed.html?hp






Obama Calls for New Curbs

on Offshore Tax Havens


May 5, 2009
The New York Times


WASHINGTON — President Obama on Monday called for curbing offshore tax havens and corporate tax breaks to collect billions of dollars more from multinational companies and wealthy individuals.

The move would appeal to growing populist anger among taxpayers but is likely to open an epic battle with some major powers in American commerce.

With the proposals he outlined at the White House, the president sought to make good on his campaign promise to end tax breaks “for companies that ship jobs overseas.”

He estimated the changes would raise $210 billion over the next decade and help offset tax cuts for middle-income taxpayers as well as a permanent tax credit for companies’ research and development costs.

The changes, if enacted, would take effect in 2011, when administration officials presume the economy will have recovered from the recession. But business groups were quick to condemn the White House for proposing tax increases amid a global downturn.

“This plan will reduce the ability of U.S. companies to compete in foreign markets, which will not only reduce jobs, but will also cripple economic growth here in the United States. It couldn’t come at a worse time,” said John J. Castellani, president of the Business Roundtable, a trade association of major businesses.

The proposals would especially hit pharmaceutical, technology, financial and consumer goods companies — among them Goldman Sachs, Microsoft, Pfizer and Procter & Gamble — that have major overseas operations or subsidiaries in tax havens like the Cayman Islands.

They have some of the mightiest lobbying armies in Washington, as well as influential patrons in Congress. That combination will test Mr. Obama’s ability to stand up to powerful interests and marshal support among lawmakers at the same time that he is trying to win passage of major health and energy measures.

At issue are tax laws that were originally intended to prevent multinational corporations from being double-taxed, by the United States and by foreign countries, by allowing companies to defer reporting their foreign income to the Internal Revenue Service and to get tax credits in the United States for foreign taxes paid.

Economists are divided over whether higher taxes would give corporations incentives to move jobs overseas or impair economic growth at home. In the coming debate, both Mr. Obama and the business lobby will claim that their way will save jobs.

The top corporate tax rate is 35 percent, but the Treasury Department estimated that in 2004, the most recent year for which data is available, American multinationals paid $16 billion in taxes on $700 billion in foreign income — an effective rate of 2.3 percent.

Mr. Obama’s tax-raising initiative comes amid government bailouts for major financial institutions, auto companies and insurance giants, and polls show growing opposition. In February, a Senate proposal to give multinational companies a big tax cut if they brought profits back to the United States was defeated by a surprisingly large margin.

The president, in his remarks, reflected the public’s restlessness in some of his most populist language to date.

Mr. Obama said most Americans paid taxes as “an obligation of citizenship,” but some businesses and rich people were “shirking” their duties, “aided and abetted by a broken tax system, written by well-connected lobbyists on behalf of well-heeled interests and individuals.”

“It’s a tax code full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share. It’s a tax code that makes it all too easy for a number — a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all,” the president said. “And it’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.”

The Democratic chairmen of the House and Senate tax-writing committees, Representative Charles B. Rangel of New York and Senator Max Baucus of Montana, said in statements that some of Mr. Obama’s proposals reflect ideas from their panels. But Mr. Baucus kept his distance, saying “further study is needed to assess the impact of this plan on U.S. business.”

Congressional Republicans were relatively quiet. Senator Charles E. Grassley of Iowa, the senior Republican on the Senate Finance Committee and a frequent critic of tax schemes, said the president could “count on my support” to crack down on abuses. “But if he’s using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he’ll lose me.”

Business groups had feared Mr. Obama would seek repeal of the tax-deferral law but he stopped short of that. Instead, he would prohibit companies from taking deductions in the United States for expenses on overseas investments until they have paid domestic taxes on the profits from those investments. Treasury estimated the proposal would raise $60.1 billion from 2011 through 2019.

General Electric has deferred American taxes on $75 billion in foreign profits by keeping them outside the United States, according to its annual report for 2008, and said it has no plan to ever repatriate that money. Citigroup has deferred taxes on $22.8 billion in foreign income.

The administration would raise $86.5 billion by ending a practice in which companies create foreign subsidiaries to shift income in ways that avoid taxes.

The Government Accountability Office has found that 83 of the 100 largest American companies have subsidiaries in tax havens; it counted 83 subsidiaries for Procter & Gamble alone. Financial services companies had even more, with Citigroup showing 427 and Morgan Stanley, 273.

Another proposal would close a loophole that allows companies to inflate the credits they claim for foreign taxes to the I.R.S., for an estimated $43 billion in new revenues. Separate steps to crack down on wealthy individuals would raise nearly $9 billion.

