Thursday, April 30, 2009
Swine flu: 'All of humanity under threat', WHO warns
By Murray Wardrop
30 April 2009
The Telegraph, UK
The World Health Organisation has warned that "all of humanity is under threat" from a potential swine flu pandemic and called for "global solidarity" to combat the virus. The plea came as the WHO raised the swine flu threat awareness level to 5 out of 6, indicating that the world is on the brink of a pandemic. Holland and Switzerland both confirmed their first cases of swine flu on Thursday, bringing the total number of countries affected around the world to 11.
In Mexico there have been eight confirmed deaths from the virus, with another 160 suspected swine flu fatalities. There have been 93 confirmed cases in the US, 19 in Canada, 13 in New Zealand, five in Britain, four in Germany, 10 in Spain, two in Israel, and one in Austria.
The US has confirmed the first death outside of Mexico on Wednesday, while a further "probable" case of swine flu has emerged in Glasgow, Scotland's First Minister Alex Salmond told MSPs today. The new case is someone with travel links to an affected area, but he also disclosed that Iain and Dawn Askham - the first confirmed cases of the disease - had now been released from Monklands Hospital in Lanarkshire, where they had been receiving treatment in an isolation ward. Dr Margaret Chan, the WHO director-general, urged all countries to activate their pandemic plans as she made the announcement on Wednesday night. Phase 5 indicates that there is evidence of the virus being spread from human-to-human in at least two countries in one WHO region. Phase 6, the pandemic phase, is characterised by increased and sustained transmission in the general population. Dr Chan said that the world was better prepared for an influenza pandemic than at any time in history.
However, she warned that the threat "must be taken seriously" due to the ability of the swine flu swine flu virus to spread rapidly across the world. Dr Chan said that raising the phase of alert was a signal to governments, health officials and the pharmaceutical industry to take urgent action in readiness to tackle a pandemic. Speaking at a conference in Geneva, Dr Chan said: "Above all this is an opportunity for global solidarity as we look for responses and solutions that benefit all countries, all of humanity. "After all it really is all of humanity that is under threat during a pandemic. "The international community should treat this as a window of opportunity to ramp up preparedness and response. "Influenza pandemics must be taken seriously, precisely because of their capacity to spread rapidly to every country in the world. "For the first time in history we can track the evolution of a pandemic in real time. Influenza viruses are notorious for their rapid mutation and unpredictable behaviour. "All countries should immediately now activate their pandemic preparedness plans. Countries should remain on high alert for unusual outbreaks of influenza-like illness and severe pneumonia." She added: "Based on assessment of all available information and following several expert consultations, I have decided to raise the current level of influenza pandemic alert from phase 4 to phase 5. "This change to a higher phase of alert is a signal to governments, to ministries of health and other ministries, to the pharmaceutical industry and the business community that certain actions now should be undertaken with increased urgency and at an accelerated pace."
The announcement came on the same day that the Prime Minister Gordon Brown disclosed that there are now five confirmed cases of swine flu in Britain. Among them is a 12-year-old girl from Devon, who recently flew back to Britain on the same flight as the first two people who tested positive for the virus – Scottish couple Dawn and Iain Askham. The news prompted the closure of the girl's secondary school in Paignton, Devon, and 200 pupils there have been prescribed the antiviral drug Tamiflu. In response to the WHO's alert, Professor Sir Liam Donaldson, the Government's Chief Medical Adviser, said that Britain was well prepared for a pandemic.
Sir Liam said: "Phase five indicates that WHO considers a global pandemic to be imminent, whereas at phase four a global pandemic is not inevitable. "A change to phase five is a signal to countries' governments to ramp up their pandemic preparations – which we are already doing.
"We have been planning for a situation like this for some years. The preparations we have in place and are continuing to make will help to ensure we respond well in the event of a pandemic.
"If you have returned from an affected area and have flu like symptoms stay at home, call your GP or NHS Direct and you will be assessed and receive treatment if necessary." The UK will see "many more cases" of swine flu as the virus spreads but most people will make a good recovery, the Government's Chief Medical Officer said today. He told BBC Breakfast on Thursday : "Most people who get flu, even a new strain of flu, will make a good recovery. It's a nasty illness but it's short and they will recover. "To put things in proportion, in any flu, even the seasonal flu, there are some deaths, often of elderly people and the very frail. "What we will see is many more cases, but on the whole most people make a good recovery from flu." But bacteriology expert Professor Hugh Pennington, of the University of Aberdeen, said the WHO may have raised the level to five slightly prematurely to keep everybody as alert as possible. He said: "A five is where there's good evidence of transmission outside of one country and we're a little bit short of that. "I suspect they just want to keep everybody on their toes. "They are only one short of a pandemic but there has got to be very good evidence of transmission outside of where the virus started for it to be a pandemic.
"There are various definitions of a pandemic but the consensus view would be worldwide spread affecting all ages." He added that if swine flu does reach pandemic levels the scenario might not be as bad as people expect. He said: "We've been thinking of pandemic as shock, horror, millions of people will die. "Of course it may not be quite as bad as that. It may still be a pandemic with an ordinary flu virus that affects a lot of people and will still unfortunately kill people that are in the high risk groups." He said it could take four or five months to develop a vaccine against the virus. The WHO's Dr Chan explained that the decision to raise the awareness level from 4 to 5 was taken because evidence had emerged of human-to-human transmission in Mexico and the US, which are in the same WHO region. Evidence of human-to-human transmission has also been seen in Spain. With an elevated pandemic alert level, WHO might also issue travel advisories, warning against non-essential travel to regions battling outbreaks, trade restrictions, the cancellation of public events or border closures.
Sunday, April 26, 2009
Summers Says U.S. Economy to Decline ‘For Some Time’
By Matthew Benjamin
April 26, 2009 (Bloomberg) -- The U.S. economy will continue to contract “for some time to come,” said Lawrence Summers, director of the White House National Economic Council. “I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said today on “Fox News Sunday.” The International Monetary Fund, which held meetings last week in Washington, cut its forecast for each of the Group of Seven economies for this year and next. The lender said the U.S. economy would shrink 2.8 percent this year and have no growth in 2010, with unemployment rising to 10.1 percent. Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. “These imbalances can’t continue forever,” he said. “When they are repaired they will be a source of impetus for the economy.”
Texas Instruments Inc., the second-biggest U.S. chipmaker, said April 20 that customers have begun to increase orders after reducing inventories. Summers said the Obama administration is “on a path toward containment and toward building a path toward expansion,” he said, adding that “even sharp plans take time” to work, perhaps six months or more.
Stress Tests
Summers reiterated the administration’s assertion that “the vast majority of banks in the U.S. are well capitalized.” Regulators have conducted stress tests on the 19 largest banks to determine whether they need more capital and are discussing their findings with bank officials this week. “There’s work that needs to be done,” to fix the ailing financial industry, including raising capital and providing additional government money to banks “where necessary,” Summers said. “We’re going to be in a good position to provide the support and set the framework in which the banking system can move along the process of recovery,” Summers said. Results of the stress tests are due for publication on May 4. Valerie Jarrett, a senior adviser to President Barack Obama, said Americans shouldn’t “pre-judge the outcome” of the tests. “Whether management changes occur, whether banks are asked to raise more capital, all of that’s going to come forth in the coming week,” Jarrett said on CNN’s “State of the Union” program today.
Chrysler Deadline
Summers said he was hopeful that Chrysler LLC, facing an April 30 deadline from the Obama administration to come up with a viable reorganization plan or face bankruptcy, would succeed in negotiating an alliance with Italy’s Fiat SpA. “It’s in everybody’s interest, we believe, to see these negotiations succeed, and we’re hopeful that they will,” Summers said. “It’s obviously a situation that we’re monitoring carefully, but it’s a negotiation between Chrysler and its potential acquirer, Fiat. There are important issues with creditors, with a range of stakeholders.”
He wouldn’t rule out bankruptcy for Chrysler, saying such a move wouldn’t mean liquidation but instead a “change in legal form” for the automaker to allow it “to function more effectively.” “You can’t have a situation in which companies proceed on a permanent basis relying only on cash from the government,” Summers said. Summers said the White House is working with credit card companies toward “provisions that would protect consumers.” If legislation the administration supports is passed, “you’ll see benefits to consumers that would come very quickly.”
To contact the reporters on this story: Matthew Benjamin
April 26, 2009 (Bloomberg) -- The U.S. economy will continue to contract “for some time to come,” said Lawrence Summers, director of the White House National Economic Council. “I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said today on “Fox News Sunday.” The International Monetary Fund, which held meetings last week in Washington, cut its forecast for each of the Group of Seven economies for this year and next. The lender said the U.S. economy would shrink 2.8 percent this year and have no growth in 2010, with unemployment rising to 10.1 percent. Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. “These imbalances can’t continue forever,” he said. “When they are repaired they will be a source of impetus for the economy.”
Texas Instruments Inc., the second-biggest U.S. chipmaker, said April 20 that customers have begun to increase orders after reducing inventories. Summers said the Obama administration is “on a path toward containment and toward building a path toward expansion,” he said, adding that “even sharp plans take time” to work, perhaps six months or more.
Stress Tests
Summers reiterated the administration’s assertion that “the vast majority of banks in the U.S. are well capitalized.” Regulators have conducted stress tests on the 19 largest banks to determine whether they need more capital and are discussing their findings with bank officials this week. “There’s work that needs to be done,” to fix the ailing financial industry, including raising capital and providing additional government money to banks “where necessary,” Summers said. “We’re going to be in a good position to provide the support and set the framework in which the banking system can move along the process of recovery,” Summers said. Results of the stress tests are due for publication on May 4. Valerie Jarrett, a senior adviser to President Barack Obama, said Americans shouldn’t “pre-judge the outcome” of the tests. “Whether management changes occur, whether banks are asked to raise more capital, all of that’s going to come forth in the coming week,” Jarrett said on CNN’s “State of the Union” program today.
Chrysler Deadline
Summers said he was hopeful that Chrysler LLC, facing an April 30 deadline from the Obama administration to come up with a viable reorganization plan or face bankruptcy, would succeed in negotiating an alliance with Italy’s Fiat SpA. “It’s in everybody’s interest, we believe, to see these negotiations succeed, and we’re hopeful that they will,” Summers said. “It’s obviously a situation that we’re monitoring carefully, but it’s a negotiation between Chrysler and its potential acquirer, Fiat. There are important issues with creditors, with a range of stakeholders.”
He wouldn’t rule out bankruptcy for Chrysler, saying such a move wouldn’t mean liquidation but instead a “change in legal form” for the automaker to allow it “to function more effectively.” “You can’t have a situation in which companies proceed on a permanent basis relying only on cash from the government,” Summers said. Summers said the White House is working with credit card companies toward “provisions that would protect consumers.” If legislation the administration supports is passed, “you’ll see benefits to consumers that would come very quickly.”
To contact the reporters on this story: Matthew Benjamin
Friday, April 24, 2009
Spain: El paro supera la cifra de los cuatro millones y se dispara al 17,3%
800.000 personas más han engrosado la lista del paro en el primer trimestre del año, según la EPA El desempleo afecta ya a 4.010.700 personas, el dato más elevado desde 1976 Entre enero y marzo se han destruido 766.000 empleos
EP MADRID
ABC, Madrid: Actualizado Viernes, 24-04-09 a las 17:42
ABC, Madrid: Actualizado Viernes, 24-04-09 a las 17:42
El paro subió en 802.800 personas en el primer trimestre del año, el 25% en relación al trimestre anterior, con lo que el número total de desempleados se situó en 4.010.700 y la tasa de paro repuntó casi 3,5 puntos, hasta el 17,36%, alcanzando su valor más alto en 11 años, según los datos de la Encuesta de Población Activa (EPA) hecha hoy pública por el Instituto Nacional de Estadística (INE). En concreto, la tasa de desempleo es la más alta de la serie histórica comparable, que arranca en 2001, pero remontándose más atrás, utilizando series no comparables, no se alcanzaba un porcentaje de esta naturaleza desde el cuarto trimestre de 1998, cuando la tasa de paro llegó a situarse en el 17, 99%. Además, el número total de desempleados, que ya supera los temidos 4 millones, es el más elevado de toda la serie comparable, que arranca en el tercer trimestre de 1976, periodo al partir del cual el INE tiene realizada una retrospectiva de datos utilizando la nueva definición de paro que entró en vigor hace unos años. Según los datos de Estadística, en los últimos doce meses, el paro ha subido en 1.836.500 desempleados, un 84,4% más, cebándose más en los hombres que en las mujeres. De hecho, el paro masculino se incrementó en 1.177.200 desempleados en el último año, con un repunte del 115,6%, mientras que el femenino aumentó en 659.300 paradas, un 57% más. De enero a marzo se destruyeron 766.000 empleos (-3,8%), alcanzando el número total de ocupados la cifra de 19.090.800 personas. La mayor parte de los puestos de trabajo destruídos, 509.700, estaban ocupados por varones, frente a 295.900 desempeñados por mujeres. En el último año, el número de ocupados se ha reducido en 1.311.500 personas (-6,4%). El sector servicios generó 299.000 parados en el trimestre, un 26% más, y la construcción aumentó su cifra de desempleados en 158.800 personas, con un repunte del 27,1%. Destaca también el incremento en 188. 400 parados del colectivo que perdió su empleo hace más de un año (parados de larga duración), con un avance relativo del 24%.
