History > 2008 > USA > Economy (XIb)

Joe Heller

cartoon

Wisconsin -- The Green Bay Press-Gazette

Cagle

14.11.2008

Big Sky Journal

Economy Crashes the Gates

at a Montana Club for the Rich

November 30, 2008
The New York Times
By KIRK JOHNSON

BIG SKY, Mont. — Every town has its walls and gates — some visible, some not — for keeping things out or in.

Here some of the gates are world famous. The Yellowstone Club, a cloistered and cosseted mountain retreat for the super-rich, helped define a style and an era with its creation in 1999.

The club had 340 members with a private ski mountain only a schuss away from $20 million vacation homes. It was the corner office and the executive suite of gated communities all in one — an exemplar of exclusivity.

But the sense of refuge was an illusion. The global financial crises have stormed even these gilded confines: This month, the Yellowstone Club filed for bankruptcy protection.

“The economy caught up with them,” said L. C. Sammons, a retired physician from Memphis who lives in Big Sky just down the road from the club.

Other corners of the resort-economy West are taking punches. The Tamarack Resort in Idaho, which opened in 2004 north of Boise, is operating in receivership after the owners defaulted on a $250 million loan. Home construction has halted but the ski area is scheduled to open on Dec. 12. In Utah, the Promontory Club, a 7,224-acre ski and golf development near Park City, declared bankruptcy in March when the company defaulted on a $275 million loan.

Here in Big Sky, the Yellowstone Club’s troubles have been complicated by domestic entanglement. Tim Blixseth, the club’s founder, and his wife, Edra, divorced this year, putting the club in her control. Ms. Blixseth then filed for Chapter 11 bankruptcy protection, citing the club’s inability to restructure $399 million in debt.

“The freeze on the credit market put them in a bad place,” said Bill Keegan, a spokesman for the club. “They need to restructure their debt, and they realized it wouldn’t happen for the opening.”

To open for the season, Ms. Blixseth asked for an expedited hearing to raise cash, and Judge Ralph B. Kirscher of United States Bankruptcy Court signed an order in mid-November allowing Credit Suisse to lend the club $4.5 million to pay its debtors.

Montana has a history as a sometimes brutal exurb of capitalism, with tensions between rich and poor and labor and capital a theme since the 1800s. Over the last decade, people with Yellowstone Club-size wallets bought vast swaths of land, spurring the leisure economy at the same time that wage stagnation — Montana sank to 39th in the nation in median family income, according to the most recent Census figures — took hold of much of the rest of the state’s population.

Some residents, in interviews here and in Bozeman, an hour north of Big Sky, said they were not particularly upset about the club’s plight, given its excesses and presumptions.

But most people also know someone whose fortunes are tied to the financial engines that made this corner of Montana’s economy go in recent years — wealth, vacation housing and tourism.

“It’s kind of like a double-edged sword for a lot of people around here,” said Greg Thomas, a 31-year-old construction worker from Bozeman. “It’s pretty grotesque and ridiculous, but at the same time, a lot of people depend on going up there for jobs.”

Bill Hopkins was more to the point.

“I can kind of gloat on one hand, but I’m not really happy about it,” said Mr. Hopkins, 51, who works at Yellowstone National Park, just south of here, coordinating volunteer trail maintenance crews. Mr. Hopkins said he disliked the club’s environmental footprint — 13,500 acres of formerly pristine open-space backcountry, now sealed off and built on.

“The damage has been done, as far as development there,” he said, “so as long as it’s developed, I’d just as soon see it operational.”

The reaction to the club’s problems in Big Sky, population 2,500, has been filtered through an economic slowdown that was already well under way.

Mark Robin, owner of the Hungry Moose Deli, said the river of headlights that used to greet him at 6 a.m. each day when he opened the shop — cars and trucks full of construction and maintenance-crew commuters driving down from Bozeman, eager for coffee and breakfast — had already slowed to a trickle as housing construction slumped outside the club.

And the credit crisis had already struck home as well, at a Big Sky ski resort open to the public called Moonlight Basin, which received its financing from Lehman Brothers before it collapsed. Moonlight laid off much of its workforce this fall, then renegotiated its debt, rehired its workers and is planning to open for the season in December.

Residents of Big Sky say everybody knows how hard the day-to-day struggle can be in rural Montana. Scrambling and getting by is just part of the landscape in a seasonal economy, said Marne Hayes, the executive director of the Big Sky Chamber of Commerce.

“People work really hard to stay here, and it’s not always an easy thing to do,” said Ms. Hayes, who came here from Pennsylvania in the early 1990s and took odd jobs for years to make ends meet. As for economic cycles, she added, “people who live and work here never thought they were immune.”

Some of the Yellowstone Club’s members, who paid $18,000 in annual dues for years, on top of their $250,000 deposit to join, are not quite so understanding. About 120 of them filed a brief in bankruptcy court asking what became of all the fat checks.

“That money seems to be gone,” the brief states, “and members want to know why.”

Jim Robbins contributed reporting from Helena, Mont.

Economy Crashes the Gates at a Montana Club for the Rich, NYT, 30.11.2008, http://www.nytimes.com/2008/11/30/us/30gated.html

Bush Aides Rush to Enact

a Safety Rule Obama Opposes

November 30, 2008
The New York Times
By ROBERT PEAR

WASHINGTON — The Labor Department is racing to complete a new rule, strenuously opposed by President-elect Barack Obama, that would make it much harder for the government to regulate toxic substances and hazardous chemicals to which workers are exposed on the job.

The rule, which has strong support from business groups, says that in assessing the risk from a particular substance, federal agencies should gather and analyze “industry-by-industry evidence” of employees’ exposure to it during their working lives. The proposal would, in many cases, add a step to the lengthy process of developing standards to protect workers’ health.

Public health officials and labor unions said the rule would delay needed protections for workers, resulting in additional deaths and illnesses.

With the economy tumbling and American troops fighting in Iraq and Afghanistan, President Bush has promised to cooperate with Mr. Obama to make the transition “as smooth as possible.” But that has not stopped his administration from trying, in its final days, to cement in place a diverse array of new regulations.

The Labor Department proposal is one of about 20 highly contentious rules the Bush administration is planning to issue in its final weeks. The rules deal with issues as diverse as abortion, auto safety and the environment.

One rule would make it easier to build power plants near national parks and wilderness areas. Another would reduce the role of federal wildlife scientists in deciding whether dams, highways and other projects pose a threat to endangered species.

Mr. Obama and his advisers have already signaled their wariness of last-minute efforts by the Bush administration to embed its policies into the Code of Federal Regulations, a collection of rules having the force of law. The advisers have also said that Mr. Obama plans to look at a number of executive orders issued by Mr. Bush.

A new president can unilaterally reverse executive orders issued by his predecessors, as Mr. Bush and President Bill Clinton did in selected cases. But it is much more difficult for a new president to revoke or alter final regulations put in place by a predecessor. A new administration must solicit public comment and supply “a reasoned analysis” for such changes, as if it were issuing a new rule, the Supreme Court has said.

As a senator and a presidential candidate, Mr. Obama sharply criticized the regulation of workplace hazards by the Bush administration.

In September, Mr. Obama and four other senators introduced a bill that would prohibit the Labor Department from issuing the rule it is now rushing to complete. He also signed a letter urging the department to scrap the proposal, saying it would “create serious obstacles to protecting workers from health hazards on the job.”

Administration officials said such concerns were based on a misunderstanding of the proposal.

“This proposal does not affect the substance or methodology of risk assessments, and it does not weaken any health standard,” said Leon R. Sequeira, the assistant secretary of labor for policy. The proposal, Mr. Sequeira said, would allow the department to “cast a wide net for the best available data before proposing a health standard.”

The Labor Department regulates occupational health hazards posed by a wide variety of substances like asbestos, benzene, cotton dust, formaldehyde, lead, vinyl chloride and blood-borne pathogens, including the virus that causes AIDS.

The department is constantly considering whether to take steps to protect workers against hazardous substances. Currently, it is assessing substances like silica, beryllium and diacetyl, a chemical that adds the buttery flavor to some types of microwave popcorn.

The proposal applies to two agencies in the Labor Department, the Occupational Safety and Health Administration and the Mine Safety and Health Administration.

Under the proposal, they would have to publish “advance notice of proposed rule-making,” soliciting public comment on studies, scientific information and data to be used in drafting a new rule. In some cases, OSHA has done that, but it is not required to do so.

The Bush administration and business groups said the rule would codify “best practices,” ensuring that health standards were based on the best available data and scientific information.

Randel K. Johnson, a vice president of the United States Chamber of Commerce, said his group “unequivocally supports” the proposal because it would give the public a better opportunity to comment on the science and data used by the government.

After a regulation is drafted and formally proposed, Mr. Johnson said, it is “all but impossible” to get OSHA to make significant changes.

“Risk assessment drives the entire process of regulation,” he said, and “courts almost always defer” to the agency’s assessments.

But critics say the additional step does nothing to protect workers.

“This rule is being pushed through by an administration that, for the last seven and a half years, has failed to set any new OSHA health rules to protect workers, except for one issued pursuant to a court order,” said Margaret M. Seminario, director of occupational safety and health for the A.F.L.-C.I.O.

Now, Ms. Seminario said, “the administration is rushing to lock in place requirements that would make it more difficult for the next administration to protect workers.”

She said the proposal could add two years to a rule-making process that often took eight years or more.

Representative George Miller, a California Democrat who is chairman of the House Committee on Education and Labor, said the proposal would “weaken future workplace safety regulations and slow their adoption.”

The proposal says that risk assessments should include industry-by-industry data on exposure to workplace substances. Administration officials acknowledged that such data did not always exist.

In their letter, Mr. Obama and other lawmakers said the Labor Department, instead of tinkering with risk-assessment procedures, should issue standards to protect workers against known hazards like silica and beryllium. The government has been working on a silica standard since 1997 and has listed it as a priority since 2002.

The timing of the proposal appears to violate a memorandum issued in early May by Joshua B. Bolten, the White House chief of staff.

“Except in extraordinary circumstances,” Mr. Bolten wrote, “regulations to be finalized in this administration should be proposed no later than June 1, 2008, and final regulations should be issued no later than Nov. 1, 2008.”

The Labor Department has not cited any extraordinary circumstances for its proposal, which was published in the Federal Register on Aug. 29. Administration officials confirmed last week that the proposal was still on their regulatory agenda.

The Labor Department said the proposal affected “only internal agency procedures” for developing health standards. It cited one source of authority for the proposal: a general “housekeeping statute” that allows the head of a department to prescribe rules for the performance of its business.

The statute is derived from a law passed in 1789 to help George Washington get the government up and running.

The Labor Department rule is among many that federal agencies are poised to issue before Mr. Bush turns over the White House to Mr. Obama.

One rule would allow coal companies to dump rock and dirt from mountaintop mining operations into nearby streams and valleys. Another, issued last week by the Health and Human Services Department, gives states sweeping authority to charge higher co-payments for doctor’s visits, hospital care and prescription drugs provided to low-income people under Medicaid. The department is working on another rule to protect health care workers who refuse to perform abortions or other procedures on religious or moral grounds.

    Bush Aides Rush to Enact a Safety Rule Obama Opposes, NYT, 30.11.2008, http://www.nytimes.com/2008/11/30/washington/30labor.html

Mourning a Good Friend,

and Trying to Make Sense of a Stampede

November 30, 2008
The New York Times
By KEN BELSON
and KAREN ZRAICK

Jdimytai Damour was a big man — 270 pounds, by one account — but he was a gentle giant to his friends, who said he loved to chat about movies, Japanese anime and politics. So on Saturday, they were still reeling from the violent and seemingly inexplicable way that Mr. Damour had died — trampled before sunrise on Friday, the police said, by rampaging shoppers running into a Wal-Mart store on Long Island where he was working as a maintenance man for the holidays.

“If you wanted to know about a show, this was the guy, and he had a great sense of humor,” said Jean Olivier, who met Mr. Damour eight years ago in the Rosedale section of Queens, a few minutes’ drive from the store where he was killed. “He was the guy who was always lively. He would have personally gotten out of the way if he knew they wanted that stuff.”

Shoppers started lining up late Thursday night at the Wal-Mart, at the Green Acres Mall on Sunrise Highway in Valley Stream, not far from the Queens border, where DVDs, flat-panel television sets and other entertainment items were discounted to attract crowds on the traditional first day of the Christmas shopping season.

Mr. Damour, 34, who was known to his friends as Jimbo, or Jdidread because of his dreadlocks, got his job at Wal-Mart through Labor Now, an agency for temporary workers. He had been trying to hold back a crush of shoppers pressing against the store’s sliding-glass double doors, the authorities said. Just before the store’s scheduled 5 a.m. opening, they said, the doors shattered under the weight of the crowd. Mr. Damour was thrown to the floor and trampled.

The Nassau County police were trying to determine what happened during the stampede, but said it was unclear if there would be any criminal charges. Michael Aronsen, a Police Department spokesman, said he did not expect the department to announce the results of its investigation this weekend. The department has been looking at videos from the store’s surveillance cameras and sifting through witnesses’ accounts. Another department spokesman said on Friday that it would be difficult to determine who was responsible for Mr. Damour’s death.

The Nassau County medical examiner has not announced a cause of death for Mr. Damour, who died just after 6 a.m. on Friday, about an hour after shoppers burst through the Wal-Mart doors. Four shoppers were injured in the stampede.

Hank Mullany, the senior vice president of Wal-Mart’s Northeast division, said in a statement that the company had hired extra security officers and installed barricades before the store opened, but “despite all of our precautions, this unfortunate event occurred.”

David Tovar, a company spokesman, declined to say how many extra officers had been added on Friday. Each store, he said, made its own security arrangements. Security at the mall is handled by a subcontractor, Securitas, which patrols the parking lot but not inside the Wal-Mart, which opened in 2003 and employs more than 300 workers.

On Saturday, two security guards were posted outside the Wal-Mart, which is next to a Petland Discounts store and a National Wholesale Liquidators outlet. Workers were repairing one side of the metal door frame that was damaged on Friday.

The Wal-Mart was busy on Saturday, with long lines at the registers. Many shoppers were aware of Mr. Damour’s death and said they were appalled that people did not stop to help him as he lay on the ground, and instead surged into the store seeking bargains.

“How do you stomp somebody like that?” asked Kenny Murphy, 30, of Lynbrook, N.Y., who was shopping with his wife, Lara. “It’s disgusting how people acted yesterday.”

Wal-Mart workers interviewed on Saturday said they had been told by their managers not to speak to reporters or give their names. But they said that on Friday morning, when the store was closed for a few hours after Mr. Damour’s death, dozens of workers gathered near the front door to pray. They were led by a woman who worked as a greeter.

“It was crazy,” said a worker in the electronics department who was in the store during the stampede. “The deals weren’t even that good.”

Some of the workers said they were still shaken by Mr. Damour’s death and added that they had mixed feelings about whether the store should have hired more security.

“How could you know something like that would happen?” said one worker, who added that the store was even busier this year than on Black Friday last year. “No one expected something like that.”

Green Acres opened in 1956 on the site of the former Curtiss Wright Airport. One of the first open-air shopping centers on Long Island, it had 1.2 million square feet of retail space and counted Gimbels, J. C. Penney and J. J. Newberry among its first tenants.

In 1968, the center was enclosed and later expanded to accommodate the growing number of shoppers from Queens, Brooklyn and Long Island.

But Green Acres, which is now owned by Vornado Realty Trust, has also seen its share of trouble. In the 1980s, the mall earned a reputation as the “car theft capital” of Long Island. In 1990, four moviegoers were shot — one fatally — when two groups of teenagers opened fire in a crowded theater that was showing “The Godfather, Part III.”

    Mourning a Good Friend, and Trying to Make Sense of a Stampede, NYT, 30.11.2008, http://www.nytimes.com/2008/11/30/nyregion/30walmart.html

Wal-Mart Employee

Trampled to Death by Customers

November 29, 2008
The New York Times
By JACK HEALY and ANGELA MACROPOULOS

A Wal-Mart employee in suburban New York was trampled to death by a crush of shoppers who tore down the front doors and thronged into the store early Friday morning, turning the annual rite of post-Thanksgiving bargain hunting into a Hobbesian frenzy.

At 4:55 a.m., just five minutes before the doors were set to open, a crowd of 2,000 anxious shoppers started pushing, shoving and piling against the locked sliding glass doors of the Wal-Mart in Valley Stream, N.Y., Nassau County police said. The shoppers broke the doors off their hinges and surged in, toppling a 34-year-old temporary employee who had been waiting with other workers in the store’s entryway.

People did not stop to help the employee as he lay on the ground, and they pushed against other Wal-Mart workers who were trying to aid the man. The crowd kept running into the store even after the police arrived, jostling and pushing officers who were trying to perform CPR, the police said.

“They were like a stampede,” said Nassau Det. Lt. Michael Fleming. “Hundreds of people walked past him, over him or around him.”

The employee, who was not identified, was taken from the Wal-Mart to nearby Franklin Hospital, where he was pronounced dead at 6:03 a.m., the police said. His exact cause of death has not been determined. The police said that three other shoppers were injured and a 28-year-old woman who was eight months pregnant was taken to the hospital for observation.

One shopper, Kimberly Cribbs, said she was standing near the back of the crowd at around 5 a.m. on Friday when people started rushing into the store. She said several people were knocked to the ground, and parents had to grab their children by the hand to keep them from being caught in the crush.

“They were falling all over each other,” she said. “It was terrible.”

Crowds began building outside the Wal-Mart at 9 p.m. Thursday and grew throughout the night, as eager shoppers queued up in a line that filled the sidewalk and stretched toward the boundary fence of the Green Acres Mall.

At 3:30 a.m., store employees called the Nassau police to report that the crowd was growing quickly, the police said. Officers came by to try to organize the line, but were called away to a Circuit City, a Best Buy and a B.J.’s Wholesale Club nearby, to deal with crowds there.

A half-dozen Wal-Mart employees lined up in the entryway trying to hold back the crowd by pushing against the locked sliding doors, but they were overwhelmed by the force of the crowd, Lieutenant Fleming said.

As the doors snapped open and people streamed in, several people fell on top of one another. The 34-year-old employee who died was at the bottom of the pile, the police said.

On Friday, Wal-Mart released a statement saying that the man who was killed had been working for Wal-Mart through a temp agency. The company called the death “a tragic situation,” and said it was working with police.

“The safety and security of our customers and associates is our top priority,” Wal-Mart said in a statement.

Lieutenant Fleming said that the store “could have done more” to prevent the melee.

“I’ve heard other people call this an accident, but it’s not,” he said. “This certainly was foreseeable.”

    Wal-Mart Employee Trampled to Death by Customers, NYT, 29.11.2008, http://www.nytimes.com/2008/11/29/business/29walmart.html

Private Schools

Say They’re Thriving in Downturn

November 29, 2008
The New York Times
By WINNIE HU and ALISON LEIGH COWAN

Wall Street is down, but the paddles were up, up, up at an auction at Cipriani this month that raised more than $500,000 for the Trevor Day School from parents and friends, off about 15 percent from last year’s record haul.

The day after the auction, Pam Clarke, Trevor’s head of school, sent out a letter reassuring parents that Trevor, a Manhattan private school with a relatively small endowment of $10.6 million, remained in “sound shape financially” because of careful spending and committed fund-raising. “We wanted to let people know that we’re concerned, we’re paying attention, and we’re careful with our resources and theirs,” Ms. Clarke said in an interview.

Dalton, Ethical Culture Fieldston, Packer Collegiate Institute and the Calhoun School have also sent out letters attesting to their financial health in recent weeks. At least three other private schools — Trinity and Columbia Grammar and Preparatory, in Manhattan, and St. Ann’s in Brooklyn — have issued similar letters, while other schools have relied on parent association meetings and word of mouth to get out the message that it is business as usual despite uncertain economic times.

“We’re not experiencing any signs of impact from the economic downturn,” said Steve Nelson, head of school at Calhoun, though he added, “That’s not to say that we won’t.”

Private schools across New York City say they are thriving this fall, with record numbers of applicants and no significant decline in donations. Yet almost daily, even brand-name schools are finding that they have to reassure jittery parents about shrinking endowments and dispel rumors that requests for financial aid are pouring in, and that economically squeezed families are pulling their children out and enrolling them in public schools.

Trinity’s interim head of school, Suellyn P. Scull, issued a letter taking issue with recent news reports that 45 families had given notice that they were leaving. Trinity, among the most competitive schools in the city, received 698 applications for the 60 kindergarten spots in this year’s class.

The school is not yet releasing admission numbers for next year’s class, but Ms. Scull wrote, “This year’s admissions season has been perhaps busier than usual, and to date we have had no reports of families planning to leave us.”

But the shrinking economy is taking a toll on investment returns at Trinity, whose endowment has fallen to $40 million from $50 million in July, and at other private schools, affecting what they can spend on programs and activities. “There’s no way of escaping it,” said Lawrence Buttenwieser, a former trustee at Dalton. “If it happens at Harvard, it will happen to everybody.”

Many private schools say they are budgeting conservatively for next year and taking steps to offset any lost revenue from investments and the possibility of donor fatigue. In a letter released on Nov. 17, Dalton’s head of school, Ellen C. Stein, and Robert Kasdin, president of the board, wrote that while the school remained in “a position of strength,” mostly because it has no mortgages or other debt and fund-raising remains strong, it is “targeting efficiencies where possible” and “reviewing all capital expenditures.”

Dalton’s Web site refers to a $58 million endowment, but attaches no date to that figure. School officials will say only that its investment funds are down less than the market this year. Public records show that Dalton was heavily invested in hedge funds as of June 30, 2007, the most recent date available, with about half of its financial assets in six funds. That roster includes several funds that have gotten stung in recent months, like TPG-Axon and Greenlight Capital Offshore.

School officials say the school shed its stake in a seventh fund, Amaranth, before the fund collapsed in September 2006.

Just south of Union Square, the Grace Church School, which has a $17 million endowment, expects to draw about $400,000 from those funds next year — a drop of about $100,000 — to support school activities. George P. Davison, the head of school, said he hopes to make up the shortfall in part by postponing the purchase of computers and desks, by patching a school roof instead of replacing it, and by lowering energy bills.

His school has also had to cope with fluctuating interest rates on $20 million it borrowed two years ago to improve its campus. Every Wednesday, the rate — and what his school must pay — resets depending on the vagaries of the London Interbank Offered Rate. “We went up and then we went down,” he said. “It got to 8.2 percent, but in the summer it was 1.6 percent. Now it’s 3.3 percent.”

Even with less money coming in and costs uncertain, several leading schools say they want to increase financial aid to students. Mark Stanek, head of the Ethical Culture Fieldston School, which gave out $8.1 million in financial aid this year, wrote to parents on Nov. 14 that the school was “hoping to maintain, and if possible, expand this budget over the next few years.”

Since then, a handful of families have come forward to request aid from the school, which has campuses on Central Park West and in the Bronx.

Columbia Grammar and Preparatory, whose $25 million endowment is invested in United States Treasury securities, also plans to expand its financial aid by about $500,000 next year, to nearly $5 million.

Richard J. Soghoian, headmaster of the Upper West Side school, sent out a letter last month reaffirming that the school was moving ahead with a $2 million renovation of a brownstone to create art and music classes. But to avoid placing added financial stress on families, he said, the school canceled its annual phone-athon, in which parents solicit donations from one another.

Trevor Day, with campuses on the East and West Sides, also started a $25 million campaign this fall to build a new middle and high school. Dr. Pamela Wilson, a dentist whose daughter attends second grade at Trevor, said she was glad to see her school’s letter because she had grown a bit concerned about its finances, given the uncertain economy. “Trevor’s letter arrived before concern became worry and the momentum of the worry took hold,” she said. “The letter was very well timed.”

As much as schools consider extending aid to keeping hard-hit families in the fold good business, they say the policy might have to be revisited if markets continue to falter and take jobs with them.

Mr. Davison, who also heads the Guild of Independent Schools in New York, warned: “It’s Wall Street that worries us in New York City. If all these financial jobs move to London, we’re in trouble.”

    Private Schools Say They’re Thriving in Downturn, NYT, 29.11.2008, http://www.nytimes.com/2008/11/29/nyregion/29private.html?hp

Stores Court Careful Shoppers on Black Friday

November 28, 2008
Filed at 8:41 a.m. ET
The New York Times
By REUTERS

NEW YORK (Reuters) - Shoppers flocked to stores before dawn on Friday to make the most of holiday sales across the United States, but many vowed to keep spending down in the face of a shrinking economy.

Retailers from Wal-Mart Stores Inc to Macy's Inc, Kohl's Corp and Best Buy Co Inc opened their doors in the early hours of "Black Friday," offering steep discounts to shoppers who waited in line.

"I'm here to save money. The recession is kicking in," said Tammy Williams, 36, as she stood in line waiting for a 4 a.m. EST opening at a Kohl's in West Paterson, New Jersey. "I'm just looking for a bargain, anything to save a couple of dollars. I'll save the rest for food shopping."

The holiday weekend will test the strength of consumer sentiment, a main driver of the U.S. economy, as the country faces its worst financial crisis since the Great Depression.

Most stores start major sales on Black Friday, the day after Thanksgiving, aiming to ring in billions of dollars in holiday sales that last through year's end. Several chains opened during the holiday on Thursday to capture business even earlier.

Natalie Diaz, a 32-year-old mother of twins, plans to spend about half of the $2000 she shelled out last year for Christmas gifts, but said she would not cut down on presents for her twins.

"They won't get it," she said of her children while shopping at a J.C. Penney in Jersey City Friday. "Santa does not have a recession."

Retailers fear a looming recession and mounting job losses could cost them dearly during the period that brings in up to 40 percent of annual sales. Many stores started offering steep discounts on everything from clothes to electronics weeks in advance of Thanksgiving.

Experts predicted this year could be the worst sales season since the early 1990s as Americans, already hit by a housing slump and credit crunch, cut spending on nearly everything but necessities.

WAL-MART PROSPERS

Discounters like Wal-Mart have prospered in recent months as more consumers seek out their low prices.

But mid-tier retailers like department store operator Macy's and specialty chains such as AnnTaylor Stores Corp are battling to retain loyal customers and eke out a profit as rivals cut prices up to 40 percent to 50 percent.

They also face unwelcome competition from U.S. stores that declared bankruptcy before the holiday and are now selling off merchandise at fire-sale prices, such as Circuit City Stores Inc and Mervyns.

Retail sales at U.S. stores open at least a year could fall 2.2 percent in November, compared with 4 percent growth last year, based on analyst forecasts compiled by Thomson Reuters.

Excluding expectations for growth at Wal-Mart, the anticipated decline is even steeper at 6.6 percent.

Nearly 45 percent of consumers plan to shop during the Black Friday weekend, according to a survey by the International Council of Shopping Centers. More than 80 percent of those shoppers expect to visit a discount store, while 78 percent said they would head to a department store.

While many consumers said they would still go to the stores, they will be far more careful when buying, a message they've also delivered to their children.

