History > 2007 > USA > Economy (I)

Behind Foreclosures,

Ruined Credit and Hopes

March 28, 2007
The New York Times
By KAREEM FAHIM and RON NIXON

NEWARK — After Franklin Abazie fell behind on his mortgage last year, he tucked one of his foreclosure notices, still in its ripped envelope, into the visor of his car — a looming reminder of why he had to take a second job.

Rashid and Yvonne Moore, a middle-aged couple whose lenders are threatening foreclosure because they have fallen behind on their mortgage payments, have begun thinking the unthinkable: moving in with his parents.

For Quintin Fields, it may take a miracle to keep his house; he owes nearly as much in late payments as he will earn all year.

“Everything is closing in on me right now,” Mr. Fields said.

Broad swaths of Newark are groaning under the weight of mortgage debt, much of it accumulated in the building boom of recent years that has transformed some parts of the city with gleaming redevelopment.

But in many of these neighborhoods, a heavy mortgage debt has led thousands of residents — many of them first-time homebuyers — close to financial ruin, experts and local officials say. According to recent census figures, more than 40 percent of Newark homeowners spend more than half their income on housing, one of the highest percentages in the New York metropolitan region and among the highest in the country.

In small ways and large, that debt is forcing thousands of people here to change their lives. Many have taken second jobs. Others are selling off prized possessions. Some have had to rent out rooms. And more than a few have surrendered to the inevitability of losing their homes to foreclosure.

Driving the high mortgage debt and the boom in home sales here, and around the country, has been the proliferation of mortgages that have made it possible for people with poor credit, scant savings and modest incomes to buy homes. Among these are subprime loans, which are easier to obtain than prime rate loans but come with an added burden: much higher interest rates. In many cases, financial institutions lent to people without verifying whether their incomes could support the monthly payments.

Federal lending data show that a high percentage of mortgages for homes on the north, south and west sides of Newark — as much as 50 percent in some neighborhoods — are subprime loans. And a national study by the Center for Responsible Lending, a nonpartisan research group based in North Carolina, predicts that more than 18 percent of the people holding those loans will go into foreclosure in the next three to four years.

The tales of financially beleaguered Newark are not only about subprime loans. Unforeseen financial problems, misunderstandings about complex mortgage transactions and poor money management have been major factors in bringing some first-time homeowners to the brink of foreclosure.

And the situation mirrors conditions in large urban areas across the country and around the metropolitan region. Neighborhoods in Queens, the Bronx and Brooklyn also have large concentrations of subprime loans, which are at high risk of foreclosure, according to Home Mortgage Disclosure Act data examined by The New York Times. The study by the Center for Responsible Lending predicts that nearly 22 percent of the subprime loans in the New York area made in 2006 will go into foreclosure in the next few years, one of the highest rates in the nation. And in suburban counties like Nassau, Orange and Putnam, the percentage of households spending at least 50 percent of income on housing has been rising.

While the overall number of foreclosures nationwide remains low — in New Jersey, it is less than 2 percent of all outstanding mortgages — it masks the reality of conditions in lower-income, heavily minority neighborhoods like Mr. Abazie’s, where multicolored “Avoid Foreclosure” and “Sell Your House” signs seem to decorate most of the lampposts.

Nearly 250 homes within one mile of Mr. Abazie’s home in Newark’s South Ward have been in some form of foreclosure in the past six years, according to sales data from the Essex County Sheriff’s Department analyzed by The Times. In that time, more than 4,000 homes in the city have gone into foreclosure, according to the data.

Malcolm Bush, president of the Woodstock Institute, a national research group that studies mortgage lending in poor neighborhoods, said that widespread foreclosures in an area can depress already low housing prices, making it harder for others in that area to get loans or refinance. And those troubles can afflict an entire community.

“This has wider social implications,” Mr. Bush said. “It appears that things are going to get worse.”

Too Big a Loan

Newark’s long-impoverished, overwhelmingly black South Ward is still recovering in some ways from the exodus of residents and commerce after the 1967 riots. On many blocks, there is a shortage of sidewalks, an abundance of weedy lots and drug dealers who openly ply their trade.

But parts of the South Ward are also hotbeds of development, filled with new multifamily homes with driveways or garages. Many have “For Rent” signs posted in their front windows.

This is where Mr. Abazie and his wife, Beryl, live. Mr. Abazie, 28, grew up in Nigeria and moved to the United States 10 years ago for work and college. After they were married last year, the couple decided to leave the apartment life behind, buy a home and start a family.

Through a friend, they found a broker and a three-year-old two-family home on Schley Street. With good credit and some savings, Mr. Abazie, a night security guard, thought he could obtain a low-interest loan insured by the Federal Housing Authority.

But after two lenders told him he did not qualify for such a loan, he settled for something less: a $325,000 subprime mortgage from Wall Street Financial. It was actually two loans, with an 8.5 percent interest rate on the larger one and a 12.2 percent rate on the smaller one. His monthly payments are now more than $2,600.

Earning about $2,000 a month on his salary, he quickly fell behind. At first, he had assumed that he could find a tenant to help offset the cost of the mortgage, but soon discovered his neighborhood had a glut of vacant apartments. So last fall, he took a second job working nights helping mental patients at a state hospital.

In December, his wife gave birth to their first child, a son. But because they were still straining to pay their bills, she returned to work part time this month, at a home for the elderly.

Last month, they found a tenant, who pays $400 a month, far short of the $1,200 rent they had thought they could charge. They have fallen more than $3,500 behind on their mortgage payments. In November, they received their first foreclosure notice.

Mr. Abazie has thought about selling the house — he even took a real estate class — but would almost certainly lose money. For now, he is hoping he can refinance his loan; but rates are not getting better and his credit record is only getting worse.

They continue to trim the family budget and have stopped sending monthly checks of several hundred dollars to his parents and siblings in Nigeria. Not wanting to field his relatives’ plaintive calls, he changed his cellphone number last month.

“I’m in a really tough corner,” he said. “I just do not feel happy talking about my current challenges.”

A Single Mother Struggles

For Michelle Pitt, subprime loans were not the problem. But she, too, has found herself swimming in debt that is jeopardizing her ability to keep her home.

Ms. Pitt, a 39-year-old single mother of four, bought her two-family house from a local nonprofit group, Episcopal Community Development, in 1999. The house sits on a hill in the South Ward and rattles constantly with the sound of Interstate 78, the highway next door. Still, it was a good deal, selling for $105,000 under a subsidized housing program.

Ms. Pitt, a first-time home buyer, got a mortgage with a relatively good interest rate of 7.5 percent. And at the time, she was earning decent salaries from two jobs, as a flight attendant for Spirit Airlines and as a dental assistant in state prisons.

Over the next few years, she was laid off by the prison and stopped working at Spirit when the company moved some of its New York operations to Florida. Since then, she has held temporary jobs, most recently as a part-time orthodontist’s assistant.

“I stopped flying and everything started happening,” she said.

She made $25,000 last year, plus child support — just enough to pay her monthly mortgage payments of $1,324 on time. She lives paycheck to paycheck, while scrimping on the extras her family used to take for granted. Dinners out, movies, clothes, shopping trips and visits to the hair salon have become rare luxuries. An annual summer ritual, a vacation in the Poconos, has become out of the question.

Worried that a late delivery of her paycheck will mean no groceries, Ms. Pitt often makes the 30-minute drive to her temp agency to collect it in person. She owes several thousand dollars on her credit cards, and recently canceled most of them to avoid falling deeper into debt.

Ms. Pitt notices the foreclosures in the neighborhood, the boarded-up houses on the drive to her children’s schools. She loves this house: its staircase lined with framed pictures of the children, the backyard deck, the kitchen where the family gathers for breakfast each morning. It represents something solid and permanent, something she wants her children, ages 1, 13 and 14, to experience. (She has a 23-year-old son who does not live with her.)

To keep it all, she is thinking of selling her house and moving to the Poconos. “It’s all about giving them something I never had,” she said.

A Dream Goes Wrong

For Quintin Fields, buying a home in Newark was less about finding a place to live and more about trying to find opportunity in the city’s housing boom. It is an opportunity he now wishes he had passed up.

Almost two years ago, Mr. Fields, who lives with his wife in a Harlem apartment, bought a three-family home from his half brother in Newark’s West Ward, on a street sandwiched between two cemeteries.

Mr. Fields, 46, a caseworker at a residential program for troubled teenage boys in East Orange, thought he might turn the house into a residence for troubled young adults. But he was also enticed by the idea, suggested by his half brother, that buying the building could repair Mr. Fields’s poor credit record and that selling it might someday make him some money.

A first-time home buyer with an annual income of about $36,000 and almost no savings, Mr. Fields did not qualify for a prime loan for the $315,000 house. So his half brother arranged a 15-year mortgage from WMC Mortgage Company, a subprime division of General Electric, and another from the Option One Mortgage Company, the subprime group of H & R Block.

The $2,312 monthly payments were much more than he could afford, but Mr. Fields said his brother assured him that they could find tenants. They did, but then lost them. Last July, without the rental income, his brother, who was managing the property, stopped paying the lenders. Mr. Fields now owes almost $30,000 in delinquent payments and has fallen out with his half brother.

He has received multiple foreclosure notices. With no savings, and with an even worse credit record than before, he has been frantically filling out grant applications, hoping to salvage his plans.

“It’s just sad,” said Mr. Fields, whose wife is expecting their first child this summer. “I can’t even borrow money.”

Starting Over, Finding Trouble

The case of the Moores suggests that low-income people are not the only ones who have gotten into trouble with subprime loans.

Mr. Moore, 53, comes from Newark’s South Ward, and met his wife in the 1970s, when they were both in high school.

They dated then, but split apart as Mr. Moore battled drug addiction. Over the years, they both were married to, and then divorced from, other people. He worked as a longshoreman in the Port of Newark, a job he still holds today. Mrs. Moore, now 50, moved away after high school, living in Manhattan, Paris and Tennessee.

When they found each other again three years ago through mutual friends, they had seven children between them. They were married, and after a lifetime of rented apartments, decided it was time to buy their own home.

A year and a half ago, they found it: a large one-family house, for $310,000 on a street of well-kept Victorians in the South Ward neighborhood of Clinton Hill. With six bedrooms, it was a place to bring their family together, a reward for a middle-aged couple who had bumped around in life.

Though he refused to reveal his salary, Mr. Moore said that a longshoreman with his experience can make $29 an hour, and more with overtime. It was enough, they assumed, to get a good interest rate.

But Mr. Moore’s credit “wasn’t the greatest,” he said: He had had problems, including difficulties with a car lease and a federal tax lien. After scraping together a few thousand dollars for closing costs, he and his wife had no money left for a down payment. So they got a two-part loan, similar to Mr. Abazie’s, with the smaller part carrying a 10 percent interest rate. Their monthly payments total almost $2,600.

They thought they could handle that. But work dropped off at the port for Mr. Moore, and a job that Mrs. Moore thought she would get with Mayor Cory A. Booker’s administration never materialized.

Soon, the mortgage payments began squeezing them. Electric and telephone bills became harder to pay; recently his cellphone was turned off for late payments. Mrs. Moore has started suggesting that they sell the house and move in with his elderly parents, who have a large home in Newark.

He rejected the idea, but is now pondering selling some of his prized possessions, including his collection of expensive bicycles and perhaps one of his Fender bass guitars.

“I need to make some moves,” Mr. Moore said. “I need to keep this house.”

The moves may have to come fast. They fell three months behind on their mortgage and started receiving foreclosure letters from their two lenders. They staved off further action by negotiating an agreement to add the $10,000 they owed to their principal.

But they were just able to scrape together the March payment, delivering it two weeks late. Their phone now rings constantly with calls from companies offering ways out of their debt. Mrs. Moore talks to them, hoping one will offer the right deal.

Last week, a man delivered a court summons for a foreclosure proceeding. Mrs. Moore became so upset she threw the unopened envelope onto the street. After frantic calls to their lenders, they bought some additional time.

“I’m not used to not knowing what to do,” Mr. Moore said. “I’m not happy about it, but I’m determined to overcome this.”

Margot Williams contributed reporting.

Behind Foreclosures, Ruined Credit and Hopes, NYT, 28.3.2007, http://www.nytimes.com/2007/03/28/nyregion/28debt.html

Farmers to Plant

Most Amount of Corn Since ’44

March 31, 2007
The New York Times
By ANDREW MARTIN

American farmers are planning to plant more corn this year than anytime since World War II, as farmers rush to cash in on high prices bolstered by the demand for ethanol.

The United States Department of Agriculture released a report today on prospective plantings that estimated that American farmers would plant 90.5 million acres of corn in 2007, a 15 percent increase over last year and the most since 1944.

Considered one of the most highly anticipated agriculture reports in years, if not decades, the prospective plantings report promises to have broad implications throughout the agriculture, food and energy sectors.

The rush to plant corn comes at the cost of other crops, particularly soybeans and cotton. The Department of Agriculture said that if farmers followed through with their stated intentions, soybean acreage would drop 11 percent and cotton acreage would fall 20 percent.

“This year, we are planting wall-to-wall corn,” said Webb Bozeman, a farmer in Flora, Miss., who normally plants cotton, corn and soybeans. “Corn is profitable. Cotton is pretty much break-even at best.”

Commodity markets reacted immediately to the report, with corn futures falling 5 percent. Soybean futures also fell, about 3 percent, but they had gained more than 30 percent over the last year on expectations that farmers would reduce acreage. Cotton futures rose about 0.5 percent.

With corn prices expected to soften, at least temporarily, the report should ease concerns about increases in food costs, which had started to tick upwards.

David Driscoll, an analyst for Citigroup, said that while the corn crop was still dependent on the weather, he said the report was a positive sign that there would be enough corn to meet both fuel and food needs and to replenish depleted corn inventories.

“The moral of the story is, if you dangle money in front of farmers, they take it,” Mr. Driscoll said.

Farmers also said they planned to plant 60.3 million acres of wheat this year, a 5 percent increase over 2006.

    Farmers to Plant Most Amount of Corn Since ’44, NYT, 31.3.2007, http://www.nytimes.com/2007/03/31/business/31corn.web.html?hp

Budget changes raise tax hike questions

29.3.2007
USA TODAY
By Richard Wolf

WASHINGTON — The 2008 federal budget blueprints passed by the House Thursday and the Senate last week promise to boost spending on popular programs without raising the deficit. That leaves one question unanswered.
Will Democrats raise your taxes?

They say no, but decisions have yet to be made on how to pay for Democratic spending priorities, such as children's health insurance and extending certain tax cuts. The budget bills create dozens of "reserve funds" for spending and tax-cutting priorities, providing they are paid for — with tax hikes, Republicans predict.

The debate promises to rage for the remainder of the year. Once the House and Senate compromise on a single $2.9 trillion budget blueprint, committees with jurisdiction over taxes and spending will try to turn it into law. That's when tax increases and spending cuts will be debated — a "day of reckoning," says Rep. Jim Cooper, D-Tenn., that has been put off for now.

"Coming up with money is always difficult," says Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee. "You either have to raise taxes or cut back programs. It's what every family faces."

The last time Democrats ruled Washington, they tried both. Their 1993 deficit reduction agreement raised taxes and cut spending over five years in order to reduce the deficit by $433 billion. The tax increases contributed to Democrats' loss of Congress the following year.

Seeking to avoid the same fate, Democratic leaders say the budget that passed the House 216-210 Thursday won't require tax increases. "This budget resolution does not raise taxes," says Rep. John Spratt, D-S.C., chairman of the House Budget Committee.

Spratt reasons, however, that tax hikes to pay for tax cuts aren't tax hikes. "If it's a wash, it's not a tax increase, " he says. Under Democrats' self-imposed "pay-as-you-go" rules, such a combination is needed to pay for extending Bush's tax cuts or to stop the alternative minimum tax from striking the middle class.

Republicans say Democrats either can claim to eliminate the $248 billion deficit over five years or to avoid tax increases — but not both. To balance the budget, they say, Democrats assume that Bush's tax cuts will expire after 2010. That contributes to what they say would be a nearly $400 billion tax increase — "the largest tax increase in American history," says Rep. Paul Ryan, R-Wis., top Republican on the House Budget Committee.

Democrats also cordon off major spending initiatives such as farm subsidies, college loans and veterans' benefits into "reserve funds." That leaves it up to other committees to find the money to pay for them — an approach the Republicans took as well in past years.

Democrats have these options to avoid broad tax increases before the 2008 elections:

• They can recover some of the money lost to the "tax gap" — an estimated $400 billion or more that goes unpaid each year — and crack down on offshore tax shelters. The Bush administration projects being able to collect only $29 billion over 10 years from the tax gap. "I don't think it adds up to the kind of money they need to match all the promises they're making," says White House deputy budget director Stephen McMillin.

• They can eliminate special-interest tax breaks. "The more you dig around, the more you can find savings here and there that's probably good policy," says Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee.

• They can deny funding to "reserve fund" initiatives. Robert Reischauer, president of the Urban Institute and a former Congressional Budget Office director, calls them "good aspirations that will be difficult to fulfill."

• They can sidestep their own pay-as-you-go rules, which Republicans let expire in 2002. "My goal is to live within pay-go," Baucus says, but he acknowledges the Senate could decide otherwise in specific instances.

Experts say Democrats' fealty to paying for what they spend will be the key to this year's budget. "The real test is going to come down to pay-go, and whether they're serious about that," says Leon Panetta, a former House Budget Committee chairman, White House budget director and chief of staff under President Clinton. "If they aren't, it's just more game-playing."

    Budget changes raise tax hike questions, UT, 29.3.2007, http://www.usatoday.com/news/washington/2007-03-29-budget-questions_N.htm

Appeals Court Upholds NWA Strike Ban

March 29, 2007
By THE ASSOCIATED PRESS
Filed at 12:26 p.m. ET
The New York Times

MINNEAPOLIS (AP) -- A federal appeals court on Thursday upheld a ruling that bars flight attendants at bankrupt Northwest Airlines Corp. from striking.

The flight attendants had sought the right to strike after Northwest, with a bankruptcy judge's permission, imposed pay cuts and other work rule changes as it reorganized. Its other unions made pay-cut deals, but flight attendants rejected a negotiated agreement. The case put the union and the airline in a gray area where bankruptcy law and airline labor law intersect.

''Although this is a complicated case, one feature is simple enough to describe: Northwest's flight attendants have proven intransigent in the face of Northwest's manifest need to reorganize,'' the judges for the U.S. 2nd Circuit Court of Appeals in New York City wrote in upholding a strike injunction.

    Appeals Court Upholds NWA Strike Ban, NYT, 29.3.2007, http://www.nytimes.com/aponline/business/AP-Northwest-Flight-Attendants.html

Bare-Knuckle Enforcement for Wal-Mart’s Rules

March 29, 2007
The New York Times
By MICHAEL BARBARO

The investigator flew to Guatemala in April 2002 with a delicate mission: trail a Wal-Mart manager around the country to prove he was sleeping with a lower-level employee, a violation of company policy.

The apparent smoking gun? “Moans and sighs” heard as the investigator, a Wal-Mart employee, pressed his ear against a hotel room door inside a Holiday Inn, according to legal documents. Soon after, the company fired the manager for what it said was improper fraternization with a subordinate.

Wal-Mart, renowned to outsiders for its elbows-out business tactics, is known internally for its bare-knuckled no-expense-spared investigations of employees who break its ironclad ethics rules.

Over the last five years, Wal-Mart has assembled a team of former officials from the C.I.A., F.B.I. and Justice Department whose elaborate, at times globetrotting, investigations have led to the ouster of a high-profile board member who used company funds to buy hunting equipment, two senior advertising executives who took expensive gifts from a potential supplier and a computer technician who taped a reporter’s telephone calls.

The investigators — whose résumés evoke Langley, Va., more than Bentonville, Ark. — serve as a rapid-response team that aggressively polices the nation’s largest private employer, enforcing Wal-Mart’s modest by-the-books culture among its army of 1.8 million employees.

Wal-Mart is certainly not the only company, or even the first, to investigate its employees, a practice used widely in corporate America to guard against fraud and protect trade secrets. But despite the retailer’s folksy Arkansas image, few companies are as prickly — or unforgiving — about its employees’ wayward behavior, a legacy of its frugal founder, Sam Walton, who equated misconduct with inefficiency that would cost customers money.

No case better demonstrates the company’s prowess — or, former employees say, its ruthlessness — than the exhaustive investigation of Julie Roehm and Sean Womack, two former top Wal-Mart marketing executives.

After Ms. Roehm sued Wal-Mart for wrongful termination, the company disclosed the results of the investigation last week in a detailed and at times salacious countersuit. Investigators obtained records that they said showed the two married executives had engaged in a sexual affair, accepted free meals from an advertising agency vying to win Wal-Mart’s business and begun negotiating a deal to leave Wal-Mart to work for that agency.

Yesterday, Ms. Roehm called Wal-Mart’s investigation “a smear campaign” intended to destroy her reputation and, in a nod to Wal-Mart’s investigative firepower, said the company had outmanned her with “ex-C.I.A. operatives” and “former F.B.I. men.”

The Wal-Mart investigation was striking in its scope. Lawyers for Wal-Mart subpoenaed Mr. Womack’s wife, Shelley, compelling her to give sworn testimony about how she discovered a sexual relationship between her husband and Ms. Roehm. They prompted her to turn over dozens of embarrassing e-mail messages that her husband had sent to Ms. Roehm from a private account.

“I miss you ridiculously,” began one of the e-mail messages from Ms. Roehm to Mr. Womack. “I hate not being able to call you or write you. I think about us together all the time. Little moments like watching your face when you kiss me.”

Wal-Mart investigators also persuaded the top executives at a major advertising agency, Draft FCB, and its parent company, the Interpublic Group of Companies, to turn over hundreds of confidential e-mail messages, dinner receipts and notes from meetings. One revelation was that Ms. Roehm accepted a case of Effen vodka, valued at nearly $400, from the chief executive of Draft FCB, calling the gift, which violated Wal-Mart’s policies, “a HUGE hit” in a thank-you e-mail message.

Ms. Roehm and Mr. Womack have denied they engaged in a sexual relationship or did anything wrong. Mr. Womack did not respond to phone messages.

Kenneth H. Senser, a former top official at the C.I.A. and F.B.I. who runs Wal-Mart’s security department, said cases like these showed that Wal-Mart was determined to enforce consistently its employment policies, no matter how high the rank of the workers involved. Both Mr. Womack and Ms. Roehm, for example, were senior executives with six-figure salaries.

“It’s been very clear from these investigations that the company has taken a definitive stand,” said Mr. Senser, who interviewed both Ms. Roehm and Mr. Womack before they were fired in late 2006. “The chips are going to fall where they may. If it’s a senior vice president or cashier in the store, we are going to look at the allegations the same way — and not give somebody a pass.”

Mr. Senser, 47, and his staff of roughly 400, investigate allegations of misconduct, guard Wal-Mart executives and prepare for potential crises of all kinds, from hurricanes to terrorist attacks. (During Hurricane Katrina, they established an emergency response center inside Wal-Mart’s headquarters, filled with flat-screen televisions, that resembled one used by the F.B.I.)

Their backgrounds are impressive, if not slightly intimidating. Mr. Senser was a senior officer in the C.I.A.’s office of security, which was responsible for investigating agents considered a security risk. After that, he supervised the development of an internal security department at the F.B.I. when the agency discovered that Robert P. Hanssen, one of its agents, had spied for the Soviet Union and Russia.

Joe Lewis, who runs the internal corporate investigations unit at Wal-Mart, worked at the F.B.I. for 27 years, serving as acting assistant director for criminal investigations. He works closely with Thomas C. Gean, chief legal compliance officer, who was the United States attorney for the Western District of Arkansas.

In an interview, H. Lee Scott Jr., Wal-Mart’s chief executive, said that “it has reached the point where there are issues that take specialized skills to get to the bottom of.”

Mr. Scott conceded that the team has been unusually busy lately. “You almost have to laugh,” he said of executives engaging in egregious conduct. “You can’t make this stuff up.”

Three weeks ago, for example, Wal-Mart fired a computer technician, Bruce Gabbard, and one of his superiors, Jason Hamilton, after a two-month investigation conducted by Mr. Senser and his staff. They found that Mr. Gabbard, acting alone, had taped phone conversations between members of Wal-Mart’s media relations staff and this reporter of The New York Times. Using equipment he bought on eBay, he also intercepted text messages sent from his colleagues’ BlackBerries.

Mr. Scott, who personally apologized for the incident, said Mr. Gabbard had tried to uncover the source of leaked internal documents shared with newspapers like The Times “because he thought what was happening to his company was unfair and he was going to do something about it.” Mr. Gabbard has declined to comment.

Behind Wal-Mart’s response to such cases is a proud preoccupation with sticking to the rules. Inside Wal-Mart’s spare headquarters, large signs affixed to the doors of meeting rooms spell out a ban on gifts of any value from potential vendors, whether it is a free plane ticket or a cup of coffee.

No wonder, perhaps, that wasted money — from suppliers and Wal-Mart employees — is a recurring theme in the company’s investigations.

One of the company’s biggest investigations was of a board member and former vice chairman, Thomas M. Coughlin, whom it accused in 2005 of dipping into company funds to pay for CDs, beer, an all-terrain vehicle, duck-hunting boots and a customized dog kennel. His total theft, Wal-Mart said, was more than $500,000.

As with Ms. Roehm and Mr. Womack, Wal-Mart spared no detail in its case against Mr. Coughlin, who pleaded guilty to federal charges in the case. Investigators documented dozens of improper purchases that included fiber supplements and doughnuts and, in legal filings, described him as a rogue executive committed to defrauding the company.

But not all of Wal-Mart’s investigations involve money, or even high-stakes business matters, prompting employees to protest that the company’s investigative arm is, at times, used to intimidate employees who question authority or raise issues their bosses wish to remain secret.

James W. Lynn, a factory inspection manager at Wal-Mart, was fired in 2002 for fraternization with a subordinate after an investigation that extended across several countries.

During the investigation, a company investigator followed Mr. Lynn and a lower-level female colleague who worked in Costa Rica on a business trip to Guatemala City, where he spied on the pair for at least four days — even booking a hotel room directly across the hall from the female employee’s room to keep watch on the pair. (In the end, both Mr. Lynn and the woman did say they kissed.)

Mr. Lynn, in an interview and in a wrongful-termination lawsuit filed against Wal-Mart, claims he was singled out because he openly criticized the working conditions in the Central American factories he inspected.

“Wal-Mart is the ultimate Big Brother in corporate America,” Mr. Lynn said. He disputes Wal-Mart’s claim that it investigates every employee the same way. “They are very opportunistic,” he said. “If it is someone they want to get rid of, they will go all out. If it’s somebody whose career they want to save, they won’t.”

Sarah Clark, a Wal-Mart spokeswoman, said the company “took the steps it deemed necessary to investigate the allegations of fraternization” and denied the company was motivated by Mr. Lynn’s criticism.

Mr. Senser, who arrived after the investigation of Mr. Lynn, said his staff knew its boundaries.

“We are not in the business of prosecuting people, or pursuing an allegation to find a violation of the law,” Mr. Senser said. “We operate for the benefit of our shareholders to make sure this company is being appropriately and ethically run. There is a difference.”

Stuart Elliott contributed reporting.

    Bare-Knuckle Enforcement for Wal-Mart’s Rules, NYT, 29.3.2007, http://www.nytimes.com/2007/03/29/business/29walmart.html?hp

Citigroup Plans

to Shed Thousands of Jobs

March 26, 2007
The New York Times
By HEATHER TIMMONS and ERIC DASH

NEW DELHI, March 26 — Under pressure from shareholders, Citigroup is planning to shed thousands of jobs and focus outside North America for growth.

The colossal bank will get most of its growth in the future from the international arena, chief executive Charles O. Prince told thousands of employees in India today, as he wraps up a tour of Asia.

Mr. Prince’s stop in India comes just weeks before Citigroup plans to announce a broad restructuring plan that could involve the elimination or relocation of thousands of high-cost jobs from areas including New York, London and Hong Kong, several executives briefed on the matter say.

Citi’s corporate and investment bank could be hard hit, with as many as 4,000 jobs lost, they say.

Citigroup, which employs more than 325,000, is expected to save $1 billion in costs with the coming cuts. The Wall Street Journal reported today that 15,000 jobs could be affected. Citigroup declined to comment on any figures, and said a review was ongoing.

It is unclear how many of Citi’s high-cost jobs could be moved to India, where Citigroup already has about 22,000 employees. Mr. Prince said today that India has been the single biggest driver of growth for Citigroup’s international operations.

The cost cuts are part of a company-wide review sparked by the chief operating officer Robert Druskin, who two months ago decided to examine expenses across the entire bank. A press release about the restructuring is due out in mid-April, executives say.

Mr. Prince addressed over 3,000 India employees today, in a Mumbai town hall and through dial-ins with 30 other India cities.

Citigroup has been under pressure to cut costs and grow profits, after being dogged with problems at units world-wide. Several analysts have suggested that the colossal bank is worth more in parts than together.

Mr. Prince today reiterated his “One Citi” mantra, telling employees that the bank should greet clients with one face. Citigroup already has one of the largest India presences of any foreign bank. The company has 12,000 people on the ground in India in its business process outsourcing division, which processes credit card and mortgage payments and performs other bank office functions. Sanjay Nayar, the Citigroup India head, told employees this month that the bank expects to grow that division by 200 employees a month.

Citigroup also has another 10,000 employees in India who work in their more than 30 retail bank branches and 400 Citifinancial offices, do corporate and investment banking, private banking and wealth advisory.

