Loan Picture Improves, Troubles Remain ...added 8-31-10
Reuters courtesy of Fox Business
The U.S. loan picture improved slightly during the second quarter, with the amount of loans 90 days or more past due declining for the first time in more than four years, bank regulators said on Tuesday.
The Federal Deposit Insurance Corp revealed some encouraging figures about the bank industry, saying the sector earned $21.6 billion during the quarter largely due to banks putting away less money to cover expected loan losses.
During the first quarter, the industry earned $17.8 billion.
In other signs of improvement, the total assets of banks characterized as "problem" institutions fell during the quarter to $403 billion from $431 billion, and the FDIC's insurance fund increased by $5.5 billion during the quarter.
But there are still troubling indicators.
Loan balances continued to decline during the second quarter, with net loan and lease balances declining by 1.3 percent. Loans to small businesses and farms -- a major focus of the Obama administration -- fell by 1.8 percent during the quarter.
"Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks, and failures remain high," FDIC Chairman Sheila Bair said.
While the assets at problem banks declined, the total number of such institutions bumped up to 829 from 775 last quarter.
The FDIC does not disclose the names of the institutions, which regulators have flagged for low capital levels, poorly performing assets and other troubles.
The agency has said the bank failures are expected to peak during the third quarter. So far this year, 118 banks have failed. Last year 140 bank collapsed.
Bair said the FDIC still anticipates that the number of failures this year will exceed last year, but that the total assets of this year's failures will probably be lower.
That is because it is mostly smaller banks that have been failing.
She said economic uncertainties mean banks should continue to exercise caution and maintain strong reserves.
But she also highlighted the industry's gains.
"The banking sector is gaining strength. Earnings have grown, and most asset quality indicators are moving in the right direction, putting banks in a stronger position to lend," Bair said.
The U.S. loan picture improved slightly during the second quarter, with the amount of loans 90 days or more past due declining for the first time in more than four years, bank regulators said on Tuesday.
The Federal Deposit Insurance Corp revealed some encouraging figures about the bank industry, saying the sector earned $21.6 billion during the quarter largely due to banks putting away less money to cover expected loan losses.
During the first quarter, the industry earned $17.8 billion.
In other signs of improvement, the total assets of banks characterized as "problem" institutions fell during the quarter to $403 billion from $431 billion, and the FDIC's insurance fund increased by $5.5 billion during the quarter.
But there are still troubling indicators.
Loan balances continued to decline during the second quarter, with net loan and lease balances declining by 1.3 percent. Loans to small businesses and farms -- a major focus of the Obama administration -- fell by 1.8 percent during the quarter.
"Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks, and failures remain high," FDIC Chairman Sheila Bair said.
While the assets at problem banks declined, the total number of such institutions bumped up to 829 from 775 last quarter.
The FDIC does not disclose the names of the institutions, which regulators have flagged for low capital levels, poorly performing assets and other troubles.
The agency has said the bank failures are expected to peak during the third quarter. So far this year, 118 banks have failed. Last year 140 bank collapsed.
Bair said the FDIC still anticipates that the number of failures this year will exceed last year, but that the total assets of this year's failures will probably be lower.
That is because it is mostly smaller banks that have been failing.
She said economic uncertainties mean banks should continue to exercise caution and maintain strong reserves.
But she also highlighted the industry's gains.
"The banking sector is gaining strength. Earnings have grown, and most asset quality indicators are moving in the right direction, putting banks in a stronger position to lend," Bair said.
Fed’s Hoenig: Too-Big-To-Fail Policies Disadvantage Community Banks ...added 8-23-10
By Michael S. Derby courtesy of The Wall Street Journal
The too-big-to-fail policies that have propped up the nation’s largest banks are calling into question the outlook for the nation’s community banks, a central bank official said Monday.
“Because the market perceived the largest banks as being too big to fail, they have had the advantage of running their business with a much greater level of leverage and a consistently lower cost of capital and debt,” Federal Reserve Bank of Kansas City President Thomas Hoenig said.
Hoenig has been a persistent critic of policies he believes allows the nation’s largest banks, the top 20 of whom hold 80% of the nation’s total banking assets, to operate with the perception they will not be allowed to fail. He has said that financial market reform efforts are falling short in their effort to deal with this problem, although he has softened his views a bit in the wake of recent Dodd-Frank Act, saying he will watch how regulators implement their new powers.
Hoenig is worried that community banks, which he believes are critical lenders to local communities, are at a disadvantage in the current environment. That’s not good, because these banks are very important sources of credit in their areas, and are especially important in the area watched over by the Kansas City Fed. “The decline in overall bank lending, particularly to small businesses, is a major concern,” Hoenig said. But “data show that community banks have done a better job serving their local loan needs over the past year,” he said, adding “community banks, as a whole, increased their total loans by about 2% as compared to a 6% decline for larger banks.”
“Community banks have maintained a strong presence despite industry consolidation because their business model focuses on strong relationships with their customers and local communities,” Hoenig said. “Larger banks are important to a firm as they grow and need more complicated financing, but in this region, most businesses are relatively small and their needs can be met by that local bank.”
Hoenig’s comments came from the text of a testimony that was to be delivered before the U.S. House’s Subcommittee on Oversight and Investigations, which was holding a gathering in Overland Park, Kan.
Hoenig is a voting member of the interest rate-setting Federal Open Market Committee, and a prominent critic of the current course of policy. Unlike the rest of the FOMC, he believes the central bank needs to raise rates now to prevent the fresh buildup of financial imbalances. He has found few supporters for his views, and his remarks Monday steered clear of topics dealing with monetary policy and the economic outlook.
The relatively modest safety net afforded to community banks appears to have made them more prudent players in the financial system, Hoenig said. “There is no better test of the viability of the community bank business model than the financial crisis, recession, and abnormally slow recovery that we’ve experienced over the past 2 1/2 years,” Hoenig said. “The community bank business model has held up well when compared with the megabank model that had to be propped up with taxpayer funding.”
Hoenig noted there are other challenges faced by community bankers. “For community banks that survive, it will be a struggle to recover,” he said. “Commercial real estate, particularly land development loans, will be a drag on earnings for some quarters yet.”
The too-big-to-fail policies that have propped up the nation’s largest banks are calling into question the outlook for the nation’s community banks, a central bank official said Monday.
“Because the market perceived the largest banks as being too big to fail, they have had the advantage of running their business with a much greater level of leverage and a consistently lower cost of capital and debt,” Federal Reserve Bank of Kansas City President Thomas Hoenig said.
Hoenig has been a persistent critic of policies he believes allows the nation’s largest banks, the top 20 of whom hold 80% of the nation’s total banking assets, to operate with the perception they will not be allowed to fail. He has said that financial market reform efforts are falling short in their effort to deal with this problem, although he has softened his views a bit in the wake of recent Dodd-Frank Act, saying he will watch how regulators implement their new powers.
Hoenig is worried that community banks, which he believes are critical lenders to local communities, are at a disadvantage in the current environment. That’s not good, because these banks are very important sources of credit in their areas, and are especially important in the area watched over by the Kansas City Fed. “The decline in overall bank lending, particularly to small businesses, is a major concern,” Hoenig said. But “data show that community banks have done a better job serving their local loan needs over the past year,” he said, adding “community banks, as a whole, increased their total loans by about 2% as compared to a 6% decline for larger banks.”
“Community banks have maintained a strong presence despite industry consolidation because their business model focuses on strong relationships with their customers and local communities,” Hoenig said. “Larger banks are important to a firm as they grow and need more complicated financing, but in this region, most businesses are relatively small and their needs can be met by that local bank.”
Hoenig’s comments came from the text of a testimony that was to be delivered before the U.S. House’s Subcommittee on Oversight and Investigations, which was holding a gathering in Overland Park, Kan.
Hoenig is a voting member of the interest rate-setting Federal Open Market Committee, and a prominent critic of the current course of policy. Unlike the rest of the FOMC, he believes the central bank needs to raise rates now to prevent the fresh buildup of financial imbalances. He has found few supporters for his views, and his remarks Monday steered clear of topics dealing with monetary policy and the economic outlook.
The relatively modest safety net afforded to community banks appears to have made them more prudent players in the financial system, Hoenig said. “There is no better test of the viability of the community bank business model than the financial crisis, recession, and abnormally slow recovery that we’ve experienced over the past 2 1/2 years,” Hoenig said. “The community bank business model has held up well when compared with the megabank model that had to be propped up with taxpayer funding.”
Hoenig noted there are other challenges faced by community bankers. “For community banks that survive, it will be a struggle to recover,” he said. “Commercial real estate, particularly land development loans, will be a drag on earnings for some quarters yet.”
Consumer Sentiment Edges Up In Early August: Survey ...added 8-13-10
By Caroline Valetkevitc Courtesy of Reuters
(Reuters) - Consumer sentiment inched up in early August from July and was a tad above expectations, but consumers see little improvement in the economy ahead, a survey said on Friday.
The slight pickup in sentiment follows a drop in July to the lowest level since November, the data from Thomson Reuters/University of Michigan's Surveys of Consumers showed.
The survey's preliminary August reading on the overall index on consumer sentiments rose to 69.6 from 67.8 in July, above the median forecast of 69.3 among economists polled by Reuters.
The sentiment index is just several points above where it was a year ago, with worries about prospects for job growth and income hanging over sentiment.
"The gain was too small to represent a meaningful improvement," Richard Curtin, director of the surveys, said in a statement. "Consumers have increasingly come to expect lackluster income and job growth for an extended period of time."
Job growth is considered key to keeping the recovery moving forward, with consumer spending accounting for 70 percent of the U.S. economy. A weaker-than-expected July jobs report from the U.S. government was among recent data fueling worries about a recovery slowdown.
"While consumers increasingly believed the worst of the downturn was over the majority expected that overall economic conditions would remain largely unchanged during the year ahead," Curtin said.
Still, the survey's barometer of current economic conditions edged up to 78.3 in August from 76.5 in July, while expectations were for it to remain unchanged.
The survey's gauge of consumer expectations rose to 64.1 from 62.3 in July. Analysts had predicted a reading of 63.7.
The measure on consumers' 12-month economic outlook edged up to 69 from 66 in July.
The survey's one-year inflation expectations measure ticked up to 2.8 from 2.7 in July.
(Reuters) - Consumer sentiment inched up in early August from July and was a tad above expectations, but consumers see little improvement in the economy ahead, a survey said on Friday.
The slight pickup in sentiment follows a drop in July to the lowest level since November, the data from Thomson Reuters/University of Michigan's Surveys of Consumers showed.
The survey's preliminary August reading on the overall index on consumer sentiments rose to 69.6 from 67.8 in July, above the median forecast of 69.3 among economists polled by Reuters.
The sentiment index is just several points above where it was a year ago, with worries about prospects for job growth and income hanging over sentiment.
"The gain was too small to represent a meaningful improvement," Richard Curtin, director of the surveys, said in a statement. "Consumers have increasingly come to expect lackluster income and job growth for an extended period of time."
Job growth is considered key to keeping the recovery moving forward, with consumer spending accounting for 70 percent of the U.S. economy. A weaker-than-expected July jobs report from the U.S. government was among recent data fueling worries about a recovery slowdown.
"While consumers increasingly believed the worst of the downturn was over the majority expected that overall economic conditions would remain largely unchanged during the year ahead," Curtin said.
Still, the survey's barometer of current economic conditions edged up to 78.3 in August from 76.5 in July, while expectations were for it to remain unchanged.
The survey's gauge of consumer expectations rose to 64.1 from 62.3 in July. Analysts had predicted a reading of 63.7.
The measure on consumers' 12-month economic outlook edged up to 69 from 66 in July.
The survey's one-year inflation expectations measure ticked up to 2.8 from 2.7 in July.
Fed officials clash on need for more stimulus ...added 7-30-10
Federal Reserve
by Mark Feisenthal courtesy of Reuters.com
(Washington) - Federal Reserve officials clashed on Thursday over whether the central bank should be more aggressive in supporting the stumbling economy and one said the Fed's current policy may be contributing to worryingly low levels of inflation.
The Fed's promise to hold benchmark interest rates exceptionally low for an extended period -- a vow aimed at giving extra punch to rock-bottom borrowing costs -- "may be increasing the probability of a Japanese-style outcome for the U.S.," St. Louis Federal Reserve Bank President James Bullard said. Japan has struggled to break out of deflation and weak or no growth for years.
Bullard, a voter on the Fed's policy-setting panel this year, said the central bank should be ready to shift its focus to more aggressively pumping credit into the financial system to get the economy going if the recovery appears at risk.
"On balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome," he said, adding that his preferred route to provide additional easing would be through buying more long-term Treasury securities.
He told reporters on a teleconference call the Fed should only ease further if inflation ticks lower.
Highlighting the divide over how best to deal with concerns about a softening recovery, Dallas Fed President Richard Fisher said any further monetary accommodation would have as little effect in boosting the economy as "pushing on a string."
"We've done our job. We've restored liquidity to the market, we've leveraged up our balance sheets," Fisher, who rotates into a voting slot on the Fed's policy panel next year, told a business group in San Antonio, Texas.
Now, he said, it is time for lawmakers and regulators to provide clarity on what costs businesses will have to bear as a result of health care and financial reforms. Until then, U.S. economic growth will remain sub-optimal, he added.
DEFLATION RISK
The Fed cut overnight interest rates to near zero in December 2008 and has been promising to keep them ultra low for an extended period since March 2009 in an effort to try to hold down long-term rates. It has also expanded credit available to banks by $1.7 trillion with purchases of mortgage-related debt and longer-term Treasury securities.
Despite those measures, officials acknowledge the recovery has flagged in recent weeks. Fed Chairman Ben Bernanke told Congress on July 21 that the outlook was "unusually uncertain" and that the central bank stood ready to ease monetary policy further if the recovery withered.
Some Fed officials worry that if the recovery stumbles, already low inflation could slow further, raising the risk of a broad drop in prices that could further weaken the economy.
Consumer prices have fallen for the past three months and in the 12 months to June, were up just 1.1 percent. Officials would prefer to see inflation in a 1.5 percent to 2 percent range.
However, other policymakers are concerned the Fed's extraordinarily easy money policies, the culmination of steps aimed at buffering the economy from the worst financial crisis and recession in decades, are sowing the seeds for inflation.
Kansas City Fed President Thomas Hoenig has dissented at every policy meeting this year, saying the extended period language is setting the stage for another boom-and-bust cycle.
Bullard said he is not inclined to join Hoenig in dissent, preferring instead to persuade his colleagues through research and debate to drop the low-rates vow.
The St. Louis Fed chief said he continues to view a gradual recovery as the most likely course for the economy and that more easing of financial conditions likely will not be needed.
But he said the Fed should be prepared for further actions if unexpected shocks materialize.
(Washington) - Federal Reserve officials clashed on Thursday over whether the central bank should be more aggressive in supporting the stumbling economy and one said the Fed's current policy may be contributing to worryingly low levels of inflation.
The Fed's promise to hold benchmark interest rates exceptionally low for an extended period -- a vow aimed at giving extra punch to rock-bottom borrowing costs -- "may be increasing the probability of a Japanese-style outcome for the U.S.," St. Louis Federal Reserve Bank President James Bullard said. Japan has struggled to break out of deflation and weak or no growth for years.
Bullard, a voter on the Fed's policy-setting panel this year, said the central bank should be ready to shift its focus to more aggressively pumping credit into the financial system to get the economy going if the recovery appears at risk.
"On balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome," he said, adding that his preferred route to provide additional easing would be through buying more long-term Treasury securities.
He told reporters on a teleconference call the Fed should only ease further if inflation ticks lower.
Highlighting the divide over how best to deal with concerns about a softening recovery, Dallas Fed President Richard Fisher said any further monetary accommodation would have as little effect in boosting the economy as "pushing on a string."
"We've done our job. We've restored liquidity to the market, we've leveraged up our balance sheets," Fisher, who rotates into a voting slot on the Fed's policy panel next year, told a business group in San Antonio, Texas.
Now, he said, it is time for lawmakers and regulators to provide clarity on what costs businesses will have to bear as a result of health care and financial reforms. Until then, U.S. economic growth will remain sub-optimal, he added.
DEFLATION RISK
The Fed cut overnight interest rates to near zero in December 2008 and has been promising to keep them ultra low for an extended period since March 2009 in an effort to try to hold down long-term rates. It has also expanded credit available to banks by $1.7 trillion with purchases of mortgage-related debt and longer-term Treasury securities.
Despite those measures, officials acknowledge the recovery has flagged in recent weeks. Fed Chairman Ben Bernanke told Congress on July 21 that the outlook was "unusually uncertain" and that the central bank stood ready to ease monetary policy further if the recovery withered.
Some Fed officials worry that if the recovery stumbles, already low inflation could slow further, raising the risk of a broad drop in prices that could further weaken the economy.
Consumer prices have fallen for the past three months and in the 12 months to June, were up just 1.1 percent. Officials would prefer to see inflation in a 1.5 percent to 2 percent range.
However, other policymakers are concerned the Fed's extraordinarily easy money policies, the culmination of steps aimed at buffering the economy from the worst financial crisis and recession in decades, are sowing the seeds for inflation.
Kansas City Fed President Thomas Hoenig has dissented at every policy meeting this year, saying the extended period language is setting the stage for another boom-and-bust cycle.
Bullard said he is not inclined to join Hoenig in dissent, preferring instead to persuade his colleagues through research and debate to drop the low-rates vow.
The St. Louis Fed chief said he continues to view a gradual recovery as the most likely course for the economy and that more easing of financial conditions likely will not be needed.
But he said the Fed should be prepared for further actions if unexpected shocks materialize.
Consumer prices drop, sentiment sours ...added 7-18-10
By Lucia Mutikani courtesy of Reuters
Weak energy costs pushed U.S. consumer prices down for a third straight month in June while consumer sentiment dropped to a near one-year low in July, highlighting the sluggishness of the economic recovery.
However, prices excluding food and energy rose 0.2 percent, their largest monthly gain since October, the Labor Department said on Friday. Analysts said that suggested deflation risks were easing and called it further proof the economy was not slipping back into recession.
"We are seeing some loss of momentum in growth, but it's not the start of a double-dip. The core inflation number should lessen deflation fears, the economic recovery is still intact," said Jim O'Sullivan, chief economist at MF Global in New York.
The Consumer Price Index dipped 0.1 percent last month after falling 0.2 percent in May. Analysts had expected consumer prices to hold steady.
Energy prices fell 2.9 percent and food prices were flat.
But a rise in rental costs after months of stagnation allowed the core CPI to move higher. The core rate had risen 0.1 percent in May and markets had expected a similar gain last month.
Analysts said the rental costs' increase was encouraging and reflected a labor market that was starting to create jobs, although at a pedestrian pace.
A second report showed consumer sentiment early this month pulled back from a near 2-1/2 year high on worries about income and jobs. The Thomson Reuters/University of Michigan's consumer sentiment index plummeted to 66.5 from 76.0 in June. That was below market expectations for 74.5.
Prices for safe-haven U.S. government debt rallied as investors viewed the data as suggesting the Federal Reserve would keep interest rates near zero well into 2011. The U.S. dollar fell to a seven-month low against the yen.
The dour confidence report and weak revenues from corporate giants Bank of America, Citigroup and General Electric hammered stocks on Wall Street. Major U.S. stock indices ended down more than 2.5 percent.
MODEST RECOVERY
"It points to the simple fact that this recovery is modest at best. Businesses do not have pricing power," said Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania. "Consumers are still concerned about the recovery, they are not going to shop till they drop."
Consumer prices have not declined for three successive months since October-December 2008. In the 12 months to June, the CPI rose 1.1 percent, the smallest advance since October, and a sharp slowdown from the 2 percent in the period through May.