Los hogares con todos sus miembros en paro aumentaron en el primer trimestre de 2009 en 241.200, un 29,1% más sobre el trimestre anterior, mientras que en el último año los hogares con todos sus miembros en paro se han incrementado en 555.800 hogares, un 108,4% más. En total, la cifra de hogares con todos sus miembros en el desempleo se situó en 1.068.400 al finalizar el mes de marzo. De los 802.800 parados más que se registraron en el primer trimestre, 524.700 eran españoles, con un crecimiento del 21,6% respecto al trimestre anterior, en tanto que 278.100 eran extranjeros (+35,7%). En el último año, más de 1,2 millones de españoles han entrado en el desempleo (+76,9%) frente a los 552.800 extranjeros que se han encontrado en esta situación (+109,5%). Así, la tasa de paro de los españoles se situó en el 15,24%, casi tres puntos más que en el trimestre anterior. No obstante, la tasa de desempleo de los extranjeros sigue siendo más elevada, con un 28,4%, siete puntos más que tres meses atrás. La población española también se llevó la peor parte en materia de ocupación, al perder 546.500 puestos de trabajo en el trimestre (-3,2%), frente a la destrucción de 219.500 empleos entre los extranjeros (-7,6%). La destrucción de empleo en el primer trimestre afectó especialmente a los servicios, que perdió 454.700 puestos de trabajo (-3,3%) en relación al trimestre anterior. En la construcción se destruyeron 202 800 empleos (-9,3) entre enero y marzo y en la industria se perdieron 142.500 efectivos (-4,7%). Sólo la agricultura creó empleo, con 34.000 nuevos puestos (+4,23%). En cuanto a la evolución del paro por sectores económicos, el sector servicios también encabezó los incrementos, con 299.000 parados más en el trimestre (+26%), seguido del colectivo de parados de larga duración, con 188.400 desempleados más en sus filas (+24%). En la construcción se registraron 158.800 parados más que en el trimestre anterior (+27,1%), en la industria el número de parados subió en 85.100 (+29,5%, el mayor aumento porcentual de todos los sectores), mientras que el paro de las personas que buscan su primer empleo se incrementó en 50.200 (+20,1%) y en la agricultura hubo 21.400 desempleados más (+14,3%).
UK economy slumped by 1.9pc in first three months of 2009 as recession deepens
The British economy contracted by 1.9pc in the first three months of the year, far more than economists expected, as Britain braces itself for decades of austerity.
By Angela Monaghan
The Telegraph, UK
24 Apr 2009
The decline in gross domestic product was sharper than the 1.6pc seen in the final three months of 2008, when Britain officially entered recession. Economists had expected expected a fall of 1.5pc. The Office for National Statistics figures show how widespread the crisis that began with the US banking sector has become in Britain, triggering a slump in the amount of goods and services that it produces. It is the sharpest quarterly fall in gross domestic product (GDP) since 1979, when it fell by 2.4pc in the third quarter. At that time, the country was buckling under the pressure of mass unemployment and an intense class war. The figure will embarrass Alistair Darling, who predicted in his Budget statement on Wednesday that in the first quarter the economy contracted "by a similar amount" to the fourth quarter of 2008. It also casts doubt over his prediction that the economy will shrink by a total of 3.5pc this year, which now looks too optimistic. "For that to be achieved, GDP would have to be broadly flat from the second quarter onwards, yet the surveys are already pointing to another fall of 1pc or so," said Vicky Redwood at Capital Economics. Although the economy is expected to fall at a slower pace in the months ahead, economists have warned it will not seem better for many as hundreds of thousands more jobs go. "Although one or two positive signs have started to appear, we face another 12-18 months of serious grief," said Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club. On Wedensday official data showed that unemployment reached 2.1m un February, the highest level since Labour came to power in 1997. The ITEM Club predicts that a total of around 900,000 jobs will be lost this year and a further 500,000 next year. The Chancellor said on Wednesday that there would be a return to growth by the end of the year and growth of 1.25pc in 2010 and 3.5pc in 2011. However, the figures were dismissed as "utter fantasy" by opposition MPs and were significantly more optimistic than most City forecasters. Shortly after Mr Darling’s speech, the IMF said that it believed the British economy would shrink by 4.1pc this year and another 0.4pc next year. The news helped drive sterling more than a cent lower against the dollar at $1.46 while the FTSE 100 shrugged off the news to trade more than 2pc higher.
Spain: El paro supera los cuatro millones de personas por primera vez en la historia
Deterioro del mercado laboral
El mercado laboral destruye empleo a su mayor ritmo en 32 años con una tasa de desempleo del 17,36%, según la EPA. -El Gobierno califica la posibilidad de llegar a los cinco millones de "apocalípticas"
El mercado laboral destruye empleo a su mayor ritmo en 32 años con una tasa de desempleo del 17,36%, según la EPA. -El Gobierno califica la posibilidad de llegar a los cinco millones de "apocalípticas"
AGENCIAS - Madrid - 24/04/2009
La grave crisis que atraviesa nuestra economía, que ha llevado al país a su primera recesión en 15 años, se está cebando en el mercado laboral, cuyo deterioro ha alcanzado ritmos desconocidos en la historia democrática de España y está superando hasta las previsiones más pesimistas tras rebasar por primera vez los cuatro millones de personas. Según la Encuesta de Población Activa del primer trimestre del año, la tasa de paro ha aumentado en los tres primeros meses de 2009 en 3,45 puntos hasta situarse en el 17,36% de la población activa, con lo que el número de desempleados ha alcanzado los 4.010.700, la cifra más alta de la historia, tras incrementarse en 802.800 personas entre enero y marzo.
Según ha publicado hoy el INE, la nueva EPA, el mejor termómetro del mercado laboral, ha dejado en papel mojado los últimos cálculos del Gobierno, y ha superado en dos puntos las cifras del entonces ministro de Economía, Pedro Solbes, que preveían una tasa del 15,9% para final de año. Hoy la nueva jefa de la política económica del Ejecutivo, Elena Salgado, no ha podido sino admitir que los datos de la encuesta son "malos y peores de lo esperado", aunque también ha anunciado un punto de inflexión en la recuperación de empleo a partir de abril.
Tampoco el titular del departamento de trabajo, Celestino Corbacho, consideraba la posibilidad de rebasar la cota psicológica de los cuatro millones por mucho que se le preguntó sobre este extremo. Aunque la tozuda realidad y la dureza de la crisis han acabado por imponerse a los argumentos del ministro.
De cara al futuro, la vicepresidenta María Teresa Fernández de la Vega ha rechazado hoy hacer "vaticinios" sobre dónde está el límite de la subida del paro, y "mucho menos apocalípticos", ha matizado tras ser preguntada por el hecho de si llegaremos o no a los cinco millones de desocupados. "Analizamos la situación con realismo, pero también con responsabilidad. Los ciudadanos deben saber que lo que estamos haciendo es trabajar, trabajar y trabajar" para dar el máximo rendimiento a las medidas adoptadas, ha añadido.
Por su parte, el secretario de Estado de Seguridad Social, Octavio Granado, ha atribuido a que nos encontramos en el "epicentro de la crisis" además de ser el "peor trimestre del año".
Ritmo récord de destrucción de empleo
Según la EPA, entre enero y marzo se destruyeron 766.000 puestos de trabajo, el mayor descenso desde hace 32 años -cuando comenzó a elaborarse esta estadística-, con lo que el número de ocupados se sitúa en 19.090.800. En los últimos doce meses el paro ha subido en 1.836.500 personas tras cerrar 2008 con una tasa del 13,9% y se han destruido 1.311.500 puestos de trabajo, lo que supone una caída del 6,43% frente a los niveles de hace un año.
La tasa de paro es la más alta desde el cuarto trimestre de 1998 cuando alcanzó el 17,99%, mientras que el total de desempeados es el más elevado desde 1976, primer año del que se tienen datos, ya que en la anterior crisis de 1993 el número de personas sin empleo alcanzó su máximo en 3.932.900 millones de parados al cierre del primer trimestre de 1994.
Pero, a partir de ahora, la crisis de referencia para los futuros historiadores será la crisis que empezó en 2008 y que ofrecerá a lo largo del presente ejercicio su peor cara en forma de aumento del paro. De hecho, todas las comunidades autónomas, grupos de edad, sexo y sectores se han visto afectados por el descenso del empleo y el aumento del paro entre enero y marzo, aunque el mayor ajuste se ha concentrado en los trabajadores temporales, jóvenes y otros grupos desfavorecidos. Además, por primera vez desde 1994 hay más hombres que mujeres en paro, a pesar de lo cual la tasa de desempleo masculina sigue siendo menor, con el 16,86% frente al 18,01% entre las féminas.También ha aumentado el número de hogares con todos sus miembros en paro, un 6,3% hasta las 1.068.400 familias, con lo que las familias sin ningún trabajo duplican a las que atravesan esta dramática situación hace un año.
Tres comunidades superan ya el 20%
El paro subió en el primer trimestre del año en todas las comunidades autónomas, especialmente en Baleares (59,3%), Cantabria (40,6%) y Cataluña (36,6%) y la tasa de paro supera ya el 20% en Canarias (26,1%), Andalucía (24%) y Extremadura (21,7%).
En términos absolutos, el paro subió más en Cataluña (166.900 desempleados más), Comunidad de Madrid (114.700) y Comunidad Valenciana (109.500). Respecto al mismo trimestre del año anterior, el paro subió en todas las autonomías, de manera especialmente significativa en Aragón (120,3%), seguida de Cataluña (114,1%) y Murcia (110%).
En cuanto a la tasa de paro, tras Canarias, Andalucía y Extremadura se sitúan, con las tasas más altas, Baleares (19,7%), Murcia (19,3%) y la Comunidad Valenciana (19,2%).
Thursday, April 23, 2009
Iowa City troubled by surge in downtown beatings
April 23, 2009
By NIGEL DUARA, Associated Press Writer
IOWA CITY, Iowa (AP) - Gangs of men punching people on the street at random. Street fights where bystanders sometimes cheer, and where those who try to intervene sometimes get beaten themselves. Police in this quintessential college town say there's been a dramatic rise in unprovoked beatings in the downtown area next to the University of Iowa over the last several months. Though the mix of young people and alcohol often leads to fighting, police say the intense violence and random nature of the attacks have them worried. "It isn't always a matter of somebody putting themselves in harm's way," Iowa City police Sgt. Troy Kelsay said. "Now it seems like it's just for the sheer pleasure of it, that's what seems to be different." Police don't break out statistics for the downtown area near campus, but they point to several disturbing incidents in the past month alone:
_On March 27, a college-aged man was assaulted at about 2 a.m. downtown. Witnesses said six to 10 men ganged up on him, and when another man tried to intervene, he too was knocked unconscious. Police say the assailants then ran along a downtown street, punching other men as they passed.
_On April 2, a 22-year-old man was smoking outside a downtown bar when six men approached him and asked for cigarettes. As he was handing them out, the men knocked him to the ground and took the whole pack. Later, the same man walked past a group of men who knocked him to the ground and stole his watch.
_On April 6, a man woke up to bystanders helping him sit up. The man told police someone he didn't know knocked him unconscious. He didn't realize his jaw was broken until a hospital visit the next afternoon.
_On April 16, two college-age men stepped outside a bar to smoke at about 1:15 a.m. After an argument with others, one of the men was pushed to the ground, then kicked and punched by several people. He suffered a broken nose and a head cut requiring staples to close.
"I really don't understand the motivation for the violence," Iowa City Mayor Regenia Bailey said. "It's severe and concerning that people find this acceptable and people are seeking this out."
Kelsay said police have stepped up late-night patrols downtown, but they have had a hard time tracking down suspects because they usually can't find witnesses. And sometimes those who see a beating actually cheer on the attackers, he said. "It's become an unfortunate part of the bar culture in Iowa City," Kelsay said. Some Iowa City officials think a recent proliferation of bars and liquor stores downtown is partly to blame. There are 46 businesses permitted to sell liquor in the nine-square-block area next to the 29,000-student campus—a 50 percent increase from a decade ago. Next month, the City Council will consider a measure backed by a planning commission that would require future bars to be 500 feet apart and ensure 1,000 feet between liquor stores. City officials earlier rejected such moves. "With too much of a concentration (of establishments) such as bars and liquor stores, it becomes overburdened with that type of use," said Karen Howard, an associate planner in the city's Urban Planning Department. "We want to have a downtown that's open not just in the evening, but to a whole variety of people." Bailey said the city also has sought help from the University of Iowa. Together, the school and city launched an "alcohol summit" in March to address binge drinking and suggest nonalcoholic alternatives. Students acknowledge there's a problem, but few seem intent on resolving the situation. "It's easy to blame alcohol," said 20-year-old Justin Boltz, an Iowa undergraduate. "I don't know if there's a solution." Thomas Reynolds, a 19-year-old Iowa student, said he noticed the violence picking up last summer, when a friend was hospitalized after being beaten by a man asking for a cigarette. But Reynolds also seemed resigned to the problem and didn't think the city's zoning plan would help much. "Then they'll just make the bars bigger," Reynolds said. "You'll still see 100 people outside."
