Friday, January 30, 2009

The Big Fix - How Will The Economy Grow?

The New York Times - The economy will recover. It won’t recover anytime soon. It is likely to get significantly worse over the course of 2009, no matter what President Obama and Congress do. And resolving the financial crisis will require both aggressiveness and creativity.

In fact, the main lesson from other crises of the past century is that governments tend to err on the side of too much caution — of taking the punch bowl away before the party has truly started up again. “The mistake the United States made during the Depression and the Japanese made during the ’90s was too much start-stop in their policies,” said Timothy Geithner, Obama’s choice for Treasury secretary, when I went to visit him in his transition office a few weeks ago. Japan announced stimulus measures even as it was cutting other government spending. Franklin Roosevelt flirted with fiscal discipline midway through the New Deal, and the country slipped back into decline.

Geithner arguably made a similar miscalculation himself last year as a top Federal Reserve official who was part of a team that allowed Lehman Brothers to fail. But he insisted that the Obama administration had learned history’s lesson. “We’re just not going to make that mistake,” Geithner said. “We’re not going to do that. We’ll keep at it until it’s done, whatever it takes.”

Once governments finally decide to use the enormous resources at their disposal, they have typically been able to shock an economy back to life. They can put to work the people, money and equipment sitting idle, until the private sector is willing to begin using them again. The prescription developed almost a century ago by John Maynard Keynes does appear to work.

But while Washington has been preoccupied with stimulus and bailouts, another, equally important issue has received far less attention — and the resolution of it is far more uncertain. What will happen once the paddles have been applied and the economy’s heart starts beating again? How should the new American economy be remade? Above all, how fast will it grow?

Senators Bid to Regulate Hedge Funds

The New York Times - WASHINGTON — Two senior senators introduced legislation on Thursday to impose government oversight of hedge funds.

The legislation by Senator Carl Levin, Democrat of Michigan, and Senator Charles E. Grassley, Republican of Iowa, was filed as the Obama administration was preparing a broader legislative overhaul of the regulatory system, including an effort to more tightly regulate hedge funds.

State regulators and a panel created by Congress to oversee the $700 billion Troubled Asset Relief Program issued separate but similar regulatory proposals on Thursday. The proposals also seemed to closely mirror many of the provisions that administration officials say will be part of their plan.

The regulatory overhaul is one piece of the administration’s effort to restore confidence in the financial system.

Other pieces include a stimulus bill that the House passed on Wednesday and that is moving through the Senate, and an overhaul of the financial assistance program for the nation’s largest banks.

Senior administration officials have been in discussions this week with Wall Street executives over proposals for managing the remaining $350 billion in the troubled assets program. A new plan is expected to be announced soon.

At the same time, the administration is preparing to propose tighter regulation of credit rating agencies, new federal oversight of mortgage brokers and greater supervision of credit-default swaps, the unregulated financial instruments that experts say contributed to the economic crisis.

Obama Calls Wall Street Bonuses ‘Shameful’

Treasury Secretary Timothy F. Geithner, left, President Obama and Vice President Joseph R. Biden Jr. in the Oval Office.

The New York Times - WASHINGTON — President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.

“There will be time for them to make profits, and there will be time for them to get bonuses,” Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. “Now’s not that time. And that’s a message that I intend to send directly to them, I expect Secretary Geithner to send to them.”

It was a pointed — if calculated — flash of anger from the president, who frequently railed against excesses in executive compensation on the campaign trail. He struck his populist tone as he confronted the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion.

This week alone, American companies reported as many as 65,000 job cuts, and public anger is rising over reports of profligate spending by banks and investment firms that are receiving help from the $700 billion bailout fund. About half of that money is still available, but the new administration has yet to announce how it will use it, and many analysts think it will take far more to stabilize the banking system.

In the meantime, public outrage is already forcing some companies to rein in their lavish spending. John A. Thain, the former Merrill Lynch executive who was forced out of Bank of America, said this week he would reimburse Bank of America for an expensive renovation of his office that included an $87,000 area rug and $35,000 commode.

But it took the urging of the Obama administration to force Citigroup, which received an infusion of taxpayer funds last year, to abandon plans to buy a $50 million corporate jet. On Thursday, Mr. Obama made reference to the jet, without singling out Citigroup by name; his remarks came one day after the president met at the White House with business leaders, including Richard D. Parsons, the new chairman of Citigroup.

Thursday, January 29, 2009

At Starbucks, A Tall Order For New Cuts,Store Closures

The Wall Street Journal - Starbucks Corp., posting a 69% drop in quarterly profit, said it will close another 300 stores and cut 6,700 workers as it continues to reel from overexpansion and a sharp sales slowdown amid the recession.

Looking to share the pain, Chief Executive Howard Schultz asked the board last week to reduce his annual base pay of $1.2 million, according to a spokeswoman. Mr. Schultz suggested a token salary of $1, but the board's compensation committee ultimately decided to cut it to $10,000. Once benefits costs are deducted from his check, Mr. Schultz will earn less than $4 a month in base salary, though his pay package includes compensation in stock.

Mr. Schultz said the closures are happening in places where Starbucks built stores under the assumption that the economy would remain strong. "That economic environment no longer exists," he told investors on a conference call. The company has been particularly hard hit by home foreclosures in California and Florida, he said.

Under its latest plan, Starbucks will close an additional 200 locations in the U.S. and 100 locations internationally by this fall. That is on top of more than 600 store closures the company announced last year. The chain currently has nearly 17,000 outlets and 167,000 workers.

Starbucks plans to lay off 6,000 store workers because of the closings, though some will be placed at other stores. It also will cut 700 nonstore workers at its Seattle headquarters and other field offices. Starbucks is still finalizing the list of stores that will be shuttered.

Once one of the fastest-growing retailers -- and hottest growth stocks -- Starbucks has had a spiraling fall from grace. In its zeal to hit an expansion target of 40,000 locations globally, the company made poor selections for new sites, distracted itself with forays into movies and music, cluttered stores with too much merchandise and lost its focus on coffee.

High prices, meanwhile, are going out of style fast. Starbucks grew by creating a luxury image with lattes and Frappuccinos that can top $4 apiece. Among Starbucks' biggest challenges now is how to reposition its brand in a recession.

Chinese Premier Blames Recession on U.S. Actions

The Wall Street Journal - Chinese Premier Wen Jiabao squarely blamed the U.S.-led financial system for the world's deepening economic slump, in the most public indication yet of discord between the U.S. government and its largest creditor.

Leaders in China, the world's third-largest economy, have been surprised and upset over how much the problems of the U.S. financial sector have hurt China's holdings. In response, Beijing is re-examining its U.S. investments, say people familiar with the government's thinking.

Mr. Wen, the first Chinese premier to visit the annual global gathering of economic and political leaders in Davos, Switzerland, delivered a strongly worded indictment of the causes of the crisis, clearly aimed largely at the United States though he didn't name it. Mr. Wen blamed an "excessive expansion of financial institutions in blind pursuit of profit," a failure of government supervision of the financial sector, and an "unsustainable model of development, characterized by prolonged low savings and high consumption."

Chinese leaders have felt burned by a series of bad experiences with U.S. investments they had believed were safe, say people familiar with their thinking, including holdings in Morgan Stanley, the collapsed Reserve Primary Fund and mortgage giants Fannie Mae and Freddie Mac. As a result, the people say, government leaders decided not to make new investments in a number of U.S. companies that sought China's capital. China's pullback from Fannie and Freddie debt helped push up rates on U.S. mortgages last year just as Washington was seeking to revive the U.S. housing market.

To be sure, China's economy now is so closely intertwined with the U.S.'s that major, abrupt changes are unlikely. The U.S.-China economic relationship has become arguably the world's most important. China has been recycling its vast export earnings by financing the U.S. deficit through buying Treasurys, helping to keep U.S. interest rates low and give American consumers more spending power to buy Chinese exports.

China now has roughly $2 trillion in foreign exchange reserves, and has continued to buy U.S. government debt -- surpassing Japan in September as the biggest foreign holder of Treasurys, by one official U.S. measure. China must continue to recycle its trade surplus if it doesn't want its currency to appreciate too quickly.