Recent data ranging from consumer spending to manufacturing imply the recovery from the longest and deepest recession since the 1930s has come close to stalling in recent months.
With inflation subdued, the unemployment rate at a lofty 9.5 percent and domestic demand lackluster, economists say the U.S. central bank should not have to raise interest rates before the second half of next year.
Wholesale price readings have also suggested scant inflation pressure. Prices received by farms, factories and refineries fell for a third straight month in June, the government said on Thursday.
Minutes of the Fed's last policy meeting, released on Wednesday, showed a few officials have begun to worry about the risk of deflation -- an economically disabling, broad-based decline in consumer prices.
Others, however, have argued that the U.S. economic recovery appears on solid ground and believe inflation is unlikely to fall much more.
Indeed, some economists said the CPI report suggested core inflation, which slowed sharply during the recession, may have already bottomed.
"I don't see deflation as an issue. I don't see inflation as an issue. I just see modest to moderate inflation for at least six to twelve months," said Naroff.
Although retail sales have dropped for two months in a row, retailers are still managing to squeeze through price increases, the inflation report showed.
The monthly core inflation rate was bumped up by a 0.8 percent in apparel costs, the largest increase in 16 months. Used cars and trucks, which rose 0.9 percent last month, also contributed to the rise in core inflation, as did a 1 percent rise in tobacco prices.
In the 12 months to June, the core inflation rate rose 0.9 percent, increasing by the same margin for a third straight month. The rise was in line with market expectations and matched the lowest core inflation rate since January 1966.
Most Fed officials would like to see inflation in a 1.7 percent to 2 percent range.
Weak energy costs pushed U.S. consumer prices down for a third straight month in June while consumer sentiment dropped to a near one-year low in July, highlighting the sluggishness of the economic recovery.
However, prices excluding food and energy rose 0.2 percent, their largest monthly gain since October, the Labor Department said on Friday. Analysts said that suggested deflation risks were easing and called it further proof the economy was not slipping back into recession.
"We are seeing some loss of momentum in growth, but it's not the start of a double-dip. The core inflation number should lessen deflation fears, the economic recovery is still intact," said Jim O'Sullivan, chief economist at MF Global in New York.
The Consumer Price Index dipped 0.1 percent last month after falling 0.2 percent in May. Analysts had expected consumer prices to hold steady.
Energy prices fell 2.9 percent and food prices were flat.
But a rise in rental costs after months of stagnation allowed the core CPI to move higher. The core rate had risen 0.1 percent in May and markets had expected a similar gain last month.
Analysts said the rental costs' increase was encouraging and reflected a labor market that was starting to create jobs, although at a pedestrian pace.
A second report showed consumer sentiment early this month pulled back from a near 2-1/2 year high on worries about income and jobs. The Thomson Reuters/University of Michigan's consumer sentiment index plummeted to 66.5 from 76.0 in June. That was below market expectations for 74.5.
Prices for safe-haven U.S. government debt rallied as investors viewed the data as suggesting the Federal Reserve would keep interest rates near zero well into 2011. The U.S. dollar fell to a seven-month low against the yen.
The dour confidence report and weak revenues from corporate giants Bank of America, Citigroup and General Electric hammered stocks on Wall Street. Major U.S. stock indices ended down more than 2.5 percent.
MODEST RECOVERY
"It points to the simple fact that this recovery is modest at best. Businesses do not have pricing power," said Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania. "Consumers are still concerned about the recovery, they are not going to shop till they drop."
Consumer prices have not declined for three successive months since October-December 2008. In the 12 months to June, the CPI rose 1.1 percent, the smallest advance since October, and a sharp slowdown from the 2 percent in the period through May.
Recent data ranging from consumer spending to manufacturing imply the recovery from the longest and deepest recession since the 1930s has come close to stalling in recent months.
With inflation subdued, the unemployment rate at a lofty 9.5 percent and domestic demand lackluster, economists say the U.S. central bank should not have to raise interest rates before the second half of next year.
Wholesale price readings have also suggested scant inflation pressure. Prices received by farms, factories and refineries fell for a third straight month in June, the government said on Thursday.
Minutes of the Fed's last policy meeting, released on Wednesday, showed a few officials have begun to worry about the risk of deflation -- an economically disabling, broad-based decline in consumer prices.
Others, however, have argued that the U.S. economic recovery appears on solid ground and believe inflation is unlikely to fall much more.
Indeed, some economists said the CPI report suggested core inflation, which slowed sharply during the recession, may have already bottomed.
"I don't see deflation as an issue. I don't see inflation as an issue. I just see modest to moderate inflation for at least six to twelve months," said Naroff.
Although retail sales have dropped for two months in a row, retailers are still managing to squeeze through price increases, the inflation report showed.
The monthly core inflation rate was bumped up by a 0.8 percent in apparel costs, the largest increase in 16 months. Used cars and trucks, which rose 0.9 percent last month, also contributed to the rise in core inflation, as did a 1 percent rise in tobacco prices.
In the 12 months to June, the core inflation rate rose 0.9 percent, increasing by the same margin for a third straight month. The rise was in line with market expectations and matched the lowest core inflation rate since January 1966.
Most Fed officials would like to see inflation in a 1.7 percent to 2 percent range.
Economists See U.S. Economy Weakening ...added 7-10-10
(Reuters) - The U.S. economy will lose steam as the year progresses but will not slide back into recession, even though unemployment is unlikely to fall significantly, according to a survey released on Saturday.
The Blue Chip Economic Indicators survey of private forecasters found analysts increasingly glum about the outlook. They now see the economy expanding just 3.1 percent in 2010, down from 3.3 percent in the June poll.
They do not, however, envisage a renewed period of contraction, which has been widely debated in financial markets in recent weeks.
"Our panelists think talk of a double-dip recession is overblown absent a new, major shock," the group said in its report.
Some analysts worry such a disruption might come from Europe, where concerns about high debt levels have made the banking sector jittery about lending.
The report's findings highlight the risks of a sputtering recovery amid lingering softness in housing, suggesting the unemployment rate will end the year at 9.4 percent, barely down from the current 9.5 percent rate.
"For a second straight month the number of panelists that lowered their forecasts of nominal GDP growth and inflation exceeded those that raised their forecasts by a significant margin," the report said.
"In the past, such a development has often suggested further erosion in consensus forecasts during subsequent survey."
Along with more moderate growth, inflation is expected to remain extremely tame. Forecasters are looking for a 0.9 percent increase in prices for 2010 as a whole, the smallest rise since 1950.
The Blue Chip Economic Indicators survey of private forecasters found analysts increasingly glum about the outlook. They now see the economy expanding just 3.1 percent in 2010, down from 3.3 percent in the June poll.
They do not, however, envisage a renewed period of contraction, which has been widely debated in financial markets in recent weeks.
"Our panelists think talk of a double-dip recession is overblown absent a new, major shock," the group said in its report.
Some analysts worry such a disruption might come from Europe, where concerns about high debt levels have made the banking sector jittery about lending.
The report's findings highlight the risks of a sputtering recovery amid lingering softness in housing, suggesting the unemployment rate will end the year at 9.4 percent, barely down from the current 9.5 percent rate.
"For a second straight month the number of panelists that lowered their forecasts of nominal GDP growth and inflation exceeded those that raised their forecasts by a significant margin," the report said.
"In the past, such a development has often suggested further erosion in consensus forecasts during subsequent survey."
Along with more moderate growth, inflation is expected to remain extremely tame. Forecasters are looking for a 0.9 percent increase in prices for 2010 as a whole, the smallest rise since 1950.
Obama Announces $2B in Grants for Clean Energy Jobs ...added 7-5-10
NewsCorp courtesy of Fox News
Washington-President Barack Obama announced Saturday a $2 billion commitment to solar energy companies with the hope of creating new jobs, in light of lackluster employment figures released Friday that bodes poorly for a swift economic recovery.
"The recession from which we're emerging has left us in a hole that's about 8 million jobs deep," Obama said in his weekly radio address. "And as I've said from the day I took office, it's going to take months, even years, to dig our way out -- and it's going to require an all-hands-on-deck effort."
Meanwhile, Republicans attacked Democrats for the national debt, which topped $13 trillion in May, in their own radio address. "At a time when many Americans are clipping coupons and pinching pennies, President Obama and the Democrats in Congress continue to spend money that they -- we -- do not have," said Sen. Saxby Chambliss (R-Ga.), who delivered the weekly GOP radio address.
The Obama administration has extended cash grants for clean energy products as part of the federal stimulus package.
"Already, I've seen the payoff from these investments," Obama said. "I've seen once-shuttered factories humming with new workers who are building solar panels and wind turbines; rolling up their sleeves to help America win the race for the clean energy economy."
The Energy Department is awarding nearly $2 billion in conditional commitments from federal stimulus funds to Abengoa Solar and Abound Solar Manufacturing. In return for the funds, Abengoa Solar has agreed to build what the administration says will be one of the largest solar plants in the world in Arizona. It will be capable of providing clean energy to 70,000 homes.
The Obama administration estimates the Arizona plant will create about 1,600 construction jobs, with more than 70 percent of the construction components and products used to build it manufactured in America.
Abound Solar Manufacturing agreed to build two new plants in exchange for the funds, one in Colorado and one in Indiana. The administration says these projects will create more than 2,000 construction jobs, and more than 1,500 permanent jobs as the plants produce millions of solar panels each year.
Meanwhile, Chambliss, in the Republican address, said the debt is a national security issue, since most U.S. debt is held by China. "Just as with our energy and food supplies, America is vulnerable when we disproportionately rely on other nations," he said. "It is a matter of great concern that we are in deep debt to countries that often don't share our values or positions."
Washington-President Barack Obama announced Saturday a $2 billion commitment to solar energy companies with the hope of creating new jobs, in light of lackluster employment figures released Friday that bodes poorly for a swift economic recovery.
"The recession from which we're emerging has left us in a hole that's about 8 million jobs deep," Obama said in his weekly radio address. "And as I've said from the day I took office, it's going to take months, even years, to dig our way out -- and it's going to require an all-hands-on-deck effort."
Meanwhile, Republicans attacked Democrats for the national debt, which topped $13 trillion in May, in their own radio address. "At a time when many Americans are clipping coupons and pinching pennies, President Obama and the Democrats in Congress continue to spend money that they -- we -- do not have," said Sen. Saxby Chambliss (R-Ga.), who delivered the weekly GOP radio address.
The Obama administration has extended cash grants for clean energy products as part of the federal stimulus package.
"Already, I've seen the payoff from these investments," Obama said. "I've seen once-shuttered factories humming with new workers who are building solar panels and wind turbines; rolling up their sleeves to help America win the race for the clean energy economy."
The Energy Department is awarding nearly $2 billion in conditional commitments from federal stimulus funds to Abengoa Solar and Abound Solar Manufacturing. In return for the funds, Abengoa Solar has agreed to build what the administration says will be one of the largest solar plants in the world in Arizona. It will be capable of providing clean energy to 70,000 homes.
The Obama administration estimates the Arizona plant will create about 1,600 construction jobs, with more than 70 percent of the construction components and products used to build it manufactured in America.
Abound Solar Manufacturing agreed to build two new plants in exchange for the funds, one in Colorado and one in Indiana. The administration says these projects will create more than 2,000 construction jobs, and more than 1,500 permanent jobs as the plants produce millions of solar panels each year.
Meanwhile, Chambliss, in the Republican address, said the debt is a national security issue, since most U.S. debt is held by China. "Just as with our energy and food supplies, America is vulnerable when we disproportionately rely on other nations," he said. "It is a matter of great concern that we are in deep debt to countries that often don't share our values or positions."
Obama Says he's Serious About Tackling Deficits ...added 6-28-10
Reuters courtesy of Fox Business
TORONTO--President Barack Obama said Sunday he would follow through on a pledge to rein in soaring U.S. budget deficits and said that would involve presenting Americans with "some very difficult choices" next year.
Obama also said that he believed a review of the "messy and unfair" U.S. tax code should be considered as part of a plan to deal with long-term budget problems.
"I'm serious about it," Obama said when asked at a news conference at the Group of 20 summit in Canada if he believed he could meet his deficit reduction goals.
The G20 summit was dominated by a debate among the G20 leaders about how quickly to shift from a focus on economic stimulus toward deficit reduction.
The United States has warned against withdrawing stimulus too quickly, saying the world economy remains fragile but U.S. officials have also said it is important to keep in mind the need for fiscal prudence.
Obama has proposed freezing spending on an array of domestic programs for the next three years and has named a special commission to recommend ways to curb spiraling debt and deficits. The panel is to report back by Dec. 1. Obama will review the recommendations and decide how to go forward sometime early next year.
"I'm doing it because I said I was going to do it," Obama said. "People should learn that lesson about me, because next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, because I'm calling their bluff."
Amid the worst recession since the Great Depression, the U.S. budget deficit hit $1.4 trillion last year. It is projected to come in at about $1.6 trillion this year.
Obama has said the deficits are a legacy of the Bush administration, but Republicans have tried to cast Obama as a big spender and have attacked last year's $862 economic stimulus package.
Republicans hope to use the issue to put Obama's Democrats on the defensive ahead of the November congressional elections.
Despite the political wrangling over deficits, Obama said he has been hearing both from Democrats and Republicans that "there's been a serious conversation" about budget deficits and the need to address them.
Obama said structural budget problems were looming as the aging of the U.S. population pushes up spending for health and retirement programs.
"Even if we had not gone through this financial crisis, we'd still have to be dealing with these long-term deficit problems," Obama said.
He listed the tax code as another structural problem.
"We've got to look at a tax system that is messy and unfair in a whole range of ways," Obama said.
TORONTO--President Barack Obama said Sunday he would follow through on a pledge to rein in soaring U.S. budget deficits and said that would involve presenting Americans with "some very difficult choices" next year.
Obama also said that he believed a review of the "messy and unfair" U.S. tax code should be considered as part of a plan to deal with long-term budget problems.
"I'm serious about it," Obama said when asked at a news conference at the Group of 20 summit in Canada if he believed he could meet his deficit reduction goals.
The G20 summit was dominated by a debate among the G20 leaders about how quickly to shift from a focus on economic stimulus toward deficit reduction.
The United States has warned against withdrawing stimulus too quickly, saying the world economy remains fragile but U.S. officials have also said it is important to keep in mind the need for fiscal prudence.
Obama has proposed freezing spending on an array of domestic programs for the next three years and has named a special commission to recommend ways to curb spiraling debt and deficits. The panel is to report back by Dec. 1. Obama will review the recommendations and decide how to go forward sometime early next year.
"I'm doing it because I said I was going to do it," Obama said. "People should learn that lesson about me, because next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, because I'm calling their bluff."
Amid the worst recession since the Great Depression, the U.S. budget deficit hit $1.4 trillion last year. It is projected to come in at about $1.6 trillion this year.
Obama has said the deficits are a legacy of the Bush administration, but Republicans have tried to cast Obama as a big spender and have attacked last year's $862 economic stimulus package.
Republicans hope to use the issue to put Obama's Democrats on the defensive ahead of the November congressional elections.
Despite the political wrangling over deficits, Obama said he has been hearing both from Democrats and Republicans that "there's been a serious conversation" about budget deficits and the need to address them.
Obama said structural budget problems were looming as the aging of the U.S. population pushes up spending for health and retirement programs.
"Even if we had not gone through this financial crisis, we'd still have to be dealing with these long-term deficit problems," Obama said.
He listed the tax code as another structural problem.
"We've got to look at a tax system that is messy and unfair in a whole range of ways," Obama said.
Plastic soda bottles left in unsuspecting residents' yards may be bottle bomb ...added 5-30-10
Good morning to you all. I want to make you aware of a recent incident that occurred this morning in York Twp. This type of incident directly affects your safety as well as your children's safety. This morning, at approximately 8:00 am, I was dispatched to an address, on Bemis Rd near the Saline City Limits, for an unexploded pop bottle bomb. When I arrived, I noticed a 20 ounce pop bottle, on the ground, in the callers front yard. After I inspected it closer, I determined that it was in fact a "Works" Bomb. I was able to clear the device away from the house and once I moved it, it detonated
|
itself within 30 seconds. After leaving that house, I checked other yards in the area during my patrols. I located a second one, just a few doors down from the first one. As I took care of the disposal/detonation, the homeowner came out and asked me what it was. When I showed her what it was, she immediately told me that she saw the bottle and that she had planned on picking it up when she got her morning paper. Like the first one, once I moved it, it detonated in short order. There was a high probability that this would have detonated in her hand/face while she carried it to the trash.
A "Works" Bomb is Drain-o and Tin Foil, mixed together inside of a bottle. The chemical reaction between the Drain-o and the Tin Foil makes a volatile build up of gases and subsequently detonates the bottle with a great amount of force. Once the detonation occurs, the chemical substance that is in the bottle is actually boiling liquid.
The amount of force that is generated at the time of the explosion is enough to severe fingers and also deliver 2nd and 3rd degree chemical burns to the victim. The chemicals can possibly cause blindness and the toxic fumes can be harmful.
**SAFETY**SAFETY**SAFETY***...When you are out and about in your yards, please be mindful of these devices. If your picking up your morning paper, or mowing your grass, or if you let your children out to play; whatever your activities are, please use the following precautions:
1) If you find a soda bottle or any other bottles, examine it carefully before you touch it or get near it. If it shows signs of swelling, or
melting in any way, DO NOT TOUCH IT! Call 911 and let us respond to take care of it.
2) If you find a soda bottle that has any liquid in it, DO NOT TOUCH IT! Call 911 and let us respond to check it / dispose of it.
Both bombs this morning appeared to be slightly swollen, with a dark colored liquid, inside of it. This liquid could have easily been mistaken for left over soda. I know that calling 911 for a soda bottle may sound silly or like a misuse of your Police protection but trust me, it is not. You do not want one of these devices detonating in your hand or your children's hands or in your pets face. We are here to incur the danger for you so that you are an your loved ones are not harmed. So please check your yard thoroughly before letting your children out to play and be mindful before you just deem that soda bottle as garbage and pick it up.
In closing, please educate your children on the dangers and consequences of making these devices. It has become popular with the youth in the past few years, to do this as a prank, but there have been some changes to the law. Not only could it be deadly to the maker or the victim, but making one these devices is called, "Possession of a Substance with Explosive Capabilities". If it causes no damage, its a 15 year Felony. If it causes damage, its a 20 year Felony. If it causes physical injury, its a 25 year Felony. If it causes serious injury, the penalty can be "Up to life", and if it causes death, its Mandatory Life without the possibility of Parole. These are statutory guidelines only. These penalties are what could be imposed but it does not necessarily mean that these penalties would be imposed.
A "Works" Bomb is Drain-o and Tin Foil, mixed together inside of a bottle. The chemical reaction between the Drain-o and the Tin Foil makes a volatile build up of gases and subsequently detonates the bottle with a great amount of force. Once the detonation occurs, the chemical substance that is in the bottle is actually boiling liquid.
The amount of force that is generated at the time of the explosion is enough to severe fingers and also deliver 2nd and 3rd degree chemical burns to the victim. The chemicals can possibly cause blindness and the toxic fumes can be harmful.
**SAFETY**SAFETY**SAFETY***...When you are out and about in your yards, please be mindful of these devices. If your picking up your morning paper, or mowing your grass, or if you let your children out to play; whatever your activities are, please use the following precautions:
1) If you find a soda bottle or any other bottles, examine it carefully before you touch it or get near it. If it shows signs of swelling, or
melting in any way, DO NOT TOUCH IT! Call 911 and let us respond to take care of it.
2) If you find a soda bottle that has any liquid in it, DO NOT TOUCH IT! Call 911 and let us respond to check it / dispose of it.