"Right now, I have a lot of friends out of work," said Solomon Leggett, an agent at a unit of insurer American International Group Inc, which has received $152 billion in a government bailout.

"I'd rather do things for them than the family. Much of my family has understood the change. We've decided to put a little less gifts for each other" under the Christmas tree, he said.

Leggett was shopping at toy store FAO Schwarz on Thursday, with a budget of up to $300 to spend on gifts for his nephews and friends' children.

"We're talking about being more conservative this Christmas, keeping in mind what other people are going through," said Ana Lewis, with three of her kids in tow. "I'm a bargain shopper anyway. But the bigger impact is with the kids, they have become more aware."

(Writing by Michele Gershberg; Editing by Marguerita Choy/Jeffrey Benkoe)

    Stores Court Careful Shoppers on Black Friday, NYT, 28.11.2008, http://www.nytimes.com/reuters/business/business-us-usa-holidaysales.html

In Lean Times,

Comfort in a Bountiful Meal

November 28, 2008
The New York Times
By CARA BUCKLEY

With the economy crippled, joblessness at a 14-year high and more financial bad news almost certain to come, there was a lot less, materially speaking, for thousands to be grateful for as they gathered around Thanksgiving tables.

For many, the elation that followed the election of the nation’s first black president was tempered by more immediate concerns, like where the next paycheck might come from. And yet coast to coast, people approached Thanksgiving with something close to a gritty resolve this year, determined to find a few hours of respite from their worries.

“I spend a lot of time at night, ruminating how I’m going to get by,” said Tracy Louis-Marie, a mother of two who lives in Los Angeles. Her husband is an illustrator, and his workload has fallen by half in the last two months. “I’d like these three hours this afternoon to be an oasis of stress-free time,” Ms. Louis-Marie said.

Some people pared their dinners. Fixings were less lavish, relatives canceled long-distance travel plans and hosts had potluck meals to spread the cost. Ms. Louis-Marie prepared an all-organic Thanksgiving last year, but this year she could afford to go organic with only one dish: the bird. Yet, in the spirit of the holiday, she invited a relative stranger, a dog-walker from her neighborhood, over to eat.

For Matt Egan, a newly unemployed father of three who lives in Mount Gilead, Ohio, the day was darkened with fears about how his family would make it through the holidays.

Mr. Egan received an automated call last Saturday, informing him that he was being laid off from his job as a presser at a nearby Whirlpool factory. Last week, his wife, Tracy, also lost her job as an information technology specialist. The couple, both 35, spent Thanksgiving at the home of Mr. Egan’s father, after loading their 6-year-old daughter and 1-year-old twins into the family car, all the while trying to keep up a cheerful front.

“Now we’re just stunned, walking around trying to figure out what to do,” Mr. Egan said. “There’s only so much pessimism we can let in, because we’ve got little kids.”

Other families had especially lavish feasts, as if in defiance of the hard times.

Tanya Harper, whose hair salon in Manhattan has seen a 30 percent drop in business, spent the afternoon with 150 of her relatives and friends in a banquet hall in Jamaica, Queens. Five of the oldest family members died this past year, so the surviving relatives, who are from Barbados, resolved to ward off sadness by throwing a huge party, replete with African dancers, five turkeys, six hams and Caribbean dishes, like flying fish.

“We are not rich,” Ms. Harper said, “but our family needs to get together more often, and enjoy each other, and give thanks.”

Many people took extra comfort in their families this year. In Miami, Jorge and Caridad Brenlla served dinner for seven: turkey and traditional Cuban fare, like black beans, rice and fried plantains. Mr. Brenlla, who is 57 and a contractor, said demand for his work slowed to a crawl this year, as Florida bore much of the brunt of the housing crash. Mr. Brenlla is also a Republican, and remains deeply disappointed about the defeat of Senator John McCain of Arizona in the presidential election. Still, the family’s Thanksgiving was especially joyous because Mr. Brenlla’s sister was visiting from Havana, and the siblings had not seen each other in 27 years.

In Democratic homes, joy at Barack Obama’s election victory helped lift foul moods. “For us, Obama winning the election is a big step forwards,” said Jamie Robinson, 31, who lives in Chicago, and is of African-American, Irish and Native American heritage.

In a Las Vegas suburb, at a yearly gathering of about a dozen gay and lesbian friends at the home of Sigrid Brunel and Argentina Kapp, the mood was far cheerier than last year, when anxiety about the coming election and anger about the war in Iraq clouded much of the discussion. Yet the guests were outraged this year at the passage of Proposition 8 in California, which banned, again, same-sex marriages.

For the most part, Thanksgiving dinners were unchanged from previous years, even as families cut corners elsewhere.

In the Bronx, upwards of 30 guests had been invited to the four-bedroom apartment shared by one extended family, comprising the Roberthsons and the Moores. Many in the family are on a budget, yet their Thanksgiving spread was nonetheless a showcase of abundance, and included cornbread, macaroni and cheese, fried chicken, collard greens, candied yams, pot roasts and four types of pie.

In their spacious apartment in the Upper West Side of Manhattan, Jake and Amy Schrader, the parents of 5-year-old twins, spent Thursday afternoon preparing hearty Thanksgiving fare. They have been the hosts of the holiday dinner for the past four years, and seven relatives joined them on Thursday. The dishes were the same, though this year there was a side of denial: Mr. Schrader, an equities trader, has stopped opening the envelopes containing statements for his retirement savings and the twins’ college funds.

In Chicago, Dolores Hernandez, a 52-year-old home health care nurse, celebrated with her husband, Carlos, 50, their two college-age children and several elderly relatives, in their home in the northwest part of the city.

Mr. Hernandez owns a Chicago restaurant, Don Carlos, which has been devastated by the economic turndown. So Ms. Hernandez has taken on three nursing jobs in the past year, and usually works 60 hours a week. But she took Thanksgiving off.

“We’ll be talking about politics, and, of course, the bad economy, which has affected our own family,” Ms. Hernandez said. “My nephew recently moved in with us, because he had his hours cut at the dealership where he works, and he can’t afford rent anymore.”

Ms. Hernandez’s nephew opted to eat Thanksgiving with other relatives, but the Hernandezes still prepared a lavish spread. They are from Mexico yet they have wholly embraced traditional American Thanksgiving fare, with one exception: jalapeño-cilantro salsa, a family specialty.

Reporting was contributed by Karen Ann Cullotta in Chicago, Steven Freiss in Las Vegas, Carmen Gentile in Miami, Christopher Maag in Mount Gilead, Ohio, and Joel Stonington in New York.

    In Lean Times, Comfort in a Bountiful Meal, NYT, 28.11.2008, http://www.nytimes.com/2008/11/28/us/28thanks.html?hp

Op-Ed Contributor

Dying of Consumption

November 28, 2008
The New York Times
By STEPHEN S. ROACH

Hong Kong

IT’S game over for the American consumer. Inflation-adjusted personal consumption expenditures are on track for rare back-to-back quarterly declines in the second half of 2008 at a 3.5 percent average annual rate. There are only four other instances since 1950 when real consumer demand has fallen for two quarters in a row. This is the first occasion when declines in both quarters will have exceeded 3 percent. The current consumption plunge is without precedent in the modern era.

The good news is that lines should be short for today’s “first shopping day” of the holiday season. The bad news is more daunting: rising unemployment, weakening incomes, falling home values, a declining stock market, record household debt and a horrific credit crunch. But there is a deeper, potentially positive, meaning to all this: Consumers are now abandoning the asset-dependent spending and saving strategies they embraced during the bubbles of the past dozen years and moving back to more prudent income-based lifestyles.

This is a painful but necessary adjustment. Since the mid-1990s, vigorous growth in American consumption has consistently outstripped subpar gains in household income. This led to a steady decline in personal saving. As a share of disposable income, the personal saving rate fell from 5.7 percent in early 1995 to nearly zero from 2005 to 2007.

In the days of frothy asset markets, American consumers had no compunction about squandering their savings and spending beyond their incomes. Appreciation of assets — equity portfolios and, especially, homes — was widely thought to be more than sufficient to make up the difference. But with most asset bubbles bursting, America’s 77 million baby boomers are suddenly facing a savings-short retirement.

Worse, millions of homeowners used their residences as collateral to take out home equity loans. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3 percent of disposable personal income in 2000 to nearly 9 percent in 2006. This newfound source of purchasing power was a key prop to the American consumption binge.

As a result, household debt hit a record 133 percent of disposable personal income by the end of 2007 — an enormous leap from average debt loads of 90 percent just a decade earlier.

In an era of open-ended house price appreciation and extremely cheap credit, few doubted the wisdom of borrowing against one’s home. But in today’s climate of falling home prices, frozen credit markets, mounting layoffs and weakening incomes, that approach has backfired. It should hardly be surprising that consumption has faltered so sharply.

A decade of excess consumption pushed consumer spending in the United States up to 72 percent of gross domestic product in 2007, a record for any large economy in the modern history of the world. With such a huge portion of the economy now shrinking, a deep and protracted recession can hardly be ruled out. Consumption growth, which averaged close to 4 percent annually over the past 14 years, could slow into the 1 percent to 2 percent range for the next three to five years.

The United States needs a very different set of policies to cope with its post-bubble economy. It would be a serious mistake to enact tax cuts aimed at increasing already excessive consumption. Americans need to save. They don’t need another flat-screen TV made in China.

The Obama administration needs to encourage the sort of saving that will put consumers on sounder financial footing and free up resources that could be directed at long overdue investments in transportation infrastructure, alternative energy, education, worker training and the like. This strategy would not only create jobs but would also cut America’s dependence on foreign saving and imports. That would help reduce the current account deficit and the heavy foreign borrowing such an imbalance entails.

We don’t need to reinvent the wheel to come up with effective saving policies. The money has to come out of Americans’ paychecks. This can be either incentive driven — expanded 401(k) and I.R.A. programs — or mandatory, like increased Social Security contributions. As long as the economy stays in recession, any tax increases associated with mandatory saving initiatives should be off the table. (When times improve, however, that may be worth reconsidering.)

Fiscal policy must also be aimed at providing income support for newly unemployed middle-class workers — particularly expanded unemployment insurance and retraining programs. A critical distinction must be made between providing assistance for the innocent victims of recession and misplaced policies aimed at perpetuating an unsustainable consumption binge.

Crises are the ultimate in painful learning experiences. The United States cannot afford to squander this opportunity. Runaway consumption must now give way to a renewal of saving and investment. That’s the best hope for economic recovery and for America’s longer-term economic prosperity.

Stephen S. Roach is the chairman of Morgan Stanley Asia.

    Dying of Consumption, NYT, 28.11.2008, http://www.nytimes.com/2008/11/28/opinion/28roach.html

Editorial

Sewing Up the Safety Net

November 27, 2008
The New York Times

Largely missing from the discussion about the faltering economy is the recession’s impact on the 37 million Americans who are already living at or below the poverty line — and the millions more who will inevitably join their ranks as the downturn worsens.

Poverty and joblessness go hand in hand. If unemployment rises in the coming year from today’s 6.5 percent to 9 percent, as some analysts predict, another 7.5 million to 10.3 million people could become poor, according to a new study by the Center on Budget and Policy Priorities.

The prospect of nearly 50 million Americans in poverty is even more daunting when one considers the holes that have been punched in the safety net over the last quarter-century. Since the Reagan administration, the federal government has steadily reduced its role in curtailing poverty, or even in coordinating state and local efforts to help alleviate it.

Meanwhile, most states reduced or eliminated cash assistance for single poor adults and limited access to food stamps. Stricter eligibility requirements keep thousands of people from collecting jobless benefits. Facing budget deficits, cash-strapped states will be tempted to cut social programs even more. The experience of being poor in America, never easy, will soon become even more difficult for more people — unless Congress boosts food stamps, modernizes the unemployment compensation system and takes other steps to strengthen the ability of the federal and state governments to help the millions who will need assistance.

This is all the more important since the current poverty statistics significantly understate reality. The federal yardstick used to gauge poverty is severely outdated, giving too much weight to some factors in a typical family budget, like the cost of food, and not counting others, like the cost of child care and out-of-pocket medical costs. It also doesn’t consider regional differences in the cost of living and doesn’t include the cost of child care, taxes or the value of noncash benefits such as food stamps or tax credits.

The National Academy of Sciences years ago recommended a new measure of poverty that takes such variables into account. But the revised framework has never been adopted because, among other reasons, it would add several million more people to the ranks of the poor.

If there was ever a time for more precise measurements, it is now. Better numbers will produce a better understanding of poverty, and will enhance Washington’s ability to respond in the difficult days ahead.

    Sewing Up the Safety Net, NYT, 27.11.2008, http://www.nytimes.com/2008/11/27/opinion/27thu3.html

Online Retailers Ramp Up Deals to Capture Dollars

November 27, 2008
Filed at 1:59 p.m. ET
The New York Times
By THE ASSOCIATED PRESS

NEW YORK (AP) -- Online retailers are ramping up heavy-duty deals to turn skittish shoppers into buyers during the crucial Thanksgiving weekend and ''Cyber Monday'' -- but even so, online sales are expected to be fairly flat after years of strong growth.

Free shipping is virtually a given, and many are offering financing options such as no payments for 90 days and deals like $10 off purchases of $50 or more, along with traditional discounts on products.

''Last year, people were spending a lot more money on gifts and products,'' says Jeff Wisot, vice president of marketing for online retailer Buy.com. ''With the economic challenges arising this year, people are definitely spending less.''

''Cyber Monday,'' a term coined by the trade group National Retail Federation in 2005 to describe the Monday after the Thanksgiving holiday, is the unofficial kickoff for the busy online retail season.

However, this year, consumer spending has dropped dramatically -- down 1 percent in October, the largest amount since the 2001 terrorist attacks -- as consumers grapple with a shaky economy, mounting job losses and a prolonged housing slump.

During the holidays, the trade group expects overall holiday spending will total about $470.4 billion, a 2.2 percent rise from a year ago and the slowest growth since 2002, and online retail is being hit along with brick-and-mortar stores. ComScore, a digital technology monitoring company, said Tuesday it expects online retail spending for November and December to be flat compared with the same two months in 2007. Last year's growth rate was 19 percent.

The expected slowdown in online growth is ''dramatically different than what we've seen,'' says Marshal Cohen, chief industry analyst at NPD Group. ''Consumers are not in a rush to shop.''

In an effort to entice them, online retailers are offering a bounty of deals.

Wisot of Buy.com says his site is offering free shipping on most items, instant rebates and deals on TVs, GPS devices and other items.

Online jeweler BlueNile.com sent out a targeted e-mail promotion offering $100 off a $500 engagement ring, valid until Tuesday. And through Bill Me Later, an online payment site eBay.com is acquiring, BlueNile.com is offering 0 percent financing on purchases of $500 or more for six months. Bill Me Later has similar promotions for other online retailers.

Meanwhile, Amazon.com will take up to 65 percent off watches and offer one-day deals such as knife set that is usually $157 on sale for $49.99.

''We're bringing prices down as low as we can get them,'' Berman says. ''These are great deals.''

Online auction site eBay.com is holding what it calls the largest sale in its history, with $1 holiday doorbuster items hidden on the site that consumers hunt for, including a 65-inch Panasonic plasma HDTV and a 2009 Chevy Corvette. EBay also will offer items typically in demand for the holidays for bids starting at $1.

Toys ''R'' Us is offering more online promotions on Cyber Monday than last year, including 70 percent off Star Wars figures, $50 off the normally $59.99 Guitar Hero wired guitar controller from Activision and other deals.

And PayPal, another online payment site that eBay owns, is partnering with several retailers on deals. At Toys ''R'' Us, customers get $10 off purchases of $50 or more. Elsewhere, customers using PayPal can receive cash-back incentives ranging from 5 percent to 30 percent off at retailers including American Eagle Outfitters Inc., Overstock.com and Blockbuster.

Whether all the deals, rebates and discounting offers will help remains to be seen, says Dr. Michael Belch, a professor of marketing at San Diego State University.

''There's little doubt the consumer is still going to be very price sensitive,'' he says. ''They're going to be looking for values.''

    Online Retailers Ramp Up Deals to Capture Dollars, NYT, 27.11.2008, http://www.nytimes.com/aponline/business/AP-Holiday-Shopping-Online-Sales.html

Food Prices Expected to Keep Going Up

November 27, 2008
The New York Times
By ANDREW MARTIN

For more than a year, food manufacturers have been shaving package sizes and raising prices, declaring that they had little choice because of unprecedented increases in the cost of raw ingredients like corn, soybeans and wheat.

Now, with the price of grains and other commodities plunging, it may seem logical that grocery prices will follow. But while prices for some items like milk and fresh produce are dropping, those of most packaged items and meat are holding firm or even increasing. Experts warn that consumers should not expect lower prices anytime soon on most items at the grocery store or in restaurants.

Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.

The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.

Some economists project even steeper increases next year. For instance, Bill Lapp, principal at Advanced Economic Solutions in Omaha, said he expected food prices to jump 7 to 9 percent next year.

“For the last 21 months, food manufacturers, restaurants and livestock producers have been absorbing significant costs that in my view are likely to be passed on to consumers in 2009 and beyond,” said Mr. Lapp, a former chief economist at ConAgra Foods.

While predicting future food prices is an inexact science, data released by the Labor Department last week suggested the forecasters might be right.

Overall consumer prices recorded the biggest drop in the history of the Consumer Price Index, but food prices continued to inch upward, albeit at a slower pace than in previous months. The C.P.I. showed that grocery prices rose 0.1 percent in October.

Some of the more visible items on grocery shelves, including produce and dairy products, dropped sharply in recent weeks, but not enough to offset the general trend of rising prices. Restaurant prices rose 0.5 percent in October.

Commodity prices began climbing rapidly in the fall of 2007, and food companies were hit hard by the increases. They tried to slow eroding profit margins by cutting operating costs, making packages smaller and raising prices.

Some companies, like Kellogg and Heinz, have managed to offset the higher ingredient costs and post robust profits by using shrewd commodity hedges and by raising prices without losing many customers. They also benefited from a trend of consumers eating out less and buying more groceries.

But other food companies have struggled. Hershey, for instance, locked in high cocoa prices this year only to see prices drop this fall, analysts say. And meat and poultry companies have been hit by higher feed costs and a limited ability to charge higher prices, at least in the short term.

Now, even though costs for ingredients like corn and wheat have dropped, meat and poultry providers say they still have not raised prices enough to cover their increased costs. And packaged food manufacturers are unlikely to lower prices because commodity costs remain relatively high and they are still trying to rebuild eroded margins.

Michael Mitchell, a spokesman for Kraft Foods, said that the company’s food ingredient costs this year were running $2 billion higher than in 2007, a 13 percent increase, but that the company had raised its overall prices by only 7 percent.

William P. Roenigk, senior vice president and chief economist for the National Chicken Council, said his industry had been losing money for more than a year. Chicken producers are now trying to recover those costs by reducing production, which will eventually alter the balance between supply and demand. “The time is coming when we’re going to see a very significant increase in the retail price of chicken,” he said.

The restaurant industry, which has been battered by a sharp drop in customers, also says it has not been able to raise prices enough to keep pace with the cost of ingredients.

People in the restaurant business said they did not like raising prices during an economic downturn. “If anything in this environment, one would be looking at the ability to offer much greater emphasis on value pricing in restaurant menus,” said Hudson Riehle, chief economist of the National Restaurant Association. “In contrast, exactly the opposite is happening. Our operators are being forced to raise menu prices at the highest rate since 1990.”

Predictions about food prices are subject to change because commodity prices are unpredictable. Ephraim Leibtag, an economist for the Agriculture Department, said food inflation would slow by the middle of next year if commodity prices remained low. “Right now the forecast is about 4 percent, but that would be lowered if we do not see any surge in commodity costs over the next few months,” he said.

A reason that overall food prices are expected to continue increasing is the lag between price increases for basic commodities and for finished food products in the grocery store, particularly for meat and processed foods. Consider the price of corn, an ingredient in things like cereal and breaded shrimp. It was not too long ago that corn hovered around $2 or $3 a bushel.

But corn prices began climbing last fall and peaked around $8 a bushel in June. They have since dropped to about $3.50 a bushel, still above the historical norm. Some food manufacturers locked in prices for corn and other commodities in the spring and summer, fearing that prices could go even higher. But prices fell instead, and they are now stuck with the higher prices until their contracts expire.

When costs go up for livestock producers, they are often unable to immediately raise prices because those prices are set on the open market, which is dictated by supply and demand. Instead, they begin reducing the size of their herds or flocks, which eventually leads to less meat on the market and higher prices. But reducing livestock production can take months to years, and in the interim it can actually suppress prices as breeding animals are slaughtered to reduce production.

The prospect of more food inflation is inflaming a debate over its causes. Many food manufacturers and economists maintain that one culprit is government policies promoting the use of ethanol fuel made from corn.

About a third of the corn crop is used for ethanol, putting ethanol producers in competition with livestock farmers and food manufacturers. The result, they contend, is that prices for corn are now higher and more volatile.

“The connection of oil prices to agricultural commodities is new as of 2007, and it’s a major game changer for those in the food production business,” said Thomas E. Elam, president of FarmEcon, a consulting firm.

But ethanol advocates counter that the food industry’s arguments have been proved false, saying that corn prices have declined as ethanol production is increasing. Matt Hartwig, spokesman for the Renewable Fuels Association, an ethanol industry group, said food companies were “very quick to tell the American public that they had to raise food prices because corn was so expensive, and that the reason corn was so expensive was corn-based ethanol.”

Mr. Hartwig added: “Now, clearly, we know that relationship doesn’t exist. If ethanol isn’t the reason, what is the real reason for food prices going up?”

    Food Prices Expected to Keep Going Up, NYT, 27.11.2008, http://www.nytimes.com/2008/11/27/business/27food.html

Letters

A Bailout for Some. And the Rest?

November 27, 2008
The New York Times

To the Editor:

“All Fall Down,” by Thomas L. Friedman (column, Nov. 26), was exceptional.

The general thesis of the column was that a near-total breakdown of responsibility at every link in our financial chain got us here. Mr. Friedman also stated that we either bail out the people who brought us here or risk a total systemic crash.

Recently, I lost my job in health care because of a reduction in work force. I found a job at less than half my previous salary. I am in a systemic crash at my house. Who will bail out people like me who have been responsible and hardworking?

I have no debts other than a mortgage on devalued property and student loans for my daughter’s college education. Yet there are millions like me who do not have lobbyists or political action committees to bail us out or represent our interests.

J. Michael Gatch
Birmingham, Ala., Nov. 26, 2008

•

To the Editor:

Thomas L. Friedman’s comments were scathing. Many became wealthy, indeed, fabulously wealthy, on the ignorance of borrowers and the opportunity of lax regulations. The risk was bundled and sold on down the line.

But the damning fact remains: The equity of the wealthy who profited from this consensus greed is going nowhere, while this winter promises to be colder and darker for the rest of us as we open our pocketbooks to pay for it all.

John Milovich
San Francisco, Nov.
26, 2008

•

To the Editor:

Thomas L. Friedman correctly describes the culpability for the banking meltdown at every level of the financial establishment. He relates Michael Lewis’s example of an obviously unqualified borrower at the bottom of the chain, and he also concludes that not only will our kids pay, but “we’re all going to be working harder for less.”

Well, I’m an architect, single, and I’ve been saving for years for a deposit to buy a home (didn’t hear about the giveaways, I guess), and I was just about to make an offer on an adorable, modest home north of the city (half the price of Mr. Lewis’s egregious example), when four weeks ago I was laid off because of this financial downturn.

In other words, I was doing everything right, and now, if only I were working harder for less, I’d be a lot better off than I am! Needless to say, there are not a lot of opportunities for architects these days.

Roy Pertchik
New York, Nov. 26, 2008

•

To the Editor:

The more I read about the financial crisis, the more I hear about Robert E. Rubin and his major role.

It’s really frustrating to see President-elect Barack Obama, whom I voted for, taking advice from him. It seems to me like a continuation of the old habit of working with well-connected people because they are well connected.

Mr. Rubin and Alan Greenspan worked hard for many of the same ends, and somehow Mr. Rubin is still influencing our soon-to-be president.

Andrew Shantz
Paterson, N.J., Nov.
26, 2008

•

To the Editor:

Thomas L. Friedman blames bankers (“overrated dopes” or “greedy cynics”) and a breakdown in personal responsibility and government regulation for the current crisis.

In my almost 90 years I have lived through a number of depressions, recessions and recoveries, which seem to come with regularity whether caused by the aforementioned or other reasons. We have not yet figured out how to avoid the business cycle, defined as a recurring succession of business conditions, loosely divisible into periods of prosperity, crisis, liquidation, depression and recovery.

Knowing this, those known as financial experts still lack the foresight to see when the crisis is coming.

Saul Ricklin
Bristol, R.I., Nov. 26, 2008

    A Bailout for Some. And the Rest?, NYT, 27.11.2008, http://www.nytimes.com/2008/11/27/opinion/l27friedman.html

Op-Ed Columnist

All Fall Down

November 26, 2008
The New York Times
By THOMAS L. FRIEDMAN

I spent Sunday afternoon brooding over a great piece of Times reporting by Eric Dash and Julie Creswell about Citigroup. Maybe brooding isn’t the right word. The front-page article, entitled “Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.

Why? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so; people who had no business rating those loans as AAA, but made a fortunes doing so; and people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.

Citigroup was involved in, and made money from, almost every link in that chain. And the bank’s executives, including, sad to see, the former Treasury Secretary Robert Rubin, were clueless about the reckless financial instruments they were creating, or were so ensnared by the cronyism between the bank’s risk managers and risk takers (and so bought off by their bonuses) that they had no interest in stopping it.

These are the people whom taxpayers bailed out on Monday to the tune of what could be more than $300 billion. We probably had no choice. Just letting Citigroup melt down could have been catastrophic. But when the government throws together a bailout that could end up being hundreds of billions of dollars in 48 hours, you can bet there will be unintended consequences — many, many, many.

Also check out Michael Lewis’s superb essay, “The End of Wall Street’s Boom,” on Portfolio.com. Lewis, who first chronicled Wall Street’s excesses in “Liar’s Poker,” profiles some of the decent people on Wall Street who tried to expose the credit binge — including Meredith Whitney, a little known banking analyst who declared, over a year ago, that “Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust,” wrote Lewis.

“This woman wasn’t saying that Wall Street bankers were corrupt,” he added. “She was saying they were stupid. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of borrowed money, and imagine what they’d fetch in a fire sale... For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.”

Lewis also tracked down Steve Eisman, the hedge fund investor who early on saw through the subprime mortgages and shorted the companies engaged in them, like Long Beach Financial, owned by Washington Mutual.

“Long Beach Financial,” wrote Lewis, “was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, Calif., a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.”

Lewis continued: Eisman knew that subprime lenders could be disreputable. “What he underestimated was the total unabashed complicity of the upper class of American capitalism... ‘We always asked the same question,’ says Eisman. ‘Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.’ He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S.& P. couldn’t say; its model for home prices had no ability to accept a negative number. ‘They were just assuming home prices would keep going up,’ Eisman says.”