House Passes Stimulus Plan Despite G.O.P. Opposition

WASHINGTON — Without a single Republican vote, President Obama won House approval on Wednesday for an $819 billion economic recovery plan as Congressional Democrats sought to temper their own differences over the enormous package of tax cuts and spending.

As a piece of legislation, the two-year package is among the biggest in history, reflecting a broad view in Congress that urgent fiscal help is needed for an economy in crisis, at a time when the Federal Reserve has already cut interest rates almost to zero.

Its cost would drive the overall package’s tally to nearly $900 billion. That would exceed the roughly $850 billion limit that Mr. Obama has set for Congress, House Democratic leadership aides said, and leave no room for other proposals that senators of both parties are poised to seek during Senate debate next week.

Wednesday, January 28, 2009

Fed Signals It’s Ready to Expand Assistance as Needed

WASHINGTON — Conceding that the economy is still spiraling downward on most fronts, the Federal Reserve signaled on Wednesday that it would expand its use of unconventional measures to directly prop up lending for mortgages, consumer loans and businesses.

“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Fed said Wednesday in its statement.

The Fed has already been buying mortgage-backed securities and said in its statement that it would expand its intervention as needed. The committee also served notice that it would purchase longer-term Treasury bonds, a move that would drive down long-term interest rates of all types.

Reynolds Scholarship for Business Writing

The deadline is approaching to apply for one of eight non-renewable scholarships of $4,000 to college juniors or graduate students for their following academic year.

The scholarships are funded by the Donald W. Reynolds National Center for Business Journalism. Deadline for applications is Feb. 2, 2009, with scholarships awarded March 17, 2009 for the academic year that commences in fall 2009.

The scholarships are for business journalism majors, or journalism majors with a concentration in business journalism, who are seriously interested in pursuing a career in business journalism. In some cases, other students who have gained experience solely through opportunities such as business journalism internships will be considered.

A journalism faculty member must nominate the student following the directions below.

The Reynolds Center will review the qualifications of the candidates before the final eight selections are announced. Each student through his or her university will receive $4,000 that will be applied to the coming academic year.

Students must be enrolled full-time. Financial need is not a criterion.

The postmark deadline for scholarships is Feb. 2, 2009.

Professors nominating students for a scholarship should:

1. Fill out the scholarship nomination form. The form is available for download at

2. Mail the nomination to the Reynolds Center.

3. Inform the student of his or her nomination.

The nominated student must then:

1. Fill out the scholarship submission form at

2. Mail the form along with a resume, 500-word essay and three samples of print, online or broadcast work to the Reynolds Center.

Mail Submissions to:
Andrew Leckey, Director
Donald W. Reynolds National Center
for Business Journalism
Cronkite School of Journalism/ASU
Attention: Scholarships
555 N. Central Avenue, Ste. 302
Phoenix, AZ 85004-1248

Tuesday, January 27, 2009

Thain Fires Back at Bank of America

The Wall Street Journal - John Thain came out swinging against his former boss, Bank of America Chairman and Chief Executive Kenneth Lewis, saying Monday he was "completely transparent" about big fourth-quarter losses at Merrill Lynch & Co. that cost him his job last week. Monday's unusually pointed remarks by Mr. Thain exposed the personal tensions between the two men and a cultural rift between Bank of America and Merrill. The feud is deepening doubts that the giant commercial bank will be able to successfully absorb the world's largest brokerage firm, which it bought this month.

In a parting shot emailed to a small group of Merrill executives, the 53-year-old Mr. Thain also insisted that officials at the Charlotte, N.C., bank were involved in the decision to pay out 2008 bonuses at Merrill so that employees would get them by year end.

Central Banks Are Creatures of Financial Crises

Crowds gather near Wall Street on Oct. 24, 1929, the first day of the stock-market crash that preceded the Great Depression.

The Wall Street Journal - Since the beginning of the financial crisis in 2007, the Federal Reserve has come to the rescue so many times that even seasoned central-bank watchers have trouble keeping track.

It has injected more than $1 trillion into the financial system. It has backstopped corporate short-term lending. It has cut its overnight target rate from 5.25% in August 2007 to between zero and 0.25% -- the lowest level in the Fed's 95 years. Since it can't lower rates any more, it has begun effectively to print money in an attempt to bolster the economy.

But its actions don't seem so extraordinary from the perspective of three centuries of central-banking history. Central banks have been built on financial crises, with each major tremor expanding their role. And today's economic convulsions foreshadow more changes to come at the Fed.

If it wasn't for crises, central banks might not exist. In Britain, after years of civil war and the ouster of King James by William III in 1688, the country's public finances were in tatters, with tax collection falling short of what the government needed to pay its bills and lenders unsure about the stability of the government. The Bank of England, one of the first central banks and for centuries the most important one, was founded in 1694 to purchase government debt and curtail the funding crisis.

Price Cuts Spur Home Sales

BOUNCE: Falling prices in hard-hit places like Henderson, Nev., near Las Vegas, have helped stimulate home sales.

The Wall Street Journal - U.S. home sales registered their biggest monthly jump in nearly seven years in December, as cratering prices began to draw out more buyers and several major housing markets showed some signs of stabilizing.

The 6.5% rise in sales from November was attributed in part to strong sales of foreclosed homes. Economists say it is too early to suggest that broad improvement is at hand, though, and warned that the spring buying season is likely to be sluggish amid growing economic hardship. Indeed, the employment picture continued to darken Monday as U.S. employers announced at least another 65,000 layoffs. (See related article.)

McDonald's to Expand, Posting Strong Results

The Wall Street Journal - As many restaurants have struggled to keep their doors open, McDonald's Corp. reported strong fourth-quarter results and said it will have 650 more outlets by year end.

The developments show how consumers are shifting their behavior in a way that favors McDonald's while hurting midprice, sit-down chains and independent eateries. McDonald's low prices and efforts to broaden its menu with more chicken, beverage and breakfast items are helping the company grow despite the recession.

Same-store sales, a key measure of restaurants' health, rose 7.2%. Earnings at the world's largest restaurant chain by sales declined 23% to $985.3 million, or 87 cents a share, in the fourth quarter from $1.27 billion, or $1.06 a share, a year earlier when it had a 33-cent gain from tax items. McDonald's total revenue fell 3.3% to $5.57 billion because of currency translations.

"We do so well because our strategies have been so well planned out," Jim Skinner, McDonald's chief executive, said in an interview Monday. McDonald's serves 58 million customers a day -- two million more than a year ago.

Analysts expect that this year will be another dismal one for most restaurant chains, extending a downturn that started in 2006. Yet McDonald's plans to spend $2.1 billion this year to remodel restaurants and build new ones at a slightly more rapid pace than in recent years.

Analysts said McDonald's potential to keep exceeding expectations is limited, however, and that it could become more difficult for the company to keep topping its strong sales results. Among the challenges is that the rising dollar is diluting the benefit the chain has received from overseas.

Also, McDonald's big U.S. initiative adding lattes, cappuccinos and other upscale coffee drinks -- which are now in 7,000 locations -- comes as budget-conscious consumers are cutting back on such extravagances. Mr. Skinner said the coffee program is on track and that he doesn't think its rollout was ill-timed. "You have to remember that everything we do at McDonald's is for the long term," he said.

Delta Airlines Faces Big Loss

The Wall Street Journal - Delta Air Lines Inc.'s fourth-quarter net loss widened on more than $900 million in stock-compensation costs and fuel-hedging losses.

Chief Executive Richard H. Anderson said, "Despite the difficult economic environment, we expect to be solidly profitable in 2009 driven by lower fuel costs, capacity discipline and merger synergies."

Delta, now the world's largest airline by passengers after its October merger with Northwest Airlines, posted a net loss of $1.44 billion, or $2.11 a share, compared with a year-earlier net loss of $70 million, or 18 cents a share. Excluding items such as $900 million in employee equity awards and fuel hedging, the latest quarter's loss would have been 50 cents.