Both bombs this morning appeared to be slightly swollen, with a dark colored liquid, inside of it. This liquid could have easily been mistaken for left over soda. I know that calling 911 for a soda bottle may sound silly or like a misuse of your Police protection but trust me, it is not. You do not want one of these devices detonating in your hand or your children's hands or in your pets face. We are here to incur the danger for you so that you are an your loved ones are not harmed. So please check your yard thoroughly before letting your children out to play and be mindful before you just deem that soda bottle as garbage and pick it up.
In closing, please educate your children on the dangers and consequences of making these devices. It has become popular with the youth in the past few years, to do this as a prank, but there have been some changes to the law. Not only could it be deadly to the maker or the victim, but making one these devices is called, "Possession of a Substance with Explosive Capabilities". If it causes no damage, its a 15 year Felony. If it causes damage, its a 20 year Felony. If it causes physical injury, its a 25 year Felony. If it causes serious injury, the penalty can be "Up to life", and if it causes death, its Mandatory Life without the possibility of Parole. These are statutory guidelines only. These penalties are what could be imposed but it does not necessarily mean that these penalties would be imposed.
Congress ready to extend more than 50 tax breaks, tap investment fund managers to cover cost ...added 5-20-10
Associated Press courtesy of FoxNews
WASHINGTON (AP) — Congress is finally getting around to extending more than 50 popular tax breaks that expired at the end of last year, including money savers for homeowners, businesses and shoppers in states with no income tax. Lawmakers want to raise taxes on investment fund managers to help cover the cost.
Legislation combining the tax breaks with more aid for people who have been unemployed for long stretches is expected to come up for a vote in the House next week. The bill would extend unemployment benefits for up to 99 weeks in many states and subsidize healthinsurance premiums for laid-off workers through the end of the year.
Details are still being worked out, but lawmakers also plan to expand a federal bond program that subsidizes local infrastructure projects, and to protect doctors from a scheduled 21 percent cut in Medicare payments.
The tax breaks would be retroactive to Jan. 1 but would again expire at the end of December. They include a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.
Delays in extending the tax breaks have left thousands of businesses unable to plan for their tax liabilities. Delays in passing a long-term extension of emergency unemployment benefits has forced thousands of laid off workers to live month to month with no certainty of income. Unemployment benefits for many will start to run out June 2, unless Congress acts.
Congress routinely extends the tax breaks each year — the House and Senate have already passed competing versions for 2010. But lawmakers have been unable to agree on how to pay for them.
House and Senate negotiators said this week they are close to a deal that would increase taxes on investment fund managers and some multinational companies. Also on the table: Requiring lawyers, doctors and other service providers to pay Medicare taxes on income they receive through their businesses.
The overall cost of the bill will likely top $100 billion, with the unemployment benefits and health insurance subsidies adding to the budget deficit.
The tax increases could raise more than $50 billion over the next decade, though lawmakers cautioned they are still working on the details.
The tax breaks benefit a wide variety of individuals and businesses and total about $30 billion a year. They include a deduction for college tuition for couples making less than $160,000 a year, and a deduction for teachers who use their own money to buy school supplies.
There is a tax credit for community development agencies that invest in low-income neighborhoods, as well as a tax break for restaurant owners and retailers who remodel their stores or build new ones.
"The retailers are working on very thin margins," said Van Martin, chairman and CEO of Tribble & Stephens, a Houston-based construction company that does work in 23 states. "We're looking for people that want to build, and it's still pretty slow."
Senate leaders hope to hold a vote on final passage before Memorial Day, said Sen. Max Baucus, D-Mont., chairman of the tax-writing Senate Finance Committee.
The Senate has rejected the tax increase on investment fund managers in the past, but Baucus said his colleagues are closer than ever to agreeing to it.
Investment Managers typically get a fee to manage funds or assets. They also get a share of the profits earned for investors above a certain level.
Under current law, the profit-sharing fees, called carried interest, are taxed as capital gains, with a top rate of 15 percent. The bill would tax the fees as regular income, with a top tax rate of 35 percent, scheduled to rise to 39.6 percent in 2011.
"People who invest their own money should be paying a capital gains (tax), those who manage other people's money should be paying ordinary income (taxes), like everybody else does," said Rep. Sander Levin, D-Mich., chairman of the tax-writing House Ways and Means Committee.
The National Venture Capital Association says the tax increase would reduce investment in startup companies. The group sent a letter opposing the tax to lawmakers this week, signed by more than 1,700 venture capitalists and entrepreneurs.
The change in how investment managers are taxed would raise about $20 billion over the next decade, with a short-phase in period. It would affect hedge fund and private equity managers, as well as many real estate investment partnerships
The tax increase on multinational companies would raise an estimated $9.5 billion over the next decade by limiting the ability of some U.S.-based companies to use foreign tax credits to reduce their U.S. taxes. Generally, the United States taxes income earned by U.S.-based multinational corporations, even if the money is earned abroad.
The income, however, is not taxed by the U.S. until it is brought to the U.S. To avoid double taxation, companies get tax credits for the amount of foreign taxes paid on the income.
Some companies are able to use subsidiaries to claim foreign tax credits on income that is never brought to the U.S., and is never subjected to U.S. taxes. The provision would require companies to return the income to the U.S., subjecting it to U.S. taxes, before awarding the foreign tax credits.
WASHINGTON (AP) — Congress is finally getting around to extending more than 50 popular tax breaks that expired at the end of last year, including money savers for homeowners, businesses and shoppers in states with no income tax. Lawmakers want to raise taxes on investment fund managers to help cover the cost.
Legislation combining the tax breaks with more aid for people who have been unemployed for long stretches is expected to come up for a vote in the House next week. The bill would extend unemployment benefits for up to 99 weeks in many states and subsidize healthinsurance premiums for laid-off workers through the end of the year.
Details are still being worked out, but lawmakers also plan to expand a federal bond program that subsidizes local infrastructure projects, and to protect doctors from a scheduled 21 percent cut in Medicare payments.
The tax breaks would be retroactive to Jan. 1 but would again expire at the end of December. They include a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.
Delays in extending the tax breaks have left thousands of businesses unable to plan for their tax liabilities. Delays in passing a long-term extension of emergency unemployment benefits has forced thousands of laid off workers to live month to month with no certainty of income. Unemployment benefits for many will start to run out June 2, unless Congress acts.
Congress routinely extends the tax breaks each year — the House and Senate have already passed competing versions for 2010. But lawmakers have been unable to agree on how to pay for them.
House and Senate negotiators said this week they are close to a deal that would increase taxes on investment fund managers and some multinational companies. Also on the table: Requiring lawyers, doctors and other service providers to pay Medicare taxes on income they receive through their businesses.
The overall cost of the bill will likely top $100 billion, with the unemployment benefits and health insurance subsidies adding to the budget deficit.
The tax increases could raise more than $50 billion over the next decade, though lawmakers cautioned they are still working on the details.
The tax breaks benefit a wide variety of individuals and businesses and total about $30 billion a year. They include a deduction for college tuition for couples making less than $160,000 a year, and a deduction for teachers who use their own money to buy school supplies.
There is a tax credit for community development agencies that invest in low-income neighborhoods, as well as a tax break for restaurant owners and retailers who remodel their stores or build new ones.
"The retailers are working on very thin margins," said Van Martin, chairman and CEO of Tribble & Stephens, a Houston-based construction company that does work in 23 states. "We're looking for people that want to build, and it's still pretty slow."
Senate leaders hope to hold a vote on final passage before Memorial Day, said Sen. Max Baucus, D-Mont., chairman of the tax-writing Senate Finance Committee.
The Senate has rejected the tax increase on investment fund managers in the past, but Baucus said his colleagues are closer than ever to agreeing to it.
Investment Managers typically get a fee to manage funds or assets. They also get a share of the profits earned for investors above a certain level.
Under current law, the profit-sharing fees, called carried interest, are taxed as capital gains, with a top rate of 15 percent. The bill would tax the fees as regular income, with a top tax rate of 35 percent, scheduled to rise to 39.6 percent in 2011.
"People who invest their own money should be paying a capital gains (tax), those who manage other people's money should be paying ordinary income (taxes), like everybody else does," said Rep. Sander Levin, D-Mich., chairman of the tax-writing House Ways and Means Committee.
The National Venture Capital Association says the tax increase would reduce investment in startup companies. The group sent a letter opposing the tax to lawmakers this week, signed by more than 1,700 venture capitalists and entrepreneurs.
The change in how investment managers are taxed would raise about $20 billion over the next decade, with a short-phase in period. It would affect hedge fund and private equity managers, as well as many real estate investment partnerships
The tax increase on multinational companies would raise an estimated $9.5 billion over the next decade by limiting the ability of some U.S.-based companies to use foreign tax credits to reduce their U.S. taxes. Generally, the United States taxes income earned by U.S.-based multinational corporations, even if the money is earned abroad.
The income, however, is not taxed by the U.S. until it is brought to the U.S. To avoid double taxation, companies get tax credits for the amount of foreign taxes paid on the income.
Some companies are able to use subsidiaries to claim foreign tax credits on income that is never brought to the U.S., and is never subjected to U.S. taxes. The provision would require companies to return the income to the U.S., subjecting it to U.S. taxes, before awarding the foreign tax credits.
Small business group joins health reform lawsuit ...added 5-14-10
WASHINGTON (Reuters) - An influential small business lobby group said on Friday it had joined 20 states in a lawsuit arguing insurance coverage requirements in the newly enacted healthcare overhaul are unconstitutional.
The National Federation of Independent Business announced its decision ahead of a news conference in Florida with state Attorney General Bill McCollum to discuss the lawsuit.
McCollum is seeking the Republican nomination to run for Florida governor and was one of the first state officials to sue the federal government over President Barack Obama's sweeping healthcare reform passed by Congress in March.
"The outpouring of opposition to this new law was overwhelming and our members urged us to do everything in our power to stop this unconstitutional law," NFIB President and chief executive Dan Danner said in a statement.
"Small business owners everywhere are rightfully concerned that the unconstitutional new mandates, countless rules and new taxes in the healthcare law will devastate their business and their ability to create jobs," he added.
The NFIB has about 350,000 members and initially had supported efforts to overhaul the $2.5 trillion U.S. healthcare system to help bring down soaring costs. But the small business group ended up opposing the legislation that was passed by the Democratic-led Congress.
Danner said small businesses want reforms that help reduce costs and increase choices.
"But this new law resulted in more bad than good for our nation's job creators. And this law is a bridge too far in terms of the future of our constitutional freedoms and liberties," he added.
The states are challenging the bill's central element, a mandate for nearly everyone to purchase health insurance. The bill also includes fines for larger businesses whose employees seek subsidized coverage on state insurance exchanges that are to be up and running by 2014.
(Reporting by Donna Smith; Editing by David Alexander and Vicki Allen)
The National Federation of Independent Business announced its decision ahead of a news conference in Florida with state Attorney General Bill McCollum to discuss the lawsuit.
McCollum is seeking the Republican nomination to run for Florida governor and was one of the first state officials to sue the federal government over President Barack Obama's sweeping healthcare reform passed by Congress in March.
"The outpouring of opposition to this new law was overwhelming and our members urged us to do everything in our power to stop this unconstitutional law," NFIB President and chief executive Dan Danner said in a statement.
"Small business owners everywhere are rightfully concerned that the unconstitutional new mandates, countless rules and new taxes in the healthcare law will devastate their business and their ability to create jobs," he added.
The NFIB has about 350,000 members and initially had supported efforts to overhaul the $2.5 trillion U.S. healthcare system to help bring down soaring costs. But the small business group ended up opposing the legislation that was passed by the Democratic-led Congress.
Danner said small businesses want reforms that help reduce costs and increase choices.
"But this new law resulted in more bad than good for our nation's job creators. And this law is a bridge too far in terms of the future of our constitutional freedoms and liberties," he added.
The states are challenging the bill's central element, a mandate for nearly everyone to purchase health insurance. The bill also includes fines for larger businesses whose employees seek subsidized coverage on state insurance exchanges that are to be up and running by 2014.
(Reporting by Donna Smith; Editing by David Alexander and Vicki Allen)
Fannie Mae seeks $8.4 billion from gov't after loss ...added 5-10-10
(Reuters) - Fannie Mae, the largest U.S. residential mortgage funds provider, on Monday asked the government for an additional $8.4 billion after the company lost $13.1 billion in the first quarter.
Including the latest request, Fannie Mae will have received more than $84.6 billion from the government, and the firm said it saw no end in sight to federal assistance.
The announcement comes less than a week after smaller mortgage finance company Freddie Mac, said it would need $10.6 billion in government funds after losing $8 billion in the first quarter.
The U.S. Treasury took control of the two entities at the height of the financial crisis in 2008 as mortgage losses mounted. The two firms have now tapped more than $145 billion in assistance from Uncle Sam's unlimited credit line.
Housing analyst Rajiv Setia of Barclays Capital said Fannie Mae is likely to draw another $40 billion to $50 billion from the government.
The plan to put them into conservatorship was meant to be temporary, but more than a year and a half later, Treasury Secretary Timothy Geithner has only just begun the process of figuring out how to overhaul the U.S. housing finance system.
The company warned of "significant uncertainty as to our long-term financial sustainability" as it expects the continued weak housing market to keep default rates and credit-related costs high.
The need for more government money was expected and is unlikely to play a significant role in the debate on Capitol Hill over the future of the two firms.
A trio of senior Republican senators want to require the government to relinquish its control of Fannie and Freddie within two years.
Senators Richard Shelby of Alabama, John McCain of Arizona and Judd Gregg of New Hampshire want to add their proposal to a broader debate on Wall Street regulation. The Senate is expected to consider their amendment on Tuesday, though it is not expected to garner enough votes for passage.
The first-quarter net loss included a $1.5 billion dividend on its senior preferred stock held by the Treasury Department. The Obama administration on December 24 pledged to backstop all losses for the two firms through 2012.
The quarterly loss was smaller than the total $16.3 billion loss reported in the fourth quarter.
Fannie Mae said federal aid is helping keep the company solvent, but the dividends payments it is incurring are substantial.
"Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future," the company said.
Because of current trends in housing and financial markets, Fannie Mae expects to continue having a net worth deficit in future periods and to need to tap more funding from the Treasury.
"Promoting sustainable homeownership and maintaining ready access to liquidity are our guiding principles in serving the residential markets," said Michael Williams, the firm's chief executive.
The government has relied heavily on both companies, which buy mortgages from lenders to stimulate more lending, to stabilize the housing market.
Including the latest request, Fannie Mae will have received more than $84.6 billion from the government, and the firm said it saw no end in sight to federal assistance.
The announcement comes less than a week after smaller mortgage finance company Freddie Mac, said it would need $10.6 billion in government funds after losing $8 billion in the first quarter.
The U.S. Treasury took control of the two entities at the height of the financial crisis in 2008 as mortgage losses mounted. The two firms have now tapped more than $145 billion in assistance from Uncle Sam's unlimited credit line.
Housing analyst Rajiv Setia of Barclays Capital said Fannie Mae is likely to draw another $40 billion to $50 billion from the government.
The plan to put them into conservatorship was meant to be temporary, but more than a year and a half later, Treasury Secretary Timothy Geithner has only just begun the process of figuring out how to overhaul the U.S. housing finance system.
The company warned of "significant uncertainty as to our long-term financial sustainability" as it expects the continued weak housing market to keep default rates and credit-related costs high.
The need for more government money was expected and is unlikely to play a significant role in the debate on Capitol Hill over the future of the two firms.
A trio of senior Republican senators want to require the government to relinquish its control of Fannie and Freddie within two years.
Senators Richard Shelby of Alabama, John McCain of Arizona and Judd Gregg of New Hampshire want to add their proposal to a broader debate on Wall Street regulation. The Senate is expected to consider their amendment on Tuesday, though it is not expected to garner enough votes for passage.
The first-quarter net loss included a $1.5 billion dividend on its senior preferred stock held by the Treasury Department. The Obama administration on December 24 pledged to backstop all losses for the two firms through 2012.
The quarterly loss was smaller than the total $16.3 billion loss reported in the fourth quarter.
Fannie Mae said federal aid is helping keep the company solvent, but the dividends payments it is incurring are substantial.
"Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future," the company said.
Because of current trends in housing and financial markets, Fannie Mae expects to continue having a net worth deficit in future periods and to need to tap more funding from the Treasury.
"Promoting sustainable homeownership and maintaining ready access to liquidity are our guiding principles in serving the residential markets," said Michael Williams, the firm's chief executive.
The government has relied heavily on both companies, which buy mortgages from lenders to stimulate more lending, to stabilize the housing market.
U.S. business loan demand climbs in March ...added 5-3-10
Ann Saphir - Courtesy of Reuters
Small and medium-sized businesses in the United States are taking out more new loans and keeping up better with repayments on existing loans, both signs the economic recovery is gaining pace, PayNet Inc reported on Monday.
The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, rose 4 percent in March, the first year-on-year gain since October 2007, two months before the recession began.
And while loan accounts behind 180 days or more rose to a five-year high of 0.96 percent of lenders' portfolios in March, accounts that were 30 days or more behind in payment plunged by the most in 11 years. Accounts 90 days or more in arrears also fell, according to PayNet, which provides risk-management tools to the commercial lending industry.
Taken together, the data marks a milestone for the small business economy and thus for the economy as a whole, said Bill Phelan, Paynet's president and founder.
"The status of the small business economy is critical to creating jobs, to putting pay checks back in peoples' pockets and to ultimately getting people to pay more in taxes," Phelan said. "Small businesses are finally growing again."
As businesses borrow more, they are likely to hire more people and banks are likely to see fewer defaults, he said.
The Thomson Reuters/PayNet small business lending index is correlated to developments in the overall economy, with changes in the index preceding changes in gross domestic product by two to five months.
The index was already signaling economic growth in the third quarter, before GDP growth turned positive in the fourth quarter, Phelan said.
Loan accounts in arrears at least 180 days, or in default and unlikely to ever get paid, rose to 0.96 percent of total receivables in March, the highest since at least 2005, PayNet said.
But accounts in moderate delinquency, or those behind by 30 days or more, fell to 3.79 percent from 4.33 percent in February, the steepest drop since January 1999.
"That's really a good indicator of where defaults are going," Phelan said. A decline in 30-day delinquencies will reduce 180-day delinquencies, with a five-month lag, he said.
Accounts 90 days or more behind in payment, or in severe delinquency, fell to 1.31 percent in March, from 1.38 percent in February.
PayNet collects real-time loan information, such as originations and delinquencies, from more than 200 leading U.S. capital equipment lenders.
Small and medium-sized businesses in the United States are taking out more new loans and keeping up better with repayments on existing loans, both signs the economic recovery is gaining pace, PayNet Inc reported on Monday.
The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, rose 4 percent in March, the first year-on-year gain since October 2007, two months before the recession began.
And while loan accounts behind 180 days or more rose to a five-year high of 0.96 percent of lenders' portfolios in March, accounts that were 30 days or more behind in payment plunged by the most in 11 years. Accounts 90 days or more in arrears also fell, according to PayNet, which provides risk-management tools to the commercial lending industry.
Taken together, the data marks a milestone for the small business economy and thus for the economy as a whole, said Bill Phelan, Paynet's president and founder.
"The status of the small business economy is critical to creating jobs, to putting pay checks back in peoples' pockets and to ultimately getting people to pay more in taxes," Phelan said. "Small businesses are finally growing again."
As businesses borrow more, they are likely to hire more people and banks are likely to see fewer defaults, he said.
The Thomson Reuters/PayNet small business lending index is correlated to developments in the overall economy, with changes in the index preceding changes in gross domestic product by two to five months.
The index was already signaling economic growth in the third quarter, before GDP growth turned positive in the fourth quarter, Phelan said.
Loan accounts in arrears at least 180 days, or in default and unlikely to ever get paid, rose to 0.96 percent of total receivables in March, the highest since at least 2005, PayNet said.
