the most beautiful girl in the world July 1940
Near Shawboro, North Carolina.
Florida migrants on their way to Cranberry, New Jersey
Ilargi: Let's look a bit more at the housing construction quagus mirus completus, since it's such a good way to counter all the 'green shoots shining through the trees' mumbo-jumbo. Monday, just two days ago, the National Association of Home Builders caused a happy stir worth 2.85% jump in the Dow. Tuesday, the Commerce Department said housing starts fell 12.8 percent in April, to a seasonally adjusted annual rate of 458,000 units, down 54.2% from a year before, and the lowest since January 1959. And that's in all probability just because no records were kept before. Today, Wednesday, there are some graphs that in my view illuminate the issue further in a useful way.
I should add that I looked at the graphs and was wondering how two different groups of people can get such different pictures out of the same set of data. I still don't think I fully understand what I see. There's different timelines: one starts in 1998, the other in 1991; one uses quarterly numbers, the other annual ones; one is not seasonally adjusted, the other is. Despite these differences, or even because of them, it's good to look at both:
- The first, courtesy of RM:
- The second, courtesy of Business Insider:
There's a lot here that deserves some more comment. Let's see. We can start with the fact that seasonal adjustment is a major factor. So prepare for positive news coming out of interested parties through spring, in the vein of "2nd quarter data up considerably over 1st quarter, don the beer hats". As you can easily see, the 2nd quarter is always better, simply because people tend to build less when their pipes, and the ones in their homes, are freezing. Be prepared.
Then there's an obvious time lag between housing starts coming apart and construction job losses. I looked at official numbers from the bureau that some claim has one letter to much, the BLS. From the US Bureau of Labor Statistics comes The Employment Situation: April 2009 published Friday, May 8, 2009.
Construction employment declined by 110,000 in April, with losses spread throughout the sector. Over the past 6 months, job losses have averaged 120,000 per month, compared with 46,000 per month from December 2007 through October 2008.This could lead us to believe that about a million jobs vanished from December ‘07 through April ‘09. Well, first of all, -we know how the BLS operates- that ignores the fact that most of those first to be laid off were illegal workers. It also ignores most temporary workers laid off, as well as those who moved from full time to temporary work. Still, even then, if you look at both the trendline and the timelag, it is clear that 3.5 million jobs lost in construction is the absolute minimum. Most of those have yet to be pink slipped, and if I were to bet, I’d put their down-the-line number much closer to 10 million, or even beyond.
Also note that in the first graph (something pretty well reflected in the second one), peak is at 170, while the trough (so far) is about 22, or more than 85% lower. And nothing in the graph indicates that any sort of bottom has been reached. Why would any homes be built anymore in the US? Prices just keep on dropping and there's a full year plus inventory in most places, and even that is based solely on the government putting your money on the line to guarantee your neighbors' purchases. You'd better hope your neighbor doesn't work in construction, for starters. Or a carmaker. A car dealership. Or a newspaper.
The Federal Reserve tries to .. eh.., let's say "absorb"... regulatory powers from government agencies. The Fed also worsens its economic forecasts today, though of course interspersed with the now obligatory green shooters: it says U3 unemployment might get as low as 9.6%!! Since U3 will be there by July, the Fed should not get any extra powers: their predictions are off by a hundred miles. Oh, and they're not a government agency, so having them protect voters is a lousy idea to begin with.
Let's make a deal: Bernanke et al can get their extra powers AFTER a committee of experts, elected by citizens without any interference from neither the government nor the financial industry, has completed a full audit of its actions and policies through the past 50 years. Yeah, didn't think so.
In the foreseeable future, less homes will be built in the US than are necessary just to replace the ones that fall apart. So people will have to move in together. Is that so bad in itself, as long as home is where the heart is?
Home is where the heart is, home is so remote
Home is just emotion sticking in my throat
Let's go to your place Let's go to your place
Home is where the heart is, home is so remote
Home is just emotion dticking in my throat
Home is hard to swallow, home is like a rock
Home is good clean living, home is - I forgot
Let's go to your place Let's go to your place
Home is so suspicious, home is close control
Home is will you miss us, home is, I don't know
Let's go to your place Let's go to your place
Home is aggrovation, home is so much fuss
Home is mind your business, thank you very much
Let's go to your place Let's go to your place
I don't want to go back, I don't want to go back,
I don't want to go back anymore.
Housing: Recovering or Not?
Just as optimism began to bloom, U.S. housing starts hit a record low. The homebuilding sector may have to endure a long bottoming process. Hopes are high that the deeply troubled U.S. housing sector has finally seen the worst of the recession and financial crisis. But new data on May 19 raised questions about that optimism. U.S. housing starts hit a record low, dropping 12.8% in April, to an annual pace of 458,000. Housing starts are down 79.8% from their peak in January 2006. A sharp drop in construction of multifamily dwellings drove the reading, with single-family starts actually up 2.8%. However, the overall record low disappointed economists and investors, who had seen signs in recent months that housing might have hit bottom.
With housing starts at a record low, "it's early to pop the cork," says Michael R. Englund, chief economist for Action Economics. Yet, Englund and other economists told BusinessWeek, the data don't contradict hopes that housing might be near a bottom. A drop in construction activity is certainly troubling for the overall economy and for unemployment trends. But a drop in housing starts might actually be good news for the sector's eventual rebound, says Gary Wolfer, chief economist at Univest Wealth Management (UVSP). One of the housing market's main problems is a glut of supply—too many homes for sale. Idle homebuilders mean fewer new homes coming onto the market, thus hastening a bottom for the market. "We're getting there in a brutal fashion," Wolfer says, but at least we're "in the process of bottoming out." Keith Hembre, chief economist at First American Funds, worries that further home foreclosures could continue to drive the proliferation of "for sale" signs across the country.
However, he does see reasons to hope for a revival in demand. The government is helping: Low interest rates make mortgages more easily affordable (if you can qualify for one) and the federal government is providing an $8,000 tax credit in 2009 for first-time home buyers. "The signs are there that demand has generally hit bottom," Hembre says—and it may even be improving somewhat. First-quarter earnings reports from homebuilders have bolstered the case for guarded optimism. "For the homebuilding industry, we think that probably the worst is over," says Kenneth Leon, a Standard & Poor's equity analyst who covers the homebuilders. Key metrics seemed to improve in the homebuilders' first-quarter earnings reports, Leon says, including net orders, backlog, and the pace of homebuilder write-offs. Still, industry players continue to post quarterly losses.
Investors had a mixed reaction to the April housing starts data. Though the record decline was cited by some market observers as a troubling sign for the overall economy, shares of the largest homebuilders were mixed. On May 19, Pulte Homes (PHM) dropped 2.6%, to 10.03, but Toll Brothers (TOL) slipped just 0.7%, to 19.51, and D.R. Horton (DHI) gained 1.8%, to 9.96. After two very difficult years, homebuilders are trading solidly higher so far this year. The S&P Homebuilding index rose almost 19% in the first four months of 2009. S&P's Leon doesn't expect "a full sustained recovery" for the housing sector until the end of 2010. And several factors could derail or delay the housing market's recovery, experts say. Fresh foreclosures could flood the market with supply, even as homebuilders cancel new projects. Credit troubles could make it hard for buyers to get mortgages. Right now, "affordability is very attractive—if you can qualify and get a mortgage," Leon says.
Even if activity returns to the housing sector, home prices could continue to fall for some time. "While we are well into the housing bottoming process, we are a long way from recovery," Stifel Nicolaus (SF) analyst Michael R. Widner wrote May 19. "Our math suggests we have a couple years to go before excess inventory clears and paves the way for significant housing sector improvement," he added. Englund of Action Economics warns that there may be too much focus on foreclosures, government incentives, or individual data points. Those aren't the key drivers of a revival for housing, he says. As demonstrated by the "roller coaster of the last 2 1/2 years," he says: "It's the broader financial crisis that [is] really driving this process." While worries linger about the next potential financial disaster or an unforeseen economic meltdown, many home buyers are reluctant to take a risk on a major home purchase. "No one wants to jump headlong into this environment," Englund says. In other words, no matter what the data say from month to month, it's hard to imagine the housing sector bouncing back until the big picture significantly improves.
Toll Second-Quarter Revenue Declines 51% on Housing Slump
Toll Brothers Inc., the largest U.S. builder of luxury homes, said fiscal second-quarter revenue fell 51 percent as banks cut lending and demand for new homes sagged. Sales for the three months ended April 30 dropped to $398.3 million from $818 million a year earlier, the Horsham, Pennsylvania-based company said today in a statement today. Toll was projected to have revenue of $364 million, according to the median estimate of 11 analysts in a Bloomberg survey. Toll, the second-worst performing U.S. homebuilding stock this year, has lost more than a third of its value since 2006 as the housing slump and the recession have cut demand. Chairman and Chief Executive Officer Robert Toll said today there are some signs the housing market is starting to improve. Deposits for new homes last quarter rose from a year earlier, he said.
"With interest rates at an historic low, home price affordability at an historic high and consumer confidence starting to improve, we believe that more buyers are beginning to enter the enter the housing market," Toll said in the statement. "We have a few reasons for cautious optimism." The value of the company’s backlog, or homes under contract and not yet sold, slumped 55 percent to $944.1 million from a year earlier. The cancellation rate was 22 percent in the second quarter, down from 37 percent in the first quarter. Since the week ended March 22, per-community deposits have exceeded last year’s deposits in seven of the past nine weeks, Toll said. The average sale price fell to $563,000 in the second quarter, down from $575,000 in the first quarter. Toll fell 14 cents to $19.51 in New York Stock Exchange composite trading yesterday. The shares lost 20 percent in the 12 months through yesterday and have fallen 9 percent this year. Toll seeks buyers looking to upgrade from their current house and its sales are being hampered as prospective purchasers struggle to sell existing homes, said Megan McGrath, an analyst at Barclays Capital Inc. in a May 14 note to clients. She rates the shares "overweight."