By NIGEL DUARA, Associated Press Writer
IOWA CITY, Iowa (AP) - Gangs of men punching people on the street at random. Street fights where bystanders sometimes cheer, and where those who try to intervene sometimes get beaten themselves. Police in this quintessential college town say there's been a dramatic rise in unprovoked beatings in the downtown area next to the University of Iowa over the last several months. Though the mix of young people and alcohol often leads to fighting, police say the intense violence and random nature of the attacks have them worried. "It isn't always a matter of somebody putting themselves in harm's way," Iowa City police Sgt. Troy Kelsay said. "Now it seems like it's just for the sheer pleasure of it, that's what seems to be different." Police don't break out statistics for the downtown area near campus, but they point to several disturbing incidents in the past month alone:
_On March 27, a college-aged man was assaulted at about 2 a.m. downtown. Witnesses said six to 10 men ganged up on him, and when another man tried to intervene, he too was knocked unconscious. Police say the assailants then ran along a downtown street, punching other men as they passed.
_On April 2, a 22-year-old man was smoking outside a downtown bar when six men approached him and asked for cigarettes. As he was handing them out, the men knocked him to the ground and took the whole pack. Later, the same man walked past a group of men who knocked him to the ground and stole his watch.
_On April 6, a man woke up to bystanders helping him sit up. The man told police someone he didn't know knocked him unconscious. He didn't realize his jaw was broken until a hospital visit the next afternoon.
_On April 16, two college-age men stepped outside a bar to smoke at about 1:15 a.m. After an argument with others, one of the men was pushed to the ground, then kicked and punched by several people. He suffered a broken nose and a head cut requiring staples to close.
"I really don't understand the motivation for the violence," Iowa City Mayor Regenia Bailey said. "It's severe and concerning that people find this acceptable and people are seeking this out."
Kelsay said police have stepped up late-night patrols downtown, but they have had a hard time tracking down suspects because they usually can't find witnesses. And sometimes those who see a beating actually cheer on the attackers, he said. "It's become an unfortunate part of the bar culture in Iowa City," Kelsay said. Some Iowa City officials think a recent proliferation of bars and liquor stores downtown is partly to blame. There are 46 businesses permitted to sell liquor in the nine-square-block area next to the 29,000-student campus—a 50 percent increase from a decade ago. Next month, the City Council will consider a measure backed by a planning commission that would require future bars to be 500 feet apart and ensure 1,000 feet between liquor stores. City officials earlier rejected such moves. "With too much of a concentration (of establishments) such as bars and liquor stores, it becomes overburdened with that type of use," said Karen Howard, an associate planner in the city's Urban Planning Department. "We want to have a downtown that's open not just in the evening, but to a whole variety of people." Bailey said the city also has sought help from the University of Iowa. Together, the school and city launched an "alcohol summit" in March to address binge drinking and suggest nonalcoholic alternatives. Students acknowledge there's a problem, but few seem intent on resolving the situation. "It's easy to blame alcohol," said 20-year-old Justin Boltz, an Iowa undergraduate. "I don't know if there's a solution." Thomas Reynolds, a 19-year-old Iowa student, said he noticed the violence picking up last summer, when a friend was hospitalized after being beaten by a man asking for a cigarette. But Reynolds also seemed resigned to the problem and didn't think the city's zoning plan would help much. "Then they'll just make the bars bigger," Reynolds said. "You'll still see 100 people outside."
GE exec says economic crisis resetting capitalism
April 22, 2009
STEPHEN MANNINGAP Business Writer
WASHINGTON (AP) - The top executive of General Electric Co. said Wednesday he couldn't predict when the recession would end or how bad it will be, but said the global economic crisis has "fundamentally reset" the way companies do business and capitalism itself.
Speaking at GE's annual shareholder meeting in Orlando, Fla., following what has been a punishing year for the conglomerate, CEO Jeff Immelt said the downturn was the worst since the Great Depression, and that it would ultimately lead to changes such as greater government involvement in business and a restructuring of the financial services sector that was a root of the crisis. "We are living through history, and I don't mean that in a positive sense," said Immelt, who heads one of the world's largest companies that makes products like jet engines and refrigerators but also has a big financial unit. Immelt told investors "2008 was tough and 2009 is also going to be tough." He added that it was hard to predict "how bad this will be and how long" the recession will last. He tried to assure shareholders that GE has positioned itself for an economic recovery, with a new focus on products that could capture some of what GE estimates is $2 trillion worth of government stimulus spending worldwide. That includes windmills and other clean energy equipment and new health care technology to better diagnose illnesses like Alzheimer's disease. But GE executives acknowledged that GE has suffered during the downturn. Profits at the company's GE Capital lending arm have fallen sharply as losses on loans like credit cards, commercial real estate and overseas mortgages have grown. GE lost its rare 'AAA' credit rating earlier this year due to GE Capital's woes, and company shares reached an 18-year low in March as investors worried greater losses were coming at the finance unit. Shares have since recovered somewhat after GE gave investors an exhaustive look at GE Capital's books in an effort to ease fears. GE Chief Financial Officer Keith Sherin was conciliatory when discussing GE's decision to cut its dividend by 67 percent in March, the first reduction in the quarterly payment since 1938. GE has said the move was needed to save $9 billion per year in cash. "We feel terrible about it, but it was the right thing to do," said Sherin. "We know we have to earn your trust back with good performance." Shares of the Fairfield, Conn.-based GE rose 43 cents, or 3.7 percent, to $12.13 in early afternoon trading.
Monday, April 20, 2009
Top US colleges face cash squeeze
By Deborah Brewster in New York
April 19 2009
Top colleges in the US, such as Yale, Stanford and Harvard, are facing an unprecedented slump in the value of their endowment funds resulting in a cash squeeze, just as they are getting record numbers of applicants and more requests for financial aid. College endowments fell in value by an average of 24 per cent in the six months to December, with smaller ones falling more, according to a survey by the Commonfund, a non-profit organisation. Princeton and Harvard have both said they are expecting a drop of 30 per cent for the full fiscal year to June, and others have indicated they will see similar or greater falls. At the same time the colleges are facing higher pay-outs of financial aid to students, partly because many expanded these programmes during the boom endowment year of 2007. John Etchemendy, the provost of Stanford University, said Stanford was committed to paying out $110m (£74.4m) in financial aid in the coming academic year, $10m more than last year. However, the university had to shave more than $300m from its $3.5bn operating budget because of endowment losses. A record 30,428 students applied for the 2,300 freshman places available at Stanford this year – 20 per cent more than last year. Harvard and Yale, both of which also expanded their financial aid programmes, had similar record numbers of applicants. More than 29,000 applied to Harvard for 1,650 places, while Yale had 26,000 applicants and admitted 1,951. Tuition and board at Harvard costs close to $50,000 a year, but 60 per cent of students receive some form of aid. Most colleges are trying to maintain their aid programmes. Mr Etchemendy said: “We will try to maintain it as long as we can. But even if we pull back a little, students will still be able to attend .”Stanford has frozen staff salaries and ended a $1.3bn capital works programme. The college will lay off about 350 people in this fiscal year, said Mr Etchemendy. Harvard said in February it would freeze salaries and offer early retirement. It also suspended work begun on the big expansion of its Allston science centre. Both Stanford and Harvard last year relied on endowments to provide 30 per cent of their budgets. Some Harvard schools, such as the Kennedy School of Government, rely on the endowment for more than 50 per cent of their costs. Princeton’s endowment provided close to 50 per cent of its annual budget.
Copyright The Financial Times Limited 2009
April 19 2009
Top colleges in the US, such as Yale, Stanford and Harvard, are facing an unprecedented slump in the value of their endowment funds resulting in a cash squeeze, just as they are getting record numbers of applicants and more requests for financial aid. College endowments fell in value by an average of 24 per cent in the six months to December, with smaller ones falling more, according to a survey by the Commonfund, a non-profit organisation. Princeton and Harvard have both said they are expecting a drop of 30 per cent for the full fiscal year to June, and others have indicated they will see similar or greater falls. At the same time the colleges are facing higher pay-outs of financial aid to students, partly because many expanded these programmes during the boom endowment year of 2007. John Etchemendy, the provost of Stanford University, said Stanford was committed to paying out $110m (£74.4m) in financial aid in the coming academic year, $10m more than last year. However, the university had to shave more than $300m from its $3.5bn operating budget because of endowment losses. A record 30,428 students applied for the 2,300 freshman places available at Stanford this year – 20 per cent more than last year. Harvard and Yale, both of which also expanded their financial aid programmes, had similar record numbers of applicants. More than 29,000 applied to Harvard for 1,650 places, while Yale had 26,000 applicants and admitted 1,951. Tuition and board at Harvard costs close to $50,000 a year, but 60 per cent of students receive some form of aid. Most colleges are trying to maintain their aid programmes. Mr Etchemendy said: “We will try to maintain it as long as we can. But even if we pull back a little, students will still be able to attend .”Stanford has frozen staff salaries and ended a $1.3bn capital works programme. The college will lay off about 350 people in this fiscal year, said Mr Etchemendy. Harvard said in February it would freeze salaries and offer early retirement. It also suspended work begun on the big expansion of its Allston science centre. Both Stanford and Harvard last year relied on endowments to provide 30 per cent of their budgets. Some Harvard schools, such as the Kennedy School of Government, rely on the endowment for more than 50 per cent of their costs. Princeton’s endowment provided close to 50 per cent of its annual budget.
Copyright The Financial Times Limited 2009
NYT: Banks’ bailouts may convert to equity
White House: Approach will prevent need to seek more cash from Congress
By Edmund L. Andrews
The New York Times
April 20, 2009
WASHINGTON - President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials. In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock. Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return. While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks. The Treasury has already negotiated this kind of conversion with Citigroup and has said it would consider doing the same with other banks, as needed. But now the administration seems convinced that this maneuver can be used to make up for any shortfall in capital that the big banks confront in the near term.
More risk to taxpayers
Each conversion of this type would force the administration to decide how to handle its considerable voting rights on a bank’s board. Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them. Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults. In his budget proposal for next year, Mr. Obama included $250 billion in additional spending to prop up the financial system. Because of the way the government accounts for such spending, the budget actually indicated that Mr. Obama might ask Congress for as much as $750 billion. The most immediate expense will come in the next several weeks, when federal bank regulators complete “stress tests” on the nation’s 19 biggest banks. The tests are expected to show that at least several major institutions, probably including Bank of America, need to increase their capital cushions by billions of dollars each. The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.
The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC program “This Week.” Mr. Emanuel asserted that the government had enough money to shore up the 19 banks without asking for more. “We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Mr. Emanuel said. “If they need capital, we have that capacity.” If that calculation is correct, Mr. Obama would gain important political maneuvering room because Democratic leaders in Congress have warned that they cannot possibly muster enough votes any time soon in support of spending more money to bail out some of the same financial institutions whose aggressive lending precipitated the financial crisis. The administration said in January that it would alter its arrangement with Citigroup by converting up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity. After the conversion, the Treasury would end up with about 36 percent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalizing a major bank.
Nationalization, or even just the hint of nationalization, is a politically explosive step that White House and Treasury officials have fought hard to avoid. Administration officials acknowledged that they might still have to ask Congress for extra money. Beyond the 19 big banks, which are defined as those with more than $100 billion in assets, the Treasury has also injected capital into hundreds of regional and community banks and may need to provide more money before the financial crisis is over. Treasury officials say they have more money left in the rescue fund than might be apparent. Officials estimate that the fund will have about $134.5 billion left after the Treasury completes its $100 billion plan to buy toxic assets from banks and after it uses $50 billion to help homeowners avoid foreclosure. In practice, the toxic-asset programs are not expected to start for another few months, and it could be more than a year before the Treasury uses up the entire $100 billion. Likewise, it will be at least a year before the Treasury uses up all the money budgeted for homeowners. But the biggest way to stretch funds could be to convert preferred shares to common stock, a strategy that the government seems prepared to use on a case-by-case basis. Ever since the Treasury agreed to restructure Citigroup’s loans, officials have made it clear that other banks could follow suit and convert their government loans to voting shares of common stock as well.
Setting yardsticks
In the stress tests now under way, regulators are examining whether the big banks would have enough capital to withstand an economic downturn in which unemployment climbs to 10 percent and housing prices fall much further than they already have. As their yardstick, regulators are expected to examine a measure of bank capital called “tangible common equity.” By that measure of capital, every dollar a bank converts from preferred to common shares becomes an additional dollar of capital. The 19 big banks have received more than $140 billion from the Treasury’s financial rescue fund, and all of that has been in exchange for nonvoting preferred shares that pay an annual interest rate of about 5 percent. If all the banks that are found to have a capital shortfall fill that gap by converting their shares, rather than by obtaining more cash, the Treasury could stretch its dwindling rescue fund by more than $100 billion. The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policy makers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers. Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall.