But accounts in moderate delinquency, or those behind by 30 days or more, fell to 3.79 percent from 4.33 percent in February, the steepest drop since January 1999.
"That's really a good indicator of where defaults are going," Phelan said. A decline in 30-day delinquencies will reduce 180-day delinquencies, with a five-month lag, he said.
Accounts 90 days or more behind in payment, or in severe delinquency, fell to 1.31 percent in March, from 1.38 percent in February.
PayNet collects real-time loan information, such as originations and delinquencies, from more than 200 leading U.S. capital equipment lenders.
Senate to Vote Again on Same Financial Regulatory Overhaul Rule ...added 4-28-10
Associated Press Courtesy of Fox News
Outcome expected to be the same in a third vote to begin debate on financial regulatory rules that Republicans say doesn't do anything to help Main Street. Democrats call Republican blocks an effort to protect Wall Street.
Fresh off a confrontation with Goldman Sachs executives, Democrats are mounting another effort to police the freewheeling Wall Street ways that they say helped bring on the worst recession since the Great Depression.
Outnumbered Senate Republicans have held together for two days, twice blocking the start of debate on rewriting financial regulations, in hopes of negotiating changes in the bill. In the protracted fight, Republicans have cast the Democrats' proposal as a perpetuation of taxpayer bailouts -- a hot-button issue -- and accused Democrats of writing an overambitious bill that will hurt small businesses.
Democrats are pressing ahead, hoping that Republican resistance is wearing thin and that the scrutiny of Goldman's actions in the market will stiffen public sentiment against the excesses of financial institutions Democrats scheduled another vote for Wednesday to sustain pressure on the GOP in the expectation that some incremental changes to the bill ultimately would force several Republicans to relent and back the legislation.
Few doubt that the Senate will pass an overhaul of financial regulations in an attempt to prevent a recurrence of the crisis that nearly caused a Wall Street collapse in 2008. But Republicans want their imprint on the bill. And bankers appear to want them to succeed as well.
If campaign contributions are any barometer, large Wall Street institutions approve of what Senate Republicans have been doing to alter the regulatory regime envisioned by the Obama administration and its Democratic allies.
The political action committee of Bank of America, for instance, has contributed 57 percent of its $336,000 in 2009-10 donations to Republicans, according to the Center for Responsive Politics. In the 2007-08 cycle, 53 percent of the bank's PAC contributions went to Democrats.
A spot check of contributions by The Associated Press showed that Goldman Sachs' PAC, which contributed predominantly to Democrats between 2007 and 2009, shifted to Republicans in March, contributing $167,500 to Republican members of Congress and their political committees and $117,000 to Democrats. Similar patterns emerged for JPMorgan Chase and Morgan Stanley, whose PACs both shifted to Republicans last month.
Testifying before a Senate investigative panel on Tuesday, Goldman CEO Lloyd Blankfein said he generally supported the pending Democratic bill but said "there are details of it that I think I'm less sure of."
Senate Banking Committee Chairman Christopher Dodd, D-Conn., and the committee's top Republican, Alabama Sen. Richard Shelby, have been conducting on-and-off negotiations for months but have not arrived at a compromise. Dodd incorporated some Republican proposals into his bill and appeared ready to accept new alterations that addressed Republican claims that the bill could still result in government bailouts.
But Shelby also was seeking changes in the bill's consumer protection provisions -- a key feature and a priority for President Barack Obama. Dodd on Tuesday said that if Republicans wanted to change his consumer measures, they should do so by amendment in the Senate.
"We're not going to write this whole bill between two senators," Dodd said.
The Republican tactics in the Senate carry risks for the party. The public is angry at Wall Street, and Democrats have taken the opportunity to charge Republicans with doing Wall Street's bidding.
On NBC's "Today" show Wednesday, Sen. Carl Levin, D-Mich., said, "It is totally inconsistent to be arguing that there ought to be financial reform, and after all these months of reviews, studies, hearings, not allow a bill to come to the floor."
Sen. Susan Collins, R-Maine, responded that Republicans are trying to strengthen the bill -- for example, with "better protections against taxpayer-funded bailouts."
Republicans on Tuesday floated a 20-page summary of a GOP alternative to Dodd's measure.
The Republican plan would prohibit the use of taxpayer money to bail out failing financial giants in the future and impose federal regulation on many but not all trades of complex investments known as derivatives. Unlike in the Democrats' bill, large banks would not have to help pay for the failure of their peers. It also calls for consumer protections that are narrower than what Democrats and the White House seek, and it would place restrictions of financial assistance to mortgage giants Fannie Mae and Freddie Mac.
Republicans also were counting on the public to forget the Republican stalling tactics.
"You know, what happens on Monday or Tuesday versus what happens later is something largely lost on the general public," Senate Republican leader Mitch McConnell said.
But there were signs that Republicans would only stick with the strategy for so long.
Sen. George Voinovich, R-Ohio, said he would vote to let the bill advance to the Senate floor if bipartisan talks were no longer progressing.
"I have an idea of how much time it takes to cut a deal," he said. "If that's not possible, then we go on.
Outcome expected to be the same in a third vote to begin debate on financial regulatory rules that Republicans say doesn't do anything to help Main Street. Democrats call Republican blocks an effort to protect Wall Street.
Fresh off a confrontation with Goldman Sachs executives, Democrats are mounting another effort to police the freewheeling Wall Street ways that they say helped bring on the worst recession since the Great Depression.
Outnumbered Senate Republicans have held together for two days, twice blocking the start of debate on rewriting financial regulations, in hopes of negotiating changes in the bill. In the protracted fight, Republicans have cast the Democrats' proposal as a perpetuation of taxpayer bailouts -- a hot-button issue -- and accused Democrats of writing an overambitious bill that will hurt small businesses.
Democrats are pressing ahead, hoping that Republican resistance is wearing thin and that the scrutiny of Goldman's actions in the market will stiffen public sentiment against the excesses of financial institutions Democrats scheduled another vote for Wednesday to sustain pressure on the GOP in the expectation that some incremental changes to the bill ultimately would force several Republicans to relent and back the legislation.
Few doubt that the Senate will pass an overhaul of financial regulations in an attempt to prevent a recurrence of the crisis that nearly caused a Wall Street collapse in 2008. But Republicans want their imprint on the bill. And bankers appear to want them to succeed as well.
If campaign contributions are any barometer, large Wall Street institutions approve of what Senate Republicans have been doing to alter the regulatory regime envisioned by the Obama administration and its Democratic allies.
The political action committee of Bank of America, for instance, has contributed 57 percent of its $336,000 in 2009-10 donations to Republicans, according to the Center for Responsive Politics. In the 2007-08 cycle, 53 percent of the bank's PAC contributions went to Democrats.
A spot check of contributions by The Associated Press showed that Goldman Sachs' PAC, which contributed predominantly to Democrats between 2007 and 2009, shifted to Republicans in March, contributing $167,500 to Republican members of Congress and their political committees and $117,000 to Democrats. Similar patterns emerged for JPMorgan Chase and Morgan Stanley, whose PACs both shifted to Republicans last month.
Testifying before a Senate investigative panel on Tuesday, Goldman CEO Lloyd Blankfein said he generally supported the pending Democratic bill but said "there are details of it that I think I'm less sure of."
Senate Banking Committee Chairman Christopher Dodd, D-Conn., and the committee's top Republican, Alabama Sen. Richard Shelby, have been conducting on-and-off negotiations for months but have not arrived at a compromise. Dodd incorporated some Republican proposals into his bill and appeared ready to accept new alterations that addressed Republican claims that the bill could still result in government bailouts.
But Shelby also was seeking changes in the bill's consumer protection provisions -- a key feature and a priority for President Barack Obama. Dodd on Tuesday said that if Republicans wanted to change his consumer measures, they should do so by amendment in the Senate.
"We're not going to write this whole bill between two senators," Dodd said.
The Republican tactics in the Senate carry risks for the party. The public is angry at Wall Street, and Democrats have taken the opportunity to charge Republicans with doing Wall Street's bidding.
On NBC's "Today" show Wednesday, Sen. Carl Levin, D-Mich., said, "It is totally inconsistent to be arguing that there ought to be financial reform, and after all these months of reviews, studies, hearings, not allow a bill to come to the floor."
Sen. Susan Collins, R-Maine, responded that Republicans are trying to strengthen the bill -- for example, with "better protections against taxpayer-funded bailouts."
Republicans on Tuesday floated a 20-page summary of a GOP alternative to Dodd's measure.
The Republican plan would prohibit the use of taxpayer money to bail out failing financial giants in the future and impose federal regulation on many but not all trades of complex investments known as derivatives. Unlike in the Democrats' bill, large banks would not have to help pay for the failure of their peers. It also calls for consumer protections that are narrower than what Democrats and the White House seek, and it would place restrictions of financial assistance to mortgage giants Fannie Mae and Freddie Mac.
Republicans also were counting on the public to forget the Republican stalling tactics.
"You know, what happens on Monday or Tuesday versus what happens later is something largely lost on the general public," Senate Republican leader Mitch McConnell said.
But there were signs that Republicans would only stick with the strategy for so long.
Sen. George Voinovich, R-Ohio, said he would vote to let the bill advance to the Senate floor if bipartisan talks were no longer progressing.
"I have an idea of how much time it takes to cut a deal," he said. "If that's not possible, then we go on.
Street Execs Give Pols Earful on Financial Reform ...added 4-13-10
By Charles Gasparino courtesy of Fox News
As a financial reform bill starts to take shape in Washington, two key lawmakers came to New York City last week to explain what it means for Wall Street, and how financial executives might help prevent some of its least market-friendly aspects from becoming law by electing more Republicans, FOX Business Network has learned.
About 25 Wall Street executives, many of them hedge fund managers, sat down for a private meeting Thursday afternoon with two of the most powerful Republican lawmakers in Congress: Senate minority leader Mitch McConnell of Kentucky, and John Cornyn, the senior senator from Texas who runs the National Republican Senatorial Committee, one of the primary fundraising arms of the Republican Party.
The stated topic of the meeting: The Financial reform bill being sponsored by Senator Chris Dodd, the Democrat and chairman of the senate banking committee. Both McConnell and Cornyn listened to numerous complaints the executives have with the bill. These included complaints about provisions that allow the government to continue to prop up financial institutions that are “too big to fail.”
The undercurrent of the gathering, however, was undeniably political. It came on the heels of President Obama and Democrats in Congress passing health-care reform by a narrow margin, and who are now turning their attention to passing financial services reform a little more than a year after the Wall Street meltdown.
The Senators explained they can’t just oppose the Dodd bill — they need to come up with a reform plan of their own, as they fight its least free-market components, such as the notion that the government can determine which banks are “too big to fail.”
In the meantime, they need to increase numbers of Republicans in both the House and the Senate if they are going to make an impact on not just this bill, but other measures to increase Washington’s control of the financial business. To do that they need the support of the financial community. At one point McConnell quoted something he attributed to Democrat Barney Frank, the chairman of the House Financial Services Committee.
McConnell, according to a person who was present, said “Barney likes to say ‘Wall Street used to say we have Washington by the (neck), and we’re going to change that.’”
Spokespeople for McConnell and Cornyn didn’t return calls for comment.
During the meetings, both predicted that the Republicans will likely add at least six senate seats to their current total of 41, meaning they would come up just shy of control of the Senate. They predicted victories in Nevada, unseating the unpopular Senator Majority Leader Harry Reid, and said Republican Pat Toomey has a great shot at unseating Republican-turned-Democrat Arlen Specter in Pennsylvania.
They also said that they have a shot at taking control of the House by adding 40 additional seats to their current total. In New York State alone, the senators predicted a six-seat pickup.
But in order to assure those gains, and add even more, McConnell and Cornyn made it clear they need Wall Street's help. “There was no arm twisting but they did say that we should feel uncomfortable living in any country where one party has unfettered ability to pass anything including health care and anything else President Obama dreams up,” said another executive who was present.
In addition to Too Big To Fail, other parts of the bill that drew concern included what one executive from JP Morgan (JPM: 46.18, 0, 0%) said is a provision that would give authority to government to override bankruptcy laws, and determine which class of bondholders should get paid off first. During liquidation, bonds that have a higher priority and are considered “senior” are paid off first, thus they trade higher in the markets.
“I wouldn’t say this around the office,” said the executive, according to two people who were present, “but if that aspect survives, it will kill the market for distressed debt.”
As a financial reform bill starts to take shape in Washington, two key lawmakers came to New York City last week to explain what it means for Wall Street, and how financial executives might help prevent some of its least market-friendly aspects from becoming law by electing more Republicans, FOX Business Network has learned.
About 25 Wall Street executives, many of them hedge fund managers, sat down for a private meeting Thursday afternoon with two of the most powerful Republican lawmakers in Congress: Senate minority leader Mitch McConnell of Kentucky, and John Cornyn, the senior senator from Texas who runs the National Republican Senatorial Committee, one of the primary fundraising arms of the Republican Party.
The stated topic of the meeting: The Financial reform bill being sponsored by Senator Chris Dodd, the Democrat and chairman of the senate banking committee. Both McConnell and Cornyn listened to numerous complaints the executives have with the bill. These included complaints about provisions that allow the government to continue to prop up financial institutions that are “too big to fail.”
The undercurrent of the gathering, however, was undeniably political. It came on the heels of President Obama and Democrats in Congress passing health-care reform by a narrow margin, and who are now turning their attention to passing financial services reform a little more than a year after the Wall Street meltdown.
The Senators explained they can’t just oppose the Dodd bill — they need to come up with a reform plan of their own, as they fight its least free-market components, such as the notion that the government can determine which banks are “too big to fail.”
In the meantime, they need to increase numbers of Republicans in both the House and the Senate if they are going to make an impact on not just this bill, but other measures to increase Washington’s control of the financial business. To do that they need the support of the financial community. At one point McConnell quoted something he attributed to Democrat Barney Frank, the chairman of the House Financial Services Committee.
McConnell, according to a person who was present, said “Barney likes to say ‘Wall Street used to say we have Washington by the (neck), and we’re going to change that.’”
Spokespeople for McConnell and Cornyn didn’t return calls for comment.
During the meetings, both predicted that the Republicans will likely add at least six senate seats to their current total of 41, meaning they would come up just shy of control of the Senate. They predicted victories in Nevada, unseating the unpopular Senator Majority Leader Harry Reid, and said Republican Pat Toomey has a great shot at unseating Republican-turned-Democrat Arlen Specter in Pennsylvania.
They also said that they have a shot at taking control of the House by adding 40 additional seats to their current total. In New York State alone, the senators predicted a six-seat pickup.
But in order to assure those gains, and add even more, McConnell and Cornyn made it clear they need Wall Street's help. “There was no arm twisting but they did say that we should feel uncomfortable living in any country where one party has unfettered ability to pass anything including health care and anything else President Obama dreams up,” said another executive who was present.
In addition to Too Big To Fail, other parts of the bill that drew concern included what one executive from JP Morgan (JPM: 46.18, 0, 0%) said is a provision that would give authority to government to override bankruptcy laws, and determine which class of bondholders should get paid off first. During liquidation, bonds that have a higher priority and are considered “senior” are paid off first, thus they trade higher in the markets.
“I wouldn’t say this around the office,” said the executive, according to two people who were present, “but if that aspect survives, it will kill the market for distressed debt.”
Hit the Brakes: State Governments Raise Traffic Fees ...added 3-22-10
Cash-strapped cities and states consider measures ranging from expansion of red-light camera systems to charging drivers for cleanup after accidents.
Courtesy of Fox News
AP LOS ANGELES – Shomari Jennings was willing to pay the $70 ticket he received for driving without a seatbelt, but not the slew of tacked-on fees and penalties that ballooned the cost more than tenfold.
Every $10 of his base fine triggered a $26 "penalty assessment" for courthouse construction, a DNA identification program, emergency medical services and other programs. Other fees ranged from $1 to $35.
"It's the new tax," Jennings, 30, complained while waiting in traffic court to contest a staggering bill compounded by a $500 fine for missing a court date.
And motorists can only expect more of the same as cash-strapped cities and states consider measures ranging from expansion of red-light camera systems to charging drivers for cleanup after accidents.
In Iowa, lawmakers grappling with shortfalls in the state's public safety budget are exploring ways to increase fines for traffic violations. There's a proposal in Maryland to add a $7.50 charge to traffic fines to help pay for law enforcement and fire protection equipment.
Cash-strapped California, however, is seeing some of the most aggressive efforts to squeeze money out of motorists.
Last year, lawmakers agreed to a budget deal that nearly doubled the vehicle license fee that owners pay when they register their cars every year. The fee rose from .65 percent of a vehicle's value to 1.15 percent. A significant portion of the revenue goes to the state's general fund, and the rest to local crime prevention programs.
This year, Gov. Arnold Schwarzenegger suggested retrofitting 500 city and county traffic cameras to cite not only drivers who blow through red lights but speeders, too. The state, facing a $20 billion deficit, would collect 85 percent of the money, using the projected $338 million to help pay for courts and court security.
An estimated 60 local governments, including fire protection districts and municipalities, have in place or are considering plans to send accident cleanup bills to drivers involved in a crash, according to the Association of California Insurance Companies.
"It's really victimizing people twice," said Samuel Sorich, the association's president.
Many insurance companies do not cover cleanup fees, he added, and if the practice becomes widespread it could lead to higher premiums.
In Los Angeles, city officials are thinking about doubling red-light cameras to 64 intersections. Last year, 44,000 red-light camera tickets were issued in the city, netting more than $6 million.
The fine for running a red light is nearly $500 when city and county fees combined with various penalty assessments, which are set by the Legislature, and traffic school are factored in. The majority of the red-light camera citations, however, were for making right turns without a full stop, a $381 violation.
Steve Finnegan, government affairs manager for the Automobile Club of Southern California, said the cameras are justified when they're intended to stop drivers from running red lights, but when they're used for citing less dangerous right-turn violations motorists can get cynical about their purpose.
"One has to question if finance isn't a part of the motivating factor for putting in these cameras," Finnegan said.
He noted that Schwarzenegger's red-light camera idea was included in a budget proposal.
"This is clearly a financial proposal," he said. "It's not being driven by safety consideration."
The importance of revenue from traffic fines is evident in the competition among governments to control it.
A Los Angeles city councilman who is critical of the high cost of red-light tickets thinks it can be reduced if the city starts to process the citations. Dennis Zine contends that the switch would increase revenue for the city and take some of the burden off the county courts.
State Sen. Jenny Oropeza, however, has introduced legislation prohibiting local governments from collecting and keeping traffic fines.
Zine argues that the city pays for the cameras as well as training and equipping police.
"The state collects a majority of the fine for doing nothing when we're burdened with all the responsibilities," he said.
Los Angeles, which is facing a $212 million budget gap this fiscal year, is also lobbying to change the state vehicle code to allow placement of immobilizing "boots" on cars with as few as three unpaid parking tickets. Currently, the law allows booting after five accumulated parking tickets.
The change could help the city collect up to $61 million in overdue parking citations, according to a transportation department analysis.
Drivers, meanwhile, already face a greater likelihood of being hit with fines under existing laws. Citations for traffic infractions across Los Angeles County in the last fiscal year jumped more than 150,000 above the previous year's 1.67 million, indicating stepped-up enforcement.
In the midst of recession, that means more people coming to court to fight tickets or to admit fault and ask to perform community service instead of paying fines.
Coupled with reduced hours and furlough days due to state budget cuts, the result is long lines of people snaking out the door of the county's biggest traffic court.
"That's not surprising if your red light ticket is now $500," said Judge Gail Ruderman Feuer, who supervises theMetropolitan courthouse. "You have more people coming into court in hopes of getting a break."
But even a break can have too high a price.