Tax experts, including some with Democratic leanings, caution that the proposals could put American corporations at a competitive disadvantage. The United States is part of a dwindling minority of industrialized countries that tries to tax corporate profits on a global basis. Most European governments tax corporations on the basis of their profits within their borders. “If other countries are adopting systems that are friendlier to multinational corporations, then companies will have an incentive to locate their corporate headquarters outside the United States,” said Alan Auerbach, a professor of economics at the University of California, Berkeley, who advised Senator John Kerry during his 2004 presidential campaign.

James Hines, an economics professor at the University of Michigan, suggested the president’s proposals could be seen as creating unfair trade advantages for domestic goods and services.

    Obama Calls for New Curbs on Offshore Tax Havens, NYT, 5.5.2009, http://www.nytimes.com/2009/05/05/business/05tax.html?hp






Where Home Prices Crashed Early,

Signs of a Rebound


May 5, 2009
The New York Times


SACRAMENTO — Is this what a bottom looks like?

This city was among the first in the nation to fall victim to the real estate collapse. Now it seems to be in the earliest stages of a recovery, a hopeful sign for an economy mired in trouble and anxiety.

Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing.

Indications of progress are visible in other hard-hit areas, including Las Vegas, parts of Florida and the Inland Empire in southeastern California. Sales in Las Vegas in March, for example, rose 35 percent from last year.

“It’s fragile, and it could easily be fleeting,” said an MDA DataQuick analyst, Andrew LePage. “But history suggests this is how things might look six months before prices bottom out.”

Hope for housing was on full display in the stock market on Monday. News that pending home sales rose in March instead of falling, coupled with improved construction spending, propelled a strong rally. One broad market average, the Standard & Poor’s 500-stock index, is now in positive territory for the year, after being down 25 percent on March 9.

No one in Sacramento is predicting that local housing prices, which have been cut in half from their mid-2005 peak, are going to reclaim much of that ground anytime soon.

Instead, this is what passes for wild-eyed optimism: a belief that things have finally stopped getting worse. “A period of price stagnation would boost a lot of spirits,” Mr. LePage said.

When a market bottoms, foreclosures usually stop piling up and banks become more willing to make loans, confident the collateral backing them will not fall in value.

Nationally, signs of progress in real estate are still faint at best. Existing home sales in March were down 7 percent from last year, according to the National Association of Realtors.

The supply of unsold homes was about 10 months, a number that has changed little over the last year and is abnormally high. But first-time buyers were an impressive 53 percent of the market — and that was largely before a first-time buyer’s tax credit of $8,000 became available.

With the tax credit in place and interest rates low, the pace of sales may be picking up. The Realtors’ group said Monday that the number of houses under contract in March was up 1 percent from a year earlier. Those pending deals will be reported in the existing-home sales for April and May.

Sales volume tends to recover long before prices. In fact, some analysts think price declines in many markets are accelerating. First American CoreLogic, a real estate data firm, reported that “the depth and breadth of price declines continued to worsen in February.” Fitch Ratings recently revised its estimate of future declines to 12.5 percent, from 10 percent, saying the drop would extend to the end of next year.

Amid the uncertainty, Sacramento is drawing scrutiny as a test case. The area boomed in the first part of the decade; the population of Sacramento County increased 10 percent, to 1.4 million, as San Franciscans sought cheaper places to live.

When the market peaked and the ability to refinance all those costly mortgages dried up, the carnage began. There have been 28,898 foreclosures in Sacramento County since 2005.

Sales in the top half of the market remain slow. The Federal Reserve reported on Monday that half of all banks recently tightened their lending standards on prime mortgages. Many would-be buyers, here as elsewhere, simply cannot get financing.

Sellers, meanwhile, are reluctant to lower their prices, preferring to bide their time. New construction is nearly nonexistent.

What drives the market here, then, are all those foreclosures. Two-thirds of the 2,092 existing single-family houses and condominiums sold here in March were bank repossessions, up from 8.5 percent two years ago, according to MDA DataQuick, a real estate research firm.

These cut-rate properties are engendering the same frenzy and frustration that symbolized the boom, as Rebecca and Chris Whitman discovered when they started looking for a house in December. Ms. Whitman’s new job as an athletics director at Sacramento State required an immediate move from Chico, two hours north.

In two months the couple looked at 100 houses, nearly all foreclosures priced under $200,000, making verbal offers on 20. Only rarely did they get a response. Banks trying to unload large numbers of properties are less interested in traditional transactions with individuals than all-cash offers from investors.