"The decline in home equity will keep a portion of potential move-up buyers out of the market for some time, especially those who bought within the last five years," said McGrath. New home sales decreased 0.6 percent to an annual pace of 356,000, the Commerce Department said on April 24. Pending sales of U.S. existing homes posted their first back-to-back gain in almost a year in March. The median price of previously-owned single family homes fell 13.8 percent in the first quarter from a year earlier, the National Association of Realtors said on May 12. In the Northeast, where Toll has communities in New York, New Jersey and Pennsylvania, median home prices dropped 15.9 percent from a year earlier. The number of Americans signing contracts to buy previously owned homes jumped 3.2 percent after a 2 percent gain in February, the National Association of Realtors said on May 4. Toll will issue full earnings report on June 3. The company is projected to have a net loss of 30 cents a share for the second quarter, according to 11 analysts surveyed by Bloomberg.
Ilargi: Talking about housing starts, former GE CEO Jack Welch has some things right, but then veers off the track bigtime. People like Welch simply can’t imagine the party's over, truly over. Well, he's old, and that makes it harder, I guess. Growth shal resume!!!! No, it will not, Jack. Sorry.
Welch Criticizes Obama on Handling Chrysler Bankruptcy
Jack Welch, former chief executive officer of General Electric Co., criticized the government- backed bankruptcy of Chrysler LLC for favoring unions at the expense of creditors and said President Barack Obama’s economic stimulus programs will cause budget deficits. "I don’t particularly like where he’s taking us," Welch said, referring to Obama, during an interview yesterday at the Boston Convention Center. Welch, 73, who led GE from 1981 to 2001, was a guest speaker at the New England Business Xpo. "To get the money he needs, he has to have a fake budget," Welch said. "He’s fooling people about how we’re going to have the top line support the programs in the middle without enormous taxes and some programs not going."
Obama has defended the $17 billion in cuts he’s making in a $3.55 trillion budget against criticism from lawmakers by saying any savings, large or small, "add up." The administration’s plan eliminates or reduces 12 federal programs, from a $1 million Christopher Columbus fellowship foundation to $91 million for a nuclear waste repository in Nevada. The reductions represent one-half of 1 percent of the entire budget. Welch praised Obama’s communication skills, particularly his speech at the University of Notre Dame on Sunday. Still, he said he’s concerned about some of Obama’s programs. Among them is the restructuring plan for Chrysler LLC. The automaker and the government plan to use bankruptcy to transfer Chrysler’s best assets, such as its Jeep brand, into a new company with streamlined costs. The Chrysler workers pension fund will get a 55 percent stake.
Chrysler filed for bankruptcy in April after a group of secured creditors refused to participate in a $2.25 billion buyout for a $6.9 billion Chrysler loan. The government said the loan buyout would have prevented the bankruptcy, and Obama criticized the lenders for speculating at taxpayers’ expense. "I didn’t like the terms," Welch said. "The creditors’ rights were trashed and the unions got 55 percent of the company. Welch said the president’s plan to implement the nation’s first national standard for greenhouse-gas emissions was sound. "This emissions plan is not one that gives me great trouble," he said.
Welch said he’s optimistic about an economic recovery and looking closely at the housing market for signs as to when it may begin. "I want (new) housing starts to go down, down, down," he said. "It’s the only way to get housing prices stabilized, and we need to stabilize housing prices." Housing starts slid 13 percent to an annual rate of 458,000, a lower level than forecast, Commerce Department figures showed today in Washington. The drop was led by a 46 percent tumble in multifamily starts, a category that tends to be more volatile. Housing starts fell 10.8 percent to an annual rate of 510,000 in March. "While the market didn’t like it -- housing starts going down again -- I like it," Welch said.
Pension Funds Object to Chrysler Asset Sale, Want Trustee to Run Automaker
A group of Indiana pension funds that hold first-lien debt of Chrysler LLC objected to a plan to auction the company’s assets and said a U.S. District Court judge should rule on whether the sale is lawful. The Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust and Indiana Major Move Construction filed court papers late yesterday and today asking U.S. Bankruptcy Judge Arthur Gonzalez in New York to block the sale, claiming the plan is illegal and tramples their rights. A hearing to approve the sale to a group led by Fiat SpA, or a bidder that tops its $2 billion offer, is scheduled for May 27. Gonzalez denied a motion by the funds to stay the sale process while they seek a review by the U.S. District Court of whether the sale is proper.
The funds’ attorney, Thomas Lauria, said after today’s hearing that the group already had filed papers with the district court. The funds also have asked for the appointment of a trustee to run Chrysler, saying the company has “ceded control over their business and their restructuring efforts to the United States Treasury Department,” which is using the bankruptcy to reward certain creditors that “the government deems politically important,” according to one of the filings. “The Treasury Department has taken constructive possession of Chrysler and is requiring it to adopt a sale plan in bankruptcy that violates the most fundamental principles of creditor rights,” lawyers for the pension plans wrote.
The funds are represented by Lauria and other lawyers at White & Case LLP, the same law firm that represented a group known as Chrysler’s Non-TARP lenders. U.S. District Judge Thomas Griesa in New York scheduled a hearing on the pension funds’ request for May 26 at 11:30 a.m. Court papers must be filed before then, he said. President Barack Obama criticized the Non-TARP lenders for refusing to accept an offer that would have paid them about 30 cents on the dollar, saying they forced the automaker’s bankruptcy. The Non-TARP group abandoned its fight to block Chrysler’s sale plan earlier this month, citing political pressure.
Fed's economic forecast worsens
Central bank now expects unemployment to rise to a range of 9.2% to 9.6% this year. Fed also predicts a sharper decline in GDP than it had forecast in January.
The Federal Reserve's latest forecasts for the U.S. economy are gloomier than the ones released three months earlier, with an expectation for higher unemployment and a steeper drop in economic activity. The Fed's forecasts, released as part of the minutes from its April meeting, show that its staff now expects the unemployment rate to rise to between 9.2% and 9.6% this year. The central bank had forecast in January that the jobless rate would be in a range of 8.5% to 8.8%, but the unemployment rate topped that in April, hitting 8.9%. The Fed also now expects the gross domestic product, the broadest measure of the nation's economic activity, to post a drop of between 1.3% and 2% this year. It had previously expected only a 0.5% to 1.3% decline.
At the April meeting, the Fed decided to once again leave its key federal funds rate near 0%, a level it has been at since last December. The central bank also announced that it did not plan on increasing purchasing more long-term Treasury notes anytime soon. The Fed disclosed plans to begin buying $300 billion's worth of such Treasurys in March in order to try and keep long-term rates down and boost economic activity. But according to the minutes, some members of the central bank's policy committee indicated they were open to increasing its purchases of Treasury notes and mortgage securities as a way of spurring more lending.
Treasury prices rallied after the minutes were released, pushing their yield, which moves in the opposite direction, down to 3.18%. Stocks, which have moved sharply higher during the past two months on hopes that the recession may soon be ending, were relatively flat Wednesday afternoon.
According to the minutes, Fed members did indicate they expected GDP to increase slightly in the second half of this year. However, it would not be enough to overcome the anticipated declines in the first half. GDP shrunk more than 6% in the first quarter. Policymakers acknowledged that there were some better economic readings in the period leading up to the April meeting, but added that they were not convinced the economy was out of the woods yet. In the minutes, Fed members indicated that there are a number of factors that "would be likely to restrain the pace of economic recovery over the medium term" and added that the credit crunch would "recede only gradually" and that "households would likely remain cautious" in their spending.
Fed members expressed concerns about rising problems in the commercial real estate market as well, indicating that this could cause further problems for financial institutions still struggling with the effects of the collapse of home prices and rising mortgage defaults. The Fed also reduced its GDP targets for 2010 and 2011, but the central banks still expects the economy to grow in both years. Rich Yamarone, director of economic research at Argus Research, said that the Fed's new forecasts were "more of a reality check than a revision," given the deterioration in the labor market and overall economy since January. But he and other economists said it also appeared from the minutes that the Fed is pleased with how the economy has started to respond to the steps it has taken, including the purchases of mortgages and Treasurys.
"I read [the minutes] as 'We think it's working, let's wait a few months to see how it plays out,'" said Gus Faucher - director of macroeconomics at Moody's Economy.com. He added that it did not seem like the Fed felt a "sense of urgency" to increase the scope of its Treasury purchase program. And Yamarone said it's important to remember that the forecasts and minutes are three weeks old, and that economic readings since the meeting, including home sales and the rate of job losses, have generally showed signs of improvement. "These minutes look like they have a bleaker assessment, but things were darker then," he said. "I can't say it's an accurate interpretation of their outlook today. I think that would be a little more favorable."
California Officials Prepare Budget Cuts After Voters Reject Ballot Measures
California voters rejected a handful of ballot measures Tuesday meant to plug less than half of the state's $21 billion budget hole, and state leaders today are preparing major program cuts to deal with the growing crisis.
Voters resoundingly snubbed five of the six ballot measures -- a combination of tax increases, borrowing and earmarks for education -- in Tuesday's special election, with most of them receiving more than a 65 percent "no" vote. The only measure approved was one that prevents legislators, including the governor, from receiving pay raises in years when the state is running a deficit. Had the measures passed, the state's deficit would have been slightly smaller: $15 billion. The timing couldn't be worse for the Golden State, which regularly takes out short-term loans this time of year to pay its bills. California will be hard pressed to secure a sizeable loan, given its shaky credit rating and the tight lending policies at banks following the national economic crisis.
"The legislature and the governor have very difficult decisions to make now," said Jason Dickerson, cash management analyst for the Legislative Analyst's Office, the state's nonpartisan fiscal and policy adviser. "The budget changes and payment delays that may have to be initiated will affect millions of Californians in some way or another. It will affect local governments, state vendors and many other entities." It was just three months ago that state legislators emerged from a lock-in at the capitol to unveil a $42 billion budget package, that included the budget provisions voted on yesterday. But their failure was anticipated. A Field Poll released earlier this month found that nearly 75 percent of registered voters disapproved of the state legislature's job -- the poorest rating ever recorded by the survey -- and that unhappy voters were less likely to support the measures.