Lupe Ocaranza, 20, said she was assigned 60 hours of service in lieu of a $500 fine for driving with an expired license. After doing 27 hours of janitorial duties at a school she decided to pay a reduced $270 fine.
"I can't afford to miss work for this," she said.
Courtesy of Fox News
AP LOS ANGELES – Shomari Jennings was willing to pay the $70 ticket he received for driving without a seatbelt, but not the slew of tacked-on fees and penalties that ballooned the cost more than tenfold.
Every $10 of his base fine triggered a $26 "penalty assessment" for courthouse construction, a DNA identification program, emergency medical services and other programs. Other fees ranged from $1 to $35.
"It's the new tax," Jennings, 30, complained while waiting in traffic court to contest a staggering bill compounded by a $500 fine for missing a court date.
And motorists can only expect more of the same as cash-strapped cities and states consider measures ranging from expansion of red-light camera systems to charging drivers for cleanup after accidents.
In Iowa, lawmakers grappling with shortfalls in the state's public safety budget are exploring ways to increase fines for traffic violations. There's a proposal in Maryland to add a $7.50 charge to traffic fines to help pay for law enforcement and fire protection equipment.
Cash-strapped California, however, is seeing some of the most aggressive efforts to squeeze money out of motorists.
Last year, lawmakers agreed to a budget deal that nearly doubled the vehicle license fee that owners pay when they register their cars every year. The fee rose from .65 percent of a vehicle's value to 1.15 percent. A significant portion of the revenue goes to the state's general fund, and the rest to local crime prevention programs.
This year, Gov. Arnold Schwarzenegger suggested retrofitting 500 city and county traffic cameras to cite not only drivers who blow through red lights but speeders, too. The state, facing a $20 billion deficit, would collect 85 percent of the money, using the projected $338 million to help pay for courts and court security.
An estimated 60 local governments, including fire protection districts and municipalities, have in place or are considering plans to send accident cleanup bills to drivers involved in a crash, according to the Association of California Insurance Companies.
"It's really victimizing people twice," said Samuel Sorich, the association's president.
Many insurance companies do not cover cleanup fees, he added, and if the practice becomes widespread it could lead to higher premiums.
In Los Angeles, city officials are thinking about doubling red-light cameras to 64 intersections. Last year, 44,000 red-light camera tickets were issued in the city, netting more than $6 million.
The fine for running a red light is nearly $500 when city and county fees combined with various penalty assessments, which are set by the Legislature, and traffic school are factored in. The majority of the red-light camera citations, however, were for making right turns without a full stop, a $381 violation.
Steve Finnegan, government affairs manager for the Automobile Club of Southern California, said the cameras are justified when they're intended to stop drivers from running red lights, but when they're used for citing less dangerous right-turn violations motorists can get cynical about their purpose.
"One has to question if finance isn't a part of the motivating factor for putting in these cameras," Finnegan said.
He noted that Schwarzenegger's red-light camera idea was included in a budget proposal.
"This is clearly a financial proposal," he said. "It's not being driven by safety consideration."
The importance of revenue from traffic fines is evident in the competition among governments to control it.
A Los Angeles city councilman who is critical of the high cost of red-light tickets thinks it can be reduced if the city starts to process the citations. Dennis Zine contends that the switch would increase revenue for the city and take some of the burden off the county courts.
State Sen. Jenny Oropeza, however, has introduced legislation prohibiting local governments from collecting and keeping traffic fines.
Zine argues that the city pays for the cameras as well as training and equipping police.
"The state collects a majority of the fine for doing nothing when we're burdened with all the responsibilities," he said.
Los Angeles, which is facing a $212 million budget gap this fiscal year, is also lobbying to change the state vehicle code to allow placement of immobilizing "boots" on cars with as few as three unpaid parking tickets. Currently, the law allows booting after five accumulated parking tickets.
The change could help the city collect up to $61 million in overdue parking citations, according to a transportation department analysis.
Drivers, meanwhile, already face a greater likelihood of being hit with fines under existing laws. Citations for traffic infractions across Los Angeles County in the last fiscal year jumped more than 150,000 above the previous year's 1.67 million, indicating stepped-up enforcement.
In the midst of recession, that means more people coming to court to fight tickets or to admit fault and ask to perform community service instead of paying fines.
Coupled with reduced hours and furlough days due to state budget cuts, the result is long lines of people snaking out the door of the county's biggest traffic court.
"That's not surprising if your red light ticket is now $500," said Judge Gail Ruderman Feuer, who supervises theMetropolitan courthouse. "You have more people coming into court in hopes of getting a break."
But even a break can have too high a price.
Lupe Ocaranza, 20, said she was assigned 60 hours of service in lieu of a $500 fine for driving with an expired license. After doing 27 hours of janitorial duties at a school she decided to pay a reduced $270 fine.
"I can't afford to miss work for this," she said.
Dodd Bill Empowers Regulators to Limit Size of Financial Firms ...added 3-15-10
By Alison Vekshin Courtesy of Business Week Magazine
March 15 (Bloomberg) -- Senator Christopher Dodd unveiled legislation that empowers regulators to break up large financial firms, ban proprietary trading, and oversee hedge funds and derivatives, aiming to enact the most sweeping rules overhaul since the 1930s.
Dodd would let the Federal Reserve authority force firms to divest holdings if they pose a “grave threat” to the economy, make hedge funds overseeing more than $100 million register with regulators and require central clearing for derivatives, according to a summary released today.
“Companies simply shouldn’t be that big or that complex,” Dodd, a Connecticut Democrat who leads the Senate Banking Committee, said at a Washington news conference. “And we will discourage that through the new capital requirements and other strong supervisory protections.”
Dodd’s bill, released 18 months after the collapse of Lehman Brothers Holdings Inc., attempts to implement President Barack Obama’s call for financial reform. Skeptics said it’s a watered-down version of Dodd’s earlier bill that gives Obama’s proposed consumer protection agency too little independence and gives the Fed too big a role after the central bank failed to adequately regulate Wall Street before the credit crisis.
“We’re making up solutions for problems that don’t exist to avoid the challenges that we don’t want to address,” Peter Morici, an economist at the University of Maryland in College Park, said in an interview. “This proposal doesn’t solve problems on derivatives, on too-big-to-fail or anything else that led to the crisis.”
Council of Regulators
Dodd’s plan creates a nine-member council of regulators led by the Treasury secretary to identify and respond to risks in the financial system. Large bank holding companies that received funds from the $700 billion Troubled Asset Relief Program, including Goldman Sachs Group Inc. and Morgan Stanley, won’t be able to avoid Fed supervision by getting rid of their banks.
The bill would give shareholders of publicly traded companies a non-binding vote on executive pay, grant investors more power to nominate board members and allow pay to be recouped if it was based on inaccurate financial information.
It also includes a version of the Obama’s so-called Volcker Rule to restrict proprietary trading, and involvement with hedge funds and private equity funds, according to the summary.
‘Last Resort’
The Fed, with a two-thirds vote by the proposed Financial Stability Oversight Council, would be able to require companies to divest holdings “only as a last resort,” the summary said.
The council can make recommendations to the Fed to impose “strict” rules for capital, leverage, liquidity and risk management to make it difficult for firms to grow so big and complex that they endanger the financial system. It could require the Fed to regulate non-bank financial firms that threaten financial stability, ensuring that “the next AIG would be regulated” by the Fed, the summary said.
It gives the Securities and Exchange Commission and Commodity Futures Trading Commission authority to regulate over- the-counter derivatives and requires those agencies to approve contracts before clearinghouses can clear them.
Dodd’s plan also requires hedge funds to register with the SEC as investment advisers and provide information about their trades and portfolios to assess systemic risk.
Consumer Protection
The proposal creates a consumer protection agency at the Fed to police firms for lending abuses. The bureau will be led by a director appointed by the president and confirmed by the Senate. It would have its own budget, write rules for banks and non-banks, and examine and enforce rules for banks and credit unions with at least $10 billion in assets.
The proposal aims at strengthening Wall Street oversight after a credit crisis stemming from the collapse of the U.S. subprime mortgage market led to the failures of Lehman Brothers Holdings Inc. and Bear Stearns Cos. and $182.3 billion in bailouts for American International Group Inc.
Obama released a statement today saying he “will fight against efforts to weaken” the legislation.
“I will oppose any loopholes that could harm consumers or investors, or that allow institutions to avoid oversight that is important to financial stability,” the president said.
Dodd’s plan is a revision of a November draft that he withdrew amid Republican opposition. That draft called for creating an independent consumer agency and a single bank regulator formed by merging the oversight powers of the Fed, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
The new measure eliminates the OTS, while reducing the Fed’s bank oversight powers by shrinking the number of holding companies under its watch and shifting authority over state banks to the FDIC. The Fed will regulate bank and thrift holding companies with more than $50 billion in assets, while the FDIC would regulate state banks and thrifts of all sizes and holding companies of state banks with less than $50 billion in assets.
March 15 (Bloomberg) -- Senator Christopher Dodd unveiled legislation that empowers regulators to break up large financial firms, ban proprietary trading, and oversee hedge funds and derivatives, aiming to enact the most sweeping rules overhaul since the 1930s.
Dodd would let the Federal Reserve authority force firms to divest holdings if they pose a “grave threat” to the economy, make hedge funds overseeing more than $100 million register with regulators and require central clearing for derivatives, according to a summary released today.
“Companies simply shouldn’t be that big or that complex,” Dodd, a Connecticut Democrat who leads the Senate Banking Committee, said at a Washington news conference. “And we will discourage that through the new capital requirements and other strong supervisory protections.”
Dodd’s bill, released 18 months after the collapse of Lehman Brothers Holdings Inc., attempts to implement President Barack Obama’s call for financial reform. Skeptics said it’s a watered-down version of Dodd’s earlier bill that gives Obama’s proposed consumer protection agency too little independence and gives the Fed too big a role after the central bank failed to adequately regulate Wall Street before the credit crisis.
“We’re making up solutions for problems that don’t exist to avoid the challenges that we don’t want to address,” Peter Morici, an economist at the University of Maryland in College Park, said in an interview. “This proposal doesn’t solve problems on derivatives, on too-big-to-fail or anything else that led to the crisis.”
Council of Regulators
Dodd’s plan creates a nine-member council of regulators led by the Treasury secretary to identify and respond to risks in the financial system. Large bank holding companies that received funds from the $700 billion Troubled Asset Relief Program, including Goldman Sachs Group Inc. and Morgan Stanley, won’t be able to avoid Fed supervision by getting rid of their banks.
The bill would give shareholders of publicly traded companies a non-binding vote on executive pay, grant investors more power to nominate board members and allow pay to be recouped if it was based on inaccurate financial information.
It also includes a version of the Obama’s so-called Volcker Rule to restrict proprietary trading, and involvement with hedge funds and private equity funds, according to the summary.
‘Last Resort’
The Fed, with a two-thirds vote by the proposed Financial Stability Oversight Council, would be able to require companies to divest holdings “only as a last resort,” the summary said.
The council can make recommendations to the Fed to impose “strict” rules for capital, leverage, liquidity and risk management to make it difficult for firms to grow so big and complex that they endanger the financial system. It could require the Fed to regulate non-bank financial firms that threaten financial stability, ensuring that “the next AIG would be regulated” by the Fed, the summary said.
It gives the Securities and Exchange Commission and Commodity Futures Trading Commission authority to regulate over- the-counter derivatives and requires those agencies to approve contracts before clearinghouses can clear them.
Dodd’s plan also requires hedge funds to register with the SEC as investment advisers and provide information about their trades and portfolios to assess systemic risk.
Consumer Protection
The proposal creates a consumer protection agency at the Fed to police firms for lending abuses. The bureau will be led by a director appointed by the president and confirmed by the Senate. It would have its own budget, write rules for banks and non-banks, and examine and enforce rules for banks and credit unions with at least $10 billion in assets.
The proposal aims at strengthening Wall Street oversight after a credit crisis stemming from the collapse of the U.S. subprime mortgage market led to the failures of Lehman Brothers Holdings Inc. and Bear Stearns Cos. and $182.3 billion in bailouts for American International Group Inc.
Obama released a statement today saying he “will fight against efforts to weaken” the legislation.
“I will oppose any loopholes that could harm consumers or investors, or that allow institutions to avoid oversight that is important to financial stability,” the president said.
Dodd’s plan is a revision of a November draft that he withdrew amid Republican opposition. That draft called for creating an independent consumer agency and a single bank regulator formed by merging the oversight powers of the Fed, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
The new measure eliminates the OTS, while reducing the Fed’s bank oversight powers by shrinking the number of holding companies under its watch and shifting authority over state banks to the FDIC. The Fed will regulate bank and thrift holding companies with more than $50 billion in assets, while the FDIC would regulate state banks and thrifts of all sizes and holding companies of state banks with less than $50 billion in assets.
Foreclosures Drop for Second Straight Month in February ...added 3-11-10
Julie Haviv; Editing by Jan Paschal Reuters
NEW YORK-- U.S. mortgage foreclosure filings dropped for a second straight month in February, and notched the smallest annual increase in four years as housing-rescue efforts contained activity, a report released Thursday showed.
Foreclosures are by far one of the biggest threats to the U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention. If foreclosures keep dropping, it will be one of the strongest signals yet the market is on the path to recovery.
Foreclosure filings -- including mortgage default notices, house auctions and home repossessions by banks -- were reported on 308,524 properties in February, down 2% from January, but still up 6% from the year-ago month, real estate data firm RealtyTrac said.
"The 6 percent year-over-year increase we saw in February was the smallest annual increase we've seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity," said James J. Saccacio, chief executive officer of RealtyTrac, in a statement.
Proclaiming an end to rampant foreclosures, however, is premature. Indeed, many say foreclosure prevention programs have fallen short of addressing the trend's current drivers.
"This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity -- albeit at a historically high level that will likely continue for an extended period," he said.
While February's drop may indicate that efforts to prevent foreclosure are gaining traction, the data has been volatile.
"In addition, severe winter weather appears to have temporarily slowed the processing of foreclosure records in some Northeastern and Mid-Atlantic states," he said.
One in every 418 U.S. housing units received a foreclosure filing in February, Irvine, California-based RealtyTrac said in its February 2010 U.S. Foreclosure Market Report.
Furthermore, more than 300,000 properties received foreclosure filings for a 12th straight month, RealtyTrac said.
REOs, or real estate-owned properties, activity nationwide was down 10% from the previous month, but up 6% from February 2009; default notices were up 3% from the previous month, but down 3% from February 2009, and scheduled foreclosure auctions were down 1% from the previous month, but still up 16% from February 2009, RealtyTrac said.
High unemployment and wage cuts have hurt the ability of many home owners to pay monthly mortgage payments. Unemployment was at 9.7% in February, according to the Labor Department.
Many lawmakers, advocacy groups and housing experts say the government's Home Affordable Modification Program, or HAMP, has fallen short because of its failure to adequately address negative equity or "under water" mortgages.
Negative equity has been one of the biggest banes of many home owners' lives, making many unqualified for home loan refinancing and preventing some from selling their homes. Borrowers in negative equity are more prone to defaults and foreclosures.
SUNBELT STILL HURTING
The foreclosure rate in Nevada, once one of the hottest U.S. real estate markets, remained highest among U.S. states for the 38th straight month -- despite a month-over-month drop in foreclosure activity of nearly 7% and a year-over-year fall of 30%.
One in every 102 Nevada housing units received a foreclosure filing during the month of February -- more than four times the national average.
Arizona and Florida documented nearly identical foreclosure rates, with one in every 163 housing units receiving a foreclosure filing in both states in February.
Despite a nearly 21% drop in foreclosure activity from the previous month, Arizona's rate was statistically slightly higher than Florida's rate, and ranked second highest among the states. Foreclosure activity in Florida increased nearly 15% in February from January.
The foreclosure rate in California, the most populous U.S. state, ranked fourth highest among the states, with one in every 195 housing units receiving a foreclosure filing during the month.
Michigan's foreclosure rate ranked fifth highest among the states, with one in every 226 housing units receiving a foreclosure filing in February.
Other states with February foreclosure rates among the nation's top 10 were Utah, Idaho, Illinois, Georgia and Maryland, the report showed.
NEW YORK-- U.S. mortgage foreclosure filings dropped for a second straight month in February, and notched the smallest annual increase in four years as housing-rescue efforts contained activity, a report released Thursday showed.
Foreclosures are by far one of the biggest threats to the U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention. If foreclosures keep dropping, it will be one of the strongest signals yet the market is on the path to recovery.
Foreclosure filings -- including mortgage default notices, house auctions and home repossessions by banks -- were reported on 308,524 properties in February, down 2% from January, but still up 6% from the year-ago month, real estate data firm RealtyTrac said.
"The 6 percent year-over-year increase we saw in February was the smallest annual increase we've seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity," said James J. Saccacio, chief executive officer of RealtyTrac, in a statement.
Proclaiming an end to rampant foreclosures, however, is premature. Indeed, many say foreclosure prevention programs have fallen short of addressing the trend's current drivers.
"This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity -- albeit at a historically high level that will likely continue for an extended period," he said.
While February's drop may indicate that efforts to prevent foreclosure are gaining traction, the data has been volatile.
"In addition, severe winter weather appears to have temporarily slowed the processing of foreclosure records in some Northeastern and Mid-Atlantic states," he said.
One in every 418 U.S. housing units received a foreclosure filing in February, Irvine, California-based RealtyTrac said in its February 2010 U.S. Foreclosure Market Report.
Furthermore, more than 300,000 properties received foreclosure filings for a 12th straight month, RealtyTrac said.
REOs, or real estate-owned properties, activity nationwide was down 10% from the previous month, but up 6% from February 2009; default notices were up 3% from the previous month, but down 3% from February 2009, and scheduled foreclosure auctions were down 1% from the previous month, but still up 16% from February 2009, RealtyTrac said.
High unemployment and wage cuts have hurt the ability of many home owners to pay monthly mortgage payments. Unemployment was at 9.7% in February, according to the Labor Department.
Many lawmakers, advocacy groups and housing experts say the government's Home Affordable Modification Program, or HAMP, has fallen short because of its failure to adequately address negative equity or "under water" mortgages.
Negative equity has been one of the biggest banes of many home owners' lives, making many unqualified for home loan refinancing and preventing some from selling their homes. Borrowers in negative equity are more prone to defaults and foreclosures.
SUNBELT STILL HURTING
The foreclosure rate in Nevada, once one of the hottest U.S. real estate markets, remained highest among U.S. states for the 38th straight month -- despite a month-over-month drop in foreclosure activity of nearly 7% and a year-over-year fall of 30%.
One in every 102 Nevada housing units received a foreclosure filing during the month of February -- more than four times the national average.
Arizona and Florida documented nearly identical foreclosure rates, with one in every 163 housing units receiving a foreclosure filing in both states in February.
Despite a nearly 21% drop in foreclosure activity from the previous month, Arizona's rate was statistically slightly higher than Florida's rate, and ranked second highest among the states. Foreclosure activity in Florida increased nearly 15% in February from January.
The foreclosure rate in California, the most populous U.S. state, ranked fourth highest among the states, with one in every 195 housing units receiving a foreclosure filing during the month.
Michigan's foreclosure rate ranked fifth highest among the states, with one in every 226 housing units receiving a foreclosure filing in February.
Other states with February foreclosure rates among the nation's top 10 were Utah, Idaho, Illinois, Georgia and Maryland, the report showed.
IRS Extends Moratorium on Tax Penalty Fought by Small Business ....added 3-8-10
By Margaret Collins Courtesy of Bloomberg
March 4 (Bloomberg) -- The U.S. Internal Revenue Service will extend a moratorium on penalties until June 1 for failing to report transactions considered tax shelters.