As interest rates fell, the Whitmans were able to increase their price limit. They ended up buying from investors. A syndicate had bought a three-bedroom foreclosure on a cul-de-sac in eastern Sacramento last fall for $172,000, made a few improvements and was flipping it — another boom-era element that is back. The Whitmans bought it three weeks ago for $224,500.

“We think we got a good deal,” said Ms. Whitman, 31. Their monthly payment, including property taxes, will be about $1,200. Renting an equivalent house, with space for their two dogs, two cats and the baby they are expecting, would have been hundreds of dollars more.

When buying is cheaper than renting, markets begin to turn. At the current rate of sales, there is less than three months of inventory in the Sacramento market. In normal times, that would indicate a seller’s market.

Except these are not normal times. The unemployment rate in the county is 11.3 percent, the highest in decades. That will prompt more foreclosures all by itself. Furthermore, banks have lifted various processing moratoriums that lowered foreclosures last fall.

These two factors yielded a rise in the number of default notices filed in Sacramento County in March to 2,819, a record. Thousands more bank-owned houses are likely to come to market this summer and fall.

“That will stall any progress toward stability,” said Michael Lyon, chief executive of Lyon Real Estate. “The prospects for a recovery are fool’s gold.”

Mr. Lyon expects further price declines and slowing sales. But David Berson, the chief economist for the mortgage insurer PMI, argues that such bleakness from the people whose livelihood is selling houses is itself a positive sign. “Things are awful at the bottom, and we’re at the bottom,” Mr. Berson said. “No question about it. But the trend going forward should be higher sales, and that will eventually affect prices.”

    Where Home Prices Crashed Early, Signs of a Rebound, NYT, 5.5.2009, http://www.nytimes.com/2009/05/05/business/economy/05turnaround.html






More Middle-Class New Yorkers

Face Eviction


May 5, 2009
The New York Times


A registered nurse came close to losing her $1,550-a-month apartment on the Upper East Side after being let go from two jobs in three months. A woman found herself dipping into a 401(k) to keep her $3,375 unit in Peter Cooper Village after her husband was laid off in February from his six-figure marketing job. A father of two with an M.B.A. and a law degree owed $5,400 in back rent in Stuyvesant Town after he struggled to find steady work and lent money to his wife’s family.

Lawyers, judges and tenant advocates say the staggering economy has sent an increasing number of middle-class renters across New York City to the brink of eviction, straining the legal and financial services of city agencies and charities. Suddenly, residents of middle-class havens like Rego Park in Queens and Riverdale in the Bronx are crowding into the city’s already burdened housing courts, long known as poor people’s court.

Even some affluent people in high-end places are finding themselves facing off with landlords. One man, laid off by Merrill Lynch, was forced to move out of his $5,700 apartment in TriBeCa, owing $20,000 in back rent. Todd Nahins, a lawyer who represents owners of luxury residential buildings, has been busy negotiating payment plans for tenants in arrears.

“There’s definitely an uptick of people who were basically very good rent payers until the economic downturn,” Mr. Nahins said. “There’s so many of them. People who at one point had made money are now not earning enough to pay their rent.”

No one knows exactly how many of those kinds of tenants are facing eviction; the city’s five housing courts, and two smaller community courts that hear similar cases, do not keep data on the income level of litigants. Overall, court records show that the number of cases filed citywide for nonpayment of rent jumped about 19 percent in the first two months of 2009 from the same period last year, to 42,257 from 35,588.

“It’s cutting across all lines,” said Jaya K. Madhavan, supervising judge of Bronx Housing Court. “The economy is really taking a toll on everyone.”

While the downturn has certainly put plenty of lower-income people at risk of eviction, those involved in the housing court system say the growing numbers of accountants, salespeople, small business owners, construction project managers and other white-collar professionals being pursued for nonpayment is striking.

Lawyers for District Council 37, the city’s largest public employee union, provided free legal assistance to members on 2,572 housing court cases last year, up from 2,277 in 2006. “People who never had eviction cases before are coming through our doors now,” said Joan L. Beranbaum, director of the union’s Municipal Employees Legal Services.

On the Upper East Side, the nonprofit Eviction Intervention Services has seen a spike in phone calls and office visits from tenants in rent-stabilized or rent-controlled apartments. In Bronx Housing Court, Room 360, which handles cases concerning units in co-ops and condominiums — which are often more expensive than those in rental apartment buildings — had 10,205 cases last year, up from 7,818 in 2007.