Gov. Arnold Schwarzenegger (R), who came into office after a budget crisis confounded his Democratic predecessor, had said Tuesday's election would determine whether the state continues "tumbling down the path of financial ruin and despair." In anticipation of Tuesday's outcome, he released early two versions of the budget, one based on the measures passing and the other if they failed. The second one calls for more than $5 billion in cuts to schools, more than $1 billion from higher education, and $2 billion from health and human services, including cuts in HIV education and prevention programs. It also calls for turning over thousands of undocumented immigrant prisoners to federal custody, saving the state $100 million, Schwarzenegger said, and borrowing $2 billion from local governments. And in a move that has drawn some criticism, Schwarzenegger's budget also calls for selling off state properties, including San Quentin State Prison and the Los Angeles Memorial Coliseum.
American Express Says U.S. Card Law May Reduce Credit
American Express Co. Chief Executive Officer Kenneth Chenault said U.S. legislation to curb credit- card fees may reduce lending to "consumers who need it" and will hurt competitors more than his company.
The impact of the measure, passed by Congress today, will be "more negative than positive" for American Express, the largest U.S. credit-card issuer by purchases, because it may crimp the New York-based company’s ability to set prices according to risk, Chenault said today during a conference call. "My concern is about credit being available, particularly to consumers who need it," Chenault said. "We’ll be hurt less than our competitors because 80 percent of our revenues are generated from fees."
President Barack Obama plans to sign the legislation to curb credit-card fees and marketing practices that legislators have called deceptive, White House spokesman Robert Gibbs said today. Card companies have said the new law may reduce profit, increase costs for customers and reduce perks. The Senate passed the credit-card measure yesterday, and the House gave it final approval today with a 361-64 vote. In a separate conference call, MasterCard Inc. CEO Robert Selander told investors today the legislation will affect "every aspect" of how cards are marketed to customers, including those who pay on time. American Express will adjust to the legislative changes and the U.S. recession, in which consumers are spending less and defaulting on loans more, by focusing on customers outside the U.S. and on its charge-card business, in which users pay off entire balances every month, Chenault said.
The company, which converted to a bank holding company last year to tap the government’s Troubled Asset Relief Program for $3.39 billion, has "zero interest" in becoming a full-service bank, Chenault said. The lender has enough access to cash by accepting consumer deposits for products including certificates of deposit, he said. American Express slipped 45 cents to $24.34 at 3:03 p.m. in New York Stock Exchange composite trading. The lender has lost almost half its market value in the past 12 months. MasterCard, which has declined by more than a third in the past year, advanced 3.5 percent to $172.53. The legislation would require lenders to apply payments to balances with the highest interest rates first. It would prohibit increasing a consumer’s rate on existing balances based on late payments to another lender, a practice known as "universal default."
It will also mandate 45 days’ notice before lenders can increase a card’s interest rate and prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment. The U.S. economy is still shrinking and the "real risk" to it is a lack of credit, Treasury Secretary Timothy Geithner told the Senate Banking Committee today in Washington. The Treasury has about $124 billion left in the $700 billion TARP plan, including $25 billion in expected repayments over the next year, Geithner said. The U.S. unemployment rate reached 8.9 percent in April, the highest since 1983. That month, 539,000 jobs were lost, the smallest drop in six months, as the worst recession in half a century started to ease and the federal government stepped up hiring for the next census.
Japan’s Economy Shrank Record 15.2% Last Quarter
Japan’s economy shrank at a record 15.2 percent annual pace last quarter as exports collapsed and consumers and businesses cut spending. The contraction followed a revised fourth-quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. Gross domestic product fell 3.5 percent in the year ended March 31, the most since records began in 1955, confirming that the recession is Japan’s worst in the postwar era. Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy.
"There was a collapse across the board," said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added that there’s "light at the end of the tunnel" and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect. The yen traded at 95.71 per dollar at 11 a.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.4 percent. The first-quarter contraction was the most severe since records started 54 years ago. Economists predicted the economy would shrink 16.1 percent. GDP fell 4 percent on a non-annualized basis, more than double the U.S.’s 1.6 percent slide. It’s also worse than Europe’s record 2.5 percent contraction. Without adjusting for price changes, Japan shrank 2.9 percent last quarter. Weaker domestic demand was the biggest contributor to the decline, shaving 2.6 percentage points off GDP, the most since 1974. Net exports -- the difference between exports and imports -- was responsible for 1.4 percentage points of the drop.
Consumer spending slid 1.1 percent and business investment plunged a record 10.4 percent. Economists say companies will keep cutting spending because the decline in demand has left factories and workers underused. "There is a huge problem of over-capacity," said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. "That means capital spending is not likely to pick up." Hitachi, a maker of nuclear reactors, home appliances and hard-disk drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year. The Tokyo-based company said in January it plans to cut 7,000 jobs. Still, reports in the past month suggest the world’s second-largest economy may grow for the first time in a year this quarter, albeit from a low point, as exports stabilize and Prime Minister Taro Aso’s 15.4 trillion yen stimulus plan, announced in April, takes effect.
Consumer confidence climbed to a 10-month high in April. Exports increased in March from a month earlier, and factory output rose for the first time since September. "While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support," Economy and Fiscal Policy Minister Kaoru Yosano said after today’s report. Falling inventories accounted for 0.3 percentage point of last quarter’s contraction. Companies including Honda Motor Corp. have cut stockpiles at a quicker rate than sales have declined, giving them room to increase production. The automaker plans to boost output in Japan this quarter as dealerships clear inventories, the Wall Street Journal reported last week.
Honda Executive Vice President Koichi Kondo said last month that the worst for the U.S. is probably over. Still, the failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery. Toyota, Hitachi, and Panasonic Corp. all forecast continued losses in the current business year. Panasonic said last week it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February. "We basically bottomed out," said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. Even so, "on the consumer spending side you’ve got a very clear negative from the severe labor market adjustment."
Geithner Says Distressed-Asset Programs to Start in Six Weeks
Treasury Secretary Timothy Geithner said he expects a pair of government programs to help banks remove their distressed assets will start by early July, policy makers’ next step in ending the worst credit crisis in decades. "Working with the Federal Reserve and the FDIC, we expect these programs to begin operating over the next six weeks," Geithner said in prepared testimony to the Senate Banking Committee today in Washington. The Treasury’s Public-Private Investment Program will use $75 billion to $100 of government funds to finance sales of as much as $1 trillion in distressed mortgage-backed securities and other assets. The effort has two components, which the Treasury will manage in conjunction with the Fed and the Federal Deposit Insurance Corp.
Geithner also said that the Treasury has about $124 billion left in the $700 billion Troubled Asset Relief Program, including $25 billion in expected repayments over the next year. This compares with the department’s previous estimate of about $135 billion remaining as of late March. Geithner said the Treasury and the Fed also expect to expand programs designed to help asset-backed securities markets, such as the Fed’s Term Asset-Backed Securities Loan Facility. The central bank yesterday announced it would add older commercial real estate securities to the TALF, marking the first time the program has included legacy assets as well as newly issued securities.
"The Treasury and the Federal Reserve will continue to monitor and enhance the ABS programs to bring in new, more niche asset classes and make sure that the number of eligible borrowers and issuers continues to increase," Geithner said. The Treasury chief reiterated his view that "there are important indications that our financial system is starting to heal," highlighting diminished premiums in corporate, municipal and interbank lending markets. The department is investigating "metrics" to use in judging the health of markets and the economy to determine "whether additional or different steps are needed," he said. The "process of financial recovery and repair will take time."
Banks have taken steps to strengthen their capital reserves since the conclusion of regulators’ stress tests on the biggest 19 lenders, he noted. Geithner repeated that "the vast majority of banks have more capital than they need to be considered well capitalized by their regulators." Geithner said the Obama administration is still working with General Motors Corp. as that company seeks to meet a government-imposed deadline for restructuring. The company has until the end of this month to come up with a new plan or enter bankruptcy, as Chrysler LLC did. "We will continue to work with GM and its stakeholders in the lead up to the June 1 deadline," Geithner said. "We will also continue our significant efforts to ensure that financing is available to creditworthy dealers and to pursue efforts to help boost domestic demand for cars."
Ilargi: Geithner is not telling the truth here:
The government was forced to pay off those bets at 100 cents on the dollar, he said.
How do you know? If it were true, he would have said so a long time ago.
Fed could be completely retooled, Geithner says
The Federal Reserve, created nearly 100 years ago in the aftermath of a financial panic, could be transformed into a different agency as the Obama administration reinvents the way government interacts with the financial system. The current crisis has revealed gaping holes in the regulatory system, and the Fed and the Treasury Department have resorted to making up policies in the middle of the night to make sure the global economy didn't fall through one of those holes. Treasury Secretary Timothy Geithner was hammered at a Senate hearing Wednesday about the cozy deals the government has made with all the big financial firms, especially those companies that had placed huge bets with American International Group , the large insurance company that is now 80% owned by the taxpayers.
Geithner said the government's hands are tied, because it had no ability to quickly shut down AIG in the way that small banks can be when they fail. The government was forced to pay off those bets at 100 cents on the dollar, he said. Geithner was also grilled on the cozy relationships that exist between the big banks and the regional Federal Reserve banks. Before Geithner joined the administration, he was president of the New York Fed, which is a strange public-private hybrid institution that is actually owned and run by the banks. Geithner insisted that the private banks have no say over the policies of the New York Fed, but he acknowledged that the banks do have a say in hiring the president, who does make policy.
The chairman of the New York Fed, Stephen Friedman, was forced to resign earlier this month because of perceived conflicts of interest due to his large holdings in Goldman Sachs. Geithner said it could be time to re-examine how the Fed is put together. "We should take a fresh look at conflicts across the system, because you do not want to have anybody in public office have their actions viewed through the prism of concern that they're motivated by anything but the broader interests of the system," Geithner said. Washington is now debating whether the Fed, or some new agency, should take on the duty of protecting the economy from systemwide risks that come from having firms that are "too big to fail." That debate should also include an examination of whether the Fed is too close to the institutions it is supposed to regulate.