Copyright © 2009 The New York Times
By Edmund L. Andrews
The New York Times
April 20, 2009
WASHINGTON - President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials. In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock. Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return. While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks. The Treasury has already negotiated this kind of conversion with Citigroup and has said it would consider doing the same with other banks, as needed. But now the administration seems convinced that this maneuver can be used to make up for any shortfall in capital that the big banks confront in the near term.
More risk to taxpayers
Each conversion of this type would force the administration to decide how to handle its considerable voting rights on a bank’s board. Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them. Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults. In his budget proposal for next year, Mr. Obama included $250 billion in additional spending to prop up the financial system. Because of the way the government accounts for such spending, the budget actually indicated that Mr. Obama might ask Congress for as much as $750 billion. The most immediate expense will come in the next several weeks, when federal bank regulators complete “stress tests” on the nation’s 19 biggest banks. The tests are expected to show that at least several major institutions, probably including Bank of America, need to increase their capital cushions by billions of dollars each. The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion.
The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC program “This Week.” Mr. Emanuel asserted that the government had enough money to shore up the 19 banks without asking for more. “We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Mr. Emanuel said. “If they need capital, we have that capacity.” If that calculation is correct, Mr. Obama would gain important political maneuvering room because Democratic leaders in Congress have warned that they cannot possibly muster enough votes any time soon in support of spending more money to bail out some of the same financial institutions whose aggressive lending precipitated the financial crisis. The administration said in January that it would alter its arrangement with Citigroup by converting up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity. After the conversion, the Treasury would end up with about 36 percent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalizing a major bank.
Nationalization, or even just the hint of nationalization, is a politically explosive step that White House and Treasury officials have fought hard to avoid. Administration officials acknowledged that they might still have to ask Congress for extra money. Beyond the 19 big banks, which are defined as those with more than $100 billion in assets, the Treasury has also injected capital into hundreds of regional and community banks and may need to provide more money before the financial crisis is over. Treasury officials say they have more money left in the rescue fund than might be apparent. Officials estimate that the fund will have about $134.5 billion left after the Treasury completes its $100 billion plan to buy toxic assets from banks and after it uses $50 billion to help homeowners avoid foreclosure. In practice, the toxic-asset programs are not expected to start for another few months, and it could be more than a year before the Treasury uses up the entire $100 billion. Likewise, it will be at least a year before the Treasury uses up all the money budgeted for homeowners. But the biggest way to stretch funds could be to convert preferred shares to common stock, a strategy that the government seems prepared to use on a case-by-case basis. Ever since the Treasury agreed to restructure Citigroup’s loans, officials have made it clear that other banks could follow suit and convert their government loans to voting shares of common stock as well.
Setting yardsticks
In the stress tests now under way, regulators are examining whether the big banks would have enough capital to withstand an economic downturn in which unemployment climbs to 10 percent and housing prices fall much further than they already have. As their yardstick, regulators are expected to examine a measure of bank capital called “tangible common equity.” By that measure of capital, every dollar a bank converts from preferred to common shares becomes an additional dollar of capital. The 19 big banks have received more than $140 billion from the Treasury’s financial rescue fund, and all of that has been in exchange for nonvoting preferred shares that pay an annual interest rate of about 5 percent. If all the banks that are found to have a capital shortfall fill that gap by converting their shares, rather than by obtaining more cash, the Treasury could stretch its dwindling rescue fund by more than $100 billion. The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policy makers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers. Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall.
Copyright © 2009 The New York Times
Saturday, April 18, 2009
Thursday, April 16, 2009
Foreclosures 46% higher in March than a year ago
Stephanie Armour, USA Today
April 16, 2009
The number of homeowners facing foreclosure surged in March as lenders lifted temporary moratoriums and resumed legal actions against delinquent mortgage payers. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 341,180 properties in March, 46% more than a year ago and 17% above February's total, RealtyTrac reports today. One in 159 U.S. housing units received at least one foreclosure notice in the first quarter, for a total of 803,459, according to RealtyTrac, which lists foreclosed properties around the country. The sharp increase in foreclosures comes as the Obama administration is launching an effort to help as many as 9 million borrowers avoid foreclosure by modifying their loans or refinancing mortgages. Many lenders put a temporary freeze on foreclosures late last year while the administration prepared its program. Much of March's activity was in new foreclosure actions — bank repossessions fell 3% from February. With most of the moratoriums now lifted, bank repossessions are likely to start rising again. "I think we'll see foreclosures surge through the summer," said Mark Zandi, chief economist at Moody's Economy.com. The increasing number of jobless Americans is likely to accelerate the supply of foreclosures, which in turn will continue to pull down housing prices, economists say. "This report shows that the housing problems are not going away anytime soon," says Joel Naroff of Naroff Economic Advisors. "Supply from foreclosed homes coming on the market will continue to pressure prices through this year."
Highlights of RealtyTrac's report:
•Five states — California, Florida, Arizona, Nevada and Illinois — accounted for almost 60% of the first-quarter foreclosure activity.
•Nevada had the nation's highest state foreclosure rate in the first quarter — more than five times the national average. One in every 27 housing units received a foreclosure filing during the quarter, RealtyTrac reported.
•Arizona had the nation's second-highest state foreclosure rate for the first quarter, with one in 54 housing units receiving a foreclosure filing.
•California posted the nation's third-highest state foreclosure rate, with one in every 58 housing units receiving a foreclosure filing.
In addition to Florida and Illinois, the other states with foreclosure rates ranking among the top 10 in the first quarter were Michigan, Georgia, Idaho, Utah and Oregon.
April 16, 2009
The number of homeowners facing foreclosure surged in March as lenders lifted temporary moratoriums and resumed legal actions against delinquent mortgage payers. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 341,180 properties in March, 46% more than a year ago and 17% above February's total, RealtyTrac reports today. One in 159 U.S. housing units received at least one foreclosure notice in the first quarter, for a total of 803,459, according to RealtyTrac, which lists foreclosed properties around the country. The sharp increase in foreclosures comes as the Obama administration is launching an effort to help as many as 9 million borrowers avoid foreclosure by modifying their loans or refinancing mortgages. Many lenders put a temporary freeze on foreclosures late last year while the administration prepared its program. Much of March's activity was in new foreclosure actions — bank repossessions fell 3% from February. With most of the moratoriums now lifted, bank repossessions are likely to start rising again. "I think we'll see foreclosures surge through the summer," said Mark Zandi, chief economist at Moody's Economy.com. The increasing number of jobless Americans is likely to accelerate the supply of foreclosures, which in turn will continue to pull down housing prices, economists say. "This report shows that the housing problems are not going away anytime soon," says Joel Naroff of Naroff Economic Advisors. "Supply from foreclosed homes coming on the market will continue to pressure prices through this year."
Highlights of RealtyTrac's report:
•Five states — California, Florida, Arizona, Nevada and Illinois — accounted for almost 60% of the first-quarter foreclosure activity.
•Nevada had the nation's highest state foreclosure rate in the first quarter — more than five times the national average. One in every 27 housing units received a foreclosure filing during the quarter, RealtyTrac reported.
•Arizona had the nation's second-highest state foreclosure rate for the first quarter, with one in 54 housing units receiving a foreclosure filing.
•California posted the nation's third-highest state foreclosure rate, with one in every 58 housing units receiving a foreclosure filing.
In addition to Florida and Illinois, the other states with foreclosure rates ranking among the top 10 in the first quarter were Michigan, Georgia, Idaho, Utah and Oregon.
Tuesday, April 14, 2009
Texas declares independence
AUSTIN – Gov. Rick Perry today joined state Rep. Brandon Creighton and sponsors of House Concurrent Resolution (HCR) 50 in support of states’ rights under the 10th Amendment to the U.S. Constitution. “I believe that our federal government has become oppressive in its size, its intrusion into the lives of our citizens, and its interference with the affairs of our state,” Gov. Perry said. “That is why I am here today to express my unwavering support for efforts all across our country to reaffirm the states’ rights affirmed by the Tenth Amendment to the U.S. Constitution. I believe that returning to the letter and spirit of the U.S. Constitution and its essential 10th Amendment will free our state from undue regulations, and ultimately strengthen our Union.”A number of recent federal proposals are not within the scope of the federal government’s constitutionally designated powers and impede the states’ right to govern themselves. HCR 50 affirms that Texas claims sovereignty under the 10th Amendment over all powers not otherwise granted to the federal government. It also designates that all compulsory federal legislation that requires states to comply under threat of civil or criminal penalties, or that requires states to pass legislation or lose federal funding, be prohibited or repealed. HCR 50 is authored by Representatives Brandon Creighton, Leo Berman, Bryan Hughes, Dan Gattis and Ryan Guillen.To view the full text of the resolution, please visit: http://www.capitol.state.tx.us/tlodocs/81R/billtext/html/HC00050I.htm.
Bleak prediction for advertising
The forecast for advertising worldwide is a gloomy one
Worldwide advertising spending could fall by 6.9% this year to $453bn (£304bn), according to media agency Zenith Optimedia.
Worldwide advertising spending could fall by 6.9% this year to $453bn (£304bn), according to media agency Zenith Optimedia.
It put the decline down to the current economic problems, which it said had both hit corporate confidence and put consumers off making major buys.
The agency said newspapers would suffer most, with advertising revenues down 12%, as people turned to the internet. The internet would be the only medium to attract higher advertising spending. "Since we released our last forecasts in December the global ad market has taken a substantial turn for the worse," said Zenith Optimedia, whose own customers include British Airways, Hewlett Packard and Nestle. It predicted that television would boost its proportion of advertising budgets to 38.6% from 38.1%, but the total spent on TV advertising would fall by 5.5%. Zenith Optimedia also predicted that spending on internet advertising was set to rise 8.6% as shoppers hunt online bargains. Earlier this month online monitoring firm Hitwise found that visits to classified advertising websites were booming, with visits to such sites in the US up 84% on the same time last year. Newspapers have been particularly hit by the downturn, from smaller titles in the UK to large papers in the US. In February, Rupert Murdoch's News Corporation announced a $6.4bn quarterly loss, as falling advertising revenues forced it to cut $8.4bn from the value of assets.
Thursday, April 9, 2009
Why "quality" care is dangerous...
The Wall Street Journal
April 5, 2009
By JEROME GROOPMAN and PAMELA HARTZBAND
The Obama administration is working with Congress to mandate that all Medicare payments be tied to "quality metrics." But an analysis of this drive for better health care reveals a fundamental flaw in how quality is defined and metrics applied. In too many cases, the quality measures have been hastily adopted, only to be proven wrong and even potentially dangerous to patients. Health-policy planners define quality as clinical practice that conforms to consensus guidelines written by experts. The guidelines present specific metrics for physicians to meet, thus "quality metrics." Since 2003, the federal government has piloted Medicare projects at more than 260 hospitals to reward physicians and institutions that meet quality metrics. The program is called "pay-for-performance." Many private insurers are following suit with similar incentive programs. In Massachusetts, there are not only carrots but also sticks; physicians who fail to comply with quality guidelines from certain state-based insurers are publicly discredited and their patients required to pay up to three times as much out of pocket to see them. Unfortunately, many states are considering the Massachusetts model for their local insurance.
How did we get here? Initially, the quality improvement initiatives focused on patient safety and public-health measures. The hospital was seen as a large factory where systems needed to be standardized to prevent avoidable errors. A shocking degree of sloppiness existed with respect to hand washing, for example, and this largely has been remedied with implementation of standardized protocols. Similarly, the risk of infection when inserting an intravenous catheter has fallen sharply since doctors and nurses now abide by guidelines. Buoyed by these successes, governmental and private insurance regulators now have overreached. They've turned clinical guidelines for complex diseases into iron-clad rules, to deleterious effect. One key quality measure in the ICU became the level of blood sugar in critically ill patients. Expert panels reviewed data on whether ICU patients should have insulin therapy adjusted to tightly control their blood sugar, keeping it within the normal range, or whether a more flexible approach, allowing some elevation of sugar, was permissible. Expert consensus endorsed tight control, and this approach was embedded in guidelines from the American Diabetes Association. The Joint Commission on Accreditation of Healthcare Organizations, which generates report cards on hospitals, and governmental and private insurers that pay for care, adopted as a suggested quality metric this tight control of blood sugar. A colleague who works in an ICU in a medical center in our state told us how his care of the critically ill is closely monitored. If his patients have blood sugars that rise above the metric, he must attend what he calls "re-education sessions" where he is pointedly lectured on the need to adhere to the rule. If he does not strictly comply, his hospital will be downgraded on its quality rating and risks financial loss. His status on the faculty is also at risk should he be seen as delivering low-quality care.