The bank is also expanding its outsourcing to include high-skilled areas like research, investment banking and credit analysis, where it has over 600 employees in India.

Citigroup will focus on two or three countries outside North America for growth, Mr. Prince said, including India. His speech was greeted with “rounds and rounds” of applause, said on listener.

During his town hall meeting, Mr. Prince also gave a nod to John Reid, the former Citibank chief who tumultuously shared the top spot at Citigroup with Sanford Weill after it merged with Travelers Group. Mr. Reid had often stressed that the future of banking would depend heavily on the internet, Mr. Prince told the India town meeting, a prediction that is bearing fruit.

    Citigroup Plans to Shed Thousands of Jobs, NYT, 26.3.2007, http://www.nytimes.com/2007/03/26/business/26cnd-citi.html?hp

Justices to Hear

Case on Wages of Home Aides

March 25, 2007
The New York Times
By STEVEN GREENHOUSE

Evelyn Coke sat in her wood-frame home in Corona, Queens, a hobbled figure, not realizing that this is supposed to be her moment in the spotlight.

For 20 years, she had cared for clients in their homes, bathing them, cooking for them, helping them dress and take their medications. But now, suffering from kidney failure, she is too ill to work.

Her mind and memory are not what they once were, she acknowledges, and as a result she is hazy about the important events that will take place on April 16. On that day, the Supreme Court of the United States is scheduled to hear oral arguments in a case in which Ms. Coke, a 73-year-old immigrant from Jamaica, is the sole plaintiff.

She is challenging Labor Department regulations that say home care attendants, who number 1.4 million, are not covered by federal minimum-wage and overtime laws.

“I loved my work, but the money was not good at all,” Ms. Coke said in a whispering voice, noting that she often worked three or four 24-hour days a week, sleeping at a client’s home, while hardly ever receiving time-and-a-half pay for overtime.

The stakes in her case are considerable, not least because home care attendant is one of the nation’s fastest growing occupations. There are expected to be nearly two million aides by 2014, as the elderly population grows and government pushes for the elderly to be cared for at home rather than in nursing homes, where costs are high.

Ms. Coke’s lawsuit has attracted powerful supporters and opponents.

The nation’s largest health care union, the Service Employees International Union, is backing Ms. Coke’s effort because a victory for her could mean larger paychecks for hundreds of thousands of home care aides, many of whom live in poverty.

AARP plans to file a brief backing Ms. Coke, arguing that the increased pay that would result from requiring overtime coverage would reduce turnover among home care aides and help prevent a shortage.

The federal government and the Bloomberg administration have lined up against her, arguing that a victory for Ms. Coke could greatly increase Medicare and Medicaid costs, perhaps causing a budget shortfall that could leave many of the elderly without home-care aides.

In a friend-of-the-court brief, the Bloomberg administration, joined by the New York State Association of Counties, argued, “In the worst cases, some clients, especially those with high hour needs, might no longer be able to be serviced in their homes and might have to be institutionalized.”

The Bloomberg administration said a victory for Ms. Coke could force the city, state and federal governments, which all finance home care through Medicaid, to pay $250 million more a year to the 60,000 home attendants who work in the city.

Some advocacy groups have criticized the city’s position, saying it conflicts with Mayor Michael R. Bloomberg’s push to reduce poverty because keeping these aides exempt from overtime coverage would hold down their pay.

The defendant in Ms. Coke’s case is Long Island Care at Home, which is based in Westbury and employs 50 aides.

MaryAnn Osborne, Long Island Care’s vice president, said that a defeat in court could put her agency out of business because, with many aides working 60 or 70 hours a week, it might face huge overtime costs. Her agency pays aides $8 to $11 an hour, but a defeat in the Supreme Court would require the agency to pay time and a half, meaning $12 to $16.50 an hour, for overtime.

“This would be horrendous for the entire industry because the reimbursement rate we get won’t cover that type of money,” she said.

But supporters of Ms. Coke’s lawsuit say that if she wins, the government would most likely increase reimbursement rates to compensate for the overtime costs.

Ms. Coke said that Long Island Care made a lot of money off her, saying she earned just $7 an hour when she last worked there in 2001.

Moreover, she said, she did not get paid overtime for her 24-hour stints at homes in Great Neck, Roslyn, Manhasset and other communities.

She said she stopped working because she was hit by a car, injuring her shoulder, and she later had colon and kidney problems. “The job didn’t even give us health insurance,” said Ms. Coke, who goes to a dialysis clinic three times a week.

The Supreme Court agreed to hear her case after the United States Court of Appeals for the Second Circuit overturned Labor Department regulations that exempted home care aides from federal minimum-wage and overtime coverage, saying the exemption conflicted with Congress’s intent.

Before 1974, home care aides were generally covered by minimum-wage and overtime laws if they were employed by agencies. (Aides hired directly by families were not covered and will remain exempt from overtime regardless of the outcome of Ms. Coke’s case.)

In amending the Fair Labor Standards Act in 1974, Congress extended minimum-wage and overtime coverage to household workers like maids and cooks but said that baby sitters and “companions” for the elderly and infirm would be exempt.

When the Labor Department first proposed regulations to enforce the changes in the law, it said that home care workers employed by agencies should continue to get overtime. But the department reversed itself in 1975, saying Congress had not intended to allow those workers overtime when it created the exemptions the year before.

But the Court of Appeals, sitting in Manhattan, wrote, “It is implausible, to say the least, that Congress, in wishing to expand F.L.S.A. coverage, would have wanted the Department of Labor to eliminate coverage for employees of third-party employers who had previously been covered.”

Those urging the Supreme Court to overturn that ruling say the Court of Appeals failed to show proper deference to the Labor Department’s decision-making authority.

Even with the exemption, few home care workers receive less than the federal minimum wage of $5.15 an hour. But many do not receive any overtime premium even when they work more than 40 hours a week. (Under federal rules, workers who sleep in are generally paid for all extra hours on the job, less eight hours’ sleep time.)

Natasha Maye, a home care aide in Philadelphia who is part of a separate suit concerning the minimum wage, is rooting for Ms. Coke. She said that she earned, in effect, less than $5.15 an hour at her former agency because she was not paid for the two hours spent each day traveling between her three clients’ homes. Including travel time, she said, she often put in 60 hours a week and earned $300.

“I don’t think that’s fair,” she said. “We should be entitled to overtime and travel time.”

The Clinton administration, in its next-to-last day in office in 2001, proposed regulations that would restore minimum-wage and overtime protections to home care aides employed by agencies, arguing that the 1975 exemption clashed with Congressional intent. But in 2002, the Bush administration scrapped that proposal, concluding the revised rules would have a severe economic impact on clients, government budgets and home care agencies.

In its brief, Long Island Care at Home argued that exempting aides who worked for agencies was consistent with Congressional intent because some lawmakers back in 1974 voiced concerns about holding costs down. “The need to restrain costs in the case of third-party employees has only become more acute as agencies provide an increasing amount of needed care,” Long Island Care said.

But Craig Becker, the chief lawyer for Ms. Coke, argued that legislative history showed that the exemption to minimum wage and overtime laws was to apply only to baby sitters and companions who were employed directly by families and were not regular breadwinners.

“In its exemption for baby sitters and companions Congress had in mind the quintessential neighbor-to-neighbor relations,” Mr. Becker said. “Increasingly this is not a casual form of work akin to baby-sitting but a full-time regular type of employment.”

Ms. Coke became a plaintiff through unusual circumstances. After she was hit by the car six years ago, she hired a lawyer, Leon Greenberg. When seeking to determine her economic losses, Mr. Greenberg learned that she sometimes worked 70 or more hours a week without receiving any overtime premium.

He invited her to bring a test case challenging the federal exemption. Ms. Coke agreed. Mr. Greenberg is no longer involved in the case; her current legal costs are being paid by the service employees union.

And because of her condition, Ms. Coke now has her own, unpaid, home care aide: her son Michael, a computer technician.

She said she brought the lawsuit to help hundreds of thousands of home care workers like her for years to come. But she also said there was another reason. “I just hope I get some money from this,” she said.

    Justices to Hear Case on Wages of Home Aides, NYT, 25.3.2007, http://www.nytimes.com/2007/03/25/nyregion/25aides.html?hp

Foreclosures Force Suburbs to Fight Blight

March 23, 2007
The New York Times
By ERIK ECKHOLM

SHAKER HEIGHTS, Ohio — In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation’s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic.

In suburbs like this one, officials are installing alarms, fixing broken windows and mowing lawns at the vacant houses in hopes of preventing a snowball effect, in which surrounding property values suffer and worried neighbors move away. The officials are also working with financially troubled homeowners to renegotiate debts or, when eviction is unavoidable, to find apartments.

“It’s a tragedy and it’s just beginning,” Mayor Judith H. Rawson of Shaker Heights, a mostly affluent suburb, said of the evictions and vacancies, a problem fueled by a rapid increase in high-interest, subprime loans.

“All those shaky loans are out there, and the foreclosures are coming,” Ms. Rawson said. “Managing the damage to our communities will take years.”

Cuyahoga County, including Cleveland and 58 suburbs, has one of the country’s highest foreclosure rates, and officials say the worst is yet to come. In 1995, the county had 2,500 foreclosures; last year there were 15,000. Officials blame the weak economy and housing market and a rash of subprime loans for the high numbers, and the unusual prevalence of vacant houses.

Foreclosures in Cleveland’s inner ring of suburbs, while still low compared with those in Cleveland itself, have climbed sharply, especially in lower-income neighborhoods that border the city. Hundreds of houses are vacant because they are caught in legal limbo, have been abandoned by distant banks or the owners cannot find buyers.

The suburbs here are among the best organized in their counterattack, experts say, but many suburbs elsewhere in the country have had jumps in foreclosures and are also working to stem the damage.

Outside Atlanta, Gwinnett and DeKalb Counties have mounted antiforeclosure campaigns while several towns south of Chicago are forcing titleholders to fix up empty houses, or repay the government for doing it.

Here in Ohio, there are more than 200 vacant houses in Euclid, a suburb of Cleveland north of here. In the last two years more than 600 houses in Euclid have gone through foreclosure or started the process, many of them the homes of elderly people who refinanced with low two-year teaser rates, then saw their payments grow by 50 percent or more.

Euclid has installed alarm systems in some vacant houses to keep out people hoping to steal lights and other fixtures, drug users and squatters. The city has hired three new building inspectors, bringing the total to nine, to deal with troubled properties and is getting a $1 million loan from the county to cover the costs of rehabilitation, demolition and lawn care at the foreclosed houses. (When the properties are sold, such direct maintenance costs will be recovered through tax assessments.)

The Euclid mayor, Bill Cervenik, said the city, with a population of 53,000, was losing $750,000 a year in property taxes from the empty houses.

At greatest risk in Cleveland’s suburbs are the low- and moderate-income neighborhoods where subprime lending has soared. The practice involves lenders issuing mortgages at high interest rates for people with lower incomes or poor credit ratings, usually involving adjustable rates and sometimes no down payment and no investigation of the borrower’s circumstances.

“What makes the subprime mortgages so devastating from a community perspective is that they’re so concentrated geographically,” said Dan Immergluck, a professor of city planning at the Georgia Institute of Technology.

Rosa Hutchinson Yates, 62, had kept up payments on her tidy two-story house on Chagrin Boulevard in Shaker Heights for 30 years. Now, she may well lose the house because of a disastrous refinancing deal in 2003 that brought her $24,000 in cash but bills she could not pay.

Ms. Yates, who has worked as a beautician and a cocktail waitress, was emotional and confused as she tried to explain what happened. Though she signed the closing documents, she said she did not realize that she was getting an adjustable rate mortgage that did not include taxes and insurance.

In 2006, broke and bewildered, she stopped making payments and the lender started foreclosure proceedings. A Shaker Heights city attorney said it appeared that illegally high fees might have been charged and that the broker had overstated Ms. Yates’s income, raising the possibility of a legal challenge.

Ms. Yates, preparing for the worst, has learned that she can move into a subsidized apartment for retirees. But the thought is devastating.

“When folks pay for a home, they expect to die in it,” she said, breaking into tears.

In a report for Shaker Heights, Mark Duda and William C. Apgar of Harvard University found that expensive refinancing deals had been aggressively “push-marketed” in the city’s less affluent west and south sides, bordering Cleveland. They said that “the rising number of foreclosures threatens to undermine the stability” of those areas.

“The moral outrage,” Ms. Rawson, the mayor, said, “is that subprime lenders have targeted our seniors and African-Americans, people who saved all their lives to get a step up.”

About one-third of the residents in Shaker Heights and Euclid are black.

Early last year, James Rokakis, the Cuyahoga County treasurer, started a countywide foreclosure-prevention program, which pays community groups to educate people about loans and help defaulting borrowers negotiate with lenders.

In the late 1990s, Mr. Rokakis said, the flight of manufacturing jobs was the major cause of rising foreclosures but around 2000, the surge in careless lending began to wreak havoc.

Mr. Rokakis estimated that more than three-fourths of the current foreclosures in Cuyahoga County involved subprime loans, some of them blatantly unwise or dishonestly portrayed to buyers. Only last year did Ohio tighten its laws to require more complete disclosures to borrowers.

With so many homeowners running into trouble, the City of Cleveland has been unable to keep track of the number of vacant houses, said Mark N. Wiseman, director of the county prevention program. He estimates that 10,000 of the city’s 84,000 single-family houses are empty.

Suburbs like Shaker Heights are trying to avoid the experiences of blighted neighborhoods in Cleveland like the one where Barbara Anderson lives. Ms. Anderson, 59, said her block of East 76th Street was fully occupied three years ago, but now about half the houses are empty.

Many of the houses are filled with smelly trash and mattresses used by vagrants. They have been stripped of aluminum siding, appliances, pipes and anything else that scavengers can sell to scrap dealers.

“It stifles you,” Ms. Anderson said of the squalor. “It lowers the value and affects the kind of people who are willing to move here. I’m embarrassed to say I live here.”

Ms. Anderson, who works for the city ombudsman’s office, is president of a street association that is working with a county-financed group, the East Side Organizing Project, to salvage some homes. But so far, she said, “when we try to board the houses up, someone comes and tears the boards down.”

Things are not as bad in the Moreland section of Shaker Heights, but residents are worried and angry all the same. Robert O’Neal, 52, has lived there nearly all his life and, until recently, could not remember a house being empty for more than a month. Now on his block, 4 of the 12 houses are vacant, 3 of them for more than a year. Lost jobs, divorces and predatory loans have all played roles, he said.

“It’s sucking the life out of the neighborhood,” said Mr. O’Neal, the town’s chief probation officer. “These are big empty houses near the Cleveland border, and people start worrying about letting their kids out to play.”

    Foreclosures Force Suburbs to Fight Blight, NYT, 23.3.2007, http://www.nytimes.com/2007/03/23/us/23vacant.html?em&ex=1174881600&en=5f345071d80cbe2b&ei=5087%0A

Blacks suffer most in U.S. foreclosure surge

Tue Mar 20, 2007 10:41AM EDT
Reuters
By Jason Szep

BOSTON (Reuters) - Barbara Anderson and her husband know racism. Among the first blacks to move into an Ohio neighborhood 25 years ago, she watched in horror as white neighbors burned her garage nearly to the ground.

Fast-forward to 2007 and Anderson talks of a different sort of discrimination: brokers of subprime mortgages who prey on borrowers with weak credit histories like the Andersons, who raised eight children in Cleveland's Slavic Village district.

"These subprime lenders target you to take you through disaster," said Anderson, 59, who filed for bankruptcy after a legal tussle with a subprime lender, a "nightmare" that she said ended four years ago when her home was nearly foreclosed.

"I was fortunate. I went to another bank that decided to give me a chance with a new loan. The day that happened my headache stopped, my blood pressure lowered, my sick stomach went away, and it was because now I could see some daylight."

Across the United States, blacks and Hispanics are more likely to get a high-cost, subprime mortgage when buying a home than whites, a major factor in a wave of foreclosures in poor, often black neighborhoods nationwide as a housing slowdown puts millions of "subprime" borrowers at risk of default.

Even more troubling, real-estate industry analysts say, is an alarming proportion of blacks and Hispanics who received subprime loans by predatory lenders even when their credit picture was good enough to deserve a cheaper loan.

In six major U.S. cities, black borrowers were 3.8 times more likely than whites to receive a higher-cost home loan, and Hispanic borrowers were 3.6 times more likely, according to a study released this month by a group of fair housing agencies.

"Blacks and Latinos have lower incomes and less wealth, less steady employment and lower credit ratings, so a completely neutral and fair credit-rating system would still give a higher percentage of subprime loans to minorities," said Jim Campen, a University of Massachusetts economist who contributed to the study.

"But the problem is exacerbated by a financial system which isn't fair," he said.

In greater Boston, 71 percent of blacks earning above $153,000 in 2005 took out mortgages with high interest rates, compared to just 9.4 percent of whites, while about 70 percent of black and Hispanic borrowers with incomes between $92,000 and $152,000 received high-interest rate home loans, compared to 17 percent for whites, according to his research.

"It's a huge disparity," he said. High-cost mortgages usually have interest rates at least 3 percentage points above conventional mortgages.

PREDATORY LENDERS

Predatory lenders moved aggressively into the subprime mortgage market as a housing price boom between 2000 and 2005 cut the risk of lending to people with damaged credit ratings.

Many focused on minority neighborhoods in slick sales pitches that offered the American dream: home ownership with no money down and little worry about poor credit.

"The predatory lenders reach out to those who don't really know, people with a lack of education," said Cassandra Hedges, a black 37-year-old mother of two fighting to stave off foreclosure of the Ohio home she bought three years ago.

"One of the first things my broker asked me was 'How do you know you are ready to buy a house. Have you done any research?' We said 'No'. At that point I think he realized 'Okay I got some people that don't know what the heck they are doing'."

She and her husband Andre now face a 10.75 percent interest rate on an adjustable-rate mortgage and monthly payments of $1,600 -- more than double the $650 she told her broker she could afford. Foreclosure looms after she missed a payment.

"If you're white they overlook the fact that your credit score is a little too low or you have one extra late payment," said Barbara Rice, a community organizer at the Massachusetts Affordable Housing Alliance, a nonprofit advocacy group.

Rice, who is white, and a colleague who is black took part in an experiment in Massachusetts last year to test the racial bias of mortgage brokers. They both posed as prospective home buyers in a separate meetings with several brokers.

Rice presented a worse credit rating and lower income than her black colleague to brokers but received better treatment.

"I was given more information," she said.

Many traditional banks do not run branches in poor minority neighborhoods, creating a vacuum often filled by predatory lenders and unscrupulous brokers, said Stephen Ross, a University of Connecticut economist who studies lending.

When the property market was strong, those brokers could tell borrowers that rising prices meant they could easily remortgage their properties to keep up with payments. But since the market peaked in 2005, millions are struggling to repay those loans. This year, some 1.5 million homeowners will face foreclosure, research firm RealtyTrac estimates.

The U.S. Mortgage Bankers Association said disparities by race alone in home loans do not prove unlawful discrimination but may indicate a need for closer scrutiny.

    Blacks suffer most in U.S. foreclosure surge, R, 20.3.2007, http://www.reuters.com/article/domesticNews/idUSN1931892620070320

Rising Trouble With Mortgages Clouds Dream of Owning Home

March 17, 2007
The New York Times
By EDUARDO PORTER and VIKAS BAJAJ

Perhaps the American dream of homeownership is not for everyone.

That may sound at odds with a bedrock notion of society promoted by presidents for decades. But many experts say it is a message that can be drawn from the rising troubles with mortgages provided to home buyers with weak credit.

Several large mortgage companies have stopped making new loans, and others have tightened lending standards.

Hundreds of thousands of families who bought houses in the last two years — using loans with low teaser interest rates and no down payments — are now losing them.

Their short tenure as homeowners calls into question whether the nation’s long drive to increase homeownership — pushed by both public policy and financial innovations — has overstepped some boundary of demographic and economic sense.

“Clearly we went too far,” said Joseph E. Gyourko, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. “It’s not the case that high homeownership is always good.”

Consider Nathaniel Shields, who expects to lose his four-bedroom Cape Cod house in southwest Chicago to a foreclosure in May.

He cannot afford his mortgage payment, which jumped to $1,300 a month from about $1,000 after his loan reset to a higher interest rate last summer. A divorce and the loss of his county government clerical job, which paid $14.80 an hour, have also hurt.

In 2004, Mr. Shields took out a popular hybrid mortgage that carried a fixed interest rate for two years before becoming an adjustable-rate loan for the remaining 28 years. In August, his loan’s interest rate rose from 6.6 percent to 8.1 percent, and to 9.6 percent now. “I love the house,” said Mr. Shields, 47, who now works in a custodial job with the Chicago school district that pays $10.40 an hour. “I put a lot of money in the house — a deck and a new garage — and they are just going to take the house.”

Kathleen Van Tiem, a counselor at Neighborhood Housing Services of Chicago, has been trying to help him, but says that his weak credit and low income make him ineligible to refinance or modify his loan. Mr. Shields has put his house up for sale, but in a market with many homes available, he has found no takers.

There were surges in homeownership rates last century, but further gains have been slow going more recently, despite the hoopla of the housing bubble and the surge in home building.

The nation’s homeownership rate has increased by only about 1.4 percentage points since 2000, to almost 69 percent last year.

But subprime mortgages — granted to borrowers like Mr. Shields with weak, or subprime, credit histories — played a big role in achieving those levels.

This push, however, has meant intense financial strain for many families. Subprime borrowers will spend nearly 37 percent of their after-tax income on mortgage payments, insurance and property taxes this year, according to estimates by Mark Zandi, chief economist of Moody’s Economy.com, drawn from Federal Reserve data.

This is about 20 percentage points more than prime borrowers and 10 points more than what subprime borrowers paid in 2000.

And their payments will get higher, Mr. Zandi estimates, as low teaser rates used to lure them into the market adjust upward after a few years.

When the housing market started weakening, subprime borrowers were the first to feel the squeeze. Almost 8 percent of subprime mortgages — more than 450,000 loans — were either in foreclosure or in arrears of more than three months in the fourth quarter of last year, according to the mortgage bankers.

Their unraveling means not only a string of failed lenders. Homeownership rates have slipped, and many low-income families, who dedicated meager savings toward a stake in their first homes, are facing foreclosure.

“I worry that people are overexposed to risk,” said Stuart S. Rosenthal, an economics professor at Syracuse University. “We wouldn’t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets?”

But politicians have long encouraged the idea of homeownership. “A nation of homeowners is unconquerable,” Franklin D. Roosevelt said. Promoting homeownership has been a cornerstone of President Bush’s “ownership society.” He has declared June to be National Homeownership Month.

And government has played a substantial role in fostering homeownership — including offering mortgage insurance and creating Fannie Mae and Freddie Mac to buy mortgages from lenders and repackage them for sale to investors.

Moreover, the government has provided an ever-growing pile of subsidies to the buyers of homes.

The mortgage interest deduction, the biggest single subsidy to homeowners, will cost the federal budget about $80 billion this year, according to the administration’s projections. Deductions for state and local property taxes will cost $15.5 billion.

Allowing homeowners to pocket tax-free much of the profit from selling their homes is expected to cost $37 billion more. Altogether, this amounts to almost 5 percent of the federal government’s total tax revenue, and almost three times HUD’s entire $42 billion budget. Now even some in Washington are questioning the soundness of pushing homeownership so broadly.

United States policies in recent years promoted the idea of homeownership too hard and at the expense of rental housing, said Representative Barney Frank, Democrat of Massachusetts. “I wish people could own more homes,” he said in an interview yesterday. “But I also wish I could eat and not gain weight.”

And the government’s efforts to promote homeownership are far from an unqualified success. From 2000 to 2005, homeownership rates increased significantly only among households in the top two-fifths of the income distribution, those earning more than $46,883, according to the Census Bureau’s American Community Survey.

Homeownership declined for families in the bottom two-fifths of the income scale. In the lowest fifth — where families make less than $20,180 — homeownership was only 42.4 percent in 2005, which was 3 percentage points less than it was 25 years earlier and 26 percentage points below the national average.

Part of the reason is the structure of government subsidies, which are worth very little to low-income families but quite a bit to families with big incomes. Those well-off families typically do not need government support to buy a home but use it to buy bigger places than they would otherwise purchase.

The mortgage interest deduction alone is worth about $21,000 to a taxpayer in the highest bracket of income with a $1 million mortgage. But for a typical family that bought, say, a $220,000 house with 20 percent down, the break is worth about $1,600.

Some economists question whether the government should be subsidizing homeownership in the first place.

Edward L. Glaeser, a professor of economics at Harvard, said he could understand government “giving a slight push to increase homeownership, but the current incentives are much more than a slight push.”

Economic studies do suggest that homeowners try to maintain the value of their properties — tending to their gardens and investing in their communities. But it is not clear that homeownership itself fosters these behaviors; it could be that people who invest in their communities prefer to own their own homes.

Homeownership also has a more problematic side: it locks people into an asset and ties them to a place. “Too much homeownership might restrict mobility, and that may not be a good thing,” Professor Gyourko said.

Take Adam Gardner, a 29-year-old appraiser who bought a three-bedroom, two-bath house 20 miles north of Reno, Nev., for about $255,000 two years ago. His wife is pining to move closer to town, but with housing prices falling all around him, Mr. Gardner doubts they can pull it off. “I’m not sure we can sell the place we are in,” Mr. Gardner said.

Some people can bear tying up much of their wealth in a house — those with a secure, well-paid job in a stable labor market, for instance. But others might need more freedom to move: the young in pursuit of love or careers, say, or workers in declining job markets.

The American dream of homeownership may continue to grow over coming decades, if only because the population is aging and older people are more likely to own their own home. But for now, even industry insiders acknowledge that, at the very least, it is going to take a breather.

Ted J. Grose, a mortgage broker in Los Angeles, said, “For the moment we may have plateaued.” For all the concerns about low-income families facing foreclosure, some economists believe that the development of the subprime credit market has, over all, been a boon for people with low income.

Harvey S. Rosen, a professor of economics at Princeton who was a former economic adviser to President Bush, put it this way: “Ultimately the public policy choice is going to be whether to make it harder for people to get these loans, and just shut people out, or let people make the choice and know that sometimes they will make mistakes.”

Stephen Labaton contributed reporting from Washington.

    Rising Trouble With Mortgages Clouds Dream of Owning Home, NYT, 17.3.2007, http://www.nytimes.com/2007/03/17/business/17dream.html?hp

Wholesale Inflation Surged in February

March 16, 2007
The New York Times
By JEREMY W. PETERS

The government’s measure of inflation at the producer level rose sharply in February, reflecting a broad increase in prices on everything from gasoline to cigarettes.

The Labor Department said today that its producer price index, which takes account of the prices businesses charge one another, rose 1.3 percent last month after falling 0.6 percent in January. The rise was a reminder that while inflation may have settled down somewhat, it still remains a significant threat to the economy.

In recent weeks, stock markets worldwide have been jolted by fears that the United States economy is more vulnerable to a downturn than economists initially thought. Investors will look to the producer price index and the consumer price index for February, which will be released tomorrow, for direction.

After sharp sell-offs yesterday, markets in Asia and Europe climbed today. On Wall Street, however, stocks were set to open lower, according to futures prices. Wall Street expected tamer numbers. Economists predicted inflation to tick up only 0.5 percent last month, according to a survey by Bloomberg News.

The Labor Department’s report also showed that the core producer price index, a less volatile measure than the overall rate because it strips out gasoline and food prices, doubled from January, to 0.4 percent. That, too, exceeded economists’ forecasts, which predicted a 0.2 percent rise.

Economists said today’s numbers reduced the likelihood the Fed will change its outlook that inflation is the biggest threat to the economy right now.

“It does underscore the Fed’s belief that core inflation pressures are still too great to consider easing monetary policy,” said Joshua Shapiro, chief United States economist with MFR.

    Wholesale Inflation Surged in February, NYT, 15.3.2007, http://www.nytimes.com/2007/03/16/business/16econ.web.html?hp

Housing woes deepen in U.S. industrial heartland

Thu Mar 15, 2007 8:24AM EDT
Reuters
By Andrea Hopkins and Kevin Krolicki

DETROIT (Reuters) - Job losses in the U.S. industrial heartland have left states like Michigan and Ohio more vulnerable to mortgage defaults, as home finance costs rise amid often moribund real-estate markets.

On a combined basis, Michigan and Ohio accounted for an out-sized 15 percent of foreclosures across the United States in January, the most recent month for which data is available from tracking service RealtyTrac.

Some 546,000 jobs have been lost in the two states since 2000, according to U.S. government figures, as shutdowns and layoffs at auto plants rippled through the economy.

More hardship is expected as announced job cuts take effect and unionized auto workers begin to leave the area or risk running through recent severance packages in the absence of new jobs, analysts said.

In addition, many homeowners who put their houses on the market months ago and refinanced or bought houses elsewhere with adjustable-rate mortgages are now trapped between a soft real-estate market and their own escalating monthly payments.

"A lot of people had visions of selling their homes, but that's not happening," said Hunt Gersin, president of Troy, Michigan-based mortgage broker Interactive Financial Corp. "Personally, I know dozens of people with houses for sale and no offers. There's not a bottom in sight."

ECONOMIC DISTRESS

Richard DeKaser, chief economist at National City Corp. in Cleveland, said there was no reason to believe Ohio and Michigan have more subprime mortgages, high-interest loans extended to people with poor credit scores, than other states.

"The Midwest has endured more of its share of economic distress and home prices here haven't been robust, which by extension makes those subprime mortgages ... more vulnerable than subprime mortgages more generally," DeKaser said.