Landlords typically start nonpayment proceedings in housing court after a few months of missed rent, depending in part on a tenant’s previous payment history; the goal is usually not eviction. “It’s not about, ‘If you don’t have the money, get the hell out,’ ” Mr. Nahins said. “It’s about, ‘Look, we want to work it out.’ Nobody wants vacancies in high-end apartments.”

Diane Scott, a single mother on Staten Island, lost her home to foreclosure in 2007 after she was laid off as a $72,000-a-year legal recruiter, only to be threatened with eviction from her $1,750 apartment when her $40,000-a-year bookkeeping job was eliminated in June. After appearing in housing court in February, Ms. Scott, 42, said she had been unable to tell her three sons they might again have to move.

Kevin Brewster-Streeks, 29, and his partner, Greg Armstrong, 22, struggled to pay their $1,650 rent on Mr. Armstrong’s $18-an-hour salary as a medical assistant after Mr. Brewster-Streeks’s $36,450 job as a records clerk at a law firm was eliminated last year.

They borrowed $2,000 from relatives and friends and racked up $8,000 in credit-card debt. Mr. Armstrong withdrew about $4,000 from two pension and retirement accounts, and Mr. Brewster-Streeks started working as a hospital clerk for less than half of his previous pay. But they could not keep up: after two bouts in housing court, they moved out in February, owing nearly $7,000 in back rent.

“It’s kind of dehumanizing,” Mr. Brewster-Streeks said of the experience. “They see you as a certain kind of person. We’ve never been that certain kind of person.”

Mr. Armstrong stopped attending classes at LaGuardia Community College for two semesters and took so much time off from work to deal with the court case that he earned a negative job review. Along with legal help from District Council 37, of which Mr. Armstrong is a member, the couple got an emergency loan from the city’s Human Resources Administration.

They moved from a two-bedroom unit with ample closet space near Van Cortlandt Park in the Bronx to a one bedroom with two small closets at the edge of the Cross-Bronx Expressway. The rent is $500 less, but they still have to pay off what they owe on the previous place, along with the $5,650 loan.

“It’s going to take us a couple of years to get back from this,” Mr. Armstrong said.

For months, Christine A. Lewis, 46, has been living a kind of nomadic existence in her own apartment, using borrowed furniture, wearing borrowed clothing. Her own belongings — bed, clothes, computer, television set — were put in storage after a city marshal knocked on the door of her one-bedroom apartment in Co-Op City in the Bronx in June with an eviction order. She managed to quickly negotiate a return, but has been unable to raise $1,600 to pay off the storage company and get her possessions back.

So when her son died from bone cancer in December at age 18, Ms. Lewis had to borrow a suit to wear to the funeral.

Ms. Lewis said she lost her job as a $52,000-a-year hospital lab technologist because she was unable to concentrate during her son’s illness, and has been surviving since on unemployment benefits. She paid off $2,800 in back rent, but still worries about keeping up.

“It’s horrible and all, but I try to look at everything as if the glass is half full, as a learning experience,” she said.

    More Middle-Class New Yorkers Face Eviction, NYT, 5.5.2009, http://www.nytimes.com/2009/05/05/nyregion/05evict.html?hp







As Foreclosures Surge ...


May 4, 2009
The New York Times


The Obama administration sat by last week as 12 Senate Democrats joined 39 Senate Republicans to block a vote on an amendment that would have allowed bankruptcy judges to modify troubled mortgages.

Senator Obama campaigned on the provision. And President Obama made its passage part of his antiforeclosure plan. It would have been a very useful prod to get lenders to rework bad loans rather than leaving the modification to a judge.

But when the time came to stand up to the banking lobbies and cajole yes votes from reluctant senators — the White House didn’t. When the measure failed, there wasn’t even a statement of regret.

Mr. Obama’s plan to keep struggling Americans in their homes now relies on lenders to voluntarily rework bad loans. The plan provides ample incentives, including payments to servicers who successfully modify loans and, in some cases, payments to mortgage investors who agree to modifications. Whether that will be enough remains to be seen.

The administration estimates that its plan will prevent three million to four million foreclosures, but it will take several months before there is enough data to evaluate. In the past, however, voluntary modifications have failed to curb the rise in foreclosures. The number of foreclosure filings in March was very high, with estimates between 290,000 and 341,000.

Even if lenders do agree to modify loans, many Americans will still be in trouble. That’s because nearly 14 million homeowners are “under water” — they owe more on their mortgages than their homes are worth.