That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash. These are the wages of our sins. I used to say our kids will pay dearly for this. But actually, it’s our problem. For the next few years we’re all going to be working harder for less money and fewer government services — if we’re lucky.

Maureen Dowd is off today.

    All Fall Down, NYT, 25.11.2008, http://www.nytimes.com/2008/11/26/opinion/26friedman.html?ref=opinion

FACTBOX: Fed launches $200 billion consumer credit facility

Tue Nov 25, 2008
11:42am EST
Reuters

WASHINGTON (Reuters) - The Federal Reserve, with the backing of the Treasury, launched a $200 billion lending facility to support the market for consumer debt securities.

Following are details of the plan, called the Term Asset-backed Securities Loan Facility (TALF):

* Federal Reserve Bank of New York will lend up to $200 billion on non-recourse basis to holders of certain triple-A rated asset backed securities backed by newly originated and recently originated consumer and small business loans.

* ABS issuance in consumer categories such as auto loans, student loans and credit cards were roughly $240 billion in 2007 but essentially ground to a halt in October, according to the U.S. Treasury Department.

* The new Fed facility is intended to assist credit markets by facilitating issuance of ABS and improving ABS market conditions.

* The Treasury will provide $20 billion in credit protection to the New York Fed for the program. The Treasury will purchase subordinated debt issued by a New York Fed special purpose vehicle to finance the first $20 billion of asset purchases. The New York Fed will fund any purchases above that amount by lending additional funds to the vehicle up to $200 billion.

*The Treasury funds will come from the unallocated portion of the first tranche of its $700 billion financial rescue fund, known as the Troubled Asset Relief Program (TARP). The action leaves the Treasury just $20 billion in unallocated funds before it must seek Congressional approval to access the TARP's second $350 billion.

* All cash flows from assets in the program will be used to first repay principal and interest to the New York Fed, and second, to repay principal and interest on the $20 billion from the Treasury TARP fund. Any residual returns will be shared between the New York Fed and the Treasury.

* The New York Fed will apply a "haircut" to the value of the securities used as collateral for loans under the program, based on the rpice volatility of each class of eligible collateral.

* The New York Fed will offer a fixed amount of loans from the facility on a monthly basis. These loans will be awarded to borrowers each month based on a competitive, sealed bid auction process and the bank will set minimum interest rate spreads for bidding.

(Reporting by David Lawder, Editing by Chizu Nomiyama)

    FACTBOX: Fed launches $200 billion consumer credit facility, R, 25.11.2008, http://www.reuters.com/article/idUSTRE4AO5A720081125

Billions coming for mortgages, credit cards, student, car loans

25 November 2008
USA Today
By Sue Kirchhoff and Barbara Hagenbaugh

WASHINGTON — The Federal Reserve on Tuesday unveiled $800 billion in programs designed to relieve severe pressures in financial markets, and ensure that mortgages, student loans, car loans and other forms of consumer credit remain available at reasonable prices.

"Millions of Americans cannot find affordable financing for their basic credit needs," Treasury Secretary Henry Paulson said, announcing the moves jointly with the Federal Reserve. "This lack of affordable consumer credit undermines consumer spending and as a result weakens our economy."

In the latest in a series of increasingly dramatic announcements, the Federal Reserve said Tuesday that it would buy up to $600 billion in mortgage-related assets, including $100 billion in bonds or other debt issued by Fannie Mae and Freddie Mac and the Federal Home Loan Banks, and $500 billion in other mortgage-backed securities guaranteed by the government entities, including Ginnie Mae, which oversees Federal Housing Administration mortgages.

The move is intended to pump cash back into the mortgage lending process and increase the availability and affordability of mortgage financing. Paulson said "nothing is more important" to housing and the overall economy than making mortgages easier and more affordable to obtain.

The Fed also said it would lend up to $200 billion to securities dealers and other financial firms that hold Triple-A rated securities backed by "newly and recently originated" consumer loans, such as credit cards and auto loans. The program will also cover loans originated by the government's Small Business Administration.

The Treasury will provide $20 billion from the recently enacted $700 billion financial rescue package to cover potential losses from the program. The first losses will be borne by borrowers under criteria yet to be determined.

Paulson called the $200 billion a "starting point," and said the amount could be increased and the program expanded to other kinds of securities, such as commercial mortgage-backed securities.

The program will "enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer finance and small business loans," Paulson said. He declined to say when consumers might see the effect of the programs, arguing the USA is currently in a "twice in a hundred years historic situation" marked by "unpredictability."

A secondary effect of the programs announced Tuesday is that they will pump cash into the financial system, increasing bank reserves. That could help inflate the economy at a time when officials are increasingly worried about possible deflation — widespread falling prices that can cripple economic activity.

Officials said larger bank reserves are a side effect of the program, however, not a central aim. The program will essentially be financed by having the government increase the money supply.

"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the Fed said.

The announcements came amid fresh evidence the economy is rapidly deteriorating, despite aggressive Fed efforts the past year, including sharp interest rate cuts and expanded lending to financial firms.

The government issued revised data showing the economy contracted at a faster pace than initially thought in the July-September quarter, while a key measure of housing in 20 major markets found prices down a sharper-than-expected 17.4% from last year. Consumer confidence improved modestly this month after hitting the lowest on record in October but it points to continued pessimism.

Paulson said he had worked through the weekend on the proposal with officials including New York Fed President Timothy Geithner, who was nominated by Obama Monday to be his Treasury secretary. Paulson said Geithner is "very well-positioned" for the job because he has worked with Treasury officials throughout the crisis.

A main goal of the sweeping initiatives announced Tuesday is to reduce market risk so investors will be more willing to buy securities and consumers will have access to loans at rates and under conditions closer to those before the financial crisis.

The Fed noted that the level of asset-backed securities being issued to provide cash for consumer loans "declined precipitously in September and came to a halt in October." At the same time, consumer interest rates rose as the interest-rate risk premiums for the asset-backed products soared.

Credit is essential to consumer spending, which accounts for more than two-thirds of economic activity. In the July-September quarter, consumer spending fell at the fastest pace in 28 years, the Commerce Department said.

Fed officials said the program announced Tuesday is different from the $700 billion financial rescue package passed by Congress, which was originally designed so the government would buy troubled assets and take them off lenders' balance sheets.

The government is seeking to bolster quality assets through the new programs, making up for a lack of balance sheet capacity and lack of buyers in the financial system, due to continuing stresses and the fact some major financial players are no longer in business, such as some securities lenders and bank affiliates.

The $100 billion in Fannie and Freddie debt will be purchased by the Fed via the mortgage-backed securities through money managers.

With nearly all of the first $350 billion in the $700 billion program spoken for, speculation has risen that the Bush administration will need to ask Congress for the rest of the money. But Paulson said Treasury has "no timeline" to seek congressional approval. "When the time is right, we will avail ourselves," he said.

Lawmakers may try to attach strings to the second $350 billion, such as requiring Treasury to lend money to automakers or force Paulson to use government money to help prevent mortgage foreclosures.

Paulson said the administration is continuing to work on a foreclosure mitigation program, but noted the challenge is to avoid using government money to help homeowners who do not need help or whose mortgages could have been reworked without government aid.

"It's a challenging area," Paulson said.

Rebuffing criticism that the administration was going to pass off the issue to the Obama administration in January, he said, "I am going to run right until the end."

    Billions coming for mortgages, credit cards, student, car loans, UT, 25.11.2008, http://www.usatoday.com/money/economy/2008-11-25-fed-bailout_N.htm

G.M.’s Pension Fund Stays Afloat, Against the Odds

November 25, 2008
The New York Times
By MARY WILLIAMS WALSH

When General Motors left Washington empty-handed last week, among the lingering questions was whether its huge pension fund could topple and crush the government’s pension insurance program.

When any pension fund fails, usually as part of a bankruptcy, the government takes over its assets as well as its payments to retirees. In G.M.’s case, its plan would dwarf the nation’s pension insurance fund.

Still, G.M. appears to have enough money in the pension fund to pay its more than 400,000 retirees their benefits for many years — even with the markets swooning around it. That is largely because of the conservative way G.M. has managed the fund recently, and it explains why G.M. has not joined the long list of companies pressing Congress for pension relief.

But this glimmer of hope in a bleak auto landscape could change drastically, particularly if G.M. struggles along for a few more years, only to go bankrupt. The company’s blue-collar work force is still building up new benefits with every additional hour worked, and the pension fund will have to grow smartly to keep up with those costs.

If G.M. continues paying people to retire early, the costs will grow even more, because the plan will have to pay retirees for more years than it budgeted. And G.M. is not contributing additional money to the plan right now.

Already, G.M. says it will be paying retirees about $7 billion a year for the next 10 years. The fund’s assets were worth $104 billion at the end of 2007, more than enough to cover its obligations of $85 billion. Since then, the assets have declined and the obligations have grown, each by undisclosed amounts. The company says it does not plan to add any money to the fund for the next three or four years.

Even if G.M. were forced into bankruptcy, the government might insist that it keep the fund, and cover any shortfalls with its own money.

“We would maintain that it can afford to keep its plan intact,” said Charles E. F. Millard, director of the Pension Benefit Guaranty Corporation, the federal agency that takes over failed plans. “Based on past history, we think that argument has a reasonable chance of success.”

Whatever its ultimate fate, the G.M. fund may illustrate, against the odds, that it is still possible to offer traditional, defined-benefit pensions even in a historic bear market.

The other American automakers, Chrysler and the Ford Motor Company, also operate pension funds. Ford said that its fund, which is about half the size of G.M.’s, had a small surplus at the end of 2007. Since then, however, it is thought to have suffered a bigger percentage of losses than G.M.’s fund, because it uses a different investment strategy.

Little is known about the Chrysler pension fund today because the company stopped making mandatory pension disclosures when it was taken private in August 2007.

Along with pensions, G.M. has promised to provide health care to retirees, but those medical benefits are not guaranteed by the federal government. The total cost of these benefits in today’s dollars was estimated at $60 billion at the end of 2007, and G.M. had set aside only about $16 billion to cover the cost.

That year, G.M. and the United Automobile Workers agreed to let G.M. cap its health obligations to retirees by creating a separate entity to manage the retiree health plan, and making a big payment. The automaker has said it will make the payment in January 2010, and its retiree health obligations will end then. In the meantime, G.M. has issued securities to cover part of the cost and is holding them in a subsidiary created for that purpose.

The G.M. pension is viable today because of the company’s response to the firestorm at the beginning of this decade, said Nancy C. Everett, chief executive of G.M. Asset Management. The unit manages the company’s domestic and foreign pension funds, as well as other big pools of company money.

In the two years after the tech crash of 2000, most American pension funds suffered their worst squeeze ever. Although the stock market swings are even more severe now, pension funds have been buffered somewhat by relief provisions written into the pension law signed in 2006.

At the time of the tech crash, most pension funds had invested heavily in stocks, and stocks lost billions of dollars in value. At the same time, interest rates fell to unusually low levels, causing a painful mismatch, because low rates make retirees’ benefits more expensive for pension funds to pay. G.M.’s pension fund finished 2002 with a shortfall of almost $20 billion, by far the biggest of any American company.

“That was the genesis of General Motors thinking differently about how to manage the fund,” said Ms. Everett, who was running the Virginia state employees’ pension fund at the time. She joined G.M. in 2005.

Until then, most pension officials thought stocks were their best choice, because stocks were expected to generate more over the long run than bonds. And pension funds were thought to have a long time horizon.

Stocks have also been a favorite pension investment because of a much-criticized accounting rule that rewards the corporate bottom line when pension managers invest more aggressively.

The big mismatch of 2002 showed pension officials that stocks could produce more volatility than a mature pension fund like G.M.’s could bear. The company could not wait for stock prices to come back up eventually, because it had 400,000 retirees waiting to be paid about $7 billion every year.

With that in mind, G.M. sold more than $14 billion of bonds in 2003 and put the proceeds into its pension fund, making up for the preceding years’ losses. It also put in the proceeds of the sale of its Hughes Electronics subsidiary, for a total contribution of more than $18 billion. That was far more than the minimum required that year.

The big contributions got rid of the fund’s shortfall. (They also gave G.M.’s bottom line a lift, thanks to the accounting rule.)

Then, over several years, G.M. overhauled its investment portfolio, replacing billions of dollars worth of stocks with bonds, and adding derivatives to make the duration of the bonds better match the schedule of payments to retirees.

Bond prices can swing too, but G.M. plans to hold the bonds for their interest, not sell them. Ms. Everett said the company believed the interest payments would be more than enough to produce the $7 billion owed to retirees every year.

Currently, 26 percent of G.M.’s pension fund is invested in stocks — well below the typical pension fund’s allocation. David Zion, an analyst at Credit Suisse who tracks corporate pension funds closely, estimates that G.M.’s pension assets have declined by about 15 percent so far this year, compared with a 24 percent decline for the typical pension fund at America’s 500 largest companies. It will be several more months before the size of the losses is known for sure, because companies disclose precise pension numbers just once a year.

When asked why G.M. did not eliminate stocks from its pension fund completely, Ms. Everett cited the controversial accounting rule.

“There’s two sides to this issue,” she said. “One is making sure your pension fund is adequately funded, and the other is that pension income does come into play when you’re looking at the company’s income statement.” No company is eager to eliminate pension income if competitors still have theirs.

The Financial Accounting Standards Board has been working on revisions to keep pension activity from affecting the corporate bottom line, but it is not finished yet.

G.M. has a free pass on the funding rules for the next few years. It holds a so-called credit balance — a running tally of the contributions made in past years that were larger than the law required. In 2006, G.M.’s credit balance was worth $44 billion. The company is using that balance to offset contributions it would otherwise have to make. Over time, the size of the credit balance will fall.

Ms. Everett said modeling exercises showed that a 26 percent allocation to equities was the likeliest way to produce adequate investment returns while also preserving the pension fund’s surplus. She said managing the surplus was her top priority. If G.M. had to make a pension contribution, it would not have the cash on hand to do it. The company has said it will run out of cash early next year.

Meanwhile, the cost of restructuring the company could put a heavy burden on the pension fund. G.M.’s contract with the U.A.W. offers special benefits to workers whose plants are shut down or who are forced to retire early. Invoking these special benefits could make the plan’s obligations soar.

    G.M.’s Pension Fund Stays Afloat, Against the Odds, NYT, 25.11.2008, http://www.nytimes.com/2008/11/25/business/25auto.html

Home Prices Plunge in October

November 25, 2008
The New York Times
By MICHAEL M. GRYNBAUM

Home sales dropped and prices plunged again in October, an indication that the pain currently pulsing through the housing market is not likely to abate soon.

Sales of previously owned homes fell 3.1 percent for the month, to an annual rate of 4.98 million, according to the National Association of Realtors, a private trade group. Of the homes that did find buyers in October, nearly half were the result of a sale after a foreclosure.

That trend helped send home values down at the fastest annual rate since the Realtors association began keeping records in 1968. The nationwide median price of a home was $183,300 last month, down 11.3 percent from October 2007.

“Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,” said Lawrence Yun, the association’s chief economist.

The housing slump is at the center of the credit crisis sweeping Wall Street, and while the poor sales report was not exactly good news, it did suggest that a recovery was under way.

Buyers have been reluctant to enter the market for several reasons, from widespread expectations that prices will fall further to a scarcity of mortgages being made available by banks and lenders. A solution could come from a significant reduction in prices, which could entice more buyers and eventually help to reduce inventories.

“We had a bubble and we’re in the process of correcting,” said Joshua Shapiro, chief domestic economist at the research firm MFR.

In the meantime, Americans seeking to sell their homes must compete with foreclosure sales, which feature drastically reduced prices. And inventories of unsold homes are still high, meaning supply continues to far outstrip demand.

“It shows you what the ordinary Joe who is trying to sell their house is up against,” Mr. Shapiro said.

It would take just over 10 months to work off the supply of unsold homes at the current sales rate, up slightly from September.

Sales were down in every region of the country. The worst decline was a 6 percent drop in Midwestern states. Sales fell 1.2 percent in the Northeast, 3.2 percent in the South and 1.6 percent in the West.

Sales of single-family homes dropped 3.3 percent in October; condominium and apartment sales dipped 1.8 percent.

A headline on an earlier version of this article misstated the month covered by the report. It is October, not September.

    Home Prices Plunge in October, NYT, 25.11.2008, http://www.nytimes.com/2008/11/25/business/economy/25econ.html?hp

Obama Unveils Team to Tackle ‘Historic’ Crisis in Economy

November 25, 2008
The New York Times
By JEFF ZELENY

CHICAGO — With the financial crisis looming as a priority of his term, President-elect Barack Obama sought to put his imprint on efforts to stem the turmoil as he introduced his economic team on Monday, nominating Timothy F. Geithner as Treasury secretary and Lawrence H. Summers to head the White House Economic Council.

By naming a team deeply experienced in dealing with financial crises — Mr. Geithner was heavily involved over the weekend in the efforts to stabilize Citigroup — Mr. Obama underscored his determination to assure Americans and foreign investors that he would aggressively step into a leadership vacuum in Washington during the transition.

Moreover, by pledging that his economic team would begin work “today” on recommendations to help middle-class families as well as the financial markets, the president-elect sought to convey an impression of continuity and coordination, so that his administration can “hit the ground running.”

The president-elect also announced that he had chosen Christina D. Romer to head his Council of Economic Advisers and Melody Barnes as director of his White House Domestic Policy Council. Ms. Romer is an economics professor at the University of California, Berkeley, while Ms. Barnes is a longtime aide to Senator Edward M. Kennedy of Massachusetts.

The recent economic news, capped by the Citigroup effort, “has made it even more clear that we are facing an economic crisis of historic proportions,” Mr. Obama said at a news conference. He listed the drop in new home purchases, the surge in unemployment claims to an 18-year high and the likelihood of up to a million further job losses in the coming year.

“While we can’t underestimate the challenges we face,” he said, “we also can’t underestimate our capacity to overcome them to summon that spirit of determination and optimism that has always defined us, and move forward in a new direction to create new jobs, reform our financial system, and fuel long-term economic growth.”

Responding to questions, Mr. Obama said that the struggling automobile industry could not be allowed “simply to vanish,” but that the companies should not get “a blank check” from taxpayers. And he said he was “surprised” that the auto companies’ chief executives were not better prepared with specific recovery proposals in their appearances last week on Capitol Hill. And he all but promised that the tax cuts pushed through Congress by President Bush would be repealed, or at least not renewed when they are scheduled to expire in 2010.

In an effort to inject confidence into the quavering financial markets, Mr. Obama made certain that his first formal cabinet announcement dealt with the economy, not, as is often the case with national security or diplomacy.

In announcing the nominations of Mr. Geithner, president of the Federal Reserve Bank in New York, and Mr. Summers, a Harvard economist, Mr. Obama sent a signal that he was set to pursue aggressive, yet centrist policies, in crafting moves to help jump-start the economy. He was stretching his economic announcement into a two-day affair, planning another news conference Tuesday to present the rest of his team.

The televised news conference, which came shortly after President Bush made brief remarks at the Treasury Department with Secretary Henry M. Paulson Jr., created a stark image of the transfer of power that is under way in Washington. Mr. Obama and his new team arrived in a room of dozens of reporters, while Mr. Bush stood nearly alone on the steps of the Treasury Department.

“This is a tough situation for America,” Mr. Bush said, adding that he had spoken to Mr. Paulson by phone Sunday while returning from an economic summit meeting in Peru. He said that he would keep Mr. Obama and his team informed of any major decisions, and added that Mr. Paulson was working in “close cooperation” with the Obama team.

Mr. Bush spoke to Mr. Obama on Monday about the rescue plan for Citigroup. Mr. Obama said he had also spoken Monday to Ben S. Bernanke, the chairman of the Federal Reserve.

Mr. Geithner worked through the weekend on the plan to stabilize Citigroup. Earlier, he was deeply involved in the bailout of American International Group. So he is intimately familiar with the developing crisis — and the controversial efforts so far to stanch it.

Mr. Obama has said repeatedly that there is “only one president at a time,” but the markets’ apparent concerns at the specter of a do-nothing transition — with neither President nor Mr. Obama seeming to be aggressively steer recovery efforts — has forced him into a more active role.

The Dow Jones industrial average soared Friday by nearly 500 points on word of the Geithner appointment and markets were up again by more than 200 points at midday Monday.

David Stout in Washington contributed reporting.

    Obama Unveils Team to Tackle ‘Historic’ Crisis in Economy, NYT, 25.11.2008, http://www.nytimes.com/2008/11/25/us/politics/25obama.html?hp

Job Centers See Crush of People in Need

November 24, 2008
The New York Times
By DAMIEN CAVE

FORT LAUDERDALE, Fla. — They have little in common: Ron Jones, 52, short and strong, a union carpenter with decades of work experience; and Jerome Grant, 20, tall and thin, a Jamaican immigrant with a degree in culinary arts. But the economy has pushed them to the same difficult place.

On a recent morning, they sat across from each other at a one-stop career center here, feverishly applying for two months of temporary work with United Parcel Service. The pay was $8.50 an hour. There were 150 slots, and more than 300 applicants.

“You just hope you get your name called,” Mr. Grant said, eyeing the interviewers. Mr. Jones agreed, saying, “You got to get in where you fit in.”

If a fit can be found anywhere, it would probably be here at one of 2,942 one-stop career centers that Congress established 10 years ago. They each play host to a web of federal programs for the needy or unemployed, offering training, job listings and, in most states, access to welfare programs like food stamps and unemployment insurance.

Essentially, they are the emergency rooms of today’s sick economy — and they are increasingly overwhelmed. Just a few feet from Mr. Jones, Lequila McGauley, a single mother of two in heels, was also hoping for a chance to carry boxes. Gregory Sapp was learning to use a computer for the first time at age 52.

A few years ago, they were working. Now, with the nation’s jobless claims at a 16-year high, they are among the 20 million people expected to use federal workforce services in 2008, up from 14 million in 2005, according to the Labor Department.

Congress has extended unemployment benefits, which helps, but the Department of Labor also reports that this year’s federal budget for workforce programs was cut by 1.74 percent, to $3.7 billion, continuing a decrease of 14 percent from 2000 to 2007.

Economists say the full impact is easy for lawmakers to miss. Many people apply for unemployment through the Internet, cutting down on actual lines. And those most in need are largely invisible — unskilled, less educated and disproportionately black or from immigrant communities.

“It’s a mix of the most vulnerable and people who are in a state of shock,” said Lawrence F. Katz, a former chief economist at the Labor Department who teaches at Harvard.

Here in Broward County, the real estate boom was bigger and so was the bust. As a result, in the last three months, 36,000 people have come looking for jobs through the one-stop system, an increase of 60 percent over last year, while the number of jobs posted has declined by more than a third.

The number of families receiving public assistance has also jumped by 40 percent.

“The current state of things has affected just about everybody, from the lowest to the highest,” said Kelly Allen, a vice president of Workforce One, the public-private partnership that runs this one-stop and two others in the county. “And it really puts those folks who may have been on the edge further behind.”

The race to survive begins every morning. On a recent day, long lines started to form at the county’s largest one-stop office in Fort Lauderdale within an hour of its 8 a.m. opening. Dozens of men and women waited patiently, standing or sitting in blue chairs near a sign that said “America’s People ... America’s Talent ... America’s Strength!”

Mr. Sapp, working on an assessment of his current skills (graphic arts, no; finance, no), said he was hoping for an office job. He had worked most of his life behind the wheel, or at a stove. “I was a jack of all trades,” Mr. Sapp said, “but my specialty was cooking.”

He started to struggle in 2000, during the last economic dip, and in March of last year, he was let go from a catering company. Temporary jobs became all he could find: a swing shift working security; a Sunday missing church for a few hours of manual labor. And now, he said, those jobs had dried up, too.

“I’m just tired of sitting around,” Mr. Sapp said. “I’m used to being active.”

And then he smiled, revealing a front tooth like an exclamation point. When asked why, he said, “Things have to get better because it can’t get any worse.” He said that he was more hopeful because President-elect Barack Obama would soon be in the White House, and that he could wait a few years for the new president to “put in action what he promised the American people.”

“I feel blessed,” he said. “Really blessed.”

His positive outlook was all the more striking with additional conversation. Mr. Sapp, whose eyes brightened when he spoke about cooking, said he now went to food pantries to stay fed. His divorce five years ago left him alone, and because he could not afford to pay rent he lived in what he described as “a barter situation.” He shares with a sick older man and woman, cooking, cleaning and caring for them in exchange for lodging.

Others at the one-stop also said that cobbling life together with family and friends had become the norm.

Mr. Grant, who came here from Jamaica five years ago with plans to send money home, survives with the help of his girlfriend. Mr. Jones said he had gotten by since February — the last time his carpentry skills brought him steady work — with unemployment insurance, plus help from his 28-year-old daughter.

Ms. McGauley, meanwhile, said she could not survive without her sister and mother. “The hardest part for me is the day care aspect,” she said.

Her daughter, Janiya, 2, stood quietly beside her digging through a pint-sized purse. Like many others, they had been to the one-stop before. This time Ms. McGauley arrived around 9 a.m. to apply for the U.P.S. job, to be a driver’s assistant from now until Christmas. She waited several hours for an interview, and unlike much of the competition she had relevant experience. From 2000 to 2004, she said, she had served in the Army working on supply logistics. She also worked part time for DHL before being let go in July.

She said she would prefer a full-time job, doing just about anything. But she also acknowledged the reality. Unemployment among blacks like herself, Mr. Jones, Mr. Grant, Mr. Sapp and nearly every other customer in the Fort Lauderdale one-stop reached 11.1 percent in October, far above the national average of 6.5 percent.

The Princeton scholar Cornel West, who is black, highlighted such figures in a recent appearance at the Miami book fair, noting that the election of Mr. Obama could not make the nation “post-racial” or “race transcendent” when such disparities still existed.

But like many others here, Ms. McGauley had more immediate concerns — her expectations more kitchen table than ivory tower. “I just want to pay a bill, and get some Christmas gifts,” she said. A few weeks out was as far ahead as she could see. “I just want to get to next year and say, ‘O.K., it’s time to start over,’ ” she said. “I just got to keep going until then.”

Later on, she said she had started receiving a little help from the government; $336 a month in food stamps since June. But that was it — no unemployment, no cash assistance. Like millions of other Americans coming through one-stop centers across the country, she said she really just wanted work.

Her interview with the U.P.S. recruiter seemed to go well. So did the interviews for Mr. Jones and Mr. Grant, who left with a smile as bright as his sunshine-yellow shirt. “I got a 30-70 chance,” he said, seeming to stand taller. “Seventy percent I’ll get it.”

The recruiters told them that a background check would be completed quickly and that they would be notified in the next few days if they were hired. Ms. McGauley said she was told to be ready to work as of the following Monday, and initially she said she felt sure that she would get the job. But it was the 30th position she had applied for since early November, and the longer she waited without getting a call, the less sure she felt.

“I’m kind of skeptical now,” Ms. McGauley said a few days after applying. “I’m going to check out another job at Home Depot.”