U.S. May Strip SEC of Powers in Regulatory Overhaul
The Obama administration may call for stripping the Securities and Exchange Commission of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said. The proposal, still being drafted, is likely to give the Federal Reserve more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said. The 75-year-old SEC, chartered to oversee Wall Street and safeguard investors, has seen its reputation tarnished as some lawmakers blamed it for missing the incipient financial crisis and failing to detect Bernard Madoff’s $65 billion Ponzi scheme.
Any move to rein in the agency is likely to provoke a battle in Congress, which would need to approve the changes, and draw the ire of union pension funds and other advocates for shareholders. "It would be a terrible mistake," said Stanley Sporkin, a former federal judge and enforcement chief at the SEC. "Whatever the SEC has done or didn’t do, it is still the premier investor protection agency around." SEC Chairman Mary Schapiro’s agency has been mostly absent from negotiations within the administration on the regulatory overhaul, and she has expressed frustration about not being consulted, according to people who have spoken with her. She has pledged to fight any attempt to diminish the SEC, they said. Treasury Secretary Timothy Geithner was set to discuss proposals to change financial regulations at a dinner last night with National Economic Council Director Lawrence Summers, former Fed Chairman Paul Volcker, ex-SEC Chairman Arthur Levitt and Elizabeth Warren, the Harvard University law professor who heads the congressional watchdog group for the $700 billion Troubled Asset Relief Program.
Levitt, in an interview today with Bloomberg Television, said it’s unlikely the SEC will ultimately be stripped of its responsibilities. "I don’t think it’s a great idea nor do I necessarily think it’s going to happen," Levitt said. The SEC "is a pretty powerful unit and to substitute that for a new bureaucracy is a mistake. I don’t think policy makers are likely to go down that path." Levitt added that the SEC needs stronger resources to make up for "nearly 15 years of deregulatory efforts." Geithner and Summers are leading the administration’s effort to redraw the lines of authority for policing the financial system. "We’re going to have to bring about a lot of changes to the basic framework of oversight, so there’s better enforcement," Geithner, said May 18 at the National Press Club in Washington. "That’s going to require simplifying, consolidating this enormously complicated, segmented structure." Geithner may be asked about his plans for a regulatory revamp at a Senate Banking Committee hearing on financial-rescue efforts in Washington today.
"The Administration has been holding series of meetings with various parts of the government -- including regulators -- as it crafts its proposal for regulatory reform," Treasury spokesman Andrew Williams said. "No decisions have been made but" the administration "is seeking views as it puts together its framework." President Barack Obama has said he wants to sign legislation on regulatory changes by year-end. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, is planning hearings with the aim of drafting a bill by the end of June. The SEC’s job is to regulate stock markets, police securities sales and make sure public companies make adequate disclosures to investors about their finances. The commission has five members, with the chairman and two commissioners typically from the president’s political party and the other two from the party not in the White House. Schapiro was appointed by Obama to replace Christopher Cox, who was named by President George W. Bush.
Under Cox, the SEC ceded some of its authority to the Fed after the central bank responded to Bear Stearns Cos.’ near collapse last year by inserting its own examiners into Wall Street securities firms. Former Treasury Secretary Henry Paulson, Geithner’s predecessor, urged Congress in a March 2008 "blueprint" for overhauling financial rules to give the Fed broader powers to oversee risk in the system. Opponents of giving the Fed more authority, such as former SEC chief Levitt, have said the central bank’s focus on keeping the financial system solvent may trump efforts to punish companies for violating securities laws. Levitt is a board member of Bloomberg LP, the parent company of Bloomberg News. The SEC’s reputation took a hit last week when U.S. Senator Charles Grassley, an Iowa Republican, released a report saying two of its enforcement attorneys face an insider-trading investigation by the Federal Bureau of Investigation.
The report, written by the SEC inspector general’s office, faulted the SEC for inadequately monitoring trades by the employees and said one of them sold shares in companies after co-workers opened probes into the firms. Both employees, who are enforcement attorneys in the SEC division that investigates securities fraud, denied any wrongdoing. While the agency has been battered recently, it still has powerful supporters, including a number of Democrats on the Senate Banking Committee who aren’t likely to support having an agency they oversee cut back. In addition, public pension funds that hold $872 billion of assets urged lawmakers this month to protect the SEC’s turf in any legislation overhauling financial regulation. The California Public Employees’ Retirement System, the New York retirement fund and 12 other pension funds wrote letters to Frank and Senate Banking Committee Chairman Christopher Dodd, arguing that the SEC "must maintain robust regulatory and enforcement authority" over securities trading, brokers, money managers, corporate disclosures and accounting rules.
Credit card crackdown wins U.S. Congress approval
The U.S. Congress on Wednesday gave final approval to a bill that would impose sweeping new limits on the credit card industry, with President Barack Obama expected to sign it into law within days. In a major win for the president and congressional Democrats, the House of Representatives voted 361-64 to approve the bill as adopted on Tuesday by the Senate. It would sharply restrict credit card issuers' ability to raise interest rates on cardholders' existing balances and to charge certain fees.
The profits of major card issuers -- such as Citigroup, Bank of America, JPMorgan Chase and Capital One would be hurt by the bill, analysts said. It represents the first of several banking and market rule reforms expected from the administration as it tightens regulatory oversight in hopes of preventing another financial crisis like the one now pounding economies worldwide. The bill could hit home with more consumers than any other economic initiative launched so far under Obama, with some experts predicting a broad restructuring of how credit cards are priced, managed and marketed.
"These are monumental and expensive changes for credit card issuers to implement," said Duncan Douglass, a lawyer with the firm of Alston & Bird who specializes in payment law. The KBW Banks index of 24 leading bank stocks was down 2 percent on Wednesday following the House vote, with broader market indexes up modestly on the day. "This cements a victory for every American consumer who has ever suffered at the hands of the credit card industry," said Senator Christopher Dodd, chairman of the Senate Banking Committee, who steered the bill to Senate passage on Tuesday.
Former head of US government pension agency takes the Fifth
The former director of the government's pension agency took the Fifth Amendment Wednesday when senators asked about allegations that he had inappropriate contacts with Wall Street firms while running the operation, which insures the pensions of 44 million Americans. Charles E.F. Millard denies that he had improper communications with the firms that recently won multimillion-dollar contracts to advise the agency on a new strategy to invest its assets more heavily in stocks, real estate and private equity rather than more conservative fixed-income treasury securities. In a statement issued before the hearing, Millard's attorney Stanley Brand questioned the Senate Special Committee on Aging's jurisdiction in the matter. He said he advised Millard to assert his constitutional rights because he believes certain members of Congress appear to have already reached negative conclusions about his client's actions. "I decline to answer any and all questions," Millard said.
The allegations were contained in a PBGC inspector general's report last week that said Millard's office had hundreds of phone conversations and e-mails with the Wall Street firms bidding for the work in 2007 and 2008 at the same time he was actively evaluating their proposals. "The draft report was published on a committee Web site and senators were calling for further investigations before the report was even final," Brand said. "The Fifth Amendment protects innocent people against hostile environments. And Congress's recent actions and statements have created a biased and hostile environment toward Mr. Millard." The hearing was held at a time when the rapidly deteriorating financial health of the PBGC is raising alarms in Congress. Key lawmakers are demanding tougher rules to ensure vigilant oversight of its multibillion-dollar investment portfolio. The recession is forcing into bankruptcy an increasing number of companies with underfunded pension plans, leaving the PBGC with billions of dollars more to pay out in pension checks to retirees in the future. Its long-term deficit tripled in the past six months to a startling $33.5 billion.
The PBGC says it will be able to meet its obligations for many years to come. Still, it is monitoring weak companies with underfunded employer-sponsored pension plans in all sectors of the slumping economy, including auto, retail, financial services and health care. "Given the state of the economy, the question of PBGC's viability is more urgent than ever," said Sen. Herb Kohl, D-Wis., who chaired the hearing. "One in seven Americans count on this agency to pay out their pension in case their employer cannot due to bankruptcy. As General Motors teeters on the edge of insolvency, hundreds of thousands of workers' pensions could soon become the responsibility of the PBGC. And though Chrysler has managed to maintain its pension plan despite filing for bankruptcy, it may be only a matter of time before PBGC will have to accept responsibility for that pension plan as well."
In response to the inspector general's and his committee's own probe, Kohl has called for the contracts with the Wall Street firms to be rebid and that if they are not, his committee will ask the Government Accountability Office's special investigations unit to review communications the committee staff has received from the firms that won the contracts. Kohl also is introducing legislation in coming weeks that will require the agency's presidentially appointed director to remove himself from potential conflicts of interest. The bill also will expand and strengthen the PBGC's board of directors. Kohl has called for the contracts to be rebid. Three members of the president's Cabinet oversee the government's multibillion-dollar safety net for retirement benefits covered by employer-sponsored plans; 401(k) plans are not insured by the agency. Representatives for the secretaries of treasury, commerce and labor meet regularly, but in 28 years, the full PBGC board has met only 19 times. Kohl's bill would force the board to meet more frequently and stagger membership to make sure experienced board members are serving at all times.
In February 2008, during Millard's tenure, the board approved a new investment strategy that would invest the PBGC's assets more heavily in private equities and real estate. Millard remains convinced that more aggressive investments will help reduce the agency's deficit and perhaps prevent the need for a future taxpayer bailout. To help implement the new strategy, the agency solicited the services of investment firms on Wall Street. Goldman Sachs, BlackRock and JPMorgan won awards to invest up to $2.5 billion of PBGC assets in real estate and private equity in return for fees that could exceed $100 million over 10 years. So far, no agency assets have been transferred to the three firms. PBGC's acting director, Vince Snowbarger, said Tuesday that the staff was working with the new board members in the Obama administration to decide whether the contracts should be terminated.