Revenue jumped 43% to $6.71 billion. Assuming the merger was completed before the year-earlier quarter, revenue dipped 0.3% to $7.77 billion. Analysts surveyed by Thomson Reuters expected a loss of 34 cents on revenue of $7.99 billion.

Mr. Anderson said earlier this month that the global economic slowdown won't alter Delta's expectations from its purchase of Northwest. Anderson said the airline continues to aim to generate $2 billion of annual cost cuts by 2012 through steps such as optimizing combined fleets.

Mainline revenue passenger miles, or one paying passenger flown one mile, dropped 3.1% in the latest quarter, as capacity declined 4.2%.Delta, along with other carriers, has been cutting U.S. capacity -- eliminating some of its less-traveled routes -- as part of a plan to cut costs. The company said it would cut capacity by 6% to 8% in 2009 as the global recession continues to weaken demand for air travel.

Looking ahead, Delta expects first-quarter mainline capacity to be down 6% to 8%, down 13% to 15% in the U.S. and flat to up 2% internationally. The company projects fuel costs averaging $2.34 a gallon for the quarter and $2.15 for the year.

Monday, January 26, 2009

62,000 Jobs Are Cut by U.S. and Foreign Companies

Employers have tried to nip and tuck their labor costs by reducing overtime, shortening the workweek and freezing wages, but now, they are reaching for the saw.

On Monday alone, companies across the employment spectrum announced more than 65,000 job cuts in the United States and around the world, a stark sign that businesses are enduring a painful, protracted downturn.

Monday’s toll included 20,000 cuts at Caterpillar, the world’s largest maker of construction and mining machinery; 8,000 jobs at the wireless provider Sprint Nextel; 7,000 workers at Home Depot, and 8,000 from the expected merger of the pharmaceutical makers Pfizer and Wyeth. The beleaguered automaker General Motors announced that it would cut shifts at plants in Michigan and Ohio, where the downturn has hit hardest, eliminating some 2,000 jobs.

And Texas Instruments said after the market closed on Monday that it would cut 3,400 jobs or 12 percent of its work force through 1,800 layoffs and 1,600 buyouts or retirements.

In Europe, the banking and insurance group ING said it would cut 7,000 jobs; the electronics company Philips, 6,000; and the steel maker Corus, 3,500 worldwide.

Starbucks CEO, Top Officials Didn't Get Bonuses for 2008

The Wall Street Journal - Starbucks Corp. Chief Executive Howard Schultz and several other top executives didn't earn bonuses this past fiscal year as sales and earnings growth slowed at the coffee giant.

Additionally, according to the company's annual proxy statement, filed Thursday, Mr. Schultz won't participate in Starbucks's executive management bonus plan for the current fiscal year, which will end Sept. 27. Instead, he is getting a long-term incentive grant in the form of stock options to "more closely align pay for performance," according to the proxy filing.

Starbucks CEO Howard Schultz

For the year that ended Sept. 28, 2008, Mr. Schultz's compensation package totaled $9.7 million, including his base salary, stock options and other items such as life and disability insurance. That was 8.5% lower than the previous year, when his compensation package totaled $10.6 million.

Five other current and former top executives also failed to earn bonuses for fiscal 2008 as a result of the company's financial performance. Mr. Schultz and the three officers in that group who remain at the company won't get increases in their base salary for fiscal 2009. It will be the fifth year in a row that Mr. Schultz's base salary has been flat.

Brokerage Chief Sold $13 Million Mansion to Wife for $10

Richard S. Fuld Jr., the former chairman and chief executive of Lehman Brothers, testifying at a Congressional hearing last October.

The New York Times - Housing prices are falling around the country, but this one sounds hard to believe: A seaside mansion on Jupiter Island in Florida, bought for more than $13 million five years ago, was just sold for $10.

That’s right, 10 bucks. But in this case, the transaction is likely to raise eyebrows for reasons other than the price.

The seller, according to county records, was Richard S. Fuld Jr., the former chairman and chief executive of Lehman Brothers. The buyer was his wife, Kathleen.

The motivation is unclear, but Mr. Fuld has been under intense scrutiny since Lehman declared bankruptcy in September.

The longtime leader of the brokerage firm is at the center of a federal investigation into whether Lehman executives misled investors about the state of the company. And he was grilled by lawmakers at a Congressional hearing in October.

Mr. Fuld said in sworn testimony before a Congressional panel last year that while he took full responsibility for the debacle, he believed that all his decisions “were both prudent and appropriate” given the information he had at the time.

The couple jointly bought the home in Hobe Sound, Fla., for $13.75 million in March 2004, and the sale to Mrs. Fuld on Nov. 10 was first reported by

It is possible that he is now transferring properties because of his fears of investor lawsuits or a possible bankruptcy, lawyers in Florida said.

“This is the oldest trick in the books” said Eric S. Ruff, a lawyer with Ruff & Cohen in Gainesville, Fla. “It’s common when you hear the feet of your creditors approaching to divest yourself.”

Security Video Captures Jet's Hudson River Landing

A new video, captured by a security camera from Con Edison, is the longest video (47 minutes) to surface detailing the dramatic landing of the U.S. Airways flight landing in the Hudson River. Courtesy Reuters.

Nationalization of Banks Gets A Serious Look

The New York Times - WASHINGTON — Only five days into the Obama presidency, members of the new administration and Democratic leaders in Congress are already dancing around one of the most politically delicate questions about the financial bailout: Is the president prepared to nationalize a huge swath of the nation’s banking system?

Privately, most members of the Obama economic team concede that the rapid deterioration of the country’s biggest banks, notably Bank of America and Citigroup, is bound to require far larger investments of taxpayer money, atop the more than $300 billion of taxpayer money already poured into those two financial institutions and hundreds of others.

But if hundreds of billions of dollars of new investment is needed to shore up those banks, and perhaps their competitors, what do taxpayers get in return? And how do the risks escalate as government’s role expands from a few bailouts to control over a vast portion of the financial sector of the world’s largest economy?

Taxpayers are now the biggest shareholders in Bank of America, with about 6 percent of the stock, and in Citigroup, with 7.8 percent. But the government’s influence is far larger than those numbers suggest, because it has guaranteed to absorb the losses of some of the two banks’ most toxic assets, a figure that could run into the hundreds of billions of dollars.

Freight Rates Plunge as Huge Carriers Sail

The Wall Street Journal - Container shippers are unleashing a wave of titanic vessels on the oceans during the biggest dip in global trade since World War II.

The trend could keep sea freight rates depressed well into 2010. That's good news for their customers, the millions of businesses big and small that import parts and products from overseas. But it's likely to spell pain within the shipping industry itself and could precipitate consolidation as smaller players are pushed out.

The jumbo vessels -- many longer than three football fields -- carry everything from strawberries and tea to iPods and motorcycles, for thousands of customers at once. The economies of scale can be great if shippers can fill their holds.

The MSC Daniela is a glimpse of the future. The size of an aircraft carrier, the ship completed its maiden run from Asia to Europe this month packed with 13,800 containers, or equivalent units, each big enough to contain all the contents of a three-bedroom house.

Thirty-five ships of Daniela's scale are scheduled to hit water in 2009, doubling the number floating today. They'll make up roughly a quarter of the net increase in container capacity on the high seas. The Asian companies that make up 16 of the top 20 container shippers are also ordering the ships, led by China's Cosco Container Lines with 24. By 2013, some 200 ultralarge ships will be in service around the world.

Manufacturing Bubble Bursts in Japan

The Wall Street Journal - TOKYO -- Japan has largely escaped the housing bubble and huge credit losses that are weighing on the U.S. and Europe. Then why is Japan's economy shrinking faster?

Economists and corporate executives are realizing that the nation suffers from the bursting of another type of bubble -- one in manufacturing. Between 2002 and 2007, Japan's manufacturing sector boomed, driven by soaring demand for Japanese automobiles and electronic gadgets by consumers globally, including Americans feeling flush amid rising home prices. Fueling the gains was a weak yen that kept Japanese products competitive and propelled yen-based revenue and earnings for companies such as Toyota Motor and Sony to lofty highs.