    Job Centers See Crush of People in Need, NYT, 24.11.2008, http://www.nytimes.com/2008/11/24/us/24jobs.html

Editorial

Return of the Predators

November 24, 2008
The New York Times

The demise of the subprime mortgage industry has been hard on predatory brokers, too. They feasted for years on bad loans until reality crashed down and the money ran out, and there they were: sharks without a frenzy.

Now they are circling again. Predators of every sort have regrouped and returned to their old ways, this time as loan-modification companies, inserting themselves between hard-strapped homeowners and banks, offering to work deals — for cash up front.

It’s a high-pressure, high-volume business, advertising in the usual low-rent ways: talk-radio ads, Web come-ons, fliers on car windshields. The ads are full of glossy promises, like this one for a Long Island outfit: “Reduce your mortgage rate to as low as 4%. No refinancing — no closing costs. Reduce your monthly payment. Foreclosures, late pays/bad credit okay.”

It’ll cost you — in this case, 1 percent of your outstanding loan, half of it in advance.

There’s often nothing illegal about this booming and largely unregulated business. Some shops are true scams, taking the money and running. But others are just immoral, profiting on fear and false hopes with expensive services that nonprofit organizations and government agencies offer for nothing.

Troubled homeowners know all about the relentlessness of the loan-rescue racket: it fills their mailboxes and sends salespeople to lurk on their doorsteps. Foreclosure filings are public records, and loan modifiers routinely swarm courthouses to find leads. Loan counselors at the Long Island Housing Partnership, a respected nonprofit in Hauppauge, N.Y., tell of scammers crashing its housing workshops, posing as troubled borrowers, then working the crowd with sales pitches.

And they do work hard. A call to one law firm’s toll-free number plugged on WABC radio quickly gets a call back with a hard sell. “We have a 100 percent success rate” in renegotiating loans, an operator sweetly vows, reluctant to say more until you tell her what your mortgage payment is and how far behind you are.

The painful truth is that nobody has a 100 percent success rate, and not every loan is fixable. Banks have recently made public commitments to putting more effort into working loans out. But homeowners need to realize that the best way to do that is directly with the lender or through a reputable nonprofit counselor.

The for-profit loan modifier’s cruelly deceptive sales pitch is that you get what you pay for. Nonprofit organizations, which work for no fee, say they can strike better deals, because they have longstanding relationships with lenders that storefront firms do not have.

But that doesn’t mean that well-meaning advocates are aggressive and effective in finding people who need help. The government, banks and nonprofit organizations need to be more creative and assertive to outmaneuver the predators — to send the competing message that hope doesn’t require thousands of dollars in cash up front, although it does mean facing up to hard truths about one’s finances and future.

Nonprofits frequently complain about how hard it is to get at-risk homeowners to ask for help. It’s true that people deep in debt are often embarrassed and wrapped in blankets of denial. They don’t open mail or reliably make appointments. But the good actors in this bad drama need to get better at working around that problem, before more good money is thrown after bad.

    Return of the Predators, NYT, 24.11.2008, http://www.nytimes.com/2008/11/24/opinion/24mon1.html

Obama Adviser Issues Warning to Automakers

November 23, 2008
Filed at 9:14 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON (AP) -- President-elect Barack Obama's top adviser has a warning for U.S. automakers: Without a plan to retool and restructure, there is very little taxpayers can do to help.

Congress last week refused to act on a bailout plan for the Big Three auto companies. Lawmakers are demanding that company executives first explain how they would reorganize themselves and make the industry viable.

Obama adviser David Axelrod says Congress is sending the right signal to the industry.

The automakers had asked for at least a $25 billion rescue. Obama has supported giving the industry a hand, but has said he would not support a ''blank check.''

    Obama Adviser Issues Warning to Automakers, NYT, 23.11.2008, http://www.nytimes.com/aponline/washington/AP-Obama-Autos.html

Obama Vows Swift Action on Vast Economic Stimulus Plan

November 23, 2008
The New York Times
By JACKIE CALMES and JEFF ZELENY

WASHINGTON — President-elect Barack Obama signaled on Saturday that he would pursue a far more ambitious plan of spending and tax cuts than anything he outlined on the campaign trail, setting the tone for a recovery effort that could absorb and define much of his term.

In the Democrats’ weekly radio address, Mr. Obama said he would direct his economic team to craft a two-year stimulus plan with the goal of saving or creating 2.5 million jobs. He said it would be “a plan big enough to meet the challenges we face.”

Mr. Obama said he hoped to sign the stimulus package into law soon after taking office on Jan. 20. He is already coordinating efforts with Democratic leaders in Congress, who have said they will begin work next month.

Advisers to Mr. Obama say they want to use the economic crisis as an opportunity to act on many of the issues he emphasized in his campaign, including cutting taxes for lower- and middle-class workers, addressing neglected public infrastructure projects like roads and schools, and creating “green jobs” through business incentives for energy alternatives and environmentally friendly technologies.

In light of the downturn, Mr. Obama is also said to be reconsidering a key campaign pledge: his proposal to repeal the Bush tax cuts for the wealthiest Americans. According to several people familiar with the discussions, he might instead let those tax cuts expire as scheduled in 2011, effectively delaying any tax increase while he gives his stimulus plan a chance to work.

“The news this week has only reinforced the fact that we are facing an economic crisis of historic proportions,” Mr. Obama said in his address. “We now risk falling into a deflationary spiral that could increase our massive debt even further.”

His address, a video of which was made available on YouTube, was part of an effort to calm financial markets roiled by the failure of an outgoing president and a lame-duck Congress to come up with a plan to lift the economy and restore investor confidence.

On Monday, Mr. Obama plans to introduce his economic team, starting with his Treasury secretary, Timothy F. Geithner. News that Mr. Geithner, the president of the Federal Reserve Bank of New York, would get the job helped send the stock market up by nearly 500 points on Friday after days of sharp losses.

Former Treasury Secretary Lawrence H. Summers is to be the director of the National Economic Council in the White House, the president’s principal economic adviser and policy coordinator, according to an Obama aide.

The economic team will also include Peter R. Orszag, the head of the Congressional Budget Office, who will be the next White House budget director.

Mr. Summers, who served as a campaign adviser to Mr. Obama, has advocated for a forceful stimulus plan in recent newspaper columns, saying the federal government should be doing more, not less, in areas like health care, energy, education and tax relief. Mr. Obama seemed to echo those thoughts in his radio address.

“We’ll be working out the details in the weeks ahead,” Mr. Obama said, “but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels, fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.”

Mr. Obama’s announcement came after market declines and the prospect of a collapse by automakers and other storied companies had sparked growing criticism last week that he was sitting on the sidelines.

Although advisers say they have not begun to fill in the details, Mr. Obama’s proposal would go beyond the $175 billion stimulus plan he proposed in October. That included a $3,000 tax credit to employers for each new hire above their current work force and billions in aid to states and cities.

Separately, Democratic leaders in Congress have been calling for a robust economic recovery initiative of up to $300 billion, including major investments in infrastructure to create jobs. President Bush has refused to consider a package so large, but even some conservative economists have said $300 billion is the minimum needed to spur the economy.

“There are no quick or easy fixes to this crisis, which has been many years in the making,” Mr. Obama said Saturday. “And it’s likely to get worse before it gets better.

“But January 20th is our chance to begin anew, with a new direction, new ideas and new reforms that will create jobs and fuel long-term economic growth.”

Some Republicans might be won over should Mr. Obama decide not to repeal the Bush tax cuts for those making more than $250,000. By simply letting the cuts expire after 2010, as the law now provides, Mr. Obama would in effect delay the tax increase that high-income taxpayers would have faced in the next year or two under his original plan.

That could have economic and political benefits. Mr. Obama would not be open to the charge from Republicans and other critics that he is raising taxes in a recession, which many believe is counterproductive. His Republican presidential rival, Senator John McCain of Arizona, had raised that argument during the campaign.

By letting the tax cuts expire, Mr. Obama would get the benefit of higher revenues in 2011 and beyond to help finance his promised health care plans without having to propose raising taxes on the affluent and without the Democratic majority in Congress having to take a vote on a tax increase.

Also, Mr. Obama is under far less pressure in the short term to raise revenues to help finance campaign promises because the seriousness of the economic crisis has brought bipartisan agreement that the government must do whatever it can to spur economic growth.

Mr. Bush and the Republicans who controlled Congress in 2001 agreed that his tax cuts would expire after 10 years as a way of minimizing the projected revenue losses in future years, to comply with Congressional budget rules and to help pass the legislation. The president repeatedly called for making the tax cuts permanent, but no action was taken.

The 2.5 million jobs that Mr. Obama promises to save or create over two years is a gross number. With about 1.2 million jobs lost this year, and more projected to be lost in 2009, Obama advisers expect that job losses will outnumber new jobs next year. For 2010, the advisers are projecting the reverse if Mr. Obama’s plans become law.

Nearly every spending program and tax cut that Mr. Obama proposed during the campaign could well end up in the stimulus package, advisers indicated. For example, Mr. Obama’s proposals to invest in energy alternatives and advanced “green” technologies will most likely be part of the package, rather than proposed later in his administration.

In effect, the stimulus will be seen by the Obama administration as “a down payment,” as one adviser put it, on Mr. Obama’s entire domestic platform, allowing him to try to take maximum advantage of the first year of his presidency. Traditionally, the first year is the one in which modern presidents have achieved most of their major victories.

Some economists welcomed Mr. Obama’s plan, though they said it was difficult to assess without full details. The focus on creating and saving jobs made sense, they said, given the deterioration of the job market.

“The unemployment rate is soaring,” possibly into the double digits, said Kenneth S. Rogoff, an economics professor at Harvard.

The Senate majority leader, Harry Reid, Democrat of Nevada, said in a statement, “We will soon finally have a leader and partner in the White House who recognizes the urgency with which we must turn around our economy, and I look forward to working with him and the new Congress to do so.”

Republicans in the next Congress could still block a big stimulus package in the Senate, as Mr. Obama seemed to recognize.

“I know that passing this plan won’t be easy,” Mr. Obama said. “I will need and seek support from Republicans and Democrats, and I’ll be welcome to ideas and suggestions from both sides of the aisle.

“But what is not negotiable is the need for immediate action.”

Carl Hulse and Mark Landler contributed reporting.

    Obama Vows Swift Action on Vast Economic Stimulus Plan, NYT, 23.11.2008, http://www.nytimes.com/2008/11/23/us/politics/23obama.html?_r=1&hp

Retailers and credit card lenders at odds in crunch

Fri Nov 21, 2008
11:18am EST
Reuters
By Alexandria Sage - Analysis

SAN FRANCISCO (Reuters) - The need by U.S. retailers' to sell in hard times has put them at odds with the lenders backing their credit cards. While stores aggressively promote use of their cards, lenders are increasingly wary of consumer defaults.

That conflict of interest, a direct result of the global credit crunch, could fuel escalated risk in 2009 following a holiday season in which more consumers are offered store credit cards that they may be less likely to repay.

"From the retailers' point of view, the more people who open up cards, the better it is for sales," said Laura Nishikawa, an analyst with Innovest Strategic Value Advisors.

But in the midst of the economic downturn, banks are working hard to protect themselves against defaults from existing cardholders, not to mention weeding out consumers with bad credit and maxed out accounts who seek new cards.

"As a bank right now, you're afraid you're picking up the bad apples," Nishikawa added. "That's one of the reasons a lot of the banks are tightening their standards."

The tug-of-war between retailers and lenders is accelerating, particularly as store chains pull out all the stops to ring up holiday sales in what is expected to be the worst shopping season in nearly two decades.

Stores from Home Depot Inc (HD.N: Quote, Profile, Research, Stock Buzz) to online jeweler Blue Nile Inc (NILE.O: Quote, Profile, Research, Stock Buzz) have seen potential sales evaporate due to their customers' inability to access credit to pay for big-ticket items, whether a diamond ring or a kitchen remodel.

"Large consumer durables are extremely credit sensitive," said Citigroup analyst Steven Wieting, citing autos, furniture and electronics as vulnerable sectors. "People simply do not buy a new car without credit."

Blue Nile Chief Executive Diane Irvine said recently the credit freeze had hurt "purchases of high-ticket items, as traditional avenues of financing have now closed."

NO CREDIT? USE THIS CARD!

One solution for retailers is to offer shoppers yet another credit card. These private label cards, backed by lenders such as GE Money (GE.N: Quote, Profile, Research, Stock Buzz), Citi (C.N: Quote, Profile, Research, Stock Buzz) or HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), carry varying interest rates and limits set by the lenders themselves based on credit worthiness.

"The retailer has no interest in the card being repaid. They just want the loan to be made in the first place so they can get the sale," said Nishikawa.

At stores from Cost Plus (CPWM.O: Quote, Profile, Research, Stock Buzz) to Ann Taylor (ANN.N: Quote, Profile, Research, Stock Buzz), salespeople ask shoppers if they want to apply for a card, offering discounts if they do.

Retailers, desperate for revenue in a dismal selling environment, "are trying to sell anything at any price," said David Bassuk, managing director in the retail practice of Alix Partners, a business advisory firm.

"They are pushing the credit card down your throat because they find when you go into a store and they offer you 10 percent off if you open a credit card today, it creates a motivation to buy more stuff," Bassuk said.

Red Gillen, senior analyst with Celent, a financial research and consulting firm, said retailers are "stuck between a rock and hard place."

"On the one hand they want the shoppers to buy more, and on the other hand they don't want their shoppers' applications to be denied," he said. "That leaves a very bad taste in their mouths."

But ultimately, it's the underwriters who hold the (proverbial) cards, experts say. To protect themselves, applications can be rejected, credit limits or higher interest rates can be imposed, and all lenders have the right to tinker with terms after they've signed up someone new.

"The underlying issue is the credit underwriters bear the risk so their position holds sway," Gillen said.

HOME DEPOT, BEST BUY CREDIT

Home Depot has been scaling back its programs to offer no payments and no interest for 12 months. This week, an offer on the company's website advertised a six-month, no payment, no interest credit card on purchases over $299.

Some 30 percent of new account applications for Home Depot credit cards are rejected, executives said. Its average approval limit has decreased 5 percent from last year.

"As we look out, continuing pressure on credit availability could potentially impact sales," said Chief Financial Officer Carol Tome in a quarterly conference call with analysts.

Best Buy Co Inc (BBY.N: Quote, Profile, Research, Stock Buzz), aware that people can't charge new televisions, computers or stereo systems without financing, advertises an HSBC credit card with no interest for 18 months for purchases over $499.

A holiday marketing program by Kohl's Corp (KSS.N: Quote, Profile, Research, Stock Buzz) to get shoppers into stores includes charge card promotions like a two-day shopping pass with additional discounts.

A spokesman for Macy's Inc (M.N: Quote, Profile, Research, Stock Buzz) said its card was not being promoted any more than usual in the new environment. Still, even as write-offs increase, use of the Macy's credit card is rising.

But after consumers sign up for cards to get a discount on purchases, they often let their new cards lapse. Lenders are keeping an eye on these inactive store credit cards, worried that a sudden flurry of activity means that the cardholder is "in a tight spot," said Nishikawa.

And with the approach of the holidays, a time when a large chunk of sales are purchased on credit cards, banks are increasingly wary, experts say.

Alix Partner's Bassuk said he sees "more risk and more downside" as retailers promote cards and lenders raise rates.

"The holiday season is going to be (about) retailers pushing these bargains, people taking out high-rate credit cards, more and more defaults, and we'll see an escalation of the economic problems we're facing."

(Reporting by Alexandria Sage, editing by Richard Chang)

    Retailers and credit card lenders at odds in crunch, R, 21.11.2008, http://www.reuters.com/article/reutersEdge/idUSTRE4AK00320081121

The Food Chain

Fields of Grain and Losses

November 21, 2008
The New York Times
By DAVID STREITFELD

WALTERS, Okla. — The farmers said it would not last, and they were right.

When the price of wheat, corn, soybeans and just about every other food grown in the ground began leaping skyward two years ago, farmers were pleased, of course. But generally they refused to believe that the good times would be permanent. They had seen too many booms that were inevitably followed by busts.

Now, with the suddenness of a hailstorm flattening a field, hard times are back on the American farmstead. The price paid for crops is dropping much faster than the cost of growing them.

The government reported this week that the cost of goods and services nationwide fell by a record amount in October as frantic businesses tried to lure customers. While lower prices are good for consumers in the short run, a prolonged stretch of deflation would wreak havoc as companies struggled to stay afloat.

In this lonesome stretch near the Texas border, farmers are getting an early taste of a deflationary world. They have finished planting next year’s winter wheat, turning the fields a brilliant emerald green. But it cost about $6 a bushel in fuel, seed and fertilizer to put the crop in. That is $1 more than they could sell it for today, and never mind other expenses like renting land.

This looming loss sharpens their regret that they did not unload more of this year’s crop back when they harvested it in May. They knew the boom would end, but not so soon.

“I waited all my life for wheat to go from $4 to $5,” said Jimmy Wayne Kinder, a fourth-generation farmer. “Then it hit $10, and we were all asking, ‘What are we going to do?’ ”

Mr. Kinder, who farms about 5,000 acres with his father, James Kinder Jr., and his brother, Kevin, held onto much of his wheat, hoping that prices would go still higher. Instead, they plunged. “I lay in bed at night kicking myself,” Mr. Kinder said.

The farmers in Walters still have to worry about drought and floods and grain bugs and army worms, as they have for decades, but they have new anxieties beyond their control: Manic commodity markets. A rising dollar that makes their crops more expensive overseas. And — an urgent new concern this fall — the solvency of their banks.

In September, when banks began failing at the height of the credit crisis, Mr. Kinder called Mickey Harris, his banker at the First State Bank of Temple. “Are we going to be O.K.?” he asked.

Mr. Harris offered reassurances that the privately owned, one-location bank was fine, but he feels the fate of farmers, until recently one of the strongest sectors in a slumping economy, is less certain.

Unless wheat stages an unexpected recovery, Mr. Harris said, “a year from now these farmers’ net worth will surely be less.”

Oklahoma exports two-thirds of its wheat, more than the country as a whole. That worked to the state’s advantage in 2007 and the first half of 2008, as a combination of bad harvests in Australia, the cheap dollar and rising Asian consumption created intense international demand.

The state’s farmers responded, naturally enough, by ramping up production. Because of better weather and therefore a better yield, 166.5 million bushels of wheat were harvested in Oklahoma this spring, a 10-year high. And because of the high prices, the crop was valued for the first time at more than $1 billion, nearly twice as much as 2007 and nearly three times as much as 2006.

“They made a killing,” said Kim Anderson, a grain economist at Oklahoma State University.

Assuming, that is, they sold. The farmers who cashed in at the right moment are acquiring legendary status. “I know a fellow that sold some wheat for $12 a bushel. That was almost beyond belief,” said James Kinder, 74.

But his son suspects that most were like the Kinder family: they either did not sell or did not sell enough.

The Kinders still have about 40 percent of their wheat, stored on the farm and in commercial grain facilities. “Farmers are terrible marketers,” said Jimmy Wayne Kinder, 50. “We fall in love with our crop.”

It was the same misguided optimism that caused homeowners to think their houses would always keep increasing at a 20 percent annual clip. Farmers across the country fell prey to it.

David Kanable at the Oregon Farm Center, a mill near Madison, Wis., was paying $7.25 a bushel for corn in June. “We never had a farmer lock in at that price. They wanted $8,” Mr. Kanable said. On Thursday, the mill was paying $3.17 a bushel.

When commodity prices were feverish, the price of good farmland exploded, too. Cropland values rose about 20 percent in the Midwest farm belt last year, capping a multiyear rise, according to the Agriculture Department. Walters and other areas southern Oklahoma, where the land is not as rich and the crops have to be coaxed from the soil, were swept up in the excitement.

The previous land boom around Walters was in the late 1970s, a reaction to the high commodity prices of that era. Land went for as much as a thousand dollars an acre.

“Doctors and lawyers were buying the land from farmers,” said the senior Mr. Kinder. “Then prices fell, and those same doctors and lawyers were begging the farmers to take it off their hands.”

Prices dropped to $500 an acre. Only in the last few years did they begin to approach the records set three decades ago.

On a recent sparkling Saturday morning, two dozen farmers showed up for an auction of 160 acres owned by a Kansas woman whose family had held it for decades. The farmer who worked the land, Russ Scherler, brought his checkbook but little hope that he would be top bidder.

Rick High, the auctioneer, chatted up the farmers from the back of his pickup, saying that credit was tight but land was a safe haven. His opening demand: $150,000. Not a farmer moved. “How about 120?” Mr. High asked. No luck. And so the price sank to $60,000, where the first bid was made.

From there, it slowly climbed back up, finally going for $122,000 — about $760 an acre — to a farmer who had sold some land earlier and now needed to buy to avoid tax charges.

Mr. Scherler was disappointed, but not surprised. “Missed me by about $30,000,” he said.

A half-mile up the road, a parcel the same size that was deemed slightly inferior had sold a few weeks earlier for $128,000. The market for land is definitely weakening.

One reason is that the investors and part-time farmers are once again dropping away. Jim Mumford, an equipment dealer in Walters, says demand for small tractors has dried up. Where part-timers might once have put in a small crop, there are only weeds. “They’re holding off till things get better,” Mr. Mumford said.

The Kinders are making their own adjustments.

“The market says, ‘Here’s the price. You want to make any money, get below it,’ ” said Jimmy Wayne Kinder.

One way to do that is by diversifying, so they bought 2,000 head of cattle. This has its own risks: a hard winter will mean less grazing for the cattle, which translates into buying more feed. It is also a gamble that cattle prices will rise instead of sinking, as they have been all fall.

Another way to get under the market price is by trying to do more with less. The Kinders are practically spoon-feeding nitrogen and phosphate fertilizers onto their wheat.

It is a queasy time. “Given the current economic environment, I don’t think anyone can predict commodity prices,” said Mr. Anderson, the economist.

If production costs do not fall or wheat prices do not rise by next spring, he said, farmers will be contacting their representatives in Congress and requesting higher price supports.

The elder Mr. Kinder, who is pessimistic enough to think land values will once again fall 50 percent, is taking it philosophically.

“People have great prosperity and everyone gets spoiled,” he said. “Then there are times of great hardship and everyone learns patience.”

    Fields of Grain and Losses, NYT, 21.11.2008, http://www.nytimes.com/2008/11/21/business/21farm.html

Shares Near 6-Year Low, With More Losses Feared

November 20, 2008
The New York Times
By JACK HEALY

As the stock market tumbled to its lowest level in nearly six years on Wednesday, Wall Street traders and many ordinary Americans were asking the same question: Where, oh where is the bottom?

After a yearlong slide in stocks and a giant bank rescue from Washington, even some pessimists had hoped that the worst might be over. But now, after the Dow Jones industrial average fell below 8,000 on Wednesday, the financial crisis and the bear market it spawned seem to be taking a new, painful turn.

Once again, investors’ confidence in the nation’s financial industry is draining away. And once again, people are rushing for ultra-safe investments like Treasuries. Many analysts agree that the short-term outlook seems grim now that the Dow has fallen below 8,000, a level that had lured buyers again and again in recent weeks.

“When you break through these kinds of levels, it strongly suggests there’s more to go,” said Ed Yardeni, president of Yardeni Research.

But how much more to go? Dow 7,000? Dow 6,000? Many analysts are reluctant to say, having been proved wrong so many times before. The Dow has lost nearly 40 percent this year, and many of its blue chips, from Alcoa to General Electric, are down even more than that.

Much will depend on the course of the economy, but there is little good news on that front. On Wednesday, a new report raised concern that the economy might be beset by a debilitating decline in prices, or deflation.

But another big worry is that the credit markets, where this crisis began, are coming under even more stress than they were before. Junk bonds, for instance, fell to their lowest levels on record on Wednesday, driving the average yield on these high-risk corporate bonds to more than 20 percent. Yields on Treasury bills, meantime, fell to nearly zero. Investors were willing to accept almost no return just to know their money was safe.

The Treasury’s benchmark 10-year bill rose 1 25/32, to 103 20/32, and the yield, which moves in the opposite direction from the price, was at 3.32 percent, down from 3.53 percent late Tuesday.

Another source of concern is a possible new round of forced sales by hedge funds, seeking to raise the cash quickly to meet margin calls and redemptions of assets by investors.

Few stocks escaped unscathed. Shares of small and midsize companies fell, as well as those of Wal-Mart, the retailer. Energy companies plunged, as did airlines, fast-food chains and pharmaceutical companies.

But it was financial stocks that bore the brunt of the selling, and, for many analysts, seem the most worrisome. Financial shares are plunging far below the levels plumbed in October, when panic gripped the markets. On Wednesday, Citigroup, the hobbled financial giant, plunged 23.4 percent to a mere $6.40 in an avalanche of sell orders. Once the most valuable financial company in America, Citigroup is now worth less than U.S. Bancorp.

Big banks like Bank of America, JPMorgan Chase and Wells Fargo & — all of which, like Citigroup, have received billions of dollars from the government — fell more than 10 percent.

Goldman Sachs, the former employer of Henry M. Paulson Jr., the Treasury secretary, sank to its lowest level since it went public in 1999. Analysts predicted that Goldman, the most profitable bank in Wall Street history, would suffer its first loss as a public company.

Even Warren E. Buffett’s Berkshire Hathaway, which owns the Geico Corporation and recently invested in Goldman Sachs, fell 12 percent, its steepest decline in more than two decades. The Dow Jones industrial average closed down 427.47 points or 5.07 percent, at 7,997.28. The broader Standard & Poor’s 500-stock index closed down 6.12 percent or 52.54 points at 806.58 while the technology-heavy Nasdaq ended down 6.53 percent at 1,386.42.

But even as markets tumbled, analysts saw few signs of capitulation, that final burst of panicked selling that typically marks a market bottom. If anything, Wednesday’s new lows are a sign that Wall Street has farther to fall.

“The market is still anticipating that we have not seen the worst,” said Ryan Larson, head equity trader at Voyageur Asset Management.

After precipitous declines this autumn, Wall Street had spent the past weeks testing its yearly lows by dipping sharply, only to rebound late in the day. The testing and retesting prompted some optimists to hope that the markets had finally found a foothold.

But Wednesday’s drop proved them wrong.

A gathering mass of bleak economic conditions seemed to approach the critical point, as fears of deflation and the auto industry’s waning prospects of a federal bailout drove financial markets into an afternoon selling frenzy.

Auto shares fell as the leaders of the three American automakers reprised their appearance on Capitol Hill to discuss an emergency bailout and the threat of bankruptcy. General Motors was down 10 percent, to $2.79 a share, and the Ford Motor Company was down 25 percent, to $1.26.

Crude oil settled at a 22-month low at $53.62 a barrel, and energy stocks followed them lower.

Wednesday’s losses followed news that consumer prices dropped 1 percent in October, a record one-month decline, according to the Labor Department. Energy prices, which tumbled 8.6 percent over the month, led the declines.