Pension Benefit Guaranty's Deficit Triples to $33.5 Billion
Pension Benefit Guaranty Corp.’s deficit tripled to $33.5 billion in the past six months as companies canceled retirement plans in the U.S. recession, the head of the government-owned corporation said. About $11 billion is for "completed and probable terminations" of company plans and $7 billion is from an increase in interest rates that boosted liabilities, Vince Snowbarger, the acting PBGC director, said in written testimony to be delivered today to the Senate Special Committee on Aging. The PBGC, set up to protect the employee pensions of bankrupt companies, will tell Congress that its financial condition may worsen amid the likelihood for more pension plan failures. In the first half of the fiscal year that began in October, the PBGC took on almost four times the number of participants as it did in all of 2008.
The potential for General Motors Corp. and Chrysler LLC to end their plans has left the PBGC facing the prospect of adding 900,000 current and future beneficiaries. The PBGC, which pays retirement income to almost 44 million Americans, estimates that $77 billion of the automotive industry’s pensions are underfunded, with about $42 billion of that guaranteed by the agency for retirees. Automotive industry workers are at substantial risk of losing money if companies terminate their plans, according to Snowbarger’s prepared comments. There are still sufficient PBGC funds to meet benefit obligations for many years because benefits are paid monthly, spread over the lifetimes of participants and beneficiaries, he wrote.
The PBGC also faces increased exposure from companies in other sectors of the economy, including retail, financial services and health care, Snowbarger wrote. Snowbarger is scheduled to testify alongside Barbara Bovbjerg, associate director of the Government Accountability Office, who plans to tell the committee that the PBGC’s board is failing to provide adequate oversight and direction. The three-member board includes Treasury Secretary Timothy Geithner, Commerce Secretary Gary Locke and Labor Secretary Hilda Solis. The three have yet to meet since joining the board this year. The previous board last met in February 2008, Bovbjerg said in written testimony. "These board members have numerous other responsibilities, and are unable to dedicate consistent and comprehensive attention to the PBGC," Bovbjerg said. Representatives of the board members did meet as recently as November and there have been telephone calls and other contacts with PBGC senior management, Jeffrey Speicher, a PBGC spokesman, said.
The GAO said the board still falls short in overseeing the PBGC’s performance, investment decisions and hiring, roles that have become critical as the agency may have its largest pension takeover since being created by Congress in 1974. The potential for General Motors and Chrysler to end their pension plans could "dramatically increase" the deficit at the PBGC, the GAO said. Auburn Hills, Michigan-based Chrysler, which filed for bankruptcy protection on April 30, is seeking court approval of a settlement among the company, the PBGC, Cerberus Capital Management LP and Daimler AG to partly fund the plans and avoid such a termination, Chrysler lawyers said in a filing yesterday in U.S. Bankruptcy Court in New York.
Detroit-based GM is facing a U.S.-imposed June 1 deadline to reduce its costs and debt obligations or face bankruptcy. The PBGC’s board approved in February 2008 a new investment strategy to shift more money from safer Treasury securities to stocks, real-estate and private-equity with the potential for greater returns. The change was pushed by former Director Charles E.F. Millard, who is now under congressional investigation for his ties to Wall Street. Millard was subpoenaed by the Senate Special Committee on Aging to answer questions related to a draft report by the PBGC inspector general alleges that Millard had inappropriate communications with eight of 16 Wall Street firms that bid last year to manage $2.5 billion of the agency’s $48 billion investment portfolio. A lawyer for Millard, Stanley Brand, said his client acted in a "transparent and ethical manner."
Millard never fully implemented the less conservative investment strategy before he left the agency in January, the PBGC has said. About 30 percent of the agency’s $48 billion investment portfolio is in equities, 69 percent in fixed-income, and less than 2 percent in alternative assets. "Millard’s actions were questionable and should be investigated further, but our main concern is that they are symptomatic of a much bigger problem," Senator Herb Kohl, a Wisconsin Democrat and chairman of the Special Committee on Aging, said in a statement. "PBGC oversight structure is obviously inadequate if one person’s authority goes unchecked. At a time when we need PBGC more than ever, we have got to take concrete steps to strengthen the agency."
Investors expand fraud claims against Freddie Mac
Freddie Mac investors have filed expanded court claims accusing the mortgage finance company and three former executives of committing fraud by misleading them about risky loan practices and manipulating financial results. The allegations, contained in a nearly 300-page court complaint filed late on Tuesday, are based in part on interviews with more than 100 former company employees and others who are described in the lawsuit as having knowledge of Freddie Mac's operations and finances. Both Freddie Mac and Fannie Mae, the largest providers of residential mortgage funds, were seized by the government last September to save them from massive capital shortfalls and put in a legal status known as conservatorship. Shareholders at both companies have suffered big losses, with Freddie Mac shareholders saying they collectively lost billions when the McLean, Virginia-based company's financial troubles came to light last year. Its shares have plunged to below $1 from nearly $28 a year ago.
The lawsuit, an amended version of an earlier case, was brought in U.S. District Court in Manhattan against the company, former Chief Executive Richard Syron, Former Chief Financial Officer Anthony Piszel and ex-Chief Business Officer Patricia Cook. A Freddie Mac representative and an attorney for the former executives were not immediately available for comment on Wednesday. One of the unnamed employees cited in the lawsuit is a former director of operational risk management at the company, who was quoted in the complaint as saying that Freddie Mac was an "appallingly run company" and that it was clear as far back as August 2007 that its capital position was inadequate.
Other so-called "confidential witnesses" cited in the complaint include a former Freddie Mac vice president of investor relations and an ex-senior examiner with the Office of Federal Housing Enterprise Oversight, the company's regulator, now part of the newly formed Federal Housing Finance Agency. The complaint was filed by the lead plaintiff in the case, Central States Southeast and Southwest Areas Pension Fund, along with another pension fund that also had bought Freddie Mac stock, the National Elevator Industry Pension Plan. The lawsuit seeks class-action, or group status. The defendants are accused of inflating the value of Freddie Mac stock through misleading statements, failing to disclose problems with the company's capital adequacy and manipulating financial results and accounting practices to distort the truth about the company's health.
"Freddie Mac was essentially a wolf in sheep's clothing," David George, an attorney for the shareholders, told Reuters. The company misrepresented both that "it was a safe haven and that its exposure to the subprime real estate market was minimal," said George, of law firm Coughlin Stoia Geller Rudman & Robbins LLP. The government's control of Freddie Mac poses questions about how shareholder litigation against the company will be resolved. U.S. taxpayers could potentially be responsible for paying damages if the plaintiffs win their case. George said that while it was unique to be suing a company under government control, "from our perspective, it does not and should not negatively impact our ability to recover monies on behalf of the shareholders."
Bill Ford Says Shunning U.S. Bailout Serves 'National Interest'
Ford Motor Co. Executive Chairman Bill Ford, great-grandson of the company’s founder, said it is in the national interest that the automaker keep operating without federal aid. "It’s in the country’s interest that Ford remain free of taxpayer money," Ford said yesterday in an interview in his Dearborn, Michigan, office overlooking the 2,000-acre Rouge factory complex built by Henry Ford. "Anything we can do to minimize the amount of taxpayer money going into the private sector is probably a good thing."
Ford, 52, said he has talked with members of the Obama administration to ensure the company isn’t hurt by being the only U.S. automaker to forgo federal funds. Chrysler LLC is restructuring in a U.S.-backed bankruptcy, and General Motors Corp. probably also will end up in Chapter 11 by June 1. The discussions are aimed at "not being disadvantaged from the fact that we’re an independent company, not taking taxpayer money," Ford said. "That’s in the national interest that that happens." His comments reinforced the company’s efforts to distance itself from Chrysler and GM, which received $19.4 billion in emergency loans to stave off collapse. While those automakers restructure in and out of court, Ford Motor has been showcasing projects such as factory investments to support new small cars. Ford Motor’s strategy on a bailout evolved throughout late 2008, Ford said.
On Dec. 2, Chief Executive Officer Alan Mulally testified to Congress with the CEOs of GM and Chrysler and appealed for a $9 billion credit line. Within weeks, the second-largest U.S. automaker reversed the decision after deciding it had the cash to "go it alone," said Ford, who served CEO before he hired Mulally in 2006. "When we started seeing what the restrictions of taking government money would mean to our ability to operate quickly and strategically, we felt that wasn’t a position we wanted to be in," Ford said. "We felt we could pull ourselves up by our bootstraps and make it on our own." While Ford Motor lost a record $14.7 billion in 2008 and remains at risk from the worst U.S. auto market in 27 years, it’s getting a public-image boost for not taking government aid, said Efraim Levy, a Standard & Poor’s equity analyst. "Ford is benefiting from its independence," said Levy, who is based in New York and advises holding the shares. "Consumers don’t resent them for taking their tax dollars to stay alive."
Mulally’s borrowing of $23 billion in late 2006, with all the company’s major assets pledged as collateral, positioned Ford Motor to shun a rescue, Levy said. "Ford was fortunate enough to get those loans in advance of the credit markets freezing up," he said. "Take away that liquidity, and Ford would be in the same boat as the other two." Ford Motor has more than doubled this year in New York Stock Exchange composite trading as it cut debt by $9.9 billion and won concessions from the United Auto Workers to pare annual labor costs by $500 million. The shares rose 13 cents, or 2.4 percent, to $5.63 yesterday. With $21.3 billion in automotive cash at the end of March, Ford Motor is now working to add new, fuel-efficient models and retool factories to wean itself from dependence on fuel-thirsty trucks. "This is a time of real opportunity for us, but also some real cautions as well," Ford said. "We are spending a lot of time trying to figure out what this all means to us."
Among the risks are lower costs and better financing for GM and Chrysler from a U.S.-backed restructuring, said Brian Johnson, a Chicago-based Barclays Capital analyst. He rates Ford as "underweight." More funding for those automakers and their credit arms would increase "their ability to offer discount financing and subsidize price wars," Johnson said. "It will certainly put pressure on Ford’s strategy to improve their retail prices." Ford said the automaker is improving its prospects with new models like the Fiesta subcompact car coming from Europe and the Fusion hybrid, along with two battery-powered autos coming in the next two years and a plug-in hybrid due in 2012. "I really like our competitive position," Ford said. "Having said that, we are still speaking with the government to say, where possible, ‘Please don’t disadvantage us.’"