The rule applies to individuals or other taxpayers that fail to disclose transactions the IRS deems as potentially tax evading, such as employer contributions to post-retirement benefit funds. The levy is as high as $100,000 a year for individuals and $200,000 for all other taxpayers, according to the IRS.
It is assessed each year a transaction is not reported and may be charged to both a business and its owner. The department will also “hold off” filing new lien notices on amounts owed, IRS Commissioner Doug Shulman told Congress yesterday.
“The penalty has ended up snagging small businesses that weren’t advised of their responsibility to disclose,” Senator Ben Nelson, a Nebraska Democrat, said in a statement last month.
The provision was designed to crack down on tax shelters for big corporations and wealthy individuals, and has been applied to small-business owners who’ve paid into retirement accounts for themselves and their employees without following IRS disclosure requirements, said Kathleen Pakenham, a New York- based partner at White & Case LLP, who represents 30 such clients.
“Some of these businesses were assessed tax penalties as high as $300,000 per year but received a tax benefit for as little as $15,000 from the transaction,” Senator Charles Grassley, an Iowa Republican, said in a statement on Dec. 23.
There were about 30 million businesses with fewer than 500 employees in 2008, according to the U.S. Small Business Administration’s Office of Advocacy.
Bandage
“It’s a Band-Aid,” said Pakenham of the moratorium. “It’s not addressing the underlying problem.”
The Senate passed legislation on Feb. 9 that would make the fee assessed proportional to the tax benefit received. The House of Representatives has not yet passed a similar bill.
The IRS’s moratorium suspends penalties on individuals who received less than $100,000 in savings from unreported transactions and under $200,000 for other taxpayers.
The U.S. tax code assesses more than 150 penalties, according to a June report by the Government Accountability Office. In fiscal year 2007, the IRS levied more than 37.6 million civil penalties, totaling more than $29.5 billion, according to the GAO.
--With assistance from Alexis Leondis. Editors: Rick Levinson, Rob Williams.
March 4 (Bloomberg) -- The U.S. Internal Revenue Service will extend a moratorium on penalties until June 1 for failing to report transactions considered tax shelters.
The rule applies to individuals or other taxpayers that fail to disclose transactions the IRS deems as potentially tax evading, such as employer contributions to post-retirement benefit funds. The levy is as high as $100,000 a year for individuals and $200,000 for all other taxpayers, according to the IRS.
It is assessed each year a transaction is not reported and may be charged to both a business and its owner. The department will also “hold off” filing new lien notices on amounts owed, IRS Commissioner Doug Shulman told Congress yesterday.
“The penalty has ended up snagging small businesses that weren’t advised of their responsibility to disclose,” Senator Ben Nelson, a Nebraska Democrat, said in a statement last month.
The provision was designed to crack down on tax shelters for big corporations and wealthy individuals, and has been applied to small-business owners who’ve paid into retirement accounts for themselves and their employees without following IRS disclosure requirements, said Kathleen Pakenham, a New York- based partner at White & Case LLP, who represents 30 such clients.
“Some of these businesses were assessed tax penalties as high as $300,000 per year but received a tax benefit for as little as $15,000 from the transaction,” Senator Charles Grassley, an Iowa Republican, said in a statement on Dec. 23.
There were about 30 million businesses with fewer than 500 employees in 2008, according to the U.S. Small Business Administration’s Office of Advocacy.
Bandage
“It’s a Band-Aid,” said Pakenham of the moratorium. “It’s not addressing the underlying problem.”
The Senate passed legislation on Feb. 9 that would make the fee assessed proportional to the tax benefit received. The House of Representatives has not yet passed a similar bill.
The IRS’s moratorium suspends penalties on individuals who received less than $100,000 in savings from unreported transactions and under $200,000 for other taxpayers.
The U.S. tax code assesses more than 150 penalties, according to a June report by the Government Accountability Office. In fiscal year 2007, the IRS levied more than 37.6 million civil penalties, totaling more than $29.5 billion, according to the GAO.
--With assistance from Alexis Leondis. Editors: Rick Levinson, Rob Williams.
A Federal Tax Credit for Startup Investors ...added 3-1-10
By Kay Koplovitz Courtesy of Business Week
Private investors are crucial to the success of high-growth startups that create jobs and tax revenue. Kay Koplovitz describes a new way to encourage them.
While Washington wrestles with a jobs bill and a bill to nurture small businesses with tax credits, hiring incentives, and the like, it is neglecting to address the fundamental engine for economic growth: private investment in early-stage companies with big potential.
I propose that the federal government tag along on the tax incentive programs already in place in 30 states meant to stimulate this kind of investment. These programs' purpose is to encourage the development of high-growth business, create jobs, and ultimately return greater tax revenues to the states. The federal version would do the same but increase the scale.
There are 225,000 angel and seed-capital investors in this country, according to Angel Capital Assn. They, not government, will drive the creation of innovative industries that need capital before revenue and certainly before profitability. No bank will lend to these pioneering entrepreneurs, no proposed tax-credit program will help them, as these early-stage companies have losses on the bottom line and no profitability on which to take the small business incentives now proposed.
In my experience during the first decade running the nonprofit venture catalyst group Springboard Enterprises, angel and seed investors were critical to the success of our 407 companies. Without those investors who took a risk, I don't know how much of our companies' $4 billion-plus in revenue or how many of their 10,000 jobs would have been created.
Not Enough of a Boost Don't get me wrong. I am not disparaging the recent initiatives to stimulate small businesses by providing credit through community banks or plans to lessen their tax burden, leaving them with more capital for growth. In fact, I support them, but I believe they are too little, and unfortunately for the tens of thousands who have had to shut their doors, too late.
We need a different solution for a different type of small business. My vision of the federal tag-along version doesn't require a burdensome federal program to administer. It can simply match the state programs dollar for dollar without creating a new program. It would amount to a public/private partnership with limited risk to public funds.
The book does not have to be rewritten to accomplish this. In February 2008, The National Governors Assn. published a report entitled "State Strategies to Promote Angel Investment for Economic Growth." While the report does highlight the need for standards for qualifying investments and measuring results of granting tax credits to angels, it concludes that "the benefits of supporting and encouraging angel investing can be great."
Template for Success There is other evidence that state tax incentives for angel investing can be productive but must be well-designed, clear, targeted, and well-monitored. The National Association of Seed & Venture Funds published a report in May 2006 titled "Seed and Venture Capital State Experiences and Options" that offers a guideline for state tax incentive programs. It includes a suggested template for successful state programs, which should have the following characteristics: Tax credits should be 1) financially fair to the state; 2) sizable enough to be effective; and 3) managed at the discretion of experienced professionals in the private sector.
A July 2008 research report by Belmont University's Jeffrey Williams examined early adopters of tax incentive programs in four states and concluded that investor incentives stimulated business development important to each state.
Wisconsin, which initiated its tax credit program in 2003, was one of the states profiled in the report, and its execution and success is worth noting. The program works like this: Wisconsin's Commerce Dept. qualifies companies that can participate; investors in those companies then receive their tax credits as a pass-through from the companies. This is Wisconsin's way of allowing angel investors to remain anonymous to public records. The state's private-sector partner, Wisconsin Angel Network, provides education and deal flow and measures results. Angel early-stage investments rose from a little more than $1.7 million invested in 11 companies in 2003 to $15 million invested in 53 companies in 2008. Wisconsin is so encouraged that it has more than tripled its pool of tax credits starting in 2011.
Let's not reinvent the wheel here. Let's implement a tag-along federal tax program that stimulates growth, provides private risk capital for early-stage companies, and creates jobs and the skilled workforce this country needs.
Our future depends on it.
Private investors are crucial to the success of high-growth startups that create jobs and tax revenue. Kay Koplovitz describes a new way to encourage them.
While Washington wrestles with a jobs bill and a bill to nurture small businesses with tax credits, hiring incentives, and the like, it is neglecting to address the fundamental engine for economic growth: private investment in early-stage companies with big potential.
I propose that the federal government tag along on the tax incentive programs already in place in 30 states meant to stimulate this kind of investment. These programs' purpose is to encourage the development of high-growth business, create jobs, and ultimately return greater tax revenues to the states. The federal version would do the same but increase the scale.
There are 225,000 angel and seed-capital investors in this country, according to Angel Capital Assn. They, not government, will drive the creation of innovative industries that need capital before revenue and certainly before profitability. No bank will lend to these pioneering entrepreneurs, no proposed tax-credit program will help them, as these early-stage companies have losses on the bottom line and no profitability on which to take the small business incentives now proposed.
In my experience during the first decade running the nonprofit venture catalyst group Springboard Enterprises, angel and seed investors were critical to the success of our 407 companies. Without those investors who took a risk, I don't know how much of our companies' $4 billion-plus in revenue or how many of their 10,000 jobs would have been created.
Not Enough of a Boost Don't get me wrong. I am not disparaging the recent initiatives to stimulate small businesses by providing credit through community banks or plans to lessen their tax burden, leaving them with more capital for growth. In fact, I support them, but I believe they are too little, and unfortunately for the tens of thousands who have had to shut their doors, too late.
We need a different solution for a different type of small business. My vision of the federal tag-along version doesn't require a burdensome federal program to administer. It can simply match the state programs dollar for dollar without creating a new program. It would amount to a public/private partnership with limited risk to public funds.
The book does not have to be rewritten to accomplish this. In February 2008, The National Governors Assn. published a report entitled "State Strategies to Promote Angel Investment for Economic Growth." While the report does highlight the need for standards for qualifying investments and measuring results of granting tax credits to angels, it concludes that "the benefits of supporting and encouraging angel investing can be great."
Template for Success There is other evidence that state tax incentives for angel investing can be productive but must be well-designed, clear, targeted, and well-monitored. The National Association of Seed & Venture Funds published a report in May 2006 titled "Seed and Venture Capital State Experiences and Options" that offers a guideline for state tax incentive programs. It includes a suggested template for successful state programs, which should have the following characteristics: Tax credits should be 1) financially fair to the state; 2) sizable enough to be effective; and 3) managed at the discretion of experienced professionals in the private sector.
A July 2008 research report by Belmont University's Jeffrey Williams examined early adopters of tax incentive programs in four states and concluded that investor incentives stimulated business development important to each state.
Wisconsin, which initiated its tax credit program in 2003, was one of the states profiled in the report, and its execution and success is worth noting. The program works like this: Wisconsin's Commerce Dept. qualifies companies that can participate; investors in those companies then receive their tax credits as a pass-through from the companies. This is Wisconsin's way of allowing angel investors to remain anonymous to public records. The state's private-sector partner, Wisconsin Angel Network, provides education and deal flow and measures results. Angel early-stage investments rose from a little more than $1.7 million invested in 11 companies in 2003 to $15 million invested in 53 companies in 2008. Wisconsin is so encouraged that it has more than tripled its pool of tax credits starting in 2011.
Let's not reinvent the wheel here. Let's implement a tag-along federal tax program that stimulates growth, provides private risk capital for early-stage companies, and creates jobs and the skilled workforce this country needs.
Our future depends on it.
New Climate Agency Head Tried to Suppress Data, Critics Charge ...added 2-23-10
By Ed Barnes - FOXNews.com
Thomas Karl, the head of Obama's new Climate Change office has been criticized for trying to suppress contradictory scientific data on climate change.
The scientist who has been put in charge of the Commerce Department's new climate change office is coming under attack from both sides of the global warming debate over his handling of what they say is contradictory scientific data related to the subject.
Thomas Karl, 58, was appointed to oversee the National Oceanic and Atmospheric Administration's (NOAA) National Climatic Data Center, an ambitious new office that will collect climate change data and disseminate it to businesses and communities.
According to Commerce Secretary Gary Locke, the office will "help tackle head-on the challenges of mitigating and adapting to climate change. In the process, we'll discover new technologies, build new businesses and create new jobs."
Karl, who has played a pivotal role in key climate decisions over the past decade, has kept a low profile as director of National Climatic Data Center (NCDC) since 1998, and he has led all of the NOAA climate services since 2009. His name surfaced numerous times in leaked "climate-gate" e-mails from the University of East Anglia, but there was little in the e-mails that tied him to playing politics with climate data. Mostly, the e-mails show he was in the center of the politics of climate change decisions
According to a school biography published by Northern Illinois University, Karl shared the Nobel Peace Prize with Al Gore and other leading scientists based on his work at the UN's Intergovernmental Panel on Climate Change (IPCC), and he was "one of the 10 most influential researchers of the 1990s who have formed or changed the course of research in a given area."
His appointment was hailed by both the Sierra Club and Duke Energy Company of North Carolina. Sierra Club President Carl Pope said, "As polluters and their allies continue to try to muddy the waters around climate science, the Climate Service will provide easy, direct access to the valuable scientific research undertaken by government scientists and others." And Duke Energy CEO Jin Rogers said the new office, under Karl, will "spark the consensus we need to move forward."
But Roger Pielke Sr., a climatologist affiliated with the University of Colorado who has crossed horns with Karl in the past, says his appointment was a mistake. He accused Karl of suppressing data he submitted for the IPCC's most recent report on climate change and having a very narrow view of its causes.
The IPCC is charged with reviewing scientific data on climate change and providing policy makers and others with an assessment of current knowledge.
Pielke said he agrees that global warming is happening and that man plays a significant role in it, but he said there are many factors in addition to the release of carbon into the atmosphere that need to be studied to fully understand the phenomenon. He said he resigned from the IPCC in August 2005 because his data, and the work of numerous other scientists, were not included in its most recent report.
In his resignation letter, Pielke wrote that he had completed the assessment of current knowledge for his chapter of the report, when Karl abruptly took control of the final draft. He said the chapter he had nearly completed was then rewritten with a too-narrow focus.
One of the key areas of dispute, he said, was in describing "recent regional trends in surface and tropospheric temperatures," and the impact of land use on temperatures. It is the interpretation of this data on which the intellectual basis of the idea of global warming hangs.
In an interview, Pielke reiterated that Karl "has actively opposed views different from his own." And on his Web site last week, he said Karl's appointment "assures that policy makers will continue to receive an inappropriately narrow view of our actual knowledge with respect to climate science."
He said the people who run the agencies in charge of climate monitoring are too narrowly focused, and he worries that the creation of the new office "would give the same small group of people the chance to speak on the issue and exclude others" whose views might diverge from theirs.
Responding to the criticism, Karl told the Washington Post, "the literature doesn't show [Pielke's] ideas about the importance of land use are correct."
Calls to The Commerce Department and to Karl's office went unanswered.
The IPCC in recent weeks has come under severe criticism after e-mails, hacked from a prestigious climate center, revealed some of the political infighting that occurred as its assessments were being put together and called into question its impartiality.
Climate change skeptics, meanwhile, say Karl's appointment was unnecessary and pulls scarce resources from more pressing needs.
"The unconstitutional global warming office and its new Web site climate.gov would be charged with propagandizing Americans with eco-alarmism," wrote Alex Newman of the Liberty Sentinel of Gainesville, Fla.
On the popular skeptic site "Watts Up With That," Anthony Watts called the climate.gov site a "waste of more taxpayer money" and charged that it is nothing more than a "fast track press release service." He wrote that putting Karl in charge was an issue, because he had fabricated photos of "floods that didn't happen" in an earlier NOAA report.
Thomas Karl, the head of Obama's new Climate Change office has been criticized for trying to suppress contradictory scientific data on climate change.
The scientist who has been put in charge of the Commerce Department's new climate change office is coming under attack from both sides of the global warming debate over his handling of what they say is contradictory scientific data related to the subject.
Thomas Karl, 58, was appointed to oversee the National Oceanic and Atmospheric Administration's (NOAA) National Climatic Data Center, an ambitious new office that will collect climate change data and disseminate it to businesses and communities.
According to Commerce Secretary Gary Locke, the office will "help tackle head-on the challenges of mitigating and adapting to climate change. In the process, we'll discover new technologies, build new businesses and create new jobs."
Karl, who has played a pivotal role in key climate decisions over the past decade, has kept a low profile as director of National Climatic Data Center (NCDC) since 1998, and he has led all of the NOAA climate services since 2009. His name surfaced numerous times in leaked "climate-gate" e-mails from the University of East Anglia, but there was little in the e-mails that tied him to playing politics with climate data. Mostly, the e-mails show he was in the center of the politics of climate change decisions
According to a school biography published by Northern Illinois University, Karl shared the Nobel Peace Prize with Al Gore and other leading scientists based on his work at the UN's Intergovernmental Panel on Climate Change (IPCC), and he was "one of the 10 most influential researchers of the 1990s who have formed or changed the course of research in a given area."
His appointment was hailed by both the Sierra Club and Duke Energy Company of North Carolina. Sierra Club President Carl Pope said, "As polluters and their allies continue to try to muddy the waters around climate science, the Climate Service will provide easy, direct access to the valuable scientific research undertaken by government scientists and others." And Duke Energy CEO Jin Rogers said the new office, under Karl, will "spark the consensus we need to move forward."
But Roger Pielke Sr., a climatologist affiliated with the University of Colorado who has crossed horns with Karl in the past, says his appointment was a mistake. He accused Karl of suppressing data he submitted for the IPCC's most recent report on climate change and having a very narrow view of its causes.
The IPCC is charged with reviewing scientific data on climate change and providing policy makers and others with an assessment of current knowledge.
Pielke said he agrees that global warming is happening and that man plays a significant role in it, but he said there are many factors in addition to the release of carbon into the atmosphere that need to be studied to fully understand the phenomenon. He said he resigned from the IPCC in August 2005 because his data, and the work of numerous other scientists, were not included in its most recent report.
In his resignation letter, Pielke wrote that he had completed the assessment of current knowledge for his chapter of the report, when Karl abruptly took control of the final draft. He said the chapter he had nearly completed was then rewritten with a too-narrow focus.
One of the key areas of dispute, he said, was in describing "recent regional trends in surface and tropospheric temperatures," and the impact of land use on temperatures. It is the interpretation of this data on which the intellectual basis of the idea of global warming hangs.
In an interview, Pielke reiterated that Karl "has actively opposed views different from his own." And on his Web site last week, he said Karl's appointment "assures that policy makers will continue to receive an inappropriately narrow view of our actual knowledge with respect to climate science."
He said the people who run the agencies in charge of climate monitoring are too narrowly focused, and he worries that the creation of the new office "would give the same small group of people the chance to speak on the issue and exclude others" whose views might diverge from theirs.
Responding to the criticism, Karl told the Washington Post, "the literature doesn't show [Pielke's] ideas about the importance of land use are correct."
Calls to The Commerce Department and to Karl's office went unanswered.
The IPCC in recent weeks has come under severe criticism after e-mails, hacked from a prestigious climate center, revealed some of the political infighting that occurred as its assessments were being put together and called into question its impartiality.
Climate change skeptics, meanwhile, say Karl's appointment was unnecessary and pulls scarce resources from more pressing needs.
"The unconstitutional global warming office and its new Web site climate.gov would be charged with propagandizing Americans with eco-alarmism," wrote Alex Newman of the Liberty Sentinel of Gainesville, Fla.
On the popular skeptic site "Watts Up With That," Anthony Watts called the climate.gov site a "waste of more taxpayer money" and charged that it is nothing more than a "fast track press release service." He wrote that putting Karl in charge was an issue, because he had fabricated photos of "floods that didn't happen" in an earlier NOAA report.
Stocks Flatten as Market Digests Fed Move added 2-19-10
By Matt Egan FOXBusiness
There's No Business Like FOX Business
Stocks flat-lined Friday afternoon as Wall Street attempts a chance of a fourth day of gains despite earlier jitters over the Federal Reserve's first babysteps towards removing the easy-money punchbowl in the financial system.