Meanwhile, housing starts in October fell 4.5 percent to a seasonally adjusted 791,000 from the prior month, the government reported on Wednesday. For the year, housing starts were down 38 percent and building permits were 40 percent lower, reflecting how the housing industry has slammed to a halt amid tumbling home values, slumping sales and tighter credit markets.

Asian stock markets opened sharply lower on Thursday. Trade data from Japan, Asia’s largest economy, showed big drops in exports compared with a year ago. The Nikkei 225 index in Japan dropped 4.3 percent soon after the opening. Similar falls were seen in South Korea, where the Kospi fell 3.9 percent.

    Shares Near 6-Year Low, With More Losses Feared, NYT, 20.11.2008, http://www.nytimes.com/2008/11/20/business/economy/20markets.html?hp

Web Retailers Are Waging Seasonal Price Wars

November 20, 2008
The New York Times
By CLAIRE CAIN MILLER and BRAD STONE

SAN FRANCISCO — As deserted malls and department stores struggle to court cash-short consumers with steep discounts this holiday season, a similar and even more ferocious price war is being waged online.

Internet retailers, trying to navigate what is shaping up to be the first truly dreary holiday shopping season ever on the Web, are engaging in price-cutting and discounting so aggressive that it threatens their profit margins and, in some cases, their very survival.

For example, Sony introduced its HDR-SR11 high-definition digital video recorder in April with a suggested retail price of $1,200. This week, Dell.com was selling it for $899, and the electronics retailer Abe’s of Maine had it on its site for $750 — and both were throwing in free shipping.

At Lori’s Designer Shoes, a Web site that sells women’s accessories, a brown leather Hype tote bag started at $338, fell to $246 and is now available with a 20 percent discount coupon for $196.80. Lori Andre, the owner, said she generally tried to avoid online promotions “because then you train the customer and they’ll expect that, and you’re not going to make any money.” But last week, traffic hit a wall and sales on the site fell by nearly a quarter. “We’ve been in business for 25 years, and never seen the bottom drop out like this,” she said.

Traditional retailers are facing the same problem, of course, and discounts are proliferating from suburban malls to Fifth Avenue. But the price-cutting is fiercest on the Web, where customers can easily shop for the best price with a quick search on Google or on specialized shopping engines like Shopping.com. Online, the competition is only a click away. For many Web sites, the discounts and price cuts are the only way to hold on to customers as online buying unexpectedly plummets. The research firm comScore reported Tuesday that sales growth on e-commerce sites slowed to a meager 1 percent in October compared with the previous year — the lowest rate ever for online retail and well down from the industry’s typical 20 percent gains.

Sales of music, movies, books, computer software, flowers and gifts have been hit the hardest, with double-digit declines, comScore said. “A lot of these retailers aren’t running on big margins to begin with, so it’s pretty challenging,” said Gian Fulgoni, chairman of comScore. “But it’s a Catch-22 situation: They have to run these deals because that’s what consumers are looking for this season.”

To preserve the sanctity of their brands and some level of pricing control, some Web companies are promoting discount sites separately from their main brands. Zappos.com, a shoe retailer based in Henderson, Nev., never runs promotions on its site. Instead, it quietly moves shoes that do not sell in six months to 6pm.com, a clearance site it acquired last year, but runs separately. This month, the company is buying more search ads for 6pm.com, where a pair of colorful slip-on Keds sneakers is on sale for $12.73 — 74 percent off the original price on Zappos.com.

Even when these extreme discounts mean selling shoes for less than Zappos.com paid for them, it is better to recoup some cash than none, said Tony Hsieh, the company’s chief executive.

The discounting is not just drastic, but is also occurring unusually early in the season. Kmart, a division of Sears Holding, initiated Black Friday prices on electronics — 40 to 50 percent off — on Nov. 2, nearly four weeks before the real Black Friday, the busy shopping day just after Thanksgiving that usually marks the beginning of the holiday buying season.

Kmart’s discounts are available both online and in stores, but the retailer is throwing in free shipping on Web purchases of $49 or more this week, a measure it has never taken before.

E-commerce experts said they expected the cutthroat price competition to be fatal to some struggling retailers. “Folks that have been on the ropes or near the ropes during the good times are going to go under. There is no question about it,” said George Michie, co-founder of the Rimm-Kaufman Group, a search marketing company.

Many boutique stores opened e-commerce sites because they were simple to build and inexpensive to run, yet those same advantages also forced them to compete with thousands of other sites selling similar products, each offering steeper discounts.

Plasticland, now an online boutique selling clothes, home décor and jewelry, started in 2002 as a single store in San Diego. The owners, lured by the global audience of the Web, moved it online in 2005. They were caught off guard this spring, when sales started to plummet.

The company, now based in Plano, Tex., switched to lower-priced merchandise and began moving unsold goods onto its clearance pages a month earlier than usual. A necklace with a red apple pendant now sells there for $32.50, down from $65, and a serving platter for $37.80, down from $54.

“Our profit per piece obviously drops, which means that we have to ship a lot more merchandise to make the same amount of money,” said Rebecca Nyhus, the store’s co-owner. “Lowering price points has helped us weather the downturn, but it has really bogged us down because shipping is so time-consuming” and expensive.

Like many other small e-tailers caught in the holiday margin squeeze, Plasticland was forced to raise its minimum order for free shipping to $100, from $50 to try to recoup some of the lost profits.

Free shipping is becoming a painful imperative for all e-commerce sites. Three-quarters of online shoppers said in a comScore survey that they would shop elsewhere if a site did not offer free shipping, and nearly all sites offered it for at least some purchases.

E-commerce giants like Amazon.com, which offers free shipping on orders over $25 and eliminates even that minimum for customers who pay a flat annual fee, can easily absorb shipping costs. But small online vendors struggle. Powell’s Books, a bookstore in Portland, Ore. with a site that competes for customers with Amazon.com, offers free shipping on orders over $50.

“In our business model, we could not afford to give free shipping on every package. It just would not work,” said Dave Weich, director of marketing at Powell’s.

To exacerbate matters, a major expense for online retailers seems to be rising: the cost to advertise products on the search engine Google, the source of considerable traffic and visibility for most e-commerce sites.

Over the last year and a half, prices for text ads related to women’s fashion have quadrupled, say apparel retailers. In the popular gifts category, the price to advertise alongside results for common search queries like “gift baskets” jumped 50 percent from the 2006 holidays to 2007 and is expected to climb again this year.

For Delightful Deliveries, a 10-year-old company that was selling gift baskets online, that extra expense — plus the challenge of competing on price against its own wholesalers, which also sell on the Internet — proved too much. The eight-employee company, based in Port Washington, N.Y., closed in September.

Eric Lituchy, the founder of Delightful Deliveries, is now watching the Internet price war from the sidelines. “I think everyone is praying that this economy does not get any worse and that people find reasons for optimism and spend some money at Christmastime,” he said.

    Web Retailers Are Waging Seasonal Price Wars, NYT, 20.11.2008, http://www.nytimes.com/2008/11/20/technology/internet/20slashing.html?hp

Auto Chiefs Fail to Get Bailout Aid

November 20, 2008
The New York Times
By BILL VLASIC and DAVID M. HERSZENHORN

WASHINGTON — The chief executives of Detroit’s Big Three automakers departed Washington empty-handed on Wednesday night after two days of pleading for a financial lifeline on Capitol Hill.

As the public hearings and intense behind-the-scenes negotiations appeared to come to naught, the Senate majority leader, Harry Reid of Nevada, went to the floor seeking to bring up the Democrats’ plan to provide $25 billion in aid from the $700 billion financial bailout program. The Republicans objected, effectively killing the plan.

Senator Christopher S. Bond, Republican of Missouri, then requested that the Senate consider a compromise measure that would speed access to $25 billion in federally subsidized loans that have been signed into law by President Bush. Those loans, however, were meant to help the auto companies retool their plants to make fuel-efficient vehicles, so Mr. Reid objected to that.

In an interview on Wednesday evening in his Washington office, Rick Wagoner, the chief executive of General Motors, the most imperiled of the auto companies, struggled to remain upbeat after two days of grueling testimony. Lawmakers had criticized Mr. Wagoner and the two other chief executives for failing long ago to build better cars or to revamp their operations. They were even attacked for traveling to Washington in corporate jets, which some lawmakers mocked as hardly a sign of frugality.

“This is all part of what we signed up for when we made this request,” Mr. Wagoner said, seeming drained and uncertain of what would come next. “We knew we needed to testify and come down and tell our story, and we know the Congress needs to decide if it’s going to act and how it’s going to act. We don’t think realistically one should have expected an answer tonight, and I still remain hopeful.”

But with the House set to adjourn at the end of Thursday, the automakers were left with only the dimmest of hopes that Congress would provide any assistance this year.

And though Mr. Reid did not completely close the door to a deal, House Speaker Nancy Pelosi has repeatedly expressed strong opposition to the core of Mr. Bond’s proposal.

In a sign of the pessimism among Congressional Democrats, the majority leader, Steny H. Hoyer of Maryland, told lawmakers on Wednesday evening that no House votes were expected Thursday, meaning the Senate was not expected to send over any legislation for approval.

Mr. Wagoner met with Congressional leaders late Wednesday before leaving for Detroit, and while he declined to say if he expected some last-minute aid package, he said G.M. would welcome any form of assistance.

“I think it best we leave what’s the best way to do this to the Congressional leaders and to the administration to sort out,” he said. “We’d be happy to work under any of the scenarios I’ve been told about.”

Mr. Wagoner testified Wednesday that G.M. had not prepared a contingency plan for a bankruptcy filing if federal aid is not forthcoming. He said t G.M.’s advisers had concluded that it could not obtain credit to operate in a bankruptcy, and instead would have to consider liquidating its assets.

The auto industry’s immediate future may now lie with the Bush administration, which has staunchly opposed using the Treasury Department’s $700 billion financial bailout program to aid Detroit. Democrats continued to insist Wednesday that the Treasury secretary, Henry M. Paulson Jr., has legal authority to tap the fund and should do so.

“I talked to Secretary Paulson twice today; he knows he has authority,” Mr. Reid said on the Senate floor. “He doesn’t want to do it.”

Mr. Bond, whose state houses factories for all of the Big Three, pressed Mr. Reid to consider an alternative plan that he and Senator George V. Voinovich of Ohio had been developing in consultation with Senator Carl Levin, Democrat of Michigan.

“This is a critical time to move to prevent perhaps the bankruptcy or disappearance of a major auto company, which would cause chaos in our country,” Mr. Bond said. “Over three million jobs are related to the auto industry, from the auto assembly plants to the auto dealerships, parts suppliers.”

But Mr. Reid said it was too soon to put it to a vote. “We’ve had no hearings. We have no text,” he said. “I know that my friend Senator Bond is a man of faith. I think I am, too. But this is carrying it a little too far. We don’t know anything about this. I look forward to a piece of legislation that we can look at. Hopefully, it can be done tonight or tomorrow and we’ll look at it.”

He added: “But I want everyone to understand no matter how hard we work, how hard we try, the House of Representatives is going home tomorrow. O.K.? They’re leaving.”

If Congress adjourns without approving any aid and the Bush administration refuses to act, the automakers will have to wait until President-elect Barack Obama takes office on Jan. 20, and even then there are no guarantees.

It looks to be a rocky ride for the Big Three until then. G.M., for example, is using more than $2 billion in cash a month and may run short of the minimal level needed to operate by then.

Already, the blame game has begun. At the White House, the press secretary, Dana Perino, said Wednesday that the administration supported Mr. Bond’s proposal and chastised Mr. Reid for not holding a vote on it.

She said that if Congress leaves town without addressing the automakers’ plight, “then the Congress will bear responsibility for anything that happens in the next couple of months during their long vacation."

Mr. Wagoner, in the interview, declined to say whether G.M. would be insolvent by the time the new administration comes in.

“Everybody is working like crazy to come up with additional cost savings. We’re going to do everything we can no matter what,” he said. “But the reason we’re down here now is we do think the time is urgent and the risk is high. We think it’s very high risk not to act now.”

In testimony on Wednesday before the House Financial Services Committee, Mr. Wagoner and his counterpart at Chrysler, Robert L. Nardelli, said it was unlikely that their companies could survive much longer without emergency assistance.

The chief executive of Ford Motor, Alan R. Mulally, said his company had enough cash to last through 2009 but that a failure by G.M. or Chrysler could have catastrophic effects on the industry.

The four-hour hearing before the House committee raised many of the same concerns that were aired Tuesday’s hearing by the Senate Banking Committee.

Republicans attacked the automakers for failing to fix their business models until they were on the verge of disaster.

“A bailout, to me, raises fairness issues and does not solve the problem,” said Spencer Bachus of Alabama, the senior Republican on the committee.

Jeb Hensarling, Republican of Texas, was among the skeptics. “I need to be convinced that if you get the $25 billion that it will actually make a difference.”

Liz Robbins contributed reporting.

    Auto Chiefs Fail to Get Bailout Aid, NYT, 20.11.2008, http://www.nytimes.com/2008/11/20/business/20auto.html

Shift in Bailout Plan Raises Oversight Questions

November 19, 2008
Filed at 1:52 p.m. ET
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON (AP) -- The radical shift in the focus of the $700 billion economic bailout package led one senator Wednesday to question what the young prosecutor tapped to be the program's inspector general will be investigating.

''I wonder why taxpayers should pay $50 million to a watchdog who has nothing to watch,'' said Sen. Jim Bunning, R-Ky.

The bailout law allows a $50 million budget for the inspector general's office. But in the six weeks since Congress passed the measure, Treasury Secretary Henry Paulson has shifted its focus from buying troubled mortgage securities to buying preferred shares in healthy banks.

Bunning said under that strategy, the new inspector general, 38-year-old federal prosecutor Neil Barofsky, will have ''little to do but watch preferred stock options mature.''

''It is a lot of money,'' Barofsky acknowledged during questioning at his confirmation hearing before the Senate Banking Committee. ''It probably exceeds the annual budget of my current U.S. Attorney's office.''

He said the law requires the inspector general to oversee the bank investments the same as if they were toxic mortgage securities. That would include looking into conflict of interest allegations against contractors who run the program.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., said he expects Barofsky to conduct oversight and audits of ''every aspect'' of the Treasury Department's Troubled Asset Relief Program, known as the TARP.

Barofsky was expected to win Senate confirmation in a vote later Wednesday or Thursday.

He told the committee that his eight years prosecuting primarily white-collar federal crimes in the Southern District of New York gave him a ''vital education in understanding some of the root causes of the current financial crisis.''

His most recent job was heading a newly created mortgage fraud unit in the U.S. attorney's office where he has prosecuted fraudulent ''foreclosure rescue'' schemes that prey on struggling homeowners.

Inspectors general are traditionally held over between administrations, though once President-elect Barack Obama moves into the White House, he would have authority to replace them.

Thus far, Treasury has allocated $290 billion of the TARP funds -- $250 billion to banks and another $40 billion to insurance giant American International Group Inc.

    Shift in Bailout Plan Raises Oversight Questions, NYT, 19.11.2008, http://www.nytimes.com/aponline/washington/AP-Meltdown-Inspector-General.html

Op-Ed Contributor

Let Detroit Go Bankrupt

November 19, 2008
The New York Times
By MITT ROMNEY

Boston

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.

    Let Detroit Go Bankrupt, NYT, 19.11.2008, http://www.nytimes.com/2008/11/19/opinion/19romney.html

Consumer Price Drop Prompts Fear of Deflation

November 20, 2008
The New York Times
By JACK HEALY

In another sign that the struggling economy continues to slow, consumer prices tumbled by a record amount in October, carried lower by skidding energy and transportation prices, raising the specter of deflation.

The Consumer Price Index, a key measure of how much Americans spend on groceries, clothing, entertainment and other goods and services, fell by 1 percent in October compared with prices in the previous month, the Labor Department reported Wednesday morning.

It was the steepest single-month drop in the 61-year history of the pricing survey and raised concerns about deflation as the economy contracts and demand for goods and services plunge. Another report released Wednesday indicated that new home construction continued to fall. “This month it’s more than slowing, it’s outright contraction,” said James O’Sullivan, United States economist at UBS. “And yes, if you extrapolate that, it’s deflation.”

A continued decline in prices could worsen the economic slowdown by making it harder to pay off debts and would negate the impact of interest-rate cuts by the Federal Reserve.

Even excluding volatile food and energy prices, prices dropped 0.1 percent in October, the first such decline in more than two decades. Mr. O’Sullivan said that he expected core prices, which are up 2.2 percent this year to continue to fall back, but he does not expect them to slip into negative territory..

“You’re going to see huge declines in a month’s time in the November reports,” Mr. O’Sullivan said. “That’s the biggest part of the weakness.”

Energy prices led the decline in October, falling 8.6 percent as the price of gasoline continued its steady slide from highs of more than $4 a gallon. The costs of transportation fell 5.4 percent while clothing prices fell 1 percent.

“It’s funny that just a few months ago everyone was wringing their hands over inflation,” said Nariman Behravesh, chief economist at Global Insight. “It’s gone. It’s over.”

“The dominant and common factor is the plunge in gasoline prices, which drove the bulk of the weakness,” Mr. Sullivan said.

In a speech Wednesday at a Washington conference, the vice chairman of the Federal Reserve, Donald L. Kohn, said the risk of deflation remained slight but was increasing. “Whatever I thought that risk was, four or five months ago, I think it is bigger now even if it is still small,” Mr. Kohn said. The Fed, he added, needs to be aggressive, if necessary, to prevent a drop in prices.

But economists said the Federal Reserve had limited its options after repeatedly cutting interest rates in recent months. The target rate for the federal funds rate is now 1 percent after a cut of half a percentage point in October. Still, many are expecting another cut at the next meeting in December.

A report on the beleaguered real estate market showed that housing starts fell 4.5 percent in October, to a seasonally adjusted 791,000. Housing starts last month were 38 percent lower than their October 2007 levels.

Shares on Wall Street were sharply lower Wednesday morning following the reports

Economists said the tumbling consumer prices offered more evidence that companies ranging from boutiques to airlines to car dealerships were beginning to offer deep discounts to compete for a shrinking pool of disposable cash. Americans have tightened their spending as job losses mounted and easy credit dried up, and retailers are bracing for a punishing holiday shopping season.

“We’re looking at a pretty deep recession now,” Mr. Behravesh said. “ All of a sudden, any pricing power that companies might have had is gone. You’re going to see discounting like crazy going on. All kinds of sales. You’re going to see all kinds of prices being slashed.”

With consumers pulling back, many analysts are expecting a difficult Christmas shopping season. Retail sales, for example, were down 2.8 percent in October from September, and 4.1 percent from October 2007 as consumers pared their spending.

The price of food and beverages edged up in October, and was still 6.1 percent higher than the same period last year. Alcohol, cereal, meat, fish and desserts were all more expensive in October while the price of produce and dairy products dipped slightly.

And while energy prices fell sharply in October, they were still an unadjusted 11.7 percent higher than a year ago, thanks to a long run-up in oil and energy costs. The decline in consumer prices was just the latest symptom of an ailing economy. On Tuesday, the government reported that wholesale prices dropped a record 2.8 percent last month as commodities prices plummeted on slumping worldwide demand. Crude oil prices, which peaked near $150 a barrel this summer, are now hovering at $55 a barrel, and the prices for gold, silver and other metals have collapsed.

    Consumer Price Drop Prompts Fear of Deflation, NYT, 20.11.2008, http://www.nytimes.com/2008/11/20/business/economy/20econ.html?hp

On Fifth Avenue, the Discounts Arrive Early

November 19, 2008
The New York Times
By CARA BUCKLEY

Up and down Fifth Avenue, it is hard not to see red. Along the storied avenue, once immune to garish displays of retail desperation, shops of all persuasions are using crimson sale signs as bait to lure in skittish consumers.

Just as Warren Buffet said recently of stocks — that now is the time to scoop them up — so, too, is now an ideal moment to, say, grab a really cheap scoop-neck sweater at the Gap, which was among many stores offering “Friends and Family” discounts of 30 percent off the entire inventory this weekend.

Or, if one happens into Takashimaya, the deluxe, eclectic Japanese department store at Fifth Avenue between 54th and 55th Streets, a $290 pair of black pony hair gloves for the discounted price of $199. On Monday, a sign in the window of H&M’s flagship shop at Fifth and 51st Street advertised a one-day 30-percent-off sale on outerwear. Four blocks down at Ann Taylor, where sales signs line the window, a saleswoman said discounting had been under way “pretty much since Halloween,” with no end in sight. Red signs promised up to 30 percent off at Armani Exchange over the weekend, while the Cole Haan shop at Rockefeller Plaza is having more “whisper sales,” one clerk said, offering 30 percent off to whoever wanders in.

Which, of course, is good news to would-be and actual customers, even if consumer regret is quicker to follow these days.

“I just bought a scarf and sweater,” Kendall Morrelly-Bott, 29, who works in marketing, said sheepishly on Sunday as she emerged from Banana Republic, which, along with the Gap, Old Navy and Bloomingdales, was having “Friends and Family” sales, in which regular customers received cards in the mail that provided discounts over several days. “I really shouldn’t be doing this.”

With headlines warning about flagging retail sales and predictions abounding about a super-slow Christmas season, shops around the country are cutting prices and offering special deals in hopes of stanching losses and gaining some momentum. After-Thanksgiving sales have mysteriously started before Thanksgiving tables are set.

But retailers and those who watch the industry say it is particularly noteworthy to see so much red along Fifth Avenue, where sales are usually confined to the back of the store, not brazenly broadcast from windows.

Even the more luxurious stops, among them nearby Bloomingdale’s, Bergdorf Goodman and Salvatore Ferragamo, are discreetly cutting prices, or are about to. Clerks at the Benetton near the corner of East 48th Street, where coats are 40 percent off, have been keeping a watchful eye on the Esprit shop across the avenue, where a sales sign recently sprouted up advertising a $30 cash card for every $100 spent. “They never had sales easels before,” Yacine Diop, 34, who has worked at the Benetton shop for five years, observed of the competition.

Marshal Cohen, the chief retail analyst at the NPD Group, which tracks consumer sales, said that Fifth Avenue is “traditionally immune to being on sale,” but that the flagging economy, and the fact that even “tourist-driven volume shows sign of faltering” this fall, means that nothing is sacred. “Fifth Avenue’s becoming more and more like any mall in America,” he said. “It’s not as unique as it used to be.”

The sales appeared to be helping to maintain healthy volume in Fifth Avenue’s shops, at least this past weekend, which found many of the stores offering discounts packed, but not mobbed. Jessica Langley, a clerk at Banana Republic, observed, “This time last year, it was insane.”

While Banana Republic’s “Friends and Family” sale, along with many of the others, ended this weekend, Ms. Langley said ongoing promotions and deep discounts would continue until backup inventory was gone. Indeed, items at some shops are going on sale within days of arriving in stores, like a sweater dress at Ann Taylor, introduced at $100 just over two weeks ago, now $59.99.

For those with deeper pockets, or credit wherewithal, deals are also available at luxury shops, even if the clerks — who roundly, albeit politely, declined to give their names — may wrinkle their noses at the very the mention of the word “sale.”

On Sunday at dusk, a clerk at the Paul Morelli jewelry counter at Bergdorf Goodman shook his head when asked about storewide discounts, though a small stand-up sign 50 feet away advised that select items were up to 40 percent off. Discounted items included a $1,400 Nancy Gonzalez raspberry crocodile skin clutch, now selling — or not — for $980.

Further south on the avenue, clerks, or rather, “sales associates,” at Prada and Fendi quietly conceded that they expected discounts to be steeper and offered earlier this year. At one luxury boutique, an associate disclosed that there would be a private sale for select clients, then implored that the news be kept a secret.

Speaking in hushed tones, a saleswoman at Salvatore Ferragamo said the luxury retailer planned to cut prices up to 30 percent right after Thanksgiving instead of a week or two later. One block south, at Versace, a neatly coiffed salesman in a dark suit gave a reporter the once-over and arched an eyebrow when asked if there were sales to be had.

“All the stores are breaking earlier this year,” he replied elusively, using the industry term for offering sales. “But Donatella said business is fabulous.” (As it happened, the salesman, along with his colleagues and a handful of security guards, appeared to be the only people in the store.)

Still, for all the discounts available up and down Fifth Avenue, and in other shopping strips throughout New York City, Armine Ovasapyan, 26, and her friend Edita Bandaryan, 23, students visiting from Los Angeles, were not buying,

The two friends spent much of the weekend combing boutiques in SoHo, where they found that the range of discount items was slim. They also concluded, sadly, that the wares in SoHo were pretty similar to what they could buy back home.

On Monday, after a quick tour of the stores along Fifth Avenue left them dissatisfied, they headed to the East Village, where they hoped to find boutiques that offered something unique; something, they said, that was more New York.

“We have lots of these stores in L.A.,” Ms. Bandaryan said. “We just wanted something new.”

    On Fifth Avenue, the Discounts Arrive Early, NYT, 19.11.2008, http://www.nytimes.com/2008/11/19/nyregion/19bargains.html?hp

New Veterans Hit Hard by Economic Crisis

November 18, 2008
The New York Times
By LIZETTE ALVAREZ

After a mortar sent Andrew Spurlock hurtling off a roof in Iraq, ending his Army career in 2006, the seasoned infantryman set aside bitterness over his back injury and began to chart his life in storybook fashion: a new house, a job as a police officer and more children.

“We had a budget and a plan,” said Mr. Spurlock, 29, a father of three, who with his wife, Michelle, hoped to avoid the pitfalls of his transition from Ramadi, Iraq, to Apopka, Fla.

But the move proved treacherous, as it often does for veterans. The job with the Orange County Sheriff’s Office fell through after officials there told Mr. Spurlock that he needed to “decompress” after two combat tours, a judgment that took him by surprise. Scrambling, he settled for a job delivering pizzas.

Mr. Spurlock’s disability claim for his back injury took 18 months to process, a year longer than expected. With little choice, the couple began putting mortgage payments on credit cards. The family debt climbed to $60,000, a chunk of it for medical bills, including for his wife and child. Foreclosure seemed certain.

While few Americans are sheltered from the jolt of the recent economic crisis, the nation’s newest veterans, particularly the wounded, are being hit especially hard. The triple-whammy of injury, unemployment and waiting for disability claims to be processed has forced many veterans into foreclosure, or sent them teetering on its edge, according to veterans’ organizations.

The problem is hard to quantify because there are no foreclosure statistics singling out veterans and service members. Congress recently asked the Veterans Affairs Department to find out how badly veterans were being affected, particularly by foreclosures. The Army, too, began tracking requests for help on foreclosure issues for the first time. Service organizations report that requests for help from military personnel and new veterans, especially those who were wounded, mentally or physically, and are struggling to keep their houses and pay their bills, has jumped sharply.

“The demand curve has gone almost straight up this year,” said Bill Nelson, executive director for USA Cares, a nonprofit group that provides financial help to members of the military and to veterans. Housing, Mr. Nelson said, “is the biggest driver in the last 12 months.”