But this coercive approach was turned on its head last month when the New England Journal of Medicine published a randomized study, by the Australian and New Zealand Intensive Care Society Clinical Trials Group and the Canadian Critical Care Trials Group, of more than 6,000 critically ill patients in the ICU. Half of the patients received insulin to tightly maintain their sugar in the normal range, and the other half were on a more flexible protocol, allowing higher sugar levels. More patients died in the tightly regulated group than those cared for with the flexible protocol. Similarly, maintaining normal blood sugar in ambulatory diabetics with vascular problems has been a key quality metric in assessing physician performance. Yet largely due to two extensive studies published in the June 2008 issue of the New England Journal of Medicine, this is now in serious doubt. Indeed, in one study of more than 10,000 ambulatory diabetics with cardiovascular diseases conducted by a group of Canadian and American researchers (the "ACCORD" study) so many diabetics died in the group where sugar was tightly regulated that the researchers discontinued the trial 17 months before its scheduled end. And just last month, another clinical trial contradicted the expert consensus guidelines that patients with kidney failure on dialysis should be given statin drugs to prevent heart attack and stroke. These and other recent examples show why rigid and punitive rules to broadly standardize care for all patients often break down. Human beings are not uniform in their biology. A disease with many effects on multiple organs, like diabetes, acts differently in different people. Medicine is an imperfect science, and its study is also imperfect. Information evolves and changes. Rather than rigidity, flexibility is appropriate in applying evidence from clinical trials. To that end, a good doctor exercises sound clinical judgment by consulting expert guidelines and assessing ongoing research, but then decides what is quality care for the individual patient. And what is best sometimes deviates from the norms.
Yet too often quality metrics coerce doctors into rigid and ill-advised procedures. Orwell could have written about how the word "quality" became zealously defined by regulators, and then redefined with each change in consensus guidelines. And Kafka could detail the recent experience of a pediatrician featured in Vital Signs, the member publication of the Massachusetts Medical Society. Out of the blue, according to the article, Dr. Ann T. Nutt received a letter in February from the Massachusetts Group Insurance Commission on Clinical Performance Improvement informing her that she was no longer ranked as Tier 1 but had fallen to Tier 3. (Massachusetts and some private insurers use a three-tier ranking system to incentivize high-quality care.) She contacted the regulators and insisted that she be given details to explain her fall in rating. After much effort, she discovered that in 127 opportunities to comply with quality metrics, she had met the standards 115 times. But the regulators refused to provide the names of patients who allegedly had received low quality care, so she had no way to assess their judgment for herself. The pediatrician fought back and ultimately learned which guidelines she had failed to follow. Despite her cogent rebuttal, the regulator denied the appeal and the doctor is still ranked as Tier 3. She continues to battle the state. Doubts about the relevance of quality metrics to clinical reality are even emerging from the federal pilot programs launched in 2003. An analysis of Medicare pay-for-performance for hip and knee replacement by orthopedic surgeons at 260 hospitals in 38 states published in the most recent March/April issue of Health Affairs showed that conforming to or deviating from expert quality metrics had no relationship to the actual complications or clinical outcomes of the patients. Similarly, a study led by UCLA researchers of over 5,000 patients at 91 hospitals published in 2007 in the Journal of the American Medical Association found that the application of most federal quality process measures did not change mortality from heart failure. State pay-for-performance programs also provide disturbing data on the unintended consequences of coercive regulation. Another report in the most recent Health Affairs evaluating some 35,000 physicians caring for 6.2 million patients in California revealed that doctors dropped noncompliant patients, or refused to treat people with complicated illnesses involving many organs, since their outcomes would make their statistics look bad. And research by the Brigham and Women's Hospital published last month in the Journal of the American College of Cardiology indicates that report cards may be pushing Massachusetts cardiologists to deny lifesaving procedures on very sick heart patients out of fear of receiving a low grade if the outcome is poor. Dr. David Sackett, a pioneer of "evidence-based medicine," where results from clinical trials rather than anecdotes are used to guide physician practice, famously said, "Half of what you'll learn in medical school will be shown to be either dead wrong or out of date within five years of your graduation; the trouble is that nobody can tell you which half -- so the most important thing to learn is how to learn on your own." Science depends upon such a sentiment, and honors the doubter and iconoclast who overturns false paradigms. Before a surgeon begins an operation, he must stop and call a "time-out" to verify that he has all the correct information and instruments to safely proceed. We need a national time-out in the rush to mandate what policy makers term quality care to prevent doing more harm than good.
Dr. Groopman, a staff writer for the New Yorker, and Dr. Hartzband are on the staff of Beth Israel Deaconess Medical Center in Boston and on the faculty of Harvard Medical School.
April 5, 2009
By JEROME GROOPMAN and PAMELA HARTZBAND
The Obama administration is working with Congress to mandate that all Medicare payments be tied to "quality metrics." But an analysis of this drive for better health care reveals a fundamental flaw in how quality is defined and metrics applied. In too many cases, the quality measures have been hastily adopted, only to be proven wrong and even potentially dangerous to patients. Health-policy planners define quality as clinical practice that conforms to consensus guidelines written by experts. The guidelines present specific metrics for physicians to meet, thus "quality metrics." Since 2003, the federal government has piloted Medicare projects at more than 260 hospitals to reward physicians and institutions that meet quality metrics. The program is called "pay-for-performance." Many private insurers are following suit with similar incentive programs. In Massachusetts, there are not only carrots but also sticks; physicians who fail to comply with quality guidelines from certain state-based insurers are publicly discredited and their patients required to pay up to three times as much out of pocket to see them. Unfortunately, many states are considering the Massachusetts model for their local insurance.
How did we get here? Initially, the quality improvement initiatives focused on patient safety and public-health measures. The hospital was seen as a large factory where systems needed to be standardized to prevent avoidable errors. A shocking degree of sloppiness existed with respect to hand washing, for example, and this largely has been remedied with implementation of standardized protocols. Similarly, the risk of infection when inserting an intravenous catheter has fallen sharply since doctors and nurses now abide by guidelines. Buoyed by these successes, governmental and private insurance regulators now have overreached. They've turned clinical guidelines for complex diseases into iron-clad rules, to deleterious effect. One key quality measure in the ICU became the level of blood sugar in critically ill patients. Expert panels reviewed data on whether ICU patients should have insulin therapy adjusted to tightly control their blood sugar, keeping it within the normal range, or whether a more flexible approach, allowing some elevation of sugar, was permissible. Expert consensus endorsed tight control, and this approach was embedded in guidelines from the American Diabetes Association. The Joint Commission on Accreditation of Healthcare Organizations, which generates report cards on hospitals, and governmental and private insurers that pay for care, adopted as a suggested quality metric this tight control of blood sugar. A colleague who works in an ICU in a medical center in our state told us how his care of the critically ill is closely monitored. If his patients have blood sugars that rise above the metric, he must attend what he calls "re-education sessions" where he is pointedly lectured on the need to adhere to the rule. If he does not strictly comply, his hospital will be downgraded on its quality rating and risks financial loss. His status on the faculty is also at risk should he be seen as delivering low-quality care.
But this coercive approach was turned on its head last month when the New England Journal of Medicine published a randomized study, by the Australian and New Zealand Intensive Care Society Clinical Trials Group and the Canadian Critical Care Trials Group, of more than 6,000 critically ill patients in the ICU. Half of the patients received insulin to tightly maintain their sugar in the normal range, and the other half were on a more flexible protocol, allowing higher sugar levels. More patients died in the tightly regulated group than those cared for with the flexible protocol. Similarly, maintaining normal blood sugar in ambulatory diabetics with vascular problems has been a key quality metric in assessing physician performance. Yet largely due to two extensive studies published in the June 2008 issue of the New England Journal of Medicine, this is now in serious doubt. Indeed, in one study of more than 10,000 ambulatory diabetics with cardiovascular diseases conducted by a group of Canadian and American researchers (the "ACCORD" study) so many diabetics died in the group where sugar was tightly regulated that the researchers discontinued the trial 17 months before its scheduled end. And just last month, another clinical trial contradicted the expert consensus guidelines that patients with kidney failure on dialysis should be given statin drugs to prevent heart attack and stroke. These and other recent examples show why rigid and punitive rules to broadly standardize care for all patients often break down. Human beings are not uniform in their biology. A disease with many effects on multiple organs, like diabetes, acts differently in different people. Medicine is an imperfect science, and its study is also imperfect. Information evolves and changes. Rather than rigidity, flexibility is appropriate in applying evidence from clinical trials. To that end, a good doctor exercises sound clinical judgment by consulting expert guidelines and assessing ongoing research, but then decides what is quality care for the individual patient. And what is best sometimes deviates from the norms.
Yet too often quality metrics coerce doctors into rigid and ill-advised procedures. Orwell could have written about how the word "quality" became zealously defined by regulators, and then redefined with each change in consensus guidelines. And Kafka could detail the recent experience of a pediatrician featured in Vital Signs, the member publication of the Massachusetts Medical Society. Out of the blue, according to the article, Dr. Ann T. Nutt received a letter in February from the Massachusetts Group Insurance Commission on Clinical Performance Improvement informing her that she was no longer ranked as Tier 1 but had fallen to Tier 3. (Massachusetts and some private insurers use a three-tier ranking system to incentivize high-quality care.) She contacted the regulators and insisted that she be given details to explain her fall in rating. After much effort, she discovered that in 127 opportunities to comply with quality metrics, she had met the standards 115 times. But the regulators refused to provide the names of patients who allegedly had received low quality care, so she had no way to assess their judgment for herself. The pediatrician fought back and ultimately learned which guidelines she had failed to follow. Despite her cogent rebuttal, the regulator denied the appeal and the doctor is still ranked as Tier 3. She continues to battle the state. Doubts about the relevance of quality metrics to clinical reality are even emerging from the federal pilot programs launched in 2003. An analysis of Medicare pay-for-performance for hip and knee replacement by orthopedic surgeons at 260 hospitals in 38 states published in the most recent March/April issue of Health Affairs showed that conforming to or deviating from expert quality metrics had no relationship to the actual complications or clinical outcomes of the patients. Similarly, a study led by UCLA researchers of over 5,000 patients at 91 hospitals published in 2007 in the Journal of the American Medical Association found that the application of most federal quality process measures did not change mortality from heart failure. State pay-for-performance programs also provide disturbing data on the unintended consequences of coercive regulation. Another report in the most recent Health Affairs evaluating some 35,000 physicians caring for 6.2 million patients in California revealed that doctors dropped noncompliant patients, or refused to treat people with complicated illnesses involving many organs, since their outcomes would make their statistics look bad. And research by the Brigham and Women's Hospital published last month in the Journal of the American College of Cardiology indicates that report cards may be pushing Massachusetts cardiologists to deny lifesaving procedures on very sick heart patients out of fear of receiving a low grade if the outcome is poor. Dr. David Sackett, a pioneer of "evidence-based medicine," where results from clinical trials rather than anecdotes are used to guide physician practice, famously said, "Half of what you'll learn in medical school will be shown to be either dead wrong or out of date within five years of your graduation; the trouble is that nobody can tell you which half -- so the most important thing to learn is how to learn on your own." Science depends upon such a sentiment, and honors the doubter and iconoclast who overturns false paradigms. Before a surgeon begins an operation, he must stop and call a "time-out" to verify that he has all the correct information and instruments to safely proceed. We need a national time-out in the rush to mandate what policy makers term quality care to prevent doing more harm than good.
Dr. Groopman, a staff writer for the New Yorker, and Dr. Hartzband are on the staff of Beth Israel Deaconess Medical Center in Boston and on the faculty of Harvard Medical School.
More States Look to Raise Taxes
APRIL 9, 2009
The Wall Street Journal
By LESLIE EATON
A free fall in tax revenue is driving more state lawmakers to turn to broad-based tax increases in a bid to close widening budget gaps. At least 10 states are considering some kind of major increase in sales or income taxes: Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin. California and New York lawmakers already have agreed on multibillion-dollar tax increases that went into effect earlier this year. Fiscal experts say more states are likely to try to raise tax revenue in coming months, especially once they tally the latest shortfalls from April 15 income-tax filings, often the biggest single source of funds for the 43 states that levy them. While most states so far have managed to cope with dwindling cash by cutting spending and raising fees on things such as fishing licenses and car registrations, that is unlikely to be enough in the new fiscal years that generally begin July 1, many analysts said. "Income taxes and sales taxes are the go-to taxes when you really need to raise a lot of money," said Donald J. Boyd, who monitors states' fiscal health for the Rockefeller Institute of Government in Albany, N.Y.
Sales-tax revenue has fallen more sharply than at any time in the past 50 years, Mr. Boyd said, and he expects income-tax collections to drop below levels state officials projected -- though the extent of the damage probably won't become clear until May. Raising taxes is a perilous proposition for lawmakers, who must balance their states' budgets every year. Not only do they face political heat for increasing financial burdens during the recession, but added taxes risk worsening their states' economic problems by, for example, further hobbling consumer spending. Some lawmakers say they have little choice. "With the size of our budget gap, we are looking at a situation of closing down our courts, releasing prisoners and cutting the school year by as much as a month," said Rep. Peter Buckley, co-chairman of Oregon's joint Ways and Means Committee.