"But it doesn't necessarily follow from that there is a high concentration of these loans in those markets," he said.

DeKaser and other economists said there was no question economic distress in the industrial Midwest has made it more difficult for many borrowers.

"Michigan has been losing jobs for six years now and the distress that comes with job loss alone ... is resulting in greater mortgages difficulties," said DeKaser, adding the exodus of residents to seek jobs elsewhere has compounded the problem of falling house prices.

"So you've got this vicious cycle of falling property values and falling employment levels, falling population, and it is making for a very painful mix," he said.

Ohio, DeKaser said, was not as clear-cut, with northern and more industrial portions of the state around Cleveland and Youngstown suffering more than Columbus and Cincinnati to the south.

Michigan was the only state to see home prices fall in 2006. The national average increased almost 5.9 percent but prices slipped by 0.4 percent in Michigan, according to a recent federal study.

"In California and other markets, the problem was that housing prices raced away from incomes," said Dana Johnson, chief economist at Detroit-based Comerica Bank. "What happened here is that incomes have just fallen away from home prices."

Rather than speculative buyers on overextended credit, the region's housing bust is playing out as "a different, quieter story," Johnson said.

"I think you have people who had every intention of paying off their mortgages and living in their houses and just couldn't," he said.

    Housing woes deepen in U.S. industrial heartland, R, 15.3.2007, http://www.reuters.com/article/domesticNews/idUSN1435600520070315?src=031507_0810_TOPSTORY_mortgage_pain

Start-Up Fervor Shifts to Energy in Silicon Valley

March 14, 2007
The New York Times
By MATT RICHTEL

SAN FRANCISCO, March 13 — Silicon Valley’s dot-com era may be giving way to the watt-com era.

Out of the ashes of the Internet bust, many technology veterans have regrouped and found a new mission in alternative energy: developing wind power, solar panels, ethanol plants and hydrogen-powered cars.

It is no secret that venture capitalists have begun pouring billions into energy-related start-ups with names like SunPower, Nanosolar and Lilliputian Systems.

But that interest is now spilling over to many others in Silicon Valley — lawyers, accountants, recruiters and publicists, all developing energy-oriented practices to cater to the cause.

The best and the brightest from leading business schools are pelting energy start-ups with résumés. And, of course, there are entrepreneurs from all backgrounds — but especially former dot-commers — who express a sense of wonder and purpose at the thought of transforming the $1 trillion domestic energy market while saving the planet.

“It’s like 1996,” said Andrew Beebe, one of the remade Internet entrepreneurs. In the boom, he ran Bigstep.com, which helped small businesses sell online. Today, he is president of Energy Innovations, which makes low-cost solar panels. “The Valley has found a new hot spot.”

Mr. Beebe said the Valley’s potential to generate change was vast. But he cautioned that a frenzy was mounting, the kind that could lead to overinvestment and poorly thought-out plans.

“We’ve started to see some of the bad side of the bubble activity starting to brew,” Mr. Beebe said.

The energy boomlet is part of a broader rebound that is benefiting all kinds of start-ups, including plenty that are focused on the Web. But for many in Silicon Valley, high tech has given way to “clean tech,” the shorthand term for innovations that are energy-efficient and environmentally friendly. Less fashionable is “green,” a word that suggests a greater interest in the environment than in profit.

The similarities to past booms are obvious, but the Valley has always run in cycles. It is a kind of renewable gold rush, a wealth- and technology-creating principle that is always looking for something around which to organize.

In this case, the energy sector is not so distant from other Silicon Valley specialties as it might appear, say those involved in the new wave of start-ups. The same silicon used to make computer chips converts sunlight into electricity on solar panels, while the bioscience used to make new drugs can be employed to develop better ethanol processing.

More broadly, the participants here say their whole approach to building new companies and industries is easily transferable to the energy world. But some wonder whether this is just an echo of the excessive optimism of the Internet boom. And even those most involved in the trend say the size of the market opportunity in energy is matched by immense hurdles.

Starting a clean technology firm is “not like starting an online do-it-yourself legal company,” said Dan Whaley, chief executive of Climos, a San Francisco company that is developing organic processes to remove carbon from the atmosphere. “Scientific credibility is the primary currency that drives the thing I’m working on.”

Just what that thing is, he would not specify. For competitive reasons, Mr. Whaley declined to get into details about his company’s technology. His advisory board includes prominent scientists, among them his mother, Margaret Leinen, the head of geosciences for the National Science Foundation.

In the last Silicon Valley cycle, Mr. Whaley’s help came from his father. In 1994, he did some of the early work from his father’s living room on GetThere.com, a travel site. It went public in 1999 and was bought by Sabre for $750 million in 2000.

This time around, entrepreneurs say they are not expecting such quick returns. In the Internet boom, the mantra was to change the world and get rich quick. This time, given the size and scope of the energy market, the idea is to change the world and get even richer — but somewhat more slowly.

Those drawn to the alternative-energy industry say that they need time to understand the energy technology, and to turn ideas into solid companies. After all, in contrast to the Internet boom, this time the companies will need actual manufactured products and customers.

“There are real business models and real products to be sold — established markets and growing economics,” said George Basile, who has a doctorate in biophysics from the University of California, Berkeley and specializes in energy issues.

Mr. Basile has just stepped into the fray himself. In January, he became the executive adviser for energy issues at Bite Communications, a San Francisco public relations firm with scores of technology clients that is now working to attract energy start-ups.

The sudden interest of lawyers, accountants and other members of the wider Valley ecosystem strikes some as opportunistic.

“There’s a large amount of bandwagon-jumping right now,” said Mark Hampton, chief executive of Blanc & Otus, a technology-oriented public relations firm whose clients have included TiVo, Sybase and Compaq. Still, he understands the interest of relative newcomers: “There’s a huge opportunity.”

They are all, plainly, following the money. In the first three quarters of 2006, venture capital firms put $474 million into a broad range of Silicon Valley start-ups in energy storage, generation and efficiency, according to Cleantech Venture Network, an industry trade group. Energy was by far the fastest-growing area of interest, and the amount was on par with what was put into telecommunications and biotechnology.

Yet the amount of money involved is still relatively small compared with the boom years. Over all, venture funding last year was still less than a third of the nearly $34 billion venture capitalists invested in the region in 2000, the peak of the bubble, according to the Center for the Continuing Study of the California Economy, based in Palo Alto.

“This is not 2000. It doesn’t feel like 2000 on the street,” said Stephen Levy, the center’s director. But, he said, “there’s no doubt there’s a buzz.”

Mr. Levy said that Silicon Valley was getting a lift from the public’s interest in finding energy sources and from government involvement in creating subsidies and policies that promote such sources. Still, he said, the ventures are clearly risky.

“We’ll have a sense very quickly — within two to four years — whether any of this venture capital has produced any products or services that are market-worthy,” Mr. Levy said.

Apart from the profit motive, many here say they are driven by more unselfish concerns: cleaning up the atmosphere and creating energy independence for the United States. One of the phrases heard most often in the industry is: “Do well by doing good.” Al Gore, with his warnings of global warming, has been a Valley darling of late.

“The résumés I’m getting now are almost identical to the ones I got seven years ago for CarsDirect.com,” said Larry Gross, chief executive of Altra , a company he founded in Los Angeles that is producing ethanol and developing fuels made from plants. “The quality, the schools, the work experience, the enthusiasm for wanting to fix something.”

Mr. Gross in 1991 helped found Knowledge Adventure, which made educational software, making him one of the many tech alumni in the energy world. For that company, he said he attracted around $20 million in venture capital; he has received $245 million for Altra. Mr. Gross said investors and entrepreneurs are drawn to energy by what drew them to hardware and software: the chance for huge growth in volatile markets.

Mr. Gross is the brother of Bill Gross, a technology-era icon whose business incubator Idealab spawned many successful start-ups, including Citysearch and WeddingChannel. Bill Gross is now chief executive of Energy Innovations, the solar panel start-up based in Pasadena, Calif., with Mr. Beebe as president.

Mr. Beebe said there were profound similarities between the Internet boom and the miniboom in energy. For one, he said, just as the Internet promised to decentralize computing and put control in the hands of users, the Silicon Valley version of energy innovation intends to decentralize the industry by making power generation more local — like solar panels on rooftops.

In 1998, Mr. Beebe was a co-founder of Bigstep and raised $75 million in venture funding. At its peak, the company had 150 employees, with most of them laid off during the bust. The company was later sold for less money than it raised — hardly a dot-com success. So does Mr. Beebe have the track record to make a solar energy company profitable?

“I face that question on a regular basis,” he said. “Only my actions will be able to answer it.” But he added that he felt confident about the political and market conditions for energy start-ups. He said the entrenched oil, coal and gas companies could not ultimately compete with the more efficient and environmentally friendly concepts Silicon Valley envisions.

“The idea of them turning a supertanker is an apt analogy,” he said. “They cannot take us over, they can only try to resist.”

    Start-Up Fervor Shifts to Energy in Silicon Valley, NYT, 14.3.2007, http://www.nytimes.com/2007/03/14/technology/14valley.html?hp

Halliburton Moving C.E.O. From Houston to Dubai

March 12, 2007
The New York Times
By CLIFFORD KRAUSS

HOUSTON, March 11 — Halliburton, the big energy services company, said on Sunday that it would open a corporate headquarters in the United Arab Emirates city of Dubai and move its chairman and chief executive, David J. Lesar, there.

The company will maintain its existing corporate office here as well as its legal incorporation in the United States, meaning that it will still be subject to domestic laws and regulations.

Although the announcement of the new Dubai arrangement took many by surprise, Halliburton said that the move was part of a strategy announced in mid-2006 to concentrate its efforts in the Middle East and surrounding areas, where state-owned oil companies represent a growing source of business.

Halliburton, which was led by Vice President Dick Cheney from 1995 to 2000, is currently in the process of spinning off KBR, its military contracting unit, to focus on its business of drilling wells and maintaining fields for oil companies. The company did not say what implications the Dubai development might have for its military contracts. Lea Anne McBride, a spokeswoman for Mr. Cheney, referred questions about the company’s plans to Halliburton.

The Dubai announcement, which Halliburton made at a regional energy conference in Bahrain, comes at a time when the company is being investigated by the Justice Department and the Securities and Exchange Commission over allegations of improper dealings in Iraq, Kuwait and Nigeria. Halliburton has also agreed to pay billions of dollars in settlements in asbestos litigation.

Halliburton would not elaborate on Sunday on what the shift of its top executive might mean for some of the issues it faces. The move seemed to raise questions about whether Halliburton might gain tax advantages or other benefits.

A Halliburton spokeswoman, Melissa Norcross, referred inquiries to the company’s press release, saying in an e-mail message, “The C.E.O.’s job is global by nature. He will continue to remain attentive to our shareholders, clients and employees around the world.”

Ms. Norcross added, “As companies usually refer to the C.E.O.’s office as the corporate headquarters, that’s what we are doing. Basing the C.E.O. in Dubai to focus on our Eastern Hemisphere growth makes good business sense, as it is the center of our Eastern Hemisphere operations and a global business hub. We will maintain our company’s legal registration in the United States and we are not leaving Houston.”

The mayor of Houston, Bill White, was notified by telephone shortly before Halliburton made the announcement, according to a spokesman, Frank Michel.

“We don’t expect it will have a big impact on employment here,” Mr. Michel said. “We point out that Houston continues to be the center for the international oil and gas business.”

“Having a corporate headquarters is different than it used to be,” Mr. Michel added. “Executives spend a lot more time on airplanes, and we understand that.” He noted that Schlumberger, one of Halliburton’s top competitors, maintains offices in both Paris and Houston.

On the face of it, the decision to move Mr. Lesar abroad appears to point mainly to how the epicenters of the energy business are moving from the mature fields of North America to the younger fields of the Middle East and Africa. It also underscores the arrival of Dubai as a center for energy deal-making and commerce, a role once solidly filled by Houston.

“My office will be in Dubai, and I will run our entire worldwide operations from that office,” said Mr. Lesar, who holds the titles of chairman, chief executive and president, at a conference in Manama, Bahrain’s capital. “The Eastern Hemisphere is a market that is more heavily weighted toward oil exploration and production opportunities. Growing our business here will bring more balance to Halliburton’s overall portfolio.”

Halliburton is incorporated in Delaware and its stock is traded on the New York Stock Exchange. Reuters reported that Mr. Lesar said Halliburton would like to list its shares on an exchange in the Middle East, which it could do while maintaining its listing in New York.

Halliburton reported a record $2.3 billion in profit last year and continues to be the dominant oil-field service company in North America, where it generates 60 percent of its operating income.

Over the last several years, an increasing amount of Halliburton’s business has shifted to places like Kuwait, Russia, Libya, Australia, Vietnam, and west and central Africa. And, mirroring trends in the energy business, its customer base is shifting from traditional Western oil companies to national oil companies in developing countries.

Some analysts who follow Halliburton said they did not think the relocation of Mr. Lesar reflected anything more than changes in the energy business.

“They are moving to the center of the Eurasian-African hemisphere and that’s where the bulk of the work is going to be in the future,” said Barbara Struck, an analyst with Energy Intelligence Group, a research firm.

She said she doubted the company was trying to evade laws in the United States. Halliburton has suffered several years of negative headlines, many having to do with its administration of a $16 billion deal to support American military operations in Iraq. Halliburton’s KBR subsidiary has been the subject of a number of investigations for mishandling billions of dollars of housing, food and fuel contracts for American troops and government officials operating in Iraq. Halliburton began spinning off KBR last year.

During Mr. Cheney’s tenure as chief executive, Halliburton bought a company that saddled it with asbestos claims. The company has agreed to pay nearly $5 billion in settlements.

Despite its recent problems, Halliburton posted record revenue, net income and margins last year.

Perhaps the biggest winner could be Dubai itself, one of seven emirates in the United Arab Emirates confederation, which has sought to establish itself as a regional commercial center on par with Singapore and Hong Kong. Most multinational companies, including Halliburton, have made Dubai a regional hub for their Middle Eastern business over the last decade.

Hassan M. Fattah contributed reporting from Dubai, United Arab Emirates, and Rachel Mosteller from Houston.

    Halliburton Moving C.E.O. From Houston to Dubai, NYT, 12.3.2007, http://www.nytimes.com/2007/03/12/business/12haliburton.html?_r=1&hp&oref=slogin

97,000 jobs added in February, weakest in 2 years

USA TODAY
9.3.2007
By Sue Kirchhoff

WASHINGTON — The nation's unemployment rate dipped slightly to 4.5% in February as businesses created 97,000 jobs, fewest in two years, and wages grew at a fast clip, the Labor Department said Friday.

Despite the slight improvement in the unemployment rate, from 4.6% in January, the factory and construction sectors shed jobs, hit by a slowdown in the housing and auto markets. Further, improvement in the unemployment rate was partly because the number of people in the labor pool declined 190,000 during the month and there was large job creation in the government sector.

"The economy is adding lots of jobs for college graduates, especially those with technical specialties in finance, health care, education, and engineering. However, for high school graduates without specialized skills or training, jobs offering good pay and benefits remain tough to find," says Peter Morici, business professor at the University of Maryland.

In another positive piece of economic news Friday, the Commerce Department said the U.S. trade deficit dipped a bit in January to $59.1 billion as exports rose to a record. But the deficit with China rose 12%, to $21.3 billion.

Treasury Secretary Henry Paulson has been pressuring Chinese officials to relax their currency regime and take other steps to ease trade pressures with the USA.

The new data follow stomach-churning drops in the stock markets, which have raised some red flags about a possible economic downturn. Federal Reserve Chairman Ben Bernanke told Congress last week, however, that he expects moderate growth this year, which should gradually reduce inflation. Economists were split on the meaning of the reports for Bernanke's forecast.

"Job creation was moderate in February and there were upward revisions to the prior two months," said Steven Wood of Insight Economics. "Although the trend pace of job creation has slowed, it is still rising solidly and should alleviate concerns about a recession."

But Ian Shepherdson of High Frequency Economics said the numbers displayed some "real softness" including the drop in the labor force and a reduction in hours worked. "Overall, there are clear warning signs of deterioration ahead," Shepherdson said.

The numbers do highlight soft spots in the economy. The construction sector, battered by a drop in new-home building as well as bad weather during February, shed 62,000 jobs — highest monthly loss in more than 15 years. There were job declines in both the residential and commercial construction sectors. Factory employment fell 14,000 with losses in the wood products sector, semiconductor production and textile mills, among others.

In addition, the percentage of unemployed workers who had been out of a job 27 weeks or longer rose 1.7 percentage points to 17.8% in February.

The Labor Department also revised previous months' job totals. These showed larger gains than previously estimated. Employers added 226,000 jobs in December, vs. the 206,000 last estimated. Payrolls grew 146,000 in January, up from a previous estimate of 111,000.

Hourly wages for non-supervisory workers rose to $17.16, a gain of 6 cents from last month. That follows a 3-cent gain in January and an 8-cent rise in December.

Economists expect better wage gains to support consumer spending ahead, even as the housing market declines and homeowners have less ability to pull equity out of their homes. Consumer spending accounts for about two-thirds of U.S. economic activity.

The Federal Reserve is also keeping a close eye on wage growth, which can signal an increase in inflation.

The jobs report indicates the service sector, which produces the bulk of U.S. jobs, continues to be healthy. Financial firms, retailers and health care posted job increases last month.

Contributing: Associated Press

    97,000 jobs added in February, weakest in 2 years, UT, 9.3.2007, http://www.usatoday.com/money/economy/employment/2007-03-09-jobs_N.htm

Unemployment Rate Declined in Feb.

March 10, 2007
The New York Times
By JEREMY W. PETERS

Businesses added jobs at a steady pace last month, the government reported today, in the latest sign that the job market is holding up despite other signs of economic weakness.

The Labor Department reported that total nonfarm employment rose in February by 97,000 — slightly more than analysts were expecting. It also revised up previous estimates for employment in January in December to reflect an additional 55,000 jobs.

At the same time, the national unemployment rate fell back to 4.5 percent from 4.6 percent.

Workers’ average hourly earnings continued to rise at a strong pace. The average employee in a nonmanagerial job earned 4.1 percent more in February than a year earlier. Hourly pay jumped to $17.16 from $16.49 in February 2006.

The report comes as anxiety over the state of the economy is growing. A number of closely watched economic reports— including those that measure growth and business investment — have detected a downshift in recent months. Reinforcing those worries, a global stock collapse that spread from China to Wall Street last week resulted in investors withdrawing hundreds of billions of dollars from the stock market.

The report is likely to help soothe those fears. As the economic news has grown more downbeat recently, many investors and economists have pointed to the strength of the labor market as a major reason not to be overly concerned.

“When people say the economy is doing really well right now what are they talk about?” said Jared Bernstein, an economist with the Economic Policy Institute. “Primarily, they’re talking about the labor market.”

    Unemployment Rate Declined in Feb., NYT, 10.3.2007, http://www.nytimes.com/2007/03/10/business/10econ.web.html?_r=1&hp&oref=slogin

2 Winners in Mega Millions $370M Jackpot

March 7, 2007
By THE ASSOCIATED PRESS
Filed at 8:35 a.m. ET
The New York Times

COLUMBUS, Ohio (AP) -- At least two people woke up Wednesday well on their way to becoming millionaires. Winning tickets were purchased in New Jersey and Georgia for the record $370 million Mega Millions lottery jackpot, and there could be others in California, a spokeswoman for the Ohio Lottery said Wednesday.

With all the states reporting except California early Wednesday, Ohio Lottery spokeswoman Mardele Cohen said two winning tickets had been sold, one each in New Jersey and Georgia. All 12 states involved in the lottery drawing report through Ohio.

California Lottery spokesman Rob McAndrews said it would be midmorning before his state's results were in. ''The volume of ticket sales was so high. As a result it's taking us more time to process than is typical,'' McAndrews said.

Representatives of the Georgia and New Jersey lotteries were trying to confirm where in their states the winning tickets were purchased.

The winning numbers -- 16-22-29-39-42, and the Mega Ball 20 -- were announced Tuesday night in New York's Times Square, where the 12 participating Mega Millions states agreed to move the drawing after the jackpot hit $355 million Monday. The Mega Millions drawing's usual home is Atlanta.

Even though the temperature was a frosty 16 degrees, a handful of hopefuls showed up to watch the event outside the street-level Times Square studio, waving their tickets in the air.

Millions of people across the nation wished and waited after snapping up tickets for the jackpot.

Earlier Tuesday, lottery players lined up at stores around the country in the hope of buying the winning ticket. New Yorkers bought more than 1 million tickets an hour, said Robert McLaughlin, the state's lottery director. Virginia retailers sold about 8,550 tickets per minute as the drawing approached.

The odds of winning: about 1 in 176 million.

At New York's Port Authority Bus Terminal, construction worker Andelko Kalinic had an idea of what he would do if his Mega Millions ticket paid off.

''Go to the moon,'' he said. ''Why not?''

The deadline for buying tickets was 10:45 p.m. But lottery players in Ohio who waited until late in the day to purchase their tickets were out of luck. The system went down statewide at about 10:20 p.m., about 25 minutes before the deadline for placing wagers, Cohen said.

She said it's unclear what caused the problem but the system would be reviewed.

''For those people who wanted to make a wager and didn't get a chance, we're very, very sorry,'' she said.

The largest previous multistate lottery jackpot was $365 million in 2006, when eight workers at a Nebraska meat processing plant hit the Powerball lotto. The Big Game lotto, the forerunner of Mega Millions, paid out a $363 million jackpot in 2000.

Mega Millions tickets are sold in California, Georgia, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Texas, Virginia and Washington state.

At a Los Angeles convenience store, maps specialist Rikki Bilder went in on nine Mega Millions tickets with two co-workers. She said they would quit their jobs if they won.

''I would probably hire a financial consultant, because you can't put this kind of money in 100 banks,'' said Bilder, 69. ''I would study finance, and give to charity. Oh, and I would probably give some of it to my children. I'm old, I'm not going to live 100 years.''

------

Associated Press Writers Lisa Cornwell in Cincinnati; Larry O'Dell in Richmond, Va.; and Solvej Schou in Los Angeles contributed to this story.

------

On the Net:

Mega Millions:

http://www.megamillions.com

    2 Winners in Mega Millions $370M Jackpot, NYT, 7.3.2007, http://www.nytimes.com/aponline/us/AP-Mega-Millions-Jackpot.html

Growth in U.S. Economy Slower Than Thought

February 28, 2007
By THE ASSOCIATED PRESS
The New York Times

NEW YORK (AP) -- U.S. stocks were poised to open moderately higher Wednesday following a massive worldwide sell-off a day earlier that rattled investor confidence but left fertile ground for bargain hunters.

A report that showed the economy grew at a 2.2 percent annual rate in the fourth quarter was largely in line with Wall Street's revised expectations and had little effect on futures readings pointing to a higher opening. The Commerce Department's gross domestic product reading was more than a percentage point below the initial estimate of 3.5 percent made a month ago.

The key economic findings follow sharp declines Tuesday, which began following a drop in the frothy stock markets of mainland China that raised questions about whether a larger market correction was in the offing. Stocks fell in most of Asia earlier Wednesday although the Shanghai Composite Index, whose nearly 9 percent drop set off the domino-effect selling, closed up nearly 4 percent. Stocks were also off in Europe, but the declines were milder than on Tuesday.

Following the selloff that erased the U.S. major indexes' gains for the year, economic news and testimony from Federal Reserve Chief Ben Bernanke has taken on a new urgency as investors try to determine whether stocks will regain their footing.

Futures signaled a higher opening. Futures for the Dow Jones industrials, which fell more than 400 points Tuesday, were higher by 70 points, while Standard & Poor's (NYSE:MHP) 500 index futures were higher by 8.20 points. Nasdaq composite index futures were higher by 11.50 points.

Figures were due shortly after the market opens on new home sales for January and a report from the National Association of Purchasing Management-Chicago index of business conditions in the Midwest. The report is often viewed as a bellwether for the Institute for Supply Management's index of manufacturing activity for February, which is due Thursday. Weekly figures are also due on domestic crude inventories.

Bernanke is set to testify on Capitol Hill about the U.S. economy. His remarks follow comments from former Fed Chairman Alan Greenspan, who stirred concern about the health of the U.S. economy with a warning over the weekend that a recession could take hold later this year.

New York Fed President Timothy Geithner was expected to speak on liquidity and the financial markets shortly before the opening bell.

    Growth in U.S. Economy Slower Than Thought, NYT, 28.2.2007, http://www.nytimes.com/aponline/business/28wire-commerce.html

Asian Markets Fall Again on Worries About U.S. Economy

February 28, 2007
The New York Times
By KEITH BRADSHER

HONG KONG, Feb. 28 — Stock markets fell sharply across most of Asia on Wednesday morning.

But most of the worries were not about China, which started a global sell-off on Tuesday, but about the strength of the American economy and the continued willingness of international investors to keep buying shares far from home.

After tumbling almost 9 percent on Tuesday, the Shanghai market bounced back by about 4 percent by early Wednesday afternoon.

But markets elsewhere in Asia, after falling modestly on Tuesday, declined steeply Wednesday morning following the weakness of markets in Europe and New York.

Shares in Asian companies that export to the United States suffered particularly heavy losses after a report that American orders for durable goods were unexpectedly weak in January.

“There is a worry that U.S. consumption could slow substantially, and that is a much bigger factor than China’s stock market,” the chief Asia economist at Credit Suisse, Tao Dong, said.

The Topix Index in Tokyo dropped 3.5 percent by early afternoon, and the Hang Seng Index in Hong Kong and the Kospi Index in South Korea each fell 2.9 percent. Stock markets in Australia and India were down slightly less, while the Singapore market declined 4.2 percent; the Malaysian market was down 6 percent; and the Philippines market nearly 8 percent.

The managing director general of the Asian Development Bank, Rajat M. Nag, said in an interview in Hong Kong late this morning that the economic fundamentals of most Asian economies were strong.

But the region remains dependent on exports, especially to the United States, Mr. Nag said, and China is among the most dependent of all, with international trade in goods equal to 65 percent of its economic output last year.

“We are still fairly bullish on the Chinese economy’s growth potential,” he said, but added that China’s dependence on exports “is a vulnerability.”

The broad extent of the decline underlined Asia’s deepening connection to global financial markets and growing reliance on exports to the industrialized world.

“Every morning, most traders will get a fix on how the Asian markets are trading and how did the Nasdaq close — I think people have gotten more globalized,” said Sandeep Nanda, head of research at Sharekhan, a large retail brokerage firm in India.

Tim Condon, the head of financial markets research at ING Financial Markets in Singapore, said that the most significant thing about the continuing drop in share prices was that it was the first such global shock to financial markets that has emerged from China.

“It’s a recognition of the fact that China is a big part of the rally in risky assets,” Mr. Condon said.

Many investors have been borrowing at extremely low interest rates in Japan to make investments around the globe — foreign money has been rushing into investments as obscure as Iceland bonds.

John Edwards, the chief economist at HSBC Australia and an adviser to the former prime minister, Paul Keating, said that if investors continue to sell their holdings to pay off their loans in Japan, then prices could continue to fall.

Part of the financing for the abundant cash pushing through global markets has come from what many economists say is a surplus of savings by Chinese, as well as China’s more than $1 trillion in foreign exchange reserves. China is now a leading source of global capital, with the money funneled back into global markets through investments in Treasury bonds and other securities.

“So when people get anxious that China may turn that tap off we get market reactions like yesterday,” Mr. Condon said.

In the Philippines, foreign investors were the main sellers. Were it not for domestic institutions buying across the board on Wednesday, “it could have been worse,” said Luz Lorenzo, a regional economist in Manila at ATR Kim Eng Securities.

In Thailand, a major concern is the prospect of further weakness in the dollar. If a slowdown in the United States causes the Federal Reserve to reduce interest rates, it would become less attractive for foreign investors to buy dollars or invest in Treasuries and other interest-bearing securities in the United States.

Thai exports of cars, rice, sugar, and electronics have already become more expensive on the world market after a 17 percent rise in the baht against the dollar in 2006.

Early Wednesday the baht rose against the dollar by four-tenths of a percent to 35.4 per dollar. That bucked a trend by other currencies in Southeast Asia, including the Indonesian rupiah, the Singapore dollar, the Philippine peso and the South Korean won, which all fell as investors mostly sought the perceived safety and stability of the dollar.

There is less concern in Thailand, by contrast, for the stock market, which has been dragged down by the country’s long-running political crisis and fell about 5 percent in 2006, even as Shanghai’s market rose 130 percent last year.

“We shouldn’t go down too hard, having never gone up,” said Supavud Saicheua, the managing director of Phatra Securities, which conducts research for Merrill Lynch in Thailand.

Thailand’s stock market index fell 2 percent in morning trading.

“The problem is that we don’t know how big of a worry this is going to be,” Mr. Supavud said.

Wayne Arnold in Singapore, Martin Fackler in Tokyo, Tom Fuller in Bangkok, Anand Giridharadas in Mumbai, Tim Johnston in Sydney and Carlos H. Conde in Manila also contributed to this article.

    Asian Markets Fall Again on Worries About U.S. Economy, NYT, 28.2.2007, http://www.nytimes.com/2007/02/28/business/01stoxcnd.html?_r=1&hp&oref=slogin

Wall St. Tumble Adds to Worries About Economies

February 28, 2007
The New York Times
By FLOYD NORRIS and JEREMY W. PETERS

Stock markets around the world plummeted yesterday in a wave of selling set off by a plunge in China that was reinforced by worries of weakening economies. The falling prices continued in early Asian trading today, but by midday the Chinese market seemed to be stabilizing.