Many in Japan were relieved to see their economy growing at a healthy pace again thanks to strong exports, after a slump for more than a decade. But many didn't realize just how vulnerable the economy was becoming to consumers abroad, despite decades of hectoring from the U.S. and Europe that Japan needed to rely less on exports and more on domestic demand.

The foreign advice was hard to implement. That's because workers' pay was kept low amid competition from low-cost nations like China, making it tougher for them to spend.

Lending at Top Banks Drops Despite Federal Cash

The Wall Street Journal - Lending at many of the nation's largest banks fell in recent months, even after they received $148 billion in taxpayer capital that was intended to help the economy by making loans more readily available.

Ten of the 13 big beneficiaries of the Treasury Department's Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008, according to a Wall Street Journal analysis of banks that recently announced their quarterly results.

Those 13 banks have collected the lion's share of the roughly $200 billion the government has doled out since TARP was launched last October to stabilize financial institutions. Banks reporting declines in outstanding loans range from giants Bank of America Corp. and Citigroup Inc., each of which got $45 billion from the government; to smaller, regional institutions. Just three of the banks reported growth in their loan portfolios: U.S. Bancorp, SunTrust Banks Inc. and BB&T Corp.

The loan figures analyzed by the Journal exclude some big TARP recipients that haven't reported fourth-quarter results yet, such as Wells Fargo & Co.

The overall decline in loans on the 13 banks' books -- from about $3.36 trillion as of Sept. 30 to $3.31 trillion at year's end -- raises fresh questions about TARP's effectiveness at coaxing banks to reopen their lending spigots.

Saturday, January 24, 2009

G.E. Meets Expectations for Fourth Quarter, but Questions Persist for 2009

Editor's Note: GE is closely watched because it is often thought to be a bellweather for the rest of the economy.

The New York Times - The General Electric Company delivered a mixed performance in the fourth quarter — and one that is unlikely to resolve the uncertainty about the outlook for the giant industrial and finance conglomerate.

The company’s profit from continuing operations fell 43 percent in the fourth quarter, to $3.9 billion, down from $6.8 billion in the year-earlier quarter. But the lower earnings, at 36 cents a share, were in line with Wall Street’s expectations, which have fallen steadily since the credit crisis last fall and the sharp economic downturn.

Industry analysts have questioned whether G.E. can maintain its generous dividend payments and its triple-A credit rating, given that its large finance business has been hit by credit woes and many of its industrial operations face a weakening outlook.

G.E.’s chief executive, Jeffrey R. Immelt, expressed confidence on both fronts, in a statement and during a conference call with analysts. He said that G.E. was committed to its plan of paying the full dividend of $1.24 a share in 2009, and that its management team ran the company to maintain a stellar triple-A rating.

Once a Boon, Euro Now Burdens Some Nations

The New York Times - ATHENS — “The Italians, the Spaniards, the Greeks, we all have been living in happy land, spending what we did not have,” said George Economou, a Greek shipping magnate, contemplating his country’s economic troubles and others’ from his spacious boardroom. “It was a fantasy world.”

For some of the countries on the periphery of the 16-member euro currency zone — Greece, Ireland, Italy, Portugal and Spain — this debt-fired dream of endless consumption has turned into the rudest of nightmares, raising the risk that a euro country may be forced to declare bankruptcy or abandon the currency.

The prospect, however unlikely, is a humbling one. The adoption of the euro just a decade ago was meant to pull Europe together economically and politically, ending the sometimes furious battles over who could devalue their currency the fastest and beggar their neighbor.

For the Continent, the currency signaled the potential to one day rival the United States. For its poorer countries, winning admission to the euro zone was a point of pride, showing that they had tamed their budget deficits and set their financial houses in order.

Now, in the middle of the worst economic downturn since the euro’s birth, a new view is emerging — especially as the creditworthiness of Greece, Spain and Portugal, one after the other, has been downgraded. The view is that the balm of euro membership allowed these countries to gloss over serious economic problems that have now roared to the fore.

UK Economy Falls Into A Recession

LONDON -- The U.K. economy turned in its worst performance since 1980 in the last quarter of 2008, highlighting the pressures on Prime Minister Gordon Brown as his government seeks ways to ease what is threatening to be a deep and prolonged recession.

U.K. bank stocks fell and the pound touched a 23-year low against the U.S. dollar Friday after the U.K. government announced real gross domestic product -- a broad measure of economic activity, adjusted for inflation -- shrank a larger-than-expected 1.5% in the last three months of 2008 from the previous quarter.

Combined with a 0.6% decline in the third quarter, it marks the first time since 1991 that the U.K. has had two consecutive quarters of contraction, a common definition of recession. Fourth-quarter real GDP was down 1.3% from a year earlier.

The speed and breadth of the economy's deterioration make it increasingly likely that the recession will be the deepest in decades, with damaging consequences for already strained public finances and for Mr. Brown's political fortunes. The U.K. government has already put hundreds of billions of pounds into stimulus and financial bailout measures.

The End of Wall Street - WSJ

Chapter One: In the first of this three-part series, Journal reporters explain how the housing bubble inflated and burst, and why easy money led to the collapse of Wall Street's biggest financial institutions.

Chapter Two: What was going through the minds of CEOs, corporate boards, fund managers and mortgage lenders as they created hard-to-understand derivatives Warren Buffett once called "weapons of financial mass destruction."

Thursday, January 22, 2009

Recession's Future Path

Leading economists discuss the impact of the recession and how long it might go. Kelsey Hubbard reports from the 2009 Global Economic Outlook, co-hosted by Dow Jones Indexes. (Jan. 21)

MSNBC Wants to Add a 3rd Prime-Time Show

Editor's Note - You can be sure that business and economic news will figure prominently here. - MT

The New York Times - WASHINGTON — Building on the momentum of its prime-time hours, MSNBC is developing a 10 p.m. program that would complement its left-leaning evening lineup, the cable news channel’s president said this week.

A new program could increase the competition between MSNBC, a unit of NBC Universal, and its two chief competitors, Fox News Channel and CNN, for news viewers in the time slot. Unlike most major networks, MSNBC’s original programming ends at 10 each weeknight. The 8 p.m. program “Countdown With Keith Olbermann” is rerun at 10 p.m., where it usually ranks third.

But Phil Griffin, the president of MSNBC, is making 10 p.m. a priority now. In an interview on Tuesday in a studio on the Mall, hours after the inauguration of President Obama, Mr. Griffin said that the channel needed a third original show in its lineup.

“We can’t let this momentum stop,” he said.

There is no obvious candidate to host the 10 p.m. hour; the network seems to lack a substantial bench of opinionated hosts-in-waiting. Then again, Rachel Maddow became a political analyst for MSNBC just 12 months ago, and now her 9 p.m. program, “The Rachel Maddow Show,” outrates CNN’s “Larry King Live” in the 25-to-54 age group.

Falling Pound Raises Fears of Stagnation

The New York Times - LONDON — An island nation that bulked up on debt and lived beyond its means. A plunging currency. And a financial system edging toward nationalization.

With the pound at a multidecade low and British banks requiring ever-larger injections of taxpayer cash, it is no wonder that observers have started to refer to London as “Reykjavik-on-Thames.”

While that judgment seems exaggerated, there are uncomfortable parallels between Iceland’s recent financial downfall and Britain’s trajectory. Equally important, news that widening bank losses in Britain have necessitated another round of government life support provides a stark example to the United States.

Washington’s attempts to stabilize financial institutions have failed so far, as well. And now the Obama administration, along with the rest of the world, could watch Britain to see what a bank nationalization might look like, and what it might suggest for American banks.

Ordinary Britons have a more basic worry. After relishing the boom that transformed the drab United Kingdom into Cool Britannia, they fear that the disheartening economic stagnation of the 1970s might return.

The pound, a symbol of British independence from the Continent that is revered nearly as much as the queen, is now down nearly 29 percent against the dollar from a year ago.

There has been a steady drumbeat of gloomy economic news for months, but the mood in Britain has darkened starkly in recent days.