Today’s Markets
As of 2:11 p.m. EST, the Dow Jones Industrial Average rose 1.35 points, or 0.01%, to 10394.04, the Standard & Poor's 500 added 1.59 points, or 0.14%, to 1108.34 and the Nasdaq Composite picked up 1.37 points, or 0.06%, to 2243.14. The FOX 50 fell 1.67 points, or 0.16%, to 801.14.
While the markets recently turned green, the futures markets had signaled a deep loss after the Fed surprised the markets by cutting the discount rate after Thursday’s close. But the selling proved to be fleeting as the commodities complex benefited from a weaker U.S. dollar. The Dow -- in the midst of its best three-day rally since early November -- could extend its three-day win streak.
“I suspect that Tiger’s news conference today will get more attention than the Fed move on rates last night,” Peter Kenny, managing director at Knight Capital Group, wrote in a note. “Not just because the Fed move was inevitable but because the futures have already priced in yesterday’s rate hike – it’s yesterday’s news already. Tiger is so today.”
Most of the Dow's 30 components were in positive territory by midday, led by Pfizer (PFE: 18.01, 0.29, 1.64%) and DuPont (DD: 34.08, 0.45, 1.34%). The index's biggest losers were its financial members, including American Express (AXP: 39.06, -0.08, -0.2%) and JPMorgan Chase (JPM: 40.02, -0.38, -0.94%).
In its first step toward normalizing its easy-money policies that were implemented to boost the economy, the Fed said it is raising its discount rate by 0.25 percentage points to 0.75% -- its first boost since June 2006. The discount window is considered a lender of last resort for banks and the central bank had previously signaled its intent to raise the rate before the federal-funds rate, its main monetary tool.
"While the timing is somewhat of a surprise, the fact that it occurred is not," Dan Greenhaus, chief economic strategist at Miller Tabak, said in a note to clients.
Even though it had been telegraphed, the markets took the action as a shot across the bow that the Fed is ready to start hiking in rates in coming months. Financial stocks initially fell on the news and the U.S. dollar gained against rivals as higher rates would be healthy for the currency. The markets also increased their odds that the central bank will boost the fed funds rate in the next six months.
Worries about the Fed taking away the easy-money punch bowl were offset by a surprisingly good report on consumer inflation that suggests the central bank won’t be under pressure soon to raise rates. The Labor Department said its consumer price index rose 0.2% in January, while core inflation fell 0.1% -- the first decline since 1982. Both indicators were cooler than economists had forecasted.
In the commodity markets, crude oil rose 36 cents a barrel, or 0.44%, to $79.77. Gold overcame an initial selloff and was recently up $2 a troy ounce, or 0.02%, to $1120.90.
Corporate Movers
Schlumberger (SLB: 63.5499, -2.2101, -3.36%) is eyeing a takeover of rival oil services company Smith International (SII: 37.9, 4.53, 13.58%) and could announce a deal in the coming days, The Wall Street Journal reported. It’s not clear how much the deal would be worth but Smith has a market capitalization of about $7.5 billion, meaning a deal with a 20% premium would total $9 billion.
J.C. Penney’s (JCP: 27.53, 1.57, 6.05%) fourth-quarter profits fell 5.2% and its non-GAAP EPS rose to $1.02, beating the Street’s view of 82 cents. The department store operator sees 2010 EPS of roughly $1.55, exceeding estimates for $1.45.
Global Markets
The U.K.'s FTSE 100 fell 0.07% to 5321.38, France's CAC 40 slipped 0.34% to 3735.20 and Germany's DAX lost 0.15% to 5672.05.
In Asia, Tokyo's Nikkei 225 slipped 2.05% to 10123.58, Hong Kong's Hang Seng dropped 2.6% to 19894.02 and China's Shanghai Composite remains closed for a national holiday.
There's No Business Like FOX Business
Stocks flat-lined Friday afternoon as Wall Street attempts a chance of a fourth day of gains despite earlier jitters over the Federal Reserve's first babysteps towards removing the easy-money punchbowl in the financial system.
Today’s Markets
As of 2:11 p.m. EST, the Dow Jones Industrial Average rose 1.35 points, or 0.01%, to 10394.04, the Standard & Poor's 500 added 1.59 points, or 0.14%, to 1108.34 and the Nasdaq Composite picked up 1.37 points, or 0.06%, to 2243.14. The FOX 50 fell 1.67 points, or 0.16%, to 801.14.
While the markets recently turned green, the futures markets had signaled a deep loss after the Fed surprised the markets by cutting the discount rate after Thursday’s close. But the selling proved to be fleeting as the commodities complex benefited from a weaker U.S. dollar. The Dow -- in the midst of its best three-day rally since early November -- could extend its three-day win streak.
“I suspect that Tiger’s news conference today will get more attention than the Fed move on rates last night,” Peter Kenny, managing director at Knight Capital Group, wrote in a note. “Not just because the Fed move was inevitable but because the futures have already priced in yesterday’s rate hike – it’s yesterday’s news already. Tiger is so today.”
Most of the Dow's 30 components were in positive territory by midday, led by Pfizer (PFE: 18.01, 0.29, 1.64%) and DuPont (DD: 34.08, 0.45, 1.34%). The index's biggest losers were its financial members, including American Express (AXP: 39.06, -0.08, -0.2%) and JPMorgan Chase (JPM: 40.02, -0.38, -0.94%).
In its first step toward normalizing its easy-money policies that were implemented to boost the economy, the Fed said it is raising its discount rate by 0.25 percentage points to 0.75% -- its first boost since June 2006. The discount window is considered a lender of last resort for banks and the central bank had previously signaled its intent to raise the rate before the federal-funds rate, its main monetary tool.
"While the timing is somewhat of a surprise, the fact that it occurred is not," Dan Greenhaus, chief economic strategist at Miller Tabak, said in a note to clients.
Even though it had been telegraphed, the markets took the action as a shot across the bow that the Fed is ready to start hiking in rates in coming months. Financial stocks initially fell on the news and the U.S. dollar gained against rivals as higher rates would be healthy for the currency. The markets also increased their odds that the central bank will boost the fed funds rate in the next six months.
Worries about the Fed taking away the easy-money punch bowl were offset by a surprisingly good report on consumer inflation that suggests the central bank won’t be under pressure soon to raise rates. The Labor Department said its consumer price index rose 0.2% in January, while core inflation fell 0.1% -- the first decline since 1982. Both indicators were cooler than economists had forecasted.
In the commodity markets, crude oil rose 36 cents a barrel, or 0.44%, to $79.77. Gold overcame an initial selloff and was recently up $2 a troy ounce, or 0.02%, to $1120.90.
Corporate Movers
Schlumberger (SLB: 63.5499, -2.2101, -3.36%) is eyeing a takeover of rival oil services company Smith International (SII: 37.9, 4.53, 13.58%) and could announce a deal in the coming days, The Wall Street Journal reported. It’s not clear how much the deal would be worth but Smith has a market capitalization of about $7.5 billion, meaning a deal with a 20% premium would total $9 billion.
J.C. Penney’s (JCP: 27.53, 1.57, 6.05%) fourth-quarter profits fell 5.2% and its non-GAAP EPS rose to $1.02, beating the Street’s view of 82 cents. The department store operator sees 2010 EPS of roughly $1.55, exceeding estimates for $1.45.
Global Markets
The U.K.'s FTSE 100 fell 0.07% to 5321.38, France's CAC 40 slipped 0.34% to 3735.20 and Germany's DAX lost 0.15% to 5672.05.
In Asia, Tokyo's Nikkei 225 slipped 2.05% to 10123.58, Hong Kong's Hang Seng dropped 2.6% to 19894.02 and China's Shanghai Composite remains closed for a national holiday.
Reid Bypasses Bipartisan Senate Finance Bill, Introduces His Own added 2-11-10
By Rich Edson FOXBusiness
In releasing a proposal this afternoon designed to create jobs, Senate Majority Leader Harry Reid has drawn strong objections from Republicans and bypassed a powerful committee chairman in his own party.
Thursday morning, Senate Finance Committee Chairman Max Baucus (D-Mont.) and his Republican counterpart, Senator Chuck Grassley (R-Iowa), unveiled an $85-billion bipartisan bill with spending on roadways, the extension and creation of business tax credits, and other popular items.
Hours later, Reid announced a much smaller version, though he could easily bring up the popular provisions he cut from the bipartisan proposal as part of different bills.
“Senator Reid’s announcement sends a message that he wants to go partisan and blame Republicans,” said Jill Kozeny, a spokesperson for Senator Chuck Grassley, the Finance Committee’s top Republican. “The Majority Leader pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis.”
Reid labeled his proposal an “initial version.” It features an exemption of Social Security taxes for employers who hire workers who have been unemployed for at least 60 days, a measure to allow small businesses to write off more expenditures, and funding to build roads and bridges.
Senate Democrat aides said Reid’s proposal would cost about $15 billion.
“This is a simplified, focused bill that addresses our core priority: putting millions of Americans back to work by helping our business community thrive again,” said Reid in a statement released to reporters. “Each piece of this bill enjoys bipartisan support, and I look forward to swift action on this measure that will create and save dependable jobs.”
A spokesperson for Finance Committee Chairman Max Baucus did not return a request for comment.
Reid subjected priorities from both parties to his drastic jobs bill cuts. Democrats lost an extension of unemployment insurance, federal funding to pay for health benefits for the unemployed and money for flood insurance.
Republicans lost a provision that would prevent the estate tax from increasing dramatically next year and a renewal of the Patriot Act.
“One word - wow!” said one committee Republican aide. “I would say that we are deeply disappointed that after so much work on a bipartisan basis - and only hours after the Finance Committee unveiled their draft proposal - that Senator Reid would chose to torpedo this deal.”
“After seeing how Democrat leaders handled the partisan health care debate of last year, today’s bombshell shouldn’t be a surprise,” said Antonia Ferrier, a spokesperson for Senator Orrin Hatch (R-Utah), the second-ranking committee Republican. “Senator Hatch hopes Leader Reid listens the collective voice of the American people, changes his mind and abandons this partisan course.”
In releasing a proposal this afternoon designed to create jobs, Senate Majority Leader Harry Reid has drawn strong objections from Republicans and bypassed a powerful committee chairman in his own party.
Thursday morning, Senate Finance Committee Chairman Max Baucus (D-Mont.) and his Republican counterpart, Senator Chuck Grassley (R-Iowa), unveiled an $85-billion bipartisan bill with spending on roadways, the extension and creation of business tax credits, and other popular items.
Hours later, Reid announced a much smaller version, though he could easily bring up the popular provisions he cut from the bipartisan proposal as part of different bills.
“Senator Reid’s announcement sends a message that he wants to go partisan and blame Republicans,” said Jill Kozeny, a spokesperson for Senator Chuck Grassley, the Finance Committee’s top Republican. “The Majority Leader pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis.”
Reid labeled his proposal an “initial version.” It features an exemption of Social Security taxes for employers who hire workers who have been unemployed for at least 60 days, a measure to allow small businesses to write off more expenditures, and funding to build roads and bridges.
Senate Democrat aides said Reid’s proposal would cost about $15 billion.
“This is a simplified, focused bill that addresses our core priority: putting millions of Americans back to work by helping our business community thrive again,” said Reid in a statement released to reporters. “Each piece of this bill enjoys bipartisan support, and I look forward to swift action on this measure that will create and save dependable jobs.”
A spokesperson for Finance Committee Chairman Max Baucus did not return a request for comment.
Reid subjected priorities from both parties to his drastic jobs bill cuts. Democrats lost an extension of unemployment insurance, federal funding to pay for health benefits for the unemployed and money for flood insurance.
Republicans lost a provision that would prevent the estate tax from increasing dramatically next year and a renewal of the Patriot Act.
“One word - wow!” said one committee Republican aide. “I would say that we are deeply disappointed that after so much work on a bipartisan basis - and only hours after the Finance Committee unveiled their draft proposal - that Senator Reid would chose to torpedo this deal.”
“After seeing how Democrat leaders handled the partisan health care debate of last year, today’s bombshell shouldn’t be a surprise,” said Antonia Ferrier, a spokesperson for Senator Orrin Hatch (R-Utah), the second-ranking committee Republican. “Senator Hatch hopes Leader Reid listens the collective voice of the American people, changes his mind and abandons this partisan course.”
Bank Regulators Again Urge Small Business Loans added 2-8-10
By Reuters care of FoxBusiness
Banks have argued that they are getting mixed messages with supervisors telling them to build their capital positions and policymakers telling them to increase lending.
WASHINGTON (Reuters) - U.S. regulators on Friday again reminded banks that they should extend loans to creditworthy small businesses. In an interagency statement, regulators said supervisors will not criticize banks for extending such loans, as long as they have done a thorough review of the small business's financial condition.
Banks have argued that they are getting mixed messages with supervisors telling them to build their capital positions and policymakers telling them to increase lending.
"Regulators are mindful of the harmful economic effects of an excessive tightening of credit availability in a downturn and are working...to ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small business borrowers," the statement said.
President Barack Obama, looking for ways to drive down high U.S. unemployment has been zeroing in on expanding credit for small businesses, a main source of job creation in the United States.
Obama is meeting with small business owners in suburban Maryland on Friday and later will announce plans to ask Congress to temporarily expand credit through two Small Business Administration programs, a White House official said.
Banks have argued that they are getting mixed messages with supervisors telling them to build their capital positions and policymakers telling them to increase lending.
WASHINGTON (Reuters) - U.S. regulators on Friday again reminded banks that they should extend loans to creditworthy small businesses. In an interagency statement, regulators said supervisors will not criticize banks for extending such loans, as long as they have done a thorough review of the small business's financial condition.
Banks have argued that they are getting mixed messages with supervisors telling them to build their capital positions and policymakers telling them to increase lending.
"Regulators are mindful of the harmful economic effects of an excessive tightening of credit availability in a downturn and are working...to ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small business borrowers," the statement said.
President Barack Obama, looking for ways to drive down high U.S. unemployment has been zeroing in on expanding credit for small businesses, a main source of job creation in the United States.
Obama is meeting with small business owners in suburban Maryland on Friday and later will announce plans to ask Congress to temporarily expand credit through two Small Business Administration programs, a White House official said.
Obama to Announce $30B Small Business Lending Program - Sources added 2-3-10
By Peter Barnes Eve Zibel - FOXBusiness
Administration officials said the program would be financed with untapped spending authority in the $700 billion TARP bailout program and would be separate and distinct from TARP.
President Obama will announce details of a new $30 billion small business lending initiative at a town hall meeting on jobs and the economy in New Hampshire today.
The initiative, called the Small Business Lending Fund, is targeted at 8,000 community banks with assets of less than $10 billion and, according to one financial industry source, could generate up to $240 billion to $300 billion in new small business loans, based on current government bank capital and leverage rules.
“These are the small, local banks that work most closely with our small businesses – that provide them their first loan, and watch them grow through good times and bad,” the President will say in his opening remarks at the event in Nashua, NH, according to excerpts released by the White House.
The Administration is counting on entrepreneurs and small company owners to help jumpstart job creation – economists generally credit small businesses with creating about two-third of all new jobs—but many small firms need new capital to do it. Senior Administration officials said they hope Congress will approve legislation for the new fund quickly; the measure could be included in a jobs package Senate Democratic leaders are assembling.
”This will help small banks do even more of what our economy needs – ensure that small businesses are once again the engine of job growth in America,” the President will tell New Hampshire voters, according to the excerpts.
Administration officials said the program would be financed with untapped spending authority in the $700 billion TARP bailout program and would be separate and distinct from TARP. The fund would provide new capital to smaller banks on a sliding cost scale – the dividend rate on fund investments from the Treasury Department would be set at 5% initially, but decline to as low as 1% for banks that increase their small business lending by 10% or more.
“The more loans these banks provide to creditworthy small businesses, the better a deal we’ll give them on capital from this fund,” the President plans to say in Nashua.
The Administration will ask Congress to exempt participating banks from tough TARP restrictions, including limits on executive compensation and dividend payments, as well as from requirements that TARP banks give stock warrants to the Treasury.
“We wanted something that would get the maximum participation,” an Administration official said. Community banks that might be interested in government capital to help them land more to small companies “were hesitant to take it--not only out of fear of the TARP restrictions,” he said, but because of the stigma of TARP – many healthier banks worry that taking TARP funds could wrongly signal a bank is weak or failing -- and the potential for retroactive legislation curbing TARP banks further.
While some community banks have taken TARP funds, the official said that the Treasury received applications for TARP investments from 600 smaller banks that decided to back out of the program over such concerns.
“We realized that to have the strongest possible effect on small business lending…we needed to create a new program,” the official said.
In his State of the Union Address last week, the President announced his intention to divert $30 billion of TARP funds for small business lending but had provided details of his plan.
If approved, the program would supplement other Administration initiatives to jumpstart small business lending. It has declined because of tougher loan standards adopted by banks as a result of the financial crisis; capital reserving by banks worried about future losses on loans of all kinds; falling values of real estate and other assets small companies use for loan collateral, and tighter liquidity in small business financing markets in general. Among other things, Congress last year approved measures to boost loans to small companies through the Small Business Administration.
But another reason for the drop in small business lending, Administration officials acknowledged, is that many small business owners worry about taking in debt in a weak economy.
“Many (banks) absolutely mentioned that demand was the big issue,” one official said. “But many also said that they were being conservative--that based on looking at the past 12 months, looking at the losses they’d taken, that of course…(they) are pulling back on whole categories of lending…That means that a lot of credit-worthy small business are going to left on the sidelines” without additional bank capital, he said.
Community bankers welcomed the initiative.
"Every dollar of capital that goes into a community bank can potentially be leveraged eight to ten times into loans to small businesses,” said Camden Fine, president and CEO of Independent Community Bankers of America. “ICBA will work closely with both Congress and the Administration on these and other initiatives that can benefit community banks and Main Street America."
Administration officials said the program would be financed with untapped spending authority in the $700 billion TARP bailout program and would be separate and distinct from TARP.
President Obama will announce details of a new $30 billion small business lending initiative at a town hall meeting on jobs and the economy in New Hampshire today.
The initiative, called the Small Business Lending Fund, is targeted at 8,000 community banks with assets of less than $10 billion and, according to one financial industry source, could generate up to $240 billion to $300 billion in new small business loans, based on current government bank capital and leverage rules.
“These are the small, local banks that work most closely with our small businesses – that provide them their first loan, and watch them grow through good times and bad,” the President will say in his opening remarks at the event in Nashua, NH, according to excerpts released by the White House.
The Administration is counting on entrepreneurs and small company owners to help jumpstart job creation – economists generally credit small businesses with creating about two-third of all new jobs—but many small firms need new capital to do it. Senior Administration officials said they hope Congress will approve legislation for the new fund quickly; the measure could be included in a jobs package Senate Democratic leaders are assembling.
”This will help small banks do even more of what our economy needs – ensure that small businesses are once again the engine of job growth in America,” the President will tell New Hampshire voters, according to the excerpts.
Administration officials said the program would be financed with untapped spending authority in the $700 billion TARP bailout program and would be separate and distinct from TARP. The fund would provide new capital to smaller banks on a sliding cost scale – the dividend rate on fund investments from the Treasury Department would be set at 5% initially, but decline to as low as 1% for banks that increase their small business lending by 10% or more.
“The more loans these banks provide to creditworthy small businesses, the better a deal we’ll give them on capital from this fund,” the President plans to say in Nashua.
The Administration will ask Congress to exempt participating banks from tough TARP restrictions, including limits on executive compensation and dividend payments, as well as from requirements that TARP banks give stock warrants to the Treasury.
“We wanted something that would get the maximum participation,” an Administration official said. Community banks that might be interested in government capital to help them land more to small companies “were hesitant to take it--not only out of fear of the TARP restrictions,” he said, but because of the stigma of TARP – many healthier banks worry that taking TARP funds could wrongly signal a bank is weak or failing -- and the potential for retroactive legislation curbing TARP banks further.