Congress has recently taken small steps to help, banning lenders from foreclosing on military personnel for nine months after their return from overseas, up from three months, and ensuring that interest rates on their loans remain stable for a year. Another relief bill to prevent certain injured veterans from losing their homes while they wait for their disability money was signed into law in October. The protection is good for one year.

“We owe these men and women more than a pat on the back,” said Senator John Kerry, Democrat of Massachusetts, who introduced one of the bills.

But the short-term measures do little to address the underlying economic difficulties that new veterans face, beginning with the job hunt. Veterans, particularly those in their 20s, have faced higher unemployment rates in recent years than those who never served in the military, though the gap has shrunk as the economy has worsened. (Veterans traditionally have lower unemployment rates than nonveterans.)

Recently discharged veterans, though, fared worst of all. A 2007 survey for the Veterans Affairs Department of 1,941 combat veterans who left the military mostly in 2005 showed nearly 18 percent were unemployed as of last year. The average national jobless rate in October was 6.5 percent.

A quarter of those who found jobs failed to make a living wage, earning less than $21,840 a year.

“You fill out a job application and you can’t write ‘long-range reconnaissance and sniper skills,’ ” said Mr. Spurlock, who searched a year for a better-paying job than delivering pizza, finally finding one as a construction supervisor.

The situation is especially troubling for the injured, whose financial problems begin almost immediately.

“The wife drops everything to be by his bedside,” said Meredith Leyva, founder of Operation Homefront, a nonprofit group that provides emergency money and aid to 33,000 military families a year, including the Spurlocks. “She stays at the nearest hotel to make sure he is alive. They live that way for months. She either has to quit her job or she is fired. This bankrupts people.”

Some injured veterans cannot work at all and must rely on disability checks and other government payouts. The wait for a disability check from the Veterans Affairs Department averaged six months in August, enough to financially crush some families.

Those who can work struggle to find employers willing to accommodate their injuries, including mental health problems. The Labor Department recently started a Web site, America’s Heroes at Work, that prods employers into hiring more wounded veterans and explains that post-traumatic stress disorder and traumatic brain injury are manageable conditions and not necessarily long-term.

Some believe that the government has to do more.

“There have to be incentives for employers,” said Thomas L. Wilkerson, a retired Marine Corps general who is chief executive of the Naval Institute, an independent nonprofit group.

Active duty troops who switch installations also find themselves struggling. Many of those forced to sell their homes this year are finding a scarcity of buyers, or even renters, particularly in states hit hard by the mortgage crisis. Military spouses must choose between taking a loss on their homes or riding out the housing slowdown and facing another separation from their loved one.

Although the government offers safeguards for some federal employees in similar circumstances, it will not help service members make up the difference if they are forced to sell a home at a loss.

What is worse, foreclosure or excessive debt can damage a service member’s career by leading to discharge, the loss of security clearances or, in extreme cases, jail.

A 2007 California task force reported that in the Navy, the number of security clearances revoked because of debt increased to 1,999 in 2005, from 124 in 2000.

“It’s the crash in the market,” said Joe Gladden, managing partner of Veteran Realty Service America’s Military, who sees families in extremis out of Northern Virginia. “It’s not that they have made stupid decisions.”

Mr. Gladden said e-mail messages and phone calls to his office had become so routine that he encouraged military families to share their stories anonymously on his company Web site, vrsam.com.

“I am about sick over this situation,” one woman wrote. “Our two young boys have to go without seeing Daddy until we can sell our house. Not only that, but we face the possibility of Daddy deploying to Iraq again. Shouldn’t we be able to spend as much time together until that happens?”

For the Hatchers, the financial decline began after Roger, a Navy reservist and father of four, returned from his first tour of duty in Iraq. When he got back to Ventura, Calif., in 2004, his job as a groundskeeper for a school district was gone. He was offered a custodial job for less pay. Mr. Hatcher decided to find another job. He looked for several months, then was redeployed to Iraq. By then, the family had moved to Bakersfield, to a cheaper house near relatives.

His second tour was tougher. Iraq had grown more violent, and in late 2006, Mr. Hatcher was blown out of a Humvee after it hit a roadside bomb. The blast injured his shoulder, arm and neck. Back home, Mr. Hatcher, 49, fell prey to nightmares and rages. He drank heavily, said Tami, his wife of two decades. The pain in his shoulder never let up.

It took Mr. Hatcher eight months to find a job, and the family fell behind on their house payments. A disability claim filed in 2007 was still pending in August, Mrs. Hatcher said.

Mr. Hatcher wound up hospitalized for post-traumatic stress disorder three times. “We noticed there was a change after the first tour, but not as drastic as this time,” Mrs. Hatcher said. “The person comes back a different person, and then you have financial issues on top of it.”

His new employer, a construction company, welcomed him back after each medical absence. Still, weeks off the job meant weeks without pay.

Meanwhile, the mortgage company ratcheted up the pressure. Feeling cornered, the Hatchers signed a forbearance agreement, which significantly increased their monthly payment. “They knew about my husband’s situation,” Mrs. Hatcher said of the mortgage company. “They wouldn’t work with us.”

The Hatchers borrowed from friends and relatives but still came up short. Then two nonprofit groups stepped in to help. One of them, Operation Homefront, negotiated with the lender to keep them in their house.

Mrs. Hatcher, a purchasing agent, tried her best to shield her husband from their financial troubles. “It’s putting a big strain on me,” she admitted. “But only one of us can lose it at a time right now, and it’s his turn.”

The Spurlocks, back in Florida, were not so lucky. Operation Homefront managed to stop foreclosure proceedings, but the couple had to agree to a deed in lieu, turning over their house to the bank. Their debt was forgiven.

The family moved into a rental house and whittled down its credit card debt to $26,000.

“It feels impossible right now to pay off our bills,” said Michelle Spurlock, 28, her voice breaking. “I had to get my mom to bring diapers over. We couldn’t go grocery shopping. As soon as we turn a corner, it’s something else.”

    New Veterans Hit Hard by Economic Crisis, NYT, 18.11.2008, http://www.nytimes.com/2008/11/18/us/18vets.html?hp

Homebuilder Sentiment Index Plunges to Record Low

November 18, 2008
Filed at 1:12 p.m. ET
The New York Times
By THE ASSOCIATED PRESS

LOS ANGELES (AP) -- The National Association of Home Builders says its housing market index plunged to another record low this month as the U.S. financial crisis, rising unemployment and swelling uncertainty over the economy shook builders' confidence about the prospect for a housing recovery.

The Washington-based trade association said Tuesday the index tumbled by five points to nine in November. The index stood at 14 last month after slipping three points from September.

Index readings lower than 50 indicate negative sentiment about the market.

The report reflects a survey of 422 residential developers nationwide, tracking builders' perceptions of market conditions.

Builders' expectations for sales over the next six months remained at 19.

    Homebuilder Sentiment Index Plunges to Record Low, NYT, 18.11.2008, http://www.nytimes.com/aponline/business/AP-Builder-Sentiment.html

Citi Plans Asset Sales and Job Cuts

November 18, 2008
The New York Times
By ERIC DASH

The banking giant, Citigroup, which a decade ago set out to rewrite the rules of American finance, announced Monday morning that it would cut 50,000 jobs in the coming quarters, largely by selling assets.

In a town hall meeting with employees, the bank also said that it was seeking to shore up its capital base and cut risky positions. In addition, the bank said that it would trim expenses by 16 percent to 19 percent to about $50 billion in 2009.

The job cuts would be in addition to about 23,000 layoffs already this year.

Most of the job reductions would come through attrition or the sale of units, the bank said, meaning the actual number of layoffs could be less at the bank. The cuts would leave the bank with about 300,000 employees, down from its peak of about 375,000 in the fourth quarter of last year.

Citigroup has reported four consecutive quarterly losses, including in $2.8 billion in the third quarter. Its shares were down 4.4 percent Monday, to $9.08.

Investment bankers are expected to bear the brunt of the loses at Citigroup because senior managers have been asked to reduce expenses significantly. But back-office functions, like the bank’s legal and human resources divisions, are also expected to be hard hit.

Monday’s announcement by Citigroup is only the latest by a financial firm. Wall Street firms have announced more than 150,000 job cuts worldwide, but it could take months for the losses to show up in payroll data because workers still appear employed while they receive severance.

The banks, however, have not disclosed how many of the job losses are in New York. At the end of the second quarter, some 579,000 people in the New York metropolitan area worked in finance, according to Moody’s Economy.com’s analysis of federal payroll data.

However, dismal the outlook looked at the end of the third quarter, the situation has gotten worst than most predictions. At the beginning of September, Moody’s Economy.com had predicted that 45,000 to 65,000 financial workers in the New York area would lose their jobs by the middle of 2010. Now Moody’s is predicting 70,000, even accounting for the fact that some workers will find new positions.

These cuts are among the largest and fastest the industry has seen. Citigroup, once the most valuable financial company in America, is withering along with its share price, which sank into single digits for the first time in a dozen years.

As Vikram S. Pandit completes his first year as chief executive, many analysts say Citigroup has lost its way. Insiders say the company is racked by office politics at a critical moment in its history.

Mr. Pandit is struggling to regain his grip on the company, which operates in scores of countries, after his attempt to buy Wachovia was upended by Wells Fargo. That misstep left Citigroup grasping for a new strategy to lure deposits and build up its branch network in the United States.

Citigroup is also grappling with how to position its domestic consumer business, which faces rising loan losses and, analysts say, lacks the leadership and strategy it needs. Having lost Wachovia, Citigroup must now try to stitch together a group of small regional banks to catch up with Bank of America, JPMorgan Chase and Wells Fargo. Executives are looking at Chevy Chase Bank, a small lender in Maryland with $14 billion in assets, among several other institutions, according to people close to the situation.

But assembling a large franchise could take years, and digesting deals has never been one of Citigroup’s strengths.

Louise Story contributed reporting.

    Citi Plans Asset Sales and Job Cuts, NYT, 18.11.2008, http://www.nytimes.com/2008/11/18/business/18citi.html?hp

The Reckoning

Deregulator Looks Back, Unswayed

November 17, 2008
The New York Times
By ERIC LIPTON and STEPHEN LABATON

WASHINGTON — Back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.

Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today’s subprime loans.

A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift.

“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”

On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him “a snapping turtle”). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.

He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.

And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street’s most venerable institutions and spread the risks, like a virus, around the world.

Many of his deregulation efforts were backed by the Clinton administration. Other members of Congress — who collectively received hundreds of millions of dollars in campaign contributions from financial industry donors over the last decade — also played roles.

Many lawmakers, for example, insisted that Fannie Mae and Freddie Mac, the nation’s largest mortgage finance companies, take on riskier mortgages in an effort to aid poor families. Several Republicans resisted efforts to address lending abuses. And Congressional committees failed to address early symptoms of the coming illness.

But, until he left Capitol Hill in 2002 to work as an investment banker and lobbyist for UBS, a Swiss bank that has been hard hit by the market downturn, it was Mr. Gramm who most effectively took up the fight against more government intervention in the markets.

“Phil Gramm was the great spokesman and leader of the view that market forces should drive the economy without regulation,” said James D. Cox, a corporate law scholar at Duke University. “The movement he helped to lead contributed mightily to our problems.”

In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record.

He blamed others for the crisis: Democrats who dropped barriers to borrowing in order to promote homeownership; what he once termed “predatory borrowers” who took out mortgages they could not afford; banks that took on too much risk; and large financial institutions that did not set aside enough capital to cover their bad bets.

But looser regulation played virtually no role, he argued, saying that is simply an emerging myth.

“There is this idea afloat that if you had more regulation you would have fewer mistakes,” he said. “I don’t see any evidence in our history or anybody else’s to substantiate it.” He added, “The markets have worked better than you might have thought.”

Rejecting Common Wisdom

Mr. Gramm sees himself as a myth buster, and has long argued that economic events are misunderstood.

Before entering politics in the 1970s, he taught at Texas A & M University. He studied the Great Depression, producing research rejecting the conventional wisdom that suicides surged after the market crashed. He examined financial panics of the 19th century, concluding that policy makers and economists had repeatedly misread events to justify burdensome regulation.

“There is always a revisionist history that tries to claim that the system has failed and what we need to do is have government run things,” he said.

From the start of his career in Washington, Mr. Gramm aggressively promoted his conservative ideology and free-market beliefs. (He was so insistent about having his way that one House speaker joked that if Mr. Gramm had been around when Moses brought the Ten Commandments down from Mount Sinai, the Texan would have substituted his own.)

He could be impolitic. Over the years, he has urged that food stamps be cut because “all our poor people are fat,” said it was hard for him “to feel sorry” for Social Security recipients and, as the economy soured last summer, called America “a nation of whiners.”

His economic views — and seat on the Senate banking committee — quickly won him support from the nation’s major financial institutions. From 1989 to 2002, federal records show, he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. He and his staff often appeared at industry-sponsored speaking events around the country.

From 1999 to 2001, Congress first considered steps to curb predatory loans — those that typically had high fees, significant prepayment penalties and ballooning monthly payments and were often issued to low-income borrowers. Foreclosures on such loans were on the rise, setting off a wave of personal bankruptcies.

But Mr. Gramm did everything he could to block the measures. In 2000, he refused to have his banking committee consider the proposals, an intervention hailed by the National Association of Mortgage Brokers as a “huge, huge step for us.”

A year later, he objected again when Democrats tried to stop lenders from being able to pursue claims in bankruptcy court against borrowers who had defaulted on predatory loans.

While acknowledging some abuses, Mr. Gramm argued that the measure would drive thousands of reputable lenders out of the housing market. And he told fellow senators the story of his mother and her mortgage.

“What incredible exploitation,” he said sarcastically. “As a result of that loan, at a 50 percent premium, so far as I am aware, she was the first person in her family, from Adam and Eve, ever to own her own home.”

Once again, he succeeded in putting off consideration of lending restrictions. His opposition infuriated consumer advocates. “He wouldn’t listen to reason,” said Margot Saunders of the National Consumer Law Center. “He would not allow himself to be persuaded that the free market would not be working.”

Speaking at a bankers’ conference that month, Mr. Gramm said the problem of predatory loans was not of the banks’ making. Instead, he faulted “predatory borrowers.” The American Banker, a trade publication, later reported that he was greeted “like a conquering hero.”

At the Altar of Wall Street

Mr. Gramm would sometimes speak with reverence about the nation’s financial markets, the trading and deal making that churn out wealth.

“When I am on Wall Street and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place,” he said at an April 2000 Senate hearing after a visit to New York.

That viewpoint — and concerns that Wall Street’s dominance was threatened by global competition and outdated regulations — shaped his agenda.

In late 1999, Mr. Gramm played a central role in what would be the most significant financial services legislation since the Depression. The Gramm-Leach-Bliley Act, as the measure was called, removed barriers between commercial and investment banks that had been instituted to reduce the risk of economic catastrophes. Long sought by the industry, the law would let commercial banks, securities firms and insurers become financial supermarkets offering an array of services.

The measure, which Mr. Gramm helped write and move through the Senate, also split up oversight of conglomerates among government agencies. The Securities and Exchange Commission, for example, would oversee the brokerage arm of a company. Bank regulators would supervise its banking operation. State insurance commissioners would examine the insurance business. But no single agency would have authority over the entire company.

“There was no attention given to how these regulators would interact with one another,” said Professor Cox of Duke. “Nobody was looking at the holes of the regulatory structure.”

The arrangement was a compromise required to get the law adopted. When the law was signed in November 1999, he proudly declared it “a deregulatory bill,” and added, “We have learned government is not the answer.”

In the final days of the Clinton administration a year later, Mr. Gramm celebrated another triumph. Determined to close the door on any future regulation of the emerging market of derivatives and swaps, he helped pushed through legislation that accomplished that goal.

Created to help companies and investors limit risk, swaps are contracts that typically work like a form of insurance. A bank concerned about rises in interest rates, for instance, can buy a derivatives instrument that would protect it from rate swings. Credit-default swaps, one type of derivative, could protect the holder of a mortgage security against a possible default.

Earlier laws had left the regulation issue sufficiently ambiguous, worrying Wall Street, the Clinton administration and lawmakers of both parties, who argued that too many restrictions would hurt financial activity and spur traders to take their business overseas. And while the Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation, there was still concern that step was not enough.

After Mrs. Gramm left the commission in 1993, several lawmakers proposed regulating derivatives. By spreading risks, they and other critics believed, such contracts made the system prone to cascading failures. Their proposals, though, went nowhere.

But late in the Clinton administration, Brooksley E. Born, who took over the agency Mrs. Gramm once led, raised the issue anew. Her suggestion for government regulations alarmed the markets and drew fierce opposition.

In November 1999, senior Clinton administration officials, including Treasury Secretary Lawrence H. Summers, joined by the Federal Reserve chairman, Alan Greenspan, and Arthur Levitt Jr., the head of the Securities and Exchange Commission, issued a report that instead recommended legislation exempting many kinds of derivatives from federal oversight.

Mr. Gramm helped lead the charge in Congress. Demanding even more freedom from regulators than the financial industry had sought, he persuaded colleagues and negotiated with senior administration officials, pushing so hard that he nearly scuttled the deal. “When I get in the red zone, I like to score,” Mr. Gramm told reporters at the time.

Finally, he had extracted enough. In December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous consent after Mr. Gramm dominated the Senate debate.

“This legislation is important to every American investor,” he said at the time. “It will keep our markets modern, efficient and innovative, and it guarantees that the United States will maintain its global dominance of financial markets.”

But some critics worried that the lack of oversight would allow abuses that could threaten the economy.

Frank Partnoy, a law professor at the University of San Diego and an expert on derivatives, said, “No one, including regulators, could get an accurate picture of this market. The consequences of that is that it left us in the dark for the last eight years.” And, he added, “Bad things happen when it’s dark.”

In 2002, Mr. Gramm left Congress, joining UBS as a senior investment banker and head of the company’s lobbying operation.

But he would not be abandoning Washington.

Lobbying From the Outside

Soon, he was helping persuade lawmakers to block Congressional Democrats’ efforts to combat predatory lending. He arranged meetings with executives and top Washington officials. He turned over his $1 million political action committee to a former aide to make donations to like-minded lawmakers.

Mr. Gramm, now 66, who declined to discuss his compensation at UBS, picked an opportune moment to move to Wall Street. Major financial institutions, including UBS, were growing, partly as a result of the Gramm-Leach-Bliley Act.

Increasingly, institutions were trading the derivatives instruments that Mr. Gramm had helped escape the scrutiny of regulators. UBS was collecting hundreds of millions of dollars from credit-default swaps. (Mr. Gramm said he was not involved in that activity at the bank.) In 2001, a year after passage of the commodities law, the derivatives market insured about $900 billion worth of credit; by last year, the number hadswelled to $62 trillion.

But as housing prices began to fall last year, foreclosure rates began to rise, particularly in regions where there had been heavy use of subprime loans. That set off a calamitous chain of events. The weak housing markets would create strains that eventually would have financial institutions around the world on the edge of collapse.

UBS was among them. The bank has declared nearly $50 billion in credit losses and write-downs since the start of last year, prompting a bailout of up to $60 billion by the Swiss government.

As Mr. Gramm’s record in Congress has come under attack amid all the turmoil, some former colleagues have come to his defense.

“He is a true dyed-in-the-wool free-market guy. He is very much a purist, an idealist, as he has a set of principles and he has never abandoned them,” said Peter G. Fitzgerald, a Republican and former senator from Illinois. “This notion of blaming the economic collapse on Phil Gramm is absurd to me.”

But Michael D. Donovan, a former S.E.C. lawyer, faulted Mr. Gramm for his insistence on deregulating the derivatives market.

“He was the architect, advocate and the most knowledgeable person in Congress on these topics,” Mr. Donovan said. “To me, Phil Gramm is the single most important reason for the current financial crisis.”

Mr. Gramm, ever the economics professor, disputes his critics’ analysis of the causes of the upheaval. He asserts that swaps, by enabling companies to insure themselves against defaults, have diminished, not increased, the effects of the declining housing markets.

“This is part of this myth of deregulation,” he said in the interview. “By and large, credit-default swaps have distributed the risks. They didn’t create it. The only reason people have focused on them is that some politicians don’t know a credit-default swap from a turnip.”

But many experts disagree, including some of Mr. Gramm’s former allies in Congress. They say the lack of oversight left the system vulnerable.

“The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.,” Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.

Mr. Gramm says that, given what has happened, there are modest regulatory changes he would favor, including requiring issuers of credit-default swaps to demonstrate that they have enough capital to back up their pledges. But his belief that government should intervene only minimally in markets is unshaken.

“They are saying there was 15 years of massive deregulation and that’s what caused the problem,” Mr. Gramm said of his critics. “I just don’t see any evidence of it.”
 

Griff Palmer contributed reporting from New York.

    Deregulator Looks Back, Unswayed, NYT, 17.11.2008, http://www.nytimes.com/2008/11/17/business/economy/17gramm.html?hp

Gramm and the ‘Enron Loophole’

November 17, 2008
The New York Times
By ERIC LIPTON

In 2000, Senator Phil Gramm played a central role in writing the Commodity Futures Modernization Act, a law that would open the door to unregulated trading of credit default swaps, the financial instruments blamed, in part, for the current economic meltdown.

But there was another aspect of this legislation that, earlier this decade, helped produce another financial meltdown: the collapse of Enron, the Texas energy company.

The commodity futures act, in addition to allowing unregulated trading of financial derivatives, included language advocated by Enron that largely exempted the company from regulation of its energy trading on electronic commodity markets, like its once-popular Enron Online. The provision came to be known as the Enron Loophole.

E-mail written by Enron executives and lobbyists — which became public as part of a federal investigation after Enron collapsed — shows how top Enron officials closely monitored negotiations on the bill. They paid particular attention to Mr. Gramm, who before a final agreement in late 2000 was trying to press other key figures on Capitol Hill and at the White House to agree to concessions that would further curtail regulation of trading.

Enron’s primary concern was that Mr. Gramm’s insistence at getting these additional free-market concessions — most of which were unrelated to Enron’s business — might scuttle the whole deal, killing Enron’s chance of getting the loophole it sought.

Enron was a major contributor to Mr. Gramm’s political campaigns, and Mr. Gramm’s wife, Wendy, served on the Enron board, which she joined after stepping down as chairwoman of the Commodity Futures Trading Commission.

Although not directly related to the current economic crisis, the Enron e-mail provides a window into how much clout Mr. Gramm had as chairman of the Senate Committee on Banking, Housing and Urban Affairs, and the ways lobbyists intervened to advance and defend their interests during negotiations on the bill.

The Commodity Futures Modernization Act was approved in December 2000, just before Bill Clinton’s term as president ended. Mr. Gramm, in a recent interview, said he was not responsible for inserting the language into the bill that established the Enron Loophole. But once the Commodity Futures Modernization measure — with this provision included — reached the Senate floor, Mr. Gramm led the debate, urging his fellow senators to pass it into law.

Following are excerpts from some of the e-mail pulled from the Enron files that discuss Mr. Gramm and this legislation. All of the e-mail is available at Enron Explorer, a site that has put the Enron e-mail into a searchable format. More information on the Enron Loophole is available here.

Aug. 10, 2000: ‘We Need Senator Gramm’

Christopher M. Long, an Enron lobbyist, writes to other Enron executives, updating the status of the negotiations over the Commodity Futures Modernization Act and urging Enron’s chief executive, Kenneth Lay, to call Senator Gramm to nudge him on the topic. As an Enron board member, Wendy Gramm is playing a part in the debate as well. Two Enron executives write Mr. Long back, endorsing the idea of having Mr. Lay call Mr. Gramm.

Chris Long@ENRON

08/10/2000 05:12 PM

To: Mark E Haedicke/HOU/ECT@ECT, Steven J Kean/HOU/EES@EES, Richard Shapiro/HOU/EES@EES, Mark Taylor/HOU/ECT@ECT, Joe Hillings/Corp/Enron@ENRON, Cynthia Sandherr/Corp/Enron@ENRON, Tom Briggs/NA/Enron@Enron

cc: raislerk@sullcrom.com, Allison Navin/Corp/Enron@ENRON

Subject: CFTC Reauthorization

At his request, I met Lee Sachs, Assistant Treasury Secretary, who had requested the meeting after a brief conversation recently. Lee said that senior-level negotiations led by Secretary Summers were initiated last week between the CFTC and SEC and that progress was being made on the single stock futures issue (the major issue postponing movement of the legislation).

The Senate Agriculture Committee passed out the Senate version in July. However, the bill is not moving quickly in the Senate due to Senator Phil Gramm’s desire to see significant changes made to the legislation (not directly related to our energy language). Last week at the Republican Convention, I asked the Senator about the bill and he said they were working on it, but much needs to be changed for his support. More telling perhaps, were Wendy Gramm’s comments that she would rather the current bill die if a better bill can be passed next year. What this means is that we must, at the least, remove Senator Gramm’s opposition to the bill to move the process and more importantly seek to gain his support of the legislation.

However, with less than 20 or so legislative days left, we need Senator Gramm to engage. A call from Ken Lay in the next two weeks to Senator Gramm could be an impetus for Gramm to move his staff to resolve the differences. Gramm needs to fully understand how helpful the bill is to Enron. Let me know your thoughts on this approach. I am prepared to assist in coordinating the call and drafting the talking points for a Ken Lay/Sen. Gramm call.

Oct. 13, 2000: Talking Points

Mr. Long again writes Enron executives providing “talking points” that Mr. Lay should bring up in his conversation with Senator Gramm. Senator Gramm, in a recent interview, said he did not remember ever having the conversation with Mr. Lay. Earlier e-mail shows that Mr. Lay and Mr. Gramm had previously spoken about the legislation.

Chris Long

10/13/2000 03:09 PM

To: Tori L Wells/HOU/ECT@ECT, Rosalee Fleming/Corp/Enron@ENRON cc: Steven J Kean/NA/Enron@Enron, Joe Hillings/Corp/Enron@ENRON, Cynthia Sandherr/Corp/Enron@ENRON, Lisa Yoho/HOU/EES@EES

Subject: Commodity Futures Act - Talking Points

Tori: We have contacted Senator Gramm and Majority Leader Armey about the calls from Ken on Monday. Because of the uncertainty of the Congressional schedule, both offices told us to call on Monday morning to schedule the call. If Ken wants to make the calls unscheduled, we expect Armey and Gramm to both be in DC by Monday morning.

** CONFIDENTIAL **

Talking Points on Commodity Futures Modernization Act of 2000 Background:

We have hit an impasse on the CFTC Reauthorization legislation. On legal certainty, nearly all interested parties agree. However, Senator Gramm continues to raise objections unrelated to legal certainty for our business. There are two issues (which we understand have primarily been advanced by Senator Gramm, one on bank products and one on SEC jurisdiction). Majority Leader Dick Armey is trying to gain consensus with the interested parties which include Senator Gramm, the Chairmen of the House Agriculture, Commerce, and Banking Committees, as well as the Department of Treasury, CFTC, and SEC. Meetings are occurring on a daily basis, but little concrete progress has been made since draft legislation was released on October 9.