While China was the first market to tumble, it was not clear what set off the selling. But once it began, it spread first to other Asian countries, then to Europe and the United States.

“It was sort of one of those days where somebody snaps their fingers, and the market’s hypnotic trance is over,” said Stuart Hoffman, chief economist of PNC Financial.

In China, where the stock market had been soaring, the government had warned banks about improper loans to finance stock speculation.

In America, the selling seemed to add to worries that a decline in the housing market, and problems in particular with loans to risky borrowers, could spill over. And a report yesterday indicating that orders for durable goods — items like washing machines and computers — were surprisingly weak in January revived doubts about the strength of the American economy.

Alan Greenspan, the former chairman of the Federal Reserve, in a speech transmitted to a business conference in Hong Kong on Monday, said that he could not rule out a recession in the United States later this year. In so doing, he seemed to distance himself from Ben S. Bernanke, the current Fed chairman, who has been much more upbeat.

Noting that global markets have been strong for years, Mr. Hoffman said: “We’ve had this ‘What me worry?’ mentality. And this is a little bit of a wake-up call.”

The Dow Jones industrial average fell as much as 546 points yesterday afternoon, before closing down 416.02 points, or 3.29 percent. In percentage terms, it was the worst day for the market since March 2003. In terms of points, it was the steepest slide since the first day the market resumed trading after the Sept. 11 terrorist attacks in 2001.

The Standard & Poor’s 500-stock index, the benchmark index for many investors, slid 3.47 percent, and the technology-heavy Nasdaq composite index fell 3.86 percent. All three major indexes erased their gains for the year.

The sell-off left almost every major stock lower, including all 30 stocks in the Dow industrials and all but two in the S.& P. 500 and one in the Nasdaq 100. As the 4 p.m. closing bell finally rang at the New York Stock Exchange, traders on the floor erupted with hearty boos.

At the close, said Howard Silverblatt, an index analyst with Standard & Poor’s, the S.& P. 500 had lost $452 billion in market value, and other American stocks had shed an additional $180 billion.

After steady declines in all markets, panic seemed to hit the American market just before 3 p.m., perhaps caused by sell programs that went off at 2:52 p.m., when the S.& P. 500 fell to the point where it was down 3 percent for the day. Within 10 minutes, it had fallen to its low for the day, down 4.3 percent. It ended with a loss of 3.5 percent.

Investors once took such big falls in stride, but in recent years no such thing has happened as volatility has largely evaporated from the market.

There were some technological problems yesterday. Dow Jones, which calculates the Dow industrials, said its system fell behind shortly before 3 p.m., and that a big fall was shown when the backup system came on. But Standard & Poor’s, which calculates the S.& P. 500, said it knew of no similar problems with its calculations.

Despite the tumble, the Dow is down only 4.4 percent from its record high reached last week. And the sell-off was not severe enough to set off any of the circuit breakers the New York Stock Exchange has put in place to help minimize big losses.

One sign of the nature of the sell-off was what went up. United States Treasury prices soared, and yields fell, as some investors sought safety.

“Treasuries rally, the stock market sells,” said Ethan Harris, chief United States economist for Lehman Brothers. “It’s kind of a classic risk-aversion reaction.”

If the rout in the markets is sustained, it will be the first major test for Mr. Bernanke. Two weeks ago, he said the Fed saw inflation as a greater threat than economic weakness.

“You’ve got a certain cavalierness about market-driven economic signals from the new academic-driven Fed,” said Robert Barbera, the chief economist of ITG, an advisory firm.

Mr. Barbera said that Mr. Greenspan gave more attention to market indicators than Mr. Bernanke has.

The selling yesterday began in Shanghai, which had hit a record on Monday. But in tumultuous trading yesterday, the Shanghai composite index plunged nearly 9 percent.

Stephen Green, a senior economist and stock market analyst working in Shanghai for Standard Chartered Bank, said the market fundamentals had not changed drastically in recent weeks, adding that the stock markets in China tended to be volatile, particularly after reaching record highs.

“People are just on edge,” he said. “It’s very possible in two weeks we’ll be right back up there.”

The sell-off in China started a few hours before an explosion was reported at an American base in Afghanistan. It killed several people but did not injure Vice President Dick Cheney, who was inside the base at the time.

Chinese markets stabilized in Wednesday morning trading, with the main Shanghai market index up a quarter of a percent and the main Shenzhen market index up 4 hundredths of a percent.

Other Asian markets — Singapore, Australia, New Zealand, the Philippines and Indonesia — which had all shrugged off Tuesday’s decline in Shanghai, dropped sharply on Wednesday morning in response to the heavy selling in Europe and New York.

The Topix index in Tokyo fell 3.45 percent on Wednesday morning while the Hang Seng Index fell 3.37 percent in Hong Kong.

Of Tuesday’s trading, Mr. Barbera of ITG said, “People are unwinding the carry trade.” In that trade, which has been very popular with hedge funds, traders borrowed yen, at very low interest rates, and then invested the money in assets in other countries.

“Now you try to get closer to shore,” said Mr. Barbera, saying that traders had sold investments and used the proceeds to repay their yen borrowings.

    Wall St. Tumble Adds to Worries About Economies, NYT, 28.2.2007, http://www.nytimes.com/2007/02/28/business/28stox.html?hp

Economix

A Recession That Arrived on Cats’ Paws

February 28, 2007
The New York Times
By DAVID LEONHARDT

The nation’s manufacturing sector managed to slip into a recession with almost nobody seeming to notice. Well, until yesterday.

Wall Street was caught off guard when the Commerce Department reported yesterday morning that orders for durable goods — big items like home computers and factory machines — plunged almost 8 percent last month. That’s a big number, but it really shouldn’t have come as too much of a surprise. In two of the last three months, the manufacturing sector has shrunk, according to surveys by the Institute for Supply Management that have been out for weeks.

But the new report seemed to focus investors’ attention on the problems in manufacturing and became one more reason for people to sell stocks. By the time the market opened in New York, stocks in almost every industrialized country had already fallen sharply.

The trouble began in Asia, where the Chinese stock market plummeted, before spreading to Europe and finally this country. The Standard & Poor’s 500-stock index ended up with a loss of 3.4 percent, its fifth straight daily decline and its worst since 2003.

All of which raises a question that would have sounded strange even a month ago. Is the entire United States economy in danger of going the way of the manufacturing sector? Is it possible that we’re headed for a real recession?

For months now, the economy seemed to shrug off the forces weighing on it and just kept on growing. But those forces never went away. If anything, a number of them have gotten stronger. And that’s the most worrisome part of the bad news from the nation’s factories: it fits into a larger story.

As stocks were dropping yesterday morning, an economist named Ian Shepherdson wrote one of his regular e-mail messages to clients: “Manuf is in recession; Fed please take note.” Mr. Shepherdson, it’s important to mention, is not one of Wall Street’s perma-bears. When manufacturing last shrank, back in 2003, he correctly insisted that it was a false harbinger.

But this time, the manufacturing downturn stems from a couple of larger economic problems. One, of course, is the housing slump, which has caused a big drop in new construction and much less demand for doors, windows, countertops and a lot of other things that kept factories busy in recent years.

In recent weeks, the troubles in housing have spilled into the financial sector. Big lenders like NovaStar Financial are paying the price for extending credit to people who couldn’t actually afford the homes they bought during the real estate boom. With many of those homeowners falling behind on their mortgage payments, lenders are making it tougher to get loans.

That’s a sensible, and overdue, move. But it will hurt economic growth in the months ahead. The second big problem for manufacturers is the series of interest rate increases that the Federal Reserve has imposed since 2004.

They may seem like old news, because the last of them came eight months ago, but it typically takes a year to a year and a half for a rate increase to have its full impact. A lot of the big decisions affected by interest rates, like whether to buy a new car or a new piece of factory equipment, aren’t everyday decisions. Only now are some families and businesses starting to react to the higher rates.

The economic news certainly isn’t all bad. The housing problems still haven’t turned into a crisis, thanks in part to interest rates that are still not high by historical standards. So the most likely situation is not a full-blown recession (often defined as two consecutive quarters of a shrinking economy).

The forecasters at the Economic Cycle Research Institute in New York, who have accurately predicted each of the last three recessions, argue that the current slowdown won’t amount to much more than a lull. By the middle of the year, they say, low interest rates and healthy corporate spending will have the economy growing nicely once again.

Lakshman Achuthan, the institute’s managing director, told me yesterday that he thought the odds of a recession over the next year were less than 20 percent. Mr. Shepherdson — the chief United States economist at High Frequency Economics, who’s more bearish than most forecasters right now — still puts the odds at only 30 percent.

But for all the attention that formal recessions get on Wall Street, they are not really the benchmark that matters to most people. A significant slowdown that falls short of a recession can do a lot of damage to stock prices, profits and wages.

Only in the last few months, for example, has the current expansion grown strong enough to give most American workers pay increases that outpace inflation. Those raises would be endangered if the economy were to slow from last year’s growth rate of 3.4 percent to even 2 percent.

“This is going to get worse before it gets better,” Mr. Shepherdson argues. “We’re in danger of slipping into something very like a recession, if not necessarily hitting the technical definition. It would be big enough to hurt, that’s for sure.”

The main message of yesterday’s worldwide stock sell-off — as well as the stealth manufacturing downturn — is that the economy is facing bigger risks than we imagined just a few weeks ago.

In mid-February, Ben S. Bernanke, the Federal Reserve chairman, told members of Congress that he was worried about inflation taking off. The clear implication was that the Fed’s next move might be to raise rates yet again to keep the economy from overheating.

Until yesterday, that seemed plausible. It doesn’t this morning. Like stocks, the price of a futures contract tied to Fed policy shifted sharply yesterday.

Before the day began, investors expected the Fed to hold its benchmark rate steady through the end of the summer. Now they are betting that the rate will be cut once before July and again by the end of the year. If that’s all that is necessary to keep the economy healthy, it will be a relief.

    A Recession That Arrived on Cats’ Paws, NYT, 28.2.2007, http://www.nytimes.com/2007/02/28/business/28leonhardt.html

Sales of Existing Homes Jump in January

February 27, 2007
By THE ASSOCIATED PRESS
Filed at 10:17 a.m. ET
The New York Times

WASHINGTON (AP) -- Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3 percent last month, the biggest one-month increase since a 3.3 percent increase in January 2005, a time when housing was roaring toward the peak of its five-year boom.

The median price of an existing home sold in January dropped to $210,600, a decline of 3.1 percent from a year ago. It marked the sixth straight month that the median price has been down compared with a year ago. The January decline was the third-biggest drop in history.

Analysts said that the decline in prices was actually an encouraging sign that home sellers are starting to adjust their asking-price down and this should help speed the correction in housing.

''For the last several months I have been hemming and hawing on whether we have reached bottom,'' said David Lereah, chief economist for the Realtors. He said that the January report was an encouraging sign that the bottom for sales activity was reached last September with sales expected to stabilize this year.

But he cautioned that the warm weather in December boosted home closing in January, the activity that is tracked in the Realtors report. He said there could be a bit of a payback in coming months.

By region of the country, sales rose the most in the West, up 5.6 percent, followed by gains of 4.8 percent in the Midwest and 2 percent in the South. Sales in the Northeast were unchanged in January compared to December.

In other economic news, the Commerce Department reported that orders to factories for big-ticket manufactured goods plunged 7.8 percent in January, the largest decline since October and more than double what analysts had been expecting.

The decline in durable goods was led by an 18 percent plunge in transportation orders, reflecting a big decline in orders for commercial jetliners and continued weakness in auto manufacturing.

Demand for commercial aircraft fell by 60.3 percent after having soared by 31.3 percent the previous month. Boeing Co. took orders for just 13 planes in January after having seen orders soar to 212 in December. Aircraft orders are extremely volatile from month to month.

But there also was weakness in a number of other areas from heavy machinery to computers. Demand for motor vehicles and parts falling by 5.1 percent. The auto sector has been particularly hard hit as American car manufacturers are struggling to compete with foreign rivals.

Demand for non-defense capital goods orders fell by a record 19.9 percent in January. This category is closely watched for signals it can send about the plans businesses have to expand and modernize their operations. Business investment has been slowing in recent months.

The 7.8 percent January overall decline left orders at $203.9 billion on a seasonally adjusted basis. Analysts had been expecting a much smaller drop of around 3 percent.

    Sales of Existing Homes Jump in January, NYT, 27.2.2007, http://www.nytimes.com/aponline/business/AP-Economy.html

Officials Reject More Oversight of Hedge Funds

February 23, 2007
The New York Times
By STEPHEN LABATON

WASHINGTON, Feb. 22 — The Bush administration said Thursday that there was no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation’s financial system.

Instead, the administration, in an agreement it reached with the independent regulatory agencies, announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles.

The principles, many already being followed by the sharpest investors and best-run companies, say that investors should not take risks they cannot tolerate and should carefully evaluate the strategies and management skills of hedge funds. They also call for funds to make clear and meaningful disclosures to investors.

The decision came after months of study by a presidential working group of top officials and regulators. They looked at both the hedge fund industry, which has more than $1 trillion in assets, and the management of private equity firms, which take direct control and ownership of companies rather than relying on large numbers of outside stockholders.

The group’s conclusions reflected both the strong antiregulatory ideology of the administration and the formidable influence of Wall Street and the increasingly wealthy hedge fund industry among both Democrats and Republicans in Washington.

Three of the administration’s most senior economic policy makers — Treasury Secretary Henry M. Paulson Jr., his top deputy, Robert K. Steel, and White House chief of staff Joshua Bolten — are alumni of Goldman Sachs, which in the last decade has evolved into one of the most important players in the private equity market.

As hedge funds have grown both in the United States and globally, and as periodic collapses have shaken the markets and caused investors to lose money, pressures have increased to impose greater regulation on them. But supporters say that the hedge fund industry had grown more sophisticated in recent years, is well equipped to manage risks, and that none of the failures have harmed the nation’s financial system.

The explosive growth in recent years of private equity investment and hedge funds has made their managers symbols of new wealth, a huge source of philanthropy to the nation’s museums, hospitals and orchestras, and a major new force in political campaigns.

Millions of Americans do not qualify to make investments in hedge funds, which are pools of largely unregulated assets, but they are exposed to the risks associated with hedge funds through their pensions and personal retirement accounts.

The decision to avoid demanding more openness from private funds represents a starkly different approach to that undertaken by Washington for publicly traded companies, which in the last five years have faced a battery of new governance, auditing and disclosure rules following the scandals at Enron and other large companies.

The working group rejected any proposal that would give the government the ability to inspect the books and records of hedge funds or force the funds to make regular reports about their activities. Both banks and brokerage firms must adhere to stringent rules that give regulators great leeway in supervising them.

While the working group never considered anything as strict, many hedge funds oppose even minimal oversight because they say it could slow their ability to make lightning-fast investment decisions or reveal trading strategies to rivals.

A previous effort by the Securities and Exchange Commission to protect investors by requiring hedge funds to register with the government failed last summer. In June, a federal appeals court ruled that the agency did not have the authority to regulate them.

In leading a deeply divided commission to adopt those rules in the first place, its then chairman, William H. Donaldson, said that hedge funds had been central figures in a variety of market trading abuses and that registration was a modest and essential way for regulators to begin to understand them. Although he had the support of two of the four other commissioners for his efforts on hedge funds, Mr. Donaldson came under heavy criticism from Republican lawmakers and top administration officials for suggesting that regulators shine a light on what he called “a dark corner” of the market.

Under its new chairman, Christopher Cox, the commission decided not to appeal the court decision that struck down the rules. Instead the agency is preparing to write a new regulation that would require investors in such funds to have greater personal wealth. That proposed regulation is not affected by today’s announcement.

On Thursday, the president’s working group, led by Mr. Paulson, proposed a series of nonbinding principles that put the onus primarily on companies, investors and the buyers and sellers of their complex securities to impose a “market discipline” that should be adequate to protect investors and the marketplace. Officials said those principles would make the hedge fund companies more transparent and their investors and creditors more vigilant to shady operators and excessive risk-takers.

At a briefing Thursday, a senior Treasury Department official involved in drafting the principles suggested that any new regulations would discourage innovation and risk-taking. The official said he would only speak on condition that he not be identified because the new guidelines were the product of a group of agencies.

Officials acknowledged that many of the principles that were advanced by the administration and the regulators would seem obvious to smart investors and properly managed hedge funds.

“Private pools of capital can be an appropriate investment vehicle for more sophisticated investors,” read one of the main principles that the officials and agencies agreed upon. “Because these pools can involve complex, illiquid or opaque investments and investment strategies that are not fully disclosed, the risk associated with direct investment in these pools are most appropriately borne by investors with the sophistication to identify, analyze and bear these risks.”

The report said that the concerns of less sophisticated investors in pension and retirement vehicles could best be addressed “through sound practices on the part of the fiduciaries that manage such vehicles.”

The announcement was hailed by several trade groups for the hedge funds and other companies involved in trading complex financial instruments.

“The President’s Working Group has taken a thoughtful and judicious approach to many of the investor protection and systemic risk issues which surround hedge funds,” said Micah S. Green, co-chief executive of the Securities Industry and Financial Markets Association, which represents hundreds of Wall Street firms.

“Too often, regulators reach immediately for new laws or rules which can have the unintended consequence of stifling innovation or smothering markets,” Mr. Green said. “By instead providing principles and guidelines, the President’s Working Group has recognized the importance of flexibility and efficiency in a healthy marketplace.”

But other experts said the guidelines would have limited effect.

“They are regulating around the peripheries,” said Jay G. Baris, a securities lawyer with Kramer Levin Naftalis & Frankel in New York. “They are turning up the heat on disclosures, on fiduciaries to determine suitability, and on risk management. But they are going to stop short of substantive regulation of hedge funds or of unregistered hedge fund advisers.”

The reaction in Congress, which is in recess this week, was largely muted.

Representative Barney Frank, the Massachusetts Democrats who heads the House Financial Services Committee, called the announcement “a first step in addressing questions presented by the significant growth of hedge funds.”

“Steps are being taken to increase investor protection,” Mr. Frank added, “and I believe the appropriate committee in the House and the Senate should be working with the Presidential Working Group and others for the further study and monitoring of both issues.”

A similar statement was issued by Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate Banking Committee.

There is no expectation that Congress will adopt legislation on the subject any time soon.

    Officials Reject More Oversight of Hedge Funds, NYT, 23.2.2007, http://www.nytimes.com/2007/02/23/business/23hedge.html?hp

Home Prices Fall in More Than Half of Nation’s Biggest Markets

February 16, 2007
The New York Times
By VIKAS BAJAJ

Prices for single-family homes fell in more than half of the nation’s 149 biggest metropolitan areas in the last three months of 2006, according to data released yesterday by a trade group for real estate agents.

The figures from the National Association of Realtors show that the housing market weakened noticeably in many parts of the country at the end of last year and indicate that suggestions by some industry officials that the market has hit bottom could be premature. In the previous quarter, prices fell in one-third of all metropolitan areas.

The biggest price declines were concentrated primarily in two kinds of cities: the formerly booming markets along the coasts and in the Southwest, and in Midwest and Northeast cities hurting from the loss of manufacturing jobs. The biggest declines, for instance, were in Florida — Sarasota-Bradenton (down 18 percent), Palm Bay-Melbourne (17 percent) and Cape Coral-Fort Myers (11.7 percent). The declines in prices were especially steep for condominiums.

“You have two kinds of weakness here: there is the traditional economic-driven weakness in parts of the Midwest, and there is the bubble-bursting weakness,” said Jan Hatzius, chief United States economist at Goldman Sachs. “That’s what is bringing down the national home price appreciation rate.”

Among the 10 cities with the biggest declines was New Orleans, which has struggled with a slow pace of reconstruction since Hurricane Katrina hit the area in August 2005. Median prices — half the homes sold for more and half for less — fell 9.3 percent there, to $162,100. Mr. Hatzius said the decline in New Orleans might also reflect a correction, because prices there shot up in the months after the hurricane.

Nationally, the median price of single-family homes fell 2.7 percent, to $219,300.

Atlantic City and Salt Lake City topped the list of metropolitan regions where prices increased in the fourth quarter. Broadly speaking, prices were strongest in the Northwest and in some parts of the South.

At the same time, the number of homes sold fell in 40 states and in the District of Columbia. Nevada and Florida each reported declines of more than 30 percent; in Arizona, Virginia and the District of Columbia, sales fell by more than 20 percent. Nationwide, sales fell 10.1 percent in the fourth quarter from the same period in 2005, to an annual pace of 6.24 million.

Sales increased in six states — Alaska, Mississippi, Kentucky, Texas, Arkansas and Illinois — and were flat in Utah. The Realtors did not have enough data on sales in Idaho, New Hampshire and Vermont.

In addition to weaker sales and declining prices, the number of homes on the market has been climbing. That suggests, economists say, that prices may have to fall further for sales to pick up and the overall housing market to recover. In the fourth quarter, the vacancy rate for owner-occupied homes was 2.7 percent, up from 2 percent a year before and the highest it has been since the Census Bureau started compiling the data in 1956.

“That means we have got a while before this thing fully adjusts,” said Edward Leamer, an economist at the University of California, Los Angeles. Mr. Leamer noted that individual sellers often preferred to wait rather than cut the price to a level that would be agreeable to most buyers. That gap between seller and buyer is reflected in the decline in sales and the buildup in the number of homes sitting vacant.

Still, the Realtors group said it expected home sales and prices to rise in the spring. “Home sales are leveling at historically high levels, and examination of data within the quarter shows home prices stabilizing toward the end,” David Lereah, the group’s chief economist, said in a statement.

Unlike some other sources of data, the Realtors group does not adjust home prices to reflect changes in the kinds of homes being sold. So if this year’s sales include a larger number of cheaper homes, compared with a year ago, it will appear that home prices are falling even if the actual price of any given home has not declined.

Some indexes, including one compiled by the Office of Federal Housing Enterprise Oversight, the federal agency that oversees Fannie Mae and Freddie Mac, do take into account the kinds of homes sold. The government index shows that prices were still rising through the third quarter of 2006, albeit at a far slower pace than in 2005.

    Home Prices Fall in More Than Half of Nation’s Biggest Markets, NYT, 16.2.2007, http://www.nytimes.com/2007/02/16/business/16home.html

U.S. Mint rolls out new presidential dollar coin

Updated 2/15/2007 8:29 PM ET
By Nahal Toosi, Associated Press
USA Today

NEW YORK — The newest $1 coin, bearing the likeness of George Washington, was rolled out Thursday, with the U.S. Mint hoping Americans will want to buy George.

Commuters bustled past the unveiling in New York City at a Grand Central Terminal event replete with marching music and a George Washington re-enactor.

Crowds of collectors and the curious lined up in the station's cavernous, chandelier-adorned Vanderbilt Hall to exchange their paper Georges for metallic ones.

"I think it's cool because we get to see a coin with the first president on it," said 7-year-old Jack Garbus, an avid coin collector and second-grader from Valhalla, N.Y., who was taking advantage of a school snow delay to be at the event.

The new coin is going into circulation around the country just in time for next week's celebration of the first president's birthday.

"This is quite interesting because currency was not standardized before the Constitution," said the white-pony-tailed re-enactor at Grand Central, who insisted on identifying himself only as George Washington and wore a black 18th-century business suit with long coat, short pants and black stockings.

"George" — or should that be "Mister President"? — wondered aloud whether he should be pictured on money at all, since that was a practice of the king of England.

The Mint is making sure the coins, which are golden in color and slightly larger and thicker than a quarter, will be widely available.

The Federal Reserve, the Mint's distribution agent, has placed orders for 300 million of the Washington coins.

Many have already been delivered to commercial banks under orders not to begin circulating them until Thursday.

The design on the coin will change every three months, featuring a new president in the order in which they served.

In that way, the Mint hopes to attract a following similar to the more than 125 million collectors who are participating in the 50-state quarter program.

Coin experts, however, questioned whether the rotating designs will be enough to allow the new presidential $1 coin to succeed where the Susan B. Anthony dollar, introduced in 1979, and the Sacagawea dollar, introduced in 2000, failed.

"I don't know of any country that has successfully introduced the equivalent of a dollar coin without getting rid of the corresponding paper unit," said Douglas Mudd, author of a new book on the history of money, All the Money in the World.

Mint Director Edmund C. Moy said Congress made the decision to keep the dollar bill as part of new dollar coin legislation in 2005.

After Washington, the presidents honored this year will be John Adams, Thomas Jefferson and James Madison.

The program is scheduled to run into 2016.

A president must have been dead at least two years to appear on a coin.

    U.S. Mint rolls out new presidential dollar coin, NYT, 16.2.2007, http://www.usatoday.com/money/2007-02-15-dollar-coins-released_x.htm

A Push for Dollar Coins, Using Presidential Fervor

February 15, 2007
The New York Times
By MATTHEW HEALEY

The United States Mint has been working around the clock to turn out the first of its new series of Presidential Dollar coins for their debut today. And it has been working just as hard to make sure that the new coins don’t end up as just another collector’s item.

This time the Mint has taken a new approach to designing the coins as well as promoted them with the retailers, banks and transit systems that will play the biggest role in making the coins circulate effectively.

But the x-factor in any dollar coin catching on is the possible withdrawal of the dollar bill, an issue that for now remains unaddressed by Congress, the Treasury or the Federal Reserve Board.

Authorized by Congress in 2005, following the model of the highly popular 50 State Quarters series, the new dollars show portraits of all deceased American presidents, starting with George Washington and continuing with four more each year for at least a decade.

The striking portraits, in three-quarter view, are larger than on past coinage, and another novelty is the use of edge lettering for the first time since the 1930s: “E Pluribus Unum,” “In God We Trust” and the date and mintmark are cut in tiny letters into the outer rim.

The technology needed for this edge lettering, which was mandated by Congress, was planned and installed in just nine months, according to Richard R. Robidoux, the plant manager at the Philadelphia Mint.

The new dollars are also being burnished and treated with a chemical to make them stay shiny longer.

They are made of manganese brass sandwiched around copper, the same color and size as the “golden” dollars featuring Lewis and Clark’s guide, Sacagawea, that were released in 2000, so vending machines that already accept dollar coins will not need to be readjusted (The dollars featuring the suffragist Susan B. Anthony, although a different color, still work in vending machines, too). At just over eight grams, a dollar coin weighs about a third of what four quarters weigh.

A visit last week to the five-acre, four-story production line in Philadelphia, just steps away from the serenity of Independence Hall and Benjamin Franklin’s quiet graveyard, revealed a high-speed operation, thundering and clanging. Wheeled hampers, each holding more than 100,000 of the gleaming dollars, were being busily shunted from one workstation to the next.

First, huge rolls of sheet metal from outside suppliers are unwound into a machine that stamps out blanks, called planchets. Each planchet is squeezed between rollers to give it a raised rim and then softened by heating. Then it is burnished and coated, to produce the highly polished look.

The planchets are then fed into a press that applies over 80 metric tons of pressure, firing like a car engine to turn out as many as 750 coins a minute. The freshly minted dollars are carted to another machine where the edge lettering is pressed into them (right side up or upside down, at random) before being weighed, counted and poured into large Kevlar bags ready for shipping.

The mints at Philadelphia and Denver are each turning out more than three million new dollar coins a day on their way to fulfilling the Federal Reserve’s initial order for 300 million.

In a few weeks, production of the Washington design will end, and John Adams will step into the limelight, succeeded later this year by Thomas Jefferson and James Madison. Meanwhile, the Mint will continue producing Sacagawea dollars, since Congress stipulated that a third of each year’s total production must continue with the old design.

The Mint has also been organizing seminars and sending out training kits and promotional materials to banks and national retailers. A promotional event this morning at Grand Central Terminal will feature the Mint’s director, Edmund C. Moy, spending one of the first of the Washington dollars, and Mint employees will exchange morning commuters’ bills for coins.

John C. Rasmus, a senior official of the American Banking Association, praised the efforts by the Mint and the Federal Reserve to “accommodate the needs of the public.” For example, banks will have a six-week window to order rolls and bags of each new design unmixed with other dollar coin designs, to make it easier for them to fulfill customers’ requests.

Most vending machines and transit ticket machines were refitted to take dollar coins after the Sacagawea’s debut in 2000. Indeed, the vending industry is eager to recoup its costs and is hoping for increased sales from having higher denomination coins in use, in addition to saving $200 million to $300 million annually that is lost because of difficulties with paper dollars.

In the meantime, despite the lessons learned, the dollar bill will continue to be printed and circulated — a factor that would appear to condemn the new coins to the same fate as their predecessors.

A study released by the Federal Reserve Bank of Cleveland in late 2004 examined the failure of past dollar coins and the experiences of other countries like Australia, Britain and Canada that have replaced low-denomination bills with coins.

Initial public resistance to a new coin is inevitable, the paper stated, and likely to last many months. It cited a 1995 report from the Government Accountability Office noting that the French public accepted a 10-franc coin, first issued in 1975, only after the competing 10-franc note was withdrawn some years later.

The American dollar is now one of the smallest-value banknotes remaining in circulation in the world. Thirteen European nations use one- and two-euro coins, worth $1.32 and $2.64 respectively, and the smallest bill there is five euros, or $6.60.

Japan circulates a 500-yen coin, worth $4.14, with the smallest bill worth 1,000 yen, or $8.28. Most other Western nations have similar value levels for their largest coins and smallest bills. The most widely used coin in the United States, of course, is just 25 cents.

Paradoxically, Sacagawea coins are popular in countries like Ecuador that use American currency.