In a bankruptcy, such homeowners would likely have their loan principal reduced, lowering their payments and helping them to rebuild equity. In a typical voluntary loan modification, however, the monthly payment is reduced, but not the principal. That puts under-water borrowers at high risk of redefault, because there is no equity to fall back on if a financial setback leaves them unable to make mortgage payments.

The negative feedback loop — foreclosures beget falling home prices, which beget foreclosures, further weakening the banks — is well under way. We hope the president’s plan can break the loop, but without bankruptcy reform it is going to be a lot harder.

    As Foreclosures Surge ..., NYT, 4.4.2009, http://www.nytimes.com/2009/05/04/opinion/04mon2.html






Op-Ed Columnist

Falling Wage Syndrome


May 4, 2009
The New York Times


Wages are falling all across America.

Some of the wage cuts, like the givebacks by Chrysler workers, are the price of federal aid. Others, like the tentative agreement on a salary cut here at The Times, are the result of discussions between employers and their union employees. Still others reflect the brute fact of a weak labor market: workers don’t dare protest when their wages are cut, because they don’t think they can find other jobs.

Whatever the specifics, however, falling wages are a symptom of a sick economy. And they’re a symptom that can make the economy even sicker.

First things first: anecdotes about falling wages are proliferating, but how broad is the phenomenon? The answer is, very.

It’s true that many workers are still getting pay increases. But there are enough pay cuts out there that, according to the Bureau of Labor Statistics, the average cost of employing workers in the private sector rose only two-tenths of a percent in the first quarter of this year — the lowest increase on record. Since the job market is still getting worse, it wouldn’t be at all surprising if overall wages started falling later this year.

But why is that a bad thing? After all, many workers are accepting pay cuts in order to save jobs. What’s wrong with that?

The answer lies in one of those paradoxes that plague our economy right now. We’re suffering from the paradox of thrift: saving is a virtue, but when everyone tries to sharply increase saving at the same time, the effect is a depressed economy. We’re suffering from the paradox of deleveraging: reducing debt and cleaning up balance sheets is good, but when everyone tries to sell off assets and pay down debt at the same time, the result is a financial crisis.

And soon we may be facing the paradox of wages: workers at any one company can help save their jobs by accepting lower wages, but when employers across the economy cut wages at the same time, the result is higher unemployment.

Here’s how the paradox works. Suppose that workers at the XYZ Corporation accept a pay cut. That lets XYZ management cut prices, making its products more competitive. Sales rise, and more workers can keep their jobs. So you might think that wage cuts raise employment — which they do at the level of the individual employer.

But if everyone takes a pay cut, nobody gains a competitive advantage. So there’s no benefit to the economy from lower wages. Meanwhile, the fall in wages can worsen the economy’s problems on other fronts.

In particular, falling wages, and hence falling incomes, worsen the problem of excessive debt: your monthly mortgage payments don’t go down with your paycheck. America came into this crisis with household debt as a percentage of income at its highest level since the 1930s. Families are trying to work that debt down by saving more than they have in a decade — but as wages fall, they’re chasing a moving target. And the rising burden of debt will put downward pressure on consumer spending, keeping the economy depressed.

Things get even worse if businesses and consumers expect wages to fall further in the future. John Maynard Keynes put it clearly, more than 70 years ago: “The effect of an expectation that wages are going to sag by, say, 2 percent in the coming year will be roughly equivalent to the effect of a rise of 2 percent in the amount of interest payable for the same period.” And a rise in the effective interest rate is the last thing this economy needs.

Concern about falling wages isn’t just theory. Japan — where private-sector wages fell an average of more than 1 percent a year from 1997 to 2003 — is an object lesson in how wage deflation can contribute to economic stagnation.

So what should we conclude from the growing evidence of sagging wages in America? Mainly that stabilizing the economy isn’t enough: we need a real recovery.

There has been a lot of talk lately about green shoots and all that, and there are indeed indications that the economic plunge that began last fall may be leveling off. The National Bureau of Economic Research might even declare the recession over later this year.

But the unemployment rate is almost certainly still rising. And all signs point to a terrible job market for many months if not years to come — which is a recipe for continuing wage cuts, which will in turn keep the economy weak.

To break that vicious circle, we basically need more: more stimulus, more decisive action on the banks, more job creation.

Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss. But the risk that America will turn into Japan — that we’ll face years of deflation and stagnation — seems, if anything, to be rising.

Falling Wage Syndrome, NYT, 4.4.2009, http://www.nytimes.com/2009/05/04/opinion/04krugman.html