On Monday, Royal Bank of Scotland warned that its 2008 losses could hit £28 billion, or $38 billion, even as Prime Minister Gordon Brown announced a second bailout package for the troubled banking sector worth tens of billions of pounds. Ultimately, the British rescue effort could cost at least £350 billion, with some estimates ranging far higher.

Three Death Sentences in Chinese Milk Scandal

The New York Times - BEIJING — A group of high-ranking dairy company executives and middlemen were sentenced by a Chinese court on Thursday to long jail terms, life in prison and, for three individuals, the death penalty for endangering public safety last year by selling and producing tainted milk products, according to the state-run news media.

The court said members of the group had intentionally produced and sold fake or substandard dairy products laced with a toxic chemical called melamine, which the government says sickened about 300,000 children and caused the death of at least six in one of the worst food safety scandals in China in decades.

The harshest sentences were given to Zhang Yujun, a dairy middleman who the government called one of the “principal criminals” in the scandal. He was sentenced to death after being convicted of selling 600 tons of melamine-tainted “protein powder” to dairy companies.

Wednesday, January 21, 2009

Bank Shares Plunge on Nationalization Fears

The Wall Street Journal - Shares of the biggest names in American banking plunged Tuesday as some investors feared that the government would need to nationalize the most deeply wounded financial institutions, wiping out stockholders.

The hours-old administration of President Barack Obama is expected to move swiftly to try to stabilize the financial system by pumping more capital into weakened banks and buying bad assets. Nationalization appears to be a last resort, but other options on the table move the U.S. in that direction. In one idea under consideration, the government could buy convertible securities from financial institutions, an approach that could ultimately leave the government owning large chunks of many firms' common shares.

Obama administration officials are sorting through a menu of options as they prepare efforts to clean up bank balance sheets and put them in a better position to lend. Discussions have also advanced on creating a government-backed institution that would buy and hold banks' bad assets, as well as a plan to provide government guarantees on bank holdings. Analysts say that until the Obama plan is unveiled, investors appear to be bracing for the worst-case scenario.

Pound Falls Against The Dollar

LONDON -- The British pound fell to a fresh seven-and-a-half-year low against the dollar and a record low against the yen Wednesday amid mounting fears about the British banking sector and expectations the Bank of England will start pumping money into the economy within weeks.

By late morning London time, the pound fell over 2% in European trading to $1.3716, its lowest since June 2001's $1.3685, before recovering slightly to $1.3743.

Meanwhile, the pound plunged to a new all-time low of 122.99 yen before recovering slightly to 123.50 yen.

The pound, which has slumped from midsummer highs of above $2, has been battered on all sides in recent days as the collapse in bank shares, most notably Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC, has fueled speculation that the government will have to take nationalize them, thereby swelling its already hefty debt levels.

A Kinder Bankruptcy Law Is Sought as Filings Soar

The Wall Street Journal - As bankruptcy filings ramp up amid the world-wide financial crisis, companies are finding that changes made to the U.S. Bankruptcy Code three years ago have made it more difficult to restructure. But some experts believe relief could be on the way.

U.S. lawmakers are scrambling to find a way to revive the economy and the businesses that drive it amid the recession. Revamped laws designed to make the restructuring process kinder to struggling companies may be seen as part of the solution, bankruptcy experts say.

Such changes may provide "a mechanism by which people and businesses can begin economic life anew," said Jack Williams, resident scholar at the nonpartisan American Bankruptcy Institute. "Politically, the winds are right for revisiting bankruptcy law."

It's Bad, But 1982 Was Worse

The New York Times - You often hear that we are now living through the worst recession since the early 1980s, and the comparison is not wrong. But it’s ultimately unsatisfying, because it is a little too vague to be useful.

Is the economy only a little worse than it was in the last couple recessions, as some have said, and still a long way from the dark days of 1982? Or are we instead on our way toward something that may even approach the severity of the Great Depression?

Without more specifics, it is hard to judge the staggering stimulus numbers being thrown around Washington. It is hard to know how tough a task the Obama administration is facing — and whether it’s running the risk of being too timid or too aggressive.

I thought it would make sense to get some clearer historical perspective, and the economists at the Bureau of Labor Statistics were nice enough to help me do so. In the last week, they helped me put together a broad measure of the job market — one including both official unemployment and more subtle kinds — stretching back to 1970. Since the job market covers the entire economy and affects families in tangible ways, it seems to be the single best yardstick.

Rates: When Zero Is Way Too High

Post Courtesy of Emily Mullin

BusinessWeek - Can an interest rate of zero be too high? Unfortunately, yes. A new analysis by Goldman Sachs (GS) concludes that the Federal Reserve's cut in the federal funds rate to a record low of zero to 0.25% on Dec. 16 isn't going to be nearly enough to get the economy going again. The report says the Fed would need to reduce the federal funds rate to negative 6% by the end of 2010 to supply the needed amount of monetary stimulus.

The problem: It's literally impossible to cut interest rates below zero. As a result, "we are entering a world with interest rates that are far too high for the economy's good," Goldman Chief U.S. Economist Jan Hatzius wrote in a Jan. 16 research note.

That's a big negative for a U.S. economy that's already in a deep slump, with retail sales, industrial production, and exports all plummeting. Citigroup (C), Bank of America (BAC), General Motors (GM), and Chrysler, among others, are struggling to keep their heads above water. Circuit City, the second-biggest U.S. electronics retailer, announced on Jan. 16 that it was going out of business and closing all its stores by the end of March. Meanwhile, homebuilders like Lennar (LEN) and D.R. Horton (DHI) are getting squeezed by a record decline in home prices.

Ordinarily when the economy slows, the Federal Reserve can juice it up by cutting short-term interest rates to below the rate of inflation, meaning that in inflation-adjusted terms, rates are actually negative. For example, if inflation is running at 6% per year and interest rates are at 4%, the "real" rate is negative 2%. Negative real rates entice people to borrow money for consumption or investment, which gets the economy going again and soaks up unemployed workers and equipment.

Tuesday, January 20, 2009

Hard Times Brings Boom in Personal Finance Books

We've seen the stock-market plunge, the foreclosures surge, the layoffs and the bankruptcies mount. Now comes the inevitable next stage of the economic downturn: a rash of personal-finance books that promise to help readers navigate their way through the rubble -- and even to prosper amid it.

To some observers, it's the surest sign yet that the worst is over.

In other respects, the actual usefulness of many of these books may be less than advertised. Some of the authors offer few specific tips, while others are substantially altering the advice they've served up in the recent past.

Financial gurus whose past books have highlighted low-money-down home-buying strategies and exotic mortgages are now stressing 20% down payments and standard fixed-rate loans. Market prognosticators are revising earlier bullish forecasts to fit the more-somber market mood. Other authors are packaging investment fundamentals into books that promise to help readers beat the current financial crisis.

Just a year or so ago, the personal-finance bookshelf was a happy-go-lucky place where everybody and their neighbor was about to become a millionaire. Now it's more like a bomb shelter stocked with canned goods for a long battle. Pugilistic titles like "Fight for Your Money" and "Gimme My Money Back" are pushing aside sunnier fare like "Millionaire by Thirty" and "You Can Do It!: The Boomer's Guide to a Great Retirement." At Inc., the top-selling business book in mid-January was "Suze Orman's 2009 Action Plan: Keeping Your Money Safe and Sound." At the same time last year, the top seller was "Ready, Fire, Aim: Zero to $100 Million in No Time Flat."

Monday, January 19, 2009

Will Fox News Swing Left With Obama in Office?

WASHINGTON — When the White House changes occupants this week, it may also change channels.Barack Obama’s inauguration on Tuesday marks the end of an era for the Fox News Channel, the cable news network of choice during the George W. Bush years.

Scott McClellan, the White House press secretary from 2003 to 2006, said in an interview last week that “a number of people viewed Fox as an outlet that would be more favorable” than other media groups to the Bush administration. He emphasized that this feeling applied to the network’s conservative commentators, not its correspondents.

The media world will watch carefully to see whether Fox receives the same treatment from an Obama White House that it received from Mr. Bush’s. And it will wait and see whether Fox can stave off its two primary competitors, CNN and MSNBC, in the 25- to 54-year-old demographic that matters most to advertisers.