Before making any decision to withdraw the dollar bill, Congress, the Treasury and the Federal Reserve would have to re-examine all the costs involved, both to the government and to the public. The psychological barrier to withdrawing the greenback, a global symbol of America’s economic might, is obvious. The financial issue is subtler.

Dollar coins cost about 20 cents each to make, but last for up to 30 years; bills cost only about 4 cents each, but must be replaced every 18 to 22 months.

The cost of money is more than just production, however. Storage and handling must be factored in, as well as the different kinds of seignorage, or profit to the government from putting currency into circulation. When a dollar coin is issued, the Mint “earns” the difference between its production cost and face value — now about 80 cents. If a collector saves the coin, another must be issued to replace it.

A banknote, since it is redeemable, counts as a government liability, and the Federal Reserve has to back it by buying securities, which earn interest. According to the Fed, there are now about eight billion dollar bills in circulation, so that interest income is considerable. Coins do not yield such income.

But Mr. Rasmus, the banking association official, said that for now, banks were not worried about the added costs of handling coins, preferring to focus on satisfying customer demand by making the new dollars available.

Congress would have to mandate any formal changeover from bills to coins. In the meantime, representatives for both the Mint and the Federal Reserve say it is up to the people to decide whether they prefer coins or bills — or neither, since electronic payments are catching on.

    A Push for Dollar Coins, Using Presidential Fervor, NYT, 15.2.2007, http://www.nytimes.com/2007/02/15/business/15dollar.html

Retail sales turn in weak performance reflecting big drop in auto purchases

Posted 2/14/2007 8:41 AM ET
AP
USA Today

WASHINGTON (AP) — Retail sales, hurt by a big drop in auto purchases, slowed in January to the weakest performance in three months.

The Commerce Department reported Wednesday that sales essentially were flat last month, the poorest performance since a 0.2% drop in sales in October.

Excluding the automotive sector, January retail sales rose 0.3%, an advance that still failed to meet analysts' expectations and was considerably lower than the upwardly revised 1.3% gain in December.

Analysts polled by Reuters were expecting 0.4% gains in both overall retail sales and sales with autos stripped out, which are seen as a more reliable gauge of household spending.

December's overall sales data also was revised upward to 1.2% from an originally reported 0.9%. January retail sales were up 2.3% when compared with January 2006.

Motor vehicle and parts dealer sales in January fell 1.3% after an upwardly revised 1.0% gain in December. Sales at gasoline stations fell 0.7% after a downwardly revised 3.6% gain in December.

Sales at electronics and appliance retailers fell 1.2% in January after a Christmas flat-panel television buying binge pushed up December sales by 1.8%.

General merchandise stores, however, bolstered by customers redeeming gift cards, reported a 1.3% sales increase, beating their 1.2% gain in December. Department store sales were up 1.4%.

Sales at building material and garden supplies stores reported a 0.8% gain in January, following a revised 0.7% gain in December, originally reported as a 1.1% decline.

Contributing: Reuters

    Retail sales turn in weak performance reflecting big drop in auto purchases, UT, 14.2.2007, http://www.usatoday.com/money/economy/2007-02-14-retail-sales-jan_x.htm

Coca-Cola's Quarterly Earnings Decline 22 Percent

February 14, 2007
By THE ASSOCIATED PRESS
Filed at 9:42 a.m. ET
The New York Times

ATLANTA (AP) -- The Coca-Cola Co., the world's largest beverage maker, reported Wednesday a 22 percent drop in fourth-quarter profit despite a solid gain in sales.

The results, when one-time items are excluded, beat Wall Street expectations.

The Atlanta-based company said it earned $678 million, or 29 cents a share, for the three months ending Dec. 31, compared to a profit of $864 million, or 36 cents a share, for the same period a year ago.

Excluding one-time items, Coca-Cola said it earned $1.23 billion, or 52 cents a share. On that basis, analysts surveyed by Thomson Financial were expecting earnings of 50 cents a share in the fourth quarter.

Revenue in the quarter rose 7 percent to $5.93 billion, compared to $5.55 billion recorded in the same period a year ago.

Total unit case volume increased 4 percent in the fourth quarter and for the year, which the company said was at the top end of its long-term growth targets. However, unit case volume in the company's key North America segment declined 2 percent in the quarter. Full-year unit case volume for North America did not change from the prior year.

International operations delivered 6 percent unit case volume growth in the quarter and for the year. The company said it saw strong growth in Latin America, China, Russia, India, Nigeria, North and West Africa and the Middle East. A sore spot was the Philippines, where unit case volume declined double-digits in the quarter as affordability and availability issues continued to weigh on performance.

For all of 2006, Coca-Cola said it earned $5.08 billion, or $2.16 a share, compared to a profit of $4.87 billion, or $2.04 a share, for the same period a year ago. Twelve-month revenue rose 4 percent to $24.09 billion, compared to $23.10 billion recorded in the previous year.

Coca-Cola continued its practice of not providing guidance for future quarters.

The results reported by Coca-Cola followed results reported Tuesday by its largest bottler, Coca-Cola Enterprises. CCE said it would cut about 3,500 jobs, or 4.7 percent of its work force, as it reported a whopping $1.7 billion loss in the fourth quarter.

Analysts said CCE has struggled with higher costs for aluminum and other commodities and a shift in consumer tastes away from carbonated beverages to juices, teas and waters.

Shares of Coca-Cola fell 1 cent to $48.20 in morning trading on the New York Stock Exchange.

------

On the Net:

The Coca-Cola Co.: http://www.coca-cola.com

    Coca-Cola's Quarterly Earnings Decline 22 Percent, NYT, 14.2.2007, http://www.nytimes.com/aponline/business/AP-Earns-Coca-Cola.html

Chrysler Cuts 13,000 Jobs in Overhaul

February 15, 2007
The New York Times
By MICHELINE MAYNARD

AUBURN HILLS, Mich., Feb. 14 — DaimlerChrysler said today it was leaving all options open for the future of its struggling Chrysler Group, which announced a plan to close all or part of four plants and eliminate 13,000 jobs in North America.

The announcements came as DaimlerChrysler said it earned nearly $7.3 billion last year, despite a loss of nearly $1.5 billion for Chrysler. The Chrysler loss compared to a profit of just over $2 billion in 2005.

“It was a strong year at three of our divisions, but it’s been a difficult and disappointing one here at the Chrysler Group,” chief executive Dieter Zetsche said this morning.

The restructuring plan marked a dramatic swing for a company that had seemed to avoid the same declines as its Detroit rivals.

Chrysler said it would close its Newark, Del., assembly plant in 2009, as well as a parts distribution center in Cleveland.

It also will eliminate one shift of workers at two truck plants in Warren, Mich., and St. Louis.

In all, Chrysler said 13,000 employees, or 16 percent of its work force, would lose their jobs by the end of 2008, including 11,000 hourly workers.

Of those hourly workers, 9,000 will lose their jobs in the United States and 2,000 in Canada. Another 2,000 white-collar workers will see their jobs eliminated over the next two years.

The Chrysler restructuring plan was approved by the DaimlerChrysler supervisory board, which met at Chrysler’s headquarters here. In a statement, the board left Chrysler’s future wide open amid calls by some shareholders for the company to spin off the money-losing American unit.

“The Board of Management intends to consider other, more far-reaching strategic options with partners” as part of the restructuring, the company said in a statement.

It went on, “No option is being excluded in the interest of arriving at the best possible solution for the Chrysler Group and DaimlerChrysler as a whole.”

The statement came about four months after DaimlerChrysler sent the first signals that Chrysler’s future might not be secure.

In October, DaimlerChrysler Chief Financial Officer Bodo Uebber said the company would not rule out spinning off Chrysler, which merged with Daimler-Benz in 1998 to form DaimlerChrysler.

Company executives, including Mr. Zetsche, quickly insisted that scenario was not under consideration.

But the suggestion has been raised a number of times by DaimlerChrysler shareholders and industry analysts. They have said DaimlerChrysler would be better off focusing primarily on Mercedes-Benz, its commercial truck group and the Smart division, which makes small cars.

For now, Chrysler will embark on its second major restructuring since the year 2000.

“Overall, the status quo is unacceptable,” Chrysler chief executive Thomas W. LaSorda said this morning.

In a statement released early today, Mr. LaSorda said the program had two parts.

“First, the Chrysler Group needs to solidify its position in the North American marketplace,” Mr. LaSorda said in a statement. “In addition, the key to our long-term success will be our ability to transform the organization into a different company to achieve and sustain long-term profitability.”

Chrysler said it would explore partnerships beyond its current arrangements, which include a deal to build minivans for Volkswagen and a tentative agreement for Chinese manufacturer Chery to build small cars that Chrysler would sell in North America.

European analysts, however, said they viewed the Chrysler restructuring plan as an effort to streamline the company and make it attractive to a merger partner or for an outright sale.

Chrysler said the three-year plan was expected to create $4.5 billion in financial improvements, meaning the company would earn a 2.5 percent return on sales in 2009.

As part of the plan, Chrysler said it would reduce its manufacturing capacity by 400,000 vehicles, mainly in big sport-utility vehicles, like those built at the plant in Newark, north of Wilmington, Del., and pickups, built at the factories in Warren and St. Louis.

Chrysler said it would take a restructuring charge of up to $1.3 billion.

Like other Detroit companies, Chrysler was caught short when gasoline prices spiked in 2005 and 2006, accelerating a shift by consumers to more fuel-efficient vehicles. Until last fall, when it introduced new car models, about three-quarters of Chrysler’s lineup was concentrated on pickups, S.U.V.s and minivans, marking the heaviest reliance of any Detroit company on light trucks.

Chrysler’s problems were compounded last year when its inventories of unsold cars and trucks swelled as much as 50 percent above the level that dealers like to keep on hand at any time during the year. On top of that, Chrysler raised eyebrows when it disclosed that it had as many as 100,000 vehicles built on spec for which it did not have dealer orders.

Many of those vehicles have since been sold, but Chrysler said Wednesday it would take more steps to slim its inventory, resulting in a charge of $300 million.

Nick Bunkley contributed reporting.

    Chrysler Cuts 13,000 Jobs in Overhaul, NYT, 13.2.2007, http://www.nytimes.com/2007/02/15/business/15chrysler.html?hp&ex=1171515600&en=f457622105238783&ei=5094&partner=homepage

U.S. Trade Deficit Grew to Another Record in ’06

February 14, 2007
By JEREMY W. PETERS
The New York Times

The gap between what Americans import and what they export widened to another record in 2006, totaling $763.6 billion, the Commerce Department said today.

It was the fifth year in a row that the trade deficit broke through its previous record, which in 2005 stood at $716.7 billion.

The imbalance widened further from November to December, growing by $61.2 billion, or 5.3 percent, after shrinking for three consecutive months.

The rising cost of oil in December helped increase the gap, as did rising purchases of foreign cars and clothes.

A growing trade deficit acts as a drag on overall economic growth. Economists said they expect that, in light of the new numbers, the government will have to revise its estimate of the nation’s fourth-quarter gross domestic product to show slightly slower expansion. It originally said the G.D.P. grew 3.5 percent from October through December.

China was again the country that had the most out-of-balance trade with the United States, though the deficit tightened somewhat in December to $19 billion. For all of 2006, the trade gap with China was $232.5 billion on an unadjusted basis — another record.

Americans imported more from China than any other country, purchasing $287.8 billion worth of goods and services in 2006. That dwarfed the value of American exports purchased by the Chinese, which was $55.2 billion last year.

Over all, the picture of United States trade last year was one of surging import growth that eclipsed rising exports. The value of goods and services that Americans imported reached $2.2 trillion while exports grew to $1.4 trillion.

The rise in the trade deficit was larger than economists expected. A Bloomberg News survey predicted the gap would grow by $59.7 billion in December.

“The jump was surprisingly large,” said Peter E. Kretzmer, senior economist with Bank of America, “and will produce a further modest downward revision to last quarter’s G.D.P. growth, likely pushing annualized economic growth below 3 percent.” The government reported last month that the economy’s rate of growth in 2006 was 3.4 percent.

U.S. Trade Deficit Grew to Another Record in ’06, NYT, 13.2.2007, http://www.nytimes.com/2007/02/14/business/14econ.web.html

Takeover Battle Ends With Sale of Big Landlord        NYT        8.2.2007

http://www.nytimes.com/2007/02/08/business/08reals.html

Takeover Battle Ends With Sale of Big Landlord        NYT        8.2.2007

http://www.nytimes.com/2007/02/08/business/08reals.html

Takeover Battle Ends

With Sale of Big Landlord

February 8, 2007
The New York Times
By ANDREW ROSS SORKIN
and TERRY PRISTIN

“Roses are red, violets are blue; I hear a rumor, is it true?”

That strained line of poetry set off the fiercest buyout battle since the epic contest for RJR Nabisco in the late 1980s, a struggle that was captured in the book “Barbarians at the Gate.”

The line, written by the real estate mogul Samuel Zell in an e-mail message last month, invited a rival bid topping a $48.50 a share offer for his Equity Office Properties, the biggest office landlord in the nation, with buildings in Manhattan, Chicago, Atlanta and other major cities.

The reply: “Roses are red, violets are blue. I love you Sam, our bid is 52.”

The rhyme was true, but the comeback was not good enough.

The private equity giant Blackstone Group, which was the initial bidder, won the bidding war for Equity Office yesterday with an offer of $55.50 a share, or $39 billion.

The takeover battle, perhaps the most entertaining of recent years because of the big financial players — and big egos — involved, was called “New York at the Gate,” because it pitted two very different New York financiers against each other: Stephen A. Schwarzman of Blackstone, the leading figure in Manhattan’s financial and charity circuit in recent years, and Steven Roth of Vornado, the onetime strip mall king of New Jersey.

The deal for Equity Office encapsulates two of the hottest trends in deal-making: the wave of capital flooding into commercial real estate and the growing power of private money.

While residential real estate has slowed, commercial real estate, office buildings in particular, looks more attractive as the market finally shakes off the effects of the burst technology bubble in 2000. Many investors expect office vacancy rates to continue to decline in the next couple of years, with a corresponding rise in rents.

And private equity firms like Blackstone have been among some of the most aggressive investors in commercial real estate. These firms have accumulated huge war chests: even now Blackstone is raising a new $10 billion real estate fund. The surge in buyouts — which accounted for a fifth of the record $3.8 trillion in deals last year — shows no sign of slowing.

The Equity Office deal is the biggest leveraged private equity buyout ever, surpassing last summer’s $32 billion deal for the hospital chain HCA, which itself was the first to surpass the previous high-water mark, the $30 billion deal for RJR Nabisco.

Memories of that earlier contest were much on the minds of the bidders for Equity Office. At internal meetings when Blackstone would debate how to counter Vornado, Mr. Schwarzman would remind his bankers: “We don’t want to be K.K.R.,” referring to the buyout of RJR Nabisco that turned out a disappointment to Mr. Schwarzman’s archrival, Henry R. Kravis of Kohlberg Kravis Roberts & Company.

“We need to remember this is just another deal,” Mr. Schwarzman said, according to people close to the firm.

Blackstone had a huge incentive to make the deal. The firm will pay itself an “acquisition fee” worth about half of 1 percent of the deal — the equivalent of about $200 million just for winning the auction, no matter how well the investment turns out. (Blackstone is not alone. Its advisers, Goldman Sachs and the law firm Simpson Thacher & Bartlett, will also earn millions of dollars in fees.)

And Blackstone will waste no time disposing of some of its newly acquired assets, taking advantage of the hot Manhattan real estate market. All but one of Equity Office’s eight buildings in New York — the Verizon building at 42nd Street and the Avenue of the Americas — are expected to be sold to Harry Macklowe for about $7 billion, some simultaneously with Friday’s closing.

Blackstone was a winner, but Mr. Zell, 65, a raspy-voiced tycoon with a penchant for doggerel, music boxes and Ducati motorcycles, was an even bigger one. Even his detractors are saying he ran a masterly sale, encouraging a bidding war that drove up the price for Equity Office by $3 billion. Mr. Zell stands to make more than $130 million on his shares and options in the company.

“When Sam steps into the prime decision-making role,” said Timothy H. Callahan, a former chief executive of Equity Office, “no one is better able to be strategic. That’s what shareholders have seen in the past, and that’s why he will continue to wear the mantle as one of the leading lights of real estate.”

It may have helped that Mr. Zell knew the bidders so well. As he said in an interview yesterday, “This was like a family outing in the Turkish bath.”

The son of Jewish immigrants who fled Poland hours before the Nazi invasion, Mr. Zell grew up in Chicago. He showed an entrepreneurial streak at an early age, buying issues of Playboy magazine from newsstand vendors and selling them at a marked-up price to his friends.

Mr. Zell first made his fortune in the 1970s by buying distressed real estate and fixing it up, earning him the nickname “the grave dancer.” In contrast to real estate moguls like Donald J. Trump, he shied away from trophy buildings, preferring strong financials to prestige. With his branding and financial acumen, he was one of the first to transform commercial real estate from a local affair to a national business.

But a year ago, his company was selling for $29 a share. After several missteps, including buying $7.2 billion worth of Silicon Valley property just before the technology bust, Mr. Zell’s reputation as the sage of the real estate industry was in serious jeopardy. Now the sale has restored his reputation.

The battle for Equity Office started much earlier than any headline suggested. Last July, Mr. Roth secretly proposed merging Vornado with Equity Office to Mr. Zell. The two friends began negotiating back and forth for months.

Not long after, Jonathan D. Gray, a 37-year-old rising star within Blackstone’s real estate group, took Equity Office’s president, Richard D. Kincaid, for breakfast at the Peninsula New York hotel in Midtown Manhattan. After small talk, Mr. Gray, who looks even younger than his age despite a 5 o’clock shadow, asked whether Equity Office’s board would ever consider selling the company.

Mr. Kincaid told him: “If you came with a ‘Godfather’ price the board would have to listen.”

Two months later, Mr. Gray, calling from his wood-paneled office on the 32nd floor of Blackstone’s headquarters on Park Avenue, asked Equity Office’s banker at Merrill Lynch, Douglas W. Sesler: “What would a Godfather price be?”

A price that could not be refused, he was told, would be at least $45 and closer to $50.

In November, Blackstone reached a deal with Equity Office for $48.50 a share, and the assumption of $16 billion in debt, for a total of $36 billion. The deal by Blackstone floored Mr. Roth, who had been kept in the dark.

Despite the huge price tag, industry insiders thought it was remarkably low. Barry S. Sternlicht, the founder of Starwood Hotels and chairman of Starwood Capital, called the deal “the greatest heist of all time” on a panel at a Bear Stearns conference last fall. Vornado’s president, Michael D. Fascitelli, was also on that panel.

Mr. Roth decided to mount a new bid. He reached out to several possible partners, including General Electric and Cerberus Capital Management, among others, according to people involved in the process. Vornado was interested in owning Equity Offices properties in major markets, but was looking to sell properties in ancillary markets.

Mr. Sternlicht and Neil Bluhm, a Chicago real estate mogul who was Mr. Sternlicht’s mentor in the late 1980s, approached Mr. Roth before Christmas about working together and buying those ancillary properties.

They declared war on Jan. 18, lobbing in a bid of $52 a share. Mr. Schwarzman and Mr. Gray scrambled to salvage their deal. They negotiated to increase their offer to $54 a share if Equity Office would raise the breakup fee to $500 million, from $200 million.

Mr. Roth, holed up in his office above Penn Station with expansive views of Manhattan, plotted return fire. A week later, Vornado bid $56 a share in cash and stock. While it was a higher offer, it also was much less certain because some of the payment was in stock and it would take months to be completed compared with Blackstone’s bid, which could be completed this week.

Equity Office, which was advised by Merrill Lynch and the law firm of Sidley Austin, said it would still back Blackstone and set a shareholder vote for yesterday.

Mr. Roth spent the weekend considering his options. He did not want to raise his bid, thinking that paying more than $56 a share was too much. And Blackstone had exercised its right to prevent Vornado from talking to Equity Office or having access to electronic data about the company. But he needed to do something.

Flanked by his advisers, including James. B. Lee of JPMorgan Chase and Mark G. Shafir of Lehman Brothers, they decided to fire another shot on Sunday night. Vornado would not pay more, but it agreed to pay a larger cash portion and pay it much more quickly, making its bid more attractive.

The new offer hit the tape just as the Super Bowl started. Mr. Gray of Blackstone, a Chicago native who had given up his seats to the game to stay in New York, missed seeing a remarkable kickoff return by the Chicago Bears as he jumped on the phone to strategize about what to do.

The next day, Blackstone went to Equity Office with a new bid of $55.25 a share. Mr. Zell asked for another 25 cents; in exchange, the breakup fee was increased to $720 million.

And then everyone waited for Mr. Roth’s response. But there was none. Blackstone had won.

By chance yesterday morning, Mr. Zell and Mr. Roth found themselves having separate breakfast meetings at the Carlyle Hotel on Manhattan’s Upper East Side. It was 7:30 a.m., nearly two hours before Vornado would say that it was out of the race.

Barred by Equity Office’s agreement with Blackstone from having a conversation before the vote, Mr. Zell said he smiled at Mr. Roth. Mr. Roth smiled back.

“I love you, Stevie,” Mr. Zell said.

Takeover Battle Ends With Sale of Big Landlord, NYT, 8.2.2007, http://www.nytimes.com/2007/02/08/business/08reals.html

Jobs Growth Slows

but Remains Strong

February 2, 2007
The New York Times
By JEREMY W. PETERS

Businesses added a net 111,000 jobs last month, a pullback from the pace of previous months but still enough to sustain the recent trend of steady strength in the labor markets, the government reported today.

The national unemployment rate moved up slightly to 4.6 percent in January, from 4.5 percent in December.

In its monthly report, the Labor Department also said today that job growth was stronger in October, November and December than its preliminary figures had shown.

Wages for the average American rose at a slightly lower pace in January, climbing 4 percent in the last year, compared with a 4.2 percent yearly rise in December.

Another measure of the state of the job market, the employment-to-population ratio, was 66.3 percent in January, a slight decrease from 66.4 percent in December.

The number of nonfarm jobs added in January was smaller than forecast, but economists noted that today’s upward revisions to the statistics from previous months were signs of greater strength than the latest figure alone would seem to indicate.

“The less-than-expected 111,000 gain in January should be viewed alongside the very strong gains that preceded it, and we seriously doubt that it represents anything more than a blip in what looks to be a quite robust labor market,” said Joshua Shapiro, chief United States economist with MFR.

The figures, contained in the Labor Department’s monthly employment report, were the latest to illustrate how the economy at large has remained relatively insulated from the slump in housing. Last month, homebuilders and related businesses cut 11,400 jobs, but hiring in commercial construction offset those losses, and the construction industry as a whole posted a 22,000-job gain.

Some of the sectors doing the most hiring in January were the education and health services (31,000 new jobs), leisure and hospitality (23,000 jobs) and government (14,000).

Manufacturing continued to drag, losing a net 16,000 jobs in the month.

The steady rise in average wages in recent months — the strongest so far this decade — has troubled some economists, who believe that businesses might face pressure to raise prices because they are paying workers more. There is little sign of that in the statistics so far, though.

When the Federal Reserve voted on Wednesday to leave interest rates unchanged, it sounded its usual cautionary note about inflation. But this time, it was more optimistic that prices would “moderate over time,” as its statement said.

Jobs Growth Slows but Remains Strong, NYT, 2.2.2007, http://www.nytimes.com/2007/02/02/business/02cnd-jobs.html

Senate ups wage to $7.25 over two years

Updated 2/1/2007 8:30 PM ET
AP
USA Today

WASHINGTON (AP) — The Senate voted overwhelmingly Thursday to boost the federal minimum wage by $2.10 to $7.25 an hour over two years, but packaged the increase with small business tax cuts and limits on corporate pay that could complicate its path to become law.

The increase in the minimum wage, the first in a decade, was approved 94-3, capping a nine-day debate over how to balance the wage hike with the needs of businesses that employ low-wage workers.

A top priority of Democrats, the wage hike has both real and symbolic consequences. It would be one of the first major legislative successes of the new Democratic-controlled Congress.

"Passing this wage hike represents a small but necessary step to help lift America's working poor out of the ditches of poverty and onto the road toward economic prosperity," said Sen. Edward Kennedy, D-Mass.

Republicans stressed the importance of the bill's business tax breaks, though it was a significantly smaller tax package than Republicans had sought during previous attempts to raise the minimum wage.

"The Senate's reasonable approach recognizes that small businesses have been the steady engine of our growing economy and that they have been a source of new job creation, a source of job training," said Sen. Michael Enzi, R-Wyo., who helped manage the debate for the GOP.

The bill must now be reconciled with the House version passed Jan. 10 that contained no tax provisions. House Democrats have insisted they want a minimum wage bill with no strings attached, though some have conceded the difficulty of passing the legislation in the Senate without tax breaks.

The measure presents a challenge to Democrats who must navigate between the demands of labor and other interest groups and the realities of the Senate, where Republicans hold 49 of 100 votes. House and Senate Democrats now must try to negotiate a way out of the potential standoff.

House Speaker Nancy Pelosi, D-Calif., has said she supports some tax provisions in the House package, but said she would prefer them in a separate, House-initiated tax bill.

In a statement, President Bush encouraged House Democrats to accept the Senate version of the bill. "The Senate has taken a step toward helping maintain a strong and dynamic labor market and promoting continued economic growth," Bush said.

But AFL-CIO President John Sweeney vowed to "turn up the volume" to pass a bill without tax breaks.

"Minimum wage workers in this country have waited far too long for a raise," Sweeney said in a statement after the vote. "It's shameful that they must now wait even longer because of the Senate's insistence on business tax giveaways."

The three senators voting against the bill were Republicans Tom Coburn of Oklahoma, Jon Kyl of Arizona and Jim DeMint of South Carolina. Absent from the vote were Democrats Tim Johnson of South Dakota and Charles Schumer of New York and Republican James Inhofe of Oklahoma.

The legislation would raise the minimum wage in three steps. It would go to $5.85 an hour upon taking effect 60 days after the president signs it into law, then to $6.55 an hour a year later, and to $7.25 an hour a year after that.

An effort by the Senate last week to end debate on the House version of the bill failed when Democrats were unable to get the 60 votes needed. But many Democrats in the House and Senate would like to challenge Republicans to vote against a clean bill with no tax provisions.

"If we go through the process ... and the message comes back: 'You can have the minimum wage stripped down or not at all,' then we'll face another vote," said Sen. Richard Durbin, D-Ill., the assistant majority leader. "We need Republicans to pass it. If they continue to oppose it then it will not pass."

Senate Majority Leader Harry Reid, D-Nev., said Thursday he did not believe the business incentives were necessary. "The minimum wage will be increased," he said. "The question is do we need all these business pieces of sugar or not. We will see."

A spokesman for Reid said the tax breaks are needed to overcome a potential GOP filibuster.

"Of course, Democrats would prefer to pass a clean increase in the minimum wage," said the spokesman, Jim Manley. "The fact is that Republicans have made it very clear that the only way we will pass a modest increase in the minimum wage is with tax breaks for small business."

Besides increasing the minimum wage from the current $5.15 an hour, the bill would extend for five years a tax credit for businesses that hire the disadvantaged and provide expensing and depreciation advantages to small firms. The tax breaks would be paid for by closing loopholes on offshore tax shelters, capping deferred compensation payments to corporate executives and removing the deductibility of punitive damage payments and fines.

Senators also adopted an amendment that would bar companies that hire illegal immigrants from obtaining federal contracts. That measure was designed to encourage companies to participate in an employee identification program that can weed out undocumented workers.

While the tax breaks have won the support of small business groups as well as retailers and restaurant owners, they have drawn opposition from larger businesses that would bear the brunt of the revenue provisions. Several business groups also opposed the immigration measure.

After the House passed its bill on Jan. 10, the White House issued a statement insisting that final legislation include small business tax breaks. It subsequently issued a statement supporting the Senate version, but said the revenue measures were not necessary.

According to the Labor Department, 479,000 workers earned exactly $5.15 an hour in 2005, the most recent estimate available. Most are young and unmarried and more likely to be women, minorities and part-time workers. According to the liberal Economic Policy Institute, the wage increase would affect 5.6 million people who make less than the proposed minimum of $7.25.

More than two dozen states and the District of Columbia have minimum wages higher than the federal level. The issue proved to be potent last November when six states raised their minimums in statewide votes.

Senate ups wage to $7.25 over two years, UT, 1.2.2007, http://www.usatoday.com/money/workplace/2007-02-01-senate-minimum-wage-hike_x.htm

Tobacco’s Stigma Aside,

Wall Street Finds a Lot to Like

January 31, 2007
The New York Times
By ANDREW MARTIN

There are plenty of reasons cigarettes would seem to be a terrible business.

The number of American smokers usually drops about 1 or 2 percent a year. Government agencies keep adding cigarette taxes and outlawing smoking in restaurants, workplaces and even on public sidewalks. And tobacco companies continue to pay billions of dollars in legal settlements, money that is used in part to produce antismoking ads.

For all the industry’s apparent troubles, however, the future of cigarettes appears to be brighter than ever.

That at least is the message investors are sending as the Altria Group — the company once known as Philip Morris and the maker of the world’s most popular cigarette, Marlboro — prepares to split itself by spinning off its Kraft Foods division to shareholders and become, once again, primarily a tobacco company. Today, Louis C. Camilleri, the chief executive of Altria, is expected to set a timetable for completing the spinoff.

It is a move that Wall Street is responding to with the equivalent of a standing ovation, but it is not because Kraft Foods, the world’s second-largest food company, after Nestlé, will finally shed the taint of tobacco.