Besides his own contacts with administration officials, company executives talk frequently with President Barack Obama’s autos task force, Ford said. He said he was pleased shareholders rejected a proposal at the May 14 annual meeting to strip Ford family members of a special class of stock that gives them 40 percent voting control of the 105-year-old company. Bill Ford and his cousin, Edsel Ford II, are directors. "I would hope that shareholders would see that our interests are aligned with theirs," Ford said. "It’s more than just a financial investment, it’s an emotional investment. It’s pride. I mean, our name is on the product. If it was just a financial investment, the family probably would have been out years and years a
Letter from a Dodge dealer
letter to the editor
My name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.
We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood. We are financially strong with great respect in the market place and community. We have strong local presence and stability.I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.
On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them. My new vehicle inventory consists of 125 vehicles with a financed balance of 3 million dollars. This inventory becomes impossible to sell with no factory incentives beyond June 9, 2009. Without the Dodge franchise we can no longer sell a new Dodge as "new," nor will we be able to do any warranty service work. Additionally, my Dodge parts inventory, (approximately $300,000.) is virtually worthless without the ability to perform warranty service. There is no offer from Chrysler to buy back the vehicles or parts inventory.
Our facility was recently totally renovated at Chrysler's insistence, incurring a multi-million dollar debt in the form of a mortgage at Sun Trust Bank.
HOW IN THE UNITED STATES OF AMERICA CAN THIS HAPPEN?
THIS IS A PRIVATE BUSINESS NOT A GOVERNMENT ENTITY
This is beyond imagination! My business is being stolen from me through NO FAULT OF OUR OWN. We did NOTHING wrong.
This atrocity will most likely force my family into bankruptcy. This will also cause our 50+ employees to be unemployed. How will they provide for their families? This is a total economic disaster.
HOW CAN THIS HAPPEN IN A FREE MARKET ECONOMY IN THE UNITED STATES OF AMERICA?
I beseech your help, and look forward to your reply. Thank you.
George C. Joseph
President & Owner
Germany Prefers Magna's Opel Bid Preferred to Fiat's
Magna International Inc.’s offer for General Motors Corp.’s Opel unit is preferred by German regional governments over a bid from Fiat SpA, according to a state minister involved in the talks. The bid from Canada’s largest auto-parts supplier that GM received today "is more reliable, innovative and sustainable" than Fiat’s proposal, Hendrik Hering, economy minister of Rhineland-Palatinate, said today in a phone interview from the state capital of Mainz. The four German states where Opel employs 25,000 workers "predominantly" favor Magna’s concept, which shuns factory closures in Europe’s biggest economy, Hering said. Magna wants to turn Opel into an "integrated automaker" and supply it with components directly.
"The supplier angle is extremely attractive. That’s something that Fiat is lacking." Chancellor Angela Merkel’s government made "significant progress" yesterday in talks with state-owned banks including KfW Group toward securing bridge loans of at least 1 billion euros ($1.4 billion) for Opel, according to Juergen Reinholz, economy minister of the state of Thuringia. Bid outlines for Opel must be submitted to German federal authorities by 6 p.m. today to qualify for government backing. German Economy Minister Karl-Theodor zu Guttenberg, who’s overseeing government talks with bidders, said on April 28 that Magna’s plan is "interesting" as it would allow Opel to benefit from component transfers from Magna at a time when GM is contracting out some supplies.
The ministry has "no favorite" suitor for Opel and aims to evaluate bid details "speedily" once all offers have been submitted, Steffen Moritz, a spokesman in Berlin, said today. Detroit-based GM, facing bankruptcy if it doesn’t reorganize by June 1, is willing to sell a majority stake in cash-strapped Opel, which has headquarters in the Frankfurt suburb of Ruesselsheim and also operates assembly plants in countries including the U.K., Spain, Belgium and Poland. Fiat, Italy’s biggest manufacturer, plans to submit a bid, Reinholz said yesterday. Magna and RHJ International SA, a Brussels-based investment firm started by Ripplewood Holdings LLC founder Timothy Collins, have submitted detailed offers to Germany’s government and a fourth suitor may do so, a federal government official said today on condition he not be identified because the bids are confidential.
Unions in Germany have "serious misgivings" about Turin- based Fiat’s plan, Armin Schild, an Opel board member and an official at the IG Metall labor union, said yesterday in an e- mailed response to questions. Fiat Chief Executive Officer Sergio Marchionne met with unions in the past week in an effort to defuse concerns about a plan that Klaus Franz, the works council chief at Opel, said on May 13 could lead to as many as 18,000 industrywide job cuts in Europe.
Unions "are open to working with Magna, but not with Fiat," Franz, who represents 55,000 GM employees in Europe, said on April 29. The labor leader said yesterday that he doubted Marchionne’s meeting with IG Metall resolved workers’ concerns. Franz didn’t respond to requests for comment today.
Canada's Deepest Recession Since 1930s May Also Be Shortest
Canada’s recession, likely its deepest since the Great Depression, may also be its shortest. Rising home and car sales, unexpected gains in building permits and employment, easing credit conditions and higher commodity prices signal Canada’s slump may be nearing an end. Eight of 11 economists surveyed by Bloomberg this month predict the economy will return to growth next quarter. "It doesn’t feel quite like it’s over yet, but people are breathing a little bit better," said Russ Girling, president of pipelines at TransCanada Corp., the country’s biggest pipeline company, which recorded a 12 percent rise in revenue in the first quarter. All but one of the country’s five post-World War II major recessions have lasted at least one year, with the shortest in 1957 at nine months, according to Philip Cross, who tracks the country’s business cycles for Statistics Canada.
Canada’s economy contracted at a 3.4 percent pace in the last quarter of 2008 and growth in the first quarter may shrink at a 7.3 percent rate, the Bank of Canada estimates. The U.S. recession started in December 2007, according to the National Bureau of Economic Research, the arbiter of U.S. business cycles. Statistics Canada, which defines a major recession as a slump where both employment and output post annual declines, has yet to date the start of Canada’s recession, Cross said. The Bank of Canada has said the country entered into a recession in the fourth quarter of last year. While Canada has suffered from falling U.S. demand for exports, the country’s banks have largely avoided credit losses. No government money has been given to any of Canada’s 21 banks since global credit seized up in August 2007. The U.S. government oversees about $200 billion in investments in banks through the taxpayer-funded Troubled Asset Relief Program.
Canada’s housing market has also held up better than in the U.S., where prices declined 18.6 percent in February from a year earlier, according to the S&P/Case-Shiller index of 20 major cities. Average resale home prices in Canada dropped at less than half that pace during the same period, according to the Canadian Real Estate Association. "We may not be in a recovery, but I think we might be in a position where it’s not getting worse, where it’s truly plateauing," Prime Minister Stephen Harper said in a May 8 interview, adding he’d like another "month or two" of data before coming to that conclusion. Canada’s benchmark Standard & Poor’s/TSX Composite Index has posted a 50 percent gain in U.S. dollars since its low on March 9, compared with the 34 percent gain for the Standard & Poor’s 500 Index over the same period.
Economists surveyed by Bloomberg earlier this month said they expect Canadian growth to rebound at an annual pace of 0.5 percent in the third quarter and by 2 percent in the fourth quarter. "In February, the rapid decline in demand had come to an end and by April, the rapid declines in employment had come to an end," Cross said. "Was that a temporary end or not? We don’t know." While Canada’s jobless rate is at a seven-year high of 8 percent, the economy in April created new jobs for the first time in six months and sales of existing homes rose the most in more than five years. Credit markets are also improving. The Bank of Canada’s composite index of financial market conditions is at its strongest since September. Improved credit markets have allowed companies like Enbridge Inc., the biggest transporter of oil to the U.S. from Canada’s oil sands, to move ahead with the new debt sales to finance operations. Enbridge sold C$400 million of bonds last week.
"Our approach is to watch for windows when we think there are opportunities to raise capital funds," said Richard Bird, Enbridge’s chief financial officer. "This is a window and let’s cross our fingers and hope that it’s a trend." A quick end to the recession would raise pressure on the Bank of Canada, led by Governor Mark Carney, to say it no longer plans to keep its benchmark lending rate near zero through June 2010. The country’s central bank projected last month the economy will contract four consecutive quarters, bringing it closer to the average length of the last five major recessions. "The Bank of Canada will have to revisit their own view of what they will do with interest rates," said Paul-Andre Pinsonnault, an economist at National Bank Financial. "GDP will be stronger than what they are looking for." A quick end to the recession doesn’t guarantee a strong rebound. DBRS Ltd., a rating company, predicts an L-shaped recovery for Canada, which it defines as "a prolonged period of flat or slowly improving performance." "The earliest I can see an improvement is in October or November," said Jacques Plante, chief financial officer of Hart Stores Inc., a discount retailer. "I can’t imagine we’ll have anything positive this summer."
Alistair Darling on the UK's recession: it'll be over by Christmas
Alistair Darling insists the recession will be over by Christmas, despite growing doubts over his economic forecasts. In an interview with the Times, the chancellor stuck by his predictions, even though other forecasters, including the International Monetary Fund, have published a much gloomier assessment of the economy. "I am not going to change my forecasts," Darling said. "I remain confident that we will see a return to growth at the turn of the year." In last month's budget, Darling predicted the economy would shrink by 3.5% this year and surprised the City when he forecast a rapid economic recovery, with growth of 1.25% in 2010 and the year after.
Since then, government figures have shown a shock 1.9% plunge in Britain's gross domestic product in the first three months of this year - the sharpest decline in almost three decades. The IMF does not share the chancellor's optimism and believes the economy will continue to shrink next year. It has forecast falls of 4.1% in output this year and 0.4% in 2010. Darling argued that, while the IMF and the Bank of England have taken a "more cautious" view, the shape of their forecasts is similar to the Treasury's. "I delivered my budget statement four weeks ago," he said. "None of the figures I have seen since would change the projections that I have made."