His committee is considering an income-tax increase on high-earners, along with major budget cuts, to help close a projected $4.4 billion budget gap over the next two fiscal years. And things could get worse after a revenue forecast due out May 15, he said, because Oregon's unemployment rate has climbed to 10.8% and the state relies on income-tax revenue. Oregon Gov. Ted Kulongoski is likely to support the surcharge, said a spokeswoman , because the state is faced with losing as much as a third of its tax revenue. Legislators know the increases will be unpopular with residents. "There will be blame, we accept that," Sen. Eileen M. Daily of Connecticut said earlier this month when she and fellow Democrats announced a budget that raises income-tax rates and expands the sales tax to raise more than $3 billion over the next two years. Connecticut Gov. Jodi Rell, a Republican, has said she would veto the plan. But some governors are proposing tax increases. Delaware Gov. Jack Markell wants to raise the marginal income-tax rate by one percentage point, to 6.95%, on those earning more than $60,000 a year, effective in 2010. His budget plan also includes increases in corporate taxes as well as spending cuts to close a projected $750 million shortfall in a $3 billion budget, said spokesman Joe Rogalsky.
Many states remain determined to balance their budgets by relying solely on spending cuts. That is the case in Indiana, where raising revenue "is really not on the table," said Pat Bauer, the speaker of the state House. Instead, he hopes to tap the state's rainy-day fund and to produce a budget that covers only one year, rather than the usual two, because plunging revenue makes it impossible to forecast that far in advance. Tax collections have dropped drastically the past four months, according to Christopher A. Ruhl, director of the Indiana Budget Agency. Income-tax collections, which reflect withholding and estimated tax payments, fell 21% in March compared with last year and are down 7% for the fiscal year. States have lowered revenue forecasts repeatedly in recent months, yet the estimates still seem to exceed the grim reality. Last week, Pennsylvania officials said total March tax collections were $334.6 million, or 7.9%, short of expectations, due to sharp drops in income and sales taxes and a steep decline in corporate income taxes. For the fiscal year that began July 1, 2008, collections to date are running $1.6 billion less than forecast. This has led some experts, such as Nicholas Johnson of the left-leaning Center on Budget and Policy Priorities, to predict more legislatures will take up broad-based tax increases as early as May or June. "The problem," he said, "is that they are filling a hole that has gotten a little deeper."
Write to Leslie Eaton at leslie.eaton@wsj.com
The Wall Street Journal
By LESLIE EATON
A free fall in tax revenue is driving more state lawmakers to turn to broad-based tax increases in a bid to close widening budget gaps. At least 10 states are considering some kind of major increase in sales or income taxes: Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin. California and New York lawmakers already have agreed on multibillion-dollar tax increases that went into effect earlier this year. Fiscal experts say more states are likely to try to raise tax revenue in coming months, especially once they tally the latest shortfalls from April 15 income-tax filings, often the biggest single source of funds for the 43 states that levy them. While most states so far have managed to cope with dwindling cash by cutting spending and raising fees on things such as fishing licenses and car registrations, that is unlikely to be enough in the new fiscal years that generally begin July 1, many analysts said. "Income taxes and sales taxes are the go-to taxes when you really need to raise a lot of money," said Donald J. Boyd, who monitors states' fiscal health for the Rockefeller Institute of Government in Albany, N.Y.
Sales-tax revenue has fallen more sharply than at any time in the past 50 years, Mr. Boyd said, and he expects income-tax collections to drop below levels state officials projected -- though the extent of the damage probably won't become clear until May. Raising taxes is a perilous proposition for lawmakers, who must balance their states' budgets every year. Not only do they face political heat for increasing financial burdens during the recession, but added taxes risk worsening their states' economic problems by, for example, further hobbling consumer spending. Some lawmakers say they have little choice. "With the size of our budget gap, we are looking at a situation of closing down our courts, releasing prisoners and cutting the school year by as much as a month," said Rep. Peter Buckley, co-chairman of Oregon's joint Ways and Means Committee.
His committee is considering an income-tax increase on high-earners, along with major budget cuts, to help close a projected $4.4 billion budget gap over the next two fiscal years. And things could get worse after a revenue forecast due out May 15, he said, because Oregon's unemployment rate has climbed to 10.8% and the state relies on income-tax revenue. Oregon Gov. Ted Kulongoski is likely to support the surcharge, said a spokeswoman , because the state is faced with losing as much as a third of its tax revenue. Legislators know the increases will be unpopular with residents. "There will be blame, we accept that," Sen. Eileen M. Daily of Connecticut said earlier this month when she and fellow Democrats announced a budget that raises income-tax rates and expands the sales tax to raise more than $3 billion over the next two years. Connecticut Gov. Jodi Rell, a Republican, has said she would veto the plan. But some governors are proposing tax increases. Delaware Gov. Jack Markell wants to raise the marginal income-tax rate by one percentage point, to 6.95%, on those earning more than $60,000 a year, effective in 2010. His budget plan also includes increases in corporate taxes as well as spending cuts to close a projected $750 million shortfall in a $3 billion budget, said spokesman Joe Rogalsky.
Many states remain determined to balance their budgets by relying solely on spending cuts. That is the case in Indiana, where raising revenue "is really not on the table," said Pat Bauer, the speaker of the state House. Instead, he hopes to tap the state's rainy-day fund and to produce a budget that covers only one year, rather than the usual two, because plunging revenue makes it impossible to forecast that far in advance. Tax collections have dropped drastically the past four months, according to Christopher A. Ruhl, director of the Indiana Budget Agency. Income-tax collections, which reflect withholding and estimated tax payments, fell 21% in March compared with last year and are down 7% for the fiscal year. States have lowered revenue forecasts repeatedly in recent months, yet the estimates still seem to exceed the grim reality. Last week, Pennsylvania officials said total March tax collections were $334.6 million, or 7.9%, short of expectations, due to sharp drops in income and sales taxes and a steep decline in corporate income taxes. For the fiscal year that began July 1, 2008, collections to date are running $1.6 billion less than forecast. This has led some experts, such as Nicholas Johnson of the left-leaning Center on Budget and Policy Priorities, to predict more legislatures will take up broad-based tax increases as early as May or June. "The problem," he said, "is that they are filling a hole that has gotten a little deeper."
Write to Leslie Eaton at leslie.eaton@wsj.com
Wednesday, April 8, 2009
Tuesday, April 7, 2009
Wall Street's Next Crisis: Commercial Real Estate
by Jesse Eisinger
Now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property. Commercial-real-estate developers are in for
Despite their misgivings, the ratings agencies kept slapping seals of approval on commercial-real-estate structures. Just as they did when rating securities containing residential mortgages, the agencies relied heavily on recent historical data, which were misleading. Such transactions are designed so that investors who take on the most risk stand to get wiped out first. What happened is that the level of cushioning shrank dramatically, meaning damage from bad loans will seep into higher-rated tranches more quickly than generally expected. To its credit, Moody's started requiring higher levels of protection in the spring of 2007. S&P and Fitch, according to a J.P. Morgan analysis, lagged significantly—and won market share as a result. Those two will come to regret that they didn't respond faster to the Moody's move. And of course, those stuck with the paper won't be able to ignore what they bought during the frothy times, when commercial-real-estate structured finance became a big, lucrative business for Wall Street. As financial firms pushed these securities out the door, the structures took on alarming qualities. As Todd explains, in the early part of the decade, commercial-mortgage-backed-securities deals rarely had any one loan that was so big it dominated the pool. But in recent years, the top 15 loans in a 200-loan pool could make up 40 to 65 percent of the pool's total value. In the old days, any single default wouldn't hurt a structure disproportionately. That's no longer true. Investors and ratings agencies haven't fully appreciated how hairy these structures have become, according to some commercial-mortgage experts. Todd calls this blindness to risk the agencies' and investors' "biggest mistake" with regard to commercial real estate. "You are disproportionately exposed to the largest loans.... It's been so good for so long, we don't have models set up to look at defaults properly," he says.In recent months, as real estate developers have scrambled for funding from lenders, a standoff has developed. The banks haven't been able to find buyers for structured financial products. At some point, the banks will have to come down in price, and then they will take losses, just as they have with leveraged loans made to corporations being taken over by private equity. Since the losses haven't happened yet and since we've reached the end of a very good year in commercial real estate, Wall Street is understandably reluctant to face reality. Why take losses that will eat into this year's bonuses if you can take the losses next year, when, as everyone knows, the market will be bad?We've seen this throughout the financial markets in 2007. This has been the season of see no evil, hear no evil, speak no evil—until you absolutely have to. But you can't hold off losses forever, as the huge write-offs at banks have demonstrated. Through the first nine months of 2007, Wachovia was by far the top contributor of loans in the commercial-real-estate-structures business, followed by Lehman, Credit Suisse, Morgan Stanley, and J.P. Morgan, according to Commercial Mortgage Alert. Now the firms are sitting on those loans, waiting to unload them. "The problem is there are no buyers. Nobody wants to take a really big loss and jump the gun too quickly," an investment professional at a commercial-real-estate investment trust told me. "There's a game of chicken going on." A few weeks ago, a hedge fund manager emailed me a PowerPoint presentation on the commercial-real-estate market. It opened with a typically dry title: "2008 C.M.B.S. Forecast."I clicked through to the first page, "Capital Markets." It had a picture of a derailed train. The next page, "Credit Fundamentals," included a photo of a bridge collapsing in a hurricane. Next came "Property Values," featuring an imploding skyscraper. The fourth page was "Economic Outlook"—a ship run aground on the rocks.And the slide titled "Conclusion"? A photo of the exploding Hindenburg.
Now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property. Commercial-real-estate developers are in for
the same trauma as many homeowners.
Conde Nast Portfolio
So far, the current credit crisis has zeroed in on mortgages for the less affluent. But easy credit was a sprawling millipede whose wobbly legs reached into the farthest corners of the financial markets. This is the year the other 999 shoes start to drop.Any loan to any borrower can begin to seem subprime if there's too little down and too much debt. And that, unfortunately, brings us to the commercial-real-estate market.For the past several years, the market for commercial property—offices, malls, apartment buildings, industrial plants, warehouses, and the like—has enjoyed the very best of times. Prices soared, and lenders lent readily. Owners had no problem meeting their payments. By early 2007, delinquencies had fallen to record lows. In their own way, however, commercial-real-estate loans were no less foolish than those made to home buyers with speckled credit. And as with the subprime mess, the reckoning will come. Just like what happened in other sectors already hit by the credit crunch, these loans will cause problems that will probably find their way beyond the obvious players in the commercial-real-estate market. Judging by the aspects of the credit crisis we've already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate. The implosion is going to be a refreshingly simple and familiar story. The commercial-real-estate frenzy has none of the nagging complications found in the residential market. There aren't any targets of predatory lending. There are no huge failures by government regulators. The aftermath won't see people thrown out of their homes—an unadulterated societal ill regardless of whether they should have known better or were tricked into taking on loans they couldn't afford.Let's make it clear up front: The commercial-real-estate blowup—while ugly—won't be as bad as the current housing crisis. It's a smaller market, and any single property often has a diversified group of tenants with different sources of income. The supply of buildings didn't increase dramatically over the past several years, as in residential real estate. And the losses won't be as severe, because many commercial spaces can be refashioned for new occupants.But there will be trouble, in part because of the rise of the untested commercial-real-estate structured-finance market. Just as with residential mortgages, Wall Street banks package commercial-real-estate loans, slicing them up into tranches according to risk and parceling them out to a range of investors. In 1995, $15.7 billion worth of commercial-mortgage-backed securities were issued. Through the third quarter of 2007, $196.9 billion was issued, according to Commercial Mortgage Alert, a trade publication. That amount means 2007 will be a record year, even though issuance collapsed in the fourth quarter as investors panicked over the credit crunch. Right now, there is about $730 billion in commercial-mortgage-backed securities outstanding. "Not only have we been in a rising tide, but the loans are very different in underwriting standards than even five or 10 years ago," says Alan Todd, head of commercial-mortgage-backed-securities research at J.P. Morgan. "We haven't been through a cycle yet" with these new structures, he adds ominously.