Investors are glad that Altria will finally be rid of Kraft Foods, the maker of Oreo cookies, Velveeta and Tang. Since October, when the company announced its plan for the move, its shares have risen 10 percent.

“Something that is forgotten in all of this is people like to smoke,” said David Adelman, an analyst at Morgan Stanley, who noted that United States tobacco stocks have beaten the Standard & Poor’s 500-stock index in each of the last six years. “It’s enjoyable and there’s not an alternative product.”

He added: “If frozen dinners get too expensive, people will try something else. That’s not true with cigarettes — you are not up at night worried about that product that is going to make cigarettes obsolete.”

In the five and a half years since Altria sold 280 million shares of Kraft at $31 each in an initial public offering, the stock has remained relatively unchanged, closing yesterday at $34.83. Altria owns 88.6 percent of Kraft’s stock.

By contrast, shares of Altria have nearly doubled during that period, moving from $47 to yesterday’s price of $87.54.

It is a remarkable turnabout, considering that in late 2001, Philip Morris announced its plan to change its name to the Altria Group (drawn from the Latin word altus, meaning high, to suggest high performance). At the time, executives said the name change was intended to reduce the damage to the company’s reputation that cigarettes were causing, reflected in the long-depressed share price at the time.

Now, it is Kraft that is seen by many investors as a hindrance to the company.

Why is Wall Street so infatuated with cigarettes? Cigarettes have certain advantages over other consumer products, not the least of which is that they are addictive. They are inexpensive to make, require almost no innovation, there is a global market for them, and cigarette makers can raise prices without seeing much of a drop in business.

On top of all that, a recent string of court decisions has convinced investors that the worst of the litigation against tobacco companies is over.

That, in turn, has allowed Altria to move forward with a revamping that begins with cutting Kraft loose and will ultimately allow Altria to use the huge amounts of cash generated by cigarettes to buy back stock or acquire other tobacco companies, particularly overseas.

“You take away Kraft out of Altria and you are left with a balance sheet that is extremely strong,” said Charles Norton, portfolio manager at the Vice Fund, a mutual fund that invests in tobacco, gambling, alcohol and military contractors. Altria is the fund’s biggest holding. “It’s just a cash cow. The free cash flow on this business is just tremendous.”

The future prospects are particularly attractive in developing countries, where smoking has not yet declined as it has in more developed parts of the world like the United States and Europe.

In China, for instance, the Philip Morris International unit of Altria signed a deal in 2005 that allows it to manufacture and sell Marlboro cigarettes to the country’s 350 million smokers. There are an estimated 1.3 billion smokers worldwide.

But even in the United States, with 45 million smokers, the Philip Morris USA unit of Altria continues to generate sizable profits by raising prices. It also hopes eventually to lure consumers with new tobacco products, including a small tea-bag-like pouch that is smoke-free, spit-free and tucks into the cheek.

It says it is also working on developing cigarettes that are less harmful.

“The exciting part for me,” said Bonnie Herzog, an analyst at Citigroup, “is that tobacco use today will evolve. It’s unlikely that there will ever be a 100 percent safe cigarette, but we feel that a reduced-risk cigarette is on the horizon.”

But some health advocates say that the diminished social acceptability of cigarettes will hurt the long-term prospects of companies like Altria.

“The industry knows that its days of successfully selling their product in this country are limited,” said Dr. David A. Kessler, who called for regulating the tobacco industry as commissioner of the Food and Drug Administration in the 1990s and is now dean of the medical school at the University of California, San Francisco.

“They may be finding favor on Wall Street, but they’re not finding favor in the public arena,” he added. “There are fewer and fewer places that you can go and smoke in public.”

Still, on Wall Street, analysts are much less enthusiastic about the future of an independent Kraft Foods — which makes a wide range of well-known food products — compared with Altria’s prospects.

Kraft has struggled for several years to find its way in a rapidly changing marketplace, and Irene B. Rosenfeld, the chief executive, is expected to lay out her plans for a turnaround next month.

While many analysts say that Kraft is better off without the taint of tobacco, it still faces formidable challenges in repositioning its products at a time when consumers are less loyal to brands and more attracted to natural products, analysts said.

Investors in Altria are expected to get 0.695 share of Kraft for every share of Altria they own, said Ms. Herzog, who predicted that Altria would distribute the shares early in a 120-day period between the announcement and the distribution.

There is, however, a possibility that the distribution could be delayed by a legal challenge.

Michael D. Hausfeld, a lawyer in a pending class-action lawsuit against tobacco companies, said he might file an injunction to stop a spinoff of Kraft. The lawsuit, first filed in 2004 and known as the Schwab case after the lead plaintiff, Barbara Schwab, contends that cigarette manufacturers defrauded consumers by marketing light cigarettes as safer than regular cigarettes.

The idea behind seeking an injunction is that a judgment could be so enormous that Altria might need Kraft — with a market capitalization of $57.25 billion — to pay off the damages.

“Apparently at this point they have decided to spin Kraft off because they believe there’s a diminishment in their legal exposure,” Mr. Hausfeld said. “We disagree. If anything, the light’s fraud presents the strongest legal merit claims against the industry and Philip Morris.”

He estimated that a judgment in the case could be “several hundreds of billions of dollars” because 30 million to 50 million people who smoked light cigarettes made by several different tobacco companies were affected over more than 30 years. Asked to comment on Wall Street’s affection for tobacco stocks, Mr. Hausfeld said: “Wall Street loves money. And cigarettes are money. You are clearly earning huge returns at the expense of people’s lives.”

Several analysts who track Altria have dismissed the chances of an injunction’s success, and in an October conference call with investors, Mr. Camilleri, the Altria chief executive, said, “We believe that such an action would not have merit and that we would ultimately prevail.”

Altria’s plan to spin off Kraft is part of a long-term revamping plan that may ultimately split the domestic and international tobacco businesses into two companies because Altria thinks they would have more value as independent companies.

For example, Philip Morris International would no longer be dragged down by problems associated with smoking in the United States, like diminished demand and government intervention.

“At times, as a tobacco investor or a tobacco analyst, it seems like an unending stream of negative news,” Mr. Adelman of Morgan Stanley said. “You hear about smoking bans, a new piece of legislation. You hear about criticism from the World Health Organization.

“And then lo and behold, manufacturers release their results,” he said. “And they are good.”

Nick Bunkley contributed reporting from Detroit.

Tobacco’s Stigma Aside, Wall Street Finds a Lot to Like, NYT, 31.1.2007, http://www.nytimes.com/2007/01/31/business/31tobacco.html

Microsoft Debuts Vista

in Global Marketing Blitz

January 30, 2007
By REUTERS
Filed at 0:41 a.m. ET
The New York Times

NEW YORK (Reuters) - Microsoft Corp. (MSFT.O) rolled out Windows Vista at retailers in 70 countries on Tuesday, delivering a new computer operating system that aims to better manage the explosion of digital media and protect users from the dangers of the Internet.

The world's biggest software maker marked the launch of its first all-new Windows operating system in five years with a marketing blitz, including commercials featuring basketball star Lebron James and appearances by Microsoft co-founder Bill Gates on morning and late-night chat shows.

Windows runs on more than 95 percent of the world's computers, and the long-delayed new version is the first major release of a new Microsoft operating system since it introduced Windows XP in 2001.

Redmond, Washington-based Microsoft called Vista the most important release of its dominant operating system since Windows 95 more than a decade ago, when shoppers waited for hours to be among the first to run the new software.

Consumer fanfare of that magnitude seems unlikely since Vista is not the dramatic leap in technology of past releases, but the new Windows could ultimately be just as successful.

``Vista will be successful. It's been a long time since Microsoft introduced a new operating system. There are a lot of nice features that people will like,'' said Morningstar analyst Toan Tran.

The most obvious change is the new look. Vista's ``Aero'' interface uses 3-D graphics to create translucent windows that appear to float above the background screen.

Other changes are more subtle like improved security, search bars to help users find information easier and a new multimedia platform for digital video, music and pictures.

Apple Inc. (AAPL.O) calls Vista a copycat version of its Mac OS X Tiger operating system that introduced many of those new features. The iPod maker plans to introduce a new operating system of its own later this year.

The Wall Street Journal's Walt Mossberg, in his review of Vista, called it a ``worthy, but largely unexciting, product.''

In the first year of its release, Vista, which required a $6 billion investment from Microsoft, will be installed on more than 100 million PCs worldwide, according to research reports.

But because only about 15 percent of existing computers have memory and graphics cards powerful enough to run premium versions of Vista, most users will have to buy a whole new computer if they want to upgrade.

``There is a pent-up set of consumers who are going to get new PCs,'' Microsoft Chief Executive Steve Ballmer said in an interview on Monday. ``We will see an uptick (in PC sales). Sales will be stronger than they otherwise would have been.''

To accompany the launch, events are planned near New York's Times Square and U.S. retailers will hold midnight sales across the country.

The company's chairman and most recognizable face, Bill Gates, hit the talk show circuit to hype the launch, sitting down for interviews on NBC's ``Today'' show and Comedy Central's ''The Daily Show with Jon Stewart.''

    Microsoft Debuts Vista in Global Marketing Blitz, NYT, 30.1.2007, http://www.nytimes.com/reuters/business/business-microsoft-vista.html?_r=1&oref=slogin

Atlantic City Casinos Reap Anti-Blight Funds

January 28, 2007
The New York Times
By SERGE F. KOVALESKI

Seven years after New Jersey legalized gambling in 1977, state lawmakers created an agency called the Casino Reinvestment Development Authority to redirect some casino revenue to blighted areas in Atlantic City and across the state.

But the agency, contending that the gambling industry’s success is a critical component of the state’s economic health, has handed about $400 million back to the casinos themselves, a sum that accounts for more than 20 percent of the money it has committed since its inception.

That approach began in 1994 and continued as gambling competition from other states intensified, Atlantic City’s chief legislative proponent expanded his political power, and the state eliminated the Department of the Public Advocate, which had criticized the agency’s move to distribute money to the casinos.

The authority has subsidized construction of 13,000 hotel rooms in the city, 800 of them planned for a tower under construction at the Trump Taj Mahal. The agency spent $3.7 million for an IMAX theater to be built at the Tropicana Casino and Resort, where its grants also helped finance three floors of elegant stores, restaurants and a spa. An additional $26 million went to help build the House of Blues and to spruce up the facade at Showboat.

The agency has also pitched in for “parking lot beautification” at Showboat and road signs for Resorts and the Taj Mahal. And in 2005 it put $4.5 million toward express weekend train service between Manhattan and Atlantic City, to be provided by a partnership involving the Borgata, Caesars and Harrah’s, in conjunction with New Jersey Transit.

“That C.R.D.A. money is being used to grow the industry, protect the financial well-being of the state of New Jersey and keep the development of Atlantic City rolling forward,” said Thomas D. Carver, executive director of the reinvestment authority. “The growth of the industry, and the addition of more rooms, relates directly to the continued development of Atlantic City as a resort destination, not just for gaming but for entertainment and other attractions as well.”

But David Sciarra, who helped to write the legislation that created the reinvestment authority while working as a deputy public advocate, said that giving the money to the casinos “really goes against the very purpose of C.R.D.A.”

“It was not set up to finance industry-related projects because the industry clearly has the resources to do that on its own,” said Mr. Sciarra, who now runs a nonprofit group in Newark to help disadvantaged students. “This is a betrayal of the very promise that was made to the citizens: That the casinos would have a social responsibility to invest a small percentage of their revenue through the C.R.D.A. to help make sure residents, especially the poor, had better housing and neighborhoods.”

Established by the State Legislature in 1984, the reinvestment authority takes in money based on the casinos’ gambling revenues. The casinos, already required to pay 8 percent of their gross to the state’s Casino Revenue Fund — which pays for programs to help the elderly and people with disabilities — can choose to put an additional 2.5 percent in that pot or to pay 1.25 percent to the reinvestment agency. All have chosen the reinvestment route, which involves smaller payments.

The reinvestment authority has doled out $1.8 billion since starting operations.

In its initial years, the authority focused largely on developing affordable multifamily housing in the dilapidated Inlet section of Atlantic City, spending an estimated $130 million on the effort. Now, including the aid to the casinos, Atlantic City has received more than 80 percent of the money over two decades, though grants and loans have been scattered throughout the state, going to Y.M.C.A. branches, senior centers, war memorials, housing developments, sports facilities and run-down neighborhoods.

But despite the authority’s disbursements, Atlantic City continues to grapple with blocks of dilapidated buildings and seamy motels that draw drug dealers and prostitutes, all within the shadows of towering, brightly lighted casinos.

In the past dozen years, a string of changes to the law that were championed by State Senator William L. Gormley, the gambling industry’s leading backer in Trenton, and some steps taken by the development authority have directed hundreds of millions of dollars back to the casinos to expand their operations.

The reshaping of the agency’s mission has come as a result of a number of factors, not least the increasing influence commanded by Mr. Gormley, a skilled and maverick legislator who has pinned the rejuvenation of Atlantic City to the vitality of its casinos. Then there is the political and economic might of the gambling industry, which generated a record $5.2 billion in revenue last year and paid $417.5 million in taxes into the Casino Revenue Fund.

The changes at the authority were put into motion around the time that the State Legislature, then dominated by Republicans, abolished the Department of the Public Advocate, which had spoken out against efforts by the gambling industry to broaden the reinvestment authority’s scope to include investments in casinos. At the time, Republicans said that the public advocate’s office had become too aggressive and liberal and had outlived its usefulness. Under Gov. Jon S. Corzine, a Democrat, the department was re-established last year.

Senator Gormley, an Atlantic County Republican who has served in the Legislature since 1978 — the year the first casinos opened — and is retiring from the Legislature after his current term, says the Atlantic City casinos have needed the money from the reinvestment authority to expand and diversify.

That, he says, assists them in competing with slot parlors and video lottery terminals in New York State, Delaware and Pennsylvania and from Indian casinos in Connecticut and New York.

He said that from 1990 to 1993, virtually no new hotel rooms were built in Atlantic City, “and in order to become a convention destination, you needed more hotel rooms.”

The legislation that created the reinvestment authority says the agency’s purpose is “to maintain public confidence in the casino gaming industry as a unique tool of urban redevelopment” for Atlantic City and “to directly facilitate the redevelopment of existing blighted areas and to address the pressing social and economic needs of the residents” of Atlantic City and New Jersey.

The first significant changes in the direction of the reinvestment authority came in 1993, when the Legislature, trying to address an anticipated shortage of hotel rooms in Atlantic City, required the agency to make $100 million available for casinos to add rooms. Three years later, the law was amended again to make an additional $75 million from the agency available for more rooms. The casinos were to accommodate convention visitors with the new rooms.

“We needed an incentive because we had enjoyed exclusivity on the East Coast and knew gaming was going to expand in other jurisdictions, and that the Atlantic City casinos could take their capital dollars somewhere else,” Mr. Gormley said. “Not to take away from the mission of the C.R.D.A., but if we were just a town of $9 buffets, buckets of quarters and free bus tickets to Atlantic City, we wouldn’t have grown and C.R.D.A. revenue would have fallen flat, at best.”

Nancy K. Wattson, the chief financial officer of the reinvestment authority, said that with the casinos getting money back from the agency, legislation required them to continue to provide contributions to the agency for 50 years, rather than 25 years.

The casino reinvestment authority is the only agency of its kind in the United States, according to Roger Gros, editor of the magazine Global Gaming Business.

Meg Worthington, a township council member in Galloway Township for the last 21 years, said that her community, nine miles from Atlantic City, struggled to accommodate the growth the casinos have brought. Its population has increased to 40,000 from 12,000 in 1984. But, she said, the township has been unable to obtain any money from the reinvestment authority to help it cope.

“I don’t begrudge the gaming industry for trying to find ways to grow, but there needs to be a more holistic approach to growth,” Ms. Worthington said.

After the push for hotel rooms, lawmakers in 2001 created tax incentives for the gambling industry to provide more retail and entertainment amenities. In connection with this, the reinvestment authority offered cash inducements, committing $89 million for new retail and entertainment areas at the Tropicana and Caesars, and one that is planned for the Trump Plaza.

In 2003 and 2004, other legislation set up a $30 million fund for expansion at casino hotels and a $60 million fund for more nongambling projects at casinos, using special taxes levied on the casinos.

As for the weekend express train service from New York, which is expected to begin this year, Ms. Wattson said that the reinvestment authority had stipulated that one-quarter of the seats be made available to the public, rather than exclusively for people booked by the casino sponsors.

Larry Mullin, the president and chief operating officer of the Borgata, said that just over a year ago, the authority mentioned that some of its money might be available for the project, which involves buying eight new rail cars. “We were willing to fund our portion, but the fact that there were C.R.D.A. dollars available, why wouldn’t we take advantage of that?” Mr. Mullin said.

Fred Buro, the president and chief operating officer of the Tropicana, said that the gambling industry in New Jersey was facing new challenges and that the additional capital provided by the reinvestment authority was a positive step.

“This mission must be ever-evolving; nobody has a crystal ball,” he said. “Sometimes it is difficult for any business to allocate more capital beyond the business plan, so C.R.D.A. is saying, ‘We are here to help.’ ”

Jo Craven McGinty contributed reporting.

    Atlantic City Casinos Reap Anti-Blight Funds, NYT, 28.1.2007, http://www.nytimes.com/2007/01/28/nyregion/28casino.html?hp&ex=1170046800&en=0a6a8c8c9ac9bc85&ei=5094&partner=homepage

Editorial

The Budget Illusion

January 28, 2007
The New York Times

In the State of the Union speech, President Bush said that the budget deficit had been cut in half from 2004 to 2006. Not quite. The deficit declined, but not by half, from $412 billion to $248 billion. If you measure it as a percentage of the economy, Mr. Bush was off by an amount equal to about $15 billion.

Then, Mr. Bush greatly compounded his otherwise modest exaggeration by taking credit for the reduction, when the deficit really fell despite his policies, not because of them. The distinction is crucial, to understand both the current mess — in which debt is mounting just as huge obligations are coming due for Medicare and Social Security — and how best to get out of it.

The drop in the deficit over the past few years was due largely to the cyclical recovery from the earlier recession, and to a boost in revenue when temporary business tax cuts expired after 2004.

Mr. Bush, meanwhile, has pursued a single-minded strategy of spending more while slashing taxes. That is the opposite of deficit reduction; it has made the budget hole deeper than it would have been. Still, Mr. Bush wants you to believe that tax cuts caused the economic recovery, and thus the budget improvement. If you follow that logic, the key to continued improvement would be continued tax cuts, and that is just what Mr. Bush called for last week. He conjured a bright future in which the deficit disappears after he leaves office, without anyone ever having to raise taxes.

That was the speech, and then there is reality, which came knocking within days when the nonpartisan Congressional Budget Office released its annual 10-year budget outlook. The outlook is for a cumulative deficit of $2.9 trillion to $3.4 trillion — about $300 billion a year — if, as Mr. Bush wishes, the tax cuts are extended beyond their scheduled expiration in 2010 and tax relief continues for Americans wrongly afflicted by the alternative minimum tax. In arriving at its estimate, the budget agency also assumed that costs for the war in Iraq would start going down next year, an assumption that, if proved wrong, would result in even higher deficits.

In the absence of overt tax increases, that leaves Mr. Bush only three ways to erase the deficit. He would have to make pie-in-the-sky assumptions of revenue growth, which would be dicey in any event, but folly at a time when the economy is slowing. He would have to renege on his pledge to protect taxpayers from the alternative minimum tax, a huge backdoor tax increase. Or he would have to persuade lawmakers to make cuts in spending even more draconian than those already dodged by the previous Republican-controlled Congress.

Fortunately, such cuts are necessary only if one accepts Mr. Bush’s premise that taxes must never rise under any circumstances. That is clearly a false premise. Mr. Bush’s tax cuts should largely be allowed to expire. Facing that truth is not a fiscal challenge, it’s a political one.

Mr. Bush will not meet it. But a future president and Congress will have to.

    The Budget Illusion, NYT, 28.1.2007, http://www.nytimes.com/2007/01/28/opinion/28sun1.html

N.Y. scanners spark union cries of "geoslavery"

Fri Jan 26, 2007 4:43 PM ET
Reuters
By Michelle Nichols

NEW YORK (Reuters) - Every morning Dennis Colson, a surveyor at New York City's Department of Design and Construction, begins his work day by placing his hand on a scanner to log his time and attendance at the office.

The use of hand geometry and other biometric data, like facial and iris recognition, is not new -- the University of Georgia pioneered the use of hand geometry when it installed scanners in its student dining hall in 1974.

But the planned roll-out of hand geometry scanners in all New York City government agencies has sparked union cries of "geoslavery" and assertions that technology developed for security will be used to track, label and control workforces.

"It's frustrating, it's kind of an insult," Colson, 53, told Reuters. "They are talking about going to voice and retina scanners and that's an invasion of privacy in that they can track you wherever you go."

Jon Forster, of the Civil Service Technical Guild, which represents Department of Design and Construction workers, said the biometric systems gave the city a license to obtain personal, uniquely identifiable data to track workers.

"It's really a matter of this kind of technology having far outstripped any legislation or even case law in the United States in terms of what are the restrictions," Forster told Reuters.

"On the one hand I think people might all agree that if you put a GPS system in ambulances then that's a good thing. On the other hand you have an employer in Ohio who has demanded that two of his employees have chips implanted in their bodies."

"If these are the extremes, the question is where does the line get drawn?" he said.

"The unions' arguments keep changing, but the tracking workers throughout the day is not true. It's just for clicking in and out," said Stu Loeser, spokesman for New York Mayor Michael Bloomberg, adding that there were no plans to install voice recognition or iris scanners.

IS HAND GEOMETRY THE REAL PROBLEM?

Biometrics expert Jim Wayman, who consults for the U.S., British and Australia governments, said mobile phones and credit cards were the "No. 1 enemies" for workers worried about geoslavery, not biometrics.

"There may be large forces at work in western society wishing to enslave the workforce. I want to acknowledge that fear. But hand geometry is not part of this," Wayman, who has studied biometrics for more than two decades, told Reuters.

He said monitoring computer and phone usage were the "tools by which an employer would seek to enslave the workforce -- it would not be done through biometrics."

In 2004, U.S. employers reportedly spent $9 billion on monitoring devices for the workplace, while a 2005 survey by American Management Association and The ePolicy Institute found 76 percent of companies monitor workers Web site use.

The survey of 526 U.S. companies also showed 36 percent of employers track computer content, keystrokes and time spent at the keyboard, while half store and review employees' computer files and 55 percent retain and review e-mail messages.

Only 5 percent used GPS in phones and 8 percent used GPS in company vehicles, while fingerprint scanning only accounted for 5 percent, facial recognition 2 percent and iris scans 0.5 percent.

"Most people in the industry are surprised that biometrics devices have not become more widespread already," Wayman said.

"There is a 40 year history of implementation of biometric devices, but use of these devices has never become widely popular and one of the reasons is they are thoroughly expensive to use and it's not clear the cost savings in their use."

    N.Y. scanners spark union cries of "geoslavery", R, 26.1.2007, http://today.reuters.com/news/articlenews.aspx?type=domesticNews&storyID=2007-01-26T214229Z_01_N25259138_RTRUKOC_0_US-WORK-SCANNERS.xml&WTmodLoc=NewsArt-L3-U.S.+NewsNews-3

Minimum wage hike would help blacks: study

Fri Jan 26, 2007 2:21 PM ET
Reuters
By Ed Stoddard

DALLAS (Reuters) - Proposed increases in the U.S. minimum wage would likely result in pay raises for around 2 million black workers, according to a study released this week by the Joint Center for Political and Economic Studies.

The Democratic-led U.S. House of Representatives earlier this month approved legislation to increase the minimum wage over two years to $7.25 per hour from $5.15 per hour -- which would be its first hike in a decade.

But Senate Republicans on Wednesday blocked the bill, demanding it also include small business tax relief. The Senate was set to debate the bill again on Friday with passage of a wage hike-tax break measure expected next week. The Senate and House would then have to negotiate a final version.

"Our analysis shows that this increase in the minimum wage would have a significant positive impact on African American families and communities," said Ralph Everett, president and CEO of the Joint Center, a Washington-based think tank.

"African Americans are more likely to live in states that either have no minimum wage or have minimums equal to the federal rate, and so they would certainly benefit from a new law raising the floor," he said.

The report estimates the following numbers based on the proposed staggered increases up to 2009:

2007 - 189,000 black workers benefit when minimum wage rises to $5.85 an hour.

2008 - An additional 419,000 benefit when it goes to $6.55 an hour.

2009 - 753,000 more benefit when it climbs to $7.25 an hour.

"Wages for many low-income workers are just above the current federal minimum wage but below $7.25 and that is why the numbers get larger as you go along," Dr. Margaret Simms, an economist at the Joint Center, told Reuters by phone.

The center's study also estimates that a further 651,000 black workers could see wage increases over this same time period because of raises in state minimum wages or a combination of state and federal hikes -- bringing the total number to around 2 million.

It said that the largest number of black workers who would get a wage boost from the federal legislation were found in southern states, where black poverty remains widespread four decades after the civil rights movement.

"However, despite the positive effects for these workers, there are likely to be 2 million other workers, about 9 percent of them African American, who will not benefit from the increase due to existing federal exemptions from minimum wage laws," the center said.

These could include workers in very small businesses, agricultural laborers and some workers in training.

    Minimum wage hike would help blacks: study, R, 26.1.2007, http://today.reuters.com/news/articlenews.aspx?type=domesticNews&storyID=2007-01-26T192052Z_01_N26358518_RTRUKOC_0_US-MINIMUMWAGE-BLACKS.xml&WTmodLoc=Home-C5-domesticNews-2

Ford Chief Sees Small as Virtue and Necessity

January 26, 2007
The New York Times
By MICHELINE MAYNARD

DEARBORN, Mich., Jan. 25 — Just 10 months ago, William Clay Ford Jr. vowed that his auto company, despite its mounting losses, would “reclaim our legacy” in the American car market and “emerge stronger than we’ve ever been.”

But there is a new message coming out of the chief executive’s office at Ford. Alan R. Mulally, recruited last fall from Boeing to run Ford, has signaled that the bigger-is-better worldview that has defined Ford for decades is being replaced with a new approach: less is more.

Instead of insisting that Ford reverse its slide, Mr. Mulally says that Ford will become much smaller. Its forecasts show it may fall from second to fourth place this year in the American market, behind General Motors, Toyota and Chrysler.

The hiring of Mr. Mulally, leaving Mr. Ford as chairman, was the first instance of any Detroit carmaker’s reaching outside the industry for a leader. And Mr. Mulally has broken with tradition in a hurry. He flew to Japan to meet with top executives of its toughest competitor, Toyota, to seek their advice on ways to streamline Ford’s manufacturing operations.

When asked about his priorities for fixing Ford, Mr. Mulally said in an interview this week, “At the top of the list, I would put dealing with reality.”

It is a harsh reality. On Thursday, Ford reported that it had the worst year in its history in 2006, posting a loss of $12.7 billion. In the last three months of the year, it lost $5.8 billion.

A big part of that was related to one-time charges from worker buyouts. But Ford’s losses are also accelerating because of falling sales of its big S.U.V.’s and pickups and its inability to sell vehicles without offering costly rebates.

One Wall Street analyst, Jonathan Steinmetz, calculated that Ford’s “terrible” 2006 performance was equal to a loss of $4,700 a vehicle. Earlier this decade, Ford earned profits of that size on its big vehicles, a time when it held almost a quarter of the American car market.

Ford, whose market share dropped to 17.5 percent last year, is in the middle of shedding 44,000 workers, a third of its total staff. It is also closing 16 plants, and has said it does not expect to make any money in North America until 2009. By then, it expects to sell only about 14 percent of the cars and trucks purchased in the United States.

Mr. Mulally is trying to be both optimistic and pragmatic, creating a sense of urgency while reassuring his anxious workers that the company has a future.

Mr. Mulally is in a honeymoon period and has escaped any blame for Ford’s poor results last year, even though the worst performance came last quarter when he was in charge. Ford executives in the past have also made similar claims about breaking with tradition, installing new ways of working and accepting reality.

In the end, Mr. Mulally will be judged as much by Ford’s success or failure in the marketplace as for his management techniques.

“The whole thing boils down to the product that’s being sold,” said Jan K. Brueckner, a professor of economics at the University of California, Irvine. “We can do everything. We can build great computers, put men on the moon. Why can’t we design cars that appeal to people?“

Some analysts also said that Ford’s financial results could get worse before they got better, meaning Mr. Mulally might have to wait years to show improvements. “Ford will suffer the most severe market share decline among the Big Three in 2007,” Brian Johnson, an auto analyst with Lehman Brothers, wrote in a research report Thursday. “We expect Ford’s decade-long share loss to accelerate in 2007.“


Mr. Mulally is learning what a difficult tightrope he must walk in managing expectations amid the dire news.

As Ford announced its record loss Thursday, he acknowledged that the company might pay bonuses to some executives despite its dismal financial results. It did not pay bonuses in 2005, when Ford performed far better than it did last year.

The issue is likely to touch a nerve with the United Automobile Workers, but Mr. Mulally said bonuses might be needed “to make sure we are paying competitive wages and benefits,” an explanation Detroit executives have offered for years in the face of union grumbling.

Mr. Mulally is used to such grumbling, though, having faced off with unions during his 37 years at Boeing.

And to his eye, there are other remarkable similarities between Ford and Boeing.

Boeing bets billions to develop new aircraft. And Ford, under Mr. Mulally, has literally mortgaged the company, pledging as collateral things like factories, its headquarters and the blue Ford oval trademark to raise $25 billion in financing.