The chancellor shrugged off fears that Britain could slide into a deflationary spiral after figures yesterday showed retail prices plummeting at the fastest rate since 1948. The government's benchmark consumer price index, which excludes housing costs, still stands at 2.3%, above the Bank of England's 2% target. Darling said the fall in inflation "is in line with expectations. Deflation is something quite different". He pinned his hopes on the rescue package agreed by the G20 major economies last month, saying: "I remain confident that we will come through this, provided we ensure that we deliver what we set out at the G20, and what we are doing ourselves, particularly in relation to ensuring that the bank-lending agreements are fully implemented. That is very, very important."
He welcomed early signs that bank lending had begun to resume. "What I expect is that, over the course of this year, you will see a gradual improvement, but we have still got to be vigilant," he said. "The lending agreements are there. We have got to make sure they are delivered." Darling played down suggestions that the government could start selling its stakes in Royal Bank of Scotland and Lloyds Banking Group within a year, saying he was in "no hurry" as he wanted to get the "best possible deal for the taxpayer". The chancellor also indicated that he hoped to stay at the Treasury despite talk that he could be moved to the Home Office or Foreign Office in a reshuffle this summer. He said: "The job is not done. This is very much work in progress."
Ilargi: The Chancellor is not the only one in Britain to do and say strange things under the cloud of eggnog:
Trader banned for concealing $10 million bet after long boozy lunch
The financial regulator has banned a former Morgan Stanley trader for concealing a bet he took after a long boozy lunch that could have cost the bank $10m (£6.5m). David Redmond, who traded freight and oil in London for the bank, returned from the three-and-a-half hour lunch and built up a substantial short position which he concealed overnight. This left the bank exposed to a significant loss, the Financial Services Authority (FSA) said. "He drank alcohol over lunch and it appears that this affected his behaviour on his return to the office, although he was not visibly drunk," the FSA said in a statement. The next day, rather than telling the company about his bet, he traded out of the position. Mr Redmond, who is now 28, only admitted concealing the position when directly challenged by Morgan Stanley. Margaret Cole, director of enforcement at the FSA, said Mr Redmond’s conduct on 6 and 7 February 2008 showed "a lack of honesty and integrity".
"Having created a large short position which he tried to hide overnight, Redmond continued to get his priorities seriously wrong when he focused on trading out of the position rather than telling his managers," she said. "Traders must not seek to conceal their positions from their firms.” The FSA took into account that the trading took place over two days rather than an extended period and that there was no risk to consumers. It also said Mr Redmond had expressed remorse, admitted his actions, co-operated with the investigation and his behaviour appeared "out of character and unpremeditated". As a result, the FSA has indicated that it is likely to agree to an application from Mr Redmond to lift the ban after two years, provided there is no further evidence of misconduct. The FSA said it make no criticisms of Morgan Stanley, which promptly identified and investigated the issue and took swift action against Mr Redmond. He was suspended by the firm on 7 February 2008 and subsequently dismissed.
Spanish economy shrinks at fastest rate on record
The Spanish economy shrank at its fastest rate on record in the first quarter as household spending plummeted due to soaring unemployment amid the recession, official data showed on Wednesday. Gross domestic product was down 1.9pc in the first three months of year from the previous quarter and off 3pc compared to the same period in 2008, the National Statistics Institute (INE) said. It was the third quarterly contraction in a row after a fall of 1pc in the three months to December and 0.3pc in the third quarter of 2008 and the sharpest decline since INE began recording such figures in 1970. The outcome was slightly worse than provisional data last week that put the first quarter contraction at 1.8pc from the previous quarter and 2.9pc from last year.
INE blamed the slump on lower household spending, down 4.1pc after a drop of 2.3pc in the last three months of 2008. Spending was badly hit by soaring unemployment, which jumped to 17.4pc in March, more than double the average of 8.3pc for the entire 27-nation European Union. Exports fell 19pc, compared to a drop of 7.9pc in the previous quarter, and imports were also sharply lower due to the economic crisis - down 22.3pc in the first quarter compared to 13.2pc in the previous three months. Spain entered its first recession for 15 years at the end of 2008 as the global credit crunch worsened a correction that was already underway in its once booming housing sector. The Socialist government has said in recent weeks that Spain has reached the trough of the crisis and predicted signs of recovery would soon be evident.
Independent ABN Amro will need more capital
ABN Amro has agreed to demands from Brussels to sell off its daughter HBU and other assets. But if the bank wants to survive as an independent player, it's going to need more capital from its only shareholder, the Dutch government, ceo Gerrit Zalm tells NRC Handelsblad. After months of negotiations with the Dutch government, the central bank and the European Commission, ABN Amro ceo Gerrit Zalm has finally raised the white flag. On Friday, Zalm agreed to sell off ABN Amro's daughter company HBU and a dozen regional offices as Brussels had demanded. The "EC remedy", as it has become known, was the only way the European Commission would approve the merger of ABN Amro and Fortis Bank Netherlands, which it said risked distorting competition in the small businesses sector in the Netherlands. Zalm, who started as ceo of ABN Amro in January, and the Dutch government, now the bank's main shareholder, would have preferred to sell off Fortis' small businesses branch rather than HBU. But now that the air has been cleared with Brussels, Zalm wants to go ahead with the merger of the two state-owned banks "as soon as possible". The road to becoming "the best bank of the Netherlands", as is Zalm's stated ambition, will be long and bumpy. First, the old ABN Amro has to be split with the two other owners, Royal Bank of Scotland and Santander from Spain. Next, ABN Amro Netherlands has to get its capital in order. "We're going to need fresh capital if ABN Amro wants to survive as an independent entity," Zalm says.
Did you conduct the difficult negotiations with [Dutch EU Commissioner for competition] Neelie Kroes yourself? You know her well.
Gerrit Zalm: "By sheer coincidence I sat next to her at a dinner a few months ago. It is the only time I brought it up. I said: 'Neelie, I hope you don't think it's funny that I haven't called you about ABN Amro?' She said she didn't. I said: 'Well, I won't bother you with it then. It is probably best to discuss this only with you director-general.' We both thought this was the cleanest way of doing it. Otherwise it would have been a bit too close for comfort, and it might have damaged her reputation. After all, the outside world still sees me as her good friend from the VVD." [Zalm and Kroes both started their careers in the Dutch right-wing liberal party VVD, Ed.]
You were not in favour of selling off HBU. When did you decided to go along with it?
"Quite a while ago. We found that there was no alternative. Because of all the fuss around [the sale of] Fortis Holding [to] BNP Paribas in Brussels, it just wasn't feasible to sell part of Fortis Netherlands again. Last Friday, I made peace with [Kroes' director-general] Philip Lowe. We will implement the remedy as soon as possible. But I did ask for something in return."
What was that?
"I made it clear that we want to speed up disentangling the old ABN Amro and its integration with Fortis Bank Netherlands. I want to start with the organisation. Our employees need to know where they're at. And part of the senior management needs to know what to get ready for. Hence the strategic blueprint I presented internally [on Tuesday], and the future appointments of some forty managers. Lowe initially thought this was rash as long as the sale of HBU wasn't finalised. But he now understands that I want to get to work. So they have given me the okay to present my plans on a conditional basis."
Isn't the sale of HBU as good as finalised? Deutsche Bank has been ready for a year.
"Deutsche Bank is clinging to the contract they signed with Fortis last year. I don't think that's right. Deutsche should come with a new offer. The situation has changed. But that's not really my business. It is in the hands of Crédit Suisse, which Brussels has appointed as divestment trustee. Perhaps there will be more candidates. There is also the matter of capitalisation. Deutsche Bank agreed with Fortis that the seller would guarantee HBU's credit portfolio. If they insist on that we have to do it. This means that we need to set capital aside that we don't have. So we will have to go to our main shareholder, the Dutch government. If Deutsche Bank is prepared to carry the risk of HBU's loans itself, the price will go down. That's something we will have to write off then. Whatever happens, the sale of HBU will have an impact on our capital situation."
How is ABN Amro's capital situation today?
"I can't say much about it, but there are still some issues regarding capitalisation. Large amounts are at stake. I'm talking to the [Dutch] finance ministry, the Dutch central bank and Brussels about a large capital injection plan. We need [more capital] if we're going to be independent."
Is there any truth to the rumour that there is disagreement between ABN Amro Netherlands and RBS about how to divide the business accounts?
"The line between ABN Amro's big accounts that went to RBS and the smaller ones that stayed with us is perfectly clear, although I couldn't tell you exactly where it is right now. We briefly discussed possible new criteria with RBS, but it wasn't practical. So we're going ahexad as before. Besides, there are a lot of Dutch customers who have said they would rather be with ABN Amro. Out of a nationalist pride, and because they say the have no need for RBS's international network. We are not allowed to actively recruit RBC customers, but luckily we can if they come to us on their own account."
Your plan was quite a shock to the employees. You are no longer ruling out forced lay-offs?
"I never expected applause from the unions to what is after all a reorganisation plan. Fact is we're going to have to cut costs, and we're going to have to avoid job overlaps at ABN Amro and Fortis. So I'm not going to write a blank check. Forced lay-offs is a debatable term. If someone is placed in our re-employment programme for a number of months, fails to find a new position and is given a generous redudancy pay, I wouldn't call that a forced lay-off."
The unions fear you will want to renegotiate the social contract.
"There are currently two banks with their own social contracts. It is logical that we shoud want to come up with a new plan for the new combined bank, in consultation with the unions of course. The main theme will be: work, work, work..."
'Suicidaire' Gunmen Stalk Diamond Diggers in Congo's Mining Hub
After digging all day on the edge of the Democratic Republic of Congo’s biggest diamond mine, Mike Mukadji hurries home to his pregnant wife and baby daughter for fear of encountering the gunmen known as "suicidaires." With the collapse in diamond prices over the past year, the gangsters have lost their main source of revenue, protection money extorted from diggers. The criminals, known as suicidaires for their suicidal propensity to confront police in shoot-outs, are turning instead to robbery. Their targets are workers in Mbuji Mayi, the capital of Eastern Kasai province and center of the country’s diamond-mining industry. m"They will just kill you," Mukadji, 29, said as dusk settled on the hundreds of diggers heading home, chewing on peanuts and roasted corn. His diggings average about 1,000 francs ($1.24) a day, Mukadji said.