While some community banks have taken TARP funds, the official said that the Treasury received applications for TARP investments from 600 smaller banks that decided to back out of the program over such concerns.
“We realized that to have the strongest possible effect on small business lending…we needed to create a new program,” the official said.
In his State of the Union Address last week, the President announced his intention to divert $30 billion of TARP funds for small business lending but had provided details of his plan.
If approved, the program would supplement other Administration initiatives to jumpstart small business lending. It has declined because of tougher loan standards adopted by banks as a result of the financial crisis; capital reserving by banks worried about future losses on loans of all kinds; falling values of real estate and other assets small companies use for loan collateral, and tighter liquidity in small business financing markets in general. Among other things, Congress last year approved measures to boost loans to small companies through the Small Business Administration.
But another reason for the drop in small business lending, Administration officials acknowledged, is that many small business owners worry about taking in debt in a weak economy.
“Many (banks) absolutely mentioned that demand was the big issue,” one official said. “But many also said that they were being conservative--that based on looking at the past 12 months, looking at the losses they’d taken, that of course…(they) are pulling back on whole categories of lending…That means that a lot of credit-worthy small business are going to left on the sidelines” without additional bank capital, he said.
Community bankers welcomed the initiative.
"Every dollar of capital that goes into a community bank can potentially be leveraged eight to ten times into loans to small businesses,” said Camden Fine, president and CEO of Independent Community Bankers of America. “ICBA will work closely with both Congress and the Administration on these and other initiatives that can benefit community banks and Main Street America."
The Real State of the Union... by Mark LiebermaFox Business
President Obama is scheduled to deliver his State of the Union address to a joint session of Congress Wednesday, but the “real” state of the union might not come until Friday when the Bureau of Economic Analysis reports on Gross Domestic Product for the fourth quarter.
Since the election campaign of Bill Clinton in 1992, the political mantra has been “it’s the economy, stupid” and those words continue to haunt, even though Friday’s GDP report might offer a misleading suggestion of a strengthening economy.
The consensus forecast is for GDP growth in the fourth quarter of over 4%, which would be the fastest the economy has gown since the beginning of 2006. (The reported number is the quarter-quarter growth annualized.)
And, not to be lost or overlooked, the Federal Open Market Committee convenes Tuesday for a two-day meeting. The FOMC has scheduled four two-day and four one-day meetings for 2010, a relaxation from 2009 when all of its meetings were scheduled for two days, perhaps a signal the FOMC believes the crisis has passed.
Reading GDP might require a guidebook. As with all economic reports, it is a rear view mirror look. Unlike the more narrow reports which look at the labor, housing, retail sales components of the economy, GDP is broader and therefore considered a “must read” as a temperature check, blood pressure gauge or any other medical metaphor to assess the economy’s health.
In its simplest, GDP is the total price tag, in dollars, of everything produced in the country, even if some of that production is sitting on store shelves or the equivalent. GDP consists of four expenditure categories with a simple formula of Consumption plus Investment plus Government plus (net) Exports (the difference between what we sell overseas and what we buy from abroad).
Consumption (personal spending) makes up about 70% of GDP and is heavily dependent on personal income, the government component is about 19% and investment about 17%. The trade deficit (importing more than we export) accounts for the difference.
Taking each in turn,
-- Personal consumption, which increased 2.9% in the third quarter, should go up faster in the fourth. Retail sales, about 55% of personal consumption, were up almost 1.7% in the fourth quarter compared with a third quarter increase of 1.6%.
-- Government spending, tracked through monthly reports from Treasury, increased about 5% in the fourth quarter over the third after dropping about 6% in the third quarter from the second. (The Treasury statement includes all government spending – salaries, etc. The GDP report for the third quarter showed government spending in GDP accounting was up 2.6 %.)
-- Investment, which includes inventory re-stocking, corporate capital spending and residential and non-residential construction, increased almost 5% in the third quarter. Reports to date show inventory investments turned positive for the first two months of the fourth quarter after having been negative in the first two months of the third quarter, but corporate capital spending was lower as was construction spending.
--Net exports were higher (subtracting from GDP) for the first two months of the fourth quarter than for the first two months of the third.
Rolled together, the strength of consumer and government spending as well as inventory reinvestment should supply enough juice to produce a relatively robust report Friday.
[The BEA uses time-tested estimation techniques to fill in missing data in the first GDP report for a quarter. Since the underlying reports are usually revised, BEA issues two additional reports for GDP. The third and “final” GDP report for the fourth quarter will be issued at the end of March.]
The expected positive GDP report will be trumpeted as a positive sign though most economists believe the positive number will overstate the state of the economy and that growth will remain positive, but much weaker for the balance of the year. It is that weakening which leads to debates over the possibility of a “double-dip” recession with suggestions GDP might indeed turn negative later in the year and meet the rule-of-thumb definition of a recession of two consecutive negative GDP quarters. (That “rule-of-thumb” is not the definition used by the Business Cycle Dating Committee of the National Bureau of Economic Research which sets the peaks and troughs of business cycles. The peak marks the beginning of a downturn and the trough the start of recovery.)
Statistics notwithstanding, it will still feel like recession, despite what the numbers might show, and feel like recession for a while.
Americans, according to a new Gallup survey, “are thinking in terms of years, not months” before the economy starts to recover. About 67% believe it will be at least two years before a recovery starts, and nearly half, 46%, think it will be at least three years. A third of Americans surveyed said recovery won’t start for four or more years.
According to Gallup, optimism varies with income: those living in households earning $90,000 or more annually are more optimistic about when recovery will occur than are those in households with lower income levels.
The FOMC will, to be sure, anticipate the positive GDP report in its meeting which takes on added significance for several reasons, not the least of which is that it is the final meeting of Chairman Ben Bernanke’s current term as chairman of the Federal Reserve. The Fed chairman is traditionally selected as chairman of the FOMC. Bernanke has yet to be confirmed for a second four-year term as Federal Reserve chairman, though he is expected to be.
More significantly, members of the FOMC will, at the meeting, present their current economic forecasts – forecasts which will not be made public until the meeting minutes are released on February 17. The only report of the coming week’s meeting will be the statement issued at the end of the meeting, a public notice of actions the Federal Reserve plans to take regarding the money supply.
But according to veteran Federal Reserve watcher Doug Roberts, Chief Investment Strategist Channel Capital Research Institute, FOMC statements since Bernanke became chairman have become increasingly bland and we will have to wait until the release of those minutes to have a better sense not only of what the FOMC did, but why.
For instance while the FOMC statement issued after the December meeting “in order to promote a smooth transition in markets, the Committee is gradually slowing the pace” of purchasing Treasury and other securities, expecting “these transactions will be executed by the end of the first quarter of 2010” the minutes discussed an alternative strategy under which the Federal Reserve would reinvest proceeds of maturing securities to continue to prop up the financial markets.
If it weren’t for GDP and the FOMC, the highlights of the week would be a concentration on housing: house prices indexes from Case Shiller and the Federal Housing Finance Agency (FHFA: undefined, undefined, undefined%) and reports on both existing and new home sales. The reports will cover different periods – the Case Shiller and FHFA reports will be of November house prices while the home sales reports will be for December. The existing home sales report is based on closings which means it will reflect conditions when contracts were signed in October; the new home sales report is based on contracts and thus a more timely reflection of economic conditions.
Home sales surged in advance of the November 30 expiration of the first time home buyer tax credit. The credit was extended to require contracts by April 30 and closings by June 30, but will not likely reverse an expected dip in sales of existing homes. The expiration of the extended tax credit is too far removed to give any significant bounce to new home sales.
Since the election campaign of Bill Clinton in 1992, the political mantra has been “it’s the economy, stupid” and those words continue to haunt, even though Friday’s GDP report might offer a misleading suggestion of a strengthening economy.
The consensus forecast is for GDP growth in the fourth quarter of over 4%, which would be the fastest the economy has gown since the beginning of 2006. (The reported number is the quarter-quarter growth annualized.)
And, not to be lost or overlooked, the Federal Open Market Committee convenes Tuesday for a two-day meeting. The FOMC has scheduled four two-day and four one-day meetings for 2010, a relaxation from 2009 when all of its meetings were scheduled for two days, perhaps a signal the FOMC believes the crisis has passed.
Reading GDP might require a guidebook. As with all economic reports, it is a rear view mirror look. Unlike the more narrow reports which look at the labor, housing, retail sales components of the economy, GDP is broader and therefore considered a “must read” as a temperature check, blood pressure gauge or any other medical metaphor to assess the economy’s health.
In its simplest, GDP is the total price tag, in dollars, of everything produced in the country, even if some of that production is sitting on store shelves or the equivalent. GDP consists of four expenditure categories with a simple formula of Consumption plus Investment plus Government plus (net) Exports (the difference between what we sell overseas and what we buy from abroad).
Consumption (personal spending) makes up about 70% of GDP and is heavily dependent on personal income, the government component is about 19% and investment about 17%. The trade deficit (importing more than we export) accounts for the difference.
Taking each in turn,
-- Personal consumption, which increased 2.9% in the third quarter, should go up faster in the fourth. Retail sales, about 55% of personal consumption, were up almost 1.7% in the fourth quarter compared with a third quarter increase of 1.6%.
-- Government spending, tracked through monthly reports from Treasury, increased about 5% in the fourth quarter over the third after dropping about 6% in the third quarter from the second. (The Treasury statement includes all government spending – salaries, etc. The GDP report for the third quarter showed government spending in GDP accounting was up 2.6 %.)
-- Investment, which includes inventory re-stocking, corporate capital spending and residential and non-residential construction, increased almost 5% in the third quarter. Reports to date show inventory investments turned positive for the first two months of the fourth quarter after having been negative in the first two months of the third quarter, but corporate capital spending was lower as was construction spending.
--Net exports were higher (subtracting from GDP) for the first two months of the fourth quarter than for the first two months of the third.
Rolled together, the strength of consumer and government spending as well as inventory reinvestment should supply enough juice to produce a relatively robust report Friday.
[The BEA uses time-tested estimation techniques to fill in missing data in the first GDP report for a quarter. Since the underlying reports are usually revised, BEA issues two additional reports for GDP. The third and “final” GDP report for the fourth quarter will be issued at the end of March.]
The expected positive GDP report will be trumpeted as a positive sign though most economists believe the positive number will overstate the state of the economy and that growth will remain positive, but much weaker for the balance of the year. It is that weakening which leads to debates over the possibility of a “double-dip” recession with suggestions GDP might indeed turn negative later in the year and meet the rule-of-thumb definition of a recession of two consecutive negative GDP quarters. (That “rule-of-thumb” is not the definition used by the Business Cycle Dating Committee of the National Bureau of Economic Research which sets the peaks and troughs of business cycles. The peak marks the beginning of a downturn and the trough the start of recovery.)
Statistics notwithstanding, it will still feel like recession, despite what the numbers might show, and feel like recession for a while.
Americans, according to a new Gallup survey, “are thinking in terms of years, not months” before the economy starts to recover. About 67% believe it will be at least two years before a recovery starts, and nearly half, 46%, think it will be at least three years. A third of Americans surveyed said recovery won’t start for four or more years.
According to Gallup, optimism varies with income: those living in households earning $90,000 or more annually are more optimistic about when recovery will occur than are those in households with lower income levels.
The FOMC will, to be sure, anticipate the positive GDP report in its meeting which takes on added significance for several reasons, not the least of which is that it is the final meeting of Chairman Ben Bernanke’s current term as chairman of the Federal Reserve. The Fed chairman is traditionally selected as chairman of the FOMC. Bernanke has yet to be confirmed for a second four-year term as Federal Reserve chairman, though he is expected to be.
More significantly, members of the FOMC will, at the meeting, present their current economic forecasts – forecasts which will not be made public until the meeting minutes are released on February 17. The only report of the coming week’s meeting will be the statement issued at the end of the meeting, a public notice of actions the Federal Reserve plans to take regarding the money supply.
But according to veteran Federal Reserve watcher Doug Roberts, Chief Investment Strategist Channel Capital Research Institute, FOMC statements since Bernanke became chairman have become increasingly bland and we will have to wait until the release of those minutes to have a better sense not only of what the FOMC did, but why.
For instance while the FOMC statement issued after the December meeting “in order to promote a smooth transition in markets, the Committee is gradually slowing the pace” of purchasing Treasury and other securities, expecting “these transactions will be executed by the end of the first quarter of 2010” the minutes discussed an alternative strategy under which the Federal Reserve would reinvest proceeds of maturing securities to continue to prop up the financial markets.
If it weren’t for GDP and the FOMC, the highlights of the week would be a concentration on housing: house prices indexes from Case Shiller and the Federal Housing Finance Agency (FHFA: undefined, undefined, undefined%) and reports on both existing and new home sales. The reports will cover different periods – the Case Shiller and FHFA reports will be of November house prices while the home sales reports will be for December. The existing home sales report is based on closings which means it will reflect conditions when contracts were signed in October; the new home sales report is based on contracts and thus a more timely reflection of economic conditions.
Home sales surged in advance of the November 30 expiration of the first time home buyer tax credit. The credit was extended to require contracts by April 30 and closings by June 30, but will not likely reverse an expected dip in sales of existing homes. The expiration of the extended tax credit is too far removed to give any significant bounce to new home sales.
Reality Check: The Risks of a Personal Guarantee... Brought to you by foxbusiness.com
By the time Sarah Shaw personally guaranteed a second business loan, her company was struggling just to stay afloat. Although the company, Sarah Shaw Handbags, had investor backing in early 2001, it wasn't enough.
"The fashion business is very cyclical and the cash flow is uneven," says the Los Angeles entrepreneur, who did not understand this at the time, relying instead on her business partner who had an MBA. "My accountant kept questioning [my partner's] business plan and I just kept shushing him and saying, 'She knows what she's doing.' What I should have done was not put in any more money.
Instead, Shaw says her naivete ultimately led her to take the second loan for $50,000, secured with her house. Then came 9/11 and its fallout. Investor dollars that were promised now evaporated, forcing the company to shut down and liquidate in 2002. Of course, Shaw was still on the hook for the loans.
"In the end, I only paid off one of the [$50,000] loans and paid my outstanding creditors," Shaw says. "I didn't want to burn all my bridges, so I ended up paying all my vendors 70 cents on the dollar, which was pretty good instead of going bankrupt."
But eight years later, Shaw is still making monthly payments on the $50,000 bank loan she guaranteed with her home.
"I came from a place of desperation to get that loan and keep the business going and that's just a really bad place to come from," says Shaw, whose handbag company lasted five years. "That's when you make rash decisions."
Especially amid today's tenuous lending climate, some small business owners are finding themselves in a similar situation: desperate for cash and feeling pressured to risk their personal assets in an attempt to stay in business. Banks almost always request a personal guarantee to avoid having a business owner quit in frustration and skirt their financial responsibilities. And while some entrepreneurs are able to successfully use a personally guaranteed loan to grow their business, others have found it was a gamble they would lose.
Take Elizabeth Versace. She filed for personal bankruptcy last year, no longer able to pay off a series of personally guaranteed business loans totaling $130,000. The cash was needed to fill an influx of orders for the then-fast-growing Category Five Outwear, a golf apparel company that Versace owned with two partners. Ultimately, the loans secured in early 2007 were not enough to stay afloat. The Palm Springs, Calif.-based company went under by year's end.
"Absolutely the worst mistake I ever made was signing one of those personal guarantees," says Versace, whose partners had invested cash in the business, while she relied on credit. "When the economy tanked, I couldn't find suitable employment to support myself and the outstanding debt."
Versace ultimately returned to work as a commodities trading advisor, her profession before becoming a business owner. Today, she says her entrepreneurial days are over, but she does have aspirations of running for public office to better protect small business owners.
As for Shaw, she's back running her own business again, this time as Simply Sarah, which sells a patented handbag organizer and accessories. Along with $5,000 of her own cash, Shaw secured $25,000 in financing for her latest venture— but did not sign a personal guarantee. And thanks to the lessons learned from her first bankrupt business, the new company was profitable within 10 months.
Branding herself as the 'Entreprnette' Shaw also now coaches aspiring entrepreneurs on how to launch their own product-based business.
"Make sure you understand your cash flow, and look at when you need to lay out the money," Shaw suggests. "Your business may be cyclical, and it's a constant money outlay when you're in manufacturing. You have to look at your particular revenue streams and when the money will be coming in. There are so many different factors."
As for personal guarantees, Shaw recommends her start-up clients think long and hard before taking such a personal risk.
"It's just one more thing hanging over your head," Shaw says. "If your business has legs, you just have to keep looking for [other funding sources]. There are going to be people who want to invest in it."
"The fashion business is very cyclical and the cash flow is uneven," says the Los Angeles entrepreneur, who did not understand this at the time, relying instead on her business partner who had an MBA. "My accountant kept questioning [my partner's] business plan and I just kept shushing him and saying, 'She knows what she's doing.' What I should have done was not put in any more money.
Instead, Shaw says her naivete ultimately led her to take the second loan for $50,000, secured with her house. Then came 9/11 and its fallout. Investor dollars that were promised now evaporated, forcing the company to shut down and liquidate in 2002. Of course, Shaw was still on the hook for the loans.
"In the end, I only paid off one of the [$50,000] loans and paid my outstanding creditors," Shaw says. "I didn't want to burn all my bridges, so I ended up paying all my vendors 70 cents on the dollar, which was pretty good instead of going bankrupt."
But eight years later, Shaw is still making monthly payments on the $50,000 bank loan she guaranteed with her home.
"I came from a place of desperation to get that loan and keep the business going and that's just a really bad place to come from," says Shaw, whose handbag company lasted five years. "That's when you make rash decisions."
Especially amid today's tenuous lending climate, some small business owners are finding themselves in a similar situation: desperate for cash and feeling pressured to risk their personal assets in an attempt to stay in business. Banks almost always request a personal guarantee to avoid having a business owner quit in frustration and skirt their financial responsibilities. And while some entrepreneurs are able to successfully use a personally guaranteed loan to grow their business, others have found it was a gamble they would lose.
Take Elizabeth Versace. She filed for personal bankruptcy last year, no longer able to pay off a series of personally guaranteed business loans totaling $130,000. The cash was needed to fill an influx of orders for the then-fast-growing Category Five Outwear, a golf apparel company that Versace owned with two partners. Ultimately, the loans secured in early 2007 were not enough to stay afloat. The Palm Springs, Calif.-based company went under by year's end.
"Absolutely the worst mistake I ever made was signing one of those personal guarantees," says Versace, whose partners had invested cash in the business, while she relied on credit. "When the economy tanked, I couldn't find suitable employment to support myself and the outstanding debt."
Versace ultimately returned to work as a commodities trading advisor, her profession before becoming a business owner. Today, she says her entrepreneurial days are over, but she does have aspirations of running for public office to better protect small business owners.
As for Shaw, she's back running her own business again, this time as Simply Sarah, which sells a patented handbag organizer and accessories. Along with $5,000 of her own cash, Shaw secured $25,000 in financing for her latest venture— but did not sign a personal guarantee. And thanks to the lessons learned from her first bankrupt business, the new company was profitable within 10 months.
Branding herself as the 'Entreprnette' Shaw also now coaches aspiring entrepreneurs on how to launch their own product-based business.
"Make sure you understand your cash flow, and look at when you need to lay out the money," Shaw suggests. "Your business may be cyclical, and it's a constant money outlay when you're in manufacturing. You have to look at your particular revenue streams and when the money will be coming in. There are so many different factors."
As for personal guarantees, Shaw recommends her start-up clients think long and hard before taking such a personal risk.
"It's just one more thing hanging over your head," Shaw says. "If your business has legs, you just have to keep looking for [other funding sources]. There are going to be people who want to invest in it."