Fox easily leads the other cable networks in that demographic on a total day basis. But for a couple of important hours, the gap has narrowed. On at least 10 days since the election, Fox’s 9 p.m. program “Hannity & Colmes” has been surpassed in the competition for viewers in that demographic by Rachel Maddow, the new MSNBC host.

Companies under Pressure as Debts Come Due

The New York Times - Like consumers and homeowners, America’s corporations binged on easy credit when times were flush, racking up huge debts. Now the bills are due, and paying them back will not be easy, or cheap.

This year alone, more than $700 billion in corporate loans will come due, according to Standard & Poor’s. That is the size of the federal bailout of the financial sector. Many companies were counting on being able to borrow more money to meet those obligations and kick their debt farther down the road.

But with the credit markets still tight, corporations are being forced to pay much higher interest rates than they did a few years ago, putting more strain on balance sheets already hammered by falling profits and a grinding recession.

More Americans Join Military As Jobs Dwindle

As the number of jobs across the nation dwindles, more Americans are joining the military, lured by a steady paycheck, benefits and training.

The last fiscal year was a banner one for the military, with all active-duty and reserve forces meeting or exceeding their recruitment goals for the first time since 2004, the year that violence in Iraq intensified drastically, Pentagon officials said.

And the trend seems to be accelerating. The Army exceeded its targets each month for October, November and December — the first quarter of the new fiscal year — bringing in 21,443 new soldiers on active duty and in the reserves. December figures were released last week.

Recruiters also report that more people are inquiring about joining the military, a trend that could further bolster the ranks. Of the four armed services, the Army has faced the toughest recruiting challenge in recent years because of high casualty rates in Iraq and long deployments overseas. Recruitment is also strong for the Army National Guard, according to Pentagon figures. The Guard tends to draw older people.

Sunday, January 18, 2009

F.B.I. and S.E.C. Probe Missing Fund Manager

The New York Times - The F.B.I. and securities regulators have joined the investigation of Arthur Nadel, a Florida hedge fund manager who disappeared four days ago, leaving clients concerned that they might have lost as much as $350 million.

The Federal Bureau of Investigation and the Securities and Exchange Commission are helping on the case, police Lt. Stanley Beishline of Sarasota, Fla., said in a telephone interview.

One of Mr. Nadel’s business partners, Neil Moody, said Mr. Nadel had spoken to his wife, Peg, since he was reported missing. Mr. Nadel, 76, is president of Scoop Management in Sarasota, which oversees funds that include Valhalla Investment Partners. Mr. Moody holds no position in Scoop Management and was a partner with Mr. Nadel only on the Vahalla fund and two Viking funds.

Editors and Publishers in a Revolving Door

Ken Paulson will step down as editor of USA Today in February.

The New York Times - USA Today, The Wall Street Journal, The Los Angeles Times, The Washington Post, The Chicago Tribune, The San Francisco Chronicle, The Baltimore Sun, The San Jose Mercury News and The Kansas City Star have something in common, aside from some of the biggest names in an endangered industry.

By the start of February, not one of them will have the same top editor it had when 2008 began. Most of them will have different publishers, too.

Go back just three years, and the list of newspapers that have changed editors includes The Daily News of New York, The Philadelphia Inquirer, The Miami Herald, The Star Tribune of Minneapolis, the Chicago Sun-Times, The Plain Dealer of Cleveland and The Sacramento Bee.

Each paper has its own story, and some would have changed leaders even in the most placid times. But upheaval in a business that is battling for survival has drastically shortened the shelf lives of editors and publishers at major papers, whether they leave voluntarily or are forced out. All have had to navigate waves of ownership changes, cutbacks, experimentation or all three.

Billionaire Seeks Deal in Times Co.

The New York Times - Carlos Slim HelĂș, the Mexican billionaire, is near a deal to invest about $250 million in The New York Times Company, helping to shore up the publishing company’s struggling finances, according to people briefed on the transaction.

The company’s board is expected to meet on Monday to approve the deal, these people said, and an announcement could be made as early as Tuesday. However, these people also warned that several details still needed to be completed and that it remained possible the agreement could collapse.

The deal would come as the Times Company moves to raise money amid flagging advertising sales and approaching deadlines to pay back hundreds of millions of dollars of debt over the next two years. The company has put its stake in the Boston Red Sox up for sale and said last year that it would borrow as much as $225 million against its new headquarters in Manhattan through a sale-leaseback agreement.

Under the terms of the deal, Mr. Slim, who already owns 6.4 percent of the Times Company, would invest $250 million in the form of 10-year notes with warrants that are convertible into common shares, these people said.

As part of Mr. Slim’s investment, which resembles a loan, he is expected to get a special annual dividend, perhaps as high as 10 percent or more on this investment, these people said.

Mr. Slim is not expected to get any representation on the company’s board or any shares with special voting rights like those of the Sulzberger family, which controls the company. Nonetheless, when Mr. Slim exercises the warrants, he would become the largest shareholder in the Times Company, owning about a third of the common stock.

The Sulzbergers own about 19 percent of company and control it with a special class of voting shares.

Minneapolis Star-Tribune files for bankruptcy

The bad news in the newspaper business continued to mount on Thursday as The Star Tribune of Minneapolis filed for bankruptcy protection.

Star Tribune management warned last month that it would seek bankruptcy protection if it did not win a series of labor concessions on wages and other matters by Friday. Talks with the major unions broke down last week and had not resumed.

The newspaper announced the filing on its Web site Thursday evening.

The publisher, Chris Harte, said in a statement, “We intend to use the Chapter 11 process to make this great Twin Cities institution stronger, leaner and more efficient so that it is better positioned for the future.”

Papers nationwide have suffered from a sharp decline in advertising in the last two years, along with a slower, long-term slide in circulation.

The Star Tribune has the additional problem of a heavy debt burden it took on two years ago, when a private equity group, Avista Capital Partners, bought the paper for $530 million.

Outlook Grim for Automakers

A flock of mansions hit the market at bargain prices

Two years ago, Louis Gonda was a billionaire. Then in September, American International Group Inc., the company from which Mr. Gonda derived the bulk of his wealth, collapsed, its shares falling from nearly $60 a share in January 2008 to less than $2.

Worth an estimated $1.4 billion according to the March 2008 issue of Forbes magazine, Mr. Gonda is selling assets. About a month ago, he put his Beverly Hills, Calif., mansion, an eight-bedroom brick Georgian he's owned for more than 20 years, on the market for $42 million. Within a few days Mr. Gonda lowered the price to $35 million.

In an email, Mr. Gonda says that with his five children grown, he and his wife plan to travel more and no longer need the home. Situated on 1½ acres and a block from the iconic Beverly Hills Hotel, the house has a rectangular pool, a tennis court and a five-car garage, says Mr. Gonda's real-estate agent, Zach Goldsmith, of Hilton & Hyland, an affiliate of Christie's Great Estates.

In July, Mr. Gonda sold a rare beachfront parcel in Playa del Rey, a Los Angeles beachfront community, for $2.4 million, says listing agent Dan Christian, of Shorewood Realtors. Mr. Christian says Mr. Gonda had bought the plot a year before and razed the existing house to make way for a new structure.

Thursday, January 15, 2009

Economy Brings Out the Worst - Swindlers

The New York Times - As home values across the country continue to plummet, the authorities say a new breed of swindler is preying on the tens of thousands of homeowners desperate to avoid foreclosure.

Until recently, defrauders tried to bilk homeowners out of the equity in their homes. Now, with that equity often dried up, they are presenting themselves as “foreclosure rescue companies” that charge upfront fees to modify loans but often do nothing to stave off foreclosure.

The Federal Trade Commission brought lawsuits last year against five companies representing 20,000 customers, and state and local prosecutors have brought dozens more. In Florida, Attorney General Bill McCollum recently sued a company that he said had more than 600 victims.

“There’s no way for the consumer to sort out the legitimate companies,” said Mr. McCollum, who added that he had limited resources to fight what he called “a sheer volume question.”