The suicidaires, many armed with AK-47 rifles, are riddled with army and police deserters, said Dieudonne Tshimpidimbua, the coordinator of local human-rights body Groupe d’Appui aux Exploitants des Ressources Naturelles. As the global recession has cut producer prices by 70 percent in the region over the last eight months, suicidaires have started breaking into homes and stealing at gunpoint, threatening the workforce of small diggers that nationwide accounts for more than 90 percent of Congo’s $365 million diamond industry. "They’re harassing the population," said provincial police chief General Philemon Patience Mushidi, whose force killed two suicidaires last month in a firefight. "That’s what the crisis has brought to our province. We often start shooting at each other. It’s like a war. Before, the city was safer."
Mbuji Mayi’s police stepped up joint patrols with the army to counter the suicidaires, Mushidi said in an interview in his air-conditioned office in central Mbuji Mayi, ignoring one of his seven mobile phones as it rang to the tune of "Mon General Patience." "If the diamond price doesn’t pick up, this spike in crime will get even worse," he said. Prices of VS2 G diamonds, a commonly traded gem, are at $4,210 a carat for a one-carat stone, according to Antwerp-based PolishedPrices.com. They peaked in October last year at $6,920 a carat and averaged $4,672 in the last 12 months. A carat is equal to a fifth of a gram. De Beers, the world’s biggest diamond company, and BHP Billiton Ltd., the top mining company, have ended exploration projects in Kasai. De Beers cut output by 91 percent in the first quarter. The Societe Miniere de Bakwanga, or Miba, which is 20 percent owned by Mwana Africa Plc and 80 percent by the Congolese state, on Nov. 18 ceased production for the first time in more than a 100 years.
Diamonds fetch so little in Mbuji Mayi these days that they have taken on a nickname in the local Chiluba language, "ondja," which means something of such poor quality that it is almost worthless. The price for a carat has dropped to about $150 from about $500 a year ago, according to Celestin Kubela, the president of the Provincial Council of Diamond Merchants. Miba will restart operations when the price of diamonds exceeds the cost of production, Chief Executive Officer Christine Tusse said in a May 13 interview. The company wants a $140 million loan from South Africa’s Industrial Development Corp. and the Development Bank of Southern Africa. Diamond production drives the economy of Mbuji Mayi, which was uninhabited until mining started a century ago, said Kubela. About three-quarters of the international diamond-buying houses in town have closed, he said.
"The crisis has had a terrible impact on the city, it’s stopped everything," Kubela said. "Diamonds are everything. Life has become unsustainable." Congo is Africa’s fifth-biggest producer after Botswana, South Africa, Angola and Namibia, according to the Web site of the Kimberley Process, the organization which certifies that diamonds are not mined in conflict zones. The economic crisis has cut demand for most commodities, upending President Joseph Kabila’s plans to rebuild a country the size of Western Europe that has suffered two civil wars since 1996 and continuing violence in the east. The International Monetary Fund, the World Bank and the African Development Bank this year committed $392.5 million to Congo. The government says it isn’t enough.
Right now, the diggers are crucial to Congo’s mining industry, unearthing most of its copper, cobalt, tin and gold, Baudouin Iheta, coordinator-general of Saesscam, the state agency that oversees small-scale mining, said in an interview. Tresor Madimba, 21, who works in a water-logged pit near Lwamuela, about 20 kilometers east of Mbuji Mayi, said the suicidaire threat has forced him to sleep in the tall grass beside a cluster of mud huts, where women dry laundry and boil food for the diggers. He is afraid that if he sleeps in a hut he will be an easier target for the suicidaires. "I always give without arguing, otherwise you’re in trouble," Madimba said. "If you don’t have anything you get beaten up."
Missing Link Found: New Fossil Links Humans, Lemurs?
Meet "Ida," the small "missing link" found in Germany that's created a big media splash and will likely continue to make waves among those who study human origins. In a new book, documentary, and promotional Web site, paleontologist Jorn Hurum, who led the team that analyzed the 47-million-year-old fossil seen above, suggests Ida is a critical missing-0link species in primate evolution. The fossil, he says, bridges the evolutionary split between higher primates such as monkeys, apes, and humans and their more distant relatives such as lemurs. "This is the first link to all humans," Hurum, of the Natural History Museum in Oslo, Norway, said in a statement. Ida represents "the closest thing we can get to a direct ancestor."
Ida, properly known as Darwinius masillae, has a unique anatomy. The lemur-like skeleton features primate-like characteristics, including grasping hands, opposable thumbs, clawless digits with nails, and relatively short limbs. "This specimen looks like a really early fossil monkey that belongs to the group that includes us," said Brian Richmond, a biological anthropologist at George Washington University in Washington, D.C., who was not involved in the study. But there's a big gap in the fossil record from this time period, Richmond noted. Researchers are unsure when and where the primate group that includes monkeys, apes, and humans split from the other group of primates that includes lemurs. "[Ida] is one of the important branching points on the evolutionary tree," Richmond said, "but it's not the only branching point."
At least one aspect of Ida is unquestionably unique: her incredible preservation, unheard of in specimens from the Eocene era, when early primates underwent a period of rapid evolution. "From this time period there are very few fossils, and they tend to be an isolated tooth here or maybe a tailbone there," Richmond explained. "So you can't say a whole lot of what that [type of fossil] represents in terms of evolutionary history or biology." In Ida's case, scientists were able to examine fossil evidence of fur and soft tissue and even picked through the remains of her last meal: fruits, seeds, and leaves. What's more, the newly described "missing link" was found in Germany's Messel Pit. Ida's European origins are intriguing, Richmond said, because they could suggest—contrary to common assumptions—that the continent was an important area for primate evolution.
Climate change odds much worse than thought
The most comprehensive modeling yet carried out on the likelihood of how much hotter the Earth's climate will get in this century shows that without rapid and massive action, the problem will be about twice as severe as previously estimated six years ago - and could be even worse than that. The study uses the MIT Integrated Global Systems Model, a detailed computer simulation of global economic activity and climate processes that has been developed and refined by the Joint Program on the Science and Policy of Global Change since the early 1990s. The new research involved 400 runs of the model with each run using slight variations in input parameters, selected so that each run has about an equal probability of being correct based on present observations and knowledge. Other research groups have estimated the probabilities of various outcomes, based on variations in the physical response of the climate system itself. But the MIT model is the only one that interactively includes detailed treatment of possible changes in human activities as well - such as the degree of economic growth, with its associated energy use, in different countries.
Study co-author Ronald Prinn, the co-director of the Joint Program and director of MIT's Center for Global Change Science, says that, regarding global warming, it is important "to base our opinions and policies on the peer-reviewed science," he says. And in the peer-reviewed literature, the MIT model, unlike any other, looks in great detail at the effects of economic activity coupled with the effects of atmospheric, oceanic and biological systems. "In that sense, our work is unique," he says. The new projections, published this month in the American Meteorological Society's Journal of Climate, indicate a median probability of surface warming of 5.2 degrees Celsius by 2100, with a 90% probability range of 3.5 to 7.4 degrees. This can be compared to a median projected increase in the 2003 study of just 2.4 degrees. The difference is caused by several factors rather than any single big change. Among these are improved economic modeling and newer economic data showing less chance of low emissions than had been projected in the earlier scenarios.
Other changes include accounting for the past masking of underlying warming by the cooling induced by 20th century volcanoes, and for emissions of soot, which can add to the warming effect. In addition, measurements of deep ocean temperature rises, which enable estimates of how fast heat and carbon dioxide are removed from the atmosphere and transferred to the ocean depths, imply lower transfer rates than previously estimated. Prinn says these and a variety of other changes based on new measurements and new analyses changed the odds on what could be expected in this century in the "no policy" scenarios - that is, where there are no policies in place that specifically induce reductions in greenhouse gas emissions. Overall, the changes "unfortunately largely summed up all in the same direction," he says. "Overall, they stacked up so they caused more projected global warming." While the outcomes in the "no policy" projections now look much worse than before, there is less change from previous work in the projected outcomes if strong policies are put in place now to drastically curb greenhouse gas emissions.
Without action, "there is significantly more risk than we previously estimated," Prinn says. "This increases the urgency for significant policy action." To illustrate the range of probabilities revealed by the 400 simulations, Prinn and the team produced a "roulette wheel" that reflects the latest relative odds of various levels of temperature rise. The wheel provides a very graphic representation of just how serious the potential climate impacts are. "There's no way the world can or should take these risks," Prinn says. And the odds indicated by this modeling may actually understate the problem, because the model does not fully incorporate other positive feedbacks that can occur, for example, if increased temperatures caused a large-scale melting of permafrost in arctic regions and subsequent release of large quantities of methane, a very potent greenhouse gas. Including that feedback "is just going to make it worse," Prinn says.
The lead author of the paper describing the new projections is Andrei Sokolov, research scientist in the Joint Program. Other authors, besides Sokolov and Prinn, include Peter H. Stone, Chris E. Forest, Sergey Paltsev, Adam Schlosser, Stephanie Dutkiewicz, John Reilly, Marcus Sarofim, Chien Wang and Henry D. Jacoby, all of the MIT Joint Program on the Science and Policy of Global Change, as well as Mort Webster of MIT's Engineering Systems Division and D. Kicklighter, B. Felzer and J. Melillo of the Marine Biological Laboratory at Woods Hole. Prinn stresses that the computer models are built to match the known conditions, processes and past history of the relevant human and natural systems, and the researchers are therefore dependent on the accuracy of this current knowledge. Beyond this, "we do the research, and let the results fall where they may," he says.
Since there are so many uncertainties, especially with regard to what human beings will choose to do and how large the climate response will be, "we don't pretend we can do it accurately. Instead, we do these 400 runs and look at the spread of the odds." Because vehicles last for years, and buildings and powerplants last for decades, it is essential to start making major changes through adoption of significant national and international policies as soon as possible, Prinn says. "The least-cost option to lower the risk is to start now and steadily transform the global energy system over the coming decades to low or zero greenhouse gas-emitting technologies."