Talking Points:

We need your help to resolve outstanding differences so that the Commodities Futures Modernization Act of 2000 can pass this year. There are very few legislative days left and movement now on this legislation is essential. Do not let the Congressional calendar be the enemy of gaining legal certainty for this dynamic and growing industry.

The current version of the legislation provides important legal certainty for all physical commodity transactions (not including agricultural commodities) entered into on a counterparty-to-counterparty basis or on an electronic trading facility. We strongly support these provisions.

The legislation eliminates concerns that our derivatives transactions may be illegal or that our online platforms may be unregulated futures exchanges. These provisions allow our businesses to grow and innovate. Without this legislation the industry will be crippled with legal uncertainty and these platforms will develop overseas.

Virtually all of the issues in this very complex legislative package have been resolved. We are indifferent to outstanding provisions, except to the extent that they impede passage of the legislation. We cannot allow the great progress made to date, fail in the end.

If asked, about a possible solution to the logjam. Answer: Encourage Majority Leader Armey, Senator Gramm, and Secretary Summers to meet immediately to finalize the remaining issues. Given time constraints, if such a meeting does not occur in the next few days, there may not be enough time to pass this important legislation.

Note: Congress will be going out on either October 20 or October 27.

Oct. 25, 2000: Signs of a Bottleneck

Kenneth M. Raisler, a lawyer at Sullivan & Cromwell, a law firm advising Enron, sends an e-mail message to Tom Briggs, then Enron’s vice president for governmental affairs, explaining how Senator Gramm is holding up the legislation. Senator Gramm, he said, is trying to broaden the regulatory exemptions for derivatives trading provided in the Commodity Exchange Act (C.E.A.) beyond what the other parties in the negotiations had agreed to, including officials at the Securities and Exchange Commission (S.E.C.), Commodity Futures Trading Commission (C.F.T.C.) and mercantile exchanges in Chicago and New York.

RAISLERK@sullcrom.com

10/25/2000 07:51 AM

To: tom.briggs@enron.com

cc:

Subject: Fwd: CEA Update Bad News

Senator Gramm’s staff presented to the Senate Ag Committee Republican and Democratic staff and the Democratic staff of the Senate Banking Committee, Gramm’s proposed changes to the CEA bill. This proposal is quite lengthy, and includes many amendments most of which were previously discussed with the House Agriculture Committee, some of which were included in House Agriculture Committee Saturday Night Draft of 10/8/00. Because of the length of the document we have only attached the summary that the Gramm staff provided. In separate e-mails to follow we will send only the pages of the House-passed bill that were changed by the Gramm proposal. As you know some of these provisions include matters objectionable to Treasury, SEC, CFTC, Chicago and New York Exchanges. As you also know the view of the Agencies and the Ag Comm is that some of these exclusions create loopholes which can allow some market participants to avoid the new Single Stock Futures regulatory design, the CFTC oversight of the energy market, and go far beyond the recommendations of the President’s Working Group.

The staffs of the Banking and Agriculture Committees have agreed to meet tomorrow late morning. We believe at that time the Agriculture Committee will propose a counter-offer which while addressing the Gramm major concerns will not adopt his proposal but instead rely on the Treasury proposals. If Senator Gramm is willing to work off this alternative a negotiation may result, otherwise it is unlikely that any agreement with Gramm will be reached. The Agriculture Committee is disinclined to repeat the debates held in the House Agriculture Comm. consideration of the bill. We welcome your reaction to the proposal.

Oct. 27, 2000: An Optimistic Note

Mr. Raisler again writes Enron executives, explaining that the negotiations are now moving ahead, after being contacted by energy industry players.

RAISLERK@sullcrom.com

10/27/2000 11:43 AM

To: goetscrj@bp.com, Ian-Stevenson@bp.com, kneenjm@bp.com, mcadammj@bp.com, elaine@citizenspower.com, clong@enron.com, csandhe@enron.com, Mark.E.Haedicke@enron.com, mark.taylor@enron.com, ann.costello@gs.com, judah.sommer@gs.com, laurie.ferber@gs.com, hall2r@kochind.com, lanced@kochind.com, william.mccoy@msdw.com, steven.kline@pge-corp.com, schindlg@phibro.com, mgoldstein@sempratrading.com

cc:

Subject: New Optimism

A number of new positive developments last night. Senator Gramm is actively engaged and his issues are being aggressively negotiated. There remain a number of outstanding points but there is good cooperation with the Administration to get this done. Senator Gramm has been contacted by a number of people including members of our Energy Group and Alan Greenspan urging passage of the bill. This clearly has had an impact. Senator Gramm appears committed, and he and his Staff are very focused.

With respect to physical commodities, our issues remain essentially untouched from the House bill. I expect that this is where we will be if the legislation gets passed. It looks now like Congress will be in next week, perhaps until Thursday. While this is painful, it does give them more time to work out unresolved issues.

I will continue to keep you apprised.

Dec. 12, 2000: Pressure on Gramm

Stacy Carey, an executive at the International Swaps and Derivatives Association, sends the organization’s members, including Enron, an update on the negotiations over the Commodity Future Modernization Act in the final days before Congress adjourns. Mr. Gramm is being pressured to give in and sign off on the legislation, but he is still pushing for certain changes, and getting agreement on them. Representative Thomas Ewing, Republican of Illinois, is pressing Mr. Gramm to sign off on the deal, saying that as agreed upon by the House speaker, Dennis Hastert, they will bring a House version to the floor even if Mr. Gramm refuses to accept the plan.

CEA Legislation Email details

From: scarey@isda.org

To: usregcomm@isda.org

Sent: 12/12/2000 at 16:57

Email metadataThemes:

Negotiations between the Treasury Department, the House Agriculture Committee and Senator Gramm continue this evening. The attached documents reflect language sent to Senator Gramm from the Treasury Department this morning. The House Agriculture is waiting for a mark-up of the Treasury language from Senator Gramm’s office.

Congress is expected to finish its work this week. Negotiations on this legislation will likely need to be completed in the next 24 hours if it is to be included in a final package.

Additionally, Chairman Ewing spoke to Senator Gramm this morning urging completion of negotiations. Ewing also advised Gramm that he would be forwarding a final legislative package to Speaker Hastert.


Dec. 12, 2000: A Deal Is Reached

Mr. Long, the Enron lobbyist, writes to Enron executives announcing that a deal has nearly been reached, after Mr. Gramm was able to persuade the players to accept some modest amendments to the legislation, including a change that will further protect swaps from regulation, as he had long sought — a change that would benefit Enron.

From: Chris Long

To: Mark Taylor, Linda Robertson, Lisa Yoho, Tom Briggs

Sent: 12/12/2000 at 11:04

Mark - Treasury just minutes ago sent this compromise language to the CEA bill to Gramm’s staff. It is my understanding from Treasury that the swap exemption is expanded slightly to say that if you are a trading on a facility (MTF) and you are trading on principle-to-principle basis among eligible contract participants you are no longer subject anti-fraud and anti-manipulation as contained in Sec. 107 of the House passed legislation. This would be good for us. Ken is in London, so can you take a quick look at the attached language and tell me if you concur.

Also, we need to take a look at the new Sec. 4 to see if it causes any problems.

They may cut a deal as early as this afternoon!

Thanks - Chris

Dec. 16, 2000: Celebrating a Victory

Mr. Long celebrates the bill’s passage, crediting work by Enron and other players as Mr. Gramm, after getting certain narrow changes in the legislation, removes his hold and lets the bill go to a vote in the Senate.

From: Chris Long

To: Jeff Skilling, Kenneth Lay, Steven Kean, Louise Kitchen, Greg Whalley, David Delainey, John Lavorato, Mark Haedicke, Mark Taylor, Jeffrey Shankman, Richard Shapiro, Mike Mcconnell, James Steffes, Mark Schroeder, Lisa Yoho, Mark Tawney, Gary Hickerson, Linda Robertson, Joe Hillings, Cynthia Sandherr, Tom Briggs, Stephen Burns, Allison Navin, Amy Fabian, Carolyn Cooney, Jeffrey Keeler (21 more)

Sent: 12/16/2000 at 11:16

Congress Passes the Commodity Futures Modernization Act of 2000

Late Friday afternoon, December 15, Congress passed the Commodity Futures Modernization Act of 2000. The purpose of the Act is to eliminate unnecessary regulation of commodity futures exchanges and other entities falling within the coverage of the Commodities Exchange Act (“CEA”) and the provide legal certainty with regard to certain futures and derivatives transactions. By enacting such changes, Congress intends to promote product innovation and to enhance the competitive position of US financial markets. Certain provisions of the Act open the door for Enron’s further product innovation and growth. Specifically, the Act provides important legal certainty for energy and other transactions occuring both on an over-the-counter (OTC) bilateral basis and on multilateral electronic trading platforms. Enron was a leading advocate of passage of this legislation.

Bilateral Transactions

Under the Act, bilateral transactions in all commodities (other than agriculture commodities) that do not occur on trading facility (i.e. not on a multi-party exchange) are exempt from most provisions of the CEA as long as the transactions are entered solely between “eligible contract participants”(i.e. persons and certain legal entities satisfying capital thresholds and other requirements under the Act). This provision essentially codifies and expands existing CFTC exemptions for swaps and forward contracts, thereby eliminating a degree of legal ambiguity that has frustrated product innovation and growth.

Multilateral Transactions

In addition, the Act creates a broad exemption for any agreement, contract or transaction in commodities (other than agriculture commodities) so long as they the transactions are between “eligible commercial participants”, are entered into on a “principle-to-principle basis” and that take place on a multi-party “electronic facility”. This exemption could facilitate expansion of EnronOnline to allow for multi-party transactions, however certain legal requirements will have to be met.

Other Transactions

The Act also creates a broad exclusion for a number of commodities that are of interest to Enron, including “credit risk measure” commodities and weather derivatives . Again, the derivative transaction exclusion will have to meet certain legal thresholds.

This legislation has been over six years in the making and the collective support of many Enron employees has been crucial. Thank you to all that have contributed to the passage on this important legislation. We will have a more through legal summary of this legislation in the near future.

Jan. 8, 2001: Looking Ahead

With the Clinton administration almost over, and George W. Bush preparing to take office, Enron — with the help of Mr. Gramm and his wife, an Enron board member — seeks to continue to influence the regulatory process, including helping to select the new chairman of the Commodity Futures Trading Commission. (Ultimately, James E. Newsome held the post through 2004.)

Chris Long@ENRON

01/08/2001 09:14 AM

To: Mark E Haedicke/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT, Richard Shapiro/NA/Enron@Enron, Linda Robertson/NA/Enron@ENRON, Cynthia Sandherr/Corp/Enron@ENRON, Lisa Yoho/NA/Enron@Enron, Tom Briggs/NA/Enron@Enron

cc: Allison Navin/Corp/Enron@ENRON, Ginger Dernehl/NA/Enron@Enron

Subject:

As the Bush transition moves forward, we need to monitor (or perhaps try to influence) the selection of the new CFTC Chair/Commissioners.

As noted below, Jim Newsome has been selected as Acting Chair. I mentioned this to Ken Raisler and Stacy Carey. Everyone agrees that Newsome is a known quantity, though he may not be a superstar in the mold of Bill Ranier. Ken said Newsome knows our issues and is favorable to a “free market” approach to energy and metals. However, there is some concern about his ability to reign in the CFTC staff. Newsome is the favorite currently for the position with boosters in Senators Lott and Cochran and his college roommate Rep. Jerry Moran (R-KS). However, it is still early in the game and unknown Chair candidates could still be out there (including officials passed over for more high profile positions).

If Newsome is nominated as the Chair, an additional Commissioner (a Republican) position opens and will be named by Speaker Denny Hastert. Hastert is from the suburbs and the assumption is that he the Chicago exchanges may influence the appointment. Stacy Carey is poking around to determine what Chicago exchanges are thinking. One name that has been mentioned often is retired Congressman Tom Ewing who has expressed interest in a Commission seat, but not the Chair (Ewing is supportive of our issues).

David Spears is also likely to leave, but no date has been announced. This is also a Republican seat. The Democrats Barbara Holum and Tom Erickson are likely to stick around until their terms expire.

We can try to float names of persons we would like to see either Chair or join the Commission. Also, we have learned that Wendy Gramm has list of names she may be shopping around for CFTC and SEC — it would be good the see who Gramm is proposing.

Please advise how you want to proceed in either reviewing or suggesting the appointees.

Thanks - Chris

Feb. 14, 2001: Seeking a ‘Free-Market Person’

Wendy Gramm, while on the Enron board, seeks to help officials at Enron, including Steven J. Kean, the company’s chief of staff, influence the process of restructuring the Commodity Futures Trading Commission, which she ran in the late 1980s and early 1990s, when George H. W. Bush was president. Enron proves unable to get Mr. Newsome, the acting chairman, replaced. But in later e-mail messages, once it becomes clear Mr. Newsome will stay in his post, they invite him to visit Enron’s headquarters. The exchange shows how both Mr. Gramm and his wife continued to be involved in C.F.T.C. business until Mr. Gramm left office.

WGramm@aol.com

02/14/2001 07:58 AM

To: Steven.J.Kean@enron.com

cc:

Subject: Re: Confidential — CFTC Chair

Hi Steve,

Folks love Newsome, and I think he’s very nice and appears to be very free market. Spears, the other Republican appointee is not at all free market, in my view. I would not like this to mentioned anywhere else, but I have found that the farm reps on the Commission may sound deregulatory but are not, and have been really troublesome without a good free market person on board. And there are no truly free market persons on board at the Commission (every single other agricultural rep that I worked with on the Commission were trouble, even though they claimed to be deregulatory — and they were far worse before I got there and after I left.)

I visited with Newsome a day before Inauguration, and I was appalled at what they were planning to do concerning agency structure — that would have elevated the regulatory lawyers and diminished the role of the economists at the agency. Misguided and showed to me a lack of understanding of how organizational structures can affect what comes out of an agency.

I am often at odds with "the industry view" regarding CFTC issues. I don’t think the futures exchanges, who have a lot of power, necessarily are pro-competition; and many of the non-exchange folks who lobby on CFTC issues are Washington or New York (Democrat - which is why they want to involve Ken at this level) lawyers who do not understand markets and who are more interested in being able to claim influence or impact. The CFTC is in awful shape — the quality of staff is horrendous, and the Commission is relying on some of the worst people for their policy work (same folks that Brooksley Born used, same folks who have advocated more regulation of the OTC market for years). Many quality folks do not want the job as Chairman because it’s been such a backwater. I am looking for some good folks. Have at least one person who would be good at that job. And it’s not Newsome. Please do not share this information with the usual folks, as they hate me anyway (I’m too free market and have argued against their "fixes"). Sorry for this scathing review, but this is an important appointment.

Wendy

    Gramm and the ‘Enron Loophole’, NYT, 17.11.2008, http://www.nytimes.com/2008/11/17/business/17grammside.html

Tony and Carrie Forsyth filed for bankruptcy to keep their house in Tamarac, Fla.
"There was no other way for us to live and support our family," Mr. Forsyth said.

John Ricksen for The New York Times

Downturn Drags More Consumers Into Bankruptcy        NYT        16.11.2008
http://www.nytimes.com/2008/11/16/business/16consumer.html?hp

Downturn Drags More Consumers Into Bankruptcy

November 16, 2008
The New York Times
By TARA SIEGEL BERNARD and JENNY ANDERSON

The economy’s deep troubles are pushing a growing number of already struggling consumers into bankruptcy, often with far more debt than those who filed in previous downturns.

Plummeting home values, dwindling incomes and the near disappearance of credit have proved a potent mixture. While all the usual reasons that distressed borrowers seek bankruptcy — job loss, medical bills, divorce — play significant roles, new economic forces are changing the calculus of who can ride out the tough times and who cannot.

The number of personal bankruptcy filings jumped nearly 8 percent in October from September, after marching steadily upward for the last two years, said Mike Bickford, president of Automated Access to Court Electronic Records, a bankruptcy data and management company.

Filings totaled 108,595, surpassing 100,000 for the first time since a law that made it more difficult — and often twice as expensive — to file for bankruptcy took effect in 2005. That translated to an average of 4,936 bankruptcies filed each business day last month, up nearly 34 percent from October 2007.

Robert M. Lawless, a professor at the University of Illinois College of Law, pointed to the tightening of credit by banks as a significant factor in the increase in October. As banks have pulled back on lending, he said, consumers have been finding it more difficult, and in many cases impossible, to use credit cards, refinance their home mortgages or fall back on their home equity lines to get them through a rough period.

“A credit crunch can drive people into bankruptcy today rather than later as sources of lending dry up,” Professor Lawless said. “With the consumer credit tightening and the economy in a nosedive, this pop could just be the beginning of a long-term rise in the bankruptcy filing rate to levels that are even higher than we had before the 2005 bankruptcy law.”

Not only are filings up, but recent filers have had much more credit card debt, often run up in an attempt to keep current on a mortgage that now exceeds the value of their home, bankruptcy lawyers said in interviews.

A recent study found that the typical family who filed for bankruptcy in 2007 was carrying about 21 percent more in secured debts, like mortgages and car loans, and about 44 percent more in unsecured debts, like credit cards and medical and utility bills, than filers in 2001.

Their incomes, meanwhile, remained static over those six years, according to the study, which used data from the 2007 Consumer Bankruptcy Project, a joint effort of law professors, sociologists and physicians. Researchers surveyed 2,500 households nationwide that filed for bankruptcy in February and March 2007.

“Earlier downturns followed strong booms, so families went into recessions with higher incomes and lower debt loads,” said Elizabeth Warren, a professor at Harvard Law School and, along with Professor Lawless, part of the Bankruptcy Project team. “But the fundamentals are off for families even before we hit the recession this time, so bankruptcy filings are likely to rise faster.”

Not surprisingly, filings are increasing most rapidly in states where real estate values skyrocketed and then crashed, including Nevada, California and Florida. In Nevada, bankruptcy filings in October were up 70 percent compared with last year. In California, bankruptcies jumped 80 percent in the same period, while Florida’s filings rose 62 percent.

In those regions, some people are trying to rescue their homes through bankruptcy proceedings, but many are just as relieved to walk away, shedding layers of debt that otherwise would have taken decades to pay off.

Tony and Carrie Forsyth, both 30, chose not to walk away from their house in Florida. The couple said they thought their financial situation would improve in 2006, when Mr. Forsyth accepted a promotion from his employer, a Michigan food distributor, that required them to move to Florida. But they could not sell their home in Ypsilanti, Mich., so they decided to rent it out.

In June 2006, the couple headed south and bought a house for $220,000 in Tamarac, Fla., with no money down. Five months later, their tenants in Michigan stopped paying, and the family had to carry two mortgage payments, just as the adjustable-rate mortgage on their Michigan home reset to a higher interest rate. They lost the Michigan home to foreclosure in February 2007.

By that time, however, the couple, who have two young daughters, were using credit cards to pay for food, utilities and clothes. After accumulating about $20,000 in debt, they said, they realized that bankruptcy was the only way they could remain in their Florida home, whose value, meanwhile, had plunged 25 percent. They filed for Chapter 13 bankruptcy protection this year, which permitted them to keep the house, and they agreed to repay a portion of their debts over the next three years.

A Chapter 7 bankruptcy, by contrast, provides filers with what is known as a “fresh start” because debts are forgiven. In this case, assets are liquidated, though the states allow for various exemptions. To qualify for a Chapter 7, filers need to pass a means test to determine whether they are unable to repay their debts.

Filers who are deemed able to repay a portion of their debts must file for Chapter 13 bankruptcy. Some debtors choose Chapter 13 because it permits them to save their primary homes from foreclosure, though they are required to catch up on their mortgage payments.

Mr. Forsyth said declaring bankruptcy was a difficult step. “Because of our Christian background, it didn’t feel right,” he said. “But there was no other way for us to live and support our family unless we went that route.”

Mrs. Forsyth added: “We are just rolling with life. You have to eat. You have to have diapers.”

The Forsyths are emblematic of the new forces that have led to the sharp rise in bankruptcy filings. “Historically, a person would get behind in his mortgage because of a temporarily catastrophic financial event, such as job loss, divorce, illness,” said Chip Parker, a bankruptcy lawyer in Jacksonville, Fla. “However, when these adjustable-rate mortgages started resetting from their teaser rate and clients couldn’t refinance their way out of trouble, they were getting behind even though there was no catastrophic event.”

Bankruptcy lawyers report that they have been having more consultations with middle-class families with six-figure incomes — including many who either bought a home during the boom or pulled out most or all of their available home equity just keep to up with the cost of living. Also caught up in the bankruptcies are real estate investors, who hoped to flip properties they had bought near the height of the market.

“There are a lot of foreclosures that haven’t taken place yet because people still have available credit,” said Jeffrey H. Tromberg, a bankruptcy lawyer in Fort Lauderdale, Fla. “We don’t see them until they’ve maxed out their credit cards.”

A similar pattern has emerged in Las Vegas, where more people are filing for Chapter 7 bankruptcy protection because it makes more financial sense to walk away from their homes. Real estate values have plummeted, and now the local economy is also suffering. Car salesmen and casino dealers are being laid off. Valet parking attendants and masseuses are collecting less in tips.

“My clients are basically good people that got into a home the best way they could and can no longer meet their obligations because their income has gone down,” said Roger P. Croteau, a lawyer in Las Vegas who concentrates on bankruptcy. “There is no equity to pay off their credit cards, and they are maxed out. They haven’t saved enough because of housing costs.”

Ellen Stoebling, a bankruptcy lawyer in Las Vegas, added: “People are using their cards to try and hold onto their property for as long as possible in hopes they can somehow talk some sense into their lender and stay in the property.”

The problems are not limited to people with adjustable-rate mortgages and homes that are now worth less than they owe. Job losses are also playing a role. Bankruptcies are also up sharply in Delaware, Rhode Island and Indiana, where the unemployment rates have been climbing.

And, of course, some people continue to seek bankruptcy for the usual reasons.

Lisa Marquis, a 35-year-old mother of five in Indiana, has no medical insurance but has undergone 21 operations in the last nine years, some related to emphysema and other respiratory diseases, and others related to accidents and several miscarriages.

Mrs. Marquis cannot work, but her husband earns $13.50 an hour as a truck driver — a salary that makes them ineligible for Medicaid but unable to pay their medical bills. Earlier this year, the family had to leave the mobile home they owned because the mold there was making it hard for her to breathe; they moved into a house where they paid more than $600 a month in rent. Mr. Marquis was spending three days a week in court fending off angry creditors, cutting down on the number of hours he could work.

In April, facing more than $114,000 in medical bills and less available overtime work, the Marquises filed for Chapter 13 bankruptcy — the third time in less than 10 years that Mrs. Marquis had to file for protection because of medical bills. Because the latest filing is a Chapter 13, they have agreed to pay some of their debts.

“We could have waited to do a 7,” Mrs. Marquis said. “I want to pay my debts. I didn’t want to cheat people who helped to save my life.”

Despite the rise in bankruptcies, academics and lawyers say they believe that many others have been discouraged from filing because of the 2005 bankruptcy law.

Ms. Warren, the Harvard law professor, said many borrowers had been left with the mistaken impression that they could no longer file. And, she argued, “the widespread perception that bankruptcy is not available to help families makes this economic crisis worse.”

    Downturn Drags More Consumers Into Bankruptcy, NYT, 16.11.2008, http://www.nytimes.com/2008/11/16/business/16consumer.html?hp

World Leaders Vow Joint Push to Aid Economy

November 16, 2008
The New York Times
By MARK LANDLER

WASHINGTON — Facing the gravest economic crisis in decades, the leaders of 20 countries agreed Saturday to work together to revive their economies, but they put off thornier decisions about how to overhaul financial regulations until next year, providing a serious early challenge for the Obama administration.

Though the countries’ stimulus packages were cast as ambitious steps, they mainly reflected measures that the countries were already undertaking to respond to the crisis. What remains to be seen is whether, working with a new White House, the leaders will cast aside their political and economic differences to embrace more radical changes, including far-reaching but fiercely debated proposals to overhaul regulation.

The group planned its next meeting for April 30, 101 days after President-elect Barack Obama is sworn into office.

Mr. Obama, who sent emissaries but did not attend at the meeting, will find common ground with the leaders in his support of a further stimulus program in the United States — something President Bush opposes. The group called for more fiscal measures to cushion the blow of a downturn that is hitting rich and poor countries.

Two senior advisers for Mr. Obama, Madeleine K. Albright and James A. Leach, met privately with leaders on the sidelines. And Mr. Obama addressed the meeting only obliquely on Saturday in his first radio address as president-elect, in which he expressed appreciation that Mr. Bush “has initiated this process, because our global economic crisis requires a coordinated global response.”

Meeting here, in the capital of the country where the crisis began, the extraordinary gathering of leaders from the Group of 20, representing wealthy countries and major emerging economies, began what participants said would be a broad reform of the institutions that have governed global markets since World War II.

In a five-page communiqué that mixed general principles with specific steps, the G-20 pledged a new effort to bolster supervision of banks and credit-rating agencies, scrutinize executive pay and tighten controls on complex derivatives, which deepened the recent market turmoil.

“Our nations agree that we must make the financial markets more transparent and accountable,” President Bush said. He warned that “a meeting is not going to solve the world’s problems,” and described the talks as the beginning of a process that would carry over to the next administration.

With dueling press briefings and statements through the weekend, it was clear that bridging ideological gaps among nations afflicted with different versions of the economic contagion would provide the new president and other world leaders with a daunting challenge.

There is also a more basic philosophical divide across the Atlantic: Europeans in general favor more state control over markets, even to the point of granting regulators cross-border authority, while the United States stresses the primacy of national regulators. President Nicolas Sarkozy of France, who called on Mr. Bush to organize the meeting, alluded to those differences, saying the negotiations, even on general principles, had been challenging.

Mr. Sarkozy said: “I am a friend of the United States of America, but if you ask, was it easy? No, it wasn’t easy.” He added that he did not fly to Washington “simply for the pleasure of traveling.”

He said the Americans had made concessions even by agreeing to discuss issues like regulatory coordination and executive pay. The communiqué, however, suggested there were concessions on both sides.

Prodded by Mr. Bush, who earlier in the week gave an impassioned defense of capitalism, the leaders reaffirmed their commitment to free markets and trade. But they also clearly laid blame for the crisis at the doorstep of the United States, saying “some advanced countries” had taken inadequate steps to prevent a buildup of dangerous risks.

The meeting set out a road map for overhauling regulations in a wide range of areas, and assigned the work to groups of experts. At the next meeting, which Mr. Sarkozy proposed to hold in London, the leaders will debate specific proposals developed by those groups.

Among those measures is a European proposal to set up so-called colleges of supervisors, which would meet regularly to share information about global banks with operations in many countries.

Another idea is to expand the membership of the Financial Stability Forum, an influential group of finance ministers and central bankers from industrialized countries, to include emerging markets like Brazil and China.

Still, for all the talk of action and history-making change, some experts said the outcome was disappointing.

“This is plain-vanilla stuff they could have agreed on without holding a meeting,” said Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the International Monetary Fund. “What’s new, except that this is the G-20 instead of the G-7?”