The companies under suspicion typically charge an upfront fee of up to $3,000 to help borrowers get lower rates on their mortgages from their lenders. But borrowers often cannot afford the fees, the service can be bogus and, in the worst cases, the homeowners lose their chance to renegotiate with their bank or to file for bankruptcy protection because of the time wasted.

There are companies that provide legitimate foreclosure services, but the industry is largely unregulated, making it difficult for homeowners to separate the good from the bad. Some of the fraudulent companies — often run by former real estate agents or mortgage brokers — are local; others are national. Many have official-looking Web sites that suggest that the companies have government affiliations and give homeowners a false sense of security.

Financial Giant Citigroup going to bust itself up

The Wall Street Journal - Citigroup Inc. will soon announce a drastic plan to shed a host of businesses and shrink itself by one-third, say people familiar with the bank, which its executives say will essentially dismantle the financial colossus built by legendary deal maker Sanford Weill.

The bank announced Tuesday, as expected, that it will split off its Smith Barney retail brokerage into a joint venture with Morgan Stanley. Citigroup will also announce steps to shed two consumer-finance units and the company's private-label credit-card business, and scale back on the trading the company does on its own behalf. Citigroup declined to comment.

The moves, which the company intends to unveil along with its fourth-quarter earnings next week, would represent the final abandonment of the acquisition-fueled growth strategy that built Citigroup from a small consumer-finance business into one of the world's largest financial institutions, with more than 300,000 employees in more than 100 countries. The company would essentially strip itself of large pieces of the company formed in a landmark 1998 merger of Citicorp and Travelers Group by then-CEO Mr. Weill. The slimmed-down company would look much like the pre-merger Citicorp.

In Rare Move, Microsoft is Exploring Job Cuts

The Wall Street Journal - Microsoft Corp. is seriously exploring significant work force reductions that could be announced as early as next week, in a sign that the weak economy is prompting tough decisions even at one of the steadiest ships in the technology industry.

According to people familiar with its plans, the Redmond, Wash., giant is considering layoffs across its various divisions, a rare occurrence for the world's largest software company. However, plans for the cutbacks are still in flux and Microsoft could end up finding alternative methods of reining in costs, one of these people said.

Although the number of potential job cuts couldn't be learned, people familiar with the matter said they are likely to be far less than the 15,000 positions that have been rumored in recent weeks, a figure that would amount to more than 16% of Microsoft's global work force.

Bank of America Gets Billions in U.S. Aid

WASHINGTON -- The U.S. government is close to finalizing a deal that would give billions in additional aid to Bank of America Corp. to help it close its acquisition of Merrill Lynch & Co., according to people familiar with the situation.

Discussions over these funds began in mid-December when Bank of America approached the Treasury Department. The bank, already the recipient of $25 billion in committed federal rescue funds, said that it was unlikely to complete its Jan. 1 purchase of the ailing Wall Street securities firm because of Merrill's larger-than-expected losses in the fourth quarter, according to a person familiar with the talks.

Treasury, concerned the deal's failure could affect the stability of U.S. financial markets, agreed to work with the Charlotte, N.C., lender on the "formulation of a plan" that includes new capital from the $700 billion Troubled Asset Relief Program, according to the person familiar with the talks. The amount and terms are still being finalized, this person said. Details are expected to be announced with Bank of America's fourth-quarter earnings, due out Tuesday.

Apple's Jobs Takes Medical Leave

Just a week after reassuring investors and employees about his health, Apple Inc. Chief Executive Steve Jobs disclosed he has a "more complex" medical condition and would take a leave of absence until the end of June.

Mr. Jobs's disclosure, in a letter directed to Apple employees, provided no details about what was ailing him and raised fresh questions about a company that is so closely identified with its co-founder. Apple shares fell 7% in late trading on the news.

Mr. Jobs, 53 years old and a pancreatic-cancer survivor, said he was passing day-to-day management of the Cupertino, Calif., company to Chief Operating Officer Tim Cook. Mr. Cook filled in for Mr. Jobs in 2004 when the Apple chief took a leave to battle his cancer.

Newspapers Move to Outsource Foreign Coverage

Editor's note: A major restructuring is underway in how foreign news is being collected and disseminated.

The Wall Street Journal - Two major newspapers publishers are taking steps to outsource international coverage, as falling revenue is causing more U.S. papers to shrink their foreign and national footprint.

Tribune Co., which owns the Los Angeles Times and Chicago Tribune, is in talks with the Washington Post Co. about a deal to pay the Post for foreign and national coverage for Tribune's eight major dailies. Meantime, the New York Daily News has reached an agreement with a Boston-based start-up called GlobalPost to use the company's network of part-time foreign correspondents.

Together, the agreements could substantially overhaul the foreign news operations of three of the 10 largest U.S. newspapers.

Talks between Tribune and the Post Co. have been under way for more than a month, but no agreement has been reached, according to people familiar with the matter. One possibility is that Tribune's eight major dailies could close dozens of news bureaus, in favor of publishing the Washington Post's stories from areas where Tribune doesn't have operations.

Such a deal could save Tribune millions of dollars a year at a time when the company is operating in bankruptcy protection. It is possible no deal will be reached, or that Tribune and the Washington Post could reach a looser collaboration on news, these people said.

Wednesday, January 14, 2009

Slumdog copy editors

by Michael Miner
The Chicago Reader
On Wednesday, the Sun-Times Media Group, at a meeting in the Sun-Times led by CEO Cyrus Freidheim Jr., told their unions they needed to cut their overall wage and benefit packages by 7 percent; they asked the unions to come up with ways to do it. The Sun-Times unit of the Chicago Newspaper Guild, which represents editorial employees at several of the papers, will meet Monday evening to discuss the issue.

Sure to be on the agenda too is an idea the company floated Friday afternoon at the Sun-Times. It's to eliminate 25 to 30 jobs -- about a fifth of the editorial jobs remaining at that paper -- by outsourcing the copy editing and layout functions, possibly to India. The idea was flatly rejected -- the Guild would be surrendering jurisdiction over those jobs. But that simply means that if and when the company proceeds, the guild will file a grievance.

The Sun-Times Media Group would have to be in terrible shape to consider such an idea. To turn copy over to editors on the other side of the world whose idiomatic English is so different is to guarantee constant aggravation and frustration, not to mention published howlers. But this company is in terrible shape. It cut itself to the bone to slash 2008 expenses by $50 million and now it's trying to find $50 million more to cut. Its third-quarter losses were $168 million.

On Thursday the company announced it was closing 12 of its suburban papers.

Tuesday, January 13, 2009

The New Journalism: Goosing the Gray Lady

Post courtesy of Erica Nunez
New York Magazine - On the day Barack Obama was elected, a strange new feature appeared on the website of the New York Times. Called the Word Train, it asked a simple question: What one word describes your current state of mind? Readers could enter an adjective or select from a menu of options. They could specify whether they supported McCain or Obama. Below, the results appeared in six rows of adjectives, scrolling left to right, coded red or blue, descending in size of font. The larger the word, the more people felt that way.

All day long, the answers flowed by, a river of emotion—anonymous, uncheckable, hypnotic. You could click from Obama to McCain and watch the letters shift gradually from blue to red, the mood changing from giddy, energized, proud, and overwhelmed to horrified, ambivalent, disgusted, and numb.

It was a kind of poll. It was a kind of art piece. It was a kind of journalism, but what kind?

This past year has been catastrophic for the New York Times. Advertising dropped off a cliff. The stock sank by 60 percent, and by fall, the paper had been rated a junk investment, announced plans to mortgage its new building, slashed dividends, and, as of last week, was printing ads on the front page. So dire had the situation become, observers began to entertain thoughts about whether the enterprise might dissolve entirely—Michael Hirschorn just published a piece in The Atlantic imagining an end date of (gulp) May. As this bad news crashed down, the jackals of Times hatred—right-wing ideologues and new-media hecklers alike—ate it up, finding confirmation of what they’d said all along: that the paper was a dinosaur, incapable of change, maddeningly assured as it sank beneath the weight of its own false authority.