The perennial lesson to be drawn from the coming slump: You can't protect greedy and myopic people from themselves. With residential mortgages, one of the most persistent myths to take hold in recent years was that home prices on a national level had never decreased in a given year. That wasn't true, but perhaps we can forgive people for being hopeful.The commercial-real-estate market has no such excuses. Everyone knew that the business is highly cyclical. Indeed, a huge downturn had occurred as recently as the early 1990s, within the memory of most of the professionals now in the market. Amid the tall office spires of America's cities, big-money pros have simply been playing a game of greater fool, trying to bring in huge returns with borrowed money and sell out before the arrival of the crash they knew was coming. And in this case, the fools won't just be famous developers. Some of the same banks and Wall Street firms now entangled in the subprime residential crisis will also be caught in the mess. The commercial-real-estate meltdown will be a market failure, pure and simple. We will be able to look at the wreckage in the next several years with wonder and awe, untroubled this time by sympathy for those left holding the bag.Here's what we know about what happened in commercial real estate: Lending standards fell, starkly. Or as I prefer to see it, they were thrown out of the 60th-floor window of that gleaming office tower in downtown Atlanta/Phoenix/New York/San Francisco/insert your city here. The gap between the cost of debt servicing and the cash actually being generated by the buildings narrowed. What's more, it used to be that banks made loans for no more than 80 percent of the value of a property to ensure a healthy cushion of protection, but by the early part of 2007, loans were sometimes made for 120 percent of a property's value. Who would be so crazy as to lend more than a property is worth? Anyone who believes in perpetual-motion machines—that is, that rents and underlying property values must always go up.A prime example is Tishman Speyer Properties, which paid a record price for two giant New York apartment complexes. To make the purchase work, the company must now figure out a way to kick out current tenants—many of whom have their rents stabilized by law—at a faster rate than has been managed in years past, in order to replace them with ones who will pay more. Historically, that turnover has been about 6 percent, says Todd, but Tishman Speyer is assuming a rate of more than double that for the first couple of years, and 10 percent for the next few after that.Free money frothed up the market. The clear top—as clear at the time as it is in hindsight—was when real estate mogul Sam Zell sold his Equity Office Properties to the Blackstone Group, a private equity firm. Blackstone had entered into a bidding war with Vornado Realty Trust for E.O.P. and ended up paying much more than it had initially bid. Yet Blackstone managed to unload so many E.O.P. properties so fast that the deal looks brilliant. The bag holders are ultimately the ones who will appear foolish. Indeed, in a sign of things to come, one titan already does: Harry Macklowe, a famed New York real estate buccaneer, leveraged himself to the gills to buy seven New York office buildings from E.O.P., a side agreement to the Blackstone purchase. He borrowed $7.6 billion, based on stratospheric valuations, while putting a minuscule $50 million of his own equity into the deal, financing much of the purchase with short-term debt. Since the summer, Macklowe has struggled to refinance the debt in increasingly choppy markets. And he has had to put up as collateral his trophy property, the General Motors Building in midtown Manhattan.Lending standards had been loosening across the industry for years. Standard & Poor's and Moody's both voiced early concerns in late 2004 and the beginning of 2005. Sure, "supply and demand is in balance, but that's not a license to loan more money against a given cash flow," says Tad Philipp, Moody's managing director of commercial-mortgage finance. "What we were seeing was riskier and riskier loans, and the loans got riskier still. And we are just past the top of the cycle."
Despite their misgivings, the ratings agencies kept slapping seals of approval on commercial-real-estate structures. Just as they did when rating securities containing residential mortgages, the agencies relied heavily on recent historical data, which were misleading. Such transactions are designed so that investors who take on the most risk stand to get wiped out first. What happened is that the level of cushioning shrank dramatically, meaning damage from bad loans will seep into higher-rated tranches more quickly than generally expected. To its credit, Moody's started requiring higher levels of protection in the spring of 2007. S&P and Fitch, according to a J.P. Morgan analysis, lagged significantly—and won market share as a result. Those two will come to regret that they didn't respond faster to the Moody's move. And of course, those stuck with the paper won't be able to ignore what they bought during the frothy times, when commercial-real-estate structured finance became a big, lucrative business for Wall Street. As financial firms pushed these securities out the door, the structures took on alarming qualities. As Todd explains, in the early part of the decade, commercial-mortgage-backed-securities deals rarely had any one loan that was so big it dominated the pool. But in recent years, the top 15 loans in a 200-loan pool could make up 40 to 65 percent of the pool's total value. In the old days, any single default wouldn't hurt a structure disproportionately. That's no longer true. Investors and ratings agencies haven't fully appreciated how hairy these structures have become, according to some commercial-mortgage experts. Todd calls this blindness to risk the agencies' and investors' "biggest mistake" with regard to commercial real estate. "You are disproportionately exposed to the largest loans.... It's been so good for so long, we don't have models set up to look at defaults properly," he says.In recent months, as real estate developers have scrambled for funding from lenders, a standoff has developed. The banks haven't been able to find buyers for structured financial products. At some point, the banks will have to come down in price, and then they will take losses, just as they have with leveraged loans made to corporations being taken over by private equity. Since the losses haven't happened yet and since we've reached the end of a very good year in commercial real estate, Wall Street is understandably reluctant to face reality. Why take losses that will eat into this year's bonuses if you can take the losses next year, when, as everyone knows, the market will be bad?We've seen this throughout the financial markets in 2007. This has been the season of see no evil, hear no evil, speak no evil—until you absolutely have to. But you can't hold off losses forever, as the huge write-offs at banks have demonstrated. Through the first nine months of 2007, Wachovia was by far the top contributor of loans in the commercial-real-estate-structures business, followed by Lehman, Credit Suisse, Morgan Stanley, and J.P. Morgan, according to Commercial Mortgage Alert. Now the firms are sitting on those loans, waiting to unload them. "The problem is there are no buyers. Nobody wants to take a really big loss and jump the gun too quickly," an investment professional at a commercial-real-estate investment trust told me. "There's a game of chicken going on." A few weeks ago, a hedge fund manager emailed me a PowerPoint presentation on the commercial-real-estate market. It opened with a typically dry title: "2008 C.M.B.S. Forecast."I clicked through to the first page, "Capital Markets." It had a picture of a derailed train. The next page, "Credit Fundamentals," included a photo of a bridge collapsing in a hurricane. Next came "Property Values," featuring an imploding skyscraper. The fourth page was "Economic Outlook"—a ship run aground on the rocks.And the slide titled "Conclusion"? A photo of the exploding Hindenburg.
The 15 BIGGEST, WORST, BEST ...
...Biggest holders of US government debt.
...Safest banks in the world.
...Comanies at greatest risk of defaulting
...Safest banks in the world.
...Comanies at greatest risk of defaulting
Local Detroit cash keeps hometown humming
Monday, March 23, 2009
The Detroit News
During the Great Depression eight decades ago, confidence in the national economy was so shattered, and people's ability to earn cash so limited, that thousands of communities created local currencies to save hometown commerce. Provincial dollars allowed businesses and their customers to exchange goods and services with currency that had regional worth. A Detroit trio of small-business owners are reviving the idea, following an emerging national trend. The businesses are creating a currency called Detroit Cheers, and more than a dozen city merchants have already agreed to accept it as real money. "The world is just now reeling from economic chaos; in Detroit, that's how we always roll," said Jerry Belanger, 49, a backer of the currency, as he watched the initial run of Cheers bills roll off the presses last week. In Detroit, the jobless rate is 22.2 percent. The median sale price of a home is cheaper than a Chevrolet Aveo. Two of Detroit's Big Three automakers are surviving on federal loans amid the global recession. "That doesn't mean you can't do business in Detroit -- you can. But, man, you have to support one another or you will die," said Belanger, who owns the Park Bar and Bucharest Grill and the building that houses the Cliff Bells jazz club near the Fox Theatre and Comerica Park. Detroit Cheers joins an estimated 75 local currency systems that have sprung up recently in the U.S., said Michael Shuman, author of "The Small-Mart Revolution: How Local Businesses Are Beating the Global Competition." That includes Traverse City, where more than a 100 businesses and institutions accept "Bay Bucks" as currency. Local money is a direct response to the national economic crisis, Shuman said. "The federal government is desperately trying to restore consumer confidence. This is a community doing the same thing, only in miniature. They are trying to pump up local demand and revive their community's health." Legal scholars say local currency is permitted as long as it doesn't resemble federally issued money. Belanger's partners in the Detroit experiment are John Linardos, owner of Motor City Brewing Works, and Tim Tharp, owner of Grand Trunk Pub, formerly Foran's Irish Pub. The three are backing the Cheers money -- which will come in $3 denominations -- with 3,000 U.S. dollars, and they put the federal money in an escrow account. Those who have agreed to accept the Detroit money include a building and furniture design firm called Dormouse, the Canine to Five dog day care center, a graphics designer, a carpenter, a nonprofit and several restaurants and bars. And this is just through word-of-mouth: The three Cheers backers have not formally begun to pitch the idea to others, to see just how much it can grow. The goal is to keep business flowing in their hometown and not have it be ferried off to suburbia or some corporate headquarters in Arkansas or Tokyo. The business owners intend to give the Detroit currency to businesses and individuals they know will spend it at participating businesses. If anyone wants to cash in the Cheers bills for U.S. dollars, one of the founders of the Detroit currency will give the person the real thing. "There's no question in my mind this has real value," said Billy West, a co-owner of Dormouse. With the currency, he said, "I can get a good meal, I can get a beer, I can help another Detroit business. That is money to me. To keep commerce in Detroit, I totally support that goal." Traverse City's Bay Bucks program started four years ago. Today, there's more than $13,000 worth of the currency circulating in the community, said Stephanie Mills, one of the creators of the program. Beyond restaurants and bars, a local grocery store accepts the Bay Bucks; so do a bed and breakfast inn, a winery, a physician, an attorney, an accountant and tarot card readers, Mills said. Among the largest of local currencies is BerkShares, launched three years ago in the rural Berkshires area of southern Massachusetts. Nearly $2 million worth of local currency is circulating among businesses and private individuals, said Susan Witt, who sits on the board of the BerkShares program. "It reformed the way many business owners and residents think about their local economy and helped educate the community on why shopping locally matters," she said. "The current national economy has only increased the use of BerkShares."
Nation's economic crisis prompts group to jump-start
local economy with own bills.
Louis AguilarThe Detroit News
During the Great Depression eight decades ago, confidence in the national economy was so shattered, and people's ability to earn cash so limited, that thousands of communities created local currencies to save hometown commerce. Provincial dollars allowed businesses and their customers to exchange goods and services with currency that had regional worth. A Detroit trio of small-business owners are reviving the idea, following an emerging national trend. The businesses are creating a currency called Detroit Cheers, and more than a dozen city merchants have already agreed to accept it as real money. "The world is just now reeling from economic chaos; in Detroit, that's how we always roll," said Jerry Belanger, 49, a backer of the currency, as he watched the initial run of Cheers bills roll off the presses last week. In Detroit, the jobless rate is 22.2 percent. The median sale price of a home is cheaper than a Chevrolet Aveo. Two of Detroit's Big Three automakers are surviving on federal loans amid the global recession. "That doesn't mean you can't do business in Detroit -- you can. But, man, you have to support one another or you will die," said Belanger, who owns the Park Bar and Bucharest Grill and the building that houses the Cliff Bells jazz club near the Fox Theatre and Comerica Park. Detroit Cheers joins an estimated 75 local currency systems that have sprung up recently in the U.S., said Michael Shuman, author of "The Small-Mart Revolution: How Local Businesses Are Beating the Global Competition." That includes Traverse City, where more than a 100 businesses and institutions accept "Bay Bucks" as currency. Local money is a direct response to the national economic crisis, Shuman said. "The federal government is desperately trying to restore consumer confidence. This is a community doing the same thing, only in miniature. They are trying to pump up local demand and revive their community's health." Legal scholars say local currency is permitted as long as it doesn't resemble federally issued money. Belanger's partners in the Detroit experiment are John Linardos, owner of Motor City Brewing Works, and Tim Tharp, owner of Grand Trunk Pub, formerly Foran's Irish Pub. The three are backing the Cheers money -- which will come in $3 denominations -- with 3,000 U.S. dollars, and they put the federal money in an escrow account. Those who have agreed to accept the Detroit money include a building and furniture design firm called Dormouse, the Canine to Five dog day care center, a graphics designer, a carpenter, a nonprofit and several restaurants and bars. And this is just through word-of-mouth: The three Cheers backers have not formally begun to pitch the idea to others, to see just how much it can grow. The goal is to keep business flowing in their hometown and not have it be ferried off to suburbia or some corporate headquarters in Arkansas or Tokyo. The business owners intend to give the Detroit currency to businesses and individuals they know will spend it at participating businesses. If anyone wants to cash in the Cheers bills for U.S. dollars, one of the founders of the Detroit currency will give the person the real thing. "There's no question in my mind this has real value," said Billy West, a co-owner of Dormouse. With the currency, he said, "I can get a good meal, I can get a beer, I can help another Detroit business. That is money to me. To keep commerce in Detroit, I totally support that goal." Traverse City's Bay Bucks program started four years ago. Today, there's more than $13,000 worth of the currency circulating in the community, said Stephanie Mills, one of the creators of the program. Beyond restaurants and bars, a local grocery store accepts the Bay Bucks; so do a bed and breakfast inn, a winery, a physician, an attorney, an accountant and tarot card readers, Mills said. Among the largest of local currencies is BerkShares, launched three years ago in the rural Berkshires area of southern Massachusetts. Nearly $2 million worth of local currency is circulating among businesses and private individuals, said Susan Witt, who sits on the board of the BerkShares program. "It reformed the way many business owners and residents think about their local economy and helped educate the community on why shopping locally matters," she said. "The current national economy has only increased the use of BerkShares."