If Mr. Mulally is feeling strained, he is not showing it. “We have the money and plans in place,” he said Thursday.

Despite his lack of automotive experience, Mr. Mulally said his years running a big manufacturer, and his technical background, have prepared him for the challenges facing Ford.

He has made quick changes to the way the company is managed. He demands weekly progress reports from his executives to reach the goals in the turnaround plan, called the Way Forward, that the company set last year before he arrived.

Instead of discussing business plans monthly or semiannually as they used to, executives now visit Mr. Mulally’s office every Thursday.

There, they analyze things like gasoline prices, manufacturing methods and new automobiles from Ford and its competitors.

The in-depth sessions are a contrast to executives’ previous efforts to explain away bad news, said Donat R. Leclair, Ford’s chief financial officer.

“The difference I see now is that we’re actually committed to hitting the numbers,” Mr. Leclair said Thursday. “Before, it was a culture of trying to explain why we were off the plan. The more eloquently you could explain why you were off the plan, the more easy it was to change the plan.”

Mr. Mulally may be getting up to speed quickly, but he occasionally has to ask for definitions of automotive jargon — like a “brown field plant,” referring to an existing factory that the company might upgrade, rather than a “green field plant,” meaning one that will be built new.

And he has persisted in calling the automaker the Ford Company, akin to the Boeing Company, when everyone here calls it Ford or Ford’s, a tribute to the founding family (its actual name is the Ford Motor Company).

Mr. Mulally’s hiring is, in a sense, a nod to Ford’s past, considering it built airplanes along with automobiles in its early years. The Ford Tri-Motor became one of the first planes to be purchased by the nation’s fledgling airlines, and was used in 1930s movies starring Shirley Temple and Jean Harlow.

The similarities between the companies have made it much easier than he expected to lead Ford. “I’ve been through this movie before,” he is fond of saying in interviews.

Mr. Mulally likens his business plan to the checklists that pilots must go through before each flight. “It is very analogous to flying because you’ve got to know where you’re going and you’ve got to know where you are so you can take corrective action to get back on that plan,” he said.

Mr. Mulally even sees a similarity in the upheaval that affected both industries in the 1970s, when airlines had to deal with deregulation and auto companies faced new competition from Japanese automakers in the aftermath of two energy crises.

Deregulation “meant that each of the airlines now was going to be able to compete like never before, and the consumer would decide” who would survive, Mr. Mulally said. In the same fashion, foreign competition also means “the customer gets to decide,” he said.

In the same way that he now is trying to map out Ford’s future lineup, he had to take a similar gamble at Boeing on what its future would be: would airlines want to buy bigger and faster planes, or more-nimble medium-size aircraft that could be flown on the shorter flights favored by low-fare carriers both in the United States and abroad?

He convened a meeting of executives from 57 airlines to ask whether they wanted to see Boeing design a new superfast plane, nicknamed the Sonic Cruiser, or proceed with development of a more fuel-efficient jet that the airline called the Dreamliner.

By a 57-to-0 vote, they opted for the Dreamliner, officially the 787, which since has become one of Boeing’s fastest-selling planes, along with the 737.

Mr. Mulally made “a huge strategic decision there that really laid out the next 20 years of manufacturing competition, and I think Boeing got it right,” said Professor Brueckner, an expert on transportation who has been writing about airlines for more than two decades.

There are echoes in Detroit of Mr. Mulally’s smaller-is-better thinking. G.M. is in the middle of its own revamping plan and Chrysler is preparing a plan of cutbacks that will be unveiled next month.

This month, the G.M. vice chairman, Robert A. Lutz, known for his love of flashy designs, said G.M. would not mind yielding several points of market share to its rivals, if it meant the company would become more profitable.

At Ford, Mr. Mulally may have more success than his predecessor, Mr. Ford, who was seen as reluctant to break from tradition despite his private frustration over failing to halt the company’s decline, said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

“By bringing in someone from the outside, it conveyed a sense of urgency in the company,“ Mr. Cole said. “Bill Ford is a nice guy and if he said the sky was falling, people would look at him and say, ‘He doesn’t mean it.’ “

    Ford Chief Sees Small as Virtue and Necessity, NYT, 26.1.2007, http://www.nytimes.com/2007/01/26/automobiles/26ford.html?hp&ex=1169874000&en=c9e315b0b168dcbe&ei=5094&partner=homepage

Halliburton 4Q Profit Falls 40 Percent

January 26, 2007
By THE ASSOCIATED PRESS
Filed at 9:11 a.m. ET
The New York Times

HOUSTON (AP) -- Oil industry services provider Halliburton Co. said Friday its fourth-quarter profit fell 40 percent, due in large part to a year-ago gain, but the results still beat analysts' expectations.

Earnings fell to $658 million, or 64 cents per share, compared with $1.1 billion, or $1.04 per share, during the same period a year ago.

The prior year's results benefited from $540 million, or 51 cents per share, of income related to a reduction in a deferred tax asset valuation allowance.

Analysts polled by Thomson Financial were looking for earnings of 61 cents per share.

''Although we experienced weather-related activity decreases and holiday impacts in the United States during the fourth quarter, we expect demand for our services to remain strong throughout 2007,'' Chairman, President and Chief Executive Dave Lesar said in a statement.

Quarterly revenue rose 8 percent to $6.02 billion from $5.57 billion in the previous year on more activity in the company's energy services group, which was partially offset by lower revenue from KBR Inc., due to decreased activity on government services projects for the military. KBR is Halliburton's engineering, construction and government-services arm that it partially spun off in 2006. Halliburton still owns an 81 percent stake in KBR.

KBR sales fell to $2.5 billion from $2.7 billion.

Consensus estimates put fourth-quarter revenue at $5.9 billion.

For the year, Halliburton said its net income was $2.3 billion, or $2.23 per share, down from $2.4 billion, or $2.27 a share, in 2005. Still, the 2006 result handily beat the consensus Wall Street estimate of $2.14 a share.

Full-year revenue rose to $22.6 billion from $20.2 billion in 2005.

    Halliburton 4Q Profit Falls 40 Percent, NYT, 26.1.2007, http://www.nytimes.com/aponline/business/AP-Earns-Halliburton.html?_r=1&oref=slogin

Ford Loses Record $12.7 Billion in ’06

January 25, 2007
The New York Times
By NICK BUNKLEY

DEARBORN, Mich., Jan. 25 — The Ford Motor Company had the worst year in its history in 2006, losing $12.7 billion and suffering sharp erosion of its share of the United States auto market.

Ford lost $5.8 billion in the fourth quarter alone, the company reported today. In the same period a year earlier, it lost a comparatively trivial $74 million.

The company took in $160.1 billion in revenue in 2006, 9 percent less than in 2005.

Ford’s full-year loss, equivalent to $6.79 per share, far exceeded the $7.39 billion it lost in 1992, the worst previous year in its 103-year history, and it even surpassed the $10.6 billion loss posted by General Motors in 2005. But it is still short of the $23.5 billion that G.M. lost in its worst year, 1992.

Most of Ford’s red ink in 2006 came from the cost of shrinking and reorganizing the company, buying out workers and writing down asset values. Those charges accounted for $9.9 billion of the full-year loss after taxes. But Ford’s day-to-day business did very poorly as well, with a loss of $2.8 billion on continuing operations, compared with a $1.9 billion loss in 2005.

The figures were an unwelcome surprise to many Wall Street analysts, who on average had forecast a loss of about $2.5 billion for the year, excluding restructuring charges and other costs that Ford considers one-time items.

Still, Ford’s stock price ticked upward in morning trading, gaining about 20 cents a share to trade near $8.40 a share at midday, roughly where it was a year ago. The stock has been rising since mid-December, in part because gasoline prices have eased a bit.

Ford’s woes are greatest in North America, where its automotive operations lost $6.1 billion before taxes, and sales revenue fell by 14 percent to $69.4 billion. The North American losses, four times as bad as the year before, more than wiped out profits from automotive operations overseas.

Jonathan Steinmetz, an automotive analyst at Morgan Stanley, called those results “terrible,” noting that the North American figures represent a loss of $4,700 on every vehicle sold.

“The best we can say for the quarter is that it’s over,” Mr. Steinmetz wrote in a note to clients this morning.

The fourth quarter of 2006 was the first full earnings period for Ford under its new chief executive, Alan R. Mulally, who was hired away from Boeing in September. With Mr. Mulally at the helm, Ford took the unprecedented step of pledging nearly all of its United States assets, from its factories to its blue oval logo, as collateral to borrow more than $23 billion.

The financing leaves Ford with access to $46 billion in cash, although it expects to burn through $17 billion by 2009. In addition, the interest that Ford must pay will most likely drive down earnings from automotive operations even more in 2007. But the company’s chief financial officer, Don R. Leclair, said Ford’s overall results will be “substantially better” this year.

Mr. Mulally insisted repeatedly today, on a conference call with reporters and analysts, that Ford’s effort to overhaul itself, known as the Way Forward, is on track. But to outside observers, the company’s financial results have yet to give any sign of progress, and Ford concedes that its market share will continue to slide at least through September.

“We began aggressive actions in 2006 to restructure our automotive business so we can operate profitably at lower volumes and with a product mix that better reflects consumer demand for smaller, more fuel efficient vehicles,” Mr. Mulally said. “We fully recognize our business reality and are dealing with it. We have a plan and we are on track to deliver.”

About 40 percent of Ford’s hourly workers — some 30,000 employees — have agreed to leave their jobs this year in exchange for buyout or early-retirement packages, and the company is also shedding about 14,000 salaried positions. Those cuts, along with plans to close nine plants by the end of next year, are part of the Way Forward plan, which is meant to return the company to profitability in North America by 2009.

In 2006, Mr. Mulally said, Ford cut its annual structural costs by $1.4 billion. The restructuring plan calls for shaving off another $3.6 billion within two years.

Ford’s financial deterioration has caused something of a brain drain at the company, and the arrival of Mr. Mulally has been expected to prompt some other executives to leave as well. Despite its huge losses, Mr. Mulally acknowledged today that the company is considering offering bonuses to some executives to persuade them to stay on.

“At the end of the day, our success going forward will depend on having a skilled and motivated team,” he said, adding that a final decision would be made in the next few months.

The move could backfire by making unionized workers more resistant to the concessions that Ford wants from them to become more competitive. Ford did not pay any bonuses in 2005, when it made $1.44 billion.

Ford expects to lose its grip on second place in the American market sometime this year, when it is overtaken by Toyota. Ford’s market share has fallen to 17.5 percent last year, from 25.7 percent a decade ago. By the end of the year, Ford’s internal projections show that the company may even fall to fourth place, behind Toyota, the Chrysler unit of DaimlerChrysler and General Motors, the market leader.

Mr. Mulally caused a stir in Detroit last month when he flew to Tokyo to meet with Fujio Cho, the chairman of the Toyota Motor Company. Mr. Mulally said he asked for Mr. Cho’s advice on ways to streamline Ford’s manufacturing operations, and the that the two men had discussed cooperation on some technical matters.

But Mr. Mulally could well have sought Mr. Cho’s financial counsel, too, because the Ford loss for 2006 happens to almost exactly match the profit Toyota earned in 2005. That means there is a difference of more than $25 billion between the two companies’ financial performances.

The biggest blow to Ford in recent years has come from rising gasoline prices, which depressed sales of the big pickups and sport utility vehicles it depends on for profits.

    Ford Loses Record $12.7 Billion in ’06, NYT, 25.1.2006, http://www.nytimes.com/2007/01/25/business/25cnd-ford.html?hp&ex=1169787600&en=0c1b2034be84b3a2&ei=5094&partner=homepage

Home Sales Figures Signal a Slowing Market

January 25, 2007
The New York Times
By JOHN HOLUSHA

Sales of existing homes declined 0.8 percent in December, according to the National Association of Realtors, a sign of further slowing in the nation’s ounce-effervescent housing market.

For the full year, sales fell 8.4 percent, the largest decline in 24 years, after five years of boom times.

Despite the falling sales volume, prices have largely held their ground. The median price of a house sold in 2006 rose 1.1 percent, far short of the double-digit increases of the five previous years. The median price rose 12.4 percent in 2005.

Homes sold in December at a seasonally adjusted annual rate of 6.22 million, down from 6.27 million in November. The December figure was down 7.9 percent from the previous December.

The sales decline in 2006 was the biggest since 1982, when sales dropped 17.7 percent during an economic recession.

Economists say they think the slump in the housing market, which was even more pronounced in new homes than in existing ones, has bottomed out, and they look for a rebound in 2007. The Commerce Department reported last week that builders began construction of new homes at an annual rate of 1.642 million in December, an increase of 4.5 percent from the previous month.

    Home Sales Figures Signal a Slowing Market, NYT, 25.1.2007, http://www.nytimes.com/2007/01/25/business/25cnd-home.html?hp&ex=1169787600&en=cd0f79480aea2ccb&ei=5094&partner=homepage

Minimum Wage Bill Stalls in the Senate

January 24, 2007
By THE ASSOCIATED PRESS
Filed at 12:27 p.m. ET
The New York Times

WASHINGTON (AP) -- Democrats' promise of a quick increase in the minimum wage ran aground Wednesday in the Senate, where lawmakers are insisting it include new tax breaks for restaurants and other businesses that rely on low-pay workers.

On a 54-43 vote, liberals lost an effort to advance a House-passed bill that would lift the pay floor from $5.15 to $7.25 an hour without any accompanying tax cut. Opponents of the tax cut needed 60 votes to prevail.

The vote sent a message to House Democrats and liberals in the Senate that only a hybrid tax and minimum wage package could succeed in the Senate. But any tax breaks in the bill would put the Senate on a collision course with the House, which is required by the Constitution to initiate tax measures.

In a separate vote, the Senate also effectively killed a modified line-item veto bill. The Republican-inspired measure would have permitted a president to pluck individual items out of spending bills and submit them to Congress for a vote.

Raising the minimum wage is one of the new Democratic Congress' top priorities. The wage floor has been unchanged for 10 years. The bill would increase it to $7.25 in three steps over 26 months.

The House passed the increase two weeks ago. Since then Speaker Nancy Pelosi, D-Calif., and Rep. Charles Rangel, the chairman of the tax writing Ways and Means Committee, have prodded the Senate to keep tax proposals out of the bill.

Senate Majority Leader Harry Reid, D-Nev., scheduled Wednesday's vote to demonstrate the Democrats' lack of support for a straight minimum wage bill without tax cuts.

Reid is backing an $8.3 billion tax package that would extend for five years a tax credit for employers who hire low-income or disadvantaged workers. It also extends until 2010 tax rules that permit businesses to combine as much as $112,000 in expenses into one annual tax deduction.

The cost of the proposal would be paid with revenue realized from a proposed cap of $1 million on executive compensation that can be tax deferred. The tax package also would end deductions for court settlements or punitive damages paid by companies that have been sued.

    Minimum Wage Bill Stalls in the Senate, NYT, 24.1.2007, http://www.nytimes.com/aponline/business/AP-Minimum-Wage.html

The Energy Challenge

Springtime for Ethanol

January 23, 2007
By ALEXEI BARRIONUEVO
The New York Times

WASHINGTON — The Renewable Fuels Association, the ethanol industry’s major lobbyist, works out of cramped offices that it shares with a lawyer near Capitol Hill. Pictures of ethanol plants from its 61 board members hang everywhere. “We’re about to run out of wall space,” said Bob Dinneen, the association’s president.

The association may only have six staff members but it is now bursting with energy, a far cry from the early days when its founder, a South Dakota farm boy who was convinced America needed to break the stranglehold of foreign oil, quit in frustration after four years.

After three decades of surviving mostly on tax subsidies, the industry is poised tonight to get its biggest endorsement from on high that it has a long-term future as a home-grown alternative to gasoline.

In his State of the Union address, President Bush is expected to call for a huge increase in the amount of ethanol that refiners mix with gasoline, probably double the current goal of 7.5 billion gallons by 2012.

While the details of the proposal are not known, 15 billion gallons of ethanol would work out to more than 10 percent of the country’s current gasoline consumption, and is far beyond the current capacity of about 5.4 billion gallons.

At least half of the new ethanol would come from corn, signaling the administration’s support to the Midwest farm states that have benefited the most from the recent ethanol boom.

For an industry once dominated by the will of a single powerful producer, Archer Daniels Midland, ethanol has come a long way, joining the oil industry and producers of major agricultural commodities as an entrenched political force in Washington. And it now enjoys a powerful role in presidential politics because of Iowa’s status as one of the first states to select delegates to the parties’ nominating conventions.

But with dozens of new ethanol plants coming online this year, the ethanol lobby is facing a critical point. The political reality is that corn’s days as the chief crop for making the fuel may be numbered.

Corn-based ethanol can only marginally reduce America’s dependence on foreign oil. But it does little, if anything, to improve energy efficiency, and the mounting concern of some politicians is that relying on corn is leading to collateral damage in other parts of the agricultural economy and threatening the nation’s status as the leading corn exporter. The big increase in the works may mean consumers would end up paying more at the supermarket.

So the ethanol lobby and its political supporters now face the challenge of trying to maintain the momentum of ethanol’s feel-good story before the potential negative consequences of the rapid ramp-up become all too apparent.

Clutching the reins these last five years is Mr. Dinneen, a longtime Washington lobbyist who joined the association in 1988. He recalled his early years there as a pitched war with the oil industry. “I would wake up in the morning and try to think of a way to vilify the oil guys,” he said.

Today, to keep the ethanol train moving, ethanol makers are cozying up to the oil industry, forming political alliances and enlisting executives from companies like Chevron as they race to make a quicker transition to cellulosic ethanol made from nonfood crops, like switchgrass.

Otherwise, public support could turn against the fuel, which yields a third less energy than petroleum-based gasoline and still relies on a federal subsidy of 51 cents a gallon to remain competitive.

“We are no longer debating whether this makes sense, if this public policy should be pursued,” Mr. Dinneen said. “The discourse now is how much ethanol can we produce, how quickly can we produce it and what is the pathway for greater production of domestic renewables.”

That pathway, at the moment, relies on commercializing cellulosic ethanol made from crops like switchgrass or wood chips, which today is twice as expensive to produce as ethanol made from corn.

Some analysts, though, believe that politics has already trumped economics. “Once we have a corn-based technology up and running the political system will protect it,” said Lawrence J. Goldstein, a board member at the Energy Policy Research Foundation. “We cannot afford to have 15 billion gallons of corn-based ethanol in 2015, and that’s exactly where we are headed.”

Mr. Goldstein said that rather than speed up the process of producing more ethanol, Congress should “step back and reflect on the damage we have already done.”

By contrast, ethanol advocates in Congress are pushing to accelerate research into cellulosic sources with the stated goal of speeding the timetable for when corn can be supplemented — or supplanted — as the chief ethanol crop.

“We need additional funds for transitioning to making more energy crops for our national security,” Senator Tom Harkin, an Iowa Democrat and the new chairman of the Senate Agriculture Committee, said in an interview earlier this month.”

The agriculture secretary, Mike Johanns, said there will be an “adjustment period“ for ethanol that will last a few years. But he is confident that more corn will emerge to ease the pain of higher grain prices, as seed companies improve yields and farmers shift their acreage from other crops. “When you look at the whole constellation of issues, and advancements that are out there, it is a very encouraging time for agriculture,” Mr. Johanns said in an interview.

The race to crack the code to produce cellulosic ethanol more efficiently has attracted dozens of researchers, venture capitalists and even the interest of major oil companies like BP and Chevron. Vinod Khosla, a major venture capitalist who has poured money into seven different start-up companies, has been pushing Washington lawmakers to set more aggressive targets to ensure that the demand for corn moves beyond corn. “If I am going to take the risk, the market has to be big,” Mr. Khosla said.

The Renewable Fuels Association is trying to balance the competing concerns. The organization was not always interested in rapid expansion, particularly if that meant allowing competition for A.D.M. from sources like Brazilian sugar. David Hallberg, the association’s founding president, said he left after four years in the job partly because he grew tired of disputes with A.D.M. executives over the future direction of the industry.

“I thought my job was to grow the industry to be as large as it could be,“ said Mr. Hallberg, who denied he was forced out. “That isn’t what our bigger members always wanted.”

By the time Mr. Hallberg left the organization in 1985, oil prices had plummeted to $9 a barrel, making ethanol uneconomic as a fuel. The industry turned its efforts toward selling ethanol as an oxygen enhancer for gasoline that could lift octane and reduce carbon monoxide.

With the influence of Dwayne O. Andreas, A.D.M.’s longtime chief executive and now chairman emeritus, Congress passed the federal excise tax in 1978 that gave ethanol its primary subsidy, a credit worth 51 cents per gallon of ethanol, or $21 per barrel of oil. Mr. Andreas had powerful friends in Congress, including Senator Robert J. Dole, a Republican from Kansas who rose to majority leader and who pushed consistently over the years to retain the ethanol subsidy.

In those early days the influence of Mr. Andreas and A.D.M.’s generous contributions to both Republicans and Democrats kept ethanol alive. The company also held greater sway within the organization because of its great weight as an ethanol producer. Even today, at around 25 percent of total ethanol capacity, A.D.M. remains the largest maker.

At first, the ethanol producers had few allies. The National Corn Growers Association was agnostic about ethanol at best, and the American Farm Bureau opposed ethanol, worrying that it could raise the price of livestock feed and cut into exports, Mr. Hallberg said.

That began to change in the late 1980s when the groups began to work together to supply ethanol to some 30 cities as a gasoline additive in the winter months. Those months were also when A.D.M.’s wet mill corn processing plants made more ethanol.

While the ethanol and corn forces preferred their wintertime plan, they later threw their support behind a federal proposal to implement a reformulated gasoline with an “oxygenate” — either ethanol or methyl tertiary-butyl ether — in nine of the country’s smoggiest cities. The program took effect in 1995.

Ethanol’s big breakthrough came over the battle to ban M.T.B.E. After gasoline spills in California revealed that M.T.B.E. could corrode groundwater, the Renewable Fuels Association and the corn growers were among those pushing ethanol as an environmentally safer alternative.

California banned M.T.B.E. in 1999 and requested a waiver from the federal oxygenate standard, arguing it could make a cleaner-burning gasoline without ethanol. President Bush rejected the waiver, spurring an ethanol construction miniboom.

In 2001, Mr. Dinneen took over as president, focused on reaching détente with the oil industry. To win approval for the renewable fuels standard, he eventually cobbled together an unlikely coalition of consumer groups, the American Petroleum Institute and environmentalists like the Natural Resources Defense Council.

The fuel standard Congress approved in 2005, which called for a ramp-up of ethanol use to 7.5 billion gallons by 2012, ended up lighting a fire under the industry. When oil prices shot over $50 a barrel, ethanol became profitable, and then President Bush set off an industry building boom when he said last January that “America is addicted to oil.”

It helped that the mix of ethanol’s advocates had been changing. About a decade ago farmers began investing in ethanol plants; today more than half of the 110 ethanol plants in production are at least partly owned by farmers. The ownership by farmers brought home the rural benefits of the ethanol industry more directly.

The association’s expanding board, which is 10 times the size it was some 20 years ago, has also become more diverse and less beholden to the business agendas of its biggest members.

As ethanol expands, Mr. Dinneen dismissed the concerns of some economists that its explosive growth could threaten exports and livestock prices, and that a potential investment bubble could burst before cellulosic ethanol has a chance to hit the market.

“I don’t get all that worried that we are building too fast,” he said. “I am not bright enough or foolish enough to try to control the market.”

    Springtime for Ethanol, NYT, 23.1.2007, http://www.nytimes.com/2007/01/23/washington/23ethanol.html

Trade Deficit Stubbornly Defies the Dollar’s Slide

January 20, 2007
The New York Times
By EDUARDO PORTER and MARK LANDLER

Jessica Heyman’s breakfast in Paris last month was nothing out of the ordinary: a modest repast of eggs, coffee and a side salad with her husband, Jonathan Podwil, at the popular Café de Flore. But the bill was memorable — 46 euros, or about $60, at the current exchange rate. Five years ago, when the dollar was strong, the same bill would have amounted to $42.

The sticker shock provided a powerful incentive to remain frugal the rest of the vacation. “We ate a lot of bread,” Ms. Heyman said.

Shocking tourists into counting every penny, and getting Americans back home to spend less on costly imports, is part of what a weaker dollar is supposed to do to help pare America’s outsize trade deficit, according to economic textbooks.

But, so far, the dollar’s slide has not helped enough. Although the dollar has lost a lot of ground against many of the world’s major currencies — including the euro, the British pound and the Canadian dollar — the nation’s trade imbalance with the world has continued to rise, reaching $702 billion in the first 11 months of 2006, on track to easily outstrip the $717 billion of 2005 and set another record.

Officially, the United States government does not welcome the dollar’s weakness. “A strong dollar is clearly in our interest,” the Treasury secretary, Henry M. Paulson Jr., said last month.

But many economists say that the Bush administration is satisfied with the dollar’s fall against the euro and some other currencies, counting on the decline to help improve the competitiveness of American manufacturers in global markets.

For several reasons, however, that may not happen anytime soon — even if the dollar continues to weaken against European currencies. For one thing, the dollar has not fallen much against the currencies of some crucial trading partners, including China and Japan. Critically, the value of China’s yuan against the dollar has been carefully managed by Beijing so that it does not increase much more than 5 percent annually against the dollar. That is a reason China alone ran up a $214 billion surplus in its trade of goods with the United States from January to November last year.

Many foreign suppliers, moreover, are willing to absorb the impact of a declining dollar on their profit margins rather than pass it on to consumers as higher prices. That gives Americans less of an incentive to shift away from imports.

In the end, for the United States to begin to balance its trade, American consumers must spend less, while foreign consumers would have to buy a lot more.

“My U.S. colleagues tend to believe that exchange rates can carry out this adjustment painlessly which I, looking from the outside, find hard to believe,” said Thomas Mayer, chief European economist at Deutsche Bank in London. “You would need to have unrealistically large changes in exchange rates to overcome that gap.”

Free market economists argue that the deficit does not really matter — it is mostly a benign side effect of America’s faster economic growth and its appeal as a destination for foreign investment. Trade imbalances are nothing to worry about, these economists say, reflecting private transactions that just happen to occur across borders.

Still, with the deficit now in excess of 5 percent of the nation’s gross domestic product, many other economists worry that the foreign debt needed to finance the growing imbalance is accumulating at an unsustainable pace.

To some extent, a weaker dollar has bolstered American exports to strong-currency nations. America’s inflation-adjusted deficit in trading goods and services with the European Union declined by about 1 percent in the first three quarters of last year compared with the 2005 period, to about $84 billion.

And American producers are seeing some benefits. California wineries, for example, have shown double-digit sales growth in Canada every year since 2002, when the dollar started its fall against the Canadian dollar.

“There’s a real price threshold of 10 Canadian dollars a bottle,” said Joseph Rollo, director of the international department at the Wine Institute, the lobby group for California wineries. “A few years ago it was very difficult for California wineries to make that level. Now it’s a lot easier.”

The cheap dollar is also allowing some American companies to enter foreign markets for the first time. Phoenix Closures, a manufacturer of bottle caps in Naperville, Ill., exports very few of its caps to Europe. But a few months ago, it unexpectedly picked up a German client. “I assume these guys are getting a fairly large price reduction coming to us,” said Bert Miller, president of the company.

The opposite side of Ms. Heyman’s expensive breakfast in Paris is that America is now a bargain destination for Europeans.

“It was always too expensive for me to go to the States, but now it’s a good time,” said Sotirios Polytimis, 29, an architecture student in Berlin. “With the same money, I can do more in New York: buy drinks, see the night life, go shopping.”

Some American companies that compete with foreign suppliers domestically have also benefited. “We are gobbling up market share,” said Marty Staff, chief executive of JA Apparel, which makes Joseph Abboud suits and sports jackets at a plant in New Bedford, Mass. “Our products are as good as the European products, but for a lot less money.”

Still, the shifting currency has moved far too little to alter entrenched habits.

“The intractability of consumer behavior is the key to the mystery,” said Cliff Waldman, economist at the Manufacturers Alliance/MAPI, a research group for American producers. “About half of the United States’ deficit problem with Europe is the difference between the behavior of the European consumer, which is moribund, and the behavior of the American consumer, who never stops.”

These days, a lot of foreign things do look ridiculously expensive to American eyes: the $4.15 Big Mac in Paris; the $16.50 ticket to see a movie at the multiplex in Leicester Square in London; $5.89 for a heavily taxed gallon of gas in Frankfurt.

But Europe remains irresistible. American purchases of travel services from European Union countries totaled $17.7 billion in the first three quarters of last year, almost 1 percent more than in the period in 2005, after inflation, and about 20 percent more than in the period in 2003.

The number of German tourists visiting the United States this winter is down approximately 20 percent compared with last year, according to TUI, the largest European tour operator. Robin Zimmermann, a spokesman for TUI, said Germans were favoring destinations in Southeast Asia, where currencies had also fallen against the euro.

Martin N. Baily, former chief economic adviser to President Bill Clinton, remains optimistic that the decline in the dollar will ultimately turn the United States’ current-account deficit around. “I think we are poised for a gradual reduction,” Mr. Baily said. “We are at a point where exports are starting to grow faster than imports.”

Currency adjustments can take time to feed through into trade patterns. In fact, a slide in the dollar could initially worsen the nation’s trade balance, as the price in dollars of imports would increase immediately while it could take time for American consumers to switch to domestic products.

But new factors arising from the increased globalization of production seem to be making the trade adjustment particularly slow. For instance, by moving more production out of Europe, into dollar-pegged regions like China and elsewhere in Asia, European companies have created natural hedges against a strong euro.