Despite broad support for economic stimulus, the leaders were not able to agree on a coordinated global effort. The Bush administration, which does not favor a further stimulus, resisted that idea. And the proposal for colleges of supervisors fell short of an international regulatory agency favored by the French. The Bush administration opposes any regulatory agency with cross-border authority.

The statement did not single out hedge funds as needing regulation, which Germany has long advocated. German diplomats said they were satisfied that the issue would be addressed later. “There shall be no blind spots,” said the German chancellor, Angela Merkel.

Despite playing up the role of the International Monetary Fund as a vehicle for helping developing countries in crisis, the leaders did not call for an expansion in the fund’s lending resources.

Collectively, the leaders here represented countries that account for 85 percent of the world’s economy. But the guest list was more remarkable for what it said about the shifting landscape of power. With the United States and Europe struggling economically and consumed by efforts to stabilize their banks, China, Japan and Saudi Arabia emerged as the likeliest candidates to help distressed countries.

In one of the few concrete commitments, the Japanese prime minister, Taro Aso, pledged to increase lending to the I.M.F. by up to $100 billion, and he encouraged other cash-rich countries to do the same. On Saturday, the fund added Pakistan to its list of countries receiving emergency funds. Pakistan said it had agreed to a loan of $7.6 billion to prevent a default by its government.

Some leaders were simply eager to be heard. “Emerging market countries were not the cause of this crisis, but they are amongst its most affected victims,” the prime minister of India, Manmohan Singh, said.

The leaders convened in the colonnaded great hall of the National Building Museum, a 19th-century building that served as headquarters for the United States Pension Fund after the Civil War. It was also the place Senator Hillary Rodham Clinton used to end her presidential campaign last June.

Mr. Bush, accompanied by his Treasury secretary, Henry M. Paulson Jr., sat between Brazil’s president, Luiz Inácio Lula da Silva, who chairs the Group of 20, and Prime Minister Aso.

Afterward, Mr. Bush acknowledged that expanding the group from the customary seven or eight industrialized powers to 20 nations raised the risk that nothing substantive would get done.

But Mr. Bush said the meeting had been surprisingly substantive, and he seemed enthusiastic about one of the more arcane proposals: a clearinghouse for the $33 trillion market in credit default swaps.

These derivatives, which act as a form of insurance against the failure of an underlying asset, have been blamed for exacerbating the recent market upheaval. A clearinghouse would back trades in credit default swaps and absorb losses if a dealer in these securities failed.

Mr. Bush said he felt compelled to act because “if you don’t take decisive measures, then it’s conceivable that our country could go into a depression greater than the Great Depressions.”

When Mr. Sarkozy first proposed the meeting, some predicted it would be dominated by finger-pointing. Now, some critics said the communiqué did not go far enough in assigning blame for the crisis.

“Anyone looking for the G-20 to issue a mea culpa on the global financial crisis will be sadly disappointed,” said Kenneth S. Rogoff, a professor of economics at Harvard. The leaders “curiously downplay the huge culpability of the political leadership in the U.S. and Europe.”

With Mr. Bush’s imminent departure, however, there seemed to be little appetite to pile on the United States.

With Congress likely to consider a stimulus package in the coming weeks or in January, Mr. Johnson of M.I.T. said Mr. Obama might be able to go to the next summit meeting with strong evidence of American action.

“The U.S., despite having broken all the china, may end up playing a decisive role in fixing this situation,” he said.

Steven Lee Myers, David D. Kirkpatrick and Sheryl Gay Stolberg contributed reporting.

    World Leaders Vow Joint Push to Aid Economy, NYT, 16.11.2008, http://www.nytimes.com/2008/11/16/business/worldbusiness/16summit.html?hp

In Hard Times, No More Fancy Pants

November 16, 2008
The New York Times
By ALEX WILLIAMS

THE owners of the South City Grill restaurants in New Jersey opened the first of three planned upscale steakhouses this year, and the décor was one of opulence and glamour. The owners “wanted it to sparkle like jewelry,” recalled Anurag Nema, one of the designers.

The interior featured shimmering silk curtains, ruby-tinted glass and a hulking crystal chandelier. The stainless steel accents were polished to mirror brilliance, said Mr. Nema, who designed the steakhouse, South City Prime, in Little Falls, with Orit Kaufman.

The second restaurant is scheduled to open in January in Montvale, N.J., but the sparkle is gone, the designers said. With the economy in free fall, the concept is now sturdy American grill and the name is now Wildfire by South City.

Wooden shutters and brick have replaced the silk curtains. Salvaged wood from a barn will stand in for the ruby-tinted glass. As for the chandelier, well, there is no chandelier.

“There’s a shift to get away from glitz,” Ms. Kaufman said. “I’m almost starting to feel that luxury is a dirty word.”

It is no secret that consumers are cutting back, anxious about jobs, plummeting home values and shrinking retirement savings. But that belt-tightening seems to have also prompted a reconsideration of what is acceptable consumerism even for those relatively unaffected by the economic cataclysm.

When just about everyone is making do with less, sometimes much less, those $2,000 logo-laden handbags and Aspen vacations can seem in poor taste. “Luxe” is starting to look as out of fashion as square-toed shoes.

As sales at high-end stores like Neiman Marcus plunged by nearly 30 percent in October, compared with a year earlier, Costco sales slipped just 1 percent and Wal-Mart reported gains.

Henri Barguirdjian, the president of Graff, the diamond merchant, said on CNBC last week that the market for pieces from $20,000 to $100,000 had grown softer. Marine Products Corp., an Atlanta-based maker of yachts and pleasure boats, saw net sales decrease by nearly 40 percent in the quarter ending in September compared with a year earlier.

“The era of conspicuous consumption, at least for the foreseeable future, has come to a close,” said Paco Underhill, the author of “Why We Buy,” which explores the science of retail. “Consumption will still happen. It’s just not going to be as public.”

He cited a story from an Audi dealer: a buyer of an S4 high-performance sedan requested the nameplate be removed, “so only the person who really knew what they were looking at,” he said, “would know what it is.”

Today, bejeweled fashionistas are pegged as tone-deaf Marie Antoinettes. “It’s not good taste in our business to walk into a party loaded with the biggest diamonds you can find,” said Bud Konheim, the chief executive of Nicole Miller. “You don’t brag about paying $10,000 for a dress for a party. The feeling now is, so what are you telling us? You’re either a sucker or showing off when people have lost jobs.”

Conspicuous consumption has gone out of style before, in the recession that followed the 1980s stock market boom; and briefly after Sept. 11, 2001, until spending was recast as patriotic. But for a precedent for such a complete about-face in people’s attitudes toward luxury, you would have to look to the Great Depression. In 1932, wary of insulting the vast number of unemployed Americans, J. P. Morgan Jr. kept his 343-foot yacht, Corsair IV, in the boatyard, Ron Chernow wrote in “The House of Morgan.”

Among those who remained solvent in the Depression, there was “a widespread sense that you don’t flaunt your success,” said David E. Kyvig, the author of “Daily Life in the United States, 1920-1940: How Americans Lived Through the Roaring Twenties and the Great Depression.”

The economic collapse was also seen as a chance, after the 1920s bacchanalia, for moral cleansing. The industrialist Andrew W. Mellon said it would “purge the rottenness out of the system. People will work harder, live a more moral life.”

Mr. Konheim of Nicole Miller, who was born in 1935, said he grew up in a mansion on Long Island with servants, but even for his family, waste was bad form.

“We had three cars, and they were all Plymouths,” he said. “When the soap got down to slivers, what you did was squeeze soap together to make a soap bar — you didn’t throw it out.”

Today, such thriftiness might make a comeback, said Alexandra Lebenthal, president of the wealth management firm Lebenthal and a contributing editor for the Web site New York Social Diary. It has become fashionable, she said, for socialites to talk enthusiastically about sample sales, eBay bargains and postponements at the hair salon in the interests of thrift.

“It’s now chic to cut back,” she said. “If you ask people if they are going away for the holidays, they say, ‘No, we’re just spending a very quiet holiday with family’ — instead of ‘We’re going to Anguilla for Thanksgiving.’ ”

Harry Slatkin, the founder of Slatkin & Co., a home fragrances company, said he and his wife, Laura, recently canceled a 50th birthday party for her at the Pool Room at the Four Seasons. Instead, they plan to have a party at home, with defrosted White Castle cheeseburgers served on silver trays. “It’s not time to have splashy birthday parties,” Mr. Slatkin said. “It’s a time to stay home, spend time with friends and connect.”

Harrison Group, a market research firm in Waterbury, Conn., recently did a survey of attitudes toward wealth among people with household discretionary incomes above $100,000, in partnership with American Express Publishing. While 83 percent of respondents said they were in “good shape to endure this economic climate,” those who agreed that “a few luxuries are important in tough times” slipped to 50 percent, from 61 percent, from June to September.

“The definition of living well is changing,” said Jim Taylor, a Harrison vice chairman. “There is a desire to not stand out. If you’re laying people off, you don’t want to buy a Ferrari.”

Julien Tornare, the United States president of the Swiss luxury watchmaker Vacheron Constantin, predicted that his industry would move toward a period of “subtle luxury.”

“I think people are going to go with more conservative, not ostentatious — something more discreet that only the connoisseur would know and appreciate, not the bling bling,” he said.

The rich were not the only ones consuming conspicuously in recent years, said Marshal Cohen, chief industry analyst for NPD Group. The middle class, bingeing on cheap credit, also treated itself. Sub-Zero refrigerators, $300 jeans and Cadillac Escalades seemed within reach, even in average homes. “Those consumers were beneficiaries of false wealth, and they were living, literally, like millionaires,” Mr. Cohen said.

Now as the middle class goes back to living like the middle class, Mr. Cohen said, the culture itself might feel more modest. Consumers may put a premium on comfort over flash. At restaurants, for example, ostentatious fare may look less tempting, said Bobby Flay, the chef and television personality.

“Not to take anything away from chefs who specialize in edible paper, pea shoots and fennel pollen,” Mr. Flay said, “but I think classic American dishes with substance are what people will grasp onto.”

In other words, roast chicken will be very popular.

WHILE fashion is always headed in three directions, consumers are turning away from disposable style — the overdesigned “it” handbag, for example — toward high-quality pieces that will endure over multiple seasons, said David Wolfe, creative director of the Doneger Group, which forecasts fashion and retail trends.

The British company Mulberry has seen a shift toward its unadorned handbags, said Sarah Geary, its marketing director. Until a few months ago, consumer tastes were “focused on extravagance, irrespective of price,” she said in an e-mail message, but “in the coming months, the mood will be against that ‘blind consumption.’ ”

Any new era of no-frills consumption, however, might last only as long as it takes for the Dow to recover, which could take months, years or decades.

But Mr. Konheim recalled that after the Depression ended, conspicuous consumption was still vaguely sinful. When he was in high school in 1949, for instance, a girl at his school received a mink coat for her Sweet 16 party.

“The whole town was in shock,” he said. “It was just a different atmosphere in the entire country.”

    In Hard Times, No More Fancy Pants, NYT, 16.11.2008, http://www.nytimes.com/2008/11/16/fashion/16consumption.html?hp

At Exxon, Making the Case for Oil

November 16, 2008
The New York Times
By JAD MOUAWAD

SIX years of relentlessly rising prices have showered the oil industry with record profits even as whipsawing energy costs have left many Americans alternately furious and baffled.

Now that the roller coaster ride appears to be screeching to a halt, one corporate giant remains confident it can weather the slowdown and uncertainty better than its rivals.

“It’s not that we like lower prices, but our competitive advantage is more obvious to people in a low-price environment,” says Rex W. Tillerson, the chairman and chief executive of Exxon Mobil, the world’s largest, mightiest oil company. “But in a high-price environment, our competitive advantage has been quite evident as well.”

However undaunted Exxon feels, it’s still facing more complicated scenarios than mere price shifts. It’s straining to adjust to a host of potentially seismic issues that raise pointed questions about its long-term strategy. Oil reserves are harder to find, resource-rich governments have become more assertive, and global warming concerns have spurred forceful calls to action on environmental matters.

Moreover, with the election of Barack Obama, a new chapter is about to open for the nation’s energy policy. Mr. Obama says he wants to move away from oil dependence, and his policies are likely to emphasize conservation, alternative energy sources and new limits on the emissions of greenhouse gases responsible for climate change.

The question for Exxon, which Mr. Obama repeatedly singled out as an exemplar of corporate greed during the presidential campaign, is whether the model that has served the company so well for so long will keep it competitive — or whether it will still be producing hydrocarbons long after the world has moved away from dirty fuels.

Last year, Exxon, which is based in Irving, Tex., celebrated its 125th anniversary, marking a straight line that connects it to John D. Rockefeller’s original Standard Oil Trust before the government broke up the enterprise. While other oil companies try to paint themselves greener, Exxon’s executives believe their venerable model has been battle-tested. The company’s mantra is unwavering: brutal honesty about the need for oil and gas to power economies for decades to come.

“Over the years, there have been many predictions that our industry was in its twilight years, only to be proven wrong,” says Mr. Tillerson. “As Mark Twain said, the news of our demise has been greatly exaggerated.”

FROM a purely financial standpoint, there’s no doubt that Exxon’s business strategy has paid off. Despite the broader economic turmoil, Exxon is worth around $375 billion — more than General Electric, Bank of America and Google combined — making it the world’s largest corporation.

Its balance sheet is pristine and its credit rating is better than that of most governments. If Exxon’s revenue were stacked against the world’s G.D.P.’s, it would rank between Austria and Greece as the 26th-largest economy. As oil prices peaked this summer, the company once again set a record as the most profitable American corporation, earning $14.8 billion in the third quarter. Since 2004 alone, the company has rung up profits of about $180 billion.

Throughout its various incarnations — the Standard Oil Trust, Standard Oil of New Jersey, the Exxon Corporation, and now Exxon Mobil — the company has been an ambiguous fascination for many Americans. It is an enduring icon, as lasting as Coca-Cola or General Electric, but also a perennial corporate villain, one that reminds the nation of its dependence on hydrocarbons.

For some, the environmental impact of that earnings gusher outweighs the financial gains.

“Being Exxon is never having to say you’re sorry,” says Kert Davies, the research director at Greenpeace, the environmental advocacy group that has battled with Exxon for years.

On the financial front, however, Exxon’s jaw-dropping results have continued to leave many analysts beaming.

“It’s the world’s greatest company, period,” says Arjun N. Murti, a Goldman Sachs oil analyst. “I would put Exxon up against any other company at any other period of time.”

“It is also the most misunderstood company in the world,” he adds. “For many people, the image of Exxon is the Exxon Valdez. But there is much more to Exxon than that. Somehow, Exxon has persevered over the past 100 years with the best culture and management team any company could have.”

What might be called the Exxon Way can be summed up in three ideals: discipline, patience and long-term vision. It is a formula the company drills into its managers from the moment they join Exxon, and which it keeps repeating through their careers. It explains the company’s resilience and its view that it has survived, and thrived, through countless commodity cycles.

“We are all homegrown,” Mr. Tillerson says. “That happens through a very deliberate and very closely managed process, and it starts the day the person walks through the door with us. And we are the product of that system. If there is a DNA it is something you grow into after many years of working with your colleagues. It is clearly the defining strength of the company.”

TAKE a room full of oil managers, and the Exxon people usually stand out, even as they try not to draw much attention to themselves. They typically band together, and often cultivate an aura of secrecy — and sometimes superiority — toward the outside world.

At Exxon, the engineers rule. From its very early days, the company has focused relentlessly on one thing: finding more ways to squeeze every penny out of each barrel of oil.

Mr. Rockefeller was an accountant who was obsessed with efficiency, and his fixations still run through the company’s veins, says Joseph Allen Pratt, a historian and management professor at the University of Houston. Mr. Pratt is writing the fifth volume of Exxon’s official corporate history, which the company is partly financing.

“There definitely is an Exxon way,” Mr. Pratt says. “This is John D. Rockefeller’s company, this is Standard Oil of New Jersey, this is the one that is most closely shaped by Rockefeller’s traditions. Their values are very clear. They are deeply embedded. They have roots in 100 years of corporate history.”

But the company’s DNA goes well beyond the surface. Rivals acknowledge its expertise around an oil field, even as they bristle at what they call arrogance. Exxon’s own executives brag that their company outperforms its peers by sticking to their playbook.

“Exxon is a very professional company,” says Jeroen van der Veer, the chief executive of a leading competitor, Royal Dutch Shell.

Others say they respect the company’s clarity of vision. “People know the rules when they work with Exxon,” said a top oil executive who asked not to be identified in order not to jeopardize his company’s relationship with Exxon. “Exxon can pick its battles. It’s a pretty good strategy to have if people know that you will fight to the bitter end.”

Examples of such grit abound. After a dispute with the Venezuelan government, during which Exxon persuaded a British court to briefly freeze $12 billion in government assets to fight what it considered an expropriation, the country’s oil minister accused the company of “legal terrorism.”

Whatever its critics might say about the company’s hard-headedness, it has paid off in Exxon’s bottom line. Last year, Exxon’s profit per barrel was $17, exceeding BP’s $12 a barrel, Shell’s $14 and Chevron’s $16, according to Neil McMahon, a Bernstein Research analyst.

No one is apologetic at Exxon about what it takes to get those results, especially Mr. Tillerson.

“The business model is based on a disciplined and rigorous approach to dealing with scientific data and facts,” he says. “What we do is largely invisible to the public. They see the nozzle at the pump, and that’s about it. They don’t see the enormous level of risk that is managed very well to get that gallon of gas.”

Exxon has battled powerful forces in recent years, locking horns with governments and multinational rivals from Africa to Central Asia, from Eastern Europe to South America. But last spring, the challenge struck closer to home — at the company’s annual shareholder meeting in Dallas.

As oil prices zoomed above $100 a barrel, a group of investors tried to force Exxon to lay out a new strategy for developing alternative fuels and addressing global warming. While the challenge was not unprecedented — raucous shareholder meetings have been a staple for years — the dissent was led by a symbolic, if slightly quixotic, constituency: descendants of Mr. Rockefeller, who founded Standard Oil in 1882.

“Exxon Mobil needs to reconnect with the forward-looking and entrepreneurial vision of my great-grandfather,” said Neva Rockefeller Goodwin, a Tufts University economist, speaking for the family. The company, she added at the time, was focused “on a narrow path that ignores the rapidly shifting energy landscape around the world.”

Exxon’s top managers easily brushed off the Rockefeller revolt, as they have so many obstacles over the years. Even so, Exxon and the other oil giants are facing a stark new landscape.

High prices have meant stratospheric profits, of course, but they have also led to more restrictions on access to oil fields around the world, making it harder for companies to increase their production and replace reserves.

“The largest oil companies are under tremendous pressure,” said Fadel Gheit, a veteran oil analyst at Oppenheimer & Company, who worked for the Mobil Corporation before moving to Wall Street.

In the 1960s, the so-called Seven Sisters oil companies, including Exxon and Mobil, controlled most of the world’s oil reserves. Today, state-owned companies, like Saudi Aramco, hold the vast majority of these reserves, while other resource holders like Russia and Venezuela have become increasingly assertive about limiting access to their reserves.

“The problem is very real,” said Henry Lee, a lecturer in energy policy at Harvard University. “The oil majors are looking at a very different world than 20 years ago. That has big implications for the future of these companies. They all know it and they are all trying to figure out where they are going to be in 10 and 20 years.”

The threat from state-controlled energy companies — and the larger question of tapping reserves — led to the big wave of industry mergers in the late 1990s, including Exxon’s $81 billion purchase of Mobil in 1999.

“We were worried,” says Lou Noto, the former chairman of Mobil. “We expected the environment to become more volatile, and more competitive, and more difficult geographically and geologically. The easy stuff had been found and we were getting into very esoteric stuff.”

While the combination of Exxon and Mobil created the world’s most valuable oil company, the joint entity has struggled to expand production. Exxon derives its strength from its size. But its problems are also a function of size: the company has become so large that to grow it must find increasingly big projects.

At an analyst meeting on Wall Street in March, Mr. Tillerson acknowledged the difficulty he faces: “The challenge we have today is continuing to have access to resources.”

Since 1999, Exxon has spent about $125 billion foraging for new energy supplies around the globe. It expects to spend $25 billion to $30 billion each year through 2012 to seek and develop hydrocarbons. Yet the company is pumping about as much oil and gas today as Exxon and Mobil once did separately. In fact, Exxon’s hydrocarbon production has been falling recently, dropping 8 percent, to 3.6 million barrels a day in the third quarter, compared with 3.9 million barrels a day in the period last year.

With about $37 billion in cash and a clean balance sheet, Exxon can afford to be picky about what prospects to explore. It has about 120 projects on its books, either in operation or in the planning stages, and it sits on up to 72 billion barrels of oil and gas reserves around the world, the most of any nonstate oil company.

To keep up momentum, Exxon plans to start up more than 60 fields or major projects by 2011, including dozens of offshore fields in West Africa, export terminals for liquefied natural gas in the Middle East, and scores of gas and oil developments in Australia, Indonesia, the United States and the Caspian Sea.

Still, despite its ability to stride the energy world like a colossus, Exxon remains more cautious than its rivals. Rather than overspend, it sows its huge returns in-house through share buybacks and large dividend payments to shareholders.

From 2003 to the third quarter of 2008, the company has paid out nearly $150 billion to shareholders — spending over $40 billion in dividends and buying back about $110 billion worth of shares.

Yet Exxon’s shares are on track for their worst performance since the early 1980s, a result of the market sell-off and the drop in oil prices recently. Some analysts also said it reflected the questions hanging over the company’s long-term strategy. “Exxon is a cash machine, and they could be using that cash to invest in clean technologies that would expand their base,” said Andy Stevenson, an energy analyst at the Natural Resources Defense Council. “Right now, they have no growth story. They are trapped in oil and gas.”

IF Exxon maintained its current buyback rate of $8 billion each quarter, it would become a private corporation between 2020 and 2030, according to a report by Bernstein Research. While that’s unlikely, these payouts — $30 billion so far this year — have been criticized by some experts, who would like to see the company invest more to increase its production or expand its reserves.

“If a company is not replacing reserves, and they are spending their cash to buy back their shares, and they are not growing their production, that is called liquidating the company,” says Amy Myers Jaffe, the associate director of Rice University’s energy program in Houston.

Ultimately, the biggest test for Exxon’s long-term business model is the fact that rising energy use — whether in the United States or in China — will eventually have to be reconciled with reducing carbon emissions and finding low-carbon energy sources. But as its contentious shareholder meeting with the Rockefeller heirs demonstrated, few topics are as touchy as Exxon’s stance on climate change.

During the tenure of Lee R. Raymond, who ran the company from 1993 to 2005, Exxon became the lightning rod in the debate about climate change. Throughout the 1990s, the company was vilified by environmental groups and scientists for questioning the impact of human activities — especially the use of fossil fuels — on global warming.

Gingerly, over the last three years, Exxon has moved away from its extreme position. It stopped financing climate skeptics this year, and has sought to soften its image with a $100 million advertising campaign featuring real company executives, scientists and managers. One of the ads said the company aimed to provide energy “with dramatically lower CO2 emissions.”

The company has acknowledged that climate change is a risk to the world. In a speech given before the Royal Institute of International Affairs in London last year, Mr. Tillerson said policy makers should consider setting a carbon tax or a plan that limits carbon emissions through a cap-and-trade system.

But while Exxon is slowly unshackling itself from Mr. Raymond’s stance on global warming, it remains faithful to his legacy by dismissing most green alternatives and sticking with hydrocarbons. Although the company’s tone has changed, its strategy has not. Despite growing pressures on oil companies to invest in alternative energy, Exxon’s long-term view remains unapologetically tied to fossil fuels.

“Rex looks more approachable than his predecessor,” says a rival executive who requested anonymity because he did not want to jeopardize his relationship with Mr. Tillerson, “but he is more inflexible.”

Exxon’s belief is that as populations expand and economies grow in developing countries, they will aspire to the comforts and amenities taken for granted in industrialized nations, and this will mean more cars on the roads — and more oil to power them.

According to Exxon’s own outlook, global oil demand is set to reach 116 million barrels a day by 2030, up sharply from 86 million barrels a day today.

Meanwhile, renewable fuels, like solar, wind and biofuels, will grow at a brisk pace but they will account for just 2 percent of the world’s energy supplies by then, according to Exxon, while oil, gas and coal will represent 80 percent of global energy needs by 2030.

“For the foreseeable future — and in my horizon that is to the middle of the century — the world will continue to rely dominantly on hydrocarbons to fuel its economy,” Mr. Tillerson says.

For the moment, Exxon does not see much business sense in investing in solar, as BP has, or wind, like Shell, or geothermal, like Chevron. Like many oil executives, Mr. Tillerson also has little sympathy for corn-based ethanol, which he once derisively referred to as “moonshine.”

Exxon does not entirely close the door to alternative investments someday. But its previous forays into renewable fuels — it was a big investor in nuclear power, synthetic fuels and solar energy in the 1970s — are seen as a costly lesson.

“Being first in something is not necessarily the best position to be in,” Mr. Tillerson says. “You can be more profitable for your shareholders by coming at a later stage.”

Still, Exxon sees itself as a technology-based company. Its labs are developing a thin-film battery separator and an onboard hydrogen system that could increase the range of electric cars or make the current internal combustion engines much more efficient.

The company points out that it has invested more than $1.5 billion to improve its own energy use and cut carbon emissions since 2004. And it boasts that it is spending $100 million to finance a long-term research program at Stanford University, along with General Electric, Toyota and the oilfield-services company Schlumberger, to find ways to increase energy supplies while reducing the emissions of greenhouse gases.

But to many of the company’s critics, these measures look like a convenient smoke screens.

“That’s kind of laughable,” says Mr. Davies of Greenpeace. “What Exxon is clearly saying is that we are addicted to oil.”

THE biggest area where Exxon may have an impact in tackling climate change is in what the industry calls carbon capture and sequestration. Most climate experts say that combating global warming will involve preventing heat-trapping gases like carbon dioxide from being spewed into the atmosphere by capturing them and pumping them underground.

In May, Exxon said it would invest $100 million in a demonstration plant in Wyoming to test a new cryogenic technology to capture carbon dioxide by freezing it. Managing these flows, and reducing the costs of this prohibitively expensive technology, may ultimately create a new business for Exxon if it can apply it to large emission sources, like coal-fired power plants.

But for the company to see this as a large-scale opportunity would require a “cultural leap,” Ms. Jaffe says.

“Exxon may wind up being the carbon sequestration king, by accident,” she says.

Whatever shape Exxon’s business model takes, analysts say it is unlikely that the company will get there quietly.

“They are tough, and they have the reputation of being an unyielding company,” says Michelle Michot Foss, who heads the Center for Energy Economics at the University of Texas at Austin. “But it’s a tough business. They are criticized for being too conservative. But they are very patient, and probably in the long term that pays off.”

    At Exxon, Making the Case for Oil, NYT, 16.11.2008, http://www.nytimes.com/2008/11/16/business/16exxon.html