And yet, even as the financial pages wrote the paper’s obit, deep within that fancy Renzo Piano palace across from the Port Authority, something hopeful has been going on: a kind of evolution. Each day, peculiar wings and gills poke up on the Times’ website—video, audio, “drillable” graphics. Beneath Nicholas Kristof’s op-ed column, there’s a link to his blog, Twitter feed, Facebook page, and YouTube videos. Coverage of Gaza features a time line linking to earlier reporting, video coverage, and an encyclopedic entry on Hamas.

Monday, January 12, 2009

Can The New York Times survive the death of newsprint?

Post courtesy of Corey Ryan
The Atlantic - Virtually all the predictions about the death of old media have assumed a comfortingly long time frame for the end of print—the moment when, amid a panoply of flashing lights, press conferences, and elegiac reminiscences, the newspaper presses stop rolling and news goes entirely digital. Most of these scenarios assume a gradual crossing-over, almost like the migration of dunes, as behaviors change, paradigms shift, and the digital future heaves fully into view. The thinking goes that the existing brands—The New York Times, The Washington Post, The Wall Street Journal—will be the ones making that transition, challenged but still dominant as sources of original reporting.

But what if the old media dies much more quickly? What if a hurricane comes along and obliterates the dunes entirely? Specifically, what if TheNew York Times goes out of business—like, this May?

It’s certainly plausible. Earnings reports released by the New York Times Company in October indicate that drastic measures will have to be taken over the next five months or the paper will default on some $400million in debt. With more than $1billion in debt already on the books, only $46million in cash reserves as of October, and no clear way to tap into the capital markets (the company’s debt was recently reduced to junk status), the paper’s future doesn’t look good.

Seattle Post-Intelligencer Faces Closure if Buyer Isn't Found Soon

The Wall Street Journal - The Seattle Post-Intelligencer is in jeopardy, as owner Hearst Corp. said it will close the newspaper unless a buyer is found quickly.

Hearst said Friday that if a buyer for the Post-Intelligencer isn't found in 60 days, the 118,000-circulation daily will close or become an online-only publication. Hearst said the paper has been losing money since 2000, including a $14 million loss last year, and that more red ink is expected in 2009. The move leaves uncertain the fate of Seattle's unusual newspaper market. Under a joint operating agreement, the Seattle Times handles advertising sales, production and distribution operations for both papers, though each maintains separate news staffs that often fiercely compete for news. Hearst said it is also putting up for sale its half of the joint operating agreement.

Let's Invent an iTunes for News

The New York Times - Last Tuesday, iTunes, Apple’s ubiquitous online music store that sold more than 2.4 billion tracks last year alone, changed its own tune, announcing that songs would no longer be sold with copying restrictions and that they would be available at various prices.The digerati crowed over the collapse of the hated digital rights management (which Apple never liked, either) and record companies kicked up their heels at the thought of leaving behind the tyranny of the 99-cent price point.

But lost in the hubbub was the fact that Steve Jobs and Apple had been able to charge for content in the first place. Remember that when iTunes began, the music industry was being decimated by file sharing. By coming up with an easy user interface and obtaining the cooperation of a broad swath of music companies, Mr. Jobs helped pull the business off the brink. He has been accused of running roughshod over the music labels, which are a fraction of their former size. But they are still in business.

Those of us who are in the newspaper business could not be blamed for hoping that someone like him comes along and ruins our business as well by pulling the same trick: convincing the millions of interested readers who get their news every day free on newspapers sites that it’s time to pay up.

Detroit Is Facing a Scary New Normality

The Wall Street Journal - In a memorable scene from the film "Apocalypse Now," napalm-odor fanatic Lt. Col. Kilgore declares with authority, "Someday, this war is gonna end" -- then walks off.

The U.S. auto industry, currently living through its own cataclysm, also knows things will calm down eventually. But, like Kilgore's bathetic gem, this knowledge offers little comfort and less insight.

Two questions are begged: When will things return to normal? And what will "normal" look like? Prior to the meltdown, when analysts talked of "trend" sales of light vehicles in North America, many had a figure of 16 million or 17 million in mind.

Such expectations, however, reflected a surge in vehicle purchases that began at the start of the decade. Data going back to the 1950s from the Center for Automotive Research show vehicle sales rising and falling around an upward trend. But the latest upswing was bigger and longer than any other. CAR's numbers suggest sales began moving ahead of trend in 1996, and really accelerated after 1998.

The long-run trend suggested a normal level of vehicle sales across the period 1996 to 2007 of 185.8 million units. Actual sales came in almost 11 million higher. The previous boom, in the 1980s, lasted half as long and above trend sales amounted to 6.6 million.

Wave of Retail Bankruptcy Filings Expected

The Wall Street Journal - Drained by the worst consumer-spending slump in decades and burdened by debt, U.S. retailers are expected to begin a wave of post-holiday bankruptcy filings, altering the landscape at malls and on main streets across the country.

Retailers are particularly vulnerable in the current downturn after a decade of buoyant consumer spending, which encouraged them to overexpand and overborrow. Now, the banks and private investors who financed the boom are pulling back.

Several of the industry's biggest lenders, including General Electric Co.'s GE Capital, CIT Group Inc. and Wachovia Corp., are tightening lending terms and reducing exposure to retailers. Their tougher terms are making it harder for retailers to find capital to reorganize under bankruptcy-court protection, as they were able to do in the past, meaning there are likely to be more liquidations.

Circuit City Stores Inc., which filed for Chapter 11 protection in November, warned Friday that it risked liquidation if talks with two parties about a possible sale or cash infusion, weren't successful. Earlier last week, Goody's Family Clothing Inc., Knoxville, Tenn., announced it was liquidating its remaining 287 stores -- just three months after exiting bankruptcy. Last Monday, Against All Odds USA, a 64-store clothing chain based in New Jersey, said it was entering Chapter 11 proceedings in hopes of selling itself or reorganizing.

According to ratings company Standard & Poor's, nine U.S. retailers and restaurants, including off-price apparel chain Loehmann's Holdings Inc., drugstore operator Duane Reade Holdings Inc. and jeweler Finlay Enterprises Inc. are at significant risk of default, with junk-bond ratings of CCC, or "very weak." A year ago, S&P had six issuers on its list, including three that eventually filed for Chapter 11 protection: Linens 'N Things Inc., Vicorp Restaurants Inc. and Buffets Inc.

Surge In Trade Protection Threatens to Deepen Global Crisis

Editor's Note: J492 students - please be able to explain why this would be bad for the economy. - MT

The Wall Street Journal - A wave of protectionism is swelling around the world that could further damage struggling economies.

Industries are starting to line up in Beijing, Brussels and Washington for import protection. That has happened in past downturns, too, but this time the restrictions may bite harder because of the global nature of the problems.

During the 1980s, Japan could afford not to retaliate against U.S. quotas on steel and automobiles because Tokyo's economy was humming. There are no clear economic winners now, making it much harder for any government to turn the other cheek.
[international trade]

The global turn to stimulus spending also may come wrapped in protection, as each country tries to ensure that its industries benefit. In the U.S., congressional Democrats and their allies in steel, textile and organized labor are pushing to include strong "Buy America" provisions in a U.S. stimulus program that would limit spending to firms in the U.S. Already European officials are crying foul.

Obama Team Wants To Tap TARP for Foreclosures

The Wall Street Journal - WASHINGTON -- The incoming Obama administration, stymied by political opposition to the Bush administration's financial rescue, is negotiating with lawmakers to avoid a messy political fight as it seeks the second half of the $700 billion bailout.The Obama team would like to ask for the money even before President-elect Barack Obama takes office but is concerned lawmakers would reject the request, handing Mr. Obama the sticky task of vetoing Congress as one of his first acts in office.

Members of Mr. Obama's team, including Treasury Secretary-nominee Timothy Geithner, are working to satisfy lawmakers' concerns by proposing using the funds for new purposes, such as preventing foreclosures, and imposing tougher conditions on recipients, according to people familiar with the negotiations.

The political calculations are complicated by the need to navigate around Congress's ire toward the program. Making matters worse is the transition to the new administration, which wants to revamp its predecessor's work.


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