“With globalization, we now have a large network of plants all over the world,” said Anton Börner, president of BFA, an association of German wholesalers and exporters based in Berlin. “So we are not as affected by changes in a single currency.”

Hugo Boss, one of Joseph Abboud’s main competitors, is based in the southern German town of Metzingen. But it also stitches garments at a factory in Cleveland and buys raw materials from Asia, where most of its transactions are in dollars or dollar-linked currencies.

Sales of Boss suits and accessories rose 14 percent in Europe in the third quarter of 2006, but 17 percent in the United States, in volume terms. The company said it had not felt much of an impact from the strong euro.

“If the dollar stays in a reasonable range, say between $1.10 and $1.50, it will not affect us that much,” said Bruno E. Sälzer, the chairman of Boss. “If it were to go to $1.60 or $1.70, that would mean there are bigger economic problems than just the exchange rate.”

With Asian production now a big part of the equation for manufacturers all over the world, even big increases in the yuan and other Asian currencies would probably do little to shift output without causing major economic disruptions.

The People’s Bank of China is holding about $1.01 trillion in reserves, the vast majority in dollars, which it has amassed as part of its strategy to keep the yuan from appreciating against the American currency to ensure Chinese products remain competitive in the United States market.

But even though Asian central banks are diversifying their holdings slightly, any big withdrawal from the Treasury market that slowed the flood of credit that has helped keep American interest rates low could harm the Chinese as well as Americans.

“With China,” said Mr. Waldman, the manufacturing economist, “the capacity for trade imbalances to adjust is minimal.”

Keith Bradsher contributed reporting from Hong Kong, and Martin Fackler from Tokyo.

    Trade Deficit Stubbornly Defies the Dollar’s Slide, NYT, 20.1.2007, http://www.nytimes.com/2007/01/20/business/20dollar.html?hp&ex=1169355600&en=b87ac1d693ef644c&ei=5094&partner=homepage

Retail Sales Rise

January 12, 2007
By THE ASSOCIATED PRESS
Filed at 10:18 a.m. ET
The New York Times

WASHINGTON (AP) -- Retail sales rose in December at the strongest pace in five months, indicating that the all-important holiday shopping season turned out better than original reports indicated.

The Commerce Department said Friday that retail sales increased 0.9 percent last month, the strongest showing since a 1.4 percent increase in July.

The increase was better than the 0.7 percent advance that economists had forecast and provided evidence that consumer spending was ending the year on a firmer footing than initially thought.

Initial reports from the nation's big chain retail stores had set a gloomier tone. They complained that holiday sales had fallen below expectations as mild winter weather depressed sales of winter clothing.

In other news, business inventories held on shelves and backlots rose by 0.4 percent in November, the biggest gain in three months. The gain reflected a 0.2 percent rise in stockpiles being held by manufacturers and a 1.3 percent rise in wholesale inventories, which was offset somewhat by a 0.3 percent drop in inventories being held by retailers.

With the November increase, inventory accumulation may not be as much of a drag on overall economic growth in the final three months of the year as had been previously feared.

For all of 2006, retail sales rose by 6 percent, a solid showing but down from a 6.9 percent increase in 2005.

That slowdown reflected the fact that consumer spending, after a sizzling start to the year, slowed in the spring and remained at lower levels for the rest of the year as Americans were battered by soaring gasoline prices, rising interest rates and a cooling housing market.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity. The 0.9 percent December advance bolstered the belief that the Federal Reserve is on track to achieve a soft landing for the economy in which growth slows enough to keep inflation under control without pushing the country into a recession.

''It appears that households had a merry holiday spending money, despite what the retailers may have been claiming,'' said Joel Naroff, chief economist at Naroff Economic Advisors.

He said the strength in consumer spending in the final three months of the year may be enough to push overall growth up to an annual rate of 3 percent or better, significantly higher than the sluggish 2 percent growth rate turned in during the July-September quarter.

And in a good sign for prospects in the new year, a survey showed that consumer confidence shot up sharply in January as consumer worries about soaring energy prices and a slumping housing market appeared to be easing.

The RBC Cash Index, based on results of the international polling firm Ipsos, showed consumer confidence rising to 95.3 in early January, the best showing in 11 months and up sharply from a December reading of 86.9

The December gains in retail sales included a 3 percent jump in sales at electronics and appliance stores, which followed an even bigger 5.8 percent surge in November. Those increases reflected the introduction of sought-after video game consoles such as Sony's Playstation 3 and Nintendo's Wii.

Sales were up 3.8 percent at gasoline stations, reflecting in part higher pump prices during the month. Those gains still left pump prices below the $3-plus records set last summer.

Auto sales rose by 0.3 percent after having been flat in November.

Excluding the volatile gasoline and auto sectors, retail sales would have risen by 0.7 percent in December, the best showing since January 2006.

The 0.9 percent overall gain pushed retail sales to a seasonally adjusted total of $369.9 billion in December after a 0.6 percent November increase, which had originally been reported as a stronger 1 percent gain.

Sales at department stores and other general merchandise stores rose by 0.9 percent while sales at specialty clothing stores were up 0.6 percent. However, sales at hardware stores fell by 1.1 percent, reflecting the continued troubles in the once-booming housing industry.

    Retail Sales Rise, NYT, 12.1.2007, http://www.nytimes.com/aponline/business/AP-Economy.html

Ford restructuring is ahead of schedule

Updated 1/12/2007 12:18 PM ET
AP
USA Today

NEW YORK (AP) — Ford's (F) plan to return to profitability by slashing thousands of jobs and closing plants is ahead of schedule, Chief Executive Alan Mulally said Friday.

Faced with increasing competition from overseas rivals such as Toyota (TM), Mulally said Ford's restructuring plan, which includes a 29% reduction of its North American workforce by 2008, was "absolutely the right thing to do."

Mulally said during a meeting with analysts in Dearborn, Mich., that the company is focused on accelerating product development, while bringing its offerings in line with changing consumer demand and promoting profitable growth.

Ford has seen its market share deteriorate in recent years, as high fuel prices have driven consumers away from its popular sport-utility vehicles and light trucks.

At the same time, Toyota has seen its U.S. sales rise, beating Ford for the No. 2 sales spot in July and November.

Ford, which lost $7.2 billion in the first nine months of 2006, took several drastic steps during the year to refashion itself into a smaller, more competitive company.

In September it announced a more aggressive restructuring that would bring its number of white-collar positions down by 14,000, in addition to the 38,000 hourly employees that accepted buyouts and early retirement packages.

Ford also has mortgaged its assets to borrow up to $23.4 billion to pay for the restructuring plan and cover billions in losses expected until 2009. The company expects to burn $17 billion in cash the next two years.

    Ford restructuring is ahead of schedule, UT, 12.1.2007, http://www.usatoday.com/money/autos/2007-01-12-ford-restructuring_x.htm

Boeing bounces back against odds

Updated 1/11/2007 8:52 AM ET
USA Today
By Marilyn Adams

CHICAGO — After years of ethics scandals and competitive setbacks, aerospace giant Boeing is on a winning streak. Neither its rivals nor its past sins seem to be slowing it down.

Last week, Boeing (BA) announced it booked a record number of commercial airplane orders in 2006, almost certainly surpassing the annual airplane sales of France-based Airbus. In a blow to the USA's national pride, Boeing in 2001 lost its lead in annual sales of commercial aircraft to its European rival.

For five years, as Boeing grappled with the post-9/11 industry downturn and its own disgraces, it looked doubtful it would retake the lead. But last year, the fortunes of the companies reversed.

Behind Boeing's 2006 sales surge: its innovative 787 Dreamliner, the continuing popularity of its workhorse 737, and production and management blunders by Airbus. The good news for Boeing, whose stock price soared 26% in 2006, doesn't stop with its commercial airplane division. This month, years after being caught cheating to win an Air Force contract, Boeing will get another shot at that $20-billion-plus program for aerial refueling tanker jets.

Despite its past misconduct, Boeing seems poised to get the job because it is a U.S. company and has taken steps to reform. Its competitor for the contract, a group led by Northrop Grumman, is proposing an aerial fueling fleet based on an Airbus plane.

"We have had a good year," said Boeing CEO Jim McNerney, who took over 18 months ago, in a recent interview at Boeing headquarters here. McNerney joined Boeing from 3M to quell a leadership upheaval that makes the recent successes even more remarkable.

His predecessor, Harry Stonecipher, was forced out amid revelations of an extramarital affair with a senior Boeing executive. His lapse might have been overlooked but for his charge to restore corporate integrity after his predecessor, Phil Condit, quit in 2003 amid a Justice Department investigation into Boeing's unethical tactics to win the Air Force contract.

Others are more exuberant than McNerney about Boeing's prospects. "Boeing is back on the top of the mountain," says author John Newhouse, whose new book, Boeing VersusAirbus, goes on sale next week.

With an estimated $60 billion in revenue last year, Boeing is the world's biggest aerospace company and the USA's largest exporter. It seems on track to eclipse Airbus in sales when the European company reports its 2006 orders next week.

Despite its winning streak, Boeing could be just one mistake — another ethical lapse on a government contract or a major production glitch — away from a setback.

"Boeing couldn't do anything wrong last year," says aerospace analyst Scott Hamilton of the Leeham Co. in Washington state, near where the bulk of Boeing's workforce is located. "But this year will be critical for them."

Design, construction changes

Among other challenges, Boeing is undergoing fundamental changes in how it designs and builds airplanes. Boeing at one time did almost all its design and manufacturing with its own workforce in the USA. Now, it's outsourcing more to cut costs, speed production and build relationships abroad that can translate into airplane orders.

Resulting cutbacks affecting its U.S. workforce are sowing tensions with Boeing's unions. And the new processes heighten the pressure to meet the delivery schedule for the Dreamliner.

Meanwhile, U.S. defense spending on new military aircraft, hardware and services, the source of at least half of Boeing's annual revenue, is expected to fall as the costly Iraq war drags on. The more the Pentagon spends on troops in Iraq, the less it may have to spend on new weapons, aircraft and other products Boeing provides.

And nobody believes Airbus, a sophisticated and creative company that still builds more airplanes every year than Boeing, will be down for long.

All eyes now are on Boeing's new 787 Dreamliner. The Dreamliner is billed as lighter, faster and more fuel-efficient than its predecessors in large part because its fuselage will be built entirely of man-made composite material, not the traditional aluminum.

The wide-body jet, designed for about 250 passengers and set for commercial introduction in 2008, has garnered 471 orders to date, more than any other brand-new jet ever developed. Airbus is years away from having a competitive plane.

The first 787 is scheduled to roll out in July at Boeing's Everett, Wash., plant, where final assembly will be done. Boeing is outsourcing a record 70% of work on the Dreamliner, much of it to firms abroad. That means all of those highly complex parts must come together correctly and on time in Boeing's Everett plant for the company to deliver on time.

Its dozens of partners on the project include Alenia Aeronautica of Italy; Fuji, Kawasaki and Mitsubishi of Japan; Dassault Systemes of France; Saab Aerostructures of Sweden; and Rolls-Royce of Britain. New software by Dassault allows the far-flung work sites to be "virtually" linked so everyone works out of the same database in real time with one set of drawings.

With a new airplane being built in so many places, not everything is going smoothly. Boeing has had to budget about $300 million more than planned on 787 research and development. It has dispatched a large number of additional Boeing engineers to Italy, where Alenia has struggled with the center fuselage.

McNerney says he does not lose sleep over whether the Dreamliner will be the innovative jetliner Boeing has promised. He worries about making the deadlines. "It's going to be a fantastic airplane," he says. "We are meeting all our benchmarks. I worry about schedule and timing, getting it done when we promised to do it."

Missed deadlines can mean big losses and ruined careers. Airbus, for example, is running 22 months behind on production of its new A380 superjumbo jet, the company's flagship product. The delays have wrought senior management shake-ups at Airbus, canceled orders and untold millions of dollars in delay compensation to customers.

With so much at stake with the 787 and other high-profile projects, Boeing can ill afford any work disruptions such as the painful, month-long strike in summer 2005 by the International Association of Machinists. Nearly 19,000 workers at Boeing Commercial Airplanes struck over pensions, health insurance and job security, idling factories and costing an estimated $70 million a day in lost revenue.

The IAM is Boeing's largest labor union, representing tens of thousands of workers who do assembly and other jobs on passenger jets and defense and space projects. The IAM contract covering the workers who struck will expire in summer 2008, not long after Boeing is to deliver the first 787.

Last month, McNerney met for the first time since becoming CEO with leaders of the IAM, including the union's international president, Thomas Buffenbarger. Boeing spokesman Thomas Downey said the meeting was a routine annual get-together between the Boeing CEO and union chiefs, a practice begun by McNerney's predecessor.

Buffenbarger sees it differently. "I think they are looking down the road and don't want another strike," he says.

Management's relationship with its other large union, the Society of Professional Engineering Employees in Aerospace, is also strained. SPEEA has labor contracts expiring in 2008. McNerney met with that union's leaders for the first time in October. Although leaders of both unions were encouraged by the meetings, members are nervous.

"Our success is based on a business plan that depends on more outsourcing than we've ever seen before," says SPEEA chief Charles Bofferding, who represents about 22,000 Boeing engineers. "Airplane orders are up. Our standing in the world is up. But what's coming in the future?"

Some of Boeing's biggest successes last year came in federal defense and security contracts. In September, Boeing beat out a who's who of the U.S. defense industry — including Lockheed Martin, Northrop Grumman and Raytheon — to land a border-protection contract.

To cut illegal immigration, the Department of Homeland Security is building "virtual," or electronic, fences along the borders with Mexico and Canada.

Boeing will use sensor-equipped towers along 28 miles of heavily traveled Arizona-Mexico border near Tucson. The contract is valued at a modest $67 million. But McNerney calls it a "big win" because it shows Boeing is a contender for future Homeland Security work, an area he considers a prime opportunity for his company.

NASA disappointment

Perhaps the biggest disappointment for Boeing last year was the loss of a NASA contract to Lockheed Martin in August. Lockheed, the world's biggest defense contractor, landed the contract to build the nation's next manned spaceship, which will replace the space shuttle. For Boeing, which built the shuttle, it was a stinging defeat.

Now, Boeing is poised to bid on an Air Force request for proposals for 179 aerial fueling tankers. It's the same contract that Boeing knocked off track a few years ago.

Boeing's former CFO, Michael Sears, in 2002 recruited an Air Force procurement officer, Darleen Druyun, for a high-paying Boeing job while she was overseeing Pentagon contracts on which Boeing was bidding. Druyun pleaded guilty to conspiracy and Sears pleaded guilty to aiding and abetting illegal employment negotiations. Both served prison sentences. The Air Force suspended competition for the tanker and is about to restart the process.

McNerney, an affable and soft-spoken businessman who took the top job 18 months ago, had no role in the scandal and has positioned the company to compete again.

In August, McNerney appeared before the Senate Armed Services Committee to apologize for the procurement scandal and for an earlier lapse by Boeing: In the late 1990s, two Boeing employees obtained secret documents from defense rival Lockheed Martin, using some of them to help win another Pentagon contract. The Air Force later stripped Boeing of $1 billion worth of rocket-launch business.

McNerney told the Senate committee Boeing would not take a $200 million tax deduction for money it spent to settle the criminal ethics probes. Boeing paid a record $615 million penalty and instituted a companywide ethics program required by the settlement.

'Boeing's contract to lose'

Not everyone in Boeing's senior management saw merit in giving up a tax deduction to which the company was legally entitled, McNerney says. Some on his management team and on the board thought the company had a duty to shareholders to save $200 million.

"I thought it was the right thing to do," he says. He says that today, Boeing's reputation as a defense contractor "by and large is good, a good recovery from difficult days."

Hamilton agrees. "When you write a check for $600 million and don't take the tax deduction, people take notice," Hamilton says. "This is Boeing's contract to lose."

Boeing's biggest challenges now, he says, are keeping the Dreamliner on track — and avoiding overconfidence. "Boeing," he says, "has been there before."

Contributing: Thomas Ankner

    Boeing bounces back against odds, UT, 11.1.2007, http://www.usatoday.com/travel/flights/2007-01-10-boeing-usat_x.htm

House, by a Wide Margin, Backs Minimum-Wage Rise

January 11, 2007
The New York Times
By CARL HULSE

WASHINGTON, Jan. 10 — The House overwhelmingly approved a $2.10-an-hour increase in the federal minimum wage on Wednesday, in a vote that Democrats hailed as overdue and a symbol of new leadership on Capitol Hill.

The Democrats, who campaigned against Republicans last year for repeatedly allowing Congressional pay raises when they were in the majority and yet refusing for almost a decade to raise the wage floor from $5.15, said the new, three-step increase for hard-pressed employees would be in sharp contrast to Republican tax cuts approved for the affluent.

“This is the day for the people who empty the bedpans, change the bed linens, sweep the floors and do the hardest work of America,” Representative Robert E. Andrews, Democrat of New Jersey, said before the 315-to-116 vote.

Several Republicans spoke against the legislation, a centerpiece of the House Democrats’ 100-hour domestic legislative agenda, on the ground that it would reduce the number of available jobs and so deny opportunities to those trying to enter the work force. But 82 Republicans joined all 233 Democrats in supporting the bill, unwilling to cast a vote that could have made them appear unsympathetic to Americans trying to get by on a minimum wage that has not been raised since September 1997.

“Let’s not trample on the market, but recognize that nine years is long enough,” said Representative Zach Wamp, Republican of Tennessee.

The measure would increase the minimum wage to $5.85 an hour 60 days after being signed into law, to $6.55 one year after that, and to $7.25 after an additional year. For a minimum-wage employee working full time, $7.25 would mean about $4,000 a year more than the current floor.

But the House vote is far from the final word. The legislation now goes to the Senate, where members of both parties have indicated that they intend to tie it to tax breaks for small businesses, to help offset any new costs arising from the wage increase. Linking the two is seen by many as a prerequisite to rounding up the 60 votes needed to overcome any filibuster and open the door to negotiations between the House and the Senate over a final bill. President Bush has indicated that he would sign a bill providing for a wage increase with related tax breaks.

“The 110th Congress is going to do the right thing and finally deliver a minimum-wage increase,” the chairman of the Senate Finance Committee, Max Baucus, Democrat of Montana, said Wednesday. “And at the same time, we should help keep jobs available to America’s workers by helping small businesses absorb this wage hike.”

In recent years, Republicans repeatedly rebuffed Democratic proposals to raise the minimum, arguing that it could slow the economy. Under pressure from Republicans in swing districts, the leadership last year did allow a vote on an increase, but tied it to a repeal of the estate tax. Democrats, backed by organized labor and other interests, blocked that proposal in the Senate.

During the fall campaign, Democrats made inaction on the minimum wage a mainstay of their arguments against Republican control. Breaking an informal agreement with Republicans not to trade partisan charges over Congressional pay, they contrasted the stalled minimum-wage rate and lawmakers’ regular cost-of-living increases. Trying to insulate themselves, the Republicans agreed late last year that Congress would get no more pay raises until a minimum-wage increase was approved.

On Wednesday, Republicans criticized Democrats for blocking any efforts to change the House measure by including small-business tax breaks.

“It is troubling that this bill gives no thought to softening the impact on our engines of new job growth,” said Representative Wally Herger, Republican of California.

But Democrats were determined to raise the wage floor with no strings attached.

“Can’t you just give these workers an increase and be done with it?” Representative George Miller, Democrat of California and the new chairman of the Education and Labor Committee, asked his colleagues.

Despite their longstanding opposition, two mainstays of the Washington business lobby — the United States Chamber of Commerce and the National Federation of Independent Business — made only a perfunctory effort to influence the House vote, sending members letters of opposition but otherwise conceding the issue.

“It was a foregone conclusion,” said Michael J. Donohue, a spokesman for the federation, which represents small businesses. “Our lobbyists assessed that this wasn’t the best way to spend their energy.”

The vote was celebrated by organized labor, which is seeing its influence in Congress enhanced with the return of a Democratic majority. But John J. Sweeney, president of the A.F.L.-C.I.O., joined with Senator Edward M. Kennedy, Democrat of Massachusetts and a longtime advocate of the wage increase, in urging the Senate to pass the measure without offsetting benefits for businesses.

“Business has enjoyed hundreds of billions of dollars in tax cuts since Bush took office,” Mr. Sweeney said in a statement, “while health care, secure retirements and the minimum wage have all been on government’s back burner.”

On the House floor, meanwhile, Speaker Nancy Pelosi beamed after the final vote as she brought down her gavel and Democrats cheered the lopsided margin.

    House, by a Wide Margin, Backs Minimum-Wage Rise, NYT, 11.1.2007, http://www.nytimes.com/2007/01/11/washington/11wage.html

Big Three Look Back

to Past Glories and Dream of Muscle

January 10, 2007
The New York Times
By MICHELINE MAYNARD

DETROIT, Jan. 9 — One of the Ford Motor Company’s showcase concept cars is the imposing Interceptor sedan, with its big wheels and a burly front end that suggests an armor-plated battering ram.

Lest anybody miss the point, it becomes clear as the car rotates on its turntable for a rear view. There, in brushed aluminum block letters, the license plate reads: MUSCLE, with the “U” and the “S” in red and blue.

It is a license plate that could easily appear on other cars here, most from Detroit but some from its foreign competitors. As Detroit automakers try to find a winning game plan to reverse their sliding market share, it is clear from the cars on display at the North American International Auto Show here that they are trying to play up a distinct advantage over their Asian and European competitors — nobody, after all, can design the look of the American muscle car quite like American car companies.

“It’s absolutely legitimate for American producers to reach back into their rich heritage,” said Robert A. Lutz, the vice chairman of General Motors. The appeal of Detroit’s classic cars also goes well beyond American shores, he added.

“Even middle-aged Chinese remember seeing secret photographs of Buick Rivieras and Camaros and Mustangs, and they thought, ‘Whoa, communism is good, but this looks even better,’ ” he said.

But demographics and car buyers’ changing tastes may work against Detroit’s efforts, say Japanese executives. These cars resonate best with buyers who can remember them — an aging group — and they cannot be Detroit’s only response, these executives say, if it hopes to end a market share decline under way for a decade.

And, of course, these cars have never been about fuel economy, which has become an overriding issue since gasoline prices spiked last year.

“Heritage is one play — but it’s not the only play,” said James Lentz, executive vice president of Toyota Motor Sales U.S.A. He added, “Eventually, you run out of things in your closet.”

Mr. Lutz, perhaps more than any other executive in Detroit, has pushed strategy and design in the direction of muscle cars. The sculpted sides and hood stripes on a bright orange Camaro convertible concept car instantly bring to mind the Camaros of the past.

A short walk away is the latest incarnation of the Dodge Viper, which almost single-handedly revived interest in Chrysler a decade and a half ago, thanks to a design championed by Mr. Lutz, who was then the No. 2 executive there. This Viper, with a V-10 engine that generates 600 horsepower, looks even more like another Detroit classic, the Chevrolet Corvette.

There is a good chance that some of these cars will be on American roads in a few years. G.M. has already announced plans to build the Camaro hardtop, while Chrysler plans to build the Dodge Challenger, which it showed as a concept car last year.

Chrysler already has a track record with at least one of its muscle cars, the Chrysler 300 sedan, a hit with urban buyers from the moment it hit the market three years go. Though its initial buzz has faded somewhat, the 300C still managed flat sales in 2006 despite a jump in gasoline prices that sent sales of Chrysler’s sport utility vehicles plummeting.

Ford’s Mustang, meanwhile, has been a rare bright note for the company, which is facing one of the deepest financial crises in its history. Mustang, reincarnated in 2004, rose to 166,530 sales last year, up 3.5 percent.

The Mustang provides the underpinnings for the Interceptor, whose gutsy, low-riding stance immediately says gangster — a look reinforced inside with its brushed aluminum and black interior.

“That can only be an American sedan,” said Mark Fields, the president of Ford’s operations for the Americas. “It’s got a rawness to it that is really what we’re known for.”

Just to underline the point, a fleet of Mustangs, in red, white and black, is parked nearby. Ford plans to turn out a new Mustang every year in the hope of building on the current car’s momentum, Mr. Fields said.

The strategy has its risks, of course. By 2010, when the concept cars on display here may be on sale, more than 50 percent of the American public will be under age 40, far too young to remember when the inspirations for these cars cruised on American roads.

Mr. Fields acknowledged that. “If you take 10 youngsters and show them that Interceptor, they won’t give a hoot about the history,” he said.

To these younger buyers, classic cars might well be something like the Acura Integra, Honda’s original entry-level luxury car from the 1980s, and even Honda Civic coupes, which have become the favorite cars for the customizing crowd.

Young buyers, in fact, have shown an appetite for decking out their cars with custom features like wheel covers, exhaust pipes and contemporary upholstery. Muscle cars, whose exteriors are already a statement, may not give them the chance for self-expression found on vehicles like the Mini Cooper and Toyota’s Scion brand cars.

Likewise, Detroit’s muscle car strategy may face a threat from Asian companies. The Lexus division of Toyota caused a stir here with its LF-A, a high-performance concept sports car that is every bit as striking as its muscular Detroit rivals.

And Nissan is almost finished with the next version of its muscle car, the 350Z, which went on sale in 2002. That car echoed, but did not directly copy, the first 240Z, introduced in 1970 in the American market.

“It’s very nice to have the heritage of the Z, but we don’t want to use the heritage as it was,” said Shiro Nakamura, senior vice president for design at Nissan. “We would rather be looking to the future.”

Detroit companies, he said, would be smart to follow a similar path. “It’s O.K. to use American muscle, as long as the idea is original and creative,” Mr. Nakamura said.

Since they sell in relatively small numbers, muscle cars have always been seen as much as selling tools as products in themselves, drawing buyers to showrooms in hopes they will purchase something, whether or not it is the car they came to see.

“These are tremendous traffic builders,” said Michael J. Jackson, chief executive of AutoNation, the nation’s largest automobile dealer network.

But a well-crafted muscle car may put a weak lineup in an even dimmer light, canceling out some of its effectiveness. So companies have to pay attention to all their vehicles, not just the hottest looking ones.

“I want to learn a lot from the spirit of our previous models, but I don’t want to use the direct shapes or their design cues,” Mr. Nakamura said.

American car executives say they are updating, not copying, their original cars as they are also revamping their lineups, hoping all their cars will complement each other.

“I don’t believe in slavish retro cars,” Mr. Lutz said. The concept works best when “we carefully go back to a heritage and remind Americans of the glory days of the American automobile industry.”

Nick Bunkley contributed reporting.

    Big Three Look Back to Past Glories and Dream of Muscle, NYT, 10.1.2007, http://www.nytimes.com/2007/01/10/automobiles/autoshow/10auto.html

Job Market Ends 2006 on Strong Note

January 5, 2007
The New York Times
By JEREMY W. PETERS

Businesses added workers to their payrolls at a healthy clip last month, and their average pay rose faster than inflation — further evidence of strength in the job market despite a slowdown in the economy.

The Labor Department reported this morning that businesses added 167,000 jobs outside the farming sector in December, seasonally adjusted — more than enough to absorb natural growth in the work force. The figures for October and November were revised upward as well. The strong numbers surprised Wall Street, which had been expecting a gain of only 100,000 jobs in December.

The national unemployment rate remained unchanged at 4.5 percent. Those who were unemployed in December were out of work for a shorter period of time, on average, than in November. And the percentage of the total American population holding jobs rose to 63.4 percent, the highest level in more than five years.

Average wages have been outpacing inflation by enough of a margin in recent months that workers are seeing some of the biggest real gains in their paychecks in four years. Much of the credit goes to the fall in energy prices since the summer, which has brought overall inflation down and allowed the average worker’s pay to go farther.

Tightness in the job market has been driving wages upward, economists say. With unemployment so low — the 4.4 percent reading in October was the lowest in five years — employers have found themselves having to bid up pay a bit to fill vacancies.

Compared with the same month a year earlier, average hourly wages were up 4.2 percent in December, the government reported today. The figure for November was revised up slightly to the same rate in today’s report; they are the highest readings since February 2001. The average number of hours worked was unchanged in December.

Today’s labor market report apparently disappointed many investors, who had been hoping that the slowdown in economic growth would prompt the Federal Reserve to start cutting interest rates. On Wall Street, stocks fell in morning trading as bond prices dropped sharply, both indications that many investors no longer believe that interest rates will be cut any time soon.

Earlier this week, newly released minutes from the Fed’s December policy meeting indicated that a majority of central bankers believe inflation remains too high, even though it has moderated recently, and that price worries overshadow any concerns about a slowing economy. Rising wages and a strong labor market are likely to be seen as adding to the inflationary pressures.

Even so, not all areas of the job market were robust last month. With the housing market in a slump, builders barely added any jobs in December, after cutting jobs in October and November. Downsizing in the American auto industry helped contribute to an overall decline in manufacturing jobs last month. For the year, manufacturers shed a net 72,000 jobs.

But the services sector of the economy showed considerable strength. Professional and business services added a net 50,000 jobs last month; health care providers added 31,000 new jobs, and so did hospitality businesses like restaurants and bars.

“These data purport to show very little cross-infection from the manufacturing slowdown and construction crunch into the rest of the economy,” said Ian Shepherdson, chief United States economist with High Frequency Economics, in a research report today. “This does not mean it will not happen in the future, but it does mean that the pressure we expected to see on the Fed to ease in the first quarter has not yet materialized.”

Job Market Ends 2006 on Strong Note, NYT, 5.1.2007,
http://www.nytimes.com/2007/01/05/business/05cnd-jobs.html