Communities print their own currency to keep cash flowing
By Marisol Bello, USA TODAY
A small but growing number of cash-strapped communities are printing their own money.
Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses. The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency. Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts. Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash. "We wanted to make new options available," says Jackie Smith of South Bend, Ind., who is working to launch a local currency. "It reinforces the message that having more control of the economy in local hands can help you cushion yourself from the blows of the marketplace."
About a dozen communities have local currencies, says Susan Witt, founder of BerkShares in the Berkshires region of western Massachusetts. She expects more to do it. Under the BerkShares system, a buyer goes to one of 12 banks and pays $95 for $100 worth of BerkShares, which can be spent in 370 local businesses. Since its start in 2006, the system, the largest of its kind in the country, has circulated $2.3 million worth of BerkShares. In Detroit, three business owners are printing $4,500 worth of Detroit Cheers, which they are handing out to customers to spend in one of 12 shops. During the Depression, local governments, businesses and individuals issued currency, known as scrip, to keep commerce flowing when bank closings led to a cash shortage.
By law, local money may not resemble federal bills or be promoted as legal tender of the United States, says Claudia Dickens of the Bureau of Engraving and Printing. "We print the real thing," she says. The IRS gets its share. When someone pays for goods or services with local money, the income to the business is taxable, says Tom Ochsenschlager of the American Institute of Certified Public Accountants. "It's not a way to avoid income taxes, or we'd all be paying in Detroit dollars," he says. Pittsboro, N.C., is reviving the Plenty, a defunct local currency created in 2002. It is being printed in denominations of $1, $5, $20 and $50. A local bank will exchange $9 for $10 worth of Plenty. "We're a wiped-out small town in America," says Lyle Estill, president of Piedmont Biofuels, which accepts the Plenty. "This will strengthen the local economy. ... The nice thing about the Plenty is that it can't leave here."
A small but growing number of cash-strapped communities are printing their own money.
Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses. The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency. Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts. Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash. "We wanted to make new options available," says Jackie Smith of South Bend, Ind., who is working to launch a local currency. "It reinforces the message that having more control of the economy in local hands can help you cushion yourself from the blows of the marketplace."
About a dozen communities have local currencies, says Susan Witt, founder of BerkShares in the Berkshires region of western Massachusetts. She expects more to do it. Under the BerkShares system, a buyer goes to one of 12 banks and pays $95 for $100 worth of BerkShares, which can be spent in 370 local businesses. Since its start in 2006, the system, the largest of its kind in the country, has circulated $2.3 million worth of BerkShares. In Detroit, three business owners are printing $4,500 worth of Detroit Cheers, which they are handing out to customers to spend in one of 12 shops. During the Depression, local governments, businesses and individuals issued currency, known as scrip, to keep commerce flowing when bank closings led to a cash shortage.
By law, local money may not resemble federal bills or be promoted as legal tender of the United States, says Claudia Dickens of the Bureau of Engraving and Printing. "We print the real thing," she says. The IRS gets its share. When someone pays for goods or services with local money, the income to the business is taxable, says Tom Ochsenschlager of the American Institute of Certified Public Accountants. "It's not a way to avoid income taxes, or we'd all be paying in Detroit dollars," he says. Pittsboro, N.C., is reviving the Plenty, a defunct local currency created in 2002. It is being printed in denominations of $1, $5, $20 and $50. A local bank will exchange $9 for $10 worth of Plenty. "We're a wiped-out small town in America," says Lyle Estill, president of Piedmont Biofuels, which accepts the Plenty. "This will strengthen the local economy. ... The nice thing about the Plenty is that it can't leave here."
Mortgage delinquencies soar in the U.S.
Tue Apr 7, 2009
By Helen Chernikoff
NEW YORK (Reuters) - More U.S. consumers are falling behind on their mortgages, an indication that the housing market has yet to hit bottom, a top credit bureau executive told Reuters. Dann Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier. He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year. "I'm trying to find optimism in these numbers, but I'm pretty hard pressed to do that," Adams said, despite a recent burst of relatively positive news that has fueled hope that the U.S. housing market has turned a corner. Late last month the Commerce Department reported that sales of newly built U.S. single-family homes rose to a 337,000 annual pace in February, the highest in 10 months. Such news has boosted homebuilder shares, which are up about 45 percent since March 6, according to the Dow Jones U.S. Home Construction Index. But Adams said the continued increase in mortgage delinquencies revealed in his data foreshadows more foreclosures, short sales and home price declines as homeowners default and banks then repossess the homes to sell them at deep discounts.
LIFELINE OF CREDIT
The Equifax data also reveals the impact of the rise in unemployment, which is at its highest rate since 1983. Employers cut 663,000 jobs in March, sending the national unemployment rate to 8.5 percent, the Labor Department said on Friday. The rising jobless rate manifests itself in consumers' increasing reliance on credit cards even as lenders try to restrict access to credit, Adams said. Banks closed 8 million credit card accounts in February, reducing the number of open cards to 400 million from a July 2008 peak of 483 million, according to Equifax data.
Credit limits fell as well, to $3.27 trillion in February from a July 2008 peak of $3.59 trillion.
"Limits are falling because lenders are trying to minimize their losses," Adams said.
The data shows that lenders have good reason to be wary. Bank card delinquency is at its highest level in the past five years. Some 4.5 percent of total balances on bank-issued credit cards were at 60 days past due in February, a 32.7 percent increase from a year earlier.
"Their credit card is their lifeline," he said.
Additional reporting by Lucia Mutikani; Editing by Steve Orlofsky
By Helen Chernikoff
NEW YORK (Reuters) - More U.S. consumers are falling behind on their mortgages, an indication that the housing market has yet to hit bottom, a top credit bureau executive told Reuters. Dann Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier. He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year. "I'm trying to find optimism in these numbers, but I'm pretty hard pressed to do that," Adams said, despite a recent burst of relatively positive news that has fueled hope that the U.S. housing market has turned a corner. Late last month the Commerce Department reported that sales of newly built U.S. single-family homes rose to a 337,000 annual pace in February, the highest in 10 months. Such news has boosted homebuilder shares, which are up about 45 percent since March 6, according to the Dow Jones U.S. Home Construction Index. But Adams said the continued increase in mortgage delinquencies revealed in his data foreshadows more foreclosures, short sales and home price declines as homeowners default and banks then repossess the homes to sell them at deep discounts.
LIFELINE OF CREDIT
The Equifax data also reveals the impact of the rise in unemployment, which is at its highest rate since 1983. Employers cut 663,000 jobs in March, sending the national unemployment rate to 8.5 percent, the Labor Department said on Friday. The rising jobless rate manifests itself in consumers' increasing reliance on credit cards even as lenders try to restrict access to credit, Adams said. Banks closed 8 million credit card accounts in February, reducing the number of open cards to 400 million from a July 2008 peak of 483 million, according to Equifax data.
Credit limits fell as well, to $3.27 trillion in February from a July 2008 peak of $3.59 trillion.
"Limits are falling because lenders are trying to minimize their losses," Adams said.
The data shows that lenders have good reason to be wary. Bank card delinquency is at its highest level in the past five years. Some 4.5 percent of total balances on bank-issued credit cards were at 60 days past due in February, a 32.7 percent increase from a year earlier.
"Their credit card is their lifeline," he said.
Additional reporting by Lucia Mutikani; Editing by Steve Orlofsky
Monday, April 6, 2009
Bernanke ‘Green Shoots’ May Signal False Spring Amid Job Losses
By Shobhana Chandra and Matthew Benjamin
April 6 (Bloomberg) -- It will be months before it’s clear whether what Federal Reserve Chairman Ben S. Bernanke calls the U.S. economy’s “green shoots” represent the early onset of recovery, or a false spring. The Labor Department’s April 3 report that the economy shed an additional 663,000 jobs last month, while the unemployment rate rose to 8.5 percent, will be followed by months more of bad-news headlines, economists say. The recession, now in its 17th month, has already cost 5.1 million Americans their jobs, the worst drop in the postwar era; unemployment may hit 9.4 percent this year, according to the median estimate in a Bloomberg News survey, and may top out above 10 percent in 2010. The risk is that the jobs picture turns even more bleak than forecast or the drumbeat of bad news still to come causes consumers, whose spending has firmed up in recent months, to hunker down again. “If something happens to spook consumers and they crawl back into their tortoise shells, that would be terrible news,” says Alan Blinder, former Fed vice chairman and now an economics professor at Princeton University. Consumer spending, which accounts for more than 70 percent of the economy, rose 0.2 percent in February after climbing 1 percent in January, breaking a six-month string of declines. “Whether the little wisps of improvement in spending are sustained needs watching,” says Stephen Stanley, chief economist at RBS Securities Inc. in Greenwich, Connecticut.
Interest Rates
Declining interest rates on mortgages and business loans led Bernanke, 55, to tell CBS Corp.’s “60 Minutes” on March 15 that he sees “green shoots” in some financial markets, and that the pace of economic decline “will begin to moderate.” Fueled by optimism that the economy may finally be stabilizing, the Standard & Poor’s 500 Index last month gained 8.5 percent, the most in seven years. Still, “I would be careful about chasing this rally,” Jason Trennert, chief investment strategist at Strategas Research Partners in New York, said in a March 27 interview. With the Obama administration borrowing to finance record budget deficits, U.S. debt sales will almost triple this year to a record $2.5 trillion, according to estimates from Goldman Sachs Group Inc. The borrowings may send 10-year yields as high as 6 percent by the end of 2010 from 2.9 percent on April 4, Trennert says, adding that it’s “hard to get optimistic” about stock prices “if you’re in a situation where it’s reasonable to expect long- term interest rates to be higher.”
Stock-Price Plunge
Another plunge in stock prices is just one of the things economists say might derail any recovery. Others include the disorderly collapse of General Motors Corp., Chrysler LLC or a major financial firm; or the failure of the Obama administration’s bank-rescue plan. A one-month jump in the jobless rate of more than 0.6 percentage point would be a severe blow to confidence, says Alan Blinder, former Fed vice chairman and now an economics professor at Princeton University. So would monthly job losses that continue to top 600,000 into the second half of the year, says Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. Payrolls have been shrinking by more than that every month since December. Losses need to come down below 500,000 in the next few months and drop close to 100,000 by year-end to confirm that the worst of the recession is over, Zandi says. “If we continue to lose 600,000-plus jobs a month, that will burn out those green shoots pretty quickly,” he says. “If you lose jobs like that, it continues to undermine consumer spending and confidence.”
‘Head Fake’
Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG in New York, says he wouldn’t be surprised to see a first- quarter gain in consumer spending that “may turn out to be a head fake, which isn’t uncommon in a recession.” Spending might turn lower in the current quarter before stabilizing in the second half, he says. If consumers retrench, “you’d be looking at a very negative scenario again,” says David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York. Hensley is watching the savings rate, which reached 4.4 percent of disposable income in January after hovering below 1 percent for most of the past four years. Any further surge in savings would indicate that Americans are still avoiding big purchases.
‘Not Enough Income’
“There’s just not enough income in the system to support both an increase in the savings rate and stable consumer spending,” Hensley says. First-quarter earnings reports from Citigroup Inc. on April 17 and Bank of America Corp. on April 20 will be among early signposts. Those will be followed at the end of the month by the Treasury Department’s “stress tests” of the two firms and other major banks to identify which ones need additional capital. Citigroup and Bank of America both reported a strong start to the year, and a rally in their shares last week helped send stock indexes to their highest levels since early February. Disappointing quarterly results might quickly reverse those gains. What’s more, Stanley says, stress tests showing more than a few banks are too frail to continue would trigger wider credit spreads and tighter lending conditions. The so-called TED spread, the gap between what banks and the Treasury pay to borrow for three months, ended last week at 95.5 basis points, close to the low for 2009 of 90 basis points, reached Feb. 10.
Triple the Level
While that’s down from the peak of 463 basis points on Oct. 10, 2008, it’s still triple the level of two years ago, before the recession began. The Obama administration is also looking for a solution in the next two months to the auto industry’s woes, perhaps through a merger for Chrysler and a quick and orderly bankruptcy filing for General Motors. The administration has given Chrysler until May 1 to complete a combination with Italy’s Fiat SpA, and GM has until the end of May to “fundamentally restructure.” If they fail to meet the deadlines and one or the other collapses in a disorderly heap, the ripple effects would be felt throughout U.S. manufacturing, causing the loss of another million jobs and pushing unemployment to 11 percent, LaVorgna says. The outlook for a second-half pickup also depends on the Treasury successfully executing its plan to help banks remove as much as $1 trillion worth of devalued loans and securities from their books so they can start lending again and resuscitate the economy.
“Basically, it’s a confidence story,” says LaVorgna. “The risk is that banks could deteriorate further and prolong the pain.”
“Basically, it’s a confidence story,” says LaVorgna. “The risk is that banks could deteriorate further and prolong the pain.”
To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.netMatthew Benjamin in Washington at Mbenjamin2@bloomberg.net Last Updated: April 6, 2009
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